Fulham Partners LLC v National Australia Bank Ltd

G Tolhurst, The Assignment of Contractual Rights (Hart Publishing, 2006) at [6.82]-[6.88] Category: Principal judgment Parties: Fulham Partners LLC (First Appellant) Portsmouth Partners LLC (Second Appellant) National Australia Bank Limited (First Respondent) National Markets Group Ltd (Second Respondent) AUSMAQ Ltd (Third Respondent) Idoport Pty Ltd (In liq) (Receivers Appointed) (Fourth Respondent) John Sheahan (Fifth Respondent) Ian Russell Lock (Sixth Respondent) Representation: Counsel:

R G McHugh SC/T L Wong (Appellants) N J Young QC/J R Williams (First, Second and Third Respondents) Submitting appearances (Fourth, Fifth and Sixth Respondents) Solicitors:

Atanskovic Hartnell (Appellants) Freehills (First, Second and Third Respondents) Kemp Strang (Fourth Respondent) DMAW Lawyers (Fifth and Sixth Respondents) File Number(s): CA 2012/194953 Decision under appeal Jurisdiction: 9111 Citation: In the matter of Idoport Pty Ltd ACN 075 318 106; In the matter of Idoport Pty Ltd (In Liq) (Receivers Appointed) [2012] NSWSC 524 Date of Decision: 2012-05-24 00:00:00 Before: Ball J File Number(s): SC 2011/85023

Judgment 1BASTEN JA: In 1996, National Australia Bank Ltd and related companies ("the NAB parties") purchased from Mr Maconochie (and companies associated with him) an automatic securities trading system. In September 1996, the NAB parties entered into an agreement with Mr Maconochie's company, Idoport Pty Ltd ("Idoport") for the latter to provide consulting services with respect to the trading system for a service fee. In September 1998, Idoport and a related company commenced proceedings against the NAB parties seeking damages for breaches of the consulting agreement said to total more than US$29 billion. In January 2002 Einstein J dismissed the proceedings because of a failure by Idoport to provide security for costs. Einstein J ordered that Idoport "be barred from bringing fresh proceedings ... until costs in these proceedings have been paid in full". That order, and a later undertaking to similar effect, prevented Idoport from commencing proceedings either in Australia or in another country with respect to its claims under the consulting agreement. 2In March 2005 Idoport granted charges over all its rights, property and undertaking to Fulham Partners LLC ("Fulham") and Portsmouth Partners LLC ("Portsmouth") (unless differentiated, "the appellants") in return for an agreement by Fulham, with the support of Portsmouth, to lend $10 million to Idoport. The only significant asset of Idoport was its rights under the consulting agreement. However, the charges did not extend to those rights unless the NAB parties consented to the granting of a charge over that property, or the appellants gave notice that the property secured under the charge should be taken to include those rights. On 16 March 2006 Idoport made its first request to the NAB parties for such consent. The request was rejected, but not until February 2007. Meanwhile, on 9 January 2007 the appellants served a notice purporting to extend the property secured by the charges to include Idoport's rights under the consulting agreement. 3On 3 September 2008, on the NAB parties' application, the Court ordered that Idoport be wound up and appointed a liquidator. Some 10 weeks later, on 25 November 2008, the appellants purported to appoint a receiver over the assets and undertakings of Idoport secured by the charges. On 9 March 2011, the NAB parties commenced proceedings in the Equity Division seeking declarations that Idoport's rights under the consulting agreement did not constitute secured property under the charges and that the appointment of the receiver with respect to that property was invalid. 4On 24 May 2012, Ball J made the declarations sought by the NAB parties: In the matter of Idoport Pty Ltd ACN 075 318 106; In the matter of Idoport Pty Ltd (In Liq) (Receivers Appointed) [2012] NSWSC 524. The orders were as follows: "1 Declare that the rights of the Fifth Defendant under the Consulting Agreement between the Fifth Defendant and the Plaintiffs dated 13 September 1996 do not, by reason of any notice issued by the Third Defendant and/or the Fourth Defendant on 9 January 2007, or otherwise, constitute "Secured Property" pursuant to: (a) the Fixed and Floating Equitable Charge between the Fifth Defendant and the Third Defendant dated 30 March 2005; and/or (b) the Fixed and Floating Equitable Charge between the Fifth Defendant and the Fourth Defendant dated 30 March 2005, as that expression is defined in those Charges. 2 Declare that the appointment of the First Defendant and the Second Defendant as Receivers of the Fifth Defendant, insofar as that appointment relates to the rights of the Fifth Defendant under the Consulting Agreement entered into with the Plaintiffs dated 13 September 1996, is invalid. 3 Dismiss the interlocutory processes filed in proceedings 2007/254047 and 2011/85023 on 3 May 2011. 4 Order that the third and fourth defendants pay the plaintiffs' costs." 5Fulham and Portsmouth both appealed against those orders. For the reasons given below, the appeal should be dismissed with costs.

(1) Issues at trial 6The two substantive issues raised in the proceedings below, as identified by the primary judge, were, (a) whether the NAB parties' consent was necessary for the charges validly to extend to Idoport's rights under the consulting agreement, and (b), if so, whether that consent had been unreasonably withheld: at [45]. The primary judge also identified two subsidiary issues, each of which related to the second substantive question. The first was on which party the onus of proof lay to establish that the withholding of consent was unreasonable. The second was the admissibility of certain internal emails of the NAB parties, indicating that consent should be refused, and the letters sent to Idoport by the NAB parties, withholding consent. 7So far as the substantive issues were concerned, the primary judge held that the consent of the NAB parties was necessary for the charges to extend to Idoport's rights under the consulting agreement and that the consent sought had not been unreasonably withheld. So far as the subsidiary issues were concerned, he held that the onus lay on those asserting that consent had been unreasonably withheld (namely the appellants) to establish unreasonableness. Further, the primary judge held that the documents relied upon by the NAB parties were admissible, not only to demonstrate how and when the NAB parties rejected the request for consent, but also as evidence of the matters relied upon in taking that action.

