FEDERAL COURT OF AUSTRALIA Adnunat Pty Ltd (ACN 005 816 268) v ITW Construction Systems Australia Pty Ltd (ACN 004 297 009) [2009] FCA 499 CONTRACTS – formation – approach where no discernable offer and acceptance – where party to existing contract with supplier sold entire business to a related third party – whether contract between third party and supplier to be inferred from conduct. PRACTICE AND PROCEDURE – summary judgment – whether no reasonable prospect of successfully denying the existence of alleged contract – Federal Court of Australia Act 1976 (Cth) s 31A. Federal Court of Australia Act 1976 (Cth) s 31A Patents Act 1990 (Cth) s 138 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 followed Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 applied Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 cited Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 cited Gissing v Gissing [1971] AC 886 cited Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 cited Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Pty Ltd (2001) Aust Contract R 90-129 applied Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 cited Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 applied Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 followed Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 cited Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414 distinguished Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 cited White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 followed ADNUNAT PTY LTD (ACN 005 816 268) and OLIVETTI CONCRETE LIFTING SYSTEMS PTY LTD (ACN 007 019 212) v ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) and REID CONSTRUCTION SYSTEMS PTY LTD (IN LIQUIDATION) (ACN 010 099 617); ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) v ADNUNAT PTY LTD (ACN 005 816 268) VID 884 of 2007 SUNDBERG J 14 MAY 2009 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 884 of 2007 BETWEEN: ADNUNAT PTY LTD (ACN 005 816 268) First Applicant OLIVETTI CONCRETE LIFTING SYSTEMS PTY LTD (ACN 007 019 212) Second Applicant ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) Cross-Claimant AND: ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) First Respondent REID CONSTRUCTION SYSTEMS PTY LTD (IN LIQUIDATION) (ACN 010 099 617) Second Respondent ADNUNAT PTY LTD (ACN 005 816 268) Cross-Respondent JUDGE: SUNDBERG J DATE OF ORDER: 14 MAY 2009 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The cross-respondent's motion notice of which was filed on 27 October 2008 be dismissed. 2. The cross-respondent pay the cross-claimant's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 884 of 2007 BETWEEN: ADNUNAT PTY LTD (ACN 005 816 268) First Applicant OLIVETTI CONCRETE LIFTING SYSTEMS PTY LTD (ACN 007 019 212) Second Applicant ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) Cross-Claimant AND: ITW CONSTRUCTION SYSTEMS AUSTRALIA PTY LTD (FORMERLY ITW CONSTRUCTION PRODUCTS AUSTRALIA PTY LTD, ALSO FORMERLY ITW RAMSET AUSTRALIA PTY LTD) (ACN 004 297 009) First Respondent REID CONSTRUCTION SYSTEMS PTY LTD (IN LIQUIDATION) (ACN 010 099 617) Second Respondent ADNUNAT PTY LTD (ACN 005 816 268) Cross-Respondent JUDGE: SUNDBERG J DATE: 14 MAY 2009 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 This is an application by the cross-respondent (Adnunat) for summary dismissal of the cross-claimant's (ITW) claim pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (the Act). Adnunat is the registered proprietor of Australian Patent No. 752353 (the Patent). The Patent concerns an invention of a concrete lifting anchor (the "Lifting System") that can be embedded into pre-cast concrete elements so as to hoist them into place in the construction of walls for both commercial and residential buildings. By its cross-claim, ITW seeks a declaration that the claims of the Patent are invalid and an order pursuant to s 138 of the Patents Act 1990 (Cth) revoking the Patent. Adnunat contends that it has a complete defence to the cross-claim by virtue of an agreement it says is in place between it and ITW, a term of which is an undertaking by ITW not to challenge the validity of, or seek to revoke, any claim of the Patent. Adnunat's current application turns on the existence, or otherwise, of this agreement. If it exists, then it follows that ITW is in breach of the agreement in bringing the cross-claim and will be barred from so doing. BACKGROUND 2 It is necessary to refer in some detail to the circumstances that have given rise to the current litigation and this application for summary judgment. I should emphasise that, in what follows, I make no findings of fact: see Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [6] (Finkelstein J); Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at 282. Rather, what follows is a summary of the evidence adduced by Adnunat, given by way of an affidavit of Mr Marco Olivetti, its General Manager. Aside from a short affidavit exhibiting a business name extract of the second applicant, ITW adduced no other evidence. Earlier proceedings 3 In August 2003, Adnunat commenced proceedings against the second respondent, Reid Construction Systems Pty Ltd (Reid), seeking injunctive relief and damages for alleged infringements of the Patent. Reid denied infringement and brought a cross-claim that the Patent was invalid for lack of novelty and lack of inventive step. Following mediation in December 2003, Adnunat and Reid agreed to settle their dispute and executed a "Settlement Deed" on 23 December 2003. The parties to the Settlement Deed were Adnunat, Reid and a third company registered in New Zealand, Nylex (New Zealand) Limited, against whom Adnunat had threatened similar litigation. 4 Relevantly for present purposes, the Settlement Deed contained the following terms: · Reid would make two payments of $60,000 to Adnunat, at 3 months and 6 months following execution of the Settlement Deed: cl 2. · Adnunat granted to Reid a non-exclusive licence "for Reid … to arrange for the manufacture for Reid … to sell, supply or offer for sale or supply" three anchor products of varying lifting capacity, the "Two Tonne Product", "Five Tonne Product" and "Nine Tonne Product". The licences in respect of the first two were effective for 12 months, and the third, for 6 months: cl 3.1. · Reid would pay royalties in respect of sales or supplies of the Five Tonne Product (20 cents) and Nine Tonne Product (35 cents), payable at the end of each 3 month calendar period: cl 3.2. · Adnunat agreed to supply Reid with "9 tonne anchors" manufactured by Adnunat in accordance with claim 1 of the Patent, at a cost price of $5.20 per anchor until 30 June 2004 and subject to review thereafter. In reviewing the cost price after 20 June 2004, Adnunat was entitled to "in its absolute discretion, increase or decrease the price", subject to the price being a "reasonable market price": cl 3.4. · Reid undertook to refrain from (and to ensure its Related Bodies Corporate refrained from), among other things, selling or supplying in Australia any lifting anchors falling within the claims of the Patent or otherwise meeting the description of Reid's then current lifting system products (the Patent Infringement Term): cl 4. · Reid undertook that neither it nor any of its Related Bodies Corporate would challenge the validity of any claim of the Patent or otherwise seek to revoke any claim of the Patent (the No Challenge Term): cl 4.1. · Adnunat released Reid from any claims or liabilities connected with or incidental to the proceedings, the parties indemnified each other in respect of any claims or loss arising out of or in connection with the proceedings and the parties agreed to discontinue each of their claims in the proceedings: cll 5.1, 5.3 and 6.1. 