Transworld Marine Agency N.V. v Rolfe
[1999] FCA 1275
•14 Sep 1999
•.
FEDERAL COURT OF AUSTRALIA
Transworld Marine Agency NV v Rolfe [1999) FCA 1275
CONTRACTS - offer and acceptance - objective theory of contract - implied contract by conduct
EQUITY - equitable lien - whether promise to place money in a trust account requires
consideration - whether agent entitled to lien over fund produced in consequence of his
instructions to solicitors
PRACTICE & PROCEDURE - international insolvency - letters of request in aid of
foreign bankruptcy - whether aid should be given where local property is subject to a charge
Corporations Law s 581
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd ( 1982) 149 CLR 600 applied
Brogden v Metropolitan Railway Co [1877] 2 AC 666 distinguished
Butler v Fairclough (1917) 23 CLR 78 applied
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd ( 1991) 24 NSWLR 1 cited
Galbraith v Grimshaw [ 191 0] AC 508 discussed
Gjergja v Cooper [1987] VR 167 cited
Haleso'wen Presswork & Assemblies Ltd v Westminster Bank Ltd [ 1971] 1 QB 1 cited
Hewett v Court (1983) 149 CLR 639 applied
Hotchkiss v National City Bank 200 F 287 at 293 (SONY 191 1) discussed
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR
11, 110 applied
Meates v Attorney-General [1983] NZLR 308 cited
Milroy v Lord (1862) 45 ER 1185 referred to
Osborn, Re [ 193 1- 1932] B&CR 189 referred to
Pudney & Mongee Nominees Pty Ltd v Man GHH Logistics GMBH (unreported, Supreme
Court of Victoria Appeal Division, 13 December 1993) referred to
Shaw v Neale ( 1858) 6 HL Cas 581 cited
Stocks & Holdings (Constructors) Pty Ltd v Arrowsmith (1964) 11 2 CLR 646 cited
Taylor v.Johnson (1 983) 151 CLR 422 cited
Tharby v Goldberg ( 1965) 112 CLR 597 applied
| Turners & Growers Exporters Ltd v Ship Cornel | is Verolme [ 1997] 2 NZLR 110 cited |
Vroon BVv Foster's Brewing Group Ltd [1994] 2 VR 32 approved
Walford v Miles [1992] 2 AC 128 referred to
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TRANSWORLD MARINE AGENCY N.V. V JAMES GEOFFREY ROLFE
NO. NG 545 OF 1998
| JUDGES: | BLACK CJ, COOPER & FINKELSTEIN JJ |
| PLACE: | MELBOURNE |
| DATE: | 14 SEPTEMBER 1999 |
GENERAL DISTRIBUTION
IN THE FEDERAL COURT OF AUSTRALIA
| VICTORIA DISTRICT REGISTRY | NG 545 OF 1998 |
On appeal from a single justice of the Federal Court
| BETWEEN: | TRANSWORLD MARINE AGENCY N.V. Appellant |
| AND: | JAMES GEOFFREY ROLFE Respondent |
| JUDGES: | BLACK CJ, COOPER & FINKELSTEIN JJ |
| DATE OF ORDER: | 14 SEPTEMBER 1999 |
| WHERE MADE: | MELBOURNE |
THE COURT ORDERS THAT:
1. The appeal be allowed in part.
2. The appellant's solicitors be released from their undertaking to hold the proceeds received from the sale of the vessels MS "Skulptor Konenkov" and MS "Skulptor Vuchetich".
3. The orders of the Federal Court made on 29 May 1998 be varied in the following respects:
| (a) | the declaration made in paragraph 2 be deleted; |
| (b) | the orders made in paragraphs 6, 7, 8 and 9 be deleted. |
4. Each party bear his or its own costs of the proceedings before Tamberlin J.
5. The respondent pay the appellant's costs of the appeal.
| Note: | Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. |
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GENERAL DISTRIBUTION
IN THE FEDERAL COURT OF AUSTRALIA
| VICTORIA DISTRICT REGISTRY | NG 545 OF 1998 |
On appeal from a single justice of the Federal Court
| BETWEEN: | TRANSWORLD MARINE AGENCY N.V. | ||
| Appellant | |||
| AND: | JAMES GEOFFREY ROLFE | ||
| Respondent | |||
| JUDGES: |
| ||
| DATE: | 14 SEPTEMBER 1999 | ||
| PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
The appellant, Transworld Marine Agency Company N.V. (Transworld) is a company established in the Netherlands. It is a subsidiary of Sovfracht International Holding GmbH (Sovfracht), a company incorporated in Russia. In 1992 the Baltic Shipping Company (Baltic) appointed Transworld to be its agent for the purpose of supplying general services to ships owned and operated by Baltic. Pursuant to that agreement Transworld provided services to Baltic to the value of 96,661 ,901 Belgian francs which amount was not paid.
2 In an admiralty action commenced in the Federal Court in September 1995, two ships owned by Baltic were arrested and were subsequently sold by the Marshall. At about the same time, Transworld approached the respondent, Mr Rolfe, with whom it had previous dealings, for assistance in relation to the recovery of the debt. Mr Rolfe says that it was agreed that in return for him taking steps on behalf of Transworld to obtain payment of the debt out of the proceeds of the sale of the two ships, Transworld would pay him 20 per cent
of the amount recovered as well as the costs and expenses incurred by him. He also says that
it was agreed that the debt due to him would be a charge on the amount recovered.
| 3 | Mr Rolfe instructed his solicitors to act on behalf of Transworld to make a claim against the proceeds and judgment was obtained for 96,661,901 Belgian francs less certain |
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agency fees. The Marshall paid Transworld amounts totalling $US2,559,682 in partial satisfaction of that judgment. Mr Rolfe asserted a charge over those funds to secure the payment to him of$US457,199.60 (being 20 per cent of the total amount recovered) and for his costs and expenses which totalled $A216,538.50. Those costs and expenses comprise the legal fees Mr Rolfe paid to his solicitors.
