Federal Court of Australia
Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific Pty Ltd [2024] FCA 763
ORDERS
CIRRUS REAL TIME PROCESSING SYSTEMS PTY LIMITED Applicant | ||
AND: | First Respondent HAWKER PACIFIC NZ LIMITED Second Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the respondents’ costs as agreed or assessed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
KENNETT J:
1 This dispute arises out of a plan for the applicant and the respondents to bid together for work offered by the New Zealand Defence Force (NZDF) to private contractors. Around 2014, the NZDF decided that it wished to develop the ability to train its Air Warfare Officers, or AWOs, in New Zealand. Until then, they had been trained in Australia. Work on the development of this capability by the NZDF came to be known as the ACTC Project, where ACTC means “Aircrew Training Capability”.
2 AWOs fly aircraft and conduct surveillance activities using sensors fitted to the aircraft. In Australia, AWOs are known as Air Combat Officers or ACOs. The Australian Defence Force (ADF) uses software developed by the applicant (Cirrus) to train its ACOs at a base in East Sale in Victoria. Cirrus’s software is known as the “Air Combat Officer Training System” (ACOTS). Arrangements between the Department of Defence and Cirrus for the use of ACOTS permit the ADF to use the software to train personnel from other nations, including New Zealand, in the use of sensors.
3 From 2014 to 2016, Cirrus and the respondents engaged in negotiations for the purpose of the respondents submitting a bid to the NZDF to develop its aircrew training capability that would include the applicant as a subcontracted provider of the AWO training component. In June 2014, the respondents inquired of Cirrus whether it would provide the AWO training component of the project, and they began to negotiate about Cirrus’s involvement in the project. These negotiations involved Cirrus providing a series of quotes to the respondents about its services and prices. Cirrus and the respondents entered into confidentiality agreements for the purposes of exchanging confidential information with one another.
4 Critical events transpired on 21 December 2016, and the central issue in this proceeding is whether the conduct of the parties that day created a contract between them. On 21 December 2016 Cirrus provided the fourth version of its quote to the respondents, which the parties refer to as the Version 4 Quotation (or V4Q). The respondents told Cirrus that they would like to submit the information in the Version 4 Quotation to the NZDF as part of their bid for work on the ACTC Project and requested that Cirrus relax the contractual prohibition on disclosing the Version 4 Quotation so that they could do so. Cirrus asked the respondents to provide a letter in which they committed to engaging Cirrus to provide the AWO training component of any contract with the NZDF that included a requirement for the provision of AWO training. The respondents promptly provided a letter (although the parties disagree about the proper construction of the letter)and indicated that any such engagement would be “on the basis set out” in the Version 4 Quotation. Apparently satisfied, Cirrus replied with a letter authorising the disclosure of the Version 4 Quotation to the NZDF as part of the bid. The NZDF eventually selected the respondents as its preferred tenderer for the ACTC Project. The respondents subcontracted a company named MAROPS Ltd, and not Cirrus, to perform work related to AWO training.
5 Cirrus submits that the exchange of correspondence on 21 December 2016 created a contract by which it exchanged its authorisation to disclose the Version 4 Quotation for a promise by the respondents that it would be contracted on the terms in the Version 4 Quotation if the respondents ever entered into a contract with the NZDF that included an AWO training component. The respondents deny that a contract was created on 21 December 2016 at all. Cirrus also claims the benefit of an estoppel by convention.
6 I have found that the activities of the parties on 21 December 2016 did not create a contract between them. For reasons I will explain, my finding that no contract was created on that day also means that Cirrus’s estoppel argument fails.
7 Before I address the substantive issues, I have recorded in this section the reasons why I am satisfied that the Court has jurisdiction to decide this matter. Neither party made submissions on jurisdiction, but I think it appropriate to deal with the issue because the source of the Court’s jurisdiction to resolve this matter is not immediately obvious.
8 In short, this proceeding involves a matter falling within federal jurisdiction because, when commenced, it included a claim that arose under Commonwealth law: Judiciary Act 1903 (Cth), s 39B(1A)(c). When Cirrus first filed its claim, it pleaded a contravention of s 18 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth) (CC Act), which it claimed arose out of the same facts as the claim for breach of contract. It claimed damages for that contravention under s 236 of the ACL and s 82 of the CC Act.
9 The ACL applies to the respondents’ conduct as a Commonwealth law pursuant to s 131(1) of the CC Act. Section 131(1) applies the ACL as a Commonwealth law, to the conduct of “corporations” as defined in s 4 of the CC Act.
10 The claim under Commonwealth law arose from the same factual substratum as the contract claim. At least some of the alleged misleading representations were said to have been made in the correspondence that Cirrus relies on to found the contract the subject of its claim. They also occurred within the overall sequence of events that gives rise to the contract claim.
11 During the trial, Cirrus abandoned its claim that the respondents contravened s 18 of the ACL. The withdrawal of that claim does not affect the jurisdiction of the Court in the matter. Once federal jurisdiction over a matter is established, the Court retains its authority to decide the whole matter even if the federal aspect of the claim is withdrawn: Moorgate Tobacco Company Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 477 (Stephen, Mason, Aickin and Wilson JJ); see also RNB Equities Pty Ltd v Credit Suisse Investment Services (Australia) Ltd [2019] FCA 760; 370 ALR 88 at [23] (Anderson J)).
12 Cirrus tendered a significant amount of documentary evidence and relied on statements made and affidavits sworn by Peter Freed, who is its managing director and was closely involved in the events out of which the claims arise. Mr Freed was cross-examined, although it has not been necessary for me to refer to his cross-examination in any significant way in these reasons. Cirrus also relied on expert evidence, prepared by Mr John Temple-Cole, to prove its case on loss and damage. Mr Temple-Cole was also cross-examined. For reasons I explain later, I have not assessed Cirrus’s loss.
13 The respondents did not adduce any evidence.
14 Cirrus alleges that a contract was created on 21 December 2016; that it contained various express terms; and that it also contained an implied term. Cirrus alleges that each of those terms was breached and that it has suffered damage as a result. I have addressed the issues in that order. However, before I do so, it is necessary to pay some attention to the pleadings because the respondents indicated that they would hold Cirrus strictly to its pleaded case.
15 Cirrus filed a Statement of Claim which was amended twice, including on the last day of the hearing. By the end of the hearing, Cirrus’s Further Amended Statement of Claim (FASOC) alleged that a contract was created on 21 December 2016 as follows:
13. On 21 December 2016 the applicant and the first and second respondents entered into a written agreement confirmed in correspondence of that date (teaming agreement).
Particulars
(a) Letter from the first and second respondents to the applicant dated 21 December 2016
(b) Letter from the applicant to the first and second respondents dated 21 December 2016
16 Cirrus then pleads that the agreement contained several express terms as follows:
14. It was an express term of the teaming agreement that 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).
…
14A. The teaming agreement incorporated by reference the terms of the Version 4 Quotation.
Particulars
(a) Letter from the first and second respondents to the applicant dated 21 December 2016, Reference A
(b) Letter from the applicant to the first and second respondents dated 21 December 2016, Ref A
14B. It was an express term of the Version 4 Quotation that, 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.
17 Cirrus also pleaded that the teaming agreement contained an implied term that required the respondents to act reasonably, cooperatively and in good faith by: (a) ensuring Cirrus had the benefit of the Express Term; and/or (b) not engaging in conduct to deprive Cirrus of the benefit of the express term. Cirrus pleaded that the implied term required the respondents to do certain things. I will set out the pleadings in relation to that implied term when I address that argument.
18 In their Further Amended Defence (FAD), the respondents pleaded as follows. The FAD refers to the Amended Statement of Claim, but it applies equally to the FASOC.
13. In answer to paragraph 13 of the Statement of Claim, the Respondents:
(a) rely on the letter from the First Respondent to the Applicant dated 21 December 2016 and the letter from the Applicant to the First Respondent dated 21 December 2016 (21 December Letters) for their full terms and effect;
(b) otherwise deny the paragraph; and
(c) say that, in the alternative, if (which is denied) the Applicant and the First and Second Respondents entered into an agreement on 21 December 2016 as alleged, the alleged agreement is void for uncertainty and/or the terms of the alleged agreement are too uncertain to be enforced.
Particulars
A. Paragraph 2 of the letter from the First Respondent to the Applicant dated 21 December 2016 stated that “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.”
B. The services to be provided following contract negotiations are uncertain in circumstances in which the services which may be provided to the NZDF may not be those the subject of the Version 4 Quotation, may be altered by the NZDF in an unknown (at 21 December 2016) manner, and were to be the subject of negotiation before the NZDF entered into a contract the subject of the tender.
C. Further or in the alternative, the remuneration to be paid to the Applicant was also uncertain in the circumstance of any change to the services which may be provided by it to “Hawker Pacific” and by “Hawker Pacific” to the NZDF, from those specified in the Version 4 Quotation.
D. The services to be provided and the remuneration paid for those services were each essential to the contract (if any which is denied) formed by exchange of the 21 December Letters.
19 Although the consequence of FASOC [13] and FAD [13] might appear to be that the parties have joined issue over the inexact expression “agreement”, it is clear that their dispute is as to whether the teaming agreement had contractual force (and, if so, what it required of the respondents). Cirrus’s allegation that it had such force is apparent from the allegations of “breaches” of the express and implied terms (FASOC [16], [16A]), by which it suffered loss and damage (FASOC [17]), which connect with the claim for damages for breach of contract set out in the Amended Originating Application.
20 As to the terms of the teaming agreement, the respondents pleaded as follows.
14. The respondents deny paragraph 14 of the Amended Statement of Claim and say that:
(a) the 21 December Letters expressly applied to the use or incorporation of the Version 4 Quotation for B200 AWO Training Services in the Respondents’ proposed tender response to the Original RFT;
(b) the 21 December Letter from the Respondents to the Applicant:
(i) expressly referred to the Version 4 Quotation being in respect of the ACOTS workscope under the Original RFT;
(ii) stated that should Hawker Pacific (irrespective of whether it be the Second Respondent or another entity in the Hawker Pacific group) be selected by NZDF to enter into contract negotiations and subsequently enter into a contract for the ACTC as stated at the Version 4 Quotation the engagement between Hawker Pacific and the Applicant would be on the basis set out in the Version 4 Quotation;
Particulars
Paragraph 2 and References A and B of the letter from the First Respondent to the Applicant dated 21 December 2016.
(c) the ACTC stated that the Version 4 Quotation was for the B200 AWO Training Services;
(d) if (which is denied) the 21 December Letters gave rise to a binding contractual obligation on the First and/or Second Respondents to enter a subcontract with the Applicant on the basis of the Version 4 Quotation if either of the Respondents was selected to enter contract negotiations and subsequently entered a contract with the NZDF inclusive of training system and ongoing services (Subcontract Obligation):
(i) properly construed, the Subcontract Obligation only arose if the First and/or Second Respondents entered a contract with the NZDF which included the provision of the training system and ongoing services which were the subject of the Version 4 Quotation, being the B200 AWO Training Services;
(ii) further, and in any event, it was a term of any contract constituted by the 21 December Letters that the Subcontract Obligation was conditional upon the services the subject of the Version 4 Quotation being acceptable to the NZDF and sufficient to enable the First and/or Second Respondents to perform their obligations to provide the AWO training system and ongoing services required under the head contract with the NZDF;
Particulars
A. The term arises on a proper construction of the 21 December Letters; and/or
B. The term is implied in order to give the contract business efficacy.
(iii) further, and in any event, it was a term of any contract constituted by the 21 December Letters that the Subcontract Obligation was conditional on the parties acting reasonably, cooperatively and in good faith to negotiate a subcontract that enabled the First and Second Respondent to meet the requirements of the original RFT and their head contract with the NZDF;
Particulars
A. The term is implied by law; and/or
B. The term is implied in order to give the contract business efficacy.
14A. In answer to paragraph 14A of the Amended Statement of Claim, the Respondents:
(a) say that the 21 December Letters referred to the Version 4 Quotation;
(b) rely on the 21 December Letters for their full terms and effect; and
(c) otherwise deny the paragraph.
14B. In answer to paragraph 14B of the Amended Statement of Claim, the Respondents:
(a) rely on the Version 4 Quotation for its full terms and effect; and;
(b) otherwise deny the paragraph.
The events said to give rise to the contract
21 On 21 December 2016, the parties exchanged two letters. Cirrus claims that these documents created a written contract. Before I set out and analyse the content of those letters, it is helpful to set out some brief background information about how the parties came to the point of exchanging those letters and the commercial circumstances that prevailed.
The events leading up to 21 December 2016
22 Cirrus’s claim in contract arises out of negotiations between the parties largely conducted in writing. The important individuals involved in that correspondence were Peter Freed, Managing Director of Cirrus; Craig Purry, Vice President – Government Business of the respondents; and Katrina Binotto, Contract Manager for the respondents. No party contended that the conduct of any of those people was not to be attributed to the relevant parties, being corporate entities.
23 The ACTC Project related to the installation of an AWO training system on various aircraft to be leased by the NZDF. There is an important distinction in this field between training systems that use simulated data and those that use data taken in real-time from real sensors attached to an aircraft. Cirrus was asked to quote for a system of the former kind.
24 During negotiations, on 25 August 2016, Cirrus entered into a confidentiality agreement with one of the respondents, Hawker Pacific Pty Ltd (the confidentiality agreement). The confidentiality agreement bound the parties not to use each other’s confidential information for any purpose other than a purpose defined in that document. Relevantly, the confidentiality agreement did not permit the respondents to disclose Cirrus’s confidential information to the NZDF for the purpose of submitting a tender for the ACTC Project.
