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Federal Court of Australia
Cirrus Real Time Processing Systems Pty Ltd v Jet Aviation Australia Pty Ltd (formerly Hawker Pacific Pty Ltd) [2025] FCAFC 85
Appeal from: | Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific Pty Ltd [2024] FCA 763 | |
File number: | NSD 1074 of 2024 | |
Judgment of: | DERRINGTON, CHEESEMAN AND JACKMAN JJ | |
Date of judgment: | 3 July 2025 | |
Catchwords: | CONTRACTS – formation of contracts – intention to create legal relations – whether evidence of parties’ intending to be bound by terms – whether agreement as to sufficient terms CONTRACTS – formation of contracts – intention to be legally bound – underlying rationale for requirement to be legally bound – relevant principles – factors to be considered CONTRACTS – relevance of matters occurring after date of alleged contract – so called “post-contractual evidence” – relevance to contractual intention | |
Legislation: | Evidence Act 1995 (Cth) | |
Cases cited: | Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386 Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Allen v Carbone (1975) 132 CLR 528 Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 Anon (1478) YB 17 Edw IV Ashton v Pratt (2015) 88 NSWLR 281 Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs appt) (in liq) (2009) 25 VR 411 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific Pty Ltd [2024] FCA 763 Coles Supermarkets Australia Pty Ltd v 461 Hampton Street Investments Pty Ltd [2024] VSC 306 Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510 Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91 Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 237 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 HDI Global Speciality SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296 Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 In re Bed Bath & Beyond Corp. Securities Litigation (D Colu, No 1:22-cv-02541, 27 September 2024) James Adam Pty Ltd v Fobeza Lty Ltd [2020] NSWCA 311 Kennedy v Lee (1817) 36 ER 170 Kleinwort Benson v Malaysia Mining Corporation Berhad [1989] 1 WLR 379 Krolczyk v Winner t/as J Winner Building Services [2022] NSWCA 196 Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd (unreported, 28 October 1994, NSWCA) Masters v Cameron (1954) 91 CLR 353 Merritt v Merritt [1970] 1 WLR 1211 Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 Proton Energy Group SA v Orlen Lietuva [2014] 1 Lloyd’s Rep 100 Quinlan v A and J Brady Pty Ltd [2007] FCA 1409 R v Lord Chancellor’s Department; Ex parte Nangle [1991] ICR 743 Re Access Strata Management Pty Ltd [2022] VSC 639 Re Anglican Development Fund Diocese of Bathurst (2015) 336 ALR 372 Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 South West Terminal Ltd v Achter Land & Cattle [2023] SKKB 116 Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte (The MV Aquafreedom) [2024] EWHC 255 (Comm) Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102 The Crown v Clarke (1927) 40 CLR 227 Thorby v Goldberg (1964) 112 CLR 597 Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 Uranium Equities Ltd v Fewster (2008) 36 WAR 97 Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 Vroon BC v Foster’s Brewing Group Ltd [1994] 2 VR 32 Wakim v Wakim [2017] NSWSC 1283 WorldAudio v GB Radio [2003] NSWSC 855 Coote B, “The Essence of Contract: Part I” (1988) 1(2) Journal of Contract Law 91 Coote B, “The Essence of Contract: Part II” (1988) 1(3) Journal of Contract Law 183 Heydon J D, Heydon on Contract: The General Part (2019, Thomson Reuters) Restatement (Second) of the Law of Contracts (American Law Institute, 1981) Seddon NC and Bigwood RA, Cheshire & Fifoot Law of Contract (12th Aust ed, 2023, LexisNexis) Swain W, The Law of Contract 1670 – 1870 (2015, Cambridge University Press) Tolhurst GJ and Peden E, Furmston and Tolhurst on Contract Formation: Law and Practice (3rd ed, 2023, Oxford University Press) Williston S, A Treatise on the Law of Contracts (3rd ed, rev Walter HE Jaeger, Vol 1, Baker, Voohris & Co., Inc., 1957) | |
Division: | General Division | |
Registry: | New South Wales | |
National Practice Area: | Commercial and Corporations | |
Sub-area: | Commercial Contracts, Banking, Finance and Insurance | |
Number of paragraphs: | 275 | |
Date of hearing: | 3 – 4 March 2025 | |
Counsel for the Appellant: | Mr S White SC with Ms T Epstein and Ms M Aguinaldo | |
Solicitor for the Appellant: | Hazan Hollander | |
Counsel for the Respondents: | Mr J Giles SC with Mr S Puttick | |
Solicitor for the Respondents: | Johnson Winter Slattery |
ORDERS
NSD 1074 of 2024 | ||
| ||
BETWEEN: | CIRRUS REAL TIME PROCESSING SYSTEMS PTY LTD ACN 075 393 798 Appellant | |
AND: | JET AVIATION AUSTRALIA PTY LTD (FORMERLY HAWKER PACIFIC PTY LTD) ACN 001 540 316 First Respondent JET AVIATION NZ LIMITED (FORMERLY HAWKER PACIFIC NZ LIMITED) NZBN 9429039590626 Second Respondent |
order made by: | DERRINGTON, CHEESEMAN AND JACKMAN JJ |
DATE OF ORDER: | 3 JULY 2025 |
THE COURT ORDERS THAT:
1. The appeal is dismissed.
2. The appellant pay the respondents’ costs of the appeal, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
Introduction
1 This appeal concerns whether the appellant, Cirrus Real Time Processing Systems Pty Limited, (Cirrus) entered into a binding contract with either of the respondents, Hawker Pacific Pty Ltd or Hawker Pacific NZ Limited (Hawker NZ) (together, HP). Specifically, it turns upon whether it can be said that the parties objectively intended to be legally bound by an arrangement they put in place while HP tendered for a contract with the New Zealand Defence Force (the NZDF).
2 That tender concerned the provision of services including, inter alia, the supply of certain equipment and software (as well as their installation upon various aircraft to be leased to the NZDF) which could, in general terms, record, manipulate and display live and synthetic data in order to create scenario-based training environments for users. Relevantly, the precise scope of that work was not defined by the request for tender released by the NZDF in 2016, such that the ensuing tender process necessarily involved a measure of fluidity. In short, the NZDF first sought to identify a “preferred” (or “highest ranked”) tenderer with whom it would then attempt to negotiate a final agreement. That search ultimately brought the NZDF into contact with HP.
3 HP operates in the aircraft and aerospace industry. It provides engineering services, including the supply of aircrafts and aircraft support services. For the purposes of its tender submission, HP required support from a third party that could provide the digital software necessary for the presentation of the training environments sought by the NZDF. It therefore entered discussions with Cirrus, a software development and engineering business. Over a period of approximately four years, the parties exchanged correspondence that expressed, at least, the general ambition or aspiration that, if HP was successful in obtaining the prime contract with the NZDF, it would engage Cirrus to provide the necessary software support. Cirrus claims that such commitment was greater and that a binding agreement was reached between the parties in or about late 2016.
4 The learned primary judge concluded, inter alia, that the circumstances of the parties, including their conduct and communication, did not evince an intention to be legally bound and, as such, no contractual obligations had been created: Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific Pty Ltd [2024] FCA 763 (PJ). As these reasons detail, his Honour was correct in reaching those essentially factual conclusions and the appeal should be dismissed upon that basis.
5 I note that in the preparation of these reasons I have had the benefit of the very thoughtful and astute observations of Jackman J on my earlier drafts. As a result of his Honour’s comments, I have made some beneficial alterations to my original views.
Background
6 The identification of an objective intention to be legally bound lies at the heart of this dispute. It requires a careful analysis of the parties’ circumstances, including, inter alia, what they said and did. In that respect, it is helpful that the inter-party negotiations and discussions largely occurred in writing, with the result that there is very little disputation as to the evidential basis of the respective claims. Nevertheless, as Cirrus calls into question the conclusions drawn by the learned primary judge, it is necessary to set out the factual background in some detail.
Commercial context: The Core and Optional Offerings
7 In or about 2014, the NZDF began to explore options to repatriate the training of Air Warfare Officers (AWOs) – being those officers responsible for the navigation, surveillance and tactical communications of military aircraft – from Australia to the north island of New Zealand. This came to be colloquially known as the Aircrew Training Capability (ACTC) Program.
8 By the time that the ACTC Program formally went to tender in late 2016, it was envisaged that the “preferred” tenderer would, inter alia, supply an AWO training system (or AWOTS). Such system was to be installed on various aircraft to be leased to the NZDF, as well as at pre-defined ground locations. In short, it was to comprise several “proven mission systems” – that is, digital interfaces – that were capable of integrating and displaying (a) basic “live” sensor data (being data drawn from the avionics bus of the relevant aircraft, such as its location and orientation in 3D space); and (b) “synthetic” sensor data (being data that had been artificially generated in order to simulate inclement weather, opposing interactions etc) to create various scenario-based training environments for the relevant console user(s) (together, the Core Offering).
9 At the time of the relevant discussions between Cirrus and HP, the NZDF had also expressed an interest in tenderers (a) affixing a small number of sensors and equipment upon the relevant aircraft that would increase the volume and variety of live sensor data which was recorded; and (b) providing software that could integrate such data with the proposed AWO training system. To be sure, this option was additive to the Core Offering and envisaged a training system that could process and display, in addition to synthetic sensor data, live sensor data recorded by the existing avionic systems of the aircraft and several additional sensors (the Optional Offering).
The parties’ relationship between 2014 and 2015
10 Cirrus’ claim derives from a series of exchanges it had with HP which reached their crescendo, at least for present purposes, following release of a request for tender for the ACTC Program in November 2016. For Cirrus, a Mr Peter Freed conducted, or was involved in, the majority of those discussions and negotiations. Conversely, HP were largely represented by Mr Craig Purry, Vice President – Government Business and Ms Katrina Binotto, Contract Manager. The authority of those persons to act on behalf of their respective companies was not in dispute.
11 The relationship between the parties can be traced to June 2014, when HP approached Cirrus to discuss “a potential customer enquiry regarding a fleet upgrade that may be in part satisfied by your ACOTS system”. Three observations ought to be made. First, the term “ACOTS” (an acronym of Air Combat Officer Training System) is a reference to certain software developed by Cirrus. Second, the relevant customer was the NZDF, whom HP sought to offer an ACOTS-based AWOTS as part of its bid to upgrade the capabilities of certain aircraft it then-supplied to the NZDF under an existing agreement (the 2014 Proposal). Third, from the outset, HP had noted the possibility that Cirrus would only contribute to a proposal to the NZDF “in part”.
12 A bilateral confidentiality agreement was executed between Cirrus and HP on 7 July 2014 and, some nine days later, on 16 July 2014, Cirrus provided the latter a quotation (V1Q) that detailed the technical specifications and commercial terms upon which it would provide the ACOTS system to HP. Relevantly, that technology was described by V1Q as “a simulation of a modern multi-function display system (MFD) on which the (simulated) outputs of various sensors and avionics systems are presented”. For example, V1Q outlined two use cases:
5.2 ACOTS USE CASES
…
For use [onboard aircraft], ACOTS collects aircraft data and simulates sensor and other systems to match both current aircraft position/posture, and additional synthetic entities and weather effects.
For use in the ground based simulation environment, ACOTS incorporates simulated aircraft data and simulates sensor and other systems to match both current (simulated) aircraft position/posture, and additional synthetic entities and weather effects.
13 On 22 July 2014, Mr Purry sought Cirrus’ approval to incorporate V1Q in the 2014 Proposal. In a tranche of correspondence exchanged later that day, Mr Freed agreed to accede to such a request following Mr Purry’s commitment that “[s]hould the current proposal being submitted by Hawker Pacific relating to the Cirrus ACOTS system be progressed into contract, then Cirrus will be the provider via HP”. Ultimately, neither of the outcomes foreshadowed by Mr Purry came to pass in 2014.
14 In or about June 2015, the NZDF issued a request for information that pertained, in broad terms, to the ACTC Program (the RFI). As with the 2014 Proposal, HP sought to call on the services of Cirrus and, on 20 July 2015, the following email was sent to Mr Freed:
Hi Peter, thanks for your time this afternoon. As discussed the NZDF has recently released an RFI exploring options for the possible repatriation of AWO training to Ohakea. This RFI was expected and in line with preparatory work we have been doing together in the recent past. Hawker Pacific now invites Cirrus to provide an offer that will form part of our response to the RFI.
The main thrust of the Hawker Pacific response [to the RFI] will be to offer a pathway whereby the current B200 fleet is modified and extended out to 2025 with an AWO system installed combined with ground AWO systems. …
Other options being put forward include the provision of King Air 350 aircraft to replace the current fleet at the end of the their [sic] current term (end 2017) - modified to host:
1. Standard AWO system, and/or
2. Standard AWO system plus actual sensors …
…
As the response is due 5 Aug please provide by COB Friday 31 July 2015:
…
3. Confirmation that Cirrus can supply a solution that draws from live data via actual sensors fitted to the aircraft (as per our optional modified 350 solution above)
• As much information on this option as possible would be very appreciated …
15 Later that day, Mr Freed made the following observations as to “bullet point (3)”:
… This is developmental. We did discuss this w your engineers a couple of weeks back. It isn’t difficult, but raises lots of questions on scope, simply because it is fairly open, depends on sensors etc. Difficult to cost w/o some sort of bounds. E.g. what data would the sensors provide, what form would their tracks take etc.
16 That email was met with the following response by Mr Purry on 21 July 2015:
… Yes – completely understood – it will be largely conceptual from our point of view – we will be focusing on tender quality pricing for the core AWO solution with some words and rough pricing for sensor solutions at a later time in contract. All we need from you [Cirrus] on this is whether it is possible to develop a AWO training system that takes inputs from EO [Electro-Optics] and Radar so that students can gain experience using actual sensors rather than simulated. …
17 HP’s general “conceptual” interest in the capacity of ACOTS to, in effect, meet the Optional Offering, was a theme embraced by its subsequent request for quotation. In an email sent by Mr Steve Lang (Government Programs Business Development Manager for HP) to Mr Freed on 28 July 2015, Cirrus was apprised of the following request:
… Re: real-world sensor integration – as discussed, please develop against simply taking sensor feeds direct into ACOTS system. No sensor or data control required by ACOTS system.
18 Mr Freed deposes to having understood Mr Lang as requiring Cirrus to quote for an ACOTS system that could receive and display live sensor data recorded by several yet-to-be-installed sensors (that were under independent control). Over the ensuing fortnight, Cirrus proceeded to furnish HP with two additional quotations (V1.1Q and V1.2Q). Amongst other things, those quotes contemplated a “Base Option” (i.e., supply and installation of ACOTS upon four aircraft systems and one ground system) that was susceptible to some defined variation. For example, “Option 3” addressed the potential for the ACOTS system to integrate live sensor data recorded by radar and optical sensors independent to the existing avionics of the relevant aircraft:
6.4.4 Option 3 : Display of Sensor Data in ACOTS Window
This option enables the display in ACOTS radar and optics windows the sensor information from sensors that have been installed onto a King Air 350 aircraft, and connected to the ACOTS ethernet
…
Under this option, HP will install onto the aircraft platform radar and optical sensors, together with a tactical link system. HP will additionally connect the sensors’ data interfaces to the Ethernet that ACOTS connects to.
…
The sensors will include the associated processing of the sensor data, and a console to control the sensors.
…
The intent of this option is to enable data generated by the sensors to be displayed onto the ACOTS sensor displays. …
19 This option was imagined by a diagrammatic, which was accompanied by the following legend:
… Concept for connection of actual sensors to ACOTS. ACOTS is not used to control the sensors, or to process the sensor data, but is used to present generated data (video and tracks) within the ACOTS sensor display windows and moving map display as applicable.
20 Content with the terms of those quotations, HP sought Cirrus’ permission to provide V1.2Q to the NZDF. As with V1Q, Cirrus agreed to relax the parties’ confidentiality agreement on 4 August 2015 following reassurances that (a) “[s]hould you [Cirrus] allow us [HP] to include your proposal as part of our overall submission, we will incorporate the Cirrus offer as our core compliant solution to the AWO simulation training requirement, and … treat the solution as fully attributable as a Cirrus offer and deliverable under any subsequent NZDF Contract subject to NZDF acceptance of the Cirrus solution”; and (b) “at no stage will Hawker Pacific seek to utilise the Cirrus proposal in order to gain favourable evaluation or enter contract with NZDF and then subsequently replace Cirrus”. However, and as with V1Q again, nothing immediately came of HP’s subsequent submission to the NZDF on 5 August in response to the RFI.
21 Taking stock, perhaps all that can be gleaned from the parties’ initial discussions throughout 2014 and 2015 is that first, HP was interested in (a) using ACOTS to satisfy, in effect, the Core Offering; and (b) whether ACOTS could satisfy the Optional Offering, and second, Cirrus was desirous to receive some degree of commitment from HP should it enter into any head contract.
The 2016 “arrangement”
Proposed scope of work
22 On 26 August 2016, Cirrus and HP entered a second confidentiality agreement which precluded the parties from using each other’s “Confidential Information” for any purpose other than that which was expressly described in the document. Disclosure of Cirrus’ confidential information for the purposes of tendering for the ACTC Program was not one such “Express Purpose”.
23 On or about 30 September 2016, a meeting occurred between officials representing the NZDF and HP which concerned, in part, the type of information that would be required to be provided in any tender for the ACTC Program. Shortly thereafter, on 5 October 2016, Mr Purry sent an email to Mr Freed that identified certain aspects of that information, such as:
• All inclusive price including subscriptions and maintenance of the AWO system
…
• Budget is tight as always.
• There will be a requirement to quote on the option of fitting actual sensors on the a/c for the surveillance role and real-time training effect – but this is not within the core requirement.
Let me know if you want to discuss beforehand – possibly explore some detail with our engineering folks? …
24 In relation to the fitting of “actual sensors” onto the aircraft, Mr Freed’s response later that day included the following observations as to Cirrus’ capacity to meet the Optional Offering:
Hard to quantify. I think there is a good possibility of displaying sensor data in ACOTS windows, but this is dependent on unknowns, primarily the nature, scope and detail of the s/w interfaces provided by the sensors to facilitate this (and possibly whether or not the sensor OEM’s [the original equipment manufacturers of the sensors] are commercially amenable to having their kit operate from within someone else’s console software, and whether their information is ITAR controlled).
25 The exchanges of 5 October expose the important distinction in relation to the training systems under discussion, being those that integrated synthetic sensor data with live sensor data from (a) the avionics bus; or (b) the avionics bus as well as additional real-time sensors. Whereas the request for tender was envisaged to be predominantly concerned with the former, Mr Purry’s email noted the likelihood of needing to quote for the latter. Mr Freed’s response mirrored that which he gave on 20 July 2015; in short, he noted that, from Cirrus’ perspective, the viability of this offering turned on several variables, the scope of which were yet unknown.
26 The NZDF released its draft request for tender document on 1 November 2016 (the RFT).
27 On 8 November 2016, Mr Freed attended the NZDF ACTC Industry day in Wellington, New Zealand. There he met with the General Manager (New Zealand) of HP as well as an employee of MAROPS Ltd (MAROPS). Before the primary judge, Mr Freed’s evidence was that, prior to that meeting, he had some awareness that MAROPS would potentially be considered by HP to supply the real-time sensors that were required to provide the Optional Offering. However, he was “shocked” to learn MAROPS was also being considered by HP as a potential supplier of the software necessary to provide that offering. Indeed, he said that he had not yet turned his mind to the possibility that MAROPS could provide the requisite sensors and the software capable of feeding any data recorded into the AWO training system. Given the correspondence between the parties on 5 October 2016, his Honour was critical of that evidence and concluded that Mr Freed, prior to 8 November, must have had “some inkling” Cirrus and MAROPS could ultimately end up competing for some aspect of the work that would be contracted for (PJ [29]).
28 A telephone conversation ensued between Messrs Freed and Purry the following day. During the carriage of that discussion, Mr Freed told Mr Purry, in no uncertain terms, that “Cirrus will not participate in HP’s tender unless HP is committed to Cirrus as the supplier of the AWO training component of ACTC”. Mr Purry said that he would get back to him (see PJ [30]).
29 On 11 November 2016, Mr Purry sent Mr Freed a brief, but somewhat conciliatory, email:
… As discussed we are working with MAROPS to remove overlap on the workscope between you and establish a powerful team based offering. Those discussions will continue in Auckland early next week.
