Is there a binding contract?
86 The plaintiffs submitted that by 30 May 1994 the parties had reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms but at the same time proposed to have them restated in a form which would be fuller and more precise but not different in effect: Masters v Cameron (1954) 91 CLR 353 at 360. Put another way, it is submitted that final mutual assent of the parties had been reached so that those who drew up the final deed would not have the power to vary the terms already settled: Rossiter v Miller (1878) 3 App.Cas 1124 per Lord Blackburn at 1151.
87 Cumnock submitted that the evidence establishes that the intention of the parties was not to make a concluded bargain at all, unless and until the new Royalty Deed was executed. In Masters v Cameron Dixon, Mc Tiernan and Kitto JJ said at 361:
Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own....the parties may have so provided either because they have dealt only with major matters and contemplate that others will be or may be regulated by provisions to be introduced into the formal document as in Summergreene v Parker [(1950) 80 CLR 304] or simply because they wish to reserve to themselves a right to withdraw at any time until a formal document is signed… the question of depends upon the intention disclose by the language the parties have employed and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of the agreement in its ultimate shape….. Nor is any formula such as "subject to contract" so intractable as always and necessary to produce that result.
88 Both the plaintiffs and the defendants relied upon the language used in the Letters and the conduct prior to and after the Letters in support of their competing submissions. In assessing this matter it is important to apply the principles relevant to this case as identified in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61. Those principles are (1) that pre-contractual conduct may be considered on questions of construction, if the contract is ambiguous and the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term, (2) that post-contractual conduct may be considered on the question of whether a contract was formed, (3) that post-contractual conduct may not be considered on the question of what a contract means as distinct from the question of whether it was formed and (4) that the construction of a contract is an objective question for the court and the subjective beliefs of the parties may be considered in the estoppel claim but not in the consideration of this question (at pars [24-27] per Heydon JA).
89 Cumnock submitted that this was "classically" a third category Masters v Cameron case. In this regard emphasis was placed upon the recognition in the Letters that the parties intended that the Royalty Deed would be amended and the fact that clause 11 of the Royalty Deed precluded amendment except by a further Deed executed by the parties. It was submitted that this is fatal to the plaintiffs' submissions on this aspect of its case.
90 Both parties relied upon the absence of a new Royalty Deed prior to Cumnock's letter of 28 April 1998 in support of their competing submissions. Cumnock submitted that such absence, and the failure to reach the "first stage" of preparing the draft for Cumnock's comments, is very telling evidence that the parties did not intend to be legally bound by the Letters. The plaintiffs relied on the same evidence in support of the submission that the evidence demonstrates that both parties proceeded on the basis that they were bound immediately and the preparation a draft Deed was not of pressing importance to either party.
91 Clause 11 provided that the Royalty Deed "may not be amended except by a further deed executed by the parties". The Royalty Deed was between Elcom, which had assigned its rights under the Deed to the plaintiff's predecessor ECNSW, and Stocklyn. Cumnock's letter of 2 February 1994 recognised that the parties to the Deed to be drafted would be different to the parties to the Royalty Deed. The plaintiff's letter of 30 May 1994 recognised this matter and noted that the Royalty Deed would need to be formally revoked. Finality of agreement is capable of being reached without the Deed being executed. It will depend upon the facts, which I will now consider.
92 In October 1993 Cumnock invited the plaintiff to agree that the terms of the June 1993 letter should be "adopted" as a "variation" to Contract 4180. At this time Cumnock had already commenced to pay the royalty at 62c on what, at that stage, was referred to as "all export coal sold". The plaintiff declined to accept Cumnock's invitation. It adopted the position that the parties were still in "negotiations" and a "number of detailed issues needed to be resolved".
