Surefire Business Systems Pty Ltd v Parnell Mogas Pty Ltd - [2013] SADC 97

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SUREFIRE BUSINESS SYSTEMS PTY LTD v PARNELL MOGAS PTY LTD
[2013] SADC 97
Judgment of His Honour Judge Soulio
26 July 2013
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES
The plaintiff sued the defendant for payment for consulting services and damages for breach of contract - the plaintiff made an offer of settlement - the defendent rejected the offer and made a counter offer - the defendant then purported to accept the plaintiff's original offer - application by defendant for orders confirming settlement - application dismissed.
District Court Rules 2006 rr 187, 188, referred to.
Stevenson Jacques & Co v McLean [1880] 5 QBD 346; Harris v Jenkins [1922] SASR 59; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; APT SEA Gas Holdings Pty Ltd v ANP SEA Pty Ltd & Anor [2010] NSWSC 1221; Austman Pty Ltd v Mt Gibson Mining Ltd [2012] WASC 202; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165; Byrnes v Kendle [2001] HCA 26; Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd [2009] SASC 70; Bartolo v Hancock [2010] SASC 305; Cumper v Pothecary [1941] 2 KB 58, considered.

SUREFIRE BUSINESS SYSTEMS PTY LTD v PARNELL MOGAS PTY LTD
[2013] SADC 97
Introduction

The defendant, (‘Mogas’) asserts that this action is at an end, as the result of an agreement with the plaintiff (‘Surefire’) to settle the action.
The defendant says that the agreement is constituted by its acceptance of an offer of settlement made by the plaintiff, an offer the defendant had earlier rejected. The plaintiff’s position is that there is no agreement in place.
The issue was referred to me by a master of this court, pursuant to 6DCR 211 to be determined as a preliminary point on affidavits, pursuant to 6DCR 168(2).
For the reasons, set out below, I find that the plaintiff’s offer, once rejected, was no longer capable of being ultimately accepted by the defendant; accordingly, there has been no compromise of the action.
The Principal Action
The plaintiff provides computer software consulting services. The defendant distributes petroleum products. The plaintiff claims that the directors of the defendant, acting on behalf of the defendant, negotiated with the managing director of the plaintiff for the development of a software system in April 2003. The plaintiff claims that it developed the first stage of the software system and, while it was working on the second stage of the software system, the defendant terminated the development of the system and requested the plaintiff provide an invoice for the work undertaken. The plaintiff asserts that it rendered an invoice which was not paid.
In November 2009 the plaintiff sued for payment of the amount claimed in the invoice, and damages for the breach of contract relating to the termination of the second stage of the contract. On 24 May 2011 the plaintiff had paid into court the sum of $22,500 as security for costs.
The defendant denies contracting with the plaintiff, and said that it contracted with Mr Mroz, the managing director of the plaintiff, but in his capacity as proprietor of the business Surefire Business Systems. The defendant says the invoice received for work done was from that business, not the plaintiff. The defendant pleads that in so far as Mr Mroz may have had a cause of action, that vested in the Official Receiver in bankruptcy upon Mr Mroz being declared bankrupt in 2008, prior to the commencement of this action.
The defendant also makes a complaint about the software system, the terms of which are not relevant for present purposes, and brought a cross claim against the plaintiff, and against a Ms Lynette Schrader, a director of the plaintiff company.
The Present Issue
As I have said, the issue now to be decided, as a preliminary point, pursuant to an order of a master of this Court, is whether there is a binding settlement agreement in relation to the principal action. The agreement is said, by the defendant, to have been reached when the defendant purportedly accepted an offer made by the plaintiff by letter of 10 February 2012.
On 10 February 2012, the Plaintiff had sent a letter to the Defendant in the following terms:
We are instructed that Surefire and Ms Schrader make the following offer to resolve the action:
1.   Within 7 days of settlement, the plaintiff will file and serve a Notice of Discontinuance in the Action and each party will bear their own costs of the Action.
