WILLBROS INT. P/L v. EMECO INT. P/L [2000] NSWSC 156

JUDGMENT 1 HIS HONOUR: These proceedings relate to entitlement to possession and use of 43 pieces of machinery now under the actual control of the plaintiff and used in carrying out pipe laying work in the construction of the Eastern Gas Pipeline Project, from Longford, Victoria to Sydney, New South Wales. The plaintiff with two joint venturers entered into an agreement on 28 May 1999 under which the Joint Venture is to construct the pipeline for Duke Australia Operations Pty Ltd (Duke). Construction work began in or soon after August 1999 and the plaintiff and the Joint Venture are contractually committed to its completion by 1 July 2000. 2 Descriptions, monthly rentals and values of the equipment appear in the First Schedule to the Amended Statement of Claim. There are 26 pipe layers, also referred to as sidebooms, three pipe bend machines and 14 other items of equipment of somewhat less value; the sale prices attributed to the equipment in the schedule total $US6,218,660 and the monthly rental prices total $US222,400.00. Some items were located in Australia when dealings between the parties began, most were imported from the United States specifically for the purpose of the Eastern Gas Pipeline Project, and some were imported from Singapore for the same purpose. The plaintiff also uses other items of equipment of its own or from other sources, but the greater part of the pipe laying equipment which it uses was obtained from the defendant and is the subject of this litigation. Two items of equipment were delivered to the plaintiff on 16 July 1999; 19 items were delivered from 14-24 August, more on 6-10 September and the last three on 1 October, when work was well in hand. Work is taking place at several different locations along the pipeline route. 3 If it became necessary to replace the present assemblage of machinery it would not be possible for the plaintiff to do this from sources within Australia. The majority of the machinery would have to be sourced from the United States or elsewhere overseas and imported. Doing so would take considerable time; if the machines were available, it would take two to three months to import them into Australia and prepare them for work, and it would not be possible for the plaintiff to do this and still comply with the schedule of the work for Duke. The sidebooms are not standard items readily available from a manufacturer, and most of them have been adapted from other machines; and further adaptations are required for use within Australia. The entire suite of 43 machines is now continuously in use by the plaintiff on the Eastern Gas Pipeline Project and has been since 1 October 1999 at the latest. 4 These facts and circumstances give the 43 machines a unique character which makes them an appropriate subject for equitable relief, including specific performance of contractual obligations relating to their use. 5 The plaintiff claims a declaration that the plaintiff is entitled to possession and use of the equipment for the term of two years from 30 June 1999, an order for specific performance of the lease agreement, an injunction restraining the defendant from taking possession of the equipment and, as an alternative claim, a declaration that the defendant is estopped from denying that the plaintiff is entitled to possession of the machines. 6 The plaintiff is a company formed in Australia. It is a wholly owned subsidiary of Willbros International Inc, a Panamanian company which provides construction, engineering and other services to the Petroleum Industry. Willbros USA Inc, a Delaware company, is related to them. The ultimate parent of the group is Willbros Group Inc, a Panamanian company listed on the New York Stock Exchange. Mr J.M. Gall is a director of the plaintiff. He is usually located in Indonesia and is responsible for Willbros' affairs in a number of countries, but has spent considerable time in Australia during work on the pipeline. Mr J.D. Gaines, who works primarily from Broken Arrow, Oklahoma is the Equipment Manager of Willbros USA Inc and the President of International Pipeline Equipment Inc; he is not an officer of the plaintiff, but his responsibilities as Equipment Manager include assisting affiliate companies to obtain equipment needed to carry out their work on construction projects. 7 The defendant is a wholly-owned subsidiary of Darr Equipment Company Inc (Darr), a Texas company. Its business includes commercial leasing in Australia of plant and equipment, and it has a depot and workshop at Somersby, New South Wales. Mr Keith Sinfield is the manager of the pipeline division of the defendant, and his principal location is at Somersby. 8 Sabre International Inc (Sabre) is a company formed in Washington State. Its business is supply of heavy machinery, plant and equipment and its President is Mr James M. Solomon. 9 The 43 machines were leased by Sabre to the defendant by a Head Lease dated 30 July 1999 The Head Lease was entered into with the express intention, recorded in cl.1, that the defendant would lease the equipment on to the plaintiff for the Eastern Gas Pipeline Project. The defendant entered into the Head Lease with Sabre for no purpose other than the contemplated arrangements with the plaintiff. 