Empirnall Holdings Pty Ltd v Machon Paull

(1988) 14 NSWLR 523

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(Judgment by: Kirby P)

Empirnall Holdings Pty Ltd
vMachon Paull

Court:

Judges:
Kirby PSamuels JA
McHugh JA

Subject References:
Contract
Offer and acceptance
Acceptance
Silence in conjunction with other circumstances may constitute
Knowledge of terms of offer
Offer in respect of services
Benefit of offer taken
Refusal to sign printed contract
Whether assent to be inferred.

Case References:
Alliance Manufacturing Co Inc v Foti - 146 So 2d 464 (1962)
Brogden v Metropolitan Railway Co - (1877) 2 App Cas 666
Brooks Towers Corporation v Hunkin-Conkey Construction Co - 454 F 2d 1203 (1972)
CMI Clothesmakers Inc v ASK Knits Inc - 380 NYS 2d 447 (1975)
Carlill v Carbolic Smoke Ball Co - [1893] 1 QB 256
Coulton v Holcombe - (1986) 162 CLR 1
Fairline Shipping Corporation v Adamson - [1975] QB 180
Felthouse v Bindley - (1862) 11 CB (NS) 869; 142 ER 1037
MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) - (1975) 133 CLR 125
Robophone Facilities Ltd v Blank - [1966] 1 WLR 1428; [1966] 3 All ER 128
Thornton v Shoe Lane Parking Ltd - [1971] 2 QB 163

Hearing date: 26 April 1988
Judgment date: 11 November 1988

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Judgment by:
Kirby P

Empirnall Holdings Pty Ltd (Empirnall) has appealed against a judgment entered by Smart J in favour of Machon Paull Partners Pty Ltd (Machon Paull). His Honour required Empirnall to pay Machon Paull the sum of $83,542.72 for architects' fees. Machon Paull subsequently filed a cross-appeal. By the cross-appeal, Machon Paull contended that Smart J had erred in holding that Empirnall had not agreed that certain work was to be carried out by Machon Paull in accordance with the terms and conditions of a printed contract presented by Machon Paull to Empirnall, but not executed by Empirnall.

The issues on the cross-appeal and their importance:

When the appeal was called, counsel for Empirnall announced the abandonment of the appeal. Machon Paull pressed the cross-appeal. It is therefore to the issues raised by the cross-appeal only that the Court must direct its attention.

In contest is the question whether, notwithstanding the failure or refusal of Empirnall to execute the printed contract presented to it by Machon Paull, that contract binds Empirnall. The calculation by Smart J of the fees payable by Empirnall to Machon Paull was precisely the same as the fees which would be payable had the printed contract constituted, or been evidence of, the agreement between the parties. Machon Paull lodged a caveat in respect of the land the subject of the relevant work. That caveat still operates.

As the appeal was abandoned, the debt of Empirnall to Machon Paull was thereby confirmed. A question thereupon arose, at the outset of the hearing, as to whether the resolution of the cross-appeal had any but theoretical interest. However, the parties informed the Court that it did. Empirnall is now in financial difficulties. Should it be liquidated, Machon Paull would normally rank as an unsecured creditor for the judgment debt. If, however, the printed contract referred to in the cross-appeal is held to constitute the agreement between the parties (or to be evidence of the terms of that agreement) reliance can be had by Machon Paull upon cl 26 of it. By that clause, Empirnall charged the parcel of land on which the relevant works were to be erected with the due payment to Machon Paull of all moneys that may become payable under the contract or arising from the carrying out of the works. As the principal asset of Empirnall is the land upon which the works have been completed, the provision of such a charge will sustain the caveat. Furthermore, it will secure for Machon Paull an obvious advantage in the recovery of its fees.

Most of the facts in the case were not in dispute. What was disputed was the legal consequence of the facts, particularly the failure or refusal of Empirnall to execute the proferred printed agreement. To judge the consequence of that refusal, it is necessary to consider the proved facts. The facts are to be categorised by reference to the rules which have been developed by the common law for the making of contracts by offer and acceptance. Because of the resistance of that law to the formalism of the Roman and civil law of contracts, there is no ready test which can be applied, from which a conclusion can be derived that an offer was or was not accepted. Each case depends ultimately, upon a detailed consideration of its own facts.

