Oates & Anor v Pegela Pty Limited & Anor [2011] HCATrans 29

[2011] HCATrans 29

[2011] HCATrans 029

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S235 of 2010

B e t w e e n -

TOM MICHAEL OATES

First Applicant

PAUL OATES

Second Applicant

and

PEGELA PTY LIMITED (ACN 002 256 751)

First Respondent

GARRICK HAWKINS

Second Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 FEBRUARY 2011, AT 11.07 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR J.C. HEWITT, for the applicants.  (instructed by Thompson Eslick Solicitors)

MR T.F. BATHURST, QC:   If it please the Court, I appear with my learned friend, MR J.S. DARAMS, for the respondent.  (instructed by Eakin McCaffery Cox)

FRENCH CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, the dealings out of which the controversy arose can be summarised for present purposes as follows.  The possibility of some potentially very important litigation having arisen which would engage the parties before you on the one side, that is, the claimant’s side, the question of sharing costs came up and following discussions in early 2001, by March 2001, on the findings beyond scrutiny in this Court there was an agreement reached as a result of words uttered in conversations for what can be called a 12 per cent share on our side of the record.  I do not want to suggest that it was as neat as that at trial, it was not, it was contested, but that is now clear. 

Thereafter not much happened, to quote the expression found at page 12 of the application book, paragraph 32, and that is just one of the first of the features, if I can put it this way facetiously, typical of the dealings; not much had happened in the big litigation.  Other things altered concerning the positions of parties or potential parties in the litigation and when matters then resumed again as a result of a retainer to take forward litigation on my learned friend’s side of the record, there then commenced in the second week or so of November 2001, so about eight months later, an exchange of emails, the material parts of which we have tried to set out in all their relevant detail on pages 99 to 101 of the application book.

Thereafter there followed, from October 2002 and shortly thereafter, a series of dealings which can be summarised as demands and acquiescent payment in response to demands based upon 12 per cent.  The rub, of course, comes that the week long exchange of emails very plainly was not 12 per cent.  As plainly as one could possibly imagine it, it is not merely on both sides the joining in the use of the fraction one‑twelfth, there is also, if one can put it this way as a matter of sound clerical practice, the expression of one‑twelfth as a near approximation as a percentage; you have seen the writings.

Now, the way in which the parties joined issue on this may be a little odd, but that does not tell against us on special leave because all those oddities have been resolved by the findings.  Leaving what is, we submit, the very usefully typical, shortly told, but typical, to and fro of the commercial balance between parties in an ongoing or potentially ongoing relationship, adjusting to circumstances, renegotiating, query varying, et cetera, their arrangement.  That is not likely ever to stop.  No amount of judicial deprecation of the poor practice of not clerically dotting i’s and crossing t’s in contracts will ever change the perfectly sensible human nature of allowing things to be more or less informal.  In this case, we have that which was also another important characteristic of typicality for the case, the exchange now by email rather than by letter, of course, but the exchange of correspondence in a way where a record is kept so as always to enable the archive to reveal the fact. 

Now, why does it matter?  Why is this a special leave case rather than simply a decision on what might be called the facts of the particular case?  Well, first, the facts are typical in the characteristics I have already put.  Second, the approach of the Court of Appeal, particularly the reasons of the learned President agreed in by Justice McColl, very starkly show an approach to the question of whether a contract has been formed and if so, in what terms, which, in our submission, represents an undesirable move – I do not want to say radical, but it is more than merely incremental – in favour of the let it all in approach to the evidence of dealings between the parties and, worse still, evidence of subjective intentions of parties.

Let me make that good by going to pages 48 and 49.  I had better tackle something that is peculiar to the case but not so as to disqualify from special leave, given its nature.  See on page 49, paragraph 8, first sentence, about line 15 on the page.  It is said:

At no time in November 2001 did the parties evince an intention to vary the contract that had been made in March 2001.

Now, that sounds like a finding of fact, it is certainly expressed that way, but when one looks at the exchange of emails, the material parts of which start at the foot of page 99 of the book, it is just plainly wrong.  It could not possibly be the case, bearing in mind that there is from the other side of the record, on 9 November – see in our paragraph 12 on page 99 – a very important reference to a changed circumstance, a very important changed circumstance, showing that the agreed basis was considered by the writer of the email, who, by the way, disavowed the email, although that is now another of the fallen away factual issues.

He there says, we need to, in effect, think about it.  Furthermore, we need to negotiate.  See the top of page 100, “then let’s talk”.  Otherwise, and what then follows, he is talking about the need to move away from, to regard as superseded or anachronistic, the existing arrangement.  This really shows that the first sentence of paragraph 8, if I may put it this way, Homer nodded.  That simply cannot be a correct reading of the emails, including most signally from the other side of the record.

BELL J:   Why is it not a finding of fact?

