O'Halloran v Penrit Pty Ltd

[1999] NSWCA 184

CITATION:	O'Halloran v Penrit Pty Ltd & Anor [1999] NSWCA 184
FILE NUMBER(S):	CA 40243/97
HEARING DATE(S):	28 May 1999
JUDGMENT DATE:	11 June 1999
PARTIES :	James O'Halloran Penrit Pty Ltd & Ors
JUDGMENT OF:	Mason P at 1; Handley JA at 2; Giles JA at 3

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S) :	DC4681/95
LOWER COURT JUDICIAL OFFICER:	Sinclair DCJ

COUNSEL:	Appellant - J B Simpkins & T W L Stuart First and Second Respondents - K Tapsell (Solr)
SOLICITORS:	Appellant - David H West, Pymble First and Second Respondents - Watkins Tapsell, Kirrawee
CATCHWORDS:	CONTRACT - sale of business - offer and acceptance by faxes - entity to conduct business not decided - whether concluded agreement with person making offer - whether later novation or abandonment in favour of fresh agreement with company which in fact conducted business; CONTRACT - sale of business - purchaser to take over lease and cause release of guarantors - did not - guarantor had to pay - guarantor not party to contract - whether promise held by vendor on trust for guarantor - whether guarantor entitled to judgment against purchaser.
DECISION:	1. Appeal allowed in part; 2. Set aside the verdict and judgment for the second plaintiff; 3. In lieu thereof, judgment for the defendant as against the second plaintiff; 4. No order varying the order for costs made by Sinclair DCJ; 5. Order the first respondent to pay one third of the appellant's costs of the appeal.

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40243/97
DC 4681/95

MASON P
HANDLEY JA
GILES JA

Friday 11 June 1999

O’HALLORAN v PENRIT PTY LTD & ANOR

JUDGMENT

1 MASON P: I agree with Giles JA.

2 HANDLEY JA: I agree with Giles JA.

3 GILES JA: Penrit Pty Ltd (“Penrit”), then known as Freshaz Juice Products Pty Ltd, carried on a fruit juice business. It leased premises from Manhoko Ltd. Its directors, including Mr Brian Fitzgerald, guaranteed its obligations under the lease. Later Denwick Pty Ltd (“Denwick”) purchased the freehold from Manhoko Ltd, and the guarantors acknowledged their liability to Denwick.

4 The business was unsuccessful. On 5 July 1993 Mr David Pitt was appointed receiver and manager of Penrit, as the name then became. Mr Pitt and Mr Fitzgerald set about finding a purchaser for the business.

5 An acquaintance of Mr Fitzgerald, Mr Robert O’Shea, told his brother-in-law Mr James O’Halloran of the business. On behalf of Mr Pitt, Mr Fitzgerald negotiated with Mr O’Halloran with a view to the sale of the business.

6 They met at Mr O’Halloran’s home on 5 and 12 September 1993, and by a fax dated 8 September 1993 Mr Fitzgerald provided financial and other information to Mr O’Halloran. By a fax dated 13 September 1993 Mr O’Halloran proposed a visit to the premises and expressed the belief that “my partners could make and [sic] offer” which was briefly outlined: the fax said that “we” would require certain further information. Mr Fitzgerald and Mr O’Halloran met again at the premises on 16 September 1993, and Mr O’Halloran looked into the records of the business. At the end of the meeting Mr O’Halloran told Mr Fitzgerald, “I think we can do a deal”. It will be necessary to return to what was said at the meetings.

7 Mr O’Halloran’s fax of 13 September 1993 had been sent to indicate interest and hold off a sale by Mr Pitt to a purchaser who had offered $20,000 for the business. Mr Fitzgerald had told Mr O’Halloran of that offer at their first meeting. The response to the fax, by another fax dated 13 September 1993, included that Mr Pitt wanted to accept the other offer and was “prepared to hold until Thursday, but only on receipt of financial support”. On 20 September 1993 Mr Fitzgerald told Mr O’Halloran that Mr Pitt required “a formal offer from you today”, otherwise he would accept the other offer.

8 Faxed letters dated 20 September 1993 were then sent, one from Mr O’Halloran to Mr Pitt and the other from Mr Pitt to Mr O’Halloran. The fax from Mr O’Halloran was in the terms of a draft prepared at Mr O’Halloran’s request by Mr Fitzgerald. The faxes read -
“Dear David,

Further to our discussions/negotiations regarding the purchase of the business trading as Freshaz Juice Distributors Pty Limited (Freshaz).
We wish to formalise the following offer:-
(1) Payment of $22000 for all Plant & Machinery owned by Freshaz. The Plant & Machinery is to include the current computer software being used by the company. The existing charge held by Mr Brian Fitzgerald to be withdrawn.
(2) A copy of the Bill of Sale in favour of Mr Robert Lancaster is required to enable the negotiation on the future of the items subject to that Bill of Sale.
(3) The current lease in existence to be taken over by the new trading entity (to be decided) and the current Directors of Freshaz to be released from any liability.
(4) The Juice Dispensers subject to A.G.C. lease contracts to be taken over subject to the condition of the equipment (being maintained in good working condition) and the value equating the value still owing on the lease. A current pay out figure is required.
(5) Transfer of current F.M.C. lease to be transferred to the new trading entity.
(6) Payment for stock at cost valuation at date of take-over.
(7) We anticipate take-over date being Monday 27th September, 1993. All current staff to be terminated by yourself prior to take-over, but all can apply for positions with the new entity.
(8) Transfer of existing telephone numbers and other services to the new entity. All outstanding accounts to be settled prior to take-over.
We hope the above is in accord with you and we would appreciate your acknowledgment as soon as possible.
Yours faithfully,
James F O’Halloran”