10 The plaintiff's case is that a series of events and communications leading up to a meeting on 3 August 1999, at which Mr Gaines and Mr Solomon were present, show the formation on or by 3 August 1999 of a contract for the lease of the equipment for the term of two years, in accordance with terms in a form of Master Lease Agreement, and that a contract was thus formed notwithstanding that the document was not executed by either the plaintiff or the defendant. 11 Mr Gall managed negotiations which led to the Joint Venture Agreement on 29 April 1999, a proposal by the Joint Venture for the construction of the pipeline, and the Construction Agreement with Duke on 29 May 1999. In May 1999 Mr Gall sought Mr Gaines' assistance in obtaining equipment for use in the project; Mr Gaines solicited quotations from a number of possible suppliers in the United States and Canada, including Sabre, and decided to continue discussions with Sabre. Sabre's early communications spoke as if Sabre would be the principal in leasing out the equipment, and did not refer to Emeco or any other lessor; reference was made to Sabre supplying equipment and making it available, and to rental rates. During the early negotiations Mr Sinfield also communicated to Mr Gall about the availability of equipment, but did not refer to the terms on which it would be available. 12 The first phase of negotiation led to a Letter of Intent signed by Mr Gaines on behalf of Willbros USA Inc on 8 June 1999 and by Mr Solomon on behalf of Sabre International Inc on 9 June 1999; this records the intention of Willbros USA Inc to enter into an agreement for Sabre to supply the equipment. Although a number of contemplated arrangements were recorded, there was not a full specification of the equipment, only 41 machines were referred to, the rental rates were not established and neither the plaintiff nor the defendant was mentioned. Plainly the Letter of Intent was not a contract. The letter included a statement to the effect that Sabre would be responsible for customs duties, import duties and taxes. 13 Communication continued between Mr Gaines, on behalf of Willbros USA Inc, and Mr Solomon, on behalf of Sabre. On 12 June Mr Gaines asked for the final rental agreement documentation to be forwarded to him for legal and commercial review. There were a number of communications about technical matters. On or about 15 June Sabre sent Mr Gaines a draft lease agreement. In this draft Sabre was the lessor and the lessee was Willbros International Inc with an address in Tulsa, Oklohoma; it is uncertain whether this was intended to refer to the plaintiff. Clause 8 in this draft placed liability for all taxes on the lessee. A typed additional provision stated: "FOB Emeco's Yard New South Wales. Lessee is responsible for all inland freight charges". In communications apparently about this draft Mr Solomon stated that Emeco was Sabre's agent in Australia and that the machines were being imported into Australia on a permanent (duty paid) basis. In another communication on 30 June Mr Solomon said "The rental rate is unaffected by the import costs. Sabre will pay them and the rental rate is on a machine landed in Australia." 14 In the course of telephone conversations in June Mr Solomon told Mr Gaines that Sabre would arrange with Emeco with regard to making the equipment available and that Emeco in turn would lease the equipment to the plaintiff. In another conversation Mr Gaines told Mr Solomon that the form of draft lease Mr Solomon had supplied was not appropriate, and that Mr Gaines would prepare a draft. Mr Gaines sent a draft to Mr Solomon on or about 2 July. The draft showed the plaintiff as lessee and the defendant as lessor. This draft contained many detailed provisions for an equipment lease of 24 months subject to early termination and contemplated use of the equipment on the Eastern Gas Pipeline Project. Among other things it provided in cl.3: "Lessor shall be responsible for carrying out the transportation and importation of all Units from their point of origin into Australia and their delivery to Lessor's Yard and shall bear and pay the costs therefore. Any duties, taxes, fees or other charges imposed, assessed or collected by any governmental authority in Australia upon the leasing of the Units, the Master Lease Agreement or the importation into Australia of any of the units shall be the responsibility of, and paid for, by the Lessor." The lessee was to have an indemnity. 15 Mr Solomon on behalf of Sabre sent a copy of the draft back to Mr Gaines on 6 July, with some notes written on it suggesting changes. Against the passage relating to liability for duties, taxes and so forth and to the indemnity there was a marginal note "O.K. if we know what these are?" There were other marginal notes and alterations at various places. Mr Solomon also introduced into the draft references to notices to be delivered to Sabre and to International Pipeline and Equipment Inc and a form of guarantee by Sabre of obligations of Emeco. A further draft dated 10 July 1999 from Mr Gaines continued to contain the proposed provision about the lessor's liabilities for duties, taxes, fees and other charges and the lessee's indemnity. A marked up version of this draft, produced apparently on behalf of Mr Solomon on 20 July, contained the same provision about duties, taxes, fees and other charges. On 23 July Mr Gaines sent Mr Solomon another revised draft, with generally similar but slightly revised provisions about duties, taxes, fees and other charges. 