4 This appeal is brought by Transworld from the judgment of Tam berlin J in an action in which Mr Rolfe obtained a declaration that Transworld was obliged to pay Mr Rolfe 20 per cent of all proceeds collected from Baltic together with his costs and expenses in collecting those funds and a further declaration that Mr Rolfe has a lien on those proceeds for the amounts claimed.
5 At the trial Mr Rolfe based his money claim alternatively in contract, implied contract and restitution (quantum meruit). As regards the claim in contract, four alternative contracts were alleged: one made on 5 October 1995 (oral); one made between 10 and 13 November 1995 (by correspondence); one made on 17 and 18 February 1996 (oral and confirmed in writing); and one made on 2 April1996 (by correspondence).
6 The trial judge found that a contract was made on 2 April 1996 whereby Transworld "agreed to pay 20% commission together with costs and expenses from the trust fund in which proceeds [from the claim against Baltic] collected were to be held". In relation to the contract said to have been made on 17 and 18 February 1996, Mr Rolfe alleged that it contained a provision ''that 30% of all funds owed by [Baltic] to [Transworld] would be held in a trust account in Australia until such time as any dispute as to [his] entitlement to commission was resolved." That arrangement and its subsequent confirmation led the trial judge to find that "it has also been expressly agreed that the commission and expenses are to
be satisfied from a specific identified trust fund comprised of the proceeds recovered from Baltic on behalf of Transworld ... [so as to] give rise to an equitable charge" against the
proceeds.
| 7 | Transworld challenges each of these findings. | Therefore it is necessary to review the |
negotiations that led to the making of the agreements as found by the trial judge. Most of the negotiations are constituted by or recorded in correspondence that passed between the parties. Only passing reference need be made to the oral evidence given by the witnesses.
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8 In reviewing the evidence to determine whether any agreement was reached, three matters should be borne in mind. The first is that, speaking generally, most contracts are made by the process known as offer and acceptance, at least when one is concerned with a bilateral contract. In a bilateral contract there is an exchange of promises. The offer supplies one promise and the acceptance the other. Hence the general principle that every bilateral contract is made by the process of offer and acceptance: see generally Salmond and Winfield, "Law of Contract" (1927) at 59-61.
9 However, and this is the second point, ascertaining the existence of a contract by identifying an offer and an acceptance of an offer is not always a satisfactory way to proceed. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11 ,110 at 11,117-11 ,118 McHugh JA said:
"It is often difficult to fit a commercial arrangement into the common lawyer's analysis of a contractual arrangement. Commercial discussions often too unrefined to fit easily into the slot of 'offer ', 'acceptance', 'consideration ' and 'intention to create legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means
of an offer and its acceptance together with an intention to create a binding
legal relationship: ... A bilateral contract of this type exists independently of and indeed proceeds what the parties do. Consequently, it is an error 'to suppose that merely because something has been done then there is therefore some contract in existence which is thereby been executed': Howard, 'Contract Reliance and Business Transactions' 1987, Journal of Business Law, p 127. Nevertheless, a contract may be inferred from the acts and
| conduct of the parties as well as or in the absence of | their words: Empirnall |
Holdings Pty Ltd v Machon Paull Partners Pty Ltd {1988) 14 NSWLR 523. The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving
| all the essential elements of an express contract .. . | " |
10 The Supreme Court of Victoria has given close consideration to implied contracts on two occasions, first in Gjergja v Cooper [1987] VR 167 at 195-211 and secondly in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 79-83. After a review of many authorities and text books, both English and American, Ormiston J concluded that in an appropriate case a contract could be found to exist where no offer or acceptance could be established or inferred and all that could be found to exist was a manifestation of mutual assent implied from the circumstances. We are of the same view. That is, we accept that in
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some cases a contract will be shown to exist if the dealings between the parties, when viewed as a whole and objectively from the point of view of a reasonable person, show a concluded
| bargain: | see Meates v Attorney-General [1983] NZLR 308 at 377. |
| II | The third matter to be borne in mind is that, despite protest from time to time, (and putting to one side cases of fraud, duress and mistake) the formation of a contract has nothing to do with the actual state of mind of the parties. The formation of a contract is concerned with outward appearances: Taylor v Johnson (1983) 151 CLR 422 at 431. In Hotchkiss v National City Bank 200 F 287 (SONY 1911) at 293 (affirmed 201 F 664 (2nd Cir 1912) and affirmed 23 1 US 50 (1913)) Learned Hand J said: |
"A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party when he used the words 'intended something else ' than the usual meaning which the law imposes on them, he would still be held, unless there were mutual mistake or something else of the sort."
