Pavlovic v Universal Music Australia Pty Ltd

[2015] NSWCA 313

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

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

Hearing dates:

11 September 2015

Decision date:

06 October 2015

Before:

Bathurst CJ at [1];
Beazley P at [24];
Meagher JA at [160]

Decision:

(1)   Appeal allowed;

 

(2)   Set aside declarations and orders made by the primary judge;

 

(3)   Declare that no contract came into existence on 24 December 2014 between the appellants and the first and second respondent;

 

(4)   Order the respondents to pay the appellants’ costs of the appeal;

 

(5)   Order the respondents to pay the costs of the appellants in the court below;

 (6)   Remit the matter to the Supreme Court for the determination of the remaining issues on the summons.

Catchwords:

CONTRACTS – whether binding agreement in existence – whether parties’ intention was to be bound prior to signature and execution of agreement – relevance of subsequent conduct of parties – relevance of parties’ previous dealings

 

AGENCY – whether solicitor had actual authority to bind client to a contract – whether clear and cogent evidence indicating authority to bind

  AGENCY – whether solicitor had ostensible authority to bind client to a contract – whether agreement was in the context of litigation – whether potentially litigious dispute constituted in the context of litigation

Cases Cited:

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; 149 CLR 600
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153
CIC Insurance Ltd v Bankstown Football Club Ltd [1994] NSWCA 359; 8 ANZ Insurance Cases ¶61-232
Cleary v Masterton [1999] NSWSC 207
Eccles v Bryant & Pollock [1948] Ch 93
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95
GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Kent v Hogarth [1995] QCA 472
Locnere Pty Ltd v Jakk’s Bagel & Bread Co Pty Ltd [2003] NSWSC 1123
Lucke v Cleary (2011) 111 SASR 134
Masters v Cameron [1954] HCA 72; 91 CLR 353
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1
Nguyen v Taylor (1992) 27 NSWLR 48
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451
Pianta v National Finance & Trustees [1964] HCA 61; 180 CLR 146
Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) (2013) 209 FCR 368
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Stewart Upton Pty Ltd v Pindar (1990) NSW ConvR 55-529
Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173
Taylor v Johnson [1983] HCA 5; 151 CLR 422
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165
Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106
Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387

Category:

Principal judgment

Parties:

Stephen Pavlovic (Appellant)
Modularpeople Ltd (Second Appellant)
Pavlovic Investments Pty Ltd (Third Appellant)
Universal Music Australia Pty Ltd (First Respondent)
Modular Recordings Pty Limited (Second Respondent)
Angela Margaret Pavlovic (Third Respondent)

Representation:

Counsel:
R Merkel QC; D Krochmalik (Appellants)
R Lancaster SC (First Respondent)
Submitting appearance (Second and Third Respondents)

  Solicitors:
Levitt Robinson (Appellants)
Gilbert + Tobin (First and Second Respondents)

File Number(s):

2015/219232

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2015] NSWSC 791

Date of Decision:

19 June 2015

Before:

Sackar J

File Number(s):

2015/77691

HEADNOTE

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

The first appellant, Mr Stephen Pavlovic and the first respondent, Universal Music Australia Pty Limited (Universal) entered into a joint venture arrangement in 2005 in respect of the business of Modular Recordings Pty Limited (Modular), a music recording label. The joint venture was governed by a Shareholders’ Agreement and an Executive Services Agreement.

In late September 2014, the parties indicated to one another that they wished to terminate their joint venture. Negotiations began between the parties’ lawyers, Mr Stephen Gorry acting for Mr Pavlovic and Gilbert + Tobin acting for Universal. A deed of release and settlement was drafted, with amendments being made to it during the course of the negotiations. On 23 December 2014, Gilbert + Tobin sent the draft deed of release (the Proposed Deed) to Mr Gorry. Mr Gorry responded by way of email at 2:36 pm the next day, and stated that Mr Pavlovic “will sign” the Proposed Deed. The final correspondence between the parties on 24 December 2014 was from Gilbert + Tobin, allowing Mr Pavlovic “a further 48 hours to sign the documents and forward copies to us”.

Neither party sent an executed copy of the Proposed Deed to the other at that time. Nor did Universal send a cheque for $100 for the transfer of the shares in Modular to Mr Pavlovic as required under the terms of the Proposed Deed.

By orders made on 22 July 2015, Justice Sackar held that the parties had entered into a binding agreement on 24 December 2014 on the terms of the Proposed Deed. His Honour held that Gilbert + Tobin’s 23 December 2014 email constituted an offer, and that this offer was accepted by Mr Gorry by way of his response at 2:36 pm on 24 December 2014.

Two principal issues were raised on appeal:

(1)   Whether his Honour erred in his finding that the appellants and Universal, on 24 December 2014, acting through their solicitors, entered into a binding agreement on the terms of the Proposed Deed;

(2)   Whether his Honour erred in concluding that each party’s solicitors had actual or ostensible authority to enter into an agreement on behalf of the parties on 24 December 2014, a necessary condition of his Honour’s finding at (1).

Held, in allowing the appeal:

(1)   Where parties have reached agreement as to the terms of a contract, but have also agreed that a further, formal agreement is to be executed, whether the parties intend to be immediately bound is to be determined objectively, having regard to the “outward manifestations” of their intentions. [64]-[65] (Beazley P); [162] (Meagher JA)

Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1; Taylor v Johnson [1983] HCA 5; 151 CLR 422.

(2)   The three classes set out in Masters v Cameron [1954] HCA 72; 91 CLR 353 are not be to applied as strict categories into which cases must fall. Rather, the decisive issue is always the intention of the parties, ascertained objectively from the terms of the agreement, read in the light of the surrounding circumstances. [69] (Beazley P); [162] (Meagher JA)

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95; GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309

(3)   The commercial context and surrounding circumstances of the parties’ previous dealings are relevant considerations in the determination of whether a binding agreement has come into existence between parties. [15] (Bathurst CJ); [72], [84] (Beazley P); [162] (Meagher JA)

Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106

(4)   Regard may be had to the subsequent conduct of parties to determine whether, at an earlier juncture, the parties intended to enter into a binding agreement. [15] (Bathurst CJ); [118] (Beazley P); [162] (Meagher JA)

Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd; Brambles Holdings Ltd v Bathurst City Council; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149; Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150

(5)   Whether parties intend to bind themselves to a contract is determined objectively, having regard to the intention disclosed by the language the parties have employed. In cases which do not depend on the construction of a single document, what is involved is an objective determination of the question from the communications between the parties in their context and the parties’ dealings over the time leading up to the making of the alleged contract. This involves a consideration of the subject matter of the communications and what the parties said or wrote. [15] (Bathurst CJ)

Masters v Cameron [1954] HCA 72; 91 CLR 353; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309

(6)   Solicitors have actual authority to conduct negotiations on behalf of their clients as to the terms of a contract between parties. Without clear and cogent evidence this does not extend to the authority to bind one’s client. [137]-[141] (Beazley P); [162] (Meagher JA)

Pianta v National Finance & Trustees [1964] HCA 61; 180 CLR 146; Nguyen v Taylor (1992) 27 NSWLR 48; Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173; Kent v Hogarth [1995] QCA 472; Stewart Upton Pty Ltd v Pindar (1990) NSW ConvR 55-529

(7)   As a general proposition, a solicitor does not have ostensible authority to bind his or her client to a contract, however an exception lies in the context of litigation. Disputes that are merely potentially litigious disputes are not sufficient to engage the ostensible authority of a solicitor under this exception. [21] (Bathurst CJ); [150], [154] (Beazley P); [162] (Meagher JA)

Lucke v Cleary (2011) 111 SASR 134; CIC Insurance Ltd v Bankstown Football Club Ltd [1994] NSWCA 359; 8 ANZ Insurance Cases ¶61-232.

(8)   The onus lies on the party submitting agency to demonstrate the existence and terms of that agency. [143] (Beazley P); [162] (Meagher JA)

Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) (2013) 209 FCR 368.

Judgment

1. BATHURST CJ: I have had the advantage of reading the judgment of the President in draft. I agree with the orders proposed by her Honour and generally with her reasons.

2. The parties to the appeal, with the exception of Pavlovic Investments Pty Ltd, were parties to a deed described as a “Varied and Restated Shareholders’ Agreement relating to Modular Recordings Pty Ltd”, originally dated 2 December 2005, varied and restated on 9 April 2009 and subsequently varied on 23 September 2011 and 21 March 2013.

3. The deed was essentially a shareholders agreement relating to the operation of Modular Recordings Pty Ltd (Modular). It dealt extensively with the operation of that company, including the composition of its board, the power of management exclusively vested in the board, the calculation of its profits, payments of dividend and the management and funding of the company. It is unnecessary to set out any of the terms of the agreement, but they were both detailed and complex.

4. As the President has pointed out, disputes arose between the parties and by October 2014, the parties both acknowledged that their relationship was “untenable”. As the President also pointed out, negotiations endeavouring to resolve the dispute and to terminate the arrangements between the parties took place in November and December of that year.