Engagement of architects in a property development:

Empirnall is a property developer. Its director and major shareholder at all relevant times was Mr Eric Jury. Mr Jury used, as his agent, a property consultant, Mr David Abrahams. In April 1983, the company resolved to purchase a property at 39 Hume Street, Crows Nest. The purchase was completed by the end of that month. At about that time, Mr Abrahams contracted Mr Robert Machon, a director of Machon Paull. The business of Machon Paull was that of architects and project managers. On 29 April 1983, a meeting took place between Mr Machon and Mr Abrahams concerning the rebuilding of the Crows Nest property. Mr Abrahams asked for a report on the development. The report was duly produced. Mr Abrahams later requested the preparation of plans. These too were produced and delivered to Mr Abrahams in May 1983. Mr Abrahams then asked for the preparation of drawings for the purpose of obtaining the necessary approvals. This led to the meeting on 16 May 1983 between Mr Machon and Mr Abrahams. That meeting was also attended by Mr Paull (another principal of Machon Paull) and by Mr Jury.

Immediately following the meeting, Mr Abrahams instructed Mr Machon to prepare at once the necessary local government applications. This also was done. Conditional approvals were given. Further advice was given by Mr Machon concerning the commencement of operations. And it was at this stage that Mr Abrahams inquired whether Machon Paull would be interested to undertake the building contract. That inquiry produced a positive response and a specification as to the rate of fees, now not in contest. Mr Abrahams said that he would recommend engagement of Machon Paull to Mr Jury. He invited Machon Paull to commence the demolition work, preliminary to the building. The commencement of the latter awaited compliance with certain council conditions. As a result of this invitation, steps were taken by Machon Paull to have hoardings erected.

A man who "never signs contracts":

It was at this stage that Mr Machon began to feel and to express concern about the growing expense which the project was involving and for which Machon Paull had not been paid. It was then that he had a conversation with Mr Abrahams upon which both parties relied in this appeal. The recollection of it by Mr Machon and Mr Abrahams was slightly different. But the substance was the same. According to Mr Machon, when on 14 September 1983 he telephoned Mr Abrahams about a progress claim and stated that he had prepared contracts, the following took place:

"Q. Did he say anything about the form of contract? A. He said to me'Hold'. I asked him where I was to send them and he said: 'Send me the claim but hold the contracts.'

Q. Did you say anything about that or did he say anything else about that or was that all that was said about the contracts at the time? A. I said to him that I wanted to establish a contractual method and he said to me that 'Eric [Jury] does not sign contracts'.

Q. Did you say anything in reply to that? A. I said: 'Well he had better start signing them now.'" Mr Abrahams' elaboration of the conversation was to the effect that an agreement had been made and "Mr Jury believed that there was no need to sign the documents as an arrangement had been made".

Following this conversation a progress claim was duly sent to Empirnall by Machon Paull. On 3 October 1983, a letter was sent which enclosed two copies of the relevant building contract. The letter said:

"As discussed, we enclose two copies of the building cost plus contract BCPI, together with the relevant drawings and specifications and we ask that you arrange for them to be signed and return 1 copy as soon as possible.

Please note that the date of commencement of the works shall be the date of receipt of the building approval which is expected shortly. As agreed and as you are aware we have erected the hoarding and have commenced demolition works as approved by council." The council issued a building permit on 5 October 1983. This was not received by Machon Paull until 15 October 1983. In the meantime, progress claim number 2 was made on Empirnall. Among the items claimed in the "preliminaries" in this claim was an item for the Master Builders' Association (MBA) forms of contract. The MBA invoice was also attached. That claim was duly paid by Empirnall on 18 October 1983.

When Machon Paull received the building permit, Mr Machon wrote on 19 October 1983 to Mr Abrahams in the following terms (relevantly):

"We are in receipt of the building approval and a copy of the conditions are enclosed for your information. ... With reference to our letter dated 3 October 1983, concerning the return of the signed contracts we are proceeding on the understanding that the conditions of the contract are accepted by you and works are being conducted in accordance with those terms and conditions."

