Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Hillam v Iacullo [2015] NSWCA 196 Hearing dates: 10 June 2015 Decision date: 16 July 2015 Before: Basten JA at [1]; Ward JA at [2]; Leeming JA at [3] Decision: 1. Appeal allowed. 2. Set aside the orders made on 30 July 2014, and in lieu thereof, dismiss the proceedings. 3. Respondents to pay the appellant's costs at first instance and on appeal. Catchwords: CONTRACT - novation - successive written loan agreements between same parties - whether later agreement discharged parties' obligations under earlier agreement - no express rescission of earlier agreements - later agreements dealt with same subject matter and in different terms - context confirmatory - later agreement impliedly discharged earlier agreement CONTRACT - breach - dependent and independent obligations - lenders promised to advance funds at particular date - borrower promised to provide security within a reasonable time - borrower promised to repay amounts lent plus interest plus uplift - contract not executed until after the time specified for the funds to be advanced - lenders refused to advance entirety of funds until security provided - relevance of oral stipulation that final amounts would not be advanced without security being provided - lenders in breach - whether borrower's obligation to pay uplift independent of lenders' obligation to advance entirety of funds - obligations dependent, not independent Legislation Cited: Contracts Review Act 1980 (NSW) Cases Cited: Aalders v PA Putney Finance Australia Pty Ltd [2011] NSWSC 756 ALH Group v Commissioner of State Revenue [2012] HCA 6; 245 CLR 338 Ample Source International Limited v Bonython Metals Group Pty Limited; In the Matter of Bonython Metals Group Pty Limited (No 6) [2011] FCA 1484; 285 ALR 488 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 Burton v Palmer [1980] 2 NSWLR 878 Campbell v Jones (1796) 6 TR 570; 101 ER 708 Chief Commissioner of State Revenue v ALH Group Property Holdings Pty Ltd [2011] NSWCA 32; 15 BPR 29,297 Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; 201 CLR 520 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; [2015] AC 250 Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473 Gray t/as Clarence Valley Plumbing Services v Ware Building Pty Ltd [2013] NSWCA 271 Hillam v Ample Source International Limited (No 2) [2012] FCAFC 73; 202 FCR 336 Hillam v Leduva Pty Limited (No 3) [2011] NSWSC 345 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 Lloyd v Lloyd (1837) 2 My & Cr 192; 40 ER 613 Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Morris v Baron & Co [1918] AC 1 Newcombe v Newcombe (1934) 34 SR (NSW) 446 Olsson v Dyson (1969) 120 CLR 365 Pordage v Cole (1669) 1 Saund 319; 85 ER 449 Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 Scarf v Jardine (1882) 7 App Cas 345 State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 Tito v Waddell (No 2) [1977] Ch 106 Vickery v Woods (1952) 85 CLR 336 Texts Cited: JW Carter, Carter on Contract (2014, LexisNexis) K Lewison, The Interpretation of Contracts (5th ed, 2011, Sweet & Maxwell) WS Holdsworth, A History of English Law (3rd ed, 1966, Methuen & Co and Sweet & Maxwell) Vol VIII S Stoljar, A History of Contract at Common Law (1975, Australian National University Press) S Stoljar, "Dependent and Independent Promises" (1957) 2 Sydney Law Review 217 Category: Principal judgment Parties: John Hillam (Appellant) Dominic Iacullo (First Respondent) Lillian Iacullo (Second Respondent) Representation: Counsel: M Jones SC, DE Perrignon (Appellant) DA Smallbone (Respondents) Solicitors: Sarvaas Ciappara (Appellant) I.E. Duffield (Respondents) File Number(s): 2014/249492 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2014] NSWSC 1021 Date of Decision: 30 July 2014 Before: Ball J File Number(s): 2014/66418 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] In July and August 2011, Mr Hillam entered into three written loan agreements with Mr and Mrs Iacullo. The first loan agreement dealt with an advance of $200,000, the second dealt with both the original advance, and a further advance of $155,000, and the third dealt with the two prior advances, and a final advance of $100,000. In each case, Mr Hillam promised not merely to repay the principal plus interest on a fixed date, but also to transfer an "uplift" – shares or money equal to double the principal – at the end of the term. The third loan agreement also required Mr Hillam to provide the Iacullos with a fixed and floating charge over a company, Wentworth Metal Group Pty Ltd, "for the amount of the loan within a reasonable time". The Iacullos never transferred Mr Hillam the final tranche of $75,000 owed under the third loan agreement. Mr Hillam never provided the Iacullos with the promised security or the agreed "uplift". By 21 July 2014, Mr Hillam had repaid all of the amounts lent to him by the Iacullos, together with interest. Thus it was that the only amount in contest was the "uplift" of $910,000 (plus interest), being the amount said to be owed by Mr Hillam under the third loan agreement. At first instance, the primary judge held that because the Iacullos did not lend Mr Hillam the full amount contemplated by the third loan agreement, and Mr Hillam did not provide the security required by that agreement, the parties "must be taken to have abandoned the contract". As such, the Iacullos could not enforce Mr Hillam's obligation to pay the "uplift" under that agreement. However, the primary judge rejected Mr Hillam's claim that the third loan agreement involved a novation of the second loan agreement. Accordingly, the primary judge found that the second loan agreement remained on foot, such that Mr and Mrs Iacullo were entitled to judgment in the sum of $710,000 plus interest, calculated from 12 January 2012, this being the "uplift" promised under the second loan agreement. Mr Hillam appealed, contending that the third loan agreement was substituted for the second, such that Mr and Mrs Iacullo were not entitled to any sum payable under the second loan agreement. Mr Hillam further submitted that while the third loan agreement was not abandoned, he was not obliged to pay the $910,000 "uplift" owing under that agreement, because Mr and Mrs Iacullo had failed to advance the final $75,000 promised under that agreement. The issues arising on appeal were: (a) whether the third loan agreement discharged the parties' rights and obligations under the second loan agreement, (b) whether the third loan agreement was abandoned, (c) whether the Iacullos were in breach of the third loan agreement, and (d) whether Mr Hillam's obligation to pay the "uplift" was dependent upon the Iacullos' performance of their obligation to lend the full amount promised under the third loan agreement. Held by Leeming JA, Basten JA and Ward JA agreeing, allowing the appeal: First issue: novation 1. The question was whether the rights stemming from the second loan agreement continued to be enforceable notwithstanding the execution of the third loan agreement. That question turned upon discerning the (objective) intention of the parties: at [56]-[57]. Vickery v Woods (1952) 85 CLR 336, applied Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473, referred to 2. Where a later contract between the same parties deals with the whole of the subject matter of the former in a way that is inconsistent with the continued existence of the former, then it must necessarily rescind the former by implication even in the absence of express language: at [51]. 3. However plain and unambiguous contractual terms may be in themselves they are always capable of being controlled by an inconsistent context: at [64]. Newcombe v Newcombe (1934) 34 SR (NSW) 446, applied 4. The third loan agreement dealt with the same subject matter (the prior advances) in a manner inconsistent with the second loan agreement, such that the third loan agreement necessarily rescinded the second: at [51], [58]-[62], [72]-[73]. Nothing in the context of the agreements displaced this conclusion: at [66]-[67]. Morris v Baron & Co [1918] AC 1, applied Second issue: abandonment 5. The third loan agreement was not abandoned by the parties, as their conduct was inconsistent with them being taken to have abandoned or abrogated the contract: at [75]-[76]. DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, applied Third issue: breach 6. The Iacullos' obligation to advance the final tranche of the loan on a particular date prior to the third loan agreement being executed amounted to an obligation to advance the remaining $75,000 immediately. That obligation was independent of Mr Hillam's obligation to procure a charge: at [80]-[87]. Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1; Gray t/as Clarence Valley Plumbing Services v Ware Building Pty Ltd [2013] NSWCA 271, discussed 7. Unless it can be shown that a document is not intended as the complete record of a bargain, oral evidence cannot be used to alter or qualify the document: at [85]. Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133, appliedState Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424; Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382, considered 8. Although there was an intention, at least on the part of Mr Iacullo, to create further contractual documentation, that does not mean that the third loan agreement was not a complete record of the parties' bargain as at the time: at [86]. 