16 On 26 July Mr Solomon sent Mr Gaines a copy of a Memorandum of Advice from Dalton & Associates, attorneys in the United States who counselled Darr the defendant's ultimate parent. The advice is directed to Mr G.T. Brigham, a Vice-President of Darr. The advice related to provision for late payments to bear interest, references in section 13 which it was suggested could form a basis for an argument that the lease was in truth a financing arrangement creating no more than a lien in favour of Emeco, and observations about obtaining a guarantee of the plaintiff's obligations from a company the attorneys regarded as suitable The advice was that "We should require a US entity with publicly available financial information to be the guarantor." Mr Gaines replied to Mr Solomon on 27 July. He gave an answer relating to interest on late payments which is not easy to follow but seems to contend that it had already been agreed that provision for late payments to bear interest was to be removed he said "stricken". 17 Mr Gaines made some observations on the reasons for the form of Section 13 and asked to see the proposed alternative form. He made some observations about the guarantee and did not accept the requirement that a US entity with publicly available financial information be the guarantor. 18 Meanwhile, in communications which did not discuss the form of the draft Mr Solomon on 27 July made some observations to Mr Gaines about liability for sales tax, stamp duty on leases and the Goods and Services Tax to be effective 1 July 2000. He said "I am trying to find out what the impact of these sales taxes will be, if Willbros converts any of these machines to a sale" and suggested that legal or accounting advice be obtained. 19 On 30 July Mr Solomon forwarded Mr Gaines a proposed rewording of Section 13. On the same day Sabre and Emeco entered into a Head Lease which put Emeco in a position to enter into a Master Lease Agreement with the plaintiff of the kind under consideration in the exchange of drafts. 20 At the meeting of 3 August Mr Gaines had two copies of a form of Master Lease Agreement in the same terms as the last form which he had submitted on 27 July. These copies did not include an annexure setting out the equipment which was to be leased; a schedule was typed up at the meeting by Mr Solomon on his computer by making small adaptations to the schedule of the Head Lease between Sabre and the defendant. Also available at the meeting was a form of guarantee to be given by Sabre to support the obligations of Emeco, and a form of Option Agreement between Sabre and International Pipeline Equipment Inc which gave the latter an option to purchase any or all of the units proposed to be leased. 21 The guarantee and the Option Agreement each contained internal references to the Master Lease Agreement, and statements in them assumed that the plaintiff and the defendant had in fact entered into the Master Lease Agreement. The guarantee contained a provision to give the date of the Master Lease Agreement and left part of the date blank, giving the date only as August 1999, but the Option Agreement said that the plaintiff "… has entered into a Master Lease Agreement with [the defendant] dated August 3rd 1999 …". Mr Solomon signed the guarantee on behalf of Sabre, and he and Mr Gaines each signed a copy of the Option Agreement on behalf of Sabre and International Pipeline Equipment Inc respectively. To neither of these documents was the plaintiff or the defendant a party. No guarantee supporting the obligations of the plaintiff is referred to by any evidence relating to events at the meeting, and I infer that no such guarantee was produced at the meeting or executed at it and that no arrangements were made for such a document to be obtained. 22 Mr Gaines' evidence (which is not disputed) is that when Mr Solomon had signed those two documents he told Mr Gaines, referring to the form of Master Lease Agreement, "I will send the lease to Darr who has the authority to, and will, sign it on behalf of Emeco." In the result no one executed or purportedly executed the Master Lease Agreement on either side, and the question of executing it was left at that meeting where Mr Solomon's statement left it. 23 Two days later on 5 August Mr Solomon sent Mr Gaines a message headed "Re Taxes in Australia" in these terms: "We may have a glitch, at the eleventh hour. Darr just noticed that part 3 paragraph 5, in the master lease, apparently makes EMECO (and therefore Sabre) liable for sales taxes. The wording is 'any taxes'. As you know, Sabre has paid all the freight to Sydney, the import charges, and the duty, on all these machines. Moreover, we have set up the rental so that Willbros can avoid the 10% withholding. To do this, we established a company in Australia, and we will pay 36% income tax on the rental profit. Obviously, there is no way we can now absorb sales taxes, stamp taxes, or GST. I need a side letter or an addendum to the master lease that clarifies this very important point. Our recommenced wording follows. 