Parsons v Momovivo (HK) Ltd

[2020] WASC 75

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   PARSONS -v- MOMOVIVO (HK) LTD [2020] WASC 75

CORAM:   ACTING MASTER WHITBY

HEARD:   18 FEBRUARY 2020

DELIVERED          :   11 MARCH 2020

FILE NO/S:   CIV 1475 of 2019

BETWEEN:   KERRY GEORGE PARSONS

Plaintiff

AND

MOMOVIVO (HK) LTD

First Defendant

SUREFOOT SYSTEMS INTERNATIONAL LTD

Second Defendant

Catchwords:

Summary judgment - Serious question to be tried - Whether concluded contract - Formal contract not executed - Authority of solicitor negotiating on behalf of client

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Plaintiff's application for summary judgment against the first defendant be dismissed

Category:    B

Representation:

Counsel:

Plaintiff	:	J P Cook
First Defendant	:	T Masson
Second Defendant	:	T Masson

Solicitors:

Plaintiff	:	Mendelawitz Morton Commercial Lawyers
First Defendant	:	Ensign Legal
Second Defendant	:	Ensign Legal

Case(s) referred to in decision(s):

Agar v Hyde (2000) 201 CLR 552

Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87

Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [No 2] [2012] WASCA 27

Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313

Re Crowe Consulting Pty Ltd [2019] NSWSC 1414

Webster v Lampard (1993) 177 CLR 598

Westpac Banking Corporation v Anderson [2017] WASC 106

ACTING MASTER WHITBY:

1. This is the plaintiff's application by chamber summons for summary judgment pursuant to O 14 of the Rules of the Supreme Court 1971 (WA). The plaintiff seeks the following orders:

   (a)a declaration that the Agreement (as defined in the statement of claim) is a binding contract comprised of the terms contained within the instruments entitled respectively as 'Share Purchase Agreement', 'Licence Agreement' and 'Royalty Agreement';

   (b)a declaration that the first defendant repudiated the Agreement;

   (c)a declaration that the plaintiff is entitled to affirm the Agreement and pursue the performance thereof in accordance with its terms; and

   (d)the first defendant pay the plaintiff's costs to be taxed.

The evidence

1. The plaintiff relies on the following affidavits:

   (a)Affidavit of Kerry George Parsons sworn 11 November 2019 (First Parsons Affidavit);

   (b)Affidavit of Kerry George Parsons sworn 20 January 2020 (Second Parsons Affidavit); and

   (c)Affidavit of Mark Mendelawitz sworn 21 January 2020 (Mendelawitz Affidavit).

2. The first defendant relies on the following affidavits:

   (a)Affidavit of Gary Stephen Gale sworn 20 December 2019 (Gale Affidavit); and

   (b)Affidavit of Ivan Oshry sworn 7 February 2020 (Oshry Affidavit).

3. At the hearing of this application I ruled on objections to the Gale Affidavit and the Oshry Affidavit.

4. I struck out the following from:

   5.1the Gale Affidavit:

   (a)pars 18 to 23(inclusive);

   (b)the words 'were to' in the first sentence of, the second and third sentences of par 30;

   (c)pars 31 and 32;

   (d)the words 'Consistent with the parties mutual understanding' and 'indicating that the solicitors had reached an in‑principle agreement' in par 36;

   (e)the second sentence of par 40;

   (f)par 42;

   (g)the second sentence of par 48; and

   (h)pars 52 to 68,

   5.2the Oshry Affidavit:

   (a)par 8; and

   (b)par 10.

5. Save for those struck out paragraphs, the affidavits are read as evidence in the application.

Background

1. Mr Gary Gale is the sole director of the first defendant.[1]  From 20 December 2016 to 6 May 2019 Mr Gale was a director of the second defendant[2].

   [1] Gale Affidavit par 1.

   [2] Gale Affidavit par 6, Annexure GSG2.

2. Of the 20,000 shares of the second defendant on issue, the plaintiff and the first defendant hold 10,000 shares each[3].

   [3] Gale Affidavit par 8.

3. The second defendant is the owner of all intellectual property related to the product 'Surefoot'.  Surefoot is a concrete free footing system designed for use in the construction of structures in different site locations and conditions.[4] 

   [4] Gale Affidavit par 10; First Parsons Affidavit Annexure KGP4.

4. Since February 2017, the first defendant held an exclusive licence to manufacture and supply Surefoot for a period of 20 years.[5]

   [5] Gale Affidavit par 11; Annexure GSG4.

5. Since early 2017, the plaintiff and the first defendant have been in dispute over the ownership and management of the second defendant.[6]

   [6] Gale Affidavit par 25.