25 On 5 October 2016, after a meeting with NZDF officials, Mr Purry sent Mr Freed an email explaining some aspects of what would be required for the ACTC Project. It included the following.
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?
26 Mr Freed responded an hour later, inserting fairly detailed “comments” into the text of Mr Purry’s email. On the issue of fitting sensors to the aircraft, he responded:
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).
27 The NZDF released a draft request for tender (RFT) document on 1 November 2016. Mr Purry had emailed Mr Freed a few days earlier to let him know this was expected.
28 On 8 November 2016 Mr Freed attended an ACTC “industry day” in Wellington, New Zealand. He had a discussion there with Maurice Gordon, who worked for the respondents. Also present was Brett McKenzie, an employee of MAROPS. His evidence was that he knew before then that MAROPS was assisting the respondents as a potential supplier of services relating to what he described as the “real sensor” option. He was “shocked” to hear statements by Mr Gordon which indicated that MAROPS was also being considered by the respondents as a potential supplier of the AWO training component of the tender.
29 Tested on this in cross-examination, Mr Freed said that he knew of MAROPS only as a potential supplier of sensors and had not considered who might be contracted to provide software to control those sensors and convey data from them to the AWO training system: “It was not our area”. However, this is difficult to reconcile with what Mr Freed had written on 5 October 2016 about the feasibility of displaying sensor data in ACOTS windows. It is apparent that, before November 2016, Mr Freed had given thought to whether a sensor-based system (if that was what the NZDF wanted) could be integrated with ACOTS. If (as he said) he knew that MAROPS was in discussions with the respondents in relation to sensors, Mr Freed must have had some inkling that there was potential for Cirrus and MAROPS to end up competing for some aspect of the work that would be contracted for. That was an obvious possibility given that the RFT had not been issued and the exact nature of what the NZDF would be seeking was not known. I accept that Mr Freed would have been disappointed or annoyed (or both) to hear that the respondents regarded Cirrus and MAROPs as potentially being alternative suppliers to some undefined extent; however, I do not accept that this came as a complete surprise to him.
30 On 9 November 2016 Mr Freed and Mr Purry had a telephone conversation. According to Mr Freed’s version (which was not contradicted), he told Mr Purry 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.
31 Mr Purry’s email on 11 November 2016 was emollient and short on particulars:
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.
32 The respondents were also communicating with MAROPS around this time. Internally, the respondents were considering and discussing how to move forward in circumstances where they wanted to offer both Cirrus’s and MAROPS’s products as part of their tender. The prospect that Cirrus might pull out (including that it might align itself with another bidder) was contemplated. In an internal email on 18 November 2016 Mr Purry wrote:
Hi gents - informal feedback from MAROPS is that they are intending on telling us that they will not cooperate with Cirrus and are happy to go head to head underneath our a/c solution.
Not sure how Peter will take that.
Worst case maybe that he says he'll go to another bidder - I doubt he will find one - and if he does that bidder will not be anywhere as competitive as us - certainly the NZDF will not go with a worse a/c solution just so they can use Cirrus software. This also assumes MAROPS is not actually favoured.
We have a bigger picture longer term relationship with Cirrus on RAAF - he must consider that as well. If he puts that at risk we have the ability to do something else on RAAF as well.
My view is that we hold to plan A and bid both systems.
If Peter pulls out then so be it - we can always simply say that we are happy to work with them should NZDF prefer that path.
What do you think?
33 Mr Gordon replied:
Craig I think we have to go plan A bid both, and see what happens.
Cirrus and Marops both have the highest "P" win on the back of us pure and simple.
34 To the extent that construction of the critical exchanges between the parties is assisted by considering their commercial positions and how they saw those positions, this exchange is illuminating. It indicates two things: first, that the respondents considered it fairly unlikely that Cirrus would walk away if not given the level of commitment that Mr Freed wanted; and, secondly, that the respondents regarded that possibility as something they could live with. This tends against any understanding—certainly any shared understanding—that the respondents needed to keep Cirrus on board in order to mount a credible tender.
35 Indeed, Mr Purry’s email on 18 November 2016 seems to have been prompted by an email that he received from Mr Freed earlier that day. This was a reply to Mr Purry’s email of 11 November which said “Hi Craig – where did you get to on this one?”. Mr Freed was sufficiently interested in being included in the respondents’ tender to ask this question of Mr Purry.
36 On 23 November 2016 at 1.34 pm Mr Purry sent a more formally expressed email to Mr Freed which began:
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.
37 Various documents were provided including the Conditions of Tender and a document specifying the AWO capability requested. Under the heading “Workscope”, Mr Purry wrote:
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.
38 Mr Freed responded at 2.55 pm by proposing modifications to the respondents’ proposal. Mr Purry forwarded the message to colleagues by way of a message that began “Argh.. here we go again”. There was an internal discussion which sought to clarify the interaction between Cirrus and MAROPS systems that would be proposed.
39 There was evidently another discussion between Messrs Purry and Freed on 24 November 2016. Mr Purry then sent Mr Freed a further amended “Workscope” text under a message: “as discussed – this is where we got to – you OK?”. Mr Freed asked him to insert this new text into his original email and re-send it, concluding “I will then respond to that email and we can crack on”. The amended text was as follows.
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.
40 A further email was sent later that day by Mr Purry, containing this text, to which Mr Freed replied “Thanks, Cirrus is pleased to join in with this plan”.
41 On 28 November 2016 the final version of the NZDF’s Request for Tender document was released. The specified closing date for submissions was 16 January 2017. Mr Purry sent the document to Mr Freed the following day.
42 On 6 December 2016 there was a long email exchange involving Mr Freed, Mr Purry and Mr Gordon concerning the likely timing of various phases of the ACTC Project. At one point in this exchange Mr Freed said:
In summary – no I am not happy with the suggestion that Cirrus do half of the development work w/o a contract, and this is why I am checking on whether that end date is really needed.
43 Mr Purry and Mr Gordon responded to the effect that the timing was being driven by the NZDF, some level of risk was normal but neither the respondents nor Cirrus would “actually deliver anything unless we have a contract signed”.
44 Cirrus sent a quotation for provision of ACOTS (referred to as the Version 3 Quotation) to the respondents on 13 December 2016. It seems to have been received the following day because the initial Microsoft Word file was too large to be received by email. The respondents also received a quotation from MAROPS on 14 December.
45 On 16 December 2016 Mr Freed observed in an email to Mr Purry that technical issues associated with Cirrus’s proposed involvement appeared likely to be resolved by 21 December 2016 “which is our last effective business day”. He continued:
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, rather than let it drag into the xmas period.
46 Mr Purry responded:
Thanks Peter, most likely that we won’t be in a position to close completely on your subcontract arrangements until after new year – more from availability of legal cover our side than anything to do with your proposal.
Will you be able to liaise with us between 3 – 9 Jan on any contract clarifications or issues arising from our legal counsel review?
On the technical side of things I am wondering if the team is clear on all issues associated with fitting the AWO solution onto sensor fitted a/c – are there any issues from your perspective?
47 Mr Freed’s response included the following:
I won’t have much time in that interval. Hence suggestion that you might be better off covering it now if there is anything needing discussion.
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?
48 Mr Purry replied with an email in which he deferred the answering of that question to another person. He then went on to ask Mr Freed a number of questions about the terms included in the Version 3 Quotation. Notably, Mr Purry extracted part of cl 10.5 of the quotation which was headed “Next Steps”. The extract said:
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.
49 Mr Purry commented that circumstances might arise in which the NZDF proceeded with the project but decided not to train its AWO officers in New Zealand. He indicated that such a situation would mean that there would be no work for Cirrus to do, and proposed a revised version of the text that said:
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.
This paragraph contains two important features. First, it refers to the ACTC capability “as stated in the [Request for Tender]”. Second, Mr Purry described that statement as “i.e. inclusive or [sic] AWO Training Capability”.
50 Mr Freed replied by email 30 minutes later. He said he agreed with Mr Purry’s revised language at (set out at [49]), but that before he would authorise the use of Cirrus’s material in the tender, he required a letter from Mr Purry containing the revised statement.
The events of 21 December 2016
51 On 21 December 2016 at 2.14 pm, Mr Freed sent Mr Purry the Version 4 Quotation. He described it in his covering email as “Cirrus’ revised proposal for the provision of ACOTS for Air Warfare Officer Training for the RNZAF opportunity”. The document had been sent to the respondents earlier in the day with some proposed amendments marked up for consideration (the substance of which is not presently relevant). Ms Binotto had replied expressing the respondents’ agreement with those amendments. The Version 4 Quotation, at clause 10.5, 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.
52 It is not clear whether there were other emails or telephone conversations between Mr Freed and employees of the respondents around that time. At 4.24 pm, Mr Freed sent an email to Ms Binotto which said simply:
Suggest you send me the letter as per Craig’s prior email ASAP.
We have to shut down for IT admin at 5pm.
53 At 4.33 pm, Ms Binotto emailed Mr Freed a letter. Her covering email said that the letter had been formulated “using the email trail between Craig and yourself and section 10.5”. The letter was on Hawker Pacific’s letterhead, over Mr Purry’s signature and addressed to Mr Freed. It was 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
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]
54 At 4.55 pm, Mr Freed emailed Ms Binotto a letter on Cirrus’s letterhead, addressed to Mr Purry at “Hawker Pacific”, which said:
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
55 These letters are the pieces of correspondence pleaded as particulars at [14] of the FASOC.
The events following 21 December 2016
56 The parties continued to negotiate the terms of their subcontract through 2017 and into 2018 as the respondents negotiated the terms of a prime contract with the NZDF. During the course of those negotiations, various issues emerged where it appeared that Cirrus, the respondents and the NZDF may not be able to reach agreement. These included the terms of the eventual contracts concerning the use of Cirrus’s intellectual property and the price of Cirrus’s services.
57 On 21 December 2017, the NZDF wrote to the respondents and emphasised the need to bring negotiations for the ACTC Project contract to a close, given the amount of time that had passed since the respondents were selected as the preferred tenderer. The NZDF also emphasised the need for the services to fall within the NZDF’s budget. To facilitate negotiations, the NZDF indicated it was prepared to offer a “number of scope and cost reductions”. One of them was 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.
58 On 22 December 2017, Mr Purry wrote to the NZDF and said that “[u]nder the scenario outlined in the letter HP would need to change AWO software providers to that of a single provider responsible for both sensor integration and AWO training software”. He asked the NZDF to consider paying “reasonable separation costs” associated with removing Cirrus as a provider. The NZDF refused, observing that any commitment by the respondents to a subcontractor was a matter for them.
59 On 19 January 2018, the NZDF wrote to the respondents and notified them that it had decided to acquire a “single training mission system” for the purpose of training both AWOs and sensor operators. The new training system the NZDF required was to be installed on B350 King Air aircraft and use input from real sensors: it was not a simulation-based training system, which is what Cirrus had quoted for in the Version 4 Quotation.
60 On 24 January 2018, the respondents replied to the NZDF and said the only feasible way to meet the Crown’s revised requirements was to select MAROPS, with its “single system” solution, as the subcontractor for AWO training. On 13 April 2018, the second respondent entered into a contract with the Crown in right of New Zealand for the ACTC Project. On 24 April 2018, the second respondent contracted with MAROPS for the supply of a mission training system, including a system that would be used to train AWOs.
61 On 7 May 2018, Mr Purry emailed Mr Freed and told him there was no work for Cirrus to do.
Cirrus’s case for the existence of a contract
62 Cirrus put its case on the teaming agreement as follows. First, it pointed out the uncontroversial proposition that contracting commercial parties may bind one another in the present while deferring the need to agree on important terms of their bargain to the future. Second, Cirrus said that the parties had agreed on all the essential terms of their bargain in the form of the Version 4 Quotation, such that an agreement based on the Version 4 Quotation would not be an uncertain “agreement to agree”. Third, Cirrus said that in all the circumstances, the exchange of letters on 21 December 2016 reflected an intention by the parties to be legally bound by an agreement in which the respondents promised to contract with Cirrus “on the basis of” the Version 4 Quotation in exchange for permission to use Cirrus’s confidential information in its response to the NZDF’s request for tender. Cirrus says that obligation arose if the respondents entered into a head contract with the NZDF for services that included the provision of an AWO training system.
63 I have concluded that the second step in that argument succeeds, but the third step cannot. To explain why, I will first address some of the principles surrounding uncertain agreements, and specifically “agreements to agree”. In doing so, I will explain the concept of “essential” terms that I apply in these reasons. The word “essential” has multiple meanings in this context and it is necessary to distinguish between them.
Principles of “agreements to agree”
64 Generally speaking, the law will not recognise or enforce an “incomplete agreement, being no more than an agreement of the parties to agree at some time in the future”: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604 (Gibbs CJ, Murphy and Wilson JJ).
