Essington Investments v Regency Property Group

[2003] NSWSC 828

CITATION:	Essington Investments v Regency Property Group [2003] NSWSC 828
HEARING DATE(S):	8/9/03, 9/9/03, 10/9/03
JUDGMENT DATE:	10 October 2003
JUDGMENT OF:	McDougall J at 1
DECISION:	See paragraphs 144-147
CATCHWORDS:	Contract - whether binding contract exists between the plaintiffs and the defendant - actual or ostensible authority of an agent to conclude agreement - conditions precedent to formation of contract
CASES CITED:	Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Armagas Ltd v Mundogas SA [1986] 1 AC 717, 777; [1986] 1 AC 717, 732-733 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Commercial Union Insurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 481, 502-505 GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 Jones v Dunkel (1959) 101 CLR 298 Russo-Chinese Bank v Li Yau Sam [1910] AC 174, 184
PARTIES :	Essington Investments Pty Ltd (Plaintiff 1) Essington Group North Sydney Pty Ltd (Plaintiff 2) Essington Asia Pacific Pty Ltd (Plaintiff 3) Regency Property Group Pty Ltd (Defendant) Richard Drummond (Cross-Defendant)
FILE NUMBER(S):	SC 50058/03
COUNSEL:	L G Foster SC/J Stoljar/JAC Potts (Plaintiffs) R J H Darke SC/J Stephenson (Defendants) R G Thomas (Cross-Defendant)
SOLICITORS:	Gilbert & Tobin (Plaintiffs) Watson Mangioni (Defendants) Curwood & Partners/ Trevor Barker & Associates (Cross-Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

10 October 2003

REGENCY PROPERTY GROUP PTY LTD

JUDGMENT

HIS HONOUR:

Introduction

1 By Contract for Sale dated 27 September 2002 (“the Telstra contract”), the second plaintiff (“EGNS”) agreed to buy land described as “Part 16-40 Mount Street, North Sydney” (“the land”) from Telstra Corporation Ltd (“Telstra”). The purchase price was $16 million, payable as to a deposit of $725,000 on exchange and as to the balance of $15,275,000 by two instalments. The first instalment, $6,525,000, was payable by 12 March 2003 and the balance, $8,750,000, was payable on the “Completion Date” (a defined term). The land was bought for redevelopment (including a lease back to Telstra of part of the redeveloped site) (‘the Mount St project”).

2 The Telstra contract was varied on 22 May 2003 (“the first Telstra variation”) and again on 27 June 2003 (“the second Telstra variation”). Each variation altered, by extending, the time by which EGNS was to pay the sum of $6,525,000, and by providing for EGNS to pay Telstra, as compensation for delay in payment, stipulated amounts of, in effect, interest. On 15 August 2003, Telstra asserted that the Telstra contract had been terminated because of EGNS’ breach, purported to forfeit the deposit and claimed damages.

3 EGNS claims that it, together with the first and third plaintiffs (“EIP” and “EAP” respectively) entered into a contract with the defendant (“Regency”) whereby EIP and EAP agreed to sell, or procure the sale of, the whole of the issued share capital of EGNS to Regency for the sum of $100,000, on condition that Regency would make a number of payments to EGNS, some of which would, in effect, enable EGNS to meet its obligations under the Telstra contract. That agreement is said by the plaintiffs to have been made on 28 April 2003 by a written document styled, and which I will call, “Heads of Agreement”. The plaintiffs say that the Heads of Agreement became binding on Regency through its alleged agent the cross-defendant (“Mr Drummond).

4 The plaintiffs say that Regency has repudiated the Heads of Agreement and its obligations thereunder and that, in consequence, they have “terminated” the Heads of Agreement. The plaintiffs further say that they have suffered damage by reason of Regency’s alleged repudiation. That damage includes the plaintiffs’ apparent liability to Telstra flowing from what Telstra says is the valid termination for breach of the Telstra contract.

The issues

5 By their amended summons filed on 7 July 2003, the plaintiffs claimed, in substance, an order that Regency specifically perform its obligations under the Heads of Agreement, damages, interests and costs. However, once the plaintiffs had (as they contend) terminated the Heads of Agreement on the basis of what they said was Regency’s repudiation, the question of specific performance became irrelevant and the summons was further amended to reflect this.

6 At the commencement of the hearing, I made, in respect of the dispute between the plaintiffs and Regency, an order for the separate and prior determination of the following questions:

“1. Pursuant to the provisions of Part 31 Rule 2 SCR, order that the following questions be decided separately from and before all other questions arising in the proceedings between the plaintiffs, on the one hand, and the defendant, on the other hand namely:
(i) whether, upon receipt by the cross-defendant on 28 April 2003, of the document styled Heads of Agreement dated 28 April 2003, a true copy of which is exhibited to the affidavit of Malcolm Edwards sworn 8 July 2003, at pp. 119-132 of the folder which is Exhibit ME-1 thereto (the Heads ), there came into existence a binding legal contract between the plaintiffs, on the one hand, and the defendant, on the other hand, upon the terms and conditions contained in the Heads;
(ii) if the answer to question (i) is yes , whether by failing to make the payments contemplated under the said contract and asserting and continuing to assert in these proceedings that it is not bound thereby, the defendant has repudiated the said contract; and
(iii) if the answer to question (ii) is yes , whether, by letter from Gilbert & Tobin to Watson Mangioni dated 6 September 2003, the plaintiffs validly terminated the said contract.”

7 When I made that order, I indicated that I would make an equivalent order as between Regency and Mr Drummond, the intention being that all questions of damages, as between the plaintiffs and Regency, and as between Regency and Mr Drummond, be dealt with at some later time. Accordingly, at the commencement of the third day of the hearing, I made, in respect of the dispute between Regency and Mr Drummond, an order for the separate and prior determination of the following questions:

“2. Pursuant to the provisions of Part 31 Rule 2 SCR order that the following questions be decided separately from and before all other questions arising in the proceedings between the cross-claimant on the one hand, and the cross-defendant on the other hand, namely:
(i) if the question referred to in Order 1(i) is answered yes, whether the cross-defendant had actual authority to conclude the agreement;
(ii) if the question referred to in Order 1(i) is answered yes on the basis that the cross-defendant had ostensible authority to conclude the agreement:
(a) whether the cross-defendant acted beyond the limits of his actual authority in providing the document entitled “ Heads of Agreement ” to the plaintiffs on 28 April 2003;
(b) whether by providing the document entitled “Heads of Agreement” to the plaintiffs, the cross-defendant was in breach of a duty not to prefer his own interests to those of the cross-claimant;
(c) whether by providing the document entitled “Heads of Agreement” to the plaintiffs the cross-defendant engaged in conduct in trade or commerce that was misleading or deceptive or was likely to mislead or deceive in contravention of Section 42 of the Fair Trading Act , 1987.”

8 The plaintiffs say that Mr Drummond was, at least ostensibly and perhaps actually, the agent of Regency to submit to the plaintiffs, as an offer capable of acceptance by them, a facsimile copy of the Heads of Agreement dated in hand 28 April 2003, bearing handwritten amendments and bearing the signature of Mr Dean Johns, who was, at all material times, and is the sole director of Regency. The facsimile copy showed that Mr Johns’ signature had been witnessed by Mr Drummond.

9 Regency denies that Mr Drummond was in fact its agent, and denies that it held him out as its agent. Further, Regency says that, irrespective of the question of agency, if one views the matter objectively, “there was no intention on the part of Regency and Essington to effect an exchange of contracts [on 28 April 2003] such as to give rise to an enforceable agreement”. This, Regency says, is so for two reasons:

(1) The circumstances in which the facsimile copy of the document was provided to the plaintiffs, and the nature of the document itself, considered in conjunction with events that occurred shortly after 28 April 2003, indicate that there was no “intention to effect an exchange” so as to bring about contractual relationships; and

(2) In any event, the parties understood “that there would be no agreement unless Regency received the necessary funds from overseas” and that “[t]here is no evidence that those funds were received”.

10 Mr Drummond says that he had both actual and ostensible authority to “provide” (as he did) the facsimile copy of the Heads of Agreement to the plaintiffs. However, he says, “the document he provided to Essington was not an offer to enter into contractual relations and ... Essington was at all times aware that it did not constitute such an offer”. Thus, Mr Drummond says, there was no offer made through him by Regency to the plaintiffs that was capable of acceptance, and the plaintiffs’ purported acceptance was not capable of giving, and did not give, rise to a binding contract.

The evidence: events relevant to the claim and the cross-claim

11 For the plaintiffs, Messrs Malcolm Edwards and Bruce McWilliam gave evidence. Mr Edwards was and is a director of each of the plaintiffs and appears to have been the person, within the Essington group, who had the most to do with the Telstra contract (and its variations) and the Heads of Agreement. Mr McWilliam was the solicitor who acted for the plaintiffs on the Telstra contract (and its variations) and the Heads of Agreement.

12 Mr Johns gave evidence for Regency. It does not appear to be in dispute, and in any event I find, that he was the controlling mind of Regency, and that, for the purpose of resolution of the issues in these proceedings, his acts may be taken to be the acts of Regency.

13 Mr Drummond likewise gave evidence. I should note that, although Mr Drummond’s company, National Commercial Finance Pty Ltd (“NCF”), was entitled to receive remuneration from Regency in relation to the Mount Street project, it was not suggested by any party that NCF, rather than Mr Drummond, was to be regarded as Regency’s agent.

