Aztech Science v Atlanta Aerospace (Woy Woy) [2005] NSWCA 319 (15 September 2005)

CITATION: Aztech Science v Atlanta Aerospace (Woy Woy) [2005] NSWCA 319

FILE NUMBER(S):

40996/04

HEARING DATE(S): 9 August 2005

JUDGMENT DATE: 15/09/2005

PARTIES:

Aztech Science Pty Ltd (Appellant)

Atlanta Aerospace (Woy Woy) Pty Ltd (First Respondent)

Stuart Daevys (Second Respondent)

JUDGMENT OF: Handley JA Bryson JA Basten JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): EQ 2187/03

LOWER COURT JUDICIAL OFFICER: Barrett J

COUNSEL:

R. Montgomery (Appellant)

No appearance (First and Second Respondents)

SOLICITORS:

McClellands (Appellant)

No appearance (First and Second Respondents)

CATCHWORDS:

CONTRACT - pre-registration contract - s131 of the Corporations Act (2001) (Cth) - whether contract ratified - whether parties agreed to extend time period for registration set out in contract

EVIDENCE - further evidence - whether evidence available at trial but not read or tendered should be admitted on appeal under s75A (8) of the Supreme Court Act 1970

LEGISLATION CITED:

Corporations Act 2001

Bankruptcy Act 1966 (Cth)

Supreme Court Act 1970

National Companies Code

DECISION:

Grant liberty to apply.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40996/04

EQ 2187/03

HANDLEY JA,

BRYSON JA

BASTEN JA

15 September 2005

AZTECH SCIENCE PTY LTD v ATLANTA AEROSPACE (WOY WOY) PTY LTD & ANOR

Mr Azzi entered into a contract with Atlanta Aerospace (Woy Woy) Pty Ltd (“Atlanta Aerospace”) on 11 November 2002 in relation to the development and commercialisation of various designs and devices. Mr Azzi entered into the Contract as ‘Promoter’, for and on behalf of Aztech Science Pty Ltd (“Aztech”) a company yet to be incorporated.

Under the terms of the contract, Aztech was required to be registered within 60 days, otherwise, the contract would come to an end. That period expired on 17 February 2003, but Aztech was not registered until 20 February 2003. However, Aztech claimed that by virtue of certain representations made during a meeting between representatives of the parties on 14 February 2003, Atlanta Aerospace had agreed to extend the period for registration under the contract by a few extra days. The primary judge rejected Aztech’s claim and held that the contract had come to an end. In addition, the primary judge held that the statutory reference to ‘agreed’ in s131 of the Corporations Act (2001) (Cth) meant that time could only be extended where an agreement had been reached and not where one party was estopped from denying that fact, in the absence of an actual agreement.

The issues for determination by the Court of Appeal included whether Aztech was entitled to the benefit of a pre-registration contract on the basis that the period had been extended and by virtue of ratification under s131. In addition, Aztech sought to tender further evidence under s75A (8) of the Supreme Court Act 1970.

1. Held in relation to the pre-registration contract

By Basten JA (Handley JA agreeing):

1. While it was not necessary to determine the issue in this case, it is not clear that the statutory reference to ‘agreed’ in s131 should not be understood to include a situation in which one party is estopped from denying that such an agreement exists: at [71].

2. The effect of the conversation on 14 February 2003 was to vary the 60-day period contained in clause 2 of the contract so that the contract would not fail if the company were to be registered and the agreement ratified within the ‘extra few days’. In the context in which those words were spoken, the effect was to extend the period at least until the end of February, a period of 11 days: at [74] and [110].

3. Aztech was registered three days after the 60 day period expired and the conduct of the parties immediately thereafter took place on the mutual assumption that Aztech had ratified the contract: at [90] and [111].

4. While Aztech is entitled to declaratory relief, the appropriate relief depends on further factual findings which make it appropriate for the matter to be remitted to the Equity Division: at [112].

By Bryson JA (dissenting):

1. Where there is a time agreed by the parties to the pre-formation contract, registration and ratification within that time is a necessary pre-condition for s131(1); the terms of s131 make it sufficiently clear so that there is no room for treating the references to time as merely directory and for that or some other reason being less than necessary conditions of the effects provided for: at [10]

2. The conclusion of the primary judge that the word “agreed” in s131(1)(a) referred to the making of a contract which was a legally enforceable agreement may not be correct and it may be sufficient that parties fix, vary or waive time by an agreement which is not contractually binding, so that it is only necessary that it be an arrangement to which the parties agree: at [11].

3. The evidence did not clearly show whether or not Mr Somosi was Mr Azzi’s employee on 14 December 2003, and if that had been the fact, Mr Azzi could readily have given evidence of it. However, if it were the fact that Mr Somosi was then Mr Azzi’s employee, that would not tend to show the existence of authority to bind Mr Azzi contractually in any way, let alone by an unrecorded oral arrangement purportedly varying, in an indefinite way, a written agreement in careful terms: at [26].

4. A finding that the events had happened within ‘a few extra days’ would be difficult to reach and could not be reached without coming to grips with and deciding what acts, facts and events are necessary to constitute ratifying the contract within the meaning of s131(1). The question cannot be decided in the abstract and Aztech’s case did not include any proofs of any resolution, decision or determination in the mind of Mr Azzi nor the communication or any other manifestation of such an event which might be expected if the contract had been ratified, nor when that happened; the evidence did not reveal anything which could reasonably be regarded as falling within ‘a few extra days’ after 17 February 2003: [at 28].

2. Held in relation to further evidence

By Basten JA (Handley JA agreeing):

1. Because s75A (8) of the Supreme Court Act 1970 refers to ‘further evidence’, rather than ‘fresh evidence’, availability at the time of trial is not fatal, if ‘special grounds’ otherwise exist: at [102].

Tamas v Streimer (NSW Court of Appeal, unrep, 10 July 1981) and Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 applied;

Atkins v National Australia Bank (1994) 34 NSWLR 155 considered.

2. Factors relevant to ‘special grounds’ test and exercise of discretion considered at [107] and [108].

3. The further evidence should be admitted: at [109].

By Bryson (dissenting):

Nothing which could be regarded as special grounds for admitting this evidence was shown by evidence or otherwise put forward: at [41].

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40996/04

EQ 2187/03

HANDLEY JA,

BRYSON JA

BASTEN JA

15 September 2005

AZTECH SCIENCE PTY LTD v ATLANTA AEROSPACE (WOY WOY) PTY LTD & ANOR

Judgment

1 HANDLEY JA: I agree with Basten JA.

2 BRYSON JA: The appellant Aztech Science Pty Limited (hereinafter Aztech Science) unsuccessfully claimed remedies in the Equity Division under a Contract for Services made between Mr Antonio Azzi referred to as “the Promoter”, the first respondent Atlanta Aerospace referred to as “the Contractor” and the second respondent Mr Daevys referred to as “the Nominee”. The Contract bears the date 11 November 2002 in two places but it came into effect on 19 December 2002, when Mr Daevys executed the document as director on behalf of Atlanta Aerospace. Recitals show that the Contract was intended to be a pre-incorporation contract and that Mr Azzi intended to apply to incorporate a company named “Aztech Sciences Pty Limited” or a similar name, and intended to enter into the Contract on behalf of that company before the company was registered. There is no difficulty in recognising Aztech Science, which was incorporated on 20 February 2003, as “the Principal” referred to in the Contract.

3 The respondents did not appear at the hearing in the Equity Division and the hearing proceeded ex parte. Mr Daevys the second respondent is a bankrupt. The relief claimed by Aztech Science in the Statement of Claim dated 15 October 2003 included declaratory orders establishing entitlements of Aztech Science to property in work and confidential information relating to a number of inventions and projects referred to in the Statement of Claim. The principal invention referred to being a Sub-Aquatic Monitor, described as a mechanical device comprising a floating buoy and other distinguishable parts which enables samples to be taken of ambient environmental conditions in the aquatic environment, with such samples able to be taken above and below the water level. Several other potentially significant inventions and devices were referred to. The declaratory orders extended widely to entitlement to confidential information to intellectual property, copyright and other forms of property. There were other claims for relief which would bring the property within Aztech Science’s control and establish its ownership; and other ancillary matters. Orders are claimed against both respondents. In the Equity Division Barrett J on 19 October 2004 dismissed the claims: [2004] NSWSC 967. Aztech Science now appeals: the respondents did not appear and the appeal was heard ex parte.

4 The question whether Aztech Science is entitled to enforce the pre-incorporation Contract which Mr Azzi made in contemplation of Aztech Science’s formation is to be determined in accordance with s 131(1) of the Corporations Act 2001:

131(1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:

(a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time – within a reasonable time after the contract is entered into.

5 The provisions of the Contract for Services are elaborate. To state the position very broadly, Atlanta Aerospace was to carry out development work on a number of inventions, Aztech Science when formed was to provide finance, among other things by paying a service fee of $10,000 per calendar month until the gross receipts of the venture exceeded $10,000 in any calendar month; the agreement was to continue for two years. Aztech Science when formed was to pay the reasonable disbursements of the Contractor relating to carrying out development work, and the reasonable costs of overheads and materials for carrying out the work. Clause 26 is in these terms:-

26. The Principal shall pay the reasonable Costs of overheads and materials for the carrying out of the Work. The Principal undertakes to pay the reasonable costs of the Contractor and/or the Nominee to date in relation to Item 1 in Schedule B, up to an amount of $70,000.00 upon production of accounts and receipts in respect of development work previously undertaken by the Contractor or the Nominee and which is related to the Work required to be performed by the Contractor in compliance with the terms of this agreement. Payment must be made within 3 months of the first successful commercial sale transaction involving the sub-aquatic monitor the proceeds of which exceed the costs of development as agreed and assessed.

Payments up to $70,000 related to the development of the Sub-Aquatic Monitor, intellectual property rights and other rights to inventions were assigned to Aztech Science. Atlanta Aerospace was in some events to have an opportunity to obtain limited rights to exploit the Sub-Aquatic Monitor. Mr Daevys guaranteed the obligations of Atlanta Aerospace.

6 The Contract also provided as follows:-

2. If the Principal is not registered or fails to ratify this Agreement within sixty (60) days from the date hereof, this Agreement shall be at an end, and notwithstanding Section 131 of the Corporations Act, neither party shall have any further rights against the other to require performance of this Agreement or to claim damages or costs.

3. If this Agreement ends because of the operation of the preceding provision, the Contractor and the Nominee agree that they do hereby release the Promoter from any liability that he would otherwise be under by law in the absence of this provision.

4. The termination of this Agreement pursuant to Clause 2 shall not affect any rights or remedies of either party against the other for any act event or default occurring prior to the date of termination.

7 In the Equity Division, Barrett J determined that the period of sixty days referred to in clause 2 ran from 19 December 2002 so that the last day was 17 February 2003. Of course Aztech Science was not then formed and had not ratified the Contract within the sixty days mentioned in clause 2, so that if the rights of the parties fell to be determined by the terms of the Contract, it would not have been possible for Aztech Science to succeed. However, it was claimed that this result did not follow because of an oral arrangement made on 14 February 2003.