“Dear James,
I refer to the offer regarding the purchase of the business trading as Freshaz. The acquisition will be from Penrit Pty Ltd (Receiver and Manager Appointed) and the terms and conditions set out in your letter are accepted. It is basic and essential to the agreement that the leased equipment from A.G.C. be included in accordance with my undertaking to Robert Lancaster (see attached letter). I will ensure that the equipment is in good condition.
Please remit purchase price of $22,000 to Penrit Pty Ltd (Receiver and Manager Appointed) National Australia Bank, Biggera Waters, Queensland.
Branch No 084 545
Account No 52584 7140
Yours faithfully,
David T Pitt”

9 The sale of the business was settled on 27 September 1993. Mr Pitt, Mr Fitzgerald, and Mr O’Halloran all went to the premises. Mr O’Halloran introduced Mr Warren Pullen to Messrs Pitt and Fitzgerald, saying that he was going to be the new manager. At Mr O’Halloran’s request, Mr Fitzgerald accompanied him to a bank where a bank account was opened in the name of Dale Developments Pty Ltd (“Dale”) with Mr Fitzgerald as one of the signatories. Mr Fitzgerald agreed to this as a matter of convenience, to facilitate his task of assisting Mr Pitt to recover debts outstanding to Penrit. Mr Fitzgerald asked whether Dale was to be the operator of the business, and Mr O’Halloran said that he did not know “but it is a clean company”.

10 The evidence was strangely silent as to the payment of the purchase price of $22,000. It was not the subject of later correspondence and, as would be expected, must have been paid at this time. Mr O’Halloran gave evidence that the funds to purchase the business were borrowed from a company H & J Hotels Pty Ltd, which it was common ground was an O’Halloran company, it seems by Dale. There was no evidence that this was known to Mr Fitzgerald or Mr Pitt, and for all that appeared the $22,000 was paid by a bank cheque or a cheque of H & J Hotels Pty Ltd.

11 Mr Fitzgerald had not heard of Dale prior to 27 September 1993. Mr Pitt did not hear of Dale until some time later, probably early November 1993. He came to know of it in the course of correspondence in which he sought to have performance of the purchaser’s post - settlement obligations, initially payment for stock and accounting for recovered debts and later taking over the lease. I will return to this and related correspondence.

12 Under the management of Mr Pullen, in fact Dale conducted the business: whether it did so immediately, or after a period of innominate operation of the business was not clear. Mr O’Halloran negotiated with Denwick for a transfer of the lease. Nothing eventuated, according to Mr O’Halloran because the rent was too high.

13 It seems that, although Dale was conducting the business at and from the premises, it was not paying rent. So Denwick made a number of claims on Penrit and the guarantors for rent and other amounts payable under the lease, and obtained a judgment for part of its claims. In February 1995 Denwick gave notice to vacate the premises. The premises were vacated, and the business ceased. Mr Fitzgerald then paid to Denwick a total of about $50,000 in satisfaction of its claims, being claims for amounts falling due to Denwick over the period October 1994 to November 1995.

14 Proceedings were brought in the District Court by Penrit and Mr Fitzgerald against Mr O’Halloran, Dale being in liquidation. The statement of liquidated claim ended with the claim, “The Plaintiffs claim as damages, the payments made by Fitzgerald set out above”, plus interest and costs. The payments as set out totalled $51,986.43.

15 The statement of liquidated claim alleged that it was agreed in a written contract constituted by the faxes dated 20 September 1993 that Mr O’Halloran would purchase the business of Penrit, and that it was a term of the agreement that the lease would be “taken over by a new trading entity to be nominated by” Mr O’Halloran and that “Fitzgerald and others [would] be released from any liability under the guarantees”. There were then allegations that Mr O’Halloran entered into possession and took over the business, that he “abandoned” the premises and failed to make payments under the lease, that Penrit became liable to Denwick for rent and other payments under the lease, that Denwick made demand on Mr Fitzgerald as guarantor, and that Mr Fitzgerald made the payments already mentioned.

16 Nothing more was said to describe Penrit’s entitlement to the damages claimed. The entitlement of Mr Fitzgerald was, however, set out in a number of alternatives -

(a) That he was “entitled, by way of subrogation in equity to the rights of Penrit arising out of the sale agreement on payment by him of the amounts owing by Penrit under the lease”;
(b) That he was “entitled by reason of s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 to the benefit of any judgment in favour of Penrit”;
(c) That “it was a term of the sale agreement, and a collateral contract entered into by [Mr Pitt] on behalf of Fitzgerald, that the Defendant would take all steps necessary to release Fitzgerald from any liabilities under the lease”, and that “in breach of the collateral contract the Defendant did not release Fitzgerald from liabilities under the lease, whereby Fitzgerald was obliged to pay, and did in fact pay to Denwick monies owing under the lease”; and
(d) Under the heading “Entitlement as Third Party Beneficiary under the Sale Agreement”, that “it was a term of the sale agreement that in consideration of the sale, the Defendant would take all steps necessary to release Fitzgerald from any liabilities under the lease”, and that in breach of the sale agreement this was not done so that Mr Fitzgerald was obliged to, and did, pay Denwick.