…
Hopefully the discussions in Auckland go well next week and we will be able to come to you with a firm RFQ before the end of the week. …
30 At around this time, much discussion within HP sought to address how to best approach the tender and, in particular, HP’s then-desire to offer both Cirrus’ and MAROPS’ products to the NZDF. It was abreast of the difficulties that were likely to arise with this so-called “Plan A” given the competition between Cirrus and MAROPS, and the very real possibility that one may not wish to work with the other. Nevertheless, HP considered it to be rather unlikely that Cirrus would walk away from their negotiations if the level of commitment that had been sought by Mr Freed was not provided and, even if that were to eventuate, it was something that could be overcome. Indeed, as the primary judge found, HP was not in the position of having to accede to Cirrus’ demand of 9 November 2016 in order for it to lodge a credible tender (PJ [34]).
31 In a rather more formal email sent 23 November 2016, Mr Purry wrote to Mr Freed, requesting the provision of information for the purposes of lodging the respondents’ tender. It said:
Hi Peter, as per recent conversations, HPNZ is participating in the current New Zealand Ministry of Defence RFT for the Aircrew Training Capability Tender (ACTC Project) closing 10th Jan 2017 and request from Cirrus the following RFQ details to allow HP to bid your products/services as part of the overall HP response. …
32 Attached to that email were several documents including, inter alia, the Conditions of Tender and a document specifying the AWO capability requested. Under the heading, “Workscope.”, Mr Purry identified the scope of HP’s intended tender in respect of the AWOTS:
Hawker Pacific solution set for the ACTC RFT response is now firmed as follows.
The RNZAF will be offered one of two exclusive paths for AWO training:
1. Non-Sensor fitted aircraft (Core) using Cirrus Proposed Training Solution, and
2. Sensor fitted aircraft (Optional) using MAROPS Proposed Training Solution
Host aircraft will be the 4 x existing Pro-line 21 Rockwell Collins Avionics King Air 200 aircraft.
Therefore, specific areas of the RFT that are needed for response by Cirrus are:
1. Cirrus proposal for compliance to AWO elements of Non-Sensor Fitted Aircraft solution under:
• Part Two, Section 18, Training Systems, Statement Of Requirement
o AWO Training Course (3 students per course);
o AWO Instructors Course (1 student per course); and
o AWO Instructor Currency Training (4 AWOs);
• to the requirements of AWO Training System including:
o Airborne AWO Training System, and
o Ground Based Training System
• described in DID TRG-01 AWO Training System and DID TRG-03 Conversion Training Plan.
33 In response, Mr Freed suggested a suite of modifications to HP’s proposed workscope which caused the latter some internal consternation, and prompted further consideration by HP as to how any AWO training system could feasibly integrate both Cirrus’ and MAROPS’ offerings.
34 Following further discussions between Messrs Purry and Freed, on 24 November 2016, the former sent the latter an amended scope of works in the following terms:
Workscope.
Hawker Pacific solution set for the ACTC RFT response is now firmed as follows.
The RNZAF will be offered:
1. Core:
This involves a fleet of 4 aircraft all of which are Non-Sensor fitted and use the Cirrus Proposed AWO (i.e. simulation based) Training Solution, and
2. Optional:
This involves the option of fitting actual sensors to 1-4 aircraft and using Cirrus Proposed AWO (i.e. simulation based) Training Solution co-hosted with MAROPS Proposed Sensor Interface Solution.
In both cases the host aircraft will be the 4 x existing Pro-line 21 Rockwell Collins Avionics King Air 200 aircraft.
Should HP (including HPNZ) be invited to negotiate a contract with NZDF (or RNZAF), Cirrus will be invited by HP to participate in the negotiations with NZDF in relation to the AWO training solution.
Should HP (including HPNZ) subsequently enter a contract with NZDF (or RNZAF), HP (including HPNZ) shall subsequently subcontract Cirrus for the Cirrus proposed solution as per Cirrus’ response to the RFQ (and as possibly amended though negotiations). The only exception to this is the case where the NZDF directs during contract negotiation for a solution that does not include a simulation based AWO training solution in any aircraft.
35 The final paragraph quoted is important and reappears in several documents, albeit in various iterations. For convenience, it and any subsequent versions, will be referred to forthwith as the “Operative Paragraph”.
36 Later that day, Mr Freed replied indicating that Cirrus was “pleased to join in with this plan”.
Some commercial questions
37 On 25 November 2016, Mr Freed emailed Mr Purry to outline what was described as “some commercial questions”. One was articulated under the heading, “Contract Flow down”, where Mr Freed expressed his view that, although the terms of the head contract were not yet known, they would not necessarily dictate what appeared in any subcontract with Cirrus. He stated that Cirrus would indicate its “overall commercial terms” which would be “pretty much the same as [V1.2Q]” and designed to keep costs low and to avoid delays over minutiae. He stated:
If there is a gap between the Cirrus proposed terms, and what you have in the head contract, that gap is part of the value that HP as prime contractor brings to table. (sic)
This was apparently a statement to the effect that where such a gap existed, HP would bear that difference and be able to negotiate with Cirrus in relation to it.
38 Mr Purry responded to Mr Freed’s questions some three days later. In relation to the possibility of such “gaps”, he wrote:
Looking at your workshare we’ll have to cover off on critical flow downs such as the following if they [the NZDF] seek them:
• Milestone penalties on delivery – i.e. HP is late due to Cirrus missing a deadline we would need to flow down some pain
• Liability undertakings – should be straight forward given workscope
• Insurance coverage – it will need to be appropriate in the context of what you are delivering
• Warranty terms – we can’t warrant Cirrus products to the NZDF outside of what you offer HP
• Price validity – please try and meet the RFT requirements else this risk comes to HP and we have to price it as a premium
• Annual price escalation for services – please propose
• Service Availability KPIs – we’ll have a look at this – it maybe that we need to flow something down for non-performance of Cirrus products that causes HP to be hit with KPI pain in-service
39 The final version of NZDF’s RFT was released on 28 November 2016. It specified a closing date for submissions of 16 January 2017 and was sent to Mr Freed by Mr Purry the following day. Amongst other things, it referred to the Core Offering as a “mandatory requirement” and noted “the Crown may also further expand the capability to include a sensor suite” that was capable of “integration with the proposed AWO training system” (i.e., the Optional Offering).
The Version 3 and Version 4 Quotations
40 On 13 December 2016, Cirrus sent a quotation to HP for the provision of ACOTS (V3Q).
41 At 2:33 pm on 16 December 2016, Mr Freed sent an email to Mr Purry that noted that technical issues involved with Cirrus’ proposal were likely to be settled by 21 December 2016. He also stated:
Re: commercial angle; the proposal is covered by [the confidentiality agreement] which does not let HP put Cirrus’ proposal into your tender response. The last section of our proposal addresses that – basically, we are looking for HP to say “yes, this quote fits the bill” at which point we will relax the NDA so you can incorporate into your tender. Noting your RFT response times, I suggest we aim to get this squared away by next Wed [21 December], rather than let it drag into the xmas period.
42 Shortly thereafter, Mr Purry responded via email indicating that HP would not “be in a position to close completely on your [Cirrus] subcontract arrangements until after new year” due to the unavailability of its legal counsel. He also inquired whether Cirrus was “clear” on all the issues “associated with fitting the AWO solution onto sensor fitted [aircraft]” and whether Mr Freed foresaw any other outstanding issues in that regard.
43 Mr Freed responded at 3:04 pm on 16 December 2016. He stated:
Re: sensors. I don’t quite understand the question. We are supplying ACOTS software that goes into HP console hardware, and connects to the aircraft via HP’sr [sic] AID. ACOTS has zero technical interaction with any sensors and I don’t see Cirrus as having any responsibility for sensors at all.
If you think the sensors you might fit might clash with COTS, maybe you could give us some detail?
44 Although the question of ACOTS interfacing with live sensor data was deferred by Mr Purry, his email in response, sent at 3:46 pm that day, raised several questions arising from the terms of V3Q. One question pertained to cl 10.5, which was emblazoned “Next Steps” and provided:
Should HP find this quotation (including the cost and commercial terms proposed) acceptable and wish to incorporate this data in its RFT response, Cirrus would appreciate that HP provide Cirrus further correspondence that clearly states that should HP (irrespective of whether it be HP NZ or another entity in the HP group) be selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability, the engagement between HP and Cirrus will be on the basis set out in this document.
45 That language, Mr Purry noted, did not adequately address the possibility that the NZDF may very well opt to proceed with the ACTC Program without training its AWOs in New Zealand. He indicated that, should that circumstance arise, it was “clear[]” that there would be no work for Cirrus to do and, accordingly, proposed a revised version of cl 10.5 in the following terms:
Should HP (irrespective of whether it be HP NZ or another entity in the HP group) be selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability as stated in the RFT (i.e. inclusive or [sic] AWO Training Capability), the engagement between HP and Cirrus will be on the basis set out in this document.
46 As the primary judge identified, that language relevantly referred to the ACTC capability “as stated in the RFT”, id est “inclusive or [sic] AWO Training Capability” (PJ [49]). Mr Freed responded some 30 minutes later in which he acknowledged his agreement with the proposed revisions to the Operative Paragraph but indicated that, before he would authorise use of Cirrus’ material in any tender, he required a letter from Mr Purry that set out the amended cl 10.5.
47 On 21 December 2016, Mr Freed sent Mr Purry and Ms Binotto a revised quotation which was referred to as the Version 4 Quotation (V4Q). It contained the following text:
10.5 NEXT STEPS
HP has previously confirmed (at Ref. C) that it will tender Cirrus’ ACOTS system as its solution to the AWO training element of the RFT, and that it will not in its RFT response bid any alternative solution to the AWO training element.
This document now provides HP the additional commercial data on Cirrus’ solution.
Should HP find this quotation (including the cost and commercial terms proposed) acceptable and wish to incorporate this data in its RFT response, Cirrus would appreciate that HP provide Cirrus further correspondence that clearly states that should HP (irrespective of whether it be HP NZ or another entity in the HP group) be selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability, the engagement between HP and Cirrus will be on the basis set out in this document.
Following receipt of this correspondence, Cirrus will agree to a suitable relaxation to the NDA (Ref. A) to facilitate the incorporation of information from this proposal into HP’s RFT response.
48 Whilst the terms of V4Q are set out in greater detail below, two preliminary observations ought be made. First, it is not clear why the Operative Paragraph, as it appears in clause 10.5 of V4Q, did not mirror that which Mr Freed had agreed to some five days earlier. Instead, it seemingly reverted to the effect of an earlier iteration where the relevant “trigger” was HP entering into an agreement with the NZDF “for the ACTC capability” – not “the ACTC capability as stated in the RFT (i.e. inclusive or [sic] AWO Training Capability)” (emphasis added). Second, and unlike V1.1Q and V1.2Q, V4Q did not contemplate expansion of the “Base Option” (i.e., the Core Offering) to include the “Display of Sensor Data in ACOTS” (i.e., the Optional Offering).
49 At 4:33 pm on 21 December 2016, a letter under the hand of Mr Purry and on a HP letterhead, was sent to Mr Freed in the following terms:
References:
A. Document Number: TDR-B 107-01v1.4 Cirrus Quotation for The Provision of ACOTS for Air Warfare Officer Training [V4Q]
B. New Zealand Ministry of Defence Aircrew Training Capability Request for Tender, RFT1-228
C. Non-Disclosure Agreement Hawker Pacific and Cirrus RTPS dated 25 August 2016
Dear Peter
RE: Cirrus Proposal for AWO Training as part of HP Response to NZ MoD RFT 1-228
I would like to thank you for your excellent response at Reference A, and subsequent clarifications, to the Hawker Pacific request for quotation in relation to the ACOTS work scope under Reference B.
Should Hawker Pacific (irrespective of whether it be Hawker Pacific NZ or another entity in the Hawker Pacific group) be selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability as stated at Reference A (i.e. inclusive or [sic] AWO Training Capability), the engagement between Hawker Pacific and Cirrus will be on the basis set out in Reference A to this Letter.
As agreed between us, the next steps required to allow the Cirrus proposal to be incorporated into the Hawker Pacific response to Reference B is an additional release, beyond Reference C which allows the Cirrus proposal, including cost and commercial terms as proposed, to be passed to the NZ MoD for the purpose of responding to Reference B.
Hawker Pacific now requests such a release from Cirrus by 3rd January 2017.
If you wish to clarify any matters in relation to the use of the Cirrus proposal or the broader RFT please do not hesitate to contact me.
Yours Sincerely,
[Mr Purry’s signature]
Craig Purry
Vice President
Government Business
[phone number]
(Emphasis added).
50 It is worth pausing to acknowledge the reference to “Reference A” (being V4Q), in the above iteration of the Operative Paragraph, is significant. It appears to make it clear that the “trigger” for any obligation owed by HP to Cirrus was its entering into a contract to provide the ACTC capability quoted for in V4Q. That is inconsistent with the terms of cl 10.5 of V4Q (“the ACTC capability”) and what the parties had agreed to on 16 December 2016 (“the ACTC capability as stated in the RFT (i.e. inclusive or [sic] AWO Training Capability)”) (see PJ [127]).
51 Yet, that discrepancy appears to have gone unnoticed by Mr Freed, who responded at 4:55 pm that day by a letter addressed to Mr Purry:
REF. A. TDR-B I 07-01 vl .4, “Cirrus Quotation for The Provision of ACOTS for Air Warfare Officer Training”
REF. B. New Zealand Ministry of Defence Aircrew Training Capability Request for Tender, RFTl-228
REF. C. Non-Disclosure Agreement Hawker Pacific and Cirrus RTPS dated 25 August 2016
REF. D. Correspondence from Craig Purry to Peter Freed dated 21 December 2016
Re: Release of Cirrus Proposal for Use by HP in Response to NZDF RFT.
Dear Craig
1. Cirrus has recently provided HP with a proposal at Ref. A.
2. I understand that HP wishes to incorporate this proposal into HP’s response to the RFT at Ref. B.
3. The NDA at Ref. C. does not allow such provision.
4. However, having received your correspondence at Ref. D, I am now pleased to hereby relax the constraint of the NDA. Please accept this letter as explicit authorisation from Cirrus for HP to use the materials contained in Ref. A., including the cost and commercial terms proposed, for use in its response to the RFT at Ref. B.
5. Should you have any queries regarding this, please feel free to contact me.
Kind regards
[Mr Freed’s signature]
Peter Freed
Managing Director
52 The learned primary judge found (at PJ [56]), and it was not disputed, that the parties continued to negotiate the terms of a subcontract through 2017 and 2018. Those negotiations revealed a number of matters in respect of which it seemed that agreement could not be reached, including that which concerned Cirrus’ intellectual property rights and the price of Cirrus’ services.
53 As of 21 December 2017, no agreement had been reached as between HP and the NZDF. To facilitate negotiations, the NZDF wrote to the respondents to indicate it was “prepared to offer a number of scope and cost reductions”. One such reduction was characterised as follows:
• Utilising the mission software system in respect of the sensor system installation to incorporate the provision of mission software for control and fusion of the sensor data with synthetic data for the training of Air Warfare Officers and provide the Air Warfare Officer training system on both the aircraft and ground based components of the Aircrew Training Capability. The Crown sees this as an opportunity to reduce costs and avoids [sic] the need to develop and supply two separate mission software systems, as is currently proposed by Hawker Pacific, given the Crown has elected to take up the sensor costed option.
54 In a response sent the following day, Mr Purry agreed that the aforementioned proposal “would yield budget savings” but would, however, force HP “to change AWO Software providers to that of a single provider responsible for both sensor integration and AWO training software”. To that end, he requested the NZDF consider paying “reasonable ‘separation’ costs” associated with removing Cirrus from the ACTC Program. The NZDF did not so oblige.
55 On 19 January 2018, the NZDF reiterated its earlier position in writing to HP: “the Crown is now seeking to secure a single training mission system for training of both air warfare officers and sensor operators”. That is, the NZDF now sought, with a level of finality absent from the RFT, the provision of a single training system that could meet both the Core Offering and the Optional Offering (as opposed to solely the former (being what Cirrus had quoted for in V4Q)).
56 Mr Purry replied to the NZDF on 24 January 2018 and noted “the only feasible solution” was “a single software provider solution based on MAROPS WideEye Training software adapted to integrate with AIMS and the aircraft sensor systems provided by Selex (radar) and FLIR EO …”. Negotiations progressed accordingly and, on 13 April 2018, Hawker NZ contracted with the Crown in right of New Zealand for the ACTC Program. On 24 April 2018, it contracted with MAROPS for the supply of a mission training system, including that which would be used to train AWOs. Cirrus was informed some two weeks later that there was no work for it do.
The terms of V4Q
57 It is appropriate at this juncture to set out the content of V4Q to the extent to which it is relevant to the issues on appeal.
General context
58 V4Q is a substantial document. To the uninitiated, it is in a rather unusual form, containing, as it does, a significant amount of promotional material. That is not pejorative, and it was not suggested that the form of the document rendered it any less likely to record a legally binding agreement. Still, that material contained substantial assertions as to the (claimed) attributes of Cirrus and its products and, one would imagine, such were not intended to be warranties in any contract which used the document as its base. Nevertheless, the document identifies itself as a “quotation” and states, at cl 1.1, that it is an “offer” to be included in HP’s response to the RFT.
59 Leaving to one side the large amount of promotional material, V4Q contains, at cl 5, a detailed description of the ACOTS technology, its uses, and functionality. Clause 6 outlines the manner in which that technology was to be developed and modulated to meet the Core Offering. At cl 6.4, several options were given by which the “Base Option” could be varied (such as provision of ACOTS on tablets or a display emulating TCAS (ostensibly a reference to a Traffic Collision Avoidance System)); as above, no provision was made for the Optional Offering (cf V1.2Q).
The “Commercial Proposal”
60 The most important part of V4Q is Part 10, “Commercial Proposal”. The significance of that part inheres within cl 10.2 (“Compliance against RFT Draft Contract Terms”), which provides:
In summary, Cirrus does not comply with the draft terms of contract proposed by NZ MoD at the RFT.
Instead, Cirrus proposes terms for the HP-Cirrus subcontract per the contents of this section 10.
It is quite possible that these terms provide significant overlap with the terms of a simply ‘flowed down’ RFT draft contract.
To the extent gaps exist between the terms proposed here, and the terms of a subcontract formed by a simple flow down of the RFT draft contract, HP may assume that it will need, as prime contractor, to absorb the corresponding quantum of commercial cost or risk or both.
Alternatively, HP may propose changes to particular terms proposed in this section 10.
Cirrus is willing to consider variations that HP might propose to the commercial terms that are captured in this section 10.
This includes changes that may be proposed by HP to attain better alignment with the corresponding terms of an eventual prime contract between RNZAF and HP. Such changes to terms would carry a corresponding change to the prices quoted at section 10.4 and/or the schedule described at section 10.3.5.
In the event that HP does not agree to the price adjustment for a proposed change to a particular term, that particular term will be left unchanged as per this section 10.
It is Cirrus’ expectation that when the time comes to negotiating a subcontract with HP, HP will not present Cirrus with a subcontract that is a simple ‘flow down’ of the head contract, and expect Cirrus to ‘line by line’ redraft the document to match the terms presented in this section 10.
Rather, Cirrus expects that HP will commence negotiations with Cirrus on the basis of a draft subcontract document that HP will itself have already drafted so that it reflects the terms in this section 10.
61 Clause 10.3 (“Terms”) commences with the statement: “The following broad commercial terms will apply”. Clause 10.3.1 (“Conduct of Acquisition Phase Engineering Work”) immediately follows and contains several statements of intention as to what is to occur in the course of the production of the relevant ACOTS system. Reference is made, inter alia, to the conduct of the necessary engineering works to be performed by Cirrus, the testing of Cirrus’ final product, the circumstances in which HP may reject the final product, certification of that product etc.
62 Before the primary judge, cl 10.3.3 assumed some significance (see PJ [88] – [89]). It read:
10.3.3 Acquisition Phase Milestones
• During the acquisition phase of the subcontract, payments will be made against defined milestones based on :
• Completion of defined engineering events (Design Review, TRR, Acceptance) or,
• Supply of listed deliverables, or
• Acceptance of the ACOTS.
Details of payments for each milestone may be determined at a later date, however the overall profile will represent fairly consistent payments during the acquisition phase of the project, with 90% of the acquisition component of the project cost occurring prior to Acceptance.
63 Clause 10.3.4 (“Intellectual Property”) defined a regime pursuant to which Cirrus was to retain all ownership in the intellectual property that it was “bringing … to this agreement” and would not be forced to disclose software source code, design data or technical data. It also noted that while Cirrus would not provide licenses to source code and design data, it would nevertheless provide licenses to HP or the NZDF to use executable versions of the software. Care was also taken to note that, should new intellectual property “emerge”, ownership in it would vest in the appellant on creation, but could be assigned to HP or the NZDF upon “payment of the relevant milestone, subject to negotiation and as agreed under any subsequent related subcontract.”