(2) Background circumstances 8The rights in question arose under the consulting agreement, to which there were four parties. Three, being the plaintiffs in the Court below, were National Australia Bank Ltd, Valenti Pty Ltd and AUSMAQ Ltd (collectively referred to below, as here, as "the NAB parties"). (Valenti is now known as National Markets Group Ltd ("NMG").) The agreement was to run for five years, unless extended by NMG: clause 8. Pursuant to the agreement, NMG was required to pay a "service fee" to Idoport, for the services of four nominated consultants (including Mr John Maconochie). The fee accrued in an amount of $85,000 per month, whether services were required or not. In addition, NMG was required to pay "performance bonuses" which were calculated as a percentage of gross operating revenue, fixed at 13.5% or 12.5% (depending upon the tax deductibility of the payment) while the cost-to-income ratio was under 45%, with a tapering reduction as the ratio rose to 85%: clause 7 and Schedule 2. The origin of the litigation which ensued was briefly identified by the primary judge at [7]: "On 24 September 1998, Idoport and a related company, Market Holdings Pty Limited, commenced proceedings in this court against a number of companies in the NAB Group as well as several NAB executives. On 1 March 1999, Idoport and Market Holdings commenced further proceedings against NAB's former managing director, Mr Donald Argus. The plaintiffs in the two proceedings ... claimed damages totalling in excess of US$29 billion arising from alleged breaches of the Consulting Agreement, misleading or deceptive conduct and breach of fiduciary duty. The claims included a claim that the NAB Parties had delayed the commercialisation of the AUSMAQ service and, in doing so, had deprived Idoport of its performance bonus." 9Pursuant to the order made by Einstein J on 29 January 2002, the Idoport parties were barred from bringing fresh proceedings "concerning any cause of action or the whole or any part of any claim for relief by any of them in these proceedings, until costs in these proceedings have been paid in full". Idoport sought, unsuccessfully, to appeal the judgment of Einstein J, both in this Court and by way of application for special leave to appeal to the High Court. 10The consulting agreement not only set out the rights, Idoport's claims in respect of which remain in dispute, but also provided for the possibility of assignment, encumbrance or disposal, in the following terms: "20.1 Assignment generally The rights and obligations of each party under this Agreement are personal. They cannot be assigned, encumbered or otherwise dealt with and no party will attempt, or purport, to do so without the prior consent of the other parties (not to be unreasonably withheld)." 11The costs to be paid in order to lift the barring order were assessed on 14 February 2007 as in excess of $42 million. By the time the matter came before the primary judge the amount had increased to approximately $85 million: at [29]. 12The agreements between the appellants and Idoport provided for Fulham to provide litigation funding to Idoport and for Portsmouth to subscribe to shares worth, at least in a first tranche, $1 million. The loan agreed to by Fulham was in an amount up to $10 million. Each agreement was secured by Idoport executing charges, "as beneficial owner, all of its right, title and interest in, to and under the Secured Property" (cl 3.1) in favour of each appellant. "Secured Property" was a defined term, cl 1.1 of each charge providing: "Secured Property means, subject to clauses 3.2, 3.3 and 3.4, all the present and future rights, property and undertaking of the Chargor of whatever kind and wherever situated and includes Capital but does not include the Excluded Property unless and until the circumstances specified in clause 3.2 or clause 3.3 occur. A reference to Secured Property includes any part of it." 13The term "Excluded Property" was defined to mean the rights and obligations of Idoport "under the Consulting Agreement": cl 1.1. Thus the provisions at the heart of the dispute turned on the operation of cll 3.2, 3.3 and 3.4, which were in the following terms: "3.2 Consent of NAB to charge over Excluded Property If required by the Chargee, the Chargor must seek the written consent of NAB to the granting of a fixed charge in favour of the Chargee over the Excluded Property on the terms and conditions set out in this charge. If NAB consents to the granting of such a charge, then immediately upon the granting of such consent, the Secured Property shall be taken to include the Excluded Property and the Chargor shall be taken to have charged, as beneficial owner, all of its right, title and interest in the Excluded Property to the Chargee as security for payment of the Secured Money. 3.3 Notice extending charge over Excluded Property Notwithstanding clause 3.2, whether or not NAB consents to the granting of such a charge, the Chargee may at any time by notice to the Chargor declare that the charge in 3.1 will extend to, and operate as a fixed charge over, the Chargor's right, title and interest in the Excluded Property. Immediately upon the giving of such notice, the Secured Property shall be taken to include the Excluded Property and the Chargor shall be taken to have charged, as beneficial owner, all of its right, title and interest in the Excluded Property to the Chargee as security for payment of the Secured Money. 3.4 No charge over Excluded Property until consent or notice given For the avoidance of doubt, the Secured Property will not include the Excluded Property and nothing in this charge will operate as an Encumbrance over, or Security Interest in, the Excluded Property unless and until consent from NAB is received under clause 3.2 or the Chargee gives notice to the Chargor under clause 3.3." 14Idoport's first request for consent, pursuant to cl 3.2, made in March 2006 attached copies of the charges, dated 30 March 2005, and noted that the charges did not extend to the excluded property. Idoport sought consent from the NAB parties to the granting of the charges over the excluded property. Although the appellants challenged the use made in evidence of two letters from the NAB parties in response dated 7 and 12 February 2007, that challenge should be dismissed, for reasons set out below. It is convenient to refer to that material to explain the fate of the request. 15On 27 April 2006, the NAB parties expressed concern that Idoport had purported to charge its property "in favour of third parties resident outside the jurisdiction and with no prior notice to [the NAB parties]". In particular, the NAB parties referred to clause 3.3 by which Idoport "has purported to permit third parties to acquire or deal with Idoport's rights under the Consulting Agreement in breach of clause 20.1". They sought reasons from Idoport as to why it had taken that course and why it was now seeking written consent. 16Idoport did not respond until 22 November 2006. Its response was non-committal and largely uninformative, but confirmed that the appellants had requested that Idoport seek consent from the NAB parties. 17On 9 January 2007, before a response had been received from the NAB parties, each of the appellants sought to exercise its rights under clause 3.3 to extend the respective charges to the excluded property. 18On 7 February 2007, NMG and AUSMAQ responded to Idoport in terms which were replicated in a letter from the Bank, dated 12 February 2007. The NAB parties expressed their continuing concern with respect to the effect of clause 3.3 and reserved their rights with respect to Idoport's conduct in that regard. The NAB parties declined consent to the proposed extension of the charges, noting that they had taken into account the following matters:

• the terms of the Consulting Agreement;
• that Idoport has purported to charge its property in favour of third parties resident outside the jurisdiction and with no prior notice to NMG and AUSMAQ or the other party to the Consulting Agreement;
• that there has been a long-running dispute between the parties as to the proper construction of the Consulting Agreement and as to the respective parties' entitlements in relation to the Consulting Agreement;
• that NMG and AUSMAQ are major unsecured creditors of Idoport;
• that the amount of funds that Idoport can access under the Loan Agreement and the Share Subscription Agreement are not sufficient to discharge the likely quantum of Idoport's total indebtedness to NMG and AUSMAQ;
• that there has been an Event of Default under the Loan Agreement between Idoport and Fulham as a result of NSW Supreme Court Equity Division proceedings 50046 of 2005 having been dismissed and Idoport has given no details of what moneys have been drawn down under the Loan Agreement or whether that Event of Default has been waived, or whether a demand has been made for repayment or whether Fulham has given notice to Idoport that Fulham's obligations under the Loan Agreement have been terminated;
• that there has been an Event of Default under the Share Subscription Agreement between Idoport and Portsmouth as a result of NSW Supreme Court Equity Division proceedings 50046 of 2005 having been dismissed and Idoport has given no details of whether that Event of Default has been waived or whether Portsmouth has given notice to Idoport that Portsmouth's obligations under the Share Subscription Agreement have been terminated;
• that the circumstances surrounding, and the reasons for, Fulham and Portsmouth requesting Idoport to seek NMG's and AUSMAQ's consent to the extension of the Charges have not been explained. 19As noted in recounting the procedural history, on 3 September 2008, White J granted an application brought by the NAB parties and other parties as creditors of Idoport, seeking its winding up on the basis of its insolvency. 20By deeds of appointment dated 20 November 2008 (and accepted on 25 November 2008) each of the appellants purported to appoint Mr MJM Smith (of Smith Hancock, Chartered Accountants) as receiver of the property covered by their respective charges. 21On 16 December 2009 Mr Smith wrote to the NAB parties, on behalf of Idoport, requesting consent to the extension of the charges to cover the excluded property. The letter noted that Idoport was entitled to charge its property, other than the excluded property, without prior notice to the NAB parties. The letter stated that prior notice of its intention to extend the charges to cover the excluded property had been given, by the letter seeking the NAB parties' consent. (There was no real attempt to deal with the effect of entering into the charges, including clause 3.3.) The expressed purpose for seeking consent (apart from the removal of a risk that a court might find consent was necessary) was said to be to allow the receiver to assign the rights under the consulting agreement to a third party "for appropriate consideration". The receiver said he expected that Idoport "would then receive a surplus of funds after repaying its secured creditors". (The NAB parties were not secured creditors.) There was no suggestion that sufficient funds would be available to pay the outstanding costs order and it appears to have been assumed that Idoport itself would not be able to sell its rights under the consulting agreement as an assignee "would have to deal with the blocking effect of the gross sum costs order". 22The solicitors for the NAB parties responded on 5 February 2010. The letter denied the receiver's capacity to exercise any power of Idoport or take any step with respect to Idoport's rights under the Consulting Agreement. It referred to the letters of 7 and 12 February 2007 in which consent had been refused to Idoport (before the appointment of the receiver). 23The original receiver was replaced on 2 August 2010 with Messrs Sheahan and Lock, who became the first and second defendants in the current proceedings (and the fifth and sixth respondents on the appeal).

