Birdsey v Vincent
[2017] VSC 27
•28 February 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2015 06282
| JENNIFER ANNE BIRDSEY | Plaintiff |
| v | |
| SUSAN LEE VINCENT AND GREGORY NEIL WILLIAM GUNN (who are sued both personally and in their capacity as executors of the Estate of Norma Joan Barrett, deceased) | Defendants |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 October 2016 |
DATE OF JUDGMENT: | 28 February 2017 |
CASE MAY BE CITED AS: | Birdsey v Vincent and anor |
MEDIUM NEUTRAL CITATION: | [2017] VSC 27 |
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CONTRACT – Alleged agreement between siblings for the purchase of shares of the plaintiff in family investment vehicle – Authority to enter contract - Whether accountant had actual or ostensible authority to make an offer on behalf of the majority shareholders of the company – Whether representations made as to the authority of the accountant - Freeman & Lockyer v Buckhurst Part Properties (Mangal) Ltd [1964] 2 QB 480 referred to.
CONTRACT - Existence of contract - Whether ‘proposal’ made by the company’s accountant constituted a binding offer capable of acceptance – Existence of a contract inferred from conduct of the parties
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S P Newton | Harry M Hearn |
| For the Defendant | Mr C R Northrop | Harwood Andrews |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Correspondence between the parties............................................................................................. 2
The proceeding................................................................................................................................. 18
Other evidence.................................................................................................................................. 20
Submissions...................................................................................................................................... 28
Relevant legal principles................................................................................................................ 35
Mr Noonan’s actual or ostensible authority................................................................................ 40
HER HONOUR:
Introduction
The plaintiff, Mrs Jennifer Birdsey, and the defendants, Ms Susan Vincent and Mr Greg Gunn (‘executors’), are siblings, born between 1954 and 1958. They are all equal beneficiaries of the estate of their late mother, Mrs Norma Barrett (‘deceased’), who died in 2014. They are also all directors and shareholders in Noriel Pty Ltd (‘Noriel’). Noriel is an investment vehicle rather than the operator of a business. Both the deceased’s estate (‘estate’) and Noriel have considerable assets (totalling over $4 million).
Following the death of the deceased, the parties corresponded about the winding up of the estate and the future of Noriel, largely through solicitors engaged by the plaintiff and the executors. Also involved in the discussions was Mr Tim Noonan, an accountant employed by West Carr & Harvey (‘WCH’), the accountant for Noriel since 1962. Mr Noonan has had primary carriage of WCH’s relationship with Noriel since January 2006. He is the company secretary of Noriel, and he was the deceased’s accountant prior to her death. He was also retained by the executors as the accountant for the estate.
It appears from the correspondence between the parties that by late 2014, Mrs Birdsey sought to separate her financial interests from her siblings. In particular, she wanted to realise her interest in Noriel. At first she wanted Noriel to be wound up, but later her solicitor, Mr Harry Hearn, indicated that she would agree to her shares being purchased, either by the executors, or by Noriel itself. One proposal under consideration was that she receive an additional cash distribution from her mother’s estate commensurate with the value of her shares in Noriel.
During the course of February 2015 to June 2015 (and afterwards), Mr Hearn corresponded with the solicitors for the estate, Whyte, Just & Moore (‘WJM’) and Mr Noonan concerning both the administration of the estate and Mrs Birdsey’s proposed divestment of shares in Noriel. In March 2015, Mr Noonan prepared a valuation of Noriel, which was reviewed and confirmed by PKF Melbourne Pty Ltd (‘PKF’), a firm of accountants engaged by Mr Hearn on Mrs Birdsey’s behalf. The issue in dispute in this proceeding was whether, during the course of this correspondence, an agreement was reached between Mrs Birdsey on the one hand, and the executors on the other hand, that Mrs Birdsey’s shares would be purchased for an amount which was calculated by Mr Noonan and verified by PKF (‘17 March valuation’).
Correspondence between the parties[1]
On 13 January 2015, Mr Noonan wrote to Mrs Birdsey, as follows:
Dear Jennifer
Estate of Norma Barrett
As you are aware I act as accountant for the Estate of Norma Barrett (‘the estate’) and also for Noriel Pty Ltd (‘Noriel’). Probate has now been granted for the estate and the executors have asked that I write to you to provide you with further information to assist them in distributing the assets of the estate.
Below is a summary of the assets of the estate:
Asset Approximate Market Value Cash $1,113,062 Property $460,000 Shares $1,210,919 Managed Investments $82,100 Share in Noriel (1 ‘A Class’ & 1 ‘B Class’ share) $27,316 Total $2,893,397 In relation to Noriel I note:
·the value of the shares above represents the interest held in the company by the estate. It does not represent the full value of the company as the company has other shareholders (Greg Gunn – 50 ‘B Class’, Susan Vincent – 50 ‘C Class’ and yourself – 50 ‘D Class’);
·the A and B Class shares above have been valued net of the unrealised tax liability attached to the listed shares and other investments held in the company;
·the value of your 50 D Class shares is approximately $788,399 (prior to any tax upon disposal);
·each class of shares in Noriel have equal rights to capital, income and voting.
No allowance for tax has been made on the other investments held by the estate as they are either pre CGT or it is proposed that the assets be distributed equally to the beneficiaries and therefore tax is not required to be considered to achieve equalisation.
You have previously indicated that you may not wish to continue as a shareholder in Noriel and hence your input is requested regarding the disposal the (sic) 50 D Class shares you currently own.
I note that we are yet to receive a response to our letter of 10 September 2014[2] where we outlined potential alternatives to overcome this including:
1.Winding up Noriel and distributing the assets equally to Greg, Susan and yourself; and
2.You forgoing your share of Noriel but as compensation for this you would receive a greater share of your mother’s personal assets to achieve equality between Greg, Susan and yourself.
There are significant taxation considerations with both alternatives above as there are significant unrealised tax liabilities attached to the shareholdings held in both your mother’s name and also Noriel.
Option 1 – Wind up Noriel
For the purpose of the calculations below I have assumed that the shares owned by your mother in Noriel will be transferred to the three estate beneficiaries in equal shares.
If Noriel was to be wound-up and the assets could be distributed by either:
1. Selling the listed shares and other investments held in the company; or
2.Transferring the listed shares and other investments held in the company to the estate beneficiaries.
Under either scenario above a tax liability would be triggered in Noriel of approximately $290,000.
If Noriel is to be wound up it is likely that a members’ voluntary liquidation would be undertaken as this enables pre‑CGT gains to be distributed tax free to the shareholders. However the retained profits of the company (which includes gains from sale of the post-CGT shares) would need to be paid to the shareholders as a dividend. In summary it could be anticipated that each shareholder would receive payments as follows:
Dividend $554,360 Shareholder loan repayment $84,901 Liquidator’s distribution $137,653 Total $776,914 It is expected that dividend would be fully franked. Assuming a marginal tax rate of 49%, tax would be payable by each shareholder on the dividend of $150,469.
Therefore the net proceeds per shareholder from the winding up of Noriel would be $626,445.
The total tax payable by Noriel and the three shareholders resulting from the winding up would be in excess of $740,000. The tax liability may be able to (sic) reduced however by spreading the above transactions over more than one financial year.
Option 2 – Forego share in Noriel
An alternative to Noriel being wound up is to allow the company to continue with Greg and Susan as the shareholders and Directors and for you to receive a greater share of the assets held in your mother’s name. Whilst Greg and Susan have not committed to this option it is being considered subject to your further instructions. If this were to occur it would necessitate you:
1.Transferring the D Class shares you currently hold in the company to Greg and Susan;
2.Foregoing your right to inheriting one-third of the shares held by the estate of your mother; and
3.Resigning as a director of the company.
There would be tax consequences to you upon transferring your 50 D Class shares in the company as this would trigger a capital gain. It is estimated that the value of your share of the company is currently approximately $788,399. Assuming a marginal tax rate of 49% (your effective marginal rate may be lower than this), tax would be payable by you of approximately $193,146 if you were to transfer your shares to Greg and Susan. Therefore the net proceeds you would receive would be $595,253.
If you wish to sell your shares in Noriel to Greg and Susan then the asset division of your mother’s estate could be along the lines of the following:
Total Greg Susan Jennifer Cash $1,113,062.00 $366,468.00 $366,468.00 $380,126.00 Property $460,000.00 $153,333.33 $153,333.33 $153,333.33 Shares $1,210,919.00 $403,639.67 $403,639.67 $403,639.67 Managed Investments $82,100.00 $27,366.67 $27,366.67 $27,366.67 Noriel $27,316.0 $13,658.00 $13,658.00 $ - $2,893,397.00 $964,465.67 $964,465.67 $964,465.67 In addition to the above Greg and Susan would each make a payment to you of $394,199.50 to acquire your 50 D Class shares in Noriel from you (i.e. a total of $788,399). As noted above you would be liable for tax on this transaction.
In summary, your potential payment under each option shown above is as follows:
Potential Payment to Jenny Option Before Tax After Tax (Estimated) 1 – Wind up Noriel $776,914 $626,445 2 – Forego share in Noriel $788,399 $595,253 Could you please provide some instructions as to your wishes by 23 January 2014?[3]
If you have any queries regarding the above please do not hesitate to contact me.
On 24 February 2015, Mrs Birdsey’s solicitor, Mr Hearn, wrote to the solicitors for the estate, as follows:
Dear Sir,
ESTATE NORMA JOAN BARRETT
I refer to my letter of 12th February last advising that I am now acting for Mrs Jennifer Birdsey in relation to her mother’s Estate.
My client has instructed me that she wishes the administration of the Estate to move forward as promptly and smoothly as possible and does not wish to dwell unnecessarily on past problems.
Accordingly she has given me specific instructions to advise as follows:-
1.With respect to your letter to Birdsey Dedman and Bartlett dated 3rd February last she wishes her one-third entitlement in all the equity shares set out in the Inventory to her mother’s probate application to be transferred into her personal name. Please note that in this respect she is invoking the provision of Clause 5(c) of the deceased’s Will to direct the executors to make this payment to her and not to the fund established in her name pursuant to Clause 4(i)(a).
Accordingly would you please request the executors to proceed with such transfers to confirm all necessary details to me once this has been done.
2.With respect to her interest in Noriel Pty Ltd she has given careful consideration to the contents of the letter from West Carr and Harvey (the Estate accountants) dated 13th January 2015 addressed to her, but which was no doubt also sent to her brother and sister. She has given instructions that she wishes the company to be wound up. This will entail the prior sale of all the assets held by the company and after payment of all associated expenses involved in the sale and liquidation of the company and all taxes, payment to her in due course of her one‑third net interest.
Accordingly she asks that her brother and sister as co‑directors and shareholders should make the necessary arrangements to effectuate this proposal and for your office to advise my office of all necessary steps and the timetable involved in relation to this.
3.(a) Please advise what steps have been taken by the executors in relation to the sale of the deceased’s property at 2‑4 Porter Avenue, Highton.
(b)Please advise relevant details of the lease of this property and when it expires. Is the rent being paid into your Trust Account?
4.Please let me know if the deceased’s tax return to her date of death has been lodged and – if so – let me have a copy of same. Presumably it will be necessary to also file a tax return down to the date of final administration and – if so – please let me have a copy of same in due course.