8 The evidence about the terms of the oral arrangement made on 14 February 2003 is in para 10 of Mr Azzi’s affidavit of 4 April 2003, in a passage which was put in evidence before Barrett J:-

“10. On 14 February 2003 I was present at a test of the sub-aquatic monitor at Gosford. Also present were an employee of my company, Robert Somosi, the Second Defendant, and Michael Burke, a director of the First Defendant. Shortly prior to that date I had been diagnosed with a condition which required the removal of my gall bladder. I was due to, and did, undergo surgery on 21 February 2003. On the day of the 14th February 2003, I was in great pain and distress and I overheard a conversation between Mr Somosi and Mr Daevys in words to the following effect:

Somosi: “Tony is in a terrible state. He has already cancelled meetings with the solicitors and the accountants in relation to the trust and the setting up of the company (the Plaintiff). Do you mind if we take a few extra days to set everything up?

Daevys: Tony looks terrible. That won’t be a problem.”

9 One of the foundations of the decision of Barrett J is that his Honour was not satisfied that Mr Azzi became a party to any agreement fixing some new or extended time within which the events of company registration and ratification were to occur; and there appear to me to have been two reasons for his Honour’s not being so satisfied. One reason was that in his Honour’s view the evidence did not show that Mr Somosi acted with the actual or implied authority of Mr Azzi when he had the conversation with Mr Daevys which Mr Azzi spoke of. The other was that the word “agreed” in s 131(1)(a) refers to the making of a contract by which I take his Honour to have referred to a contract binding under the general law of contracts. It is of course clear that clause 2 of the Contract established a time agreed to by the parties within which Aztech Science should be registered and should ratify the Contract if the consequences for which s 131(1) provides were to come about and Aztech Science were to be bound by the Contract and entitled to its benefits. In Aztech Science’s case, the conversation between Mr Somosi and Mr Daevys which took place on 14 February 2003 established a time agreed to by the parties to the Contract within which registration and ratification might take place so as to bring about the results provided for by s 131(1).

10 Where there is a time agreed to by the parties to the pre-formation Contract, registration and ratification within that time is a necessary condition for production of the results for which s 131(1) provides; the terms of s 131 make it sufficiently clear that compliance with the provisions about time is necessary, so that there is no room for treating the references to time as merely directory and for that or some other reason being less than necessary conditions of the results provided for. To my mind the terms of s 131 themselves make this altogether clear, but the reading is re-enforced by more general considerations: the close analogy between the workings of s 131 and an option, for which compliance with time provisions is essential; the remedial nature of s 131, which replaced a previous state of the law in which novation was (at least) bipartite and a new contract was essential by a statutory provision in which the newly formed company can alter the rights of other persons by unilateral action, a situation in which exact compliance with statutorily prescribed procedures is appropriate if the rights of other persons are to be affected. However there does not appear to be any reason why the time agreed to by the parties to the contract referred to in s 131(1)(a) may not be established by an agreement other than the Contract referred to three times earlier in the sub-section; I see no reason why parties who entered into a contract which did not provide for an agreed time might not later agree on a time, nor why parties might not agree to vary the time upon which they had agreed in their contract; or to set aside an agreement as to time which they made in their contract. In saying this I assume an agreement made before the time otherwise established under s 131 ran out.

11 Barrett J said (para 39 of judgment) to the effect that the word “agreed” in s 131(1)(a) referred to the making of a contract which was a legally enforceable agreement. I respectfully say that in my opinion this may not be correct and it may be sufficient that parties fix, vary or waive time by an agreement which is not contractually binding, so that it is only necessary that it be an arrangement to which the parties agree. To my mind this reading is supported by the shift in reference in s 131(1) from the word “contract” to references to “the time agreed” and “no agreed time”. The present case does not turn on this point and a concluded opinion is not required. Barrett J also said to the effect that the relevant agreement may not necessarily form part of the “contract” with which s 131(1) is concerned, and I respectfully agree.

12 The passages in the judgment which show the basis for Barrett J’s conclusion against Mr Azzi’s being bound by an arrangement made between Mr Somosi and Mr Daevys is as follows:-

35 The only evidence upon which Aztech relies in support of its contention that the three relevant persons made a subsequent agreement with respect to the time “for registration or ratification” (being the two events relevant for s 131(1) purposes) is the evidence contained in para 10 of Mr Azzi’s affidavit of 4 April 2003:

[and Barrett J went on to set out para 10 of Mr Azzi’s affidavit of 4 April 2003, which appears in para 7 of this judgment]

36 This account shows that there was, on 14 February 2003, a conversation between Dr Daevys and Mr Robert Somosi who is described by Mr Azzi as “an employee of my [Mr Azzi’s] company”. The company referred to in that way cannot be identified from the affidavit. On the date in question (14 February 2003), Aztech, of course, did not exist and para 9 of the statement of claim simply cannot be correct when it says that Mr Somosi was, on that day, a party to the conversation “for and on behalf of the Plaintiff”. (Nor, of course, did the words attributed to Mr Somosi show that he purported to speak on behalf of or for the benefit of the proposed company.)

37 It is, to my mind, significant that, while Mr Azzi says that he overheard the reported conversation between Mr Somosi and Dr Daevys, he does not say that Mr Somosi was acting at his request or instruction or with his authority. Mr Somosi is not represented as having been an employee of Mr Azzi (as distinct from Mr Azzi’s unidentified company) and there can be no inference that he was acting within the scope of some relevant employment by Mr Azzi in saying what he reportedly said to Dr Daevys. Mr Somosi is not mentioned in Mr Azzi’s affidavit at any point before the paragraph in which Mr Azzi narrates what he overheard on 14 February 2003. There are two subsequent references to him but neither could form any basis for a finding that Mr Somosi was some kind of general agent for Mr Azzi. It is also significant that Mr Azzi’s evidence is merely that he overheard what Mr Somosi said. There is no suggestion that he intervened after Mr Somosi had spoken to confirm what Mr Somosi had said.

13 These and other passages in his Honour’s judgment do not include any rejection of Mr Azzi’s evidence about the conversation between Mr Somosi and Mr Daevys. There was no challenge in cross-examination to Mr Azzi’s evidence because the respondents did not appear at the hearing before Barrett J. It remained for his Honour to decide whether he accepted Mr Azzi’s evidence, but as there is no statement that his Honour did not do so and I see no substantial reason for not doing so, para 10 of Mr Azzi’s affidavit should be approached on appeal as evidence which was accepted.

14 The evidence of Mr Azzi does not exactly support the oral agreement alleged in paras 7 and 8 of the Statement of Claim dated 15 October 2003:-

7. It was a term and condition of the Contract that if the Plaintiff was not registered or failed to ratify the Contract within 60 days of the date of the Contract (the 60th day being 17 February 2003) the Contract would be at an end.

8. By mutual oral agreement, the term for registration or ratification of the Contract described in paragraph 7 hereof was extended to 20 February 2003 or a reasonable time thereafter.

15 Counsel’s written submissions attributed to Barrett J:-

...His Honour would have found the conversation at paragraph 10 of the Azzi affidavit as an agreement made subsequently to the Contract itself varying the time for registration of Aztech and for it to ratify the Contract as provided for by s 131(1)(a) of the Act (Judgment [39]).

However, the judgment contains no such conclusion.

16 Counsel for Aztech Science contended to the effect that it was an error of fact, which the Court of Appeal should correct, that Barrett J did not find that Mr Somosi spoke on behalf of and as agent for Mr Azzi in the conversation with Mr Daevys, and that in that way Mr Azzi made an agreement about time for registration and ratification with Mr Daevys on 14 February 2003.

17 In his evidence on the subject Mr Azzi says no more about any authority which he may have conferred on Mr Somosi than that he was present and “overheard” the conversation. Mr Azzi’s evidence does not say that he authorised Mr Somosi to speak for him, or that he said or otherwise indicated his approval of what Mr Somosi had said in any way, and does not indicate any circumstances which might have suggested to Mr Burke that Mr Somosi was speaking for Mr Azzi. On a reasonable basis Mr Azzi’s evidence should be appraised on the basis that if he had actually conferred any authority to Mr Somosi to speak for him, either specific to the occasion or in any other way such as by employing Mr Somosi in some management position on Mr Azzi’s behalf, he would have given evidence of it. He speaks of the conversation only as something which he overheard when he was present at a test of the Sub-Aquatic Monitor, was suffering from a condition which required the removal of his gall bladder with surgery in a week’s time and was in great pain and distress. If these circumstances tend to indicate any relevant thing it is that Mr Azzi had no part in setting Mr Somosi in motion to speak and had no part in what Mr Somosi said.

18 In an earlier passage Barrett J referred to passages in the Statement of Claim of 15 October 2003 and a document referred to by his Honour as a Defence dated 2 March 2004. The passages in the Statement of Claim which bear on the subject are paras 8 and 9 as follows:-

8. By mutual oral agreement, the term for registration or ratification of the Contract described in paragraph 7 hereof was extended to 20 February 2003 or a reasonable time thereafter.

Particulars of oral agreement.

9. On or about 14 February 2003 at Gosford between Messrs Lawrence Robert Somosi for and on behalf of the Plaintiff and the Second Defendant for and on behalf of the Defendants.

19 The document referred to by his Honour as a Defence is a handwritten document which describes itself as “Response to Statement of Claim” and also on its first page says “filed by Stuart Daevys, first and second defendant”; its terms show that it was filed by Mr Daevys himself and was not prepared by any legal representative. The document does not describe itself as a Defence, and does not use language in all respects appropriate to a pleading. It concludes with a statement that it was sworn, although its language is not appropriate for an affidavit either. Mr Daevys said in the document that he was the sole director of Atlanta Aerospace. I see no difficulty in treating it, as Barrett J did, as a response to the Statement of Claim on behalf of both respondents.

20 The Response includes the following passages:-

6. As to paragraph 7 it was agreed that if the Plaintiff was not registered or failed to ratify the contract within 60 days of the contract being the 11th of November 2002 the contract would be at an end.

7. Mr Somosi and Mr Azzi failed to incorporate within the 60 day period and the Contract was deemed to be null and void.

8. Paragraph 8 it is denied that the term for registration was extended to any date beyond 60 days or any other date.

9. Regarding alleged “Oral agreement on or about the 14th of February 2003 at Gosford between Somosi, Azzi on behalf of the Plaintiff and the Second Defendant on behalf of the First Defendant it is denied that any variation was agreed to, or even discussed at this meeting.

21 Counsel for Aztech Science contended to the effect that these passages in some way supported a conclusion that it was not disputed but was admitted that Mr Somosi spoke on behalf of Mr Azzi. In my opinion the passages, which deny that there was a meeting at all, are altogether inconsistent with any such admission. If the Response is read as a pleading, it cannot be seen as admitting an allegation in the Statement of Claim to that effect in as much as the Response does not deny any such passage; there is no such passage in the Statement of Claim, which alleges in para 9 that Mr Somosi spoke on behalf of Aztech Science, not of Mr Azzi. An informal document such as the Response cannot be in all fairness be read closely for inferred admissions in the same way as a pleading should be read; in any event there is an unequivocal denial that there was any discussion at all, and this is altogether inconsistent with an implied admission of agency. As a matter of pleading, para 9 of the Statement of Claim sets out particulars of the oral agreement in para 8, and is not part of the allegations in the Statement of Claim to which a defendant should plead; see Chapple v Electrical Trades Union [1961] 1 WLR 1290. Counsel submitted “Paragraphs 9 and 7 of the Defence are in clear terms admitting the simple factual matter of Somosi having spoken for Azzi at the meeting of 14 February 2003.” This submission is directly contrary to the terms of paras 7 and 9.

