AITKEN v STATE BANK OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, CLARKE and SHELLER JJA 9 March 1993, 23 April 1993 [1993] NSWCA 3 The appellants were guarantors under a Facilities Agreement by which the respondents lent money to a company in which the appellants were interested. The company defaulted under the Facilities Agreement, giving the respondents the right to appoint a receiver. The appellants, the respondents and the company reached an agreement at a meeting on 20 June 1990 to enable the company to realise its assets and pay its creditors in an orderly manner (the Realisation Agreement). At the meeting a representative of the second respondent wrote out a memorandum headed "Agreement". On 31 October, the respondents served a notice of demand on the company, which was not met. On 2 November the respondents appointed a receiver to the company. The question was whether the respondents, by the agreement of 20 June, bound themselves not to appoint a receiver pending the realisation of the company's assets. The respondents' representatives had made it clear at the meeting that there was to be no restriction on their right to demand repayment. This was not stated in terms in the memorandum, which did however state that the agreement was without prejudice to the rights of the parties under the Facilities Agreement. The appellants argued as follows: 1. The memorandum wholly embodied the agreement reached on 20 June, and bound the respondents not to demand payment until the company had had reasonable time for realisation. 2. The agreement, if it did not so bind the respondents, was illusory because the appellants would derive no advantage from an agreement which would allow the respondents to call in the debt at will. 3. Alternatively the agreement obliged the respondents to defer the appointment of a receiver once the appellants and the company had performed obligations under the Realisation Agreement. 4. The respondents had elected to allow the company to realise its assets rather than to appoint a receiver. 5. The trial judge wrongly took account of post contractual conduct. Held: 1. The trial judge was correct in holding that the agreement did not consist solely of the terms set out in the memorandum, and that the question of what rights were reserved in the memorandum could be resolved by evidence of what was said at the meeting. Consequently the respondents maintained their right to appoint a receiver. 2. The agreement was not illusory because the appellants had the benefit of the respondents' not exercising their right immediately. 3. Nothing in the memorandum or in the evidence supported a construction which obliged the respondents to defer their right once obligations under the Realisation Agreement had been performed. 4. The election argument assumed an inconsistency between the agreement of 20 June and the respondents' right to appoint a receiver. There was no such inconsistency because the appellants agreed only not to exercise their right immediately. 5. The trial judge was justified in using subsequent conduct to determine what were the terms of the contract, as opposed to using it to interpret the contract. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Masters v Cameron (1954) 91 CLR 353 2 UNREPORTED JUDGMENTS Mackay v Dick (1881) 6 App Cas 251 Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 Inglis v John Buttery and Co (1878) LR 3 AC 552 State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Norwest Beef Industries Ltd v Peninsula and Oriental Steam Navigation Co (1987) 8 NSWLR 568 Sola Basic Australia Ltd v Morganite Ceramic Fibres Pty Ltd (Unreported) Court of Appeal 11 May 1989 Haynes v Hirst (1927) 27 SR (NSW) 480 Hussey v Horne-Payne (1879) 4 App Cas 311 Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647 B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Peddie v Stein (Unreported) Young J 26 March 1987 Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 Ferguson v John Dawson and Partners (Contractors) Ltd (1976) 1 WLR 1213 Watson v Maynard Shipbuilding Consultants AB [1978] QB 665 Mears v Safecar Security Ltd [1983] QB 54 Winks v WH Heck and Sons Pty Ltd (1986) 1 QdR 226 Australian Energy Ltd v Lennard Oil NL (1986) 2 QdR 216 Mahoney JA In my opinion this appeal should be dismissed. I agree generally with the judgment of Sheller JA. In deference to the arguments of Mr Jackson QC, for the appellants, I shall add some observations of my own. A company in which Mr Aitken and Mr Cannane were interested borrowed money from banks under a Facility Agreement. The appellants guaranteed the company's liability under the Facility Agreement. The company did not pay what it owed and the banks sued the appellants on their guarantees. Rolfe J gave judgment for the banks. The appellants have appealed against that judgment to this Court. The only defence now relevant is based upon an agreement made on 20 June 1990. At that time the company was in default under the Facility Agreement and the