14 The relevant facts that were agreed, or as I find them, are as follows.

15 On 27 September 2002, EGNS entered into the Telstra contract. The making of that contract followed extensive negotiations. It was originally the intention of EGNS to finance the Mount Street project through a Hong Kong company known as ERA Assets. Mr Edwards says that “although no formal arrangement was ever concluded with this company, the main principles of an arrangement for the financing of the project had been negotiated”. I take this to mean that the main principles had been negotiated as at 27 September 2002.

16 Nonetheless, Mr Edwards sought alternative ways of carrying out the development. In early 2003, he had discussions with Mr Malcolm Grant of the Cornerstone Property Group. On 31 March 2003, Cornerstone put forward a conditional proposal that was more favourable to EGNS than the proposed arrangement with ERA Assets. Cornerstone also introduced Mr Drummond, and Mr Grant informed Mr Edwards that Mr Drummond “would be handling further negotiations along the lines of the principle [sic] terms outlined in the correspondence”. Also on 31 March 2003, Mr Edwards sent to Mr Grant what appears to be the first circulated draft of what became the Heads of Agreement. The payment schedule set out at cl 2 of that draft reflected the terms of Mr Grant’s letter of 31 March 2003.

17 Mr Drummond and Mr Johns had known each other, at this time, for about a year. They had had extensive dealings in relation to the acquisition, by a company associated with Mr Johns, of an interest in the Radisson Kestrel Hotel at Manly from interests associated with Morgan & Banks. Mr Drummond was representing the Morgan & Banks interests in that transaction.

18 In about February 2003, Mr Drummond discussed the Mount Street project with Mr Johns. Mr Drummond provided Mr Johns with documents relating to the Mount Street project. Those documents included photographs of the site and computer modelling, as well as costing and feasibility studies. Either then, or at some later time, Mr Johns said that he was unenthusiastic because there was no “DA”. He asked Mr Drummond “Is there any chance of doing this deal on a subject to DA basis?”.

19 Mr Johns had an associate, Mr Warren Brain, with whom from time to time he carried out projects in joint venture. According to Messrs Johns and Drummond, Mr Brain was an enthusiastic supporter of the Mount Street project, and believed that it would show a 50% return on funds employed. Mr Brain told Mr Johns that he had been introduced to the Mount Street project by Mr Drummond.

20 On 4 April 2003, Mr McWilliam prepared a further draft of the Heads of Agreement. That draft named the plaintiffs and Cornerstone or its nominee as parties. Mr McWilliam sent that draft by e-mail to (among others) Mr Drummond. The terms of the e-mail message, and of the draft Heads of Agreement, show that Cornerstone was the party with whom the plaintiffs were then negotiating. However, Mr Johns saw a copy of that draft at about this time.

21 The draft Heads of Agreement provided by cl 1 for the sale of “the Sale Shares” (i.e. the issued capital of EGNS) for $100,000 “[o]n condition that the payments to be made by the Purchaser as set out in cl 2 are duly made”.

22 Clause 2 provided for the making of seven specified payments to specified payees (in the first five cases, the payee was EGNS and in the last two cases, the payee was EAP) and for the dates by which those payments were to be made. The first and fourth payments (respectively $6,525,000 and $8,750,000) were equivalent in amount to the payments required to be made by EGNS to Telstra under the Telstra contract. Their proposed due dates were 10 April 2003 and the date of completion. (I interpose that, as at 4 April 2003, Telstra through its solicitors had indicated that it would accept the first payment by 22 April 2003, but the first Telstra variation, which formalised this, had not been executed.)

23 Clause 3 of the draft specified how EGNS would deal with the payments paid to it. Relevantly, the first and fourth amounts were to be paid to or at the direction of Telstra.

24 Shortly after the draft of 4 April 2003 was produced, Mr Drummond spoke to Mr Edwards to say that Cornerstone should be replaced by Regency. Mr Edwards, both on this occasion and on others, sought, and obtained, reassurances from Mr Drummond as to Regency’s ability to finance and complete the project.

25 By this time, and throughout April, Mr Johns’ expectation was that Mr Drummond would report back to Mr Johns on the subject of Mr Drummond’s dealings with Mr Edwards. As far as Mr Johns could make out, this happened. Mr Drummond’s evidence, which on this point I accept, is that as he received various versions of the Heads of Agreement that contained material changes to the payment schedules, he forwarded that material either to Mr Johns or, if Mr Johns so instructed, to a Mr John Connolly. (Mr Connolly’s role is explained in para [82] below.)

26 On 4 April 2003, Mr Drummond caused NCF to send a letter to Messrs Brain and Johns. That letter set out “the fee basis we have discussed for a profit sharing/carried equity arrangement for the prospective purchase of the development site at 16/40 Mount Street, North Sydney”. The consultancy was said to be one “to manage the acquisition and redevelopment of the subject site into a [sic] office and serviced apartment development”. The remuneration was to be “[a] monthly development fee to be agreed” and “carried equity of 20% in the ownership of the completed development” subject to certain conditions. Mr Johns ultimately signed that letter on behalf of Regency (although, on the evidence, this may not have happened until about two weeks had elapsed).

27 Mr Johns says that he made it clear to Mr Drummond in subsequent conversations that he had many commitments and was unsure of cash flow from some overseas investments, so that he could not take on the Mount Street project “unless you can get it subject to DA or somehow delay it until the end of the year”. Mr Drummond undertook to seek to negotiate along these lines.

28 It is clear on the evidence, and I so find, that, after these initial conversations, Mr Johns (notwithstanding his concerns as to cash flow) knew that Mr Drummond was continuing to negotiate with the plaintiffs to seek to structure a “deal” that would be attractive to both the plaintiffs and Regency. It is clear, and I so find, that Mr Johns, if he did not encourage Mr Drummond so to act, took no steps to stop him or discourage him. It is clear, and I so find, that at no stage until 13 May 2003 did Mr Johns have direct contact with Mr Edwards. (There is no suggestion in the evidence that Mr Johns at any time had direct contact with anyone else purporting to represent the plaintiffs. It was Mr Edwards who had the carriage, on behalf of the plaintiffs, of matters relating to the Mount Street project.)

29 On 7 April 2003, Mr McWilliam produced a further draft of the Heads of Agreement. This draft named Regency as “Purchaser”. Mr Drummond obtained a copy of this draft and sent it by facsimile transmission on 7 April 2003 to Mr Connolly. The document as printed contained the same schedule of payments as the 4 April draft and, in respect of the first and fourth payments, imposed the same obligation on EGNS to pay them to or at the direction of Telstra. Mr Johns noticed, at the time he saw this document, that the purchasing company was described as “Regency Property Group Ltd”.

30 On 8 April 2003, Messrs Drummond and Connolly attended the offices of Gilbert & Tobin, where they were provided with the Telstra contract and the opportunity to review it. Although Mr Drummond wished to say that, at least for his part, the review was brief and limited, I find that the review took some hours and enabled at least Mr Connolly to be satisfied as to the terms of the Telstra contract, so that appropriate provision for the protection of Regency could be made in the event that an agreement was struck between the plaintiffs and Regency. One matter of concern to Mr Johns was that payments by Regency to EGNS should not exceed the corresponding liability of EGNS to Telstra. (I interpose that, in the Heads of Agreement, this concept was expanded, in the sense that cl 2 provided for Regency to make additional payments to EGNS, over and above its liabilities to Telstra. Those additional payments were in effect to provide working capital to EGNS to enable it to progress the project. In addition, there were payments to be made to the other plaintiffs in effect by way of profit share.)

31 It would appear that Messrs Drummond and Connolly discussed the draft Heads of Agreement that had been prepared on 7 April 2003. Notations on a copy of the draft indicate that, among other things, consideration was being given to extending the due dates of some of the payments specified in cl 2.

32 Negotiations proceeded between Mr Drummond (and, it would appear, Mr Connolly) and Mr Edwards. On 16 April 2003, Mr Drummond sent a facsimile transmission to Mr Connolly proposing further amendments to the draft Heads of Agreement, including changes to the payments schedule set out in cl 2. That document was forwarded to Mr Edwards, who in turn forwarded it to Mr McWilliam. Mr McWilliam revised the Heads of Agreement “to take account of most of the points you [Mr Drummond] have raised in your fax of April 16 ... and also in your discussions with [Mr Edwards] on 10 April”. That amended document was sent to Mr Drummond (and to Mr Grant), in both marked-up and clean versions, by e-mail on 16 April 2003. That e-mail was sent subject to Mr Edwards’ instructions, and subject to verification of calculations of interest. Mr McWilliam requested “the ACN of Regency” and confirmation of its address.

33 The changes to the payment schedule included splitting up the initial payment of $6,525,000 into one instalment of $1 million, payable on 30 April 2003, and a further instalment of $5,525,000, payable on 31 May 2003, together with interest on $5,525,000 at 9% per annum from 12 March 2003 to 31 May 2003.

34 Further, after the revised payment schedule, there appeared the following:

“The amount referred to in clause 2(a) above [i.e. the first instalment of $1 million, payable by 30 April 2003] shall be paid by the purchaser directly into Gilbert + Tobin’s trust account ... prior to the date of this agreement. The said firm is authorised to and shall be entitled to release the same to Telstra on the date referred to in cl 2(a) above ...”.

35 Two further versions of the draft Heads of Agreement were prepared on 17 April 2003. The significant changes were to the words following the schedule of payments in cl 2. The prior draft had referred only to “[t]he amount referred to in Clause 2(a) above”. The first revision on 17 April changed this to “[t]he amounts referred to in Clauses 2(a) and (b) above”. The further revision on 17 April – the version that was sent to Mr Drummond and that he sent on to Mr Johns – maintained the reference to cls 2(a) and (b) but, instead of requiring the amounts to be paid into the trust account “on or prior to the execution of this Agreement”, required that they be paid “on or prior to 24 April 2002”. There were some other, minor, drafting changes.

