Hyatt Australia Ltd v LTCB Australia Ltd

[1994] QCA 287

IN THE COURT OF APPEAL	[1994] QCA 287
SUPREME COURT OF QUEENSLAND

Appeal No. 270 of 1993

Before Fitzgerald P.
Davies JA.
McPherson JA.

[Hyatt of Australia Ltd. v. LTCB Australia Ltd.]

BETWEEN:

HYATT OF AUSTRALIA LIMITED

(Plaintiff) Respondent

AND:

LTCB AUSTRALIA LIMITED

(First Defendant) Appellant

AND:

THE LONG-TERM CREDIT BANK OF JAPAN LIMITED

(Second Defendant)

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 12/08/94

I agree with McPherson JA. that, for the reasons which he gives, the respondent established a right to the interlocutory injunction granted on the basis that it is sufficiently arguable that it accepted the appellant's promise for its benefit by its conduct subsequent to that promise.

The appeal should accordingly be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND	Appeal No. 270 of 1993
Brisbane
Before	Fitzgerald P. Davies J.A. McPherson J.A.

[Hyatt Australia v. LTCB Australia]

BETWEEN:

HYATT AUSTRALIA LIMITED

(Plaintiff) Respondent

AND:

LTCB AUSTRALIA LIMITED

(First Defendant) Appellant

AND:

THE LONG-TERM CREDIT BANK OF JAPAN LIMITED

(Second Defendant)

JUDGMENT - DAVIES J.A.

Judgment delivered 12/08/1994

I also agree with McPherson J.A., for the reasons which he gives, that the learned primary judge was correct in granting the injunctions which he did, and that accordingly the appeal should be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 270 of 1993

Brisbane

Before Fitzgerald P.
Davies J.A.
McPherson J.A.

[Hyatt v. LTCB Australia Ltd.]

BETWEEN

HYATT AUSTRALIA LIMITED

(Plaintiff) Respondent

- and -

LTCB AUSTRALIA LIMITED

(First Defendant) Appellant

- and -

THE LONG-TERM CREDIT BANK OF JAPAN LIMITED

(Second Defendant)

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered the 12th day of August 1994

Discovery Bay Developments Pty Ltd. is the owner of land at Sanctuary Cove. In 1986 it entered into a written management agreement with the plaintiff Hyatt Australia Limited by which Hyatt agreed to provide technical skills in planning, establishing and managing or operating a hotel on the land. By its terms Hyatt was to be remunerated in various ways including sharing in the proceeds of operating the hotel. Section 4 of art.1 of this agreement provided that Discovery Bay would maintain full ownership of the hotel -

"free and clear of any liens, encumbrances, covenants, charges, burdens or claims except ... (b) mortgages or other encumbrances which provide that this agreement shall not be subject to forfeiture or termination, except only in accordance with the provisions of this agreement, notwithstanding a default under such mortgage or other encumbrance".

In 1988 Discovery Bay was arranging to obtain finance from a syndicate including the second defendant in this action or companies associated with it, which later included the first defendant LTCB Australia Limited. It was envisaged that the security would consist of a company charge or charges over the property of Discovery Bay and a registered mortgage or mortgages over the Sanctuary Cove land. In the result, a company charge was executed in favour of LTCB by Discovery Bay on 30 November 1988 and a further such charge, together with three bills of mortgage, on 21 July 1992.

Securities like these were within the scope of art.1, sec.4 of the management agreement. In deference to that clause, each of the executed bills of mortgage contains in cl.18.6 a provision as follows:

"The Mortgagee agrees with the mortgagor that whilst the Management Agreement for the Hyatt Regency Hotel at Sanctuary Cove ("the Hotel") between the Mortgagor and Hyatt of Australia Limited ("Hyatt") dated 28 October 1986 (the "Hotel Management Agreement") remains in full force and effect the Mortgagee will not interfere with the operation of the Hotel by Hyatt and notwithstanding default hereunder the Hotel Management Agreement shall not be subject to forfeiture or termination except in accordance with the provisions of the Hotel Management Agreement."

No such provision appears in either of the company charges; but on 30 November 1988, which was the date of execution of the first of those charges, solicitors for Hyatt forwarded an "acknowledgment of security" (ex. KWR 4) addressed to the syndicate of financiers acknowledging that Discovery Bay was proposing to grant to the lenders a company charge and a bill of mortgage over the land. The document KWR 4, which is signed by or on behalf of Hyatt, proceeds:

"H.I. consents to DBD granting the Charge and the Mortgage and acknowledges and confirms pursuant to the terms of Article 1 section 4 of the Hotel Management Agreement that the Charge and the Mortgage do not materially and adversely affect the operation of the Hotel by H.I.".