93 At this time the features of the proposal, as it related to royalties were (a) that the amount of $0.62c was to be paid on all export coal sold, (b) that 62c was to be increased in accordance with Clause 2.4 of the Royalty Deed, (c) that royalty payments were to continue until the equivalent value of "this component" of the original purchase price was repaid to the plaintiff or the expiry of the original lease, whichever was the later, and (d) the calculation of the equivalent was to be in accordance with the Spreadsheet developed and agreed between the plaintiff and Cumnock.
94 This position changed prior to Cumnock's letter of 2 February 1994. On 25 October 1993 the words "on all coal sold other than that under Contract 4180" replaced the words "on all export coal sold" and reference was made to the additional matters to be included in the Royalty Deed of the change of name of the parties, the removal of references to the Barrett Seam Royalty and any other changes to reflect the intent of the letter. On 6 January 1994 the word "earlier" replaced the word "later" and the term "arrangement" replaced the term "purchase price".
95 On 6 January 1994 when Mr Johnson removed the word "later" and inserted the word "earlier" I am satisfied that he was attempting to achieve that which he had been trying to achieve since his first letter of 21 May 1993 was sent to the plaintiff. If Mr Johnson had achieved the "earlier" rather than "later" time frame, it would have meant that once the payment of the equivalent value of the royalty component was made, no further royalties were payable. It would have also meant that if payment of the royalty component had not been made by the end of the term of the lease, no debt would have accrued after the termination date of the lease. This was a more attractive proposition for Cumnock and I have little doubt that this is what was discussed at the Board Meeting of 31 January 1994 and referred to by Mr Johnson as a "sticking point". The "sticking point", it seems to me, was the only point upon which the parties were unable to agree at that time. However the plaintiff was very firm in its view, which it expressed to Mr Johnson, that the term "earlier" was unacceptable to it. It was not interested in a change in the arrangement if that term was to be included.
96 Mr Johnson's explanation in relation to the comparison of the use of the term "earlier" or "later" was quite curious. He said it made no difference (tr.244). This was at a time during the trial at which Mr Johnson had maintained his case that the royalty payments were capped at $4.1 million. I have already referred to the withdrawal of the defence and claims in the cross claim that relied upon the claim that the royalty payments were to be capped at $4.1 million. I infer from such withdrawal that such cases were simply unsustainable.
97 Mr Henness and Ms Clemson were cross-examined to the effect that discussions with Mr Johnson occurred in which reference was made to the royalties being capped at $4.1 million. These alleged conversations were denied. This was before Mr Johnson gave his evidence and Cumnock withdrew the relevant parts of the defence and cross claim based on the $4.1 million cap. There has been no express withdrawal of the suggestion that such statements were made. The letters and covering faxes of the letters of 6 January and 2 February 1994 militate against such an understanding and provide no support for such an understanding, let alone any suggested express statement. It is probable that with the withdrawal of the relevant parts of the defence and cross claim Cumnock no longer relies on that evidence but for abundant caution I should record that I prefer Ms Clemson and Mr Henness' evidence to that of Mr Johnson in respect of the $4.1 million alleged conversations. I am satisfied that such conversations did not happen.
98 Notwithstanding the propriety of withdrawing the defence and claims in the cross claim based on the $4.1 million cap in the light of the evidence given by Mr Johnson it is a matter that I should take into account in assessing Mr Johnson's evidence in relation to the choice of the term "earlier" or "later" in the letter. I am satisfied that Mr Johnson knew it was an important matter to the plaintiff that the term "later" was included in the proposal. The fact that he changed the letter of 6 January 1994 to include the term "earlier" without highlighting that change in the covering fax was explained on the basis that it did not make much difference. I do not accept that as an explanation of the situation. It was an important difference and I am satisfied that difference was appreciated and understood by Mr Johnson and Cumnock at that time when they knew, from the plaintiff's letter of 4 January 1994, that the plaintiff wanted the final proposal "urgently" otherwise it would revert to the original delivery regime under Contract 4180. A decision had to be made by Cumnock as to whether it would agree to the term "later" in the knowledge that if it did not the plaintiff intended to return to the original delivery schedule.
