Player v Isenberg

[2002] NSWCA 186

CITATION:	Player & Ors v Isenberg & Ors [2002] NSWCA 186
FILE NUMBER(S):	CA 40621/01
HEARING DATE(S):	16 May 2002
JUDGMENT DATE:	20 June 2002
PARTIES :	Graeme Phillip Player - First Appellant Grant Edward Spedding - Second Appellant David John Catts - Third Appellant Norman Saul Isenberg - First Respondent Nan's Enterprises Pty Ltd - Second Respondent Borlob Pty Ltd (as trustee for the Borlob Property Trust and the Borlob Unit Trust) - Third Respondent
JUDGMENT OF:	Beazley JA at 1; Giles JA at 63; Ipp AJA at 64

LOWER COURT JURISDICTION :	District Court
LOWER COURT FILE NUMBER(S) :	7414/99
LOWER COURT JUDICIAL OFFICER :	Garling DCJ

COUNSEL:	P Biscoe QC & C A Moore - First, Second and Third Appellants M Macrossan - First and Second Respondents
SOLICITORS:	The Law Partnership - First, Second and Third Appellants Macquarie Legal Practice - Respondents
CATCHWORDS:	Partnership - agency - contract - parties to the contract - property and price - consideration - intention to create immediately binding contract.
LEGISLATION CITED:	Corporations Law (C'th); Partnership Act 1892 (NSW).
CASES CITED:	Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847; Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 9329; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Geebung Investments v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; G Scammell & Nephew Ltd v H C & J G Ouston [1941] AC 251; Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Shirlaw v Southern Foundaries (1926) Ltd [1939] 2 KB 206; Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Trident General Insurance Co Ltd v NcNiece Bros Pty Ltd (1988) 165 CLR 107; TS Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147.
DECISION:	(i) Appeal allowed; (ii) Orders of the trial judge be set aside; (iii) Verdict for the appellants and the third respondent; (iv) Judgment accordingly; (v) The first and second respondents to pay the appellants' costs of the trial and of the appeal, but to have a certificate under the Suitors' Fund Act 1951 (NSW), if so entitled.

CA 40621/01
DC 7414/99

BEAZLEY JA
GILES JA
IPP AJA

Thursday, 20 June 2002

PLAYER v ISENBERG

FACTS

The first and second appellants (Player and Spedding) and the first respondent (Isenberg) had been partners in a solicitors’ practice. The third appellant (Catts) was an employee of the practice. The partnership assets were held in two trusts. In the main and to the extent relevant, Player, Spedding and Isenberg held the units in the trusts. The assets of the Property Trust included fixtures, fittings, plant and equipment and premises out of which the legal practice was operated. The software used by the practice was owned by the partnership and not the trust. Isenberg held his units in the trusts through a company Nans (the second respondent) of which he was a director.

Player, Spedding and Catts decided to go into partnership together without Isenberg. On 1 July 1998 Player, Spedding and Isenberg met to discuss the dissolution of the partnership. Catts was not at the meeting. There was a discussion as to what would happen to the premises and other partnership assets. It was proposed at the meeting that $125,000 be paid by the new partnership for the old partnership’s existing plant and equipment. Isenberg or his trust was to receive 40% of the $125,000. Catts was to pay 33.3% and Spedding and Player 3.3% each.

From about August 1998, Isenberg alleged that a concluded agreement had been reached at the 1 July meeting in relation to the sale of the plant and equipment. No formal agreement was ever entered into and the appellants did not pay the moneys claimed by Isenberg to be due under the 1 July 1998 agreement. A receiver was eventually appointed and he sold the plant and equipment to the new partnership for $18,000.

Isenberg and Nans initiated proceedings seeking to recover the amount said to be due from the concluded agreement. Garling DCJ found that there was a concluded agreement reached on 1 July 1998 and the appellants were held severally liable to pay the individual proportions specified in the alleged agreement. The moneys so payable were ordered to be paid to Nans. The appellants claimed on appeal that his Honour erred in finding that a concluded agreement was reached.

HELD per Beazley JA (Giles JA and Ipp AJA agreeing)

(i) His Honour erred in finding a concluded agreement was reached on 1 July 1998.

(ii) The parties had failed to reach a concluded agreement for the following reasons:


(a) Catts was not a party to any alleged agreement. His Honour erred in finding that Player and Spedding had ‘authority’ to act on behalf of Catts. The new partnership was not in existence when the parties met on 1 July 1998. Therefore it could not be said that Isenberg and Player had authority to act as Catts’ partner. There was no other basis for claiming that Player and Spedding had authority to act as Catts’ agent.

(b) The property sold comprised that owned by the trust and that owned by the partnership. The price payable for the trust property and the partnership property was unspecified and could not be ascertained.