17 At the heart of Mr O’Halloran’s defence, a document even less satisfactory in its framing than the statement of liquidated claim, was that he negotiated with Mr Fitzgerald for the purchase of the assets of Penrit’s business “on behalf of a company then being formed or to be formed named Dale Developments Pty Ltd”; to this was added that it was “an express or implied term of the negotiations … that the assumption of obligations of the real estate lease and the proposed release of the guarantors was subject to a satisfactory assignment of the Lease”. In the judgment to which I next refer it was said -

“The substance of the defence is that the defendant asserts that he was not a party to the contract. He asserts that the alleged offer and acceptance set out in 2 faxed letters of 20 September 1993 was merely an agreement to agree and such agreement was novated by Penrit accepting Dale Developments Pty Ltd as the contracting party shortly thereafter, when Dale Developments Pty Ltd went into occupation of the premises and took over the business on 27 September 1993.”
18 In reasons for judgment given on 4 April 1997 Sinclair DCJ held that a binding agreement had been made on 20 September 1993, and found a verdict for both Penrit and Mr Fitzgerald. Although recording agreement on $49,296.69 as the total amount paid by Mr Fitzgerald and the “appropriate damages”, he gave judgment for the higher sum of $51,986.13 claimed in the statement of liquidated claim. This was questioned by the Court in this appeal, but Mr O’Halloran said that he made no complaint.

19 His Honour set out some specific findings, namely -
“1. The principal evidence of the contract of the contract [sic] for the purchase of the business is the written offer and acceptance of 20 September 1993.

2. At that time it was in the contemplation of both Fitzgerald and O’Halloran that the business would be conducted in the future by a new trading entity, a company of, or to be acquired by the defendant.
3. The identity of the new trading entity, Dale Developments Pty Limited, was not made known to Fitzgerald before the meeting on 27 September 1993 when the transaction was completed and occupation of the premises was in fact handed over to the directors of Dale Developments Pty Limited, namely James O’Halloran, Warren Pullen and Joan Pullen.
4. The receiver of Penrit, Mr Pitt, was not personally aware of the name of the new trading entity until early in November 1993.
5. The charges the subject of this action were incurred during the period from 24 October 1994 to 22 November 1995.”

20 The reasoning to the verdicts in favour of Penrit and Mr Fitzgerald was -
“The principal issue for determination of this case is whether or not the defendant entered into a contract on behalf of Dale Developments Pty Limited and not on his own behalf. The primary issue as to the identity of the proper defendant depends upon, principally -

(a) The construction of the two documents of 20 September 1993, bearing in mind my findings of fact as to the state of mind of the persons involved at that time.
(b) Whether the agreement of 20 September 1993 was merely an agreement to agree; and
(c) Whether the agreement of 20 September 1993 was novated by Penrit accepting Dale Developments Pty Limited as a contracting party.
Both parties rely on the statements of principal [sic] set out in Bowstead on Agency , 15th Edition at pages 432, 433 and 434.
The fundamental question of fact upon which this case depends is whether, in respect of the sale of this business, the defendant, Mr O’Halloran was acting for himself or acting as agent for a principal, the new, though unidentified, trading identity. It is a relevant fact that the new trading entity, as at the 20 September 1993, may or may not have been a company then in existence. I am satisfied that the correspondence of 20 September reflects, and is evidence of, an agreement negotiated between Mr Fitzgerald on behalf of the receiver of Penrit and the defendant, Mr O’Halloran for the sale of the business to O’Halloran. The defendant signed the offer to buy the business. There is no suggestion in his offer that he was signing on behalf of any third party in respect of the purchase of the business. The references to the current lease, to be taken over by the new trading identity (to be decided) and the current FMC lease to be transferred to the new trading entity and the telephone service to be transferred to the new entity all refer to a company structure to be organised by the defendant to carry on the business as distinct from purchase the business from Penrit.
I find that -
1. A contract was concluded between Penrit Pty Limited and the defendant, O’Halloran on 20 September 1993 for the sale of the Freshaz business to the defendant.
2. I am not satisfied that there was a subsequent novation of the agreement for the sale of the business whereby the company Dale Developments Pty Limited was accepted by Penrit as substituted for the defendant in respect of the sale of the business.
3. I find that, having met the contractual obligation of Penrit in respect of the money claimed by the lessor, pursuant to his liability as guarantor of the lease, the second plaintiff is entitled to a verdict against the defendant.”

