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[2022] QSC 158
The issue for determination in this case was whether a general security agreement to the transfer of mining tenements in Cloncurry, Queensland was supported by good consideration. Brown J set out the key principles regarding the circumstances when an existing contractual duty can be good consideration for a contract. Ultimately, her Honour found that, on the facts of the case, no good consideration had passed to the first applicant.
Brown J
2 August 2022
The second applicant entered into an agreement (“Sale Agreement”) with the second respondent, Spinifex Mines Pty Ltd (”Spinifex”), to purchase mining tenements and assets known as the Gilded Rose mining project. [10]. The purchase price under the Sale Agreement was by instalments, with part of the payment falling due on Completion, and $1.5 million to be paid as post-completion Milestone Payments. [10]. While the second applicant paid the amount due on Completion, Spinifex lodged a caveat over the tenements to secure the obligation to make the Milestone Payments. [22]. On 20 July 2020, Spinifex informed the second applicant that it would release the caveats once a new security agreement was entered into. [23].
The second applicant sought to transfer the tenements to the first applicant, Jin Resources (Aus) Pty Ltd (“Jin”) (its subsidiary). [28]. Consequently, Jin entered into a general security agreement (“GSA”) with Spinifex in August 2020. [1]. The GSA purported to give Spinifex a security interest over all of Jin’s assets, which would include the tenements. [34]. Significantly, though, there was no provision in the GSA which obliged Spinifex to remove its caveat over the tenements. [32]. Subsequently, a deed of assignment was entered into, which purported to transfer the obligation to make Milestone Payments to Jin. [35]. Spinifex ultimately removed its caveat in February 2021. [39]. Notwithstanding this, the Milestone Payments were not paid, and Spinifex appointed the first respondent as receiver and manager of Jin on 23 July 2021. [40].
Jin commenced proceedings, seeking a declaration that the GSA was not legally effective to bind it as the GSA was not given for consideration, and consequential orders declaring the appointment of the first respondent as receiver and manager invalid. [1]–[2].
Justice Brown commenced consideration of this issue by noting that, unlike with a deed, consideration must pass from a promise to a promisor to establish a binding contractual agreement. [67]. Here, Spinifex made no express contractual promise in the GSA. [68]. Although a promise merely to carry out an existing contractual duty is generally not good consideration, this principle is qualified where the consideration is given as a bona fide compromise to a disputed claim, where the promise obtains a practical benefit which did not otherwise arise under the agreement, or where the original promise is made again but to a third party. [70]–[73].
Justice Brown identified this third exception – where the original promise is made again to a third party – as being the key point of contention between the parties. [75]. Of particular importance was the Western Australian Full Court’s judgment in Ailakis v Olivero (No 2) (2014) 100 ACSR 524, where Martin CJ stated at [106] that “it is clear that a promise to perform an existing contractual duty made to a third party provides good consideration to the party to whom the promise is given, who would otherwise have no means of enforcing the performance of the contract.” [76]. Contrary to Jin’s submission, her Honour accepted that Ailakis v Olivero does not hold as a matter of principle that a third-party promise must have had no other practical way of enforcing the promise without entry into the contract, for that promise to do something in favour of a third party to be good consideration. [78]. However, her Honour also found that Martin CJ’s statement was not limited to promises to perform a public duty, and that consideration may be found where the promise obtains the benefit of a direct obligation which they can enforce. [77]–[79].
Further, her Honour noted that the Privy Council in Pao On [1980] AC 614 accepted that a promise to perform a pre-existing contractual obligation to a third party could be valid consideration. [86]. Her Honour further relied on commentary in Pao On for the proposition that, while the existence or recital of a prior promise is not enough to convert past consideration into sufficient consideration, a prior promise could be good consideration if the performance of the prior agreement has not yet occurred, and both parties understood the prior promise was to be remunerated by payment or conferment of some other benefit. [84]–[85].
Applied here, the GSA provided for Jin to provide security to Spinifex but did not provide for Spinifex to do anything. [89]. Spinifex first submitted that it had provided consideration for entry into the GSA by way of two agreements: to transfer the mining tenements to Jin, and to remove the caveat over the tenements as consideration. [90].
Justice Brown was not satisfied that the evidence established that either of the purported agreements were actual agreements between the parties. [92]. Turning then to the extrinsic evidence, Spinifex submitted that the recitals of the GSA and associated correspondence showed that it was willing to permit the transfer of the tenements to the Jin, subject to the terms of the GSA, and that Jin was content for that to occur. [93]. However, her Honour found that beneficial title to the tenements had already passed upon completion, such that the recitals to the GSA did not record an additional promise by Spinifex to Jin. [95]. Her Honour also found that the weight of evidence did not support there being an agreement to remove the caveat over the tenements as consideration. [97]. Ultimately, Brown J was not satisfied that there was an “agreement” as asserted by Spinifex. [100].
Justice Brown next turned to the submission that consideration could be established through Spinifex’s conduct in releasing the caveats. [101].
Her Honour found that the authorities “recognise that either a promise of performance of an existing contractual duty or performance itself for a third party are sufficient consideration”. [104]. However, her Honour did not consider the present case fell within the applicable principles for three reasons: [107]
1.the time delay between the removal of the caveat and entry into the GSA suggests that performance of the obligation to remove the caveat was not connected with the GSA; [108]
2.the evidence was equivocal as to whether entry into the GSA was entered into on the basis of an implied assumption or promise that the caveat would be removed; and [109]
3.although the Milestone Payments had not been made, Spinifex breached its obligations under the Sale Agreement by lodging the caveat over the tenements. [113]. Although “a threatened breach to procure a promise which is not tantamount to duress does not exclude a promise given to a third party to avoid such a breach being consideration”, as Spinifex’s actions occurred after it delivered the tenements, and because the lifting of the caveats was not the subject of a promise that still had to be performed, Brown J did not consider that act good consideration. [115]–[121].
Accordingly, Brown J found that the “three-party rule” did not operate as an exception to the rule that past consideration is not good consideration. [121]. As such, no consideration for the provision of the GSA by Jin was given by Spinifex, and her Honour declared that it was not legally effective to bind Jin. [125]–[126].
M Paterson