FEDERAL COURT OF AUSTRALIA

Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670

CONTRACT LAW – offer capable of acceptance – conduct of parties – whether agreement as to price – whether agreement as to terms – whether primary oral agreement to be replaced by later written agreement

Masters v Cameron (1954) 91 CLR 355

Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622

G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631

Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601

GRAHAM EVANS PTY LTD v STENCRAFT PTY LTD

Q 109 OF 1999

FRENCH, WHITLAM & DOWSETT JJ

30 NOVEMBER 1999

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 109 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	GRAHAM EVANS PTY LTD Applicant
AND:	STENCRAFT PTY LTD Respondent
JUDGE:	FRENCH, WHITLAM & DOWSETT JJ
DATE OF ORDER:	30 NOVEMBER 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The judgment below be set aside.

3. Judgment be entered for the appellant against the respondent in the sum of $800,000 with interest at 8% per annum from 1 January 1995 to the date of judgment.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 109 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GRAHAM EVANS PTY LTD

Applicant

AND:

STENCRAFT PTY LTD

Respondent

JUDGE:	FRENCH, WHITLAM & DOWSETT JJ
DATE:	30 NOVEMBER 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

FRENCH J

1 I agree, for the reasons published by Dowsett J, that the appeal should be allowed with costs.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:

Dated: 30 November 1999

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 109 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GRAHAM EVANS PTY LTD

Applicant

AND:

STENCRAFT PTY LTD

Respondent

JUDGE:	FRENCH, WHITLAM & DOWSETT JJ
DATE:	30 NOVEMBER 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

WHITLAM J:

2 I agree with the reasons for judgment of Dowsett J and with the orders proposed by his Honour.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam.

Associate:

Dated: 30 November 1999

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 109 OF 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GRAHAM EVANS PTY LTD

Applicant

AND:

STENCRAFT PTY LTD

Respondent

JUDGE:	FRENCH, WHITLAM & DOWSETT JJ
DATE:	30 NOVEMBER 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

DOWSETT J

THE APPEAL

3 This is an appeal from a judgment dismissing a claim for damages for breach of contract. Other relief was claimed, but that is not presently relevant. The appellant is a building company. The respondent is a property developer. The appellant claims that the parties entered into a contract for the construction by the appellant of a block of home units on land owned by the respondent.

BACKGROUND

4 In the early part of 1994 the appellant was completing work on a building project described as “Goodwin Towers” which was in close proximity to land on the Brisbane river upon which the respondent proposed to erect a building unit complex described as “Dockside Stage III” or “Stradbroke Tower and Villas”. The appellant believed that the performance by its key personnel on the Goodwin Towers project had acquired for it a particular reputation for competence in the eyes of potential customers. The appellant and its witnesses regularly referred to them as the “A Team”. The respondent apparently also shared this view to some extent. At an early stage, Stephen Nicholas Girdis, a director of the respondent, made it clear that he wanted “your A Team” to build Dockside Stage III. At about the same time as the respondent was looking for an appropriate builder for that development, another developer (Seymour) was looking for a builder for a project known as “Admiralty Towers”. Girdis knew that tenders for the Admiralty Towers project closed on 13 May (AB 131 ll 17-20). Presumably, the appellant also knew this. The appellant claims that because it reached a binding agreement with the respondent on 12 May, it submitted an uncompetitive tender for Admiralty Towers and did not win that project.

NEGOTIATIONS

5 In early 1994, Ian Harrington was the General Manager of the appellant. He and Girdis were neighbours. In about March 1994, in the course of a social conversation, Harrington and Girdis discussed informally the possibility of the appellant building Dockside Stage III. As a result Harrington and Murray Osbaldiston (another officer of the appellant), attended a meeting at the offices of F A Pidgeon and Sons Pty Ltd (“Pidgeon”), which was also attended by Girdis and Fred Brands, the General Manager of Pidgeon. The respondent is a joint-venture company, the shareholders of which are Pidgeon and Girdis Investments Pty Ltd, a company with which Girdis is presumably associated. Pidgeon is itself a builder. When relations between the appellant and the respondent ultimately broke down, it undertook the construction of Dockside Stage III. According to Harrington, at the meeting on 25 March 1994, Brands indicated that Pidgeon was too busy acting as a developer to become involved in building. Following the meeting, the appellant prepared a tender which was submitted on 22 April 1994. The tender price was $29,196,873.

6 On 26 April 1994 Harrington and Osbaldiston attended a further meeting with Girdis and Brands. They were told that the appellant’s tender was not the lowest. Aspects of the tender were discussed. On 29 April 1994, the appellant submitted a revised tender, the price being $28,344,000, open for twenty-eight days. There was another meeting on 4 May 1994, attended by Girdis, Brands and Osbaldiston. As a result, the appellant submitted a further revised tender dated 6 May 1994. The contract price was $28,434,439, open for twenty-eight days. There was another meeting on 6 May 1994, attended by Harrington, Osbaldiston and Gregory McLean on behalf of the appellant, and Brands and Girdis on behalf of the respondent. Although the actual details of the conversation are to some extent in dispute, it is common ground that the respondent indicated that the price was to be $28,000,000. Either Girdis or Brands said that another builder, Watpac, was still being considered for the job. The appellant’s witnesses said that Brands indicated that the respondent was concerned about “Watpac’s tender load”, a reference to an expectation that Watpac would be awarded the Admiralty Towers contract.

7 At a meeting on 9 May 1994, attended by the same persons, Harrington handed to Girdis and Brands a letter dated 9 May 1994, offering a price of $28,218,574, which price was said to be available only during the course of the meeting. The letter was accompanied by a number of documents including:

· Schedule of Clarifications,

· Post Tender Amendments,

· Post Tender Amendments No 2,

· Schedule of Exclusions,

· Schedule of Provisional Sums, and

· Appendix.

8 The construction period was to be sixty-three weeks from possession of the site and relevant building approval. There is no apparent reason why the letter with enclosures should not be characterized as an offer capable of acceptance.

9 The respondent’s representatives said that Watpac had rung three times that day and that the deal was “$28.1 million”, apparently indicating that such sum was the price the respondent was willing to pay. Either Girdis or Brands said words to the effect of “The BA (building application) will be issued next week and we can start now. We (Pidgeon/Girdis) are an experienced group and we won’t stuff you around”. Brands said that Girdis had proposed the appellant for the job. Girdis said that the appellant was “a good honourable contractor”. Brands said, “It’s a good site as compared to Admiralty Towers”. One of them said “We don’t believe the joinery is a risk. We want it included. So let’s split the difference and make it $28.2 million”. This comment was made in relation to a possible additional cost for joinery. According to Girdis, Harrington said, after a private conference with the other representatives of the appellant, “Our best price is $28,323,174”. The respondent’s representatives said that $28,200,000 was their best price. At this stage the meeting broke up.