21 Mr O’Halloran appealed. A number of submissions were presented on appeal. They were of two kinds.

22 The submissions of the first kind challenged Mr O’Halloran’s liability. They were to the effect that -
(i) No concluded agreement came into existence on 20 September 1993, or at all;

(ii) If an agreement did come into existence on 20 September 1993, Mr O’Halloran was not a party to it;
(iii) If an agreement did come into existence on 20 September 1993 and Mr O’Halloran was a party to it, the agreement was novated so as to substitute Dale as the party in his place, or alternatively the agreement was abandoned in favour of a separate agreement between Penrit and Dale.
On Mr O’Halloran’s arguments, any agreement for the sale of the business was to be found in the conduct of the parties whereby Dale was put into possession of the business and treated as its purchaser, so that no liability fell upon Mr O’Halloran.

23 The submission of the second kind, arising only if Mr O’Halloran was liable, accepted that his liability was to Penrit but challenged Mr Fitzgerald’s entitlement to a verdict. It was to the effect that Mr Fitzgerald was not entitled to a verdict because he was not a party to the agreement.

Mr O’Halloran’s liability

24 In deciding whether a concluded agreement came into existence on 20 September 1993, and if so with whom, the terms of any agreement are to be found in the exchange of faxes of 20 September 1993. But in that decision regard should be had to preceding and following events: B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 917; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. Mr O’Halloran relied on references in the negotiations prior to 20 September 1993 to the purchaser of the business being a company, and on treatment of Dale as the purchaser of the business in the period after 20 September 1993.

25 That the exchange of faxes was objectively intended to bring a concluded agreement is clear. There had been negotiations between Mr Fitzgerald, on behalf of Mr Pitt as the person with power to dispose of the business, and Mr O’Halloran, and investigation by Mr O’Halloran. Mr O’Halloran had foreshadowed a “deal”. He had been told that a formal offer was required, and that the other offer would be accepted if he did not make a formal offer. His fax referred to the negotiations, and was expressed to “formalise the following offer”; it asked for “acknowledgment as soon as possible”. The terms of the offer were in commercial terms sufficiently comprehensive and precise (no submission was made to the contrary), and did not indicate that anything more was to be agreed. Indeed, the terms included the statement of an anticipated take-over date one week in the future. Mr Pitt’s fax said quite clearly that the offer was accepted, and gave instructions for payment of the purchase price. Settlement occurred on the anticipated take-over date, and the purchase price was paid, without any further negotiations as to the terms and conditions the subject of the faxes. All this is consistent with, and only with, a concluded agreement for the sale of the business on the terms and conditions in the faxes.

26 It is equally clear, in my view, that the exchange of faxes was objectively intended to bring a concluded agreement with Mr O’Halloran, and that the references to the new trading entity do not bring a contrary result. Mr O’Halloran’s fax used the pronoun “we”, but it is not uncommon to find such a use by an individual and the fax otherwise purported to come from Mr O’Halloran alone. (Although I do not think it matters, Mr Fitzgerald as the draftsman of the fax said that he intended “we” to indicate Mr O’Halloran.) The references to the new trading entity were not to the effect that the offer was made by, or the business would be purchased by, the new trading entity. They contemplated that the new trading entity would take over the lease of the premises, certain chattel leases, and the telephone numbers, and would employ the staff used in the business, and a natural reading of the offer is that the new trading entity would conduct the business. But that was quite consistent with Mr O’Halloran agreeing with Mr Pitt that he, Mr O’Halloran, would purchase the business, but contemplating that he would cause the business to be vested in the new trading entity once he had decided on its identity.

27 Indeed, an agreement of that kind was dictated by the two circumstances that Mr Pitt required a formal offer, obviously one which he could accept forthwith in preference to the other offer, and that the identity of the new trading entity had not been decided. It was Mr O’Halloran’s evidence that, although Dale was a dormant company available for the purpose, he and Mr Pullen had not decided whether to use it or to acquire and use a shelf company. It was necessary that Mr Halloran make an offer on his own behalf, capable of acceptance forthwith but with the prospect that he would cause the business to be vested in the new trading entity once he had decided on its identity. The fact that the identity of the new trading entity was undecided required that the agreement be with Mr O’Halloran, albeit an agreement which could be given effect by some equivalent of a transfer by direction.

28 I do not think that the references in the negotiations prior to 20 September 1993 to the purchaser of the business being a company are of assistance to Mr O’Halloran. It is first necessary to describe those references.

29 According to Mr O’Halloran -

(a) At the initial meeting on 5 September 1993 he told Mr Fitzgerald, “If a deal can be done the business would be brought by a company”, and Mr Fitzgerald suggested that if that occurred he, Mr O’Halloran, should take a charge over the company and the business in the same manner as Mr Fitzgerald had taken a charge over Penrit and its business;
(b) He “repeated those comments or words to the same effect” at the second meeting on 12 September 1993;
(c) He “repeated those comments or words to the same effect” on the plane when going to the premises on 16 September 1993.

30 Mr Robert O’Shea was present at both meetings, but gave no evidence one way or the other as to this.

31 Mr Fitzgerald said nothing about references to a company as the purchaser in his evidence in chief, and his evidence as to this in cross-examination was not particularly clear. Starting from the use of “we” in drafting the fax of 20 September 1993 sent by Mr O’Halloran, it went -

“Q. Wouldn’t it be because Mr O’Halloran in discussions had indicated that a company would be used to carry out this purchase? A. He indicated that there could be another entity which is mentioned in paragraph 3 but he never named that or was prepared to.