banks could have appointed a receiver or otherwise enforced their rights under it. The company wished to sell some of its assets and apply the proceeds inter alia in satisfaction of its obligation to the banks. It was in the interests of the banks that it should do so. The parties had, on previous occasions, discussed whether the banks should withhold action under the Facility Agreement to allow the company to carry on business and raise money in this way and on what terms. The consensus arrived at on 20 June 1990 was directed to these matters. The only question argued in this appeal is whether that consensus constituted a contract whereby the banks bound themselves not to do what ultimately they did, namely, enforce their rights under the Facility Agreement. After various discussions and correspondence, the banks, on 31 October 1990, demanded that the company pay the outstanding indebtedness, said to be $10,070,444.60. The company did not pay the amount and on 2 November 1990 receivers were appointed. On 18 February 1991, demands were made under the guarantees. On 20 June 1990, the company had not paid amounts payable by it and was otherwise in such default under the Facility Agreement that the banks could have enforced their rights against it. Following 20 June 1990, the demand for payment URJ AITKEN v STATE BANK OF NEW SOUTH WALES (Mahoney JA) 3 made on 30 October 1990 and the company's failure to pay entitled the banks, under the Facility Agreement, to appoint receivers as they did. At the trial it was not established that, following 20 June 1990, the company was otherwise in default under the Facility Agreement: at least, that matter was not pursued in argument before this Court. Therefore, in essence, the validity of the appellants' defence depends upon whether the consensus of 20 June 1990 represented an agreement which prevented the banks, on 31 October 1990, demanding payment and appointing receivers on default. The appellants' argument has been that, on 20 June 1990, the consensus was a binding agreement between the parties; that by that agreement the banks promised to "... allow... 2. The company to continue (with bank facilities) to trade with the ultimate winding down objective... with the ultimate joint objective of liquidating entirely the obligations of the company to the banks"; and that to make a demand for payment was a breach of that promise. I accept that the consensus was a binding agreement. It was clearly intended that some of the provisions, eg, CL1 of Mr Cooke's memorandum, should operate to vary otherwise existing legal rights and obligations of the parties. I do not accept that the agreement, and in particular, the portion of CL4 of Mr Cooke's memorandum to which I have referred, prevented the banks from demanding payment by the company of the moneys outstanding under the Facility Agreement. There are two alternative constructions of what took place on 20 June 1990 and of the agreement then made. First, what took place may be seen as resulting in an oral agreement or an agreement partly oral and partly written, the terms of which are to be gathered from what the parties said and did at the meeting. The learned judge held and it is not in question but that, as part of what the parties did, Mr Cooke wrote out the document headed "Agreement" to which reference has been made as "the agreement" or "Mr Cooke's memorandum". If the agreement was an oral agreement or partly oral and partly written, then what the parties said at the time may be taken into account in deciding what the terms of the agreement were. On this basis, it is clear that the agreement did not contain any term restricting the right of the banks to demand payment by the company of the moneys outstanding at any time. That was said clearly and in terms by the representatives of the banks during the conversations at the meeting. What was said orally was not, in terms, incorporated into Mr Cooke's memorandum but the memorandum was not in such terms as to exclude what was said in those conversations. It contained the concluding words: "The foregoing without prejudice to the rights and obligations of both parties under the agreement". ("The agreement" is the Facility Agreement). On this construction of the agreement, it did not restrict the banks' right to call upon the company to pay and to do so at will. The alternative construction of what took place, that principally espoused by the appellants, is that the agreement consisted and consisted only of what appeared in Mr Cooke's memorandum. On that construction, regard may be had to the commercial context in which the agreement was made, including the terms of the Facility Agreement and the state of the relationship between the company and the banks at the time: see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. However, the prior conversations could not be referred to. Mr Jackson's submission was that, on that construction, the agreement impliedly restricted the banks' power to call for payment of moneys under the Facility Agreement. 