Jago v Coastalwatch Pty Limited

[2009] NSWSC 594

CITATION:	Jago v Coastalwatch Pty Limited [2009] NSWSC 594
HEARING DATE(S):	2, 3 June 2009
JUDGMENT DATE :	26 June 2009
JUDGMENT OF:	Gzell J
DECISION:	Plaintiff's employment contract concluded before documentation was for a fixed term and included an option to take up shares at a fixed price. Defendant in breach of contract in rendering position redundant and in failing to transfer shares.
CATCHWORDS:	CONTRACTS - General Contractual Principles - Offer and Acceptance - verbal negotiations to appoint managing director - whether for a fixed term - whether option to acquire shares for stated price - shareholder agreement to be drawn up - whether concluded contract before documentation - whether subject to conditions precedent - whether plaintiff or defendant repudiated contract
LEGISLATION CITED:	Supreme Court Act 1970 Uniform Civil Procedure Rules 2005
CATEGORY:	Principal judgment
CASES CITED:	Masters v Cameron (1954) 91 CLR 353 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 R.T. & Y.E. Falls Investments Pty Ltd v The State of New South Wales & Ors [2001] NSWSC 1027 B Seppelt & Sons Limited v Commissioner for Main Roads (1975) 1 BPR 9147 Tasman Capital Pty Ltd v Sinclair & Anor [2008] NSWCA 248 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Azzi & Ors v Volvo Car Australia Pty Ltd [2007] NSWSC 319
PARTIES:	Malcolm Jago (Plaintiff) Coastalwatch Pty Limited (First Defendant) Crown Financial Pty Limited (Second Defendant)
FILE NUMBER(S):	SC 1796/07
COUNSEL:	M Ashhurst/ J Conomy (Plaintiff) G Moore (First and Second Defendants)
SOLICITORS:	Hillman Laxon Tobias Lawyers (Plaintiff) Willis & Bowring (First and Second Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

FRIDAY 26 JUNE 2009

1796/07 MALCOLM JAGO v COASTALWATCH PTY LIMITED & ANOR

JUDGMENT

1 Malcolm Jago, the plaintiff, was employed by Coastalwatch Pty Limited, the first defendant, under its former name. He alleges that his employment contract was wrongfully terminated. He alleges that it included a term under which he was to receive shares in Coastalwatch. He sues for specific performance in relation to the alleged agreement as to the shares and for an enquiry as to the amount of compensation for the termination of his employment. In the alternative he seeks damages.

2 Coastalwatch cross-claimed for a declaration that Mr Jago holds shares in it in trust for Crown Financial Pty Limited, the second defendant and second cross-claimant, and for an order that he transfer the shares to Crown for no consideration.

3 Coastalwatch provides surf information to surfing enthusiasts in Australia derived from cameras that remotely monitor popular surf locations and from other sources. The information is disseminated to consumers by means of Coastalwatch’s website. It also sells advertising on its website.

4 It was submitted that the quantification of damages not only raised difficult questions of expert evidence as to the method of valuing a web-type business, but also questions of fact as to what particular aspects of the case were or were not removed from the business after Mr Jago left.

5 It was put that Mr Jago had not elected between specific performance and damages. It does not seem to me that Mr Jago has an election between equitable compensation and damages. The remedy for breach of an employment contract is common law damages and this Court is specifically empowered to award damages in addition to, or in lieu of, specific performance by the Supreme Court Act 1970, s 68.

6 Both parties invited me to split the case on liability from the case on damages by making an order under the Uniform Civil Procedure Rules 2005, r 28.2 for the determination and quantification of, and assessment of, any damages, after and separate from the determination of all other issues in the hearing, other than costs.

7 There are many statements in the cases that the ordinary course should be that all issues in the proceedings are decided at the one time. But in the instant circumstances not only are there difficult questions of fact and quantification that do not arise in the determination of liability but also there was the advantage to Mr Jago, if the proposed course was followed, that he would have a determination of liability before electing to invite the Court to make an order for specific performance or to award damages.

8 In the circumstances, I made the order.

9 Mr Jago had worked for a company whose business was acquired by Coastalwatch from its liquidator. Mr Jago commenced work for Coastalwatch in March 2002 as business development manager. There was no written contract. He was paid $40,000 per annum.

10 Adrian Roche was a director of Coastalwatch. He had said to Mr Jago that if he agreed to work for this amount there was an opportunity to obtain equity in the business and he was sure that Joakim James Sundell would look out for him. Mr Sundell was a director of Coastalwatch and a director of Crown, its majority shareholder.

11 In September 2002, Mr Roche told Mr Jago that Mr Sundell wanted to give him options to acquire 12.5% of Crown’s shares in Coastalwatch. Soon after that Mr Sundell told Mr Jago that he would have a strike price for the options to acquire a 12.5% interest in Coastalwatch of $10,000 which was a reflection of what Mr Sundell was putting into the business. The options could be exercised within two years. Mr Sundell said that the strike price included what it had cost him to buy the business at $55,000 together with what he thought he would need to put into the business over the next two years, which he estimated at about $120,000.

12 Mr Jago accepted the offer. Mr Sundell said he would arrange for 12.5% of the shares in Coastalwatch to be issued in Mr Jago’s name to be held on trust for Crown until such time as the options were exercised.

13 In January 2003, 31,250 shares in Coastalwatch being 12.5% of its issued capital of 250,000 shares were registered in the name of Mr Jago but noted not to be beneficially held by him.

14 Mr Jago was subsequently appointed general manager of Coastalwatch at $50,000 per annum.

15 In May 2004, Mr Sundell sent Mr Jago a proposed share option agreement. It was to be executed by Coastalwatch, Crown and a number of grantees including Mr Jago. It contained a recital that the grantees were the holders of the shares on trust for Crown. Clause 2.1 was in the following terms:

“In consideration of the Grantees guaranteeing the Guaranteed Amount to the Shareholder and transferring title in the Shares to the Shareholder, the Shareholder hereby grants to the Grantees the Option effective from the Date hereof on the terms and conditions set out in this Agreement.”

16 The Guaranteed Amount was to be set out in Part 2 of the Schedule in respect of each Grantee. The Shareholder was Crown. The Shares were to be set out with respect to each Grantee in Part 3 of the Schedule. The Option was the right granted under the agreement to each Grantee to require the Shareholder to transfer to the Grantee the Call Option Shares. They were to be set out with respect to each Grantee in Part 1 of the Schedule.

17 On the same day a revised share option agreement was sent to Mr Jago. The grant of the option was in similar terms. Mr Jago’s Call Option Shares were 65,625 shares. The Guaranteed Amount for them was $10,000 and the Shares were 31,250 shares.

18 A share option agreement was not executed because there was an issue between Chris Lane, one of the other grantees in the draft share option agreements, in relation to the ownership of intellectual property in Coastalwatch.

19 From time to time Mr Jago spoke with the financial controller of Crown, David Wooldridge, asking that the agreement be executed.

20 In August 2005, Mr Jago sent an email to Mr Lane with a copy to Mr Sundell stating that Mr Sundell had agreed to extend the options for three years from September 2005 and that he would get the documentation done.

21 Mr Jago said that in or about October 2005 he had lunch with Mr Sundell at a restaurant in North Sydney. Mr Jago said he asked for a salary increase to $100,000, which Mr Sundell refused but offered $95,000. Mr Jago said he asked for 20% of the share capital of Coastalwatch for free or for a nominal amount. He said that Mr Sundell rejected that suggestion but said he was happy to gift 10% and set a strike price of $350,000 for the 10% balance so that the cost to Mr Jago would be $35,000.

22 Mr Jago said that following the lunch he asked Mr Sundell if he would agree to a $20,000 bonus if the revenue targets were met, to which he said Mr Sundell agreed.

23 Mr Jago said he had a number of further informal meetings with Mr Sundell in the office of Coastalwatch in which he reiterated he wanted $100,000 a year.

24 He said the last of these conversations occurred in December 2005. Mr Sundell asked him if he had agreed to $95,000. He said he had not and it was $100,000 and he also wanted a three-year employment contract. According to Mr Jago, Mr Sundell said he was happy to agree to a three-year term and he would give him $100,000. Mr Sundell asked about the strike price of $350,000. Mr Jago said he agreed to pay the $35,000 with an extension of the option period for two and half years with 10% gifted. He said Mr Sundell replied: “Ok we’ve got a deal.”

25 Mr Sundell was to take three months leave. Mr Jago said he would get the documentation organised and have everything signed while Mr Sundell was away by having his lawyer liaise with Mr Wooldridge. Mr Sundell gave Mr Jago a $10,000 Christmas bonus.

26 Mr Sundell denied the conversation at the restaurant but did not give his version of what was said. He said a meeting took place on 21 December 2005 in which he said:

“I agree that you can be appointed as managing director of Coastalwatch. However, this will only entail an increase in salary if key performance indicators are met. We will need to agree on appropriate key performance indicators.”

27 Mr Sundell denied that any agreement was reached for a fixed term, or for the payment of a bonus or for the issue of shares or options.

28 Mr Jago made notes of matters relating to Coastalwatch in a notebook. He said it was his practice prior to meeting with Mr Sundell on important issues to make notes of the things he wanted to raise in his notebook, which he took to the meeting. One page of a notebook was headed with two lots of notes. In his second affidavit he said he made these notes before his meeting at the restaurant. The left hand heading was as follows:

“Kims offer

$95k
10% gifted
10% 2.5 years @ $350k st
3 year employ contract
50% profit”

29 The right hand heading was the following:

“Mals offer

$100k plus $20k bonus
20% for $10k now”

30 The rest of the page contained notes of arguments. Mr Jago said the reference to a three-year employment contract meant that it was to be discussed at the restaurant but had not been agreed when he wrote the note before the meeting.

31 In his affidavit Mr Jago made no mention of a discussion about a three-year term in or about October 2005 at the restaurant. He said Mr Sundell agreed to that term in their meeting in December 2005.

32 In cross-examination, however, Mr Jago said that a three-year term had been agreed at the meeting at the restaurant and was repeated in subsequent conversations including that in December 2005.

33 Mr Jago also said in cross-examination that the entries were made on the same day as the meeting in December 2005 or on the day before.

34 On the next page in Mr Jago’s notebook he placed a number of stickers for senders of material to keep and recorded some matters while at the meeting at the restaurant, as he originally said, or at the December 2005 meeting as he said in cross-examination. The entries were of no consequence to the matters in issue in these proceedings.

35 On the next page Mr Jago wrote out notes of argument before the meeting, whether on the same day or the day before. The notes were in black ink. The page also contained notes in blue ink. Mr Jago said notes in blue ink were made by him on the day of the meeting when things were agreed or on the day after. His note stated:

“$100k increase 3 year & bonus”

36 There followed some 23 pages before another note of a meeting. Mr Jago tended to leave the left hand page blank, except for some stickers for senders of material, and made his notes on the right hand page. There were 11 right hand pages with notes of other matters before the next note of a meeting in question. It was headed “CW” on the left and “2/12/05” on the right. Below the headings the following appeared:

“- agreement options
100k plus $20k on rev being hit
10% gifted now
10% 2.5 years @ $350k
3 year contract 6 month review”

37 On 9 January 2006, Mr Jago sent an email to Mr Lane with a copy to Mr Sundell which included the following:

“As per our Kims and my meetings we have agreed to the following.

Re options
10% gifted to both Chris lane and Mal Jago.
Strike price $350,000 for 2.5 years for the balance.
Mal Jago and Chris lane to get a shareholders agreement drafted up for KS and DW to approve.
Kim gets back on the 6 ^th march.”

38 On 10 January 2006, Mr Sundell sent an email to Peter Muldoon of Crown with a copy to Mr Wooldridge increasing Mr Jago’s salary to $100,000 effective from 30 June 2005.

39 On the same day, Mr Jago sent an email to his solicitor, David Lasky, which included the following:

“Whilst it was all fresh I thought I would email you what I agreed with Kim Sundell the owner.
We have agreed to a $100,000 Salary back dated to J1 1 05
Plus guaranteed bonus of $20k if revenue targets are met.
10% options gifted now and an additional 10% option for 2.5 years with a strike price of $350k.
He gave me a $10,000 xmas bonus [not part of any discussions]
$150,000 additional funds be put [invested to grow the business”

40 Mr Jago said that from about July 2006 Mr Sundell started to heavily involve himself in the day to day running of Coastalwatch. Mr Sundell did not controvert this statement. On 7 August 2006 Mr Sundell sent an email to Mr Jago and Mr Lane complaining about a failure to table and discuss various proposals. Mr Jago answered the criticisms on 8 August 2006.

41 About 20 August 2006, Mr Jago said he received an email from Mr Sundell advising him that a management consultant, Timothy Ford, would carry out a review of the business.

42 On 25 August 2006, Mr Jago said he spoke with Mr Roche who said he thought they should move to document Mr Jago’s employment agreement in the business. Mr Roche said he would send him an employment contract after lunch. After lunch, Mr Jago sent Mr Roche an email saying he would like to get the agreement done for three years so he had something in place before Mr Ford started his review. Mr Roche responded with: “attached 3 year agreement.”

43 The attached draft agreement provided for execution by Coastalwatch as the Company and Mr Jago as the Executive. Clause 2 provided that the Company would employ the Executive and the Executive would serve the Company for the Initial Period. That term was defined to mean the period referred to in the Schedule. The Schedule stated the Initial Period as three years from the Commencement Date, defined as the date on which the Executive was appointed as managing director of the Company by a resolution of the board.

44 The document defined Remuneration as Base Remuneration and other benefits referred to in cl 10. Base Remuneration was defined as the amount set out in the Schedule. Clause 10.1 provided that the Executive should be entitled to such benefits, including non-cash benefits, as might be set out in the Schedule. The Schedule stated a remuneration package comprising an initial salary of $100,000 per annum; a bonus of $20,000 if the Company achieved its earnings forecast for the period ending 30 June 2006; a bonus of $20,000 for each of the financial years from 2007 to 2010 if the Company achieved its earnings budget as approved by the board; and a bonus of $100,000 if the Executive continued to be engaged by the Company at the expiry of the Initial Period.

45 Mr Sundell said that prior to Mr Jago’s discovery of documents in the proceedings he had never seen the document. Mr Sundell said it did not reflect any arrangements between Coastalwatch and Mr Jago and he would not have executed it if it had been presented to him.

46 On 25 August 2006, Mr Jago sent a letter to Mr Sundell. It stated that after a six-year salary sacrifice, he appreciated the increase in his base salary to $100,000 for the year with an agreed bonus of $20,000 if revenue targets were achieved. Mr Jago thanked Mr Sundell for the $10,000 Christmas bonus. The letter stated:

“The share holding agreement has been extended and altered many times and I appreciate your commitment to me and the other stake holders by doing this.
With what we agreed last year I think its [sic] time for me to execute.
Of my total 20% shareholding package (lifted from original 13% in consideration of my involvement in the business), you agreed to gift 10% of this shareholding. Again, this was and is greatly appreciated.
Therefore, upon execution a balance of 10% remains, with a pro-rata strike price of $350k which equals $35,000.”

47 Mr Jago’s letter suggested that the agreement could be better structured to be tax effective and he would have a new shareholder agreement drawn up by Mr Lasky.

48 On 29 August 2006, Mr Jago sent an email to Mr Wooldridge with copies to Mr Sundell and Mr Lasky. It stated the following:

“Kim has agreed to execute my options in Coastalwatch.
The documentation is to be done by you by the end of this week being 1 ^st September.
Could you please send to David Lasky for comment please.
Kim said he was happy to look at tax effective ways to execute.”

49 On 15 September 2006 there was an email from Mr Lasky to Mr Wooldridge seeking copy of the last draft of the shareholder agreement.

50 On 18 September 2006, Mr Jago sent an email to Mr Lasky and Mr Wooldridge with a copy to Mr Sundell stating: “Kim has agreed to David L doing the share holders agreement at our yearly review.”

51 On 19 September 2006, Mr Wooldridge sent the final draft of the shareholder agreement to Mr Lasky with a comment about the possible the inclusion of a pre-emption provision.

52 In early October 2006, Mr Jago became concerned that his position as managing director was being eroded and was under threat.

53 On 25 October 2006, Mr Sundell informed Mr Jago that Mr Ford’s preliminary report had been completed. According to Mr Jago, Mr Sundell would not give him a copy saying that some negative comments had been made about him in the report. According to Mr Jago, Mr Sundell said that none of the surf reporters wanted to report to Mr Jago. They would rather report to Mr Sundell. Mr Jago said the meeting ended with Mr Sundell saying he wanted to be managing director, but in three years time, perhaps, Mr Jago could take the company back over. Mr Jago said he was informed that Mr Lane and Mr Roche had already signed a transfer of their share options and Mr Sundell expected Mr Jago to do the same. According to Mr Jago, Mr Sundell said that Mr Lane and he would be given 10% as previously agreed and Mr Jago had an option on the remaining 10%. Mr Sundell did not challenge this evidence.

54 On 26 October 2006, Mr Wooldridge told Mr Jago that he understood Mr Jago was transferring his options in Coastalwatch. Mr Jago said this had not been agreed with Mr Sundell. When he returned to his office there was a note from Mr Wooldridge asking him to execute the attached transfer of the shares in Coastalwatch:

“Pls execute attached as Transferor to transfer the shares held in your name on behalf of Crown Financial. Then as agreed with Kim, CWH will issue to you beneficial interest in 10% of paid up capital of company.”

55 On 30 October 2006 Mr Jago sent an email to Mr Wooldridge saying he did not understand why a transfer of the shares was even contemplated, given that they were in the process of executing options for 20% of the shareholding.

56 Mr Jago sent Mr Sundell an email on 30 October 2006 expressing his grave concern about not being given access to Mr Ford’s report and Mr Wooldridge asking him to sign a transfer of shares. Mr Jago said he hoped that Mr Sundell was not trying to remove him as CEO and was not trying not to honour the option agreement.

57 Later that day, in response to an email from Mr Jago expressing concern at the request to execute a transfer of the shares, Mr Wooldridge replied:

“Whilst it may have been intended previously to grant to you options against those shares (I am not quite sure of all the dealings on this matter) I am aware of no fully executed option agreement or shareholder agreements between the shareholders but only a series of drafts disputed by various parties on different occasions.
Therefore, whether there is an agreement to grant options or not is a separate issue from the current shareholdings; it is for this reason that you received the transfer form which merely transfers the shares which Crown already beneficially owns back into its name and does not affect any entitlements you may have. Any shares or options granted to you will be fresh issues in the agreed proportions which I understand will be 10% at no cost.”

58 Mr Jago said he was shocked by this email and the suggestion that there was no concluded agreement with respect to the option to acquire shares in Coastalwatch. Mr Jago responded to Mr Wooldridge’s email on 31 October 2006 with copies to Mr and Mrs Sundell:

“As for the agreements between Kim and my self with regards to raising my shareholding to 20%, these are all documented as is the strike price agreement.
And as you would be well aware, you do not need a signed document in order for there to be a legal binding contract between the parties.
Finally, again, I do not understand the mention of 10% as there has been no discussion with me by Kim, to reduce my shareholding to 10% nor do I understand any basis on which this request could be made.
I have already informed Kim I expect to finalise the 20% shareholding as per our agreement.”

59 Early on the morning of Friday 3 November 2006, Mr Jago received an email from Mr Sundell which after criticising Mr Jago’s performance stated:

“When I originally funded the acquisition of CW Adrian ,Chris we agreed that you had the right to purchase 49% of Company for a strike price of capital contributed by myself compounded at a rate of 15%. None of you wanted to exercise after the initial option term which from memory was either 18months or 2 years.”

Having referred to a subsequent proposal by Mr Jago to purchase 49% for approximately $130,000, which again was not exercised, Mr Sundell continued:

“So now we arrive at the current offer from me, which you seemed to have misunderstood. For good order this is
The shares that you are holding in trust for us was to be signed for a consideration of $0
That you could be issued with new shares representing 10% of the issued share capital of the Company
That you had an option to buy an additional 10% of the issued capital of the Company at a strike price of the amount of debt outstanding compounded at a rate of 15%
That the same offer is made to Chris.”

In further criticism of Mr Jago, Mr Sundell said: “The amount of money that I have injected is to date is so far $750,000…”

60 Mr Jago met with Mr Sundell later that day. Mr Sundell told him he was no longer the managing director. He was offered the position of looking after advertising and sales on the same remuneration.

61 On Saturday 4 November 2006, Mr Jago sent Mr Sundell an email questioning the management structure that Mr Sundell had in mind and upon which Mr Ford had reported. He concluded thus:

“I would therefore like to come to the planning meeting on Monday and know that I can contribute and listen to the crew, and it would be great to see everyone in the same room.
Also so I can better understand what you are proposing and how this would practically work.
Let me know if you are happy for me to attend.”

62 On Sunday 5 November 2006, Mr Sundell responded by email reiterating his criticisms of Mr Jago’s performance and stating:

“Since my involvement you have been recognised fairly for this and I suggest that you go back and re think what you feel is crap pay and that you have no right to say to me that you had been treated poorly. It was you and the other guys who put the various deals to that and me [sic] the lower financial pay was more than offset in my mind with the equity upside. You don’t get both especially as we had all agreed at each stage and on each deal.”

The email concluded:

“As part of the restructuring of Coastalwatch, effective as of Monday the 6 ^th November 2006 your position as Managing Director is redundant. In terms of handover and notice period I will write to you on what this [sic] on Monday.
I will still be happy to work with you as a shareholder on the business going forward and wish you all the best.”

63 Mr Jago did not attend Coastalwatch premises on Monday 6 November 2006. On 7 November 2006 he sent an email to Mr Sundell:

“While it is clear that you have not made the position of Managing Director redundant, I would be happy to receive, in writing, your proposed offer of settlement.”

64 On 9 November 2006, Mr Sundell responded that he had no intention of making an offer of any kind.

65 On 16 November 2006, Mr Jago’s solicitors wrote to the secretary of Crown stating that Mr Jago wished to exercise his option to increase his shareholding to 20%. The letter stated that Mr Jago held a bank cheque for $35,000 which he was ready to hand over to Crown together with a signed transfer of the 31,250 shares in exchange for an executed transfer of 50,000 shares.

66 On 17 November 2006, Mr Wooldridge responded stating that Crown had not entered into any agreement granting Mr Jago options over any shares in Coastalwatch.

67 On 7 December 2006 Mr Jago’s solicitors referred to earlier correspondence with the secretary of Crown and notified the secretary of Coastalwatch that Mr Jago called for the issue of fully paid shares in Coastalwatch such that he would hold 10% of its issued capital, that he exercised his option to acquire further shares amounting to a total of 20% of the issued share capital of Coastalwatch and he called for the transfer of such shares to him advising that Mr Jago held a bank cheque payable to Crown in the amount of $35,000.

68 On 8 December 2006, the solicitors received a facsimile from Mr Sundell stating that Coastalwatch maintained:

“1 There is no binding agreement with your client in that all that has occurred is that one singular offer, (being an offer incapable of being accepted by your client in part), has been made to your client which offer has not been accepted in accordance with its terms and which is hereby withdrawn, and/or in the alternative,
2 There is no binding agreement with your client as there has been no valuable consideration received by Coastalwatch to support the same, and/or in the alternative,
3 Even if there is found to be an acceptance of the offer and consideration for the agreement asserted by your client (which is not admitted), any agreement constituted thereby is void owing to the absence of agreement having been reached on all of its essential terms.”

69 It was submitted on Coastalwatch’s behalf that no concluded agreement was reached with respect to the shares in Coastalwatch because a shareholder agreement was not executed. On the other hand, it was submitted on behalf of Mr Jago that the parties reached agreement, orally, with respect to the essential terms of Mr Jago’s share acquisition in Coastalwatch and while it was in the contemplation of the parties that a shareholder agreement would be executed, that was to reflect the terms of their agreement. In other words, that submission was that the arrangement fell within the first class of case in Masters v Cameron (1954) 91 CLR 353 at 360.

70 As McHugh JA said in G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634 the decisive issue is the intention of the parties to be objectively ascertained from the terms of the documents read in the light of surrounding circumstances. If the terms of a document indicate that the parties intended to be bound immediately, effect is to be given to that intention irrespective of the subject matter or the magnitude or the complexity of the transaction.

71 If a contract is said have arisen from discussions between the parties, the Court must be satisfied that a consensus as to essential terms was achieved. In R.T. & Y.E. Falls Investments Pty Ltd v The State of New South Wales & Ors [2001] NSWSC 1027 at [50] Palmer J said that where an informal contract arising from discussions or negotiations between the parties is alleged, the Court must be satisfied that the parties arrived at a consensus as to the terms of the agreement, that the terms were sufficiently certain to be capable of forming a binding contract and that the parties, by their words and conduct taken in the context of the surrounding circumstances, evinced a common intention that the consensus at which they had arrived should constitute an immediately binding contract.

72 It was submitted that even if some consensus was reached with respect to some matter it did not amount to a binding agreement upon all the terms of the proposed transaction. Reference was made to B Seppelt & Sons Limited v Commissioner for Main Roads (1975) 1 BPR 9147 at 9151 and to Tasman Capital Pty Ltd v Sinclair & Anor [2008] NSWCA 248 at [86], but they are not in point.

73 Reference was also made to what Palmer J had said in R.T. & Y.E. Falls at [53] that common sense would suggest it was inherently improbable that commercial people would intend to bind themselves to a substantial transaction in a haphazard and imprudent fashion potentially productive of dispute when they had recognised the need for a formal contract to record the terms of the transaction.

74 To similar effect was the passage from Gleeson CJ’s judgment in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 that other things being equal, as a matter of fact and common sense the more numerous and significant the areas in respect of which the parties had failed to reach agreement, the slower a Court would be to conclude that they had the requisite contractual intention.

75 On the other hand, where an oral arrangement is partially performed before the execution of a document reflecting its terms, the more readily a Court will conclude that the parties had reached a consensus before the execution of the document because the performance presupposed a binding agreement of the parties. In Azzi & Ors v Volvo Car Australia Pty Ltd [2007] NSWSC 319 at [22] Brereton J, after referring to the above passage from Palmer J, said:

“But a less cautious approach is called for where there are commercial dealings between parties who act as if they are in legal relations and document their arrangements, albeit imperfectly: it is far more difficult to say that a contract which is apparently part-performed is no contract at all, since to do so must attribute to the parties an intention to perform work either at no cost, or alternatively on a basis yet to be determined, even though the work has been done in the context of an apparent agreement to perform it.”

76 In early negotiations in September 2002, the strike price of $10,000 for the shares then in contemplation was a reflection of what Mr Sundell had put into the business. It was submitted that the parties intended there to be no binding agreement until a shareholder agreement was executed because of the increasing investment of Mr Sundell in the business.

77 It was submitted that the general ledger supported Mr Sundell’s reference to $750,000 as the basis for a strike price in his email of 3 November 2006. At 31 October 2006 the indebtedness stood at $753,805.58.

78 It was submitted that the meeting that Mr Jago put at 2 December 2005 and Mr Sundell put at 21 December 2005 was more likely to have been the occasion when a strike price of $350,000 was nominated, because the general ledger showed a debt of $353,393.54 on 16 January 2006 whereas the figure on 24 October 2005 was $201,290.97.

79 Mr Jago was confused about what was discussed in October 2005 and what was discussed in December 2005. His confusion as to dates is evident from his statement that within a day or two of his meeting with Mr Sundell in December 2005 he sent an email to Mr Lasky on 10 January 2006.

80 What is clear is that the agreement that Mr Jago should become the managing director of Coastalwatch occurred at the December meeting.

81 Mr Jago maintained that what was agreed was that he would have a three-year contract for $100,000 a year. Mr Sundell maintained that there was to be no increase in Mr Jago’s salary unless key performance indicators were met.

82 Mr Jago volunteered in cross-examination against interest that performance indicators were not met for the year ended 30 June 2006. Yet Mr Sundell approved an increase in Mr Jago’s salary to $100,000 in January 2006. That evidence is supportive of Mr Jago’s version of the agreement and constituted part-performance of it.

83 Mr Jago’s version of events is also supported by the entries in his notebook. There is reference to the three-year employment contract under “Kims offer” as an item to be discussed. And “Mals offer” was for $100,000 plus a bonus of $20,000. The blue ink notation made upon agreement at the meeting or the day after of “$100k increase 3 year & bonus” supports Mr Jago’s testimony as does the entry for 2 December 2005.

84 It was submitted that little weight should be given to the entries in Mr Jago’s notebook. First, there was the separation of the relevant entries by 23 pages. That may be explicable on the basis of Mr Jago’s original evidence that the first entries related to his meeting with Mr Sundell in October 2005 at the restaurant, and the later entries related to the December 2005 meeting.

85 Secondly, there was no entry of consequence on the second page albeit that the entries were made during the meeting. The issues for decision were set out on the first page. If there was agreement in relation to them, there was no need to repeat them on the next page.

86 Thirdly, attention was drawn to the reference to a six-month review which Mr Jago said referred to the bonuses when the note appeared on the same line as the reference to the three-year contract.

87 The annual bonus to which Mr Jago said there was agreement was subject to review. It is more likely that Mr Jago’s explanation was correct. No other documentation links a review to a three-year contract. No reduction in the term of the employment by reason of a review was pleaded and there was no evidence that as a result of an adverse review, Mr Jago’s employment was terminated.

88 Because Mr Sundell’s authorisation of an increase in the salary of Mr Jago contradicts his version of the conversations; because Mr Jago’s notes support his version of the conversations; because Mr Jago’s subsequent correspondence is in conformity with his version of the conversations; because Mr Sundell did not contradict any of that correspondence; and because I found Mr Sundell to be an evasive witness whom I had to admonish during cross-examination, I prefer the evidence of Mr Jago.

89 Coastalwatch, through Mr Sundell, in December 2005 agreed to employ Mr Jago for three years from 1 July 2005 as managing director on a salary of $100,000, a bonus of $20,000 if revenue targets were met and non-cash benefits.

90 It was submitted that the shareholding aspects were not part and parcel of Mr Jago’s appointment as managing director but were part and parcel of his involvement in the company. I reject that submission. The arrangement with respect to the gift of shares and the grant of an option to acquire further shares was not isolated from the employment arrangement. There was a remuneration package associated with Mr Jago’s appointment as managing director that included non-cash benefits in the form of two tranches of share acquisitions in Coastalwatch.

91 I reject Mr Sundell’s evidence that no agreement was reached for the issue of shares or options to Mr Jago. I accept Mr Jago’s evidence that part of the remuneration package comprised the issue to Mr Jago for no monetary consideration of 10% of the issued share capital of Coastalwatch together with an option to acquire a further 10% of the issued capital upon payment of $35,000 within 2 and a half years.

92 It was submitted that insufficient terms were agreed orally to give rise to a concluded contract. I reject that submission. The arrangement was straightforward and the essential terms were agreed.

93 The parties had in contemplation that a shareholder agreement would be drawn up, but their agreement was intended to be immediately binding upon them as part of an employment agreement to take effect immediately.

94 The lack of speed with which a draft employment agreement and a draft shareholder agreement were produced and considered is testament to the proposition that a binding oral agreement had already been struck. If the parties intended that no contract would come into existence until documentation was executed, one would have expected Mr Sundell to require the execution of an employment agreement before he gave instructions to increase Mr Jago’s salary to $100,000 per annum backdated to 1 July 2005. Equally, one would have expected Mr Jago to have required the documentation to be brought into existence and executed expeditiously to secure his entitlements.

95 There was no suggestion in the evidence of Mr Sundell or Mr Jago that either specified the execution of a shareholder agreement as a prerequisite to Mr Jago’s entitlement to acquire a 20% interest in Coastalwatch.

96 The difficulty with the argument that there was no agreement with respect to the shares because no shareholder agreement was executed is that Mr Jago’s appointment as managing director took effect immediately. Counsel for Mr Sundell was driven to agree that his client’s case was that part of the conversations became a binding agreement but another part of the conversations did not. That is a highly unlikely situation and one that I reject in this case. The entitlement to shares was part of the one transaction - a contract of employment as managing director in consideration of a remuneration package including the entitlement to shares.

97 The conduct of the parties at and after the December 2005 meeting supports Mr Jago’s evidence of the agreement reached.

98 Mr Jago’s notebook under the heading “Kims offer” supports that as Mr Sundell’s position as against “Mals offer” of 20% of the equity at a strike price of $10,000. The strike price of $350,000 was also supported by the entry for 2 December 2005.

99 Mr Sundell was a recipient of an email from Mr Jago to Mr Lane on 9 January 2006 that referred to a strike price of $350,000 for 2.5 years. Mr Sundell did not contradict that statement and say that the strike price would rise during the 2.5 years in accordance with any increased investment in the company by him.

100 Mr Jago’s email to Mr Lasky on 10 January 2006 supports his version of the remuneration package. Mr Jago’s letter to Mr Sundell of 25 August 2006 confirmed a gift of 10% of the issued share capital of Coastalwatch together with payment of $35,000 for a further 10%. Mr Sundell did not contradict this letter.

101 The draft agreement sent to Mr Jago by Mr Roche on 25 August 2006 confirmed Mr Jago’s version of a three year employment contract at $100,000 plus a $20,000 bonus if earnings forecasts were met.

102 Mr Wooldridge’s note of 26 October 2006 confirmed an agreement to issue Mr Jago the first tranche of shares in Coastalwatch as did his email response to Mr Jago of 30 October 2006.

103 Mr Sundell’s email of 3 November 2006 acknowledged an agreement to give Mr Jago 10% of Coastalwatch and a further 10%. The difference was that Mr Sundell asserted a strike price aligned to the level of Coastalwatch’s outstanding debt.

104 In his email of 5 November 2006, Mr Sundell acknowledged that low pay was more than offset by “the equity upside”. In cross-examination, Mr Sundell, eventually, conceded that he meant by this to include the gifting of 10% of the issued share capital of Coastalwatch. That is consistent with Mr Jago’s version of the first tranche of his equity entitlement. Mr Sundell’s reference to Mr Jago as a shareholder confirms there was an agreement that Mr Jago should take up shares in Coastalwatch.

105 In his affidavit, Mr Sundell referred to the arrangements with respect to Mr Jago holding 12.5% of the shares of Coastalwatch non-beneficially and then said that at no subsequent time was a concluded agreement reached with Mr Jago about the terms of a shareholder agreement.

106 But Mr Sundell gave no evidence of any conversations he had with Mr Jago subsequent to the arrangement with respect to the 12.5% shareholding concerning any entitlement of Mr Jago to take up shares in Coastalwatch. Nor did he controvert Mr Jago’s assertions in subsequent correspondence.

107 It was submitted that it was a prerequisite to either of the share tranche entitlements that Mr Jago execute a transfer of the 31,250 shares held by him non-beneficially in Coastalwatch. There was no pleading to this effect.

108 There was no evidence from Mr Sundell or Mr Jago that such a requirement was raised in their conversations. I am not prepared to imply the requirement as a condition precedent to the exercise of the option with respect to the second tranche entitlement to the shares. At best such a requirement might be implied as a condition precedent to settlement.

109 And Mr Jago had offered to execute a transfer of the shares in his solicitor’s letter of 16 November 2006.

110 It was submitted that there was a prerequisite with respect to both share tranche entitlements that a dispute between Coastalwatch and Mr Lane as to his intellectual property rights be settled before Mr Jago acquired any further shares. I dismiss that submission. There was no evidence that such a requirement was mentioned in any conversation and nor should resolution of a dispute with a third party be implied as a condition precedent to the gift of shares in Coastalwatch or to the grant of an option to acquire shares in Coastalwatch.

111 Coastalwatch breached its agreement with Mr Jago in two respects. It determined that the position of managing director was redundant and it terminated Mr Jago’s three-year contract. Secondly, it refused to accept the tender of $35,000 and a transfer of the 31,250 shares in Coastalwatch in exchange for a transfer of 50,000 shares.

112 On Friday 3 November 2006 Mr Jago was offered alternative employment by Coastalwatch at the same salary. But that offer was impliedly withdrawn on 5 November 2006 when his position as managing director was made redundant.

113 It was submitted that it was Mr Jago who repudiated his employment contract by refusing to accept his demotion and determining to leave the employ of Coastalwatch. It was put to Mr Jago in cross-examination that after his meeting with Mr Sundell on 3 November 2006 he decided that he was not prepared to continue with Coastalwatch unless he was the managing director. Mr Jago said the position was made redundant on 5 November 2006. It was put to him that he was not prepared to take on the role that Mr Sundell outlined to him at the meeting on Friday. Mr Jago said that was incorrect. I accept his evidence.

114 In summary, therefore, Mr Jago was employed as managing director of Coastalwatch for three years from 1 July 2005 at a salary of $100,000 per annum together with a bonus $20,000 per annum if revenue targets were met. They were not in 2006. As part of his remuneration package Mr Jago was entitled to 10% of the shareholding in Coastalwatch or 25,000 shares for no monetary consideration and for a period of two and half years, Mr Jago had the option to acquire a further 10% of the issued share capital of Coastalwatch for $35,000.

115 In rendering the position of managing director redundant and terminating Mr Jago’s services and in refusing to execute a transfer to Mr Jago of 20% of the issued capital of Coastalwatch, it was in breach of its contract.

116 I will stand the balance of the statement of claim over before the Registrar for directions.

117 As to the cross-claim, no issue was taken with the relief sought and I will make a declaration that Mr Jago holds 31,250 class A shares in Coastalwatch’s issued share capital on trust for Crown and I will order Mr Jago forthwith to transfer the shares to Crown for no consideration.

118 I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.

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