Q. He never named it but he said it would be a company that’s purchasing the goodwill and the business from Penrit? A. No he said another entity.
Q. Another entity so you knew then when you wrote the letter to Mr O’Halloran then that he was making an offer, not in his own right, but on behalf of another entity, that’s true isn’t it? A. No.
Q. But you had those discussions, you were aware of it? A. No I was aware that Mr O’Halloran was going to buy the business. We did not know the vehicle.
Q. But you knew there was another vehicle? A. No there could be. He had not disclosed that.
Q. What I’m suggesting to you is that when you used the word we it was because Mr O’Halloran had very clearly said to you that a company or an entity will be purchasing other than himself? A. Yes but he was asked who that entity would be from time to time and never gave ..”

32 Mr O’Halloran stressed the “yes” in the last answer. But a little later there was a more direct question and answer -
“Q. What I am suggesting to you on that day, 5 September, when Mr O’Halloran met you that he indicated to you quite clearly that any purchase would be by another entity, some entity that was going to be created? A. No he didn’t.”

Nothing further on this matter was put to Mr Fitzgerald in relation to the meetings of 12 September 1993 and 16 September 1993.

33 The cross-examination of Mr O’Halloran did not include putting to him that the references to a company as purchaser had not occurred. At one point it appeared to accept, as the references to the new trading entity in Mr O’Halloran’s fax of 20 September 1993 made plain, that Mr O’Halloran intended that a company would “run the business”: Mr O’Halloran responded to a question in those terms that he and Mr Pullen had made up their mind that a company “would buy the business”.

34 It might have been thought important to explore Mr Pitt’s knowledge of a company as purchaser: after all, he was effectively the vendor of the business. He was not asked anything about it.

35 Sinclair DCJ did not expressly find whether Mr O’Halloran had made the statements of which he gave evidence concerning purchase by a company. He said that he preferred the evidence of Mr Fitzgerald to that of Mr O’Halloran, describing Mr O’Halloran as rather unconvincing and evasive in the course of his oral evidence and, with examples, as a person who would say whatever he thought would advance his case regardless of whether it was true or false. His Honour made the findings earlier set out that it was in the contemplation of Mr Fitzgerald and Mr O’Halloran “that the business would be conducted in the future by a new trading entity, a company of, or to be acquired by, the defendant”, and that the identity of Dale was not made known to Mr Fitzgerald until 27 September 1993.

36 Where Mr Fitzgerald had drafted Mr O’Halloran’s fax of 20 September 1993, with its references to a new trading entity, something must have been said about another entity acquiring the business, but was it to the effect that a company would buy the business, as distinct from conduct it, or that a company would buy the business, as distinct from could buy the business? While Mr O’Halloran relied on the initial “yes” in the last answer in the passage first set out above, it could have been an acknowledgment of the question rather than part of the answer and otherwise can not readily stand with the answer in the passage secondly set out. I will assume, however, for the purposes of these reasons, that what was said was to the effect that a company would buy the business. Nonetheless, as was found by his Honour, as at 20 September 1993 the identity of the company was not known, and Mr O’Halloran had not decided on its identity.

37 The indecision, reflected in the words of Mr O’Halloran’s fax of 20 September 1993, is important. Even if he had intended that the business would be purchased by a company, and had said something to that effect to Mr Fitzgerald, as at 20 September 1993 the identity of the company was not known because Mr O’Halloran and Mr Pullen had not decided whether to use Dale or a shelf company. Nonetheless a firm offer had to be made, or Mr Pitt would accept the other offer. Any earlier reference to the purchase of the business by a company was overtaken by the necessity for an offer by Mr O’Halloran. As earlier described, it was necessary that Mr O’Halloran make an offer on his own behalf, capable of acceptance forthwith but with the prospect that he would cause the business to be vested in the new trading entity once he had decided on its identity. Any statements to the effect that a company would buy the business no longer applied.

38 I should add that, according to Mr O’Halloran, he also “repeated those comments or words to the same effect”, meaning what he had said on 5 September 1993 about the business being bought by a company, on a further inspection of the premises on or about 26 September 1993. There was no other evidence about this inspection, and the occasion was probably the settlement on 27 September 1993. Mr Fitzgerald gave no evidence about whether there was reference to the business being bought by a company on the occasion, and no issue was taken with this element of his evidence in the cross-examination of Mr O’Halloran.

39 Sinclair DCJ made no finding as to this, save so far as he recorded that Mr Fitzgerald went with Mr O’Halloran to open the bank account in the name of Dale following the settlement and, as I have said, that the identity of Dale was not known to Mr Fitzgerald before settlement.

40 There must be greater doubt about this reference to the business being bought by a company. Mr Pitt was at the settlement, but knew nothing of Dale until early November 1993. But even if something of this kind was said, I still do not think it assists Mr O’Halloran. The occasion was just before or at settlement of a sale of the business agreed by the exchange of faxes of 20 September 1993, not one of conclusion of negotiations leading to an agreement and concurrent settlement. Mr O’Halloran and Mr Pullen must have decided to use Dale, and the business was vested in it in that it in fact became the trading entity. If Mr O’Halloran said something to the effect that the business would be bought by a company, or even by Dale, that was no more than a nomination by Mr O’Halloran, as the party to the agreement concluded on 20 September 1993, of the trading entity to take over the business.

