Fernkiln Pty Ltd v Australian Building Industries Pty Ltd [1999] QCA 179

IN THE COURT OF APPEAL [1999] QCA 179 SUPREME COURT OF QUEENSLAND Appeal No 2818 of 1998 Brisbane Before Davies JA Pincus JA Wilson J [Fernkiln P/L v Aust Bldg Ind P/L] BETWEEN: FERNKILN PTY LTD (ACN 073 072 956) (Plaintiff) Appellant AND: AUSTRALIAN BUILDING INDUSTRIES PTY LTD (ACN 009 340 952) (Defendant) Respondent REASONS FOR JUDGMENT - DAVIES JA Judgment delivered 25 May 1999 1 Subject to the observations of Pincus JA with which I agree, I also agree with the reasons of Wilson J and with the orders which she proposes. -- 1 of 15 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 2818 of 1998 Brisbane Before Davies J.A. Pincus J.A. Wilson J. [Fernkiln P/L v. Aust. Bldg. Ind. P/L] BETWEEN: FERNKILN PTY LTD A.C.N. 073 072 956 (Plaintiff) Appellant AND: AUSTRALIAN BUILDING INDUSTRIES PTY LTD A.C.N. 009 340 952 (Defendant) Respondent REASONS FOR JUDGMENT - PINCUS J.A. Judgment delivered 25 May 1999 1 I have the advantage of reading the reasons of Wilson J. and subject to the following observations, agree with them. 2 The argument that conversations between Messrs Hastie and Irwin, in which the former told the latter "how progress on the project was going", amounted to acceptance of the terms in the letter of 19 July 1996, appears to me to lack substance. There was no evidence on which it could be found that there was an acceptance on the part of Mr Hastie of the terms put forward in the letter of 19 July 1996, let alone an acceptance of those terms of an unequivocal kind: see Halsburys -- 2 of 15 -- Laws of Australia, Vol. 6, para. 110-355: "Acceptance must be unequivocal; that is, the language used must be such as would convey to a reasonable person in the position of the offeror a clear and definite decision by the offeree to be bound by the terms of the offer leaving nothing further to be negotiated". Further, the letter of 15 August 1996 from the appellant's solicitors proposed terms not corresponding to those set out in the letter of 19 July 1996; the differences are such as to suggest a perception on the appellant's part that it did not yet have an agreement with the respondent. 3 The appellant's argument based on estoppel has in my view more weight than the contention I have just discussed. There was evidence of conduct which would have encouraged the appellant to assume that a contract would come into existence: see Austotel Pty Ltd v. Franklin Selfserve Pty Ltd (1989) 16 N.S.W.L.R. 582 at 610 per Priestly J.A. The respondent's conduct consisted in the conversations just mentioned, which took place against the background that both parties knew work had to begin promptly to achieve completion by 18 December 1996, and also the return by the respondent to the appellant of a plan with the position of power points marked. The appellant acted as if it assumed there would be a contract; by 11 October 1996 when the respondent made it clear that the building being constructed was no longer required by it, a number of things had been done by the appellant on the assumption mentioned. A subdivision of land had been effected, earthworks completed, steel prefabricated, cranes ordered and a contract of sale had been made by the appellant conditional upon execution of an agreement for lease. 4 The analysis by Priestly J.A. in the Austotel case shows that the principle of Waltons Stores (Interstate) Limited v. Maher (1988) 164 C.L.R. 387, is not confined to situations in which there is, as there was in Waltons Stores, a consensus as to the precise terms by which the parties are to -- 3 of 15 -- 4 be bound; a court exercising equitable jurisdiction may mould the relief so as to overcome difficulty caused by some degree of lack of agreement. The Full Court of the Federal Court in S & E Promotions Pty Ltd v. Tobin Brothers Pty Ltd (1994) 122 A.L.R. 637 accepted that, as Priestly J.A. had held in Austotel, equitable estoppel may operate where the assumption created is that "a contract will come into existence" (my emphasis): 653. But it must be conceded that views on the question subsequently expressed by a differently constituted Full Federal Court do not encourage the thought that a Waltons Stores approach can solve the problem of a lack of consensus: see Mobil Oil Australia Ltd v. Lyndel Nominees Pty Ltd (1998) 153 A.L.R. 198. In discussing the evidence relied on there to found an estoppel the court remarked: "The essential elements and details of the legal relationship are lacking as are any specific details relating to the duration or terms of any extension or renewal or of the period over which the franchisees would qualify. Nor can such an indeterminate possibility be regarded as an expression of an intent that any particular incentive scheme will be formulated or implemented. No provision is made as to any objective or subjective criteria or to any person or entity by reference to which, or by whom, the nature, extent, duration or terms of any grant can be rendered reasonably certain". (237) -- 4 of 15 -- 5 It may be thought that there are two opposing considerations: one, that courts should not presume to make or complete parties' bargains, and two, that courts should not always let a parties' reasonable understanding, encouraged by the other side, that a contract has been or will be made be disappointed by a refusal to fill in gaps. An example of the latter approach, in a different context, is that of the Privy Council in The Queensland Electricity