10 Notwithstanding this, on 10 May 1994 Harrington sent a memorandum to Brands and Girdis which is of considerable importance for present purposes. I will set it out in full.

Subject: Dockside

We have been considering how to overcome our impasse and the basic problem has been Graham Evans picking up risk.

We suggest the following:-

MONDAY PRICE AS SUBMITTED $28,218,574

Outstanding items as per the letter of 9 May 1994

Lump Sum for wet subgrade in accordance with

Geotechnical Engineers recommendation $ 20,000

Exclusions – We are still finalising the take

off but changes to fire doors on 108 doors

is worth around $11,000. Our risk $ 30,000

Nominated subcontractors.

As discussed the premiums have been reduced

to the minimum by use; and we believe using these

subcontractors considerably reduces Client risk

by nullifying design claims

IFS $ 22,000

SIGANTO STACY $ 19,000

ODG 60% x $56,000 $ 33,600

KONE $ NIL

APP $ NIL

We suggest on ODG that the premium is too high

so we share the cost to mutually reduce our risks

Boardwalk $ 20,000

OUR PRICE $28,323,174

Client offer $28,200,000.

This is now close enough to do a split.

Price - $28,261,000

NOTE: We have therefore reduced our price a further $22,400

+ $61,000) $83,400 after dropping $215,865 between

Friday and Monday. A total of $299,265.

With the joinery you believe that the $99,000 for 50% of solid timber doors is too much. We have not been able to get prices out of the market to match. The problem is that the most efficient kitchen manufacture is set up to do two pack doors and does not believe timber doors are good because of warping problems. We will have to get alternate quotes/split the work etc. to achieve the number.

We suggest that the contract be agreed at $28,261,000, based on all 2 pack doors and an extra over P.C. rate of $1,800 per unit where solid timber doors are required. This then cuts out our risk and allows you to enjoy the best buying we can achieve in letting up the job.

We are very interested in doing this project and offer you an A-Team on site, backed up by good management.

11 This appears to have been a further offer, incorporating the offer of 9 May. That offer and the memorandum are hereafter referred to as the “final offer documents”.

12 Apart from the scope of the work and price, another theme at the various meetings was the form of contract. In the initial tender dated 22 April 1994, the appellant had indicated that it was based on the “JCCB conditions of contract”. At the meeting on 26 April, Brands said that the respondent was not familiar with the JCCB form and would like to use AS 2124, a reference to a prescribed Australian standard form of contract. Harrington said that this suggestion would not pose a problem. There was other discussion about the form of contract, including the method of treatment of retention moneys. At the meeting on 6 May, the question of retention moneys was again discussed. Girdis indicated that the AS 2124 conditions were on the word-processor and that a draft would be available on the following Monday. There can be no doubt that at all relevant times it was anticipated that if the parties reached agreement, they would eventually execute a contract based on AS 2124 with variations. The memorandum of 10 May must be seen in that context.

13 On 12 May, following receipt of the memorandum of 10 May, Girdis rang Harrington. McLean and Osbaldiston were present with Harrington for the relevant parts of the conversation. Harrington gave the following account of it:

He: ‘I want to talk to you about your price. Have you definitely included for any wet sub-grade?’

Me: ‘Yes we have.’

He: ‘What about the fire doors?’

Me: ‘We would put it in our price and we’ll take the risk on it.’

A general discussion followed concerning ‘preferred subcontractors’, which related to certain subcontractors that the respondent wished the applicant to use on the project.

Our conversation then continued with words to the effect:

Me: ‘We will use IFS, Siganto and Stacey and ODG (O’Donnell Griffin) – with ODG there is a big premium and we will share that premium and we will use Kone and APP.’

He: ‘Stencraft will talk to those subcontractors and a design meeting will start on Monday.’

A general discussion on doors followed with words to the effect:

Me: ‘We will agree a prototype for the doors.’

He: ‘OK. Because you’ve got timber doors as a PC (provisional cost) sum, please ensure that you will make your best buying effort.’

Me: ‘We will do that.’

He: ‘Will you put the ‘A’ Team on the job?’

Me: ‘Yes, if you will give us the job I will commit to you that we will use the ‘A’ team which is Jeff Palmer, Trevor Fletcher, Greg Davis and Bill Halpin.’

He: ‘Will you confirm that the joinery doors are oak?’

Me: ‘Yes that is correct’ (after conferring with Murray Osbaldiston).

He: ‘You can do the site establishment straight away – the BA (Building Application) will be approved in two weeks. Can you meet your program?’

Me: ‘Yes we can.’

He: ‘We would not like you to take on our job and Admiralty Towers and we are looking to award this job today to you, so you know that you’ve got the job before the Admiralty Towers tender goes in. We would like assurance that you won’t win Admiralty Towers.’

Me: ‘If you award us Dockside I am prepared to assure you that we won’t win Admiralty Towers.’

Steve Girdis repeated the question and I re-assured him so that there was no misunderstanding at all. The conversation then continued with words to the effect:

Me: ‘If this is going to happen I want conformation (sic) from you that the award is based on our offer of AS2124 and that it does include our terms of payment.’

He: ‘Yes it does. Please confirm that your office is at 129 Logan Road, Woolloongabba.’

Me: ‘That’s correct.’

He: ‘That’s good – I should be over about five o’clock and I’ll bring the letter with me.’

Me: ‘That’s great Steve.’

We then discussed the customising of AS2124. At the meeting referred to in paragraph 10 of this my affidavit we had only discussed terms of payment and retention. The conversation continued:

He: ‘We’re still getting a few changes.’

Me: ‘Our offer is based on AS2124, but if there are a few bits and pieces we will look into it.’

14 According to Girdis, Brands was present with him during the telephone conversation. Girdis’s account of it was as follows:

50 I said words to the effect:

‘We would like to have Graham Evans to do the job, but there are a number of matters to be sorted out.’

51 I then said:

‘Have you definitely included the wet subgrade?’