41 Nor do I think that, so far as Dale was treated as the purchaser of the business in the period after 20 September 1993, an agreement with Dale rather than Mr O’Halloran is established. There can not have been an agreement with Dale as at 20 September 1993, and any such agreement must have been made thereafter. Again it is necessary to describe that treatment, or at least what Mr O’Halloran relied on for that treatment.

42 Mr O’Halloran first relied on the opening of Dale’s bank account as I have already described. But nothing was said at the settlement to Mr Pitt, the vendor, about Dale, and Mr Fitzgerald was not told that it would be the purchaser. Mr Fitzgerald was not even told that would be the new trading entity: Mr O’Halloran said that he did not know, but it was a clean company. At best, this could be seen as preparation for Dale to be the new trading entity, nominated to take over the business by Mr O’Halloran as the party to the agreement. Settlement, of course, was the latest time one would expect conclusion of the terms of the agreement for sale, including the identity of the purchaser. The purchaser can not have been Dale, because even at settlement Mr O’Halloran said that he did not know whether it would be the new trading entity.

43 Beyond settlement, in the months which followed there came to be correspondence in which Mr Pitt and Mr Fitzgerald referred to Dale.

44 Initially Mr Pitt wrote simply to Mr O’Halloran about the purchase of the business, including chasing up payment for stock and an accounting for debts collected (28 September 1993, 13 October 1993, 25 October 1993). He then wrote to “Mr James O’Halloran, Dale Developments Pty Limited” chasing up payment for stock and an accounting for debts collected (4 November 1993), and to “Mr James O’Halloran, Jeffries Industries Ltd” (15 November 1993): this letter referred to money “you” owed, and may or may not have treated Dale as the debtor. Mr O’Halloran responded with a personal letter enclosing “my cheque”, on the basis earlier mentioned probably a cheque of H & J Hotels Pty Ltd. On 8 February 1994 Mr Pitt wrote to Mr O’Halloran specifically claiming a debt owing by Dale and, despite equivocal references to “you” and “your”, treating Dale as the purchaser.

45 Mr Pitt also wrote to the solicitors for Denwick. His letter of 7 December 1993 said that the business had been sold to Dale, and his letter of 28 June 1994 said that the premises had been occupied since 27 September 1993 by Dale “who purchased the business from myself as Receiver and Manager of Penrit Pty Ltd”.

46 Mr Fitzgerald’s correspondence began in February 1994, when Denwick first made demand on him. He wrote to Mr O’Halloran on 26 February 1994 asking for payment of “Dale’s share” of rates, and again on 25 March 1994 asking for reimbursement by Dale of its share of outgoings. In September and October 1994 he wrote to Mr O’Halloran pressing for payment, without specific reference to Dale, but on 1 December 1994 wrote saying that he had still not received reimbursement from Dale.

47 What this shows is initial treatment of Mr O’Halloran as the purchaser of the business, followed by increasing treatment of Dale as the purchaser. But it must be asked why Dale came to be treated as the purchaser to the extent it was. It is obvious that neither Mr Pitt nor Mr Fitzgerald was particularly sophisticated in his dealings with Mr O’Halloran, or knowledgeable of or careful in legal correctness. It is not unusual for lay persons to focus on the practical outcome of their dealings and misstate their legal effect. The practical outcome was that Dale had taken over the business, and had done so as the trading identity yet to be identified in Mr O’Halloran’s fax of 20 September 1993.

48 Mr Fitzgerald was not asked anything about his correspondence, but Mr Pitt was, and his responses were to the effect that he accepted the reality that Dale was in occupation of the premises and operating the business. He first referred to Dale in the letter of 4 November 1994 after someone in the business “advised me that that was the name the business was trading under”. When he wrote to the solicitors for Denwick he intended to convey that the business was being conducted by Dale and it would be taking a transfer of the lease, and although he referred to it as the purchaser of the business -

“Q. That’s the view you took at that time, the business had been sold to Dale Developments? A. At that time Dale Developments was operating a business and I had accepted the situation that they were in possession of the premises and would be taking over the assignment of the lease.

Q. So you would have looked to Dale Developments for any breaches of the sale agreement wouldn’t you. A. No, no.”
And Mr Pitt said that he claimed debts from Dale “as the then operator of the business”; “I was looking to James O’Halloran initially as he was the person that I’d dealt with. Dale Developments simply became a name to me”.

49 Mr Pitt agreed that he “accepted that they [Dale] were the purchasers and it was their responsibility to carry out the obligations of the sales agreement”, but affirmed that Dale had become known to him only after what he described as acceptance of the offer and in substance said that what followed was because Dale was occupying the premises and carrying on the business. In my view, the weight to be given to this correspondence in deciding whether a concluded agreement was made in the exchange of faxes of 20 September 1993, and whether thereafter Dale was or became the purchaser of the business, is small. The references to Dale, and the treatment of it as the purchaser of the business, were unsophisticated, and were due to its taking over the business in the manner I have described. I do not think that they reflect back on the events leading to the exchange of faxes, or the exchange of faxes, with the effect that no concluded agreement was made at that time and the sale of the business was by payment of money and handing over the business on 27 September 1993, or that they establish that by novation or abandonment of the agreement made on 20 September 1993 in favour of a separate agreement between Penrit and Dale, Dale became the purchaser of the business.

