CONTRACTS — formation — intention to create legal relations — informality of arrangement
CONTRACTS — collateral contracts — whether inconsistent with main agreement
Quick Take
1An informal personal arrangement between directors for the repayment of a corporate debt, made in the context of executing a formal deed of subordination required by a third-party financier, may objectively lack the intention to create legal relations, particularly where the arrangement's uncommercial and flexible character contrasts with the parties' prior practice of formally documenting their dealings.
2A collateral contract whose sole effect is to evade the purpose of the main agreement — here, a personal promise to repay a debt that the main deed specifically postponed — is unenforceable for inconsistency with the main contract under the principle in Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133.
3A default interest rate provision structured as a standard rate plus an additional percentage during default is not a penalty merely by reason of its form; the inquiry under Paciocco v ANZ Banking Group (2016) 258 CLR 525 is one of proportionality, and the burden of establishing disproportionality lies on the party asserting the provision is punitive.