99 The only matter Cumnock drew attention to in its proposal of 6 January was the change from "purchase price" to "arrangement". Mr Johnson suggested the term "purchase price" in his letter of 21 May 1993. The term "arrangement" was also Mr Johnson's suggestion. Mr Johnson had resisted allowing any public disclosure of the breakdown of the $18.3 million because he took the view that such information was confidential and commercially sensitive. The figures that he had recorded in his diary in respect of the breakdown on 17 March 1993 were "Cash 7.6, Liddell 9.1 and Barrett 1.6" with a total 18.3 for what he recorded as the "breakdown of the LS Purchase", being a reference to Liddell State, or the Mine purchase. The term "arrangement" reflected the amounts to the royalty component in the Spreadsheet. The term "purchase price" encompassed the different figures that Mr Johnson noted in March 1993.
100 The plaintiff noticed the term "earlier" and once again informed Mr Johnson that it was not acceptable to it. Thus the "sticking point" had arisen. The only change in the letter of 2 February from the terms of the 6 January letter was the deletion of the word "earlier" and the insertion of the word "later". The covering fax for the 2 February letter referred to Contract 4180 and then stated "refers to Royalty expiry period". The "sticking point" had disappeared.
101 The letter of 30 May 1994 from the plaintiff to Cumnock stated that the plaintiff accepted Cumnock's proposal "in principle for the modifications" referred to in Cumnock's letter of 2 February 1994. The only matters referred to "in particular" in the plaintiff's letter were paragraphs 8 and 10 relating to the reduction in security and the royalty payments respectively.
102 Cumnock had used the expression "modifications" in its letter in which it requested "modifications to the existing provisions of the Contract". Paragraphs 1 to 7 dealt with the extension of the time to deliver the coal to 30 June 1996 and the average rate and maximum amount of supply of coal per month, with the rider that fluctuations in the delivery schedule would be influenced by Cumnock's export commitments. These paragraphs also dealt with the requirement for Cumnock to provide the plaintiff with projection of deliveries in June and December of each year and the limit of coal per day after which the plaintiff was entitled to reject further deliveries.
103 Paragraph 8 provided a formula for ascertaining the amount of the reduced security. Paragraph 9 suggested the replacement of the second and third paragraphs of clause 7.16.5 of Contract 4180 with paragraphs included in the letter relating to the method to be used in setting coal quality in respect of the standard coal quality specified in clause 3.1 of Contract 4180. Paragraph 10 dealt with the royalty payments.
104 The use of the term "in principle" is relied upon by Cumnock to submit that final agreement was not reached between the parties. When such a term is used in circumstances such as this it is important to look at the context of the term and the conduct of the parties to ascertain whether the parties intended to be bound immediately by the terms of the Letters or whether further steps had to be taken or further agreement reached prior to the parties intending to be legally bound. There were no further steps taken by the plaintiff or Cumnock in respect of Contract 4180 by way of execution of an amended Contract. The coal was delivered pursuant to the requests made in Cumnock's letter and when those deliveries were completed, earlier than anticipated as it turned out, the plaintiff issued a certificate of practical completion of the Contract 4180 in which it referred to the contract "as modified" in Cumnock's 2 February 1994 letter. This makes it very difficult for Cumnock to succeed in its submission that the term "in principle" in the context and in the circumstances of the Letters meant that the parties did not intend to be immediately legally bound.
105 From 30 May 1994 to the date upon which the certificate of practical completion was issued there was no debate about the agreement not being final and no reference was made to or reliance was placed on the term "in principle". Notwithstanding the use of the term "in principle" the parties clearly intended to be bound immediately by the terms of the Letters. Cumnock submitted that the paragraphs in the letters relating to Contract 4180 should be viewed quite independently of the paragraphs relating to the security and the royalty payments.
