Empirnall Holdings Pty Ltd v Machon Paull

(1988) 14 NSWLR 523

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(Judgment by: McHugh JA)

Empirnall Holdings Pty Ltd
vMachon Paull

Court:

Judges: Kirby P
Samuels 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:
McHugh JA

In an action in the Common Law Division, Smart J held that Empirnall Holdings Pty Ltd (Empirnall) was indebted to Machon Paull Partners Pty Ltd (Machon) in the sum of $83,542.72 under an oral contract for the construction of a building at Crows Nest. His Honour found that Empirnall had agreed to pay to Machon "the costs of the works plus 12.5 per cent and to make reasonable progress payments with a completion time of eighteen weeks subject to good weather, all proper extensions and prompt payment of progress claims". Empirnall appealed to this Court against his Honour's order but at the commencement of the hearing withdrew the appeal. However, Machon has cross-appealed against the finding of his Honour that the contract between the parties was an open oral contract. It contends that their relationship was governed by the terms and conditions contained in a written document forwarded to a property consultant and by him to Empirnall. If the contention of Machon is correct, the only difference in the result of the litigation will be that the moneys owing by Empirnall will be a charge on the land. The apparent financial position of Empirnall makes the difference a matter of practical importance.

The question in the appeal is whether, by reason of a letter forwarded to a property consultant who was employed by Empirnall, the terms and conditions of the document governed the relationship of the parties notwithstanding that the consultant informed Machon that the controller of Empirnall"does not sign contracts". This question must be determined in accordance with the law of contract's doctrine of offer and acceptance. At the trial Machon neither pleaded nor attempted to prove that Empirnall was estopped from denying that it was bound by the terms of the document. In this Court Machon sought to amend its notice of cross-appeal to raise the estoppel issue. However, leave was refused upon the ground that the issues litigated at the trial did not cover all the evidence which would or might have been adduced if the issue of estoppel had been litigated at the trial: Coulton v Holcombe (1986) 162 CLR 1. One other matter should be noted, neither by its pleadings nor at the trial or on the cross-appeal did Empirnall raise the defence that a contract creating an interest in land must be in writing and signed by the person charged or his authorised agent: Conveyancing Act 1919, s 23C.

The evidence :

In April 1983, Empirnall purchased a building at 39 Hume Street, Crows Nest with the intention of redeveloping it. In late April 1983, Mr D L Abrahams, a property consultant employed by Empirnall to manage the development on its behalf, contacted Mr Machon, a director of Machon. He asked Mr Machon to prepare a report concerning the premises for presentation to his client. On 6 May 1983, Mr Machon gave Mr Abrahams a report which stated that the minimum expected time of construction would be eighteen weeks. At that meeting Mr Abrahams requested Mr Machon to produce sketch plans. The completed plans were delivered to Mr Abrahams on 13 May 1983. On that date Mr Abrahams asked Mr Machon to undertake drawings for the purpose of obtaining development and building approval. Machon agreed to do so for a fee of $6,000. On 16 May 1983, a meeting took place between Mr Abrahams, Mr Machon and Mr Paull, another director of Machon and Mr Eric Jury, a director and controller of Empirnall. No copy of the report of 6 May 1983 or any sketch plans were produced. Mr Machon explained that Machon acted as a project manager and undertook building and architectural works and had undertaken a similar project in Parramatta on a cost plus basis. He said that he would be interested in undertaking the Hume Street project on the same basis.

On the following day Mr Abrahams telephoned Mr Machon and instructed Machon to prepare a development application and a building application as soon as possible. By letter dated 10 June 1983, Machon reported to Empirnall that the development application and building application had been submitted to the council.

The development application was approved on 8 August 1983 but subject to conditions.

After the development application was approved, Mr Abrahams ap proached Mr Machon and said that he wanted to get the building work under way. Mr Machon informed him that building work could not be commenced until there was a building approval. He told Mr Abrahams: "The most you can do at this stage is to apply for demolition and you can erect the hoarding." Mr Abrahams also asked whether Machon would be interested in undertaking the contract work and he was told that it was. Mr Machon said that Machon "operated on the basis of cost plus 12.5 per cent for projects of this scale". Mr Abrahams said that he would recommend it to Mr Jury. He also asked Mr Machon if he would commence with the erection of a hoarding and an application for demolition work. Machon agreed and appointed a foreman and arranged for the erection of a hoarding and an application for demolition work.

On or about 14 September 1983, Mr Machon rang Mr Abrahams and told him that he had prepared a progress claim and contract. Mr Machon said:"I have incurred costs here of about $6,000. I want to be sure that you people are bona fide." Mr Abrahams asked him to send him the progress claim but to hold the contract. Mr Machon said that he wanted to establish the contractual method. Mr Abrahams responded: "Eric does not sign contracts." Mr Machon replied: "Well, he had better start signing them now."

A progress claim for $5,810 for preliminaries and hoardings was sent on 14 September 1983. Shortly afterwards Mr Machon rang Mr Abrahams and asked him where he was to forward the contract. On 3 October 1983, Machon wrote to Mr Abrahams as follows:

"As discussed, we enclose two copies of the building cost plus contract BCPI, together with the relevant drawings and specification 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."

By letter dated 5 October 1983 the council gave permission to carry out the building work. On 19 October, Machon again wrote to Mr Abrahams. The material parts of the letter were as follows:

"We thank you for your cheque received yesterday for progress claim No 2 and confirm that works are proceeding as well as can be expected given the inclement weather problems.

