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Danbol Pty Ltd v Swiss Re International SE & Ors [2020] VSCA 274
Case summary
Key information about the case;
Swiss Re (the insurer) insured Danbol Pty Ltd against the risk of damage to a property in West
Footscray. The insurer's representative offered a 14-day extension of the policy for a specified
premium. A fire began on the property before the renewal or extension of policy was accepted.
Statement of relevant facts
As the 2017 Policy was set to expire on August 24, 2018, there were discussions about its
renewal in various email exchanges between the applicant's insurance broker and Pen on and
after this date.
The applicant's broker provided special conditions and requested information over several
emails; during this time, Pen offered a 14-day extension to assist with placement in exchange for
a premium of around $3,000.
On August 27, 2018, the insurer received all of the requested information.
Pen emailed the applicant's broker on August 29, 2018 at 12:33 p.m., attaching the 'Industrial
Special Risk – Renewal Quotation' ('Renewal Quotation').
A fire broke out at the Property on August 30, 2018, around 5:00 a.m.
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Explanation of the procedural history
Judge in Trial Division determined, as a preliminary question, whether there was a 14 day
extension of the insurance policy. His honour decided that question harmful to the applicant.
Subsequently the judge held that there was no insurance policy in force at the time of the fire. On
the basis of the answer to the preliminary question, the proceeding was dismissed.
The applicant seeks leave to appeal.
Legal questions in dispute
‘existence of a contract by implied acceptance’ –
According to the applicant, its communications with the respondents amounted to an implied
acceptance of the offer of a 14-day extension, and thus the 14-day extension policy was in effect
at the time of the fire.1
Whether contract inferred from circumstances –
According to the applicant, The learned primary judge erred in concluding that a contract could
not be inferred from the circumstances of the parties’ relationship and dealings 2. which the
applicant supported by emphasising that the wrong test was utilised.
1
Felthouse v Bindley (1862) 11 CB (NS);869; 142 ER 1037;
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Ibid.
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Legal arguments
The applicant believed that the email sent on August 24th either waived acceptance or was
accepted by the respondents. The respondents reject this claim because the applicant fails to
address the critical question of whether it accepted the respondents' offer of a 14-day extension
in exchange for the specified premium. To support their claim, the applicant relied on McHugh
JA's observation in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd, who stated
that "the silence of an offeree in conjunction with the other circumstances of the case may
indicate [acceptance of] the offer."3 As a result, they misinterpreted the circumstances of
continuous correspondence as an indication of acceptance of the offer. Which is rebutted by the
respondents as it submits, no offer was made on those terms and no contract was formed on that
basis. As mutual assent is fundamental within a contract, the uncertainty prevalent within this
case would leave the court with no choice but dismissal.
The applicants' second claim cited that "the learned primary judge erred in concluding that a
contract could not be inferred from the circumstances of the parties’ relationship and dealings’.
The applicant cites this Court's decision in P'Auer AG v Polybuild Technologies International
Pty Ltd as precedent for the presumption that a contract can be inferred when mutual assent is
manifested in the circumstances, even if an offer and acceptance or the precise point of
formation cannot be identified clearly. In contrast, the email dated August 24 contained an
express offer of a 14-day extension for a specified premium, according to the respondents. It
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Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd Court of Appeal (NSW) (1988) 14 NSWLR
527
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was not addressed, either explicitly or implicitly, by communicating with the respondents. That
was not what the respondents intended. The respondents declined to renew the 2017 policy, and
further engagement with them was conducted to persuade them to reconsider their decline.
‘This process may or may not result in a subsequent offer to renew later, but the continued
engagement was not a consideration in the 14-day extension.’4 As a result, it contradicts the
manifestation of mutual assent set forth by the applicant's precept.
The court explained that there was no implied acceptance as the applicant proposed, ‘that
analysis is simply insufficient to describe the circumstances in which an insurer provides
coverage in exchange for the payment of a premium.’5In such cases, there is a mutual
promise: the promise to provide coverage in exchange for the promise to pay the premium.
The court supported this statement with the case of Australian Woollen Mills, which states
"every contract requires an agreement between two parties," and "the term [unilateral
contract] is open to criticism on the grounds that it is unscientific and misleading."6 It
describes the situation in which the offeree fully executes the contract by performing the act.
Which in this case, was not carried out by the offeree in regards to the premium, leaving no
execution of the contract and no subsequent formation.