5 The relationship between Adnunat and the second applicant, Olivetti Concrete Lifting Systems Pty Ltd (Olivetti Concrete), and another entity, Olivetti Engineering Pty Ltd (Olivetti Engineering), was provided by Mr Olivetti: · Each of Adnunat, Olivetti Concrete and Olivetti Engineering are family owned and operated companies. · Mr Olivetti's parents are the sole directors and shareholders of Adnunat. His father is the sole director and shareholder of Olivetti Engineering and he and his mother are the sole directors and shareholders of Olivetti Concrete. At all relevant times, he has been responsible for the day to day control and management of all three companies. · From about 1 August 2000, Olivetti Concrete has carried on the business of supplying concrete lifting anchors and associated building products. From July 2003, Olivetti Concrete has held an exclusive licence from Adnunat to manufacture, advertise and sell 9 tonne anchors in accordance with the Patent. Other than licencing the Patent, Adnunat does not carry on business. · As the companies are family owned and operated, Mr Olivetti has tended not to "discriminate" as to which of the three corporate vehicles is used when conducting the family business, including its transactions with the respondents. In particular, Olivetti Engineering (in addition to Olivetti Concrete) was permitted by Adnunat to manufacture, advertise and sell 9 tonne edge anchors made in accordance with the Patent. Performance of the Settlement Deed 6 During 2004, Adnunat and Reid complied substantially with the terms of the Settlement Deed. In particular: · Reid paid the two $60,000 settlement amounts, one on 19 April 2004 and the other on 8 July 2004. · On 19 April, 12 August and 25 November 2004, Reid paid Adnunat royalty amounts owing in respect of Reid's sales of Five Tonne and Nine Tonne Products for the first three quarters of 2004. · On 14 May 2004, a representative of Olivetti Engineering, Mr Fithall, informed Reid for the purposes of cl 3.4 of the Settlement Deed that the cost price for 9 tonne anchors from 1 July 2004 until 31 December 2004 would be $5.45 per anchor (subject to review thereafter). · Reid made several purchases of 9 tonne anchors, both at the pre-July 2004 price and the post-July 2004 price. 7 The licences granted to Reid under cl 3.1 of the Settlement Deed in respect of the Two Tonne and Five Tonne Products expired on 23 December 2004: cl 3.1(a) and (b). The licence for the Nine Tonne Product had earlier expired on 23 June 2004: cl 3.1(c). 8 In January 2005, Mr Olivetti revised the cost price he wished to charge Reid for the 9 tonne anchors up to $5.60 per anchor. According to Mr Olivetti, Reid made a number of purchases in the early part of February 2005. Three of these were evidenced by invoices issued by Olivetti Concrete to Reid, together with extracts from Olivetti Concrete's accounting system, showing payments received by Olivetti Concrete for the anchors in April 2005. Two of the invoices refer to a price of $5.60 and the other, a price of $5.45. Mr Olivetti said he has "no recollection as to why the price" in the third invoice was $5.45 rather than $5.60, but does not believe the reduction was intentional. 9 On about 1 March 2005, Adnunat received a letter from Ms Careen Lai, who described herself as "Financial Controller". The letter contained Reid's trademark in the header, was addressed to Adnunat and stated the following: Dear Sir/Madam, REID CONSTRUCTION SYSTEMS PTY LTD Reid Construction Systems Pty Ltd is a member of the ITW group of companies in Australia, the ultimate holding company of which is Illinois Tool Works Inc, a company listed in the United States of America. One of the main operating companies in the ITW group of companies in Australia is Ramset Fasteners (Aust) Pty Ltd, ABN 48 004 297 009. The legal entity name of which has been changed to ITW Ramset Australia Pty Ltd., effective 1 March 2005. As an indication of the ITW Group's commitment to the Reid business in Australia, the Reid business is transferred to ITW Ramset Australia with effect from 1 March 2005. From that date Reid will operate as a division of ITW Ramset Australia. This change reflects only a change in the legal ownership of the Reid business, our business will continue to operate as an autonomous business unit from the ITW Ramset Australia other division, Ramset Fasteners Australia. From 1 March 2005, we will trade as Reid Construction Systems, a division of ITW Ramset Australia Pty Ltd, ABN 48 004 297 009. Please forward all invoices to: Reid Construction Systems P.O. Box 192, Croydon, Victoria 3136 Accounts Payable Details: Contact: Pat Gough Telephone: 03 9727 6208 Email: pgough@ramset.com.au We look forward to continuing our relationship with you. … ITW Ramset Australia Pty Ltd is the former name of the cross-claimant, ITW. 10 Following Ms Lai's letter, Mr Olivetti says that ITW began to perform Reid's obligations under the Settlement Deed. In particular: · On 16 March 2005, an email was sent by Mr Brian Pleysier, who was described as "Supply Chain Manager – Reid Construction Systems", complaining about apparent shortfalls in the number of anchors delivered by Adnunat so far that year. Mr Pleysier's email was preceded by an email from Mr Fithall to Bob Connell of Reid on 15 February 2005, which explained that Olivetti Engineering had been experiencing "major problems with [its] machines", was "now only getting back into normal production" and planned "to be able to service [Reid's] required levels as of March 1st." In Mr Pleysier's email, he stated: Further to our conversation this morning about obtaining from you further substantial delivery quantities of 9 tonne hairpin anchors in addition to a recovery plan detailing how you are going to service our immediate and ongoing needs. I have not yet heard from you despite having made it explicitly clear that we need your response urgently as we are in a very critical situation. You should be aware of the fact that we have received from you this year the following deliveries: 14/2 x 500 21/2 x 500 25/2 x 500 7/3 x 500 It was indicated by me in our conversation this morning that we need approx. 5,000 per month to service our customer needs. As your email below clearly suggests, we have not received anywhere near "normal production" quantities – please indicate what you consider normal in your recovery plan? Neither have we received "increased amounts", nor have you serviced our "required levels" since March 1st. We currently have purchase orders outstanding with you for 19,000 anchors. This is unacceptable in any terms. … · On 1 April 2005, Ms Lai emailed Mr Fithall requesting details of the royalty amounts owing in respect of sales of the Five Tonne Product during the last three calendar months of 2004. This appears to have been preceded by an invoice for the royalties in the amount of $6,990.72 issued by Olivetti Concrete to "Reid Construction Systems P/L" on 31 March 2005. In her email, Ms Lai stated: Please email the royalty amount and your bank details so that we can process the payment into your account today. Please also [forward] your Tax Invoice attention to myself. · From March to June 2005, ITW purchased a total of 18,700 9 tonne anchors from Olivetti Concrete. These were typically delivered and paid for in tranches of 1,000, 1,500 or 2,000. Invoices for the purchases were issued by Olivetti Concrete and the anchors were paid for by ITW between May and August 2005. Two matters should be observed about the invoices: (a) Out of the 16 invoices issued during this period, only two refer to a price of $5.60; the other 14 record a price of $5.45. Mr Olivetti was unable to explain the price difference. (b) Each of the invoices was addressed to "Reid Constructions Systems Pty Ltd" but included at the bottom ITW's ABN (48 004 297 009) as the "Customer ABN". Transfer of Reid's business to ITW 11 It is apparent from the pleadings and documents discovered by the respondents that the shares in Reid were acquired by a company named ITW Reid Holdings Pty Ltd following a share sale agreement entered into on 24 December 2003. 