(c) Nans received the payment under the orders made however Nans did not provide any consideration.

(d) The parties did not intend by their discussions on 1 July 1998 to create an immediately binding contract: GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Geebung Investments v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551.


ORDERS

(i) Appeal allowed;

(ii) Orders of the trial judge be set aside;

(iii) Verdict for the appellants and the third respondent;

(iv) Judgment accordingly;

(v) The first and second respondents to pay the appellants’ costs of the trial and of the appeal, but to have a certificate under the Suitors’ Fund Act 1951 (NSW), if so entitled.

CA 40621/01
DC 7414/99

BEAZLEY JA
GILES JA
IPP AJA

Thursday, 20 June 2002

PLAYER v ISENBERG

JUDGMENT

1 BEAZLEY JA: This is an appeal from a decision of Garling DCJ in which his Honour found that the appellants were severally liable to the second respondent for specified sums of money payable pursuant to an agreement reached on 1 July 1998.

2 The first and second appellants (Player and Spedding) and the first respondent (Isenberg) had been in partnership in a solicitors’ practice from about 1 July 1986. As at the date of the matters relevant to these proceedings, the partnership was known as the ISP Law Partnership. As at that time the interests in the partnership were held as to 30% by each of Player and Spedding and the remaining 40% by Isenberg. The third appellant (Catts) was an employee of the ISP Law Partnership.

3 Isenberg, Player and Spedding were directors of the third respondent Borlob Pty Limited (Borlob), which was the trustee of the Borlob Unit Trust and the Borlob Property Trust. The principal activity of Borlob in its capacity as trustee of the Borlob Unit Trust was to employ personnel who provided services to the partnership. Borlob, as trustee of the Borlob Property Trust, owned most of the fixtures, fittings, plant and equipment which were used by the ISP Law Partnership, as well as premises located at 154 Elizabeth Street Sydney out of which the legal practice was conducted. The second respondent (Nans) is a company of which Isenberg and his wife were directors. The units in the Borlob Unit Trust were held as to 40% by Nans and 30% by each of Player and Spedding. Nans owned 30% and Player and Spedding each owned 22.5% of the units issued in the Borlob Property Trust. The remaining units were held by trustees of superannuation funds for the benefit of Player, Spedding and Isenberg as members of those funds.

4 In the months prior to 1 July 1998 there had been discussions between Isenberg, Spedding, Player and Catts and a Mr Ricci about the possibility of forming a new partnership. Those discussions apparently progressed to the stage of there being agreement that the new partnership would use the plant, equipment, premises and staff used by the ISP Law Partnership. For this purpose, a valuation was obtained on 2 June 1998 which valued the plant and equipment at $87,745.00. The valuation did not include the value of the Locus software used in the partnership. The respondents now concede that the software was owned by the partnership and not by Borlob.

5 In about mid-June there was a meeting between the five proposed partners at which there was a discussion in relation to the valuation of the plant and equipment. His Honour found that at this meeting there had been a:

“general suggestion if I put it that way that an appropriate way of assessing [the amount to be paid in] would be on the basis of … $125,000. Mr Catts at that stage had not agreed to come into the partnership on that basis, he was reserving his right to get advice as I understand it.”

6 About a week or so later, Mr Ricci decided that he would not join the proposed partnership.

7 In about the last week of June 1998 there was a disagreement between Player and Isenberg. As a result of that disagreement, Player informed Isenberg that he wished to terminate the ISP Law Partnership. On 29 June 1998, Spedding, Player and Catts had a discussion to the effect that they would themselves enter into a partnership to carry on a legal practice but that Isenberg would not be invited to join them as a partner. The appellants subsequently went into partnership as The Law Partnership Pty Limited (The Law Partnership). At Catts’ urging, Spedding and Player went to see Isenberg on 1 July 1998 to advise him formally that they wished to end their partnership. Catts was not present at any time during the course of this meeting.

8 The trial judge accepted the evidence of Isenberg as to the discussion that the three partners had during the course of that meeting. That discussion was as follows:

Spedding:	“We have decided that we do not wish to be in partnership with you anymore as we have different philosophies and a range of disagreements.”
[Isenberg]:	“What do you propose doing.”
Spedding:	“We (referring to Graeme Player and himself) will be going into partnership with David Catts.”
[Isenberg]:	“Where do you propose practising?”
Player:	“I would like to retain these premises by agreement but Grant (Spedding) wants the premises sold.”
[Isenberg]:	“I do not think it is a good time to sell the premises, however, if you prefer not to be in partnership with me then I accept your decision. I am happy to move elsewhere and take up a position either as a corporate lawyer or go to another private firm. The only person I want to take with me is my secretary, Ann (Zyza).”
Player	“We anticipate employing all of the other people involved in the practice.”
[Isenberg]:	“I have no objection if you wish to remain in these premises for your new partnership provided your new partnership buys the plant and equipment at the previously discussed figure of $125,000, which Grant suggested to Catts and Ricci. It was acceptable to me as a buy-in figure so I am also willing to sell out on that basis. Your new partnership can take a lease of the premises for 2 years with a 2 year option at the market value of $120,000 gross per annum. I will also be comfortable with refinancing the bill facility of $1.1m with the National Australia Bank which expires soon for a fixed term on an interest only basis, which term would be equivalent to the initial term of the lease.”
Spedding:	“I am in agreement with those suggestions and on that basis I’m agreeable to retaining ownership of the premises rather than selling same.”
Player:	“I am also in agreement. However, Grant (Spedding) and I will not be able to finance one-third each of the cost of the plant and equipment. What I would suggest is that as our interests each already own 30%, we each pay 3.3% and the remaining 30% each be journalised and 40% will be paid in cash to you or you trust. This will be one-third from David (Catts) and 3.3% from each of us.
[Isenberg]:	“I agree.”
Player:	“I also suggest that we in conjunction with Pauline Boey (ISP Law’s accountant) work out adjustments for services, staff, annual holidays, any relevant long service leave and so on, on the normal basis for a transfer of business and assets.”
[Isenberg]	“What about the photocopiers which are on a hire purchase/asset lease arrangement?”
Player:	“We will arrange for your guarantee to be released and in the interim we will provide you with an indemnity.”
[Isenberg]:	“That’s acceptable to me.”
Spedding:	“I am pleased that we have been able to work things out without degenerating into a screaming match.”

9 Following the meeting on 1 July, the appellants made an application for finance to National Bank, with which the ISP Law Partnership had banked. From about August, Isenberg alleged that a concluded agreement had been reached in relation to the sale of plant and equipment (which I hereafter refer to only as equipment).

10 There were also a number of discussions between the parties in relation to the dissolution of the partnership and the finalisation of the sale of the equipment. These discussions included negotiations as to the price to be paid for the equipment. The appellants accepted in argument on the appeal that these discussions and the various draft documents which came into existence thereafter were all predicated on the basis that the parties were in dispute as to whether a binding contract was entered into on 1 July and they were attempting to resolve the matter.

11 One of the documents which came into existence at this time was drafted by Isenberg. The draft included provision for the sale of the equipment by the Borlob Unit Trust for $112,500. The purchaser was to be the Law Partnership Unit Trust, presumably being the new trust entity to be operated by the appellants in their proposed new partnership. The draft document further had provision for payment by instalments and for the parties to take steps to cause payment to be made to various trusts associated with the individual partners. There was also provision for the transfer of the locus software from the ISP Law Partnership to The Law Partnership at no cost, the acquisition of mobile phones, and the release of Isenberg’s obligation in relation to the leased photocopiers and for leasing of the premises.

12 The ISP Law Partnership was dissolved on 31 August 1998 and on 1 September 1998, Player, Spedding and Catts commenced in partnership under the name The Law Partnership. However, there continued to be disputes between the parties in relation to the sale of the equipment and no written agreement was ever signed.

13 His Honour found that on 8 September, Catts informed Isenberg that the payment of finance to buy Isenberg out of the partnership had been approved, but that the new partners were not going to pay until the termination agreement had been signed. It appears that this was a reference to the agreement relating to the sale of the equipment.

14 However, no such agreement was ever signed and the appellants did not pay the moneys claimed by Isenberg to be due under an agreement reached on 1 July 1998. A receiver was eventually appointed to Borlob and the ISP Law Partnership and he sold the equipment to The Law Partnership for approximately $18,000.

15 Notwithstanding the absence of any signed agreement and the sale of the equipment by the receiver, Isenberg continued to assert the existence of an agreement reached on 1 July 1998. He and Nans commenced these proceedings in which he sued The Law Partnership, Player, Spedding and Catts and Borlob as trustee of the Borlob Property Trust and the Borlob Unit Trust as defendants to recover an amount of $125,000 said to be the sum owing under the alleged contract of 1 July 1998.

16 In their claim, Isenberg and Nans pleaded that at the meeting on the 1 July 1998 Isenberg, Nans, Borlob, Player and Spedding agreed:

“(a) that Player and Spedding themselves alternatively on behalf of themselves and the fourth defendant (“Catts”) alternatively on behalf of the first defendant (“The Law Partnership”) would purchase from Borlob the Equipment and the Locus Software for $125,000;

(b) the said purchaser or purchasers or their norminee would upon dissolution of ISP Law account for the purchase by:-

(i) crediting the family trusts of Player and Spedding with 30% each of the price in their respective loan accounts with the Borlob Property Trust; and

(ii) paying $50,000 to or at the direction of Nan’s on account of the balance due and owing in respect of Nan’s share as a unit holder in the Borlob Property Trust.”