52 Mr Harrington responded that GE had included for the wet subgrade in their price.

53 He also said that GE would use the subcontractors IFS, Siganto and Stacey, ODG, Kone and APP.

54 I asked Mr Harrington whether, if GE was awarded this project, they would use the so-called A Team, being the Goodwin Towers Team.

55 I said words to the effect:

‘If we give you the project you must use the A Team. Even if you win the Seymour project you must still use the A Team on our project.’

56 Mr Harrington responded to the effect that:

‘We will make adjustments for Seymour. We would rather work for you than Seymour.’

57 I said:

‘That is your decision.’

58 I then said that the GE price of $28,261,000.00 was acceptable to Stencraft.

59 I said that we would be sending over the contract and a list of the documents describing the scope of work that afternoon.

60 I said that the contract would be based on AS2124 with changes.

61 He said that he could not comment on the changes until they had read them and I accepted that position. I said I would deliver the materials around that afternoon.

62 He said words to the effect:

‘I’ll want this confirmed in writing of course.’

63 I responded to the effect:

‘Yes, I’ll bring a letter over this afternoon.’

64 He said that they were very happy boys especially since they had been very worried after they had walked out of the meeting on 9 May.

65 I said that we would want a quick response on the scope documents and the terms of the contract.

15 The versions are not identical and obviously enough, some of the differences could be important. Brands’ version is somewhat different from Girdis’s. I will return to that matter at a later stage. The appellant asserts that the conversation, with the final offer documents, constituted a binding contract. In par 9 of the defence, the respondent asserts that any contract was conditional upon “acceptance of the contract and deed of assumption by the applicant”. It is also submitted that any apparent agreement was void for failure to agree relevant terms. Unfortunately, there are no findings as to the precise wording of the conversation. This is of some concern. Unless the matter can be resolved favourably to the respondent upon the appellant’s version of the conversation, or favourably to the appellant upon the respondent’s version, there must be a new trial, or at least the matter must go back for appropriate findings of fact to be made. Neither course is likely to be satisfactory to the parties.

16 In determining the effect of the conversation one must keep in mind that the respondent admitted in its defence (par 9) that:

· Mr Girdis said (in the conversation on 12 May) that the respondent accepted the price offered by the applicant and wanted the applicant to build ‘Stradbroke’ … subject to acceptance of the contract and deed of assumption by the applicant;

· Mr Girdis said (in that conversation) that the respondent had its contract and deed of assumption ready and that he would bring them over to the applicant’s office later that day along with the formal instrument of agreement; … .

17 Girdis’s evidence failed to establish some aspects of these allegations, however the learned trial Judge was referring to these paragraphs when he said (AB 2130) that the pleadings disclosed that neither party “disputes that an agreement of some kind was reached on 12 May 1994”.

18 Later on 12 May, Girdis went to the appellant’s office with a letter. According to Harrington, in the presence of Osbaldiston, Girdis handed the letter (dated that day) to him with numerous attachments. Harrington and Girdis shook hands and Girdis said, “Congratulations”. They then had a drink. According to Girdis, he met Harrington at the reception desk and delivered the letter. Osbaldiston was not present. Harrington said words to the effect of, “There hasn’t been much work done around here this afternoon”, and offered Girdis a beer. He declined. Osbaldiston joined them at some stage, and they went into Harrington’s office. Harrington took a telephone call. During the meeting Girdis pointed to a roll of drawings near Harrington’s desk, apparently relating to Admiralty Towers. Harrington smiled and said that they wouldn’t be needing them any more. He opened the envelope which Girdis had given him and commented on the size of the contract. He “flicked through” the AS 2124 draft, saying, “This is more like the sort of thing we like”. After a further brief discussion, Girdis left.

19 The letter is of some importance. It is as follows:-

Dockside Stage III

“Stradbroke Tower and Villas”

We have pleasure in accepting your price of $28,261,000 (Twenty Eight Million Two Hundred and Sixty One Thousand Dollars) to undertake the construction of Stage III Dockside “Stradbroke Tower and Villas”. It is our understanding that your price is based on the details included in the attached Schedule and as amended by your correspondence and various offers which have been detailed in Appendix 1.

We confirm that you may commence site establishment and undertake any other preliminary items you believe are necessary (as permitted by the Local Authorities) and confirm that the construction period of 63 weeks will only commence on the date that the Building Approval is received from the Brisbane City Council.

We also confirm that you intend to provide the same “team” which recently completed the Goodwin Towers Development and include, but are not limited to:

Trevor Fletcher - Site Manager

Greg Davis - Structure Foreman

Bill Haplton - Finishes Foreman

We also understand that your Mr. Greg McLean – Operations Manager, will be your nominated point of contact.

As your price includes design responsibility for certain trades, we would like to recommence Design Meetings in the week commencing Monday, May 16, 1994 and we will advise you of the nominated time and place for these meetings. We understand that your Mr. John Kirkwood – Design and Construct Manager will attend these meetings on your behalf.

Also enclosed is the Draft Building Agreement which has been based on AS 2124 – 1992 as amended by our Solicitors, Corrs Chambers Westgarth. Please understand that this Contract is a “Draft” as we are still reviewing it and should we request any changes we will naturally discuss them with you. Could you also advise us of any concerns you may have.

Please also find enclosed a formal Instrument of Agreement which our Solicitors recommend be executed without delay to supplement our acceptance of your Offer, as confirmed by this letter.

Our Financier, Westpac Banking Corporation, also require you to sign a Building Assumption Deed, a copy of which is enclosed herewith.

Messrs. Steve Girdis and Fred Brands are available to meet with you or your nominated representatives to discuss any of the above items on Friday, May 13, 1994.

Our acceptance is on the clear understanding that your company will complete the project to a high quality of finish and within the nominated time. We look forward to a mutually rewarding relationship on this project and to its satisfactory conclusion.

20 Whilst the first paragraph appears itself to be an acceptance, the subsequent reference to “a formal Instrument of Agreement to supplement our acceptance of your Offer, as confirmed by this letter”, suggests an earlier acceptance. This is consistent with the appellant’s case. The learned trial Judge observed in his reasons that the scope of work appearing in the Schedule and the Appendix differed from that in the final offer documents. Nonetheless, in the course of cross-examination, Girdis said that he considered that the scope of the work had been agreed. At AB 143, this passage appears:

What offer did you accept on 12 May?---Sir, we provided a letter to Graham Evans outlining the terms and conditions, enclosing a draft contract that we would accept. I believe on 12 May I accepted the price and I believed we’d reached scope and that was - - -

No, no, but you went further than that; you said, ‘We accept your offer’?

