(3) Estoppel, waiver and unconscionable conduct.
The underwriting agreement and the alleged extensions pursuant to it
113 I have set out relevant extracts from the "Timetable" in para [31] above, and ozEcom's contentions, as to extension of the Closing Date to 13 September 1999, in paras [53] and [54] above. For the reasons that I give in para [53] above, if the letters of 23 June, 22 July (if sent) and 5 August 1999 are properly to be characterised as letters seeking to extend the Closing Date, or having that effect - a matter to which I shall return - then as a matter of construction of the underwriting agreement, the nominal Closing Date would have been 4 September 1999. (For the reasons to which I refer in para [54], it is possible that the calculation of 4 September 1999 as the nominal Closing Date would lead to an actual Closing Date of 6 September 1999. Since absolutely nothing turns on any distinction between 4 and 6 September 1999, I shall as a matter of convention hereafter refer generally to 6 September 1999 as the Closing Date for the purposes of the underwriting agreement.)
114 However, ozEcom submitted that the parties proceeded on the conventional basis that the Closing Date was to be calculated not from the actual date of registration of the prospectus but from the last date for registration (written submissions in reply, paras 5 to 7). (It might be thought rather unusual that, now and later in these reasons, I refer to or quote from ozEcom's submissions in reply rather than its submissions in chief. The precise case that ozEcom sought to put remained unclear - indeed, diffuse - even at the end of its oral submissions in chief. Thus, I directed ozEcom to put its submissions in reply in writing, to address each issue specifically in those submissions, and to indicate, among other things, whether the issue was pressed. The written submissions in reply that were provided in accordance with my direction clarified the way in which ozEcom put its case. I reserved liberty to any other party to apply in respect of those reply submissions, and indicated that this was "intended to encompass the situation where apart from such trespassing beyond the bounds of reply as is necessitated by the precise form of the directions, any party feels that some new case is being mounted against it at the very last moment": T328.20. No party either availed itself of the liberty to apply that was reserved or, without doing so, sought to reply to ozEcom's submissions in reply.)
115 There are at least five difficulties with ozEcom's reliance on the concept of conventional estoppel. The first is that, insofar as it relies on Mr McLeod's draft letters of 27 September 1999 (see paras [91] and [92] above), there is no evidence that those letters, or any letter embodying the relevant part of their texts, was communicated to ozEcom. Thus, even if the draft letters can be regarded as proving or stating an assumption by Hudson Investment as to the basis on which the transaction, and its relations with ozEcom, were conducted - a proposition that is not free from doubt - there is no evidence that the contents of the draft letters were communicated to ozEcom's representatives, let alone that they were accepted by them as setting out a conventional basis on which the parties thereafter approached the question of calculation of the Closing Date.
116 The second problem is that, insofar as the submission relies on Hudson Investment's letter of 27 September 1999 (see para [90] above), that letter can have played no part in producing a conventional approach to the calculation of the Closing Date undertaken at some previous time.
117 The third problem is that, insofar as the submission relies on Atanaskovic & Hartnell's letter of 30 September 1999 (see para [108] above), that letter likewise can have played no part in producing a conventional approach to the calculation of the Closing Date undertaken at some previous time: indeed, a fortiori.
118 The fourth problem is that there was no evidence from any of ozEcom's witnesses that they, either on the basis of anything put to them or before them by Hudson Investment or otherwise, regarded the calculation of the Closing Date as something to be undertaken by reference to the last date of registration of the prospectus rather than the actual date of registration.
119 Finally, conventional estoppel is not pleaded, nor is it raised as a discrete issue in the statement of issues.
120 Further, on the topic of conventional estoppel: Mr Corfe prepared the letters of 23 June and 5 August 1997. He said that it was his intention in each case to extend firstly the Registration Date and secondly the Despatch Date set out in the Timetable that was part of the underwriting agreement; specifically, "to extend the last date for registration of the prospectus and the last date for despatch of the prospectus" (T108.35; see, generally, T107.45-109.5). Mr Corfe was re-examined but not on that evidence. He did not say that he intended by those letters (which, presumably, he sent to Hudson Investment for engrossing and signing) to extend the Closing Date in addition to the other dates.
