Tomko v Palasty - [2007] NSWCA 258

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: TOMKO v PALASTY [2007] NSWCA 258

HEARING DATE(S): 17/09/07

JUDGMENT DATE:
27 September 2007

JUDGMENT OF: Mason P at 1; Basten JA at 2; Einstein J at 21

DECISION: Appeal dismissed with costs.

CATCHWORDS: CONTRACT – construction of contract – identification of parties to loan contract – admissibility of evidence of post-contractual conduct in determining identity of contracting party – whether statements or conduct of one party constitute an admission as to the identity of the other party to the contract.

LEGISLATION CITED: Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647
Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153, [2001] NSWCA 61
B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
El-Mir v Risk [2005] NSWCA 215
FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWCA 716
Independent Timber Importers (Aust) Pty Ltd v Mercantile Mutual Insurance Australia Ltd (2002) 12 ANZ Ins Cas 61-543
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98
John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43
Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181
Magill v National Australia Bank Ltd (2001) Aust Contract R 90-131
Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235
Walker v Andrew (2002) 20 ACLC 1476

PARTIES: John Tomko - appellant
John Palasty - respondent

FILE NUMBER(S): CA 040021/07

COUNSEL: NA Cotman SC, S Loughnan - appellant
GO Blake SC, NJ Allan - respondent

SOLICITORS: Dennis & Company - appellant
Ziman and Ziman Solicitors - respondent

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 2398/05

LOWER COURT JUDICIAL OFFICER: Gibb DCJ

LOWER COURT DATE OF DECISION: 15/12/06

CA 40021/07
DC 2398/05

MASON P
BASTEN JA
EINSTEIN J
Thursday 27 September 2007

John TOMKO v John PALASTY

Headnote

The appellant, John Tomko and the respondent, John Palasty, were engaged in a business venture, which involved various companies including Liverpool Hotels Pty Ltd, Railway Square (Liverpool) Pty Ltd and a holding company, Hotel Assets Group Australia Pty Ltd (formerly Justhom Pty Ltd). In the District Court the trial judge found that the appellant had provided funds to the business venture, pursuant to two separate agreements, by way of loan rather than by way of joint-venture capital contribution. This finding was not challenged on appeal. The trial judge held that the each agreement involved the loan of moneys from the appellant to Liverpool Hotels Pty Ltd.

On appeal, the question was whether the trial judge erred in finding that the appellant had advanced loan moneys pursuant to the first agreement [in the sum of $267,452.54] to, or at the direction of, the company Liverpool Hotels Pty Ltd, rather than to, or at the direction of, the respondent personally.

Held:

(1) Identity of the borrower of the appellant’s funds

Per Basten JA (Mason P agreeing):

1. The conclusion of the trial judge that the moneys were lent by the Appellant to the company and not to the Respondent personally was correct: at [20].

Per Einstein J (Mason P agreeing):

2. The trial judge’s findings were open on the evidence.

3. There was no appellable error in the trial judge’s finding that the loan moneys advanced by the appellant under the first agreement, entered into in late March or early April 2002, was to Liverpool Hotels Pty Ltd: at [30]-[35] and [53] per Einstein J.

(2) Evidence of post-contractual conduct

Per Basten JA (Mason P agreeing):

4. In this case it is not necessary to consider the extent to which subsequent conduct of the parties, or indeed of the company, is admissible to determine the existence and nature of the contractual arrangements. Except to the extent that they constitute admissions by one or other party, the subsequent conduct is largely equivocal (at [13]).

Pethybridge v Stedikas Holdings Pty Ltd

5. There exist clear and unequivocal statements made by the appellant which constitute admissions and which support the conclusion that the company was the entity to which the relevant funds were provided (at [14]).

Per Einstein J (Mason P agreeing):

6. Evidence of post-contractual conduct is admissible on the question of whether a contract was formed. Subsequent communications may legitimately be used against a party as an admission by conduct of the existence or non-existence of a subsisting contract, where an issue concerns the identity of the contracting parties (at [63]-[68]).