12 Adnunat referred to several documents, including the share sale agreement, a transfer of business agreement and company extracts obtained from ASIC's company database: see the exhibits to the affidavit of Graeme Scott, Adnunat's solicitor, sworn 7 November 2008. It is apparent from these documents that ITW and ITW Reid Holdings Pty Ltd are both members of the ITW group of companies, the ultimate holding company being a US company, Illinois Tool Works Inc. The share sale agreement and the relevant ASIC company extract disclose that ITW Reid Holdings Pty Ltd acquired the shares in Reid on 30 January 2004. Accordingly, ITW and Reid became related companies from that date onwards. Subsequently, on 13 May 2005, Reid entered into a "Transfer of Business Agreement" (Business Agreement) with ITW (named ITW Ramset Australia Pty Ltd at the time) pursuant to which Reid agreed to transfer to ITW its entire business of "manufacturing and supplying concrete fasteners, concrete reinforcing and concrete lifting systems". The Business Agreement provided for ITW to acquire all of Reid's assets (including all of its "contracts" and "goodwill") and assume all of its liabilities: see cll 1, 2 and 3. The transfer of assets and assumption of liabilities was to have effect on and from 1 March 2005: see cl 1, definition of "Effective Date". The ASIC company extracts exhibited to Mr Scott's affidavit disclose that Messrs Michael Davies, Allan Sutherland, Bela Hargitay and David Speer were directors of both Reid and ITW at the time of the transfer of Reid's business to ITW in March 2005. 13 In relation to Reid's contracts, cl 6.1 provided: [Reid] and [ITW] will use all reasonable endeavours to ensure that all of the Contracts … are novated, or failing novation, assigned, to [ITW] as soon as practicable after the Effective Date. "Contracts" meant "all written and unwritten contracts entered into by or on behalf of [Reid] in the course of the Business …": see cl 1. 14 Clauses 6.2 and 6.3 should also be noted: Liability on assignment 6.2 Any novation or assignment of a Contract … is on the basis that, as between [Reid] and [ITW]: (a) [Reid] is responsible for complying with its obligations under the assigned document that must be complied with on or before the Closing Date [ie 28 February 2005] and indemnifies [ITW] against liability or loss arising from, and costs incurred in connection with, [Reid] failing to do so; and (b) [ITW] is responsible for complying with [Reid's] obligations under the assigned document that must be complied with after the Closing Date and indemnifies [Reid] against liability or loss arising from, and costs incurred in connection with, [ITW] failing to do so. Obligations pending assignment 6.3 After the Closing Date and until each Contract … is novated or assigned in accordance with clause 6.1, [ITW]: (a) must comply with all of [Reid's] obligations under each Contract … which it lawfully can; and (b) may request [Reid] to comply with any obligation or exercise any right of [Reid] under a Contract … if [ITW] cannot lawfully comply with the obligation or exercise the right and the request is reasonable. [Reid] must comply with such a request to the extent it lawfully can. 15 It was common ground that, despite the intention evidenced by clause 6.1 of the Business Agreement, the Settlement Deed between Reid, Adnunat and Nylex (New Zealand) Limited has never been novated or assigned to ITW. Current proceedings 16 In September 2007, the applicants commenced proceedings against ITW and Reid seeking, amongst other things: · a declaration that the respondents have infringed the Patent and breached the Settlement Deed; · an injunction restraining the respondents from committing any further infringements of the Patent; and · damages. 17 A statement of claim, a defence and cross-claim by ITW (amended on 22 August 2008), and a reply and defence to the cross-claim have been filed. The applicants' allegations in the proceeding may be summarised as follows: · Adnunat is the proprietor and Olivetti Concrete is the exclusive licensee of the Patent. · The respondents have infringed the Patent by, among other things, manufacturing and selling two products, the Swiftlift Jaws Ultra (Swiftlift Anchor) and Hair Pin Lift Edge Anchors, models 5HPA and 10HPA (HP Anchors). · Reid has acted in breach of the Patent Infringement Term of the Settlement Deed (see [4] above) by engaging in the infringing conduct and failing or refusing to ensure that ITW (as a Related Body Corporate) does not engage in the infringing conduct. · In relation to ITW: (a) it became a Related Body Corporate of Reid on 30 January 2004 for the purposes of the Patent Infringement Term and No Challenge Term of the Settlement Deed (cl 4 and cl 4.1 – see [4] above); (b) the transfer of Reid's business to ITW "included a transfer of the [Settlement Deed]" and had the effect that ITW became a "successor" of Reid for the purposes of cl 17 of the Settlement Deed; (c) from 1 March 2005, ITW has performed the obligations of Reid to Adnunat under the Settlement Deed and accordingly has become a party to the Settlement Deed; and (d) consequently, ITW's infringing conduct also constitutes a breach by it of the Patent Infringement Term. 18 Both respondents deny infringement. Reid alleges further that the Patent Infringement Term is void by operation of subss 144(1) and (1A) of the Patents Act 1990 (Cth) and the No Challenge Term is void and unenforceable as an unlawful restraint of trade. ITW denies that it is a party to the Settlement Deed or in any other way bound by its terms. 19 ITW has brought a cross-claim against Adnunat seeking a declaration that the Patent is invalid and an order that it be revoked. In response, Adnunat denies invalidity, maintains that ITW is bound by the terms of the Settlement Deed, and alleges that ITW is in breach of the No Challenge Term by bringing the cross-claim and is barred from doing so by cl 14, which provides: This Deed may be pleaded and tendered by any party as an absolute bar and defence to any proceeding brought or made by the other party in breach of the terms of this Deed. NOTICE OF MOTION 20 By its notice of motion, Adnunant (as the cross-respondent) seeks an order pursuant to s 31A(2) of the Act that there be judgment for it against ITW in relation to the cross-claim. Section 31A provides in part: (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. 21 Put simply, Adnunat says it has a complete defence to the cross-claim because ITW is bound by the Settlement Deed, in particular the No Challenge Term, and is barred from making the cross-claim that the Patent is invalid. Accordingly, it says that ITW has no reasonable prospect of prosecuting the cross-claim and judgment should be given in its favour dismissing the cross-claim with costs. 22 As referred to at [17], Adnunat's claim that ITW is bound by the Settlement Deed, despite not having been an original party to it, is made with reference to cl 17 of the Deed. Clause 17 provides: The provisions of this Deed will enure for the benefit of and be binding on the parties and their respective successors and permitted substitutes and assigns and (where applicable) legal personal representatives. 23 Adnunat says that ITW was a "successor" to Reid for the purposes of cl 17 and bound itself to the terms of the Settlement Deed by reason of: · the provisions and effect of the Business Agreement between Reid and ITW; · the letter from Careen Lai dated 1 March 2005 giving notice to Adnunat of the transfer of Reid's business to ITW; and · ITW's conduct subsequent to 1 March 2005. 24 The issue for determination on this application therefore is whether ITW has any reasonable prospect of refuting the claim that it is bound by the Settlement Deed. SUBMISSIONS Adnunat 25 As referred to at [15], Adnunat does not claim that there was an assignment of the rights under the Settlement Deed to ITW or a novation of the Settlement Deed between Adnunat, Reid and ITW. Its contention is that ITW is bound by the Settlement Deed because the parties' conduct demonstrates an agreement to be bound. 26 Adnunat relied on the following evidentiary matters. First, prior to the transfer of business, both Reid and Adnunat had complied with the Settlement Deed, in particular the royalty and anchor supply terms. The representative with which Adnunat corresponded was a Mr Bob Connell, who was at the same time both the General Manager of Reid and Marketing Manager of ITW, then named Ramset Fasteners (Aust) Pty Ltd. 27 Second, by its letter dated 1 March 2005, ITW notifed Adnunat that Reid's business had been transferred to it, that the change reflected "only a change in the legal ownership of the Reid business", that ITW would thereafter be conducting the business under Reid's existing trading name, Reid Construction Systems, and Adnunat was to deal with ITW instead. Adnunat placed significance on the fact the letter was addressed to Adnunat, rather than Olivetti Concrete or Olivetti Engineering. As it was those latter entities that had dealt with Reid on a day to day basis, Adnunat submitted that the only reasonable inference open was that the letter was directed towards and would be understood as a reference to the Settlement Deed and the existing relationship to which the Deed related. The letter, Adnunat said, demonstrated ITW's intention to assume Reid's existing third party contractual obligations and gave notice of that intention to Adnunat. 