Lowery & Anor v Drennan
[2010] VSCA 239
•17 September 2010
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2009 3770
| RICHARD LOWERY | First Appellant |
| and | |
| REBECCA LOWERY | Second Appellant |
| v | |
| DAVID DRENNAN | Respondent |
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| JUDGES | WEINBERG, BONGIORNO and HANSEN JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 27 July 2010 |
| DATE OF JUDGMENT | 17 September 2010 |
| MEDIUM NEUTRAL CITATION | [2010] VSCA 239 |
| JUDGMENT APPEALED FROM | Drennan v Lowery & Anor (Unreported, County Court of Victoria, 15 April 2009, Judge Cohen) |
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CONTRACT – Sale by the respondent to the appellants of a company share together with certain company assets – Conclusion by trial judge that a binding agreement had been reached – Offer and acceptance – Whether formation of contract subject to execution of formal terms – Whether formation of contract subject to second appellant obtaining legal advice – Whether first appellant was a party to the contract – Whether a payment of $10,000 by the first appellant to the respondent constituted a deposit – Whether trial judge’s findings of fact supported by evidence – Appeal allowed in part.
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| Appearances: | Counsel | Solicitors |
| For the Appellants | Mr M J Galvin | Stynes Dixon |
| For the Respondent | Mr S Rubenstein | Macpherson + Kelley |
WEINBERG JA:
I agree with Bongiorno JA.
BONGIORNO JA:
X-Cell Tech Pty Ltd (‘X-Cell Tech’) manufactured shower bases in a factory in Dandenong owned by the first appellant. The company had been formed in 2003 to take over an existing business owned by him and the respondent. After the company’s formation the first appellant and the respondent each held one of two issued shares in it and were both directors of it. The second appellant is the first appellant’s daughter and worked as an office manager for the company.
This case concerns an alleged breach by the appellants of an oral agreement between the respondent and them that they would buy his single share in X-Cell Tech for $100,000 plus 50 per cent of the total of the company’s debtors, cash at bank and stock and materials on hand at the date of settlement (‘the other amounts’). That date was to be 31 August 2007. The agreement was said to have been made in discussions between the parties on or about 31 July 2007. The respondent alleged that the agreement provided for payment of the $100,000 ‘immediately’ with the other amounts payable on 31 August.
Although a payment of $10,000 was made by the first appellant to the respondent on 31 July, no further payment was ever made and no further steps were taken by either party to perform the alleged agreement. On 5 February 2008 the respondent filed a writ in the County Court seeking specific performance of the agreement, alternatively damages and other relief. By the time the case got to trial in February 2009, X-Cell Tech had been liquidated so that specific performance was no longer an appropriate remedy. The case proceeded as a claim for damages, the quantum of which appears to have been either agreed or not really contested. The trial judge found that the respondent had proved his case and awarded him $212,195.50 against both appellants.
From that award the appellants appealed to this Court. Although their notice of appeal contained 13 grounds, each concerned with specific findings of fact made by the trial judge, the real issue between the parties was whether there was any concluded agreement between them as to the sale of the respondent’s share in the company as he alleged. There was no appeal as to the quantum of damages.
Background
Although the respondent and the first appellant had been friends for 40 years, in 2006 their relationship became strained with regard to the direction and operation of X-Cell Tech’s business. In early 2007, two cousins, John and Fabrizio Ubaldi, became interested in buying the business and negotiations between them and the first appellant and the respondent began. The parties fixed $200,000 for the goodwill and machinery of the business and up to $30,000 for stock. The price did not include the company’s debtors. Negotiations continued over the first half of 2007 but, by July, appeared to be foundering over concerns expressed by the Ubaldis as to some of the accounts of the business. They were particularly concerned as to the inability of X-Cell Tech to explain a number of alleged discrepancies in the financial information provided concerning sales and amounts banked to the company’s account.
On 26 July 2007, there was a meeting between the respondent, the first appellant and the Ubaldis at the X-Cell Tech factory. The outcome of this meeting was that everyone was in agreement that the discrepancies should be explained if possible but, if they could not be explained, the Ubaldis would go ahead with their purchase of the business anyway for the price agreed upon.
It was common ground between the parties that shortly before the meeting with the Ubaldis the second appellant had approached the respondent and asked him whether, if the sale to the Ubaldis did not go ahead, he would be prepared to sell his share in the company to her and that he agreed. Indeed, it was the respondent’s case – denied by the appellants – that some five or six months prior to July 2007, but after the Ubaldis had expressed an interest in buying the company’s business, the second appellant had raised the issue of the respondent selling her his share in the company. However, nothing eventuated at that time and it was not until the Ubaldi negotiations appeared to be stalling that the second appellant raised the matter again.
The respondent said in his evidence that on 27 July he arrived early at the factory to try to resolve the problem with the company’s accounts which had concerned the Ubaldis. He was unable to do so and told the appellants, who were both then present, that the Ubaldis would just have to accept his figure and ‘go ahead with the offer’. The respondent said that the first appellant then said that he and the second appellant had spoken about buying him out and were prepared to do so if he would sell. He said that the Ubaldis should be given ‘the right of first refusal’ because they had put in a lot of work in getting to the stage they had reached. The respondent said that he told the first appellant that he, the first appellant, should tell the Ubaldis that they had the right of first refusal because he had been the principal negotiator with them. He said the first appellant agreed to do so.
The respondent produced a diary note in the course of his evidence, dated 27 July 2007, in terms:
‘Richard and Rebecca offered to buy me out.’
He said it was a contemporaneous note. The respondent said that no terms were discussed as to the appellants buying his share in the company.
The respondent said that on the following day, a Saturday, he received a phone call from John Ubaldi who told him that the first appellant had got in touch with him to say that the deal with him was off. He said that Ubaldi wanted to know why this was so. He said he told Ubaldi that the first appellant was supposed to have told him that he and his cousin had the right of first refusal. The respondent said that Ubaldi told him that he and his cousin still wished to go ahead with the purchase and that he would bring a cheque for the $200,000 price, despite the issue as to the company’s accounts not being clarified, on the following Monday.
The respondent said that on Monday 30 July he arrived at the factory at his normal time, about 7.00am. The appellants arrived about 8.30 or 9.00am. The respondent said that he asked the first appellant to explain why he had not offered the Ubaldis the right of first refusal as they had agreed he would on the previous Friday. He said that the first appellant was adamant that there was going to be no sale to the Ubaldis but that instead, he, the respondent, was going to sell his share to the second appellant. He said that, as there could be no sale of the business to the Ubaldis without the first appellant’s consent, he then agreed to sell his share to the appellants. He said that the parties agreed to meet again the following day.
The respondent said that on the following day, 31 July, a Tuesday, he had a discussion with the appellants at the factory around 8.30 to 9.00am. He said that he told them that he had not been able to get in touch with John Ubaldi to tell him that he was going to sell his share to the appellants. He said that ‘the three of us knew’ there was a deal whereby the sale of his share for $100,000 would place him in the same position as if the business was sold to the Ubaldis for $200,000. He said ‘the other terms and conditions on the transfer of my share to them were the equivalent of the deal that we’d ironed out with the Ubaldis over the six months’. He was asked if he said ‘What that was’ and answered ‘we went through them, yeah we went through these terms’. The following exchange took place with the trial judge:
HER HONOUR: What did you go through?
RESPONDENT: The fact that the $100,000 represented the value of the business, the goodwill plus the plant and machinery only and that the other assets attached to the business, attached to the company, would be split 50/50, that is to say the cash at bank at settlement, the value of the inventory at settlement and the debtors at settlement would be split down the middle and I would get half of the value of that at settlement in 30 days time.
Despite some attempts by counsel to elicit evidence from the respondent appropriately; that is to say by his giving evidence as to what was said rather than his interpretation of it, the respondent’s evidence was, in many respects, conclusionary in nature. However he did repeat the substance of the conversation which he said he had with the appellants on more than one occasion in the course of evidence in chief. Finally, when asked as to what the appellants actually said about the terms of sale of his share, the following exchange took place:
COUNSEL: What did [the appellants] say about those terms? ---They were happy with it.
COUNSEL: What did they say to you about those terms?
HER HONOUR: One by one if you can recall what each of them said?---Yes, well the conversation was principally with [the first appellant]. They were both in the office with me, but the conversation was principally with [the first appellant], and it had been opened with him saying we’re prepared to buy your share, and then after – as I said after – this is a Tuesday, this is after everything’s finished with Ubaldi – after they had said they’re willing to buy my share the previous day we were talking about the actual details of what was going to happen and as we were talking about them I wrote them down on a foolscap piece of paper, namely there would be $100,000 for the transfer of the share, plus 50 per cent of the debtors, plus 50 per cent of the inventory, plus 50 per cent of the cash at bank at settlement to be in 30 days time.
COUNSEL: You say you wrote that down. What did you do, did you show that piece of paper to [the appellants]?---I can’t recall [the second appellant] looking at it. [The first appellant] certainly – he was standing beside me while we were discussing these points while I was writing them down and I handed it to [the first appellant] on the understanding that was saying – saying that was to be the basis of the agreement to transfer my share to [the second appellant] and for that to be formally drawn up by his lawyers, his friends.
The respondent said that he gave the piece of paper upon which he had written the terms to the first appellant and has never seen it since. It was not produced on discovery by the appellants whose case is that it never existed.
The respondent said that at some time during that meeting, either before or after the note was written, the first appellant opened his briefcase and took out a cheque which had already been written. The respondent said that the first appellant handed the cheque to him. It was for $10,000. He said that he said words to the effect ‘… this is a sign of our good faith’. To which the respondent said he replied:
No, it is not good faith, it is 10 per cent of the value of the share, it is a 10 per cent deposit’.
At this point the respondent said that the second appellant interjected and said to the first appellant ‘I don’t think you should be giving him the cheque dad’. The respondent said that he said ‘why’? At which the second appellant said ‘don’t give him the cheque until we have the papers drawn up’. The respondent immediately added ‘or until we see the lawyers’.
Whilst the handing over of the $10,000 cheque at this point was not in dispute, the description of that amount as ‘a deposit’ was. The appellants contended that the payment was made merely as a sign of good faith and not as a part payment pursuant to any agreement. It is appropriate to interpolate at this point that the butt of the $10,000 cheque was never produced by the appellants on discovery. However, after the hearing of the appeal, the Court received (by consent of the parties) copies of correspondence between their solicitors which included a letter dated 24 October 2008 from the appellants’ solicitors explaining their inability to produce the relevant cheque butt. The letter contained the following paragraph:
2.[The first appellant] is currently unable to locate the cheque butt referred to in your letter dated 7 October 2008. [The first appellant] believes that the cheque butt may have been provided to his accountant and has requested that his accountant search his files. We have requested that our client follow-up this matter and revert to us as soon as possible;
The cheque butt has never been produced.
The respondent said that after the cheque was handed over, the first appellant left the room or perhaps the premises. The respondent said that the second appellant then asked him if they could have time to pay the other amounts due in respect of the sale of his share out of the company cash flow in three equal instalments. The respondent said he agreed to this proposition.
The respondent said that on the following day, Wednesday 1 August, he deposited the cheque in his bank account and subsequently annotated his record of the deposit with the words ’10 per cent deposit on sale of XCT share’. The respondent concluded his evidence in chief by saying that he never received any documents from the appellants with respect to the transfer of his share and that when he made enquiries of them as to where the documents were he was given various excuses ranging from ‘the solicitor has other matters’ to ‘he’s working on them, we should have them in a week or two’.
The respondent said the matter was not discussed again until, on 30 August, he received a letter from the appellants’ then solicitors seeking undertakings from him with respect to alleged unrelated breaches of his duties as a director of X-Cell Tech and threatening legal action. He said that he attempted to discuss with the first appellant the substance of the letter, but received the reply that he should see his own lawyers. He said that, subsequently, the first appellant offered to drop the threats raised in the letter if he, the respondent, would take $45,000 for his share in the business. Earlier, he said the second appellant had told him that she could not proceed with the sale while there was ‘action pending between the Directors’.
It was put to the respondent in cross-examination that the second appellant had maintained that, although she was interested in buying his share of the business, she said she would need to get legal and accounting advice before she did anything. He denied that that was her stated position. He said that the offer to buy his share had been made by the appellants ‘in conjunction’.
The only other witness called on behalf of the respondent at trial was John Ubaldi. Mr Ubaldi gave evidence that he received a telephone call from the first appellant on Friday 27 July during which the first appellant told him that the business was off the market. He said that the first appellant told him:
… the business was off the market, it’d been going on for too long, an offer had been made to [the respondent], [the respondent] had accepted. A deposit had been negotiated, either paid for, or money had transacted, I’m not quite sure of the details, whether the money had physically transacted, that the sale would not be proceeding with us …
He was adamant that the first appellant had used the word ‘deposit’. He said that the first appellant told him that he was buying ‘it’. He said the first appellant mentioned Rebecca (the second appellant) and said that he was also thinking of bringing his son in.
In cross-examination it was suggested to Mr Ubaldi that the first appellant did not tell him that there had been any agreement as to the basis of the take over of the respondent’s share. Mr Ubaldi replied:
He said there was a deposit, because I asked, ‘Is it over, is it finished. Is there an opportunity for us to re-engage in negotiations?’ The answer was ‘No’ because there had been agreement on a deposit.
Each of the appellants gave evidence, but called no other evidence.
The first appellant said that after the meeting with the Ubaldis on 26 July he said to the respondent ‘Well I don’t think it’s going anywhere’. He said that the respondent then asked his daughter, the second appellant, if she still wanted to buy his share. He said that she replied that she still wanted to buy his share but that she would have to go and seek advice before she did. He said that she said that she had a friend who was a solicitor and she would go and speak to him.
The first appellant said that he spoke to John Ubaldi on the Friday evening and told him that the sale of the business to the Ubaldis was not going to go ahead, that the second appellant had offered to buy the respondent’s share and that he had accepted. He said that he next saw the respondent on Monday morning, 30 July. The respondent told him that the Ubaldis were not happy about not buying the business and still wanted to do so. The first appellant said that the respondent said that he didn’t care because he just wanted to sell his share. He wanted money. He didn’t care who he sold the share to. The first appellant said he told the respondent that he could give him some money. He said that because they had been friends for 40 years he thought it would be ‘a gesture of good faith’.
The first appellant said that the following day, 31 July, he met the respondent at the company premises in Dandenong and that the respondent said to him ‘I suppose that cheque is burning a hole in your pocket’. He said that he went to his briefcase, took a cheque out and gave it to the respondent. He had written the cheque earlier that morning. It was for $10,000 payable to the respondent. He said the amount of $10,000 was fixed ‘as a reasonable price, it was better than giving him 50’. He said that his daughter said that he ought not give the respondent the cheque.
On the first appellant’s version there was no discussion on 31 July as to the purchase by him and the second appellant or, for that matter, the second appellant alone about buying the respondent’s share in the company. He did not, in terms, deny the version given by the respondent, nor did he give any evidence in chief concerning the document which the respondent said he wrote and handed to him.
In cross-examination the first appellant insisted that his daughter was buying the respondent’s share in the company, not him. He denied that he had said anything to John Ubaldi about having paid a deposit. He said he didn’t mention money to Mr Ubaldi at all. When cross-examined about the written document which the respondent said he gave to him, he denied that that event occurred. He said that he gave the respondent money because he wanted money and it was a ‘show of goodwill’. He said:
We were genuine, wanted to buy the business whereas Ubaldi – or [the second appellant] wanted to buy the business because Ubaldis had messed us around and nothing was happening, and showing this good faith that we’re going to go ahead with it and do something.
He said the figure of $10,000 was selected because it was what he could afford, although he agreed that it did represent ten per cent of the cash sum for which the share would be sold. When questioned about the $10,000 further, the first appellant agreed that he had never made any demand for the return of that money notwithstanding that on his case, there was no agreement. He never asked for it back. The first time he had sought to bring it to account was when the defence and counter-claim in this proceeding was filed in which it was claimed.
The second appellant said that she did not attend the meeting with the Ubaldis on 26 July but that she was in the office at the time. She said that before the meeting she had said to the respondent that if the discussions with the Ubaldis were going to drag on, she would possibly be interested in purchasing his share. She said that he said that he would be interested in selling to her. No price was discussed. No terms were discussed. After the meeting with the Ubaldis she said that the respondent asked her whether she would still be interested in purchasing his share. She said that she would but needed to seek advice from a solicitor before proceeding with any discussions or negotiations. She said that he said that that was fine. The second appellant said four times in her evidence in chief that she would not discuss or negotiate anything with the respondent until she had sought legal advice.
The second appellant said that on the Monday morning a similar conversation occurred as had occurred on the Friday. She said she remembered telling her father not to give the respondent any money because nothing had been agreed to. She said she could not understand why he was giving the respondent a cheque. In cross-examination she denied that she had ever discussed the possibility of buying the respondent’s share in the company prior to 26 July.
With respect to the conversation of 31 July the second appellant said that she heard ‘bits of the conversation’ because she was in and out of the office as it went on between her father and the respondent. She said there were never any terms or conditions of the sale discussed that she was aware of and that she did not discuss any price for the sale of the shares with the respondent. It was put to her that it was possible that there were terms and conditions discussed between the first appellant and the respondent in that conversation to which she replied ‘I’m not comfortable answering these questions’. She agreed, however, that it was possible that terms and conditions were discussed. In answer to questions from the trial judge, the second appellant repeated that she did not want to enter negotiations before consulting a solicitor. She explained that she wanted to find out how to value the company, how to value a share and she also had questions in relation to amounts that the respondent had paid himself as a consultant. She said that she had concerns that if she was looking at purchasing company shares there might be ramifications with respect to her own personal liability.
The Trial Judge’s Judgment
The trial judge made significant findings as to the credit of each of the parties. Although her Honour found that the respondent was vague on a number of matters she found his version of events substantially credible and convincing – more so than either of the appellants. Her Honour characterised the first appellant as also being vague and unhappy that he had been caught in the centre of this dispute whilst trying to support his daughter. Her Honour saved her most trenchant criticism for the second appellant. She considered that she told ‘outright lies’ or engaged in deliberate evasion and tailored her evidence to suit her case as she saw it. She noted that the second appellant had sat in court and taken notes of the evidence as it was given. She gave evidence last.
Her Honour found that there was a ‘meeting of minds’ between the first appellant and the respondent concerning the purchase of the goodwill and plant and half the other assets of X-Cell Tech. On any view her Honour was mistaken in making this finding. It is clear that whilst the existence of a contract was in contention between these parties, the subject matter of any contract was not. The subject matter of the alleged contract was never any of the assets of X-Cell Tech; it was the respondent’s issued share in the company’s capital. The sale to the Ubaldis which did not proceed was to have been of the whole of the company’s business; that is to say, all its assets relating to its business, except its debtors. If there was a sale to the second appellant or both appellants it was of the respondent’s single share, representing 50 per cent of the company’s capital. Her Honour’s mistake in this respect is understandable having regard to the way in which the sale was spoken about by the parties. It does not affect the substance or the consequences of her Honour’s judgment.
The second problem with this part of the trial judge’s judgment was that in reaching her conclusion as to a contract between the first appellant and the respondent her Honour appeared to concern herself with what the parties knew and believed as to the state of their negotiations. She said that the second appellant knew that the respondent believed he had an agreement for her to purchase his share in X-Cell Tech and that its completion awaited only documentation. But the existence or non-existence of a contract is not a question of the parties’ state of mind – it is an objective fact. A contract exists when an offer by one party to be bound on certain terms is accompanied by an unqualified acceptance of the offer by the other party communicated to the offeror. The law is concerned with the interpretation which would be placed on the words and actions of the parties by a reasonable observer, not the parties’ subjective intentions. Whatever the parties may have actually intended, whether a contract exists will be determined by the understanding of a reasonable observer.[1] Although the trial judge erroneously referred to questions of understanding and belief, she also analysed the actions of the parties so as to permit the conclusions she reached to be examined in terms of the objective approach required by law.
[1]These observations are not contentious. They form the commencement of any discussion of contract law. See, for example, J W Carter et al, Contract Law in Australia, , (5th ed, 2007), 37 et seq.
The trial judge concluded, with respect to the second appellant, that she was not naïve but was rather a woman who had engaged in business activities and was interested in expanding those activities. Her Honour found that her actions after 31 July were consistent only with a concluded agreement having been reached on that day. Had there been no agreement, the second appellant would have engaged in further discussion with the respondent to further their negotiations. In fact nothing occurred. There were no further discussions. The company continued to operate as it had until, almost a month later, a letter of demand was received by the respondent alleging unrelated breaches of duty by him in his position as a director of X-Cell Tech. In the meantime, according to the respondent, there had been no denial of any share purchase agreement, merely excuses by the second appellant as to why the documentation to effect a share transfer had not been produced by her solicitors. Her Honour reached this conclusion, not solely on the evidence of the respondent, but also on the second appellant’s own evidence. Her Honour concluded that by the end of the conversation on 31 July there was an agreement between the second appellant and the respondent, the performance of which awaited only documentation to record the share transfer and ‘end of month figures’ to calculate the other amounts to be paid.
The Contract
On the evidence, as accepted by the trial judge, the second appellant first raised the question of buying the respondent’s share in X-Cell Tech about six months before the end of July 2007. This discussion did not result in any offer by either party to the other, although the respondent expressed interest in selling. There the matter rested until 26 July 2007 when, according to the respondent, the matter was raised again by the second appellant. Again the respondent expressed interest if the sale of the business to the Ubaldis did not eventuate.
On 27 July the matter was raised yet again by the first appellant. Again the respondent replied by saying he had already said he would sell to the second appellant if the Ubaldis sale did not proceed, but that they should retain the right of first refusal. The respondent recorded this conversation as being an offer by the appellants to ‘buy me out’.
On the following day, 28 July, the first appellant told John Ubaldi that the sale to him and his cousin was not going to proceed because the respondent was going to sell his share to him and/or to the second appellant. He told Ubaldi either that there had been an agreement on a deposit or that a deposit had been paid. Although this statement was inconsistent with the common ground between the parties that no money in fact changed hands until 31 July, that statement could well have been made by the first appellant to emphasise to Ubaldi that the sale to him was not going to go ahead.
On Monday, 30 July, a further discussion between the parties concerning the Ubaldis concluded by its being accepted by the respondent and both appellants that the respondent was going to sell his share to the first appellant or to both of them.
It was in the context of these prior discussions and the negotiations with the Ubaldis which were inconclusive that the discussion of 31 July occurred, details of which have already been canvassed. In terms of the formation of a contract, as found by the trial judge, that discussion (as described from the evidence actually given) may be seen to have had the following components when viewed in context:
(a)the second appellant or the appellants expressed a willingness to buy the respondent’s share in the company (‘the offer’);
(b)the purchase price was to be equivalent to what the respondent would have received had the sale to the Ubaldis proceeded (‘the terms’); and
(c)the respondent wrote some or all of those terms on a piece of paper and gave it to the first appellant (‘the acceptance’).
The respondent gave evidence that he never saw the piece of paper again after he gave it to the first appellant. The appellants’ case is that the piece of paper never existed. The trial judge accepted the respondent’s evidence on this point – a finding, in effect, that the respondent had accepted the offer to sell his share. Her Honour’s conclusion was that it was written and given to the first appellant so that a solicitor could draw up documentation required to transfer his share to the second appellant.
The second matter which requires consideration relates to the trial judge’s finding concerning the cheque for $10,000. The respondent said that he could not recall whether that event occurred before he wrote the note referred to above or after. However, it is common ground that a cheque for $10,000, written by the first appellant, was handed to the respondent. The trial judge found that the $10,000 was a ten per cent deposit, referable to the purchase of the respondent’s share. The second appellant requested her father not to hand it over, although on the appellants’ case, it was not, and was never intended to be, contractually significant.
The trial judge accepted the respondent’s version of this event. It is not surprising that she did so. The appellants’ version was that the cheque was handed over, not in relation to any concluded agreement, but simply as a sign of ‘good faith’ and without the discussion of any terms concerning the second appellant’s purchase of the respondent’s share. The rejection of this explanation by the trial judge was significant in terms of the ultimate outcome of this case. If the $10,000 was a deposit it is very likely that there was a contract. Her Honour’s finding on this question is unimpeachable.
The only other relevant matter which occurred on 31 July was a conversation which the respondent says occurred between him and the second appellant after the first appellant left. The respondent said that the second appellant asked whether she could pay the other amounts in three monthly instalments so that it could come out of the company’s cash flow. He said that he agreed to this. This conversation is particularly significant, occurring as it did after the discussion upon which the respondent relies as constituting the agreement contended for, a discussion which, on the appellants’ case, never took place.
The trial judge concluded that the parties had entered an agreement on 31 July 2007 whereby for $100,000, together with the other amounts, the respondent would transfer his share to the second appellant. Her Honour also found that both the appellants were parties to that agreement, so that they were jointly liable for their failure to perform the agreement in accordance with its terms. They were, accordingly, liable in damages. It will be necessary to return to the trial judge’s inclusion of the first appellant as a contracting party later, in relation to ground 10 of the notice of appeal.
This Appeal
This appeal was brought on 13 specific grounds – all of them concerned with allegedly erroneous findings of fact by the trial judge. Most of her Honour’s findings of fact in this case depended upon her general acceptance of the respondent’s evidence as against that of the appellants. She explained her findings as to their credibility as already set out above. It would only be if it could be demonstrated that her Honour had ‘failed to use or has palpably misused [her] advantage’ in seeing and assessing the witnesses that this Court should interfere with those findings or any other findings based on her assessment of the witnesses she saw and heard.[2] This proposition was not in contention on this appeal.
[2]SS Hontestroom v SS Sagaporack [1927] AC 37, cited, with numerous other cases, by McHugh J in Fox v Percy (2003) 214 CLR 118, 142-143.
The grounds of appeal may be dealt with seriatim as follows:-
Ground 1
This ground raised an alleged error by the trial judge in failing to find that any agreement between the respondent and the second appellant was subject to the second appellant’s obtaining of professional advice and the preparation of such documents as might be required to effect the agreement.
The trial judge accepted the respondent’s version of the events of 31 July. In doing so she came to the conclusion that the agreement reached between the parties was not subject to any condition as to the obtaining of legal advice. Her Honour accepted that the documentation to which reference was made in the evidence was that required to transfer the respondent’s share in X-Cell Tech to the second appellant. It was a document of assurance. Its preparation and execution, had they been undertaken, would have been steps in the performance of the agreement; that is to say to give effect to it, not to record its terms.
The appellants’ case was that there never was an agreement, not that an agreement was reached which was subject to a condition subsequent such as in the three situations dealt with by the High Court in Masters v Cameron.[3] The second appellant’s evidence was to the effect that she would not negotiate until she had spoken to her solicitors. She said it at least four times in her evidence. Her words were ‘… I would need to seek advice from a solicitor before proceeding with any discussion or negotiation’ and ‘… I again would not negotiate or discuss anything with him until I had sought legal advice’ and ‘… again I would not discuss, negotiate or agree to anything until I had spoken to a solicitor’ and ‘… I said I would not negotiate anything until I had spoken to a solicitor’.
[3](1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).
The trial judge rejected this evidence, preferring the evidence of the respondent as to the discussion on 31 July supported as it was by the actions of the second appellant in seeking further time to pay the other amounts and never proceeding to negotiate further, whether with or without legal advice. Her Honour reached the reasonable conclusion that references to legal advice and legal documents were concerned with ensuring the legal transfer of the property purchased, namely, the respondent’s single share in X-Cell Tech. This ground fails on the appellants’ own case.
Ground 2
This ground alleges that the trial judge’s finding that the respondent created a note of the terms of the agreement reached on 31 July and gave it to the first appellant was ‘contrary to the weight of the evidence’.
The trial judge preferred the evidence of the respondent on this issue. Her Honour was entitled to come to that conclusion. There is nothing in this ground.
Ground 3
This ground challenges the trial judge’s finding that there were terms of the agreement that the respondent would be paid $90,000 on 30 August 2007 and amounts to be ascertained in respect of the other amounts within a reasonable time after 31 August 2007. The appellants allege that the finding was not supported by the evidence and conflated the evidence as to a proposed sale of the business of X-Cell Tech to the Ubaldis and the proposed sale of the plaintiff’s share in X-Cell Tech to the second appellant.
The context in which the agreement of 27 July was reached was that of a failing and then a failed negotiation between the first appellant and the respondent on the one hand and the Ubaldis on the other. In all discussions between the respondent and the appellants that context was relevant because those discussions proceeded on the basis that whether the sale to the Ubaldis was completed or there was a sale of the respondent’s share to the second appellant or both of the appellants the respondent would achieve the same financial outcome.
Consistent with her other findings concerning the credibility of the witnesses, her Honour could have found that the agreement of 31 July was almost immediately varied to extend the time for payment of the other amounts in accordance with the request made by the second appellant to the respondent after the first appellant left on 31 July. That request, deposed to by the respondent, was that the second appellant be permitted to extend the time for payment in respect of the other amounts so that three equal amounts would be paid at monthly intervals. Had the trial judge made this finding it would have made no difference to the outcome of this case. The time for payment had well and truly passed by the time the respondent filed his writ. He was thus entitled to sue for the full amount owing under the agreement at that time. There is no substance in this ground.
Ground 4
This ground relates to an alleged finding by the trial judge concerning the sale of the business of X-Cell Tech to the Ubaldis. Any finding of the trial judge to the effect asserted had no effect on this case. This ground is irrelevant. No consequence would flow even if the appellants’ contention was correct.
Ground 5
This ground claims that the trial judge made an erroneous finding concerning the second appellant’s role in the negotiations with the Ubaldis. As the ground itself appears to acknowledge, it is irrelevant.
Ground 6
This ground, which also relates to the negotiations between the Ubaldis and the directors of X-Cell Tech is likewise irrelevant.
Ground 7
This ground concerns the error made by the trial judge in describing the subject matter of the agreement reached between the parties on 31 July 2007, to which reference has already been made in [33] above. Her Honour erroneously referred to that subject matter as being the ‘goodwill and plant … and as to half of other assets of the company …’.
This error is inconsequential having regard to the fact that the subject matter of any agreement (or, as the appellants would have it, negotiation) was the single share in X-Cell Tech owned by the respondent. No one contended otherwise. There is nothing in this ground.
Ground 8
This ground asserts that the trial judge was in error in holding that the cheque for $10,000 handed by the second appellant to the respondent at the meeting on 31 July 2007 was a part payment of the sum of $100,000 for the respondent’s single share in X-Cell Tech. The ground asserts that the finding is contrary to the weight of the evidence which was to the effect that the payment was made as a sign of good faith.
This ground has no substance. The trial judge accepted the respondent’s evidence as to the cheque being in respect of a deposit. This finding was open on the evidence. Her Honour rejected the appellants’ contention that it was otherwise. Her Honour’s conclusion is unimpeachable.
Ground 9
This ground asserts that the trial judge failed to accord sufficient weight to the evidence, which was uncontested, that the second appellant objected to the payment by the first appellant of $10,000 to the respondent on 31 July 2007.
The proper interpretation of the trial judge’s reasons with respect to this aspect of the case is that whatever might have been the second appellant’s motivation for asking her father not to hand the cheque over, she subsequently conducted herself in a way which affirmed the existence of the agreement. As her Honour found, after her father had left, the second appellant asked the respondent whether she could pay the other amounts in three monthly instalments so that it could come out of the business’ cashflow; a request to which the respondent agreed. Her Honour also noted that between 31 July and the end of August the second appellant, at no stage, did anything to suggest that the agreement was not as the respondent contended. Rather, she offered excuses for her solicitors not providing the necessary documentation to effect the share transfer. Her Honour was entitled to reach the conclusion which she did. This ground must be rejected.
Ground 10
This ground contests the trial judge’s finding that the first appellant was a party to the agreement of 31 July 2007 for the purchase of the respondent’s share in X-Cell Tech.
There is substance in this ground. The evidence of the respondent as to the involvement of the first appellant in the agreement of 31 July 2007 is, at best, equivocal. It is clear that, whatever the role of the first appellant was, it was intended that the respondent’s share in X-Cell Tech would be transferred to the second appellant. Each of the conversations in which the matter was discussed proceeded on that assumption. It was often expressed in those terms.
The trial judge did not differentiate between the appellants in determining their responsibility as parties to the contract which she found existed. She noted that it was common ground that the second appellant was to buy the respondent’s share. Her Honour also said that that did not preclude the first appellant from being a party to the agreement and she said that she was satisfied that he was. Unfortunately, her Honour gave no further reasons for reaching this conclusion.
On many occasions, in recounting his conversations with the appellants, the respondent attributed the use of plural pronouns to the first appellant. He sometimes used the plural himself. On other occasions he spoke of the second appellant buying his share. Sometimes he spoke of the second appellant and then added a plural, so involving both. Her Honour gave no reason for including the first appellant as a contracting party in respect of the agreement of 31 July 2007. He might well have been a contracting party but it is equally possible that, insofar as he engaged in any of the relevant conversations with the respondent, he was doing so as the agent of the second appellant, his daughter. Indeed such a situation is more consistent with the context in which the agreement was reached and the mutual concession that the second appellant was to become the owner of the respondent’s share. That is an interpretation of the circumstances which results in the first appellant not being a contracting party, but merely an agent for a disclosed principal. Plainly, he was to receive no benefit from the contract in tangible material terms. Such benefit as he did receive was confined to his being able to have his daughter as, effectively, an equity partner in the business instead of his former friend.
The respondent contended in this Court that the evidence that the first appellant was a party to the agreement of 31 July 2007 was compelling. His counsel pointed to various occasions on which he, the first appellant, used language capable of being interpreted as admissions by him of being a contracting party. On examination, however, that evidence is equally consistent with his being an agent for his daughter in negotiations with the respondent. His language was no less equivocal than the respondent’s and the trial judge did not (contrary to the respondent’s counsel’s argument) in paragraphs [33] or [42] of her reasons identify the evidence she relied upon in reaching the conclusion that he was a party to the agreement.
The onus of establishing that the first appellant was a party to the agreement which the trial judge found proved rests, of course, on the respondent. Having regard to the absence of any reasons given by the trial judge for involving the first appellant, the surrounding circumstances and, in particular, the concession to which reference has been made, her Honour’s conclusion as to the involvement of the first appellant cannot be permitted to stand. It cannot be said that it is more probable than not that the first appellant was a contracting party. His use of the word ‘we’, as with the respondent’s use of the plural, might well have been no more than a natural identification of his position with that of his daughter. Even absent a family relationship, it would not be unusual for an agent to use a plural pronoun when referring to his principal. That may well have been the situation here.
The first appellant should succeed on this ground. The judgment of the Court below should be varied to exclude his liability to the respondent in damages.
Ground 11
This ground relates to the statements by the trial judge as to the state of mind of the various parties. This matter has already been dealt with in paragraph [34] above. Having regard to the findings made by the trial judge as to the existence of the agreement, her Honour’s findings concerning the state of mind of the various parties are irrelevant. Although this ground is made out it is without consequence as far as the determination of this appeal is concerned.
Ground 12
This ground asserts that the trial judge accorded excessive weight to events which occurred after the date of the alleged agreement.
The trial judge regarded the conduct, particularly of the second appellant, after 31 July 2007 as indicative of there having been an agreement reached on that day. Her Honour was entitled to do so. The fact that the second appellant conveyed excuses to the respondent for her solicitors not having prepared expected documentation was construed by her Honour as conduct which supported the existence of an agreement. Her Honour was entitled to take this conduct into account as an implied admission by the second appellant that the agreement contended for by the respondent existed. It was, in fact, very strong evidence. There is nothing in this ground.
Ground 13
This ground is concerned with the effect of s 468A of the Corporations Act 2001 (Cth). It was not pressed on this appeal.
Conclusion
There was no argument on this appeal as to the quantum of damages awarded by the trial judge. Accordingly, for the reasons given, the judgment of the County Court should be varied only with respect to the parties to be found liable. The orders which I propose are as follows:
(1) That the appeal be upheld in part;
(2) That the judgment of the County Court of 11 May 2009, authenticated on 21 May 2009, be varied:-
(a) by deleting reference to the first defendant in paragraph 1 thereof;
(b) by substituting ‘second Defendant’ for the word ‘Defendants’ in paragraph 2.
(c) by adding the following paragraph after paragraph 3:
4. There be judgment for the first defendant against the plaintiff.
Costs
In the absence of any complications as to costs caused by offers of compromise or the like, or any other matter having a bearing on the issue of costs, the orders for costs which ought to follow the partial success of this appeal are as follows:
(3) That the costs of the first defendant in the County Court be taxed on County Court Scale D and paid by the second defendant with the same certificates as
were allowed by the trial judge in the Order for costs which her Honour made;
(4) That the second appellant pay the respondent’s costs of this appeal to be taxed;
(5) That the second appellant pay the first appellant’s costs of this appeal to be taxed;
(6) That the respondent be granted an indemnity certificate pursuant to s 4 of the Appeal Costs Act 1998.
HANSEN JA:
I agree with Bongiorno JA.
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