50 I return then to the submissions presented on appeal in relation to Mr O’Halloran’s liability.

51 For reasons which will by now be evident, I consider that a concluded agreement came into existence on 20 September 1993. It was made by the exchange of faxes, and Mr O’Halloran was a party to the agreement as the purchaser.

52 An argument put by Mr O’Halloran not falling within what I have already said was that there was no concluded agreement by the exchange of faxes of 20 September 1993 for the short reason that Mr Pitt’s fax was not an acceptance of the offer in Mr O’Halloran’s fax, but a counter offer. That was so, it was said, because Mr Pitt rejected para (4) of the offer by insisting that the equipment leased from AGC be included when the offer required that the value of the equipment equate the value still owing on the lease. I do not think that is so. Mr Pitt accepted all Mr O’Halloran’s terms and conditions. He said that inclusion of the leased equipment was “basic and essential to the agreement”, but that did not reject Mr O’Halloran’s terms and conditions so far as they required that the equipment have a particular value. And it must have had an appropriate value - the settlement took place without further debate.

51 I do not think that the agreement was novated so as to substitute Dale as the purchaser in place of Mr O’Halloran, or (which on the present facts would be much the same thing) that the agreement was abandoned in favour of a fresh agreement between Penrit and Dale. No doubt a novation may be implied, see McLeod v Cardiff Colliery Co NL (1925) VLR 1 at 6; cf Olsson v Dyson (1969) 120 CLR 365 at 369, 376, 390, especially at 390 concerning abandonment in favour of a fresh agreement. But on the facts I have described it did not happen.
52 Mr O’Halloran argued that on its proper construction, or by implication, the agreement entitled Mr O’Halloran to substitute the new trading entity, when identified, in his place. Such a view of the agreement would be unnecessary for novation or abandonment in favour of a fresh agreement, although it could assist a finding of a fresh agreement. I do not think it is a correct view. Rather, while it was contemplated that the new trading entity would conduct the business, for the reasons I have explained at most the agreement entitled Mr O’Halloran to cause the business to be vested in it by what I have called some equivalent of a transfer by direction.

53 Nor did the facts revealed in the evidence, even the later correspondence to which I have referred, establish the making of a fresh agreement between Mr Pitt and Dale in consideration of the extinguishment of the obligations of the agreement (Olsson v Dyson at 388-90), or a fresh agreement following the abandonment for which Mr O’Halloran contended. For what it matters, Mr O’Halloran’s evidence did not so describe what occurred - it could not, since he denied that he was a party to the agreement. I have already referred to Mr Pitt’s evidence, which points to late recognition that Dale had taken over the business and erroneous regard to it as the purchaser, rather than to the making of a fresh agreement. The part assumed by Dale, however, was as the vehicle by which there was performance of the agreement by Mr O’Halloran, not as the purchaser under a fresh contract.

54 In my opinion Sinclair DCJ was correct in concluding that Mr O’Halloran was and remained the purchaser of the business. At least on appeal, it was not in issue that, in that event, he was liable in damages for breach of the promise, in para (3) of Mr O’Halloran’s fax of 20 September 1993, that the lease of the premises would be taken over by the new trading entity and the directors would be released from any liability.

Mr Fitzgerald’s entitlement

55 Mr O’Halloran accepted on appeal that Penrit’s liability to reimburse Mr Fitzgerald for the amounts Mr Fitzgerald had paid to Denwick as guarantor was sufficient for Penrit to be entitled to damages in the amount of the judgment. The contest was over Mr Fitzgerald’s entitlement.
56 The contest may have been pointless. Mr Fitzgerald had a charge over Penrit’s assets and undertaking. He would probably get the benefit of Penrit’s recovery from Mr O’Halloran, and if so he would not need his own verdict. Unfortunately, the Court could not be informed on whether there was point in a separate entitlement in Mr Fitzgerald.

57 The only explanation given by Sinclair DCJ for the verdict in favour of Mr Fitzgerald, as distinct from the verdict in favour of Penrit, was in the third of his conclusions earlier set out -
“3. I find that having met the contractual obligation of Penrit in respect of the money claimed by the lessor, pursuant to his liability as guarantor of the lease, the second plaintiff is entitled to a verdict against the defendant.”

This was not an adequate explanation. Mr O’Halloran’s liability was not a joint liability to Penrit and Mr Fitzgerald. His Honour did not refer to any of the ways in which Mr Fitzgerald’s claim had been put in the statement of liquidated claim. The fact that Mr Fitzgerald as guarantor had met Penrit’s obligations under the lease did not of itself give him any rights against Mr O’Halloran.

58 According to a notice of contention, the verdict in favour of Mr Fitzgerald was to be supported on appeal on the grounds -
“That the Second Plaintiff was entitled to enforce the contract between the First Plaintiff and the Defendant.