17 Having alleged breach because of non-payment, the plaintiffs claimed a variety of relief including:

“…
(2) An order that the first, second, third and/or fourth defendant pay the fifth defendant [Borlob] the sum of $125,000 together with interest.
(3) Further and alternatively an order that the first, second, third and/or fourth defendants pay the second plaintiff [Nans] the sum of $50,000 together with interest.”

18 Against this background his Honour made the following finding:

“… Mr Player and Mr Spedding agreed to purchase the Plant and Equipment of the practice for the sum of $125,000 however that was to be done in accordance with various agreements they had entered into during the course of their partnership. They had a number of different companies and ways in which the partnership was run this had been done for a number of years, there were journal entries, book entries and all those sorts of matters and I accept and find that what was agreed was that 30% of their share of the $125,000 agreed to be paid to Mr Isenberg would be dealt with by way of a journal entry and the remainder would be paid in cash that is one third from Mr Catts and 3.3% from each of the others.”

19 His Honour added later in the judgment that he accepted the argument advanced by Isenberg and Nans that it did not matter, for the purposes of determining whether agreement had been reached, how the money was to be paid as “all agreed it would be paid and that … Isenberg and the other [respondent], Nan, would end up beneficiaries of a sum of money”. His Honour also accepted that representatives of each of the trusts or entities which were used in this partnership were present at the meeting and agreed to the terms of the contract alleged by Isenberg. His Honour also found that when Player and Spedding went to see Isenberg on 1 July they were speaking on behalf of themselves and Catts.

20 The following orders (which appear to have been drafted by Isenberg’s and Nans’ legal representatives) were made (substituting for the parties the names used in these reasons):

1.	The Law Partnership recover judgment against Isenberg and Nans.
2.	Nans recover against Player $5,374 on its claim.
3.	Player pay $5,374 to the Nans forthwith.
4.	Nans recover against Spedding $5,374 on its claim.
5.	Spedding pay $5,374 to the Nans forthwith.
6.	Nans recover against Catts $53,742 on its claim.
7.	Catts pay $53,742 to Nans forthwith.
8.	Player and Spedding are to pay Isenberg’s and Nans’ legal costs to [them] forthwith after the assessment thereof.
9.	Catts is to pay Isenberg’s and Nans’ legal costs to [them] forthwith after the assessment thereof; however, any costs relating to Isenberg are not awarded past 8th June 2001 as at that date the election could have been made.
10.	Player, Spedding and Catts recover judgment against the Isenberg.
The Court on this day orders that:
11.	The proceedings against Borlob are dismissed pursuant to part 18 Rule 3 with no order as to costs.

21 The short question which arises on the appeal is whether a contract was in fact entered into on the 1 July 1998 between Isenberg and Nans on the one part and Player, Spedding and Catts on the other part.

22 The agreement alleged by Isenberg to have been made on 1 July 1998 is that Borlob would sell plant and equipment to the new partnership to be constituted by Player, Spedding and Catts for $125,000 payable as follows: 60% of the sale price would be a journalised entry and 40% would be paid in cash to Isenberg or his trust. Isenberg further alleged that he agreed with Player and Spedding that as to the 40%, 3.3% would be paid in cash by each of Player and Spedding and the balance by Catts.

23 This arrangement, in order to constitute a binding agreement, needed to exhibit, among other matters, the following characteristics:

(i) the parties to the contract needed to be identified or identifiable;

(ii) the price had to be determined or determinable; and likewise

(iii) the property to be sold had to be ascertained or ascertainable; and

(iv) consideration had to pass from the promisee to the promisor.

The second and third of these matters are particular emanations of the requirement that the terms of a contract must be certain: G Scammell & Nephew Ltd v H C & J G Ouston [1941] AC 251.

Parties

24 The first question which arises for consideration is whether Catts was a party to the agreement. He could only have been a party if Player and Spedding had authority to act on his behalf. His Honour found that when Player and Spedding went to see Isenberg on 1 July “they were speaking on behalf of the three of them”, that is, themselves and Catts. It appears that this finding was based on his Honour’s finding that, on 29 June 1998, “Catts … agreed to go into partnership with them”. If this is correct, then Player’s and Spedding’s ‘authority’ to act on behalf of Catts was, presumably, their authority as partners.