5. On 7 November 2014, Mr Williams, a solicitor for the first respondent (Universal), forwarded a draft Deed of Release and associated documents to Mr Gorry, the solicitor for the appellants. The Deed of Release provided for Mr Pavlovic to resign as managing director and director of Modular, a restraint on him using the name Modular in the future, the assignment of certain trademarks, the transfer of shares in Modular and mutual releases by the parties. It provided for the Deed to be executed in counterparts. Schedules to the Deed included a “Deed of assignment of Trade Marks” and a “Deed of termination of the Shareholders’ Agreement”.

6. On 17 November 2014, Mr Cooley, another solicitor for the first respondent, wrote to Mr Gorry requesting him to supply any amendments for the draft Deed. On 27 November 2014, Mr Gorry conveyed comments made by Mr Pavlovic to Mr Cooley and Mr Williams.

7. Following a meeting, on 2 December 2014, Mr Cooley forwarded a revised draft Deed of Release and Trade Mark Licence Deed to Mr Gorry, requesting comments by 4 December 2014.

8. On 8 December 2014, Mr Gorry forwarded Mr Cooley an email to him from Mr Pavlovic, describing it as “I hope … the final commentary”. On 9 December 2014, Mr Cooley sent a further version of the Deed of Release to Mr Gorry. The email contained the following comments:

“Finally, I am instructed that Universal is not prepared to make further amendments to the Deed of release and associated documents. UMA is under increasing pressure from UMG to finalise these arrangements and time is running out to achieve a resolution of this matter and avoid the escalation of the dispute. Accordingly, Universal requests that Mr Pavlovic confirm his agreement to the Deed of release in its current form.”

9. On 11 December 2014, Mr Gorry emailed comments on the draft Deed to Mr Cooley. The email stated that the new version of the Deed moved the obligations on Mr Pavlovic to supply information, documents and assets described in the Deed prior to its execution, describing this as unusual.

10. Mr Cooley responded on 12 December 2014, requiring certain information. The email concluded:

“Once the above information has been received, Universal will be in a position to execute the Deed of release and associated documentation.

I look forward to receiving confirmation from you in relation to the proposed arrangement for the inspection of the information and assets, and the final terms of the Deed of release, as a matter of urgency.”

11. On 15 December 2014, Mr Gorry sent an email to Mr Cooley attaching an email from Mr Pavlovic. The latter email stated, amongst other things, that Mr Pavlovic would not hand over anything until the agreement was signed.

12. By email of 16 December 2014, Mr Cooley indicated that Universal did not require any answers or information to be handed over until the agreement was signed. The email attached a further draft Deed and contained the following comments:

“At this stage we are working towards the execution of the Deed of release and associated documents tomorrow. Please confirm that Mr Pavlovic and Ms Angela Pavlovic will also be in a position to sign the documents tomorrow. We can discuss specific arrangements and timing later today.”

13. On 19 December, Mr Gorry forwarded Mr Cooley an email from Mr Pavlovic, making further demands and stating that he would not sign the agreement until these demands were met. Mr Cooley responded, agreeing to certain amendments to the Deed and requesting some factual information. The letter stated that negotiations were “now exhausted” and Universal was only prepared to settle the dispute on the terms in the Deed of Release until 23 December 2014.

14. The President, in her judgment, has set out the emails of 23 December and 24 December 2014. It is unnecessary to reproduce them in this judgment.

15. It is well established that the question of whether the parties intended to bind themselves to a contract is to be determined objectively, having regard to the intention disclosed by the language the parties have employed: Masters v Cameron [1954] HCA 72; 91 CLR 353 at 362. In cases such as the present, which do not depend on the construction of a single document, what is involved is the objective determination of the question from the communications between the parties in their context and the parties’ dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550. As was said by Mahoney JA and McHugh JA in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, that includes consideration of what the parties said or wrote (at 334, 337).

16. It should be noted that Universal based its contention that a contract existed on classic offer and acceptance analysis. As the President pointed out at par [78] below, it contended that the email of 23 December 2014, attaching the proposed Deed, constituted an offer to enter into an agreement on the terms of the Deed, which was accepted by the 2.36pm email of 24 December from Mr Gorry to the solicitors for Universal. Universal did not contend that an offer was accepted by conduct, nor that, irrespective of whether or not there was a formal acceptance of the offer, it could be implied from circumstances objectively viewed from the point of view of reasonable persons on both sides that the parties had concluded a bargain: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [71]-[75]; Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 81.

17. Whichever way the matter is looked at, I do not think that a binding agreement was reached. First, as a matter of construction, the words “he will sign” written by Mr Gorry are in the nature of a statement that his client would enter into a contract with Universal, rather than an acceptance of Universal’s offer.

18. Further, the communications to which I have referred above show that the parties, from the start of negotiations, intended that any agreement reached between them would be embodied in the Deed executed by each of them: see Eccles v Bryant & Pollock [1948] Ch 93 at 99. The nature and ambit of the dispute between the parties provide powerful reasons for why the parties would wish any accord which they reached to be embodied in a formal agreement. This could not be described as a mere matter of administration.

19. Further, I agree with the President that the post-contractual communications do not assist Universal. At best, they are equivocal and, as the President stated (at par [134] below), if anything, are contrary to an agreement being entered into on 24 December 2014. Significantly, the last email of 24 December 2014 from the solicitors for Universal stated that their client was prepared to allow a further 48 hours to sign the document. This, in my view, is inconsistent with there already being an agreement in the terms of the Deed.

20. Further, Mr Gorry had no authority to bind his clients to an agreement. There is no evidence of express actual authority. To the contrary, the material to which I have referred shows that Mr Pavlovic intended to sign the Deed and then be bound, rather than his solicitor binding him to sign it. Further, accepting that Mr Gorry had authority to represent that Mr Pavlovic would sign the Deed, that did not confer implied actual authority to bind his client irrespective of signature.

21. I agree with what was said by the President in relation to the question of ostensible authority. A solicitor’s ostensible authority to bind his or her client to an agreement, in the context of litigation conducted on the client’s behalf, does not extend to agreements resulting from negotiations, which if unsuccessful, may or may not end up in litigation.

22. It should be noted that no claim was made on the basis of estoppel of the nature of that considered in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387.

13. In the result, the orders proposed by the President should be made.

14. BEAZLEY P: This is an appeal from orders made by Sackar J on 22 July 2015 whereby his Honour, pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 28.2, separately determined two questions. First, whether on 24 December 2014 the appellants, Mr Stephen Pavlovic (Mr Pavlovic), Modularpeople Ltd and Pavlovic Investments Pty Ltd (together, the appellants), had entered into a binding agreement with the first respondent, Universal Music Australia Pty Limited (Universal). Secondly, if there was such an agreement, whether it had been lawfully terminated by the appellants on 23 February 2015.

15. His Honour held that a binding agreement had been entered into between the parties on 24 December 2014 and that the agreement had not been lawfully terminated. His Honour made declarations to that effect and also made consequential orders for the execution and delivery of documents and the transfer of shares.

16. The purported effect of the agreement so found by his Honour was to bring to an end a joint venture arrangement that had been constituted by a Shareholders’ Agreement (the Shareholders’ Agreement) and an Executive Services Agreement (the Employment Agreement) entered into by the parties in 2005 and subsequently extended on a number of occasions. The terms of the agreement were those contained in a draft deed of release that had been negotiated between the parties over the two month period to 24 December 2014.

17. Two principal issues were raised on appeal:

1. Whether his Honour erred in his finding that the appellants and Universal, on 24 December 2014, acting through their solicitors, entered into a binding agreement on the terms of the deed of release (the Proposed Deed), despite the fact that the Proposed Deed was not executed or exchanged by the parties: grounds of amended notice of appeal 1, 2, 3, 4, 9, 10 and 11;

2. Whether his Honour erred in concluding that each party’s solicitors had actual or ostensible authority to enter into an agreement on behalf of their respective clients on 24 December 2014, a necessary condition of his Honour’s finding at (1): grounds of amended notice of appeal 5, 6, 7 and 8.

28. The appellants further submitted that, should the Court find that a binding agreement had been entered into by the parties on 24 December 2014, the following issues arose:

1. Whether his Honour erred in finding that Mr Pavlovic did not validly terminate the agreement on 23 February 2015 on the basis of breaches of the agreement by Universal: amended notice of appeal grounds 12, 13 and 14;

2. Whether his Honour erred in the scope of the orders he made:

1. against the appellants for specific performance, without making a like order against the first and second respondents: amended notice of appeal ground 15; and

2. in making an order against Ms Angela Pavlovic, the third respondent, who was not a party to the Shareholders’ Agreement, requiring her to transfer the shares she held to Modular: amended notice of appeal ground 15.

29. For the reasons given below, I am of the opinion that his Honour erred in finding that a binding agreement had been concluded between the parties on 24 December 2014.

Factual background

Relationship between parties

30. The second respondent, Modular Recordings Pty Limited (Modular), is a music recording label which was founded by Mr Pavlovic in 1998. The second and third appellants (Modularpeople and Pavlovic Investments respectively), are business entities of which Mr Pavlovic is the principal. Modular’s business activities include signing artists, recording music and the sale, marketing and promotion of music records. It will be convenient in referring to the appellants to refer to Mr Pavlovic only. The respondents will be referred to as Universal, unless the context requires otherwise.

31. In 2005, Mr Pavlovic and Universal entered into a joint venture agreement in respect of the business of Modular. The joint venture was governed by the Shareholders’ Agreement and the Employment Agreement, both executed on 2 December 2005.