(3) The pleaded cases 24On 9 March 2011 the NAB parties commenced proceedings against the receivers, the appellants and Idoport. On 17 March 2011 the NAB parties filed a statement of claim which included particulars of the allegation then presented by the NAB parties that the withholding of consent was not unreasonable. It is desirable to set out the particulars in full as they were said to contain 'new material', in the sense of matters not contained in the NAB parties' letters withholding consent. Particulars It was not unreasonable for the NAB Parties to withhold their consent in circumstances where: (a) clause 20.1 of the Consulting Agreement provided that the rights of the parties were personal; (b) Idoport had, with no prior notice to the NAB Parties, purported to charge its property in favour of the Funders who were parties resident outside the jurisdiction and who may reasonably have been apprehended to contest their amenability to the jurisdiction; (c) there was a long running dispute between Idoport and the NAB Parties as to the proper construction of, and the respective parties' rights under, the Consulting Agreement; (d) the NAB Parties were the largest unsecured creditors of Idoport and the effect of granting the consent sought would be to grant the Funders priority to Idoport's only asset of any significance to the direct detriment of the NAB Parties as unsecured creditors; (e) the amount of funds that Idoport could access under its agreements with the Funders was not sufficient to discharge Idoport's indebtedness to the NAB Parties; (f) Idoport had given no details of what amounts had been drawn down under its agreements with the Funders, whether the event of default under those agreements resulting from the dismissal of the MasterKey Proceedings had been waived, or whether the Funders had given notice to Idoport terminating those agreements; (g) Idoport had not explained the circumstances surrounding, nor the reasons for, the Funders' request that Idoport seek the NAB Parties' consent to the extension of the Charges; (h) Idoport had provided no evidence that there was any party ready, willing and able to pay the outstanding costs owing to the NAB Parties as a pre-condition to further prosecution of Idoport's rights under the Consulting Agreement; (i) the NAB Parties had been exposed to very significant cost and inconvenience of defending claims brought by Idoport over a period of almost 10 years, which resulted in the NAB Parties obtaining a costs order now in excess of $70 million which (at the time of the refusal) remained wholly unpaid; (j) the Funders are litigation funders who funded the MasterKey Proceedings which Idoport sought to prosecute notwithstanding the Barring Order and in a manner held to be an abuse of process. 25Particulars (e), (h)-(j) might be described as additional to those relied upon by the NAB parties in their letters of 7 February 2007. They do not, however, raise an entirely novel consideration. It may also be said that the second limb of (b) (following the word "and") and the material in (d) (following the word "and") was additional to the matters identified in the letter, at least involving a degree of elaboration. There was no evidence to demonstrate that the NAB parties had relied upon these additional considerations at the time of refusing consent, except to the extent that such reliance could be inferred from the matters raised in the letters of February 2007. To the extent that they were truly novel, an inference may have been available that their absence from the letters indicated they had not in fact been relied upon. There was an issue as to their relevance, in the event that the Court was not satisfied that they were matters actually relied upon in withholding consent. 26The NAB parties' case, as set out in their statement of claim, was reasonably straightforward: Idoport's rights under the consulting agreement could not be assigned to any person without the consent of the NAB parties. That consent had not been forthcoming. 27The amended defence confronted that case at a number of levels. Most directly, it acknowledged the claim and sought to meet it by alleging that the withholding of consent was unreasonable: amended defence, 6 February 2012, paragraphs 11-13 and 17-18. However, it also denied that consent was necessary under cl 20.1 of the consulting agreement for Idoport to enter into the charges, or for the extension of the charges to cover Idoport's rights under the consulting agreement; it denied that the extension by notice under clause 3.3 required consent and argued that clause 20.1 was void: amended defence, paragraph 20. It is clear that some of the issues thus raised in the pleadings fell away before or during the trial. 28It is relevant to note how the issue of unreasonable withholding of consent arose. Although the NAB parties pleaded that their withholding of consent had not been unreasonable (statement of claim, par 21), it was not apparent from that pleading that anything turned on that question. 29On 3 May 2011 the appellants sought "interlocutory relief", including a declaration that consent had been unreasonably withheld and a declaration that Idoport was "discharged from any obligation to obtain the consent of [the NAB parties] to charge its rights under the Consulting Agreement to [the appellants]": par 5. Although the written submissions of the appellants before the primary judge sought relief in terms of the orders sought in the interlocutory process, little was said by way of submissions in support of such orders. 30If it were assumed that consent had been unreasonably withheld, there might be a real issue as to whether the only remedy available would be a claim in Idoport against the NAB parties in damages. It was by no means clear on what basis an unreasonable withholding of consent "discharged" any obligation of Idoport to seek and obtain consent. Because the primary judge concluded that consent was not unreasonably withheld, these issues did not arise for determination by him. 31The primary judge identified four issues for determination, at [45]. The appellants did not contradict this statement. The second issue was "whether the NAB Parties' consent was necessary for the Charges to be effective". The primary judge dealt with this issue at [62]-[64], applying the reasoning of the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85: discussed at [47]-[48] and applied at [62]-[64]. There was no challenge to the determination of that issue. Thus, it was not contended by the appellants that either the entry into the charges, or the notice under clause 3.3, given by the appellants, was effective, as against the NAB parties, to render the rights of Idoport under the consulting agreement part of the secured property under the charges.

(4) Grounds of appeal 32The notice of appeal filed on 20 August 2012 contained grounds set out in 11 paragraphs under four headings. Grounds 10 and 11, described as "Other grounds" were not pressed and need not be addressed. Ground 1 dealt with "Onus of proof" and will be addressed below. Grounds 5-9 were headed "Unreasonable withholding of consent". Ground 5 involved a challenge to the admissibility of documents and will be addressed below. Grounds 6 and 7 challenged findings with respect to withholding of consent in February 2007; ground 8 alleged an improper purpose in respect of the withholding of consent in both February 2007 and February 2010, whilst ground 9 was directed to the withholding of consent in February 2010. The submissions of the appellants in regard to these matters will be addressed below and nothing is gained from setting out the precise terms of the grounds. There remained three grounds under the heading "Declaratory relief" which were in the following terms: "2 His Honour erred in holding that the rights of Idoport under the Consulting Agreement do not constitute 'Secured Property' pursuant to the Charges (Judgment, paragraph 96). 3 His Honour erred in holding that the appointment of Messrs Lock and Sheahan as Receivers of Idoport, insofar as that appointment relates to the rights of Idoport under the Consulting Agreement, is invalid (Judgment, paragraph 96). 4 His Honour erred in failing to hold that Idoport was discharged from any obligation to obtain the consent of the NAB Parties to charge its rights under the Consulting Agreement to the Chargees." 33The appellants' substantive case on appeal was restricted to the contention that the withholding of consent in both February 2007 and February 2010 was unreasonable. However, the consequence of success on that basis was not explored. It seems to have been assumed (though never fully articulated) that an unreasonable withholding of consent was equivalent to consent. On that approach, the unreasonable withholding of consent was not a mere breach of contract, but amounted affirmatively to the grant of consent. If that assumption were wrong, it would have been necessary to consider why the allegation of unreasonable withholding of consent was relevant: the appellants made no claim for breach of contract and would have faced difficulties had they done so. Nor did Idoport make such a claim (or any claim). However, in the absence of an affirmative case as to the consequences of unreasonably withholding consent, any finding with respect to the reasonableness or otherwise of the conduct of the NAB parties is immaterial. 34In saying that there was an assumption underlying the appellants' argument, which was not fully articulated, it is appropriate to address the argument to the extent it was articulated. It was first identified by senior counsel for the appellants at the beginning of his argument, in reference to cl 20.1 of the consulting agreement. He stated (Tcpt, 14/05/13, p 2): "Shortly put, the submission about the construction of the clause is, although prima facie assignment is prohibited, the clause permits assignment in either of two cases. First, when the NAB parties consent and secondly when they unreasonably withhold and there is a long line of cases accepting that in the situation where the consent is unreasonably withheld, the other party is at liberty to assign. They don't need to go to Court to establish that." 35The proposition was adverted to again, without further exposition, at Tcpt, p 6. There was some further brief discussion as to whether cl 20.1 was to be read as a prohibition subject to a conditional release or, as the appellants submitted, "a right to assign, or the ability to assign, which is constrained in a particular way": Tcpt, p 48. In that context, counsel for the appellants referred in passing to the decision of the House of Lords in Mackay v Dick (1881) 6 App Cas 251. However, Mackay was a somewhat different case. It involved a contract for the sale of an excavator, on condition that it passed a specified test. The test required the co-operation of the purchaser. There was an implied obligation on the purchaser to permit the test to be carried out. The purchaser was found to have breached that obligation and thus subverted the condition which determined whether or not it was liable to pay the purchase price. The House of Lords held that the vendor was entitled to judgment for payment of the price of the machine. 36Mackay v Dick was not referred to in the written submissions of either party, or in the judgment of the primary judge. The remedy it espoused could only apply by analogy. It has been noted that there was no discussion in the House of Lords as to remedy: E Peel, Treitel - The Law of Contract (12th ed, 2007) at [2-116]. The comment in Treitel continued: "In principle it seems wrong to hold him so liable, for such a result ignores the possibility that the machine might have failed to come up to the standard required by the contract, even if proper facilities for trial had been provided. It is submitted that the correct result in cases of this kind is to award damages for breach of the subsidiary obligation.... To hold the party in breach liable for the full performance promised by him, on the fiction that the condition had occurred, seems to introduce into this branch of the law a punitive element that is inappropriate to a contractual action. The most recent authorities rightly hold that such a doctrine of 'fictional fulfilment' of a condition does not form part of English law." 37Mackay v Dick has been referred to in the High Court, but generally in relation to the implied obligation of co-operation, not in reference to the remedy. There are large questions, involving both fact and law, as to whether a condition is taken to be satisfied only where one party has rendered its fulfilment "impossible" and whether clause 20.1 should be construed in the way proposed: cf Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181 at 188 (a judgment of the Privy Council delivered by Sir Harry Gibbs). It was no part of the NAB parties' case that such a principle applied. It was a matter for the appellants to make good, if they wished to do so. As they did not clearly identify this as an issue in the proceedings, no finding should be made. Nor should the assumption be accepted. 38It is possible that counsel for the appellants had in mind the line of authority dealing with assignment of leases where, either by the terms of the lease, or pursuant to statute (eg Conveyancing Act 1919 (NSW), s 133B(a)) assignment is prohibited without consent of the lessor, but requiring that such consent is not to be unreasonably withheld. There is a line of authority for the proposition that, where consent is unreasonably withheld, the prohibition does not operate and the lessee is entitled to exercise a common law right to assign: Treloar v Bigge (1874) LR 9 Ex 151; Wing v Kensit (1921) 21 SR (NSW) 464 at 470 (Street CJ in Eq). However, those cases have no direct application in respect of the assignments of benefits under a contract, the relevant principles with respect to which are illustrated by the reasoning in Linden Gardens. Because the appellants did not challenge the conclusion of the primary judge, based on Linden Gardens, that "a purported assignment of a contractual right in breach of a provision of the contract prohibiting assignment is ineffective" (at [47]-[48]), little attention was paid to the consequences of the reasoning in that case. Nor was the elision noted between that proposition and the next step in the reasoning, the primary judge stating at [49]: "Where the effectiveness of an assignment (or charge) depends on the consent of the obligor and that consent is not to be withheld unreasonably, the question of what matters the court should take into account in determining whether consent has been withheld unreasonably also depends on the particular terms of the contract in question." 39In these circumstances, it is helpful to refer further to the reasoning of Lord Browne-Wilkinson (accepted by other members of the House of Lords) in Linden Gardens. The case was concerned with a standard form building contract between an employer (or principal) and a contractor engaged to undertake building works. The relevant provision, cl 17, was in the following terms: "17(1) The employer shall not without the written consent of the contractor assign this contract. (2) The contractor shall not without the written consent of the employer assign this contract, and shall not without the written consent of the architect (which consent shall not be unreasonably withheld to the prejudice of the contractor) sublet any portion of the works. Provided that it shall be a condition in any subletting which may occur that the employment of the subcontractor under the subcontract shall determine immediately upon the determination (for any reason) of the contractor's employment under this contract." 40Linden Gardens, being the assignee of the principal (or employer) submitted that it was "normally unlawful as being contrary to public policy to seek to render property inalienable" and that, since contractual rights were a species of property, a prohibition on assignment was illegal: at [106]. In rejecting that submission, Lord Browne-Wilkinson distinguished between rights over land and rights in choses in action, stating at [107]: "Certainly in the context of rights over land the law does not favour restrictions on alienability. But even in relation to land law a prohibition against the assignment of a lease is valid. We were not referred to any English case in which the courts have had to consider restrictions on the alienation of tangible personal property, probably because there are few cases in which there would be any desire to restrict such alienation. In the case of real property there is a defined and limited supply of the commodity, and it has been held contrary to public policy to restrict the free market. But no such reason can apply to contractual rights: there is no public need for a market in choses in action. A party to a building contract, as I have sought to explain, can have a genuine commercial interest in seeking to ensure that he is in contractual relations only with a person whom he has selected as the other party to the contract." On this basis, he rejected the submission based on public policy: the reasoning has significance with respect to the factors which may properly be taken into account in withholding consent. 41That the consequence of the absence of consent (whether reasonably or unreasonably withheld) was recognised as arising in the proceedings is apparent from the pleadings: the fact that they have not been pursued, either at trial or on appeal, is a matter of importance, both in determining the scope and nature of issues raised on the appeal and in considering the consequences of the final determination of the proceedings. (A more complete consideration of the issues raised by contractual provisions preventing (whether conditionally or absolutely) assignment of interests in contract may be found in G Tolhurst, The Assignment of Contractual Rights (Hart Publishing, 2006) at [6.82]-[6.88].)

