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[2009] WASCA 126
Court of Appeal (WA)
2009-07-22
Wheeler JA
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : TIPPERARY DEVELOPMENTS PTY LTD -v- THE STATE OF WESTERN AUSTRALIA [2009] WASCA 126
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Citation : TIPPERARY DEVELOPMENTS PTY LTD -v- THE STATE OF WESTERN AUSTRALIA [2006] WASC 137
File No : CIV 2490 of 1992, CIV 1473 of 1994, CIV 1878 of 1994
Contract - Oral agreement - Scope and content - s 4 Statute of Frauds - Whether 'guarantee' - Proper law of the contract - Authority of agent of State to enter contract - Intention to create legal relations
Estoppel - Whether s 4 Statute of Frauds impediment to estoppel claim - Whether 'something more' than oral promise required
Negligent misrepresentation - Whether trial judge determined all of appellant's case - Authority of agent of State to make representations - Falsity of representations - Whether reasonable grounds to make representations - Whether breach of continuing duty to disclose
Release - Whether oral release agreement open on evidence - Whether oral agreement releases respondent - Deed of release - Whether deed enforceable by respondent - Construction of deed - Whether deed releases respondent - Rectification or specific performance of deed
Costs - Notice to admit facts - Where no positive finding made - Turns on own facts
Property Law Act 1969 (WA), s 9, s 10, s 11
Rules of the Supreme Court 1971 (WA), O 66 r 1(1), O 66 r 3(2)
Statute of Fraud 1677 (Imp), s 4
Respondent : Mr C L Zelestis QC & Mr K M Pettit SC & Mr A J Sefton
Actionstrength Ltd v International Glass Engineering IN GL EN SpA [2003] UKHL 17; [2003] 2 AC 541
Agius v Sage [1999] VSC 100
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Akai Pty Ltd v The Peoples Insurance Company Ltd (1996) 188 CLR 418
Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Attorney-General (Ceylon) v AD Silva [1953] AC 461
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Securities Commission v Malborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485
Buckland v Buckland [1900] 2 Ch 534
Butler v Powis (1845) 2 Collyer 156; 63 ER 679
CH Giles & Co Ltd v Morris [1972] 1 WLR 307
Collin v Holden [1989] VicRp 48; [1989] VR 510
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Cropper v Smith (1884) 26 Ch D 700
Dawes v Tredwell (1881) LR 18; Ch D 354
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Friend v Brooker [2009] HCA 21
Frontier Petroleum NL v Anzoil NL (Unreported, WASC, Library No 970286, 4 June 1997)
Giumelli v Giumelli (1996) 17 WAR 159
Hansen Beverage Co v Bickfords (Australia) Pty Ltd [No 2] [2008] FCA 601
House v The King [1936] HCA 40; (1936) 55 CLR 499
Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896
John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503
Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Kyra Nominees Pty Ltd (in liq) v National Australia Bank Ltd (1986) 4 ACLC 400
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406
Leroux v Brown [1852] EngR 966; (1852) 138 ER 1119
Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385
Maralinga v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
McDermott Black [1940] HCA 4; (1940) 63 CLR 161
Meadow Gem Pty Ltd v ANZ Executors & Trustees (Unreported, VSC, 11 June 1996)
Middleton v Aon Risk Services Australia Ltd [2008] WASCA 239
Mincode Pty Ltd v Isa Pty Ltd (1996) 17 WAR 245
Minister for Youth & Community Services v Health & Research Employees Association of Australia (1987) 10 NSWLR 543
Monarch Petroleum NL v Citco Australia Petroleum Ltd (1986) WAR 310
Moschi v Lep Air Services Ltd [1973] AC 331
Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556
New South Wales v Bardolph [1934] HCA 74; (1934) 52 CLR 455
NMFM Property Pty Ltd v Citibank Ltd [No 11] [2001] FCA 480; (2001) 187 ALR 654
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146
Otway v Braithwaite (1678) Finch 405; [1673] EngR 72; 23 ER 221
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pape v Commissioner of Taxation [2009] HCA 23
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221
Perre v Apand [1999] HCA 36; (1999) 198 CLR 180
Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51
Prestige Residential Marketing Pty Ltd v Depune Pty Ltd [No 2] [2008] NSWCA 341
Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 29 ACSR 130
Re A & K Holdings Pty Ltd [1964] VicRp 36; [1964] VR 257
Re Sugden's Trusts; Sugden v Walker [1917] 2 Ch 92
Riches v Hogben [1986] 1 Qd R 315
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436
Russo-Chinese Bank v Li Yau Sam [1910] AC 174
Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666
Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263; (2003) 28 WAR 124
Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213
Stocker v Wedderburn [1857] EngR 625; (1857) 3 K & J 393; 69 ER 1162
Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245
Sunderland Marine Insurance Co v Kearney [1851] EngR 411; (1851) 16 QB 925
Tepko Pty Ltd v Waterboard [2001] HCA 19; (2001) 206 CLR 1
The Bell Group Ltd v Westpac Banking Corporation [No 9] [2008] WASC 239
Tipperary Developments Pty Ltd v The State of Western Australia [2006] WASC 237
Toll (FGCT) Pty Ltd v Alphapharm [2004] HCA 52; (2004) 219 CLR 165
Townsend v Collova [2005] WASC 4
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387
Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491
Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226
Wright v Goff [1856] EngR 559; (1856) 22 Beav 207; 52 ER 1087
1 WHEELER JA: I have read in draft the reasons for decision of McLure JA. I agree with her Honour's ultimate conclusion that the appellant's claim against the State must fail and the appeal be dismissed. So far as the specific grounds of appeal, the notice of contention, and the cross-appeal are concerned, I agree with her Honour's conclusions, save that I would not decide grounds 3(b), 3(d), 4(b) and 4(e) of the cross-appeal, concerning the question of whether the giving of a guarantee to the appellant was outside the ordinary activities or functions of a government, and the question of intention to create legal relations. I also reach a somewhat different conclusion from her Honour concerning the estoppel ground, ground 4 of the grounds of appeal.
2 Save as mentioned above, I agree with her Honour's reasons and have nothing to add. I set out my own reasons in relation to those issues in respect of which I take a different view below.
Ordinary activities or functions of government
3 Although there is academic commentary which strongly argues for a different view, neither party in the present case challenged the correctness of the proposition which emerges from New South Wales v Bardolph [1934] HCA 74; (1934) 52 CLR 455, that a State Premier has authority to enter into contracts, in the absence of specific statutory authority, in respect of matters which are within or incidental to the ordinary and well recognised functions of government. I therefore deal with this issue on the basis that no broader authority to enter into contracts exists. The controversy in this case, then, is a factual one concerning the trial judge's finding that the provision of the guarantee was part of the ordinary activity of government.
4 His Honour's findings in relation to this matter are set out (Tipperary Developments Pty Ltd v The State of Western Australia [2006] WASC 237) at [313] and [314]:
It is asserted by the defendant that it could not be regarded as part of the ordinary functions of officials such as Dowding and Edwards to commit the State potentially to pay $50M to [the appellant] on the basis of oral assurances and a telephone discussion, when the $50M was not being provided to the State but to a private merchant bank with liquidity problems, which the State was endeavouring to support. However, to my mind that misses the point. The history of the matter, I think, establishes that the State had made a commitment, for reasons concerned with the State's economic wellbeing, to the support of Rothwells. At the time in question, then, it had, as a commercial activity of government, committed very substantial funds, in one way or another, to Rothwells and had undertaken a very substantial liability, potentially at least, in relation to those public moneys.
I see no reason to hold that in 1988, as much as today, it was not part of the ordinary activity of government to enter into commercial transactions, at least those which may, as I think this was, reasonably be supposed to be for the benefit of the State. The contract was made in the terms that I have described. It was valid and enforceable, subject to one consideration raised by way of defence.
5 His Honour's findings in these paragraphs appear to me to equate the transaction concerning the $50 million deposited into Rothwells to enable withdrawal of the GESB money with the grant of the $150 million NAB indemnity which had been given earlier. A financial crisis is capable of constituting an emergency which will enliven the exercise of executive power: Pape v Commissioner of Taxation [2009] HCA 23. It may be accepted that where a financial institution is capable of being seen as one important to the economy of a State, and where the survival of that institution is threatened, with potentially serious consequences for the State's economy, it is an "accepted" function of government to endeavour to provide financial support to that institution, to persuade others to do so, and to commit State funds for that purpose. Although one would expect the occasions on which a State would be required to use the power to be rare, it may well be appropriate to regard a function of providing financial support in this way as being an ordinary function, albeit one the exercise of which will rarely be required.
6 However, the alleged guarantee in the present case was given in very different circumstances. His Honour's findings about those circumstances were as follows.
7 The process which initiated the transactions the subject of this appeal began with a decision that the State Government Insurance Commission (SGIC) and the Government Employees Superannuation Board (GESB) should sell the Perth Technical School (Perth Tech) site. Three prospective purchasers made bids, and the preferred tenderer was a consortium which included the appellant ([27]). In a decision which appears to have had no commercial connection with the process of selling the Perth Tech site, Dowding considered that an advantage might be obtained "for Rothwells" by requiring the successful tenderer to deposit the sum of $50 million with Rothwells ([29] - [30]).
8 The purpose of requiring that $50 million deposit was in order to extricate a deposit of that amount which GESB had, at some earlier time, made with Rothwells (the GESB deposit). The desire to extricate those moneys arose because Dowding thought that they might arguably be regarded as the property of those civil servants who made contributions to the superannuation fund, who might not take kindly to the placement of their funds with Rothwells, at a time when it was known that Rothwells had problems of some kind. It was therefore desirable that GESB be able to withdraw the money before the end of the financial year, when it would become necessary to report the deposit in the published accounts of GESB ([30] - [31]).
9 It was represented to the tenderers that the deposit of $50 million with Rothwells was an essential condition of an agreement to sell the Perth Tech site and negotiations were terminated at a point when the tenderers expressed their unwillingness to do so and were only restarted once Anderson, on behalf of the appellant, had indicated that he was prepared to accede to that condition ([38], [42], [77]). Those representing the State at the time explained to those representing the appellant that the purpose of the $50 million deposit was to enable GESB funds to be extricated, that the government would have been happy to put in moneys to replace those funds, but could not do so through SGIC or other instrumentalities, and that the reason for seeking to retire the GESB deposit was a political one ([55], [61]). As his Honour found, those representing the State declined to put any of their assurances in writing ([67]).
10 The transaction which emerges from the evidence which his Honour recited and accepted, in the paragraphs to which I have referred, was not a commercial one, however broadly that term is understood, but a narrowly political one in that it was intended to serve the interest of a particular ministry, rather than the interest of the public or any section of the public. The requirement for the deposit of $50 million had no rational connection with the commercial transaction involving the sale of the Perth Tech site. While, in other circumstances, a request that a party deposit a sum into Rothwells might (as with the NAB guarantee discussed by McLure JA at [34]) be seen as part of a process of ensuring support for a troubled institution of importance to the State, and therefore part of the accepted functions of government, this was not a transaction which was, as originally conceived, intended to provide any additional support to Rothwells. Rather, it was intended to replace one deposit in Rothwells with an identical sum from a different source, so that the original depositor's funds (the GESB deposit) could be withdrawn in order to avoid political embarrassment. In the end, of course, the transaction did involve the provision of additional support to Rothwells, since its deteriorating financial position meant that the GESB deposit could not be withdrawn as anticipated, but that circumstance cannot be used in order to recast the original transaction.
11 The respondent's pleading was in the following terms. The State had denied that it had sought the deposit of moneys into Rothwells for the reasons ultimately found by his Honour, and had denied that there had been any assurances that the State would see that the appellant was repaid. The pleading in the alternative, in par 33(b) of the second further reamended defence and counterclaim of 6 July 2005, was baldly that the alleged guarantee was not made in the ordinary course of administering a recognised part of the government of the State. The particulars of that pleading, found in the answers to amended request for further and better particulars of defence dated 25 August 1996 were as follows:
3.2 & It is not within the ordinary course of administering a recognised 3.3 part of the Government to:
(a) purport to give a guarantee for the repayment of $50 million to be deposited in a private merchant bank, namely Rothwells;
(b) purport to give an assurance that the Government would see the plaintiff's money was safe in Rothwells; or
(c) purport to give a government guarantee or assurance of repayment in those circumstances,
and it is not within the ordinary course of administering a recognised part of the Government that:
(d) the Government provide financial support to Rothwells such as to enable Rothwells to repay the Tipperary advance;
(e) the Government provide financial support to Rothwells such that Tipperary would not suffer loss in respect of the Tipperary advance; or
(f) the Government indemnify Tipperary in respect of any loss suffered by Tipperary by reason of Rothwells' failure to repay any part of the Tipperary advance,
for the reasons that:
(g) there was no practice within government of entering such contracts and the alleged contract was not pursuant to any established service of government;
(h) the alleged contract was not necessary for the proper functioning of government;
(i) the alleged contract concerned a large amount of money;
(j) the practice of government was for the Treasurer to issue a written guarantee or indemnity;
(k) the alleged contract was concerned with the provision of funds by a private company to another private company neither of which was related to government;
(l) there was no recognised office, department or organisation involved in the alleged contract on behalf of the government;
(m) the alleged contract did not have a commercial character for the State and was not incidental to any State industrial or commercial undertaking.
12 Although they are put negatively, pars (g), (h), (k) and (m) appear to have the effect of denying, in my view correctly, any rational connection between the deposit of $50 million in Rothwells by the appellant and the sale of the Perth Tech site to the appellant, and of denying, at least, that the contract of guarantee was necessary for the proper functioning of the State. No further particulars of those denials were sought.
13 If it were simply a matter of referring to the pleadings and to the findings of fact made by the learned trial judge, which I have outlined above, I would have concluded that, having regard to the facts which his Honour plainly accepted, he was in error in characterising the transaction in question here as a commercial transaction which might reasonably be supposed to be for the benefit of the State. That conclusion would have consequences for the question not only of whether the transaction was part of the ordinary and accepted functions of government (which it plainly would not be), but also for the question of whether there was an intention to create legal relations. That is because the fact that the transaction cannot be characterised as one related to ordinary and proper governmental purposes would be capable of giving rise to an inference that the parties must rationally have understood that the transaction would be advantageous to those acting on behalf of government only to the extent that it was not publicly disclosed; that, in turn, would lead to a conclusion that it was unlikely that they would have expected that it was intended that the agreement be enforceable, if breached, by litigation.
14 The difficulty with reaching the conclusions which I have foreshadowed above, in relation to these grounds of cross-appeal, is that, notwithstanding the facts which his Honour found and notwithstanding the state of the pleadings, during the course of the appeal both parties avoided any suggestion that the transaction was in any way an abnormal or improper one. The respondent, in its submissions, was concerned not with the substance of the transaction, but with the procedures leading up to it. The heart of the respondent's written submissions on this point appears to be contained in par 211 of its written submissions which reads:
Any further financial support to be provided by the respondent to Rothwells required a decision of Cabinet, at the very least. Any decision made would go no further than its terms allowed. It would not add a new dimension, of unlimited breadth, to the concept of the ordinary or recognised functions of government.
15 That is, it was not contended that it was outside the ordinary and accepted functions of government to engage in a transaction of this kind, but only that it was not within the ordinary and accepted functions of government to give an effectively open-ended guarantee of financial support in the course of engaging in such a transaction.
16 The broader issues were raised from time to time with the parties by the court. For example, at page 106 of the transcript, McLure JA put to counsel for the appellant that one might regard the whole exercise (that is, the transaction I have described) as "very tawdry". The response was that that was not a claim made by the respondent. Similarly, at page 288, McLure JA put to counsel for the respondent the following proposition:
But, see, the point is, everybody knows, you would think, that the state is proceeding in a way that you might raise your eyebrows about. He [Anderson] knows that. I was talking earlier about the whiff test. I mean, everybody knows this is very odd. Anderson knows he's getting oral assurances, he doesn't want to put anything in writing because he knows the state is not going to, he's been told that by [Edwards], and there are obvious reasons why the state is not going to anyway. They would have to explain it to their constituents.
17 The only response made by counsel for the respondent was, "Well, the inference is that it's not to be put in writing because it's going to be denied that it's legally binding."
18 The attitude of the parties no doubt serves to explain the way in which his Honour came to make the findings which he did in [313] and [314]. It raises yet again the question of the proper approach for an appellate court to take when the parties conduct their case on a basis inconsistent with what appears to the court to be the correct approach. This case is unusual, in that it is not a case of a party failing to raise a factual issue; all the facts which appear to me to be relevant are contained in the findings of the trial judge, and no party complained that those findings were not open to him. Nor is it a case of the court taking a view of the law which is different from the view upon which the parties appear to have proceeded: cf Friend v Brooker [2009] HCA 21 at [111] - [118] per Heydon J.
19 Having closely considered the transcript of the appeal in the light of the considerations I have discussed above, it seems to me that, notwithstanding that the court drew attention to the apparent lack of propriety of the transaction on more than one occasion, it was never squarely put to the parties that they should address argument directed to a possible conclusion that the transaction was outside the ordinary and accepted functions of government, not because it involved the guarantee of a large amount of money, but because of the features to which I have referred to at [6] - [12]. Natural justice would therefore require that the parties should have an opportunity to address that question.
20 However, as appears from the reasons of reasons of McLure JA, with which I agree, it is not necessary to determine grounds 3(b), 3(d), 4(b) and 4(e) of the cross-appeal in order to determine this appeal. In those circumstances, it appears to me pointless to delay the matter further or to cause extra expense to the parties by inviting further submissions (see Spring v Guardian Assurance Plc [1995] 2 AC 296 at 316 per Lord Goff of Chieveley). In those circumstances, notwithstanding that it is normally the duty of an intermediate appellate court to deal fully with the issues raised by the grounds, both of an appeal and of a cross-appeal, I do not determine those grounds of the cross-appeal.
21 Again, my conclusions in relation to this matter would have been affected by the factual analysis set out above, if it had been open to me, in the absence of further submissions from the parties, to give effect to it. That is because it is unlikely that Edwards would have represented that the promises he made were enforceable, in circumstances where those promises formed part of a transaction which it was most unlikely that those acting on behalf of government would have wished to see made public. If no such representation was made, then the "something more" than an oral substantive promise, required by the reasoning in Actionstrength Ltd v International Glass Engineering IN GL EN SpA [2003] UKHL 17; [2003] 2 AC 541, and at least by Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 (at 406) could not be found.
22 I would add that it appears to me that, although Waltons Stores contains observations which could support a different conclusion, the narrow basis upon which it appears to me that s 54A of the Conveyancing Act 1919 (NSW) was held inapplicable in that case was as follows.
23 Mason CJ and Wilson J simply concluded that there was no substance in an argument based on s 54A for the reasons given by the other judges (at 408). That leads one to examine those reasons. Brennan J clearly took the view that, because it is the equity which is enforced and not the contract, s 54A has no application (at 433). However, Deane J had concluded that there was an assumption that there was a binding agreement in existence (that is, that the relevant formalities including therefore s 54A had been complied with) (at 444). He considered that s 54A did not apply, because there had been part performance (at 445). He accepted that s 54A might operate in some circumstances to render unenforceable an agreement which was the product the operation of an estoppel, giving an example. In Waltons Stores, however, because of the nature of the assumption (that is, that there was a binding agreement), the estoppel precluded denial of a binding agreement and there was no scope for the operation of s 54A to render that assumed agreement unenforceable (at 446). His Honour noted, but left open, the possibility that it could be held that s 54A "applies only to real contracts and agreements and does not apply to an assumed agreement". While his Honour's reasons would provide some support for a broader principle then, it seems to me that Deane J's conclusion concerning s 54A was directly related to the assumption which he found to exist, which assumption would necessarily have involved an assumption that s 54A had been complied with. Gaudron J expressly found that the assumption was that an exchange of parts had taken place and there was therefore necessarily an assumption that the agreement was duly executed so that "the question of compliance with s 54A ... becomes irrelevant" (at 464).