106 I should deal firstly with the security. Almost immediately after Cumnock received the plaintiff's letter of 30 May 1994 it communicated with the plaintiff for the purpose of reducing the amount of security. Once again there was no debate about whether further agreement had to be reached and the parties moved promptly to reduce the security from $1.6 million to approximately $743,000. It is obvious that the parties intended to be immediately legally bound by the terms of the Letters notwithstanding the use of the term "in principle" in the plaintiff's letter of 30 May 1994.
107 There is a further matter upon which Cumnock relies in addition to the use of the term "in principle" in the letter to submit that the parties intentions in relation to the royalty payments were different from their intentions as disclosed in the letters and conduct in relation to the delivery of the coal and the reduction in the security. Cumnock relied on the terms of the Royalty Payment certificates in support of the submission that they demonstrate that the parties intended not to be bound until the new Royalty Deed was executed. The words used in the certificates were as follows:
Royalty Due - Export Coal
108 Please find enclosed our cheque for $ (amount), being payment in relation to export of coal from Cumnock No. 1 Colliery Pty Ltd during (particular month and year). The royalty paid is pursuant to our revision of the agreement currently being finalised.
Our calculation is as follows:
(i) Royalty Price per Tonne: $0.62 per tonne of Export Coal for
month of delivery (indexed quarterly with base price: 109.3 commencing July 1 1994).
June 1994 Index = 111.2
Royalty = $0.62* (111.2/109.3)
$0.63 (rounded)
109 The certificates were prepared on a word processor. There was a precedent in the form above and the typist was provided with the information to "fill in the gaps" (tr. 273). Mr Blackburn would then check each certificate before it was sent to the plaintiff. The words "the royalty paid is pursuant to our revision of the agreement currently being finalised" were included at Mr Johnson's direction in the first certificate at the rate of $0.62 in October 1993. At that time the plaintiff had sent the draft to Cumnock but Cumnock had not "adopted" the terms by writing a letter in such terms to the plaintiff. The parties were in the process of finalising their agreement.
110 Prior to the change to the payment of the $0.62 royalty per tonne, the plaintiff was entitled to a royalty on Liddell Seam coal of 5% of the Royalty Price per tonne that was the Contract Price per tonne less government royalties and excise. If the Contract Price increased then the Royalty Price increased by reason of the fixation at 5% of that price. Equally if the Contract Price decreased the Royalty Price decreased. This was not the case in respect of the Barrett Seam Coal. The Royalty paid on that coal was $0.30 per tonne and clause 2.4 of the Royalty Deed provided for an increase in that royalty by the same proportion that the Contract Price per tonne had increased during the immediately preceding royalty period, being the previous month. The Contract Price per tonne was the base price adjusted in accordance with the formula in Schedule One of the Royalty Deed. If the Contract Price decreased the Royalty did not decrease but remained at the same rate for the previous month.
111 Cumnock's letter of 2 February 1994 proposed that the $0.62 Royalty be "increased with the current method for increases in Barrett seam Royalty as set out in Clause 2.4 of the Royalty Deed". The Royalty of $0.62 which was then paid on coal from all seams including Liddell, Barrett, Pikes Gully and others, was, under this proposal, to increase by the same proportion that the Contract Price per tonne had increased in the previous calendar month and if the Contract Price decreased then the Royalty was protected against decreases and remained at the rate paid in the previous month.
112 The Joint Report of the parties' experts, Bill Rock of Ernst & Young and Paul Johnson of Deloitte Touche Tohmatsu, dated 6 July 2001 (App 3.1), and Mr Johnson's Report of 21 September 2001 (Ex. 13 App 3.1) contain a list of the Contract Prices per tonne for the months July 1994 to October 1997. According to those Reports the Contract Price per tonne increased each quarter in 1994 from $27.97 for the third quarter to $28.32 for the last quarter. In 1995 the Contract Price per tonne is recorded in the respective quarters as $28.53, $28.98, $29.34 and $29.67. In 1996 they are recorded as $29.88, $30.00, $30.18 and $30.25 and in 1997, as $30.30, $30.35, $30.28 and $30.16.
