Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: CMA Corporation Limited v SNL Group Pty Ltd [2012] NSWCA 138
• Hearing dates: 2 May 2012
• Decision date: 16 May 2012
• Before: Basten JA at [1]; Barrett JA at [2]; Tobias AJA at [41]

Decision

1.Appeal dismissed.

2.Order that the appellants pay the respondent's costs of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: APPEAL AND NEW TRIAL - procedural fairness - primary judge proceeded on the basis that a binding contract existed - findings made with respect to consideration for contractual promises - such matters not expressly raised by the pleadings - whether lack of procedural fairness - trial in fact conducted on a basis going beyond the pleadings - parties expressly accepted in separate arbitration proceedings that they were bound by the relevant contract - no operative procedural fairness.
• Cases Cited: Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129; Gould v Mount Oxide Mines Ltd [1916] HCA 81; (1916) 22 CLR 490; Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 60 FLR 355; SNL Group Pty Limited v CMA Corporation Limited [2011] NSWSC 464; Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141
• Category: Principal judgment
• Parties: CMA Corporation Limited - First Appellant; CMA Peakmore Pte Ltd - Second Appellant; SNL Group Pty Ltd - Respondent
• Representation: Mr D A McLure/Mr D T Scully - Appellants; Mr C M Harris SC - Respondent; Norton White - Appellants; Colin Biggers & Paisley - Respondent
• File Number(s): CA 2011/188535

Decision under appeal

• Citation: SNL Group Pty Limited v CMA Corporation Limited [2011] NSWSC 464
• Date of Decision: 2011-05-20 00:00:00
• Before: Sackar J
• File Number(s): 2010/259019

Judgment

1 BASTEN JA: The appeal should be dismissed with costs, for the reasons given by Barrett JA.

2 BARRETT JA: This appeal concerns the state of indebtedness of SNL Group Pty Ltd ("SNL") to CMA Corporations Ltd ("CMA") and its associated entity, CMA Peakmore Pte Ltd ("CMAP"). The other relevant entity is Guangxi Xialin Import and Export Co Ltd ("GX"). All relevant dealings were in United States currency, so that references in these reasons to sums of money are references to United States dollars.

3 In proceedings in the Equity Division of the Supreme Court, SNL sought, as principal relief, declarations that it was not indebted to CMA or CMAP in the sum of $525,888.38 or at all. By their cross-claim, CMA and CMAP claimed that SNL was indebted to CMA (or alternatively CMAP) in the sum of $525,888.38. The question whether that (or any) sum was owed by SNL to CMA or CMAP was thus put in issue.

4 The proceedings were heard by Sackar J on 7 and 8 April 2011. Judgment was delivered on 20 May 2011. The primary judge found that SNL had made good its claim that it was not indebted. He granted relief as sought in the statement of claim: SNL Group Pty Limited v CMA Corporation Limited [2011] NSWSC 464.

5 The facts are not controversial and may be stated briefly:

1.At material times, SNL and GX were companies controlled by Mr Su Wenwu. He spoke and acted for both of them. CMA and CMAP were engaged in the business of metal recycling. In relevant dealings, CMAP acted sometimes for itself and sometimes for CMA.

2.Before the happening of the events about to be mentioned, SNL was indebted to CMAP (which had acted for CMA) in the sum of $525,888.38. The indebtedness arose from a course of business dealings in which CMAP made payments to third parties at the request of SNL against promises of reimbursement by SNL. CMAP had paid out a total of $4,415,341.59 and received reimbursement to the extent of $3,889,453.21 from SNL, leaving the difference of $525,888.38.

3.On 13 June 2008, CMAP and GX entered into a contract for the sale by CMAP to GX of 7,600 tonnes (plus or minus 10%) of iron concentrate FOB Johore Port, Malaysia at a price of $220 per tonne. Half the price was payable before loading; the balance upon receipt of invoice, packing list and inspection report.

4.On 6 August 2008, Mr Su, representing GX, met with Mr Johnny Chung, an officer of CMA. They agreed that CMAP would reduce the price from $220 per tonne to $100 per tonne (subject to possible adjustment) and the quantity from 7,600 tonnes to 7,546 tonnes. They also agreed a price adjustment mechanism under which the new price of $100 would be increased or decreased according to whether the ferrous content of the iron concentrate delivered was greater or less than 65%. The agreement provided for payment of $700,000 to CMAP by 8 August 2008.