21 At AB 144 (reverse), concerning the letter of 12 May 1994, this passage appears:

So that in this letter you said, ‘We accept your price to undertake construction of this’?---Yes.

‘We can confirm that you can commence site establishment’?---Yes, your Honour.

Now, you do not do that if you have not reached agreement, do you?---Sir, site establishment was - - -

If you were still haggling, if matters had not reached the agreement stage – - -?---I understand.

- - - you do not let a builder onto your land - - -?---No. Sir, we had the price agreed, and we certainly thought that we had the scope agreed at this point here, not at the point Mr Lennon referred but at this point, yes, your Honour.

Yes? I accept that there is difficulty about the draft contract, but it was a draft contract - - -?---It’s a draft contract.

- - - and you talk about that at the bottom of the page?---Yes, sir.

You confirm and say this is just a draft and we have got to talk this out and so on?---Yes, sir.

Putting the draft to one side, the letter says, ‘We accept’---Yes, sir.

And ‘our acceptance’ and so on?---Yes.

And ‘We’re going to let you onto your land?”---Yes.

You thought you had a deal then?---Yes, we did.

22 Whether the parties had agreed on price and scope as at 12 May, it is clear that Girdis thought that they had. It is also clear that the parties contemplated execution of a formal agreement based on AS 2124.

23 The enclosures which accompanied the letter of 12 May appear to have been a little difficult to identify. The letter refers to “the attached Schedule and as amended by your correspondence and various offers which have been detailed in Appendix 1”. Where the letter appears in the appeal book, it is followed by an “Appendix” rather than “Appendix 1” and a “Schedule”. This matter was ventilated at the trial (AB 136-7). It seems that the documents headed “Appendix” and “Schedule” are the relevant documents. As appears from the letter of 12 May, also attached was a draft building agreement based on AS 2124, said to be subject to further amendment. The appellant was invited to comment on it. There were also a “Formal Instrument of Agreement” and a “Building Assumption Deed”. As I have demonstrated, it was alleged in the defence that these documents had been mentioned in the earlier conversation, but Girdis’s evidence did not support that allegation.

24 Setting aside any possible ambiguity as to the scope of the work and the significance of the attached documentation, the letter of 12 May is only consistent with a belief that a binding contract had been formed. The appellant is invited to commence site establishment and other preliminary work. It is said that the construction period of sixty-three weeks will commence upon the issue of the building approval. Other evidence indicates that this was expected within two weeks. It must have been anticipated by both parties that the appellant would immediately commence preparing so as to enable itself to commence the necessary work upon the issue of the relevant building approval, thus facilitating completion of the project within the prescribed period. In addition, there is the reference to “our acceptance of your offer” being “confirmed”. The letter also refers to design responsibility, asking that design meetings begin in the week commencing Monday 16 May. It also stipulates that the A Team is to be dedicated to the project. The respondent is, in effect, calling upon the appellant to commence performance of its obligations. A party may perform acts in discharge of obligations which it expects to incur pursuant to a contract which has not yet been made, but it is a different thing for one party to call on the other to do so in advance of contract.

25 The documents forwarded with the letter of 12 May are also worthy of careful consideration in this context. The Appendix refers to various aspects of the work involved in the building project. It is said that it differs in some respects from the final offer documents. A schedule of the alleged differences appears in the respondent’s outline of argument. It is a little difficult to understand the differences in the absence of expert explanation, but it may not matter for present purposes. Also included with the letter of 12 May were numerous letters from the respondent to the appellant relating to the project. The Schedule refers to “All drawings, specifications, file details and quotations as detailed in Stencraft Pty Ltd correspondence are (sic) included in your offer, but not necessarily limited to the following: …”. There then follows a list of dates and letters. I will say more about these documents at a later stage.

26 The “Formal Instrument of Agreement” consisted of three pages which recited various aspects of the tender process, that certain representations were made by the “Contractor” as to its skill and judgment and as to other matters, that the “Principal” had provided information concerning the site, that the “Contractor” had made its own independent investigations and had given a warranty to the “Principal” as to the quality of work. By it, the “Contractor” acknowledged that the drawings and specifications were not yet complete. The “Operative Provisions” included an acknowledgment that the “Contractor” had warranted the recitals, that the “Principal” had entered into the deed in reliance thereon and that “the entire final and concluded contract between the Principal and the Contractor relating to the project is as constituted by this document and the documents listed in the schedule and annexed hereto and marked with the letters A to ...”. There was a schedule, but it contained no such list of documents. Clause 4 provided:

In consideration of the agreements on the part of the Principal in this Contract the Contractor shall undertake the design and (*) provide the materials and perform the work required to complete the project in accordance with the Contract and will otherwise perform, fulfil, comply with, submit to and observe all provisions of the Contract which are to be performed, fulfilled, complied with, submitted to or observed by or on the part of the Contractor.

27 The asterisk referred to a footnote which provided: “Design may not be a part of the contract”.

28 Clause 5 provided:

In consideration of the agreements on the part of the Contractor in this Contract the Principal shall make payments to the Contractor in accordance with the Contract and will otherwise perform, fulfil, comply with, submit to and observe all provisions of the Contract which are to be performed, fulfilled, complied with, submitted to and observed by or on the part of the Principal.

29 The document appears to have been designed as the principal operative part of a contract consisting of a number of documents, possibly including a version of AS 2124. Its importance for present purposes, however, is that it was forwarded under cover of the letter of 12 May, the respondent’s solicitor having recommended that it “be executed without delay to supplement our acceptance of your offer, as confirmed by this letter”. As the AS 2124 draft was clearly not yet in final form, it seems clear that the respondent had it in mind that the parties should execute this document pending execution of a final contract. In the form in which it was forwarded, the instrument included many blank spaces. Nonetheless, its inclusion with the letter of 12 May undermines the respondent’s primary argument that the parties were not to be bound until an agreement based on AS 2124, with variations, was executed. Neither Harrington nor Girdis suggested that the document had been previously discussed. It cannot be suggested that their intention, at the time of the earlier conversation, was that the formation of contractual relations should be dependent upon its execution.

30 The other document forwarded with the letter of 12 May was the so-called Building Assumption Deed. According to the letter:

Our financier, Westpac Banking Corporation, also require (sic) you to sign a Building Assumption Deed, a copy of which is enclosed herewith.