6. Consequently, in early February 2018, the parties' respective solicitors entered into discussions relating to the separation of the plaintiff's and the first defendant's interests in the second defendant.  The negotiations focused on the first defendant purchasing the shares of the plaintiff in the second defendant.[7]

   [7] Gale Affidavit par 29.

7. These negotiations resulted in drafting of commercial documents entitled 'Share Purchase Agreement', 'Licence Agreement' and 'Royalty Agreement'.[8]

   [8] Gale Affidavit par 33.

Plaintiff's Position

1. The plaintiff's position is that there is a binding agreement between the parties and that the agreement is enforceable.

2. By a statement of claim endorsed on the writ of summons dated 19 March 2019 the plaintiff pleads, inter alia:

   6.By email dated Wednesday, 12 September 2018 at 2.11 PM, Mr Ivan Oshry acting for and on behalf of Momovivo, wrote to Mr Mark Mendelawitz acting for and on behalf of Kerry Parsons and Pandoe, comprising an offer to enter into a commercial agreement upon the terms comprised of the instruments referred to therein ('Offer').

   7.By email dated Thursday, 13 September 2018 at 11.19AM, Mr Mark Mendalzwitz acting for and on behalf of Kerry Parsons and Pandoe, wrote to Mr Ivan Oshry acting for and on behalf of Momovivo, comprising an acceptance of the Offer ('Acceptance').

   8.By way of the Offer and the Acceptance, the plaintiff and the first defendant entered into a commercial agreement upon the terms of the instruments referred to therein and entitled respectively 'Share Purchase Agreement', 'Licence Agreement' and 'Royalty Agreement' ('Agreement').

3. The document alleged to comprise the Offer is contained in the Mendelawitz Affidavit at annexure MM14.  The terms of that email from Mr Oshry to Mr Mendelawitz are as follows:

   I have now received instructions.  See attached Royalty Agreement.  I have accepted all agreed changes/comments leaving only Gary's proposed amendments.  The Licence and Share Sale agreements are agreed.

4. The document alleged to comprise the Acceptance is contained in an email from Mr Mendelawitz to Mr Oshry: [9]

   I will follow up with Kerry about the information flow, clearly there is some confusion there as to what has happened.  Kerry's PA is overseas at the moment, so it may not be able to be immediately resolved.

   The final documents are attached.  The only changes to the documents sent yesterday, are the acceptance of mark up and the addition of the new territories to the licence agreement. 

   Note that the Share Sale Agreement still has data gaps to be filled in by Gary (Schedule 1 page 19) – so I propose that you engross at your end and that we sign second.

   [9] Mendelawitz Affidavit Annexure MM22

First Defendant's Position

1. The first defendant's position is that there was no binding Agreement entered into for the following, or alternate reasons:

   (a)in February 2017, the plaintiff and the first defendant entered into a shareholders agreement for the second defendant (Shareholders Agreement). The Shareholders Agreement required that entry into the Agreement was conditional upon approval of the shareholders of the second defendant being obtained.  The Agreement was therefore not binding in the absence of board approval; [10]

   (b)the Royalty Agreement had not been finalised - given this was part of the overall Agreement it was not binding until the terms of the Royalty Agreement had been agreed;

   (c)the email correspondence between Mr Oshry and Mr Mendelawitz demonstrates that the negotiations between the parties were in the nature of an in principle agreement, and the Agreement was not binding until it was executed; and/or

   (d)Mr Oshry, in any event, did not have either actual or ostensible authority to enter into binding agreements on behalf of the first defendant.

   [10] Gale Affidavit par 13; Annexure GSG5.

Summary judgment – legal principles

1. The legal principles governing the power to order summary judgment are uncontroversial.  Summary judgment should be exercised with great care and will not be exercised unless it is clear that there is no real question to be tried.[11]

   [11] Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 [99]; Webster v Lampard (1993) 177 CLR 598.

2. Once the plaintiff has established a prima facie right to judgment, the onus is on the defendant to satisfy the court why judgment should not be given.  The defendant does not have to show a defence on the balance of probabilities only to show cause as to why there is an arguable defence.[12]

   [12] Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [No 2] [2012] WASCA 27; Westpac Banking Corporation v Anderson [2017] WASC 106.

3. On an application for summary judgment the court should not dispose of an action summarily where there is a conflict on the facts.  Summary judgment must only be granted where the court has a high degree of certainty of the outcome of the proceedings if they went to a trial.[13]

   [13] Agar v Hyde (2000) 201 CLR 552 [57].