64 Clause 10.3.5 (“Schedule of Acquisition Phase Engineering Work”) indicates the time in which Cirrus can complete the subcontract was variable and ultimately subject to regulatory approval.
65 Clause 10.3.6 is important in the present context because of its anticipation of the execution of a subcontract between Cirrus and the respondents. It was drafted in the following terms:
10.3.6 Commencement of Acquisition Phase
HP has requested that Cirrus consider conduct of development works ahead of the execution of a subcontract between HP and Cirrus.
HP has described that such work would occur under the cover of a Letter of Intent (LoI) that would commit NZDEF to payment of NRE investment undertaken by Cirrus in the interval between Cirrus’ receipt of the Letter of Intent and the date that a subcontract between HP and Cirrus is executed.
Cirrus will consider this request.
Should Cirrus accede to this request, there will be a cost impact to the subsequent subcontract.
The quantum of this cost impact will be influenced by a variety of factors, including but not limited to:
• the extent to which the LoI provides Cirrus with certainty that it would recover the full investment in NRE made, in the event that Cirrus and HP do not enter into a subcontract,
• the period of time that is conducted under the LoI (i.e. prior to execution of a subcontract between HP and Cirrus), relative to the overall 6 month period of NRE development, and,
• whether HP is ready to enter into a subcontract with Cirrus once the head contract between HP and NZDEF is executed, as determined by whether this subcontract is actually executed on the same business day as the head contract is executed. This will require the terms of the subcontract to be pre-negotiated between HP and Cirrus prior to HP entering into the head contract. Preparing the terms of the subcontract will not be a simple case of flowdown of the head contract terms. Rather, the terms will need extensive amendments to match the terms set out in this document in this section 10. HP’s legal department will need to have undertaken the work to prepare these terms, and attain Cirrus agreement to the terms, prior to the execution of the head contract.
The cost proposal at section 10.4 does not include this cost impact, which will be additional.
66 The heading of cl 10.3.7 is “Other Commercial Terms” and, for present purposes, some of the more relevant parts that clause read as follows:
Insurance. Any requirement for insurance policies must reflect Cirrus’ existing policies as set out at Table 2 (page 26).
…
Safety. The subcontract must recognise that ACOTS is not a safety critical item of equipment, and no additional engineering is required to address any safety cases or other aspects of system safety.
…
Liquidated Damages. The costs of providing liquidated damages over the work are not included. If required this can be quoted as an additional cost. Cirrus will not take responsibility for delays caused as a result of HP not being in a position to enter a subcontract with Cirrus immediately after the head contract is signed, or as a result of HP not delivering furnished information/equipment on time.
Warranty. The costs of providing warranties over the work are not included. If required this can be quoted as an additional cost. However, the support phase costs do include an Annual Bug Fix Release, which serves a similar purpose.
67 Clause 10.4 identified the pricing scheme in relation to each phase of Cirrus’ work as follows:
10.4 QUOTATION
The following costs are quoted:
• Acquisition phase baseline costs. The costs charged during the build phase to undertake NRE software modifications, provide seat licenses, undertake testing and installation and set to work into ground based and airborne training environments, and to provide the SSM hardware as per the baseline proposal described at section 6.4.1.
• Optional acquisition phase item costs. The costs of providing the various options described in sections 6.4.2 to 6.4.4.
• Support phase baseline costs. The costs charged for providing the ongoing licenses and baseline support services as described at section 6.7.1.
• Optional support phase item costs. The costs of providing the optional support phase items, as per section 6.7.2.
• Additional Time and Materials Effort.
Quotes for these items are set out in the following paragraphs. All amounts are expressed in Australian dollars, and are exclusive of GST.
68 Clause 10.5 (“Next Steps”) has been set out above and there is no need to repeat it here.
Cirrus’ case as pleaded
69 The case advanced by Cirrus in its Further Amended Statement of claim (the FASoC) can be distilled to the following propositions. On 21 December 2016, Cirrus and HP entered a written agreement (the so-called “teaming agreement”). It was an express term of that agreement that:
14. … in consideration for the applicant permitting the first and second respondents to disclose, use, incorporate or combine the information from the Version 4 Quotation in the Tender, the first and second respondents would enter a subcontract with the applicant on the basis of the Version 4 Quotation if:
(a) either respondent was selected to enter contract negotiations; and
(b) subsequently entered a contract with the Ministry of Defence inclusive of training system and ongoing services (Prime Contract),
(Express Term).
70 The teaming agreement incorporated, by reference, the terms of V4Q (FASoC [14A]).
71 In turn, it was an express term of V4Q that:
14B. … in the event that the first and second respondents entered into the Prime Contract with the Ministry of Defence in terms that differed from the Version 4 Quotation including as to price, the parties agreed that:
(a) the respondents would, as prime contractor, absorb the corresponding quantum of commercial cost or risk or both;
(b) the respondents could propose changes to the particular terms contained in section 10 of the Version 4 Quotation, including to attain better alignment between the terms of the Version 4 Quotation and the corresponding terms of an eventual Prime Contract;
(c) in the event that the respondents proposed changes to terms of section 10 of the Version 4 Quotation, the applicant could propose a price adjustment to the prices quoted at section 10.4 and/or the schedule described at section 10.3.5 of the Version 4 Quotation; and
(d) if the respondents did not agree to the proposed price adjustment, the terms of section 10 of the Version 4 Quotation would remain unchanged.
72 The teaming agreement also contained an implied term that, in effect, required HP to:
14C. … act reasonably, cooperatively and in good faith by:
(a) ensuring the applicant had the benefit of the Express Term; and/or
(b) not engaging in conduct to deprive the applicant of the benefit of the Express Term,
(Implied Term).
73 In or about 2017 and 2018, HP breached both the Express Term and the Implied Term (FASoC [16] and [16A]) and, in so doing, caused Cirrus to “suffer[] loss and damage” (FASoC [17]).
74 In their Further Amended Defence, HP denies the existence of the teaming agreement. In the alternative, any agreement struck between the parties on 21 December 2016 is said to be “void for uncertainty and/or the terms of the alleged agreement are too uncertain to be enforced”. To the extent such an agreement was enforceable and “gave rise to a binding contractual obligation on [HP] to enter a subcontract with [Cirrus] on the basis of [V4Q] if [HP] was selected to enter contract negotiations and subsequently entered a contract with the NZDF inclusive of training system and ongoing services”, HP denies having committed any breach. First, it was said that the aforementioned obligation only arose if HP entered a contract with the NZDF that included the provision of the training system and ongoing services that were the subject of V4Q; HP had not done so. Second, it was said that the aforementioned obligation was conditional upon V4Q being acceptable to the NZDF and sufficient for HP to perform its obligations to the NZDF under the head contract; V4Q was not of such a character. Underlying these defences is the general assertion that the agreement entered into by HP and the NZDF for the training system to be provided was substantially different from that which was the subject of V4Q.
Reasoning of the primary judge
75 Given the conclusions reached in relation to Cirrus’ submissions, it is also necessary to set out the learned primary judge’s reasons in some detail, and with particular emphasis on those parts which are pertinent to the issues upon which this appeal turns.
The claim in contract
76 His Honour identified Cirrus’ claim in the following terms: by the exchange of correspondence on 21 December 2016, the appellant and the respondent “created a contract by which [Cirrus] exchanged its authorisation to disclose [V4Q] for a promise by [HP] that it would be contracted on the terms in the [V4Q] if [HP] ever entered into a contract with the NZDF that included an AWO training component” (PJ [5]). That contract was said to incorporate V4Q “by reference”, which, as discussed below, imposed on HP the obligation to absorb certain costs which it might be required to meet in the performance of the head contract with the NZDF (see PJ [142]).
“Agreements to agree” and the need for certainty
77 His Honour first surveyed the principles of so-called “agreements to agree” and, in particular, those instances in which an agreement to enter a contract in futuro had been found to convey contractual force (PJ [64] – [69]). That was noted to have been so in WorldAudio v GB Radio [2003] NSWSC 855 (WorldAudio), where McDougall J had found an agreement to have been reached vis-à-vis those terms that were necessary for the future contract to be presently binding:
[66] McDougall J held that the future agreement would not be uncertain because the parties had agreed upon all of the “essential” terms necessary for the future agreement to be binding (at [89]). McDougall J considered that terms could be “essential” either because the parties thought they were essential or because the Court identified them as such. As to the relationship between those two kinds of “essential” terms, his Honour observed that “the Court should be slow to substitute its own judgment for what is essential, and what is not, for that of the parties” (at [94]).
78 The reasoning in WoldAudio appeared to assume the role of a lodestar for his Honour. He first addressed whether the terms of V4Q (being the relevant future contract) were incomplete and lacked the “vital elements” of a contract (PJ [70], [72] – [93]). If so, the teaming agreement could not bind the parties for want of contractual certainty (“it would be a mere agreement to agree”: PJ [70]). This, his Honour noted, was tangentially relevant to the question of whether there was, on 21 December 2016, an objective intention to create legal relations (PJ [70], [93]).
79 The primary judge thus turned his attention to the terms of V4Q (and specifically those which appeared under the heading of cl 10, “Commercial proposal”) (PJ [72] – [84]). Having done so, his Honour was persuaded by the submission that the teaming agreement, being referable to V4Q, “was capable of being a binding agreement: it set out the services to be provided and the price to be paid” (PJ [85]). The fact that the identity of the relevant entity from within the Hawker Pacific group that was to contract with Cirrus was yet to be determined, as was the timing of payments to be made under the agreement, did not detract from such conclusion (PJ [86] – [89]). That is, the uncertainty of what might be agreed in the future did not undermine the existence of a sufficiently certain agreement as at 21 December 2016 (PJ [93]).
An intention to be legally bound
80 His Honour then turned to whether, in light of the foregoing, there existed, between the parties, an objective intention to create legal relations in relation to the teaming agreement (PJ [94] – [139]). He concluded (at PJ [96]) that no such intention existed. This was for three reasons:
[96] … First, the nature and extent of the incomplete terms in the Version 4 Quotation tell against a mutual contractual intention. Second, the commercial circumstances against which the exchange of letters occurred on 21 December 2016, including the language used by the parties before and on that date, tells against a mutual contractual intention. Third, the later conduct is equivocal, and does not suggest that the parties intended to bind themselves on 21 December 2016. …
Consideration (1): the nature and extent of the incomplete terms in V4Q
81 For the primary judge, the language of cl 10.2 of V4Q told “powerfully against” the conclusion that the parties intended to be bound by the terms of V4Q on 21 December 2016 (PJ [99]). Viewed objectively, the clause spoke of the parties negotiating a subcontract in the future and adverted to the fact that those negotiations had not yet commenced. The fact that HP could put to Cirrus new terms which arose from the terms of any head contract agreed with the NZDF greatly undermined the conclusion that the parties were binding themselves to the static terms of V4Q in the event that HP’s tender succeeded.
82 Similarly, the nature and extent of terms left to be agreed reflected an absence of the requisite intention. Some of those terms were, objectively, “essential” (PJ [101]). For example, his Honour reviewed the parties’ correspondence leading up to 21 December 2016, and observed (at PJ [104]) that HP had informed Cirrus that there were a number of important matters which could reasonably fall from any possible head contract with the NZDF and which would need to be accommodated in any subcontract. As his Honour noted, the draft contract which accompanied the RFT from the NZDF “contained draft terms relating to insurance, warranties, liability and KPIs …”. Though V4Q dealt with some of these issues “in a tolerably clear way” (PJ [105]), it did not deal with all of them nor had sufficient time passed between the receipt of V4Q by HP and its reply to conclude that the parties had reached agreement vis-à-vis those issues which it did address. For instance, V4Q did not grapple with “Milestone penalties on delivery” nor make provision for “KPIs” as sought by HP (PJ [106]). Similarly, the parties had not agreed upon the warranties that Cirrus would provide in relation to its services. His Honour further observed that V4Q did not deal with “Price Validity”, though, in the absence of any relevant submissions, he was unable to venture any further conclusion in that regard (PJ [107]). As an aside, and on the assumption that such expression has its usual meaning of the duration for which a price quoted remains valid and capable of acceptance, it is catered for in cl 10.4.7.
83 In any event, his Honour concluded (at PJ [108]) that the nature and extent of the matters left unresolved, when viewed in light of Mr Purry’s observations on 16 December 2016 (that it would not be possible to close off on all outstanding contractual issues before the end of the year), “strongly suggest[ed] the absence of a shared intention to enter a binding contract on 21 December 2016”. In particular, in the absence of any agreement as to milestone penalties, HP could well find itself liable to the NZDF under the head contract in respect of delays or deficient work by Cirrus, but without any avenue of recourse as against it. This had been the subject of discussion between Messrs Purry and Freed with the former indicating that it was something that needed resolution. The primary judge also observed (at PJ [108]) that, if the terms in V4Q were taken as a final agreement, it would amount to a finding that the respondents had agreed to contract without resolving issues which had explicitly been identified as “critical”.
84 His Honour also held (at PJ [110]) that the “risky and onerous nature of the promise” said to have been made in the teaming agreement rendered it unlikely that the parties had the requisite contractual intention. That view was reinforced on a comparison of the relative informality of the teaming agreement with the “potentially large consequences for both parties”.
85 That being so, his Honour nevertheless accepted that HP understood the participation of Cirrus to be “significantly beneficial” to the competitiveness of its tender to the NZDF (PJ [111]). However, on the evidence then before the Court, it was plain HP was prepared to run the risk of Cirrus walking away from the deal (even if that was not considered likely). In short compass, his Honour found that HP was not in the position where it would agree to “whatever Cirrus demanded” in return for its participation.
86 It was also considered relevant (at PJ [113]) that, as a matter of practical commerciality, the contract contended for by Cirrus would expose HP to significant risk. For example, the teaming agreement would serve to oblige HP to purchase the training system described in the V4Q if it entered into a head contract with the NZDF for the “ACTC capability” that required the supply of any AWO training system. That remained so, even where the head contract required the provision of a training system other than that offered by Cirrus in V4Q. Self-evidently, the materialisation of such a circumstance would leave HP in a particularly difficult position and the only identifiable quid pro quo for the assumption of that risk was that Cirrus would relax its confidentiality requirements for the purpose of making the tender (for the potential benefit of all parties). In that, his Honour found an “obvious” lack of balance which rendered it “objectively unlikely” that both parties were agreeing to be bound to V4Q.
87 His Honour also considered it to be relevant (at PJ [114]) that, if HP was bound to the terms of V4Q, it would render negotiating for the head contract rather difficult and, indeed, might place it in the position where it would be “uneconomic” to make a bid. Plainly, that would neither protect nor advance Cirrus’ interests. In this respect, he also recognised that if there were an intention to protect Cirrus to the extent alleged, there were far more convenient ways to do it.
88 Overall, an agreement on the terms alleged by Cirrus would have, to adopt the language of the primary judge, “placed all of the risks associated with negotiations of the price and detail of the services on the respondents and none on Cirrus, notwithstanding that both stood to benefit from those negotiations” (PJ [115]).
Consideration (2): the commercial backdrop against which the exchange of letters occurred
89 The primary judge then proceeded to consider the circumstances in which the exchange on 21 December 2016 took place, including correspondence that had emanated from the parties. He first recognised (at PJ [120]) that the fact that the parties had, on prior occasions, entered into formal agreements when they intended to create binding obligations (such as the first and second confidentiality agreements), tended to suggest that the informality of the 21 December letters was indicative of an absence of any intention to enter into a legal contract. He concluded (at PJ [121]) that the “alacrity and informality with which the teaming agreement was concluded are consistent with a mutual understanding that it was not to set the obligations of the parties in stone”. That was fortified (at PJ [122]) by an absence of evidence that the parties intended the terms of the teaming agreement to be embodied in a formal agreement, as the parties had done on previous occasions, as well as the absence of any express statement that, in return for the relaxation of the relevant confidentiality agreement, Cirrus was to have a legally binding exclusivity agreement in relation to any subcontract (at PJ [123].
90 His Honour also accepted that, had Cirrus desired an immediately binding commitment (as it had obtained from HP in the past), it would have stipulated for a signed contract (PJ [124]). It had not done so. In that context, the “commitment” that had been sought by Cirrus in its letter of 21 December, when read in light of the parties’ history of contracting formally on issues important to them, could not lead a reasonable person in the position of the parties to think it referred to a contractual commitment.
91 A further aspect of the parties’ informality that was alluded to by the primary judge was the lack of coherence in the identification of the elements of the essential agreement. His Honour identified (at PJ [127]) that in V4Q, the stipulation sought by Cirrus was that if HP entered into a contract for the “ACTC capability” – being the capability sought by the NZDF in its RFT – the engagement of Cirrus would necessarily follow. However, the 21 December letter sent by HP identified the relevant stipulation as being that if it entered into a contract for the ACTC capability “as stated in Reference A (i.e. inclusive or [sic] AWO Training Capability)”, Cirrus’ engagement would follow. His Honour found that “[t]his was a significant discrepancy which seemingly passed unnoticed until these proceedings were commenced. … [T]he respondents’ letter was a short one and, if intended as a contractual document, was important. Yet Mr Freed apparently neither read it carefully nor asked anyone else in his company (let alone a legal adviser) to check that it matched up with what he was seeking” (PJ [127(e)] and [127(f)]).
92 His Honour rejected (at PJ [128]) Cirrus’ submission that HP was only able to submit a tender with its assistance. He also held that as the teaming agreement, if afforded Cirrus’ construction, would not have prevented it from refusing to participate if HP’s tender were to be accepted, nor from supporting a competing tender. That being so, “[o]ne would have thought that the respondents would have bargained for reciprocal exclusivity if Cirrus’ involvement was indispensable to its tender”.
Consideration (3): so-called “post-contractual” conduct
93 The primary judge also considered the evidence of so-called “post-contractual conduct” advanced by the parties in support of their respective claims (PJ [129] – [138]). His Honour rejected evidence of any such conduct which was not known to both parties (PJ [131], [134]), and otherwise concluded that the evidence did not support the view that the parties had an intention to enter into a contract as at 21 December 2016 (PJ [136] – [137]). His Honour’s consideration of those matters is addressed in greater detail below.
Other matters considered by the primary judge
Did the teaming agreement incorporate the terms of V4Q?
94 Despite the foregoing conclusions (which were sufficient to dispose of Cirrus’ case in contract), his Honour appropriately proceeded to consider other aspects of Cirrus’ case. In this respect, he identified the difficulty in ascertaining precisely how the terms in V4Q related to the teaming agreement (PJ [141] – [143]). In part, Cirrus said that the teaming agreement required HP to enter into an agreement “on the basis of” V4Q and, in other parts, it was alleged that the terms of V4Q were “incorporated by reference” into the teaming agreement. As the learned primary judge observed (at PJ [141]), Cirrus did not explain this disconformity and his Honour therefore rejected the proposition that the terms in V4Q were incorporated into the teaming agreement (PJ [143]).
Construction of the respondents’ letter of 21 December 2016
95 On the question of the construction of the teaming agreement, his Honour first addressed the issue of whether the use of the expression “Reference A” in a letter sent by HP to Cirrus on 21 December 2016 (see [49] supra), ought to be read as “Reference B” (PJ [145] – [159]). The relevant passage had been drafted by HP in the following terms:
… Should Hawker Pacific … be selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability as stated at Reference A (i.e. inclusive or AWO Training Capability), the engagement between Hawker Pacific and Cirrus will be on the basis set out in Reference A to this letter. …
(Emphases added).
96 The letter identified “Reference A” as the V4Q and “Reference B” as the NZDF’s RFT. On one view, namely that advanced by HP, the impugned reference to “Reference A” in the aforementioned sentence was intended to mean V4Q, such that, by the terms of the teaming agreement, HP was only bound to enter into a subcontract with Cirrus if it entered into a head contract with the NZDF to provide the training services that were the subject of V4Q.
97 His Honour concluded, after canvassing the views of Leeming JA in James Adam Pty Ltd v Fobeza Lty Ltd [2020] NSWCA 311 as well as Meagher JA and Ball J in HDI Global Speciality SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296, that the language adopted in HP’s letter of 21 December 2016 was likely to have been erroneous: “[t]he reference to “Reference A” (rather than “Reference B”) is inconsistent with [prior exchanges between Messrs Purry and Freed]. It also sits somewhat uneasily with the words that follow” (at PJ [153] – [157]). Yet, the language was also unambiguous, made sense and set out the terms of an agreement that was capable of being carried into effect. As such, it was “to be given its ordinary meaning” (PJ [158] – [159]).