(5) Withholding consent - preliminary questions 42The starting point for inquiry into the issues agitated on this appeal is to identify the legal principles pursuant to which the reasonableness (or otherwise) of the refusal is to be characterised. As the trial judge recognised, this inquiry has two elements, namely, (a) content and (b) timing. Regarding content, the question is what kind of factors may properly be taken into account by the party whose consent is sought. Regarding timing, the question is whether the relevant factors are limited to those known to and relied upon by the party whose consent is sought at the time consent is withheld, or whether they include factors which either were not known to the party at the time of refusal or, if known, were not subjectively relied upon at that time. These elements are interrelated.

(a) subjective intentions 43It was not in dispute that the subjective intentions of the NAB parties in refusing consent were relevant: there was disagreement as to whether they were determinative. In one respect they might clearly have been determinative, namely if the appellants sought to establish that the NAB parties acted for a collateral, improper or extraneous motive. However, there was a level of uncertainty as to whether the appellants' case relied on improper purpose, or merely alleged reliance on factors which were irrelevant in a legal sense. Thus senior counsel for the appellants identified the issue as concerning factors "extraneous to the subject matter of the contract" and eschewed any suggestion of "moral obloquy": Tcpt, 14/05/13, p6. Nevertheless, he argued that (putting to one side the implicit question of which party bore the onus of proof) it was necessary for the trial judge to be satisfied that the NAB parties were not motivated by considerations falling outside those accepted as permissible in law. If the NAB parties put forward no good reasons for withholding consent, or the reasons they asserted were unpersuasive, it might more readily be inferred that they were motivated by a legally extraneous purpose. Alternatively, if they contemporaneously put forward good reasons, admissible in the court proceedings, the inference of an extraneous purpose would be weakened. To the extent that the NAB parties were entitled to justify their stance by reference to circumstances of which they were not aware at the time of refusing consent, their actual state of knowledge at that time might still be relevant. 44In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; 144 CLR 596 at 610, Mason J (with whom other members of the Court agreed) adopted a statement that "the reason for refusal must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and not something extraneous and dissociated from the subject matter of the contract": Colvin v Bowen (1958) 75 WN (NSW) 262 at 264 (Walsh J). To similar effect, Warrington LJ in In Re Gibbs and Houlder Brothers and Co Ltd's Lease [1925] Ch 575 at 584 stated that "the outstanding circumstances to be considered are the nature of the contract to be construed, and the relations between the parties resulting from it"; a passage adopted by Nettle J in Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385 at [26]. In the latter case, Nettle J also approved a passage from the judgment of Lord Denning in Bickel v Duke of Westminster [1977] QB 517 at 524 where, in the context of a lease, it was said that "in order to be reasonable, the landlord's refusal must be based on (i) either the personality of the assignee or (ii) the user or occupation of the premises". Other reasons were said to be extraneous. 45Propositions at such a high level of generality do not necessarily convey where to draw the boundary between the legitimate and the extraneous. That is partly because, where the parties have stipulated that an assignment cannot be made without consent which must not be unreasonably refused, the concept of "unreasonable refusal" is not an abstract point of law, but a matter to be understood in the context of the particular contract: Cathedral Place at [27]. Further, there are grounds which, abstractly, might be thought legitimate, in terms of a broadly stated principle, but which in particular cases have been rejected. 46In Secured Income, the High Court upheld a refusal as not unreasonable where the purchaser of a property withheld consent for the vendor to lease various portions of a large office building on the basis that the purchaser entertained reasonable doubts that the vendor would or could pay the rent promptly. The effect of the purchaser's refusal was to reduce the purchase price of the property, because the aggregate rents were below a figure fixed in the contract. Mason J stated at 610: "Approaching the contract in the present case in the light of these observations, I conclude that the respondent was not entitled to refuse to grant a lease to the appellant so as to deprive the appellant of a benefit which would otherwise accrue to it under the contract. A refusal on that ground would be capricious and arbitrary. On the other hand, a refusal on the ground that there were doubts that the appellant could or would pay the rent promptly would, if the ground were made out, not be capricious or arbitrary."

