Sagacious Procurement Pty Limited (Subject to Deed of Company Arrangement) v Symbion Health Limited

[2009] HCATrans 23

[2009] HCATrans 023

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S407 of 2008

B e t w e e n -

SAGACIOUS PROCUREMENT PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Applicant

and

SYMBION HEALTH LIMITED (FORMERLY MAYNE GROUP LIMITED)

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 FEBRUARY 2009, AT 10.43 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:   May it please the Court, I appear for the applicant with my learned friends, MR M. GREEN and MS E.M. PEDEN.  (instructed by (Sagacious Legal Pty Limited)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR D.R. PRITCHARD, SC, for the respondent.  (instructed by Freehills)

GUMMOW J:   Yes, Mr Bennett.

MR BENNETT:   May it please the Court.  The issue in this case was whether a letter was contractual.  Might I just show your Honours, to show your Honour what the point is, the letter which is set out in full at pages 218 to 225 and the relevant passage is at page 224.  Your Honours see on page 224 at line 30 the letter says:

Sagacious and Mayne acknowledge and confirm that they are bound by these terms and conditions and will act in good faith to expedite the finalisation of the Service Level Agreement –

and so on.  Then at the end, line 30 on the following page, the facing page:

I hereby acknowledge and accept the terms and conditions as outlined above –

The other side signs it.  Your Honour, what the court did, both at first instance and on appeal was embark on an elaborate Masters v Cameron exercise involving prior and subsequent conduct and conversations and other documents and an analysis of the terms and what needed still to be worked out and what might be changed and said, “Well, on balance this is a case where there is no contract on the Masters v Cameron tests”.

Our special leave point is very simple.  We say when the parties say, “We acknowledge we are bound by these terms and conditions” or “this is a binding contract” or words to that effect, end of inquiry, and there is no Masters v Cameron question to be decided. The parties have under their freedom of contract told the court the answer to the question and one just does not need to. Instead, what happened here was, there was a 16‑day trial before Justice Einstein and his Honour’s judgment at page 94 dealt with the matter and said this – this is paragraph 199:

Nonetheless one is left with requiring to cope with why the 16 April letter was countersigned by Mr Dalton, if it were not to be regarded as a binding agreement.  This is one of the mysteries of this case, particularly so in the light of Mr Dalton having sworn in the statutory declaration that he had considered that the letter countersigned by him indeed procured an agreement to secure Sagacious’ procurement services for the next 2½ years.  The balance of probabilities –

this is the error –

seems to me to suggest that the intent may well have been that the only part of the arrangement posited in the 16 April letter which would bind the parties, was . . . intermediate short-term position . . . And this although no witness gave evidence to this effect.  As already indicated any such intent was not documented with sufficient precision for the court to be able to hold a binding agreement to this effect.

Perhaps all that may be said about this mystery is that (1) the Court reaches its findings based upon all of the evidence before it; and (2) that the communications between the parties, both before, as well as following the countersigning of the letter by Mr Dalton, are strong indicators –

wrong test again –

that the letter was never intended by the parties to operate immediately in the terms of a long term binding agreement.

Although it said so, we interpolate.  The Full Court made the same error.  Its error appears at page 178, paragraph 67:

As I have indicated, Sagacious submitted that the trial judge should not have looked beyond the April letter.

That is effectively our submission on appeal –

It submitted that what it described as “extra‑contractual evidence” had no significance, because –

and he sets out various words from the letter.  Then in 68:

Where the question is whether a document constitutes a legally binding contract, McHugh JA said . . . “the decisive issue is the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances”.  However, there is the prior question whether the document is the sole repository of the parties’ contractual intention.

They then talk about “subject to contract” cases where the subject to contract may be a starting point.  Then, 69:

The answer to what can generally be described as a Masters v Cameron question is not necessarily fond in a single document.