98 Consideration was also afforded to disputation as to the meaning of the term “engagement” in HP’s letter of 21 December 2016 (see PJ [160] – [165]). In that regard, his Honour held (at PJ [163]) that, if an agreement had been reached by the relevant exchange of letters, it was only to the effect that HP would “negotiate for a subcontract with Cirrus if an entity in the “Hawker Pacific group” successfully tendered for the ACTC Program, using the process and on the terms set out in the [V4Q]”. Further, it was found (at PJ [164] – [165]) that the obligation to engage in negotiations arose “only if and when [HP] were engaged to provide services of the kind proposed in the [V4Q]”. “That never occurred” (PJ [165]).
The terms implied in the teaming agreement
99 His Honour then addressed (PJ [166]ff) the suggestion that the teaming agreement contained an implied term which, on Cirrus’ submissions, had been breached. The term was to the effect that HP would act reasonably, cooperatively and in good faith by “ensuring the applicant had the benefit of the Express Term” and/or by “not engaging in conduct to deprive the applicant of the benefit of [it]”. In short, it was concluded that the allegation of the implied term “must necessarily fail” because it relied upon the presence of the so-called “Express Term” and such a term had not been established (PJ [167]). In any event, the alleged implied term went well beyond that which might arise in the circumstances: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 (at PJ [168] – [171). For example, the implied term could not be correct because no conduct on the part of HP was required in order for Cirrus to perform its obligation(s) under the teaming agreement, in that all that it was required to do was give a release of HP’s existing confidentiality obligations (PJ [170]). Furthermore, the alleged implied terms went well beyond that which was needed to oblige HP to ensure that the conditions on which Cirrus would be engaged as a subcontractor came to fruition. That which was alleged by Cirrus would “impose a burdensome and potentially impossible obligation” on HP (PJ [173]). Indeed, as framed, it would require HP to contract with Cirrus even if it had the likely consequence of imperilling the economic viability of both.
100 The learned primary judge then proceeded (at PJ [181]) to address, ex hypothesi, the issue of whether Cirrus had established that any breach had occurred. As his analysis is dependent on several consecutive assumptions, it is not necessary to undertake any further consideration of the matter at this juncture. Nor is it necessary to consider his Honour’s disposal of Cirrus’ submissions founded upon an alleged estoppel by convention (PJ [186] – [192]).
The issues on appeal
101 The central issue before the Court is whether the parties entered into an agreement of the nature alleged by Cirrus in the FASoC. Two questions thereby arise (PJ [62]). Did the parties agree upon all the essential terms of their bargain in the form of V4Q? And did the parties intend to create legal relations? The learned primary judge answered, “yes”, (see, eg, PJ [63], [85], [93], [188]) then, “no” (see, eg, PJ [63], [96], [139], [188]). It is the latter of those conclusions which underlies the gravamen of Cirrus’ present case. For the reasons which follow, his Honour was correct to conclude that, in the circumstances, there was a lack of intention to be legally bound. On the basis of that conclusion, it is not necessary to consider the remaining grounds of appeal.
Intention to create legal relations
102 The question of whether, by their conduct and what they said, Cirrus and HP objectively evinced an intention to be legally bound to the performance of certain terms, is a factual one. As such, its resolution should be approached with a measure of caution. As the requisite intention is to be gleaned from the circumstances of the case, the degree of difficulty involved in doing so will fluctuate from case to case and, here, they were far from straightforward.
The present issue
The price of flexibility in commercial relations
103 It is apt to make the initial observation that, as any assessment of the myriad authorities will evidence, the assortment of arrangements, accords, accommodations or understandings short of a legally binding agreement which arise in commerce are almost limitless. That being so, it would be dangerous to proceed upon a presumption that any arrangement between commercial parties following discussions or negotiations is necessarily contractual. On the other hand, where the issue of the existence of contractual intention becomes the subject of litigation, one of the parties asserts that such an intention became manifest in the circumstances.
104 Commercial parties are self-interested. It is a matter of common experience, as this case well shows, that parties are often desirous to establish as solid a foundation as they can on which to pursue commercial opportunities, whilst remaining free of binding legal obligation: Kleinwort Benson v Malaysia Mining Corporation Berhad [1989] 1 WLR 379; Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548 – 549 (XIVth Commonwealth Games); Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551, 14,552 (Geebung Investments); Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494, 503 – 504. The position of an entity that seeks to tender for a contract is a prime example.
105 Though the circumstances are universally variable, it may be that, in some scenarios, a tenderer would prefer a greater measure of certainty as to the input costs on which to pitch their tender (e.g., costs of subcontractors, suppliers etc). In some, perhaps many, cases, they would prefer to hold that security as to the costs of the inputs, free of any concomitant obligation to the downstream party prior to finalising the terms of the head contract. For example, the putative tenderer and subcontractor may arrive at an understanding as to their respective intentions vis-à-vis each other if the head contract were to be entered into. That is, indeed, HP’s position. Of course, the tenderer bears the risk that, once the head contract is entered into, a subcontractor might seek to alter their indicative terms. But such is the price of maintaining flexibility.
106 That risk can, however, be eliminated by the tenderer contracting with the subcontractor(s) in terms conditional upon the relevant tender being successful. That is the substance of Cirrus’ position. However, to the extent a head contractor reduces its risk vis-à-vis any subcontractor, it is deprived of any measure of flexibility by which to negotiate terms with that subcontractor once the head contract is secured. That is of particular significance where, as here, that which would ultimately be required by the NZDF remained constantly uncertain.
107 On the other hand, it must not be assumed that it is only the head contractor, in the hypothetical canvassed above, who wishes to reduce its risk. In any agreement whereby the head contractor binds itself to a subcontractor who has provided a fixed price, it is likely that the head contractor will require an assurance that the subcontractor will not contract with another entity tendering for the same work. No doubt the subcontractor wishes to retain the flexibility to contract with whoever is the successful contractor. Again, the absence of a binding contractual obligation with the head contractor before the tender is awarded will achieve that result.
108 The foregoing observations assume some degree of relevance in relation to Cirrus’ reliance on the observations of Rogers CJ Comm D in Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 (Banque Brussels). There, the plaintiff (BBL) sought reassurance from Australian National Industries Ltd (ANI), a principal shareholder in the holding company of Spedley Securities Ltd (Spedley), that a line of credit which it was considering providing to Spedley would in fact be repaid. In correspondence sent to BBL, ANI asserted, inter alia, that:
… it would not be our intention to reduce our shareholding in Spedley Holdings Limited from the current level of 45% during the currency of this facility. We would, however, provide your Bank with ninety (90) days notice of any subsequent decisions taken by us to dispose of this shareholding, and furthermore we acknowledge that, should any such notice be served on your Bank, you reserve the right to call for the repayment of all outstanding loans within thirty (30) days.
We take this opportunity to confirm that it is our practice to ensure that [Spedley], will at all times be in a position to meet its financial obligation as they fall due. …
109 Rogers CJ (Comm D) held that ANI, by such language, had bound itself to certain obligations pertaining to the financial position of Spedley. In the course of his reasons, his Honour said (at 523):
… There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction would, without any express statement to that effect, reside in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt to give proper effect to commercial transactions. It is for this reason that uncertainty, a concept so much loved by lawyers, has fallen into disfavour as a tool for striking down commercial bargains. …
110 Cirrus relies upon this passage in support of the view that “an intention to create legal relations (and thereby binding obligations) will be readily inferred” in commercial agreements. It is also said that such passage “is apt to describe the effect of the primary judge’s reasoning”. For the avoidance of doubt, whilst the view espoused in the former submission is, for reasons explored below, prima facie correct, it does not find support in the passage above. All that was observed was that where statements (a) objectively indicate an intention to be bound if acted upon; and (b) are subsequently acted upon, the circumstances are indicative of the parties’ having entered into a contract. That is uncontroversial and does not derogate from the observation that persons in commerce are often prepared to enter arrangements which fall short of being legally binding.
The issue identified in general terms
111 The overriding issue can be briefly stated: did the parties objectively evince an intention to be legally bound to identifiable terms and conditions? (see Allen v Carbone (1975) 132 CLR 528, 532; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 – 106 [25] (Ermogenous); Krolczyk v Winner t/as J Winner Building Services [2022] NSWCA 196 [147]; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 [69] (Sagacious Procurement)). That is to be resolved by determining what a reasonable person in the position of the parties would have taken the parties to have intended, given what they said and did in the surrounding circumstances: Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102 [64] (Stellar Vision); Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 337 (Air Great Lakes). That may involve, for example, the drawing of inferences from the conduct and/or communications of the parties that surrounded the alleged formation of the contract in question.
112 It is necessary to keep steadily in mind that the “reasonable person” must be satisfied that the parties intended to be legally bound to perform, henceforth, the essential elements of a contract: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, 525 [369]. Underlying such proposition is a distinction, albeit oft indivisible, between the parties having agreed terms that (a) are, in the circumstances, legally necessary to constitute a contract; and (b) they intend to be bound to perform henceforth: Heydon J D, Heydon on Contract: The General Part (2019, Thomson Reuters) 121 [4.50] and 88 [3.70] (Heydon on Contract). It is, therefore, insufficient for the relevant parties to agree upon the so-called “essential” terms of their bargain, but not (objectively) intend to be bound by them (see, eg, PJ [63]) or otherwise (objectively) intend to be so bound upon the happening of a future event (see, eg, Masters v Cameron (1954) 91 CLR 353, 360 – 362 (Masters v Cameron)). The need for objectivity in this context is consistent with the objective theory of contract: Ermogenous 105 – 106 [25]; Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488, 516 [119] (Tipperary Developments): and is, in many respects, a custodian of certainty inter partes, in that where parties “manifest their mutual assent” to be legally bound (that being the instructive language of the Restatement (Second) of the Law of Contracts (American Law Institute, 1981) § 18), they are unable to seek to then rely upon a private or undisclosed intention to vary the content of their prior agreement.
Comment on the foundation of the intention to create legal relations
113 While modern Australian jurisprudence understands proof of animus contrahendi, independent of the movement of consideration, to be “necessary” to the enforceability of a contract: Seddon NC and Bigwood RA, Cheshire & Fifoot Law of Contract (12th Aust ed, 2023, LexisNexis) 230 – 231 [5.1] (Cheshire & Fifoot); but see Williston S, A Treatise on the Law of Contracts (3rd ed, rev Walter HE Jaeger, Vol 1, Baker, Voohris & Co., Inc., 1957) § 21 and Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs and mgrs appt) (in liq) (2009) 25 VR 411, 428 [60]: very few texts attempt even a passing reference to the origins or theoretical underpinnings of such a proposition. That is unsurprising, given that such matters are so elusive that they have avoided precise articulation, even by jurists as distinguished as Professor Brian Coote CBE: see, eg, Coote B, “The Essence of Contract: Part I” (1988) 1(2) Journal of Contract Law 91 (Essence of Contract I); Coote B, “The Essence of Contract: Part II” (1988) 1(3) Journal of Contract Law 183 (Essence of Contract II). Perhaps all that can be said with some modicum of certainty is that mutual assent, as “a central organising concept at the heart of contract”, has a long and continuous history: see Swain W, The Law of Contract 1670 – 1870 (2015, Cambridge University Press) 180 – 186; cf Essence of Contract II, 194 n 231.
114 As Professor Coote’s articles identify, the relevance of the need to prove that counterparties, desirous to contract, intended that their relationship be attended by legal consequences (that is, subject to judicial oversight) has seemingly vacillated with received contract theory. While the requirement appears to have had its zenith in the “will theory” of contract that proved popular amongst 19th century European scholars (of course, if a contract is understood to be the product of the meeting of the wills, then the will is, necessarily, a product of intention) and subsided during the ascension of both the “bargain” and “promise” theories, it nevertheless retains some degree of value under what some commentators regard as the presently dominant “reliance theory”: Essence of Contract I, 99 – 107; Cheshire & Fifoot, 1400 – 1407 [28.3] – [28.10]. In a broad sense, it might be said that X and Y’s mutual expression of an objective intention that their agreement is to be subject to judicial oversight could both (a) reasonably be relied upon as evidence that the agreement is more than a mere social compact; and, thereby, (b) induce X to proceed with the bargain, such that Y is enjoined from denying its existence (and vice-versa).
115 Although the homogeny between the need for mutual assent and received contract theory has eroded with time, the importance of the doctrine has not. If anything, it is perhaps more indispensable today than ever before. Commercial morality is not what it once was. Nor is communication limited, for example, by the flight of a pigeon. Instead, modern commerce is predicated upon the exchange of correspondence, some formal and some not, with unparalleled speed, volume and variation. There is now infinite latitude for commercial parties to represent themselves – such as by a thumbs up or “smiley moon” emoji: Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte (The MV Aquafreedom) [2024] EWHC 255 (Comm) [11] – [13]; South West Terminal Ltd v Achter Land & Cattle [2023] SKKB 116 [63] (Achter Land); In re Bed Bath & Beyond Corp. Securities Litigation (D Colu, No 1:22-cv-02541, 27 September 2024) 4 – 5 – and, therefore, it is vitally important that the potential for any such representation to alter another’s legal rights be directly referable to the objective intention that was conveyed.
116 While the importance of the requirement is easily understood, common experience reveals that its identification in any particular case is fraught with difficulty. The use of the parties’ actual or subjective intention(s) for this purpose is, of course, misguided. It would enable a person seeking to avoid a bargain to assert that, despite what they said and did, their “secret thoughts” were to the contrary: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, 61. Any such assertion is difficult to disprove and would be relied upon by the dishonest person whenever they perceived their position to be best advanced by release from a contractual obligation. Necessarily, any arrangement founded upon a party’s actual intention would be fragile, to say the least: see also Tolhurst GJ and Peden E, Furmston and Tolhurst on Contract Formation: Law and Practice (3rd ed, 2023, Oxford University Press) 267 – 268 [9.06] (Furmston and Tolhurst).
117 To that end, the requirement that parties “voluntarily” assent to their agreed obligations being legally enforceable has been absorbed by an inquiry into whether they, by their conduct and what they say, objectively manifest that assent: note Cheshire & Fifoot 18 [1.31]. In this way, the task of the court is not “to see that both parties really meant the same precise thing, but only that both actually gave their assent to that proposition which, be it what it may, de facto arises out of the terms of the correspondence”: Kennedy v Lee (1817) 36 ER 170, 174. After all, “the Devil himself knows not the intent of a man”: Anon (1478) YB 17 Edw IV.
118 So understood, the objective lens by which a party’s intention is to be ascertained accentuates an important temporal requirement, namely that the intention must exist at the time the parties entered, or allegedly entered, the contract. It is from that point that the parties can proceed in the knowledge that the bargain struck between them had altered their legal rights in relation to the relevant subject matter. As will be seen, this assumes significance when consideration is afforded to what is inaccurately described in the present context as “post-contractual conduct”.
119 It can readily be accepted that some exceptions might be identified to the foregoing general principles, such as where the parties are engaged in pretextual conduct. However, in such cases where their pretence is known to both (such as where the performance of contracting is in the nature of a joke), that is an objective fact which must be attributed to the objective observer. It is also true that certain conduct, such as mistake, fraud, misrepresentation, duress and the like, might generate vitiating circumstances that negate a contract’s efficacy, although the law’s appropriate response to pre-contractual acts of moral obloquy do not necessarily undermine the general principles identified. That aside, I accept that, as Jackman J has observed, a legitimate exception to the general rule might exist in relation to certain unilateral contracts.
The process of ascertaining an intention to be bound
120 The holistic evaluation required to ascertain the parties’ intention necessarily extends to a consideration of every relevant fact or matter occurring between them. In Air Great Lakes, McHugh JA observed that, even where parties have produced a written document encapsulating their arrangement, the Court must still regard all surrounding circumstances in their assessment of whether a contractual intention existed. His Honour held (at 337 and 338) that:
The intention to create a legally binding contract although a matter to be proved objectively, may, nevertheless, in my opinion, be proved by what the parties said and did as well as by what they wrote. The intention may be proved in that way even in a case where the document is intended to comprise all the terms of their bargain. This is because the intention to be bound is a jural act separate and distinct from the terms of their bargain.
…
… the intention to create a legally binding contract may be proved by what the parties said and did as well as what they wrote, even where there is a signed document which is intended to comprise the terms of their bargain. …
(Emphasis in original).
121 Whilst it can be accepted that the circumstances that might be considered in the quest to discern the requisite intention are so varied that they eschew distillation into a catalogue of prescriptive rules: Ermogenous 105 [25]: it may nonetheless be observed that, throughout the long history of contractual disputation on this issue, several indicia have come to be accepted as relevant. That said, the manner and degree to which they impact any case is dependent upon the context in which they arise and the existence or otherwise of countervailing factors. The discussion which follows, identifies only some of the more frequently recurring ones, and is, by no means, intended to be an exhaustive statement of the relevant circumstances which might well exist.
Indicia (1): The “terms” of the putative agreement
Nature and extent of consensus
122 The absence of consensus inter se on matters of detail is a consideration that is adverse to the conclusion that the parties intended to be legally bound by their agreement. In Stellar Vision, the Court of Appeal of New South Wales rightly identified (at [67]) that the:
[67] … existence of matters of importance on which the parties have not reached consensus in their informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal document. That the terms have not been fully or well stated is material to whether a contract has been made. The more important the term, the less likely it is that the parties will have left it over for future decision, but there is no legal obstacle which prevents the parties agreeing to be bound now while deferring important matters: Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd [1995] NSWCA 166; (1995) 7 BPR 14,551 at 14,579; ABC at 548; Sagacious at [73]; Feldman v GNM Australia [2017] NSWCA 107 at [60]-[61].
123 Although the latter clause of the paragraph cited is undoubtedly correct, such occasions as are contemplated must be somewhat rare. If a matter is truly “important”, it is curious that a party would opt to bind themselves to other terms before securing sufficient assurance in relation to it (though that is not to say that such circumstance cannot occur: see, eg, Heydon on Contract, 88 – 89 [3.70] citing Proton Energy Group SA v Orlen Lietuva [2014] 1 Lloyd’s Rep 100 [39]).
124 The extent of consensus inter se also bears upon the task at hand: see Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd (unreported, 28 October 1994, NSWCA), 40: and its relevance is, in many respects, informed by the subject matter of the putative contract: see Ermogenous 105 [25]. For instance, where the agreement relates to a relatively simple matter, the scope of the topics on which the parties require agreement might be limited. The settlement of litigation is an example: see, eg, Geebung Investments: as is the sale of an easily transferable asset. In more complex transactions, such as for the sale and transfer of a business, there are necessarily a greater number of issues requiring agreement. Where the agreement is for the provision of services over an extended period, it might be assumed that there are even more issues on which, objectively, the parties would require consensus before intending to be legally bound.
125 In short compass, the nature and extent of the parties’ agreement can tell much of their intention to be bound. So much was observed by Gleeson CJ in XIVth Commonwealth Games at 548:
… in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
(Emphasis added).
Terms agreed with sufficient “certainty”
126 Intimately related to the foregoing is the relevance of the parties having reached an agreement upon sufficient terms to accord contractual certainty to their bargain: see, eg, Uranium Equities Ltd v Fewster (2008) 36 WAR 97, 132 [127]. This relationship was important in WorldAudio, a decision of the Supreme Court of New South Wales that was relied on by Cirrus both at first instance and on appeal. That case concerned certain “Apparatus Licences” in respect of which the plaintiff (WorldAudio) claimed to have had the benefit of an agreement with the defendant (GB Radio). In early April 2002, the parties agreed, amongst other things, that:
4. WorldAudio will enter a programming supply agreement with GB Radio for a term expiring on 15 May 2011, under which GB Radio will supply to WorldAudio British lifestyle programming material sourced in the United Kingdom, and our client will arrange for that material to be broadcast as follows:
[the amount of programming per day]
In return, WorldAudio will, and IMM will procure that WorldAudio does, subject to 5 below, pay GB Radio $650,000 within 8 business days of receipt of the application for IMM Shares contemplated in 5 below.
127 McDougall J was prepared to find that such language recorded an agreement that was neither uncertain nor unenforceable (at [95]), for the parties had defined the “elements of parties, price, property and obligation” (although not, for example, “British lifestyle programming material”: but see [80] and [95]). That being so, GB Radio could not point to any “essential matter” that was not found in paragraph 4 above (at [94]). His Honour ultimately held (at [96] and [97]):
[96] In my opinion, an agreement on the terms of para 4, whether or not supplemented by obligations imposed or implied by law, would be binding. There is no material uncertainty as to any of the fundamental matters that are required so that the parties can perform their respective obligations. …
[97] If, therefore, an agreement framed in terms of para 4 of the 2 April offer is not too uncertain to be enforceable, it must in my opinion follow that an agreement to enter into such an agreement is not too uncertain to be enforceable. If the parties cannot agree on additional material then, as McHugh JA said in GR Securities, they will nonetheless be held to that which they have stipulated.