32. Under the Shareholders’ Agreement, Mr Pavlovic and Universal each held 50 per cent of the shares in Modular: cl 2.2(a). The Shareholders’ Agreement also provided that Mr Pavlovic’s sister, Ms Pavlovic, was to hold Mr Pavlovic’s shares in Modular for him as a bare trustee: cl 2.2(b).

33. The Shareholders’ Agreement was varied in 2009, 2011 and 2013. Each variation was in writing and had the effect of extending the term of the joint venture. The 2009 variation converted the Shareholders’ Agreement into deed form.

34. Pursuant to the Employment Agreement, Mr Pavlovic was employed as the Managing Director of Modular. The Employment Agreement governed Mr Pavlovic’s remuneration and leave, and contained provisions relating to termination and non-competition.

Breakdown of relationship between parties

35. In late 2013, disputes arose between Mr Pavlovic and Universal in relation to the joint venture. Attempts were made to resolve these disputes during late 2013 and 2014. However, on 24 September 2014, Universal communicated to Mr Pavlovic by email that the position of the parties was “untenable”. Mr Pavlovic responded on 7 October 2014, and stated “I acknowledge that our relationship is untenable and that both parties need to move on”.

36. Negotiations were conducted between the parties principally through their solicitors, Mr Stephen Gorry of Henry Davis York on behalf of Mr Pavlovic and Gilbert + Tobin on behalf of Universal, throughout November and up until 24 December 2014. Communication was by email. A number of matters were in issue in the negotiations, including the assignment of trade marks, transfer of the domain name, future use of the Modular name, the assignment of particular artists to Mr Pavlovic and the payment of international royalties to artists. On 20 November 2014, during the course of the negotiations, Universal ceased paying Mr Pavlovic’s salary and advised, in an email from Gilbert + Tobin to Mr Gorry, that it required Mr Pavlovic to resign effective as at 14 November 2014.

Email correspondence on 23-24 December 2014

37. The negotiations culminated in a series of emails between the solicitors on 23 and 24 December 2014. On 23 December 2014 at 5:47 pm, Gilbert + Tobin sent an email to Mr Gorry as follows:

“Without prejudice save as to costs

Dear Stephen

Please find attached the following:

Deed of release with previous mark-up accepted and new changes in mark-up; and

Deed of release in final form for execution, including schedules.

The Deed of Termination (Schedule 4) contains Angela Pavlovic’s address, which we understand has not been confirmed. If it is incorrect please let us know immediately.

As discussed, the relevant people at Universal will execute these documents tomorrow. Once we are in possession of executed copies we will scan them and send them to you, and send you originals by courier. We would appreciate if you would do the same. Along with the executed originals we will also enclose a cheque for $100 as contemplated by cl 4.1(a).

Yours sincerely

Michael Williams/Frances St John”

38. Mr Gorry sought instructions from Mr Pavlovic. His file note of those instructions dated 24 December 2014 was as follows:

“2.30 Pav

instructions:

can’t find sister

will sign

__________________

send us the docs

__________________”

39. At 2:36 pm on 24  December 2014, Mr Gorry replied to Gilbert + Tobin as follows:

“Frances

Please call me on my mobile [***]. He will sign, cannot find his sister today, I want to discuss arrangements. Apologies for keeping you there (I know you are flying out today), sadly I am at my desk as well.

Regards,

Stephen” (emphasis added)

40. The respondents contended that this email and, in particular, the words “He will sign” constituted an acceptance of an agreement on the terms of the documents emailed by Gilbert + Tobin the previous day. At trial, Mr Pavlovic had disputed that he had given those instructions. However, his Honour rejected Mr Pavlovic’s evidence on this and generally formed an unfavourable opinion of Mr Pavlovic’s evidence: judgment at [113]. His Honour’s factual and credit findings are not in issue on the appeal.

41. Mr Gorry sent a further email at 2:46 pm to Gilbert + Tobin in the following terms:

“Frances

I confirm the contents of my discussion with you, that Mr Pavlovic is prepared to sign the documents. He does not though, hold many of the documents you ask for in clause 4.1(b). I understood Universal would be aware of that fact, and I apologise that I had not raised the issue earlier. Would your client be content to agree that he provide all of the documents he has in his possession that fall into that group?

Please let me know if your client is happy to proceed on that basis.

Regards,

Stephen”

42. At 2:59 pm, Gilbert + Tobin provided a response to Mr Gorry:

“Dear Stephen,

In our view clause 4.1(b) already covers the situation adequately through the words ‘in his possession, power or control’.

However, our client is content to give Mr Pavlovic the additional comfort that what Universal is expecting is that he will provide all of the documents he has in his possession that fall within clause 4.1(b) and will make reasonable efforts to hand over or obtain any documents that he does not currently have in his possession, consistently with that clause.

Regards,

Michael Williams / Frances St John”

43. Mr Gorry forwarded Gilbert + Tobin’s email to Mr Pavlovic at 3:06 pm. In his email to Mr Pavlovic, Mr Gorry stated, “They want to sign this afternoon. Can you? Sign and scan back”. Mr Pavlovic’s response to Mr Gorry, by email at 3:13 pm, was “My sister is not around and I am now on black town [sic] buying a gift for my daughter???”. Mr Gorry emailed back at 3:15 pm, asking: “Can I tell them when you propose to sign?”. Mr Pavlovic responded with two emails, each at 3:21 pm. The first stated “Nye??”, being a reference to New Year’s Eve, and the second “very symbolic”.

44. Following his correspondence with Mr Pavlovic, Mr Gorry responded to Gilbert + Tobin at 3:29 pm:

“Frances

Mr Pavlovic is with his sister tomorrow. Assuming I get all the documents today, I will forward them to him, he will sign tomorrow, and then he will scan and forward the documents back to me and then on to you on 26 December, when he is next before his work computer. Please let me know if that is acceptable.

SG”

45. The final email exchanged between the parties on 24 December 2014 was at 4:13 pm from Gilbert + Tobin to Mr Gorry, and stated “in the circumstances our client is prepared to allow Mr Pavlovic a further 48 hours to sign the documents and forward copies to us”.

46. Universal did not send an executed copy of the Proposed Deed or a cheque for $100 to Mr Pavlovic on 24 December 2014 and did not do so until after 23 February 2015, the date on which Mr Pavlovic purported to terminate the agreement (if any). His Honour found, at [23], that none of the appellants had executed the Proposed Deed, although he considered that it was likely that Mr Pavlovic had signed the documents and then, having second thoughts, disposed of them: judgment at [118]. His Honour remarked that nothing turned on that observation. This was because his Honour held that a binding agreement had been reached on 24 December 2014.

Conduct post-dating 24 December 2014

47. The next communication between the parties was on 27 December 2014 at 11:32 am, when Gilbert + Tobin emailed Mr Gorry and asked, “[f]ollowing on from our email below [at 4:13 pm on 24 December 2014], will you please confirm whether the Deed of Release has now been signed by your client?”. It does not seem that Mr Gorry responded to this request, as this email was again forwarded to him at 4:51 pm on 23 January 2015, by Gilbert + Tobin, with a further request for the signed deed.

48. Mr Pavlovic engaged Levitt Robinson Solicitors to act as his legal representatives from 20 January 2015.

49. In January 2015, there were email exchanges directly between Universal and Mr Pavlovic. Ms Karen Don, Universal’s General Manager of Legal and Business Affairs, sent emails to Mr Pavlovic on 5 January, 15 January and 19 January 2015, inquiring, in various terms, as to whether he or Ms Pavlovic had signed the Proposed Deed and when Universal would be provided with a signed copy. Mr Dario Forato, Universal’s head of finance, also sent similarly worded inquiries to Mr Pavlovic by email on 7 January and 9 January 2015.

50. On 23 January 2015 at 4:51 pm, Gilbert + Tobin sent an email to Mr Gorry which stated, “[o]ur client has still not received a signed copy of the deed of settlement … Please contact us urgently to confirm that we will receive signed copies of the deed”.

51. On 5 and 6 January 2015, there were email communications instigated by Mr Pavlovic relating to the return of equipment and documents the property of Modular, and the transfer of the Modular domain name, all being matters required under the terms of the Proposed Deed. Those email exchanges are discussed below, at [126]-[127], when dealing with subsequent conduct. However, reference should be made at this point to Mr Pavlovic’s comment in an email sent at 9 am on 6 January 2015, that he had “signed [the papers] and will get them to [Gilbert + Tobin] this afternoon”.

52. On 2 February 2015, Levitt Robinson Solicitors, Mr Pavlovic’s new legal representatives, sent a letter to Gilbert + Tobin by which Mr Pavlovic sought to act in reliance on his rights under the Shareholders’ Agreement. In reply on 6 February 2015, Gilbert + Tobin asserted that:

“The reality of the situation is that our client and Mr Pavlovic have already finally settled the matter by entering into, and partly performing, a binding Deed of Release.”

53. Levitt Robinson Solicitors, on 13 February 2015, responded:

“The settlement was subject to the terms being recorded in an executed deed, which did not occur. The Deed was never executed. No final agreement was reached”

Was a binding agreement entered into by the parties on 24 December 2014?

Trial judge’s reasons

54. The principal issue in these proceedings was whether the parties entered into a binding agreement on 24 December 2014 on the terms of the Proposed Deed.