24 On that analysis, it appears to me that, applying by analogy the reasoning in Waltons Stores, an equitable estoppel of a kind which would preclude reliance on s 4 of the Statute of Frauds is established only if there is a representation which includes or involves a representation that an enforceable guarantee will be, or has been, given.
25 McLURE JA: This is an appeal from the decision of Murray ACJ dismissing the appellant's action against the State of Western Australia (the State) relating to a $50 million commercial bill discount facility
provided by the appellant to Rothwells Ltd (Rothwells) in March 1988 (the facility).
26 The facility was solicited by the State. Before any part of the moneys the subject of the facility were repaid to the appellant, Rothwells was placed in provisional liquidation. That occurred on 3 November 1988. Sometime later Rothwells went into liquidation. The appellant suffered a significant loss as a result of providing the facility to Rothwells.
27 The appellant claimed against the State for breach of contract, negligent misrepresentation and in estoppel. The State denied those claims and pleaded a positive case to the effect that the State and the appellant had entered into an oral agreement whereby the appellant agreed to release the State from all claims relating to the facility (the oral release agreement) which agreement was reflected in a formal deed of release dated 30 December 1989 (Deed of Release). In the alternative, the State applied to rectify the Deed of Release to conform with the oral release agreement.
28 The trial judge dismissed the appellant's claims in contract, estoppel and negligent misrepresentation. In particular the trial judge held that (1) in March 1988 the State orally agreed with the appellant to guarantee Rothwells' obligations to the appellant arising under the proposed facility (the March oral agreement); (2) the March oral agreement was unenforceable under s 4 of the Statute of Frauds which applied because the proper law of the agreement was the law of Western Australia; (3) the doctrine of estoppel had no application because it would have defeated the operation of s 4 of the Statute of Frauds; (4) although the State, by its duly authorised agents, had made a representation that Rothwells was basically sound with temporary liquidity problems, the representation was made on reasonable grounds and thus was not false or misleading; and (5) there was no breach by the State of any continuing duty to advise of developments in Rothwells' financial position.
29 The State was largely successful in its release defences. The trial judge held that the appellant had released the State from all relevant claims pursuant to the oral release agreement, which agreement was specifically enforceable, and that although the Deed of Release did not release the State, it should be rectified so as to do so.
30 The State filed a notice of contention and a cross-appeal. A large number of issues arise for determination in the appeal. They include what the trial judge found to be the scope and content of the oral promise(s) the subject of the March oral agreement; were the agents who acted for the State duly authorised to enter into the March oral agreement on behalf of the State; did the parties have an intention to create legal relations; is the March oral agreement within s 4 of the Statute of Frauds; is the proper law of the contract that of Western Australia or New South Wales (which has no equivalent to s 4 of the Statute of Frauds); is s 4 of the Statute of Frauds an impediment to the appellant's estoppel claim; did the trial judge fail to determine all of the appellant's misrepresentation case, and if so, was there a breach of a representation that the State would continue to financially support Rothwells; did the State's agents have authority to make the representations complained of; did the trial judge err in finding that there were reasonable grounds to represent that Rothwells was basically sound; did the State became aware of information concerning Rothwells' financial situation which it was under a continuing duty to disclose to the appellant; was it open on the evidence to find an oral release agreement; is the oral release agreement specifically enforceable; on its proper construction does the Deed of Release apply to the State and if not did the trial judge err in ordering rectification of the deed.
31 The events in question took place against the backdrop of the stock market crash that occurred in the week commencing 19 October 1987. Rothwells was a listed public company carrying on business as a merchant bank primarily in Western Australia under the chairmanship of Mr Laurie Connell. Rothwells accepted deposits in various forms from public and private investors, paying comparatively favourable interest rates, and loaned money to borrowers. Its major asset was its 'receivables' that is, debts owed to it by borrowers.
32 As a consequence of the stock market crash, a run on Rothwells commenced around 22 October 1987 with depositors demanding the return of their funds. That caused very significant liquidity problems which would have required Rothwells to cease trading on Monday 26 October 1987. A rescue package was swiftly organised over the weekend of 24 and 25 October 1987 (commonly known as 'the rescue weekend').
33 The principal organisers of the rescue package were Peter Beckwith and Alan Bond, directors of Bond Corporation Holdings Ltd (BCH) assisted by James Yonge and others from Wardleys Australia Ltd (Wardleys). If the rescue was to succeed it had to be in place by 26 October 1987. This timeframe did not permit a proper review of Rothwells' financial position. Assurances were given to those asked to participate in the rescue, including the State, that Rothwells was basically sound but had liquidity problems. The assurances were fortified by the Annual Report and Audited Accounts of Rothwells for the year ending 31 July 1987 which were published in September 1987.
34 The weekend rescue package comprised three major elements. First, a private sector capital raising of $150 million underwritten by Wardleys. As that would take some time to arrange, Wardleys organised a $150 million facility provided to Rothwells by the National Australia Bank (NAB) guaranteed by the Hong Kong and Shanghai Bank. That facility was provided by NAB on 26 October 1987 and repaid from the proceeds of the capital raising. Secondly, there was a further $150 million facility provided to Rothwells by NAB supported by an indemnity in writing from the State. This facility was also provided on 26 October 1987. Thirdly, there was to be an injection of $70 million by Connell, $20 million in the form of equity and the balance in the form of a subordinated loan. The trial judge was unable to reach a conclusion about the extent to which Connell complied with his undertaking [23]. On 25 October 1987 details of the weekend rescue package were publicly announced by the then Premier of Western Australia, Mr Brian Burke.
35 Government instrumentalities had been involved in providing liquidity to Rothwells in the days prior to the rescue weekend. Two government instrumentalities that prominently figure in the Rothwells saga are the State Government Insurance Commission (SGIC) a body corporate established under the State Government Insurance Commission Act 1986 (WA) and the Government Employees Superannuation Board (GESB) a body corporate established under the Government Employees Superannuation Act 1987 (WA). Mr Tony Lloyd, an Assistant Under-Treasurer, was Chairman of the GESB. Lloyd was appointed the Managing Director of Rothwells with effect from 1 January 1988. Mr Kevin Edwards was at the material time the Executive Director of the Department of Premier and Cabinet and Deputy Chairman of the SGIC. Mr Wyvern Rees was the Chairman of the SGIC.
36 On 22 October 1987 the GESB deposited $5 million in Rothwells. On the same day the SGIC acquired from the partnership of LR Connell & Partners (comprising Connell and his wife) for the sum of $30 million a 50% interest in a property trust which had an interest in the Perth Technical School site. The proceeds were to be deposited in Rothwells. That transaction was settled on 23 October 1987.
37 Rothwells' liquidity problems continued after the rescue weekend. Rothwells had 'lent long' against short term deposits. It had facilities with banks and other financial institutions to enable it to fund its obligations to depositors. These facilities began to be withdrawn in the aftermath of the crash.
38 In early November 1987 the SGIC and the GESB purchased a number of CBD properties from companies in the Bell Group, including a further part of the Perth Technical School site and adjacent properties (the Parmelia Hotel and the Forrest Centre). In addition, the SGIC purchased the Bell Group Ltd's shareholding in BHP. It was a condition of these Bell transactions that the vendors deposit $50 million in Rothwells. That payment was made by Bell Resources Ltd (BRL).
39 In addition, deposits of $50 million were each made by the SGIC and the GESB in January 1998 [24].
40 In January 1988 the SGIC and the GESB placed the Perth Technical School site on the market. Tenders were called. The preferred tenderer was a consortium comprising the appellant, a company controlled by Mr Warren Anderson, and Consolidated Press Holdings Ltd (CPH), a company controlled by Mr Kerry Packer. The State imposed a separate condition on the sale being that the successful purchaser deposit $50 million in Rothwells.
41 The condition was imposed at a meeting on 16 March 1988 at the appellant's Sydney office attended by (inter alia) Anderson, Mr Don Bourke representing CPH, Edwards, Lloyd and Rees. The State's contractual offer of a guarantee was found to have been made at this meeting. Lloyd had with him at the meeting the audited financial statements of Rothwells for the half-year ended 31 January 1988 (the January audited accounts). They were signed on 11 March 1988 and disclosed net assets of around $261.5 million.
42 As a result of the March oral agreement found by the trial judge, the appellant entered into the facility with Rothwells, the terms of which are recorded in a letter from Rothwells dated 18 March 1988 (the facility agreement). The term of the facility was 12 months. Pursuant to the facility agreement, the appellant made the following payments for the purchase of commercial bills accepted by Rothwells:
43 The money to purchase the commercial bills was borrowed by the appellant from CPH. The parties and the trial judge in his reasons variously describe the moneys paid for the commercial bills under the facility agreement as a deposit in, or loan to, Rothwells. Although not technically correct, I will continue that practice.
44 The State's stated purpose in requiring the purchaser to deposit $50 million in Rothwells was to enable Rothwells to repay to the GESB the $50 million it had deposited at the end of January 1988. However, continuing liquidity problems prevented the appellant's funds from being used for that purpose.
45 The appellant and CPH entered into a contract in writing dated 18 March 1988 to purchase the Perth Technical School site which became known as Stage 1 of 'Westralia Square' (Westralia Square) which purchase was settled in the names of nominee companies, Sharland Pty Ltd (Sharland) and Skeat Pty Ltd (Skeat) in June 1988. Under the contract (as varied) the SGIC and the GESB provided a rental guarantee and were required to contribute to a property trust.
46 By June 1988 the SGIC and BCH had each acquired 19.9% of the issued shares in BRL. Like Rothwells, BRL was in financial difficulty. The acquisition was investigated by the then corporate affairs regulator, the National Companies and Securities Commission. The investigation was settled on the basis that BCH would make a full takeover bid for BRL. The SGIC and BCH agreed that the SGIC would not accept the takeover offer on condition that BCH deposit $100 million in Rothwells. Fifty million dollars was deposited on 3 June 1988 and was immediately used to repay the GESB.
47 In July 1988 State Cabinet was advised that Rothwells' financial problems were not confined to liquidity. It also had an asset deficiency of some $300 million - $400 million. In that knowledge, the State embarked on yet a further attempt to rescue Rothwells from its dire financial situation culminating in the notorious PICL transaction. PICL stands for Petrochemical Industries Company Ltd, a company that was effectively owned and controlled by Connell and Mr Dallas Dempster. Under the PICL transaction, which settled on 17 October 1988, the State and BCH purchased PICL and its ownership of a proposal to establish a petrochemical industry and plant. The purchase price was $400 million of which $350 million was payable to Connell's company Dalleagles Pty Ltd. Dalleagles/Connell was required to use the proceeds to purchase $350 million of bad debts owed to Rothwells by Connell-related entities. This is what would be described in the current global financial crisis as the removal of toxic assets from Rothwells' balance sheet.
48 In July 1988 the appellant and Rothwells entered into a further (and fuller) agreement in writing setting out the terms and conditions of the facility agreement. By the end of July 1988 Anderson was aware that Rothwells was in difficulty honouring the bills endorsed to the appellant. Anderson pressed for and eventually succeeded in obtaining a formal deed of variation of the facility agreement which was dated 17 October 1988. It provided that the facility be reduced by $19.5 million to $30.5 million by 28 October 1988 with the balance to be paid by the end of March 1989. There was a suggestion that the payment by Rothwells due on 28 October 1988 might be funded from moneys received by Rothwells as a result of the PICL transaction. The appellant's legal adviser, Mr Bert Gianotti, a partner in the Perth office of Mallesons Stephen Jaques, was advising in relation to the proposed variation. Gianotti advised Anderson that he should insist on a deed of variation and condition it upon the provision of satisfactory written assurances of repayment to be given by a 'third party' by which the trial judge found he clearly meant the State [176]. That requirement was not pursued by the appellant.
49 Rothwells failed to pay the sum of $19.5 million on 28 October 1988. On 3 November 1988 Rothwells was placed in provisional liquidation. The State, through its solicitors Robinson Cox, retained the services of Whitlam Turnbull & Co to provide services to the State and the SGIC concerning Rothwells-related matters.
50 Continuing disputes relating to the rental guarantee and property trust undertaking resulted in the SGIC and the GESB offering to purchase the interest of Sharland and Skeat in Westralia Square. Whitlam Turnbull was appointed before the parties had formally committed themselves to the transaction. Mr Neville Wran and Mr Malcolm Turnbull provided the services on behalf of Whitlam Turnbull. In early December 1988 Turnbull met with Anderson and re-negotiated the purchase of Sharland and Skeat's interest in Westralia Square. It was common cause that a State-imposed condition of the purchase of Sharland and Skeat's interest in Westralia Square was that the appellant and Anderson provide a release. Wran had a telephone conversation with Anderson on 21 December 1988. The trial judge found that the oral release agreement was made during that telephone conversation [270]. The Deed of Release was prepared by Robinson Cox. The appellant and Anderson did not seek any amendments to the deed presented to them for execution. They signed it on 23 December 1988 although the document bears the date 30 December 1988. The deed was held in escrow until that date being the date of settlement of the sale of Sharland and Skeat's interest in Westralia Square to the SGIC and the GESB.
The appellant's contract issues (ground of appeal 1)
51 The appellant contends in ground of appeal 1 that the trial judge should have held that the March oral agreement was not a contract of guarantee or alternatively, that the law of Western Australia was not, or not proven to be, the proper law of the contract. The first issue is the scope and effect of the contractual promises.
52 The parties disagree on the scope and effect of the findings made by the trial judge as to the terms of the March oral agreement. The appellant contends the trial judge found that the State made two promises in the following terms:
53 The State contends the trial judge found that it agreed to ensure that Rothwells would repay the loan when it became due or undertake the obligation of repayment itself. For their respective positions, the appellant relies on [69] and [304] of the trial judge's reasons and the State relies primarily on [65] - [70], [318] and [319].
54 In [65] the trial judge refers to Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 and cites the following passage from the judgment of Mason CJ:
There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor's obligation to pay arises on the debtor's failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his [256].
55 In [66], the trial judge compares the two classes of guarantee identified in Sunbird and contrasts them with a third category on which the appellant was said to rely. The trial judge said:
I take it, therefore, that a promise by a guarantor to pay the debt owed by a debtor if that party fails to repay it, and the promise by a guarantor to be answerable for the failure by another to perform a contract will equally, in law, constitute contracts of guarantee. On the other hand, a promise given to a third party to support another by putting that person in funds so that the other person will have the capacity to perform a contractual obligation or to pay a debt would not constitute a contract of guarantee because, in that form of agreement, the promisor is not undertaking to the promisee to be answerable in any way for the debt or default of another, but is making a separate contractual agreement, with its own obligations, upon the breach of which the promisee may sue directly. For reasons to which I shall later refer, that is a distinction relied upon by the plaintiff in this case. [The appellant] asserts that on 16 March, Edwards, for the State, made an offer which Anderson, for [the appellant], accepted, which was not an offer to guarantee the repayment of the $50M, but resulted in the formation of a contract of the latter kind discussed above [66].
56 Before making a factual finding as to the terms of the March oral agreement, the trial judge rejected the appellant's contention. He said:
In my opinion, however, that is not a distinction which can be maintained in this case. I do not accept that Mr Anderson misunderstood what he was told, so as to characterise the effect of it as a guarantee when that was not what was being given. Anderson's evidence, which I accept, was that Edwards merely declined to provide the guarantee in writing: not that he declined to provide the guarantee orally, but he did not want it to be available as a matter of record [67].
57 Anderson's evidence to which the trial judge refers in [67] is summarised by the trial judge in [44]. According to the trial judge, Anderson made it perfectly clear that he understood what was being said by Edwards amounted to a guarantee. Anderson's evidence was that he understood that a guarantee was given when the guarantor promised that if the principal debtor did not pay then the guarantor would, or that if the person principally responsible to do something did not do it, the guarantor would see that it was done.
58 After rejecting the appellant's contention, the trial judge set out his findings as to what was promised. He said:
The preponderance of evidence which I accept, clearly supports the conclusion that Edwards, purporting to speak for the Government of the State, promised that if the prospective purchasers of the Westralia Square site deposited, in some form, $50M into Rothwells for a relatively limited period of 6 or 12 months, then the depositors could be assured that the Government would continue to support Rothwells, which was represented to be an institution which was financially sound, although suffering from temporary liquidity problems, and the Government would ensure that Rothwells would repay the loan when it became due or would undertake the obligation of repayment itself.
I am not prepared to find, on the basis of Anderson's evidence alone, that Edwards represented that the securities which would be provided for the deposit to be made would be of the highest quality, 'gilt edged'. It seems to me that Mr Anderson genuinely believes those words were used, but in my opinion it is more probable that in so thinking he has reconstructed a view about the tenor of the conversation which is illusory. In my view, outside of the operative terms of the assurances, in the form of oral guarantees, there is nothing independently of those promises which might itself constitute a contractual promise. What was said otherwise about the Government 'standing behind' Rothwells, 'being in for the long haul', 'seeing it through to the end', and the like was mere puffery, uncertain of meaning, not intended to create binding contractual relations and, in short, devoid of any contractual content [69] - [70].
59 After making the relevant factual findings, the trial judge turned his attention to the determination of the issues by the application of the law to the facts. In the course of considering whether Premier Dowding (who replaced Brian Burke in February 1989) and Edwards had authority to enter into a contract of guarantee on behalf of the State, the trial judge restated his contract finding in slightly different terms. He said:
What was asserted was that an express oral agreement was made between the State, as I would find acting through Edwards, and [the appellant], acting through Anderson, the terms of which were that if [the appellant] deposited $50M into Rothwells, then the State would continue to support Rothwells financially, to the extent necessary to ensure that Rothwells would repay the loan or, failing that, the State would accept the obligation of repayment [304].
60 The trial judge returned to the issue of the terms of the March oral agreement in the course of his consideration of whether it fell within s 4 of the Statute of Frauds. In that context he said:
[If s 4 of the Statute of Frauds] applies, it is obviously fatal to this head of claim, not by making the contract void or invalid, but by making it unenforceable against the State, which declines to be bound. The plaintiff makes a number of answers to the application of the section. In the first place, as I have mentioned, it asserts that the contract made was not a contract of guarantee. Properly construed, it says the contract was not one to answer for the debt or default of another, but a separate contractual agreement with its own obligation. It describes it as an agreement by the State to indemnify [the appellant] against loss arising out of its loan to Rothwells. It says that that is of a different character and the obligation to indemnify arose once loss was occasioned by the making of the loan, regardless of any continuing liability on the part of Rothwells to repay the debt.
I accept that such a distinction may be drawn but not, in my opinion, in this case. The contract made was, so far as the State is concerned, a promise that it would ensure that Rothwells repaid the loan when it became due, or, failing that, it would undertake the obligation of repayment itself. Both terms constitute a guarantee to support the primary liability of Rothwells to repay. Only if Rothwells failed to do so would the State's liability arise. The State did not assume the primary liability to see that [the appellant] was repaid. It did not undertake simply to indemnify [the appellant] against any loss it might suffer as a primary liability it assumed for itself, in parallel with the primary liability of Rothwells. On the contrary, the State undertook to support the primary liability of Rothwells [318] - [319].
No action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person; ... unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.
62 The term 'guarantee' does not appear in the statute. A number of conditions must be met in order to fall within s 4. First, there must be three parties involved who for convenience I will refer to as the debtor, the creditor and the guarantor. Secondly, the debtor must be and continue to be liable to the creditor for the debt, default or miscarriage in question. Thirdly, there must be no liability on the guarantor unless and until the debtor has failed in its duty to the creditor. That is, in order to fall within the statute, the liability of the guarantor to pay the creditor must be conditional upon the debtor's default. In this sense, it is said that the debtor's liability is primary (which is why the debtor is commonly described as the principal debtor) and the liability of the guarantor is collateral or subsidiary. Upon the debtor's default, both the principal debtor and the guarantor are liable to the creditor in respect of the amount owing. However, the fact that the debtor is primarily liable does not mean the creditor must first exhaust its rights against the principal debtor before seeking recovery from the guarantor.