Binding agreement – legal principles

1. Both parties refer to the case of Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313.

2. It is useful to summarise the facts in that case. The parties in the proceeding were parties to a deed which was essentially a shareholders' agreement.  A dispute arose between the parties such that the continuation of their relationship was untenable.  The parties sought to resolve that dispute and terminate their relationship.  The issue before the court was whether the parties had entered into a binding agreement which had been reached by way of communications between solicitors for the parties.  The party claiming the agreement was binding, even though never formally executed, placed significant reliance upon emails from the party's lawyers which included the following statements 'He will sign', '[he] is prepared to sign the document', 'he will sign tomorrow'.  The primary judge held that a binding agreement had been reached by way of communications between the solicitors for the parties.  That decision was overturned by the Court of Appeal.

3. The leading decision in the case is that of Beasley P (with whom Bathurst CJ and Meagher JA agreed).  Beasley P stated:

   [64]  Where parties have reached agreement as to all the terms of a contract, but have also agreed that a further, formal agreement is to be executed, the question for determination is whether the parties intend to be immediately bound.  That is to be determined objectively from the 'outward manifestations' of the parties' intentions.  (citations omitted).

   … 

   [66]   It is apparent that by 24 December 2014 the parties had finalised their negotiations.  The question in issue is whether they intended to be immediately bound once each party had given assent to the terms of the Proposed Deed or whether their intention, objectively ascertained, was that they would not be bound until all aspects of a formal agreement and, in particular, execution of the relevant documentation had been finalised.

   …

   [110]   Although the authorities state that it is not necessary to identify a precise offer or acceptance in order to find the existence of a binding contract, I am of the opinion that the language used in the emails was not the language of an immediately binding contract (citations omitted).

4. The decision of Gleeson J in the case of Re Crowe Consulting Pty Ltd [2019] NSWSC 1414 considers the Pavlovic decision in the context of an application to set aside a statutory demand.  The legal principles in setting aside a statutory demand are closely aligned to those for consideration on a summary judgment application.  In citing the decision of Beazley P in Pavlovic with agreement, Gleeson J said:

   Recognising that it is not the task of the Court on this summary application to determine the merits of the dispute, I am well satisfied that the legal argument raised by the Company is not 'patently feeble', and that there are clearly arguable alternatives as to the correct outcome: Drillsearch Energy Pty Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at 46. The company's contentions are deserving of a hearing. … there is a plausible contention that the parties did not intend to be immediately bound by the terms of their arrangement … until a formal document recording their agreement had been executed. … there is a plausible contention that the parties' subsequent conduct is inconsistent with an intention of the parties to enter a binding agreement …. It is well‑established that post‑contractual conduct is admissible on the question of whether a contract is formed; Pavlovic at 118; Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 at [131] to [134].

Issue to be tried - no binding agreement

1. I have had regard to the totality of the email correspondence passing between Mr Mendelawitz, on behalf of the plaintiff, and Mr Oshry, on behalf of the first defendant.  This correspondence is annexed in its entirety to the affidavit of Mr Mendelawitz at annexures MM1 to MM28.

2. I identify the following portions of those emails as particularly relevant:

   (a)'I have asked our litigator to "press pause" for the time being, really only in reliance on the understanding that we have an in principle deal that will resolve things either way': Mr Mendelawitz to Mr Oshry on 18 June 2018 at 10.02AM;[14]

   [14] Mendelawitz Affidavit Annexure MM4.

   (b)'So for the sake of clarity, the "in principle" agreement is now…' Mr Mendelawitz to Mr Oshry on 19 June 2018 at 11.50AM;[15]

   [15] Mendelawitz Affidavit Annexure MM5.

   (c)'In my view you have accurately reflected our discussion but for the sake of good order, I will obtain confirmation from my client': Mr Oshry to Mr Mendelawitz on 19 June 2018 at 11.55AM;[16]

   [16] Mendelawitz Affidavit Annexure MM6.

   (d)'My client confirms the below terms are agreed.  Please confirm that pending finalization (sic) of the sale agreement that will incorporate the items below, your client considers this email chain to represent a binding agreement between our respective clients in regards to these terms without the need for a separately executed document': Mr Oshry to Mr Mendelawitz on 20 June 2018 at 9.16AM;[17]

   [17] Mendelawitz Affidavit Annexure MM7.

   (e)'Please see attached my further mark up of the [share sale agreement] for your consideration.  I know that the focus for the last period has been on getting this document over the line… I will now get on to royalty agreement and try to get that to you quickly': Mr Mendelawitz to Mr Oshry on 2 July 2018 at 6.14AM;[18]

   [18] Mendelawitz Affidavit Annexure MM8.