31 In the letter, the respondent did not expressly ask the appellant to execute that document, but an inference to that effect can be drawn from its being so forwarded. It recited the intention of the respondent to mortgage its interest in the building contract. It may have been that the Formal Instrument of Agreement was required so that the Building Assumption Deed could operate upon it. The deed is in the form of a consent by the builder to such mortgage. There was also a series of covenants by the builder in favour of the financier as to performance of a building contract. The deed obliged the builder to continue with the project should the financier enforce its rights against the respondent pursuant to its security. Again, the deed was incomplete in that there were many blanks requiring the insertion of particulars. Again, it is the conduct of the respondent in seeking execution of such a document at that stage which suggests that it believed that legal relations had already been created, or were to be created in advance of the execution of any contract based on AS 2124.

Subsequent Conduct

32 Numerous incidents occurred after 12 May, leading to the collapse of relations between the parties. Although it is unlikely that those matters can have great significance compared to that attaching to the conversation and letter of 12 May, I should briefly outline them. On 13 May the appellant submitted the Admiralty Towers tender at a price which it considered to be uncompetitive. It was unsuccessful. On that day, too, the appellant wrote to the respondent, saying:

We thank you for your letter of award of 12 May 1994 and confirm our acceptance of this award based on your supplied documentation and our offer as summarized in our letter of 9 May 1994 and revised by our memo of 10 May 1994.

We confirm receipt of post-award information namely:

· draft Formal Instrument of Agreement

· Formal Instrument of Agreement

· Building Assumption Deed

· draft general conditions of contract

and advise that we have commenced reviewing this documentation and will contact you to finalize details once this review is complete.

We thank you again for this award and assure you of our commitment to complete this project on time, to quality and in a harmonious fashion.

33 I am not sure that I understand the distinction between the “draft Formal Instrument of Agreement” and the “Formal Instrument of Agreement”. A perusal of the exhibits to the affidavit does not assist. The matter is unlikely to be of any significance. It seems that the appellant was not, at the time, aware of the content of the draft contract as it was not until 19 May 1994 that it wrote to the respondent, complaining about the proposed variations to AS 2124 contained in it. On the same day, in another letter, the appellant suggested amendments to the Appendix and Schedule which had also accompanied the letter. On 23 May the respondent wrote to the appellant saying:

We are in receipt of your letter of May 13, 1994 and two letters of May 19. It is apparent some misunderstanding has arisen regarding the basis of this contract. We do not accept your interpretation of our award.

Specifically, our letter of award on May 12, 1994 details the conditions on which our acceptance of your price was made. We cannot accept your inclusion of past correspondence which may contradict items negotiated during our meeting.

If you believe that certain items of clarification are required to be made to our letter of May 12, then you should raise these items for discussion with us on an item for item basis. For similar reasons we cannot accept your drafted Appendix sent to us on May 19 as it contradicts the Appendix we forwarded to you on May 12. As far as we are concerned, there were no items inadvertently missed from our Appendix.

We are also at a loss to understand your letter of May 19 dismissing ‘out of hand’ the draft of the general conditions of contract forwarded for your review and comment. We advised you during the course of negotiations that the contract would be based on AS 2124 with amendments. More particularly, our acceptance of your price was not on the basis that Standard AS 2124 would be adopted. As part of your responsibility includes the design, it is obvious that amendments must be made. If you are genuinely interested in proceeding with the project, would you please advise your concerns with those clauses which have been redrafted on an item by item basis. On receipt of your concerns, we will discuss these with you to see if we can resolve the issue.

Contrary to our verbal advice to your Mr Jeff Palmer on Thursday May 19 no site establishment is to occur including the positioning of sheds on site until all of the above matters are resolved.

We look forward to meeting you at 2 pm today as scheduled at the offices of F A Pidgeon & Son Pty Ltd.

34 At the meeting on 23 May various matters of difference were sorted out in discussions between Harrington and McLean, representing the appellant and Girdis and Brands, representing the respondent. It was agreed that the appellant could continue with site establishment. On that same day, the appellant provided to the respondent a re-drafted “Formal Instrument of Agreement” based upon that forwarded with the letter of 12 May. It effectively converted the document from one primarily for the benefit of the owner to one which offered some benefit to the builder. The appellant also proposed amendments to the Building Assumption Deed. On 24 May there was a further meeting involving Harrington, McLean, Brands and Girdis. At that meeting McLean produced a version of AS 2124 which he had prepared on behalf of the appellant.

35 On 26 May the respondent wrote to the appellant, advising that the solicitors were considering the proposed amendments to the Formal Instrument of Agreement, the General Conditions of Contract and the Building Assumption Deed. There was also a reference to a proposal that level thirteen, which was to be a display floor, be handed over in the forty-ninth week of construction. The respondent said that this was not acceptable and that it did not conform with “our understanding of your offer”. In the same letter, the respondent agreed to a proposal concerning re-inforcing mesh, indicating that it would amend its “letter of offer” accordingly. On the same day the appellant responded concerning the display floor. It asserted that the respondent’s requirements had not been provided for in the “tender enquiry” (presumably the invitation to tender and tender documents), but had been raised in post-tender, pre-award discussions. At that time the appellant had said that it could not meet the date proposed by the respondent. The appellant asserted that the issue had not been raised again prior to award.

36 On 30 May a further meeting took place, with the same persons attending. Harrington complained about the documentation of the project. Girdis said words to the effect, “I want to work forward to get a meeting of the minds. Can’t we throw some money at the problems?” Harrington asked if there was to be a letter from the bank indicating that it would stand behind the respondent. Girdis said that there would be no such letter. Other matters were discussed. The appellant wrote to the respondent on that day. This was a lengthy letter, setting out the history of negotiations between the parties. Paragraph 5 said:

Letter of award from the Principal to the Contractor on 12 May, attaching Appendix 1 as an understanding of the Contractor’s offer, draft Building Agreement, Instrument of Agreement and Building Assumption Deed. We note that where our offer was quite explicit that the Appendix 1 is required to reflect our offer. (sic) The letter of award was not presented as an alternate offer, by the Principal, for the Contractor to accept.

37 A detailed discussion of the proposed conditions based on AS 2124 followed. There was a suggestion that the legal representatives discuss the matter. The letter concluded:

We thank you for the opportunity to raise our objections and to correct drafting of your draft General Conditions and trust that this can now expedite a set of General Conditions acceptable to both parties and reflecting the good faith demonstrated in our tender and your award of the Contract.