(b) extant reasons unknown to party exercising power 47While the subjective intention of the party with the power to withhold consent is relevant, there is a separate question as to whether the party needs to have good reason to withhold consent at the time of the refusal, or whether the later discovery of a facts providing good reason may be sufficient. In Secured Income at 611, Mason J stated: "I am inclined to the view that the landlord is entitled to rely on a ground not taken at or about the time of refusal. It would be most unjust if the landlord could not take advantage of an important ground justifying refusal merely because it was not known to him at the time, eg the impending bankruptcy of the proposed assignee. In the context of this case, the reasons for allowing the respondent to advance a ground not communicated at the time of refusal are rather stronger. There is here no question of informing a lessee so that he can decide whether he should assign or not. And the general rule in contract is that a party can justify his termination or rescission of a contract by reference to grounds not taken at the relevant time (Shepherd v Felt and Textiles of Australia Ltd [(1931) 45 CLR 359])." 48Although the proposition set out above commences with a non-decisive indication of inclination, it is clear that Mason J adhered to the views so expressed. Thus, he later stated that the trial judge "was wrong to exclude from considerations matters not known to the respondent" on the date of refusal: at 614. However, as the appellants submitted, Mason J thereafter dealt with the proposition that the appellant (vendor), not being aware of the reason for refusal, had been deprived of an opportunity to disabuse the purchaser of an erroneous impression. That submission was rejected (at 615) but there is some uncertainty as to whether that was as a matter of principle, or because the evidence did not show that "the appellant, had it been given the opportunity of presenting evidence to the respondent, would have succeeded in painting a different picture". 49There is a further element of uncertainty in these propositions. In Secured Income there was no doubt as to the reason, held contemporaneously with the refusal, on which the purchaser based its refusal. The question was whether that basis was objectively reasonable. It was the evidence to establish that it was objectively reasonable which the Court held could be supplemented by material not known to the party at the time it refused consent. Apart from the reference to Shepherd v Felt and Textiles, it is by no means clear whether the case supports reliance on a ground for refusal which was not known at the time of the refusal, rather than a ground which was relied on but not then known to be reasonably based. The respondents relied upon the broader proposition, for which they found support in the judgment of this Court in Downer EDI v Gillies [2012] NSWCA 333 at [131]-[138] (Allsop P, Macfarlan and Meagher JJA agreeing). In this context, it may be helpful to distinguish between disputes which go to the validity of the reason (that is, whether extraneous or legitimate) and disputes as to whether a potentially legitimate reason was reasonable in the circumstances. 50As will be explained below, the present case did not turn upon reliance on facts not known to the NAB parties at the time consent was withheld. Rather, the appellants' assertion was that the reasons given by the NAB parties for withholding consent were not the reasons actually relied upon in refusing consent. That was because, once the letters of February 2007 were excluded, as the appellants submitted they should have been, there was no evidence to support the reasons relied on by the NAB parties in their pleadings. However, if the letters were properly admitted, they supported the assertions in the pleadings. It is, therefore, convenient to turn immediately to the two subsidiary issues, namely which party bore the onus of proof and the admissibility of the letters.

(c) onus of proof 51In Massoud v NRMA Insurance Ltd (2005) 62 NSWLR 653 (a report of a judgment of McLelland CJ in Eq delivered on 5 May 1995), the Chief Judge stated at 660: "These decisions illustrate what I consider to be the principles by which the incidence of the onus of proof is to be determined, namely: (1) a party who seeks relief has the burden of satisfying the court of facts which (in the absence of proof of other facts) would justify the grant of that relief; (2) what those facts are depends principally upon: (a) the nature of the relief sought; and (b) the operation of any relevant presumption; (3) in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party)." 52In the course of his reasons, the Chief Judge referred to an earlier decision, Pollnow v Garden Muse - St Leonard's (1984) 9 ACLR 82; 2 ACLC 511, where he had stated at 87; 515, in respect of proceedings challenging the validity of the appointment of receivers and managers: "Since the statement of claim includes a claim for declaratory relief, and regardless of whether it can properly be construed as including any cause of action based on the invalidity of the appointment other than for trespass, the relevant material facts should be pleaded in the statement of claim ie there should be an allegation to the effect that the relevant deed provided for the appointment of receivers and managers by the relevant defendant in specified events and not otherwise, and that none of the specified events occurred, or if this cannot properly be alleged, the facts relied on to render inoperative any power to appoint otherwise existing should be pleaded." 53Neither party sought to cavil with this statement of principle: rather, the appellants submitted that the NAB parties commenced the proceedings, seeking declaratory relief, in pursuit of which they had pleaded cl 20.1 of the consulting agreement and alleged that they had not consented to the granting of the charges and that their withholding of consent was not unreasonable: statement of claim, par 21. They also particularised the circumstances in which the withholding of consent was said to be not unreasonable. By way of defence, the appellants pleaded that the refusal of consent was unreasonable: amended defence, pars 12 and 18. 54The NAB parties accepted that the precise terms of the declarations were significant, in that they effectively determined the relevant elements of the claim which they had to prove. On the other hand, they also submitted, not entirely consistently, that "where the onus lies ... is determined as a matter of law by the substance and nature of the dispute between the parties, not by the accident of which party chooses or is forced to sue first": written submissions, par 21. That was not the approach adopted by the trial judge and it is not necessary to consider for present purposes to what extent the principle stated in Massoud may need qualification. The trial judge focused on "whether a necessary element of the claim that the Charges were not valid is that the NAB parties did not act unreasonably in withholding their consent", concluding that it was not: at [66]. He held that, although pleaded, the allegation that the withholding of consent was "not unreasonable" was superfluous for the purposes of the relief sought. 55The relief sought in the originating process filed by the NAB parties and granted in the Equity Division was in the form set out above at [4]. The plaintiffs referred to in the declarations were the NAB parties, NMG and AUSMAQ; the fifth defendant was Idoport and the third and fourth defendants were the appellants. Accordingly, for the purposes of the first declaration, the primary issue concerned the validity and effect of the notice issued by the appellants under clause 3.3 of the charges, dated 9 January 2007. However, the declaration also required that the rights of Idoport did not "otherwise" constitute part of the secured property. The only other mechanism by which that might occur was if Idoport had assigned those rights. The effectiveness of an assignment, in accordance with cl 20.1 of the consulting agreement, depended upon the consent of the NAB parties. The NAB parties therefore needed to establish, in order to make good their claim to declaration 1, that they had not consented to a dealing with the excluded property under the charges. That fact was not in contention. If Idoport or the appellants sought to contend that the withholding consent was "invalid" and that certain consequences flowed from that characterisation, it was necessary for them to establish those matters. 56There is one further qualification to the way in which the matter was addressed by the primary judge. Assuming that it was not sufficient for the NAB parties to rely simply on the absence of consent, but they had to establish that consent had not been unreasonably withheld, that may have involved four steps, namely: (a) proof of the objective facts relied upon by the NAB parties; (b) reliance on those matters in withholding consent; (c) absence of an improper motive, and (d) the reasonableness of reliance on the facts established. 57To the extent that there was an issue as to whether the NAB parties had an improper motive, that was a matter to be established affirmatively by the appellants, if they wished to rely upon it. To obtain relief, the NAB parties did not need to establish lack of impropriety on its part. So far as the fourth element was concerned, the characterisation of the conduct of the NAB parties was a matter to be assessed objectively. To the extent that it involved an onus of proof, the NAB parties did not need to establish objective reasonableness of their conduct, but only that the consent had not been unreasonably withheld, in the terms of cl 20.1. 58The critical question was thus limited to identifying the party which bore the onus of proof with respect to the matters relied upon by the NAB parties and the fact of reliance. Proof of these matters by the NAB parties depended on the need for the NAB parties to justify their refusal of consent. There are two reasons why the NAB parties did not need to take this step. First, the appellants did not demonstrate or, at least in this Court, set out to demonstrate, why, if consent were unreasonably withheld, the requirement for consent would be discharged. If it were not discharged, the absence of consent was sufficient to entitle the NAB parties to relief. In the alternative, if the requirement for consent were discharged, it would have been for the appellants to prove that that had occurred, together with the underlying factual basis (unreasonable withholding of consent) which led to that result. 59The trial judge correctly held that the appellants bore the onus of proving that the withholding of consent was unreasonable.

