Dowell v Custombuilt Homes Pty Ltd

[2004] WASCA 171

DOWELL & ANOR -v- CUSTOMBUILT HOMES PTY LTD [2004] WASCA 171

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2004] WASCA 171
Court:	THE FULL COURT (WA)
Case No:	FUL:88/2003	Heard:	7 APRIL 2004
Coram:	MURRAY J WHEELER J EM HEENAN J	Delivered:	13/08/04
No of pages:	46	Judgment Part:	1 of 1
Result:	Appeal allowed Cross-appeal dismissed
Category:	B
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Parties:	ASHLEY KEVIN DOWELL SHOANA LEANNE DOWELL CUSTOMBUILT HOMES PTY LTD (ACN 009 393 051)
Catchwords:	Contract Intention to contract Whether a concluded agreement Severance of one aspect Turns on own facts Evidence Admissibility of "without prejudice" correspondence Rule in Browne v Dunn
Legislation:	Nil
Case References:	A G v Pontypridd Water Works Co [1908] 1 Ch 388 ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119 Australian Communications Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55; (2003) 77 ALJR 1806 Brew v Whitlock (No 2) [1967] VR 803. , , British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 Browne v Dunn (1893) 6 Rep 67. , Carney v Herbert [1985] AC 301. , Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706 Ex parte Elliott, Re Jermyn (1838) 3 Deac 343 Field v Commissioner for Railways (NSW) (1957) 99 CLR 285. , Foley v Classique Coaches Ltd [1934] 2 KB 1 Fox v Percy (2003) 77 ALJR 989 Hall v Heward [1886] 32 Ch D 430 Henderson v Henderson (1843) 3 Hare 100 [67 ER 313] Hicks v Hicks (1802) 3 East 16; 102 ER 502 Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597. , Kendall v Hamilton (1879) 4 App Cas 504 May & Butcher v R [1934] 2 KB 1 McFarlane v Daniell (1938) 38 SR (NSW) 337 Moses v Macferlon (1760) 2 Burr 1005; 97 ER 676 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Payne v British Time Recorder Co [1921] 2 KB 1 Performing Right Society v London Theatre of Varieties [1924] AC 1 Phillip Morris Inc v Adam Peter Brown Male Fashions Pty Ltd (1981) 148 CLR 457 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Re Harrison [1891] 2 Ch 349 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69 Valpy v Gibson (1847) 4 CB 837 Waldridge v Kennison (1794) 1 Esp 143; 170 ER 306 Way v Latilla [1937] 3 All ER 759 Wenning v Robinson (1964) 64 SR (NSW) 157 Westdeutsche Landesbank v Islington B C [1994] 4 All ER 890 Whitlock v Brew (1968) 118 CLR 445 Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Bulstrode v Trimble [1970] VR 840 Byblos Building Co Pty Ltd v Darlane Pty Ltd [1999] WASC 248 Paterson v Paterson (1953) 89 CLR 212 Reid v Kerr (1974) 9 SASR 367 Taylor v Johnson (1983) 151 CLR 442 Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486 Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144 Thorby v Goldbert (1964) 112 CLR 597 TPC v Arnotts Ltd (1989) 88 ALR 69 Voulis v Kozary (1975) 180 CLR 177 Woodside Offshore Petroleum Pty Ltd v Atwood Oceanics Inc [1986] WAR 253

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : DOWELL & ANOR -v- CUSTOMBUILT HOMES PTY LTD [2004] WASCA 171 CORAM : MURRAY J

WHEELER J
EM HEENAN J

HEARD : 7 APRIL 2004 DELIVERED : 13 AUGUST 2004 FILE NO/S : FUL 88 of 2003 BETWEEN : ASHLEY KEVIN DOWELL

SHOANA LEANNE DOWELL
Appellants

AND

CUSTOMBUILT HOMES PTY LTD (ACN 009 393 051)
Respondent

Catchwords:

Contract - Intention to contract - Whether a concluded agreement - Severance of one aspect - Turns on own facts

Evidence - Admissibility of "without prejudice" correspondence - Rule in Browne v Dunn

Legislation:

Nil

(Page 2)

Result:

Appeal allowed

Cross-appeal dismissed

Category: B

Representation:

Counsel:

Appellants : Mr G M Abbott
Respondent : Mr M L Bennett

Solicitors:

Appellants : Biddulph & Turley
Respondent : Bennett & Co

Case(s) referred to in judgment(s):

A G v Pontypridd Water Works Co [1908] 1 Ch 388
ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695
Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119
Australian Communications Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55; (2003) 77 ALJR 1806
Brew v Whitlock (No 2) [1967] VR 803
British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504
Browne v Dunn (1893) 6 Rep 67
Carney v Herbert [1985] AC 301
Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706
Ex parte Elliott, Re Jermyn (1838) 3 Deac 343
Field v Commissioner for Railways (NSW) (1957) 99 CLR 285
Foley v Classique Coaches Ltd [1934] 2 KB 1
Fox v Percy (2003) 77 ALJR 989
Hall v Heward [1886] 32 Ch D 430


(Page 3)

Henderson v Henderson (1843) 3 Hare 100 [67 ER 313]
Hicks v Hicks (1802) 3 East 16; 102 ER 502
Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597
Kendall v Hamilton (1879) 4 App Cas 504
May & Butcher v R [1934] 2 KB 1
McFarlane v Daniell (1938) 38 SR (NSW) 337
Moses v Macferlon (1760) 2 Burr 1005; 97 ER 676
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Payne v British Time Recorder Co [1921] 2 KB 1
Performing Right Society v London Theatre of Varieties [1924] AC 1
Phillip Morris Inc v Adam Peter Brown Male Fashions Pty Ltd (1981) 148 CLR 457
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Re Harrison [1891] 2 Ch 349
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69
Valpy v Gibson (1847) 4 CB 837
Waldridge v Kennison (1794) 1 Esp 143; 170 ER 306
Way v Latilla [1937] 3 All ER 759
Wenning v Robinson (1964) 64 SR (NSW) 157
Westdeutsche Landesbank v Islington B C [1994] 4 All ER 890
Whitlock v Brew (1968) 118 CLR 445

Case(s) also cited:

Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Bulstrode v Trimble [1970] VR 840
Byblos Building Co Pty Ltd v Darlane Pty Ltd [1999] WASC 248
Paterson v Paterson (1953) 89 CLR 212
Reid v Kerr (1974) 9 SASR 367
Taylor v Johnson (1983) 151 CLR 442
Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486
Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144
Thorby v Goldbert (1964) 112 CLR 597
TPC v Arnotts Ltd (1989) 88 ALR 69
Voulis v Kozary (1975) 180 CLR 177
Woodside Offshore Petroleum Pty Ltd v Atwood Oceanics Inc [1986] WAR 253

(Page 4)

1 MURRAY J: This appeal and cross-appeal arise out of a business relationship between a Mr and Mrs Green, neither of whom has been a party at any stage to this litigation, and a Mr and Mrs Dowell. In the light of what follows, it is perhaps unfortunate that the Greens were not regarded as necessary parties to the litigation and were not joined therein, but it is understandable that they were not joined and that the party taken to reflect their interests is the respondent.

2 Mr Green is a registered builder. For many years he operated in partnership with Mrs Green under the name Custombuilt Homes. Originally, Mr Dowell was an employee of the business. He rose to occupy a management and administrative position in the business and commenced to receive payment for his work, not by wages, but by a share of the profits.

3 It was agreed that Custombuilt Homes would be incorporated and that Mr and Mrs Green and Mr and Mrs Dowell would become the sole directors and shareholders in equal shares in the company. The price of acquisition of that interest in the company was agreed to be $82,500. The Dowells raised $60,000 and that was paid to the company. The balance of $22,500 was actually provided by the Greens. It would be a loan by Mr and Mrs Green to Mr and Mrs Dowell, but no precise terms for repayment appear ever to have been worked out. The $60,000 was paid by the company to Mr and Mrs Green, who had previously loaned money to the partnership.

4 An associated company in which the interested parties appear to have been Mr Green and Mr Dowell in equal shares, was Araluen Building Design Services Pty Ltd. That company was formed to undertake a substantial project with another company, a housing estate at Araluen. Mr Green and Mr Dowell were the directors of that company.

5 A further aspect of the business conducted through the medium of the company, Custombuilt Homes, was represented by a business name, Hills Siteworks. It was a business established to carry out site work services for Custombuilt Homes and it took on other clients. Naturally, Custombuilt Homes owned the equipment used in that particular aspect of the business, the acquisition of which appears to have been financed by an "equipment loan" obtained by the company from the ANZ Bank.

6 On 25 March 1999 Mr Dowell told Mr Green that he wished to leave the business carried on by Custombuilt Homes. The parties turned their attention to how the business relationship should be terminated, a process

(Page 5)

described in the statement of claim of the respondent as "separating their affairs". A number of discussions were held, ultimately involving them in taking advice from their accountants. In the result, on 1 July 1999, Mr and Mrs Dowell resigned their positions as directors of the respondent. Mr Dowell resigned his position as a director of Araluen Building Design Services Pty Ltd.

7 It seems that each of Mr and Mrs Dowell (as well as each of Mr and Mrs Green) may have held 20,000 shares in Custombuilt Homes. As at 1 July 1999, it appears to be common ground that the Dowells were no longer entitled to their shares. It is not in fact clear to me whether any share certificates were actually issued in respect of those shares. None appear to have been tendered in evidence. I am unable to readily ascertain what the position was with respect to the shareholding in Araluen Building Design Services Pty Ltd. Nor is it clear whether the shareholdings were surrendered to the companies in question, effecting a reduction in their issued capital, or whether the agreement was that the Dowells should sell their shares to the Greens, although there is some evidence in support of that view.

8 Issues raised in the pleadings with respect to shareholdings appear not to have been resolved. In the defence, par 7, the Dowells pleaded that, although on their acquisition of a half interest in Custombuilt Homes it had been agreed that they would receive half the issued shares, they were only in fact issued 2000 shares each. They pleaded that their agreement ultimately was that their shareholdings were to be transferred to each of Mr and Mrs Green in relation to Custombuilt Homes and to Mr Green in relation to Araluen Building Design Services and they plead that on about 1 July 1999 they "relinquished their shares" accordingly (whatever that means).

9 On the other hand, in the reply of Custombuilt Homes it is pleaded that the Dowells "were entitled", each of them, to 20,000 shares in Custombuilt Homes. There is no pleading directly as to what happened about their shareholding, but in the reply Custombuilt Homes plead that as from 1 July 1999 Mr and Mrs Dowell "were no longer shareholders" in Custombuilt Homes and Mr Dowell "was no longer a shareholder" in Araluen Building Design Services Pty Ltd. In the end then there seems to be no clear pleading about what happened to any shares which were held by Mr and Mrs Dowell. It is not clear whether they were purchased by Mr and Mrs Green, and if so at what price, or whether they were simply relinquished to the companies concerned. Clearly, the trial Judge was unable to make any finding about those questions.

(Page 6)

10 In the statement of claim, Custombuilt Homes pleads a quite detailed agreement made for the purpose of terminating the business relationship. It says that the agreement was largely oral or to be implied from the conduct of the parties. As to Hills Siteworks, it was pleaded that the Dowells were to purchase this business for a specified sum said to represent the goodwill of the business assigned to it by the Dowells' accountant, together with the payment of the sum of $65,000 for the earthmoving equipment, the property of Custombuilt Homes.

11 It is pleaded that in July 1999 the equipment was transferred by Custombuilt Homes to the Dowells. They took possession of the equipment and have since been using it to carry on the business of Hills Siteworks. In addition, it is said that the telephone number of that business was transferred to the Dowells' address and yet it is said that the Dowells have not paid the $65,000 for the equipment and nor have they paid for the business, thereby breaching the contract made.

12 The Dowells, on the other hand, plead that there was no agreement as to the value to be attributed to Hills Siteworks or to the plant and equipment transferred to them, a pleading which attracted what appears to me in the circumstances to be the rather extraordinary admission in the reply that Custombuilt Homes had been unable to agree what value was to be attributed to the business, Hills Siteworks, leaving only the assertion in relation to that business that there had been agreement upon the sum to be paid for the plant and equipment to be transferred to the Dowells.

13 Finally, in relation to Hills Siteworks, Custombuilt Homes pleaded that it was agreed that the Dowells would be assigned the equipment loan obtained from the ANZ Bank in relation to the earthmoving equipment "after necessary adjustments to the loan balance were made". In other words, it appears to be pleaded that the equipment had originally been acquired by Custombuilt Homes with the aid of finance provided by the ANZ Bank. It was not pleaded that the ANZ Bank was the owner of the equipment pursuant to hire purchase agreements or how the loan was secured.

14 The Dowells pleaded that there was no agreement as to any amounts outstanding in relation to loans obtained by Custombuilt Homes, and again, in its reply, Custombuilt Homes admitted that the parties had been unable to agree what amounts were outstanding in relation to the equipment loan and I presume, therefore, unable to agree what obligation in relation to repayment of the loan the Dowells might be required to assume.

(Page 7)

15 Further, as I understand the statement of claim, it was pleaded by Custombuilt Homes that it was agreed that it would pay Mr Dowell 25 per cent of the goodwill and 50 per cent of the value of the assets of Araluen Building Design Services Pty Ltd for the acquisition of Dowell's interest in that company. On the other hand, the Dowells were to pay 50 per cent of what were described as "overhead expenses" incurred by Custombuilt Homes and outstanding as at 30 June 1999. It was said to have been agreed that Custombuilt Homes would repay to the Dowells their initial investment of $60,000. The trading position or profitability of Custombuilt Homes during the period when the Dowells had an interest in it was to be assessed so that a balance of account could be arrived at and a final payment made on the agreed basis that the Dowells and the Greens would share equally in the profit or loss.

16 The Dowells pleaded in their defence, in effect, that the amounts in question were not agreed. In particular, they pleaded that the value of their interest in Araluen Building Design Services Pty Ltd was not agreed and in its reply Custombuilt Homes accepted that that was so. It has to be said, I think, that the pleadings left many loose ends in relation to the matters at issue between the parties, or potentially at issue between them. Perhaps that reflected a lack of agreement on essential matters between the parties. They went to trial with the pleadings in that state.

17 Her Honour the trial Judge said that after Mr Dowell first said on 25 April 1999 that he wished to leave the businesses to which I have referred, conducted by Custombuilt Homes, there followed a period of nearly 18 months, to November 2000, during which the parties, particularly Mr Green and Mr Dowell, sought to negotiate an agreement as to what was to be done. Numerous meetings were held, memos were exchanged by facsimile, and letters were written. The accountants of the parties became involved in advocating to the other side the positions adopted by their respective clients.

18 Her Honour said she found the evidence of what took place during this period to be confusing. Much depended upon the evidence of Mr Green and Mr Dowell, but her Honour said that it was plain that in their business dealings the two men had paid little attention to the entities by which the businesses were conducted and they treated the matter as if they were in a partnership which they were seeking to dissolve. As her Honour said, "Although this is not unusual in private company governance, it impedes separation of their financial affairs according to usual accounting practices and logical analysis of their respective rights and responsibilities". Her Honour found both men to be honest

(Page 8)

witnesses, but observed that, "the lack of detailed written records of their meetings and the informality of their communications make it difficult to determine what, if anything, was agreed."

19 In the end, her Honour concluded that a basic agreement was reached that the Dowells would, in effect, reconvey their interests in Custombuilt Homes and in Araluen Building Design Services to the Greens. Custombuilt Homes, on the other hand, would convey to the Dowells the Hills Siteworks business and, in a manner which is not entirely clear, this is effectively what happened. There were some side issues. The Greens had acquired a property in Byron Road, Armadale. Financial assistance towards that acquisition had been provided by Custombuilt Homes.

20 Custombuilt Homes operated an overdraft facility and what is described as the equipment loan with the ANZ Bank. So far as that loan was related to the machinery taken over by the Dowells in relation to the Hills Siteworks business, her Honour found that it was agreed that the Dowells would accept this liability, but her Honour realised that that the requirement for agreement was not simply a matter of the physical transfer of assets and the separation of the parties' business activities, but that the financial arrangements they were to make were an integral part of the final dissolution of the business relationship.

21 Ultimately, it was the parties' intention that, when liabilities and entitlements each way had been quantified, a final balance one way or the other would be arrived at, having regard to the sort of matters referred to in the pleadings. As to all of that, her Honour found, at [2003] WADC 121, [48]:

"Unfortunately, the financial consequences of the [Dowells'] departure from [Custombuilt Homes] were not worked out at a future time or agreed between [Custombuilt Homes] and the [Dowells]. This was not just a matter of failing to agree on a final balance or settlement figure, but a failure to agree on the basis on which the final balance figure would be reached. Essentially, the parties did not at any stage reach a real agreement on how their financial entanglements could be unravelled."

22 Her Honour included in her view that a final agreement had not been reached, the financial arrangements ultimately to be made in respect of the acquisition by the Dowells of the Hills Siteworks business. However, her Honour held that the one thing which had been agreed in respect of

(Page 9)

that business was that the Dowells were to pay $65,000 for the earthmoving equipment which was, as I have said, physically provided to the Dowells on about 30 June 1999. Transfer forms were signed.

23 Her Honour held that she was satisfied that it was the intention of the parties that that payment should be made. She held that the "transaction whereby the earthmoving equipment was transferred to the [Dowells] at that price was a sufficiently discrete transaction that can be severed from the balance of negotiations that did not translate into an agreement between the parties."

24 Her Honour therefore gave judgment for Custombuilt Homes in the sum of $65,000 together with interest from 30 June 1999 to the date of payment.

25 The Dowells appeal. They contend that her Honour erred in holding that there was a concluded agreement between them and Custombuilt Homes as to the purchase of the earthmoving equipment, independent of the contract alleged by Custombuilt Homes, as to which it failed at trial to establish the concluded agreement. There is a further ground of appeal with which I must deal, concerned with the refusal of the trial Judge to admit into evidence certain correspondence passing between the parties and their legal representatives marked "without prejudice", particularly a letter written by the solicitors for Custombuilt Homes to the Dowells, dated 12 April 2001.

26 There is a cross-appeal, essentially involving the contention that the trial Judge erred in finding only a legally binding agreement reached between the parties in respect of the purchase of the earthmoving equipment for $65,000. It is contended by the cross-appeal that the trial Judge should have held that agreement had been reached on all the essential terms of the contractual arrangement whereby the parties would sever their business relationship. In support of that contention there are two evidentiary grounds. In the first place, it is contended that the trial Judge should have found Mr Dowell to be an unreliable witness and should have preferred the evidence of Mr Green, particularly because her Honour found that in relation to critical discussions the differences between the evidence given by Mr Green and Mr Dowell were not put to Mr Green by counsel for the appellants as required by the rule in Browne v Dunn (1893) 6 Rep 67.

27 Those grounds concerned with the Judge's decisions about credibility and the fact-finding process may be taken first.

(Page 10)

28 As to the contention that the trial Judge erred in not finding that Mr Dowell was an unreliable witness, it will be recalled that the trial Judge, having heard both Mr Dowell and Mr Green give evidence, regarded both of them as being honest witnesses and it is clear, I think, that she regarded both of them as being relatively reliable witnesses in the accepted sense of that word. But the difficulty, her Honour said, was that the lack of detailed written records of their meetings and the informality of their communications made it difficult to determine what, if anything, was agreed between them. There was an imprecision in the evidence which led her Honour to hold that she could not find that Custombuilt Homes had proved the making of an agreement in the terms alleged.

29 Indeed, her Honour held that although it was clear that various transactions would take place to enable Custombuilt Homes and Araluen Building Design Services to continue to operate as vehicles for the business activities of the Greens without the involvement of the Dowells, and although her Honour was prepared to find that there had been agreement upon the measures required to transfer the business of Hills Siteworks to the Dowells so that they could operate that business absent any interest in the Greens, "The financial consequences of the abovementioned transactions were to be worked out between the parties when the necessary financial information was available and a final balance or settlement figure agreed." Her Honour simply found that it never got to that point of agreement and that this was the essential nature of the agreement the parties were endeavouring to reach.

30 The contention of Custombuilt Homes is that in making findings of fact about those matters, her Honour should have discarded the evidence of Dowell because of difficulties allegedly encountered in his evidence in reconciling his attempts to explain a postscript he had made on a facsimile of October 1999 which became exhibit 9. It is also asserted that Mr Dowell's evidence should have been discarded because at one time he agreed that changes in the values of Custombuilt Homes would be assessed by comparing the information provided by their respective accountants. It is argued that it was inconsistent with that process that Mr Dowell said in evidence that he and Mr Green still had to agree upon the values.

31 It seems to me that neither of these matters of themselves should necessarily have led the trial Judge to conclude that Mr Dowell was an unreliable witness and to discard his evidence. Her Honour had the advantage of seeing the witnesses. I can see nothing in her conclusions

(Page 11)

about their credibility which ought to lead this Court to interfere: Fox v Percy (2003) 77 ALJR 989.

32 As to the rule in Browne v Dunn, two matters are relied upon. In cross-examination of Mr Dowell about a meeting with Mr Green on 5 August 1999, he said that he had a list of matters that he wanted discussed and settled. He said he expressed views about the matters on the list. Those views were in accord with what he had been told by his accountant, a Mr Bradshaw. He said he told Mr Green that Bradshaw was the source of his views and Mr Green did not disagree with them. This had not been put to Green.

33 Further during cross-examination, when discussing a particular job he said that he and Mr Green had charged the client on the basis that site works actually cost $7000 more than their actual cost, thereby inflating the profitability of the job. He said that he and Green had put to the client that the actual cost was the inflated figure and that also was not put to Green when he was cross-examined. These are relatively minor matters which might have adversely affected the trial Judge's judgment about Green's credibility, but do not appear to have done so; nor was it asserted that if these matters had been put, Green would have given answers which would have significantly affected the trial Judge's judgment about the facts of the case.

34 I make no observation about whether or not the rule, which is a rule of practice designed to assist the Court in the fact-finding process and designed to ensure that the trial process is manifestly fair to the witnesses and the parties, was breached in respect of the matters relied upon. It is sufficient, I think, to say that nothing emerges which would suggest that upon this ground the cross-appeal might be allowed and a different judgment about the facts of the case arrived at, or the case remitted for a new trial.

35 I turn to the ground of appeal concerned with the claim of privilege on behalf of Custombuilt Homes. For the appellants at trial it was sought to adduce in evidence "without prejudice" communications. The matter was argued at trial and the trial Judge ruled the correspondence inadmissible. Although the ground of appeal asserts particularly that her Honour erred in respect of the content of a letter dated 12 April 2001, when the matter was argued reliance was placed upon a letter dated 14 March 2001, written by the solicitors for Custombuilt Homes to Mr and Mrs Dowell. The letter was clearly marked "without prejudice"

(Page 12)

but it was argued that nonetheless the following portion of the letter should have been admitted into evidence:

"We are instructed that you were involved in the operation of Custombuilt until approximately 30 June 1999 at which point you left on the understanding that an agreement would be reached to separate your affairs from those of Custombuilt. As a result of this understanding you took control of the site works element of the business of Custombuilt together with the use of the business name "Hills Siteworks". In addition to this and in anticipation of a satisfactory agreement being reached, Custombuilt also transferred to you machinery and equipment ("Machinery"). The Machinery has been used by you since 30 June 1999.

Since 30 June 1999 numerous attempts have been made to reach an agreement which would finalise your involvement with Custombuilt. Despite these attempts it is clear that no agreement has been reached between you and Custombuilt."

36 It is argued that the material contains the admission, which ought to bind Custombuilt Homes, that no agreement of the sort now pleaded was reached.

37 The privilege reflects the application of public policy. It is designed to facilitate negotiations between parties which may lead to settlement of their dispute without recourse to the courts. It is held to be desirable to facilitate that outcome that the parties and their legal representatives should be able to communicate with each other freely without having concessions made by them adduced in evidence as admissions. The privilege will apply to those matters which were part of the settlement negotiations or reasonably incidental thereto. Consistently with this application of public policy, the courts will not, however, permit the privilege to be claimed in circumstances which might result in the court being misled as to the true facts: Field v Commissioner for Railways (NSW) (1957) 99 CLR 285, where at 291 the majority of the High Court said:

"This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts

(Page 13)

which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission."

38 In my opinion, what was sought to be admitted in this case falls squarely within the privilege. The material is sought to be relied upon as an admission that no contract of the kind ultimately pleaded by Custombuilt Homes was made. It is not sought to adduce the material in the letter as evidence of any objective fact which might bear upon the issue ultimately before the Court, but as evidence decisive of that question itself. In my opinion, her Honour the trial Judge did not err in the decision she made that this material was inadmissible.

39 I turn finally to the matter centrally at issue between the parties in the appeal and the cross-appeal. The appellants assert that her Honour erred in finding that there was a severable concluded agreement as to the purchase of the earthmoving equipment which could now be enforced despite the fact that the remainder of the negotiations did not result in the formation of a binding contract of the kind pleaded by Custombuilt Homes. On the other hand, the cross-appeal asserts that her Honour erred in not finding the formation of such a concluded agreement.

40 I have set out her Honour's conclusion expressed in [48] of her judgment. I have noted that her Honour went on to find that the acquisition by the Dowells of the earthmoving equipment for the price of $65,000 did represent a concluded agreement between Custombuilt Homes and the Dowells. Her Honour added:

"I am also satisfied that the transaction whereby the earthmoving equipment was transferred to the [Dowells] at that price was a sufficiently discrete transaction and can be severed from the balance of negotiations that did not translate into an agreement between the parties."

41 Severability of one transaction from another may need to be considered when one transaction, of which the other was originally a part, proves to be illegal or unenforceable on public policy grounds, or where there is a failure, perhaps on grounds of uncertainty, of some portion of an indivisible promise so that the question becomes whether the balance of the contract, other than the impugned part, may survive and be enforced. The intention of the parties in that regard will be that attributed to them

(Page 14)

objectively and will be very much dependent upon the proper construction of the contract as a whole.

42 In that context, the applicable principles were comprehensively discussed in the oft cited decision of the Full Court of Victoria, Brew v Whitlock (No 2) [1967] VR 803. Severance will not be ordered in the circumstances described by the Court at 813:

"What all this amounts to is this – that where parties in purporting to make a contract leave some part incomplete and uncertain, and that part, though independent in point of form, meaning and operation, is of such substance and materiality in the whole bargain that it cannot be severed from the rest, then, although the parties may have thought that they had made a contract, they have made none at all; and (estoppel apart) it does not matter which party makes the challenge to the validity of the contract."

43 Reference may be made to the decision of the High Court on appeal in Whitlock v Brew (1968) 118 CLR 445, Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391, Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597 and the decision of the Privy Council in Carney v Herbert [1985] AC 301.

44 The reservation I have is whether this case was truly to be decided by the application of accepted tests as to the severability of part of a contract. The true question seems to me to be whether in any respect the negotiations of the parties resulted in a concluded agreement which could be given force and effect in its terms. Her Honour the trial Judge thought that was so only in respect of the sale of the earthmoving equipment.

45 As to the remainder of the subject matter of the parties' negotiations, I have considered carefully the matters upon which Custombuilt Homes relies. However, it seems to me that on the findings of the learned trial Judge, which were clearly open to her, this was not a case where agreement had been reached on the essential terms of a contract between the parties, including the basis upon which the final financial arrangements were to be calculated, so that what was agreed could be implemented, leaving the final payout to be worked out by agreed processes. That is the assertion of Custombuilt Homes, but in my opinion it was open to her Honour to make the finding she did at [51] that:

"This is not a case where the parties have agreed on all the essential terms, leaving some details of calculation to be worked

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out later. They have not reached agreement on an essential part, namely the way in which their financial affairs will be concluded. I am satisfied that the parties had a fundamentally different approach to assessing the value of [Custombuilt Homes] and to reaching a final determination of the financial matters."

46 In my opinion, that conclusion merely reflects the way in which Custombuilt Homes pleaded its case and presented it, principally by the evidence of Mr Green at trial. The parties sought to negotiate an agreement for the separation of their business affairs and the dissolution of the business relationship. That was to involve the physical separation of their affairs, the taking of steps to separate their interests in the particular entities by which their business had been conducted, and a vital part of the process of agreement was to agree upon the money amounts to be attributed to the various elements of their business relationship so that at the end of the day a final settlement figure, a final payment one way or the other, would be arrived at, agreed upon and made.

47 The relief sought by Custombuilt Homes was principally an order that the Dowells pay the sum of $160,635 and interest; alternatively damages. The sum specified in the prayer for relief was arrived at by a process of quantifying specific sums said to be owed by the Dowells to Custombuilt Homes and by Custombuilt Homes to the Dowells. Among the amounts owed by the Dowells was said to be "the cost of the earthmoving equipment not paid for by the [Dowells], totalling $65,000." In my opinion, it was well open to the trial Judge to conclude that no such agreement had been made between the parties and I would dismiss the cross-appeal.

48 As to the appeal, I think her Honour erred in one respect. It seems to me that it was open to her to find that the parties had agreed that the earthmoving equipment would be acquired by the Dowells and I have noted that it was transferred to them as part of a process which I have described as involving the physical separation of the business relationship. So far as the Dowells were concerned, that appears to have involved the acquisition of the Hills Siteworks business name but no payment for the goodwill of that business. On the other hand, they appear to have relinquished their shareholdings and directorships in Custombuilt Homes and Araluen Building Design Services without payment for the interests involved. Many other matters remain unresolved.

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49 Her Honour erred, however, in my opinion, by holding that it had been agreed that the sum of $65,000 would be paid for the equipment, making that transaction a separate, discrete contract. In my opinion, there was no evidence to support that conclusion. Indeed, the evidence supported the contrary view, which otherwise her Honour found to be the case, that when the parties' financial affairs were finally sorted out, the resulting agreement would be for the payment, one way or the other, of a specified sum of money.

50 The sum of $65,000 was merely an element involved in that process, being the value attributed by the parties to the earthmoving equipment acquired for use in the business, Hills Siteworks. In my opinion, the evidence did not support the conclusion to which her Honour came, that there was a separate, concluded agreement in relation to the sale and purchase of the earthmoving equipment. I would allow the appeal and set aside her Honour's judgment entered for Custombuilt Homes in the sum of $65,000, together with interest from 30 June 1999.

51 WHEELER J: I have had the advantage of reading in draft the reasons for decision of Murray J. I agree with those reasons and with the conclusions which his Honour has reached, and wish to add only a short observation of my own.

52 I can understand, on her Honour the trial Judge's analysis of the evidence, that the price of $65,000 in relation to the earthmoving equipment was arguably the one clear matter upon which the parties had agreed. To that extent, there was a basis for her Honour's view that the agreement in relation to that equipment was severable from the rest of the parties' negotiations.

53 However, the difficulty with severing out that part of the agreement is, I think, twofold. First, as Murray J has pointed out, there is a difficulty with severing out that discrete part of the agreement when there was, as the learned trial Judge found, a negotiation which rested upon the assumption that there was a complex network of transfers and of adjustments which had to be sorted out in effect as a "package", leaving a specified sum of money payable by one party to the other.

54 More narrowly however, even if one has regard to the earthmoving equipment alone, there was apparently a loan from the ANZ Bank in relation to that earthmoving equipment. One cannot, in my view, sever out an agreement to take over the earthmoving equipment for payment of a sum of money, from that part of the agreement which dealt with what

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was to happen in relation to the loan outstanding in respect of that equipment.

55 There was some confusion evident at the hearing of this appeal, when the Court enquired as to what had transpired in relation to the loan. Her Honour found that when the parties had worked out their final balance or settlement figure it would be set off against the loan which was called "the equipment loan". At present, it appears that the respondent continues to repay the loan. Although her Honour found that the appellants had been released as guarantors of the loan, it seemed to have been asserted before us that they remained as guarantors, although the primary liability appears to remain with the respondent. In my view, agreement as to what was to happen in relation to the equipment loan was a part of the agreement relating specifically to the earthmoving equipment "of such substance and materiality" that it was inseverable from any agreement in respect of that equipment (Brew v Whitlock (No 2) [1967] VR 803 at 913). That term being uncertain, there was no discrete severable contract in relation to that equipment.

56 I should add that I have considered with care the draft reasons for decision of EM Heenan J. The orders proposed by his Honour appear to me to be a very attractive solution to the difficulty presented by this case. I do not take issue with any of the matters of law discussed by his Honour. However, I am unable to join in those orders because, in my view, the parties have made a deliberate decision to confine the issues in the trial and the appeal in such a way as to preclude the Court from dealing with those wider matters considered by his Honour.

57 During the course of the trial, her Honour noted that "despite what the pleading is saying" an issue which kept arising was "what the appropriate entitlements ought to be either in terms of an agreement between the parties or in some kind of objective estimate" (AB p 299). Her Honour appreciated, in my respectful view correctly, that that issue did not represent the way in which the parties were seeking to run their case. Neither party took issue with her Honour's suggestion that that matter was, strictly, irrelevant.

58 Similarly, before us, when it was pointed out to counsel for the respondent that the affairs of the Greens were inextricably intertwined with the issues in the trial, and that the respondent was effectively suing on a contract to which the Greens were a party, the response was that the point had not been raised previously; there was no attempt to suggest to the Court any course which might bring the Greens into the action, or

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which would have the effect of departing from the very narrow consideration of the issues which the parties had themselves mapped out. Although the reasons for the parties having moulded their case in that very narrow way may be unclear, it seems to me clear enough that the decision to do so was deliberate. It is my view, therefore, that it is not open to this Court to resolve the parties' problems in the way suggested by the reasons of EM Heenan J.

59 EM HEENAN J: On 30 May 2003 French DCJ entered judgment, after trial in the District Court of Western Australia, for the respondent (plaintiff) in the sum of $65,000 against the appellants (defendants) and also ordered them to pay interest at 6 per cent per annum pursuant to s 32 of the Supreme Court Act on that sum from 30 June 1999 to the date of payment. No point has been raised by either party that the judgment itself bears interest at the gazetted rate under s 56(2) of the District Court of Western Australia Act from its date until payment. Liberty was granted to the parties to apply for costs later. This judgment concluded an action brought by the respondent (plaintiff) against the appellants (defendants) in which the respondent had been seeking $160,635, or alternatively damages, interest and other relief. It has produced the appeal and the cross-appeal now before this Court.

60 By its appeal the appellants (defendants) seek an order setting aside the judgment of the District Court, further orders dismissing the respondent's (plaintiff's) claim and orders for the payment of their costs of the appeal and of the trial in the District Court. In the cross appeal the respondent (plaintiff) seeks orders setting aside the judgment of $65,000 together with interests and costs and, in lieu, judgment for the respondent for $160,635 plus interest and costs. In other words, the respondent (plaintiff) is contending that it is entitled to judgment for the full amount of the claim it made in the proceedings in the District Court and not merely for the $65,000 plus interest awarded by her Honour.

61 In many respects the litigation between the parties, including this appeal and cross-appeal, are the sad consequences of attempts by the appellants, Mr and Mrs Dowell, and their former business associates, Mr and Mrs Green to disengage from obligations which they had each incurred in relation to each other and to two companies, Custombuilt Homes Pty Ltd (the respondent) and an associated company, Araluen Building Design Services Pty Ltd, which were the legal entities involved in building operations and of which members of both families were directors and shareholders. The reason why the litigation, and these appeals, are sad is because the learned trial Judge found both Mr Gary

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Green and Mr Ashley Dowell to be honest witnesses. They were plainly attempting to put into effect arrangements which they imperfectly understood but which they had believed would produce a change in ownership, of the business entities in which they had previously been involved. They were seeking a consequent adjustment of the financial rights and obligations between them as individuals and of, and in relation to, the two companies.

62 The essential question at issue before the learned trial Judge was whether or not an enforceable agreement had been reached determining the rights of all those entities, not just the parties to the litigation, in a manner obliging the appellants (defendants) to pay to the respondent (plaintiff), the amount of $160,635 or damages as it claimed. That remains in issue between the parties on the cross-appeal. It is also essentially the same question in issue on the appeal except that it has become whether or not the alleged arrangement only produced the effect of obliging the appellants (defendants) to pay to the respondent (plaintiff), the smaller sum of $65,000 plus interest for which judgment was entered.

63 Many of the difficulties experienced in the trial of the litigation, and remaining on the appeal, were aptly described by her Honour as follows:

"The situation was further complicated by a blurring of the separate entities involved in the whole process. On many occasions the first defendant [first appellant] referred to the process as being one of 'dissolving the partnership'. It was plain that both the first defendant [first appellant] and Green conducted themselves as if they were in a partnership with little regard to the fact that the plaintiff [respondent] was a separate entity."

64 In my view, the situation was further complicated by the absence of any express attention in the pleadings, or at the trial, being given to identifying the parties to the alleged arrangement, relied upon by both the appellants and the respondent, containing the terms for the resolution of the business affairs of the entities involved and the consequent adjustment of the financial obligations of the companies and the four individuals. This is all the more remarkable because, not only in the statement of claim and reply, but also in the defence, the parties referred to one single agreement as the source and measure of all the various obligations which were being asserted (see statement of claim pars 5, 12, 13, 14 and 15; defence pars 12, 13 and 14; reply par 4).
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65 The essential starting point is to identify the structure of the businesses in which the Dowells and the Greens, and their companies were involved before June 1999 and to identify the consequent obligations which existed between them. Only then will it be possible to appreciate what it is alleged was later agreed between some of those involved when the Greens and the Dowells decided that they should conduct business separately and change the control of the companies and an associated business, Hills Siteworks, all of which had been operated through the corporate structures.

The Position Before June 1999

66 Originally, Custombuilt Homes was a partnership of Mr Gary Green, and his wife, Mrs Gloria Green, who, under that name, conducted a business of home building. Later, the respondent company was incorporated and took over the conduct of that business and, somehow, acquired all or most of its assets. Immediately following incorporation, and afterwards for some time which was never precisely established, the sole directors and shareholders of the company were the two Greens, each holding 40,000 shares in the company.

67 Ashley Kevin Dowell, the first appellant, had been a trusted and valuable employee of the home building business. In or about June 1996 it was proposed and agreed that Mr Dowell should become an equity participant in the business. The procedure eventually agreed upon between Mr and Mrs Green, and Mr and Mrs Dowell, largely negotiated between them by the two men, was that the Dowells would purchase a 50 per cent interest in the business for the sum of $82,500. This was to be implemented by Mr and Mrs Green selling 40,000 of their shares in Custombuilt Homes Pty Ltd to Mr and Mrs Dowell for that sum and by those four all becoming directors of the company. That was agreed upon by the four individuals and steps were taken to appoint each of them as directors of the company. Thereafter, the operations of the company were conducted by that board of four directors and all acted on the basis that the shareholding of the company remained at 80,000 issued shares and that each of the four directors held 20,000 of those shares. Whether in fact 40,000 of the Green's shares were transferred to the Dowells and thereafter share certificates were issued to each of the four confirming that he or she held 20,000 shares does not emerge from the evidence. This is not material because it was the common assumption that the entitlement to shareholding in the respondent rested upon this basis.

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68 However, when it came to paying the agreed $82,500 for their 50 per cent interest in the issued shareholding of Custombuilt Homes Pty Ltd Mr and Mrs Dowell experienced some practical difficulties. They could not raise more than $60,000 to pay for this acquisition. Nevertheless Mr and Mrs Green accommodated that difficulty by treating the unpaid balance of the agreed consideration for the shares, namely $22,500, as a debt due to them by Mr and Mrs Dowell and this was recorded in that fashion. The $60,000 which could be, and which was, paid by the Dowells was paid into the bank account of Custombuilt Homes Pty Ltd - presumably as an additional source of working funds. But that $60,000 was not capital of the company, it was part of the consideration due to Mr and Mrs Green for the 40,000 shares which they had sold to the Dowells. Consequently, the effect of the transaction which had been implemented, meant that the company was indebted to Mr and Mrs Green for that $60,000 which was treated, properly in my respectful opinion, as a loan or an advance by them to the company.

69 Some other financial arrangements of Custombuilt Homes Pty Ltd during this period must also be mentioned. The company had an overdraft facility with its bank, the ANZ Banking Group Ltd, which was partially secured by a mortgage or charge over property owned by Mr and Mrs Dowell. It is possible that it was further secured by mortgages or charges granted by Mr and Mrs Green but that is not a material issue in the proceedings. A second line of financial accommodation to Custombuilt Homes Pty Ltd was an "equipment loan" that had been obtained to allow the acquisition of working machinery. Mr and Mrs Green were co-guarantors of this loan and it seems probable, although there was no finding, that Mr and Mrs Dowell were as well but, again, that point is not material in these proceedings. At all material times the company was, and remained, indebted to the bank on the overdraft and also remained indebted under the "equipment loan". Significantly, this left the Greens and the Dowells at least contingently liable to both creditors under the security arrangements for those two loans.

70 As well as conducting home building operations in its own name, the respondent, Custombuilt Homes Pty Ltd, also operated a line of business under the registered business name "Hills Siteworks". The sole proprietor of Hills Siteworks, up until June/July 1999, remained the respondent company.

71 During the first half of 1996 an opportunity arose to undertake building operations under contract with an unrelated company, Sangora Holdings Pty Ltd, at Araluen. Mr Green and Mr Dowell decided to avail

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of this opportunity by incorporating a new company, Araluen Building Design Services Pty Ltd, which would enter into the contract with Sangora Holdings Pty Ltd and carry out the intended operations. Araluen Building Design Services Pty Ltd was duly incorporated on 12 June 1996. Its sole directors and shareholders were Mr Gary Green and Mr Ashley Dowell. The issued shareholding does not emerge precisely from the evidence but it seems that Mr Green and Mr Dowell were each issued one share or, if not, that their shareholdings were equal and that they were the only shareholders.

72 So it was that from mid-1996 until mid-1999 various building operations were conducted by Custombuilt Homes Pty Ltd, in its own name and via Hills Siteworks, and by Araluen Building Design Services Pty Ltd. The control of both companies rested equally with the Greens and the Dowells although, as mentioned, it was only the men who were the shareholders and directors in Araluen Building Design Services Pty Ltd. Custombuilt Homes Pty Ltd was primarily liable to the bank on its overdraft and for the equipment loan but some or all of the shareholders were liable under the security arrangements for those loans. In all respects these were orthodox, even familiar, commercial arrangements through which the members of the two families conducted business operations by their control of the two companies which they, collectively, owned.

The Events After June 1999

73 In or about April 1999 the first appellant, Mr Ashley Dowell, acting for himself and his wife informed Mr Gary Green that he wished to retire from the business. This decision was apparently prompted by anxieties about the financial performance of the operating companies or one of them, but it was a final decision and from then on there were discussions between Mr Dowell, and Mr Green about how to implement that decision. The respondent alleges that an agreement in this regard was reached between Mr and Mrs Green on behalf of the respondent (plaintiff) Custombuilt Homes Pty Ltd and Mr and Mrs Dowell, acting in their personal capacity in the manner alleged in the statement of claim. No other agreement is alleged by the respondent. The appellants (defendants) also allege that during the period between 15 April 1999 and 30 June 1999 Mr Ashley Dowell, on behalf of himself and his wife, reached agreement with Mr Gary Green, on behalf of the respondent, for certain arrangements to separate the respective parties' affairs but, again, without identifying any other parties whose rights were, or were to be, affected by the alleged agreement. This is the point from which the differences

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between the parties and the difficulties in the litigation all appear to have commenced.

74 There is really no dispute about the basic elements of the so-called arrangement or agreement. These were that:

(a) The Dowells would sell their shares in Custombuilt Homes Pty Ltd and resign as directors of that company. Their shares would be purchased by Mr and Mrs Green, or one of them and from July 1999 onwards the business of Custombuilt Homes Pty Ltd would continue (subject to the disposition of Hills Siteworks) in the control of Mr and Mrs Green. The practical issues in this aspect of the arrangement were:

• what price would be paid by the Greens to the Dowells for the purchase, by the former, of the Dowells' shares in the company, and in particular, were the Dowells to recover the $60,000 which they had paid for the purchase of the shares of the company in 1996?

• what was to become to the debt of $22,500 still owing by the Dowells to the Greens as the unpaid balance for the purchase for those shares in 1996?

• how would the obligations of the Dowells, as co-guarantors for the company's equipment loan, and as mortgagors securing the company's bank overdraft, be dealt with?


(b) The respondent, Custombuilt Homes Pty Ltd, would sell the business operated under the name "Hills Siteworks" to the appellants, Mr and Mrs Dowell, or to their company, Dowell Nominees Pty Ltd, either for a fixed sum, or for a sum which would be ascertainable after financial accounts for that business for the period ended 30 June 1999 became available.

(c) The respondent, Custombuilt Homes Pty Ltd, would sell to the appellants, or to their company, Dowell Nominees Pty Ltd, certain plant and equipment owned by the respondent which would enable the appellants, or their company, to carry on the business of Hills Siteworks on their own account. The respondent alleged that an agreement had been reached that the price of the earthmoving equipment to be sold was $65,000 but the appellants denied that there had ever been any agreement upon the amount to be paid for their acquisition of that equipment.

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75 The finding by French DCJ at trial was that there had been an agreement upon the price for this sale and that it was for the sum of $65,000. Associated with this aspect of the transaction was the need to adjust the obligations arising under the equipment loan. Here it is common ground that the appellants, the Dowells, were to take over the responsibility for this loan and that Mr and Mrs Green would no longer be answerable for that liability as co-guarantors. To achieve this result the agreement of the lender would, of course, have been necessary. If that was not forthcomining the most that could be achieved would have been for the Dowells to agree to indemnify the Greens for any liability which the latter may have in respect of that loan.

(d) The third major step in the arrangement was that Mr Dowell would resign as a director of Araluen Building Design Services Pty Ltd and sell his share in that company to Mr Green leaving the Green family in sole control of that company. The consideration for the sale of Mr Dowell's share in Araluen Building Design Services Pty Ltd was alleged, by the respondent, to be 25 per cent of the goodwill of the company plus 50 per cent of the net value of its assets. This was denied by the respondent, in its defence, which asserted instead that there had never been agreement upon the price which was to be paid for Mr Dowell's shareholding in Araluen Building Design Services Pty Ltd. On this issue the learned trial Judge concluded that there had never been any concluded agreement about the price to be paid for Mr Dowell's equal shareholding in Araluen Building Design Services Pty Ltd.

76 In summary, therefore, the Dowells were to sell their shares in Custombuilt Homes Pty Ltd to the Greens and resign as directors of that company leaving the company to continue to conduct business, apart from the business of Hill Siteworks, under the sole control of the Greens. Custombuilt Homes Pty Ltd was to sell its business known as Hills Siteworks and the designated earthmoving equipment to the Dowells, or to their company, at a fixed or ascertainable price leaving the Dowells or their company free to carry on the business of Hills Siteworks. Thirdly, Mr Dowell would sell his shareholding in Araluen Building Design Services Pty Ltd to Mr Green at a price to be ascertained, leaving that company free to continue its operations under the sole control of Mr Green. In the implementation of these transactions it was also part of the agreement that:

• the Greens would take over the sole responsibility for, and liability to, the ANZ Banking Corporation Ltd for the

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overdraft loan of Custombuilt Homes Pty Ltd to that Bank; and

• the Dowells would take over the sole responsibility and liability for the equipment loan due by Custombuilt Homes Pty Ltd to the lender which had been taken out when the machinery had been purchased.

In fact most, if not all, of these elements of the "agreement" or "arrangement" were implemented as follows:

(a) the appellants, Mr and Mrs Dowell, withdrew from the conduct and operations of the respondent, Custombuilt Homes Pty Ltd, which, from the latter half of 1999 onwards, was run and controlled by Mr and Mrs Green;

(b) the respondent, Custombuilt Homes Pty Ltd, delivered the designated machinery and equipment and all the controlled operations of the business of "Hills Siteworks" to Mr and Mrs Dowell which business was thereafter operated and controlled solely by Dowell Nominees Pty Ltd, their family company;

(c) Mr Ashley Dowell has withdrawn entirely from the control or operation of Araluen Building Design Services Pty Ltd which, since about July 1999, has been operated by Mr Green.

77 There are some further complicating factors which have not so far been mentioned. There were entries in the shareholders' loan accounts of Custombuilt Homes Pty Ltd extending beyond the $22,500 unpaid balance for the purchase of shares due by Mr and Mrs Dowell. Quite how these arose does not emerge with any certainty from her Honour's findings but they could easily be due to advances made or for the benefit of the company's credit utilised by the individual directors and shareholders in different ways from time to time.

78 In particular, there was a property at Byron Road registered in the names of Mr and Mrs Green upon which company funds had been expended, no doubt with authority, from time to time leaving the Greens indebted to the company for the aggregate of that expenditure. The quantification of these loan accounts appears to have been an issue dividing the Greens on the one hand and the Dowells on the other.

79 Furthermore, the Dowells were seeking to "recover" the $60,000 which they had paid to the company in 1996 as part of the transaction under which they acquired their 50 per cent shareholding in the company, notwithstanding that this was, in reality, a payment made to the Greens

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(the vendors of the shares) and advanced by them to the company. Two obvious points arise from this. First, it seems very much to be an open question whether, in June or July 1999, the value of the Dowells' shares in the respondent was more or less than $60,000 or was, in any way, associated with or related to that figure. The second is that if the Dowells were to be paid the $60,000 or any part of it that could only be treated as a payment to them by the purchasers of their 50 per cent shareholding of the company, that is the Greens, and, similarly, could only be set off against amounts payable by the Dowells to the Greens and not against any amounts due by the Dowells to the respondent, Custombuilt Homes Pty Ltd.

80 A further significant feature of the alleged agreement or arrangement, not expressly pleaded or identified by the parties, seems to be that if and when the various amounts payable by the Greens to the Dowells for the formers' purchase of the shares in both companies; and by the Dowells to the respondent for the purchase of the business of Hills Siteworks, the machinery and the equipment; and the ascertainment of what, if any, amounts were due by any or all of the shareholders in Custombuilt Homes Pty Ltd to that company for the repayment of loans, or at least to equalise the loan liabilities with a view to them then being released by the company, the resulting series of obligations would be pooled or aggregated with a view to setting off some against others. This would then leave a composite balance payable by the Dowells to the Greens or vice versa, depending upon the result of the amounts determined as being payable for the various steps in this composite series of transactions.

81 That there was to be such an ultimate form of set-off is an inescapable conclusion from the manner in which the respondent pleaded its statement of claim and the appellants' their defence. The statement of claim in advancing the respondent's claim for $160,635 or, alternatively, damages, in par 15 itself pleads: "The difference between the amounts owing to the respondent [plaintiff] by the appellants [defendants] pursuant to the agreement less the amount owed by the respondent [plaintiff] to the appellants [defendants]", and in that set-off it claims as credits:

• the cost of the earthmoving equipment;

• loans by the respondent to the appellants, the value of Hills Siteworks (among other things) and allows to be debited against that amount:

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• the purchase price for Mr Dowell's share in Araluen Building Design Services Pty Ltd;

• a share (or equity) in the Byron Road property;

• a return of investments to the Dowells of $60,000 (which as we have seen was, if anything, money payable by the Greens).

82 The same approach has been taken by the appellants (defendants) by their defence which asserts that no final agreement had ever been reached between the Dowells and Custombuilt Homes Pty Ltd about the following matters:

• the amounts outstanding as loan accounts (to all the shareholders) of Custombuilt Homes Pty Ltd;

• the value of the defendants' (appellants') interest in the property at Byron Road (which can only correctly mean the value of the interest of the respondent in the Byron Road property involving, as that did, potentially an issue between the respondent and the Greens); and

• the liability of the respondent, Custombuilt Homes Pty Ltd to indemnify the Dowells as guarantors of the company's loan from the ANZ Bank when any variation to the security arrangements would affect the greens.

83 Another of these complicating features is that when it came to determining the value of the assets of Custombuilt Homes Pty Ltd in order to fix the value for the shares in the company, which were to be sold by the Dowells to the Greens, there appears to have been disagreement between Mr Dowell on the one side, and Mr Green on the other, over whether depreciated values for the stock, plant and machinery of the company were to be adopted or whether some other values, presumably market values, were to be adopted. Her Honour the learned trial Judge concluded that this issue had never been resolved and that accordingly, there had been no concluded agreement containing all the essential terms of the overall agreement which was alleged.

The Overall "Agreement" of June/July 1999

84 The one composite agreement to implement the change in control of the two companies, the sale of the business of Hills Siteworks and the associated adjustments between the individuals which both parties allege

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(notwithstanding that the appellants pleaded and maintain that it was never complete) necessarily affected the interests of several parties. A tabulation of the individuals or entities so affected, and the manner in which his, her or its interests were so affected should make this plain; namely:

(a) Custombuilt Homes Pty Ltd (respondent)


• it sold certain equipment and its business conducted under the name of "Hills Siteworks" to the appellants, Mr and Mrs Dowell, allegedly at a fixed or ascertainable price;

• it was to secure the release of (or perhaps grant an indemnity for) its liability to the lender of the funds borrowed for the acquisition of the machinery and equipment it was selling to Mr and Mrs Dowell;

• loans due to it by its four shareholders, Mr and Mrs Green, and Mr and Mrs Dowell, were to be quantified and brought to account in determining what moneys were due to the company by the appellants Mr and Mrs Dowell. Although this may appear to be a process affecting only the company and the Dowells, in the situation which existed it also involved a determination of the loans due by Mr and Mrs Green to the company. This is so because either the amounts by which the Greens were indebted to the company would need to be taken into account in determining the net value of the company when arriving at the proper value of its shares, or, because any difference in the extent of the indebtedness of the Greens on the one hand and the Dowells on the other, was to be taken into account in the overall process of set-off which would involve an aggregation of the debts and entitlements of the Greens on the one hand and the Dowells on the other.

• the price which this company was to pay to Mr Dowell for the purchase of his 50 per cent shareholding in Araluen Building Design Services Pty Ltd was to be ascertained and brought to account in the final set-off.

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(b) Mr and Mrs Dowell (the appellants)

• they were to be paid by the Greens an agreed or ascertainable price for the 50 per cent shareholding in Custombuilt Homes Pty Ltd which was to be transferred to the Greens;

• they were to pay an agreed or ascertainable value for the plant and equipment they acquired from Custombuilt Homes Pty Ltd and for the value of that company's business conducted under the name "Hills Siteworks";

• they were to be released from or indemnified for their liability to the ANZ Banking Group Ltd under the arrangement securing the respondent's overdraft;

• they were to take over the sole liability, possibly by agreeing to indemnify the Greens and the respondent, for any liability which the Greens or the respondent would have under the equipment loan;

• the amount of their indebtedness to the respondent, on the shareholders' loans account, was to be ascertained and, together with the Greens' liabilities under their loan accounts, taken into account in determining the value of the company or in fixing the balance of the final set-off;

• the value of Mr Dowell's equal shareholding in Araluen Building Design Services Pty Ltd, as agreed or ascertained, was to be paid to him on the sale of his shares in that company to the Greens.


(c) Gary Green/Gloria Green

• one or both would purchase the appellants' (Dowells') shares in the respondent at a price to be agreed or ascertained;

• the outstanding loans due to the Greens arising from the original 1996 sale of shares in the respondent ($60,000 owing to them by the respondent and $22,500 owing to them by the Dowells) were to be satisfied by this process, presumably, by being set-off against the amount payable by the Greens to the Dowells for the purchase of the latter's shares in the 1999 transaction and, if that did not

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wholly discharge the indebtedness of the Dowells to the Greens, by a further set-off against moneys payable by the Greens for the acquisition of the machinery and equipment and the business of Hills Siteworks from the respondent, as this set-off could only be effective with the agreement of the Greens as creditors;

• by the determination of the values of each of the shareholders' loans due to the respondent, Custombuilt Homes Pty Ltd, including the liability which the Greens had to that company for the value of works done on the Byron Street property, again in order to determine the net value of the respondent, Custombuilt Homes Pty Ltd, in order to attribute appropriate value to its shares, or, alternatively, as part of the overall process of set-off that was being contemplated;

• one or both would purchase Mr Ashley Dowell's shares in Araluen Building Design Services Pty Ltd at an agreed or ascertainable price.

The Position of Mr and Mrs Green

85 I can only conclude that the "agreement" or "arrangement" which the parties to this litigation all acknowledge to have been discussed in June/July 1999, or later, included as parties Mr Gary Green and Mrs Gloria Green in order to bind them, and give effect to the various steps in the transaction which I have identified and which are, in some respects, expressly referred to as being part of that agreement in both the statement of claim and in the defence in this action.

86 The result of this conclusion is to reveal that the alleged "agreement" or "arrangement" was tripartite in nature and that the parties were the appellants, the respondents and Mr and Mrs Green, who are not parties to this present litigation, notwithstanding that they are parties from whom, and to whom, consideration would flow in the process of its implementation. This would occur because of their acquisition of the appellants' (Dowells) shares in the respondent and because of the discharge of the debts due to them by the Dowells (appellants) and the respondent, arising from the $82,500 originally payable by the appellants for their 1996 purchase of shares in the respondent, which remained owing to the Greens, as to $60,000 by the respondent, and as to $22,500 by the appellants. The more is this important because the performance and discharge of obligations due by or to the Greens was plainly an

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inseparable part of the implementation of the overall "agreement" or "arrangement" whether it was, as the respondent alleged, complete in its terms or whether, as the appellants alleged, it was incomplete.

87 The question therefore arose, at the hearing of the appeal, whether it was necessary or desirable that Mr and Mrs Green should have been, or yet still should be, joined as parties to this litigation.

88 The established rule is that where an action is founded on a contract made by several persons jointly, they must all, if living and entitled to sue thereon, join in the action as co-plaintiffs and if any of them does not consent to be so joined as a plaintiff he must be made a defendant - RSC O 18 r 4(2). This is the position where the joint contractors or some of them initiate the action as plaintiffs. However, if a contract is made by two or more persons jointly and severally, the plaintiff may sue all of them jointly, or any one of them separately or may in the same action claim against all of them jointly and, in the alternative, against each of them separately - RSC O 18 r 4(3) and Payne v British Time Recorder Co [1921] 2 KB 1. If one plaintiff, under a contract involving joint and several liability, decides to proceed against only one or some of those alleged to be liable under the contract the court may, on the application of that defendant, stay the proceedings until the other persons so liable are added as defendants - RSC O 18 r 4(3). No such application was made in this case. Whether a contract is joint, or joint and several, or several is a matter of construction which often can be difficult. In the present case, where the role of the Greens as parties to the contract was not raised, this adds a further level of difficulty.

89 The provision in the Rules that no cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party - RSC O 18 r 6(1) has not altered the legal principles with regard to parties to actions and does not remove the need to have all the proper parties necessary for determining the point at issue before the court: Kendall v Hamilton (1879) 4 App Cas 504; A G v Pontypridd Water Works Co [1908] 1 Ch 388; Performing Right Society v London Theatre of Varieties [1924] AC 1 and Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119 at 133, so that if the Greens were joint contractors with the respondent, rather than several or joint and several contractors, their absence from these proceedings would be a formidable difficulty. However, as it seems to be clear, beyond any doubt, that the interests, rights and obligations of the Greens under this "agreement" if it was (contrary to the finding of the learned trial Judge) complete were interests, rights and obligations which were separate and distinct from those of the respondent, Custombuilt

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Homes Pty Ltd. Indeed, this emerges from the analysis already set out. In that case, despite their absence from the proceedings, it is possible to deal with the matter with regards to the rights of the parties actually before the court. This is the course which should be preferred, if at all possible, where, as here, the action has proceeded to trial without objection as to parties: Re Harrison [1891] 2 Ch 349 and Hall v Heward [1886] 32 Ch D 430. Whether this is, indeed, possible especially in the light of the cross-appeal is a matter which will require further attention.

90 One of the significant features arising from the absence of the Greens as parties to the litigation is the significance which the judgment of the District Court will have, if it is affirmed in this appeal, and which the decision of this Court will have, if that decision is varied either as sought by the appellants in the appeal or by the respondent in the cross-appeal. The decision of the District Court awards the respondent an amount which was found to be owing by the appellants for the acquisition of the plant and machinery purchased as part of the transactions discussed in June/July 1999 but, in deciding that there was no completed agreement in relation to the other aspects of that transaction, the District Court has effectively dismissed the respondent's claims for loans due to the company and has allowed no credit for the sale by the Dowells of their shares in the respondent and in Araluen Building Design Services Pty Ltd respectively to the Greens.

91 If the appeal is allowed and the judgment is set aside on the grounds that the obligation by the appellants to pay for the equipment purchased from the respondent, is only part of an inseverable larger agreement other problems will arise. That result would leave standing the finding that there had been no finally concluded composite agreement between these parties and that there is, therefore, no present legal obligation by the appellants to pay for the equipment which they have obtained and which they are using to advantage. It would also mean that there is not any present entitlement for the appellants, the Dowells, to be paid for the shares which they sold in 1999 in the respondent and in Araluen Building Design Services Pty Ltd. As those transactions have been completed and the property which was to be bought and sold has been transferred and is now being enjoyed by all three sets of purchasers that would be very strange indeed. A slight improvement on that position, but only slight, would occur if the appeal were to be dismissed and the cross-appeal also dismissed because, in that case, the result would be that the appellants remained obliged by the judgment of the District Court to pay for the equipment which they have purchased from the respondent but there would still be no resolution of the disputed financial obligations arising

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from the sales of the appellants' shareholdings in the respondent and in Araluen Building Design Services Pty Ltd or the extent, if any, to which moneys due to the appellants under those transactions should be set off against other liabilities which the appellants may have to the respondent or to the Greens under longstanding loans.

92 Turning to the cross-appeal, the respondent still contends that a much greater sum than the judgment amount of $65,000 is due to it by the appellants having regard to the aggregate effect of the debts due by the appellants to the respondent and to the Greens before June 1999 and of the other liabilities and obligations which were to be brought to account in the set-off process already described. There are at least two major problems confronting the respondent in this regard. The first is the finding by the learned trial Judge that there had been no agreement between these parties in the terms alleged by the respondent in its statement of claim. The second is that the respondent's claim includes, as a component in the set-off, a claim for the return of an investment of $60,000 which can only be the Greens loan to the respondent of $60,000 originally paid by the Dowells in part payment of their 1996 purchase of shares in the respondent from the Greens.

93 There can be little doubt on the evidence that in 1999 the appellants agreed to sell and that the Greens agreed to purchase the former's shares in the respondent at an agreed or ascertainable price or at a price to be agreed. The same can be said of the transaction by which the first appellant Ashley Dowell agreed to sell and Mr Green agreed to purchase the former's share in Araluen Building Design Services Pty Ltd. The same is also true of the agreement by which the appellants purchased and the respondent sold its machinery and equipment and its business known as Hills Siteworks.

94 Each of those three contracts for sale and purchase, in two cases of shares, and in the third case of chattels and an operating business, has been partially performed in that the agreed subject matter has changed hands from the vendors to the purchasers yet, in none of the three cases, has any purchase price yet been paid. Equally, the evidence discloses, and indeed the submissions of the parties at trial and on appeal confirm, that in giving effect to the obligations of the various purchasers to pay the prices ascertained, or to be agreed, for these three transactions there would in effect, be a process of set-off which would also take into account existing indebtedness of the four shareholders of the respondent to that company on their various loan accounts, other liabilities which those shareholders had to the company or to each other, whether arising in relation to the

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Byron Street property or arising from the unpaid balance of the purchase price to the Greens for the original share sale in 1996 or otherwise, so as to produce a net balance payable by the appellants, the Dowells, to the respondent or to the Greens which would, in effect, discharge all the interrelated obligations of the two companies and the four individuals. That process involved some controversies in quantifying the extent of the liabilities which were said to exist in mid-1999 when this overall "agreement" or "arrangement" was under discussion.

95 Where a party agrees to purchase an item of property, whether shares, chattels comprising machinery, plant and equipment or an operating business for a price to be ascertained but fails to provide any effective mechanism which will determine the price so that the price is never agreed there will, of course, not be a legally enforceable contract of sale because of the lack of agreement or the uncertainty which exists, about the essential term of price. Accordingly, there can be no obligation upon the parties to complete under such an ineffective contract but if the transaction results in the transfer of the property which was to be purchased and sold so that the purchaser takes the benefit of the property and makes no effort to disclaim it, the law will recognise an obligation to pay a reasonable price for the value of the property so acquired and retained. This is the rule in relation to the supply of services under an ineffective contract - Way v Latilla [1937] 3 All ER 759 and in relation to the sale of goods if they are supplied at the request of the recipient or if they are freely accepted by him - Sale of Goods Act, s 8(2). It is necessary to contrast the position where no such term is implied in an executory contract for sale: ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695. Whether this is an entitlement based on a claim in quantum meruit to prevent unjust enrichment - Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 or a contractual claim on the basis of a term implied from the acceptance from the retention of the subject matter the result in this case is the same.

96 As there is, therefore, an obligation imposed by law for the purchaser in each of the purchases under these three transactions to pay a reasonable price for the value of the property acquired by them and retained the question becomes how is that value or that reasonable price to be determined? In relation to a sale of goods the intervention of the law to deal with the justice of the situation is found in s 8(2) of the Sale of Goods Act 1895 which provides:

"8. Ascertainment of Price

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(1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case."

97 It must immediately be acknowledged that, in this regard, the Sale of Goods Act is addressing a situation in which it is assumed that the vendor and purchaser have entered into a relationship intended to create binding legal obligations; that is they have intended to contract with each other. This reflects the general law including the test applicable to a contract to render services - Foley v Classique Coaches Ltd [1934] 2 KB 1 at 11 - 12; British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 at 511 and Goff & Jones: "The Law of Restitution" (1998) Sweet & Maxwell, 5th ed at 596. In such cases if it is consistent with the intention of the parties that a reasonable price should be paid a term will be implied to that effect resulting in a binding contract - Valpy v Gibson (1847) 4 CB 837; Foley v Classique Coaches Ltd (supra) and W N Hillas & Co v Arcos Ltd (1932) 38 Com Cas 23. But there may be situations in which it is not possible to imply such a term because it is apparent that the parties did not intend their mutual obligations to be binding unless they reached agreement as to price - May & Butcher v R [1934] 2 KB 1 - for then there will be no contract.

98 The provisions in s 8(2) of the Sale of Goods Act reflect the importance which that era granted to implied terms in contracts so that, if the benefit of an otherwise imperfect contract was taken, that would usually mean that the otherwise incomplete provisions of the agreement became perfected - Wenning v Robinson (1964) 64 SR (NSW) 157 at 161 - 163 and 167 and Mason & Carter: "Restitution Law in Australia" (1995) Butterworths at 361 [1038]. However, in Australia with the eclipse of the theory of implied contract which has authoritatively been discarded by the decision in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 per Mason and Wilson JJ at 227 and per Deane J at 250 - 257 the result has been to recognise that the obligation of a purchaser who accepts and retains goods under an incomplete or unenforceable contract, to make payment of a reasonable price for the benefit so obtained is based on the principles of unjust enrichment and

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requires the payment of the value of the benefit accepted and retained as it was at the time that the benefit was taken - David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 and Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516.

99 There is undoubtedly still room for the implication of a term requiring a purchaser to pay a reasonable price in those situations where it is evident that the parties intended to create binding legal obligations between themselves but, in their attempt to do so, omitted to stipulate effectively for the ascertainment of the price, in those cases in which the contract is executed, and the purchaser knowingly takes the benefit of the contract and desires to retain it - cfANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 where no such term was implied in an executory contract for the sale of goods.

100 Consequently, in the present case it is necessary to consider whether or not the appellants, the respondent and Mr and Mrs Green or any combination of them intended to create binding legal relations between themselves when it came to the sale or purchase of the shares in the two companies, the business of Hills Siteworks, the adjustment of the shareholders'/directors' loans, and the partial release of the security arrangements to the bank and to the lender under the equipment loan agreement. Or was it their intention that the existence and hence the enforceability of any proposed agreement in this regard was conditional upon reaching agreement upon the overall price to be paid? There is no express finding on this issue by the learned trial Judge but the implication from her Honour's reasons is plainly that, in relation to the broader agreement alleged by the respondent in its statement of claim, there was no such binding obligation because of the lack of agreement on price but that in relation to the smaller, severable, component of the agreement relating to the sale of the machinery and equipment to the appellants, there was an intention to create binding legal obligations to sell and purchase the machinery at an ascertainable price and that that price could be and was ascertained upon the evidence accepted by her Honour.

101 The implications of those findings are therefore that there was an express term relating to the payment of a price for the machinery under the severable portion which created a less extensive enforceable agreement to sell at an ascertained price so there is no need for an implied term to pay a reasonable price under s 8(2) of the Sale of Goods Act or at all. On the other hand the absence of any term to allow a balance to be paid under the broader agreement, alleged by the respondent in its

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pleading, means that there was never an intention to create binding contractual obligations in that broader sense and, hence, no scope for the implication of a term to pay a reasonable price for the benefits derived and retained. This latter conclusion, however, is no bar to a claim by the vendors of the shares in the two companies, and by the vendor of the business of Hills Siteworks, to be paid a reasonable sum for the value of the property which passed to the appellants and which the appellants have retained because, otherwise, the appellants would be unjustly enriched at the expense of the latter vendors.

102 The unjust element in the situation, which must be identified to allow access to the restitution based claim, is that the retention of the property actually transferred to the intended purchasers without payment by them for the benefit so obtained infringes the vendors'/transferees' rights to the return of that property or its value when it is clear that the transfers of property were never intended or accepted as gifts. Its retention is "at the expense" of the vendors - Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 per Gleeson CJ, Gaudron and Hayne JJ at 529 - 530, [26] - [28]. This aspect of the case was not, apparently, raised in the District Court nor considered by the learned trial Judge.

103 This dichotomy between an obligation by the appellants as purchasers to pay an ascertained price for their acquisition of the business of Hills Siteworks and of machinery and equipment from the respondent, based as that is in contract, and the existence of claims by them as vendors for the value of the shares in the two companies transferred, based in unjust enrichment, depends in the present case upon the finding by the learned trial Judge that the smaller transaction in respect of the machinery and equipment could be severed from the larger unenforceable agreement alleged by the respondent. The conclusion which the judgment reflects is that there was one discrete transaction, namely the sale of the respondent's machinery and equipment which was severable from the overall broader agreement sued upon by the respondent and that, unlike the broader agreement, this discrete element was a complete and enforceable contract because its terms provided for the ascertainment of the price of the property sold and purchased.

104 Nothing is said about the appellants purchase of the business of Hills Siteworks including its goodwill. With respect, it is difficult to accept this conclusion because of the overall importance of the other aspects of the transactions intended to allow the Greens and the Dowells to separate all their mutual financial and corporate relationship.

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105 Obviously, the question of the severability of an obligation to sell and purchase the machinery and equipment is the first issue of importance arising on this appeal and cross-appeal. However, with respect, I consider that it can readily be disposed of upon the facts. It can hardly be doubted that the appellants and the respondent, and for that matter Mr and Mrs Green, intended by their dealings in mid-1999 to put an end to all financial obligations between themselves arising from the appellants selling their shares in the two companies, taking over the business of Hills Siteworks, extinguishing loan obligations and rearranging the security arrangements applying to the loans made to the respondent. If the question is posed whether it was ever intended or contemplated, by the appellants or by the respondent, or for that matter by Mr and Mrs Green, that there would be a sale of the machinery and equipment from the respondent to the appellants which would take place independently of the other proposals involving the sales of shares, the sale of the business of Hills Siteworks, the extinguishment of the company/shareholder loans and the rearrangements of the security obligations to lenders, the answer on all the evidence could only be a resounding negative. That the appellant should be permitted to acquire the machinery from the respondent for $65,000 without attending to the completion of the other arrangements being alleged by the respondent in its pleading is a hypothesis and a conclusion so contrary to the evidence as a whole that it can unhesitatingly be rejected. This answers the tests for severability set out in Brew v Whitlock (No 2) [1967] VR 803 and Humphries v Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597 at 604 - 605 where Brennan and Toohey JJ cite with approval a passage from the judgment of Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 at 347:

"A valid promise is none the worse for being associated with a void promise from which it is severable; and although a promise which is wholly void cannot be enforced, a promise partly void but not illegal is capable of being enforced to the extent to which it is severable and valid. Again, a promise in consideration of a number of promises some only of which are void, although not illegal, is inherently capable of being enforced: Marks Bros v Park (1914) 18 CLR 1 at 13. If, however, it is made conditionally upon the prior or concurrent performance of all the promises by the other party, whether enforceable or void, it may be unenforceable unless the condition of performance of the void promises is in fact fulfilled."

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It is to be noted that McFarlane v Daniell (supra) was cited with approval regarding the severability of legal promises in Carney v Herbert [1985] AC 301 at 310 - 311.

106 In my opinion, this is a case where performance of all the promises relating to the sale and disposal of interests in the two companies between these parties and the Greens was part of a composite arrangement upon which the enforceability of any component, including a severable valid component if there were one, was conditional. It follows, therefore, that I consider that the learned trial Judge was in error in concluding that an agreement for the sale of the machinery by the respondent to the appellants could be treated as a separate and distinct legal obligation. It follows from this that I consider that the appellants have made out their principal ground of appeal and that the judgment against them in favour of the respondent for $65,000 must be set aside.

107 Nevertheless, the rights of the parties cannot simply be left on the basis that the appeal is allowed and the judgment in favour of the respondent in the District Court is set aside. If that were to be the extent of the order granted by this Court it would mean that, the final judgment between these parties had determined that there was no legally enforceable obligation upon the appellants to pay to the respondent the value of the benefit obtained by acquiring the machinery and equipment, or for the other benefits which they had taken under the overall tripartite agreement alleged, not merely by the respondent, but by the appellants themselves in their own pleading. A judgment dismissing the respondent's claim against the appellants would also result in the extinguishment of any claim based in unjust enrichment which the respondent may have against the appellants for the value of the machinery or for the other benefits derived under the arrangement. This is because the judgment dismissing the respondent's claim would give rise to a res judicata which would be a bar not only to the further pursuit of the cause of action relied upon by the respondent in the District Court, but to any other causes of action which the respondent could have asserted in those proceedings - Henderson v Henderson (1843) 3 Hare 100 [67 ER 313]; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 and Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 per Deane, Toohey and Gaudron JJ at 508 - 509. Such a result would leave the appellants in possession of the machinery and equipment, and the ownership of the business of Hills Siteworks, without any legal obligation to pay for them - a quite unacceptable situation.

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108 This is a convenient point to refer to the cross-appeal in which the respondent seeks to have the judgment of $65,000 against the appellants set aside and replaced by a judgment in its favour for $160,635 being the extent of its alleged claim under the entire tripartite agreement advanced in the statement of claim.

109 The grounds asserted in support of the cross-appeal can be reduced to the propositions that, upon the findings of fact made by the learned trial Judge her Honour was in error in concluding that there had only been a legally binding agreement relating to the purchase of the earthmoving equipment for $65,000. This first ground can be accepted for all the reasons already considered, but the implication attached to it by the respondent is that there was a legally binding obligation of greater extent which the respondent contends was for the payment of an ascertainable sum, after set-offs, of $160,635. By its second ground of cross-appeal the respondent asserts that, on the evidence, the learned trial Judge should have found that there was a binding agreement for the ascertainment of the values of the constituent transactions which, after set-off, would give rise to the alleged liability of the appellants of $160,635. The third ground of the cross-appeal attempts to support the second ground by alleging errors by the learned trial Judge in relation to the findings of credibility of the first appellant and because of an alleged non-compliance with the rule in Browne v Dunn (1893) 6 Rep 67 by the appellants at trial.

110 It is enough for me to say that, with respect, I agree with the observations and conclusions of Murray J concerning the grounds of cross-appeal which challenge the findings of credibility made by the learned trial Judge and the alleged non-compliance with the so-called rule in Browne v Dunn. I do not consider that either of these contentions supports the submissions advanced on the cross-appeal by the respondent that those findings of fact should, for those reasons, be set aside or varied.

111 However, that still leaves the implication in the first ground of the cross-appeal that the appellants are under an obligation to make a larger payment to the respondent than found by the learned trial Judge. This is a very slender basis upon which to support a conclusion that the proper finding at trial should have been that the appellants were under an obligation to pay to the respondent a sum greater than $65,000 because of the benefits which they had obtained and retained under agreements for the sale and transfer of property (machinery, shares and other choses in action, namely the directors/shareholders loans and the security obligations in respect of the respondent's loans) in order to avoid unjust enrichment. However, despite its limited extent, I consider that this Court

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should give effect to the implication in the first ground of the cross-appeal, namely that the true measure of the legal obligation of the appellants to the respondent is greater than the judgment entered in the District Court.

112 It is established that under the current narrative form of pleadings, sometimes known as judicature or fact pleading, it is not necessary for the pleader to set out or to limit himself or herself to the cause or causes of action which are asserted as the basis for the relief claimed. Indeed, it is not necessary to specify any cause of action at all as it is sufficient that a pleading alleges the facts sought to be proved and the relief claimed. So it will not be fatal if the facts alleged, if proved, do not entitle the plaintiff to the particular relief claimed provided that the facts as proved do entitle the claimant to some relief within the jurisdiction of the court - Phillip Morris Inc v Adam Peter Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 472. Accordingly, there is nothing unusual about a trial court, or an appellate court, adopting a view of the facts, or of the law, different from the views for which the parties to the litigation respectively contended: Australian Communications Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55; (2003) 77 ALJR 1806 per Gleeson CJ at 1808, [7] and per Kirby J at 1815 [51]. Once the facts have been established, or are ascertainable, it is for the court to apply the law to determine what, if any, remedy or other relief the claimant is entitled to or how, otherwise, the litigation should be determined. There are, undoubtedly, circumstances in which the failure of a party or parties to raise a particular issue of law will result in that party, or those parties, thereafter being precluded from relying upon that point because of a deemed waiver, estoppel or some other reason - see Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706 at [75] and [82]. Nothing of that kind has been suggested in this case. In the present case the pleadings made it plain that the "agreement" or "arrangement" relied upon by the parties included rights and obligations of Mr and Mrs Green so, in effect, revealing that they were parties to the alleged contract sued upon. Similarly the pleadings asserted, and there was no dispute at trial, that the "agreement" or "arrangement" had been carried into effect in all material respects as to performance, except for payment because of the dispute over the method of quantifying the financial obligations of the parties who received property or other valuable rights under the arrangement. In such circumstances the issues for decision by the court are plainly whether or not the recipients of property or services are under an obligation to pay for them and, if so, how that obligation is to be quantified. I consider that these issues of law did arise before the learned trial Judge and arose again

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at the hearing of this appeal. That they were not addressed directly by the parties on either occasion does not prevent the court from doing so even now in order to determine this litigation upon the application of the legal principles which can be applied to the facts which have emerged.

113 I reach this conclusion not only in order to do justice to the respondent upon the cross-appeal but because of the effect which, otherwise, would follow from simply allowing the appellants' appeal (relief to which they have established a right), without, at the same time, providing a mechanism for the true obligations between the parties to be ascertained and determined by a judgment in these proceedings. In my view this can best be accomplished by allowing the cross-appeal, despite the rejection of grounds 2 and 3 of the cross-appeal; by directing a new trial upon all issues; and by granting liberty to the respondent to amend, if so advised, to advance a claim based on unjust enrichment or, despite my foregoing observations which largely but not completely rejected the possibility of an implied term to pay a reasonable price under an arrangement between the parties intended to be legally binding but, otherwise, lacking components providing for the determination of the prices of the various transactions making up the entire arrangement between all the parties, including Mr and Mrs Green.

Without Prejudice Communication

114 The appellants' second ground of appeal asserted that the learned trial Judge wrongly excluded, as inadmissible, certain correspondence passing between the parties and/or their representatives, including a letter written by the respondent's solicitors to the appellants' solicitors dated 12 April 2001 on the grounds that this correspondence was subject to "without prejudice" privilege. It was submitted that this correspondence, and in particular the letter of 12 April 2001 (AB 630 - 632) acknowledged that "no agreement had been reached between [the appellants] and Custombuilt [the respondent]". The foundation for this contention by the appellants was the established principle that without prejudice privilege does not extend its protection to objective facts which have no connection to the matters in issue which are in dispute between the parties. An example of this principle is provided by the decision in Waldridge v Kennison (1794) 1 Esp 143; 170 ER 306 where the plaintiff sought to prove the defendant's handwriting by adducing evidence that at a without prejudice meeting the defendant admitted that he was the signatory to a particular bill of exchange. Lord Kenyon CJ held the evidence admissible, explaining:

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"Certainly any admission or confession made by the party respecting the subject matter of the action ... into which the party might have been led by the confidence of a compromise taking place, could not be admitted to be given in evidence to his prejudice; but ... the fact of a handwriting being a person's or not stood on a different foundation; it was a matter no way connected with the merits of the cause, and which was capable of being easily proved by other means."

However, I am satisfied that this letter of 12 April 2001 does not come within this exception to the privilege. That is because the alleged admission in the correspondence, that there was no contract between the parties, was the principal issue dividing the parties at the without prejudice negotiations and it was the principal issue in the proceedings before the court. It could never be said that it related to a matter which was independent of or collateral to the issues in dispute which were the subject of the negotiations and the litigation - Field v Commissioner for Railways (NSW) (1957) 99 CLR 285 and Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69 at 71.

115 For this reason I consider that the second ground of appeal must be rejected. However, this is immaterial in the result of my earlier conclusion that the first ground of appeal has been made out.

Orders on Appeal and Cross Appeal

116 These conclusions are enough to reveal that, notwithstanding that the "agreement" or "arrangement" which was admitted by the appellants and the respondents in their pleadings to exist between them was incomplete, and therefore unenforceable because of a failure to specify how the price or value should be determined in individual transactions, the aggregate effect of which would give rise to an obligation for payment by one to the other, there are still obligations on the parties who have obtained and retained benefits under this unenforceable composite agreement, to pay for the value of those benefits.

117 As these are obligations which arise at law, rather than pursuant to any contract, in order to prevent unjust enrichment the question of the proper parties to this litigation again assumes significance. The aggregate sum for which the respondent has sued comprises, as has already been shown, a net balance alleged to be due after giving credit for certain set-offs and after bringing to account obligations due by or to Mr and Mrs Green, either directly by the appellants or indirectly by the effect which those obligations have upon the value of the shares previously

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owned by the appellants in the respondent. For this reason I do not see how it is possible for the respondents to maintain a claim which, to any extent, is dependant upon a quantification and on ensuing credit or debit, being given to claims or obligations due by or to Mr and Mrs Green.

118 Whether the respondent, or for that matter, Mr and Mrs Green, alone or in combination, seek to recover a balance due after taking the set offs into account (as sought by par 15 of the statement of claim) credit must be given for any payments or benefits received from the appellants or for which credit was to be given under the tripartite agreement - Westdeutsche Landesbank v Islington B C [1994] 4 All ER 890, 940 - 941 per Hobhouse J, (on appeal see [1996] 2 All ER 961); Hicks v Hicks (1802) 3 East 16; 102 ER 502 and Moses v Macferlon (1760) 2 Burr 1005 at 1010; 97 ER 676 at 679. Similarly, the claimant will be required to give credit for expenditure incurred by a defendant which benefited the claimant - Ex parte Elliott, Re Jermyn (1838) 3 Deac 343 at 345: see generally "The Law of Set-Off", S R Derham (3rd ed) 2003, Oxford UP. For credit to be given for the sale price of the shares in the two companies transferred to Mr and Mrs Green in these related transactions, they must be parties to the actions. Similar, observations apply when dealing with set-offs relating to adjustments to the shareholders' loan accounts, and to the balance of $22,500 owing to Mr and Mrs Green for shares which they sold to the Dowells in the 1996 transaction.

119 That the position of third parties in relation to a plaintiff or to a defendant in an action based on unjust enrichment will not affect or adjust the mutual rights and obligations of the parties to the action is established conclusively by the decision in Roxborourgh v Rothmans of Pall Mall (supra) per Gleeson CJ, Gaudron and Hayne JJ at 528 - 530 [23] - [28]. In that case the fact that the plaintiffs, who were claiming to recover the invalid excise tax which they had paid to the respondent wholesaler of tobacco products, had themselves recouped the amount of the invalid excise, in the course of retail sales to customers did not mean, in the absence of agency between the retailers and the customers, that the plaintiffs claims in unjust enrichment were answered or diminished.

120 So, it follows in my view that, in the present case, in the absence of any agency, pleaded and proved of the respondent for Mr and Mrs Green, the respondent cannot introduce into the balancing exercise of set-offs any liabilities which may be due as between the appellants and Mr and Mrs Green or, for that matter, between the respondent and Mr and Mrs Green. This was always a deficiency in the current action as

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formulated in contract but was not addressed by the parties at the trial. This omission is, to a significant extent, responsible for the failure of the parties to concentrate upon the enforceability of obligations as between vendor and purchaser under uncertain, and therefore incomplete, contracts for the sale of property. It should not be permitted to continue and, therefore, the need for all parties whose rights are directly affected by the litigation to be before the court is again emphasised - RSC O 18 r 6(2)(b).

121 For that reason, therefore, I consider that leave should be granted to allow the appellants or the respondent to apply to a Judge in chambers of the District Court, before any re-trial, to join Gary Green and Gloria Green as co-plaintiffs (if they will agree to be plaintiffs), or failing that as additional defendants, as the present parties may be so advised and to make any consequential amendments to the pleadings as may be necessary in the light of such joinder.

122 That this appeal and cross-appeal have produced this result appears to me, with respect, to be due largely to the fact that the parties did not bring to the notice of the District Court the existence of the essential legal basis governing their mutual rights and obligations and, also, failed to ensure that all proper parties were before the court. For that reason it seems to me, subject to any further submissions which counsel should have the right to make, that in allowing the appeal and the cross-appeal there should be no order made by this Court in relation to the costs of this appeal or in relation to the costs of the trial conducted in the District Court leaving the result that the parties must bear their own costs of litigation which has, so far, been largely unproductive.

123 In summary, therefore, I propose that this Court should order that:

(a) the appeal be allowed;

(b) the cross-appeal be allowed;

(c) the judgment of the District Court of Western Australia of 30 May 2003 be set aside;

(d) the action be remitted to the District Court of Western Australia for re-trial and determination in accordance with the judgment of this Court;

(e) that upon remission of the action to the District Court, the parties be at liberty to apply to a Judge in chambers in the District Court for the joinder as additional plaintiffs, or defendants, as so advised, of Gary Green and Gloria Green and, if such joinder is effected, there be liberty to all

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parties to amend the pleadings generally in the light of that joinder and in the light of the decision of this Court, such joinder and amendments to take place within such times and upon such conditions, if any, as may be determined by the District Court;

(f) that there be no order in relation to the costs of this appeal or cross-appeal or of the trial in the District Court.