4 UNREPORTED JUDGMENTS J incline to the view that the agreement made on 20 June 1990 was one made partly orally and partly in writing. It was not the intention of the parties that Mr Cooke's memorandum should represent and represent exclusively the terms of their agreement. It was plainly contemplated that the solicitors for the parties would subsequently put the agreement in writing: a note upon the memorandum so indicates. In doing so, it would be necessary for the solicitors to add provisions at least of a subsidiary kind to what was set forth in Mr Cooke's memorandum. But that, of course, does not answer Mr Jackson's submission for, as his argument would suggest, the solicitors could not add to the final form of the agreement terms not appearing in the written memorandum: see Masters v Cameron (1954) 91 CLR 353 at 360-1. However that be, I think that, upon either construction of what took place, the agreement permitted the banks to exercise their relevant rights under the Facility Agreement. Mr Cooke's memorandum contemplated that the Facility Agreement would continue to bind the parties in their dealings subject only to the amendments effected by that memorandum. It was the purpose of the final clause of the memorandum to indicate that "under the agreement", ie, under the Facility Agreement, the parties would continue to have the rights and obligations there provided. Subject to what I shall say, the banks' rights under that Facility Agreement included the right to call for payment "on a call basis". The thrust of the appellants' submission is that if that be so, then no real effect is given to the agreement "... to allow... the company to continue with bank facilities to trade..." as provided in the memorandum. I do not think that that view should be adopted. The agreement was not intended to restrict the banks' power to demand payment of the moneys by the company "on a call basis". The effect of this portion of Mr Cooke's memorandum was, in my opinion, that notwithstanding previous defaults under the Facility Agreement, the banks would permit the company to continue to trade in the relevant way. But, for example, that did not prevent the banks taking action under the Facility Agreement in the event of the company after 20 June 1990 committing a further and different breach or default under the Facility Agreement. At the least, the final clause of the memorandum preserved its right so to do. Therefore, the appellants' submission is that this portion of the memorandum restricted and restricted only (as far as is here relevant) the banks' right to require payment of the moneys "on a call basis". The argument suggests, I think, that if the banks could call for payment of the moneys on that basis, then there would be no real content in its agreement to allow the company to continue to trade as provided in the memorandum. There is, of course, some force in this. The force of the argument lies in the principle in Mackay v Dick (1881) 6 App Cas 251 and Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at 297-8; it is to be implied that the banks may not do something which will defeat the purpose of the agreement. To call up the moneys without further fault would be, it is inferred, inconsistent with such a term. But I do not think that the argument leads to the conclusion that the intention of the parties was to restrict the banks' right in this regard. It requires the implication of a term to that effect. In a commercial document of this kind, a term of this kind will be implied only if it is necessary to do so to secure a rational operation of it. I do not think that any such necessity appears. (In saying this, I do not pause to consider the various formulations of the basis on which terms will be implied. However the basis be formulated, the same result ensues. The implication of the suggested term ic not required). The court is, I think, URJ AITKEN v STATE BANK OF NEW SOUTH WALES (Sheller JA) 5 entitled to know that borrowers borrow moneys, often large sums, upon terms that they are repayable on a call basis. Overdraft facilities are not infrequently provided and accepted on such a basis. Borrowers do business upon the basis that they trust to the (legally unenforceable) expectation that ordinarily banks will not unreasonably demand repayment of moneys lent. However this be, I do not think that the form of the present memorandum warrants the conclusion that the banks agreed to restrict their right to call for repayment of moneys under the Facility Agreement as submitted for the appellants. Therefore, upon either of the alternative bases on which the agreement of 20 June 1990 was advanced, the banks were entitled to do what they did and to produce the result that the guarantors were liable to them. I therefore agree with the orders proposed by Sheller JA. Clarke JA I agree with Sheller JA. Sheller JA This is an appeal from the decision of Rolfe J of 5 June 1992. The appellants, Kevin Sidney