36 In the evening of 17 April 2003, Mr McWilliam sent an e-mail to Messrs Grant and Drummond, copied to Mr Edwards. (I interpose that 17 April 2003 was a Thursday and that the following day, 18 April, was Good Friday.) The e-mail stated:

“At about 6 pm tonight I was contacted by John Connelly [sic] who said that Dean Johns was picking up the document for signature on Sunday [i.e. 20 April 2003], so notwithstanding Richard’s kind offer in our phone call this afternoon that the corrections can easily be dealt with after signing , our client has suggested we send you a clean copy for execution .
As I don’t have John Connelly’s [sic] e-mail (or confirmed fax) Richard could you please send the signing copy to him? After execution please fax it to me on fax no. 9263-4111 and we will let you have a copy singed [sic] by our client by return. ” (emphasis supplied)

37 Mr Edwards said, and I accept, that in a conversation with Mr Drummond on 22, 23 or 24 April 2003, Mr Drummond had said words to the effect: “we are all big and experienced enough to exchange by fax”. Although Mr Drummond denied that he said this, I do not accept his denial. His oral evidence was that he believed that the plaintiffs were of the understanding that there would be an exchange by facsimile transmission and indeed were expecting that to happen.

38 Mr Drummond received the e-mail and printed out a copy of the attachment. He says that he noted that it did not contain all the amendments that he had set out in his facsimile transmission (to Mr Connolly but forwarded to Mr Edwards and by him to Mr McWilliam) of 16 April 2003 but that, nonetheless, he spoke to Mr Johns by telephone and said that he had a further draft of the proposed agreement with revised payment dates that he would send to Mr Johns for review.

39 Mr Drummond says that he sent a copy of the document by facsimile transmission to Mr Johns (both at his home and at the Westin Hotel) on 21 April 2003 (Easter Monday). Mr Johns’ evidence is that he received a copy of the Heads of Agreement at the Westin Hotel, under cover of a letter from Mr Drummond’s company, National Commercial Finance Pty Ltd, dated 21 April 2003, by delivery. He did not recall receiving any facsimile copy. The letter requested Mr Johns to “... please sign and return to me by fax” the enclosed copy of the Heads of Agreement. The letter did not indicate what Mr Drummond would do with the signed document when it was returned to him, nor did it (or the evidence otherwise) explain why it was necessary for the document to be signed on 21 April 2003, ahead of a meeting that (according to the letter) was planned to occur on 23 or 24 April 2003.

40 Thereafter, as I find, Messrs Johns and Drummond met in a coffee shop under the Westin Hotel on 21 April 2003. Mr Johns may have had with him a copy of the document that had been delivered. Alternatively, it is possible that Mr Drummond brought with him a further copy. Mr Johns says that, at the meeting, Mr Drummond complained that Mr Johns was “making this incredibly difficult for me” because, as Mr Drummond saw it, Mr Johns had not been demonstrating any interest to the plaintiffs. Mr Johns said that Mr Drummond asked him “to sign the back of this agreement” which was “only a draft and ... non committal” on the basis that, by so doing, it will demonstrate to Essington that you are interested in continuing negotiations”.

41 Mr Johns says that there was a further discussion in which, among other things, Mr Drummond assured him that “this can be changed at any time” and “is a non committal document ... just a draft” but that by signing it “it is non committal and I can show the document to the Essington Group to demonstrate that there is a level of interest” (emphasis supplied). That, Mr Drummond said, “will assist in furthering negotiations”.

42 Mr Johns says that he replied as follows:

“I will sign it on one condition. It is only to assist you in further negotiations. You can show the document to the Essington Group but you must not handover [sic] copy, fax or release the document to anyone without my consent. It must remain in your briefcase. I would like the document back at some stage once you are finished with it.”
(emphasis supplied)

43 Thereupon, Mr Johns says, he signed the document and handed it to Mr Drummond. He says that, when he handed it over, he reiterated that Mr Drummond was not “to release this document to anyone without my prior approval” and that Mr Drummond assured him that he would not. Finally, Mr Johns says, he pointed out to Mr Drummond that he would not entertain “the deal seriously until I have certainty of cash flow”, that without “the money from overseas there simply can’t be a deal” and “there is nowhere near enough information or due diligence for me to make a serious consideration of the deal at this point”.

44 Mr Johns did not take any step to communicate to the plaintiffs the limitations that he placed upon the authority of Mr Drummond to deal with the document. Nor did Mr Johns take any step to communicate to the plaintiffs anything that would suggest that Regency did not wish, or was not in a position, whether for want of money, want of information, or for any other reason, to conclude a contract with the plaintiffs “at this point”.

45 Mr Drummond denies that a meeting occurred at all on 21 April 2003 or that, at the time when (he says) the Heads of Agreement were signed, he said all of the things attributed to him by Mr Johns. For reasons that I will give later, I generally accept Mr Johns’ evidence where it is in conflict with that of Mr Drummond. Accordingly, I find that the events of 21 April 2003 occurred (in so far as they involved Messrs Johns and Drummond) substantially as Mr Johns gives them.

46 In any event, it is clear that Mr Drummond understood, when the Heads of Agreement were signed, that he was not authorised to release them to the plaintiffs. He acknowledges that, when the document was signed (which he says occurred on 24 April 2003), Mr Johns said:

“I’ll sign it and you can tell the other side that I have signed the agreement but you are not to release it until you have my OK.”

Mr Drummond also acknowledges that Mr Johns had said that “our ability to enter into this contract is dependent on our receiving funds from overseas in relation to the mining venture”.

47 The document that was sent by Mr Drummond to the plaintiffs on 28 April 2003 contained some handwritten amendments to cl 2, both as to the schedule of payments and, consequentially, as to the obligation to pay moneys into the Gilbert & Tobin trust account.

48 Firstly, the payment schedule was further amended so that the first instalment, of $1 million due on 30 April 2003, was split up into two instalments, each of $500,000. The first of those was proposed to be due on 8 May 2003 and the second was proposed to be due on 25 May 2003. There was also a change to the due date of a third amount of $500,000, from 30 April to 25 May 2003 (I interpose that that was not an amount referable to the obligations of EGNS to Telstra).

49 Further, the words in cl 2 following the schedule of payments were amended. One group of amendments picked up the splitting of the initial instalment of $1,000,000 into two instalments each of $500,000. The other deleted the reference to “24 April 2003” and replaced it with the words “the dates specified” so that, instead of requiring payment of the relevant amounts into Gilbert & Tobin’s trust account by 24 April 2003, the document required the relevant payments to be so paid “on or prior to the dates specified”. Clearly enough, the intention was that they should be paid when they were due, as indicated in the schedule of payments, and not at some prior time.

50 Mr Johns’ recollection is that those handwritten amendments were on the document when he signed it. (If they were, he did not initial them.) Mr Drummond’s evidence is that they were made after signature, either during or immediately after telephone discussions with Mr Johns on the evening of 27 April 2003. It is not necessary to resolve this conflict, although I think that the probabilities favour Mr Drummond’s evidence on this point.

51 After 21 April 2003, Mr Edwards says, and I accept, that he had a number of conversations with Mr Drummond in which Mr Drummond adverted to his being in possession of the signed (or, as he is said to have put it, “executed”) Heads of Agreement, but not being in a position to “release” the document. It is clear, and ultimately Mr Drummond conceded, that Mr Edwards was pressing Mr Drummond to “release” the signed Heads of Agreement not as some indication of good faith, but as the first step in an exchange that would lead to the formation of a legally binding contract. This occurred against the background of Mr McWilliam’s e-mail of 17 April 2003, to which I have already referred, the clear purport of which was that Mr McWilliam understood, and intended, that signed copies of the Heads of Agreement would be exchanged by facsimile transmission. The logical – indeed, I would think, only – inference from this is that Mr McWilliam understood and intended that there would be a facsimile exchange of counterparts to bring about a legally binding contract.

52 Ultimately, on 28 April 2003, Mr Drummond sent the amended (the amendments had not been initialled) and signed Heads of Agreement by facsimile transmission to the plaintiffs. If, as Mr Drummond reiterated, the sending of the document was not intended as the first step in bringing about binding legal relations, but was only intended to show “good faith” as a means of progressing negotiations, it is hard to understand why this step could not have been taken, even accepting for the moment Mr Drummond’s chronology, on or shortly after 24 April when (Mr Drummond says) the document was signed. If the document were merely intended to further the negotiations, then there would have been no reason for its despatch to have been held up – particularly for the reasons (relating to unavailability of funds) that Mr Drummond asserts.

53 Mr Drummond did not send the amended and signed Heads of Agreement under cover of a facsimile transmission sheet or any other document. He did not in any way expressly communicate to the plaintiffs that the document was merely being “shown” to them, whether as a means of showing “good faith” or otherwise, but that it was not being “released” to them. He did not expressly communicate to the plaintiffs that Regency was not in a position, and was not intending, to conclude a legally binding contract on the terms of the document. He did nothing that would indicate, qualify or limit either Regency’s purpose in sending the document or the plaintiffs’ use of it once received.

54 When the facsimile transmission was received by the plaintiffs on 28 April 2003, Mr Edwards considered the amendments that had been made and sought advice from Mr McWilliam. Thereafter, Mr Edwards on behalf of the plaintiffs decided to accept the amendments. He therefore initialled them and signed the document on behalf of each of the plaintiffs (his signature being witnessed by Mr McWilliam).

