FEDERAL COURT OF AUSTRALIA
Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99
Citation: Norman; in the matter of Forest Enterprises Limited v FEA Plantation Limited [2011] FCAFC 99 Appeal from: Norman, in the matter of Forest Enterprises Australia Limited (Administrators Appointed) (Receivers & Managers Appointed) v FEA Plantations Ltd (Administrators Appointed) (Receivers Appointed) [2010] FCA 1444 Parties: TIMOTHY BRYCE NORMAN AND SALVATORE ALGERI IN THEIR CAPACITIES AS RECEIVERS AND MANAGERS OF FOREST ENTERPRISES AUSTRALIA LIMITED (RECEIVERS & MANAGERS APPOINTED) AND OF FEA CARBON PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) AND AS CONTROLLERS OF TASMANIAN PLANTATION PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (CONTROLLERS ACTING) AND OTHERS v FEA PLANTATIONS LTD (ADMINISTRATORS APPOINTED) (RECEIVERS APPOINTED) and FEA GROWERS GROUP INC A0054610B File number(s): VID 1179 of 2010 Judges: JACOBSON, NICHOLAS AND YATES JJ Date of judgment: 9 August 2011 Catchwords: CONTRACT – whether letter of commitment to provide financial support gave rise to binding agreement – whether parties had intention to create legal relations – whether requirement of consideration satisfied – whether agreement was certain
EQUITY – equitable set-off – whether there is an entitlement to set-off against rent owing – covenant in lease to pay rent “without any deductions whatsoever” – whether covenant excluded entitlement to equitable set-off
Legislation: Corporations Act 2001 (Cth), ss 424, 601FA, 601FD, 913B
Australian Securities & Investment Commission, Regulatory Guide 166: Licensing: Financial Requirements, (May 2010)
Cases cited: Australian Securities and Investment Commission v Lanepoint Enterprises Pty Ltd (2006) 64 ATR 524 cited
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411 distinguished
Batiste v Lenin (2002) 10 BPR 19,441 considered
Batiste v Lenin (2002) 11 BPR 20,403 cited
Branir Pty Limited v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 followed
British Anzani (Felixstowe) Ltd v International Management (UK) Ltd [1980] QB 137 followed
Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501 discussed
D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 cited
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 followed
Forest Marsh Pty Ltd v Pleash (2011) 82 ACSR 164 cited
Forsyth v Gibbs [2009] 1 Qd R 403 discussed
Geldorf Metaalconstructie NV v Simon Carves Ltd [2010] 4 All ER 847 discussed
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 cited
Grant v NZMC Ltd [1989] 1 NZLR 8 discussed
Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 discussed
International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 cited
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 cited
Investors Compensation Scheme Ltd v West Brunswick Building Society [1998] 1 WLR 896 cited
James v Commonwealth Bank of Australia (1992) 37 FCR 445 discussed
J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539
Continue reading Norman v FEA Plantation Ltd
Sign in free to access the full text
- AGLC
- Norman v FEA Plantations Ltd [2011] FCAFC 99
- Case
- [2011] FCAFC 99
- Decision Date
CaseChat Overview and Summary
The central legal issues before the court were whether the letter of commitment constituted a binding agreement, whether the necessary intention to create legal relations and consideration were present, and whether the terms of the agreement were certain enough to be enforceable. Additionally, the court had to determine whether there was an entitlement to set off claims against rent owed under the lease, despite the covenant stipulating payment "without any deductions whatsoever".
The court found that the terms of the letter of commitment did not suggest an intention to enter into the type of unorthodox financial arrangement claimed. The letter clearly indicated that the commitment was required for FEA Plantation to comply with its regulatory obligations, which pointed against the informality suggested by the claim. The court also determined that the requirement of consideration was met, as there was evidence that the subsidiary was asked to continue to trade in return for the parent's continued support, even though this request was not expressly stated. The court held that the absence of explicit evidence from company officers did not preclude the primary judge from drawing the necessary inference. As for the covenant in the lease, the court held that the prohibition on deductions precluded any equitable set-off.
The appeal was allowed, the primary judge's orders were set aside, and it was declared that FEA Plantation was not entitled to set off claims against the rent due. Costs were reserved pending further written submissions from the parties.
Orders
Orders of the court
1. The appeal be allowed.
2. The orders of Finkelstein J made 24 December 2010 be set aside.
3. Costs be reserved.
4. The parties file short written submissions on costs within a time to be agreed or as directed.
THE COURT DECLARES THAT:
5. FEAP is not entitled to maintain an equitable set-off against the rent due to FEA under the internal leases or sub-leases for the month of August 2010 by reason of the claims made pursuant to the letter of commitment by FEAP in letters dated 29 April 2010 and 5 May 2010.
Note:
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
The short answer to this is that there is no suggestion in the terms of the letter of commitment that such unorthodox arrangements were intended to apply. The clear terms of the letter, including the statement of FEA’s understanding that the “commitment” was required by FEAP from FEA to comply with FEAP’s cash needs requirements stated in ASIC’s RG 166, point strongly against such informality and against a departure from the ordinary norms of commercial behaviour.The requirement of consideration The Receivers emphasised the statements of principle made as to the law of consideration by the Court of Appeal in Atco Controls. Once again, we do not depart from those principles, but the question which arises turns on the facts of the case. In Atco Controls, their Honours said at [62] that in order to establish the existence of good consideration it must be made to appear that the promise made by the promisor was really offered as the price or quid pro quo for the action taken. In that case, what was required was that the promisee show that the parent requested the subsidiary to continue to trade in return for the undertaking of continued support and that the subsidiary was moved by that request. Their Honours were conscious in Atco Controls at [64], that a request need not be express and that one may be implied. But their Honours were of the view that the factual findings pointed against the existence of any implied request by the parent for the subsidiary to continue to trade. In the present case, the primary judge was of the view at [38] that it was possible to infer that the request for the letter of commitment was premised on the proposition that, without it, FEAP would no longer act as the responsible entity. He said that the inference may be made because, without the letter, FEAP could not, consistent with the conditions of the licence, act in that capacity. The Receivers submitted that the inferences drawn by the primary judge were not open. They relied on the principle that the onus of demonstrating the existence of a legally binding contract rested on the party asserting the existence of a contract (ie FEAP): Ermogenous at [26]. The Receivers also pointed to the fact that FEAP led evidence from a director and an officer of FEA and FEAP but neither said anything about a request for the letter or reliance upon it. However, we do not consider that the absence of evidence from the officers of the companies precluded the primary judge from drawing the inference that consideration moved from FEAP. The question of the inference or inferences to be drawn must be considered in light of all the circumstances. These include the purpose for which FEAP was established as a member of the FEA Group. That is stated in the recitals to the 2000 Master Head Lease and the 2003 Master Head Lease. FEAP was established for the purpose of holding the necessary licence for the conduct of the managed investment schemes carried on by the FEA Group. The Blakes Memorandum reveals that by August 2009 FEAP had fallen into breach of the cash needs requirements of its licence and that it proposed to obtain a letter of commitment from FEA in order to cure the breach.