CUSTOM CREDIT CORPORATION LTD v CENEPRO PTY LTD

Court of Appeal (NSW)|1991-04-04|Before: Cole J, Kirby P, Mahoney JA, Clarke JA

CUSTOM CREDIT CORPORATION LTD v CENEPRO PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

KIRBY P; MAHONEY and CLARKE JJA 3 and 4 April 1991, 7 August 1991

CONTRACT - financier promises "full funding to property developer - whether binding contract - held: In the circumstances, there was. The Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd, CA, unrptd, 5 July 1991 discussed - DAMAGES - loss of profit - loss of chance - project of property development collapses for want of funding by promised finance - proper approach to calculation of damages considered.

CONTRACT - binding contract - partners propose property development - suburban shops and residences - funding of $6.5 million required - financier A offers "full funding" subject to "total satisfaction" of it and its solicitors of "documentation" - financier B offers to "match" that offer accepts commitment in terms of financier A's letter - inserts penalty provision - promises later letter confirming "full funding" - developers accept offer of financier B and decline financier A - proceed to various stages of development promised letter committing "full funding" never supplied despite later undertakings to do so - financier B later discloses "change of policy" - development collapses developers sues financier B for breach of contract and for deceptive or misleading conduct under s52 Trade Practices Act 1974 (Cth) - financier B sues developers for recovery of advances and debt - developers plead estoppel asserting entitlement to relief on the ground of financier B's unconscientious conduct - trial judge (Cole J) finds (a) breach of contract; (b) breach of s52 Trade Practices Act; and (c) entitlement to rely on estoppel - awards damages for (i) futile borrowings less value of land plus (ii) loss of profits which would reasonably have accrued to the developers had "full funding" been provided as promised appeal -

TRADE PRACTICES - deceptive and misleading conduct representations by financier to property developers - whether conduct misleading and deceptive at the time - Whether finding that it was is liable to appellate disturbance - held: Unnecessary to determine having regard to the respondents' entitlement to damages for breach of contract and conduct of the trial.

ESTOPPEL - reliance - whether reasonable for representee to act - financier adopts brief letter promising "full funding" for $6.5 million property development - further documentation clearly contemplated - whether reasonable for party to act on letter - whether, when policy changed, party obliged to seek alternative funding

held: Unnecessary to determine in the light of entitlement to recover for breach of contract. The Commonwealth v Verwayen (1990) 170 CLR 394; Lorimer v State Bank of New South Wales, Court of Appeal, unreported, 5 July 1991 considered.

DAMAGES - contract - breach of - promise to lend money financier promises developer to provide "full funding" for property development - later modifies terms on basis that policy has changed - proper approach to damages - held: (Kirby P and Mahoney JA: Clarke JA dissenting) (1) The developer was entitled to the consequential loss of profits which flowed from the failure of the financier to adhere to its promise to provide full funding, which failure occasioned the collapse of the

development. Head v Kelk (1963) 63 SR (NSW) 340 distinguished; (2) It was open to the trial judge to conclude that the developer could not readily later obtain alternative funding and the onus of proving that it could have done so lay on the financier; (3) Various complaints of factual error on the part of the trial judge were not sustained.

(by the Court) (1) Having regard to the conduct of the case at trial, it was not open to the financier to raise for the first time on appeal a defence that the arrangement contained in the letter promising "full funding" was "subject to contract" as this would involve a procedural unfairness to the developers. Masters v Cameron (1954) 91 CLR 349, 360 considered; Coulton v Holcombe (1986) 162 CLR 1, 7 applied; (2) On the facts, it was open to the trial judge to conclude that the parties intended to enter legal relations upon the basis of the letter accepted by financier B. McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 (HL); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 applied; (3) The terms of the promise were not so uncertain as to prevent enforcement. Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130; Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 587; The Cool Cliff Collieries Pty Ltd v Sijehama Pty Ltd, Court of Appeal, unreported, 5 July 1991 distinguished; Godecke v Kirwan (1973) 129 CLR 629, 641; Axelsen v O'Brien (1949) 80 CLR 219, 225; Charalambous v Ktori [1972] 1 WLR 951 applied; (4) Accordingly, the judgment based on breach of contract would be upheld and damages calculated on that basis sustained. Discussion by the Court of the desirability of giving legal effect to the commercial expectations of business people.

Kirby P This appeal comes from a judgment entered by Cole J. It raises two difficult questions.

The first is whether a finance company will be held liable to provide "full funding" for a multi-million dollar property development scheme upon the basis of a promise said to have been made in oral representations and evidenced in a brief letter. Where it was clearly contemplated that, to give effect to the "deal" (to use a neutral expression), a multitude of detailed, complex interrelated security documents would have to be prepared, approved and executed by the parties, will the law enforce the 'deal' or decline to do so because it lacks the necessary certainty? Will such uncertainty be taken by the law As an indication that the parties lacked the intention necessary then to enter into legal obligations? Contingently upon an affirmative answer to the first question (whether found in the law of contract, estoppel or in rights arising from the Trade Practices Act 1974 (Cth), (the Act) (s52 and s52A) a subsidiary question is posed as to the calculation of the damages or determination of the other relief to which the disappointed parties are entitled when the finance company failed to provide such "full funding".

Other questions, including one addressed to the procedural fairness of the appellant's principal argument on the appeal, took the Court into an examination of the way in which the respective cases of the parties were pleaded, particularised, presented and argued before Cole J.

His Honour dealt with the contentions of the parties in two stages. By reasons given on 15 November 1990, he concluded that a legally binding contract had been made and breached. He went on to conclude that the appellant had also misled and deceived the respondents in breach of s52 of the Act. This entitled the respondents to relief under s87 of the Act. In response to a cross claim by the

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appellant against the respondents, Cole J concluded that the appellant, as cross claimant, was estopped from denying that it had entered into a legally binding agreement to provide "full funding" and was thereby prevented from relying on the terms of the securities taken by it.

By reasons given on 14 December 1990, his Honour gave judgment for the respondents in the sum of $4,079,359.88. Upon the cross claim he gave judgment in favour of the appellant, as cross claimant, in the sum of $3,164,050.58. He stayed the execution of the judgment on the cross claim until the judgment in the principal action had been satisfied by payment to the respondents.

Against the judgment giving effect to those orders, the appellant has appealed to this Court. Originally, the respondents, by notice of contention, sought to uphold the judgment upon bases different from those advanced by Cole J. However, during the hearing of the appeal, without objection by the appellant, the Court gave leave to the respondents to file a cross appeal to claim relief of a kind different from that provided to them by Cole J. This related to relief based upon the provisions of s87 of the Act or, alternatively, upon the principles governing the grant of equitable relief against unconscionable conduct.

From this sketch of the general issues raised by the appeal and cross appeal, it is necessary now to descend into the detail of the facts concerning the "deal" between the parties. It is then necessary to examine the respondents' contention that the appellant, on the appeal, had raised an entirely fresh basis to resist its suggested liability. The respondents argued that, at trial, the appellant had presented quite a different case. To permit it now to change its contentions would, so it was said, involve a procedural unfairness of the kind forbidden by the requirements of due process as explained in Coulton v Holcombe (1986) 162 CLR 1, 7f.

The primary facts were not in dispute either before Cole J or in this Court. At the trial, this point was emphasised (as his Honour noted) by the failure of the appellant to call the evidence of its officers. The significance of this omission will become obvious. His Honour accepted as truthful the evidence given by Messrs William Jamieson and Glenn Pearson (the second and third respondents). They were the principals of Cenepro Pty Limited (the first respondent) (Cenepro). This was a shelf company to be used for a property redevelopment. Cole J did not leave the acceptance of the testimony of Messrs Jamieson and Pearson to inference. He expressly affirmed his acceptance of the evidence of Mr Pearson upon the basis of his impression from the witness box. He concluded that he could accept that evidence, and that of Mr Jamieson, as "the undenied evidence of truthful witnesses". The appeal must be approached, therefore, upon the basis that the respondents' evidence was truthful. Jones v Hyde (1989) 63 ALJR 349, 351; Abalos v Australian Postal Commission (1990) 171 CLR 167, 179.