5.Could you please clarify the position in relation to the bond paid by the deceased when she entered ‘The Grange’ at Hamilton. My client understands that this was approximately $320,000. However the only reference in the probate Inventory is first to a small balance held in her trust account ($125) and secondly a liability of $6,309.82. On its face I do not understand this as there ought to have been a substantial repayment in respect of the bond following her death.
6.Mrs Birdsey has requested that there be returned to her the large ‘old‑fashioned’ ledger book which was kept by her mother for many years. She understands that some months before her mother’s death this was held by her brother Gregory Gunn but subsequently was given by him either to your firm or to the accountants. Would you please make inquiries about this and see if it can be returned to my office for Mrs Birdsey.
7.I note that on 8th November 2014 cheques for $10,000 each were distributed to the three children from Noriel Pty Ltd. It is stated that this related to a debt owed by the company to the deceased. Looking at the company accounts I am unclear about this as there is no specific itemisation in the balance sheet. Could you please clarify this.
8.Mrs Birdsey has received the distribution cheque of $100,000 sent to her former solicitors under cover of your letter of 3rd February last. Would you please note that all future remittances or distributions to her should be paid direct into her following account, with written note of same to my office:-
Westpac
Account Name: Jennifer Birdsey
BSB:033 275
Account number: 264057
9.Could you please let me have a print out of your Trust ledger card for this Estate.
My client has given express instructions that she wishes all correspondence in relation to her mother’s Estate to be sent by your office to my office and does not wish the executors to communicate with her in any way.
I look forward to receiving your early reply.
On 4 March 2015, WJM replied as follows:
Dear Mr Hearn,
Estate Norma J. Barrett
We refer to your letter of 24 February and to your telephone conversation of 4 March with our Peter Spear and confirm that our responses to the numbered paragraphs of your letter are as follows:-
1.Tim Noonan of West Carr & Harvey will arrange for this to be done.
2.As your client’s siblings wish to continue the conduct of Noriel Pty Ltd, we shall instruct Tim Noonan to prepare a draft Valuation of Jennifer’s entitlement as at 17 March, (or such other near date as is practicable from his point of view), and submit it to both you and to us for approval.
3.(a)The property at 2-4 Porter Avenue, Highton has been sold for $460,000.00 and settlement will be due on 3 June.
(b)Since Mrs Barrett’s death the rental has continued to be paid to a Westpac account. We shall arrange for that account to be closed in due course and provide you with particulars of the rental collected.
4.Tim Noonan will attend to the preparation of both the Date of Death Return and the Estate Return for the year ending 30 June next when the requisite software is available.
5.The Executors have instructed us that no bond was paid when Mrs Barrett entered ‘The Grange’ and, as you have noted, that is the position reflected in the Inventory. We shall check with ‘The Grange’ to ensure there has been no misunderstanding in this regard.
6.Tim Noonan tells us he knows of a green cash book. We understand from our conversation of today that your client wishes to have it for sentimental purposes when the Accountants have no further use for it. We shall seek the Executors’ instructions in that regard.
7.We have asked Tim Noonan to write to both you and us clarifying this issue.
8.We confirm that future remittances to your client will be paid direct to her Westpac account with written notice of such payment to your office.
9.We shall attach a print out of our trust account ledger to the mailed copy of this letter.
The contents of this letter were consistent with a file note of Mr Hearn’s of the same date recording a conversation between him and Mr Spear of WJM.[4] It appears that a copy of this letter was also sent to Mr Noonan, as on 18 March 2015, Mr Noonan sent the following email to both Mr Hearn and Mr Spear:
Dear Mr Hearn and Mr Spear
I refer to Mr Spear’s letter of 4 March 2015. As requested I have prepared a valuation of Noriel Pty Ltd as at 17 March 2015. The attached document contains:
1.A Balance Sheet as at 17 March 2015 showing the company’s assets and liabilities both at cost and at market value;
2.A Profit and Loss Statement for the period 1 July 2014 to 17 March 2015; and
3.A schedule of shares held by the company.
By way of explanation, the ‘market value’ column of the Balance Sheet shows the shares at market value (as detailed in the schedule) and provides for income tax upon the unrealised gains on the shareholdings. The market value of the company as at 17 March 2015 is $2,327,823. The value of a one‑third interest is therefore $775,941.
The ‘Loans from Shareholders’ balance of $223,095 includes a balance owing the Estate of Norma Barrett of $221,094. I note that the term deposit of $150,000 falls due on 30 March 2015. It is currently intended that these funds be used to partly repay the balance owing to the Estate. To enable repayment of the balance of the loan it is likely that some shares will need to be sold as the cash in the CBA cheque account is required to pay the 2014 tax liability of $80,837.52 which is due on 15 May 2015.
If Mrs Birdsey is to transfer her interest in Noriel Pty Ltd to Greg Gunn and Susan Vincent this could take place by transferring her shares in Noriel Pty Ltd at a value of $775,941. This value allows for the unrealised tax liabilities on the listed shares that the remaining shareholders will ‘inherit’ by continuing the company. It does not however allow for any potential tax liabilities that the remaining shareholders would incur if the company was to be wound up in the future. Such liabilities are unable to be quantified as they depend on the timing and individual tax position of the shareholders. I note however that if Mrs Birdsey was to transfer her shares then this potential deferred tax liability would no longer be a consideration for her.
If you have any queries please do not hesitate to contact me.
Shortly prior to the provision of the 17 March valuation to Mr Hearn on 18 March 2015, on 11 March 2015, WJM wrote to Mr Hearn, as follows:
Dear Mr Hearn,
Estate Norma J. Barrett
Further to our letter of 4 March 2015, we advise:
·The Executors think it appropriate that you liaise direct with Tim Noonan regarding your client’s withdrawal from Noriel Pty Ltd;
·We have confirmed with ‘The Grange’ that Mrs Barrett did not pay a Bond on being admitted on 4 July 2013. Instead, and as a high care resident, Mrs Barrett paid a daily accommodation fee, (of $33.29 per day). As Mrs Barrett’s assets were over $112,243.20 she was considered a non‑supported resident and required to pay the maximum fee;
·That Mrs Barrett gave the ledger to Greg Gunn whilst she was in Hamilton and, as it is of sentimental value, it will not be returned.
We expect that you received Tim Noonan’s email of 11 March 2015 clarifying the issue regarding the distribution of $10,000.00 to each of Mrs Barrett’s children.
Shortly after the receipt of the 17 March valuation, which valued Mrs Birdsey’s shares at $775,941, on 25 March 2015, Mr Hearn instructed PKF, a firm of accountants, to review and confirm Mr Noonan’s valuation. On 16 April 2015, PKF wrote to Mr Hearn confirming that WCH’s valuation was correct, and on or about 7 May 2015, Mr Hearn informed Mr Noonan that Mrs Birdsey agreed to transferring her shares in Noriel to the executors.[5]
On 8 May 2015, Mr Hearn wrote to Mr Noonan stating, among other things:
I refer to yesterday’s telephone conversation and confirm that you will speak further to Mr Spear about the mechanics of Mrs Birdsey selling out her one third interest in Noriel Pty Ltd, receiving her share of the shareholders’ loan account and her one third share in her mother’s estate.
On 11 May 2015, Mr Noonan wrote to Mr Hearn in the following terms:
Can you please advise whether your client is happy to accept the 17 March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate of (sic) is an updated valuation required.
On 10 June 2015, Mr Hearn wrote to Mr Noonan as follows:
I refer to your email of 11th May 2015. I now have instructions to confirm that my client Mrs Birdsey is happy to accept the 17th March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate. Would you please proceed accordingly.
Once monies are available to meet my client’s share in respect of the sale of her interest in the company, would you please forward the same to the trust account of Whyte, Just and Moore to be held to my client’s order and copy me with relevant details once you have done so. The sum will need also include my client’s share in her late mother’s loan account with the company.
However, in the meantime, there was correspondence between Mr Noonan and the executors that suggested that they had their wires crossed. On 11 May 2015, Mr Gunn told Mr Noonan that the executors did not propose to buy Mrs Birdsey’s shares. It is apparent from the correspondence between Mr Noonan and the executors that this was contrary to Mr Noonan’s understanding as to what mechanism would be used for paying out Mrs Birdsey’s interest in Noriel, which was that the amounts payable to Mrs Birdsey and the executors from the estate be adjusted to compensate Mrs Birdsey for the value of her shares in Noriel. He advised the executors that the only other option that he saw open to them was for Noriel to conduct a selective share buy‑back of Mrs Birdsey’s shares. It was his, not the executors’ suggestion that the valuation date be changed. On 15 June 2016, Mr Noonan wrote to Mr Hearn in the following terms:
My instructions from Mr Gunn and Ms Vincent do not wish to purchase Mrs Birsdey’s (sic) shares in Noriel from her. Therefore I have advised them that to enable Mrs Birdsey to cease as a shareholder in Noriel Pty Ltd a share buy-back of Mrs Bridey’s (sic) shares in the company should proceed. I am awaiting confirmation from them to proceed with this. The buy-back price will need to be calculated based upon market value at the time of the buy-back.
On 3 July 2015, Mr Noonan wrote again to Mr Hearn, stating as follows:
I refer to our recent correspondence regarding the share buy-back.
After discussions with Greg Gunn, Susan Vincent and Joanna Monahan (the solicitor for the company) it has been determined that the share buy-back should be based upon the value of the company as at 30 June 2015. Joanna Monahan has been instructed to commence preparation of the documentation.
If you have any queries please contact me.
It is apparent from the correspondence that Mrs Birdsey’s advisors, including Mr Hearn and Mr Sean Dillon of PKF, were concerned about any departure from the 17 March valuation. In response to Mr Noonan’s email above, on 3 July 2015 Mr Dillon wrote as follows:
I tried calling a little earlier but you were unavailable. I will be heading out shortly for the rest of the day so send you this email in relation to the questions we have on the developments in this matter.
I received a call from Mr Harry Hearn this morning and he had advised that there was some development with regard to the process of acquiring Ms Birdsey’s share in Noriel Pty Ltd. Mr Hearn relayed that the lawyer for the other family members has written to advise that the process will be a ‘share buyback’ on an agreed value at the 30 June 2015. I assume that this still refers to acquiring 100% of Ms Birdsey’s shareholding in one transaction, but seek your confirmation that this is the case.
We are also cognisant of the fact that the value of the shares acquired in the company are linked to the ASX and therefore we are concerned that whilst we had thought an agreed figure had been confirmed, that this value will be revisited under different economic conditions (particularly in light of those developments in the last few days).
I am seeking your clarification of the intentions of both the methodology and process for acquiring the shares from Ms Birdsey to assess the impact (if any) on the value we have previously advised her.
Please feel free to contact me should you have any questions or if easier to discuss this matter by phone than by email. I will be available on Monday all day should you wish to call.
Later that day, Mr Noonan replied as follows:
Yes the buyback will acquire 100% of Mrs Birdsey’s shares in one transaction.
The rationale behind using 30 June 2015 as the relevant date was:
1. It is more reflective of the date that the buy-back will take place.
2.Given the parties are not dealing at arm’s length (i.e. the shareholders and directors are the same) I am cognisant of the transaction being conducted at market value at the time of the transaction.
3.It equates with the financial year end thereby minimising the additional work required to determine the buy-back price.
Happy to discuss by phone on Monday if you wish.