Pethybridge v Stedikas Holdings Pty Ltd

Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd

Brambles Holdings Ltd v Bathurst City Council

******************

CA 040021/07
DC 2398/05

MASON P
BASTEN JA
EINSTEIN J

Thursday 27 September 2007

JOHN TOMKO v JOHN PALASTY

Judgment

1 MASON P: I agree with Basten JA and Einstein J.

2 BASTEN JA: The Appellant was a partner in a firm of solicitors who represented the Respondent in extensive litigation in which the Respondent and others were involved with the ANZ Banking Group Ltd. These complex proceedings, which were settled in December 2001, were described by the Appellant as having involved “Mr Palasty, certain of his family members, and …, I think, approximately 32 of his companies”: Tcpt 22/08/06, p 95. The Appellant gave evidence that he became involved with the Respondent’s business ventures in order to assist him in setting himself up again. He also introduced the Appellant to a Mr Dominic Lambrinos, a financial consultant and accountant.

3 The trial judge held that the Respondent, the Appellant and Mr Lambrinos engaged in a business venture which involved at least three companies, Liverpool Hotels Pty Ltd, Railway Square (Liverpool) Pty Ltd and a holding company, Hotel Assets Group Australia Pty Ltd: Judgment, pp 12-13 and 16. Her Honour also accepted that the Appellant provided financial accommodation to the business venture in an amount of approximately $625,000. The central question in the proceedings was whether these funds were supplied by way of working capital or as a loan. If the funds were supplied by way of loan, the consequential question was to whom were they supplied and by whom were they repayable?

4 The trial judge held that the funds supplied by the Appellant were by way of loan and that issue is not now in contention.

5 Following discussions between the Appellant and the Respondent, the Appellant arranged for a loan facility with the National Australia Bank in an amount of $300,000. Amounts totalling $267,452.50 were supplied in 16 separate drawdowns on the facility. The first appears to have been provided on 8 March 2002 and the last major payment on 4 June 2002, although there appears to have been a final smaller payment on 1 August 2002. None of the payments was made directly to the Respondent, the majority being made to Liverpool Hotels Pty Ltd or its creditors.

6 The second agreement was for the payment by the Appellant of $360,000 to allow for the purchase of premises adjacent to the hotel at 265 Bigge Street, Liverpool. The trial judge found that this second loan was also made to Liverpool Hotels Pty Ltd (or possibly Railway Square (Liverpool) Ltd) and there is no challenge to that finding. However, she also found that in negotiating the second loan, the Respondent represented that he would procure the company to give a mortgage over the land to be acquired at Bigge Street to secure the financial accommodation provided by the Appellant. The Appellant did not obtain the security, but nevertheless advanced the funds. The trial judge found that the Respondent had engaged in misleading and deceptive conduct within the meaning of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) and awarded damages in the amount of the loan against the Respondent. That judgment is not in dispute in the present proceedings.

7 The only question now in contention is whether her Honour erred in finding that the advances made by the Appellant pursuant to the first agreement were advances made to or at the direction of the company, Liverpool Hotels Pty Ltd, and not at the direction of the Respondent personally.

8 The Appellant gave evidence (affidavit, 7 November 2005) to the effect that the Respondent and he had a conversation on Christmas Day, 25 December 2001, in which the Respondent had said:

“John, I trust you and want you to be part of the organisation I’m setting up to purchase hotels and carry out property developments. If you come in with me I will give you 15% of the companies.”

9 The second part of the conversation took place in mid or late January 2002, at which stage the Respondent told the Appellant that he had found a hotel in Liverpool, the Commercial Hotel, which he wished to renovate and said:

“I would like you to become a director with my son Justin for the company I am setting up to purchase the hotel.”

10 The third conversation took place in March 2002 at which time the Respondent asked him if he could provide funds “to finish the renovations to the Commercial Hotel”. In the course of the third conversation, the Appellant gave evidence that he would want security and the following exchange took place:

“Well I would need to have a charge over the assets of Liverpool Hotels. At least it has the option to purchase the Commercial Hotel, which is something.”

“No problems. I’ll give you that.”

11 Taking the conversations as recounted by the Appellant, a reasonable observer would infer that the Appellant and Respondent were engaged in a joint venture, possibly with the Respondent’s son, Justin Palasty, to carry out a specific property development. The funds required were for that purpose and were therefore intended to pay bills incurred by the company owning the hotel and carrying out the renovations. That company was Liverpool Hotels Pty Ltd. The money was not for the Respondent personally nor for any other activity. Despite the vagueness of the arrangements between the parties, the preferable inference is that a loan was being provided by the Appellant to the company.