Aitken, KLA Holdings Pty Ltd, John Vincent Cannane and J Cannane Pty Ltd were the defendants in proceedings commenced by the respondents, State Bank of New South Wales Ltd and Barclays Bank Australia Ltd, to recover money claimed to be payable under a guarantee. The guarantee was contained in CL20 of an Amended and Restated Facilities Agreement (the Facilities Agreement) entered into on 21 July 1989 by the appellants, the respondents and Ausminco Holdings Ltd pursuant to which financial accommodation was provided by the respondents to Ausminco. Mr Aitken and Mr Cannane were principals and directors of Ausminco. It is conceded by the appellants that Ausminco had prior to 20 June 1990 defaulted under the Facilities Agreement. These defaults entitled the respondents to appoint a receiver of Ausminco. Discussions took place about a possible scheme to enable the realisation of Ausminco's assets and the payment of its creditors, including the respondents, in an orderly structured manner without the appointment of a receiver. At that time Allen Allen and Hemsley acted for Ausminco and the appellants. Miss Levine was the partner in that firm handling the matter. Malleson Stephen Jaques acted for the respondents. Mr Samaha was the solicitor in that firm handling the matter. On 20 June 1990 a meeting was held attended by Mr Ceccato representing the first respondent, Mr Cooke representing the second respondent, Mr Aitken and Mrs Jeffery. Mrs Jeffery was the financial controller of Ausminco. At this meeting agreement was reached. Mr Cooke wrote out a memorandum headed "Agreement". The memorandum consisted of four numbered paragraphs each apparently discrete with an ultimate un-numbered paragraph. I set out the text ignoring deletions and including insertions as they should be read. Nothing now turns upon the manner or order in which the document was written. Most of it was hand printed but part was in long hand. This again is of no significance. "1. Letter to agent (s) re 'Set-off I. Ausminco to request us to redeem deposits and repay debts. II. Place residual debt on a call basis. 2. Letter from agent (s) to AHL ) Not a letter agreeing to a repayment of ) but embodied in the debt to Pasminco on basis ) general agreement (in of: ) the middle) 6 UNREPORTED JUDGMENTS 1. US$282K ($A equiv) from settlement proceeds CMC deal. 2. Issuance by Cannane and Aitken of subordinated guarantee committing $100K each. 3. Further payment to Pasminco only after full settlement of liability to Banks. 4. Item two. Payment only after all Bank liabilities extinguished. 3. Letter from company (directors) disclaiming Pasminco's claim of monies and refuting agent/trust and confirming outside sale basis. 4. This document confirms the agreement between the company and the Banks to allow: 1. Monitoring brief of H and H. 2. The company to continue to trade with Bank facilities with the ultimate winding down objective after . Sale of trading business........ by... date. . Sale CCI by.... date. . Sale various properties by.. date. . Return of all proceeds to the Banks. . Payment by the company of 'essential' disbursements. With the ultimate joint objective of liquidating entirely the obligations of the company to the Banks. The forgoing [sic] without prejudice to the rights and obligations of both parties under the agreement." "AHL" is a reference to Ausminco, "Pasminco" to Pasminco Ltd an unsecured creditor of Ausminco, "H and H" to Horwath and Horwath and "CCI" to a subsidiary of Ausminco. It was envisaged that Ausminco's trading operations would be sold to Commercial Metals Company Holdings AG ("CMC"). On 6 July 1990 a more formal memorandum was signed by Mr Ceccato on behalf of the respondents and by Messrs Aitken and Cannane on behalf of Ausminco and the appellants. This memorandum was not relied upon by any of the parties as the agreement between them relevant to these proceedings. On 31 October 1990 the respondents served a notice of demand for over $10,000,000 on Ausminco, which was not met. On 2 November 1990 the respondents appointed a receiver to Ausminco. On 18 February 1991 demands were made upon the appellants under the guarantees. These proceedings were commenced by summons on 18 April 1991. Rolfe J gave judgment for the respondents and ordered the appellants to pay the first respondent $3,334,695.33 and the second respondent $3,613,492. 