Nurisvan Investment Ltd v Anyoption Holdings Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2016 0145

NURISVAN INVESTMENT LIMITED	First Applicant
and
FIBO AUSTRALIA PTY LTD	Second Applicant
v
ANYOPTION HOLDINGS LIMITED	Respondent

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JUDGES:	OSBORN, SANTAMARIA and KAYE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	31 May 2017
DATE OF JUDGMENT:	16 June 2017
MEDIUM NEUTRAL CITATION:	[2017] VSCA 141
JUDGMENT APPEALED FROM:	[2016] VCC 1339

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DEEDS – Purported deed – Whether a deed fails as a contract for want of formality – Unexecuted deed capable of enforcement as a simple contract.

CONTRACTS – Sale of shares – Construction and interpretation – Identification of parties – Use of extrinsic evidence to identify parties – Use of post-contractual conduct to identify parties and existence of contract – Nature of contract – Whether concluded binding agreement or agreement to negotiate – Categories in Masters v Cameron considered – Masters v Cameron (1954) 91 CLR 353.

CONTRACTS – Remedies – Specific performance – Specific performance may be ordered of contract for sale of whole of the shares in a company.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr G A Sirtes QC with Ms A Avery-Williams	Sophie Grace Legal
For the Respondent	Mr T Sowden	Nicholas O’Donohue & Co

OSBORN JA
SANTAMARIA JA
KAYE JA:

The first applicant (‘Nurisvan’) and the respondent (‘Anyoption’) are each companies registered in Cyprus. Nurisvan is the sole shareholder of the second applicant (‘FIBO’) which is a company registered in Australia. FIBO is the holder of an Australian Financial Securities Licence (‘AFSL’), by which it is authorised to carry on a financial services business in Australia and to provide financial services set out in the AFSL.

In November 2014, the parties entered into negotiations with a view to the purchase by Anyoption from Nurisvan of its shares in FIBO, for the purpose of thereby acquiring an AFSL. On or about 24 December 2014, FIBO and Anyoption each executed a document entitled ‘Binding Heads of Agreement’ (‘Heads of Agreement’). Nurisvan was named as a party to that document, but did not execute it. The document provided for the parties to enter into an agreement entitled the ‘Share Purchase Agreement’ (also referred to as ‘Share Sale Agreement’ and ‘Share Transfer Agreement’) for the transfer by Nurisvan of its shares in FIBO to Anyoption. After lengthy negotiations concerning the content of that agreement in 2015, Nurisvan, through its solicitor, in October 2015, advised Anyoption that it did not regard itself as being bound by any agreement with Anyoption, and did not accept that there was any obligation to comply with the Heads of Agreement.

As a consequence, Anyoption commenced proceedings in the County Court, seeking specific performance of the Heads of Agreement, or alternatively of a draft Share Transfer Agreement that had passed between the parties on 9 October 2015. At trial, most of the evidence comprised documents that were tendered, and the facts were not substantially in issue. Only one witness was called, Mr Adrian Lynch, the solicitor for Anyoption. In a detailed and thorough judgment,[1] the judge upheld the claim of Anyoption, and made an order by way of specific performance that Nurisvan and Anyoption execute a Share Sale Agreement on the terms contained in cl 5 of the Heads of Agreement. Nurisvan and FIBO seek leave to appeal from that decision.
[1]Anyoption Holdings Limited v Nurisvan Investment Ltd [2016] VCC 1339 (‘Reasons’).

The principal issues at trial comprised the following:

(1)Whether Nurisvan was a party to and bound by the Heads of Agreement.
(2)If so, whether the Heads of Agreement constituted a concluded immediately enforceable agreement for the transfer of Nurisvan’s shares in FIBO, or whether it was merely an agreement to agree in the future.
(3)If there were such a concluded agreement, did Anyoption repudiate or otherwise abandon that agreement.
(4)If an agreement binding on Nurisvan was enforceable and still on foot, should specific performance be granted.

The judge decided each of those four questions in favour of Anyoption. The proposed grounds of appeal, contained in the application for leave to appeal, are directed to the judge’s conclusions on the first, second and fourth issues.

The facts

In about November 2014, representatives of Anyoption contacted a law firm, Holley Nethercote, seeking advice and assistance to acquire an AFSL. Anyoption was informed that a client of that firm might have an AFSL for sale, but the firm would have a conflict of interest if Anyoption was interested in purchasing it. Accordingly, Holley Nethercote referred Anyoption to another experienced lawyer in the field, Mr Adrian Lynch of Nicholas O’Donohue & Co.

Mr Lynch was instructed to act for Anyoption in early to mid-December 2014. By that stage, representatives of Anyoption had negotiated directly with personnel of either or both Nurisvan and FIBO, and a ‘lock out agreement’ had been signed between them, granting a period of exclusivity for negotiations for the proposed purchase. In addition, Anyoption had agreed to terms of confidentiality covering information which it would acquire about FIBO during the anticipated due diligence processes.

Communications between Mr Lynch and Mr Tim Dixon of Holley Nethercote then took place between 16 and 19 November 2014 setting out what had been agreed between the clients.

On 16 December, Mr Lynch sent an email to Mr Dixon setting out his understanding of the terms of the proposed agreement. They comprised an offer to buy all the issued share capital of FIBO, for a sale price of $100,000, with 10 percent retention, subject to ‘usual adjustments for entitlements and outgoings’. The conditions provided for due diligence and other matters. Relevantly, paragraph 5(d) of the email stated that the terms of offer would include ‘usual vendor warranties to be provided’.

By email dated 19 December, Mr Dixon confirmed that he was instructed to proceed on the basis that the price (of $100,000) was ‘in the region’ of what Mr Lynch had understood, and attached a ‘mutual confidentiality deed’ executed by FIBO, for execution by Anyoption.

On the same day, Mr Lynch responded to Mr Dixon forwarding what he called a working draft (Heads of Agreement) which was subject to his client’s instructions, but which he believed reflected the basic terms agreed. The parties to the document were identified as Nurisvan as the vendor and Anyoption as the purchaser. FIBO was also identified as a party, as was Holley Nethercote as a stakeholder of the deposit that was to be paid. By cl 4 of the draft Heads of Agreement, ‘the Vendor’ (Nurisvan) and FIBO each acknowledged that for the term of the deed they must not negotiate with any third party about the sale of the shares or any FIBO assets. Clause 5.2 provided for payment by the purchaser for the purchase price to the ‘Vendor’ as consideration. Clause 7.1 provided for the purchaser to pay the deposit to the ‘Stakeholder’ (Holley Nethercote). Clause 7.2 provided that the ‘Vendor’ only became entitled to the deposit at completion, or earlier upon receiving written instructions from the purchaser, and until such time, the stakeholder agreed to hold the deposit on trust. At the end of the document, it was noted ‘appropriate execution clauses to be inserted’.

Mr Dixon responded by email dated 22 December 2014, suggesting a number of changes, including a proposed addition to clause 7.2 to provide that unless the Share Sale Agreement did not proceed by reason of any failure or omission of the vendor, the Vendor (Nurisvan) should become entitled to its reasonable costs incurred as a result of entering into the Heads of Agreement and the due diligence process. Mr Lynch responded by email to Mr Dixon noting that Anyoption had already signed the Heads of Agreement, but stating in principle that he had no objection to the proposed modifications that were suggested. Mr Lynch then went on leave from 22 December until mid-January 2015.

The parties wished for the transaction to be pursued in the meantime, and over the following week, Ms Corrine Gabbay, the in-house advocate for Anyoption, communicated directly with Mr Dixon and also with Ms Ekaterina Dementyeva, who was a director of FIBO, based in Cyprus. A document entitled ‘Binding Heads of Agreement’ (‘the Heads of Agreement’), and dated 21 December 2014, which was already signed on behalf of Anyoption, was then signed on behalf of FIBO on 24 December 2014.

The Heads of Agreement

The Heads of Agreement did not contain execution clauses for any other party than Anyoption and FIBO, although, as with the drafts of the document that preceded it, it listed as parties not only Anyoption and FIBO, but also Nurisvan as the ‘vendor’ and Holley Nethercote as the ‘stakeholder’. At the outset the document is headed as a ‘Deed’, and a number of the terms of it refer to it as ‘this Deed’. On the ‘execution’ page, it is recorded that ‘this Deed was executed on 21 day of December 2014’. It then provided for signature by a named director for and on behalf of Anyoption, and a named director for and on behalf of FIBO.

In the ‘recitals’ to the Heads of Agreement, it is stated that:

A.The Vendor wishes to sell to the Purchaser and the Purchaser wishes to buy from the Vendor the Shares.

B. FIBO holds a valid Australian Financial Services Licence (AFSL).
C.The parties wish to manifest their intention for the Vendor to sell and the Purchaser to purchase all of the shares in this Deed.

D. The parties agree that this Deed is binding on the parties.

Clause 1 provided that ‘purchase price’ means AUD $100,000, and that ‘deposit’ means $10,000. It also provided that ‘Share Purchase Agreement’ means the sale agreement to be entered into between ‘the Vendor and Purchaser in respect of the transfer of the shares to the Purchaser’. It provided that ‘Shares’ means all the issued shares in FIBO.

Clause 2 of the deed stated ‘this Deed is legally binding on the parties’. Clause 3 (entitled ‘Declaration of Intention’) provided that the parties declare their respective bona fide intention ‘to enter into the Share Purchase Agreement’. By cl 4, the ‘Vendor’ and FIBO acknowledge and agree that for the term of the agreement it must not negotiate with any third party about the sale of the shares or any of the FIBO assets.

Clause 5 of the Heads of Agreement is entitled ‘Terms of the Share Purchase Agreement’. It provided as follows:

The Parties acknowledge and agree that the following conditions, among others, will be included in the Share Purchase Agreement:
5.1The Purchaser will acquire the Shares from the Vendor free from any Encumbrance.
5.2The Purchaser will pay the Purchase Price to the vendor as consideration for the acquisition of the Shares and Assets which will be paid as follows:
5.2.1the Purchaser will pay the Deposit to the Stakeholder (to be held on trust for the Vendor) on the signing of this deed; and
5.2.2the Purchaser will pay to the Vendor the balance of the Purchase Price (subject to adjustment for employee liabilities and outgoings) on Completion.

5.3Completion of the Share Purchase Agreement is conditional, amongst other matters, on:
5.3.1completion of due diligence to the Purchaser’s reasonable satisfaction during the term;
5.3.2the release of any security interest over the Shares or FIBO’s assets;
5.3.3confirmation that the responsible manager and other key FIBO personnel (including the current company accountant) will remain in their current roles for a designated transition period;
5.3.4confirmation that prudential requirements associated with the AFSL have been complied with (including minimum NTA holdings); and
5.3.5any other regulatory requirements necessary to enable the purchaser to commence business using FIBO’s AFSL immediately following completion.