9. It followed that the Iacullos were in breach of the third loan agreement: at [87]. Fourth issue: dependent or independent obligations 10. Whether obligations are dependent or independent depends upon the intention of the parties: at [92]-[100]. Burton v Palmer [1980] 2 NSWLR 878; Tito v Waddell (No 2) [1977] Ch 106; Newcombe v Newcombe (1934) 34 SR (NSW) 446, applied 11. When the third loan agreement was read as a whole and given its natural meaning, and the purpose of the transaction was considered, the obligation to pay the "uplift" was construed as dependent upon the obligation to loan the principal: at [101]-[104]. This conclusion accorded with the modern approach which favours a construction whereby most obligations are construed to be dependent: at [105]. 12. It was not open to the Iacullos to require Mr Hillam to pay them an uplift of double the promised loan of $455,000 when they for their part had been unwilling to lend all of that amount on the promised terms: at [104]. Judgment 1. BASTEN JA: I agree the appeal must be allowed and orders made as proposed by Leeming JA, for the reasons he gives. 2. WARD JA: I agree with Leeming JA. 3. LEEMING JA: There are two main issues in this appeal. The first is whether a later loan agreement impliedly discharged an earlier agreement between the same parties. The second relates to what a distinguished Australian legal historian once described as "a principal theme in the history of the law of contract", namely, whether promises are dependent or independent. Although his reference was to English law in the 16th to 19th centuries, essentially the same questions continue to arise – albeit less commonly – in Australian law in the 21st century. 4. The parties entered into three written loan agreements in quick succession. The second dealt with another advance as well as the earlier advance. The third dealt with a further advance as well as both earlier advances. In each case, the borrower promised not merely to repay principal plus interest on a fixed date, but also to transfer an "uplift" – shares or money equal to double the principal – at the end of the term. However, after executing the third agreement, the lenders refused to transfer the final tranche of the third advance until the borrower had provided security, which the borrower refused to do. Ultimately, the borrower repaid all the amounts lent plus interest. The lenders sued to recover the uplift. The primary judge found that the borrower was obliged to pay the uplift required by the second agreement, on the basis that the third agreement had been abandoned and had not discharged the second. 5. I would allow the borrower's appeal. I have concluded, contrary to the primary judge, that the third agreement caused the borrower's obligations under the second agreement to be discharged, and that the third agreement was not abandoned. I also consider, consistently with the reasons of the primary judge, that the obligation to pay the uplift was dependent upon the lenders advancing the whole of the promised loan. Because the lenders were not willing to do so in accordance with the terms of the loan agreement, I have concluded that the borrower was not liable to pay any amount of uplift. Background 1. Most of the evidence was documentary, and most of the facts uncontroversial. Save for one matter on which nothing turns (the date the final loan agreement was executed), there was no challenge to any of the factual findings made by the primary judge. 2. Mr John Hillam is a geologist by training. He and Ms Sarobol Teeranukul, whom he described as his de facto wife, together hold 64% of the issued shares in Bonython Metals Group Pty Ltd, which had a significant interest in a magnetite project being developed by Carpentaria Exploration Ltd. In 2011, a minority shareholder in Bonython Metals Group brought an oppression suit against Mr Hillam in the Federal Court of Australia, which was heard over 15 days between July and November 2011: Ample Source International Limited v Bonython Metals Group Pty Limited; In the Matter of Bonython Metals Group Pty Limited (No 6) [2011] FCA 1484; 285 ALR 488. The Federal Court ordered that Bonython Metals Group be wound up, and an appeal was dismissed on 3 May 2012: Hillam v Ample Source International Limited (No 2) [2012] FCAFC 73; 202 FCR 336. A liquidator was appointed on that day. 3. The proceedings in this Court concern the steps taken by Mr Hillam in July and August 2011 to fund his defence of the litigation in the Federal Court. Mr Hillam's solicitor, Mr Richard Allsop, introduced him to another of his clients, Mr Dominic Iacullo. Mr Iacullo and his wife, Mrs Lillian Iacullo, agreed to lend Mr Hillam $200,000 for the purposes of meeting Mr Hillam's legal costs in connection with the Federal Court proceedings. It is as well to say at once that no issue arises in this appeal as to Mr Allsop acting for two of his clients, one lending to the other, where the purpose of the loan included repaying moneys owed by the borrower to himself. The unwisdom of doing so is obvious. It should also be said that Mr Allsop advised his clients to seek independent advice, and eventually both were advised by separate solicitors. The First Loan Agreement 1. Mr Allsop prepared a loan agreement, on essentially the following terms: (a) the Iacullos would advance Mr Hillam $200,000 on 12 July 2011 (cl 2.1), (b) the loan would accrue interest at the rate of 15% per annum from the date of the agreement until the loan was repaid in full (cl 3), (c) Mr Hillam would repay the loan and the accrued interest on or before 12 January 2012 (cl 4.1), and (d) on or before 12 January 2012, Mr Hillam was also to cause ordinary shares in Carpentaria to the value of $400,000 (or, if at the date of transfer the shares in Carpentaria exceeded $1.00 per share, 400,000 shares) to be transferred to the Iacullos, or their nominee (cl 4.2). If Mr Hillam was unable to transfer the shares, he was required to pay the Iacullos $400,000 plus interest, which was to accrue from 12 January 2012 (cl 4.3). 2. The First Loan Agreement was signed by the parties, and dated 12 July 2011, although it appears to have been executed on 15 July 2011. The $200,000 was advanced as follows. On 28 June 2011, Mr Iacullo transferred $100,000 to a joint bank account nominated by Mr Allsop. There was a degree of urgency (for example, Mr Allsop wrote to Mr Iacullo, "It is important that this is done today. I am relying on you"). On 29 June, Mr Iacullo transferred $16,697.79 to a bank account in Mr Allsop's name. On 19 July 2011, Mr Iacullo prepared personal cheques in the amounts of $50,000 and $10,000 and deposited them in favour of the joint account and an account in the name of RJA Holdings Pty Ltd. The final payment of $23,302.21 was made on 28 July 2011 to the joint account. The joint account into which three of the five payments were made appears to be unrelated to Mr Allsop; the reasons for doing so were not explained by the evidence. 3. In short, there were five payments totalling $200,000. Two payments, constituting slightly more than half of the amount, were effected around a fortnight before the First Loan Agreement was executed; the remaining three a week or so after it was executed. By their agreement, the parties treated the whole amount as having been lent on 12 July 2011, with interest accruing from that day. 4. Each loan agreement in this litigation replicated the same basic structure: a six month loan, with interest at 15% per annum, repayable on 12 January 2012, with a promise to pay double the amount lent in shares or money. The parties referred to the latter amount as an "uplift", and it will be convenient to use that description in these reasons. 5. The commercial context for those loan agreements is not entirely clear. Although Mr Hillam affirmed three affidavits, none was read, and he was not cross-examined, although some of the third affidavit was tendered. However, there are suggestions that some form of capital raising was planned within that period. An email from Mr Hillam to Mr Iacullo dated 25 July 2011 referred to there being "a lot more once the deal goes through with Grant Thornton and or others" and another from Mr Iacullo to Mr Allsop dated 26 July 2011 noted "John also stated that once he receives the funding ($30M) he will repay the $155,000.00 straight away". Both Mr Hillam and Mr Iacullo were in contact with a Director and an Associate Director in corporate finance within Grant Thornton at around this time. The Second Loan Agreement 1. Following the execution of the First Loan Agreement, but prior to making the final advance of $23,302.21 under that agreement, Mr Iacullo agreed to lend Mr Hillam a further sum of $155,000. This loan was to satisfy a debt Mr Hillam had to Leduva Pty Ltd, arising out of litigation in this Court: see Hillam v Leduva Pty Limited (No 3) [2011] NSWSC 345. It too was urgent: Mr Hillam had been served with a bankruptcy notice. 2. On 25 July 2011, Mr Iacullo prepared a personal cheque in favour of Leduva for $155,000, and left it with the (different) solicitors acting for Mr Hillam in respect of that debt. Leduva did not accept Mr Iacullo's personal cheque. Mr Hillam asked Mr Iacullo to provide, and he did provide, a bank cheque in favour of Leduva on 26 July 2011, and his personal cheque was returned. 3. On the evening of 25 July 2011, Mr Iacullo wrote to Mr Hillam, copying in Mr Allsop, as follows: "we should make arrangements regarding the further loan of $155,000, which has now been advanced in the same terms as the initial loan of $200,000 and that we will each execute a more formal agreement in terms of the initial agreement, but reflecting the additional loan amount". 