Fernkiln Pty Ltd v Australian Building Industries Pty Ltd

[1999] QCA 179

IN THE COURT OF APPEAL	[1999] QCA 179
SUPREME COURT OF QUEENSLAND

Appeal No 2818 of 1998

Brisbane

Before Davies JA Pincus JA Wilson J

[Fernkiln P/L v Aust Bldg Ind P/L]

BETWEEN:

FERNKILN PTY LTD

(ACN 073 072 956)

(Plaintiff) Appellant

AND:

AUSTRALIAN BUILDING INDUSTRIES PTY LTD

(ACN 009 340 952)

(Defendant) Respondent

REASONS FOR JUDGMENT - DAVIES JA

Judgment delivered 25 May 1999

1                 Subject to the observations of Pincus JA with which I agree, I also agree with the reasons

of Wilson J and with the orders which she proposes.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2818 of 1998

Brisbane

Before Davies J.A. Pincus J.A. Wilson J.

[Fernkiln P/L v. Aust. Bldg. Ind. P/L]

BETWEEN:

FERNKILN PTY LTD

A.C.N. 073 072 956

(Plaintiff) Appellant

AND:

AUSTRALIAN BUILDING INDUSTRIES PTY LTD

A.C.N. 009 340 952

(Defendant) Respondent

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 25 May 1999

1                    I have the advantage of reading the reasons of Wilson J. and subject to the following

observations, agree with them.

2                    The argument that conversations between Messrs Hastie and Irwin, in which the former told

the latter "how progress on the project was going", amounted to acceptance of the terms in the letter

of 19 July 1996, appears to me to lack substance. There was no evidence on which it could be

found that there was an acceptance on the part of Mr Hastie of the terms put forward in the letter

of 19 July 1996, let alone an acceptance of those terms of an unequivocal kind: see Halsburys
Laws of Australia, Vol. 6, para. 110-355:

"Acceptance must be unequivocal; that is, the language used must be such as would convey to a reasonable person in the position of the offeror a clear and definite decision by the offeree to be bound by the terms of the offer leaving nothing further to be negotiated".

Further, the letter of 15 August 1996 from the appellant's solicitors proposed terms not

corresponding to those set out in the letter of 19 July 1996; the differences are such as to suggest

a perception on the appellant's part that it did not yet have an agreement with the respondent.

3                    The appellant's argument based on estoppel has in my view more weight than the contention

I have just discussed. There was evidence of conduct which would have encouraged the appellant

to assume that a contract would come into existence: see Austotel Pty Ltd v. Franklin Selfserve Pty

Ltd (1989) 16 N.S.W.L.R. 582 at 610 per Priestly J.A. The respondent's conduct consisted in

the conversations just mentioned, which took place against the background that both parties knew

work had to begin promptly to achieve completion by 18 December 1996, and also the return by

the respondent to the appellant of a plan with the position of power points marked. The appellant

acted as if it assumed there would be a contract; by 11 October 1996 when the respondent made

it clear that the building being constructed was no longer required by it, a number of things had been

done by the appellant on the assumption mentioned. A subdivision of land had been effected,

earthworks completed, steel prefabricated, cranes ordered and a contract of sale had been made

by the appellant conditional upon execution of an agreement for lease.

4                    The analysis by Priestly J.A. in the Austotel case shows that the principle of Waltons Stores

(Interstate) Limited v. Maher (1988) 164 C.L.R. 387, is not confined to situations in which there

is, as there was in Waltons Stores, a consensus as to the precise terms by which the parties are to be bound; a court exercising equitable jurisdiction may mould the relief so as to overcome difficulty

caused by some degree of lack of agreement. The Full Court of the Federal Court in S & E

Promotions Pty Ltd v. Tobin Brothers Pty Ltd (1994) 122 A.L.R. 637 accepted that, as Priestly

J.A. had held in Austotel, equitable estoppel may operate where the assumption created is that "a

contract will come into existence" (my emphasis): 653. But it must be conceded that views on the

question subsequently expressed by a differently constituted Full Federal Court do not encourage

the thought that a Waltons Stores approach can solve the problem of a lack of consensus: see

Mobil Oil Australia Ltd v. Lyndel Nominees Pty Ltd (1998) 153 A.L.R. 198. In discussing the

evidence relied on there to found an estoppel the court remarked:

"The essential elements and details of the legal relationship are lacking as are any specific details relating to the duration or terms of any extension or renewal or of the period over which the franchisees would qualify. Nor can such an indeterminate possibility be regarded as an expression of an intent that any particular incentive scheme will be formulated or implemented. No provision is made as to any objective or subjective criteria or to any person or entity by reference to which, or by whom, the nature, extent, duration or terms of any grant can be rendered reasonably certain". (237)

