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[2009] VSCA 238
Court of Appeal (Vic)
2009-10-21
WARREN CJ, NETTLE and MANDIE JJA
Original judgment source is linked above.
NEWTRONICS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 061 493 516) & ORS
CONTRACT - Implied agreement - Company undertaking to provide financial support to subsidiary in connection with 'current trading obligations' - Whether sufficient basis from which to infer legally binding agreement - Whether intention to create legal relations - Whether absence of good consideration - Vroon BV v Fosters Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32, followed; Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424, Beaton v Mc Divitt (1987) 13 NSLWR 162, applied; Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG (2004) NSWSC 149, distinguished.
1 This is an appeal from a judgment given against the appellant ('Atco') in favour of the first respondent ('Newtronics') in the sum of $17,361,031.69 plus interest.
2 At relevant times, Atco carried on business as a lighting manufacturer. In 1993 Newtronics was incorporated and became one of Atco's subsidiaries. Newtronics carried on a business of designing, manufacturing and supplying electronic components for use in a variety of applications. Initially, Atco owned the majority of shares in Newtronics and, from 1998, it owned all of the shares. The two companies had at least one and, in some years, two common directors and a common secretary. From 1993 onwards, Atco advanced monies to Newtronics, initially on an unsecured basis and subsequently on a secured basis.
3 Pitcher Partners were the auditors of Atco and Newtronics and prepared the annual accounts for both companies. For the years 1994-1999, the 'audit partner' responsible for the audits was Adrian Fitzpatrick. In 2000 and 2001, the 'audit partner' was David Knowles. Accounts were so prepared for Atco and Newtronics for the financial years 1994 to 2001 and all, except the Newtronics' accounts for 2001, were signed by the directors.
4 In each of the years of income 1994 to 2001 Newtronics' accounts were prepared on a 'going concern' basis;[1] Atco's loan to Newtronics was treated in Newtronic's accounts as non-current liability and, in Atco's accounts, as a non-current asset; and (apart from Newtronics' 2001 accounts), the directors of each company signed the directors' declaration required by the companies legislation[2] that the there were reasonable grounds to believe that Newtronics would be able to pay its debts when due and payable and that the accounts of the company represented a true and fair view of the company's financial position.
5 In some years, Atco provided a letter of support addressed to Pitcher Partners in standard terms, as follows:
NEWTRONICS PTY LTD - LETTER OF SUPPORT
Atco Controls Pty Ltd, being the ultimate holding company of Newtronics Pty Ltd, hereby confirm the following:
6 In some years, the companies' accounts referred to the Atco support, but in other years they did not. The position in relation to each year was that:
Neither Newtronics' nor Atco's 1994 accounts referred to the Atco support.
The going concern assumption is depend[e]nt upon the continued support of Newtronics' majority shareholder (Atco Controls Pty Ltd) in conjunction with the company continuing to retain adequate sources of finance.
Atco's 1997 accounts did not refer to the Atco letter of support.
The company's parent entity, Atco Controls Pty Ltd, has provided an undertaking to assist the company to meet its debts as and when they fall due.
The notes to Newtronics' 2000 accounts recorded, under the heading 'Contingent Liabilities':
Legal action
The company is involved in a product liability action by Seeley International for $18,000,000. The matter is presently unresolved and the company may have a right of indemnity against its insurers. Newtronics Pty Ltd had product liability insurance cover at the time of the claim and the insurance company has not denied liability under the policy.
Atco provided a letter of support dated 30 May 2000 to the auditors, and the notes to Atco's 2000 accounts recorded, under the heading 'Contingent Liabilities':
Indemnities
The company has provided an undertaking that if necessary, funds or additional bank security will be provided to a controlled entity, Newtronics Pty Ltd, or its debt financier to ensure that it can meet its current trading obligations as and when they fall due.
The company's parent entity, Atco Controls Pty Ltd, has provided an undertaking to assist the company to meet its debts as and when they fall due.
The notes to the draft accounts recorded, under the heading 'Contingent Liabilities':
Legal action
The company is involved in a product liability action by Seeley International Ltd. The directors estimate that the maximum amount of the claim payable by Newtronics Pty Ltd in the event of an adverse ruling (based on the evidence presented to the court by Seeley) would be $3,000,000 plus costs. The matter is presently unresolved and the company may have a right of indemnity against its insurers. Newtronics Pty Ltd had product liability insurance cover at the time of the claim and the insurance company has not denied liability under the policy.
Atco provided a letter of support dated 20 July 2001 but Atco's 2001 accounts did not refer to the letter of support.[4]
(ii) Execution and up-stamping of the debenture
7 From no later than August 1994, there were concerns about Newtronics' financial performance. In a letter dated 17 August 1994 from Pitcher Partners to Atco, the auditors expressed their concerns that Newtronics' operations were 'extremely sensitive to the trading with Chef Australia and to the various forms of support from Atco'.[5] It was also suggested in the letter that Atco should secure the debt owed by Newtronics:
Atco Controls Pty Ltd should move to secure the debt owed to it by Newtronics ... It is likely to take quite some time because it will require prior approval from the ANZ Bank and no doubt they will want a priority agreement with respect to their own debts ...
8 Atco's solicitors were instructed to prepare the necessary securities. In March 1995, Atco and Newtronics entered into a 'Deed of Postponement - Shareholder' with ANZ which provided that ANZ's claims for money lent to Newtronics should have priority over Atco's claims against Newtronics. On 13 April 1995, Newtronics executed a mortgage debenture ('the Debenture') in favour of Atco. In June 1995, Newtronics, Atco and ANZ entered into a Priority Deed regulating the relationship between Newtronics' liabilities to Atco and ANZ.
9 As first executed, the Debenture erroneously described Atco as the mortgagor and Newtronics as the mortgagee. On 21 August 2000, Newtronics and Atco executed a 'Rectification and Affirmation Deed' to correct the error and otherwise affirm the Debenture.
10 In September 2001, Atco up-stamped the debenture as a security for $15 million.
11 For a number of years, Newtronics supplied electronic components to Seeley International Pty Ltd ('Seeley') for installation in air-conditioning units manufactured by Seeley. In February 1995, there were three incidents in which Seeley air-conditioning units incorporating Newtronics' components caught fire.
12 In February 1998, Seeley commenced proceedings in the Federal Court against Newtronics alleging breach of contract, negligence and misleading and deceptive conduct ('the Seeley litigation').
13 The Seeley litigation was heard in 2000 and 2001. On Friday 21 December 2001, a judge of the Federal Court found against Newtronics[6] and determined that Newtronics was liable to pay damages of $8.9 million, interest and costs. By order made on 31 January 2002 the amount of interest was fixed at $5 million[7] and judgment for the total was entered. Costs were subsequently assessed in the amount of $1.89 million.
14 On 21 December 2001,[8] Atco made formal demand of Newtronics pursuant to the Debenture for 'the immediate payment of all the moneys secured by the Charge'. Newtronics did not respond to the demand.