'Item 3 Lessor shall be responsible for carrying out the transportation and importation of all units from their point of origin into Australia and their delivery to Lessor's yard and shall bear the cost therefor. Lessor shall pay the following; import charges, duty, and withholding tax (if applicable) and Lessee shall pay the following; sales tax, stamp tax and GST and each shall hold the other harmless therefrom.'" 24 There followed some inconclusive communications about the question of sales tax. So far as evidence shows, there was no communication which established when, in respect of what transaction and in what amount it was thought that sales tax might be payable. However the question whether in truth there is any actual or potential sales tax liability, either in relation of the import of the goods, their lease or some possible future transaction on exercise of the option is not, in principle, important for determination of the issues. As many of the items of equipment arrived in Australia about the end of July or early in August, an attempt to levy a sales tax on importation should have become known about the time of the message of 5 August. 25 As mentioned above, a number of items of equipment were delivered to the plaintiff in the period from 14-24 August 1999 including at least six pipe layers and many items of ancillary equipment. This shows that it was still in the contemplation of the plaintiff and the defendant that there would be a hiring of equipment for the Eastern Gas Pipeline Project, notwithstanding that the Master Lease Agreement had not been executed. 26 Promptly after receiving the message of 5 August Mr Gaines spoke to Mr Solomon by telephone. This was an inconclusive discussion in which Mr Gaines reminded Mr Solomon of earlier indications that the rental charges covered all Sabre's costs including taxes; the possibility that there may be some sales tax exemption was discussed and Mr Gaines agreed to verify this; however it later appeared, with expert advice, that there was not. In another conversation on 23 August Mr Gaines told Mr Solomon that there was nothing which Willbros could do, and put this position: "We have an agreement with you to provide the equipment at Emeco's yard and you are responsible for all the duties, taxes, freight, etc. necessary to make the equipment available on that basis." Mr Solomon talked about the impact sales tax would have on profit and on other possibilities; again the conversation was inconclusive. 27 On 27 August Mr Sinfield on behalf of the defendant sent a message to an office of Willbros Far East, which soon reached Mr Gaines. The message referred to the sales tax position, asserted that the equipment had been imported by the plaintiff using Emeco's sales tax exemption number, and concluded: "… We are very concerned about this matter and now feel that we are unable to deliver any further machines to site until this matter has been clearly and correctly finalised." Mr Gaines telephoned Mr Solomon soon after that, and again put the position that the plaintiff had never agreed to pay sales tax or provide an exemption certificate, and that he expected Mr Solomon to see that the equipment was delivered as needed. Mr Solomon said "John I can assure you the equipment will be delivered as and when you request. I will take care of the problem." Mr Solomon confirmed this by a message of 3 September saying that Mr Brigham of Darr had confirmed that he and the defendant's managing director had ordered all of Sabre's pipe layers to be released to the plaintiff. They were released, and were delivered from 6-10 September, with the last three pipe layers being delivered on 1 October. 28 On 31 October the defendant rendered to the plaintiff invoices for the hire of all the machines. These invoices adopted the hire rates which had been discussed in the course of communications in July and appeared in the Schedule which had been attached to the Master Lease Agreement forms on 3 August. Charges were made, as was contemplated in the draft Master Lease Agreement, from the time of delivery at the defendant's depot at Somersby. However the arrangements in the forms were departed from in that the plaintiff was also charged State stamp duty at 1.5 per cent. On 30 September the defendant charged the plaintiff for hire for September and also for State stamp duty at 1.5 per cent, and on 20 October the defendant charged on a similar basis for the whole of October. These charges were paid, after making agreed adjustments in respect of some minor matters, apparently relating to the times that equipment had been available. 29 The question whether the Master Lease Agreement was to be executed by both sides, or was to be altered, was never resolved; so far as evidence shows it was never discussed in detail after 3 August. The question of liability for sales tax was never resolved; indeed what was involved in the question was never defined, and that part of the controversy never progressed beyond Mr Gaines asserting on the telephone to Mr Solomon to the effect that it had been established that Sabre was to bear that liability and Mr Solomon agreeing to release the machines. The parties' behaviour can only be interpreted on the basis that they had agreed that the equipment would be leased by the defendant to the plaintiff and the plaintiff would pay charges at the rates set out in the Schedule and would also pay stamp duty; the plaintiff took delivery of equipment both before and after 3 August and used it to work on the pipeline, the defendant sent invoices for hire charges and the plaintiff paid hire charges. 30 On 23 November the defendant gave the plaintiff a written notice of termination demanding return of the equipment 60 days from the date of the notice. The notice asserted that the document entitled Master Lease Agreement was proposed to be entered into for the lease of the equipment but was never properly executed because essential issues which arose at the last minute relating to the payment of sales tax were not resolved. The notice said "… a fundamental condition of the leasing of the equipment by us to you was never resolved and an agreement between us on the final terms of the lease was never reached." It went on to assert "… the current arrangements between us whereby you have possession of the equipment and pay us charges for its use can be terminated on reasonable notice by us to you." 31 Unless the plaintiff establishes that the parties entered into a contract in terms of the draft Master Lease arrangement, the assertions in the Notice of Termination are correct. It must be understood that there was an agreement to hire the equipment, but there was no arrangement establishing for how long the hire was to continue, and in those circumstances it is open to either party to terminate the hire on reasonable notice. The period of time to be regarded as reasonable notice is that reasonably necessary to comply with the notice. In the present circumstances the plaintiff would need to bring its operations to an end and transport the equipment back to Somersby; that could be done well within the 60 days specified in the Notice of Termination. The plaintiff's long term requirement for the equipment can be protected as a matter of right only if there is an express agreement on the subject. 32 In assessing whether notice is reasonable it is significant that the implication of reasonable notice is intended to serve only the common purpose of the parties, not the special needs of one side or the other. This appears from the following passage in the opinion of the Privy Council in Australian Blue Metal Limited v. Hughes [1963] AC 74 at 99: "The question whether a requirement of reasonable notice is to be implied in a contract is to be answered in the light of the circumstances existing when the contract is made. The length of the notice, if any, is the time that it deemed to be reasonable in the light of the circumstances in which the notice is given. That does not mean that the reasonable time is the time during which one party or the other could reasonably wish for the contract to continue. It is unlikely that when the notice is given the parties could agree on that. The reasons which moved one party to desire a long notice would move the other to desire a short one. The implication of reasonable notice is intended to serve only the common purpose of the parties. Whether there need be any notice at all, and, if so, the common purpose for which it is required, are matters to be determined as at the date of the contract; the reasonable time for the fulfilment of the purpose is a matter to be determined as at the date of the notice. The common purpose is frequently derived from the desire that both parties may be expected to have to cushion themselves against sudden change, giving themselves time to make alternative arrangements of a sort similar to those which are being terminated." 33 One matter which was debated at the hearing was Mr Solomon's actual or implied authority to form a contract on behalf of the defendant. At an early stage the communications between Mr Gaines and Mr Solomon proceeded on the basis that Sabre was, in a way which was not fully defined, to supply rental equipment. Later, when the intention expressed in the drafts following the first one was that the defendant would be the lessor, Mr Solomon said, not clearly and without details that he was conducting the negotiation; he did not say that he was authorised by the defendant to make a binding agreement on its behalf, and he did not say anything which had that effect. The draft agreements contained forms of execution under seal on behalf of the parties, at first by officer on behalf of each party but later for execution under seal, and this shows that the contemplation was that a contract would be formed by execution under seal, not by signature by agents. The form of the drafts excludes the interpretation that it was contemplated that Mr Solomon would himself bind the defendant to any agreement. The fact that negotiations proceeded by exchanging drafts is a strong indication that the contemplation on both sides was that a contract would be formed by entering into a written document in accordance with whatever agreed form emerged from the exchange of drafts, and that that would happen by execution by both sides, as the drafts provided. 34 No event has been proved in which the defendant conferred authority on Mr Solomon to make an agreement on the defendant's behalf or indeed to conduct negotiations on its behalf. Mr Solomon's assertion that he had authority to conduct negotiations, and his behaviour in actually conducting them, purportedly on behalf of the defendant, could not of themselves establish that he had such authority, still less that he had authority actually to bind the defendant contractually. A purported agent cannot by statements or behaviour confer authority on himself: see Crabtree-Vickers Pty Ltd v. Australian Direct Mail Advertising and Addressing Company Pty Ltd (1975) 133 CLR 72. All such questions would have become unimportant if the contemplated course had been fulfilled and the defendant had actually executed the document but this did not happen. The importance of the question is limited because Mr Solomon did not purport to exercise any authority to form a contract; but it is my view that it should not be found that he had such authority. To say that one has authority to conduct negotiations is to convey that there is a principal on whose behalf negotiations are being conducted, and to indicate that the principal has the power of decision. 35 At the meeting of 3 August Mr Solomon did not do or say anything by which he purported to make a binding agreement on behalf of the defendant. What he said was "I will send the lease to Darr who has the authority to, and will sign it, on behalf of Emeco." By these words he contradicted the idea that he was then making an agreement on behalf of Emeco himself. The words he used recognised the need for someone with authority to do so to sign the document on behalf of the defendant. Obviously Mr Solomon's expectations that the document would be signed were very high; he signed two other documents containing assertions that a Master Lease Agreement had already been made, and he asserted in the passage I have quoted that Darr would sign the document on behalf of Emeco. Notwithstanding the strength of his expectation, he did not purport to make the agreement himself. 36 Significantly Mr Gaines' evidence does not speak of Mr Gaines signing one of the forms on behalf of the plaintiff, or of the document being executed on behalf of the plaintiff in any other way. 37 The later behaviour of the parties makes it open for consideration whether, even though the document was left unsigned, the parties treated it as binding on them. From time to time it happens, usually in relation to building contracts, that parties have treated an unsigned form of agreement as their contract, one instance being Empirnall Holdings Pty Ltd v. Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. That interpretation should not be made on the facts of this case because the communications from 5 August onwards show that the defendant was not prepared to treat the form of agreement as a contract by which it was bound, and all later deliveries took place after that had been established. 38 Although they were not articulated in the parties' communications after 3 August, there were several respects in which, by that time, it had not been established by negotiations and exchange of drafts that the parties had reached a common position on what the terms of their agreement were to be. Notwithstanding that in all recent drafts liability for tax including sales tax had been in effect placed on the defendant, there was an unresolved discussion about taxation still in progress. This was raised in Mr Solomon's message of 27 July, and by 3 August it had not been said on behalf of the defendant that the defendant was satisfied with the position. This being so, the problem as raised by Mr Solomon on 5 August as "a glitch" was not entirely new, and it was not something that had been settled earlier. 39 The question whether there was to be interest on payments in arrears was never satisfactorily resolved. The draft of 27 July and in the form of agreement produced on 3 August did not provide for interest; the attorneys representing Darr had advised that there should be provision for interest, Mr Gaines had asserted that as agreed between Mr Solomon and Mr Gaines interest had been struck from the Master Lease Agreement; and the position of the defendant and its parent Darr on striking out this provision had never been declared. 40 On 30 July Mr Solomon had communicated to Mr Gaines a new form of Section 13 relating to title of ownership, which Darr wished to have inserted in the Master Lease Agreement. However the Master Lease Agreement was still in the state it had been on 27 July. 41 Because these matters were outstanding more was required for the formation of a contract than the ceremony of executing documents. Masters v. Cameron (1954) 91 CLR 353 at 360 deals with parties who have been in negotiation and who reach agreement upon the terms on which they are to contract. The arrangement of negotiated agreements into three classes is not a means of clarifying whether parties have reached agreement on the terms on which they are to contract; the analysis is only applicable to cases where it has been established that parties have reached agreement. The plaintiff and the defendant were not in that situation at the beginning of the meeting of 3 August, and, while execution of the document on both sides would have indicated that the matters which were apparently referred to as outstanding had in some way been overcome, nothing that actually happened could be taken to so indicate. 42 The question whether the parties intended to form a contractual relationship is not to be decided only by close study of the meaning and effect of the words used and the parties' behaviour at the meeting of 3 August 1999. Behaviour of the parties before and after that event is also relevant to the question whether they then in fact intended to enter into a contractual relationship. The terms of the communications before 3 August establish clearly that the parties then understood themselves to be in negotiation and not already to be bound by any contractual obligations. However they did things which, in the context of serious commercial activity, show understanding on both sides that benefits which were being conferred on the plaintiff would have to be paid for. Equipment was assembled, obviously with expense and difficulty, from overseas, some significant equipment was delivered to the plaintiff on 16 July, and the process was continuing on 3 August as by that time further equipment had arrived in Australia and was probably going through processes of customs clearance, quarantine and adaptation. Delivery of this equipment began on 14 August. Thereafter deliveries of many valuable machines occurred in three phases, during periods in August and September and on 1 October, without significant interruption, although interruption was threatened, and subsequent to which the plaintiff used the machines intensively. 43 The parties cooperated in making arrangements for shipping and related business including quarantine of equipment. Sabre in its turn had some security or other relationship involving Darr, the defendant's parent, and although the full terms of this arrangement do not appear in evidence, it affected title to the goods in some way, established Darr's interest in the details of the arrangements for which Sabre was negotiating, and involved Darr to some extent in considering the form of the Master Lease Arrangement. Mr Garry Brigham, the Vice President of Darr who became so involved, is also a director of the defendant and signed the Head Lease on its behalf. 44 The defendant sent invoices and the plaintiff paid them; this reflected the obvious fact that payment had to be made for the hire of the machines. The defendant was entitled to make fair hiring charges in these circumstances: see Way v. Latilla [1937] 3 All ER 759 at 763 (Lord Atkin), 765 (Lord Wright) and British Steel Corporation v. Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 at 511. 45 Although this chain of behaviour implies that the parties agreed that the plaintiff would hire the equipment from the defendant and pay charges, or that an intention to agree in those terms must be imputed to them, nothing shows an intention that the hiring was to continue for two years, or until completion of the Eastern Gas Pipeline Project, or for any time which can be defined, and the imputation must be made that the hiring was determinable on reasonable notice. The terms of the contract to be implied from the parties' behaviour can only be of the simplest kind, to the effect that the equipment was to be hired by the plaintiff and paid for until the negotiations were concluded. This period of hire was transitory in its nature, and the implication that either side would be entitled to terminate it on reasonable notice must be made if it is to be afforded any commercial meaning.

46 The pattern of rendering invoices and statements monthly is one indication of the time scale of reasonable notice. Another is the nature of the operations in which the plaintiff was known to be using the equipment, which could not be cut off in a moment but would take time and work to close down, prepare each machine for return and return it. In some cases machines had to be transported hundreds of kilometres to the defendant at Somersby. 47 In my finding the Notice of Termination of 60 days specified a reasonable period for termination, well in excess of the minimum period which could have been specified. 48 The plaintiff's counsel contended that in fact it should be found that the parties adopted the draft in the meeting on 3 August and that it should be inferred as a matter of fact that they intended to be bound by it. Counsel submitted that I should find that by 3 August 1999 Emeco had approved the form of the Master Lease. The observations of McHugh JA in Air Great Lakes Pty Ltd v. KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 337D-E, although not directed to facts similar to the present, show that the intention of parties to give effect to a form of contract may be proved by their behaviour in relation to it even though they left it unsigned. 49 I was also referred to the judgment of Gleeson CJ in Australian Broadcasting Corporation v. XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550 and 551. His Honour's observations on the facts at 551 illustrate that agreement on the most important subjects of a transaction and a confident expectation that the parties would come to terms on other issues do not demonstrate that a binding agreement has been made; they demonstrate the contrary. The fact that the defendant entered into the Head Lease with Sabre on 30 July, and the references in that document to intended further leasing to the plaintiff show that the defendant contemplated that it would enter into a hiring agreement with the plaintiff; the whole of the defendant's behaviour, most particularly delivering the machines, indicates that this contemplation seemed a fair certainty to the defendant. However strong this contemplation was, it does not show an intention to enter into a contract in any particular terms, and does not show an intention to enter into a contract in the terms of the draft of 27 July 1999. 50 In the circumstances established by evidence my view is that I should find that the parties did not intend to be bound by the draft. The most significant matters of fact supporting this finding are that the form of the document shows that it was contemplated that the agreement should be brought into effect by both sides executing it; neither side did. Mr Solomon's statements show that he did not claim to have authority to execute the agreement but would make arrangements for Darr to do so. The contrast with the other two documents which in fact were executed is strong, and the history of the negotiations shows that there were several points on which requirements on the side of the defendant had not been satisfied, and that those requirements had not been expressly abandoned. From 5 August onward all behaviour of the parties occurred with knowledge of the defendant's position in the letter of that day which, whatever else it meant, clearly meant that the defendant would not sign the Master Lease Agreement as it stood. 51 My finding is that no agreement between the parties in the form of the Master Lease Agreement produced at the meeting on 3 August 1999 has ever come into effect. 52 The plaintiff's counsel also submitted that the plaintiff is entitled to rely on the doctrine of part performance so as to obtain enforcement by the Court of what the plaintiff contends were the contractual arrangements between the parties notwithstanding that what, for the purpose of this submission, is treated as the formality of execution of the document had not taken place. 53 In my opinion the doctrine of part performance does not have any relation to the present facts. The doctrine relates to circumstances in which contracts which are made unenforceable by statute for want of writing may yet be enforced in Equity. Its general workings are indicated by the judgment of Gibbs J in Regent v. Millett (1976) 133 CLR 679 particularly at 682 and 683. Unless there is a contract affected by statutory unenforceability this doctrine cannot be relevant. There is nothing in the present facts analogous to the unenforceability imposed by the Statute of Frauds on many contracts, and now imposed by succeeding legislation on contracts for the disposition of interest in land, and, it would seem, no longer on any other contracts. As I found elsewhere, there was no contract between the parties such as the plaintiff contends for. 54 The plaintiff's counsel also contended that the plaintiff was alternatively entitled to the benefit of representational or promissory estoppel, and contended that the conduct of the defendant, from and after 3 August 1999 until the giving of notice of termination, was such that giving the notice and threatening to act upon it was unconscionable. The conduct referred to was making available of the equipment and plant for use for the plaintiff's known purposes, right up to completion of delivery, invoicing rental charges and accepting payment on it. 55 In my opinion there was no estoppel such as is alleged. There was no representation, either express or by conduct, which had the effect that the equipment would not only be available to the plaintiff, but would continue to be available throughout the period of performance of work on the Eastern Gas Pipeline Project as required by the plaintiff. In my view the facts clearly showed that the plaintiff was given no such representation and no assurance of continuity. Assurance of continuity was the purpose behind negotiation for a lease for up to two years, and unless and until negotiation produced an agreement, it ought to have been obvious to the plaintiff, looking at the matter reasonably, that it had no such assurance. The defendant's conduct throughout, and particularly the treatment of the form of agreement on 3 August and the terms of the letter of 5 August, demonstrated that it was only on entering an agreement in a form such as the one under consideration that the plaintiff would have an assurance of long term leasing. 56 The basic building blocks of a promissory estoppel have not been established. There was no clear and unequivocal representation, and no behaviour which had the effect of such a representation that the plaintiff would have the rights which it claims to have expected. There was no evidence of reliance by the plaintiff on any representation or conduct of the defendant in forming any particular view or belief about what its rights were or were to be. There is no evidence of any material disadvantage incurred by the plaintiff in the circumstances. To the contrary, it incurred the significant advantage of having the equipment made available to it in circumstances where its entitlement was not established by any clear agreement, so as to be able to use the equipment for its work while continuing to have its opportunities to negotiate with the defendant available to it. 57 For these reasons I will give judgment for the defendant. 58 Order: Judgment for the defendant with costs.

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Cases Cited (6)

Cited By (1)