1. Mr Allsop prepared a new loan agreement in substantially the same terms as the First Loan Agreement. When sending it to Mr Iacullo, he said that he had "amended the earlier agreement to provide increased payment" and that: "You will need to complete clause 3.2 with the date provided in the earlier agreement and you should agree to terminate the earlier agreement when a new agreement is entered." 1. Because of the submissions made as to the relationship between this agreement and the Third Loan Agreement, the substantive clauses of each are reproduced as annexures to this judgment. 2. It is not clear when the Second Loan Agreement was executed, but it was not before the afternoon of 26 July 2011. That afternoon, Mr Iacullo asked Mr Allsop whether it might not "be better to have a separate agreement altogether regarding the $155,000.00 bankruptcy debt". The response, if any, was not in evidence, but no such separate agreement was entered into. The executed agreement was dated 26 July 2011, by hand, the date the bank cheque was provided. 3. The version of the Second Loan Agreement tendered was not signed by Mrs Iacullo. The primary judge found that she did not do so. Nothing turned on her failure to do so at first instance, nor will it on appeal. 4. The material differences from the First Loan Agreement were as follows: (a) "Loan" was defined as $355,000 (rather than $200,000), (b) cl 2 of the Second Loan Agreement noted that the Lenders "had advanced" the loan to the borrower "as at the date of this Agreement", (c) interest was to be paid on the sum of $200,000 as and from 12 July 2011, and on the sum of $155,000 as and from 26 July 2011 (cll 3.2 and 3.3), and (d) the value of the shares in Carpentaria to be transferred by Mr Hillam was $710,000 (rather than $400,000), with the sum payable by Mr Hillam to the Iacullos if he were not able to do so being increased to $710,000 from $400,000. As under the First Loan Agreement, the principal and accrued interest was to be repaid on or before 12 January 2012. 5. It will be seen that some of the amounts lent under the First Loan Agreement, and all of the amounts lent under the Second Loan Agreement, were lent before those agreements were executed. 6. Around 26 July 2011, Mr Iacullo and Mr Hillam began to discuss the possibility of security for the moneys advanced to Mr Hillam under the loan agreements. Mr Iacullo wrote to Mr Allsop on 26 July in the evening: "I have again spoken to John at about 7:00pm this evening and he has no problems having a charge over the company Wentworth Metals Group and the tenements as security for the money which John will owe me and Lillian regarding the $355,000.00 loan agreement that you prepared. John also stated that once he receives the funding ($30M) he will repay the $155,000.00 straight away but as a comfort I like the idea in having a charge over Wentworth." Wentworth Metal Group Pty Ltd was a company whose sole director was Mr Hillam. Its only members were Mr Hillam and Ms Teeranukul. 1. That email was printed out, and has written on it, in what appears to be Mr Hillam's hand and above his signature, the words: "Provided it does not take precedence over other charges". 1. The handwriting is dated 11 August 2011, and appears to relate to discussions in late July and early August in which Mr Iacullo continued to seek security from Mr Hillam. The Third Loan Agreement 1. Separately, around this time, Mr Hillam requested a further loan from the Iacullos for $100,000. It seems that a submission was sought to be made to the Federal Court about the liquid funds available to Wentworth Metal Group. 2. Mr Iacullo agreed to the further loan. On 12 August 2011 he asked Mr Harris of Grant Thornton to organise a loan agreement, and shortly afterwards retained separate solicitors, Kardos Scanlan. Despite the lack of any documentation at the time, on 15 August 2011, Mr Iacullo transferred $25,000 to a bank account in the name of Wentworth Metal Group. He told Mr Hillam by email that evening that it was "part payment of the additional $100,000.00 loan advance as agreed" and that "I should have the loan agreement finalised shortly!". 3. Also on 15 August 2011, Kardos Scanlan suggested that rather than amending the "existing loan agreement", "it would be easier (and more cost effective) to start with a new short-form document that cleans up the loans and dovetails in cleanly with the security documents". In accordance with this proposed course, Kardos Scanlan prepared a draft loan agreement, a draft fixed and floating charge to be granted by Wentworth Metal Group and a draft equitable mortgage of shares, which were sent to Mr Hillam on 17 August 2011. These documents were much more elaborate than the existing contractual documents between the parties. They were never executed. 4. Instead, on 18 August 2011, Mr Hillam sent Mr Iacullo an "updated copy of the original agreement which is the basis of our other two agreements". Mr Hillam had already signed this agreement, and suggested "we revisit a more comprehensive document later". The version signed by Mr Hillam made no provision for security, and made express provision in cl 4.4 for a discount in the uplift payable at the end to the Iacullos in the event that the principal were repaid early: "In the event that the borrower make early repayment of the loan Clause 4.3 will be subject to a prorate reduction of the sum $910,000 based on the time of any early repayment to the term of the loan. For the avoidance of any doubt as an example if the borrower was to make early repayment after 3 months of the loan execution date clause 4.3 would be subject to a 50% reduction in the amount of 'said sum of $910,000'." 1. On 19 August 2011, Mr Hillam met with Mr Iacullo at Mr Hillam's office to discuss the loan documentation. A one page handwritten note signed by Mr Hillam and Mr Iacullo suggests it lasted from 3pm until 8.20pm. The note concluded "John gave me a new agreement until solicitors finalize new agreement by Kardos Scanlan". There was a dispute as to what was said and done at the meeting, however the primary judge found that Mr Iacullo provided Mr Hillam with copies of the First Loan Agreement and the Second Loan Agreement, and that Mr Hillam signed a copy of a further agreement, based on the earlier two agreements, which was dated 15 August 2011. This is the document referred to in the handwritten note, and it became the Third Loan Agreement. The primary judge held that this agreement was executed by the Iacullos at some time after 22 September 2011. However, Mr Iacullo gave evidence at trial that he and his wife signed the Agreement soon after the 19 August meeting. It is not necessary to determine this question of fact; all that matters is that the document was executed by Mr and Mrs Iacullo after 18 August 2011. 2. The Third Loan Agreement was based on the document supplied by Mr Hillam on 18 August 2011, which was itself what he described as "an updated copy" of the Second Loan Agreement. It differed from the First Loan Agreement and the Second Loan Agreement in several respects. It is helpful for what follows to set out extracts of the relevant clauses (the whole is an annexure to this judgment): "1. Definitions and Interpretation In this Agreement: … Loan means $200,000 on or around 12 July 2011 Loan means $155,000 on or around 26 July 2011 Loan means $25,000 on or around 15/08/2011 Loan means $75,000 on or around 18/08/2011 Total Loan subject to this agreement means $455,000 2. Loan 2.1 The Lender will advance to the Borrower the Loan on the date of this Agreement. 3. Interest 3.1 The Borrower must pay interest on the Loan to the Lender at the rate of interest of 15% per annum. 3.2 Interest under this clause 3: (a) accrues, but does not capitalise, on the Loan, from day to day from the date of this Agreement until the Loan is repaid in full; and (b) is calculated on the basis of the actual number of days elapsed (including the first day but excluding the last) and a 365 day year. 4. Repayment and Prepayment 4.1 The Borrower must repay the Loan and accrued interest on or before 12 January, 2012. The loan term. 4.2 On or before 12 January, 2012, the Borrower is to cause ordinary shares in Carpentaria Exploration Limited to be transferred to the Lenders, or their nominee, to the value of $910,000, which value shall be determined by the price of the shares in Carpentaria Exploration Limited listed on the Australian Stock Exchange on the date of transfer, provided that if at the date of transfer the shares in Carpentaria Exploration Limited exceed $1.00 per share, the Borrower shall cause 910,000 shares to be transferred to the Lenders. 4.3 In the event that the Borrower is unable to effect the transfer of shares in Carpentaria Exploration Limited as provided in Clause 4.2, on or before 12 January, 2012, the Borrower shall pay to the Lenders the sum of $910,000, together with interest as provided in Clause 3, which shall accrue on the said sum of $910,000 as and from 12 January, 2012, until payment of the said sum. 4.4 The Borrower hereby agrees to provide the Lender a fixed and floating charge over the company Wentworth Metal Group Pty Ltd for the amount of the loan within a reasonable time." 1. It will be immediately obvious that the Third Loan Agreement includes, in the definition of "Loan", the amounts previously paid under the First Loan Agreement and the Second Loan Agreement. Further, the value of Carpentaria shares to be transferred increased to $910,000 from $710,000, and Mr Hillam agreed to provide the Iacullos with security over Wentworth Metal Group "within a reasonable time". 