The collateral agreement: intention to create contractual relations
7The agreement pleaded by the respondent was that in early September 2008 DHBI promised that if the respondent entered into a lease with DHMB and provided DHBI with accommodation at the Manning at discount rates for overflow customers of The Briars, DHBI would purchase a minimum of $4,000 accommodation per month during the term of the lease (further amended statement of claim para 4A).
8By its defence, DHBI denied entering into an agreement in those terms but admitted entering into a separate and unrelated agreement to include the respondent on a list of preferred hotels used by DHBI to refer customers when it was unable to accommodate the overflow of The Briars' customers from time to time (defence to further amended statement of claim, paras 4 and 5).
9At the hearing, the principal issue in relation to the respondent's claim for breach of agreement was as to the terms of the agreement made which, as the primary judge observed at [48], focused attention on "what was said and agreed".
10A commercial property agent (Mr Larkin) was retained to lease the Manning. Before the primary judge, there was no question either as to his authority to make representations on behalf of DHMB and DHBI concerning the availability of overflow business from The Briars or as to the fact that Mr Duffy had authority to speak on behalf of the entity which owned and operated The Briars. Also it was not in contest before the primary judge that, although not specifically identified at the time of the negotiations, DHBI was that entity. During the course of argument of the appeal this question was raised, but ultimately was not pressed in the face of the admission made in the pleadings and the way the trial was conducted.
11In June 2008, Mr Larkin met with Bill Gye and his daughter, Julie Gye, and his son, Steven Gye. At that time the respondent company had not been incorporated. Bill Gye and his daughter became directors of the respondent when it was incorporated in late July 2008. On about 27 August 2008, they met with the third appellant at the Manning. Mr Duffy's email sent later on that day records that he had "just made a final inspection of the Manning Motel with Bill and Julie".
12The primary judge accepted the evidence of Bill Gye and his daughter and son as to their conversations with Mr Larkin and Mr Duffy concerning the overflow business. That evidence, as recorded by his Honour at [49], was to the following effect:
"(a) On or about 10 June 2008 Mr Gye Senior, his daughter Julie and his son Steven met with Mr Larkin at the site of the Manning, in the course of which the Gye Family (representing the plaintiff) expressed concerns about the viability of prospective business operations at the Manning (yet to be re-established after closure of the motel for renovations effected by the defendants) and Mr Larkin said words to the following effect:
"In addition to [income figures set out in the agent's Listing Details sheet] The Briars will purchase at least $60,000 per year in accommodation from the Manning for their overflow and maybe a lot more.... The Briars and the Manning are inextricably linked. The Manning should not be considered as a stand-alone business. The Manning operates to satisfy the accommodation needs of The Briars Convention Business and without such convention accommodation business to send to the Manning, the owners would not be opening it. The $60,000 in trade that The Briars will send the Manning is guaranteed".
(b) On or about 11 June 2008 Mr Gye Senior had a telephone conversation with Mr Larkin to the following effect:
Mr Gye said: "Where does this figure of $60,000 room sales from The Briars you mentioned... come from? It's not in your income assessment [in the Listing Details Sheet]".
Mr Larkin said: "The directors of the Briars [sic] have each told me to make this offer known to all enquirers to the Manning Lease".
Mr Gye said: "Did they tell you this when they were together?"
Mr Larkin said: "Each one told me this separately".
(c) On or about 13 June 2008 Mr Gye Senior (then contemplating taking a lease of the Manning through another corporate vehicle of the Gye family other than the plaintiff) said to Mr Larkin words to the following effect: "We will go ahead on the lease on the understanding that The Briars take the $60,000 in accommodation per year".
(d) On or about 27 August 2008 Mr Gye Senior and his daughter Julie (again representing the plaintiff) met the third defendant (a director, and the controlling mind, of both the first and second defendants) at the property, during the course of which an exchange between Mr Gye Senior and the third defendant to the following effect took place:
The third defendant said: 'When are you going to sign the Lease?'
Mr Gye said: 'We will not sign the Lease unless we have your assurance that you will take up the $5,000 per month in room sales that has been promised.'
The third defendant then said: 'The Briars will take $4,000 per month in room sales from you.'
Mr Gye said: 'Very well, we'll accept that and I'll sign the Lease when it is ready.'"
13His Honour found at [64] that "with the intention that the [respondent] would rely upon its promise, [DHBI, by Mr Duffy] promised the [respondent] that, if the [respondent] executed the lease, [DHBI] (as the operator of The Briars) would take $4,000 per month in room sales from the [respondent], as the operator of the Manning, throughout the duration of the lease" and that the respondent executed the lease in reliance upon that promise and would not have done so but for that promise. He concluded that the respondent's entry into the lease agreement gave rise to a contract which was collateral to the lease.
14Although his Honour did not expressly say so, that contract was constituted by DHBI's offer and its subsequent acceptance by the respondent. The offer was of the promise to purchase $4,000 room sales per month, if the respondent entered into the lease. That offer was accepted by the respondent's entry into the lease which also constituted its executed consideration for the making of that binding promise: Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; 92 CLR 424 at 456-457 (Dixon CJ, Williams, Webb, Fullagar and Kitto JJ).
