New South Wales Court of Appeal CITATION : ANZ Banking Group Limited v Ciavarella & 3 Ors [2003] NSWCA 304 HEARING DATE(S) : 16 September 2003 JUDGMENT DATE : 16 September 2003 JUDGMENT OF : Santow JA at 1; Tobias JA at 43; Young CJ in Eq at 44 DECISION : Appeal dismissed. Appellant to pay Respondents' costs on the appeal. CATCHWORDS : MORTGAGES - Whether the bank was bound by an informal contractual agreement - Did correspondence between the bank and the mortgagee constitute a binding agreement - Did the bank breach the informal contractual agreement by demanding repayment - Whether the acceptance of the agreement was conditional - Can formal mortgages be varied by informal documentation LEGISLATION CITED : Farm Debt Mediation Act of 1994 s11; s15 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 CASES CITED : Masters v Cameron (1954) 91 CLR 353 Pan American World Airways Inc v Commonwealth of Australia (1977) 7 BPR [97629] AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (First Appellant) Anthony Mark CIAVARELLA (First Respondent: ) PARTIES : Susan CIAVARELLA (Second Respondent: ) Anthony Luke CIAVARELLA (Third Respondent) Nicholas Deane Hew CIAVARELLA (Fourth Respondent) FILE NUMBER(S) : CA 40036/03 COUNSEL : M Oakes, SC/ K E Burke (Appellant) M Walton, SC/ M S White (Respondents) SOLICITORS : Minter Ellison Lawyers (Apellant) Kell Moore (Respondents) LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 50036/01 FILE NUMBER(S) : LOWER COURT Macready AJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40036/03 SANTOW JA TOBIAS JA YOUNG CJ in EQ 16 SEPTEMBER 2003 ANZ BANKING GROUP LIMITED v Anthony Mark CIAVARELLA & 3 Ors Judgment 1 SANTOW JA: INTRODUCTION Essentially this matter concerns one fairly straightforward point, following a concession properly made by the appellant Bank. The central issue in the case is whether the appellant, in the absence of contemplated formal documentation, was nonetheless bound to a contractual agreement incorporating what was described as a "thirteen point plan". This was by virtue of correspondence providing for variation to earlier loan and security arrangements which passed between the appellant Bank (ANZ Banking Group Limited ("the Bank")) and the respondents, who were indebted to the Bank as mortgagors. 2 The concession which was made obviated the necessity for consideration of whether, if there were a binding agreement, three further terms should be implied, as was found by the trial judge. The concession in essence was that by virtue of para 12 of the thirteen point plan, in the event that a binding agreement existed in terms of the thirteen point plan, then it was not disputed that the Bank had breached para 12 by the enforcement steps that it had taken. I should add that the indebtedness owed to the Bank has been repaid. The relevance of the present proceeding is whether the Bank is liable to the respondents in damages by reason of there being such breach, this being dependant on whether there was a binding agreement incorporating para 12. THE SALIENT FACTS 3 The respondents and the Bank engaged in attempts to mediate the matters in dispute between them pursuant to the Farm Debt Mediation Act of 1994 ("the Act"). It is not necessary to traverse the detail of what occurred in the course of that mediation beyond noting the following. On 17 May 2000 the respondents were invited to attend mediation in accordance with the Act and a mediation subsequently ensued on 28 August 2000 between the Bank and the respondents. That mediation was adjourned but has been referred to as "the first mediation". 4 On 5 September 2000 the mediation reconvened and no agreement was reached; that is referred to as "the second mediation" though it was in one sense simply an adjournment of the first. 5 On 1 February 2001 a further mediation occurred between the Bank and the respondents. While no agreement was reached a letter of 13 March 2001 was written by the Bank to the respondents attaching what is variously described as a proposal or an offer but in any event comprising the "thirteen point plan" (see [13] below). 6 The earlier history of the unsuccessful mediation which culminated on 5 September 2000 with no agreement being reached did nonetheless generate some documentation, to which I should make brief reference. The Bank recorded what it called "agreement reached at mediation" bearing date 5 September 2000 but which was not furnished to the respondents. It contained what has been referred to as the "twelve point plan". In addition, the Bank produced a deed which was made available to the respondents and which appears at Blue, 12. That deed, as the appellant conceded, is not drafted with pellucid clarity. It does however throw some oblique light on the content of the thirteen point plan; in particular to what was contemplated by the reference in the thirteen point plan at para 11 to a "deed setting out all these terms together with acknowledgments, releases, confidentiality and consent judgments to be signed within fourteen days". 7 I shall return to that deed when dealing with the thirteen point plan itself, as also a subsequent deed of release entered into on 28 May 2001. 8 A short history of the dealings between the parties commences with the respondents being first offered a facility by the Bank in April 1997. It was for an overdraft of $50,000 and a fully drawn advance of $1,400,000, together with a separate fully drawn advance of $500,000. In August of that year, mortgages were given over the various properties which were owned by various members of the respondent's family. A bill of sale was given over the unencumbered plant and machinery at the same time. In October 1997 the fully drawn advance of $1,400,000 was increased to $1,500,000. 9 During 1998 the overdraft was increased to $100,000. In 1999 the respondents sought some increased borrowing in order to finance planting of further grapes in anticipation of a contract for the sale of grapes. A temporary increase was allowed to the overdraft. 10 By the end of 1999 the facilities were in default and in January 2000 the accounts were passed to the Bank's credit management department. On 25 January 2000 a notice of event of default was sent to the respondents in respect of the loans which were then due. 11 On 28 August 2000 there was a mediation between the Bank and the respondents as I have earlier described. 12 Following the breakdown of the original mediation, the parties as I have said continued to negotiate for a settlement and a number of offers were made by the respondents which were rejected by the Bank. 13 However, on 13 March 2001 the Bank sent a letter to the respondents in the following terms: "We refer to a telephone conversation with Sue and your facsimile of 9 March 2001. You have again requested 12-month interest moratorium. We take this to mean you do not want interest charged for 12 months, is this correct? Or is it that you do not wish to pay the interest for 12 months, but it would continue to accrue? Either way this type of arrangement is not acceptable, interest will be charged and as previously agreed is to be paid if the Bank is to allow time for repayment of the debt. We have attached a schedule outlining what the Bank is prepared to offer you. In submitting any further proposals to the Bank you must be able to demonstrate your ability to meet the interest commitments. Accordingly, the proposal contained in the facsimile of 9 March 2001 is rejected. Yours faithfully Amanda White Manager" 14 There was attached to the letter a document in the following terms incorporating the thirteen point plan: "1. Existing sale of part of Farm 1714 to be completed and after deducting reasonable legal expenses associated with the sale, water rates (approx $125k) and council rates ($47k), net proceeds are to be paid to the Bank in reduction of the overdraft to a nil balance, any surplus shall be paid in the following order. $20k ANZ, balance to creditors of Mr Ciavarella. 2. The OD will have a limit of $100k. 3. Ciavarella shall provide to the Bank consent to contact MIA and he shall provide full details of all water licences and rights. 4. The Bank's consent is required if excess water rights are sold and the proceeds shall be distributed as 20% to ANZ & 80% to Ciavarella. 5. The company will grant a Charge and provide a Guarantee in favour of Ciavarella. 6. Ciavarella shall provide full details of all plant & equipment and its location. 7. Following settlement of part of Farm 1714, interest to be paid monthly on all of the outstanding debts. g. Any sale of land or assets subject of the Bank's securities shall require the Bank's consent. 9. Inspection to be carried out around 30 March 2001 and then as required by the Bank, but no more than on a quarterly basis. The firm that carries out the inspection shall not be appointed receiver. 10. Debts repaid in full by 31/12/2002. 11. Deed setting out all these terms together with acknowledgments, releases, confidentiality & consent judgements to be signed within 14 days. 12. In the event of default the Bank agrees to allow the Ciavarellas' 30 days in which to rectify the default. 13. Interest will be charged at the retail index rate less 1.5%." 15 On 16 March 2001 a certificate was issued by the New South Wales Rural Assistance Authority under s11 of the Act. That had the effect of exempting the dispute from the Act. 16 There was no further contact between the Bank and the respondents until on 21 March 2001 when the Bank made a decision to issue a demand and to appoint a receiver. On 23 March 2001 the respondents faxed a letter to the Bank in which they purported to accept the Bank's offer. The letter was in the following form: "We would like to advise that we are accepting your 13-point offer. Could you please confirm that the $20,000 interest adjustment still applies? We are accepting the 13 points in their present form but we would like you to consider: 1. Some extra time to rectify any default 2. In the event of the sale of the remaining portion of Farm 1714 and/or Farm 1902, after obtaining your consent, would you consider the proceeds being split 50/50? In order to expedite matters, and as our son Anthony is still overseas, would it be acceptable to you if he were to sign any documents by fax? Thanking you Yours faithfully, AM (Tony) Ciavarella" 17 On 26 March 2001, which was a Monday, the Bank made a demand for the full payment of the debt. They also wrote to the respondents in response to the respondents' earlier communication in the following terms: "We refer to your facsimile of 23 March 2001. The facsimile does not unconditionally accept the terms set out in the facsimile to you dated 13 March 2001 (the "Offer"). The Bank does not accept the further terms contained in your facsimile. Specifically, the Bank does not agree to additional time to clear the overdraft balance to nil, nor does it agree to split the sale proceeds of Farm 1714 and Farm 1902, 50:50. On our calculations the sale proceeds from both of these properties, less outstanding water rates and other adjustments will not be sufficient to clear the overdraft balance to nil. The current balance of the overdraft is $372,455.31 Dr Further, you have provided no evidence that Farm 1902 is on the market for sale, nor that interest can be maintained pending any further debt reduction. In the circumstances, and given that you have not accepted the Offer, the Offer is now withdrawn and and/or lapsed. Yours faithfully Amanda White Manager" 18 The respondents immediately replied in these terms: "We refer to your facsimile of 25 March 2001. We do not agree that our acceptance was conditional. Para 1 and para 2 of our facsimile dated 23 March 2001 were not conditions precedent to acceptance, but merely related issues for you to consider in good faith with the intention of possibly amending the accepted offer. Accordingly, we maintain our acceptance of your offer dated 13 March 2001. In light of the above, please indicate whether you still purport that there has been no offer and acceptance. Yours faithfully, Tony and Sue Ciaverella" 19 Immediately thereafter there was a response by fax in the following terms: "We refer to your fax of 26 March 2001. It is maintained that there is no proper basis to assert any agreement. Our fax to you dated 13 March 2001 was part of a chain of correspondence. It set out indicative terms upon which the Bank was prepared to resolve the matter. It was at all times clear, however that those terms were conditional upon you satisfying the Bank that you would be able to meet the conditions including, as set out in our fax dated 13 March 2001, all interest commitments. You have not done that and it is clear from your conduct and all the circumstances that you will not and cannot do so. Further, we note that the Bank has served demand on you in respect of the full amounts due. In the circumstances, it is clear that to the extent that any offer was made (which is expressly denied), that offer had lapsed and/or was not accepted by you. Yours faithfully Amanda White Manager" 20 On 27 March 2001 the Bank wrote to the respondents advising that the demands had been issued, a receiver was appointed and it commenced proceedings for recovery of the amounts due. On 28 March 2001 the respondents applied to the Court by way of cross-claim for an order restraining the receiver permanently from continuing to perform his functions. That application was heard by Hamilton J on 12 April 2001 and orders were made restraining the receiver and agreements entered into by the parties to continue the status quo. This included the respondents meeting their interest obligations and other obligations under the securities. That agreement provided for the execution of a release which was executed on 28 May 2001 but which did not apply in terms to the actions of the Bank on and after 23 March 2001. RESOLUTION OF THE APPEAL 21 The hearing of the proceedings commenced before Macready AJ on 2 December 2002 and was limited to the question of liability with damages to be dealt with at a later stage. 22 Although there appears to have been some objection raised to the admission of documents evidencing the agreement between the parties arising out of the mediations based on s15 of the Act, it appears firstly that the trial judge did not exclude the documentation and second that some cross-examination occurred which clearly trenched upon that area of confidentiality. I do not, however, need to consider that latter aspect. 23 The appeal is essentially in relation to the respondents' cross-claim. The trial judge concluded that on the face of the letter of 13 March 2001 it was plainly an offer and the fax of 23 March 2001 plainly appears to be an acceptance; Red, 95 [23]. 24 The Bank unsuccessfully argued before the trial judge that the letter for various reasons did not constitute an offer but was merely something that the Bank was "prepared" to do and that in any event the acceptance was not unconditional. For the reasons stated by the trial judge, I consider that the acceptance was unconditional. In particular I agree that the further matters raised by the respondents were not any qualification upon the acceptance but an attempt to see if the Bank might agree to further concessions. Likewise the trial judge was satisfied that the Bank was aware of a crop mortgage given by the respondents, though the identity of the entity to which it was given was unclear. I would accept that this matter affords no impediment to the respondents' contention that there was a binding agreement, with para 12 operating as conceded. 25 The trial judge concluded that by application of the principles in Masters v Cameron (1954) 91 CLR 353 at 360 the exchange of correspondence brought about an agreement within the first class of Masters v Cameron in the well known passage which I quote below: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. (at p360)" RESOLUTION OF THE APPEAL 26 The appellant on appeal concentrated argument upon paras 11 and 12 of the letter of 13 March 2001 containing those items of the thirteen point plan. Para 11 was said to point to the Bank not treating itself as bound by any agreement but as contemplating that the only agreement that it would be bound by would be the formal deed referred to in para 11. It was then said that the deed there contemplated, insofar as it required "acknowledgments, releases, confidentiality and consent judgments" was necessarily referring to matters which required further agreement and not merely as to matters of mere formality. I do not agree. The deed which emerged in the September 2000 discussions makes clear what must have been understood by both parties in relation to the matters in para 11. First, the deed contains in somewhat idiosyncratic numbering what is called "acknowledgments". Clause 2.1 contains an acknowledgment by "the customers" that "they are liable to the Bank in respect of the Debts". Debts are in turn referred to as meaning "the amount owing from time to time by the customers to the Bank in respect of the accounts in schedule A, together with all interest, fees and charges that may accrue". Schedule A in turn contains a precise statement of the various accounts. Clearly enough, the amount in question constituting the debts would need to be calculated but that would be a mere mechanical process and does not require further agreement. The advantage of acknowledgment was simply that the borrowers were committed to an ultimate figure but that is all. 27 Then there is a reference in what is referred to as a "release" preceded by a paragraph reference to "13" but followed by a reference to clauses 7.1 and 7.2, with a cross-reference to clause 3 that appears to be non-existent. That said, one can eke out of clause 7.2 some content, namely that there would be a "deferred release" on payment being made of the amount owing to the Bank so as to "release and discharge the customers from all claims, actions, suits, demands, costs and expenses..." 28 The confidentiality provisions appear relatively boilerplate and are set out at (yet another) clause 12 of the draft deed. 29 The reference to "consent judgments" in para 11 of the 13 point plan finds its counterpart in the Deed under the heading "Proceedings" again preceded by the number twelve and this time followed by a sequence of two sub-clauses. They appear to contemplate that the customers shall not oppose and if requested consent to the entry of judgment in the proceedings which would be brought by the Bank. Importantly, clause 12.2 states "the Bank agrees it will not enforce those judgments before 31 December 2001 unless there is an Event of Default". 30 Not surprisingly, the evidence indicates that the respondents did not accept the deed as giving effect to what had transpired at the mediation; see Grey, 19-20. When one looks at the slipshod character of the deed that was not surprising. But it certainly does not justify any inference that the respondents would only contemplate themselves as being bound by a formal deed as distinct from the relative informality of the exchange of correspondence. Nor does it preclude the deed as illustrating what the parties had in mind more especially as a later deed (entered into as part of an interim arrangement) did state these matters with greater accuracy. 31 Thus a subsequent deed of release was entered into on 28 May 2001 which with greater precision does state the amount owing and provides for various releases including in clause 5.4 what I have described (at [27]) as the "deferred release". One may properly look at subsequent events to determine whether a binding contract pre-existed; (Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153) though self-serving letters, as here, are to be discounted more especially when they contradict each other. Thus the first letter dated 26 March 2001 does not dispute that an offer (referred to in the letter as "the Offer") had been made by the Bank, but says only that it had not been accepted; the second letter of the same date disputes that an offer had been made. Clearly, the second letter only demonstrates that the appellant had changed its mind. 32 The appellant submits that Amanda White, in using the phrase "prepared to offer" was not putting forward an offer capable of acceptance. In paragraph 15 of her affidavit sworn on 6 April 2001 (Red, 90-92), she states: "At the mediation I made an offer on behalf of the Bank that it was prepared to enter into an agreement in accordance with the 12 point plan save that the time for repayment (point 10) was extended by 1 year and a concessional rate of interest was offered. That offer was rejected by the defendant." 33 This is evidence that "prepared to offer" was a phrase Ms White used when she intended to make an offer capable of acceptance. When confronted with the appellant's argument that this phrase in Ms White's letter dated 13 March 2001 (Red, 88) was evidence of an intention not to be bound, the trial judge correctly held that the phrase had to be read in the context of the letter; in other words, the correspondence as a whole (Red, 96). The passage he referred to from the Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR [97578] case is as follows: "It is wrong to isolate any part of the correspondence from the rest in order to prove or disprove the existence of a binding agreement. The same approach should be taken to the analysis of words and phrases within the correspondence. Reference to an "agreement" having been reached does not necessarily prove the existence of a presently binding contract. Conversely, references to a "proposed" agreement, and similar expressions, will not necessarily mean that no agreement presently exists. It is a question of how the words are to be interpreted in their context, and in the light of the correspondence, viewed as a whole." [ Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR [97578] at 14,570, per Kirby P.] 34 The appellant contended that no agreement was reached between the parties on 23 March 2001 in terms of the thirteen point plan and in particular · The evidentiary material will not sustain the inference drawn by the trial judge that an agreement was reached. · Insufficient weight was given by the trial judge to the subject matter of the "contract" being a fundamental alteration of a security interest which was itself conferred by formal documentation. · Insufficient weight was given to the character of the parties negotiating; in particular that it was highly improbable that either party intended to leave its mutual rights and obligations in a matter of considerable consequence to be spelled out of an exchange of letters. Previous negotiations, which had proceeded to draft deed stage, had terminated when the respondents rejected the draft deed. · The arrangements proposed between the parties were not entirely simple; in particular the terms of the release were never spelled out. The only form of release which had passed between the parties had been in previous negotiations, and had been rejected by the respondents. The form of release embodied in a deed and signed on 28 May 2001 provided for no release by the appellant until the term of the deed had been performed by the respondents, but an immediate release of the appellants by the respondents. · Matters of this nature were considered by this court in Pan American World Airways Inc v Commonwealth of Australia (1977) 7 BPR [97629]. 