28 Third, the Business Agreement makes clear that Reid and ITW intended that the entire business would be transferred and, in particular, all contracts – including the Settlement Deed – were to be novated or, failing novation, assigned. In particular, by cl 6.3(a) of the Business Agreement, ITW was to perform Reid's obligations under the Settlement Deed pending novation: see [14] above. Taking cl 6.3(a) together with ITW's conduct towards Adnunat after 1 March 2005 (including its provision of the letter dated 1 March 2005), Adnunat said it should be inferred that ITW intended to comply with, and be bound to Adnunat directly by, the terms of the Settlement Deed. 29 Fourth, it is an admitted fact that from March 2005 Reid ceased to trade and ITW conducted business under the name "Reid Construction Systems" (see pars 3(iii) and 4(v) of the respondents' amended defence). From that date onwards, Adnunant says, ITW alone performed Reid's obligations under the Settlement Deed; as Adnunat put it, "ITW stood in [Reid's] shoes … as successor". It did this by ordering and paying for 9 tonne anchors, pursuant to cl 3.4 of the Settlement Deed, as well as by paying Adnunat royalty amounts owing in respect of Reid's sales in the last three calendar months of 2004: see [10] above. In relation to the supply of 9 tonne anchors, Adnunat relied on Mr Pleysier's email dated 16 March 2005. The email was sent after 1 March 2005 (when Reid had ceased trading) and should be construed, according to Adnunat, as a "demand" by ITW for supply. The demand was referable to, and indeed "consistent only with", the terms of the Settlement Deed which obliged Adnunat to supply (ie cl 3.4). 30 As to the royalty payments, Adnunat submitted that Ms Lai's email dated 1 April 2005 – requesting details of "the royalty amount and … bank details so that we can process the payment" – could only be referable to cl 3.2 of the Settlement Deed. Accordingly the inference should be drawn that ITW considered itself bound to pay the royalty amount, which significantly was a debt that Reid owed for sales it had made prior to ITW acquiring the business. 31 Fifth, Adnunat itself understood that ITW was prepared to be bound by the Settlement Deed. At the time the Deed was executed (23 December 2003), cl 17 expressly contemplated that a successor of any original party would receive the benefit of and be bound by the terms of the Settlement Deed. When Adnunat received notice of the transfer of Reid's business, it expected not only that ITW would be bound but that Adnunat itself was obliged to continue performing its obligations under the Settlement Deed in favour of ITW. Consistently with that understanding, Adnunat continued to conduct itself at all relevant times after 1 March 2005 as if the parties had an agreement in place. As evidence that it had turned its mind to the fact it was dealing with a different legal entity, Adnunat referred to the post 1 March 2005 invoices discussed at [10] above. The inclusion of ITW's ABN in those invoices, so the argument went, demonstrated that Adnunat was cognisant of the fact it was transacting with ITW, albeit as part of a continuing course of trade established with the Reid business. ITW 32 ITW maintains that it is not bound by the No Challenge Term because it was not, and never has been, a party to the Settlement Deed. Adnunat, it said, focuses on an irrelevant question when it claims that ITW is a "successor" of Reid for the purposes of cl 17 of the Settlement Deed. It is not to the point that the original parties to the Settlement Deed included an enurement clause in the terms of cl 17, purporting to bind any future "successors". The doctrine of privity mandates that a new party will only be bound by a contract if it intends to be bound or is otherwise bound by operation of law (for example, by way of a corporate merger). The relevant question here therefore is not whether ITW is properly described as a "successor" of Reid, but whether ITW in fact bound itself to a new contract with Adnunat. Relying on South Australia v Peat Marwick Mitchell & Co (unreported, Supreme Court of South Australia, Olsson J, 15 May 1997) at [158], ITW submitted that the concept of liability independently attaching to a "successor" of a business – without its agreement in contract – is not recognised in Australia, except to a limited extent where a corporate merger is undertaken (usually accompanied by court orders effecting the transfer of rights and liabilities to the merged entity). Instead, when a corporation acquires the assets (and thereby, the business) of another corporation, the general rule of separate legal personality applies and the acquiring corporation does not, by operation of law, take on the obligations of the transferring corporation. The acquiring corporation will only take on liabilities and obligations to third parties if it decides to contract itself with them, either directly or through novation of an existing agreement. (The passage relied on by ITW in Peat Marwick at [158] is not reproduced in the report of the decision at (1997) 24 ACSR 231.) 33 With that in mind, ITW contends that Adnunat has failed to adduce any, or any sufficient evidence, to demonstrate that Adnunat and ITW had by their correspondence or conduct intended to bind themselves to a new contract in the same terms as the Settlement Deed. In "contract by conduct" cases, it said, it is necessary to show from the parties' conduct a "tacit understanding or agreement", where the conduct is such as to prove "all the essential elements of an express contract": see Giles JA, with whom Priestley JA and Meagher JA agreed, in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Pty Ltd (2001) Aust Contract R 90-129 (Industrial Rollformers) at [137]. In particular, if a court is to hold that one party has bound itself in contract by its conduct, it must be able "to identify within the conduct of both parties the terms of the contract, and to be objectively satisfied that both parties agreed to be bound by those terms": see Giles JA at [138] (emphasis added). Here, ITW submitted, its conduct in purchasing 9 tonne anchors points to nothing more than the existence of an agreement for the sale of those goods. Adnunat failed to adduce evidence of any conduct or communications by ITW that are referable unequivocally to the express terms of the Settlement Deed, for example the grant of the licence (cl 3.1), the payment of royalties (cl 3.2), the undertaking not to infringe or challenge the validity of the Patent (cl 4 and cl 4.1), the release (cl 5.1) or indemnities (cl 5.3). Moreover, the lack of any such conduct is explicable said ITW, because: · by the time of the transfer of business, the licence granted to Reid by cl 3.1 had expired and the settlement payments pursuant to cl 2.1 had already been paid; · on Adnunat's own case, Reid remains a party to the Settlement Deed (in other words, ITW is not a substitute for Reid); and · accordingly, on no view of the evidence does it appear that ITW accepted the benefits or burdens of the licence or any other term of the Settlement Deed, in place of Reid. 34 ITW then made the following submissions in response to the evidence put forward by Adnunat, summarised at [26]-[31]: · The letter dated 1 March 2005 was no more than a standard form letter informing Adnunat that ITW had acquired the Reid business and future correspondence should be directed to ITW. The letter made no reference to the Settlement Deed and was silent as to the prospect of ITW assuming any of Reid's pre-existing contractual obligations to Adnunat. · The Business Agreement, in particular cl 6, was an agreement between ITW and Reid (not Adnunat) that the parties would endeavour to have existing contracts novated. It was no more than an agreement to novate that was never completed and the fact that ITW owed obligations to Reid to