65 Cirrus compared this case to WorldAudio v GB Radio [2003] NSWSC 855 (WorldAudio), in which an agreement to enter into a future contract was held to have contractual force. In that case, the parties agreed to terms, one of which was that WorldAudio would enter into a “programming supply agreement” under which GB Radio would supply to WorldAudio “British lifestyle programming material sourced in the United Kingdom” for a specified and certain price. The agreement identified the parties to the future contract. McDougall J held that the agreement bound the parties because it contained terms sufficient to constitute a binding and enforceable contract (at [91], [95], [113]). He distinguished this from the question of whether the parties might choose to execute a document that set out additional terms, including “boilerplate” terms. His Honour observed that the parties might choose to agree such terms when entering into their future contract, but that a contract on the terms already agreed would be binding even without them. It followed that the agreement to enter into the programming supply agreement was not a void agreement to agree (at [97]). In the present case, it would follow that the teaming agreement contended for by Cirrus would be capable of being enforceable if the Version 4 Quotation the subject of its central obligation contained terms sufficient to constitute an enforceable contract.
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]).
67 The New South Wales Court of Appeal has recommended a cautious approach to the language of “essentiality” in this context. In Feldman v GNM Australia Ltd [2017] NSWCA 107 at [61], Beazley P (McColl and Macfarlan JJA agreeing) referred with apparent approval to the comments of the Court of Appeal of England and Wales in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 at 619, where Lloyd LJ (O’Connor and Stocker LJJ agreeing) said:
It is sometimes said that the parties must agree on the essential terms and 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”.
68 In LMI v Baulderstone [2001] NSWSC 886, Barrett J put it this way (at [35]):
There is … a point beyond which “agreement to agree” elements (of themselves unenforceable) cause the totality to fail. The central question, it seems to me, is whether the elements not affected by that problem of unenforceability are sufficiently cohesive and coherent to stand as a contract in their own right.
However, his Honour also thought that such a failure would need to be “pervasive”.
69 Cirrus also referred to Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102 (Stellar Vision), in which the Court expressed the significance of “less important” terms not being agreed as follows (at [67]):
The 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.
(Citations omitted.)
See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 (Gleeson CJ, Hope and Mahoney JJA agreeing).
70 From those cases, I have derived the following way of assessing this case. I first assess the Version 4 Quotation. If the terms of the Version 4 Quotation are incomplete in the sense that they lack the vital elements of a contract, the teaming agreement necessarily cannot bind the parties because it would be a mere agreement to agree. If the Version 4 Quotation contains the vital elements of a contract, while leaving scope for further terms to be decided later by the parties, the question will be what the nature and extent of those deferred terms says about the parties’ intention on 21 December 2016. That analysis is only one part of considering whether the parties had the requisite contractual intention on that date.
71 In what follows I will set out the terms of the Version 4 Quotation relevant to these exercises. I then consider whether the Version 4 Quotation would have been capable of forming a binding agreement between the parties. Concluding that it was so capable, I will then consider whether the evidence demonstrates that the parties had the requisite intention to create legal relations on 21 December 2016.
The terms of the Version 4 Quotation
72 The Version 4 Quotation sets out the scope of the engineering work quoted by Cirrus for the ACTC Project. The first 9 clauses of the document set out detailed technical information about that work.
73 Clause 10 contains the commercial terms that Cirrus says would form the basis of the “engagement” between Cirrus and the eventual counterparty. Clause 10 is headed “Commercial proposal”, and contains a number of sub-clauses, many of which divide further and address specific matters in varying levels of detail.
74 Clause 10.1 is titled “Overview” and begins “Cirrus is pleased to offer this quotation for the works”.
75 Clause 10.2 plays a central role in the parties’ submissions, so I have set it out in full:
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.
76 Clause 10.3 is headed simply “Terms”. Immediately following the heading are the words “[t]he following broad commercial terms will apply”. Clause 10.3.1 then follows. It is entitled “Conduct of Acquisition Phase Engineering Work” and contains a series of items concerning the conduct of the engineering works; testing of the final product; the circumstances in which the respondents may refuse to accept the final product; certification of the final product; and progress reporting, among other similar things. It also contains a provision headed “Cooperative Approach”, which says “Cirrus and HP to both act reasonably and pragmatically towards each other with a view to achieving the project goals. Informal communications between the parties regarding technical issues is to be encouraged”.
77 Clause 10.3.2 is headed “Data Items Supplied in Acquisition Phase”, and its content is not presently relevant. Clause 10.3.3 is entitled “Acquisition Phase Milestones”. I will return to cl 10.3.3 in my analysis because, when read in context, the first primary bullet point in that clause points away from the parties intending to contract on 21 December 2016. I have set out that first primary bullet point here.
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.
78 Clause 10.3.4 sets out a regime for the management of intellectual property rights associated with the engineering work. It provides that Cirrus will not disclose its source code and will instead provide executable licences over software designed by it. Notably, cl 10.3.4 identifies the possibility that new items of intellectual property might be created during the course of any engineering works and provides “Ownership of these items will vest with Cirrus on creation, but may be assigned to HP or RNZAF on payment of the relevant milestone, subject to negotiation and as agreed under any subsequent related subcontract”.
79 Clause 10.3.5 is entitled ‘Schedule of Acquisition Phase Engineering Work’. It begins with the following language: “[a]s per section 6.6, Cirrus can complete the NRE programme described above through to FAT within 5.5 months of execution of a subcontract between HP and Cirrus”. It also notes the assumptions on which that statement was based, and indicates that time taken to complete testing of the final product could be delayed by regulatory approval processes.
80 Clause 10.3.6 provided:
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.
81 Clause 10.3.7 is headed “Other Commercial Terms”, and contains a miscellany of things not dealt with elsewhere. I will return to some notable features of cl 10.3.7. They are extracted below:
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.
82 Clause 10.3.8 is headed “Conduct of Support Phase Engineering Work” and describes the “Support Phase”, which the parties appear to have contemplated involving technical support for the systems developed and sold to HP and used by the NZDF for 7 years following delivery.
83 Clause 10.4 is headed “Quotation” and specifies in Australian dollars the amounts quoted by Cirrus for each phase of the work. Clause 10.4.7 says “[t]his quotation is valid until January 31, 2018”.
84 Clause 10.5 has been set out above at [51].
Did the teaming agreement deal with the matters essential to creating a binding contract?
85 Cirrus emphasised that, in the Version 4 Quotation’s terms, Cirrus and the respondents had agreed on the parties to their agreement, the price of their bargain, and the work to be done by Cirrus in exchange for that price, being the “essential” matters identified by McDougall J in WorldAudio. I am persuaded that the teaming agreement was capable of being a binding agreement: it set out the services to be provided and the price to be paid. However, two aspects of the terms could indicate to the contrary. First, it is not necessarily clear that the parties to the agreement had been identified. Second, while the magnitude of the price had been agreed, there was a key element of Cirrus’s remuneration deferred to future agreement, being the payment schedule.
86 The 21 December 2016 letters do not name a legal entity as Cirrus’s counterparty. The second 21 December 2016 letter is addressed simply to “Hawker Pacific”. The letter itself recognises that there is more than one entity that might be referred to as “Hawker Pacific”: the letter says that “[s]hould Hawker Pacific (irrespective of whether it be Hawker Pacific NZ or another entity in the Hawker Pacific group) … enter into a contract for the ACTC capability … the engagement between Hawker Pacific and Cirrus will be on the basis set out in this letter”. The Version 4 Quotation does not identify the intended counterparty. I was not taken to any evidence that indicated what entities comprised the “Hawker Pacific group”, as that term was used in the 21 December 2016 letter. Indeed, Cirrus has sued two entities in this proceeding and has not identified which of those entities it says is a party to the teaming agreement.
87 However, the terms of the 21 December 2016 letter did sufficiently identify the parties to the teaming agreement. Those parties were Cirrus and all the entities in the “Hawker Pacific group”. If there were ever a dispute about whether an entity that entered into the teaming agreement met that description, the question would be resolved by reference to applicable principles. (It is not necessary here to resolve the precise principles that would apply when resolving that question: Sinclair v Balanian [2024] NSWCA 144 at [11]-[15] (Leeming JA).)
88 Clause 10.3.3 (extracted at [77]) reflects a lacuna in the parties’ agreement. While Cirrus correctly submits that the price of the work was set out in the Version 4 Quotation, the agreement deferred consideration of when Cirrus would become entitled to the payment of the amounts for the “acquisition phase” of the subcontract. It said the details of those payments would be determined later, and were to be based on “defined milestones” by reference to enumerated criteria. It indicated that at least 90% of the acquisition phase costs should be paid prior to “Acceptance”.
89 In my view, the fact that this issue was left to be the subject of later agreement does not deprive the teaming agreement of any essential contractual quality. The agreement does not indicate when the payments should be made during the acquisition phase but it contains enough to render the contract workable in a commercial sense. It provides that 90% of the fee should be paid prior to acceptance. In my view, absent further agreement between the parties, the clause would require that 90% of the fee be paid before acceptance and the remaining 10% on acceptance.
90 The respondents also relied on a principle said to be established by Summergreene v Parker (1950) 80 CLR 304 (Summergreene). In that case, Summergreene employed Parker as an agent to sell her business in exchange for a commission. Parker obtained from Anderson and Jones a written offer in their capacities as “trustees on behalf of a company to be formed”. Clause 6 of the offer provided that “[t]he usual agreement for sale and purchase to be entered into by you and the company containing the usual terms of sale and these terms in a form to be satisfactory to you and to the company”. Summergreene accepted the offer but refused to complete the sale. The company “to be formed” was never formed. Parker sued Summergreene to recover his commission. Whether Parker was entitled to a commission turned on whether a contract for the sale of the business had been formed between Summergreene and Anderson and Jones.
91 The Court held that no contract had been created. Latham CJ held that the agreement was insufficiently certain because its content depended on terms yet to be agreed between Summergreene and the (as yet non-existent) company. The respondents cited the following passage from Latham CJ’s judgment as representing the principle of the case (at 316):
The parties to a contract may bind themselves under a contract which is complete in itself to leave specified matters to be determined by a third party, e.g. by an architect or surveyor or arbitrator, but it is a quite different thing to provide that the actual terms of the contract shall depend upon what some two persons shall agree. There is no legal means of compelling any persons to agree upon anything. If the content of an agreement depends upon a further agreement between one of the parties and a third person, then the contract is as uncertain in its terms as if further terms had been left to be negotiated between the parties to the contract themselves. It is true that the cases relied upon do refer to the necessity for a further agreement between the parties as preventing the formation of a contract. But in these cases it happened that what was contemplated was an agreement in the future between the parties as to the terms which were to bind them. It was held that there was no finally concluded contract because there was uncertainty as to what those terms might be. Identical reasoning applies in any case where the terms which are finally to bind the parties depend upon one of the parties and any other person agreeing upon such terms.
92 The respondents properly acknowledge that the present case is not on all fours with Summergreene. The analogy would be closer if the issue in the present case were whether or not a contract had been formed in December 2016 between the respondents and the NZDF. The particular issue encountered in Summergreene (the content of the putative agreement depending on further agreement between one of the parties and a third party) does not arise here. Instead, the parties were agreeing between themselves as to what would occur in the event that a contract of a particular kind was entered into with a third party. For present purposes, therefore, Summergreene does not add anything to the cases discussed above concerning the potential for an agreement to have contractual force where the negotiation of further terms is contemplated.
93 For these reasons I have concluded that the terms agreed on 21 December 2016 were capable of constituting a contract between the parties. That is to say, the uncertainty of what was agreed is not in itself sufficient to mean that Cirrus has failed to establish an intention to create legal relations.
Did the parties intend to be legally bound on 21 December 2016?
94 I must therefore assess whether the parties intended to be legally bound by the teaming agreement by reference to their conduct and in the light of the commercial circumstances that existed at the time and were known to both Cirrus and the respondents. It is permissible to take into account conduct of the parties following 21 December 2016 to the extent it assists in finding their intention on 21 December 2016 (Stellar Vision at [68]) but, as the respondents point out, regard should only be had to conduct that was known to both parties: Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126; 38 WAR 488 at [120] (McLure JA, Newnes JA agreeing) (Tipperary Developments). This point is significant in this case: much of the post-contractual conduct Cirrus relies upon consists of conduct by the respondents that was not known to Cirrus.
95 Cirrus relied on Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 522 for Rogers CJ’s proposition that “[i]n commercial transactions, there is a presumption that there is an intention to create legal relations with a heavy onus on a party who would seek to displace that”. I reject this submission to the extent that it suggests that the respondents must affirmatively prove an absence of intention to create legal relations. Cirrus alleges the existence of a contract, and the burden remains with Cirrus to prove all the elements of its case, including an intention to create legal relations: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [26] (Gaudron, McHugh, Hayne and Callinan JJ). I accept the submission to the extent it suggests that the nature of the parties as commercial actors and the existence of a commercial relationship between them carry weight in assessing whether Cirrus has met that onus.
96 I have concluded that the parties did not intend to be legally bound by the teaming agreement as contended for by Cirrus on 21 December 2016. There are three primary reasons for this. 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. I address each of these issues in turn. Before doing so, however, I will mention some aspects of the principles that apply to a question of contract formation of this kind.
Offer and acceptance, or a broader analysis?
97 The parties both invited me to analyse this situation through the lens of offer and acceptance. While identification of a distinct “offer” and an inquiry as to whether there was an “acceptance” of that offer is often useful as a way of testing whether the necessary meeting of minds occurred, contracts may be formed even when the facts do not lend themselves to analysis through that rubric. In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1883; 117 FCR 424, Allsop J (with whom Drummond and Mansfield JJ agreed) summarised this approach in the following way (at [369]):
…a number of authorities discuss the need not to constrict one's thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i's and crossing t's or where they think they have done so. … Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: “and we hereby agree to be bound” in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
See also Kriketos v Livschitz [2009] NSWCA 96 (Kriketos) at [113]-[115] (McColl JA, Allsop P and Macfarlan JA agreeing).