On 9 July 2015, Mr Dillon replied as follows:
Thank you for the email below.
I have discussed this with Mr Hearn (Ms Birdsey’s lawyer) and we both agree that the reasons provided are not sufficient to warrant the recalculation of the valuation.
In particular our responses to our reasoning are:
1.The original offer put forward to Ms Birdsey was based on a valuation date of her sibling’s choosing. The fact that settlement of the transaction occurs sometime after the valuation point should not have any relevance and is often a generally accepted practice in transactions of this nature due to the potential need to liquidate some assets to meet the agreed consideration.
2.At present, we do not understand why the relationship and arm’s length ‘issue’ has any impact on the transaction when we are dealing with underlying assets that are listed on a public stock exchange. We argue that this clearly makes the acquisition of Ms Birdsey’s share in Noriel Pty Ltd an arms-length transaction. Further, there is no indication that the methodology of the valuation has been deemed inappropriate and an alternative methodology is required to arrive at a fair and equitable valuation. If the proposed valuation was re‑calculated, the assets would be valued using the same methodology.
3.We would argue that it is actually going to increase the additional work and cost, as both clients representatives will have to go through the process of valuation all over again. We would have thought that the cost of valuing has already been absorbed as both sides have already performed valuation reconciliations to arrive at the agreed amount.
Ultimately our client was provided with an offer on the value of her shares at a date of our clients choosing. Once we had confirmed the accuracy of that valuation, our client has accepted that valuation. We do not believe that our client is required to resubmit to a new valuation on the grounds raised.
Please feel free to contact me at your convenience if you would like to discuss or clarify any of the details in the email above or your previous email.
On 28 July 2015, Ms Debbie Lear of WJM wrote to Mr Hearn attaching a letter with respect to an interim distribution of the estate. The covering email stated as follows:
We are advised that matters relating to Noriel are still being considered. When we know further we will let you know.
On 3 August 2015, Mr Hearn wrote to Ms Lear in the following terms:
I have your email of 28th July last.
The agreed balance date for Noriel Pty Ltd was 17th March 2015 (see Mr Noonan’s email of 18th March 2015).
As you know, subsequently I arranged for Mr Draper of the firm of PKF Melbourne Limited, chartered accountants, to carry out an independent appraisal and Mr Dillon from his office has spoken to Mr Noonan several times subsequently. They have agreed that the valuation figure is correctly stated as $775,919.00.
In addition Mrs Birdsey is entitled to one-third of the items in the balance sheet shown under liabilities as ‘loans from shareholders’ of a total of $218,916.00. Her one-third share is $72,972.00.
These two amounts come to $848,891.00.
Your clients are effectively in control of Noriel Pty Ltd and it is not my client’s concern that you should write that ‘… matters relating to Noriel are still being considered’.
Please arrange for the above sum to be transferred into my Trust Account without further delay. I confirm once again details as follows …
On 11 August 2015, Mr Hearn telephoned Mr Noonan. The relevant extract from Mr Hearn’s file note follows:
Telephone call on Noonan, accountant for Noriel Proprietary Limited, as to when we could expect payment of her one-third share in the company as agreed in earlier correspondence such share to be valued as at March last.
He told me there seemed to be further dissention in the ranks as the sister Susan was now proving a bit difficult and had indicated that she might want to be paid out her one-third share as well.
He also thought Jenny’s brother and sister might also argue about March being the relevant date for the valuation as the value of the company itself had decreased since then. I told him that it had been agreed that that would be the date and this had been confirmed by me in writing and that must be the date that is fixed.
He said he was expecting to hear from Susan later today or tomorrow. I asked him to let me have a written report on the state of play and stressed again the urgency of having the matter resolved. I also indicated that we expected interest and/or share dividends since March to be included in any payout but he said that this might not necessarily be agreed by the brother and sister.
On 19 August 2015, Mr Noonan wrote to Mr Hearn as follows:
Further to our telephone conversation I confirm that I am awaiting instructions to proceed with the proposed share buy-back. Greg Gunn and Susan Vincent have both advised that they do not feel that it is reasonable to proceed on the basis of the 17 March 2015 valuation.
On an unknown date (the copy in evidence is partially obscured), but between 19 and 27 August 2015, Mr Hearn wrote to Mr Noonan as follows:
I acknowledge your email of (obscured).
There is a binding agreement in place with respect to the payment due to my client Mrs Birdsey of her one-third entitlement as a shareholder in Noriel Pty Ltd.
I hold on my file a letter from Whyte Just & Moore dated 4th March 2015 stating (inter alia) that ‘…we shall instruct Tim Noonan to prepare a draft valuation of Jennifer’s entitlement as at 17th March’. By letter dated 18th March I confirm that arrangement stating (inter alia) ‘..Please instruct Mr Noonan to prepare a draft valuation of my client’s entitlement.’
You subsequently sent an email on 18th March 2015 to me and Mr Spear stating that you had prepared the valuation and attaching the relevant documents. Subsequently – as you are aware – I arranged for independent accountants appointed by Mrs Birdsey to liaise with you as to the calculation in question and Mr Sean Dillon of PKF Melbourne, chartered accountants, was in touch with you about that and you agreed the final figure at $775,919. That sum together with Mrs Birdsey’s entitlement to one-third of her late mother’s loan account in the company viz $72,972 is now owing to my client being a total of $848,891. In addition, she needs to receive either interest or the proportion of dividends on the shares owned by the company and paid subsequently to Noriel Pty Ltd.
By your email of 11 May 2015 you stated –
‘Can you please advise whether your client is happy to accept the 17th March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate of (sic) is an updated valuation required?’
By email dated 20th June 2015 I replied to you as follows –
‘I refer to your email of 11 May 2015. I now have instructions to confirm that my client Mrs Birdsey is happy to accept the 17th March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate. Would you please proceed accordingly?’
Please make immediate arrangements for payment of the above sum to my client without further delay. I note that more than two months have elapsed since my confirmatory email. I am instructed to advise that my client expects payment to be made promptly without any further delay.
On 27 August 2015, Mr Geoff Reeve of WJM wrote to Mr Hearn stating, among other things: “We shall seek instructions in respect of your client’s share in Noriel.” On 15 September 2015, Mr Hearn replied, as follows:
I refer to your email of 27th August last.
Will you please let me know urgently the position in relation to payment out of my clients entitlement pursuant to the earlier agreement reached between our respective offices in this matter.
I mention that I have received from Mr Noonan a copy of the income tax return and financial statements for Noriel Pty Ltd for the year ended 30th June 2015. I am sending a copy of these to Mr Sean Dillon of PKF Melbourne who are the chartered accountants independently advising Mrs Birdsey in relation to this matter for any comment he might have. As mentioned specifically, the earlier agreed figures (both for payment of Mrs Birdsey’s 1/3 entitlement in the company itself as well as repayment of her 1/3 share of her mother’s loan account) are subject to adjustment for interest and or dividends since agreement was reached on 17th March 2015.
On 21 September 2015, Mr Reeve wrote to Mr Hearn telling him that any correspondence or enquiries regarding ‘Noriel matters’ should be directed to Mr Noonan.
On 21 September 2015, Monahan Legal, the solicitors engaged by the executors to facilitate and document the proposed share buy-back process, wrote to Mr Hearn, stating, among other things, that they acted on behalf of the (named) executors, and:
I have advised my clients that I do not consider that there is a binding agreement in place in relation to a payment due to your client Mrs Birdsey for her one third entitlement as a shareholder in Noriel Pty Ltd as contended by you in your email of 26 August 2015.
Based on my review of the correspondence, I consider that the only issue that agreement has been reached on between Tim Noonan as accountant for Noriel Pty Ltd and you is that the value to be adopted for the 2 shares in Noriel Pty Ltd held by the executors for the Estate is the 17th March 2015 valuation. I refer you to Tim Noonan’s email of 11 May 2015 and your email in response of 10 June 2015. Both emails refer specifically to the value of the shares for the purpose of the division of the Estate. It is not admitted that this consensus reached between representatives is binding on Noriel Pty Ltd. However, given that there are only 2 shares to which this valuation would apply, my clients as two directors of Noriel Pty Ltd are prepared to support this being the basis that the Estate shares are valued.
In support of the absence of any binding agreement in relation to the payment of your client’s one third entitlement in Noriel Pty Ltd I refer to your email to Tim Noonan dated 8 May 2015, specifically the third paragraph, in which you refer to a discussion to take place in relation to the ‘mechanics of Mrs Birdsey selling her one third interest.’ Based on these comments it is clear that there was no offer or acceptance that had been reached.
In an effort to resolve the issue regarding your client’s shareholding in Noriel Pty Ltd, my clients would be prepared to propose and vote in favour of the following events to effect a buy-back of the Estate shares and a liquidation of the assets of Noriel Pty Ltd and a distribution to the shareholders:
1. Noriel Pty Ltd buys back the 2 shares held by the Estate.
2.The buy-back price for the share held by the Estate would be the price determined in accordance with the 17 March valuation.
3.The directors of Noriel Pty Ltd approve a transfer of the shares held by each of Greg Gunn and Susie Vincent to 2 separate companies, with each of Greg Gunn and Susie Vincent being the sole shareholder of their respective company. I have commented further below on the inclusion of this step.
4.The assets of Noriel Pty Ltd are sold and after deduction of all expenses, taxes and liabilities the net assets are distributed to the shareholders and the company is wound up. Consideration will need to be given by the directors as to whether Noriel Pty Ltd is placed into a member’s voluntary liquidation or deregistered after all the assets are distributed. The timing of the distributions may also need to be considered in light of the tax payments by Noriel Pty Ltd and the consequent availability of imputation credits.
On 8 October 2015, Mr Hearn wrote to Monahan Legal rejecting their contention that there was no binding agreement. After canvassing the chronology of events and the correspondence between the parties, and in particular, the correspondence with Mr Noonan, Mr Hearn stated as follows:
It is clear from the correspondence between Mr Hearn, Mr Noonan and WJM and the telephone conversations between Mr Hearn, Mr Noonan and Mr Dillon of PKF that agreement was being sought in relation to the valuation of my client’s shareholding in the company. Mr Noonan’s valuation of my client’s shareholding in the company of $775,941 was formally accepted by my client on 10 June 2015. Your clients were not at liberty thereafter to withdraw from that agreement and suggest a different proposal, following months of negotiations resulting in delays and substantial legal costs.
My client is not interested in a buy-back scheme. After acceding to your clients’ constant demands, she agreed to the sale of her shareholding in the company based on Mr Noonan’s valuation as at 17 March 2015. She intends to rely on this agreement.
Please ensure that the sum of $775,941 together with my client’s share of her mother’s loan account in the company of $72,972 totalling $848,891 (plus interest and dividends) is forwarded to my office by return, failing which I will seek my client’s instructions to issue Supreme Court proceedings for breach of the agreement.
On 23 October 2015, Harwood Andrews, the solicitors for the executors in this proceeding, wrote to Mr Hearn disputing the existence of any binding agreement.
The proceeding
This proceeding was issued on 11 December 2015. In the prayer for relief in the statement of claim filed on her behalf, Mrs Birdsey claims the following relief:
A.A declaration that the defendants are contractually bound to purchase the plaintiff’s one-third share in Noriel for $775,941.
B.In the alternative, damages for breach of contract.