38 On 1 June 1994 the respondent replied, saying that it would not accept the proposed amendments. The letter continued:

We are also concerned with your continued use of the expression ‘post-award’ and your inference that a contract has already been formed between our respective companies. Our letter of May 12 clearly indicated the conditions on which the price submitted by you would be acceptable to us.

It is clear from your recent correspondence and our meeting of May 30 that you are not prepared to accept the conditions of our acceptance of your price on May 12.

In the circumstances we hereby advise that our negotiations are at an end and we shall proceed to make other arrangements for the construction of this building.

On behalf of our company, we thank you for the work that you have performed to date and regret that we were unable to reach a satisfactory conclusion.

39 In the letter of 23 May, the respondent had, itself, referred to “your interpretation of our award” and to “our letter of award on May 12 1994”. It is a little difficult to understand why, on 1 June, the respondent should have been concerned by use of the expression “post-award”, except, of course, for the fact that it was about to deny the existence of any contractual relationship. Further, in the letter of 23 May, the respondent had spoken of “the conditions on which our acceptance of your price was made”. In the letter of 1 June 1994 it spoke of “the conditions on which the price submitted by you would be acceptable to us”. On 21 July 1994 Pidgeon wrote to the respondent, confirming a price of $28,261,000 for the project. As I have said, it eventually built Dockside Stage III.

40 One other matter is deserving of comment. Girdis said at pars 80 and 81 of his affidavit:

80 I attempted to telephone Mr Harrington on 16 May 1994 but was unable to locate him. I did speak to Mr Osbaldiston on 16 May 1994 and said to him words to the effect:

‘Murray I am concerned with the letter I have received and in particular the reference to an award. There has been no award yet. We have still got to reach agreement on the general conditions and the scope.’

81 Later in the day I was able to speak with Mr Harrington on a mobile phone. I said the same thing to him.

41 As far as I can see, this matter was not put to Osbaldiston, either in evidence-in-chief or in cross-examination. It seems that he did not deny such a conversation in any affidavit material. Harrington was cross-examined about it. He said that he may have spoken to Girdis at about that time, but that he had not done so by mobile telephone as he did not then have such equipment. In his cross-examination Girdis said that he meant in his affidavit that he had called Harrington, using a mobile telephone. He then added that the call had not been answered. This appears to be inconsistent with par 81. The position espoused by Girdis to Osbaldiston, and perhaps to Harrington, was inconsistent with their alleged understanding of the position, and it seems that they did not contradict Girdis’s version. That matter is of some relevance in determining whether or not they believed, at that time, that there was a contract, but it must be seen in light of the respondent’s own equivocal conduct as evidenced by the letter of 23 May. Further, such an observation in conversation may not have had the same impact which it has when read in isolation. I do not consider it presently necessary to refer to any other aspects of the evidence.

FORMATION OF THE CONTRACT

42 After the meeting on 9 May, the offer made by the appellant on that date had either been rejected or had lapsed. Thus the memorandum of 10 May constituted a new offer based upon its own terms and those of the offer made on 9 May. Some of the documents attached to the offer of 9 May refer back to earlier documents in the tender process. They may also be part of the offer. That is a matter of construction. The offer was still open on 12 May when Girdis rang Harrington. As the appellant’s case asserts a contract made in the course of that telephone conversation, the next question is whether or not what was said by Girdis constituted an acceptance of the offer. That problem must be considered in light of the fact that the parties expected eventually to enter into a contract based on AS 2124 as amended. The question is whether or not, in anticipation of that final agreement, they chose to enter into an agreement to regulate their relationship in the meantime.

43 Before considering the effect of the conversation of 12 May, it is appropriate to look briefly at relevant authorities. In Masters v Cameron (1954) 91 CLR 355 at 360-361, the High Court said:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiations shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v Miller [(1878) 3 App Cas 1124] when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ‘… as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed.’… A case of the second class came before this Court in Niesmann v Collingridge [(1921) 29 CLR 177] where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made ‘on the signing of the contract’. Rich and Starke JJ observed that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of the agreement. Their Honours, agreeing with Knox CJ, held that there was no difficulty in decreeing specific performance of the agreement, ‘and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion …’

Cases of the third class are fundamentally different. They are cases in which the terms of the agreement are not intended to have, and therefore do not have, any binding effect of their own. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed.

44 In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622, McLelland J said at 628:

The intention of the parties to be legally bound by their consensus is sufficiently clearly expressed to take the case out of the third class of cases referred to in Masters v Cameron (1954) 91 CLR 353 at 360-362, that is, … cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own. (at 361)

There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron as recognized by Knox CJ, Rich J and Dixon J in Sinclair, Scott & Co v Noughton (1929) 43 CLR 310 at 317, namely, ‘… one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms’.

45 In the Court of Appeal [reported sub-nom G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631] at 634, McHugh JA (Kirby P and Glass JA concurring) said:

However, 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.

Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that ‘the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms. Sinclair, Scott & Co Ltd v Noughton (at 317).

46 It is a contract of the “fourth class” for which the appellant presently opts. As I have said, in the absence of a finding as to the credibility of the various witnesses, any view contrary to the interests of the respondent must be based upon its version of events, rather than that of the appellant. Each version must be seen in light of the respondent’s admission in the defence that in the conversation of 12 May, it had accepted the price and indicated that it wished the appellant to build the project, subject to conditions. In that context, the versions of Harrington and Girdis are not in substantial conflict as Girdis did not give evidence of any such express conditions, although Brands did. He said at par 91 of his affidavit:

Mr Girdis then said that GE’s price of $28,261,000 was acceptable to Stencraft provided GE agreed to the various items, terms and schedules of finishes which he would deliver later that day.

47 As I have previously demonstrated, Girdis said, at par 59 of his affidavit:

I said that we would be sending over the contract and a list of the documents describing the scope of work that afternoon.

48 This difference between the evidence of Girdis and that of Brands is potentially quite significant. It seems, however, that his Honour treated the case as involving a conflict between Harrington’s version on the one hand and Girdis’s on the other. This was an entirely appropriate course, given that they were the major participants in the conversation. Each of the other witnesses heard only one side of it. Further, Girdis’s version is more consistent with the respondent’s letter of 12 May than is Brands’ version. It is appropriate to proceed upon the basis that his Honour chose to act upon Girdis’s evidence rather than that of Brands.