So much was accepted by the appellant. Its counsel conceded that there was no challenge to any of the facts found by Cole J on the issue of liability. All of his Honour's findings, as to what was said by the respondents and to them by the officers of the appellant, were unchallenged. It was also conceded that a prime actor in the appellant's employ (Mr Stephen Bembrick) was not uniformly "consistent" in what he had said to the respondents. Neither Mr Bembrick, nor his superior, Mr Bruce Anderson (the New South Wales manager of the appellant) testified. Whilst their absence from the witness box does not provide affirmative material for the respondents' case, it does give rise to the inference that nothing they could have said would have denied any of the material

testimony given by Messrs Jamieson and Pearson; that nothing they could have said would have advanced any substantial evidence favouring the appellant (for otherwise they would have been called); accordingly that inferences which would otherwise reasonably arise from the testimony given in the respondents' case might more comfortably be drawn because contradictory testimony was not called to correct or qualify such inferences. See Jones v Dunkel (1959) 101 CLR 298, 302; Clayton Robards Management Ltd v Siu (1988) 6 ACLC 57; QANTAS Airways Ltd v SS Pharmaceutical Co Ltd, Court of Appeal, unreported, 20 July 1990; (1990) NSWJB 78.

In a case of this kind, it is desirable to incorporate in these reasons, by reference, all of the findings of fact made by Cole J. The great bulk of his Honour's first reasons is taken up in a review of the protracted dealings between the appellant and the respondents. In a sense, the legal conclusion emerges only from an understanding of the detailed facts, as found. Whilst taking into account all that his Honour said in his reasons, I will content myself with the following exposition of the facts, taken from those reasons. It is convenient to adopt the same course as his Honour did. I will deal first with the issues concerning the liability of the appellant.

Mr Jamieson owned one of a complex of properties at the corner of Bellevue Road and Riddell Street, Bellevue Hill. His property, number 27A Bellevue Road, comprised a butcher shop with a residence above it. Other shops in the complex were number 23A (a newsagency), 2S (an electrical store), 25A (a fruit shop) and 27 (a laundry). Adjacent to the newsagency were premises owned by the Commonwealth Bank of Australia (number 23). At the rear of the bank's premises was a carpark. A right of way in favour of the Woollahra Municipal Council ran at the rear of numbers 25 to 27A.

In 1988, Mr Jamieson conceived the idea to redevelop properties 23A to 27A inclusive and to acquire the bank carpark and the right of way in order to incorporate these in the redevelopment. He approached his friend, Mr Pearson, an architect with experience in the development of properties, to join in the enterprise. Mr Jamieson was to contribute his interest in number 27A and Mr Pearson his expertise and skill in drawing up the plans and proposals. Plans showing five commercial premises with five three-bedroom residential units above were duly prepared. Messrs Jamieson and Pearson had discussions with the owners and tenants of the premises. In late July 1988, Mr Pearson approached Mr Bembrick, an officer of the appellant with whom he had had previous dealings. A meeting took place in early August 1988 at the appellant's offices. Mr Bembrick indicated that the appellant would be interested to fund the project. But he suggested a number of alterations to the plans, including the substitution of eight two-bedroom units for the five three-bedroom units originally proposed. Mr Pearson later drew amended plans to conform to Mr Bembrick's suggestion. During this initial discussion Mr Bembrick explained different modes of providing finance: either a joint venture with another developer or a 100% finance figure for redevelopment exclusively by the respondents. Mr Pearson expressed a preference for the latter. But it was agreed that Mr Bembrick should discuss the proposal with other clients of the appellant who were involved in participating in joint property ventures.

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On 12 August 1988, Cenepro entered into a contract to purchase number 23A. Soon thereafter it took an option over 25. Both of these arrangements were subject to time clauses. Adding Mr Jamieson's interest in 27A, the respondents therefore had, by this stage, a capacity to secure three of the five allotments.

Pursuant to Mr Bembrick's instruction, Mr Pearson gathered financial data. On 1 September 1988, Mr Bembrick inspected the site. He indicated that he had all the information required to prepare a submission to the appellant. It was understood that this was to be on the basis of full funding of the respondent's proposal for both acquisition of the allotments not yet owned and for construction of the redevelopment proposed.

On 6 September 1988, Mr Bembrick, on a letter which described him as "Senior Property Finance Manager: NSW", wrote to Cenepro advising that the appellant had approved a facility of $880,000 for specified acquisitions. This was guite different from that sought. It led Mr Pearson to telephone him. He protested that it was:

Mr Bembrick explained that the intention of the letter had been to tide the respondents over "for the moment". But Mr Pearson said: "... We're not interested in just purchasing one property and there is no guarantee that Custom Credit give us funding for The whole deal.

Having reached this imposse, the respondents looked around for finance elsewhere. By way of a broker, they were put in touch with Devreal Capital Limited, (Devreal), a company engaged in financing projects of this nature in competition with the appellant. The proposal submitted to Devreal by the broker was for a facility of $6.32 million for total acquisition and construction costs, together with capitalised interest. This proposal was put to Devreal on 8 September 1988. Soon afterwards, Mr Bembrick telephoned Mr Pearson to inform him that he wanted the nomination of a valuer. This was provided. On 14 September Mr Bembrick proposed a meeting with a client of the appellant, Scotts Developments Pty Ltd (Scotts). This company was put forward as a joint venturer. Mr Pearson asked whether there was any problem with "doing the project with us only".

"No, this is just another avenue, and because of Scotts existing line of credit may be easier. I'm just looking at all the possibilities. I'm trying to help you guys."

The meeting went ahead. The proposal was for Scotts to receive 60% of the profits, 40% going to the respondents. Eventually the respondents' agreed to the proposal. Heads of agreement were to be prepared by Scotts.

Meanwhile, the broker for Devreal advised Mr Pearson that: "Subject to final checks and investigation being satisfactory we have been assured that Devreal J will give a commitment to proceed with the full project... The Devreal offer will be based on total funding and they are developing a proposal based on a mixture of fees and profit share. The end results will be a substantial savings on what Custom Credit have suggested." By 21 September 1988, the respondents had still not received the heads of agreement signed by Scotts. That morning, the broker sent a letter by facsimile to the respondents enclosing an offer from Devreal. This offer is a key document.

The letter, dated 21 September 1988 was addressed to the Directors of Cenepro.

"we are pleased to confirm our offer of finance on the following terms and conditions."

It then set out details of the name of the borrower (being Cenepro and Messrs Jamieson and Pearson as directors); the amount (being $6.5 million to be drawn by an initial tranche with further advances):

"... subject to completion of Devreal's project feasibility, an external valuation of the total development scheme, check costings, and DA approval from the local council, proving satisfactory in all respects." The loan purchase was then defined as was the term of 18 months, with an initial tranche for 90 days; the amount of an establishment fee ($15,000), the specification of the interest rate (15.95%) "reviewable at Devreal's discretion", the specification of security, and the identification of the respective lawyers for the parties. The following key provition was then included:

Subject to Devreal and its lawyers total satisfaction."

There then followed items, all likewise expressed in summary form, detailing arrangements as to costs. The letter closes with the following provisions:

Devreal reserves the right to withdraw the facility should anything transpire that renders its completion undesirable.

A comprehensive policy noting Devreal as mortgagee must be provided with cover for the replacement value of the improvements.

Satisfactory valuation of 23A Bellevue Road, Bellevue Hill.

To confirm you acceptance of the terms and conditions please sign the attached copy of this letter and return same with your cheque for $5,000. This sum will be reimbursed on drawdown. This offer is open until 23 September 1988.

Armed with this letter, Mr Jamieson telephoned Mr Bembrick on behalf of the respondents to inform him of the offer of "full funding from another financier". Devreal's broker had warned him by letter:

"T would reiterate comments... that you would be unwise to go forward with Custom Credit on the verbal assurances of an officer of that company who does not have decision making power."

Mr Jamieson confronted Mr Bembrick with his need to make an urgent decision on Devreal's offer. As found by Cole J, the following conversation ensued:

MR BEMBRICK: Look, at least give me a chance to see if I can get it together before you do anything. As you know I've put lots of work into this and so has Scotts. Do you think you can hold off?

