New South Wales Court of Appeal CITATION : Joseph Tak-Wong Wong & Anor v Mura [2001] NSWCA 366 FILE NUMBER(S) : CA 40246/01 HEARING DATE(S) : 26 September 2001 JUDGMENT DATE : 15 October 2001 PARTIES : Joseph Tak-Wong Wong and Austcorp No 457 Pty Limited v Rocco Mura JUDGMENT OF : Priestley JA at 1; Fitzgerald AJA at 5; Rolfe AJA at 33 LOWER COURT JURISDICTION : District Court LOWER COURT DC 6767/98 FILE NUMBER(S) : LOWER COURT His Honour Judge Goldring JUDICIAL OFFICER : COUNSEL : Appellant - T.E.F. Hughes QC / S.C. Dowling Respondent - J.M. Ireland QC / J.E. Stuckey-Clarke SOLICITORS : Appellant - Smits Leslie Respondent - Marsdens CATCHWORDS : CONTRACT - offer and acceptance - whether conduct of the parties sufficient to demonstrate acceptance - whether silence can indicate acceptance - CONTRACT - capacity to bind third party - agency - authority to bind a company prior to becoming an officer of the company - PLEADINGS - whether trial judge properly disregarded the pleadings LEGISLATION CITED : Fair Trading Act 1987 Suitors Fund Act Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 CASES CITED: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110; Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 Vickery v Woods (1952) 85 CLR 336 DECISION : Appeals allowed with costs. Judgment below set aside. Mura's action dismissed with costs. Mura to have a certificate under the Suitors Fund Act if qualified. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40246 of 2001 DC 6767 of 1998 PRIESTLEY JA FITZGERALD AJA ROLFE AJA MONDAY 15 OCTOBER 2001 JOSEPH TAK-WONG WONG and AUSTCORP NO 457 PTY LIMITED v ROCCO MURA JUDGMENT 1 PRIESTLEY JA: I agree with Fitzgerald AJA. 2 I wish also to say that the reasons why pleadings are required in superior courts and the reasons why parties to litigation are supposed to comply with pleading rules apply equally in the District Court. 3 They enable parties to prepare for trials with a reasonably clear understanding of what the issues will be and what evidence they will need to put before the court. They next enable the parties to litigation to conduct it in an orderly and focussed way, which keeps surprise and ambush to a minimum. 4 If issues not apparent from the pleadings are allowed to be litigated at a trial, the terms on which this is permitted should include an order that the pleadings be amended accordingly. The pleadings at the end of a trial should accurately show what was or were the case or cases of the claiming side of the record, and what was put in issue by the opposing side, together with any further issues raised by that side. 5 FITZGERALD AJA: After a trial, a District Court judge on 20 March this year awarded the respondent, Rocco Mura ("Mura"), $400,000 damages for breach of contract and interest of $225,901.34, a total of $625,901.34, against the appellants, Joseph Tak-Wong Wong ("Wong") and Austcorp No. 457 Pty Ltd ("Austcorp") "jointly and severally". An appeal has been brought to this Court from that judgment. 6 Regrettably, the trial judge disregarded the pleadings. His Honour said at the beginning of his judgment: "In this case the pleadings are less than adequate properly to identify the precise issues in the case. However, this Court has never been a court of strict pleading, and I must determine the case on the basis of the evidence that has been produced. Most of that evidence is documentary." 7 The approach adopted by the trial judge not only led his Honour into error but resulted in considerable confusion. Mura continued to reformulate his claim in the course of argument in this Court. 8 Mura was a party to Deeds dated 25 October, 1989 and 25 September, 1994 (the "1994 deed") with ICM Pty Limited ("ICM") and Mercap Pty Limited ("Mercap"). The 1994 deed compromised claims which Mura had against ICM and Mercap and other persons who had been, or were, shareholders or directors in those companies. 9 By early 1995, Mura had claims under the 1994 deed, including a claim for $550,000 against ICM and Mercap. 10 An intermediary for one of the other parties to the 1994 deed approached Wong. The trial judge found that "Wong, through Pacific Concrete Quarries Pty Ltd was primarily interested in [Mercap's] property at … Plumpton where [a] concrete batching plant was located." 