55 Mr McWilliam sent the signed Heads of Agreement to Mr Drummond by facsimile transmission on 28 April 2003. In a covering note he said:

“On behalf of our client Essington Group North Sydney and affiliated companies, we are faxing through to you the amended agreement accepting your changes as contained in your draft faxed through to EGNS this afternoon.”

56 Mr Drummond received that facsimile transmission. He took no step to question or dispute its content.

57 The events that occurred thereafter and up until about 13 May 2003 can be dealt with relatively briefly. On 1 May 2003, Mr McWilliam prepared a further copy of the Heads of Agreement, in marked up and clean form. That copy incorporated all the changes made to the version that had been signed. It was provided to Mr Drummond on 1 May 2003 “for signature” – i.e. for him to procure the signature of Mr Johns on behalf of Regency.

58 Also on 1 May 2003, Mr Edwards sent an e-mail to Mr Drummond advising “that Telstra has accepted the revised payment terms to conform to the schedule of payments set by you and recorded in the agreement”. He asked Mr Drummond to “confirm to Bruce McWilliam the day on which you have completed the transfer of funds to the Gilbert & Tobin trust account to ensure clear funds are available at that account on or before 8 May 2003 in accordance with the agreement, and likewise for each transfer”. Mr Drummond did not reply to this.

59 On 2 May 2003 Mr Edwards spoke to Mr Drummond to confirm the schedule of payments set out in the Heads of Agreement. He confirmed his conversation in an e-mail of 5 May 2003 which referred to the e-mail of 1 May and the telephone conversation of 2 May, and asked Mr Drummond to “please confirm the required funds will be available at the solicitors’ trust account on or before 8 May”. Mr Edwards says that, when he spoke to Mr Drummond, Mr Drummond said that there would be a delay. Mr Drummond did not deny either the existence of an agreement or that Regency was obliged to pay money under it.

60 On 6 May 2003, Mr McWilliam sent an e-mail to Mr Drummond. Relevantly, that e-mail said:

“Regarding the payments, as Malcolm Edwards has communicated, we have Telstra standing by for the 8th and 25th May, so we need the moneys in our trust account to permit a seamless transfer.
Our trust account details are in Clause 2 of the Heads of Agreement, is there anything else you need to ensure, this all happens without a hitch.”

61 Mr Drummond did not, on receipt of this e-mail, take any step to indicate to the plaintiffs that in his view there was no legally binding contract or that Regency had no obligation to make any payment.

62 Indeed, the evidence shows that Mr Grant of Cornerstone became involved once more, apparently at the request of Mr Edwards, but with a view to assisting Regency to make the first payment that was due. Further, Messrs Edwards and McWilliam took urgent steps to ensure that the required money would be in Gilbert & Tobin’s trust account to enable the first payment to be made.

63 At some time between 8 and 12 May 2003, Mr Drummond telephoned Mr Johns. Mr Johns acknowledged that there was such a conversation, but thought that it took place 24-48 hours later. However, given that Mr Johns acknowledged that, in the conversation, Mr Drummond told him that “the Essington Group” expected to receive a payment of $500,000 from Regency on that day, it is likely that the conversation took place on 8 May 2003 (that being the day when the first instalment of $500,000 was due under the Heads of Agreement). On any view of the evidence, this was the first occasion on which Mr Drummond had told Mr Johns that the plaintiffs contended that there was a binding contract between them and Regency, and that Regency had obligations to be performed under that contract. It is however likely that there were a number of further conversations between Messrs Drummond and Johns on the same topic after 8 May 2003 and before the meeting between Messrs Johns and Edwards on 14 May 2003 that is referred to in para [69] below.

64 On 9 May 2003 Mr Grant sent a facsimile transmission to Mr Drummond referring to Mr Edwards’ hope “that he may be able to gain an extension from Telstra” and setting out that a letter would be required from Mr Johns and Mr Connolly. Mr Grant asked Mr Drummond to “please organise this as a matter of urgency”.

65 At about this time, Mr Drummond was discussing “extended settlement” with Mr Edwards and proposing, apparently, that Regency might be able to give security over other properties owned by it. These discussions were confirmed by Mr Edwards in an e-mail to Mr Drummond of 9 May 2003.

66 On 12 May 2003, and apparently after a “recent discussion”, Mr Drummond sent Mr Johns a facsimile transmission asking him to “please call Malcolm Edwards ... to explain the delays in providing the payment of the first Telstra Payment into the Trust Account for Gilbert & Tobin”. It appears from an e-mail sent by Mr Edwards to Mr Drummond on the same day, that Mr Drummond had said to Mr Edwards on 10 May that Mr Johns “had instructed his solicitor to provide information requested to Mr Bruce McWilliam”.

67 Also on 12 May 2003, Mr Grant sent Mr Drummond a facsimile transmission requesting information to be sent to Mr McWilliam and noting that “Malcolm has bent over backwards to try and accommodate us and so to save us messy and prolonged legal action”. He also asked if Mr Drummond could “get Dean Johns to call Malcolm so he can meet him for a coffee and therefore understand who he is dealing with”.

68 I have referred to this material because at no time did Mr Drummond question, let alone deny, the repeated assertion that there was a binding contract between the plaintiffs and Regency on the terms of the Heads of Agreement that Mr Drummond had faxed to the plaintiffs on 28 April 2003.

69 Mr Drummond succeeded in persuading Mr Johns to make contact with Mr Edwards. There was a telephone discussion on 13 May 2003. Thereafter, Messrs Edwards and Johns met on 14 May 2003. Although there is some difference between them as to what precisely was said, it is clear that Mr Edwards asserted that there was, and Mr Johns asserted that there was not, a legally binding contract between their respective companies. The only significant dispute is that, according to Mr Johns, he said in effect to Mr Edwards that “Richard Drummond had no authority to release that document” whereas, according to Mr Edwards, Mr Johns said, in response to a threat on Mr Edwards’ part to commence legal proceedings, that “if that is the case then I will just say that Richard was not authorised to complete the transaction ...”.

70 Although, generally, for reasons that I will give later, I prefer the evidence of Mr Edwards to that of Mr Johns where they are in conflict, I do not find that Mr Johns used the words that Mr Edwards attributed to him. It was not supported by Mr Edwards’ notes of the event (although, in fairness, it is not completely inconsistent with those notes, and the lack of correspondence may reflect only the circumstances in which the notes were prepared – in a taxi on the way to another meeting). Clearly, Mr Edwards intended to suggest that Mr Johns did not believe that Mr Drummond was unauthorised, but would be prepared to say so if litigation commenced. However, it is clear, and I find, that at all times Mr Johns has believed that Mr Drummond did not have authority to do that which, the plaintiffs say, he did; and, as I have noted, Mr Drummond himself shares this view. Accordingly, I am not satisfied that, if faced with the threat of a threat of legal proceedings, Mr Johns would have replied in a way that suggested that, regardless of the truth of the allegation, he would assert that Mr Drummond was unauthorised. I am satisfied that, whilst Mr Johns’ statement of position may have been made in relation to a threat of legal proceedings, he was seeking to convey a genuine belief on his part that Mr Drummond was not authorised, and was not seeking to convey simply that, as a matter of convenience and regardless of its truth or falsity, he would say so if he had to.

71 By letter dated 15 August 2003, Telstra wrote to Gilbert & Tobin asserting that the Telstra contract had been terminated, that Telstra had forfeited the deposit of $725,000 paid by EGNS, and that Telstra reserved its right to damages.

72 The last relevant matter of fact is that, by letter dated 6 September 2003 from Gilbert & Tobin (on behalf of the plaintiffs) to Watson Mangioni (on behalf of Regency), the plaintiffs asserted that Regency had repudiated what the plaintiffs said was the legally binding contract between them on the terms of the Heads of Agreement, and that the plaintiffs accepted that repudiation and treated the contract as terminated.

73 It is not suggested that, if there were a legally binding contract on the terms of the Heads of Agreement, Regency has not repudiated it; nor is it suggested that, on those assumptions, the letter was not an effective notice of acceptance and termination.

Findings on credit

74 There are number of conflicts between the evidence of Mr Edwards, that of Mr Johns and that of Mr Drummond. I am not sure that all the differences between the evidence of those gentlemen are as significant as, it appears, the parties believed them to be. However, to the extent that it is necessary for me to resolve the conflicts, I conclude that in general, where the evidence of Mr Edwards conflicts with that of Mr Johns or Mr Drummond, Mr Edwards’ evidence is to be preferred.

75 Further, where Mr Johns’ evidence conflicts with that of Mr Drummond, I conclude that in general Mr Johns’ evidence is to be preferred.

76 Each of Messrs Edwards, Johns and Drummond had an interest in the outcome of the proceedings. Mr McWilliam, of course, did not. There was no real challenge to Mr McWilliam’s credibility and I accept his evidence. That evidence was significantly corroborative of the evidence of Mr Edwards, in particular as to the sequence of events leading up to 17 April 2003, and the sequence of events from 17 April 2003 until 28 April 2003.

77 Both Mr Edwards and Mr Johns were inclined, from time to time, to evade the point of a question and to give non-responsive answers. However, this seemed to me, on reflection, to be a product of, firstly, the belief that each of them evidently held that he was in the right and, secondly, an understandable desire on the part of each of them to get his story across. To the extent that considerations of demeanour might be significant, I did not observe anything in the demeanour of either Mr Edwards or Mr Johns that would cause me to take an adverse view of their credibility.