MR JAMIESON: Scotts were supposed to have signed up on this deal already and I don't want to jeopardise the deal with Devreal.

MR BEMBRICK: Leave it with me and I'll get back to you straight away."

There followed a flurry of meetings with representatives of Scotts and with Mr Bembrick. Agreement was reached on the heads of agreement of the joint venture with Scotts as previously proposed. At Mr Bembrick's suggestion, Mr Pearson

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then telephoned Devreal's broker to advise that Cenepro had made "alternative arrangements" and would not now be proceeding to accept Devreal's offer of full financing of $6.5 million. Messrs Jamieson and Pearson duly attended at Scott's solicitor's.

But Mr Bembrick arrived at 6 pm with the news that Scotts had decided not to proceed with the project after all. The following conversation ensued: "MR BEMBRICK (Scotts):... have pulled out of the deal.... ' ve spoken to my superior, Bruce Anderson about it and in the circumstances Custom Credit would be prepared to fund the project.

JAMIESON: I have been told... that you don't have the authority to approve this deal. In fact I have o fox saying just that.

MR BEMBRICK: I don't have authority. But Bruce Anderson does. He is the New South Wales State Manager. I've spoken to him about it already. He's back at the office playing cards. We can go across there now and talk to him but we have to hurry."

With Mr Bembrick, Messrs Pearson and Jamieson thereupon returned to Custom Credit's offices. They met Mr Anderson. At his request, they showed him a letter of approval from Devreal. Mr Bembrick referred to the problem of authority. Mr Anderson said:

"Of course I've got authority, I'm the State Manager for New South Wales."

Having read the Devreal offer there ensued the following conversation:

"MR ANDERSON: Steve, I can't see why I can't do the same deal as Devreal.

MR JAMIESON: Can you do a better deal than Devreal? There was then some discussion pursuant to which Mr Anderson agreed to reduce the profit share taken by the appellant from 20% to 15% and to reduce interest marginally to give a rate of 2% above the bank bill rate. Security was then discussed. Mr Jamieson outlined difficulties in raising security on his property mortgaged to the Commonwealth Bank. This led to the following exchange:

MR ANDERSON: Okay. How about we structure in this way. Ill prepare documentation so that you give Cenepro an opinion over your property and then Cenepro can change the opinion in favour of Custom Credit. But in the meantime we want a lien over your bills.

MR JAMIESON: But you've took my personal guarantee as well as (Glen Pearson's) and there's $100,000 equity in the property anyway - 23A is worth $450,000 and we took it for $350,000. that should be enough.

MR ANDERSON: You were willing to give a lien over the bills in The Devreal offer.

MR JAMIESON: Well I really need the money now. Anyway in the Devreal offer it was agreed that the lien is going to be released on substitution of security over 27A and that it is going to happen quickly. I was going to get paid up front.

ANDERSON: Well that's what's going to happen here. The lien will only be there until final documentation is completed and an option on 27A in favour of Cenepro is documented. Then your bills will be returned.

Drinks were then brought in to celebrate the "deal". Mr Anderson explained that all the secretaries had gone home so that it was not possible to prepare the documentation that evening. As found by Cole J the following exchange ensued:

MR BEMBRICK: we could use our previous offer just to defer the immediate settlement so we can have a cheque ready for that on Friday. we could also at the same time prepare a letter for The full funding for Cenepro to sign on Friday.

It was then that the letter of 6 September 1988 offering the facility of $880,000 was amended to constitute a facility for $480,000. The earlier letter was changed to show that it related only to the acquisition of number 23A. Mr Anderson expressed his determination to ensure that the respondents were "on the hook" to the appellant:

MR ANDERSON: "...I want to make this clear. If we can't get the whole deal there's no basis for us simply to fund the first settlement. We want to lock you in so that you don't go back to Devreal.

MR PEARSON: Well, since you are giving us full funding and a bit better deal, we don't want to do any deal with anyone else.

MR BEMBRICK: What if we put in a discharge fee of $50,000?"

Mr Bembrick then wrote onto the amended letter the following additional term:

Should this facility be discharged at the expiration of the term a fee of $50,000 is payable on discharge." The respondents agreed to that change. As found by Cole J, they left the meeting with Messrs Anderson and Bembrick confident in the belief that the appellant had accepted the obligation of full funding; that it would signify this in writing on the following Friday; that the only reason it did not do so there and then was the Absence of typing staff; and that as a measure of the commitment required and given for this arrangement, a penalty of $50,000 was inserted, as Mr Anderson had said, to 'lock' the respondents into the appellant and to prevent them going back to Devreal.

It was not argued that Mr Anderson lacked authority to make this arrangement, whatever its legal effect. It was argued that Mr Bembrick lacked authority and could make no representations for, or binding promises on behalf of, the appellant. But there is a difference between Mr Bembrick's ostensible authority before the meeting with Mr Anderson on 21 September 1988 and thereafter. There after, it is clear that Mr Bembrick was acting with whatever authority Mr Anderson had lent to the "arrangement". That authority was, by his own assertion, ample, as one would expect in the case of the State Manager of the appellant. As neither Mr Anderson nor Mr Bembrick gave evidence to deny authority, the suggested want of it can therefore be rejected.

Like Mr Anderson, the respondents were interested only in "the whole deal" and not with the purchase of individual allotments. Just before the meeting on 21 September, recounted above, Cenepro had obtained an option over number 27. It thus had control over four of the five frontage allotments. Agreement had also by that time been achieved, in principle, both with the Commonwealth Bank and the local council respectively for the sale of the car park and extinguishment of the right of way, although in both cases the price had still to be finalised.

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It was expected that arrangements relating to number 25A would be resolved shortly. Armed with their "agreement" with the appellant, the respondents could have been excused for thinking that at least foreseeable problems were behind them and full funding for their redevelopment would be provided by the appellant, substituting for Devreal. Both Mr Pearson and Mr Jamieson gave evidence, which Cole J expressly accepted, that neither of them would have accepted the facility for $480,000 for the settlement on 23 September unless they believed that the appellant had agreed to fund the total acquisition and construction costs of the whole development. His Honour found that, had they believed that it was otherwise, they would have reapproached Devreal on the following morning for a revival of its $6.5 million financing offer on a "full funding" basis. It may be inferred that his Honour believed that that offer would have been forthcoming from Devreal. There is no reason to conclude otherwise.

When, however, 23 September 1988 arrived, no letter from the appellant confirming the full funding arrangement, made on 21 September 1988 with Mr Anderson, was forthcoming. Mr Jamieson protested this fact. The appellant's solicitor telephoned Mr Bembrick. Mr Jamieson confronted him with the promise to provide the letter "for full funding" and a refusal to sign the document for the settlement of 25A without the letter. According to Cole J's findings Mr Bembrick replied:

MR BEMBRICK: I haven't had time to finish it. ''ve been busy doing the paper work for 23A. But be done. You' ve got nothing to worry about. The deal is done. It's just a matter of putting together paperwork."

Further reassurance was given that the respondents had nothing to worry about. That they would get their letter. That the deal was done. And that the letter would be ready 'in a week'. It was only then, and, as Cole J found "acting upon those assurances", that the loan documentation was executed for Cenepro and the personal guarantees and indemnities executed by Messrs Pearson and Jamieson in connection with the purchase of 23A. Cole J accepted the evidence that the guarantees were only executed:

"... based upon the representations and assurances of Mr Bembrick on 23 September 1988 confirming the arrangement mode between Cenepro and Mr Anderson on behalf of Custom Credit on 21 September 1988 that Custom Credit would provide full acquisition and construction funding."

It would be tedious to recount the tale of prevarication, fobbing off and interim arrangements which thereafter ensued. The detail of it is set out in Cole J" reasons of 15 November 1990. Mr Bembrick, for a time, continued to assure the respondents that "the letter will be out soon". For their part, they frequently requested a letter confirming "full funding". Each time they received a fresh promise from Mr Bembrick. However, when on 5 December 1988 a letter was finally received, it was not in the terms of "full funding". Instead, it offered a facility of $2.9 million, being for some of the acquisition costs and capitalised interest. It also contained a new provition for a "participation fee" of $100,000 or 20% of the profits whichever was greater.