The developer's difficulties and a dispute erupts:

Between October 1983 and July 1984 the building work proceeded normally. Payments were duly made on the successive progress claims presented by Machon Paull. However in March 1984, Machon Paull received $45,000 only of the $111,000 itemised in progress claim number 7. Mr Machon then had a conversation with Mr Abrahams. He was told that Mr Jury was attempting to refinance the project. The site would be inspected by his bank manager. Apparently re-assured, Machon Paull proceeded with its work on the project. However it continued to press for payment of the outstanding sum. After further unsuccessful discussions, the building work was suspended by Machon Paull at the end of April 1984. Eventually, Mr Machon had a further conversation with Mr Jury. His evidence was:

"He told me that David Abrahams was arranging a sale on a property and as soon as the exchange took place, then he would arrange sufficient moneys to cover the outstanding debt. He asked me how much we would need to spend to finish the project and I told him $20,000 would be needed to be spent."

There were further discussions in June 1984. Work recommenced again briefly with Mr Machon continuing to press Mr Jury directly for payments and receiving assurances that they would be made. Eventually, the assurances unsatisfied, Machon Paull gave instructions for the commence­ ment of these legal proceedings. Before that time Mr Jury had made no complaint to him about the quality of the work done. Nor had he said that he was not going to pay any more money. Nor had he said that he was not obliged to pay any more than he had already paid Machon Paull. Those claims surfaced with the legal proceedings.

Mr Jury who gave evidence, conceded that he had received the printed contract and the progress claims, most of which were met. However, he asserted that his liability did not arise under the printed contract. That contract was never executed by Empirnall. Furthermore it had been clear that the contract would not be signed "because Mr Jury never signs contracts". In such circumstances, if the parties proceeded with a contract, as they plainly did, it was a contract other than the printed contract. The entitlement of Machon Paull arose from the contract which the law would impute to the parties in the circumstances. It did not arise from the printed contract for that had never been accepted by Empirnall. On the contrary, it had made its rejection of it perfectly plain. Only if Empirnall's acceptance of the printed contract could be spelt out of its conduct could it be held to its terms. But Empirnall argued that silence and inactivity have never been taken by the common law as tantamount to assent. Machon Paull could not bind Empirnall actively to deny its assumption, merely by stating it. Accordingly, Machon Paull could act on assumptions if it liked. But it could not, by stating its position, unilaterally require Empirnall to disabuse it.

Acceptance of a contract notwithstanding silence:

The starting point for the legal classification of the facts which I have set out is that an offeror may not impose a contractual obligation upon an offeree by stating, that if the latter does not expressly reject the offer as made, it will be taken to have accepted it. This general principle is accepted throughout the common law world: Felthouse v Bindley (1862) 11 CB (NS); 869; 142 ER 1037; Fairline Shipping Corporation v Adamson [1975] QB 180 at 189 and Karlin v Avis 457 F 2d 57 (1972) (cert den 409 US 849 (1972)); see also discussion in M Powell, "Acceptance by Silence in the Law of Contract" (1977) 5 Aust Bus L Rev 260; W J Grosse, "Silence as Acceptance" (1982) 9 Sthn Uni L Rev 81; J Beatson, "Abandoning the Contract of Abandonment?" (1986) 102 LQR 19 at 21; M J Lawson "Silence May Not be Golden" (1987) Lloyd's Maritime and Com LQ 155 and M J Lawson, "Abandonment of Arbitration by Silence or Inactivity" (1987) Lloyd's Maritime and Com LQ 263.

Various explanations may be offered for this principle. One is that it derives from the disinclination of the common law to impose legal liability upon individuals for omissions. Another is that it is a consequence of the common law's protective attitude towards liberty of conduct and its resistance to the unilateral imposition of obligations. Still another is that it derives from the contractual theory of the common law that a binding and legally enforceable agreement must be mutually achieved by offer and acceptance. Whatever the history of and reasons for the general rule, its existence is not in doubt.

However, in particular circumstances, the general rule has been seen to work an apparent injustice. Accordingly, courts have come to conclude that sometimes, out of some circumstances, an acceptance can be inferred, notwithstanding the absence of specific assent. Alternatively, in some circumstances, the law will provide an estoppel to preclude a party from denying the existence of a contract, even though specific acceptance was not given and could not be inferred from the facts proved.