C.Interest or alternatively an order that the defendants account to the plaintiff for one-third of all dividends in Noriel from 17 March 2015 until payment of the plaintiff’s one-third share in Noriel for $775,941 is made in full.
D.Such other order as the court deems appropriate.
Accordingly, there are two issues for determination between the parties:
(a) was there a concluded agreement between Mrs Birdsey and the executors to the effect that the executors are bound to purchase Mrs Birdsey’s share in Noriel for the sum of $775,941; and
(b) did Mr Noonan have the actual or ostensible authority of the executors to enter into any such agreement?
In her statement of claim, Mrs Birdsey relies upon the email from Mr Noonan to Mr Hearn and Mr Spear of WJM dated 18 March 2015 (see paragraph 8 above) (’18 March email’), and the email from Mr Noonan to Mr Hearn dated 11 May 2015 (see paragraph 12 above) (’11 May email’) as constituting an offer from the executors to purchase Mrs Birdsey’s one‑third share in Noriel, payable by the executors adjusting the amount payable to Mrs Birdsey from the estate.[6] Mr Hearn’s email to Mr Noonan dated 10 June 2015 (see paragraph 13 above) (’10 June email’) was said to have constituted Mrs Birdsey’s acceptance of that offer.
In their defence filed on 11 February 2016, the executors denied that the 18 March email and 11 May email constituted an offer on the part of the executors. In the particulars to paragraph 20 of the defence, the executors assert:
(a)Mr Noonan was not the accountant for the defendants and had no authority to make any offer on behalf of the defendants to purchase the plaintiff’s interest in Noriel Pty Ltd for the sum of $775,941 or any other amount.
(b)Even if Mr Noonan had authority to make any offer to the plaintiff on behalf of the defendants, which is expressly denied, the emails from Mr Noonan of 18 March 2015 and 11 May 2015 could not constitute the offer alleged on the normal meaning of those emails.
The executors also deny that the 10 June email constituted Mrs Birdsey’s acceptance of their offer, stating, in the particulars under paragraph 21 of the defence as follows:
(a)Mr Noonan had no authority to make or accept any offer on behalf of the defendants in the manner alleged and as referred to in paragraph 20 of this defence.
(b)At no time material to this proceeding did the defendants or either of them offer to purchase, or authorise anyone on their behalf to purchase, the plaintiff’s interest in Noriel Pty Ltd.
(c)Even if an offer had been made on behalf of the defendants to acquire the plaintiff’s interest in Noriel Pty Ltd as alleged, which is expressly denied, the email from the plaintiff’s solicitor dated 10 June 2015 could not constitute acceptance as there had been no acceptance of that valuation (to the extent the email contained a valuation of Noriel Pty Ltd) by the defendants as anticipated at paragraph 2 of the letter dated 4 March 2015 from WJM to the plaintiff’s solicitor.
In her reply filed on 17 March 2016, Mrs Birdsey responded to the allegations in paragraphs 9, 12, 20 and 21 of the defence as follows:
1.The contract was entered into between the plaintiff and the defendants in their capacity as executors of the estate of Norma Joan Barrett, deceased.
2.The defendants admit that Mr Noonan, and Mr Spear, were, at all material times authorised to act on behalf of the defendants in their capacity as executors of the estate of the deceased including for the purposes of negotiating the contract.
3.In the circumstances referred to in paragraphs 1 and 2 hereof the defendants, in their capacities as executors of the estate are bound by the contract.
4.Alternatively, if, and insofar as, the contract purports to bind the defendants personally both Mr Noonan and Mr Spear were held out by the defendants as authorised to act on their behalf, personally, for the purposes of negotiating the contract.
PARTICULARS
The defendants appointed both Mr Spear and Mr Noonan to act for them for the purposes of achieving an agreement whereby the plaintiff relinquished her shareholding in Noriel to the defendants and in return would be paid the then current valuation of her shares.
5.In the circumstances referred to in paragraph 4 hereof the defendants are bound by the ostensible or apparent authority of Mr Spear and Mr Noonan to act on their behalf personally.
Other evidence
At the trial of the proceeding, the parties relied upon the affidavits filed in the proceeding and the exhibits to those affidavits, which largely comprised the correspondence between the parties’ solicitors and other professionals, such as Mr Norman and representatives of PKF, a selection of which is extracted at paragraphs 5 to 28 above. The exhibits also included communications between the executors and Mr Noonan. There was no cross‑examination of any of the deponents of the affidavits, although objection was taken to some of the evidence which was clearly evidence of the deponent’s subjective understanding of certain matters. Little turns upon the resolution of those objections, as both counsel agree that I need to determine the issues in the proceeding based upon an objective evaluation of the communications between the parties. However, the question of whether Mr Noonan had the actual or ostensible authority to act on behalf of the executors does require some evaluation of the affidavit evidence as well.
In particular, the following affidavit evidence[7] is relevant to the question of whether Mr Noonan had the actual authority of the executors to enter into a binding agreement with Mrs Birdsey on their behalf:
(a) in his affidavit sworn on 26 May 2016, Mr Noonan deposed at his responsibilities in his role as accountant for Noriel, and as the accountant for the estate;
(b) Mr Noonan deposed that he has never acted for either of the executors, and his dealings with them have been in their capacities of directors of Noriel and as the executors of the estate;
(c) in his affidavit sworn on 26 May 2016, Mr Gunn deposed that in his capacity as director of Noriel he has from time to time given instructions to Mr Noonan and sought advice from him about the affairs of Noriel. However, Mr Noonan has never acted for him personally, and he has his own personal accountant and his own financial advisor;
(d) he did not at any time authorise anyone to enter into a contract for him to purchase Mrs Birdsey’s shares;
(e) in her affidavit sworn on 1 June 2016, Ms Susan Vincent deposed that she has from time to time provided Mr Noonan with instructions in her role as director of Noriel. However, he has never acted for her personally, and she has had her own personal accountant for approximately 25 years;
(f) in the final paragraph of her affidavit, Ms Vincent deposed as follows:
I never authorised Tim to make any offer on my behalf or to agree on my behalf to enter into a contract to purchase Jennifer’s shares in Noriel. It was my intention that the transaction take place as a share buyback and for a while I wanted to include my shares in the buyback; and
(g) in his affidavit sworn on 18 July 2016, Mr Sean Dillon of PKF deposed that on 24 March 2015 he was engaged by Mr Hearn to undertake an independent audit of the 17 March valuation. He was instructed to correspond with Mr Noonan and liaise with him directly in order to obtain any further information he required and he did so.
In addition to the correspondence reproduced in these reasons, a number of documents in the court book were relevant to the question of Mr Noonan’s actual or ostensible authority, and the scope of any such authority. It is apparent from the contents of some of these communications that not all of the communications between the executors[8] and Mr Noonan and/or WJM was in evidence.
Examples of relevant correspondence include the following (in chronological order):
(a) the email exchange between Mr Gunn and Mr Noonan on 5 November 2014, as follows:
Hi Greg
Yes we can sell shares and make a payment to Jenny but as you said this will trigger a tax liability in the company. Given you each hold different classes of shares in the company this may be achievable as we need to pay a dividend to Jenny to the exclusion of Sue and yourself. This may cause further tax consequences for Jenny.
I will call Jenny’s solicitor and attempt to obtain an update.
Mr Gunn replied as follows:
Thanks Tim
Please keep your separate bill for matters dealing with Jenny (the estate is not paying for her decision to disengage from the family).
Thanks.
(b) on 11 March 2015, Mr Gunn responded to an email from Ms Debbie Lear annexing copies of correspondence between Mr Hearn and Mr Spear (see paragraphs 6 and 7 above), as follows:
As discussed this morning with regard to Mr Hearn’s letter:
Point 2 – As Peter has correctly responded, Sue and I wish to [sic] Noriel to continue and not be wound up as proposed. We are however agreeable to Jenny withdrawing from the company as a Shareholder and Director. If this is her choice, the Directors suggest she be advised to seek advice and communicates the steps and timelines for transferring her shares and discharging her directorship. This transfer will need to be in accordance with the Company Constitution, company law and consider capital gains tax implications.
As the continuance of Noriel is not a concern of the Estate, we further request that Mr Hearn is advised that all company related correspondence (unless related to the estate) be addressed directly to the Directors and Cc’d to the company accountant (Tim N) for consideration.
Point 6 – Would you also please advise Mr Hearn that this ledger was given to myself whilst Mum was in Hamilton and being of sentimental value and will not be returned as requested.
Mr Gunn forwarded this correspondence to Mr Noonan and Mr Sinnott, his personal accountant;
(c) on 11 May 2015, Mr Noonan wrote to the executors (copying in Ms Lear and Mr Spear of WJM), as follows:
Harry Hearn contacted me last Thursday and then confirmed in writing last Friday that Jennifer is agreeable to transferring her shares in Noriel Pty Ltd to yourselves. I have requested that they confirm whether the valuation of the company as at 17 March 2015 will be accepted as the valuation for the purpose of dividing the estate or whether a further valuation will be required. Once we receive advice on this we should be in a position to move forward and finalise the estate.
Mr Gunn replied, as follows:
Thanks for the update
Just to clarify – Sue and I do not intend to buy Jenny’s proportion
Please advise Harry H that arrangements need to be made for
·Noriel to sell or transfer her proportion to Jenny – less any tax liability
·Jenny to be legally removed as a Noriel Director
Regards Greg
(d) On 12 May 2015, Mr Gunn wrote to Mr Noonan, as follows:
We have previously discussed our intentions for Noriel to dispose and transfer Jenny’s Share – please see emails at the end of this one below
[A]lso understood that this position had been communicated with H Hearn?
Mr Noonan replied, as follows:
I thought that the plan was or [sic] Jennifer to transfer her shares in Noriel to Susan and yourself (i.e. none of Noriel’s assets would be sold) and as consideration for that Jenny would receive a greater share of the cash that was held in your mother’s name.
If [sic] this not the case?
(e) there was no response to Mr Noonan’s email in evidence. However, on 19 May 2015, Mr Noonan wrote to Mr Gunn, as follows:
Harry Hearn called me and has agreed in principle to Jenny ceasing as a director and shareholder of Noriel Pty Ltd. Given your instructions that Susan and yourself do not wish to buy her out (using other estate funds) then the only way that I can see the transaction proceeding is for Noriel to conduct a ‘selective share buy-back’ where only Jennifer’s shares are bought back therefore leaving Susan and yourself as equal shareholders in the company. Following completion of the buyback Jennifer would resign as a Director of the company. A selective share buyback is quite a detailed process that requires numerous documents to be prepared and lodged with ASIC. I also note that there are numerous notice periods that must be observed for a share buy-back (i.e. it can’t just take place immediately).
I would normally instruct a solicitor to prepare the documentation to initiate the share buyback. Would you like me to request Whyte Just & Moore on this? I’m not sure whether they handle these types of transactions or not. Alternatively I can instruct someone else to do it.
I look forward to hearing from you.