5.4The Vendor will provide reasonable warranties as agreed to by the Purchaser concerning FIBO, the Shares and the AFSL (including, but not limited to warranties to title and compliance with the terms of the licence and the law).

Clause 6 provided that each party agreed to negotiate in good faith with respect to entering into the Share Sale Agreement in accordance with the terms contained in cl 5.

Clause 7 provided that the purchaser must pay the deposit to the stakeholder on execution of the deed. Clause 7.2 provided that the ‘vendor’ becomes entitled to the deposit on completion or earlier on receiving written instructions from the purchaser. It also provided that in the event that the Share Sale Agreement does not proceed by reason of any failure or omission of the purchaser, the vendor should become entitled to its reasonable expenses incurred as a result of entering into the agreement and the due diligence process. Clause 13 provided that the deed constitutes the entire agreement between the parties about its subject matter and supersedes all previous communications between the parties.

The agreed deposit of $10,000 was paid by Anyoption on 30 December 2014 to a Bendigo Bank account with the beneficiary named as FIBO. Subsequently, in an email by Mr Dixon to Mr Lynch dated 11 February 2015, it was noted that the deposit was held by Holley Nethercote as a stakeholder pursuant to cl 7.2 of the Heads of Agreement.

Negotiations in respect of Share Sale Agreement

During the ensuing nine months, a series of communications took place between Mr Dixon and Mr Lynch concerning the content of the proposed Share Sale Agreement. In the course of that correspondence, some nine draft versions of that agreement passed between the parties. It is necessary to set out, in brief detail, the history of that correspondence.

During January 2015, an accountant, appointed by Anyoption, proceeded with the due diligence process and reported his findings and queries. On 29 January, Mr Dixon emailed Mr Lynch to ask if there were any developments, as his client had asked him for an update. In a further email dated 4 February, Mr Dixon stated that it was agreed that the decision to proceed with the purchase would be notified by 31 January, and that, as that had not occurred, his client intended to enter into negotiations with other potential purchasers. Mr Dixon also stated that if Anyoption wished to proceed with the purchase, it would be required to pay the costs and expenses of holding and running the business from 1 February 2015 in addition to the proposed purchase price.

In response, Mr Lynch sent a letter to Mr Dixon concerning some matters that had been raised in a draft due diligence report from Anyoption’s advisors. Mr Lynch noted that some of those matters might already have been attended to, and he requested to be provided with a draft of the Share Sale Agreement, with a view to progressing that document while due diligence concluded. Mr Dixon responded by an email dated 11 February, attaching a draft ‘Sale of Shares Agreement’ for consideration and comment. In his email, Mr Dixon stated that his ‘client’ was still pressing for Anyoption to pay the ‘holding costs’ of FIBO after 31 January. He also made other comments concerning the draft. The draft Sale of Shares Agreement, attached to the email, was between Nurisvan as ‘Vendor’ and Anyoption as ‘Purchaser’. Relevantly, Holley Nethercote’s name, address and contact details are on the front sheet of the draft.

On 13 February, Mr Dixon sent an email to Mr Lynch stating that his client considered that the ‘spirit of the arrangement’ with Anyoption had not been met by Anyoption, and that his client required a final commitment to the transaction no later than the next Monday, 16 February. Mr Lynch responded by an email on the same date, requesting a soft copy of the draft Share Sale Agreement in order that he could mark it up with minor suggested changes for review and approval by Anyoption. Subsequently, by email dated 25 February, Mr Lynch advised Mr Dixon that Anyoption was ‘entirely enthusiastic and ready to sign/complete’, but would be unlikely to alter its position on the holding costs.

Subsequently, there were further email communications between the parties in March. Mr Lynch, on behalf of Anyoption, pressed for inclusion of a reference to the $10,000 deposit in the Share Sale Agreement, and said that Anyoption did not agree to pay the vendor’s ‘holding costs’ up to completion.

On 14 March, ASIC issued a notice to FIBO relating to an inquiry into the company’s compliance with its AFSL. Notwithstanding that notice, the parties continued to negotiate about the terms of the Share Sale Agreement. By an email dated 18 March, Mr Lynch suggested a settlement date of 27 April, to cater for the ongoing ASIC hearing. On 2 April, Mr Lynch emailed Mr Dixon indicating that, subject to confirmation of the latest accounts, Anyoption was ready to sign the contract, and for that purpose, he enclosed a final draft agreement and asked for confirmation of the addresses of FIBO and Nurisvan. On 7 April, he again emailed Mr Dixon, noting he had not heard from him, and that he assumed that the suggested amendments were in accordance with expectations. Mr Lynch stated that he had prepared an execution version of the agreement. On 13 April, and again on 1 May, Mr Lynch asked Mr Dixon for an update relating to the progress of the Share Sale Agreement, and the ASIC investigation. Mr Dixon responded on 1 May that his client had re-submitted its financial documents for several years at the suggestion of ASIC. He said that it would not be prudent or possible to give the warranties contained in the draft Share Sale Agreement until the ‘short term fate’ of the AFSL is known.

On 21 May, Mr Lynch asked Mr Dixon for an update, and Mr Dixon responded that he had made an inquiry that day of the ASIC delegate without receiving any response. On 17 June, Mr Dixon emailed Mr Lynch apologising for the silence, and setting out the ‘saga’ that had occurred in relation to ASIC. He said that on 25 May the ASIC delegate had advised that she was satisfied that it was not appropriate to suspend or cancel FIBO’s AFSL and that the investigation had ended.

On 6 July, Mr Dixon emailed Mr Lynch advising that issues with ASIC were ongoing. In the email he said:

In any event, it is now July and my client has essentially lost its enthusiasm for the sale.
Would you please seek your client’s instructions about ending the ‘Binding Heads of Agreement’ dated 21 December 2014 please? Anticipating the question whether my client is contemplating selling Fibo Australia Pty Ltd to any other party, I advise that it is not and it will retain Fibo Australia Pty Ltd for the medium to long term.

On 7 July, Mr Lynch responded that his client had not yet abandoned all hope of a deal and inquired whether ASIC would be likely to approve, if the agreement included a condition that it was subject to approval by ASIC. Mr Dixon responded:

It appears that I may have been misunderstood. I intended to convey that my client has resolved not to proceed with the proposed sale. Please let me know where the moneys [sic] held on trust should be paid.

On the next day, Mr Dixon sent a further email, stating that events had overtaken the Heads of Agreement, with the effect that that document would simply ‘linger on’, or, more sensibly, it should be brought to an end.

Subsequently, on 31 August, Mr Dixon sent an email to Mr Lynch which included the following:

After being instructed on behalf of the Vendor, Nurisvan Investment Limited, that it no longer wished to proceed with the sale of Fibo Australia Pty Ltd to AnyOption Limited and of its intention to proceed to commence business in Australia pursuant to the AFSL … I am now instructed … to again place Fibo Australia Pty Ltd up for sale.

I am instructed to advise that the Vendor will now sell Fibo Australia Pty Ltd for AUD $300,000 … .

Not surprisingly, that email provoked a response by Mr Lynch dated 1 September, stating that his client was ‘deeply concerned’ with the message contained in Mr Dixon’s email, and pointing out FIBO’s obligations to Anyoption under the Heads of Agreement. In turn, Mr Dixon responded by email dated 4 September, stating that his client was now prepared to complete the transaction for the price of $100,000 at the earliest possible opportunity.

Further communications then passed by email between Mr Lynch and Mr Dixon, and on 8 September, Mr Lynch emailed confirming that Anyoption had indicated agreement in principle to complete the transaction on the agreed terms. On 10 September, Mr Dixon telephoned Mr Lynch. Mr Dixon said that ASIC would not confirm that the investigation was over, and he mentioned that the value of FIBO was now $450,000, as his client ‘can sell to the Chinese at that price’.

On 16 September, there was a further telephone conversation between Mr Lynch and Mr Dixon. On 22 September, Mr Dixon sent Mr Lynch a letter attached to an email. The heading to the letter referred to the sale of shares in FIBO, and noted ‘Vendor: Nurisvan Investment Limited’. The letter stated that Anyoption had taken no steps to indicate that it would proceed with the sale of the shares in FIBO, that the ‘Vendor’ regarded the Heads of Agreement to have been repudiated by Anyoption by reason of its inactivity, and that all obligations under the document had thus ceased. Mr Dixon’s letter further stated that his client was prepared to offer to sell the shares in FIBO to Anyoption on terms negotiated for a price of $300,000.

Mr Lynch responded to that letter by email dated 23 September, reiterating the points he had previously made in his letter of 1 September. On 30 September, Mr Lynch emailed Mr Dixon that he had spoken with his client, who had reconfirmed Anyoption’s commitment to complete the purchase of FIBO according to the agreed terms. Mr Dixon responded that he had sent that email to the representative of the vendor for urgent instructions.

On 7 October, Mr Lynch confirmed that Anyoption wished to complete the purchase of FIBO according to the agreed terms as soon as possible. On 9 October, he sent a further email to Mr Dixon asking him to confirm receipt of the previous email and to provide an update as to what his client’s position was with the financial records. Mr Lynch attached to that email a further (ninth) draft of the Share Sale Agreement. In the email, he said that he had made suggested modifications to the agreement to accommodate issues that had arisen since it was last circulated, and he requested that Mr Dixon confirm that it was in a form acceptable to his client.

Correspondence between the parties continued into October. By email dated 22 October, Mr Dixon stated that he was instructed to advise that Nurisvan did not regard itself as having any agreements or arrangements with Anyoption and accordingly did not accept that there were any obligations with which it must comply.

The claim

By its Amended Statement of Claim, Anyoption claimed that on or about 24 December 2014 it entered into an agreement as purchaser, with Nurisvan as vendor and FIBO and Holley Nethercote, pursuant to which Anyoption, upon completion of due diligence, would purchase all of Nurisvan’s shares in FIBO for the sum of $100,000. The Amended Statement of Claim pleaded, by way of particulars, that the agreement was partly in writing (consisting of the Heads of Agreement) and that it was to be implied from actions pursuant to the terms of the Heads of Agreement, including the payment by Anyoption of the deposit to the stakeholder, Nurisvan’s lawyers drawing a Share Transfer Agreement, Anyoption carrying out due diligence of FIBO, and Anyoption’s solicitor forwarding a final version of the Share Transfer Agreement, containing all agreed terms, by email dated 9 October 2015. Alternatively, the plaintiff pleaded that the Share Transfer Agreement, forwarded to Nurisvan on 9 October 2015, constituted a binding agreement between the plaintiff and Nurisvan, although it was not signed by Nurisvan. The plaintiff claimed an order for specific performance of the Heads of Agreement, or alternatively an order compelling Nurisvan to do all things to complete the Share Sale Agreement.

