L. N. E. Cunneen and Co Pty Ltd v Blackburn

[2018] NSWCA 211

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

L. N. E. Cunneen & Co Pty Ltd v Blackburn [2018] NSWCA 211

Hearing dates:

27 February 2018

Date of orders:

27 September 2018

Decision date:

27 September 2018

Before:

Beazley P at [1];
Meagher JA at [2];
White JA at [66]

Decision:

1. Appeal dismissed with costs.
2. Cross-appeal dismissed with costs.

Catchwords:

CONTRACT – formation – where informal agreement that the appellant be remunerated for accounting services by 10% share in the profits of the respondents’ businesses – whether agreement varied to include additional remuneration by 10% share in the capital growth of the assets of those businesses – whether primary judge erred in making certain findings of fact – whether despite absence of particular offer and acceptance parties varied informal agreement by conduct to provide for a capital growth share term

COSTS – where cross-claim under Contracts Review Act 1980 (NSW) dismissed because contract to which relief directed not made out – whether primary judge erred in ordering respondents to pay costs of cross-claim where its merits not finally determined

Legislation Cited:

Contracts Review Act 1980 (NSW), s 7

Cases Cited:

Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97,326
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52

Texts Cited:

N/A

Category:

Principal judgment

Parties:

L.N.E. Cunneen & Co Pty Ltd (Appellant)
Allan Vincent Blackburn (First Respondent)
Carmel Anne Blackburn (Second Respondent)

Representation:

Counsel:

 

D Murr SC and D Smallbone (Appellant)
A Cheshire SC and S Jeliba (Respondents)

 

Solicitors:

  Anderson Lawyers (Appellant)
Mills Oakley (Respondents)

File Number(s):

2017/94319

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Commercial List

Citation:

[2017] NSWSC 73; [2017] NSWSC 677

Date of Decision:

16 February 2017

Before:

McDougall J

File Number(s):

2015/148497

HEADNOTE

[This headnote is not to be read as part of the judgment]

Mr Cunneen, through the appellant company, provided accounting and business advisory services to the respondents, Mr and Mrs Blackburn, who owned two hotels. Shortly after the parties met in October 2009, Mr Cunneen proposed that he be remunerated by a 10% share in the profits of the respondents’ businesses and a 10% share in the capital growth of their assets. On 9 June 2010, he produced a draft deed which included an “equity” entitlement, being a 10% share of all moneys received by the respondents, including profits on sale of their assets.

The appellant received payments equal to 10% of the respondents’ profits from August 2010. On 6 October 2010, the respondents sent Mr Cunneen an email with the subject “Proposed agreement”, attaching “comments for your perusal”. The document concluded: “Hoping you are in agreement with this and we can move forward”. There were few further exchanges between the parties about the subject matter of the proposal and the appellant continued to provide services in return for the 10% profit share.

The appellant claimed to be entitled to a 10% profit share, and a 10% capital growth share. The primary judge (McDougall J) rejected the claim to the extent it asserted any entitlement to capital growth share; and dismissed with costs the respondents’ cross-claim, made under the Contracts Review Act 1980 (NSW), because the contract to which it was directed was not made out. The first conclusion is challenged by the appeal. The respondents argue, by their cross-appeal, that the costs of the cross-claim should not have been awarded where its merits were not finally determined.

The ultimate issue in the appeal was whether, notwithstanding there was no particular “offer and acceptance”, the parties by their conduct had varied their informal agreement to include a 10% capital growth share term. The appellant also contended that the primary judge erred in not making the following findings (relevant to the parties’ conduct):

(i)    Mr Cunneen told Mrs Blackburn by telephone in September 2010 that he would not continue to work without a 10% profit and capital growth share;

(ii)   Mr Cunneen accepted the proposal on 6 October 2010 by a telephone call to Mrs Blackburn; and

(iii)    The closing words of the proposal conveyed an intention to move forward in performance of the agreement, rather than to finalise its terms.

Held (Meagher JA, Beazley P and White JA agreeing), dismissing the appeal and cross-appeal:

In relation to the primary judge’s findings of fact:

1.    The primary judge did not err in recording the effect of Mrs Blackburn’s evidence to be that Mr Cunneen said he would not continue to work unless there was an agreement for his 10% profit share, having found that the evidence of no witness was “inherently reliable” and that there was no contemporaneous evidence establishing a conversation in the terms first asserted by Mr Cunneen in his evidence in reply: at [46]—[48].

2.    His Honour did not err in not accepting Mr Cunneen’s evidence that he telephoned Mrs Blackburn to tell her that they had an agreement, in light of Mrs Blackburn’s denial of such a conversation and her evidence that her husband was handling the proposal. It was unlikely that Mr Cunneen would have received such oral confirmation and let the matter rest there, without seeking to document their agreement. Further, the proposal did not settle the appellant’s entitlement on sale of either hotel; or whether the claimed entitlements would continue after termination of the services agreement: at [50]—[52].

3.    In light of the issues unresolved by the proposal, and the description “comments for your perusal” in its covering email, the closing words of the proposal conveyed no more than a desire to “move forward” by finalising and recording the terms of the bargain: at [54]—[56].

In relation to the ultimate issue in the appeal:

4.    The parties did not intend to vary their informal agreement in one respect, while unrelated matters remained unresolved. It was not established that Mr Cunneen gave an ultimatum that he would not work without the capital growth share. Further, the conversation of 17 August 2012 was equivocal, because Mr Blackburn’s alleged admission did not clearly identify the subject of the 10%: at [57]—[60].

In relation to the cross-appeal:

5.    There was no error in the primary judge’s exercise of the discretion to award the costs of the cross-claim. The primary judge is not shown to have erred in his assessment that the cross-claim was not reasonably commenced; or in concluding that the ordinary rule that costs follow the event had not been displaced: at [63]—[64].

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Meagher JA.  I agree with his Honour’s reasons and proposed orders.

2. MEAGHER JA:

Overview

3. Mr Leigh Cunneen, a chartered accountant, provided accounting and business advisory services through the appellant company to the respondents, who at the relevant times owned two hotels – The Family Hotel at Katoomba and The Alexandra Hotel at Leura – as well as other commercial properties in the Blue Mountains. The professional relationship between the parties commenced in late 2009 and continued until March 2013, when it was terminated by the respondents. This appeal concerns the basis on which the appellant was to be remunerated for those services.

4. The appellant claimed that under an agreement described as partly written, partly oral and partly implied, it was to be remunerated by a 10% share in the profits of the respondents’ businesses and investments, as well as a 10% share in their capital growth; and that the entitlement to the former should continue, notwithstanding the termination of the appellant’s retainer, until the 10% capital growth amount was paid.

5. The primary judge (McDougall J) rejected that claim to the extent it asserted any entitlement to a 10% share in the growth of the capital value of those businesses: L.N.E. Cunneen & Co Pty Ltd v Allan Vincent Blackburn [2017] NSWSC 73. His Honour concluded at Judgment [139]:

(1)    there was an agreement between the plaintiff [appellant] and the defendants [respondents] under which the former undertook to provide professional accounting and business advisory services to the latter, as from time to time requested;

(2)    under that agreement, the plaintiff was entitled to be remunerated by receiving 10% of the profits of the defendants’ business activities;

(3)    in practical terms, the parties treated the profits of [The Blackburn Unit Trust] as a proxy for the profits [from those activities];

(4)    that agreement was one terminable at will;

(5)   it was terminated […] on 27 March 2013, by the giving of oral notice […]

(6)    the plaintiff has no entitlement to share in profits after, at the latest, 30 April 2013.

6. The Blackburn Unit Trust was set up on the appellant’s advice to conduct the hotel businesses from the land and premises owned by the respondents in partnership. His Honour also rejected the appellant’s claim to any continuing share of the profits from the businesses, holding that the profit share entitlement terminated with the services agreement: Judgment [141].

7. The primary judge also dismissed the respondents’ cross-claim, which alleged that, if there were a contract as claimed, it was “unjust” within the meaning of Contracts Review Act 1980 (NSW), s 7 and should be declared void or unenforceable, in whole or in part. His Honour did so because the contract to which that relief was directed, was not made out: Judgment [150]—[151]. The primary judge later held that the respondents should pay the appellant’s costs of their cross-claim: L.N.E. Cunneen & Co Pty Ltd v Allan Vincent Blackburn [2017] NSWSC 677 at [10].

8. The appellant appeals from the rejection of its claim to a 10% share in the capital growth of the businesses, maintaining an entitlement to that share calculated at the date of termination. It does not now press its contention that under the services agreement its profit and growth share entitlements continued until they were in effect “redeemed” by payment of the capital growth share.

9. The respondents, by grounds 3 and 4 of their cross-appeal, challenge the primary judge’s order that they pay the appellant’s costs of the cross-claim. In the light of the appellant making clear that it does not challenge the primary judge’s holding that the profit share entitlement terminated with the services agreement, the respondents do not press grounds 1 and 2 of the cross-appeal.

The appellant’s case before the primary judge

10. At Judgment [95], the primary judge described the way in which the contract argued for by the appellant was said to arise:

(1)    the plaintiff’s “offer” consisting of the provision and discussion of the draft deed, on either or both of 9 June and 20 August 2010;

(2)    the defendants’ 6 October proposal; and

(3)    the plaintiff’s acceptance of that proposal, either expressly and orally (in the conversation that Mr Cunneen said he had with Mrs Blackburn on 6 October 2010) or by conduct.

11. That argument was explained in the appellant’s written submissions to the primary judge:

3.    The plaintiff contends that the contract was formed by submission of a draft deed by the plaintiff on 10 August, 2010, followed by an emailed letter from the defendants on 6 October, 2010 proposing revisions, followed by the plaintiff’s acceptance of that counter offer on or about 11 October, 2010, by express oral statement and thereafter by conduct in continuing to take direction and perform the services and in claiming and receiving payments.

4.    Alternatively, this was one of those contracts where the precise time of its formation cannot be identified, but one can say that the parties so conducted themselves that it must be inferred that a contract came into existence at some point and that it included the terms of the 6 October 2010 letter and, subject to the qualifications imposed by that letter, the terms set out in the 10 August, 2010 draft deed. This inference is supported by a long course of conduct and correspondence, from 2010 to 2013, which is particularised in par. 17C of the Amended List Statement; […]

12. The post-October 2010 conduct relevantly included: that Mr Cunneen provided accounting and business advisory services to Mr and Mrs Blackburn until March 2013; that profit share payments were made during that period; the absence in that period of any further negotiations between the parties concerning the draft deed or the respondents’ October 2010 proposal; and email exchanges between the parties in 2013 in which the appellant asserted, and the respondents did not deny, the existence of an agreement in the terms of the draft deed as varied or qualified by the 6 October 2010 proposal. Accordingly that agreement included an entitlement to the 10% share in profit and capital growth which continued until payment of the capital growth share: Judgment [96], [97].

Findings concerning principal witnesses

13. The primary judge made findings as to the reliability and credibility of the principal witnesses, Mr Cunneen, and Mr and Mrs Blackburn. Those findings are at Judgment [7]-[17] and are not challenged. His Honour did not regard the evidence of any of them as “inherently reliable”, describing it as “substantially reconstructed through hindsight analysis, illuminated by perceptions of self-interest”: Judgment [9]. Accordingly he assessed their evidence by reference to objectively established and contemporaneous material and his assessment of the likelihood that each would or would not have acted at the relevant time in the manner asserted: Judgment [12]-[17].

Uncontroversial findings of fact

14. The initial meeting between the parties occurred in October 2009 and discussions as to how the appellant was to be remunerated continued until mid-October 2010. Those dealings are the subject of findings made between Judgment [23] and [69]. Except in relation to two matters (which are dealt with separately below) those findings are not challenged on appeal.

15. Soon after 11 October 2009 Mr Cunneen proposed that he work “for 10% of the profits of the [respondents’] business and 10% of the growth in value of its assets”: Judgment [21]. In February 2010, on the advice of Mr Cunneen, the respondents’ company, Allan Blackburn Investments Pty Ltd became trustee of The Blackburn Unit Trust. Thereafter, although the respondents in partnership continued to own freehold interests in the two hotels, those businesses were conducted through that unit trust: Judgment [23]. In March, April and May 2010 Mr Cunneen again raised the question of his being remunerated by way of a 10% share of the profits of the businesses, and in their capital growth: Judgment [25], [29], [30]. On 15 May 2010 the appellant sent an invoice to the respondents for work done before 30 April 2010, which was based on what Mr Cunneen described as “heavily” discounted time-based costings: Judgment [30].

16. At a meeting at the respondents’ home in Leura on 9 June 2010, a draft deed setting out Mr Cunneen’s proposal for the remuneration was produced and discussed. It was contentious between the parties whether a copy of that document was left with the respondents then, or at a later meeting on 20 August 2010. The primary judge found that it was likely a copy of the draft deed was provided to the respondents at the earlier meeting: Judgment [40], [41].

17. Provisions of this draft deed are extracted or described by the primary judge at Judgment [80]-[88]. They provided that the appellant receive a monthly fee of $1500 (clause 4); and, in addition, a separate “equity” entitlement being a 10% share of all moneys received by the respondents from their businesses and investments, including the other Blue Mountains commercial properties (clause 5). Those moneys included “all interest, dividends, distributions [and] profit shares” from the businesses as well as “profits on sale of shares, units, assets, investments [and] businesses”. The entitlement to the 10% was to “continue notwithstanding that this agreement may later be terminated”, in which event the 10% “equity” entitlement was to apply thereafter “only to businesses and investments which existed prior to [that] date of termination” (clause 5.2).

18. At a meeting on 26 August 2010, Mr Cunneen produced notices providing for the distribution of the net income of The Blackburn Unit Trust for the year ended 30 June 2010. Those distributions included 10% of that income to a trust controlled by Mr Cunneen, The CR Trust. From that time until the services agreement was terminated, further profit distributions from that trust, each equal to 10% of its net income, were made to The CR Trust: Judgment [50]-[53].

19. In August and September 2010, two specific matters occupied the attention of the respondents. First, they were engaged in correspondence with their banker, Commonwealth Bank of Australia (CBA), in relation to its claim that the hotel business assets had been transferred to The Blackburn Unit Trust without its prior written consent. Mr Cunneen was assisting in their responses to that matter. At the same time the respondents were undertaking renovation works to The Alexandra Hotel. After referring to those works, Mrs Blackburn’s email of 29 September 2010 to Mr Cunneen continued, “We want to put a proposal to you in writing for your consideration and hope to do this in the next day or so if Ok with you.” That proposal concerned the basis on which Mr Cunneen was to be remunerated, and was made by email on 6 October 2010.

20. That email described its subject as “Proposed agreement” and continued “attached are the comments for your perusal”. The attachment was as follows (Judgment [89]):

Dear Leigh,

Thanks for your email and your understanding of the busy weekend we had – which was very successful, we are receiving many positive comments and feedback about the Friday night launch. With 2 nightclubs we certainly know hard work.

We have had time to discuss the full proposal with the family and have all agreed that your professional input is positive to the future financial aspect of the businesses.

The current valuations of the hotels are $4.585 for the Family, and $2.5 for the Alex by Robinson & Robinson. These would be the valuations that any further growth would be based upon in terms of your 10% requirement.

We see these figures as the value of the hotels when you joined us.

Prior to the bank wanting a valuation on the Alex, Knight Frank had a valuation of $3.0.

At the present time we are committed to long term ownership of both hotels but,

If the Family Hotel is sold to a large conglomerate (eg. Dan Murphy or McDonalds) within 3 years you would receive a figure to be agreed on – not 10% of growth of the hotel from the valuation (as Dan Murphy has already offered us $6.5 million)

The above would also translate to the Alex.

If either party wish to terminate this agreement and a capital growth figure cannot be resolved between the 2 parties then both parties are to pay for a sworn valuation from a recognised valuer.

Hoping you are in agreement with this and we can move forward

Regards

Allan & Carmel

21. After October 2010 the appellant continued to provide services to the respondents, and to receive, via The CR Trust, 10% of the profits from The Blackburn Unit Trust. Apart from the three conversations referred to immediately below, and a conversation in August 2012, there were no further negotiations between the parties concerning the draft deed, or the respondents’ 6 October proposal.

Three conversations around October 2010

22. Three conversations occurred around the time that proposal emerged. His Honour’s findings in relation to two of them are challenged. As to the first, which was said to have occurred in late September 2010, the primary judge records at Judgment [54]:

[…] according to Mrs Blackburn, she received a telephone call from Mr Cunneen in which he said that if there were no agreement for him to have a 10% profit share, he would not continue to work for the defendants. That is a little difficult to understand, because the 10% profit share basis of remuneration appears to have been settled, at the latest, by August 2010 (and the first payments had been made before the discussion to which Mrs Blackburn referred). Regardless, Mrs Blackburn told Mr Cunneen (so she said) that Mr Blackburn intended to prepare a proposal to submit to Mr Cunneen.

23. The appellant contends that the primary judge should have found, and taken into account as part of the relevant conduct of the parties, that from this point Mr Cunneen had indicated that he would not continue to work for the respondents unless there was an agreement for him to have a 10% profit and growth share.

24. As to the second conversation, Mr Cunneen’s evidence was that on 6 October 2010, he spoke to Mrs Blackburn as follows.

Mr Cunneen:    I have received your email and that proposal is fine. You want to put a base value on the properties. I am fine with all of that. Let’s get on with it. We have an agreement!

Mrs Blackburn: Yes.

25. Mrs Blackburn denied this conversation occurred, and the primary judge did not accept Mr Cunneen’s evidence and accordingly did not find that there was such a conversation. His Honour’s reasons are at Judgment [66]-[69]. They include that if such a conversation had occurred it was “implausible in the extreme” that Mr Cunneen would have let the matter rest there, and would not have confirmed it and then sought to redraft the deed to incorporate the respondents’ proposal. The appellant contends that the primary judge should have accepted Mr Cunneen’s evidence and taken it into account when evaluating the subsequent conduct of the parties.

26. The third conversation, the occurrence of which is not challenged, was between Mr Cunneen and Mr Blackburn, and shortly after 6 October 2010. In response to a question from Mr Cunneen as to how much he was likely to receive in the event that The Family Hotel was sold to Dan Murphy’s, Mr Blackburn said:

Mr Blackburn: […] I would give you $50,000 if we sold to Dan Murphys.

Mr Cunneen:    Well I would want at least $200,000.

Mr Blackburn:   Well you can whistle Dixie for that because you won’t be getting it.

27. Mr Blackburn maintained that this conversation occurred after the 6 October email had been sent. At Judgment [111] the primary judge accepted that evidence.

Conversation on 17 August 2012

28. There is one further conversation to which reference must be made. At a dinner at Leura on 17 August 2012, according to Mr Cunneen, Mr Blackburn said:

We have discussed it with the whole family, and all agree that you get your 10% share, no matter what happens in the future. We would have been cactus without you.

29. Mrs Cunneen’s evidence of that conversation, which the primary judge accepted (see Judgment [14], [72], [73]) included that Mr Blackburn said:

Your finance proposal really helped us and gave us more time. We’d have been cactus without you. You’ve got your 10% no matter what.

And that Mrs Blackburn said:

Oh, we all agreed, the whole family, some time ago, but we knew we had to make Allan say it to you himself.

30. Mr Blackburn denied, and Mrs Blackburn could not recall, using the words attributed to each of them. The primary judge disregarded Mr Blackburn’s alleged admission on the basis that “on no version of the conversation did the words “your 10%” identify the subject, 10% of which was to go to the plaintiff”: Judgment [74].

Reasoning of the primary judge

31. The primary judge dealt with the appellant’s case as follows. First, assuming that the draft deed was an offer by the appellant to the respondents to provide services on the terms of that document, there was no acceptance of that offer by the respondents, either expressly or by implication, at any time before they submitted the 6 October 2010 proposal: Judgment [103], [106], [107]. That conclusion is not challenged on appeal.

32. Secondly, that the 6 October proposal was not a counter-offer capable of acceptance by the appellant so as to lead, without more, to a concluded and legally enforceable contract on the terms of the draft deed as varied or qualified by the October 2010 proposal: Judgment [110]. Rather it was a statement of the respondents’ position concerning the appellant’s “unresolved” claim to a share in capital growth; and by its closing words was reasonably understood as an invitation to the appellant to proceed to finalise and formalise the terms of a more complete bargain in light of that proposal: Judgment [113]. Thirdly, if that proposal was regarded as a counter-offer capable of acceptance, it was not expressly accepted and its acceptance could not be inferred from the subsequent conduct of the parties described above: Judgment [117], [119], [120], [137].

33. The second and third of these conclusions separately justified the rejection of the first way in which the appellant’s claim was put. Neither of those conclusions is challenged on appeal. Rather, as the appellant’s written submissions make clear:

… [the appellant’s] case was put on an alternative basis, that “this was one of those contracts where the precise time of its formation cannot be identified, but one can say that the parties so conducted themselves that it must be inferred that a contract came into existence at some point”. In the light of the trial judge’s findings, this is the only basis to be considered in the appeal. (Emphasis added)

34. The primary judge formulated the general question arising on that alternative case as being whether there could be inferred from the parties’ conduct after 6 October 2010 “the existence of some agreement between the [appellant] and the [respondents] and the terms of that agreement (whether or not referrable, among other things, to the 6 October proposal)”: Judgment [118]. In approaching that question, his Honour made the following findings: first, that between June and October 2010 Mr Cunneen had pressed the respondents to formalise their response to the draft deed “so that an agreement comprising the whole of the parties’ bargain could be prepared and signed”: Judgment [108]; secondly, that whilst not a counter-offer capable of acceptance, the 6 October proposal was a statement of the respondents’ position in relation to capital growth share issue, made to assist in the negotiation of a formal agreement containing all of the terms of the parties’ bargain: Judgment [110], [113], [114]; and thirdly, that there was an existing informal contract between the parties for the provision of services under which the appellant was remunerated by a 10% share of net income: Judgment [119], [139]. He concluded that no variation of the existing contract could be inferred from the parties’ conduct after October 2010 and also rejected the appellant’s argument that the respondents had made an admission as to the existence of such a varied contract: Judgment [120], [137], [140].

35. Finally, the primary judge accepted the respondents’ “fall back” submission that if their 6 October proposal was a counter-offer it was uncertain in an essential respect and not capable of resulting in a binding variation to the agreement. That was said to be so because that proposal included that if either the “Family” or “Alex” hotel was sold to a “large conglomerate within 3 years” the amount of the growth share “to be agreed” remained. The primary judge identified that subject as one as to which the parties expected to reach consensus before they had any binding contract (rather than at the time of any such sale) and concluded that consensus was “integral to the subject-matter of the 6 October proposal”: Judgment [143], [144], [145].

The issues in the appeal

36. The appellant challenges his Honour’s conclusion at Judgment [140] and in doing so takes issue with his findings as to the primary facts in three respects. First, it is said that his Honour should have found that in late September 2010 Mr Cunneen told Mrs Blackburn that if there was no agreement for him to have a 10% profit and capital share he would not continue to work for the respondents. Secondly, it is said he should have found that on 6 October 2010 Mr Cunneen telephoned Mrs Blackburn and advised her that proposal was “fine” and that they had an agreement. The appellant submits that the resolution in its favour of the first of these challenges makes it more likely that the conversation which is the subject of the second occurred as Mr Cunneen maintained.

37. Thirdly, it is submitted that his Honour should have held that the closing words of the respondents’ October 2010 proposal conveyed to a reasonable person in the position of the appellant that they sought to “move forward in performance of a contract incorporating these terms”. Instead the primary judge held those words to convey no more than that they wished to finalise the terms of their bargain with the appellant: Judgment [113].

38. Next, the appellant submits that taking account of the following conduct and dealings the primary judge should have concluded that there was a binding agreement for the 10% capital growth share:

(a)    The fact that [Leigh] Cunneen had sought a percentage of growth share from a very early stage of the parties' relationship, and that both sides knew and accepted that this requirement was "on the table".

(b)    The conversation between Leigh Cunneen and Carmel Blackburn recorded in paragraph 23 of Allan Blackburn's affidavit of 23 November 2015, to the effect that if there were no agreement for him to have a 10% profit and growth share in the business, he would no longer work with them.

(c)    The fact that the Blackburns had sent the 6 October proposal and its terms.

(d)    The absence of any further negotiation after the 6 October proposal.

(e)    The fact that Leigh Cunneen continued to work for the Blackburns for about two and a half years after the email.

39. It is not controversial that the question whether a concluded agreement (or as here, a variation to an existing informal agreement) may be inferred from the conduct and dealings of the parties is to be determined objectively from the point of view of a reasonable person in the position of those parties: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at [25] (Gaudron, McHugh, Hayne and Callinan JJ). And in this context difficulties in analysing the dealings into a strict classification of offer and acceptance are not decisive: see Heydon JA’s discussion in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [73]—[81].

40. Furthermore, a legally enforceable contract may exist notwithstanding that it is not possible to identify the precise time of its formation, or a particular “offer” and “acceptance”. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97,326 at 8, McHugh JA (Hope and Mahoney JJA agreeing) said:

Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.

41. And Allsop J (Drummond and Mansfield JJ agreeing) observed in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369], that even in the absence of a clear offer and acceptance, and without being able to identify precisely when a contract arose, the existence of a contract will be recognised if “by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding”.

42. Applying these principles, it is said that the primary judge erred in not concluding that following the September phone call and the 6 October 2010 proposal, it was to be inferred from Mr Cunneen’s conduct in continuing to provide services and the Blackburns’ acceptance of those services that they intended and agreed that the appellant should receive a 10% capital growth share.

43. The appellant, as it must, also challenges the primary judge’s holding that there could be no such binding agreement without consensus as to the amount to be paid in the event that either of the hotels was sold within three years.

44. The challenges to the primary judge’s fact finding, and conclusion as to what the respondents’ conduct conveyed, must be dealt with first.

Challenges to fact finding

45. As to first challenge (see [36] above). The primary judge did not make any express finding that Mr Cunneen told Mrs Blackburn in late September 2010 that he would no longer work for the respondents if there was no agreement in place for him to have a 10% profit and growth share. Rather his Honour observed at Judgment [54] that according to Mrs Blackburn’s evidence Mr Cunneen said that he would not continue to work for the respondents unless there was agreement for him to have such a 10% profit share. The appellant submits that his Honour’s observation is “mistaken” in failing also to refer to the requirement for a 10% growth share. It is also submitted that the primary judge erred in not finding that such a conversation occurred.

46. I am not satisfied that the primary judge erred in recording the effect of Mrs Blackburn’s evidence, or in not making a finding as contended for by the appellant. The evidence said to support that finding is affidavit evidence of Mr Blackburn as to what his wife told him about such a conversation. Mr Cunneen first gave evidence of a conversation to that effect in his evidence in reply. His evidence in chief was that at around this time he told Mrs Blackburn that “I need to know the basis of me working with you”. Mrs Blackburn said in cross-examination that she did not recall having any conversation with her husband about Mr Cunneen requiring a 10% capital growth share, in addition to the profit share.

47. In this state of the evidence, the primary judge’s description of the effect of Mrs Blackburn’s evidence was correct. His observation that the evidence was “a little difficult to understand, because the 10% profit share basis of remuneration appears to have been settled” (Judgment [54]) was also justified, and shows that his Honour did not mistakenly omit any reference to the capital growth share.

48. Where his Honour found that none of the evidence of these witnesses was “inherently reliable” (Judgment [9]) and there is no contemporaneous evidence which establishes that a conversation occurred to the effect first asserted by Mr Cunneen in his evidence in reply, this Court is not in a position to make a different finding from that made, or conclude that his Honour erred in not doing so.

49. As to the second challenge (see [36] above). The primary judge gave three reasons for not accepting Mr Cunneen’s evidence that he had telephoned Mrs Blackburn on 6 October 2010 and told her that they had an agreement, to which she responded “yes”: Judgment [66]—[69]. He did so in the context of Mrs Blackburn’s denial that such a conversation occurred, and her maintaining that she did not deal with the subject matter of the proposal because it was being handled by her husband who “wrote the document”: Judgment [60]—[61].

50. The appellant argues that in the light of Mr Cunneen’s continuing commitment to obtain an agreement it is improbable that he had simply let the matter rest there; and far more likely that having received a proposal that he was satisfied with, he called Mrs Blackburn and said so. This submission does not squarely confront the third of his Honour’s reasons for not accepting Mr Cunneen’s evidence that he was content to leave the fact of a final agreement to rest on an oral confirmation. That third reason (see Judgment [68] and [69]) was as follows:

[68]    Third, it is to my mind implausible (to say the least), bearing in mind my assessment of Mr Cunneen as a careful, competent and experienced accounting professional, that Mr Cunneen would have been content to base the plaintiff’s relationship with the defendants on the basis of a phone call, without (at the very least) confirming the conversation and the “agreement” in an email, or making a note of the conversation in a file note.

[69]   The whole tenor of this aspect of Mr Cunneen’s evidence is that he wanted the plaintiff’s relationship with the defendants to be formalised in a signed agreement, setting out the full details of their bargain. That was why he had drafted the deed that was shown to and discussed with the defendants. That is why he invited the defendants to respond with any changes that they wished to make. It is implausible in the extreme that, having had a response from the defendants, Mr Cunneen would have let the matter rest with an oral confirmation over the telephone, and would not have sought to redraft the deed to incorporate the defendants’ proposal. His casual attitude is completely at odds with his insistence, from March or April 2010 through to August 2010, that the agreement should be formalised.

51. The appellant’s argument also assumes that the 6 October proposal was one which dealt with all the outstanding issues and was acceptable to Mr Cunneen. The unchallenged evidence of the exchange between Mr Blackburn and Mr Cunneen shortly after the proposal was made (see [26] above) indicated that there was no consensus as to what the appellant might be paid on an early sale of either hotel. Nor, more significantly, was it the case that Mr and Mrs Blackburn’s proposal resolved one of the other important matters proposed by the draft deed, namely that the appellant’s profit and growth share entitlements should continue after termination of the services agreement. That subject was not addressed by their proposal, and at the same time appeared to be inconsistent with it.

52. The absence of clarity as to how the subject was to be resolved, as well as the absence of commercial agreement as to the profit share that would or might be received on an early sale of one of the hotels support his Honour’s conclusion that if a conversation in the terms asserted had occurred, Mr Cunneen would have recorded the fact of the conversation in some way and at the same time sought to finalise the parties’ agreement as he saw it. The primary judge’s reasoning for preferring Mrs Blackburn’s version of events is not shown to involve any error.

53. As to the third challenge (see [37] above). At Judgment [113] the primary judge concluded:

Although the words are not clear, it seems to me that, viewed against the protracted background of negotiation, including Mr Cunneen’s repeated requests for finalisation and documentation of the bargain … [the concluding words of the 6 October proposal] in context, mean no more than that the defendants wished to finalise the terms and complete the formalisation – documenting and signing – of their bargain with the plaintiff.

54. The subject matter to which the 6 October email and attached “comments” were directed was the “Proposed agreement”. That was a reference to Mr Cunneen’s draft agreement which was discussed at a meeting in early June 2010. Mr Cunneen had already, in earlier conversations, made known that he sought to be remunerated by a 10% share of both profit and capital growth. The draft deed provided that the entitlement to those 10% shares should continue, so that the profit share was not limited to profits earned during the life of the agreement.

54. However, the 6 October proposal only addressed Mr Cunneen’s requirement for a share in capital growth and did not address the proposal that any profit and growth share entitlements should continue beyond termination of the appellant’s services. Although aspects of what the respondents proposed were inconsistent with the existence of such a continuing entitlement, the terms of their proposal do not clearly and unambiguously address that subject. They also leave “to be agreed” what should happen in the event of a sale of either of the hotels.

55. Finally, the covering email described what was proposed as “comments for your perusal”. Having regard to these matters, I agree with the primary judge’s assessment that the closing words of the respondents’ proposal conveyed no more than a desire to “move forward” by finalising and recording the terms of the parties’ bargain.

Challenge to the conclusion that there was no variation of existing agreement

57. It remains to consider whether, notwithstanding that there was no particular “offer and acceptance” in or before October 2010, the parties should be taken to have varied the terms of their informal agreement to include a 10% growth share.

58. The appellant accepts that an important matter in this way of putting its case is Mr Cunneen’s asserted statement that further services would not be provided unless his remuneration included the growth share. The appellant has not established that such an ultimatum was made.

59. I agree with the primary judge’s assessment that viewed objectively the parties should not be taken to have intended to vary their informal agreement in only one respect when there were other related matters remaining unresolved, the appellant had to that point been pressing for a finalised and formal agreement and in response the respondents had indicated a desire to move forward, whilst at the same time leaving some matters unresolved. The respondents’ October proposal left open the issue of the appellant’s growth share entitlement on the sale of their principal assets. That in turn raised questions as to what growth share entitlement might arise on an earlier termination, and how that entitlement could be reconciled with the proposed special arrangement for any relevant sale.

60. In these circumstances, there was no clear agreement as to the subject of the capital growth share and no intention to be immediately bound to a variation, whilst the remaining issues were unresolved. The conversation of 17 August 2012 does not alter that conclusion. It was equivocal, because on no version of Mr Blackburn’s alleged admission (“You’ve got your 10% no matter what”) was the subject of that 10% clearly identified.

The cross-appeal as to costs

61. The respondents do not press grounds 1 and 2 of their cross-appeal. However, they maintain their challenge to the primary judge’s order that they pay the appellant’s costs of the cross-claim.

62. His Honour’s reasons for making that order ([2017] NSWSC 677) include at [7] and [8]:

[7] That leaves the question of the cross-claim. Essentially, it sought relief under the Contracts Review Act 1980 (NSW). On the view of the contract to which I have come, that did not arise. However, I did express the view that there was no element of procedural injustice in the way that the bargain between the parties had been formed, and that this would be so even if the bargain were that for which the plaintiff contended, rather than that which I found had been made.

[8]   Mr Cheshire of Senior Counsel, who appeared for the defendants both at the hearing and today, suggested that the cross-claim was really defensive. That may be so; but it seemed and still seems to me that there was no basis shown for relief under the Act.

63. The appellant argues that there was no error in his Honour’s exercise of discretion to award costs. The question was whether the cross-claim was reasonably commenced as part of the respondents’ defence to the appellant’s claim to an ongoing entitlement to the profit and capital growth shares. The primary judge considered it was not, so that the ordinary rule that costs follow the event was not displaced. Taking a necessarily broad and preliminary view, the primary judge considered that “there was no element of procedural injustice in the way” the parties’ alleged bargain was formed.

64. His Honour did not err in approaching the exercise of the costs discretion in this way or in making that assessment. The cross-appeal should be dismissed with costs.

Conclusion

65. Accordingly, the following orders should be made:

1. Appeal dismissed with costs;

2. Cross-appeal dismissed with costs.

66. WHITE JA: I agree with Meagher JA.

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Decision last updated: 27 September 2018