Broughton v C S and T Pty Ltd
[2010] VCC 1350
•4 October 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL - GENERAL DIVISION
Case No. CI-08-04873
| JOHN ANTHONY SEYMOUR BROUGHTON | Plaintiff |
| v | |
| C S & T PTY LTD | First Defendant |
| RICHARD EWEN CAMERON | Second Defendant |
| RAYMOND DEREK WHITE | Third Defendant |
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| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 7- 10 June 2010 |
| DATE OF JUDGMENT: | 4 October 2010 |
| CASE MAY BE CITED AS: | Broughton v C S & T Pty Ltd & Ors |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 1350 |
REASONS FOR JUDGMENT
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Catchwords: CONTRACT – retiring member of accountancy practice – guarantees given by principals and term deposits lodged with bank to secure finance – alleged agreement that co-principal would arrange for retiring principal to be relieved of liability of guarantees and for release of term deposits – agreement in principle – agreement not reached.
ESTOPPEL – alternative to contract claim – whether representation.
GUARANTEE – right of guarantor to seek indemnity from co-guarantors.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R N Cameron | Marshalls & Dent |
| For the Second and Third | Mr S P Woolley | Voitin Lawyers |
| Defendants HIS HONOUR: |
1 Mr John Broughton, the plaintiff, is an architect of many years’ experience. He was in practice with Mr Richard Cameron and Mr Raymond White, the second and third defendants.
2 Mr Broughton and Mr Cameron had first joined a previous version of the practice in 1970.
3 In 2000, the practice became the property of a unit trust and C S & T Pty Ltd, the first defendant, became the trustee of that trust. The unit holders of the trust are the trustees of the principals’ family trusts. Under the new legal structure, Mr Broughton became a director of C S & T and was employed by it as an architect. There was no written partnership agreement.
4 In 2006, Mr Cameron decided that he would retire from the practice on 30 June 2007. In September 2006, he notified Mr Cameron and Mr White of that intention.
5 In February 2004, Mr Broughton, in his capacity as a director, provided a guarantee to the National Australia Bank (“NAB”) to secure the practice’s overdraft. In February 2006 and May 2006, he provided further guarantees to the NAB. He also lodged term deposits totalling $150,000 with it by way of security. C S & T agreed to pay an additional top-up interest rate on Mr Broughton’s term deposits. Mr Broughton’s pleading alleges that he provided set off letters over the three term deposits.
6 This proceeding raises the issue of whether Mr Broughton made an enforceable agreement with Mr Cameron and Mr White concerning his legal liabilities following his retirement. The agreement is pleaded to have been made on or about 28 June 2007, being partly in writing, partly oral and partly to be implied. Insofar as it was written, it was contained in letters dated 29 June 2007 and 5 July 2007. Insofar as it was oral, it is alleged to have been contained in conversations on various dates between 30 September 2006 and 28 June 2007. It is alleged that in discussions between Mr Broughton and Mr Cameron and Mr White on and around 27 and 28 June 2007, it was agreed that they would arrange for Mr Broughton to withdraw the term deposits at the rate of $50,000 every four months after his retirement and for the release of Mr Broughton from the guarantees by 30 June 2007.
7 Declaratory relief, mandatory orders, specific performance and damages are sought.
8 From one perspective it was a matter for the NAB to determine when, and on what terms, it would release Mr Broughton’s guarantees and associated term deposits. Mr Cameron and Mr White could only use their best endeavours to achieve that objective. However, the case was not argued at that level and Mr Broughton contended that Mr Cameron and Mr White had agreed to achieve the release of the guarantees and term deposits.
9 Obtaining the release of a retiring partner or director’s guarantees is a common issue in professional or commercial life. Often it is the subject of written agreement. In this case it was not.
10 Mr Broughton’s case, as commenced, alleged that C S & T was a party to the agreement and bound by it, as Mr Cameron and Mr White were. C S & T was placed into voluntary liquidation on 25 September 2009 and the proceeding against it was struck out before trial. Mr Cameron and Mr White pointed to the change to the manner in which Mr Broughton described the agreement, because the proceeding could not be pursued against the company. I do not consider that Mr Broughton’s case fails because he can no longer proceed against C S & T. He alleged that Mr Cameron and Mr White agreed to arrange the release of his guarantee and term deposits. That case can still be considered even though the case against C S & T cannot proceed. Mr Cameron and Mr White argued that when evidence identified that they used the pronoun “we” to promise that particular action would be taken, that they were in fact referring to the company. That argument can be considered even though the company has ceased to be a party to the proceeding.
11 Mr Cameron and Mr White also gave guarantees of the company’s loans. Mr Cameron also lodged term deposits, but Mr White did not.
12 The NAB has not called on the guarantees nor released the term deposits.
13 The defendants admit that Mr Broughton agreed to retire as an employee and as a director, but deny that any agreement was reached about the release of the guarantees or the withdrawal of the term deposits.
14 Mr Broughton also alleges that Mr Cameron and Mr White are estopped from denying the existence of a retirement agreement, contending that by reason of their conduct, he was induced to act in reliance on their promises. In particular and he did not take any steps to give notice to the NAB that he was retiring and did not act to protect his position.
15 Mr Broughton also makes an alternative claim for an indemnity from his co- sureties for any claim that the NAB may make against him, or in respect of any amount that the NAB may deduct from his term deposits.
16 A separate proceeding was brought by C S & T against Mr Broughton. Mr Cameron and Mr White were joined as plaintiffs to that proceeding. Both proceedings were listed for hearing on the first day of the trial. Counsel for the plaintiffs in the C S & T proceedings advised the Court that that proceeding was withdrawn.
17 The issues in the proceeding are:
(i)
Did Mr Broughton agree with Mr Cameron and Mr White that they would arrange the release of his guarantees to the NAB and the return of his term deposits in association with his retirement?
(ii)
Are Mr Cameron and Mr White estopped from denying the obligations that would exist if an agreement in the terms described in issue (i) had been made?
(iii)
Is Mr Broughton entitled to a declaration that Mr Cameron and Mr White are obliged to indemnify him against all claims that the NAB may make against him arising from the guarantees and the letters of set off?
18 To answer these questions it is necessary to set out the relevant dealings between Mr Broughton and Messrs Cameron and White from the time that Mr Broughton gave notice that he wished to resign from the practice and withdraw his guarantees. Much of the evidence as to the contents of conversations has a similar content. However, as Mr Broughton’s case depends in part on those conversations, some repetition is necessary.
Mr Broughton Gives Notice of his Resignation from the Practice
19 On 30 September 2006, at a directors’ meeting, Mr Broughton handed to Mr Cameron and Mr White a letter advising that he intended to retire on 30 June 2007. He stated in that letter:
“Nine months’ notice of my retirement is a reasonable time to hand things over, and for the ongoing-directors, and the office, to make arrangements, for example, funding security for bank overdrafts and loans and handing over project and administrative responsibilities.”
20 Mr Broughton gave evidence that in addition to the contents of the letter, he told Mr Cameron and Mr White that he wanted his entitlements to be paid out when he retired and that he particularly wanted his term deposits and guarantees with the NAB to be released.
21 According to Mr Broughton, Mr Cameron and Mr White replied: “We will agree to that.” In cross examination, he said that they agreed with his general proposals, and that they agreed in principle.[1]
[1] Transcript (“T”) 83
22 Mr Cameron, in evidence-in-chief, stated that there was no discussion regarding the terms of Mr Broughton’s retirement and no mention of the NAB. His recollection was that he and Mr White stated that they would endeavour to satisfy his requirements and accepted the fact that he was going to leave in nine months’ time. This was the first that they had heard of his retirement and they were still taking in the news.
23 Mr White’s evidence was that Mr Broughton announced his retirement, and stated that he would be looking to prepare a list of what was owed to him and that he would expect some work would need to be done on that. He did not believe that there was any discussion of Mr Broughton’s bank deposits.
Further Guarantees Given on 12 October 2006
24 Mr Cameron gave evidence that the practice had cash flow difficulties and that the NAB kept it on a “tight watch” and required that the partners provide details of the level of their invoicing. There was a major difficulty with a PAYE payment owing to the Australian Taxation Office. Mr Broughton stated that a notice had been issued by the ATO against the directors.
25 Mr Cameron, Mr Broughton and Mr White met with the NAB in October 2006 and sought funding to restructure the practice’s loan facilities with $300,000 as an overdraft, $300,000 as a loan and $20,000 for a company credit card. Repayment of the loan was to occur at the rate of $8,000 per month. The security to be provided included term deposits of $150,000 that Mr Cameron and Mr Broughton had each lodged previously, and additional guarantees that they and Mr White were required to sign. The guarantee was for a basic liability of $620,000 together with certain additional liabilities in respect of such matters as costs, expenses and interest.
26 Mr Broughton stated that he felt that he should tell the NAB that he was retiring in eight months, but Mr Cameron told him:
“No, you cannot tell the bank that because it might upset our relationship
with the bank.”[2]
[2] T 38
27 Mr Broughton said that he felt that Mr Cameron’s comments were emotional blackmail to induce him not to say anything. Mr Broughton did not tell the Bank of his intention.
28 Mr Cameron’s account of this conversation was that he explained to Mr Broughton that:
“If we in fact rocked the boat that we in fact would not be given or granted the facilities that we were chasing and as a consequence there would be a foreclosure on the business and we would lose everything because it was the tax department which were chasing the money”.[3]
[3] T 213
November 2006
29 Mr Broughton gave evidence that later in 2006 there were further directors’ meetings at which he spoke about the need for the ongoing directors to replace his bank guarantees. The other directors said that they would.
30 Mr Cameron gave evidence that there were a lot of informal discussions as part of normal office interaction, in which Mr Broughton raised the question of his guarantees and term deposits. He would generally respond that he and Mr White were trying to work out ways and means of resolving the matter. He could not recall the date of meetings or the exact words used.
31 One such meeting occurred about 8 November 2006, at which Mr Broughton spoke of the need for the ongoing directors to replace his bank guarantees. His evidence was that he told Mr Cameron and Mr White that he had given them nine months’ notice back in September 2006 and that they had to replace them by 30 June 2007. He stated that they answered “yes, we will”.[4]
[4] T 39
32 According to Mr White, Mr Broughton raised the issue of money that was owing to him and the issue of a replacement of his bank guarantees. He acknowledged that that was what Mr Broughton was asking and that it was something to take into account, but stated that neither he nor Mr Cameron agreed to his proposal. Mr White stated that he would have been very careful not to have promised anything.
33 Mr Cameron’s evidence was that in such discussions his general response was that he was looking into things and trying to work them out. He stated that there were discussions about the status of the practice’s accounts, and the attitude of the Bank, and how Mr Broughton’s retirement would affect the release of the guarantees.
January 2007
34 Mr White raised concerns about the company trading whilst insolvent. This led to a meeting with Brooke Bird, accountants, on 12 January 2007. They discussed the need for an administrator to be appointed to the company. Brooke Bird’s advice was that the company was not trading whilst insolvent and that it still had debts that were realisable.
35 Another directors’ meeting occurred on 15 January 2007, during which Mr Broughton asked how Mr Cameron and Mr White had gone in replacing his bank guarantees. According to him, they answered that nothing much had been done. He replied that they had received good notice and asked them to put something in place to replace the bank guarantees by the time he retired on 30 June 2007. According to Mr Broughton, they said “Yes we will do it.”[5] He agreed that neither Mr Cameron nor Mr White told him that they would personally replace him as a guarantor.
[5] T 40
36 Mr Cameron said that he could not recall the words used. Mr White could recall Mr Broughton’s statements, and stated that he would have replied that nothing much had happened.
37 Mr Broughton stated that at the end of most directors’ meetings he would ask how they were going with replacing his financial arrangements and would receive a shrug of their shoulders.
Letter of 5 February 2007
38 On 5 February 2007, Mr Broughton wrote to Mr Cameron and Mr White, setting out what he wanted to receive from the firm when he retired. This included payment of interest due, payment of monies for long service leave and annual leave, outstanding superannuation payments and salary sacrifice payments. He also stated that he wanted the release of his $150,000 guarantee with the Bank held in accounts in his name. This may have been intended to refer to his term deposits. The letter also asked for indemnification from the ongoing directors for all claims arising from the practice and the signing of a documented retirement settlement.
39 Mr Broughton stated that the letter was prompted by a conversation with Mr Cameron, who had asked him to list what he wanted when he retired. He said that later Mr Cameron said: “We may have concerns about the timing for releasing your term deposits.”[6] He stated that he had written a letter in response, but was unable to locate it.
[6] T 41
40 A directors’ meeting occurred on 6 February 2007. According to Mr White, Mr Broughton specifically stated that he would be looking to get his bank guarantees released. Mr White gave evidence that he acknowledged Mr Broughton’s statement, and did not make any real comment as to what would happen. He had concerns as to how Mr Broughton’s requests would be dealt with and he knew that the practice was dealing with financial issues.
41 Mr Cameron stated that the meeting was primarily related to taxation issues.
42 Mr Cameron gave evidence that during the period when these conversations occurred, there were discussions about whether anyone else in the practice might want to become unit holders in place of Mr Broughton. However no replacement was found.
Meeting of 14 February 2007
43 Mr Broughton gave evidence that on 14 February 2007, a meeting of directors occurred, followed by a meeting of senior staff. He advised them of his retirement. At the directors’ meeting, he asked Mr Cameron and Mr White how they were going with making arrangements about his guarantee and term deposits and the answer was “no, no progress”.[7] Mr White agreed with this evidence.
[7] T 42
44 Mr White gave evidence that prior to 14 February 2007, the partners had discussed the need to get in the outstanding client debts, which stood at a substantial amount. He stated that he had no financial reserves to put into the company.
45 Mr Cameron said that he and Mr Broughton had regular conversations in which Mr Broughton asked him about the progress of his requests. Mr Cameron stated that in May 2007, he told Mr Broughton: “I don’t know when we can replace them, we’ve got to see how we’re going, it may take some time”.[8]
[8] T 43
46 Nothing of great consequence to the present issues appears to have occurred between February and May 2007.
Letters of 23 and 25 May 2007
47 On 23 May 2007, Mr Broughton wrote to Mr Cameron and Mr White confirming his intention to retire and to withdraw his bank guarantees, and suggesting that alternative arrangements be put in place.
48 Mr Cameron replied, acknowledging Mr Broughton’s correspondence and stating, in part:
“We are taking advice regarding the matter and will forward a proposal
shortly.
As part of that advice we note that prior to any settlement, withdrawal and removal of responsibilities as a director of CS & T Pty Ltd, we will have to prepare a total assessment of the financial performance of the company and account for outstanding matters which may not be concluded by 30 June.
We trust you concur with this sentiment and look forward to a satisfactory and amicable resolution to the matter.”
49 Mr Cameron stated that he wanted to find out if Mr Broughton owed the practice money or whether the reverse was the case.
50 Mr Broughton said that there was ongoing discussion in the office about the replacement of his guarantees. At no time was he told that they would not be replaced, rather it was just a matter of when they would be replaced.
51 Two days later, on 25 May 2007, Mr Broughton replied, in writing, acknowledging Mr Cameron’s letter, and stating:
“Thank you for your letter of 23 May 2007. I appreciate that you are
making arrangements for my retirement from the firm.
I also understand that it will take some time, after 30 June 2007, to finalise the firm’s accounts for 2006-2007. I am advised that this should be completed well before 30 September 2007. That date can be set down for execution of my Exit Agreement.
I am also advised however, that the withdrawal of my bank guarantee is a separate issue, and that it is mandatory that alternative arrangements be put in place so that I can withdraw my NAB term deposit bank guarantee before the end of the financial year.
I therefore ask that you treat this matter of alternate bank guarantees urgently, so that you have the necessary arrangements in place, with the NAB, well before Thursday 28 June 2007.
I have spoken to the Bank and they advise that the period leading up to the end of the financial year is a busy time for them. So, depending on what arrangements you make, it may take some time, i.e., a week plus for the Bank to put things in place, hence the urgency.
I look forward to your co-operation in all this.”
[emphasis in original]
52 Mr Broughton stated that he asked Mr Cameron if he could put the arrangements that he wanted in place, and he replied that he may have difficulty replacing the term deposits at the time of his retirement, but that “we will replace them but it won’t necessarily be at that date”.[9] Mr Broughton described the situation as one in which Mr Cameron and Mr White had agreed to his requests, but not the timing.
[9] T 48
53 Mr Broughton referred to the guarantee as a separate issue to the term deposits which were more to do with cash flow. In his view, the bank guarantees could be replaced by other property securities straightaway on his retirement. He agreed that there was never any mention by Mr Cameron and Mr White that they would replace the guarantees by a specific time.[10]
[10] T 95
54 Mr Cameron gave evidence that he did not believe that he or Mr White told Mr Broughton that they would release the term deposits, but that he had said that the timing of any release would be difficult. He gave evidence that he and Mr White were endeavouring to find ways and means of securing the release of the guarantees and term deposits, but he believed that Mr Broughton owed them money and they were looking to offset that debt against monies owed to him. [11]
[11] T 226
The Draft Retirement Agreements
55 A number of draft agreements dealing with partnership arrangements and the retirement of a previous partner, Mr Castles, were referred to in evidence. They had been considered by Mr Broughton or Mr Cameron for the purposes of preparing a document to record the terms of Mr Broughton’s retirement. One was drawn at the time when C S & T was formed, as a draft partnership agreement, although it was never executed. The others recorded in draft the terms of Mr Castles’ resignation. Mr Broughton stated that Mr Cameron gave him the partnership document and suggested that he do something with it to take account of his position. Mr Broughton thought that it was not the right document. He wrote a note to Mr Cameron suggesting that they use Mr Castles’ retirement agreement, which had been prepared about eighteen months previously. He wrote over a version of the Castles’ Agreement to make it applicable to him and left it on Mr Cameron’s desk on 24 May 2007, along with two pages of handwritten notes, in which he wrote:
“It’s just a matter of over-writing JSC’s termination agreement – with new
dates and dollars.”
56 Mr Broughton expected that an appendix would be added to the document to deal with monetary arrangements.
57 The Castles’ retirement agreement, which Mr Broughton amended, provided that the partner would resign and transfer his shares and units to the person nominated by Mr Cameron and Mr White. The agreement contained an indemnity by the continuing proprietors to the outgoing proprietor of all claims, demands, actions and suits that might arise.
58 Mr Broughton stated that he had given a version of the agreement to Mr Cameron in February or March 2007.[12]
[12] In the form of the document at Defendants’ Court Book ( “DCB”) 327
59 Mr Cameron’s evidence concerning these retirement documents was confused. He stated that the only agreement that he received was the proposed partnership agreement,[13] together with Mr Broughton’s handwritten notes on the agreement contained on a separate page. Mr Cameron stated that he received that document from Mr Broughton in about February/March 2007, but then corrected this evidence to say that he received the marked-up version and handwritten notes on 24 May 2007.[14]
[13] The document at DCB 349
[14] T 219-225 and see counsel’s final submissions at T 334 -337
60 Mr Cameron denied seeing the proposed Castles’ retirement agreement in the context of Mr Broughton’s retirement until the days leading up to the hearing. Mr White denied seeing it at all and said that he had only seen the memorandum of handwritten comments shortly before the proceeding commenced.
61 Mr Boyle, Mr Broughton’s solicitor, gave evidence that he did some work on amending a version of the Castles’ retirement agreement, but that it was not finalised.
Conversations between Mr Broughton and Mr Cameron and Mr White on 27
June 200762 Mr Broughton stated that on 27 June 2007 he spoke to Mr White and suggested that because he and Mr Cameron were having trouble replacing the term deposits, that they be replaced at the rate of $50,000 every four months, with the entire $150,000 being replaced by 30 June 2008. According to Mr Broughton, Mr White stated that that was “OK by me”[15] or a similar expression.[16] Mr Broughton gave evidence that Mr Cameron said substantially the same thing when he told him of the proposal later that day or the next. His evidence was that they certainly said “yes” to his proposal.[17]
[15] T 49
[16] T 108
[17] T 117
63 Mr Broughton stated that there were a couple of brief directors’ meeting around this time, at which Mr Cameron advised him that he would have to wait in respect of his entitlements until “we know a bit more about our accounts”.[18]
[18] T 49
64 Mr Broughton stated that it was crystal clear to him that his proposal for the release of the term deposits had been agreed to by Mr Cameron and Mr White, although the timing was another matter, which he thought was sorted out just before he retired. This was a reference to his proposal for the withdrawal of the term deposits in stages over a twelve-month period.
65 Mr Cameron did recall discussions regarding term deposits at a meeting on 28 June 2007. He said that there was a proposal from Mr Broughton about replacing his term deposits every four months, but he said that he never agreed to it, it was simply a proposal.[19]
[19] T 164
66 Mr White gave evidence that when Mr Broughton made the offer of a gradual reduction of his term deposits, that he would have replied that it was a reasonable thing for him to do. He would not have made any agreement. He was aware of his own and the company’s financial situation and he could not guarantee anything. He denied agreeing with Mr Broughton to replace him as a guarantor. He considered that Mr Broughton shared in the responsibility to replace the guarantees and that he owed the company money. He was aware that each of the partners had been drawing profits in advance of, or in lieu of, salary, and that they would be treated as director’s loans.
Letter of 29 June 2007
67 On 29 June 2007, Mr Broughton’s lawyers, Marshall & Dent, wrote to Mr Cameron and Mr White confirming Mr Broughton’s retirement and stating, in part:
“The arrangements for Mr Broughton’s retirement are proposed as
follows:
1 His last day of work with the firm will be Friday 29 June 2007.
2 He is resigning his directorships with C S + T and associated companies effective 30 June 2007.
3 He will leave in place his three NAB Term Deposit Bank Guarantees, to assist the continued operation of the firm, for a period of twelve months, withdrawing each of the three $50,000 guarantees progressively at four month intervals, or nearest convenient date thereafter, that is, on or after 30th October 2007, 28th February 2008 and 30th June 2008.
4 As long as each of the three bank guarantee term deposits remain in place, he is to be paid interest at the rate of 11.75 per cent per annum (0.0321917 per cent per day) against each term deposit remaining in place. Interest payments are to be paid at the end of each month against monthly invoices issued by Mr Broughton.
. . . .”
The letter concluded:
“We believe our client’s proposal to resolve the matter is reasonable and we are therefore instructed to advise that we require your acceptance of the said proposal within seven days of the date hereof. In the event that the said proposal is not accepted as specified, our client will immediately instruct the bank to progressively withdraw his Guarantees. This will also occur if various interest and other payments are not met as specified above.”
68 Mr Broughton had instructed his lawyers that Mr Cameron and Mr White had said that they would have the guarantees and term deposits replaced, but were not sure of the date when that would occur.
69 Mr Broughton stated that he contacted Renshaw Dawson Lang, the practice’s accountants, to learn its financial situation, and was told that the practice was facing a loss of $400,000. He had some doubt about that figure.
Mr Broughton’s Retirement
70 Mr Broughton did retire and cease work at the end of June 2007. Through his family trust company, he still holds units in the C S & T Trust.
Letter of 5 July 2007
71 On 5 July 2007, Mr Cameron wrote to Mr Marshall of Marshall & Dent by way of reply, stating:
“We agree in principle with the proposal but the timeframe for its
implementation may require flexibility for the reasons stated below.
The items 3 and 4, together with a recent mediation result, will affect the financial results of 2006-2007, and possibly the draft results prepared for 2005-2006.
We are in discussion with our accountants to finalise each of the Directors’ loan accounts to 30th June 2007, and anticipate that we will have a first draft consolidated report within a month. At this stage we will be in a far better position to discuss the matter in detail, and prepare a settlement which acknowledges the total picture.”
72 Mr White stated that he and Mr Cameron considered that they could not agree to anything until the financial accounts had been prepared.
73 Mr Cameron said that he agreed in principle, but the time-frame required flexibility, because the company had to obtain the financial results and they may affect the arrangements that could be reached. [20]
[20] T 230
74 The accounts were not available until the middle of 2008.
Letter of 23 July 2007
75 On 23 July 2007, Marshall & Dent replied to Mr Cameron and Mr White, noting that they had sought time in which to prepare directors’ accounts and requiring that they be sent by close of business on 7 August 2007. The letter continued:
“Notwithstanding the above, our client requires the following payments to be made as a matter of urgency in accordance with the conditions outlined in our previous correspondence dated 29 June 2007.”
76 Reference was then made to outstanding payments for salary sacrifice, interest on the bank guarantee and salary of one week to be made by the company. Marshall & Dent’s letter concluded:
“As previously stated, we are of the view that our client’s proposal to resolve this matter is more than reasonable. Consequently, if our client does not receive his entitlements, as outlined above within seven days, our client will have no alternative but to instruct the bank to withdraw his Guarantees.”
Letter of 8 August 2007
77 On 8 August 2007, Mr Cameron wrote to Marshall & Dent in reply to the letter of 23 July 2007, stating that he believed that the money claimed by Mr Broughton was not outstanding and that the financial accounts were not available because long term debtors had not settled their accounts. He also stated that they had been unable to pay their debt to their accountants, but anticipated doing so that month and that the accountants would be instructed to process the accounts. The letter referred to the fact that the trading year 2005/06 generated a major loss for the company and that a further loss in excess of $120,000 was reported for 2006/07. The letter also stated:
“Mr Broughton is aware that to minimise taxation cash flow the directors agreed to convert salary into advances on profits from December 2006, and thus ‘salary’ and ‘salary sacrifices’ are treated as advances.
In view of this and further write offs of income from AHDG…, and the resolution of a contractual dispute with an employee, … we anticipate a further deterioration of the situation.”
78 Mr Broughton agreed that Mr Cameron and Mr White told him that they could not put up another $150,000 or supply another guarantee.
Telephone call between Mr Boyle and Mr Cameron - 28 August 2007
79 Mr Broughton contacted the NAB and told them that he was retiring and that he had an agreement with the firm to have his bank guarantee replaced. Mr Cameron received a call from the NAB regarding the security arrangements and expressing displeasure that Mr Broughton had approached them to replace his guarantees. He rang Mr Boyle of Marshall & Dent and said that the financial arrangements were on a knife edge and requested that he persuade Mr Broughton not to “rock the boat”. He stated that they hoped to come to some arrangement. Mr Boyle’s evidence placed this call on 28 August 2007. Mr Cameron was hopeful that some debtors would pay their bills and that he would be in a position to make some payments or come to some arrangements with Mr Broughton and to progress the finalisation of the accounts. Mr Cameron stated that he told Mr Boyle that he had put a lot of his money into the practice, and that some of the claims that Mr Broughton was making were only payable out of profits and the company had not made profits.
80 On 25 September 2007, Mr Cameron wrote to Mr Broughton, informing him that the practice had been paid some longstanding debts and that, in effect, this enabled the finalisation of the accounts for 2006 and 2007 and a final report on loan accounts and the position of all the directors to occur. The letter stated:
“Once available, we will forward them to you, with an explanation of all the workings and allowances to assist your accountants and yourself regarding the final resolution of your withdrawal.
We look forward to a positive result.”
Letters of June 2008
81 On 12 June 2008, Mr Boyle wrote to Mr Cameron and Mr White demanding payment of Mr Broughton’s entitlements in the sum of $83,993.
82 By letter dated 19 June 2008, Mr Cameron wrote to Mr Broughton forwarding copies of the C S & T Unit Trust accounts for the year ending 30 June 2008.
Letter of 26 August 2008
83 Marshall & Dent sent another letter of demand on 26 August 2008, which stated, in part:
“It was agreed by you that you would procure our client’s release from the terms of any guarantees that he had given in favour of C.S & T to secure its borrowings from the NAB at the expiration of twelve (12) months after his retirement from the practice on 30 June 2007.
This has not occurred. Our client is not prepared to tolerate this position any longer.”
The Practice’s Financial Accounts
84 The accounts disclosed a loss before income tax of $407,377.91 for 2007 and $382,165.94 for 2006. They also included a calculation of Mr Broughton’s position as at 30 June 2007, showing that he owed the practice $269,426. This calculation took into account the amount owed to Mr Broughton for employment entitlements, the account balance in the practice’s discretionary trust, as well as negative balances in the company’s overdrawn loan account and his one-third share of the deficiency in the balance sheet of entities associated with the practice.
85 Mr Broughton’s evidence was that he had received advice from his accountant that he did not owe the sum shown in the accounts and that some of the debits contained in them that affected him should have been reversed.
The First Issue: Did Mr Broughton agree with Mr Cameron and Mr White that they would arrange the release of his guarantees to the NAB and the return of his term deposits in association with his retirement?
The Parties’ Submissions on the First Issue
Submissions of Mr Broughton
86 Mr Broughton alleges that he entered into a retirement agreement with the defendants. He argued that the evidence established that Mr Cameron and Mr White had agreed to arrange the release of the term deposits and guarantees.
87 Mr Broughton placed reliance on the admission in the Amended Defence of parts of his pleading about the Retirement Agreement, that on or about 28 June 2007, an agreement was entered into between all the parties at the time, that he would retire from employment in the practice and as a director of C S & T. He submitted that it could not have been the intention that he would leave the guarantees and term deposits in place indefinitely.
88 The Amended Defence contained the following pleading:
“In the conversations dated 23 May 2007 through 30 June 2007, the Second and Third Defendants advised the Plaintiff that whilst they agreed in principle that he should be released from his obligations under the Guarantees and Set-off Letters, no such release or indemnity would be provided until such time as the true financial position of his debt to the partnership, or vice-versa had been determined and, if necessary, the Plaintiff had paid back his share of the debt owing to the partnership”.
89 Mr Broughton relied on the fact that there was no attempt prior to the commencement of the proceeding to challenge his claim to be released from his obligations. Marshall & Dent’s letter of 28 August 2008 was not responded to.
90 Mr Broughton also relied on the need to, where possible, give effect to an alleged agreement. He relied on subsequent conduct of the parties after the date when he alleged that an agreement had been made.
91 Mr Broughton particularly relied on the failure of the defendants to produce minutes of directors’ meetings, as well as diaries and notes, in which his retirement may have been discussed.[21] He argued that his evidence of conversations was more precise and accurate than Mr Cameron’s and Mr White’s.
[21] Counsel for Mr Broughton relied on O’Donnell v Reichard [1975] VR 916
92 Mr Broughton also pointed to the differences between the case pleaded in the proceeding brought by the company and Mr Cameron and Mr White, which was based on a partnership or equity agreement and the defences relied on in the present proceeding. [22]
[22] T 185
93 Mr Broughton stated that he was not intimately aware of the company’s financial position nor of his colleagues’ financial positions, although they said that they could not replace the securities. He was aware that the company had not been paid for some major projects, but considered this to be a cash flow problem.
94 Mr Broughton disputed that he owed the company the amount recorded in the accounts and argued that the drawings in the accounts debited to him should have been reversed. They were equivalent to salary paid early from profit.[23] In any event, these issues did not affect his agreement with the defendants but were a matter between the unit holders and the trustee.
[23] T 122
95 Mr Broughton argued that an agreement did not have to be signed to be effective and that he considered that he had reached an agreement in principle for the release of his term deposits.
96 The fact that the NAB, as a third party, had to agree to the release of the guarantees and term deposits was irrelevant. He referred to Helmos Enterprises Pty Ltd v Jaylor Pty Ltd, in which Young CJ in Eq, as a member of the New South Wales Court of Appeal, stated:
“The logical extension of this thinking would mean that wherever commercial contracts rely on or are related to third party contracts (something that occurs almost all the time), all those third party contracts would need to first be concluded in order to achieve completeness of the primary contract. This is obviously an impractical and commercially unrealistic situation, one which, as I have said above, is the kind of approach courts have deliberately moved away from.”[24]
[24] [2005] NSWCA 235 at [144]
97 Mr Broughton submitted that the agreement was certain, that he had upheld his part of the bargain and retired from the practice and therefore the contract had been partly performed. The argument that he Broughton could not be substituted or released went to the question of performance, not formation of a contract.
Submissions of Mr Cameron and Mr White
98 Mr Cameron and Mr White submitted that by 30 June 2007, the parties, including C S & T, had not reached a conclusion of the essential terms of Mr Broughton’s retirement and there was no intention by them to be bound to the performance of the agreement that he alleged. They particularly pointed to Mr Broughton’s solicitor’s letter of 29 June 2007 describing the arrangements for his retirement as being “proposed” and the company’s reply to the proposal. They submitted that the first suggestion of an agreement was in Mr Boyle’s letter of 26 August 2008.
99 Mr Cameron and Mr White referred to parts of the oral evidence in support of an argument that any promises they made were not unequivocal, clear or unambiguous. These included references in the evidence to an agreement in principle, questions as to timing, and that the timing of the release of the term deposits and guarantees may be difficult. It was submitted that the alleged promises were short of an unequivocal promise, lacked precision, timing and commitment.
100 C S & T’s accounts for the year ending 30 June 2007 were completed and led to the company requesting Mr Broughton to contribute the sum of $269,426. Mr Broughton declined to sign the accounts. Mr Cameron and Mr White submitted that the evidence of the amount owed by Mr Broughton supported the conclusion that no bargain had been reached.
101 Mr Cameron and Mr White also relied on the fact that the agreement was never recorded in writing. The evidence about the draft agreements indicated that Mr Broughton had contemplated a formal retirement agreement. It was agreed that a written agreement was never completed. There were essential parts of the agreement missing, not least the value of units in the C S & T Trust held by Mr Broughton’s family trust.
102 The agreement in principle referred to in Mr Cameron’s letter of 5 July 2007 was subject to conditions that had not been satisfied, including having the accountants finalise each of the director’s loan accounts.
103 Mr Cameron and Mr White pointed to Mr Broughton’s solicitor’s letter of 26 August 2008 which, for the first time, alleged:
“It was agreed by you that you would procure our client’s release from the terms of any guarantees that he had given in favour of C.S. & T. to secure its borrowings from the NAB at the expiration of twelve (12) months after his retirement from the practice on 30 June 2007.”
104 Mr Cameron and Mr White also submitted that Mr Broughton knew of the company’s financial position at the time of his retirement, including the possible issues of insolvency, which were raised at the meeting with Brooke Bird. He must have known, so it was argued, that the company would have difficulty replacing the guarantee, his term deposits, or finding another source of security.
105 Mr Cameron and Mr White relied on the principles stated in the High Court decision of Masters v Cameron.[25] They submitted that the third category identified in that decision was most applicable and that the intention of the parties was not to make a concluded bargain at all unless and until execution of a formal contract.
[25] (1954) 91 CLR 353 and PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487.
106 They referred to the recent decision of J & G Knowles & Associates Pty Ltd v Crowncross Pty Ltd,[26] in which Pagone J referred to a fourth category of case:
“… one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.”
[26] [2010] VSC 227 at [4] quoting from Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628 on appeal G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 637, and in turn from Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310, 317; see also Goulburn-Murray Rural Water Authority v Rawalpindi Nominees Pty Ltd [2010] VSC 166.
107 His Honour then added the following passage, which is relevant to the present case:
“Whatever the potential number of categories may be to the principle considered in Masters v Cameron, in each case ‘the decisive issue is always the intention of the parties’ which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances. Indeed it may not so much be a matter of there being four categories of cases, but that the one question of the intention of the parties may be revealed in many ways of which four have been conveniently described for exposition and analysis.”
108 Mr Cameron and Mr White also argued that there was no consideration passing to them in the alleged agreement with Mr Broughton.
Decision on the First Issue
Legal Principle
109 To determine whether the parties intended to create legal relations it is necessary to consider what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened.[27] The key question is what, viewed objectively, the parties intended by their conduct in particular the words that they used?
[27] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106 and the discussion in Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 applying G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (supra) and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 and County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
110 The question of whether the parties intended to create legal relations and whether the parties’ agreement had the effect of constituting an enforceable contract are distinct matters.
Application of Legal Principle
111 The evidence establishes that Mr Broughton did wish to enter into a binding contract with Mr Cameron and Mr White about the release of his guarantees and term deposits upon his retirement. However, considering the evidence objectively, Mr Cameron and Mr White did not so agree. I consider that the parties’ dealings, considered objectively, do not show a mutual intention to enter into a contract. I have reached this conclusion for the following reasons.
112 First, there was no clear and unequivocal statement by Mr Cameron and Mr White that they accepted Mr Broughton’s proposal and agreed personally to be responsible for his demands.
113 There were conflicts between the witnesses’ accounts of the conversations on which Mr Broughton relied. I considered that each witness was endeavouring to give a truthful account of the conversations as they recalled them. Mr Cameron conceded that his memory of the exact words used was not good. Mr Broughton and Mr White’s accounts of the conversations contrasted – Mr Broughton confident that he had an agreement subject to the timing of implementation, while Mr White was clear that he did not agree to Mr Broughton’s requests and only acknowledged them. It is true that Mr White’s evidence in respect of some of the conversations was not based on recollection of what he had said, but on his position that he had been careful not to agree to Mr Broughton’s requests.
114 I do not consider that Mr Cameron and Mr White agreed to implement Mr Broughton’s requests about the guarantees and term deposits. I consider that, in effect, their response to him was, that if it were possible, they would. A feature of the dealings between the parties was the statement in Mr Cameron’s letter of 5 July 2007 that:
“We agree in principle with the proposal but the timeframe may require
flexibility.”
115 I do not consider that this letter conveys an intent to be bound by a legally enforceable agreement, but rather indicates that in theory the proposal was acceptable, subject at least to agreement on a time frame. That phrase was followed in Mr Cameron’s letter of 5 July 2007 by the statement that once the financial accounts had been prepared:
“… we will be in a far better position to discuss the matter in detail, and
prepare a settlement which acknowledges the total picture.”
116 That response suggests that as at 5 July 2007, Mr Cameron and Mr White had not agreed to Mr Broughton’s proposal.
117 The failure of Mr Cameron and Mr White to produce on discovery documents that may have recorded details of meetings with Mr Broughton does not persuade me that those documents may have contained details of an agreement. This is a case where there was a substantial degree of written correspondence that provides an indication of the state of the negotiations between the parties at particular times.
118 Nor do I consider that there is anything in the manner in which the pleading in the other proceeding brought against Mr Broughton is framed that assists in the determination of this issue.
119 Second, the parties appear to have intended, or at least were considering, putting their agreement in writing. The fact that they did not do so is an indication that they did not reach a final agreement.
120 Third is the counter-offer made in June 2007 relating to the withdrawal of the term deposit in stages. This indicated that no agreement had been reached at that point. The solicitors’ letter of 29 June 2007 contained reference to “arrangements for Mr Broughton’s retirement are proposed as follows”.
121 Fourth was the fact that the company’s accounts had not yet been completed and it was possible, as later proved to be the case, that Mr Cameron and Mr White would assert that Mr Broughton owed money to the company. It is not necessary to determine whether that assertion was validly made, the fact that Mr Cameron and Mr White were uncertain about the extent of Mr Broughton’s indebtedness to the company makes it less likely that they would have agreed to his proposal.
122 Fifth, and connected with the fourth point, is the fact that the practice was in financial difficulties and this affected the financial capacity of the company, but also its principals. The three partners were aware of the financial difficulties confronting the practice. This was evidenced by the NAB’s requirement for further guarantees in October 2006 to support the continued provision of funding by the NAB. The practice experienced difficulty in paying its accountant to prepare the accounts. This factor makes it less probable that Mr Cameron and Mr White would have agreed to arrange the release of Mr Broughton’s term deposits and guarantees as they would in all probability have had to arrange for their replacement. Mr White was adamant that he could not have provided replacement term deposits.
123 For those reasons, I do not consider that, when the evidence is viewed objectively, Mr Broughton has established on the balance of probabilities that he, Mr Cameron and Mr White made the agreement on which he relies. The evidence supports the conclusion that Mr Cameron and Mr White expressed their agreement to arrange the release of Mr Broughton from the guarantees and the release of the term deposits when circumstances permitted it and subject to settlement of accounts with him. Viewed as such, there was no agreement to carry out those steps – not even an agreement to be completed at a date to be fixed, or within a reasonable time.
124 Ultimately, the release of the guarantees and the term deposits depended on the Bank’s agreement, which was expected to be forthcoming only if replacement guarantees were provided. Those replacements were unlikely to be provided if Mr Cameron and Mr White considered that Mr Broughton owed the practice money.
125 Although it is unnecessary to determine the issue, I consider that there is some substance in the argument that the agreement that Mr Broughton relied on, if established, may well have contained consideration flowing to Mr Cameron and Mr White. This would have depended on ascertaining the full terms of the Retirement Agreement and precisely what rights Mr Cameron and Mr White received as a result of Mr Broughton’s resignation.
126 Independently of the objectively determined intentions of the parties, there is the question of whether they had reached agreement on all the material terms of the alleged agreement. They did not agree on a time frame for the replacement of Mr Broughton’s guarantees and the release of his term deposits. They were waiting for the completion of the financial accounts. There was a failure to agree on an essential term, namely when the contract would be performed. This was a term essential and material to a binding agreement.
127 I therefore answer the first issue by deciding that Mr Broughton has not established the agreement on which he relies.
Issue 2: Are Mr Cameron and Mr White estopped from denying the obligations that would exist if an agreement in the terms described in the first issue had been made?
128 Mr Broughton also argues that Mr Cameron and Mr White are estopped from departing from their promises to arrange the release of his guarantees and term deposits. The estoppel is pleaded in considerable detail. In essence, Mr Broughton alleges that by reason of the Retirement Agreement that he reached with Mr Cameron and Mr White and the dealings between the parties, he was induced to act on the assumption that they would secure his release from his obligations under both the guarantees and the set off letters under which the term deposits were made. He acted on that basis by retiring and not taking steps to protect his position. The defendants knew he would so rely and he has suffered detriment. The detriment is that the company is now in liquidation, the NAB has refused to release the term deposits, refused to release him from liability under the guarantees and that he has incurred legal costs.
Mr Broughton’s Submissions
129 Mr Broughton relied on the statement of Deane J in The Commonwealth v Verwayen[28] and of Brennan J in Waltons Stores (Interstate) Ltd v Maher.[29] In the latter case, his Honour stated that:
“In my opinion to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid the detriment whether by fulfilling the assumption or expectation or otherwise.”
[28] (1990) 170 CLR 394 at 443-446
[29] (1988) 164 CLR 387 at 428-429
130 Mr Broughton relied on five matters to found the claim in estoppel. These included the conversations occurring on 30 September 2006 and prior to signing the guarantee on 12 October 2006 by reason of which he did not inform the NAB of his pending retirement, the subsequent conversations, the correspondence of 29 June 2007 and of 5 July 2007, his solicitors’ letter of 23 July 2007 and the continuing benefit that the defendants derived from the guarantees and term deposits being in place by reason of which the practice was able to continue with support form the NAB.
Mr Cameron and Mr White’s Submissions
131 Mr Cameron and Mr White challenged the basis of the estoppel upon which Mr Broughton relied. They pleaded, but did not develop in argument, the existence of a partnership between Mr Broughton and Mr Cameron and Mr White. They relied on the argument that Mr Broughton owed money to the company and pleaded that any action that he may have taken was based on a mistaken belief that the company was operating at a profit.
132 In final submissions, Mr Cameron and Mr White contested the basis of the estoppel upon which Mr Broughton relied. Mr Cameron and Mr White submitted that Mr Broughton must establish that a departure from the alleged promise was unconscionable, and establish definite and substantial reliance. He must establish that they had caused him to assume that either a legal relationship existed or a particular legal relationship would exist between them. Their actions, including their promises, relied on by Mr Broughton must be unequivocal and clear or unambiguous. No such promise was made in this case. In so far as Mr Broughton relied on promises by Mr Cameron and Mr White, using the word “we”, in describing what they would do, they were referring to the company.
133 Mr Cameron and Mr White submitted that Mr Broughton must establish that a departure from the alleged promises would unconscionable, and establish definite and substantial reliance. In addition, they submitted that Mr Broughton has failed to demonstrate any detriment.
Decision on the Second Issue
134 Mr Broughton has not established conduct by Mr Cameron and Mr White that would justify Mr Broughton assuming that they had agreed to arrange for the release of the guarantees and term deposits, either unconditionally, or at any particular time. It has not been established that they engaged in any conduct that would make it unconscientious for them to not arrange the release of Mr Broughton’s guarantees and term deposits.
Issue 3: Is Mr Broughton entitled to a declaration that Mr Cameron and Mr White are obliged to indemnify him against all claims that the NAB may make against him arising from the guarantees and the letters of set-off?
135 Mr Broughton submitted that he should receive $150,000 for the loss of the term deposits and an indemnity against any claims made by the NAB against him. However, he accepted that possibly the most that he could obtain was a declaration of indemnity.
136 In Friend v Brooker,[30] the High Court discussed the circumstances in which a declaration for contribution in favour of one surety against a co-surety could be made and whether there must be an imminent threat of a claim by a creditor. There is a divergence of authority about this issue, which the High Court did not consider necessary to resolve. It appears at least that the party seeking contribution or an indemnity must satisfy the court that he is ready, willing and able to pay his share of the debt.[31]
[30] (2009) 239 CLR 129
[31] Friend v Brooker (supra) [52]-[62]
137 There is an issue whether it is appropriate to make the declaration that Mr Broughton seeks at the present, when the NAB has not made a demand under the guarantee and there may be a dispute between the parties about Mr Broughton’s indebtedness to the company. Such a declaration may well be premature.
Decision on the Third Issue
138 Counsel, in final submissions, suggested that this point might be addressed further after I had decided the first two issues. I will follow that course.
Conclusion
139 Mr Broughton’s claims in contract and estoppel have not succeeded. I will hear the parties further about his claim for an indemnity and about costs.
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