Eccles v Koolan Iron Ore Pty Ltd [No 3]

[2013] WASC 418

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   ECCLES -v- KOOLAN IRON ORE PTY LTD [No 3] [2013] WASC 418

CORAM:   LE MIERE J

HEARD:   30 APRIL, 1-3 MAY 2013

DELIVERED          :   22 NOVEMBER 2013

FILE NO/S:   CIV 2868 of 2009

BETWEEN:   REBECCA AMY ECCLES

LEE MARCUS STERGIOU
Plaintiffs

AND

KOOLAN IRON ORE PTY LTD
First Defendant

MT GIBSON IRON LTD
Second Defendant

Catchwords:

Contract law - Offer and acceptance - Battle of the forms - Agreement not inferred from conduct

Equity - Estoppel - Promissory estoppel - No reliance on pleaded assumption

Practice and procedure - Evidence - Unexplained failure to call witness

Damages - Loss of opportunity - Agreement to negotiate - No failure to give real and commercial opportunity to revise contract for renewal

Legislation:

Nil

Result:

Plaintiffs' claim dismissed

Category:    B

Representation:

Counsel:

Plaintiffs:     Mr M J McPhee

First Defendant             :     Mr P D C Robinson

Second Defendant         :     Mr P D C Robinson

Solicitors:

Plaintiffs:     M J McPhee Barrister & Solicitors

First Defendant             :     Williams & Hughes

Second Defendant         :     Williams & Hughes

Case(s) referred to in judgment(s):

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61

Brogden v Metropolitan Railway Co (1877) 2 AC 666

Butler Machine Tool Co Ltd v Ex‑cell‑o Corporation (England) Ltd [1979] 1 WLR 401

Chaplin v Hicks [1911] 2 KB 786

Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

Commonwealth v Verwayen (1990) 170 CLR 394

Con Kallergis Pty Ltd v Calshonie Pty Ltd (1998) 14 BCL 201

Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297

Earle v Castlemaine District Hospital [1974] VR 722

Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494

Jones v Dunkel (1959) 101 CLR 298

Kirketos v Livschitz [2009] NSWCA 96

Kuhl v Zurich Financial Services Ltd [2011] HCA 11, 243 CLR 361

Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44

Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd (1998) 4 VR 559

Payne v Parker [1976] 1 NSWLR 191

Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd [No 1] (1993) 178 CLR 379

Ronchi v Portland Smelter Services Ltd [2005] VSCA 83

Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332

Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318

United Group Rail Services Ltd v Rail Corporation (NSW) (2009) 74 NSWLR 618

1. LE MIERE J:  The plaintiffs, Ms Eccles and Mr Stergiou, in 2007 carried on a health and fitness business in partnership under the name 'Cross Fit Health Centre'.  Ms Eccles was responsible for the day to day running of the business.  In late 2007 the plaintiffs agreed with the first defendant, Koolan Iron Ore Pty Ltd (Koolan), to provide a three month physical training programme for Koolan's employees on Koolan Island, off the Kimberley coast.  Koolan mines iron ore on Koolan Island.  It is a wholly owned subsidiary of the second defendant, Mount Gibson.  During the trial period the plaintiffs provided a fitness instructor to attend the gym on Koolan Island on a part time basis.

2. In May 2008 Ms Eccles met with Peter Taylor, who was Koolan's Administration Manager.  Ms Eccles and Mr Taylor discussed the plaintiffs providing services to Koolan beyond the trial period.  Ms Eccles gave to Mr Taylor a document outlining the programmes the plaintiffs could provide to Koolan and the proposed terms of engagement.  The document outlined two pricing structures, a price of $22,812.50 (plus GST) per month for 12 months or $33,458.38 (plus GST) per month on a month by month basis.  There were subsequent communications between Ms Eccles and Mr Taylor culminating in an email from Mr Taylor to Ms Eccles which attached a letter dated 24 May 2008 to Ms Eccles signed by Richard Jordinson, the General Manager of Koolan's operations on Koolan Island.  The letter said that Koolan would like to go ahead with the 12 month proposal on the basis that either party could end the arrangement with a month's notice.

3. On 4 June 2008 Ms Eccles sent an email to Clayton Angel, Koolan's OHS Co‑ordinator, which attached a draft contract.  The draft contract provided that from 1 July 2008 the remuneration would be $273,750 (plus GST), for a 12 month contract, that is a price of $22,812.50 (plus GST) per month which is described by the plaintiffs as the concessional rate.  Clause 10 of the draft contract provided that the contract 'can be exited at any point' providing one month's notice in writing is provided and 'the contract rate is reverted back pro rata to month to month pricing' of $33,458.33 per month (plus GST), (the rate reversion provision).  The month to month price is described by the plaintiffs as the ordinary rate.  Clause 9 provided that the contract 'will be revised for renewal 60 days prior to end date' (the revision for renewal clause).  On 10 June 2008 Ms Eccles signed the draft contract and delivered the copy signed by her (the Cross Fit contract) in an envelope to a Koolan administrative assistant on Koolan Island.  On 1 July 2008 Ms Eccles spoke to Mr Angel about the contract being signed.  Mr Angel telephoned Mr Jordinson in Ms Eccles' presence.  Ms Eccles says that after the telephone conversation Mr Angel said to her that the letter of acceptance was the 'good to go' and that Mr Jordinson would sign the contract when he returned from break the following week.  Koolan agrees that Mr Angel said that the letter of acceptance was the 'good to go' but denies that he said that Mr Jordinson would sign the contract when he returned to the island.  The Cross Fit contract was never signed by the defendants. 

4. On 7 April 2009 Mr Taylor emailed a letter to Ms Eccles which said that Koolan would not be continuing with Cross Fit's services after 19 May 2009.  The plaintiffs ceased providing services on Koolan Island on 19 May 2009. 

5. The plaintiffs say that there is an agreement between them and Koolan, or alternatively Mount Gibson, or in the further alternative Koolan and Mount Gibson jointly, on the terms of the Cross Fit contract.  The plaintiffs say that on its proper construction the agreement provides that if the defendant terminated the contract before 12 months had expired, then the increased monthly rate of $33,458.33 plus GST became payable from the beginning of the contract to the date of termination.  The plaintiffs say that the defendants breached the agreement by not paying the 'month to month' price for the period of the contract.  The plaintiffs further say that by not giving the plaintiffs a real and commercial opportunity for renewal of the contract the defendants breached the revision for renewal clause of the contract.  The plaintiffs say that the defendants repudiated the agreement.

6. The defendants deny that there is an agreement between either of them and the plaintiffs on the terms of the Cross Fit contract and deny that they breached any agreement between them and the plaintiffs.

The plaintiffs' pleaded case

1. The plaintiffs' pleaded case is as follows.  A contract was made on or about 10 June 2008 between the plaintiffs and the defendants.  The contract was partly in writing and partly by conduct.  The written part of the contract consists of an email with the draft contract sent by the plaintiffs to the defendants on 4 June 2008 and the Cross Fit contract delivered to the defendants on 10 June 2008.  The conduct of the plaintiffs constituting the contract consists of the plaintiffs delivering the Cross Fit contract to the defendants, the supply of services pursuant to the contractual terms between 1 July 2008 and 19 May 2009 and the raising by the plaintiffs of accounts pursuant to the contract at the concessional rate applicable only in the event of the application of the contract.  The conduct of the defendants giving rise to the contract is the defendants accepting the services supplied by the plaintiffs, paying the plaintiffs' fees for services raised pursuant to the Cross Fit contract at the concessional rate applicable only in the event of the continuance of the 12 month term provided for in the Cross Fit contract, the response to an enquiry by Ms Eccles before the commencement of the contract on 1 July 2008 by Mr Angel that the contract document would be finalised on the return to the island of Mr Jordinson and a statement by Mr Taylor to Ms Eccles on 18 August 2008 that 'the contract was on his desk and one of his jobs to get done'.

2. The term of the contract was for an initial period of 12 months commencing on 1 July 2008.  Either party could terminate the contract on one month's notice in writing during the original term but in the event of such early termination by the defendants, the concessional rate would not apply and all fees for services from the beginning of the contract to the date of termination would be recalculated retrospectively at the ordinary rate from the beginning of the contract to the date of completion.

3. Clause 9 of the contract provides that at least 60 days prior to 30 June 2009 (the end date) the parties will meet to enable the contract 'to be revised for renewal'.  The proper interpretation of that clause is that at least 60 days prior to the end date the parties would meet to review the contract and revise it for the purposes of a renewed term, and the opportunity to meet would be for the plaintiffs to have a real and commercial opportunity for renewal of the contract.  Alternatively, it was an implied term of the contract that the plaintiffs would be given a real and a commercial opportunity for renewal of the contract for a further period or periods of 12 months, such opportunity to be afforded less than 60 days prior to the end date.

4. In breach of the contract the defendants on 6 April 2009 terminated the contract effective from 19 May 2009, failed and refused to pay the plaintiffs retrospectively the 'ordinary rate' for the period of time worked, failed to give the plaintiffs a real and commercial opportunity to 'revise the contract for renewal', and refused to apply any rights to the plaintiffs on the basis that the contract existed at all and denied the contract was in place or had ever been in place.  That conduct constituted a repudiation of the contract, which repudiation was accepted by the plaintiffs by an email from Ms Eccles to Mr Taylor on 18 May 2009.  By reason of the defendants' breaches of contract and the repudiation of contract the plaintiffs have suffered damage in the loss of the commercial opportunity for renewal of the contract for the further period of 12 months or longer.

5. The plaintiffs plead an alternative case of estoppel.  The estoppel is based on the following.  By their conduct in delivering the Cross Fit contract to the defendants, supplying services pursuant to the contractual terms between 1 July 2008 and 19 May 2009 and raising accounts pursuant to the contract at the concessional rate, the plaintiffs assumed that the contract was in force and that the legal relationship created by that contract existed or would exist and that the defendants were not free to withdraw from the expected legal relationship.  The defendants, by their conduct in accepting the services supplied by the plaintiffs, paying the plaintiffs' fees for services raised pursuant to the Cross Fit contract at the concessional rate and by the statements of Mr Angel and Mr Taylor referred to, induced the plaintiffs to adopt that assumption or expectation.  The plaintiffs acted to their detriment by providing the services.  The defendants knew or intended the plaintiffs to so act to their detriment in reliance on the assumption of contract or expectation of contract.  The defendants' actions will occasion detriment to the plaintiffs if the assumption or expectation is not fulfilled.  The defendants have failed to act to avoid the detriment, whether by fulfilling the assumption or expectation or otherwise.

Defendants' pleaded case

1. Mount Gibson denies that there was any contract between it and the plaintiffs, denies that the plaintiffs provided any services to it or that it paid the plaintiffs for any services provided.  Mount Gibson denies that it contracted with the plaintiffs at all.

2. Koolan admits that between January 2008 and May 2009 the plaintiffs provided gymnasium services for Koolan but denies that it did so on the terms of the Cross Fit contract.  Koolan pleads three alternative agreements.  In its pleaded defence, the primary case put by Koolan is an agreement based on purchase orders and invoices.  The first alternative case is an agreement based on the 24 May letter from Mr Jordinson to Ms Eccles.  Koolan mounts another alternative case called the New Contract.  It is not necessary to say anything further about that argument.  In their oral submissions the defendants put the agreement based on the 24 May letter as their primary case and the agreement based on the purchase orders and invoices as the alternative case.

3. The defendants' case based on the purchase orders and invoices is as follows.  There was an agreement between the plaintiffs and Koolan made partly in writing and partly by conduct or as a result of a course of dealing between them.  Insofar as it was made in writing the agreement is contained in or to be inferred from the purchase orders and invoices delivered by the defendants and plaintiffs respectively.  The purchase orders stipulated that 'all business is conducted in accordance with [Koolan's] standard terms and conditions'.  The standard terms and conditions provide that the buyer (Koolan) may, by giving seven days' notice to the seller (plaintiffs), terminate the agreement and if Koolan terminates the agreement the plaintiffs are only entitled to reasonable reimbursement of costs for the services actually performed up until termination.  On 19 May 2009 Koolan terminated the plaintiffs' services and paid for the services in accordance with the purchase orders.