128 Cirrus submitted that coordinate reasoning should apply in the present case, in that “[t]he V4Q contained the essential elements of the parties’ bargain, thereby demonstrating an intention to be legally bound” (citing WorldAudio at [91] – [95]). If that submission is taken as suggesting that an intention to enter into a binding agreement necessarily follows from the parties’ having agreed upon terms capable of forming a binding agreement, in the sense that there is sufficient certainty, that should be rejected. Such circumstances do not necessarily speak of an intention to enter into a contract on only those terms on which the parties had reached consensus. Indeed, it may be that the circumstances reveal that the parties would not have been prepared to enter into an agreement without the provision of other terms (as the primary judge found: PJ [96]).
129 However, if Cirrus’ submission is to the effect that where parties have agreed upon all essential terms, being those terms without which either would not be prepared to enter into the contract, the intention to be legally bound can be more easily discerned, it is defensible. If that position is reached, it might very well be rather difficult to objectively identify a lack of intention to be legally bound; but that is, however, by no means a foregone conclusion.
130 WorldAudio does not provide a principled basis for determining whether a relevant contractual intention exists in a commercial setting by reference to the concepts of contractual certainty. The question is not whether the parties agreed on terms that, if they intended to enter a contract upon them, it would not be void for uncertainty. Instead, it is whether the nature and extent of any agreement as to the terms of any intended contract is indicative of an intention to enter a contract upon those terms: see Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 131 (Ken Morgan Motors). With respect, an accurate statement of the correct position was articulated by Gleeson CJ in XIVth Commonwealth Games at 548:
It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron. That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. …
Expressly mutual obligations, rights and entitlements
131 Whilst there is little doubt that, in most cases, the arrangement between the parties will involve promises from both parties because, without them, the absence of any identifiable consideration will render redundant any discussion of contractual intention, the existence of expressly mutual promises may support the inference that the parties intended that they be performed: R v Lord Chancellor’s Department; Ex parte Nangle [1991] ICR 743, 751; Air Great Lakes 330.
Commerciality of the agreement
132 A curiosity that underlies the reasoning of the learned primary judge is whether (and, if so, to what extent) notice might be taken of the commerciality of the putative agreement in surveying the extent, if any, the requisite contractual intention existed. At PJ [110], his Honour identified that the “risky and onerous nature of the promise” said to have been made by HP in the teaming agreement made it “inherently unlikely that the parties had the requisite contractual intention”.
133 Support for that proposition was said to flow from the decision of Riordan J in Re Access Strata Management Pty Ltd [2022] VSC 639 at [17(g)] and [20(a)] (Re Access). In that case, it was accepted that the content of the putative contract was “commercially nonsensical” (at [20(a)]); this factor, alongside others, left his Honour unable to infer that the circumstances manifested an intention by the companies in question to be bound by the alleged contract (at [20]). In line with Re Access, it can be accepted that if the adequacy of the parties’ bargain were something of which they were both objectively aware, it is a matter appropriately considered as going to the existence or otherwise of the requisite intention. Much like the adequacy of consideration, it is of utility in assessing the “seriousness” of intention: see Heydon on Contract 122 [4.100].
134 However, at PJ [111], the primary judge took into account HP’s internal analysis of the risk of Cirrus “walking away” from the tender process, as well as its determination that it would not do so, as being relevant to whether contractual intention existed. That, with respect, goes too far. Where the question is whether there existed an objective intention as between the parties to be legally bound, one party’s internal considerations or assessment of the commerciality of the agreement or possible responses of the other party to commercial pressure, are not relevant. Indeed, to allow reference to a party’s internal assessments of its potential contractual position, for the purpose of determining whether a contractual intent was evinced, would fly in the face of the objective theory of contract and impermissibly widen the scope of the relevant inquiry. It would, for example, extend a court’s task to an assessment of each parties’ motivation(s) for contracting, including an evaluation of their economic circumstances, and thereby involve it in an almost endless consideration of hypothetical scenarios.
135 It would, of course, be different were one party to inform the other that it believed an agreement in the form proposed was wholly uncommercial. That, and any response, would be relevant to the assessment of any contractual intention which is alleged to have arisen subsequently. While the truth of the statements is irrelevant, the fact that they were said in the course of negotiations can be highly relevant to whether any contractual intention existed in relation to an agreement that will not produce the result that the party sought.
Involvement of legal representatives
136 Imagine the circumstance where two parties hold the expectation that any agreement between them, written or oral, will be subject to the preparation of a formal agreement by their respective legal representatives. Now, where the nature of the issues to be agreed upon are numerous and complex, it may reasonably be expected that the parties will intend to avail themselves of legal assistance, in the nature of advice and drafting, before they are prepared to bind themselves to any agreement. By contrast, where the subject matter of the relevant agreement is more prosaic, the appropriateness of prior legal assistance is reduced and it may more readily be inferred that the parties intended to be bound immediately by their agreement, even if it is yet to be formally drawn up by their legal representatives: see, eg, Geebung Investments; see Masters v Cameron.
Indicia (2): The “form” of the putative agreement
Whether, and the extent to which, the agreement has been reduced to writing
137 To a degree, formality signifies legality. Hence, the fact that the relevant parties have recorded their arrangement in writing is indicative of an intention that the written record encapsulates legally binding obligations: see, eg, Merritt v Merritt [1970] 1 WLR 1211. That the parties have regarded it sufficiently important to record, in writing, the state of their relationship, can reflect an understanding that the obligations agreed on are to be performed. By the same token, where an agreement would involve some measure of complexity, the failure to distil such into writing can objectively indicate that the parties had yet to reach such a stage. The position is, of course, different for tentative documents (such as statements of hope, records of progress in negotiations), relatively straightforward agreements and agreements between family members.
138 Additionally, where a written record of the terms on which the parties have so far agreed has been signed by them, there exists an even stronger indication that they intended to be bound to perform them. It can be taken as generally accepted that affixation of a signature by someone with authority is intended to have some consequence to the parties’ relationship: Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 [49] – [50]; Heydon on Contract 134 [4.360].
139 Despite that, it is apt to remember that, where terms have been agreed and the parties have also agreed that a formal agreement will be entered into, the absence of formal writing does not necessarily detract from the conclusion that the parties intended to be bound by what they have thus-far agreed. As is indicated by two of the three “categories” of case referred to in Masters v Cameron, the parties may be regarded as being bound, notwithstanding their stated intention to enter a formal agreement in the future: Coles Supermarkets Australia Pty Ltd v 461 Hampton Street Investments Pty Ltd [2024] VSC 306 [45] (461 Hampton Street Investments), quoting Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386 [105].
The language and formality used
140 Where a contract is said to arise, in part or whole, from written documents, part of the relevant circumstances include the language used by the parties to record their understanding. It might generally be thought that the more significant or substantial the alleged contract, the more likely it is that the parties would only have expressed their accord in words of a contractual ilk. For instance, expressions such as “promise”, “covenant”, “terms”, “conditions” or the composite, “terms and conditions”, bespeak of an intention to be legally bound. Such usage conveys an understanding that the assurances given were to be performed and not to be dishonoured. By contrast, expressions such as “understanding” or “arrangement” tend in the opposite direction.
141 The formality of the wording of any written document may also convey a stronger intention by the parties to be legally bound, and especially so where matters of substance are at stake. On the other hand, use of casual wording suggests the parties have not yet reached final agreement. In Wakim v Wakim [2017] NSWSC 1283 (Wakim), Sackar J observed (at [59]) that:
[59] … the vaguer the conversation purportedly regarding the legal obligation, the less likely the conversation comprised of language of a contract; Ashton at [73]; Sion v NSW Trustee & Guardian [2013] NSWCA 337 at [40]–[41] per Emmett JA (with whom Basten and Barrett JJA agreed).
142 Such matters, of course, furnish only an indication of the parties’ objective intention and it is not controversial that significant and substantial legal obligations can be assumed in even the most casual of manners: recall, for example, the use of emojis in Achter Land.
Indicia (3): The parties’ relationship
Nature of relationship
143 While the nature of the relationship inter partes – being, for example, commercial or personal, or arising out of a relationship of employment – should not be seen to favour a presumption for or against an intention to be legally bound: Ermogenous 106 [26]: it nevertheless bears some significance in the application of the familiar objective test: Ashton v Pratt (2015) 88 NSWLR 281, 295 – 296 [73]; see also Heydon on Contract 128 – 129 [4.190].
144 Indeed, as noted by Professors Seddon and Bigwood, the learned editors of Cheshire & Fifoot (at 231 [5.1]):
… the cases in which the issue of intention is argued form a very small proportion of the whole body of contract law, and this is due to the fact that, in the majority of cases, the commercial nature of the transaction makes it abundantly clear that the parties do intend — or are taken to intend — to enter into legal relations.
145 And later (at 244 [5.11]):
In ordinary commercial agreements the objective test would tend to indicate an intention to contract and the party attempting to deny this may face a difficult task, particularly if the evidence indicates agreement has been reached.
146 However, it is also recognised (at 230 [5.1]) that:
Agreements are made every day … in commercial dealings, where the parties do not intend to sue if they are not honoured.
147 Therefore, whilst there is force in the view that where parties reach consensus in relation to an important commercial matter which one or both require for business purposes, the inference that the parties intend to be legally bound is stronger, much will depend upon the circumstances in question. Conversely, the fact that an arrangement arises in a domestic context may provide some clue that it was not intended to be legally binding, though there is no presumption to that effect: Wakim [58]; Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 237, 242 [14] – [16]; Heydon on Contract 133 [4.310].
148 The legal nature of the parties is also of some relevance in this context. For instance, the fact that one such party is an unincorporated body, such as an association, church or board, and that any contract to which it were a party would seemingly implicate each participating member, might be thought to militate against the requisite conclusion that a contractual intention existed: see generally Ermogenous 108 – 109 [33]; but see the analytical framework that was adopted in Re Anglican Development Fund Diocese of Bathurst (2015) 336 ALR 372, 422 [184].
Conduct of prior relationship
149 Ascertainment of an intention to be legally bound can be affected by the nature of the parties’ relationship inter se and coloured by the existence of any prior dealings: see, eg, Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 619 [78] – [79], 620 [84] and [87]. Where, for instance, the parties had previously entered into formal written agreements prepared by their lawyers for the purposes of their ordinary business arrangements, it might be expected that they did not subsequently intend, in the absence of some express statement to the contrary, to enter into a binding contract via the mere exchange of informal correspondence.
Events post-dating the formation of the alleged contract
150 There is significant debate as to the use to which evidence of conduct post-dating the alleged formation of an agreement can be put for the purposes of evidencing the requisite contractual intention. In this context, the evidence in issue is oft referred to as “post-contractual conduct”: see, eg, Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd (as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91 [47]; see also the reasons of the primary judge at PJ [129]ff. That is, perhaps, an inapt descriptor; it necessarily assumes the existence of a contract, despite being invoked in a setting where there is much disputation as to such a fact.
151 One position was articulated in Stellar Vision, where the Court of Appeal observed (at [68]):
[68] Regard may be had to the parties’ subsequent communications [being those post-dating the alleged date of contract] and other conduct to assess whether it was in their contemplation that they were not to be bound until all the essential preliminaries had been agreed to or until the formal contract had been drawn up embodying all the matters incidental to the transaction: ABC at 547-8 and the authorities cited there; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 78; [1907] HCA 38; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147 at 9,155; Sagacious at [99].
(Commentary added).
152 The reference in that passage to the decision of Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 is to the undoubtedly correct, albeit subject to the linguistic reservations outlined above, statement of Heydon JA (at 163 – 164 [25]) that “post-contractual conduct is admissible on the question of whether a contract was formed”: see also Heydon on Contract 127 [4.170] and the authorities cited therein; Sagacious Procurement [99].
153 That being so, in Sagacious Procurement, Giles JA (Hodgson and Campbell JJA in agreement) noted a trend in the authorities to confine the use to which events, occurring subsequent to the putative contract date, could be put. For instance, McLelland J, in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 (Film Bars), had suggested (at 9255) that:
… the probative value of such subsequent communications must be found in the light they throw on the proper interpretation of the earlier communications alleged to constitute the contract. They may, for example, show at the time of the allegedly contractual communications there were other, uncompleted, negotiations between the parties concerning matters omitted form the allegedly contractual communications, in the light of which the allegedly contractual dealings could not properly be interpreted as mutual assents to be bound.
(Emphasis added).
154 To similar effect were the comments of Gleeson CJ in XIVth Commonwealth Games (at 548), where his Honour found subsequent evidence to have a “particular bearing on the interpretation and understanding of the earlier communications in that it constitutes an important source of information as to what are matters incidental, or for that matter essential, to a transaction of the nature in question” (emphasis added) (see also Geebung Investments 14,569).
155 Giles JA did not so confine his analysis. For his Honour, subsequent communications were (at [105]) “not simply aids to interpretation, or a source of information as to the matters with which a concluded contract should deal”. Rather, they comprised one part of the context in which the parties interacted and, therefore, evidence of such conduct and communications were directly probative of whether, at the time alleged, the parties evinced the requisite contractual intention.
156 So much can be accepted. As noted, in the context of the determination of the issue of whether a contractual intention existed, there will, necessarily, be no consensus between the parties that a contract was formed at a defined time. Indeed, in the usual course, one denies its existence. That being so, there can be no foundation for treating evidence of facts which occurred after the alleged contract date any differently from evidence of the facts which occurred prior to that date. The allegation that a contract was formed on a particular date does not diminish the utility of the evidence of facts occurring thereafter. On the contrary, and as held by Giles JA, those facts are but one part of the evidence of the parties’ interactions surrounding their discussions and correspondence, all of which contribute to a determination of whether a relevant objective intention existed. On that basis, evidence that the parties dealt with each other after the alleged contract date in a manner consistent with their having entered into a contract on that day, can be relevant to the assessment of whether the contractual intention existed at the earlier time.
157 It must be kept steadily in mind that the context in which the issue arises is whether the parties evinced, at the time it is alleged they entered into an agreement, an intent to be legally bound; that is, an objectively assessable intention. This type of scrutiny should be compared to other inquiries, such as the interpretation of a contract, the identification of parties to a contract, or whether an offer was accepted, such as where a question exists as to whether the contract was formed. In any event, the onus of demonstrating the requisite intention rests on the party alleging the existence of the contract: Heydon on Contract 128 – 129 [4.190]: and it follows that, in any evidential dispute, the parties may seek to adduce evidence of events occurring subsequent to the alleged contract date for a host of different purposes. The evidence may consist of direct facts which, of themselves, are sought to be relied upon to support (or detract) from the conclusion that a contractual intention existed at some earlier time. An example may be where a party, who denies the existence of a contract, adduces evidence post-dating the alleged contract date that shows they continued to negotiate essential terms, in order to undermine the submission that some prior contractual intention was shared between the parties. Such evidence is admissible as being directly relevant to whether the intention existed at the date alleged; its admissibility is not necessarily limited to whether it gives colour to evidence concerning events as at that time (Sagacious Procurement [105]).
158 One important limitation is that it is only evidence of the objective circumstances between the parties which is relevant to the inquiry of whether the necessary contractual intention existed. That evidence might include facts which have occurred following entry into the putative contract; such as a later admission of the occurrence of antecedent conversations and their content. As Jackman J notes, such evidence need not be confined to communications between, or known to, both parties: cf Tipperary Developments 516 [120]. Subject to that which is said below, evidence of the parties’ subjective opinions, whether derived from their statements or conduct and which are extraneous to their interactions with each other, are irrelevant in this respect.
Admissions in private communications that post-date the alleged contract date
159 It has been said that evidence of the private communications of one of the allegedly contracting parties occurring subsequent to the date of the alleged contract, may be treated as an admission of the existence or non-existence of the contract or, presumably, a contractual intention: see Film Bars 9255 – 9256. So understood, and as somewhat cryptically alluded to by Giles JA in Sagacious Procurement (at [106]), there is no need for the communications that are said to be the relevant admission(s) to have occurred directly between the parties to the putative contract.
160 That analysis is correct. Indeed, the party alleging the existence of an agreement on a particular date (Party X) may allege that, on some date prior to the alleged contract date, both it and Party Y had discussions about, and agreed on, certain terms of the agreement. Should that be denied by Party Y, Party X may then seek to adduce evidence of a tranche of communication(s) made after the alleged contract date by Party Y to a third party, in which the occurrence and substance of those discussions were acknowledged. Such evidence would be advanced as an admission of the occurrence of the alleged discussions predating the alleged contract date, and admissible as such. In this sense, the evidence in question is concerned with, or directed to establishment of, the objective facts existing as of the date of the alleged contract from which the contractual intention can be identified. The admissibility and relevance of such evidence is not doubted.
161 As an aside, it should be noted that a similar statement in a private communication made prior to the alleged contract date, would be equally admissible as an admission.
162 On the other hand, the same cannot be said of a party’s subsequent subjective conjecture about whether a contract was entered into. An internal memorandum of one of the parties post-dating the alleged contract to the effect it had entered a contract is irrelevant in most circumstances to the issue of whether a contractual intention existed. In the first instance, that is largely because such statements are, in substance, legal opinions and usually made by persons not qualified to give them. Even if those statements were admissible, their weight would, as Giles JA observed (at [106]), usually be slight and vary depending upon what it is that was said and whom said it. Secondly, such statements do not form part of the objective circumstances as of the date of the alleged contract, and cannot contribute to whether a contractual intention existed at that time.
163 Generally, care must be taken in relation to the attempted use of any such alleged admission in the private correspondence of one party, and it is always necessary to specifically identify the fact sought to be established. In most cases, all that can be legally relevant is the statement of fact made against the party’s interest: see generally XIVth Commonwealth Games 549 – 550.
164 From the foregoing, several propositions can be distilled:
(a) use of the phrase “post-contractual conduct” in this context is illogical.
(b) evidence of the parties’ conduct before and after the alleged contract date is admissible to determine whether the requisite contractual intention existed.
(c) the use of evidence post-dating the alleged contract date is not limited to throwing light on, or giving complexion to, facts occurring prior to that date.
(d) if the parties have evinced an objective intention to be bound, evidence of subsequent facts, such as continued negotiations, do not usually undermine the contract’s existence (cf where the parties have abandoned their prior agreement to negotiate new terms).
(e) statements made subsequent to the date of the alleged contract concerning the parties’ conduct can be admissible as to the issue of the existence of a contract. For instance, a subsequent statement by a party that admits a fact concerning the parties’ negotiations can be admissible to establish the occurrence of that fact which might, in turn, support the conclusion that the contract came into existence. However, to that, it may be added that unqualified “opinion” evidence of what is perceived to be the legal relationship between the parties is not admissible to establish any contractual intention. Not only is it inadmissible as opinion evidence, but it does not purport to evidence the objective circumstances of the parties.
Other relevant indicia
That which is not said
165 In the context of the relationship between the parties, it is appropriate to consider those things that were not communicated. In the case of experienced businesspeople, who are accustomed to contracting as between themselves and others, it might be expected that, when negotiations are complete and agreement is reached, an express statement or indication to that effect would be manifested. Such persons are, prima facie, likely to be alive to the risks of leaving the state of negotiations somewhat vague, especially where the position reached is important to further commercial conduct; that is, some expression by them recording the finality of the transactional discussions might be assumed. By the same token, where “important” matters have been raised as between the parties but have not been resolved by the time of the alleged agreement, much can be taken from the absence of any indication that a binding agreement had been reached.
166 Of course, it would be naïve to believe that businesspeople are not alive to such matters. They are oft aware of the countervailing benefits of contractual certainty and the flexibility afforded by hortatory agreements. This being so, and as discussed above, it is often to their benefit for their state of dealings to remain ambiguous. That way, they may assert or deny the existence of a finalised contract depending on the occurrence of future events. That is not to suggest that this occurred in the present case, but only that the Court should not presume, in every case, that negotiating parties are desirous of achieving certainty in relation to their commercial position.