22 In para 10 of Mr Azzi’s affidavit, he speaks of Mr Somosi as “an employee of my company”. He did not then identify the company referred to. In the context of the whole affidavit which referred later to the incorporation of Aztech Science, the reference to “my company” is a reference to Aztech Science and to the employment of Mr Somosi by Aztech Science at a later date than 14 February 2003. There are several later references to Mr Somosi in Mr Azzi’s affidavit, but none of them tend to show that Mr Azzi had conferred any agency authorisation on Mr Somosi on or by 14 February 2003, whether specific to the conversation of that day or in more general terms such as by employing him in some capacity which ostensibly authorised Mr Somosi to make binding contracts on behalf of Mr Azzi.

23 Counsel contended that other passages in Mr Azzi’s affidavit supported a finding that Mr Somosi had some relevant authority. The passages in paras 1, 2, 3 and 4 of the affidavit do not refer to Mr Somosi or to any authority which he may have had, except that in para 4 Mr Azzi referred to a number of summaries provided by Mr Daevys between 1 October and 15 October 2002 of Mr Daevys’ proposal at that time and one of these, exhibit AA3, is a heavily overwritten form of agreement or heads of agreement of which Mr Azzi said:-

The handwriting on “AA3” in that of Robert Somosi, an employee of the plaintiff’s director.

while para 1 says:-

I am the Director of the Plaintiff.

This puzzle piece probably refers to Mr Azzi the deponent himself as “the Plaintiff’s Director” but of course at the time of the negotiations on October 2002 the plaintiff did not exist and Mr Azzi was not its director. The reference to the plaintiff cannot refer to employment contemporaneous with events in October 2002, it is not made known whether Mr Somosi was an employee of Mr Azzi at that time or at the time of the affidavit, and even if he was employed by Mr Azzi at that time the fact that he wrote in his own handwriting on a negotiating document in October 2002 has no tendency to show that he had authority to bind Mr Azzi contractually in February 2003.

24 Exhibit AA2 to Mr Azzi’s affidavit is a fax message apparently sent on 14 October 2002 by Mr Daevys containing information about the project, the cover sheet of which said:-

Attention: Robert Somosi

3 pages as discussed.

Stuart

This too has no tendency to support the alleged agency. Counsel also referred to evidence of several other events in which Mr Somosi participated, and none of them have in my opinion any bearing on supposed agency on 14 February 2003.

25 There are several events in evidence in which Mr Somosi acted purportedly on behalf of Aztech Science after its incorporation. Mr Somosi wrote several letters to Atlanta Aerospace or to its directors in March 2003, and used Aztech Science Pty Limited letterhead to do so, and in one of these he referred to “...my functions as Business Manager for Aztech Science Pty Limited.” A number of other minor circumstances were said to give support to the finding contended for. Among these it was contended that Barrett J ought to have found that Mr Azzi’s silence in the circumstances of his being present while overhearing Mr Somosi commit Mr Azzi to an agreement was a basis on which Mr Azzi’s authority should be inferred. There is as it happens no particular indication in the evidence that Mr Azzi was silent on that occasion, and in his letter of 18 March 2003 he gave an account of the events in which he only learned about the arrangement after it had been made. It is evident that Barrett J did not regard this or several other circumstances of minimal importance as supporting the finding of agency. It was contended that the use of the pronoun “we” in the conversation was significant and must be understood to mean actions to be taken by Mr Azzi and Mr Somosi. Counsel contended that it would have been sharp practice for Mr Azzi not to raise the absence of authority of Mr Somosi to speak on his behalf, and referred to Lam v Ausintel Investments Aust Pty Ltd (1989) 97 FLR 458 at 475 (Gleeson CJ Samuels AP and Meagher JA). Observations relating to sharp practice are I would think of some weight when made against the party who denies or will not admit that he has conferred authority on someone to speak for him, but have no weight to support a claim of authority favourable to his own interest by someone who is in a position to give evidence of the actual existence of authority but does not do so. I see no indication that his Honour made any mistake of fact.

26 Counsel contended that on the whole of the evidence “...that whole history does show that Mr Somosi was Mr Azzi’s employee.” In my opinion the evidence does not clearly show whether or not Mr Somosi was Mr Azzi’s employee on 14 February 2003, and if that had been the fact, Mr Azzi could readily have given evidence of it. However if it were the fact that Mr Somosi was then Mr Azzi’s employee, that would not tend to show the existence of authority to bind Mr Azzi contractually in any way, let alone by an unrecorded oral arrangement purportedly varying, in an indefinite way, a written agreement in careful terms. No doubt there are some classes of employment and of employees which indicate ostensible authority to enter into contracts; but a simple relationship of employment does not do so.

27 In my opinion no grounds have been shown for supposing that Barrett J’s conclusion on the facts relating to Mr Somosi’s position on 14 February 2003 was not correct. Quite otherwise, the material in evidence, on my view of it, supports Barrett J’s conclusion that the provisions of clauses 2, 3 and 4 of the Contract for Services constitute the agreement and the whole and only agreement of the parties to that Contract on the subject of time for registration of the company and ratifying the Contract, with the result that Aztec Science did not obtain the association with the Contract provided for by s 131(1), and with the further result for the rights of the parties spelt out in clauses 2, 3 and 4.

28 Barrett J dealt at length with contentions by Aztech Science to the effect that registration of Aztech Science and ratification of the Contract by Aztech Science had taken place within the time provided for by the arrangement made on 14 February 2003. The conversation set out in para 10 of Mr Azzi’s affidavit could not, even if it were shown to express an agreement among all three parties to the Contract for Services, support the allegation in para 8 of the Statement of Claim of an extension “...to 20 February 2003 or a reasonable time thereafter.” It would support a finding that there was an agreement to the effect that if Mr Azzi took a few extra days to set everything up, meaning to register the proposed company and ratify the Contract, that would not be treated by Atlanta Aerospace or Mr Daevys as a problem. The agreement would have no effect on the parties’ rights unless everything were fixed up within a few extra days, and unless everything was fixed up there would be a problem. “A few extra days” is a period which cannot be reduced to precision; and the most a tribunal of fact could reasonably be expected to do was to say, in relation to a concrete situation where everything had been fixed up by an identifiable time, whether those events had happened within a few extra days. The words were spoken in relation to a contract which provided for a period of sixty days, fifty-seven of which had passed and three of which were still to come at the time of speaking; if registration and ratification had happened later than a week after the expiry of the sixty days, meaning later than ten days after the conversation, a finding that the events had happened within “a few extra days” would I suppose be difficult to obtain. Decision could not be reached without coming to grips with and deciding what acts, facts and events are necessary to constitute ratifying the Contract within the meaning of s 131(1). The question cannot be decided in the abstract, and Aztech Science’s case did not include any proofs of any resolution, decision, determination in the mind of Mr Azzi, communication or any other manifestation of such an event which might come under consideration for a decision that the Contract had been ratified, or a decision on when that happened; the evidence did not reveal anything which could reasonably be regarded as falling within “a few extra days” after 17 February 2003.

29 Although his Honour was of the view, rightly in my opinion, that it was not necessary to consider whether there was ratification by Aztech Science of the Contract for Services after registration on 20 February 2003, and if so when that ratification occurred, his Honour proceeded to express views on those subjects. It seems unfortunate that s 131 does not do more to indicate what is required for ratification; analogies drawn from agency law are imperfect, as is characteristic of analogies, in that there is no relationship of agency. I am inclined to think that for ratification within the meaning of s 131(1) it would be necessary that the company should decide that it adopts or ratifies the contract as its own, not necessarily formally by resolution but by a decision actually taken by the mind or minds in control of its affairs, and the fact that there was such a decision should be outwardly manifested in some way such as by communication to other parties to the contract or by behaviour otherwise unmistakably referrable to the company’s being a party to the contract. Without outward manifestation I would think that a decision to ratify the contract would not fall within the ordinary meaning of “ratify” and related expressions, and that a decision could be changed until it was acted on. Consideration cannot take concrete form in the absence of any behaviour put forward by Aztech Science for adjudication. The conduct of the company in relation to obligations or rights under the contract might be the basis for inferring that there had been some relevant decision, but where the company itself, under the control of the promoter who entered into the pre-formation contract, alleges ratification but does not produce evidence of any such decision, it would be difficult to see a line of reasoning like that as carrying the probabilities; if the person actually controlling a company’s affairs does not give evidence of a decision and there are no objective facts which could be used against the company to establish obligations which the contract would impose on it, a reasonable person approaching the facts should find it difficult to infer probabilities in the company’s favour.

30 Barrett J referred to several matters put forward by counsel for Aztech Science. It was contended that Aztech Science adopted and ratified the Contract for Services and pursued the benefits and burdens of the Contract, and that Mr Azzi caused Aztech Science after its registration to perform the Contract and to demand performance of it. Passages in Mr Azzi’s affidavit which Barrett J referred to included several which do not appear to me to have any force, and also the following passages:-

7. Subsequent to 19 December 2002, the First and Second Defendants provided services as contemplated by the agreement and I authorised and caused the following payments to be made to the First Defendant:

19 December 2002 $45,000

24 January 2003 $30,000

14. Subsequent to 14 December 2002, the First and Second Defendants provided services as contemplated by the agreement, I authorised and caused a further payment of $15,000 to be made to the First Defendant on 26 February 2003 in payment of a further account received from the First Defendant on the same date.

15. Subsequent to 20 February 2003, I caused to be sought from the Defendants information necessary for the commercialization and sale of the 4 devices set out in Schedule B of the agreement, but received no satisfactory response.

31 A copy of an affidavit by Mr Daevys dated 7 May 2003 which appears to have been treated as tendered in evidence before Barrett J, said that Mr Daevys agreed with paras 7 and 14, and with some other passages. In the Response by Mr Daevys dated 2 March 2004 it is admitted that these payments were made, but it was contended that they were made in accordance with an agreement of 3 December 2003 a copy of which is annexed to Mr Daevys’ affidavit of 7 May 2003; the letter of 3 December 2003, directed by Mr Daevys himself to Mr Somosi c/- Aztech Science opens: “I refer to our meeting of 2nd December and, as discussed, quantify our expectations of the partnership between Aztech Sciences and Atlanta Aerospace, as follows:”

There follow seven paragraphs, dealing with subjects closely similar to subjects dealt with in the (then yet to be exchanged) Contract for Services; the first of them is:-

$90,000 over a three-month period to be deposited to Atlanta Aerospace for project expenses. The $90,000 is to be paid over a three month period in lots of 30/30/30.

The payments of which Mr Azzi’s evidence speak do not correspond exactly with this expectation, but they do in a general way, whereas they do not correspond at all with provisions of the Contract for Services.