(f) on 20 May 2015, Mr Spear of WJM wrote to Mr Gunn explaining that ‘the share buy-back documentation is specialised territory in which we do not practice’, and recommended instructing Joanna Monahan of Monahan Legal;
(g) also on 20 May 2015, Mr Gunn wrote to Mr Noonan as follows:
Will this share buy-back allow Jenny’s proportion of Noriel to be sold with the proceeds (less Capital Gains liabilities) to be directed to Jenny? Or does this mean Sue and I have to find money to buy-back her shares? Please clarify. I am not convinced that the buy-back costs should not be incurred by Jenny given she is instigating a process which is of no benefit to Sue and I (We are happy for Noriel to continue under its present structure)
Mr Noonan responded as follows:
Yes the intention would be that:
1.Noriel sell shares so that it has sufficient cash to represent 1/3 of the value of the company;
2.Jenny’s shares are nought back net of any tax payable on the share sales; and
3.Sufficient cash is retained in the company to pay the tax liability.
Neither Sue or yourself will be required to raise any funds personally.
I will discuss the costs issue with Jo.
(h) on 10 June 2015, Mr Noonan wrote to Mr Gunn attaching the 10 June email as follows:
See below. Have you made any decision yet regarding the share buy back?
Despite Mr Hearn’s comment re acceptance of the 17 March valuation date we will need to revalue the company at the buy back date.
There followed some correspondence between Mr Noonan and Mr Gunn concerning the possibility of Ms Vincent also exiting Noriel, which is not of particular relevance to the current dispute. The remaining correspondence of note between them took place during the period in which the dispute arose between Mrs Birdsey and the executors concerning the appropriate valuation date for Mrs Birdsey’s shares in Noriel, as follows:
(a) on 17 August 2015, Mr Gunn wrote to Mr Noonan, presumably in response to receiving Mr Hearn’s letter to WJM of 3 August 2015 (see paragraph 20 above), as follows:
·It needs to be made clear that the email dated the 18th March was never a buyback offer. Rather it was a valuation requested of [sic] H Hearn and your email provided the value of Jenny’s share at that particular date.
·The only formal offer was based on the value at the 30th June 2015
·The share value dated 18th March is obviously not acceptable to Sue and myself as it does not reflect current prices
·The options going forward are
- we proceed with the buyback but only once the value of Noriel exceeds the 18th March valuation at some future date.
- H Hearn provides for our consideration; alternative buyback solution(s) that reflect actual market prices as accurately as possible
(b) on 18 August 2015, Mr Noonan wrote to the executors as follows:
See emails below. I expect that Harry Hearn will seek to rely on this as agreement to the 17 March 2015 valuation for the purpose of the share buyback.
Are you able to call me to discuss this morning? I am free between 10:00 and 12:00.
(c) the emails referred to in the email above were not reproduced in the copy of this email in evidence, but I can infer that they could include the 18 March email (see paragraph 8 above) and the 11 May email;
(d) on 19 August 2015, Mr Noonan wrote to the executors on two occasions, as follows:
Following my conversation with Greg yesterday I contacted Jo Monahan regarding the proposed share buy-back. In summary, the buyback cannot proceed unless the shareholders (including Jennifer) agree to the buyback price. So as I see it there are two options:
1. We proceed on the basis of the 17 March valuation; or
2.We propose another buyback price and seek shareholder acceptance before commencing the buyback process.
---
See email below. Harry Hearn called me earlier to enquire as to the progress of the matter. His strong view is that there was an offer based on the 17 March valuation and that this offer was accepted and therefore the buyback should proceed on this basis.
(e) later that day, Mr Gunn replied as follows:
Still confused about this offer (?) – Am I missing some communications?
Please send me the chain of emails/letters where
·we made an definitive offer to Jenny (is this the 18th March email?)
·the offer was accepted by Jenny in writing (Is this the phone call referred to in the 19th May email?)
·This offer was accepted by us
(f) it is apparent from the following email from Mr Gunn to Ms Vincent dated 23 August 2015, which is a draft email from the executors to Mr Noonan, that the executors had become concerned about what Mr Noonan may have agreed to on their behalf:
Sue will ring to discuss this email to be sent to TIM
Dear Tim
As you are aware it has been a puzzle as to what ‘offer’ H Hearn agrees to in his email dated the 10th June. Your email dated the 11 May 2015 appears to provide this missing link and is a cause of significant concern.
This is the first time that Sue and I as Directors have sighted the email forwarded to H Hearn on the 11th May as it was not CC’d. The wording of the email is very unfortunate as it implies that both Sue and I agreed to offer a buyback of Jenny’s Noriel holdings, based on the valuation of the 17th of March.
It was definitely not our intention to make an offer at this time. Rather the Directors were seeking confirmation that Jenny was willing to proceed with a division of the company and feedback on how this would occur.
The only formal offer authorised by Sue and myself was detailed in the email of XX
I suspect that with the recent downturn in the market H Hearn will initiate legal proceedings to hold Sue and myself to the ‘offer’ referred to in the 11th May WCH email.
It may be legally and technically important to note that both the WCH email of the 11th of May and the H. Hearn response dated 10th June, both refer to valuation of Noriel Pty Ltd for the purpose of division of the N Barrett ‘Estate’.
The key point is that N. Barrett Estate only involves the Noriel A and B shares. Therefore it could be interpreted that the ‘offer’ refered [sic] to in the 11th May email only pertains to these shares and not the remaining C, E and E shares held by the Directors.
Given that 11th May 2015 could be interpreted as a contractual offer we request that West Carr and Harvey (at WCH cost) provide legal advice on this matter to allay our concerns.
Will give you a ring to discuss
Regards
Greg and Sue
(g) the contents of the second-last paragraph appears to be the genesis of the executors’ contention, as asserted in Monahan Legal’s letter to Mr Hearn of 21 September 2015, that the only agreement reached between Mr Noonan and Mr Hearn was that the two shares in Noriel held by the estate were to be valued in accordance with the 17 March valuation; and
(h) finally, on 12 October 2015, being a few days after Mr Hearn’s letter to Monahan Legal of 8 October 2015 maintaining his position that there was a binding agreement for the purchase of Mrs Birdsey’s shares in Noriel, Mr Reeve of WJM wrote to Mr Gunn (copying in Ms Vincent and Mr Noonan) as follows:
I reviewed our file this morning and left a message on your mobile to call me.
The only correspondence on the file from Whyte Just & Moore to Harry Hearn regarding the alleged ‘buy-out’ is the letter of 4 March 2015. There is no note of any telephone conversation between Peter Spear and Harry Hearn regarding that matter but I am confident Peter would not have told Hearn that you and Susie were willing to purchase Jennifer’s shares, unless you had instructed him to do so.
I note from Jo Monahan’s email to you last Friday that she has recommended you obtain advice from a Barrister or Richard Anderson at Harwood Andrews. We will, of course, make our file available.
Jo’s email also says you need to know what is left to complete the administration of the Estate. Please see attached a copy of Debbie Lear’s email to Mr Hearn sent last Thursday.
I understand Peter Spear is away until the end of the month but expect he will be available after that to discuss the matter with whomever you instruct to deal with it.
You will see that I have copied this email to Jo Monahan, Tim and Susie.
Submissions
Counsel for Mrs Birdsey submitted that the 18 March email amounted to an offer from the executors in their capacity as executors of the estate to pay Mrs Birdsey the sum of $775,941 for transferring Mrs Birdsey’s shareholding in Noriel. The 18 March email on its own, and read in conjunction with other correspondence, clearly constitutes an offer, and was confirmed by Mr Noonan in the 11 May email. Counsel for the plaintiff also relied upon the letter from Mr Noonan to Mrs Birdsey dated 13 January 2015 (see paragraph 5 above), Mr Hearn’s letter to WJM dated 24 February 2015 (see paragraph 6 above), the file note of the telephone conversation between Mr Hearn and Mr Spear of WJM on 4 March 2015 (see the footnote to paragraph 8 above), an email from Mr Gunn to Mr Noonan of 5 November 2014,[9] and an email from Mr Noonan to Mr Hearn and Mr Spear of 11 March 2015 concerning the amount of the loan by the deceased to Noriel, which formed part of the assets of the estate, as supporting his contention that there was an agreement between the parties. The offer was never revoked, and was accepted by Mr Hearn in the 10 June email.
In his written submissions, counsel for Mrs Birdsey rejected the contention that the 18 March email could not constitute an offer. He submitted as follows:
It is clear that the proposal from Mr Noonan, read in context of earlier communications, was meant to be a serious proposal capable of acceptance. Given the fact that it was a significant and serious matter involving a substantial value in the winding up of a deceased estate comprising some millions of dollars it could have no other purpose. It was not a mere casual enquiry.
Certainly the plaintiff’s solicitor, Mr Hearn, saw it as intended to provide the basis for a binding agreement. He appointed an accountant to examine the valuation proposal. Mr Noonan would no doubt have been aware of that. He certainly became aware that that was occurring as the result of direct communications with Mr Dillon of PKF but he made no suggestion that the offer was not intended to have legal consequences.
Further, counsel for Mrs Birdsey submitted that the proposition that the 17 March valuation was not accepted by the executors, and thus the offer was not capable of acceptance by Mrs Birdsey was, on the basis of the correspondence between the parties, inherently improbable. Mr Noonan had carried out the valuation, as might be expected given his role as the accountant for the company. There is no evidence that the executors disagreed with or rejected the valuation. The statement of claim makes claims against the executors in both their capacity as executors of the estate, and in their personal capacities.
In his oral submissions, counsel for Mrs Birdsey submitted that it is difficult to characterise the 18 March email as anything but an offer to purchase Mrs Birdsey’s shares for the price calculated by the 17 March valuation. It was not a casual enquiry. Mr Hearn took it sufficiently seriously to engage PKF to review the 17 March valuation. That it was not a casual discussion is reflected in Mr Noonan’s concern about Mr Gunn changing his mind about ‘the plan’ (see paragraph 38(d) above). That change of plan was not communicated to Mr Hearn. The reference by Mr Hearn in his email to Mr Noonan on 8 May 2015 (see paragraph 11 above) to the ‘mechanics’ of Mrs Birdsey selling her shareholding does not detract from Mrs Birdsey’s contention that there was a binding agreement: rather, it suggested that the process by which Mrs Birdsey was to exist Noriel was not of any great moment. Neither was the reference in the correspondence to ‘proposals’ rather than ‘offers’.
As for the suggestion that Mr Hearn did not assert the existence of a binding agreement until many months after its alleged formation, counsel for Mrs Birdsey submitted that the terms of the 10 June email not only conveyed the acceptance of an offer, but specified the means by which the now concluded agreement was to be performed: by the deposit of funds into the trust account of WJM.
Further, the communications between PKF and Mr Noonan on 9 July 2015 (see paragraph 18 above) and between Mr Hearn and Mr Noonan on 11 August 2015 (see paragraph 21 above) are consistent with them asserting the existence of a binding agreement. What seems to have occurred was that when the share buy‑back, rather than a purchase of Mrs Birdsey’s shares was suggested, both Mr Hearn and Mr Dillon wanted to ascertain whether the change in the mechanism would make an difference to the financial outcome for Mrs Birdsey: once it was clear that it would, owing to the proposed change of the valuation date, they were insistent that there was a binding agreement concerning the price Mrs Birdsey would receive for her shareholding.