We say, but it can be and is if the document says it is contractual.  That is just the end of the inquiry, we submit.  The error is repeated in paragraph 70 on the next page:

Even in construing the April letter as a contract, regard could be had to evidence of surrounding circumstances.  Putting that aside, I do not think the signature of the April letter closed off regard to the circumstances in which the letter was sent and signed and to the conduct of the parties thereafter.  The prior question remained.  Although Mr Dalton signified Mayne’s acknowledgement and acceptance of ”the terms and conditions outlined above”, where there is a Masters v Cameron question it must still be asked whether what was thereby signified was with the intention that the parties be immediately contractually bound –

et cetera.  We submit that is just wrong.  There is not a Masters v Cameron question where you say this is a binding contract.  That is the special leave point.

I should just mention a couple of minor things about the letter because of the suggestion that the binding part was only the intermediate arrangements.  Your Honours see the letter begins:

We would like to initially take this opportunity to thank you for your time to date, and feel that we have met a targeted proposal . . . Our far reaching objective of securing and strengthening our long term relationship with Mayne is also achieved under this agreement.

This proposal merges all the terms and conditions which have been negotiated . . . Accordingly, this letter supersedes all previous correspondence . . . 

The Sagacious proposal to Mayne is –

and then there is the term of this agreement, in 1.1(a), etc.  Paragraph 2 on 221 at the top of the page:

Sagacious will provide its services (as described in this proposal) to Mayne for a period commencing 1 May 2002 through to December 2004 (or any further period as agreed) –

and then the important part on page 224, 7(b), the paragraph before the one I took your Honours to:

The individual components of the proposal, as outlined above (sections 1, 2, 3, 4, 5, 6 and 7) -

that is all the sections up to line 32 –

are interdependent in terms of the rights and obligations imposed upon Mayne and Sagacious.  For the avoidance of doubt, it is understood that neither Sagacious nor Mayne can arbitrarily remove any term ‑ ‑ ‑

GUMMOW J:   What is the significance of 7(c)?

MR BENNETT:   Well, 7(c) is the key element.  It is saying, in effect, “This is contractual.  Don’t ask yourself a Masters v Cameron question, court.  We are giving you the answer in this paragraph.”  That is what it says, your Honour, in my respectful submission.

Sagacious and Mayne acknowledge and confirm that they are bound by these terms and conditions –

Then the second part of it is that they intend to have a further more formal agreement, et cetera, but that does not bring in Masters v Cameron in the case of the first two lines of (c).

GUMMOW J:   It is this phrase “the finalisation”, is it not?

MR BENNETT:   Yes, but your Honour will see if your Honour goes on:

Notwithstanding the provisions outlined above, the parties hereby expressly agree as follows –

Then there is the transitional provision.

GUMMOW J:   What I am putting to you, Mr Bennett, is that there are considerations that go either way, reading this document.  Why should we interfere to pursue an effort to set it against the Court of Appeal’s analysis?

MR BENNETT:   For two reasons, your Honour.  First, the considerations the other way are not really considerations the other way in the face of what is said in 7(c).  That is the be all and end all of the document, we would submit.  The parties acknowledge and confirm they were bound by these terms and conditions.  What else, one asks rhetorically, could they have said?  Could they have said, “Within the meaning of Masters v Cameron?”  On the next page:

I herby acknowledge and accept the terms and conditions –

that is below the words:

we would ask that you acknowledge your acceptance of same by signing in the space below and providing us with a copy –

This is all the language of a contractual document.  Your Honour, the suggestion that the terms and conditions referred to in (c) is merely what follows on the transitional provisions is negated by two things – totally negated by two things.  First, paragraph 7(b) which expressly says that everything is “interdependent” and that is part of the terms and conditions referred to in 7(c); and secondly, the transitional provision which follows is clearly a separate part of the agreement.  It says as a sort of addition:

Notwithstanding the provisions outlined above, the parties hereby expressly agree as follows –

In other words, here is this little extra agreement and then there is the transitional provision.  To suggest that that is all that was being referred to by the phrase “these terms and conditions” is, in my respectful submission, just not arguable.  As the learned trial judge said, he found that without any witness saying that on the basis of looking at the traditional Masters v Cameron approach of months of negotiation and correspondence before and afterwards and details of what was decided at this stage and what remained for the parties to finalise and so on.