98 Here it is useful, but not sufficient, to analyse the exchange of correspondence between the parties on 21 December 2016 and ask whether an offer and an acceptance can be seen in those letters. It is necessary to situate the correspondence on that date within its commercial context in order to analyse whether the parties reached a mutual assent by which they intended to be bound. As noted earlier, Cirrus bears the burden of proving the existence of a contract.
The Version 4 Quotation indicates a contract is yet to come
99 The respondents submitted that the process contemplated by cl 10.2 militates against the conclusion that the parties intended to agree on the terms of the Version 4 Quotation. Clause 10.2 speaks about the process of negotiating a subcontract in the future tense and indicates that the negotiations have not begun. That fact tells powerfully against the existence of an intention to be bound by the terms of the Version 4 Quotation on 21 December 2016. Viewed objectively, cl 10.2 communicated to the respondents that they would have an opportunity to present terms to Cirrus that took into account the terms of any head contract agreed with the NZDF. In that context, reasonable people in the respondents’ position would not have thought they were binding themselves to the terms of the Version 4 Quotation in the event their tender succeeded.
100 Cirrus submitted that cl 10.2 is not inconsistent with an agreement to be bound immediately by the existing terms, and that it merely clarified that the respondents could propose changes to Cirrus that might or might not be agreed. While it may technically be possible for a contract to contain such language, I think it is objectively unlikely that it was the parties’ intention in this case. On Cirrus’s approach, cl 10.2 is redundant because it is always open to parties who have contracted to propose variations to their contract to one another. I have had regard to the possibility that the obligation to consider the variation may be attended by an obligation to act in good faith or act cooperatively, but I do not consider that this adds anything substantial because such an obligation would not in any case extend to actually agreeing to a variation.
Incomplete terms reflect a lack of contractual intention
101 The nature and extent of the terms on which agreement was deferred, considered in the light of the surrounding commercial circumstances, reflect a lack of intention to enter a binding agreement on 21 December 2016. The parties had not yet agreed on terms that the evidence objectively indicates were essential to them.
102 For example, in November 2016, Mr Freed and Mr Purry exchanged emails about the potential commercial terms of any future subcontract. On 25 November 2016, Mr Freed sent an email to Mr Purry that contained the following text under the heading “Contract Flow down”:
As we know the project office has not as yet provided the terms. However, from my perspective, I think the head contract terms don’t dictate what will be the subcontract terms between HP and Cirrus. As with our previous proposals to HP for AWOTS, Cirrus will outline our overall commercial terms (and they will be pretty much the same as previous). These terms are designed to keep costs low and avoid spinning wheels over minutiae. 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.
103 In response, on 28 November 2016, Mr Purry replied as follows:
Looking at your workshare we’ll have to cover off on critical flow downs such as the following if they 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 [sic] that we need to flow something down for non-performance of Cirrus products that causes HP to be hit with KPI pain in-service
104 By this email, the respondents were telling Cirrus that they considered it important that any contract between them deal with these issues, to the extent that the NZDF required the head contract to deal with them. That is entirely understandable as a matter of commercial common sense. Further, the draft contract that accompanied the Request for Tender did indicate that the NZDF was likely to require the inclusion of terms dealing with at least some of these matters in the head contract. It contained draft terms relating to insurance, warranties, liability and KPIs (which I assume has its orthodox meaning: “key performance indicator”).
105 Cirrus made submissions about five of these seven “critical” issues and indicated they had been dealt with in the Version 4 Quotation. I accept Cirrus’s submission that the Version 4 Quotation canvasses the issues of insurance, “annual price escalation for services” and “liability undertakings”. The Version 4 Quotation deals with those issues in a tolerably clear way at cll 10.3.7 and 10.4.6. However, that tends to draw attention to the lack of any specific engagement with these questions in the correspondence that followed and the very short time (around two hours) that passed between provision of the Version 4 Quotation and its purported acceptance by the respondents. This is relevant to issues which I consider below.
106 I reject Cirrus’s other submissions on this issue for the following reasons.
(a) Cirrus submitted that cl 10.3.7 of the Version 4 Quotation dealt with “[m]ilestone penalties on delivery” in the part of that clause entitled “Liquidated Damages”, such that it was not something left to be agreed. That part of cl 10.3.7, which I extracted at [81], does not provide for anything in a contractual way. Indeed, that part of cl 10.3.7 expressly indicates that the Version 4 Quotation does not deal with liquidated damages. Cirrus did not point to any other part of the Version 4 Quotation as dealing with “[m]ilestone penalties on delivery”.
(b) Cirrus submitted that cl 8.3.8 of the Version 4 Quotation dealt with “[s]ervice availability KPIs”. Based on the 28 November 2016 email, it appears that the respondents’ concern was that they be able to recover from Cirrus any loss caused by the failure of Cirrus’s product. I reject Cirrus’s submission that the Version 4 Quotation dealt with this issue because cl 8.3.8 does not promise anything. It is entitled “Reliability, Availability and Maintenance” and contains a table that, for each month from March 2013 to November 2016, indicates numbers for “Monthly Outage” and “Achieved Availability” in respect of the ACOTS product, on which the AWO training system would be based. The text of the clause says this table “indicates a system that clearly exhibits a very high level of reliability and availability”. It does not promise that the AWO training system provided by Cirrus would meet those standards or provide for the rights and liabilities of the parties in the event that it did not.
107 Cirrus did not make any submissions about the other two items in Mr Purry’s list, being “Warranty terms” and “Price validity”. The parties did not assist me with understanding the meaning of the term “Price validity”. However, as cl 10.3.7 makes clear, the Version 4 Quotation does not contain terms relating to warranties, so this too was left unagreed.
108 The nature and extent of these omissions (particularly when viewed with Mr Purry’s observation on 16 December 2016 that it would probably not be possible to close off on all contractual issues before the end of the year) strongly suggest the absence of a shared intention to enter a binding contract on 21 December 2016. The absence of terms relating to “milestone penalties on delivery” meant the respondents might potentially have been liable to the NZDF under a head contract if Cirrus were late or deficient performing its work under the subcontract. The respondents had told Cirrus that avoiding such a situation was “critical” for them in the 28 November 2016 email. Potential “flow downs” from the head contract relating to service availability KPIs and warranties had also been identified as critical. The importance of those terms renders it objectively unlikely that the parties intended to contract without these issues being addressed. In effect, acceptance of Cirrus’s argument involves a finding that the respondents, without further discussion of these “critical” issues, had resolved to agree to a contract that did not give them any protection in these respects.
109 In reaching this conclusion, I have kept in mind the caution by McDougall J in WorldAudio that the Court should be slow to substitute its own view of what terms are essential for the parties’ view. In this case, the objective evidence before me indicates that the respondents told Cirrus that it was essential (“critical”) that these issues be addressed before they would conclude an agreement.
The substance of what was purportedly agreed
110 I accept the respondents’ submission that the risky and onerous nature of the promise said to have been made in the teaming agreement renders it inherently unlikely that the parties had the requisite contractual intention: cf eg Re Access Strata Management Pty Ltd [2022] VSC 639 at [17(g)] and [20(a)]. That view is reinforced by comparing the informality of the teaming agreement with its potentially large consequences for both parties: cf Halikos Hospitality Pty Ltd v INPEX Operations Australia Pty Ltd [2019] NTSC 10 at [256].
111 I have taken into account Cirrus’s submissions that the respondents were eager to secure its participation in their bid for the ACTC Project for various commercial reasons, including that inclusion of its proposed services was necessary for the respondents to be able to submit a compliant tender. There was some dispute about whether Cirrus’s participation was necessary for the respondents to submit a compliant tender, but I find it unnecessary to resolve. The evidence indicates that the respondents understood the participation of Cirrus to be significantly beneficial to them at least because it would enhance their prospects of being selected by NZDF as the preferred tenderer. However, even if having Cirrus on board was necessary for them to have any prospect of success, it does not follow that they were prepared to agree to whatever Cirrus demanded. The contemporaneous documents relating to the tensions caused by the involvement of MAROPS indicate that the respondents were prepared to take the risk of Mr Freed “walking away” and did not consider it likely that he would do so.
112 Given the large sum of money involved and the fact that the teaming agreement left various matters unresolved that were critical to the respondents’ exposure to risk (see [101]-[109]), it is inherently unlikely that the respondents would have agreed to bind themselves to an agreement in these terms.
113 The improbability of such a contract can be demonstrated by considering its commercial consequences. The contract that must be contended for by Cirrus (if its case on breach is to succeed) would bind the respondents to purchase the training system described in the Version 4 Quotation if the respondents entered into a head contract with the NZDF for the “ACTC capability” that required the supply of any AWO training system. If the head contract ultimately offered to the respondents included the supply of an AWO training system other than the one Cirrus offered in the Version 4 Quotation (which is what actually happened), the respondents would have had to choose between (a) rejecting that head contract (thereby wasting all the work that had gone into winning the tender and negotiating with NZDF) and (b) performing that contract while purchasing from Cirrus, on Cirrus’s terms, an AWO training system that it had no use for. The burden of the risk that the NZDF might ultimately not want the ACOTS system, or that it would drive a hard bargain as to pricing, was to be borne entirely by the respondents; and the quid pro quo for undertaking that risk was that Cirrus would relax the confidentiality agreement (a step which, of course, produced substantial potential benefits for Cirrus as well as the respondents). The obvious lack of balance in that arrangement makes it objectively unlikely that both parties were agreeing to be bound by the teaming agreement.
114 Two other aspects of the alleged contractual arrangement should be mentioned.
(a) If the respondents were to enter into a negotiation with the NZDF with the alleged contractual obligations to Cirrus hanging over them, their capacity to negotiate would be significantly affected. Approaching the negotiation in good faith would at least arguably have involved disclosing to the NZDF that the head contract would likely be uneconomic for the respondents—and might therefore be rejected by them—if it did not include the ACOTs system or did not provide a suitable return over and above what the respondents had committed to pay to Cirrus. This would clearly have had the potential to affect the respondents’ prospects adversely. It adds to the unreality of the suggestion that both parties agreed to be bound by the teaming agreement.
(b) Had there been a shared intention to protect the interests of Cirrus to the extent that (it is submitted) the teaming agreement does, that might have been expected to be achieved by making provision for compensation in the event that there was ultimately no work for Cirrus under the terms of the head contract. To stipulate instead that the respondents were bound to acquire and pay for Cirrus’s services, in circumstances where those services were otiose, makes no sense. This also weighs against a conclusion that the parties intended the teaming agreement to be binding.
115 To some extent this unlikelihood persists even if the alleged contract is not construed in the manner contended for by Cirrus. On this understanding, the respondents promised to contract on the terms contained in the Version 4 Quotation only if they entered into a head contract with the NZDF that included provision of services of the kind set out in that quotation. A contract in those terms, for reasons to be explained below, ultimately does not assist Cirrus. However, it is appropriate to observe that a contractual promise in these terms is one that a commercial party in the position of the respondents is objectively unlikely to have made. It 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 the success of those negotiations.
The circumstances indicate a lack of contractual intention
116 The parties pointed toward the circumstances in which the 21 December 2016 exchange took place to bolster their respective cases on contractual intention.
117 Cirrus pointed to the following features of the surrounding circumstances as indicating that the parties did intend to contract on 21 December 2016:
(a) Cirrus was, it was submitted, the only subcontractor whose participation would permit the respondents to submit a compliant tender;
(b) the respondents had limited time to respond to the RFT, given it was released on 29 November 2016 and a response was due by 16 January 2017, and the respondents had asked Cirrus for permission to use the Version 4 Quotation by 3 January 2017;
(c) the parties had entered into an updated version of their confidentiality agreement on 25 August 2016, which referred to ‘NZDF ACO Training opportunities’, and was entered into anticipating the RFT would shortly be released;
(d) Mr Freed had previously told Mr Lang, a representative of the respondents, that Cirrus had previously had poor experiences with prime contractors saying they would be subcontracted following the award of a head contract and then being jettisoned in favour of other subcontractors;
(e) on 4 August 2015, Mr Lang told Mr Freed that “[a]t no stage will [Hawker Pacific] seek to utilise the Cirrus proposal in order to gain favourable evaluation … and then subsequently replace Cirrus with an alternative”;
(f) the Version 4 Quotation was agreed following prior negotiation between Cirrus and the respondent, after exchanging earlier drafts of the proposal;
(g) the interactions that occurred after Mr Freed learned that Cirrus might be competing with MAROPS (described at [30]-[31] and [35] above; and
(h) the teaming agreement used promissory language.
118 The respondents pointed to the following features of the surrounding circumstances as indicating that the parties did not intend to contract on 21 December 2016:
(a) the parties had a history of contracting formally, reflected by the two formal confidentiality agreements they had executed, rather than by informal means such as letters attached to emails;
(b) the conditional nature of the teaming agreement and its situation in a context of commercial uncertainty renders it objectively unlikely that the parties intended to bind themselves to terms on 21 December 2016; and
(c) the teaming agreement did not use promissory language.
119 While some features of the surrounding circumstances are consistent with a contractual intention between the parties, the circumstances as a whole point away from the parties intending to contract on 21 December 2016.