12 It would have been entirely proper for the Respondent to arrange for the company to give a charge to secure a loan payable to it. Given the arrangements made pursuant to the first and second conversations, the provision of security by the company was consistent with an intention to make financial accommodation available to the company for its business purposes, which were the mutually intended purposes of the informal partnership.

13 It is not necessary in this case to consider the extent to which subsequent conduct of the parties, or indeed of the company, is admissible to determine the existence and nature of the contractual arrangements in question. Except to the extent that they constitute admissions by one or other party, they are largely equivocal. Accordingly, there is no need to take any further the matters left open by this Court in Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [2] and [59].

14 There are, however, clear and unequivocal statements, made by the Appellant which constitute admissions and which support the conclusion that the company was the entity to which the funds were provided. On 26 February 2003, the Respondent had a conversation with the Appellant following which he wrote, as managing director of the Lewisham and Liverpool Commercial Hotels, on Liverpool Hotels Pty Ltd letterhead. That letter set out details of “the process of debt reduction onto your loan account”.

15 On 27 February 2003 the Appellant in turn wrote to the Respondent “C/- Liverpool Hotels Pty Limited”, the letter being headed “Reduction of my loan account”. The letter referred to the conversations of 26 February and stated:

“As a result of our final discussion at about 7.20pm yesterday, I have become extremely concerned as to the capacity of Liverpool Hotels Pty Limited to fund the repayment of my loan account which totals approximately $670,000.

… I note that in relation to 265 Bigge Street, Liverpool I have provided at the request of Liverpool Hotel Pty Limited the sum of $400,000 for the purchase of that property, which in fact was the entirety of the purchase price. I further note that you took it upon yourself, without consulting with me, to provide this property as loan security to a third party. Despite your protestations, your conduct in this matter has further jeopardized my position and in effect places me in a situation where I can see no security for the monies I have advanced to Liverpool Hotels.”

16 There was a further letter to Mr John Palasty, the Respondent, dated 3 March 2003 in which the Appellant had sought information as to the ability of the company to exercise an option to finalise the purchase of the hotel, which was to fall due on 7 March 2003. On 4 March 2003, the Appellant wrote to “The Director Liverpool Hotels Pty Limited, Attention Justin Palasty”. As noted above, Mr Justin Palasty was the son of the Respondent and a co-director (with the Appellant) and thereafter a continuing director of Liverpool Hotels Pty Ltd. This letter stated in part:

In the circumstances, I am left with no option but to require that the Company repay to me forthwith all monies presently owing to me.

Accordingly, I hereby demand that the Company immediately repay to me all of those monies.

I note that these presently total $665,315.71.”

17 Following his inability to obtain the information sought in relation to the capacity of the company to exercise the option, the Appellant commenced proceedings on 5 March 2003 in the Equity Division seeking the appointment of a provisional liquidator to preserve the assets of the company, namely the option to purchase the hotel. In an affidavit sworn in support of those proceedings, the Appellant set out the conversations with the Respondent, referred to above, explained that he had arranged a loan facility with the National Australia Bank and stated (par 18):

“Over the next few months, I made the following payments at the request and direction of John Palasty on behalf [of] the Company …”

18 This material was partly put in evidence by the Appellant and partly by the Respondent. In particular, the Appellant annexed to his affidavit of 7 November 2005 in the present proceedings the letter of demand made on the company on 4 March 2003. However, it appears that the whole of his explanation as to why he had taken that step, to the extent that it was relevant at all, was struck out. In any event, the material did not contain any coherent explanation.

19 Mr Lambrinos had maintained a loan account in the company’s accounts in which he entered advances made by the Appellant. It may well be that this was conduct by two third parties (Mr Lambrinos and the company) to which the Appellant was not privy and which cannot be used against him. Nevertheless, his conduct in response to the letter on Liverpool Hotels Pty Ltd letterhead setting out a proposal to reduce his loan account, far from being greeted by any assertion that he had made no loan to the company, was accepted and became the subject of immediate demands for repayment. His own conduct may properly be seen as an admission that the moneys had been loaned to the company, being an admission confirmed by his own subsequent correspondence.

20 Her Honour accepted all of this material, as she was entitled to do, as supporting a conclusion that the advance of $267,000 had been made by the Appellant to the company and not to Mr Palasty personally. I would reach the same conclusion on the relevant evidence. The appeal should be dismissed with costs.