According to this objectivest theory, if a party's actions, judged by the standard of reasonableness, manifest an i1_1tention to be bound by contract then the unexpressed state of the party's mind is irrelevant.
| 12 | We can now tum to the negotiations that the trial judge found resulted in binding agreements between the parties. | Mr Rolfe was on one side of the negotiations. | On the other |
side were both Transworld and Sovfracht acting on behalf of Transworld. The negotiations began in October 1995, but initially they were for a different agreement than was found by the trial judge and between different parties. What was first discussed was the making of an agreement between Transworld and James Rolfe Transport (Vic) Pty Ltd, a company controlled by Mr Rolfe, pursuant to which Transworld would "factor" (that is assign) the debt due by Baltic. However, Mr Rolfe ultimately advised Transworld that, because it would take considerable time to recover the debt and as Baltic's assets in Australia were insufficient to cover the debt, Mr Rolfe did not wish to proceed with the proposed assignment.
| 13 | At this time Transworld was in dire financial straits. (Indeed, on 26 March 1997 the Commercial Court of Antwerp declared the company to be bankrupt and appointed trustees in |
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bankruptcy to control its affairs.) Accordingly, Mr Rolfe, or his company James Rolfe Transport, offered to lend Transworld $US500,000. One condition of the proposed loan was that Mr Rolfe be appointed the company's agent to recover the debt due by Baltic. Mr Rolfe requested that he be paid a fee of 20 per cent of all monies collected on behalf of Transworld. He described the fee as one to be "paid in return for funding these actions, briefing legal counsel, being responsible for all legal and other costs, collection of debts and defending of Transworld and [another company's] legal positions. This is a success fee only. No recovery, no payment."
14 Mr Rolfe's solicitors, Opat Goldsmith & Goldsmith Pty, prepared a draft power of attorney designed to confer power on Mr Rolfe to take steps to recover the Baltic debt and sent a copy of the draft to Transworld. On 3 November 1995 Mr Rolfe wrote to Trans world stating that he was prepared to provide the loan of $US500,000 on condition that he be granted a power of attorney so that he would have sufficient power to collect the debt, that adequate security was provided for the loan and that Transworld agree to pay "a 20% commission ... on any Baltic debt recovery". On 8 November 1995 Mr Rolfe advised that the power of attorney would have to be sufficiently broad to enable him to act on behalf of Transworld both in Australia and elsewhere.
15 A reply was received from Sovfracht on 8 November 1995. It stated:
"We propose to alter your scheme to the effect, that it would be applicable to the executed arrests of the Baltic vessels in Australia. If the amounts collected are not sufficient to cover the loan facility and interests there upon, and your 20% factoring fee on the amounts collected less US$500, 000 - fended earlier then Transworld guarantee to reimburse the difference to you
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| 16 |
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"I agree to accept the following proposal (which I believe corresponds with
your comments).
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| Costs | of collection |
USD500,00 loan to Rolfe
| Agreed factoring fee | of 20% of any | monies collected |
| Balance to TWM |
It is understood that any shortfall from these vessels will be guaranteed by TWM agreeing to reimburse the shortfall out of the proceeds from arrests of other Baltic vessels ... "
We have set out this exchange because it is the first occasion upon which the parties discussed the possibility of discharging the obligation that might become due to Mr Rolfe out
of the proceeds of the recovery of the Baltic debt.
| , 7 | A draft loan agreement was prepared in November 1995 and sent to Transworld. According to the draft, James Rolfe Transport was to lend $US500,000 to Transworld. Clause III of the draft deals with the application of the funds recovered from Baltic. It provides that: |
"Repayment of the loan is to be via the Lender attaching to the vessels of the Baltic Shipping company in Australia and at ports around the world as necessary; for repayment of monies owed to the Borrower unpaid as at the date of this Agreement. Monies received from the successful attaching to or
| caveating of | the vessel will be used as follows; |
| (a) | To satisfy costs of collection, |
| (b) | To repay any/a// of the loan by the lender in the amount of |
USD500,000,
| (c) | Factoring Fee to the Lender of20% of collections, | ||
| (d) |
|
| 18 | On 27 November 1995 Transworld returned the draft agreement after having made two amendments to clause III. | The first amendment was to add the words "spent after |
| approval of the Borrower'' to clause III{ a). | The second amendment was to add the sentence |
''This 20% is not applicable on the 500,000 US$ loan" to clause Ill{ c).
| 19 | Two things should be noted. The first is that no objection was taken to the proposal that the money recovered from Baltic should be applied to discharge the liabilities due to Mr Rolfe or his company. The second thing to note is the lack of. consensus on whether the |
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collection (or factoring) fee was to be paid on the whole of the amount recovered from Baltic.
Mr Rolfe had proposed that it should be but Transworld did not agree.
20 The next day Mr Rolfe wrote to Sovfracht advising that he would not agree to the suggested changes to the draft agreement. Then, on 7 December 1995, Mr Rolfe wrote to Sovfracht saying that the "loan facility was to stand alone and was in no way to be connected with a separate arrangement whereby I attempted to collect Baltic debts on behalf of TWM. ·
The loan was to be repaid out of funds owed by Baltic to TWM collected from the arrest of
Baltic vessels." This assertion was plainly false. Mr Rolfe had offered to make the loan to induce Transworld to appoint him as its agent to assist in the recovery of the Baltic debt and pay him a 20 per cent collection fee. Mr Rolfe also said: "All legal costs were to be paid by me, and in return I was to receive a fee of 20% of all monies collected, including the USD500,000 I had loaned to TWM." He pointed out that this was at odds with the proposal that the 20 per cent fee should not be paid on the $US500,000. This issue became the source
of continuing dispute.
| 21 | On 20 December 1995 Sovfracht informed Mr Rolfe that Transworld would agree to pay a 20 per cent fee on all monies collected from Baltic and requested remittance of the loan monies as soon as practicable. However, by early January 1996 Mr Rolfe was no longer | |
|
"As far as the TWM loan is concerned, this is no longer possible without
adequate security. I am currently exposed to Baltic related matters in excess
| of AUDI.OMwith the chances ofrecovery looking very slim. | I cannot afford |
| further exposure at this time. " |
22 Notwithstanding the fact that Mr Rolfe was no longer in a position to lend $US500,000 to Transworld and although no agreement had been reached concerning the payment of a collection fee, Mr Rolfe, on behalf of Transworld, was still taking steps (through the medium of his solicitors) to recover the Baltic debt and was reporting to Transworld on his activities. Indeed, on 30 January 1996 Mr Rolfe reported that "all necessary action has been taken re the recovery of the debt in Australia". In that letter Mr Rolfe said that as he was personally funding the action in Australia, he requested that he be provided with an indemnity for his costs.