63 In essence, if the 'guarantor' would be liable to the creditor irrespective of whether the principal debtor is liable or has made default, the contract falls outside the Statute of Frauds.
64 Whether or not the State provided an oral guarantee within s 4 of the Statute of Frauds depends upon the proper construction of the March oral agreement. The task is to objectively determine the common intention of the contracting parties having regard to the language used, the surrounding circumstances known to the parties and the purpose of the transaction: Toll (FGCT) Pty Ltd v Alphapharm [2004] HCA 52; (2004) 219 CLR 165 [40].
65 In order to determine the intended scope of the trial judge's finding, it is necessary to put the two categories of guarantee identified by Mason CJ in Sunbird in their proper context. Mason CJ was considering the view of Lord Diplock in Moschi v Lep Air Services Ltd [1973] AC 331 that the nature of a guarantor's obligation was 'to see to it that the debtor performed his own obligations to the creditor' not to himself pay a sum of money to the creditor. It followed that a creditor's remedy lay only in damages for breach of the contract of guarantee.
66 In Moschi the guarantor 'personally guaranteed the performance by [the debtor] of its obligations' to make instalment payments under a contract for the sale of goods. The debtor committed a repudiatory breach of the contract which was terminated by the creditor with the consequence that the creditor became entitled to loss of bargain damages from the debtor. The question in issue was whether the creditor could recover loss of bargain damages from the guarantor. That in turn depended on whether the guarantor's obligation was confined to the payment of instalments or whether the guarantor had in effect undertaken that the principal will carry out his contract. Lord Diplock, adopting a rule applicable to all guarantees, held it was the latter. Lord Reid rejected any common rule, but came to the same conclusion based on the construction of the contract of guarantee in question.
67 Mason CJ in Sunbird agreed with Lord Reid's approach. However, it is apparent from his reasons in Sunbird that in both categories of guarantee identified by Mason CJ, the guarantor's liability to the creditor only arises upon the debtor's failure to perform his obligations owed to the creditor.
68 The appellant claimed the trial judge found that the State's promise was that if the appellant deposited $50 million in Rothwells, the State would continue to support Rothwells financially to the extent necessary to ensure that Rothwells would repay the loan. The appellant claims the trial judge found in effect that the State had agreed to take positive steps to ensure that Rothwells had the financial standing and capacity to repay the loan to the appellant when it became due and payable in March 1989. That is, the State's obligation was to take positive steps directly (by itself) or indirectly (by placing obligations on third parties) to provide Rothwells with funds to enable it to continue to trade until it had satisfied its indebtedness to the appellant by a payment that was not a voidable preference under the insolvency laws. Accordingly, the appellant contends the State was in breach of its promise when Rothwells went into provisional liquidation in November 1998. That is, the State's liability to the appellant does not arise upon Rothwells' failure to perform its obligations to the appellant. It is clear from the trial judge's reasons as a whole that he did not make, or intend to make, a finding to that effect. In [66] the trial judge contrasted the two Sunbird categories of guarantee with the nature of the State's obligation for which the appellant contended below and in the appeal. In [67], [318] and [319] he expressly rejects the appellant's formulation and characterisation of the State's obligations. Paragraphs [69] and [304] have to be construed in that context together with [70] in which the trial judge makes his intention unequivocally clear. What was said about 'standing behind' Rothwells and other similar expressions was mere puffery not intended to have contractual effect. The operative terms of the finding in [69] are confined to the oral guarantees that 'the Government would ensure that Rothwells would repay the loan when it became due or would undertake the obligation of repayment itself'.
69 In summary, the trial judge intended the first limb of the contractual promise to be that the government would ensure Rothwells would repay the loan when it became due (being a promise which gave rise to a claim for damages for breach of the contract of guarantee upon Rothwells' default) and the second limb to be a promise to itself answer for the default by Rothwells in the payment of its debt to the appellant (thus entitling the creditor to sue the guarantor for the debt or liquidated demand). The appellant does not challenge the correctness of the finding. Both limbs found by the trial judge fall within s 4 of the Statute of Frauds.
70 The proper law of a contract is the system of law by reference to which the contract was made or that with which the transaction has its closest and the most real connection: Akai Pty Ltd v The Peoples Insurance Company Ltd (1996) 188 CLR 418, 440 - 441. If it is apparent from the terms of the contract that the parties intended a particular system of law to apply, their intention will prevail: Akai (441). In determining the parties' intention, the ordinary common law rules of construction apply. However, it is not a question of implying a term as to choice of law. The High Court said:
There is, in truth, only one question here, and that is whether, upon the proper construction of the contract (which may include an expression of choice in direct language), the court properly may conclude that the parties exercised liberty given by the common law to choose a governing law for their contract. If the answer to this is in the negative, then the law itself will select a proper law (442).
71 Applying the ordinary rules of the common law relating to the construction of contracts, this court is unable to infer that the parties intended their contract to be governed by reference to a particular system of law.
72 The appellant placed particular reliance on the principle of validation which is to the effect that the parties would have intended that their agreement be binding and enforceable. If that factor is to have any weight, it could only be so in the context of inferring the parties' intention. It would have no relevance where as here, the proper law is that with which the March oral agreement has its closest and most real connection. Relevant factors in that assessment ordinarily include the place where the contract was made, the place of performance of the contract, the place of residence or business of the parties and the nature of the transaction or subject matter of the contract.
73 The trial judge said he was unable to make a finding as to when, how and to whom the appellant accepted the State's offer which became the March oral agreement. The appellant contends the trial judge should have made the following factual findings. First, the March oral agreement was made no later than 18 March 1988 because that was the date of the contract of sale of Westralia Square to the appellant and CPH. It was also the date of the facility agreement. Secondly, that Anderson accepted the oral March offer in a telephone conversation with Dowding on 18 March 1988. Thirdly, Anderson made the telephone call to Dowding from Sydney.
74 Neither Anderson nor Dowding gave evidence that Anderson, on behalf of the appellant, informed Dowding in the telephone conversation on 18 March 1988 that it accepted the State's offer. There is no proper evidentiary basis for a finding to that effect. In any event, even if all the findings sought by the appellant were open on the evidence, it would not result in a finding that the proper law was the law of New South Wales. The evidence establishes that Anderson's phone call on 18 March 1988 was made to Dowding in Perth. I will assume without deciding that the law relating to the formation of a contract is the same in Western Australia and New South Wales. A contract is made at the place where the last act necessary to make the contract binding is performed. A contract is not formed until there is acceptance and that acceptance has been communicated to the offeror. The general rule is that a contract is made at the place where the communication is received (cf the postal rule). As the communication was received by Dowding in Perth, the March oral agreement would have been made in Western Australia.
75 The trial judge found that the guarantee if called upon would be honoured in Western Australia either by the State ensuring that Rothwells had the funds to enable it to repay the $50 million, or by directly making that payment itself [325]. The appellant challenges the second limb of the finding, contending there is no cogent evidence establishing that the State would itself directly make the payment to the appellant in Western Australia.
76 The evidence established that the appellant was incorporated, and had its business premises, in New South Wales. The meeting on 16 March 1988 in which Edwards was found to have made the contractual offer took place at the appellant's New South Wales office. Anderson lived in New South Wales. There was no evidence that the appellant conducted any business from any office in Western Australia or that it banked in Western Australia. However, at the time of the commercial dealings involving the State and the appellant, the appellant was and continued to be represented by the Perth office of the law firm Mallesons Stephen Jaques. The finding made by the trial judge was open.
77 Moreover, there are other connections with Western Australia. First, the State of Western Australia was a party to the March oral agreement. Secondly, the debtor was carrying on business primarily in Western Australia. Thirdly, the March oral agreement was collateral to the contract of sale of Westralia Square to the appellant (and CPH). The making of the March oral agreement was a condition precedent to the sale of Westralia Square [71] - [75], [299]. Fourthly, the purpose of the March oral agreement was to facilitate the repayment of a State instrumentality, the GESB. The evidence establishes that the transaction did indeed have its closest and most real connection with Western Australia. The trial judge was correct to conclude that Western Australia was the proper law of the March oral agreement.
78 The State in its cross-appeal contended that s 4 of the Statute of Frauds applies even if the law of New South Wales is the proper law of the March oral agreement, relying on Leroux v Brown [1852] EngR 966; (1852) 138 ER 1119. By an oral agreement between the plaintiff and the defendant made in France the plaintiff agreed to enter into the service of the defendant. Section 4 of the Statute of Frauds (UK) rendered an oral agreement of that type unenforceable. However, the agreement was enforceable by the law of France. The plaintiff commenced proceedings in England. The court held that s 4 of the Statute of Frauds is a matter of procedure and therefore the contract could not be sued upon in England.
79 Matters of substance are governed by the lex causae (the law of the cause of action) and matters of procedure are governed by the lex fori (the law of the forum). The appellant says the decision of the High Court in John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503 applies by parity of reasoning to render s 4 of the Statute of Frauds a matter of substance rather than procedure for the purpose of determining whether the matter is governed by the proper law of the contract or the law of the forum (if that is different).
80 In John Pfeiffer the plaintiff sued in the Supreme Court of the Australian Capital Territory for damages in tort for personal injury suffered in New South Wales. New South Wales legislation limited the amount of damages that could be awarded to the plaintiff for non-economic loss. The law of the Australian Capital Territory imposed no relevant limit. The court held that the limitation on damages, not being directed to governing or regulating the mode or conduct of court proceedings, was a matter of substance rather than procedure and was therefore governed by the lex loci delicti (the law of the place where the tort was committed) not the lex fori. The High Court said:
[M]atters that affect the existence, extent or enforceability of the rights or duties of the parties to an action are matters that, on their face, appear to be concerned with issues of substance, not with issues of procedure. Or to adopt the formulation put forward by Mason CJ in McKain [v RW Miller and Company (SA) Pty Ltd [1991] HCA 56; (1991) 174 CLR 1] 'rules which are directed to governing or regulating the mode or conduct of court proceedings' are procedural and all other provisions or rules are to be classified as substantive (543 - 544).
81 Applying the reasoning of the High Court in John Pfeiffer, s 4 of the Statute of Frauds would be characterised as substantive not procedural for the purpose of the conflict of laws. Accordingly, the section only applies because the proper law is that of Western Australia.
Authority of Premier and Edwards to give guarantee
82 The trial judge found that (1) Dowding as Premier had actual authority to enter into the contract of guarantee on behalf of the State [299]; (2) as a result of being so authorised by Dowding, Edwards had actual authority to enter into the contract of guarantee on behalf of the State [299]; (3) alternatively, Edwards had ostensible authority to do so [301].
83 In all the authority issues that arise, the State relies on Edwards' refusal at the meeting on 16 March 1988 to give a guarantee in writing. For convenience I deal here with the relevant findings and evidence on that subject.
84 The evidence of Anderson and Bourke accepted by the trial judge was that at the meeting on 16 March 1988 Bourke asked Edwards whether he would give a written guarantee of repayment by Rothwells of the $50 million loan. Edwards refused, saying he could not do that ([44], [56]). Edwards' evidence in cross-examination is as follows:
I'm suggesting to you that [Mr Bourke] asked whether the government was prepared to guarantee the loan?---I don't know. You would have to ask Mr Bourke.
That you responded that you were not able to do this?---Well, I certainly declined an invitation to put it in writing, yes.
I'm suggesting you declined an invitation to give a guarantee?---Well, if I put it in writing, it potentially would become a guarantee, yes.
I'm suggesting he asked you if you were prepared to give a guarantee and you said you weren't able to?---Well, I certainly wasn't able to (ts 997).
85 Although Edwards knew an oral guarantee was unenforceable, he did not communicate that to Anderson whose evidence was that he did not know that to be the case (ts 708). The trial judge said:
Anderson's evidence, which I accept, was that Edwards merely declined to provide the guarantee in writing: not that he declined to provide the guarantee orally, but he did not want it to be available as a matter of record [67].
86 The position of the parties to the appeal is that there is no relevant Western Australian legislation relating to the authority of members of the executive arm of the State Government to bind the State. I will proceed on that basis. The position in Western Australia is to be contrasted with that of the Commonwealth.
87 The authority of members of the executive arm of the Commonwealth Government to enter into contracts on behalf of the Commonwealth involving the committal of public money is regulated by the Financial Management and Accountability Act 1997 (Cth), the Financial Management and Accountability Regulations 1997 (Cth) and Chief Executive's instructions made thereunder.
88 The general principles concerning the liability of the Crown for contracts made by its ministers and officers were explained by Starke J in New South Wales v Bardolph [1934] HCA 74; (1934) 52 CLR 455:
[C]ontracts made on behalf of the Crown by its officers or servants in the established course of their authority and duty are Crown contracts, and as such bind the Crown. The nature and extent of the authority may be defined by constitutional practice or express instructions, or inferred from the nature of the office or the duties entrusted to the particular officer or servant. It is not every contract made or purporting to have been made by an officer or servant of the Crown on its behalf that will bind the Crown, but only such as are within the authority delegated to that officer or servant. The authority is a matter which ultimately falls for determination in the Courts of law (502).
89 If a contract is made for and with the authority of the State, the State and not the agent is liable on the contract. This rule depends partly upon the general rules of the law of agency and partly on public policy: Minister for Youth & Community Services v Health & Research Employees Association of Australia (1987) 10 NSWLR 543, 557 (McHugh J).
90 It was also held in Bardolph that although parliamentary appropriation of moneys is not a condition of the validity of a contract with the Crown, it is an implied term of such a contract that payment by the Crown shall only be made out of moneys appropriated by Parliament.
91 There was no evidence in this case of any constitutional practice or express instructions conferring authority on Premier Dowding. I take the starting point to be that the Governor in Council, on whom the executive power of the State is conferred by the Constitution Act 1889 (WA) and the Constitution Acts Amendment Act 1899 (WA) (Constitution Acts), has authority to bind the State in contract. The Constitution Acts make no reference to the position of Premier. Subject to one qualification, the nature and extent of the Premier's authority has to be inferred from the nature of his office. The qualification arises from Bardolph. The majority in that case (Rich J, Dixon J with whom Gavan Duffy CJ agreed) held that the Crown has a power independent of statute to make such contracts as are incidental to the ordinary and well-recognised functions of government ((496) (Rich J), (507) (Dixon J)). The clear implication is that statutory authorisation is required for the Crown to make a contract that is not incidental to the ordinary and well-recognised functions of government. I do not understand the parties to dissent from that proposition
92 Starke J took a different view. He stated that the authority of a Premier or responsible minister is not unlimited but was not confined to the ordinary activities or functions of government. He said:
In each case, the character of the transaction, and also constitutional practice, must be considered. The question of authority, in the case of contracts providing for the carrying on of the ordinary activities or functions of government, presents, as a rule, but little difficulty; other contracts, however, must be considered each in relation to its own facts (502 - 503).
93 Within the field of ordinary functions identified by the majority, the Prime Minister and a State Premier has authority across the whole field of such activity ((495) (Rich J), (507) and (515) (Dixon J), (518) (McTiernan J)).
94 Academic commentators take the strongly expressed view that the executive power to contract without statutory authorisation is not limited to the ordinary functions of government but covers all contracts: Seddon N, Government Contracts: Federal, State and Local (3rd ed, 2004) [2.6], fn 44; Hogg P and Monahan P, Liability of the Crown (3rd ed, 2000) [9.4]. Seddon states that apart from its place in the federation, there should be no limit on the executive power of the State to enter into contracts [2.17], [2.19]. Notwithstanding the controversy, neither party challenged the correctness of Bardolph.
95 However, the State challenges (cross-appeal grounds 3(b) and 4(b)) the trial judge's finding that the provision of the guarantee was part of the ordinary activity of government. The trial judge held that it was part of the ordinary activity of government to enter into commercial transactions which may reasonably be supposed to be for the benefit of the State [314]. In reaching that assessment, he had regard to the history (the indemnity and other earlier deposits by government instrumentalities) which established that the State had made a commitment for reasons concerned with the State's economic wellbeing to the support of Rothwells.
96 The State did not contend that the grant of the $150 million NAB indemnity or the imposition of a requirement that the purchaser of Westralia Square deposit $50 million in Rothwells were outside the ordinary functions of government. I am unable to distinguish those activities from the provision of a guarantee to the appellant. The State does not rely on any specific evidence on the subject of what is and is not part of the ordinary functions of government nor advance a principled basis or test for doing so. None of the aforementioned State activities would pass a 'raised eyebrows' test of what is out of the ordinary but no-one contends that is the legal test. The State has failed to discharge the burden of demonstrating that the trial judge erred in failing to find that the provision of the guarantee to the appellant was outside the ordinary activities or functions of government.
97 Applying Bardolph, it follows that Premier Dowding was authorised to enter into a contract of guarantee for and on behalf of the State. That being so, Dowding could delegate that authority to Edwards, either by the grant of actual or ostensible authority. The next issue is whether Edwards had actual authority from Dowding to enter into the contract of guarantee on behalf of the State (cross-appeal grounds 3(a), 4(a)).
98 The evidence established that in late February 1988 there was a meeting attended by Dowding, Mr J Berinson (Attorney General and Minister for Budget Management), Edwards and Rees at which a decision was taken that the State should continue its support for Rothwells [26]. Further, at a meeting attended by Dowding, Berinson, Edwards, Lloyd and Rees on 13 March 1988, it was agreed that a loan or deposit of $50 million in Rothwells would be required of the successful tenderer for Westralia Square [29]. The trial judge found that at the meeting on 13 March 1988 Edwards was authorised to, inter alia, offer the assurance that the State would ensure that Rothwells repaid the loan when it became due, or would undertake that obligation itself [299]. The State contends that finding is not open on the evidence.
99 The trial judge's summary of the evidence of the meeting on 13 March 1988 ([29] - [32]) makes no mention of any discussion about giving an assurance of repayment. Edwards' witness statement adduced as his evidence-in-chief is silent on the issue of his authority to provide the guarantee. The trial judge refers to Edwards' evidence in cross-examination as to his authority as follows:
He said he was authorised to give the assurances because it had been accepted, not by the Cabinet, but at the meeting at the end of February, that the Government had to support Rothwells. The Government had provided support, and that support would remain and, if necessary, additional financial support for Rothwells would have to be organised by the Government. That, he said, was the 'party line' which he was authorised to put to the meeting in Sydney, and he did so [57].
100 What was reportedly said at the meeting in late February does not support an inference that Edwards had authority to provide a guarantee for and on behalf of the State. It goes no further then identifying the State's position in relation to its support of Rothwells. It falls well short of authorising Edwards to enter into any relevant contract on behalf of the State, whether of guarantee or otherwise. Further, Edwards knew that he could not and the State would not provide a guarantee in writing. Edwards knew a guarantee had to be in writing to be legally enforceable [59].
101 Dowding's evidence does not support the trial judge's finding that Edwards had authority to give a guarantee on behalf of the State. Moreover, the trial judge rejected Anderson's evidence that Edwards' assurances as to repayment were repeated by Dowding in a telephone conversation on 18 March 1988. The trial judge said he was not able on the evidence to determine precisely what was said in that telephone conversation. He accepted that Dowding would have spoken in encouraging terms but doubted he would have committed the government to a guarantee of repayment [84]. That doubt is a significant impediment in the way of a finding that Dowding gave actual authority to Edwards to enter into a contract of guarantee on behalf of the State.
102 In support of the finding of actual authority, the appellant relied on evidence given by Edwards in cross-examination which is not referred to in the trial judge's reasons. Edwards was asked what was said at the meeting on 13 March 1988:
Can you tell me again what you say Berinson or Dowding said which amounted in your mind to an authority to give a promise on behalf of the state?---They said we could give them every assurance they required to do it because the paramount objective was the political one, which was to remove the 50, not because we had any concerns about Rothwells and we were in for the long haul.
...
MURRAY ACJ: Can I just intervene just there for a moment?