2. There is no suggestion in the evidence that lawyers were involved in the finalisation of the Third Loan Agreement. Although it is possible that they were, the numerous infelicities in the drafting suggest that they were not. There are seemingly four definitions of "Loan" and the defined term "Total Loan" is not used. The words "The loan term" which have been added at the end of cl 4.1 serve no purpose (they also appeared in the draft sent by Mr Hillam on 18 August 2011, demonstrating that that draft was the basis for the Third Loan Agreement). The charge in cl 4.4 is to secure "the amount of the loan" (rather than "the Loan" or "the Total Loan"). Whether that language connoted a charge over the shares owned by Mr Hillam and Ms Teeranukul, or of the assets of the company, is unclear. It will not be necessary, in order to resolve this appeal, to construe most of those textual curiosities. Events following the execution of the Third Loan Agreement 1. Mr and Mrs Iacullo never transferred the outstanding $75,000 portion of the final $100,000 tranche of the loan, and Mr Hillam never provided them with security in accordance with cl 4.4 of the Third Loan Agreement. 2. On 26 August 2011, Mr Hillam asked for the $75,000. Mr Iacullo responded: "For me to satisf[y] your request I require the documentation that Kardos Scanlan prepared which I sent to you by Email on 17 August 2011 at 6.27pm to be signed and returned to their office so I can Transfer the balance of funds totaling $75,000.00." 1. On 7 September 2011, Mr Iacullo again wrote: "I require the documentation that Kardos Scanlan prepared that reflects our agreement, which I sent to you by Email on 17 August 2011 at 6.27pm to be signed and returned to their office. Then I will Transfer the balance of funds totaling $75,000.00." 1. In response, Mr Hillam wrote that "[t]he agreement submitted by Kardos Scanlon [sic] contains terms that are outside of any agreements that we have made in the past". He offered to return the $25,000. 2. Mr Iacullo responded: "If you would like to repay the $25,000.00 into my NAB account as part payment please do so but understand that I consider that we have a binding agreement set out in the previous documents signed by you which include an agreement for you to provide a charge over Wentworth Metal Group Pty Ltd. The repayment of $25,000.00 will not change or vary this obligation." 1. On 22 September 2011, apparently following a discussion between the two men, Mr Hillam confirmed that he would "sign a Charge agreement over Wentworth Metal Group Pty Ltd securing these loan agreements within or around 4 weeks hence" but asked that Mr Iacullo "please transfer a further $25,000 to Wentworth Metal Group account in cleared fund[s] by tomorrow". 2. On the following day, Mr Hillam wrote to Mr Iacullo's solicitor. He noted that funds had not been transferred, said that the failure to do so "has the potential to cause damage to [me]" (but without specifying what that damage was). He said that he assumed that Mr Iacullo did not intend to complete the balance of the loan agreement, and that if he were wrong about that, asked for the balance of $75,000 to be remitted. In response, the solicitor sought an undertaking by 3pm that day that a fixed and floating charge would be granted, in which case an additional $25,000 would be advanced. The undertaking was not provided. 3. It seems that in respect of the remaining $75,000, the stand-off continued until the loan term expired on 12 January 2012. In late December, Mr Iacullo requested an earlier repayment of part of the loan; Mr Hillam said he didn't have the money. In late January 2012, Mr Iacullo again requested repayment. This did not occur. It is clear that Mr Hillam also failed to transfer shares in Carpentaria as required by cl 4.2, or to pay the sum of $910,000 plus interest under cl 4.3. Repayment of the loan and the decision of the primary judge 1. By 21 July 2014, Mr Hillam had repaid all of the amounts lent to him by the Iacullos, together with interest calculated in a way which was acceptable to Mr and Mrs Iacullo. The last payment was made during the course of the hearing at first instance. Mr Hillam's submissions at first instance recorded that the total amounts repaid by him were $460,283.52 paid prior to the trial, and $73,264.66 paid at the hearing. That amounts to a repayment of principal of $380,000 and interest of $153,548.18. Interest at 15% on $380,000 is $57,000 per annum, just over a third of the total interest paid. It will be seen that the interest component is broadly consistent with interest accruing on amounts lent in mid-2011 for almost three years. 2. Thus it was that the only amount in contest below was $910,000 plus interest, being the amount said to be owed by Mr Hillam under cl 4.3 of the Third Loan Agreement. 3. The primary judge heard the trial and delivered judgment, promptly, the following week. It will be convenient to deal with the reasons of the primary judge when addressing the submissions advanced on appeal. It suffices at present to summarise his Honour's conclusions. 4. The primary judge held that it was "not open to Mr and Mrs Iacullo to insist on the payment of $910,000 without having advanced the total sum by reference to which that amount was calculated, including the sum of $75,000" (at [33]). That is, the "payment of the $910,000 was dependent on the loans being made". More specifically, because Mr and Mrs Iacullo did not lend Mr Hillam the full amount contemplated by the Third Loan Agreement, and Mr Hillam did not provide the security required by the agreement, the parties "must be taken to have abandoned the contract" (at [34]). As such, the Iacullos could not enforce Mr Hillam's obligation under cl 4.3 of that agreement. 5. However, the primary judge rejected Mr Hillam's claim that the Third Loan Agreement involved a novation of the Second Loan Agreement. Accordingly, his Honour found that the Second Loan Agreement remained on foot, such that Mr and Mrs Iacullo were entitled to judgment in the sum of $710,000 plus interest, calculated from 12 January 2012 in accordance with cl 4.3 of the Second Loan Agreement. His Honour entered judgment in the amount of $981,647.95. Issues on appeal 1. Mr Hillam's further amended notice of appeal contains 14 grounds. However, the essential submission economically advanced by Mr Jones SC (who did not appear at first instance) was that the Third Loan Agreement was substituted for the Second Loan Agreement, such that Mr and Mrs Iacullo were not entitled to any sum payable under the Second Loan Agreement. He said that the Third Loan Agreement was not abandoned, but that because of the failure by Mr and Mrs Iacullo to advance the final $75,000, Mr Hillam was not obliged to make the $910,000 payment. 2. Mr Smallbone, who appeared for Mr and Mrs Iacullo on appeal and at trial, sought to defend all aspects of the reasoning of the primary judge, save for his Honour's finding of abandonment. He also relied on a substantial notice of contention. Without being exhaustive, he submitted that the Second Loan Agreement had not been discharged, such that Mr Hillam remained liable for the performance of his obligations under cl 4.3 of that agreement. He submitted that Mr and Mrs Iacullo were not in breach of the Third Loan Agreement, because they were ready, willing and able to advance the funds, and that Mr Hillam was in breach for not providing security. He had correctly anticipated that if that submission were upheld, then Mr and Mrs Iacullo would have been entitled to $910,000 plus interest, rather than the $710,000 plus interest ordered at first instance, if they had cross-appealed. However, he was content not to seek that larger judgment and simply to maintain the decision of the primary judge. 3. The logical way of dealing with the issues is as follows. First, to determine the question of novation; I conclude that the Third Loan Agreement had the effect of discharging the parties' rights and obligations under the Second Loan Agreement. Secondly, to determine whether the Third Loan Agreement was abandoned; I conclude that it was not. Thirdly, to determine whether Mr and Mrs Iacullo were in breach when they failed to advance the $75,000 other than on terms that Mr Hillam give security; I conclude that they were. Fourthly, to determine whether the obligation to pay $910,000 was dependent upon performance of the obligation to lend all of the $455,000 promised to be lent by Mr and Mrs Iacullo; I conclude that it was. Did the Third Loan Agreement amount to a novation of the Second Loan Agreement? 1. The issue as framed by the pleadings and submissions at trial was couched in terms of novation. Holdsworth wrote, "The name novation is Roman; but the institution, as recognized by the common law, is, as Ames has said, of English growth": A History of English Law (2nd ed, 1966 reprint, Methuen & Co and Sweet & Maxwell) Vol VIII at 85. One way in which the common law diverged from Roman law was, as Windeyer J observed in Olsson v Dyson (1969) 120 CLR 365 at 390 by reference to Institutes, Bk III, 29, 3, that a prior obligation could be extinguished without express words. 