120 First, I accept the respondents’ submission that the parties’ conduct prior to 21 December 2016 indicated a tendency to execute formal documents when they intended that binding contracts be created. The parties entered into their first confidentiality agreement on 7 July 2014, in the form of a formal contract executed with signatures by representatives of Cirrus and the first respondent. They entered a second confidentiality agreement on 25 August 2016, also by a formal document executed with signatures by the parties’ representatives.
121 Cirrus explained the lack of formality of the teaming agreement by pointing to the short time the parties had to agree. The main problem facing this argument is that it has not been shown that the parties needed to have a contract in place before the respondents responded to the RFT. If such a need did exist, there was time for a contract to be drafted and reviewed by the parties’ lawyers (consistently with their earlier practice) before the response was due in January 2017. The issues appear to have been resolved in some haste on 21 December 2016 because negotiations before then had proceeded at a relaxed pace and the respondents did not demur to Mr Freed’s indication that he would not be available in early January. Neither of those things was inevitable. 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.
122 Further, there is no evidence that the parties intended to execute a formal document embodying the teaming agreement at some later time. Instead, the evidence indicates that Cirrus requested a “letter” committing the respondents to subcontract them should they win the NZDF contract. There was a historical precedent between the parties for this kind of interaction. In 2014, a similar arrangement occurred between the parties by email, albeit with clearer language reflecting that it referred to potential contracts in the future.
123 Clause 10.5 of the Version 4 Quotation also supports this understanding: the clause asks for “correspondence” confirming the respondents’ agreement with what was being proposed. As Cirrus points out, the Version 4 Quotation was the product of much discussion between Cirrus and the respondents. No reason was given why cl 10.5 could not have indicated that Cirrus required legally binding exclusivity arrangements with the respondents before it would release them from the obligations imposed by the confidentiality agreement.
124 Second, and relatedly, I accept the respondents’ contention that Cirrus never expressly asked for a binding contractual commitment. Instead, Cirrus asked for a letter containing the statement they had negotiated; and for correspondence “clearly [stating] 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 [the Version 4 Quotation]”. Given that the parties had contracted formally in the past, I infer that Cirrus would have stipulated for a signed contract if a commitment with contractual force was envisaged. Correspondingly, the respondents would not have construed the reference to “correspondence” as demanding a binding contract. As senior counsel for the respondents observed in his submissions, 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. In my view, read in the light of the parties’ history of contracting formally on issues important to them, a reasonable person in the position of the parties would not think that the word “committed” referred to a contractual commitment.
125 In that respect, it is useful to recall the comments of the New South Wales Court of Appeal in Pan American World Airways Inc v Commonwealth (1977) 7 BPR 15,145 at 15,147, which were recently cited with approval by that Court in OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 (at [80]) (OXS):
The subject matter of a contract or the character of its parties or of a party may be such that a formal written contract offers such advantages as against a less formal agreement that, when it appears that the parties in fact contemplated the execution of a formal contract, it is inherently unlikely that they mutually intended to bind themselves by some earlier informal consensus. The disadvantages of having to depend upon the uncertainties inherent in informality, providing as they do fertile fields for dispute as to the existence of the contract or as to its terms where the rights of the parties have to be spelt out of conversations or correspondence or both, may assume substantial significance in some classes of contract or for some types of parties …
126 In OXS, the Court of Appeal thought it significant that the parties had a history of contracting formally and that they had left critical terms to be agreed in the future, and found that the parties had not intended to bind themselves contractually.
127 One consequence of the lack of formality and the haste with which things were done in this case is that the “correspondence” provided by the respondents on 21 December 2016 failed to align with what had been sought by Cirrus in a fairly significant respect. If the Version 4 Quotation is identified in a traditional contractual analysis as an “offer”, there was no acceptance of that offer unless the respondents’ letter can be rectified by construction. (This is a point discussed further below, in seeking to establish what were the express terms of the contract if there was one.) Alternatively, if the respondents’ letter is regarded as an “offer” (which Cirrus “accepted” by granting a release from the confidentiality agreement), Cirrus on its own case accepted an offer that was different to the one actually made.
(a) The Version 4 Quotation at [10.5] asked for:
… further correspondence that clearly states that should [the respondents] 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.
(Emphasis added.)
(b) The “ACTC capability” in this context seems to have meant the capability sought by the NZDF in its RFT. This text had been workshopped between Mr Freed and Mr Purry.
(c) The letter received from the respondents said:
Should [the respondents] 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.
(Emphasis added.)
(d) “Reference A” was the Version 4 Quotation. The letter therefore (if read literally) agreed to engage Cirrus only if the respondents were contracted by the NZDF to provide Cirrus’s ACOTS system.
(e) This was a significant discrepancy which seemingly passed unnoticed until these proceedings were commenced. Mr Freed considered the respondents’ letter sufficient for his purposes on 21 December 2016: he replied 22 minutes later, providing the release from the confidentiality agreement that the respondents were seeking. In his evidence in chief Mr Freed said that the respondents’ letter contained an “error” which, because of time pressure, he did not notice at the time.
(f) It can be accepted that Mr Freed was pressed for time because Cirrus’s office and IT systems were about to close down for the Christmas holidays. However, the 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.
128 Thirdly, Cirrus submitted that the respondents were eager to secure Cirrus’s participation in the tender because it was only with Cirrus’s participation that the respondents could validly tender for the ACTC Project. Whether or not it is true that the respondents could not tender for the ACTC Project without Cirrus onboard (which was disputed), this does not take Cirrus very far in arguing for the contract it alleges. I have referred above to the evidence concerning the respondents’ understanding at the time. Further, the teaming agreement as alleged would not have restricted Cirrus from refusing to participate if the respondents were selected as the successful tenderer. It also did not prevent Cirrus from participating in another tenderer’s bid as well. One would have thought that the respondents would have bargained for reciprocal exclusivity if Cirrus’s involvement was indispensable to its tender. While Cirrus’s subjective belief as to the effect of the teaming agreement is not relevant to the question of contract formation, I note that Mr Freed said in cross-examination that he understood the effect of the teaming agreement to be that the respondents were bound to contract with Cirrus should they tender successfully, but that Cirrus was not bound to contract with the respondents.
The post-contractual conduct does not indicate a binding contract
129 Cirrus invited me to consider various instances of post-contractual conduct as evidence that the parties intended to contract on 21 December 2016.
130 As Cirrus submits, it is well established that post-contractual conduct is relevant to the extent that it assists in determining whether the parties intended to contract on 21 December 2016: Stellar Vision at [68]. However, there are further considerations to acknowledge relating to the use of this material.
131 First, as noted above at [94], I must only consider conduct known to both parties: Tipperary Developments at [120] (McLure JA, Newnes JA agreeing). This point is significant in this case because much of the post-contractual conduct Cirrus relies upon consists of conduct by the respondents that was not known to Cirrus.
132 Second, some authorities suggest that it is not enough that the conduct is “consistent” with the existence of a contract, and that the conduct must necessarily lead to the inference that a contract has been created: see Kriketos at [160] (McColl JA, Macfarlan JA agreeing); see also N Seddon and R Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis, 12th ed, 2023) at [3.6]. This point is also significant in this case: Cirrus’s submission about much of the post-contractual conduct it invites me to rely upon is that the conduct is only that it is “consistent” with the teaming agreement being contractual.
133 The cases do not clearly say that post-contractual conduct must “necessarily” lead to an inference that a contract has been created in order to be considered. McColl JA’s comments in Kriketos should be read in context. In that case, the Court was concerned with whether an offer had been accepted by conduct. In this case, there is no dispute about the fact the parties made the teaming agreement; there is simply a dispute whether the teaming agreement is a contract, which requires ascertainment of what the parties intended at the time the agreement was made. In that context, I do not think that post-contractual conduct must necessarily point to the existence of a contract in order to be relevant. All such conduct is evidence from which intention might potentially be inferred. The Court must consider it in its context like the other features of the commercial circumstances. However, it is common sense that conduct which is merely consistent with an agreement being binding will not carry the same weight as conduct that is inconsistent with an agreement being non-binding.
134 In its closing submissions, Cirrus pointed to 24 instances of post-contractual conduct which it said were “probative of the parties’ binding relationship”. Only 10 of those involved conduct that was known to both parties, and I have extracted them from Cirrus’s closing submissions below (with references to the court book omitted).
…
c. Drafting of the proposed technical document [TRG-01] by HP and Cirrus over multiple months;
d. Preparing and circulation of multiple draft subcontracts between HP and Cirrus;
…
f. In respect of the TRG-01 on 24 November 2017, Mr Purry saying to Mr Freed, “As this is intended to be the SOW in our subcontract with Cirrus – and the deliverable at the Prime contract level – let’s make sure it is “signature ready” as soon as possible”;
g. Updates about the progress of the project, for example, Mr Purry’s email on 29 November 2017, “We are meeting them tomorrow to progress the financing and close as much as possible on contract drafting. We are still optimistic of getting to where we need to get to by tomorrow afternoon so they can start to progress internal approvals on the financing”;
…
i. Mr Freed’s email to Mr Purry on 7 December 2017 … “…You have provided me a letter committing HP to subcontract Cirrus at cost/terms per our [V4Q]….”
…
k. Mr Purry’s email to Mr Freed on 10 January 2017 following a meeting with HP and Cirrus in Bankstown on 10 January 2017 … “Cirrus reminded HP of the conditions agreed at tender submission: HP confirmed that they are still committed to Cirrus being our subcontractor on the program for provision of AWO software and services”;
l. The communication between Mr Purry and Mr Freed as to the assumed contract execution date being 1 September 2017;
m. Entry into the Short Term Agreement for the Message Selector Software on 7 September 2017 which referred to NZDF opportunities;
…
u. On 10 January 2018, Mr Purry emailed Mr Freed notes of a meeting that had recently taken place in which he informed Mr Freed that HP was “still committed to being [sic] our subcontractor”;
…
x. On 25 January 2018, Ms Binotto, consistent with Mr Purry’s instruction, misinforms Mr Freed to the effect that “Re NZDF – Craig is in heavy negotiations with them in Wellington. I am sure he will give you an update next week…”;
(Emphasis in original.)
135 Item (u) appears to merely repeat item (k) (although the date given for the email in item (k) is 10 January 2017, both items reference the same tab of the court book, which consists of an email sent on 10 January 2018), so I have not addressed item (u) separately in my reasons below.
136 The conclusions I have drawn from each of these instances of post-contractual conduct are as follows.
(a) Items (c), (d) and (f) merely indicate that the parties were preparing for the execution of a subcontract, and do not indicate that the parties intended that the Version 4 Quotation bind them on 21 December 2016. They are equally if not more consistent with an understanding that binding contractual arrangements lay in the future. The same is true of item (l).
(b) Item (g) does not assist Cirrus. It appears to be nothing more than the respondents reporting to Cirrus on the negotiations with the NZDF. One would expect that to happen whether the parties intended the teaming agreement be binding on 21 December 2016 or not. The same is true of item (x). I am not satisfied that Ms Binotto “misinformed” Cirrus in any material way, or that any such misinformation is relevant.
(c) Item (i) does not take Cirrus far. The full statement at the beginning of Mr Freed’s email of 7 December 2017 says:
You have provided me a letter committing HP to subcontract Cirrus at cost/terms per our proposal.
Now if the motivation in your current question is to somehow reduce the quoted price and/or economic benefit to Cirrus, the answer is no. Cirrus is not going to agree to something that has less benefit than what you have already committed to.
This statement by Mr Freed is firm and, on one reading, indicates his view that it was not open to the respondents to resile from the commitment made on 21 December 2016. The second part of the extract indicates that Mr Freed believed he was negotiating from a position of strength in which Cirrus was at liberty to change its position but the respondents were not. However, this statement could also be taken simply to mean that Mr Freed intended to stick to what he saw as the 21 December 2016 position in the (anticipated) subcontract negotiations. Even if Mr Freed had said in terms that he thought the teaming agreement was contractually binding, unilateral statements by one party to the other about whether or not their agreement is binding are of little use. Post-contractual conduct supports the party contending for a contract when it indicates a mutual intention to create legal relations, assessed objectively. In that way, the most telling aspect of item (i) would be the respondents’ reply to Cirrus’s implied assertion. There is no evidence that the respondents replied to that assertion in any clear way, either by words or conduct.
(d) Item (k) refers to an email from Mr Purry to Mr Freed on 10 January 2018 recording his “notes” of a meeting between them. It includes the following text.
• Cirrus reminded HP of the conditions agreed at tender submission: HP confirmed that they are still committed to Cirrus being our subcontractor on the program for provision of AWO software and services
• However, HP explained that the NZDF may look to change the way AWO training is provided due to budget pressures and changed priorities:
• such a change may impact Cirrus work scope (such is true of other elements of the current program design such as Rockwell Collins and other suppliers)
• HP is doing what it can to retain Cirrus commercial position in terms of price and terms but is largely at the mercy of the NZ MoD decision makers
(i) These notes can be understood to record Cirrus putting a position that the terms of the teaming agreement were binding on the respondents; however, that is far from clear. The reference to “conditions agreed” is ambiguous on this point.
(ii) The respondents’ position at this meeting, as recorded, is strongly suggestive of an understanding on their side of the table that: (a) their continued “commitment” to Cirrus was a matter as to which reassurance was meaningful, and thus not something imposed by legal obligations; and (b) Cirrus’s “work scope” and “commercial position” were dependent on the outcome of negotiations with NZDF.