In 1993 Discovery Bay experienced financial difficulties which resulted in the appointment by LTCB on 9 August 1993 of receivers to its assets and the land pursuant to the powers conferred by the charges and the bills of mortgage. Disputes having arisen between Hyatt and the receivers with respect to the disposition of the proceeds of operating the hotel on the land, Hyatt applied for and obtained an interlocutory injunction until trial restraining LTCB as first defendant in the action from interfering with the operation by Hyatt of the hotel at Sanctuary Cove. A mandatory order was also granted against LTCB requiring it to impose on the receivers a restriction or exclusion from their powers that was designed to effectuate that prohibitory injunction.

It is from the decision making those orders that the present appeal is now brought.

There may have been more ways than one in which Hyatt could have obtained the injunction sought; but the basis on which it applied and succeeded in obtaining the orders in its favour was that the provisions in cl.18.6 constituted, within the meaning of s.55 of the Property Law Act 1974, a promise made by LTCB to Discovery Bay which was for the benefit of Hyatt as a third party or "beneficiary". In order to understand the point at issue on the appeal, it is necessary to set out in full the first five subsections of s.55:

"55. Contracts for the benefit of third parties. (1) A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.

(2) Prior to acceptance the promisor and promisee may without the consent of the beneficiary vary or discharge the terms of the promise and any duty arising therefrom.

(3) Upon acceptance -

(a)	the beneficiary shall be entitled in his own name to such remedies and relief as may be just and convenient for the enforcement of the duty of the promisor; and relief by way of specific performance, injunction or otherwise shall not be refused solely on the ground that, as against the promisor, the beneficiary may be a volunteer;
(b)	the beneficiary shall be bound by the promise and subject to a duty enforceable against him in his own name to do or refrain from doing such act or acts (if any) as may by the terms of the promise be required of him;
(c)	the promisor shall be entitled to such remedies and relief as may be just and convenient for the enforcement of the duty of the beneficiary;
(d)	the terms of the promise and the duty of the promisor or the beneficiary may be varied or discharged with the consent of the promisor, and the beneficiary.

(4) Subject to subsection (1), any matter which would in proceedings not brought in reliance on this section render a promise void, voidable or unenforceable, whether wholly or in part, or which in proceedings (not brought in reliance on this section) to enforce a promissory duty arising from a promise is available by way of defence shall, in like manner and to the like extent, render void, voidable or unenforceable or be available by way of defence in proceedings for the enforcement of a duty to which this section gives effect.

(5) In so far as a duty to which this section gives effect may be capable of creating and creates an interest in land, such interest shall, subject to section 12, be capable of being created and of subsisting in land under the provisions of any Act but subject to th provisions of that Act."

It is also necessary to include in full the provisions of s.55(6):

"(6) In this section -

(a)

"acceptance" means an assent by words or conduct communicated by or on behalf of the beneficiary to the promisor, or to some person authorized on his behalf, in the manner (if any), and within the time, specified in the promise or, if no time is specified, within a reasonable time of the promise coming to the notice of the beneficiary;

(b)

"beneficiary" means a person other than the promisor or promisee, and includes a person who, at the time of acceptance is identified and in existence, although that person may not have been identified or in existence at the time when the promise was given;

(c)

"promise" means a promise -

(i)	which is or appears to be intended to be legally binding; and
(ii)	which creates or appears to be intended to create a duty enforceable by a beneficiary,

and includes a promise whether made by deed, or in writing, or, subject to this Act, orally, or partly in writing and partly orally;

(d)	"promisee' means a person to whom a promise is made or given;
(e)	"promisor" means a person by whom a promisee is made or given."

On appeal the primary submission on behalf of the appellant LTCB is that there has within the meaning of s.55(1) of the Act never been an effective "acceptance" by Hyatt of any promise that may have been made by LTCB in cl.18(6) of the bill of mortgage. The underlying basis of the submission is that the "acknowledgment of security" (KWR4) in fact preceded that promise in time and so was incapable of constituting an "acceptance" of it under s.55(1). The acknowledgment KWR4 was, it will be recalled, given on 30 November 1988, which was some three and a half years or more before the bill of mortgage containing cl.18.6 was executed by Discovery Bay on 21 July 1992.

The submission obviously relies heavily on conventional legal language which views a contract as formed by an offer that is followed by acceptance. The words "offer" and "acceptance" are, however, simply useful labels designating successive bilateral promises which, taken together, give rise to an enforceable agreement. The practice of analysing contracts into offer and acceptance is simply one of convenience and, provided in the end their terms precisely correspond, it is in law immaterial which of the two promises comes first. Indeed, in the course of forming a contract the sequence may often be reversed, as when the acceptance is conditional, and so becomes a counter-offer itself capable of acceptance by a further promise on the other side.