4. The defendants' case based on the 24 May letter is as follows.  The agreement between the plaintiffs and Koolan was made partly in writing and partly by conduct and/or as a result of a course of dealing between the plaintiffs and Koolan.  The written part of the agreement consists of a letter from Ms Eccles to Mr Jordinson which attached the proposed terms on which the plaintiffs would provide services, an email of 23 May 2008 from Mr Taylor to the plaintiffs and an email from Mr Taylor to the plaintiffs dated 25 May 2008 attaching the 24 May letter from Mr Jordinson to Ms Eccles.  Insofar as the agreement was by conduct it is to be inferred from the plaintiffs providing services to Koolan between 1 July 2008 and 20 May 2009 and Koolan rendering monthly purchase orders between July and December 2008 and quarterly purchase orders for the periods January to March 2009 and April to June 2009.  Further, the plaintiffs issued monthly invoices to Koolan in response to the purchase orders and Koolan paid the invoices.  The terms of the contract are that the contract was for a 12 month term unless either party terminated with a month's notice in writing and Koolan would pay the plaintiffs $22,812.50 (plus GST)  per month.  On 6 April 2009 Koolan gave the plaintiffs notice in writing that the contract would terminate on 19 May 2009.

5. Koolan mounts a further alternative case.  Koolan says that if there was a contract on the terms of the Cross Fit contract then it was repudiated by the plaintiffs.  The repudiation is to be found in communications culminating in the email of 18 May 2009 from Ms Eccles to Mr Taylor.  The defendants say that Koolan accepted the plaintiffs' repudiation by their solicitor's letter of 19 May 2009.

6. Koolan further says that if its letter of 6 April 2009 was a repudiation of the contract between the plaintiffs and Koolan, then by a letter of 22 April 2009 the plaintiffs elected, subject to acceptance by Koolan of the offer, to affirm the contract and by a letter of 4 May 2009 Koolan accepted the offer.  As a consequence of those matters Koolan says that the plaintiffs were no longer entitled to terminate the contract and by their email of 18 May 2009 the plaintiffs repudiated the contract and Koolan accepted the repudiation by their solicitor's letter dated 19 May 2009.  Koolan further says that by reason of the matters referred to, the plaintiffs failed to take reasonable steps to mitigate their losses.  Koolan denies the plaintiffs' estoppel case.

No contract between plaintiffs and Mount Gibson

1. It is convenient at the outset to deal with the issue of whom, if anybody, the plaintiffs contracted with.  There was no agreement between the plaintiffs and Mount Gibson.  The services provided by the plaintiffs were provided to, or for the benefit of, Koolan's employees.  Between April and June 2008 the plaintiffs provided their services after receiving a purchase order to provide a three month programme for site staff on Koolan Island.  The purchase order, KIO30917 dated 26 December 2007, is a Koolan purchase order.  The invoices rendered by the plaintiffs for services provided pursuant to that purchase order were issued to Koolan.  The remittance advices of payments to the plaintiffs were rendered by Koolan.

2. Mr Jordinson's 24 May 2008 letter blurred the matter insofar as he signed the letter below the description 'Mount Gibson Iron Limited'.  However, the letterhead, whilst bearing the Mount Gibson Iron logo, is a Koolan letterhead.  It contains the full name 'Koolan Iron Ore Pty Ltd' and the ABN for that company.  Ms Eccles' relevant communications were with employees of Koolan.  Purchase orders subsequently issued to the plaintiffs in respect of their services provided were Koolan purchase orders.  The invoices rendered by the plaintiffs were addressed to Koolan.  The services provided by the plaintiffs were provided to and for the benefit of and paid for by Koolan.  Any contract was a contract between the plaintiffs and Koolan.

3. To determine whether the parties made a contract on the terms of the Cross Fit contract as alleged by the plaintiffs, including the rate reversion provision and the revision for renewal clause, requires a careful examination of the communications between, and conduct of, the parties in the circumstances of the case.

The trial period

1. In 2007 the plaintiffs operated a gym in Wangara.  Mr Angel was employed by Koolan as OHS Co‑ordinator.  He lived in the vicinity of the plaintiffs' gym.  Mr Angel called upon Ms Eccles at the gym.  He asked Ms Eccles to put together a proposal to manage Koolan's gym on Koolan Island.  Ms Eccles put together a proposal for a trial of Cross Fit's services on Koolan Island and gave it to Mr Angel.  In late 2007 Koolan approved the three month programme that Ms Eccles had proposed and issued purchase order KIO30917 dated 26 December 2007 which described the services being purchased as '3 Month Physical Training programme for site staff' for a price of $28,215 plus GST for a total of $31,036.50.  During the three month period the plaintiffs were to provide services on Koolan Island for about eight days per month.

2. Koolan issued a further purchase order KIO30946 on 8 January 2008 for '6 days on site health assessment and promotion'.  The plaintiffs issued an invoice, which referred to purchase order KIO30946, on 18 January 2008 for '1 month promotions, 6 days on site'.  The plaintiffs issued an invoice dated 5 April 2008 for services provided between 1 April and 30 April 2008.  The invoice referred to Koolan's purchase order KIO30917 of 26 December 2007.  Although they are not in evidence it is likely that the plaintiffs issued other invoices for services in accordance with Koolan's purchase order KIO30917.

Negotiations for fulltime programme

1. On 2 April 2008 Ms Eccles sent an email to Mr Angel in which she reported on equipment ordered and services provided and stated that they would need to arrange a new purchase order for her to invoice starting from the month of May and attached the additional pricing for that.

1. Sometime in April 2008, Mr Angel and Ms Eccles met at the plaintiffs' gymnasium in Wangara.  They discussed the plaintiffs providing to Koolan services on a fulltime basis or a programme involving one week on and one week off.  They agreed for the two of them to meet with Mr Jordinson to discuss the future provision of health and lifestyle services by Cross Fit on Koolan Island.  Before any meeting took place, Ms Eccles sent an email to Mr Angel on 25 April 2008 to which she attached pricing for the May/June period.  The document entitled 'May/June pricing' stated the onsite health and lifestyle management services for 28 days to be $25,200 and that the pricing was based on Cross Fit supplying one person onsite at any one time for a maximum of 14 days per month.  The email noted that Mr Angel would be away for the month of May and requested that he arrange a purchase order for the plaintiffs to invoice against whilst he was away.

2. Due to Mr Jordinson's limited availability, Ms Eccles met Koolan's Administration Manager, Mr Taylor, on Koolan Island on 16 May 2008.  At the meeting Ms Eccles handed to Mr Taylor an undated letter from Ms Eccles to Mr Jordinson and a four page document (Cross Fit May Proposal) that included the following proposal:

   12 MONTH CONTRACT

   Cross Fit will provide a Health & Lifestyles Coordinator on Site for 365 days, 1 person on site at any one time unless requested otherwise.  NB:  Pricing can be tailored upon request if less or more days are required on site.

   Staff allocated on site will work a 12 hour split shift each day.

   The Health & Lifestyles Coordinator allocated on site will run off a 12 month scheduled events planner signed off by management, incorporating all services listed above.

PRICING
DESCRIPTION	$ Per Month	Months	$ ex GST
ONSITE HEALTH & LIFESTYLES MANAGEMENT [365 DAYS]	$22,812.50	12	$273,750.00
SUBTOTAL	$273,750.00
GST	$  27,375.00
TOTAL	$301,125.00
MONTH BY MONTH
PRICING
DESCRIPTION	$ Per Month	Months	$ ex GST
ONSITE HEALTH & LIFESTYLES MANAGEMENT [365 DAYS]	$33,458.33	12	$401,500.00
SUB TOTAL	$401,500.00
GST	$  40,150.00
TOTAL	$441,650.00

1. During that meeting Ms Eccles and Mr Taylor discussed the services that the plaintiffs could provide to Koolan.  Mr Taylor says that, amongst other things, he said the following things to Ms Eccles.  First, Koolan could not guarantee a minimum of 12 months as both parties should have the option to terminate with a month's notice in writing if things were not working out.  Secondly, he saw no reason why the arrangement would not continue for 12 months as that would provide some certainty but that both parties needed an out.  Thirdly, he was only prepared to recommend the proposal to Mr Jordinson based on the lower rate of $22,812 (plus GST) per month because in his view the month by month cost of $33,458.38 (plus GST) was too high.  Ms Eccles denies that Mr Taylor said those things.

2. I accept Mr Taylor's evidence on that point for a number of reasons.  First, Ms Eccles' recollection is inaccurate.  In her witness statement Ms Eccles said that she presented to Mr Taylor the material she had previously shown to Mr Jordinson.  She had not previously shown the material to Mr Jordinson.  Secondly, Mr Taylor's evidence is consistent with what Mr Jordinson says Mr Taylor said to him and Mr Jordinson's letter of 24 May 2008 is consistent with the recommendation which Mr Taylor says he told Ms Eccles he would make to Mr Jordinson.  Thirdly, Mr Taylor's account is inherently more likely.  Ms Eccles agreed that she pointed out to Mr Taylor the 12 month rate and the month by month rate in the proposal and that the proposal was for a 12 month contract but says that Mr Taylor did not say anything about those matters.  Ms Eccles says that 'we did not go into great detail because he had advised me that the dollars and cents was not really up to him.  We talked more about the programme'.  That seems unlikely because the purpose of the meeting was to discuss Ms Eccles' proposal and the length of the contract and the rate of payment are critical elements of that proposal.

3. On about 22 May 2008 Mr Jordinson met with Mr Taylor to discuss the plaintiffs' proposal.  Mr Taylor gave to Mr Jordinson the undated letter from Ms Eccles and the Cross Fit May Proposal.  Mr Jordinson says that he said to Mr Taylor that he was not prepared to pay $33,458.33 per month and accepted Mr Taylor's recommendation to enter into a 12 month contract with Cross Fit at the lower rate of $273,750 (plus GST) per annum subject to the ability to terminate on one month's notice.  Mr Jordinson says that he authorised Mr Taylor to enter into a 12 month contract with Koolan on that basis.  On or about 24 May Mr Jordinson signed the letter from Koolan to Ms Eccles dated 24 May 2008.

4. On 25 May Mr Taylor sent an email to Ms Eccles attaching Mr Jordinson's 24 May letter and stating that it confirmed approval to commence the 12 month programme outlined in Ms Eccles' May proposal.  The letter stated, amongst other things:

   We would like to go ahead with the 12 month proposal and pricing structure on the following basis:

   Cross Fit provides monthly progress, activity and participation reports.

   An agreed schedule of activities and participation targets are established.

   Either party can end the arrangement with a month's notice in writing.

   If you have any question please do not hesitate to contact Peter Taylor, Administration Manager until Clayton Angel returns from leave.

5. When Ms Eccles received the email and letter she recognised that the proposal which Mr Jordinson said he would like to go ahead with was different from either of the proposals in the Cross Fit May Proposal.  As Ms Eccles says in her witness statement, the letter took in the 12 month programme which was on a concessional rate but also allowed termination on a month's notice.  Ms Eccles says that 'to marry these two proposals' she drew a contract so that if there was an early termination the rate would revert to the higher monthly rate.  The proposal in the draft contract was different from, and inconsistent with, that in Mr Jordinson's letter of 24 May 2008.  The effect of Mr Jordinson's letter was that Koolan could terminate the agreement on giving one month's notice and would not have to pay anything other than for the services rendered during the notice period at the same rate.  The effect of Ms Eccles' draft contract is that if Koolan terminated the agreement it would have to pay for all services from the beginning of the contract to the date of termination recalculated retrospectively at the higher rate. 

6. On 4 June Ms Eccles sent to Mr Angel an email which attached the draft contract and said:

   I have attached a draft copy of the contract terms & conditions.

   Next week and when I'm on site, we will need to arrange a time to run through the contract and the appendix A & B.

   …

   If there is anything Koolan Island management would like included in the contract, please advise me so I can arrange for the solicitor to make any necessary changes.

   The draft contract attached to the email was accompanied by a letter to Mr Jordinson which said:

   Thank you for your letter of acceptance for Koolan Island's proposed Health & Productivity Program.  The Contract terms and conditions are set out below … Upon acceptance of this offer, this letter will record the terms and conditions of the contract between Cross Fit and Mount Gibson Iron Limited, Koolan Island Operation.

   Ms Eccles' email to Mr Angel of 4 June concluded by saying that she hoped to get the contract finalised and bring it with her on Tuesday, that is 10 June.  A reasonable person receiving Ms Eccles' email would have assumed that the draft contract was consistent with the terms and conditions proposed by Mr Jordinson in his letter of 24 May 2008.  That is because it thanked Mr Jordinson for his 'letter of acceptance' and said that the contract terms and conditions were in the attached document but made no reference to the contract document containing terms that were inconsistent with those which Mr Jordinson had purported to accept.

7. Mr Angel forwarded Ms Eccles' email to Mr Taylor.  Mr Taylor read the email and opened the attached draft contract but did not read or otherwise deal with the draft contract because he was very busy at the time and he believed that Cross Fit had been providing services to Koolan since the beginning of 2008 in accordance with Mount Gibson's standard terms which he considered adequate for services of that nature.