(iii) The notes do not record Cirrus responding that the NZDF’s position was not its concern because it had the protection of a contract (as it might well have done if that was its understanding).
(iv) Mr Purry’s notes also record a request of Cirrus that it provide a “‘best and final’ offer on the initial and ongoing cost to the program” noting that a “saving of around 10% is needed across the program”. The notes also record that Cirrus agreed to respond to the request before the following Tuesday.
(v) I am also conscious that these notes are not a transcript and that they may not reflect exactly what was said at the meeting, which somewhat reduces their weight.
(e) Item (m) refers to a formal contract entered into by Cirrus and the first respondent for “the provision of services in support of the development of message selector software (MSS)”, executed 7 September 2017 (the MSS Agreement). In oral submissions, senior counsel for Cirrus submitted that this agreement “only has utility if ACOTS is to be included in the aircraft, because otherwise it has no ability to operate”. I reject this submission. Mr Freed deposed an affidavit in this proceeding on 18 November 2022, in which he indicated that this agreement was for the development of MSS for use with both the Royal Australian Air Force and the Royal New Zealand Air Force. In addition, the fact that the MSS Agreement was embodied in a formal contractual document is further evidence of the parties’ tendency not to contract informally.
(f) It is not clear to me how item (x) evinces the intention of the parties on 21 December 2016. Whether it is true or not that Mr Purry was negotiating with the NZDF in Wellington that week, Cirrus did not explain how Ms Binotto’s communication to Mr Freed of that fact disclosed something about whether the parties intended to contract on 21 December 2016.
137 The other instances of post contractual conduct relied on by Cirrus do not pass through the filter imposed by Tipperary Developments. Aside from that, they are at best neutral as to the existence of a contract. It is worth noting that, when Mr Purry referred to what he saw as a need to retain Cirrus as part of the arrangement to be negotiated with the NZDF (as he did in an internal email on 5 December 2017 and an email to NZDF on 7 December 2017), he did not describe this as a position to which the respondents were bound by contractual obligation. He cited other factors. The 5 December 2017 email said (in part):
• We cannot detach Cirrus from the deal given:
• Likely reputation damage arising from Cirrus spreading the word that we reneged on our ‘teaming’ – and possibly through a law suit
• Possible financial damage arising from a law suit brought on by Cirrus – even if we win it will cost
• Likely relationship issues detracting from Cirrus work on the RAAF contract
• Not known that MAROPS can provide the outcome needed on time, inside budget and with the quality output – these are all lower risk with Cirrus (evidenced by our agreement to sign up to LDs on Milestone #2 – we would have to rethink this on MAROPS)
• I made it clear that in the absence of assistance from the NZDF HP will not spear Cirrus.
(Emphasis in original.)
138 Some reference should be made to the last item of post contractual conduct relied on by Cirrus, which was the respondents “deliberately omitting to inform Cirrus” of correspondence from the NZDF in January 2018 in circumstances where Cirrus “could have sought injunctive relief”. It is possible that the respondents were trying to put off the evil day when they would have to tell Mr Freed that there was no role for Cirrus in the ACTC Project. However, that fact, if true, is neutral as to whether the parties understood their relationship to be contractual. The broader commercial relationship between the parties (including their ongoing provision of services to the RAAF) was obviously a sufficient reason for the respondents’ employees to be concerned about how to deal with the need to tell Mr Freed what was happening. Similarly, if the respondents’ employees were concerned in January 2018 that Cirrus might seek injunctive relief, it does not follow that they believed Cirrus would or should succeed. Further, the subjective beliefs of individuals in January 2018 would not carry much weight in an analysis of the intentions of those individuals (or the corporate parties whose operations they were directing) in December 2016.
Conclusion on whether the teaming agreement was a contract
139 I am not satisfied that the teaming agreement was a contract. That means Cirrus’s claim in contract must fail.
The teaming agreement’s terms and construction of the terms
140 In this part of my reasons I proceed on the hypothesis that (contrary to my finding above) the teaming agreement constituted a contract.
141 The FASOC paints a confusing picture of how the Version 4 Quotation’s terms are said to relate to the teaming agreement. Cirrus pleads that the teaming agreement obliged the respondents to enter into a contract “on the basis of” the Version 4 Quotation (FASOC at [14]) if the relevant condition was met. However, Cirrus then pleads that the terms of the Version 4 Quotation were “incorporated by reference” into the teaming agreement (FASOC at [14A]). Cirrus did not explain how to reconcile the uncomfortable disconformity between, on one hand, a presently existing conditional obligation to enter into an agreement in the future on the Version 4 Quotation’s terms; and, on the other hand, a presently existing agreement in the Version 4 Quotation’s terms as part of the teaming agreement. [14] and [14A] of the FASOC were not pleaded as alternatives.
142 The claim that the teaming agreement incorporated the terms of the Version 4 Quotation appears to be necessary for Cirrus’s claim that the respondents were bound by cl 10.2 of the Version 4 Quotation on and from 21 December 2016 (see [14B] of the FASOC). It is particularly relevant to the question whether the respondents were required by cl 10.2 to absorb any negative business impact that might flow from the difference between the terms of its subcontract with Cirrus and the terms of its head contract with the NZDF.
143 I do not accept that the teaming agreement incorporated the terms of the Version 4 Quotation. The conditionality of the letter, and the use of the future tense, point away from that conclusion. Read at their highest, the 21 December 2016 letters use the Version 4 Quotation to define the content of an agreement intended to exist in the future. If Cirrus meant that the terms of the Version 4 Quotation had binding effect on 21 December 2016 because of their “incorporation” into the teaming agreement, I reject that allegation.
144 With that issue resolved, I turn to the question of whether the assertion at [14] of the FASOC is made out.
Construction of the 21 December 2016 letters
145 The parties disagreed about two primary aspects of the construction of the letters that comprise the teaming agreement. The critical paragraph of the respondents’ letter of 21 December 2016 read:
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.
146 The parties appear to agree that the word “or” was a typographical error and the phrase in parentheses was intended to read “inclusive of AWO Training Capability”.
147 First, Cirrus claimed that the second instance of the words “Reference A” in the respondents’ 21 December 2016 letter should be read as “Reference B”. The letter identified Reference A as the Version 4 Quotation, and Reference B as the NZDF’s RFT. Cirrus does not seek an order for rectification; rather, it submits that this is a case in which the Court should correct an obvious typographical error through the process of construction.
148 Second, and centrally, the parties disagree about the effect of the central promise in the letter, reflected in the words set out above at [145].
149 Cirrus says this promise had the effect stated at [14] of the FASOC (set out at [16] above). The respondents deny [14] of the FASOC and say that the term only arose if the respondents contracted with the NZDF for the provision of the training system and services the subject of the Version 4 Quotation.
150 The resolution of the first issue has consequences for the second, which is why I have addressed it first in my reasons below.
151 The respondents also say that such a term was conditional on the training system and services being acceptable to the NZDF and sufficient to enable the respondents to perform their obligations to provide the AWO training system and ongoing services required under the head contract with the NZDF. The respondents say this condition arises either on the proper construction of the teaming agreement, or alternatively that the term is implied to give the contract business efficacy.
Should the words “Reference A” be read as “Reference B”?
152 Cirrus submitted that the sentence “as stated at Reference A” in the respondent’s 21 December 2016 letter should be read as “as stated at Reference B” because the use of “A” instead of “B” is a typographical error. This would change the meaning of the sentence in an important way.
(a) Read according to its terms, the letter says that there will be an engagement between the parties on a particular basis if the respondents enter into a contract with the NZDF for the “capability” set out in the Version 4 Quotation (that is, if the NZDF ultimately wants a system of the kind offered by Cirrus).
(b) As proposed to be construed by Cirrus, the letter says that there will be an engagement between the parties on a particular basis if the respondents enter into a contract with the NZDF for the “capability” set out in the RFT (that is, including any kind of AWO training system).
153 Cirrus does not sue for rectification in equity. Instead it submits that, on the proper construction of the document, it does not mean what it literally says. This is sometimes referred to as “rectification by construction”. The terminology is at least inelegant, and its use was discouraged by Bell P (Macfarlan JA agreeing) in James Adam Pty Ltd v Fobeza Lty Ltd [2020] NSWCA 311; 103 NSWLR 850 at [2] (James Adam). Their Honours otherwise agreed with the reasons of Leeming JA, who said (at [31]-[34]):
Both doctrines are founded on an error in the expression of an instrument. Both doctrines result in the legal meaning departing from what would otherwise be the ordinary meaning of the instrument. And both doctrines involve an elevated standard of proof. Like other doctrines which displace the orthodox approach to construction, such as sham or non est factum, there is a need to keep these doctrines within narrow limits. Although rectification by construction does not resort to the parties’ subjective intentions, it remains an aspect of construction which is circumscribed lest it detract from the certainty and predictability of ordinary principles of the construction of written documents.
In the case of rectification in equity, reference is regularly made to the need for clear and convincing proof (or variants to the same effect), as explained in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [451]–[461] and Newey v Westpac Banking Corporation [2014] NSWCA 319 at [170]. Rectification in equity turns upon establishing that the document does not reflect the parties’ actual intentions, viewed objectively from their words or actions: Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [41]–[42] and [103]–[104].
Evidence of the parties’ intentions is not to the point in rectification by construction. Instead, as the primary judge said, it is necessary to conclude that the literal meaning is absurd or inconsistent, and that it is clear what the objective intention is to be taken to have been. The elevated standard of proof applies to both limbs of that test:
(1) In respect of the existence of an obvious error, Lord Hoffmann explained that the court does not readily accept that people have made mistakes in formal documents: Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23]. Further, [c]ourts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties’ appreciation that some obscurities are incapable of resolution: [Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; 99 NSWLR 317 (Seymour Whyte)] at [10].
(2) The condition that the correct meaning be self-evident or “clear” must also be satisfied to a high level of conviction. It must be “perfectly clear what legal meaning [was] to be given to the literally absurd words”: National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [38].
Both aspects were captured in the formulation by Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 426–427; [1956] HCA 53 that words may be supplied, omitted or corrected in an instrument where it is clearly necessary in order to avoid absurdity or inconsistency.
(Emphasis added.)
154 These observations align with familiar aspects of the objective theory of contract. Cirrus here sues on what it says is a written contract. Where a contract is reduced to writing, its terms are found in that writing. Evidence about the subjective intentions of the parties is generally irrelevant. These principles were discussed in HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; 104 NSWLR 634 by Meagher JA and Ball J at [22]-[24] and [27]-[28], in terms which it is useful to set out.
The language is construed according to its natural and ordinary meaning: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510–511; [1986] HCA 82. As Lord Mustill said in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 384 the inquiry will start, and usually finish, by asking what is the ordinary meaning of the words used. Where the words are unambiguous, they cannot be ignored simply to reach a result that is apparently more commercially convenient: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36.
Nevertheless, as Mason J emphasised in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 348; [1982] HCA 24 [(Codelfa)], construing a written contract requires more than just assigning the words their ordinary meaning. The court must consider the circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22] (Gleeson CJ); Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15], [16]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47] [(Mount Bruce Mining)]. That the court should know and have regard to the commercial purpose and object of the contract presupposes knowledge of the genesis of the transaction, the background, the context [and] the market in which the parties are operating: per Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995–996.
The phrase the surrounding circumstances is often used to describe, albeit imprecisely, the matters “external to the contract” (Mount Bruce at [48]) to which it is legitimate to have regard. The leading statement as to the admissibility of evidence of surrounding circumstances remains that of Mason J in Codelfa at 352:
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.”
…
The objective theory does not require or permit the words of a contract to be given a meaning that a reasonable person knowing all relevant facts would give them. Rather, the theory requires the court to consider what meaning a reasonable person in the position of the parties would give those words. That requires the court to consider what the parties may be taken to have known…
This approach focuses attention on the words used, and not on the subjective intentions and beliefs of the parties as to what they have agreed. But it does not do so at the expense of ignoring the fact that what the court is seeking to do is ascertain what the parties agreed.
155 Turning later to the issue of rectification by construction, their Honours said (at [48]-[53]):
It is an ordinary feature of human communication that what a person means may be obvious even though what they write or say, taken literally, is nonsense, or means the opposite. Contracts are not an ordinary mode of human communication, and courts do not readily accept that mistakes have been made in the drafting of a formal document: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] UKHL 38 at [23] (Lord Hoffmann). But contracts are nevertheless to be read on the basis that their drafters will on occasion fail to express correctly what they intend to say. The correction of mistakes by interpretation is therefore an aspect of “the single task of interpreting the agreement … in order to get as close as possible to the meaning which the parties intended”: KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336; [2007] EWCA Civ 363 at [50] (Carnwath LJ); Chartbrook at [23].
As the exercise is one of construction, the meaning which the parties intended can only be ascertained objectively, in accordance with the principles summarised earlier in these reasons. Construing a written agreement in accordance with those principles may reveal that its literal meaning is quite different from the meaning it was intended to bear. The latter is to prevail …
The application of this principle is ordinarily dependent on the satisfaction of two criteria: that the literal meaning of the language of the agreement is absurd; and that it is clear what the parties’ objective intention is to be taken to have been: [Seymour Whyte] at [8]. … Three points should be made about the criteria which must be satisfied.