That last answer that you gave, Mr Edwards, should I interpret that as being that you were instructed, albeit informally, at the meeting at the end of February 1988 by Mr Dowding and/or Mr Berinson to give those who were to be asked for the money any assurance they required which would persuade them to make the contribution?---Yes, but, with respect, there were two meetings (ts 999).
103 After informing the judge that counsel for the appellant had been talking about the meeting on 13 March 1988 the evidence continued:
In any event, did I understand your answer correctly, whichever meeting it was, that you were instructed or authorised to tell these other interests anything by way of assurance that would persuade them to make the contribution?---Yes. I mean, that was the context of it. That was the thrust of the position.
So whatever they wanted to hear by way of assurance which would persuade them to make the contribution, you were authorised to tell them?---That was my understanding of what I was told, yes (ts 1000).
104 The trial judge does not refer to or accept this remarkable evidence. Even against what can be described as the surprising conduct of the State and its officials in the Rothwells saga, this evidence stretches credulity. Without seeing and hearing the witnesses, I would decline to make a finding that Edwards was so instructed. In my view, the evidence does not sustain a finding that Dowding expressly or by implication conferred actual authority on Edwards to enter into the contract of guarantee on behalf of the State. I would uphold that part of ground 3(a) relating to Edwards and ground 4(a) of the cross-appeal.
105 The State contends the trial judge erred in failing to find that the appellant was put upon inquiry as to the limited scope of Edwards' actual authority. It relies on the following statement of principle from Russo-Chinese Bank v Li Yau Sam [1910] AC 174, 184 cited with approval in Attorney-General (Ceylon) v AD Silva [1953] AC 461, 480:
If the agent be held out as having only a limited authority to do on behalf of his principal acts of a particular class, then the principal is not bound by an act done outside that authority, even though it be an act of that particular class, because, the authority being thus represented to be limited, the party prejudiced has notice, and should ascertain whether or not the act is authorised.
106 The appellant contends the authorities relied on by the State relate to ostensible not actual authority. That is correct. In Russo-Chinese Bank the third party knew the agent's authority was limited and there was no holding out by the principal that the agent had any authority beyond the known limitation outside which the agent had acted. In Silva the agent was a Crown agent who acted in excess of his powers conferred by delegated legislation. Ultra vires actions cannot be saved by the agency doctrine of ostensible authority. This ground stands or falls with the State's ostensible authority ground.
107 The State contends the trial judge erred in finding that Edwards had ostensible (apparent) authority to provide the guarantee on behalf of the State.
108 A principal may be liable under a contract effected by a person without actual authority if the principal represented that the apparent agent was authorised to enter into the transaction in question. Common law estoppel by representation is the foundation for ostensible authority: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 466.
109 The person making the representation must himself have actual authority to enter into the transaction in question. That is, Dowding could not hold out Edwards as having authority to enter into the contract of guarantee on behalf of the State unless Dowding had such authority. The State has failed in its challenge to the trial judge's finding that Dowding had such authority.
110 A principal can only be made liable on the ground of ostensible authority where the third party reasonably relied upon the representation as to authority: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 498. There is no reasonable reliance when the nature of a transaction or other circumstances put the third party on inquiry as to whether the purported agent has the requisite authority: Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146.
111 The trial judge relied on a number of matters as giving rise to a holding out as to Edwards' authority. First, Edwards' position as Executive Director of the Department of Premier and Cabinet. Edwards was in fact second-in-command of the Department (ts 919). Secondly, Dowding's participation in a telephone conversation during the meeting on 16 March 1988. During that meeting, and after both Anderson and Bourke (representing CPH) said they would not make a $50 million deposit in Rothwells, Edwards telephoned Dowding in their presence. Edwards told Dowding that the prospective purchasers would not agree to the proposal and Dowding instructed Edwards to inform the meeting that he (Dowding) said they should terminate the negotiations which they did [42]. Thirdly, the trial judge relied on the telephone conversation on 18 March 1988 between Anderson and Dowding and observed that 'whatever was precisely said, Dowding did not resile from the commitments made by Edwards' [301]. Fourthly, Edwards had the 'trappings' of necessary authority and his 'ordinary authority would be expected to extend to a commercial transaction of the kind at issue here' [307].
112 The State contends the appellant was put on inquiry as to Edwards' limited authority by the following (1) Edwards' position as an officer of a government department; (2) to the appellant's knowledge, the purpose of imposing a condition requiring a $50 million deposit in Rothwells was to enable the repayment of the GESB; (3) Edwards told Anderson that the GESB advance to Rothwells had not been approved by the Treasurer and Cabinet (exhibit A [54]; ts 715); (4) the nature of the transaction (committing the State to a contingent liability for $50 million) and its informality; and (5) Edwards' stated inability and refusal at the meeting on 16 March to give a guarantee in writing. Edwards said in oral evidence that he refused to give a written guarantee because it raised the spectre that Rothwells was not actually very sound [59]. However, there is no evidence that Edwards communicated that explanation to the meeting on 16 March 1988.
113 The issue is whether the appellant was put on inquiry as to the extent of Edwards' actual authority. If not, the reliance was unreasonable. The fact that Dowding had authorised Edwards to require a $50 million deposit in Rothwells is not itself a holding out that Edwards had authority to enter into a contract of guarantee on behalf of the State.
114 The trial judge does not explain the basis for his conclusion that Edwards' ordinary authority would be expected to extend to the transaction in question. It is inconsistent with the evidence of Dowding recorded at [81] of the reasons:
Mr Dowding's evidence was that he did not remember whether or not Anderson telephoned him on 18 March 1988. Hardly surprising, it may be thought. But his evidence was firmly that he would not have given an oral guarantee that the Government would ensure that Rothwells repaid the deposit or that it would itself pay if Rothwells did not. As he says, he knew, of course, that it had taken a lot of work, meetings of the Cabinet Budget Sub-Committee and endorsement by the full Cabinet, to authorise the NAB indemnity. His evidence was:
'The idea that the Premier or a public servant could orally guarantee $50M is and was then absurd to me. I am certain that I neither gave any such assurance nor endorsed any assurance said to have been given by Edwards.'
115 It is inconsistent with Edwards' advice to the meeting without explanation or elaboration that he could not provide a written guarantee. If his ordinary authority extended to the provision of a State government guarantee, the reasonable expectation would be that he could do so formally rather than informally.
116 Moreover, it is not supported by Anderson's evidence concerning why he telephoned Dowding on 18 March 1988. I am unable to understand how that telephone conversation with Dowding is capable of supporting a finding of ostensible authority. To the contrary, it suggests Anderson was himself concerned about Edwards' authority. Anderson wanted confirmation from Dowding before he committed himself (exhibit A [88]). The trial judge accepted Anderson's evidence that he was concerned to get confirmation of the undertaking which he believed he had received from Edwards on Dowding's instructions [75]. Anderson's evidence was that Dowding said to him that the government would ensure that Rothwells repaid the advance or would do so itself if Rothwells did not [80]. The trial judge was not satisfied that the words spoken by Dowding were, in substance, those attributed to him by Anderson [84]. Thus, Anderson was in effect seeking confirmation of Edwards' authority to provide a State Government guarantee and there is no finding that he got what he was seeking.
117 I am satisfied the trial judge erred in concluding that Edwards' ordinary authority would be expected to extend to giving a State Government guarantee. Edwards' position in the public service and the trappings associated therewith are thus equivocal.
118 Anderson had good reason for, in effect, seeking Dowding's confirmation of Edwards' authority for the reasons identified by the State. The trial judge's finding that Edwards had ostensible authority to enter into the contract of guarantee on behalf of the State is against the weight of the evidence. I would uphold this ground.
Intention to create legal relations (cross-appeal grounds 3(d), 4(e))
119 It is of the essence of contract, regarded as a class of obligations, that there be a voluntary assumption of a legally enforceable duty. There will be no legally enforceable contractual duty if the circumstances show that the parties did not intend, or cannot be regarded as having intended, to subject that agreement to the adjudication of the courts: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105. The search for intention requires an objective assessment of the state of affairs. Intention is used in the sense of what it is that would objectively be conveyed by what was said or done having regard to the circumstances in which those statements and actions happened: Ermogenous (105) - (106).
120 Extrinsic evidence of the conduct of the parties after the making of the alleged contract is admissible for the purpose of determining whether the parties had an intention to create legal relations: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. However, as with the admission of extrinsic evidence prior to the making of the alleged contract, the evidence must be confined to conduct, including communications, known to both parties: Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.
121 The trial judge's reasons and conclusions on this subject are at [305]:
[H]aving obtained the funds from CPH, [the appellant] was prepared to accept what had been put and the contract was made, I find, when Anderson accepted the terms as between [the appellant] and the State for the deposit of the money, a process which commenced on 31 March 1988 and was completed by 13 April 1988, in reliance, as seems clear to me, upon the undertakings given which would secure the repayment of the funds. It follows that, a contract having been made in those terms by Edwards ... with the authority, both actual and ostensible, provided by the instructions of Dowding, I reject the proposition advanced by the State that there was no intention to create a legal relationship or to impose or accept any legal responsibility so as to make those statements enforceable or actionable at law.
122 The trial judge gave no separate consideration to the State's claim that there was no intention to create legal relations. He regarded the issue as foreclosed by his finding of a duly authorised promise made on behalf of the State accepted by the appellant's conduct in making the deposits. There is no doubt a very significant factual and conceptual overlap between the issue of intention to create legal relations on the one hand, and the nature and content of the promises and Edwards' authority to enter into a contract of guarantee on behalf of the State on the other. However, not all assurances are intended to be contractual, even when made by a person with authority to enter into a contract. That is particularly so in the case of domestic or government assurances. (As to the latter, see Seddon N, Government Contracts (3rd ed, 2004) [3.2] - [3.4]). The focus is on whether the parties intended the promises not to be enforceable in the courts (or by any alternative mechanism) if not honoured. It is necessary for this court to consider afresh the State's claim that there was no intention to create legal relations.
123 The State relies on the following matters. First, Edwards' refusal and his stated inability at the meeting on 16 March 1988 to give a written guarantee. Secondly, Anderson's failure to seek advice from or inform his legal adviser, Gianotti, about the oral guarantee. Gianotti was in the appellant's Sydney offices on 16 March 1988 advising in relation to the purchase of Westralia Square. Anderson mentioned the guarantee to Gianotti on 27 July 1988 but, as noted by the trial judge, Gianotti said he did not understand that to be a reference to a legally enforceable guarantee. He said he was never consulted about the legal efficacy of any guarantee given by the State for the repayment of the $50 million. Thirdly, no mention was made of the guarantee in the appellant's September 1990 notice pursuant to the Crown Suits Act 1947 (WA). The appellant relies on Anderson's evidence that it was drafted by Gianotti and not seen by Anderson. Fourthly, Edwards did not inform Dowding of a guarantee or other assurance. However, there is no evidence that the internal matters referred to above were mutually known and thus cannot be relied on.
124 Finally, the State relies on the fact that consideration was given by Anderson and his legal advisors to obtaining a written assurance from the State as part of the variation of the facility agreement. By the end of July 1988 Anderson was aware that Rothwells could not honour the bills endorsed to the appellant. He also knew that action to recover the moneys owing could jeopardise the PICL transaction. Gianotti advised Anderson that he should insist on a deed of variation conditioned upon the provision of satisfactory written assurances of repayment to be given by a 'third party' by which the trial judge accepted was clearly meant the State [176]. Two instruments were drafted, one a deed of variation of the facility agreement and the other a side letter. The draft side letter provided that subject to the appellant receiving satisfactory assurances about specified matters, the appellant would undertake with Rothwells and with the party giving the assurances that it would not make demand for repayment before 31 March 1989. The expression 'satisfactory assurances' is defined to mean 'such written assurances, undertakings or indemnities from parties acceptable to [the appellant] and in a form acceptable to [the appellant] in its absolute discretion'. In the end, the appellant did not insist upon receiving such assurances. The State contended that if at this time Anderson had a belief that the appellant had been given an enforceable guarantee in March 1988, a letter would have been written on behalf of the appellant to the State asserting a guarantee and insisting on performance. I am not persuaded that is correct. If asked, his Perth solicitors would have advised that an oral contract of guarantee was unenforceable in Western Australia. Moreover, prior to 3 November 1988 there remained the prospect that, with continued government backing, including the PICL transaction, Rothwells would indeed repay the appellant.
125 There are many factors in this case that support an inference of contractual intent. Foremost among them is that the guarantee was an arms length commercial transaction which was closely connected with other commercial transactions, being the sale of Westralia Square and the facility agreement. Further, to the knowledge of the State, the appellant had to borrow the funds the subject of the proposed guarantee and relied on Edwards' assurances in entering into the facility agreement. The appellant says the inference of contractual intent had to be drawn unless the parties were found to be acting irrationally. That is arguable on the way the parties conducted their cases.
126 There was a striking air of sanitisation in the conduct of the case. However, under the adversary system it is for the parties to frame the issues. It was no part of the case for the appellant or the State that the State was, to the appellant's knowledge, acting improperly in the conduct of its affairs relating to Rothwells and that the State assured the appellant it would continue to act improperly until the appellant got its money back. In that scenario there would be powerful political considerations and forces on the State to continue on the path it had been following since the grant of the indemnity and a reasonable basis to conclude that the parties did not intend the assurances to be legally enforceable.
127 As it is, the State is left to rely primarily on Edwards' refusal to provide a guarantee in writing. In ordinary circumstances that would be a powerful consideration. As noted in Seddon NC, Ellinghaus MP and Cheshire GC, Cheshire and Fifoot's Law of Contract (9th ed, 2008) [16.9] no-one in their right mind would be content with an oral guarantee. But what confronted the appellant on 16 March 1988 was far from ordinary. The refusal to give the guarantee in writing may be regarded as sending a mixed message on the issue of whether the promises were intended to be enforceable but in the end that and the other matters relied on by the State are insufficient to displace the finding of intention to create legal relations.
128 The appellant pleaded its estoppel case as both a shield and a sword, that is, both defensively and positively as a cause of action in the alternative to its contract claim. The defensive case was that the State was estopped from denying a representation made by the State to the effect that the State would not rely on the Statute of Frauds.
129 Its positive case was an equitable estoppel claim that would result in the enforcement of the promise without establishing that the State represented it would not rely on the Statute of Frauds or made a representation to similar effect. In particular, the appellant claimed the State was estopped from denying that it was obliged to ensure that Rothwells would repay the loan or failing that, was obliged to repay the loan itself. The relief sought was equitable compensation.
130 The trial judge said he did not understand the defensive claim, which was a form of estoppel for which he could not find any support in the authorities [320]. As to the equitable estoppel claim, the trial judge concluded that Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 was consistent with the decision of the House of Lords in Actionstrength Ltd v International Glass Engineering IN GL EN SpA [2003] UKHL 17; [2003] 2 AC 541 which he applied to dismiss the estoppel claims [379].
131 The relevant issues are best understood by starting with Actionstrength. The facts occurred in the context of a building contract between a proprietor and a builder and a separate building contract between the builder and a subcontractor. The subcontractor threatened to terminate its subcontract when it had not been paid by the builder. The proprietor orally agreed with the subcontractor that if it continued to perform the subcontract, the proprietor would ensure the subcontractor was paid any amounts due from the builder (the oral agreement). It was accepted that the oral agreement was a guarantee to which s 4 of the Statute of Frauds applied. The House of Lords accepted that the proprietor had promised that payment would be made and the subcontractor had acted to its detriment in reliance on that promise. However, the House of Lords upheld the dismissal of the estoppel plea on the basis that the promise or assurance given by the proprietor was itself insufficient for an estoppel claim. Something more was required. In particular, the content of the promise or assurance had to be inconsistent with the proprietor's conduct in relying on s 4 of the Statute of Frauds. The necessary inconsistency would exist in representations to the effect that there was an enforceable contract or that the proprietor would not rely on the Statute of Frauds or that the proprietor would confirm the agreement in writing. If estoppel is relied on defensively merely as a rule of evidence, the only available relief is to prevent (estop) the representor/promisor from departing from the terms of the representation/promise. If a person is to be estopped from relying on the Statute of Frauds the representation must (expressly or impliedly) relate to that subject matter.
132 The English law of estoppel, particularly promissory and equitable estoppel, is narrower than Australian law: Waltons Stores. In that case a company negotiated with the owner of land for a lease. The owner was to demolish a building and construct a new one to the company's specifications. The company's solicitor forwarded a draft lease to the owner's solicitor to which the latter suggested certain amendments. On 7 November 1983 the owner's solicitor told the company's solicitor it was essential that the agreement be concluded within the next day or so, otherwise the owner would be unable to organise building supplies before Christmas. He also said the owner did not wish to demolish the building until it was clear there were no problems with the lease. The company's solicitor said that the company had notified him orally that the suggested amendments to the draft lease were acceptable but he would get formal instructions and would tell the owner's solicitor the next day whether the company disagreed with any of them. He then sent the owner's solicitor a redrafted lease incorporating the suggested amendments. The company's solicitor did not object to the amendments on the next day or at all. On 11 November the owner's solicitor forwarded to the company's solicitor an executed lease 'by way of exchange'. The owner then began to demolish the building. About a week later the company had second thoughts about proceeding and instructed its solicitor to go slow. Shortly thereafter the company became aware that the demolition was proceeding. Early in January 1984 the owner commenced building works. The building was about 40% completed when, on 19 January, the company said it did not intend to proceed. The company's solicitor did not communicate with the owner's solicitor between 11 November 1983 and 19 January 1984. He retained the lease executed by the owner. Under New South Wales law there had to be an exchange of parts before there was a binding agreement for lease. Further, s 54A of the Conveyancing Act 1919 (NSW) relevantly provided that no action could be brought upon any contract for the disposition of an interest in land unless there was a note or memorandum in writing signed by the party to be charged.
133 The High Court held that, although for want of an exchange of parts no binding agreement for a lease had come into existence, the company was estopped from denying that it was bound.
134 The elements required to establish an equitable estoppel were identified by Brennan J. It is necessary to prove that (1) the plaintiff assumed that a particular legal relationship then existed between him and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acted or abstained from acting in reliance on the assumption or expectation; (4) the defendant knew he would or intended him to do so; (5) the plaintiff's action or inaction would occasion detriment if the assumption or expectation was not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise (428 - 429).
135 To establish an equitable estoppel the plaintiff must act to his detriment in reliance on the assumption or expectation relating to existing or potential legal relations. The doctrine has no application to an assumption induced by a promise which is not intended by the promisor and understood by the promisee to affect their legal relations: Waltons Stores (421) (Brennan J). If the evidence established that the appellant and the State did not intend to create legal relations thereby preventing the finding of a contract, it would also prevent the finding of the necessary type of assumption and reliance for the purposes of equitable estoppel. I have rejected the State's challenge to the finding that there was no intention to create legal relations.
136 Moreover, the reliance must be reasonable: Waltons Stores (406); Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406; Australian Securities Commission v Malborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485. The requirement for reasonableness is linked with the underlying principle of unconscionability. For the reasons previously discussed, the refusal to give the guarantee in writing in the unusual circumstances confronting the appellant did not render its reliance unreasonable.
137 The equitable estoppel identified by Brennan J is a source of legal obligation arising on an actual state of affairs not on an assumed state of affairs (416). Equity provides relief to prevent unconscionable conduct on the part of the party inducing the assumption: Waltons Stores (406) (Mason CJ & Wilson J), (427) (Brennan J). The remedy is the minimum equity required to do justice. The minimum equity may not require holding the representor/promisor to its representation/promise: Waltons Stores (419) (Brennan J); Commonwealth v Verwayen (1990) 170 CLR 394, 417, 429 - 430, 441 - 442.
138 The members of the High Court in Waltons Stores had different views as to the relevant assumption established by the evidence. The different assumptions were (1) an exchange of parts would take place (Mason CJ, Wilson and Brennan JJ); (2) there was a binding agreement between the company and the owner (Deane J); and (3) the exchange of parts had occurred (Gaudron J). Only the first assumption involved a promise of future action. However, common to all assumptions is that there was or would be an exchange of parts in writing which would satisfy the Actionstrength requirement for something more than an oral substantive promise (unrelated to formalities).