55. Universal submitted that Gilbert + Tobin’s 23 December 2014 email, attaching the Proposed Deed, “constituted an explicit, unequivocal offer from Universal to enter into an agreement on the terms of [the Proposed Deed]”, and that this offer was accepted by Mr Gorry on 24 December at 2:36 pm when he stated that Mr Pavlovic “will sign” the Proposed Deed. His Honour accepted this submission.

56. His Honour took the view that, as the parties were represented by sophisticated law firms, if it was intended that there would be no binding agreement until signature and exchange, “it would have been simple to say that”. His Honour observed, at [132], that:

“No attempt was made on either side to advance such a requirement at any stage in the negotiations. There is a difference between reaching a binding agreement and putting in place a regime to attend to meeting administrative requirements.”

57. His Honour, at [135]-[137], stated that it was relevant that as the commercial relationship between the parties had fundamentally broken down, and in circumstances where a number of third parties might be affected and with the Christmas and New Year period looming, there was a need to finalise matters. His Honour also observed, at [139], that as at 23-24 December 2014, there were no outstanding matters to be negotiated and no issues as to the drafting of the Proposed Deed.

58. According to his Honour, at [144], the language of the emails of 23 and 24 December did not indicate that the agreement would only be binding upon execution or exchange. The critical passage in his Honour’s reasons was at [145], as follows:

“I consider a reasonable person in the position of either of the parties, having reached the end of these negotiations, would have understood a binding agreement had been reached with each side explicitly instructing their respective lawyers to indicate unequivocal acceptance of the terms and conditions embodied in the written document. There were formalities to be attended to and the parties were to do various things in due course, but the essential matter, that was agreement on the terms and conditions, had been reached.”

59. His Honour, after observing at [149] that in the course of the 23-24 December 2014 emails, Mr Gorry had informed Gilbert + Tobin on three separate occasions that his client would sign the Proposed Deed, found, at [152], that Mr Pavlovic “learned at some point” that Mr Gorry had informed Gilbert + Tobin that he would do so. His Honour, at [152], observed that Mr Pavlovic was “commercially sophisticated” and:

“… would readily appreciate, as would any reasonable person, that to indicate you will sign something which has been reduced to a deed in agreed terms negotiated over weeks or months means there is a binding contract.”

60. In coming to this conclusion, his Honour rejected certain aspects of Mr Pavlovic’s evidence as to the communications he had with Mr Gorry. In particular, at [154], his Honour rejected Mr Pavlovic’s evidence that Mr Gorry informed him, on 24 December 2014, that the terms of the Proposed Deed had been negotiated as far as he, Mr Gorry, could take the matter and that it was for Mr Pavlovic to decide whether or not he signed the Proposed Deed.

61. At [155], his Honour observed that there was no indication in the emails of 23 and 24 December 2014 that Mr Pavlovic was going to take the Christmas/New Year break to decide whether or not he would bind himself to the arrangement. In his Honour’s view, Mr Gorry would not have so clearly indicated to Gilbert + Tobin that his client would sign if his instructions were in doubt in that regard. His Honour found, at [156], that no later than 2:30 pm on 24 December 2014 Mr Pavlovic had come to the view that he would bind himself to the arrangements and that he was comfortable with Gilbert + Tobin being informed of that.

62. His Honour accepted that as the emails revealed, there was ultimately, at 4:13 pm on 24 December 2014, a change in Mr Pavlovic’s instructions as to signing the documents. This in turn led Gilbert + Tobin to provide some leeway to Mr Pavlovic, by allowing him a further 48 hours within which to sign the Proposed Deed and return the executed copies. According to his Honour, at [158], the email at 4:13 pm on 24 December 2014 was consistent with this flexibility in the arrangements between the parties as to execution and exchange and it “underscore[d] the administrative nature of that aspect of the process”.

63. His Honour concluded, at [159], that Mr Gorry had actual authority to bind Mr Pavlovic. His Honour concluded, at [160], that viewed objectively, both parties were content and clearly intended to be bound to the terms of the Proposed Deed.

Legal principles

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: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35]; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59]-[61] per Sackville AJA (with whom Macfarlan and Gleeson JJA agreed); Taylor v Johnson [1983] HCA 5; 151 CLR 422 at 428 per Mason ACJ, Murphy and Deane JJ.

65. The question, therefore, is “what each party by words and conduct would have led a reasonable person in the position of the other party to believe”: see also Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at [40] (per curiam); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] (per curiam); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [81] per Heydon JA. An agreement that is incomplete will not give rise to an enforceable contract: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; 149 CLR 600 at 604 per Gibbs CJ, Murphy and Wilson JJ.

64. 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.

65. The starting point of his Honour’s consideration of this issue was Masters v Cameron [1954] HCA 72; 91 CLR 353, where Dixon CJ, McTiernan and Kitto JJ identified, at 360-362, three categories within which cases, where the parties’ agreement was to be or was to be recorded in writing, may fall as follows:

“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 classes. 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.”

68. In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628, McLelland J identified a fourth category:

“… one in which 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.”

69. However, as his Honour’s review of the case law demonstrated, the Masters v Cameron classifications are no longer, if ever they were, applied as strict categories into which such cases must fall: see Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at 105. Rather, as McHugh JA stated in GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634-635:

“… 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: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337.”

70. Consistent with the authorities, none of the parties submitted that the case was to be determined solely by reference to one or other of the Masters v Cameron categories. Mr Pavlovic submitted that in its email of 4:13 pm on 24 December 2014, Universal was “reserving its right to withdraw from proceeding further with the proposed settlement if the Proposed Deed was not executed and exchanged by the Pavlovic Parties within 48 hours”. Although this submission reflected the language of the third category of Masters v Cameron, Mr Pavlovic reformulated the submission in his reply and in oral argument, submitting that the real question was whether Universal had established that there was an agreement on 24 December 2014 on the terms of the Proposed Deed, binding on the parties, without the deed having been signed or exchanged.

71. Universal contended that the appellants had not established that the 24 December 2014 agreement fell within the third category of Masters v Cameron but recognised that the ultimate question was “one of characterisation of the facts as found and recorded” by the primary judge.

72. Both parties accepted that in determining whether a binding agreement had come into existence it was relevant to consider the commercial context and surrounding circumstances of the parties’ dealings: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548. Accordingly, each relied upon the history of the parties’ relationship, the terms of the Proposed Deed, the terms of the emails of 23 and 24 December and the subsequent conduct of the parties. Each argued that those considerations pointed to the conclusion for which they respectively contended.

The context of the parties’ dealings

Primary judge’s findings

73. The primary judge considered that the parties’ dealings before 24 December 2014 indicated that on that date they intended to be bound by the agreement they had reached. It was relevant, in his Honour’s view, as he observed, at [131], that the parties’ legal representatives could have stated there was to be no binding agreement until the documents were executed, if that were the intention of the parties. His Honour, at [135], observed that the parties’ relationship had “irrevocably broken down” and that each party had acknowledged this break down. His Honour had noted, at [133], that it was “uncontroversial” that by 24 December 2014 the parties “were attempting to reach a concluded agreement in circumstances where there was no possibility of a rapprochement”. His Honour further observed, at [136], that the dispute between the parties was “a serious commercial one which had the capacity to affect a number of third parties”, and that, “[w]ith Christmas looming and the possibility of lawyers and others being unavailable … there was some need to bring things to finality”.

Parties’ submissions

74. Mr Pavlovic relied upon the formality that had attached to the previous arrangements between the parties. He referred, in particular, to the Shareholders’ Agreement and Employment Agreement, each of which included a provision that any amendment be in writing and signed by the parties. In 2009, the Shareholders’ Agreement was amended in deed form, and the subsequent variations by the parties in 2011 and 2013 to that agreement were also by way of deed. Mr Pavlovic also submitted that the prolonged and complex negotiations between the parties preceding the 23-24 December 2014 email exchange were relevant to an understanding of the nature of the emails on those dates. In brief, Mr Pavlovic contended that it was apparent that the emails were a continuing aspect of the communications whereby the solicitors were seeking to bring the negotiations to fruition by making arrangements for the execution and exchange of the Proposed Deed.

75. Mr Pavlovic submitted that, given the context in which the negotiations were conducted, such a “sudden departure” from “the existing framework in which the parties were operating” was unlikely, and thus a strong indication that the parties did not thereby intend to be bound.

76. Universal submitted that the contextual matters relied on by the appellant:

“… [made] it more likely that the parties intended to be bound, particularly in the context of resolving the dispute before the Christmas break, the looming threat of litigation and the importance of clarity for the future conduct of the Modular business …” (original emphasis)

77. Universal also submitted that a distinction should be drawn between the previous commercial agreements between the parties and the 23-24 December 2014 emails, as the agreement that had been negotiated and which they contended came into existence on 24 December 2014 was to terminate the relationship between the parties, rather than to constitute or amend the legal relationship between them, as had been the case previously. According to Universal, there was:

“… no basis for concluding that the parties did not regard themselves as bound by the previous written amendments before those documents had been executed and exchanged.”