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23 On I February 1996 Transworld informed Mr Rolfe of the various actions that were being taken around the world to recover the Baltic debt. With regard to the proceedings in Australia, Transworld advised that "nothing has been decided by [it] for the moment being".
It requested advice concerning the "percentage of chance" that it would obtain $US 1,400,000
from Baltic.
24 There can be little doubt that at this time Mr Rolfe knew that there was no agreement that he be paid a collection fee. He had put forward what came to be described as a "package" proposal, one element of which was the payment of a collection fee for his efforts to recover the Baltic debt and the other element being that a loan of $US500,000 be made to Transworld. As no loan had been made there was no basis for Mr Rolfe's continued assertion that there was a concluded agreement that he be paid the collection fee.
| 25 |
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is sometimes referred to as the "Cyprus Protocol".
| 26 | The Protocol records the competing contentions of the parties. | According to |
Transworld there was a "package deal" which required Mr Rolfe to lend $US500,000 to Transworld before he was entitled to the collection fee of 20 per cent of the money recovered from Baltic. As the loan had not been advanced, Transworld asserted that "the deal was off'. Mr Rolfe disagreed. He expressed the view ''the deal was still on foot as TWM had not been able to provide the necessary guarantees to secure the loan". Following what were described as "lengthy discussions", the subsequent "agreement" was reached according to the Protocol:
"IT WAS AGREED: as between all those present that the following
approach would be adopted as relates to the collection
ofTWM debts from available Baltic assets in Australia:
TWM required an urgent input of funds, being the repayment of monies owed to it by Baltic.
Rolfe would pursue the collection ofTWM amounts due from available Baltic Australian assets.
Sovfracht and Sovfracht companies around the world would continue to seek the repayment of the like monies owed to TWM in other ports around the world.
Parties agree to keep each informed as to the progress of the collection process via Mr Vinogradov as a central co-ordination point.
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The issue of collection fee will be deferred as between the parties. Rolfe maintains the right to receive a collection fee of 20% of collections made. Mssrs. Kotov & Vinogradov maintain that there is no Agreement in place as a Loan in the amount of USD500,000 was not put in place to TWA! by Rolfe.
| Any monies collected in Australia on behalf of | the TWM debt owed by |
Baltic will be remitted immediately to TWM less 30% - to be held in a Trust Account pending the resolve of the costs to be paid in Australia in respect of
| collection I out of | pockets & legal fees paid. " |
27 As to this "agreement" the trial judge made two findings. First he held that the Cyprus Protocol did not evidence a binding agreement whereby Transworld would pay 20 per cent commission to Mr Rolfe. Putting the matter another way, his Honour found that the discussions that are summarised in the Protocol did not result in there being any contract between the parties. Although the trial judge did not detail why he arrived at this conclusion, the reasons are clear. In the first place, there can be no concluded agreement when an essential provision to the bargain has not been agreed: see eg Stocks & Holdings
(Constructors) Pty Ltd v Arrowsmith (1964) 112 CLR 646 where the price of land under a
contract of sale had not been agreed. The failure to agree on whether a collection fee would be paid resulted in the omission of an essential tenn. In the second place, even if the "agreement" could be construed as one whereby the parties promised to negotiate the payment of a collection fee, that would not result in a binding agreement. A mere agreement
to negotiate is not recognised as an enforceable contract: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604; Walford v Miles [1992] 2 AC 128; but
compare the dicta in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd ( 1991) 24 NSWLR 1.
28 However, the learned trial judge did find that the Cyprus Protocol "did evidence a binding agreement in relation to the retention of thirty per cent of monies collected and the payment of commission and expenses from those retained monies". We are unable to agree with this conclusion. The "agreement" identified by the trial judge was considered by him to contain a provision that there be paid out of the money to be collected the commission due to Mr Rolfe. There was of course no agreement to pay any commission at that time, as the trial judge had found, and we do not think it is possible to construe the "agreement" as one whereby a fund was charged with the payment of commission. The "agreement" may be open to two constructions. First it may mean that 30 per cent of the proceeds of the sale of the two ships was to be held in trust pending the resolution of the then outstanding dispute as to the payment of commission and if resolved in favour of Mr Rolfe, any money due to him
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| would be paid out of the fund. | We think that this is the correct interpretation of what was |
"agreed" at Cyprus. However, as events have shown, the dispute about whether there was an agreement that Mr Rolfe be paid commission was resolved against him. It follows that any "agreement" to maintain and to charge the trust fund came to an end. The second possible meaning is that the proceeds were to be held in trust pending some future agreement as to the payment of commission. In that event there could be no charge. To establish the existence of a charge it is necessary to show that one was intended. We cannot conclude from the words used any intention to create a charge over a fund that was not yet in existence to meet a claim that had not been agreed. Moreover, there is an insuperable difficulty in treating as a concluded bargain an agreement to charge a fund with a sum to be agreed. It is well accepted that there can be no binding agreement where one party has an option whether he will perform his obligations: Tharby v Goldberg (1965) 112 CLR 597 at 605, 613. Here, because Transworld had not bound itself to pay any commission, it had an unfettered choice whether to enter into such an agreement.