The trial judge’s reasons

The judge commenced by noting that although the Heads of Agreement was drafted with the intention that it operate as a deed, it could not be enforced against Nurisvan as a deed, as Nurisvan did not execute it. Her Honour held that, nevertheless, the agreement, that the deed sought to embody, did not entirely fail through want of due execution, as the parties did not treat the failure of the deed as bringing it to an end. On the contrary, the deposit was paid by Anyoption, and the draft Share Sale Agreement was drafted and forwarded to Anyoption’s solicitor by Nurisvan’s solicitor.[2]
[2]Ibid [55]–[61].

In reaching that conclusion, the judge rejected the submission made on behalf of the two defendants that Holley Nethercote was only acting for FIBO and not Nurisvan. Her Honour was satisfied that Holley Nethercote was acting as solicitor for Nurisvan as well as FIBO, and she referred to a number of instances where it was implicit in the solicitor’s communications that he must have been acting for the vendor Nurisvan.[3]
[3]Ibid [62]–[64].

The judge then addressed the issue whether Nurisvan was a party to the agreement contained in the Heads of Agreement. Her Honour noted that that issue depended on whether Nurisvan accepted the terms of the Heads of Agreement and agreed to be bound by it, notwithstanding that it did not sign the document. The judge noted that neither side had called any witness who was part of the actual negotiations between the parties which led to the solicitors communicating in December 2014 about what had been agreed between their clients. In those circumstances the judge decided that she should not draw any adverse inferences against either party arising from its failure to call such evidence.[4] In the absence of direct evidence, the judge observed that the question could only be decided from the objective circumstances. Her Honour stated:

I take into account the commercial circumstances and purpose of the Binding Heads of Agreement document as well as it terms, albeit not signed by Nurisvan. First, Nurisvan was named in it as an intended party. Secondly, and in my view most importantly, it was a necessary party to give business efficacy to the purpose of what the document proposed. Fibo could not sell the shares in itself to the plaintiff — nor to any other potential purchaser. There could have been no basis for Fibo to sign the Binding Heads of Agreement document if Nurisvan was not at the same time agreeing to the sale of shares in Fibo to Anyoption.[5]

[4]Cf Jones v Dunkel (1959) 101 CLR 298.

[5]Reasons [69].

The judge then rejected a submission made on behalf of the defendants that although Nurisvan must have known of what was being done between FIBO and Anyoption, that knowledge would not make it a party in the absence of any alleged agency. Her Honour stated:

However, in the circumstances where FIBO was wholly owned by Nurisan and the document in question related to the proposed sale of all of those shares, I consider that there must have been more than just knowledge by Nurisvan of what was being agreed between FIBO and Anyoption. It was Nurisvan’s shares in FIBO that were the object of the agreement, and the only matter to which might have been separately committing itself was to obtain the benefit of confidentiality of its affairs during the due diligence process. In my view the strong inference from the fact of no sale of the shares in FIBO being possible without Nurisvan’s active involvement — indeed agreement — is that Nurisvan did agree to the agreement the terms of which were set out in the document.[6]

[6]Ibid [70].

The judge then considered a submission made on behalf of the plaintiff that it was permissible to take into account post-contractual conduct to reach a conclusion as to the identity of the contracting parties. Having referred to some of the relevant authorities,[7] her Honour held that some key features of what occurred at and after the time when the two parties (Anyoption and FIBO) signed the Heads of Agreement were ‘very persuasive’ that Nurisvan also entered the agreement although it did not sign it.[8] In particular, the judge relied on the fact that a deposit was paid for the purchase of the FIBO shares, the conduct of the due diligence process on FIBO’s financial affairs, and the preparation of the draft Share Transfer Agreement by Nurisvan’s lawyer. Accordingly, the judge was satisfied that, although it did not sign the Heads of Agreement, Nurisvan had agreed to enter into it.[9]
[7]Lederberger (as executors of the deceased estate of Lederberger) v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509; Pethybridge v Stedikas Holdings Pty Ltd (2007) Aust Contract R 90-263; Regreen Assets Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286.
[8]Reasons [76].
[9]Ibid [79].

The judge then addressed the second basic question, namely whether the agreement was an agreement to continue to negotiate towards a further agreement in the future, or whether it was an immediate agreement to be bound to execute documents to effect a share transfer. Her Honour concluded that the relevant contract was not an agreement to agree, but, rather, it was an agreement to negotiate in good faith to bring into effect the Share Sale Agreement.[10]
[10]Ibid [81]–[89].

The judge having rejected the submission made on behalf of the defendants that Anyoption had repudiated or abandoned the agreement,[11] then turned to the question whether it was appropriate to make an order for specific performance of the agreement, as sought by Anyoption. In that respect, the two defendants had argued that such relief should not be granted, because, first, by making such an order the Court would place itself in a supervisory capacity, and, secondly, Anyoption had not demonstrated that damages were not an adequate alternative remedy. Her Honour rejected the submission that there was too much uncertainty, so that there was a need to import too many other non-agreed terms, to make the case amendable for an order for specific performance.[12] The judge then noted the general rule that equity would not order specific performance of a contract if the plaintiff has an adequate remedy in law. Her Honour observed that Anyoption had not addressed that issue by any evidence. However, her Honour inferred that the purchase of Nurisvan’s shareholding in FIBO had a number of features which could not be easily replicated.[13] Accordingly, her Honour found that damages would not be an adequate alternative remedy, so that Anyoption was entitled to an order for specific performance.
[11]Ibid [90]–[103].
[12]Ibid [109]–[113].
[13]Ibid [122].

Accordingly, the judge made an order that, by 4.00 pm on 17 October 2016, Anyoption and Nurisvan execute a Share Sale Agreement on those of the terms set out in cl 5 of the Heads of Agreement as are still operative and necessary, and on whatever other terms as are reasonably necessary to give current business efficacy to such agreement.

Proposed grounds of appeal

In their application for leave to appeal, the two applicants rely on four proposed grounds of appeal, namely:

1.The Trial Judge erred in fact and law in finding that a concluded agreement had been reached between the First Applicant and the Respondent on the terms set out in Clause 5 of the ‘Binding Heads of Agreement’ document.
(a)The Trial Judge erred in inferring that the First Applicant had agreed to the terms of the Binding Heads of Agreement in the absence of any evidence and in circumstances where the First Applicant did not sign the document – which was a deed;
(b)To the extent that the Trial Judge relied on the principle that an executed document which fails as a deed may be enforced as a simple contract if supported by consideration, the Trial Judge applied the incorrect principle because the Binding Heads of Agreement had never been executed by the First Applicant and failed precisely because it had not been executed;
(c)The Trial Judge failed to correctly apply legal principles in not accepting that the principles in Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286 precluded consideration of post-contractual conduct (in the present case) because, here, there was a written document that identified the parties and the terms therein. Post-contractual conduct could not be used to revivify a formal contract that had not formed through the failure of the key party thereunder (the potential vendor of the shares) to execute the document as a deed;
(d)The Trial Judge erred in law in finding there was an ‘implied contract’ between the First Applicant and the Respondent when (i) such a notion is not known to law and (ii) by basing the existence of such an implied contract wholly on post-contractual conduct.

2.The Trial Judge erred in fact and law in finding that the Binding Heads of Agreement was intended to be a binding agreement to enter into a formal share sale/purchase agreement to achieve the actual sale of shares, when the Trial Judge should have found that any agreement between the First Applicant and the Respondent was an ‘agreement to agree’.
(a)The Trial Judge erred in law in finding that the Binding Heads of Agreement was an agreement under the first limb of Masters v Cameron (1954) 91 CLR 353. The Trial Judge ought to have found that the Binding Heads of Agreement established that the intention of the parties was only to be bound if a share sale agreement was ever concluded. It was not.
(b)The Trial Judge erred in fact and law in finding that the words in Clause 6 of the Binding Heads of Agreement, imposing an obligation ‘to negotiate in good faith with respect to entering into the Share Sale Agreement’, meant ‘to negotiate to bring ‘into effect the Share Sale Agreement’. The Trial Judge, in so reading the document, misapplied the principles of interpretation of contracts. Further, as a matter of fact, no Share Sale Agreement existed in draft form until 6 weeks after the Binding Heads of Agreement was signed (by two of the four parties named therein) and after that there was another 8 versions of the draft agreement exchanged before negotiations broke down.
(c)The Trial Judge erred in fact and law in concluding that the Binding Heads of Agreement contained sufficient terms to enable the parties to put into effect a share sale agreement.
(d)The Trial Judge erred in finding that the core and essential terms of the draft Share Sale Agreement did not vary in circumstances where not all of the drafts were in evidence.
(e)The Trial Judge ought to have found that the Binding Heads of Agreement fell within the third limb of the Masters v Cameron taxonomy.

3.The Trial Judge erred in fact and law in finding that specific performance of the Share Sale Agreement ought be granted.
(a)The Trial Judge erred in fact and law in finding that there had been consideration for the Binding Heads of Agreement.
(b)The Trial Judge erred in fact and law in finding that specific performance could be granted in circumstances where the Respondent had tendered no evidence as to why damages would not be an adequate remedy.
(c)The Trial Judge erred in fact and law in inferring at [122] that the purchase of the shareholding had features which were not readily repeatable as there was no evidence to support such an inference.
(d)The Trial Judge erred in fact in concluding that it was an ‘unusual purchase’ as there was no evidence to support such a finding.

4.The Trial Judge denied the Applicants natural justice in finding that the share sale was ‘an unusual purchase’, based on the findings made at [122], in circumstances where those findings were not foreseeable, were not raised by the Respondent and were not raised by the Trial Judge before such findings were made.

Ground 1 — was the Heads of Agreement a binding deed or contract

In support of ground 1, counsel made three principal submissions. First, counsel contended that the judge erred in her conclusion that, although the Heads of Agreement failed as a deed because it was not properly executed as such, nevertheless it could be enforced as a binding contract between the parties. Counsel submitted that the authorities, which provide that a deed that is not properly executed, may be enforceable as a contract, only apply in a case in which a party, against whom it is sought to enforce the agreement contained in the deed, has in some way signed the document, but has failed to do so in a manner which would permit it to be regarded as a deed. In the present case, as counsel pointed out, while the document purported to be a deed, Nurisvan did not sign it at all. Accordingly, it was submitted, that the document having failed to be executed as a deed, it could not be enforced as a contract.

Secondly, counsel submitted that, in any event, any agreement contained in the deed failed for want of any consideration passing from Anyoption to Nurisvan. In that respect, reference was made to an email sent from a representative of Anyoption to Ms Dementyeva, a director of FIBO, on 17 December 2014, and to Ms Dementyeva’s response to that email dated 18 December 2014, which both referred to the payment of a $10,000 deposit, together with the agreement, by FIBO to ‘prolong’ the lockout agreement.