2. Once English law accepted that prior contractual obligations could be extinguished by implication, it sufficed to establish that that was the intention to be imputed to the parties. That may be established in a number of ways. However, where a later contract between the same parties deals with the whole of the subject matter of the former in a way that it is inconsistent with the continued existence of the former, then it must necessarily rescind the former by implication even in the absence of express language. That describes the effect of the Third Loan Agreement in respect of the Second. 3. When the appeal was heard, counsel identified the issue as "whether the parties are to be treated as essentially having all of their rights in the third agreement and once that was executed and enforceable essentially they be taken as abandoning their rights by way of rescission or otherwise in relation to the earlier loan agreements." That formulation avoided the language of "novation", a term which introduces unnecessary and potentially distracting complexity, as the presiding judge observed when the appeal was heard. The High Court said in ALH Group v Commissioner of State Revenue [2012] HCA 6; 245 CLR 338 at [27] that there are two quite different classes of case where the term "novation" is used: cases where a new party becomes contractually bound, and cases where the existing parties alter the terms of their bargain. The more usual, and more complicated, class of case is the former. But the present appeal is an example of the second, and in some ways much simpler, class of case. The type of "novation" with which this appeal is concerned is one between the same parties. There is no question but that they became bound by the Third Loan Agreement. The time at which that occurred does not matter, save that it was no earlier than 19 August 2011. The only presently relevant question is whether Mr and Mrs Iacullo could thereafter enforce rights under the Second Loan Agreement. Were the rights and obligations arising under the Second Loan Agreement wholly discharged, and replaced by the Third Loan Agreement? Or, did the latter merely vary the rights, but still leave the parties with the ability to enforce the earlier agreement? 4. Handley AJA noted in Chief Commissioner of State Revenue v ALH Group Property Holdings Pty Ltd [2011] NSWCA 32; 15 BPR 29,297 at [51] that a parallel line of authority considered the distinction between the variation of a contract and its replacement by a new contract without change of parties. His Honour referred to Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 and quoted from the joint judgment in Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; 201 CLR 520 at [22]: "When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists." 1. In Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312 at [19], Gleeson CJ, Gaudron and Gummow JJ described these principles as "well settled". 2. The distinction is illustrated by the speeches of Viscount Haldane and Lord Dunedin in Morris v Baron & Co [1918] AC 1, which confirmed that where the Statute of Frauds applied to a contract, the parties could by parol bring it to an end, but could not by parol vary it. In that context, Viscount Haldane distinguished between "absolute rescission" and "variation" at 20. Lord Dunedin said at 25-26: "The difference between variation and rescission is a real one, and is tested, to my thinking, by this: In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second you could sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed." 1. It will be seen that the analysis does not invoke "novation". Senior counsel for Mr Hillam expressed a preference for this approach. There is much to be said for that view, not least because it is simpler. As was said (albeit in a different context), "in the absence of any other good reason, it would seem right to opt for the simple answer": FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; [2015] AC 250 at [35]. The ultimate question is not whether or not there is a novation, but whether the rights stemming from the Second Loan Agreement, including the right to shares to the value of $710,000 and in lieu thereof a payment of that amount, continued to be enforceable notwithstanding the execution of the Third Loan Agreement. 2. The analysis turns on discerning the (objective) intention of the parties. As Dixon J said, "Rescission and novation ultimately depend on intention": Vickery v Woods (1952) 85 CLR 336 at 345, and see Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473 at [78]. As Lord Dunedin said, the parties may expressly provide in the later contract that the earlier contract is entirely at an end. Alternatively, they may expressly provide that the earlier contract is at an end save in respect of some particular aspects. There is much to be said (as Mr Allsop advised in relation to the Second Loan Agreement) for the parties making express provision for the discharge of the earlier agreement. But the same result may also occur impliedly. 3. As noted above, there are numerous infelicities in the drafting of the Third Loan Agreement, not least in the definition of "Loan". However, it is clear that the Third Loan Agreement is expressed to deal with the very same advances for which provision was made by the Second Loan Agreement. That appears from (a) the recital, (b) the obligation upon the lenders to advance the loan, and (c) the repayment obligations upon the borrower. 4. Moreover, different provision was made in respect of the same amounts in the Third Loan Agreement than had been made in the Second Loan Agreement. The recitals of the Second and Third Loan Agreements each stated that amounts including the $355,000 had been agreed to be lent "on the terms of this Agreement", but those terms were very different. It suffices to deal with two differences: interest and security. 5. First, the interest payable in respect of the advances of $200,000 and $155,000 was calculated differently. Under the Second Loan Agreement, interest accrued from 12 and 26 July 2011 respectively; under the Third, interest did not commence to accrue until 15 August 2011. The fact that this difference amounted to only a few thousand dollars is not to the point, what matters is that irreconcilably different provision was made, in each case, expressly. It must follow that the obligation pursuant to the Second Loan Agreement to pay interest on the first and second advances was subsumed by the obligation to pay a slightly smaller amount of interest under the Third Loan Agreement. 6. Secondly, the Second Loan Agreement was entirely unsecured, while the Third Loan Agreement included a promise to provide a fixed and floating charge "within a reasonable time" for the amount of the "loan". The promised charge was to secure the "loan", a term which is confusingly defined. However, in contractual documentation as casually drafted as the Third Loan Agreement, I consider it to be a small step to conclude that the (uncapitalised) "loan" which was the subject of the promised charge in cl 4.4. was all of the moneys lent, ie, identical to the "Loan" in the obligation to repay in cl 4.1. Thus, the Third Loan Agreement was materially different from the Second Loan Agreement. The latter was wholly unsecured; the former was the subject of the promise in cl 4.4. 7. That is to say, the Third Loan Agreement readily falls within the description given by Lord Dunedin in Morris v Baron & Co [1918] AC 1 at 26: "the first contract is got rid of … because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed." 1. No difficulty with consideration for the Third Loan Agreement arises. Consideration for the new agreement is provided by reason (at least) of the discharge by each party of the existing agreement. The position is as was described by the High Court in ALH Group at [28], by reference to Scarf v Jardine (1882) 7 App Cas 345 at 351: "there being a contract in existence, some new contract is substituted for it, ... the consideration mutually being the discharge of the old contract." That is sufficient. In addition, Mr and Mrs Iacullo promised to make a further advance, and Mr Hillam promised to repay it with interest, and an uplift of $910,000, and to procure a charge. 2. Although most of the matters referred to above are plain and unambiguous, the Court was asked to turn to the context. It is necessary to do so. As Jordan CJ said, with the agreement of Stephen and Maxwell JJ, in Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 451: "It must be remembered that however plain and unambiguous words may be in themselves they are always capable of being controlled by an inconsistent context". 1. That anticipated what some might regard as a more modern approach to the importance of context to contractual construction, although it is not new. Coincidentally, the 19th century authorities on which Sir Frederick Jordan relied included Lloyd v Lloyd (1837) 2 My & Cr 192; 40 ER 613. Cottenham LC there referred (at 204; 618) to the famous case of Pordage v Cole (1669) 1 Saund 319; 85 ER 449, which is closely connected with the second main issue in this appeal. In Pordage, Serjeant Williams had collected a variety of cases in which "the Court has done great violence to the strict letter of covenants for the purpose of carrying into effect what was considered to be the real intention of the parties." 2. Nothing in the context displaces the textual considerations referred to above. The Second Loan Agreement was prepared in circumstances where at least one of the parties gave express consideration to whether there should be a separate agreement (see Mr Iacullo's email of 26 July 2011 reproduced above). True it is that Mr Allsop suggested that they ought formally to terminate the First Loan Agreement after executing the Second, but that was merely sensible advice to avoid doubt, rather than something which was necessary, and was in any event consistent with the textual implication. 