121 Where the contract is clear (and ozEcom did not submit otherwise), strong evidence would be required to demonstrate that the parties had proceeded on some conventional basis inconsistent with the contract. The matters to which ozEcom pointed in its submission in reply fall far short of that description.
122 In para [53] above, I adverted to an issue as to the purpose or effect of the letters referred to in paras [48] to [50] above. Mr A Leopold of counsel, who appeared for Hudson Securities, submitted that the letters in question "extended the two dates relevant to the conditions precedent set out in clause 2.1 of the Underwriting Agreement. Those documents had nothing to do with extension of the actual Date of Registration (a date which self-evidently could not be extended) or with extension of a Closing Date." (written outline of final submissions, appendix A, para 8). It may be accepted that the purpose of each letter (assuming, for the moment, that the second one was in fact sent) was to extend the Registration Date and the Despatch Date. It may be accepted that the purpose of those extensions was to ensure that the two conditions precedent set out in clause 2.1 of the underwriting agreement were met. It follows that registration of the prospectus on or before the last date for registration (as from time to time extended) was effective to set time running for the purposes of calculation of the Closing Date. It does not follow that either letter extended the Closing Date.
123 The Timetable set out in the Schedule to the underwriting agreement defined the Closing Date by reference to the event of registration of the prospectus. Thus, once and as long as that event occurred within a time "permitted" (a loose but convenient expression) by clause 2.1(a), the Closing Date became fixed, as a calendar date.
124 In that sense, it is inaccurate to talk of the parties (at least prior to registration of the prospectus) as having intended to extend, or as having extended, the Closing Date. Before the prospectus was registered, it would be meaningful to talk of extension of the Closing Date only if the parties had enlarged the period of "Registration plus 30 days" (for example, to "Registration plus 45 days") fixed in the Timetable. After registration of the prospectus, and once the actual Closing Date (in the sense of a calendar date) became ascertainable, the parties could agree to extend it. Indeed, ozEcom appears to accept this; it says they did (see para [126] below).
125 Thus, although it is inappropriate to speak of extension of the Closing Date in this context, registration of the prospectus on 5 August 1999 (see para [53] above), which was within the last extended date for registration to which Hudson Investment had agreed (see para [49] above), led to a Closing Date, for the purposes of the underwriting agreement, of 6 September 1999 (see para [53] above).
The "Extension Agreement"
126 That conclusion is not fatal to the way in which ozEcom puts its case, because ozEcom submitted (para 8 of its submissions in reply), that "[f]rom about 3 September 1999, the parties ceased to treat the Closing Date as being dependent on the Last Date for Registration, and proceeded to make changes to the Closing Date itself as an event rather than by extending the Last Date for Registration. The first change was to agree to extend the Closing Date to 17 September 1999."
127 OzEcom relied on both correspondence and conversations to support a case of ad hoc agreements to extend the Closing Date, and to keep the IPO open in an attempt to lessen the shortfall. In essence, the defendants submitted that the correspondence went nowhere; and that the conversations upon which ozEcom relied were referable not to the Closing Date under the underwriting agreement but to the closing of the issue under the prospectus (see para [57(2)] above).
128 There is an immediate difficulty in the way of acceptance of each approach to this problem. The difficulty with ozEcom's submissions is that, even taking the relevant correspondence and conversations at face value, it does not appear that the parties ever turned their minds to the question of extension of the contractual Closing Date. Instead, they appear to have proceeded (I am tempted to say, bumbled on), through either inadvertence or incompetence, on the basis that Hudson Investment's underwriting obligations remained in force after 6 September 1999. Accepting as I do that commercial agreements may be binding without corresponding to the formal contractual discourse of offer and acceptance and the like (a topic to which I return in para [152] below), it is difficult to spell out of the relevant events any agreement, even of the most informal kind, for extension of the Closing Date.
129 The difficulty with the defendants' submission on this point is equally apparent. If - as the defendants would have it - the relevant conversations were directed to the closing of the offer under the prospectus, and if - as the defendants would have it - the Closing Date under the underwriting agreement had passed without further extension, there would be no extant underwriting liability for Hudson Investment to assume. But many of the conversations appear to be predicated on the existence of such a liability: see paras [62] to [80] above.