15 On 8 January 2002, Atco appointed the second and third respondents ('the Receivers') as Receivers and Managers of Newtronics pursuant to the Debenture.
16 On 29 January 2002, Seeley applied to the Federal Court in Adelaide for the appointment of a provisional liquidator to Newtronics. The Receivers opposed the application and the Federal Court refused it. But on 26 February 2002, the Federal Court ordered that Newtronics be wound up in insolvency and that James Stewart be appointed as liquidator.
17 Thereafter, the Receivers caused an information memorandum to be prepared offering the business of Newtronics for sale. The highest offer received was from Atco, and the Receivers accepted the Atco offer. On 26 April 2002, the Receivers entered into a deed of sale with a new Atco subsidiary, Atco Electronic Controls Pty Ltd, and several days later the sale was completed. By means of book entries, the purchase price of $13,161,064 was set-off in reduction of the Newtronics' indebtedness to Atco.
18 By its Second Further Amended Statement of Claim, Newtronics alleged that, at some time before 30 April 2001, there came into existence a 'Financial Support Agreement' between Newtronics and Atco whereby, in consideration of Newtronics continuing after 1 May 2001 with normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business, Atco would forbear until after 30 April 2002 from exercising to the detriment of unsecured creditors any rights against Newtronics in respect of amounts owing by Newtronics to Atco, and would provide funds to Newtronics sufficient to ensure that Newtronics could meet 'current trading obligations' that had been incurred or would be incurred in the period 1 May 2001 to 30 April 2002.
19 According to the Statement of Claim, the Financial Support Agreement was partly to be inferred and was partly implied. Insofar as it was inferred, it was alleged that the inference was to be drawn from the fact that in 1994 the directors of Atco resolved that Atco provide financial support to Newtronics; that a director of Atco, Mr Gjergja, then signed the 1994 letter of support to Newtronics' auditors, Pitcher Partners, which confirmed that Atco would support Newtronics; that Newtronics continued thereafter with normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business; that Atco sent similar letters to Pitcher Partners in 1997, 1999, and 2000 (the 'letters of support'); that each letter of support was provided to enable Newtronics' financial statements to be prepared on a 'going concern' basis and to enable the directors of Newtronics to declare that, in their opinion, there were reasonable grounds to believe that Newtronics would be able to pay its debts when due and payable; and that Newtronics' financial statements were prepared on a 'going concern' basis and the directors of Newtronics did so declare in each of the years of income after 1994 until the 2000 year of income. Insofar as the Financial Support Agreement was alleged to be implied it was said that it was to be implied by reason of the facts and circumstances just mentioned and from the necessity to give business efficacy thereto.
20 In the alternative, it was pleaded that, at some time on or after 30 April 1997, there came into existence a 'Continuing Support Agreement' between Newtronics and Atco, and that the Continuing Support Agreement was in similar terms to the alleged Financial Support Agreement, except that: (1) the consideration for the Continuing Support Agreement was said to be Newtronics continuing after 30 April 1997 with normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business; and (2) the obligation of Atco to forbear from exercising to the detriment of unsecured creditors any rights against Newtronics in respect of amounts owing by Newtronics to Atco, and to provide funds to Newtronics sufficient to ensure that Newtronics could meet current trading obligations incurred or to be incurred, was said to be of unlimited duration. The particulars given of the Continuing Support Agreement were, however, identical to the particulars given for the Financial Support Agreement.
21 It was further alleged that Atco had breached the Financial Support Agreement, or alternatively the Continuing Support Agreement, by demanding payment of Newtronics' indebtedness and appointing the Receivers; that the Receivers' appointment was, therefore, invalid; consequently, that the Receivers had by their actions in selling Newtronics' business converted the business to their own use whereby Newtronics had suffered loss and damage equal to the sale price of $13,161,064;[9] and that, upon the proper construction of the Financial Support Agreement or alternatively the Continuing Support Agreement, Atco was liable to pay to Newtronics the amount of the Seeley judgment debt as an amount necessary to enable Newtronics to meet the Seely judgment debt as a current trading obligation incurred in the 2001 'current period' within the meaning of the Financial Support Agreement or the Continuing Support Agreement.
on their face confirmed an agreement between parent and subsidiary which was well known to both and intended to be relied upon: the letters were not mere representations for limited purposes with a clear intention to that effect;
did more than merely provide non binding comfort to Newtronics' auditors or, even, to Newtronics' directors: they contained the essential terms of an agreement between Atco and Newtronics which was known to both, which was intended to be relied upon and which was relied upon;
The consideration for the contract was that Newtronics continued to trade. That was important to Atco, as can be seen from the extent of funds provided by Atco to Newtronics.
Atco breached its contract to Newtronics by making the demand for payment on 21 December 2001. By that action it triggered its entitlement under the mortgage debenture to the detriment of Newtronics' unsecured creditors, especially Seeley. It also failed to put Newtronics in funds, contrary to its undertaking to do so, and left Newtronics incapable of meeting the debt due to Seeley in the amount quantified by judgment. The amount now pressed for breach of contract is $17,362,031. The Seeley debt is established on the evidence before me to be $15,791,888.69 (being the sum of the judgment debt of $8,901,726.02, interest awarded of $5,000,000 and taxed costs of $1,890,162.67). In addition Newtronics is entitled to maintain on the contract with Atco unpaid employee entitlements of $736,076, the shortfall due to the National Australia Bank on a lease of $36,076 and the sum of other amounts due to unsecured creditors of $796,991. In all I calculate the amount due as $17,361,031.69.
24 Atco attacks the judge's conclusions at a number of levels, but principally on the basis that it was not open on the evidence to infer the existence of a legally binding agreement in the terms of either the Financial Support Agreement or the Continuing Support Agreement.
25 The judge considered that many of the facts and circumstances relied on by Newtronics to establish the existence of an agreement were equivocal but that the circumstances in which the letters of support were created and the legal and commercial consequences that their provision secured for Atco and Newtronics were persuasive. In his Honour's view, those circumstances, of which he said that the provision of the letters of support formed 'an integral part', were:
26 In substance, therefore, the judge's process of reasoning appears to have been that, because Newtronics could not have continued as a going concern without Atco's financial assistance, and because the directors of Newtronics could not have signed off on accounts without the benefit of Atco's support and undertaking to provide continued support in accordance with the letters of support, the directors of Newtronics must be taken to have known of and acted in reliance on Atco's undertaking to provide continuing support in accordance with the terms of the letters of support, and from that it was to be inferred that there was an agreement or, at least that at some point before 30 April 2001 there came into existence an agreement, between Atco and Newtronics that, if Newtronics continued to trade during the 2001-2002 financial year, Atco would not call up Newtronics' indebtedness to Atco before 1 May 2002 and would otherwise continue to provide support in accordance with the terms of the letters of support until 1 May 2002.