Cole J concluded that this letter was not a fulfilment of the promise made by Mr Anderson at the meeting on 21 September 1988 and repeated thereafter on numerous occasions by Mr Bembrick. The letter led to a confrontation between Mr Pearson and Mr Bembrick. The latter contended that it was "easier to do it this way". He again put off the provision of the letter for full funding. When asked for another meeting with Mr Anderson, he was assured by Mr Bembrick that Mr Anderson was:

"..Aware of all this and this is the best way to do it... Don't worry, you will get your full funding. I'm doing this for you and I am personally getting nothing out of it." Cenepro declined to accept the offer of 5 December because it did not regard it as consistent with the agreement of 21 September 1988. Meanwhile, despite his soothing words as recounted by the respondents, Mr Bembrick was writing internal memoranda which came to light in the litigation, at variance with the repeated promises of commitment for full funding. By mid-December 1988, Mr Bembrick advised the respondents that he had another client of the appellant to offer as a joint venturer. Nothing eventuated. On 3 February 1989, at a meeting between Messrs Jamieson, Pearson and Bembrick, Mr Bembrick finally acknowledged that the appellant had changed its policy:

"MR PEARSON: What the hell is doing on? What happened with our funding? Things aren't going the way you said they would. Custom Credit seems to be changing its mind all the time...

MR BEMBRICK: I'm with you guys but Custom Credit has altered its position. With the downturn in economy they're only dealing with existing clients and I think it's going to get worse.

MR PEARSON: Yes, but we agreed to do this back in September.

MR BEMBRICK: Custom Credit doesn't think you and Mr Jamiesons are strong enough. Maybe you should consider bringing in a third party. that would give them some comfort down the road

MR PEARSON: Look, we don 't agree with it. Everything is just about done. It's only got to be built... we think the project can stand on its own. Custom Credit must have agreed this in September then reconsidered.

MR PEARSON: That is fine for new clients but not for us.

Cole J was not convinced that Custom Credit's policy had actually changed. He stated that the internal documents made it clear that Mr Bembrick had never submitted an application for approval of full acquisition and construction funding.

Instead, Custom Credit pressed its revised offer of 5 December 1988. But Cenepro never took up the $2.9 million facility proposed in that letter. Further fruitless discussions took place and still more joint venturers were introduced but declined. The date for the settlement of number 25 on 6 April 1989 approached. The approach of that date ultimately required Cenepro to accept an interim arrangement with the appellant. As found by Cole J, the respondents could not find finance elsewhere. They could not afford litigation. Their only option was to take up the offer of finance which the appellant made. They signed a variation of the facility agreement and then secured funds to purchase No 25.

Indeed, a total of fourteen separate offers were made by the appellant.

All of them were particular to the specific acquisition and other costs. None of them fulfilled the obligation which the respondents kept asserting that the appellant had promised to "provide full funding". In April 1989 Mr Bembrick answered the repeated protestation of Mr Jamieson with these words:

"Policies have changed again. The facility to value ratios and security requirements have changed and this is the best that I can do... we need comfort in the form of a going venturer or equity."

In May 1988 the appellant offered Cenepro a letter of finance with a facility of $3.61 million. To Mr Jamieson's protest, Mr Bembrick replied:

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"T've spoken to my superiors about it and in the current economic circumstances this is the only way it can be done. My superiors don't think Cenepro is strong enough." Again the respondents were in a precarious position. The settlement of No 25 was approaching on 9 June 1989. Time had been made of the essence. In a conversation shortly before that date, Mr Jamieson expressed concern about the "extremely precarious position" of the respondents if they could not settle. Mr Bembrick replied:

"As I told Glenn, because of the downturn in the economy our loan to value ratios have changed and we need more security. We want a mortgage over your property." This presented difficulties for Mr Jamieson as he had already explained to the appellant.

Further negotiation ensued. Ultimately Cenepro had no real or commercial alternative. As found by Cole J it was faced with accepting the appellant's offers or abandoning the project. In July 1989 Cenepro therefore sought to introduce a third party to the appellant to become a joint venturer on terms similar to those earlier proposed for Scotts. However, the appellant insisted on personal guarantees of the directors which, it had previously been made clear, would not be provided. The settlement of 25A then fell due on 16 October 1989. Again Mr Jamieson requested the letter of "full funding" which he at least expected would be forthcoming with the participation of a viable joint venturer. Mr Bembrick, consistently with his earlier stance, said:

"Look, approval for the full facility should issue soon. We'll give you on interim facility to settle 25A. We'll make the term for one month. That should be enough time for us to get the approval for the full project costs."

As earlier, so now. The letter of approval for full funding did not ensue. By December 1989 Mr Bembrick had explained that the matter was out of his hands. At the same time, the last of the prospective joint venturers withdrew. The project collapsed. At the time of its collapse, Cenepro had acquired 23A, 25, 25A and 27. Mr Jamieson owned 27A. The purchase of the car park and acquisition of the laneway had not been completed. In all, the appellant had advanced the respondents $2.635 million. With accumulated interest to the date of trial, the amount outstanding by the respondents to the appellant exceeded $3 million in debt and upon the personal guarantees which the appellant had insisted upon. The appellant held mortgages over the properties purchased by Cenepro. It also held a charge over Mr Jamiesons bank bills and over number 27A.

It was in these circumstances that the respondents, as plaintiffs commenced proceedings in the Supreme Court. Those proceedings were heard in the Commercial Division. By their summons, the respondents sought damages for breach of contract and relief under of the Act. The appellant defended and by a cross claim sought to recover the debt alleged to be outstanding to it. In defence to the cross-claim the respondents asserted that the appellant was estopped from claiming repayment, on the ground that it was unconscionable for it to seek to do so. In the alternative, they sought to offset against any sums found to be owing the amounts to which they were held to be entitled.

Cole J found for the respondents upon the three legal bases relied upon by them. In his second reasons, published on 14 December 1990, he resolved the issue of damages. As earlier stated, he awarded the respondents damages. On the cross-claim, Cole J found the appellant entitled to judgment in a smaller sum. He stayed execution of the judgment on the cross-claim until the damages were paid.

The result of the litigation was the nett recovery by the respondents of $915,301.30 in damages and costs. It is this outcome which the appellant challenges in the appeal.

In summary form, the issues argued in the appeal were as follows:

Whether, consistently with the matters litigated at the trial, it was open to the appellant on appeal to argue that no legally enforceable agreement was reached on 21 September 1988 upon the basis that any such "agreements" was, expressly or by implication, to be subject to subsequent formal documentation, and consequent negotiation and further express agreement. If such defence were available to the appellant, it contended that it answered the claim of an agreement to provide "full funding" and that, under the "agreement", so understood, it had fully performed its side of the bargain by proceeding, at each successive stage, to negotiate, and when agreed, to document, the provision of funds in furtherance of the agreement, so understood;

Alternatively, within the case presented at the trial, the appellant contended that there was no legally enforceable promise As a result of what was "agreed" on 21 September 1988. This was argued upon the basis that the suggested "agreement" was not one to which the parties intended legal consequences to attach or was one, the terms of which were so uncertain that the law would withhold legal enforcement of it;

The appellant contested the finding that it had engaged in misleading or deceptive conduct within s52 of the Trade Practices Act and suggested that there was no evidence from which such a finding could be made;

The appellant also contended that it was not open to the respondents to succeed on estoppel if a contract was not found. Alternatively, it argued that the requirements of estoppel had not been established by the facts as found;

The appellant attacked the conclusions on the respondents' entitlement to damages, if liability were established. If there were any liability, it contended that the damage suffered was limited to the cost of securing alternative finance in January 1989 when it must have become plain that the "full funding", as understood by the respondents, would not be provided. Alternatively, the appellant contended that the respondents had provided evidence which would only support a claim for damages on the basis of breach of contract. Such evidence was not available to support the different form of relief (more akin to tort) sought under s87 of the Act or the different relief against unconscionability provided upon proof of an estoppel. Cf Lorimer v State Bank of New South Wales, Court of Appeal, unreported, 5 July 1991. Upon this basis, the appellant contended that, if the respondents failed in their claim in contract, but succeeded under s52 of the Act or on the estoppel, they would be denied relief, having forfeited the opportunity to provide evidence by which such relief could be fashioned; and

Finally, the appellant criticised a number of factual finding made by Cole J in his reasons on damages and thereby sought to undermine at least the quantification of the damages, if all other arguments failed. It is convenient to deal with these arguments in turn.