88. He also made orders for the payment of interest. CRITICAL ISSUE AT THE HEARING In the words of Rolfe J the critical matter for determination was whether on 20 June 1990 (as the appellants contended) "the Banks agreed that they would not exercise their power to appoint a receiver, pending the completion of the Realisation Scheme, in the sense that they put it beyond their legal ability to do so", or (as the respondents contended) "the Banks would allow the Realisation Scheme to go forward, without exercising their powers to appoint a receiver, but would retain at all times during the period of the Realisation Scheme the right to appoint a receiver". Mr Sullivan QC who appeared for the respondents at the hearing and on the appeal conceded before Rolfe J that if the appellants, upon whom the onus lay, proved the version of the agreement for which they contended they would establish their defence and the Banks would lose. At the trial proof of the appellants' version of the agreement depended upon acceptance of the evidence of the witnesses they called in preference to the evidence of the respondents' witnesses. In substance his Honour accepted the evidence of the witnesses called by the respondents and rejected the evidence of Mr Aitken and URJ AITKEN v STATE BANK OF NEW SOUTH WALES (Sheller JA) 7 other witnesses called by the appellants. He said that demeanour was relevant in his assessment of the evidence of Mr Aitken who failed to impress him favourably in this regard. FINDINGS Rolfe J found that although at the meeting of 20 June 1990 an agreement was reached it was 'without prejudice' to the respondents' unfettered right under the Facilities Agreement to appoint a receiver. This right the parties reserved. Subject only to a submission that the agreement could not be made-' without prejudice', this finding defeated the appellants' contention that it was a term of the agreement that the right to appoint a receiver would not arise until at least a reasonable time had been given to Ausminco to complete an orderly sale. As to the question of whether such an agreement could, in law, be reached "without prejudice" his Honour said: "In my view it could. The representatives of the Banks were prepared to allow the Borrower to continue with the realisation of assets after 20 June 1990, which, in the absence of such an agreement, they could not have because a receiver would have been appointed. However this indulgence was allowed on the basis that the Banks could if they so chose exercise their rights." His Honour accepted the evidence of Mr Ceccato and Mr Cooke as to what transpired at the meeting on 20 June 1990. He found that at the meeting Mr Ceccato said words to the following effect: "But we make no promises that we won't call up the Facilities at any time. You must decide whether you are prepared to go forward and you do so at your own risk." "There is absolutely no way we will agree to a moratorium....... If things go according to the plans you have outlined the Banks may not need to call up the Facilities and enforce their securities but you must be under no misunderstanding - the Banks reserve their rights fully at all times and will take action if they elect to do so. There can be no moratorium. Its up to you." Insofar as the evidence of Mr Aitken and Mrs Jeffery did not accord with this evidence of Mr Ceccato and Mr Cooke his Honour rejected it. He accepted that the terms of Mr Cooke's memorandum in its entirety were read out and agreed to by the parties. SUBSEQUENT CONDUCT Rolfe J considered that the subsequent conduct of the parties supported the conclusion that there was no agreement of the type for which the appellants contended. He said that in dealing with subsequent conduct in this context he was not seeking to construe the agreement, but to ascertain whether there was an agreement of the type contended for by the respondents or the appellants. After the meeting of 20 June 1990, Mr Cooke submitted his memorandum to the respondents' solicitors for the preparation of a document to be signed by the parties. A draft was prepared and sent to Allen Allen and Hemsley. By facsimile sent to Mallesons Stephen Jaques on 4 July 1990, Miss Levine sought amendments of the draft which Mr Samaha resisted. In particular Miss Levine was concerned at the fact that there was no guarantee by the respondents not to "pull the plug" at any time. His Honour regarded Miss Levine's approach as inconsistent with her having received instructions that there was an agreement in the terms contended for by the appellants. By letter of 5 July 1990 Mallesons Stephen Jaques rejected amendments proposed by Miss Levine and said, amongst other things: 8 UNREPORTED JUDGMENTS "The financiers do not understand your suggestion that a five month period of grace has been 'previously discussed by the parties'. No such moratorium was ever the subject of a consensus. Indeed when the suggestion was raised and firmly rejected by the financiers, your clients acknowledged this and gave all indications that they understood and accepted the financiers' position. Suggested CLS has the effect of negating most, if not all, of the advantages that the financiers as secured creditors, have available to them in the short term. At the same time no legal or commercial advantage is offered in return. A period of grace will not be granted in the present circumstances." No protest was made by the appellants or their solicitor about the terms of this letter. There followed other letters and documents which made plain the respondents' position and which drew no protest or comment from the appellants or their