78 One thing that did become apparent was that Mr Edwards was involved, on a daily basis, in the progress of the transaction between (as he saw it) the plaintiffs and Regency. It is clear, on the evidence of Mr Drummond as well as that of Mr Edwards, and on the documentary evidence, that Mr Edwards was involved, day in and day out, in driving the transaction with Regency to what he hoped would be a successful conclusion.

79 By contrast, Mr Johns stood aloof from the transaction. He deputed (to use, at this stage, a neutral term) the task of negotiation to Mr Drummond. Mr Johns’ evidence was that he had “little interest”, which he said was “dwindling down to non existent almost”, both in the proposed transaction with the plaintiffs as a whole and, in particular, in its detail. As he said, of his attitude during the month of April:

“It appeared to me at the time that Mr Richard Drummond was very vigorous, trying to put something together and which I was not showing a lot of interest at this time, but he was there, he was very tenacious, he was remodelling and remodelling and I think I frustrated him with my lack of co-operation and interest.”

80 Accordingly, as one might expect, Mr Edwards appeared to have, and in my opinion did have, a clear recollection of detail whereas, in relation to this transaction, Mr Johns did not.

81 Further, in a number of significant respects, Mr Edwards’ evidence was corroborated by contemporaneous records, including some handwritten notes kept by him and, more significantly, e-mails that he sent from time to time to other parties (including, specifically, Mr Drummond) to record what he had been told. If one accepts that his contemporaneous notes (including e-mails) reflected his understanding at the time, and were not deliberately falsified so as to bolster his version of events, then they provide powerful support for his evidence. It was not put to Mr Edwards that his contemporaneous records were false. Further, on the evidence, there is no foundation for such a suggestion.

82 Mr Johns, as I have said, was strongly of the view that his company had not been committed to the transaction with the plaintiffs. It is clear, although understandable, that this attitude, to an extent, coloured his view of the facts. However, bearing that in mind, I am of the view that Mr Johns was doing his best to tell the truth. To the extent that there were shortcomings in his evidence, those shortcomings, in my view, reflect the circumstances that I have already mentioned: namely, his relative remoteness from, and lack of interest in, the transaction and his strong view that there was no contract.

83 There is one other matter that needs to be mentioned in relation to the evidence for Regency. It became clear that Mr Connolly played a significant part in such investigation as Regency carried out of the proposed transaction, and was to some extent involved in the negotiations. Mr Connolly possessed legal qualifications and acted as a consultant to the Regency Group, apparently giving it advice in respect of contractual and other matters. He was not, however, the solicitor who regularly carried out commercial and conveyancing work for the Regency Group. The work that Mr Connolly carried out included, in particular, an examination of the Telstra contract.

84 Mr Connolly was not called to give evidence. His absence from the witness box was not explained although it was clear, and I find, that he would have been available if required. Accordingly, the plaintiffs submitted that I should draw a Jones v Dunkel inference against Regency (Jones v Dunkel (1959) 101 CLR 298; see also Commercial Union Insurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389). It is clear that Mr Connolly could have given evidence of the negotiations between the plaintiffs and Regency. His unexplained absence from the witness box makes it easier for me to accept the evidence of Mr Edwards on those matters although, as I have tried to make clear, I would have reached this conclusion in any event without relying upon the Jones v Dunkel inference.

85 However, I do not regard the unexplained failure to call Mr Connolly as having any relevance to the credibility of Mr Johns, particularly having regard to Mr Johns’ limited involvement (at least until after 28 April 2003). In the absence of any reason to think that the evidence of Mr Connolly could have shed light on such matters as Mr Johns was able to recount, there does not seem to me to be any basis to convert the Jones v Dunkel inference from a general one – affecting, to the extent that it is capable of so doing, the evidence for Regency as a whole – into a particular one – affecting specifically the evidence of Mr Johns.

86 As I have said, I find that both Mr Edwards and Mr Johns gave evidence that, in general, I could accept with confidence. I do not think that the same can be said of Mr Drummond. There were a number of serious difficulties in his evidence.

87 First in significance, although not in chronology, there is the evidence of events after 28 April: specifically, the assertions contained in correspondence and e-mails from the plaintiffs (or their solicitor, Mr McWilliam), and Mr Drummond’s complete failure to register any protest at the contents of those communications. The plaintiffs and Mr McWilliam were of the view that a binding contract had been effected, on the terms of the Heads of Agreement (as amended by hand), on 28 April 2003. They were of the view that Regency had obligations under that contract including, specifically, to make payment in accordance with the schedule set out in Clause 2. They made this view clear in repeated correspondence both leading up to what they said was the first due date for a payment to be made (8 May 2003) and thereafter. The inescapable – indeed, the only – inference from those communications is that the plaintiffs were asserting that there was a legally binding contract.

88 Mr Drummond’s evidence is that at no stage, on 28 April 2003 or thereafter, did he believe that there was a legally binding contract. Nonetheless, not only did he fail to respond to, let alone question or deny, the plaintiffs’ repeated assertion that there was a legally binding contract, he took steps to seek to persuade Mr Johns that Regency should perform what the plaintiffs contended were its obligations under the contract. The objective record of what happened after 28 April 2003 is completely inconsistent with Mr Drummond’s repeated assertion that he believed there was no legally binding contract.

89 Secondly, Mr Drummond’s principal ground for asserting that there was no legally binding contract is one that I find impossible to accept. He maintained that there was to be no binding contract until, among other things, Regency had paid, or caused to be paid, money into the trust account of the plaintiffs’ lawyers, Gilbert & Tobin. (I interpose that, at an early stage of the negotiations, this was correct.) Mr Drummond pointed, in particular, to an e-mail from Mr Edwards to him (copied to others) that stated as follows:

“We refer to your advice to Bruce McWilliam on 24 April confirming the execution of our agreement in the form settled on 17 April . Could you please advise us and Mr Bruce McWilliam when the required funds under the agreement have been transferred to his trust account to allow exchange. As mentioned during our weekend discussions Telstra have agreed to the variations requested by you, and that the payment to them including the agreed interest component is to be made on 30 April and 31 May as you requested.”
(emphasis supplied)

90 Mr Drummond’s reliance on that e-mail is misplaced. As has been seen, the agreement was not signed “in the form settled on 17 April”. The draft produced on that date had been amended thereafter in discussions between Messrs Johns and Drummond, which amendments (at the time that Mr Edwards sent the e-mail just referred to) had not been communicated to the plaintiffs. The draft Heads of Agreement “in the form settled on 17 April” required payments to be made on specified dates, and the money to make those payments to be deposited in the trust account of Gilbert & Tobin “on or prior to the 24th April 2003”. It was clearly that requirement of the draft Heads of Agreement that Mr Edwards was referring to in his e-mail (although, by the time that e-mail had been sent, no money had been paid into Gilbert & Tobin’s trust account).

91 As the draft Heads of Agreement stood as at 17 April 2003, the requirement to pay money into Gilbert & Tobin’s trust account prior to 24 April 2003 was not a condition precedent to the formation of a legally binding contract in terms of that draft. Mr Drummond was an experienced businessman. I do not accept his evidence that he regarded the relevant words as having this effect.

92 However, the significance of this aspect does not end there. The changes that were agreed upon, between Messrs Johns and Drummond, to the draft Heads of Agreement, included changes to the schedule of payments set out in cl 2 of the draft. I have set out the substance of those changes at paras [48] and [49] above. Significantly, for present purposes, they included amendment of the requirement to pay money into Gilbert & Tobin’s trust account “on or prior to 24 April 2003” to a requirement that the money be paid “on or prior to the dates specified” – i.e., in context, on or prior to 8 May or 25 May 2003, as the case may be.

93 Mr Drummond, having written those changes in (as he acknowledged) as a result of and during, or following, his discussions with Mr Johns, and understanding (as he did) that the change relating to the obligation to make a payment into the Gilbert & Tobin trust account was necessitated by the changes to the schedule of payments (and the passage of time since the draft Heads of Agreement had been prepared on 17 April 2003), could not have continued to believe (if indeed he had earlier believed) that the obligation to make a payment into the Gilbert & Tobin trust account was a condition precedent to the formation of a legally binding contract on the terms of the draft Heads of Agreement as varied.

94 A third matter that causes me to have significant concerns about the credibility of Mr Drummond’s evidence is his insistence that Mr Johns signed the draft Heads of Agreement, varied in the manner that I have indicated, on 24 April 2003 at a coffee shop in Neutral Bay. I have set out my findings, as to the sequence of events relating to the signing of the Heads of Agreement, in paras [39] to [46] above.

95 Mr Drummond’s evidence on this point is inconsistent with the evidence of Mr Edwards, as to what passed between him and Mr Drummond between 22 and 24 April 2003 when, on a number of occasions, Mr Edwards said that Mr Drummond confirmed that he held “the executed agreement”. Mr Edwards’ evidence is confirmed in contemporaneous documents, including a number of e-mails (including e-mails to Mr Drummond that Mr Drummond did not at the time dispute) and handwritten notes. It was not suggested to Mr Edwards that his contemporaneous records were false, although in final submissions for Mr Drummond, it was put they were self-serving records, created for the purposes of this litigation and were not reliable. I would have rejected that submission even if the accusation had been put to Mr Edwards and denied; and, the relevant documents not having been challenged in any way, I have no hesitation in accepting the substantial reliability of those records.

96 The inevitable position then is that either Mr Drummond (to put it at the lowest) was wrong in what he told Mr Edwards between 22 and 24 April 2003, or his evidence before me on those topics was wrong. There is no way in which the two can be reconciled. This, to my mind, seriously detracts from Mr Drummond’s credibility, not just in relation to this particular issue, but overall.

97 Another matter that gives me concern is that, particularly in its latter stages, Mr Drummond’s evidence was marked by answers that were both evasive of the clear point that was being put to him and non-responsive, in the sense that they sought to foist irrelevant matter upon the cross-examiner. Although, as I have noted, this was also, to an extent, characteristic of the evidence of both Mr Edwards and Mr Johns, it is my view that Mr Drummond indulged in this practice far more frequently, and that he resorted to evasive and non-responsive answers whenever (as he saw it) the question was one, the answer to which might cause him difficulty.

98 In this context, it must be remembered that Mr Drummond is in a particularly difficult position. It was he who gave (by facsimile transmission) the amended and executed Heads of Agreement to the plaintiffs. It was that act that the plaintiffs relied upon as an offer, which they purported to accept so as to bring into existence a legally binding contract. Mr Drummond acknowledged that he had no authority to bring about a legally binding contract between Regency and the plaintiffs. However, equally, he acknowledged that this is precisely what the plaintiffs were seeking to achieve and that, specifically, they were seeking to achieve an exchange of contracts by facsimile. Mr Drummond’s position is, therefore, one of obvious exposure to liability. In my view, his evidence showed an acute awareness of this. In many cases, his evasive or non-responsive answers were given in answer to questions that related to his own position and understanding, when a direct (and truthful) answer would have indicated potential liability on his part.

99 I set out four examples of evasive or non-responsive answers:

(1) Mr Drummond was asked whether “it was very much in your commercial interests to attempt to bring about a concluded contract between Regency on the one hand and Essington on the other” (T 179.10). It was perfectly clear that it was in Mr Drummond’s commercial interests to achieve this: he had obtained from Mr Johns, on behalf of Regency, an agreement that Regency would pay Mr Drummond’s company a monthly fee, and would give it 20% equity in the North Sydney project. Mr Drummond was aware that Mr Brain expected that the North Sydney project would yield a 50% return on funds invested. Nonetheless, he sought to evade giving the obvious and truthful answer, first replying:

“This document [i.e. the agreement to remunerate his company] was presented to be signed by the two principals to at least record that if a transaction proceeded, that I would have a commercial arrangement with them”.

When pressed he replied:

“My life wouldn’t change if this deal didn’t go ahead”.

Finally, when pressed once more, he conceded:

“Yes, if the transaction had proceeded I would have made – shared in the profit from the transaction”.

(2) Another example relates to Mr Drummond’s authority to send off the signed document:

“Q. And the only thing I suggest to you that you were waiting for as at the 24th was a specific authority to send the document off to Mr Edwards with Mr Johns’ signature on it?
A. On the 24th, or by the 24th Mr Edwards clearly understood that any ongoing – for this transaction to proceed, it required (a) my authority to release the document and (b) the receipt of funds from overseas. They were not clear as at the 24th.”


The disconformity between the question and the answer is stark.

(3) At T 223.31 Mr Drummond gave the following evidence:


“Q. And so what happened was that after receiving this e-mail, you sent this signed document off to Mr Edwards a week later without any covering sheet which could have qualified what it was that was happening. Isn’t that right?
A. I was negotiating with Mr Edwards in good faith where it was understood that this transaction was subject to the payment being received by Regency.

Q. Let me put this to you. If that were really true, would you not have written some short note or an e-mail or something to Mr Edwards when you sent off this signed copy over the fax in order to make sure that it wasn’t seen by the other party as a proposal leading to an exchange?
A. I recall having a discussion with Mr Edwards prior to or after the 16th where this matter had been raised and it was acknowledged by him. Now, I had a number of conversations with people on the phone where there is an exchange of comments and I agree to do something or the other person agrees to do something. That occurred”.

Again, the disconformity between questions and answers is stark.

(4) Mr Drummond was questioned about an e-mail message from Mr Edwards to him dated 1 May 2003. That message referred to “the executed agreement dated 28 April” and to “the schedule of payments ... recorded in the agreement”. It asked Mr Drummond to confirm to Mr McWilliam the date on which funds were transferred into Gilbert & Tobin’s trust account “to ensure clear funds are available at that account on or before 8 May 2003 in accordance with the agreement ...”.

Mr Drummond was questioned on this at T229/230. After the details of the e-mail were put to him the following exchange occurred (T229.40/230.9):

“Q. And you see that Mr Edwards says that the executed agreement dated 28 April concerning the North Sydney project is something he is referring to. Do you see that?
A. Yes.

Q. You understood him to be saying that was a signed and binding agreement, didn't you?

A. For him to be saying that?

Q. Yes.
A. But I don't say that.

Q. Well, that wasn't my question at the moment. I'm asking you that you understood him to be saying that when he said those words in this email?
A. But I believe that was replaced by the document that we referred to previously, which was this clean copy that I delivered to Mr Johns for execution.

Q. He tells you, doesn't he, that Telstra has accepted the revised payment terms. Do you see that?
A. I see that.

*Q. And he then mentions the transfer of funds to the Gilbert and Tobin trust account to ensure that clear funds are available on or before 8 May. Do you see that?
A. Yes.

Q. And it is clear that he is asserting that there is a binding agreement notwithstanding that at that point there are no funds in the Gilbert and Tobin trust account?
A. And I read that as being that there had to be a payment of money into the Gilbert and Tobin trust account for this to come into effect.

Q. But it was clear to you that wasn't his position?
A. I don't know what his position is, but I'm saying that was my understanding.

HIS HONOUR: Q. What did the words "in accordance with the agreement" convey to you, Mr Drummond?
A. Your Honour I would have probably read this quickly and the thing that I would have seen - sorry, I should answer your question, I apologise - would have been the agreement as per clean document that I had to get executed or was expected to get executed by Dean Johns.

Q. And that was the clean document that you understood was simply a retyped version of the one that you had faxed to Essington?
A. That's correct, your Honour.

Q. And the only changes in the clean document were word processed changes to pick up the handwritten changes?
A. Yes”.
Mr Drummond’s evasion of the question marked “*” is obvious. His explanation of what the words “in accordance with the agreement” conveyed to him is likewise and evasive and, to my mind, reflects a clear appreciation on his part that there was (as the plaintiffs asserted) a legally binding agreement in place.

100 There are two further matters which, in my view, demonstrate the unreliability of Mr Drummond’s evidence. Firstly, after the plaintiffs had accepted (or purported to accept) what they said was the offer constituted by the facsimile transmission to them of the amended Heads of Agreement signed by Mr Johns on behalf of Regency, Mr McWilliam returned the document to Mr Drummond “with your changes initialled” and noted that “we have dated the Agreement today’s date, being 28 April 2003”. Mr Drummond gave the following evidence in relation to that (T 226.45/227.9):

“Q. And you understood when you received this that he was saying, we have exchanged this document and dated it today?
A. I had a discussion with Mr McWilliam on or about the time I received this document.
Q,. Yes, is that your answer to my question?
A. Sorry, if you could repeat your question.
Q. I’ m putting to you that it was plain when you read this letter and saw the document as it was faxed to you that it was being sent back by way of exchange on the basis that an agreement had been entered into on 28 April as between Regency and Essington?
A. At about the time I received this back, I had received a phone call from Mr Edwards to confirm I had received this and he made the points that I stated in my affidavit, that this document had not been properly executed.
Q. Oh. First of all, do you mean Mr Edwards or Mr McWilliam?
A. I apologise. It is Mr McWilliam”.

101 Mr McWilliam said that he had had no such conversation with Mr Drummond, and that it was not his belief, at the time, that the agreement “had not been properly executed”. I accept that evidence. If one looks at the Heads of Agreement as amended and signed by Mr Johns for Regency and by Mr Edwards for each of the plaintiffs, it could not be said that “this document had not been properly executed”. There is no basis on which Mr McWilliam could have held such a view and my acceptance of his evidence, although not dependent on this point, is fortified by it. Further, if Mr McWilliam had held the view attributed to him, it would have been inconsistent with both his note to Mr Drummond of 28 April 2003 (see para [55] above) and his e-mail to Mr Drummond of 6 May 2003 (see para [60] above).

102 In my opinion, Mr Drummond, in giving the evidence that he did, was trying to avoid the consequences of his failure to meet the point that Mr McWilliam, in his facsimile transmission of 28 April 2003, was making clearly and unequivocally.

103 The second matter relates to events that occurred prior to and on 8 May 2003. Mr Drummond conceded that he “could have” told Mr Edwards, prior to 8 May 2003 (when, it will be remembered, the amended Heads of Agreement specified that the first payment by Regency was due to be made) that it was not going to be possible for Regency to make that payment on that day. One may observe immediately that the making of such a statement (which Mr Edwards said was made, and which I accept was made) is inconsistent with Mr Drummond’s professed belief that there was not at that time a legally binding contract. However, thereafter, Mr Grant of Cornerstone became involved, in an attempt to find an alternative way for Regency to meet what appeared to be its obligation to make a payment by 8 May 2003. He wrote to Mr Drummond on 9 May 2003 and set out a proposal which he asked Mr Drummond to forward to Messrs Johns and Connolly. Mr Drummond agreed that he did speak to Mr Connolly “asking if he could arrange a letter” as requested by Mr Grant. In my view, the actions of Mr Drummond shortly before and after 8 May 2003 are inconsistent with his professed belief that there was then no legally binding contract between the plaintiffs and Regency. In my view, this bears directly and adversely on Mr Drummond’s credibility.