The practice of particular industries
167 Whether particular circumstances will give rise to binding contracts may be influenced by the industry in which the issue arises. Industry practice, which must be established by sufficient evidence, may suggest that a certain type of conduct was intended, by the parties, to be legally binding, despite it being inadequate in other circumstances: Banque Brussels 520 – 521. The practices of the reinsurance markets, the chartering of vessels, or inter-banking lending are just a few of the industries with specialised contracting processes. More commonly, the sale of real estate generally involves the entry into standardised contracts and the undertaking of regulated steps. That is not to say that such transactions may not arise through alternative methods, but is merely to observe that, in certain circumstances, the adoption of accepted industry practices may tend to suggest that the parties shared an intention to be legally bound by their agreement.
Illustrations of the need for an intent to effect legal relations: Masters v Cameron
168 The taxonomical discussion by Dixon CJ, McTiernan and Kitto J in Masters v Cameron of the relationship between (a) a legally binding agreement; and (b) the manifestation of an intention to be legally bound, has been assayed on many occasions, though perhaps none better than that of Riordan J in Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326. His Honour observed (at [39] – [42]):
[39] In Masters v Cameron the High Court said that:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes
which the Court identified as follows:
(a) The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound but propose to have the terms restated in a form which will be fuller or more precise but not different in effect (‘the first category’).
(b) The parties have completely agreed upon all the terms of their bargain and intend no departure from the terms, but have made performance of one or more of the terms conditional upon the execution of a formal document. The effect of the term to execute a formal document may be to ‘place upon the parties an obligation, capable of being specifically enforced by the court, to sign a further contract in accordance with the informal agreement which they have already made’ (‘the second category’).
(c) The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In these circumstances, no binding agreement arises (‘the third category’).
[40] A fourth category, by way of variation on the first category, was suggested by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd, as arising when the parties intend to be bound immediately by the terms on which they have agreed while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.
[41] This fourth category has been accepted in many subsequent cases and was confirmed on appeal. However, the Court of Appeal did not appear to adopt the nomenclature of an additional category. Rather, McHugh JA said as follows:
… the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.
[42] The concept of a fourth category has also been the subject of some criticism; and ‘the … classifications are no longer, if they ever were, applied as strict categories into which such cases must fall’. I adopt the approach of Giles JA in Tasman Capital Pty Ltd v Sinclair, who observed that ‘the categorisation does not greatly contribute to the decision in the particular case’, because the decisive issue is whether or not the parties intended to be contractually bound.
(Citations omitted).
169 As his Honour correctly opined, the High Court’s taxonomy outlines some of the “classes” of case that may arise following an assessment of the parties’ objective intention. The first and second categories describe those instances where the parties’ objective assent or intention to be bound to some or all of the relevant or necessary terms, has been manifested. The fourth category is similar, and occurs when the intention has become manifest, even though there are further terms to be agreed upon. In such a case, the parties are bound to what they have then achieved, regardless of the success or failure in the reaching of agreement to additional terms: Cheshire & Fifoot 266 [5.24]. In contrast, and as noted in Heydon on Contract (at 96 [3.150]):
The third class is, incidentally, an illustration of the requirement that there be an intent to effect legal relations. Although the parties may have reached an agreement which could be an enforceable contract, they do not intend to affect their legal relations until the formal contract arising out of that agreement is made.
That is, the third category describes those instances where an agreement, despite being in terms that are sufficiently certain to give rise to an enforceable contract, is unenforceable for want of an intention to be bound immediately. The arrangement between HP and Cirrus was, albeit not expressly, seen to fall into this “class” of case by the learned primary judge (see PJ [93], [96]).
170 In this context, it is worth noting that the Court of Appeal of New South Wales in Stellar Vision (Bell CJ, Hammerschlag CJ in Eq and Adamson JA) described (at [66]) the fourth category of the Masters v Cameron variation as encompassing those cases:
[66] … where parties enter into an immediately binding agreement on some certain terms and on such other terms as are either subsequently agreed by the parties or are able to be determined by the Court: Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627; Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [25]; Sagacious at [67]; Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA 123 at [69].
171 Again, whilst that may be an accurate description of a scenario that regularly arises, it is merely the identification of the consequence of the nature and extent of the degree to which the parties can be said to have evinced an intention to be bound. Whether and to what extent that is so will always depend upon the facts of the particular case: 461 Hampton Street Investments [43].
Did the requisite contractual intention exist as at 21 December 2016?
172 Whilst it cannot be doubted that HP and Cirrus devoted time and effort in reaching the position they did as at 16 December 2016, that destination was not one at which it could be objectively said that the parties evinced an intention to be legally bound. No doubt HP was thereafter able to proceed to provide its tender to the NZDF with an appreciation of the general flavour of any subcontract which it might enter into with Cirrus. However, as between them, it cannot be said that there was an objective intention that Cirrus was obliged to enter into a specific subcontract with HP nor was HP obliged to engage Cirrus on particular terms.
173 That is not to deny the existence of indicia that are suggestive of a contractual intent. Afterall, the parties were (a) commercial entities; (b) engaged in discussions pertaining to a commercial matter; (c) in a context where their entry into a future agreement was anticipated or, perhaps, expected. In addition, the correspondence between them articulated, to a degree, the nature of said agreement and the broad parameters of it. Nevertheless, as the analysis below establishes, the circumstances fell short of evidencing an objective intention to be contractually bound.
The general aim of the agreement
174 The context in which the parties exchanged correspondence has been detailed above. In brief, it was the intention of HP to submit a tender that was sufficiently compliant with the terms of the RFT; that view was regularised by the stated objective of V4Q (cl 1.1). Much of that which preceded 21 December 2016 was directed toward meeting the compliance criteria of the RFT so as to enable HP to achieve “preferred tenderer” status, from which it might negotiate a final agreement with the NZDF. As the primary judge observed (PJ [121]), there was no identifiable commercial imperative between the parties to have a subcontract in place at that time. In other words, the aim of the teaming agreement was to put HP in the best position to lodge a compliant tender to the NZDF, not to create a suite of binding legal obligations between it and Cirrus.
175 To the extent that such was suggested, it was expressly rejected by Mr Purry’s clear indication on 16 December 2016 that HP would not “be in a position to close completely on your [Cirrus] subcontract arrangements until after new year” (being when they could next secure legal advice and assistance). Nothing suggests HP resiled from that position. More importantly, Mr Freed did not demur from it nor did he suggest that HP should proceed to bind itself to the (objectively technical and complex) terms of the teaming agreement in the absence of legal assistance.
176 Indeed, as the primary judge found, the history of the parties’ contracting was that they would execute formal agreements if they intended their arrangements to be legally binding (PJ [120], citing the formal execution of the confidentiality agreements in 2014 and 2016). Whilst Cirrus pointed to an alleged lack of time in which to execute a formal agreement (submissions to the RFT being due on 16 January 2017), that suggestion is defeated by Mr Purry having indicated the need to involve HP’s lawyers in the drafting and finalisation of “subcontract arrangements”.
177 There may be occasions where, in the course of negotiations, one party who has indicated their intention to call upon legal advice and assistance prior to assuming any contractual obligations subsequently abandons that condition and enters a legally binding agreement. However, once a party evinces such an intent, courts should not be too hasty to assume that it has been waived, especially in cases such as the present in which (a) the subject matter of the putative agreement is of some complexity; and (b) there is a small period of time between the expression of intent and the date of the agreement. Here, such period comprised some five days, during which there was no suggestion HP was prepared to proceed to contract in the absence of legal advice and, moreover, nothing was said by Cirrus to the effect that it assumed that HP did not require such.
178 The suggestion that it was imperative for HP to have a binding contract in place for its tender submission was rightly found by the primary judge not to have been established. The suitability of Cirrus’ product, albeit relevant and of much assistance to the prospects of the tender, did not carry significant weight. That is particularly so given the lack of reciprocity in the terms of the teaming agreement. For instance, Cirrus was not inhibited from participating with other tenders nor was it bound to engage with HP, even if the latter went further in the tender process.
179 In this latter respect, although the primary judge made no finding about whether such ostensible lack of commerciality in the teaming agreement was known amongst the parties, there can be little doubt that it would have been. It is rather obvious that the effect of the teaming agreement, as alleged by Cirrus, would be lopsided, and the primary judge correctly adopted the view that it was most unlikely HP would intend to bind itself to such an inequitable agreement (PJ [110] – [115]).
The language used
180 In the context of the discussions between two experienced commercial parties, the absence of any express statement by Cirrus, at or around the time of the alleged contract, that it required a “contractual” commitment from HP undermines the existence of a relevant intention. The lack of such a statement is more significant in circumstances where Cirrus was aware that MAROPS was competing for at least some aspect of the work to be contracted for. That factor must have contributed to an environment in which Cirrus knew it ought secure whatever rights possible.
The language used in antecedent commercial discussions
181 It is of much relevance that Mr Freed, in his discussions with Mr Purry, avoided using language that connotes contractual certainty. For example, following his discovery in late 2016 that HP was considering MAROPS as an alternative subcontractor to Cirrus, Mr Freed intimated to Mr Purry that Cirrus would “not participate in HP’s tender unless HP [was] committed to Cirrus as the supplier of the AWO training component of ACTC” (emphasis added). It is rather difficult to reach any firm conclusion as to what was meant by that demand. While Mr Freed could well have said that he desired a subcontract be concluded before Cirrus would engage in the tender, he instead resorted to the language of “commitment”. It is undoubtedly true that (at PJ [124]):
[124] … the word “committed” is ambiguous because commitments come in shades of solemnity. In the right circumstances, the word readily connotes a legally binding contractual commitment. In other circumstances it might reflect a mere precatory obligation, or a statement of present intention. …
182 The fact that a commercial entity, involved in technical commercial discussions, adopts legally ambiguous language to define its relationship with others when clear language could have been used, is significant. On the other hand, it may have been natural for Mr Freed to be somewhat cautious about pressing HP to agree a subcontract. In circumstances where he was aware there existed a potential commercial competitor, had he imposed an ultimatum on HP, it might have ceased discussions with Cirrus and investigated the possibility of providing a tender using what assistance it could obtain from MAROPS. Whatever be the reason, it is clear Mr Freed did not expressly demand the entry into of a binding agreement in the parties’ antecedent discussions.
The clarity of language used in the teaming agreement
183 Albeit the subject of Ground 3 of the appeal, the lack of clarity as to the arrangement between the parties is relevant to an assessment of whether there existed the requisite contractual intent. In dealing with the relationship between V4Q and the teaming agreement, the primary judge was concerned with the manner in which Cirrus presented its case (PJ [142]). At one juncture, it pleads that if the relevant condition was met, the parties were to enter into an agreement “on the basis of [V4Q]” (FASoC [14]), yet later it is alleged the terms of V4Q were “incorporated by reference” into the teaming agreement (FASoC [14A]). As his Honour indicated, there was a degree of disconformity as between the obligation to enter into a contract in the future on the basis of V4Q and, on the other hand, its terms being part of the teaming agreement (PJ [141]).
184 The incorporation of V4Q as a whole into the teaming agreement was central to Cirrus’ case; if it was not so incorporated, there was no basis upon which HP could be bound by the alleged express term and, in particular, that on and from 21 December 2016, HP was bound by the terms of cl 10.2 of V4Q. By cl 10.2, HP is precluded from passing onto Cirrus any increase in commercial cost or risk that pertains to the work to be undertaken under the head contract with the NZDF. Thus, if the terms of this clause were not incorporated by the teaming agreement, HP would not be enjoined from reducing or otherwise adjusting the price it was prepared to pay for Cirrus’ services in light of any agreement reached with the NZDF. That is, the presence of cl 10.2 in the teaming agreement, as contended for by Cirrus, would defeat the suggestion it and HP were yet to agree on the price of its services under their agreement in December 2016.
185 Despite the centrality of the issue, Cirrus devoted minimal attention to it in its submissions. It was said by Mr White SC, Ms Epstein and Ms Aguinaldo for the appellant that:
[49] … the Teaming Agreement contained a conditional obligation to enter into a future contract on the terms of the V4Q. The terms of the V4Q were incorporated in the sense that should the condition be satisfied, the terms of the future contract were specified in the parties’ agreement by reference to the V4Q. This did not elevate the terms of the V4Q to a presently binding agreement …
(Emphasis added).
186 Somewhat paradoxically, it was then said:
[49] … but insofar as the V4Q contained an internal negotiation clause in cl 10.2, this could be utilised by the parties to amend the terms of the contract that was to come into existence. …
187 The latter submission should be rejected. Clause 10.2 cannot have that effect. If it is not a part of the teaming agreement, and its terms not “presently binding”, it cannot subsequently develop a chameleon-like complexion and operate in the course of further negotiations to restrict HP’s right to negotiate a price commensurate with the amount it is to receive under any contract with the NZDF. That said, it is unnecessary to venture any further or concluded view on this issue. It is sufficient to observe that the language of the parties in the teaming agreement lacked clarity in relation to the fundamental question of the rights of the parties inter se. That lack of clarity tends to suggest that, as at 21 December 2016, the parties did not have a contractual intention.
The language of commitment in the Operative Paragraph
188 In late November 2016, Mr Purry sent an email to Mr Freed in which he indicated that, should HP enter into a contract with the NZDF, it “shall subsequently subcontract Cirrus for the Cirrus proposed solution as per Cirrus’ response to the RFQ”. That was acceded to by Cirrus, though, the following day, Mr Freed set out his “perspective” that any subcontract between Cirrus and HP would not be dictated by the contents of the head contract between HP and the NZDF. That being so, Mr Purry immediately identified a number of “critical flow downs”, such as milestone penalties on delivery, insurance coverage and the like, that had to be “cover[ed] off”. Although the extent to which such terms were dealt with by V4Q is addressed below, it is apt to note that that quotation defined the relationship between Cirrus and HP, should the latter party enter into a contract with the NZDF for the ACTC capability, in the following manner: “the engagement between HP and Cirrus will be on the basis set out in this document” (cl 10.5; emphases added).
189 There was no explanation as to why Cirrus did not adopt the active and certain language of Mr Purry – HP “shall … subcontract Cirrus” – and instead opted for a passive, general expression. Had Cirrus intended for HP to have bound itself then and there, it might well have required HP to enter a subcontract on the terms in several of the clauses in V4Q. It would be folly to think that this aversion to the language of contractual obligation in respect of what was expected of HP was accidental. The Operative Paragraph identifies the “trigger” for engaging Cirrus – HP being “selected by NZ MoD to enter into contract negotiations and subsequently enter into a contract for the ACTC capability …” (emphases added) – and the juxtaposition of linguistic expression used to define the “trigger” and the consequential duty of HP is rather jarring.
190 Of course, it should not be overlooked that cl 10.2 of V4Q provides that “Cirrus proposes terms for the HP-Cirrus subcontract per the contents of this section 10” (emphasis added). But that language does not speak of any intention to be bound by the provisions of V4Q on 21 December 2016; instead, by the term “proposes”, a word couched in the future tense, it speaks more of an invitation to negotiate terms, as opposed to defining the scope of any “HP-Cirrus subcontract”. Indeed, as will be borne out in further detail below, such conclusion applies to cl 10.2 in toto.
191 Furthermore, much ambiguity inheres in the language adopted. As noted by the primary judge (PJ [161] – [163]), use of the expression “engagement” may refer to (a) the negotiation process of a subcontract; or (b) the entering into a contractual agreement. In the present circumstances, and as found by the primary judge, the expression conveys the first meaning, for it is supported by the use of the particular words in the light of the parties’ prior correspondence and previous dealings, which involved formal contractual documentation of their agreements.
192 That conclusion is fortified by the use of the expression, “on the basis set out in”, as the manner in which the content of V4Q was to be used for the purposes of reaching any future agreement. That expression appeared in V4Q and the Operative Paragraph of HP’s letter of 21 December 2016. Again, that is ambiguous, both in respect of the nature of the activity to be engaged in, as well as its parameters. V4Q is a substantial document and a statement that it is to be treated as the basis of an agreement, as opposed to a framework for negotiation, is unrealistic. Whilst some specific “commercial terms” are identified in cl 10, there are many statements within the document articulating Cirrus’ expertise and the quality of its product. To that end, it is unclear whether any agreement “on the basis” of V4Q would include warranties as to those matters.
193 That is not to read the Operative Paragraph in an excessively literal way. Rather, it is consistent with cl 1.1 of V4Q, which read:
1.1 IDENTIFICATION OF DOCUMENT
This document is the “Cirrus Quotation for the Provision of ACOTS for Air Warfare Officer Training”, and is provided to enable Hawker Pacific (HP) to incorporate Cirrus’ offer into HP’s response to the RNZAF RFT.
In that, there is a strong suggestion that V4Q was to remain executory to the extent to which it was incorporated into HP’s tender.
The language of the “Commercial Proposal” in cl 10 of V4Q
194 For reasons that have been canvassed above, cl 10.2 of V4Q was of some significance to Cirrus’ claim that a binding contract existed. However, and as identified by the primary judge (PJ [99] – [100]), its drafting undercuts any such conclusion. It speaks in terms of the parties entering into future negotiations to resolve any gaps which exist as between the terms of V4Q and any head contract entered into with the NZDF. Whilst the eighth paragraph of cl 10.2 does indicate that should HP “not agree to [Cirrus’] price adjustment for a proposed change [by HP] to a particular term, that particular term will be left unchanged as per this section 10” (emphasis added), the ninth and tenth paragraphs of cl 10.2 are strongly indicative of there being broader discussions. The former defines an “expectation” of Cirrus when the time comes to negotiating a subcontract with HP; the latter, in particular, refers to the manner in which Cirrus “expects that HP will commence negotiations with Cirrus” (as opposed to imposing any obligation upon HP to act in any particular way). Such language tends to suggest that V4Q attempts to establish parameters in which the parties would negotiate, rather than bind them to specific terms.
195 That conclusion is strengthened by cl 10.3, which commences with the words, “[t]he following broad commercial terms will apply” (emphasis added). It is tolerably clear, by the reliance on such vague language, that the parties had not yet reached agreement on the specific terms that would bind them and that the document was merely setting out wide parameters for discussion. Indeed, so much had been forecasted in late 2016, when Mr Freed indicated that “[a]s with our previous proposals to HP for AWOTS [AWO Training Services], Cirrus will outline [by V4Q] our overall commercial terms”.
196 To similar effect is the drafting of cl 10.3.1. The clause concerns the “Conduct of Acquisition Phase Engineering Work”, and its terms were said to “outline[] the nature of engagement while Cirrus undertook the engineering work”. On any objective view, the looseness of language in the chapeau to cl 10.3.1 does not sit comfortably with the conclusion that sophisticated parties had reached a legally binding agreement as to the provision of complex technology. Indeed, it is rather more likely that they would seek to particularise, not outline the nature of, that work.
197 Relatedly, and in relation to the specifications for the work in cl 10.3.1, the following is stated:
• Specification Baseline. This will be established prior to subcontract execution, and will largely reflect the existing ACOTS specification. This baseline will also cover the interface requirements for the ACOTS configured for AWO training, and will include a reference to the ICD for the AID.
198 In other words, as at 21 December 2016, the specification baseline remained to be agreed, as is made patently clear by the expression, “largely reflect”, which indicates a degree of variation remained available. It would seem probable that this was because flexibility was required so that there might be some degree of conformity with the head contract. Again, such language suggests that the parties were aware that, given the final specifications for the agreement with the NZDF were then-unknown, it was not possible for them to reach a final agreement.
199 A similar degree of flexibility or uncertainty undergirds a further element of cl 10.3.1, being in relation to “test procedures” that Cirrus was to undertake to “verify all specified requirements”. In certain (albeit limited) circumstances, HP could withhold approval of such procedures, with the result that the parties may fail to reach agreement on the tests which are ultimately required.
200 Further evidence that the parties had not reached a position where the requisite intention had manifested flows from the so-called “Data Items” in cl 10.3.1:
• Data Item List (I). The complete list of all data items to be delivered to HP will be agreed in advance with every data item explicitly identified at the outset. Indirect mechanisms to increase the scope of the Data Item List, such as via a Technical Data Tree or Technical Data List, will not be agreed to by Cirrus. Cirrus will not agree to provision of Technical Data that is defined in open terms.
• Data Item List (II). The quoted ROM price includes only those data items already generated by Cirrus’ engineering process suited for external release. Table 6 (below) identifies this delineation. Preparation of data items in addition to this are an increased scope.
201 Table 6 (“Included data items.”) is to be found in cl 10.3.2 (“Data Items Supplied in Acquisition Phase”). Rather significantly, the chapeau to that table provided that:
The quoted ROM price includes only the data items in Table 6.
(Emphasis added).