3. Similarly, in order to create the Third Loan Agreement signed by the parties, the parties started with the text of the Second Loan Agreement and added to it new words dealing with the further $100,000. Mr Hillam described the document he sent on 18 August 2011 as "an updated copy of the original agreement". The footers of each of the Loan Agreements are the same (61104_1), confirming their common ancestry. 4. I respectfully disagree with the reasoning of the primary judge as to novation, which reached the opposite conclusion. His Honour approached the question by reference to whether the (objective) intention of the parties in entering into the Third Loan Agreement was for it to replace its predecessor: at [38]. With that I wholly agree. However, at [38]-[40] his Honour discerned an intention that the earlier agreements remained on foot. Senior counsel for Mr Hillam submitted, with respect correctly, that the reasoning disclosed error. 5. The primary judge expressly put to one side the question of security in cl 4.4 of the Third Loan Agreement, but did not later return to it. As will be seen above, irrespective of the content of Mr Hillam's promise to provide security, there is an important difference between the unsecured lending addressed by the Second Loan Agreement, and the (at least partly) secured lending addressed by the Third Loan Agreement. 6. His Honour also said that it made "no commercial sense for Mr and Mrs Iacullo to have agreed to give away their accrued rights". His Honour said: "To put the point another way, at the time the Third Loan Agreement was entered into, Mr and Mrs Iacullo had already lent Mr Hillam all but $75,000. It is clear that the obligation[s] to make payments under cl 4 were intended to be tied to the amounts lent. It makes no sense in that context for the parties to have agreed that Mr and Mrs Iacullo would receive shares or cash to the value of $910,000 if they advanced the additional $100,000 referred to in that agreement (of which $25,000 had already been advanced) but nothing otherwise." 1. That reasoning pays no regard to the improved position Mr and Mrs Iacullo were obtaining in terms of security. It also neglects the important contextual matter that the promise to lend the remaining $75,000 was expressed to fall due "on or around 18/08/2011" – that is, on or around a date prior to the execution of the Third Loan Agreement. The primary judge found that at the time Mr and Mrs Iacullo executed the agreement, they came under an obligation to advance the $75,000 immediately: at [32]. As will be seen below, that conclusion was, in my view, correct. This bears upon the commerciality of the Third Loan Agreement, because Mr and Mrs Iacullo were formally making promises requiring immediate performance by them in exchange for which they were obtaining promises to repayment with interest, plus the right to shares or cash to the value of $910,000. In other words, it was significant when assessing the commerciality of the Third Loan Agreement not merely to observe that $25,000 had already been advanced (without the benefit of any of the promises in the Third Loan Agreement), but also that the remaining $75,000 was already due to be advanced. 2. The primary judge said that clear words would be expected to make plain the fact that there was a substantially different basis on which the different amounts were paid. Clear words would be desirable, and in many cases involving sums as large as those lent by Mr and Mrs Iacullo, a less informal approach to contractual documentation might be expected. But it will be obvious to any reader that there is much criticism that could be addressed to most aspects of the drafting of the Third Loan Agreements. Moreover, Mr and Mrs Iacullo were in each case prepared to lend at least part of the agreed amounts before any of the contracts were executed. Those circumstances tell against placing any significant weight on the absence of clear words. In any event, an inconsistent dealing with the whole of the subject matter of the previous contract must be sufficient to impute an intention that it was at an end. 3. The primary judge also relied upon the fact that Mr Iacullo gave Mr Hillam signed versions of the First and Second Loan Agreements at their long meeting on 19 August 2011. Although, as the primary judge observed, the fact that he did so was consistent with an intention that both agreements remained on foot, the context in which this occurred, and what was said, is not clear. What mattered ultimately was whether the legal rights generated by the Second Loan Agreement were inconsistent with those resulting from the Third. The Third Loan Agreement, being a more recent, formally executed distillation of the parties' rights and obligations, which was inconsistent with those arising under the Second Loan Agreement, brought the Second Loan Agreement to an end. 4. For all of those reasons, this is a case where following the execution of the Third Loan Agreement dealing with the whole of the amounts lent and promised to be lent by Mr and Mrs Iacullo to Mr Hillam, that document and none of its predecessors governed the parties' rights and obligations. Was the Third Loan Agreement abandoned? 1. It is convenient next to address ground 14 of the further amended notice of appeal, challenging the finding by the primary judge at [34] that the parties must be taken to have abandoned the Third Loan Agreement. 2. With respect, that finding cannot stand, and Mr Smallbone did not seek to defend it. I would reject it for the following reasons. 3. First, the fact that Mr Hillam did not seek to enforce the obligation to lend the remaining $75,000 cannot be decisive; a party may choose not to seek damages for breach and may or may not, depending on the facts, waive that breach, all the same falling short of abandoning the contract. Secondly, his Honour was incorrect to state that the parties did not seek to enforce the obligation to provide security. To the contrary, prayers 4 and 6 of the amended summons sought relief by way of declaration and specific performance of the obligation to provide security by Wentworth Metal Group. That obligation fell away, as did the Iacullos' claims for relief for breach, upon the repayment by Mr Hillam of the whole of the amounts lent together with interest. But it is the clearest indication that the right was not being abandoned. Thirdly, it will be recalled that the Iacullos were seeking to enforce obligations, notably the obligation to be paid $910,000, which only existed under the Third Loan Agreement. Fourthly, abandonment was not something that had been submitted by either party at the trial. All of the foregoing is inconsistent with there being conduct by the parties such that they must be taken to have abandoned or abrogated the contract, as described in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434. Were Mr and Mrs Iacullo in breach? 1. It will be recalled that the $25,000 had been lent on 15 August 2011, and the Third Loan Agreement was dated 15 August 2011. It was signed by Mr Hillam on 19 August 2011 and by Mr and Mrs Iacullo subsequently. The fourth definition of "Loan" in the Third Loan Agreement was "Loan means $75,000 on or around 18/08/2011", however cl 2.1 provided that "The Lender will advance to the Borrower the Loan on the date of this Agreement". 2. By 19 August 2011, both (inconsistent) references to the day on which the $75,000 was to be advanced had passed. The primary judge regarded the obligation as immediately falling due. In contrast, the obligation to which Mr Hillam subjected himself to was to provide security "within a reasonable time". 3. The position taken by Mr and Mrs Iacullo was that they would only provide the final $75,000 if, first, Mr Hillam provided the security contemplated by cl 4.4. On appeal, Mr Hillam submitted that Mr and Mrs Iacullo were thereby in breach, for which reason he was not required to provide the charge, and that Mr and Mrs Iacullo could not enforce the right to the uplift of $910,000. 4. Mr and Mrs Iacullo submitted that they were not in breach, because "the obligation to advance the final $75,000 was dependent upon prior or simultaneous performance of the promise to procure the charge". They relied on two separate reasons: the first was the fact that that was "expressly stipulated by Mr Iacullo at the time of receiving the instrument signed by Mr Hillam and never departed from thereafter". The second was their submission that that was the legal effect of the Third Loan Agreement itself. 5. I do not agree. The difficulty faced by Mr and Mrs Iacullo is that the parties by their formal written contract have made express provision for the time of the performance of the obligations to advance $75,000 and to procure a charge. The obligation to advance had already accrued, and was to be regarded as a matter of law as immediately falling due. That is necessarily earlier than, and therefore independent of, the obligation to procure a charge in a reasonable time. 6. A submission was advanced that in the circumstances the obligation to advance the $75,000 should be construed as an obligation to do so within a reasonable time. That cannot be so. Such a term will readily be implied if the time for performance is left unstated. Dixon J said in Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 at 13 that "[a]n implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary"; see also the decisions mentioned in Gray t/as Clarence Valley Plumbing Services v Ware Building Pty Ltd [2013] NSWCA 271 at [47]. But such a term cannot be implied if the time for performance is express, for it would be inconsistent with the parties' express bargain. That is sufficient to dispose of the submission that the legal effect of the Third Loan Agreement was that the $75,000 was to be advanced only simultaneously with, or after, the charge was procured. 