On the face of things, the present case might more comfortably fall to be analysed by reference to the latter avenue of relief from the general rule, that is, estoppel. True it is, Mr Abrahams had made it plain that Mr Jury did not sign contracts. Notwithstanding that fact, the work proceeded. The printed contract form was paid for. The work was done by Machon Paull under the stated belief that it was done pursuant to the printed contract. That contract was certainly received by Mr Jury. Empirnall clearly received the benefit of Machon Paull's work performed on the stated basis. Progress payments were made in the manner provided by the printed contract. In such circumstances the case appears to be arguably one for an estoppel. However, estoppel was not pleaded by Machon Paull. Such a case was not particularised. Nor was it the case which was run at the trial. Had it been pleaded, particularised and proved, Empirnall might have wished to call evidence to meet the alleged estoppel. It was eventually conceded, properly I think, that such a case could not be raised for the first time on appeal: Coulton v Holcombe (1986) 162 CLR 1. Accordingly, relief based upon estoppel could not be considered. It may be disregarded by this Court.

The other way in which the common law has provided relief from an apparently unfair operation of the general principle that silence is not regarded as acceptance is by an implied acceptance, derived from an objective consideration of all the relevant facts and circumstances.

The circumstances in which assent may be inferred, although never specifically stated, vary with the infinite variety of facts which come before the courts in disputed contractual cases. From the facts, looked at objectively, a court may be willing to infer a party's acceptance. Various categories of cases of this kind have emerged over the years. One arises where there have been previous dealings between the parties or where something in the history of the transaction between the parties gives rise to "an inevitable inference from the conduct" of the disputing party, and from its"doing and saying nothing" for a considerable time, that it "accepted the [contract] as valid". This was the way in which the English Court of Appeal expressed its conclusion in Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 at 340: see also discussion in Chitty on Contracts, 25th ed, (1983) (pars 79ff at 48) and D W Greig and J L R Davis, The Law of Contract (1987) at 303f.

Another class of exception arises where one party has a duty to the other from which an obligation of candour might arise. Thus, a fiduciary could not silently accept the benefits of an obviously mistaken assumption about the terms of an arrangement made by one to whom it owed a duty. It would be bound to draw the apparent misapprehension to notice or otherwise be bound.

The present case does not fall in the latter class. There was no special duty owed by Empirnall to Machon Paull. However, does it fall within the first class? Can it be said that, objectively examined, the facts give rise to the inference that Empirnall assented to the written agreement?

Indicia of no assent to the printed contract:

It must be acknowledged (as Smart J said) that the case is finely balanced so far as an inferred acceptance of the written contract is concerned. Against such an inference may be listed a number of considerations, the most important of which are:

1. The starting point, as stated above, is that silence is not normally assent. Therefore, from the absence of an acceptance of the printed agreement will be derived the prima facie conclusion that the contractual arrangements of the parties were to be found elsewhere and not in the printed document which was never affirmatively accepted by Empirnall.

2. This conclusion is reinforced by the statement that Mr Jury does not sign contracts. That statement could not have been more emphatic. It makes it more difficult to imply assent to the written agreement where there is not simply a failure to attend to it but an emphatic rejection by one party of the written agreement now relied upon by the other.

3. The printed agreement itself contained a number of blanks. Thus, even on the case of Machon Paull, the agreement was not a complete contract between the parties.

4. It was not suggested that there had been any negotiations between the parties concerning many of the terms which were contained in the written agreement. It must be conceded that this will normally be the case where parties accept a printed agreement in common form. The whole point of such documents is to impose upon the parties standard conditions which have generally been accepted by professional bodies as appropriate to contracts of the kind in question. But the incorporation of such standard terms should require clear evidence of affirmative agreement to be bound by them.

5. The inability of Machon Paull to rely upon the printed agreement does not leave it bereft of legal protection. It is entitled then to recover under the contract which the law will impute to the parties. The fact that this has certain disadvantages for Machon Paull in the instant case should not provide a reason for distorting the basic principle of contract law that silence is not assent.

6. The first progress claim was made in September 1983. This implies that a binding contract of some kind was in force in September 1983. Yet this was before the two copies of the standard contract were sent to Empirnall in October 1983. This, in turn, suggests that the parties commenced - and by inference continued - a contractual relationship upon a basis other than that of the printed agreement which Machon Paull belatedly tried to impose on Empirnall in substitution for an earlier agreement which had been made between them orally.