It may be thought that there are two opposing considerations: one, that courts should not presume

to make or complete parties' bargains, and two, that courts should not always let a parties'

reasonable understanding, encouraged by the other side, that a contract has been or will be made

be disappointed by a refusal to fill in gaps. An example of the latter approach, in a different context,

is that of the Privy Council in The Queensland Electricity Generating Board v. Newhope Collieries

Pty Ltd (1989) 1 Ll. R. 205, where a clause in the disputed contract contained an agreement to

agree. This was held to be intended to have legal effect and the Board remarked that: "[a]rguments

invoked alleging uncertainty, or alleged inadequacy in the machinery available to the Courts for

making contractual rights effective, exert minimal attraction". (210)

5                    On my reading of the facts in the present case, the situation was a rather familiar one in

which the appellant did not focus attention upon its legal rights, but went ahead on the basis that the

parties were in substance committed and that any remaining areas of difference between them, as

to the terms of their contract, would no doubt be resolved by dealing in good faith. The differences

between them were significant, including which party would be responsible for outgoings, whether

the annual CPI increase would apply to the whole rental with no concession for the value of the

cranes, and whether directors' guarantees would be required. What makes the conduct of the

respondent seem unfair is that, knowing as it must have done that the appellant had spent a deal of

money on the assumption I have mentioned, it withdrew not because it did not appear that

agreement could be reached but simply because it had changed its mind. It may be that in the long

term the willingness of courts to fill gaps in an incomplete agreement, in such a situation, will

increase; but as the practice of the courts presently stands, I conclude that the difference between
each side's proposed terms is too great to permit of the granting of relief to the appellant.

6                    I agree that the appeal should be dismissed with costs.

IN THE COURT OF APPEAL	99.179
SUPREME COURT OF QUEENSLAND

Appeal No. 2818 of 1998

Brisbane

[Fernkiln P/L v Aust Bldg Ind P/L]

BETWEEN:

FERNKILN PTY LTD ACN 073 072 956

(Plaintiff) Appellant

AND:

AUSTRALIAN BUILDING INDUSTRIES PTY LTD ACN 009 340 952

(Defendant)	Respondent
Davies JA Pincus JA Wilson J

Judgment delivered 25 May 1999

Separate reasons for judgment of each member of the Court each concurring as to the order made.

APPEAL DISMISSED WITH COSTS

CATCHWORDS:	CONTRACT - Negotiations regarding lease of building to be purpose built for lessee - agreement not executed - no evidence of acceptance.
ESTOPPEL - whether lessee estopped from denying it was bound before execution of formal lease - equitable estoppel - assumption contract will come into existence - difference
between each side’s proposed terms too great - relief refused.
Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153
ALR	198 S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122
ALR	637 The Queensland Electricity Generating Board v Newhope
Collieries	Pty Ltd (1989) 1 Ll R 205

Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387

Counsel:	Mr M E Pope for the appellant Mr A B Crowe for the respondent
Solicitors:	Connolly Suthers for the appellant Jones King for the respondent
Hearing Date:	10 March 1999

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2818 of 1998

Brisbane

Before Davies JA Pincus JA Wilson J

[Fernkiln P/L v Aust Bldg Ind P/L]

BETWEEN:

FERNKILN PTY LTD
ACN 073 072 956

(Plaintiff) Appellant

AND:

AUSTRALIAN BUILDING INDUSTRIES PTY LTD
ACN 009 340 952

(Defendant) Respondent

REASONS FOR JUDGMENT - WILSON J.

Judgment delivered 25 May 1999

1 This is an appeal against the decision of a trial judge dismissing the plaintiff/appellant’s
action for a declaration that there was an agreement for lease between it and the

defendant/respondent and for specific performance of that agreement.

2                    The appellant owned a parcel of land in Townsville. The respondent was a roofing

manufacturer which wished to have a purpose built building in Townsville. Discussions took place

between Mr Hastie on behalf of the appellant and Mr Irwin on behalf of the respondent in relation

to a proposal that the appellant construct such a building on part of its land and lease it to the

respondent. On 17 July 1996 the appellant gave the respondent a written “design and construct”

proposal. Then under cover of a letter of 19 July 1996 the respondent gave the appellant a letter

of intent. That letter was signed on behalf of the respondent by its executive officer, Mr Webb.

Although there was provision for acceptance by the appellant, it was never signed on its behalf. The

proposal in the letter of intent was for a lease of seven years from 1 January 1997 or one month

after practical completion and handover of possession, together with an option to renew for five

years. The gross rental proposed was $76,000 per annum, the appellant being responsible for

outgoings. There were to be rent increases in accordance with movements in the CPI Index (to a

maximum of 6%). Two x 6 tonne full travel cranes which were to be installed in the building were

to be the subject of a separate lease for seven years at approximately $6,200 per annum.

Construction was to be completed by 18 December 1996.

3                    Over the next two or three weeks Mr Hastie spoke with Mr Irwin on two or three

occasions “to tell him how the progress on the project was going”.