First, absurdity or inconsistency may not strictly be required: cf Fitzgerald v Masters (1956) 95 CLR 420 at 426–427; [1956] HCA 53 (Dixon CJ and Fullagar J). The reasons of the plurality in Fitzgerald v Masters made no reference to such a requirement, treating the problem simply as one of the discernment of the parties’ intention from the whole of the agreement, while earlier authorities referred only to the presence of a palpable or “obvious” mistake: Bache v Proctor (1780) 99 ER 247 at 247; 1 Doug 382 at 384 (Buller J); Wilson v Wilson at ER 822, 823; HL Cas 66, 70 (Lord St Leonards). There is accordingly much to be said for the modern English position, which requires a clear mistake: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at [21] (Lord Neuberger MR; Laws and Carnwath LJJ agreeing on that point). In any event, if absurdity is required, something opposed to reason will suffice: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSW ConvR 56‐289; [2011] NSWCA 297 at [13] (Basten JA; McColl and Campbell JJA agreeing).
Secondly, satisfaction of the first criterion follows from satisfaction of the second. Where it is clear that the literal meaning of contractual language is inconsistent with the parties’ objective intention discerned from the agreement as a whole, there is a clear mistake, and likely also absurdity in the relevant sense. What the first criterion reflects is that a court will not lightly conclude that imperfections and infelicities and ambiguities in the language of an agreement reflect a mistake, rather than the give and take of commercial negotiation: Seymour Whyte at [10], citing Chartbrook at [23].
Finally, the application of those criteria should not obscure the fact that the question remains one of the ascertainment of the parties’ objective intention through the application of ordinary principles of construction. That is not to say that the two criteria need not be satisfied. It is rather to emphasise that they are merely steps involved in reasoning to a conclusion that by one word or phrase the parties meant something else.
156 Accepting that absurdity or inconsistency may not be strictly required (a view with which Leeming JA also expressed sympathy in James Adam at [56]), the problem faced by Cirrus is that the relevant exercise is one of ascertaining the parties’ intentions from the document read as a whole. Evidence of subjective intention is not relevant; and evidence of surrounding circumstances “is not admissible to contradict the language of the contract when it has a plain meaning” (see also Mount Bruce Mining at [48] (French CJ, Nettle and Gordon JJ)). Thus, if the facial meaning is clear (as it is in the case of Mr Purry’s letter of 21 December 2016), it is to be taken to embody the intention of the parties unless there is something in the document itself that makes that position untenable. “Absurdity or inconsistency” and “something opposed to reason” are not inapposite as ways of indicating what is capable of justifying the adoption of a meaning which the language of the instrument otherwise could not bear.
157 In the present case, the exchanges between Messrs Purry and Freed (set out above) make it likely that somebody (most likely Ms Binotto) made an error in drafting the respondents’ letter of 21 December 2016. The reference to “Reference A” (rather than “Reference B”) is inconsistent with those exchanges. It also sits somewhat uneasily with the words that follow (“inclusive [of] AWO training capability”).
158 However, this does not justify a finding that the words of the letter do not reflect the intention of the parties. Read literally, the letter is not ambiguous, makes sense and sets out the terms of an agreement capable of being carried into effect (indeed, an agreement which is in my view more likely to have been reached by sensible commercial parties than that advanced by Cirrus). Accordingly, on the hypothesis upon which I am now proceeding (that the letter was part of an exchange that constituted a contract), the letter is to be given its ordinary meaning. To put it another way, Cirrus cannot insist that this constitutes a contractual document while also maintaining that it fails to set out the terms of the contract.
159 The words of the 21 December 2016 letter should be read as they appear. They refer to the “ACTC capability as stated at [the Version 4 Quotation]”.
The proper construction of the respondents’ 21 December 2016 letter
Does “engage” mean “contract” or “negotiate”?
160 The opening word of the second paragraph of the respondents’ 21 December 2016 letter is “should”, which in this case signals that a condition follows. The following text indicates that the condition has two parts. The first aspect of the condition is that one of the respondents be selected by the NZDF to participate in contract negotiations. The second aspect of the condition is that the negotiations result in a contract that is for, or includes, the acquisition of the “ACTC capability” described in the Version 4 Quotation, being a training system and ongoing services. If those conditions were met, then the contract indicated that the “engagement” between Cirrus and the relevant respondent would be “on the basis of” the Version 4 Quotation.
161 There was argument about what precisely was meant by the term “engagement” in the 21 December 2016 letter. Cirrus contended that it meant a contract; the respondents contended that it meant a negotiation. The word “engagement” can bear either meaning. However, I am persuaded that the respondents’ construction should be accepted and that the letter referred to the negotiation of a subcontract that would take place between the parties if the respondents were the successful tenderer for the NZDF. It is difficult to see how any other meaning is consistent with cl 10.2, which indicates that the purpose of the Version 4 Quotation is to provide the starting point in the process of negotiating a subcontract.
162 I have addressed the language of cl 10.2 at [99]-[100], and the reasons I have given there also serve to explain why “engagement” should be construed as “negotiation” and not “contract”. That construction also better explains the use of the phrase “on the basis set out in” to describe how the Version 4 Quotation relates to the thing described by the word “engagement”. It directs attention to what, exactly, the Version 4 Quotation provides a basis for. While it might have been possible for the Version 4 Quotation to have been the basis of a contract (see [85]-[92] above), cl 10.2 indicates expressly it is the basis for a negotiation. In other words, the Version 4 Quotation would represent Cirrus’s first offer in the negotiations yet to come.
163 The result is that the teaming agreement did not contain a promise by the respondents to enter into a subcontract with Cirrus on the terms set out in the Version 4 Quotation. It contained a promise to negotiate for a subcontract with Cirrus if an entity in the “Hawker Pacific group” successfully tendered for the ACTC Project, using the process and on the terms set out in the Version 4 Quotation.
Was the obligation conditional on the NZDF purchasing the AWO training system described in the Version 4 Quotation?
164 The respondents contend at [14(d)] of the FAD that any obligation to enter into a contract on the basis of the Version 4 Quotation was conditional on the head contract with the NZDF requiring the provision of the services set out in the Version 4 Quotation. The respondents also contend that it was a term of the teaming agreement that any such obligation was conditional on the services described in the Version 4 Quotation being acceptable to the NZDF, and sufficient to enable the respondents to perform their obligations to provide an AWO training system and ongoing services.
165 In the light of my conclusion above concerning the construction of the paragraph referring to “Reference A”, this submission is at least broadly correct. If there was a contract, its express terms imposed obligations on the respondents only if and when they were engaged by the NZDF to provide services of the kind proposed in the Version 4 Quotation. That never occurred.
Cirrus’s alleged implied terms
166 As mentioned earlier, Cirrus also pleaded that the teaming agreement contained an implied term. Paragraphs [14C] and [14D] of the FASOC plead that aspect of the case as follows:
14C. It was an implied term of the teaming agreement that the first and second respondents would 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).
Particulars
A. The term is implied by law; and/or
B. The term is implied in order to give the contract business efficacy.
C. Email from Peter Freed to Steve Lang dated 22 July 2014 at 10.24am.
D. Email from Steve Lang to Peter Freed dated 22 July 2014 at 10.43am.
E. Email from Steve Lang to Peter Freed dated 4 August 2015 at 4.21pm.
F. Email from Craig Purry to Peter Freed dated 16 December 2016 at 3.46pm.
G. Email from Peter Freed to Craig Purry dated 16 December 2016 at 4.16pm.
H. Email from Peter Freed to Craig Purry dated 21 December 2016 at 2.14pm.
I. Email from Katrina Binotto to Peter Freed dated 21 December 2016 at 3.07pm.
J. Email from Peter Freed to Katrina Binotto dated 21 December 2016 at 3.12pm.
K. The paragraph of the Version 4 Quotation in section 10.3 headed “Cooperative Approach” at page 120.
L. Further particulars to be provided in due course.
14D. By reason of the Implied Term, the first and second respondents were required to act reasonably, cooperatively and in good faith in the following ways:
(a) inviting the applicant to participate in negotiations with the Ministry of Defence in respect of the provision of AWO training systems;
(b) negotiating with the Ministry of Defence in a way that ensured the applicant would have the benefit of the Express Term;
(c) informing and fully disclosing to the applicant any changes in the Ministry of Defence’s requirements communicated to the respondents subsequent to the Tender in respect of the provision of AWO training systems;
(d) informing and fully disclosing to the applicant if circumstances might arise which would deprive the applicant of the benefit of the Express Term;
(e) negotiating a subcontract with the applicant that enabled the respondents to meet the Ministry of Defence’s requirements for an AWO training systems under the Prime Contract;
(f) providing the applicant with the opportunity of meeting any changed requirements in the Prime Contract in respect of the supply of AWO training systems; and/or
(g) informing and fully disclosing to the applicant any intention of the respondents to obtain AWO training systems from a supplier other than the applicant, [sic]
167 The implied term case must necessarily fail because it relies on the presence of what the pleadings refer to as the “Express Term” (being the alleged term requiring the respondents to engage it “on the basis of” the Version 4 Quotation if they entered into an agreement with the NZDF that contained a requirement for an AWO training system). I have found that the teaming agreement (if it was a contract) contained no such term. I have, however, addressed the implied term case briefly on the hypothesis that the “Express Term” is part of the teaming agreement.
168 Cirrus relied on Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607–8 (Secured Income). In that case, Mason J (with whom Gibbs, Stephen and Aickin JJ agreed) said:
But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in [Mackay v Dick (1881) 6 App. Cas. 251, 263]:
“as a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”
It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract. As Griffith C.J. said in [Butt v M'Donald (1896) 7 QLJ 68, 70-71]:
“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.”
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.
(Footnotes incorporated in text.)
169 The respondents accepted that the teaming agreement, if it had contractual force, contained an implied duty to cooperate of the kind described by Mason J in Secured Income, being a duty to “co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract”. However, the respondents submitted that the implied term alleged in [14C] and [14D] of the FASOC goes well beyond the kind of term contemplated in Secured Income, and that the teaming agreement does not contain the implied term alleged.
170 Cirrus’s reliance on Secured Income is misplaced. Cirrus appears to suggest that the implied term alleged falls within the category of terms Mason J labelled “easy to imply”: that is, a term that requires the parties “to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract”. That cannot be correct because no action from the respondents was required for Cirrus to be able to perform its obligations under the teaming agreement. On Cirrus’s case, its obligations under the teaming agreement were performed when it released the respondents from the contractual restriction on the use of information in the Version 4 Quotation so it could submit a compliant tender. That permission was wholly within the power of Cirrus to give and required no cooperation from the respondents.
171 The term alleged falls within the category that Mason J went on to describe next, being terms that impose a duty to engage in “acts … necessary to entitle the other contracting party to a benefit under the contract but [which] are not essential to the performance of that party’s obligations and are not fundamental to the contract”. His Honour’s observations do not preclude the finding of those terms in appropriate cases, but do note that implying them is not “easy”, and that whether they exist is a question of construction in each case.
172 The implied term is pleaded in a confusing way and has several possible permutations.
173 An obligation to “ensure” that “the applicant had the benefit of the Express Term” might be taken to mean no more than complying with that express term. On that view it adds nothing to the express term. However, if [14C(a)] is intended to mean that the respondents came under an obligation to conduct themselves in a way that ensured that the conditions in which Cirrus became entitled to be retained as a subcontractor came about (which appears to be how it was framed in submissions), it would impose a burdensome and potentially impossible obligation on the respondents. A duty to “ensure” is a duty of strict liability: Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; 336 ALR 209 at [7] (Edelman J). Prima facie, “ensuring” that Cirrus had the benefit of the contract would entail entering into a contract with Cirrus on the basis of the Version 4 Quotation, no matter the results of the respondents’ negotiations with the NZDF. The respondents would be obliged to contract with Cirrus even if doing so eliminated the entire profit margin on its contract with the NZDF, or even if it imperilled their financial positions or drove one or both into insolvency. The obligation could not be sidestepped by simply pulling out of the negotiations or refusing any contract offered by the NZDF. Such a term is not reasonable or equitable, nor is it necessary to give business efficacy to the teaming agreement, and it is certainly not so obvious that it goes without saying: Codelfa at 347 (Mason J).
174 If [14C(a)] is read in that broad way, [14C(b)] adds nothing to it. However, if [14C(a)] simply requires compliance with the express term, [14C(b)] does add something and requires independent consideration.
175 This limb of the alleged implied term would also impose significant and burdensome obligations on the respondents. “Not engaging in conduct to deprive Cirrus of the benefit of the Express Term” would also severely restrict the respondents’ commercial liberty in a way that is not reasonable or equitable or necessary to give business efficacy to the teaming agreement. For example, a contractual term of this kind would prohibit the respondents from walking away from the ACTC Project and simply deciding not to tender at all, or pulling out of the negotiations if the NZDF’s demands were unreasonable, because that would be conduct that deprived Cirrus of a subcontract. That kind of onerous obligation is not one that the parties, being sensible commercial actors, would leave to implication. It is also not so obvious that it goes without saying.
176 In addition, Cirrus pointed to the part of cl 10.3 of the Version 4 Quotation headed “Cooperative Approach” (extracted at [76]) as the “culmination” of references between the parties in the other communications particularised at [14C] of the FASOC. Cirrus’s reliance on that aspect of cl 10.3 is misplaced because, as I have explained (see [143]), the terms of the Version 4 Quotation were not incorporated into the teaming agreement.