advisers. Rolfe J remarked upon the failure of Ausminco to seek a document in terms referred to in a note made by Mrs Jeffery at the meeting of 20 June 1990 to the effect that the respondents would undertake not to withdraw the Facility after the CMC sale proceeds were received and to allow the payment of essential creditors. No such document ever came into existence. On 5 July 1990 Mr Aitken and Mr Ceccato spoke by telephone. Mr Ceccato asked Mr Aitken if he had seen a letter sent by Allen Allen and Hemsley, which was probably the facsimile of 4 July 1990, and Mr Aitken confirmed that he had. Mr Ceccato complained that the amendments to the proposed memorandum were totally unacceptable because it was all in the borrower's favour and gave nothing to the respondents. Mr Ceccato also asserted it did not follow "our commercial agreement reached two weeks ago". As his Honour pointed out, so far as the evidence disclosed, no attempt was made by Mr Aitken to obtain confirmation of the agreement in the form for which the appellants now contend nor was any attempt made to put that position in writing to the respondents. His Honour could only conclude that, as a matter of probability, the failure to do so was consistent with a recognition by Mr Aitken that no such agreement existed. Rolfe J said: "Mr Aitken sought to explain his failure to answer what was being put by Mr Ceccato by stating that Mr Ceccato seemed to be in an aggressive mood and that he could see no point in addressing these issues. I found this explanation absolutely unconvincing. Mr Aitken was a businessman of some experience. Not to respond vigorously to Mr Ceccato's statements was inconsistent with what he asserts had been agreed. Even so there were steps Mr Aitken could have taken, other than discussing the matter with Mr Ceccato, had he wished. The letter of 5 July 1990 from the solicitors for the Banks stated, in the penultimate paragraph: "We have been expressly instructed to advise that no further amendments to the memorandum will be considered by our clients. They are of the view that they have been more than reasonable and approachable and that the time has come for the Borrower and the Guarantors to show their bona fides by signing the memorandum in the form enclosed herewith, which reflects the consensus in fact reached by the parties in the discussions which they have held to date.' Despite the protestations by Mr Aitken, Mr Cannane and Mrs Jeffery that there was the additional term to the agreement there was no reply to this clear statement." The memorandum was signed on 6 July 1990 by Mr Aitken and Mr Cannane notwithstanding Miss Levine's advice as to the absence of protection for Ausminco and notwithstanding the failure of the memorandum to record the terms of the agreement for which they contended. CL6 of the signed memorandum, headed "No Waiver of Rights", acknowledged "the intent that any URJ AITKEN v STATE BANK OF NEW SOUTH WALES (Sheller JA) 9 rights and obligations which have accrued or will accrue under any of the Transaction Documents have not and will not be waived or in any way prejudiced, the expression "Transaction Documents' including the Facilities Agreement." His Honour referred to the subsequent failure by Ausminco to contradict the respondents ' assertions that they were relying on their rights. On 11 July 1990 Messrs Cannane and Aitken signed a letter from Ausminco to Mr Ceccato in the following terms: "As discussed previously, we now instruct the Bank to place all indebtedness of Ausminco Holdings Limited under the Facility Agreement dated 21 July 1989 and the related Transaction Documents irrevocably at call so that the Bank will be in the position if (it) so desires to at any time to request payment for principal outstanding and all other amounts payable under the said Facility Agreement (or any part thereof) immediately or within such a time as the Bank may stipulate." Finally Rolfe J referred to the failure of Ausminco to take steps to restrain the appointment of a receiver or to have the receiver removed. His Honour said that this related directly to instructions that had been given to Allen Allen and Hemsley concerning the agreement which had been reached. In the result the advice of Allen Allen and Hemsley was that the appointment of the receiver could not be challenged. His Honour said that the letter of 7 November 1990 furnishing such advice made it clear "that this advice proceeded, at least in substantial part, upon the basis that the Banks had consistently reserved their rights in various correspondence consenting to transactions entered into by the Borrower, and, in these circumstances, there was no suggestion that there was a binding agreement". SUBMISSIONS ON APPEAL On the appeal Mr Jackson QC, who appeared for the appellants, did not challenge Rolfe J's findings of fact. The appellants' argument that the claim against them under the guarantee failed was based upon two propositions: 1. That the only agreement arrived at on 20 June 1990 was that contained in Mr Cooke's memorandum. 