27 Atco's first criticism of the judge's reasoning was that, although his Honour did not state whether 'the contract' and 'essential terms' which he found to exist were the Financial Support Agreement or the Continuing Support Agreement, the indications were that 'the contract' as found was of indefinite duration; and so, presumably, was the Continuing Support Agreement. If so, in counsel's submission, it was plain that the judge had erred. For realistically, it could not be supposed that Atco and Newtronics intended to bind themselves to an agreement of that kind for a term of an unlimited or indefinite duration. To the contrary, given the corporate and marketing vicissitudes to which each company was subject, counsel said, the idea of indefinite legal obligations to provide support and to continue to trade would have amounted to commercial insanity.
28 Prima facie, there appears to be some force in that. As has been seen, the Financial Support Agreement was alleged to be limited in operation to the financial year 1 May 2001 to 30 April 2002. Yet, although the particulars relied on in support of that alleged agreement included the 1994, 1997, 1999 and 2000 letters of support,[10] none of the letters of support (except for the 2001 letter of support, which was not relied upon) provided for anything to be done during financial year 1 May 2001 to 30 April 2002. The judge found, however, that the letters of support [by which, presumably, his Honour meant each of the 1994, 1997, 1999 and 2000 letters of support] 'contained the essential terms of an agreement between Atco and Newtronics'. Consequently, the judge's conclusion implies the existence of a synallagmatic agreement covering the entire period 1994 to 2000 (if not also 2000 to 2001). In our view, it cannot realistically be supposed that Atco and Newtronics intended to bind themselves to an agreement of such unlimited or indeterminate duration.
29 As against that, however, as Counsel for Newtronics submitted, it is possible to conceive of 'the contract' as found as being one of finite duration in the sense that, although having the potential to continue indefinitely, it was open to either party to terminate the arrangement at the end of any financial year, and maybe also otherwise on reasonable notice. Put another way, although not expressly stated by the judge, it was implicit in what his Honour did say about 'the contract' that it included terms that, if Newtronics continued to trade during any financial year while the contract remained on foot, Atco promised not to call up Newtronics' indebtedness during that financial year, and otherwise to provide Newtronics with financial support to pay its current trading obligations until the end of that financial year.
30 On balance, we are inclined to accept that view of what his Honour meant to say. While the judge's failure to deal with the issue specifically creates a degree of uncertainty, his Honour's statement that the letters contained the essential terms of the contract, coupled with the fact that each letter provided for Atco not to call up Newtronics' indebtedness until the end of the financial year to which it related, and to provide financial support to meet current trading obligations incurred or to be incurred in that financial year, supports the approach suggested by counsel for Newtronics.
31 Whether the judge was right to take that view of the matter, however, is another question.
(ii) When and how was 'the contract' created?
32 Counsel for Atco next criticised the judge's reasoning for failing to identify what it was about the acts and circumstances to which the judge referred that his Honour considered gave rise to 'the contract'. More specifically, counsel argued, Newtronics' case was that the letters of support were provided pursuant to a contract constituted by conduct of which the existence could be inferred from a range of identified facts and circumstances. It was not pleaded and not argued below that the contract was either wholly or in part in writing. Consistently with the way in which Newtronics so put its case below, the judge found that the letters of support 'confirmed' the contract; which in counsel's submission necessarily implied the existence of a contract constituted aliunde. Yet, in counsel's submission, the judge never condescended to essay how and when it was so constituted.
33 Counsel for Newtronics responded that Atco's argument appeared as if premised upon a false conception that, in order to establish the existence of a contract constituted by conduct, it was necessary to identify a precise event or moment in time with which or at which the contract came into existence. To the contrary, however, in Newtronics' submission, the weight of modern authority favours the view that, where parties have discussed commercial essentials and put in place necessary structural matters and then gone about their commercial business on the basis of some manifested mutual assent, it may be possible, without being able to identify when a contract resulted, to state that by no later than an identified point in time the parties mutually assented to a sufficiently clear regime for it to be recognised as a contract.
34 We accept that analysis of the authorities up to a point. In Vroon BV v Fosters Brewing Group Ltd,[11] Ormiston J said that he was prepared to accept that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances.[12] Ormiston J referred to what was said by Lord Cairns LC in Hussey v Horne-Payne,[13] namely, that '[i]n order to fairly estimate what was arranged and agreed, if anything was agreed between the parties, you must look at the whole of that which took place and passed between them' and he also referred to what was said by Cooke J in Meates v Attorney-General,[14] namely:
The acid test in the case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.
Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words...The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract...
36 In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd,[17] Allsop J said:
...a number of authorities discuss the need not to constrict one's thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i's and crossing t's or where they think they have done so...Sometimes this failure occurs because having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation.
In such circumstances, even in the absence of clear offer and acceptance, and even without being able ... to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: 'and we hereby agree to be bound' in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract. The authority for the above can be found in, at least, the following: _Meates v Attorney-Gener_al [1983] NZLR 308 at 377 per Cooke J (as his Lordship then was); Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 per McHugh JA (Hope and Mahoney JJA concurring); Vroon BV v Foster's Brewing Group [1994] VicRp 53; [1994] 2 VR 32 at 81-83 per Ormiston J (as his Honour then was); Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 555 per McHugh JA (with whom Samuels JA concurred); Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 at 611 per Bingham J (as his Lordship then was) affirmed on appeal at 615; Pobjie Agencies v Vinidex Tubemakers [2000] NSWCA 105 at [22]- [24] per Mason P (with whom Meagher and Handley JJA concurred); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [74]- [80] per Heydon JA; though see Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 178 per Tadgell J (as his Honour then was); and in this context see also Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 489 per Kearney J and Manzi v Smith [1975] HCA 35; (1975) 132 CLR 671 at 674.
Rather it is a search for the 'objective intention' of each party to be inferred from what is manifested by its communications and other conduct.
38 Counsel for Atco contended that, if that were the judge's process of reasoning, it was evident that his Honour had failed to take into account a number of considerations critical to a determination of whether a legally binding agreement, as opposed to a non-binding commercial arrangement, had ever come into existence. It is appropriate to take those matters in turn.
39 First, counsel criticised the judge for failing to take into account that the provision of letters of support was haphazard, in the sense that there were no letters of support in 1995, 1996 and 1998. Counsel submitted that, if there really were a binding legal agreement of the kind alleged, there would surely have to have been a letter of support in each of the years in question.
40 We are not sure that is so. The judge expressly noticed that letters of support had not been provided in some of the years in question. As his Honour observed:
Letters of support were not written in all of the accounting periods between 1994 and 2000 but those which were written were in materially the same terms.[20]
His Honour was also of the view that the letters were not the sole basis of 'the contract', but rather an integral part of the circumstances from which the existence of the contract could be inferred, which 'confirmed' the existence of the contract:
These letters on their face confirmed an agreement between parent and subsidiary which was well known to both and intended to be relied upon.[21]
Those conclusions are not necessarily inconsistent with an absence of letters of support in 1995, 1996 and 1998.
41 Secondly, counsel for Atco criticised the judge for failing to take into account that Newtronics' accounts made no mention of Atco's support in any of the years 1994, 1995, 1996, 1998 and 1999, notwithstanding that Atco did provide letters of support in 1994 and 1999.