As for the question of the actual or ostensible authority of Mr Noonan, counsel for Mrs Birdsey submitted that the contention that neither Mr Noonan or Mr Spears were authorised to enter into an agreement on behalf of the executors was a ‘highly improbable scenario’, and ‘quite contrary to normal, invariable practice in communications between professionals, including solicitors and accountants’. He submitted that an evaluation of the communications between Mr Noonan and Mr Gunn, including the reference to ‘the plan’ in Mr Noonan’s email of 12 May 2015, demonstrated that Mr Noonan was authorised by the executors to enter into negotiations to reach an agreement with Mrs Birdsey in relation to whether she would transfer her shares in Noriel for a figure to be fixed by a valuation. Alternatively, if there was no actual authority conferred upon Mr Noonan by the executors, the correspondence shows that Mr Noonan was held out by the executors for the purposes of negotiating an agreement with respect to Mrs Birdsey’s divestment of her shareholding in Noriel. He referred in particular to the letter from WJM to Mr Hearn of 11 March 2015 (see paragraph 9 above), where WJM asked Mr Hearn to liaise directly with Mr Noonan with respect to matters concerning Noriel.
Counsel for Mrs Birdsey submitted as follows:
The suggestion that any authority was confined to acting on behalf of the defendants as executors but not personally is unrealistic and a distortion of the true situation. As executors the defendants were acting on behalf of the estate ie the beneficiaries (including themselves). The proposed arrangement related to the nature of the benefits that each of the beneficiaries would receive from their mother’s estate. They were 2 of the beneficiaries affected by the proposals. To suggest that Mr Noonan and Mr Spear were only able to bind them in one capacity and not the other is not a realistic or fair description of the role of Mr Noonan and Mr Spear.
During the course of his oral submissions, counsel for Mrs Birdsey suggested that any distinction between the capacities in which the executors were acting was irrelevant to the question of whether Mr Noonan had the actual or ostensible authority to enter into an agreement between them and Mrs Birdsey in relation to the disposal of her shares in Noriel. He submitted that it was entirely artificial to suggest that Mr Noonan was only authorised to act for them in certain capacities and not others.
Finally, counsel for Mrs Birdsey noted that Monahan Legal’s letter of 21 September 2015, which contended that the only agreement that had been reached between Mr Noonan and Mr Hearn was for the valuation of the estate’s shares in Noriel, not Mrs Birdsey’s shares, suggested that Mr Noonan did have authority to enter into an agreement on behalf of both the estate and the executors, notwithstanding that the contention advanced by Monahan Legal regarding the terms of the agreement (that is, that it concerned only an agreement for the valuation of the estate’s shares in Noriel) was clearly untenable.
Counsel for the executors submitted that there was no contract for the sale of Mrs Birdsey’s shares in Noriel for two reasons:
(a)First, the communications relied upon by Mrs Birdsey, read objectively and in the context of all communications, do not constitute an offer and its acceptance;
(b)Secondly, Mr Noonan did not have the authority to act as the defendant’s agent or to bind them to a contract for the purchase of the plaintiff’s shares.
Taking the question of actual or ostensible authority first, counsel for the executors submitted, in summary, as follows:
(a) the (unchallenged) affidavit evidence of Mr Noonan and each of the executors establishes that Mr Noonan did not act for the executors, or either of them, in their personal capacities, and Mr Noonan was not authorised to make any offers on behalf of the executors. Rather, the evidence is to the contrary: in his emails of 11 May 2015 and 12 May 2015 (see paragraphs 38(c) and (d) above) Mr Gunn expressly rejected Mr Noonan’s suggestion or assumption that the executors would purchase Mrs Birdsey’s shares;
(b) there is no evidence to support the assertion that either Mr Noonan or Mr Spears were ‘held out’ by the executors as representing them in their personal capacity: rather, the evidence is that Mr Noonan and WJM were acting, in the case of Mr Noonan, on behalf of Noriel and the estate, and in the case of WJM, on behalf of the estate alone;
(c) the letter sent by WJM on 4 March 2015 was sent for the purpose of valuing the estate’s shares in Noriel, not Mrs Birdsey’s shares; and
(d) Mrs Birdsey has failed to identify the conduct of the executors which conferred any ostensible authority upon Mr Noonan. No representations were made by the executors concerning the authority of Mr Noonan, noting that the authorities make it clear that it is the conduct of the putative principal which is under scrutiny, not the conduct of others (such as Mr Noonan or WJM), or the subjective ‘understandings’ of the other party.
Turning to the question of whether the communications between the parties could constitute or evidence the formation of a contract, counsel for the executors noted that notwithstanding a suggestion in the writ that the dispute between the parties arises out of the administration of the deceased’s estate, this is irrelevant to whether a contract was made between the parties: it provides background and context only.
In his written outline of submissions, counsel for the executors submitted, in summary, as follows:
(a) the 18 March email does not constitute an offer to purchase Mrs Birdsey’s shares;
(b) Mr Hearn’s conduct after receiving the 18 March email is consistent with the parties considering different ‘proposals’ concerning the mechanisms by which Mrs Birdsey might divest herself of her interest in Noriel;
(c) the email said to constitute the acceptance of the alleged offer (being the 10 June email) is not ‘couched in the terms of a contract’’;
(d) the subsequent correspondence between the parties, which discussed the possibility of and the implementation of a share buyback, rather than a share purchase, was inconsistent with there being a concluded contract for the sale of shares; and
(e) the first unequivocal assertion that there was a contract for the sale of shares was not made until 19 August 2015, during the course of a telephone conversation between Mr Hearn and Mr Noonan.
In his oral submissions, counsel for the executors emphasised that there was no connection between the proposed transaction concerning Mrs Birdsey’s exit from Noriel and the administration of the estate: the discussions were about a possible agreement between the siblings as individuals and shareholders of Noriel, not between Mrs Birdsey and the executors in their capacity as executors of the estate. All that the correspondence demonstrates is that there were a number of proposals being considered by the parties, but no concluded agreement. However, he accepted that the mechanism for payment to Mrs Birdsey was irrelevant: if there was a contract, the executors would have to pay the price, and where the funds were sourced from is irrelevant. However, there was no contract, only an agreement about a valuation on a particular date.
Counsel for the executors noted that the later proposal that Noriel buy back Mrs Birdsey’s shares in Noriel is consistent with the definition in s 9 of the Corporations Act 2001 (Cth) (‘Corporations Act’) of a ‘selective buy-back’, which is governed by a raft of provisions within the Corporations Act. As such, this proposal, if accepted, would involve a transaction of a substantially different character than that which was said by Mrs Birdsey to have been the subject of a concluded agreement. The 17 March valuation was referable only to a possible share purchase, not a share buy‑back;
Counsel for the executors submitted that the 10 June email constituted only Mr Hearn’s acceptance of the 17 March valuation, not an acceptance of an offer. He relied upon the decisions of the Privy Council in Harvey and Anor v Facey and Ors,[10] in support of the proposition that a mere reference by an owner of a property to the lowest price he would accept for the property does not amount to an offer to sell the property at that price. Counsel submitted that the statement by the owner in Harvey v Facey as to the lowest price he would accept was analogous to the statement made by Mr Noonan as to the value of the shares in Noriel as at 17 March 2015, but that this statement, even setting aside the question of Mr Noonan’s authority, did not amount to an offer to purchase Mrs Birdsey’s shares.
In summary, counsel for the executors submitted that the communications between Mr Hearn and Mr Noonan could not be characterised as constituting a binding agreement: they were merely preparatory discussions concerning a possible agreement, with the 17 March valuation being a necessary step along the way. The discussion about the ‘mechanics’ of Mrs Birdsey exiting Noriel was inconsistent with a final agreement being reached on 10 June 2015. There was no complaint by Mr Hearn concerning the proposed share buy‑back, or any assertion by Mr Hearn or PKF concerning the existence of a binding agreement. The first occasion that such an assertion was made was in Mr Hearn’s letter of 8 October 2015 (see paragraph 27 above).
Relevant legal principles
It is appropriate to deal with the question of Mr Noonan’s actual and/or ostensible authority first, because if I were to find that Mr Noonan did not have the capacity to bind the executors to the terms of any alleged agreement with Mrs Birdsey, the question of whether a concluded agreement was reached falls away.
In relation to whether the executors conferred actual authority upon Mr Noonan, and the scope of any such authority, the following principles are of particular relevance:
(a) it is insufficient to merely assert that one party is the agent of another in general terms: one must ask what the agent is empowered to do;
(b) actual authority may be express or implied: in the absence of any evidence of any formal contractual relationship between the alleged agent and the putative principal (as in the current case), the appointment of a party as an agent and the scope of the agent’s authority may be implied from the conduct of the parties and the circumstances of the case;
(c) ‘the plaintiff [in the current case, Mrs Birdsey], bears the onus of establishing both the existence of the agency and the authority of the agent to effect the act giving rise to the entitlement claimed;’[11]
(d) as to the scope of the authority conferred, ‘[t]he scope of an agent’s authority is determined primarily by the nature of the duty entrusted to him;[12] and
(e) “[i]f a principal entrusts to an agent the conduct of negotiations for an agreement between a principal and another party, the agent’s authority extends to making relevant statements to that end”.[13]
In relation to whether the executors conferred ostensible authority upon Mr Noonan to enter into an agreement of the nature claimed by Mrs Birdsey, the following principles are relevant:
(a) the doctrine of ostensible authority is grounded in principles of estoppel. In the leading authority on the question, Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd,[14] Diplock LJ stated as follows:[15]
An ‘apparent’ or ‘ostensible’ authority … is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ’apparent’ authority, so as to render the principal liable to perform any obligations imposed on him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted on by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
(b) the onus of establishing any ostensible authority lies with the party seeking to bind the putative principal. That party must establish the elements of an estoppel, and in particular the making of a representation by the putative principal as to the existence of an agency relationship, and the scope of that relationship. However, given the nature of the doctrine, and the circumstances in which it is likely to arise, it is more likely that a representation is to be implied from the conduct of the putative principal, including conduct in the ordinary course of dealings between the parties, rather than from any express representations;
(c) this situation often arises where there is an existing agency relationship between the principal and the agent, with the ostensible authority of the agent exceeding the agent’s actual authority;
(d) there is some overlap between the concepts of implied actual authority and ostensible authority: the evidence which may support the contention that the appointment of an agent confers upon the agent the authority which customarily accompanies such an appointment may also support the proposition that:
the principal has so positioned the agent, who lacks actual authority to act on its behalf, as to estop the principal from denying the ostensible authority that, by its conduct, it has allowed the agent to manifest to third parties.[16]
(e) it is the conduct of the principal, not the agent, which gives rise to any ‘holding out’ with respect to the authority of the agent. However, an agent’s representations as to his authority may not be irrelevant to the issue of ostensible authority if the putative principal, by reason of a previous course of dealing, or by putting an agent in a position of authority, creates a situation where it can be inferred that the agent’s representation as to his or her authority is correct;[17]
(f) the plaintiff must show that the contract was entered into as a consequence of the putative principal’s conferral of ostensible authority; and
(g) the nature of the transaction to be entered into is relevant to the question of whether the plaintiff’s reliance upon an agent’s ostensible authority is reasonable: where an agent acts within the usual authority of a person in that position, the plaintiff is generally entitled to assure that the agent has that authority.