130 On the defendants' approach, the Closing Date under the underwriting agreement was at the latest 6 September 1999. However, on 9 September 1999, Mr Corfe was discussing with Messrs Tan and Sutton Hudson Investment's performance of its obligations under the underwriting agreement (see paras [62] to [64] above).
131 Then, in a series of conversations from 15 September 1999 on, ozEcom repeatedly asked in effect as to the ability of Hudson Investment to underwrite whatever was seen as likely to be the shortfall from time to time. If there were no such liability (because the Closing Date under the underwriting agreement had not been extended past 6 September 1999), the obvious answer to (for example) Mr Cleland's question of 15 September 1999 (see para [66] above) would have been to the effect that "we don't have to underwrite anything because the Closing Date has expired and you haven't given us a Shortfall Notice or the other documents required to crystallise our liability".
132 Again, whilst Mr Tan's language on 16 September 1999 could be understood to be referable (when talking of the closing of the issue) to the prospectus, his statement (see para [68] above) to the effect that he did not want the issue to be closed if there were going to be a $2 million shortfall suggests a belief on his part that Hudson Investment's underwriting obligations remained on foot.
133 Without wearying the reader by excessive repetition, the same may be said about the subsequent conversations up to and including 24 September 1999. In this context, I think, the telephone conversation between Messrs Adler and Tan on 24 September 1999, as recounted by Mr Breadman (see paras [77] to [79] above), is particularly telling.
134 OzEcom submitted that the relevant minds of the Hudson Investment Group understood that the extensions related to the Closing Date under the underwriting agreement, and not to the closing of the issue in terms of the prospectus. That may be so, as to Mr McLeod: see his draft letters of 27 September 1999 (paras [91] and [92] above). The significance of any such understanding must be assessed having regard to his lack of familiarity with the transaction: see para [106] above.
135 As to Mr Sutton, the position is less clear. In his handwritten note sent by facsimile transmission to Mr McLeod on 27 September 1999, Mr Sutton said, of discussions with Mr Cleland some time earlier:
"My discussions with Robert on the closing date had been to discourage him from closing the issue as it would crystallise our liability . Therefore at least up to 16th Sept, while there were prospects of the required funds coming in the issue remained open through inertia."
136 The words that are struck through appear to have been struck through in the photocopy of the facsimile transmission that is in evidence. However, there is no evidence as to when or by whom those words were struck through (if this is what the line through them is intended to mean). There is a line leading up through the text of the document from those words to a blank space on the page, which might suggest that someone had intended to annotate those words. It may be observed that the sentence in which those words appear makes sense with them included, and less with them excluded.
137 In para 10 of its written submissions in reply, ozEcom sets out this passage and includes the expression "Closing Date": no doubt, in an attempt to bolster the proposition that the document refers to the underwriting agreement. I note, however, that the document is printed in block capitals and it is (to put it neutrally) by no means apparent that Mr Sutton intended, by the use of capital letters, to denote without ambiguity that he was referring to the concept of the Closing Date under the underwriting agreement.
138 It should also be noted that, in the immediately following passage of the facsimile transmission, Mr Sutton explained what he meant by "open through inertia":
"However there was no agreed change to the terms of the underwriting agreement with regard to the length of the issue. Any such change would need to be signed off by the directors of Hudson Investment Group after discussion by the board and consultants. I do not believe that this occurred."
139 I think that the better view of Mr Sutton's note is that his references to "closing date" or "closing the issue" were to closing the issue under the prospectus. It is quite clear from his explanation of "open through inertia" that he was conscious of the concept of Closing Date under the underwriting agreement: in his view, there was no change to that Closing Date. By inference, therefore, his earlier references to "closing date" and "closing the issue" in the extract set out in para [135] above relate to the closing date for the purpose of, and closing the issue under, the prospectus. If - as clearly Mr Sutton thought was the case - there had been no extension "signed off by the directors of Hudson Investment" to the Closing Date under the underwriting agreement, the "closing date" earlier referred to, and that which "remained open through inertia" must have been the closing date for the purposes of the prospectus.