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 documents we are proceeding on the understanding that the condition of the contract are accepted by you and works are being conducted in accordance with those terms and conditions."

By cl 5 of the conditions of the building contract the work was to commence on the date of the building approval or within one month after Empirnall had produced evidence of its title to the land. The work was to be completed within eighteen weeks of the date of commencement. Among the many clauses in the contract was cl 26 under which Empirnall charged the land with the due payment of all moneys that might become payable to Machon by virtue of the contract or otherwise arising from the carrying out of the works. Mr Jury conceded that he received the contract and the progress claims. However, the contract was never signed.

Smart J thought that "although the matter is finely balanced, I do not think that in the circumstances of this case it should be held that (Empirnall) agreed or could be taken to have agreed to the work being done in accordance with the terms and conditions of the printed contract as prepared and signed by" Machon. His Honour held that there was an oral contract under which Empirnall agreed to pay "the costs of the work plus 12.5 per cent and to make reasonable progress payments with a completion time of eighteen weeks subject to good weather, all proper extensions and prompt payment of progress claims". One difficulty about his Honour's finding is that the period of eighteen weeks was only referred to in the preliminary report, which was not the subject of contractual negotiations, and in the written contract. It was not a period mentioned orally in negotiations.

The parties were bound by the terms of the document :

Under the common law theory of contract, the silent acceptance of an offer is generally insufficient to create any contract: Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 692 and Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1432; [1966] 3 All ER 128 at 131-132. The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as a rejection and not a acceptance of the offer. Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 269. However, an offeror cannot erect a contract between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance: Felthouse v Bindley (1862) 11 CB (NS) 869 at 875; 142 ER 1037 at 1040 and Fairline Shipping Corporation v Adamson [1975] QB 180 at 189. The common law's concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer or be bound by contractual obligations.

Nevertheless, the silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer: Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 at 340. The offeree may be under a duty to communicate his rejection of an offer. If he fails to do so, his silence will generally be regarded as an acceptance of the offer sufficient to form a contract. Many cases decided in United States jurisdictions have held that the custom of the trade, the course of dealing, or the previous relationship between the parties imposed a duty on the offeree to reject the offer or be bound: CMI Clothesmakers Inc v ASK Knits Inc 380 NYS 2d 447 (1975); Brooks Towers Corporation v Hunkin-Conkey Construction Co 454 F 2d 1203 (1972); Alliance Manufacturing Co Inc v Foti 146 So 2d 464 (1962). But more often than not the offeree will be bound because, knowing of the terms of the offer and the offeror's intention to enter into a contract, he has exercised a choice and taken the benefit of the offer. In Laurel Race Course Inc v Regal Construction Co Inc 333 A 2d 319 (1975) a contractor proposed that it would do additional work upon the basis that, if the work was the result of its defective workmanship under the original contract, there would be no charge. Otherwise the work would be charged on a "cost-plus" basis. The building owner made no reply to this offer. The contractor commenced work on the job to the knowledge of the building owner who was held bound by the terms of the offer. Speaking for the Court of Appeals for Maryland, Judge Levine said (at 329):

"... Where the offeree with reasonable opportunity to reject offered services takes the benefit of them under circumstances which would indicate to a reasonable person that they were offered with the expectation of compensation, he assents to the terms proposed and thus accepts the offer."

This formulation states acceptance in terms of a rule of law. However, the question is one of fact. A more accurate statement is that where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. A useful analogy is to be found in the "ticket cases" where an offeree, who has or ought to have knowledge of the terms of a contract of carriage or bailment, is generally bound unless he raises objection: cf Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 169 and MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia ) (1975) 133 CLR 125 at 136-140.

The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.

On or about 14 September 1983, Empirnall through its agent became aware that Machon wished to undertake the work on the basis that their relationship would be governed by the terms of a written contract. The letter of 3 October 1983 made it clear that Machon expected that their relationship would be governed by the standard form of contract BCP1. But the letter of 19 October 1983 went further. It made it clear that the work which Machon would perform was offered on the terms and conditions contained in the documents sent on 3 October 1983. From that point on Empirnall took the benefit of the work with knowledge of the terms on which it was offered. It is not an acceptable conclusion that Machon offered to perform the work on some basis other than that contained in the written document. Machon had made it plain that it was not prepared to do work under an oral, open contract. Nor is it possible to regard the work as offered on the basis that Empirnall would pay reasonable remuneration for its performance. The work went on for a considerable period. Progress claims were submitted and paid. One of the items costed was the price of the standard form of the written contract.

In these circumstances Empirnall's acceptance of the work, when considered objectively, should be taken as an acceptance of the work on the terms and conditions offered by Machon. The case is not so much one of acceptance by silence as one of taking the benefit of an offer with knowledge of its terms and knowledge of the offeror's reliance on payment being made in return for his work. Since the work for which payment is outstanding was carried out after 19 October 1983, there is no need to distinguish between the positions before and after that date.

Empirnall relied on Mr Abrahams' statement that "Eric does not sign contracts". However, this statement supports, rather than weakens, Machon's case. The objection was not to the terms and conditions but to the manner of acknowledging them. But, however this may be, the letter of 19 October sent one month later made clear what was the basis on which Machon was offering to perform the work. Since Empirnall has taken the benefit of the work with knowledge of the terms on which it was offered, an objective bystander would conclude that Empirnall had accepted the offer on those terms and conditions.

Solicitors for the appellant/cross-respondent: Kemp Strang & Chippindall .
Solicitors for the respondent/cross-appellant: Cowley Hearne .

N J HAXTON ,
Barrister .