(d) admissibility of emails and letters 60The question of admissibility arose in relation to three categories of documents. The first involved emailed memoranda between officers of NAB, AUSMAQ and NMG dated February 2007. The tenor of the emails was that, having obtained legal advice, the NAB parties had decided not to consent to the request from Idoport. Draft letters setting out the basis for declining consent were attached: they were not materially different from those sent. The fact that legal advice had been obtained was of little consequence. The proposition that the letters set out the basis for withholding consent was apparent on their face. The substantive argument on the appeal paid little if any attention to the content of the emails. They add nothing to the letters and do not require separate consideration. 61The second category of documents were the two letters sent in February 2007 by the NAB parties, which letters were in common form. The third category of documents comprised a letter sent in February 2010 to the receiver of Idoport appointed by the appellants, in response to the receiver's request for consent to the assignment. The question of admissibility is to be determined by reference to these documents. 62Before the primary judge, the appellants objected to the tender of this material. Although the notice of appeal (ground 5) challenged his ruling in that respect, that challenge was not pursued: rather, the appellants relied on their alternative ground, namely that the primary judge erred in failing to place a limitation on their use, pursuant to s 136 of the Evidence Act 1995 (NSW). That proposal had also been raised before the primary judge and rejected. 63Although there was some doubt as to how the precise restriction to be imposed on the use of the evidence was formulated below, it was articulated in this Court in the following terms, namely that the letters should have been admitted only as proof of the fact that the NAB parties withheld consent to Idoport's request and for no other purpose; and, in particular, not as evidence of the "subjective understanding or intention or purpose or reason of the NAB parties": Tcpt, pp 20-21. The issue should be addressed on that basis. 64Section 136 is in the following terms: 136 General discretion to limit use of evidence The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might: (a) be unfairly prejudicial to a party, or (b) be misleading or confusing. 65The intended scope and purpose of s 136 is to be found in the significant change to the general law rule excluding hearsay evidence effected by s 60 of the Evidence Act. Under the general law, hearsay evidence of previous representations, proffered as proof of the facts asserted, was inadmissible. Where such evidence was admissible for another purpose, it was admitted only for that purpose. That differential approach has now been abandoned: s 60 states that "[t]he hearsay rule [set out in s 59] does not apply to evidence of a previous representation that is admitted because it is relevant for a purpose other than proof of an asserted fact". Section 136 is not limited to the amelioration of risks inherent in hearsay evidence, but that is a primary focus of its operation: Anderson, Williams and Clegg, The New Law of Evidence (2nd ed, 2009) at [136.1]. 66On the appeal, the appellants noted that the primary judge had found that the writing and sending of the letters was itself relevant to show when and how the NAB parties withheld consent: at [60]. The letters were therefore admissible for a non-hearsay purpose. Having been admitted for a non-hearsay purpose, the hearsay rule did not apply: s 60. Nevertheless, the appellants asserted that because the letters merely stated facts which had been taken into account, their use as documents, without a relevant witness giving evidence that those facts were taken into account, denied the appellants a chance to cross-examine as to what was truly taken into account and how, and the reasoning process of the NAB parties. Further, because the letters did not purport to contain an exhaustive list of the factors taken into account, the appellants were deprived of an opportunity to cross-examine as to other matters which may have been relied on but not revealed, or to establish that the list was in fact exhaustive. 67The appellants claimed both unfair prejudice and that the admission of the emails and letters was misleading and confusing. The latter categorisation, invoking paragraph (b) of s 136, was unconvincing. There is no reason to suppose that a judge would be misled or confused by evidence which was said by one party to be incomplete or uncertain. 68Reliance on unfair prejudice, invoking paragraph (a) of s 136, depended on the absence of any witness called by the NAB parties and available for cross-examination by the appellants. As a ground for effectively excluding hearsay evidence, that basis for a direction under s 136 should be approached with caution. First, this was not a case in which primary facts, depending on the capability of an individual to observe and recall, was in issue. This case involved the somewhat artificial facts, being the reasons of a large commercial enterprise for dealing in a particular way with a contracting party, acting on legal advice. 69Secondly, all exceptions to the hearsay rule may give rise to an absence from the witness box of the primary observer. As noted by Heydon JA in R v Clark [2001] NSWCCA 494; 123 A Crim R 506 at [164], "if the impossibility of challenging the veracity of hearsay statements by non-witnesses were generally to justify, or were often to be a significant factor in justifying, a decision to exclude evidence in the court's discretion under s 135 or by reason of a finding of 'unfair' prejudice under s 137, the result would be to write the hearsay exceptions out of the Act to a large extent". To avoid that unintended result, careful attention must be paid to the nature of the "prejudice" relied upon. 70Thirdly, as noted in Ordukaya v Hicks [2000] NSWCA 180 by Sheller JA (Meagher JA agreeing), the admission of a document having probative value against the interests of one party, could be described as "prejudicial" to that party: at [33]. He continued: "However it is not prejudice, but unfair prejudice, which must be weighed against the probative value of the representation." 71Sheller JA also referred (at [37]) to the remarks of the Australian Law Reform Commission, in its Interim Report No 26 on Evidence, at [644] to the following effect: "By risk of unfair prejudice is meant the danger that the fact-finder may use the evidence to make a decision on an improper, perhaps emotional, basis, ie on a basis logically unconnected with the issues in the case. ... Similarly, on hearing the evidence the fact-finder may be satisfied with a lower degree of probability than would otherwise be required." 72In the present case, there was little risk that the evidence would be misunderstood, its probative value incorrectly assessed or that it would be used illogically. The real basis of "prejudice" was that the appellants were deprived, assuming that rejection would have led the NAB parties to call oral evidence, of an opportunity to establish their case through the NAB parties' witnesses. That is not the kind of "unfair prejudice" to which s 136 is directed. There is no reason to doubt the correctness of the trial judge's decision not to limit the use made of the letters, pursuant to s 136.