140 I am somewhat hesitant in drawing inferences in favour of Hudson Investment from the terms of Mr Sutton's note when Mr Sutton was not called to give evidence. But I do not think that any application of the principles in Jones v Dunkel (1959) 101 CLR 298 requires me to construe a document otherwise than in accordance with its terms, or not to draw inferences from it that are clearly available, simply because that construction or those inferences favour the party relying on the document and that party did not call the author.
141 On 3 September 1999, Mr Sutton sent a letter by facsimile transmission to Mr Cleland. Omitting formal parts, it reads:
"ozEcom Closing Date
It is recommended that the closing date for the issue be set at Friday, 17 September 1999. This timing should permit the required spread to be obtained and funds obtained from institutions. Should the required subscriptions be obtained prior to that date, the issue can be closed at any time."
142 In terms, this document suggests that Mr Sutton was referring to closing the issue in terms of the prospectus. The letter is cast in the language of recommendation: clearly enough, a recommendation made to ozEcom for its consideration. The decision that was recommended seems to have been one for ozEcom to make: again, something consistent with the "closing date" being the closing date under the prospectus. If the document to which I refer in para [145] below is to be taken as showing ozEcom's understanding of, and attitude towards, Mr Sutton's letter, it would suggest that ozEcom thought that the subject of the recommendation was the offer under the prospectus.
143 However, there are some indications the other way. The heading - which I have set out - capitalises the initial letters of the phrase "Closing Date". Further, and perhaps more significantly, it appears that one of the purposes of the proposed extension was to "permit the required spread to be obtained". That was an objective, the achievement of which Hudson Investment was required (clause 3.5 of the underwriting agreement) to use its best endeavours to procure. Thus, the communication may be seen as consistent (or, at least, not inconsistent) with the continuance in force of the underwriting agreement and at least one - a key one - of Hudson Investment's obligations under it.
144 It is correct to say, as the defendants have pointed out, that ozEcom appears to have rejected Mr Sutton's recommendation. So much appears from Mr Sutton's later facsimile transmission to Mr McLeod, parts of which I have set out in paras [135] and [138] above.
145 The defendants pointed also to what they said was ozEcom's reply. That document was a draft, dated 3 September 1999, not shown to have been sent. In terms, it does not appear to be a response to Mr Sutton's facsimile transmission. It does however deal with the topic of the closing of the offer:
" …
… The company is not willing to formally extend the offer to the 17 September 1999.
We advise that the Company will keep the offer open on an ad-hoc basis to enable your organisation, and ozEcom, to mitigate the potential exposure to Hudsons as a result of the apparent under-subscription.
We are hopeful that a combination of your own efforts, particularly concerning the 'spread' and our efforts to secure an institutional cornerstone investor will enable the offer to be closed during the week commencing Monday, 6 September 1999.
… We are confident that by working together this unforeseen situation can be resolved to our mutual benefits [sic]."
146 To the extent that this document can be taken into account as representing ozEcom's attitude during the weeks leading up to 28 September 1999, it appears to relate to the issue under the prospectus. But there are also clear indications that the author regarded Hudson Investment's underwriting obligations as remaining alive. That is consistent with the attitude evinced in subsequent conversations, to the effect that the offer would not be closed, but would be extended to enable the shortfall, and thereby Hudson Investment's underwriting liability, to be reduced. That can hardly have been of significance to either party if by then that underwriting obligation had expired by effluxion of time.
147 Of course, the significance of such inferences relating to the existence and enforceability of Hudson Investment's underwriting obligations as may be drawn from Mr Sutton's letter of 3 September 1999 and the document referred to in para [145] above must be assessed in the context that, as at the date those documents bear, the Closing Date under the underwriting agreement had not been reached.
148 It is necessary to bear in mind that ozEcom puts this aspect of its case on the basis that there was an enforceable agreement to extend the Closing Date under the underwriting agreement. It is clear that there was no extension of the Closing Date in accordance with clauses 3.2, 3.3 or 3.4 (the last mentioned read in conjunction with the requirements for writing and signature set out in clauses 17.2(a)(ii) and 17.10). OzEcom articulates this aspect of its case thus in paras 22, 24 and 25 of its further amended summons:
"22. Between 13 August 1999 and 3 September 1999, pursuant to the underwriting agreement, Hudson Investment agreed with OzEcom to extend the closing date on the application of shares to OzEcom to 17 September 1999.