29 On 18 March 1996 Sovfracht wrote to Mr Rolfe and again raised the issue of the loan to Transworld. Sovfracht said:
"Since TWM needs badly cash money. we have come to a decision to expressly confirm the TWM's commitment to pay you the commission of 20% out of the amounts collected in Australia. The payment will be effected without any prejudice but subject to a loan of USD500, 000 at least and before 25 March as latest. The securities of the TWM's payment back of the loan are the money to be collected in Australia. "
| 30 | Mr Rolfe replied the following day. | He said that he was not in a financial position to |
lend Transworld $US500,000 but could provide a loan of $US 175,000. Mr Rolfe also restated his position that in his view the obligation to pay the 20 per cent commission was "firmly in place". He went so far as to suggest that this had been agreed at the Cyprus meeting, which, however, was not the case. ·
| 3 1 | A letter to the same effect was sent to Transworld on 20 March 1996. | In that letter |
Mr Rolfe said that his "actions in pursuing the TWM debt in Australia [were] evidence of [his] belief and understanding that a 20% commission would be payable on all collections even though the loan was not granted. These actions have continued, at [his] expense, on this understanding." The letter went on to offer a loan of$US175,000 conditional upon a number
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of events, one of which was that Transworld "acknowledge the 20% commission to be paid
on all debts collected in Australia".
32 Transworld was anxious to take the loan. However, on 26 March 1996 Sovfracht advised that if the loan was only to be in the sum of $US 175,000 it would be "fair to pay a commission proportionately less, namely one third of the principal amount since 175,000 represents one third of 500,000." This provoked Mr Rolfe to write two letters. The first, dated 29 March 1996, relevantly provides:
"I respond [to the letter of26 March 1996} as follows:-
| 1) | You know my stand as far as the 20% commission is concerned. | I have |
| asked for the Directors of TWM to officially state their position. | I will | |
| not enter into further discussion or negotiation on this subject. |
Once I have been informed of the official and final position of TWM, acknowledged by its Directors, the matter will then be clear to all parties. I will then, if it is necessary, instigate proceedings to protect my interests.
In the meantime, as agreed, 1 will continue to pursue the collection of the TWM debt in Australia.
2) As far as the USD175,000.00 loan is concerned, I refer you to my {earlier] letters ... I repeat, this matter is not negotiable and the offer closes as at the close of business today, Friday 29th March, 1996.
3) Your suggestion that TWM pay a commission proportionately less because the loan is proportionately less is totally unacceptable and outside of the arrangement that is already in place. This 'new' offer is totally rejected. "
The second letter is dated 2 April 1996 and reads:
"We are now in the position whereby we are ready to instigate actions to gain a preference for both Seachart {another company on whose behalf Mr Rolfe was taking certain proceedings} and TWM over the Baltic assets in Australia.
| This includes the proceeds of | the sale of | the two vessels in Australia. |
I therefore require your response to my facsimile dated 29 March 1996 by return. I am not prepared to commit to the funding for these actions until such time that we have agreement on the payment of the 20% commission by TWM. As stated in my previous facsimile, I will be forced to take immediate action to protect my position, under the terms of our agreement, in the absence of an immediate response from you. "
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| 33 | Sovfracht provided its response on the same day. | It wrote: |
| "Acknowledging receipt of | your letter dated 2nd April. |
We are well aware about the Court's procedure in Australia.
| Kindly ask you to speed up the recovering of | the money due to TWM/Seachart. |
Looking forward to your report on last developments in that respect. "
| 34 | Then._ on 3 April 1996 Mr Rolfe wrote to Sovfracht setting out what he understood to be the result of its letter of2 Aprill996. | He said: |
"It is clear from your response that you acknowledge the agreement between
myself and TWM, as confirmed at our meeting in Cyprus and reconfirmed in my letter dated 26 February, 1996, and it is firmly understood that I am to do
| everything possible to speed up the recovery of | funds to TWM ... " |
35 Did Mr Rolfe correctly describe the effect of the three communications of 29 March and 2 April 1996, namely as acknowledging (or constituting) an agreement to pay the collection fee? The trial judge found that the correspondence did have that effect. Was the trial judge correct in making that finding?
36 In accordance with orthodox theory, the question to be answered is whether the two letters written by Mr Rolfe amounted to an offer to continue to conduct the litigation on behalf of Transworld in consideration for the payment of a 20 per cent collection fee and whether Sovfracht's response was an acceptance of that offer. There is probably no difficulty in regarding Mr Rolfe's letters as an offer. Was the reply an acceptance to that offer? Under the objective theory of contract, Sovfracht's undisclosed intention in writing the letter of 2 April 1996 is irrelevant. What is relevant is whether the letter appears to a reasonable
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| amount asked"; but it need not be expressed in the form of a promise. It will be sufficient if a reasonable bystander would regard the contents of the Sovfracht letter as signalling to Mr Rolfe that Transworld was committing itself to pay the fee. In our view this is preci~ely what the letter did signal. In this respect we agree with the view of the trial judge that by 2 April 1996 Mr Rolfe had made his position quite clear to Transworld, namely that he would not continue to fund the proceeding unless he had a commitment that the commission be paid. |
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He made this threat about ten weeks before the hearing of the claim against the proceeds of the sale of the two ships. In those circumstances Sovfracht's letter of 2 April was properly characterised by the trial judge as an acceptance of Mr Rolfe's offer to continue to pursue the recovery of the Baltic debt on that basis that he be paid a 20 per cent commission.