In this Court it was the primary submission of the appellant that Cole J had attributed legal consequences to the "unenforceable arrangement" between the parties on 21 September 1988 when it was clear that such arrangement was "subject to formal contract". It was put that it was the clear intention of the

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parties that no binding contract would come into existence between them until the formal documentation relating to the proposed loan and all of its many terms have been executed by the parties. In this way, the appellant argued that the case fell within the third class of cases in Masters v Cameron (1954) 91 CLR 353, 360. It is worth remembering that catalogue of possibilities. Although very familiar and now criticised as incomplete, it usefully identifies the respective positions of the appellant and the respondents on the appeal. In Masters, Dixon CJ, McTiernan and Ritto JJ (at 360) said:

"Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the cases may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller and more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, The case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract."

Essentially, the respondents contended that the "arrangement" on 21 September 1988 fell into the first class. There was a concluded contract, although documentation to give effect to the agreement (eg by mortgage, charge etc) was clearly contemplated. On the appeal, the appellant contended that the case was in the third class.

In support of that contention, the appellant pointed to a number of indicia in the Devreal letter which it had accepted. It also relied on the very nature of a complex financing transaction of the kind contemplated by the parties. So far as the letter was concerned, the appellant laid emphasis upon the fact that it reserved to the "total satisfactions of Devreal and its lawyers acceptance of documentation". The latter retained in Devreal the right to withdraw the facility should anything render its completion "undesirable". It clearly contemplated further documentation; but did not contain precise agreement about their terms. The letter also contemplated subsequent eventualities which were not defined with precision but which envisaged the possibility of Devreal's withdrawal or placing a limitation on its liability. Thus the provition for further advances was stated to be subject to the completion of Devreal's project feasibility study. Costings were to be "subject to independent assessment by Devreal's appointed consultant". The letter did not deal with what would occur if the project cost exceeded the total amount of the facility of $6.5 million, as subsequently transpired. Various items certainly "blew out". Thus the cost of the purchase of the laneway from the Council was budgeted at $25,000. In fact, the estimated cost when the project collapsed was just short of $138,000.

In these circumstances, the appellant contended that the Devreal letter itself, and the very nature of such a transaction between such parties dealing in such sums, clearly envisaged further documentation of considerable complexity with a multitude of terms upon any of which agreement could break down. This was not a case where, upon any view, an informal arrangement would have been contemplated by the parties. The appellant was a large finance company whose internal procedures would, self-evidently, require security documents to be

executed. The subject of the loan was the acquisition and charging of land in respect of which formal documents are ordinarily required as all parties would have appreciated. In such circumstances the appellant urged that the proper characterisation of the "arrangement" of 21 September 1988 was an agreement in principle, but subject in the ordinary way to the preparation of the necessary documents at the successive stages at which the provision of funding by the appellant to the respondents fell due.

It was this "subject to a contract" argument which the respondents urged involved an entirely new case; one different from that presented at the trial. An appellate court may, and in appropriate circumstances should, allow a party to raise a new case on appeal where all that is involved is the application to given facts of principles of law not relied on at the trial. This arises from the character of an appeal such as the present one, as a "rehearing", as s75A of the Supreme Court Act provides. However, in a series of cases, the High Court of Australia has made it clear that an appellate court may not permit an enlargement of the issues on appeal if to do so would occasion procedural unfairness to the other party. Thus in Coulton v Holcombe (1986) 16 2 CLR 1, 7, Gibbs CJ, Wilson, Brennan and Dawson JJ said:

"Tt is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily served on the parties... The powers of an Appellate Court in respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise. In a case where, had the issue been raised in the Court below, evidence could have been given which by any possibility could have prevented the point from succeeding, This Court has firmly maintained the principle that the point cannot be taken afterwards: see Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438; Bloemen v The Commonwealth (1975) 49 ALJR 219."

The gist of the respondents' opposition was that this case, on appeal, was quite different from the case presented at trial. There, it was contended, the appellant's case was that it would not be bound until a letter was provided promising "full funding"; that no such letter had been provided; and that in default of the condition precedent the "arrangement" had never acquired the force of a binding legal contract. In this sense, it was the respondents' submission that the appellant's case at trial was more akin to the second of the classes mentioned in Masters v Cameron rather than the third. Of course, the case may not fall readily into any of the categories in Masters v Cameron.

The parties intended to be bound immediately and yet to have a letter evidencing the agreement.

Precisely what had been the appellant's case at trial was the subject of a heated contest in this Court. The respective positions were asserted. But as counsel had changed and no agreement could be reached, the Court required the matter to be dealt with in a formal way, ie either by the provision of an agreed statement or by the taking of evidence. Cf Builders' Licensing Board v Mahoney (1986) 5 NSWLR 96, 98 (CA). Eventually, a statement, signed by counsel who had appeared at the trial, was tendered. This contained the following agreement:

"The address on behalf of the appellant occupied approximately an hour and a half, during which the submissions were developed.... It was submitted on behalf of the appellant:

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(a) that the informality of the discussion on 21 September 1990, coupled with the complexity of the transaction and the embryonic state of the project pointed away from an objective conclusion the binding contract as made in the discussion;

(b) that the parties contemplated a letter embodying the facility and the respondent had nothing until a letter was forthcoming;

(c) That to hold otherwise would characterise Cenepro as bound to borrow the money and to render Cenepro liable in damages if the development did not proceed, which is wholly unrealistic considering the informality of the circumstances in which the proposed financing as discussed."

The written submissions tendered at the trial were examined. Upon this point they contained only the following paragraphs:

"27. The conversations on 21 December 1988 between Anderson representing Custom Credit and Jamieson and Pearson representing Cenepro did not constitute an offer and acceptable capable of giving rise to a binding contract.

There was no intention to create contractual relations unless and until an offer is produced and accepted.

Further the terms of the foreshadowed facility were too uncertain to constitute the basis for a binding contract."

It is difficult to resolve a dispute of this character. I start from a desire to ensure that, so far as it is fair to do so, the appellant should have the benefit of any legal arguments which are available to it. For a number of reasons, however, I have concluded that it would involve a procedural unfairness to the respondents to permit the appellant to rely here upon a "subject to contract" argument. It is not clearly stated in the written submissions tendered at the trial. Nor is it clearly contained in the note of counsel's recollection of the oral arguments. It is not clearly pleaded in the defendant's Statement of Contentions by Way of Defence. It was not clearly put to the respondents' witnesses during the hearing on liability. It was not stated in Cole J's epitome of the issues presented at the trial as he perceived them. It was not clearly raised in the grounds of appeal. Most importantly, to permit the argument to be raised for the first time would inflict a particular procedural injustice on the respondents. They had issued a subpoena at the trial requiring the appellant to produce its operating procedures. As a consequence, a substantial book was produced titled "Property Finance Division

Operating Procedures". Having regard to the way the appellant presented its case, the respondents did not tender this document. The Court was invited to infer that standard operating procedures, and pro forma documents existed so that, from this material, it would have been open to Cole J quite readily to construct the series of security documents (and their terms) envisaged to give effect to the "arrangement" for full funding of 21 September 1988. In short, from the Operating Procedures it would have been possible to define with a high degree of precision "the terms restated in a form which will be fuller and more precise but not different in effect" from the agreement of 21 September 1988.