MR WALKER:   Well, your Honour, if it is a finding of fact, it is certainly one well and truly within the grasp of this Court not to regard as the slightest obstacle either to this being a very suitable vehicle in its typicality to consider the important issues of principle, plus also a finding of fact on which we enjoy very good prima facie prospects of overturning it.  When one looks at those emails, there really is – it is not suggested that there are any conversations that inform.  The oddity of the position was that Mr Tyne was quite unable to explain anything about the emails because for a long time – though he has now given that up – for a long time he simply said they were not genuine.

BELL J:   It is just that when one looks at the way the case proceeded, at application book 5 there is reference to the primary case pleaded in the further amended statement of claim and that was that we were dealing with an oral agreement formed in or about March 2001.  Now, there are concurrent findings of fact which you accept in that respect.

MR WALKER:   Yes.

BELL J:   So then one comes to the characterisation by the Court of Appeal.  It is just you say, well, the fact‑finding exercise that the Court of Appeal embarked upon in order to conclude that there was no variation was attended by error, but it does rather put your special leave questions in a different light because your special leave questions assume that one has an exercise involving the construction of an agreement recorded in a series of emails and, of course, that is contrary to the finding of the court.  Now you say, well, that is a fact‑finding that they should not have made.

MR WALKER:   Yes.  When one looks at the correspondence, the first thing that can be said is, all that is said against it being effective is that it contains what has been called, very generally and requiring further analysis, a mistake.  It is not said that it was an exchange that was not had, that had been contested and now that is put to bed.  It is not said that it was not intended to affect legal relations and any reading, cursory and more considered, of the exchange of correspondence shows that the parties, the interlocutors in that correspondence were saying, “We have to adjust our arrangement to the changed circumstance that you cashed in some policies.”

There was obviously a consideration about what I might call a starting point in terms of negotiation of what they called pro rata and then a beefing up, obviously, to reflect what might be called – my expression – the handling problem of having small fry along with you in the litigation.  That was also, very importantly – and something that the trial judge held, and this is not contested – was a new and important component in the arrangement being bargained for and agreed, namely, you will stay in and you will not pull out because you get cold feet, you will stay in on a majority rule.

Now, that is highly significant, in our submission.  All of those words and that dealing amount to this – and I am not, with respect, contesting the way Justice Bell has put it to me.  I am embracing it and trying to turn it to my advantage to get special leave.  There is a clarity of the position, true, as to a factual finding between these parties which really permits of no sensible contradiction.  They intended to be altering their relations once you accept these email correspondence was genuine.  They did change their arrangement.  I will leave the one‑twelfth to one side at the moment.  They certainly changed it in terms of you will stay the course and you will accept majority decision. 

In our submission, the only question that then arose was, what, if anything, did this do to the initial conversationally agreed 12 per cent?  Justice Young paraphrases, with respect, usefully the way in which the other side of the record put the matter when claiming the money.  See page 55, paragraph 33, and the paraphrase in what his Honour has numbered 5B.

FRENCH CJ:   Well, he is summarising the pleading there, is he not?

MR WALKER:   Yes, summarised the pleading, that is my point.  He is summarising the pleading.  So that the plaintiff accepted as one of the alternatives they should deal with that there had been a one‑twelfth funding agreement made, and they went on and said, well, that one was varied.  Now, that, with respect, is something upon which there is a failure, namely, was there a variation by the demand and acquiescence, and here there are no doubt ironies between the parties, one or other side depending upon the issue, saying that they must have been mistaken.  On any view, people had forgotten the email exchange, but the email exchange is now a clear finding of fact and that is why pages 48 and 49 invite attention from this Court, particularly as to what is found in paragraph 9.  Before coming to that, at paragraph 6 his Honour refers to a:

conclusion as to the agreement in March 2001 –

and we interpolate, but, of course, then the issue was, was that varied or discharged by further agreement in November 2001?  As to that, his Honour then says that –

The references in November 2001 to 1/12 or 8.3 per cent can be seen objectively to have arisen –

and he talks about the original level.  Then his Honour points out –

The original level was 12 per cent, not 1/12.

Now, it may well be that “original level” might have been interpreted as being starting with a pro rata idea, which would certainly explain it because we see that in the negotiation, but we can put that detail to one side.  What we do know is for whatever reason the mistake so‑called was engendered, the expression plainly was use one‑twelfth, not 12 per cent.  His Honour makes absolutely critically clear as a matter of judicial approach that he is taking into account not only what led up to the November 2001 exchange, but also what followed nearly 12 months later.

BELL J:   In order to determine whether or not there was, as the primary judge found, a variation?