2.   Neither party will seek to enforce any previous costs orders in the Action in their favour.
3.   The defendant will consent to the release of all the monies (including any interest thereon) standing in Court in the Action, to the trust account of Patel and Co.
4.   Paragraphs 1-3 (inclusive) are conditional upon the execution of formal releases and discharges in respect of any other claims or rights of action whatsoever as may have existed or exist as against the defendant by:-
4.1.    The plaintiff in favour of the defendant;
4.2.    Ms Schrader in favour of the defendant;
5.   Upon acceptance, the parties will be immediately bound, but the parties will also execute a more formal Deed of Settlement and Release which will include the above essential terms.
We do not act for Mr Mroz, and do not have instructions from him in the terms of the offer contained in your letter dated 8 February 2012.
The letter concluded “This offer is made without prejudice save as to costs and remain [sic] open until otherwise withdrawn”.
On 16 February 2012 the defendant sent a letter to the plaintiff, rejecting that offer and making a counter offer in the following terms:
We refer to your letter dated 10 February 2012, and to our telephone discussion with your client’s counsel, Mr Ower on that date.
Our client is most concerned that your client is not prepared (or is unable) to procure a release from Mr Mroz. As a result, we advise that your client’s counter offer is rejected. Our client is concerned that your letter confirms that even if this matter is resolved, Mr Mroz will continue to pursue ill-founded litigation against our client (including its directors).
In light of that, our client takes the view that the only way in which this matter can resolve from here, is for an agreement to be reached whereby:
1.   An amount is paid for our client’s cost to date, from the monies standing in Court; and
2.   In addition to the previous releases, Ms Schrader and the Company, provide indemnities in respect of any claims by Mr Mroz, or any entity in which he is a trustee, partner, director or shareholder.
Counter Offer
For the reasons set out above, our client is prepared to resolve the Action on the following basis:
1.      Within 7 days of settlement, the plaintiff will file and serve a Notice of Discontinuance in the Action provided that in advance thereof the Court orders (by consent) that the Discontinuance operates as a final judgment.
2.      The Court will order the release of all the monies (including any interest thereon) standing in Court in the Action, on the following basis:
2.1.The sum of $20,000 be paid out to the defendant on account of a contribution towards its costs of action; and
2.2.     The balance to [sic] the monies be paid out to the plaintiff.
3.   Subject to paragraph 2, neither party will seek to enforce any previous costs orders in the Action in their favour, and each party will otherwise bear their own costs.
4.   Paragraphs 1-3 (inclusive) are conditional upon the execution of the following:
4.1.formal releases and discharges in favour of the defendant in respect of any other claims or rights of action whatsoever as may have existed or exist as against the defendant by:
4.1.1.      the plaintiff;
4.1.2.      Ms Schrader;
4.1.3.the Official Trustee in Bankruptcy of Mr Mroz (“the Official Trustee”) in favour of the defendant; and
4.2.a letter being provided by your firm to the Official Trustee, confirming that in these proceedings Mr Mroz provided instructions to your firm to commence the action in the company name, and that the alleged debt was not at any time personal to him, and that the Director of the Company, Ms Schrader, authorised and instructed your firm to continue the action as an alleged company debt of Surefire Business Systems Pty Ltd, and that claim has been discontinued on the above basis.
4.3.Ms Schrader and the Company, will provide an indemnity, in respect of any claims or causes of action commenced by Mr Mroz and/or the Official Trustee in Bankruptcy of Mr Mroz, against our client, which arose prior to the execution of any Deed of Settlement and Release.
5.   Ms Schrader, in her own right, and for and on behalf of the Company will jointly and severally agree and undertake that they will not contact (or seek to procure any representative or agent to contact) the Defendant (including the directors, shareholders and employees of that company) at any time thereafter.
6.   Upon acceptance, the parties will be immediately bound, but the parties will also execute a more formal Deed of Settlement and Release which will include the above essential terms.
The counter offer concluded by saying:
This offer remains open until close of business on Wednesday 22 February 2012. If it is not accepted by that date, it will lapse.