There is another consideration. As recorded in the evidence, Mr Pearson was an architect with experience in the development of properties. Had it been clear that the appellant's case at trial was that the "arrangement" of 21 September 1988 was "subject to contract", it would have been open to the respondents to seek to elicit from Mr Pearson evidence concerning his experience of the way in which agreements of the kind recorded in the Devreal letter are translated in the marketplace by using standard form security documents. Mr Pearson gave evidence that he had been involved in some fifteen developments. He was not

cross examined to suggest that financiers, such as the appellant, never made commitment to provide finance without first obtaining the execution of formal security documents. Instead, the line of cross examination adopted was that he was waiting for a letter which, though promised, never came.

And there is a still further consideration. Had this been the appellant's case at the trial, the respondents could have sought to explore, by evidence, the practices normal in the business of financing property developments. Cf Air Great Lakes Pty Limited and Ors v K S Easter (Holdings) Pty Limited (1985) 2 NSWLR 309, 332.

In the foregoing circumstances, Suttor and Coulton require this Court to refuse to entertain an argument on appeal which was not the case fairly raised and presented at the trial. Of course, it is still open to the appellant to contend, for other reasons, that no legally binding contract was made. But it cannot do so upon the basis that it was an agreed precondition to the achievement of such a contract that the parties would first agree upon the precise terms of the security documents which were expressly and impliedly contemplated by it.

No intention to contract or contract too uncertain The appellant certainly argued at the trial that the evidence demonstrated that there was no intention, at 21 September 1988, to enter into a promise which would be legally binding on it. It also clearly contested liability upon the basis that any "promise" then made was too uncertain and would not, therefore, be enforced. These are alternative ways of presenting the same idea. They bear and obvious relationship to the "subject to contract" argument; but they are not the same as it.

Drawing upon many of the facts already referred to, both in the terms of the Devreal letter which it accepted and in the very nature of such a transaction between such parties, the appellant argued that the arrangements on 21 September 1988 fell far short of a concluded agreement. It was clear at that time that a great deal of documentation would be required to evidence the security arrangements in respect of such of the properties which form part of the development. So much was not disputed by the respondents. In such circumstances, so the argument ran, the law would withhold enforcement of an agreement which the parties had themselves not yet concluded in appropriately precise and detailed terms.

As is usual in cases of this kind, indicia exist in the evidence to support the competing contentions of the parties. Take, for example, the following indicia which support the appellant's arguments:

The terms of the Devreal letter have already been referred to. They contain many provisions which appear to contemplate a requirement of "total satisfaction" on the part of Devreal and its lawyers in documentation still to come and a full right of Devreal to withdraw upon grounds rendering "its completion undesirable". These and other terms suggest a provisional character for the letter, lacking the precision, completeness and certainty normally found in a legally binding promise to provide "full funding" in a multi-million dollar transaction;

Mr Pearson, at least, on behalf of the respondents, had been engaged in a number of property developments. He would have known, and the other respondents would therefore have known, of the detail typical of security documents, mortgages, charges, options etc. The parties, as at 21 September 1988, would have been aware that their solicitors would have to negotiate the detail of such security documents. Upon that detail there would be numerous opportunities for legitimate differences of opinion. One security document tendered contained 45 different clauses. Even allowing that many of them would

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be standard, some particular provisions could easily give rise to disputes. So much would have been plain to the parties on 21 September 1988 if they had turned their attention to it. Every person engaged in property development would know (so it was said) that funds are not actually handed over until security documents are completed. Even if such documentation was not a pre-condition to liability, its necessity (as the parties would have realised) argued against an intention to be bound where and when, before the documents were settled and agreed;

On its face, the Devreal letter included only the principal terms of the proposed "arrangement" between the parties. The reservation to the "total" satisfaction of Devreal and its lawyers did not provide an independent arbitrator who could resolve differences and fill in blanks. No reference was made to "usual documents". No independent means was provided to settle disputes over terms which caused later disagreement. Instead, one party only, the financier, reserved to itself and its lawyers the necessity of "total satisfaction" and an unqualified "right to withdraw the facility"; and

The right to withdraw the facility "should anything transpire that renders its completion undesirable" was reserved by Devreal and, by inference, therefore, also by the appellant. It is a commonplace that financiers operate in a financial market which is subject to the swings of economic circumstances. So much, it was argued, would have been known to the respondents, at least, by inference, because Mr Pearson had extended experience in property development. Accordingly, when economic circumstances changed, it was entirely normal that the appellant would wish to reconsider its position. It was perfectly regular that it should seek to improve its equity and to increase the price of its finance. This was particularly so because the costs had increased beyond those contemplated on 21 September 1988. Even upon the terms of the Devreal letter, the respondent was not committed to extend "full funding" without documentation. It at was entitled to have total satisfaction in the documentation provided and to withdraw the facility should anything transpire which rendered its completion "undesirable". This, in effect (so it was said) was what it had done.

As against these considerations, the respondents pointed to a number of features of the "arrangement" which tended to confirm an intention to contract and the achievement of terms which were sufficiently certain for the law to enforce them:

The background to its acceptance of the Devreal letter demonstrated that the appellant was keen to get the respondents' business. So much was even stated by Mr Anderson who said:

"We want to lock you in so you dont go back to Devreal."

"Locking" in is the language of obligation. The conversations found by Cole J, leading to the acceptance by the appellant of the Devreal letter also contain language of promise. If all that had been involved as a "moral obligation" it would seem curious to have celebrated it with drinks and to have promised a letter committing the appellant to "full funding". The repetition of that promise and the constant reassurance that the respondents need not be concerned because the "deal" was "done" represented further evidence of obligation and commitment;

Although the transaction envisaged a multi-million dollar facility, the evidence of the Devreal letter (and other evidence of a letter from the Macquarie Bank Limited) indicated clearly enough that this was the way in which, in the world of finance, facilities of this magnitude are offered and accepted. In virtually

every case, such facilities contemplate further security documentation. If the law were to withdraw its support from the enforcement of such promises, given and accepted, a dangerous divergence would arise between legitimate commercial expectations and legal protection;

As a further indication of the intention of the parties that they should be legally bound by what they agreed on 21 September 1988, they specifically concurred in the inclusion of a $50,000 discharge fee. This was designed to provide a disincentive to the respondents going back to Devreal and to "lock them in" to the appellant. It seems unlikely that, had the respondents in fact returned to Devreal, that the appellant would have waived or ignored its claim on this penalty. At least, no evidence was given for the appellant to suggest that it would or to demonstrate that the penalty had no effect;

The discussion between the respondents and Mr Anderson about the authority which he and Mr Bembrick enjoyed had no point except as it related to the authority to bind the appellant. But binding the appellant is a matter of legal obligation, not mere moral commitment. By exploring the respective authority of Messrs Anderson and Bembrick, the respondents were disclosing their concern to secure a legally enforceable right. By asserting his undoubted authority, Mr Anderson was responding affirmatively to this inquiry. He did not say that, although he had the authority to bind the appellant, its actual obligations would not arise until the security documents were agreed. He simply made a "deal" and asserted his right to do so on behalf of the appellant; and

The breakdown of the "arrangement" between the parties did not arise because of any uncertainty in the Devreal letter, nor from the failure to agree on any particular term of a security document proffered to give effect to that letter. It was not as if the appellant or its lawyers failed to have "total satisfaction" in the documentation designed to give effect to the "deal". Instead, as Cole J found, the appellant continued to string the respondents along. Ultimately, it simply changed its policy. Thus, it was not uncertainty of the commitment which occasioned the dispute. The amount of the loan was clear. So were the interest rates. So were the participation fees. The basic obligations assumed by the prospective parties were clearly spelt out in the Devreal letter which the appellant, with modifications agreed to by the parties, accepted. The appellant did not even purport to act on the material adverse change clause. It did not withdraw the facility citing anything which had transpired which rendered "its completion undesirable". Instead, as found by Cole J, it prevaricated, repeatedly made false promises that a letter for "full funding" would follow and only later announced that it had changed its policy.