49 In approaching the evidence of the conversation, it must be kept in mind that the parties were speaking in the context of the final offer documents. Girdis commenced by expressing the view (par 50) that the respondent would like Graham Evans to do the job, but that there were a number of matters to be sorted out. He then addressed the following questions:

· The wet sub-grade,

· Sub-contractors, and

· Use of the A Team.

50 There is no suggestion that those matters were other than satisfactorily resolved. Indeed, Girdis obviously received the answers that he was seeking. He then said that the price was acceptable to the respondent. He subsequently said that he would, that afternoon, send over the contract and a list of the documents describing the scope of the work. The contract would be based on AS 2124 with some changes. Harrington said that he could not comment on those changes until he had seen them. Harrington also said that he wanted “this confirmed in writing of course”. Girdis said that he would bring over an appropriate letter and “that we would want a quick response on the scope documents and the terms of the contract”.

51 For present purposes the appellant’s case either stands or falls on this version of events. It submits that the conversation evidences agreement upon the terms set out in the final offer documents and in the conversation. I should point out that it is clear that there was no contract based on AS 2124, with variations, then ready for signature. The subsequent letter revealed that the respondent had not yet approved the draft, and the appellant was invited to comment on it.

52 A number of questions arise concerning this conversation. They are:

· Was Girdis’s language, taken in context, capable of constituting an acceptance of the appellant’s offer?

· What is the effect of the reference to the proposed contract in the form of AS 2124 as amended?

· What is the effect of the proposal to “send over” documents describing scope?

· What is the effect of Girdis’s requiring “a quick response” to the scope documents and to the terms of the contract?

· What is the effect of the appellant’s request for written confirmation?

Language capable of constituting acceptance

53 Girdis believed that both scope and price were agreed, although he now suggests that the parties were at cross-purposes as to scope. There can be little doubt, however, that on 12 May, he was speaking in the context of the final offer documents. It is clear from his and Brands’ evidence that they were aware of those documents at the time of the telephone call. From the appellant’s point of view, Girdis could only have been responding to the memorandum of 10 May. It is not clear to me how or why he now asserts otherwise, but even if he was mistaken at the time of the conversation, his words did not disclose that. It is his objective meaning which is relevant. This is not a case of unilateral mistake.

54 In the course of argument some attempt was made to distinguish between agreeing on price and agreeing on scope. It was suggested that it was possible to agree on one and not the other. In a sense this may be so. As occurred at an early stage in these negotiations, one party may say that a particular figure is the price to be paid. The parties may then negotiate scope to reflect that price. However it is clear that the parties were not engaged in such an exercise on 12 May. Girdis was either accepting all of the proposed terms, but intending that there be no concluded bargain “unless and until they execute(d) a formal contract”, adopting the language of Masters v Cameron (at 360), or he was accepting the offer made in the memorandum of 10 May with the intention that the parties thereafter be legally bound, with the expectation that a further contract would supersede the informal contract at a later stage.

55 If their intention on 12 May was to be bound only upon execution of an agreement based on AS 2124, then there was no immediate prospect of their being so bound. As I have said, the draft delivered later that day had not been approved by either party. Thus it is unlikely that the parties then expected execution of a written agreement in the immediate future. There were, however, reasons why the parties may have wanted immediate agreement. Girdis knew that tenders for Admiralty Towers were closing on 13 May, and Harrington must also have known this. Girdis was eager to have the A Team on his project and was correspondingly anxious to ensure that the appellant did not assign it to Admiralty Towers. The building approval for Dockside Stage III was expected in the next week or two. It is reasonable to infer that the respondent wished to commence work as soon as possible thereafter. During negotiations, the building period had been discussed in a way which suggested an element of urgency about getting on with the project. These matters were known to both parties. In those circumstances, Girdis’s introductory statement on 12 May, that the respondent wanted the appellant to build its project, subject to the resolution of certain matters, followed by the discussion of those matters, indicated a clear intention to reach some degree of finality. The price was also accepted. Nothing remained for further resolution except the terms of a contract to be based on AS 2124.

The proposed contract based on AS 2124

56 The only possible reason for doubting that an immediate contract was intended on 12 May is the reference to a contract to be based on AS 2124. However it is relatively clear that the parties thought that they had done something more than indicate an intention to enter into an agreement in the future. Girdis knew that by insisting upon the use of the A Team, he had effectively deprived the appellant of a bargaining tool in its tender for the Admiralty Towers project. He denies having asked the appellant to submit an uncompetitive tender for that project, but he accepts that he asked for the A Team to be reserved for his project. There is no evidence that Seymour was seeking the A Team specifically, nor is there any basis for inferring that such was the case. Nonetheless, the fact remains that both Girdis and the appellant considered it to be a valuable asset. Girdis was asking the appellant to earmark that asset for his use at a time when the appellant may well have wished to deploy it elsewhere, if it were not to be gainfully employed on the respondent’s project.

57 The letter of 12 May gives a clear indication of Girdis’s state of mind at the time of the earlier conversation. He was hoping, or expecting that the appellant would commence work on the project virtually immediately, having regard to the likely date of issue of the building approval. This is inconsistent with an expectation that there would be no contractual relationship until completion of the possibly lengthy process of agreeing to an amended version of AS 2124. If, as is indicated by the letter, the respondent was expecting that the appellant would start work virtually immediately, then it seems more likely than not that it anticipated entering into contractual relations before execution of the contract based on AS 2124. Harrington’s request for written confirmation is also relevant in this context. He did not ask for written acceptance, but for confirmation, and that is what Girdis gave him. In this context, “confirmation” implies subsequent acknowledgment of a prior fact.

The scope documents

58 It is suggested that because the documents which were sent with the letter of 12 May differed to some extent from those contained in the final offer documents, there could be no contract. As I have said, it is irrelevant that the respondent may have been labouring under a misapprehension as to scope. There was a firm offer in place, and Girdis’s conduct in the telephone conversation was only objectively consistent with an intention to respond to it. Nothing in that conversation suggested that the documentation to be sent would differ from that contained in the final offer documents. What was to be sent was “a list of the documents describing the scope of work”. In other words, the list was to identify documents describing scope rather than to define the scope itself. The documents which accompanied the letter of 12 May disclose that there had been numerous letters from the respondent issuing drawings, specifications and similar documents, presumably following the calling of tenders. The final offer documents were based upon those documents and, one imagines, the original tender documents, although possibly varying some of them. The reference to such documents did not imply that the scope of the work was to be determined by the documentation to be subsequently forwarded by Girdis; nor was it being suggested that the contract was conditional upon agreement as to those documents. The proposal was to identify the numerous relevant documents. It should also be noted that the wording of the last sentence of the first paragraph of the letter of 12 May does not suggest an intention that it constitute part of a counter-offer. It rather reflects the respondent’s “understanding” of the basis of the price which it had already accepted.