32 Insofar as the two payments made in December 2002 and January 2003 to which para 7 of Mr Azzi’s affidavit refers can be related to obligations under the Contract for Services, they may relate to the obligation in clause 26 of the Contract. As payments amounting to $75,000, greater than the sum referred to, were paid by Mr Azzi before incorporation, the further payment of $15,000 to which Mr Azzi referred in para 14 of his affidavit should not on a reasonable view be seen as an occasion on which Aztech Science met an obligation in clause 26. It will be seen from the terms of para 14 that Mr Azzi does not say that Aztech Science made the further payment of $15,000, and he does not in that paragraph or elsewhere associate Aztech Science with that payment. Mr Azzi’s evidence does not show any real relation between the payments made and the Contract for Services, but if it did, the admissions in Mr Daevys’ Response and affidavit would not support the asserted association between the payments and the Contract for Services. It cannot be said that Mr Daevys has admitted Mr Azzi’s position.

33 The further account referred to in para 14 of Mr Azzi’s affidavit was not tendered in evidence before Barrett J. On appeal counsel sought to tender a copy of a tax invoice dated 26 February 2003 by which Aztech Science claimed payment of $15,000 as follows:-

PAYMENT DUE

Third installment – start up funds for research and development of the Sub-Aquatic Monitor. Payment of wages and materials of joint R & D Project: $15,000

Payment due: 19 February 2003 ______

TOTAL $15,000

34 The tender of the tax invoice of 26 February 2003 was purportedly based upon s 75A(7) and (8) of the Supreme Court Act 1970. It was not accompanied by any evidence explaining the provenance of the proposed exhibit, or relating the document and its contents to any earlier evidence, or explaining circumstances in which it was not tendered before Barrett J. The tax invoice was not directed to Aztech Science according to its terms; it was directed as follows:-

ATTENTION: Karen

Larke Hoskins

Roseberry

Internal references to a third instalment and to payment being due on 19 February 2003 do not relate in any discernible way to terms of the Contract for Services. The date on which payment was claimed to be due was before incorporation of Aztech Science. In my opinion the document if relevant at all does not assist Aztech Science’s case, and should not be admitted on appeal for that reason and for the further reason that no special grounds have been shown.

35 Barrett J went on to refer to some letters copies of which were annexed to Mr Azzi’s affidavit, the first of them being a letter dated 18 March 2003, which according to its terms was written by Mr Azzi to the directors of Atlanta Aerospace. The only reference to Aztech Science is in this passage:-

I am told by Robert and Ms Scanlan that he reminded you of this [that is, of Mr Azzi’s illness] and you conceded that you were told this “numerous” or ”innumerable” times. I also take the view that you consented in these conversations with Robert to a slight or reasonable delay in that incorporation of Aztech Science Pty Limited.

The letter does not refer to ratification of the Contract for Services, although it makes many references to that Contract. It does not refer to Mr Azzi as being present at or as authorising the making of the arrangement of 14 February 2003. It does not assert that Aztech Science has any entitlement or has met any obligation under the Contract for Services. Its overall tenor is consistent with the view that Aztech Science has some entitlement which is not specified. The letter cannot be regarded as recording or as itself being a ratification by Aztech Science of a Contract for Services; and if it were, it does not itself fall within any period which could be regarded as a few extra days after 17 February 2003, or assert ratification at any date which could be so regarded.

36 Mr Azzi’s letter of 18 March 2003 is fairly clearly a response to the letter of 17 March 2003 from Mr Daevys and two other directors writing on the letterhead and on behalf of Atlanta Aerospace Pty Ltd to Mr Azzi at Aztech Sciences Pty Limited. The letter of 17 March 2003 referred in a number of ways to “our original agreement”, with several assertions that the parties had deviated from it including “to illustrate our point, with the original document there was a timeframe established (entitled “The Operative Part”, page 2) that Aztech Sciences be registered as an entity to ratify the agreement within 60 days. As you know this did not occur.” Mr Azzi’s letter of 18 March 2003 does not assert any facts so as to challenge this statement, and does not record any knowledge or acceptance that the conditions of the Contract for Services had been fulfilled, or that it was in effect.

37 A letter written on 1 April 2003 by solicitors on behalf of Aztech Science to Atlanta Aerospace refers to several statements attributed to Mr Daevys which showed that he did not accept that the Contract for Services was binding, and says:-

We are instructed that our client maintains that the agreement is valid and binding and that it is concerned by Mr Daevys statements, which are provocative and inconsistent with the fact of the agreement.

Of this letter Barrett J said [60]:-

Had it been necessary for me to decide whether the contract contained in the formal document was ratified by Aztech, my conclusion would have been that ratification occurred on 1 April 2003 by means of the solicitor’s first letter of that date.

His Honour went on to point to this conclusion as being ineffective unless 1 April 2003 was a reasonable time after 20 [sic] February 2003. In my opinion an assertion on behalf of Aztech Science that the agreement was valid and binding on 1 April 2003 could not reasonably be found to be a ratification which took place within the few extra days spoken of on 14 February 2003.

38 Barrett J gave an analysis of these events and concluded that they did not constitute or show ratification of the Contracts for Services by Aztech Science. Although I do not regard it as necessary to say so, it does appear to me that these conclusions were correct.

39 In para 12 of the Statement of Claim it was alleged:-

12. Alternatively the Plaintiff says that the Defendants and each of them are estopped from denying that the time by which the Plaintiff was to be registered and by which it had to ratify the Contract was extended to 20 February 2003 or a reasonable time thereafter.

Barrett J expressed the view (judgment [41]) that “estoppel, however, cannot help Aztech when it comes to the question posed by s 131(1) as to “the time agreed to by the parties to the contract” – that being of course, a question going to the very existence of the contract on which Aztech sues.”

40 As explained by counsel (and there was nothing in the Statement of Claim from which the matter could be understood) the estoppel referred to was an estoppel by convention arising from communications and other behaviour of the parties in which each treated the other as if the contract had been ratified and was in effect. It was contended that on viewing the course of conduct of business between the parties there was plainly an assumption that the time had been extended and that the Contract was valid and that the respondents were dealing with Aztech Science. There is no expression revealing any such assumption in the correspondence or other communication. If a finding of estoppel is to be based on them, the existence and nature of the assumption should be clear. In my view there is no material in evidence which shows that the parties each treated the other in that way. For this reason, which is not the same as that given by Barrett J, I am of the view that estoppel has no bearing on the parties’ rights.

41 Counsel also sought leave to tender a number of further passages from affidavit evidence which were not read at the trial. Nothing which could be regarded as special grounds for admitting this evidence was shown by evidence or otherwise put forward.

42 The existence of a statutory stay of proceedings arising from Mr Daevys’ bankruptcy is a difficulty for making an order disposing of the appeal, but if that were resolved I would propose that the appeal be dismissed.

43 BASTEN JA: The Appellant in these proceedings, Aztech Science Pty Ltd (“Aztech”), (the plaintiff before the primary judge) sought relief to enforce its rights under a contract, against Atlanta Aerospace (Woy Woy) Pty Ltd (“Atlanta Aerospace”). The primary issue for determination is whether Aztech is entitled to the benefit of the contract, which was executed before it was registered and which required ratification by Aztech within an identified period.

44 A second issue concerns the status of the Second Defendant, a Dr Stuart Daevys. The proceedings in the Equity Division were commenced on 3 April 2003. However, by the time they were heard, on 6 October 2004, Dr Daevys had entered bankruptcy, on his own petition, on 2 March 2004. Pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth), Aztech is not entitled to commence any legal proceedings in respect of a provable debt, or take any fresh step in such a proceeding, except with the leave of the Federal Court. No such leave had been sought, we were advised, in relation to the proceedings below or the commencement of this appeal. However, prior to the hearing in the Equity Division, Aztech had informed the Official Trustee in Bankruptcy, as the trustee of the bankrupt estate of Dr Daevys, of the proceedings in that Division and had been advised that:

(a) the Official Trustee accepted that it had no title in the devices the subject of the contract because they were not the property of the bankrupt that vested in the Official Trustee on bankruptcy, and

(b) although the Official Trustee held one share in Atlanta Aerospace, it had been unable to realise that interest, by agreement with the other equal shareholder and hence had “no present right to direct or control that company”.

The appeal proceeded on the basis that if Aztech required leave of the Federal Court for any purpose, it would seek that leave at the time it considered appropriate and would, if necessary, seek an order that leave be granted ‘nunc pro tunc’. Whether, and on what terms, such an order might be made would be a matter for that Court.

45 A third issue concerned the tender of further evidence on the appeal. During the hearing of the appeal counsel’s attention was drawn to the fact that at least some of the material relied on before the primary judge was equivocal and some referred to other documentation which was not in evidence. Counsel then sought to tender further documents. This material fell into two categories, and was provisionally identified as Exhibit “A” and Exhibit “B”, whilst reserving a ruling as to whether it should be admitted. That question turns on the terms of s 75A(8) of the Supreme Court Act 1970, which requires that there be “special grounds” which justified the receipt of the evidence. The evidence was not “fresh evidence”. It comprised:

Exhibit A – invoice from Atlanta Aerospace for payment of an amount of $15,000, dated 26 February 2003.

Exhibit B – affidavit of Lawrence Robert Somosi sworn 15 September 2003, pars 1, 66-81 and 84-86, together with pages 84-88 from exhibit RS1.

It will be necessary to consider both the materiality and the admissibility of that material.

Background

46 Atlanta Aerospace was jointly owned by Dr Daevys and a colleague, Mr Michael Burke. Their respective roles in the business of the company are not apparent from the evidence, but it appears that, pursuant to their efforts, the company had acquired or developed a monitoring device known as a sub-aquatic monitor, or colloquially “SAM”, which could be used for monitoring water quality. That, and other devices, were the subject of discussion during an unidentified period in 2002 between Dr Daevys and Mr Antonio Azzi, with the intention of Mr Azzi forming a company through which capital could be provided to develop and market the identified devices. A further element in the proposal was that Atlanta Aerospace would contract with the new company to provide the services of Dr Daevys to assist with various aspects of the venture.

47 By 11 November 2002 Mr Azzi, identified as “the promoter”, entered into a contract with Atlanta Aerospace and Dr Daevys in terms which foreshadowed the registration of Aztech. Thus recital A in the agreement provided:

“A. The Promoter intends to apply to incorporate an Australian proprietary company under the provisions of the Corporations Act 2001 to be named ‘Aztech Sciences Pty Ltd’ or such similar or other name as may be approved by the Australian Securities and Investment Commission (‘the Principal’).”

Clauses 1-4 of the agreement read:

“1. The Promoter intends to enter into this Agreement on behalf of the Principal before it is registered.

2. If the Principal is not registered or fails to ratify this Agreement within sixty (60) days from the date hereof, this Agreement shall be at an end, and notwithstanding Section 131 of the Corporations Act, neither party shall have any further rights against the other to require performance of this Agreement or to claim damages or costs.

3. If this Agreement ends because of the operation of the preceding provision, the Contractor and the Nominee agree that they do hereby release the Promoter from any liability that he would otherwise be under by law in the absence of this provision.

4. The termination of this Agreement pursuant to Clause 2 shall not affect any rights or remedies of either party against the other for any act event or default occurring prior to the date of termination.”

48 Although the agreement was executed by Mr Azzi “for and on behalf of Aztech Sciences Pty Ltd”, and by Dr Daevys, in his own right, on 11 November 2002, it was not executed on behalf of Atlanta Aerospace until 19 December 2002. The primary judge held that each of Mr Azzi, Dr Daevys and Atlanta Aerospace were parties to the agreement and that, accordingly, the agreement was not entered into until Atlanta Aerospace executed the agreement on 19 December. His Honour further found, in accordance with the submissions of Aztech, that “the date hereof” in clause 2 of the agreement was not the date on which the contract stated that it was made, namely 11 November 2002, but the date on which the last party executed the agreement, namely 19 December 2002.