25 This raises a number of immediate problems. In the first place, before Player and Spedding could act on behalf of the partnership, there had to be a partnership amongst Player, Spedding and Catts in existence prior to the meeting with Isenberg on 1 July 1998. The formal partnership did not commence until 1 September 1998. In my opinion, there was no evidence and no finding by his Honour that there was any other partnership in existence at the relevant time. The closest his Honour came to any finding as to the partnership other than that to which I have already referred, was his finding that “there was an agreement by the three of them to enter into partnership” (emphasis added). That is quite different to a finding that there was a partnership in existence.

26 Secondly, if, contrary to the view I have expressed, there was a partnership in existence at that point, and that was the basis of Player and Spedding’s authority, any agreement reached would have been with the partnership. As such, Player, Spedding and Catts would have been jointly liable for the debt: see s 9 of the Partnership Act 1892 (NSW). The manner in which the individual partners bore that debt inter se would depend on the terms of their partnership agreement. The agreement alleged and accepted by his Honour to have been entered into is an agreement only as to the several liabilities of Player, Spedding and Catts. No joint liability was contemplated by the terms of the agreement accepted by his Honour. Nor is any joint liability reflected in the orders made.

27 The appellants also submitted that even if there was a partnership, the agreement did not fall within the business of the kind carried on by the partnership so that Player and Spedding were not agents for Catts in the transaction: see s 5 of the Partnership Act. The appellants submitted that the purchase of equipment for a new business could not fall within s 5. Whether or not that would be so in a particular case is a question of fact and was not determined by the trial judge. For myself, I consider that such a purchase could fall within s 5. However, the authority of a partner to bind the partnership under s 5 only commences when the partnership business commences: Lindley & Banks on Partnership (1995) 17th Ed at pp 385-388. Here, the new legal partnership did not commence until 1 September. Accordingly, some other partnership entered into by Player, Spedding and Catts would need to have been proved for the respondents to obtain the benefit of s 5. No such partnership was proved. However, even if it is assumed for present purposes that there was some such partnership and Player and Spedding were acting as agents within the meaning of s 5, Isenberg and Nans still face the difficulty to which I have referred in the preceding paragraphs and which I consider to be insuperable, namely, that given the terms of the agreement alleged, it was not an agreement with the partnership, but an agreement in which each of Player, Spedding and Catts were to have independent and several liabilities.

28 Was there any other basis upon which his Honour could have held that Player and Spedding were speaking on behalf of the three of them?

29 Leaving aside the principles of partnership law, an agent has authority to bind the principal if the agent has actual or ostensible authority to do so. There was of course no written agency agreement in existence. Accordingly, the only evidence upon which a finding of express actual authority could have been based was evidence from Catts himself. Catts’ evidence was that he had pushed for Player and Spedding to see Isenberg and end the partnership, but that he did not believe they were going to negotiate with Isenberg as to the purchase of the equipment or the lease of the premises. Spedding gave evidence to the same effect, saying that the sole purpose of the meeting was to confirm they were ending the partnership. Player’s evidence, although more extensive, does not detract from either of these versions. He said “we needed to know what [Isenberg’s] intentions were so we would formulate a path to follow”. Whilst his Honour made an adverse credibility finding in relation to Catts, he only did so to the extent that Catts’ version of conversations differed from Isenberg’s version. Isenberg did not, and on the facts could not, give evidence on this issue. Accordingly, there was no evidence upon which his Honour could have found that Player and Spedding were exercising express actual authority on behalf of Catts.

30 Did Player and Spedding have implied actual authority? Authority may be implied from the nature of the business which the agent is employed to transact. Again, no argument was advanced that this was the authority exercised on this occasion. The closest that any such argument came was that Spedding, Player and Catts had entered into partnership and that Spedding and Player were acting in accordance with their authority as partners. I have already dealt with that contention.

31 That leaves apparent or ostensible authority. Apparent authority derives from the conduct of the principal. Fridman, Law of Agency 7th Ed at 124 states: “to prove apparent authority, it is necessary to show that the principal’s conduct was such as to mislead the third party and to induce him to rely upon the existence of the agency to his detriment”. In my opinion, there was no such authority here. Catts, who would be the principal if such agency existed, did not deal with Isenberg or Nans at all in respect of the 1 July meeting. His only connection with the meeting at which the agreement was said to have come into existence was that he had reached an “in principle” agreement to go into partnership with Player and Spedding and that he had pressed his proposed partners to formally advise Isenberg that they intended to terminate the ISP Law Partnership and that Isenberg would not be invited to join the new partnership. There was no evidence Catts had authorised Player and Spedding to agree to anything in relation to equipment or premises. His conduct, therefore, could not have misled Isenberg in any way. Further, a statement by Player and Spedding that they were going into partnership with Catts was not conduct by Catts and could not be relied upon to prove that they were agents for Catts.