202 There is only one price identified in V4Q: it must be a ROM price.
203 Several passing observations can be made. First, the specific content of Table 6 is superfluous for present purposes, save for noting it set out certain specifications, procedures and certificates that were to be supplied to HP in the Acquisition Phase. Second, V4Q defines “ROM” to mean “Rough Order of Magnitude”, but otherwise does not define what is meant by “ROM price”.
204 From the foregoing, it appears that the parties had not yet settled the identity of all “data items” to be provided by Cirrus or the price to be paid for them. It is also plain that, although Table 6 identified data items that would be provided, Cirrus was only prepared to quote a “ROM price”. In this respect, it would seem that V4Q was only providing a Rough Order of Magnitude Price which, in the parlance of construction agreements, is an estimate of the cost made when detailed information is not yet available and the person providing it is unwilling to make a commitment to price. Whilst cl 10.4 appears to identify Cirrus’ Acquisition Phase Cost at a specific figure, a fair construction of V4Q as a whole would suggest that the price identified was preliminary.
205 It should not be overlooked that the fact that Cirrus had identified in cl 10.3.2 that its price was, in part, a Rough Order of Magnitude Price, was not the subject of address by the parties. Whilst it might be considered as falling under the umbrella of the broad submission that V4Q provided only a framework for further negotiation, it can be put to one side. That said, it remains sufficiently clear there had been no finalisation of the scope of work which would be provided under any agreed subcontract, and that was a matter that had been specifically relied on by HP.
206 Additional uncertainty as to how any agreement could be formed “on the basis” of V4Q inheres within the drafting of cl 10.3.3 (“Acquisition Phase Milestones”) which, in part, provided:
▪ During the acquisition phase of the subcontract, payments will be made against defined milestones based on:
▪ completion of defined engineering events (Design Review, TRR, Acceptance) or,
▪ supply of listed deliverables, or
▪ Acceptance of the ACOTS.
Details of payments for each milestone may be determined at a later date, however the overall profile will represent fairly consistent payments during the acquisition phase of the project, with 90% of the acquisition component of the project cost occurring prior to Acceptance. …
207 Not only were the relevant “milestones” for the making of payments payable prior to entry into any subcontract yet to be agreed, but the basis on which the parties were to agree the obligation to make payments was identified in the alternative; that is (a) completion of defined engineering events; (b) supply of deliverables; or (c) acceptance of the ACOTS. Again, it is rather apparent that the parties had left not insignificant detail of the making of payments to be agreed.
208 The above conclusions are only strengthened by the prospective and vague terms of cl 10.3.7 (“Other Commercial Terms”). For instance, “postponement costs” were dealt with as follows:
▪ Postponement Costs. Where HP and/or RNZAF cause a delay (including suspension/termination for convenience) to Cirrus’ schedule progression, relevant postponement costs will be payable. The process by which payment of these costs will occur will be independent of the RNZAF.
209 An immediate difficulty with this is that neither the content nor quantum of the postponement costs is agreed in V4Q. As such, Cirrus’ case must be that it was the parties’ objective intention to enter an agreement whereby Cirrus was entitled to charge whatever amount it determined as postponement costs, should the occasion so arise. That is unlikely.
210 Similarly, cl 10.3.7 notes that no provision had been made for a “performance guarantee” from Cirrus, but a quote for the additional cost could be provided. It is likely that HP might require such a guarantee from Cirrus in relation to its performance. On Cirrus’ case, HP was bound to enter into a subcontract without it, and put itself in a position whereby Cirrus could demand any price in return for its provision. Objectively, that too is unlikely. The same issue arises in relation to liquidated damages and warranties.
211 There is little doubt the parties had not yet reached agreement on sufficient matters such that it could be said that they intended to be legally bound. At best, it could only be said that Cirrus’ correspondence was directed toward securing a binding agreement in futuro, and the language used in its asserted contractual documents objectively left the parties in a state of negotiation.
Expressly “critical” matters were left unanswered
212 Reference has been made to a series of critical issues raised by Mr Purry of HP in a letter sent 28 November 2016. Those issues arose following an email from Mr Freed of Cirrus, sent some three days earlier on 25 November 2016, which identified two “commercial questions”, being (a) Approach on Selecting Design to Comply vs Costs.; and (b) Contract Flow down. Amongst other things, Mr Freed referenced the intended nature of Cirrus’ forthcoming quote (i.e., V4Q) (being one which would “outline our overall commercial terms”) and noted the potential for “a gap” between its terms and those of a head contract with the NZDF. In response, and “looking at your [Cirrus’] workshare”, Mr Purry specified a series of “critical flow downs” – being issues in the head contract that would have ramifications for the content of any subcontract with Cirrus – that “we’ll [the parties] have to cover off on”. Those critical issues included, amongst others, “Milestone Penalties” arising consequent on Cirrus’ default (i.e., liquidated damages), service availability KPIs, insurance responsibilities and warranties to be provided by Cirrus. From an objective viewpoint, resolution of those matters, which go to the heart of a contracting party’s prospective financial liability, would be incredibly important to any party in the position of HP.
213 Cirrus suggests that such matters either fell away in the negotiation process or were the subject of treatment in V4Q. That is not the case. Though some were mentioned in the quotation (see, eg, PJ [105]), it could not be said the issues had been resolved inter partes or otherwise dealt with. For instance, all that is said in V4Q about Milestone Penalties (i.e., liquidated damages) is that “[t]he costs of providing liquidated damages over the work are not included” (emphasis added), but that it could be quoted at an additional cost; a similar framework was defined as to the provision of warranties. The submission that such language conveys agreement as between the parties on certain of the “critical” issues, albeit in a manner that “might not have met HP’s ‘wish list’”, ought to be rejected; while it is true that reference was made to some of Mr Purry’s “critical flow downs”, the effect of what was said in V4Q vis-à-vis Milestone Penalties and the warranties to be provided is, as a matter of substance, as good as having said nothing at all.
214 This particular instance could, in and of itself, suffice to negative the existence of a contractual intention. In short, one contracting party has (explicitly) identified matters that were “critical” to it and to be agreed before any binding agreement would be put in place. The other responds, not to demur to those matters, but by sending a document which identifies only that they might be the subject of further agreement in the future. That is far from fertile ground for the detection of the requisite contractual intention.
215 Of course, it can readily be accepted that, in the course of commercial negotiation, some issues arise and are discarded without further discussion or comment. However, that inference does not easily arise in relation to matters which are both objectively significant and claimed by one of the parties to be so. In the present case, there is nothing to support such an inference.
216 In the circumstances of this case, the absence of agreement on the matters raised in HP’s letter of 28 November 2016, further tells strongly against the existence of a contractual intention.
Commerciality
217 As observed by the primary judge (PJ [113]), the general commercial circumstances tell against the existence of a contractual intention. Here, both Cirrus and HP were unaware of what would be the terms of any head contract with the NZDF. Such circumstances are far from those where the relevant head contract is in place, and both the head contractor and potential contractor know the precise scope of work and general costs of the subcontractor’s work. These are not the type of circumstances where a final agreement is objectively likely to be reached with the subcontractor. The risk in relation to the scope of works and value of the head contract are not so insubstantial as to mitigate against the formation of an agreement at the lower level.
218 Of course, it is true the RFT provided a generally detailed indication of what would be required; it was, however, not finalised. As may not have been unexpected, the scope of work ultimately agreed upon in the head contract was somewhat different to that which appeared in the RFT in November 2016. At that time, the Core Offering was a “mandatory requirement” (of any tender response), whilst the Optional Offering was conveyed to be more of a want than a need. In that context, HP had asked Cirrus to quote for the former (as borne out in V3Q and V4Q), preferring to instead turn to other entities vis-à-vis the latter (cf V1.1Q and V1.2Q). As it transpires, the NZDF ultimately required HP to engage one service provider responsible for both offerings. The effect of that ultimatum was, necessarily, to disappoint one of the entities that HP had been entertaining in 2016 who, it may be added, were well aware of each other and the potential for competition; the decision for HP to prefer MAROPS to Cirrus was merely the manifestation of a risk that was sufficiently apparent at the time of the correspondence between HP and Cirrus.
219 As the primary judge noted (PJ [113]), on Cirrus’s construction of the teaming agreement, HP would be bound to acquire its training system if the contract with the NZDF required the supply of any AWO training system. Thus, if that head contract had obliged the supply of an AWO training system other than that offered in V4Q, HP would have been required to choose between (a) refusing to enter into the head contract; or (b) performing it whilst acquiring Cirrus’s system for which it had no use. It would also have meant that HP would have been locked into a price with Cirrus, before knowing the price which the NZDF would pay for the total package, with the consequence that it would shoulder substantive risk in its negotiation for the head contract. Such matters are, objectively, clearly uncommercial. This would have been apparent to both parties and would rightly reinforce the conclusion that no contractual intention existed.
220 It ought to be recalled that any consideration of the commerciality of the putative agreement in connection with the existence of a contractual intention can only be taken so far. One may take into account the lack of commerciality of a putative arrangement that is objectively observable; that which is considered and addressed by the parties internally is not relevant to the existence of any mutual intention.
Events post-dating 21 December 2016
Admissions
221 In relation to the issue of what was described as “post-contractual conduct”, the primary judge was not prepared to consider evidence of events post-dating the alleged contract that was not known to both parties (PJ [94], [131]). As is discussed earlier, the issue in question is whether, as at the time Cirrus and HP were said to have entered the teaming agreement, they objectively evinced an intention to be contractually bound. The existence of any such intention cannot be directly divined from facts occurring subsequent to the putative contract date. However, such subsequently occurring facts might be relied on to negate the existence of an alleged antecedent intention, although, once the relevant intention exists, it is not avoided merely because parties negotiate additional terms. Further, proof of the facts on which a contractual intention can be founded might be supported by evidence of events subsequent to the putative contract date.
222 Admissions by one party are a good example of such. In this vein, Cirrus stressed two “critical” emails from HP, which were said to establish its understanding that it was contractually bound; to quote the appellant’s written outline, these emails were to be used “as akin to an admission about the party’s intention to be legally bound”. For the reasons below, that proposition should be rejected. There is nothing which suggests Mr Purry turned his mind to the question of the existence of an objective intention to be legally bound, let alone acknowledged its existence.
223 The first “critical” email was sent on 20 April 2017 to the NZDF, in which Mr Purry confirmed that HP stood by its proposal for the AWOTS software to be provided by Cirrus. In it, he made a number of further comments concerning the risk to the costs of the project were HP required to change the provider of the “AWOTS solution”. He said, amongst other things:
HPNZ have not got a firm position on this cost risk because other providers have not done the work with HPNZ to work up a firm price – the work needed to produce a firm price and schedule against a firm deliverable specification is significant.
Commercial Risk.
o During tender development and following assessment of alternative solutions HPNZ committed to Cirrus as our sole AWOTS solution providing subcontractor
o It will be very difficult commercially for HPNZ to contract another provider to deliver AWOTS to the NZDF under a HPNZ prime contract
o This adds to the cost and schedule risks …
224 On one view, the email records an acknowledgement, by Mr Purry, that HP had subcontracted with Cirrus during the tender development process. Borne out, such a statement would convey a legal opinion (i.e., that a legally binding subcontract existed between the parties) of a person not shown to be qualified to express it. In that sense, it cannot be understood to be evidence of the facts on which the alleged contractual intention can be supported: Evidence Act 1995 (Cth), s 76(1). Rather, it is a conclusory statement that attempts to stamp a legal label upon previous conduct in circumstances where Mr Purry was in no position to satisfy himself of its correctness as he lacked the qualifications necessary to enable him to have any meaningful belief thereon. In that respect, it does not qualify as an admission. However, even if it were admissible for the purpose of establishing an intention to be legally bound, it could only be of minimal weight.
225 In any event, the language, “HPNZ committed to Cirrus as our sole AWOTS solution providing subcontractor”, should not be taken as an assertion of a contractual obligation. It may be more appropriately identified as a moral or commercial commitment. In fact, the comment in the following paragraph about having to “contract” another provider and the absence of the use of contractual language with respect to the relationship with Cirrus, would support that conclusion.
226 The second critical email cited by Cirrus was sent on 3 August 2017, from Mr Purry to another employee of HP, a Mr Doug Park, in which appeared the following text:
‘Imposition of Cirrus’ onto the NZDF solution – this is complex but I’ll try and explain:
o NZDF tender made it very clear that the offered solutions must be compliant with the tendered requirements
o These could only be met by Cirrus – so HP agreed to offer Cirrus in preference to any other possible solution
o Cirrus demanded exclusivity which HP had to agree to
o So HP is not imposing Cirrus on NZDF as the only solution available – their tender forced HP into that position …
227 Again, to the extent that that statement is said to be an admission of the existence of a contract, the above comments about admissibility and weight apply, particularly because it only consists of conclusory statements about past events as Mr Purry then perceived them. In addition, the statements are far from unequivocal. The second bullet point characterises HP’s agreement as having been one to “offer” Cirrus to the NZDF in preference to other suppliers and there is no doubt it did, in fact, do so. Indeed, for a considerable period of time, it championed Cirrus as the “only solution available”. That being so, at no point does Mr Purry suggest HP was bound to contract Cirrus, as Cirrus now claims. Rather, his comments coincide with the non-binding arrangement that the teaming agreement appears to be. The third point is also equivocal, even if it suggests that some form of binding obligation existed. Again, HP did offer Cirrus as the AWO provider in its tender and, to that extent, its undertaking to do so was fulfilled.
228 Contrary to the appellant’s submissions, Mr Purry’s comments in the so-called “critical” emails only address, in rather broad and general terms, the arrangement which he then understood to have been in place. While he appears to accept HP had given Cirrus a commercial commitment of sorts to progress negotiation to a subcontract if it ultimately entered into a contract with the NZDF to provide the AWO system originally identified in the RFT, his comments fall short of acknowledging the existence of a contract.
229 In both its oral and written submissions, Cirrus sought to buttress its position by reference to a series of further communications that emanated from HP in late 2017 and early 2018. First, in correspondence that was sent to the NZDF on 7 January 2018, Mr Purry noted:
Our position at the moment is that the current AWO provider needs to stay as a part of the contracted solution as it represents the only compliant (quality and schedule) solution against the current requirement. …
230 This too is vague, and in its context, the language “the contracted solution” is unclear. To the extent it may be said to comprise an admission, it encounters the difficulties raised above. That difficulty is not ameliorated by reference to the broader context, including the correspondence to which Mr Purry was responding, being an email from the NZDF which noted an expectation for HP to “stand behind any of their subcontractors” (emphasis added).
231 Second, Cirrus relied upon a further email from Mr Purry, this time to Ms Binotto of HP, dated 7 December 2017. In short, he had prepared a draft of an email that he intended to send to Mr Freed about the arrangements between HP and Cirrus, which included an acceptance that some binding commitments had arisen. In particular, he said:
Thanks Peter, firstly – yes we exchanged letters in good faith during tender that committed HP to signing a contract with Cirrus should we get into contract with the NZDF for a contract that included AWO training as described at tender – we don’t reconcile from that undertaking at all. Please understand that the deal is not done until it is done – don’t assume that any agreement between HP and the NZDF influences the NZDF’s decision making in anyway – we have made our agreement well known to them and flowed up your contractual position into negotiations as best we can – they have acknowledged the restrictions imposed by using Cirrus as a HP subcontractor and tried to balance the cost/benefit – but they are not a party to our agreement and are seeking to get the best deal they can get and therefore variances on your tendered position are obviously needed to get to a signature – hence this request along with all the other negotiated terms such as around liability, termination etc – to state the obvious we still need to get to a negotiated position acceptable to the NZ Gov’t for a contract to exist. …
(Emphasis added).
232 Several observations can be made. While the statement suggests there was some “agreement”, “commit[ment]” or “undertaking” that HP would sign a contract with Cirrus on the happening of defined events, there was no express acceptance by HP of a legally binding obligation to do so. Moreover, it is, at best, the expression of an opinion about the existence of a contract by a person who lacks the requisite degree of knowledge or qualification. Furthermore, it is not an acknowledgment of the contract which Cirrus now alleges, instead suggesting an agreement or undertaking to contract arose “should we [Cirrus] get into contract with the NZDF for a contract that included AWO training as described at tender”. It is sufficiently clear the training system which HP agreed to provide to the NZDF was different to that which was described in the RFT, for it involved the Core Offering and the Optional Offering. It is also plain from the latter part of the cited paragraph that the position between HP and Cirrus remained subject to negotiation.
233 One must also question the evidential weight that may fairly be accorded to this document. It was an internal document that bore the title “++ DRAFT INTERNAL HP ONLY ++ RE: <
234 Third, Cirrus relied upon a chain of emails exchanged between HP and the NZDF in or around December 2017. At that time, discussions had arisen between the parties as to the viability of changing, in effect, certain requirements of the RFT. In an email sent 22 December 2017, Mr Purry sought to set out some principles within which those discussions were to take place. One was that the NZDF consider paying “reasonable separation costs” associated with replacing Cirrus with MAROPS. The difficulty with this is that, to the extent to which it is relied on as an admission, it is vague. It is unclear whether those costs reflect an amount that HP believes it is liable to pay or, rather, an amount that it is honour bound to pay, or even that it would be commercial to do so. Again, any relevant statement could only amount to an opinion by a non-legally qualified person about a legal matter.
Conclusion
235 To the extent that the aforementioned statements are relied upon as admissions of the existence of a contract, they are inadmissible as opinion. Even if they might be cited as acknowledgement of some fact, they are too vague to be given much weight and are insufficient to overcome the force of the factors that have been identified as negating the existence of a contractual intention.
236 More importantly, they are equivocal in substance. Taken in isolation, none identify more than that HP and Cirrus had reached some agreement or undertaking relating to the latter providing AWO training software to HP on certain conditions. Neither do any clearly acknowledge the existence of a legally binding agreement, assuming it appropriate to discern such an opinion from them. Anything which might be discerned could refer to an understanding or arrangement between the parties well short of an assertion of the existence of a contractual relationship.
237 In short, even if the evidence from the identified emails should have been considered in some way by the learned primary judge, taken together, they would not have established the existence of a relevant contractual intention on 21 December 2016. When put against the weighty factors which have been referred to and which negate the existence of such an intention, their impact is minimal if not irrelevant. It follows that, if the primary judge erred in not considering the identified material, such an omission had, and has, no impact upon the ultimate conclusion.
Contractual certainty and completeness
238 The learned primary judge concluded (PJ [85] – [93]) that the teaming agreement, which was said by Cirrus to incorporate V4Q (cf PJ [143]), was capable of constituting a contract between the parties because it sufficiently identified the services to be provided and the price to be paid. Though the specific HP company that was to be party to the contract was unknown, there was sufficient information by which it could be ascertained (PJ [86] – [87]). Although the terms in V4Q did not specify the timing of payments during the “acquisition phase” of any subcontract, his Honour was prepared to accept that there were sufficient terms about payment to render the contract workable in a commercial sense (PJ [88] – [89]). Finally, his Honour held that sufficient certainty arose from the fact that HP and Cirrus had agreed as to what would happen if HP entered into a contract with NZDF and that issues on which agreement was required for any subcontract as arose from the terms of V4Q did not alter that conclusion (PJ [90] – [92]).
239 The sole ground of HP’s Notice of contention cavils with the primary judge’s finding in this respect. It is said by Messrs Giles SC and Puttick for HP that V4Q could not be relied upon in the search for certainty and completeness of the terms of the teaming agreement as it was (a) not incorporated into that agreement; and, even if it was, (b) itself, uncertain and incomplete.
240 For present purposes, it is preferable to deal with the second of those issues at the outset. This is because, as will be recalled, the certainty of an agreement in futuro (being V4Q in the present instant) is what often distinguishes a legally binding contract from a mere “agreement to agree” and will tend to bear upon the question of whether the requisite contractual intention exists.
Uncertainty of V4Q
241 In Ken Morgan Motors, Brooking J (at 130) made the following observation:
An agreement is not a binding contract unless the parties have agreed upon such terms as are in the circumstances legally necessary to constitute a contract. Otherwise the supposed contract is bad for uncertainty. It is convenient to distinguish between two varieties of uncertainty in this wide sense and to call the first uncertainty and the second incompleteness. A contract is uncertain if some essential term is so vague that no definite meaning can be assigned to it. A contract is incomplete if the parties have deliberately (and whether expressly or by implication) left some essential term to be settled by their future agreement. …
(Citations omitted).
(see also Thorby v Goldberg (1964) 112 CLR 597, 607).
242 So framed, any inquiry into the “uncertainty” of an agreement is predicated upon identification of those terms that have, or have not, been settled; that is, the “completeness” of the agreement. In brief, the characteristics of V4Q render it rather difficult to conclude that, in the commercial context in which the parties were negotiating, the teaming agreement (assuming that it did, in fact, incorporate V4Q) was sufficiently complete and, in turn, certain to be binding. For the most part, the difficulty with V4Q lies in both cl 10.2 and its failure to address “critical” issues.