8. Ms Eccles received no response to her email from Mr Angel or Koolan.  On 10 June she delivered the Cross Fit contract signed by her and Mr Stergiou in an envelope to Ms Ricketts, an administrative assistant at the accommodation village on Koolan Island.  Ms Eccles told Ms Ricketts that the contract was in the envelope to be signed.  Ms Ricketts said that she would give the envelope to Mr Taylor.  Ms Ricketts gave the envelope to Mr Taylor.  Mr Taylor opened the envelope, looked at it and thought that it was just another copy of the one that had been forwarded to him by Mr Angel on 4 June.  Mr Taylor did not read the contract and put it in his pending tray to be dealt with at a future time.  The Cross Fit contract was in the same terms as the draft contract forwarded to Mr Angel by Ms Eccles by her email of 4 June.  Clause 12 of the Cross Fit contract is:

   Please confirm your acceptance of this offer by signing both copies of this letter and Return one signed copy to Cross Fit.

   As I have said, Koolan never signed the Cross Fit contract or returned a copy to Cross Fit.

Cross Fit starts fulltime

1. After Ms Eccles received Mr Jordinson's letter of 24 May she started looking for an employee to take on on a fulltime basis to enable Cross Fit to provide fulltime services on Koolan Island.  In her witness statement Ms Eccles says:

   On the basis of the letter of 24 May on the 12 month contract I hired Luke McGinity … Luke was to go on site fulltime on a fly in fly out basis.  Gayle and I would share the other half of the program.  It was two weeks on, one week off … I employed Luke on the basis of the 12 month contract awarded by Peter Taylor on 24 May.  We started the new arrangements on a fulltime basis on 1^st July.

   In cross‑examination Ms Eccles first agreed that she hired Luke McGinity on the basis of the 24 May letter from Mr Jordinson.  Subsequently Ms Eccles qualified that statement.  However, I find that Ms Eccles decided to employ Mr McGinity on the basis of the 24 May letter.

Eccles meets Angel in late June, Angel telephones Jordinson

1. On 25 June Ms Eccles sent an email to Mr Angel and Mr Taylor which said that Cross Fit was due to commence fulltime on 1 July and asked for eight issues to be addressed.  The first issue was the contract.  Ms Eccles' email said that the contract 'needs to be signed and returned to Cross Fit.  Targets and scheduled activities will also need to be discussed'.

2. In late June Ms Eccles spoke to Mr Angel on Koolan Island.  She says that she said to Mr Angel words to the effect, 'The contract has not been signed.  Can we have closure?'  Ms Eccles asked Mr Angel to follow the matter up with Mr Jordinson.  At the time Mr Jordinson was in Perth.  In June and July 2008 Mr Jordinson was absent from work for extended periods for personal reasons.  Mr Angel telephoned Mr Jordinson.  Ms Eccles was present when Mr Angel made the telephone call and was able to hear Mr Angel's side of the conversation.  Ms Eccles says that she heard Mr Angel say:

   I have Rebecca standing in the office.  She wants closure on the contracts she delivered.  When can she expect to have a signed copy of the contract?

   Ms Eccles says that after the telephone conversation ended Mr Angel said words to the effect:

   Jordinson said the letter of acceptance was the … good to go, and he will sign the contract when he returns from break next week.

   Ms Eccles says she was satisfied by this, that her contract document would be signed and that the contract was agreed.  She further says that on the faith of that expectation she proceeded to put in place the fulltime arrangements with Luke McGinity and the other staff.

3. Mr Jordinson gave evidence about the phone call from Mr Angel.  Mr Jordinson says that Mr Angel told him that he had called to ask about finalising the contract with Cross Fit.  Mr Jordinson says he recalls saying to Mr Angel words to the effect:

   As far as I am concerned the contract was finalised long ago and that I had signed and sent a letter in May 2008 confirming the terms of the contract but that if there was a problem I would sort it out when I returned to Koolan Island.

4. Mr Angel did not give evidence.  The defendants submit that a Jones v Dunkel (1959) 101 CLR 298 inference should be drawn against the plaintiffs for their failure to call Mr Angel to give evidence about the statements Ms Eccles says Mr Angel made to her. The plaintiffs say that a Jones v Dunkel inference should be drawn against the defendants.

5. The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case:  Kuhl v Zurich Financial Services Ltd [2011] HCA 11, 243 CLR 361 [63] (Heydon, Crennan & Bell JJ). The rule can only apply where certain conditions are met. The rule cannot be applied to the non‑calling of a witness unless it would be natural for the party to call the witness or the party might reasonably be expected to call the witness.

6. The controversy between the parties is whether Mr Angel would be expected to be called by one party rather than another and if so by whom.  The plaintiffs say that Mr Angel should be regarded as being 'in the camp' of the defendants because he was their employee and was in a management role and he was expressly appointed by the general manager, Mr Jordinson, to answer questions on the contract.  The defendants acknowledge that an employee may be considered to be in the camp of that party but say that the mere fact that a person is a party's employee is not of itself sufficient to place that person in the party's camp.  The defendants say that the relevant circumstances are that Mr Angel resigned from the defendant's employment in or about July 2008, that is before this action was commenced and five years before the trial.  Further, the defendants say that there is evidence to suggest a connection between Ms Eccles and Mr Angel which arguably places him in the plaintiff's camp, having regard to the fact that Mr Angel's connection began with Ms Eccles at the plaintiff's Wangara gymnasium and Ms Eccles' introduction to Koolan Island was made through Mr Angel and of Mr Angel's unsolicited suggestion from which it may fairly be supposed that Ms Eccles was in the confidence of Mr Angel.

7. In Earle v Castlemaine District Hospital [1974] VR 722, 734 Lush J said:

   The fact that some evidence has been given on behalf of one party on an issue will not entitle him to the comment that the failure of the other party to call a particular witness who was equally available to both parties can be used by the jury to support the first party's case.  That is merely to say that not every case where the state of the evidence is such that the onus of adducing evidence is discharged by one party and shifts to the other will be appropriate for a direction of the kind sought in the present case.  The bare fact that the absent witness is an employee of the party against whom his absence is sought to be used will not necessarily be sufficient, though the higher he stands in the party's employment or confidence the more reason there will be for thinking that his knowledge is available to his employer rather than to any other party.  If the knowledge in point is of a kind which an employee would or should be unlikely to disclose to the opposing party, that may also be relevant to a decision whether the direction should be given.  In the present case the duties which the engineer performed for the defendant are known only from the fact that he was described as engineer and safety officer, but I think that even from so little information it can fairly be inferred that his knowledge was available to the defendant rather than to the plaintiff.  The defendant had the right to know in advance what he would say; the plaintiff had no such right and it is not difficult to think of sound reasons why the engineer might refuse to make his knowledge available to her.

8. In Payne v Parker [1976] 1 NSWLR 191 Glass JA in a dissenting but much referred to judgment discussed the principle. In considering which party could fairly be expected to call a witness in his case Glass JA said that three factors were relevant to the question of which party would be expected to call the witness: the accessibility of the witness' evidence to the parties, the witness' relationship to them and the nature of the cases respectively advanced by them.

9. In Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 Eames JA, with whom Buchanan JA agreed said:

   The jury received no direction as to how to determine whether a missing witness was in the camp of one party or the other.  The mere fact that a missing witness was or had been an employee of the respondent was not sufficient to place him or her in the respondent's camp, but the higher the person stood in the structure or confidence of the employer the more likely it was that the witness was in the camp of the respondent:  see Earle v Castlemaine District Hospital. …

   … His Honour's direction seemingly placed Elford in the appellant's camp, but, properly directed, it was much more likely that the jury would have regarded him as being in the respondent's camp.  Although he had left the company his role at the time of the plaintiff's claim was akin to a management one, and if the plaintiff was injured due to defects in the seating and maintenance of the haulers, for which Elford was responsible as supervisor, then he was arguably more likely to want to defend the company's position, rather than support the plaintiff's claim [33] – [34].

10. There is no reason to suppose that Mr Angel's evidence would not have been available to both parties if their legal advisors had applied to him.  This is not a case, like Earle v Castlemaine District Hospital, where the defendant had the right to know in advance what the witness would say and the plaintiff had no such right, and there are no reasons why Mr Angel might refuse to make his knowledge available to the plaintiffs.  The evidence discloses an amicable working relationship between Ms Eccles and Mr Angel and there is no reason to suppose he would not have given a statement of evidence to the plaintiffs.  Both the plaintiffs and the defendants could have asked Mr Angel to give them a statement of evidence and to attend court to give evidence.  Neither of them had the right to require Mr Angel to do so, other than by causing a subpoena to be issued to him.

11. I do not accept the defendants' submission that the evidence establishes a connection between Ms Eccles and Mr Angel which places him in the plaintiffs' camp.  The evidence does not establish that there was any relationship between Mr Angel and Ms Eccles beyond that of two people who had worked together.  On the other hand, I do not accept the plaintiffs' submission that Mr Angel should be considered in the camp of his employer at the time because he is more likely to want to defend the company's position rather than to support Ms Eccles' claim due to his position in the company.  This is not a case, like Ronchi, where the plaintiffs' case involves any criticism of Mr Angel or from which any inference adverse to Mr Angel might be drawn.

12. The nature of the cases advanced by the plaintiffs and defendants respectively does not point to one party or the other being expected to call Mr Angel to give evidence.  The plaintiffs bear the legal onus of proving that a contract was made on the terms of the Cross Fit contract and the statement by Mr Angel of what Mr Jordinson said is a matter relied upon by the plaintiffs to prove their case.  The contract required Mr Jordinson's approval.  Mr Angel did not have authority to sign or agree the contract.  Ms Eccles knew that.  There was evidence from Mr Jordinson that he did not say to Mr Angel that he would sign the contract when he returned to Koolan Island.  Furthermore, it might be inferred from Ms Eccles' subsequent statements that the contract was 'still to be finalised' that Mr Angel had told her that Mr Jordinson had said that he would sort out or finalise the contract on his return to Koolan Island rather than that he would sign it.  In Payne v Parker Glass JA said at 201 that the principle in Jones v Dunkel may be invoked for a deficiency in the evidence of a party bearing the legal onus of proving an issue, and in such a case the failure of the party to call a witness would be that the direct evidence of the party carrying the onus may be more readily rejected and the inferences for which she contends may be treated with greater reserve.  Those matters suggest that the plaintiffs would be expected to call Mr Angel to give evidence.  On the other hand, the plaintiffs had called evidence from Ms Eccles of what Mr Angel said.

1. In the end I find that the relevant condition for applying the Jones v Dunkel rule is not satisfied.  I am not satisfied that Mr Angel would be expected to be called by one party rather than the other.  Either party could have called him to give evidence but neither did so.

2. In Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345, French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ said:

   Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led.  Principles governing the onus and standard of proof must faithfully be applied.  And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard.  But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC [165].

3. In her witness statement Ms Eccles says that Mr Angel said words to the effect:

   Jordinson said the letter of acceptance was the … good to go, and he will sign the contract when he returns from break next week.

   I am not satisfied that Mr Angel said that Mr Jordinson had said that he would sign the contract when he returned from break next week.  In cross‑examination Mr Jordinson agreed that he may have said that the letter of acceptance, that is, his letter of 24 May 2008, was the good to go and that he may have said that he signed the letter.  He said that he may have said words to the effect that he had signed the contract, the deal was done as far as he was concerned but he did not say that he would sign the contract when he returned from break next week.  He said he would basically sort something out when he got back.  I accept that evidence for the following reasons.

4. First, in the plaintiffs' statement of claim it is pleaded that Mr Angel said, after his telephone conversation with Mr Jordinson, that the contract document 'would be finalised on the return to the Island by Mr Jordinson'.  There is a significant difference between a statement that Mr Jordinson would sign the contract when he got back and the statement that he would sort it out or finalise it when he got back.

5. Secondly, Ms Eccles says that Mr Angel said that Mr Jordinson had said the letter, meaning the letter of 24 May 2008, was the good to go, the go ahead to commence.  It is inherently unlikely that Mr Jordinson would have said that the 24 May letter was the go ahead, or that he had signed that letter, and at the same time say that he would sign the Cross Fit contract, when he got back from his break.  It is probable that Mr Jordinson said, and Mr Angel repeated words to the effect, that Mr Jordinson would finalise it or sort it out when he got back.

6. Thirdly, my finding is supported by Ms Eccles subsequent conduct.  In her email of 15 August to Mr Taylor Ms Eccles said, 'as discussed on site, our contract is still to be finalised.  Could you please advise me on when I can expect it to be finalised'.  Ms Eccles made no reference to Mr Jordinson having said that he would sign the contract on his return to the island.