Consideration

78. In my opinion, the formal context in which the parties had always dealt with one another, and the fact that up until 23 December 2014, as Universal accepted, the termination of the relationship was to be concluded in the same formal manner, namely, by execution of the Proposed Deed, do not support Universal’s contentions. This context also does not support his Honour’s finding that the parties intended to be and were bound by the email exchange that occurred on 23 and 24 December 2014. The negotiations were complex. They dealt not only with the conditions upon which Mr Pavlovic’s employment with Universal was to be terminated and the assignment of his shares to Universal, but also the assignment of significant intellectual property rights between the parties, the domain name was to be transferred and his resignation as Managing Director was required.

79. All of these matters were the subject of drafts of the Proposed Deed that passed back and forth between the solicitors during the course of the negotiations. There was no indication in the communications between the parties during that process that once the parties’ assent to the various terms and conditions was obtained, they would be bound. The reverse was the case. The negotiations centred on amending the draft documents and neither party had indicated an intention to depart from the formal arrangements envisaged by them throughout the negotiations.

80. By way of example, in a lengthy letter of 7 November 2014 to Mr Gorry, Gilbert + Tobin responded to various matters that had been raised by Mr Gorry in his letter of 4 November 2014. One such matter was the wording of the release that Mr Pavlovic was seeking, to which Gilbert + Tobin responded:

“The words recorded in the first paragraph immediately after point 9 in the without prejudice offer are not reflected in the deed. The scope of the proposed release to be given to Mr Pavlovic is set out in clause 3 of the draft deed.”

After raising a number of additional matters, Gilbert + Tobin stated:

“We look forward to shortly receiving any comments that your client has on the draft deed and associated documents.”

81. Gilbert + Tobin, by way of conclusion in that letter, referred to Universal’s desire to bring matters to a conclusion swiftly, pointing out that the notice period under the Shareholders’ Agreement was due to expire, an indication that the parties were seeking to act within the construct of the formal arrangements between them.

82. Another example is the email sent by Gilbert + Tobin at 4:33 pm on 20 November 2014, where they advised that Universal was prepared to meet with Mr Pavlovic at Gilbert + Tobin’s offices to discuss any issues arising from Mr Pavlovic’s comments on the Proposed Deed. Subsequent communications were in the same vein, with focus being on the terms to be included in and the wording of the terms of the Proposed Deed. There was no intimation at all in the correspondence that the agreement reached between the parties would become binding prior to execution of the documentation.

83. Apart from Universal’s keenness to finalise matters and the wish of the solicitors to get away, there was nothing about the upcoming Christmas break that changed this. There was no particular urgency attaching to the date, 24 December 2014, and no requirement that the agreement be concluded by that day. Contrary to his Honour’s finding, it is probable, as a matter of commercial reality, that if the parties had intended to be bound without signing the documents, one or both of the solicitors would have said so. I consider that “sophisticated” solicitors, as his Honour described the legal representatives of the parties, would not have left such a matter to chance. Rather, if there was to be such a significant change to the manner in which the parties hitherto had been conducting their negotiations, there would have been an express statement that that was to be the position.

84. A similar situation had arisen in Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106. In that case, the parties had been engaged in extensive and complex commercial negotiations. In declining to find the existence of a binding agreement between them, Brookings J, at 138, held:

“I think it was extremely unlikely that parties in the position of those said to be contracting in the present case, whose relationship had always been regulated by a series of formal and complicated agreements, would have intended to become bound immediately.”

85. I also do not put any store on Universal’s hypothesis, that although in the past the parties had signed and executed variations to the Shareholders’ Agreement:

“… there is no basis for concluding that the parties did not regard themselves as bound by the previous written amendments before the documents had been executed and exchanged.”

86. There was no evidence to support this submission and the manner in which the parties conducted their negotiations on this occasion indicates, if anything, that in the past they had bound themselves by execution of the formal documentation. Nor could it reasonably be suggested, given the extensive range of matters that had to be dealt with in order to terminate the relationship between the parties, that termination would involve less formality than all previous dealings between them.

87. The emails of 23 and 24 December 2014 are to be considered in light of the commercial and formal relationship between the parties, the complex dispute they were facing, and the lengthy negotiations that had culminated in the Proposed Deed. These factors indicate an intention to maintain the formalities which had characterised the relationship between the parties as until 24 December 2014.

The terms of the Proposed Deed

88. Each of the parties submitted that the terms of the Proposed Deed support their respective construction of the 23-24 December 2014 emails.

89. Mr Pavlovic relied upon the following aspects of the Proposed Deed:

(a)   That the Proposed Deed was referred to throughout the document as a deed;

(b)   Clause 7.3(a), which stipulated that the Proposed Deed constituted an entire agreement between the parties;

(c)   Clause 7.4, which provided that “no variation of this deed is effective unless made in writing and signed by each party”; and, most significantly:

(d)   That “many of the rights and obligations in the Proposed Deed were explicitly referable to the ‘Execution Date’” defined in Schedule 1 as “the date on which the last party to this deed executes it.

90. The rights and obligations to which Mr Pavlovic referred included mutual release obligations, warranties to be given by Mr Pavlovic and, critically, the transfer by Mr Pavlovic to Universal of his shares in Modular, required by cl 4.1(a) of the Proposed Deed.

91. Before this Court, particular emphasis was placed upon the link between the “Execution Date” and the rights conferred and obligations to be undertaken under the Proposed Deed. Mr Pavlovic submitted that the Proposed Deed “could not sensibly operate without execution or exchange or as a fallback, a date that is quite certain as to when that is to occur”.

92. His Honour had rejected these arguments at [161]:

“The [appellants] made submissions concerning the entire agreement clause in the Proposed Deed and the stipulation that any amendment to the Proposed Deed be in writing and signed by all relevant parties. I do not consider that these matters bear upon whether or not the parties, at the relevant time, intended to enter into a binding arrangement. They relate to matters subsequent to the formation of a binding agreement; any variations in the respective rights of the parties and the extent to which the Proposed Deed contained a comprehensive iteration of the rights and obligations of the parties. They govern performance, they do not prevent a binding agreement from having been reached. They are both common features of commercial contracts as, indeed, is the expectation that, even if the parties have concluded a binding agreement through a handshake or conversation, relevant documentation will be prepared and signed as a matter of course. Neither requirement supports the inference that a signature was a necessary precondition to the parties being bound.”

93. Universal, by way of submission, adopted this reasoning. It also contended that other provisions of the Proposed Deed bolstered their construction of the email on 24 December 2014 at 2:36 pm as constituting acceptance of Universal’s offer, such as to constitute a binding agreement. These included that the Proposed Deed was not expressed to require, as a precondition to its effectiveness as an agreement, that it be executed or exchanged; that many of the provisions of the Proposed Deed were unrelated to its execution; and that many obligations did not specify a time for performance that was dependent on the execution of the Proposed Deed.

94. Universal repeated the submission it made below, accepted by his Honour at [194], that “the timing of steps to be taken in performance is qualitatively differently from the question whether final terms had been expressed”. Universal added by way of further submission:

“Tellingly, the parties began to move away from references to the ‘Execution Date’ in the final drafts …”

Consideration

95. I do not agree with his Honour’s reasoning, at [161], that the consistent references to “Execution Date” or other formal time requirements related only to performance of the terms agreed between the parties. It is unnecessary to analyse all the clauses where the execution date is pivotal to a particular aspect of the parties’ obligations. It is sufficient to refer to cls 2.1, 2.4(a) and cls 3.2, 3.4 and 3.5, to demonstrate why the execution date was more than merely a provision that governed the time of performance. Clause 4 is also relevant, being a central provision in the Proposed Deed. Finally, cl 7.3, which was an “entire agreement clause”, and cl 7.4 which provided that variations were to be in writing and signed by both parties, are relevant.

96. Clause 2.1 provided:

“(a)   This deed is executed by the parties on a ‘without admissions’ basis.

(b)   Each of [the parties] agree to the following terms of settlement.”

97. Clause 2.1 is consistent with the parties being bound by the agreement by entering into the Proposed Deed. Were it otherwise and the parties were already bound, the clause would be surplusage. In particular, cl 2.1(b) would be surplusage, as on Universal’s argument, the parties had already agreed to the terms of the Proposed Deed.

98. Clause 2.4(a) provided that Mr Pavlovic “agrees to assign the Trade Marks … by returning executed copies of the Deed of Assignment of Trade Marks to Universal by the Execution Date”. Clause 2.4(c) related to the transfer of the domain name, which was required on or before the Execution Date. Clause 2.4(c) additionally required Mr Pavlovic to provide evidence that this had occurred “within 1 Business Day of the Execution Date”. Pursuant to cl 3.2, Modular released Mr Pavlovic and the Pavlovic interest from all actions, claims and the like arising out of, relevantly, the registration of the trade marks and the domain name.

99. The transfer of the trade marks and domain name was an important requirement of the agreement. It would make no commercial sense for the parties to bind themselves to this agreement and for Mr Pavlovic not to be required, as a matter of performance of the contract, to transfer essential assets of the business until a time, unspecified by the agreement, when the documents had been fully executed. Likewise, the releases provided in cls 3.4 and 3.5 only came into effect on and from the Execution Date. Again, as a matter of commercial reality, a party would expect to be released from the claims by the opposing party as and from the time the agreement was agreed to be binding.

100. Clause 4 provided for Mr Pavlovic to cause his 50 per cent shareholding to be transferred to Universal for $100 (receipt of which was acknowledged), by the Execution Date. Leaving aside the non-payment of the $100, it would likewise be expected that the transfer of the shares was such an essential aspect of the agreement that its occurrence would not be left to some undefined time, particularly in circumstances where the shares were held in trust by another person. Although the payment of the $100 for the transfer of the shares was essentially nominal, Gilbert + Tobin’s email of 23 December 2014, in which they stated they would forward the executed documents and the $100, indicates that Universal treated the obligation to pay as an important, if not an essential, obligation.

97. His Honour’s finding, at [161], that the entire agreement provision in cl 7.3 of the Proposed Deed and the stipulation as to variation in cl 7.4 “do not prevent a binding agreement from having been reached” is correct so far as it goes. However, alongside the obligations conditioned upon the “Execution Date”, these provisions indicate the parties’ intention that the formal steps of execution and exchange be taken before they were bound by the terms of the Proposed Deed.

98. In summary therefore, Universal’s contention that there was a binding agreement by the exchange of emails is contrary to the terms of the Proposed Deed, which provide that the agreement was to take effect upon execution.

The terms of the 23-24 December email correspondence

103. The primary judge construed Gilbert + Tobin’s 23 December 2014 email as an offer and Mr Gorry’s 24 December 2014 email at 2:36 pm as acceptance of that offer. His Honour made the following findings regarding the intention of the parties that could be ascertained from the email communications over that period.

104. First, his Honour held, at [140], in relation to Gilbert + Tobin’s 23 December 2014 email:

“There is no suggestion, in my view … that the agreement would be binding only upon execution and exchange of deeds from the [respondents’] point of view. Nor was any attempt made to send the [appellants] signed copies [of the Proposed Deed] and make any swap accordingly part of the contractual process.”

105. Secondly, his Honour, at [155], took the view that:

“The terms and tone of each of Mr Gorry’s emails between 23 and 24 December 2014 [gave] no hint that Mr Pavlovic was going to take the Christmas/New Year break to contemplate whether he would bind himself to the arrangement.”

106. Finally, of Gilbert + Tobin’s last email on 24 December 2014, at 4:13 pm (set out above at [45]), his Honour held, at [158]:

“This email is entirely consistent with flexibility in relation to execution and exchange of the documents and underscores, in my view, the administrative nature of that aspect of the process. Given the time of the year, with looming public holidays and availability of people, some time frame was more than desirable.”

107. Mr Pavlovic submitted that these emails were directed to ascertaining whether he would sign and, if so, making the necessary arrangements for execution and exchange. He relied upon the absence in either party’s email of a statement to indicate that the parties were to be bound other than upon execution and exchange.

108. Universal, in seeking to uphold his Honour’s findings, submitted that there was no need to state expressly that the parties considered themselves bound, as:

“… in the context … the fact that a final and binding agreement had been reached went without saying once the mutual confirmations of client acceptance and assent to the agreement … had been communicated”

109. In effect, therefore, both parties submitted that the silence in the emails as to whether they were to be immediately bound and the flexibility as to when the Proposed Deed would be signed supported their respective positions.

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: Ormwave Pty Limited v Smith [2007] NSWCA 210; Mushroom Composters v IS & DE Robertson. In the email of 23 December 2014, Gilbert + Tobin attached two copies of the Proposed Deed, one in marked up form and the other in “final form for execution”. The email then confirmed the arrangements it had previously advised as to Universal’s execution and delivery of the deed and stated that they “would appreciate if” Mr Gorry would do the same.

111. This was not an offer by Universal that it would consider itself immediately bound when it was advised that Mr Pavlovic would sign. As a matter of ordinary language, this was advice as to the proposed arrangements for execution and exchange. As a matter of commercial reality, that information made business sense.

112. Mr Gorry’s response at 2.36 pm on 24 December 2014 again, as a matter of ordinary language, said nothing about Mr Pavlovic being immediately bound by the terms of the Proposed Deed. It was a response relating to the arrangements for execution and exchange.

113. For the reasons I have discussed, there was nothing in the surrounding circumstances that cast a different light on the emails. His Honour’s finding that the parties were bound by the email communications does not accord with the past dealings between the parties, nor with the terms of the Proposed Deed. In my opinion, something more than mere silence would have been required to evince the intention to diverge from the parties’ past practice and the terms of the Proposed Deed.

114. To the extent that analogous cases are of assistance in determining whether on the particular facts a contract has been entered by the parties, the case law supports Mr Pavlovic’s position. In Locnere Pty Ltd v Jakk’s Bagel & Bread Co Pty Ltd [2003] NSWSC 1123, a draft deed of release had been agreed between the parties in respect of the compromise of legal proceedings in the Industrial Relations Commission. The plaintiff’s solicitor returned the draft deed to the respondent’s solicitor with a request that the respondent execute the deed and that the executed document, in duplicate be brought to the court at the next mention of the matter. Palmer J held that no binding agreement had arisen:

“13   … In my opinion there is not sufficient evidence to satisfy the Court that the parties, by their conduct, evinced an intention to be bound immediately upon confirmation of acceptance of amendments to the Deed, rather than by formal execution and exchange of counterparts of the Deed, as had been contemplated. From the very beginning of discussions for compromise on 19 June 2003, the parties could have specified some means of evidencing a concluded agreement other than by Deed, which is a formal and solemn document. But for some reason they chose not to do that.

14   Thereafter, formal drafting of a Deed and its despatch with a request for execution and delivery by return, seems really to confirm that both parties regarded the agreement between them as one which should be attended by the formality entailed in execution and delivery of counterparts of a Deed. This is evident even in the acceptance by the Plaintiffs’ solicitors of the amendments to the Deed in their e-mail of 29 August. The e-mail makes it quite clear that the Plaintiffs’ solicitors still insisted upon execution of the Deed …

15   In short, I can find nothing in the evidence as to the conduct of the parties which persuades me that they evinced an intention that a binding and enforceable agreement between them would come into existence by an exchange of e-mails rather than by exchange of executed Deeds, as they had previously stipulated.” (emphasis added)

115. Likewise, in my opinion, there was nothing in the evidence here whereby an intention to be bound can be evinced.

116. In Cleary v Masterton [1999] NSWSC 207 the Court held that a letter from the legal representatives of one of the negotiating parties to the other party’s solicitor advising that the client would execute the document did not result in an immediately binding contract. In that case, the letter also stated the executed document “will be returned to you fairly shortly in the hope that this matter can be resolved in all [its] aspects by 13 July, 1998”. Young J, in finding that the case fell within the third category of Masters v Cameron and that no binding agreement had been entered into, stated, in terms relevant to this case:

“39   … If parties have brokered a deal whereby there is to be a deed of release and a discontinuance, the parties, to my mind, intend as a general rule that there is no contract until that release has been delivered and exchanged … There may be in any particular set of circumstances some other intention manifested, but I think that is the general rule.”

117. Again, in this case, I am of the opinion that there was nothing to demonstrate any intention other than the formality of execution and exchange.

Subsequent conduct of the parties

118. It is well settled that regard may be had to subsequent conduct of parties to determine whether, at an earlier juncture, the parties intended to enter into a binding agreement: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd at 547-548 per Gleeson CJ (with whom Hope and Mahoney JJA agreed); Brambles Holdings Ltd v Bathurst City Council at [25] per Heydon JA; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [101] per Giles JA (with whom Hodgson and Campbell JJA agreed); Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [121] per Basten JA (Gleeson JA agreeing).

119. The primary judge held, at [168], that the “only reasonable explanation” for Mr Pavlovic’s conduct in January 2015 was that he was performing his obligations under the Proposed Deed. In particular, his Honour found that Mr Pavlovic had returned “various physical and digital assets and information of [Modular] that had been in his possession”, including computers, discs, web site logins and passwords. His Honour found that Mr Pavlovic knew that he was required to return equipment, information and documents by 5 January 2015 by cls 4.2, 4.3 and 4.4 of the Proposed Deed. His Honour rejected Mr Pavlovic’s explanation that Universal was entitled to these items in any event.

120. In his Honour’s opinion, at [171]:

“It can be no coincidence that Mr Pavlovic initiated the return of these materials on 5 January 2015, the date nominated in the Proposed Deed. That is, again, evidence consistent with him admitting he was bound by that deed.”

121. His Honour also considered, at [173], that Mr Pavlovic’s acceptance of the payment of his Accrued Annual Leave pursuant to cl 2.2 of the Proposed Deed, although in breach of that clause’s time requirements, was:

“… entirely consistent with his performance of his obligations under the Proposed Deed and an acceptance or recognition that [the respondents] had performed theirs.”