The plaintiff did not respond to the defendant’s counter offer. The plaintiff’s offer was not formally withdrawn.
Just over four months later, on 31 July 2012, the defendant sent a letter to the plaintiff purporting to accept the plaintiff’s original offer.
The plaintiff responded by letter of 2 August 2012 saying:
Please note that by forwarding a counter offer on the 16^thFeb 2012 your client effectively rejected our client’s offer
In the circumstances there is no offer for our client to settle the matter.
The defendant pleads that, by reason of the defendant’s acceptance of the plaintiff’s original offer the parties compromised and settled the action, and the request to settle was immediately binding and enforceable, notwithstanding that the plaintiff subsequently disputed that its offer remained available for acceptance as at 31 July 2012.
The defendant asserts that by adding the words “this offer is made without prejudice save as to costs and remain(s) open until otherwise withdrawn” the plaintiff kept the offer continuously alive, notwithstanding a lack of timely acceptance, and notwithstanding the initial rejection, unless the plaintiff took the positive step of withdrawing the offer.
The Law
As a matter of contract law, a rejection of an offer terminates the offer.[1] The making of a counter offer impliedly rejects an offer.[2] Once an offer has been rejected the person making the offer can assume that the offer is no longer open to acceptance, and there is no need to revoke it. Any subsequent attempt by the person receiving the offer to accept, is to be regarded as a counter offer, which the person making the original offer is free to accept or reject.[3]
[1]    Stevenson Jacques & Co v McLean [1880] 5 QBD 346.
[2]    Harris v Jenkins [1922] SASR 59.
[3]    JW Carter, Contract law in Australia (Butterworths 6^th ed, 2012) p 86 [3-51].
The defendant relied on the observations made by Heydon JA in Brambles Holdings Ltd v Bathurst City Council,[4] who, after recognising the general principle that an offer once rejected was brought to an end, said:
If offer and acceptance analysis is not always necessary or sufficient, principles such as the general principle that a rejection of an offer brings it to an end cannot be universal. A rejected offer could remain operative if it were repeated, or otherwise revived, or if in the circumstances it should for some other reason be treated, despite its rejection, as remaining on foot, available for acceptance, or for adoption as the basis of mutual assent manifested by conduct.
[4] Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 [80].
The statement by Heydon JA in Brambles[5] has been cited with approval in a number of authorities.[6]
[5] Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153.
[6] See for example APT SEA Gas Holdings Pty Ltd v ANP SEA Pty Ltd & Anor [2010] NSWSC 1221 [32] per Brereton J; Austman Pty Ltd v Mt Gibson Mining Ltd [2012] WASC 202 [127], per Martin J.
In APT SEA Gas Holdings Pty Ltd v ANP SEA Pty Ltd & Anor,[7] Brereton J said:
A rejected offer does not always lapse, and may remain operative if in the circumstances it should be treated as remaining on foot and available for acceptance.
[7] APT SEA Gas Holdings Pty Ltd v ANP SEA Pty Ltd & Anor [2010] NSWSC 1221 [32].
There, Brereton J found, the offer was required to remain open until the stipulated closing time, and did not lapse just because there was at first, at worst, an equivocal response.[8]
[8] APT SEA Gas Holdings Pty Ltd v ANP SEA Pty Ltd & Anor [2010] NSWSC 1221 [32].
The defendant submits that the wording of the offer must be construed objectively. The defendant relied upon the observations in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, where the High Court said: [9]
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[9] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165 p179.
And in Byrnes v Kendle,[10] where the High Court said the express intention of the parties is to be found in the answer to the question “What is the meaning of what the parties have said?”, not to the question “What did the parties mean to say?”
[10] Byrnes v Kendle [2001] HCA 26 [53].
The defendant asserted that objectively viewed, the wording added by the plaintiff meant that the offer remained open, and that constituted circumstances which justified treating the offer as remaining on foot despite the earlier rejection
Rules Offers
The defendant contended that the plaintiff’s letter of offer had been crafted to resemble the procedures established for the filing of offers in court, pursuant to Rules 187 and 188 of the District Court Rules 2006 (6DCR).
