Case: Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288
Outcome: followed
the lack of any direct written evidence of an agreement between Adnunat and ITW, Adnunat contends that one must be inferred from their conduct. A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified: see Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 ; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 ( Vroon ); Industrial Rollformers [2001] NSWCA 111 ; (2001) Aust Contract R 90-129. However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-50 (Gleeson CJ) and his Honour's reference to Gissing v Gissing [1970] UKHL 3 ; [1971] AC 886 ; see also Cheshire &amp; Fifoot's Law of Contract (9 th ed, LexisNexis, 2008) at [3.5] and [3.9]. Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement: Industrial Rollformers [2001] NSWCA 111 ; (2001) Aust Contract R 90-129 at [137] - [138] and [142]; Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 ( Pacific Brands ) at [47]. As Finkelstein J observed in Pacific Brands [2005] FCA 288 , it will only be in very clear cases that the courts will infer a contract from conduct in the absence of written or oral communications that evidence the exchange of mutual promises: see [2005] FCA 288 at [45] and the cases there referred to. In most instances, contract by conduct cases will involve a complex set of facts and require evidence from those who have played a role in the relationship between the parties. Necessarily, where a contract is denied, the credibility of those involved on both sides may be crucial. These considerations are in my view an obstacle to Adnunat obtaining summary relief. At its simplest, Adnunat's case consists of the following steps: In my view, Adnunat's motion confronts three initial problems. First, Adnunat has adduced no evidence that ITW communicated to Adnunat a preparedness, let alone an agreement, to perform Reid's obligations under the Settlement Deed. There is simply no evidence of any discussions between ITW and Adnunat concerning the terms of the Settlement Deed. The problem confronted by Adnunat is that, given it asserts ITW "bound itself to the provisions of the [Settlement Deed]", it must point to conduct that positively and unambiguously demonstrates an agreement to observe those provisions, in particular the No Challenge Term. However there is no evidence that ITW considered itself bound by the No Challenge Term, either from its conduct or communications with Adnunat. Nor is there any evidence it agreed to the Patent Infringement Term or the indemnities given by the original contracting parties. Secondly, Adnunat's reliance on cl 6.3 of the Business Agreement should be treated with some caution. The Business Agreement was between Reid and ITW. ITW's promise to comply with Reid's obligations under existing contracts was a promise given to Reid for Reid's benefit. It is true that cl 6.3 reveals an intention by ITW to perform Reid's existing contractual obligations. However it makes no specific reference to Adnunat or the Settlement Deed. At best, it demonstrates that ITW was prepared to agree with Reid that it would perform Reid's contractual obligations and be accountable to Reid if it failed to do so. Second, it is true that ITW continued to order 9 tonne anchors from Adnunat over a period spanning four months from March to June 2005. However as I have said earlier, the parties' intentions as revealed by that conduct alone are not unequivocal. Taking into account the matters I have referred to at [41]-[43], it is reasonably arguable that the parties were simply content as a practical commercial matter to continue a pre-existing anchor purchase and supply relationship, without having directed their attention to whether ITW would be bound by the Settlement Deed. It is of some relevance in that regard that this is not a case in which the relevant conduct took place over a long period of time (cf Pacific Brands [2005] FCA 288 and Vroon [1994] 2 VR 32) but instead came to an apparently abrupt end after only four months. It may be that ITW considered it commercially expedient to continue sourcing anchors from Adnunat rather than to challenge the Patent and manufacture the 9 tonne anchors it required itself. While that is speculation at this stage, it highlights the difficulty in finding that ITW has no reasonable prospects. Adnunat relied in particular on the email from Mr Pleysiar (see [10]) and contended that it was consistent only with a demand for supply pursuant to the Settlement Deed. However the email makes no reference to the Settlement Deed and the insistence on supply might be said to have arisen just as much from the commercial exigencies ITW faced at the time, compounded by Adnunat's apparent inability to meet existing purchase orders. Third, the fact that ITW paid Adnunat the final royalty amount owing by Reid does suggest an acceptance by ITW of an obligation to do so. The email dated 1 April 2005 reveals that Adnunat had sought sales information from Reid previously in January 2005 and that ITW would make the royalty payment previously due. It is not entirely clear, but it appears from the invoices adduced by Adnunat that the payment was made in about May 2005: see exhibit MGO-29 to Mr Olivetti's affidavit. However even assuming the payment was made, evidence of how and why ITW came to make the payment is not at this stage before the Court and ITW in my opinion has reasonable prospects of rebutting the inference that it made the payment because the parties considered it was bound. In Pacific Brands [2005] FCA 288 at [47] , Finkelstein J said: If the conduct in question is consistent with an intention not to contract, for example, if the conduct is referable to some other obligation, a contract by conduct will not arise: Horrocks v Forray [1975] EWCA Civ 9 ; [1976] 1 WLR 230 , 238-239; The Aramis [1989] 1 Lloyd's Reps 213, 224.