7. The position is unaltered by the "stipulation" which Mr and Mrs Iacullo invoke. The label "stipulation" is inapt, if it is to convey that any words spoken by Mr Iacullo had contractual force. The written contract embodied the parties' bargain. It was complete on its face. Let it be accepted that Mr Iacullo said, repeatedly, that he would not advance the remaining $75,000 without security being procured (there was a dispute about what was said, and although Mr and Mrs Iacullo's submission appears to be consistent with the evidence from both sides, his Honour made no finding to that effect: see primary judgment at [20]). There is no suggestion in the evidence that Mr Hillam agreed, such that there was an additional oral term (indeed, one which was inconsistent with their written contract). Yet Mr and Mrs Iacullo chose to execute the contract. 8. True it is that the transactions between the parties disclose a relatively fluid approach to contractual documentation. In every case, Mr and Mrs Iacullo made advances prior to a contract being executed. Between the execution of the various documents, there were further negotiations between the parties which reached a level of formality (for example, the acknowledgement signed by Mr Hillam of his preparedness to grant a charge referred to above). That may have been in part because Mr Hillam's needs were always urgent. But none of the foregoing detracts from the fact that commercially experienced parties chose in a formal way to record their bargain in a signed written agreement. 9. I accept that it was open to the parties to adduce evidence that the Third Loan Agreement was not wholly in writing: see State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191-192 (McHugh JA), Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at [280]-[288] (Allsop J, Drummond and Mansfield JJ agreeing), and Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at [90] (Campbell JA, Allsop P and Basten JA agreeing). But unless it can be shown that the document was not intended as the complete record of their bargain, oral evidence that Mr Iacullo insisted upon security in advance cannot be used to alter or qualify it: Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 at 143-144. 10. True it is that Mr Smallbone submitted that the Third Loan Agreement was temporary, pending the finalisation of more formal documentation prepared by Kardos Scanlan. He relied on the statement recorded in Mr Iacullo's note: "John gave me new agreement until solicitors finalize new agreement". But that is not sufficient. These parties were constantly negotiating with each other, and from time to time recording their respective rights and obligations in formal loan agreements which they executed. The Third Loan Agreement was the third such formal agreement in less than two months. Although undoubtedly there was an intention, at least on the part of Mr Iacullo, to create further contractual documentation, that does not mean that the Third Loan Agreement was not a complete record of the parties' bargain as at that time. 11. For the reasons already given, the refusal by Mr and Mrs Iacullo to advance the final $75,000 without Mr Hillam providing security was a breach. Indeed, it was a breach of the only remaining executory obligation to which they were subject. Were the obligations in cll 4.2 and 4.3 independent of the obligation to advance $75,000? 1. Notwithstanding the breach by Mr and Mrs Iacullo, at no time prior to 12 January 2012 did Mr Hillam take steps to terminate the Third Loan Agreement. Indeed, it was not until a notice dated 2 July 2014, almost three years later and after litigation had commenced, that Mr Hillam wrote advising that there had been a repudiation and asserting (without elaboration) that in his view the agreement had been terminated or alternatively abandoned, and adding, "for the absence of doubt", that "I hereby terminate the agreement". 2. Mr Hillam submitted that whether or not the Third Loan Agreement had been terminated prior to July 2014 was immaterial for present purposes. I agree. Putting to one side the repayment of the amounts lent and interest, at all times after 12 January 2012, the only outstanding question was whether the obligation in cl 4.3 to pay the $910,000 uplift was enforceable by Mr and Mrs Iacullo even though they were in breach of their obligation to lend the final $75,000. That was the position while the contract remained on foot. It remained the position after it was terminated, no later than 2 July 2014; the question was whether Mr and Mrs Iacullo enjoyed an accrued right to the $910,000, as described by Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. 3. Mr and Mrs Iacullo's entitlement to be paid $910,000 turned purely on questions of contract. It was not alleged that the $910,000 amounted to a penalty. Rectification was not sought. A defence under the Contracts Review Act 1980 (NSW) was originally pleaded, but abandoned. No other equitable or statutory defences were raised. 4. Mr and Mrs Iacullo's entitlement to be paid $910,000 turned, therefore, on whether the obligations in cll 2.1 and 4.3 were independent or dependent. Was Mr Hillam's obligation to pay that amount dependent upon Mr and Mrs Iacullo having complied with their obligation to advance the final $75,000? Or were they independent obligations? Another way of posing the same question is to ask whether the promised payment by Mr Hillam was for the performance of the promised loan, or was for the promise by Mr and Mrs Iacullo to lend the $75,000. 5. The question is one of construction. "Whether obligations are dependent or independent depends upon the intention of the parties": Burton v Palmer [1980] 2 NSWLR 878 at 895. In Tito v Waddell (No 2) [1977] Ch 106 at 297, Megarry V-C said: "If an instrument grants rights and also imposes obligations, the court must ascertain whether upon the true construction of the instrument it has granted merely qualified or conditional rights, the qualification or condition being the due observance of the obligations, or whether it has granted unqualified rights and imposed independent obligations. In construing the instrument, the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights. The question always must be one of the intention of the parties as gathered from the instrument as a whole." 1. That passage has been applied on numerous occasions, including by Ward J (as her Honour then was) in Aalders v PA Putney Finance Australia Pty Ltd [2011] NSWSC 756 at [57]; and see K Lewison, The Interpretation of Contracts (5th ed, 2011, Sweet & Maxwell) at 16.15. 2. An early paper by Samuel Stoljar, "Dependent and Independent Promises" (1957) 2 Sydney Law Review 217, whose opening sentence is reproduced at the commencement of these reasons, traced the history of this doctrine from the 16th to the 19th century (a condensed version is found as chapter 12 of the same author's A History of Contract at Common Law (1975, Australian National University Press)). One theme was the struggle towards obligations being dependent, not least because "the doctrine of independency produced results both absurd and unpractical" (at 226). The more recent approach is explained in JW Carter, Carter on Contract (2014, LexisNexis) at 29-040: "Until the middle of the eighteenth century, the courts treated obligations as independent in the absence of words linking the parties' obligations. For example, in the absence of a provision stating that a buyer of goods was to pay for the goods, the buyer's obligation was construed as independent of performance by the seller. Accordingly, at that time, the seller could recover the price of the goods without first delivering them. Even the use of a linking word might not rebut the presumption of independency if a time for performance was named. Thus, in the famous case of Pordage v Cole a purchaser's promise to pay for land 'before Midsummer' was construed as independent in character. Therefore, the vendor could recover the price of the land by an action commenced after Midsummer even though he had not transferred title to the land. The rationale for construing promises as independent was straightforward. In the absence of clear words to the contrary, the court would presume that each party had bargained for the other party's promise to perform, rather than the performance of the promise. This meant that if either party failed to perform the other would have a remedy, in damages or debt, on the promise. But reliance could not be placed on the other party's failure to perform as a ground for not performing. However, towards the end of the eighteenth century the courts took a more practical, and less formalistic, approach. They were less willing to apply a presumption of independency. Accordingly, the existence of a relation of independency of obligation was said to depend on the 'good sense of the case' and not on 'any formal arrangement of the words'. However, the approach today is to construe most obligations as dependent on prior or contemporaneous performance by the other party. Clear words are therefore necessary before a relation of independency will be found." 