3.1 As a third party beneficiary under the contract between the First Plaintiff and the Defendant
3.2 As the beneficiary of a trust created by the Agreement of 20 September 1993 whereby the First Plaintiff and trustee for the Second Plaintiff entered into an agreement with the Defendant whereby the Defendant would release the Second Plaintiff from any liability under the lease.”

59 In submissions, however, Mr Fitzgerald put two arguments for upholding the verdict in his favour, arguments which went beyond the notice of contention. He acknowledged that he was not a party to the agreement. He did not seek to take up the originally pleaded reliance on principles of subrogation or s 3 of the Law Reform (Miscellaneous Provisions) Act 1965. The arguments were for a collateral contract and for a trust of the promise to Penrit.

60 The argument for a collateral contract was that Mr Fitzgerald had drafted the fax sent by Mr O’Halloran on 20 September 1993, that the promise in para (3) of the fax benefited Mr Fitzgerald, and so there was a collateral contract. What the collateral contract was remained a mystery. Why the argument resulted in a collateral contract was also a mystery. In traditional language, if there were a collateral contract it would relevantly be a promise by Mr O’Halloran to Mr Fitzgerald (and presumably the other directors) in the terms of para (3) of the fax, given in consideration of Mr Fitzgerald promising something or doing something. When Mr Fitzgerald’s solicitor was asked what Mr Fitzgerald might have promised or done, it was said, “I can’t answer that, I can’t point to anything specifically other than to say well he may have done something else …”. In my opinion, the argument for a collateral contract was without substance, and the verdict in favour of Mr Fitzgerald can not be supported on that ground.

61 The argument for a trust of the promise to Penrit was initially mixed up with, but then separated from, an entitlement in Mr Fitzgerald to enforce the agreement between Mr O’Halloran and Penrit as a third party beneficiary under the agreement although not a party to the agreement. Direct enforcement of the agreement, as the third party insured had been held entitled directly to enforce the contract of insurance in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107, was in the end no part of Mr Fitzgerald’s argument. The argument was that Mr O’Halloran’s promise to Penrit, relevantly in the terms of para (3) of the fax, was a chose in action, that Penrit held the chose in action on trust for Mr Fitzgerald, and that Mr Fitzgerald was therefore entitled to the verdict in his favour.

62 There are at least two preliminary difficulties with this argument which it is unnecessary to explore. They were touched on, but not explored, in submissions. First, if there was a trust of the promise it would seem that the other directors were beneficiaries under the trust together with Mr Fitzgerald: should they have been joined in the proceedings when the trust property was in issue? Secondly, the District Court had a very limited equitable jurisdiction: did it extend to relief in favour of Mr Fitzgerald on this ground?
63 I do not think it necessary, either, to express a view on whether Penrit held a chose in action, being Mr O’Halloran’s promise to Penrit or perhaps the cause of action for breach of the promise (the argument did not distinguish between them), on trust for Mr Fitzgerald. When there will be a trust of a contractual promise, and the readiness of the courts to find such a trust, are vexed questions, and it is sufficient to refer to the discussion in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd at 120-21, 135-41, 146-9, 153-4, 157-8, and 166. This was not a good case in which to invite a court to take up the trust of a promise in order to escape the privity rule. It might be thought that in the present case there was nothing more to justify the inference of a trust than the fact that the promise, if fulfilled, would benefit Mr Fitzgerald, and nothing from which it appeared that the parties intended that there should be a trust - especially since Penrit had a direct interest in fulfilment of the promise that the lease would be taken over and, because of its primary liability, in the fulfilment of the promise that the directors would be discharged. There is no point in adding to the existing vexation.

64 Where the argument fails, if all else in it be assumed, is in the step to a verdict in Mr Fitzgerald’s favour. In Trident General Insurance Co Ltd v McNeice Bros Pty Ltd at 147-8 Deane J said -
“Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant.”

Penrit did bring an action to enforce the promise, and has a verdict in its favour for damages. The damages are compensation for Penrit’s liability to Denwick, but any damages compensating for Mr Fitzgerald’s liability to Denwick would be in respect of the same amount - there might be two legal bases for the damages, but the damages are in substance the same. Mr O’Halloran can not be liable to pay twice. If Penrit’s liability to Denwick be put aside, where Penrit is plaintiff it will obtain a verdict in its favour for the damages sustained by Mr Fitzgerald (see per Deane J above). In either case, Penrit is the correct plaintiff and the verdict is in favour of Penrit, not Mr Fitzgerald. If there be a trust of the promise, it may be that Penrit holds its verdict or the proceeds of its verdict on trust for Mr Fitzgerald, but Mr Fitzgerald is not entitled to his own verdict.

65 In my opinion, therefore, Sinclair DCJ was in error in moving from Mr O’Halloran being a party to the agreement to a verdict in favour of Mr Fitzgerald as well as a verdict in favour of Penrit. Mr Fitzgerald was not entitled to a verdict in his favour.

Orders

66 I propose the following orders -

1. Appeal allowed in part.
2. Set aside the verdict and judgment for the second plaintiff.
3. In lieu thereof, judgment for the defendant as against the second plaintiff.
4. No order varying the order for costs made by Sinclair DCJ.
5. Order the first respondent to pay one third of the appellant’s costs of the appeal.
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