42 We doubt that that criticism is warranted either. It appears to us that the judge was well aware that Atco's support of Newtronics was dealt with in the accounts differently from time to time and that his Honour concluded in the face of that fact that the existence of the support was critical to Newtronics' ability to prepare its accounts on a going concern basis. As his Honour put it:
Newtronics' accounts were prepared on a going concern basis at least until the year ended 30 April 2000. The explanation in the accounts that Newtronics' financial reports were prepared on a 'going concern' may have differed in some respect from year to year but in each case the accounts prepared on that basis contemplated continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. Fundamental to the preparation of the accounts on that basis was the fact of continued support by Atco during the financial periods in which the support was given, and the commitment to do so which was represented to the auditors and to the directors of Newtronics, and which was relied upon by Newtronics' directors and Newtronics.[22]
43 Thirdly, counsel for Atco complained that the judge failed to take into account that Atco's accounts, apart from the 2000 accounts, never mentioned the support. Counsel for the appellant submitted that, given that Pitcher Partners prepared both Atco's and Newtronics' accounts, it was to be expected that, if a binding agreement did exist, it would have been recorded as such in the accounts of both companies.
44 In our view that point is equivocal. On one view of the matter, if there were an agreement of the kind which the judge held to exist, it came into existence before the accounts were prepared. Consequently, whatever was said about it in the accounts might be thought to have amounted to no more than Atco's directors' subjective interpretation of what had occurred. Since the existence and effect of a legally binding agreement is to be determined objectively according to what a reasonable person would take to be the intent of the parties as evidenced by their actions in the circumstances of the case, and not according to the subjective interpretations of the parties, what the Atco directors thought to be the effect of what had occurred was largely irrelevant. As Brooking J observed in FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd,[23] although a question of law may be made the subject of an admission, if the question is one of contract construction, the admission is not something from which the court is likely to derive any assistance. Equally, in our view, where the question is whether conduct has been sufficient to constitute a contract, an admission as to whether the conduct had that effect is not something from which the court is likely to derive assistance.
45 On the other hand, we recognise that where, as here, the question is one of inferring the existence of an agreement from conduct, as opposed to construing a written agreement, it is permissible, indeed it may be essential, to have regard to the parties' conduct not only in order to determine whether at some point they may have reached a binding legal agreement but also to determine whether by later conduct they should be taken to have varied that earlier agreement.[24] In that sense, it may be significant that Atco's accounts made no mention of the undertaking to provide support, except in 2000. Either way, however, we do not regard the point as being a strong one. As is apparent from the evidence, the reality was that letters of support were provided in years when the auditors requested them and were not provided in years when the auditors failed to ask for them.[25]
46 Fourthly, counsel for Atco contended that the judge failed to take into account that the existence of 'the contract' was inconsistent with the Debenture, the Deed of Affirmation and the up-stamping of the Debenture, and that the informality and insouciance with which 'the contract' was said to have been created was at odds with the degree of formality evident in the Deeds of Postponement, Priority and Guarantee by which Atco and Newtronics had otherwise regulated their inter-company financing arrangements.
47 In our view, that submission should be accepted. Evidently, the alleged inconsistency between 'the contract' and the Debenture was a matter upon which there was a good deal of argument below. Atco's case was that the inconsistency implied that the parties did not intend to create a legally binding agreement to provide or maintain support. Newtronics contended, to the contrary, that the Financial Support Agreement had operated to vary the Debenture. The judge held, contrary to both submissions, that the Debenture was not varied. His Honour considered that 'Atco and Newtronics created an inconsistent obligation not to exercise the independent rights in the mortgage debenture'. But his Honour did not otherwise deal with the submission that the terms and formality of the Debenture were circumstantial facts which were inconsistent with an intention to create a legally binding Continuing Support Agreement, or with the related contention that the formality of the Deeds of Postponement, Priority and Guarantee made it most unlikely that a legally binding Continuing Support Agreement would have been created with the informality alleged.
48 Counsel for Newtronics argued that the absence of any mention of those matters from the judge's reasoning was neither indicative of error nor surprising. He submitted that, as far as any alleged inconsistency between the agreement and the Debenture was concerned, it was simply a matter of looking at the Debenture and comparing it to the terms of the letters of support - which was presumably what the judge had done - and that upon such an examination it was plain that there was no necessary inconsistency. Hence there was no need for the judge to say much about it. Further, in counsel's submission, the formality of the Deeds of Postponement, Priority and Guarantee said very little about the formality or lack of it with which Atco and Newtronics approached their inter-company dealings; given that each of those Deeds was a standard ANZ Bank security document and the Newtronics/Atco inter-company indebtedness was evidenced by no more formality than inter-company accounts.
49 That may be so but, in our view, it is not persuasive. It is trite that the significance of the conduct displayed by and in the letters of support was to be assessed objectively in light of the circumstances known to both parties at the times at which the letters were provided. Those circumstances included the Deeds of Postponement, Priority and Guarantee and, most importantly, the Debenture. The exercise was thus to be approached on the basis that both parties were aware of the rights and obligations which those documents conferred and imposed on them and so knew that the Debenture conferred extensive powers on Atco to call up Newtronics' indebtedness on demand and in the event of a range of circumstances deemed inimical to the value of Atco's security.
50 Admittedly, as the judge found, it was important to Atco that Newtronics continue in business. For that reason, it is not surprising that Atco should have provided Newtronics with support and, at least in some financial years, confirmed its intention to continue to do so for the following year by means of a letter of support. It may also be accepted that the alleged Continuing Security Agreement, and for that matter the alleged Financial Support Agreement, were not inconsistent with the Debenture in the sense that the former was not in terms incapable of co-existing with the latter. But since the Debenture was executed for the purpose of securing the repayment of such support as was provided, and since a binding legal obligation to continue to provide support in the form of either the Continuing Support Agreement or the Financial Support Agreement would have had the potential to destroy the efficacy of Atco's security vis a vis Newtronics, and indeed to put Atco at risk of default under it's obligations to ANZ, it strikes us as inherently unlikely that Atco would have intended to bind itself to such an obligation or that Newtronics would have believed that it had done so.[26]
51 Fifthly, counsel for Atco contended that the judge erred in failing to take into account that, although Newtronics' pleaded case was that the letters of support were provided to Newtronics and its directors, neither of the two directors called by Newtronics gave evidence of having seen the letters of support; there was evidence[27] that the letters were prepared as part of the audit process and relied on by the auditors as providing 'some comfort'; and the liquidator of Newtronics' evidence was that the letters did not form part of Newtronics' company records.
52 Insofar as that criticism suggests that the judge made a finding that the letters of support were provided to all of Newtronics' directors, we reject it. His Honour did not. He found that such of the directors of Newtronics who were also directors of Atco knew of the letters; that the letters were provided to Pitcher Partners; and that Atco's 'commitment to give continued support to Newtronics was 'represented to the auditors and to the directors of Newtronics and relied upon by Newtronics' directors'. Admittedly, that was not exactly the same as the pleaded case. But it was within the ambit of the pleadings and the way in which the trial was conducted[28] and it was supported by the evidence.