113 The Royalty rate in October 1993 was $0.62 and was increased in June 1994 to $0.63 (rounded) and remained at that rate until January 1996 when it was increased to $0.66 (Ex 3A). The Royalty rate was adjusted by the formula in each Royalty Payment Certificate which between July 1994 and December 1995 stated that the rate was "indexed quarterly with the base price: 109.3 commencing July 1 1994". From January 1996 the Certificates stated that the rate was "indexed quarterly with base of 111.2 at June 94". Although the rates were not changed every Royalty period or month it is clear that the Contract Price per month remained the same for each quarter and then changed. The Royalty rate was not increased strictly in the same proportion as the increases in the Contract Price per month. For one thing, the Contract Price remained the same throughout the quarter. For another, the experts indexed the Contract Price on a quarterly basis. The increase in the royalty rate from $0.62 to $0.66 in January 1996 was an increase of approximately 6.4%. The increase in the contract Price from $27.97 to $29.98 was an increase of approximately 6.8%. With the approach of rounding of the royalty rate, the increases between 1994 and 1996 generally kept pace with the increases in the Contract Price. However the royalty rate had not been further adjusted by the time the payments were terminated.
114 What is of significance is that the Royalty rate was paid at $0.66 in July, August, September and October 1997 notwithstanding that the Contract Price per tonne decreased from $30.35 to $30.28 for the months July, August and September and then again down to $30.16 in October 1997. The Royalty rate was not decreased and was only stopped after the payment was made in November 1997 when the new Managing Director took the reins of Cumnock and notified the plaintiff in April 1998 that he was of the view that "negotiations had never been concluded" and referred to the royalty payments that had been made as "interim". I do not know what the Contract Price per tonne was after the last quarter of 1997 however there is evidence of a "general weakening of coal prices" (tr. 292) although not month and year specific, and of Cumnock suffering a "considerable" loss in 1998 after a profit in 1997 (tr. 292-3), from which I conclude that more probably than not the Contract Price per tonne continued to decline after October 1997.
115 The terminology used by the plaintiff in its letter of 30 May 1994 in suggesting that "as a first stage" the Royalty Deed would be drafted and sent for comment by Cumnock prior to its "finalisation" is also relied upon by Cumnock to submit that it evidences a lack of final agreement. At no stage during the four years during which the royalty was paid at the new rate or the three and a half years from the time the plaintiff accepted Cumnock's proposal in May 1994, did Cumnock demand or call for or request a redraft of the Royalty Deed. There was a telephone call between Mr Williams and representatives of the plaintiff in 1997 to which I have referred earlier in the judgment, but those discussions petered out as the search for the original Royalty Deed continued. They were also overtaken by the intervention by Mr Coates. It was submitted that the redraft of the Royalty Deed was really not Cumnock's responsibility because the plaintiff had suggested that it would redraft it and send it to Cumnock. However it was Cumnock's proposal that referred to the matters to be included in the Deed.
116 There is no doubt that the plaintiff suggested that it would prepare a draft and there is no doubt that in 1996 and 1997 some effort was made to find the original Deed and the Spreadsheet to start the drafting process. There was no demand made by Cumnock at either of those times that the Deed had to be produced otherwise the Royalty payment would cease. There was certainly no suggestion that the payments were "interim". That is a term that was adopted by Mr Coates in 1998. In particular, in 1997, when the Contract Price per tonne decreased no suggestion was made by Cumnock that negotiations had not been concluded and therefore the rate of the Royalty would have to return to the regime that was in place prior to the payment of the $0.62. The rate was paid without decrease consistent with the "method" in clause 2.4 of the Royalty Deed.