11 Prior to and at a meeting between them and other persons on or about 25 March 1995, Mura and Wong discussed a proposal for Wong to invest a substantial amount – of the order of $500,000 – in the share capital of Mercap (and perhaps ICM), either directly or by an interposed company. The proposal envisaged that Mercap would continue to trade, either directly or through a subsidiary. The trial judge made findings which are not challenged concerning what was discussed at that meeting. His Honour noted that there was a large measure of agreement between the witnesses, but held that "… where there is a conflict, I prefer the evidence of Mr Mura and his son to that of Mr Wong." 12 On 30 March 1995, Wong sent a signed facsimile to Mura who replied by signed facsimile on the same day. The document which Mura sent to Wong was the document which he had received from Wong to which Mura had added his signature on each page. The document thus created was in the following terms: "WITHOUT PREJUDICE Dear Mr Mura, Re: ICM/Mercap debt I refer to our meeting last Saturday at my Botany office when we discuss a number of activities involving you and the above group of companies and leaving a residual debt due to you. During my lengthy negotiations with the Directors of the above companies, new and surprising matters continue to raise their heads thus further deteriorate the viability of the deal which I originally believed would have been a good investment for the group I represent. The arrangement being proposed between you and the Directors or Mr Turner really has got nothing to do with me at this stage but if my group is to invest with the ICM group like you did before, then I cannot allow the new company structure to accept the liability unless it is modified as under: Principal Four hundred thousand dollars ($400 000) Interest Interest free Loan Period Eighty-six (86) months after Commencement date (as defined hereunder) Instalments No payment for the first six (6) months after Commencement date; thereafter at five thousand dollars ($5,000) per month until the Principal is paid in full Commencement Commencement date of the new company structure which is anticipated to be the last week in April 1995 (sgd) JOSEPH T.W. WONG ROCCO MURA (sgd) Presently I am reviewing the drain system being imposed on the ICM site by the authorities, the escalating construction cost of the factory building as well as the unpleasant litigation matter involving the Tristar Concrete group (a few known pit falls to date). In regard to the construction contract for your Ingleburn property, my comment on this matter is to treat this like any contract with provision for progress claims and the appropriate measures to ensure meeting of payments as when they fall due. No part of the construction cost will be treated as part payment against your debt. Mr Mura, please understand that my group's participation will strengthen the recovery of part of your monies and I understand you have suffered along with the present Directors. Would not wish to dwell into who was right or otherwise because I only have these in mind: make sure the new structure shall trade profitably and that your $400 000 as well as our injections are safe and the project is worthy of everyone's involvement. In so doing, I could recommend the new structure to commit the foregoing as a gesture to you and I need not emphasis strongly enough if we do not come to a satisfactory conclusion. Please sign a copy of this letter to acknowledge your consent. Legal documentation shall follow after receipt of your acknowledgment. Yours faithfully, Rocco Mura, hereby acknowledge the above content and agree to reduce the debt to $400 000 with the repayment schedule as stated in this letter (sgd) JOSEPH T.W. WONG ROCO MURA (sgd) Date: 30/3/95 Witnessed by: (sgd) Stephen Mura" 13 The facsimiles of 30 March, 1995 provided the basis for the trial judge's conclusion that both Wong and Austcorp "as an undisclosed principal" which was "to be taken as ratifying the actions of Mr Wong as its agent" entered into a legally binding contract with Mura on that date. Plainly his Honour's conclusion with respect to Austcorp is incorrect. At that time, there was no association between Wong and Austcorp. Wong had no authority on behalf of Austcorp until 3 May 1995, when he and "members of the Wong group acquired shares in and became officers of" Austcorp. 14 Further, there is no basis for a conclusion that Austcorp somehow subsequently became liable to Mura on the basis of the facsimiles of 30 March, 1995: cf Vickery v Woods (1952) 85 CLR 336. Wong did not invest in either Mercap or ICM. On or about 18 April 1995, Mercap was placed (and continues to be) in receivership. Shortly afterwards, ICM went into liquidation. On the day Wong became a director of Austcorp, he submitted a different proposal to Mura. 15 Mura's Amended Statement of Claim alleged that Wong undertook to Mura by their facsimiles of 30 March 1995 (and their earlier discussions) that Austcorp "would accept a liability of $400,000" to Mura and that Wong "would take all steps necessary to ensure" that it did so. Mura did not plead that Wong became contractually bound to pay Mura $400,000 by the facsimiles