139 Brennan J explained why s 54A did not present an obstacle to the grant of relief whether the assumption was that a binding contract had come into existence or if it was that an exchange of parts would take place. In the first instance, the assumed contract was a written contract. He continued:
If the true inference to be drawn from the facts is that Waltons induced the Mahers to assume that it would exchange the original deed, there is an equity in the Mahers which is to be satisfied by treating Waltons as if it had executed and delivered the original deed. That equity does not arise out of the induced assumption alone. If it did, it would be impossible to distinguish the equity from a contractual right arising out of an oral promise. As s 54A makes an oral agreement to make a written agreement for the disposition of an interest in land ineffective, an equity which gave the assumption the same force as a promise would be ineffective. But, as we have seen, the equity is to be satisfied by avoiding a detriment suffered in reliance on an induced assumption, not by the direct enforcement of the assumption. Equitable estoppel does not create a contract to which s 54A might apply, even in cases (and this is one of them) in which the equity is satisfied by treating the defendant as though the contract had been made. The Statute of Frauds and similar provisions prescribing formalities affecting proof of contracts have never stood in the way of a decree to enforce a proprietary estoppel ... and, in principle, there is no reason why such provisions should apply when any other equity is created by estoppel. The action to enforce an equity created by estoppel is not brought 'upon any contract', for the equity arises out of the circumstances. This is not to say that there is an equity which precludes the application of the statute. It is to say that the statute has no application to the equity (422 - 423). (emphasis added)
140 Two aspects from this extract are of particular significance in this case. First, equitable estoppel does not require a correspondence between the assumption (an exchange of parts would take place) and the conduct estopped (the promisor is prevented from denying the existence of a binding contract). The latter is what is required to satisfy the equity to prevent unconscionable conduct. Secondly, it is the equity which is enforced not a contract and therefore s 54A has no application. It follows from Brennan J's analysis that if the appellant establishes an equitable estoppel, it is entitled to relief notwithstanding failure to comply with s 4 of the Statute of Frauds. This is consistent with the approach taken by the High Court in the area of restitution in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221.
141 There is a suggestion that Mason CJ and Wilson J in Waltons Stores support the Actionstrength requirement that there be 'something more' than a mere promise acted on by the plaintiff. They said:
As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required (406).
142 However, it is apparent from the context that Mason CJ and Wilson J are referring to elements 2, 3 and 4 identified by Brennan J as 'the something more'. The 'something more' for Mason CJ and Wilson J was that the owner reasonably acted on the assumption, encouraged and induced by the company that exchange was a formality and, to the knowledge of the company, acted to their detriment by proceeding with costly work on site.
143 Deane J, who concluded that there was an assumption of an existing binding agreement, said 'binding' was used in the sense of valid and enforceable (446). Gaudron J found the assumption to be that an exchange of parts had taken place in which event, as she notes at (464), there was an assumption that the agreement was duly executed by the appellant 'and the question of compliance with section 54A ... becomes irrelevant'. Mason CJ and Wilson J said there was no substance in the argument based on s 54A for the reasons given by the other judges (408). I take that to result in majority support for the Brennan J analysis.
144 The Full Court in Giumelli v Giumelli (1996) 17 WAR 159 accepted the Brennan J analysis as representing the majority position in Waltons Stores. The Queensland Court of Appeal's approach in Riches v Hogben [1986] 1 Qd R 315 is consistent with the Brennan J analysis. On the other hand, Actionstrength was applied by the New South Wales Court of Appeal in Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51. However, the appellant in that case relied solely on a defensive equity and did not plead estoppel as a cause of action. In two single judge decisions, the courts found on the facts a representation that the representor would not rely on a statutory requirement for writing (Collin v Holden [1989] VicRp 48; [1989] VR 510) or that a document would be executed (Agius v Sage [1999] VSC 100).
145 On my reading of Waltons Stores there is majority support for the proposition that the Statute of Frauds does not stand in the way of enforcing an equitable estoppel claim. Accordingly, the trial judge erred in dismissing the appellant's equitable estoppel claim.
146 Moreover, it follows from the conclusion that the parties intended to create legal relations that they intended their promises to be legally enforceable. It is but a small step to conclude that Edwards represented that his promises were enforceable. I would take that step. All other elements of estoppel having been established I would also uphold the appellant's defensive estoppel claim.
147 However, the State can only be estopped from denying Edwards' representation as to enforceability or held liable in equitable estoppel for Edwards' assurances if he was authorised to give them to the appellant. I have concluded that Edwards acted without the authority, actual or ostensible, of the State. As that would require the dismissal of the estoppel claims, I would dismiss this ground of appeal.
Negligent misrepresentation (ground of appeal 2)
148 The appellant contends in its grounds of appeal that the trial judge erred in:
(a) failing to consider whether, and find that, the State's unqualified representation that the appellant could be assured the respondent would continue to support Rothwells (the support representation) was made in breach of the State's duty of care to the appellant; and
(b) holding that the State's representation that Rothwells was financially sound although suffering from temporary liquidity problems (the soundness representation) was not made in breach of the State's duty of care to the appellant.
149 The first issue concerns the scope of the appellant's pleaded representations and the trial judge's findings.
150 The appellant contends that the trial judge did not consider or determine its claim that the State negligently misrepresented that 'the Government would continue to support Rothwells if the appellant lent $50 million to Rothwells'.
151 I gather from the appellant's written and oral submissions that this is intended to be the representational equivalent of the first contractual promise. That is, the State represented that its intention was to continue to take positive steps to provide Rothwells with sufficient funds to enable it to continue to trade and repay the appellant.
152 As with the finding at [69] relating to the contractual promise, the trial judge's finding as to the scope of the representation is also ambiguous. He said:
The plaintiff puts a case separately from the contractual claim relying on the statements made by Edwards and supported by reference to Rothwells' half-yearly audited accounts by Lloyd, that Rothwells would provide a safe investment for the requested $50M because it was basically sound and merely suffering from temporary liquidity problems, hence the State's willingness to stand behind and financially support Rothwells through its current difficulties. I have found that that was the general tenor and effect of the statements made on behalf of the State at that time [326].
153 The appellant contends that the part of the representation following the word 'hence' in [326] was pleaded as a separate representation and that the trial judge did not expressly consider or determine that aspect of its case. The first proposition can be accepted. As to the second, it is the case that the trial judge does not separately consider it as a tortious claim.
154 However, it follows from the trial judge's rejection of the appellant's first contractual promise that he impliedly rejected a representation based on an assurance to the same effect. That is, the statements made by Edwards did not convey the meaning for which the appellant contends. Moreover, the trial judge explains in [70] that what was said about 'standing behind' Rothwells, 'being in it for the long haul', 'seeing it through to the end' and the like was mere puffery and uncertain of meaning. This is in effect a finding that the 'support representation' was not a proper basis for reasonable reliance by the appellant. As to the requirement for reasonable reliance in the tort of negligent misrepresentation see Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556, 571; Perre v Apand [1999] HCA 36; (1999) 198 CLR 180 [125]; Tepko Pty Ltd v Waterboard [2001] HCA 19; (2001) 206 CLR 1 [74] - [76].
155 Even if the appellant is correct in its claim that the trial judge erred in failing to consider and determine its case based on the support representation, I am not persuaded the trial judge could and should have made a finding of a duty of care that had been breached. It was accepted by the parties that the support representation concerned the future intention of the State. At common law, a representation must be a statement which purports to affirm or deny, or which otherwise relates to any existing or past fact: Middleton v Aon Risk Services Australia Ltd [2008] WASCA 239 [19]. However, a statement of the representor's intention to do something in the future is a representation as to the existence of that intention at the time the statement was made. The fact that the intention was not fulfilled is not in itself proof that the person did not so intend at the relevant time.
156 The appellant had to demonstrate the falsity of that representation of existing fact, namely that the State did not have the stated intention when the representation was made on 16 March 1988. The appellant contends the representation was false because it was unqualified. However, that is not correct. On its face, the representation expressly links the State's belief as to Rothwells' financial position (that it was basically sound but with temporary liquidity problems) with its statement of future intention. That linkage provides a qualification to the statement of future intention. Accordingly, the trial judge was correct to focus on the representation as to Rothwells' financial position.
157 The trial judge found that the State represented to the appellant that 'Rothwells was basically sound and merely suffering from temporary liquidity problems' [69]. In his consideration of the negligent misrepresentation claim, the trial judge identified the relevant question as being 'what the Government was told, what it learned, not whether the information which it was given was accurate' [127]. He further narrowed the relevant question to whether it was conveyed to the government or those who were working for it that Rothwells had an asset deficiency in addition to the known liquidity problem [125].
158 After reviewing internal reports to, or seen by, Lloyd expressing disquiet about aspects of Rothwells' financial position and mode of operation, the trial judge concluded:
It is sufficient for present purposes that I should say that in my view there was nothing at that time to suggest that the accounts presented a picture which was inaccurate or that they were in any way unreliable in respect of the judgment expressed about such things as the provision for bad and doubtful debts and matters of that kind. Those accounts confirmed or presented a view that Rothwells was in a sound financial position overall. At least there was nothing to indicate that the contrary was the case, despite the continuing demands for Government assistance to resolve Rothwells' ongoing liquidity problems.
The accounts were adopted by the Board of Rothwells before they were signed off in the ordinary way. No director expressed concern or reservations about the accounts or dissented from their adoption. In particular, Mr Hurley, whose criticism had thus far been the most trenchant, was at the meeting of the Board and did not express concern even about the adequacy of the provision for bad and doubtful debts [139] - [140].
159 The trial judge found that it was not until the latter half of April 1988 that Lloyd understood from his fellow director John Hilton that there were potential difficulties in the recovery of loans made by Rothwells to Connell-related entities [152]. It became completely clear in about June 1988 from work undertaken by Hilton that there was a serious asset deficiency in Rothwells in the order of $300 - $400 million [151], [166].
160 The trial judge concluded that, if the representation was false, it was not negligently made. He said:
In the final analysis, in my opinion, it cannot be said that the reliance at the material time upon the half-yearly audited accounts for Rothwells was unreasonable, or that the information those accounts contained should reasonably have been considered to be unreliable or incomplete. There is no evidence sufficient to satisfy me to the required standard that at the material time Edwards and Lloyd ought to have known, if it was then the case, that Rothwells had more than what [h]as been described as a liquidity problem, but that it had a substantial asset deficiency, or generally that it was insolvent, and that investment in it was unsafe or unduly risky. In my opinion the breach of duty is not established and this head of claim may not succeed [336].
161 Before dealing with the parties' contentions, it is necessary to draw attention to the relevant legal principles. As already noted, at common law a representation must be a statement which purports to affirm or deny, or which otherwise relates to, any existing or past fact. A statement of opinion ordinarily conveys a representation of existing fact that the opinion is honestly held and that it is based on reasonable grounds: Middleton [20]. The representation must be shown to be false at the time it was made.
162 A statement will be false if the representor omits essential qualifying facts. The test of what is an essential qualifying fact is whether the discrepancy between the facts as represented and the facts as they existed would have reasonably influenced the mind of a normal representee in considering whether to alter his position as he did: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 575.
163 The parties did not address the question whether the soundness representation was one of fact or opinion. It seems to me it involves significant elements of evaluation and judgment in which event it is correctly classified as an opinion and thus is falsified by demonstrating either that it was not honestly held or was not based on reasonable grounds. The test of reasonableness is objective. A lack of reasonable grounds will also establish the negligence requirement. That is also the case if the representation was one of fact.
164 The appellant contends that Rothwells was financially unsound if not insolvent on 16 March 1988 and thereafter. It does not expressly identify the distinction it intends between financial unsoundness and insolvency. I infer it is intended to include a financial state falling short of technical insolvency. Both parties accepted that a material asset deficiency would suffice. It also contends that the State's knowledge about Rothwells rendered an unqualified representation about its soundness false. It is clear from its written submissions that the appellant challenges the trial judge's findings at [139] and [336]. The appellant makes the further submission that all the appellant had to establish was that what Lloyd, Edwards or Dowding knew established objectively that an unqualified statement about Rothwells' soundness was false. I accept that the practical effect of the objective reasonableness requirement is to focus on what was known or ought reasonably to have been known at the material time.
165 The parties made no submissions, oral or in writing, as to the legal test of insolvency. At the material time, the Companies (Queensland) Code (the Code) applied. Unlike the Corporations Law (s 95A), there is no definition of insolvent or solvent in the Code. At common law, there are two primary tests employed to determine whether a person is solvent. They are the cashflow insolvency test and the balance sheet insolvency test: The Bell Group Ltd v Westpac Banking Corporation [No 9] [2008] WASC 239 [1065]. Under the cashflow test a person is insolvent if they are unable to pay all their debts as and when they fall due. Under the balance sheet test, a person is insolvent if their total liabilities exceed their total assets. However, there is a close link between the two tests which are often considered in combination.
166 In the absence of submissions from the parties, I will proceed on the basis that the statutory formulation in the Bankruptcy Act 1924 (Cth) concerning preferences applies with the result that the Code cashflow test is in terms of a person being unable to pay his debts as they become due 'from his own moneys': Bell [1082].
167 Barwick CJ in Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666, described the statutory formulation of the cashflow test as follows:
The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency (670).
168 The cases draw a distinction between 'temporary illiquidity' and 'endemic illiquidity': Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213, 225; Bell [9.2.7]. Further, there are divergent views as to whether the Code cashflow test permits regard to be had to the debtor's ability to raise an unsecured loan to repay debts: Kyra Nominees Pty Ltd (in liq) v National Australia Bank Ltd (1986) 4 ACLC 400, 405 (Burt CJ); cf Bell [1090]; Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385.
169 Neither party addressed the court below or this court on the effect on Rothwells' solvency of the government's involvement in providing (or securing) funds to Rothwells. The trial judge rejected the appellant's case based on the first contractual promise and the equivalent representation and characterised the support representation as mere puffery. He made no findings as to the nature or terms of the past or any future government financial support for Rothwells. Moreover, the parties did not address what is meant by 'temporary liquidity' in the context of the unusual (uncommercial) external support provided to Rothwells by or at the behest of the government or the period of time over which the assessment of cashflow insolvency should extend. The avoidance of those issues may be explained by the notions of 'horns' and 'dilemmas' when contemplating the potential for internal contradictions in the conduct of their cases.
170 The State's position is and was that the soundness representation was impliedly to the effect that Rothwells was basically sound because it had substantial net assets and was not a representation that Rothwells was solvent. It is the case that a company can be insolvent whilst having substantial net assets: Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 29 ACSR 130, 139. Although theoretically possible, it was not explained how that could be the case having regard to the nature of Rothwells' assets and liabilities.
171 The express terms of the representation found to have been made by the trial judge would ordinarily convey a representation that Rothwells was solvent. The appellant contends that is the effect of what the trial judge found. I agree.
172 However, although the trial judge did not find that the representation was to the effect that Rothwells was basically sound because it had substantial net assets, he expressly confined his analysis to the question whether the government knew or ought to have known of any asset deficiency [336]. In circumstances where the trial judge did not consider or determine whether Rothwells was insolvent on 16 March 1988 and the parties have not put their submissions in an appropriate legal or principled framework, I am not disposed to determine the question of Rothwells' solvency on the relevant date unless it is necessary to do so. I am not so required because the appellant's insolvency case largely depended on establishing balance sheet insolvency.
173 It is necessary to refer in detail to the evidence relating to Rothwells' financial position in March 1988.
174 The trial judge made the unchallenged finding that Lloyd was one of the persons who made the soundness representation and for whose negligence the State was vicariously liable [329]. Accordingly, Lloyd's knowledge can be attributed to the State.
175 I propose to begin with the evidence relating to the internal reports referred to earlier, starting with a talking paper prepared by David Hurley and presented to the Board of Rothwells at its meeting on 13 November 1987 (the Hurley report). Hurley was a very experienced banker and merchant banker who joined Rothwells as a director in July 1987. At around the same time he was appointed a director of Oakhill Pty Ltd (Oakhill), a company controlled by Connell and a director of Paragon Resources NL (Paragon) also ultimately controlled by Connell.
176 In November 1987 Lloyd and a Rothwells director asked Hurley to prepare a management plan which became the Hurley report. Referring to Rothwells' receivables, it states:
In reality approximately two-thirds of these loans aggregating over half a billion dollars are in fact medium term equity investments in related and unrelated corporations which are unable or unwilling to repay the loans or indeed to meet accumulating and compounding interest thereon.
These non-repaying investments presently have a negative cashflow effect of $7 million per month or $84 million per annum and will increase due to the compounding interest factor to $9 million per month or $108 million per annum by next calendar year.
Notwithstanding the rescue plan and the now total funding of the rescue package, our cashflow projections indicate we have a probable net cash outflow between now and December 31 of $82 million.
...
With no new facilities in sight or anticipated, the company could be expected to cease functioning early in the New Year unless working capital is generated from repayment of major loans and/or realisation of investments in one manner or another.
178 Hurley proposed a reconstruction plan which had to be undertaken contemporaneously and as a matter of urgency, one element of which was:
An intensive assault on our 16 main loan/investments with the object of liberating not less than $200 million cash in the short term.
179 The thrust of Hurley's observations in the first quoted paragraph are to the effect that the loans should no longer be characterised as receivables but as medium term equity investments, the value of which ultimately depend on the net value of the borrowers' underlying assets. Hurley had not then formed a view on that subject.
180 Thus, Lloyd knew that in Hurley's assessment over half a billion dollars of Rothwells' receivables were in fact medium term equity investments in the borrowers who were unable or unwilling to repay the loans or to meet their interest obligations (ts 1862). Lloyd accepted Hurley's assessment (ts 1770). Lloyd also knew that medium term equity investments should be recorded in the accounts as non-current assets. His evidence is as follows:
You were quite happy when you signed off on the accounts in January of 1988 to treat them as current assets weren't you?---What I said was I didn't turn my mind to that breakdown between current and non-current assets.
When you signed the accounts, you knew it was quite inappropriate to record medium-term equity investments as current assets, didn't you?---Yes. Well, I - knew, I'm not - I'm, saying no.
You knew it was quite inappropriate to treat a loan or a lender unable or unwilling to pay his loan, his or her loan as a current asset, didn't you?---Yes (ts 1859).
181 The matter was revisited with Lloyd at ts 1888 as follows:
I think you accepted before lunch that a large proportion of the assets listed as current assets [in the January audit accounts] should in fact have been listed at best as non-current assets?---Yes, I think that's right.
182 A $500 million reduction in current assets from the January audited accounts (allowing for the provisions actually made) results in a working capital deficiency in excess of $300 million. Working capital is the difference between the company's current assets (assets that can be realised within 12 months) and its current liabilities (those due for payment within 12 months). That points strongly to the fact that Rothwells' liquidity problems were anything but temporary.
183 The State's position can be summarised as follows. There was no primary evidence to establish that about $500 million of Rothwells' receivables were in fact medium term equity investments in borrowers who were unable or unwilling to repay their loans. Hurley had expressed an opinion to that effect which opinion is undermined by the following. First, he did not tell Rothwells' auditors or other Board members that he thought such loans were irrecoverable. Although he did not tell the auditors, the evidence was that the Hurley report was presented to the Board at its meeting on 13 November 1987. Secondly, he was not prepared to say the loans were bad or doubtful. The State relies on Hurley's evidence at ts 1081 which is in response to a question about the underlying value of the assets of the borrowers. However, Hurley's evidence was that his report to the Board did suggest an underlying problem of soundness of Rothwells. He explained:
I thought you had already agreed with us that the memo doesn't address the value of the underlying assets in which you are now characterising the loans as equity investments?---Yes, but as I've put to you, the reason that I put it in that way, and I regret that I ever put the wretched thing down that way, is that I did not want to bring undone the government's efforts to rescue Rothwells and to go and say, as I could have said, that these were bad and doubtful debts, like $360 million of it, would have put the kybosh on the whole kit and caboodle (1098 - 1099).