perform Reid's existing contracts is irrelevant to ITW's relationship with Adnunat. There is no evidence on the face of the Business Agreement or otherwise that ITW and Reid had Adnunat and the Settlement Deed specifically in contemplation when they executed the Business Agreement. · Evidence of ITW's purchases of 9 tonne anchors after 1 March 2005 does not demonstrate an intention by ITW to be bound by the Settlement Deed. The fact of the purchases themselves is not sufficient to show anything more than the existence of a contract for the sale of goods. The prices paid (varying between $5.45 and $5.60) are not referred to in the Settlement Deed and the supplier/payee appears to have been Olivetti Concrete, not Adnunat. At best therefore the purchases might be reflective of an agreement between Olivetti Concrete and ITW for the supply of 9 tonne anchors. · Further, the fact ITW paid Adnunat a residual debt owing by Reid (the royalties) proves nothing more than that ITW made a payment. It is not evidence from which an inference should be drawn that ITW, independently, intended to bind itself to each of the terms of the Settlement Deed. To the contrary, the fact that a party makes a payment on behalf of another does not necessarily mean that it has accepted the contractual obligation to do so. · The evidence adduced by Adnunat does not even show that it (or the other Olivetti companies) consciously adverted to the fact it was dealing with a different company. Each of the invoices concerning the purchases made after 1 March 2005 was addressed to Reid rather than ITW. Consequently, it is not open to draw the necessary inference from the invoices that Adnunat and ITW (neither of whom is referred to in the invoices) had unambiguously committed themselves to performing the terms of the Settlement Deed. It is true that the invoices adduced by Adnunat contain a reference to ITW's ABN. However ITW's ABN is also referred to in four invoices exhibited to Mr Olivetti's affidavit (exhibits MGO-23 and MGO-24) which are all dated prior to 1 March 2005. This alone, said ITW, raises a serious factual question because Adnunat has not explained why or how the invoices refer to the ABN when Adnunat was apparently not informed of the transfer of Reid's business until March 2005. 35 ITW also relied on what it described as a number of "serious legal and factual questions" about Adnunat's case, which have a bearing on the terms of the Settlement Deed and which it said are properly determinable only at trial. Adnunat claims that since July 2003 it has had an exclusive licence agreement with Olivetti Concrete for Olivetti Concrete to manufacture, advertise and sell 9 tonne anchors (see par 8 of the applicants' statement of claim and exhibit MGO-1 to Mr Olivetti's affidavit). However, according to its ASIC company extract, Olivetti Concrete did not exist under that name in July 2003. It was instead called Hatherford Pty Ltd until 29 June 2007. While the business name "Olivetti Concrete Lifting Systems" had existed since August 2000, it was registered in the name of Olivetti Engineering until 30 September 2005, when it was transferred to Hatherford Pty Ltd and thereafter deregistered in July 2007. ITW submitted that the exclusive licence agreement was therefore either a forgery or the reference in it to Olivetti Concrete was an error. 36 If it were an error, then the validity of the licence agreement, the standing of the second applicant in the proceeding and par 8 of the applicants' statement of claim would all be in serious question. However if, regardless of the identity of the licensee, the exclusive licence were held to be valid, then the licence granted to Reid under the Settlement Deed must be in serious question, because Adnunat would have retained no right to grant it. In that event, ITW submitted that a major part of the consideration for the No Challenge Term would fail because Reid would not have received an effective licence from Adnunat. Absent a trial, it said, these important factual issues, which are at the heart of the applicants' claims, would not be the subject of proper findings and a determination. RESOLUTION Principles applicable to summary judgment applications 37 The principles governing the operation of s 31A of the Act were canvassed in detail by Lindgren J in White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 (White Industries) and Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Boston). In White Industries 160 FCR at [59], Lindgren J considered that a claim requires "real" as opposed to "fanciful" or "merely arguable" prospects in order for it to have reasonable prospects of success as required by s 31A. Justice Rares in Boston 236 ALR at [45] was of the view that, unless there are no real issues of fact – such that "only one conclusion can be said to be reasonable" – summary judgment (or dismissal) ought not be given pursuant to s 31A. The Full Court has recently considered the summary judgment standard in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 (Finkelstein, Rares and Gordon JJ) (Jefferson Ford). Although different views were taken as to the precise operation of s 31A, the following principles appear to have been endorsed: · In applying s 31A, the court does not conduct fact finding but must assess the strength of the allegations made by reference to the pleadings, affidavits and any other evidence adduced, in order to determine whether the claim is sufficiently strong to warrant a trial: see Jefferson Ford 167 FCR at [23] (Finkelstein J), [74] (Rares J) and [130] (Gordon J); see also Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 at [28] (Emmett J); Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [6] (Finkelstein J). Ultimately, the court must consider whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at a trial. · In assessing whether there are reasonable prospects of success, the court should draw all reasonable inferences (but only reasonable inferences) in favour of the non-moving party: see Jefferson Ford 167 FCR at [132] (Gordon J). Moreover, where the evidence on a summary judgment application is of an ambivalent character, there will be a real issue of fact and therefore reasonable prospects of success for the purposes of s 31A: see Boston 236 ALR at [45]; Jefferson Ford 167 FCR at [73] (Rares J) and [130] (Gordon J). · The moving party bears the onus of persuading the court that its opponent has no reasonable prospects of success: see Jefferson Ford 167 FCR at [127] (Gordon J); Boston 236 ALR at [45]. However, where the moving party establishes a prima facie case for summary judgment, the opposing party must be able to point to "specific factual or evidentiary disputes that make a trial necessary": see Jefferson Ford 167 FCR at [127] (Gordon J). · As s 31A requires in effect a prediction as to the outcome of a claim, the court should be more reluctant to summarily dismiss a claim where real questions of fact and credit arise. In those cases, the court will not have all material evidence before it until trial, the credit of important witnesses will not have been tested and it will as a consequence be very difficult if not impossible to fairly assess the prospects of the claim: see Jefferson Ford 167 FCR at [20] (Finkelstein J); Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 at [6] (Gilmour J). 38 Precisely how a claim is assessed will depend on the nature of the cause of action, as well as the identity of the parties, the pleaded facts and the evidence adduced: see Jefferson Ford 167 FCR at [126] (Gordon J). Although this application is for dismissal of ITW's cross-claim, the allegations to be assessed are not concerned with the claim of invalidity. They concern the alleged existence of a separate and distinct agreement. That agreement and its alleged terms arise in the first instance as part of Adnunat's primary claim: see pars 14–20, esp 17–19, of the applicants' statement of claim. As a consequence, granting the relief sought by Adnunat on this application would have the effect of determining, summarily and in its favour, an important aspect of Adnunat's own claim, which it would otherwise have to prove at trial. It is in that context that ITW advanced no substantive evidence in response to the matters deposed to by Mr Olivetti. The thrust of ITW's submissions appeared to be that Adnunat, bearing the ultimate onus of proving that a binding agreement exists, failed to demonstrate even a prima facie case that ITW has no reasonable prospects of successfully proving otherwise. Consideration 39 Despite the lack of any direct written evidence of an agreement between Adnunat and ITW, Adnunat contends that one must be inferred from their conduct. A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified: see Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 (Vroon); Industrial Rollformers (2001) Aust Contract R 90-129. However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-50 (Gleeson CJ) and his Honour's reference to Gissing v Gissing [1971] AC 886; see also Cheshire & Fifoot's Law of Contract (9th ed, LexisNexis, 2008) at [3.5] and [3.9]. Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement: Industrial Rollformers (2001) Aust Contract R 90-129 at [137]-[138] and [142]; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 (Pacific Brands) at [47]. 40 As Finkelstein J observed in Pacific Brands [2005] FCA 288, it will only be in very clear cases that the courts will infer a contract from conduct in the absence of written or oral communications that evidence the exchange of mutual promises: see [2005] FCA 288 at [45] and the cases there referred to. In most instances, contract by conduct cases will involve a complex set of facts and require evidence from those who have played a role in the relationship between the parties. Necessarily, where a contract is denied, the credibility of those involved on both sides may be crucial. These considerations are in my view an obstacle to Adnunat obtaining summary relief. At its simplest, Adnunat's case consists of the following steps: · The original parties to the Settlement Deed (Adnunat and Reid) intended that the terms of the Deed would be binding on their "successors": cl 17 (the enurement clause). In other words, Adnunat and Reid agreed at the time of executing the Settlement Deed that a successor would take the benefit of and be bound by the Settlement Deed. · As a successor, ITW agreed with Reid that it would comply with the Settlement Deed on and from 28 February 2005 until there was a novation of the Deed or an assignment of the rights under it: cl 6.3 of the Business Agreement. · ITW's intention to perform the Settlement Deed was made manifest to Adnunat by its dealings with Adnunat after 28 February 2005. From those dealings, it should be inferred that ITW had agreed to be bound to Adnunat by the terms of the Settlement Deed. 41 In my view, Adnunat's motion confronts three initial problems. First, Adnunat has adduced no evidence that ITW communicated to Adnunat a preparedness, let alone an agreement, to perform Reid's obligations under the Settlement Deed. There is simply no evidence of any discussions between ITW and Adnunat concerning the terms of the Settlement Deed. The problem confronted by Adnunat is that, given it asserts ITW "bound itself to the provisions of the [Settlement Deed]", it must point to conduct that positively and unambiguously demonstrates an agreement to observe those provisions, in particular the No Challenge Term. However there is no evidence that ITW considered itself bound by the No Challenge Term, either from its conduct or communications with Adnunat. Nor is there any evidence it agreed to the Patent Infringement Term or the indemnities given by the original contracting parties. 42 Secondly, Adnunat's reliance on cl 6.3 of the Business Agreement should be treated with some caution. The Business Agreement was between Reid and ITW. ITW's promise to comply with Reid's obligations under existing contracts was a promise given to Reid for Reid's benefit. It is true that cl 6.3 reveals an intention by ITW to perform Reid's existing contractual obligations. However it makes no specific reference to Adnunat or the Settlement Deed. At best, it demonstrates that ITW was prepared to agree with Reid that it would perform Reid's contractual obligations and be accountable to Reid if it failed to do so. 43 The third related issue is that cl 6.3 of the Business Agreement in fact shows that Reid and ITW intended that existing contracts would be novated. This suggests an intention by ITW to bind itself to third parties only where formal novation agreements were entered into. Adnunat does not contend that there was a novation of the Settlement Deed and there is no evidence that a novation was attempted or suggested to Adnunat. Adnunat instead claims that a new bilateral contract came into existence between it and ITW on the same terms as the Settlement Deed. However on the evidence on this application it is reasonable to infer that ITW did not intend to bind itself to the Settlement Deed, because the parties did not, as ITW and Reid contemplated, novate the terms of the Deed. Indeed, a reasonable inference to draw from the lack of a novation is that ITW considered there to be little benefit to it in rendering itself a party to the Settlement Deed. In the absence of any evidence of discussions about the terms of the Settlement Deed, it is difficult to see what consideration ITW would have understood it was receiving in agreeing to take on Reid's obligations, other than Adnunat's promise to supply anchors at "a reasonable market price" subject to alteration at any time by Adnunat "in its absolute discretion": see cl 3.4 of the Settlement Deed. The difficulty for Adnunat is that, without more, ITW's conduct appears to be equally consistent with an intention not to bind itself to the Settlement Deed but instead simply to purchase anchors that it knew Adnunat was in a position to supply. In that regard, it should be noted that Mr Olivetti says he cannot explain why the price paid by ITW for anchors after it acquired the business was not the same as that which had been set previously with Reid: see [10] above. The evidence seems to me at best ambiguous as to the basis upon which the parties were conducting themselves in relation to the supply of anchors. 44 Adnunat sought to draw assistance from the decision of the House of Lords in Tolhurst v The Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414 (Tolhurst). Tolhurst involved a contract for the supply of chalk at a stipulated price over a 50 year period. In 1898, Alfred Tolhurst entered into a long term agreement with a cement manufacturer, the Imperial Portland Cement Company, to supply chalk on a weekly basis from the extensive chalk quarries located on his land. The long term arrangement was to both parties' benefit, securing a regular market for Mr Tolhurst and a regular source of supply for Imperial. Two years later in 1900, Imperial sold its cement business to another company, the Associated Portland Cement Manufacturers (1900) Limited, assigned the benefit of the chalk agreement to Associated and went into voluntary liquidation. Mr Tolhurst, while prepared to supply to Associated, was unwilling to do so at the price stipulated in the chalk agreement. Nevertheless, he supplied chalk on credit and brought an action against Associated to recover a higher price. He claimed that Imperial had by its conduct rescinded the chalk agreement and sought a declaration that he was not bound to supply to Associated, as the purported assignee, at the stipulated contract price. Associated and Imperial brought a separate action seeking declarations that the agreement was valid and subsisting and that Mr Tolhurst was bound to supply chalk to Associated at the contract price. 45 On appeal, the House of Lords upheld the Court of Appeal's decision to grant the declarations sought by Imperial and Associated. The House of Lords considered that the terms of the chalk agreement, properly construed, permitted the benefit of the chalk agreement to be assigned. Lord Macnaghten, delivering the leading opinion, observed that contractual rights are not always assignable, for example where the contract involves an element of personal skill or confidence on the part of the original parties. However in the circumstances their Lordships held that the chalk agreement did not require personal performance by either Imperial or Tolhurst and the rights under it were assignable by Imperial, notwithstanding the absence of any express provision regarding assignment in the agreement. 