Agency: the applicable principles

104 The parties were agreed that the basic principles relating to actual and ostensible (or apparent) authority were as stated by Diplock LJ in Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 481, 502-505.

105 Actual authority is “a legal relationship between principal and agent created by a consensual arrangement to which they alone are parties” whose “scope is to be ascertained by applying ordinary principles of construction of contracts ...”. The contractor is a stranger to the relationship so created.

106 Ostensible authority “is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract”. The agent is a stranger to the relationship so created.

107 In the ordinary way, representations as to the existence and extent of authority may be made by the principal, or by the agent, or by both. The contractor will normally know what he or she is told, not whether it is, or is not, true. If the contractor relies upon the representation of the principal then there is apparent authority (to the extent of the representation). If the contractor relies upon the representation of the agent, then there is warranty of authority (again, to the extent of the representation). In the first case, the principal is liable upon the contract which, by hypothesis, the contractor had thought was made. In the second case, the agent is liable for breach of warranty of authority, there being, by hypothesis, no contract between the contractor and the principal.

108 In Armagas Ltd v Mundogas SA [1986] 1 AC 717, 777, Lord Keith of Kinkel (with whom the other members of the House of Lords agreed) distinguished between what he called “ostensible general authority’ and “ostensible specific authority”. The former, which his Lordship referred to as “the commonly encountered case”, arose where the principal placed the agent in a position that, objectively viewed, carried authority to enter into transactions of the kind in question. The latter arose where there was no general authority, but where a representation was made as to authority to enter into the specific transaction. His Lordship said:

“It is possible to envisage circumstances which might give rise to a case of ostensible specific authority to enter into a particular transaction, but such cases must be very rare and unusual. Ex hypothesi the contractor knows that the agent has no general authority to enter into the transaction, as was the position here. The principal might conceivably inform the contractor that, in relation to a transaction which to the contractor’s knowledge required the specific approval of the principal, he could rely on the agent to enter into the transaction only if such approval had been given. In such a situation, if the agent entered into the transaction without approval, the principal might be estopped from denying that it had been given. But it is very difficult to envisage circumstances in which the estoppel could arise from conduct only in relation to a one-off transaction such as this one was.”

109 Further, as his Lordship pointed out (at 779):

“It must be a most unusual and peculiar case where an agent who is known to have no general authority to enter into transactions of a certain type can by reason of circumstances created by the principal reasonably be believed to have specific authority to enter into a particular transaction of that type.”

110 In the same case in the Court of Appeal [1986] 1 AC 717, 732-733, Robert Goff LJ said, of “an ordinary shipbroker”:

“Every time he makes a contract for his principal, he communicates to the third party his principal’s acceptance of the terms finally offered. But simply by using the broker as his channel of communication for that purpose in those transactions, the principal makes no representation that the broker has authority to make any such communication in relation to future transactions, so as to bind the principal. It is well settled that mere repetition of this kind does not of itself constitute a representation necessary to found ostensible authority ... All that a third party can derive from what has happened is that the principal regularly transacts business through the broker in question, and that when he does so he uses the broker to communicate his approval of transactions when he has in fact given such approval. If the broker should thereafter indicate that his principal has given his approval to a transaction when he has not in fact done so, the principal is not ipso facto bound. No doubt it can be said that, in a sense, a third party may rely on the fact that the broker is the principal’s regular broker; that is not enough, for there has been no representation by the principal necessary to give rise to ostensible authority.”

111 His Lordship pointed out, at 734, that where a representation of authority is said to be derived from the position held by an agent, the representation is limited to the fact that the agent had the usual authority possessed by a person in that position. In this context, as Lord Atkinson (delivering the advice of the Privy Council) said in Russo-Chinese Bank v Li Yau Sam [1910] AC 174, 184, “a person who deals with an agent, whose authority he knows to be limited, ... does so at his peril, in this sense, that should the agent be found to have exceeded his authority, his principal cannot be made responsible”.

Conclusions on agency

112 In my opinion, it is clear that, up until 17 April 2003, if Drummond were in the strict sense an agent, he was an agent only for the purpose of negotiating, on behalf of Regency, with the plaintiffs. It may be doubted whether, in the true sense, Drummond was an agent at all up until that time, as opposed to an intermediary, but I will proceed on the assumption that he was.

113 In submissions, the plaintiffs placed some reliance on the terms of NCF’s fee agreement with Regency (see para [26] above). It is likely that that document was signed prior to 17 April 2003, although there is no evidence at all that the plaintiffs became aware of it or its terms prior to the hearing. Their submission relating to it were limited to the point of actual agency.

114 The document stated the scope of NCF’s “consultancy” as being “to manage the acquisition and redevelopment of the subject site into a [sic] office and serviced apartment development”. It was submitted for the plaintiffs that this was a wide grant of authority. That may be so; but, as the letter made clear, it would only come into effect “if you are [sic - clearly, or] any associates or affiliates proceeds [sic] with the purchase of the property”. Whatever may have been the scope of the mandate or authority granted by the document, and even assuming that it was a mandate or grant to Mr Drummond as opposed to NCF, it was not in existence before (if at all) Regency became legally bound to the plaintiffs in respect of the Mount Street project.

115 Further, even if it is appropriate to have regard to the scope of the mandate or authority before it came into effect, I do not think that it can be construed as the appointment of either NCF or Mr Drummond as the agent of Regency to make, on behalf of Regency, an offer capable of being accepted so as to lead to the formation of a legally binding contract, or to initiate, on behalf of Regency, a process of exchange of contracts having the same result. The letter draws a distinction between management of the acquisition of the site and the purchase of the site. Further, as a matter of language, it does not seem to me that an authority to “manage the acquisition” of land can be construed as granting authority to bring about, on behalf of the grantor, a contract for the purchase of that land.

116 As I have recounted in paras [40] to [46] above), each of Mr Johns and Mr Drummond said that Mr Drummond had no actual authority to bind Regency to a contract with the plaintiffs on the terms of the Heads of Agreement signed by Mr Johns on (as I find) 21 April 2003 – with or without amendments. It was submitted for the plaintiffs that I should not accept that evidence. However, I do accept it. It is, in my view, consistent with the probabilities.

117 Specifically, it is consistent with the position that, as both Messrs Johns and Drummond stated, Regency was not in a position to commit itself until it was in receipt of funds from one of its overseas ventures. That fact alone, in my view, makes it less, rather than more, likely that, either on 21 April or at any time thereafter up until 28 April, Mr Johns would have instructed Mr Drummond to proceed to an exchange of contracts, so as to bring about a binding legal relationship between Regency and the plaintiffs.

118 Further, my observation of Mr Johns was that he was a man who would control directly, rather than through others, every significant aspect of the business of Regency. I have observed that he had stood aloof from the transaction and had deputed the task of negotiation to Mr Drummond (see para [79] above). However, once the negotiations were closed, or had been brought to a point where Mr Johns was satisfied with the deal that had been done, my observation of him is that he would retain responsibility for making the decision to commit Regency.

119 Finally, I accept Mr Johns’ evidence that, if he decided to proceed, he would involve Regency’s external solicitor, Mr Donald Currie, and would delegate to Mr Currie responsibility for effecting, on the instructions of Mr Johns, an exchange of contracts.

120 I therefore conclude that Mr Drummond had no actual authority from Regency to forward the signed Heads of Agreement to the plaintiffs, either as the first step in an exchange of contracts (with the result, upon completion of exchange, being a legally binding contract), or as an offer capable of acceptance (with the result, upon acceptance of the offer, being a legally binding contract).

121 That leaves the case of ostensible authority.

122 For the plaintiffs, reliance was placed upon the terms of Mr McWilliam’s e-mail to Mr Drummond of 17 April 2003 (see para [36] above), and on the terms of Mr Drummond’s letter to Mr Johns of 21 April 2003 (see para [39] above).

123 It is clear from both those documents that the plaintiffs and Mr Drummond understood that “the document” - i.e., the Heads of Agreement – was to be signed by Mr Johns in the near future. Further, it is clear that Mr McWilliam contemplated that there would “after execution” be an exchange of documents by facsimile. The inference is that Mr McWilliam considered that this process would lead to the formation of a binding agreement on the terms of the signed and exchanged document.

124 There is no evidence that the terms of the 17 April e-mail were communicated to Mr Johns. It was not put to him that, before, on or after that day, he knew (or approved) of the arrangements that, apparently, Mr Connolly had made. In other words, there is no evidence, and it was not put to Mr Johns, that Mr Johns knew that the plaintiffs were contemplating that his signature on the document would be the first step in an exchange that would happen shortly thereafter, and would lead to the formation of a legally binding contract.

125 The plaintiffs, in final submissions, placed particular weight in this context on the unexplained absence of Mr Connolly from the witness box. However, on the evidence, the last material event in respect of which Mr Connolly’s evidence might have shed light, was the discussion (or series of discussions) leading up to Mr McWilliam’s understanding as recorded in his e-mail of 17 April 2003. Having regard to the matters that I have referred to in the preceding paragraph, it does not seem to me that Regency’s failure to call Mr Connolly assists materially in the resolution of the issue of ostensible authority.