184 Thirdly, treating the loans as equity did not address their underlying value and he had no information in that regard. However, that changed with the preparation of the mud map referred to below. Fourthly, he expressed no concern at the Board meeting at which the January audited accounts were adopted and approved by the Directors. That is correct. His motive may be explained in his evidence as to soundness. Fifthly, he accompanied Lloyd on a tour in December 1987 seeking to secure lending facilities from major banks. It was Lloyd's evidence that banks were withdrawing their facilities or putting them on reduction. To secure new facilities the banks wanted hard information about the state of Rothwells' loan portfolio. As Lloyd knew, that could not be provided because of the lack of proper loan and security documentation.
185 The matters relied on by the State do not undermine Hurley's opinion. It was not put to Hurley in cross-examination that his opinion was wrong and its broad accuracy was confirmed by all subsequent developments.
186 In late November or December 1987 Hurley showed Lloyd a mud map he had prepared. The mud map shows Rothwells surrounded by companies in which Connell had a direct or indirect interest and the amount of the loans made by Rothwells to the companies. It revealed to Hurley that Rothwells had made loans of approximately $320 million to Connell-related entities. Hurley's evidence was that the Connell-related losses constituted the major portion of the non-performing Rothwells loans that he had recommended in his report be called up without delay. With that knowledge, Hurley (who knew the financial position of Connell and related entities) concluded that his reconstruction plan could not work because the loans were not recoverable.
187 What follows is recorded by the trial judge in his reasons:
[Hurley] had proposed that the 16 major borrowers should be pursued to make their loans effective, with a view to raising some $200M in the short term. But he concluded that there was an incapacity to pursue that line because these were Connell-related loans, and Hurley thought them to be irrecoverable. He prepared what is known as a 'mud map' to demonstrate the relationships between the various corporate entities involved. All this he reported to Lloyd, whose evidence was that he understood it to be a cash flow or liquidity problem because there was not information as to the underlying value of the loans made by Rothwells. However, that Hurley was gravely concerned must have been clear. He told Lloyd that he wanted to resign his position on the Board and he was of that view because he thought Rothwells' negative cash flow could not be sufficiently remedied to enable it to continue to trade and to do so profitably.
I am satisfied that Lloyd reported these matters to Burke, the Premier. And about the end of November or early December 1987 a meeting was arranged between Mr Burke, Lloyd and Hurley at Parliament House. Hurley was prevailed upon not to resign. Burke said that Hurley's fears were unfounded. They did not take into account the commitment of the State to support Rothwells. In any event, Mr Hurley said, Burke promised that in the event that Rothwells was to be wound up, his career was safe because the Premier would organise another job for him with a State instrumentality. In the meantime, as a director of Rothwells, Hurley undertook responsibility for new business. It should be said that in neither the evidence of Hurley nor Lloyd is there a great deal of precision as to what was conveyed to Mr Burke, or what were the precise terms of the discussion at the meeting referred to above [130] - [131].
188 Thus, the trial judge accepted that there was a disconnect between Hurley's assessment of Rothwells' financial position and Lloyd's understanding of what was conveyed to him by Hurley as to the implications of the mud map.
189 Two Rothwells officers, Mr Rod Hare and Mr John Selwood, prepared a report dated 22 December 1987 concerning a group of companies registered at the offices of accounting firm P G Hugall & Associates known as the Pier Street Group (Hare/Selwood report). Hugall was an associate of Connell and in 1987 was Rothwells' Company Secretary. The Hare/Selwood report was not shown to Lloyd. However, Hare provided to Lloyd a brief summary in a memorandum dated 7 January 1988 (the Hare summary). The summary includes the following information. The total Pier Street Group debt to Rothwells approximated $220 million. The unlisted investments, intangibles, technologies and undeveloped prospective mineral tenements that formed a substantial proportion of the Pier Street Group assets were very difficult to value accurately but '[r]eview of the Group indicates a significant overall deficiency'. On the ability of the Group to service their debt it is stated:
The majority of the companies are in loss and as a result overall, the Group is not in a position to adequately service or reduce Rothwells' current level of loans through trading. Additional third party debt compounds this problem.
190 Lloyd's evidence was that Rothwells could not produce reliable cashflow forecasts beyond one or two weeks. In a memorandum dated 5 January 1988 to Lloyd, a Rothwells employee Warren Randolph advised that Rothwells was unable to produce meaningful cashflow projections because of the absence of realistic due dates for a large proportion of the loan portfolio. It was said there were bills on the portfolio of almost $400 million which did not have specific maturity dates or which are shown as past due. Lloyd explained he thought this referred to a computer data collection problem rather than a problem with the bills (ts 1886).
191 Two R & I Bank officers, Mr Michael Hurst and Mr Peter Roberts, were retained by Rothwells to review its loan portfolio. Their mandate was to examine Rothwells' loan portfolio to identify the major debtors from whom early repayment might be pursued and to highlight security and other technical loan shortcomings which might require rectification. They prepared a report (the Hurst/Roberts report) which was considered by Rothwells' policy committee at its meeting on 8 January 1988. They found that 29 borrowers were responsible for approximately 81% of the total loan portfolio of $884 million; and that loans to 15 of the 29 borrowers were secured and the balance unsecured. However, they concluded that on analysis of the security records, 'the so-called secured loans [were] substantially unsecured based on existing materially deficient security documents'.
192 The evidence overwhelmingly established that Rothwells' record-keeping was exceedingly poor and in many cases there was inadequate documentation of securities allegedly provided. However, as the trial judge noted, the Hurst/Roberts report was subject to general criticism, various members of the Board (particularly Connell) asserting that in significant respects the conclusions reached in the report were based on errors in relation to particular loans and the report was regarded as generally unreliable [136].
193 The January audited accounts show total receivables of over $750 million allowing for a provision of $100 million for doubtful debts and contingencies. The balance sheet disclosed working capital (current assets less current liabilities) of $97.6 million. The accounts were signed by Connell and Lloyd on 11 March 1988 and were the subject of an unqualified audit certificate. There is very little oral evidence relating to the nature and extent of the investigations undertaken by the auditors in relation to the January accounts. There is no evidence of the content of any discussions Lloyd may have had with the auditors or that he had satisfied himself that the auditors were provided with and had considered the Hurley report, the Hare summary or the Hurst/Roberts report. That is a significant omission in light of Lloyd's concession in cross-examination that the combination of the Hurley, Hare and Hurst/Roberts reports 'painted a picture of uncertainty which was certainly a concern' (ts 1943).
194 The appellant relied on other factors to establish that Rothwells was insolvent on 16 March 1988 and had a substantial asset deficiency. First, the $300 million injected into Rothwells following the rescue weekend was consumed by early November 1987 [23]. Secondly, from the rescue weekend to the end of February 1988 around $470 million was deposited in Rothwells. Notwithstanding that injection of funds, more money was required. The $50 million provided by the appellant in April 1988 could not be used as intended to repay the GESB but was required to enable Rothwells to continue trading. Thirdly, between May and 17 October 1988 there was an injection of a further $450 million into Rothwells, including $350 million from the PICL deal. Fourthly, despite the PICL deal, Rothwells could not pay the sum of $19.5 million due and payable to the appellant on 28 October 1988. Fifthly, the Report as to the Affairs of Rothwells shows that despite the PICL deal removing $350 million of Connell-related bad debts from Rothwells in October 1988, Rothwells had a substantial asset deficiency on 3 November 1988. Sixthly, the appellant relies on the State's answers to interrogatory 181. That interrogatory comprises a large number of questions relating to Rothwells' financial position during the rescue weekend but prior to the rescue package. This information is of limited assistance.
195 Finally, the appellant relies on the report of its insolvency expert, Mr Vincent Smith (the Smith report). The parties had exchanged reports of insolvency experts but the State did not call its expert, Mr Bleakley. The State objected to the admissibility of the Smith report which was admitted provisionally and marked 'H'. However, a further document prepared by Smith responding to Bleakley's critique of the Smith report was tendered in evidence (exhibit I).
196 As the trial judge did not make a finding on whether Rothwells was financially unsound or insolvent on 16 March 1988, he did not rule on the objection. The objection was on two grounds. First, Smith's reasoning was not adequately disclosed and secondly, he made a hindsight assessment based on information not available in March 1988. The factual basis for the first objection is exposed in the cross-examination of Smith on his provisions for bad and doubtful debts for individual debtors. Other examples were provided by the State in its closing submissions. It is the case that Smith failed on a number of occasions to expressly or impliedly disclose reasons for the fact or extent of the provisions he made. However, the omissions are apparent on the face of his analysis sheets and are not so extensive as to render his report inadmissible. The omissions go to weight. As to weight, regard can be had to the fact that the State's expert had considered and critiqued the Smith report. Smith had responded to that critique with a neutrality and objectivity expected of an independent expert. The tender of exhibit I had the consequence that the experts had identified the relevant areas of disagreement on the question of the appropriate provisions.
197 The second objection to the tender of the Smith report was on the ground that he had made a hindsight assessment based on information that was not available on 16 March 1988. Mr Smith conceded in cross-examination that he had made a hindsight analysis of the appropriate provisions for bad and doubtful debts and the closely related questions of Rothwells' net asset position and solvency in January and March 1988 (ts 1384). A hindsight assessment is relevant and admissible in relation to the appellant's objective claims that Rothwells was financially unsound or insolvent on the relevant date: Bell [9.2.5.2]; Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 [108].
198 However, the primary issue in this case is what Lloyd and thus the State knew or ought to have known as at 16 March 1988 (that is, what was known and knowable on the relevant date). Not all post-relevant date facts or events are irrelevant to an assessment of what was known or ought to have been known at the relevant date: Bell [9.2.5.2]. Subsequent facts may be relevant to establishing what was knowable, such as the existence or likelihood of a state of affairs at the relevant date. However, Smith did not examine the post-relevant date information and events for a limited purpose. His was a hindsight assessment to establish the appellant's objective case. It is not possible to assess the extent to which his assessments were based on post-relevant date information. Accordingly, his opinions are irrelevant to what Lloyd (and thus the State) knew or ought to have known as at 16 March 1988.
199 As far as I can ascertain from exhibit I, Bleakley's assessment was based on what was known or knowable in January 1988 and March 1988. Bleakley's criticism of some of the provisions made by Smith must be seen in that light. He also made provisions where Smith had made none. I see no reason to reject Smith's hindsight analysis (with a provision for $73 million for the Tryart fee and no value given to the Oakhill (Connell) guarantee) that Rothwells had a serious net asset deficiency as at 31 January 1988 and 16 March 1988.
200 The State contends the massive financial injections to the end of February 1988 reflect only on Rothwells' acknowledged liquidity problems not its asset or solvency position. That is incorrect. Rothwells' liquidity problems were not solely attributable to Rothwells' adverse HOT ratio (the difference between the term of the loans to borrowers and the term and amount of deposits) and the withdrawal of banking facilities. Non-receipt of interest on loans was a very significant problem before the rescue (McGranger memorandum dated 24 June 1986; Jones memorandum dated 8 September 1987) which, to Lloyd's knowledge, continued after the rescue as unequivocally shown in the Hurley report and the Hare summary. The continuing failure of debtors to pay interest and to repay loans on their due dates is a negative indicator of the likelihood of recovery of the receivables. Where a significant portion of a company's assets are non-performing receivables, there is a clear correlation between its liquidity problems and the value of its receivables.
201 In any event, by the end of April 1988 Lloyd understood from Hilton that the Connell-related loans might not be recoverable. By June 1988 Lloyd knew that the Connell-related loans were not recoverable and that Rothwells had a serious asset deficiency. Thus, Lloyd knew as a fact in June 1988 what Hurley had known by early December 1987. The compelling factual inference from the evidence as a whole is that Rothwells' loans to Connell-related entities were not recoverable as and from December 1987 (at the latest) with the result that at all material times (including March 1988) Rothwells had a serious asset deficiency. It is accepted by both parties that if Rothwells had a serious asset deficiency in March 1988 it was not financially sound. However, that is not sufficient to establish liability.
202 The appellant must establish that, based on what Lloyd and thus the State knew or ought to have known on 16 March 1988, there did not exist reasonable grounds for making an unqualified representation that Rothwells was financially sound.
203 It is sufficient, but not essential to demonstrate that, based on what Lloyd knew or ought to have known, Rothwells was financially unsound. It is also sufficient if the appellant demonstrates that, based on what Lloyd knew or ought to have known, there was no reasonable basis to positively state that Rothwells was financially sound (or, put another way, he could not positively state that the January audited accounts constituted a fair and true view of Rothwells' financial position). In my assessment, the evidence compels a finding in those terms. By 16 March 1988 Lloyd knew:
(a) that Rothwells' record-keeping was seriously deficient and that its loans and securities were poorly documented;
(b) that those deficiencies alone prevented Rothwells from obtaining credit facilities from wholesale lenders;
(c) and accepted Hurley's assessment as to the extent of Rothwells' non-performing receivables and its impact on cashflow;
(d) that Rothwells' large and continuing liquidity demands, which could only be satisfied from external sources, were in part attributable to Rothwells' non-performing receivables;
(e) that the January audited accounts treated the non-performing loans the subject of the Hurley report as receivables and not medium term equity investments which should have been characterised and valued as non-current assets;
(f) that Rothwells had no information as to the underlying value of the assets of borrowers with non-performing loans; and
(g) that the Hare summary was consistent with the Hurley report and the Hurst/Roberts report was consistent with the known state of Rothwells' record keeping.
204 I am satisfied that the representation made by Edwards and Lloyd as to the financial soundness of Rothwells was false and negligently made.
Continuing duty to advise (ground of appeal 3)
205 The appellant contends the trial judge erred in failing to find that the State breached its duty by failing to advise the appellant that the funds to be deposited by the appellant could no longer be used for the intended purpose of replacing the existing GESB deposit of $50 million.
206 The trial judge accepted that the State had a continuing duty to advise the appellant of any reliable information of which Lloyd or any other person for whom the State was vicariously liable became aware that falsified the soundness representation [347]. There is no challenge to that statement of principle.
207 The appellant's case was that Lloyd and Dowding knew in late March or early April 1988 that the appellant's funds could not be used for the intended purpose. The trial judge accepted that Lloyd informed Dowding of the failure to use the funds for the intended purpose but was unable to make a finding as to when that information was communicated or when Lloyd first became aware that the purpose could not be fulfilled. In particular, the trial judge said he was unable to make a finding that Lloyd was aware of the position at any time before the appellant made its last deposit in Rothwells on 13 April 1988 [147].
208 The appellant contended that the statement of purpose impliedly conveyed to the appellant that Rothwells did not need the funds to meet another liquidity crisis but only to replace an existing deposit. I am not persuaded that such an implied representation was capable of arising. Anderson was told that the advance was sought by the State both because of the desire to have the GESB advance repaid and because there were ongoing liquidity problems in Rothwells [39], [47] - [48], [61]. Indeed, Anderson did not give evidence that he understood such an implied representation to have been made.
209 Further, I am not persuaded that the trial judge erred in failing to find that Lloyd knew in late March or early April 1988 that the funds to be deposited by the appellant could not be used to replace the GESB money. Lloyd's evidence-in-chief was that at a meeting in late March or early April 1988 he advised Dowding that the appellant's money would not be available to retire the GESB deposit. However, his evidence in cross-examination was different. He said that before the appellant had made any deposits he told Edwards that the money was required for purposes other than repaying the GESB but he could not remember the particular conversations or quite how it came about (ts 1808). Edwards, who was at the relevant time holidaying in Busselton had no recollection of any such conversation with Lloyd.
210 Dowding recollected being told some time before June 1988 that Rothwells was unable to use the appellant's deposit to repay the GESB but could not remember who had given him the information or in what circumstances [147]. Moreover, there was documentary evidence that as at 6 April 1988 Lloyd expected that the GESB moneys would be repaid (exhibit 131).
211 In view of the 17 years that had elapsed since the events the subject of the evidence at trial and the inconsistencies in the evidence, it was open to the trial judge to conclude that he was not satisfied the information was known to Lloyd before 13 April 1988. I would dismiss this ground.
212 As already noted, the trial judge was not satisfied that Dowding, in his telephone conversation with Anderson on 18 March 1988, said words to the effect that the government would ensure that Rothwells would repay the appellant's advance or would do so itself if Rothwells did not [84]. As I read the appellant's grounds of appeal and written submissions, this finding is not challenged. Instead, the appellant contends the trial judge should have found that Dowding confirmed the representations made by Edwards on 16 March 1988 relating to government support for Rothwells. This claim is pressed in order to avoid the State's 'authority' defence in relation to the representational equivalent of the first contractual promise. No such authority defence was relied on in relation to the soundness representation. I have concluded that the trial judge rejected the appellant's misrepresentation claim corresponding with the first contractual promise. Thus, this challenge is based on a false premise and should also be dismissed.
Oral release agreement (ground of appeal 5(a))
213 The release was negotiated against the background of negotiations for a heads of agreement (exhibit 472) relating to (1) the purchase by the GESB from a company associated with Anderson of a half interest in Central Park and the relinquishment by the appellant and the co-owner of all joint venture and project management rights in relation to Central Park; and (2) the purchase by the SGIC and the GESB from Sharland and Skeat of Westralia Square and the release of the SGIC and the GESB from all arrangements concerning rental guarantees and trust undertakings associated therewith.
214 The trial judge found that Whitlam Turnbull was engaged to act for the government to settle all outstanding matters concerning the appellant and Anderson, including its $50 million deposit in Rothwells, disputes about the Westralia Square transaction and another dispute about the sale of land in Joondalup [258], [389]. The appellant had a dispute with the Joondalup Development Authority in relation to a claim of right to acquire a shopping centre site [255].
215 The trial judge also found that an oral release agreement was entered into by Anderson on behalf of the appellant and himself and Wran on behalf of the State in a telephone conversation between the two on 21 December 1988 [270]. The agreement was that those involved for the State and the State itself were to be released from all liability in relation to the appellant's deposit in Rothwells and the agreement was to be reflected in a deed to be executed by Anderson and the appellant and until that was done the Westralia Square transaction would not be completed [391].
216 The trial judge held that the oral release agreement was of the first kind described by the High Court in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360, being one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect [398].
217 As appears from its written submissions, the appellant challenges the finding of an oral release agreement on the following grounds:
(1) the terms of the oral release agreement go beyond the State's pleadings;
(2) the trial judge erred in stating that the appellant's case was that an agreement was formed in the Anderson/Wran telephone conversation on 21 December 1988;
(3) Wran had no authority to enter into the oral release agreement on behalf of the State;
(4) the evidence did not prove the oral release agreement;
(5) any agreement was conditional on it being in writing (that is, it was of the third kind described by the High Court in Masters v Cameron);
(6) there was no intention to create legal relations;
(7) there was no consideration for the oral release agreement; and
218 There is no merit in the pleading point. The State pleaded an express oral agreement to the effect that the State would not be sued and would be released (defence, pars 49A - 49H, 49L). There is no challenge to the trial judge's finding that those involved in making the oral agreement used the phrase 'the Government' to mean 'the State' [409]. The State also pleaded an 'implied/inferred term' that the release included the State (defence, par 49I). Even if there was a disparity between the finding and the pleadings, the existence and terms of the oral release agreement were fully litigated at trial. In those circumstances it is of no consequence that there was no formal amendment to the pleading: Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491, 497.
219 The second ground is also misconceived. The trial judge did not say that both parties alleged that the agreement was formed in the Anderson/Wran conversation on 21 December 1988. He simply observed that both sides asserted that an oral release agreement was made [389]. That observation is correct. The pleaded case of both parties was that the Deed of Release was entered into and delivered to the State pursuant to an agreement between the appellant, Anderson and the State (defence, pars 49A - 49H, 49J, 49K; reply, pars 17, 19, 21).