As I say, our submission is, that freedom of contract requires no less than that the parties are free, if they choose, to dictate in advance to the court in the document the answer to the Masters v Cameron question.  They are free to say, “This document is not contractual”.  They are free to say, “This contract is a binding contract” and if they say that, Masters v Cameron goes out the window.  One never gets to it.  Freedom of contract requires no less.

There is an interesting phrase in one of the cases which your Honours have in the volume.  It is case No 4 in the volume, Pagnan SpA v Feed Products Ltd.  I think SpA is Society, Proprietor and…..,but I am not sure. It is reported in [1987] 2 Lloyd’s Rep 601. In the Court of Appeal at page 619 ‑ ‑ ‑

GUMMOW J:   The English Court of Appeal?

MR BENNETT:   The English Court of Appeal, yes, your Honour.  This case is a little like – it discusses at length the Masters v Cameron issue in the first column of 619.

GUMMOW J:   …..reference to case…..

MR BENNETT:   Without reference to the case, yes, your Honour.  It is almost per incuriam, in that sense.

HEYDON J:   Where is the phrase?

MR BENNETT:   The phrase we rely on, your Honour, is in – what we use the case for is this.  They put as one of the alternatives, number (4) at the top of the second column, as of course it is in Masters v Cameron:

Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be –

performed.  No reference to Masters v Cameron.  But, then, in the middle of paragraph (6), just below halfway down that paragraph the Court of Appeal says this:

It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant.  It is the parties who are, in the memorable phrase coined by the Judge, “the masters of their contractual fate”.

It is an aspect of that, we submit, the freedom of contract.  If you say it is a contract, it is a contract.  This is not like the lease and licence cases where you say it is a licence and the court says, no, it is a lease.  It is not in that area of endeavour, or this is not a loan of money as parties used to say in the old days.  This is a case where the parties say this is a binding contract and we submit that is the whole of the case and this Court should lay that down clearly and find error in what has been done below.

The importance of the issue, of course, is that Masters v Cameron cases, in one form or another, are one of the most common forms of litigation, as your Honours would know, and this case pronounces a radical departure in saying that that line of authority has any relevance at all where the parties say this document is contractual.  That is the issue which we submit is an important issue.  May it please the Court.

GUMMOW J:   Yes, Mr Walker.

MR WALKER:   Your Honours, the radical departure, if any were available to be considered in this litigation, would be to substitute for the, as we have put it, classical exposition exemplified by Masters v Cameron but repeated many times thereafter, the notion that by a verbal badge in a document the overall search, factually, for the shared objective intention of the parties may be precluded, foreclosed or blinkered.

Now, if an applicant proposes a radical departure to doctrine that might be a good start to a special leave application in favour of the applicant, but surely only if two conditions were available.  First, that the point had been sufficiently taken below to allow not only judicial consideration of it below for the assistance of this Court, but also to ensure that the facts had been sufficiently explored in a contest between the parties about those facts so as to make it available as a point truly in contest between those parties.  Second, it would need to be otherwise an appropriate vehicle to raise the question which is said to be decided one way or the other, according to whether the badge theory works or not.

Now, in this case, neither of those conditions can be made out.  As we have spelled out in our written submissions, at no stage in the litigation below was there any resistance to the use of facts being antecedent and subsequent to the letter in question on either side.  Leaving aside patches of what I will call objections or objections as to the way in which material could be used, both sides, no doubt producing the length of hearing that my learned friend has referred to, relied extensively upon negotiating conversations, negotiating correspondence before and after this letter.

GUMMOW J:   If one goes to page 193 of the application book both parties have…..