122. Mr Pavlovic contended that his Honour erred in viewing Mr Pavlovic’s conduct in returning various items, transferring the domain name to Universal and banking the cheque for his Accrued Annual Leave as unequivocal evidence of his belief of being bound by the Proposed Deed. He submitted that, for example, in respect of the banking of the cheque:

“… that conduct is only one aspect of performance and the primary judge erroneously mischaracterised its effect … it was the payment and receipt of an entitlement in any event. Further, the cheque for the annual leave payment was only banked on 11 March 2015, which was after Mr Pavlovic resigned as the Managing Director of Modular (having maintained that the resignation was unrelated to the existence of the Settlement Agreement …)” (original emphasis)

123. Mr Pavlovic pointed to other conduct post-dating the alleged agreement which provided “stronger indications” that no such binding agreement had been made, namely that:

“(a)   the fact that the Proposed Deed was not signed and delivered or exchanged by either party;

(b)   the repeated efforts, in the period from 27 December 2014 to 23 January 2015, by both Universal and Gilbert + Tobin to chase the Pavlovic Parties to see whether they had executed and would deliver the Proposed Deed;

(c)   the fact that the payment of $100 [for the transfer of his shareholding] … was not made by Universal to Mr Pavlovic …

(d)   the fact that the annual leave payment (which was required by clause 2.2(b)(iii) of the Proposed Deed to have been paid by 7 January 2015) was not made by Modular to Mr Pavlovic;

(e)   the fact that Universal never contended that there was a binding agreement on foot until Gilbert + Tobin asserted, in February 2015, that this was the case; and

(f)   the statement by Universal’s Chief Executive Officer … on [19] January 2015, that as the agreement was not signed things were ‘still on hold’.”

124. Mr Pavlovic also pointed out in his written submissions that when assessing the question of subsequent conduct it is significant that Universal had not pleaded a case of estoppel or part performance to make good its claim. Rather, Universal sought to rely on the parties’ subsequent conduct as unequivocal evidence of an already existing agreement as between them.

125. On appeal, Universal submitted that his Honour’s findings should not be disturbed and that the fact that agreement had been reached on 24 December 2014 on the terms of the Proposed Deed was confirmed by the conduct of the parties in early January 2015.

Consideration

126. Apart from matters that had to be attended to by or on the Execution Date, the Proposed Deed required certain other steps to be taken on specified dates. One such obligation was to return all documents and information to Modular on or before 5 January 2015. On that date, Mr Pavlovic emailed Ms Don, saying that he had “a bunch of stuff here to return to you today” and asking whether arrangements could be made to pick it up. There then ensued a series of emails making arrangements to do so. In the course of those emails, Ms Don said to Mr Pavlovic that she assumed that he and Ms Pavlovic had signed all of the documents on Christmas Eve. She said that the reason that she asked was that Gilbert + Tobin had not had a response from Mr Gorry about it. She also asked Mr Pavlovic whether he had transferred the domain name.

127. Early the following day, 6 January 2015, Ms Don emailed Mr Pavlovic forwarding “the details again for the transfer of the domain name – if you need them”. Those details had been contained in an email from Ms Don to Mr Pavlovic on 12 December 2014, and it was that email that she forwarded to Mr Pavlovic on 6 January 2015. Mr Pavlovic responded during the course of that day, stating that he would transfer the domain name when he was in the office that afternoon. He added, “RE the papers I have them signed and will get them to [Gilbert + Tobin] this afternoon as well”.

128. Mr Pavlovic did not, however, forward the signed Proposed Deed to Gilbert + Tobin. Nor did Mr Pavlovic forward an executed assignment of trade marks or the share transfers to Universal. On 19 January 2015, in an internal email, Mr Ash, Universal’s President, stated “Nothing back yet so we are still on hold”.

129. In cross-examination, Mr Ash said that he:

“… thought the agreement had been done while I was on holiday. So I thought it had been done, we just hadn’t received the agreements. In fact, I thought I had signed them and Karen told me that Pav had signed them. So I was under the assumption that they had been done but we just hadn’t received them yet.”

130. Universal accepted that Mr Ash’s email, as post-contractual conduct, was equivocal, as the trial judge had effectively found, at [167], “that it was not inconsistent with Universal believing that a binding agreement had been entered into”. His Honour added:

“It may be that by this time [Universal] was entertaining some apprehensions about Mr Pavlovic’s tardiness in returning the relevant documents. That is not inconsistent with the parties having concluded a binding agreement.”

131. In my opinion, the language used by Mr Ash in his email indicated that he did not consider an agreement had been finalised until the signed documents had been received from Mr Pavlovic. At best, this evidence was equivocal, as his Honour found.

132. Universal itself did not comply with various aspects of the terms of the Proposed Deed. As outlined at [118]-[119] above, Universal did not pay to Mr Pavlovic his accrued leave entitlement on 7 January 2015 as required by cl 2.2(b)(iii) of the Proposed Deed, although this was paid at a later date. Indeed, it did not forward its counterpart of the Proposed Deed, nor did it pay the $100 for the share transfer, until 6 March 2015.

133. Although subsequent conduct “is admissible on the question of whether a contract has been formed”: Brambles Holdings Ltd v Bathurst City Council at [25] per Heydon JA, it is only one aspect of available proof. Mr Pavlovic’s unsolicited communication on 5 January 2015 relating to the handing over of Modular’s documents was evidence that he considered himself bound by the terms of the Proposed Deed. But it was not unequivocally so. It was conduct which was as consistent with an intention to execute the Proposed Deed. That this was so was reinforced by the emails between Mr Pavlovic and Ms Don on 6 January 2015 relating to the transfer of the domain name. As was apparent from that exchange, the details necessary to do so had been the subject of communications on 12 December 2014, well before the Proposed Deed was in final form.

134. This indicates, in my opinion, that the parties were proceeding at all times on the basis that the arrangements between them would be terminated. That, however, is not proof that they entered into an agreement on 24 December 2014. By contrast, all of the evidence up to and including 24 December 2014 points strongly in the opposite direction, that is, that the parties did not intend to be finally bound until the formal documentation was in place, executed and exchanged. But in any event, as I have indicated, I am of the view that the language of the email of 24 December 2014, sent by Mr Gorry at 2:36 pm, was not language that demonstrated that Mr Pavlovic considered himself thereby bound by the terms of the Proposed Deed.

135. In my opinion, no contract was formed between the parties on 24 December 2014. As that was the only case advanced by Universal, it follows that the appeal must be allowed. However, there is also the question whether Mr Gorry had authority to contract on behalf of Mr Pavlovic.

Did Mr Gorry have authority to contract on Mr Pavlovic’s behalf?

Trial judge’s reasons

136. In order for Mr Pavlovic to be bound by any agreement made on 24 December 2014, it was necessary for Mr Gorry to have authority to contract on his behalf. The trial judge held, at [159], that he was satisfied Mr Gorry had actual authority to bind Mr Pavlovic to the terms of the Proposed Deed. His Honour also considered that Mr Gorry had ostensible authority. His Honour’s opinion was that it was “tolerably clear that the agreement came into existence in a litigious or potentially litigious context”, the dispute having “its genesis in Universal threatening to take legal action against Mr Pavlovic”. His Honour considered that this was clear in the recitals to the Proposed Deed and was reflected in the email communications which were headed “without prejudice save as to costs”.

Legal principles

Actual authority

137. It is well settled, and was acknowledged by both parties, that solicitors have the authority to conduct negotiations on behalf of their clients as to the terms of a contract between parties: see Pianta v National Finance & Trustees [1964] HCA 61; 180 CLR 146; Nguyen v Taylor (1992) 27 NSWLR 48; Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173 at 9176 per Street CJ. In Pianta Barwick CJ, at 152, explained the position as follows:

“So far as the solicitor is concerned, however, the terms of his retainer are clearly enough defined in the evidence. He was retained, in the capacity of a solicitor, to settle written terms of sale which he could advise his clients to accept and sign. For this purpose, he could negotiate and agree with the representatives of the respondent the terms which the respondent could be expected to accept or, if the representatives were so authorized, which they could accept on behalf of the respondent and which the solicitor could advise his clients as satisfactory in their interest. But this does not confer on the solicitor authority to contract on behalf of the clients to sell the land. If he is to have that authority it must be given expressly or by necessary implication.”

138. Menzies J pointed out, at 154, that without “clear and cogent evidence”, a solicitor’s authority does not extend to the authority to bind one’s client to contractual obligations. See also Kent v Hogarth [1995] QCA 472 per Pincus JA at [11].

139. The principle was stated succinctly by Street CJ in Summit Properties v Comserv (N0 784) at 9176:

“Authority to negotiate terms and to make arrangements for execution falls short of authority to commit the client fully to a contractual obligation …”

140. In Stewart Upton Pty Ltd v Pindar (1990) NSW ConvR 55-529, a case to which the trial judge referred, Cohen J observed:

“That solicitors are agents for their clients in some form is not to be denied. The retainer of a solicitor however does not give him ostensible authority to conclude contracts on behalf of his client. He can, like any other person, be given actual authority by his client and this can be proved by direct evidence or by implication. Without that actual authority, however, a solicitor has no more power than to negotiate on behalf of his client in anticipation of a contract being entered by that client.”

141. The primary judge also referred to Nguyen v Taylor. That was a case where it was held that a solicitor, who had been expressly instructed to take “whatever steps were necessary to complete the purchase … of the land in question”, had actual implied authority to conclude the contract on behalf of the client. In that case, the question in issue was whether the appellants had exercised an option to purchase certain realty. The notice of exercise of option was given by the appellants’ solicitor. Meagher JA stated, at 59, that having instructed his solicitor to take the steps necessary to purchase the land:

“One such step was the execution and delivery of the notice of exercise, and in my view, therefore, the proper inference to draw is that the solicitor had actual authority to sign and deliver the notice. This inference can be more readily drawn in circumstances like the present where there is no dispute between the principal (Mr Nguyen) and the agent (the solicitor) about the latter's authority, where there is nothing in the evidence to support a lack of authority, where the step in question did not involve the negotiation of a fresh contract but merely the performance of a mechanical step, and where (as it now appears) the exercise of authority was ratified by the payment of the deposit before the expiration of the time limited for exercise of the option.”