Plaintiffs proceed

1. Ms Eccles says that she was satisfied by the telephone conversation that the Cross Fit contract would be signed and that the contract was in fact agreed.  In her witness statement she says that on the faith of that expectation she proceeded to put into place the fulltime arrangements with Luke McGinity and the other staff.  I find that Ms Eccles had already engaged Mr McGinity.  In her email of 25 June to Mr Angel and Mr Taylor she said that Mr McGinity was due to fly up on 30 June.  Ms Eccles had engaged Mr McGinity in reliance on the 24 May letter.

2. On 10 July Cross Fit issued invoice number 61 to Koolan for July 2008 in the amount of $22,812.50 plus GST.  On 11 July Koolan issued a purchase order for 'on site health and lifestyle Management July 08' (number 31705) in the amount of $22,812.50 plus GST.  Cross Fit issued invoice number 81 dated 15 August 2008 for August 2008 in the amount of $22,812.50 plus GST.  However, it seems unlikely that the invoice was issued on 15 August because it refers to purchase order number 31983.  Koolan's purchase order number 31983 is dated 21 August 2008 and is for 'Health & Lifestyle Mgt August'.

Eccles telephone conversation with Taylor 18 August

1. Ms Eccles spoke to Ms Ricketts, the administrative assistant, at the end of July.  Ms Ricketts said that she would raise a purchase order for that month and then they would have a purchase order raised for the balance of the 12 months.  Ms Eccles says she telephoned Mr Taylor and asked him 'how [does she] go about invoicing for the contract' and said she had not yet received a signed copy of the contract and did not have a purchase order for the contract price.  Ms Eccles says that Mr Taylor replied with words to the effect:

   This is one of my jobs to get done.  In the meantime contact Finn or Deb at administration and have them raise a purchase order for the month of August 2008.

2. Mr Taylor's evidence is materially different from that of Ms Eccles.  Mr Taylor says that on 18 August 2008 Ms Eccles telephoned him and asked if the contract had been finalised.  He says he said to Ms Eccles words to the effect that he had not reviewed the Cross Fit draft contract and that the provision of H & L services should continue on the basis of the monthly purchase orders and invoices.  He says he told Ms Eccles to send the invoices to Debra Hayton, Koolan's administration co‑ordinator and that she would raise a purchase order for the services each month.  He says Ms Eccles said 'Ok' or words to that effect.

3. I find that Mr Taylor did not say words to the effect that he was going to sign the Cross Fit contract or that signing the Cross Fit contract was one of the jobs that he was going to do.  I find that Mr Taylor said words to the effect that he had not yet reviewed the Cross Fit contract and that was one of the jobs for him to attend to.  I make that finding for the following reasons.

4. First, in their statement of claim the plaintiffs do not plead that Mr Taylor replied 'this is one of my jobs to get done' in response to Ms Eccles saying that she had not yet received a signed copy of the contract.  In their statement of claim the plaintiffs say that Mr Taylor's statement was in response to 'a further inquiry by [Ms Eccles]'.

5. Secondly, the finding is consistent with an email sent by Ms Eccles to Mr Taylor before the telephone conversation.  On 15 August Ms Eccles sent an email to Mr Taylor and Mr Morris, Mr Morris was the new safety manager.  The email was principally about an incident concerning Ms Eccles having an office installed for Cross Fit's use and a disagreement which had arisen in relation to it.  The third last paragraph of the email said:

   As discussed onsite, our contract is still to be finalised.  Could you please advise me on when I can expect it to be finalised.

   Last month was the commencement of Cross Fit being on site fulltime, as the contract was not finalised Fin assisted me with raising a purchase order for the month of July.  I am now due to invoice the company once again for our time but unfortunately have no purchase order to invoice against.

   If you could arrange a prompt purchase order for me that would be very much appreciated.

   Please find attached another copy of the contract and an invoice for the month of August.

6. Ms Eccles stated in that email three days before the telephone conversation that the contract was still to be finalised, not that it was awaiting signature.

7. Thirdly, the finding is consistent with an email sent by Ms Eccles to Ms Hayton after the telephone conversation.  On 18 August 2008, that is the day of the conversation, Ms Eccles sent an email to Ms Hayton and Mr Taylor in which she said that she had spoken to Mr Taylor in regards to having a purchase order raised for the month of August 'as we are still waiting for our contract to be finalised Peter has suggested having a purchase order raised monthly at this stage'.  Ms Eccles' statement that she was waiting for the contract to be finalised is more consistent with Mr Taylor having said that he had not reviewed or finalised the contract and that was one of his jobs to get done rather than him having said that he would sign the contract.

Koolan raises purchase orders and plaintiffs render invoices

1. After 18 August Koolan continued to issue purchase orders to the plaintiffs and the plaintiffs issued invoices to Koolan which referred to the purchase orders.  For example, Koolan issued purchase order number 31983 for 'Health & Lifestyle Mgt August' and the plaintiffs issued invoice number 81 for 'On Site Health & Lifestyles Management August 08' which referred to purchase order 31983.  Koolan continued to issue purchase orders and the plaintiffs to issue invoices and Koolan paid the invoices.

ESS approaches Koolan

1. Eurest Support Services (ESS) is a subsidiary or part of the catering company Compass Group which provides catering and facilities to mining companies and others.  In 2008 ESS provided Koolan with catering services and camp services, including managing the tavern.  In November 2008, Shaun Palmer, area manager of ESS, told Mr Taylor that ESS was able to extend its current services to include health and lifestyle services.  Mr Taylor told Mr Palmer that Koolan would be happy for ESS to put a proposal to Koolan but he would prefer to allow their current provider, Cross Fit, to complete 12 months of full time service on the island.  On 16 November Mr Palmer sent an email to Mr Taylor attaching brochures about ESS' health and lifestyle services and a quote for providing health and lifestyle services to Koolan.  In February 2009, at Mr Palmer's request, Mr Taylor met with Mr Palmer and Ben Condon, ESS's health and lifestyle services manager, on Koolan Island and discussed ESS expanding its existing services to Koolan to include health and lifestyle services.  Mr Taylor told Mr Palmer and Mr Condon that Koolan had an arrangement with Cross Fit for health and lifestyle services that ran until May 2009, that the arrangements with Cross Fit could be terminated on a month's notice but that Koolan had committed to 12 months with Cross Fit and he wished to honour that agreement unless there were particularly good reasons not to.  Mr Taylor found the ESS presentation impressive.  ESS offered a range of programmes and community involvement to specifically broaden participation.

2. On 29 March Mr Taylor told Mr Shere, Koolan's occupational health and safety superintendent, that Cross Fit's 12 month term was up soon and he would prefer to wait until Cross Fit's 12 month term had expired rather than terminate it earlier.  On 5 April Mr Taylor informed Mr Palmer that Koolan wanted to go ahead with ESS' proposal to add the health and lifestyle services to ESS' existing services.

3. Ms Eccles was aware of Koolan's interest in ESS providing health and lifestyle services to Koolan.  In about December 2008 Ms Eccles had spoken to Peter Shere, Koolan's new safety manager, about rumours she had heard that ESS had put in a proposal to provide health and lifestyle services to Koolan.  In early 2009 Ms Eccles had said to Mr Shere that her contract was coming up for renewal, that she needed to look at other staff members and that she did not want to do that if she was not going to be carrying on at Koolan Island.  Mr Shere informed Ms Eccles that he was not in a position to give her any information about that.

Plaintiffs' services terminated

1. On 7 April 2009 Mr Taylor sent an email to Cross Fit which attached a letter dated 6 April 2009.  The letter stated:

   Cross Fit have provided gym management services for Koolan for 12 months now in line with our original commitment.  However, we have now decided to rationalise our service providers and consequently we will no longer require Cross Fit's services from 19 May 2009 onwards.

   The email stated that Koolan was providing Cross Fit with six weeks plus notice.  Ms Eccles replied with an email of 8 April 2009 which expressed regret at Koolan's decision and asked whether Koolan had considered the option of negotiating the current rates and packages that Cross Fit offer.  Mr Taylor replied by email on 14 April stating, amongst other things, that the decision was based on consolidation of service providers and a broadening of the scope of the services as well as significant costs savings.

2. Ms Eccles retrenched staff.  Ms Eccles then sought legal advice.  On 22 April 2009 the plaintiffs' solicitor, M J McPhee, wrote to Koolan.  The letter stated:

   The commitment of the parties is reflected in the agreement signed by my clients and delivered to Koolan Iron Ore Pty Ltd on the 4 June 2008.

   Although it appears this contract was not signed by Koolan Iron Ore Pty Ltd, it was acknowledged by them, throughout the life of the contract, as the basis upon which my client was working.  That contract makes clear that the original period of service was for 12 months from the 1 July 2008, expiring on the 30 June 2009.

3. The letter also referred to the 'revision for renewal' clause and said that at the very least this clause gave the plaintiffs 'a confirmed opportunity to bid for renewal and have such bid considered objectively and reasonably'.  The letter requested that Koolan's letter of 6 April 2009 be withdrawn, the contract be extended to 30 June 2009 and that there be a conference 'with a view to revising the original contract for renewal'.

4. On 4 May Mr Berg wrote to the plaintiffs' solicitor stating that the relationship between the plaintiffs and Koolan is not accurately recorded in the Cross Fit contract, that Koolan had not acknowledged it and it was not the case that that document was the basis upon which the plaintiffs were working.  Mr Berg said that Koolan would withdraw its letter dated 6 April 2009, continue its current arrangement with the plaintiffs until 30 June 2009 and meet with representatives of the plaintiff to consider allowing the plaintiffs an opportunity to bid for renewal of the current arrangement between Koolan and the plaintiffs.

5. On 6 May the plaintiffs' solicitor responded stating that Koolan should acknowledge that the terms of the agreement already include provisions for the contract to be 'revised for renewal 60 days prior to end date'.  The letter stated that this must mean 'simply altering or amending the Contract to suit existing circumstances' and assumes the contract will be renewed.  The letter stated that the conference proposed by Koolan to consider whether the plaintiffs would be allowed an opportunity to bid was not written in the terms of the agreement and asked whether Koolan would convene a conference between the parties for 'a revision of the existing Contract prices and adjustment where necessary to be renewed for another year'.

6. Koolan's solicitors, Freehills, then corresponded with the plaintiffs' solicitor.  On 18 May there was a series of emails between Mr Taylor and Ms Eccles concerning whether or not Koolan had awarded the health and lifestyle services contract to ESS and whether the plaintiffs should make a presentation to Koolan about the services they could offer.  At 5.20 pm on 18 May Ms Eccles sent an email to Mr Taylor.  The email stated that Koolan's notice of 6 April 2009 terminated Cross Fit's contract as of 19 May 2009, that Cross Fit had acted on that notice and had terminated the staff which would otherwise have been employed and that the notice has never been withdrawn.  The email referred to the communications between the parties' solicitors and said that the events made it clear that Koolan had never, at material times, had an intention to operate according to the terms of the contract.  The email said that Koolan had repudiated the contract and that the repudiation was accepted.  On 19 May 2009 Koolan's solicitors wrote to the plaintiffs' solicitors asserting that Ms Eccles' email sent at 5.21 pm on 18 May 2009 constituted a repudiation of the contractual arrangements which entitled Koolan to terminate and Koolan thereby terminated the contractual arrangements.

Formation of agreement – legal principles

1. The plaintiffs acknowledge that the contract document they rely on, the Cross Fit contract, was not signed by Koolan but they say acceptance and agreement is to be inferred from the conduct of Koolan referred to.  Some of the authorities concerning agreement inferred from conduct were summarised by Macfarlan JA, with whom Beazley JA agreed, in Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 which was referred to by counsel for the plaintiffs. Macfarlan JA said:

   The decision of the House of Lords in Brogden v Metropolitan Railway Co (1876-77) 2 App Cas 666 establishes that the conduct of parties may give rise to a contract. It was made clear however that the character and circumstances of the conduct must indicate unambiguously that the parties intended to contract. For example the Lord Chancellor said about the conduct in question in that case that 'no explanation can be given of it unless it refers to the contract in question' (at 678) and that the conduct was 'referable in my mind only to the contract …' (at 680). Lord Hatherley spoke in similar terms about the conduct:

   'It does establish a course of action on the part of the Plaintiffs of such a character as necessarily to lead to the inference on the part of the Defendants that the agreement had been accepted on the part of the Plaintiffs, and was to be acted upon by them; and they did act upon it accordingly' (at 686).

   Likewise, Lord Selborne said that 'it appears to me that every single circumstance points quite unequivocally to this agreement' (at 689).