243 As has been mentioned, the penultimate paragraph of cl 10.2 speaks of negotiating a contract in the future and, indeed, notes Cirrus’ “expectation” when that “time comes”. Both the futurity of the wording and absence of mandatory language is a powerful indicator that little to no terms had been settled. Additionally, the final paragraph of cl 10.2 refers to what Cirrus’ “expects” when HP commences negotiations with it, which further signifies a lack of finality as to terms. In light of the manner in which cl 10.2 makes provision for the continuation of negotiations, it is difficult to reach the conclusion that the parties had reached a sufficiently complete bargain.
244 Against this, it is said by counsel for Cirrus that:
[15] … Clause 10.2 did not indicate an absence of certainty … It provided a workable mechanism that allowed the parties to “attain better alignment” with the terms of the eventual Prime Contract. In other words, cl 10.2 provided for the type of “stipulated machinery” referred to by the learned author in Heydon on Contract at [3.280], namely a clause by which the parties could resolve matters not initially agreed. Indeed it is difficult to envisage how the parties could have agreed terms in this commercial context without an equivalent mechanism, given that the precise terms of the Prime Contract were not known.
(Emphasis in original).
245 But cl 10.2 does not speak of machinery “by which the parties could resolve matters not initially agreed”. Instead, it speaks of Cirrus’ willingness “to consider variations that HP might propose to the commercial terms that are captured in this section 10”, including any “changes that may be proposed by HP to attain better alignment with the corresponding terms of an eventual prime contract” (emphasis added). Two observations need be made. First, cl 10.2 contemplates the variation of terms that are said to have been “captured” in section 10 of V4Q. In that sense, it does not define how any term that is neither so “captured” nor agreed on – including “critical” matters, such as “Service availability KPIs” (see PJ [106(b)]) – is to be agreed. Second, and in any event, cl 10.2 does not define a form of intelligible machinery for resolving terms that are sought to be varied by HP. All that is said as to that process is that “Cirrus is willing to consider variations that HP might propose”, such as changes to “attain better alignment” with any prime contract. That language, and in particular, use of the passive verb “consider”, fails to stipulate how the parties will reach agreement upon any proposed variation (cf those instances where an outstanding issue is left to be determined by a third party: see, eg, Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; see also the examples cited in Heydon on Contract 103 [3.280] and Cheshire & Fifoot 286 [6.9]) and, therefore, suggests that V4Q does require some further agreement by the parties: see Furmston and Tolhurst 347 – 348 [10.105].
246 That problem is not resolved by reference to the rather more finite outcomes contemplated by cl 10.2, namely (a) any variation “to attain better alignment” will “carry a corresponding change to the prices quoted … and/or the [Schedule of Acquisition Phase Engineering Work]”; and (b) if “HP does not agree to the price adjustment for a proposed change to a particular term, that particular term will be left unchanged”. Whilst that language defines what is to occur if some variation is made to section 10, it does not spell out how that variation is ever to be arrived at.
247 That is of some relevance when it is recalled that several expressly “critical” matters were yet to be agreed (see [212] – [215] supra), including, inter alia, (a) “Service Availability KPIs” (it was said by Mr Purry of HP that “we [may] need to flow something down for non-performance of Cirrus products that causes HP to be hit with KPI pain in-service”); (b) “Milestone penalties on delivery – i.e. HP is late due to Cirrus missing a deadline we would need to flow down some pain” (that is, liquidated damages); and (c) the giving of appropriate warranties by Cirrus etc.
248 The absence of agreement upon these issues in V4Q (or the teaming agreement for that matter) is sufficient to render the alleged agreement “incomplete”. On any view, the capacity of HP to “flow down” liability to Cirrus for any delayed, incomplete or defective performance is a matter central to the parties’ relationship. In this respect, it should be noted that a subcontract between HP and Cirrus would, necessarily, be far more complicated than a simple sale transaction where agreement on the parties, the subject matter, and price will often suffice: see Cheshire & Fifoot 274 [6.2]; Vroon BC v Foster’s Brewing Group Ltd [1994] 2 VR 32, 68. As the terms of V4Q make plain, the parties were negotiating a species of “design and build” contract that required design, development, testing and transfer, all of which was to take place over an extended time frame. The terms upon which those parties would need to agree to in relation to such a contract are of a far more significant order than, for instance, a plain contract of sale: see, eg, Quinlan v A and J Brady Pty Ltd [2007] FCA 1409 [178]. Similar issues would abound in any contract with the NZDF and, understandably and rather prudently, several of those additional terms and conditions had been raised by HP as being “critical” to a contractual relationship with Cirrus.
249 There is a lacuna of evidence to support the submission that HP was prepared to abandon the position that such “critical” issues were to be agreed as part of any binding agreement. Indeed, and in response to Mr Freed’s suggestion on 16 December 2016 that the agreement be finalised before Christmas, all that was noted by Mr Purry was that it was “most likely that [HP] won’t be in a position to close completely on [Cirrus’] subcontract arrangements until after new year”. There was no alteration to that position prior to the exchange of correspondence some five days later. More importantly, there was no further negotiation or discussion as to HP’s requirements to suggest that they fell away in the course of the “natural back and forth” between the parties.
250 In short, the teaming agreement, to the extent that it incorporated V4Q, was “incomplete” vis-à-vis critical or essential matters which (a) Cirrus was aware of; and (b) it can be expected that HP would not have entertained any agreement without their being satisfactorily addressed.
251 Though this coincides with the primary judge’s conclusions as to incompleteness (see generally PJ [101] – [109]), it does not necessarily follow that the terms of the teaming agreement were, in toto, insufficiently certain. Indeed, it may be accepted the parties, subject matter and price were agreed (PJ [85] – [93]); whilst the latter of those conclusions is perhaps rather difficult to sustain in light of the observations made at [200]ff supra as to the “ROM price” and Acquisition Phase cost, that again can be put to one side. That being so, for the type of transaction presently in question, agreement upon the aforementioned matters does not render the putative contract any more “certain” in light of the parties’ failure agree on those matters canvassed above: Ken Morgan Motors 131; Cheshire & Fifoot 275 [6.4]. That which may afford appropriate certainty to a sale agreement, does not, necessarily, provide the same for a contract of the type alleged.
252 The essentials of the agreement between Cirrus and HP remained uncertain. To the extent to which the teaming agreement required the parties to enter a subcontract based on V4Q, it too lacked certainty consequent on an absence of agreement on the identified matters. This distinct lack of certainty and completeness subverts the existence of the requisite contractual intention.
Conclusion upon existence of contractual intention
253 In sum, if one returns to the question posed at [111] supra – “did the parties objectively evince an intention to be legally bound to identifiable terms and conditions?” – the answer is “no”. As of 21 December 2016, the parties had reached an arrangement which facilitated HP’s ability to submit its tender to the NZDF. For its part, Cirrus would allow the use of its confidential information, but remain at liberty to similarly assist other tenderers should it see fit and should HP not be successful. Conversely, HP would use Cirrus’ information to attempt to secure the position of “preferred tenderer”, and indicated its intention to engage with Cirrus in an attempt to enter into a subcontract generally in accordance with V4Q. Depending upon the agreement negotiated with the NZDF, a subcontract might be entered into with Cirrus to their benefit.
254 However, much was not agreed, and much was expressly left for negotiation. So, whilst it may reasonably be said that the parties had reached a position whereby the tender could proceed, the circumstances do not objectively establish an intention by them to be bound. These matters alone are sufficient justification to refuse the appeal.
Were terms agreed with sufficient certainty and completeness?
255 For those reasons at [241] – [252] supra, neither the teaming agreement nor V4Q were agreed with sufficient certainty or completeness. As such, the Notice of contention should be upheld.
Conclusion
256 There is no need to consider the remaining grounds of appeal.
257 For the reasons given above, it is appropriate for the appeal to be dismissed and for the appellant to pay the respondents’ costs.
I certify that the preceding two hundred and fifty-seven (257) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. |
Associate:
Dated: 3 July 2025
REASONS FOR JUDGMENT
CHEESEMAN J:
258 I have had the benefit of reading in draft the reasons of each of Derrington J and Jackman J. I agree that the appeal should be dismissed with costs. In reaching that conclusion, I agree with the careful and detailed analysis of Derrington J subject to the following two confined points.
259 First, I agree with Jackman J that there are exceptional cases in which a party’s subjective intention is relevant and can be determinative as to whether an intention to create legal relations is established as a matter of fact, as illustrated at [264] to [267] of his Honour’s reasons. I further agree with Jackman J at [263] that the requirement of an intention to create legal relations does not equate to an intention that the parties objectively intend that their agreement be subject to judicial oversight.
260 Secondly, I agree with Derrington J (at [158]) and Jackman J (at [268] to [275]) that the primary judge erred in following McLure JA’s statement in Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126; 38 WAR 488 (Tipperary) at [120] and thereby excluding from consideration subsequent matters which were not known to both parties. In doing so, I note that it does not appear that the primary judge was invited to depart from the intermediate appellate decision in Tipperary. That does not preclude the point being raised on appeal, but it does provide context. For the sake of clarity, I should make plain that I agree with what is said by Jackman J at [272] to [274] of his Honour’s reasons. In my view, his Honour’s conclusion that an admission after the event by a party (made through a lay person with authority to act on behalf of the party) that a binding contract has (or has not) been formed is admissible as an admission of fact that the party intended (or did not intend) to enter a binding contract.
261 In this appeal, the subset of evidence of subsequent conduct and communications which was not known to both parties, was admissible for the reasons given by Jackman J, but attracts minimal weight for the reasons exposed by Derrington J in obiter dicta. Accordingly, the primary judge’s finding as to a lack of intention to enter binding contractual relations stands, and the appeal must be dismissed.
I certify that the preceding four (4) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. |
Associate:
Dated: 3 July 2025
REASONS FOR JUDGMENT
JACKMAN J:
262 I have had the very considerable benefit of reading in draft the reasons of Derrington J. Subject to what I say below, I agree with those reasons, and that the appeal should be dismissed with costs.
263 At [113]–[118], Derrington J makes some observations on the philosophical foundation of the intention to create legal relations. I would prefer not to express any view on the underlying philosophical basis for that requirement. I note, however, that if the “reliance theory” (referred to by Derrington J at [114]) is presently dominant, which I doubt, then I expressly disassociate myself from that intellectual fashion. Further, and again in relation to Derrington J’s reasons at [114], I do not regard the requirement of an intention to create legal relations as an intention that the parties objectively intend that their agreement be subject to judicial oversight, as the latter is not objectively manifested in the vast majority of mundane but binding agreements which are matters of everyday consumer experience. In addition, for the reasons which follow, there are exceptional cases in which a party’s subjective intention is relevant, and can be determinative, as to whether there is an intention to create legal relations, which I deal with below by way of amplification of Derrington J’s reasons at [115]–[119].
264 As a matter of general principle, it is true that the issue whether the parties intended to create contractual relations requires an objective assessment of the state of affairs between the parties, as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 at [25] (Gaudron, McHugh, Hayne and Callinan JJ) (Ermogenous); citing Masters v Cameron (1954) 91 CLR 353 at 362 (Dixon CJ, McTiernan and Kitto JJ); Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548–9 (Gleeson CJ, with whom Hope and Mahoney JJA agreed) (ABC v Commonwealth Games). That is, as a matter of general principle, the intention to create contractual relations must be a mutual intention manifested by how the parties’ words and conduct would be reasonably understood by the other. It is important to note, however, that in the joint judgment in Ermogenous at [25], their Honours said that “the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules”. There are at least three sets of exceptional circumstances in which subjective intention is relevant.
265 The first exception is where one of the parties is joking or saying something that was not intended to be taken at face value, as recognised by Gleeson CJ in ABC v Commonwealth Games at 550F. Justice Mahoney explained in Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 330G–331D (Air Great Lakes) that if one party knows that the other is play-acting, then the law will not impose the relationship of contract, but absent that knowledge the play-actor cannot set up against a reasonable meaning of his words and conduct a contrary subjective intention. Accordingly, Mahoney JA concluded that it is relevant to know the actual subjective intention of the one party “where it is the intention of or known to the other” (at 331D), and that the parties’ dealings will not produce a contract “if there be no mutual intention, known between them” (at 331F).
266 The second exception is where questions of mistake, misrepresentation, duress or undue influence arise, as McLelland J observed in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255 (cited with approval by Gleeson CJ in ABC v Commonwealth Games at 530F) (Film Bars). Those questions involve the relevant party’s subjective state of mind in terms of reliance and causation.
267 The third exception is what McLelland J in Film Bars at 9255 referred to as the special case of a unilateral contract, citing The Crown v Clarke (1927) 40 CLR 227 (Clarke). That case concerned the public offer of a reward for information leading to the arrest and conviction of those who murdered two police officers, and it was held that acceptance of the offer required the claimant to have performed the condition of the offer acting on the faith of or in reliance on the offer, that being a question of the claimant’s subjective state of mind. The exception arises because of the unusual circumstance that the offeror has dispensed with any requirement that acceptance must be communicated to the offeror, thereby depriving the law of one of the means by which it assesses the intention of the parties. As Starke J explained in Clarke (at 244), in those circumstances performance of the conditions of the offer is not in all cases conclusive, as the conditions may have been performed by someone who had never heard of the offer or who had never intended to accept it.
268 On a separate matter, at [150]–[164], Derrington J deals with events and admissions in private communications that post-date the formation of the alleged contract. My reasons in relation to that topic follow.
269 Ground 1A of the Amended Notice of Appeal challenges the correctness of the second sentence of the following statement by McLure JA (with whom Newnes JA agreed) in Tipperary Developments Pty Ltd v Western Australia[2009] WASCA 126; (2009) 38 WAR 488 at [120] (Tipperary):
Extrinsic evidence of the conduct of the parties after the making of the alleged contract is admissible for the purpose of determining whether the parties had an intention to create legal relations: Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. However, as with the admission of extrinsic evidence prior to the making of the alleged contract, the evidence must be confined to conduct, including communications, known to both parties: Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.
The reference to Air Great Lakes would appear to be to Mahoney JA’s judgment at 331D and F, to which I have referred above, noting that Air Great Lakes did not concern any issue of evidence of subsequent conduct. (I note also that, although McHugh JA in Air Great Lakes at 339C took into account the surrounding circumstances known to the parties, his Honour did not say that such knowledge is an essential requirement for relevance on the issue of intention to enter contractual relations as distinct from issues of construction.) In the present case, the primary judge at [94] and [131] followed McLure JA’s statement in Tipperary Developments, and excluded consideration of subsequent matters which were not known to both parties.
270 It is not in dispute that subsequent conduct is admissible on the question whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [25] (Heydon JA), and the cases cited there; ABC v Commonwealth Games at 547G–548B and 550C; J.D. Heydon, Heydon on Contract: The General Part (Lawbook Co, 2019), at [4.170]. The probative value of subsequent communications or conduct may be that they are inconsistent with the existence of a concluded contract: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 78 (Griffith CJ). For example, the parties may have continued in negotiations, or may have expressed the common understanding that they are not legally bound unless and until a formal contract is executed: Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [105] (Giles JA, with whom Hodgson and Campbell JJA agreed) (Sagacious Procurement). Subsequent communications or conduct may also be relied on to demonstrate that the parties had intended to form a concluded contract, although as Mr J.D. Heydon points out at [4.170], there may be grave difficulties with such evidence of subsequent conduct:
Whether there is a binding contract must be assessed as at the moment when it was allegedly made. It is necessary to be sure that the court is not converting an agreement which was not a contract at the time when it was made into a contract for no reason other than the parties having performed it. Of course there could be another reason: conduct by the parties indicating that their future dealings were to be contractual.
271 It is not in dispute that a court may take into account the dealings and communications between the parties after the formation of an alleged contract for the purpose of determining objectively whether they intended to form such a contract, as was held in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21; (2015) 47 WAR 547 at [110] (Buss JA, with whom McLure P and Newnes JA agreed). Nor is it in dispute that subsequent evidence of internal communications or communications with third parties may be taken into account if they are known to both parties. A party’s reaction (or lack of reaction) to knowledge of the other’s internal communications or communications with third parties may throw light on whether they share the requisite mutual intention to enter into a binding contract. The issue in dispute is whether subsequent evidence must be confined to conduct and communications known to both parties, as McLure JA said in Tipperary Developments at [120]. With respect, in my view, the evidence is not so confined, consistently with the High Court’s insistence in Ermogenous at [25] that the circumstances are too varied to permit the formation of any prescriptive rules.
272 The clearest demonstration of that position is by reference to admissions, which by their nature arise after the date of the alleged formation of a contract. In analysing subsequent communications in Film Bars at 9256, McLelland J said that admissions by a party of the existence or non-existence of a contract, or of a fact relevant to that issue, are admissible as against that party, but their probative force will usually vary inversely with the strength of the available direct evidence of the matters in question. For my part, bearing in mind that the question whether the parties intended to create binding legal relations is one of fact, I do not regard admissions or other evidence by non-lawyers as to whether they had entered into a binding contract as inadmissible opinion evidence. An admission after the event by a party that a binding contract had been formed is admissible as an admission of fact that the party intended to enter a binding contract. To that extent, I respectfully disagree with Derrington J’s reasons at [162], [164(e)], [224] and [235]. The weight to be given to admissions of that kind, however, is a different matter, and will depend on the particular circumstances of the case.
273 In ABC v Commonwealth Games at 550G, Gleeson CJ added the qualification that where acts or statements not involving communications between the parties are claimed to constitute an admission, it will often be necessary to identify with some care the fact which is said to have been admitted, noting that apart from the exceptional cases where the subjective state of mind of one or other of the parties is relevant, what is in issue is normally their intention as expressed. Accordingly, caution must be exercised in relating the fact which is said to be admitted to the fact which is legally relevant. In that case, the ABC relied relevantly on (1) the payment of a commission by the respondent to its agent which was payable on execution of a contract, (2) a statement by the respondent to the BBC that the respondent had “successfully concluded an agreement” with the ABC, and (3) internal documents of the respondent recording that “agreement has been reached with the ABC” and that the ABC was “committed” (at 547D). In addition, the respondent relied on internal ABC communications reflecting uncertainty and confusion as to the status of dealings between the parties (at 547E). There was no suggestion that any of that material was known to both parties, or that such knowledge was required for the evidence to be relevant. Ultimately, Gleeson CJ did not regard the matters relied on by the ABC, in the context of the evidence as a whole, as evidencing an intention to make a concluded bargain (at 551B–C), but his Honour’s reasoning demonstrates that subsequent acts and statements by each party were taken into account despite them not having been known by the other party.
274 In Sagacious Procurement at [106], Giles JA (with whom Hodgson and Campbell JJA agreed) expressly stated that the basis of subsequent communications as admissions does not depend on communication between the parties, and that that basis gives scope for evidence of, for example, a party’s internal memoranda saying, or less directly conveying, that there is or is not a concluded contract. There is no suggestion in his Honour’s reasoning as to any requirement that such communications be known to both parties. His Honour said that admissions bearing upon contractual intention present difficulties, referring to Gleeson CJ’s reference to the need to identify with some care the fact which is said to be admitted. Giles JA said that what is said to be admitted may be a relatively straightforward fact (for example that A discussed with B the price of goods), but if a matter of mixed fact and law or the application of a legal standard is involved, admissibility may be more contentious. His Honour said further that a statement that there is or is not a concluded contract, for example, may if admissible carry significant weight or little weight depending on the circumstances, and the weight of any admission will depend on the source of knowledge of the person making the admission. I note that neither party in the appeal in that case relied on conduct other than communications between the parties (see [107] and [115]–[116]), but that does not detract from the inherent cogency of the reasoning. I can see no reason in principle why an admission which is made after the alleged formation of a contract relating to the existence or non-existence of a contract must be known to both parties in order to be relevant and admissible.
275 Accordingly, in my respectful view, the primary judge was in error in adopting and following the proposition stated by McLure JA in Tipperary Developments in the second sentence of [120] to the effect that extrinsic evidence of conduct or communications after the making of the alleged contract must be confined to matters known to both parties. However, in the present case, for the reasons given by Derrington J at [221]–[237], subject to the qualification expressed above as to opinion evidence, the evidence of subsequent conduct and communications which were not known to both parties makes no difference to the finding as to a lack of intention to enter binding contractual relations on 21 December 2016.
I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman. |
Associate:
Dated: 3 July 2025