32 Accordingly, there was no basis upon which his Honour could have found Catts was a party to any agreement. That being so, the claim of the respondents that a contract was entered into with the three appellants fails at its inception.

Property and Price

33 However, there are other problems. The property sold comprised property owned by Borlob and property owned by the ISP Law Partnership. It was contended on behalf of the respondents and accepted by his Honour that Spedding, Player and Isenberg, being the directors of Borlob, were able to and did contract on its behalf to sell its property. Although the Corporations Law (Cth) (as was in operation at the relevant time) envisages that resolutions of directors be passed at a meeting of directors and formally minuted (generally Ch 2G), a company may be bound by informal decisions. In Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747 at 786, Ipp J said:

“[W]hile it may not be necessary for a director consciously to apply his or her mind to the fact that the decision is being taken at a meeting of directors, the concurrence with the resolution must be expressed by each director in that capacity, and for the purpose of resolving, as a director, upon affairs of the company.”

34 If a resolution is passed without a meeting, then it must be minuted within a reasonable time after the resolution is passed: s 251A(1). There was no evidence here as to whether the alleged decision taken by Player, Spedding and Isenberg was ever minuted. The absence of minutes (if that be the case) would not invalidate a resolution if made. However, I am doubtful that the parties turned their mind to the fact that they were making a decision in their capacities as directors of Borlob and for the purpose of resolving upon the affairs of the company. It is unlikely, in my view, that any decision was made by Borlob in relation to the sale of its equipment and the leasing of its premises.

35 But even assuming that they had acted as directors and as such made a decision to sell the property, and leaving aside the lack of the usual formality required, the argument that there was a concluded agreement amongst all interested parties suffers from two major deficiencies. First, although Isenberg, Player and Spedding may have agreed that an amount of $125,000 would be payable, the price payable for the property owned by Borlob was unspecified, nor was there any mechanism included in the terms of the purported contract whereby the price payable for the Borlob property could be ascertained. The balance of the property (the Locus software) was owned by the ISP Law Partnership. Whilst the partners to that partnership could agree to the disposal of their own property, that part of the agreement also suffered from the deficiency that there was no price agreed or ascertainable for the property of the partnership so sold.

36 Secondly, any price payable for Borlob’s property was not, on the assumption that there was a contract, payable to Borlob. Rather, it was to be paid for the benefit of one of the directors or shareholders. Such an agreement, had it been made, may have been in breach of the directors’ duties to the company, including their fiduciary duties. Likewise, for Borlob to sell its property and not receive value for it might have constituted a breach of trust. The Court was not invited to assume, nor should it without the necessary evidence, that there had been such breach or breaches. Rather, it was asserted that the directors could do what they wanted with the company’s money. Directors are not free to so act. Directors must act in good faith in the interests of the company. Those interests do not necessarily coincide with the interests of the members of the company: Ford’s Principles of Corporations Law at para 8.070. Accordingly, the only reasonable conclusion to which the Court should come is that the conversation of 1 July 1998 was directed to establishing certain parameters upon which Isenberg, Spedding and Player were prepared to dissolve their partnership.

37 The respondents’ difficulties as to the price payable for the goods were reflected in their counsel’s submissions. First, he submitted that the sale was a joint sale by Borlob and the ISP Law Partnership of the equipment of $125,000. When it was pointed out to him that it was necessary to know to whom the purchase price was payable so as, for example, to be able to make the necessary journal entries in accordance with the agreement, counsel responded that nothing was payable to the partnership. He sought to explain this as follows:

“I think the only way to solve the problem is that it somehow has gifted whatever plant and equipment it had by agreement on the day to Borlob and then Borlob has sold the whole amount for $125,000 but that that whole process – the reason I say is that the old partnership was to receive no money at all for this and the only way technically one can look at it is if there has been some form of gifting that’s taken place between the old partnership and Borlob.”

38 Later, he said:

“What we say happened is that there was a gifting of whatever the partnership owned, was gifted direct to the purchaser but the moneys, 125,000 was paid to Borlob.”

That this was the arrangement, it was said, came about by implication.

39 The second of these two propositions appears to reflect the manner in which Isenberg dealt with the Locus software in the draft agreement he presented to Player and Spedding at the end of August. However, the extent to which the sands shifted beneath the respondents’ various submissions indicates the difficulty they had in articulating the terms of any final agreement. The reason for that, in my opinion, is because no such final agreement was reached. More importantly, however, counsel for the respondents did not provide any basis for the implication of such a term: see generally BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605-606. Nor can any such basis be found in the evidence. In particular, it could not be said the implication was necessary to give business efficacy to the contract. The locus software could have been sold, transferred, assigned or gifted in a number of different ways and/or to different entities. Nor could it be said, for the same reasons, that such implication was “so obvious that it goes without saying”: see Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 per MacKinnon LJ at 227.