of 30 March. Nonetheless, the trial judge found that Wong had undertaken to pay Mura by those facsimiles. His Honour said: "In my opinion, the letter [Wong's facsimile dated 30 March 1995] manifests an intention by Mr Wong to undertake personally to Mr Mura that he will pay the sum of $400 000 on the terms stated, if he and his group, using a 'new corporate structure', are able to obtain the property and business of ICM and Mercap, on condition that Mr Mura neither seeks to enforce his rights, under the Deed of Settlement of 5 September 1994, against ICM and/or Mercap, nor seeks to compete with Mr Wong in acquiring the business or property of those companies. … … Mr Wong, as well as Mr Mura, considered himself personally as having a binding contractual arrangement conditional only on Mr Wong and his group acquiring the property of ICM and Mercap. The agreement should, in my view, be construed as evincing an intention that both Mr Wong and the corporate structure which would later be employed should be liable to Mr Mura. … … Mr Wong's offer of 30 March evinced an intention by Mr Wong to make an offer capable of acceptance, and his offer was accepted by Mr Mura when he signed the copy and faxed it back to Mr Wong the same day." 16 Both Mura's Amended Statement of Claim and the judgment under appeal were based upon a misconception concerning the meaning and effect of the facsimiles of 30 March. Briefly stated, those facsimiles recorded Mura's acceptance of Wong's proposal that Mura reduce his claim against ICM and Mercap to $400,000 (to be payable in the specified instalments by those companies) if Wong invested in them. As noted above, that did not occur. 17 On 3 May 1995, the day he became a director of Austcorp, Wong sent Mura a further facsimile (dated 2 May 1995) in the following terms: "WITHOUT PREJUDICE Dear Mr Mura, Re: ICM/Mercap debt I refer to my letter of 30 March 1995, a copy is attached herewith, and wish to confirm that should my group be successful in acquiring the business and premises situated at Lot 2, 202 Power Street, Plumpton, then my arrangement with you as contained in the said letter shall carry. Yours faithfully, (signed) JOSEPH T.W. WONG I, Rocco Mura, hereby acknowledge the above content and agree to same. ROCCO MURA Date: Witnessed by: " 18 Although Wong's 3 May facsimile contained provision for Mura to "acknowledge the above content and agree to the same", Mura did not respond. Nonetheless, Wong's 3 May facsimile was the basis of what his Honour described as Mura's "primary claim". 19 Paragraphs 12, 12A, 15, 16A, 17 and 19 of Mura's Amended Statement of Claim were in the following terms: "12. On or about 2 May, 1995 [Wong] agreed with [Mura] on behalf of [Austcorp] and also represented and warranted on his own behalf that in the event that [Austcorp] was successful in acquiring the business and premises of ICM or Mercap, then: (a) [Austcorp] would accept liability to [Mura] for the sum of $400,000. (b) [Austcorp] would discharge such liability by monthly instalments of $5,000 commencing in November, 1995." 12A. Thereafter [Austcorp] having acquired the said business and premises: (a) Failed to accept and acknowledge a liability of $400,000 to [Mura]; and (b) Failed to pay [Mura] instalments of $5,000 commencing in November, 1995. … 15. Acting in reliance upon the representations alleged in paragraph … 12 above, [Mura]: (a) Withdrew from all independent negotiations to acquire the assets of Mercap or ICM; and (b) Took no steps to enforce any of his rights pursuant to the 1994 Deed, or otherwise. … 16A. In breach of the warranty on the part of [Wong] pleaded in paragraph 12 above: (a) [Austcorp] did not accept liability to [Mura] for a sum of $400,000; and (b) [Austcorp] did not discharge such liability by monthly instalments of $5,000 commencing in November, 1995. 17. [Mura] claims against [Austcorp] and [Wong] damages calculated as at 1 October, 1998 in the sum of $414,462 plus interest, calculated from 1 October, 1998 until judgment. PARTICULARS Past due payments (37 x $5,500 = $185,000) Interest on due payments ($31,806) Payment due 1 October 1998 ($ 5,000) Net present value of future payment ($192,656) Total $414,462 … 19. [Mura] also claims interest and costs." 20 The trial judge rejected Mura's "primary claim" and his claims based on alleged breaches of s 42 of the Fair Trading Act 1987. As earlier noted, the judgment in Mura's favour was based on Wong and Mura's facsimiles of 30 March. In this Court, Mura sought to uphold his claim based on Wong's 3 May facsimile by a Notice of Contention which he applied to amend during the hearing. 