Day v Gapes - [2025] SADC 83

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
DAY v GAPES & ORS
[2025] SADC 83
Judgment of her Honour Judge Thomas
11 July 2025
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - MATTERS NOT GIVING RISE TO BINDING CONTRACT
The applicant was an employee of the third respondent company from July 2014 until 2 December 2020. From 26 July 2017 until his employment ended, he was also a director of that company. The applicant claims that in a meeting in January 2017 with the two men who controlled the third and fourth respondent companies, a binding agreement was made to gift him a 5% shareholding in each company and appoint him as a director of the third respondent company. The applicant further claims that in a meeting in April 2017 with the two men and their external accountant and tax adviser, it was agreed to vary the earlier agreement to not formalise his 5% shareholding and treat his shareholder dividends as an employment bonus for tax purposes.
This case raises questions about the formation of a binding contract in the circumstances of informal dealings between the parties over several years in the absence of a contemporaneous written agreement. It is uncontentious that ultimately a binding contract was made for the applicant to be paid amounts calculated by reference to a percentage of shareholder dividends. The central factual dispute concerns the nature of the agreed payment arrangement. Was an agreement made for the applicant to be treated as the equivalent of a 5% shareholder in the companies (as he contended) or was it a bonus arrangement tied to his employment that only endured until his employment ended (as the respondents contended)?
At trial, the applicant did not press his primary case that he was a 5% shareholder in the companies. He was not. The real issue was his pleaded first alternative claim that an agreement was made to treat him as the equivalent of a 5% shareholder that entitled him to receive 5% of the dividends declared by the companies in perpetuity.
The applicant’s pleaded second alternative claim concerned a written profit sharing agreement prepared by the third respondent company’s accountant for its auditor in September 2020 on terms that were intended to record the existing agreement between the parties but did not completely.
Held, dismissing the applicant’s claims in their entirety as follows.
1.   On the reliable evidence as to what was said, there was no binding agreement made in the January 2017 meeting for the applicant to be gifted a shareholding in either company. In the proven circumstances, objectively viewed, there was no mutual intention manifested for the creation of a binding agreement on any matter discussed at this meeting.
2.   On the reliable evidence as to what was said, there was no binding agreement made at the April 2017 meeting to not formalise the applicant’s gift of a 5% shareholding in the companies and instead treat him as the equivalent of a 5% shareholder in all respects, including by entitling him to receive 5% of the dividends declared by the companies in perpetuity.
3.   On the reliable evidence as to what was said and done by the parties, the payment arrangement agreed between the parties was an employment bonus that was calculated by reference to 5% of the dividends declared and paid to the shareholders of the third respondent company, tied to his employment.
4.   The applicant’s claim regarding the fourth respondent company was misconceived. As a general partner, it was not entitled to any profits derived or assumed any liabilities incurred by the New Zealand partnership that conducted the New Zealand business and did not pay any dividends.
5.   On the reliable evidence, the alleged written profit sharing agreement signed by the applicant was never delivered to the respondents. When it was provided to the applicant, he refused to sign it and disavowed it as correctly representing the parties’ agreement about his entitlements. In the proven circumstances, objectively viewed, there was no mutual intention manifested for the creation of a binding agreement on the terms of the profit sharing agreement to the extent they did not reflect the parties’ existing agreement.
6.   The profit sharing agreement did not accurately record the parties’ agreement for the applicant to be paid an employment bonus in so far as it referred to the net profit of the third respondent company as distinct from dividends declared and paid to shareholders from net profit and monthly payments.
Companies Act 1993 (NZ); Corporations Act 2001 (Cth); Limited Partnerships Act 2008 (NZ), referred to.
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Allen v Carbone (1975) 132 CLR 528; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Barrier Wharfs Ltd v Scott Fell & Co Ltd (1908) 5 CLR 647; Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210; Electricity Generation Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640; Ermogenous v Greek Orthodox Community [2002] 209 CLR 95; Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Fox v Percy (2003) 214 CLR 118; G. Scammell & Nephew Ltd v Ouston [1941] AC 251; GC NSW Pty Ltd v Galati [2020] NSWCA 326; Holt v Bunney [2020] SASCFC 89; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11; Kallin Pty Ltd v ACN 107 851 847 Pty Ltd [2018] NSWSC 124; King Tide Company Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251; Kuehn & Kuehn v Masterton Homes (NSW) Pty Ltd [2020] NSWSC 1049; P’Auer AG & Anor v Polybuild Technologies International Pty Ltd & Anor [2015] VSCA 42; Realestate.com.au Pty Ltd v Hardingham & Ors [2022] HCA 39; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149; Sion v NSW Trustee & Guardian [2013] NSWCA 337; he Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Watson v Foxman (1995) 49 NSWLR 315, considered.

DAY v GAPES & ORS
[2025] SADC 83
INTRODUCTION
The Issues

The issues arising for determination in this proceeding ultimately concern the existence of an alleged agreement for the applicant Mr Day to be transferred a 5% shareholding in the third respondent company, Insurance Facilitators Pty Ltd, (IF Australia) and the fourth respondent company, Insurance Facilitators Limited (IF NZ) and an entitlement for him to receive dividends as if he were a 5% shareholder of both companies in perpetuity.
Mr Day’s pleaded case is that a binding oral agreement was made between him on the one hand, and Messrs Jonathon Gapes and Anthony Cranston on the other, in a meeting on 19 January 2017 for him to be transferred a 5% shareholding in the companies from that date. He then alleges this shareholders agreement was orally varied in April 2017 to not formalise his 5% shareholding and, in the interim, treat his ‘dividends’ as an employment bonus for income tax purposes. At trial, Mr Day advanced a new unpleaded case that he was gifted a 5% shareholding in the January meeting.
Messrs Gapes and Cranston were the directors and controllers of IF Australia and IF NZ. Mr Cranston was Mr Gapes father-in-law. His daughter, Ms Sadie Cranston is married to Mr Gapes.
The determination of these issues resolves whether Mr Day is entitled to be paid more than he has already been paid (either directly or by way of set off against expenses paid for his benefit).
Their determination specifically resolves Mr Day’s primary claim to be a 5% shareholder,[1] or in the first alternative, to be entitled to be treated as holding 5% of the shares in the companies and be paid 5% of the dividend payments released by both companies since December 2020[2] (both in perpetuity and despite the termination of his employment) or, in the second alternative, to be paid 5% of the net profits of IF Australia until termination of his employment under a written profit sharing agreement allegedly made in September 2020.[3]
Mr Day’s Pleaded Case
Alleged Shareholders Agreement
[1]    Statement of Claim Revision 2 (FDN 45) (Claim) [13a] and [13b] and prayer for relief [1].
[2]    Claim, unnumbered paragraph after [27] and prayer for relief [2].
[3]    Ibid [28] - [30] and prayer for relief [4].
Mr Day’s pleaded case in contract relies on the existence of a “Shareholders Agreement” made in the circumstances of a series of informal dealings (in the sense there was no written agreement) and his appointment as a director of IF Australia.
The first informal dealing involves Mr Day’s meeting with Messrs Gapes and Cranston on 19 January 2017. What was said at this meeting is the foundation of Mr Day’s contention that a binding “Shareholders Agreement”[4] was made to transfer him a 5% shareholding in the companies with effect from that day, thereby entitling him to receive 5% of the dividends declared in respect of both companies[5] in perpetuity and despite termination of his employment. At trial, following Mr Day’s evidence, his case shifted to an unpleaded agreement to gift him a 5% shareholding in the companies.[6]
[4] Ibid [4].
[5] Ibid [13b].
[6] T46.13-.32.
The second concerns Mr Day’s subsequent meeting on 6 April 2017 with Messrs Gapes and Cranston and IF Australia’s external accountant and taxation adviser, Mr Simon Tscharke. Mr Day’s pleaded case is that following Mr Tscharke’s advice that “it is not worth transferring the shareholding until it gets to at least 10%”,[7] it was orally agreed that his 5% shareholding would be acknowledged in an agreement without a formal share transfer and his dividends would be treated as an employment bonus for income tax purposes. Mr Day alleges that Mr Tscharke referred to this arrangement as a “Phantom Shareholder Agreement”.[8]
[7] Claim [5].
[8] Ibid [5] and [13c].
What was said at this meeting is a further important factual dispute. The purpose of the meeting and for seeking Mr Tscharke’s advice is controversial, as is who first introduced the expression “Phantom Shareholder Agreement” into communications between the parties.
The third dealing involves a further alleged variation to the “Shareholders Agreement” orally agreed in May 2017 between Mr Gapes and Mr Day for his dividends to be offset against expenses paid for his benefit.[9] Whilst it is uncontentious that Mr Gapes agreed that the payments paid to Mr Day could be offset against expenses paid for his benefit, when these discussions occurred is in issue and the proper character of the payments made is plainly contentious and depends on what had been agreed earlier.
[9] Ibid [6] and [13d].
The fourth dealing involves an email exchange between Mr Day, Ms Li (the internal financial administrator) and Mr Gapes between 13 and 15 January 2018.[10] Mr Day relies on these communications as contemporaneous and confirming his version of ‘the 5% bargain’ (the shorthand description of the “Shareholders Agreement” coined by his counsel at trial).
[10] Ibid [9]-[12].
In the premises of these dealings, Mr Day alleges the terms of the “Shareholders Agreement” were that he held 5% of the shares in the companies and would have all the rights afforded to shareholders, he would receive 5% of any declared dividends but his dividends would be treated as income for tax purposes,[11] and could be set off against payments made by his employer IF Australia for his benefit.[12]
[11] The payments made to Mr Day were income for tax purposes whether in the nature of dividends or an employment bonus. However, it was understood that Mr Day’s case was that the payments were dividends or similar to dividends that were treated as employment income and income tax was withheld and FBT returns were lodged by his employer.
[12] Claim [13].
Mr Day alleges the “Shareholders Agreement” was performed and payments were made to him or for his benefit but there is a shortfall between the payments made and his entitlement to “profit share as dividends” for his 5% shareholding under the “Shareholders Agreement.[13]
[13] Ibid [15], [16] and [24].
The respondents dispute Mr Day’s account of what was said in the January and April 2017 meetings. They deny any agreement for Mr Day to be a shareholder of either company was formed at the January 2017 meeting or for him to be acknowledged and treated as the equivalent of a shareholder at the April 2017 meeting, whether in the proportion of 5% or at all. The respondents contend the payment arrangement ultimately agreed was an employment bonus and calculated by reference to declared dividends of IF Australia only and, unsurprisingly, ended when his employment with IF Australia ceased.
Whilst the respondents pleaded a positive case in defence, setting out their version of the relevant events, the legal and evidentiary onus in proving the “Shareholders Agreement” was made remained with Mr Day. It would be an error to find that the respondents’ failure to prove all aspects of their positive defence resulted in Mr Day’s proving his case when he did not.
Not a Shareholder
It is common ground that Mr Day was never a shareholder of either IF Australia or IF NZ.[14] No share transfers took place, no share certificates were issued to Mr Day and he was not entered in the register of members for either company.[15] Nor did Mr Day or anyone on his behalf ever pay any consideration for a transfer or issue of shares in either company.[16] Further, IF NZ was only a general partner and had no interest in the profits derived by the New Zealand Partnership (“NZ Partnership”)[17] from the conduct of the New Zealand business through trading trusts controlled by Messrs Gapes and Cranston.[18] Mr Day’s case never satisfactorily addressed how his alleged shareholding in the company IF NZ could give him any legal entitlement to profits from a partnership of trusts established under New Zealand law.[19]
[14] Defence (FDN 24) [13]; Reply (FDN 30) [37] and [39].
[15] Statement of Agreed Facts and Issues (FDN 48) (SAFI) [10].
[16] Ibid [11].
[17] As defined in [125] below.
[18] See [125]-[127] below.
[19] See [291]-[298] below.
In these circumstances, Mr Day’s primary claim that he holds 5% of the shares in either company is misconceived. Therefore, his claims for relief in the form of a declaration that he holds 5% of the shares in the companies[20] and an order for payment of unpaid dividends on the basis he is a 5% shareholder must fail.[21]
[20] Ibid Part 1 and prayer for relief [1].
[21] Ibid prayer for relief [2].
As much was conceded at trial towards the close of Mr Day’s case.[22]
The First Alternative Claim
[22] Applicant’s Closing Address (FDN 67) (Applicant’s Closing) [89]. The suit for a declaration pleaded at paragraph 1 of the prayers for relief in the Claim was not pursued. T259.11-.25; 260.9-.19.
At trial, the real dispute concerned Mr Day’s “First Alternative Claim” that was pleaded as follows:[23]
[23] Claim, unnumbered paragraph after [27] and prayer for relief [2] and [3].
The First Alternative Claim
In the event that the Court finds the Applicant is not a shareholder of the Companies, in the premises of the preceding paragraphs 4 to 25 (inclusive) the Applicant is entitled to be treated as holding 5% of the shares in the Companies arising from a verbal contract with the First and Seconds respondents and that the Third and Fourth respondents pay the Applicant 5% of the released dividend payments made to shareholders since December 2020.
The 5% bargain for which Mr Day ultimately contended is therefore “the 5% shareholder-equivalent arrangement” (as his counsel further described it) by comparison to the respondents’ contention of a employment only bonus.[24] It was submitted by Mr Day that the dominant elements of this version of the alleged agreement were first, that he would receive 5% of the dividends distributed to shareholders and secondly, become a director of IF Australia,[25] an arrangement that was contractually binding and performed.[26]
The Second Alternative Claim
[24] Ibid [4]-[6].
[25] Applicant’s Closing [10].
[26] Ibid [8] and [9].
In the further alternative, Mr Day contended he has not been fully paid his entitlement to 5% of the net profits of IF Australia pursuant to the terms of a written “Profit Share Agreement” made in September 2020. This is pleaded as Mr Day’s “Second Alternative Claim”.[27]
[27] Ibid [17]-[19], [28]-[30] and prayer for relief [4].
Mr Day’s pleaded case and evidence was that he was unwilling to sign the document because it was backdated and did not record the terms of the “Shareholders Agreement” he alleged had been agreed. He told Mr Gapes so but then executed and delivered it to Mr Gapes by leaving it on his desk but, in the circumstances alleged, relied on it as not affecting his rights and interests pursuant to the “Shareholders Agreement”.[28] Apart from the question as to what Mr Day contends is the effect of the written “Profit Share Agreement” (if any), it is contentious as to whether Mr Day ever delivered the agreement he had signed to Mr Gapes and communicated his purported acceptance of the terms of the “Profit Share Agreement” to the respondents.
[28] Ibid [19].
Mr Day’s position on his second alternative claim is all the more confusing because his counsel disavowed the “Profit Share Agreement” as constituting his client’s money claim at the conclusion of the evidence at trial[29] but then apparently maintained the claim in closing and supplementary closing submissions on the basis of certain evidence without reference to his pleaded case that relies only on the written “Profit Share Agreement”.[30]
Quantum – Net Profit or Dividends Paid?
[29] T694.1-695.10.
[30] Applicant’s Closing [20]; Applicant’s Supplementary Closing Submissions (FDN 71) (Applicant’s Supplementary Closing) [4] and [20].
As for the quantum of Mr Day’s money claims in contract, it is convenient to address at the outset a fundamental difficulty in the basis of Mr Day’s formulation of his unpaid entitlements.
Both Mr Day’s primary and first alternative claims unquestionably rely on an oral agreement to pay 5% of declared dividends[31] or released dividend payments made in January 2017 and varied in April 2017.[32] Yet his claimed “entitlement to dividends” is pleaded as the difference between net profits of the companies and the amounts paid to him for his benefit as follows.[33]
[31] Ibid [13b].
[32] Ibid unnumbered paragraph after [27].
[33] Ibid [16], [23]-[25].
The amounts received by the Applicant as dividends, set out at preceding paragraph 15 above and the difference between that amount and his entitlements to dividends are as follows:

5% of net profits of the Third respondent to 30 June 2022

AU$241,161.05

5% of the net profits of the Fourth respondent to 30 June 2022

NZ$209,812.30

- LESS Amount Received

AU$107,399.20

Total owed in Australian Dollars

AU$133,761.85

Total owed in New Zealand Dollars

NZ$209,812.30

In closing submissions for his first alternative claim, Mr Day contended for this same formulation without addressing the inconsistently pleaded foundation that the verbal contract made was for payment for “5% of the released dividend payments made to shareholders since December 2020”.[34]
[34] Applicant’s Closing [34]-[38].
When criticised by the respondents for advancing an entirely new unpleaded alternative case in closing submissions, Mr Day submitted in reply it was not new and unpleaded and referred to his second alternative claim to enforce the “Profit Share Agreement”.[35]
[35] Applicant’s Supplementary Closing [4] and [20].

It should be accepted that Mr Day’s second alternative claim as pleaded refers to the net profits of IF Australia (but not IF NZ) and that is the case to be determined on the pleadings as advanced at trial that rely on the terms of the written “Profit Share Agreement”.
As for Mr Day’s first alternative claim, whilst the pleaded formulation is not new because it was already calculated by reference to the net profits of the companies, it is untenable on several grounds. First, it is contrary to the pleaded terms of the oral contracts relied on and fails at the outset for want of any other proper foundation in the pleadings. Secondly, it appears to be based on a misconception of shareholders’ rights as regards the net profits of a company. The payment of dividends out of the net profit of a company is determined at the discretion of the directors in proportion to members’ shareholdings since other profits may be retained and set aside as a reserve fund at the discretion of the directors.
If it were otherwise it would fail as being untenable on the evidence for the reasons the respondents advanced in their supplementary closing submissions.[36]
No Claim in Equity
[36] Ibid [4].
Finally, as the respondents’ counsel emphasised during the trial and in closing submissions, Mr Day did not plead or advance at trial any claim in equity or seek any equitable relief.
THE TRIAL AND THE EVIDENCE
The trial proceeded over six days with a seventh day for closing addresses. A statement of agreed facts and issues was filed,[37] somewhat narrowing the issues and findings to be made by the Court.
[37] FDN 48.
The parties relied on their written openings,[38] closing,[39] supplementary closing[40] and further supplementary submissions.[41]
[38] Applicant’s Opening (FDN 50) and Respondents’ Opening (FDN 52).
[39] Respondents’ Closing (FDN 63) and Applicant’s Closing (FDN 67).
[40] Respondents’ Supplementary Closing (FDN 70) and Applicant’s Supplementary Closing (FDN 71).
[41] Respondents’ Further Supplementary Closing FDN 74 and 76.
During oral closing submissions, leave was granted to the respondents to file supplementary closing submissions addressing inaccuracies in the evidentiary references made in Mr Day’s written closing submissions. It is not necessary to traverse every matter raised. However, it must be said that the respondents’ supplementary submissions are generally to be preferred to Mr Day’s. His closing written submissions did require careful consideration having close regard not only to whether the evidentiary references relied on supported his contentions literally but also having regard to their context.
The parties prepared a joint tender book that was received in evidence as Exhibit A2.[42] Some further documents were tendered during the course of evidence. Whilst the communications critical to the formation of the alleged “Shareholders Agreement” were oral, the documentary evidence was a reliable source of evidence about the chronology of events. It was therefore of assistance in providing the context and a reference point for assessing the reliability of the witnesses’ evidence in determining the parties’ contractual intentions to be bound.
[42] A marked-up index identifying the documents that were received in evidence comprises MFI A9.
Mr Day was the only witness in his case. For the respondents, evidence was called from Mr Gapes, Ms Li and Mr Tscharke.
In assessing the witnesses’ evidence, it is necessary to bear in mind that they were recalling events that occurred many years ago. The critical January and April 2017 meetings had occurred some six and half years before they gave evidence. These events were brief discussions, and no-one took notes except perhaps Mr Day, but if he did, they were not in evidence. Due allowances should be made because:[43]
... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
[43] Watson v Foxman (1995) 49 NSWLR 315 [319] (McClelland CJ).
As with most commercial disputes, properly understanding the chronology of events and their context is critical.[44] It is accepted that in assessing the reliability of the witnesses’ testimony, conclusions should be reached, “as far as possible, on the basis of contemporaneous materials, objectively established facts and the apparent logic of events.”[45]
[44] Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128, [25]-[29] (Bell P).
[45] Fox v Percy (2003) 214 CLR 118 [31] (Gleeson CJ, Gummow and Kirby JJ).
Mr Day
Mr Day has a Diploma in Financial Services and Insurance Broking. At trial he said he had spent all of his career in insurance broking and underwriting.
The reliability and credibility of Mr Day’s evidence is a fundamental issue. As the respondents rightly observed in closing, “[i]f Mr Day’s account of the words apparently spoken at [the January] meeting is not accepted, the matter does not progress.”[46] His evidence about what was said at the January meeting is the foundation of his first alternative case. His evidence about the “Profit Share Agreement” is critical to his second alternative claim.
[46] Respondents’ Closing [170].
Mr Day was thoroughly cross-examined on these topics. His evidence was not straightforward or reliable. His evidence about the two meetings was “confused, confusing and inconsistent”, borrowing the respondents’ counsel’s description.[47] It was contradicted by his pleaded case, parts of his own evidence and the evidence of Messrs Gapes and Tscharke in material respects.
[47] Ibid [21].
In examination in chief, Mr Day departed from his pleading about what was said in the January meeting. His case shifted from Mr Gapes and/or Mr Cranston allegedly saying: “…we want you to become a shareholder in the business”[48] to Mr Cranston opening the meeting with congratulations about his work, inviting him to join the board and “giving me a minor shareholding in the business”.[49] Then, contrary to his pleading as to the ‘material’ conversation in the April meeting,[50] he embellished his case by his evidence that the reason they were there was to seek Mr Tscharke’s advice and discuss how he could get his 5% shareholding to 10%.[51]
[48] Claim [4].
[49] T46.13-.24.
[50] Claim [5].
[51] T89.11-91.20.
Mr Day’s evidence on these critical matters was illogical and implausible when proper regard is had to the apparent logic of events and the objectively established facts.
His evidence in cross-examination was also unpersuasive when he said it was generous but not remarkable for him to be gifted a valuable shareholding and for Messrs Gapes and Cranston to wear the CGT consequences. His explanation in re-examination as to why it made perfect commercial sense for Mr Cranston’s exit strategy was similarly unpersuasive.
No reasonable businessperson in the position of the parties would think it was in Mr Cranston’s best interests for Mr Day to be gifted a shareholding and Mr Cranston incur the costs of doing so as his exit strategy on retirement from a business he first began with his son-in-law in 2001. Mr Day was not family and had only been with IF Australia for two and a half years, principally in an administrative role as a Development Manager. It is implausible to think Mr Cranston would not want to be paid a fair value for any shareholding transferred or issued to Mr Day and that Mr Day had any legitimate expectation of being gifted a valuable shareholding.
Viewed objectively, Mr Gapes’ commercial best interests were made plain by his evidence about his heavy workload and that any succession plan for Mr Cranston involved him taking over Mr Cranston’s interests. He denied he ever discussed succession planning with Mr Day in such terms.[52] It was Mr Day’s unstated assumption that succession was an issue in the business, and he could be a likely successor for Mr Cranston.
[52] T523.36-524.12.
Mr Day’s evidence about what was said in the January and April meetings was further undermined by his lack of understanding of fundamental aspects of what he alleged was said. He frankly acknowledged that he did not know before the April meeting there were two ways to become a shareholder, or the tax consequences, or what it meant to be registered with ASIC. Nor did he ask: No, I took [Mr Tscharke] on face value when he said it was too hard.”[53] He understood very generally that he would be gifted some shares but did not know how that would happen, and it was not discussed.[54] He said he had not heard the term ‘phantom shareholder’ agreement or discussed it with anyone before the April meeting yet his (misconceived) understanding of what it meant is the foundation of his pleaded case, relying heavily on the (confusing) description he gave of the agreed payment arrangement in his 13 January 2018 email.
[53] T89.34-.38.
[54] T238.30-239.14.
When asked in cross-examination what was agreed about when he would receive the ‘gifted’ shares, he said (twice in effect): “I understood those to be received already”[55] yet persisted with his inconsistent account about Mr Tscharke saying it was not worth it or too hard to transfer the shareholding until it got to 10%. This was despite his earlier concession that there was no clarity in the January meeting about when the gifting of his 5% shareholding would take place.[56]
[55] T132.31-133.2.
[56] T70.16-.37.
Mr Day later gave evidence that he understood there would be mechanics as to who at his end would be a shareholder but that was not discussed in either the January or April meetings. He took no steps to take advice from his accountant about any mechanics of his payment arrangement until April 2018.[57] When asked why he did not seek his own advice earlier, he said it was not necessary since there was nothing to discuss because he was not purchasing the 5%, and it was not his business as to what advice Mr Tscharke gave Messrs Gapes and Cranston. None of this evidence makes sense having regard to the advice and recommendations made by Mr Tscharke in the April meeting, even on Mr Day’s version. The very same impediments to acquiring a second 5% tranche applied to his allegedly gifted 5% shareholding and adversely affected his personal tax position, not just that of the companies and Messrs Gapes and Cranston.
[57] T239.12-.22; Exhibit A2, pages 96-98.
In the context of his other evidence, Mr Day’s denials in cross-examination that he was confused or mistaken about what was said in the January and April meetings should not be accepted. It is apparent, as Mr Day said (in the context of seeking basic tax advice about his ‘dividend’ payments being set off against company car expenses): “I was out of my depth, your Honour, I’m not an accounting person…”[58].
[58] T183.7-.8.
There are other reasons to seriously doubt Mr Day’s reliability as a witness and his credibility.
It was apparent from his emails and oral evidence that he was concerned about ways to structure his affairs to minimise tax and maximise his financial advantage. In cross-examination, when asked what the shorthand references to using Clubsure or his family trust in his email to his accountant Mr Dixon meant, he said he was interested in which entity would be the shareholder.
This explanation is not credible in context of the chronology of events and the other evidence about how he involved Clubsure. In late April 2018, there was no ongoing discussion let alone agreement about Mr Day or his nominee becoming a shareholder. Mr Dixon’s advice was used to negotiate a more favourable calculation of his payment[59] and to obtain a tax advantage by setting-off car and other expenses, including the payment of Clubsure invoices against his payments.
[59] Ie 7.5% instead of 5% of net profit: Exhibit A2, page 107.
Mr Day subsequently accepted that the Clubsure invoices paid by IF Australia for his benefit were not for services rendered but to take advantage of accumulated tax losses in that company. Other troubling examples were the proposal to put his wife on the payroll without her doing any real work and his evidence in cross-examination about his unauthorised access to confidential company emails to advance his own interests in his dispute with the respondents.
In combination, these matters require Mr Day’s evidence to be approached with significant caution overall.
In conclusion, Mr Day’s evidence should not be accepted as a reliable basis for making findings of fact except where it is unchallenged, consistent with the objectively established facts, the apparent logic of events or is an admission against interest. Where Mr Day’s evidence conflicts with the evidence of Messrs Gapes and Tscharke, generally their evidence should be preferred.
Mr Gapes
Mr Gapes has a Bachelor of Commerce in Management and a Diploma in Financial Services. He was born in New Zealand and prior to a career in insurance, he worked in the construction industry. He came to Australia in the early 1990s and met and married Ms Cranston.
Mr Gapes began working with his father-in-law, Mr Cranston in 2000, and they started IF Australia together in 2001 and IF NZ in 2011. As managing director of IF Australia, Mr Gapes developed all the insurance products and handled the licensing requirement to become an ASIC underwriting agency.
Mr Day’s strong criticisms of Mr Gapes as a witness should be rejected. Mr Gapes did not present as unresponsive or evasive, obsessed and rehearsed in his themes, reconstructing what he wished he had communicated.[60] Nor was his recollection of the details of critical meetings at odds with his evidence of other discussions.
[60] Applicant’s Closing [217]-[219] and [226].
Rather, Mr Gapes should be accepted as a truthful and generally reliable witness doing the best he could to recall dated events. At times he could not recall matters or the precise detail or order of events. No criticism should be made of these difficulties given the passage of time and the head injury he suffered in late 2015 in a cycling accident that he candidly admitted affected his memory, so it was not as it used to be.
Mr Gapes made appropriate concessions about what he could not recall at trial. For example, when asked about Mr Tscharke’s label for the arrangement he recommended in the April meeting, he was candid in admitting his bias “because we all know it now as this bonus…but at the time I would say ‘No”, I didn’t’ really have a title for it”.[61] That he did not know what to call it is consistent with and explains the clumsy descriptions he used in his 19 January and 3 April 2017 emails with Mr Tscharke.[62]
[61] T532.18-24.
[62] Exhibit A2, pages 63-65.
Mr Gapes’ evidence is important because he directly contradicts Mr Day’s version of what was said at the critical January meeting in material respects. On this topic, Mr Gapes’ evidence is generally consistent with and supported by Mr Tscharke’s evidence and his email instructions to Mr Tscharke seeking advice on the arrangements proposed to be made with Mr Day.[63]
[63] Ibid.
It is implausible that Messrs Gapes would have sought advice on a different arrangement to that discussed with Messrs Day and Cranston shortly before. It is entirely plausible that Messrs Gapes and Cranston wanted to seek professional advice as to the options moving forward before committing to any binding agreement about Mr Day’s proposed new role. Mr Gapes was entirely transparent about this. There was no reason for them not to tell Mr Day this was the next step and every reason for them to do so in circumstances where the parties’ relations were good.
The criticisms made of Mr Gapes’ evidence in cross-examination about his response to Mr Day’s email of 13 January 2018 should be rejected.[64] There was never any agreement for Mr Day to have a 5% shareholding and Mr Gapes had not heard the term ‘phantom shareholding’ arrangement before this email or discussed it with Mr Day or anyone else. In the proven circumstances, Mr Gapes’ evidence that Mr Day’s description of a 5% shareholding was “ridiculous”[65] and that he dismissed or ignored it without further responding, assuming it was one of “Mr Day’s euphemisms”,[66] was unsurprising. Read in context, Mr Gapes’ responses to Ms Li and Mr Day are consistent with his understanding that the payment arrangement is an employment bonus calculated by reference to 5% of paid dividends.
[64] Applicant’s Closing [70]-[73], [216(3)] and [221]-[222].
[65] T628.4-.7.
[66] T566.25-.33.
The respondents’ pleaded case was that the New Zealand payments were initially paid due to an error by Ms Li.[67] Mr Gapes’ evidence was that it was “all on me”.[68] Mr Gapes was thoroughly cross-examined about overlooking the inclusion of profit from the NZ Partnership in the first calculation of Mr Day’s payments, despite there being no previous discussion about Mr Day having any role or interest in the New Zealand business. Mr Gapes’ explanation that his instructions to Ms Li were not specific and he overlooked her inclusion of NZ Partnership’s profit is plausible. His evidence on this topic should be accepted as truthful.
[67] Defence [15g].
[68] T570.19.
Finally, given the attention placed in evidence on subsequent email communications, it is necessary to make some observations about Mr Gapes’ communication style in order to understand his emails in their proper context. Like many busy people, Mr Gapes often sent brief email replies, using shorthand expressions. In hindsight, his language was often clumsy and confusing, and as he accepted in evidence a number of times, ‘poorly worded’. At times, in giving evidence, he spoke in the same way and was on occasion asked to repeat what he said in a proper sentence so his evidence could be properly understood.
Mr Tscharke
Mr Tscharke is an experienced and well qualified accountant, taxation and corporate advisor. He is a member of the Institute of Chartered Accountants, the Australian Institute of Company Directors, FINSIA and holds an Australian credit licence.
Mr Tscharke established his current firm Venture Private Advisory in April 2017, after leaving his previous partnership, Tregloans. He has been IF Australia’s external accountant, taxation and corporate advisor since 2012 and had worked closely with Messrs Gapes and Cranston in this capacity ever since. He was also their personal accountant and still is retained by Mr Gapes. Mr Tscharke was involved in setting up the legal structure used for the New Zealand business and still works on the Australian and New Zealand trusts involved in the Insurance Facilitator’s business.
Mr Tscharke dealt with Ms Li on various day-to-day accounting, taxation and bookkeeping matters, as did others in his firm since she joined IF Australia. Mr Tscharke’s firm prepared the year-end financial statements, and taxation returns as well as providing taxation advice on ad hoc matters from time to time and liaised with Ms Li in doing so.
Mr Tscharke was directly involved in the discussions with Messrs Day, Gapes and Cranston in early 2017 about Mr Day’s proposed new arrangements.
Mr Tscharke should be accepted as a truthful and reliable witness. His recollection of the advice he gave both before and in the April 2017 meeting was clear, consistent and logical. As an experienced accountant, taxation and corporate adviser, the issues upon which his advice was sought were for him routine and unexceptional.
Importantly, Mr Tscharke’s evidence directly contradicted Mr Day’s evidence and confirmed and supported material aspects of Mr Gapes’ evidence about what was said in the April meeting, as did his evidence regarding the context of this meeting and his earlier advice to Messrs Gapes and Cranston and their instructions.

Ultimately, Mr Day does not seriously challenge Mr Tscharke’s evidence about the advice he gave in the April meeting, accepting his evidence about the options discussed as credible and generally that he did his best to describe what he remembered happened.[69] Instead, as earlier mentioned, Mr Day (unconvincingly) attempted to dismiss the significance of Mr Tscharke’s advice as not concerning his gifted 5% shareholding because the meeting was all about him getting to a 10% shareholding.
[69] Applicant’s Closing [227] and [230].
Mr Day does however criticise Mr Tscharke’s evidence about the file notes referred to in his October 2020 emails and his understanding of the arrangement agreed with Mr Day. It is submitted he was “barracking for his client” and should not be believed.[70] These criticisms are overstated and, in context of the reliable evidence, of little weight in determining the relevant issues.
[70] Ibid [232].
Accordingly, where Mr Tscharke’s evidence contradicts that of Mr Day, it should be preferred. Furthermore, Mr Tscharke’s consistent denials that he was the originator of the term ‘phantom shareholder’ agreement should be accepted as truthful and reliable, contrary to Mr Day’s evidence and case on this topic.
Ms Li
Ms Brenda Li is employed by IF Australia as its financial administrator, reporting to Mr Gapes. In this role, Ms Li was and is responsible for the internal accounting function and administration of employee contracts. She joined IF Australia in June 2016 after graduating from Sydney University in 2010, three years working in Sydney, then a further three years in Shanghai. Ms Li has worked remotely for IF Australia from Shanghai since COVID.
Ms Li was a truthful witness who did her best to assist the Court with her recollection of events. Her cross-examination was limited and there was no challenge to the reliability of her evidence by Mr Day.
Whilst Ms Li is fluent in English, it is her second language. This was obvious from her email communications in evidence and her oral evidence. A typical example of the way she commonly expressed herself was the final simple paragraph she drafted in Mr Day’s salary reduction letter that Mr Gapes substantially corrected.[71]
[71] Exhibit A2, page 196.
Ms Li was not involved in the critical meetings and discussions in 2017 about the change in Mr Day’s role and the payment arrangement ultimately agreed. She had no direct knowledge of the agreement and its terms but was responsible for administering and doing the bookkeeping for shareholder dividends and profit distributions and Mr Day’s payments. She was also a party to the December 2017 and January 2018 email chains that Mr Day relied on as confirming his version of the payment arrangement.
Much attention was given at trial to Ms Li’s email communications as regards Mr Day’s payment arrangement.
Ultimately, as discussed further below,[72] Ms Li’s evidence is of limited probative value when her role and knowledge of Mr Day’s arrangement is fully appreciated. Ms Li had no authority to make financial decisions including as to the payment of shareholder dividends, profit distributions or employment bonuses. Ms Li followed Mr Gapes’ (brief and sometimes unclear) instructions to the letter, without entering into much, if any, further correspondence or discussion about her instructions. She deferred to Mr Gapes in preparing proposed dividend and profit distributions which were ultimately approved by all the directors.
[72] See [275] below.
Ms Li repetitively followed a formula for calculating interim dividend and profit distributions and her language in covering emails generally reflects her method of calculation and sheds no light on the true character of the payments made.
Bearing in mind Ms Li’s proficiency in English and limited knowledge about what had been agreed, there is no basis in the evidence for inferring that the descriptions Ms Li used in her emails “record and reflect what Mr Gapes necessarily told her” and she therefore “is an independent and reliable source for the arrangement the three men made”.[73]
[73] Applicant’s Closing [136]-[137].
Mr Cranston
Mr Cranston is deceased. He passed away in October 2022. He was disjoined as a party on 3 February 2023.
Whilst Mr Day criticises the respondents for not having taken his signed statement before he died, the submission was not developed in any way. In the absence of any foundation in law or fact, no inference adverse to the respondents’ case properly arises.
THE LAW
Framing the Issues
For trial, the parties identified issues for determination including whether the oral communications between the parties in the January and April 2017 meetings (taken together or separately) evidenced an intention to enter into binding legal relations by way of an enforceable contract and, assuming there was such an intention, were the other requirements for formation of a contract met.[74]
[74] SAFI [27]-[28].
In closing submissions, Mr Day approached his case as one of contractual interpretation, inviting the Court to find a version of the binding agreement made.[75]
[75] Applicant’s Closing [4]-[6], [8] and [91]-[101].
Before the Court can determine the meaning of the terms of the contract in issue, it must first find the parties intended to create contractual relations by what was said in the January and/or April 2017 meetings and, if so, what the relevant terms were of the putative contract. This is because intention to create legal relations is a jural act separate and distinct from the terms of a contract.[76]
[76] Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 337 (McHugh JA).
In Ermogenous v Greek Orthodox Community[77] the High Court explained contractual intention in the following terms.
“It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.” To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet “[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts”.
(Citations omitted).
[77] [2002] 209 CLR 95 (Ermogenous) [24] (Gaudron, McHugh, Hayne and Callinan JJ).
More recently in Holt v Bunney[78] these principles were restated as:
…basal, what the Americans might call hornbook, law that in order to bring into existence a simple, bilateral, executory contract, the parties must have reached agreement as to terms, valid consideration must have moved from each to the other and the parties must have agreed to enter into legal relations by way of an enforceable contract...
[78] [2020] SASCFC 89 [137] (Nicholson J).
Earlier in Barrier Wharfs Ltd v Scott Fell & Co Ltd[79] Higgins J said:
There is no contract unless the two parties mutually consented to be bound one to the other by one agreement. Moreover – though it ought to be superfluous to say it – it is one thing for two parties to settle what are to be the terms of an agreement, if it should be made; and quite another thing to make the agreement.
[79] (1908) 5 CLR 647, 650.
Onus of Proof
Since the respondents have joined issue about the existence of a legally binding contract, Mr Day bears the onus of proving the conversations relied on to the reasonable satisfaction of the Court and that there was a binding contract as alleged.[80]
[80] Ermogenous, [26] (Gaudron, McHugh, Hayne and Callinan JJ); SagaciousProcurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 (Sagacious), [69].
This onus was explained in Kallin Pty Ltd v ACN 107 851 847 Pty Ltd[81] by Hammerschlag J (as his Honour then was) as follows:
Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the Court, which means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.
Relevant Principles
[81] [2018] NSWSC 124, [42].
Incontrovertibly, whether an agreement has been entered into is to be objectively assessed. The objective intention of the parties is fact-based, found in all the circumstances, including by drawing inferences from the parties’ words and conduct in making their agreement.[82] Uncommunicated subjective intention is not determinative.[83]
[82] Kuehn & Kuehn v Masterton Homes (NSW) Pty Ltd [2020] NSWSC 1049 (Kuehn) [29] citing Allen v Carbone (1975) 132 CLR 528, 532; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, (Australian Broadcasting Corporation) 548-9; Ermogenous [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[83] Australian Broadcasting Corporation 548-549; Sion v NSW Trustee & Guardian [2013] NSWCA 337, [38] (Emmett JA, Basten and Barrett JJA agreeing); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
The question whether there is an intention to create legal relations depends on “the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances” as well as standards of reasonable conduct in the known circumstances.[84]
[84] Ermogenous, [25] (Gaudron, McHugh, Hayne and Callinan JJ); Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 (Film Bars), 9255.
In a commercial context, determination of the requisite contractual intention involves a consideration of: [85]
…the surrounding circumstances known to [the parties] and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating.” As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is be construed to avoid it “making commercial nonsense or working commercial inconvenience.”
(Citations omitted)
[85] Electricity Generation Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640, 656-657.
Other principles for assessing whether a binding agreement exists as relevant to the issues in this case were addressed at length in Holt v Bunney,[86] adopting the summary in Kuehn.[87] Whilst these principles are not contentious and it is not necessary to fully restate them, there are some matters that require specific emphasis here.
[86] Op cit [137]-[148] (Nicholson J).
[87] Op cit [29].
First, it is important to bear in mind that the time for determination of the requisite intention to create contractual relations is the time at which the putative agreement was made.[88] Here Mr Day’s pleaded case rests on the formation of his “Shareholders Agreement” at the January meeting and its variation “to the quasi-shareholding” agreement at the April meeting,[89] with subsequent adjustments only concerning the method of calculating his payments.
[88] Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210 [158] per Emmett AJA.
[89] Claim [4], [5] and [13]; Applicant’s Closing [11]-[13].
Secondly, whilst the subsequent conduct of the parties may generally not be referred to in construing the terms of a previously concluded contract, such conduct is admissible on the question of whether a contract is formed. It is well-established that regard may be had to the parties’ subsequent communications for the purpose of assessing whether it was not in their contemplation to be bound until all the essential preliminaries had been agreed or until a formal contract had been drawn up embodying all the matters incidental to the transaction.[90] Continuing negotiations or other expressions of a common understanding not to be bound, objectively viewed, are directly probative of whether a contract exists. Simply expressed, words and conduct inconsistent with the existence of a concluded contract are relevant but the weight they carry in negativing the conclusion that a contract exists will depend on the circumstances.
[90] Australian Broadcasting Corporation op cit, 547-8 and the authorities cited therein.
However, a party’s conduct not in the presence of or involving the other party will have little, if any, probative value in determining contractual intention because subjective intention is not relevant.[91] That said, such conduct may be relevant to assessing the reliability of the witnesses’ testimony[92] or, depending on the circumstances, may be legitimately used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract.[93]
[91] Holt v Bunney op cit, [2] (Kourakis CJ) and [143] (Nicholson J).
[92] Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128, [25]-[29] (Bell P).
[93] Film Bars op cit, 9255–6 (McClelland J).
These principles must be borne in mind in considering the parties’ communications and conduct subsequent to the alleged formation of the putative contract. Mr Day relied heavily on what the parties did and said in email communications subsequent to the January and April 2017 meetings as confirming his case,[94] and (inconsistently) took objection to the admissibility of others that did not suit his case as hearsay.
[94] Applicant’s Closing [40]-[84].
Thirdly, the conventional analysis of offer and acceptance may not fit the parties’ dealings where they are informal, oral and continuing. It is well accepted that an enforceable contract may be inferred when the manifest intention of the parties, objectively ascertained, evinces a tacit agreement with sufficiently clear terms.[95]
[95] Holt v Bunney op cit [148] (Nicholson J) citing King Tide Company Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251, [17]-[21] (Bond J).
It is not enough, however, for the evidence of the parties’ subsequent conduct to be merely consistent with the terms of the allegedly binding agreement. The evidence must positively establish that all parties considered themselves bound.[96]
[96] P’Auer AG & Anor v Polybuild Technologies International Pty Ltd & Anor [2015] VSCA 42, [8]-[13] (Whelan JA, Ferguson JA agreeing).
In this regard, it is important to avoid the fallacy of inferring from conduct that is not inconsistent with the existence of a contract the conclusion that the conduct actually took place because of the contract.[97] As it was said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd:[98]
… it is an error to “suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed”.
[97] GC NSW Pty Ltd v Galati [2020] NSWCA 326, [90] (Gleeson JA) citing Heydon on Contract (2019), [2.110].
[98] (1988) 5 BPR 11,110 at 11,117 (McHugh JA) citing Howard W, “Contract, Reliance and Business Transactions”, [1987] Journal of Business Law, p 127.
Fourthly, in a case such as this where the contract is informal, it is necessary for the Court to have regard to the whole of the evidence (not just the evidence of what was said) at the time of contracting to find what the terms of the alleged contract were. In finding the facts:[99]
…the evidence of witnesses as to words written or spoken by the parties (and their knowledge of the relevant matters at the time of the contract) must be weighed alongside the objective surrounding facts (which are undisputed or which are established by other objective evidence) and also with the apparent logic of events. It may be difficult in this process to distinguish between terms of the contract based solely or centrally upon words used by the parties and those based only in part on those words but also upon surrounding facts and logic of events.
The task is to ascertain what the words and conduct of the parties would have conveyed in all the circumstances to a reasonable person who had the knowledge reasonably available to the parties. The essential question is whether the parties’ conduct – what was said and not said and the evident commercial aims and expectations of the parties in the context of what they knew – reveal an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent to be legally bound in some particular respect.
(Citations omitted)
[99] Realestate.com.au Pty Ltd v Hardingham & Ors [2022] HCA 39, [46]-[47] (Gordon J).
Fifthly, there is a distinction between the issues of contractual intention, on the one hand, and completeness or uncertainty, on the other hand.
Whether parties intend to make a concluded contract and be immediately bound by their communications is a separate issue from whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract[100] or material to the parties’ bargain.
[100] Australian Broadcasting Corporation op cit, 548 (Gleeson CJ).
However, these issues are related. It is relevant whether the terms of the alleged contract have been fully or well stated. The Court will not find a contract for parties where they have failed to reach an agreement due to obscurity, incompleteness or otherwise. It is less likely that the parties intended to be bound where there are important matters they have not discussed or upon which they have not reached a consensus. “The more numerous and significant [are] the areas in respect of which the parties have failed to reach agreement”, the less likely an intention to be bound will be found to exist. [101]
[101] Sagacious, op cit [73].
Similarly, only where the words of the parties are so obscure or imprecise as to be incapable of supporting any definite or precise meaning that the Court is unable to attribute any contractual intention, is there no contract.[102] The requisite intention for contractual certainty is a question of fact to be assessed objectively.
[102] The Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429, 437 (Barwick CJ) citing G. Scammell & Nephew Ltd v Ouston [1941] AC 251, 268 (Lord Wright).
Once satisfied that the parties intended to contract, the Courts is reluctant to find a contract void for uncertainty, even if the parties’ intention has been obscurely expressed.
Finally, in the search for contractual intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.
BACKGROUND
The State of Affairs
The relatively uncontentious state of affairs between the parties set out below puts in context the parties’ communications in the January and April 2017 meetings.
It is common ground that no binding agreement was made about Mr Day’s future role in the business before the January 2017 meeting.
IF Australia

IF Australia carries on business as an insurance underwriter in Australia, specialising in wholesaling insurance products to a broker network in the agriculture industry.
From its inception in December 2001 until July 2022, Messrs Gapes and Cranston owned and controlled IF Australia. Messrs Gapes and Cranston were directors of IF Australia and through their respective trusts, the Gapes and the Cranston Investment Trusts, held all of the issued shares in IF Australia. Prior to 1 July 2017, the trustees of the Gapes Investment Trust held 50% of the B Class shares and the single A Class share. The trustees of the Cranston Investment Trust held the remaining B Class Shares. From 1 July 2017, their respective shareholding proportions changed to 65/35.
Mr Gapes and Ms Sadie Cranston are the joint trustees of the Gapes Investment Trust and are the first and fifth respondents respectively in this capacity.
AJ Cranston Nominees Pty Ltd is the trustee of the Cranston Investment Trust. In about July 2022, it transferred its shares in IF Australia to Mr Gapes and Ms Cranston as the joint trustees of the Gapes Investment Trust. The trustees of the Gapes Investment Trust are now the sole shareholders of IF Australia.
The conduct of the affairs of IF Australia was and remains subject to the terms of its written constitution dated approximately 2009 and the provisions of the Corporations Act 2001 (Cth).
IF Australia’s business was run as a relatively lean operation with a small number of employed staff. In the Adelaide office (aside from Messrs Day and Gapes and Ms Li) there were two other employees, an underwriter and a claims manager. Messrs Gapes and Cranston sought external legal, accounting and taxation advice regularly and as required, principally from Mr Tscharke or others on his recommendation.
IF NZ and the NZ Partnership
The New Zealand business was controlled and managed from the Adelaide office.
Messrs Gapes and Cranston were the directors of IF NZ at all material times until Mr Cranston’s resignation in about July 2022 when Mr Gapes became its sole director.
From December 2011 until about April 2017, the sixth respondent, Gapes (NZ) Pty Ltd as trustee of the Gapes (NZ) Investment Trust and Cranston (NZ) Pty Ltd as trustee of the Cranston (NZ) Investment Trust, each held 50% of the issued shares of IF NZ. In about April 2017, their respective shareholding proportions changed from 50/50 to 65/35. In about July 2022, the sixth respondent became the sole shareholder of IF NZ.
Mr Gapes is the sole director of Gapes (NZ) Pty Ltd. Mr Cranston was at all material times the sole director of Cranston (NZ) Pty Ltd.
The conduct of the affairs of IF NZ was and remains subject to the provisions of the Companies Act 1993 (NZ) at all material times.
The sixth respondent and Cranston (NZ) Pty Ltd as trustee of the Cranston (NZ) Investment Trust carried on business as insurance underwriters in New Zealand from February 2011 until about July 2022 under the name “Insurance Facilitators LP” (the NZ Partnership) by way of limited partnership established under a Limited Partnership Deed dated 16 February 2011 (the NZ Partnership Deed)[103] in accordance with the Limited Partnerships Act 2008 (NZ) (NZ Partnerships Act).
[103] Exhibit A2, pages 33-62.
From December 2011 until about April 2017, the sixth respondent and Cranston (NZ) Pty Ltd as trustee of the Cranston (NZ) Investment Trust were equal partners, being the initial and only limited partners of the NZ Partnership. As such they were entitled to share equally in the distributions and profits of the NZ Partnership business and equally liable for its losses and liabilities.
In about April 2017, the respective interests of the sixth respondent and Cranston (NZ) Pty Ltd as trustee of the Cranston (NZ) Investment Trust in the NZ Partnership changed from 50/50 to 65/35. In about July 2022, the sixth respondent became the sole limited partner of the NZ Partnership (and as mentioned, the sole shareholder of IF NZ).
Despite its 50% interest in the NZ Partnership, at all material times until about July 2022, Cranston (NZ) Pty Ltd as trustee of the Cranston (NZ) Investment Trust is not a respondent party to this proceeding.
IF NZ was the general partner appointed to manage the affairs and business of the NZ Partnership under the NZ Partnership Deed. Its powers and obligations are provided for in the NZ Partnership Deed as is its entitlement to be remunerated for its services by payment of unspecified monthly management fees by the limited partners.
As a general partner, IF NZ has no entitlement to the profits derived or liabilities assumed or losses incurred by the NZ Partnership.
The conduct of the affairs of the NZ Partnership was and remains subject to the terms of the NZ Partnership Deed and the NZ Partnerships Act.
Mr Day’s Employment
Before his employment with IF Australia, Mr Day was employed by Cranston Australia Pty Ltd as a Product Development Manager from July 2013 on a part-time basis.[104]
[104] Exhibit A2, pages 17-32.
Mr Day was then employed full-time by IF Australia in the position of Development Manager, reporting to and working closely with Mr Gapes from 1 July 2014. In conjunction with an external consultant, Mr Day’s initial role was to oversee the transition of the existing computer systems to new ones that integrated the underwriting, claims and accounting functions.
Mr Day’s employment was governed by the terms of a written employment contract dated 1 July 2014. His starting salary was $110,000 plus superannuation per annum.[105]
[105] Exhibit A2, page 6.
Mr Day’s received regular salary increases. Effective 1 March 2016, his annual salary was $125,000 plus superannuation.[106] He received a bonus of $20,000 in 2016. Effective 1 July 2017, his salary was increased to $185,000 plus superannuation.[107] It was Mr Gapes’ unchallenged evidence that he was given a significant salary increase in July 2017 as an incentive to take on more responsibility and relieve Mr Gapes’ heavy workload and assist in growing the business.
[106] Exhibit A2, page 14.
[107] Exhibit A2, page 13.
At trial, Mr Day drew attention to the three letters confirming his salary increases and thanking him variously for his dedication, hard work and ongoing commitment to business development and the future success of Insurance Facilitators. More was sought to be made of these letters than there is, bearing in mind Mr Day’s performance was not an issue arising on the pleadings.
These were form letters drafted by Ms Li and signed by Mr Gapes as managing director and merely reflect Mr Gapes’ general satisfaction with Mr Day’s performance as an employee. Whilst it should be accepted that by January 2017 Mr Gapes was genuinely satisfied with Mr Day’s contribution and commitment to the business and optimistic about his potential, these letters expressing Mr Gapes’ satisfaction shed little light on the questions arising as to the parties’ contractual intentions for any shareholding by Mr Day. The third letter concerned an increase in his salary made after the critical January and April 2017 meetings.
Early Discussions
By early 2017, Mr Cranston was in the office irregularly (once a month or so) and not involved in the day-to-day operations. Mr Gapes’ workload as managing director was heavy. The business was growing. Whilst Mr Day had only been working in the business fulltime for two and a half years, he was ambitious and eager for future opportunities to increase his status and remuneration and possibly be a minor shareholder.
Mr Gapes and Mr Day began discussing Mr Day expanding his role in the business by taking on more responsibilities well before January 2017. In the preceding year, Mr Gapes began taking Mr Day on business trips to introduce him to brokers and underwriters. On several occasions on these business trips, they discussed the business, Mr Day’s future role and his aspirations for future opportunities including for increased status and a minor shareholding.
In the circumstances, Mr Gapes was supportive of exploring options to incentivise Mr Day to take on added leadership responsibilities to reduce his workload and assist him in growing the business over the long-term. As for Mr Day becoming a director, there were immediate benefits to the business from holding him out as a director at least in name because an overseas trip to visit underwriters was planned for March 2017. As for a minority shareholding, they had discussed this was a possibility down the track.
To advance Mr Day’s role in the business it was necessary to discuss these matters with Mr Cranston who had not been involved in any of these early discussions.
THE FIRST ALTERNATIVE CLAIM
Conclusion
To establish his first alternative claim, Mr Day must prove that a binding agreement was formed between the necessary parties in the January and April 2017 meetings on the terms alleged.
In summary, for the reasons discussed below, Mr Day’s first alternative claim fails and must be dismissed. It fails because, on an objective assessment of the reliable evidence of what was said at the January 2017 meeting (and subsequently), no promise was made, or tacit understanding reached, to transfer, issue or gift Mr Day any shareholding. At the end of the January meeting, the parties’ discussion about Mr Day’s future role in the business and any proposed shareholding was left for Messrs Gapes and Cranston to consider further and take advice from Mr Tscharke. Objectively viewed, what was said and known by the parties does not evince any mutual assent to be legally bound to any course of action for Mr Day’s future role in the business, let alone to transfer, issue or gift Mr Day any shareholding.
A consensus was reached for Mr Day to be made a director of IF Australia, initially spoken in terms of him being a director in title only. To reach a consensus however is not the same as agreeing to enter into legal relations by way of an enforceable contract.
As contemplated by the parties, advice was taken by Messrs Gapes and Cranston about Mr Day’s aspirations for a minor shareholding. Mr Tscharke’s advice led to him being invited to attend the April meeting to explain the significant legal, taxation and financial impediments to Mr Day becoming a shareholder other than on terms where he purchased his shares at market value. Mr Tscharke recommended the parties consider the alternative of an employee bonus calculated by reference to a share or percentage of net profit, sales or some other metric. If the payments were to be linked to profit, he recommended that it should be net profit after tax and key performance indicators (KPIs) should be set. The meeting concluded on the basis that the parties would further consider and discuss the terms of an employment bonus arrangement for Mr Day and put it in writing. Meanwhile Mr Tscharke would do some further work on the viability of an employee share scheme.
Mr Tscharke also recommended Messrs Gapes and Cranston consider and agree what percentage of their dividend entitlements be set aside for Mr Day. In doing so, he recommended they first consider what percentage of profit should be retained, advising that a normal band would be in the range of 50-70%. The rest would then be left to be distributed as dividends and Mr Day be paid a bonus calculated by reference to a percentage of declared dividends. In the past, dividends were declared and paid to the shareholders of IF Australia annually, if at all, in an ad hoc way.
On the reliable evidence about what was said at the April meeting, no promise was made or tacit understanding reached about any shareholding by Mr Day. There was no acknowledgment made that he already had a 5% shareholding or agreement made that he was to be treated as such with his dividends being paid as an employment bonus for tax purposes. Indeed, in the absence of any shareholding agreement being made in the January meeting as alleged, there is no foundation for inferring that the parties’ dealings in April (or subsequently) manifested a mutual intention to be contractually bound to acknowledge Mr Day’s shareholding by treating him as if he were a 5% shareholder, entitling him to be paid 5% of the dividends declared by the companies, independent of his employment.
Mr Day’s claims regarding IF NZ are without merit. There was no discussion about the New Zealand business in either the January or April meetings let alone agreement that any arrangement regarding Mr Day would extend beyond IF Australia. It was Mr Day’s unstated assumption that the profits from New Zealand business would be included in his payments and his claim was advanced against IF NZ on the basis of his misconception about its role in the structure of the New Zealand business. He has mistakenly inferred his contractual entitlement from the fact his payments were ultimately calculated by reference to the net profit of the NZ Partnership, despite never discussing or agreeing this with Messrs Gapes and Cranston.
The subsequent communications between the parties do not alter the conclusion that no binding agreement was made for Mr Day to be transferred or given a 5% shareholding or treated as if he were one in the January and April 2017 meetings.
The payments made to Mr Day should therefore be characterised as payments made under an agreement to pay him an employment bonus calculated by reference to the dividends declared and paid to the shareholders of IF Australia, an entitlement that ended with his employment.
The decision to appoint Mr Day as a director of IF Australia was not tied to any proposed shareholding or the payment arrangement ultimately agreed.
January Meeting
What Was Proven to be Said
Mr Gapes arranged for Mr Day to meet with him and Mr Cranston in the morning of 19 January 2017 in Mr Cranston’s office at IF Australia.
This was the first time Mr Cranston was involved in any discussion with both Messrs Gapes and Day about Mr Day’s aspirations for a better title and a minor shareholding. This is an important consideration informing the apparent logic of events.
It was timely because Messrs Gapes and Cranston were meeting with Mr Tscharke mid-morning to discuss their financial affairs. As Mr Gapes said in evidence, the proposed introduction of Mr Day as a director and shareholder in a company operating an established and profitable business required “a lot of advisement around it”.[108] This is common sense and a reasonable businessperson in the position of the parties would have thought the same.
[108] T527.24.
Mr Gapes initiated the meeting with Mr Cranston in a short conversation over the family barbeque the preceding Sunday. He wanted to table his previous discussions with Mr Day and formalise their thinking about his new role and aspirations for a shareholding. Other than agreeing they meet with Mr Day before they met with Mr Tscharke and that Mr Cranston would hear out Mr Day, Mr Gapes did not agree anything with Mr Cranston about Mr Day during this discussion.
The meeting on 19 January was brief. Mr Gapes said about 15 minutes. Mr Day said about 20 minutes to half an hour. The difference does not matter.
In evidence, Mr Gapes recalled leading off their discussion on Mr Day’s uptake of new more senior roles in the business to reduce Mr Gapes’ workload and that Mr Day wanted a better title and to be a director. This led to a discussion about Mr Day’s long-term interest in the business and his aspirations for becoming a director and a shareholder. Mr Cranston mainly listened, catching up on the previous discussions between Messrs Gapes and Day. Mr Gapes described the conversation as a general one.
When they discussed Mr Day’s aspirations to be a shareholder, Mr Gapes recalled that it was spoken of as a future possibility and Mr Day mentioned wanting a 20% shareholding. When pressed as to whether Mr Day said this in the January meeting, Mr Gapes said he thought he did because he recalled he and Mr Cranston talking about this with Mr Tscharke in their meeting later that morning.
Neither the New Zealand business nor IF NZ were discussed.
The meeting concluded on the basis that Messrs Cranston and Gapes would seriously look at giving Mr Day the title of director and further consider his aspirations to be a minor shareholder, and, as Mr Gapes put it: “there was no agreement to anything” in the January meeting and no promise was made to gift or otherwise make him a shareholder then or later.[109]
[109] T659.31-.32.
All three men knew and understood that going forward, the next step as regards Mr Day’s future role in the business was for Messrs Gapes and Cranston to seek Mr Tscharke’s advice at the meeting already planned for later that morning to discuss other business.
No reasonable businessperson would conclude that anything discussed in the January meeting manifested a mutual assent to be legally bound in any respect about Mr Day’s future role in the business, even though there was consensus about giving Mr Day the title of director.
Mr Day’s Account
In evidence Mr Day gave a very different and implausible account of the January meeting. Mr Day said after exchanging greetings, Mr Cranston led off by congratulating him on his work, saying they were ‘so thrilled’ to have him as part of the business. Mr Cranston then said they would like to invite him to join the board and give him a minor shareholding in the business.
After feeling ‘thrilled’ and thanking them both ‘incredibly’, Mr Day said he turned to Mr Gapes, made eye contact and asked: “Is it 10%?”. Mr Gapes said: “No, no, it's just 5%”. Mr Gapes then told him they were catching up with “Tscharke” to talk about ways Mr Day could get to a 10% shareholding.[110]
[110] T46.26-.38.
According to Mr Day, the meeting ended with Mr Day being invited to join the board of IF Australia and for him to be gifted a 5% shareholding in the business with immediate effect. There were two action items. One was for Mr Day to give Mr Gapes his passport to get his directorship organised. The second was for Messrs Gapes and Cranston to catch up with Mr Tscharke and take advice about how Mr Day could potentially buy more than the gifted 5% to get to a 10% shareholding.
In cross-examination, Mr Day confirmed his earlier evidence about being made a shareholder as follows:[111]
[111] T69.8-.31.
Q.And your description of what occurred at that meeting or what was discussed at that meeting in summary terms is that Mr Cranston put a proposal to you to say thank you for your hard work, we would like to make you a shareholder; that's right.
A. Yes.
Q.And so, in that discussion, what was it that was proposed in relation to you becoming a shareholder.
A.So by way of your word 'proposed', it was an offer or he said we would like to give you a minor shareholding in the business.
Q.So just stopping there, I think your evidence earlier was that the offer was that you’d be gifted shares.
A.Yes.
Q.And who were you to be gifted shares by.
A.It wasn’t established at that meeting.
Q.It wasn’t made clear, it wasn’t established. So, given that the offer that was made that you were to be gifted shares, there was no discussion about any payment or consideration to the amount of money to be paid for those shares.
A.Correct, yes.
Q.That was not discussed.
A.That’s correct.
When it was later put to Mr Day that there was no discussion about how he was to be gifted his 5% shareholding, Mr Day conceded “there was probably no clarity in that meeting as to when that was going to take place” and later confirmed it when he said there was no agreement as to when that might occur.[112]
[112] T70.2-.37; T157.23-.25.
Later again in cross-examination, Mr Day confirmed there was also no discussion in this meeting about the mechanism and formalities for him becoming a shareholder, whether that be by a transfer or an issue of shares by the company (about which he then had no understanding). Accordingly, there was no discussion about who would transfer shares to Mr Day or in what percentages. Nor was there any discussion or consideration given to the payment to be made for any shares or the taxation implications or who would meet any such liability, although Mr Day did say later he understood his gift would not be free and the CGT consequences would likely be left with Messrs Gapes and Cranston.

In closing submissions, Mr Day referred to numerous contemporaneous documents as describing or confirming the 5% bargain including the email communications already discussed above. It was submitted that these communications provide insight to the nature of the payment arrangement agreed and support Mr Day’s case.
Ultimately, none of these communications were determinative or

supported Mr Day’s case.
Only the January and April 2017 emails exchanged between Messrs Gapes and Tscharke[157] were truly contemporaneous with the alleged “Shareholders Agreement” made in the January meeting and varied in the April meeting. In so far as these communications are relevant, when properly read in context, they do not assist Mr Day’s case.
[157] See [179]-[188] above.
The other documents relied on by Mr Day (including Ms Li’s December 2017 and the January 2018 emails discussed above) largely comprised email communications that occurred many months subsequent to the putative formation of the alleged “Shareholders Agreement”. Read in context of the other reliable evidence as a whole, none unequivocally confirmed or described the terms of the bargain for which Mr Day contended.
The language used in these emails is equivocal as to the terms of any alleged agreement and in many cases, what was said is not probative of any mutual intent. These communications are generally brief, loosely and imprecisely expressed, as is typical of busy people dealing with business matters. The references in emails about the calculation of Mr Day’s payment to “profit share” and “dividends” are neutral. Read properly in context, these references reflect the basis of calculation of Mr Day’s payment as a percentage of declared dividends paid from company profits.
Mr Day specifically sought to rely on Ms Li’s descriptions of the arrangement with Mr Day in subsequent email communications as reflecting her instructions from Mr Gapes about the nature of Mr Day’s payments. Ms Li’s emails carry little probative weight given her language competency and functional role. She was not involved in the relevant meetings, had limited knowledge and understanding of the arrangements based on what was communicated to her in emails. Ms Li tended to adopt and repeat the same descriptions and expressions used in emails sent to her by others, without questioning or intending any significance be attached to her language or appreciating any subtleties.
Directorship of IF Australia
Mr Day was appointed a director of IF Australia on 26 July 2017. Control of the business and its operations remained with Messrs Gapes and Cranston as the only shareholders and owners throughout.
On 18 December 2020, Mr Day was removed as a director after his employment with IF Australia was terminated effective from 2 December 2020 by resolution of the “A” class shareholders.[158]
[158] Exhibit A2, page 63.
It is not necessary to resolve the controversy about who first raised the directorship. What is important is that undisputedly Mr Day’s appointment came about following the initial discussions in the January meeting for him to be a director in name or title only. On Mr Tscharke’s advice, Mr Day’s appointment was formalised by Mr Tscharke’s firm eventually lodging a change to company details form with ASIC.[159]
[159] Exhibit A2, pages 71-72.
In closing submissions, Mr Day contended that it made little sense to appoint Mr Day as a director absent equity or being treated as a shareholder. They were said by Mr Day’s counsel as travelling together and both were integral to the arrangement made.
Yet Mr Day gave contrary evidence despite not knowing that the constitution of IF Australia expressly provided that a director need not be a shareholder.[160] He disavowed that he requested or suggested he be a director and said he did not connect becoming a director with being a shareholder, nor was he told any reason for being invited to the board. He just understood that he would have more say in the direction of the business.
[160] Exhibit A2, page 635, clause 173.
Mr Day’s submissions that his directorship supported his case lack merit. On the evidence, his appointment was not connected to his status as a shareholder and gave him no rights as such or other interests in the companies.
Payments Made
It was Mr Day’s pleaded case[161] and agreed[162] that between May 2018 and February 2021, payments were made to him or for his benefit that were calculated by reference to 5% of shareholder dividends and profit distributions made for both IF Australia and the NZ Partnership (not IF NZ) for the period from July 2017 until the end of his employment.[163] These payments were accounted for and taxed as an employment bonus. When amounts were paid directly to Mr Day on a few occasions, PAYG tax was withheld by his employer, IF Australia. Otherwise, motor vehicle and other expenses were set off against these payments, providing Mr Day with a tax efficiency and requiring lodgement of an FBT return by IF Australia.
[161] Claim [15].
[162] SAFI [16]-[18].
[163] There was an exception. The payments for Mr Day referable to the May 2018 shareholder dividends for IF Australia and profit from the NZ Partnership were calculated on the basis of 7.5% of distributable profit before tax as a result of advice from Mr Day’s accountant about increasing the tax efficiency for Mr Day.
The accounting treatment of these payments is uncontroversial. The essential question in dispute is their agreed characterisation in consequence of what was allegedly said at the critical January and April 2017 meetings.
For completeness, it is necessary to mention an anomaly with Mr Day’s pleaded case and his evidence concerning the $5,000 (gross of income tax) paid to him as an employment bonus in January 2018.
Ultimately, Mr Day’s pleaded case shifted about when the payments under the alleged “Shareholders Agreement” began. Contrary to Mr Day’s pleaded case, in closing submissions Mr Day contended that “the first dividend payment received…was declared on 30 November 2017.”[164] Further, the payment of $5,000 was made “in accordance with the shareholder-equivalent arrangement described in paragraph 13” of the Claim and it was submitted it should have been included in the schedule in paragraph 15 of the Claim.[165]
[164] Applicant’s Closing [16].
[165] Applicant’s Further Supplementary Closing [3].
As already mentioned, an interim dividend of $100,000 was declared by IF Australia on 30 November 2017 and was payable to the shareholders, who did not include Mr Day because he was not a shareholder. Mr Day was paid a $5,000 bonus (gross of income tax) by IF Australia in January 2018.[166]
[166] Exhibit A2, page 511.
In cross-examination Mr Day gave contradictory evidence about the $5,000 bonus payment made to him in January 2018. Whilst being cross-examined about the 13 to 15 January 2018 emails, Mr Day gave evidence that this payment was made for his 5% shareholding.[167] Later, during cross-examination about bonus payments shown in his payroll records, Mr Day first confirmed that the $5,000 bonus payment made in January 2018 was a “dividend I received from the business that was regarded that it needed to be treated as a bonus,”[168] then confusingly agreed that prior to May 2018 he had not received any dividend payments,[169] (consistent with his pleaded case), which he had reconciled in preparing his claim.
[167] T115.16-116.25.
[168] T172.12-.18.
[169] T172.26-.38.
There is no substance to the criticism made of Mr Gapes’ evidence about this payment being a different bonus arrangement given the reference in Mr Day’s 13 January 2018 email to Ms Li that the $5,000 payment was discussed and agreed with Mr Gapes in the preceding week. In any event, in the proven circumstances about what was said at the January and April meetings, this payment, like the other payments made to Mr Day from May 2018 to February 2021, was in the nature of employment bonus and not paid pursuant to the term of the alleged “Shareholders Agreement”.
New Zealand Payments
It is uncontentious that payments totalling $49,573.51 were made to Mr Day or applied for his benefit for the NZ Partnership by IF Australia on account of the NZ Partnership.[170]
[170] SAFI [17]; Claim [15]; Respondents’ Further Supplementary Closing [2]; Applicant’s Further Supplementary Closing.
In the proven circumstances, these payments were a gratuity in the absence of any discussion or agreement made between the parties that Mr Day’s bonus payments would be calculated by reference to any profits of the New Zealand business, whether that be the profits of the NZ Partnership or any dividends declared by IF NZ. Mr Day did not rely on any claim in estoppel that might have led to a different conclusion.
In any event, having regard to the structure of the New Zealand business, Mr Day’s claim for 5% of the dividends declared by the fourth respondent company IF NZ was misconceived. It was pressed against the wrong party for a percentage of declared dividends when there were no dividends paid by a partnership of trusts.
In evidence Mr Day unconvincingly sought to explain his claim against IF NZ by saying that a reference to “IF” is “to the business, which includes Australia and New Zealand” because on a day-to-day basis within the business, we did not distinguish between the companies IF Australia or IF NZ.[171] It was plain from Mr Day’s evidence on this topic that he did not understand the role of IF NZ in the structure of the New Zealand business or “how the money flowed through”,[172] and even though the New Zealand business was not discussed at the January meeting, he assumed he had a 5% shareholding.[173]
[171] T116.6-.14.25.
[172] T81.10-.31.
[173] T81.19-.23.
In closing, Mr Day’s submitted:[174]
The New Zealand Company was a component of the business ran out of Australia.
[174] Applicant’s Closing [139].
This fundamental defect in Mr Day’s case as regards his claimed interest in IF NZ and contractual entitlement to 5% of the profits from the NZ Partnership cannot be overcome by evidence about his subjective understanding as to how the New Zealand business was operated, disregarding its legal structure.
Nor should Mr Day’s claim be inferred from conduct that is not inconsistent with the putative contract. It is not enough that the parties’ conduct is consistent with what was alleged to be the terms of a binding agreement. It would be an error to conclude that because the New Zealand payments were made, they were made because of the putative contract formed in the January meeting and not more than an adjustment of the parties’ relationship in light of changing circumstances.[175]
[175] GC NSW Pty Ltd v Galati [2020] NSWCA 326, [89]-[90] (Gleeson JA), citations omitted.
In closing submissions Mr Day sought to bolster his claim for a 5% share of profits from the NZ Partnership (although his pleaded case was for 5% of the dividends declared by IF NZ) by reference to the fact the New Zealand payments were repeatedly made and were authorised by Mr Gapes. Not only was Mr Day’s reliance on inferential reasoning from subsequent circumstances misplaced, but the evidentiary foundation of his submissions was incorrect. The respondents did not abandon their defence at trial that the New Zealand payments were a gratuity only and initially paid in error by Ms Li or acknowledge the payments were part of the arrangement from the outset.
The evidence of Mr Gapes and Ms Li on this topic was straightforward and consistent with the respondents’ pleaded defence and the documentary evidence.
Ms Li’s first calculations were prepared to consider different profit retention scenarios (60 or 70%) for both the Australian and New Zealand operations as the necessary first step before determining dividend/profit distributions between the shareholders (which did not include Mr Day). Not knowing or apparently properly understanding the agreed arrangement with Mr Day, Ms Li included Mr Day’s payments in the scenarios for both the Australian and New Zealand businesses. Mr Gapes forwarded her first calculation to Mr Day. Mr Gapes’ evidence should be accepted that once he realised he had overlooked this, he did not do anything to resile from Mr Day’s payment including profit from the New Zealand operations and this set the pattern for the future payments made to Mr Day.
Part of Mr Day’s Employment Retainer
Mr Day submitted in closing submissions that the issue is whether and when it was communicated to him that his payment arrangement would be part of his employment retainer.[176] In support of this contention, Mr Day further submitted that his payment arrangement did not vary his written employment contract, relying on various matters as not proving the respondents’ case in defence. Mr Day specifically referred to and relied on a series of letters prepared by Ms Li as the financial administrator that confirmed annual increases to Mr Day’s salary but did not refer to Mr Day’s bonus arrangement as significant.
[176] Applicant’s Closing [157]-[168].
That the annual salary increase letters did not record Mr Day’s payment arrangement is not determinative. As the respondents submitted, the salary increase letters were pro-forma letters issued annually reflecting only the change to Mr Day’s salary.
As for the other matters relied on, they are also not determinative and do not prove the putative contract was made as Mr Day alleged. It would be an error to find in Mr Day’s favour because the respondents failed to prove that it was communicated to Mr Day that the payment arrangement would be part of his employment retainer. Undisputedly, Mr Day was an employee of IF Australia at the time the putative contract was formed. In the proven circumstances as to what was said at the January and April meetings, it follows that the payment arrangement varied his entitlements as an employee of IF Australia. As the respondents submitted, to find otherwise would be to reverse the evidentiary onus that rested on Mr Day in proving the alleged “Shareholders Agreement”.
In any event, in the proven circumstances, reasonable businesspeople in the position of the parties would have understood that the payments made to Mr Day formed part of his remuneration as an employee, despite there being no express written communication stating this. The payments made to Mr Day during his employment were not dividends or similar to dividends, they were not related to any shareholding or interest in the companies and were in the nature of an employment bonus that subsisted whilst he was an employee.
That there were no agreed KPIs is also not determinative.
THE SECOND ALTERNATIVE CLAIM
Written Profit Share Agreement
Conclusion
In closing oral submissions, counsel for Mr Day disavowed reliance on the written “Profit Share Agreement” as recording the terms of the parties’ agreement,[177] no doubt because on the express terms of this document the bonus payments were tied to Mr Day’s employment and only payable for IF Australia.
[177] T693.14-695.10.
This disavowal of Mr Day’s second alternative claim as pleaded was an appropriate concession because the document signed by Messrs Gapes and Cranston is not contractually binding and if it was, some of its terms are materially inconsistent with Mr Day’s first alternative claim. It is not contractually binding because Mr Day never communicated acceptance of its terms to the respondents. Indeed, when provided with a signed copy of it, not only did Mr Day not sign it, but he asked questions about it, objected to it being backdated and said he wanted to review it. His evidence that he later signed it, dated it 29 September 2020 and dropped a copy on Mr Gapes’ desk despite his pleaded case and evidence that it did not record the parties’ agreement should be rejected as unreliable and implausible.
Objectively viewed, in the proven circumstances, there was no mutual intention manifested for the creation of a binding agreement on the terms of the “Profit Share Agreement”.
The “Profit Share Agreement” does not otherwise support any claim for Mr Day to have his payments calculated by reference to net profit as opposed to declared dividends. It was prepared for the purpose of the audit of IF Australia by the company’s external accountants, and although it was intended to record the terms upon which Mr Day’s payments had been made, it did not do so accurately. It provided that his payment be 5% of net profit of IF Australia before income tax as recorded in the audited financial statements instead of declared dividends and was inconsistent with the basis of calculation agreed between the parties and how his payments were calculated until termination of his employment.
The Salient Facts
In September 2020, in the course of their first audit of IF Australia, the newly appointed auditors William Buck asked if there was a written agreement or any supporting documents for Mr Day’s profit share payments. There were not of course because the payments that had been made to him were made pursuant to an oral agreement between the parties that was not recorded in writing.
A number of emails were then exchanged between variously Ms Li, Mr Gapes and Mr Tscharke on this topic. Mr Gapes thought Mr Tscharke would have “some advice on this as we did set this up with him”.[178] But Mr Tscharke did not know whether it had been recorded in a written agreement and only had some spreadsheets showing the calculations on his system. For the purpose of the audit, Ms Li asked Mr Gapes to describe for her in an email how to calculate Mr Day’s profit share. He replied:[179]
Julian’s PS is based on 5% of total distribution share before AC & JG calculated share.
[178] Exhibit A2, page 207.
[179] Ibid.
Mr Tscharke was instructed to prepare a draft agreement for the purpose of the audit as follows:[180]
In regard to Julian receiving profit share it was agreed that he is only a director in title, there is no ownership to any company shares and profit share is by way of bonus only at the discretion of the shareholders.
Simon is that how you remember it and if so can you please send us an agreement letter around those terms?
[180] Exhibit A2, page 218.
One of Mr Tscharke’s client managers, an accountant with no direct knowledge of the agreement, prepared a first draft of an agreement on the basis of Mr Gapes’ initial email instructions. It was sent to Ms Li and Mr Gapes after Ms Li had followed up with Mr Tscharke about when he would send “Julian’s bonus agreement”.[181]
[181] Exhibit A2, page 231.
The draft was simply worded, the operative part relevantly providing as follows:[182]
[182] Exhibit A2, page 234.
RECITALS
A.     The Shareholders have elected to appoint the employee as a director of the company.
B.     The Employee has agreed to be appointed as a director of the company on 26 July 2017.
C.     The Shareholders have agreed to enter into a profit sharing agreement with the employee upon the employee exceeding performance targets for any one year.
D.
The parties wish to set out the profit sharing arrangement in this agreement.

IT IS AGREED
It is agreed that the company will pay the employee an [sic] 5% of net profit as a profit share, if certain performance target [sic] are exceeded in any one year.
It is further agreed that this 5% share will be calculated before the distribution of any profit to any other employee or directors.
This profit share will be paid as an annual lump sum.
Despite the intent that the draft document record the terms of the agreement for Mr Day’s payments and the basis upon which they had been made, it did not in two important respects. The basis of payment had always been 5% of declared dividends of IF Australia (not net profit) and it was never paid as an annual lump sum.
The Final Agreement
Only Ms Li identified any issues. She had bookkeeping questions (about the definition of net profit and how the payments were to be made) but did not identify the important difference between a payment made as a percentage of net profit as distinct from declared dividends. A final draft was prepared relevantly providing as follows:[183]
[183]Exhibit A3. Emphasis added and amendments marked up for convenience.
RECITALS
A.     The Shareholders have elected to appoint the employee as a director of the company.
B.     The Employee has agreed to be appointed as a director of the company on 26 July 2017.
C.     The Shareholders have agreed to enter into a profit sharing agreement with the employee upon the employee exceeding performance targets for any one year.
D.
The parties wish to set out the profit sharing arrangement in this agreement.

IT IS AGREED
It is agreed that the company will pay the employee ~~an [sic] 5% of net profit as~~ a profit share of 5% of net profit, if certain performance target [sic] are exceeded in any one year. Net profit is defined in Item 4 of the Schedule.
It is further agreed that this 5% share will be calculated before the distribution of any profit to any other employees or directors.
This profit share will either be paid out on a monthly basis or offset against other expense payments, as agreed between the parties ~~as an annual lump sum~~.

Item 4 of the Schedule defined the “net profit” of IF Australia as “the net profit before income tax as recorded in the audited financial statements each financial year”.
Mr Gapes reviewed it briefly without identifying any issues and he and Mr Cranston signed it. It was dated 26 July 2017, the date of Mr Day’s appointment as a director of IF Australia. No one on behalf of the respondents identified that it provided for a different basis of calculation (net profit as distinct from declared dividends) and payment on a monthly basis or performance KPIs, none of which had been discussed, let alone agreed or were the basis of the payments made to date.
Mr Day was not involved in its preparation or copied into any of these emails. Instead, on about 29 September 2020, in a meeting in Mr Day’s office, Mr Gapes presented him with the signed document together with a letter dated 25 September 2020 confirming the pending reduction in his salary.[184] The latter letter referenced the profit share agreement in similar terms.
[184] Exhibit A2, page 238.
It is uncontroversial that Mr Gapes told Mr Day the profit share agreement had been prepared at the auditor’s request and needed to be signed to complete the audit. Mr Day, noting the 2017 date on the document, said he would not sign a backdated document, and needed some time to look over the document. He took it and put it on his desk.
Mr Day gave evidence that after quickly scanning the contents of the signed agreement, he studied it more closely. In his view, it did not reflect the terms of any agreement made on 26 July 2017 or at any time and he raised a number of issues with it including that it omitted IF NZ and referred to KPIs that had not been discussed or agreed, which issues he discussed with Mr Gapes in a later meeting some days later. In short, Mr Day told Mr Gapes he would not sign it. In response, Mr Gapes allegedly told him that the document was separate to and did not affect their previous agreement.
However, after taking legal advice about whether he ought to sign the document or not, in about mid-October 2020 Mr Day signed it anyway and dropped a copy on Mr Gapes’ desk and kept a copy for himself.
It was Mr Gapes’ evidence that Mr Day did not ever sign the agreement in his presence, nor was a signed copy ever returned to him by Mr Day. The first time he saw a copy of the agreement signed by Mr Day was from Mr Day’s discovery in this proceeding. It was also Ms Li’s evidence that she had never seen a signed copy of the agreement until Mr Day’s discovery in this proceeding. None was located among IF Australia’s records or that of Mr Tscharke and his firm. The 2020 audit was resolved without an executed copy of the agreement being produced on the basis of the other supporting documents provided to William Buck by Ms Li.
Mr Gapes told Mr Tscharke in an email dated 13 October 2020 that Mr Day had not signed the contract presented to him that he had authored for them because “it is not how he remembers the contract to have been discussed”.[185]
[185] Exhibit A2, pages 240-241.
Whilst Mr Day’s evidence should be accepted that he considered the document presented to him did not record what had been discussed, his evidence that he signed and dated the agreement and dropped it back on Mr Gapes’ desk should be rejected as unreliable. It is not plausible he would have signed it if he had objections about it not properly recording the parties’ agreement (whether that just be about it being back-dated), particularly after having taken legal advice about whether he should sign it.
It is also not plausible that if Mr Day had signed and returned it, it would not have been provided to the company auditors, never seen by Mr Gapes or Ms Li nor a copy kept and later found among the company records. It was not until later that Mr Gapes identified any discrepancies in the document from the respondents’ point of view and he had no reason at the time for disavowing the document with terms that ostensibly were generally consistent with the respondents’ case.
JUDGMENT AND COSTS
For these reasons, Mr Day’s claim should be dismissed and subject to any matter affecting the general principle that costs follow the event, the respondents should have their costs of the proceeding on a standard costs basis, certified fit for junior counsel.
The parties should be heard as to the form of the finalising orders and costs.

5% of net profits of the Third respondent to 30 June 2022	AU$241,161.05
5% of the net profits of the Fourth respondent to 30 June 2022	NZ$209,812.30
- LESS Amount Received	AU$107,399.20
Total owed in Australian Dollars	AU$133,761.85
Total owed in New Zealand Dollars	NZ$209,812.30