Turning now to the question of whether, if Mr Noonan had the requisite authority, the communications relied upon by Mrs Birdsey could amount to a binding agreement, the following principles are relevant:
(a) in the absence of a formal written agreement, the court’s task in determining whether an offer has been made is an objective test: ‘what would a reasonable person infer from observing the exchange between the parties’;[18]
(b) where the question of whether a contract has been formed is in issue, the conduct of the parties subsequent to the date of the alleged contract is admissible for the purpose of determining whether a contract had come into existence. However, the conduct relied upon must support a conclusion that a contract had come into existence, rather than merely being consistent with the existence of a contract;[19]
(c) in commercial agreements, the courts will generally assume an intention to create legal relations, and will strive to give effect to the terms of the parties’ bargain, notwithstanding that there may be some uncertainty in its terms, provided that uncertainty is not fatal.[20] The question remains is what amounts to a ‘commercial agreement’;
(d) a contract will be declared void for uncertainty only if it lacks essential terms or fundamental elements are lacking. The courts will strive to uphold contracts, notwithstanding any lack of clarity;[21] and
(e) it is not fatal to a contract if a party can perform its obligations in more than one way.[22]
In grappling with the myriad ways in which parties can deal with each other in commercial relationships, and the lack of formality and precision characterising many such dealings, the courts have exhibited a preparedness to depart from the traditional ‘offer-acceptance-consideration’ analysis. In a recent decision, Ying Mui & Ors v Frank Kian Ngan Ho & Ors (No 3),[23] Vickery J made the following relevant observations regarding the courts’ approach to ascertaining whether a contract came into existence, as follows (omitting citations):
It is now well established that a ‘contract need not be made by formal offer and acceptance’. Indeed, it has been said that ‘it is sufficient to ask whether the existence of a contract has been established on the evidence’.
A contract may be inferred from words, acts or conduct. The conduct to which the Court can have regard in assessing whether a contract has been formed includes ‘post-contractual conduct’. Thus, it has been observed that:
[W]here there is a dispute as to the existence of a contract, or the contract is oral or there is a question as to how the contract is to be characterised or there is a question of whether a term was incorporated into a contract, or where there is a question of an implied term, the parties’ subsequent conduct may be relied upon to establish the existence of that contract, and what the terms of the contract were.
In a passage which has been often cited with approval, Allsop J (Drummond and Mansfield JJ agreeing) in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd held that:
I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: “and we hereby agree to be bound in this or that respect.” The essential question in such cases is whether the parties’ conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
Thus, it is accepted that it is open to a court to infer the existence of a contract from the parties’ conduct on the basis of the objectively ascertained manifestation of mutual assent.
However, such cases are rare and it will only be ‘in a very clear case that a promise will be implied from facts which do not involve written or oral communication from which a promise appears’.
Of course, in the current case, Mrs Birdsey is contending that a contract arose out of the acceptance by Mr Hearn on behalf of Mrs Birdsey of an offer made by Mr Noonan on behalf of the executors. However, the above discussion makes it clear that it is not necessary for the communications said to constitute or evidence a contract to include the formal language traditionally associated with the formation of contracts, and highlights the relevance of the commercial aims and expectations of the parties.
Mr Noonan’s actual or ostensible authority
In my view, Mr Noonan had the actual authority to represent the executors (whether in their capacity as executors of the estate, or in their capacity as co‑directors and co‑shareholders, with Mrs Birdsey, in Noriel) in their negotiations with Mr Hearn, on behalf of Mrs Birdsey, to facilitate Mrs Birdsey’s exit from Noriel. That much is apparent from the following:
(a) Mr Gunn’s request to Mr Noonan on 5 November 2014 that he keep a separate bill for ‘matters dealing with Jenny’, from which I can infer that Mr Gunn anticipated that Mr Noonan would be ‘dealing with’ Mrs Birdsey and her solicitors, and that any dealings concerning Noriel would be separate from any discussions concerning the administration of the estate;
(b) Mr Gunn’s request to Mr Noonan of 11 March 2015 that he advise Mr Hearn that all correspondence concerning Noriel be addressed to the directors and copied to Mr Noonan. In fact, on the same day, WJM wrote to Mr Hearn stating ‘The Executors think it is appropriate that you liaise direct with Mr Noonan regarding our client’s withdrawal from Noriel’; and
(c) Mr Gunn’s instructions to Mr Noonan on 11 May 2015 to advise Mr Hearn that the executors did not intend to buy Mrs Birdsey’s shares in Noriel, and his query of 12 May 2015 as to whether Mr Noonan had communicated the executors’ position to Mr Hearn, indicates that the executors knew that Mr Noonan was representing them in the negotiations with Mr Hearn, and agreed or acquiesced to him doing so.
The executors vigorously contest the assertion that they provided Mr Noonan with authority to reach an agreement with Mr Hearn regarding the value of Mrs Birdsey’s shares and the mechanism for doing so. The evidence is equivocal about this. Further, the assertion in Monahan Legal’s letter of 21 September 2015 (see paragraph 26 above) to the effect that an agreement was reached between Mr Noonan and Mrs Birdsey of a different character to that asserted by Mr Hearn sits uncomfortably with the assertion in the particulars to paragraph 20 of the defence that:
Mr Noonan was not the accountant for the defendants and had no authority to make any offer on behalf of the defendants to purchase the plaintiff’s interest in Noriel Pty Ltd for the sum of $775,941 or any other amount.
Notwithstanding the above, I am mindful that the onus lies upon Mrs Birdsey to prove that Mr Noonan not only had actual authority to correspond with Mr Hearn on behalf of the executors, but also reach a concluded agreement on their behalf. The evidence (noting that the hearing proceeded, by agreement, without cross‑examination), was too equivocal to make such a finding. Further, it is apparent from the correspondence between Mr Gunn and Mr Noonan extracted at paragraph 39 above that Mr Gunn did not believe he had authorised Mr Noonan to reach a binding agreement on behalf of the executors. However, the practical consequences of this finding may be limited, in that while I am not satisfied that Mr Noonan had the actual authority of the executors to enter any agreement on their behalf, the circumstances are such that the executors conferred upon Mr Noonan the ostensible authority to reach an agreement with Mrs Birdsey (or, more accurately, Mr Hearn on her behalf), such that Mr Hearn was reasonably entitled to believe that any proposals made by Mr Noonan concerning the divestment by Mrs Birdsey of her shares in Noriel were made with the authority of the executors, without any need for Mr Hearn to independently confirm that Mr Noonan held proper instructions to make any offers on behalf of the executors.
The following matters support the view that not only had the executors appointed Mr Noonan to deal with Mrs Birdsey and her advisors concerning the future of Noriel (with WJM being instructed to represent the executors only in respect of matters concerning the estate), but that by their conduct (and as communicated by WJM to Mr Hearn) Mr Noonan was authorised to reach a concluded agreement on their behalf:
(a) while Mr Noonan was the accountant for both the estate and for Noriel, of which each of the three siblings had an equal interest in the estate and Noriel, it is clear that Mr Noonan was very much in the ‘camp’ of the executors. This is understandable, in that the executors controlled both the estate and Noriel.[24] One cannot criticise Mr Noonan’s dealings with Mrs Birdsey, Mr Hearn, and PKF, which were always courteous, professional, and non-adversarial. However, it is apparent from the correspondence, in particular the terms of the letter of 13 January 2015 (see paragraph 5 above) that he was outlining options and putting forward proposals to Mrs Birdsey on behalf of the executors.[25] Further, he was asked for, and provided advice to the executors on financial and structural matters concerning Noriel, and deferred to the instructions of the executors, particularly Mr Gunn, in his dealings with Mr Hearn. He provided no such advice to Mrs Birdsey: rather, he provided her and Mr Hearn with the financial information which would assist her and her advisors to deal with him on behalf of the executors;
(b) the executors, through WJM, expressly told Mr Hearn that he was to deal with Mr Noonan, not WJM, in matters concerning Noriel. While the authorities provide that an agent of a party cannot ordinarily confer ostensible authority upon another agent of a principal,[26] it is clear from the nature, context and timing of WJM’s letter of 11 March 2015, which immediately follows Mr Gunn’s email to Ms Lear of the same date, that this communication was made on the direct instructions of Mr Gunn. Accordingly, WJM’s statement could not be characterised as a representation as such, but rather an instruction to Mr Hearn to communicate with Mr Noonan, not WJM, regarding matters concerning Noriel; and
(c) while this is not conclusive of the matter, there is nothing in the correspondence between WJM and Mr Hearn, or Mr Noonan and Mr Hearn, to the effect that Mr Noonan’s capacity to ‘deal with’ Mr Hearn was limited in any way. There are no references in the correspondence which would have the effect of qualifying or limiting Mr Noonan’s apparent authority, along the lines of ‘I will seek instructions and revert to you’, as is common in dealings between professionals.
Counsel for the executors sought to draw a distinction between the capacities in which the executors were providing instructions to Mr Noonan. He submitted that, in their capacity as executors of the estate, the executors were instructing both WJM and Mr Noonan, the solicitors and accountants for the estate. As directors of Noriel, they provided instructions to Mr Noonan as Noriel’s accountant. However, counsel for the executors submitted that in their dealings with Mrs Birdsey, the executors were not acting on behalf of the estate or Noriel, but on their own behalf, as shareholders of Noriel. Mr Noonan did not represent them in their personal capacity: the executors had their own accountants and financial advisors.
However, in my view the issue of the capacity in which the executors were acting is somewhat of a red herring, at least insofar as it goes to the question of the scope of Mr Noonan’s ostensible authority.
In seeking to distinguish the different capacities in which the executors were conducting themselves (which may have arisen, at least in part, because of the way in which Mrs Birdsey pleaded her case), the submissions on behalf of the executors seek to obscure the practical realities of the dealings between the parties and the objectives of their dealings. The three siblings were equal shareholders in Noriel and equal beneficiaries of their mother’s estate. While there is no evidence as to what actually occurred and why, there was an estrangement within the family, between Mrs Birdsey on the one hand, and the executors on the other hand (noting that Mrs Birdsey had been removed as an executor of the estate by a codicil executed by the deceased on 10 January 2014). As a result, Mrs Birdsey wanted to separate her financial interests from those of the rest of her family. The finalisation of the estate represented a convenient occasion to effect the separation. The administration of the estate was a relatively simple matter, the exit from Noriel less so, such that the executors enlisted the assistance of Mr Noonan. The fact that the ‘majority’ shareholders of Noriel were also the executors of the estate, and that Mr Noonan was also the accountant for the estate, was really a matter of coincidence rather than a matter of any particular legal significance. Further, the submission made on behalf of the executors that the administration of the estate and Mrs Birdsey’s proposed exit from Noriel were entirely separate matters is inconsistent with the terms and the subject matter of the correspondence between the parties (see, for example, Mr Noonan’s letter of 13 January 2015).