21 EINSTEIN J:

The District Court proceedings

22 In proceedings before the District Court the appellant, a highly skilled litigation solicitor, claimed that he and the respondent, a plumber by trade who had become a developer overseeing a number of commercial interests, entered into two agreements:

i. an agreement entered into during March 2002 whereunder the appellant would advance moneys at the request and direction of the respondent, up to an amount of $300,000. The claim was that the agreement was entered into between the appellant on his own behalf and the defendant on behalf of Liverpool Hotels and on his own behalf, and that an amount of $267,452.50 had been advanced but never repaid;

23 The appellant's claims also covered loss said to have been incurred by misleading and deceptive conduct engaged in by representations made by the respondent in procuring the above-described funds from the appellant.

24 There was no dispute at trial that the appellant had provided the moneys. The contest before the trial judge related to:

i. the nature of the contributions and particularly whether the moneys were joint-venture capital or loans;

ii. if they were loans, whether the loans were to the respondent or to companies controlled by him by way of equity investment;

iii. whether the respondent made representations that were misleading and deceptive entitling the appellant to relief regardless of the determination of the issues identified in ii and iii;

25 As the trial judge observed there were a series of companies involved in the business ventures, all of which had since failed, along with the business venture. Different companies were incorporated for different transactions and purposes:

i. the first was Justhom Pty Ltd (‘Justhom’) which was later renamed Hotel Assets Group Australia Pty Ltd. That was initially intended to undertake the first relevant transaction, purchase of the lease and option over the Commercial Hotel Pty Ltd (‘Liverpool Hotels’), however that transaction was ultimately undertaken by Liverpool Hotels;

The defendant's case below

26 The defendant's case was that the moneys were advanced by way of investment, which was lost along with all else in the failed business venture.

The findings below

27 The trial judge found that:

i. all moneys provided by the appellant were advanced by way of loan;

ii. the loans were each made to the company Liverpool Hotels and that no loan had been made by the appellant to the respondent personally;

iii. the representational case concerning the first loan failed in that the alleged misrepresentations had not been made; and in any event, that no reliance had been established;

either

or

28 In the result the appellant succeeded in the Court below in relation to the amount of the $360,000 [$480,852 when the trial judge included interest], but did not succeed in relation to recovery of the $267,452.54 said to have been lent.

The appeal

29 Effectively the sole question raised on the appeal is whether the trial judge erred in failing to hold that the $267,452.54 that the appellant had advanced was loaned by him to the respondent personally.

No appellable error

30 In a carefully reasoned judgment which extends across 52 pages including numerous footnotes, I am satisfied that her Honour’s reasons are not shown to have been infected with appellable error. The finding that the appellant had advanced the first loan to Liverpool Hotels was consistent with the evidence before the trial judge that Liverpool Hotels had made some of the interest payments and was also consistent with the version of the conversations which the trial judge had accepted and with other documentary evidence.

31 Insofar as the Judgment dealt with the proper construction of the various contractual and associated documents, the trial judge cited Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114 for the relevant test:

32 Insofar as the Judgement dealt with the proper approach to post-contractual documentation, representations and admissions, her Honour has not been shown to have committed any errors of principle.

33 It is plain that the trial judge was entitled to rely on the admissions made by the appellant in the proceedings he commenced in the Supreme Court for the appointment of a provisional liquidator to Liverpool Hotels in March 2003 and in the letters that he wrote to the respondent and to Liverpool Hotels in late February and early March 2003. These were claims to recover the same monies provided under the same advances. The finding was that they were claims in relation to which the appellant had deposed that the moneys were:

34 These were among the salient circumstances by reference to which the first loan was held to have been made to Liverpool Hotels: circumstances where the appellant gave no explanation as to how those admissions had come to be made.

Credit issues

35 Likewise it is clear that the finding that the conversations between the appellant and the respondent in which the agreement for the first loan was made were based upon the trial judge's assessment of the credibility and reliability of the appellant: her Honour's finding which was clearly open on the material before the Court, was that the conclusion to be drawn from the objective evidence was that a reasonable observer of the relevant conversations, together with the background facts known to the appellant and the respondent, would conclude that the appellant and the respondent had intended that the agreement was entered between the appellant and Liverpool Hotels.