37 It does not follow that the parties also agreed that the commission and Mr Rolfe's costs and expenses should be paid out of the money (if any) recovered from the proceeds of
sale. In arriving at the conclusion that such an agreement had been reached, the trial judge
relied principally upon the "agreement" recorded in the Cyprus Protocol. We have, however, already explained why the "agreement" to hold 30 per cent of the proceeds in a trust account did not result in a charge. Further, we do not accept that the agreement that was reached on 2 April 1996 contained a term that provided for payment out of the proceeds of the sale of the ships. No doubt it was open to Mr Rolfe to again raise the possibility of being paid out of the
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of the 20% commission" and that is what he obtained.
38 Mr Rolfe's position is not improved by reference to the draft loan agreement where specific provision was made for the payment of the amounts due to James Rolfe Transport out of the proceeds of the Baltic debt. Quite apart from the fact that at this time no agreement was contemplated with Mr Rolfe, the draft agreement was only one step in the negotiations. Many terms had been the subject of negotiation from time to time and did not find their way into the final agreement. Take the proposed loan of $US500,000 as an example. It was discussed, but no agreement was reached. Then there was the loan of$US175,000. That was also the subject of negotiation, but not an agreement. In our view the same is true of the negotiations concerning the application of the proceeds of the Baltic debt.
39 In this connection we have considered whether a letter dated 4 July 1996 from Sovfracht to Mr Rolfe should produce a different result. In that letter Sovfracht confirmed the ''understanding that a 30% reserve out of the amount due to be collected very soon to be held in a Trust Account as agreed in the meeting in Cyprus for payment of your collection fee, out-of-pocket money and legal fees." We have rejected this communication as affecting the conclusion that we have reached for three reasons. First, in so far as it refers to what was
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amount to a binding promise, because there was an absence of consideration. According to the amended statement of claim the solicitors had taken their last step in the recovery proceeding on about 23 May 1996 and the parties were awaiting the outcome of the claim. It is true that the extent to which consideration is required for an equitable charge is a matter of some difficulty. In Pudney & Mongee Nominees Pty Ltd v Man GHH Logistics GMBH (unreported, Supreme Court of Victoria Appeal Division, 13 December 1993) it was assumed that consideration was needed: see also Fisher & Lightwood, "Law of Mortgages" (Aust ed) (1995) para 2.6. In Sykes & Walker, ''The Law of Securities" (5th ed) {1993) at 196 a different view is taken. There it is suggested that equity would enforce an agreement to charge a fund even in the absence of consideration. But there can be no doubt that consideration is required to support an agreement to charge a fund that is not yet in existence.
It is not possible to create a charge, or indeed any proprietary interest, over future property:
Norman v Federal Commissioner of'Eaxation (1963) 109 CLR 9 at 26. A purported charge over future property can only operate as an agreement to charge that property which will
operate in equity to create the charge as soon as the property comes into existence: compare
Tailby v Official Receiver [1888] 13 App Cas 523; Glegg v Bromley [1912] 3 KB 474. And
to be efficacious such an agreement must be supported by consideration: Norman; above;
Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385.
40 It should be emphasised that here we are not dealing with a charge over the chose in action being the claim against the arrested vessels, but the proceeds of that chose in action.
In law this is treated as a mere expectancy which is incapable of assignment and therefore
incapable of being charged: see eg Glegg, above where the proceeds of an action for defamation were held to be a mere expectancy and thus incapable of assignment. See also
Williams v Commissioner of Inland Revenue (NZ) [1965] NZLR 395 where a purported
assignment of "the first £500 of the net income which shall accrue to the assignor" from a trust fund in which he held a life interest was held to be nothing more than an expectancy that required consideration.
41 We have also considered whether the conduct of the parties leads to an inference of a concluded agreement that the commission be paid out of the fund. The conduct to be considered are the acts of the parties, that is what they said and did, and not what they thought or believed as evidenced by their internal communications. We do not believe that their actions evidenee a concluded agreement. This is not a case, of which Brogden v
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Metropolitan Railway Co [ 1877] 2 AC 666 is an example, where transactions that have been
earned out are only referable to a concluded agreement. It is clear that Mr Rolfe had instructed the solicitors to act, and had assumed responsibility for their fees, in the absence of an agreement to pay commission and, more relevantly, in the absence of an agreement that his commission and costs and expenses come out of a fund. That he continued to instruct the solicitors to act and that he continued to incur the obligation to pay fees after 2 April 1996 is not necessarily referable to a concluded agreement.
42 It does not appear to have been in dispute that Mr Rolfe was entitled to be paid the costs and expenses that he incurred in instructing the solicitors to act on behalf of Transworld. Those costs and expenses total $A216,538.50 and comprise the costs paid to the solicitors. It is true that there was a challenge to the finding made by the trial judge that the amount in question had been paid to the solicitors, but Mr Rolfe had given evidence that he had made the payment and the trial judge was entitled to accept his word.
43 For present purposes it is not necessary to decide whether Mr Rolfe's entitlement to recover his costs and expenses was contractual or restitutionary. Even if no agreement for their payment had been made, Mr Rolfe would nevertheless be entitled to recover those costs and expenses: see generally Gough & Jones, "Law of Restitution" (3rd ed) (1996) at 309- 327, 331-350, 376-379; Fridman & McCloud, "Restitution" (1982) chapters 11, 16, 438-439. We do, of course, assume, as appears to be the case, that in incurring those costs and expenses Mr Rolfe was acting in accordance with the authority of Transworld, which is the basis of an agent's entitlement to reimbursement: G Fridman, "Law of Agency" (6th ed) (1990) at 180-181.
