Kriketos v Livschitz - [2009] NSWCA 96

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: Kriketos v Livschitz [2009] NSWCA 96

HEARING DATE(S): 11 February 2009

JUDGMENT DATE:
5 May 2009

JUDGMENT OF: Allsop P at 1; McColl JA at 16; Macfarlan JA at 178

DECISION: 1. Appeal allowed. 2. Set aside the verdict and judgment entered for the respondent and in lieu thereof order that there be judgment for the appellant. 3. Respondent to pay the appellant’s costs of the appeal and of the District Court proceedings. 4. Respondent to have a certificate under the Suitors’ Fund Act 1951 if otherwise qualified in relation to the costs of the appeal.

CATCHWORDS: CONTRACTS – offer and acceptance – acceptance by conduct – conduct evidencing acceptance – principles relating to the inference of a contract from conduct and silence – negotiations between parties’ solicitors – no response to last letter from offeror – whether offer accepted – whether final mutual assent to offer - CONTRACTS – subsequent conduct – test to determine whether acceptance of offer can be inferred from subsequent conduct

LEGISLATION CITED: Corporations Law
Suitors’ Fund Act 1951
Supreme Court Rules 1970
Uniform Civil Procedure Rules 2005

CATEGORY: Principal judgment

CASES CITED: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3;(1955) 93 CLR 546
Baloglow v Konstanidis & Ors [2001] NSWCA 451
Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Brogden v Metropolitan Railway Co (1877) 2 App Cas 666
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.
Empirnall Holdings Pty Ltd v Machon Paull [1988] 14 NSWLR 523
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Gould & Birkbeck & Bacon v Mt Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Reports 81-942
Hooker v Gilling [2007] NSWCA 99
Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Markets Ltd & Ors [2008] NSWCA 206
Insurance Commissioner v Joyce (1948) 77 CLR 39
Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5 BPR 11, 110
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
Kitas v Eisman & Ors, (Supreme Court of New South Wales, Master Macready, 10 December 2003, unreported)
Kitas v Eisman & Anor, (Supreme Court of New South Wales, Master Macready, 27 February 2004, unreported)
Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44
Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd [1998] 4 VR 559
Meates v Attorney-General [1983] NZLR 308
Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R 90-26
Rambaldi; in the matter of Philip Charles Weeden, a bankrupt v Weeden [2008] FCA 1597
Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149
Sagacious Procurement Pty Limited v Symbion Health Limited [2009] HCATrans 23.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Vroon BV v Foster’s Brewing Group [1994] 2 VR 32
White v Overland [2001] FCA 1333

TEXTS CITED: J Carter, E Peden, G Tolhurst, Contract Law in Australia, 5th ed (2007) LexisNexis Butterworths
W Howarth, “Contract, Reliance and Business Transactions” (1987) Journal of Business Law 122, 127

PARTIES: Bill Christopher Kriketos - Appellant
Ivan Israel Livschitz - Respondent

FILE NUMBER(S): CA 40202 of 2008

COUNSEL: Mr J Ireland QC for the Appellant
Mr A Ogborne for the Respondent

SOLICITORS: Abelitis Solicitors - Appellant
Paul Bard Lawyers - Respondent

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 4779 of 2005

LOWER COURT JUDICIAL OFFICER: Neilson DCJ

LOWER COURT DATE OF DECISION: 12 June 2008

CA 40202/08
DC 4779/05

ALLSOP P
McCOLL JA
MACFARLAN JA
5 May 2009

Bill Christopher Kriketos v Ivan Israel Livschitz
HEADNOTE
[This headnote is not to be read as part of the judgment]

The respondent, Ivan Israel Livschitz, brought proceedings against the appellant, Bill Christopher Kriketos, to enforce a contract he alleged had been concluded by an exchange of three letters between the parties’ legal representatives. He alleged that pursuant to the contract the appellant was to pay to him a sum of money in the event the appellant purchased shares held by a Mr Christopher Kitas in Rehab Associates Pty Ltd (“Rehab”). Both parties held different classes of shares in Rehab. The correspondence was exchanged in circumstances where Mr Kitas had commenced Supreme Court proceedings to wind up Rehab pursuant to ss 232, 233, 420, 461 and 462 of the Corporations Law.

The respondent contended that the three letters demonstrated a legally binding agreement to pay the money was made on or about the date of the last letter from his solicitor, 6 May 2002. He also sought to rely on the lack of a response from the appellant’s solicitor to the last of the three letters and the appellant’s filing of an affidavit in proceedings opposing the winding up application, an action contemplated in the correspondence, as conduct consistent with the proposition that the appellant had accepted the agreement in the terms set out in the correspondence.

The primary judge found that the parties had made a legally binding agreement by the exchange of the three letters. His Honour also concluded the appellant’s conduct after 6 May 2002 was consistent with the agreement the respondent propounded having been made.

The appellant appealed.

Held, allowing the appeal

(per Allsop P and Macfarlan JA agreeing)

1 The essential question in determining the formation of contract otherwise than in the paradigm of offer and acceptance is whether the parties’ conduct reveals an understanding or agreement or a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract: (at [14]).

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 applied.

Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited

2 Subsequent conduct can be examined to assist in the resolution of the question whether a contract was made at an earlier date: (at [5]).

Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 at 668-669 and 672; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 applied.

3 Whether one assessed the three letters, or the three letters read in their context, or the three letters read in their context and with all later conduct considered, there was no contract formed between the parties. The conduct after 6 May 2002 was equivocal and did not by admission or otherwise, point to the three letters being contractually binding: (at [13], [15]).

(per McColl JA and Macfarlan JA agreeing):

4 In order to conclude there was a binding contract, the exchange of the three letters had to evidence the parties’ mutual communication of their respective assents to being legally bound by terms capable of having contractual effect: (at [113]).

Barrier Wharfs Ltd v W Scott Fell & Co Ltd

Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd

G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty

5 The question whether mutual assent was communicated turns on whether viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain: (at [114]).

Meates v Attorney-General

Vroon BV v Foster’s Brewing Group

Brambles Holdings Ltd v Bathurst City Council

Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3; (1955) 93 CLR 546; Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd [1998] 4 VR 559 referred to.

6 The primary judge erred in finding that, in all the circumstances, a reasonable person in the parties’ position would have thought consensus had been reached by the exchange of the three letters: (at [146]-[147], [156]).

7 Subsequent conduct is admissible on the question of whether a contract has been formed: (at [109])

Barrier Wharfs Ltd v W Scott Fell & Co Ltd

Australian Broadcasting Corporation v XIVth Commonwealth Games

Brambles Holdings Ltd v Bathurst City Council

; Pethybridge v Stedikas Holdings Pty

Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd)

8 Acceptance of an offer can be inferred from the acts and conduct of the parties, including their silence. For acceptance of an offer to be inferred, the offeree’s conduct must be of such a character as necessarily to lead to the inference that the offer has been accepted: (at [115]-[117]).

Empirnall Holdings Pty Ltd v Machon Paull (1988) 14 NSWLR 523; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153; Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 applied.

Brogden v Metropolitan Railway Co

9 The primary judge erred in testing the question whether the appellant’s subsequent conduct demonstrated a contract had been formed on or about 6 May 2002 by applying a test of whether that conduct was consistent with the agreement the respondent propounded: (at [160]-[161]).

(1) Appeal allowed.

(2) Set aside the verdict and judgment entered for the respondent and in lieu thereof order that there be judgment for the appellant.

(3) Respondent to pay the appellant’s costs of the appeal and of the District Court proceedings.

(4) Respondent to have a certificate under the Suitors’ Fund Act 1951 if otherwise qualified in relation to the costs of the appeal.

CA 40202/08
DC 4779/05

ALLSOP P
McCOLL JA
MACFARLAN JA

Tuesday 5 May 2009

Bill Christopher Kriketos v Ivan Israel Livschitz

Judgment

1 ALLSOP P: I have read the reasons in draft of McColl JA. I gratefully adopt her Honour’s discussion of the background and context of the appeal. I agree with the orders proposed by her Honour. Her Honour’s reasons allow me to express my reasons shortly. I will use the same abbreviations as McColl JA.

2 The case pleaded by Mr Livschitz as plaintiff was to the effect that the contract relied on was comprised of three letters (of 19 April 2002, 2 May 2002 and 6 May 2002) and was made on or about the date of the last of those letters. The attempts made on appeal to argue that the pleading only asserted that the contract’s contents by way of its terms were to be found in the letters and the formation of the contract could be seen by later acceptance or later conduct should be rejected.

3 Of course, the fact that the contract was said to be contained in and formed by the three letters did not disentitle the plaintiff from relying upon surrounding material on and prior to 6 May “to establish objective background facts which were known to both parties and the subject matter of the contract”: Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 at 352. This material was available to place the letters in context in aid of a decision as to whether a contract was formed, and if it were, what were its terms.

4 The debate as to admissibility before the primary judge extended to conduct after 6 May 2002. Prior to the evidence being called and closed this was put as relevant and admissible to prove that a contract had been entered into on 6 May. That is how the primary judge used it.

5 Subsequent conduct can be examined to assist in the resolution of the question whether a contract was made at an earlier date: Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 at 668-669 and 672; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 547-48 and the other cases there cited.

6 The background circumstances to the three letters included discussions about Mr Kriketos’ participation in the litigation. Mr James, on behalf of EML, wanted his clients paid for the time and money they had expended in the litigation potentially reducing the value of the shares and for giving up the opportunity to proceed against Mr Kriketos.

7 The letter of 19 April was a “proposal” and was in similar form and structure (though its contents were different) to the letter of the previous day, which Mr Roth had said was “far from something in which our client could have any confidence in relying upon as an enforceable agreement”.

8 The 19 April proposal had essential matters going to the root of the consideration not agreed or only identified in generality: see especially cl 3 and the mutual releases as part of a new shareholders’ agreement.

9 The letter of 2 May was plainly directed to the discussion of the previous day in which Mr James had valued the shares for the “agreed value” in cl 1(b) of the proposal of 19 April 2002 at $1.5 million. Mr Roth was seeking written confirmation of that. The letter did not otherwise agree with or to the proposal of 19 April. Indeed, in the letter Mr Roth said, in referring to the previous day’s conversation “when you advised that our client would have a maximum liability of $1.5m” (emphasis added).

10 The third letter, that of 6 May 2002, brought in a variable which had not been part of the discussions. It is not entirely logical to take $525,000 off the $1.5 million to ascertain the value of the shares, without debt. Arguably, 25 percent of the total indebtedness of the company, rather than the allocated primary responsibility of Mr Kriketos in the shareholder’s agreement, should have been deducted. On the material discussed on appeal this would be in the order of $900,000 or more. In any event, the letter stated explicitly that the value was “to be agreed”.

11 Not only was there no acceptance of any offer in the letters, I do not read them as being intended on their face to be contractual documentation. The letter of 19 April was a “proposal”. The letter of 2 May was a request to put in writing something that had been stated orally. The letter of 6 May was a variation to the proposal.

12 Further, the agreement between the parties on matters essential to the consideration – the releases and the new shareholders’ agreement was left at large. See cl 1(c) of the 19 April letter.

13 All the conduct after 6 May was equivocal. Of course, it displayed a willingness of Mr Kriketos to participate in the litigation. It did not, however, by admission or otherwise, point to the three letters being contractually binding. Even if the respondent were allowed to argue, beyond its pleadings, that the later conduct was an acceptance of an earlier offer contained in the letters or that from all the circumstances one can discern a contract, for the reasons discussed above there is no ascertainable contract or consensus ad idem to be found in the letters and conduct. Further, it was accepted in argument on appeal that there was no conduct of EML in the litigation which would have been different if there had been no “contract”. Certainly no estoppel was pleaded.

14 A number of cases in recent years have discussed the formation of contract otherwise than in the paradigm of offer and acceptance. McColl JA has referred to these cases. See in particular Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5 BPR 11, 110 at 11, 117-11, 118; and Branir Pty Limited v Owston Nominee (No 2) Pty Limited [2001] FCA 1833; 117 FCR 424 at 525-526. As I said in Branir (Drummond and Mansfield JJ agreeing):

“The essential question … is whether the parties’ conduct … reveals an understanding or agreement or … a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.”

15 In my opinion, whether one assesses the three letters, or the three letters read in their context, or the three letters read in their context and with all later conduct considered, one is led to the conclusion that there was no contract formed between the parties.

16 For these reasons, I agree with the orders proposed by McColl JA.

17 McCOLL JA: This case concerns the question whether Bill Christopher Kriketos, the appellant and Ivan Israel Livschitz, the respondent, reached a legally binding agreement on or about 6 May 2002 pursuant to which the appellant was to pay to, inter alia, the respondent, an amount referable to the appellant’s purchase of shares held by a Mr Christopher Kitas in Rehab Associates Pty Ltd (“Rehab”). Neilson DCJ held that the respondent had established such an agreement was made and that it had been breached. He awarded the respondent $185,951.05 in damages, and costs.

18 The appellant challenges Judge Neilson’s order, asserting that his Honour erred in determining an agreement had been reached. The appellant also complains that his Honour erred in assessing the quantum of the damages the respondent sustained.

19 In my view, for the reasons which follow, the primary judge erred in concluding the respondent had established the legally binding agreement for which he contended.

Statement of the Case

20 Rehab was registered on 5 February 1999. Its original directors were Marc Richard Eisman and Steven Morgan Matthews. On 20 August 1999 Rehab entered into a contract to purchase the whole of the land and improvements at 23 Pelican Street, Darlinghurst for $3.6 million. The respondent became a director of Rehab on 29 June 2000.

21 Mr Eisman, Mr Matthews and the respondent were also directors and shareholders in a company, Gold’s Gym Pty Ltd, which was registered on 24 February 2000. The primary judge referred to Messrs Eisman, Matthews and the respondent as “EML” because insofar as the underlying facts were concerned they had a joint proprietary interest in Gold’s Gym. I shall also adopt that acronym where appropriate.

22 In early 2000 EML obtained the Sydney rights to a franchise known as “Gold’s Gym”, apparently a chain of gymnasia operated in the United States of America. They intended to operate Gold’s Gym from the premises at Pelican Street.

23 The appellant was a director of DM Developments Pty Ltd, which was the financier of various joint venture property developments undertaken in association with a company known as SSK Holdings Pty Ltd (“SSK”). SSK was controlled by Mr Socrates (“Scott”) Kitas. Christopher Kitas was Scott Kitas’ father. At some stage in 2000 (the evidence did not disclose the precise date) Scott Kitas informed the appellant of the possibility of them acquiring a 50 per cent share in the Pelican Street building with the other 50 per cent being owned by EML. The appellant agreed to buy a 25 per cent interest in the company. Mr Scott Kitas “purchased” the other 25 per cent share, albeit that Christopher Kitas was the nominal purchaser.

24 On 19 July 2000 a document described as the Rehab Shareholders’ Deed was executed between Christopher Kitas and the appellant as to one part (the “KK” interests), EML as to the second part and Rehab as to the third part. Recital 1.3 recorded that E and M respectively held one ordinary share each in Rehab and had agreed to do all things necessary to cause that company to convert the Ordinary Shares issued to them into “D” Class Shares and to allot eighteen “D” Class Shares to the parties so that the “D” Class Shares would be held in the ratio:

E: M: L: K1: K2:

of 4: 4: 2: 5: 5:

Christopher Kitas was K1; the appellant was K2.

25 Recital 1.3 also recited that E and M would cause “B”, “C” and “D” Class Shares to be allotted subject to the rights which attached to those shares as described in the First – Fourth Schedules of the Deed. Thereafter the Deed refers to the “Allotment Shares”. Although not a defined term, it is apparent that it was intended to refer to the shares E and M agreed ought be allotted as reflected in Recital 1.3.

26 Clause 3.2 of the Deed gave effect to recital 1.3. Pursuant to that clause, E, M and Rehab agreed that on or by the completion date they would ensure that the Allotment Shares were allotted to the parties and that the Ordinary Shares they held would be converted by Rehab to “D” Class Shares held in the same number.

27 The following table reflects the shareholding in the company on the completion of the Rehab Shareholders’ Deed:

Holder	A Class	B Class	C Class	D Class
Eisman	8 shares	4 shares
Matthews	8 shares	4 shares
Livschitz	4 shares	2 shares
Kriketos	10 shares	10 shares	5 shares
Kitas	10 shares	10 shares	5 shares

28 The shares carried the following rights:

A Class Share Voting	Conferring right of management to appoint Chairman of the Board with casting vote, except in respect of matter [sic, as in original] pertaining to rights exclusively reserved to holders of “C” Class Shares and particularly set out in Clause 3.9. *
B Class Shares Non-Voting	Conferring right to exclusive use of residential and commercial (including retail) areas of Property, excluding the area of the Property reserved for use as a gymnasium, together with and [sic, as in original] offices and amenities utilised in conjunction therewith, in both the Refurbishment and the Redevelopment. **
C Class Shares Non-Voting	Conferring the exclusive right to the use of the area of the Property reserved for a gymnasium together with any offices and amenities utilised in conjunction therewith, in both the Refurbishment and the Redevelopment
D Class Shares Voting	Conferring a right to a dividend.

*Cl 3.9 related to matters which concerned the layout, use, decoration or design of the gymnasium and offices and amenities utilised in conjunction therewith operated by Gold’s Gym within the Property.

29 Clause 3.7 of the Deed provided:

“LOANS

3.7

3.7.1 Rehab will borrow:

(a) $1,050,000 against the security of the Property (“the KK Loan”); and

(b) $2,190,000, against the security of the Property (“the EML Loan”), *
which sums will be applied towards the Purchase Price.

inter se

30 The Rehab Shareholders’ Deed imposed restrictions on the disposal of the various classes of Shares relevantly as follows:

“ RESTRICTIONS ON RIGHT TO DISPOSE OF SHARES

4.1 None of the holders of ‘C’ Class Shares shall have the right to sell, transfer, dispose of or encumber those shares, except to another holder of ‘C’ Class Shares. None of the holders of ‘A’ or ‘B’ Class Shares shall have the right to sell, transfer, dispose of or encumber those shares, except to a person acting as their nominee and over whom they continue to exercise effective control. No sale, transfer or disposal of ‘A’ or ‘B’ Class Shares, to a person who is not a party to this Deed, shall occur unless. …

31 The Rehab Shareholders’ Deed contemplated that SSK would undertake a redevelopment of the Pelican Street property which had to include the construction of a gymnasium. Rehab was to grant a commercial lease to Gold’s Gym of the gymnasium so constructed for a maximum term of five years. The detailed terms of that lease were set out in the Deed but are not relevant to the dispute the subject of this appeal.

32 The gymnasium opened in September 2001. The primary judge found that by that time a dispute had emerged between the directors of Rehab relating to the rent for the gym which had been fixed in the Rehab Shareholders’ Deed at $360,000 per annum, an amount which was varied in the Variation Deed to $465,000 per annum.

33 Subsequently and in a manner which the evidence did not clearly reveal, the directors reduced the rent again to $360,000. According to a Referee’s Report prepared for the Supreme Court proceedings referred to in the next paragraph, the reduction was recorded in minutes of a meeting of Directors of Rehab dated 17 July 2001. The primary judge found (at [13]) that the reduced rent was apparently not acceptable to the Kitas interests.

34 On 29 October 2001 Mr Christopher Kitas commenced proceedings in the Equity Division of the Supreme Court of New South Wales claiming relief under ss 232, 233, 420, 461 and 462 of the Corporations Law against EML (the first – third defendants respectively), the appellant (the fourth defendant), Gold’s Gym (the fifth defendant) and Rehab (the sixth defendant). He sought an order appointing a receiver and manager to the Pelican Street property, alternatively the appointment of a provisional liquidator of Rehab. In his affidavit in support of the application, Mr Kitas complained that there had been a shortfall in the rental payments, an assertion based on the proposition the rent was $465,000 per annum: see Referee’s Report at 279.

35 Mr Peter James, solicitor, acted on behalf of EML and Gold’s Gym in defending Mr Kitas’ proceedings. Mr Charles Roth acted for the appellant, although it is not clear from the papers precisely when he commenced to do so. The primary judge found, and it is common ground, that the appellant was unrepresented until the end of February 2002.

36 In January 2002 the appellant had a conversation with Mr James during which he said he did not want to be involved in the proceedings, had no intention of instructing lawyers and did not want to incur legal fees. On 16 January 2002 Mr James and the appellant met at Mr James’ office. As a result of their conversation Mr James prepared a draft statement in which the appellant addressed the issues in the Supreme Court proceedings.

37 On 27 February 2002 Mr Pinto, a solicitor, telephoned Mr James. It appears that Mr Pinto was by then acting for the appellant. Mr James’ file note of the conversation relevantly records:

“It was understood that Mr Kriketos wishes to stand on the sideline and will not intervene if our clients wish to purchase Kitas’ shares.

I agreed to write to them and inform them of the present position regarding the proceedings and adjournments so that he could advise his client.

…. the telephone conversation concluded with an understanding that Mr Kriketos would remain essentially on the sidelines whilst our clients run the dispute.”

38 On 5 March 2002 Mr James attended a meeting at Gold’s Gym. Mr Pinto and the appellant also attended. In the course of the meeting a group, which included the respondent, Mr Eisman, the appellant, Mr Pinto, Mr James and a Mr Mottershead and Mr Primerano, discussed the question of who might purchase the Kitas shares. According to Mr James’ file note of that meeting:

“The position was becoming clear that Bill Kriketos wanted to be either a 50% shareholder or no shareholder at all. Gold’s Gym’s directors indicated that they wished to buy both parcels of shares if they had an opportunity.

The position of the parties was uncertain and I suggested that the matter stand for several days for the solicitors to discuss and reach a resolution for the purposes of litigation.

Ross Mottershead and I later discussed the position and it was agreed that we would contact Bill Kriketos’ lawyer, Mr Pinto, and devise a memorandum of understanding between his client and our clients and our clients be permitted to negotiate the purchase of the shares, but before that was completed his client would be consulted on the purchase of the shares for the purpose of purchasing the shares or a future arrangement for them to jointly hold 50% each in Rehab …. .”

39 Soon after, Mr Pinto appears to have been replaced by Mr Roth as the appellant’s solicitor. Mr Roth appeared at a directions hearing in the Supreme Court proceedings on 12 March 2002 following which he and Mr James had a conversation in the following terms:

“Roth: My client has a choice to support the plaintiff’s claim and the order to wind up Rehab or co-operation between the defendants and your clients not to oppose my client’s purchase of Kitas’ shares.

James: Until now, your client expressed no preference for selling his shares or accepting a fifty percent ownership with my clients. At a meeting on 5 March 2002 your client’s options were discussed along with a number of other matters that were concerning the building and your client’s failure to comply with the shareholders’ agreements. Those matters included the failure to complete the building work, the need to carry out work to obtain a final occupation certificate, the various defective building works and repairs and the misappropriation of Gold’s Gym’s and Rehab’s monies by Mr Kitas. My clients instruct that your client was in partnership with Mr Kitas at the time. Your client is equally responsible for the refurbishment. As his partner, Mr Kriketos is also responsible for my clients’ claims. Your client reinforced this by what he said to me in January 2002 when I took a statement from him. We have not had a reply from Kitas to my clients’ complaints. Your client purchasing the Kitas’ shares is not the end of the dispute. My clients are considering a cross claim in relation to their complaints against your client and Kitas for their failure to fulfil their obligations under the shareholders’ agreements. Your client was aware that Kitas had been planning at the time the Deed of Variation was signed to place Rehab into liquidation and take over the fit out of Gold’s. These matters may affect your client’s right to acquire the Kitas shares .

Roth: I don’t know enough about the matter. Why not just allow my client to buy Kitas’ shares?

James: What is in it for my clients? My clients have incurred significant legal expenses in defending the action to date. They stopped it being liquidated in November 2001 and have had to deal with the South Sydney Council notice to complete works in order to be given the final occupation certificate. If they had not, Rehab would be wound up by now. Your client takes the benefit from our clients’ attention to the proceedings. Your client has done nothing so far and, as I said before, my clients have other claims under the shareholder agreements that they would have to forego. If your client wants my clients to allow him to acquire the Kitas Rehab shares unopposed some consideration must be given to my clients by your client. I will provide you with a summary and all relevant documents as soon as I can.

40 On 21 March 2002 Mr Roth wrote a “Without Prejudice” letter to Mr James’ firm, referencing the Supreme Court proceedings, and relevantly reading:

“We … advise that our client has to now make a determination as to his position regarding the plaintiff’s application.

As your clients are aware our client wishes to acquire all of the plaintiff’s shares in Rehab Associates Pty Ltd. This can best be achieved with the cooperation of your clients however of critical importance is the likely nature of our client’s ongoing relationship with your clients.

We suggest that a meeting take place urgently with a view to ascertaining whether it is feasible for the relationship to continue and if so on what terms.” (emphasis added)

41 On 22 March 2002 Mr James attended a meeting with, among others, the appellant and Mr Roth, at which he said:

“James: Your client is to benefit from a reduction in value of the Kitas shares that may arise as a result of our clients’ complaints over the building work and the misappropriation of the building funds. Our clients have incurred expenses keeping Rehab from being wound up while Mr Kriketos was prepared to stand by and allow that to happen. Our clients have a number of grounds they can argue to the effect that your client is in breach of the shareholder agreements and thus is not entitled to rely upon his pre-emptive rights to acquire the Kitas shares. Mr Kriketos was aware that Kitas was going to try to wind up Rehab and have Gold’s kicked out. Kitas would get the benefit of a fully fitted out gym valued at $1.6 million. Kriketos stood to gain from that and did not inform our clients of the Kitas plan. You have seen the statement I took from Kriketos.

My clients have claims against Kriketos that they should raise in these proceedings. If my clients co-operate with your client to enable your client to purchase the share, what is in it for them?

My clients must be compensated for giving up the opportunity to proceed against Mr Kriketos and your client**, and for assisting your client to acquire the shares at a price that is likely to be very attractive. I will need to seek instructions on this and give consideration as to how they can be compensated.

42 On 9 April 2002 Mr James spoke to Mr Roth. The latter advised him:

My client can go either way with this

43 On 16 April 2002 Mr Roth wrote to Mr James advising that unless there was a written agreement between their respective clients by noon on 18 April his client would not oppose the orders Mr Kitas sought in the Supreme Court proceedings.

44 On 18 April 2002 Mr James sent a fax to Mr Roth enclosing a draft letter which he advised he would be settling with his “client” and his client’s accountants. The letter was forwarded on a “Without Prejudice” basis for the purpose of receiving Mr Roth’s comments, and said:

“Further to our discussions we put forward the following proposal on without prejudice bases.

Our client agrees to be joint shareholder of Rehab Associates Pty Limited with your [sic, as in original] in equal proportions and to support Bill Kriketos’ purchase of Rehab Associates Pty Limited shares held by Christopher Kitas on the following terms and conditions:

1. Assuming our respective clients acquire shares in equal numbers in to [sic, as in original] Rehab Associates Pty Limited then a new Shareholders Agreement should be entered into which will eliminate any uncertainties that surround the current agreements;

2. That the rent for Gold’s Gym Pty Limited is to be returned to the lower rent and the management fees to be paid to your client;

3. That each party provide a release to the other parties from obligations under clause 3.7 of the First Shareholders agreement and generally assuming new relations are settled in the form of a new shareholders agreement;

4. Bill Kriketos will:

(a) File an affidavit in response to the affidavit of Christopher Kitas dealing with matter raised in a statement taken from him by Peter Richard James in conference and any other matters he may wish to raise;

(b) As [sic, as in original] an agreed value for Christopher Kitas shares is to be reached, which value will be based on the shares being valued without discount and without reference to the issues raised between our respective clients? Assumptions to be made that the building work is complete and there is no discount for any of the reasons raised or any other reason;

(c) That the difference between the value in (c) above and the amount paid for the Kitas shares is to be paid by Bill Kriketos to our clients in exchange [sic, as in original] the release referred to above; and

45 Mr Roth responded the same day in the following terms:

“We refer to your faxed letter of today’s date in relation to the above matter and advise that the assumption that our respective clients will have an equal shareholding in the company is totally inconsistent with all discussions to date which related to our client purchasing Mr Kitas’ shareholding in the company.

The above has implications to the rest of the proposal in your letter.

In addition you were to provide an amount of any payment due by our client reflecting the difference between the value at which Kitas is bought out and the value of the shareholding.

the agreement

46 Mr James responded on 19 April 2002 with what the respondent contended at trial was the first of the three letters by which a binding agreement was made. He wrote:

“‘ Without Prejudice’

REHAB ASSOCIATES PTY LIMITEED & ORS ats CHRISTOPHER KITAS

Further to our discussions we put forward the following proposal on without prejudice basis.

Our client agrees to support Bill Kriketos’ purchase of Rehab Associates Pty Limited (Rehab) shares held by Christopher Kitas on the following term and conditions:

1. Bill Kriketos will:

a) File an affidavit opposing the relief sought by the plaintiff.

b) An agreed value for Christopher Kitas’ shares is to be reached based on the shares being valued without discount and without reference to the issues in dispute. Assumptions are to be made that the building work is complete and there will be no discount for any reason.

c) That the difference between the value in b) above and the amount paid for the Kitas shares is to be paid by Bill Kriketos to our clients or as our clients direct in exchange for mutual releases as proposed below.

2. The rent to be paid by Gold’s Gym Pty Limited is under the First Lease (lower rent) and the management fees to be paid to your client from the date of practical completion. The management fees paid to your client to date, will be credited against management fees due from the date of practical completion.

3. That each party provide a release to the other parties from obligations under clause 3.8* of the First Shareholders’ Agreement and generally, assuming new relations are settled in the form of a new shareholders agreement.

47 Mr Roth telephoned Mr James on 22 April 2002. According to Mr James’ file note the call lasted three minutes. He recorded what was discussed as follows:

“About the agreement said he needs a $ figure and will talk to us at Court.”

48 Mr Roth telephoned Mr James again on 1 May 2002. Mr James’ file note recorded the conversation, relevantly, as:

“Said that I thought the amount of the shares 25% was $1.5 mil.

49 In his affidavit sworn for the trial, Mr James said that the full version of the 1 May 2002 conversation was:

“James: I would value the shares at 25% of the total value of the building, the building being worth 6 million dollars. Therefore, the shares are valued at 1.5 million.”

50 The following day, 2 May 2002, Mr Roth wrote a letter to Mr James which the respondent contended at trial was the second of the three contractual letters. He said:

“We refer to the writer’s telephone conversation with you yesterday when you advised that our client would have a maximum liability of $1.5m to be paid for Kitas’ shares in Rehab Associates Pty Limited on the basis that our client would pay a negotiated sum to acquire the Kitas shares and to the extent that the amount paid was less than $1.5m the balance would be paid to your clients otherwise on the latest terms proposed by you in your correspondence.

51 On 6 May 2002 Mr James sent a letter the respondent contended at trial was the third of the three contractual letters:

“In response to your letter dated 2 May 2002, if your client purchased Christopher Kitas’ Rehab Associates Pty Limited shares, their value is to be agreed to be $1,500,000.00. The acquisition costs for those shares to be paid by Bill Kriketos will be $1,500,000.00 which amount will be subject to accepting the total liability of the joint loan of $1,050,000.00 of the KK shareholders.

Therefore the following calculation is applied:

Share Value: $1,500,000.00
Less loan $525,000.00
Balance to be paid: $975,000.00 *

It is agreed that our client will negotiate the shares down and be entitled to keep the difference between the amount to be paid by your client, as detailed above and the amount in fact paid for the shares.

We are eager for this matter to progress to a hearing so that our mutual clients can achieve some certainty.

* The original letter miscalculated the balance as $927,000.

52 On the same day Mr James forwarded a copy of Mr Scott Kitas’ affidavit in the Supreme Court proceedings to Mr Roth. In his affidavit of 10 June 2008 which was relied on at trial, Mr James deposed that after he sent his 6 May 2002 letter to Mr Roth the appellant did not take any step to support Mr Kitas in the Supreme Court proceedings, but supported the other defendants in opposing the orders sought.

53 On 28 May 2002 Mr James advised Mr Roth of the outcome of certain interlocutory proceedings in the matter, advised him of orders in relation to discovery and asked Mr Roth to note that his client’s evidence and documents should be served within seven days so that the matter could be placed in the short hearing list on 30 May 2002.

54 On 7 June 2002 the appellant swore an affidavit in the Supreme Court proceedings. He said that one of the matters which influenced him in becoming involved in Rehab was that he and Mr Scott Kitas would have control of the building through their shareholding as set out in the Rehab Shareholders’ Deed. He said in those circumstances the Kitas shares in Rehab should be transferred to him to preserve the status quo in relation to the rights those shares conferred in managing the Property and Rehab. He said he was prepared, and had the financial resources, to purchase the Kitas shares and take steps to have Mr Kitas released from his guarantees and to take over his obligations and responsibilities under the Rehab Shareholders’ Deed. His affidavit replied to two Kitas affidavits dated 24 October 2001 and 15 April 2002 respectively and to an affidavit sworn by Mr Eisman dated 8 February 2002.

55 The Supreme Court proceedings were listed for hearing before Palmer J on 8 July 2002. On 9 July 2002 his Honour approved Short Minutes of Order referring the question of the value of Mr Kitas’ shares in Rehab to a referee pursuant to Pt 72 of the Supreme Court Rules 1970.

56 Paragraphs two and three of the Short Minutes read as follows:

“2. Note the agreement of the parties that within 28 days of the adoption of the referee’s report as modified by the Court, the fourth defendant or his nominee may purchase the plaintiff’s shares in the sixth defendant for the value adopted by the Court, and failing that purchase, either one or more of the first, second and third defendants or their nominees have a further 28 days to purchase the said shares for the said amount and that any provision in the Rehab Shareholders’ Deed of 19 July 2002 or the Variation Deed, which may impede the implementation of these orders, be suspended pro tanto.

57 The referee reported on 23 October 2002. Neither party relied on the detail of the report. It is common ground that the referee assessed the value of Mr Kitas’ shares in Rehab at $267,866.

58 Mr Kitas sought unsuccessfully to challenge the adoption of the referee’s report. Master Macready rejected that challenge: Kitas v Eisman & Ors, (Supreme Court of New South Wales, Master Macready, 10 December 2003, unreported).

59 On 23 December 2003 Mr Roth wrote to Mr Kitas’ solicitor advising that the appellant proposed to purchase Mr Kitas’ shares in Rehab in accordance with order two of the consent orders made on 9 July 2002. He noted that the amount payable on completion was $267,866.

60 On 26 November 2004 Christopher Kitas, the appellant and Scott Kitas entered into a Deed pursuant to which, inter alia, in consideration for the payment of $525,000 Christopher Kitas transferred his shares in Rehab to the appellant. It was common ground that the sum of $525,000 included the amount of $267,866 attributable to the value of Mr Kitas’ shares in Rehab.

The Trial

61 The Statement of Claim averred that on or about 6 May 2002 EML reached an agreement with the appellant. The particulars alleged that the agreement was “wholly express and in writing.” The writing relied upon were Mr James’ letter to Mr Roth of 19 April 2002, Mr Roth’s letter to Mr James of 2 May 2002 and Mr James’ letter of 6 May 2002.

62 The Statement of Claim pleaded an express term of the agreement arising from the three letters that the appellant would pay to EML the difference between the agreed price of the Kitas shares and the price the appellant eventually paid for them. The meaning of “agreed price” was not explained but the trial was clearly conducted on the basis it was a reference to the value of Mr Kitas’ shares which Mr James’ letter of 6 May 2002 said “is to be agreed to be $1,500,000.00”. The Statement of Claim asserted that in performance of the agreement EML assisted the appellant in acquiring the Kitas shares by defending the Kitas claim and not raising any impediment to his acquisition of those shares.

63 The Amended Defence denied that the three letters constituted an agreement. Numerous other defences were raised but none is relevant to the issue which arises on appeal and I shall not repeat them. In the course of the trial the primary judge permitted the respondent to add to the particulars given of the performance of the alleged agreement.

64 The primary evidence at trial was given by affidavit. A bundle of documents was also tendered. Counsel for the appellant at trial, Mr D Baran, explained to the primary judge early in the proceedings that a number of his objections to the affidavits arose from the fact that the only agreement pleaded was that which depended upon the three letters referred to in the Statement of Claim. Mr A Ogborne, who appeared for the respondent at trial and on appeal, informed the primary judge that the respondent did not resile from the pleaded case that the agreement was formed and expressed in the correspondence. On various occasions, however, when the Court was dealing with Mr Baran’s objections to material in the affidavits relating to events which preceded the pleaded correspondence, Mr Ogborne asserted, correctly, that context was relevant to the ultimate decision as to whether an agreement was formed. When the question arose as to the admissibility of evidence of matters which occurred after 6 May 2002, Mr Ogborne sought to rely upon such conduct as being consistent with an agreement having been formed on or about that date. Mr Ogborne also pointed to various passages of cross-examination of the respondent’s witnesses as to events after 6 May 2002 as indicating the appellant’s understanding that such events were being relied upon as evidence an agreement had been reached. It is unnecessary to refer to that cross-examination as it does not, in my view, take the matter any further.

65 Mr Ogborne adhered to the pleaded case in his final submissions. However he also sought to rely on the appellant’s conduct after 6 May 2002 in two ways, one of which had not hitherto been foreshadowed. The new contention was that the written contract was accepted by conduct after Mr James’ last letter, the “conduct” being the fact that there was no subsequent correspondence rejecting the “offer” or seeking to clarify the correspondence in circumstances where he argued Mr Roth had previously indicated there was agreement in principle, and had been “pressing for this agreement”. He also relied upon subsequent conduct as evidencing formation of the contract, being, in addition to Mr Roth’s silence and the appellant’s conduct in filing the affidavit opposing the relief sought in the Supreme Court proceedings, not merely standing on the sideline, and not acting in favour of the Kitas interests.

66 It was in the course of the debate about this aspect of the case that Mr Ogborne sought and was granted leave to amend the particulars of performance of the alleged agreement. Mr Baran objected to the amendments, reiterating that the respondent’s case was of an express agreement to be found in the three letters.

67 The new particulars recited:

“Further Particulars to paragraph 8

inter alia,

(d) The plaintiff, Eisman and Matthews entered into a term in the Agreement that any provision in the Rehab Shareholders’ Deed of 19 July 2002 which may impede the implementation of the orders made in the Proceedings on 9 July 2002 be suspended pro tanto.”

Primary Judgment

68 After setting out substantially all the facts to which I have referred, the primary judge set out extracts from Baloglow v Konstanidis & Ors [2001] NSWCA 451 (at [130] – [137]) per Giles JA (with whom Mason P agreed) and Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 (at [23] – [27]) and [85]) per Heydon JA (as his Honour then was).

69 It is unnecessary to set out the entirety of the passage his Honour extracted from Baloglow, which went to the approach to be taken to determining whether a concluded agreement has been made. Suffice it to note Giles JA’s statement (at [136]):

Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd

York Air Conditioning and Refrigeration (A’Asia) Pty Ltd v The Commonwealth

70 The earlier passages extracted from Brambles went to the admissibility of pre- and post-contractual conduct on the questions whether a contract was formed and/or its construction, and that construction of a contract is an objective question. It is unnecessary to repeat those quotes. The second passage included an extract from Heydon JA’s exposition on whether offer and acceptance can be found outside what might be termed classic offer and acceptance analysis: Brambles (at [71]). The passage the primary judge quoted read:

Sullivan v Constable

‘If the [defendant] had so acted that the plaintiff was reasonably entitled to believe that [the defendant] was assenting to the position which had been asserted by the plaintiff, the [defendant] was bound.’

Chitty on Contracts

apparent

71 The primary judge turned to the context in which the three letters were written. He concluded that by 21 March 2002 the appellant had formed the desire to acquire Kitas’ shareholdings in Rehab. It was then, according to the primary judge, “necessary for him to reach an accommodation with EML”: judgment (at [43]).

72 His Honour referred (at [44]) to Mr James’ 18 April 2002 fax transmission, noting, “there was a rapid reply indicating that the proposal was not acceptable to Mr Kriketos,” presumably referring to Mr Roth’s letter of the same date.

73 His Honour found (at [45]) that a “better proposal” was communicated to Mr Roth on 19 April 2002:

“… better in that it did not refer to an equal shareholding but rather referred to the desire of Mr Kriketos to take over the whole of the shareholding of Kitas. However that did not contain any monetary value as to the undiscounted value of Kitas’ shareholding. A value was placed upon it, Mr James concedes by himself, and communicated to Mr Roth on 1 May at 5.38pm.”

74 His Honour then referred (at [46]) to Mr James’ 6 May 2002 letter which he characterised as:

“… confirmation of the $1.5 million valuation of the shares and how that valuation was to be reduced by the value of the loan referrable to the shares. And then what the balance was, …”

75 After referring to his interpretation of the reference to “the agreement” in Mr Roth’s facsimile of 18 April 2002 as meaning a “provisional agreement”, the primary judge observed that what was missing from the 19 April 2002 proposal was “a monetary evaluation of the undiscounted value of the shares” which he concluded “was provided orally and then confirmed in writing”: judgment (at [47]).

76 His Honour concluded (at [48]) that the conduct of the parties thereafter was consistent with the agreement the respondent had propounded. He observed that the appellant filed an affidavit opposing the relief “sought by the plaintiff” (I infer his Honour was referring to the plaintiff in the Kitas proceedings), propounding his desire to purchase the Kitas shares and asserting his financial ability to do so.

77 His Honour found (at [49]) that he could more readily draw inferences from the parties’ conduct and from the lack of any immediate response to Mr James’ 6 May 2002 letter, because the appellant did not give evidence nor was any evidence called from Mr Roth who was available.

78 After referring to Insurance Commissioner v Joyce [1948] HCA 17; (1948) 77 CLR 39 as supporting the proposition that “a failure of a relevant party to give evidence makes it much easier for a court finding facts to draw a conclusion more easily when the contrary conclusion could have been the subject of evidence by the adverse party”, his Honour said:

“50. …The conduct of the parties after 6 May 2002 is consistent with the letter from Mr Roth of 2 May 2002 seeking confirmation in writing as a provisional acceptance of the agreement propounded by the plaintiff and which provisional acceptance is in fact made unprovisional by the confirmation in writing of the missing term to the contract proposed in the letter of 19 April 2002. As I said there is nothing inconsistent with such an agreement existing and the agreement recorded in the short minutes of order. Furthermore, the mere failure of Mr Roth to make any response to Mr James’ letter of 6 May 2002 indicates that as far as he was concerned when he received that letter, that some accommodation had been reached about matters that Mr Roth pointed out were urgently needed to be sorted out on 16 April 2002. Furthermore if there had not been such an accommodation, one might ask how would it be that Mr Kriketos would take up the shareholding of Kitas in Rehab if he was not ad idem with his other shareholders and other directors.

51. I have no hesitation finding that there was consensus ad idem and that the three letters propounded by the plaintiff as being the contract do indeed constitute a contract. The defence alleges at para 3 that the agreement was ‘void for uncertainty’ but I do not see the contract propounded by the plaintiff as being uncertain in any way at all. It is also alleged in para 3 of the defence that there was a failure of consideration on the part of the plaintiff and also Eisman and Matthews.

79 The primary judge rejected (at [53] – [56]) various defences additional to that of no agreement the appellant had relied upon. It is unnecessary to set out his Honour’s reasoning in these respects as the appellant does not challenge them.

80 The primary judge dealt briefly with quantum (at [57]). He accepted that the money the appellant ultimately paid to Mr Kitas, $525,000, was greater than the value the referee ascribed to the shares. He concluded that the appropriate way to value the shares was by reference to the quantification of damages asserted by Mr James. As explained in the appellant’s written submissions, with which the respondent did not disagree, the judgment of $185,951.05 was made up of a principal sum of $141,826.80 to which interest was added at the applicable court rates. The $141,826.80 was derived by applying the formula in the 6 May 2002 letter and subtracting from the sum of $975,000 referred to therein the value of the Kitas shareholding of $267,866, then dividing the result ($707,134) by five – the latter figure being selected because the respondent’s separate claim to that money was quantified as 20 per cent of the total because he held 20 per cent of the “D” Class shares. (The figure of $141,826.80 appears to be out by $400 as on my calculation a fifth of $707,134 is $141,426.80).

Notice of Appeal

81 The appellant asserts that the primary judge erred in determining there had been a concluded agreement as pleaded and that any such agreement had been breached. He also complains that the primary judge erred in determining that the respondent had suffered loss and damage in assessing the quantum of any damages the respondent sustained.

Submissions

82 The appellant’s principal submission is straightforward. He submitted that the exchange of the three letters failed to satisfy the fundamental proposition that in order to find a contract has been formed, there must be offer and acceptance. He contended that while the first letter of 19 April 2002 constituted an offer, the response of 2 May 2002 did not reveal any element of acceptance but sought clarification of the value to be attributed to Mr Kitas’ shares. He submitted that the third letter of 6 May 2002 was a fresh or counter offer as to the proposed financial outcome which was never accepted. He contended that while the correspondence may have reflected advanced negotiations, it fell short of a binding contract.

83 Secondly, the appellant complained that it was not open to the primary judge on the pleadings to conclude the contract had been accepted by the conduct of the parties after the third letter. He submitted that such a case had not been pleaded and, if it had been, he would have conducted his case differently, in particular in determining whether to give evidence or to call Mr Roth.

84 Next, the appellant also complained (albeit not in a ground of appeal) that the primary judge erred in drawing adverse inferences because of the failure to call the appellant and Mr Roth. He submitted that their evidence was irrelevant to the contract pleaded which depended upon the three letters. He contended that their absence could only arguably have been relevant to the case the primary judge had reformulated after the close of evidence of acceptance of the offer in the third letter by conduct.

85 Thirdly, the appellant submitted that, in any event, what took place after the final letter, in particular his filing of an affidavit in the Equity Division proceedings, was equivocal. He points to the fact that he was a party to those proceedings and had, at some stage, to make up his mind as to how to participate in them. He was subject to a court direction to file an affidavit and to a guillotine order as to the timing of its filing. He also pointed out that Mr James’ letter of 19 April 2002 contemplated that EML would give the appellant a release from his obligations under the Rehab Shareholders’ Deed, but they had never provided such a release.

86 Fourthly, the appellant submitted that if there was a contract as asserted, the rights under it were enjoyed jointly, not severally, by EML. In such circumstances the proper parties to any enforcement proceedings were the three men, not the respondent independently. This point was not the subject of a ground of appeal, nor was leave sought to add a ground raising it.

87 Finally the appellant contended the primary judge had erred in calculating the damages because he had quantified the respondent’s claim on the assumption he held 20 per cent of the 10 “D” Class Shares held by EML. He asserted that the respondent held only 10 per cent of such shares and, accordingly, his liability, if any, was $70,713.40.

88 The appellant did not address any argument to the second ground of appeal (breach) or the third ground (loss and damage) and I have treated them as abandoned.

89 The respondent contended that while the terms of the contract were contained in the three letters, the primary judge was not limited to considering that correspondence in determining whether an agreement had been reached. He argued that the conduct of the parties, including post-contractual conduct, was admissible on that question. He submitted that the communications of 12 and 21 March 2002, 9, 16 and 19 April 2002 demonstrated that the appellant was faced with a decision between two inconsistent courses of action:

(a) either reaching an agreement with EML to obtain their cooperation to his purchase of Mr Kitas’ shares in Rehab and to oppose the relief claimed by Mr Kitas in the oppression suit, including filing an affidavit opposing the relief claimed by Mr Kitas in the oppression suit (the “agreement route”); or

90 The respondent submitted that the primary judge was entitled to take into account the conduct of the parties after the “negotiations” as evidence that the appellant had taken the agreement route. He contended that following receipt of the 6 May 2002 letter, the appellant’s conduct in not responding to that letter but filing an affidavit opposing the appointment of a receiver or the liquidation of Rehab, and propounding his desire and financial capacity to purchase Mr Kitas’ shares, his agreement to the 9 July 2002 Short Minutes of Order and his purchase of the Kitas shares, was only consistent with him rejecting the liquidation route

91 The respondent submitted that when the three letters were placed in this factual context of the pre- and post-contractual conduct, the 6 May 2002 letter could be seen to have concluded the agreement between the parties. This was because, he argued, it fulfilled the appellant’s request to confirm in writing the oral advice as to the dollar value ($1.5 million) and mechanism to be used to determine the amount to be paid to EML on the purchase of the shares. On this approach, he also argued, Mr Roth’s 2 May 2002 facsimile accepted the offer made in Mr James’ 19 April 2002 letter, as varied by the matters advised orally, and subject to written confirmation.

92 Alternatively, he contended Mr Roth’s 2 May 2002 facsimile made an offer which Mr James accepted on the written confirmation being provided in the 6 May 2002 letter.

93 Finally the respondent submitted that even if the 6 May 2002 letter was construed as a counter-offer, on the primary judge’s findings, it was accepted by the appellant’s subsequent conduct.

94 Next, the respondent contended that it would have been apparent to the appellant from the conduct of the trial that he was arguing that the existence of the contract could be proven from the surrounding circumstances, including the subsequent conduct of the parties. He pointed out that when the primary judge admitted evidence of subsequent conduct as being consistent with the terms of the contract and, thereby as relevant to the issue of whether a contract had been formed, counsel for the appellant had adverted to the possibility of putting on further evidence to meet that case, but had never pursued that course. He contended that there was no evidentiary foundation for the appellant’s submission that a differently pleaded case would have led to a different decision about whether he would give evidence or call Mr Roth.

95 As to the appellant’s point that the proceedings ought to have been dismissed for want of parties, the respondent pointed out that no such defence was pleaded, nor was any such complaint raised during the hearing of the proceedings. If it had been, he contended, any procedural problem could have been cured by joining the additional parties as defendants if they would not agree to joinder as plaintiffs. Accordingly, he submitted the issue could not be raised for the first time on appeal.

96 Finally, the respondent submitted that the primary judge had correctly calculated the damages on the basis that the balance referred to in the 6 May 2002 letter was payable only to EML, not payable to all the shareholders. His shareholding was 20 per cent as between those three men which was the figure the primary judge used.

Pleading issues

97 It is convenient first to deal with the questions which arose concerning the manner in which the respondent was entitled to put his case at trial.

98 The appellant complained that the primary judge erred in taking into consideration conduct subsequent to the 6 May 2002 letter as consistent with the agreement for which the respondent contended having been made on or about that date. He also complained that the respondent had neither pointed to, nor pleaded, conduct as constituting acceptance of the terms set out in the three letters.

99 The respondent, on the other hand, argued that as well as his pleaded case based on the three letters as establishing consensus between the parties, he had been entitled to propound a case that there was an agreement formed partly by the letters and accepted by the absence of response to the 6 May 2002 letter and the appellant’s conduct soon after 6 May 2002 in preparing his affidavit in the Supreme Court proceedings. In the further alternative he argued that the conclusion that consensus had been reached in the three letters could be drawn from the parties’ subsequent conduct. He accepted that the pleadings did not support either of his alternative cases but contended they were open having regard to the course of the trial.

100 In my view the appellant’s objection to the primary judge’s use of subsequent conduct as going to the issue whether the agreement for which the respondent contended was made on or about 6 May 2002 cannot be sustained having regard to the manner in which the trial was conducted. I have earlier summarised the discussion which took place early in the trial concerning the admissibility of affidavit evidence dealing with post–6 May 2002 conduct which the respondent relied upon as consistent with the agreement, having been formed on or about 6 May 2002. Although the respondent had not pleaded a case which relied upon subsequent conduct as consistent with the agreement, the primary judge permitted him to adduce evidence on that basis. The trial was clearly conducted on the basis that the respondent relied upon such evidence to support the pleaded agreement.

101 The Statement of Claim was filed on 7 November 2005 and should have contained a summary of the material facts on which the respondent relied and have pleaded any matter, which if not pleaded specifically, might take the defendant by surprise: Uniform Civil Procedure Rules 2005 (“UCPR”), r 14.7 and r 14.14. Those provisions reflect the proposition that pleadings should state with sufficient clarity the case of the parties whose averment they are: Gould & Birkbeck & Bacon v Mt Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490 (at 517 – 518) per Isaacs and Rich JJ. The requirements of proper pleading are well known. Many of the authorities were collected by Ipp JA (with whom Giles and Hodgson JJA relevantly agreed) in Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Markets Ltd & Ors [2008] NSWCA 206 (at [412] – [428]); see also Hooker v Gilling [2007] NSWCA 99 (at [47] – [53]). In short, the rule that, in general, relief is confined to that available on the pleadings secures a party's right to a basic requirement of procedural fairness: Ingot (at [424](a)).

102 Where, however, parties fight the case on additional issues identified at the trial, that enlargement may mean that a party is not confined to the pleadings: Ingot (at [422] – [424]). In this case, in my view, the case was conducted on the basis that the respondent relied upon subsequent conduct as evidence that a concluded agreement had been reached by the exchange of the three letters. Accordingly I would reject the appellant’s submission to the contrary.

103 Much time was devoted during the hearing of the appeal to the question whether a case of acceptance of the 6 May 2002 letter by subsequent conduct was open. Although, as I have earlier discussed, the respondent did, in my view, seek to expand his pleaded case in final submissions to include one of acceptance of the contract by subsequent conduct, the primary judge, in my view, did not decide the case on that basis. Rather, his Honour appears to have used the subsequent conduct only for the purpose of finding it to be consistent with the agreement having been formed by the three letters.

104 Had his Honour decided the case on the basis of acceptance by subsequent conduct I would have been of the view that the appellant had been denied procedural fairness. Counsel for the respondent first raised such a case in closing submissions and then in a manner which bore some resemblance to “quietly leaving footprints” in the transcript: see White v Overland [2001] FCA 1333 (at [4]). The transcript does not reveal that either the primary judge or counsel for the appellant appreciated that the respondent was seeking to make such a substantial shift from the pleaded case of an agreement formed by the exchange of three letters.

105 The respondent consistently said he adhered to the pleaded case. He sought leave in his closing address on the primary judge’s invitation only to amend his particulars of performance of the agreement alleged. Had he wished to rely upon an acceptance by subsequent conduct case, he ought to have sought leave to amend the Statement of Claim to plead such a case expressly.

Consideration

106 It is trite law that there is no contract unless two parties mutually consent to be bound one to the other by one agreement. However, as Higgins J thought it necessary to add to that statement of the law, “it is one thing for two parties to settle what are to be the terms of an agreement, if it should be made; and quite another thing to make the agreement”: Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 (at 650), approved on appeal per Griffith CJ (at 666); O’Connor J (at 671); Isaacs J (at 671).

107 Whether a contract has been formed, and the terms of any contractual arrangement, requires objective determination: Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 (at [22]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 (at [34]) per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (at [25]) per Gaudron, McHugh, Hayne and Callinan JJ.

108 The exercise of objective determination requires the court to consider the text of relevant documents, and also the surrounding circumstances known to participants, and the genesis, purpose and object of the transaction, but not the participants’ subjective beliefs: Pacific Carriers Limited (at [22]); Toll (at [40]); International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 (at [8]) per Gleeson CJ; (at [53]) per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; (at [127]) per Kirby J. The surrounding circumstances include the parties’ relationship to one another: Ermogenous (at [25]).

109 “[P]ost-contractual conduct is admissible on the question of whether a contract is formed”: Brambles (at [25]) per Heydon JA; see also Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R ¶90-263 (at [59]) per Campbell JA (Beazley JA agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 (at [99] ff) per Giles JA (Hodgson and Campbell JJA agreeing); special leave to appeal refused: Sagacious Procurement Pty Limited v Symbion Health Limited [2009] HCATrans 23.

110 The conventional approach to the question whether a contract has been formed turns on determining whether there has been offer and acceptance, that is to say, a “clear indication by one party of a willingness to be bound on certain terms, accompanied by an unqualified assent to that offer communicated by the other party”: J Carter, E Peden, G Tolhurst, Contract Law in Australia, 5th ed (2007) LexisNexis Butterworths at [3-02]. Offer and acceptance analysis is “normal” and “conventional”: Brambles (at [74]). As McHugh JA (with whom Samuels JA agreed) said in Empirnall Holdings Pty Ltd v Machon Paull (1988) 14 NSWLR 523 (at 534): “The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror.”

111 The respondent accepts that the clear indications called for by the conventional approach cannot be identified in the three letters. In particular, he concedes that the only letter from Mr Roth, that of 2 May 2002, contains no words of acceptance. He relies, however, on the authorities which support the proposition that some, albeit limited, recognition has been given to finding a contract even though it is not easy to locate an offer and/or acceptance: Brambles (at [71], [74]) per Heydon JA. As Giles JA said in Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Reports ¶81-942 (at [10]), “[a] contract need not be made by formal offer and acceptance, or by an overt course of negotiation [and] [e]ntry into a contract can be found in the conduct of the parties, in what they said and did towards each other.”

112 In Empirnall (at 534) McHugh JA observed “communication of acceptance is not always necessary”, giving as an example cases where the offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (at 269). There is no suggestion there had been any such dispensation in this case. It was necessary, therefore, on the respondent’s pleaded case, to identify from the letters some communication on the appellant’s part of his acceptance of an offer communicated to him by EML.

113 Even on what I might call the “non–conventional” approach, in order to conclude there is a binding contract, the exchange of the three letters must be seen to have constituted the parties’ mutual communication of their “respective assents to being legally bound by terms capable of having contractual effect”: Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (at 627) per McLelland J (as his Honour then was); affirmed G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; there must have been “final mutual assent”: Barrier Wharfs (at 660–661) per Higgins J; see also Brambles (at [71] - [81]) per Heydon JA.

144 Mr Roth never responded to that letter.

145 As I understand the primary judge’s reasons, his Honour concluded consensus had been reached through the exchange of the three letters essentially for the following reasons. First, it is apparent that his Honour construed the letters in the light of his finding (at [43]) that once the appellant decided he wanted to acquire the Kitas shares, he realised he had to reach an accommodation with EML. Next, in his Honour’s view (at [47]), the reference in Mr Roth’s 18 April 2002 facsimile to “the agreement” meant a “provisional agreement” had been reached prior to the 19 April 2002 letter. He appears then, to have concluded that the “better proposal” in the 19 April 2002 letter recorded the provisional agreement, subject to a “monetary evaluation of the undiscounted value of the [Kitas] shares” being provided. In his view, that figure was provided by the 6 May 2002 letter, leading (at [51]) to “consensus ad idem”.

146 I cannot, with respect, agree with the primary judge’s conclusion that, in all the circumstances, that a reasonable person in the parties’ position would have thought consensus had been reached once the 6 May 2002 letter was sent.

147 It is relevant to take into consideration that the three letters were written by solicitors. They were not written in terms indicating the correspondence itself would constitute agreement. Mr Roth had early indicated he wanted a “written agreement”, presumably meaning a final document which recorded with precision any agreement reached. Secondly, Mr James’ first letter described its contents as a proposal. It was not a clear indication of willingness to be bound on certain terms. Furthermore it omitted what a reasonable person would consider a critical issue, the price the appellant was to pay for the Kitas shares.

148 The respondent submitted that the primary judge’s conclusion that Mr Roth’s 2 May 2002 facsimile was provisional acceptance of the EML proposal, subject to written confirmation – a confirmation, which he argued, was given in the 6 May 2002 letter – of the price for the Kitas shares was correct. In my view the 2 May 2002 facsimile does not bear the construction for which the respondent contends. It was another request from Mr Roth for the detail of the EML proposal to be recorded in writing so that the appellant could consider it as a whole. It did not communicate even qualified assent to the EML proposal.

149 The 6 May 2002 letter was the first written manifestation of the “$ value” EML proposed for the Kitas shares. It was a substantial expansion of paragraph 1(b) of the 19 April 2002 “proposal” but it was nevertheless, in my view, still part of the proposal, rather than the final term in a provisional agreement left only awaiting a “price”. Furthermore it introduced, as I have said, the new subject of treatment of the KK Joint Loan.

150 The respondent argued, somewhat faintly, that the reference to the KK loan in the 6 May 2002 letter was not really a new topic. He submitted that accepting, as Mr James said, that the proposed value of the Kitas shares 25 per cent of $1.5 million was based on a valuation of the building, it was to be expected that to reach an agreed value (equity) of those shares acceptable to the appellant, Mr Kitas’ liability for the KK loan had to be deducted from the $1.5 million. I cannot accept that submission. There was apparently a valuation of the building of $6 million, but there were also lower valuations. There was no evidence that any of the valuations came to either the appellant’s or Mr Roth’s attention. On this basis Mr James’s proposal that the Kitas shares were worth 25 per cent of $1.5 million was, in itself, new information. There was no mention prior to the 6 May letter of the Kitas share of the KK loan being brought to bear in the proposed value of the Kitas shares. Although its inclusion reduced the bottom line from the parties’ point of view, it was nevertheless a new topic, whether or not EML perceived it as a logical step in the process of agreeing a value for the Kitas shares.

151 In my view the appellant’s submission that, in the circumstances, the 6 May 2002 letter was a new offer should be accepted. Mr Roth never responded to it and, in my view, a reasonable person in the parties’ positions would regard his silence in that respect as consistent with the appellant rejecting the EML proposal once it was laid out in its entirety: Empirnall (at 534). Read as a whole, and taking the circumstances into account, the correspondence did not manifest the mutual assent necessary to establish the parties had reached a consensus.

152 The primary judge also appears to have inferred (at [52]) that the appellant had reached agreement with EML because by doing so he obtained their agreement not to raise what he described as “the four outstanding issues”. This appears to have been a reference to paragraph 8(b) of the particulars his Honour permitted the respondent to add to his pleading of performance of the agreement over objection and during closing submissions. I assume he regarded that as a relevant surrounding circumstance. However, with respect, none of those matters was expressly referred to in any of the three letters, save possibly to the extent that para 1(b) referred to the value of the Kitas shares being determined “without reference to the issues in dispute”. More significantly, it was never part of the respondent’s pleaded case, or even that as varied in argument or by amendment, that it was a term of the EML proposal that EML would not pursue those issues in the Supreme Court proceedings. While EML “agreed” in the 6 May 2002 letter to “negotiate the shares down”, their proposal left silent the manner in which they would do so.

153 The primary judge also concluded (at [52]) that if EML had raised those issues “the likely result would have been a liquidation of … Rehab”. It is not clear whether he attributed that perception to the reasonable observer seeking to determine whether consensus had been reached. However, on the assumption that he did so that conclusion was, in my view, inconsistent with the overwhelming evidence that EML would have done nothing which risked Rehab being wound-up. The respondent gave evidence that it was always his intention to defend the Supreme Court proceedings because he had “so much to lose if a liquidator was appointed to Rehab”. It might be inferred that Mr Eisman and Mr Matthews were also of that view having regard to the strenuous efforts they had made in late 2001 to oppose the company being wound up and other matters referred to in Mr James’ communications to Mr Roth in March 2002.

154 The primary judge also appears to have been influenced in reaching his conclusion by his interpretation of Mr Roth’s reference, in his 18 April 2002 letter, to “the agreement” as “referring to some agreement in principle which was yet to be adequately expressed in writing”. Unlike the primary judge, I draw no inference from Mr Roth’s use of that word. Although written by a lawyer, in my view, objectively considered, that expression was not used to indicate a “provisional agreement” had been reached but, rather, in a popular sense to refer to a general understanding (i.e. the previous discussions) as to how the matter might proceed: cf Barrier Wharfs (at 657). That indeed is how his Honour appeared to regard that reference in the earlier part of his judgment when he accepted (at [22]) that nothing in Mr Roth’s 18 April 2002 letter communicated acceptance of Mr James’ first draft.

155 At the time Mr Roth wrote the 18 April 2002 letter, he had just seen, for the first time, EML’s proposal in writing. He rejected it as “totally inconsistent with our discussions to date”. His 9 April 2002 letter sought the EML proposal so the appellant could make a decision. It is not, in my view, a reasonable interpretation of the 18 April 2002 reference to “the agreement”, to conclude that there was an agreement in principle which merely had to be recorded in writing. Rather the 9 April 2002 letter made it clear that the appellant had not made any decision, and would not before seeing the EML proposal in writing.

156 In my view the primary judge erred in concluding that the respondent’s pleaded case of an agreement constituted by the three letters had been established.

157 The second basis on which the primary judge concluded that consensus had been reached by the exchange of the three letters lay in his analysis of the parties’ conduct after 6 May 2002, including the appellant filing an affidavit in the Supreme Court proceedings, which conduct he concluded was consistent, and “not inconsistent”, with the agreement the respondent propounded. His Honour also found he could more readily draw inferences from the subsequent conduct and the lack of response to the 6 May 2002 letter because neither the appellant nor Mr Roth gave evidence.

158 In my view, the appellant and Mr Roth’s silence was, with respect, irrelevant. His Honour identified (at [50]) the principle he relied upon as being that “a failure of a relevant party to give evidence makes it much easier for a court finding facts to draw a conclusion more easily when the contrary conclusion could have been the subject of evidence by the adverse party”. He referred to Insurance Commissioner v Joyce, an action for damages for personal injuries sustained by a passenger in a motor vehicle accident. It appeared the accident was due to the driver’s intoxication, but neither the passenger nor the driver gave evidence. The passenger’s appreciation of the extent to which the driver was intoxicated was relevant to the issue of contributory negligence which, in 1948, constituted a complete defence. In agreeing with Latham CJ that the passenger had not established his claim, Rich J said (at 49): “[W]hen circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matter prefers the well of the Court to the witness box a Court is entitled to be bold.”

159 Rich J’s statement had no relevance to the present case. Evidence as to why neither Mr Roth nor the appellant responded to the 6 May 2002 letter and why the appellant filed an affidavit opposing the winding-up order may have disclosed their respective subjective beliefs but, as I have already pointed out, such subjective beliefs are irrelevant in the objective exercise of determining whether a consensus had been reached.

160 Turning to the subsequent conduct, the first point to make is that neither its consistency or lack of inconsistency with the pleaded agreement was sufficient to support a finding that consensus had been reached on or about 6 May 2002. The test his Honour ought to have applied was whether the parties’ conduct after 6 May 2002 “necessarily” led to the inference that consensus had been reached, or that that conduct was referable only to the agreement the respondent propounded: see the authorities collected above (at [117]).

161 In my view the conduct of the parties after the 6 May 2002 letter did not support the conclusion that there had been mutual assent to the EML proposal.

162 I do not accept that a reasonable observer would conclude, as did the primary judge, that Mr Roth’s failure to respond to the 6 May letter indicated that “some accommodation” had been reached. Rather, as I have said, Mr Roth’s silence was consistent with rejection.

163 Next, the fact that the appellant filed an affidavit opposing the relief Mr Kitas sought in the Supreme Court proceedings and propounding his desire to purchase the Kitas shares was, in my view, equivocal on the question whether a concluded agreement had been reached.

164 The appellant was a party to the Supreme Court proceedings and despite his apparent early disinterest as to their outcome had, by 21 March 2002, appeared reasonably determined to acquire the Kitas shares, presumably by persuading the Court to make a s 233(1)(d) order. I say “reasonably” because on 9 April 2002, Mr Roth re-iterated that the appellant could still “go either way”.

165 Filing the affidavit was a course the appellant could take independently of reaching any consensus with EML as to the price he might pay to acquire the Kitas shares. The appellant’s desire to purchase the Kitas shares was inconsistent with supporting the winding up of Rehab. Filing the affidavit was, accordingly, not conduct which pointed unequivocally to a consensus having been reached on the EML proposal, in circumstances where he could reasonably have formed the view, presumably on legal advice, that whether by strategic negotiation, or cost order, he could achieve his goal without paying a large amount of money to EML on top of whatever he had to pay Mr Kitas to acquire his shares.

166 The primary judge also appears to have regarded the Short Minutes of Order as consistent with the agreement EML propounded. The Short Minutes, however, did no more than reflect the appellant’s and EML’s desires respectively to acquire the Kitas shares and, I infer, keep Rehab from going into liquidation. While the appellant, in substance, obtained the first option to purchase the Kitas shares for the value disclosed in the Referee’s Report, if he did not do so, EML obtained the second option to do so.

167 The Short Minutes of Order also worked a suspension on any provision in the Rehab Shareholders’ Deed or the Variation Deed which might impede either the appellant or EML’s acquisition of the Kitas shares. That suspension is, again, in my view, neutral on the question of whether or not a concluded agreement was reached on 6 May 2002. It worked in favour of whichever of the appellant and/or EML ultimately acquired the Kitas shares. As is apparent from the earlier discussion, any restrictions on the appellant acquiring Mr Kitas’ “A” and “B” Class Shares would also have inhibited EML’s acquisition of them. There was no restriction on the appellant acquiring Mr Kitas’ “D” Class Shares, but an absolute prohibition on EML doing so.

168 By way of elaboration of the previous paragraph, it is noteworthy that the primary judge asked, rhetorically (at [50]), if there had not been an accommodation between the appellant and EML of the sort Mr Roth had sought on 16 April 2002, how the appellant “would take up the shareholding of Kitas in Rehab if he was not ad idem with his other shareholders and other directors.”

169 The answer to that question did not lie only in the conclusion that consensus had to be reached on the EML proposal in order for the appellant to acquire the Kitas shares. In the ebb and flow of litigation the parties’ fortunes may change depending on a complex interplay of factors. The appellant knew that EML wanted to avoid Rehab being wound-up. To avoid that outcome someone had to take over the Kitas shares. The share transfer restrictions which inhibited the appellant’s acquisition of Rehab shares operated even more unfavourably vis-à-vis EML – there was an express prohibition on them acquiring the “D” Cass Shares. If the matter had been pushed to a court determination, in my view, the appellant might reasonably have expected that he had a greater chance of securing a favourable s 233(1)(d) order in respect of the Kitas shares than EML. Indeed in the affidavit he filed he contended for that outcome so the status quo could be maintained in relation to the KK interest in Rehab.

170 Further, EML had sought the appellant’s co-operation in the Supreme Court proceedings in January 2002 when Mr James took his draft statement. As a matter of commonsense it might be expected that EML saw that their defence of the Supreme Court proceedings would be strengthened if Mr Kitas’ application was resisted by all other shareholders, especially one who had originally been a Kitas “ally”.

171 It should also be recalled, as the appellant submitted, that the disputes which EML appeared to perceive may have an effect on decreasing the value of the Kitas shares were not straightforward. Some were directed at Mr Christopher Kitas and others at Mr Scott Kitas personally. Whether all or some of the matters EML sought to advance to diminish the value of the Kitas shares would, or could, have had that effect was a matter on which minds might differ.

172 Further, the appellant may well have been confident that he could resist any suggestion he was implicated in any alleged wrongdoing by Mr Kitas.

173 The primary judge (at [52]) also found support for his conclusion that an agreement had been concluded because by entering into such an agreement the appellant obtained the benefit of EML’s endeavours to devalue the Kitas shares. This passage of his Honour’s judgment is not easy to interpret because his Honour appeared to be saying that that diminution in value was achieved by EML not pursuing the outstanding issues referred too in the amended particulars. However setting that curiosity to one side, the finding that by virtue of the agreement the appellant obtained the benefit of EML’s endeavours to devalue the Kitas shares does not withstand close scrutiny. The EML proposal contemplated that while the appellant would pay Mr Kitas any discounted value of his shares, he would pay the balance (subject to 50 per cent of the KK Loan), to EML. In other words the appellant would pay full value for the Kitas shares. He got no benefit from any diminution in the share value EML achieved. Under the EML proposal it was EML who obtained that benefit. In my view it was an available, and preferable, inference that the appellant would not have perceived any economic incentive for him in the EML proposal. The original lure for him to enter an agreement referred to by Mr James on 22 March 2002 that EML would “assist[] your client to acquire the shares at a price that is likely to be very attractive” was not borne out by the proposal which emerged in the correspondence.

174 Finally, so far as the evidence disclosed no release was ever sought or provided by any of EM or L or the appellant, nor was a new shareholders’ agreement executed: cf par 3, 19 April 2002 letter.

175 The primary judge erred in finding that the subsequent conduct was evidence that a consensus had been reached on or about 6 May 2002.

176 Although not the subject of a ground of appeal I will deal briefly with the parties issue. In my view it was not open to the appellant to complain that any rights under the asserted contract were enjoyed jointly and not severally. Had such a point been taken in the defence or at trial, Mr Eisman and Mr Matthews could have been joined as plaintiffs and, failing their agreement to that course, as defendants. Alternatively, the respondent could have sought an order dispensing with any obligation to join them: UCPR r 6.20. The appellant’s obligation to plead any matter which might take the respondent by surprise was no less than the respondent’s. If he had sought leave to amend the notice of appeal to add such a ground I would not have granted it: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

Quantum

177 I would accept the respondent’s submissions on this point. The balance to be paid referred to in the 6 May 2002 letter was only to be paid to EM and L. It appears to have been accepted by both parties at trial (and on appeal) that if the respondent succeeded his damages would be calculated by reference to the percentage of “D” Class Shares he held. As between EM and L, the respondent held 20 per cent of the “D” Class Shares, which was the figure the primary judge accepted was the appropriate denominator to calculate the respondent’s damages. In my view his Honour did not err in this respect. Assuming for present purposes that EML’s entitlement to payment in accordance with the 6 May 2002 letter was severable, it was appropriate that the respondent’s individual entitlement was calculated by reference to his interest in the “D” Class Shares the three men held, rather than by reference to the overall distribution of the “D” Class Shares as between all shareholders.

Orders

I propose the following orders:

1. Appeal allowed.

2. Set aside the verdict and judgment entered for the respondent and in lieu thereof order that there be judgment for the appellant.

3. Respondent to pay the appellant’s costs of the appeal and of the District Court proceedings.

Suitors’ Fund Act

178 MACFARLAN JA: I agree with both Allsop P and McColl JA.

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Citations

Kriketos v Livschitz [2009] NSWCA 96

Most Recent Citation

Cobrum Capital Trading Pty Ltd v Hanson and Matthews [2010] VCC 627

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37

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Mackay Sugar Ltd v Sugar Australia Pty Ltd [2013] QSC 233

Cases Cited

31

Statutory Material Cited

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Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833

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Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3

CITATION:	Kriketos v Livschitz [2009] NSWCA 96
HEARING DATE(S):	11 February 2009
JUDGMENT DATE:	5 May 2009
JUDGMENT OF:	Allsop P at 1; McColl JA at 16; Macfarlan JA at 178
DECISION:	1. Appeal allowed. 2. Set aside the verdict and judgment entered for the respondent and in lieu thereof order that there be judgment for the appellant. 3. Respondent to pay the appellant’s costs of the appeal and of the District Court proceedings. 4. Respondent to have a certificate under the Suitors’ Fund Act 1951 if otherwise qualified in relation to the costs of the appeal.
CATCHWORDS:	CONTRACTS – offer and acceptance – acceptance by conduct – conduct evidencing acceptance – principles relating to the inference of a contract from conduct and silence – negotiations between parties’ solicitors – no response to last letter from offeror – whether offer accepted – whether final mutual assent to offer - CONTRACTS – subsequent conduct – test to determine whether acceptance of offer can be inferred from subsequent conduct
LEGISLATION CITED:	Corporations Law Suitors’ Fund Act 1951 Supreme Court Rules 1970 Uniform Civil Procedure Rules 2005
CATEGORY:	Principal judgment
CASES CITED:	Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3;(1955) 93 CLR 546 Baloglow v Konstanidis & Ors [2001] NSWCA 451 Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1. Empirnall Holdings Pty Ltd v Machon Paull [1988] 14 NSWLR 523 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 Gould & Birkbeck & Bacon v Mt Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Reports 81-942 Hooker v Gilling [2007] NSWCA 99 Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Markets Ltd & Ors [2008] NSWCA 206 Insurance Commissioner v Joyce (1948) 77 CLR 39 Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5 BPR 11, 110 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 Kitas v Eisman & Ors, (Supreme Court of New South Wales, Master Macready, 10 December 2003, unreported) Kitas v Eisman & Anor, (Supreme Court of New South Wales, Master Macready, 27 February 2004, unreported) Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd [1998] 4 VR 559 Meates v Attorney-General [1983] NZLR 308 Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; (2007) Aust Contract R 90-26 Rambaldi; in the matter of Philip Charles Weeden, a bankrupt v Weeden [2008] FCA 1597 Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 Sagacious Procurement Pty Limited v Symbion Health Limited [2009] HCATrans 23. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Vroon BV v Foster’s Brewing Group [1994] 2 VR 32 White v Overland [2001] FCA 1333
TEXTS CITED:	J Carter, E Peden, G Tolhurst, Contract Law in Australia, 5th ed (2007) LexisNexis Butterworths W Howarth, “Contract, Reliance and Business Transactions” (1987) Journal of Business Law 122, 127
PARTIES:	Bill Christopher Kriketos - Appellant Ivan Israel Livschitz - Respondent
FILE NUMBER(S):	CA 40202 of 2008
COUNSEL:	Mr J Ireland QC for the Appellant Mr A Ogborne for the Respondent
SOLICITORS:	Abelitis Solicitors - Appellant Paul Bard Lawyers - Respondent
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 4779 of 2005
LOWER COURT JUDICIAL OFFICER:	Neilson DCJ
LOWER COURT DATE OF DECISION:	12 June 2008