Indicia of assent:

Against these arguments, which support the case of Empirnall, a number of matters can be mentioned from which I would infer that Empirnall gave its assent to the printed contract tendered to it by Machon Paull. I reach that conclusion because I consider that the objective bystander, looking at all of the facts, would conclude that Empirnall had accepted that Machon Paull was carrying out its performance of their agreement according to the printed contract which it had supplied and agreed to that course. The principal facts which lead me to this conclusion are the following:

1. The first reference made to a printed contract occurred in the conversation between Mr Machon and Mr Abrahams in late August 1983. Mr Machon, in a conversation, which his Honour accepted, said that "towards the end of August" in one of the conversations "where we discussed the type of building contract", he had told Mr Abrahams: "I would get some contracts from the MBA and I would send them over to him." According to Mr Machon, Mr Abrahams' response was: "He said fine, get them to him." He said nothing else about the form of the contract. Smart J preferred the evidence of Mr Machon to Mr Abrahams and Mr Jury in the event of any conflict between them.

2. The relationship between the parties is also important. The law might less readily infer assent to an arrangement to be bound to a printed contract between individuals involved in a personal association than it would in circumstances of a contract allegedly arising out of an apparently regular business or professional association. Here, the relationship between the parties was a continuing one for commercial purposes. Work was done and accepted within that relationship. Progress payments were claimed and made. The relationship between a property developer and a firm of managing architects might possibly be explained by reference to an imputed contract or one agreed to orally. But it is less likely that such parties would enter a protracted arrangement, involving a substantial building project, and large sums of money without settling in some little detail the terms of their relationship. It is in this way that the identity of the parties and the nature of their relationship may more readily give rise to the inference that they had agreed to be bound by a printed contract than would be the case, say, in dealings between private individuals having no similar commercial attri­ butes.

3. The printed contract actually submitted by Machon Paull was in the standard form which Mr Abrahams had said would be "fine" and which he invited Mr Machon to "get ... to him". The contract was in fact received by Empirnall. The fact that there were blank sections in the form is not determinative of the issue. Blanks are frequently left in printed contracts, particularly those on standard forms. Unless the omissions are of essential terms, they will not invalidate the effective operation of the printed agreement: see Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 674.

4. The progress payments made over the whole course of dealings between the parties were compatible with the acceptance by Empirnall of the printed contract. They followed the procedures envisaged by the printed contract. It was only when financial difficulties struck Empirnall, and it could not pay the progress payments as they fell due, that the suggestion was made that it was not bound by the terms of the printed agreement. Had there been no such financial difficulties, I have no doubt that Empirnall would have continued to discharge its obligations in accordance with those terms.

Conclusion: the printed contract was accepted:

In these circumstances, I would apply what was said a century ago by Lord Hatherley in Brogden (at 682):

"My Lords, Mr Herschell ... put the case on a very proper foundation, when he says that he will not contend that this agreement is not to be held to be a binding and firm agreement between the parties, if it should be found that, although there has been no formal recognition of the agreement in terms by the one side, yet the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they dealt were made aware by that course of dealing, that the contract which they had propounded had been in fact accepted by the persons who so dealt with them." (Emphasis added.)

From a reflection upon the list of circumstances set out above, I believe that an objective bystander, examining the facts of the case, would conclude from the whole course of dealings between Empirnall and Machon Paull, that the former had accepted the printed agreement tendered to it by the latter. It had done so notwithstanding the early protests, expressed in general terms, that Mr Jury did not sign written contracts. It is possible that the same result would have been reached by the route of estoppel, had that been pleaded and proved. However that may be, it is certainly reached by the route of an implied acceptance of the printed contract when all of the facts are examined and considered in their context.

Orders:

The orders that should be made are:

1.

Appeal dismissed.

2.

Cross-appeal allowed.

3.

The orders of Smart J varied by declaring that all work carried out by the cross-appellant after 19 October 1983 was carried out under a contract governed by the terms and conditions contained in the documents forwarded to Mr Abrahams under cover of the letter of 3 October 1983.

4.

The appellant/cross-respondent to pay the costs of the appeal and of the cross-appeal.