Thirdly, counsel for the applicants submitted that the judge erred in finding that Nurisvan was a party to the Heads of Agreement through the application of what counsel described as an ‘unarticulated implied contract theory’. In particular, counsel submitted that the judge erred in using the evidence of the communications between the parties, after the Heads of Agreement were entered into, to ascertain the identity of the parties to that contract. It was submitted that in doing so the judge failed to correctly apply the principles stated by this Court in Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd.[14] Counsel further submitted that there was no evidence that, as at 24 December 2014, Nurisvan assented to or agreed to be bound by the terms of the Heads of Agreement. In that respect, counsel sought to distinguish the decision of the New South Wales Court of Appeal in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd,[15] in which the evidence was lead on behalf of the plaintiff as to a number of conversations in which the defendant had adopted or assented to the agreement in question, notwithstanding that it had refused to execute it.
[14][2015] VSCA 286 [133]–[134] (‘Regreen Asset Holdings’).
[15](1988) 14 NSWLR 523 (‘Empirnall Holdings’).

Counsel also contended that there is no support in the authorities for the ‘implied contract’ which the judge found between Nurisvan and Anyoption. It was submitted that the judge appeared to amalgamate the Heads of Agreement with a range of events that occurred subsequently to it, in 2015. It was contended that any conduct by Nurisvan, during that period, did not have the effect of binding it to a deed, such as the Heads of Agreement, that it had not executed.

In response, counsel for the respondent submitted that there is authority for the proposition that where a deed fails because it has not been properly executed, it may be enforced as a contract in an appropriate case.[16] Counsel contended that that principle applies, not only where the party, against whom it is sought to enforce the agreement, has failed to comply with the formalities of execution, but also in a case in which such a party has not executed or attested the document at all. Counsel further submitted that both the terms of the Heads of Agreement itself, and also the surrounding circumstances, demonstrate that the deposit of $10,000 was paid by Anyoption to Holley Nethercote, as a stakeholder, in accordance with the terms of the Heads of Agreement, and not, as contended by Nurisvan, as consideration for extension of the lockout agreement.
[16]HCK China Investments Ltd v Solar Honest Ltd (2009) 165 ALR 680.

Counsel for the respondent further submitted that there is sound authority for the proposition that post contractual conduct is admissible in determining the identity of the parties to a contract. In particular, counsel referred to observations made by this Court in Lederberger v Mediterranean Olives Financial Pty Ltd,[17] Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd[18] and Advaland Pty Ltd v Bitcon.[19]
[17](2012) 38 VR 509 (‘Lederberger’).
[18][2015] NSWSC 354 [85]–[86].
[19][2015] VSC 235 [62].

The submissions on behalf of the applicants, in support of Ground 1, thus raise three issues, namely:

1.Were the Heads of Agreement capable of being enforced as a contract, notwithstanding that they purport to constitute a deed, and were not executed by Nurisvan as a party to that deed.
2.If so, did Anyoption provide consideration in respect of the obligations imposed on Nurisvan (or FIBO) under the Heads of Agreement.
3.Did the judge err in concluding that Nurisvan was a party to the contract constituted by the Heads of Agreement.

(i) Was the deed capable of operating as a contract

It was not an issue, in this application, that, in an appropriate case, a document, which purports to be a deed, but which is not properly executed as such, may in an appropriate case constitute a binding contract between the parties who have agreed to be bound by it. However, in each of the cases relied in by the respondent in support of that proposition, the particular document in question was signed, or attested, on behalf of the party, against whom it is sought to be enforced, notwithstanding that that party failed to properly execute it as a deed.[20] Counsel for the applicants submitted that the principle, stated in those cases, is confined to documents which, in some form or another, have been so signed by the party against whom it is sought to be enforced. However, counsel was unable to refer the Court to any authority that supported such a proposition. Nor, we should add, was counsel for the respondent able to refer to any decided case in which the contrary proposition has been upheld.
[20]HCK China Investments Ltd v Solar Honest Ltd (2009) 165 ALR 680, 717-18 [206]-[207], 721-23 [228]-[237] (Hely J); Darjan Estate Co plc v Hurley [2012] 1 WLR 1782, 1789; Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] 2 WLR 196, 208–9 (Lord Evershed MR); 211 (Harman LJ); 212 (Donovan LJ); The Commercial Bank of Australia Ltd v G H Dean & Co Ltd [1983] 2 Qd R 204, 208 (McPherson J).

There is no sound reason why, on the one hand, a partially, but ineffectively, executed deed might be enforceable as a contract, whereas an unexecuted deed should not be enforceable, in circumstances in which the parties have accepted, or bound themselves to, the obligations contained in the deed. An agreement which is intended to be signed, but is not signed by each party, can nevertheless operate as a binding contract if the party, which did not execute it, otherwise bound itself to that agreement.[21] There is no cogent reason why the same principle should not apply to a document, that purports to be a deed, but which has not been executed by a party. In an appropriate commercial context, in which the parties have clearly attached themselves to such a document, it would be incongruous if such a document should not be treated as part of the contractual arrangements between the parties.
[21]Empirnall Holdings (1988) 14 NSWLR 523.

Some support for that proposition may be found in the decision of the Court of Appeal in McDonald v John Twinane Limited[22] and some dicta in the decision of the Full Court of New South Wales in Commonwealth Dairy Produce Equalisation Committee Ltd v McCabe.[23]
[22][1953] 2 QB 304 (‘McDonald’).
[23](1938) 38 SR(NSW) 397 (‘McCabe’).

In McDonald, a deed, comprising an apprenticeship agreement, was signed by the plaintiff, as the apprentice, and his guardian. However it was not executed by the defendant employer. The plaintiff entered into the defendant’s service, but was subsequently summarily dismissed by it for insubordination. On a claim by the plaintiff for damages for wrongful dismissal, it was held that the agreement, contained in the deed, was binding on the defendant, as it had acted on it and taken the benefit of it.[24]
[24]McDonald [1953] 2 QB 304.

In reaching that conclusion, Lord Evershed stated:

The facts show that the original so called ‘deed’ was executed as such by the plaintiff and by his father, but was not executed as a deed by the master. From the date of its execution, however, it seems to me plain that the defendants regarded themselves as governed in their relations to the plaintiff by the terms of the deed, and they took the benefit of it and of such services as rendered, as is shown by the circumstance that the defendants supported the apprentice’s application for deferment. On those facts I think… though the defendants did not execute this deed, they must be treated as bound by it, as if they had executed it, and as satisfying the requirements of the statute of Elizabeth I.[25]

[25]Ibid 314–5; see also Turner v New South Wales Mont de Piere Deposit and Investment Co Ltd (1910) 10 CLR 539, 554–5 (Isaacs J).

In similar terms, Birkett LJ stated:

It was suggested in argument… that the defendant company had accepted no benefits under the document. I am perfectly clear that they had accepted benefits, and I do not think it can be reasonably contended that, in the circumstances of this case, there was not a valid, subsisting and enforceable apprenticeship agreement.[26]

[26]Ibid 316; see also 317 (Romer LJ).

In McCabe, the plaintiff sued the defendant for money due under a deed that was alleged to have been executed by the defendant. The facts are not entirely clear,[27] although it appears that the defendant did not execute the deed or that his signature was not properly witnessed.[28] The plaintiff sought to enforce one of the covenants contained in the deed, on the basis that the defendant had accepted benefits under it. Jordan CJ (with whom Davidson and Owen JJ concurred) held that the defendant was not liable to be sued on the covenant contained in the unexecuted deed, notwithstanding that the defendant might have taken benefits under the deed. However, the Chief Justice made the observation that in an appropriate case a person, who omits to execute a deed, may nevertheless, by accepting benefits under the deed, provide evidence of an implied agreement to be bound by a simple contract contained in the terms set out in the deed. His Honour said:

Thus, if a deed unconnected with the land purports to confer benefits and impose obligations upon a person who omits to execute it, that person, by accepting the benefits, may supply evidence of an implied agreement to be bound by a simple contract in the terms of the deed; but he does not thereby become liable under the deed itself, or liable to be sued in covenant.[29]

[27]As they are set out in the reported version of this judgment: McCabe (1938) 38 SR(NSW) 397.

[28]Ibid 399, 403.

[29]Ibid 403.

The decision of the Court of Appeal in McDonald, and the dicta of Jordan CJ in McCabe, are inconsistent with the proposition relied upon by the applicants, that a deed, not executed by a party, cannot, in an appropriate case, be part of the basis of a contract which is enforceable against that party. Rather, they support the proposition, relied on by the respondent, that, in an appropriate case, a party may expressly, or impliedly, accept or attach itself to the obligations contained in the deed so as to be bound in contract by the terms contained in the deed.

For those reasons, the trial judge was correct in considering that the Heads of Agreement were capable of being enforced as a contract, notwithstanding that they purport to constitute a deed, but were not executed by Nurisvan as a party to that deed. The contract, constituted by the deed, may be enforced against that party.

(ii) Was there consideration for the agreement?

Counsel for the applicants relied on two emails passing between the parties, on 17 December and 18 December 2014, to support a submission that the deposit, that was paid by Anyoption to the stakeholder on 30 December 2014, did not constitute consideration provided by Nurisvan for the Heads of Agreement, but, rather, was consideration provided by it for an extension by FIBO of the ‘lockout agreement’. In particular, counsel referred to an email by Ms Gabbay of Anyoption to Ms Dementyeva of FIBO, dated 17 December at 5.05 pm, seeking clarification of two terms, namely, first, that FIBO would extend the lockout agreement until 31 December, and, secondly, that Nurisvan would deposit AUD $10,000 once the process of due diligence was completed. Ms Dementyeva responded by an email dated 18 December 2014, addressed to Ms Gabbay, and to Mr Nadav Zohar (the Chief Executive Officer of Anyoption), that FIBO would be ready to prolong the lockout agreement ‘after you put deposit to the trust account of Australian lawyers.’

The point raised by the applicants, in this respect can be disposed of shortly, for two reasons. First, notwithstanding the terms of those emails, the subsequent Heads of Agreement dated 24 December made specific provision for the payment by Anyoption of a deposit of $10,000 to the stakeholder upon execution of the deed, to be held by the stakeholder subject to determination of the Heads of Agreement, or completion or later termination of the Share Sale Agreement. That characterisation, of the deposit, superseded any effect of the previous emails relied on by counsel for the applicants.

Secondly, the two emails, relied on by the applicants, must be understood in the context of the chain of emails that preceded them. In particular, on 17 December 2014, at 10.38 am, Ms Dementyeva had sent an email to Ms Gabbay confirming the price of $100,000. Ms Dementyeva stated that the ‘shareholder’ (that is, Nurisvan) had requested her to finalise the deal ‘this very year’, and then stated ‘that is why we have to decide somehow on a deposit for this deal and proceed ASAP.’ In response, Ms Gabbay sent an email to Ms Dementyeva at 5.02 pm on the same day, confirming that Anyoption would like to complete the transaction ‘as fast as possible’, and stating ‘we agree to deposit $10,000 AUD and would like to start working on the necessary agreement for the transfer.’