5.This agreement was confirmed in writing signed by Mr Su on behalf of GX and Mr Chung on behalf of CMAP. An English translation of the handwritten document signed by them is:

"AGREEMENT

It is agreed that Guangxi Xianlin Import and Export Co. Limited ('Buyer') to purchase 7,546MT iron concentrate at US$100 per MT, FOB.

Additional US$4 per ton will be paid for every percent of ferrous content ('FE') greater than 65%. The price will be deducted by US$4 per MT for every percent drop within 65% to 62% inclusive. US$6 per MT will be deducted for every percent below 62%.

The Buyer should pay US$700,000 to the nominated bank account of CMA Peakmore by 8 August. The final quality should be certified by the Singapore CCIC.

Representative of the Buyer: Su WenWu

Signed Su Wenwu

Representative of the Vendor: Chung Tung Hui

Signed Chung Tung Hui"

6.On 11 August 2008, Mr Su arranged electronic transfer of $700,000 from SNL's account with a bank in Sydney to CMAP's account with a bank in Singapore.

7.A written agreement (entitled "Sales and Purchase Contract") dated 21 August 2008 was signed by Mr Su for GX and Mr Alvin Ng for CMAP. It recited an existing agreement for the sale and purchase of 7,546 tonnes of iron concentrate at $100 per tonne on the basis of ferrous content of 65% and went on to vary the existing arrangement by changing the provision with respect to price adjustment for ferrous content. The price of $100 per tonne was to be increased or decreased by $6 for each percentage point of ferrous content above or below 65%. The agreement continued:

"The Seller [CMAP] acknowledges that Seller has received USD 174,111.62 by the time of signing.

Upon receipt of amount USD 580,488.38 from Buyer [GX], Seller agrees to release the Final B/L in one working day from receipt of the amount.

Within 5 working days after the results from CCIC Singapore are out, both parties agree to settle outstanding amounts based on those results.

If Seller are not able to produce the CCIC Singapore certificates after 31st August 2008, Buyer has the right to use certificates from CIQ or SGS."

8.Having regard to the revised price of $100 per tonne (and disregarding the potential price adjustment according to ferrous content), the total price of the 7,546 tonnes was $754,600. The sum of $580,488.38 referred to in the provision concerning release of the bill of lading was thus that total price less the $174,111.62 acknowledged in the first paragraph of this extract to have been received.

9.Some time before 16 September 2008, Mr Su drew on his own account with a Singapore bank a post-dated cheque bearing that date in the sum of $580,488.38, payable to CMAP. That cheque was deposited by CMAP with its bank for collection but was not met on presentation.

6 There were, at trial, competing contentions about the payment of $700,000 made by SNL to CMAP on 11 August 2011 (item 6 at [5] above). SNL maintained that the payment was, as to $525,888.38, full payment of the debt it owed CMAP (item 2 at [5] above) and, as to the balance of $174,111.62, part payment of the amount that GX owed for iron concentrate purchased by GX from CMAP (items 5 and 7 at [5] above). The contention of CMAP (and CMA), however, was that the $700,000 represented the full sum acknowledged by the handwritten agreement of 6 August 2008 (item 5 at [5] above) to be payable by GX to CMAP by 8 August 2011 and was therefore referable wholly to the $754,600 price for the iron concentrate.

7 It was common ground at trial that one party making a payment to another is entitled to specify what the payment is for and that, provided the specification is communicated to the payee, that payee, upon accepting the payment, is bound accordingly. The principle is often encountered when a debtor who owes two debts to a single creditor appropriates a single payment wholly to one debt or the other or in part to one and, as to the balance, to the other. A succinct explanation of appropriation in that type of case is found in the judgment of Lockhart J in Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 60 FLR 355 at 357.

8 The principle is equally applicable where a debtor directs that part of a single payment be applied towards satisfaction of his or her debt and that the remainder be applied in some other way, for example, by being credited to an account maintained by the payer with the payee or towards satisfaction of a debt owed to the payee by someone else. Communication by the payer (by words or conduct) at or before the time of payment is essential if the payee is to be bound by the payer's appropriation.