A shift in the approach of the law to the problem that is presented in this case can be seen by contracting May and Butcher Ltd v Ring [1934] 2 KB 17n with more recent English authority collected in D W Greig and J L R Davis, The Law of contract, Law Book Co, 1987, 379 and J Paris, Making Commercial contracts, BSP Commercial Books, Oxford, 1988, 30. Young J in Corpers (to 664) Pty Ltd v NZI Securities Australia Ltd (1989) ASC #55-714 at 58-415 citingGreig and Davis, has suggested that:

"... commercial pressures have moved commercial courts in The last 50 years from that was logically correct to what is realistic. The logically correct view reflected in such cases as May and Butcher Limited v King... so that if parties did not direct their minds to vital terms of their contract, there was no contract. This being a commercially unrealistic point of view, the judges in England were within a few years made to reconsider the matter and the view was finally taken,

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as expressed by Williams J in York Air Conditioning and Refrigeration (Australasia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 26 that if the Court:

"... comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise.""

There are, of course, limits. They arise where, to an unacceptable extent, the parties have themselves failed to agree upon essential terms. See Biotechnology Australia Pty Limited v Pace (1988) 15 NSWLR 130, 133; ANZ Banking Group Ltd v Frost Holdings Pty Limited [1989] VR 695; noted (1991) 65 ALJ 59. The matter debated in this Court is not beyond argument as the elements in the evidence listed by the parties clearly indicate. I remind myself that the intention to enter into legal relations is to be determined not by reference to the actual intentions of each party but by reference to what each was reasonably entitled to conclude from the words and attitude of the other. Cf McCutcheon v David MacBrayne Limited [1964] 1 WLR 125, 128 (HL). See also Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; Summit Investment Inc v British Steel Corporation [1987] 1 L1 L Rep 230, 233 (CA); Australian Broadcasting Corporation v XVIth Commonwealth Games Limited (1988) 8 NSWLR 540, 549. As pointed out in the lastmentioned case, it is the obligation of Australian courts to have regard to the commercial circumstances surrounding the exchange of communications and to the subject matter of those communications. Allen v Carbone (1975) 132 CLR 528, 531f. See also R Lewison, The Interpretation of Contracts, Sweet and Maxwell, London, 1989, 1.02.

Many of the considerations which must be taken into account in deciding cases such as the present are collected by me in my reasons in The Coal Cliff Collieries Pty Ltd Anor v Sifehomo Pty Ltd and Anor, Court of Appeal, unreported, 5 July 1991. I will not extend these reasons by repeating what I said there.

In the result, I have not been persuaded that Cole J was wrong to conclude that the appellant and the respondents by their agreement on 21 September 1988 intended to enter into legally binding relations. Nor am I persuaded that his Honour was wrong to reject the contention that the terms of such agreement were so uncertain that the law would not enforce it. Whilst it is true that there was a clear contemplation that numerous security documents would be required to flesh out the agreement which the parties there made, I consider that these were, in the circumstances, of the kind contemplated by the first class in Masters v Cameron. To the extent that differences arose upon the terms of the documentation necessary to give effect to the binding promise, a formula was provided by which the "total satisfaction" of the appellant and its solicitor would determine the matter. Cf Godecke v Kirwin (1973) 129 CLR 629, 641f. This would not mean that the appellant, as one party to the contract, would be at liberty to insert any provision whatever. The satisfaction, total or otherwise, was limited to "documentation" of the agreement already reached. I believe that this is the kind of formula which courts will accept as machinery to resolve uncertainties. Cf Axelsen v O'Brien (1949) 80 CLR 219, 225. To the extent that total satisfaction was unreasonably withheld, a court would itself be able, in a matter such as a security document, to settle the appropriate terms of a conveyance, lease, mortgage or other instrument by which the contract was to be completed. It would do to, normally, by referring the matter to a Master. See Charalambous and Another v Ktori [1972] 1 WLR 951, 953 (Golding J). Doubtless in the instant

case, had such disputes arisen, they would have been resolved by reference to the Operating Procedures Manual of the appellant, which was brought to Court on subpoena but not tendered in the way the case developed.

These facilities provided in this case adequate means of resolving disputes about the machinery documentation necessary to give effect to the agreement of the parties achieved on 21 September 1988 and substantially set out in the Devreal letter which the appellant accepted.

Their availability distinguishes the case from such earlier decisions as Biotechnology Australia Pty Limited v Pace (1988) 15 NSWLR 130; Austotel Pty Limited v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 587 and The Coal Cliff Collieries case (above). In none of those cases did the Court have the relevant expertise for, or means of, resolving the omission in the agreement on vital terms which the parties had left.

In coming to the conclusion which I have reached, I confess to being influenced by the same movement towards a more practical approach to this question as is noted by Young J, approving the analysis of Professors Greig and Davis. If, as seems obvious from correspondence from three financial sources, large and important commercial agreements are effected substantially upon short letters which contain the essence of the parties' promises, it would be a great misfortune if the law refused to enforce such promises where the business community organises its affairs upon the assumption that such promises would be fulfil led and, if necessary, enforced. Such a disparity between commercial expectations and legal principle should be avoided if at all possible. Cf The Eurymedon [1975] AC 154, 167 (HL) (per Lord Wilberforce). In the commercial context, there is a presumption that parties in the position of these parties do intend legal relations. This presumption does not answer the question whether the parties actually entered into a contract undertaking. See Kleinwort Benson Limited v Malaysia Mining Corp Berhad [1989] 1 WLR 379, 383 (CA). What is required is sufficient evidence of a clear commitment to permit the inference to be drawn that the parties intended their agreement to be legally enforceable. Cf Gibson v Manchester City Council [1979] 1 WLR 294, 297 (HL). See also discussion A de Moor, Intention in the Law of contract: Elusive or Illusory? (1990) 106 LQR 632, 636.

The better interpretation of the dealings between these parties is that, on 21 September 1988, a reasonable observer would have understood that they had given a clear commitment and were bound to an agreement. That agreement, in plain terms, from the letter which was incorporated, obliged the appellant to provide the respondent Cenepro with "full funding", as stated, for a significant property development. The conduct of the respondents thereafter was entirely consistent with that interpretation of the promise of the appellant. The conduct of the appellant did not initially deny that promise; but rather affirmed it, in the facts found. In such circumstances, the law holds the appellant to that promise. Belated endeavours to reinterpret or qualify that promise should be rejected. I consider that this is the more commercially realistic conclusion. That opinion has brought me to the same result as Cole J reached.

The foregoing opinion sustains the judgment in favour of the respondents and Cole J's approach to their claim for relief, by way of their entitlement to damages for breach of the contract found. The conclusion obviates the necessity to explore at length the alternative bases upon which the respondents sought either to claim against the appellant (under the Trade Practices Act) or to fend off its claim for

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recovery from them (by estoppel). The respondents would be entitled to secure that measure of relief most beneficial to them. I did not understand them to argue that if they succeeded in contract, and recovered damages under that head, they additionally or alternatively sought relief under s87 of the Trade Practices Act or to prevent damage being suffered to them by the unconscientious conduct of the appellant. See The Commomwealth v Verwayen (1990) 170 CLR 394 and Lorimer v State Bank of New South Wales (above). I will, nevertheless, note briefly the appellant's arguments in regard to these heads of claim.

So far as the claim for relief on the basis of s52 of the Act is concerned, Cole J found that the evidence made it clear that the appellant:

".. did not intend to, and did not in fact, honour the representation." This was the representation to provide full funding to the respondents made at the meeting on 21 September 1988, including by the acceptance of the Devreal letter, and repeated thereafter by Mr Bembrick, including on 23 September 1988 when the promised letter Containing the confirmation of "full funding" was not forthcoming.

The appellant argued that Cole J had erred in attributing to the appellant the conduct of Mr Bembrick. Even if his conduct was misleading and deceptive or likely to mislead and deceive, he was not authorised to make representations and the respondents were aware of this from the alert they received from Devreal's broker. This argument has no merit. There was no contest but that Mr Anderson, as State Manager for the appellant had authority. After the meeting on 21 September 1988, it was open to reasonable inference that Mr Bembrick's representations were made in furtherance of the "arrangement" then made by the appellant with the respondents. Accordingly, whatever had been the position before that date the representations after that date were made with authority. No evidence was given for the appellant to gainsay this conclusion.