177 Even if that were not so, Cirrus did not explain how that part of cl 10.3 was said to relate to the implied term it alleges. That relationship is important because the presence of an express term on the same subject matter as an implied term can have more than one consequence. As Buss JA said in Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; 50 WAR 226 at [145] (Martin CJ and Murphy JA agreeing):
Although the mere fact that an express term deals with a particular subject matter is not, of itself, decisive against an implication which involves the relevant subject matter being dealt with more extensively, an examination of the contract, in the context of the objective framework of facts within which it came into existence, may reveal that the express term was intended to cover the field that would otherwise be occupied, at least in part, by the alleged implied term. In those circumstances, there would be no room for the implication of the alleged term. See Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469, where Jordan CJ (Halse Rogers and Street JJ agreeing) made these comments (at 476-477):
“The implied promise may also be negatived by an express provision which is inconsistent with it … This occurs where the contract is found to contain in the same field an express promise in different terms … The fact that there is an express provision dealing to some extent with the same subject is not, of itself, sufficient, in every case, to negative the implied promise … It may appear that the express term is intended only to supplement it … But if the express term appears to be intended to cover the field that would otherwise be occupied by the implied term, the implied term is excluded.”
178 In my opinion, cl 10.3 would have covered the field, leaving no room for any implied duty of cooperation. The parties addressed in their agreement the extent of any duty to cooperate and behave reasonably and did not include onerous terms of the kind alleged to be implied. It might be said that the implied term supplements the express one, but Cirrus did not put its case in this way.
179 Paragraph [14D] of the FASOC alleges a series of more specific obligations that are said to arise “by reason of the implied term”. Because I have rejected the implied term as pleaded, these do not arise. Some of these asserted duties (such as keeping Cirrus informed of any changes of position by the NZDF) might plausibly have been alleged as implied terms in their own right or as arising from a general duty to act in good faith. However, this was not how the case was put. One (a duty to provide Cirrus with an opportunity to meet any changed requirements of the NZDF: [14D(f)]) was disavowed in submissions.
180 Much of Cirrus’s factual case appeared to be directed at proving a course of conduct by the respondents that was deliberately directed at bringing about a situation in which Cirrus could be excluded from participation in the project and MAROPS retained instead. This, if proved, would have constituted a breach of any version of the implied term discussed above. However, the submission that the teaming agreement (if it had contractual force) contained an implied term of the kind pleaded cannot be accepted. Conduct of the kind adverted to here (again, if proved) might also be seen as a breach of a narrower implied term (eg that the parties would act in good faith to promote and not undermine the aims of the teaming agreement), but the case was not pleaded in this way.
breach
181 If (contrary to my findings above) the teaming agreement had contractual force and contained the express term contended for by Cirrus, it is clear that the respondents breached that term. No contract was entered into with Cirrus for the provision of AWO capability to the NZDF.
182 If the teaming agreement had contractual force but contained the narrower express term which I consider to constitute the preferable understanding of the documents, that term was not breached. That is because the conditions in which the respondents were obliged to engage with Cirrus—a head contract with the NZDF for services of the kind offered in the Version 4 Quotation—never arose.
183 As I read the two limbs of the implied term pleaded in FASOC [14C], that term was breached if (contrary to my view) it was contained in the teaming agreement. It was breached because the respondents failed to “ensure” that Cirrus had the benefit of being contracted to supply its services.
184 It is therefore not necessary to go into speculative questions such as whether Cirrus, if given the opportunity, could have provided a solution that would meet the NZDF’s ultimate requirements. Cirrus had quoted for provision of its ACOTS system, which relied on simulated data, and in the lead-up to that quotation (in his email on 16 December 2016) Mr Freed had effectively disclaimed any interest in working with sensor data. He was well aware by then that the respondents had in mind contracting with MAROPS for a system using sensors if that was what the NZDF wanted. The contract for which Cirrus contends is one in which it was to be engaged by the respondents on the basis of the Version 4 Quotation. There is no plausible understanding of that contract in which the respondents had an obligation to engage with Cirrus for the provision of a sensor based system. If necessary, I would find that it has not been established that Cirrus could have developed an AWO training system using sensor data within a time frame acceptable to the NZDF. The evidence on this point (like the question itself) was speculative in character, both as to Cirrus’ capability in a hypothetical situation and as to whether manufacturers of the relevant sensors would have granted the necessary permissions for Cirrus to integrate the sensors with its software.
185 If relevant, I would also not find that the respondents deliberately sought to bring about a situation in which Cirrus could be cut loose or otherwise acted in bad faith towards Cirrus. The documentary evidence concerning the respondents’ negotiations with the NZDF does not support an inference to that effect and the respondents’ decision not to call their officers as witnesses therefore does not assist Cirrus.
(a) Negotiations between the respondents and the NZDF took various twists and turns over the course of 2017, including a change in the type of aircraft the NZDF was seeking and a refusal by Mr Freed to countenance the NZDF having access to Cirrus’s source code.
(b) By the end of 2017 it was apparent that the amount the NZDF was prepared to spend would not fund the package of services proposed by the respondents unless changes were made. The internal email of 5 December 2017, referred to at [137] above, stressing the need to keep Cirrus involved, was sent in that context. In an email to NZDF officials on 22 December 2017, responding to a letter from the NZDF, Mr Purry sought clarification on a series of issues including the following.
1. AWO Software Provider
· Under the scenario outlined in the letter HP would need to change AWO Software providers to that of a single provider responsible for both sensor integration and AWO training software. HP agrees this would yield budget savings that will assist with getting the project to where we need to be. However, HP’s research has shown that there is downside risk in terms of quality of the product and schedule.
· To investigate this further we need the NZDF to confirm the following principles are acceptable:
…
C. Acceptance of the known Alternative software solution used elsewhere by NZDF (Wide Eye) as the basis for AWO going forward as opposed to the offered current provider (ACOTS)
D. In principle acceptance that the NZDF will consider reasonable ‘separation’ costs associated with moving from the current offered provider within the final agreed contract price or otherwise
· In the letter the NZDF only sight [sic] budget as the reason for HP to consider changing AWO Software providers – anecdotally HP understands that the end user has a strong preference to change as outlined for other than budgetary reasons – please clarify:
A. That if HP are able to meet he [sic] budgetary constraints using the current provider – that the NZDF will accept the current provider as offered.
(Emphasis added)
(c) Andy Evans of the NZDF responded on 5 January 2018 to the effect that NZDF was agnostic as to who the software provider was to be, provided its budget could be met. In a further response on 8 January 2018, Mr Evans said:
The driver for changing the software provider is to bring the contract within budget without decreasing capability - the mission software, being somewhat now a double up since we are taking up the sensor option, seems the obvious place to start in order to ensure the Crown not only reduces cost to within budget, but also receives value for all money spent. If there are compelling reasons to have one AWO training software over another, along with other areas for cost reduction which do not reduce capability, the Crown would like to assess these.
(d) In his reply, Mr Purry said:
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. A change would necessitate a change in NZDF requirements and as I read through below the NZDF are open to a compromise on requirements if it can be shown the cost benefit makes sense.
We’ll work this week on trying to make the budget work for the current solution set – and if we can’t we’ll prepare some options for NZDF consideration next week.
(e) Mr Purry organised a face to face meeting with Mr Freed to discuss these developments. His notes of the meeting are referred to above at [136(d)]. On 12 January 2018 Mr Freed emailed some proposed revisions to Cirrus’s pricing.
(f) On 19 January 2018 Mr Yardley of the New Zealand Ministry of Defence sent the letter referred to at [59] above, conveying that the Crown was “now seeking to secure a single training mission system for training of both air warfare officers and sensor operators”. Implicitly at least, that would necessarily be a system that used sensor data and could control sensors.
(g) Mr Purry responded on 24 January 2018. He noted that the respondents had proposed the arrangement involving supply of AWO training by Cirrus on the basis that it “best satisfied the core requirements as stated” at the time. He continued:
We acknowledge the Crown’s direction, at Reference A, to Hawker Pacific to now vary our offer for the ACTC Program to include a single training mission system for training both air warfare officers and sensor operators (“Single System”).
Given the Crown’s direction for a Single System, Hawker Pacific considers that the only feasible solution is having 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 - based on the Crown being driven by factors including the following:
The imperative to conclude the ACTC contract on schedule to meet critical aircrew and AWO training deadlines;
The need to establish an optimised NZDF wide training continuum beginning with RNZAF ACTC AWO and Sensor training at Ohakea;
For commercial and prerequisite intellectual property rights access reasons, with only MAROPS being placed to fully integrate CarteNav AIMS, Selex and FLIR systems into the training system, and
The need to ‘future proof’ the training and operational system to be introduced to RNZAF’s 42 Squadron including wider stakeholder drivers relating to national security factors.
(h) These exchanges are not suggestive of a party looking for a way to jettison its main subcontractor. They show the respondents arguing that it was preferable for Cirrus to be retained, but accepting that that was probably not feasible if the NZDF insisted, for reasons of cost, on a single integrated system.
(i) The respondents could perhaps have done more to protect Cirrus’s position. However, as explained above, I do not think there is any viable construction of the teaming agreement under which they were obliged to do so. They had their own interests to protect. The relationship with Cirrus is not asserted to have had a fiduciary character.
Cirrus’s claim for an estoppel by convention
186 Cirrus submitted that the Court should find that the respondents are estopped from denying the existence of a contract between them on the same terms as are pleaded in its claim in contract. Senior counsel for Cirrus acknowledged in his closing submissions that the estoppel claim did not “add anything to the contract case” and that they had the same “factual foundation”. The respondents submitted that that means the estoppel claim cannot succeed. For that proposition, the respondents relied on a series of cases in which courts have held that “[w]here the parties themselves did not make an agreement because of an essential missing element – in this case, absence of consensus (or a common assumption) … estoppel cannot supply the missing element”: John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [121] (Hammerschlag J) (John Holland) citing Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 584, 602 (Priestley JA) and 617 (Rogers A- JA) (Austotel). The respondents also referred me to DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 83 NSWLR 728 (DHJPM).
187 In each of those cases, the essential “missing element” meant that the agreement lacked the vital elements of a contract in the way I identified earlier in these reasons (at [70]). In John Holland the parties had not reached consensus about whether disputes should be litigated rather than arbitrated; in Austotel the parties had not agreed on the rent or duration of a lease sought to be enforced through an estoppel; and in DHJPM the parties had failed to reach consensus on the terms of a licence agreement. In those circumstances, an estoppel cannot assist the party seeking to rely on it because the party estopped would be precluded from denying the binding nature of an “agreement” that is incapable of being a contract.
188 That means they differ from this case. I have found that the parties agreed on terms sufficient to provide the vital elements of a contract, but the contract was never formed for want of intention to create legal relations. The situations differ because a failure to agree on terms relates to the content of the agreement that was not found to be a contract, whereas intention to create legal relations concerns the character of that agreement.
189 I was not referred to any cases that address this distinction, and I am not aware of any. However, I have found it unnecessary to resolve. That is because Cirrus’s attempt to rely on an estoppel by convention fails in any event.
190 First, the “teaming representation” (pleaded at FASOC [18]) and the “24 November 2016 representation” (pleaded at FASOC [24A]), the latter of which is said to have founded the “assumption” (pleaded at FASOC [24C] and [24J]), were to the effect that “in the event the first or second respondent entered into the Prime Contract with the Ministry of Defence, the first and/or second respondent would enter a subcontract with Cirrus”. These were not representations as to a state of affairs. They were representations about future conduct: cf Legione v Hateley (1983) 152 CLR 406, 432 (Mason and Deane JJ). They were also representations which closely matched what Cirrus sought to establish as an express term of a contract.
191 This observation points to the force of what is perhaps a broader point underlying the cases referred to at [186] above. In November-December 2016 the parties were negotiating towards an arrangement that would allow a commercial opportunity to be pursued, resulting (if it eventuated) in a contract between them. They negotiated the text of correspondence that would pass between them to reflect that arrangement. If, as I have found, the parties negotiated that arrangement without intending it to have contractual force between them, it is hard to see why a representation about future conduct by the respondents (and a corresponding assumption by Cirrus) should found a remedy that in effect makes that representation binding. Such an outcome would disturb what was described (in a different context) in Sullivan v Moody [2001] HCA 59; 207 CLR 562 at [55] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ) as “coherence of the law”. This observation confirms the wisdom of Cirrus’s concession referred to at [186] above.
192 Second, that assumption does not identify the terms of the subcontract that would be created between Cirrus and the relevant respondent following a successful tender for the ACTC Project. The respondents cannot be estopped from denying the existence of an agreement with unidentified terms for the reasons I referred to above at [186]-[187].
Damages
193 It is generally desirable for the Court hearing a proceeding to resolve as many issues as possible, and a primary judge will therefore often assess damages on the hypothetical basis that they are wrong to reject a claim. I have not done so in this case, for reasons broadly similar to those expressed by Besanko J in Roberts-Smith v Fairfax Media Publications Pty Ltd (No 41) [2023] FCA 555 at [2618]. The pleading of an implied term, of somewhat uncertain scope, means that damages would need to be assessed on the basis of several counterfactuals, each of which is complicated. It is preferable that I should give my decision on issues of liability now, accepting that it may become necessary to return to the question of relief if my reasoning is found on appeal to be wrong.
DISPOSITION
194 Cirrus has failed to prove the existence of the contract on which it sues and has also failed to argue successfully for an estoppel precluding the respondents from denying the existence of that contract. The application must be dismissed and Cirrus should pay the respondents’ costs as assessed or agreed.
I certify that the preceding one hundred and ninety-four (194) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kennett. |
Associate:
