New South Wales Court of Appeal CITATION: County Securities Pty Limited v Challenger Group Holdings Pty Limited & Anor [2008] NSWCA 193 HEARING DATE(S): 18 February 2008 JUDGMENT DATE: 14 August 2008 JUDGMENT OF: Spigelman CJ at 1; Beazley JA at 64; McColl JA at 67 DECISION: 1. Appeal allowed. 2. Set aside orders made by Rolfe DCJ on 5 June 2007. 3. Verdict and judgment for the appellant in the amount of $338,639.84 and interest pursuant to s 100 of the Civil Procedure Act 2005 from 26 June 2003 to 3 July 2007 of $124,535.96 and interest thereafter of $92.78 a day. 4. Respondents to pay appellant's costs of the appeal and of the proceedings below. CATCHWORDS: CONTRACT – formation of contract – informal contract for sale of equity swap business – whether term of contract that interest on margin loans was not being capitalised – whether agreement that sale would be at no loss to purchaser meant purchaser did not assume burden of paying interest capitalised on margin loan account – - CONTRACT – whether express or implied term that sale of equity swap business meant purchaser did not assume burden of paying interest capitalised on margin loan accounts – - CONTRACT – relevance of subsequent conduct to determination of terms of contract Australian Securities and Investments Commission Act 2001 (Cth) LEGISLATION CITED: Civil Procedure Act 2005 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) CATEGORY: Principal judgment Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Bank of New Zealand v Simpson [1900] AC 182 BP Refinery (Westernport) Pty Limited v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 Byrne & Frew v Australian Airlines Ltd (1994) 47 FCR 300 Byrne v Australian Airlines Limited [1995] HCA 24; (1995) 185 CLR 410 Carmichael v National Power Plc [1999] 1 WLR 2042 Codelfa Construction Pty Limited v State of Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2007] NSWDC 125 Deane v The City Bank of Sydney [1904] HCA 44; (1904) 2 CLR 198 Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 Equuscorp Pty Ltd v Glencallen Investments [2004] HCA 55; (2004) 218 CLR 471 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213 Gordon-Cumming v Houldsworth [1910] AC 537 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 CASES CITED: Hendriks v McGeoch [2008] NSWCA 53 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59 CLR 348 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 82 ALJR 419 Jones v Sutherland Shire Council [1979] 2 NSWLR 206 Liverpool City Council v Irwin [1977] AC 239 MacDonald v Longbottom (1859) 1 E & E 977; (1859) 120 ER 1177 Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Mears v Safecar Security Ltd [1983] QB 54 Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R 90-263 Pitcher v Langford (1991) 23 NSWLR 142 R W Cameron & Company v L Slutzkin Pty Ltd [1923] HCA 20; (1923) 23 CLR 81 Ryan v Textile Clothing and Footwear Union of Australia [1996] 2 VR 235 Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Torbett v Faulkner [1952] 2 TLR 659 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Wharf St Pty Ltd v Amstar Learning Pty Ltd [2004] QCA 256 White v Australian and New Zealand Theatres Ltd [1943] HCA 6; (1943) 67 CLR 266 Wilson v Maynard Shipbuilding Consultants [1978] QB 665 R Davis (ed), Contract: General Principles (2006) Thomas Law Book Co TEXTS CITED: K Lewison, The Interpretation of Contracts, 4th ed (2007) Sweet & Maxwell G McMeel, The Construction of Contracts, (2007) Oxford University Press County Securities Pty Limited (Appellant) PARTIES: Challenger Group Holdings Limited (formerly known as Challenger Financial Services Group Limited) (First Respondent) Challenger Hedging Limited (Second Respondent) FILE NUMBER(S): CA 40418/07 COUNSEL: J Gleeson SC; D Robertson (Appellant) D F Jackson QC; K Morgan (Respondents) SOLICITORS: Thompson Eslick (Appellant) Mallesons Stephen Jaques (Respondents) LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 5289/05 LOWER COURT JUDICIAL OFFICER: Rolfe DCJ LOWER COURT DATE OF DECISION: 5 June 2007 LOWER COURT MEDIUM NEUTRAL CITATION: County Securities Pty Limited v Challenger Group Holdings Limited [2007] NSWDC 125 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40418/07 DC 5289/05 SPIGELMAN CJ BEAZLEY JA McCOLL JA Thursday 14 August 2008 County Securities Pty Ltd v Challenger Group Holdings Ltd Judgment 1 SPIGELMAN CJ: In this matter I have had the advantage of reading the judgment of McColl JA in draft. Her Honour sets out the relevant evidence, findings, issues on the appeal and the submissions. I gratefully adopt her Honour's judgment in these respects. I also adopt her Honour's terminology and abbreviations. Subject to the following observations I agree with her Honour's reasons. 2 The Transfer Agreement was a contract partly in writing, partly oral and partly to be inferred from conduct. Reliance on conduct was necessary because important aspects of the agreement were not the subject of express statements, either written or oral, in a form which could constitute the making of an agreement. The extracts her Honour sets out from Integrated Computer Services Pty Ltd v Digital Equipment Corps (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 and Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2002) 117 FCR 424 at [369] are particularly pertinent in such a context. 3 One part of the Transfer Agreement was a transfer of the Equity Swaps with ACE and ACM. This part of the transaction was wholly in writing and is contained in the Novation Agreement. The other side of the Transfer Agreement was the hedge, being actual Seven shares and the associated margin loan. The hedge part of the Transfer Agreement involved the acquisition of CHL's shares in Seven and the assumption of obligations under CHL's margin loan account with EML. The hedge part of the Transfer Agreement was not in writing. 4 No issue arises in this case in which any party seeks to refer to extrinsic circumstances in order to add to, qualify or interpret the Novation Agreement. The surrounding circumstances to which the Court is invited to have regard are directed to that part of the contract that was not in writing. 5 It is necessary to emphasise that it was an essential part of the business being transferred that the two parts of the transaction be kept quite distinct. The reason for that is that ACE and ACM, which, under the Equity Swap, acquired the benefit of an economic, but not real, exposure to Seven shares must not know whether or not County had implemented a hedge to protect itself from its exposure under the Swap arrangement by acquiring physical shares. If it were the case that ACM knew that County had implemented a hedge by acquiring physical shares, to which the Margin Loan related, then it was at least arguable that County could be found to be "warehousing" shares for ACE and ACM. That would have significant Corporations Law implications; for example with respect to the obligation to disclose substantial shareholdings and the regulation of the acquisition of shares by a person who has a relevant interest in more than 20 percent of Seven. 6 In my opinion, the first step required to determine this appeal is to identify the subject matter of the contract on the Margin Loan side. Was the agreement to transfer the entire balance of the loan account as it existed on the settlement date or was the agreement to transfer the principal in the loan account referrable to the acquisition of the hedge shares? If the latter, then the warranty pleaded by the appellant to the effect that the loan account did not include capitalised interest would be readily implied. (See Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 442.) The Legal Principles 7 A need to identify the particular subject matter of the contract has often arisen, even in the case of a written agreement where there is a form of words to be interpreted. In the present case, the subject matter and the concomitant terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree? 8 In the absence of a written document or a conversation constituting the Transfer Agreement in the relevant respect, it is necessary for the Court to consider the full range of relevant surrounding circumstances when determining the subject matter and terms of the contract. Principles of law based on the parol evidence rule are not applicable. 9 As Griffith CJ said in Deane v The City Bank of Sydney (1904) 2 CLR 198 at 209: " … [W]hen a contract is partly in writing and partly verbal, all the circumstances may be looked at and considered for the purpose of construing the contract, and even to vary the written documents …" 10 Furthermore, as Barwick CJ put it in Handbury v Nolan (1977) 13 ALR 339 at 341: "The matter … is not to be resolved … by construction of written documents, but as a matter of fact, ie what in substance was the subject matter of the sale and purchase." (See also Torbett v Faulkner [1952] 2 TLR 659 at 661; Gordon-Cumming v Houldsworth [1910] AC 537 esp at 541, 545.) 11 To similar effect are the observations of Lord Hoffmann in Carmichael v National Power Plc [1999] 1 WLR 2042 at 2049: "[T]he rule that the construction of documents is a question of law … applies in cases in which the parties intend all the terms of their contract (apart from any implied by law) to be contained in a document or documents. On the other hand, it does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents but also from oral exchanges and conduct. In the latter case, the terms of the contract are a question of fact. And of course the question of whether the parties intended a document or documents to be the exclusive record of the terms of their agreement is also a question of fact." 12 Also to similar effect are the observations of Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239 at 253-254: "We have then a contract which is partly, but not wholly, stated in writing. In order to complete it, … it is necessary to take account of the actions of the parties and the circumstances … … The Court here is simply concerned to establish what the contract is, the parties not having themselves fully stated its terms." (See also at 261 D-E per Lord Salmon: "all the surrounding circumstances".) 13 This case is often characterised as determining when a term is to be implied by law. It is in my opinion, more accurate to characterise it as authority for the identification of what the parties must be regarded, as a matter of necessity, as having agreed, because of what "the nature of the contract itself implicitly requires" having regard to "the inherent nature of [the] contract and of the relationship thereby established". (See 254 F, 254 H, 255 B). In the present case the nature of the relevant part of the contract was a loan for the purpose of acquiring shares to serve as a hedge for the Equity Swap. 14 Even in the case of a written contract, the words identifying the subject matter being bought and sold may be susceptible to more than one meaning. This is one well established category of ambiguity, so that extrinsic evidence is admissible to identify the subject matter, even on a restrictive approach to the use of extrinsic evidence in the course of contractual interpretation. (See Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 349-350, 352.) 15 There are numerous examples in which extrinsic evidence has been used to identify the subject matter of a written contract. (See Bank of New Zealand v Simpson [1900] AC 182 at 187-189; Gordon-Cumming v Houldsworth supra at 541, 545; R W Cameron & Company v L Slutzkin Pty Ltd (1923) 23 CLR 81 at 87-87; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 356; White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 at 270-271; Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302 at 303-304; Wharf St Pty Ltd v Amstar Learning Pty Ltd [2004] QCA 256 at [7]; Kim Lewison The Interpretation of Contracts, 4th ed (2007) Sweet & Maxwell at [11.03] pp 416-420; Gerard McMeel, The Construction of Contracts, (2007) Oxford University Press at [5.46]-[5.49]. 16 A classic example of the application of this principle is the written reference to "your wool" in the contract considered in MacDonald v Longbottom (1859) 1 E & E 977; 120 ER 1177. The issue in that case was whether or not pre-contractual discussions were admissible to identify what was meant by the phrase "your wool". Lord Campbell CJ said at E & E 984; ER 1179: "There cannot be the slightest objection to the admission of evidence of this previous conversation, which neither alters nor adds to the written contract, but merely enables us to ascertain what was the subject matter referred to therein." See also per Wightman J at E & E 985, ER 1180, Erle J at E & E 986, ER 1180 and Byles J at E & E 989, ER 1181. 17 In the case of an oral contract, when the issue is not interpreting words but determining the subject matter of the contract as a fact, the position is a fortiori. In such a case the relevant surrounding circumstances extend to both pre-contractual and post contractual conduct. 18 The cases referred to in pars [14] and [15] all had regard to pre-contractual negotiations to determine the subject matter of the contract. There is significant debate about the admissibility of post contractual conduct for purposes of interpreting a contract. This Court has maintained the traditional refusal to take such conduct into account, save in certain established respects. (See Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [26].) 19 It is by no means clear to me that this principle is applicable in the case of conduct that occurs at the time of settlement. However, this case can be determined without deciding whether or not such conduct is post contractual within the principle. 20 Where what is in issue is the identification of the subject matter of the contract, or the identification of necessary terms which were not the subject of express provision in a contract not reduced to writing, then consideration of post contractual conduct does not contravene the reasons underlying the principle. 21 There is no authoritative formulation of those reasons. However, the factor most often relied upon is the proposition that such conduct merely reflects the subjective intention of the parties, whereas the Court must ascertain their objective intentions. (See eg Codelfa supra at 352; FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 at 351; Ryan v Textile Clothing and Footwear Union of Australia [1996] 2 VR 235 at 261-262.) In my opinion, subsequent conduct, especially how a contract for purchase and sale was settled, is relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of necessary terms, as distinct from deciding the meaning of words. 22 In Carmichael v National Power Plc, supra, the House of Lords had to determine whether a person performed work under a contract of employment, within the meaning of a statute. The House of Lords overruled a Court of Appeal decision that, on the proper interpretation of documents pursuant to which the casual work arrangement had been made, there was such a contract. When rejecting a submission that reliance on post contractual conduct was inconsistent with the objective approach to identifying and interpreting a contract and that the subjective belief of the parties was irrelevant, Lord Hoffmann said at 2050: "This austere rule would be orthodox doctrine in a case in which the terms of the contract had been reduced to writing. But I do not think that it applies to a case like the present. In a case in which the terms of the contract are based upon conduct and conversations as well as letters, most people would find it very hard to understand why the tribunal should have to disregard the fact that Mr Lovatt and Mrs. Carmichael both agreed that the CEGB were under no obligation to provide work and the applicants under no obligation to perform it. It is, I think, pedantic to describe such evidence as mere subjective belief. In the case of a contract which is based partly upon oral exchanges and conduct, a party may have a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief … But the terms of the engagement must have been discussed and these conversations must have played a part in forming the views of the parties about what their respective obligations were. The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd v James Miller and Partners Ltd [1970] AC 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed." 23 A second matter often referred to is the uncertainty that would be introduced into commercial relationships by reliance on post contractual conduct. (See Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 316; FAI v Savoy Plaza supra at 350.) This consideration, in my opinion, is not material when the issue to be determined arises from uncertainty about the subject matter of the contract or the failure to expressly address necessary terms. 24 All of the cases on which the respondents relied involved contracts in writing. Where, as here, the issue is the identification, as a matter of fact, of the subject matter of the contract, as distinct from the interpretation of the contract, subsequent conduct, especially conduct at the time of settlement is, in my opinion, entitled to significant weight. 25 As in the case of reference to pre-contractual conversations, the fact that the relevant part of the contract here under consideration was not in writing determines the admissibility of such conduct. (See Wilson v Maynard Shipbuilding Consultants [1978] QB 665 at 675; Mears v Safecar Security Ltd [1983] QB 54 at 77-8; Lewison op cit at [3.15] p 111, 114; J L R Davis (ed), Contract: General Principles (2006) Thomas Law Book Co esp at [7.4.460] at [10] p 384; [7.4.560] p 392; [7.4.610] p 393-394.) 26 The reasoning of Lord Wilberforce in Liverpool City Council v Irwin, set out at [12] above, was expressly applied to reject the applicability of the rule that post contractual conduct cannot be used in Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213 per Megaw LJ at 1221, because: "We are here concerned not with construing a contract but with evidence as to what the terms of a contract were." 27 Similarly Browne LJ said at 1229: "In the present case, the question is not one of construction of the contract, but of what were the terms of an oral and only partially expressed contract. In my opinion, the court can in such a case take into account what was done later as a basis for inferring what was agreed when the contract was made, or as establishing later additions or variations." 28 This reasoning is directly applicable to the action taken to reimburse the June 2003 interest which I will discuss below. The Surrounding Circumstances 29 The circumstance which appears to me to be most supportive of the respondent's contention is the content of the Transfer Request which directed EML to "pay out the loan balance on account" CHL. This was clearly a reference to the whole of that balance, including capitalised interest. That is how it was implemented. 30 I agree with McColl JA that the Transfer Request is not part of the contract between County and Challenger. The Transfer Request carried into effect the contractual promise between County and Challenger that CHL's Margin Loan would be transferred. That part of the contract between County and Challenger was either oral, of which there is no direct evidence, or assumed, so that it is to be inferred from conduct. The written Transfer Request is not a document constituting part of the Transfer Agreement. It is, however, evidence from which the terms of that Agreement can be inferred. 31 Accordingly, it is not appropriate for this Court to interpret the words "pay out the loan balance". Considered in the light of the full range of surrounding circumstances, the terminology of the Transfer Request is entitled to little weight. The Court must, however, take this statement into account when determining the subject matter of the contract and its terms. . 32 The background conversations which eventually led to a Transfer Agreement included the following characterisations of the subject matter of the transaction: · "The swap business"; · "The business"; · "The swaps". 33 As McColl JA has pointed out, his Honour found that the language used by the respective deponents concerning the effects of the transaction to be equivalent: ie "no profit" to Challenger; "no cost" to County; no "hit on the transfer" to Challenger. 34 The context in which these statements were made, which is set out by McColl JA, makes it clear that what was involved in the concept of the "business" or the "swap business" was two interconnected sets of transactions. On the one hand, the contractual obligations to ACE/ACM and, on the other hand, the hedge position in physical stock together with the associated Margin Loan. There was a single interrelated "business", the two limbs of which had to be kept separate for reasons set out at [5] above. 35 The capitalised interest was not, in my opinion, related to this "business". It was, in my opinion, a form of financing raised under the Margin Loan for purposes of the business of Challenger other than the equity swap business with ACE/ACM. 36 In my opinion, the terminology of "the business" or "the swap business", as reinforced by the "no cost", "no profit", "no hit" references, makes it clear that what was being transferred was both limbs of a single arrangement. This was the subject matter of the Transfer Agreement of which one part, the Novation Agreement, was reduced to writing. 37 In the conversations on which the appellant relied there was no separate reference to the margin loan. In my opinion, it was, however, implicit that the loan was related, and related only, to the physical shares held, and held only, as a hedge against the Equity Swap arrangement with ACE/ACM. That arises, in my opinion, from the references to the relevant arrangements as a single "business". Similarly, in the context of such references, the "no cost/no profit" references are only consistent with the transfer of that part of the margin loan account constituting the principal referable to the hedge shares, rather than to the entire loan account balance irrespective of how that balance was computed. 38 I am reinforced in this conclusion by the fact that, in my opinion, any other interpretation would not be consistent with a commonsense business approach to the nature of the transaction. (See Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 199.) Furthermore "a commercial contract should be given a business like interpretation." (McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 589). 39 The annual profit on these interrelated transactions was in the order of $70,000. The capitalised interest, in effect, concerned over four years' profit. Another way of expressing this is to consider valuation. From time to time, as the conduct of Challenger itself shows, parties that enter into these kinds of transactions may wish to close out their positions for commercial reasons. If County had closed out the position at the end of June, when it assumed the obligations to both ACE/ACM and EML, it would have suffered an immediate loss of about $338,000, being Challenger's unpaid interest. 40 In my opinion, whilst the law must acknowledge the possibility of parties making commercially bad bargains, nothing in the nature of the transaction or the conversations or the documentation suggests that any such conclusion is open on the facts of this case. In my opinion, where the court is not constrained in any way by a verbal formulation, it should be very slow to find that a contract was as obviously uncommercial as this one would be on the respondent's case. 41 Insofar as the Transfer Agreement on the Margin Loan side of the transaction is evidenced by writing it is in the form of a letter of 12 June 2003 from County to Challenger explaining the need for a "preliminary agreement" by 23 June 2003, by reason of the fact that the Novation Documents will not be ready to be signed on that day. The proposed "preliminary agreement" would have constituted an agreement to "novate equity swap positions". It was referred to in the following terms: "No cash will be exchanged between Challenger and County, but Challenger will authorise (a) the transfer of the Notional ACE loan to County, and (b) instruct its margin lenders to transfer all positions to County Securities account at Equity Margin Lenders." 42 The structure of the proposed "preliminary agreement" emphasised the clear interrelationship between the Equity Swap positions identified as the "Notional ACE loan", which became the Novation Agreement, and the Margin Loan which is described in terms of a "transfer [of] all positions". There is no identification of what these "positions" are, save for their interaction with the "Notional ACE loan". 43 This part of the proposed "preliminary agreement" was never reduced to writing. The letter of 12 June 2003 invited Challenger to sign a copy. That was not done. The letter was communicated to two senior officers of Challenger and there is no suggestion that Challenger in any way disagreed with its contents. Nevertheless, it was not signed and, accordingly, did not come to constitute a written contract between the parties. It does, however, provide evidence of that contract, save for the references which were replaced by the formal Novation Agreement. 44 The issue for present purposes is what is meant by the words "transfer all positions" with respect to the Margin Loan at EML in this terminology. In their context, in my opinion, the "positions" referred to suggest a direct relationship with the "Notional ACE Loan". There would be no such direct relationship in the case of capitalised interest. 45 The final factor which reinforces my conclusion that the subject matter of the contract did not involve County assuming liability for the capitalised interest is the way in which interest for June was reimbursed as part of the final settlement on 26 June 2003. The respondents submit that this is post contractual conduct to which it is impermissible to have regard. I have set out above the authorities which lead to the rejection of that submission. Furthermore, the act of reimbursing the June interest at the time of settlement is, in my opinion, as a matter of fact relevant to objective intention, rather than merely to subjective intention. 46 This conduct is evidence that significantly reinforces my conclusion that the margin loan that was to be assigned pursuant to the Transfer Agreement was limited to the principal paid for the acquisition of the hedge shares and did not extend to capitalised interest. 47 Rolfe DCJ rejected the appellant's contention that the Transfer Agreement contained an implied warranty that the CHL Martin Loan balance did not include capitalised interest. His Honour said at [81] that this was inconsistent with the agreement pleaded in par 16(c) of the Amended Statement of Claim that: "County would assume CHL's liability in respect of monies borrowed by CHL to acquire the Physical Stock." 48 His Honour concluded: "This is exactly what happened when settlement occurred." 49 In my opinion, this finding is erroneous. Upon settlement, County assumed more than the liability "in respect of monies borrowed by CHL to acquire the Physical Stock". Capitalised interest is not of that character. The "monies borrowed to acquire … stock" is a reference only to the principal amount. Capitalised interest was not "borrowed to acquire the physical stock". It was "borrowed" to finance Challenger's other business. Conclusion 50 On the basis that the subject matter of the contract was that County had to pay the principal on the loan referrable to the acquisition of the hedge shares, rather than whatever amount was outstanding on the margin loan, the appellant submitted that it was entitled to a remedy on three alternative bases: (i) That the "no profit, no cost" conversations constituted an express term of the contract which was breached by the overpayment to EML. (ii) That it was an implied term of the contract that Challenger warranted the loan account consisted only of the principal amount borrowed to acquire the hedge shares, and this warranty was breached. (iii) That Challenger has been unjustly enriched by the overpayment and the amount should be refunded. 51 McColl JA would hold that the term set out at (i) did exist and was breached. Clearly, if there was such an express term, the term identified in (ii), which covers the same ground, would not be implied. I am inclined to (ii) rather than (i). 52 I accept the force of McColl JA's reasoning that (i) was an express term. Indeed, my analysis identifying the subject matter of the contract would reinforce her Honour's conclusion in this respect. However, the critical conversations occurred at a time when the parties were exploring the possibility of an agreement, rather than in the course of making it. Where, as here, the contract was entered into with a high degree of informality, it is obviously difficult to draw the line between pre-contractual negotiations and the contract. However, there was a significant lapse of time between the conversations and the ultimate agreement. 53 On balance, I prefer the view that these conversations were not contractual in and of themselves and that they did not become such by subsequent conduct. They were relevant surrounding circumstances but did not occur in the course of forming the contract and were not, in terms, adopted when it was formed. 54 I reach this conclusion in part on the basis of the nature of the conversations and in part on the basis that in communications with ACM sent after the conversations (particularly a letter sent by Challenger with the knowledge of County and in an email sent by County) a novation remained an unresolved possibility. 55 The conversations did, however, indicate the subject matter of the proposed transaction. Accordingly, I prefer the implied term route to the express term route, but I make that choice only on balance and the end result is the same on either approach. Interest 56 McColl JA would award County interest from 26 June 2003 being the date on which the excessive payment was made by County to Challenger. In my opinion, that is not appropriate. 57 There are three alternative dates from which interest could run. First, the date of settlement, secondly the date of the first demand for repayment by County and thirdly the date of commencement of proceedings. 58 Rolfe DCJ stated, in a single sentence, that if he had awarded damages he would have awarded interest from the date of commencement of proceedings. The respondent relies on this conclusion as a discretionary judgment with which this Court would not intervene, even if it was by way of a statement as to what his Honour would have done if he had decided liability in a different way. 59 Judge Rolfe gave no reasons for choosing this rather than either of the other two options. No doubt, his decision was based on the delay and his Honour's findings, referred to by McColl JA, as to Mr Slater's failure to conduct appropriate due diligence. 60 It is clear that Mr Slater on behalf of County failed to undertake elementary inquiries to protect County's interest at the time of settlement of the Transfer Agreement. He was acting on an assumption which was only in part induced by conduct on the part of representatives of Challenger who were not, to his knowledge, necessarily conversant with back office practice. The relevant documentation permitted the amount outstanding to be increased over and above the amount advanced for purchase of the hedge shares as subsequently adjusted. Furthermore, it took two years for County to establish the relevant error. 61 Nevertheless, the contract in question was in substance an arrangement for providing finance. The time value of money is critical to such a contract. Furthermore, this Court should be slow to discourage commercial parties from seeking to resolve their differences without the institution of legal proceedings. 62 In my opinion, the appropriate date from which interest should be calculated is the date upon which County demanded repayment of the amounts. 63 Accordingly I agree with the orders McColl JA proposes, save that I would order interest be calculated from the date upon which County demanded repayment of the excessive payment. 64 BEAZLEY JA: I have had the advantage of reading in draft the reasons of Spigelman CJ and of McColl JA. 65 I agree with Spigelman CJ's conclusion that the "no profit, no cost" conversations were not express terms of the contract. As Spigelman CJ points out, there was a significant lapse of time between the conversations and the Transfer Agreement. Further, the conversations themselves have the hallmark tone of negotiation, as Mr Slater's response, in the terms set out at [72] (33) of McColl JA's judgment demonstrates. 66 For those reasons, I agree with Spigelman CJ's conclusion at [55]. However, the result is the same on either approach and the appeal should be allowed for the reasons otherwise given by McColl JA. I agree with her Honour's proposed orders, including her order in respect of interest. 67 McCOLL JA: County Securities Pty Ltd ("County") appeals from the decision of his Honour Judge R A Rolfe entering a verdict and judgment in favour of Challenger Group Holdings Ltd ("Challenger") and Challenger Hedging Ltd ("CHL") in proceedings in which County alleged that it had wrongly paid an amount of $338,639.84 by way of interest when it settled a transaction with Challenger and CHL in which it acquired CHL's Equity Swap Business: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2007] NSWDC 125. 68 It was common ground that County had paid that amount and that it related to unpaid capitalised interest which had accrued on Challenger and CHL's accounts with external margin lenders. The critical issue was whether County was entitled to recover that sum from Challenger and CHL by way of damages for breach of contract, for breach of statutory provisions dealing with misleading and deceptive conduct or in unjust enrichment. Statement of the case 69 Mr Kim Slater was the sole director and shareholder of County. He had worked in the stockbroking industry since 1984 and was experienced in the derivatives market. Between 1997 and 2000 he was involved in the derivative capital markets area in which capacity he set up and implemented Equity Swaps for Australian Capital Markets Pty Ltd ("ACM") and Australian Capital Equity Pty Limited ("ACE") which were clients of his then employer. The Equity Swaps related to shares in Seven Network Ltd ("SEV"). In about 2000 he introduced the Equity Swap Business to CHL. 70 The underlying facts thereafter are uncontroversial and can be taken from the primary judgment: "1 The first defendant, Challenger Group Holdings Limited ('Challenger') and its subsidiary, the second defendant, Challenger Hedging Limited ('CHL'), are part of the Challenger Group of companies. 2 The Challenger Group conducts its business in the financial services sector. As part of this business CHL structures transactions for its clients in equity markets. 3 Between June 2000 and June 2003, CHL entered into equity swap transactions (the 'Equity Swap Transactions') with Australian Capital Markets Pty Ltd ('ACM') and Australian Capital Equity Pty Limited ('ACE') under which CHL agreed to deliver to ACM the economic profit or loss on a notional parcel of shares ('Notional Shares'). This involved: a. The acquisition of an amount of shares ('Physical Stock') equivalent to the Notional Shares. b. The purchase of Physical Stock by CHL using the amount it received (which I will refer to as the 'Collateral Amount') from ACM and ACE and money which CHL borrowed under margin loans (the 'CHL Margin Loans'). c. On agreed dates each month ACM made a payment ('Floating Rate Payment') to CHL using an agreed interest rate formula. The formula was applied to the amount of the Australian dollar difference between the market value of the Notional Shares and the Collateral Amount. d. Generally speaking, CHL then used the moneys it received from ACM to meet the interest due on CHL's Margin Loans. e. At various dates the movement in the share price of the Notional Shares ('Share Variation Amount') was calculated under another agreed formula. If there was an increase in value, CHL would pay the Share Variation Amount to ACM. If there was a decrease in value, ACM would pay the Share Variation Amount to CHL. f. CHL applied the Share Variation Amount it received from ACM to reduce CHL's Margin Loans. Any amount CHL paid to ACM was drawn down under CHL's Margin Loans. 4 Between June 2000 and June 2003 Kim Slater provided consultancy services on a part-time basis to the Challenger Group. The services he provided included managing the Challenger Group hedge book, and in particular, CHL's hedging of its liabilities and potential liabilities under the Equity Swap Transactions. 5 In June 2003 Mr Slater was the sole director and shareholder of the plaintiff, County Securities Pty Limited ('County'). 6 In June 2003 County entered into an agreement (the 'Agreement') with CHL for the purpose of novating the Equity Swap Transactions from CHL to County, as a result of which the Physical Stock was transferred to County. To effect the novation and fund the transfer, County arranged its own margin loan (the 'County Margin Loan'). The County Margin Loan was secured over the Physical Stock. 7 The amount borrowed under the County Margin Loan and used to pay out the CHL Margin Loans was $6,346,056.00 (the 'CHL Debt'). This amount was paid to Equity Margin Lenders Limited ('EML') which was then the provider to CHL of the CHL Margin Loans. 8 County pleads its claim on the basis that the CHL Debt included an amount of $423,599.35 which represented capitalised interest on the CHL Margin Loans which had not been paid. County claims it did not know about the capitalised interest component of the CHL Debt until March 2005. 9 County claims that it should not have had to pay to CHL the capitalised interest component of the CHL Debt. County seeks to recover this amount from the defendants, plus interest." 71 Despite the amount referred to by his Honour (at [8]) it was common ground on appeal (and appears to have been so by the time the trial concluded) that the CHL Debt included the sum of $338,639.84 representing unpaid capitalised interest on the CHL Margin Loans. It was accepted that County did not know about the capitalised interest component before March 2005, although it was contended successfully at trial, that County had the means of acquiring that information prior to settlement of the transaction. 72 The history of the events leading to Challenger's acquisition of the Equity Swap Business can again be taken from the primary judgment, albeit in somewhat condensed form: "12 Mr Slater has worked in stockbroking since 1984. He is very experienced in the derivatives market. 13 In 1997 Mr Slater was employed by County NatWest. In 1999 Solomon, Smith Barney acquired County NatWest and it was later acquired by Citigroup ("SBC"). 14 Whilst at SBC Mr Slater was involved in the derivative capital markets area. In this capacity, between 1997 and 2000, Mr Slater set up and implemented equity swaps for ACM and ACE which were clients of SBC. The equity swaps related to shares in Seven Network Limited ('SEV'). 15 In return for ACM and ACE paying to SBC a monthly interest amount, they received the benefit or detriment on a notional parcel of SEV shares. Under these swaps ACM and ACE paid SBC an amount equivalent to a nominated loan to value ratio ('LVR') on the notional acquisition price of the SEV shares. For practical purposes, this was the same as the Collateral Payment referred to earlier. It was set at about 48.7 per cent LVR. The idea was that as the price of SEV shares fluctuated on the stock exchange, either a Collateral Payment would be required to be made to SBC by ACM and ACE or the surplus over and above 48.7 per cent LVR would be paid to them. I should also add that when SBC acquired the SEV shares, apart from using the Collateral Payment, it funded the balance of the purchase price from an SBC related company. 16 SBC hedged its exposure under these swaps by acquiring the equivalent number of SEV shares, the subject of each swap. 17 In June 2000, when Mr Slater left SBC, he approached Alastair Davidson, the general manager of the investment banking division of one of the companies in the Challenger Group. Mr Slater told Mr Davidson that he had the swap business with ACE & ACM in relation to the SEV shares and that they were happy to transfer the business from SBC. Mr Slater asked Mr Davidson if the Challenger Group would be interested in the business. Mr Davidson said that the Challenger Group would be interested and he would talk to Bill Ireland, a director and chairman of CHL. 18 A number of discussions between Mr Slater and Mr Davidson ensued, during one of which Mr Davidson said that in relation to purchasing shares for the hedge the Challenger Group would have to set up a margin loan and would probably do so through Challenger Share Finance. During these discussions Mr Slater explained to Mr Davidson how SBC had operated the swaps (exhibit H, para 20). Mr Slater said that Mr Davidson responded by saying it sounded like good business and that was the way that the Challenger Group would run it. 19 Around about this time there was a meeting at the Quay West apartments attended by Mr O'Donnell, Mr Davidson, Mr Slater, Mr Ireland and John Barry, another director of CHL, following which Mr Davidson told either Mr Ireland or Mr Barry, in response to a question concerning Challenger's exposure, that there was no capital risk (exhibit H, para 22). 20 A short time after the Quay West meeting, Mr Davidson told Mr Slater that Challenger would take on the business and Mr O'Donnell** was informed accordingly. In that respect, the SBC swaps were unwound and new swaps were set up between ACM and CHL. With regard to that, Mr Slater told Mr Davidson that the Challenger Group would need to put systems in place to make sure interest recovered from ACE was used to pay margin loan interest and Mr Davidson said that would happen." ** Mr O'Donnell was the Group Treasurer of ACE 73 In early 2001 the Challenger Group employed Mr Slater as a consultant. Although he was available to do work on other swaps, Mr Slater's role was to look after and monitor the Equity Swap Transactions: primary judgment at [23]. CHL established Margin Loans at different times with different entities including Challenger Share Finance ("CSF"), Leveraged Equities Limited ("Leveraged Equities") and ultimately Equity Margins Limited ("EML"): primary judgment at [30]. Mr Slater said he was not involved in their establishment. 74 The events which led to County acquiring the Equity Swap Business were described by the primary judge as follows: "32 In late 2002 or early 2003, a restructuring of the Challenger Group started to take place as a result of the involvement of companies associated with the late Mr Kerry Packer. Specifically, Mr Davidson told Mr Slater that the investment banking division would close down and that the Challenger Group would no longer want to be involved in the Equity Swap Transactions. Mr Davidson also told Mr Slater that it was likely that everyone would be out of their jobs. The possibility of County taking on the Equity Swap Transactions was mentioned and Mr Slater said he was interested. He told Mr Davidson that he thought that as long as the Notional Shares were hedged identically with the Physical Stock, he could put in place a margin loan in the same way that Challenger had done. He could see no risk to County if the business was transacted in this way. 33 Further discussions took place including one in which Mr Ireland said that Challenger had no problem with County taking over the Equity Swap Transactions. He said (exhibit H, para 89): '(Challenger) can do this and will transfer the business to County at no profit to Challenger.' In response, Mr Slater said he replied: 'Yes, County can do that. It will have to be subject to County being able to find a suitable margin lender, but I do not think there will be any problems with that.' 34 Mr Slater then made enquiries about obtaining a margin lending facility for County and he also spoke to Mr O'Donnell, who thought that the proposal was okay subject to considering the 'security issues', as County was 'obviously … an inferior credit risk' compared with Challenger. In this respect, Mr Slater offered to provide ACM with security over real estate. 35 Mr Davidson left Challenger in January 2003 and over the next couple of months Mr Slater spoke to Mr Ireland and Mr Gilsenan ** . On one occasion, in about March 2003, Mr Slater told Mr Gilsenan that the transfer of business would involve consolidating all the CHL Margin Loans into one and transferring the consolidated loan to County's margin lender. As well, the SEV shares would need to be transferred from Challenger to County and there would be a need for legal documentation to record the novation of the Equity Swap Transactions from Challenger to County. According to Mr Slater, Mr Gilsenan agreed this would occur and said that Challenger 'will transfer the business to County at no profit to Challenger'. Mr Gilsenan also said the documentation would be prepared by Mr Molinari, the in-house counsel of Challenger Group (exhibit H para 95). 36 Mr Slater said that at no stage during any of the above discussions did anyone tell him that the balance of the CHL Margin Loans included capitalised interest. His evidence about this (exhibit H, para 96) was: 'Had I been told this, I would not have agreed to have County take over the (ACM) swap business on the basis that I did, because to do so would have exposed County to a liability which it would have not been funded to cover under the swap arrangements novated to it from Challenger … I would not have agreed to it had I known about it.'" ** Mr Gilsenan was the chief financial officer of Challenger and a director of CHL. Mr Ireland was the managing director of Challenger and a director of CHL. 75 On Mr Slater's evidence there was a significant difference of functions between himself and those parts of the Challenger Group, the "back office" and "middle office", in relation to the Equity Swap Transactions. Mr Slater placed orders in relation to either the purchase or sale of shares necessary for the hedge or swaps, while the back office dealt with the settlement of SEV shares which had been purchased or sold. The middle office was concerned with dealing with ACM or ACE in making requests for collateral payments or collateral variation payments. The middle office function was initially undertaken by a Mr Savvas, then a Mr Matthews from mid-2002 and from March 2003 by Mr Sandy Basten: primary judgment at [25] – [26]. 76 In about April 2003 Mr Gilsenan told Mr Slater he should work from home in the future: primary judgment at [37]. It appears that when Mr Slater started to work from home, Mr Basten assumed his role in handling requests from ACM to increase the notional parcel of shares or unwind any part of the Swap: primary judgment at [27]. The primary judge concluded that although Mr Basten became involved in the Equity Swap Transactions, it was Mr Slater who told him how they worked and, "[County] cannot therefore rely on anything Mr Basten said to Mr Slater because Mr Slater was the real force": primary judgment at [38]. 77 On 13 May 2003 Challenger gave Mr Slater formal notice of termination of his consultancy with effect from 13 June 2003: primary judgment at [39]. 78 In early June 2003 Mr Slater became concerned that he had not seen any documents relating to the transfer of the Equity Swap Transactions. Mr Basten assured him it was "under control" and in the hands of Mr Molinari. At that stage Mr Slater sent a letter of 12 June 2003. By that date County had put in place at EML a Margin Loan Account in its name (the "County EML Account"): primary judgment at [42]. The letter was marked to the attention of Mr Basten at Challenger and relevantly stated: "The purpose of this letter is to seek agreement between (Challenger) and (County) that Challenger will agree to novate equity swap positions it holds on behalf of (ACE) to (County) at the close of business on June 23, 2003…. No cash will be exchanged between Challenger and County, but Challenger will authorise a) the transfer of the notional ACE loan to County, and b) instruct its margin lenders to transfer all positions to (County's) account at (EML). Because of time constraints it appears the novation documents will not be completed for signing by June 23rd, and hence the necessity of [sic, as in original] this preliminary agreement between the above parties, as to what steps need to be undertaken on that day…." 79 The primary judge recorded: "43 Mr Slater's evidence was that when he sent the letter dated 12 June 2003 he still had the belief that Challenger was continuing to pay all the interest due under the CHL Margin Loans and that when the Equity Swap Transactions were transferred to County, all interest payments due under the CHL Margin Loans would be paid up to date. Mr Slater said that no one at Challenger told him that the balance of the CHL Margin Loans included accrued unpaid interest." His Honour concluded (at [73]) that this letter demonstrated "things were still in a state of flux" and observed (at [74]) that the letter did not mention "the alleged 'no profit' or 'no cost' or 'no hit' terms that County relies on. [It] did however, refer to the fact that novation documents were being prepared. This task was in the hands of the defendants' in house counsel, Mr Molinari." 80 On 23 June 2003 CHL, Challenger Life Ltd, ACM, ACE and County entered into the Novation Agreement which the primary judge held "provided exhaustively for what was to happen": primary judgment at [46]. Its terms, as described his Honour, relevantly were: "46 [Under the Novation Agreement] the parties agreed that CHL would surrender its rights and be released and discharged from its obligations under each of four transactions ('Transactions') itemised in the schedule to the Novation Agreement and that County was entitled to equivalent rights and assumed equivalent obligations. Specifically, cl 2 provided: 'With effect from and including the Novation Date: a. [CHL, ACM and ACE] have no further rights against each other or obligations to each other in connection with any Transaction; and b. subject to clause 9(c): i. [County] has the same rights against, and owes the same obligations to, [ACM and ACE] in connection with each Transaction; ii. [ACM and ACE] have the same rights against, and owe the same obligations to [County] in connection with each Transaction, as if [County] had been named as a party to the Transaction instead of [CHL] (In this clause 2(b) a reference to the 'same' rights or obligations is a reference to rights or obligations which are the same in nature and character as those rights or obligations rather than the same as to the person entitled to them or obliged to perform them); The Transactions were: (a) three swap confirmations dated 26 June 2002 (for 2,209,565 notional shares); 25 September 2002 (for 20,000 notional shares); and 25 September 2002 (for 20,000 notional shares); and (b) guarantees and indemnities provided by ACE. 47 The Novation Agreement contained certain express representations and warranties of each of CHL, ACM and ACE, to the other parties including that: 18.1 'the terms of each Transaction are accurately recorded in the Confirmation for that Transaction and there is no dispute or grounds for future dispute between [CHL, the plaintiff, ACM and ACE] as to the terms of or performance obligations under each Transaction' (cl 3(b)); and 18.2 'it has no right of cross claim or counter claim against the other part in connection with any Transaction' (cl 3 (c)). 48 In addition, cl 4 of the Novation Agreement provided: 'Each of [CHL, ACM and ACE] acknowledge that the Schedule lists all transactions between them, and that, following the novation of the Transactions, there will be no remaining contractual obligations (under ISDA Agreements or any other documents) owed to or by [CHL] to or by the other Parties'." 81 On 23 June 2003 Mr Slater asked EML to effect the transfer to County of the facility CHL held with EML which gave rise to the CHL Debt. He had earlier contacted a Ms Schoeffel at EML to be told the number of shares to insert in the transfer. The transfer request stated: "Re Transfer of facility from Challenger Hedging Limited to County Securities In conjunction with the off market transfer of 2,254,565 SEV shares from Challenger Hedging Limited to County Securities Pty Limited, please pay out the loan balance on account Challenger Hedging Limited from available funds in account County Securities Pty Limited ." (emphasis added) 82 Mr Slater did not ask Ms Schoeffel, or make any other enquiry, as to the balance on the margin loan before making the transfer request: primary judgment at [51]. 83 On 24 June 2003 Mr Slater signed the Share Transfer form relating to the 2,254,565 SEV Shares (exhibit C, p 351). On 26 June 2003 settlement took place and the 2,254,565 shares were transferred from CHL to County in an off market transaction. At settlement, County paid $6,346,055.02 to discharge the CHL Debt: primary judgment at [52] – [54]. 84 On 26 June 2003 Mr Basten credited back to County interest which Challenger had accrued between 1 – 26 June 2003 on its Margin Loan Account. Mr Basten's unchallenged evidence (he was not cross-examined) was that he re-credited the interest because he had been directed by Mr Gilsenan that the transfer was to be at no profit to Challenger: primary judgment [68]. He also said he had drafted County's transfer request to EML and had done so in the belief that all interest had been paid out on the Challenger Margin Loan, save for that payable in June. 85 The primary judge summarised the effect of the settlement as follows: "55 In summary then, the plaintiff accepted the novation of the swaps and the transfer of the SEV shares and in return paid out the CHL Debt and assumed the obligations of the novation. For their part, the defendants had the CHL Debt discharged in return for which they novated the swap confirmations, forwent the exit fee and transferred the SEV shares to the plaintiff." 86 His Honour recorded Mr Slater's state of mind as follows: "56 Mr Slater said he believed at the time he signed the documents (para 128, exhibit H): ' … that what was occurring with the transfer of the client's swap business to County from CHL was that County would be taking over the obligations of CHL under the current swap contracts between the clients and CHL; County would have transferred to it the SEV shares that were held by CHL to hedge its obligations under those swap contracts; the debts incurred by CHL to acquire those SEV shares would be transferred to the County EML account; and the SEV shares would be held by EML as security for the liability incurred by County to EML.' 57 Mr Slater's evidence about his belief concerning the CHL Loans was as follows (exhibit H, para 129): 'I also held the belief … that the loan balances on the CHL Margin Loan Accounts (to be transferred to the County EML Loan Account) would represent the amount of the principal that had been borrowed by CHL to acquire the SEV shares which CHL held to hedge its obligations under those swaps; and that such loan balances would not have included any accrued or unpaid interest.' " 87 Two years later, in April 2005, Mr Slater identified what he thought was a discrepancy between the amount paid out by County on the CHL Debt at settlement, compared with what he thought the amount should have been. He calculated a discrepancy of approximately $438,000 and concluded it was due to interest having been capitalised on one or more of the CHL Margin Loans prior to 26 June 2003: primary judgment at [58]. 88 County then commenced these proceedings to recover the interest. It put its case against Challenger and CHL on the basis of breach of contract, alternatively, contravention of either s 52 of the Trade Practices Act 1974 (Cth) ("TPA"), or s 42 of the Fair Trading Act 1987 ("FTA") and, thirdly, unjust enrichment. The contract case 89 County alleged that the agreement between it, Challenger and CHL for the sale of the Equity Swap Business (the "Transfer Agreement") was constituted in writing, in conversations and by conduct. 90 Insofar as the Transfer Agreement was said to have been made in writing, County alleged it was to be found in the Novation Agreement. For the oral aspect of its case, County relied on the conversations between Mr Slater and Mr Gilsenan and Mr Ireland. County asserted that these conversations occurred after Mr Slater had been informed, first by Mr Davidson, and later by Mr Gilsenan and Mr Basten on behalf of CHL, that the Challenger Group no longer wished to carry on the Equity Swap Business. In those discussions Mr Gilsenan and Mr Ireland were said to have offered, and County had accepted the offer, to "hand over the Equity Swap Business" to Mr Slater, or to an entity he might nominate, for no profit to either CHL or the Challenger Group, and for Mr Slater to undertake the business "on the same basis that CHL had conducted [its] with ACM" (primary judgment at [62]) and that CHL's internal lawyers would prepare the necessary documents. 91 Insofar as the Transfer Agreement was said to have been made by conduct, County relied on the conduct of County and CHL in entering into the transactions to effect the transfer of the Equity Swap Business to it. 92 The primary judge concluded that the documents constituted by the Novation Agreement, the share transfers and the transfer request constituted the terms of the Transfer Agreement: primary judgment at [79]. His Honour substantially accepted that the conversations on which County relied had taken place. However he rejected County's submission that any oral terms of the Transfer Agreement could be drawn from those conversations. 93 It is important to set out the conversations his Honour found took place, then explain how his Honour dealt with them. 94 Challenger did not call Mr Ireland, and did not dispute he had told Mr Slater that Challenger would transfer the business to County at no profit to it. The primary judge commented that "Mr Ireland [had] ceased to be managing director of Challenger on 9 April 2003, more than two months before the date the Agreement was entered into". Mr Chris Cuffe had replaced him. There was no evidence Mr Cuffe had had any involvement with the matters in dispute: primary judgment at [64]. 95 The primary judge referred to there being some difference between the version of the conversation between Mr Slater and Mr Gilsenan upon which County relied. The primary judge recorded (at [67]) that Mr Gilsenan said he had not used the words "at no cost to Challenger" as Mr Slater had said, but had said there would be "no hit" for Challenger. The primary judge concluded that this meant the same thing. It should be noted that Mr Slater's evidence was that Mr Gilsenan had told him the transfer would be "at no cost to County". Mr Gilsenan's affidavit responded that he did not believe he said "at no cost" to Mr Slater or his company (save as to the legal costs which Challenger was to pick up), but said the transfer could go ahead "as long as there was no 'hit' for Challenger i.e. no economic exposure, liability or market risk for Challenger". It is apparent, therefore that his Honour's reference (at [67]) to "at no cost to Challenger" should be read as "at no cost to County". 96 Having concluded that Mr Slater and Mr Gilsenan's versions of this conversation meant the same thing, the primary judge also observed that Mr Gilsenan had said that this and other conversations he had with Mr Slater were informal and that he had not been challenged about this: primary judgment at [67]. 97 County submitted that Mr Gilsenan's recollection of saying Challenger would not take a "hit" was consistent with an agreement that the transaction was to be done "at book", thus involving no profit for Challenger nor any loss for it. In this context the primary judge recorded a submission by County that Challenger would be making a profit if it received on settlement any amount which included capitalised interest because Challenger would be recouping an interest expense it had incurred and recorded in its books and would therefore receive an amount greater than the book value of the assets and liabilities transferred to County: primary judgment at [67]. Without, it appears, determining whether or not to accept County's submissions as to the circumstances in which Challenger would be making a profit, the primary judge held that assuming the words at "no cost to County " and "no profit to Challenger" were used, there was no evidence before the Court as to what profit Challenger made on the Equity Swap Transactions: primary judgment at [78]. 98 The primary judge noted that County also relied on Mr Basten's evidence that he was instructed by Mr Gilsenan that the transfer should be at no profit to Challenger: primary judgment at [68]. 99 The primary judge rejected County's oral contract case on a number of bases. First, his Honour concluded that Mr Slater's subjective beliefs and understandings arising out of his discussions with Mr Ireland and Mr Gilsenan were irrelevant. He also characterised Mr Gilsenan's instructions to Mr Basten as irrelevant subjective beliefs, being Mr Gilsenan's subjective understanding of what would be included in the bargain if it went ahead: primary judgment at [72]. 100 Having so characterised the conversations, his Honour held that they could not be evidence of oral terms of the Transfer Agreement because to use them on that basis would be inconsistent with the principle of objectivity by which the rights and liabilities of the parties to a contract are to be determined, referring to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]): primary judgment at [72]. 101 Secondly, the primary judge concluded that the discussions between Mr Slater, Mr Ireland and Mr Gilsenan were "informal": primary judgment at [74]. He did not explain how that affected their utility in determining the terms of the Transfer Agreement. 102 Thirdly, his Honour concluded that the conversations between Mr Slater, Mr Ireland and Mr Gilsenan took place while the parties were still in negotiations and, "by their nature … were no more than pre-contractual discussions": primary judgment at [73] – [76]. As I understand his Honour's reasons, he concluded that the period of negotiations lasted until 23 June when the Novation Agreement was signed. 103 This conclusion emerged from the following evidence. On 3 April 2003 Mr Ireland sent ACM a letter advising that CHL was "prepared to consider a novation of [ACM's] … position in place of the early termination of the Swap Contract". 104 Internal memoranda in the Challenger Group all dated 22 April 2003, but to which various recipients added comments, demonstrated that as at April/May 2003 Challenger and CHL did not know whether the Equity Swap Transactions would be unwound or novated: primary judgment at [75]. As at 23 May 2003 Mr Slater was still negotiating the terms of any novation with Mr O'Donnell. 105 His Honour also concluded that "things were still in a state of flux" as late as 12 June 2003 when Mr Slater wrote to Mr Basten seeking agreement with Challenger that the latter would novate Equity Swap positions it held on behalf of ACE to County as at close of business on 23 June 2003 and continued: "No cash will be exchanged between Challenger and County, but Challenger will authorise a) the transfer of the notional ACE loan to County, and b) instruct its margin lenders to transfer all positions to (County's) account at (EML)." 106 The primary judge observed that Mr Slater made no mention in this letter of the alleged "no profit", "no cost" or "no hit" terms County alleged: primary judgment at [77]. 107 Other matters the primary judge regarded as indicia of uncertainty at the time of the conversations on which County relied were the following. First, the identity of the parties was unclear. Paragraph 15 of the Amended Statement of Claim referred to "Kim Slater (or … an entity he might nominate)". Secondly, the subject matter of the transaction could have been "the right to collect interest and fees, the obligation to repay collateral, the ownership of the SEV shares and the nature of the obligations to margin lenders". Thirdly, and importantly, so far as his Honour was concerned, the price was not identified. Finally, as I earlier observed, his Honour was of the view that there was no evidence as to what profit Challenger made on the Equity Swap Transactions: primary judgment at [78]. The warranty case 108 County pleaded two warranties which were said to be terms of the Transfer Agreement. The first, which was said to be implied or inferred from the circumstances in which the transaction was entered into, was that Challenger and CHL warranted that the CHL debt did not include capitalised interest and was only made up of the principal (the "no interest warranty", ASC par 17). 109 The second warranty County alleged was that following the transfer of the Equity Swap Business it would not be at risk of incurring a loss on that business unless ACM defaulted in its obligations in respect of the Equity Swap Transactions (the "no loss warranty", ASC par 21). The no loss warranty was also relied upon as a representation as to a future matter for the purposes of one part of the case County advanced relying upon s 52 of the TPA, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and/or s 42 of the FTA. His Honour dealt with it when he considered the statutory claims. 110 The no interest warranty was pleaded as an implied term of the Transfer Agreement, implied on the basis that the parties shared a common assumption that interest was being paid on CHL's Margin Loans and not being capitalised, alternatively as arising from the circumstances that Mr Slater believed the Equity Swap Business was being conducted on the basis that interest obligations on margin loans were being met. 111 The primary judge rejected the no interest warranty case. He concluded that it was inconsistent with the express terms of the Transfer Agreement as pleaded in paragraph 16(c) of the Amended Statement of Claim, that: "County would assume CHL's liability in respect of monies borrowed by CHL to acquire the Physical Stock." 112 His Honour concluded that the pleading reflected what happened on settlement: primary judgment at [81]. 113 County sought to establish that the no interest warranty should be implied from the conversations it relied upon as constituting the oral terms of the Transfer Agreement. His Honour concluded these were merely evidence of pre-contractual discussions: primary judgment at [83]. His Honour said the no interest warranty did not meet the conditions for the implication of terms established by BP Refinery (Westernport) Pty Limited v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 (at 283). The unjust enrichment case 114 The primary judge next dealt with County's unjust enrichment case which proceeded on the premise that during the negotiation of the Transfer Agreement, and at its completion, each of Challenger and CHL knew, or ought to have known, that the amount of the CHL Margin Loans included the capitalised interest, that none of the officers and/or employees of Challenger or CHL who were dealing with Mr Slater disclosed that matter to him, and that County completed the transaction in ignorance of that fact. In those circumstances County pleaded that its payment of the capitalised interest was made under a mistake of fact in circumstances in which Challenger and CHL had been unjustly enriched by an equivalent amount. (ASC 32-36). 115 The primary judge rejected the unjust enrichment case first, because he held that the legal rights and obligations of the parties were governed by the Transfer Agreement as determined by the Court, referring to Equuscorp Pty Ltd v Glencallen Investments [2004] HCA 55; (2004) 218 CLR 471 (at [33]). He rejected County's argument that the sum it paid at settlement was made under a mistaken belief, concluding that County "did what it was obliged to do under the Agreement": primary judgment at [88]. He observed that: "88. … In reality, the plaintiff's complaint is that it was not supposed to make a payment which would include capitalised interest. That goes to the question of the terms of the Agreement and the plaintiff has failed on this issue." The Trade Practices Act and the Fair Trading Act cases 116 The primary judge then dealt with County's claims under the Trade Practices Act and the Fair Trading Act. 117 As I have said, County relied upon two representations it alleged were made expressly and/or impliedly at the time the Transfer Agreement was being negotiated, which it asserted were misleading and deceptive. The first was substantially the same as the no loss warranty, namely that Challenger and CHL represented to County during the negotiation of the Transfer Agreement that County would not be at risk of loss on the Equity Swap Business other than in circumstances where ACM defaulted on its obligations under the Confirmations (the "no loss representation", ASC par 22) the only difference being the reference to "the Confirmations" rather than "the Transactions", this being, as far as I can discern, of no real significance. County also alleged that Challenger and CHL represented that CHL had applied the Floating Rate payments made by ACM to meet the whole of its interest liability on the CHL Margin Loans (the "interest representation", ASC par 25). This representation closely resembled the no interest warranty. The interest representation was said to have been implied by Challenger and CHL's conduct and also by their failure to advise County that interest payments had been capitalised. 118 The primary judge accepted Mr Slater's evidence that he always believed that CHL had paid interest on its marginal lending facilities and that CHL always used the payment of notional interest received from ACM each month to fund each monthly payment of interest: primary judgment at [92]. However, he also accepted Challenger and CHL's submission that there was no evidence that either the no loss representation or the interest representation had been made expressly by them in the period 1 May 2002 (the time when, according to County's case interest was first capitalised) to 23 June 2003: primary judgment at [93]. 119 His Honour appears to have accepted that the no loss representation was made during the conversations Mr Slater had with Mr Ireland, Mr Davidson and Mr Gilsenan. As to Mr Ireland and Mr Davidson, he observed that each had left the Challenger Group in January and April 2003 respectively. As to the conversation with Mr Gilsenan, he observed that the no loss representation was made in the context of pre-contractual discussions and concluded, that "without more, it cannot mean that County would not be at risk of incurring loss": primary judgment at [94]-[95]. 120 His Honour concluded that the only evidence of anything being said about the risk or possibility of ACM defaulting was Mr Slater's evidence of a conversation in which he explained to Mr Davidson that the only risk to Challenger was a potential default by ACM. In such circumstances the primary judge accepted Challenger and CHL's submission that neither was obliged to represent positively that County would be at no risk of incurring a loss. Rather, in his Honour's view, Mr Slater was relying on his own assessment of how the arrangement would work. County, accordingly, failed on its no loss representation case: primary judgment at [95]-[97]. 121 Turning to the interest representation, while the primary judge accepted that Mr Slater believed that ACM paid the notional interest amounts each month and that CHL always applied that amount towards the monthly interest due on the CHL Margin Loans, he accepted the submission made by Challenger and CHL that Mr Slater's belief was not pertinent but, rather, the question was whether objectively the interest representation was made and, if so, whether it was misleading or deceptive: primary judgment at [99]-[100]. 122 The primary judge first considered Mr Matthews' role. It was Mr Matthews who had investigated the possibility of CHL using external lenders to provide margin loan finance and had made the arrangements to put the CHL Margin Loans in place with the external lenders, First Leveraged Equities and subsequently Equity Margins Ltd in about April or May 2002. County's case was that interest started to be capitalised on the CHL Margin Loans in about April or May 2002. Mr Matthews was aware that the interest was being capitalised although he did not know why: primary judgment at [102]-[103]. 123 Mr Matthews resigned from the Challenger Group in March 2002 and started to work for Mr Slater preparing spreadsheets which were sent to ACM. In May 2003 Mr Slater nominated Mr Matthews as County's representative in its dealings with EML. In June 2003 Mr Slater informed Ms Schoeffel of EML that Mr Matthews was to be included in the distribution of information because he was performing County's back office function. At the same time, Mr Slater had sought Mr Matthews's advice about how County should take over the Equity Swap Transactions from CHL: primary judgment at [103]-[106]. 124 In the light of that evidence, the primary judge accepted Challenger and CHL's submission that Mr Matthews was County's agent and County could not, therefore, rely on his conduct to establish any representation made by them, including the interest representation: primary judgment at [107]. 125 The primary judge then considered whether Challenger and/or CHL made the interest representation by silence. He held that to the extent County relied upon conversations between Mr Slater and Mr Davidson in 2000, those statements were as to future matters which were reasonably based until May 2002 because the business was conducted in the manner Mr Davidson and Mr Slater described until then: primary judgment at [112]. The same reasoning applied to a statement Mr Slater said he had overheard Mr Davidson make to Mr Matthews about the background to the Equity Swap business coming to Challenger and Mr Slater's role in it: primary judgment at [113]. 126 Next the primary judge considered some documents upon which Mr Slater said he had relied in support of his interest representation case. One was a diagram of how Equity Swap Transactions operated, as to which the primary judge observed generally that the documents did not contain any representation that interest was being paid: primary judgment at [115]. 127 The document to which his Honour was referring appears to have been a memorandum from CHL to CPH (probably Consolidated Press Holdings) and another company which appears to have formed part of the due diligence process. It included a diagram annotated with notes explaining various numbered steps in the equity swap arrangement. The diagram showed, inter alia, Challenger's relationship with a margin lender. Step 1 which appeared, inter alia, against a dotted line and arrow recorded "monthly interest on Margin Loan", referred the reader to a statement: "Challenger pays the Margin Lender interest on the Margin Loan each month." In the light of this, it is difficult to understand the primary judge's rejection of the proposition that the document represented that interest was being paid. 128 The primary judge also recorded in relation to this diagram that Mr Slater had agreed that Mr Matthews had asked him to read this document to make sure it was correct. The primary judge then said (at [115]): "He sought to explain this away by saying that it still formed part of his belief because Mr Matthews had been the author of the document (T91.12), but I do not accept that explanation." It is, with respect, difficult to understand what explanation his Honour was not accepting. 129 The primary judge concluded (at [118]) that in the overall circumstances of the case it was not reasonable for Mr Slater to assume and believe in June 2003 that "interest was being capitalised [sic, 'was not being capitalised']". In reaching this conclusion he also took into consideration, it appears, Mr Slater's role managing the Equity Swap Transactions in which context he had received a copy of EML's standard terms and conditions. The significance of this reference appears to have been that in the course of cross-examination about those terms and conditions Mr Slater agreed that one of the features of the standard Margin Loan product was that interest could be capitalised. The primary judge also observed that Mr Slater "discovered the rate of interest by a direct communication with [EML]", but the passage of transcript to which he referred refers to Mr Slater learning the amount County had directed EML to pay out at completion: primary judgment at [118]. 130 The primary judge also rejected County's interest representation case because he concluded that because of Mr Slater's failure to do any due diligence in relation to the Transfer Agreement and, in addition, having regard to his involvement in the Equity Swap Transactions, it was not reasonable for him to expect Challenger and/or CHL to inform him how the business was being managed: primary judgment at [119]-[121], [123]. 131 The primary judge noted at this stage of his judgment, without, with respect explaining its significance, that the evidence established that, as at June 2003, of the employees who remained at the Challenger Group, neither Mr Gilsenan or Mr Basten knew interest was being capitalised, nor was it suggested that Mr Molinari knew about it: primary judgment at [122]. 132 Finally the primary judge concluded that County's misleading or deceptive conduct claims failed for the additional and separate reason that: "124. … Mr Slater was so extraordinarily careless in failing to conduct even the most cursory due diligence that he could not rely on the Interest Representation even if the plaintiff had established that is was made by silence on the part of the defendants: see Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138." 133 The primary judge noted that "at the end of the day" Challenger and CHL conceded that the statements of the external margin lenders disclosed that $338,639.84 of interest had accrued and been expensed but not paid to those lenders. Accordingly, he said that that amount would have been the correct measure of County's loss had it succeeded. He said, without elaboration, that had County succeeded he would have awarded interest under s 100 of the Civil Procedure Act 2005 from the date of commencement of the proceedings: primary judgment at [125]. 134 He ordered that there be a verdict and judgment for the respondents with costs. Issues on appeal 135 It is a sufficient summary of the lengthy notice of appeal to record that County challenges the primary judge's rejection of each of its causes of action. 136 The respondents filed a Notice of Contention which went to issues arising in the unjust enrichment case. It was not referred to in oral argument, and was only briefly addressed in the respondents' written submissions. Submissions 137 Mr J Gleeson SC, who appeared on appeal with Mr D Robertson, but not at trial, submitted that the essence of the appellant's case, which the primary judge ought to have accepted, included that the content of the contractual obligation which County assumed to Challenger was to pay out the principal balance of the Equity Margin Loan established by Challenger with EML, and did not extend to paying out amounts of arrears of accrued interest which had been capitalised. Alternatively, Mr Gleeson contended, that if County was assuming a contractual obligation to pay out the full amount of Challenger's Margin Loan, whatever amounts be included in it, County was induced to assume such contractual obligation by a misrepresentation by Challenger either arising expressly from the statement by Challenger that the transfer would be at no profit to it and no cost to County, or arising by Challenger's conduct in failing to reveal the capitalisation of substantial arrears of unpaid interest against a background of the express statements made by Messrs Davidson, Ireland, Gilsenan and Basten and the conduct in which they engaged. 138 Mr Gleeson contended that the primary judge ought to have concluded that the conversations between Mr Slater, Mr Ireland and Mr Gilsenan in and around March 2003 established the basic structure of the transaction, should it proceed. The core agreement, he argued, was that the Challenger Margin Loans would be consolidated into one loan, then transferred to County's Margin Lender, all physical stock would be transferred from Challenger to County, legal documentation would be brought into existence to record the novation of the Equity Swap Transactions from Challenger to County and, finally, the business would be transferred at no profit to Challenger and at no loss to County. 139 Mr Gleeson submitted that the primary judge erred in concluding that the Novation Agreement provided exhaustively for what was to happen. He submitted that his Honour ought to have concluded that the Novation Agreement had a limited role in the implementation of the larger transaction, being merely the novation to County of the Open Swap contracts Challenger/CHL held with ACM/ACE. It did not, and could not, deal with the obligations between Challenger, CHL and County concerning County taking over the hedge which involved transferring the shares and refinancing the Margin Loans. 140 As to the other documents to which the primary judge referred, Mr Gleeson argued that his Honour ought also to have found that County's request of 23 June 2003 to EML to pay from County's Margin Loan Account sufficient monies to clear the balance of CHL's EML Loan Account, was a step taken by County to execute that part of the larger agreement which involved it taking over Challenger's Margin Loan obligations. He also submitted that, contrary to the primary judge's conclusion (at [79]), County's transfer request to EML of 23 June 2003, being a document between County and a third party, could not be a contractual document as between County and Challenger. Rather, it was merely evidence of County completing one part of the Transfer Agreement. He also argued that the Share Transfer form merely constituted a performance of an obligation to transfer the physical SEV stock from Challenger to County. 141 Next, Mr Gleeson noted that although the primary judge acknowledged that neither Challenger nor CHL disputed County's contention that the contract was constituted in writing and by conduct (primary judgment at [61]), his Honour failed thereafter to identify the terms which arose from such conduct, or which aspect of the parties' conduct gave rise to such terms. 142 Mr Gleeson contended that the primary judge erred in that he did not analyse the statements and/or acts between the parties for the purpose of determining, taking into account the relevant documents, what reasonable persons would have considered the parties were agreeing to in the light of those mutually exchanged statements and acts. He submitted that, contrary to the primary judge's conclusion, the oral terms upon which County relied formed part of the Transfer Agreement. He contended that the Transfer Agreement was the sort of contract to which the principles articulated in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 (at [71], [74]) per Heydon JA applied, namely one where the terms could be discerned, inter alia, from the conversations "even though it [was] not easy to locate an offer or acceptance". 143 Mr D F Jackson of Queens Counsel, who appeared on appeal with Ms K Morgan but not at trial, submitted that the critical question the primary judge had to determine was to ask what County was taking over from Challenger and CHL. He contended that looked at objectively, County was taking over the business as it existed at the time of completion, whatever the balance was. 144 Mr Jackson argued that the conclusion that County assumed a contractual obligation to pay out the full amount of Challenger's margin loan liability at the time of the novation of the three share swap positions arose from the following facts and circumstances. 145 First, Mr Slater, on behalf of County, directed EML to pay out the loan balance. Secondly, paragraph 16(c) of the Amended Statement of Claim pleaded that the Transfer Agreement contained a term that Challenger would assume "[Challenger's] liability in respect of monies borrowed by [Challenger] to acquire the physical stock". Further, at paragraph 16(d) it was alleged that the matter in paragraph 16(c) would be accomplished by "the outstanding capital balance on each of the CHL Margin Loans being assumed by County". Mr Jackson submitted that the primary judge correctly concluded that this was what had happened on settlement. 146 Mr Jackson also argued that the primary judge did not err in concluding that the Transfer Agreement did not include an oral term. He contended that the proposition that conversations of uncertain meaning months before the written part of the agreement came into existence circumscribed the terms on which any subsequent transaction could proceed required a strained analysis. 147 Rather he argued that looking at the events objectively, the contractual obligation assumed by County was to pay out the full amount of Challenger's margin loan liability at the time of the novation of the three swaps and nothing in the words or conduct of County or Mr Slater would have led a reasonable person in the position of Challenger to believe that County or Mr Slater was seeking to make any distinction between the principal or interest on the margin loan. Determining the terms of the Transfer Agreement 148 The critical issue for determination is what were the terms of the Transfer Agreement. The respondents did not dispute that the terms could be determined by reference to the Novation Agreement, the transfer request, the share transfer request and the parties' conduct in entering into the transactions to effect the transfer of the Equity Swap Business to County but contended the agreement contained no oral terms. 149 The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Limited v Alphapharm Pty Limited. 150 Whether a contract has been formed, and the terms of contractual arrangements, requires objective determination: Equuscorp Pty Limited v Glengallan Investments Pty Limited (at [34]) per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (at [25]) per Gaudron, McHugh, Hayne and Callinan JJ; Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (at [40]). Objective determination requires consideration, not only of the text of the documents, but also the surrounding circumstances known to participants, and the purpose and object of the transaction, but not the participants' subjective beliefs: Pacific Carriers Limited (at [22]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (at [40]); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 82 ALJR 419 (at [8]) per Gleeson CJ. 151 County's submissions emphasised that the Transfer Agreement was made in circumstances where notwithstanding "[o]ffer and acceptance analysis [did] not work well" it was possible to find a contract "even though it [was] not easy to locate an offer or acceptance": Brambles Holdings Ltd v Bathurst City Council (at [71], [74]) per Heydon JA. Heydon JA's remarks in Brambles have some resonance in the reference in Toll (at [49]), to: "…the cogency of the statement of H L A Hart that usually it is not possible to define a legal concept such as 'contract' merely by specifying certain necessary and sufficient conditions for its application because: 'any set of conditions may be adequate in some cases but not in others and such concepts can only be explained with the aid of a list of exceptions or negative examples showing where the concept may not be applied or may only be applied in a weakened form.' " 152 These observations are echoed in Giles JA's statement in Hendriks v McGeoch [2008] NSWCA 53 (at [10]) that "[a] contract need not be made by formal offer and acceptance, or by an overt course of negotiation [and] [e]ntry into a contract can be found in the conduct of the parties, in what they said and did towards each other." In the same case (at [39]) Basten JA eschewed an analysis which depended on a distinction between an express contract and an implied contract, preferring the approach that "[i]t is sufficient to ask whether the existence of a contract has been established on the evidence". In this case, as shall become apparent, I have concluded the no loss term for which County contended was an express term of the Transfer Agreement, so that it is unnecessary to consider the implications of Basten JA's observation. 153 In Brambles Heydon JA referred with approval to Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 as reflecting his approach. There McHugh JA (Hope and Mahoney JJA agreeing) said (at 11,117-11,118): "… [A] contract may be inferred from the acts and conduct of parties as well as or in the absence of their words…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… Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances..… Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed." (emphasis added) 154 Allsop J (Drummond and Mansfield JJ agreeing) collected, and helpfully summarised, the authorities on this approach to contractual determination in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424. In that case the parties had had lengthy commercial dealings involving a cattle station in the Northern Territory. In late 1993 their interests were re-arranged and on 23 December 1993 they executed and exchanged a number of documents. The primary judge held that the parties had intended certain matters, not entirely or adequately reduced to writing, to be legally binding. His conclusion was upheld on appeal. 155 Allsop J said: [369] … [A] number of authorities discuss the need not to constrict one's thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i's and crossing t's or where they think they have done so … Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication . For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: 'and we hereby agree to be bound/ in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract. The authority for the above can be found in, at least, the following: Meates v Attorney-General [1983] NZLR 308 at 377 per Cooke J (as his Lordship then was); Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 per McHugh JA (Hope and Mahoney JJA concurring); Vroon BV v Foster's Brewing Group [1994] 2 VR 32 at 81-83 per Ormiston J (as his Honour then was); Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 555 per McHugh JA (with whom Samuels JA concurred); Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 at 611 per Bingham J (as his Lordship then was) affirmed on appeal at 615; Pobjie Agencies v Vinidex Tubemakers [2000] NSWCA 105 at [22]-[24] per Mason P (with whom Meagher and Handley JJA concurred); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [74]-[80] per Heydon JA; though see Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 178 per Tadgell J (as his Honour then was); and in this context see also Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 489 per Kearney J and Manzi v Smith (1975) 132 CLR 671 at 674. [370] Some authorities, for example, Toyota Motor Corporation, citing Williston on Contracts, Vol 1, par 4:3, p 258, refer to the possibility of this class of contract, lacking manifested offer and acceptance, as rare. For my part, I think the use of such language of prediction of frequency tends to create an unwarranted presumptive barrier to the application of the approach referred to above." (emphasis added) 156 County submitted that the primary judge erred in considering whether the implied terms for which it contended satisfied the test for prescribed terms laid down in BP Refinery. It contended his Honour ought to have considered that question by reference to the principles for implied terms set out in Byrne v Australian Airlines Limited [1995] HCA 24; (1995) 185 CLR 410. As I have said I have concluded that the appeal can be disposed of on the basis of an express agreement, however it is useful to refer to one aspect of Byrne which, in my view, affords a useful model for the approach to determining the terms of a contract alleged to arise in the circumstances for which County contended. 157 Byrne concerned, relevantly, the question whether cl 11(a) of the Transport Workers (Airlines) Award 1988 was an implied term of the contracts of employment of two airline employees. The employees argued that such a term should be implied "…as a matter of business efficacy and the presumed intention of the parties in the circumstances of the case" (see 440). It is apparent the employees had not entered into written contracts of employment, although how their contracts of employment were formed is not readily apparent. As McHugh and Gummow JJ commented (at 431) "[i]n the Federal Court there were no findings as to any express terms of the relevant contracts of employment, save what is implicit in the general findings of fact [and] [t]he appeal was argued on the footing that, except for the term contended for by the appellants, the contracts had those incidents otherwise implied by the general law". To this I would add a reference to Beaumont and Heerey JJ's observation that "there was no evidence of any express agreement between employer and employee for the incorporation into the contract of employment of the provisions of the relevant award": Byrne & Frew v Australian Airlines Ltd (1994) 47 FCR 300 (at 333); see also Gray J (at 361). 158 All members of the Court emphasised the necessity for caution in applying BP Refinery in cases which did not involve a formal contract. Thus, after referring to the five BP Refinery criteria, Brennan CJ, Dawson and Toohey JJ said (at 422, footnotes omitted): "In laying down those criteria, it was recognised that there was a degree of overlap. Further, as Deane J has observed, the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention . And the test to be then applied was in a later case formulated by Deane J in these terms: 'The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.' That is, we think, the appropriate test to apply in this case…" (emphasis added) 159 McHugh and Gummow JJ (at 442) emphasised that implication of a term of a contract on the basis for which the employees contended "is concerned with the circumstances of the particular case". They proceeded (at 442): "Secondly, where the contract is not in writing and is oral or partly oral or it appears that the parties themselves did not reduce their agreement to a complete written form, caution is required against an automatic or rigid application of the cumulative criteria identified in BP . We should proceed on the footing that the present case is to be approached in this way. In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied 'of course'. If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied." (emphasis added) 160 The utility of the Byrne model in my view lies in its emphasis, where there is no formal contract, on determining the parties' intention as to the terms of the contract rather than forming an a priori view as to what the contract is. Here, as I shall explain, the primary judge in my view fell into error in characterising the 23-26 June 2003 documents as representing the entire agreement, without first considering the whole course of the parties' conduct to determine their intention. 161 The final matter which should be dealt with under this heading, is to determine the extent to which reference can be made to the respondents' conduct in re-crediting to County the June 2003 interest which had accrued on their margin loan account with EML. There is a factual question about whether this was conduct contemporaneous with the Transfer Agreement or post-contractual conduct. The present state of the law throughout Australia on whether, and if so when, it is possible to use post-contractual conduct as an aid to construction of the contract is not yet settled, the view, favoured in this Court, being that subsequent communications cannot be looked to as an aid to construction of a contract, but can be looked to as an aid to deciding whether a contract has been entered into: Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R ¶90-263 (at [59]) per Campbell JA (Beazley JA agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 (at [99] ff) per Giles JA (Hodgson and Campbell JJA agreeing). 162 However it is permissible to have regard to the conduct of parties, even subsequent conduct, as constituting an admission of the state of the parties' rights: see Pitcher v Langford (1991) 23 NSWLR 142 (at 160); Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 (at 684-685); Jones v Sutherland Shire Council [1979] 2 NSWLR 206 (at 231); Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 (at 188E), although care must be taken about identifying the fact said to have been admitted: Sagacious (at [106]). 163 Admissions may, of course, be made whether or not the admitting party has personal knowledge of that which he or she admits (Dovuro Pty Ltd v Wilkins (2003) [2003] HCA 51; 215 CLR 317 (at [69]) per Gummow J) although the extent of the relevant actor's acquaintance with the matters admitted may be considered in determining whether it is proper to act upon the admission to find relevant facts: Grey (at 685) per Mahoney JA. 164 In Pitcher Handley JA (with whom Kirby P agreed (at 147)) held that an admission by the owner of a sheep station in the course of evidence in workers compensation proceedings, that he was "the employer but [not] the true employer", was an admission as to the contractual arrangement between the speaker and a shearer to which considerable weight could be attached, even though it involved a conclusion of mixed fact and law. In reaching that conclusion, his Honour preferred views supporting the use of such an admission expressed by Mahoney JA in Grey (at 684) to those to the contrary expressed by Glass JA (at 676). 165 In Dovuro (at [68] – [71]) Gummow J (McHugh and Heydon JJ agreeing) preferred Glass JA's approach in Gray, while re-affirming (at [69]) that "a party may admit the facts from which a conclusion of law may then be drawn" and, referring to Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 (at 68) per Lockhart and Gummow JJ, that "an informal admission as to a matter of fact, by words or conduct which is made by a party or a privy, is admissible evidence against that party of the truth of its contents". Consideration 166 In order to determine the terms of the Transfer Agreement it is necessary to understand the nature of the Equity Swap Business with which it was concerned. 167 Reduced to its simplest form, which is sufficient for the purpose of this analysis, the Equity Swap Business consisted of the swap side, that is to say the arrangement pursuant to which CHL entered into Equity Swap Transactions with ACM and ACE, set out in detail by his Honour (at [3]). On that side of the Business, CHL had to deliver to ACM the economic profit or loss on a notional parcel of shares, a transaction which involved, inter alia, the acquisition of an amount of shares (the "physical stock") equivalent to the notional shares. This is where what I will call the second, or financing, side of the transaction came into being. CHL purchased the physical stock using amounts it received from ACM and ACE, as well as monies it borrowed under margin loans. By the time of the Transfer Agreement CHL had established a margin loan account with EML (primary judgment at [30]). The capitalisation of interest had taken place on that account. 168 The Transfer Agreement involved County taking over both sides of the Business. It took over CHL's obligation to deliver to ACM the economic profit or loss on the notional parcel of shares and acquired the physical stock, the SEV shares, CHL had purchased. It also assumed CHL's liability on its margin loan account with EML, on County's case, on a basis which was to reflect merely the acquisition cost of the physical stock, on CHL's case, on terms which involved paying out the balance of the margin loan account, however it might be constituted. Assuming the burden under the margin loan account involved, inter alia, County reaching an arrangement with EML under which the latter agreed to accept County as a borrower. 169 It is important too, in my view, in identifying the terms of the Transfer Agreement to understand that the Equity Swap Business operated on a comparatively low profit margin of about $70,000 per annum. The effect of County paying the capitalised interest on the CHL margin loan account was that it paid away approximately five years' profits. That, in my view, speaks to the unlikelihood of County agreeing to acquire the business on the basis for which the respondents contended. 170 As the evidence reveals, the Transfer Agreement was made in the course an ongoing relationship. In order to determine what each party's words and conduct would have led a reasonable person in the position of the other party to believe they had agreed (Toll (at [40])), it was necessary to look at the whole relationship, bearing in mind that in such a relationship "it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled": Integrated Computer Services (at 11,118). Looking at that relationship leads me to accept Mr Gleeson's submission that this was a transaction marked by a high degree of informality and trust. It is not easy to identify offer and acceptance, or even the precise date upon which the parties agreed to be bound, other than to say that considering the events which happened after the idea of County acquiring the Equity Swap Business was floated, it is clear there was a contract: Branir (at [369]). 171 Mr Slater had both introduced the Equity Swap Business to the respondents and had had a role in conducting it on their behalf, a role which the primary judge appears to have accepted did not bring to his attention the capitalisation of interest on the Challenger loan account. 172 When the restructuring of the Challenger Group was mooted, discussions ensued as early as December 2002 as to whether County could take on the Equity Swap Business. While there were clearly ultimate decisions to be made as to whether Challenger/CHL would permit that to happen, and how it would be effected, the evidence disclosed a consistent stance taken by the putative parties concerning the consideration for the transfer, namely that reflected in the Slater-Ireland and Slater-Gilsenan conversations, that if it occurred, it should be effected on the basis that neither the respondents nor County suffered a loss. 173 Several points should be noted at this stage. 174 First, the respondents did not dispute that any of Messrs Ireland, Davidson and Gilsenan had authority to contract on their behalves. 175 Secondly, there are no adverse credit findings against any witness. The primary judge accepted their evidence, and, to the extent there was a difference between Mr Slater and Mr Gilsenan on the "no profit, no loss" and "no hit" conversations, found that the two versions meant the same thing. Mr Jackson contended that what Mr Ireland was referring to was that Challenger would not charge, in effect, an introduction fee for transferring the business to County. That submission entails a challenge to the primary judge's findings as to the meaning of the relevant conversations. It was not the subject of a Notice of Contention and, in my view, ought not be entertained. It was not, in any event, a submission made in relation to Mr Gilsenan's May 2003 statement, the thrust of Mr Jackson's submission in this respect being as to its informality, an issue to which I will return. 176 Thirdly, the effect of County paying out Challenger/CHL's liability to EML for capitalised interest on settlement meant County made a loss on the transaction and Challenger made a profit. This was because, as was submitted at trial, "Challenger would be making a profit if it received on settlement any amount which included capitalised interest because Challenger would be recouping an interest expense which it had incurred and recorded in its books and would thereby receive an amount greater than the book value of the assets and liabilities transferred to County": see primary judgment at [67]. County made a concomitant loss to the extent of that interest expense. Had County not paid out the capitalised interest, Challenger/CHL would have had to bear that loss. 177 The primary judge, with respect, never clearly addressed the issue whether the effect of County paying out the capitalised interest was that Challenger/CHL made a profit, although he appeared to recognise (at [125]; cf [67], [78]) that had County established any of its causes of action, the measure of damages was the $338,639.84 representing the capitalised interest which County had paid. 178 Indeed, the primary judge said (at [78]) that there was no evidence as to what profit Challenger made on the Equity Swap Transaction. This statement, with respect, overlooked Mr Gilsenan's evidence that payment by County of the capitalised interest recorded as an expense by Challenger resulted in a profit to Challenger of the amount of the capitalised interest. His Honour also referred (at [78]) to a cash flow for the year ending June 2003 which showed interest payments to CHL of $369,357 and interest and other costs of $502,009 resulting in a deficit of $132,652, apparently relying on the deficit to conclude there had been no profit in the financial year in which the transfer took place. But, as County submitted, a cash flow is not a document which shows profit or loss. It merely shows the flow of money into and out of a business. Far more telling was CHL's Statement of Financial Performance for the same period which showed it made a profit of $550,588 for the 2003 financial year, compared to $75,539 for the 2002 financial year. As Mr Gleeson submitted, the audit working papers demonstrated most of this profit related to closing the deal in respect of the SEV shares. 179 It was also significant for the primary judge (at [78]) that at the time of the conversations with Mr Ireland and Mr Gilsenan on which County relied, "price was not identified". This, in his Honour's view, underlined the proposition that at that time "there was uncertainty about a whole range of matters". But, in my view, the agreement reached in those conversations was the agreement as to "price". An agreement that the transfer was to be at no profit to Challenger/CHL or no loss to County was an agreement as to the price at which the transfer was to be effected. Significantly, as Mr Jackson conceded, there was no conversation or other communication in which there was further discussion about the agreement actually proceeding between Mr Slater and any relevant person on the part of Challenger or CHL following the conversation between Mr Slater and Mr Gilsenan in April 2003. All subsequent conversations related to the mechanics of the transaction. 180 In my view, had his Honour appreciated that the "no profit, loss, hit" conversations dealt with the "price" issue, then, in my view, the significance of the conversations would have been apparent. 181 Further, his Honour's failure to appreciate the significance of the "no profit, loss, hit" conversations on the "price" issue, or how Challenger/CHL would make a profit on the transfer, also led to him, in my view erroneously, characterising the 23 - 26 June documents as constituting the entire terms of the contract. Once he reached that conclusion, it was inevitable that he would characterise the "no profit, loss, hit" conversations at least as inadmissibly pre-contractual, and inconsistent with those documents. 182 As I have said, the primary judge held that the Novation Agreement "provided exhaustively for what was to happen": primary judgment at [46]. In fact, the Novation Agreement was an agreement which related to the swap side of the Business. Under the Novation Agreement County assumed CHL's liabilities to ACM and ACE in respect of the Equity Swap Transactions and became the beneficiary of guarantees and indemnities ACE had given to CHL. The Novation Agreement did not purport to, and could not, deal with County assuming Challenger/CHL's obligations to EML in respect of CHL's margin loan account, not least because EML was not a party to it. To return to the analysis of the Equity Swap Business, the Novation Agreement did not deal with the agreement between County, Challenger and CHL as to the "price" at which the former was to assume the latter's liabilities on the financing side. In my view the Novation Agreement was merely one part of the Transfer Agreement. 183 The primary judge also concluded that the Transfer Request and the Share Transfer constituted part of the agreement between County, Challenger and CHL for the transfer of the Equity Swap Business. However the Transfer Request was a direction to EML from County to transfer CHL's Margin Loan to it. It was not a document to which either Challenger or CHL was a party. It not a contractual document. It was a communication to a third party made by one party in the implementation of the transfer. 184 The Share Transfer was also a document by which the transfer was implemented and by which CHL's shares were transferred to County in an off-market transaction. It reflected the agreement, but was silent on the question of the "price" at which the transfer was to take place. 185 In my view the primary judge erred in concluding the three documents constituted the Transfer Agreement, an error which infected his analysis of the conversation evidence. 186 His Honour held the conversations between Mr Slater and Mr Ireland and Mr Gilsenan did not give rise to the term for which County contended because they were pre-contractual, took place at a time when things were either in a state of flux and/or were informal and were inconsistent with the documents he held constituted the Transfer Agreement. In my view his Honour erred in each of those respects. 187 The conversations took place during the period of seven or so months in which the parties periodically discussed whether, and if so how, the transfer would take place. They were the only communications between the parties concerning the "price" at which the Transfer Agreement was to be effected. Further they reflected a consistent attitude on both parties' part on this issue. 188 The first statement that the business would be transferred to County at no profit to Challenger was made by Mr Ireland, who was the relevant decision-maker for the respondents at least until 9 April 2003 when he left their employ. Mr Gilsenan expressed substantially the same view to Mr Slater in about May 2003. Although Mr Gilsenan said that the conversation in which he made that statement was "in passing", "a casual conversation, probably while I was on the run", as the evidence reveals, a degree of informality was a characteristic of the formation of the Transfer Agreement. 189 The mere fact that a conversation takes place "in passing" does not necessarily deny it contractual effect, as the primary judge appears to have assumed. The question to be determined is what the statement conveyed objectively. In my view a reasonable person would have concluded from Mr Gilsenan's statement that the transfer, if it proceeded, would take place at no profit to Challenger/CHL and no loss to County. This was consistent with Mr Ireland's statement to Mr Slater. It was a constant feature of the proposed transaction from both parties' perspective. 190 I have referred (at [36] – [39]) to a number of documents from which his Honour inferred that at the time of the conversations things were still uncertain and/or in a state of flux. Of the documents to which his Honour referred, one concerned County's negotiations with EML to open a margin loan account, and another dated 3 April 2003 from Mr Ireland to EML, exhibited Challenger's uncertainty as at that date as to whether it would unwind or novate the equity swaps. A third document constituted internal musings within the Challenger Group as to whether or not to proceed with the transfer. The fact that each of the parties to the Transfer Agreement had not finally decided whether, or even how, they might proceed vis-à-vis a third party does not, in my view detract from the underlying agreement that if it did proceed, it would be at no loss to County and no profit to Challenger/CHL. While these documents demonstrated that there were some substantive, and some mechanical, aspects of the transaction which had to be determined, they did not undermine the contractual potency of the conversations. 191 In my view while the documents did demonstrate things were in a state of flux in the months leading up to settlement, that did not mean agreement on a critical term could not be made during that period. While the Transfer Agreement itself may have been too uncertain to enforce as early as May 2003, the parties' ultimate agreement that the transfer should proceed with only one agreement as to price having been reached, gave that critical term legal force: see Integrated Computer Services (at 11,118). 192 The primary judge also referred to the letter Mr Slater sent Mr Basten dated 12 June 2003: Slater affidavit at [112]. I have set out the terms of that letter: see [78]. When Mr Slater was cross-examined about that letter, the cross-examiner referred to it as a "draft letter". It is not clear why it was so described. He did not so describe it in his affidavit. However, Mr Gleeson accepted this characterisation on the basis, apparently, that it was given to Mr Gilsenan unsigned. The primary judge accepted the respondents' submission that its significance was twofold, both in demonstrating that "things were in a state of flux" even at that late date, and because it did not mention the "no profit, loss, hit" term County relied upon. 193 I have already dealt with the state of flux issue. I do not, with respect, agree with his Honour's interpretation of the letter. In my view it does not contain the significant omission his Honour perceived. The letter made it plain that "no cash will be exchanged between Challenger and County…". In my view that statement is consistent with the no loss term for which County contended. The effect of County discharging Challenger's liability for capitalised interest was, in effect, to make a payment on Challenger's account of the amount of that interest, equivalent to a payment to Challenger. I would add that, having read Mr Slater's cross-examination, I note it was not put to him that the terms of this letter were inconsistent with the no loss term having been agreed. 194 Mr Jackson relied on the statement in the 12 June letter that "[t]he purpose of this letter is to seek agreement between Challenger and County Securities as to the novation" as indicating no prior agreement had been reached. But that statement must be read in context. It is plain from the second paragraph of the letter that Mr Slater was formally recording an agreement which had already been reached, as evidenced not least by the fact that Challenger's General Counsel, Mr Molinari, had already been instructed to draft the Novation Agreement. He was also setting out the mechanics of settling the transfer of both the swap and financing sides of the Business. 195 It follows from this analysis that the primary judge erred in concluding that the "no profit, loss, hit" conversations were pre-contractual negotiations, erred in concluding that because they took place when things were in a state of flux and by virtue of their "informal" nature (at least insofar as Mr Gilsenan was concerned) they lacked contractual force and, finally, erred in concluding that the term for which County contended was inconsistent with the express terms of the Transfer Agreement as pleaded. 196 The respondents' written submissions contended that Mr Slater's failure to undertake any due diligence to determine the balance of the margin loan account was conduct from which an objective observer in the Toll sense would have concluded that County drew no distinction between principal and interest. The simple answer to that proposition, in my view, is that, as the primary judge accepted (at [20]), Mr Slater was of the view the Equity Swap Business was being conducted on the basis he had explained to Mr Davidson at the outset, namely that interest recovered from ACE was used to pay margin loan account interest. 197 Mr Slater's belief as to how the Equity Swap Business was being conducted was, in my view, confirmed in early 2003 when he was shown the due diligence memorandum from CHL to CPH and another company to which I earlier referred (at [127]). In short, that document included the statement: "Challenger pays the Margin Lender interest on the Margin Loan each month." The primary judge concluded (at [115]) that "the documents do not contain any representation that interest was being paid". As I have observed, it is difficult to reconcile this bald statement with the note in the document itself. In my view Mr Slater was entitled to retain the belief that the Equity Swap Business was being conducted on the basis he had first explained it to Mr Davidson. The primary judge also sought to reject an explanation Mr Slater gave about the diagram by reference to Mr Matthews' authorship of it. As I earlier said, it was not possible to discern from his Honour's reasons what explanation he was rejecting. 198 Further, in my view, the objective observer would conclude that it was improbable a commercial entity such as Challenger/CHL would accrue capitalised interest on the margin loans. As the foregoing analysis reveals the effect of capitalising the interest was to erode, if not eliminate, any profit from that business. Indeed one of the curious features of the case is that none of the principal actors in the respondents' camp seems to have been aware that interest was being capitalised. Mr Gilsenan's evidence was that there was "no reason why these loans should be treated any differently from others, when statements were received the normal practice would be for interest to be paid." 199 Finally, on this point, as County submits, the evidence does not establish that Mr Slater's failure to undertake any due diligence was a mutually known objective circumstance: Codelfa Construction Pty Limited v State of Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 (at 347–352) per Mason J (Stephen J and Wilson J agreeing). 200 County relied upon Mr Gilsenan's direction to Mr Basten that the transfer was to be at no profit to Challenger, evidence the primary judge rejected as reflecting merely Mr Gilsenan's subjective belief, as evidence supporting its case that the contract included the no loss term. On appeal the respondents contended that that evidence, and Mr Basten's conduct in complying with it by re-crediting to County interest accrued by Challenger on its Margin Loan Account in June 2003, constituted inadmissible post-contractual conduct. 201 I would add that, in my view Mr Gilsenan's direction to Mr Basten was an admission that the transfer was to take place on the terms for which County contended. It is worth briefly re-visiting Mr Gilsenan's evidence in this respect to make good this proposition. 202 Mr Gilsenan said that he instructed Mr Basten that the transfer of the swaps was to be "at book" and that if a corporation sold or disposed of an asset at book value one would not expect any profit or loss to be recorded. He also accepted that "the book value [of the Challenger shares] would have been the value of the shares bought off the market plus brokerage". His direction to Mr Basten was consistent with an agreement that the price County was to pay for the transfer did not include capitalised interest. Mr Basten complied with the direction on 26 June by crediting the June interest to County. Mr Gilsenan's admission that the transfer was to take place at book value was communicated to County by this action. It constituted an objective circumstance to which the Court could have regard in determining the terms of the contract. It was not post-contractual conduct. Rather it took place contemporaneously with the final act of settlement, which, as the primary judge found (at [53]), was on 26 June 2003. 203 Finally, I would observe that the primary judge found comfort in his conclusion that the agreement was for County to pay out the balance of the margin loan account however it was constituted because County had pleaded that the Transfer Agreement included a term that "County would assume CHL's liability in respect of monies borrowed by CHL to acquire the physical stock". The respondents also relied on that argument on appeal. It fails on two bases. First, in my view this was an arid pleading point. It was apparent from both the Amended Statement of Claim and the manner in which the case was conducted at trial, that the liability County would assume in respect of monies CHL had borrowed to acquire the physical stock was the principal of the CHL Margin Loans and not capitalised interest. Secondly, as Spigelman CJ pointed out in the course of argument, the expression "monies borrowed" more naturally refers to the principal of a loan, upon which interest is then capitalised. 204 Although this was an informal contract, it was nevertheless a commercial one. It is, in the final analysis in my view improbable that a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ) would have concluded that parties agreed to terms so lacking in commercial reality or business commonsense or so failing in sensible commercial operation, as that for which the respondents contended: cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 (at 437); Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 (at 109); Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 (at 313-4); Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA (at [64]). 205 In my view the Transfer Agreement included the oral term for which County contended, namely that the transfer would take place at no profit to Challenger and no loss to County. The effect of Challenger/CHL permitting County to pay out the balance of the margin loan account including capitalised interest was a breach of that term. 206 In my view County established its breach of contract case. It is unnecessary to consider the multiple alternative ways it advanced its claim for damages or the respondents' Notice of Contention, the latter only being relevant to the unjust enrichment case. Interest 207 The primary judge said (at [125]) that had County made good its claim, he would have awarded interest under s 100 of the Civil Procedure Act from the date of commencement of the proceedings. He did so without hearing from the parties on this issue. In my view there is no sound reason for denying County interest on the monies it erroneously paid on 26 June 2003. The respondents have had the use of the monies in breach of contract since settlement. Orders 208 I propose the following orders: 1. Appeal allowed. 2. Set aside orders made by Rolfe DCJ on 5 June 2007. 3. Verdict and judgment for the appellant in the amount of $338,639.84 and interest pursuant to s 100 of the Civil Procedure Act 2005 from 26 June 2003 to 3 July 2007 of $124,535.96 and interest thereafter of $92.78 a day. 4. Respondents to pay appellant's costs of the appeal and of the proceedings below. ********** 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.