The reasoning put forth also relates to the other claim which inferred from the circumstances
of the parties, a mutual assent, meeting of minds was not present so therefore no contract
was initiated.
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Danbol Pty Ltd v Swiss Re International SE & Ors [2020] VSCA 274
Ibid.
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Australian Woollen Mills Pty Ltd v The Commonwealth High Court of Australia (1954) 92 CLR 424
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g) Statement of the ratio decidendi [100 words];
the judge held that the applicant had not accepted the respondents’ offer. His Honour said that
none of the emails, which embodied the only communications between the parties, ‘purports, on
any reading, to accept the offer of a 14 day extension for a premium of $3,506.06.
This is consistent with the principles founded in woolcorp Pty Ltd v Rodger Constructions Pty
Ltd which says
‘In the absence of an offeree’s express consent, acceptance of an offer may be inferred if
an objective bystander would conclude from the offeree’s conduct, including its silence,
that the offeree has accepted the offer and has signalled that acceptance to the offeror.’
The high court found that ‘In our view the judge was correct in his conclusion that no concluded
contract was formed. We would grant leave to appeal but dismiss the appeal.’
The case was dismissed.
Concept of ‘Reasonable person’
The concept of a reasonable person is an objective test the courts employ in order to determine
whether a contract has been formed. The "reasonable person" is a hypothetical individual who
approaches any situation with appropriate caution and always acts rationally when taking
action. The ‘reasonable person’ also and who serves as a comparative standard for determining
liability.
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The courts apply the concept of the ‘reasonable person’ to determine whether contracts have
been formed by objectively considering, based on the circumstances, whether parties have by
their words and/or conduct acted in such a way to omit a contractual agreement. Many cases
have since been decided using the concept of a "reasonable person," such as Laurel Race Course
Inc v Regal Construction Co Inc 333 A 2d 319 (1975), in which a judge stated that "where the
offeree with reasonable opportunity to reject offered services takes the benefit of them under
circumstances that would indicate to a reasonable person that they were offered with the
expectation of compensation, assents to the terms proposed and thus accepts the offer."
The reasonable person influenced the courts decision in the case of Danbol Pty Ltd v Swiss Re
International SE & Ors by putting forth a few ambiguities that could arise in relation to the
applicants intentions. Some examples being: ‘It is possible that the applicant turned its mind to
the question of interim cover and simply thought that it would wait until it secured annual cover
and ‘The provision of information in order to obtain annual cover was consistent with its desire
for annual cover, and was not inconsistent with accepting the 14 day extension.’ the court also
said
‘Where the offeree’s conduct would leave a reasonable person in the positon of the
offeror unclear or uncertain as to its meaning then the court will be left unpersuaded as
to the existence of the contract.’
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West's Encyclopedia of American Law, edition 2 (2008)
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With that in mind, that of the respondents opinion on the express offer in regards to it requiring
acceptance leaves the applicants claim invalid.
The courts position may not even have changed if a subjective test was employed, due to the
implications surrounding the specidied premium. Which poses the question, if the applicant
believed itself to be in a contractual agreement, why was there no action undertaken to pay the
specified premium.
Theory of Contract
The classical theory of contract is apparent in the courts decision and reasoning in this case.
This is as a result of the stressed importance that all elements of contract should be present in
orer for them to determine a binding agreement. The theory suggests that if consideration can
be recognized by courts then it is considered to be a legally binding contract. This is supported
by the fact that the courts tediously examined the 24th and 29th August emails in order to gain
insight to whether mutual assent and/or a ‘meeting of minds’ was reached.
This is a strong argument in the sense that it is very black and white and the adoption of the
reasonable person positively supported that as its objective nature guided the court to some
understanding of what both the parties intended from their communication.
There are many other approaches the court could have adopted to examine the enforcement of
a promise. Relational and economic analysis theory being the most relevant in this case. Its
also very probable that a different result may have been concluded as different theories rely on
various components present in agreements. Nonetheless, the classical theory of contract is a
more desirable approach as it has been employed for centuries and has less criticism in the
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fact that it produces a just outcome. In the case of Danbol Pty Ltd v Swiss Re International SE
& Ors the court has acted justly as they relied on the clear facts and decided accordingly upon
their examination.
Bibliography
Cases
Australian Woollen Mills Pty Ltd v The Commonwealth High Court of Australia (1954) 92 CLR 424
Felthouse v Bindley (1862) 11 CB (NS);869; 142 ER 1037;
Journals/books/articles
West's Encyclopedia of American Law, edition 2 (2008)