126 The other key piece of evidence in this context comes from Mr Edwards. He said, or agreed, that:

(1) As at 24 April, it was clear to him that the decision as to whether the executed document would be released was not a decision to be taken by Mr Drummond;

(2) He “relied on what Mr Drummond said he could do within his capacity, like any director” although he was aware that Mr Drummond was not a director of Regency;

(3) He understood that Mr Drummond could only deal with the executed document in so far as that was in accordance with instructions he received from Regency;

(4) It was plain to him that such instructions might never be given;

(5) “Mr Drummond had to get his instructions but it wasn’t for me to question whether he had instructions or not”; and

(6) In the context of the proposition that instructions to release the document might be made subject to conditions, “whatever issues were being dealt within Regency, we would get the document and on receipt of that document it wasn’t a question for us once we had the document”.

127 It will be seen that the understanding held by Mr Edwards, in relation to the limited authority of Mr Drummond, post-dated the e-mail of 17 April 2003, but preceded the events of 28 April 2003. Unless there were some change in Mr Edwards’ understanding between 24 and 28 April 2003, and, more importantly, unless that change in understanding were engendered by some words or conduct of Regency, the plaintiffs’ case based on ostensible authority cannot succeed. By 24 April 2003, Mr Edwards knew (or believed) that the draft Heads of Agreement had been signed on behalf of Regency and that they were held by Mr Drummond. He knew that the decision to “release” the document – i.e., to initiate the process of exchange – was not one for Mr Drummond to make.

128 The key to Mr Edwards’ attitude seems to me to lie in his evidence that it was not for him to question whether or not Mr Drummond had instructions to release the document; by inference Mr Edwards’ view was that he was entitled to rely, for proof of Mr Drummond’s authority, upon the fact that the document had been released. In context, and in terms of the formulation of Diplock LJ (see para [107] above), that must be reliance on a representation by the (alleged) agent.

129 There is no evidence of any relevant act or communication on the part of Regency, between 24 and 28 April 2003, that could amount to a representation that Mr Drummond had authority, on 28 April 2003, either to initiate an exchange of contracts, or to make an offer capable of acceptance, in either case so as to lead to the formation of a legally binding contract. All of the events upon which the plaintiffs relied in submissions occurred prior to 24 April 2003. If, as Mr Edwards said, they were not capable of inducing in him a belief that Mr Drummond himself had authority, absent instructions from Regency, to “release” the document, then it is impossible to understand on what he could reasonably (or at all) have relied thereafter to ground such a belief.

130 In any event, I think that the attitude expressed by Mr Edwards was, in law, incorrect. It is impossible to regard Mr Drummond as an agent of a kind whose usual authority extended to the exchanging of contracts. Indeed, as I have noted, up until the time that he took the signed Heads of Agreement from Mr Johns, he may not have been an agent at all. Mr Edwards knew that Mr Drummond’s authority was limited. If, without enquiry, the plaintiffs relied upon him having authority to do that which they knew he needed authority to do, they did so at their peril.

131 Another way of putting the same conclusion is that, as the cases show, there must have been a representation of authority, and the person to whom the representation is made must have relied upon it. In the present case, what was needed, after 24 April 2003, was some representation from Regency that Mr Drummond was authorised to release the signed Heads of Agreement so as to initiate a process whereby a legally binding contract would be formed. There was nothing on the evidence that occurred after that date upon which Mr Edwards could have (reasonably) relied.

132 I therefore conclude that the plaintiffs have failed to make out that Mr Drummond was held out as having the requisite authority, or that they relied on any such holding out.

Existence of a contract: the applicable principles

133 In view of the conclusion that I have just reached, it is not necessary for me to give detailed consideration to this issue. However, I shall briefly set out my views.

134 The question, whether a contract has been concluded, depends on the intention of the parties objectively determined from their dealings or documents that are said to give rise to the contract. See (if authority be needed) Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. As McHugh JA put it in GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634, “[t]he decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances”.

135 Evidence of the actions and statements of the parties to the alleged contract after it is said to have been made may be probative, as admissions, of the existence of a contract: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Australian Broadcasting Corporation v XIVth Commonwealth Games; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251.

136 The question is, therefore, whether, objectively viewed (and on the assumption that Mr Drummond possessed sufficient authority – actual or ostensible – to bring about a contractual relationship between the plaintiffs and Regency), the parties’ objective intention was to enter into a contract on the terms of the amended and signed Heads of Agreement. Further, or alternatively, is there unequivocal evidence of actions or statements that amount to admissions of the existence of a contract?

Conclusions on intention to contract/existence of contract

137 Had I concluded that Mr Drummond had ostensible authority to initiate the process of formation of a binding contract, by sending the amended and signed Heads of Agreement by facsimile transmission to the plaintiffs, then in my view it would follow almost inevitably that, in so acting, he was either making on behalf of Regency, or causing Regency to make, an offer. There is no doubt that the plaintiffs thought that they were accepting an offer that had been made to them and that their subjective intention was to conclude a contract by signing the document and returning it, by facsimile transmission, to Mr Drummond.

138 In my opinion, on the hypothesis that Mr Drummond was acting within authority (actual or ostensible), the proper conclusion would be that a contract was concluded, at the latest, when Mr Drummond received by facsimile transmission a copy of that which he had sent to the plaintiffs, signed on behalf of the plaintiffs and with the amendments initialled by the signatory.

139 It is clear that both the plaintiffs and Mr Drummond contemplated that there might be an exchange of contracts by facsimile transmission: see the terms of Mr McWilliam’s e-mail of 17 April 2003, and see what I have found to be Mr Drummond’s acknowledgement of that in para [37] above.

140 Viewed objectively, and against the background of (in particular) Mr McWilliam’s e-mail of 17 April 2003, and the discussions thereafter between Messrs Edwards and Drummond on the topic of exchanging contracts by facsimile transmission, I would conclude that the intention of the parties, viewed objectively, was to enter into a legally binding contract. It is very difficult to see what else could have been intended to have been achieved by the actions that they took.

141 The circumstance that Mr Drummond sent the document without any covering note or other explanation is somewhat troubling. However, that has to be considered in light of what had passed up until that time. If there had been no prior expectation of exchange by facsimile transmission, then it may very well be the case that Mr Drummond’s act in sending the amended and signed Heads of Agreement without explanation or warning could not, objectively, be viewed as the making of an offer capable of immediate acceptance. But in circumstances where the parties had contemplated an exchange by facsimile, it was open to the plaintiffs to view the sending of the amended and signed Heads of Agreement as the initiation of the process of formation of a contract. Equally, viewed objectively, that seems to me to be (on the assumption of authority) the proper characterisation of what Mr Drummond did.

142 It might also be said that Mr Edwards’ understanding, on the morning of 28 April 2003, that there was to be no exchange of contracts until Regency had received funds and placed them into the Gilbert & Tobin trust account is something that indicates there was not intended to be the making of an offer capable of acceptance, or the formation of a legally binding contract. However, Mr Edwards’ understanding was based on the draft of the Heads of Agreement as at 17 April 2003. The document that was sent to the plaintiffs by facsimile transmission had been altered from that draft. As I have already indicated, my view of the alterations is that they make it difficult, if not impossible, to continue thereafter to believe that the payment of money into the Gilbert & Tobin trust account was a condition precedent to the formation of a contract, as opposed to an obligation to be assumed under the contract. Viewed objectively, I have no doubt that someone in the position of the plaintiffs would have understood that, as a result of the amendments, the payment of money into the trust account was not a condition precedent to the formation of a contract.

143 As to post-contractual conduct: it is clear that the plaintiffs acted as though there were a contract. It is also clear that Mr Drummond did nothing to dispel the plaintiffs’ belief that there was a contract. However, I do not think that there is any conduct on behalf of Regency that indicates that it, too, believes there was a legally binding contract. Mr Johns was not even told until about 8 May 2003 that the plaintiffs were asserting that there was a contract. Although he did not immediately contact the plaintiffs thereafter, there is no doubt that, within five days, he had informed the plaintiffs, through Mr Edwards, of his belief that there was no contract. I do not think that it is possible to spell out, from inaction over a period of about five days, an admission that there was a contract.

Answers to preliminary questions

144 I therefore answer the preliminary questions relating to the dispute between the plaintiffs and Regency as follows:

Q1: Whether, upon receipt by the cross-defendant on 28 April 2003, of the document styled Heads of Agreement dated 28 April 2003, a true copy of which is exhibited to the affidavit of Malcolm Edwards sworn 8 July 2003, at pp. 119-132 of the folder which is Exhibit ME-1 thereto (the Heads ), there came into existence a binding legal contract between the plaintiffs, on the one hand, and the defendant, on the other hand, upon the terms and conditions contained in the Heads.
A: No.

Q2: If the answer to question (i) is yes , whether by failing to make the payments contemplated under the said contract and asserting and continuing to assert in these proceedings that it is not bound thereby, the defendant has repudiated the said contract.

A: Does not arise.

Q3: If the answer to question (ii) is yes , whether, by letter from Gilbert & Tobin to Watson Mangioni dated 6 September 2003, the plaintiffs validly terminated the said contract.

A. Does not arise.

145 In relation to the second and third questions, I should make it clear that Regency has not asserted that, if there were a binding contract, it has nonetheless not repudiated it. Nor has it asserted that, if there were a binding contract that it had repudiated, the plaintiffs had not validly terminated that contract.

146 Having regard to my answer to the first question, none of the questions posed for determination as between Regency and Mr Drummond require to be answered.

Conclusion and orders

147 It seems to follow from what I have said that there should be judgment for Regency on the plaintiffs’ claim and judgment for Mr Drummond on Regency’s cross-claim. However, I shall stand the matter over to a date to be fixed by arrangement with my Associate, but no later than 31 October 2003, to enable the parties to bring in short minutes of order to reflect my reasons and to put submissions on the question of costs.

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Last Modified: 10/13/2003