The complexities faced at trial

36 It is clear enough that the exercise involved in unravelling the facts was made complicated by a number of factors including credit and the availability of evidence. As the trial judge makes clear very early in the judgment:

i. the arrangements involved the establishment of a series of companies and transactions, with various businesses and a change in the business plan; all of the companies being placed into receivership and the documentation being sketchy to say the least;

37 The trial judge provided the following overview of the general circumstances:

38 It was necessary for the trial judge to treat with what amounted to a significant difference between the versions advanced by the appellant before her and that variously disclosed in the albeit relatively few contemporaneous documents [and in the appellant's affidavit filed in the earlier proceedings which he had initiated for the appointment of a provisional liquidator following a demand made on Liverpool Hotels]. He had deposed in his 2003 application for the provisional liquidators appointment that:

39 The trial judge found that the respondent's evidence in cross-examination was confused, contradictory, and inconsistent to the point that it was almost impossible to place any weight upon it. However the trial judge also found that the appellant's version of events was equally tainted by error and oversight. The finding was that the respondent’s lack of credit did not serve to make reliable the evidence of the appellant in circumstances where the following evidence, upon which much of his case had rested, was simply wrong:

i. the appellant maintained he was not a shareholder in any of the companies associated with the respondent when in fact he held shares in the holding company Justhom;

ii. the appellant maintained that he was only a director of Liverpool Hotels when he was in fact a director of Justhom;

40 The finding was that these errors were significant. Their significance was found to be "in the colour of the case" [the respondent's contention having been then it was more likely that the loan was to Liverpool Hotels than to him]. The finding was that these errors reflected adversely on the appellant's credit and significantly impaired his reliability.

41 The trial judge accepted the evidence of Mr Lambrinos to the effect that the appellant, the respondent and he were intimately involved in the development in which each was to be a shareholder in the businesses. The evidence of Mr Lambrinos had been that the appellant took an active part in the businesses, which the trial judge found to be consistent with the appellant's recollection of the object of his participation.

42 The finding was that as with many such business ventures, the 'partners' had embarked convinced that a pot of gold lay at the end of their particular venture, which involved each of Mr Lambrinos, the appellant and the respondent discussing the plans they were devising.

43 Mr Lambrinos had complained by facsimile to the respondent in February 2003 that:

44 The judgment includes a reference to the following portion of the cross-examination:

Q. The "partners" you there referred to were, in fact, you and [the appellant], weren't they?

45 The trial judge then observed as follows:

46 The trial judge in considering the role of the appellant concerning Liverpool Hotels, referred to the following evidence relevant to the identity of the other party to the agreement for the first loan:

i. that the appellant was a director from 8 February 2002 up to 9 April 2002;

ii. that the appellant executed a lease on 8 March 2002 in respect of the Commercial Hotel in his capacity as a director;

iii. that at about the same time, the appellant executed the agreement for the Sale and Purchase of Business dated 8 March 2002 in respect of the Commercial Hotel and other documents in his capacity as a director;

iv. that from February 2002 up to late April 2002 the appellant was intimately involved in various discussions and attempts to raise funds including a Business Account Application dated in April 2002 with St George Bank Limited;

v. that on 5 April 2002 (the primary judge mistaking the date for 1 May 2002), the appellant had executed an application for trading account by a member with the Independent Liquor Group Distribution Cooperative Ltd in his capacity as a director and as a guarantor;

vi. that the appellant was sufficiently involved in the day-to-day activities of Liverpool Hotels to secure a loan on the basis of an application in which he described himself as "self-employed/subcontracting/a company" and listed Liverpool Hotels are the relevant "company/self-employed details";

47 The primary judge made the following finding as to the Appellant's involvement in the businesses:

i. that Mr Lambrinos, the appellant and the respondent were actively involved in the development;

ii. that the respondent offered a 15 per cent shareholding to the appellant on the basis that the appellant "would be part of the organisation" purchasing hotels and carrying out property developments;

iii. that the appellant took an active part in the businesses;

iv. that the appellant was involved actively and played an active role in the discussion about the development;

48 Many of appellant's submissions seemed to focus upon the proposition that on the issue of whether the advances were loans to the respondent personally, "the evidence generally and the respondent's evidence is all one way and is consistent with the finding contrary to that finding made by the trial judge".

49 This submission then travelled through an extensive reference to the factual findings with special emphasis on the six documents created in early 2003 referred to by the trial judge and said by the appellant to have been used in aid of her finding that the initial tranche of moneys were lent to Liverpool Hotels.

50 Reference has already been made to the difficulties involved in terms of reaching findings of fact to be relied upon as a basis for determining the vital issue of the identity of the borrower.

51 The trial judge relied inter alia on the following evidence in finding that the appellant made the first loan to Liverpool Hotels:

i. that Mr Lambrinos recorded the moneys as a loan to Liverpool Hotels;

ii. that the letter dated 26 February 2003 from the respondent to the appellant which referred to "the process of debt reduction on to [the appellant's] loan account", was on the letterhead of Liverpool Hotels and identified the respondent as "Managing Director, Lewisham and Liverpool Commercial Hotels";

iii. that in a letter dated 27th February 2003 to the respondent, the appellant referred to "the moneys I have advanced to Liverpool Hotels";

iv. that in his letter dated 4 March 2003 to the respondent, the appellant referred to "the fact that I have, at the request of the Company advanced to Liverpool Hotels loans in excess of $660,000…";

v. that in his letter dated March 2003 to the respondent, the appellant referred to his concern about the solvency of Liverpool Hotels;

52 It is plain that the trial judge's decision was based on her assessment of the credibility and reliability of the appellant in a number of respects. In that regard the trial judge made clear that:

i. the appellants significant factual errors had reflected adversely upon his credit and had significantly impaired his reliability;

ii. the evidence of Mr Lambrinos was to be preferred to that of the appellant as to his involvement in the offer of a loan facility of $6,000,000 from Suncorp Metway;

iii. she had not accepted the appellant's explanation as to his reasons for attending conferences with solicitors and counsel for Lewisham Bar and Hotel;

53 There is nothing in the approach taken by the trial judge suggestive of appellable error either in the reasons for the findings of the content of conversations or in the reasons for construing the written materials in the fashion which she did.

54 There was evidence before the trial judge to permit the finding that the first loan was distinguishable from the second loan at least for the following reasons:

i. the first loan was entered into in late March or early April 2002, whereas the second loan was entered into in August 2002;

ii. the appellant at the time of entering into the first loan was a director of Liverpool Hotels, whereas at the time of entry into the second loan, he was not a director of any company;

55 The appellant has submitted that there was no contention on the pleadings that a company was the debtor. This is not correct:

i. The amended statement of claim gave particulars of the loan agreement as oral, made during March 2002 between the appellant on his own behalf and the respondent on behalf of Liverpool Hotels and on his own behalf.

a) the respondent would indemnify the plaintiff in the event that Liverpool Hotels failed to repay any of the loan moneys advanced to it;

Particulars

The terms were oral, and agreed during March 2002 between the defendant on behalf of Liverpool Hotels Pty Ltd and on his own behalf and the plaintiff on his own behalf.

56 Plainly these pleadings were in part ambulatory. However the Amended Statement of Claim identified the issues concerning the first set of payments in the following terms:

Were the first set of payments made by [the appellant] at [the respondent's] request or direction, totalling $267,452.54;

i. was each or any a loan to [the respondent], in which case, which ones? Or

57 In these circumstances there is no substance in the appellant's claim that it was not a fair reading of the pleadings that at least as one alternative, Liverpool Hotels was the debtor.

58 Nor can it be said that the issue was not litigated. It was squarely raised by the appellant's counsel in the early submissions recited in the reasons.

59 In relation to the appellant's contention that the respondent had offered guarantees, the finding was that both before the first loan as well as before the second loan the respondent had offered no guarantee and had made no representation to the appellant in support of either loan to the effect that the respondent personally would guarantee or otherwise repay the loan. In coming to those factual findings the trial judge first cited the well-known passages from Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61, referring also to Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 in terms of elementary principles.

60 The trial judge then in treating with the post-contractual submissions which had been put to her, continued:

61 Her Honour then made clear that the issue concerning the alleged contract of guarantee in substantial part rested upon a chronology with which she then dealt in a fashion which has not been shown to have been in error, treating as it did with the facts found.

62 The representational case in relation to the first loan was dismissed on the evidence. The findings included that the appellant had not relied upon any representations made by the respondent as pleaded. The findings were that the first loan was made by the appellant because, for his own reasons, he decided to do so. Further and insofar as the plaintiff had alleged particular representations, the finding was that no such representations were made. Ultimately the finding was that the first loan was made in reliance upon nothing more than the appellant's own hopes, beliefs and expectations as to the prospect of the business venture upon which he was embarking and secured by nothing but those hopes, beliefs and expectations. It is readily apparent that this finding also supports the trial judge’s conclusion that the loan was made to Liverpool Hotels.