53 Insofar, however, as the criticism is that the judge failed to consider the possibility that the letters of support were provided and relied upon as non-binding assurances, we think that it should be accepted. As has already been observed, the judge reasoned that:
In my view, it is plain from the accounts presented by the directors of Newtronics that they could only have made the declarations they did in reliance upon Atco promising continuing support in the terms reflected in the letters of support.
In that context, we take 'promising' to mean 'legally binding'. The essence of that part of his Honour's reasoning seems to be that the directors could not have made the declarations they did unless they believed that Atco's undertaking was legally binding and, consequently, that it was to be inferred that the parties had agreed that it should be legally binding.
54 The difficulty with that, in our view, is that the directors might well have made the declarations they did without believing that the undertaking was legally binding. Commercial practice is such that companies and other organisations can, and frequently do, rely upon non-binding letters of comfort and other such assurances as a basis to conclude that debts will be paid.[29] That accords with the law. As Mahony JA explained in Dunn v Shapowloff,[30] where the question is whether directors have a reasonable or probable ground of expectation that a company will be able to pay a debt then, depending on the circumstances of the case, they may take into account non-binding assurances:
What will constitute ability to pay must be determined, in a realistic way, by reference to the facts of the particular case, after taking into consideration, inter alia, the company's assets and liabilities and the nature of them, and the nature and circumstances of the company's activities: cf. in other contexts, Lyde v. Barnard; J. v. J. The cash expected to be available at the particular time will be relevant, but not necessarily determinative. It will, for example, be relevant to consider whether the company could be expected to pay the debt by borrowing; whether, if it must realize assets to obtain the money to pay the debt, it can be expected to do this by the relevant time and at what price; and whether what it will have to do in paying and being able to pay the debt will involve the company or its officers in voidable transactions, improper preferences, or breach of obligations under the general law or relevant legislation. It would, I think, be proper, in a particular case, for account to be taken appropriately of a promise, legally binding or otherwise, to provide money or financial assistance, by loan, subscription for share capital, or (as was suggested in this case) by the provision of a guarantee.[31]
55 The law on directors' obligations has changed since that case was decided but not in a way which alters the relevance of that passage.
56 Approaching the matter as one of commercial reality, in light of the recognised legal significance of non-binding undertakings and assurances, and bearing in mind that the Continuing Support Agreement was alleged to have come into existence in or before 1997, at a time when Atco may have been only a majority shareholder in Newtronics, it does not seem to us at all unlikely that the directors of Newtronics would have been prepared to accept and rely upon a non-binding undertaking by Atco to provide Newtronics with support.
57 Furthermore, even, if 'the contract' as found did not come into existence until after Newtronics was a wholly owned subsidiary of Atco, it would not seem unlikely that that the directors of Newtronics would still have been prepared to rely upon a non-binding undertaking. They knew that it was in Atco's interest to keep Newtronics going. They also knew that Atco was prepared to provide Newtronics with support. Possibly, they may have expected that Atco would continue to provide such support for the foreseeable future. But assuming that the Newtronics' board were endowed with at least a rudimentary level of commercial common sense, and so understood that holding companies tend to conduct operations through limited liability subsidiaries in order to avoid liability in the event of the subsidiary's failure, they might also have well understood and accepted that Atco's undertakings to provide support were intended not to be legally binding.
58 So to say is not to suggest that Atco's undertakings to provide support were not seriously given or received. Other things being equal, the directors of Newtronics were entitled to assume that the undertakings, albeit not legally binding, would be honoured, and so to declare that there were reasonable grounds to conclude that Newtronics would be able to pay its debts when due and payable. It is conceivable that the actions of Newtronics' directors in reliance on Atco's undertakings could, in some circumstances, have founded an estoppel precluding Atco from resiling from the undertakings or at least resiling without first giving reasonable notice.[32] But for present purposes it is unnecessary to consider that possibility. Newtronics never pleaded nor sought to argue estoppel and, as Callaway JA observed in Riseda Nominees Pty Ltd v St Vincent's Hospital (Melbourne) Ltd,[33] it is not open to a party:
to choose for legitimate forensic reasons not to advance a case of conventional estoppel at trial but then to rely upon conventional estoppel, or a similar argument based on an overarching doctrine, on appeal.
59 Finally, counsel for Atco submitted that the judge had failed to take into account that the arrangements between Atco and Newtronics for Atco to provide Newtronics with support were not supported by valuable consideration.
60 In a sense that reiterates the contention already considered that the arrangements for the provision of support were not intended to be legally binding. Although it is customary to conceive of intention to create legal relations as a contractual requirement separate and distinct from the need for consideration, the better view may be that the rules as to consideration supply the answer as to whether parties intend to enter into a legally binding bargain.[34] Even so, in some cases consideration and the intention to create legal relations can be distinct; as where, for example, although application of the rules as to consideration as such suggest the formation of legally binding agreement, the parties have otherwise expressly or impliedly signified that they do not intend their arrangement to be legally binding.[35] In such cases, the existence of background circumstances, such as that a dealing is between members of the same family,[36] or between corporations within the same corporate group, when taken into account in conjunction with the ordinary rules as to consideration, may yield a different result to the application of the rules of consideration simpliciter. Thus far, what we have considered is the background circumstance that the dealings here were between a holding company and subsidiary and whether that in itself signified an absence of intention to create legal relations. It remains to consider the application of the rules of consideration as such.
61 It will be recalled that the judge held that: 'The consideration for the contract was that Newtronics continued to trade'. That suggests that his Honour regarded the fact of Newtronics' actions in reliance on the letters of support (or more precisely, in reliance upon what the judge found to be an undertaking by Atco to continue to provide support) as sufficient in itself to constitute valuable consideration for the undertaking. With respect, it was not.
62 Although at one stage in the law's development, a detriment suffered upon a promise made was 'sufficient consideration to sustain an enforceable contract',[37] since the 19th Century the common law conception of consideration has been limited to a 'reciprocal conventional inducement, each for the other, between consideration and promise'.[38] Consequently, action in reliance upon an announcement of support is no longer sufficient in itself to create a contract to provide support.[39] Now, in order to establish the existence of good consideration, it must be made to appear that the promise was really offered as the price or quid pro quo for the action taken.[40] In this case, that required Newtronics to show that Atco in effect requested Newtronics to continue to trade in return for the undertaking of continued support and that Newtronics was moved by that request.[41] So far, however, from the evidence supporting that conclusion, the bulk of the evidence appears to us to point the other way.
63 The logical starting point is the letters of support themselves. One might have thought that, if there were such a request, the letters would have recorded that the undertaking had been offered on condition that Newtronics continue to trade. They do not. Perhaps, the use of the verb 'confirm' is not inconsistent with the existence of prior request. But in demotic correspondence, 'confirm' may often mean no more than 'state' or 'declare', and it was not suggested that there was any other evidence of a request by Atco that Newtronics continue to trade.
64 We are conscious that a request need not be express. It may be implied. But the judge did not find on the facts of this case that such a request could be implied. His Honour found only that it was important to Atco that Newtronics continue to trade, and that Atco exercised financial control over Newtronics and 'made strategic decisions to carry on the Newtronics' business notwithstanding its lack of profitability' (which we take to mean, continued to fund Newtronics despite its lack of profitability). In our view, those findings point away from the implication of a request to continue to trade. They bespeak a situation in which Atco for all intents and purposes ran Newtronics and had no need or intention of requesting it to do anything. The clear thrust of his Honour's findings was that Atco simply determined that it would provide financial support to Newtronics and then provided the letters of support as confirmation of that to the auditors, and to those of the directors of Newtronics who were also directors of Atco.
65 In his 1987 essay on Promises and Consideration,[42] Professor Sutton observed that it is a notoriously convenient doctrine to imply a request and, therefore, a bargain in a case where the promise is one which the court thinks should be enforced. If so, perhaps, one should not be too particular or precise about attempting to identify a basis for implication of a request in this case. But if we may say so, with respect, one must also be careful not to take Professor Sutton's observation too far. The prime examples cited in support of it are of the so-called forbearance cases and, although at one stage in the common law's development they were regarded as an exception to the rule that past consideration is not good consideration, they are now properly to be understood as instances where, in the absence of a legally enforceable agreement, a remedy may be accorded in promissory estoppel.[43]
66 Additionally, to come back to a matter which we mentioned at the outset of these reasons, it seems to us that, even if it were open to imply some sort of request by Atco to Newtronics to continue to trade, the implied request would likely have been so hedged about by implied exceptions as to be devoid of contractual certainty. To adopt and adapt the words of Denning J (as he then was) in Bob Guisness Ltd v Salomonsen,[44] what should one suppose would be the terms of the request? To continue to trade indefinitely come what may, or even until the end of the current financial year regardless of the circumstances which might befall Newtronics; and, if not regardless of all circumstances, then subject to what?
67 As was earlier noted, the judge may be taken to have concluded that Atco's conduct and Newtronics' continued trade implied that Newtronics bound itself to continue to trade or at least to continue to trade until the end of the current financial year, come what may. But with respect, we regard such an implication as being most unlikely. The question was to be decided according to what a reasonable person would have taken Atco's actions to have conveyed, having regard to the nature of the transaction and the circumstances in which the transaction occurred.[45] Those circumstances included that Newtronics was for some time a partly owned subsidiary and later a wholly owned subsidiary of Atco in which Atco had invested heavily and over the assets of which it held substantial security. At the time of providing the letters of support, it was at least reasonably conceivable that the market in which Newtronics conducted its trade would further turn against Newtronics, or that its staff and other resources might become so depleted that it effectively could not go on; and, perhaps more pertinently for present purposes, that it might be saddled with a liability so massive that it could no longer see its way clear to ever paying down its debts. It was also readily conceivable that, if any such circumstance were to eventuate, the obligation of the directors of Newtronics to act in the best interests of the company as a whole, including creditors,[46] could have impelled them to the view that Newtronics should cease to trade before the end of the financial year regardless of any lines of credit which were available. In those circumstances, we do not consider that it could realistically have been supposed that Atco's conduct implied a request that Newtronics bind itself to continue to trade in all events.
68 We do not overlook that there is a presumption with commercial arrangements that parties intend to create legal relations and thus to make a contract,[47] and that courts will strive to give legal effect to such arrangements. Gate Gourmet,[48] which is a decision on which the judge appears to have placed considerable reliance, is an example of that; although in that case there was an express request for support and other contextual considerations which led to the conclusion that an undertaking to provide support was intended to create legal relations. But as Ormiston J observed in Vroon BV v Foster's Brewing Group Ltd,[49] while the courts should strive to give effect to the expressed arrangements and expectations of those engaged in business, there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential and critical terms, have been agreed upon.
69 In our view, on the facts of this case, it was not open to be satisfied that critical terms as to the period and circumstances in which Newtronics was bound to continue to trade had been agreed upon, or thus to conclude that Atco's undertaking to provide support was supported by valuable consideration.
Ground 2: Effectiveness of the agreement between 1 May 2001 and 30 April 2002
70 Under the heading of ground 2, Atco advanced a separate argument that, if it were otherwise open to conclude that there was a binding legal agreement by Atco to provide support to Newtronics, it was not open to conclude that the agreement was in existence or binding during the period 1 May 2001 to 30 April 2002. In brief substance, it was said that, because the 2001 Newtronics' accounts were never signed and, therefore, because the Newtronics' directors did not in 2001 declare that they were dependent upon the availability of Atco's continuing support as reasonable grounds to conclude that Newtronics would be able to pay its debts when due, there was no action or evidence of action by Newtronics in that period in reliance on Atco's undertaking to provide support. Therefore, went the argument, there was no evidence of consideration for the undertaking for that period.
71 We doubt that the argument takes the matter much further. If the judge were correct in holding that there was a binding legal agreement for which the consideration was that Newtronics continued to trade, then the fact that the directors of Newtronics never got around to signing the 2001 annual accounts or making the declaration would be neither here nor there. It is apparent from the evidence that Newtronics continued to trade up to the day of the appointment of the Receivers. On the other hand if, as we think to be the case, any agreement of the kind suggested was not shown to have been supported by good consideration, in the sense that there was no request that Newtronics continue to trade, it is really of no consequence whether the directors of Newtronics acted in reliance on the continuance of the undertaking during so much of the 2001 year of income for which Newtronics traded. As already noticed, that may have had consequences in equity if it had been contended that Atco was estopped from resiling from its undertaking. But that was not alleged.
Grounds 3 and 5: Evidence of Atco's commitment of support and of Newtronics' reliance
72 Under cover of grounds 3 and 5, counsel for Atco argued that there was no evidence to support the judge's finding that the letters of support contained the essential terms of a binding legal agreement to provide support.
73 We accept that contention. For the reasons already given, we do not think that it was open to find on the facts of this case that critical terms as to the period and circumstances in which Newtronics was bound to continue to trade were agreed upon. And we are strengthened in that conclusion by some additional points made by counsel. Neither of the two directors of Newtronics who were called to give evidence deposed to any facts or circumstances by which those terms might be identified or from which they might be implied. Mr Uren said only that he knew of Atco's financial support and Mr Bruce's evidence on this point rose no higher than that he had discussed the Atco loan with Mr Gjergja of Atco and that Mr Gjergja's response was that:
generally that I need not worry about it, that Atco [as] the parent company would always look after its children and that my responsibility was clearly to ensure that the business continued to operate correctly.
Did Mr Gjergja ever say anything to you about the terms upon which the loan was repayable? --- No.