9 The primary judge held (at [71]) that, on the facts, the payment of $700,000 was made in circumstances of an intention of the payer, communicated by it through Mr Su to the payee, that the payment was to satisfy the $700,000 payment obligation of GX referred to in the agreement of 6 August 2008. There was accordingly an effective appropriation of the whole $700,000 by SNL towards the debt of GX to CMAP for the purchase of iron concentrate; and both SNL (payer) and CMAP (payee) were bound accordingly. In addition, of course, SNL's indebtedness remained unchanged at $525,888.38.

10 The primary judge went on to decide, however, that the rights and obligations flowing from that effective and binding appropriation were later altered by contract or, perhaps more accurately, that new rights and obligations created by contract took the place of those arising from the appropriation. The effect of the 21 August 2008 agreement, his Honour held (at [72]), was "to reverse the previous appropriation so as to entirely discharge the SNL debt and partly discharge the GX debt". The "SNL debt" was the pre-existing debt of $525,888.38 owed by SNL to CMAP. The "GX debt" was the $754,600 (subject to possible adjustment) payable by GX to CMAP under the revised contract for the sale of iron concentrate.

11 The reasoning leading to this conclusion was not exposed but is readily identifiable. The consequences of the appropriation found at [71] in respect of the $700,000 payment were that, immediately before the making of the new agreement on 21 August 2008, SNL continued to owe CMAP $525,888.38 and GX was indebted to CMAP only to the extent of $54,600 (the total price of $754,600 less the $700,000 paid). The "reversal" to which the primary judge referred at [72] involved, first, acceptance by GX that it was indebted to CMAP but in the sum of $580,488.38, rather than $54,600 (with $174,111.62, not $700,000, of the debt for the $754,600 purchase price having been satisfied); second, acceptance by SNL that it no longer owed the sum of $525,888.38 (or any other sum); and, third, acceptance by CMAP that it was owed $580,488.38 by GX and nothing by SNL. Mr Su's apparent authority to act for both SNL and GX no doubt played a part in the analysis. But the core element was the creation of a new obligation on the part of GX to pay $525,888.38 to CMAP (in addition to the existing balance of $54,600), something that could be achieved by a contract between GX and CMAP. The 21 August 2008 agreement between GX and CMAP, the primary judge found, was a contract that achieved that result. Necessary to that conclusion, of course, was a finding that the agreement was binding and had contractual force.

12 CMA and CMAP contend on appeal that the basis on which the matter was determined at first instance in favour of SNL was neither pleaded nor raised at trial, so that CMA and CMAP had no opportunity to make relevant submissions and there was a denial of procedural fairness. They point to the observation of Heydon J in Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 at [118] that a court should not refer in its reasons for judgment to any point not raised in argument, where the point is decisive, or materially influential, in the outcome. If it were otherwise, Heydon J said, there would be "the risk of immediate and well-justified protest from the losing party".

13 The matter that CMA and CMAP say was not raised or argued is the enforceability of the 21 August 2008 agreement that the primary judge held operated as a contract "reversing" the legal consequences of the appropriation made by SNL, as payer, in respect of the $700,000 payment on 11 August 2008.

14 The applicable principle is that stated by Isaacs and Rich JJ in Gould v Mount Oxide Mines Ltd [1916] HCA 81; (1916) 22 CLR 490 at 517:

"Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.

15 An examination of the pleadings shows that the point made by the appellants is valid, to the extent that the basis on which the judge decided that there had been a contractual variation of the effective appropriation was not something that arose in any explicit way from the pleadings. It is also clear, however, that the case was argued in fact on bases that went beyond the pleadings, thus raising the issue referred to by Isaacs and Rich JJ in the last sentence of the above extract.

16 The question is therefore whether reliance by the primary judge on the legally binding quality of the 21 August 2008 agreement went beyond the wider limits set by the parties themselves once they had departed from the boundaries created by the pleadings.

17 The transcript of proceedings before the primary judge shows that counsel for SNL, in his closing submissions, openly and obviously relied on the binding quality of the 21 August 2008 agreement.

18 Mr C M Harris SC appeared for SNL at trial (and on appeal). At the close of the defendants' case before the primary judge, he proceeded to submissions. He began by handing up "a slightly modified version of the outline of submissions that I had lodged in accordance with the practice note". Those submissions made the point that the 21 August 2008 agreement contained an express acknowledgement of the receipt of $174,111.62 (which is, of course, the difference between $700,000 and $525,888.38) and that that acknowledgement was totally consistent with SNL's case and totally inconsistent with the case advanced by CMA and CMAP. The submissions continued:

"If the plaintiff's US $700,000 payment had not been in relation to its own debt, but had been wholly on account of Guanxi Xianlins' debt, then article 3 in the contract would, in the first sentence, have acknowledged that the second defendant had received US $700,000 at the time the contract was signed, and would have noted, in the second sentence, that there was a further amount of US $54,600 - rather than US $580,488.38 - which remained outstanding."