MR WALKER:   That is right.  Now, he was not doing it on the basis that there was no intention to affect legal relations by the correspondence, but merely that, for example, it was not being held that there was no stay and be bound by a majority decision term.  That was never held.  That was not disputed.  What is being held is that it was 12 per cent, not 8.3 per cent.  Now, what follows, in our submission, is that there has been a decision by going to what happened afterwards which has overlooked the critical importance in this and in many typical commercial dealings of stopping and asking what the dealings of the parties reveal at the time of the dealings in question as to the existence of any contracts and if so, on what terms, because people can and do alter their contractual arrangements by variations, et cetera.

In this case, to ask what happened before was really only to point out the state of affairs that the parties were overtly considering changing.  That much is clear from the correspondence.  So it has some significance, particularly given the phrase that his Honour refers to, but it is obviously not conclusive.  What happened afterwards is on plain authority, we would submit, not available for the interpretation of what happened in November 2001.  The other question that arises is, is there some penumbra or different, perhaps overlapping area of legitimate discourse where you can take into account what happens 11 months later to understand the meaning or the import or the contractual effect – and those phrases are not exactly synonymous as between them – of words which factually you can be confident were used?

Now, there is no doubt factually about the words used in the correspondence.  Did one‑twelfth mean 12 per cent?  That is one way of framing the question.  There was no rectification sought, that is clear.  Did therefore one‑twelfth, 8.3 per cent, mean 12 per cent as a matter of interpretation?  It is impossible to detect so from the exchange of email.  It is impossible to hold that the email exchange did not envisage the possibility of a changed arrangement, because, after all, it was announced, and starting on the other side, as being an occasion upon which they should consider a changed arrangement, the overt possibility being that there should be no arrangement if they could not agree on an adjustment of their rights and obligations.

It is for those reasons, in our submission, that when you come to page 49, having dealt as I have with the first sentence of paragraph 8, one then comes in paragraph 9 to the crux of the majority reasoning.  The fact that there was no conversation, with respect, is really a red herring.  Indeed, it is a little odd in terms of factual findings to observe of the fully documented, incontestably clear matters of fact as to what was expressed in email correspondence that there were no accompanying conversations.  Particularly it is odd in terms of where onus of persuasion lay, even in the Court of Appeal, given that Mr Hawkins was not called, a matter that was significant for the trial judge.

Then in the last sentence of paragraph 9 there is, in our submission, a matter which highlights the importance given the state of the authorities and the doubt expressed, even reasonably in Cross on Evidence on the matter, concerning the way in which so plainly, so starkly and so decisively the Court of Appeal used the October 2002 and following dealings.  His Honour there says:

Their subjective appreciation is irrelevant –

So paying obeisance, if I can put it that way, to what in ARF was treated as well established.  He then goes on –

the fact of this lack of appreciation –

that means a lack of subjective appreciation –

of any arrangement as to the share being 1/12 does assist in the objective conclusion that the communications between the parties – oral and written – must have been such as, objectively, would strike a reasonable person that the agreement was 12 per cent not 1/12.

Now, what is in question is a view of a court applying the objective theory of contract, Taylor v Johnson, as to what is to be gathered from the

November 2001 emails, bearing in mind that they followed the March 2001 conversational agreement as to 12 per cent.  If we are right and they plainly show the parties we are reconsidering the position, then there is nothing else, certainly not from the March 2001 conversation, that could induce doubt as to the one‑twelfth or 8.3 per cent.  It follows, in our submission, that unless there is to be by this authority an established further use which will unquestionably in practice be taken up as an invitation, in our submission, the case is an ideal one for special leave.

BELL J:   When you talk of the case as an authority that might be used in future cases, I do not understand you to identify any wrong statement of principle, but, rather, to point to a factual finding by the Court of Appeal with respect to the construction of the emails in November 2001 that you say just plainly was not open.

MR WALKER:   No, we go much further.  I go the necessary step further.  We say paragraph 9 and that last sentence is a wrong statement of principle.  You cannot use subjective material to yield objective without a form of alchemy the court should not encourage.  We really do need to have limits on how one practically litigates contractual disputes about whether there is a contract and if so, what it says, and also having established that, what it means, and the court has, with respect, valiantly attempted to hold the line in terms of subsequent conduct.  In our submission, this line has now become utterly blurred and it should be redrawn.

FRENCH CJ:   Thank you, Mr Walker.  Yes, Mr Bathurst.

MR BATHURST:   This, in our respectful submission, was a routine application of normal principles by which a court would determine whether a pre‑existing contract was varied.  One can pick that up this way.  If your Honours could go to page 5 if the book, paragraph 15, the learned trial judge articulates the defendants’ original case:

The defendants’ case is that they only ever agreed to pay one‑twelfth (8.33%) of the costs.

As a matter of fact – and this fact is not the finding – the judge rejected that and said, the original agreement – and I emphasise the word “original” – was 12 per cent.  Could the Court then go to page 99 of the book where the emails are set out.  The first email at the foot of the page:

I didn’t realise that you and Paul were going to cash in almost half your policies.  Sharing legals on this basis (you wearing 1/25th) –

which was the wrong basis –

hardly seems worth it to me.

