Hopcroft & Edwards v Edmunds

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SUPREME COURT OF SOUTH AUSTRALIA

(Full Court: Civil)

HOPCROFT & EDWARDS v EDMUNDS & ORS

[2013] SASCFC 38

Judgment of The Full Court

(The Honourable Chief Justice Kourakis, The Honourable Justice White and The Honourable Justice Stanley)

23 May 2013

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS

CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - AUTHORITY OF AGENTS - CONSTRUCTION AND EXTENT OF AUTHORITY

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - CONTRACT IMPLIED FROM CONDUCT OF PARTIES

EVIDENCE - ADMISSIONS AND DECLARATIONS - ADMISSIONS - WHAT ARE AND EXTENT OF ADMISSIONS

ESTOPPEL - GENERAL PRINCIPLES

In 1995, the first, second and third respondents were engaged in litigation - the appellants had knowledge which they thought may assist the respondents - after discussions, a proposal emerged to the effect that the appellants would assist these respondents and in return be paid a percentage of the proceeds of the respondents' action, and each appellant would be made a shareholder and director of the third respondent - a shareholders' agreement to give effect to the proposal was prepared and executed by the appellants, but not the respondents - the appellants did not know until September 1997 that the respondents had not executed the agreement - the respondents were successful in their litigation.

The appellants claimed the monies said to be due under the agreement - they contended that, despite the non-execution by the respondents, a contract had been concluded in one or other of two ways - first, that the respondents' accountant had proffered the agreement to them for signature on the basis that a binding contract would come into existence upon their signature - alternatively, that they had made an offer in terms of the agreement by returning the signed document to the respondents' accountant, which offer had been accepted by the respondents as evidenced by their conduct in appointing the appellants as directors and shareholders of the third respondent.

The appellants also asserted that admissions made by the first and second respondents in proceedings in 1999 to the effect that they had an agreement with the appellants, were admissible as evidence of the formation of the contract.

By a Notice of Contention the fourth respondent submitted that the Judge should not have found that it was estopped from denying that it was a party to the agreement, if such an agreement had been concluded.

The trial Judge found that a contract had not been concluded and dismissed the appellants' claim.

Held (dismissing the appeal):

Per White J, Kourakis CJ and Stanley J agreeing:

(1) The question of whether a contract had been concluded was to be resolved by an objective assessment of the circumstances pertaining between the parties at the relevant time (Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, applied) (at [27]).

(2)  The Judge was correct to find that a binding contract did not come into existence on the execution of the documents by the appellants…

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Details
Case
[2013] SASCFC 38
Decision Date

CaseChat Overview and Summary

The appellants, Hopcroft and Edwards, appealed a decision of the Supreme Court of South Australia concerning a dispute over an alleged agreement with the respondents, Edmunds. The appellants claimed monies due under an agreement where they were to assist the respondents in litigation in exchange for a percentage of the proceeds and becoming shareholders and directors of the third respondent. A shareholders' agreement was prepared and executed by the appellants, but not the respondents, and the appellants only became aware of this non-execution in 1997.

The central legal issues before the Full Court were whether a binding contract had been concluded, either upon the appellants' execution of the shareholders' agreement based on the respondents' accountant's actions, or through an offer by the appellants upon returning the signed document, which was subsequently accepted by the respondents' conduct. The court also considered whether admissions made by the respondents in prior proceedings constituted evidence of a binding agreement.

The Full Court, dismissing the appeal, held that a contract was not formed upon the appellants' execution of the documents. Applying an objective assessment of the circumstances, the court found that the respondents' accountant lacked the actual or ostensible authority to represent that the agreement would be binding upon the appellants' signature alone, without the respondents' execution. Furthermore, the ordinary expectation that parties do not intend to be bound by a formal document until all parties have executed it was not displaced. The court also determined that the respondents' conduct in appointing the appellants as directors and shareholders did not amount to an acceptance of the appellants' offer, as this conduct was not unequivocally referable to the terms of the shareholders' agreement. The court also found that evidence given by the respondents in earlier proceedings was a statement of their belief and irrelevant to the determination of whether a contract had been concluded.

Orders

Orders of the court

Held (dismissing the appeal):

Per White J, Kourakis CJ and Stanley J agreeing:

(1) The question of whether a contract had been concluded was to be resolved by an objective assessment of the circumstances pertaining between the parties at the relevant time (Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, applied) (at [27]).

(2) The Judge was correct to find that a binding contract did not come into existence on the execution of the documents by the appellants (at [55]).

(a) The respondents' accountant did not have actual or ostensible authority to proffer the document to the appellants on the basis that it would become binding on all parties upon their signature and without signature by the respondents (at [55], [62]).

(b) In any event, the ordinary expectation that when a formal contractual document with provision for execution by both parties is prepared, the parties do not intend to be bound until all parties have executed the document, was not displaced (at [69]).