Particulars
The agreement was partly express and partly implied. To the extent that the agreement was express it was partly written and partly oral. The written part consists of a letter from Sutton of Hudson Investment to Cleland of OzEcom dated 3 September 1999. The oral part consists of conversations between Cleland and Sylvester of OzEcom and Sutton and Tan of Hudson Investment to the effect of the agreement alleged. To the extent that it was implied, the implication arises from the course of conduct between OzEcom and Hudson Investment, being the continued offering of shares to members of the public and otherwise keeping the offer open.
…
24. By conversations between on the one hand Campbell Corfe (" Corfe "), Sylvester and Cleland on behalf of OzEcom and Tan and Sutton on behalf of Hudson Investment on the other, it was expressly agreed:
(a) that OzEcom would not close the subscription;
(b) that Hudson Investment could continue soliciting investors in order to reduce the then apparent shortfall in public subscription for shares;
(c) in particular, Tan could continue negotiations with a Mr Adler and Adler Corporation as to the terms on which that company might invest; and
(d) each party would otherwise use their best endeavours to solicit further investors and funds for further investment (" Extension Agreement ".)
25. By the last mentioned conversations and by correspondence on and between 17 September 1999 and 27 September 1999, it was agreed between Hudson Investment and OzEcom pursuant to the Underwriting Agreement to further extend the closing date on the application of shares to OzEcom to 5 pm, 29 September 1999.
Particulars
The agreement was partly express and partly implied. To the extent that the agreement was express it was partly written and partly oral. The written part consists of a letter from OzEcom to Tan of Hudson Investment and McLeod dated 17 September 1999. The oral part of the agreement consists of conversations between Corfe of OzEcom and Tan and/or McLeod of Hudson Investment to the effect of the letters. To the extent that it was implied, the implication arises from the course of conduct between OzEcom and Hudson Investment." (underlining in original).
149 The real difficulty with this aspect of ozEcom's case is that to which I have referred in para [128] above. Whilst the evidence suggests that the parties conducted their affairs on the basis that Hudson Investment's underwriting obligations were in force from 3 (or 4 or 6) September through 17 September to at least 27 September 1999, it is very difficult to spell out any agreement to the effect of that "pleaded" (to use a convenient but inaccurate term).
150 The parties had stipulated for a substantial degree of formality and precision in relation to amendments to the underwriting agreement. On at least two and perhaps three occasions they had sought to effect variations with the requisite degree of formality. The fact that, in relation to the subsequent alleged extensions, they did not do so requires at the very least that the evidence relied upon to support the alleged extension agreement (to use ozEcom's term) be scrutinised with care.
151 I have the strong impression that, during the period from 3 to 27 September 1999, neither party turned its attention to the status of the underwriting agreement, or its requirements relating to (for example) variation. I have the strong impression both from the documents and from the affidavit and oral evidence (such as it was) that ozEcom at least appears to have acted on the basis of an assumption (if it can be put so high, bearing in mind that assumptions are normally the product of conscious reflection) that the enforceability of Hudson Investment's underwriting obligation under the underwriting agreement was coextensive with the life of the public offer under the prospectus. But assumption is one thing, and agreement another. Accepting as I do the substance of the evidence given by Ms Sylvester and Messrs Corfe and Breadman, none of them gave evidence of any conversation (to which she or he was party) in which the topic of extension of the Closing Date (which, by the time the relevant conversations occurred, had become fixed as a calendar date rather than as a date to be calculated from a specified event) was raised, let alone that there was discussion and consensus. It may well be that some such evidence could have been given (for example) by Mr Cleland: see what I have said in para [60] above as to the hearsay account of his discussions with Mr Sutton. But as I have said, Mr Cleland was not called, and his absence from the witness box was not explained.