Then the appellant contended that Mr Anderson's representations had to be construed as they would be by a reasonable person in the position of the respondents in the relevant context. From this it was argued that the representation of "full funding", in terms of the Devreal letter, amounted to a representation "subject to formal contract". For the reasons already stated, this argument cannot be admitted as it was not the way in which the appellant conducted the trial. As Cole J's treatment of this issue again demonstrates, the appellant's case at trial was simply that a letter would be forthcoming, and it never was. This argument was rejected, rightly in my view, as lacking commercial reality.

Then the appellant argued that the respondents would know that they could not rely upon any such representation as was made to them without agreement on the relevant formal documentation. Being subject to documentation which required the total satisfaction of the appellant and its solicitors, a reasonable person in the position of the respondents would not have been misled by an "in principle" commitment to "full funding". Such a person would know that such a commitment was always subject not only to documentation but to the vicissitudes of the economy, particularly in the case of a facility for $6.5 million involving the acquisition and mortgage of land.

This argument can be rejected upon the same basis as the equivalent argument by which the appellant sought to defeat the claim in contract. There was no clear specification that the agreement on 21 September 1988 was provisional only. In the words used, and in what the parties thereafter did and said, it was clear that

the promise of full funding was made in order to get the respondents committed to the appellant so that they would not return to Devreal which had offered them such a commitment.

The appellants next argued that they had never refused to provide funding. They had made fourteen separate offers of funding, each of them adjusted to the circumstances of the time, the equity of the respondents and the economic situation generally. This may be so. But, as Cole J found, the offers, successively made, fell short of the promise of "full funding". That is what the appellant, through Messrs Anderson and Bembrick, represented to the respondents they would receive. Cole J concluded, by reference especially to internal memoranda but also to the whole conduct of the appellant and its officers, that it had never intended to provide "full funding". It did not so intend when it agreed as it did on 21 September 1988, and this despite the use in the Devreal letter which it adopted of that very phrase.

The respondents did not have to go so far as to establish that the representations made on behalf of the appellant were false when they were made. It was enough, for the respondents to succeed under s52 of the Act, to establish that when it made its representations, the appellant did not have reasonable grounds for making them. See the Act, s51A. The appellant complained that a case amounting to fraudulent misrepresentation had not been pleaded, as it should. It urged that, at worst, the facts simply supported a conclusion that it had changed its policy. Such a conclusion fell far short of positive deception at the time the promise" of "full funding" was made. My own interpretation of the facts differs somewhat from that reached by Cole J. The internal memoranda casting doubts upon the viability of the respondents as borrowers did not appear until many months after the representation on 21 September 198B that "full funding" would be provided. If necessary, I would prefer to conclude that the appellant, at that meeting did intend to provide full funding. But it rapidly went cold on the idea. And then, instead of frankly informing the respondents of the change of policy, continued, through Mr Bembrick, to spin the respondents along with what, by then, was the false promise that full funding would be afforded and confirmed by the much delayed letter. Such prevarication and lack of candour may be reprehensible. But it is not clear that they amounted to a deliberately false representation.

In view of the conclusion which I have reached on the claim in contract, it is not necessary for me to resolve this issue. The relief to which the respondents would be entitled under the Trade Practices Act involves the application of the measure of damages applicable in tort. Cenepro would be thus entitled, if it succeeded under the Act, to be put in the position that it would have been in if the representation of full funding had not been made. See Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1, 12f. However, although the respondents never abandoned their claim to relief under s87 of the Trade Practices Act, I will confine my attention to the relief afforded them by Cole J. This was in contract.

I can adopt a similar approach to the challenge to Cole J's finding that the appellant was estopped from denying that it was bound to provide full funding to Cenepro. Because I have concluded that the respondents were entitled to succeed in contract, it is unnecessary to explore the appellants' submission that an estoppel cannot arise which would prevent a party from denying the existence of an "agreement" which was not a legal agreement at all. Cf Austotel Pty Limited and Anor v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 584. If, as I have

URJ | CUSTOM CREDIT CORPORATION LTD v CENEPRO PTY LTD (kirby P) 23

found, the contractual obligation was proved, it is unnecessary, in the way the respondents presented the appeal, to explore the alternative relief to which they would be entitled to prevent unconscionable conduct and to do justice between the parties. See Verwayen, (above) and Lorimer (above). Cf Amalgamated Investment Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1982] QB 84, 103.

I see no reason to doubt Cole J's conclusion that an estoppel was proved, given his Honour's findings of the representations made by the appellant to the respondents, their reliance on those representations, and their actions, as a consequence, resulting in detriment to them.

It was open to the respondents to choose any form of relief available to them upon any basis in law upon which they could succeed. As they have succeeded in contract, they are entitled, if they so elect, to have their damages assessed in contract. That was the course adopted by them before Cole J. I therefore turn to the complaints about what his Honour did in that regard.

Cole J had before him a claim for damages based upon loss of the expectation of profit on the development. He had a cross claim by the appellant for the amounts owing to it for the sums extended to the respondents upon various security documents. There was no dispute about the total amount owing to the appellant in this way. The sum was agreed at $3,284,359.88. From that sum credit had to be given in respect of the charge enjoyed by the appellant over Mr Jamieson's bank bills. This credit of $120,309.30 reduced the sum owing to the appellant to $3,164,050.58. It was in that sum that his Honour entered judgment on the cross claim in favour of the appellant. That component of the adjustment of the entitlement of the parties has not been disputed.

Cole J then turned to calculate the amount owing to Cenepro for the breach of the promise which he had found the appellant had given that company to provide "full funding" for the Bellevue Hill property development. He had before him a claim for loss of profits on the development. Most of the reasons given 14 December 1990 are devoted to testing the various hypotheses by which the loss of profit could be calculated in the events which had occurred. It was acknowledged that proceeding to the calculating involved making a number of assumptions about what would have happened if the appellant had adhered to its contractual promise. To assist him in his task, his Honour had expert evidence which utilised alternative computer programmes. Into these was fed the data upon the essential variables from which a profit or loss on the venture would be derived. His Honour acknowledged the necessity to determine five variables, acting on the assumption that the appellant had provided Cenepro with "full funding. These variables were:

The date of the completion of the development and sale of the component parts;

The pre-sale of some of the components off the plan prior to such completion;

The cost of completing the project, including land consolidation costs, development expenses, construction expenses and interest and, if, as seemed likely, those costs went beyond the $6.5 million agreed between the appellant and Cenepro, whether additional finance would have been obtainable and if so upon what terms; and

As to the date of completion, by reference to the evidence Cole J concluded that it was probable that Cenepro would have been in a position to complete sales by 31 March 1990, had the appellant not breached its agreement. By reference to the evidence of an experienced real estate agent, which he accepted, Cole J concluded that sales of the units could have been achieved off the plan. This reinforced his view that settlement of all the sales by 31 March 1990, as suggested by Cenepro, would have been achieved.

There was a dispute between the experts called for the respective parties as to the value which would have been placed upon the project on completion and upon the assumption of sales of all units by 31 March 1990. The appellants' expert gave an estimation of $10.4 million. Cenepro's expert estimated $11.09 million. Cole J preferred the latter. He did to by reference to unsatisfactory features of the appellant's witnesses evidence. In the appeal, the appellant did not challenge the gross realisation of $11.09 million.

There was a similar dispute concerning the costs of construction.

Upon this matter too, Cole J had expert evidence and various quotations.

The figure he preferred was $3.3 million, being the top range of a figure contained in a report of Mr Fisher, an experienced quantity surveyor, prepared in February 1989. That report had been prepared at the request of Cenepro for incorporation in a valuation report requested by the appellant. It was therefore accepted by Cole J as an estimate:

".. which all of the parties relied upon for their commercial purposes in circumstances free of litigation."

In addition to the acquisition and construction costs, it was necessary to add various other minor costs, such as for selling, advertising, leasing commissions, insurance, rates and taxes and sundry expenses. The amounts allowed for these have not been disputed, most of them being allowed in the sums contained in the computer programme.

At a glance

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Judgment (488 paragraphs)

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Legislation Cited (1)

Cases Cited (34)