Jennifer Anne Birdsey v Susan Lee Vincent and Gregory Neil William Gunn
[2017] VSCA 323
•8 November 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0037
| JENNIFER ANNE BIRDSEY | Applicant |
| v | |
| SUSAN LEE VINCENT and GREGORY NEIL WILLIAM GUNN | Respondents |
S APCI 2017 0039
| SUSAN LEE VINCENT and GREGORY NEIL WILLIAM GUNN | Applicants |
| v | |
| JENNIFER ANNE BIRDSEY | Respondent |
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| JUDGES: | SANTAMARIA, BEACH and ASHLEY JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 30 October 2017 |
| DATE OF JUDGMENT: | 8 November 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 323 |
| JUDGMENT APPEALED FROM: | [2017] VSC 27 |
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CONTRACT – Appeal - Offer and acceptance – Exchange of emails – Whether exchange of emails gave rise to enforceable agreement – Whether parties made binding contract – No offer made – No contract entered into – Application for leave to appeal granted – Appeal allowed – Trial judge’s declaration of existence of contract set aside.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant/Respondent | Mr S P Newton | Harry M Hearn |
| For the Respondents/Applicants | Mr C R Northrop | Harwood Andrews |
SANTAMARIA JA
BEACH JA:
The primary issue in this case is whether the parties entered into an enforceable agreement for the sale of a parcel of shares in a family investment company, Noriel Pty Ltd. The trial judge held that an exchange of emails between representatives of the parties gave rise to a binding contract for the sale of the shares.[1] As a result of that conclusion, the judge declared that ‘the defendants are contractually bound to purchase the plaintiff’s shares in Noriel Pty Ltd for the sum of $775,941’.
[1]Birdsey v Vincent [2017] VSC 27.
Having succeeded before the judge in respect of her contractual claim, the plaintiff sought an order that the defendants pay interest on the purchase price pursuant to s 58 (alternatively s 60) of the Supreme Court Act 1986. The judge, however, refused the application for interest.
The defendants seek leave to appeal against the judge’s declaration. They contend that the judge erred in finding that there was a binding contract for the sale of the shares. The plaintiff seeks leave to appeal from the judge’s decision to refuse her claim for interest. Plainly enough, if the defendants succeed in overturning the judge’s conclusion that there was a binding contract for the sale of the shares, the question of whether the judge erred on the issue of interest will not arise.
Background facts
The plaintiff (Jennifer Anne Birdsey) and the defendants (Susan Lee Vincent and Gregory Neil William Gunn) are siblings. Their mother, Norma Joan Barrett, died on 11 August 2014. By her will, the deceased appointed the defendants executors of the deceased’s estate, and the estate was left to the deceased’s three children equally.
At the time of the death of the deceased, the deceased held two shares in Noriel and the parties each held 50 shares. Mr Timothy Noonan, of the accounting firm West Carr & Harvey, was the accountant for Noriel. Following the death of the deceased, Mr Noonan was retained to act as the accountant for the deceased’s estate. Mr Peter Spear, of Whyte, Just & Moore, was the solicitor for the estate.
During the administration of the estate, the plaintiff expressed a desire to no longer be a shareholder in Noriel. At trial, and in this Court, the plaintiff alleged that a contract for the sale of her shares to the defendants came into existence as a result of an email exchange between Mr Noonan (alleged by the plaintiff to be acting on behalf of the defendants) and the plaintiff’s solicitor, Mr Harry Hearn. The emails were sent by Mr Noonan to Mr Hearn on 18 March 2015 and 11 May 2015, and by Mr Hearn to Mr Noonan on 10 June 2015. In order to determine whether this exchange gave rise to a binding contract, it is necessary to set out in full some of the correspondence that passed between the parties and the relevant solicitors and accountants.
The first letter of relevance was written on 13 January 2015. On that day, Mr Noonan wrote to the plaintiff, as follows:
Dear Jennifer
Estate of Norma Barrett
As you are aware I act as accountant for the Estate of Norma Barrett (‘the estate’) and also for Noriel Pty Ltd (‘Noriel’). Probate has now been granted for the estate and the executors have asked that I write to you to provide you with further information to assist them in distributing the assets of the estate.
Below is a summary of the assets of the estate:
Asset Approximate Market Value Cash $1,113,062 Property $460,000 Shares $1,210,919 Managed Investments $82,100 Share in Noriel (1 ‘A Class’ & 1 ‘B Class’ share) $27,316 Total $2,893,397 In relation to Noriel I note:
·the value of the shares above represents the interest held in the company by the estate. It does not represent the full value of the company as the company has other shareholders (Greg Gunn – 50 ‘B Class’, Susan Vincent – 50 ‘C Class’ and yourself – 50 ‘D Class’);
·the A and B Class shares above have been valued net of the unrealised tax liability attached to the listed shares and other investments held in the company;
·the value of your 50 D Class shares is approximately $788,399 (prior to any tax upon disposal);
·each class of shares in Noriel have equal rights to capital, income and voting.
No allowance for tax has been made on the other investments held by the estate as they are either pre CGT or it is proposed that the assets be distributed equally to the beneficiaries and therefore tax is not required to be considered to achieve equalisation.
You have previously indicated that you may not wish to continue as a shareholder in Noriel and hence your input is requested regarding the disposal the (sic) 50 D Class shares you currently own.
I note that we are yet to receive a response to our letter of 10 September 2014 where we outlined potential alternatives to overcome this including:
1.Winding up Noriel and distributing the assets equally to Greg, Susan and yourself; and
2.You forgoing your share of Noriel but as compensation for this you would receive a greater share of your mother’s personal assets to achieve equality between Greg, Susan and yourself.
There are significant taxation considerations with both alternatives above as there are significant unrealised tax liabilities attached to the shareholdings held in both your mother’s name and also Noriel.
Option 1 – Wind up Noriel
For the purpose of the calculations below I have assumed that the shares owned by your mother in Noriel will be transferred to the three estate beneficiaries in equal shares.
If Noriel was to be wound-up and the assets could be distributed by either:
1.Selling the listed shares and other investments held in the company; or
2.Transferring the listed shares and other investments held in the company to the estate beneficiaries.
Under either scenario above a tax liability would be triggered in Noriel of approximately $290,000.
If Noriel is to be wound up it is likely that a members’ voluntary liquidation would be undertaken as this enables pre‑CGT gains to be distributed tax free to the shareholders. However the retained profits of the company (which includes gains from sale of the post-CGT shares) would need to be paid to the shareholders as a dividend. In summary it could be anticipated that each shareholder would receive payments as follows:
Dividend
$554,360
Shareholder loan repayment
$84,901
Liquidator’s distribution
$137,653
Total
$776,914
It is expected that dividend would be fully franked. Assuming a marginal tax rate of 49%, tax would be payable by each shareholder on the dividend of $150,469.
Therefore the net proceeds per shareholder from the winding up of Noriel would be $626,445.
The total tax payable by Noriel and the three shareholders resulting from the winding up would be in excess of $740,000. The tax liability may be able to (sic) reduced however by spreading the above transactions over more than one financial year.
Option 2 – Forego share in Noriel
An alternative to Noriel being wound up is to allow the company to continue with Greg and Susan as the shareholders and Directors and for you to receive a greater share of the assets held in your mother’s name. Whilst Greg and Susan have not committed to this option it is being considered subject to your further instructions. If this were to occur it would necessitate you:
1.Transferring the D Class shares you currently hold in the company to Greg and Susan;
2.Foregoing your right to inheriting one-third of the shares held by the estate of your mother; and
3.Resigning as a director of the company.
There would be tax consequences to you upon transferring your 50 D Class shares in the company as this would trigger a capital gain. It is estimated that the value of your share of the company is currently approximately $788,399. Assuming a marginal tax rate of 49% (your effective marginal rate may be lower than this), tax would be payable by you of approximately $193,146 if you were to transfer your shares to Greg and Susan. Therefore the net proceeds you would receive would be $595,253.
If you wish to sell your shares in Noriel to Greg and Susan then the asset division of your mother’s estate could be along the lines of the following:
Total
Greg
Susan
Jennifer
Cash
$1,113,062.00
$366,468.00
$366,468.00
$380,126.00
Property
$460,000.00
$153,333.33
$153,333.33
$153,333.33
Shares
$1,210,919.00
$403,639.67
$403,639.67
$403,639.67
Managed Investments
$82,100.00
$27,366.67
$27,366.67
$27,366.67
Noriel
$27,316.00
$13,658.00
$13,658.00
$ -
$2,893,397.00
$964,465.67
$964,465.67
$964,465.67
In addition to the above Greg and Susan would each make a payment to you of $394,199.50 to acquire your 50 D Class shares in Noriel from you (i.e. a total of $788,399). As noted above you would be liable for tax on this transaction.
In summary, your potential payment under each option shown above is as follows:
Potential Payment to Jenny
Option
Before Tax
After Tax (Estimated)
1.Wind up Noriel
$776,914
$626,445
2. Forego share in Noriel
$788,399
$595,253
Could you please provide some instructions as to your wishes by 23 January 2014 (sic, 2015) ?
If you have any queries regarding the above please do not hesitate to contact me.
On 24 February 2015, Mr Hearn, wrote to the solicitor for the estate (Mr Spear), as follows:
Dear Sir,
ESTATE NORMA JOAN BARRETT
I refer to my letter of 12th February last advising that I am now acting for Mrs Jennifer Birdsey in relation to her mother’s Estate.
My client has instructed me that she wishes the administration of the Estate to move forward as promptly and smoothly as possible and does not wish to dwell unnecessarily on past problems.
Accordingly she has given me specific instructions to advise as follows:-
1.With respect to your letter to Birdsey Dedman and Bartlett dated 3rd February last she wishes her one-third entitlement in all the equity shares set out in the Inventory to her mother’s probate application to be transferred into her personal name. Please note that in this respect she is invoking the provision of Clause 5(c) of the deceased’s Will to direct the executors to make this payment to her and not to the fund established in her name pursuant to Clause 4(i)(a).
Accordingly would you please request the executors to proceed with such transfers to confirm all necessary details to me once this has been done.
2.With respect to her interest in Noriel Pty Ltd she has given careful consideration to the contents of the letter from West Carr and Harvey (the Estate accountants) dated 13th January 2015 addressed to her, but which was no doubt also sent to her brother and sister. She has given instructions that she wishes the company to be wound up. This will entail the prior sale of all the assets held by the company and after payment of all associated expenses involved in the sale and liquidation of the company and all taxes, payment to her in due course of her one‑third net interest.
Accordingly she asks that her brother and sister as co‑directors and shareholders should make the necessary arrangements to effectuate this proposal and for your office to advise my office of all necessary steps and the timetable involved in relation to this.
3.(a) Please advise what steps have been taken by the executors in relation to the sale of the deceased’s property at 2‑4 Porter Avenue, Highton. Please advise the name of the estate agents appointed to handle the auction, the proposed date and the proposed reserve price.
(b)Please advise relevant details of the lease of this property and when it expires. Is the rent being paid into your Trust Account?
4.Please let me know if the deceased’s tax return to her date of death has been lodged and — if so — let me have a copy of same. Presumably it will be necessary to also file a tax return down to the date of final administration and — if so — please let me have a copy of same in due course.
5.Could you please clarify the position in relation to the bond paid by the deceased when she entered ‘The Grange’ at Hamilton. My client understands that this was approximately $320,000. However the only reference in the probate Inventory is first to a small balance held in her trust account ($125) and secondly a liability of $6,309.82. On its face I do not understand this as there ought to have been a substantial repayment in respect of the bond following her death.
6.Mrs Birdsey has requested that there be returned to her the large ‘old‑fashioned’ ledger book which was kept by her mother for many years. She understands that some months before her mother’s death this was held by her brother Gregory Gunn but subsequently was given by him either to your firm or to the accountants. Would you please make inquiries about this and see if it can be returned to my office for Mrs Birdsey.
7.I note that on 8th November 2014 cheques for $10,000 each were distributed to the three children from Noriel Pty Ltd. It is stated that this related to a debt owed by the company to the deceased. Looking at the company accounts I am unclear about this as there is no specific itemisation in the balance sheet. Could you please clarify this.
8.Mrs Birdsey has received the distribution cheque of $100,000 sent to her former solicitors under cover of your letter of 3rd February last. Would you please note that all future remittances or distributions to her should be paid direct into [an identified account], with written note of same to my office.
9.Could you please let me have a print out of your Trust ledger card for this Estate.
My client has given express instructions that she wishes all correspondence in relation to her mother’s Estate to be sent by your office to my office and does not wish the executors to communicate with her in any way.
I look forward to receiving your early reply.
On 4 March 2015, Mr Spear replied as follows:
Dear Mr Hearn,
Estate Norma J. Barrett
We refer to your letter of 24 February and to your telephone conversation of 4 March with our Peter Spear and confirm that our responses to the numbered paragraphs of your letter are as follows:-
1.Tim Noonan of West Carr & Harvey will arrange for this to be done.
2.As your client’s siblings wish to continue the conduct of Noriel Pty Ltd, we shall instruct Tim Noonan to prepare a draft Valuation of Jennifer’s entitlement as at 17 March, (or such other near date as is practicable from his point of view), and submit it to both you and to us for approval.
3.(a) The property at 2-4 Porter Avenue, Highton has been sold for $460,000.00 and settlement will be due on 3 June.
(b)Since Mrs Barrett’s death the rental has continued to be paid to a Westpac account. We shall arrange for that account to be closed in due course and provide you with particulars of the rental collected.
4.Tim Noonan will attend to the preparation of both the Date of Death Return and the Estate Return for the year ending 30 June next when the requisite software is available.
5.The Executors have instructed us that no bond was paid when Mrs Barrett entered ‘The Grange’ and, as you have noted, that is the position reflected in the Inventory. We shall check with ‘The Grange’ to ensure there has been no misunderstanding in this regard.
6.Tim Noonan tells us he knows of a green cash book. We understand from our conversation of today that your client wishes to have it for sentimental purposes when the Accountants have no further use for it. We shall seek the Executors’ instructions in that regard.
7.We have asked Tim Noonan to write to both you and us clarifying this issue.
8.We confirm that future remittances to your client will be paid direct to her Westpac account with written notice of such payment to your office.
9.We shall attach a print out of our trust account ledger to the mailed copy of this letter.
On 16 March 2015, Whyte, Just & Moore (Mr Spear’s firm) wrote to Mr Hearn, as follows:
Dear Mr Hearn,
Estate Norma J. Barrett
Further to our letter of 4 March 2015, we advise:
·The Executors think it appropriate that you liaise direct with Tim Noonan regarding your client’s withdrawal from Noriel Pty Ltd;
·We have confirmed with ‘The Grange’ that Mrs Barrett did not pay a Bond on being admitted on 4 July 2013. Instead, and as a high care resident, Mrs Barrett paid a daily accommodation fee, (of $33.29 per day). As Mrs Barrett’s assets were over $112,243.20 she was considered a non‑supported resident and required to pay the maximum fee;
·That Mrs Barrett gave the ledger to Greg Gunn whilst she was in Hamilton and, as it is of sentimental value, it will not be returned.
We expect that you received Tim Noonan’s email of 11 March 2015 clarifying the issue regarding the distribution of $10,000.00 to each of Mrs Barrett’s children.
On 18 March 2015, Mr Noonan sent the following email to Mr Hearn and Mr Spear:
Dear Mr Hearn and Mr Spear
I refer to Mr Spear’s letter of 4 March 2015. As requested I have prepared a valuation of Noriel Pty Ltd as at 17 March 2015. The attached document contains:
1.A Balance Sheet as at 17 March 2015 showing the company’s assets and liabilities both at cost and at market value;
2.A Profit and Loss Statement for the period 1 July 2014 to 17 March 2015; and
3.A schedule of shares held by the company.
By way of explanation, the ‘market value’ column of the Balance Sheet shows the shares at market value (as detailed in the schedule) and provides for income tax upon the unrealised gains on the shareholdings. The market value of the company as at 17 March 2015 is $2,327,823. The value of a one‑third interest is therefore $775,941.
The ‘Loans from Shareholders’ balance of $223,095 includes a balance owing the Estate of Norma Barrett of $221,094. I note that the term deposit of $150,000 falls due on 30 March 2015. It is currently intended that these funds be used to partly repay the balance owing to the Estate. To enable repayment of the balance of the loan it is likely that some shares will need to be sold as the cash in the CBA cheque account is required to pay the 2014 tax liability of $80,837.52 which is due on 15 May 2015.
If Mrs Birdsey is to transfer her interest in Noriel Pty Ltd to Greg Gunn and Susan Vincent this could take place by transferring her shares in Noriel Pty Ltd at a value of $775,941. This value allows for the unrealised tax liabilities on the listed shares that the remaining shareholders will ‘inherit’ by continuing the company. It does not however allow for any potential tax liabilities that the remaining shareholders would incur if the company was to be wound up in the future. Such liabilities are unable to be quantified as they depend on the timing and individual tax position of the shareholders. I note however that if Mrs Birdsey was to transfer her shares then this potential deferred tax liability would no longer be a consideration for her.
If you have any queries please do not hesitate to contact me.
On 25 March 2015, Mr Hearn retained Mr Sean Dillon of PKF Melbourne Pty Ltd, a firm of accountants, to provide an independent audit and evaluation of Mr Noonan’s report. On 16 April 2015, PKF wrote to Mr Hearn confirming that WCH’s valuation was correct. On 7 May 2015, Mr Hearn spoke to Mr Noonan and told him that the plaintiff agreed to transferring her shares in Noriel to the executors (defendants).
On 8 May 2015, Mr Hearn wrote to Mr Noonan stating, among other things:
I refer to yesterday’s telephone conversation and confirm that you will speak further to Mr Spear about the mechanics of Mrs Birdsey selling out her one third interest in Noriel Pty Ltd, receiving her share of the shareholders’ loan account and her one third share in her mother’s estate.
On 11 May 2015, Mr Noonan wrote to Mr Hearn in the following terms:
Can you please advise whether your client is happy to accept the 17 March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate of (sic) is an updated valuation required?
On 10 June 2015, Mr Hearn wrote to Mr Noonan as follows:
I refer to your email of 11th May 2015. I now have instructions to confirm that my client Mrs Birdsey is happy to accept the 17th March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate. Would you please proceed accordingly.
Once monies are available to meet my client’s share in respect of the sale of her interest in the company, would you please forward the same to the trust account of Whyte, Just and Moore to be held to my client’s order and copy me with relevant details once you have done so. The sum will need also include my client’s share in her late mother’s loan account with the company.
At trial, and in this Court, the plaintiff contended that Mr Hearn’s email of 10 June 2015 constituted an acceptance of the defendants’ offer to purchase her shares made in the emails of 18 March and 11 May. On 15 June 2015, however, Mr Noonan sent an email to Mr Hearn. The email (as typed) provided:
My instructions from Mr Gunn and Ms Vincent do not wish to purchase Mrs Birdsey’s shares in Noriel from her. Therefore I have advised them that to enable Mrs Birdsey to cease as a shareholder in Noriel Pty Ltd a share buy-back of Mrs Birdsey’s shares in the company should proceed. I am awaiting confirmation from them to proceed with this. The buy-back price will need to be calculated based upon market value at the time of the buy back.
At trial (and again in this Court), the plaintiff contended that this email (and subsequent emails, which do not need to be reproduced in these reasons) constituted a breach of contract by the defendants.
Was there a binding agreement?
The principles to be applied in determining whether the exchange of emails between Mr Noonan and Mr Hearn gave rise to a binding agreement between the parties are well settled. The question of whether there was a binding agreement is one that falls to be determined objectively from the terms of the emails, read in the light of the surrounding circumstances and having regard to the context in which they were exchanged.[2]
[2]Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548–9 (‘XIVth Commonwealth Games’); Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2 [22]; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, 483 [34]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40]; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 [65], [68]; Kriketos v Livschitz [2009] NSWCA 96 [107]; Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269 [37].
The plaintiff’s case is that, either on 18 March 2015 or 11 May 2015, the defendants offered to purchase her shares in Noriel for the sum of $775,941, and that this offer was accepted by the plaintiff on 10 June 2015. The short answer to the plaintiff’s claim is that there was no offer by the defendants to purchase the plaintiff’s shares and the emails relied upon by the plaintiff do not disclose any agreement by the defendants to purchase the shares.
At best, all that was agreed was that, for the purpose of division of their mother’s estate, the valuation of Noriel performed by Mr Noonan on 17 March 2015 was a basis from which the parties would proceed to calculate their respective entitlements. There was no agreement as to a sale, the identity of a purchaser(s), the time for any payment or the terms upon which a sale might proceed.[3] Nothing can
be found in the language of the emails relied upon by the plaintiff to support the existence of the offer or the contract for which she contends.
[3]See Barrier Wharfs Ltd v W Scott Fell & Company Ltd (1908) 5 CLR 647, 669; XIVth Commonwealth Games (1988) 18 NSWLR 540, 548.
Conclusion
There being no contract between the parties for the sale of the plaintiff’s shares, it follows that there should be a grant of leave to appeal to the defendants and the defendants’ appeal should be allowed. The judgment given below should be set aside and, in lieu thereof, there should be judgment for the defendants.
In the circumstances, the plaintiff’s application for leave to appeal (the application concerning the judge’s rejection of the plaintiff’s application for interest) should be refused without adjudication on the merits.
ASHLEY JA:
I agree with Santamaria and Beach JJA that the application for leave to appeal by Susan Vincent and Neil Gunn (conveniently, ‘the defendants’) should be granted, the appeal allowed, and the proceeding brought against them by Jennifer Birdsey (conveniently, ‘the plaintiff’) dismissed.[4] It follows that the application for leave to appeal brought by the plaintiff, arising out of the judge’s refusal to award interest, should be refused.
[4]I will refer to their Honours’ reasons for judgment as the ‘Joint Reasons’.
In deference to the judge from whose orders the applications for leave to appeal were brought, and because there are matters which, in my view, require some further discussion, I wish to add to what their Honours have said.
In her extensive and careful reasons,[5] the judge identified and set out the content of the key documents relied upon by the plaintiff to establish a contract for the sale of the shares held by her in Noriel Pty Ltd (‘Noriel’), and other
related documents.
[5]Birdsey v Vincent & Anor [2017] VSC 27 (‘Reasons’).
The documents relied upon by the plaintiff to establish offer and acceptance were (1) email 18 March 2015 from Timothy Noonan, accountant for Noriel, to Harry Hearn, the plaintiff’s solicitor and to Peter Spear,[6] solicitor for the estate;[7] (2) email 11 May 2015, Mr Noonan to Mr Hearn;[8] and (3) email 10 June 2015, Mr Hearn to Mr Noonan.[9] The judge understood that the plaintiff’s case rested upon those three documents,[10] although both sides called in aid and the judge referred to other generally contemporaneous documents to illuminate the meaning, objectively ascertained, of the documents said to constitute the contract.
[6]Of Whyte Just & Moore, solicitors.
[7]Set out in the Joint Reasons at [11].
[8]See Joint Reasons [14].
[9]See Ibid [15].
[10]Reasons [31].
Her Honour correctly highlighted the particular passages in the key documents which were critical to the plaintiff’s case. The question then became — what was to be made of the documentation — both sides contending that the answer was to be found in the documentation alone.
Her Honour’s answer was this:
Turning now to the question of whether, if Mr Noonan had the requisite authority, the communications relied upon by Mrs Birdsey could amount to a binding agreement, the following principles are relevant:
(a)in the absence of a formal written agreement, the court’s task in determining whether an offer has been made is an objective test: ‘what would a reasonable person infer from observing the exchange between the parties’;[11]
[11]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 [40].
(b)where the question of whether a contract has been formed is in issue, the conduct of the parties subsequent to the date of the alleged contract is admissible for the purpose of determining whether a contract had come into existence. However, the conduct relied upon must support a conclusion that a contract had come into existence, rather than merely being consistent with the existence of a contract;[12]
[12]Woolcorp Pty Ltd v Rodger Constructions Pty Ltd [2017] VSCA 21 [95].
(c)in commercial agreements, the courts will generally assume an intention to create legal relations, and will strive to give effect to the terms of the parties’ bargain, notwithstanding that there may be some uncertainty in its terms, provided that uncertainty is not fatal.[13] The question remains is what amounts to a ‘commercial agreement’;
[13]NC Seddon and MP Ellinghaus ‘Cheshire & Fifoot’s Law of Contract’ (Lexis Nexis Butterworths, 9th Edition, 2008) [5.11], [6.6], [6.7].
(d)a contract will be declared void for uncertainty only if it lacks essential terms or fundamental elements are lacking. The courts will strive to uphold contracts, notwithstanding any lack of clarity;[14] and
[14]Ibid [6.1].
(e)it is not fatal to a contract if a party can perform its obligations in more than one way.[15]
[15]Ibid [6.7].
In grappling with the myriad ways in which parties can deal with each other in commercial relationships, and the lack of formality and precision characterising many such dealings, the courts have exhibited a preparedness to depart from the traditional ‘offer-acceptance-consideration’ analysis. In a recent decision, Ying Mui & Ors v Frank Kian Ngan Ho & Ors (No 3),[16] Vickery J made the following relevant observations regarding the courts’ approach to ascertaining whether a contract came into existence, as follows (omitting citations):
[16][2017] VSC 29 [151]–[155].
It is now well established that a ‘contract need not be made by formal offer and acceptance’. Indeed, it has been said that ‘it is sufficient to ask whether the existence of a contract has been established on the evidence’.
A contract may be inferred from words, acts or conduct. The conduct to which the Court can have regard in assessing whether a contract has been formed includes ‘post-contractual conduct’. Thus, it has been observed that:
[W]here there is a dispute as to the existence of a contract, or the contract is oral or there is a question as to how the contract is to be characterised or there is a question of whether a term was incorporated into a contract, or where there is a question of an implied term, the parties’ subsequent conduct may be relied upon to establish the existence of that contract, and what the terms of the contract were.
In a passage which has been often cited with approval, Allsop J (Drummond and Mansfield JJ agreeing) in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd held that:
I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: “and we hereby agree to be bound in this or that respect.” The essential question in such cases is whether the parties’ conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
Thus, it is accepted that it is open to a court to infer the existence of a contract from the parties’ conduct on the basis of the objectively ascertained manifestation of mutual assent.
However, such cases are rare and it will only be ‘in a very clear case that a promise will be implied from facts which do not involve written or oral communication from which a promise appears’.
Of course, in the current case, Mrs Birdsey is contending that a contract arose out of the acceptance by Mr Hearn on behalf of Mrs Birdsey of an offer made by Mr Noonan on behalf of the executors. However, the above discussion makes it clear that it is not necessary for the communications said to constitute or evidence a contract to include the formal language traditionally associated with the formation of contracts, and highlights the relevance of the commercial aims and expectations of the parties.
…
Mrs Birdsey relies upon the 18 March email, the 11 May email, and the 10 June email, viewed in the context of the other communications between the parties, as constituting a binding agreement between the parties. I agree. The correspondence makes it clear that:
(a)after the death of the deceased, for whatever reason, Mrs Birdsey wished to sever her financial ties with her siblings. While the winding up of the estate seems to have been a relatively simple affair, the most substantial asset of Mrs Birdsey was her share in Noriel;
(b)that Mrs Birdsey wished to exit Noriel was clearly well known to the executors and Mr Noonan, and confirmed by Mr Hearn in his dealings with Mr Spear of WJM. There appears to be no dispute concerning Mrs Birdsey’s desire to exit Noriel: the issue was by what mechanism and for what price. It appears that the taxation implications for Noriel and its shareholders were also at the forefront of the parties’ minds;
(c)while counsel for the executors is correct in stating that the dealings between the parties in respect of the administration of the estate and their dealings with respect to Noriel were quite separate, at least in a legal sense, the finalisation of the estate provides the context in which it can be ascertained that the intention of the parties was to ‘settle’ the financial arrangements within the family, with Mrs Birdsey to go her own way after liquidating her shareholding in Noriel.[17] This proposition is supported by the fact that at one stage, Ms Vincent also wanted to ‘get out of Noriel’. Accordingly, the dealings between the parties need to be viewed in the context of their evident desire to achieve some finality between them. Further, the fact that at one stage one option for funding the payment to Mrs Birdsey was for the executors to forego a portion of their share of the estate also demonstrates that the transactions concerning Noriel had, if not a legal connection, at least a practical connection to the administration of the estate;
(d)as noted above, it is also apparent that Mr Noonan was very much in the executors’ camp, understandably, given that the executors controlled both the estate and Noriel. Therefore, while this is somewhat conflated with the question of authority, any proposal by Mr Noonan was treated by Mr Hearn with the seriousness it deserved. Upon receipt of the 17 March valuation, Mr Hearn instructed PKF to review the valuation (as was contemplated in the exchange between Mr Hearn and Mr Spear on 4 March 2015), and Mr Noonan, in the 11 May email, asked Mr Hearn whether Mrs Birdsey was ‘happy to accept the [17 March valuation] for the purpose of division of her mother’s estate’. A reasonable observer, having regard to the terms of the 18 March email, in the context of the previous correspondence, is more likely than not to conclude that this query was a prelude to the finalisation of an agreement; and
(e)it is difficult to see the terms of the 10 June email as anything but an acceptance of an offer. In effect, Mr Hearn was saying ‘we agree with the price, and once the funds are available, put them in my client’s name in WJM’s trust account’. It was noteworthy that there was no response by Mr Noonan to the effect that ‘no, I have to seek the executors’ instructions before we finalise the matter’.
Counsel for the executors submitted that there could have been no offer capable of acceptance on 10 June 2015, because the mechanism by which Mrs Birdsey’s shares would be purchased had not been finalised (although at another point during the course of the hearing counsel seemed to concede that there could be a contract if all that was agreed was a price). In my view, the uncertainty concerning the identity of the party which would acquire Mrs Birdsey’s shares is not fatal to the question of whether there was a concluded agreement. The fundamental terms of the agreement were concluded on 10 June 2015, being that Mrs Birdsey agreed to dispose of her shares in Noriel for a price of $775,919.
As noted in paragraph 61 above, it is not fatal to a party seeking to assert the existence of a contract if there is some uncertainty in its terms, or if a party can perform its obligations in more than one way. The courts will generally strive to give effect to commercial bargains. Notwithstanding that the parties in the current case are closely related, the nature of the transactions being contemplated and the sums at stake confer a commercial, rather than domestic, flavour upon the dealings between the parties. The fact that Mr Hearn was prepared to contemplate a share buy‑back of Mrs Birdsey’s shares by Noriel, rather than a purchase by the executors, is not inconsistent with there being a binding agreement, as it was of no real concern to him, PKF, or indeed Mrs Birdsey how the funds were to be raised: their concern was the price.
As for the conduct of the parties after 10 June 2015, during the course of the hearing, counsel for the executors submitted that Mrs Birdsey’s advisors did not contend there was a concluded agreement until Mr Hearn’s letter to Monahan Legal of 8 October 2015 (see paragraph 27 above). With respect, that submission is not correct. The assertion that there was a binding agreement for the acquisition of Mrs Birdsey’s shares for $775,941 was first made in the letter from Mr Dillon to Mr Noonan dated 9 July 2015. No response to this letter was in evidence. Mr Hearn’s letters to WJM on 3 August 2015, and his letter to Mr Noonan of late August 2015 both assert an agreement on the part of the executors to pay out Mrs Birdsey based upon the 17 March valuation. No direct assertion to the contrary was made until Monahan Legal’s letter of 21 September 2015, which asserted (unsustainably, as it turned out) that there was an agreement of a different character, being an agreement with respect to the value of the estate’s shares in Noriel. Accordingly, to the extent that the parties’ post-contractual conduct is relevant to the question of whether in fact a contract has been formed, the weight of evidence favours Mrs Birdsey’s position. There was no direct denial by the executors of the existence of an agreement between 10 June 2015 and 21 September 2015: rather, the effect of the (limited) correspondence emanating from the executors’ camp was to the effect that the executors had changed their minds, and that ‘matters concerning Noriel are still being considered’. Further, while the subjective opinions of the parties are of no great relevance to the question of whether an agreement was reached, it is apparent from Mr Gunn’s draft email to Mr Noonan of 23 August 2015 that the executors acknowledged that the situation was ambiguous to say the least.[18]
[17]That the objectives of the parties are of some relevance to ascertaining whether the conduct of the parties resulted in a binding agreement is consistent with the statement of Alsop J (as he then was) in Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) (2001) 117 FCR 424, 525 that:
‘The essential question in such cases is whether the parties’ conduct … including the evident commercial aims and expectations of the parties, reveals an understanding or agreement …’
[18]Reasons [61], [62], [63], [72], [73], [74] and [75]. All citations in original.
It was common ground that, by late 2014, the plaintiff wished to separate her financial affairs from those of the defendants. So far as her late mother’s estate was concerned, that presented no difficulty. Apart from the Noriel investment vehicle, in which she and her siblings each held 50 shares, and her late mother two, her mother’s estate, in the order of $3 million, was realisable and divisible three ways.
Next, it could hardly be supposed that liquidation of Noriel would be necessary to ensure that the plaintiff exit it with the money value of one third of the two shares in the company held by her late mother. According to Mr Noonan’s January 2015 valuation, the money value of the plaintiff’s share in those two shares was one third of about $27,000;[19] whilst the market value of the company in March 2015 was said by Mr Noonan to be a little over $2.3 million.
[19]Any tax implications would presumably be proportionate, but this matter was not the subject of submissions.
The remaining questions, as at early 2015, were — (1) what was the value of the plaintiff’s shareholding in Noriel; and (2) how was the plaintiff to be paid out her share in the company? Those questions had almost nothing to do with administration of the estate, because the late Mrs Barrett’s shareholding in Noriel, measured in dollars, was only a very small amount. On the other hand, the fact that each sibling would receive something over $900,000 out of the deceased’s personal estate meant that the defendants jointly, or either of them alone, could fund a purchase of the plaintiff’s shares in Noriel. That could be done without the need to realise any asset of Noriel, with whatever immediate tax implications such a realisation might have.
This was not the only way of ensuring the plaintiff’s exit from Noriel. Another was by a company liquidation, an option canvassed in a letter from Mr Noonan to the plaintiff dated 13 January 2015. According to that letter,[20] this option was one of two that had been raised with the plaintiff in an earlier letter of 10 September 2014.[21] The second was the option to which I have referred in the preceding paragraph. Thus:
2.You forgoing your share of Noriel but as compensation for this you would receive a greater share of your mother’s personal assets to achieve equality between Greg, Susan and yourself.
[20]See Joint Reasons [5].
[21]Which was not in evidence.
With respect to that second option, Mr Noonan stated that:
Whilst Greg and Susan have not committed to this option it is being considered subject to your further instructions.
Mr Noonan sought the plaintiff’s instructions. Those instructions were conveyed to him by Mr Hearn on 24 February 2015 and were that his client wished to have the company wound up.
The response of the defendants, conveyed by the estate’s solicitors to Mr Hearn by letter dated 4 March 2015, was this:
2.As your client’s siblings wish to continue the conduct of Noriel Pty Ltd, we shall instruct Tim Noonan to prepare a draft Valuation of Jennifer’s entitlement as at 17 March, (or such other near date as is practicable from his point of view), and submit it to both you and to us for approval.
The state of play was then that the defendants, whose previous position had been as set out in the passage cited at [33] above, now rejected the plaintiff’s winding up preference and wished to continue to conduct Noriel. The plaintiff’s position, so far as communication with Mr Noonan was concerned, remained unchanged. It was in those circumstances that Mr Noonan was asked to value the plaintiff’s share in the company.
At that stage, the only option suggested by Mr Noonan which would accommodate the defendants’ current position, so far as the documents put in evidence reveal the situation, was what may conveniently be called the share purchase option. The idea of a selective share buyback had not been mentioned.
These were the circumstances in which Mr Noonan emailed Messrs Hearn and Spear[22] on 18 March 2015. In the circumstances described, objectively viewed, and of course subject to the question of Mr Noonan’s authority, there was every reason for the plaintiff to think that what was being mooted was a sale by her of her shares in Noriel for consideration which did not involve realisation of any Noriel assets. Further, what was being mooted was that the consideration would come from the plaintiff receiving a greater share of her late mother’s personal estate than her siblings.
[22]Remembering that it was Mr Spear who had conveyed the defendants’ position to Mr Hearn, and had sought the valuation from Mr Noonan. It can safely be inferred that the defendants were informed about Mr Noonan’s response.
But the email did not say, if the plaintiff decided to proceed with this option, who would buy the shares. Having regard to the two options mentioned by Mr Noonan in his 13 January 2015 letter, it would objectively be understood that funding would come out of the defendants’ ‘pool’ in their late mother’s personal estate. But the email said nothing as to whether it would come from one or other or in some and what part from both the defendants’ entitlements as beneficiaries. Moreover, it did not follow, because the consideration would come from the pool to which I have referred, that one or both defendants would be the transferees of the shares. Again, nothing was said about the timing of this possible method of separating out the affairs of the plaintiff and the defendants. As I see it, the email was really an enquiry. It invited the plaintiff to change her mind about her liquidation preference, and provided a valuation which would apply if the share purchase approach was accepted. I generally agree with the judge’s conclusion that:
A reasonable observer … is more likely to conclude that this query was a prelude to the finalisation of an agreement.[23]
[23]Reasons [72](d).
The plaintiff thereafter agreed with the share purchase approach. Mr Hearn so advised Mr Noonan in early May 2015. The latter emailed Mr Hearn on 11 May 2015, asking if the plaintiff was happy to accept the 17 March valuation ‘for the purpose of division of her mother’s estate’.[24] This was the second document relied upon by the plaintiff as communicating an offer to purchase her shares in Noriel.
[24]See Ibid [12].
Mr Hearn had already taken advice about the propriety of the valuation. It may be that he wanted to re-check the position. Whatever the reason, he did not reply until 10 June. His email to Mr Noonan, relied upon by the plaintiff as constituting acceptance of a share purchase offer, said this:
I refer to your email of 11th May 2015. I now have instructions to confirm that my client Mrs Birdsey is happy to accept the 17th March 2015 valuation of Noriel Pty Ltd for the purpose of division of her mother’s estate. Would you please proceed accordingly.
Once monies are available to meet my client’s share in respect of the sale of her interest in the company, would you please forward the same to the trust account of Whyte, Just and Moore to be held to my client’s order and copy me with relevant details once you have done so. The sum will need also include my client’s share in her late mother’s loan account with the company.
It was submitted for the defendants that Mr Noonan’s email of 11 May, and Mr Hearn’s email of 10 June were about valuation, nothing more. I do not agree. Both emails referred to ‘the purpose of division of [the deceased’s] estate’. Objectively, that meant adjusted division as between the three siblings of their late mother’s personal estate, which was the share purchase option.
Against the background of the correspondence preceding 11 May 2015 to which I have referred, including Mr Noonan’s 18 March email to Messrs Hearn and Spear, I consider that Mr Noonan’s email of 11 May and Mr Hearn’s email of 10 June constituted broad agreement as to how the separation of the affairs of the plaintiff and the defendants was to be achieved, and what amount was to be payable to the plaintiff for her shares in Noriel. But the detail of the agreement had yet to be set in place. Who was, or were, to be the purchaser(s) of the shares? Who was, or were, to provide the consideration out of the defendants’ shares as beneficiaries in the estate? When was the transaction to be effected? Mr Hearn was alive to these questions, because on 8 May he had written to Mr Noonan confirming that the latter was to contact Mr Spear with respect to ‘the mechanics of [the plaintiff] selling out her one-third interest in Noriel Pty Ltd’. Mr Spear’s involvement was necessary, remembering that he was the solicitor for the estate, and that the share purchase moneys were to be sourced from the late Mrs Barrett’s personal estate.[25]
[25]Any suggestion that the matter was being referred to Mr Spear only because the late Mrs Barrett’s estate included two shares in Noriel could not be seriously entertained.
Now, Mr Gunn informed Mr Noonan on 11 May 2015 that he and Mrs Vincent did ‘not intend to buy [the plaintiff’s] proportion’, and that Mr Hearn should be told that arrangements needed to be made for ‘Noriel to sell or transfer her proportion to [the plaintiff] — less any tax liability’ and for removal of the plaintiff as a director of Noriel. This did not sit with the course of correspondence between Mr Noonan and Mr Hearn at least from 17 March 2015. It did not sit, specifically, with Mr Noonan’s email of 11 May 2015, which, as I have said, plainly addressed the share purchase scenario.
On 19 May 2015, for the first time so far as correspondence in evidence reveals the situation, and in light of Mr Gunn’s email of 11 May, Mr Noonan raised with Mr Gunn the ‘only way that [he could] see the transaction proceeding; that is, for Noriel to conduct a “selective share buy-back”’ of the plaintiff’s shares. Mr Noonan explained that this was ‘quite a detailed process that requires numerous documents to be prepared and lodged with ASIC’, with ‘numerous notice periods’ which meant that the transaction ‘can’t just take place immediately.’
It was Mr Gunn’s intimation on 11 May 2015 which, after some further communications between he and Mr Noonan, led on to Mr Noonan’s email to Mr Hearn of 15 June 2015, relied upon by the plaintiff as breaching the contract. This is what the email said:
My instructions from Mr Gunn and Ms Vincent do not wish to purchase Mrs Birsdey’s (sic) shares in Noriel from her. Therefore I have advised them that to enable Mrs Birdsey to cease as a shareholder in Noriel Pty Ltd a share buy-back of Mrs Bridey’s (sic) shares in the company should proceed. I am awaiting confirmation from them to proceed with this. The buy-back price will need to be calculated based upon market value at the time of the buy-back.
I do not doubt, if there was a contract such as the plaintiff alleged, and again assuming that Mr Noonan had authority to act for the defendants, that this email evidenced the defendants’ breach of that contract. I add that the first to third sentences, understood in the context of correspondence between the parties dating back to early 2015, reveal the defendants’ change of position.
The defendants relied upon ‘post contractual conduct’, by which they meant conduct subsequent to 15 June 2015, to aid a conclusion that no contract had in fact been concluded. In my opinion, the material relied upon did not assist the defendants, and the judge was correct to so find. Mr Hearn sensibly sought to ascertain whether the radically different mechanism now being suggested as the means of separating the parties’ affairs would be to his client’s financial disadvantage. If it would not, then reliance upon a share purchase contract would be beside the point. But when he ascertained that the new mechanism, importantly allied to a new and less favourable valuation date from his client’s standpoint, was to her disadvantage, Mr Hearn relied upon what the plaintiff pleaded was the share purchase agreement. I do not accept that such enquiries as he made were apt to cast doubt on the existence of such a contract if the documents relied upon by the plaintiff had established its existence. Nor do I regard Mr Hearn’s enquiries as an implicit admission by his client that the documents relied upon did not establish that contract.
In the end, in my opinion, the problem for the plaintiff is that whilst the documents upon which she relied did establish a broad level of agreement that a share purchase agreement in a particular amount, funded out of the deceased’s personal estate, would be the vehicle for separating out the financial affairs of she and the defendants, the position reached did not contain any detail about important matters. This is where, in my opinion, the judge erred in her conclusions. Her Honour recognised that there were gaps in the content of what was alleged by the plaintiff to constitute the contract, but considered that they were not fatal. I respectfully disagree. It was not enough that the plaintiff agreed on 10 June 2015 ‘to dispose of her shares in Noriel for a price of $775,919’.[26] To whom, and when?[27] Who would the plaintiff sue for breach? The broad level of agreement to which I have referred fell short of being an enforceable contract. Sympathy for the plaintiff’s position does not remedy the defects in her case.
[26]Reasons [73].
[27]As to the time for performance, applicant’s counsel in this Court vacillated between submitting that the answer was ‘within a reasonable time’ and ‘forthwith’. He eventually settled on the first of those alternatives.
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