21 The following extract from the trial judge's judgment sets out his Honour's findings on some further factual matters and his description of Mura's "primary claim": "On 22 May 1995, the receiver agreed to sell the assets of Mercap to Mr Wong ... This included the land at Plumpton. In fact, a contract was entered into on 3 July 1995 by Mercap (through its receiver) to sell this property to Austcorp … The contract was completed on 16 October 1995… It is my view that once this contract was entered into, Mr Wong (and the group for which he acted as agent, if it is necessary for me so to find) had fulfilled any possible condition precedent to them becoming liable to pay the sum of $400 000 to Mr Mura. On 3 July 1995, time started to run under the contract of 30 March. This date may be significant for the calculation of interest. Consistent with the view Mr Mura had always taken, namely that the fax of 30 March 1995 and his reply constituted a binding agreement, on 1 June 1995, the solicitors then acting for him, Gunesekera Barone & Cavanagh, wrote to the solicitors then acting for Mr Wong, A J Law & Co, enclosing a draft deed prepared by them purporting to give effect to what they had been instructed was the agreement between Mr Mura and Mr Wong. Presumably Mr Mura or Gunesekera Barone & Cavanagh had made some inquiries of Mr Wong, to ascertain who his solicitors were. They had also ascertained that the land at Plumpton was being transferred to Austcorp as the letter is headed "MURA/ICM 2000 PTY LIMITED" and requires evidence that Austcorp had become registered proprietor of the land before the deed is executed. It also calls for payment of the first instalment due under the agreement. On 7 June 1995, A J Law & Co responded by fax to Gunesekera Barone & Cavanagh in terms which include the following: Please be advised that our client has instructed us to advise that the debt purchase is just a courtesy and represents our client honouring a commercial commitment with regard to a past arrangement. Our client views the proposal represented by the transaction is that it is buying a debt which has no commercial value. The verbosity and prolixity of this expression are in the original. These words do not form part of the contract, but it seems to me that the use of the expression 'commercial commitment' suggests that the solicitor was of the opinion that a binding contract did exist and is affirming that. There were, however, negotiations about some of the contents of the deed. Ultimately agreement on those terms was reached, and the deed was executed by both Mr Wong and Mr Mura. It was, however, never exchanged, because Mr Wong apparently instructed his solicitors to retain the executed deed unless and until another company Muraplas made payment under the building contract entered into between Muraplas and ICM. No payment was ever made by either defendant to the plaintiff. These proceedings have been brought as a result. The plaintiff's submissions The plaintiff submits as its primary claim that on or about 3 May 1995 Mr Wong made an agreement on behalf of Austcorp to the effect that it would honour an agreement previously made between Mr Wong and Mr Mura that Mr Wong would pay $400 000 by instalments in consideration that Mr Mura would not pursue his rights against ICM and Mercap under the deed of 5 September 1994. If I find that Mr Wong was not authorised to make a contract on behalf of Austcorp, then Mr Mura claims against Mr Wong personally. …" 22 The case which Mura sought to make in this Court by reference to Wong's 3 May facsimile is set out in Mura's proposed amended notice of contention, which provides: "[Mura] contends that the judgment below against [Wong] should be affirmed on the following additional grounds: 1. The facsimile sent on 3 May 1995 by [Wong] to [Mura] constituted an offer by [Wong] to [Mura] that in the event that [Mura] did not himself negotiate for the assets and that [Wong's] group was successful in acquiring the business and premises of Mercap at Plumpton, then [Wong] would ensure that [Mura] received payment of $400,000 in the terms attached to the facsimile. 2. [Mura] accepted the offer by his conduct: (a) By not pursuing negotiations with the receiver of Mercap in respect of the purchase of the business and assets of the company; (b) by instructing his solicitors to submit to [Wongs] solicitors a deed providing for the payment obligations of [Austcorp] on the terms of the attachment to the facsimile sent on 3 May 1995. 3. [Wong's] group, through [Austcorp], acquired the business and premises of Mercap on or about 3 July 1995. 4. [Wong] failed to ensure that his group or [Austcorp] paid to [Mura] the sum of $400,000 upon the said terms. 5. [Wong] is accordingly liable to [Mura] in the sum which is the subject of the judgment under appeal." 