Offers filed pursuant to the rules are designed to allow parties to make an open offer, without any deadline for acceptance, other than that contained within the Rule, unless a notice of withdrawal is served in advance of acceptance.
The rules relating to the filing of formal orders in court relevantly provide:
187—Offers of settlement
(1)     A party may, before the relevant date, file an offer of settlement in the Court (a formal offer of settlement).
(2)     The relevant date is—
(a)the date falling 21 days before the first, or any subsequent, date fixed for the trial to commence; or
…
(3)     The offer must—
(a)     be in an approved form; and
…
(c)state whether the offer relates to costs and, if so, the amount of the offer so far as it relates to costs; and
(d)if the offer relates both to principal relief and costs—state whether the party to whom the offer is made may accept the offer of principal without also accepting the offer as to costs,
and a copy of the offer must be served on all other parties to the action.
…
(7)     A formal offer of settlement may be withdrawn at any time before it has been accepted by the filing and service on each party to the proceeding of a notice of withdrawal and in such cases, subject to any Court order to the contrary, the offer will be treated as if it had never been made.
188—Consequences of filing offer of settlement in Court
(1)     A party to whom a formal offer of settlement is made may, before the relevant date—
(a)     accept the offer; or
(b)if the offer relates to both the principal relief and costs and the offeror has not indicated that the offer may only be accepted in its entirety—accept the offer so far as relates to principal relief.
(2)     In subrule (1), the relevant date is—
(a)the date falling 7 days before the first, or any subsequent, date fixed for the trial to commence; or
…
(3)     The acceptance of a formal offer of settlement—
(a)     must be in an approved form; and
(b)     takes effect on the filing of the acceptance in the Court.
(4)     A copy of the acceptance of a formal offer of settlement must be served on all other parties to the proceedings as soon as practicable after it is filed in the Court.
(5)     If a formal offer of settlement is accepted, judgment may be entered, by consent, determining the relevant action or claim on a basis reflecting the terms of the offer.
(6)     If a formal offer of settlement so far as it relates to principal relief is not accepted by the party to whom the offer is made and the Court determines the relevant action or claim on terms (as to principal relief) that are no more favourable to the party than the terms of the offer, then, subject to the Court's order to the contrary—
(a)the party to whom the offer was made is not to be entitled to costs referable to the period falling after the relevant date; and
(b)     the party that made the offer—
(i)if a defendant—is entitled to costs referable to the period falling after the relevant date; and
(ii)if a plaintiff—is entitled to the whole of the party's costs of action on a solicitor/client basis and the defendant is not entitled to any costs not otherwise ordered.
(6A) If, after the relevant date, a plaintiff accepts a formal offer of settlement insofar as it relates to principal relief, the Court may, on the application of any other party, order that the plaintiff pay the costs of action incurred by that other party during of the period after the relevant date.
(7)     In subrules (6) and (6A), the relevant date is the date falling 14 days after the date of service of the offer.
(8)     If a formal offer of settlement in proceedings relating only to the adjudication upon costs is not accepted by the party to whom the offer is made and the Court determines the proceedings on terms that are no more favourable to that party than the terms of the offer, then, subject to the Court's order to the contrary, the costs of the adjudication upon costs are to be borne on a solicitor/client basis by that party.
However, the issue as to whether there is a binding agreement to compromise the present action must be decided on common law principles concerning contracts, rather than on an analysis of the procedures provided by the Rules of Court in relation to a formal offer.
As was observed by White J in Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd,[11] there are differences between the regime for offers and acceptances set out in rr 187 and 188, and the common law principles concerning the formation of contracts.
[11] Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd [2009] SASC 70 [24]-[25], per White J, Duggan and Bleby JJ concurring.
The regime established by the Rules throws no light on the meaning to be attributed to an offer which is governed by common law principles.[12]
[12] Bartolo v Hancock [2010] SASC 305 [19].