   In Empirnall Holdings Pty Ltd v Machon Paull [1988] 14 NSWLR 523, McHugh JA (with whom Samuels JA agreed) said in relation to conduct held to give rise to the contract in question in that case that 'it is not an acceptable conclusion that Machon offered to perform the work on some basis other than that contained in the written document' (at 535F-G). He went on to indicate why other explanations of the conduct were not open.

   In Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Ipp AJA (with whom Mason P agreed) said, citing Lord Hatherley in Brogden, that 'for conduct to amount to implied acceptance of an offer, it must be "of such a character as necessarily to lead to the inference on the part of the Defendants that the agreement had been accepted on the part of the Plaintiffs, and was to be acted upon by them"' (at [162]).

   Not only must the conduct point to the existence of a contract but it must point to the existence of the contract in the terms alleged in the proceedings.  As stated by McHugh JA in Empirnall:

   'The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted' (at 535) [5] ‑ [9].

2. In addition to being a case about agreement inferred from conduct, this case has some of the features of a 'battle of the forms' case.  Business people may exchange contractual terms or enter into a 'battle of the forms' and attempt to ensure that their terms prevail.  Through a reluctance to push this too far with the possibility of loss of business, business people may be content to leave the discrepancies unresolved and the consequence, at least on one analysis, may be that there is no contract:  Cheshire & Fifoot Law of Contract (10th ed, Aust) [3.28].

3. A common answer to the question of conflicting conditions put forward by the parties is the 'last shot' doctrine.  Where conflicting communications are exchanged, each is a counteroffer, so that if a contract results at all, for example from acceptance by conduct, it must be on the terms of the final document in the series leading to the conclusion of the contract.  The battle is won by the person who fires the last shot.  In some cases the battle is won by the person who gets in the first blow.  In Butler Machine Tool Co Ltd v Ex‑cell‑o Corporation (England) Ltd [1979] 1 WLR 401 Lord Denning explained:

   If [the seller] offers to sell at a named price on the terms and conditions stated on the back:  and the buyer orders the goods purporting to accept the offer ‑ on an order form with his own different terms and conditions on the back ‑ then, if the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller (405).

   However, it is not possible to lay down a general rule that will apply in all cases where there is a battle of the forms.  It always depends on an assessment of what the parties must objectively be taken to have intended.

1. The defendants submitted that the rate reversion provision and the revision for renewal clause did not form part of the contract between the plaintiffs and Koolan because the provisions are more than ordinarily onerous and the plaintiffs did not take steps to draw them to Koolan's attention.  In support of that proposition the defendants relied upon statements by Buchanan JA in Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd (1998) 4 VR 559, 569 where Buchanan JA said that 'the inclusion of an unusual term, at least in an unsigned document, may require its proponent to take special steps to bring it to the attention of the other party, for otherwise it may not be reasonable to assume consent to the term'. His Honour went on to say that whether special steps are required, and what those steps must be, will depend upon the circumstances of each case and concluded the point by saying:

   However, I do not consider that the mere fact that a provision is onerous entitles a court applying the common law to reject it as a term unless special steps have been taken to draw attention to it.  The relevant question is whether a contracting party can be reasonably taken to have assented to a particular term, not whether a contracting party should be subject to an unreasonable term.

2. Post‑contractual conduct is admissible on the question of whether a contract was formed:  Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 [25] (Heydon JA); Kirketos v Livschitz [2009] NSWCA 96, [109] (McColl JA, Macfarlan JA concurring). However, for conduct to amount to implied acceptance of an offer it must be of such a character as necessarily to lead to the inference on the part of one party that the agreement had been accepted on the part of the other and was to be acted upon by them: Brambles Holdings [162] (Ipp AJA, Mason P agreeing); Kirketos [117] (McColl JA, Macfarlan JA concurring).

3. The plaintiffs' case is that the parties made a contract on the terms of the Cross Fit contract.  The plaintiffs say that an agreement on those terms is to be inferred from the conduct of the parties.  The plaintiffs rely upon the principle applied by the House of Lords in Brogden v Metropolitan Railway Co (1877) 2 AC 666. The principle applied by the House of Lords is that a contract can be accepted by the conduct of the parties. That is uncontroversial. The plaintiffs also sought to draw support from the similarity of the facts in that case and in this. I will spend some time on the facts of that case and their Lordships' analyses of those facts to see what assistance their Lordships' analyses offer in resolving the issue in this case.

4. The relevant facts in Brogden are readily distinguishable.  Brogden & Co had been supplying the Metropolitan Railway company with coal for some years.  Brogden wrote to the railway company suggesting they enter into a formal contract.  The object of the letter was clear.  There was a rising market and it was the opinion of the coal producers that the market was going to continue to rise.  They stated the price which it had already reached and told the railway company that they would be willing to make a contract for the ensuing year for a certain maximum supply per week, at a fixed price which would be free from any future variations of the market, subject to certain stated contingencies.  There was then a meeting between representatives of Brogdens and the railway company at which the representatives of the railway company handed over an unexecuted form of contract.  The date and the names of Brogden & Co were not filled in and in the arbitration clause the name of the arbitrator was left blank.  The price was fixed in the way which had been mentioned in the letter, as was the term of the agreement.  Two days later Brogdens' agent returned the contract document to the railway company upon which Alexander Brogden had written 'Approved' and signed his own name.  In an accompanying letter, Brogdens' representative said that he was returning 'your draft of proposed agreement, re new contract for coal, which Mr Brogden has approved'.  The railway company's representative, Mr Burnett, who was the proper custodian of contracts for the supply of coal for the railway company, put the draft contract and letter into a drawer, where it remained. 

5. The leading judgment was delivered by the Lord Chancellor, Lord Cairns.  Lord Cairns observed that Brogdens had made a material alteration to the draft contract by inserting the name of an arbitrator and that required the assent of the railway company.  The House of Lords found that assent was inferred from their subsequent conduct.  The railway company commenced the following day to order coal exactly at the date specified in the contract and at the price stipulated in the contract, which was a price differing from the price which had prevailed up to that time.  Furthermore, the price was subsequently varied on two occasions in the manner provided for in the contract.  Furthermore, there was subsequent correspondence from which it was to be inferred that the parties believed that the railway company had a right to order the coal and Brogdens an obligation to comply with the order.  Lord Cairns, with whom Lord Gordon agreed, concluded that there had been clearly a consensus between the parties expressed by the document signed by Mr Brogden, subject only to approbation, on the part of the railway company, of the additional term which he had introduced with regard to an arbitrator.  Lord Cairns concluded that:

   That approbation was clearly given when the company commenced a course of dealing which is referable in my mind only to the contract, and when that course of dealing was accepted and acted upon by Messrs Brogden & Co in the supply of coals (680).  (emphasis added)

6. Lord Hatherley found that:

   The agreement was complete when the first coals … supplied in January, were invoiced at the differing price, and when that differing price was accepted and paid … [That] does establish a course of action on the part of [the railway company] of such a character as necessarily to lead to the inference on the part of [Brogdens] that the agreement had been accepted on the part of [the railway company] and was to be acted upon by them; and they did act upon it accordingly (686).  (emphasis added)

7. Lord Selborne found that:

   Every single circumstance points quite unequivocally to this agreement; and, looking at the order of events with regard to the dates and the communications between the parties, I should have thought it absolutely impossible for any person to doubt that, if [the railway company] after getting the benefit of the lower price for nearly an entire year, had afterwards endeavoured to turn round because the price might have risen in the market, they would have been turned without much hesitation out of any court into which they had come (689 ‑ 690).  (emphasis added)

8. Lord Blackburn observed that the question which was to be decided was a question of fact and that the onus of proof lay upon the party asserting that the agreement was made.   Lord Blackburn observed that:

   If a draft having been prepared and agreed upon as the basis of a deed or contract to be executed between two parties, the parties, without waiting for the execution of the more formal instrument, proceed to act upon the draft, and treat it as binding upon them, both parties will be bound by it.  But it must be clear that the parties have both waived the execution of the formal instrument and have agreed expressly, or as shown by their conduct, to act on the informal one (693).  (emphasis added)

No agreement on terms of Cross Fit contract

1. The draft contract sent by Ms Eccles with her email of 4 June 2008 to Mr Angel and the Cross Fit contract delivered by Ms Eccles to Ms Ricketts on 10 June did not express a consensus between the parties.  Those forms of contract introduced two important terms which had not even been raised before – the rate reversion provision and the revision for renewal clause.  The rate reversion provision was in substance, if not in form, inconsistent with the terms proposed by Mr Jordinson in his letter of 24 May 2008.  No agreement on the terms of the Cross Fit contract can be inferred unless it can be inferred that Koolan accepted those terms.  The plaintiffs' case is that it is to be inferred from the parties' subsequent conduct that an agreement on the terms of the Cross Fit contract had been accepted by Koolan.  The plaintiffs must establish that the conduct of Koolan after 10 June 2008 is referable only to the Cross Fit contract and that course of dealing was accepted and acted upon by the plaintiffs in the supply of health and lifestyle services to Koolan after 1 July 2008.  Or, to paraphrase Lord Hatherley in Brogden at page 686, the Plaintiffs must establish a course of action on the part of Koolan of such a character as necessarily to lead to the inference on the part of the plaintiffs that the Cross Fit contract had been accepted on the part of Koolan, and was to be acted upon by them and that they did act upon it accordingly.

2. The conduct of Koolan after 10 June 2008 does not necessarily lead to the inference that Koolan had agreed to the Cross Fit contract and to act upon it and that it did act upon it.  Koolan accepted the services of a full‑time health and lifestyle co‑ordinator provided by the plaintiffs and paid for those services at the monthly rate specified in the Cross Fit contract.  However, that was the rate that was specified in the Cross Fit May Proposal which Koolan said it wished to go ahead with in Mr Jordinson's letter of 24 May 2008.  In her letter to Mr Jordinson which was attached to the draft contract sent by Ms Eccles to Mr Angel by email on 4 June, Ms Eccles referred to Mr Jordinson's letter of 24 May 2008 as 'your letter of acceptance for Koolan Island's proposed Health & Productivity Program'.  There was consensus about the services to be provided by the plaintiffs and the monthly price to be paid by Koolan, subject to the condition introduced by the plaintiffs concerning a retrospective adjustment of the price if the contract was terminated before 12 months had expired.  Prior to April 2009 the conduct of Koolan in accepting the services provided by the plaintiffs and paying for them at the 'concessional' rate was equally referable to the agreement proposed in Mr Jordinson's letter of 24 May 2008 as to the Cross Fit contract.

3. In each month, commencing with July 2008 and finishing with December 2008, Koolan issued a purchase order for services provided by the plaintiffs in that month and the plaintiffs issued an invoice which referred to the corresponding purchase order from Koolan.  In December 2008 Koolan issued purchase order 33208 dated 29 December 2008 for 'onsite health & lifestyles management period Jan 09 - March 09 $22,812.50 per month'.  Each purchase order states 'All business is conducted in accordance with our "Standard Terms and Conditions".  All delivery and advices and invoices must quote our order number, failure to do so may result in delayed payment'.  Neither the purchase orders issued by Koolan nor the invoices issued by the plaintiffs made any reference to the Cross Fit contract.  The Cross Fit invoices referred to Koolan's purchase orders.

4. That course of dealing must be viewed in the context of the communications between Ms Eccles and Koolan.  In late June 2008 Ms Eccles spoke to Mr Angel, who in turn telephoned Mr Jordinson in Ms Eccles' presence.  I have found that Mr Angel said to Ms Eccles words to the effect that Mr Jordinson's letter of 24 May 2008 was the good to go, that is, the plaintiffs should proceed with providing a full-time health and lifestyle co‑ordinator on the basis of that letter and there was no cause for delay.  Mr Angel further said that Mr Jordinson had said words to the effect that the contract would be finalised when he returned to the island.  That statement, and similar statements made subsequently, is not conduct which would lead the plaintiffs to infer that Koolan had agreed to the terms of the Cross Fit contract.  To the contrary, it informed them that the Cross Fit contract had not been finalised, that is, that any terms or conditions in the Cross Fit contract in addition to those put forward by Koolan in Mr Jordinson's 24 May 2008 letter had not been agreed to.

5. The same inference is to be drawn from the subsequent communications between Ms Eccles and representatives of Koolan.  At the end of July Ms Eccles spoke to Ms Ricketts, an administrative assistant.  Ms Ricketts said that she would raise a purchase order for that month and then they would have a purchase order raised for the balance of the 12 months.  The inference to be drawn is that the contract had not been finalised, when it was finalised a purchase order would be raised for the balance of the 12 months and in the meantime Koolan would issue a purchase order for the month of July.