44 Next it is necessary to determine whether Mr Rolfe is in any case entitled to a lien or a charge over the proceeds of the Baltic debt in respect of his costs and expenses. Generally speaking, an agent is entitled to a common law lien over his principal's property until such time as the principal has satisfied the claims due to the agent. As to a lien over money see
Halesowen Presswork & Assemblies Ltd v Westminster Bank Ltd [1971] l QB 1 at 33-34, 46;
on appeal [1972] AC 785 at 802 and 810. For such lien to arise (it is usually referred to as a particular lien) the agent must have possession of the property and it must be property in respect of which the obligation by the principal is incurred. If custom permits (which may sometimes occur), the agent can retain possession of his principal's goods in respect of a
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general balance of account or until the satisfaction of debts or obligations incurred independently of the goods subject to the right. This is the so called general lien, but for either a special lien or a general lien to subsist the agent must have possession of the principal's goods: Shaw v Neale (1858) 6 HL Cas 581 at 60 I. Here, however, Mr Rolfe does not have possession of any property belonging to Transworld.
45 No doubt realising that he was not in a position to assert a common law lien, Mr Rolfe submitted that he had an equitable lien over the fund being a lien that exists independently of possession and one that arises by operation of equity from the relationship between the parties: Hewett v Court (1983) 149 CLR 639 at 663. An equitable lien has been found to exist in the following cases: a vendor's lien for the unpaid purchase price; a purchaser's lien in cases where the purchaser properly declines to complete the contract; a trustee's lien in respect of money expended in the due performance of his trust; a beneficiary's lien in respect
of property which a trustee has purchased in breach of trust; liens arising on dissolution of
| partnership; a solicitor's lien in respect of his costs and expenses: see generally, Sykes & Walker, supra at 199-206,216-217. |
46 The circumstances in which an equitable lien will arise cannot be stated with any
| precision. | In Hewett (supra at 668) Deane J set out what he regarded would be sufficient for |
| an equitable lien to arise between parties in a contractual relationship. | He said that those |
| circumstances were: |
"... (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it ... ; (ii) that that property (or arguably property including that property .. . ) be specifically identified and appropriated to the performance of the contract ... ; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or,
if it be appropriate, more than a particular portion thereof) to a stranger
without the consent of the other party or without the actual or potential
liability having been discharged. " (citations omitted)
| 47 | The first condition indicated by Deane J is satisfied. Transworld is indebted to Mr Rolfe in consequence of payments made by him in relation to the recovery of the Baltic debt. Whether the second condition is satisfied is doubtful, but we will assume that some |
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appropriation has taken place shortly after the fund was received. We do not accept, however, that it would be unconscionable for the fund to be dealt with without the liability of
| Transworld to Mr Rolfe being discharged. | Our reasons are as follows. |
| 48 | General equitable considerations of | justice recognise the existence of an equitable lien |
where property has been recovered or protected by the exertion of the party claiming the lien. For example, a liquidator, a receiver, a trustee or a solicitor who by his exertion recovers or protects property is entitled to a lien over that property as security for the payment of his costs, fees and expenses: see generally Worrell v Power & Power (1993) 46 FCR 214. No doubt if property would be lost, damaged or not recovered, but for the exertion of some person, then it is right that that person should be paid his costs and expenses out of the property that he has recovered, protected or preserved. But what if the person does no more than act as an intermediary between the principal and the person who recovers, protects or preserves the property over which the lien is claimed? In our view, general equitable considerations of justice do not demand that the intermediary also be entitled to an equitable lien or charge. The intermediary is not the person who has recovered, protected or preserved the principal's property. The intermediary does not stand in relation to that property as does the liquidator, receiver, trustee or other person whose exertions did protect, preserve or recover the property. The fact that the intermediary has incurred expenditure is not, by itself, sufficient to displace this conclusion.
49 Further, there is no case that we have been able to discover where it has been held a person in the position of Mr Rolfe (an agent who passed on instructions to his principal's solicitors) was entitled to a equitable lien or charge over the money recovered by the solicitor
on his client's behalf. Nor can we see any reason why an equitable lien or charge should
| ||
| ||
| employer. If the employee incurs expenses in so acting he is entitled to an indemnity, but it has never been suggested that the employee also has a proprietary interest over his employer's property in respect of which he incurred that expenditure albeit that, in some cases, he may have a possessory lien over that property. |
| 50 | There is then one final matter that must be considered. | We have already mentioned |
that on 26 March 1997 the Commercial Court of Antwerp adjudged Transworld to be
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bankrupt and appointed trustees to supervise the bankruptcy. Following the bankruptcy, the Commercial Court of Antwerp issued a letter of request to the Federal Court requesting that it stay the proceeding commenced by Mr Rolfe and asking for an order that any money belonging to Transworld be "assigned" to its trustees in bankruptcy. At the time of the request approximately $US 1 ,028,164.40 from the proceeds of the sale of the arrested ships was being held in the trust account, maintained by the trustees' solicitors pursuant to an undertaking given to the court pending the outcome of the proceeding. It was accepted that this was the money sought to be "assigned" to the trustees.