19 In the course of his address, Mr Harris concentrated at several points on the effect and importance of the 21 August 2008 agreement. He dealt as follows with the possibility that there may have been an error in the 21 August 2008 agreement:

"Your Honour ought not accept Mr Ng's evidence, or indeed Mr Chung's evidence, that when that typewritten contract [ie, the 21 August 2008 agreement] was signed they considered that it contained an error in relation to the moneys that it was dealing with."

20 Mr Harris then made a direct submission about the effect of the 21 August 2008 agreement, as follows:

"What was happening there was that CMA Peakmore was recognising that there was an additional $580,000 [ie, $580,488.38] payable. It was recognising it had only received $174,000 [ie, $174,111.62]. It was creating contractual rights and contractual obligations from which it would not be able to resile but which are completely inconsistent with the case that it makes before your Honour."

21 A clear submission that the 21 August 2008 agreement had brought about, in effect, a reallocation of the $700,000 so that part of it was applied to satisfy the SNL debt of $525,888.38 was then made:

"In my respectful submission your Honour ought infer that whatever might have happened at the time the payment was made on 11 August, this agreement shows that there had been an appropriation on 21 August of that $700,000 in discharge of the money that had been owed by SNL."

22 Reference was then made to arbitration proceedings in Singapore between GX and CMAP arising from their sale contract:

"Your Honour, in my submission at the time the payment was made, the evidence on balance would indicate that that payment had been paid for the SNL debt and appropriated in that way, but I don't need to rely on what occurred at that time. I can rely on what occurred on 21 August when whatever might have been the position previously, there was obviously an agreement that the part of the $700,000 would be appropriated for the discharge of SNL's debt. I can submit to your Honour in support of that proposition is the fact that in its initial defence in the arbitration proceedings in December last year, CMAP said as much to the arbitrator because it referred to the $580,000 as being still outstanding."

23 Mr Harris also submitted as follows:

"... [I]n my respectful submission the contract [of 21 August 2008] by itself would be sufficient for your Honour to conclude on the balance of probabilities that the payment either initially or at least by 21 August had been appropriated by agreement with CMA people in discharge of SNL's debt."

24 CMA and CMAP were represented before the primary judge (and on appeal) by Mr D A Mr McLure of counsel. At the conclusion of Mr Harris's address (at about 12.55pm), the judge canvassed with Mr McLure how he wished to proceed. The matter was then stood down to 2.30pm, the judge saying to Mr McLure that he was "relaxed if you want to have a little more time both to put something in writing and put your submissions together".

25 Upon the resumption, Mr McLure handed up an outline of submissions which began:

"The defendants anticipate that the Court will determine these proceedings in one of two ways, namely, either:

(a)by determining that the payment made on 11 August 2008 reduced GX's indebtedness to CMAP from $754,600 to $54,600; or

(b)by determining that the payment made on 11 August 2008 discharged SNL's own indebtedness of $525,888.38, while the balance of $174,111.62 reduced GX's indebtedness to CMAP from $754,600 to 580,488.38."

26 The submissions continued:

"The defendants submit that there are two questions to be answered, namely:

(a)was the payment of $700,000 on 11 August 2008 appropriated by either party to the debt of GX?

(b)if the answer to the first question is 'yes', did the contract of 21 August 2008 reverse the appropriation, and allocate it to the indebtedness of SNL?"

27 This last matter was dealt with towards the end of the outline of submissions as follows:

"To the extent that the contract proffered by Mr Su on 21 August 2008 asserts an appropriation contrary to the circumstances referred to above, it was of no effect because the appropriation had by that time already occurred. The parties were not capable of rewriting history by assertions in the contract."

28 In the course of Mr McLure's address, the following exchange occurred:

"HIS HONOUR: ... I guess what I'm suggesting at the moment, or asking you - and you'll come to it in a moment - is how does article 3 in the document signed on 21 August, gel with your clients, believing objectively or otherwise, that they'd already been paid in full by GX and especially when of course they participate, although the cheque bounces, they participate in conduct whereby they are prepared to receive the cheque for the precise amount of 500,000 odd dollars - 580,000 [ie, $580,488.38].