74 It may be of course, as counsel for Newtronics submitted, that the other directors of Newtronics were properly to be regarded as having been in Atco's camp and, therefore, that their absence from the witness box was an indication that anything which they might have said on the subject would not have assisted Atco's cause.[50] But even if that were so, it does not provide evidence of essential terms which was otherwise non-existent.[51]
Ground 4: Atco's commitment was not necessary for the directors' declaration
75 Under ground 4, counsel for the Atco criticised the judge's reasoning that the directors of Newtronics must have been acting 'in reliance upon Atco promising continuing support in the terms reflected in the letters'.[52] The thrust of counsel's argument was that reasonable grounds for the purposes of s 298 of the Corporations Law required no more than a reasonable basis for confidence that the company was solvent and that such a reasonable basis might inhere in something short of a legally binding agreement to supply the company with credit. Thus it was submitted that the judge was in error in reasoning in effect that the declarations of solvency were an indication that the undertaking to provide continued funding was an indication that the undertaking was intended to be legally binding.
76 In view of what we have already said about the absence of consideration, it is unnecessary to say any more about that contention.
Ground 6: Finding as to 'inconsistent obligation'
77 Counsel for Atco offered as a separate ground of appeal that the judge had erred in holding that 'the contract' was not inconsistent with the Debenture. We have dealt with that under the heading of Ground 1.
Ground 7: Similarity between this case and Gate Gourmet
78 Under Ground 7, counsel for Atco contended that the judge erred in treating this case as 'broadly similar' to Gate Gourmet.[53]
79 That may be so. Views may reasonably differ as to whether this case might properly be classified as 'broadly similar' to those of Gate Gourmet. But we accept counsel's submission that there were some significant differences between the two. In Gate Gourmet, the letter of support was said to be the contract as opposed to confirming the essential terms of an agreement already made. There was as well evidence of specific requests for support and insistence upon its provision. And it seems not to have been argued in that case that action in reliance upon a letter of support could not of itself have amounted to good consideration. Certainly, there were also some similarities between the two cases, on which counsel for Newtronics relied. But in the end, it seems to us that Gate Gourmet turned on the particular facts of that case and the issues which were agitated in it. We do not perceive it to contain any statement of principle which is necessarily inconsistent with the view which we take of this case.
Ground 8: Meaning of 'current trading obligations'
80 Last, and importantly, counsel for Atco argued under ground 8 that, if there were a binding legal agreement for Atco to continue to fund Newtronics' 'current trading obligations that have or will be incurred', the Seeley judgment debt was not a debt of that kind and thus that there was no breach of the agreement in Atco's refusal to fund it. We accept that contention.
81 The judge concluded that the once Seeley instituted litigation on 12 February 1998 its claim was properly to be described as:
a 'trading obligation' which was 'current' in the sense that it was 'incurred' when damage occurred following the breach, tortious conduct or other wrongful act.[54]
82 With respect, we disagree. To begin with, according to ordinary commercial acceptation, a 'current' obligation is one which is payable within the operating cycle or one year[55] and, in the context in which the letters of support were written, that was surely the meaning intended.
83 Secondly, the judge adopted a meaning of the word 'incurred' which his Honour derived from authorities concerned with the incurrence of outgoings for the purposes of s 51(1) of the Income Tax Assessment Act 1936 (C'th). But the ordinary commercial denotation of 'incurred' and its meaning for the purposes of s 51(1) were not always the same.[56] Generally speaking under s 51(1), there was no warrant for treating a liability which had not 'come home' in the year of income, in the sense of a being a pecuniary obligation which had become due, as having been incurred in that year.[57] That accords with ordinary commercial acceptation. But there were some exceptional cases, which the judge appears to have thought germane for present purposes, in which IBNR liabilities of compulsory insurers were held to have been incurred for the purposes of s 51(1) before they came home in that sense. Rightly or wrongly, those cases proceeded upon the supposition that events had occurred which gave rise to a liability under the relevant policy, and thus that the liability had been encountered, run into or fallen upon.[58] That has very little to do, however, with the question of whether, as a matter of ordinary commercial acceptation, the occurrence of the damage suffered by Seeley resulted in Newtronics incurring 'an obligation' to Seeley.
84 Thirdly, even if the occurrence of the damage suffered by Seeley resulted in the incurrence of an obligation by Newtronics, Newtronics' liability to Seeley was not incurred as a current obligation until judgment was ordered. Until then, it was a mere contingent obligation and correctly so treated in Newtronics' accounts.[59]
85 Fourthly, one may take notice of the fact that, even when the contingent liability which arose upon the institution of the Seeley proceeding was transmogrified to a judgment debt on 21 January 2002, and so became a current obligation in the sense of becoming payable, that obligation would properly have been regarded as an extraordinary liability which, because of the materiality of its amount and relationship to prior years' activities, would likely have been charged to a profit and loss appropriation account and dealt with as such.
86 Finally, Atco and Newtronics both knew before the commencement of the 2001/2002 financial year that Seeley was claiming damages of $18 million and that it was possible that, if Seeley were successful, the judgment debt might not be covered by insurance.[60] At that time, total advances by Atco to Newtronics stood at approximately $8.5 million and Newtronics had accumulated losses of almost $2.5 million and a deficiency in assets of almost $1 million.[61] In those circumstances, to construe 'current trading obligations that have or will be incurred' as including the potentially uninsured Seeley liability of $18 million would be to impute to Atco an intention to convert its position as a secured creditor in respect of the previous $8.5 million of advances to a position in effect of unsecured creditor for a total of more than $26 million, of a company which, without still further advances, would be worth very much less than nothing.
87 In our view, each of those considerations implies that, correctly construed in the context in which it appeared, the expression 'current trading obligations that have or will be incurred' did not extend to a liability of the kind represented by the Seeley claim or the Seeley judgment debt.
88 A consideration of the statements of principle set out in paragraphs [34] to [37] above highlights the difficulties which we think were faced by Newtronics in this case. Apart from the letters of support themselves (and they did not form any part of the contract as alleged) there was very little evidence that might be said to have constituted 'the whole of that which took place and passed between' the parties. In considering whether the 'dealings' showed a concluded bargain, there was little in the evidence other than the said letters and, apart from the letters, there was not much evidence of the acts and conduct of the parties from which it could be concluded that they had tacitly contracted or which might be said to manifest a binding agreement.
89 On the contrary, the clearest evidence of the objective intention of the parties was constituted by the creation of the debenture giving Atco security that was inconsistent with the binding agreement that Newtronics said should be inferred. The evidence to support the inference of a contract was at best equivocal and, as has been said, the debenture transaction was strong evidence against such an inference.
90 In our view, it should be concluded that the judge was not entitled to decide, on the balance of probabilities and in the light of the limited evidence available, that a contract as alleged by Newtronics must have been made.
91 We would, therefore, allow the appeal and set aside the judgment below. In lieu thereof, we would order that the first respondent's claims against the appellant be dismissed.
[2] Corporations Law, s 298_;_ and, later, Corporations Act (Cth) 2001, s 295(4).