2. That properly construed this agreement bound the respondents not to demand repayment from Ausminco until a reasonable opportunity had been allowed by the respondents to carry through the scheme of realisation. This time had not expired when the notice of demand was given. Mr Jackson called in aid the principle quoted by Lord Blackburn in Inglis v John Buttery and Co (1878) LR 3 AC 552 at 577. ".. where parties agree to embody, and do actually embody, their contract in a formal written deed, then in determining what the contract really was and really meant, the court must look to the formal deed and to that deed alone. " He conceded that if the agreement was not embodied wholly in the memorandum the appeal failed. Equally, of course, it failed if as a matter of construction the terms in the memorandum did not inhibit the respondents making the demand upon Ausminco for repayment when they did and appointing a receiver in consequence. On its face the appellants' contention has the attractions of being a simple two-step process. However the process is immediately complicated because, as Mr Jackson seems to have accepted, the first stage involves turning to the evidence to see whether the parties not only agreed to embody but did "actually" embody their agreement in the memorandum. The written document is no more than part of the evidence to be taken into account in judging these matters; see generally per McHugh JA, as he then was, in State Rail Authority of New South 10 UNREPORTED JUDGMENTS Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191-2 and per Hope JA, with whom Samuels JA agreed in Norwest Beef Industries Ltd v Peninsula and Oriental Steam Navigation Co (1987) 8 NSWLR 568 at 570. In Sola Basic Australia Ltd v Morganite Ceramic Fibres Pty Ltd (unreported) Court of Appeal, 11 May 1989, Priestley JA, with whose judgment Hope JA agreed, contrasted the approach taken when the court is seeking to ascertain what are the terms of a contract with that taken, once the terms are known, in resolving its meaning. The two questions may be interwoven. Before Rolfe J the appellants contended that it was a term of the agreement made on 20 June 1990 that the respondents would not exercise their power to appoint a receiver pending the completion of the Realisation Scheme. His Honour found that there was no agreement of the type for which the appellants contended. He did not treat the agreement as consisting solely of the terms set out in Mr Cooke's memorandum. His Honour referred to the ultimate paragraph in Mr Cooke's memorandum and concluded that the question as to what rights the respondents were reserving, which, in his opinion, was merely another way of saying that the arrangements were "without prejudice" to the parties' rights, was resolved by his acceptance of the evidence of Mr Ceccato and Mr Cooke about what was said at the meeting. In this case there is, in the result, little difference in considering on the one hand whether the continuance of the respondents' unfettered right to appoint a receiver was an oral term of the contract which was not included in Mr Cooke's memorandum with the consequence, to adopt the language quoted by Lord Blackburn, that the parties did not "actually" embody the whole of their agreement in the written document, or on the other whether properly construed the ultimate paragraph in Mr Cooke's memorandum meant this so that to that extent the document was a complete record of the agreement. Rolfe J carefully analysed the evidence. Based on that he made a finding that an agreement was reached on 20 June 1990 and that part of it was that the respondents maintained their unfettered right to appoint a receiver. The question was what were the terms of this agreement and so far as relevant this was his Honour's answer to that question. I see no reason to disturb his findings. We were taken in some detail to the evidence of the circumstances in which Mr Cooke's memorandum came to be written and of the beliefs of various witnesses as to whether it comprised the whole agreement. But Rolfe J accepted the evidence of Mr Cooke and' Mr Ceccato as to what Mr Ceccato said during the meeting. It was open to his Honour to make the finding that he did. Indeed, paying due regard to the evidence to which we were referred, I agree with his Honour's finding. In my opinion, the appeal should be dismissed with costs. There are however, some further matters that I should deal with. WAS THE AGREEMENT ILLUSORY? The appellants argued that the agreement in the terms as found by his Honour was illusory. The Court, it was said, should strain against a construction which produced such a result. Under the Facilities Agreement part only of the money advanced to Ausminco was repayable at call. The effect of the agreement and a letter subsequently written in accordance with the first paragraph of Mr Cooke's memorandum was to place the whole of the "residual debt" at call. This was an