(6) The first refusal: February 2007 73For reasons noted at [34]-[41] above, it is by no means clear that the reasonableness or otherwise of the withholding of consent by the NAB parties can affect the outcome of these proceedings. Nevertheless, the proceedings were argued as if it did. Accordingly it is necessary to deal with the arguments presented, which the parties considered determinative. 74There are aspects of the manner in which the case was run which must affect the way in which the questions of fact were addressed. In particular, neither party called witnesses: the evidence was entirely documentary. Some further elaboration of the facts is in order. 75Relevantly, the documentary chain commenced with Idoport's request on 16 March 2006 from , seeking written consent to the grant by Idoport of a fixed charge over its rights under the consulting agreement. Copies of the charges, which had been executed approximately 12 months earlier, were attached. On 27 April 2006, the NAB parties responded in the following terms: "NAB as a major unsecured creditor of Idoport and as a party to the Consulting Agreement dated 13 September 1996 is very concerned that Idoport has purported to charge its property in favour of third parties resident outside the jurisdiction and with no prior notice to the NAB or the other parties to the Consulting Agreement. Further it is the view of the NAB that under clause 20.1 of the Consulting Agreement the consent of the NAB is required to the granting by Idoport of an assignment of, or encumbrance over, or dealing with, its rights under the Consulting Agreement. Accordingly, the NAB reserves all of its rights in relation to the conduct of Idoport in executing the Charges including with respect to whether such conduct amounts to a breach of the Consulting Agreement; in particular, whether by agreeing to clause 3.3 of the Charges Idoport has purported to permit third parties to acquire or deal with Idoport's rights under the Consulting Agreement in breach of clause 20.1 of the Consulting Agreement. In order for the NAB to properly consider the request, please: (a) detail the reasons why Idoport entered into the Charges and bound itself in the manner set out in clauses 3.2 and 3.3; (b) detail the reasons why Idoport is now seeking written consent. In particular, is consent being sought because of a request by the Chargees or either of them under clause 3.2 of the respective Charges? If so, please provide a copy of any correspondence in relation to this request; and (c) detail the extent of the indebtedness secured by the Charges." 76Almost seven months later, on 22 November 2006, Idoport replied to the letter of 27 April 2006 stating that Idoport "feels" that the detail requested in sub-paragraphs (a) and (c) could be answered by perusal of certain confidential documents obtained by the NAB parties in proceedings before Einstein J on 8 December 2005. Nothing of note was said on the appeal to be revealed by this material. With respect to paragraph (b), Idoport confirmed that "consent is being sought because of a request by the Chargees under clause 3.2 of the respective Charges", but declined to produce copies of correspondence. Idoport repeated its request for written consent to the assignment. 77On 12 December 2006 Idoport wrote again to the NAB parties seeking a response to its letter of 22 November and its request for written consent. (It appeared to have been sent to a wrong address: the copy in evidence bore a received stamp dated 17 January 2007.) Seven days later, on 29 December 2006, a further letter was sent by Idoport in similar terms to the letter of 12 December. 78As already noted, on 7 February 2007 the NAB parties responded to the request of 16 March 2006 specifying certain matters that had been taken into account and declining to give consent. Prior to dealing with the request for consent, the NAB parties set out their position in relation to the charges in the following terms: "As set out in our letter of 27 April 2006 NAB as a major unsecured creditor of Idoport and as a party to the Consulting Agreement dated 13 September 1996 is very concerned that Idoport has purported to charge its property in favour of third parties resident outside the jurisdiction and with no prior notice to the NAB or the other parties to the Consulting Agreement. Further it remains the view of the NAB that under clause 20.1 of the Consulting Agreement the consent of the NAB is required to the granting by Idoport of an assignment of, or encumbrance over, or dealing with, its rights under the Consulting Agreement. NAB continues to reserve all of its rights in relation to the conduct of Idoport in executing the Charges including with respect to whether such conduct amounts to a breach of the Consulting Agreement; in particular, whether by agreeing to clause 3.3 of the Charges Idoport has purported to permit third parties to acquire or deal with Idoport's rights under the Consulting Agreement in breach of clause 20.1 of the Consulting Agreement." 79These matters were reflected in the statement of the NAB parties' position with respect to the request for consent in the first, second and fourth bullet points, set out at [18] above. In their written submissions to this Court, the appellants contended that the trial judge had held that the NAB parties had acted reasonably by refusing consent for two broad reasons, namely: (a) there was a risk that the chargees would assign Idoport's rights to a third party who would not honour protections obtained by the NAB parties in its earlier litigation with Idoport; and (b) the refusal did not have the effect of depriving Idoport of the benefit of the consulting agreement. 80The appellants further contended that the correct inferences were that: (a) consent had been refused for the purpose of stultifying any future claims against the NAB parties; (b) to prevent Idoport obtaining funds from the sale of its rights which would be used to discharge its debts to secured and unsecured creditors, and (c) the rights would not be sold except to a party who could obtain value by commencing fresh proceedings, in circumstances where the payment to Idoport would allow the costs orders in favour of the NAB parties to be paid in full. 81These submissions had an air of unreality. It is true that, in one sense, any claims by Idoport against the NAB parties under the consulting agreement were "stultified": that was because of the barring order which required Idoport to pay the NAB parties a large amount on account of costs. However, the implicit connotations of terms such as "stifle" and "stultify" is that the impugned conduct was causally effective and involved an element of impropriety. Certain inferences were available in these circumstances, as accepted by the primary judge. 82First, there was no evidence to suggest that Idoport had access to sufficient funds to pay the costs, nor that any litigation funder was prepared to pay the costs on its behalf. An inference should be drawn that no funds were available to Idoport for that purpose. 83Secondly, although it was theoretically possible that a litigation funder would provide the resources to pay the costs if it were able to obtain an assignment of Idoport's rights, rather than funding Idoport directly, there was no evidence to support that proposition either. No such person was identified: accordingly the available inference was that that arrangement would not eventuate. 84Thirdly, the only basis remaining on which the rights of Idoport under the consulting agreement could be realised as against the NAB parties would be for a third party to seek to avoid the effect of the barring order and undertaking. No person willing to assume such a risk was identified; indeed, the ultimate proposed assignee of the rights was unknown to the NAB parties at the times they withheld consent. 85The primary judge was not satisfied that there was "a realistic possibility that it would be possible to find a person who would be prepared to pay the outstanding gross sum costs order of approximately $85 million and then fund what is likely to be an expensive claim without any guarantee of success and with the risk of a further adverse costs order": at [78]. He further concluded that "even assuming that such a person could be found, it is not clear how the extension of the Charges to the Consulting Agreement with the result that the Chargees are able to sell those rights benefits Idoport": at [80]. The preferable inference was that consent was sought "not to enable Idoport to fund a claim under the Consulting Agreement but to enable the Chargees to recover amounts owing to them by Idoport in circumstances where the action that they intended to fund [namely certain other proceedings in the Supreme Court] has failed": at [80]. 86The appellants contended that in adopting this approach, the primary judge had taken into account matters raised in the statement of claim, but not relied upon in the letters of 7 February 2007. To the extent that the letter referred to a purported charge in favour of "third parties resident outside the jurisdiction", particular (b) added the proposition that such parties "may reasonably have been apprehended to contest their amenability to the jurisdiction". That was a natural inference to be drawn from the reference to residence outside the jurisdiction. Similarly, the additional material in particular (d), referring to the NAB parties losing priority to Idoport's only asset of significance, to its detriment as an unsecured creditor, did little to add to the statement in the letters referring to the NAB parties as a major unsecured creditor of Idoport. Similarly, particular (e), referring to the fact that the funds available from the appellants would not be sufficient to discharge the costs debt, the quantum of which was identified in particular (i), did little more than elaborate on bullet points 5-8 in the letters. Particular (h), complaining that Idoport had provided no evidence that there was a party ready, willing and able to pay the outstanding costs as a precondition to further prosecution of Idoport's rights was a new consideration only in the sense that it made explicit the very reason on which the appellants sought to rely, namely that, using the barring order, the NAB parties were in effect stultifying the further prosecution of Idoport's claims. 87Particular (j) referred to the appellants as parties who had funded the "MasterKey Proceedings", which were the proceedings referred to in bullet point six in the letters as having been dismissed by the Supreme Court on 28 July 2005 on the basis that they were brought in breach of the barring order. The letters identified that as "an event of default" under the loan agreement between Idoport and Fulham: the particular raised the additional point that the proceedings had been held to be an abuse of process. The inference that these matters were not factors known to the NAB parties at the time of refusing consent is implausible, as is the proposition that they would not have played some weight in the decision-making process. They were all inter-related. The fact that they were not explicitly outlined in the letters of February 2007 does not provide a material basis for rejecting that proposition. For these reasons, the appellants' complaint that the trial judge relied upon new material not relied upon by the NAB parties at the time of making its decision should be rejected. It is for this reason that it is unnecessary to consider the extent to which the NAB parties were entitled to call in aid matters which it did not in fact rely upon in making its decision. 88Assuming that the letters were not admitted as evidence of the matters taken into account by the NAB parties (and, possibly, even if they were admitted for that purpose), the appellants contended that the proper inference to be drawn from the failure of the NAB parties to call witnesses as to the matters that were taken into account and the process of reasoning adopted by them in withholding consent, was that the NAB parties had no good reason to withhold consent and, accordingly, the withholding of consent was unreasonable. Reliance was placed on Jones v Dunkel [1959] HCA 8; 101 CLR 298. Even assuming the letters were not available to identify the factors taken into account, the well-known background, comprising years of expensive litigation, the barring order, the size and effect of the gross sum costs order, the attempt by the appellants to side-step it in the MasterKey proceedings and the likelihood that another party might pursue proceedings in a foreign jurisdiction were all plausible factors which it would have been reasonable to infer were taken into account. In truth, as will be seen below, the gravamen of the appellants case turned on the characterisation of these matters as extraneous to any legitimate basis for withholding consent.