51 The request called in aid s 29 of the Bankruptcy Act 1966 (Cth), but was properly treated as being based on s 581 of the Corporations Law which, for practical purposes, is in the same terms ass 29. Section 581 provides:
"(1) All courts having jurisdiction in matters ansmg under the
Corporations Law of this jurisdiction, the Judges of those courts and the officers of, or under the control of, those courts must severally act in aid of, and be auxiliary to:
| (a) | each other; and |
| (b) | all courts having jurisdiction in matters ansmg under corresponding laws, the Judges of those courts and the officers of, or under the control of, those courts; |
in all external administration matters.
| (2) | In all external administration matters, the Court: | |||
|
(3) Where a letter of request from a court of an excluded Territory, or of a country other than Australia, requesting aid in an external administration matter is filed in the Court, the Court may exercise such powers with respect to the matter as it could exercise if the matter had arisen within its own jurisdiction.
(4) The Court may request a court of an excluded Territory, or of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter."
•
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"External administration matter" is defined in s 580 to mean:
" ... a matter relating to:
| (a) | winding up, under this Chapter, a company or a Part 5. 7 body; |
| (b) | winding up, outside Australia, a body corporate or a Part 5. 7 body; or |
| (c) | the insolvency of a body corporate or of a Part 5. 7 body;" |
| 52 | The trial judge refused to stay the proceeding and also refused to order that the proceeds be "assigned" to the trustees of Transworld. | In reaching these conclusions the trial |
judge treated the request for assistance as raising discretionary considerations.
| The nature and extent of the obligations imposed by s 581 (2) are yet to be detennined. | In |
England the comparable provisions of the Bankruptcy Act (s 74 of the Bankruptcy Act 1869, s 118 of the Bankruptcy Act 1883 and s 122 of the Bankruptcy Act 1914) were held to require the court to give such assistance as it could in aid of a foreign bankruptcy, subject to the considerations that would arise if there was a local bankruptcy, as to the rights of creditors in England (Re Osborn [ 1931-1932] B&CR 189) or unless the provision of assistance offended against some overriding principal of public policy (In reA Debtor; Ex parte Viscount of the Royal Court of Jersey [ 1981] Ch 384). Re Osborn has been followed in Australia: see eg Re Ayres; Ex parte Evans (1981) 34 ALR 582; on appeal (1982) 56 FLR 235. For a different view of the obligation see Hughes v Hannover Ruckversicherungs-Aktiengese/lschaft [ 1997] 1 BCLC 497, where the Court of Appeal considered the effect of the Insolvency Act 1986 (UK).
| 54 | It is not necessary to explore these issues. | Here Transworld argues that the trial judge |
was in error in refusing to make an order in aid of the foreign bankruptcy notwithstanding his finding that Mr Rolfe had an equitable charge over the proceeds received from the Marshall. In our view, however, the power conferred by s 581 cannot be exercised so as to deprive a person of an interest in property acquired in this country according to the laws of this country where, perhaps, the Court can ensure that the party is left, in practical terms, in the same position. In Galbraith v Grimshaw [ 191 0] AC 508 a bankruptcy order was made in Scotland after a garnishee order had been made in England. The issue considered by the House of Lords was whether the trustee in bankruptcy or the judgment creditor was entitled to the debt. Lord Macnaghten said, in reference to s 118 of the Bankruptcy Act 1883 (at 512):
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'The Act does not say that a Scotch sequestration shall have effect in England as if it were an English bankruptcy of the same date. It only says that the
| Courts of the different parts of | the United Kingdom shall severally act in aid |
| of and be auxiliary to each other in all matters of bankruptcy. | The English |
Court, no doubt, is bound to carry out the orders of the Scottish Court, but in the absence of special enactment the Scottish Court can only claim the~!:!!!!.
| assets of | the bankrupt. " (emphasis added) |
| 55 | The same reasoning applies here. | When orders in aid of a foreign bankruptcy have |
been made it has often been on condition that the trustee of the foreign bankrupt should submit to the jurisdiction and abide by the decisions of the local court on any question arising in respect of property within the jurisdiction of the court making the order in aid: see eg Re Osborn, supra; Re Jackson (A bankrupt in the Republic of Ireland) (1973) N Ir R 67. In New
Zealand a similar result was reached in Turners & Growers Exporters Ltd v Ship Cornelis
Vera/me [1997] 2 NZLR 110 when an arrested ship was released from arrest upon the request
of foreign trustees in bankruptcy on condition that the trustees secure the claims of the master
and the crew who were in New Zealand and whose claims were secured by the ship.
56 Having formed the view that Mr Rolfe had an equitable charge over the proceeds of the Baltic debt, the trial judge was not in error in refusing to "assign" those proceeds to the trustees ofTransworld. We only differ from the trial judge in finding that the matter was not discretionary. In our view he could not have made an order that would defeat an equitable charge, at least without making provision for substitute security.
Be that as it may, the view that we have formed is that Mr Rolfe does not have an equitable charge on the fund. Accordingly, the solicitors should be released from their undertaking, whereupon they will be free to account for the funds to the trustees without the need for an order under s 581 .
58 In the result, we would make the following orders:
|
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3. The orders of the Federal Court made on 29 May 1998 be varied in the following respects:
|
4. Each party bear his or its own costs of the proceedings below.
5. The respondent pay the appellant's costs of the appeal.
I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.
Associate: r-~
| Dated: | 14 September 1999 |
| Counsel for the Appellant: | Mr D Grieve QC Mr J Wheelhouse |
| Solicitor for the Applicant: | Deacons Graham & James |
| Counsel for the Respondent: | Mr R Aldridge Dr S Churches |
| Solicitor for the Respondent: | Goldsmiths |
| Date of Hearing: | 2 and 3 November 1998 |
| Date of Judgment: | 14 September I 999 |
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