117 Indeed it is not surprising that Cumnock did not suggest a return to the original arrangement. A significant change had occurred which prevented Cumnock from doing so. It was the change in the way Cumnock kept its records. Mr Johnson gave evidence of the difficulty in having to keep such records to identify the different seams from which the coal was extracted as one of the reasons he wanted to change the arrangement. He of course wished to change it at a rate of $0.50c but ultimately put the proposal at $0.62c. Mr Blackburn gave evidence that since October 1993 Cumnock has not kept any records that identify sales from the Liddell Seam or Barrett Seam to persons other than the plaintiff. He said that it was "not necessary" to keep such records after October 1993 (tr. 275).
118 Deliveries of coal under Contract 4180 proceeded under the terms of the Letters. The security was reduced as provided for in the Letters. Cumnock paid the changed rate of Royalty to the plaintiff for three and a half years at the rate in the Letters. Although the increases in the Royalty payments were not strictly in accordance with clause 2.4, the payment at the increased rate notwithstanding the decrease in the Contract Price per tonne certainly was in accordance with that clause as provided for in the Letters. Cumnock paid Royalties on new seams such as Pikes Gully and others as provided for in the Letters for three and a half years. Cumnock abandoned the keeping of records in relation to the Liddell Seam and Barrett seam as there was no necessity because the rate was payable on all coal and it was irrelevant which seam from which the coal came. No records were kept even after Cumnock stopped paying royalties but Mr Blackburn continued to prepare the Certificates although no payments were made to the plaintiff.
119 The sentence in the Certificate "the royalty paid is pursuant to our revision of the agreement currently being finalised" was included at a time when the statement was accurate. That was in October 1993 when there is no doubt that the parties were still "finalising" the agreement. In final submissions Cumnock has referred to this sentence as a "disclaimer" (par 24 (iii)). I am not satisfied that this sentence should be read as Cumnock denying that agreement was reached in 1994. This sentence remained part of the Certificates during the period until payment was stopped. It was part of a precedent or pro forma letter that was on the word processor or system. I am satisfied that although the sentence was applicable in October 1993 events overtook it in 1994 and its inclusion did not reflect what had happened. This is particularly so having regard to the fact that not only was the royalty payment made at the different rate but it was also increased and did not decrease even when the Contract Price per tonne decreased. This sentence was seized upon by Mr Coates to suggest that negotiations had not been concluded at a time when Cumnock was about to suffer a considerable loss in the year 1998 at a time when coal prices were on the decline.
120 A further matter to be taken into account is the approach of the author of the 2 February 1994 letter, Mr Johnson, in his evidence. Mr Johnson's position as expressed in his evidence prior to the withdrawal of the relevant parts of the Defence and Cross Claim was not that agreement had not been reached, rather it was that agreement had been reached which capped the payments at $4.1 million (Ex 1 par.64).
121 There is no doubt that a contract may be inferred from the acts and conduct of parties in the light of the surrounding circumstances but that conduct must be capable of proving all the essential elements of an express contract. In Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 at [23] Mason P cited with approval the approach adopted by Bingham J, which was confirmed on appeal, in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601. Bingham J said at 611:
The parties are to be regarded as masters of their contractual fate. It is their intentions which matter and to which the Court must strive to give effect. In this endeavour, help is to be gained from the observations of Lord Denning MR in Port Sudan Cotton Co v Chettiar [1977] 2 Lloyds Rep 5 at p 10:
In considering this question I do not much like the analysis in the textbooks of enquiring whether there was an offer and acceptance or a counter-offer and so forth. I prefer to examine the whole of the documents in the case and to decide from them whether the parties did reach an agreement upon all material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards.
122 This is the approach that I have adopted in this case. The documents, the Letters and the conduct of the parties have required close scrutiny. The use of the words "in principle" in the letter of 30 May 1994 may present to some as persuasive to a finding that there was no intention in the parties to be immediately legally bound. However when the surrounding circumstances and the parties conduct are analysed those words do not carry the significance that they may otherwise have had and are in my view no more than curious: G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 635E-F.