6. On 18 August Ms Eccles telephoned Mr Taylor.  Mr Taylor said words to the effect that he had not reviewed the Cross Fit contract and that the provision of health and lifestyle services should continue on the basis of the monthly purchase orders and invoices.

7. The course of dealing between the plaintiffs and Koolan whereby Ms Eccles asked for the contract to be finalised is inconsistent with the parties having concluded an agreement on the terms of that contract.  In Brogden in the Court of Appeal, Cockburn CJ had found that there was no contract.  The Lord Chief Justice had inferred that Brogdens had afterwards repeatedly, at intervals, applied to the company's agent for the agreement to be completed, but could never obtain it, and was told that there was no agreement.  Lord Cairns found that those facts had not been proved but if those had been the facts then he would have found there was no contract.

8. The plaintiffs' case in contract depends upon establishing that the parties agreed to enter a contract on the terms of the Cross Fit contract.  I have found that the conduct of the parties, including their communications, does not lead to an assessment that they must objectively be taken to have intended to contract on the terms and conditions of the Cross Fit contract.  The plaintiffs' case in contract fails.

Estoppel

1. The plaintiffs plead that the defendants should be and are, by their conduct, estopped from denying the existence of the agreement as pleaded by the plaintiffs.  Counsel for the plaintiffs submitted that the plaintiffs' estoppel claim is in the nature of a Walton Stores estoppel.  There are three essential elements to set up a promissory estoppel.  First, the party claiming the estoppel must have adopted an assumption as the basis of an act or omission:  Commonwealth v Verwayen (1990) 170 CLR 394, 413 (Mason CJ), 444 (Deane J). Secondly, the claimant, upon the basis of the assumption, must have so acted or abstained from acting that a detriment will be suffered if the person against whom the estoppel is asserted is afterwards allowed to set up rights inconsistent with it: Verwayen (413) (Mason CJ), (444) (Deane J).  Thirdly, the party against whom the estoppel is alleged must have played such a part in the adoption or, or persistence in, the assumption that freedom to act otherwise than in a manner consistent with it would be unfair or unjust:  Verwayen (444) (Deane J).

2. The plaintiffs say that they assumed that the Cross Fit contract was in force and that the legal relationship created by that contract existed between themselves and Koolan or would exist and that Koolan was not free to withdraw from the expected legal relationship and they adopted that assumption as the basis of their acts in supplying services between 1 July 2008 and 19 May 2009, raising accounts at the concessional rate applicable only in the event of the application of the Cross Fit contract.

3. I find that the plaintiffs did not supply services to Koolan and raise accounts at the monthly rate in reliance upon the pleaded assumption.  After Ms Eccles received Mr Jordinson's letter of 24 May 2008 she started looking for an employee to hire on a full‑time basis to enable the plaintiffs to provide full‑time services on Koolan Island.  I have found that Ms Eccles decided to employ Mr McGinity on the basis of Mr Jordinson's letter.  Ms Eccles took that step before having received any response from Koolan about the Cross Fit contract and before Ms Eccles' meeting with Mr Angel in late June 2008, during which Mr Angel telephoned Mr Jordinson and informed Ms Eccles of what Mr Jordinson had said.

4. On 15 August 2008, Ms Eccles sent an email to Mr Taylor which said: 

   [o]ur contract is still to be finalised.

   On 18 August 2008, after her conversation with Mr Taylor on that day, Ms Eccles sent an email to Mr Taylor and Ms Hayton in which she said:

   [w]e are still waiting for our contract to be finalised …

   The invoices issued by the plaintiffs referred to the purchase orders issued by Koolan, not to the Cross Fit contract.

5. Ms Eccles knew that the contract was still to be finalised.  Ms Eccles knew that in the meantime the relationship between the plaintiffs and Koolan was regulated by the purchase orders issued by Koolan and not by the Cross Fit contract.  The plaintiffs neither provided services to Koolan nor rendered invoices at the 'concessional' rate on the assumption that there was an agreement between the plaintiffs and Koolan on the terms of the Cross Fit contract or that Koolan would execute the Cross Fit contract and was not free to do otherwise.  The plaintiffs' claim in estoppel must fail because the plaintiffs have failed to establish that they adopted the pleaded assumption as the basis of their acts in supplying services to Koolan and charging for them at the monthly rate.

6. If, contrary to my finding, the plaintiffs adopted the pleaded assumption as the basis for their actions in providing services to Koolan and raising invoices at the 'concessional' rate, I find that Koolan did not play such a part in the adoption of, or persistence in, the assumption that it would be unconscionable or unconscientious for it to depart from that assumption.  Mr Angel did not tell Mr Eccles that Mr Jordinson had said he would sign the contract, nor did Mr Taylor tell Ms Eccles that he would sign the contract.  Mr Angel told Ms Eccles that Mr Jordinson had said, in effect, that Cross Fit was good to go, that is, ready to provide services on a full‑time basis, on the basis of Mr Jordinson's letter of 24 May 2008 and if there was anything to be sorted out he would finalise it on his return to the island.  On 18 August 2008 Mr Taylor told Ms Eccles that he had not reviewed the Cross Fit contract and the plaintiffs should continue to provide their services on the basis of the monthly purchase orders and invoices.  At no time did the plaintiffs inform Koolan that they were providing their services on the basis of the Cross Fit contract or that Koolan had agreed to sign the Cross Fit contract or to be bound by the terms of the contract until after Koolan gave notice terminating their services.

Provisional assessment of damages

1. I will set out my provisional findings in relation to damages in case the matter should go on appeal.  Before assessing damages, it is necessary to determine how and when the contract came to an end on the assumption that the plaintiffs and Koolan entered into a contract on the terms of the Cross Fit contract or that Koolan is estopped from denying that they did.

Contract was terminated by notice

1. On 7 April 2009 Koolan gave notice to the plaintiffs that it would not be continuing with Cross Fit after 19 May 2009, it no longer required Cross Fit's services from 19 May 2009 onwards, and it was providing the plaintiffs with six weeks' plus notice.  Koolan did not refer to the Cross Fit contract or say that it was giving notice under that contract.  However, if it was bound by a contract on the terms of the Cross Fit contract, then on the proper construction of that contract it was entitled to terminate the contract by giving one month's notice in writing or any longer period of notice.  The notice given by Koolan on 7 April 2009 was effective to terminate the contract on 19 May 2009.

1. The giving of notice of termination of a contract, in accordance with the terms of the contract, is a unilateral right.  Its exercise does not depend on acceptance or rejection of the notice by the other party to the contract.  The giving of notice operates to determine the contract by effuxion of the period of notice.  Such a notice could be withdrawn by the consent of both parties to the contract.  It is unnecessary to determine whether such consent would stop the contract terminating or give rise to a new contract.  It is sufficient to observe that in the absence of both parties unconditionally consenting to the withdrawal of notice, the contract came to an end on 19 May 2009 as a result of Koolan's notice of termination.

2. In correspondence between the parties and their solicitors between 22 April 2009 and 19 May 2009 there was reference to Koolan's letter of 6 April 2009 being withdrawn.  However, no agreement was reached.  The contract came to an end on 19 May 2009 when the period of notice expired.

Balance due under the Cross Fit contract

1. Clause 10 of the Cross Fit contract provides that if Koolan terminates the contract by notice then 'the contract rate is reverted back pro rata to month to month pricing as shown below'.  The proper construction of the clause is that if Koolan terminated the contract by notice before 12 months had expired, then the increased monthly rate of $33,458.33 plus GST became payable from the beginning of the contract to the date of termination.  On the termination of the contract the right to receive that additional payment accrued to the plaintiffs.  The plaintiffs would be entitled to the sum of $124,419.20 claimed.

Construction of cl 9

1. The plaintiffs also claim damages 'for loss of opportunity to achieve a renewal of the contract and successive renewals thereof'.  In short, the plaintiffs say that Koolan breached the revision for renewal clause by failing to give the plaintiffs a real and commercial opportunity to 'revise the contract for renewal'.

2. The first issue is the proper construction of the revision for renewal clause, cl 9 of the Cross Fit contract, which is in these terms:

   The contract will be revised for renewal 60 days prior to end date; this will take place by appointing a meeting at a convenient time for both parties.

   This provision, like any other in a contract, is to be given its natural and ordinary meaning.  The meaning of the clause is obscure to say the least.  The gist of the clause is that there is to be a meeting of the parties at which 'the contract will be revised for renewal'.  The concept of renewing a contract is clear enough but the clause cannot be construed to create an obligation on the parties to renew the contract.  The reference to the contract being 'revised' for renewal contradicts any notion that the contract is to be renewed on the same terms and conditions.  But the clause does not provide for how the revised terms are to be determined.  The contract provides neither machinery, in the form of some kind of arbitration, determination or valuation, or a formula for resolving the revised terms if the parties do not reach agreement.  At most, cl 9 provides for the parties to meet and discuss or negotiate a renewal of the contract on revised terms.

3. The plaintiffs say that on its proper construction, cl 9 is that 'at least 60 days prior to the end date the parties would meet to review the contract and revise the same for the purposes of a renewed term; and the opportunity to meet would be for the Plaintiffs to have a real and commercial opportunity for renewal of the contract'.  The phrase 'end date' is not expressly defined in the Cross Fit contract.  The plaintiffs plead that 30 June 2009, that is the date on which the contract expires, is described in the contract as 'the end date'.

4. Koolan submitted that cl 9 does not survive a termination in accordance with cl 10, that is cl 9 does not apply when Koolan terminates the contract under cl 10.

5. There is an apparent inconsistency or lack of harmony between cl 9 as construed by the plaintiffs and cl 10, which provides that the contract can be exited at any point providing one month's notice in writing is provided and the contract rate is reverted back pro rata to month to month pricing.  If Koolan wished to terminate the contract before 12 months have elapsed then cl 9, if it applies, would require Koolan to meet with the plaintiffs to negotiate a renewal of the contract 60 days before it comes to an end.  That is inconsistent with cl 10, which says that Koolan may terminate the contract provided relevantly it gives one month's notice.

6. Where there is an apparent inconsistency or lack of harmony between contractual provisions the court must give effect to any reasonable construction which harmonises the clauses.  A conflict involving apparently inconsistent provisions in a contract is to be resolved, if at all possible, on the basis that one provision qualifies the other and, hence, that both have meaning and effect:  Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd [No 1] (1993) 178 CLR 379, 386 ‑ 387.

7. In my view, when the contract is read as a whole there is no inconsistency between cl 9 and cl 10.  Clause 3 provides that the contract will continue for 12 months, ending on 30 June 2009.  The effect of cl 3 and cl 9 is that the agreement shall operate for 12 months, which may be renewed or extended on revised terms if the parties agree to do so at a meeting taking place in accordance with cl 9.  Those provisions are then qualified by cl 10, which provides that the contract may be terminated at any point providing one month's notice in writing is provided and the contract rate is reverted in the manner specified.  In my view, cl 9 has no operation where Koolan decides to terminate the contract before 12 months have expired.  Thus cl 9 has no operation in this case.  For that reason, the plaintiffs are not entitled to damages for breach of the revision for renewal clause even if an agreement on the terms of the Cross Fit contract is to be inferred or Koolan is estopped from denying such an agreement.  However, I will further consider the effect of cl 9 in case I am wrong in that construction of cl 3, cl 9 and cl 10 of the Cross Fit contract.

Clause 9 not uncertain

1. If cl 9 applies in circumstances where Koolan has given a notice of termination under cl 10, then cl 9 requires Koolan to meet with the plaintiffs and negotiate revised terms of a contract for the purposes of renewing the contract.  That would involve negotiations on at least the duties to be performed by the plaintiffs, the duration of the new contract, hours of work, remuneration, and provision of facilities and payment of expenses.

2. Koolan submits that cl 9 is void for uncertainty.  It is well established that a bare agreement to agree is void for uncertainty:  Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604. However, the position is not so clear in relation to agreements to negotiate. The New South Wales Court of Appeal in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 by a majority accepted the possibility of a legally enforceable agreement to negotiate. In Con Kallergis Pty Ltd v Calshonie Pty Ltd (1998) 14 BCL 201, 212 Hayne J also found that a contract to negotiate could have contractual force, at least where it contained a dispute resolution mechanism.  In Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; (2010) 41 WAR 318 the Western Australian Court of Appeal recognised that a pre‑contract agreement to negotiate could be binding. Pullin and Murphy JJA both referred to the decision of the New South Wales Court of Appeal in United Group Rail Services Ltd v Rail Corporation (NSW) (2009) 74 NSWLR 618.

3. Clause 9 provides that the parties will meet for the purpose of negotiating revised terms for a renewal of the contract.  It imposes no obligation on either party to conclude an agreement or renew the contract.  It is a promise to engage in negotiations to renew the contract on revised terms.  A contractual provision in those terms has sufficient legal content not to be void for uncertainty.