It may therefore be doubted whether it was ever intended by the mere use of the term "acceptance" in s.55(1), to exclude altogether from the section the case where a beneficiary (as the third party is described in the section) manifests in advance an intention of accepting a promise which he knows is about to be made in his favour.

Superficially there may be greater force in the further objection that such an interpretation might defeat the object of s.55(2), which contemplates that the primary promisor and promisee may agree to discharge or vary their promises if they do so before acceptance by the beneficiary.

The short answer is, however, that the simplest method of frustrating such anticipatory acceptance - if that is what the primary parties wish to achieve - is simply to refrain from going on to make the promise or promises that may give rise to the duty enforceable under s.55(1). If the primary promise is never in fact made, there will be nothing for the anticipatory acceptance to fasten on.

In the end, therefore, there appears to be no compelling theoretical or practical objection to the approach adopted by the learned Judge below, which was to say that Hyatt's acceptance comprised in the acknowledgment KWR4 was capable of being regarded as intended, and understood by the promisor LTCB to be intended, to take effect on the making of the promise in cl.18.6 that is sought to be enforced. As to this, however, it was further objected that the acknowledgment KWR4 was in any event not capable of being so construed. It was, it was argued, not directed to LTCB; it did not refer to cl.18.6; and it made no reference either expressly or impliedly to the promise contained in that clause. Above all, it was delivered almost four years before the making of the promise sought to be enforced. The response of Mr Muir Q.C. was, in substance, that the "acceptance" that was relied on by Hyatt was not limited to the acknowledgment KWR4. It was but one part of an extended course of conduct, including subsequent correspondence from Hyatt, from which an acceptance was capable of being inferred.

A submission to the latter effect was advanced in the court below; but in the end the Judge did not find it necessary to rule on it. It is, however, open to the respondent to rely on it on appeal. In my view the proposition advanced by Mr Muir Q.C. should be sustained even if perhaps not precisely in the form in which it has been presented on appeal.

In order to explain the point, it is necessary to return to the sequence of events beginning shortly before the acknowledgment KWR4 was forwarded. According to the affidavit of Mr K.W. Rose of solicitors for Hyatt, when the finance was being arranged in 1988 Discovery Bay approached Hyatt and asked for its consent under s.1 of art.4 of the management agreement to the securities that it was proposing to grant. At that time the solicitors for Discovery Bay were Mallesons Stephen Jacques. On 22 November 1988 they sent to Hyatt a facsimile letter (KWR2) describing the securities proposed and enclosing a copy of the draft acknowledgment which Hyatt was being be asked to give.

It is apparent from this and other correspondence of about that time that contemporaneous conversations on the subject were taking place by telephone. After referring to such a conversation which had taken place on 28 November 1988, a further facsimile letter of that date (KWR3) from Mallesons to Hyatt goes on to record that "a copy of the relevant security document was not forwarded to you as requested". The letter then proceeds:

"I transmit for your review a facsimile received from Coudert Brothers, solicitors to the LTCB Syndicate of Lenders setting out the form of the clause which they propose to insert in the Mortgage document. In the event that the form of the clause is satisfactory to you I ask that you transmit by facsimile a copy of your consent to the LTCB securities."

It was after that that the acknowledgment KWR4 was executed by Hyatt on 30 November 1988.

The only reasonable inference is that Hyatt was satisfied with the form of the clause it was proposed to insert in the mortgage document and which was set out in the facsimile from Coudert Brothers forwarded with KWR3. It is unfortunate that the facsimile in question was not itself included in the material in support of the application.

Nevertheless, there seems little doubt that, as KWR3 records, what was set out in the facsimile from Coudert Brothers was the form of clause to be inserted in the mortgage documents. In the proceedings below the learned Judge acted on the footing that it was cl.18(6) that Hyatt was being asked to consent to, and no specific challenge to his finding in that particular has been made on this appeal.

In the circumstances, although the best evidence has not been produced, what is now available to us is nevertheless sufficient to enable the Court, in an appeal from an interlocutory order like this, to proceed on the same basis as the Judge below; that is to say, that what accompanied KWR3 was a facsimile that incorporated the terms of the proposed cl.18.6 to be inserted in the mortgage securities.