McLURE: Your honour, firstly I don't seek to persuade you that conduct after the event --

HIS HONOUR: Can't be taken into account.

McLURE: Can't be taken into account.

HIS HONOUR: Yes, okay.

McLURE: Accept that it must. It's a question of whether or not, what happened on 21 August 2008, was capable of undoing an appropriation if it had already occurred."

29 Mr McLure subsequently said:

". . . but returning to your Honour's concern about [the] 21 August document, if your Honour accepts the proposition that the appropriation had already occurred, before 21 August 2008, the contrary statements to the extent that they are that, in the contract of 21 August 2008, are irrelevant. They are not capable of reversing what had already been done. If your Honour concludes that the appropriation occurred in one of the three ways which I have set out in the written submissions, then the attempt to change that position by the document of 21 August, is incapable of altering it."

30 And later:

"Now to the extent that the document of 21 August 2008 is capable of doing otherwise your Honour in my submission consider it to be relevant that where what was sought to be done was to rearrange the position between GX, SNL and CMA, only two of those three were parties to that document and that is an important reason why the document ought on [sic; scil: not] be held as being capable of rearranging the arrangement between them or being accepted as objective evidence of an intention on either of the parties to appropriate the payment in that way.

HIS HONOUR: Can I ask you this then, if there had been an appropriation on 11th, 12th or 14th is the document of 21 August consistent with an appropriation on any of those days?

McLURE: It is if your Honour accepts the proposition I just advanced, namely, that because one of the parties to the reallocation of money was not a party to it, it was not capable of altering what occurred prior --

HIS HONOUR: That's a legal conclusion which I understand but on its face at least insofar as it purports in article 3 to recite factual material it simply can't stand can it with CMA Peakmore thinking, insofar as it's relevant that they think anything, that an appropriation has occurred on 11th, 12th or 14th.

McLURE: I accept that's so.

HIS HONOUR: Because otherwise article 3 makes absolutely no sense.

McLURE: I accept that's correct."

31 These extracts from the written submissions and counsel's addresses make it clear that the question whether the 21 August 2008 agreement had been effective to bring about what was, as between the respective debtors and creditors, a contractual revision of the appropriation made by SNL at the time of its payment on 11 August 2008 was squarely addressed and debated. There was no complaint by CMA and CMAP as defendants that departure from the pleadings left them in an untenable position that should be formally addressed by an application by SNL as plaintiff for leave to amend, with CMA and CMAP then having an opportunity to put on an amended defence and, if it thought fit, further evidence to deal with a new controversy. CMA and CMAP were content to make closing submissions according to the altered battle lines that had emerged during the trial.

32 CMA and CMAP seek, however, to take the matter further. They say that, while there may have been, in the way outlined, an extension beyond the pleaded case so that the effect of the 21 August 2008 agreement was in issue, the judge introduced an even further extension which was not addressed by counsel on either side. This complaint centres on paragraphs [47] to [55] of the judgment, which are as follows:

47. It has long been held that where a debtor owes a creditor a certain amount, both parties cannot contract to reduce the size of the debtors debt. In Penny v Cole (Pinnel's Case) [(1602) 5 Co Rep 117a; (1602) 77 ER 237], it was found that an agreement to take a lesser sum than that which is owed, of itself, will not amount to a binding obligation.

48. The general law of contract is also clear that past performance cannot constitute valuable consideration. As such, a debt which has already been discharged cannot form the basis of the consideration in a new agreement.

49. However, ancillary issues arise where there is an entirely new agreement that involves not merely agreement regarding the size or liability of the (previously discharged) debt, but also covers a range of additional matters. In this situation there is a basis for asserting that consideration has passed, as the consideration for the agreement may be found in other promises or sacrifices that the debtor and creditor have made. Here, a similar logic as that which was applied in Pinnel's case would apply, as the court found there that an agreement to reduce the size of the debtors debt would be binding where the monetary reduction was accompanied by some other form of proprietary compensation (the "gift of a horse, hawk, or robe", for example, to quote Sir Edward Coke).