MR WALKER:   Absolutely.  So, one thing was clear, the case was run by my learned friend’s client on the basis that the badge alone was not the only material to which the court should look.  The opposite was their position.  We shared that position.  That is the first point.  The second point is that at no stage was there even the whisper of a hint at trial or in the Court of Appeal that there was anything unnecessary about going to what is called a Masters v Cameron exercise.  My learned friend says this morning you never get to Masters v Cameron but, with respect, if Masters v Cameron is simply a consideration of some or all of the possibilities available from the particular factual situation between parties concerning whether there is a binding contract when a document wears one or other appearance then of course you get to the exercise because that is the exercise which is the whole dispute.

At no stage was there any suggestion that there was any authority in this Court which required to be reviewed.  No formal submission was put to

the Court of Appeal, for example, should proceed so as to reverse the more than a century’s clear statements about the incapacity of parties to agree to agree.  That is highly significant, bearing in mind that the choice that Masters v Cameron throws up to be factually determined in the circumstances of the case, including the context of any negotiating documents, naturally included and has always included and without any controversy was understood by both parties to include the possibility that there was either a binding contract with variations or refinements or substitutions left expressly for further negotiation, or that because of the importance and other attributes of what was left that factually the Court decides that the case fell into the category where there was not yet a binding contract.

That is a factual characterisation to be done in the overall circumstances of the case and, in our submission, therefore this case is an entirely inappropriate vehicle to see whether there is any question of doctrine ‑ ‑ ‑

GUMMOW J:   We do not need to hear you any further, Mr Walker.

MR WALKER:   May it please your Honour.

MR BENNETT:   Your Honour, first, in relation to the suggestion that we did not put it I took your Honours in‑chief to page 178 where the submission is put fairly clearly, not in the same words I have put it, but substantially in paragraph 67.  As I have indicated Sagacious submitted that the trial judge should not have looked beyond the April letter.  Indeed, we say substantially beyond one paragraph of it, but certainly beyond the April letter.  So the argument was put there and at trial, of course, the judge addressed the question, as I showed your Honours, of the significance of the countersigning.

In any event, of course, my friend’s point would be answered by the Connecticut Fire line of cases because the differences between the way it was put below and the way it is put here would not have led to any further evidence.  It might have led to less evidence, but not to further evidence and it would not even have led to less evidence because the evidence would be admitted and then the court would say, but that sort of evidence is insufficient to outweigh a clear expression.  I plead guilty and accept the opprobrious phrase my friend uses of “verbal badge” and as I say we submit that is what freedom of contract permits.  The verbal badge – written badge actually – is decisive, we would submit, and does foreclose inquiries of the nature gone into here.

In relation to the agreement to agree aspect that is a minor secondary aspect of the case.  The rigidity of the old idea that you cannot agree to

agree has disappeared in days where you can have agreements to negotiate in good faith and where courts could work out reasonable prices and so on.  That is discussed in some detail in one of the other cases in the folder.  I will not take your Honours to it in reply, but it is why we put it here.  It is Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd, case 2 in our authorities, which is a very good example of what can happen.

But more importantly my friend says no authority in this Court.  Masters v Cameron itself has as one of the categories the category where the parties intend and bind themselves to produce a further agreement in more formal terms and in that sense they have agreed to agree.  Masters v Cameron 91 CLR 353 is the third case in the volume and – I am sorry, your Honours, this lectern is making it difficult. It is a beautiful new courtroom, but the lectern needs some work. It is page 360 at the very bottom of the page, five lines from the bottom. Your Honours see:

and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution.

So that, I suppose, is an agreement to agree in one sense.  So there is nothing novel about the agreement to agree aspect, although that is a minor aspect.  It is a subset of an answer to one of my friend’s substantive arguments.  It is not going to take a lot of time on the appeal.  The real issue is the badge issue and we submit that is a special leave point and justifies special leave.  If the Court pleases.

GUMMOW J:   There are insufficient prospects of success in this Court to warrant a grant of special leave.  Having regard to the scope of the evidence led at trial we are not satisfied that any significant issue of legal principle arises from the decision of the New South Wales Court of Appeal.  Further, the interests of justice do not require a grant of special leave.

Special leave is refused with costs.

AT 11.07 AM THE MATTER WAS CONCLUDED