   (f)'… please confirm all outstanding issues are now resolved so that we can finalise documentation and allow my client to proceed with the fund raising.  Please also let me know when I may expect to receive the Royalty Agreement': Mr Oshry to Mr Mendelawitz on 18 July 2018 at 9.11AM;[19]

   [19] Mendelawitz Affidavit Annexure MM9.

   (g)'… the [share sale agreement] and Licence Agreements are all but agreed and we should be able to wrap this up with a quick phone call.  The Royalty Agreement is more problematic and involves some philosophical points of difference': Mr Oshry to Mr Mendelawitz on 6 August 2018 at 11.02AM;[20]

   [20] Mendelawitz Affidavit Annexure MM10.

   (h)'No further commercial negotiations will be entertained once those documents are submitted': Mr Mendelawitz to Mr Oshry on 4 September 2018 at 11.37AM;[21]

   [21] Mendelawitz Affidavit Annexure MM11.

   (i)'Can we please have your client's response to the royalty agreement? … For completeness I attach the other two documents.  They are now agreed (so far as I am aware) subject to inclusion of the information in the licence agreement that you requested from Gary in your comments on that document': Mr Mendelawitz to Mr Oshry on 12 September 2018 at 8.55AM;[22]

   [22] Mendelawitz Affidavit Annexure MM12.

   (j)'I have now received instructions.  See attached Royalty Agreement.  I have accepted all agreed changes/comments leaving only Gary's proposed amendments.  The Licence and Share Sale agreements are agreed': Mr Oshry to Mr Mendelawitz on 12 September 2018 at 2.11PM[23] – the email the plaintiff submits constitutes the 'offer';

   [23] Mendelawitz Affidavit Annexure MM14.

   (k)'I confirm that those changes are agreed ... I will include those territories in the execution copies of the documents to be circulated – but I would appreciate if you would urgently advise if Gary says that this is not agreed': Mr Mendelawitz to Mr Oshry on 12 September 2018 at 5.04PM;[24]

   (l)'My client agrees on the territories': Mr Oshry to Mr Mendelawitz on 13 September 2018 at 8.00AM;[25]

   (m)'Regarding the territories (and further to my earlier email), I am instructed that New Caledonia and French Polynesia … should be excluded': Mr Oshry to Mr Mendelawitz on 13 September 2018 at 8.14AM;[26]

   (n)'Further to my earlier email, I am now instructed that New Caledonia and French Polynesia will be included': Mr Oshry to Mr Mendelawitz on 13 September 2018 at 8.14AM;[27]

   (o)'The final documents are attached.  The only changes to the documents sent yesterday, are the acceptance of mark up and the addition of the new territories to the license agreement.  Note that the Share Sale agreement still has data gaps to be filled in by Gary (Schedule 1 page 19) – so I propose that you engross at your end and that we sign second': Mr Mendelawitz to Mr Oshry on 13 September 2018 at 11.19AM[28] - this is the email the plaintiff submits constitutes the 'acceptance';

   (p)'I will complete the documents and arrange execution': Mr Oshry to Mr Mendelawitz on 14 September 2018 at 7.04AM;[29]

   (q)'My client's board met today and require two key changes to clause 4 of the [share sale agreement]…': Mr Oshry to Mr Mendelawitz on 17 September 2018 at 1.24PM;[30]

   (r)'I will seek instructions, but I already know what the answer will be.  You client has already agreed these terms and the agreement was not subject to board approval': Mr Mendelawitz to Mr Oshry on 17 September 2018 at 1.28PM;[31]

   (s)'I understand': Mr Oshry to Mr Mendelawitz on 17 September 2018 at 1.29PM;[32] and

   (t)'I expect to be writing to you on the basis that there is a binding agreement notwithstanding your client's last minute refusal to execute': Mr Mendelawitz to Mr Oshry on 26 September 2018 at 9.25AM.[33]

   [24] Mendelawitz Affidavit Annexure MM16.

   [25] Mendelawitz Affidavit Annexure MM19.

   [26] Mendelawitz Affidavit Annexure MM20.

   [27] Mendelawitz Affidavit Annexure MM21.

   [28] Mendelawitz Affidavit Annexure MM22.

   [29] Mendelawitz Affidavit Annexure MM23.

   [30] Mendelawitz Affidavit Annexure MM24.

   [31] Mendelawitz Affidavit Annexure MM26.

   [32] Mendelawitz Affidavit Annexure MM27.

   [33] Mendelawitz Affidavit Annexure MM28.