Unlike the common law position, pursuant to the Rules, a party is not regarded as having rejected an opponent’s offer by filing its own formal offer of settlement, and nor will a party be regarded as having rejected an offer by engaging other conduct such as taking further interlocutory steps which would seemingly amount to a rejection of the offer. Parties who expressly rejected a filed offer in the course of communications may later change their minds and accept the offer.
In Rule v Chambers,[13] White J also observed, without deciding the issue, that the 2006 Rules do not appear to contemplate formal offers of settlement which are expressed to be open for a limited period only, but rather, offers should be able to be accepted at any time before the “relevant date” as defined in r 188(2).
[13] Rule Chambers Pty Ltd v Badge Constructions (SA) Pty Ltd [2009] SASC 70.
White J was fortified in his view, that the common law principles of contract are of limited assistance, by the statement of Goddard LJ in Cumper v Pothecary[14] concerning the analogous procedure of payment into court:
… There is nothing contractual about payment into court. It is wholly a procedural matter and has no true analogy to a settlement arranged between the parties out of court, which, of course, does constitute a contract.
[14] Cumper v Pothecary [1941] 2 KB 58 p 67.
The circumstances of the present case, in my view, bear some analogy with the facts in Bartolo v Hancock.[15] There, at the commencement of trial in the Magistrates Court, counsel for the defendant informed the court that she was instructed to put an open offer that each party discontinue the action, and bear their own costs. She said that if that position was not bettered, the defendant would seek indemnity costs of the trial. There was no response by counsel for the plaintiff. The trial proceeded. The offer was not further mentioned. On the fifth day of the trial, during the defence case, counsel for the plaintiff purported to accept the offer made on the first day of trial, and applied for an order giving effect to the acceptance of that offer. Counsel for the defendant denied that the offer was capable of acceptance at that stage. The presiding magistrate declined to make the order sought by the plaintiff.
[15] Bartolo v Hancock [2010] SASC 305.
On appeal by the plaintiff, Doyle CJ said that the meaning of the offer was to be determined objectively, and the question was, how would a reasonable person in the position of the plaintiff interpret and understand the offer. In answering the question, regard must be had to the surrounding circumstances. In that case the trial was about to begin, and the costs that each party would incur would increase with each day of the trial. The defendant would pay much more by way of his own costs on the fifth day of the trial than he would have at the start of the trial.
Doyle CJ said:[16]
I consider that this kind of offer (mutual withdrawal with no order as to costs) would ordinarily be understood by a reasonable recipient as open for acceptance only for a very short time. This kind of offer is made to end the dispute then and there, without either party incurring further costs. Such an offer would usually be understood to reflect a wish by the offer or to avoid further expenditure on the basis that the further expenditure was likely to be unwarranted having regard to the likely recovery by either party, without in any way being precise about what that recovery was likely to be.
To treat the offer as open for acceptance (unless withdrawn) until the end of the case is to treat (the defendant) as willing to let the case run and incur liability for an increasing amount for costs even though the result of a later acceptance (mutual withdrawal) could have been achieved on day one.
[16] Bartolo v Hancock [2010] SASC 305 [14]-[15].
Upon the appeal in Bartolo, counsel for the plaintiff relied on the wording of the offer, namely the description that it was an open offer, and the reference to the costs implication of failing to better the offer, in arguing that the offer remained available to be accepted.
Doyle CJ said that the term “open” was used in the sense of making it plain that the offer was not without prejudice, although, as the offer was made in court, it was unnecessary to do so. The word “open” did not amount to a statement that the offer was open for acceptance until final judgment. The description of the offer as “an open offer” was of no relevance.
Doyle CJ said[17] the statement relating to costs implications was of no particular significance. It did not imply that the offer was to remain open until judgment. Even if counsel had made it quite clear that the offer had to be accepted then and there or be withdrawn, the same warning as to costs could have been given. The defendant’s claim to indemnity costs would have been made on the basis that the plaintiff had not bettered the offer made, and that had nothing to do with the question of how long the offer was open for acceptance.