Breach of cl 9

1. The plaintiffs say that Koolan breached the obligation to meet for the purpose of negotiating a renewed contract on revised terms.  The plaintiffs say that Koolan failed to give the plaintiffs a real and commercial opportunity to revise the contract for renewal.  On 8 April 2009 Ms Eccles sent an email to Mr Taylor asking whether he had considered the options of negotiating the then current rates and packages that Cross Fit had on offer and suggested that perhaps a modified programme would be more suited to Koolan's current budget.  Ms Eccles asked for an opportunity to meet for a discussion regarding the current situation.  Mr Taylor responded with an email on 14 April 2009.  Mr Taylor did not offer to meet to discuss the matter.  To the contrary, Mr Taylor briefly set out Koolan's reasons for terminating the plaintiffs' services.

2. The plaintiffs passed the matter to their solicitors.  In a letter of 22 April 2009 to Koolan, the plaintiffs' solicitors said that cl 9 of the Cross Fit contract at the very least gave the plaintiffs a confirmed opportunity to bid for renewal and have such bid considered objectively and reasonably.  The plaintiffs' solicitors requested that Koolan address the matter.  On 30 April 2009 the plaintiffs' solicitors wrote to Koolan stating that cl 9 of the contract requires that the plaintiffs be given the opportunity to revise the proposal for the purposes of renewal, that that opportunity was never given but that it could still be given if Koolan 'realises that it has not acted according to the terms of the agreement'.  The plaintiffs' solicitors stated that the plaintiffs were entitled to a bona fide revision and at least the opportunity to present a case for renewal to be dealt with fairly and without any preconceptions.  On 4 May 2009 Koolan's company secretary, Mr Berg, wrote to the plaintiffs' solicitors.  Mr Berg said that Koolan had offered to withdraw its letter of 6 April 2009, continue its current arrangement with plaintiffs until 30 June 2009 and meet with representatives of the plaintiffs to consider allowing the plaintiffs an opportunity to bid for renewal of the current arrangement between Koolan and the plaintiffs.  The plaintiffs' solicitors replied on 6 May 2009.  The plaintiffs' solicitors said that the conference to consider whether the plaintiffs would be allowed an opportunity to bid was not within the terms of the agreement and would amount to a repudiation of the agreement.  The plaintiffs' solicitors asked whether Koolan would convene a conference between the parties for a revision of the existing contract prices and adjustment where necessary to be renewed for another year.  On 11 May 2009 Koolan's solicitors wrote to the plaintiffs' solicitors contesting the plaintiffs' interpretation of cl 9 of the contract.  Koolan's solicitors stated that without any admission that they were obliged to do so, Koolan invited the plaintiffs to meet with them to consider allowing the plaintiffs an opportunity to bid for future health services to Koolan.  On 13 May 2009 the plaintiffs' solicitors responded, stating that it was important for Koolan to acknowledge the contract, including cl 9.  The plaintiffs' solicitors stated that the plaintiffs were not keen on having a meeting where there was no agreement that cl 9 applies.  The plaintiffs' solicitors requested Koolan to acknowledge that the Cross Fit contract represents the agreement between the parties and that the conference to be held would be held pursuant to cl 9 of that binding agreement.  On 14 May Koolan's solicitors responded, stating that its position remained as stated in its letter of 11 May 2009.  On 15 May Mr Taylor sent an email to Ms Eccles saying that he understood that the plaintiffs may wish to make a presentation on site regarding providing health and lifestyle services to Koolan from 1 July 2009 and, if so, to please advise him so that he could schedule a suitable time for a presentation.  Ms Eccles responded on 18 May saying, amongst other things, that if Mr Taylor could confirm with her that there was no contract established with ESS then she would love to coordinate a meeting to present the plaintiffs' services.  Later on 18 May Mr Taylor responded.  He said that there was currently no agreement or contract with ESS to provide services to Koolan, and stated that Koolan was happy to make firm arrangements for the plaintiffs to make a presentation in Perth in the near future.  About two hours later Ms Eccles replied.  She stated that the events which had occurred since 6 April made it clear that Koolan had never had an intention to operate according to the terms of the contract and had repudiated the contract.  Ms Eccles said that that repudiation was thereby accepted and the contract was terminated.

3. On a fair reading of the communications from the plaintiffs, the plaintiffs proposed to meet to negotiate revised terms for a renewal of the contract.  Koolan did not agree to such a meeting.  Koolan was willing to do no more than to meet with the plaintiffs to give them an opportunity to bid for renewal of the current arrangement between Koolan and the plaintiffs or to make a presentation to Koolan of the services they could offer.  Accordingly, if, contrary to my finding, cl 9 applied, then Koolan breached that contractual provision.

Measure of damages for breach of cl 9

1. In Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494, 505, Lord Wright expressed the view that a contract to negotiate may be enforceable but damages may be nominal:

   There is then no bargain except to negotiate, and negotiations may be fruitless and end without any contract ensuing; yet even then, in strict theory, there is a contract (if there is good consideration) to negotiate, though in the event of repudiation by one party the damages may be nominal, unless a jury think that the opportunity to negotiate was of some appreciable value to the injured party.

   In Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 Lord Denning expressed the view that Lord Wright was wrong because, amongst other things, no court could estimate the damages because no‑one could tell whether the negotiations would be successful or would fall through; or if successful, what the result would be. In United Group Rail Services at [64] Allsop P rejected the objection that no court could estimate the damages for breach of an agreement to negotiate in good faith, stating that such an objection ignores the availability of damages for the loss of a bargain for valuable commercial opportunity and cited Chaplin v Hicks [1911] 2 KB 786 and Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332, 349 and following.

2. In my view, if, contrary to my finding, the plaintiffs are entitled to damages for breach of cl 9 of the Cross Fit contact then such damages should be assessed on the basis of the plaintiffs' lost chance to acquire a benefit from the renewal of the contract.  The measure of damages is to be based on the probability of the contract being renewed and the profit that the plaintiffs would have made from the contract if it had been renewed.  The plaintiffs say that there is a strong chance that the contract would have been renewed for 12 months if they had been given the opportunity required by cl 9 and if it had been renewed they would have made a profit of approximately $188,000.

3. I find that there is a low probability that the contract would have been renewed if Koolan had met with the plaintiffs to negotiate a renewal of the contract on revised terms.  That is so for the following reasons.  First, Koolan wished to rationalise or consolidate its service providers.  ESS was already providing services to Koolan and awarding a contract for health and lifestyle services to ESS furthered that policy.  Secondly, Koolan wished to broaden the health and lifestyle services being offered to its employees beyond those being offered by Cross Fit.  Mr Taylor considered, on the basis of information he was getting from other people, that Cross Fit were focusing on the 'gym junkies' but were not broadening out the scope of their services to encourage other people.  Mr Taylor was impressed by the broad range of services offered by ESS.  Thirdly, Koolan's occupational health and safety department had raised performance issues concerning Cross Fit.  Peter Shere, Koolan's occupational health and safety superintendent, raised concerns about Cross Fit with Mr Taylor in early 2009.  Mr Shere referred to a complaint by members of the emergency rescue team to the effect that the focus was on them becoming 'gym junkies' rather than focusing on the skill sets required for emergency response training.  Mr Shere also said that Cross Fit focused more on the fit people rather than the people who needed to get fit, that is lifestyle programme changes, dietary programmes, that sort of stuff. 

4. The plaintiffs may argue that they were not given an opportunity to address these issues and if they had been given that opportunity they might have satisfied Koolan.  There are two answers to that proposition.  First, Koolan wanted to consolidate its service providers.  ESS was already providing services at Koolan.  There was nothing the plaintiffs could have done to address that issue.  Secondly, Mr Taylor and Mr Shere believed, rightly or wrongly, that Cross Fit was focused more on gym and associated activities and Koolan wished to broaden its health and lifestyle services offered to its employees.  It would have been difficult for the plaintiffs to persuade Koolan that the range of services it offered were preferable to, or at least equal to, that offered by ESS.  Thirdly, Mr Taylor and Mr Shere believed there were performance issues with the plaintiffs and Koolan was at liberty to renew or not renew the contract at its will.

5. The chance of the plaintiffs successfully negotiating a renewed contract is necessarily speculative.  Having regard to the matters I have referred to, I assess that chance as being no more than 33%.

6. Assessing the profit that the plaintiffs would have made if the contract had been renewed is also speculative.  The evidence of the likely future profit was sparse.  Ms Howatson, who is an accountant and Ms Eccles' aunt, prepared a projection of profit for the year ending 30 June 2010 based upon the 2009 contract and projected expenses that yielded a profit of $188,499.08.  Ms Howatson took the Cross Fit trial balance for the 2009 year and extrapolated it into a budget for 2010.  The extrapolation or projection estimates what would have been the income and expenses that would be attributable to the Koolan contract.

7. Ms Howatson assumed the income would have been the same as under the Cross Fit contract, that is the amount of $25,093.75 (inclusive of GST) per month which amounts to $301,125 for the year.  To calculate expenses Ms Howatson separated out from the plaintiffs' 2009 trial balance those expenses which were directly related to the Koolan contract and treated the remaining expenses as attributable to the gym business.  The expenses are the amounts incurred in 2009 which Ms Howatson attributed to the Koolan contract.

8. As I have said, Ms Howatson assumed that the income for the following year would be at the rate under the Cross Fit contract.  That is unrealistic.  Koolan expected to make substantial cost savings by engaging ESS rather than the plaintiffs.  ESS had quoted an annual fee of $261,991 (plus GST) for providing health and lifestyle services.  If the plaintiffs were to obtain the contract it would have to have been on a basis of reduced costs.  Koolan had decided to have the health and lifestyle services provided by ESS because there were costs savings in consolidating service providers.  If the plaintiffs were to obtain the contract it is likely that they would have had to accept a fee less than that quoted by ESS to offset the benefits to Koolan of consolidating service providers.  It is likely that the plaintiffs would have had to accept an annual fee of no more than $250,000 (plus GST).  Secondly, the income figure used by Ms Howatson included the amount of $27,375 for GST.  A business must account to the ATO for GST it has collected.  Ms Howatson said that a taxpayer 'nets off' GST on payments received and payments made.  However, there was little or no GST paid on the expenses incurred by the plaintiffs in relation to the Koolan Island services.  The plaintiffs would have had to account to the ATO for the GST collected from Koolan.  Accordingly, the appropriate figure for estimating future profit is the annual fee excluding GST.

1. Ms Howatson assumed that expenses would not increase in 2010.  There is no evidentiary basis for that assumption.  The main expense item is wages.  Ms Howatson's projection shows wages for Steven Kaps working full‑time and Jonathon Standish working half‑time.  Mr Kaps' contract provided that his remuneration would be reviewed as a minimum every 12 months although that did not necessarily mean it would be increased.  Furthermore, Mr Kaps was entitled to four weeks annual leave.  The plaintiffs would have had to employ another health and lifestyle co‑ordinator when Mr Kaps was on leave and incur the cost of doing so.

2. In answer to a question Ms Howatson agreed that Mr Kaps worked two weeks on two weeks off and, therefore, the plaintiffs would have required at least two full-time workers to service the contract.  The future profit calculation should have allowed for two fulltime employees.  Furthermore, it is probable that the second employee would be entitled to annual leave and the cost for replacing that employee whilst on leave should also be factored in.  Accordingly, wages are significantly underestimated in Ms Howatson's projection.  Superannuation is also underestimated.  Ms Howatson allowed $8,700.  However, Mr Kaps was entitled to $6,030 superannuation in 2009.  It is likely that the other fulltime employees would be entitled to a similar amount.  Ms Howatson said that workers' compensation insurance and liability insurance are a function of wages and hence they are also underestimated on Ms Howatson's projection.  It is likely that the cost of wages, including relief employees when the fulltime employees were on leave, superannuation, workers compensation insurance and public liability insurance would be no less than $160,000.

3. Ms Howatson has made no allowance for overhead costs, such as office expenses, interest, legal fees, motor vehicle expenses, travel and conferences, uniforms and the like.  As I understand it, that is because Ms Howatson attributes all of the fixed costs of the plaintiffs' business to the operation of the gym and none of them to carrying out and managing the Koolan contract.  I find that unrealistic.  Ms Eccles had to manage the Koolan contract.  She has to organise for the health and lifestyle consultants to go to and from Koolan Island on schedule, and to organise a replacement if one was sick or unable to attend.  Those functions required Ms Eccles' time and the use of office and other facilities.  Some cost must attach to those functions.  An amount in the order of $20,000 would be a reasonable sum to allow for those costs.