(3) Whether or not the respondents' conduct in appointing the appellants as shareholders and directors was to be understood as acceptance of an offer by the appellants was to be determined by an objective consideration of what the respondents' conduct may have indicated to the appellants (Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, applied) - the respondents' conduct did not amount to an acceptance on their part, as their conduct was not referable only to the terms of the document (at [90]-[93], [95]).

(4) The respondents' evidence in the proceedings in 1999 was simply a statement of their then belief as to the subsistence of a contractual relationship and irrelevant to the Judge's determination (at [112]).

Per Kourakis CJ, Stanley J agreeing:

(5) The evidence of the first and second respondents in the 1999 proceedings expressed a legal conclusion and was therefore inadmissible (at [5]).

Per Kourakis CJ:

(6) The Judge's finding of estoppel was correct - in the circumstance that the fourth respondent had taken no steps to correct the mistaken assumption that the third respondent was the relevant entity entitled to recovery in the respondents' other litigation, even though it knew that the agreement was to its benefit, it would have been unconscionable for the fourth respondent to take advantage of that mistake (at [6]).

Per White J:

(7) Although there may be a proper basis upon which the fourth respondent should be estopped from denying the truth of the assertion represented to the appellants that the third respondent was the relevant entity entitled to recovery in the respondents' other litigation, such an estoppel would not preclude the fourth respondent from denying that it should be bound by the agreement (had the agreement in fact been concluded) (at [126]).

Per Stanley J:

(8) It is unnecessary to decide whether the fourth respondent was estopped from denying it was bound by the agreement (at [132]).

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

In my opinion, subject to consideration of the Edmunds’ evidence in the proceedings before Lander J, these grounds of appeal fail.Issue 3: The Edmunds’ Evidence before Lander J In their evidence in the Pickering Action before Lander J in 1999, each of Mr and Mrs Edmunds was asked some questions about an agreement with the appellants. The appellants submitted that their responses indicated an awareness by them of the SHA and an admission of it. They contended that the Judge had erred in not understanding the evidence in that way. The passages in Mr Edmunds’ cross‑examination in the Pickering Action upon which the appellants rely is as follows:Q.Do they stand to benefit from the proceeds of a successful conclusion of this case so far as Smoothpool is concerned.A.There was an agreement, a separate agreement made up with Hopcroft and Edwards, to an effect of, I’m not too sure what the percentage was, but they were to receive a certain percentage if we were successful, if they were able to assist at all.HIS HONOUR:Q.They would receive a percentage, would they, of any award of damages in this case, is that the agreement.A.I am not too sure just what the agreement says now. It was to the effect of a percentage of the licence or damages, I’m not too sure. …XXNQ.Can you just explain how they would receive a percentage of the licence.A.You would have to ask them that. As far as I can recall. If the licence went to Smoothpool, and if they upheld their duties, somehow they were entitled to 7 and a half per cent …Q.Who negotiated that agreement on behalf of Smoothpool.A.I was involved with discussions with Edwards and Hopcroft, and after that it was drawn up between those two, and I think their lawyer and our accountant …Q.And you were the person who, on behalf of Smoothpool, finally agreed the terms.A.That would be so, yes …Q.When you said that they did not have a financial interest in Smoothpool, that was not correct.A.I’m not too sure just how it all equates with what they are entitled to.Q.They are shareholders and have been shareholders since 1995.A.Since ’95 yes.Q.And they have the agreement to receive 7 and a half per cent, which you have already described.A.I believe so, I don’t know.HIS HONOUR:Q. Can you remember what you negotiated; yes or no.A. Yes.Q. What did you negotiate.A. 7 and a half per cent.Q. Of what …A.As far as I can recall, if the licence went to Smoothpool, the agreement stated that they would obtain 7 and a half per cent of the licence, and I would believe that would also entitle them to 7 and a half per cent of the proceeds.Q.Did you agree, on behalf of Smoothpool, that they would obtain 7 and a half per cent of the licence, and 7 and a half per cent of the income from the licence.A.I think so, yes.(Emphasis added)The appellants relied in particular on the emphasised passages. The appellants relied on the following passage in Mrs Edmunds’ cross‑examination in the Pickering Action:QDo they [Messrs Edwards and Hopcroft] have any financial interest in Smoothpool.ANo, they do not, other than a single share.QDo they have any financial interest in the outcome of these proceedings.AYes.QWhat is that.AIf the resolution is – it’s in the discretion of the directors what, you know, what happens on a result of the case.QIs that an arrangement which is recorded in writing.AYes.QDo you have that.AI don’t have the document at the moment, no … QWhere is the document.AI don’t know offhand, but I am sure I could locate one.

Decision

Reasons for decision

WHITE J (dissent)
The appellants submitted, in the alternative, that a binding contract resulted from their offer in signing and returning the SHA to Mr Noolan, and from the respondents’ acceptance of that offer, as evidenced by their conduct in performing its terms. The appellants relied on three aspects of the respondents’ conduct, namely, the respondents’ appointment of them as directors of Smoothpool; the allotment of the non‑cumulative preference share to each of them; and the payment to each of $4,000 following their appointment as directors.[11][11] Second Further Amendment Statement of Claim [8.2] and [9].The Decision of the Judge The Judge found that it was “the manifest intention” of the parties that the SHA was not to become binding until it was executed by all parties[12] and that, in any event, Mr Noolan had neither actual nor ostensible authority to proffer the SHA to the appellants for execution on the basis that, upon their signature, it would immediately become binding on all parties. He considered that a claim of ostensible authority had not been raised by the appellants’ pleading.[13][12] Hopcroft v Edmunds [2012] SASC 94 at [367], [376], [393].[13] Ibid at [374]. The Judge also rejected the appellants’ alternative claim, holding that none of the respondents’ conduct was “unequivocally referable” to the SHA and consistent only with the SHA having binding effect.The Issues on the Appeal The issues raised by the Notice of Appeal, as modified by the appellants’ submissions on the hearing of the appeal, are these:1.Should the Judge have found that the parties had entered into a binding contract in the terms of the SHA upon the appellants signing the SHA and returning the executed copies to Mr Noolan? This involves a consideration of the parties’ objective intention (Grounds Three and Four) and of Mr Noolan’s authority (Grounds One and Two).2.Should the Judge have found that the appellants’ execution of the SHA constituted an offer to contract on its terms, which offer was accepted by the respondents’ later conduct, whether unequivocally referable to the SHA or otherwise? (Grounds Four, Five and Seven)3.Should the Judge have found that Mr and Mrs Edmunds, or at least Mr Edmunds, had, in the proceedings before Lander J in 1999 admitted both the existence and binding nature of the agreement in the terms contained in the SHA and, if so, what is the effect of the admission? (Ground Eight)There is some overlap between these issues. The respondents filed a Notice of Contention, containing 12 separate alternative grounds upon which it was said that the appellants’ claim was properly dismissed. At the hearing of the appeal, the respondents abandoned all but [5] of this Notice. That paragraph gives rise to a further issue, namely:4.If there was a binding agreement in terms of the SHA, should the Judge have found that the fourth respondent, Dadeeton, was not estopped from denying that it was bound by that Agreement? This issue arises because, until 1997, Dadeeton’s role as trustee of the Edmunds Family Trust had been overlooked with the effect that it was not included as a party in the SHA executed by the appellants.Issue 1: Contract Binding on the Appellants’ Execution of the SHA?

Ratio Decidendi

Legal Principle Established

Established by:

In my opinion, this view of the matter was open and error has not been shown. In many respects the appointment of the appellants as shareholders and directors appears to have been secondary to the real purpose of the proposed agreement, namely, the provision by the appellants of assistance and the reward which they were to receive in exchange. It was secondary because it was a means of facilitating the assistance which the appellants could provide, and also provided them with a means of participation in the Pickering Action. Being secondary, it was capable of being regarded as a separate and distinct step, without indicating necessarily any agreement at all on the primary issues of the assistance to be provided and the reward to be given.Objective Consideration For the reasons given earlier, I consider that the question of whether the Edmunds’ making the appellants shareholders and directors of Smoothpool indicated acceptance of the appellants’ offer should be determined by reference to the position of the objective bystander. The issue is whether a reasonable person in the appellants’ position would have regarded the Edmunds’ conduct as indicating that their offer had been accepted.[46] In addressing that issue, it is necessary to keep in mind both the limited nature of the respondents’ conduct on which the appellants relied, and the fact that it did not involve any communication to the appellants at all.[46] Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 535. Questions of Mr Noolan’s authority do not loom large in relation to this issue. It was obvious that Mr Noolan had ostensible, if not actual, authority to receive the executed SHAs from the appellants and to provide them to the Edmunds. It was also reasonable for the appellants to infer that he would have authority to communicate any response from the Edmunds to them, if a response was to be made. A reasonable bystander may well have assumed that the Edmunds did have the SHAs executed by the appellants at the time they made them shareholders and directors. An objective consideration of what was conveyed to the appellants by the respondents’ conduct should take account of that circumstances. However, a number of matters point against the reasonable bystander concluding that the Edmunds’ conduct, in making the appellants shareholders and directors, amounted to an acceptance by them of the terms of the SHA. First, the ordinary expectation arising from the preparation of a formal document with provision for execution by all parties continued to apply. A reasonable bystander is unlikely to have considered that that expectation had been displaced. That is especially so having regard to the fact that the making of the appellants as shareholders and directors occurred only two weeks after their execution of the SHA. This is not a case like Brogden in which there had been a course of dealing over some time which was capable of displacing the ordinary expectation. If that expectation existed when the executed SHA was returned to Mr Noolan, there is no reason to suppose that it had dissipated only two weeks later.