220 As to Wran's authority, the trial judge found that Wran was authorised by Dowding to enter into the oral release agreement on behalf of the State [270], [389]. Dowding's unchallenged evidence-in-chief (exhibit K [135] - [153]) is as follows. After the appointment of provisional liquidators to Rothwells, Dowding initiated the appointment of Whitlam Turnbull to negotiate a number of things for both the State and the SGIC. Dowding was aware that the appellant had threatened to sue him and the State in relation to the $50 million deposit in Rothwells and informed, inter alia, Wran and Turnbull. In the course of the engagement Dowding endorsed the idea of Whitlam Turnbull obtaining a release from Anderson and the appellant. He left the government's dealings with Anderson to Whitlam Turnbull. The trial judge accepted that although Anderson attempted to approach Dowding about the Rothwells deposit during December 1988, Dowding referred him to Turnbull [254]. Turnbull's instructions from the government and their implementation are evidenced in the handwritten notes made by the appellant's solicitors, Gianotti and Bolto on 22 December 1988 referred to below. It was open to the trial judge to conclude that Wran acted with the authority of the State.
221 The next issue is whether the evidence is capable of supporting the trial judge's finding of an oral release agreement. Anderson's evidence-in-chief was that he confronted Dowding in early December about the repayment of the $50 million that the appellant had deposited with Rothwells. Anderson said he repeated his position to Dowding that unless repayment arrangements were put in place he would sue Dowding and the State.
222 Further, in early December Anderson knew that Turnbull and Wran were acting for the government (ts 871 - 872). By that stage Turnbull was in the process of renegotiating the purchase price of Westralia Square.
223 Anderson's evidence-in-chief of his telephone conversation with Wran is in the following terms (exhibit A [168]):
On or about 21 December 1988 after my last meeting with Dowding, Neville Wran telephoned me. Neville Wran was then ex-Premier of New South Wales and a prominent figure in the Labor Party. He told me that he had been appointed as political advisor to Dowding to make sure that Dowding remained clear of any political or financial taints because the Labor Party was relying on his image to win the next election. We had a conversation the substance of which was:
'Wran: "Warren, I understand you threatened to sue Peter Dowding. We can't have you suing him or anyone in government connected with Dowding over the Rothwells deal because we've got an election in March and we don't want any mud flying around".
Me: "I need the $50 million loan repaid so I can pay Packer. Dowding promised he would see that I got it back".
Wran: "Well, if you sue Peter Dowding and his men and it affects the election, you will never get your money".
Me: "Okay, I won't sue Peter and the other people close to Dowding involved, but I'm not letting the State off the hook".
Wran: "That's up to you as to your rights against the State, but I'm looking after Dowding and I won't accept your word over the telephone. We want it in writing. We'll get a document drawn up. Further, unless you sign the release then the purchase of Westralia Square won't go ahead".'
224 After he spoke to Wran, Anderson said he telephoned Dowding (exhibit A [171] - [173]):
I told Dowding I wanted an assurance from him that if I signed a deed releasing him, the State would in fact honour its obligation to me. I said to Dowding words to the effect that I would not sign the deed of release without some assurance from him that I would be repaid. Dowding said words to the effect 'don't worry about the $50 million, I will make sure you get it'. I said to Dowding words to the effect that I would sign the deed and not date it, and I would only hand it over on condition that Dowding put forward some proposal in the new year for repayment of my $50 million. I said that when an acceptable proposal was put forward, I would date the deed, hand it over and it would then be effective. Dowding said words to the effect 'okay, that is agreed'.
225 Anderson went with his solicitors Gianotti and Bolto to Robinson Cox's office on 23 December 1988 where he signed the Deed of Release which he did not date. He said he told Gianotti to do his best to avoid handing over the Deed of Release unless an acceptable proposal for repayment of the Rothwells loan was received. Gianotti had no recollection of receiving these instructions which are in any event inconsistent with Anderson's evidence of his discussion with Wran. Notwithstanding his instructions to Gianotti, Anderson said he realised Gianotti would probably have to hand over the executed Deed of Release otherwise the sale of Westralia Square would not go ahead.
226 Anderson's evidence of the content of his telephone conversation with Wran materially altered in cross-examination:
Shortly after that you had a conversation with Mr Neville Wran, didn't you?---21 December Mr Wran telephoned me.
What did he say?---He said that he had been appointed political advisor for Dowding and it was his job to guide him through to the next election and keep him as clean as he could and that it was his understanding that I had threatened to sue Peter Dowding and the Government and he said we couldn't have that (ts 872).
227 This evidence greatly influenced the trial judge. He said:
Anderson immediately sought to retract the reference to the threat to sue the Government and change his answer to have Wran say that he had heard that Anderson had threatened to sue Dowding. But the first answer he gave was unsolicited by direct questioning and I think it was true [271].
228 Anderson agreed that Wran used words to the effect that he did not want any mud flying around because an election was coming soon (ts 873 - 874). Any claim against the State could only be based on the conduct of its ministers, servants or agents. Anderson was also cross-examined about the result of his conversation with Wran:
The upshot of the conversation with Wran was that a document would be produced and signed?---That's correct.
So you knew a document was going to be produced by lawyers and put before you for signature?---Yes (ts 876).
229 Wran had no recollection of his discussion with Anderson. However he said he would not have said words to the effect that he was only looking after Dowding not the State.
230 Dowding denied having any conversation with Anderson in which he said words to the effect that he would see to, or organise, the repayment of money owed by Rothwells. Indeed, he said he was absolutely certain he said no such thing. He knew the Westralia Square transaction was conditional on the provision of a release. He knew Anderson was under pressure to complete that deal and had no bargaining position. It was never suggested to him by Anderson or anyone else that the release not include the State. Such a proposition he said, would have been absolutely unacceptable and so startling he would have remembered it.
231 Solicitors Gianotti and Bolto were acting for the appellant and Anderson. At 4.35 pm on 21 December 1988 Gianotti and Hagar (a solicitor at Robinson Cox acting for the SGIC) met to discuss a 'proposal' document dated 21 December 1988 prepared by Hagar in relation to Westralia Square and Central Park. Gianotti noted on that document that he had a telephone conversation with Anderson during which he was given Wran's telephone number. Initially in cross-examination Gianotti said Anderson told him that he had a call from Wran who had asked him not to pursue Dowding and that he (Anderson) had agreed to release Dowding (ts 1242). Later in cross-examination Gianotti accepted that he had no independent recollection (or file note) of what Anderson had said (ts 1253).
232 Some time later that evening Gianotti and Bolto had a telephone conversation with Wran. Both Gianotti and Bolto made file notes. Gianotti records Wran's advice that the government was insisting on a release in relation to Rothwells and Joondalup. The note records three outstanding issues being first the heads of agreement, second David Jones (the Central Park proposal) and third is noted as 'Release/Joondalup'. Gianotti understood from Wran that in order for the property transactions to proceed the releases had to be obtained (ts 1244). The note records Wran's advice that Turnbull would ring at 7.00 am the following morning.
233 Bolto recalled being present during a telephone conversation on speaker phone between Wran and Gianotti. He made a file note, the first item of which is 'Release: Rothwells + Joondalup'. He could not recall any detail of the conversation.
234 The next morning Hagar, Gianotti, Bolto and Tucker (SGIC property consultant) met at the offices of Robinson Cox to receive a telephone call from Turnbull who Gianotti knew to be acting for the government (ts 1246).
235 Gianotti's file note identifies three issues for discussion, one being the releases for Joondalup and Rothwells. Under the heading 'Joondalup' is a reference to matters relating to both Joondalup and Rothwells. The note is in the following terms:
Joondalup
- deed of release reqd [required]. Wran spoke to WPA [Anderson] this morning & agreed to withdraw.
Acknowledge that TD [the appellant] has not made (i) deposits due to representations from SGIC etc & (ii) release Govt from any liab [liability] and loss sustained therefrom.
236 According to Gianotti, Turnbull was dictating or telling those in Perth what to do and he was speaking for the government. Gianotti accepted that Turnbull was dictating a release of the government from any liability for loss sustained by the appellant from the deposit in Rothwells (ts 1251). Gianotti did not say to Turnbull that what he had dictated did not accord with his instructions (ts 1251 - 1252).
237 Gianotti was with Anderson when he signed the Deed of Release on 23 December 1990. He had no recollection of any discussion with Anderson concerning its legal effect or whether it released the State (ts 1260, 1262). Gianotti did not recall Anderson instructing him that the execution of the Deed of Release was conditional upon Dowding doing something failing which it should not be handed over (ts 1262).
238 Bolto was also present at the morning telephone conference on 22 December 1988 with Turnbull and made a file note. He agreed that the sense of the discussion was that Turnbull was not putting the release to the meeting in order to seek, through Bolto and Gianotti, Anderson's consent to the release but was putting a fait accompli (ts 1355). That is, it was not a matter on which they had to get instructions from Anderson (ts 1355). Bolto confirmed his file note on Rothwells reads:
Rothwells: Tipperary Developments acknowledge that deposits made with Rothwells not in reliance upon any representation/warranty of Govt SGIC any other instrumentality - on his own judgment.
TD releases Govt/SGIC etc from any liability etc in respect of deposits made with Rothwells (ts 1357 - 1358).
239 The release was drafted by Hagar and Wiese, solicitors at Robinson Cox, and settled by Turnbull. No amendments were sought by the appellant and Anderson (the Anderson parties). Bolto was present when Anderson signed the Deed of Release. He did not recall having any discussion with Anderson about the terms of the Deed of Release.
240 The trial judge accepted the evidence of Wran and Dowding. He also accepted aspects of Anderson's evidence. In particular, he accepted that on 21 December 1988 Wran and Anderson reached an oral agreement in relation to the provision of a release by the appellant and Anderson. Those aspects of Anderson's evidence are corroborated by the file notes and oral evidence of Gianotti and Bolto. The remaining question is whether the oral release agreement excluded or included the State.
241 The weight of the evidence supports the trial judge's finding that the oral release agreement included the State. First, Anderson knew that Wran and Turnbull were acting for the State. Secondly, Anderson had been threatening to sue Dowding and the State. Thirdly, the trial judge accepted Anderson's evidence in cross-examination that Wran had referred to Anderson's threat to sue Dowding and the government and said 'we couldn't have that'. Fourthly, Anderson's evidence that he required and Wran agreed that the State be excluded from the release is so implausible as to be highly improbable. The same is true of Anderson's evidence relating to his subsequent conversation with Dowding and his instructions to Gianotti in relation to delivery of the signed release. Fifthly, if there was no agreement or the agreement excluded the State, it is to be expected that Gianotti and Bolto would have played an active role in advising (or seeking to advise) Anderson and negotiating with the State's representative. They did not. The finding made by the trial judge is open and in accordance with the weight of the evidence.
242 There is no merit in the appellant's claim that, based on items 7 and 8 of Hagar's proposal document dated 21 December 1988, the intention on that date was only to release government instrumentalities. The proposal document related solely to Westralia Square and Central Park. The heads of agreement (exhibit 472) relating to Westralia Square and Central Park contains releases of obligations under prior agreements relating to Central Park and Westralia Square.
243 Moreover, the passive role played by the solicitors for the appellant and Anderson is inconsistent with an intention not to make a concluded bargain at all unless and until they executed a formal contract. The Masters v Cameron point fails. In any event, the parties did not execute a formal contract or indeed any contract. The appellant and Anderson executed a deed poll.
244 Finally, the appellant's claims that there was no intention to create legal relations and no consideration for the oral release agreement which in any event was void for uncertainty were in substance single line assertions in its written submissions. They can be disposed of in the same way. They are without merit.
245 It is necessary to refer to the Deed of Release in its entirety.
DEED OF RELEASE
BY:
TIPPERARY DEVELOPMENTS PTY. LTD. of 12th Floor, Cullwulla Chambers, 67 Castlereagh Street, Sydney, New South Wales ('TD')
AND
WARREN PERRY ANDERSON of 42 Billyard Avenue, Elizabeth Bay, New South Wales ('WPA')
TD and WPA hereby declare:
DATED THE 30TH DAY OF December 1988
THE COMMON SEAL of )
TIPPERARY DEVELOPMENTS )
PTY. LTD. ) [Common Seal Affixed]
was hereunto affixed by )
authority of the Directors )
in the presence of: )
Director: Sgd W P Anderson
Secretary: Sgd U B Gianotti
SIGNED by the said )
WARREN PERRY ANDERSON ) Sgd W P Anderson
in the presence of: )
246 In its cross-appeal the State relies on three grounds (all of which overlap) for its claim that the appellant is barred from bringing the action the subject of the appeal.
247 In the analysis that follows I accept that the State (or more correctly, the Crown in right of the State) is a legal entity, separate and distinct from the ministers and other persons nominated in cl 1 and cl 2 and is not named in the covenants. However, the Crown (and its equivalents, the 'State' or 'Government') is the name for the executive branch of government and executive power is actually exercised by ministers (individually or collectively), departmental officers and other duly authorised agents: Hogg P and Monahan P, Liability of the Crown (3rd ed, 2000) 1.4(a). Thus the State, like a corporation, can only act through servants, agents or officers.
248 The State contends it can enforce cl 1 and cl 2 of the Deed of Release even if, as a matter of construction, it is not within the persons nominated in cl 3 and cl 5. It can do so, it says, because the Deed of Release was delivered to the State pursuant to an agreement for consideration between the State, the appellant and Anderson and it matters not whether the agreement was that found by the trial judge or that alleged by the appellant. This plank of the State's case was not considered by the trial judge.
249 The steps in the State's submission are as follows. First, the State has standing to sue to enforce cl 1 and cl 2 because the Deed of Release was delivered to it pursuant to an agreement for consideration between the State, the appellant and Anderson. Secondly, the expressions 'representations, inducements, solicitations, or requests of any kind' are wide enough to include a contractual promise. Thirdly, cl 1 and cl 2 are intended to, and do, effect a release of all causes of action which depend upon establishing any of the facts identified in cl 1 and cl 2. Fourthly, and in the alternative, cl 1 and cl 2 are statements of fact giving rise to estoppel by deed. Finally, as all the causes of action against the State depend on one or more of the material facts listed in cl 1 and cl 2, the State has a complete defence to the action.
250 Before addressing the parties' contentions it is necessary to step back and examine the legal principles relating to deeds. At common law, a deed is either a deed poll or a deed inter partes. A deed poll is a deed which is made by and expresses the intention of one party or is made by two or more persons expressing a common intention. A deed inter partes is made by two or more persons as parties and evidences an agreement between the parties: Re A & K Holdings Pty Ltd [1964] VicRp 36; [1964] VR 257, 261 (Sholl J); Halsbury's Laws of Australia vol 10 [140-10]. The parties accept that the Deed of Release is a deed poll.
251 In order to be a deed at common law, an instrument had to comply with a number of formalities including that it be sealed and delivered. The common law has been modified by statute: Property Law Act 1969 (WA) (PLA) s 9 and s 10. Section 9(3) of the PLA provides that '[f]ormal delivery and indenting are not necessary in any case'. However, it has been held that s 9(3) does not dispense with the common law requirement of delivery: Monarch Petroleum NL v Citco Australia Petroleum Ltd (1986) WAR 310, 353 - 355; Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263; (2003) 28 WAR 124 [21] - [25]. It is enough to meet the requirement of delivery that there be acts or words sufficient to show that the document is intended by the party to be executed as his or her deed, presently binding on him or her: Scook [25].
252 At common law, only a party to a deed inter partes could enforce the covenants in a deed. That has now been altered by statute: PLA s 11(1). On the other hand, a deed poll could always be sued upon by any person with whom the covenant therein was made: Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166 [141] citing Norton RF, A Treatise on Deeds, (2nd ed, 1928) 28 - 29. The term 'covenant' means a promise or grant contained in a deed.
253 A person for whose benefit a covenant in a deed poll is expressed to be made, if named or sufficiently identified in it, may sue on it: A & K Holdings; Sunderland Marine Insurance Co v Kearney [1851] EngR 411; (1851) 16 QB 925, 938. In A & K Holdings a company (CB) in a group was in financial difficulties and 10 other companies in the same group, one of which was A & K Holdings, executed a deed of guarantee which was expressed to be in favour of unsecured creditors of CB. No unsecured creditors of CB were parties to or named in the deed. Sholl J held that the guarantee was enforceable by a creditor of CB because the deed took effect as 'an immediately operative deed poll - a unilateral document made by each of the 10 guarantor companies - but not intended to be executed by any other party' (260).
254 A person can be sufficiently identified by implication. In Sunderland Marine Insurance two plaintiffs (N & K) claimed under an insurance policy in the form of a deed poll. The cover was for the carriage of goods by sea. In the recitals K represented that he was interested in, or authorised as owner, agent or otherwise to make the assurance and covenanted to pay the premium. N had an insurable interest in the goods but was not expressly identified in the deed poll by name or otherwise. It was held that N could enforce the deed poll. The court construed the insurance covenant as applying to all persons interested in the goods the subject of the policy.
255 There is a distinction between recitals and the operative part of a deed (the covenants): Norton RF, A Treatise on Deeds (2nd ed, 1928) ch XI. In a deed inter partes, a recital (if a representation of fact) but not a covenant can give rise to an estoppel by deed: Norton, 211. It has not been decided whether recitals in a deed poll estop its maker but it has been suggested that an estoppel should be available: Cropper v Smith (1884) 26 Ch D 700, 713; Handley KR, Estoppel by Conduct and Election (2006) 113.
256 I return now to the State's submissions. Its first proposition is that it can enforce the Deed of Release because it was delivered to the State pursuant to an agreement for consideration made between the State and the Anderson parties.
257 The parties accept that the oral release agreement found by the trial judge was supported by consideration. It is unnecessary to determine whether the consideration moving from the State was the promise not to prevent the purchase of Westralia Square or the performance of that promise. Either way the consideration was provided. The consideration moving from the appellant was the promise to release the State and others and to provide a formal (written) release.
258 It was admitted in the pleadings that the Anderson parties delivered the Deed of Release to the solicitors for the government, Robinson Cox (reply par 21; rejoinder par 12).
259 The appellant's response is that the State cannot enforce the Deed of Release because, not being a party to it, it is not named or sufficiently identified in the covenants. That test is applicable in situations where the deed poll is a stand-alone instrument. The issue is whether it applies if the deed poll is intended to reflect, and is delivered pursuant to, an enforceable agreement. I see no reason in principle why a party who can specifically enforce a contractual obligation to provide a deed poll on agreed terms and conditions (Stocker v Wedderburn [1857] EngR 625; (1857) 3 K & J 393; 69 ER 1162; CH Giles & Co Ltd v Morris [1972] 1 WLR 307) cannot also enforce the covenants in the deed poll even if they solely benefit a third party. That is consistent with old authority: Otway v Braithwaite (1678) Finch 405; [1673] EngR 72; 23 ER 221; Butler v Powis (1845) 2 Collyer 156; 63 ER 679. That is, even if the appellant is correct and the Deed of Release is confined to the persons and institutions named in cl 1 and cl 2 (the nominated persons) the State could, for example, enforce the covenant to prevent the Anderson parties from suing Dowding in relation to a Rothwells-related claim. If, as I have concluded, the State has such an enforcement right at law, I would not construe cl 5 as intending to oust it or otherwise be an exclusive statement of enforcement rights.
260 However, this analysis demonstrates that the standing to enforce the covenants in the deed poll does not directly answer the question whether cl 1 and cl 2 are intended to directly benefit the enforcer (the State). Whether that is so depends upon the proper construction of the Deed of Release.