15DHMB submits that the primary judge did not consider whether, in the circumstances, the parties were to be taken to have intended to create to create legal relations. Had he done so, it is said the primary judge should have concluded the parties' conduct did not objectively convey such an intention. In making that submission, DHMB does not challenge the primary judge's findings as to the consensus reached between the parties, as to the terms of that consensus and as to those terms being sufficiently certain as to be capable of giving rise to a legally enforceable agreement.
16Several arguments were made in support of the proposition that there was no intention to create legal relations. It was pointed out that the subject matter of the alleged agreement was a promise to purchase accommodation of $48,000 per year for the duration of the 15 year lease plus any period of renewal. It was said that if the parties intended to make an arrangement involving such a significant financial commitment on the part of DHBI, one would have expected it to have been recorded in writing. This was particularly so in circumstances where, at the time it was made, the solicitors for the parties were negotiating the "minutiae" of the lease and continued to do so until it was signed in mid-September. Reference was made to the absence of any specification, in relation to the arrangement which was made, as to the rates at which the room sales would occur, as to how the monthly amount of $4,000 would be invoiced and paid and as to whether it was to include GST. Whilst the omission of the parties to make express reference to these matters did not deprive their arrangement of the requisite certainty, it was said to be an indication that they were not intending to be legally bound. Reference also was made to the absence of any express identification of DHBI as the owner and operator of The Briars in any of the conversations found by the primary judge. Again the lack of attention to such detail was relied upon as indicating a lack of the requisite intention.
17As the primary judge noted at [47], to establish a collateral contract of the kind relied upon, it was necessary for the respondent to show that the parties objectively intended that the statement "The Briars will take $4,000 per month in room sales from you" was a promise offered by DHBI in consideration for the respondent's entry into the lease with DHMB: Australian Woollen Mills Pty Ltd at 461; JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; 119 CLR 435 at 442 (Barwick CJ, Kitto, Menzies, Owen and Walsh JJ); Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; 160 CLR 1 at 5 (Gibbs CJ).
18At trial it was not contended by the appellants that the parties were not to be taken, by their conversations between June and August 2008, to have intended to enter into a binding agreement with the operator of The Briars concerning its overflow custom. On the contrary, DHBI admitted the existence of such an agreement albeit one on terms which only required it to refer customers when it was unable to accommodate them. Nor was the issue presented to the primary judge whether the parties intended to be bound as a result of their consensus reached on 27 August 2008 rather than at some future time when a document recording the terms of their arrangement was brought into existence and executed: often described as a Masters v Cameron [1954] HCA 72; 91 CLR 353 dispute. That being the position, it is not surprising that the primary judge did not expressly consider whether the subject matter of the agreement and the relationship between the parties and other surrounding circumstances assessed objectively showed that they intended to create legal relations: see the discussion of this general issue in Ermogenous v Greek Orthodox Community [2002] HCA 8; 209 CLR 95 at [24], [25] (Gaudron, McHugh, Hayne and Callinan JJ).
19The primary judge addressed whether Mr Duffy's promissory statement was intended to constitute a binding promise offered in consideration for the entry into the lease by reference to what was objectively conveyed by what the parties said and did. In doing so, he made a number of findings concerning the context in which the relevant conversation occurred.
20Those findings, which are not challenged on appeal, include the following. The Manning had been acquired and renovated as an adjunct to the conduct of The Briars' business. Mid-week conference bookings were an important feature of the motel/hotel trade in the Bowral area and, as an established and popular outlet, The Briars had access to that trade but insufficient rooms to accommodate it. For that reason the appellants looked to the Manning as a means of benefitting The Briars' business. For the same reason, the respondent took comfort in the assurances given by Mr Larkin and Mr Duffy about a guaranteed source of critically important mid-week business to the Manning: [55].
21The statements as to the availability of overflow business were made in circumstances where the respondent had sought assurances which reflected the critical importance of the availability of that business to its preparedness to lease the Manning: [61]. Finally, within the motel/hotel industry there was nothing unusual about one outlet "purchasing" accommodation at another by means either of a direct purchase or indirectly through the establishment of a connection between a prospective guest and the supplier of the accommodation: [63].
22Thus before the meeting on 27 August 2008, the respondent had expressed concerns as to the viability of the business of the Manning. At the meeting Bill Gye sought and obtained assurances that a minimum monthly amount of accommodation would be taken by The Briars. At the same time, he made clear that he would not enter into the lease unless such an assurance was given. Mr Duffy's assurance that "The Briars will take $4,000 per month" was promissory in form and given to induce entry into the lease. Bill Gye's statement that he would "accept that" promise and sign the lease when it was ready confirmed an undertaking that what was offered was a binding promise given in return for entry into the lease.
23The primary judge did not err in concluding that the parties intended to create a binding agreement. Each of the matters relied upon by the appellants might, in different circumstances, have indicated a want of such an intention. However, here the subject matter, context and language of the parties conveyed that DHBI was to be bound to the terms of its offered promise to purchase accommodation if the respondent leased the Manning. There was no need for the parties to record their agreement in writing. It was not complicated or lacking any detail necessary to give it sufficient certainty; and was an arrangement that also would benefit The Briars. Finally, by its defence DHBI admitted that by its oral communications with the respondent it intended to give rise to some form of legally binding arrangement. That defence was never withdrawn. For these reasons, grounds of appeal 1 to 7 must be rejected.