49 On the basis that clause 2 of the contract required registration and ratification within 60 days of 19 December 2002, that period expired on 17 February 2003. Aztech, however, was not registered until 20 February 2003. Accordingly, neither registration nor ratification occurred within that agreed period.

50 The fact of registration not being in doubt, the first condition could be satisfied if the Court were satisfied that the 60 day period was waived or extended by three days. The question of ratification, however, involved greater difficulty. Aztech provided no unequivocal evidence that it had ratified the contract nor, if it had, when the ratification occurred. For reasons noted below, the primary judge was satisfied that ratification may have occurred on or shortly prior to 1 April 2003, but was satisfied that that did not constitute timely ratification within the terms of the contract.

51 On 17 March 2003 a meeting was held between officers of the two companies, including the solicitor acting for Aztech. It was clear that, by that date, serious differences of opinion had arisen and that Dr Daevys was asserting that he and Atlanta Aerospace were not bound by the agreement. The representatives of Aztech apparently complained at the meeting that Atlanta Aerospace had been unwilling to disclose details of its intellectual property rights. The reason for such reluctance was expressed to be a concern that there was no binding agreement and hence such disclosure would jeopardise its intellectual property. According to the Aztech letter of the same date, those concerns had been raised “for the first time today”. The Aztech letter, written by a representative of the company, Mr Robert Somosi, also asserted:

“My principal has always regarded that we have had a binding contract even though some of its terms were waived mutually on your side and on his [sic], these included amounts to be paid and other matters.”

By letter of the same date, signed by the three directors of Atlanta Aerospace, the obligations of Mr Azzi to register Aztech and for it to ratify the agreement, within 60 days, were said to have been breached.

52 The position taken by Aztech in relation to these circumstances was set out in a letter to Atlanta Aerospace, over the name of Mr Tony Azzi, and dated 18 March 2003. Reference will be made to the contents of that letter below.

53 On 1 April 2003, Aztech’s solicitors wrote to Atlanta Aerospace stating, amongst other things:

“We are instructed that our client maintains that the agreement is valid and binding and that it is concerned by Mr Daevys statements, which are provocative and inconsistent with the fact of the Agreement.

We are instructed to require that prior to 4.30pm tomorrow 2 April 2003, you:

(A) confirm in writing that you acknowledge your company is bound by the terms of the Agreement with our client, and

(B) deliver up to our client’s premises ... the copyright in all writing, artworks and other copyright works, together with all prototypes and working models developed, in respect of:

(i) sub-aquatic monitor, and

(ii) jerry can adaptor, and

(iii) exhaust gas turbine, and

(iv) solar generator.

(C) provide a comprehensive list of all inventions, discoveries, designs or copyright works authored or created by you since 19 December 2002.

In the event of your failure to comply with the forgoing, we put you on notice that we are instructed to make application to the Supreme Court of New South Wales for the appropriate declarations and orders, without further notice, on Friday 4 April 2003.”

These demands were not met and proceedings were commenced, as noted above, on 3 April 2003.

54 On 2 March 2004, Dr Daevys filed a document in the Court entitled “Response to Statement of Claim”. The document was handwritten and was in the form of an affidavit, sworn before a justice of the peace. It was relied on by Aztech before the primary judge as a pleading, from which Aztech could obtain the benefit of “admissions”. His Honour so treated it and it was referred to as “the defence”.

55 In the proceedings below, the primary judge held that the contract satisfied the conditions set out in s 131(1) of the Corporations Act so that, if its terms were complied with, Aztech would become bound by the contract and entitled to its benefit. However, s 131 required that Aztech be registered and ratify the contract within the time agreed to by the parties to the contract, or within a reasonable time after the contract was entered into. His Honour held that this condition had not been fulfilled.

56 On appeal, Aztech argued that -

(a) pursuant to an arrangement agreed upon orally on 14 February 2003, the 60 day period was either waived or extended;

(b) from 20 February 2003, both parties worked on the mutual assumption that the contract had been ratified and was on foot, with Aztech as a party, and

(c) such ratification had occurred within a relevant period, for the purposes of the contract and s 131.

Corporations Act, s 131

57 The problems with pre-registration contracts entered into by promoters, on behalf of companies which did not at the time exist, were not easily resolved under the general law. The promoter could not act as agent for the company which did not exist and, as noted by Ford, Austin and Ramsey, Ford’s Principles of Corporations Law at [15.250] the general law did not develop a theory of trusteeship to assist in resolution of the problem. The approach adopted by the general law in this country, prior to statutory reform, was identified in Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52; see note by Lücke H, “Contracts made by Promoters on behalf of companies yet to be incorporated” (1967-70) 3 Adel L Rev 102. J.P. Hambrook, commenting on the position established in Kelner v Baxter (1866) LR 2 CP 174 in “Pre-incorporation Contracts and the National Companies Code: What does section 81 really mean?” (1982-83) 8 Adel L Rev 119 at 120 stated:

“Not only is it impossible for an unregistered company to be a party to a contract, but the company cannot ratify such a contract upon incorporation. The rules relating to ratification were, in the main, established before commercial corporations became prevalent. One of the fundamental rules is that a principal cannot ratify a contract unless, at the time the contract was entered into, the principal was in a position to enter into the contract on its own behalf. In the case of a corporation, this means that ratification is impossible unless the corporation was in existence at the date of the contract sought to be ratified.”

58 Section 81 of the National Companies Code, which commenced on 1 July 1982, provided that a company could ratify pre-incorporation contracts, provided the company was formed within a reasonable time of the contract being made and provided that ratification occurred within a reasonable time of the company’s formation. As Hambrook noted, that provision failed to identify the legal position of the parties between the date of the contract and the date of ratification, a problem which might have been resolved had the promoter been deemed to be a principal until and unless ratification occurred. The same broad approach has been adopted in the Corporations Act, although some of the difficulties identified with s 81 have been resolved.

59 Section 131 constitutes Part 2B.3 of the Corporations Act, entitled “Contracts before registration”. The provision relevantly reads:

“131(1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:

(a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time – within a reasonable time after the contract is entered into.”

60 The provision thus envisages two acts, registration and ratification, both of which are to occur within the relevant time. Because ratification cannot occur before registration, the acts must occur sequentially.

Relevant time

61 It is convenient to consider first the time within which registration and ratification must occur in the present circumstances. As noted above, the contract itself contained, in cl 2, a specified time, namely a period of 60 days from the date of the agreement. That period if not varied or waived, would have expired on 17 February 2003. However, at a meeting which took place on 14 February 2003, attended by Mr Tony Azzi and Mr Robert Somosi, on the one side, and Mr Michael Burke and Dr Daevys on the other, the following conversation occurred, as affirmed by Mr Azzi in an affidavit filed on 4 April 2003:

“Somosi: ‘Tony is in a terrible state. He has already cancelled meetings with the solicitors and the accountants in relation to the trust and the setting up of the company (the plaintiff). Do you mind if we take a few extra days to set everything up?

Daevys: ‘Tony looks terrible. That won’t be a problem.’”

The background to the comments by Mr Somosi was explained by Mr Azzi in his affidavit, noting that he had been diagnosed with a condition requiring the removal of his gall bladder, an operation undertaken on 21 February, causing him to be in great pain and distress on 14 February.

62 The primary judge did not address the meaning and effect of this conversation because he found that the evidence did not demonstrate “that Mr Somosi acted with the actual or implied authority of Mr Azzi”: at [38]. As a result, he concluded that “Mr Somosi’s actions cannot be regarded as amounting to contractual conduct on the part of Mr Azzi”. This finding was critical, because the relevant time which might be agreed “by the parties to the contract”, for the purposes of s 131(1)(a) required the agreement of Mr Azzi. The finding made by the primary judge in relation to absence of agency was challenged on appeal.

63 One of the factors which led the primary judge to that conclusion was that Mr Azzi, in the same paragraph of his affidavit, had identified Mr Somosi as “an employee of my company”. The unidentified company could not have been Aztech, his Honour reasoned, because it had not been registered at that time. Whichever company was referred to, it was a separate entity from Mr Azzi. Therefore, Mr Azzi was not affirming that Mr Somosi was acting on his behalf at the meeting.

64 As counsel pointed out, however, the statement was ambiguous, because it did not identify the date at which it was speaking. At the date of the affidavit, Mr Somosi was employed by Aztech, which could reasonably be identified as “my company” by Mr Azzi. That statement was accurate if understood as a description given as at the date of the affidavit. But in that case, it did not purport to identify Mr Somosi’s capacity or status at the date of the meeting. However, in an earlier paragraph of the same affidavit, when identifying the handwriting on documents provided by Dr Daevys in October 2002, Mr Azzi identified Mr Somosi as “an employee of the plaintiff’s director”, a phrase which could be understood to refer to Mr Azzi personally. Accordingly, so it was submitted, the inference should have been drawn that Mr Somosi was indeed involved in the business discussions as an employee of Mr Azzi, prior to the registration of Aztech, including on 14 February 2003.

65 Two relevant passages in the defence are relevant to the meeting of 14 February. First, at par 7, Dr Daevys stated:

“Mr Somosi and Mr Azzi failed to incorporate within the 60 day period and the contract was deemed to be null and void.”

The Appellant relies upon that passage as indicating that Dr Daevys accepted that Mr Somosi was indeed working for Mr Azzi in relation to the contract.

66 The second passage, relating to the conversation itself was in the following terms:

“Regarding alleged ‘oral agreement’ on or about the 14th February 2003 at Gosford between Somosi, Azzi on behalf of the plaintiff and the second defendant on behalf of the first defendant it is denied that any variation was agreed to, or even discussed at this meeting.”

67 Mr Azzi affirmed that he was present at the meeting and heard the conversation between Mr Somosi and Dr Daevys. His Honour was entitled to find, as he did, that the events took place as Mr Azzi had said. But, he thought it significant that Mr Azzi did not intervene “to confirm what Mr Somosi had said”: at [37]. However, in my view, the proper inference to be drawn from the totality of the material set out above, including the statement that in October 2002, Mr Somosi was Mr Azzi’s employee, is that Mr Somosi was acting on behalf of Mr Azzi in relation to the agreement before Aztech was incorporated, and that Dr Daevys accepted that to be the case. Accordingly, it is necessary to determine the legal effect of the conversation on 14 February between Mr Somosi and Dr Daevys.

68 The first question is whether his Honour was correct in seeking to identify “contractual conduct” in the conversation. Although his reasoning in this respect was obiter, his Honour held that “agreed” in par (a) of s 131(1) referred to the making of a contract or legally enforceable agreement. His Honour also accepted, without deciding, that a period could be fixed for the purposes of that provision by an agreement subsequent to the contract entered into on behalf of the proposed company, at least where the subsequent agreement was said to vary the original contract: at [39].

69 While the term “agreed” must involve mutual understanding between the parties to the contract, the section does not require that such an agreement be included in the contract nor, in terms, does it require that the agreement be contractually binding. The agreed date (if there be one) is a fact on which the Corporations Act conditions certain consequences. As noted by Hambrook, supra, s 81 of the National Companies Code did not include reference to a time agreed between the parties, but he suggested that any such agreement might be a factor which would affect the calculation of what was a “reasonable” time in a particular case: 8 Adel L Rev at 131. Under the general law, ratification could be within a period specified by the parties, such an arrangement being characterised as a promise to keep open an offer for the specified period.

70 This matter was not argued before us by reference to authority and it would not appear that the point has been expressly dealt with. The case law rather deals with peripheral issues such as:

(a) whether a contract can be ratified after the time has come for performance: Lifesavers (Australasia) Ltd v Fridge Mobile Pty Ltd [1983] 1 NSWLR 431 at 438E-F; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 at 279F-281D (McHugh JA);

(b) whether the other party can withdraw from its agreement prior to ratification: Bolton Partners v Lambert (1889) 41 Ch D 295, and

(c) whether an act done by a person without capacity could later be retrospectively ratified where the defect was cured: Watson v Davies (1931) 1 Ch 455 at 468 (Maugham J) and Dibbins v Dibbins [1896] 2 Ch 348 at 351 (Chitty J).

These cases are concerned generally with the retroactive effect of ratification and the question whether there is indeed a contract at all prior to ratification: see, generally, Bowstead and Reynolds on Agency (17th ed, 2001) at [2-082]-[2-092].

71 For present purposes it is not necessary to resolve this issue: given that the contract itself contained a provision by which it would cease to operate if the time requirement was not complied with, any suggested variation needed to be effective to change the legal consequence of that clause. However, the Appellant argued that that could be done as a result of conduct or representation amounting to an estoppel, a proposition which the primary judge rejected: at [41]. His Honour concluded that there was a difference between the situation where an agreement had been reached and one where no agreement had been reached but one party was estopped from asserting that fact. His Honour held that the statutory term “agreed” was consistent only with the former situation. However, authority referred to for that conclusion appears to have been concerned with the subjective intention of the parties sought to be bound, which raises a further issue as to whether what is “agreed” in particular circumstances for the purposes of s 131 is to be understood as a reference to the subject intention of the party or an objective determination of that intention, as would generally be the case in relation to a contractual agreement. Again it is not necessary to determine the issue, but it is not clear that a statutory reference to what is “agreed” should not be understood to include a situation in which one party is estopped from denying that such an agreement exists.

72 The actual conversation is open to three constructions. These may be summarised as:

(a) an absence of any intention to vary the terms of cl 2 of the agreement of 19 December 2002;

(b) an intention to vary the agreement so as to extend the deadline of 20 February 2003 by “a few extra days”, or

(c) an intention to abandon “the time agreed” so that ratification need only take place “within a reasonable time”, such time being assessed by reference no doubt to the original 60 day period and the proposed “extra few days”.

73 Although there was undoubtedly a lack of formality involved in the attempt to vary a formal written contract, I am satisfied, on balance, that the first option should be rejected If, as his Honour accepted on the evidence, the conversation took place as attested by Mr Azzi, there appears, objectively, to have been a clear intention to vary the existing arrangement. That conclusion follows, not merely from the words used, but the assumptions which should be made as to the understanding of the parties as to the expiration of the agreed time.

74 These assumptions need to be spelled out. In his defence, Dr Daevys sought to rely on the date written on the top of the contract, on which at least two parties executed the document, namely 11 November 2002, as the commencement of the agreed period. On that view, the 60 days would have expired by 10 January 2003. If Dr Daevys had been of that view on 14 February 2003, his response to the request for a few extra days would only be understandable if, by earlier agreement, the 60 day period had already been waived or extended. On the other hand, there is some evidence from which it might be inferred that the delay in executing on behalf of Atlanta Aerospace was deliberate and Mr Daevys would, in February 2003, have expected the 60 day period to run until 20 February. In any case, his agreement should be treated either as acceptance that the agreed time period no longer applied, or that an agreed period continued to apply, but it did not end until “a few days” after 17 February.

75 As noted above, on 17 and 18 March, there was a flurry of letters between the parties following the meeting early in the afternoon of that day. In two letters from Aztech signed by Mr Somosi and in a letter sent the following day, signed by Mr Azzi, there was reference to the agreement entered into on “19 December 2002”. A letter from Atlanta Aerospace, which appears to be a response to one of the letters of Aztech of 17 March, refers to the agreement without taking issue with the date of 19 December. Accordingly, it may be inferred that Mr Azzi accepted that the contract had been executed on 19 December 2002 and that the 60 day period ran from that date. It would follow that, as at 14 February 2003, he would not have thought that the 60 day period had already expired. Given the failure of Dr Daevys, writing on behalf of Atlanta Aerospace, to challenge that statement, the Court can be satisfied that he also held that view in March, and therefore in February 2003.

76 If the proper understanding of the conversation of 14 February is that the agreed period had been waived and par (b) of sub-s 131(1) was applicable, it would be appropriate to calculate what constituted a reasonable time by reference to the agreed period of 60 days and the agreement that there should be an extension of a few extra days. The same result will be achieved by treating the conversation of 14 February as giving rise to a new “agreed time” involving a few extra days beyond 20 February.

77 The calculation of the additional period is not without its difficulties. Taken in the abstract, ‘a few extra days’ might mean anything between three days and a week. However, one of the circumstances in which the conversation occurred was the ill-health of Mr Azzi, although the cause of his distress and the fact that he was intending to undergo surgery a week later were apparently not revealed to Dr Daevys at that time. Nevertheless, there must have been some uncertainty as to the further period required. That consideration suggests that a longer period, though of no more than two weeks, might have been contemplated. I would draw that inference.

78 Aztech was registered on 20 February 2003 which was, in my view, comfortably within the contemplated extension, being only three days after the expiration of the 60 day period. However, when ratification occurred is more obscure and requires consideration of whether a formal act of ratification is required or whether conduct is sufficient and, in either case, whether the result must be communicated to the other parties to the contract.

Ratification

79 What is sufficient to constitute ratification of a pre-incorporation contract by a company newly formed appears to have been given little consideration in the authorities. The primary judge referred to the statement in Ford’s Principles of Corporations Law at [15.290] to the following effect:

“Presumably, just what constitutes ratification is governed by the law of agency.”

80 That paragraph has now changed so that the first two words are deleted, pursuant to the authority of this case in the Court below. The only other authority referred to in that paragraph is Scuderi v Morris (2001) 39 ACSR 592; [2001] VSCA 190 at [83]. The comment relied on is that of Chernov JA (with the agreement of Ormiston JA and Buchanan JA) and was in relation to an argument that a contract entered into between the appellant and the respondent involved a promise made on behalf of a company yet to be formed. His Honour concluded at [82]:

“There was, therefore, no evidence that Scuderi was seeking to contract on behalf of a company to be formed.”

It was after reaching that conclusion that his Honour dealt, in the following paragraph, with the proposition that the agreement had been ratified for the purposes of s 131 of the then Corporations Law, by the company making six payments to the respondent, which were accepted by him, and another company entering into an agreement to acquire property, which had been the object, in part, of the agreement between the individuals. As this evidence was apparently put forward in support of the concept of ratification by the companies concerned, rather than as evidence that a contract which attracted the operation of s 131(1) had been made, his Honour dealt with the evidence on the hypothetical basis that such a contract existed. He concluded at [83]:

“In my view, however, it is clear enough that the mere making of the six payments by [the first company] on behalf of Scuderi, and Morris’s acceptance of those cheques, did not constitute ratification by the company for the purposes of s 131 even if it is to be assumed that ... Scuderi had told Morris that he intended to acquire the assets in question through a company yet to be formed and that payments to him would be made by such a company. Similarly, the mere fact that [the second company] entered into the purchase agreement with the administrator does not mean that there was relevant ratification. Furthermore, even if it was clear at the creditors’ meeting that Scuderi would make the acquisition through a corporate vehicle, it does not follow that a week or so prior to that meeting, ... he and Morris formed their contract on the basis that the relevant promise was being made on behalf of a company to be formed.”

Thus, although this case is relied upon in Ford’s Principles of Corporation Law, in relation to what constitutes ratification, it tells one little more than that payments made by a company in the circumstances of the case did not, as a matter of fact, constitute ratification of an hypothetical proposal to contract on behalf of an unformed company.

81 The primary judge set out the basic principles in the following passage:

“[49] It is generally said that ratification may be express or implied. Express ratification occurs when the alleged [principal] has, by unequivocal language or conduct, acknowledged that the contract is his. Implied ratification may arise in various ways. It often occurs when the alleged principal, although not expressly acknowledging the contract as his own, acts in a way which can only be explained on the basis that he accepts the contract as his own. The essence is, in either case, a manifestation of the principal’s intention to be bound.

[50] Determining whether there has been ratification, in the sense relevant to the law of agency, therefore depends on an assessment of the conduct of the alleged principal. The conduct may consist of acts of the alleged principal himself or acts of someone else who clearly acts with the authority of the alleged principal. The reference here to ‘acts’ extends also to omissions to the extent that, in a particular context, omissions are capable of being of probative value. And it goes without saying that, in a case such as the present, conduct can be relevant only if occurring after the time at which the alleged principal came into existence.”

82 Generally speaking, these propositions may be accepted, subject to two qualifications. The first qualification is one of form, rather than substance. The distinction between language and conduct is a matter of emphasis, in many cases. It is likely that conduct will more usually involve implied ratification, rather than express ratification, to the extent that such a distinction is usefully drawn. The second qualification is of more substance: implicit in some of his Honour’s language is an assumption that the act of ratification must necessarily be communicated to the other party. Where ratification is implied from conduct, it may well be conduct directed to the other party (or a third person), in circumstances where the relevant implication may reasonably be drawn by the other party. However, an express act of ratification may be an internal action of a company, such as the signing of a board minute stating that the company ratifies the contract. Given the need to act within a specified time, it may in some cases be important to determine whether the signing of a minute, or other internal act of a company is effective immediately, or only if and when communicated to the other parties to the contract.

83 In the present case, there was no evidence of any formal act of the company ratifying the contract: since Mr Azzi gave evidence, but not to that effect, and since he was a director of Aztech, as well as its secretary and sole shareholder, one may infer that no formal act of ratification occurred at any relevant time. On the other hand, what may be sufficient conduct constituting acceptance by the company of the contract, executed expressly for its benefit, should be considered in the particular circumstances of the case. Thus, conduct which might be equivocal in other circumstances may give rise to a sufficient inference in this case.

84 Two factors are significant. First, not only did cl 1 of the contract expressly state that Mr Azzi entered into the agreement on behalf of Aztech before it was registered, but cl 2 indicated that the agreement would come to an end (assuming it ever commenced) if registration and ratification did not occur within the agreed period. Clause 2 expressly recognised that “neither party” (presumably referring to Mr Azzi on the one hand and Atlanta Aerospace and Dr Daevys on the other) would have any rights against the other to require performance of the agreement or to claim damages or costs, in the event that the condition were not fulfilled. Further, cl 3 expressly released Mr Azzi from any liability he might otherwise have by law, such entitlement to contract out of the effects prescribed by s 131 being provided by s 132(1) of the Corporations Act. The relevance of these provisions is that, once the company was registered, any act of Mr Azzi referable to the execution of the contract, occurring within the period agreed, could readily be accepted as referable to a ratification by Aztech, absent which no contractual entitlements would arise.

85 Further, although cl 4 may have permitted either party to recover money paid “prior to the date of termination”, there was no right or remedy provided in relation to moneys paid or services rendered thereafter.

86 The second factor of importance, is that Mr Azzi was not only the promoter under the contract, but was also the directing mind of Aztech, once registered. That fact might render his conduct equivocal in other circumstances; however, in the circumstances of the contractual provisions noted above, an inference that, after registration, he was acting on behalf of the company may be drawn with reasonable confidence, that the company had in fact accepted the contract. The relevant conduct therefore needs to be considered.

87 In his Honour’s view, the first unequivocal act of the company demonstrating acceptance of the contract was the letter sent by the solicitors for the company threatening legal proceedings on 1 April 2003. Because the discussion of ratification in his Honour’s judgment was entirely obiter, the case having been determined on the basis that there had been no extension of the period which ended on 17 February, he made no finding as to when an extended period would have ended, based on the conversation of 14 February 2003. Nevertheless, on the approach adopted above, 1 April being six weeks beyond the originally agreed date of 17 February, was well outside any reasonable construction of the extension agreed on 14 February.

88 Nevertheless, the letter should not be ignored: the “clear manifestations” in the letter of 1 April cannot themselves constitute ratification of the contract because the solicitors would not have the relevant authority. Those manifestations should be understood as reflecting prior ratification, which took place at an unidentified time.

89 The earliest suggested evidence of ratification is the following statement in Mr Azzi’s affidavit:

“15. Subsequent to 20 February 2003, I caused to be sought from the defendants information necessary for the commercialisation and sale of the four devices set out in Schedule B of the Agreement, but received no satisfactory response.”

Paragraph 16 of the affidavit then refers to the meeting held on 17 March. Paragraph 15 is thus imprecise as to the time at which Mr Azzi acted in the way suggested. However, paragraph 14 of Mr Azzi’s affidavit read:

“14. Subsequent to 14 December 2002, the first and second defendants provided services as contemplated by the Agreement [and] I authorised and caused a further payment of $15,000 to be made to the first defendant on 26 February 2003 in payment of a further account received from the first defendant on the same date.”

The reference to “14 December” is probably a typographical error and should read “19 December”. A similar earlier statement (referring to periods after 19 December) referred to payments made on 19 December and on 24 January 2003, being payments made before the company was registered. The primary judge saw the third payment as equivocal in relation to ratification, because the paragraphs in the affidavit relating to the two payments before 20 February and the payment after 20 February were expressed in identical terms. Further, there was a suggestion in the course of the appeal that the payments, including that made on 26 February 2003 was more properly referable to a letter proposing a partnership between Atlanta Aerospace and Aztech dated 3 December 2002 from Dr Daevys, although that letter anticipated a payment of $90,000 over three months, in three equal payments. That letter may properly be understood as an administrative proposal as to the manner of payments to which Atlanta Aerospace would be entitled under the schedule to the contract, which arrangement was again varied to the benefit of Atlanta Aerospace prior to 19 December 2002.

90 Whilst I accept that the language of Mr Azzi’s affidavit is equivocal and that the evidence with respect to the payment made on 26 February is scant in the extreme, it must nevertheless be considered in the context of an agreement which envisaged work being done by Dr Daevys prior to the formation of Aztech. In my view the better inference (and one I would draw after some hesitation) is that, Mr Azzi, who became the governing mind of Aztech once it was formed, maintained his commitment to the agreement, and acted on that commitment. The payment on 26 February by Mr Azzi may be seen as a demonstration of his continuing commitment to carrying out the agreement and thus provides evidence of ratification by Aztech, on or before that date.

91 If it were necessary for Aztech to communicate its ratification to the other parties to the contract, I would find that it impliedly did so by making the payment to Atlanta Aerospace for the work done by Dr Daevys, such payment being made on the date on which the invoice was received, namely 26 February 2003. That date, being nine days after the original 60 day period terminated would, in my view, fall within the period of extension agreed on 14 February 2003.

Further evidence

92 At the hearing of the appeal, counsel for Aztech tendered a tax invoice issued by Atlanta Aerospace identified as Exhibit A (provisionally). That invoice, dated 26 February 2003, was sent by facsimile to the following person and address:

“ATTENTION: KAREN

Larke Hoskins

ROSEBERY”

At the foot there was a notation:

“cc Tony Azzi

Robert Somosi”

The invoice identified a payment due being a third instalment:

“Start-up funds for research and development of the sub-aquatic monitor. Payment of wages and materials of joint R&D project”.

The addressee “Karen”, is not identified. The business address at Rosebery is that from which Mr Azzi worked. In my view that material is not merely confirmatory of the statements made in Mr Azzi’s affidavit, but identifies the purpose of the payment. Although no doubt was cast on the substance of Mr Azzi’s affidavit, this material does take the matter further in that sense.

93 The second bundle of material sought to be tendered falls into a different category. Its contents are identified at [45] above. Paragraph 71 of Mr Somosi’s affidavit stated:

“Between 15 and 25 February 2003, I had several telephone conversations with Dr Daevys. The topics of these conversations included the ‘proper’ path towards commercialisation of the solar steam turbine and the SAM.”

The next paragraph refers to a meeting held by Mr Somosi with Dr Daevys on 25 February 2003 at which a number of matters were discussed arising under the contract. Further paragraphs of the affidavit referred to activity undertaken on 25 February in relation to a possible placement of a solar steam turbine and a request to Aztech’s solicitors to obtain a company search of a possible partner or consultant identified as “Aquatech”. A further discussion concerning the marketing of the SAM was held on 28 February 2003.

94 This material is clearly relevant, as it demonstrates on-going conduct referable solely to the contract, between officers of Atlanta Aerospace and Aztech between 20 and 28 February 2003. If admitted, it would give substantial support to the inference that the contract was ratified by Aztech immediately upon its formation and that both Atlanta Aerospace, Dr Daevys and Aztech conducted themselves upon that assumption throughout the next two weeks up to 5 March 2003.

95 In addition, amongst that material was a facsimile addressed to Mr Somosi on behalf of Aztech, from an insurance broker, dated 4 March 2003. It concerned a proposal for insurance of sub-aquatic monitors and referred to “our earlier discussion and my email to Stuart Daevy (sic) on 27 February 2003”. I infer that Atlanta Aerospace, with the knowledge of Mr Somosi on behalf of Aztech, had been in communication with the insurance brokers in relation to insurance of SAMs prior to 27 February 2003. This material was followed by a letter dated 5 March 2003 from Atlanta Aerospace, signed by Ms Denise Coad, a director, in the following terms:

“Sub-aquatic monitor

This is a letter to confirm that Atlanta Aerospace is currently working with Aztech Science in regards to the sub-aquatic monitor. As such, Aztech Science, namely, Mr Robert Somosi, is at liberty to discuss any details of insurance regarding the sub-aquatic monitor, on behalf of Atlanta Aerospace.”

This material confirms an on-going relationship between the two companies, as at 5 March 2003. That relationship is referable to the subject-matter of the contract, which I infer had been on-going since the formation of the company. It is only consistent with Atlanta Aerospace then being of the view that the formation of Aztech had been followed by ratification so as to satisfy cl 2 of the agreement.

96 The question remains, however, whether it should be admitted. It is not fresh evidence in that it was not only available, but was in a form ready to be used, at the hearing before the primary judge. There was no affidavit tendered in support of the application to admit the further evidence, but counsel stated from the bar table that it had not been relied upon below because the matter was undefended and he was of the view that the matters now in issue were sufficiently established by admissions made by Dr Daevys on behalf of himself and Atlanta Aerospace. He took the view that it was neither necessary, nor appropriate, to burden the Court unduly with confirmatory material supporting unchallenged assertions. That the primary judge would take a different view as to the admissions was not, he asserted, anticipated at the hearing, but only became apparent when judgment was delivered.

97 That ratification was an issue which the primary judge needed to consider further was made clear at the hearing and resulted in counsel filing a further written submission dated 11 October 2004. Those submissions were not directly concerned with the extension of time within which ratification had to occur, being the point on which Aztech lost below, but did go to the present issues. There was no attempt, however, at that stage to tender Mr Somosi’s affidavit, or any part thereof.

98 The test to be applied in considering the tender of evidence in appeals generally in this Court is found in s 75A of the Supreme Court Act. Section 75A(5) provides:

“(5) Where the decision or other matter under appeal has been given after a hearing, the appeal shall be way of rehearing.”

The powers and the duties of the Court are then defined in sub-ss (6) and (10). The key provisions for present purposes are sub-ss (7) and (8) which provide:

“(7) The Court may receive further evidence.

(8) Notwithstanding subsection (7), where the appeal is from a judgment after a trial or hearing on the merits, the Court shall not receive further evidence except on special grounds.”

Further, the section does not apply in a number of circumstances, including so much of an appeal as relates to a claim for a new trial arising out of a trial with a jury. In those cases, it would appear that general law principles, to which reference will be made below, still apply. The express exception of those cases suggests that the effect of sub-ss (7) and (8) was not intended merely to reflect those general law principles. The present case being one where the appeal has been brought from a judgment “after a trial or hearing on the merits”, the Appellant must establish “special grounds” pursuant to s 75A(8).

99 In Akins v National Australia Bank (1994) 34 NSWLR 155, an appeal brought from a judgment following a trial without a jury in the Court, Clarke JA (Sheller JA and Powell JA agreeing) stated (at 160) that three conditions need to be met before “fresh evidence” can be admitted. His Honour continued:

“These are: (1) It must shown that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) The evidence must be such that there must be high degree of probability that there would be a different verdict; (3) The evidence must be credible.”

100 It is important to note, however, that those principles were preceded by the statement that “it is not possible to formulate a test which should be applied in every case to determine whether or not special grounds exist”. The justification for the first condition was not addressed and the proposed further evidence was rejected on the second ground alone.

101 In Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 at [14] Heydon JA (with whom Mason P and Young CJ in Eq agreed) noted that the comments of the High Court in CDJ v VAJ (1998) 197 CLR 172 at [104]-[115] may require a reconsideration of the approach adopted in Akins. His Honour nevertheless concluded that Akins bound the Court and should be followed, until overruled. (See also the references in CDJ v VAJ by Gaudron J at [50]-[56] and Kirby J at [186] sub-pars 8 and 9. The approach adopted in relation to the Family Court in CDJ v VAJ was followed in relation to the Federal Court in Minister for Immigration and Multicultural Affairs v Jia Legeng [2001] HCA 17; (2001) 205 CLR 507.) However, in Nowlan, Heydon JA continued at [15]:

“Even if the three tests stated in the Akins case are applicable and are not satisfied, a question remains: is it just to admit the further evidence in this case?”

102 Nowlan involved an application for leave to commence proceedings for personal injury out of time. The respondent to the application was successful in the District Court on a basis which could have been met by evidence, but was not raised by the respondent until final submissions. As explained by Heydon JA:

“17 The respondent contended before this Court that the further evidence should not be received because the appellant ought to have been aware that an issue would arise in relation to the capacity of doctors to diagnose the nature of the plaintiff’s injuries and to offer a view as to whether the injuries were attributable to the car accident, or to playing rugby, or to farm work.

18 However, the issue was not so obvious that it went without saying that the respondent would rely upon it. ... Some respondents might have chosen not to take the point that diagnosis was impossible or very difficult.

19 Where the respondent to an application fails to signal a prima facie case of prejudice, either by evidence to be tendered by the respondent, or by an indication that some part of the applicant’s evidence will be relied on to raise a prima facie case of prejudice, it will not be possible for the applicant to deal with the point satisfactorily. Here the respondent was able to point to material in the applicant’s evidence raising the possibility of prejudice ... . But that possibility was capable of being rebutted by evidence. The fact that that possibility was not availed of by the applicant in view of the respondent’s failure to give prior notice of the point successfully taken creates an injustice justifying reception of the evidence in this Court.”

His Honour’s approach is no doubt a reflection of the fact that the provision refers to “further evidence”, thus not obliging the Court to adhere to the fresh evidence test articulated in the first condition in Akins and an acceptance of the need for flexibility.

103 The principles stated by Clarke JA in Akins may be sourced to the judgment of Dixon CJ in Wollongong Corporation v Cowan [1955] HCA 16; (1955) 93 CLR 435 at 444, setting out the approach to be adopted under the general law on an application for a new trial on the ground of discovery of fresh evidence. Such cases were treated as exceptional, it being “essential to give effect to the rule that the verdict, regularly obtained, must not be disturbed without some insistent demand of justice”. That case involved a challenge to a jury verdict following a trial for damages in negligence. As his Honour made clear, after discussing the cogency required of such evidence (at 447):

“I speak upon the hypothesis that a verdict has been regularly obtained without any miscarriage at the trial and the application for the new trial is based wholly on the grounds that the subsequent discovery of fresh evidence demands a second trial.”

104 As noted by this Court in Tamas v Streimer (unrep, 10 July 1981) (Moffitt P, Reynolds JA and Glass JA agreeing), even before the introduction of s 75A, “it always had been the law that although the grounds on which a new trial would be granted have been settled by practice, they had never become ‘completely stereotyped’.” His Honour referred in particular to a case decided four months prior to Wollongong Corporation by the same Justices, namely McCann v Parsons [1954] HCA 70; (1954) 93 CLR 418, in which it was held that a retrial should be ordered. In a joint judgment the Court said (at 403-431):

“The grounds upon which the court proceeds in granting the remedy [to relieve against a verdict when it would be unjust to allow it to stand as a determination of liability] have been settled by practice but they have never become completely stereotyped; they have always possessed some flexibility and have been governed by the overriding purpose of reconciling the demands of justice with the policy in the public interest of bringing suits to a final end.”

The Court continued (at 431):

“The power of the Court to order a new trial is based on the substantial requirements of justice and no court would exercise the power in favour of an insurer unless it were satisfied that notwithstanding due diligence on its part a situation had arisen in which, weighing the interests of the plaintiff against those of the real defendant, justice demanded that there be a retrial or a further investigation.”

105 In applying these principles to the statutory terms in s 75A(8), Moffitt P in Tamas noted:

“It may be that considerations of justice in admitting the evidence may differ, having regard to how the evidence is to be used, if admitted, so that the overall view of what is just may be found to differ according to whether the admission of the evidence can be accommodated by the Court of Appeal itself deciding the case as on a rehearing or whether it can only be accommodated by ordering that the whole case be tried again. What the demands of justice are in either situation may vary from case to case and may be stated differently at different times by different judges, but the ultimate question in the end will be the same; namely to do what is just in the light of all relevant considerations which will require consideration to be had of the extent to which the policy of the law relating to finality will be interfered with by the course required to be taken.

...

Where in rehearing the case, the Court of Appeal makes its own decision, drawing inferences and making findings of fact as provided by sub-section (6) ..., it may be far less disruptive of the finality of litigation to receive fresh evidence in relation to part of the case, than to ‘receive’ fresh evidence so the whole case is retried, with the possible consequence, as often occurs, that the factual issues are different and the evidence is called afresh and is different.”

Tamas was not such a case, but arguably the present case is.

106 Wollongong Corporation and McCann each involved an application to set aside the verdict of a jury. As noted by McHugh J in Puntoriero v Water Administration Ministerial Corporation [1999] HCA 45; (1999) 199 CLR 575 at [26]:

“26 The appeal to the Court of Appeal, as it arose out of a trial with a jury in the Supreme Court, was not an appeal by way of rehearing as provided by s 75A of the Supreme Court Act 1970 (NSW). The authority of the Court of Appeal was conferred by s 102, which deals with applications after a jury trial to set aside a verdict or judgment or for a new trial. The Court of Appeal might order a dismissal of the action if, on the evidence, the verdict for the plaintiff could not be supported (s 108).

27 The difficulties which this places in the path of an appellant are well known and were explained by Dixon J in Hocking v Bell.”

The different considerations involved in “appellate review of primary decision-making, according to whether the decision-maker is a judge or a jury” were noted by the Court in Swain v Waverley Municipal Council [2005] HCA 4 at [1] (Gleeson CJ), but see generally. Those differences find their reflection in the Supreme Court Act, as noted by McHugh J in Puntoriero, but were not created in 1970. Because s 75A provides a different regime with respect to appeals from a judge sitting without a jury, care must be taken in importing authorities concerned with appeals from jury verdicts into an area where different considerations apply.

107 There are a number of factors which militate in favour of receiving the evidence in the present case. First, the evidence is documentary and comprises less than 10 pages. The paragraphs of the affidavit which are read in support, do little more than explain the provenance of the documents and how they arose. Secondly, because the proceedings are undefended, there will be no cross-examination of the deponent, nor evidence sought to be tendered in reply. The evidence thus stands on its own and falls within a short compass. Thirdly, the point to which the evidence goes is a narrow one and is but part of the case to be established by the Appellant. It concerns the date on which Aztech should be treated as having ratified the contract. Fourthly, the case having proceeded below in the absence of the defendants, the evidence which was available at the time, was not read or tendered, simply because it was perceived to be unnecessary. That judgment proved to be in error, but there is a public interest in counsel not burdening a busy trial court with unnecessary material, or extending the length of hearings unnecessarily. An inflexible approach to evidence in these particular circumstances would place an undesirable pressure on counsel to ‘play safe’. In this respect the case bears similarities to Nowlan. Fifthly, it is important that this is neither an appeal from a jury nor an appeal in which the relief sought includes a new trial, even before a judge. As will appear below, if the appeal is upheld, it will be necessary to refer the matter back to the Equity Division to determine the appropriate relief, but that is not the point to which this evidence goes. Sixthly, the tender arises in circumstances where the judgment below has been found to be in error for other reasons. The issue to which the evidence is relevant is one which the primary judge did not need to determine, because an earlier point in the chain of events had been found against the Appellant. Finally, there is no prejudice caused to the Respondents, who did not seek to be heard in their own defence, either in this Court or in the Court below. The affidavit had been provided well before the hearing and was acknowledged by Dr Daevys as a document he had read: see ‘defence’ par 2.

108 There are factors which militate against the reception of the evidence, but they are not, in my view, persuasive. Despite what is said above, it should no doubt be borne firmly in mind that too great a readiness to admit further evidence would encourage parties and their lawyers to treat the hearing of a matter at trial as but a preliminary round. The fact that an appeal is by way of rehearing under the statute, does not justify the view that it is the second round of a trial, rather than that which it is, namely an appeal. It may also be argued that questions of prejudice to other parties are not the only countervailing interests: there are the broader interests of the administration of justice and the delays which may arise from inappropriate calls on the Court’s time and resources. It should not be forgotten that there may be cases when the better course may be to seek to reopen the matter before the primary judge, rather than lodge an appeal. However, that course may not be appropriate where there are other arguments that the primary judge has erred, which would not be dependent upon further evidence. It is significant that, in Wollongong Corporation, the High Court expressly left open the possibility that a different approach might be adopted, even under the general law where the relief sought was a retrial, if the verdict below was otherwise attended by error. Finally, it may be said that the evidence supports a contrary determination to that reached by the trial judge, but is not necessary for that result. I would have reached a different conclusion on the material tendered below, but only with some hesitation. The confirmation provided by the proffered further evidence is of assistance in that respect.

109 The material contained in Exhibit B demonstrates that all parties treated the contract as having been ratified, in the sense of being accepted, by Aztech, in the period from the formation of Aztech on 20 February through to the first week of March, being the end of the period within which ratification was possible. It may be that such an inference could have been drawn without the material, but it would have been a far more doubtful exercise. I would admit the material for this purpose. The invoice which forms Exhibit A should also, in my view, be admitted, because it provides additional information in relation to the payment made on 26 February 2003.

Conclusions

110 It follows that the primary judge was wrong in ordering that the summons and statement of claim be dismissed and there be judgment for the defendants, on the basis that the period within which the company was to be registered and to ratify the contract had not been extended beyond 17 February 2003. I would accept that the conversation on 14 February 2003 involved Mr Somosi, speaking for Mr Azzi, and Dr Daevys, who was the guiding mind of Atlanta Aerospace. The effect of the conversation was to vary the 60 day period contained in cl 2 of the contract so that the contract would not fail if the company was registered and ratified within the “extra few days”. In the context in which those words were spoken, I am satisfied that the effect was to extend the period at least until the end of February, a period of 11 days.

111 Whatever the precise limit of the extension, there is no doubt that the company was registered three days after the 60 day period expired and that the conduct of the parties immediately thereafter took place on the mutual assumption that Aztech had ratified the contract.

112 The Appellant is therefore entitled to declaratory relief to give effect to those findings. However, the substantive relief which it sought in its summons depended upon further factual findings, which were not addressed by the primary judge nor during the appeal in this Court. It is therefore appropriate that the matter be remitted to the Equity Division for further consideration of the relief sought by the Appellant. For reasons noted above, no relief should be given at this stage against Dr Daevys, a bankrupt.

113 I would be disposed to make the following orders:

(1) Appeal allowed with costs.

(2) Judgment of Barrett J of 19 October 2004 set aside.

(3) Declare that, pursuant to a contract entered into by Mr Azzi, Dr Daevys and Atlanta Aerospace (Woy Woy) Pty Ltd, on 19 December 2002, which contract was entered into for the benefit of Aztech Science Pty Ltd a company not then formed, such contract being ratified by Aztech Science Pty Ltd within the time agreed by the parties to the contract, Aztech Science Pty Ltd became bound by the contract and entitled to its benefit, pursuant to s 131(1) of the Corporations Act 2001.

(4) Declare that, pursuant to the contract, Atlanta Aerospace (Woy Woy) Pty Ltd assigned to Aztech Science Pty Ltd all property in the Work and Confidential Information, as defined in the contract.

(5) Costs of the proceedings in the Equity Division to date to be reserved and further questions of costs reserved.

(6) Remit the matter to the Equity Division for such further or other relief as may be sought by Aztech Science Pty Ltd.

114 However, since the Appellant did not obtain leave from the Federal Court to proceed against Dr Daevys following his bankruptcy on 2 March 2004, and did not obtain leave to proceed with an appeal to this Court I consider that at this stage this Court should simply publish its reasons, and grant liberty to apply. If the Federal Court grants the Appellant leave to proceed against Dr Daevys the Appellant can apply on affidavit to me for the formal pronouncement of substantive orders.

**********

LAST UPDATED: 16/09/2005