50. The exact question of whether a debt can be reversed

through contractual negotiations was discussed in Foakes v Beer [(1884) 9 App Cas 605], which has since been followed in a number of cases: see Kelen v Vitamin Pty Ltd [[2010] NSWSC 328]; Amos v Monsour Pty Ltd [Monsour Pty Ltd v Amos [2010] FCA 741]; Martech International Pty Ltd v Energy World Corporation Ltd [[2006] FCA 1004; (2006) 248 ALR 353]; N Ray v Deputy Commissioner of Taxation [[2005] FMCA 1893] and Hennessey v Architectus Group Holdings Pty Ltd [[2010] NSWSC 1390].

51. In Foakes it was established that in an agreement between judgment debtor and creditor, where the debtor promises to pay down part of the judgment debt in return for the creditor not taking proceedings on the judgment the agreement is nudum pactum, or, without consideration.

52. Whilst the parties in Foakes had made an agreement to

alter the original debt owing, the court found that there was a live question as to whether that agreement was capable of being construed as legally binding. The Earl of Selbourne LC observed that:

"if the question be (as in the actual state of the law, I think it is), whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given in the sense that I have always understood that word to be used in our law. It might be (and indeed I think it would be) an improvement in our law, if release or acquittance of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord or satisfaction (though less than the whole), were held to be, generally, binding though not under seal; nor should I be unwilling to see equal force given to a prospective agreement, like the present, in writing though not under seal; but I think it is impossible, refinements that practically alter the sense of the word, to treat such a release or acquittance as supported by any new consideration proceeding from the debtor" (emphasis added).

53. This reasoning has been applied in numerous

subsequent cases, which have distinguished between the ineffective agreement to reduce or extinguish a debt owing and an alternatively binding agreement that purports to extinguish or reduce an existing debt whilst also providing fresh consideration. In Vanhergen v St Edmunds Properties Ltd [[1933] 1 KB 345], for example, the court applied Foakes to state that:

"a creditor cannot bind himself by a simple agreement to accept a smaller sum in lieu of an ascertained debt of larger amount, such as an agreement being nudum pactum. But if there be any benefit, or even any legal possibility to the benefit of the creditor thrown in, that additional weight will turn the scale and render the consideration sufficient to support the agreementt" (emphasis added).

54. The same reasoning has been applied in a range of general (non debt related) situations, where a similar conceptual situation arises: see, for example, Fortune Food Manufacturer Pty Ltd v Young Trading Pty Ltd [[2010] NSWSC 407]; Combins v Jenson [sic; no citation found] and Hewitt v Gardner [[2009] NSWSC 1107] for recent applications of the principle. However, where there are new terms within the agreement, signifying fresh consideration, contracts have been upheld and the original act already done has been subsequently enforced (or, in the case of appropriation of debts, effectively reversed). In Hennessey v Architectus Group Holdings Pty Ltd [[2010] NSWSC 1390], for example, Slattery J found that there was in fact a lawful and binding agreement despite the fact that some of the promises made in the agreement had previously been satisfied on the basis that there were also ancillary terms in the agreement providing fresh consideration.

55. On this basis, whilst a discharged debt cannot form the

basis of consideration in a contract, there is no reason why an agreement that derives its consideration from another promise or set of promises cannot involve enforceable provisions regarding a reappropriation of a previously discharged debt. As long as there is valuable consideration (be it related to the debt or otherwise), the reasoning Pinnel's case and Foakes v Beer and their more contemporary enunciations are satisfied."

(Citations for the cases mentioned in these paragraphs [47] to [55] do not appear in the body of the judgment and, where identifiable, have been added in parentheses for ease of reference.)

33 I have already referred to [71] and [72] of the judgment. They should be set out in full:

"71. I am satisfied that when Su remitted the funds on 11 August he was purporting to implement the agreement of early August and CMAP were entitled to regard that conduct as an appropriation of the entire amount of US$700,000 on behalf of GX.

72. However, the agreement of 21 August is materially different in the respects already identified, which in my view amounts to fresh consideration. It is in this context that a new appropriation has occurred with the intended effect: the parties can and did agree to reverse the previous appropriation so as to entirely discharge the SNL debt and partly discharge the GX debt."