152 I accept that commercial arrangements do not always lend themselves too readily to formal analysis in terms of offer and acceptance, consideration and intention to create legal relations (to paraphrase McHugh JA, with whom Hope and Mahoney JJA agreed, in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110 at 11, 117). I accept that the existence of a contract may be demonstrated not by reference to formal analysis of offer and acceptance and the like but by asking whether an agreement can be inferred; whether mutual assent has been manifested; or what would a reasonable person in the position of the parties to the alleged contract think as to whether a bargain had been concluded (to paraphrase Heydon JA, with whom on this point Mason P agreed, in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 179 [81]).
153 Many of the cases dealing with this problem arise from facts where there is an identifiable offer. The problem has been whether there is evidence of acceptance; and in those cases the focus is on the point of inference of acceptance from conduct. Indeed, Brambles was such a case, as was Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 (a case cited by Heydon JA in Brambles). But in other cases, the analysis is even less clear. As Heydon JA pointed out in Brambles at 177 [74], there is a "possibility of finding that contracts exist even though it is not easy to locate an offer or acceptance". Integrated Computer Services was such a case.
154 In considering whether a contract can be inferred from conduct, where there is no clear evidence of offer and acceptance and the like, it is necessary to bear in mind McHugh JA's warning in Integrated Computer Services at 11,117, that bilateral contracts exist independently of and precede what the parties do. Thus, his Honour said (omitting citations):
" … it is an error "to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed" … . Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … . The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … . Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances."
155 This last sentence is of substantial significance in the present case. The reason why this is so was explained by McHugh JA in Integrated Computer Services at 11,117-11,118 as follows (again omitting citations):
"Research in the United States and Great Britain suggests that probably the majority of people in ongoing business relationships regulate their relationship in accordance with what they consider is fair and reasonable or commercially necessary at particular points of time rather than by reference to a priori rights and duties arising under a contract. … This is the case even where their relationship is governed by a written contract. There is no reason to suppose that the position is any different in Australia. For this reason "action and conduct before the inception of a controversy is of much greater weight than what they said or did after a dispute arose" … ."
156 As his Honour pointed out at 11,118, in the particular facts of that case, a relevant factor is whether what the parties did "is explicable only on the basis of a binding agreement."
157 Even if one analyses the present facts with those statements of principle in mind, it is difficult to see that there was a concluded bargain for extension of the Closing Date beyond, at the latest, 6 September 1999. The reality, on the evidence, is that the parties simply did not turn their minds to the question of extending Hudson Investment's underwriting obligations. They appear to have assumed that the obligations remained in force, or (more probably) to have omitted to check whether or not they did.
158 It is one thing to say that the parties assumed, or acted on the basis, that one of them continued to be bound by obligations under the agreement that they had made. It is quite another to say that they agreed that the time for performance of those obligations should be extended. But this aspect of ozEcom's case (I leave for later consideration the estoppel case) is that there was such an agreement, whereby Hudson Investment bound itself to perform its underwriting obligations up until 29 September 1999.
159 It may be possible to infer, from the fact that the parties (as I think they did) conducted themselves on the basis that Hudson Investment's underwriting obligations remained extant after 6 September 1999, that there was some agreed extension - informal in character - to the Closing Date. But why should the Court draw inferences from obscure and limited facts, when at least one relevant witness, whose testimony could have borne on this question, was not called (Mr Cleland); and other witnesses, who were called, did not advert to it in their evidence? And why should the Court do so when the party alleging the existence of an agreement did not deal with this mode of analysis, or with the cases on which that analysis is based, in its submissions?
160 In this context, I think, the approach to analysis described in para [152] above does not dispense with the need to find consensus. The present case is one where, on the evidence as it stands, there is no evidence of any offer, let alone of acceptance. At the most, the evidence is that the parties comported themselves on the basis that the underwriting agreement remained alive and enforceable after 6 September 1999. The basis upon which they did so remains entirely unexplained: at least, by any direct evidence.
161 The first express reference to extension by mutual consent occurs in Mr Cleland's fifth letter to Mr McLeod of 27 September 1999 (see para [89] above). The "confirmations" in the first two sentences that I have quoted have a self serving appearance, particularly in circumstances where: