Commercial & General Corporation Pty Ltd v Manassen Holdings Pty Ltd
[2021] SASCFC 40
•24 September 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
COMMERCIAL & GENERAL CORPORATION PTY LTD v MANASSEN HOLDINGS PTY LTD & ANOR
[2021] SASCFC 40
Judgment of the Full Court
(The Honourable Justice Stanley, the Honourable Justice Nicholson and the Honourable Justice Livesey)
24 September 2021
APPEAL AND NEW TRIAL
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS
ESTOPPEL - ESTOPPEL BY CONDUCT - PROMISSORY ESTOPPEL - GENERAL PRINCIPLES
On 10 September 2016, the parties entered into an Underwriting Agreement. Pursuant to that agreement, the respondents (the plaintiffs) agreed to subscribe for units in a unit trust of which the appellant (the defendant) was the trustee, subject to the satisfaction of certain conditions precedent. The maximum value of the units for which the plaintiffs may have been required to subscribe was $40 million.
The commercial purpose of the Underwriting Agreement was to enable the defendant to have access to up to $40 million to assist settlement on a contract with the South Australian Minister for Transport and Infrastructure for the sale and purchase of land.
On 11 October 2016, the defendant issued the plaintiffs a funding notice pursuant to the Agreement. Despite numerous extensions to the settlement date (Closing), the Sale Contract never settled and the plaintiffs were not ultimately required to subscribe for any units in the relevant unit trust. On 14 December 2016, the Minister terminated the sale contract and, on 22 December 2016, the defendant issued a revocation notice formally advising that the plaintiffs’ funds were no longer required.
The defendant paid the plaintiffs a commission of $1.2 million, being the base commission payable under the Agreement. The plaintiffs claimed that pursuant to clause 6.1 and paragraph 1(b) of Schedule 5 to the Agreement, they were also entitled to a daily fee of $20,000 for the 30-day period from 1 November 2016 to 30 November 2016.
Clause 1 of Schedule 5 provided that the plaintiffs would be entitled to an additional payment by way of a daily fee if the Underwriter … subscribes or may be required to subscribe (whether or not it does actually subscribe) for any Preference Unit at any time on or after 1 November 2016 ...”. That daily fee would accrue from 1 November 2016 for a maximum of 30 days, and would become due and payable by the earlier of “the date of Closing … and the Relevant Date”.
The plaintiffs also claimed that the defendant was estopped by its representations from denying that it would pay the plaintiffs the $20,000 daily fee until settlement.
The trial Judge found the plaintiffs were entitled to a daily fee of $20,000 for the 30-day period from 1 November 2016 to 30 November 2016, and awarded the plaintiffs an additional $600,000, along with pre-judgment interest and costs. However, the trial Judge rejected the promissory estoppel claim on the basis that the plaintiffs had not established requisite detriment.
The defendant appeals against the trial Judge’s award on the basis that the trial Judge misconstrued the Agreement. The plaintiffs cross-appeal against the trial Judge’s finding that they did not incur a detriment sufficient to found a promissory estoppel. The defendant filed a notice of contention that promissory estoppel cannot operate so as to provide a positive source of legal rights.
Held per Livesey J (Stanley J agreeing), allowing the appeal and dismissing the cross appeal and notice of contention:
1.The plaintiffs only became entitled to payment of the daily fee if, by reason of a failure to obtain Foreign Investment Board Approval by 31 October 2016, the “Relevant Date” was extended to 30 November 2016. The purpose of the daily fee was to compensate the plaintiffs for being required to keep the Maximum Underwritten Amount available.
2.Once the Relevant Date of 31 October 2016 passed without Closing occurring, the plaintiffs were no longer bound to subscribe and they accrued termination rights pursuant to clauses 3.3 and 4.1 of the Agreement. From 1 November 2016, it was entirely the plaintiffs’ choice as to whether they subscribed.
3.If after 1 November 2016 the plaintiffs chose to waive their termination rights and elected to proceed, with the result that they might then be compelled to subscribe, that nonetheless remained the result of their choice. It cannot be said that this comes within the words “may be required to be subscribe” in clause 1 of Schedule 5.
4.It is unlikely that these commercial parties intended that the daily fee should be paid where it remained entirely within the capacity of one party as to whether it would proceed and, in that setting, retain both the right to terminate and the right to receive a substantial daily fee.
5.The mere non-receipt of a promised benefit is not a detriment sufficient to found a promissory estoppel. It is the plaintiffs’ reliance and consequential detriment which forms the basis of a promissory estoppel, not merely the defendant’s departure from the representation made. To do otherwise converts the estoppel claim into a contractual claim for loss of expectation.
6.Promissory estoppel can in appropriate circumstances operate so as to provide a positive source of legal rights.
Held per Nicholson J, dissenting in part and dismissing the appeal, the cross-appeal and the notice of contention.
Ashton v Pratt (2015) 88 NSWLR 281; Australian Crime Commission v Gray [2003] NSWCA 318; Australian Goldfields NL v North Australian Diamonds NL (2009) 40 WAR 191; Byrnes v Kendle (2011) 243 CLR 253; CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd [2017] NSWSC 1798; Crown Melbourne Ltd v Cosmopolitan Hospital (Vic) Pty Ltd (2016) 260 CLR 1; DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728; Galaxidis v Galaxidis [2004] NSWCA 111; Gange v Sullivan (1966) 116 CLR 418; Lee v Lee (2019) 266 CLR 129; Masonic Homes Ltd v Oppedisano [2016] SASC 196; Mount Bruce Mining Pty Ltd v Wright Prospective Pty Ltd (2015) 256 CLR 104; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Pipikos v Trayans (2018) 265 CLR 522; Pitt v Commissioner for Consumer Affairs [2021] SASCA 24; Saleh v Romanous (2010) 79 NSWLR 453; Sidhu v Van Dyke (2014) 251 CLR 505; The Commonwealth v Verwayen (1990) 170 CLR 394; Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Whittle v Parnell Mogas Pty Ltd (2006) 94 SASR; Wright v Hamilton Island Enterprises Ltd [2003] QCA 36, discussed.
ACN 074 971 109 Pty Ltd v The National Mutual Life Association of Australasia Ltd (2008) 21 VR 351; Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473; Ashton Mining Ltd v Commissioner of Taxation [2000] FCA 590; Ausotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582; Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd (2014) 47 WAR 522; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305; Delaforce v Simpson-Cook (2010) 78 NSWLR 483; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Flinn v Flinn (1999) 3 VR 712; Foran v Wright (1989) 168 CLR 385; Fox v Percy (2003) 214 CLR 118; Giumelli v Giumelli (1999) 196 CLR 101; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Hamilton-Smith v George (2006) 247 FCR 238; Holland v Wiltshire (1954) 90 CLR 409; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; Legione v Hateley (1983) 152 CLR 406; Matthew v Smallwood [1910] 1 Ch 777; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Riches v Hogben [1985] 2 Qd R 292; Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679; S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Thompson v Palmer (1933) 49 CLR 507; Thorne v Kennedy (2017) 263 CLR 85; Tropical Traders v Goonan (1964) 111 CLR 41; Wade v Australian Railway Historical Society (2000) 77 SASR 221; Warren v Coombes (1979) 142 CLR 531, considered.
COMMERCIAL & GENERAL CORPORATION PTY LTD v MANASSEN HOLDINGS PTY LTD & ANOR
[2021] SASCFC 40Full Court: Stanley, Nicholson and Livesey JJ
STANLEY J: I would allow the appeal. I would dismiss the cross-appeal. I agree with the reasons of Livesey J.
The difference of opinion between Nicholson and Livesey JJ on the issue of whether the appellant was required to pay the respondents an additional commission by way of a daily fee of $20,000 for a 30-day period from 1 November to 30 November 2016 highlights the difficulty in construing the Underwriting Agreement.
In the end I favour the construction adopted by Livesey J as producing the more business like outcome. For the reasons given by his Honour I agree that the respondents could not have been required to subscribe after 31 October 2016 because closing had not occurred and the conditions precedent in clause 3.1 had not been satisfied. As a result the respondents held rights of termination which they had reserved. While the position is far from crystal clear, I favour the construction of Livesey J that, in these circumstances, it cannot be said that the respondents “may be required to subscribe”.[1] The respondents could rely on their termination rights in answer to a call to subscribe.
[1] Clause 1(b) Schedule 5 of the Underwriting Agreement.
The underwriting obligation was not engaged on 1 November 2016 because the respondents’ obligation to subscribe to, or procure subscribers for, underwriting the purchase of the Preference Units was not enlivened when settlement had not occurred by the Relevant Date. In the circumstances that existed the Relevant Date was 31 October 2016. The effect of the Underwriting Agreement was that the respondents were only entitled to payment of the daily fee where the “Relevant Date” was extended to 30 November 2016. It followed that from 1 November 2016 the respondents did not have any obligation to subscribe for any Preference Units, and the appellant could not have required the respondents to subscribe. The only way the respondents may have subscribed was if they chose to do so. I accept that during the period to 30 November 2016 the Underwriting Agreement remained on foot but after 31 October 2016 the appellant did not have an enforceable right to require the respondents to subscribe to underwrite the purchase of the Preference Units pursuant to the Underwriting Agreement.
The conditions precedent to the underwriting obligation not having been waived and an agreement to a later date for closing not having been made, the respondents were not contractually obliged to subscribe. It is not to the point that the respondents could have waived the conditions precedent if called upon to subscribe. That is not the correct approach to construction of the Underwriting Agreement. The use of “may” in the phrase “may be required to subscribe” merely connotes that, but for the failure to satisfy the conditions precedent, the respondents could have been required to subscribe, whether or not they actually did. Absent waiver of the failure to satisfy the conditions precedent and election by the respondents to proceed with the Underwriting Agreement, there was no legal basis by which the appellant could require the respondents to subscribe.
Accordingly, the obligation to pay the daily fee in clause 1(b) of schedule 5 did not arise. The respondents were not entitled to the daily fee under the Underwriting Agreement.
NICHOLSON J: I have had the benefit of the summary of the relevant facts, and of the relevant terms and conditions of the Underwriting Agreement and of the extensive analysis of all of the issues arising on this appeal in the judgment of Livesey J (as his Honour was at the time of the appeal). I agree with his Honour’s reasoning in all respects except for one. Unfortunately, this one area of disagreement is such that would cause me to dispose of the appeal differently. I would dismiss the appeal.
The one area of difference concerns whether or not, on the proper construction of the Underwriting Agreement and its application to the facts, the position was such that after 31 October 2016, the plaintiffs “may [have been] required to subscribe … at any time on or after 1 November 2016”.
Notwithstanding, the fact that certain conditions precedent to any liability to subscribe, as identified by the trial Judge, had not been satisfied, the Underwriting Agreement and the Underwriting Obligations as provided for therein remained extant at all relevant times. They had not been terminated; indeed, the plaintiffs had expressly reserved all rights. Furthermore, the parties continued to conduct themselves on the basis that the Underwriting Agreement remained on foot with the possibility that the defendant’s purchase contract would settle with the underwriting assistance of the plaintiffs.
Whilst this position subsisted, it remained possible that the plaintiffs would waive the non-satisfaction of the conditions precedent or that the conditions (including as to agreement for a later date for closing under condition 3(f) to be reached) would be satisfied prior to any election by the plaintiffs to terminate the Underwriting Agreement or the Underwriting Obligations. In such circumstances, the plaintiffs’ right to terminate would lapse and they could have been called on to subscribe. The fact that, at all times, it remained in the power of the plaintiffs whether or not to proceed in this manner does not derogate, in my view, from this analysis.
I have decided against setting out another detailed analysis of the contractual provisions relevant to this issue. In my view, the trial Judge’s exposition,[2] with respect, is both lucid and correct. It would serve no purpose to attempt to improve upon it.
[2] Manassen Holdings Pty Ltd & Anor v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [105]-[144].
I add one more observation. The Underwriting Agreement in this matter is an extremely complex document. With all due respect, I doubt whether the contracting parties, when called upon to execute it, had a full appreciation of the complexities and inconsistencies potentially arising with its application to various situations. In this respect, I have puzzled at some length over the timing provision for the payment of commission in clause 1 of Schedule 5 which reads as follows:
by the earlier of the following dates:
(c)the date of Closing; and
(d)the Relevant Date.
I agree with the trial Judge that this timing requirement applies to both the fixed commission (paragraph (a)) and the daily rate commission (paragraph (b)) the subject of this appeal, notwithstanding the formatting of the provision. I agree with the trial Judge’s reasoning insofar as his Honour accommodates the difficulty that this timing provision presents on the facts of the case (and no doubt with respect to other circumstances that might have arisen). However, I query whether the use of the qualifier “earlier” rather than “later” was a drafting error, the potential consequences of which were not understood at the time of the execution of the Underwriting Agreement. Had the word “later” been used, a number of construction concerns may have been resolved consistently with a sensible and businesslike operation of the Agreement (and still in favour of the plaintiffs’ contention).
I would dismiss the appeal.
LIVESEY J.
Introduction
The appellant (the defendant) appeals against a judgment in favour of the respondents (the plaintiffs) in the sum of $600,000, together with pre‑judgment interest in the sum of $394,997 and costs.
The defendant contends that the judgment is based on a misconstruction of an underwriting agreement entered into by the parties (the Underwriting Agreement or the Agreement) and, contrary to the finding of the trial Judge, it was not required to pay the plaintiffs an additional commission by way of a daily fee of $20,000 for the 30-day period between 1 November and 30 November 2016.
The plaintiffs cross-appeal against the trial Judge’s finding that they did not incur a detriment sufficient to found a promissory estoppel for the period following 30 November 2016 until 22 December 2016 or, in the alternative, until 14 December 2016, and therefore erred in dismissing the plaintiffs’ further claim in the sum of $440,000, or in the alternative $280,000, plus interest.
For the reasons that follow, from 1 November Closing (also referred to as settlement) had not occurred and a condition precedent to any obligation of the plaintiffs to subscribe for Preference Units was not satisfied. Accordingly, the plaintiffs could not have been required to subscribe. In addition, the plaintiffs held rights of termination. They had reserved those rights. In my view, it therefore cannot be said that they “may be required to subscribe” within the meaning of clause 1(b) of Schedule 5. Accordingly, the plaintiffs were not entitled to the daily fee under the Underwriting Agreement. As the plaintiffs have not demonstrated a sufficient basis for an estoppel finding, it follows that the appeal should be allowed and the cross-appeal dismissed.
These reasons are set out as follows:
Introduction
The parties
Factual background
The Underwriting Agreement
The plaintiffs’ case at trial
The appeal
Principles of contractual interpretation
Consideration of the appeal
Meaning of “Relevant Date”
Proper construction of the Underwriting Agreement
Daily fee and the contractual obligation to subscribe
Apparent inconsistency with clause 2.1
Entitlement to the daily fee in clause 1(b) of Schedule 5
The cross-appeal
The Extension Agreement
The promissory estoppel claim
The trial Judge’s findings
Consideration of the cross-appeal
The Gadens invoice
Can non-fulfillment of the representation alone constitute sufficient detriment?
The Notice of Contention
Consideration of the notice of contention
Preclusionary nature of promissory estoppel
Sufficiency of the representation
Conclusion
The parties
The defendant, Commercial & General Pty Ltd (C&G), is the ultimate holding company within the Commercial & General Group of companies (the C&G Group), a property group that develops and manages investments in commercial, industrial, healthcare and residential property throughout Australia. In the dealings the subject of this appeal, the defendant was represented by its Managing Director, Mr Cooke, its Chief Executive Officer, Mr McClurg, and its solicitors.
The plaintiffs are two investment companies controlled by Mr Roy Manassen, a director of both companies. The second plaintiff, R&C Manassen Pty Ltd, is the trustee of a superannuation fund established for Mr Manassen and his wife, Mrs Cynthia Manassen.
Mr Manassen, together with Mr Simon Uzcilas, is the director of another company, Four Hats Capital Pty Ltd, which sources and manages investments for clients. The first plaintiff is a 50 per cent shareholder of that company.
It was the practice of Mr Manassen to refer investment opportunities presented to him to Mr Uzcilas for review and to offer Mr Uzcilas the opportunity to co-invest with him, which Mr Uzcilas invariably did through his company Forward Movement Pty Ltd, as trustee of the Uzcilas Capital Trustee. This arrangement led to Mr Manassen and Mr Uzcilas taking up some 14 investment opportunities together, ranging from $1 million in value to in excess of $50 million.
Mr Manassen relied on Mr Uzcilas to undertake all of the necessary investigations and evaluations of potential investments, as well as handling any negotiations or management required. Mr Manassen did not have any direct dealings with the entities in which his companies invested. He remained an arm’s length decision‑maker in respect of their investments. Although Mr Manassen largely left the investigation of investment opportunities to Mr Uzcilas, he was still active in the investment process, with Mr Uzcilas regularly seeking the views of Mr Manassen.
Factual background
On 30 June 2016, the defendant contracted with the South Australian Minister for Transport and Infrastructure (the Minister) for the sale and purchase of land in and around the State Administration Centre in the Adelaide CBD (the Sale Contract). The defendant required $380 million in funding to settle on the Sale Contract (the Transaction).
After one of the initial proposed investors in the Transaction withdrew in late August 2016, the plaintiffs became aware of this investment opportunity. Mr Uzcilas conducted the negotiations for the plaintiffs. He did so with the “full authority” of Mr Manassen.
As often occurred, Mr Manassen also offered a former business colleague, Mr Nasuti, an interest in the investment. Accordingly, when negotiating with the defendant, Mr Uzcilas was acting on behalf of the plaintiffs, through Mr Manassen, and Nasuti Pty Ltd, through Mr Nasuti, and Forward Movement Pty Ltd, through himself.
On 2 September 2016, Mr Uzcilas appointed Gadens to act as the solicitors for the plaintiffs in relation to the potential agreement with the defendant. From that point onwards, Mr Uzcilas and Gadens were engaged by the plaintiffs to review and negotiate what eventually became the Underwriting Agreement.
On 10 September 2016, the parties entered into the Underwriting Agreement. By this agreement, the plaintiffs agreed to subscribe, or procure subscribers, for units in a unit trust of which the defendant was the trustee. This agreement was subject to the satisfaction of certain conditions precedent and a right in certain circumstances to either terminate the Agreement, or the Underwriting Obligations assumed by the parties, under it. The maximum value of the units for which the plaintiffs could be required to subscribe was $40 million. The purpose of the Underwriting Agreement was to enable the defendant to access up to $40 million to assist with settlement of the Sale Contract.
On 11 October 2016, the defendant issued the plaintiffs with a Funding Notice for $40 million.[3] Settlement under the Sale Contract was then expected to occur on 31 October 2016, this being the “Relevant Date” for the purposes of the Underwriting Agreement.
[3] At the hearing of the appeal, the parties agreed that this Funding Notice was accompanied by a Confirmation Certificate.
On 12 October 2016, the solicitors for the defendant sent the plaintiffs three of the five documents which comprised five of the six conditions precedent under clause 3.1 of the Underwriting Agreement. Those three documents were executed by the plaintiffs later that day.
On 31 October 2016, the Minister served a notice to complete on the defendant, stipulating that settlement would occur on 15 November 2016. The Underwriting Agreement referred to settlement as “Closing”.
On 1 November 2016, three of the six conditions precedent under clause 3.1 had not been satisfied. These were execution of the documents referred to in paragraph (d) and Closing by 31 October 2016.
On 3 November 2016, the plaintiffs wrote to the defendant noting that Closing had not occurred on 31 October 2016 and reserving all of their rights. In particular, the plaintiffs expressly reserved their right to terminate the Underwriting Agreement on the basis that Closing had not occurred on 31 October 2016:
The conditions precedent to the Underwriting Obligations remain outstanding and Closing did not occur on or by 31 October 2016. The Underwriter reserves all of its rights, and does not waive any of its rights, under and in connection with the Underwriting Agreement and the Side Letter.
Closing did not occur on 15 November 2016, either. The funding required from a third party was not available. Mr Cooke advised Mr Uzcilas about this by email on 2 November 2016, stating that the defendant did not see a need to call on the Underwriting Agreement and “was planning to simply make a payment to [the plaintiffs] out of the settlement proceeds”.
Mr Uzcilas replied to this email on 4 November 2016, attaching invoices from the plaintiffs and Gadens (the Gadens invoices) in anticipation of receiving payment out of the settlement proceeds, as foreshadowed by the defendant in Mr Cooke’s email dated 2 November 2016. By 3 November 2016, the Gadens invoices totalled $169,792.81, said to be payable by the defendant pursuant to clause 6.3 of the Underwriting Agreement.
On 21 November 2016, the Minister agreed to extend the time for Closing until 13 December 2016, on the conditions that a deed poll was executed and an Australian bank provided an unconditional guarantee of $5 million by 28 November 2016.
By a text message dated 29 November 2016, Mr Cooke advised Mr Uzcilas that the Minister had requested an additional deposit of $5 million and fixed a Closing date of 13 December 2016. Mr Uzcilas arranged to meet with Mr Cooke and Mr McClurg at the Primus Hotel in Sydney the following day. By 30 November 2016, the C&G Group had not paid the additional deposit and was therefore in breach of the deed poll. At a meeting that morning, the parties agreed that the daily fees would continue to accrue until settlement. The plaintiffs would pay the Gadens invoice and the defendant would reimburse the plaintiffs on settlement. This agreement was alleged to amount to a contract and was referred to by the plaintiffs as the Extension Agreement.
Ultimately, there was no Closing.
On 14 December 2016, the Minister terminated the Sale Contract. On 22 December 2016, the defendant issued the plaintiffs with a revocation notice, formally advising the plaintiffs that their funds were no longer required. On 23 January 2017, pursuant to clause 4.1 of the Underwriting Agreement, the plaintiffs served the defendants with a notice of termination dated 22 January 2017. The effect of that notice was to terminate the Underwriting Obligations under the Agreement.
On 22 February 2017, pursuant to clause 1(5)(a) of Schedule 5 to the Underwriting Agreement, the defendant paid to the plaintiffs a base commission in the sum of $1.2 million. The appeal is primarily concerned with whether the defendant was, as the trial Judge found, obliged to make a further payment by way of a “daily fee” of $600,000 to the plaintiffs.
The Underwriting Agreement
For the purposes of the appeal and the cross-appeal, it is necessary to set out select clauses from the Underwriting Agreement.
The key provisions in the Underwriting Agreement are clauses 2, 3, 4, 6, Schedule 3, Schedule 5, and the definitions of “Underwriting Obligations”, “Relevant Date” and of “Closing”.
The principal obligations on the plaintiffs, as the Underwriter, vis-à-vis the defendant as the Trustee, were set out in clause 2.1:
2.UNDERWRITING
2.1 Appointment
The Underwriter will, subject to the satisfaction or waiver (in the Underwriter’s absolute discretion) of the Conditions and to clause 4,[4] subscribe for, or procure subscribers to subscribe for (provided that such subscribers are Underwriter Associates), such number of Preference Units in the Trust with an aggregate issue price equal to the Maximum Underwritten Amount.[5]
2.2 Funding Notice
The Trustee may, not later than 5.00 pm on the 9th Business Day prior to the Funding Date, give the Underwriter a Funding Notice and a Confirmation Certificate provided that the Underwriter has not terminated the Underwriting Obligations under clause 4.1 at any time.[6]
[4] “Conditions” was defined in clause 1 as meaning “the conditions precedent set out in clauses 3.1(a) to 3.1(e) (inclusive)”. The trial Judge found, and the parties agreed, that the reference to clause 3.1(e) was an error, and the reference should instead have been to clause 3.1(f): see Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171, [129] (Reasons); Appellant’s Written Submissions on the Appeal, [11].
[5] “Maximum Underwritten Amount” was defined in clause 1 as $40 million.
[6] “Underwriting Obligations” was defined as “the Underwriter’s obligations under clause 2”.
2.3 Application by Underwriter
(a) If the Underwriter:
(i)has received a Funding Notice and Confirmation Certificate under clause 2.2; and
(ii)has not terminated the Underwriting Obligations under clause 4.1,
the Underwriter must, on the date on which the Closing is to occur but only immediately prior to the Closing occurring, cause to be lodged with the Trustee applications to subscribe for such Preference Units with an aggregate issue price equal to the Funding Amount together with the application monies by bank cheque or electronic transfer into a nominated account of the Trustee for those Preference Units in aggregate equal to the Funding Amount.
(b)Notwithstanding any provision of this agreement to the contrary, in no circumstance may the Trustee at any time issue Funding Notices to the Underwriter in respect of Funding Amounts which in aggregate exceed the Maximum Underwritten Amount and in no circumstance will the Underwriter be required to subscribe for Preference Units or pay any amount to the Trustee in an amount exceeding the Maximum Underwritten Amount.
The effect of the receipt of a Funding Notice under clause 2.2 was that the plaintiffs became bound to the Underwriting Obligations only if the conditions precedent set out in clause 3 of the Agreement were satisfied or waived. Clause 3 set out the conditions precedent to the Underwriting Obligations:
3.CONDITIONS
3.1Conditions precedent
The Underwriting Obligations are conditional upon:
(a) (GSA) the occurrence of either of the following:
(i)the Trustee having irrevocably paid or procured payment to the Underwriter of the entirety of the Underwriting Commission;[7] or
[7] “Underwriting Commission” was defined as “the commission specified in paragraph 1 of Schedule 5”.
(ii)a General Security Deed in a form and substance satisfactory to the Underwriter (acting reasonably having regard to but not being bound by or bound to accept the comments of the Senior Debt Lender):
(A)over all of the assets and undertaking of the CPT Trust and which includes the terms set out in Schedule 8 being signed by the CPT Trustee and delivered to the Underwriter provided that Westpac no longer holds any security interest in respect of the CPT Trust or any asset of the CPT Trust, the PPSR is amended to reflect the foregoing, and the CPT Constitution is amended so that clause 20.1 of the CPT Constitution is deleted and the words “or the Personal Property Securities Act 2009 (Cth)” are added after the words “Corporations Act 2001 (Cth)” in clause 14.1(1); or
(B)over all of the assets and undertaking of a person which is an Eligible Person and which includes the terms set out in Schedule 8 (as if references to the CPT Trust and the CPT Trustee where (sic) references to the person and/or any applicable corresponding trust, as applicable) being signed by the person and delivered to the Underwriter;
(b) (Put Option) a Put Option Deed in a form and substance satisfactory to the Underwriter (acting reasonably having regard to but not being bound by or bound to accept the comments of the Senior Debt Lender) under which the Underwriter and the Underwriter Associates have the option to require a person which is an Eligible Person, at any time after the earlier to occur of:
(i) the first anniversary of the time of Closing; and
(ii)any security granted in favour of the Senior Debt Lender becoming enforceable,
to acquire any Preference Units held by the Underwriter and/or the Underwriter Associates (including the rights to any accrued but unpaid income entitlement or any accrued but unpaid commission entitlement) for an amount per Preference Unit held equal to the Put Option Price being signed by all parties to that document (other than the Underwriter) and delivered to the Underwriter;
(c) (Unitholders Agreement) a Unitholders Agreement in relation to the Trust which contains:
(i)a provision that prohibits the Trustee or the unit holders of the Trust from taking any action in relation to a Unitholder Protection Matter without the prior written consent of the holder of the Preference Units, such provision being in a form and substance satisfactory to the Underwriter (acting reasonably having regard to but not being bound by or bound to accept the comments of the Senior Debt Lender) between the Trustee and all unitholders in the Trust as at the time of Closing being signed by all parties to that document (other than the Underwriter) and delivered to the Underwriter;
(ii)a provision that the entirety of the proceeds of subscription for units in the New WOT Trust[8] received by the New WOT Trustee from or on behalf of any beneficiary or unitholder of the New WOT Trust (or any person who will become a beneficiary or unitholder of the New WOT Trust on issue of units in the New WOT Trust) must first be paid and applied in or toward the acquisition by the New WOT Trustee of any remaining Preference Units before the New WOT Trustee subscribes for any units in the Trust or otherwise applies those proceeds; and
[8] Defined as the trust to be established in or about September 2016.
(d) (SAPOL Trust Deed Amendment) an amendment to the Constitution in form and substance satisfactory to the Underwriter (acting reasonably) to include changes to the classes of units in the Trust as set out in Schedule 6 and a deletion of clause 20.1 of the Constitution in each case being effected prior to Closing;
(e) (New WOT Constitution) the New WOT Constitution settling and the New WOT Constitution being executed and delivered by the New WOT Trustee in a form and substance that is consistent with the obligations that the New WOT Trustee will have under the Unitholders Agreement and that is otherwise satisfactory to the Underwriter (acting reasonably having regard to but not being bound by or bound to accept the comments of the Senior Debt Lender and further having regard to the principles set out elsewhere in the agreement); and
(f) (Closing will occur) Closing occurring or will occur by no later than the Relevant Date (or such later date as the Underwriter and the Trustee may agree in writing after the date of this agreement).
As a separate and independent obligation, the Trustee must satisfy or procure satisfaction of the Condition in clause 3.1(a) within 10 Business Days of the date of this agreement.
3.2Reasonable endeavours
The Trustee must use its reasonable endeavours to ensure that the Conditions are satisfied.
3.3Condition not satisfied
Without limiting clause 4.1, if any Condition in clause 3.1 is not satisfied, or waived by the Underwriter, by the Relevant Date (or, in the case of the Condition in clause 3.1(a), by the date occurring 10 Business Days after the date of this agreement) (or such later time agreed by the Underwriter in writing after the date of this agreement), the Underwriter (in its sole and absolute discretion) may terminate this agreement at any time by written notice to the Trustee.
3.4Benefit
The Conditions are for the benefit of the Underwriter only and may only be waived by the Underwriter (in its sole and absolute discretion).
It will be noticed that, by clause 3.1(f), where Closing has not occurred by the Relevant Date, and no other date is agreed in writing, then the conditions precedent are not satisfied and the Underwriting Obligations are not triggered.
It will also be noticed that, where any clause 3.1 condition is not satisfied or waived “by the Relevant Date”, by clause 3.3 the plaintiffs as Underwriter were conferred a right of termination, exercisable in their “sole and absolute discretion … at any time”. As will be seen below, the Relevant Date was 31 October 2016 unless Closing was delayed beyond that date only because the Senior Debt Lender required FIRB approval, in which case that date became 30 November 2016. It was common ground at trial, found by the trial Judge and is common ground on appeal, that a requirement for FIRB approval was not the only reason for delay in Closing beyond 31 October 2016 and that, for the purposes of the clause 3.1(f) Condition precedent, Closing was required to occur by no later than 31 October 2016. The clause 3.1(f) Condition precedent to the obligation of the plaintiffs to provide underwriting by subscribing for units was therefore not satisfied, nor was it ever waived by the plaintiffs.
In addition to the right to terminate the Underwriting Agreement under clause 3.3, the Underwriting Agreement also conferred on the plaintiffs the right to terminate the Underwriting Obligations under clause 4.1:
4.RELIEF FROM THE UNDERWRITING OBLIGATIONS
4.1Right to terminate
The Underwriter may by written notice to the Trustee before the Trustee issues any Preference Units terminate the Underwriting Obligations if:
(a) the Trustee does not give the Underwriter a Funding Notice and a Confirmation Certificate under clause 2.2 by the Relevant Date; or
(b) one or more events set out in Schedule 3 occurs.
4.2Waiver
The Underwriter may, by notice in writing to the Trustee, waive any of its rights under clause 4.1. Any waiver will only affect the Underwriter’s rights specifically waived in such notice.
4.3Cessation of Underwriting Obligations
The Underwriting Obligations cease on the first to occur of:
(a) the Trustee issuing such number of Preference Units in the Trust with an aggregate issue price equal to the Maximum Underwritten Amount; and
(b) the Underwriter terminating the Underwriting Obligations under clause 4.1 or terminating this agreement under clause 3.3.
The relevant termination right under clause 4.1 is conferred by subclause 4.1(b), which refers to Schedule 3. The means by which the waiver might be effected is addressed by clause 4.2.
Schedule 3 set out the standard default events and, significantly, included that a breach or default under the Agreement provided a basis for the termination of the Underwriting Obligations. Relevantly, Schedule 3 included the following as the bases for termination of the Underwriting Obligations:
1.(Default under this agreement) The Trustee is in breach or default of any of the terms and conditions or provisions of this agreement or breaches any warrant or covenant given or made by it under this agreement and if that default or breach is capable of being remedies or its effects overcome that default or breach is not remedied, or its effects not overcome, within 10 Business Days after it occurs.
…
8. (Contract for Sale) The Contract for Sale is terminated, rescinded or amended without the prior written consent of the Underwriter.
9.(Closing) the Closing does not occur or will not occur by the Relevant Date.
It may be noticed that a right to terminate the Underwriting Obligations arises where there is a Schedule 3 event, which includes the failure of Closing to occur by 31 October 2016. That this should be so is consistent with the effect of clauses 3.1 and 3.3 as set out above.
Clause 1(a) of Schedule 5 of the Underwriting Agreement (entitled “Commission, Payments and Fees”) provided for the payment to the plaintiffs of what was described as a “base commission”, as well as “the daily fee”. The base commission is addressed by clause 1(a) and the daily fee by clause 1(b):
1. Underwriting Commission: The Trustee must pay to the Underwriter:
(a) an underwriting commission of 3.0% of the Maximum Underwritten Amount; plus
(b) if the Underwriter or any Underwriter Associate subscribes or may be required to subscribe (whether or not it does actually subscribe) for any Preference Unit at any time on or after 1 November 2016, an amount equal to A calculated in accordance with the following formula:
A = B x C x D
Where:
B = 0.05%
C = the Maximum Underwritten Amount; and
D = the lesser of the following:
(i)the number of days from (and including) 1 November 2016 to (and including) the earlier to occur of:
(A) date of Closing;
(B) the date of termination of the Underwriting Obligations under clause 4.1; and
(C) the date of termination of this agreement under clause 3.3; and
(ii) 30,
by the earlier of the following dates:
(c) the date of Closing; and
(d) the Relevant Date.
2.Conditional Undertaking Fee: If on any anniversary of the date of Closing (each an Anniversary) the Underwriter or any of the Underwriter Associates continue to hold any Preference Units (Remaining Units), the Trustee will pay to the Underwriter an amount equal to 3.0% of the product of (i) the issue price of each Remaining Unit and (ii) the number of Remaining Units held by the Underwriter and/or any of the Underwriter Associates in aggregate on the Anniversary, within 7 Business Days of the Anniversary.
The obligation to pay the base commission and the daily fee arose from clause 6.1 of the Underwriting Agreement:
6.FEES, COMMISSIONS AND EXPENSES
6.1Fees and Commissions
The Trustee and the Underwriter covenant to one another on the terms of, and the Trustee agrees to pay the Underwriter the fees and commissions set out in, paragraphs 1 and 2 of Schedule 5.
“Underwriting Obligations” was defined in clause 1.1 as “the Underwriter’s obligations under clause 2”. The “Relevant Date” was defined in clause 1.1 as:
Relevant Date means:
(a) where Closing will occur after 31 October 2016 only because the Senior Debt Lender requires FIRB approval to provide the Senior Debt Facility, 30 November 2016; and
(b) otherwise, 31 October 2016.
The reference to “FIRB approval” was a reference to approval by the Foreign Investment Review Board. The “Senior Debt Lender” was defined as any person to, or in favour of whom, the defendant incurred a financial indebtedness at any time, including the provider of the Senior Debt Facility,[9] but excluding the Underwriter.
[9] “Senior Debt Facility” is defined to mean a debt facility in the amount of approximately $297 million to be advanced to the defendant on or about Closing to, in effect, enable settlement to occur.
While Closing could be extended by written agreement (see clause 3.1(f)), the parties did not suggest that any written agreement to extend was concluded by 1 November 2016.[10] Accordingly, the Relevant Date remained 31 October 2016. It was never suggested that the Relevant Date had been the subject of any written agreement to extend.
[10] Reasons, [130].
“Closing” was defined as meaning “the settlement of the acquisition of the Land (as that expression is defined in the Contract for Sale)”.
The plaintiffs’ case at trial
The plaintiffs claimed that they were entitled to a commission in addition to that paid on 22 February 2017, in the form of the daily fee of $20,000 per day for the 30-day period from 1 November 2016.[11] The trial Judge allowed this aspect of the plaintiffs’ claim and awarded the plaintiffs $600,000, plus interest and costs.
[11] Totalling $600,000 for the period.
The second limb of the plaintiffs’ case at trial was that the payment of the daily fee should be extended beyond the 30-day period from 1 November 2016 pursuant to a further agreement (the Extension Agreement), being an oral agreement reached at a meeting between representatives of the parties on 30 November 2016. The plaintiffs failed on that case and that finding was not appealed.
The plaintiffs also argued that the defendant was estopped by its representations from denying that the defendant would pay the plaintiffs the daily fee from 1 December 2016 until 22 December 2016 or, in the alternative, 14 December 2016. The trial Judge’s rejection of this claim is the subject of the cross-appeal.
The appeal
The defendant confined its appeal to a challenge to the trial Judge’s construction of clause 1(b) of Schedule 5 to the Underwriting Agreement concerning the daily fee:
3. Grounds of appeal
3.1The learned trial Judge erred in law in construing paragraph 1(b) of Schedule 5 to the Underwriting Agreement entered into by the parties on 10 September 2016 as requiring the appellant to pay the respondents an additional commission by way of a daily fee of $20,000 for the period of 30 days from 1 November 2016 (First Judgment at [107]-[144]).
3.2The learned trial Judge should have held that on the proper construction of paragraph 1(b) of Schedule 5 to the Underwriting Agreement there was no obligation on the appellant to pay any daily fee, by way of additional commission, under that paragraph.
These grounds concern the proper construction of what might be described as a ‘bespoke’ commercial contract.
Principles of contractual interpretation
The determination of the rights and liabilities of the parties to a commercial contract requires that the Court interpret the contract objectively.[12] This requires that the meaning of a commercial contract be determined according to how a reasonable person in the position of the parties at the time of entry into the contract would have understood the language of the contract.[13] As the High Court said in Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd:[14]
The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[15]
[12] Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), citing Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22]. See also Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne, Crennan and Kiefel JJ). In South Australia, see Masonic Homes Ltd v Oppedisano [2016] SASC 196, [48] (Doyle J).
[13] Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), citing Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22]. See also Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne, Crennan and Kiefel JJ).
[14] Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[15] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22].
When considering what a reasonable person would have understood a commercial contract to mean, it is usual to consider the “commercial purpose or objects” underlying the agreement:[16]
As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.[17] Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”.[18] As Arden LJ observed in Re Golden Key Ltd,[19] unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[20]
[16] Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne, Crennan and Kiefel JJ), cited more recently in Rinehart v Hanock Prospecting Pty Ltd (2019) 267 CLR 514, [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).
[17] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, [8] (Gleeson CJ); [53] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ); Byrnes vKendle (2011) 243 CLR 253, [98] (Heydon and Crennan JJ). See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 326, 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, [14].
[18] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350 (Mason J), citing Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989, 995-996. See also Zhu v Treasurer (NSW) (2004) 218 CLR 530, [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ); International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, [8] (Gleeson CJ).
[19] Re Golden Key Ltd [2009] EWCA Civ 636, [28].
[20] Zhu v Treasurer (NSW) (2004) 218 CLR 530, [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ). See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455, 464.
In Byrnes v Kendle, the extent to which surrounding circumstances may permissibly assist contractual interpretation was explained:[21]
[21] Byrnes v Kendle (2011) 243 CLR 253, [98] (Heydon and Crennan JJ).
Contractual construction depends on finding the meaning of the language of the contract – the intention which the parties expressed, not the subjective intentions which they may have had, but did not express.[22] A contract means what a reasonable person having all the background knowledge of the “surrounding circumstances” available to the parties would have understood them to be using the language in the contract to mean.[23] But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of “surrounding circumstances”.[24] And in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd this Court said:[25]
[22] Deutsche Genossenschaftsbank vBurnhope [1995] 1 WLR 1580, 1587. See also Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526, 533.
[23] Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, [14]. A fact known to one party but not reasonably available to the other cannot be taken into account: Bank of Credit and Commerce International SA (In liq) v Ali [2002] 1 AC 251, [49]. In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, [11] (Gleeson CJ, Gummow and Hayne JJ) agreed with this proposition. See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40]. There is controversy as to whether the test turns on what background knowledge was reasonably available to the parties, or their actual knowledge; if the former, there is a further question as to whether the knowledge is that which each party might reasonably have expected the other to know; as well as whether the knowledge of third parties into whose hands the contract may fall is relevant. Similar problems can arise with trusts. This case does not call for their resolution.
[24] Chartbrook Ltd v Permission Homes Ltd [2009] 1 AC 1101, [33]-[42].
[25] Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). The question is: “what would the first party have led a reasonable party in the position of the other party to believe the first party intended, whatever the first party actually intended?” See Hoffmann, “The Intolerable Wrestle With Words and Meanings” (1997) 114 South African Law Journal 656, 661.; Bank of Credit and Commerce International SA (In liq) v Ali [2002] 1 AC 251, [51]. See also Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, 502; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724, 736; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [22].
“It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.”
In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd, the requisite approach was explained in the following way:[26]
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
(citations omitted).
[26] Mount Bruce Mining Pty Ltd v Wright Prospective Pty Ltd (2015) 256 CLR 104, [46]-[51] (French CJ, Nettle and Gordon JJ).
Doyle J summarised the effect of these authorities in Masonic Homes Ltd v Oppedisano:[27]
… evidence of prior negotiations will be admissible and relevant insofar as it tends to establish background facts that were known to both parties. This may include identification of the subject of the contract. On the other hand, such evidence is not relevant insofar as it consists merely of statements and actions of the parties which are reflective of their actual or subjective intentions and expectations.
(citations omitted).
[27] Masonic Homes Ltd v Oppedisano [2016] SASC 196, [51].
The principles governing the interpretation of the Underwriting Agreement were not disputed by the parties.
Whilst this agreement did not, at least on the evidence, appear to have been amended from a pro forma document, the unusual and somewhat unique nature of the agreement suggests that particular attention must be given to what might be described as a “businesslike intention”:[28]
Poor drafting may justify a court in being more ready to depart from the natural and ordinary meaning of the terms of a contract,[29] and no doubt, the poorer the drafting, the less willing a court should be to be “driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention”.[30] But poor drafting provides “no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made”.[31] Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other.
[28] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, [98] (Nettle J).
[29] Arnold v Britton [2015] AC 1619, [18] (Lord Neuberger of Abbotsbury PSC, with whom Lord Sumption and Lord Hughes JJSC agreed), [66] (Lord Hodge JSC).
[30] Mitsui Construction Co Ltd v Attorney-General (Hong Kong) (1986) 33 BLR 1, 14, cited with approval in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] 2 All ER (Comm) 299, [13] (Mance LJ).
[31] Mitsui Construction (1986) 33 BLR 1, 14. See also Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, [26] (Lord Clarke of Stone-cum-Ebony JSC, with whom Lord Phillips of Worth Matravers PSC, Lord Mance, Lord Kerr of Tonaghmore and Lord Wilson JJSC agreed).
Consideration of the appeal
At its core, the defendant’s complaint on appeal is that the learned trial Judge, in the course of what are admirably clear and comprehensive reasons, erred in construing the Underwriting Agreement because:
1. After 31 October 2016, the defendant had no enforceable right to “require” the plaintiffs to subscribe to underwrite the purchase of the Preference Units under the Underwriting Agreement;
2.The Relevant Date was 31 October 2016 and could only be a date after 31 October 2016 if Closing was delayed only because the Senior Debt Lender required FIRB approval, which was not the case; and
3. On 31 October 2016, the additional fee payable was not ascertainable pursuant to the formula set out in Schedule 5 of the Underwriting Agreement.
Meaning of “Relevant Date”
Before determining the defendant’s appeal relating to the plaintiffs’ entitlement to the daily fee, it is first necessary to address what is meant by the phrase the “Relevant Date”.
Clause 1 of the Agreement defines the “Relevant Date” as 31 October 2016, unless Closing is delayed beyond 31 October 2016 only because the Senior Debt Lender requires FRIB approval to provide the Senior Debt Facility, in which case the Relevant Date is automatically extended until 30 November 2016:
Relevant Date means
(a)where Closing will occur after 31 October 2016 only because the Senior Debt Lender requires FRIB approval to provide the Senior Debt Facility; 30 November 2016; and
(b)otherwise, 31 October 2016.
The use of the words “only because” in this definition is instructive. In this context, the words are used to establish the sole means by which the meaning of the term “Relevant Date” may be altered, being where the Senior Debt Lender requires FRIB approval to provide the Senior Debt Facility but FIRB approval is not obtained by 31 October 2016, the date when the Agreement contemplated Closing (settlement) would occur.
When the extension operates, the extension of the Relevant Date to 30 November 2016 does not mean that Closing must also occur on that date. The concepts “Relevant Date” and “Closing” are distinct. The Relevant Date is not necessarily the Closing date. The Relevant Date could (and in this case, did) pass without Closing occurring. The terms of clause 1.1 are clear. The Relevant Date was either 31 October 2016 or, where the failure to obtain FIRB approval is the only reason for the delay in Closing, 30 November 2016. The Relevant Date could be no other date, even though Closing might occur on other dates.
I will now address whether, on the facts of this case, the plaintiffs were entitled to payment of the daily fee for the 30-day period from November 2016 to 30 November 2016.
Proper construction of the Underwriting Agreement
Under clause 6.1 of the Agreement, the defendant agreed to pay the plaintiffs the fees and commissions set out in Schedule 5 and, under clause 6.2, the defendant remained obliged to pay the Underwriting Commission (as set out in paragraph 1 of Schedule 5), despite the plaintiffs having terminated their Underwriting Obligations under clause 4.1 in January 2017.[32] There was no dispute that the plaintiffs were entitled to this commission,[33] and the defendant paid the plaintiffs this sum on 22 February 2017. There was also no dispute that the plaintiffs had no entitlement to the Conditional Undertaking Fee referred to in clause 2 of Schedule 5.[34]
[32] Reasons, [108].
[33] Appellant’s Written Submissions, [28].
[34] Appellant’s Written Submissions, [28].
It was the defendant’s case that, on the proper construction of clause 1(b) of Schedule 5, there was no obligation to pay any daily fee because, from 1 November 2016, the Conditions precedent to the Underwriting Obligations (contained in clause 3.1) had not been satisfied or waived. The plaintiffs could not therefore be compelled to subscribe. Accordingly, it could not properly be said that the plaintiffs “may be required to subscribe”, as required by clause 1(b) of Schedule 2.
The trial Judge rejected the defendant’s construction, instead concluding that the obligation to pay the daily fee was triggered because the issuing of the Funding Notice had the effect that, following 1 November 2016, the plaintiffs “may” have been required to subscribe for Preference Units.[35] It was irrelevant that the plaintiffs never in fact subscribed:[36]
It is true that the plaintiffs could not be contractually obliged or compelled to subscribe unless (on the facts of the present case) they waived the Conditions precedent.[37] But I do not think that the paragraph 1(b) reference to “may be required to subscribe” was intended to be dependent upon a contractual obligation or compulsion to subscribe. It was enough, in my view, that the Underwriting Obligations had been triggered and remained extant in accordance with clause 2.3(a).
In the alternative, and to the extent that these words in paragraph 1(b) were intended to connote a legal obligation to subscribe that could be enforced by the defendant against the plaintiffs, then there was every chance that the plaintiffs in this case would have waived the conditions precedent if called upon to subscribe. If that occurred then they could have been contractually obliged or compelled to subscribe. Thus, even assuming that “required to subscribe” was intended to refer to the plaintiffs being contractually obliged or compelled to subscribe, there remained a possibility this would occur, and hence in that sense it could be said that they “may” be required to subscribe.
[35] Reasons, [140].
[36] Reasons, [141]-[142].
[37] Or the conditions were somehow satisfied, by the provision by the defendant of the documentation required under conditions 3(d) and 3(e) and the parties agreeing under condition 3(f) to a later date for Closing (which was a matter within the plaintiffs’ control).
This finding is the subject of the first limb of the defendant’s appeal.
Daily fee and the contractual obligation to subscribe
At trial and on appeal, the defendant argued that clause 1(b) of Schedule 5 of the Underwriting Agreement required that the defendant hold a contractually enforceable right to compel the plaintiffs’ subscription for the Preference Units.
On the defendant’s argument, the word “required” in clause 1(b) of Schedule 5 directed attention to the obligations earlier set out in the Agreement – particularly those contained in clauses 2.1 and 3.1. The defendant contended that the Underwriting Obligation was not engaged on 1 November 2016 because the plaintiffs’ obligation in clause 2.1 to subscribe to, or procure subscribers for, the Preference Units was not enlivened because Closing did not occur by the Relevant Date. It followed, the defendant submitted, that from 1 November 2016, the plaintiffs did not have any obligation to subscribe for any Preference Units, and the defendant could not have required the plaintiffs to subscribe. Accordingly, the obligation to pay the daily fee in clause 1(b) of Schedule 5 did not arise.
These submissions should be accepted.
As the trial Judge found, the Funding Notice issued on 11 October 2016 had the effect of triggering the Underwriting Obligations in conformity with clause 2.1(a).[38] Because the plaintiffs’ Underwriting Obligations were triggered, the trial Judge found that the plaintiffs could be called upon to subscribe to the Preference Units, enlivening the defendant’s obligation under clause 6.1 to pay the daily fee set out in clause 1(b) of Schedule 5. The trial Judge found that it was at this point that the plaintiffs became entitled to payment of the daily fee, to be calculated as prescribed by clause 1(b) of Schedule 5 and, pursuant to clause 1(b)(ii), the trial Judge found that the plaintiffs were entitled to payment of the daily fee for a period of 30 days.
[38] Reasons, [140].
Respectfully, the difficulty with this conclusion is one of timing, coupled with the commercial purpose of the daily fee. As earlier explained, the daily fee only applied in the period after 31 October 2016 where a delay in obtaining FIRB approval prevented Closing, and the plaintiffs were required to remain in a position to subscribe. This was the key commercial purpose of the daily fee: to compensate the plaintiffs for keeping the Maximum Underwritten Amount available, even if FIRB approval was not obtained by 30 November 2016 and they were not ultimately required to subscribe. The entitlement to the daily fee only arose where the plaintiffs may have been called upon to subscribe if FIRB approval was obtained after 31 October 2016.
However, in this case, the requirement to obtain FIRB approval was not the sole reason Closing did not occur by 31 October 2016. The Relevant Date remained 31 October 2016. Once this date passed without Closing occurring, the plaintiffs were not bound to subscribe and from 1 November 2016 the plaintiffs could not be compelled to subscribe to any Preference Units: it remained entirely their choice as to whether they subscribed.
Clause 2.1 included the words “subject to the satisfaction or waiver (in the Underwriter’s absolute discretion) of the Conditions and to clause 4”. In this context, it is apparent that this qualification in clause 2.1 was inserted for the benefit of the plaintiffs, rather than the defendant. It is a mechanism that protects the plaintiffs and ensures that they were not required to keep the Maximum Underwritten Amount available where the conditions the subject of the qualification were not satisfied.
As the trial Judge recognised, absent waiver by the plaintiffs, even if the defendant provided all requisite documents, it still remained necessary for the parties to agree to a later date for Closing under clause 3(f).[39] As the trial Judge also recognised, with respect correctly, whether there was agreement to a later date for Closing “was a matter within the plaintiff’s control”.[40] Accordingly, once the Relevant Date of 31 October 2016 passed without Closing taking place, it remained within the discretion of the plaintiffs as to whether or not they chose to subscribe. In addition, the plaintiffs accrued the termination rights conferred by clauses 3.1(f) and 4.1. That the plaintiffs held these rights reinforced their position: these were additional reasons why they could choose whether to subscribe.
[39] Reasons [141]-[142], set out above.
[40] Reasons [140].
It was not suggested that the plaintiffs’ failure to terminate, or the ongoing discussions between the parties, after 31 October 2016 represented any election by the plaintiffs to continue with performance.[41] Moreover, it was never suggested that the plaintiffs had acted so as to waive their right of termination, exercisable in their “sole and absolute discretion … at any time” under clause 3.3. Indeed, even if the plaintiffs could be viewed as having afforded the defendant more time after 31 October 2016, it could not have been assumed by the defendant that there was “unconditional affirmance of the contract”.[42]
[41] Matthew v Smallwood [1910] 1 Ch 777, 786; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305, 326 (aff’d sub nom Yorkshire Insurance Co Ltd v Craine [1922] 2 AC 541).
[42] Holland v Wiltshire (1954) 90 CLR 409, 415 (Dixon CJ), 423 (Taylor J), cf 420 (Kitto J); Tropical Traders v Goonan (1964) 111 CLR 41, 55 (Kitto J); Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473, [175]-[186] (Brooking, Charles and Chernov JJA).
An analogy might be drawn between this case and the better-known example of a land contract which is made “subject to finance” where, without breach by the purchaser, the finance condition is not satisfied by a specified date. It will be recalled that, in this case, the Underwriting Agreement was made subject to the “satisfaction or waiver” of the conditions contained in clause 4.[43] The question arises: what is the effect of the non-fulfillment of the conditions? Gange v Sullivan is to the effect that the non-fulfillment of a condition will ordinarily render a contract voidable, rather than void:[44]
Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contact voidable rather than void to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end.
[43] Clause 2.1.
[44] Gange v Sullivan (1966) 116 CLR 418, 441 (Taylor, Menzies and Owen JJ).
In Gange v Sullivan Barwick CJ considered whether the purchaser could be compelled to complete if no approval conformable to the condition was received by the requisite date. The Chief Justice commenced with the observation that “the special condition was included in the contract for the benefit of the [purchaser]”,[45] and he found that the special condition meant: “[t]he performance of this contract by the purchaser is subject to…” satisfaction of the condition.[46] Accordingly:[47]
… the contract would not automatically come to an end, so that both parties were released from performance, if no approval in conformity with the condition was obtained before 31st May. This is so, in my opinion, notwithstanding the words of the clause deeming the contract in that event to be at an end: cf. Suttor v Gundowda Pty Ltd.[48]
…
Thus, in my opinion, the appellant could not be compelled to complete if no approval conformable to the condition was received by 31st May, if he made the appropriate application within the stipulated time and took all other necessary steps to obtain that approval. If he failed in these respected he could be compelled to complete, unless the respondent had waived the appellant’s breach in not having applied in time, or in otherwise failing to take necessary steps. But being a condition for his benefit, the appellant, in my opinion, could waive it and require the vendor to complete notwithstanding that no approval satisfying the condition had been received in time.
[45] Gange v Sullivan (1966) 116 CLR 418, 429.
[46] Gange v Sullivan (1966) 116 CLR 418, 429.
[47] Gange v Sullivan (1966) 116 CLR 418, 429-430.
[48] Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 441.
This approach is consistent with the later decision of the High Court in Perri v Coolangatta Investments Pty Ltd, another case concerning a contract for the sale of land, albeit in that case made “subject to” the sale of the purchasers’ residential property. In that case Wilson J held that, as the clause was included for the benefit of the purchasers, so long as they acted reasonably in attempting to sell their property, non-compliance with a notice to complete could not deprive them of their termination rights and the return of their deposit:[49]
… provided that [the purchasers] have acted reasonably … they may rely on the non-fulfillment of the condition to bring the contract to an end, and recover their deposit. On the other hand, the vendor may force the issue simply by serving a notice to complete … The effect of a notice to complete is to give the purchasers, should they wish to waive the condition, the opportunity to finalize the transaction, alternatively, it serves to crystallize in the minds of both parties a common date on which the contract will come to an end for non-fulfilment of the condition. In the latter case, non-compliance with the notice to complete will not fix the purchasers with any default such as would deprive them of the right to make the return of their deposit, although as I have said, a failure to make reasonable efforts … may expose them to an action for damages.
[49] Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 560 (Wilson J).
In this case, on and from 1 November 2016 the plaintiffs were not in breach and could not be compelled or “required” to subscribe. If after 1 November 2016 the plaintiffs subscribed, they did so not because they were required to do so, or may be required to do so, but because they chose to do so. It cannot be said that any choice then made to subscribe properly comes within the words “may be required to subscribe”.
By contrast, the trial Judge found that, to the extent that the words in clause 1(b) of Schedule 5 were “intended to connote a legal obligation to subscribe against the plaintiffs”, there was “every chance that the plaintiffs in this case would have waived the conditions precedent if called upon to subscribe”.[50]
[50] Reasons, [142].
Where the plaintiffs were no longer required to subscribe, they could not be compelled to waive or elect. In those circumstances, the plaintiffs could only be required to subscribe if they chose to waive reliance on the Conditions precedent. If the plaintiffs chose to waive their rights and elect to proceed, with the result that they might then be compelled to subscribe, this would nonetheless remain the result of their choice. Of course, whether the plaintiffs were in those events actually required to subscribe might well have depended upon the precise terms of their waiver and election. The terms of any waiver and election would not then be governed by the Agreement and would necessarily be outside it.
It is inherently unlikely that these commercial parties intended that the daily fee should be paid where it remained entirely within the capacity of one party as to whether it would proceed and, in that setting, potentially retain both the right not to proceed and the right to receive a substantial daily fee. That seems an unbusinesslike construction. And, to these considerations one may add the additional consideration that the plaintiffs also held and had reserved termination rights. Whether and in what manner these might have been waived also remained within the discretion of the plaintiffs.
Accordingly, and with respect, by 1 November 2016, it could not then properly be said that plaintiffs “may be required to subscribe” within the meaning of clause 1(b) of Schedule 5. The plaintiffs were not, therefore, entitled to the daily fee.
Apparent inconsistency with clause 2.1
There is a further potential difficulty with the trial Judge’s reasoning. The delivery of a Funding Notice and Confirmation Certificate did not, without more, enliven the Underwriting Obligation. Clause 2.1 states that the obligation to subscribe is triggered by the satisfaction or waiver of the “Conditions”, defined as meaning the Conditions precedent set out in clauses 3.1(a) to 3.1(f).[51]
[51] Note the parties’ earlier agreement that the reference to clause 3.1(e) is a typographical error, and should instead be read as a reference to clause 3.1(f).
Though the obligation to subscribe is created by clause 2.1, that does not render clauses 2.2 and 2.3 nugatory. To the contrary, clauses 2.2 and 2.3 serve a procedural purpose: while clause 2.1 creates the obligation to subscribe, clauses 2.2 and 2.3 set out the procedure by which subscription is to occur. Clause 2.3 is clearly subject to clause 2.1 and does not apparently impose an obligation to lodge an application to subscribe where the obligation to pay the subscription amount has not yet been triggered. Any other reading would create an inconsistency between the clauses.
In any event, it remains the case that, as at 1 November 2016, the plaintiffs had no obligation to proceed to provide funding and, absent further conduct by them, it could no longer be said that they “may be required to subscribe” for any Preference Unit, meaning that clause 6.1 and clause 1(b) of Schedule 5 did not require the payment of the daily fee.
Accordingly, the defendant’s appeal should be allowed.
Entitlement to the daily fee in clause 1(b) of Schedule 5
For completeness, a further argument may be addressed, though it does not detract from the conclusion just expressed. This argument concerns the second limb of the defendant’s appeal.
It will be recalled that clauses 1(c) and 1(d) of Schedule 5 required the Trustee to pay the Underwriter the amount specified by clause (1) (the daily fee) by the earlier of the date of Closing and the Relevant Date:
Schedule 5 – Commissions, Payments and Fees
1. Underwriting Commission: The Trustee must pay to the Underwriter:
(a) an underwriting commission of 3.0% of the Maximum Underwritten Amount; plus
(b) if the Underwriter … subscribes or may be required to subscribe (whether or not it does actually subscribe) for any Preference Units at any time on or after 1 November 2016, [the daily fee] …
…
by the earlier of the following dates:
(c) the date of Closing; and
(d) the Relevant Date.
The parties did not dispute that the effect of clause 1(a) of Schedule 5 was that the plaintiffs became entitled to a commission of $1.2 million, regardless whether or when Closing occurred, if it occurred.
Sub-clause 1(b)(i) specifies the period for which the daily fee is payable, while sub-clause 1(b)(ii) caps the daily fee at 30 days (thereby imposing a monetary cap of $600,000). This leaves subclauses (c) and (d) to specify the dates when the daily fee becomes due and payable.
By operation of clauses 1(b)(i) and (ii), the entitlement to a daily fee was capped at 30 days (or $600,000), being the final cut-off date under Item “D” in the formula. The reference to “30” in Item “D” is consistent with the proposition that the Relevant Date could not extend beyond 30 November 2016.
By notionally setting to one side the formula set out in clause 1(b) of Schedule 5, the purpose of the provision as a whole becomes a little clearer. That is, if the Underwriter subscribes, or may be required to subscribe (whether or not it actually does subscribe), for any Preference Unit at any time from 1 November 2016, the daily fee is payable by the earlier of the date of Closing and the Relevant Date. It follows that if the daily fee becomes due and payable by the earlier of those dates, the daily fee cannot continue to accrue beyond either date.
The proper construction of this aspect of the agreement between the parties is that the plaintiffs could only become entitled to the payment of the daily fee if, by reason only of the failure to obtain FIRB approval by 31 October 2016, the “Relevant Date” was extended to 30 November 2016. In that event, the daily fee would become due and payable by the earlier of the date of Closing and the Relevant Date, albeit calculated in accordance with the formula set out in clause 1(b).[52]
[52] Reasons, [124]-[125]. Contrary to the concern there expressed by the trial Judge, if the Relevant Date is 31 October 2016, no daily fee is payable. If, however, the Relevant Date is 30 November 2016 and Closing occurs on 10 November 2016, then the daily fee will be calculated over 10 days and due and payable from the earlier date, namely, the date of Closing.
The plaintiffs argued that construing the term in this way contradicts clause 3.1(f) of the Agreement. It will be recalled that clause 3.1(f) contains a condition precedent to the Underwriting Obligations, requiring that Closing (settlement) “occur or will occur by no later than the Relevant Date (or such later date as the Underwriter and the Trustee may agree in writing after the date of this agreement)”. The plaintiffs submitted that clause 3.1(f) therefore contemplates the extension of the Relevant Date for reasons other than the failure to obtain FIRB approval (namely, by agreement of the parties), meaning that the Relevant Date can extend beyond 30 November 2016, with the result that the Underwriting Obligations may also subsist after this date.
In Flinn v Flinn, Brooking JA, with whom Charles and Batt JJA agreed, recognised that a promise may be clear and definite, even if it cannot be precisely defined:[142]
The defendant repeatedly contended that to found an estoppel a representation must be ‘unambiguous’, or ‘clear’, or ‘unequivocal’. But a promise may be definite in the sense that there is a clear promise to do something even though the something promised is not precisely defined, and this has always been recognised in the cases.
[142] Flinn v Flinn (1999) 3 VR 712, [80].
The Queensland case of Wright v Hamilton Island Enterprises Ltd is to similar effect. In that case, the trial Judge found that the defendant represented that it would renew a licence granted to the first plaintiff “for further periods of five years from the expiry of the term of the licence on the 31st of December [1995] … for so long as the first plaintiff elects to have the licence so renewed provided that the first plaintiff was not in breach of the licence at the time of each renewal”. It was argued that this representation was ambiguous, and insufficiently clear and precise to found a promissory estoppel. In rejecting this argument, Mackenzie J pointed out:[143]
The absence of specific reference to the mechanism and timing of exercise of the right to elect are not fatal. In the absence of specified times, reasonableness would be the criterion. This is an objective criterion not an uncertain one.
[143] Wright v Hamilton Island Enterprises Ltd [2003] QCA 36, [87].
Jerrard JA came to a similar conclusion:[144]
I consider, with respect, that the fact that the representations were limited to particular matters does not mean that they were not clear or precise. All it means is that there were no representations made about any other matters. The representations found by the learned judge to have been made by both Mr Williams and his CEO Mr Brown are clear enough, and there is actually no complaint to the contrary. Indeed, it was not in contest at the hearing that representations of that character were made. That argument fails too.
[144] Wright v Hamilton Island Enterprises Ltd [2003] QCA 36, [57].
McMurdo P agreed, saying:[145]
An unambiguous representation is one which would not mislead any reasonable person and is not capable of being misinterpreted or misunderstood: see Legione v Hateley (1983) 152 CLR 406, 435, 436. On the judge’s findings, which were open on the evidence, those representations were of this kind. The fact that the representations here did not contain details of the method of renewal does not make them ambiguous. The representations were sufficiently unambiguous and clear as to found an estoppel.
[145] Wright v Hamilton Island Enterprises Ltd [2003] QCA 36, [9].
In Australian Crime Commission v Gray, Ipp JA (with whom Mason P and Tobias JA agreed) considered these authorities and concluded:[146]
In any event, I do not think, with respect, that the statement made by Mason and Deane JJ in Legione v Hateley at 436 to 437 was intended to be an absolute rule. While, often, an ambiguous or imprecise representation will not give rise to a promissory estoppel, that could not inevitably be the case. In virtually every statement of existing fact or future intent some ambiguity or imprecision of language may be found.
[146] Australian Crime Commission v Gray [2003] NSWCA 318, [193].
Ipp JA then went on to point to Waltons Stores (Interstate) Ltd v Maher as an example of a promissory estoppel being upheld where the representation was difficult to construe with precision:[147]
Waltons Stores (Interstate) Ltd v Maher is itself an example of a promissory estoppel being upheld where the representation (implicit in the appellant’s conduct) was difficult to construe with precision and was capable of more than one reasonable meaning.
The trial judge in Waltons held that the representation was that a concluded contract, by way an of exchange of contracts, existed between the parties. The Court of Appeal found that the parties knew that exchange had not taken place but held, nevertheless, that the appellant had represented that a binding contract existed (that is to say, it held that a representation different to that found by the trial judge had been made). The appellant argued that the differences in the findings between the trial judge and Court of Appeal disclosed such uncertainty that no estoppel could be said to arise. Before the High Court, reliance was placed on the proposition that “only a clear representation could found an estoppel” (see at 458).
Mason CJ and Wilson J attributed a third meaning to the appellant’s representation, namely, that the exchange of contracts would take place as a matter of course. Brennan J held (at 430):
Waltons’ silence induced Mr Maher to continue either on the assumption that Waltons was already bound or in the expectation that Waltons would execute and deliver the original deed as a matter of obligation.
Deane J said (at 437) that any divergence between the findings of the trial judge and the Court of Appeal was not important; they had both found that the respondent had believed that there was a binding agreement. Gaudron J found that the appellant had represented that an exchange had taken place.
None of the justices, however, regarded the different meanings that could possibly be drawn from the appellant’s conduct as obstacles to a finding that the respondent had established a promissory estoppel. All of their Honours stressed that unconscionability was the foundation of the estoppel and, in detail, explained why the conduct of the appellant, in making the representation and allowing the respondent to remain under a false assumption to his detriment, was unconscionable. Hence a promissory estoppel was established.
[147] Australian Crime Commission v Gray [2003] NSWCA 318, [196]-[199].
After canvassing the authorities, Ipp JA concluded by restating the rationale underlying the rule that a representation must be clear and unambiguous:[148]
The underlying reason for the rule that, generally speaking, an ambiguous or unclear representation will not give rise to a promissory estoppel is that the foundation of promissory estoppel is unconscionability. Unconscionability is usually difficult to establish when the representation is ambiguous or unclear.
[148] Australian Crime Commission v Gray [2003] NSWCA 318, [200].
In Galaxidis v Galaxidis, Tobias JA (with whom Giles JA agreed), explained the effect of Australian Crime Commission v Gray as follows:[149]
In my opinion, the effect of this court’s decision in Gray is that even if a representation is insufficiently precise to give rise to a contract (as in the present case), that fact does not necessarily disqualify the representation from founding a promissory estoppel. Much will depend upon the circumstances in which the representation is made and the context against which it is to be considered. In its context, the representation is sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted the representation in a particular way being a meaning which it is clearly capable of bearing and upon which it is reasonable for the representee to rely. In these circumstances, it would be unconscionable for the representor to deny responsibility for the detriment that arises because of that reliance.
(original emphasis).
[149] Galaxidis v Galaxidis [2004] NSWCA 111, [93].
The defendant’s contentions on this ground of the notice of contention ignore a critical plank in the trial Judge’s reasoning. That is, the trial Judge found that the contractual claim failed not because there was any lack of clarity in the representation but, rather, because of the absence of an intention on the parties’ behalf to be “immediately contractually bound” by the purported agreement.[150]
[150] Reasons, [184].
Accordingly, the defendant’s contention that, if the trial Judge could not find a contractual claim existed due to the insufficiency of the representation, he could not find that the representation was sufficient to found a promissory estoppel, must be rejected. There was no relevant lack of clarity in the representation or any relevant want of certainty that caused the contract to fail, rather, a lack of contractual intention.
However, even if the trial Judge found that the representation lacked the certainty sufficient to found a contract, the authorities outlined above demonstrate that this does not necessarily preclude the recognition of a promissory estoppel. Consequently, a finding of that nature alone would not, without more, necessarily amount to an error of law.
The defendant also argued that the trial Judge’s findings evidence an error of fact. That contention is based on the proposition that the trial Judge accepted that the evidence did not permit him to make a finding as to the actual words used to convey the representation, or as to which of Mr McClurg and Mr Cooke (or both) conveyed the representation.[151] The defendant submitted that, in these circumstances, the trial Judge could not have concluded in fact that a “clear, “precise” and “unambiguous” representation was made at the 30 November 2016 meeting.
[151] Reasons, [231].
In determining this aspect of the notice of contention, the Court must proceed in the manner recently restated in Lee v Lee:[152]
A court of appeal is bound to conduct a "real review" of the evidence given at first instance and of the judge's reasons for judgment to determine whether the trial judge has erred in fact or law.[153] Appellate restraint with respect to interference with a trial judge's findings unless they are "glaringly improbable" or "contrary to compelling inferences"[154] is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts.[155] Thereafter, "in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge".[156] Here, the trial judge's findings of primary fact were not disturbed.
[152] Lee v Lee (2019) 266 CLR 129, [55] (Bell, Gageler, Nettle and Edelman JJ).
[153] Fox v Percy (2003) 214 CLR 118, [25] (Gleeson CJ, Gummow and Kirby JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, [43].
[154] Fox v Percy (2003) 214 CLR 118, [29] (Gleeson CJ, Gummow and Kirby JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, [43].
[155] Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, [144]; Thorne v Kennedy (2017) 263 CLR 85, [42].
[156] Warren v Coombes (1979) 142 CLR 531, 551 (Gibbs ACJ, Jacobs and Murphy JJ). See also Fox v Percy (2003) 214 CLR 118, [25].
This requires that this Court undertake an independent review of the evidence and findings and form its own view about the appropriate outcome.[157] As the Court of Appeal recently said in Pitt v Commissioner for Consumer Affairs, this does not mean that the appeal is a hearing de novo and “the appellate court should not substitute its own view, or otherwise interfere, unless satisfied that the trial Judge fell into error.”[158]
[157] Lee v Lee (2019) 219 CLR 129, [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118, [25] (Gleeson CJ, Gummow and Kirby JJ).
[158] Pitt v Commissioner for Consumer Affairs [2021] SASCA 24, [115] (Doyle, Livesey and Bleby JJA), citing Taylor v Hayes (1990) 53 SASR 282, 291; Warren v Coombes (1979) 142 CLR 531, 551 (Gibbs ACJ, Jacobs and Murphy JJ).
In conducting its own review of the evidence and findings, the appeal court should have regard to the findings made by the trial Judge and any advantage he or she may have had in making those findings.[159] That is particularly so where the factual findings are likely to have been affected by impressions formed by the trial Judge about the credibility and reliability of witnesses as a result of having seen and heard them give evidence, as a part of the evidence as a whole in the context of the trial as it unfolded.[160] This advantage may extend to findings made about secondary facts which are based upon the combined effect of both the trial Judge’s impressions and inferences drawn from primary facts.[161] However, the appeal court may nevertheless intervene where the finding is contrary to some incontrovertible fact or is otherwise “glaringly improbable [or] contrary to some compelling inferences.”[162]
[159] Wade v Australian Railway Historical Society (2000) 77 SASR 221, [38]-[41].
[160] Lee v Lee (2019) 266 CLR 129, [56] (Bell, Gageler, Nettle and Edelman JJ); Warren v Coombes (1979) 142 CLR 531, 551 (Gibbs ACJ, Jacobs and Murphy JJ).
[161] Lee v Lee (2019) 266 CLR 129, [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118, [25] (Gleeson CJ, Gummow and Kirby JJ).
[162] Lee v Lee (2019) 266 CLR 129, [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118, [28]-[29] (Gleeson CJ, Gummow and Kirby JJ). See also Pitt v Commissioner for Consumer Affairs [2020] SASCA 24, [114]-[118] (Doyle, Livesey and Bleby JJA).
Significantly, the defendant does not challenge any finding made by the trial Judge regarding the conversation on 30 November 2016. The defendant only challenges the trial Judge’s use of those findings as being sufficient to found a claim in promissory estoppel. It is accordingly appropriate to consider the evidence and the findings made.
Mr Uzcilas gave evidence about the 30 November 2016 meeting at trial and he was cross-examined on that evidence. The trial Judge found him to be an impressive witness.[163] According to the affidavit evidence of Mr Uzcilas, at the 30 November 2016 meeting, he exchanged words with Mr Cooke and Mr McClurg to the following effect:[164]
I said:We will pay Gaden’s invoice of $169,792 before settlement but we expect those fees will be reimbursed on settlement. We will defer the receipt of our underwriting fees until settlement but we require a signed General Security Deed to secure these amounts before we pay the legal fees.
McClurg or Cooke: Yes, we agree.
I said:All arrangements will continue until settlement and the underwriting fee will continue to accrue at a daily rate until then.
McClurg or Cooke: Yes, we agree.
I said:Are we on track for settlement on December 13?
McClurg or Cooke: Yes.
I said:I will provide new invoices together with the General Security Deed.
[163] Reasons, [37].
[164] Reasons, [153].
Mr Uzcilas added that, at the end of the meeting, Mr McClurg shook his hand and said words to the effect that he was interested in continuing an ongoing business relationship with the plaintiffs on other transactions.
Mr Uzcilas was cross-examined about his recollection of the 30 November 2016 meeting. It soon became apparent that his recollection was general, and barely extended beyond what was set out in his evidence in chief. The trial Judge summarised the effect of Mr Uzcilas’ evidence as follows:[165]
As for the discussion about the Transaction and Underwriting Agreement, Mr Uzcilas’ recollection was largely confined to the ultimate effect or outcome of what was said about each of the matters mentioned in his evidence in chief; that is, about the date for settlement, the underwriting fee accruing at the daily rate until settlement, the Gadens invoices, and a general security deed. He could recall little of the particular conversational context in which each of these matters were discussed, who raised and spoke on each matter (and in particular whether it was Mr Cooke or Mr McClurg, or both, who spoke for the defendant), the sequence in which matters were discussed, or any of the particular words that were used.
Put another way, Mr Uzcilas’ written evidence in chief adopted the (not uncommon) form of a transcript of a conversation between the persons present, albeit prefaced with the caveat that the exchange involved words “to the effect” of what was set out. However, upon cross-examination it became clear that Mr Uzcilas’ recollection and evidence was largely confined to what he understood to be the overall effect or outcome of their discussions.
[165] Reasons, [159]-[160].
Accepting McLelland J’s statements in Watson v Foxman about the importance of proving the words spoken with a “degree of precision”,[166] the trial Judge made no findings as to the specific words used, nor as to who uttered them. However there was no dispute that the representation was made, and no dispute that both Mr Cooke and Mr McClurg had authority to bind the defendant.[167]
[166] Reasons, [163].
[167] Reasons, [177].
The defendant did not point to any authority requiring that the Court identify the specific words used to make the representation. The defendant only pointed to Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd which requires that the representation be clear and unambiguous.[168] As was explained in Galaxadis v Galaxidis, a representation will be sufficiently clear and unambiguous “if it is reasonable for the representee to have interpreted the representation in a particular way being a meaning which it is clearly capable of bearing and upon which it is reasonable for the representee to rely”.[169]
[168] Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, [35] (French CJ, Kiefel and Bell JJ).
[169] Galaxidis v Galaxidis [2004] NSWCA 11, [93].
In circumstances where the only other attendees at the 30 November 2016 meeting, Messrs Cooke and McClurg, did not give evidence, and the evidence of Mr Uzcilas went virtually uncontradicted, it was open to the trial Judge to conclude that a clear and unambiguous statement was made. That is particularly so given the parties were agreed that, in effect, what was said was akin to the daily fee representation.
While it is true that the way in which evidence is assessed in particular cases may vary, and there may be a greater degree of laxity in cases concerning domestic arrangements when compared to commercial cases,[170] that does not mean that evidence of the specific words used is invariably required. It is sufficient in this case that Mr Uzcilas gave uncontradicted evidence about the substance or effect of what was said to him.[171] Notwithstanding the limits of his recollection, the effect of the words used was clear. So much is apparent from the trial Judge’s findings.[172] It was open to the trial Judge to conclude that, as a matter of fact, the representation was sufficiently clear and precise to found a promissory estoppel. This limb of the notice of contention should also be rejected.
[170] See, eg, Ausotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 585-586 (Kirby P); Seven Network (Operations) Ltd v Warbuton (No 2) [2011] NSWSC 386, [46].
[171] Hamilton-Smith v George (2006) 247 FCR 238, [83] (Besanko J).
[172] Reasons, [37]-[38].
Conclusion
I would allow the appeal and set aside the orders made on 31 October 2019. I would dismiss the cross-appeal.
I would also dismiss the defendant’s notice of contention.
I would hear the parties on the terms of the orders and on the question of costs.
7