46 Adnunat referred to two particular passages in Lord Macnaghten's judgment. At 419, his Lordship said: [The chalk agreement] is expressed to be made between Alfred Tolhurst and the Imperial Company. They, and they only, are named as the persons to perform the contract. From beginning to end of the instrument, if the contract be taken literally, there is not one word pointing to the continued existence of the contract in the hands of any other person, either by succession or substitution. … And yet the contract is to endure for the period of fifty years, or if the supply of chalk in the quarries does not hold out so long, it is to last for thirty-five years at least. Now, when it is borne in mind that the Imperial Company must have been induced to establish its works at Northfleet by the prospect of the advantages flowing from immediate connection with Tolhurst's quarries, and that the contract in substance amounts to a contract for the sale of all the chalk in those quarries by periodical deliveries (less what Tolhurst might sell elsewhere), it is plain that it could not have been within the contemplation of the parties that the company would lose the benefit of the contract if anything happened to Tolhurst, or that Tolhurst would lose the benefit of the market which the contract provided for him at his very door in the event of the company parting with its undertaking, as it was authorized to do by its memorandum. (Emphasis added.) 47 Lord Macnaghten then continued at 420: Something more is comprehended [by the chalk agreement] than the particular company and the individual Tolhurst. It seems to me that the contract is to be read and construed as if it contained an interpretation clause saying that the expression "Tolhurst" should include Tolhurst and his heirs, executors, administrators and assigns, owners and occupiers of the Northfleet quarries, that the expression "the company" should include the company and its successors and assigns, owners and occupiers of the Northfleet Cement Works, and that the words "his" and "their" should have a corresponding meaning. That, I think, was the plain intention of the parties. 48 In this case, Adnunat contended that the draftsperson of the Settlement Deed has made explicit (in the enurement clause (cl 17)) what Lord Macnaghten (at [47] above) considered to be the implicit intention of the parties in Tolhurst [1903] AC 414, namely that the parties to the Settlement Deed were to include any successors of the original parties. Adnunat acknowledged that, unlike this case, Tolhurst [1903] AC 414 was concerned with an action by an assignee to enforce the chalk agreement against an original party. However, in reliance largely on the passage quoted at [46] above (in particular the last sentence), it said that this case was otherwise "on all fours with the facts in Tolhurst" and submitted that it was irrelevant, in determining whether there was a mutual intention to contract, which one of the two parties sought to enforce the agreement (ie the assignee or the original debtor). This latter proposition requires some further explanation. Adnunat appeared to place significance on the fact that the House of Lords had made it a condition of the assignee's entitlement to the benefit of the agreement that it perform Imperial's obligations (ie to pay for the chalk): see [1903] AC 414 at 421 (Lord Macnaghten). This, said Adnunat, was significant because Imperial had been dissolved (and existed in name only) and the House of Lords, while observing that it is not possible to assign the burden of a contract without the original debtor's consent, was prepared in the circumstances to find that both Tolhurst and Associated had effectively consented to Associated taking the benefit, along with the burden, of the chalk agreement. This conclusion was reached notwithstanding that Mr Tolhurst had never previously discussed or agreed terms with Associated directly. Mr Tolhurst's consent arose from the terms of the chalk agreement, while Associated's consent was self-evident from the assignment and its preparedness to perform the agreement in place of Imperial. This was an example, said Adnunat, of how a contractual burden may be transferred to a third party – without there being a formal novation – giving rise to new rights and obligations as between the original debtor (Tolhurst) and the new party assignee (Associated). Applying that result to this case, Adnunat contended that the necessary consent as between ITW and Adnunat should be found given the existence of the enurement clause and ITW's conduct in accepting both the benefit and burden of the Settlement Deed. 49 In my view Tolhurst [1903] AC 414 provides little assistance in resolving the dispute in this case. The issue in Tolhurst [1903] AC 414 was whether the rights created by the chalk agreement were capable of assignment. Once it was decided that they were, it followed as a relatively straightforward matter that the party to whom the rights had been assigned was capable of enforcing them against the original debtor. That is not this case. Adnunat's case is not based on an assignment of the Settlement Deed. Adnunat seeks to enforce the terms of the Deed against a third party, ITW. Its ability to do so depends on there being a finding that a new bilateral contract exists between it and ITW, on the same or substantially the same terms as the Settlement Deed. Rather than it being irrelevant, it is a critical difference here that there was no assignment of the relevant contractual benefit and ITW (unlike Mr Tolhurst) had nothing to do with the original negotiation and formation of the Settlement Deed. Here, the consent of the party against whom the alleged agreement is to be enforced does not turn on the construction of that agreement (or, more particularly, its assignability), as was the case in Tolhurst [1903] AC 414. Instead, this case requires a detailed factual analysis of the parties' conduct, and correspondence, in order to determine whether ITW (a stranger to the original contract) truly made its consent manifest to Adnunat (as the original contracting party). 50 It is true that in Tolhurst [1903] AC 414the House of Lords considered it unnecessary that the assignor (Imperial) be made a party to Associated's action and held in effect that the assignee itself was obliged to pay for the chalk, if it were to have the benefit of the chalk agreement. The question of necessary parties and the appropriate relief to be given to the assignee in Tolhurst [1903] AC 414 were dictated strongly by the particular circumstances. Imperial was in liquidation, no longer had a board of directors and was deemed by the Companies Act 1862 (UK) to have been dissolved. In the absence of the assignor in all but name, the House of Lords considered it appropriate to grant a declaration that the assignee was entitled to the benefit of the agreement, but only so long as it was willing to pay for the chalk, in place of the assignor. In so doing, their Lordships recognised that in ordinary circumstances an assignor would need to be made a party by an assignee seeking to enforce an agreement: see [1903] AC 414 at 420 (Lord Macnaghten). All of this seems to me to provide little assistance to Adnunat in this case. The House of Lords in imposing the payment condition on Associated was doing no more than fashioning relief, in exercise of its equitable jurisdiction, to ensure an equitable result in the circumstances of that case. Given their Lordship's conclusion as to the assignability of the rights under the agreement, it followed that it would make no difference to Tolhurst if Imperial's obligation to pay for the chalk was performed, albeit vicariously, by Associated. This was not to determine that a new contract existed between Tolhurst and Associated but rather that the original agreement subsisted and was capable of enforcement by Associated as assignee. 