4. There is a touch of unreality about Ms Howatson's profit projection.  Ms Howatson projected a profit of $188,499.08 on gross revenue (including GST) of $301,125, that is, a profit margin of about 63% or 69% of revenue excluding GST.  In my view, a more realistic estimate of the profit the plaintiffs would have made from the Koolan contract if it had been renewed for a year is in the order of $60,000.  I have assessed that there was a 33% chance that the contract would have been renewed if Koolan had met with the plaintiffs for the purpose of negotiating revisions to the contract for a renewal for 12 months.  The damages the plaintiffs would have been entitled to is, therefore, 33% of the value of the profit they would have realised, that is, 33% of $60,000, which is $20,000.  I provisionally assess damages for breach of cl 9 of the Cross Fit contract at $20,000.

Conclusion

1. The plaintiffs have not established that there was an agreement between the plaintiffs and Koolan on the terms of the Cross Fit contract or that Koolan is estopped from denying the existence of such an agreement.  The plaintiffs' claim must be dismissed.

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION: ECCLES -v- KOOLAN IRON ORE PTY LTD [No 3] [2013] WASC 418 (S)

CORAM:   LE MIERE J

HEARD:   27 MAY 2014

DELIVERED          :   18 JUNE 2014

FILE NO/S:   CIV 2868 of 2009

BETWEEN:   REBECCA AMY ECCLES

LEE MARCUS STERGIOU
Plaintiffs

AND

KOOLAN IRON ORE PTY LTD
First Defendant

MT GIBSON IRON LTD
Second Defendant

Catchwords:

Costs - Application for indemnity costs - Plaintiffs did not accept Calderbank offers - Rejection of Calderbank offers was not unreasonable

Legislation:

Nil

Result:

Application for indemnity costs dismissed
Plaintiffs pay the defendants costs of the action

Category:    B

Representation:

Counsel:

Plaintiffs:     Mr M J McPhee

First Defendant             :     Mr P D C Robinson

Second Defendant         :     Mr P D C Robinson

Solicitors:

Plaintiffs:     M J McPhee Barrister & Solicitors

First Defendant             :     Williams & Hughes

Second Defendant         :     Williams & Hughes

Case(s) referred to in judgment(s):

Dobb v Hacket (1993) 10 WAR 532

Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1

Overseas‑Chinese Banking Corporation Ltd v Malaysian Kuwaiti Investment Co SDN BHD [2004] VSC 351

1. LE MIERE J:  The plaintiffs claimed damages against the defendants for breach of a contract under which the plaintiffs provided health and fitness services to the defendants.  I found that the plaintiffs had failed to established that there was an agreement on the terms they alleged and dismissed the plaintiffs' claim:  Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418.  The defendants now seek an order that the plaintiffs pay the defendants' costs from commencement of the action until 21 September 2010 on a party/party basis and from 22 September 2010 until the conclusion of the trial on an indemnity basis.  Alternatively, the defendants seek an order for indemnity costs from 28 March 2013 or further alternatively from 19 April 2013.  The defendants' application is based upon informal offers of settlement, or Calderbank letters, of 22 September 2010, 28 March 2013 and 19 April 2013.

The plaintiffs' claim

1. The plaintiffs claimed that there was a contract between them and the first defendant, Koolan Iron Ore Pty Ltd (Koolan) or the second defendant, Mount Gibson Iron Ltd, on the terms of the Cross Fit contract which was executed by the plaintiffs but not the defendants.  Clause 10 of the Cross Fit contract provides that if Koolan terminates the contract by notice then 'the contract rate is reverted back pro rata to month to month pricing as shown below'.  The plaintiffs claimed that Koolan terminated the contract by notice before 12 months had expired and the increased monthly rate became payable from the beginning of the contract to the date of termination.  The plaintiffs claimed to be entitled to a sum of $124,419.20 on that basis.

2. The plaintiffs also claimed damages for 'loss of opportunity to achieve a renewal of the contract and successive renewals thereof'.  That claim was based on an assertion that Koolan breached a clause of the contract by failing to give the plaintiffs a real and commercial opportunity to 'revise the contract for renewal'.  The plaintiffs said that there was a strong chance that the contract would have been renewed for 12 months and if they had been given the opportunity required and if the contract had been renewed they would have made a profit of approximately $188,000.

The plaintiffs' offers

1. The action was commenced on 29 October 2009 by writ of summons indorsed with a statement of claim.  A defence was filed on 14 December 2009.  The statement of claim was amended on 5 February 2010 and an amended defence filed on 23 February 2010 and a reply on 2 March 2010.

2. On 22 September 2010 the defendants' solicitors wrote to the plaintiffs' solicitors a letter which was expressed to be without prejudice save as to costs.  The letter stated that in the defendants' view if the matter proceeded to trial the plaintiffs' claim would be dismissed for a number of reasons including that the draft contract that the plaintiffs relied on has no application because, amongst other things, the parties were not ad idem as to the terms.  The defendants offered to settle the action on the following terms:

   (a)Koolan Iron Ore Pty Ltd (Koolan) pay to Eccles and Stergiou $25,000 (inclusive of costs and interest).

   (b)Eccles and Stergiou release Koolan and its subsidiaries from all further claims in relation to this action and matters the subject of the action.

   The offer was expressed to be open for acceptance for 21 days.  The plaintiffs did not accept that offer.

3. On 1 June 2011 the plaintiffs' solicitors wrote to the defendants' solicitors.  The letter offered to settle the action by payment to the plaintiffs of the sum of $500,000 plus costs to be taxed.  The plaintiffs' solicitors said that the plaintiffs' view was that the contract would be established and that if the contract had not been breached it is likely to have been renewed for a number of years.  That offer was not accepted by the defendants.

4. On 28 March 2013 the defendants' solicitors made a further offer of settlement.  The offer was that Koolan pay to the plaintiffs $100,000 inclusive of costs and interest.  The defendants stated their view that the plaintiffs' claim would fail for a number of reasons including the following.  The draft contract was not executed by the defendants and a number of terms of the document had not been discussed.  The plaintiffs' claim for damages was largely comprised of damages for loss of opportunity.  There was no proper expert or factual basis for the plaintiffs' claim.  If the plaintiffs succeeded their best case scenario was to recover $124,419.20.  The offer was open for acceptance until 21 April 2013.  It was not accepted by the plaintiffs.

5. On 19 April 2013 the defendants' solicitors made a further offer of settlement.  The offer was to pay $125,000 on the same terms as the letter of 28 March 2013.  The offer was sent by email at 4.46 pm on Friday, 19 April 2013 and was open for acceptance until close of business on Monday, 22 April 2013.  The defendants' solicitors responded on 23 April 2013 rejecting the offer of 19 April 2013.  The trial of the action commenced on 30 April 2013.

Legal principles

1. The relevant principles governing an award of indemnity costs were considered by Buss JA, with whom Wheeler JA agreed, in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1. Buss JA put forward the following principles:

   (1)a Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable;

   (2)all of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable;

   (3)the mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted, does not mean that its rejection was unreasonable;

   (4)whether conduct is reasonable or unreasonable always involves matters of judgement and impression;

   (5)it is not possible nor desirable to enumerate exhaustively all circumstances which must be taken into account, in a particular case, in deciding whether the rejection of a Calderbank offer was unreasonable, but, ordinarily, regard should be had to, at least, the following:

   (a)the stage of the proceeding in which the offer was received;

   (b)the time allowed to the offeree to consider the offer;

   (c)the extent of the compromise offered;

   (d)the offeree's prospects of success, assessed as at the date of the offer;

   (e)the clarity with which the terms of the offer were expressed; and

   (f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it;

   (6)the party who makes a Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs in his or her favour; and

   (7)the standard to be applied in awarding indemnity costs should not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis absent some blameworthy conduct on its part ‑ a test of unreasonableness should not be upheld on other than clear grounds.

The first offer

1. The first offer was made on 22 September 2010, 11 months after the action commenced.  By that time the plaintiffs had filed a statement of claim, amended their statement of claim, given particulars and filed a reply.  The defendants have filed a defence and amended defence.  The plaintiffs and the defendants had each given discovery.  There had been a number of directions hearings.  The defendants offered to compromise the action by paying the plaintiffs $25,000 inclusive of costs.  The first named plaintiff, Ms Eccles, says that the defendants' offer was well below the plaintiffs' actual costs at that time.  I accept that the amount of the offer was less than the plaintiffs' actual costs at the time and less than the amount of costs allowable under the relevant legal costs determinations allowing for some amount for getting up case for trial.

2. The defendants' success at trial did not turn only on the fact that the Cross Fit contract was not executed by the defendants.  In my judgment I stated that to determine whether the parties made a contract on the terms of the Cross Fit contract required a careful examination of the communications between, and conduct of, the parties in the circumstances of the case:  Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418 [20]. There was a conflict of evidence concerning the communications between the parties. In particular, there was a conflict of evidence concerning a telephone conversation between Ms Eccles and Mr Angel in late June 2008 and a telephone conversation between Ms Eccles and Mr Taylor in August 2008. I did not accept Ms Eccles' evidence concerning those conversations but I accept that Ms Eccles believed the evidence she gave to be true. Ms Eccles' recollection of the conversations was affected by her belief that Koolan and in particular Mr Jordinson and Mr Taylor had agreed to the terms of the Cross Fit contract. At the time the plaintiffs were not in receipt of witness statements from the defendants contradicting Ms Eccles' belief of what had occurred.

3. On the one hand the court should encourage settlement of disputes and 'be careful not to foster the proposition that obstinacy and unreasonableness will not be punished by orders as to costs':  Dobb v Hacket (1993) 10 WAR 532, 540 (Murray J). On the other hand 'potential litigants should not be unnecessarily discouraged from seeking to litigate a factual dispute, it seldom been possible to predict with any certainty what findings of fact will be made': Overseas‑Chinese Banking Corporation Ltd v Malaysian Kuwaiti Investment Co SDN BHD [2004] VSC 351 [32] (Redlich J). In considering the reasonableness of a party's refusal of an offer of compromise the court must be careful to avoid hindsight bias.

4. I find that the plaintiffs' rejection of the offer was not unreasonable in the circumstances.  Their case was based on Ms Eccles' evidence of the communications between herself and the defendants as well as the documents and objective circumstances.  I did not accept some critical aspects of Ms Eccles' evidence.  I did not find that her evidence was dishonest.  She has sworn that 'I fully believed in my case and the factual situation that pertained'.  I accept that evidence.  Disbelief of a party's witnesses, or rejection of the evidence of a party herself, does not as a matter of principle provide a sufficient basis for the award of indemnity costs.  The defendants' offer was to pay an amount less than the costs which the plaintiffs had then incurred.  If the plaintiffs had accepted the offer they would have made a net loss from the litigation.  At the time it was not unreasonable for the plaintiffs to reject the offer.

28 March 2013 offer

1. The defendants' second offer, to pay $100,000 inclusive of costs, was made on 28 March 2013.  By that time the action had been entered for trial, the principal witness statements had been exchanged and the trial date had been set.  At that time the plaintiffs had not been charged the full amount of work in progress but had paid their solicitors $139,627.02.  That, of course, was in excess of the amount of the offer.  Therefore, acceptance of the defendants' offer would have meant that the plaintiffs would have made a substantial loss on the litigation.  With hindsight it would have been prudent for them to accept the offer.  However, rejection of the offer was not unreasonable in the circumstances of 28 March 2013.

19 April 2013 offer

1. The third and final offer, of $125,000 inclusive of costs, was made on 19 April 2013, which was 11 days before the trial commenced.  The offer was $25,000 more than the offer made on 28 March but the costs incurred by the plaintiffs had increased in the meantime.  Accepting the offer would have meant that the plaintiffs made a net loss on the litigation.  The plaintiffs' rejection of the offer was not unreasonable in the circumstances.  An objective analysis would have disclosed that there was a substantial risk that the plaintiffs would fail.  However, the documents and the objective circumstances did not render any knockout blow to the plaintiffs.  They pressed on to trial in the belief that Ms Eccles' evidence would be accepted and that that would lead to a finding that there was an agreement on the terms of the Cross Fit contract.  With hindsight they were wrong.  However, I do not find that they were unreasonable in rejecting the offer in the circumstances of 19 April 2013.

Conclusion

1. The defendants claim for indemnity costs is based on the plaintiffs' rejection of the offers to compromise made on 22 September 2010, 28 March 2013 and 19 April 2013.  I have found that the plaintiffs' rejection of each of those offers was not unreasonable in the circumstances.  The defendants' claim for indemnity costs fails.  The appropriate order is that the plaintiffs pay the defendants' costs of the action.