Independent Print Media Group Publishing Pty Limited v Estate Agents Co-operative Pty Limited

[2007] NSWCA 352

New South Wales

Court of Appeal

CITATION:	Independent Print Media Group Publishing Pty Limited v Estate Agents Co-operative Pty Limited [2007] NSWCA 352 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	26 November 2007
JUDGMENT OF:	Beazley JA; Tobias JA; McColl JA
EX TEMPORE JUDGMENT DATE:	26 November 2007
DECISION:	The appeal is dismissed with costs.
CATCHWORDS:	CONTRACT – formation of contract – arrangement to establish joint venture – parties’ agreement contained in side letter with three separate agreements intended to govern joint venture – side letter contained agreement to negotiate in good faith to finalise documents to present to board for final execution – construction of contract – contractual context – use of extrinsic material – whether binding final agreement reached
LEGISLATION CITED:	Supreme Court Act 1970 s 45(4)
CASES CITED:	Toll (FGCT) Pty Limited v Alphapharm Pty Limited & Ors [2004] HCA 52; (2004) 219 CLR 165
PARTIES:	Independent Print Media Group Publishing Pty Limited (Appellant) Estate Agents Co-operative Pty Limited (Respondent)
FILE NUMBER(S):	CA 40706/07
COUNSEL:	B Coles QC; M Green (Appellant) T Alexis SC; R Hardcastle (Respondent)
SOLICITORS:	Rodd Peters Lawyers (Appellant) Von Muenster Solicitors (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 1964/07
LOWER COURT JUDICIAL OFFICER:	Brereton J
LOWER COURT DATE OF DECISION:	27 September 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	Independent Print Media Group Publishing Pty Limited v Estate Agents Co-operative Limited [2007] NSWSC 1098

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CA 40706/07

BEAZLEY JA
TOBIAS JA
McCOLL JA

Ex tempore 26 November 2007

Independent Print Media Group Publishing Pty Limited

v

Estate Agents Co-operative Pty Limited

Judgment

1 THE COURT: The appeal is dismissed with costs. The Court is of the unanimous opinion that the appeal does not raise any question of general principle. Pursuant to s 45(4) of the Supreme Court Act 1970, the Court’s reasons in short form are as follows.

2 The proceedings the subject of the appeal were concerned with arrangements that were made between the parties to establish a joint venture under which a real estate advertising magazine, the Illawarra Realtor, would be managed, funded, promoted, published and distributed in certain newspapers of the appellant in the Illawarra region. The arrangements that were being negotiated provided for a guaranteed specified management fee to the respondent and, as proposed, required the appellant to provide interest-free loans to a joint venture vehicle which was to be incorporated to permit it to publish services initially provided by the respondent.

3 On 11 September 2006, the parties entered into an agreement which was contained in a handwritten document, called by the parties a ‘side letter’. The parties attached to that document three agreements which were intended to be the agreements which governed the proposed joint venture. The appellant contended that upon the signing of the side letter on 11 September 2006, the parties effected the formal agreement between them. The respondent contended that no final binding agreement was entered into at that point, but rather an interim agreement based upon those three documents was entered into, pending the final approval of the joint venture agreement and the execution of the joint venture documents by the boards of the respective parties.

4 The side letter was in the following terms:

“The below representatives of [the respondent] and [the appellant] agree the contents of an agreement between them are set out substantially in the draft Shareholders Publishing Management and License Agreement. The parties agree the agreements contained therein are enforceable and are operating in respect of the publishing of the Publication for the first and subsequent editions. The parties will negotiate in good faith to finalise the documents as soon as reasonably practical for presentation to each of [the respondent] and [appellant’s] Boards, for execution.”

5 The trial judge, after a consideration of the terms of the side letter and the terms of the proposed contractual documents, the correspondence that had preceded the letter of 11 September 2006 and conversations had between the parties, held (at [46]), that the extrinsic evidence demonstrated the parties intended by use of the side letter to create an interim arrangement to govern the publication of the first and subsequent editions of the Illawarra Realtor in the appellant’s newspapers whilst they continued to negotiate in good faith for a final agreement.

6 His Honour finally concluded, (at [47]), that upon its proper construction, the execution of the side letter did not contemplate that the parties were to be immediately bound. He also recorded that there was nothing in the extrinsic evidence which would have led him to a different conclusion.

7 As the Court has already indicated, his Honour reached that conclusion in effect by two processes: first, by a construction of the documents themselves and in particular the construction of the side letter; and second, by a consideration of what his Honour termed the extrinsic evidence, being the letters and conversations to which reference has already been made.

8 His Honour stated (at [10]):

“Accordingly, uninformed by extrinsic evidence, I would not conclude that ‘for presentation to each of [the respondent] and [the appellant’s] Boards, for execution’ meant that the role of the Boards was merely to authorise the affixation of a seal to an agreement which had already been made by executive officers and which the Board was not at liberty to decline to execute. Such words ordinarily would contemplate a role for the Boards in deciding whether or not the agreements should be executed; and thus that there was not intended to be a final and binding agreement until the agreements had been approved by, and executed by authority of, the Board.”

9 His Honour also considered that there were matters in the three proposed contractual documents in respect of which there had been no consensus. It is apparent from a later part of his reasoning (at [46]) that he considered that that was also an important matter. He identified the matter in respect of which there had been no consensus as relating to the remuneration to be derived by the respondent from the proposed joint venture. That factual finding is challenged. The Court considers that challenge has been made good. His Honour did misdescribe the effect of the clauses in respect of which there had been no final consensus. Notwithstanding that, the Court is of the opinion that that does not undermine his Honour’s construction of the agreement, which on its terms was as his Honour had found as outlined in the preceding paragraph.

10 His Honour, having considered the documents in the manner explained above, then looked at the contractual context in which the side letter was signed. His Honour was entitled to do so: see Toll (FGCT) Pty Limited v Alphapharm Pty Limited & Ors [2004] HCA 52; (2004) 219 CLR 165, especially at 179 [40].

11 So far as the extrinsic evidence is concerned, two letters were of particular significance. The first was a letter of 16 August 2006. That letter was sent by Mr Peters, the appellant’s solicitor, to Mr Carson, a representative of the respondent. It stated:

“My understanding from Friday is that all the important terms of the joint venture are now agreed in principle – I appreciate some further fine tuning of the documents may be necessary before they can be signed off by all parties.

It seems both parties have been and continue to proceed as though the transaction will be completed and we have full confidence that the documentation will be finalised in short order for approval by your Board.

Given that we have until the first publication to complete the transaction (about 3 weeks) I question the need for a side letter at the moment. If we are getting close to ‘launch day’ and the documents are still not signed, perhaps we should revisit the need for a side letter at that point …”

12 The express terms of that letter clearly demonstrate that, at that point, what was proposed was that the final documentation had to be submitted to the respective Boards, and in particular, the respondent’s board, not only for signature but for approval.

13 The second letter to which we would particularly draw attention is the letter of 7 September 2006. That letter was written by the respondent’s solicitor to the appellant’s solicitor.

14 That letter stated:

“Without going to the details of your letter, I have to point out that from the meeting on 11 August 2006 my clear recollection is the following:

1. At the opening of the meeting Mr John Carson expressed in clear and precise terms that whatever was discussed in the meeting will proceed nowhere without the final advice and approval of [the respondent’s] Solicitor.

2. After some time into the meeting I then expressed my view that I would prefer to see the arrangement other that as set out in the three documents tabled and that was that the arrangement proceed on the basis of [the respondent] provide the magazine for distribution through the paper which provides a benefit to [the respondent] and to your client for about 12 months to see how it works and then review it. This was not received very favourably by your clients but it was nonetheless put and not withdrawn.

3. The discussions continued to iron out several issues but at no time was Mr Carson’s opening statement varied or withdrawn.

4. The meeting resolved that you would produce fresh agreements which would be looked at by [the respondent] and myself. However, in all respects the arrangement and the documentation was subject to [the respondent’s] legal advice being received.

5. At the close of the meeting I expressed the view that what was put by your clients was encouraging me to review my personal view of how the arrangement should proceed but after I consider the documentation I will see if it causes me to alter my view.

6. It was also expressed by Mr Carson that until the formalities are worked through and settled on, the immediate need to meet an earlier deadline for 7 September 2006 could proceed by way of a ‘side- letter’.

As of this time it is clear that until [the respondent] receives its final advice as to the arrangement and documentation the parties are still in negotiations as they have been at all times and the matters that have occurred have been carried in good faith. At all time Mr Carson suggested that the parties exchange a ‘side-letter’ addressing the September 2006 distribution deadline. This was never received from your client.

Apart from the above, my client does not agree with the contents of your letter. However, my client is willing to continue with discussions and negotiations with the view to reaching some finality and to that end I note the meeting has been arranged for 2.30pm on Monday next.

In the meantime and without prejudice or admission of any liability, my client is also willing to continue with the publication, printing and distribution of the magazine.

It is hoped that is all resolved shortly.”

15 In our opinion that letter, and in particular the penultimate paragraph, indicates that the parties, at that stage, were not intending to be finally bound by the joint venture documentation until it was finalised and approved, at least by the respondent’s Board.

16 The trial judge also considered the oral evidence of the parties. His Honour accepted the evidence of the respondent’s witnesses and found that in the conversations that took place between the respective parties, it was apparent that the last sentence in the side letter was inserted in response to a request from Mr Carson to the effect that it was necessary to record that the respondent’s board’s approval was required. His Honour also observed that that was the evidence of the appellant’s witness, Mr Dennis, although the other witnesses for the appellant gave different evidence. Nonetheless, his Honour was entitled to accept the evidence as he did and as he found it was supported by evidence of the appellant in any event, no error has been established in his so doing. That, of course, supports the construction his Honour had arrived at independently.

17 Finally, so far as the consideration of the extrinsic evidence was concerned, there was a file note of the solicitor for the respondent relating to the circumstances of the signing the side letter. His Honour expressed at one stage some uncertainty as to the respondent’s solicitor’s evidence and, in particular, whether the file note was made at the time of the meeting. However, his Honour observed that the respondent’s solicitor was not cross-examined to the effect that the file note was a fabrication and the matter that was of more concern to his Honour was the typed version. The Court does not need to go to that.

18 The handwritten version in respect of which (as the Court has indicated) there was no suggestion of fabrication, stated, “what goes on here is all subject to the Boards accepting it and the final approval by [the respondent’s] lawyers”. That file note also supports the independently determined construction of the side letter.

19 His Honour, therefore, concluded (at [47]):

“Accordingly, also there is nothing in the extrinsic evidence which would lead me to a conclusion different from that which I would have reached without resort to it, namely, that the reference on the face of the side letter to presentation to the Boards for execution did not contemplate that the Boards were a mere cipher, bound to execute whatever the executives put before them, but that they were entitled to approve or disapprove the draft agreements until they executed them.”

20 As his Honour found that the side letter was intended only to be by way of an interim agreement, he held at [48] that, if the parties having negotiated bona fide then failed to reach a final agreement, either party was at liberty to withdraw at reasonable notice from that interim agreement.

21 It is not necessary for the Court to determine whether or not it was necessary to make a finding that there was an implied term that the contract constituted by the side letter could only be terminated on reasonable notice. The real point of this appeal is whether or not the joint venture documentation had become binding on the parties. His Honour found that it was not and the Court considers that that finding was correct. The position was that the parties agreed to be bound immediately by the terms of the three draft agreements but only until and in the event that their respective boards approved the documents as finally negotiated. That is the judgment of the Court.

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