23 Mura accepted that the case now advanced by reference to Wong's 3 May facsimile alleges that only Wong, not Austcorp, is liable. 24 The problems caused by the trial judge's disregard of the pleadings are highlighted by findings made by his Honour which are potentially material to Mura's claim as he now seeks to present it. (a) His Honour might have accepted the following evidence by Mura: "… In reliance upon Mr Wong's assurances, in his facsimile sent on 3 May, I did not approach the receivers and manager of Mercap or the liquidator of ICM to purchase the businesses and major assets, although I had the funds to do so." (b) His Honour said that "… there is evidence on which I could find, were it necessary, that Mr Mura had signified his acceptance of any offer contained in Wong's facsimile on 3 May". (c) His Honour accepted Mura's evidence that "… he thought he already had a binding agreement with Mr Wong, as indicated by his acceptance of the offer of 30 March." (d) His Honour found that "[t]he only contract that can realistically be asserted to have existed between Mr Mura and either defendant was, in my opinion, made on 30 March 1995." (e) His Honour's conclusion in relation to the matters referred to in para 2(b) of Mura's proposed amended notice of contention was merely that they were "[c]onsistent with the view that Mr Mura had always taken, namely that [Wong's] facsimile of 30 March 1995 and [Mura's] reply constituted a binding agreement." 25 The case which Mura now seeks to advance is formulated in the classical terms of offer and acceptance. Even if that is not always essential (Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105), the circumstances must establish tacit agreement. As McHugh JA, with whom Hope and Mahoney JJA agreed, said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117: "… a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. (Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523). The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract (cf Baltimore & Ohio Railway Co v US (1923) 261 US 592; Fincke v US (1982) 675 F2d 289)." 26 In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534, McHugh JA, with whom Samuels JA agreed, cited Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 in support of the proposition that "the silent acceptance of an offer is generally insufficient to create any contract". In Brogden, Lord Hatherley said (at p 582) that for conduct to establish the foundation of a contract it must be "of such a character as necessarily to lead to the inference on the part of the defendants that the agreement has been accepted on the part of the plaintiffs and was to be acted on by them". In Empirnall (at p 535), McHugh JA said that the "ultimate [factual] issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offerer that his offer has been accepted." 27 Plainly, Mura's omission to reply to Wong's facsimile on 3 May did not indicate to Wong that any offer in that facsimile had been accepted. 28 Mura's case therefore is dependent on a conclusion that his then solicitors' letter of 1 June 1995 to the solicitors then acting for Wong "enclosing a draft deed prepared by them purporting to give effect to what they had been instructed [by Mr Mura] was the agreement between Mr Mura and Mr Wong" indicated to Wong that Mura had accepted an offer contained in Wong's facsimile of 3 May 1995. 29 The trial judge did not discuss Mura's then solicitors' submission of the draft deed or the parties' subsequent conduct in relation to the possible formation of a contract between them. Mura's then solicitors submission of a draft deed was merely described as consistent with Mura's (erroneous) view that a contract had been concluded by the facsimiles exchanged on 30 March. 30 There are substantial objections to Mura now seeking to establish a new case which was not pleaded. Moreover, his solicitor's letter of 1 June 1995 does not evidence his acceptance of a promise by Wong "to ensure that [Mura] received payment of $400,000 in the terms attached to [Wong's] facsimile [of 3 May]". The draft deed made no reference to any promise by Wong but provided for a liability from Austcorp to Mura. That was also the basis of the subsequent negotiations in relation to the draft deed. Mura did not assert that those negotiations produced a contract in terms of the document which was signed but not exchanged. 31 In summary, Mura failed to prove a contract with Wong or Austcorp and his action should have been dismissed. 32 The appeals should be allowed with costs, the judgments below set aside, and Mura's action dismissed with costs. Mura should have a certificate under the Suitors Fund Act, if qualified. 33 ROLFE AJA: I agree with Priestley JA and Fitzgerald AJA. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.