advantage gained by the respondents. It was argued that the fourth paragraph obliged the respondents not to appoint a receiver until a reasonable time had elapsed for carrying through the Realisation Scheme. If the respondents retained the right at will and at any time to call up the debt and appoint a receiver the agreement was illusory in the sense that the appellants derived no advantage from URJ AITKEN v STATE BANK OF NEW SOUTH WALES (Sheller JA) 11 it. This however, in my opinion, mistakes the effect of the agreement. The respondents, it is accepted, had on 20 June 1990 the right to appoint a receiver immediately. They agreed not to do so in return for various advantages including the placement of the residual debt at call. There was nothing illusory about such an agreement. The respondents did not appoint a receiver until after a demand had been made upon Ausminco on 31 October 1990. The appellants had the benefit of the respondents not exercising on 20 June 1990 their right to appoint a receiver immediately. RIGHT TO APPOINT RECEIVER DEFERRED Mr Jackson put an alternative argument that the agreement should be construed as obliging the respondents to defer the appointment of a receiver once the appellants and Ausminco had performed all or some of their obligations under the agreement. For the purpose of this argument the appellants assumed that during the period up to such performance the respondents were entitled to appoint a receiver. On 11 July 1990 Ausminco by letter instructed the respondents to place all the indebtedness of Ausminco irrevocably at call and in September 1990 the settlement of the sale to CMC made available money which was paid to the respondents in reduction of the facility. I note this argument but, in my opinion, there is nothing in the document itself or any evidence which might be taken into account in construing it to support such a construction. It is entirely inconsistent with the terms of the contract as found by Rolfe J. ELECTION Mr Jackson relied upon Haynes v Hirst (1927) 27 SR (NSW) 480 at 489 for the proposition that by entering into the agreement of 20 June 1990 the respondents had irrevocably elected to allow Ausminco to realise its assets and not to exercise their right to appoint a receiver under the Facilities Agreement. This argument assumes that there is an inconsistency between what the respondents undertook to do pursuant to the agreement of 20 June 1990 and appointing a receiver under the Facilities Agreement. In my opinion there was no such inconsistency for reason that relevantly the respondents did no more than agree not immediately to exercise their right to appoint a receiver. RELEVANCE OF SUBSEQUENT CONDUCT The appellants relied upon Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 to urge that post contractual events cannot be used as an aid to interpretation of the contract. But Rolfe J did not so use this evidence. In my opinion his Honour was justified in treating subsequent conduct as evidence admissible in determining what the terms of the contract were. Hussey v Horne-Payne (1879) 4 App Cas 311; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647 at 663, 668-9 and 672; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at 9155; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255; Peddie v Stein (unreported) Young J 26 March 1987 at 20. The availability of subsequent conduct as an aid to interpretation of a contract is a different matter; Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 315 and 326-8; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 272-3; Ferguson v John Dawson and Partners (Contractors) Ltd (1976) 1 WLR 1213 at 1221; Watson v Maynard Shipbuilding Consultants AB [1978] QB 665 at 675; Mears v Safecar Security Ltd [1983] QB 54 at 77; Winks v WH Heck and Sons Pty Ltd (1986) 1 QdR 226 at 238; Australian Energy Ltd v Lennard Oil NL (1986) 2 QdR 216 at 237. His Honour found that the evidence supported the 12 UNREPORTED JUDGMENTS conclusion that there was no agreement of the type for which the appellants contended. Mr Sullivan in the course of both his written submissions and oral submissions took us through the evidence of subsequent conduct with care. He emphasised that the agreement for which the appellants contended was never documented. The matters to which Rolfe J referred amply supported the conclusion he reached. There is no subsequent conduct which favours a contract in the form for which the appellants contended. I agree that the evidence of subsequent conduct was admissible and supports the conclusion that the agreement of 20 June 1990 was in terms which reserved to the respondents the right to demand repayment of the debt and to appoint a receiver when they did. It follows, as I have said, that the appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the Appellant: DF Jackson QC/JE Thomson Instructed by: Minter Ellison Morris Fletcher Counsel for the Respondent: AJ Sullivan QC/JW Stevenson Instructed by: Malleson Stephen Jaques