[17] Bartolo v Hancock [2010] SASC 305 [21]-[22].
Both counsel in the present case referred to the plaintiff’s initial offer as, in effect, a capitulation, which, as Doyle CJ noted in Bartolo,[18] was the type of offer ordinarily designed to bring an early end to proceedings to avoid incurring further costs. Seen in that way, the offer, if it were to be accepted, should be accepted within a reasonably short time frame.
[18] Bartolo v Hancock [2010] SASC 305.
Doyle CJ went on to say that it was not a matter of implying a term limiting the offer, so much as understanding the offer. He said that the context made it clear that the offer was a “here and now” offer designed to dispose of the case then and there.[19]
[19] Bartolo v Hancock [2010] SASC 305 [16].
The Present Offer
What then of the statement contained in the plaintiff’s offer here, that the offer “remains open until withdrawn.”? And what is to be made of the specific rejection of the offer by the defendant?
The defendant contended that the true intention of the plaintiff was to make an offer to walk away from the litigation, such offer to be ongoing, subject only to the plaintiff’s discretion to withdraw the offer prior to acceptance. On that basis, had the plaintiff succeeded in recovering damages at trial, the defendant contended that the plaintiff would have been able to obtain an order for indemnity costs. That background, the defendant says, forms part of the “surrounding circumstances” to be taken into account in construing the terms of the offer.[20]
[20] See Byrnes v Kendle [2001] HCA 26 [98].
As I have said, the defendant here contended that the plaintiff was, objectively, endeavouring to make an offer which closely resembled a rules offer, and that to interpret the words in any other way would deprive the plaintiff’s offer of its force in relation to a costs order, which the plaintiff might subsequently seek. Given the observations by Doyle CJ in Bartolo,[21] that cannot be correct.
[21] Bartolo v Hancock [2010] SASC 305.
The plaintiff contended that the objective meaning of the words are that the offer would remain open. There was no warrant to read the words “remains open until otherwise withdrawn” as meaning that the offer should remain open “until otherwise withdrawn or rejected”.
The plaintiff contended that the wording at the conclusion of the letter was to deal with the issue of implied rejection by the passage of time, not by specific rejection, and that in order for the offer to remain open once rejected, the letter would have required words added such as “until otherwise withdrawn and even if rejected”.
Conclusion
The letter of offer is not to be regarded as being, in effect, an offer made pursuant to the Rules of court. A specific procedure is provided for such offers and that procedure is of little assistance in determining the present issue.
The question in the present case is whether the circumstances of the offer are such that the offer should be treated as remaining available to be accepted, despite a specific rejection, and counter offer, and despite the lapse of a period of over four months from the time of the making of the offer until the purported acceptance.
The offer here was rejected less than a week after it was made. The offer was specifically rejected. A counter offer was made, which also allowed a period of less than a week for acceptance. Whilst I accept the general principle referred to in Brambles, given the nature of the plaintiff’s offer, which was clearly designed to avoid incurring further costs and bring the matter to an end, and given the defendant’s specific rejection of the offer, I am not satisfied that the circumstances surrounding the making of the offer were such as to mean that the offer remained open for acceptance once it had been specifically rejected.
It is apparent from the court record that between the date of the defendant’s rejection of the plaintiff’s offer, and the date of the defendant’s purported acceptance of that offer, a number of interlocutory steps were taken, including appearances before the master.
Had the defendant not rejected the offer whether specifically, as it did, or by the making of a counter offer, which it also did, it may be that the plaintiff would not have taken further steps in the proceedings, but rather may have endeavoured to reduce its costs.
The circumstances in the present case are to be distinguished from the circumstances in Brambles where the parties continued, in effect, to act upon the rejected offer, or in APT SEA Gas Holdings where, rather than a rejection of the offer, the response was, at first, at worst, an equivocal response.
I find that, upon receiving the defendant’s rejection, and counter offer, the plaintiff’s offer was at an end. I dismiss paragraphs three, four and five of the defendant’s defence, and dismiss the application.