35 Much was made in argument on the fundamentality of these alterations and the intrinsic unlikelihood that they would be effected by informal documentation of the kind in question. The answer to that lies firstly in the fact that there is nothing to suggest that the Bank's documentation was other than standard. Nor is there anything to suggest that the alterations in question were themselves in any way out of the ordinary in conventional Bank dealing with a customer who gets into difficulties. One would imagine that every day of the week Banks enter into variations of this sort which are initially reflected in correspondence but are then made the subject of a formal detailed record by way of some deed or other formal agreement. Indeed, the Bank's own documentation points to this. Thus one finds at clause 9 of the formal document described as "ANZ business and investment facilities" that the Bank can merely by notice vary the conditions of the facility. There is no suggestion that the notice is not immediately effective without need for further more formal documentation. Here, that which is relied upon as stating the relevant agreement emanates from the Bank in just that manner. 36 The appellant sought to distinguish the present case from what I have described as conventional dealing between Bank and customer by contending that the informal documentation here contemplated a further deed. The answer to that contention is that one may contemplate a formal deed to give, as Masters v Cameron contemplates, a formal recording of the essential terms previously agreed. That is no way incompatible with the parties being bound until that point of time by that which records in summary form the essential terms of that agreement. 37 When one looks at those terms in the letter of 13 March 2001 there is nothing which indicates any lack of sufficient definition as would make a further deed essential for ascertainment of the parties' agreement. 38 I should refer briefly to Pan American World Airways Inc v Commonwealth of Australia (1977) 7 BPR [97629] relied on by the appellant. 39 That case is wholly distinct from the situation before us in this appeal. There, in the words of the Full Court: "The subject matter of a contract or the character of its parties or of a party may be such that a formal written contract offers such advantages as against a less formal agreement that, when it appears that the parties in fact contemplated the execution of a formal contract, it is inherently unlikely that they mutually intended to bind themselves by some earlier informal consensus. The disadvantages of having to depend upon the uncertainties inherent in informality, providing as they do fertile fields for dispute as to the existence of the contract or as to its terms where the rights of the parties have to be spelt out of conversations or correspondence or both, may assume substantial significance in some classes of contract or for some types of parties. This usually will be true of complex transactions such as a major construction project or a leasing transaction, such as the present one, involving provisions for change of areas leased and of conditions as to rent and otherwise during the term. It will also usually be true of a party whose operations are administered by a complex of persons and departments with different levels of authority, as in the case of governments, governmental bodies or large corporations. The practice of such bodies of entering into contracts of any substance by way of a formal contract is itself no formality. While an officer of the body of corporation may have substantial authority, including express authority to negotiate the terms of the contract and, arguably, by reason of his rank, implied authority to contract, the making of the contract by the formality contemplated may repose in more senior officers or a Minister the ultimate control of and the responsibility for the transaction and at the same time give the contract and its terms the certainty and notoriety desirable for its sure implementation. Hence, in such cases, it will not ordinarily be reasonable to infer that the parties, while contemplating a formal contract, intend to bind themselves prior to its execution." 40 Here, what is contemplated is, as I have said, a relatively standard set of variations which led to the correspondence. CONCLUSION 41 Having regard to the concession properly made by the appellant, once it be concluded that a binding agreement was constituted by the exchange of correspondence, it follows that clause 12 required the Bank to give the thirty days notice before enforcement proceedings. It is not disputed that the Bank was required to allow thirty days to run in which to rectify any default. 42 I would propose that the appeal be dismissed and that the appellant shall pay the respondents' costs on the appeal. 43 TOBIAS JA: I agree with Santow JA. 44 YOUNG CJ IN EQ: I also agree. oOo Last Modified: 11/03/2003 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.