3. The portions of the emails detailed above are not an exhaustive list of portions that may be relevant to the determination of whether the parties have entered into a binding agreement.  However, I do consider them to be illustrative of the fact that there is a conflict on the facts.  Where such a conflict exits, I cannot have a high degree of certainty of the outcome of these proceedings if they went to trail.  In my view, it is open to the first defendant to argue, by way of a defence, that there is no binding agreement.  Given this is an application for summary judgment, it is not appropriate that I make any comments regarding the merits of such a defence. 

1. In those circumstances, the existence of an arguable defence as to a binding agreement is sufficient in itself to dismiss the plaintiff's application for summary judgment.  I will however, consider the other defences raised by the first defendant in opposition to this application.

Issue to be tried - Authority of Mr Oshry

1. The plaintiff submits that the email correspondence passing between Mr Oshry and Mr Mendelawitz establishes that Mr Oshry held actual, alternatively ostensible, authority to enter into a binding agreement on behalf of Mr Gale and the first defendant.  The plaintiff relies upon annexure MM7 to support this contention.  The relevant paragraph of the email from Mr Oshry to Mr Mendelawitz dated 20 June 2018 is:

   Please confirm that pending finalization [sic] of the sale agreement that will incorporate the items below, your client considers this email chain to represent a binding agreement between our respective clients in regards to these terms without the need for a separately executed document.

2. The first defendant's position is that Mr Oshry did not have actual or ostensible authority to enter into a binding agreement on behalf of the first defendant, and that only the first defendant could execute the Agreement, upon which it would be binding.  In the Pavlovic case, Beazley P said:

   [147]As the case law to which I have referred indicates, a solicitor does not have authority to bind a client to a contract without 'clear and cogent evidence' of such authority.  In my opinion, his Honour erred in finding that Mr Gorry had actual authority to contract on the part of Mr Pavlovic.  There was no evidence that Mr Gorey had express actual authority to bind Mr Pavlovic to the agreement that had been the subject of the negotiations over many weeks, …

   [148]I do not consider the fact that Mr Gorry had authority to communicate his instructions that Mr Pavlovic would sign the Proposed Deed carried with it the implication that Mr Pavlovic thereby authorised him to immediately bind him to the agreement on the terms contained in the Proposed Deed.  A statement by a solicitor that a client 'will sign' does not bear the 'clear and cogent' meaning that the client has given instructions to the solicitor to immediately bind the client to the terms of the contract contained in the documentation.

   …

   [150]A solicitor's ostensible authority … was described in Lucke v Cleary [2011] SASCFC 118; 111 SASR 134 by Stanley J (Grey and David JJ agreeing) as follows:

   '[60]As a general proposition, a solicitor does not have ostensible authority to bind his or her client to a contract.

   [61]That general proposition, however, is subject to the qualification that, in the context of litigation, a legal practitioner has ostensible authority to bind his or her client to a contract which relates to and, in particular, compromises that litigation.'

3. In the circumstances, I am satisfied that there is a serious question to be tried as to Mr Oshry's authority, either actual or ostensible, to enter into a binding agreement on behalf of the first defendant.  Again, it would be inappropriate on an application for summary judgment, for me to express any view as to the merits of this defence.

Issue to be tried – First Defendant's Board approval required

1. The first defendant relies upon cl 8.1(r) of the Shareholders Agreement[34]:

   The following matters require a unanimous resolution of a Board Meeting and shall not be acted upon by any Director or officer of the Company or by any of the parties until the resolution has been passed:

   …

   (r)approval of any transaction between the Company and a Director or any party associated directly or indirectly with a Director;

   [34] Parsons Affidavit Annexure KGP3.

2. The first defendant submits that, in the absence of board approval, the first defendant could not have entered into a binding agreement with the plaintiff. 

3. The plaintiff submits that the board only comprised of Mr Gale, as he was the sole director on record of the first defendant, and therefore by giving Mr Oshry authority to negotiate a binding agreement on behalf of the first defendant, board approval was not required.  Further, the plaintiff submits that cl 8.1(r) of the Shareholders Agreement does not require board approval for this Agreement as it did not constitute a transaction between the company and a director.

4. I am satisfied that, on the basis of the terms of the Shareholders Agreement at cl 8.1(r) and the uncertainty as to the role of Mr Parsons (that is whether he was a defacto director of the second defendant or not), there is a serious question to be tried in relation to whether board approval of the first defendant was required in order for the first defendant to enter into a binding agreement.

Conclusion

1. On the basis that there are serious questions to be tried in this proceeding and that the first defendant has demonstrated it has a number of arguable defences, I dismiss the plaintiff's application pursuant to O 14 r 1 RSC for summary judgment against the first defendant.

2. I will hear the parties as to final orders.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

IW
Associate to Master Sanderson

11 MARCH 2020