4                    By letter dated 15 August 1996 the appellant’s solicitors (acting on their client’s instructions)

responded to the letter of intent. Their letter amounted to a counter proposal. In particular they set

out the appellant’s instructions that the respondent should be responsible for all outgoings and that CPI increases (to a maximum of 6%) were to apply to the whole rental with no concession for the

value of the cranes. They made a proposal about the costs of the preparation of the lease.

5                    By fax dated 5 September 1996 solicitors purporting to act on behalf of the respondent

replied accepting the counter proposal. However, their fax was sent without authority, and the

appellant does not rely on it.

6    On 9 September 1996 the appellant’s solicitors replied that they would now proceed with

the preparation of the agreement to lease once the plan had been finalized.

7                    Sometime between 13 August 1996 and 7 October 1996 Mr Irwin rang Mr Hastie and

asked if one of the cranes could be deleted. He was told this would not be possible. On 7 October

1996 Mr Hastie delivered a set of building plans to the respondent’s Townsville manager to have

the positions of the power points marked. The plan was returned two days later, marked as

requested. Also on 9 October Mr Irwin rang Mr Hastie wanting to decrease the size of the building.

He was told this would not be possible.

8                    On 11 October 1996 Mr Irwin wrote to the appellant saying that there had been a major

policy change within the respondent as a result of which it no longer required the proposed building.

It offered to take a smaller building and one crane only. By this stage the land had been subdivided

and the plan of subdivision had been registered; the earthworks had been completed; steel

necessary for the building had been pre-fabricated; the cranes had been ordered and a deposit paid

on them; approximately $300,000 had been expended. Further, the appellant had entered into a

contract to sell the land, which was conditional upon execution of an agreement for lease between

the appellant as lessor and the respondent as lessee.

9 On 16 October 1996 the appellant replied that there was a binding agreement and that
compliance with it was required. It proceeded to complete construction, and on 18 December 1996

advised the respondent that the building was in all respects complete save for some fitout which

could not be completed until the respondent gave the appellant its specification. The next day the

respondent’s solicitors wrote purporting to terminate the agreement.

10                  In its statement of claim the appellant pleaded that the agreement was constituted by the

design and construct proposal of 17 July 1996, the respondent’s letter to the appellant of 19 July

1996, the letter of intent of 19 July 1996 and a conversation between Mr Hastie and Mr Irwin on

or about 19 July 1996.

11                  The trial judge found that no agreement was concluded by the letter of intent. It was obvious

by the appellant’s solicitors’ letter of 15 August 1996 that there were still outstanding matters of

some importance to be negotiated by the solicitors. The parties intended to be bound only upon

execution of the formal agreement.

12                  On the appeal, counsel for the appellant submitted that there was a concluded agreement.

He submitted that the letter of intent of 19 July 1996 constituted the offer and that Mr Hastie’s

conversations with Mr Irwin on two or three occasions over the next two or three weeks telling him

of progress constituted acceptance by conduct.

13                  In my view such a conclusion was not open. The evidence of Mr Hastie’s conversations

with Mr Irwin was too vague and imprecise to be capable of amounting to acceptance by conduct.

Even if it could do so, it should not be treated as doing so in the circumstances of this case, where

it would be inconsistent with the appellant’s solicitors’ subsequent letter of 15 August 1996 and

inconsistent with the case pleaded.

14 The trial judge rejected the appellant’s argument that the respondent was estopped from
denying that there was a concluded agreement. On appeal the appellant argued that, if there was

a concluded agreement for lease, the respondent was estopped from denying that it was bound

before the execution of a formal lease.

15                  In Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Priestley JA,

with whom Kirby J agreed, formulated the relevant principle as follows:-

“For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.”

See pp 585C, 610F and 612E. See also Waltons Stores (Interstate)Limited v Maher (1988)

164 CLR 387.

16                  Counsel for the appellant argued that his client had been led into the assumption that the

parties were bound in the absence of a formal agreement by Mr Hastie’s conversations with Mr

Irwin about the progress of the project, the return of the plan with the power points marked on it,

and the conversation some time between 13 August and 7 October in which Mr Irwin asked

whether a crane could be deleted. This conduct, whether taken individually or together, was in my

view insufficient to give rise to such an assumption. The evidence of Mr Hastie’s conversations with

Mr Irwin, which are relied on also as acceptance of the offer, is too imprecise for the court to

conclude that they encouraged the appellant into the assumption. The submission and return of the

plan showing the power points occurred more than eleven weeks after the work had commenced

and only a few days before the letter of 11 October in which the respondent said that the building

was no longer required. The appellants’ uncertainty about when the conversation about the deletion

of the crane occurred is an indication of how little significance it attached to the conversation in the
scheme of things.

17                  In my view the appeal should be dismissed with costs.