261 The aim of the construction exercise is to identify the objectively determined intention of the makers of the deed poll (the Anderson parties). However, where as here the deed poll is provided pursuant to a prior agreement I see no reason why the legal principles applicable to contractual construction do not apply by way of analogy. I accept that the Deed of Release should be construed with regard to the mutually known background facts which provide context and reveal its purpose: Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436; Toll v Alphapharm. The existence and terms of the oral release agreement are relevant surrounding circumstances. The State relied on the following additional mutually known facts:
(a) Rothwells had gone into provisional liquidation on 3 November 1988 without having repaid the $50 million to the appellant;
(b) by early December 1988 the SGIC and the GESB were negotiating the purchase of the Anderson/Packer interest in Westralia Square;
(c) Anderson had threatened to sue Dowding and the government in relation to the $50 million provided by the appellant to Rothwells;
(d) the deed was provided at the request of the government through Wran and Turnbull;
(e) the object of the deed was to prevent the threatened claims from being brought (to stop mud flying);
(f) by providing the deed, the appellant and Anderson enabled associated companies to benefit from a transaction with two government instrumentalities which the government would not otherwise have allowed to proceed; and
(g) the deed was made and delivered to the respondent pursuant to an agreement between the Anderson parties and the State.
262 I would add it was mutually known that Anderson was threatening to sue Dowding and the State on the basis that Dowding had made enforceable promises. That is clearly the language of contract. A contract made on behalf of the State (Crown) by its officers, servants or agents in the course of their authority are State contracts for which the officer or servant is not liable. Thus the threatened contractual claim could only be brought against the State.
263 That brings me to the State's propositions 2 and 3. I do not understand proposition 2 to be contested. I am satisfied that the expressions 'representations, inducements, solicitations or requests of any kind' are wide enough to include contractual promises (offers).
264 The first issue in connection with proposition 3 is whether cl 1 and cl 2 are covenants or recitals. The appellant claims that they are recitals. Ordinarily, recitals are introductory statements that are physically separated, and different in nature, from the operative provisions of a contract or deed. They are not terms (conditions or warranties) of a contract or covenants of a deed. In the most common form of release seen in this jurisdiction, recitals identify the nature and scope of the claims and matters in dispute that are intended to be the subject of the release. The Deed of Release is not in that form.
265 A recital is only evidence of what is recited and if it is a statement of fact it may be relied on as giving rise to estoppel by deed. Whether a provision is a recital or a covenant depends upon the intention of the maker of the deed poll. A provision which is in form a recital may operate as a covenant where it appears to have been the intention of the maker(s) that it so operate: Buckland v Buckland [1900] 2 Ch 534; Re Sugden's Trusts; Sugden v Walker [1917] 2 Ch 92.
266 In my view, cl 1 and cl 2 of the Deed of Release are covenants not recitals. They are not in form recitals. They follow the expression, and are part of what the Anderson parties 'hereby declare'. Ordinarily, the operative provisions follow, and are the subject of what is declared: Dawes v Tredwell (1881) LR 18; Ch D 354, 359 (Jessel MR). Moreover, cl 5 strongly suggests that all the preceding clauses are intended to be covenants, any one or more of which can be enforced by the nominated persons. For reasons discussed below, I am not persuaded that the sole purpose and effect of cl 1 and cl 2 is to identify, confine or modify the scope of the release in cl 3.
267 If, as I have concluded, cl 1 and cl 2 are covenants intended to have legal effect, the next issue is what legal effect. Reliance is placed on McDermott v Black [1940] HCA 4; (1940) 63 CLR 161, for the proposition that cl 1 and cl 2 constitute a release. In that case a purchaser was induced by fraudulent misrepresentations made by the vendor to enter into a contract of sale of shares. Prior to the date of completion, the purchaser by letter complained of the misrepresentations but in a later letter withdrew all allegations imputing anything improper to the vendor conditionally upon the vendor granting him an extension of time to complete the contract. The extension of time was granted, but the purchaser refused to complete on the extended date whereupon the vendor rescinded the contract. The purchaser then sued the vendor for damages for deceit, relying on the misrepresentations which he had withdrawn. The High Court held that the withdrawal of the allegations amounted to a release of any cause of action in respect of the misrepresentations at law and in equity and constituted a complete defence to the action.
268 Whether or not it was a release was a question of construction of the contract. Starke J said:
A business arrangement was proposed, and an interpretation should be given to it that best effects the intention of the parties and makes it efficacious. A withdrawal of allegations of false representations on the part of the appellant would be useless from a business point of view if it had only an evidentiary value or was but an affirmation of the agreement, still leaving the appellant open to an action for damages for deceit. Consequently, the respondent's proposal that he would withdraw all allegations imputing anything improper to the appellant means, I think, that he would not bring any action against the appellant in respect of those allegations if an extension of time were granted to him ... And this proposal was accepted by the appellant (175).
269 The promise not to sue effected a release at law (accord and satisfaction) and in equity.
270 Prima facie, cl 1 and cl 2 are promises not to make or revive in legal proceedings allegations that are inconsistent with the formal declarations and acknowledgements in those clauses. That is, for the reasons explained by the High Court in McDermott v Black, prima facie they constitute a release. That raises the question why have clauses that are intended to have effect as a release when there is an express release in cl 3 of the deed. There are two possible answers. First, the releases in cl 1 and cl 2 are confined to causes of action based on material facts corresponding with the acknowledgements in those clauses. The release in cl 3 is not expressly so confined. Secondly, the acknowledgements in cl 1 and cl 2 do not expressly identify or limit the persons to be released.
271 It is unnecessary to determine for the purposes of these proceedings whether the scope of the release in cl 3 should be read down to be confined to causes of action based on the material facts identified in cl 1 and cl 2. I am satisfied that the second aspect is significant because it leaves open the possibility of an intention that the persons released by cl 1 and cl 2 are not confined to the nominated persons.
272 As the State can, notwithstanding cl 5, enforce all the covenants even if it is not a defendant in actual or proposed proceedings, it must a fortiori be intended that it be entitled to enforce the covenants in cl 1 and cl 2 if it itself is a defendant. That conclusion is supported by the fact that the persons nominated in cl 1 and cl 2 are the entire range of people who could potentially expose the State to liability to the Anderson parties relating to the $50 million deposit in Rothwells. Further, the appellant's construction leads to the very odd consequence that the Deed of Release would exclude the very liability (for breach of contract) the subject of the threats that led to the oral release agreement and the Deed of Release. These matters in combination with all the surrounding circumstances compel the inference that on the proper construction of the Deed of Release the covenants in cl 1 and cl 2 are for the benefit of, and can be enforced by, the State. I would uphold cross-appeal grounds 1(a) and (b).
273 This is an alternative construction argument. It is said that an intention to release the State is manifest in the fact that (1) all ministers who comprise the executive government and whose alleged conduct might otherwise have founded claims against that government, are expressly released; and (2) 'the Government of Western Australia' is expressly referred to in cl 1 and cl 2 because it is the legal entity of which the others mentioned and named were representatives or manifestations. The essence of point (1) is the premise that the ministers together constitute the State. This led to an application to join all ministers as parties so they could collectively enforce the Deed of Release. The premise and the application is misconceived. The State is a separate legal entity. The ministry is no more the State than a board of company directors is the company. These matters in isolation do not justify the construction for which the State contends. I would dismiss ground 1(c).
Rectification (ground of appeal 5(b) and (c))
274 The need for rectification only arises when the court can discern from the document itself and the surrounding circumstances that something has gone wrong which cannot be cured by construction: Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896. I will deal with this ground on the assumption that I am wrong on the construction issue.
In this case, the intention of the parties who executed the deed of release was the intention of Mr Anderson, and I have found that he, in common with those with whom he dealt who acted for the State, intended there to be a release of the State from all liability arising out of the deposit into Rothwells. He did not, in my view, make the reservation which he professes, that he was prepared to release the individuals but reserved his rights to sue the State. Mr Anderson accepted, I think, that those acting for the State sought a complete release of all liability potentially borne by the State or any person or entity acting for the State. All involved mistakenly thought that the deed achieved that outcome. The deed may be rectified accordingly [418].
276 The trial judge ordered that the Deed of Release be rectified by amending cl 3 and cl 5 to read:
277 The appellant contends the trial judge erred in finding that the Deed of Release was entered into when the appellant and the State were acting under a common mistake.
278 The equitable doctrine of rectification relates to documents. It is most commonly sought in relation to written contracts. However, rectification can be sought of any document, including a deed poll: Wright v Goff [1856] EngR 559; (1856) 22 Beav 207; 52 ER 1087; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329.
279 Rectification is available where all parties to a document are under a common mistake at the time of its execution: Maralinga v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336.
280 Where the document is a deed poll, it is only necessary to prove a mistake by the person or persons who executed it: Wright v Goff (1090). However, where the deed poll is executed pursuant to a prior oral agreement, the starting point is the objectively determined common intention of the contracting parties.
281 In order to obtain an order for rectification, the objectively determined common intention must persist until the time of the execution of the relevant document and there must be a disconformity between the common continuing intention and the terms of the document. Evidence of a common continuing intention and disconformity compels an inference of mistake.
282 There is a divergence of authority as to whether the disconformity between the common continuing intention and the document must result from a mistake in recording the common intention or whether it extends to a mistake about the meaning or effect of words deliberately chosen. If the grant of rectification depends upon the basis or reason for the mistaken disconformity between the common continuing intention of the parties and the document, it follows the party seeking rectification would need to adduce evidence of the basis or reason for the mistaken disconformity. There is no such evidence in this case. In particular, there is no explanation provided by any person involved in the drafting or approval of the terms of Deed of Release (Turnbull, Hagar or Wiese) as to the cause of any mistake.
283 Intermediate appellate courts in Queensland (Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226) and New South Wales (Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd) have rejected the traditional view that rectification is not available where the parties are mistaken as to the meaning or effect of words deliberately chosen. The same position has been taken by single judges of this court: Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 387 - 388 (Kennedy J); Frontier Petroleum NL v Anzoil NL (Unreported, WASC, Library No 970286, 4 June 1997) (Anderson J); Mincode Pty Ltd v Isa Pty Ltd (1996) 17 WAR 245 (Steytler J). I am persuaded by Thomas J's explanation of Maralinga v Major Enterprises in Winks (236 - 237). The appellant did not contend that the decisions of the Queensland and New South Wales intermediate appellate courts were plainly wrong. I am not satisfied they are. Accordingly, I should not depart from those decisions: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89.
284 The appellant's case on rectification overlaps with its claim that there is no proper evidentiary basis for the finding of the oral release agreement. I have rejected that claim. Accordingly, the starting point is that it was the objectively determined common intention and agreement of the parties that those involved for the State and the State itself were to be released from all liability in relation to the appellant's deposits in Rothwells and the agreement was to be reflected in a Deed of Release to be executed by the Anderson parties. The oral release agreement was made on 21 December 1988. The Anderson parties signed the Deed of Release on 23 December 1988. If the oral release agreement was not varied or abandoned prior to executing the deed poll, the compelling inference is that the Anderson parties executed the Deed of Release pursuant to the oral release agreement.
285 The finding of an oral release agreement involved the rejection of Anderson's evidence that there was no agreement to release the State and that he signed the Deed of Release on that basis. The evidence as a whole does not support an inference that the oral release agreement was abandoned or varied. For the reasons previously given, the surrounding circumstances after the telephone conversation between Anderson and Wran on 21 December 1988 support the finding of the oral release agreement. I would dismiss ground of appeal 5(b) and (c).
Specific performance (cross-appeal ground 6)
286 The State claims that if the trial judge erred in ordering rectification of the Deed of Release, specific performance of the oral release agreement should be ordered in accordance with the trial judge's findings. I infer the order would require the Anderson parties to vary the Deed of Release to achieve the same textual amendments as the rectification order.
287 The trial judge would have ordered specific performance if he had not upheld the claim for rectification [394] - [401]. As the order for rectification has survived the appellant's challenge, it is unnecessary to determine this ground. However, my preliminary view is that rectification is the only available equitable remedy, where as here, an instrument in writing is purportedly made pursuant to a prior oral agreement: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [32] - [37]. If the requirements for rectification cannot be satisfied, there seems to be no proper basis to award specific performance.
288 The appellant contended that, it having served on the State a notice to admit facts, the trial judge erred in holding that the appellant should pay the costs associated with proof of the financial position of Rothwells in January 1988 and March 1988. The State did not respond to the notice to admit.
289 Order 66 r 3(2) of the Rules of the Supreme Court 1971 (WA) provides:
If a party on whom a notice to admit facts is served under Order 30 Rule 2, refuses or neglects to admit the facts within 7 days after the service on him of the notice or such longer time as may be allowed by the Court, the costs of proving the facts shall be paid by him, unless the Court otherwise orders.
290 As the decision under challenge involves the exercise of a discretion, the appellant has to demonstrate that the trial judge made a material error of fact or law: House v The King [1936] HCA 40; (1936) 55 CLR 499, 504 - 505.
291 The appellant contends the trial judge erred in principle (a) in construing O 66 r 3(2) as justifying an order for costs against a successful party only if the successful party acted improperly or unreasonably; and (b) in ordering the appellant to pay the costs of proof of Rothwells' financial position because no findings had been made on that subject.
292 Generally, the costs of and incidental to all proceedings are in the discretion of the court: O 66 r 1(1). However, rules are provided that guide the exercise of that discretion. For example, the court will generally order the successful party to an action or matter to recover his or her costs: O 66 r 1(1). That general rule is qualified by O 66 r 3(2). It creates a special rule if a notice to admit facts is served and not responded to, or if the fact is disputed. The prima facie position is that the party who fails to respond or disputes the fact the subject of the notice must pay the costs of proving those facts. The purpose of the rule is to facilitate the proper administration of justice by narrowing the issues in dispute between the parties with the desirable consequence of shortening trials and saving costs: Townsend v Collova [2005] WASC 4 [20]; Meadow Gem Pty Ltd v ANZ Executors & Trustees (Unreported, VSC, 11 June 1996) 4 - 5 (Byrne J). The court has a discretion to depart from the prima facie position. In the absence of a court order to the contrary, the prima facie position prevails.
293 The trial judge approached the matter by considering whether there were proper grounds to depart from the usual rule that the successful party to an action or matter recover his or her costs. He asked himself the question whether the successful party (the State) had acted improperly or unreasonably. That is the wrong question. The correct question is whether there is any reason to displace the prima facie position in O 66 r 3(2). That error would enliven this court's discretion to intervene if the consequence was a different outcome.
294 The State raises a further issue of construction. It contends the prima facie position only applies if the trial court makes a finding that the facts the party seeks to have admitted were proven. That is, a finding that the facts were proven is an essential condition giving rise to the prima facie entitlement to costs and is not merely relevant to the exercise of the discretion to depart from the prima facie position. Surprisingly, this question has not been expressly determined in this jurisdiction. Our rule is based on the former O 62 r 6(7) of the English rules and has equivalents in New South Wales (r 42.8(2) of the Uniform Civil Procedure Rules 2005 (NSW)), Victoria (r 63.18 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic)), South Australia (r 263(2)(e) of the Supreme Court Civil Rules 2006 (SA)) and the Federal Court (O 62 r 24 of the Federal Court Rules 1979 (Cth) (Federal Court Rules)).
295 The issue was raised but not squarely determined by the New South Wales Court of Appeal in Prestige Residential Marketing Pty Ltd v Depune Pty Ltd [No 2] [2008] NSWCA 341. The New South Wales rule relating to authenticity of documents is distinguishable. Proof of authenticity of a document is necessary to, and proven by, its admission into evidence.
296 A number of cases assume O 66 r 3(2) and its equivalents only apply if the court makes a positive finding of fact (expressly or by implication) the subject of the notice to admit: NMFM Property Pty Ltd v Citibank Ltd [No 11] [2001] FCA 480; (2001) 187 ALR 654; Townsend v Collova [18].
297 Middleton J in Hansen Beverage Co v Bickfords (Australia) Pty Ltd [No 2] [2008] FCA 601 took a contrary position. Order 62 r 24 of the Federal Court Rules materially provides that where a party to any proceedings serves a notice disputing a fact and afterwards that fact is proved in the proceedings he shall, unless the court otherwise orders, pay the costs of proof. Middleton J concluded, without discussion, that a fact was proved in proceedings if evidence of the fact was admitted into evidence [20].
298 The expression 'proving the facts' in O 66 r 3(2) is ambiguous. It could mean establish the truth by evidence that has been admitted or alternatively, establish the truth to the satisfaction of the court reflected in a finding. Having regard to the purpose of the rule and the consequences of the different meanings, I favour the latter construction contended for by the State. If the prima facie entitlement to costs arises on the admission of relevant evidence at trial, a party who by notice sought the admission of a fact found against him would be entitled to his costs in the absence of a court order to the contrary. The proper administration of justice is not furthered by imposing incentives on a party to make admissions regardless of their proven 'truth'. As the trial judge failed to make a finding as to Rothwells' financial position on 31 January 1988 and 16 March 1988, O 66 r 3(2) does not apply.
299 Further, and in any event, the trial judge was correct to depart from the prima facie position. The appellant's notice to admit is dated 19 August 1999 and comprises 79 questions, not all of which relate to Rothwells' financial position on the relevant dates. The appellant does not descend to detailing the facts the subject of the notice to admit for which it seeks its costs. I will proceed on the basis that it must be referring to questions relating to Rothwells' bad and doubtful debts, net asset position and solvency as at 31 January 1988 and 16 March 1988. Many of the questions are vague or unfocused or of limited, if any, assistance in resolving the issues in contention. Questions of that type do not advance the purpose of O 66 r 3(2). The following are examples:
55.1 the accounts of Rothwells for the six month period to 31 January 1988 failed to give a true and fair view of Rothwells' financial position;
...
56.1 the accounts of Rothwells for the six month period to 31 January 1988 failed to give a true and fair view of Rothwells' financial position.
300 The appellant also asked the State to admit that Rothwells was insolvent on 31 January 1988, 16 March 1988 and 18 March 1988. A yes or no answer to those questions would be of little practical benefit. Further, much of the factual foundation for the conclusion of insolvency was relevant to an assessment of what Lloyd knew or ought to have known about the financial soundness of Rothwells at the relevant time. As it was, Smith's evidence was inadmissible on that issue.
301 In summary, the facts the subject of the notice relating to Rothwells' financial position are not such as to further the purpose of O 66 r 3(2). It was proper and reasonable for the State to decline to admit the facts. As I agree with the trial judge on the outcome, this ground of appeal should be dismissed.
302 In summary, my primary conclusions are as follows:
303 Accordingly, I would uphold ground of appeal 2(b) and dismiss the balance of the grounds of appeal. As to the respondent's notice of contention, I would uphold ground 1 and dismiss the balance. As to the cross-appeal, I would uphold grounds 1(a) and (b), 3(a) and (c), 4(a) and (d) and 5 and dismiss the balance.
304 The effect of the aforegoing is that the appellant's claim against the State must fail. Accordingly, I would dismiss the appeal. I would hear from the parties as to the orders necessary to give effect to these reasons.
(1996) 188 CLR 418
(1988) 18 NSWLR 540
(1993) 177 CLR 485
(1995) 41 NSWLR 329
(1990) 170 CLR 394
(2002) 209 CLR 95
(1936) 55 CLR 499
(2000) 203 CLR 503
(2000) 205 CLR 166
(1973) 128 CLR 336
(1954) 91 CLR 353
(1987) 10 NSWLR 543
(1934) 52 CLR 455
(2004) 218 CLR 451
(1999) 198 CLR 180
(1966) 115 CLR 666
(2003) 28 WAR 124
(2001) 53 NSWLR 213
(1988) 166 CLR 245
(2001) 206 CLR 1
(2004) 219 CLR 165
(1988) 164 CLR 387
(1988) 180 CLR 491
(1991) 174 CLR 1
(1985) 2 NSWLR 309
(2004) 218 CLR 471
(2007) 230 CLR 89
(1996) 17 WAR 159
(1995) 183 CLR 563
(1983) 152 CLR 406
(2004) 208 ALR 385
(1940) 63 CLR 161
(1996) 17 WAR 245
(1968) 122 CLR 556
(2001) 187 ALR 654
(1990) 170 CLR 146
(1987) 162 CLR 221
(2002) 76 ALJR 436