Generating Board v. Newhope Collieries Pty Ltd (1989) 1 Ll. R. 205, where a clause in the disputed contract contained an agreement to agree. This was held to be intended to have legal effect and the Board remarked that: "[a]rguments invoked alleging uncertainty, or alleged inadequacy in the machinery available to the Courts for making contractual rights effective, exert minimal attraction". (210) 5 On my reading of the facts in the present case, the situation was a rather familiar one in which the appellant did not focus attention upon its legal rights, but went ahead on the basis that the parties were in substance committed and that any remaining areas of difference between them, as to the terms of their contract, would no doubt be resolved by dealing in good faith. The differences between them were significant, including which party would be responsible for outgoings, whether the annual CPI increase would apply to the whole rental with no concession for the value of the cranes, and whether directors' guarantees would be required. What makes the conduct of the respondent seem unfair is that, knowing as it must have done that the appellant had spent a deal of money on the assumption I have mentioned, it withdrew not because it did not appear that agreement could be reached but simply because it had changed its mind. It may be that in the long term the willingness of courts to fill gaps in an incomplete agreement, in such a situation, will increase; but as the practice of the courts presently stands, I conclude that the difference between -- 5 of 15 -- 6 each side's proposed terms is too great to permit of the granting of relief to the appellant. 6 I agree that the appeal should be dismissed with costs. -- 6 of 15 -- 7 IN THE COURT OF APPEAL 99.179 SUPREME COURT OF QUEENSLAND Appeal No. 2818 of 1998 Brisbane [Fernkiln P/L v Aust Bldg Ind P/L] BETWEEN: FERNKILN PTY LTD ACN 073 072 956 (Plaintiff) Appellant AND: AUSTRALIAN BUILDING INDUSTRIES PTY LTD ACN 009 340 952 (Defendant) Respondent Davies JA Pincus JA Wilson J Judgment delivered 25 May 1999 Separate reasons for judgment of each member of the Court each concurring as to the order made. APPEAL DISMISSED WITH COSTS CATCHWORDS: CONTRACT - Negotiations regarding lease of building to be purpose built for lessee - agreement not executed - no evidence of acceptance. ESTOPPEL - whether lessee estopped from denying it was bound before execution of formal lease - equitable estoppel - assumption contract will come into existence - difference -- 7 of 15 -- 8 between each side’s proposed terms too great - relief refused. Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 The Queensland Electricity Generating Board v Newhope Collieries Pty Ltd (1989) 1 Ll R 205 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Counsel: Mr M E Pope for the appellant Mr A B Crowe for the respondent Solicitors: Connolly Suthers for the appellant Jones King for the respondent Hearing Date: 10 March 1999 -- 8 of 15 -- 9 IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 2818 of 1998 Brisbane Before Davies JA Pincus JA Wilson J [Fernkiln P/L v Aust Bldg Ind P/L] BETWEEN: FERNKILN PTY LTD ACN 073 072 956 (Plaintiff) Appellant AND: AUSTRALIAN BUILDING INDUSTRIES PTY LTD ACN 009 340 952 (Defendant) Respondent REASONS FOR JUDGMENT - WILSON J. Judgment delivered 25 May 1999 1 This is an appeal against the decision of a trial judge dismissing the plaintiff/appellant’s -- 9 of 15 -- 10 action for a declaration that there was an agreement for lease between it and the defendant/respondent and for specific performance of that agreement. 2 The appellant owned a parcel of land in Townsville. The respondent was a roofing manufacturer which wished to have a purpose built building in Townsville. Discussions took place between Mr Hastie on behalf of the appellant and Mr Irwin on behalf of the respondent in relation to a proposal that the appellant construct such a building on part of its land and lease it to the respondent. On 17 July 1996 the appellant gave the respondent a written “design and construct” proposal. Then under cover of a letter of 19 July 1996 the respondent gave the appellant a letter of intent. That letter was signed on behalf of the respondent by its executive officer, Mr Webb. Although there was provision for acceptance by the appellant, it was never signed on its behalf. The proposal in the letter of intent was for a lease of seven years from 1 January 1997 or one month after practical completion and handover of possession, together with an option to renew for five years. The gross rental proposed was $76,000 per annum, the appellant being responsible for outgoings. There were to be rent increases in accordance with movements in the CPI Index (to a maximum of 6%). Two x 6 tonne full travel cranes which were to be installed in the building were to be the subject of a separate lease for seven years at approximately $6,200 per annum. Construction was to be completed by 18 December 1996. 3 Over the next two or three weeks Mr Hastie spoke with Mr Irwin on two or three occasions “to tell him how the progress on the project was going”. 4 By letter dated 15 August 1996 the appellant’s solicitors (acting on their client’s instructions) responded to the letter of intent. Their letter amounted to a counter proposal. In particular they set out the appellant’s instructions that the respondent should be responsible for all outgoings and that -- 10 of 15 -- 11 CPI increases (to a maximum of 6%) were to apply to the whole rental with no concession for the value of the cranes. They made a proposal about the costs of the preparation of the lease. 