(7) Irrelevant considerations 89The primary judge held that it was "reasonable for the NAB Parties to consider their rights under the Consulting Agreement, the benefits to Idoport of the proposed assignment and the disadvantages to the NAB Parties of an assignment to the extent that those disadvantages were connected with the NAB parties' rights under the Consulting Agreement": at [85]. The appellants challenged that approach. However, the suggestion that these considerations were extraneous to a proper consideration of the request for consent was closely connected to their contention that the real reason for the refusal was stultification of future claims. Thus the interests of the NAB parties as unsecured creditors with respect to the gross sum costs order was said to involve a collateral purpose: written submissions, pars 46-47. The costs order, it was contended, "was not connected with any failure by Idoport to perform its obligations under the Consulting Agreement, or even with the subject matter of the Consulting Agreement itself, namely the provision of consulting services by Idoport to the NAB Parties": written submissions, par 48. They further submitted that the February 2007 letters demonstrated that "the NAB Parties had two matters at the forefront of their minds, namely the prospect of a revival of the litigation previously on foot between Idoport and the NAB Parties and the NAB Parties' position as an unsecured creditor": written submissions, par 52. 90It is well established that, in a case involving continuing contractual relations, the identity and solvency of the other contracting party will commonly be a legitimate, if not critical, consideration: Secured Income at 609-610. Further, as the NAB parties pointed out, in circumstances where the contractual relationship continues only for the purpose of resolving disputes governed by the terms of the agreement, a party may have a legitimate interest in the identity of the other party in the litigation, relying on Hendry v Chartsearch Ltd [1998] CLC 1382 (EWCA - Civ). The plaintiff in that case had been a shareholder and director of a company with a cause of action against the defendant. The company purported to assign its interest to the plaintiff, although without seeking prior written consent for the assignment from the defendant. When eventually sought, the defendant refused consent. The plaintiff complained that the consent had been unreasonably withheld, in breach of contract. Counsel for the defendant contended that the defendants were entitled to withhold their consent in circumstances where the trading relationship was at an end "and the proposed assignment was for the purpose of enabling litigation against the defendants, by a legally aided plaintiff who would not be liable to be ordered to give security for the defendants' costs": at [36]. Evans LJ noted that the relationship continued only for the purpose of resolving disputes governed by the agreement and stated, at [37]: "But the change in the nature of their relationship means that the circumstances which are relevant to the reasonableness or otherwise of refusing consent, have changed also. In principle, the party who is entitled to refuse consent may have a legitimate interest in the identity of the other party in litigation or arbitration - see Yeandle v Wynn Realisations Ltd (1995) 47 Con LR 1, per Sir Thomas Bingham MR at p 13: 'The party to whom a contractor pays a sum which he is bound to pay may well be a matter of indifference to him. The same is not necessarily true of the party against whom he finds himself defending a claim in arbitration.'" 91Evans LJ (who was the only member of the Court to consider this issue) held that eligibility for legal aid was probably not a ground for refusing consent - at [41] - but that the loss of a right to seek security for costs did provide a reasonable basis for refusing consent: at [42]. (The other members of the Court dealt with the matter on the basis that the attempt to obtain consent after assignment was too late and the assignment was invalid. Henry LJ nevertheless otherwise agreed with Evans LJ; Millett LJ treated the question of reasonable refusal as hypothetical and one which was not a proper subject of inquiry in that case.) 92The appellants submitted that Hendry was inconsistent with Secured Income and should not be followed. Before addressing that submission it is convenient to note other English authorities relied on by the NAB parties. A number of cases, including Yeandle, were concerned with a standard form clause in construction contacts applicable to subcontractors which provided as follows: "2(3) The Sub-Contractor shall not assign the whole or any part of the benefit of this Sub-Contract nor shall he sub-let the whole or any part of the Sub-Contract Works without the previous written consent of the Contractor. Provided always that the Sub-Contractor may without such consent assign either absolutely or by way of charge any sum which is or may become due and payable to him under this Sub-Contract." 93There was uncertainty as to the precise scope of the proviso. Flood v Shand Construction Ltd (1996) 54 Con LR 125 (EWCA - Civ), addressed that issue. Evans LJ (with whom Butler-Sloss LJ and Sir Iain Glidewell agreed) stated at 132: "This interpretation of the proviso seems to me to be entirely consistent with the commercial purpose of the clause, and with the practical considerations referred to by Lord Browne-Wilkinson in Linden Gardens Trust Ltd and in the judgments in Yeandle's case and with the Yeandle decision itself. The contractor as the opposing party may be 'indifferent' to the prospect of having to pay a particular sum to a third party assignee when it becomes due and payable under the sub-contract, but it can be important to him that he should operate the contractual machinery, or arbitrate or litigate, only with the party with whom he has chosen to contract. Even as regards arbitration and litigation, the nature and scope of the proceedings may be the same, whether or not they are conducted by or in the name of the sub-contractor, but the chances of settlement or of agreeing particular issues can be affected by the identity of the other party." 94The "practical considerations" referred to by Lord Browne-Wilkinson in Linden Gardens have already been noted at [40] above. In considering the scope of cl 17, Lord Browne-Wilkinson considered whether a distinction was to be drawn between assignment of rights to future performance and existing rights to the fruits of performance. He explained the basis for rejecting that distinction (thus reading the constraint as applicable to the fruits of the contract) in the following terms at [105]: "The reason for including the contractual prohibition viewed from the contractor's point of view must be that the contractor wishes to ensure that he deals, and deals only, with the particular employer with whom he has chosen to enter into a contract. Building contracts are pregnant with disputes: some employers are much more reasonable than others in dealing with such disputes. The disputes frequently arise in the context of the contractor suing for the price and being met by a claim for abatement of the price or cross-claims founded on an allegation that the performance of the contract has been defective. Say that, before the final instalment of the price has been paid, the employer has assigned the benefits under the contract to a third party, there being at the time existing rights of action for defective work. On the Court of Appeal's view, those rights of action would have vested in the assignee. Would the original employer be entitled to an abatement of the price, even though the cross-claims would be vested in the assignee? If so, would the assignee be a necessary party to any settlement or litigation of the claims for defective work, thereby requiring the contractor to deal with two parties (one not of his choice) in order to recover the price for the works from the employer? I cannot believe that the parties ever intended to permit such a confused position to arise." 95Although viewed from the point of view of the contractor, and in the context of a building contract, similar issues would arise on either side of the contractual relationship and, when viewed from the point of view of the parties at the commencement of the contract, particularly from the point of view of the principal obtaining services from the other party. The consulting agreement was a complex contract: it declared the rights and obligations of each party to be "personal". It was not suggested that cl 20 in the consulting agreement should be construed differentially, with respect to different rights and obligations. 96The considerations raised by the NAB parties in the present case were all concerned with the status, both legally and financially, of Idoport and any proposed assignee. To characterise the NAB parties' concerns as relating to matters extraneous to the consulting agreement is artificial. They arose directly and solely from the continued relationship of the parties in the course of disputation as to their respective rights under the consulting agreement. The only interest identified by the NAB parties related to the consequence of the imposition of a different adversary in the course of that litigation. Those considerations were not extraneous to the relationship between the parties with respect to and arising out of the consulting agreement. The Bank's reliance on these factors in support of the reasonableness of its refusal of consent was legitimate: they were not collateral, extraneous or improper considerations. 97Nor is there any proposition to be derived from Secured Income inconsistent with this approach. Secured Income was not concerned with disputation, but with a purchaser's refusal of consent to a lease to be taken by the vendor of a property, which would have had the effect of increasing the purchase price, but also of imposing on the purchaser a tenant of doubtful financial stability. The primary judge was correct in his conclusions in this regard.

(8) The second refusal: June 2010 98On 25 November 2008 each of the appellants appointed Mr Michael Smith of Smith Hancock as receiver of the secured property as defined in the charges granted by Idoport to the appellants, which property was said to include the rights of Idoport under the consulting agreement. On 19 December 2008, solicitors for the NAB parties wrote to the solicitors for the appellants advising them that the NAB parties did not accept that Mr Smith had been validly appointed as receiver in relation to Idoport's rights under the consulting agreement and that the NAB parties did not propose to deal with him in relation to those rights. 99The deed of appointment of the receiver relied upon the notice given by the appellants under clause 3.3 of the charge as the basis for treating the rights under the consulting agreement as part of the secured property. Nevertheless, a year later, on 16 December 2009, the receiver wrote to the NAB parties repeating the request made on 16 March 2006 for written consent under the consulting agreement "to the granting of a fixed charge over the 'Excluded Property' in favour of [the appellants]". The letter identified a number of events which had occurred since the refusals in February 2007. After referring to aspects of the history of the relationship between the parties, the letter continued (p 3): "The Receiver seeks to find an appropriate means through which Idoport can have its unsatisfied entitlements under the Consulting Agreement met. This may be achieved through the following means: ● Obtaining consent of [the NAB Parties] to the extension of the Charges over the Excluded Property. ● The Receiver assigning those rights to a third party, for appropriate consideration. ● It is expected that Idoport would then receive a surplus of funds after repaying its secured creditors." 100The letter referred to the effect of the barring order and the gross sum costs order and asserted a need for any assignee to deal with the effect of those orders. 101On 5 February 2010 the solicitors for the NAB parties responded in similar terms to their earlier letter indicating that they did not intend to deal with the receiver in respect of Idoport's rights under the consulting agreement. 102The primary judge treated this letter as a withholding of consent: at [94]. He noted that no indication had been given of any likelihood that Idoport would receive any surplus from the sale after paying the appellants the amount secured by the charges, that the NAB parties were entitled, as before, to refuse consent having regard to the risks of a sale of the rights to a foreign resident and that the receiver's acknowledgment that the gross sum costs order and the barring order would have to be paid before proceedings could continue was not binding on any purchaser from the receiver. 103The appellants seek to challenge the reasoning of the trial judge on the basis that consent was unreasonably withheld in 2007; the circumstances were "substantially different" in 2010, and there was no attempt by the NAB parties to deal with the "additional information" provided by the receiver in his letter of 16 December 2009. These submissions are not persuasive. To the extent that they rely upon the earlier refusal as unreasonable, that ground has been rejected. There was no attempt to show that the circumstances in 2010 were "substantially different", in a way which militated in favour of consent. Further, there was no obligation on the NAB parties to engage on a point by point basis with the matters raised by the receiver. 104Separately, the appellants submitted that it was unreasonable for the NAB parties to refuse to engage with the receiver. They referred to the provision in the charges by which Idoport appointed a receiver as its attorney and authorised it to do anything which Idoport might lawfully authorise an attorney to do in connection with the charge, the secured property or the excluded property, which in the receiver's opinion was necessary or expedient "to give effect to any right, power or remedy conferred on [the appellants] or a receiver by this Charge": clause 19.2(a). 105The effect of the notice given by the appellants under clause 3.3 of the charges with respect to the excluded property, the validity of the appointment of the receiver with respect to that property and the scope and powers of the receiver with respect to that property were not self-evident. No debate as to those issues was engaged in by the receiver with the NAB parties, in an attempt to satisfy the NAB parties that it should deal with the receiver in respect of the rights of Idoport under the consulting agreement. Nor did the appellants engage in any analysis of the law in that respect in order to demonstrate that the position adopted by the NAB parties was not only wrong but unreasonably wrong. 106In their reply of February 2010, the NAB parties referred to their earlier withholding of consent. A reasonable inference from that reference was that the NAB parties were not persuaded by anything stated by the receiver in his letter to reconsider their position and that, were a further request to come from Idoport, it would be refused on the same grounds. That approach has not been shown to be unreasonable. 107The conclusion of the primary judge with respect to the continued withholding of consent in February 2010 as not unreasonable has not been shown to be erroneous.

(9) Conclusions 108Absent demonstration that it was not sufficient for the NAB parties simply to rely on the fact that no consent had been forthcoming, arguably the appeal should have been dismissed on that ground. As the parties did not approach the case on that basis, it is appropriate to dispose of the appeal by upholding the reasoning of Ball J in the Equity Division. 109Thus, accepting that the question whether the NAB parties unreasonably withheld consent remained a relevant issue for determination on the appeal, the challenges raised by the appellants have been unsuccessful. No other basis being raised for challenging the orders made by the primary judge, the appeal must be dismissed: the appellants must pay the costs of the active respondents, being the first, second and third respondents. 110BARRETT JA: I agree with Basten JA. 111BERGIN CJ in Eq: I agree with Basten JA.

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