Consideration

40 It was also alleged that there was no consideration moving from the respondents as the alleged promisees: see Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107.

41 Under the terms of the orders made Nans was the only party entitled to payment. However, no consideration moved from Nans to the appellants. It did not own any of the plant and equipment sold. It did not own the premises (on the assumption the contract encompassed the lease of the premises). It was only a recipient in the transaction.

42 Leaving aside for the moment Isenberg’s interest, as partner in the ISP Law Partnership, in the Locus software, Isenberg did not own the equipment or premises. He could not, therefore, sell the equipment or lease the premises. However, according to the way the case was argued on appeal, the ISP Law Partnership did not sell anything nor did it transfer anything to the appellants. Rather, it donated or gifted the software to Borlob which then sold it to the appellants. On that basis, no consideration moved from Isenberg.

43 For reasons which I give later, I do not accept that there was any gifting of the software to Borlob. That being the case, any argument based on the sale of the software by the old partnership to the new partnership falls foul of the question that the price payable for the software was not ascertained or ascertainable.

44 Counsel for the respondents submitted, however, that the contract was supported by consideration, namely by the respondents’ forbearance to sue. As to Nans, it was argued that it was “a necessary part of the agreement”, given that:

“… its interests were being affected by the reduction of the trusts’ assets …”

It was then said that:

“The consideration [it] brought to this contract was not objecting to what was happening. It was a form of forbearance to sue … on any possible breach of trust that there might have been.”

45 There are a number of difficulties with this argument. First, it was not argued in the court below. Secondly, there was no evidence of any breach of trust. This elicited the response that the forbearance was in respect of any possible breach. That does not constitute consideration. Thirdly, forbearance to sue only constitutes good consideration if it comes about at the request of the other party to the contract. This was not the case here. Whosoever might be the contracting parties, there was no evidence that any of them had requested Nans to forbear taking any action for breach of trust or for any possible breach of trust. Nor could counsel precisely identify what the possible breach of trust might be, although he did suggest that Borlob, by selling the equipment was depriving itself of an income producing asset. That argument is flawed for at least two reasons. The equipment sold was replaced by a money sum, and on one view, a sum greater than the value of the equipment. Secondly, any action Nans might have for breach of trust would be an action against Borlob, not against the appellants.

46 It was next argued that it must be implied that there was some such consideration. No factors were advanced to support the implication. I am not satisfied that there are any and I consider the argument should be rejected out of hand.

47 It should perhaps be noted that no submission was advanced that Isenberg had forborne to sue.

48 Accordingly, nothing raised by the respondents displaces the conclusion I have reached, namely, that the purported contract was not supported by consideration.

Intention to Create Immediately Binding Contract

49 The appellants further argued that the parties did not intend, by their discussions on 1 July, to create an immediately binding contract. There are a multitude of cases in which it has been held that notwithstanding substantial concurrence as to the terms of a proposed contract the parties did not intend to be finally bound until terms were formally agreed. In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634, McHugh JA (Kirby P and Glass JA agreeing), referring to Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 316-317 said:

“The magnitude, subject matter, or complexities of the transaction may indicate that the agreement was a limited one not intended to have legal effect.”

50 In Geebung Investments v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 at 14,569, Kirby P observed:

“The existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it the less likely that they intended immediately to be bound before the execution of a formal document. Even where the parties have agreed on the ‘major matters’, their subsequent conduct may indicate that they did not intend to be bound until the other issues between them were resolved in a formal document (see in particular Masters v Cameron (1954) 91 CLR 353 at 361; Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647 at 666; and Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521 at 528).

…
Depending upon the size, importance and complexity of the subject matter, the less formal the initial agreement, the less likely it will be that it was intended to be legally binding and enforceable. Thus, an oral discussion which contemplates a subsequent formal written agreement is less likely to have been intended to have been immediately binding.
It is necessary in every case to consider the nature and importance of the transaction which the parties contemplate. Where the agreement concerns a large sum, or concerns a significant transaction, it is less likely to have been intended to be presently binding.
…”

51 Similarly, in Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 9329, Mahoney JA at 9334 (Priestley JA agreeing), after citing T S Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147, Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 and the cases therein, said it was less likely in large and complex transactions that parties intended to be bound by conversations.

52 In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (Hope JA and Mahoney JA agreeing) said it was “commonsense” that the “more numerous and significant” the areas to be agreed upon, the less likely the conclusion could be drawn that they had intended to be bound.