51 Having dealt with what I consider are the main difficulties with Adnunat's motion, I turn to some of the key factual matters it relied on. First, it will be recalled that the letter dated 1 March 2005 giving notice of the transfer of business was addressed to Adnunat (as the contracting entity) and stated that the sender was looking forward to "continuing our relationship with you". It thus referred to an existing "relationship" and expressed a desire that that relationship would continue. The letter also stated that the change "reflects only a change in the legal ownership of the Reid business". That statement appears to have been made to explain that the new owner would operate the Reid business separately from its other business units. The letter makes no reference to the Settlement Deed or, significantly, to any possible novation of the Deed (a matter which, it might reasonably be inferred, was in the mind of the new owner, given the terms of the Business Agreement). Once all relevant evidence is in, one might conclude that the letter, viewed from the perspective of the reasonable observer and taking into account all of ITW's conduct after 1 March, demonstrates an intention to take on and perform the terms of the Settlement Deed. However at this stage I do not accept that that is the only reasonable conclusion to reach. It seems to me reasonably arguable that the import of the letter, which is apparently in a standard form, amounts to no more than putting each previous supplier to Reid on notice that Reid's business had been sold and would now be operated by a new entity. A reasonable recipient of the letter might in that context wonder what effect that was to have on any existing contracts, rather than assume that the new owner would as a matter of course observe existing contracts. In my opinion it is not so clear from the letter and the other relevant conduct that these arguments have no reasonable prospects of success. 52 Second, it is true that ITW continued to order 9 tonne anchors from Adnunat over a period spanning four months from March to June 2005. However as I have said earlier, the parties' intentions as revealed by that conduct alone are not unequivocal. Taking into account the matters I have referred to at [41]-[43], it is reasonably arguable that the parties were simply content as a practical commercial matter to continue a pre-existing anchor purchase and supply relationship, without having directed their attention to whether ITW would be bound by the Settlement Deed. It is of some relevance in that regard that this is not a case in which the relevant conduct took place over a long period of time (cf Pacific Brands [2005] FCA 288 and Vroon [1994] 2 VR 32) but instead came to an apparently abrupt end after only four months. It may be that ITW considered it commercially expedient to continue sourcing anchors from Adnunat rather than to challenge the Patent and manufacture the 9 tonne anchors it required itself. While that is speculation at this stage, it highlights the difficulty in finding that ITW has no reasonable prospects. Adnunat relied in particular on the email from Mr Pleysiar (see [10]) and contended that it was consistent only with a demand for supply pursuant to the Settlement Deed. However the email makes no reference to the Settlement Deed and the insistence on supply might be said to have arisen just as much from the commercial exigencies ITW faced at the time, compounded by Adnunat's apparent inability to meet existing purchase orders. 53 Third, the fact that ITW paid Adnunat the final royalty amount owing by Reid does suggest an acceptance by ITW of an obligation to do so. The email dated 1 April 2005 reveals that Adnunat had sought sales information from Reid previously in January 2005 and that ITW would make the royalty payment previously due. It is not entirely clear, but it appears from the invoices adduced by Adnunat that the payment was made in about May 2005: see exhibit MGO-29 to Mr Olivetti's affidavit. However even assuming the payment was made, evidence of how and why ITW came to make the payment is not at this stage before the Court and ITW in my opinion has reasonable prospects of rebutting the inference that it made the payment because the parties considered it was bound. In Pacific Brands [2005] FCA 288 at [47], Finkelstein J said: If the conduct in question is consistent with an intention not to contract, for example, if the conduct is referable to some other obligation, a contract by conduct will not arise: Horrocks v Forray [1976] 1 WLR 230, 238-239; The Aramis [1989] 1 Lloyd's Reps 213, 224. 54 His Honour was there dealing with a long course of conduct lasting over two and a half years, which it was alleged had given rise to an implied novation of a sub-licence. In concluding there was no novation, Finkelstein J said (at [47]): In this case, when viewed objectively by a person in Pacific Brands' position (as to the importance of this approach for the creation of a contract see Smith v Hughes (1871) 6 QB 597, 607), Underworks' conduct may be explained as referable at least in part to an assignment of some of the rights under the sub-licence (for example the payment of royalties to Pacific Brands) and a belief (as asserted by Pacific Brands itself) that thereafter as a practical matter Underworks was required to deal with Pacific Brands rather than Sara Lee. All in all, I think the applicants' claim for novation is hopeless. 55 On this summary judgment application, the question is of course only whether ITW has reasonable prospects of ultimately showing that its conduct ought not be construed as giving rise to a binding agreement. In my view the fact that ITW made the royalty payment might be said at this stage to be just as consistent with a recognition that it would have to pay any old debts of the Reid business before it could expect to secure the further supply of anchors from Adnunat. Alternatively it is open to infer that ITW was doing no more than complying with cl 6.3 of the Business Agreement, ensuring that Reid was not in breach of its pre-existing contractual obligations. Either way, those contentions do not in my view lack reasonable prospects of succeeding. 56 Fourth, Adnunat's reliance on the fact that invoices from Olivetti Concrete included ITW's ABN need to be approached with some caution. ITW's ABN also appears on invoices dated earlier than 1 March 2005, the date on which, on Adnunat's case, it was first notified of the change of ownership. It is not clear whether this is easily explicable, because for example Adnunat's electronic accounting system has been updated subsequently (causing newly generated copies of old invoices to record the updated information). It raises an important factual question however as to precisely when and in what circumstances Adnunat was first informed of the change of ownership. 57 Finally, from the pleadings and Mr Olivetti's affidavit, Adnunat appears to rely on the fact that a number of individuals were employed by or associated with both Reid and ITW. In particular: · Mr Bob Connell was employed by Reid as well as ITW (when it was called Ramset Fasteners (Aust) Pty Ltd); and · Messrs Michael David, Allan Sutherland, Bela Hargitay and David Speer were directors of both companies at the time of the transfer of business. 58 Adnunat however did not advance this matter in its submissions. I am not in a position to draw inferences either way in relation to their knowledge or intentions in connection with the parties' relationship. In contract by conduct cases, the key individuals involved will usually provide probative and helpful evidence, both in chief and in cross-examination. In this case, I am of the view that such evidence will be necessary. CONCLUSION 59 I do not consider that ITW has no reasonable prospects of defending Adnunat's claim that it is bound by the Settlement Deed and therefore prosecuting its cross-claim. In so concluding, I have also taken into account the matters raised by ITW at [35]-[36] above, which will require some examination at trial. Accordingly, Adnunat's motion should be dismissed with costs. 60 In the result, it is not necessary that I deal with the additional submission made by ITW that the No Challenge Term is in any event invalid as an unlawful restraint of trade. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg. Associate: Dated: 14 May 2009 Counsel for the Applicants: G S Clarke SC and I P Horak Solicitor for the Applicants: Cornwall Stodart Counsel for the Respondents: D Shavin QC and B Fitzpatrick Solicitor for the Respondents: Davis Collison Cave Solicitors Date of Hearing: 27 January 2009 Date of Judgment: 14 May 2009