Evidence of post-contractual conduct

63 In Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 Campbell JA [with whose reasons Beazley JA agreed] made the following observations in relation to the use of evidence of post-contractual conduct at [59]:

Law of Contract,

; Cross on Evidence,

Royal Botanic Gardens and Domain Trust v South Sydney City Council

Brambles Holdings Ltd v Bathurst City Council

Magill v National Australia Bank Ltd

Walker v Andrew

Independent Timber Importers (Aust) Pty Ltd v Mercantile Mutual Insurance

Ltd

El-Mir v Risk

64 Basten JA who also agreed with the reasons of Campbell JA observed that he too would not wish to form a concluded view as to whether it is "permissible to look at" subsequent communications and conduct, in order to determine whether a contract with a particular party existed. His Honour added at [2]:

65 Questions of the relevance and probative value of evidence in circumstances in which the issue concerned whether or not an enforceable contract had been entered into were also before the court in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) BPR 9251. As McClelland J put it, such questions cannot properly be considered independently of a consideration of the relevant issue, namely what it is, in point of fact, that constitutes the making of a contract in circumstances such as here obtains. As his Honour points out, such a contract is made "by the mutual communication between the parties of their respective assents to being bound by identifiable terms otherwise capable of having contractual force, the mutual communication typically taking the form of offer and acceptance". As his Honour [citing Williston on Contract, 3rd ed, Vol 1 paragraph 21] points out, one is not concerned with the subjective thing known as meeting of the minds, but the objective thing, the manifestation of mutual assents which is essential to the making of a contract [at page 9254].

66 Film Bars [at page 9255] is also authority for the proposition that:

67 In my own view evidence of post-contractual conduct is admissible on the question of whether a contract was formed. It is of course inadmissible on the question of what the contract means. So much is clear from Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61, in which Heydon JA [as he then was] set out succinctly the conventional and accepted principles of the law of contract (at [24]-[27]):

“The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352.
The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed : Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255.

The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong.

The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found.”

See John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43 at [234]; ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665 at [37]; Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWCA 716 at [285].

68 Hence subsequent communications may legitimately be used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract, where an issue concerns whether a particular person was a party to that contract.

69 In the circumstances before the trial judge the so-called 'post-contractual conduct' evidence which was adduced on the question of whether or not a contract of loan was formed as between the appellant and the respondent was admissible. The appellant’s challenge to such use of this material in the particular circumstances which obtained during this trial is without substance.

Orders

70 The appeal should be dismissed with costs.

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Citations

Tomko v Palasty [2007] NSWCA 258

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CITATION:	TOMKO v PALASTY [2007] NSWCA 258
HEARING DATE(S):	17/09/07
JUDGMENT DATE:	27 September 2007
JUDGMENT OF:	Mason P at 1; Basten JA at 2; Einstein J at 21
DECISION:	Appeal dismissed with costs.
CATCHWORDS:	CONTRACT – construction of contract – identification of parties to loan contract – admissibility of evidence of post-contractual conduct in determining identity of contracting party – whether statements or conduct of one party constitute an admission as to the identity of the other party to the contract.
LEGISLATION CITED:	Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153, [2001] NSWCA 61 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 El-Mir v Risk [2005] NSWCA 215 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWCA 716 Independent Timber Importers (Aust) Pty Ltd v Mercantile Mutual Insurance Australia Ltd (2002) 12 ANZ Ins Cas 61-543 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181 Magill v National Australia Bank Ltd (2001) Aust Contract R 90-131 Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 Walker v Andrew (2002) 20 ACLC 1476
PARTIES:	John Tomko - appellant John Palasty - respondent
FILE NUMBER(S):	CA 040021/07
COUNSEL:	NA Cotman SC, S Loughnan - appellant GO Blake SC, NJ Allan - respondent
SOLICITORS:	Dennis & Company - appellant Ziman and Ziman Solicitors - respondent
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 2398/05
LOWER COURT JUDICIAL OFFICER:	Gibb DCJ
LOWER COURT DATE OF DECISION:	15/12/06