Return to site

Collateral contracts must be consistent with primary contract.

B & R Stevens Transport Pty Ltd v Burkitt [2016] NSWCA 259

The NSW Court of Appeal has reaffirmed the rule in Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133 that a collateral contract will be ineffective if it is inconsistent with the primary contract: B & R Stevens Transport Pty Ltd v Burkitt [2016] FICR 27.

A haulage company purchased a prime mover from a vendor under a largely oral contract and then performed haulage services for the vendor for a number of years. The vendor deducted sums totalling almost $50,000 from each payment for the services and, after some years, the purchaser commenced proceedings to recover the amounts deducted. The vendor alleged that the deductions were in repayment of a loan it advanced to the purchaser to enable it to purchase the prime mover under a side deal done at the time of the sale. The side deal was not mentioned in settlement documents.

The trial judge found the side deal existed and dismissed the purchaser’s claim, from which the purchaser appealed arguing that effect could not be given to the side deal because it was inconsistent with the contract of sale to which it was collateral, in accordance with the rule in Hoyt’s Pty Ltd v Spencer.

The purchaser also alleged goodwill was included in the transaction, relying on the inclusion of an amount for goodwill in a loan application it made to a bank. The judge dismissed this allegation also, from which the purchaser appealed.

Leeming JA giving the judgment of the court said that the rule in Hoyt's Pty Ltd v Spencer was that a collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. If it is established that the writing was intended to contain only part of a fuller agreement it may be otherwise.

The rule applies to terms in collateral contracts, being contracts where the consideration is entering into the principal contract.

The rule did not apply here because the primary judge did not make a factual finding that there was a collateral agreement. The additional terms said by the vendor to form part of the collateral agreement were in fact just terms of the agreement. The document relied upon by the purchaser was not the entirety of the agreement and may not even have been contractual.

Read the full head note here.