5 By fax dated 5 September 1996 solicitors purporting to act on behalf of the respondent replied accepting the counter proposal. However, their fax was sent without authority, and the appellant does not rely on it. 6 On 9 September 1996 the appellant’s solicitors replied that they would now proceed with the preparation of the agreement to lease once the plan had been finalized. 7 Sometime between 13 August 1996 and 7 October 1996 Mr Irwin rang Mr Hastie and asked if one of the cranes could be deleted. He was told this would not be possible. On 7 October 1996 Mr Hastie delivered a set of building plans to the respondent’s Townsville manager to have the positions of the power points marked. The plan was returned two days later, marked as requested. Also on 9 October Mr Irwin rang Mr Hastie wanting to decrease the size of the building. He was told this would not be possible. 8 On 11 October 1996 Mr Irwin wrote to the appellant saying that there had been a major policy change within the respondent as a result of which it no longer required the proposed building. It offered to take a smaller building and one crane only. By this stage the land had been subdivided and the plan of subdivision had been registered; the earthworks had been completed; steel necessary for the building had been pre-fabricated; the cranes had been ordered and a deposit paid on them; approximately $300,000 had been expended. Further, the appellant had entered into a contract to sell the land, which was conditional upon execution of an agreement for lease between the appellant as lessor and the respondent as lessee. 9 On 16 October 1996 the appellant replied that there was a binding agreement and that -- 11 of 15 -- 12 compliance with it was required. It proceeded to complete construction, and on 18 December 1996 advised the respondent that the building was in all respects complete save for some fitout which could not be completed until the respondent gave the appellant its specification. The next day the respondent’s solicitors wrote purporting to terminate the agreement. 10 In its statement of claim the appellant pleaded that the agreement was constituted by the design and construct proposal of 17 July 1996, the respondent’s letter to the appellant of 19 July 1996, the letter of intent of 19 July 1996 and a conversation between Mr Hastie and Mr Irwin on or about 19 July 1996. 11 The trial judge found that no agreement was concluded by the letter of intent. It was obvious by the appellant’s solicitors’ letter of 15 August 1996 that there were still outstanding matters of some importance to be negotiated by the solicitors. The parties intended to be bound only upon execution of the formal agreement. 12 On the appeal, counsel for the appellant submitted that there was a concluded agreement. He submitted that the letter of intent of 19 July 1996 constituted the offer and that Mr Hastie’s conversations with Mr Irwin on two or three occasions over the next two or three weeks telling him of progress constituted acceptance by conduct. 13 In my view such a conclusion was not open. The evidence of Mr Hastie’s conversations with Mr Irwin was too vague and imprecise to be capable of amounting to acceptance by conduct. Even if it could do so, it should not be treated as doing so in the circumstances of this case, where it would be inconsistent with the appellant’s solicitors’ subsequent letter of 15 August 1996 and inconsistent with the case pleaded. 14 The trial judge rejected the appellant’s argument that the respondent was estopped from -- 12 of 15 -- 13 denying that there was a concluded agreement. On appeal the appellant argued that, if there was a concluded agreement for lease, the respondent was estopped from denying that it was bound before the execution of a formal lease. 15 In Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Priestley JA, with whom Kirby J agreed, formulated the relevant principle as follows:- “For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.” See pp 585C, 610F and 612E. See also Waltons Stores (Interstate)Limited v Maher (1988) 164 CLR 387. 16 Counsel for the appellant argued that his client had been led into the assumption that the parties were bound in the absence of a formal agreement by Mr Hastie’s conversations with Mr Irwin about the progress of the project, the return of the plan with the power points marked on it, and the conversation some time between 13 August and 7 October in which Mr Irwin asked whether a crane could be deleted. This conduct, whether taken individually or together, was in my view insufficient to give rise to such an assumption. The evidence of Mr Hastie’s conversations with Mr Irwin, which are relied on also as acceptance of the offer, is too imprecise for the court to conclude that they encouraged the appellant into the assumption. The submission and return of the plan showing the power points occurred more than eleven weeks after the work had commenced and only a few days before the letter of 11 October in which the respondent said that the building was no longer required. The appellants’ uncertainty about when the conversation about the deletion of the crane occurred is an indication of how little significance it attached to the conversation in the -- 13 of 15 -- 14 scheme of things. 17 In my view the appeal should be dismissed with costs. -- 14 of 15 -- 15 -- 15 of 15 --