[3] The letter was not tendered but the judge accepted that the letter was sent and relied on: Reasons at [14], based on two contemporaneous references to the letter: Letter, Mr Ron Pitcher to Mr Gjergja of Atco, 7 December 1994 ([C.132] [12]) and Letter, Mr Adrian Fitzpatrick of Pitcher Partners to the directors of Newtronics, 22 December 1994 ([C.133], [1]).
[4] Atco's 2001 accounts referred to the appointment of the receivers to Newtronics in January 2002 (AB C.593, n 23) and incorporated adjustments in the light of that subsequent event, including a write down in the value of Atco's investment in Newtronics (AB C.594, C.587).
[6] Seeley International Pty Ltd v Newtronics Pty Ltd [2001] FCA 1862 (O'Loughlin J).
[8] The day on which the Federal Court held in favour of Seeley.
[9] The judge dismissed Newtronics' claim against the Receivers and the appeal against that order was abandoned.
[10] But, notably, not the 2001 letter of support.
[13] (1879) 4 App Cas 311, 316.
[14] [1983] NZLR 308, 377.
[15] [1994] VicRp 53; [1994] 2 VR 32, 82-3.
[16] (1988) 5 BPR 11,110, 11,117-11,118.
[19] [2008] WASC 239, [2657].
[23] [1993] VicRp 76; [1993] 2 VR 343, 351.
[24] James Miller and Partners Ltd v Whitworth Street Estates Ltd [1970] AC 583, 603; Isotomic Pty Ltd v Adelaide International Raceway Pty Ltd [2007] SASC 111, [54]; Cheshire and Fifoot's Law of Contract, [10.16]; Greig & Davis, The Law of Contract, 438.
[25] See, for example, the letter dated 7 December 1994 from Pitcher Partners to Atco, AB C129, 132: 'the letter has been forwarded to the Auditors in support of their report on the annual accounts of Newtronics'; the letter of 22 December 1994 from Pitcher Partners to Atco [AB C133]: '[Atco had] provided a letter of comfort regarding ongoing financial support from Newtronics Pty Ltd which from an audit point of view enabled the audit to be signed on an unqualified basis,'; and oral evidence of the audit partner, Mr Knowles at T, 120.27-121.22.
[26] See and compare Commonwealth Bank v TLI Management Pty Ltd [1990] VicRp 45; [1990] VR 510, 517.40-.45 (Tadgell J).
[28] Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658; Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491, 497; Tourello Nominees Pty Ltd v Begg Dow Priday Advertising Pty Ltd [1986] ANZ ConvR 613, (1986) V Conv R 54-185.
[29] Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 WLR 379, 391 C to H, to which the judge referred.
[30] [1978] 2 NSWLR 235, 244; aff'd on appeal [1981] HCA 21; (1981) 148 CLR 72; see also 3 M Australia Pty Ltd v Kemish (1986) 10 ACLR 371, 4 ACLC 185, 188 and Ford's Principles of Corporations Law (13th ed), [20.140].
[31] Emphasis added. (Citations omitted).
[32] See and compare Re William Porter & Co Ltd [1937] 2 All ER 361, 363; Ledingham v Bermejo Estancia Co Ltd [1947] 1 All ER 749, 752; Cheshire & Fifoot's Law of Contract, [10.19].
[33] [1998] 2 VR 70, 76.
[34] Prof K O Shatwell, The Doctrine of Consideration in the Modern Law[1954] SydLawRw 21; , (1954) 1 Syd LR 289, 314.
[35] Ibid; citing Williston, On Contracts, Vol 1, sec. 21.
[36] Balfour v Balfour (1919) 2 KB 571; Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91, 96.
[37] Beaton v McDivitt (1987) 13 NSWLR 162, 181 (McHugh JA); Coggs v Bernard [1790] EngR 371; (1703) 2 Ld Raym 909; 92 ER 107.
[38] The Crown v Clarke [1927] HCA 47; (1927) 40 CLR 227, 236, (Isaacs ACJ citing Holmes on the Common Law, 1881, 293-4).
[39] Beaton v McDivitt, ibid; Boothey v Boothey 12 Feb 1997 WASC, FC BC 9700784, 15.
[40] Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424, 456-7.
[41] Combe v Combe [1952] EWCA Civ 7; [1951] 2 KB 215, 226-7; Australian Woollen Mills Pty Ltd v The Commonwealth, ibid.
[42] Prof K C T Sutton, Promises and Consideration, in Finn (Ed), Essays on Contract, 35, 38.
[43] Beaton v McDivitt (1987) 13 NSWLR 162, 170-171 (Kirby P) and 182 (McHugh JA).
[44] [1948] 2 KB 42, 48.
[45] Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, 502; Wilson v Anderson (2002) 213 CLR 401, 418 [8] (Gleeson CJ).
[46] Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1, 7; Linton v Telnet Pty Ltd [1999] NSWCA 33; (1999) 30 ACSR 465.
[47] Rose and Frank Co v J R Crompton & Bros Ltd [1923] 2 KB 261, 288; Edwards v Skyways Ltd [1964] 1 WLR 349, 355; Cheshire & Fifoot's Law of Contract, [5.11].
[48] Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWSC 149.
[50] Payne v Parker [1976] 1 NSWLR 191, 201-2; Davies v Pyke [2004] VSCA 124 [16]; Heydon, Cross on Evidence, [1215].
[51] Brandi v Mingot (1976) 12 ALR 551, 559-60; Berrigan Shire Council v Ballerini [2005] VSCA 159; (2005) 13 VR 111, 133 [66].
[55] See, for example, Companies Act 1961, s 161; Companies (Victoria) Code, s 266; Ford's Principles of Corporations Law, [10.150].
[56] Federal Commissioner of Taxation v James Flood Pty Ltd [1953] HCA 65; (1953) 88 CLR 492, 506-507.
[57] Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation [1981] HCA 6; (1981) 144 CLR 616, 625; Cf Coles Myer Finance Ltd v Federal Commissioner of Taxation [1993] HCA 29; (1993) 176 CLR 640, 677-8.
[58] New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60; (1938) 61 CLR 179, 207.
[59] Ford's Principles of Corporations Law, [10.150].
[61] Newtronics' Balance Sheet as at 30 April 2000, AB C 494.
Atco Controls Pty Ltd (in liq)
Newtronics Pty Ltd
(1954) 92 CLR 424
(1988) 14 NSWLR 523
(1988) 15 NSWLR 473
(1975) 132 CLR 671
(2001) 117 FCR 424
(1982) 148 CLR 658
(1988) 180 CLR 491
(1981) 148 CLR 72
(1929) 42 CLR 91
(1987) 13 NSWLR 162
(1927) 40 CLR 227
(2002) 213 CLR 401
(1976) 137 CLR 1
(1976) 12 ALR 551
(2005) 13 VR 111
(1953) 88 CLR 492
(1981) 144 CLR 616
(1993) 176 CLR 640
(1938) 61 CLR 179