34 The discussion in [47] to [55] of the judgment proceeded on the basis that, having regard to the appropriation of 11 August 2008, the position immediately after payment of the $700,000 and the appropriation associated with it was that the $525,888.38 debt of SNL to CMA (or CMAP) remained owing, while the $754,600 obligation of GX to CMAP under the revised purchase contract had been satisfied except for a small balance of $54,600; and that, since that position prevailed immediately before the 21 August 2008 agreement was made, that agreement could have been effective to change the state of the account between GX and CMAP (by, as it were, reinstating indebtedness of GX to the extent of $525,888.38 and thereby imposing upon GX detriment to the extent of $525,888.38) only if there was consideration for what was, in concept, GX's promise not to raise (as to $525,888.38) a defence of payment in any future debt action by CMAP.

35 It is true that there were no submissions on the question of consideration and that, in one sense, the point appears to be one that occurred to the judge independently of anything pleaded or submitted. I say "in one sense" since the question of consideration was, by necessary implication, an integral part of the wider issue whether the 21 August 2008 agreement was capable of altering the effect of the earlier appropriation and, as it were, reinstating debt of GX to the extent of $525,888.38. Mr McLure made submissions at trial that the agreement was not effective to achieve that purpose. The whole subject of the validity and enforceability of the contract was clearly exposed. An essential element of its enforceable and effective quality was that the operative promises were supported by consideration. In submissions on the matter of validity and enforceability at large, neither side had seen fit to introduce into the debate any question of want of consideration.

36 That this should have been so is not surprising. When closing submissions were made to the primary judge on 8 April 2011, GX and CMA had been engaged for a considerable time in the arbitration in Singapore to which reference has already been made. The arbitration was in respect of matters arising out of the transaction of sale and purchase in which the 21 August 2008 agreement played a part - principally, the quality of the material supplied and the consequences in terms of rejection and payment obligation. The following features of documents exchanged in the course of the arbitration are significant:

1.GX, in its statement of case dated 13 July 2010, alleged in paragraph 1 the existence of the 21 August 2008 agreement which it called "the Contract". It set out in paragraphs 2, 3, 4 and 5 various terms of "the Contract", including those concerned with ferrous content, and asserted a contractual right to reject the shipment and to a refund of "the US$174,111.62 paid to the Respondent at the time of the signing of the Contract".

2.CMAP, in its statement of defence dated 13 September 2010, admitted paragraphs 1 to 5 of GX's statement of case and went on to deny GX's right to refund, claiming that GX itself had breached "the Contract".

3.GX's statement of reply is dated 12 October 2010 denied breach of "the Contract" by GX.

4.CMAP's rejoinder is dated 23 December 2010. Its paragraph 2 commences:

"The total price payable by the Claimant [GX] under the Sales and Purchase Contract dated 21/8/2008 was 7546 metric tons x US$100 = US$754,600 . . .".

5.In a statement of amended defence and counterclaim dated 31 March 2011, CMAP said, at paragraph 18, referring to the document at 1 above:

"The Respondent [CMAP] admits paragraphs 1 to 3 of the Statement of Case."

37 It can thus be seen that, as at 8 April 2011 when closing submissions were made before the primary judge, both GX and CMAP accepted that the 21 August 2008 agreement was a binding contract. CMAP had expressly acknowledged this to GX in the course of the Singapore arbitration on 13 September 2010 and again on 31 March 2011 - only eight days before closing submissions in the Supreme Court.

38 Failure of the judge to invite submissions on the particular point concerning consideration canvassed at [47] to [55] of the judgment therefore did not constitute operative procedural unfairness. That point went wholly to the question whether the 21 August 2008 agreement was a valid and enforceable contract but, as the evidence concerning the Singapore arbitration shows, that was not a matter on which the parties were in dispute. If the matter of consideration had been raised, the immediate response would have been that there was no need for it to be addressed in argument because the parties had already accepted that a valid contract had come into existence on 21 August 2008. The lack of opportunity to argue the matter could not, therefore, have altered the result. It is for that reason that I say, having regard in particular to Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141, that there was no operative procedural unfairness, with emphasis on the word "operative".

39 The evidence of the parties' acceptance of the validity of the contract also means that an attempt by the appellants to rely, on appeal, on the substantive ground of its non-existence must also fail.

40 I propose the following orders:

1.Appeal dismissed.

2.Order that the appellants pay the respondent's costs of the appeal.

41 TOBIAS AJA: I agree with the orders proposed by Barrett JA for the reasons he has expressed.

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Decision last updated: 16 May 2012