The two emails, relied on by the applicants, are subsequent to, and consequent upon, the emails to which we have just referred. In that context, it is clear that the parties, at that stage, were in agreement that the deposit of $10,000 was to be paid for the obligations to be assumed under the Heads of Agreement, and that, in addition, the lockout agreement would be extended for a further period of time.

Accordingly, we reject the submission made on behalf of the applicants that no consideration was provided by Anyoption for, or in respect of, the obligations contained in the Heads of Agreement.

(ii) Was Nurisvan a party to the Heads of Agreement

The question, then, is whether the judge erred in deciding that Nurisvan was a party to the Heads of Agreement, notwithstanding that it did not execute that document. Although the respondent relied, at least in part, on conduct by the parties after the signing of the Heads of Agreement on 24 December 2014, it is important to bear in mind that Anyoption did not at trial, whether by its pleadings or otherwise, rely on the proposition that, by its subsequent conduct, Nurisvan ratified the Heads of Agreement, or was estopped from denying that it was a party to the Heads of Agreement. Rather, the question, both at trial, and on appeal, is whether it could be concluded that Nurisvan was a party to the Heads of Agreement, although it did not execute, or otherwise attest, that document.

That question must be determined objectively, by an evaluation of the contractual document and the circumstances in which it was executed. In particular, the question is whether it might be implied (or inferred) from the terms of the document, and from the circumstances in which it came into being, that Nurisvan intended to be bound by, and a party to, the agreement that was contained in that document.

In the proceeding below, Anyoption contended, and the judge accepted, that the agreement was partly in writing and partly implied. In particular, the judge upheld the submission made on behalf of Anyoption that it should be implied from the circumstances, and from the content of the Heads of Agreement itself, that Nurisvan was a party to the Heads of Agreement.

As a matter of strict analysis, the process relied on, to reach that conclusion, would more properly be described as partly one of inference, and partly one of implication, although, as the authorities note, the two concepts very much overlap. Thus, in Hawkins v Clayton,[30] Deane J stated:

In these circumstances, it is necessary to identify two distinct stages in the ascertainment of relevant terms. Those stages may well overlap and it will often be unnecessary to distinguish between them in practice. The first stage is essentially one of inference of actual intention: what, if any, are the terms which can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties? The second stage is one of imputation: what, if any, are the terms which are, in all the circumstances, implied in the contract as a matter of presumed or imputed intention?[31]

[30](1988) 164 CLR 539.

[31]Ibid 570; see also Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422–3 (Brennan CJ, Dawson and Toohey JJ); Breen v Williams (1996) 186 CLR 71, 90–91 (Dawson and Toohey JJ); The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) & (No 10) (2009) 39 WAR 1, 323–325 [2655]–[2663] (Owen J); Grocon Constructors (Vic) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 [176]–[180].

It is well established that, in an appropriate case, as part of that process, a court is entitled to have recourse to extrinsic evidence to identify the parties to a contract, or to clarify and determine the particular capacity in which a party, or parties, purported to execute a contractual document.[32]
[32]Lederberger (2012) 38 VR 509, 515–16 [19]; Young v Schuler (1883) 11 QBD 651, 654–5 (Brett MR), 655 (Cotton LJ); Edwards v Edwards (1918) 24 CLR 312; Mallinson v Scottish Australia Investment Co (1920) 28 CLR 66, 75; Abram v AV Jennings Limited (2002) 84 SASR 36 [45]–[51] (Besanko J, with whom Doyle CJ and Mullighan J agreed).

In Lederberger,[33] this Court was concerned with the question whether a partnership, or a company which acted as bare trustee for the partnership, was liable for debts arising from investment contracts that had been entered into with the respondent and associated companies. The identity of the contracting parties was unclear from the documentation that comprised the contracts. This Court held that it was permissible for the judge to have had access to the documents that passed between the parties at the time of the contract, and the surrounding circumstances, to identify the appellants (who constituted the partnership) as the relevant contracting parties. The Court stated:

Identification of the parties to a contract must be in accordance with the objective theory of contract.^{- 4} That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had. The process of construction requires consideration not only of the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. This, in turn, presupposes knowledge of the genesis of the transaction, the background, and the context in which the parties are operating.
When one looks at the suite of documents between the parties and the surrounding circumstances to the agreements … it becomes clear that the parties to the contracts were the respondents and the members of the Partnership. …
In identifying the parties to the contract, his Honour was entitled to consider the objective and purpose of the transactions, the communications and actions that took place between (the members of the Partnership) and the knowledge that these parties had of the surrounding circumstances to the agreement in order to ascertain the objective intention that these parties had in entering the contract. In our opinion, his Honour was right to find that a reasonable person, with the knowledge that the parties had of the surrounding circumstances, would conclude that it was the partners in the Partnership that entered into the transaction agreements with the respondents in relation to the Blue Gum and Mediterranean Olives schemes.[34]

[33](2012) 38 VR 509.

[34]Ibid 515–516 [19]–[22] (citations omitted).

Based on those principles, it was clearly permissible for the judge to determine the question, whether Nurisvan was a party to the Heads of Agreement, by a process both of imputation from the terms of the document itself, as well as inference from the surrounding circumstances. The more difficult question is whether it was permissible for her Honour also to have relied on the subsequent communications between the parties, and their actions, as a basis of an inference or imputation that Nurisvan was a party to the Heads of Agreement.

The authorities make it plain that post-contractual conduct is not admissible on the question of the meaning of a contract, and for the purpose of construing a contract.[35] On the other hand, it is recognised that, where no formal contract exists, post-contractual conduct is admissible on the question as to whether a contract was in fact formed.[36] However, there is no settled view in the authorities whether post-contractual conduct may be relied on to found or support an inference as to the identity of a party to the contract.
[35]FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350; Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235; James Miller & Partners Limited v Whitworth Street Estates (Manchester) Ltd [1970] AC 583, 603 (Lord Reid); Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153, 163 [26]; Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582 [35] (Gummow, Hayne and Keifel JJ).
[36]Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68, 77 (Griffiths CJ); Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647, 668-69 (Griffiths CJ) and 672 (Isaacs J); Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 [25]; Regreen Asset Holdings P [2015] VSCA 286 [134]; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 [105] (Giles JA); Johnston v Brighton Holding Company Pty Ltd [2014] NSWCA 150 [124] (Basten JA); Feldman v GNM Australia Ltd [2017] NSWCA 107 [90]–[91] (Beazley P).

In Pethybridge v Stedikas Holdings Pty Ltd,[37] the issue whether post-contractual conduct may be used to infer that the respondent was a party to the contract in question, was raised in argument. However, the New South Wales Court of Appeal did not consider it necessary to determine the question.[38]
[37](2007) Aust Contract R 90–263.
[38]Ibid [59] (Campbell JA, with whom Beazley and Basten JJA agreed).

The same issue also arose in Lederberger. The judge had relied (inter alia) on tax returns of the partnership that showed that it was the partnership, and not the trustee company, that had obtained tax benefits from the scheme. On appeal, the Court, having referred to the general principle that the subsequent conduct of the parties may not be used as an aid to the construction of a contract, stated:

But we are not inclined to think that this now well-settled principle has affected the second principle stated by Heydon J in Brambles Holdings [that post-contractual conduct is admissible on the question whether a contract was formed] so as to have precluded the trial judge from relying upon tax returns filed after the tax effective scheme contracts had been signed, in order to ascertain whether the respondents and the partners of the Partnership had entered into the agricultural contracts.[39]

[39]Lederberger (2012) 38 VR 509, 519 [31] (Nettle and Redlich JJA and Beach AJA).

However, the Court did not find it necessary to resolve that issue, because, even if the post-contractual tax returns of the appellants were inadmissible for the purpose of identifying the parties to the contracts, the evidence relating to the circumstances in which the contracts were originally signed was a sufficient basis for the trial judge to have concluded that the appellants were the contracting party.[40]
[40]Ibid [32].

The tentative view, thus expressed in Lederberger, does gain some support from the decision of the Court of Appeal of New South Wales in Tomko v Palasty[41] and the judgment of Robb J in Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd.[42] In each of those cases, post-contractual conduct by an alleged party was regarded as an admission by it that it was in fact a party to the contract.
[41][2007] NSWCA 258 [13]–[14] (Basten JA), [68] (Einstein JA) (‘Tomko’).
[42][2015] NSWSC 354 [86], [101] (‘Harold R Finger’).

In Tomko, the appellant and the respondent were engaged in a business venture, which involved a number of companies, including Liverpool Hotels Pty Ltd. The appellant provided funds to the venture pursuant to two oral agreements, by way of loan, rather than by way of a capital contribution. At trial an important issue was whether the monies were provided to or at the direction of the respondent, or provided to or at the direction of Liverpool Hotels. The trial judge found in favour of the respondent on that issue. Einstein JA (with whom Mason P agreed) rejected the complaint by the appellant as to the use by the judge of post-contractual communications for the purpose of determining the party with whom the appellant had entered into the relevant loan agreement. His Honour stated:

… subsequent communications may legitimately be used against a party as an admission by the conduct of the existence or non-existence, as the case may be, of a subsisting contract, where an issue concerns whether a particular person was a party to that contract.
In the circumstances before the trial judge the so-called ‘post-contractual conduct’ evidence which was adduced on the question of whether or not a contract of loan was formed as between the appellant and the respondent was admissible. The appellants’ challenge to such use of this material in the particular circumstances which obtained during this trial is without substance.[43]

[43]Tomko [2007] NSWCA 258 [68]–[69].

In Harold R Finger, the plaintiff claimed damages against the defendants for alleged repudiation by one of them of a contract. The two defendants were Karellas Investments Pty Ltd and Karellas Group Pty Ltd. An issue arose as to which defendant was a party to the relevant contract, because the document in question referred, on most occasions, to ‘Karellas Group’. Robb J held that that conduct by the parties, subsequent to the entry into the contract, constituted an admission by Karellas Investments Pty Ltd that it was a party to the agreement. His Honour stated:

The proposition that Karellas Group was intended to be the contracting party, even though Karellas Investments or nominee was identified as a proposed tenant, would suggest that it was Karellas Group that had the right and obligation to participate in the settlement of the terms of the formal documentation. However, the subsequent conduct that appears in the evidence suggests that the settlement of the terms was done on behalf of Karellas Investments. Karellas Investments actually exercised the rights to agree aspects of the necessary documents. These actions are capable of being admissions made by Karellas Investments, because they were undertaken by its solicitor or by its consultant … .[44]

[44]Harold R Finger [2015] NSWSC 354 [101].