53 The appellants refer to the draft agreement prepared by Isenberg as being indicative of the detailed terms that would be expected to be found in a contract of the kind alleged here. I agree. In my opinion, no final or binding agreement was reached on 1 July. As a result of the conversation on that day it was apparent to all that the ISP Law Partnership was to come to an end. As the discussion revealed, the dissolution of that partnership required that a number of matters be attended to, including the sale of assets, the leasing of premises, the assignment of leases and the necessary adjustments to staffing entitlements. As the discussions also revealed, it was proposed that some of these matters be attended to by appropriate bookkeeping entries in the books of accounts of Borlob, and presumably of the ISP Law Partnership, given that it owned the software.

54 It would be surprising, if not improbable, in my opinion, that in those circumstances the parties intended that a binding agreement would come into existence on 1 July. Rather, the whole tenor of the discussions on that day, on the version accepted by his Honour, was that the parties reached agreement as to the parameters of the proposed dissolution of the partnership, including the sale of assets, and the manner in which payment for those assets was to be accounted for.

One Agreement or a Number of Agreements?

55 The next question which arose was what was the subject matter of the contract? The conversation on 1 July encompassed (i) the sale of Borlob’s and the ISP Law Partnership’s property; (ii) the leasing of the premises; (iii) the adjustments which needed to be made for services, staff and staff entitlements; and (iv) the release of Isenberg’s guarantee in respect of certain leasing of equipment and presumably, it must be inferred, the transfer or assignment of the lease to the new partnership.

56 The respondents contended that it did not particularly matter whether there was one agreement or a number of composite agreements, the important matter was that the sale of the equipment was a ‘pre-condition’ to the proposed new partnership entering into the lease. Counsel for the respondent explained his submission in the following terms:

“[Player and Spedding] went in there to dissolve the partnership with … Isenberg and … do whatever they could in terms of getting the new partnership up and running … Isenberg said it’s a pre-condition of all that that you buy the plant and equipment, then that was why they agreed to that on the spot, yes we’ll agree to your terms on that.”

57 I do not think that the sale of the equipment was a ‘pre-condition’. Rather, the entire proposal was interdependent. Isenberg’s words were:

“I have no objection if you wish to remain in these premises for your new partnership provided your new partnership buys the plant and equipment at the previously discussed figure of $125,000 …”

58 The reference to the equipment was part of a discussion as to what was to happen on dissolution of the ISP Law Partnership. Player and Spedding had entered the meeting with different views between themselves as to what they wanted to happen in so far as the premises were concerned. When Isenberg put forward the proposal set out above, Player and Spedding indicated their agreement to it. The manner in which the conversation evolved generally, including reference to the matters which needed to be attended to, points in one direction only. Namely, that the parties reached broad agreement as to the matters to be finalised for the purposes of the dissolution of the partnership.

59 The respondents’ submissions on this point also underscored the fact that Player and Spedding did not have authority from Catts to agree to any of the matters said to have been concluded on 1 July. As already pointed out, Player and Spedding went into the meeting without a common view as to what should be done with the premises owned by Borlob. There was no basis, therefore, to infer that they had authority from Catts when they entered the room to agree to the proposed lease on the terms alleged. Counsel for the respondents submitted, however, that the figure of $125,000 had been discussed in his presence and “after that point [Catts was] pushing the others to end the partnership and [Catts was] agreeing that that would involve purchasing the plant and equipment”. That, it was said, was sufficient to establish authority. With respect, there was simply no evidence that this was so. It is also to be noted, the submission does not assert that Catts had ever agreed to the figure of $125,000, merely that that figure had previously been “discussed [in] his presence”. To that extent, the submission does accurately reflect Isenberg’s evidence as to what had occurred at the meeting on 11 June when that figure was first proposed – namely Catts and Ricci had reserved their rights in relation to the matters discussed that day. There was no other evidence that Catts had agreed to the figure of $125,000 as at 1 July. Indeed, Catts wrote to Player and Spedding some days after 1 July, questioning that sum as an appropriate figure to pay for the equipment. These matters reinforce the various conclusions to which I have already come, namely that Player and Spedding did not have authority to bind Catts and the discussion on 1 July did not result in an immediately binding agreement.

60 Other arguments were raised on the appeal. However, as the appellants have, in my view, established overwhelmingly that no contract was made, it is not necessary to consider them.

61 The appellants sought an order for indemnity costs. No submissions were advanced to support that order. Unless that position changes, I would make the usual order as to costs.

Orders

62 I would propose the following orders:

(i) Appeal allowed;

(ii) Orders of the trial judge be set aside;

(iii) Verdict for the appellants and the third respondent;

(iv) Judgment accordingly;

(v) The first and second respondents to pay the appellants’ costs of the trial and of the appeal, but to have a certificate under the Suitors’ Fund Act 1951 (NSW), if so entitled.

63 GILES JA: I agree with Beazley JA.

64 IPP AJA: I agree with Beazley JA.

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