The requirement for responses

59 When the significance of the draft contract and the references to the scope documents are properly understood, it can be seen that the request for responses in connection with those matters was not related to the formality of acceptance. As I have said on numerous occasions, the precise content of the ultimate contract based on AS 2124 was to be negotiated, and it was probably not expected that it would be executed immediately. Nevertheless, it was desirable that the drafting process be completed as quickly as possible. It was also desirable that any disagreement as to the scope documents be similarly resolved.

The requirement for written confirmation

60 I have already pointed out that the request was for confirmation, implying something already in existence. The request had no relevance to the creation of contractual relations.

Conclusion

61 I find it impossible to avoid the conclusion that the parties entered into a binding agreement in the telephone conversation on 12 May upon the terms contained in the offer of 9 May, the memorandum of 10 May and as specified in that conversation. They intended that such agreement, in due course, be superseded by a written agreement to be negotiated, based upon the form prescribed in AS 2124, but with amendments. It was possible that no such agreement would ever be reached, but that would not have been critical to the existence of legal relations between the parties. The letter of 12 May discloses Girdis’s probable intention at the time of the earlier conversation. It also reflects his understanding of that conversation. Implicit in much of the respondent’s argument is the assertion that the letter constituted a counter-offer to the effect that the appellant do the work described in the Schedule and the Appendix for the price of $28,261,000. I cannot so construe it. I have already discussed its terms in detail and offered my interpretation of them. Were the case to be decided by reference to Harrington’s version, the result would be the same, especially when one takes into account the admissions in the defence to which I have referred.

Certainty of terms

62 Although there appears to have been an agreement, it is still technically possible, as the respondent asserts, that the parties may have failed to agree upon some essential term. The basis for such assertion is not entirely clear. As I have said, in the respondent’s outline of argument there is a schedule identifying “differences between communications of 9, 10 and 12 May and letter of 12 May”. On the view which I have taken of the contract, such differences are of no relevance because a contract had been made on the basis of the first three “communications” before the letter of 12 May was written or delivered

63 The learned trial Judge appears to have concluded that there was no concluded agreement, largely because there was no agreement as to the variations to be made to AS 2124, including the completion of blank spaces. In my view that was also irrelevant because the parties had agreed to be immediately bound, subject to the expectation that such agreement would be superseded by the written agreement when executed. There was always the possibility that such an agreement would not be executed, but that would not have affected the agreement already made. It is of the nature of a contract of the “fourth class” that terms of the proposed ultimate agreement remain to be negotiated. Similarly, it does not matter that, as his Honour observed, the parties “each proposed their own version of the contract.” This was merely an element of the negotiation process.

64 His Honour also concluded that there had been no agreement as to the scope of the work. As I have pointed out, and as appears from his Honour’s reasons, both parties thought to the contrary on 12 May. His Honour refers to three particular examples of this absence of agreement. The first concerns display units. It seems that in negotiations prior to 9 May, the respondent had suggested that display units should be available by week forty-five of the building period. His Honour observed that the offer of 9 May was silent on this question, but the respondent’s Appendix to the letter of 12 May again required access in week forty-five. His Honour concluded that this meant that the parties were not agreed on this issue. The mere fact that the parties had raised this issue prior to the offer of 9 May did not mean that any contract into which they might subsequently enter would necessarily deal with it. No doubt, if the respondent had been sufficiently determined on the point, it would have continued to press it. In that case, it would not have been willing to accept the offer contained in the final offer documents. The parties may not have agreed upon this issue, but there was no reason why they should have done so. It was not in any sense a condition which was essential to the contract. It is convenient to refer to the decision of the English Court of Appeal in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601 at 619:

It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true; the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘Heads of Agreement’.

65 The fact that subsequently, the parties again discussed this question is also irrelevant.

66 A second issue concerned formwork. There had been discussion prior to 9 May in connection with this subject, resulting in an amendment to the tender of 29 April. It seems that the provisions concerning formwork in the offer of 9 May differed from those in the Appendix to the letter of 12 May. It is asserted that because the parties may have previously discussed some other approach to formwork, the offer of 10 May (including the offer of 9 May), to the extent that it did not reflect the outcome of that discussion, was not capable of acceptance by the respondent. This is clearly incorrect. The respondent had an opportunity to consider the offer made on 10 May and to decide whether or not to accept it. It is irrelevant that its content may have differed from anything which had been previously agreed between the parties. The word “agreed” in this context has no contractual significance. The content of the Appendix is equally irrelevant as it followed formation of the contract. Finally, his Honour considered that the question of paving and landscaping had not been agreed. This had been discussed prior to 9 May and was also discussed on that day, but no agreement was reached. Once again, whatever happened at the meeting of 9 May was superseded by the memorandum of 10 May.

67 In the circumstances, I am satisfied that on 12 May 1994 the parties entered into an agreement upon the terms contained in the offer of 9 May, the memorandum of 10 May and the discussion as to specific matters which occurred in the course of the telephone conversation on 12 May. The appeal must be allowed and the judgment below set aside. His Honour fixed damages for breach of contract in the amount of $800,000 with interest at 8 per cent from 1 January 1995. I do not understand there to be any challenge to that quantification. I would enter judgment for the appellant against the respondent in the sum of $800,000 with interest at 8 per cent per annum from 1 January 1995 to the date of judgment herein.

68 It would seem to follow that the respondent should pay the appellant’s costs of the proceedings at first instance and on appeal. However, as we have not heard submissions on this point, the parties should have leave to make such submissions in writing. If either party wishes to make submissions, it should forward them to the other side within seven days of the publication of these reasons for judgment. Any response thereto should be forwarded within a further period of seven days. Such documents should then be filed with the District Registrar at Brisbane for transmission to the members of the Court.

I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate:

Dated: 30 November 1999

Counsel for the Appellant:	Mr E Lennon QC

Solicitor for the Appellant:	Clayton Utz

Counsel for the Respondent:	Mr P Keane QC and Mr P Freeburn

Solicitor for the Respondent:	Corrs Chambers Westgarth

Date of Hearing:	26 August 1999

Date of Judgment:	30 November

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