Given that I have found that Mr Noonan had the actual authority to negotiate on behalf of the executors with respect to the divestment of Mrs Birdsey’s interest in Noriel, and, by instructing, through their solicitors, Mr Hearn to deal with Mr Noonan on matters concerning Noriel, the executors represented to Mrs Birdsey and Mr Hearn that Mr Noonan had the authority to reach a concluded agreement on their behalf, the question remains whether I can conclude, on the basis of the dealings between the parties whether they intended to make a concluded bargain. The authorities require that this intention must be assessed objectively, by reference to what a reasonable observer would have concluded from the dealings between the parties.[27]
Mrs Birdsey relies upon the 18 March email, the 11 May email, and the 10 June email, viewed in the context of the other communications between the parties, as constituting a binding agreement between the parties. I agree. The correspondence makes it clear that:
(a) after the death of the deceased, for whatever reason, Mrs Birdsey wished to sever her financial ties with her siblings. While the winding up of the estate seems to have been a relatively simple affair, the most substantial asset of Mrs Birdsey was her share in Noriel;
(b) that Mrs Birdsey wished to exit Noriel was clearly well known to the executors and Mr Noonan, and confirmed by Mr Hearn in his dealings with Mr Spear of WJM. There appears to be no dispute concerning Mrs Birdsey’s desire to exit Noriel: the issue was by what mechanism and for what price. It appears that the taxation implications for Noriel and its shareholders were also at the forefront of the parties’ minds;
(c) while counsel for the executors is correct in stating that the dealings between the parties in respect of the administration of the estate and their dealings with respect to Noriel were quite separate, at least in a legal sense, the finalisation of the estate provides the context in which it can be ascertained that the intention of the parties was to ‘settle’ the financial arrangements within the family, with Mrs Birdsey to go her own way after liquidating her shareholding in Noriel.[28] This proposition is supported by the fact that at one stage, Ms Vincent also wanted to ‘get out of Noriel’. Accordingly, the dealings between the parties need to be viewed in the context of their evident desire to achieve some finality between them. Further, the fact that at one stage one option for funding the payment to Mrs Birdsey was for the executors to forego a portion of their share of the estate also demonstrates that the transactions concerning Noriel had, if not a legal connection, at least a practical connection to the administration of the estate;
(d) as noted above, it is also apparent that Mr Noonan was very much in the executors’ camp, understandably, given that the executors controlled both the estate and Noriel. Therefore, while this is somewhat conflated with the question of authority, any proposal by Mr Noonan was treated by Mr Hearn with the seriousness it deserved. Upon receipt of the 17 March valuation, Mr Hearn instructed PKF to review the valuation (as was contemplated in the exchange between Mr Hearn and Mr Spear on 4 March 2015), and Mr Noonan, in the 11 May email, asked Mr Hearn whether Mrs Birdsey was ‘happy to accept the [17 March valuation] for the purpose of division of her mother’s estate’. A reasonable observer, having regard to the terms of the 18 March email, in the context of the previous correspondence, is more likely than not to conclude that this query was a prelude to the finalisation of an agreement; and
(e) it is difficult to see the terms of the 10 June email as anything but an acceptance of an offer. In effect, Mr Hearn was saying ‘we agree with the price, and once the funds are available, put them in my client’s name in WJM’s trust account’. It was noteworthy that there was no response by Mr Noonan to the effect that ‘no, I have to seek the executors’ instructions before we finalise the matter’.
Counsel for the executors submitted that there could have been no offer capable of acceptance on 10 June 2015, because the mechanism by which Mrs Birdsey’s shares would be purchased had not been finalised (although at another point during the course of the hearing counsel seemed to concede that there could be a contract if all that was agreed was a price). In my view, the uncertainty concerning the identity of the party which would acquire Mrs Birdsey’s shares is not fatal to the question of whether there was a concluded agreement. The fundamental terms of the agreement were concluded on 10 June 2015, being that Mrs Birdsey agreed to dispose of her shares in Noriel for a price of $775,919.
As noted in paragraph 61 above, it is not fatal to a party seeking to assert the existence of a contract if there is some uncertainty in its terms, or if a party can perform its obligations in more than one way. The courts will generally strive to give effect to commercial bargains. Notwithstanding that the parties in the current case are closely related, the nature of the transactions being contemplated and the sums at stake confer a commercial, rather than domestic, flavour upon the dealings between the parties. The fact that Mr Hearn was prepared to contemplate a share buy‑back of Mrs Birdsey’s shares by Noriel, rather than a purchase by the executors, is not inconsistent with there being a binding agreement, as it was of no real concern to him, PKF, or indeed Mrs Birdsey how the funds were to be raised: their concern was the price.
As for the conduct of the parties after 10 June 2015, during the course of the hearing, counsel for the executors submitted that Mrs Birdsey’s advisors did not contend there was a concluded agreement until Mr Hearn’s letter to Monahan Legal of 8 October 2015 (see paragraph 27 above). With respect, that submission is not correct. The assertion that there was a binding agreement for the acquisition of Mrs Birdsey’s shares for $775,941 was first made in the letter from Mr Dillon to Mr Noonan dated 9 July 2015. No response to this letter was in evidence. Mr Hearn’s letters to WJM on 3 August 2015, and his letter to Mr Noonan of late August 2015 both assert an agreement on the part of the executors to pay out Mrs Birdsey based upon the 17 March valuation. No direct assertion to the contrary was made until Monahan Legal’s letter of 21 September 2015, which asserted (unsustainably, as it turned out) that there was an agreement of a different character, being an agreement with respect to the value of the estate’s shares in Noriel. Accordingly, to the extent that the parties’ post-contractual conduct is relevant to the question of whether in fact a contract has been formed, the weight of evidence favours Mrs Birdsey’s position. There was no direct denial by the executors of the existence of an agreement between 10 June 2015 and 21 September 2015: rather, the effect of the (limited) correspondence emanating from the executors’ camp was to the effect that the executors had changed their minds, and that ‘matters concerning Noriel are still being considered’. Further, while the subjective opinions of the parties are of no great relevance to the question of whether an agreement was reached, it is apparent from Mr Gunn’s draft email to Mr Noonan of 23 August 2015 that the executors acknowledged that the situation was ambiguous to say the least.
In summary, I have found that the executors conferred upon Mr Noonan actual authority to negotiate with Mrs Birdsey’s advisors concerning the divestment of her shares in Noriel, and by their conduct, and that of their agent WJM, cloaked Mr Noonan with the ostensible authority to reach a concluded agreement for the acquisition of Mrs Birdsey’s shares at a particular price. Further, I have found that the 18 March email constituted an offer to acquire Mrs Birdsey’s shares based upon the 17 March valuation, and this offer was accepted by Mr Hearn on 10 June 2015.
I shall hear further from counsel on the form of order and the question of costs.
---
[1]Given that the resolution of the dispute between the parties turns on an objective analysis of the communications between the parties, it is necessary to reproduce a substantial portion of this correspondence in order to demonstrate the contents and context of these communications. While substantial portions of this correspondence concern the affairs of the estate, rather than Noriel, the complete correspondence provides some context against which the terms of the critical correspondence can be evaluated. Those portions of the correspondence up to and including 10 June 2015 (the date upon which it is said the alleged agreement was formed) which are directly relevant to the issues in dispute have been highlighted.
[2]No copy of this letter is in evidence.
[3]This should be 23 January 2015.
[4]The relevant sections of the file note reads as follows:
“The brother and sister do not agree to the company being wound up and wish to pay out Mrs Birdsey. He took that (sic) provided she receives full value for her one-third entitlement in the company she would be content with that and this would mean the company would run under the control of her brother and sister. I told him I believe that would be the case – the accountants will all have to carry out a full evaluation (sic) and for the purpose to pick a date upon which all equity shares in the stock exchange would be valued etc. But in principle there seems to be no reason why this would not suit Mrs Birdsey in place with (sic) the company being wound up.”
[5]On 11 May 2015, Mr Noonan wrote to the executors in the following terms: ‘Dear Greg and Susan, Harry Hearn contacted me last Thursday and then confirmed in writing last Friday that Jennifer is agreeable to transferring her shares in Noriel Pty Ltd to yourselves. I have requested that they confirm whether the valuation of the company as at 17 March 2015 will be accepted as the valuation for the purpose of dividing the estate or whether a further valuation is required. Once we receive advice on this we should be in a position to move forward and finalise the estate.’
[6]During the course of the parties’ submissions (and this is consistent with the correspondence between the parties), it became clear that the mechanism by which Mrs Birdsey was to receive the value of her shares in Noriel was not of particular significance, at least not to Mrs Birdsey. The real issue in dispute between the parties is whether the appropriate valuation date is 17 March 2015, or 30 June 2015. I can infer by reason of the existence of this proceeding that the value of the shareholding must have diminished significantly over this relatively brief period, although I remain unaware as to the actual amount of the discrepancy.
[7]I have not referred to those portions of the affidavit evidence which were the subject of objections, which I have accepted.
[8]Most of the communications from the executors to Mr Noonan and/or WJM were authored by Mr Gunn, but Ms Vincent was copied in on most, if not all of the relevant communication.
The email exchange between Mr Gunn and Mr Noonan on 5 November 2014 reads as follows: “Hi Greg
Yes we can sell shares and make a payment to Jenny but as you said this will trigger a tax liability in the company. Given you each hold different classes of shares in the company this may be achievable as we need to pay a dividend to Jenny to the exclusion of Sue and yourself. This may cause further tax consequences for Jenny.
I will call Jenny’s solicitor and attempt to obtain an update.”
Mr Gunn replied as follows:
“Thanks Tim
Please keep your separate bill for matters dealing with Jenny (the estate is not paying for her decision to disengage from the family).
Thanks.”
[10][1893] AC 552.
[11]GE Dal Pont, Law of Agency (Lexis Nexis Butterworths, 3rd Edition, 2014) [7.4] (‘Dal Pont’).
[12]Saunders v Leonardi (1976) 1 BPR 9409, 9423.
[13]Dal Pont, [8.5].
[14][1964] 2 QB 480.
[15]Ibid, 503.
[16]Dal Pont, [20.14].
[17]See Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72; Essington Investments Pty Ltd and ors v Regency Property Pty Ltd [2004] NSWCA 375.
[18]Toll (FGCT) Pty Ltd v AlphaPharm Pty Ltd (2004) 219 CLR 165, [40].
[19]Woolcorp Pty Ltd v Rodger Constructions Pty Ltd [2017] VSCA 21, [95].
[20]NC Seddon and MP Ellinghaus “Cheshire & Fifoot’s Law of Contract” (Lexis Nexis Butterworths, 9th Edition, 2008) [5.11]. [6.6], [6.7].
[21]Ibid [6.1].
[22]Ibid, [6,7].
[23][2017] VSC 29 [151]-[155].
[24]The position is aptly summarised in Mr Hearn’s letter of instruction to PKF on 25 March 2015, where he states:
‘The brother and sister wish to continue the company in operation whereas my client Mrs Birdsey wants the company to be wound up so that she then receives cash payment for her one-third net interest in the company.
However, her siblings do not agree to this course and as they can outvote her there appears to be no alternative but to accept the siblings’ proposal that they buy out her interest in the company.’
[25]By way of example, in his letter of 13 January 2015, Mr Noonan stated, among other things:
‘the executors have asked that I write to you to provide you with further information to assist them in distributing the assets of the estate’,
‘While Greg and Susan have not committed to this option it is being considered subject to your further instructions’ and
‘Could you please provide some instructions as to your wishes by 23 January 2014 (sic)?
If you have any queries regarding the above please do not hesitate to contact me.’
[26]Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72,80.
[27]See Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548-50 (Gleeson CJ) cited in Vass and ors v Commonwealth of Australia (2000) 169 ALR 486, 494.
[28]That the objectives of the parties are of some relevance to ascertaining whether the conduct of the parties resulted in a binding agreement is consistent with the statement of Alsop J (as he then was) in Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) (2001) 117 FCR 424, 525 that:
‘The essential question in such cases is whether the parties’ conduct … including the evident commercial aims and expectations of the parties, reveals an understanding or agreement …’
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