123 In this case it is important to take into account the context or surrounding circumstances in which the parties wrote the Letters. This included a number of drafts that had been discussed at a number of meetings for the purpose of reaching the final agreed position. This was not a case of the 'usual' proposal and counter proposal and further proposal. The first proposal was put by the letter of 21 May 1993 from Cumnock to the plaintiff. The June 1993 letter was the plaintiff's suggested amendments to Cumnock's letter. The next letter in October 1993 was the plaintiff's further suggested amendments to Cumnock's letter. Cumnock's letters of 6 January 1994 and 2 February 1994 were amendments made by Cumnock to the suggested amendments made by the plaintiff. This was a joint drafting process until consensus was reached.
124 I am not satisfied that the failure to execute a deed is "fatal" to the plaintiff's submission that the parties had reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms but at the same time proposed having them restated in a form which would be fuller and more precise but not different in effect. I am satisfied that the parties had reached finality in arranging all the terms and that they intended to be immediately bound to the performance of the terms. Indeed they performed those very terms. The failure to execute a deed does not mean that the agreement was not final or binding: Creamoata Ltd v The Rice Equalisation Association Ltd (1953) 89 CLR 286; Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500; Westfarmers Bunnings Ltd v Angus & Robertson Bookworld Pty Ltd [1998] VSC 101. Clause 11 of the Royalty Deed is not an impediment having regard to the parties' recognition that the Deed would be revoked and a new deed with different parties would be drafted. The plan to draft a document floundered in 1997 by reason of the loss of the original deed and the continued search for the spreadsheet and was overtaken by Cumnock's letter of 28 April 1998.
125 Cumnock submitted that there was much to be done to the Spreadsheet prior to any drafting of a Royalty Deed being able to be concluded. I disagree. The Spreadsheet was finalised and adopted by Cumnock and used by Mr Blackburn in his computer system to track the royalty payments. The parties intended by their reference to the Spreadsheet in the Letters to refer to the "component" of $9.6 million. There was nothing uncertain about the reference to the Spreadsheet that precludes a finding that the parties intended to be bound by the terms of their agreement.
126 The factual matrix and surrounding circumstances at the time of the exchange of the Letters, the terms of the Letters and the commercial reality of the parties conduct from 1994 to 1998 in the context of the Letters leads me to the irresistible conclusion that they had finally agreed on the terms and intended to be legally bound by those terms and in respect of the royalty payments to have those terms restated in a form fuller and more precise but not different in effect: Masters v Cameron (1954) 91 CLR 353 at 360. That was a concluded and binding contract.
127 The plaintiffs also relied upon what has been identified in the authorities as a fourth class of case additional to the three mentioned in Masters v Cameron. That was recognised by Knox C. J., Rich J. & Dixon J. in Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 317 as "one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms". In that case their honours referred to the speech of Lord Loreburn in Love & Stewart v S Instone & Co Ltd (1917) 33 TLR 475 at 476 where his Lordship said:
It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.
128 Consensus was reached and that consensus was capable of forming a binding contract. The plaintiff and Cumnock had reached agreement on the "essentials". It was not a variation to the Royalty Deed. It was a new agreement. They agreed that the royalty of $0.62 is to be paid on all coal sold other than under Contract 4180; that the royalty rate is to increase in accordance with the method for increases in clause 2.4 of the Royalty Deed and that the royalty payments are to continue on such coal until the equivalent value of $9.6 million is paid or the expiry of the original lease whichever is the later. They agreed that the document that was to be drafted would include the terms of the original Royalty Deed amended or varied to reflect the terms of the bargain reached.
129 The plaintiff is entitled to a declaration in terms of paragraph 1 of the Amended Summons and an order in terms of paragraphs 3 of the Amended Summons.