Once this point is reached, the problems presently said to confront Hyatt are largely disposed of. It is not, I think, correct to view the acknowledgment KWR4 given on 30 November 1988 as an anticipatory acceptance by Hyatt of a "promise" that was comprised in the copy of cl.18.6 forwarded to Hyatt with KWR3 on 28 November 1988. No such promise was being given at that time, and it was not intended to be given until the security documents incorporating cl.18.6 were executed. It was only when that happened that there would be a promise available for acceptance by Hyatt, which, when accepted, would be enforceable under s.55 if it satisfied the requirements of that section in other respects. The proper analysis of what took place in November 1988 was that Hyatt and the LTCB syndicate agreed that, if and when the mortgage securities were executed, they would incorporate a promise in the form of cl.18.6. That was what in fact happened, although it did not take place until the three bills of mortgage were executed on 21 July 1992. The provisions contained in cl. 18.6 of each of the bills of mortgage thereupon constituted a promise, which using the language of s.55(1) was made by the promisor LTCB to the promisee Discovery Bay in favour of the beneficiary Hyatt, to refrain from interfering with the operation of the hotel. Once that promise was made, it was open to Hyatt to accept it. Later communications, and in particular the letter KWR14 dated 15 October 1993, are consistent only with an intention on the part of Hyatt to accept that promise. The writ of summons in this action issued on 15 November 1993 and was evidently served soon after that date. It too manifests an intention to accept the promise in cl.18.6.

The date 15 October 1993 is, of course, some not inconsiderable time after the promise appeared in the bills of mortgage executed on 21 July 1992. However, before it could, with any prospect of success, be argued that an acceptance at that stage was in terms of s.55(6)(a) not made within a reasonable time, it would be necessary to know when it was that Hyatt first became aware that the bills of mortgage containing cl.18.6 had in face been executed.

Until Hyatt became aware of that fact, it could be excused for not communicating its acceptance of the promise that had been made for its benefit. A question like that involves a matter of fact which is not suitable for determination at an interlocutory stage of the action. In determining it, the circumstance that the controlling principals of the parties, whose authority was needed from time to time during the negotiations, appear to have been located in places as far apart as Japan, Hong Kong, and the United States is likely to be one among several relevant factors. For the present, it is enough to say that Hyatt has on this and the other aspects I have been considering here a case that is plainly arguable. It follows that because no question was raised on appeal about the balance of convenience, the matter must be taken as one in which the learned Judge was justified in granting the injunctions sought.

It should perhaps be added that when the matter goes to trial a question may possibly arise whether the terms of cl.18.6 can properly be treated as a promise "for the benefit of" Hyatt as beneficiary. In some jurisdictions it is not sufficient if the third party is simply an "incidental" beneficiary of the agreement. See, as to the United States, Williston on Contracts, 3rd ed., §356, at pp. 827-829; and, for South Africa, Barnett v. Abe Swersky & Associates 1986 (4) S.A. 407, 411. Some point of that kind was taken by LTCB at the hearing before the Chamber Judge; but it was not pursued on appeal and consequently does not call for consideration at this juncture.

Some attention was also given on appeal to the terms of the prohibitory injunction granted below, with a view to demonstrating what were said to be its deficiencies. In fact it was expressed in a form which simply picked up terms used in the provision in sec.4 of art.1 of the management agreement itself. Despite the concerns stated by Mr Jackson Q.C., I do not think it is too widely expressed.

The appeal is dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

C.A. No. 270 of 1993

Brisbane
[Hyatt v. LTCB Australia Ltd.]

BETWEEN

HYATT AUSTRALIA LIMITED

(Plaintiff) Respondent

- and -

LTCB AUSTRALIA LIMITED

(First Defendant) Appellant

- and -

THE LONG-TERM CREDIT BANK OF JAPAN LIMITED

(Second Defendant)

Fitzgerald P.
Davies J.A.

McPherson J.A.

Judgment delivered 12/08/94

Separate reasons by each member of the Court, concurring as to the orders.

APPEAL DISMISSED WITH COSTS.

CATCHWORDS	CONTACT - OFFER AND ACCEPTANCE - Section 55 Property Law Act - Whether Respondent third- party a beneficiary entitled to rely on mortgage clause - Mortgagor had management agreement with Respondent - Respondent sent acknowledgment of security to Appellant mortgagee - Mortgage contained cl.18.6 - Mortgagee not to interfere with hotel operation - Dispute between Respondent and Receivers - Injunction granted to restrict Receivers based on cl.18.6 - Nature of offer and acceptance considered.
Counsel:	J. Muir Q.C. for the respondent D.J.S. Jackson Q.C., with him J. McKenna, for the appellant
Solicitors:	Gadens Ridgeways for the respondent Clayton Utz for the appellant

Hearing Date: 13.7.94