1. The "good sense of the case" to which Professor Carter referred are the words of Lord Kenyon CJ in Campbell v Jones (1796) 6 TR 570; 101 ER 708 at 572; 709. They anticipate the modern test. 2. The question has been given detailed consideration at the appellate level in New South Wales on at least two occasions in the last century. In Newcombe v Newcombe (1934) 34 SR (NSW) 446, an appeal heard six months after he took office, Jordan CJ considered this issue. A husband and wife had entered into a separation agreement. Each promised not to "molest" the other. The husband also promised to pay maintenance to the wife. She sued for £66 under the agreement. It was held that the wife had breached her promise not to molest her husband. That gave rise to the need to consider whether the husband's promise to pay maintenance was independent of or dependent upon the wife's promise not to molest him. Jordan CJ wrote at 450: "Where each of two parties to an indenture makes a covenant with the other, and the two covenants are not in terms connected, the question may arise whether they are independent (in the sense that each party is bound to perform his covenant irrespectively of whether the other performs his) or dependent (in the sense that one party is not bound to perform, or to continue to perform, his covenant unless the other has performed, or does perform, his, previously or concurrently or subsequently). In the absence of express provision in the deed, recourse must be had to implication. ... An implication of intention that the performance of one covenant shall be conditional on the performance of the other arises where the nature of the covenants is such that any breach of either of them would necessarily be regarded by reasonable men as absolving the other party from performing his covenant. But the question is in every case one of intention" (citations omitted). 1. Because the promises were held to be dependent, the wife received a judgment in her favour for maintenance until the breach, but not thereafter. 2. Windeyer J described Jordan CJ's judgment as instructive, and applied the concluding portion of the passage reproduced above in Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 464. 3. In Burton v Palmer [1980] 2 NSWLR 878 (a decision more familiar as to the meaning of the former prohibitions on "financial assistance"), the indebted parties entered into a contract with their creditor in which they "hereby covenant to pay to the releasor the sum of $10,000 in full and final settlement of all moneys now due by them". A separate clause (cl 3) released the debtors from specified debts (which were in the order of $16,000). The amount of $10,000 was not in fact paid. The debtors relied on the release. Mahoney JA concluded that the release in cl 3 did not operate finally to prevent the plaintiff from enforcing his rights unless and until he was paid the sum of $10,000: at 895. Mahoney JA approached the matter in two ways. First, he had regard to the surrounding circumstances, in accordance with what Jordan CJ had said in Newcombe v Newcombe, referred to at [64] above, and stated that the "genesis" of the release was that the plaintiff should accept $10,000 in full settlement of the debt, and that the "aim" of the transaction was to provide that $10,000, if paid, should be accepted as such settlement. He said at 895: "That for which the plaintiff's obligations under cl 3 were to be given was not a promise but the actual payment of $10,000. Knowing these matters, the "reasonable men" to whom Jordan CJ referred, would, in my opinion, necessarily conclude that it was the intention of the parties that cl 3 was to have effective operation only upon the actual payment of that sum." 1. His Honour reached the same conclusion having regard to what appeared on the face of the document, on the basis that: "the releasees' obligations to pay $10,000 were the sole consideration for the plaintiff's obligations in cl 3, and this has been seen as supporting the inference that the parties intended that the obligations should be mutually dependent". 1. Hutley and Samuels JJA agreed with what Mahoney JA had said in relation to this aspect of the appeal. 2. I return to the provisions of the Third Loan Agreement. It is true that cll 2.1 and 4.3 are not expressly linked. It would have been straightforward for provision to have been made that the obligation to pay an uplift was dependent upon Mr and Mrs Iacullo lending the whole of the promised amounts. Indeed there is no explicit reference in cl 4.3 to any of the obligations to which Mr and Mrs Iacullo were subject. 3. That said, cll 2.1 and 4.3 are connected with each other in two ways. First, cl 2.1 provides for the making of the "Loan", and cl 4 is headed "Repayment and Prepayment". The obligations in cll 4.2 and 4.3 accrued at the same time as the obligation to repay the "Loan". The Third Loan Agreement is to be read as a whole and a natural reading of provisions in a section headed "Repayment and Prepayment" is that they are dependent upon the performance of the obligations in cl 2 to make a loan. 4. Secondly, there is the obvious commercial link. The obligation to provide shares to the value of $910,000, and in lieu thereof that amount of money, was calculated so as to be double the amount lent. The same provision was made in relation to the First and Second Loan Agreements. The "genesis" or "aim" of the transaction was clear: Mr and Mrs Iacullo promised to lend a specified amount of money, to be repaid with interest together with an uplift equal to double the amount promised to be lent. 5. To borrow the language of Jordan CJ and Mahoney JA, no "reasonable people" would "necessarily conclude" that it was the parties' intention that the "uplift" of $910,000 should be payable in circumstances where the lenders had failed to advance the whole of the $455,000 on which it was based. I respectfully agree with the primary judge in this respect. It was not open to Mr and Mrs Iacullo to require Mr Hillam to pay them an uplift of double the promised $455,000 when they for their part had been unwilling to lend all of that amount on the promised terms. 6. Further, the modern approach favours a construction whereby most obligations are construed to be dependent. To the extent that clear words are required to discern a relation of independency, I do not consider such words to be found in the Third Loan Agreement. 7. Another consideration tends to support this result. At least from the perspective of Mr and Mrs Iacullo, the substantial commercial benefit from the Third Loan Agreement was not so much the repayment of the amounts lent, together with interest at 15% per annum. The substantial commercial benefit from their perspectives was the prospect of receiving $910,000 (or shares to that value) within some six months. Further, from the perspective of Mr Hillam, the only remaining executory obligation of his lenders was to advance the $75,000. Although it is difficult in the present circumstances, where the Third Loan Agreement replaces its predecessor, to apply the principle that a promise that amounts to "a whole or a substantial part of the consideration for the contract" is likely to be dependent, the foregoing analysis tends to support the conclusion I have reached. The question of independent or dependent obligations in the Third Loan Agreement is, in my view, to be determined prospectively, at the time when it was executed. 8. I appreciate that it might be thought that there is a degree of uncommerciality, or even a measure of harshness, in the result I have reached. After all, Mr and Mrs Iacullo were prepared to lend, and did lend, to Mr Hillam the majority of the $455,000 on the basis that he would repay them principal plus interest plus an uplift of double the amount lent. But Mr and Mrs Iacullo rely exclusively on contract. The contractual position is all or nothing. There is no basis for construing cl 4.3 to permit an uplift of double the amount actually lent (and it was not suggested that the words could be so construed). Once it be accepted, as in my view it must, that Mr and Mrs Iacullo could no longer rely on the Second Loan Agreement, then they are either entitled to $910,000 by way of uplift, or nothing. Had they complied with their promise, they would have been entitled to the $910,000. But despite having executed the Third Loan Agreement, they immediately sought to improve their position. Once it is seen that Mr and Mrs Iacullo never lent, nor were they ever willing to lend, the last tranche of the $455,000 on the terms promised in the Third Loan Agreement, but instead insisted on only doing so if they obtained better security than that for which the agreement made provision, then it cannot be that they are entitled to the $910,000 uplift. Orders 1. Accordingly, I propose that the appeal be allowed, the orders made at first instance be set aside, and in lieu thereof, the proceedings be dismissed. The respondents should pay the appellant's costs at first instance and on appeal. ********** Annexure 1 - Second Loan Agreement Annexure 2 - Third Loan Agreement Amendments 20 May 2016 - [50] - "3rd ed" replaced with "2nd ed"; "reprint" inserted; "1960" replaced with "1969" [55] - "State" replaced with "Statute" 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. Decision last updated: 20 May 2016