In the present case, Nurisvan was plainly a necessary party to any contract to sell the shares it owed in FIBO. Unless Nurisvan was a party to the Heads of Agreement, there could be no valid contract in respect of the sale of the shares in FIBO to Anyoption. In that way, the post-contractual conduct of the parties was relevant to the issue, not only of the identity of the parties to the contract, but also, necessarily, to the existence of the contract itself. As observed by Ball J in Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd,[45] in a case such as this, the question whether a contract was formed necessarily involves the question whether it was formed between Anyoption and Nurisvan, since contracts do not exist in the abstract.[46] As we have mentioned, the authorities make it clear that post-contractual conduct is admissible to determine the existence and formation of the contract. In that way, the judge was correct to take into account the post-contractual conduct of the relevant parties, in order to determine whether Nurisvan was a party to the Heads of Agreement.
[45][2011] NSWSC 116.
[46]Ibid [38].

As we have already noted, the judge concluded that Nurisvan was a party to the contract, first, based on an examination of the Heads of Agreement itself and the circumstances in which it was formed at the time, and, secondly, based on the events that took place, and the communications that passed between the parties, between 24 December 2014 and October 2015.

We are of the view that the judge was correct in determining that on an analysis of the Heads of Agreement, in the context of the circumstances at the time it was formed, there was a sufficient basis upon which to conclude that Nurisvan was a party to the Heads of Agreement. Clearly, FIBO could not sell its own shares. FIBO was wholly owned by Nurisvan, which was the only party which could sell its shares. The Heads of Agreement named Nurisvan as the vendor, and Anyoption as the purchaser. By cl 4, Nurisvan (and FIBO) each acknowledged and agreed that it would not negotiate with any third party about the sale of the shares or any FIBO assets during the term of the deed. Clause 5.1 provided for the purchase by Anyoption of the shares in FIBO from Nurisvan. Clause 5.2 provided for the payment by Anyoption of the purchase price to Nurisvan. Clause 5.4 provided for Nurisvan (not FIBO) to provide the reasonable warranties to be agreed to by Anyoption. Clause 7.2 provided the circumstances in which Nurisvan was to be entitled to the deposit at completion. In that way, the Heads of Agreement set out, in detail, rights and obligations, both of Anyoption, as purchaser, and Nurisvan, as vendor. As the trial judge noted, it was necessary for Nurisvan to be a party to the agreement, in order to give any business efficacy to it at all.

The trial judge found that Mr Dixon of Holley Nethercote acted for Nurisvan (and FIBO) from the inception of the transaction, in December 2014 to October 2015.[47] That finding of fact, by the judge, was not put in issue on this application. There is no suggestion, in the evidence, that from the very outset, the intended transaction was to be other than an agreement in respect of the sale of the shares in FIBO to Anyoption. The first email, sent by Mr Lynch to Mr Dixon (on 16 December) referred to the provision by the vendor of the ‘usual vendor warranties’. The first draft of the Heads of Agreement was formulated and forwarded by Mr Lynch to Mr Dixon. As with the final draft, that document described Nurisvan as the vendor. The last page of the first draft of the Heads of Agreement, entitled ‘Execution’, noted [appropriate execution clauses to be inserted]’. In those circumstances, and in light of the terms of the Heads of Agreement to which we have referred, in our view the judge was correct in concluding that there was a ‘strong inference’, from the fact that no sale of the shares in FIBO could be possible without Nurisvan’s agreement, that Nurisvan did agree to be bound by the Heads of Agreement.
[47]Reasons [61]–[64].

Further, as we have already stated, in our view the post-contractual conduct of the parties is relevant to the question of the identity of the parties to the Heads of Agreement, and thus to the question whether those Heads of Agreement constituted a valid and binding contract at law. As noted by the judge, the evidence of the post-contractual conduct of the parties, and, in particular Nurisvan, is persuasive that Nurisvan was a party to the Heads of Agreement. Indeed, it was not contended, on this application, that if that evidence is admissible, it did otherwise than support the conclusion that Nurisvan was a party to the Heads of Agreement. It is not necessary to refer, at length, to the communications between the parties, to which we have already referred. A few instances will suffice.

By his email to Mr Lynch dated 4 February 2015, Mr Dixon referred to an agreement between ‘the representatives of each of our respective clients who are located in Cyprus’ that the decision to proceed with the purchase would be notified by 31 January. As FIBO was located in Australia, and Nurisvan was located in Cyprus, Mr Dixon could only have been referring to Nurisvan in that email. On 11 February, Mr Dixon sent to Mr Lynch an email, attaching a draft Share Sale Agreement between Nurisvan (as the vendor) and Anyoption (as purchaser). Mr Dixon noted that he was being pressed by his client (that is, Nurisvan) to include a requirement that Anyoption pay the holding costs of FIBO after 31 January. On 13 February, Mr Dixon sent a further email to Mr Lynch stating that his client considered that the ‘spirit of the arrangement’ with Anyoption had not been met by Anyoption. Again, in that email, Mr Dixon could only have been referring to Nurisvan as a party to the Heads of Agreement. Finally, the email of Mr Dixon to Mr Lynch dated 6 July, to which we have earlier referred[48] makes it plain that Nurisvan accepted that it was a party to the Heads of Agreement.
[48]Above [29].

In those circumstances, in our view, the judge was correct to infer, from the conduct of Nurisvan between December 2014 and October 2015, that Nurisvan had, in December 2014, accepted and agreed to be a party to the Heads of Agreement that were signed by FIBO, of which it was the sole shareholder. That evidence fortifies the conclusion, expressed earlier, that, based on the terms of the Heads of Agreement, and on the background matrix of facts that were in existence at the time, Nurisvan was a party to, and bound by, the Heads of Agreement.

It follows that the applicants do not succeed on ground 1 of the proposed grounds of appeal.

Ground 2 — Masters v Cameron issue

Ground 2 is directed to the conclusion by the judge that the Heads of Agreement constituted a binding agreement between the parties to enter into a formal Share Sale Agreement in the sale of Nurisvan’s shares in FIBO to Anyoption.[49]
[49]Reasons [108].

In reaching that conclusion the judge noted that the applicants relied on the ‘first category’ of contracts described by the High Court in Masters v Cameron,[50] namely, an agreement in which the parties have reached finality in arranging the terms of their bargain, and intend to be immediately bound to perform those terms, but at the same time propose to have the terms restated in a more complete form in a subsequent document. Her Honour noted that, on the other hand, the applicants argued that the Heads of Agreement was only an agreement to try to reach an agreement in the future, and, as such, is not a binding contract at law.
[50](1954) 91 CLR 353.

In concluding that the Heads of Agreement were immediately binding on the parties, as contended on behalf of Anyoption, the judge stated:

Notwithstanding that I was told that there were ultimately nine versions of the Share Sale Agreement, none of which was ever of course signed, and despite not all of them being in evidence I consider that the core and essential terms did not vary, and the multiple drafts and emails about them were as to relatively peripheral matters …
I am satisfied that on its proper construction in the context of the document as a whole, the reference in clause 6 of the Binding Heads of Agreement to agreeing ‘to negotiate in good faith with respect to entering into the Share Sale Agreement’ meant to negotiate to bring into effect the Share Sale Agreement. I am satisfied that it did not mean to negotiate the terms of the sale of shares, as they had been agreed. There had been agreement on the conditions to be included — being those in clause 5 — albeit that clause 5 acknowledges that there would be other conditions, and uses some general descriptions including as to providing ‘reasonable warranties’.
I am satisfied that to enforce this part of the agreement does not, as submitted by the defendants, require the court to act in any supervisory role. I am satisfied that the Binding Heads of Agreement contained sufficient to enable the parties if acting in good faith to put into effect the share sale the terms of which they had agreed.
For these reasons I am satisfied that the agreement I have found to have been made and to which Nurisvan had bound itself as a party was a completed agreement under the first limb of Masters v Cameron.[51]

[51]Reasons [86]–[89].

In support of ground 2, counsel for the applicants submitted that the judge erred in determining that the Heads of Agreement came within the first category of cases described in Masters v Cameron,[52] namely, an agreement by which the parties intended to be immediately bound, while also agreeing to subsequently enter into a formal document encapsulating that agreement. It was submitted that the judge ought to have concluded that the Heads of Agreement came within the third category of cases considered by the High Court in Masters v Cameron, namely, an agreement to continue to negotiate towards a future agreement in good faith. Counsel contended that, following the signing of the Heads of Agreement on 24 December 2014, it was necessary for the parties to engage in the further process of detailed negotiation, because important terms of the future Share Sale Agreement had been included in the Heads of Agreement. Further, it was contended, it would not have been necessary for the parties to have included an obligation, in cl 6 of the Heads of Agreement, to negotiate in good faith, if they had already reached finality regarding all the terms of their bargain, with the intention of being immediately bound by the Heads of Agreement. Counsel submitted that the express purpose of cl 6 was to acknowledge that no finality had been reached by the parties, but that the parties would continue to negotiate in an attempt to reach consensus on the fundamental aspects of the proposed sale of shares in FIBO to Anyoption.
[52](1954) 91 CLR 353.

Counsel for the applicants submitted that the judge misconstrued the plain meaning of cl 6 of the agreement, which required the parties ‘to negotiate in good faith with respect to entering into the Share Sale Agreement’. Counsel submitted that the judge fundamentally altered the meaning of that clause, by interpreting it to mean to impose an obligation on the parties to negotiate the terms of the sale of shares that had already been agreed.

Counsel further submitted that, on its face, the Heads of Agreement lacked a number of important terms, which were still to be concluded, in order to constitute an agreement for the sale of shares, including: the completion date; determination of the vendor warranties; determination of the conditions precedent to completion of the sale agreement; and provision for a mechanism for adjusting the purchase price. Counsel further submitted that it was significant that the Heads of Agreement was expressed in the future tense, indicating that it was an agreement to enter into a further agreement at a later date. Finally, counsel contended that a review of the final draft of the Share Sale Agreement, that passed between the parties on 9 October 2015, was relevant to demonstrate the matters that remained for negotiation as at 24 December 2014.

In response, counsel for the respondent contended that it was clear from the Heads of Agreement that the parties, by that document, manifested their intention to transfer the shares in FIBO to the respondent, and that they would be immediately bound by that agreement. Counsel contended that all of the essential terms, necessary for a sale of the shares in FIBO, were contained in the Heads of Agreement, and in particular cl 5. He submitted that the terms, that remained for negotiation, related to peripheral, rather than fundamental, matters. Ultimately counsel contended that the proposed sale of shares in FIBO by Nurisvan to Anyoption was a simple transaction, in respect of which all the fundamental terms had been agreed and set out in the Heads of Agreement.

Counsel further contended that a comparison of the ninth draft of the Share Sale Agreement, with the Heads of Agreement, demonstrates that the parties did not depart from the essential terms contained in the Heads of Agreement while negotiating the Share Sale Agreement. Nor was there any significant controversy between the parties regarding the terms that were to be inserted in the Share Sale Agreement. Counsel noted that the delay, between the Heads of Agreement and the formulation of the last draft of the Share Sale Agreement, was due to a significant degree to the intervention of ASIC, and the matters that were left unresolved by that intervention. Thus, he submitted the Court should not draw any adverse conclusion against the respondent by reason of the nine month delay between the execution of the Heads of Agreement and the formulation of that draft Share Sale Agreement.

Legal principles

It is not uncommon for parties, in the course of contractual negotiations, to encapsulate the substance of an agreement reached between them in a document, which contains provision for the formulation and execution of a later more formal and comprehensive memorial of the terms of their agreement. In such a case, including the present, the question arises whether the preliminary document, agreed by the parties, constitutes a binding formal contract between them, or whether, on the other hand, it is an agreement to further negotiations with a view to concluding such a contract at some time in the future. The principles to be applied, relevant to that question, were stated in 1954 by the High Court in Masters v Cameron[53] in terms which have been followed and applied in countless decisions in the ensuing decades.
[53](1954) 91 CLR 353.

In Masters v Cameron, the parties signed a document dated 6 December 1951 by which the respondent agreed to sell certain farming property to the appellants ‘subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions’. The High Court, consisting of Dixon CJ, McTiernan and Kitto JJ, held that that document did not constitute a binding contract between the appellants and the respondent. In reaching that conclusion, the Court identified three categories of ‘agreements’ by which the parties might agree that the terms of their agreement shall be later contained in a formal document. The Court stated:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.[54]

[54]Ibid 360.

In respect of the first two categories, the Court noted that decisions, on this branch of the law, had consistently applied the principle enunciated by Lord Blackburn in Rossiter v Miller,[55] that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal contract prepared, embodying the terms, and which will be signed by the parties does not, by itself, demonstrate that they continue merely in negotiation.[56] The Court stated:

The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.[57]

[55](1878) 3 App Cas 1124, 1151.

[56]Masters v Cameron (1954) 91 CLR 353, 360–361.

[57]Ibid 362.

As we have mentioned, that statement of the relevant principles in Masters v Cameron has been adopted and applied in numerous decisions over the last six decades. In some cases, a fourth ‘category’ of contracts, of the kind discussed in Masters v Cameron, have been identified, namely cases in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, while expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.[58] However, it is necessary to bear in mind that the categories, identified in Masters v Cameron, were not intended to be, nor are they, exhaustive or strict.[59]
[58]Sinclair Scott & Co v Naughton (1929) 43 CLR 310, 317; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628; on appeal, GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634; Lucke v Cleary (2011) 111 SASR 134, 149–50 [57]–[58] (Stanley J).
[59]Feldman v GNM Australia Ltd [2017] NSWCA 107 [68] (Beazley P).

In essence, in the present case, the basic submission by the applicants is that the judge erred in concluding that the Heads of Agreement obliged Nurisvan to enter into an agreement with Anyoption for the sale of Nurisvan’s shares in FIBO. The position taken by Nurisvan, at trial and on this application, is that the only obligation imposed on Nurisvan, by the Heads of Agreement, was to negotiate with Anyoption in good faith concerning the conclusion of a Share Sale Agreement.[60] A breach of such an obligation would entitle the other party to damages for loss of an opportunity to enter into the concluded agreement.[61] However, no such claim has been made by the respondent.
[60]Cf United Rail Group Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 [33]–[34] (Allsop P); Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, 26–27 (Kirby P); Mushroom Computers Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 [74] (Sackville AJA); Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd (2010) 91 WAR 318, 344 [82] (Murphy JA).
[61]See for example, Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88.

On the other hand, the basic position taken by the respondent, at trial and on this application, is that the Heads of Agreement constituted, by itself, a binding contract by Nurisvan to enter into a Share Sale Agreement with Anyoption to sell Nurisvan’s shares in FIBO to Anyoption.

In determining whether the Heads of Agreement constituted a binding contract to enter into a Share Sale Agreement, the critical issue concerns the intention of the parties which must be ascertained objectively from the terms of the document, construed in the context of the surrounding circumstances.[62] In that respect, it is relevant to take into account the commercial context and surrounding circumstances of the parties’ dealings.[63] In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd,[64] McHugh JA (with whom Kirby P and Glass JA agreed) stated:

… the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances … If the terms of a document indicate that the parties intended to be immediately bound, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.
Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that ‘the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms’; Sinclair Scott & Co Limited v Naughton.[65]

[62]Godecke v Kirwan (1973) 129 CLR 629, 638; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–57 [35]; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 616 [64]–[65] (Bathurst CJ).

[63]Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540, 548; Pavlovicv Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 619 [72] (Bathurst CJ); Feldman v GNM Australia Ltd [2017] NSWCA 107 [70] (Beazley P).

[64](1986) 40 NSWLR 631.

[65]Ibid 634 (citations omitted).

Thus, the fact that, after entering into such an agreement, the parties might negotiate further additional terms, that were not included in the first agreement, is not necessarily inconsistent with a conclusion that the first agreement constituted a binding contract between them.[66] Ordinarily, in cases falling within the first two categories described by the High Court in Masters v Cameron, it is clearly expected that further negotiations would take place with a view to including additional, and more comprehensive, provisions in the document ultimately to be formalised between the parties.
[66]Lucke v Cleary (2011) 111 SASR 134, 153 [74] (Stanley J).

As a corollary to that proposition, the question whether the parties intended to reach a concluded agreement is not the same question as whether assuming such an intention they reached an agreement on sufficient terms to constitute a legally enforceable contract. In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd, Gleeson CJ (with whom Hope and Mahoney JJA agreed) expressed the relevant distinction as follows:

It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron.[67] That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.[68]

[67](1954) 91 CLR 353, 360.

[68]Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548 (citation in original).

An issue arises in the present appeal as to whether the negotiations and communications between the parties, after 24 December 2014, are relevant to the question whether the Heads of Agreement constituted a binding contract between the parties. In a number of the authorities, it is suggested that evidence, of subsequent negotiations, is admissible to determining whether the parties intended that a particular document be a binding contract between them. However, that view has been expressed, principally, in cases involving contracts that are said to have come into existence as a result of an exchange of correspondence or other communication between the parties,[69] as distinct from a case such as the present, in which the respondent relied on a single document concluded between the parties.
[69]See for example, Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540, 546–8, 550 (Gleeson CJ); Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 [105] (Giles JA); Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605, 627 [133] (Beazley P); Feldman v GNM Australia Ltd [2017] NSWCA 107 [90] (Beazley P).

In each of those former class of cases, the document relied on as a binding contract, formed part of a series of a chain of correspondence between the parties. In that context, it was relevant for the Court to examine correspondence and communications between the parties, subsequent to the document in question, to place that document in the context of the negotiations, in order to determine whether it could be concluded that the parties intended that the particular document constituted the terms of the binding agreement between them. In the present case, the respondent, Anyoption, relied on one single document, the Heads of Agreement dated 24 December 2014. The issue in the present case concerns whether it was the intention of the parties, on execution of that document, to conclude a binding agreement between themselves. That question was to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being. In such a case, and subject to one qualification, it is difficult to understand how subsequent negotiations between the parties, and, in particular, their subsequent attitude to the Heads of Agreement, could be determinative of the question whether, at the time the document was executed, it was intended to be a binding contract between the parties.

The qualification, to that proposition, is that the subsequent negotiations and communications between the parties, and in particular the draft Share Sale Agreements that passed between them, would be relevant, from an evidentiary point of view, to demonstrate the nature and extent of the terms, that might be necessary for the conclusion of Share Sale Agreements, that were not included in the Heads of Agreement. That issue would be relevant to the question whether the parties, in December 2014, could be said to have bound themselves contractually by the Heads of Agreement, notwithstanding that they did not contain those further terms and conditions.[70]
[70]Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540, 557 (Gleeson CJ).

Analysis

The starting point, for determination of the issue raised by ground 2, is necessarily the Heads of Agreement, and the terms contained in it.

In our view, the language in which the Heads of Agreement is expressed, the nature of some of the clauses contained in it, and the nature and extent of the terms that were left for future negotiation, taken together, necessitate a conclusion that the Heads of Agreement constituted no more than a contract between the parties to negotiate, in good faith, with respect to entering into an agreement between Nurisvan and Anyoption for the sale of the FIBO shares.

From the outset, recital A, in the preamble to the Heads of Agreement, expresses the wish by the vendor to sell to the purchaser, and the purchaser to buy from the vendor, the shares. It is significant that that recital is not expressed in terms of a current agreement between the parties for the sale of the shares. Similarly, recital C is expressed in terms of a wish by the parties to ‘manifest their intention’ for the vendor to sell, and the purchaser to buy, all the shares in FIBO. Again, if there were a concluded agreement between the parties for that transaction, recital C would have been expressed in terms of a desire by the parties to manifest their ‘agreement’ (and not simply ‘intention’) to sell and purchase the shares. In the same vein, cl 3 (entitled ‘Declaration of Intention’) provides that the parties ‘declare their respective bona fide intention’ to enter into the Share Purchase Agreement. As already mentioned, cl 1 defines ‘Share Purchase Agreement’ to mean an agreement to be entered into between the vendor and the purchaser ‘in respect of the transfer of the shares to the Purchaser’. Thus, cl 3 is not consistent with a binding agreement, between the parties, to enter into such an agreement. Clause 5 sets out the conditions which (inter alia) would be included in the Share Purchase Agreement. Clauses 5.1, 5.2 and 5.4 are each expressed in terms of futurity, in terms of what the parties will do, rather than being presently obliged to do.

The terms contained in the Heads of Agreement expressly leave much to be negotiated. As mentioned, cl 5 contains the agreement by the parties that the specified conditions contained in that clause, ‘among others’ would be included in the Share Purchase Agreement. The parties thus acknowledged that conditions, not specified in the Heads of Agreement, would also be included in the Share Purchase Agreement. Clause 5.3 provides that completion of the Share Purchase Agreement is conditional ‘among other matters’ on the four matters specified in that sub-clause. Clause 5.4 provides that the vendor will provide ‘reasonable warranties as agreed to’ by the purchaser concerning FIBO, the shares and the AFSL. Thus, it is self-evident that cl 5 left much to be negotiated before the conclusion of the intended Share Purchase Agreement.

In addition, the Heads of Agreement contain clauses which would be otiose if it constituted a contract to enter into the Share Purchase Agreement. In particular, cl 4 — which provides that Nurisvan and FIBO must not negotiate with any third party about the sale of the shares or any FIBO assets during the term of the deed — would be unnecessary if the Heads of Agreement, of themselves, constituted an agreement to sell the shares by Nurisvan to Anyoption. Clause 7.1, which provides that the purchaser must pay the deposit to the stakeholder on execution of the deed, and cl 7.2, which provides that the vendor only becomes entitled to the deposit at completion of the sale and purchase of the shares under the Share Sale Agreement, would be most unusual, if the Heads of Agreement itself constituted a contract for the sale and purchase of the shares.

Finally, a comparison of the Heads of Agreement with the ninth draft of the Share Sale Agreement that passed between the parties on 9 October 2015, is informative, because it demonstrates the number and nature of terms and conditions that were required to be negotiated between the parties before a sale of shares agreement could be concluded between them. While the Heads of Agreement provided, in brief terms, for adjustment of the purchase price, the ninth draft set out a precise formula by which that was to be achieved. Clause 2 of the draft contained a number of conditions precedent, which were not contained in the Heads of Agreement. Clause 4 contained detailed provisions relating to conduct and risk before settlement. Clause 5 is a detailed provision relating to settlement. Clause 6 set out the method by which the adjustment of the purchase price was to be effected. Clause 7 contained four ‘representations, warranties and covenants’ of the vendor, and cl 8 contained 15 warranties. Clause 9 contained indemnities by the purchaser to the vendor. Clause 10 set out detailed provisions for the termination of the agreement. Clauses 11 to 19 deal with a number of procedural or similar matters, including dispute resolution costs, assurances, giving of notice, severability, waiver, disclaimer of partnership, choice of law, and miscellaneous matters.

While a number of the matters contained in the ninth draft Share Sale Agreement were, no doubt, of a standard nature, nevertheless the extensive number of them, and their content, provides an indication of the types of provisions and obligations that needed to be included in the proposed Share Sale Agreement, but which were not contained in the Heads of Agreement. In light of the extent and nature of those terms and conditions, it is unlikely that the parties would have intended the Heads of Agreement, which was expressed in such limited terms, to constitute a contract for the sale and purchase of the FIBO shares. That conclusion is fortified by the terms of the order made by the judge, which require the parties to determine which of the terms, contained in cl 5 of the Heads of Agreement, were still ‘operative and necessary’, and to include in the Share Sale Agreement ‘whatever other terms as are reasonably necessary to give current business efficacy to such agreement’.

In determining that the Heads of the Agreement constituted a binding contract between the parties to enter into a formal Share Sale/Purchase Agreement to achieve the sale of the FIBO shares, the judge considered that cl 5 contained sufficient agreement to the fundamental conditions that were required to be inserted in the proposed Share Sale Agreement. However, that circumstance did not alter the fundamental characterisation of the Heads of Agreement, which, as we have demonstrated, constituted no more than a binding contract between the parties to negotiate in good faith in respect of the formation of a Share Sale Agreement. Further, as the foregoing analysis reveals, notwithstanding the content of cl 5, the Heads of Agreement did not include a significant and important set of terms and conditions which were, and would be, important to the formulation of a Share Sale Agreement.

Taking those matters, that we have just discussed, together, in our view it is clear that the Heads of Agreement did not constitute a contract between the parties to enter into a Share Sale Agreement but, rather, as contended by the applicant, it was no more than an agreement between the parties to negotiate in good faith with respect to the conclusion of a Share Sale Agreement. For those reasons, ground 2 of the application must succeed.

Ground 3 — Specific performance; Ground 4 — Natural justice

Grounds 3 and 4 of the proposed grounds of appeal relate to the orders made by the judge for specific performance of the agreement which her Honour found to have been concluded between the parties. In light of our conclusions in respect of ground 2 of the application, the order for specific performance, made by her Honour, must be set aside. Accordingly it is not necessary for us to deal with grounds 3 and 4 in detail.

Ground 3 of the proposed grounds of appeal is directed to the conclusion by the judge that an award of damages would not be an adequate remedy for the respondent, and therefore the respondent was entitled to an order by way of specific performance of the agreement contained in the Heads of Agreement. By ground 4, the applicant contends that the judge denied the applicants natural justice in finding that the Share Sale Agreement was ‘an unusual purchase’, based on findings by her Honour that were not raised by the judge, or argued, at trial.

As already mentioned, the judge noted that the respondent had not adduced any evidence, or even given an explanation, as to why damages would not have been an adequate remedy for the breach of contract it alleged against Nurisvan.[71] Her Honour noted that the applicants had tendered reports from ASIC to demonstrate that during 2015 some hundreds of applications were made to ASIC for AFSL licences, and that over 50 percent of those applications were granted. The judge considered that that did not demonstrate that an alternative remedy for specific performance was available, because it was outside the scope of the Court’s available remedies to order Anyoption to apply directly for an AFSL. Her Honour also noted that there was insufficient evidence upon which to make an informed assessment of the prospects of success of any application made by Anyoption to ASIC for an AFSL.[72]
[71]Reasons [116].
[72]Ibid [118].

Having referred to the principle, that equity would not order specific performance of a contract if a plaintiff has an adequate remedy in law, the judge concluded that there were unusual features, relating to the acquisition by Anyoption of Nurisvan’s shareholding in FIBO, which could not be readily replicated. Her Honour stated:

From the evidence which I do have in this case, I infer that the purchase of Nurisvan’s shareholding in FIBO had several features that would not be readily repeatable. In particular this was the opportunity to purchase the entire shareholding in a company already registered in Australia, which held an AFSL, and which although it had apparently not traded was in a position to do so, with not only the AFSL but also compliant bank account and other prudential requirements. There is evidence that there was an Australian resident director, Mr Jones, and a responsible manager, Mr Bringans,[73] and provision for them to be retained by the purchaser if desired, at least for a transition period[74]. Although there is no direct evidence of any market in similar companies, I infer that it is more likely than not that such an opportunity for a foreign based company (AnyOption) to wholly acquire a company with the benefits of FIBO and particularly its AFSL, would not often arise.
I am satisfied that the features set out in the previous paragraph make the agreement for the purchase of Nurisvan’s shares in FIBO a situation more analogous to the purchase of a particular house or chattel with unusual features than the purchase of an item commonly available.
That leaves me to decide, in the absence of evidence or submissions, whether I can be satisfied that damages would not provide an adequate alternative remedy. Although I am concerned that this issue was ignored by the plaintiff’s side of the case, and it fell to the plaintiff to persuade me that specific performance is the appropriate remedy, I have decided that being satisfied that the agreement provided for the plaintiff to make such an unusual purchase is sufficient to indicate that damages would not have been an adequate alternative remedy.[75]

[73]Exhibit 32, eg clause 4.3.

[74]Clause 5.3.3 of Binding Heads of Agreement – and 4.3 of draft Sale of Shares Agreement – Exhibit 32.

[75]Reasons [122]–[124] (citations in original).

Counsel for the applicants submitted that the judge erred in making those findings. In particular, it was submitted that there was no evidence upon which the court could make the findings and that the acquisition of the shares in FIBO was ‘an unusual purchase’. At trial, counsel for Anyoption had not advanced any argument to that effect, nor had the issue been raised by the judge with counsel for the applicants. In those circumstances, it is submitted, the judge should have found that the respondent, which bore the evidentiary and legal onus of proof, failed to establish that damages were not an adequate remedy. It was further submitted that, in reaching the conclusion that the transaction was ‘unusual’, the judge failed to accord the applicants with procedural fairness.

In response, counsel for the respondent contended that the judge’s findings, that damages were not an adequate remedy, were based on the nature of the transaction, and on the principle that a contract for a sale of shares is not specifically enforceable, where the shares are not readily obtainable on the open market. Further, counsel for the respondent contended that there was no point in the complaint by the applicants as to a failure of procedural fairness, as the applicants were given the opportunity to, and did, agitate the availability of an alternative remedy at law.

In general, a contract to transfer shares in a publicly listed company will not be specifically enforced. However, it is also well established that a contract to acquire shares in an unquoted company, or the whole of the shares in a public or private company, may be specifically enforced.

That principle was stated, as long ago as 1841, by Shawdell VC in Duncuft v Albrecht[76] in which his Lordship stated:

Now I agree that it’s been long since decided that you cannot have a bill for the specific performance of an agreement to transfer a certain quantity of stock. But, in my opinion, there is not any sort of analogy between a quantity of three per cents or any other stock of that description (which is always to be had by any person who chooses to apply for it in the market), and a certain number of railway shares of a particular description; which railway shares are limited in number, and which, as has been observed, are not always to be had in the market.[77]

[76](1841) 12 Sim 189; 56 RR 46.

[77]Ibid 199; 48.

In more modern times, the same principle was stated by Street J in Rudder v George Hudson Holdings (rec apptd).[78] In that case, Street J stated:
[78][1972] 1 NSWLR 529.

In the present case the Court is concerned with a contract for the sale
of shares; not of land. But it is a contract specific performance of which
would properly be the subject of equitable jurisdiction. A purchaser bidding
in a single offer for the acquisition of the entire issued capital in a company,
be it a public company or a proprietary company, has a sufficient interest
in the due performance of the contract or contracts arising from his takeover
offer to seek the aid of equity in the specific performance of those contracts.
Clearly enough damages would not be an adequate remedy for such a
purchaser.[79]

[79]Ibid 535; see also Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd (2007) 62 ACSR 522, 536 [65] (Barrett J); CLC Corporation v Cambridge Gulf Holdings NL (1997) 25 ACSR 296, 334–5 (Carr J); Gaetano Limited v Obertor Limited [2009] EWHC 2653 [48] (Roth J).

On its face, there were a number of features of the transaction, identified by the trial judge, which enlivened the principles to which we have just referred. Anyoption was a foreign company, based in Cyprus. The proposed transaction was to purchase the shares in an Australian company, FIBO, which itself held a valuable asset, an AFSL. Further, cl 5.3.3 of the Heads of Agreement provided the completion of the proposed Share Purchase Agreement would be conditional on confirmation that the responsible manager and ‘other key’ FIBO personnel would remain in their current roles for a transition period. That condition was replicated in cl 4.3 of the ninth draft of the Share Sale Agreement that passed between the parties on 9 October 2015.

Those factors were each intrinsic features of the transaction, on the basis of which specific performance might be ordered, if (contrary to our conclusion in respect of ground 2) the Heads of Agreement did constitute a contract for the sale of the shares in FIBO by Nurisvan to Anyoption. Further, as those matters were each an inherent part of the transaction, it would not be open to the applicants to now complain that they did not get the opportunity to address them, since they were part and parcel of the transaction under consideration.

We do note that the judge formed the conclusion that the transaction was ‘unusual’, based on an inference that, on the balance of probabilities, an opportunity for a foreign based company to acquire the whole of a company, with the benefits of FIBO, would not often arise. We doubt that the evidence, which was exiguous on this point, was a sufficient basis for that inference. Further, there is force in the submission made on behalf of the applicants that the respondent did not contend that such an inference should be drawn by the judge, and thus the applicants were not given the opportunity to address that issue. Nevertheless, as we have stated, if (contrary to our conclusions on ground 2) the Heads of Agreement did constitute a binding contract between the parties for the sale of the FIBO shares, there was a sufficient basis, both in authority and on the face of the transaction, for the judge to have made an order for specific performance in relation to it.

Conclusion

For the foregoing reasons, we consider that the application for leave to appeal should succeed on ground 2, and that, such leave having been granted, the appeal should be allowed on that ground.

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[2017] VSCA 141

16 June 2017