Submissions

142. Mr Pavlovic submitted that the language of “will sign” and “is prepared to sign” used by Mr Gorry in the emails of 23 and 24 December 2014 merely reaffirmed his authority to negotiate and finalise the terms upon which the parties would terminate their relationship, leaving it to the parties to execute and exchange the Proposed Deed.

143. Mr Pavlovic also submitted that the onus lay upon Universal to demonstrate the existence and terms of the agency and they had not done so: see Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) (2013) 209 FCR 368 at [67] where the Court held that in the absence of evidence of express actual authority it was necessary for the respondent to prove implied actual authority in order to succeed.

144. Mr Pavlovic also relied upon the history of the past dealings between the parties, which had always been subject of formal executed documentation. It was submitted that there was nothing in the email communications that indicated that he would act any differently on this occasion. He further submitted that the terms of the Proposed Deed manifested an intention to be bound only upon formal execution. This was particularly so given the references to “Execution Date” in cls 2.4, 3.4, 3.5 and 4, as well as the fact that cl 2.1 provided that the agreement would be executed as a deed, and that the execution page required the Proposed Deed to be signed by Mr Pavlovic and delivered.

145. Universal contended that the clear evidence which clothed Mr Gorry with actual authority was his Honour’s finding, at [142] and [145], that Mr Pavlovic instructed Mr Gorry to tell Gilbert + Tobin that he would sign the Proposed Deed, “meaning he was content with the terms and conditions there set out”.

146. Universal submitted, however, that given that each party intended to enter into a binding agreement on 23 and 24 December 2014, a further intention to provide their solicitors with authority to bind could be evinced from their email communications.

Consideration

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 Gorry had express actual authority to bind Mr Pavlovic to the agreement that had been the subject of the negotiations over many weeks, with the terms of the Proposed Deed being amended as those negotiations progressed. Accordingly, and leaving aside the question of ostensible authority, it was necessary for Universal to establish there was implied actual authority for him to do so.

148. I do not consider that 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. But in any event, I do not consider that the statement in the email is in any way equivocal. It means what it says. The client “will sign” the documentation whereby the parties were to bind to the arrangement that had been negotiated. I would add that even a statement “I will sign” could be considered to be equivocal, that is, as being consistent with either position, that would not be sufficient, on the authorities, to establish that Mr Gorry had actual implied authority to contract on behalf of Mr Pavlovic.

Ostensible authority

149. The primary judge stated, at [159], that if the question of ostensible authority were relevant, it was tolerably clear that the agreement came into existence in a litigious or potentially litigious context. This observation was directed to the principle that whilst a solicitor does not generally have authority to contract on a client’s behalf, there is an exception in the context of litigation.

150. A solicitor’s ostensible authority in such circumstances was described in Lucke v Cleary (2011) 111 SASR 134 by Stanley J (with whom Gray and David JJ agreed) 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. In CIC Insurance Ltd v Bankstown Football Club Ltd [[1994] NSWCA 359; 8 ANZ Insurance Cases ¶61-232], Kirby P drew a clear distinction between ostensible authority in litigious and non-litigious matters:

It is not unreasonable for the appellant to view the conduct of the club, in apparently instructing its solicitor to pursue the subject insurance claim, as including all necessary authority to give effect to those instructions. Incidental to those instructions, it can be inferred, was the power to deal with the issue of the purported cancellation of the contract. Indeed, I should have thought that the instruction of a solicitor to pursue a matter such as a controversial insurance claim would leave a third party dealing with the solicitor with the impression that that solicitor, having been retained for his or her legal expertise, would have all necessary authority to deal with all issues which reasonably and foreseeably arose in the pursuit of that claim. It is not a situation akin to the instruction of a solicitor to pursue non-litigious business where the nature and extent of the solicitor’s authority is not so easily inferred to be so widely encompassing.

62   Even so, in the context of litigation the practitioner’s authority to bind his or her client to a contract is confined to a contract that actually and genuinely relates to the litigation.” (emphasis added)

151. Universal submitted that the findings of the primary judge were not inconsistent with previous authority. Universal deemed there to be a “live and present threat to sue”, and relied upon the case of CIC Insurance v Bankstown Football Club. In that case, the solicitor was found to have ostensible authority to cancel a contract relating to an insurance claim at a stage prior to litigation.

152. Universal also submitted that to the extent that his Honour went beyond the settled principles as to the ostensible authority of a solicitor, his reasoning involved only “incremental development in principle”.

Consideration

153. This point can be disposed of briefly. Although the recitals to the Proposed Deed specified that the parties were in dispute in respect of certain matters, no litigation had been commenced by either party. Indeed, as his Honour observed, at [136], the commencement of litigation was viewed by both parties as an “alternative” to the process of negotiation that they were undertaking in late 2014. Therefore, while the negotiations were proceeding, litigation was in fact not in contemplation. To apply the principle stated in Lucke v Cleary to a case where parties were negotiating so as to avoid litigation would be novel and extend the exception beyond the scope of previous authority. Nor would it accord with commercial reality, providing a further indication that any such implication of authority was unlikely.

154. Further, to accept that a “potentially litigious” dispute engages the ostensible authority of a solicitor to enter into an agreement is also not supported by authority. CIC Insurance v Bankstown Football Club does not extend the exception in Lucke v Cleary to such disputes. Rather, in CIC Insurance v Bankstown Football Club the solicitor was retained in relation to an insurance claim, and therefore had ostensible authority to deal with “issues which reasonably and foreseeably arose in the pursuit of that claim” (Kirby P, at 75,555). The case turned on its own facts and does not give rise to the principle for which Universal contended.

155. I would add that the fact that the solicitors placed the phrase “without prejudice save as to costs” in their email correspondence does not advance the position. Such a statement is, in most instances, without any relevant meaning absent litigation being on foot.

Other considerations

Did Gilbert + Tobin have authority to contract on behalf of Universal?

156. A finding that Gilbert + Tobin had either actual or ostensible authority to bind Universal was also required for his Honour to make the finding that he did. Mr Pavlovic pointed out that his Honour “failed to deal” with their contention that Gilbert + Tobin did not have actual authority to bind Universal. Universal submitted that such authority was impliedly found by his Honour and contended that the evidence of Ms Don and his Honour’s reasons at [138]-[139] indicated that “the 23 December email from [Gilbert + Tobin] to Mr Gorry was sent on Ms Don’s express instructions”. Universal also pointed out that the appellants did not squarely challenge Gilbert + Tobin’s authority to bind Universal.

157. Having regard to my conclusion that no agreement was entered into on 24 December 2014, it is not necessary to determine this question. However, having regard to the principles discussed above, I doubt that Gilbert + Tobin had any such authority. This is so, notwithstanding that Ms Don, in her affidavits of 14 April 2015 and 14 May 2015 deposed to the “negotiations [between the parties being] carried out between Gilbert + Tobin acting on my instructions and Mr Pavlovic’s former solicitor, Mr Stephen Gorry of Henry Davis York” and Don restated this in cross-examination, that the negotiations were “via our external lawyers, Gilbert + Tobin”. This, in my opinion, was evidence of authority to negotiate and not evidence of authority to contract on Universal’s behalf.

Termination

158. Mr Pavlovic further contended that if a contract had come into existence on 24 December 2014, he had validly terminated it. Although it is usual for this Court to consider all matters raised on an appeal, in the circumstances of this case, the question whether the contract, if it existed, was terminated, requires the factual circumstances to be looked at in an unrealistic context. For that reason, I do not consider it appropriate to engage in a consideration of that aspect of Mr Pavlovic’s appeal. For the same reason, it is unnecessary to deal with Mr Pavlovic’s final ground of appeal relating to the form of orders made by his Honour.

Conclusion

159. For the reasons I have given, I am of the opinion that no contract came into existence on 24 December 2014. Accordingly, I propose the following orders:

(1)   Appeal allowed;

(2)   Set aside declarations and orders made by the primary judge;

(3)   Declare that no contract came into existence on 24 December 2014 between the appellants and the first and second respondent;

(4)   Order the respondents to pay the appellants’ costs of the appeal;

(5)   Order the respondents to pay the costs of the appellants in the court below;

(6)   Remit the matter to the Supreme Court for the determination of the remaining issues on the summons.

160. MEAGHER JA: From early October 2014 the parties and their solicitors were negotiating on the basis that any consensus between them as to how they would terminate their business relationship would be recorded in writing and not binding until such time as that writing was executed by each of them, and copies of the executed document exchanged.

161. The email communications between the solicitors on 23 and 24 December 2014 did not depart from that continuing and orthodox expectation. Those communications were directed to achieving the execution of copies of the relevant document (the Deed of release which by that time was the document intended to record that consensus) and their exchange. The appellant’s solicitor (Mr Gorry) did not have actual or ostensible authority to bind his clients to some other course, and did not purport to do so.

162. For the reasons given by Beazley P, I agree that the appeal should be allowed and other orders proposed by her Honour made.

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Amendments

30 October 2015 - [16] and [18]: typographical errors corrected

Decision last updated: 30 October 2015