So it was a question of whether it was worth these people staying in.  Then the next email:

Can we discuss AXA?

The following email, 12 November:

If you (or you and Paul) are hell bent on suing them and are prepared to contribute at the original level –

and then it says, we accept, say, 12 per cent.  The next email, which is referred to in paragraph 15:

We’d still like to proceed against AXA, and to take you up on your kind offer –

There was no variation, there was no additional terms as to staying in, there were certain assurances sought that he would not pull out, but they, on the Court of Appeal’s finding, did not amount to a change of the contract.  The court then looked at, as we submit it is entitled to do, subsequent conduct to determine whether or not it was a variation.  They did not look at subjective intention, they rather looked at the fact that until the applicant’s position, up to the time of the proceedings, was that it was prepared to pay 12 per cent.  That appears, if your Honours could go to page 109, paragraph 8 of our submissions, summarised emails of 10 and 16 December:

costs would be a minimum of $1.5M and requested $170,000 being 12% –

that was paid.  On 23 August, a further 12 per cent, the applicant stated that was the deal:

… As to the current amount I owe . . . Pegela in relation to costs incurred to date, you have quite reasonably said you require my share to be met forthwith.  … Accordingly, I am making arrangements to do so –

When the proceedings started the applicants did not rely on these emails at all, but they said it was always one‑twelfth.  It was only when the emails emerged, they relied on them.  Now, that was the factual issues confronting the Court of Appeal.  It is clear, in our respectful submission, that they considered it was a question of fact.  Justice Young at page 58 of the book, paragraph 44, articulates the issue.

The appellants submitted below and to us that what happened on and after October 2002 showed that either the original agreement had not been varied or that if it had been varied then it was subsequently further varied to make the rate of contribution 12%.

The fact that the learned judge was aware of the principles as to which post contractual conduct could be used is apparent from paragraph 77 of his Honour’s judgment, page 64, for some reason it is stated “2(b)”:

The admissibility and relevance of post contractual behaviour depends to a large degree on why it is that the person presenting the evidence convinces the court of its relevance.  It is clear that such evidence is not receivable on the interpretation of the contract –

Then in paragraph 78:

However, it is admissible to show that there is in fact and in law a contract –

Now, the court, Justice Allsop, in our respectful submission, in paragraph 8 reaches a conclusion on intention to vary:

At no time in November 2001 did the parties evince an intention to vary –

It is the same factual conclusion.  In paragraph 9 he recognises that:

subjective appreciation is irrelevant, but the fact of this lack of appreciation of any arrangement as to the share being 1/12 does assist in the objective conclusion that the communications between the parties – oral and written – must have been such as, objectively, would strike a reasonable person that the agreement was 12 per cent not 1/12.

All his Honour is simply saying there is, well, when one looks at the subsequent conduct, it was not varied.  Now, I have taken the Court through that in a little more detail than perhaps one normally would because it is simply to demonstrate that a consideration of this issue just does not give rise, in our respectful submission, to any of the special leave questions which are sought to be agitated, and for that reason special leave should be refused.

FRENCH CJ:   Yes, thank you.  Yes, Mr Walker.

MR WALKER:   Your Honours, nothing my friend has said seeks to contradict, even to qualify, the proposition that subsequent conduct was

looked at in order to understand expressions which parties plainly used seriously in a contractual context.  This was neither a casual, nor, as it were, without prejudice, situation between them.  It therefore comes down simply to this, whether the conduct of demands and payments in response to a demand show anything other than subjective intentional belief and, of course, they cannot. 

That is the whole underlying principle against the general prohibition, still current in this Court, on using subsequent conduct to construe the words of a contract.  You do not do it because the reason people may act in a particular way are obviously actuated by their (a) motivations at the time they act, (b) beliefs at the time they act, assuming they are sincere, and (c) by circumstances which may postdate without having altered the contract.  Thus, for example, as extra curially Justice Heydon has pointed out in Cross, there are explanations which are opposite in their implications when somebody gives into a demand which is in accordance with one party’s but not the other party’s view of the contract, and one of them is indulgence, another might be, as in this case, accepted by the trial judge, forgetfulness. 

In our submission, it is for those reasons that the practical import, which is very considerable, cuts across all manner of contractual litigation, of working out what the line is and how it is to be administered, arises very starkly and conveniently in this case.

FRENCH CJ:   Thank you, Mr Walker.

In our opinion the approach taken to the evidence by the Court of Appeal focused on the question whether there had been a variation of the earlier contract.  Otherwise, it was not attended by sufficient doubt to warrant a grant of special leave.  There are insufficient prospects of success if special leave were granted and the application will be refused with costs.

AT 11.37 AM THE MATTER WAS CONCLUDED