Sandtara Pty Ltd v Longreach Group Ltd - [2008] NSWSC 373

No judgment structure available for this case.

CITATION: Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 17 and 18 March 2008

JUDGMENT DATE :
7 May 2008

JURISDICTION: Equity Division - Commercial List

JUDGMENT OF: Bergin J

DECISION: Plaintiff's claim in contract dismissed. Plaintiff entitled to an award of $165,000.00 on a quantum meruit basis.

CATCHWORDS: [CONTRACT] - whether promise to pay a reasonable fee after the service provided, consideration - whether promise to pay the plaintiff a 'reasonable' fee for introducing two companies for purpose of possible merger void for uncertainty - [QUANTUM MERUIT] - whether service required - whether benefit received - whether expectation of fee for introduction

CATEGORY: Principal judgment

CASES CITED: Barbagallo v Clifton Fletcher Pty Ltd [2004] NSWSC 699
Booker Industries Pty Ltd v Wilson Parking (QLD) Pty Ltd (1982) 149 CLR 600
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
Hall v Busst (1960) 104 CLR 206
Hillas and Co Ltd v Arcos Ltd (1932) 147 L.T. 503
Mervyn v Lyds (1554) 1 Dyer 90a; 73 ER 195
MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451
Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41
Pao On v Lau Yiu Long [1980] AC 614
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Roscorla v Thomas (1842) 3 QB 234
Vivian Fraser & Associates Pty Ltd v Shipton [1999] FCA 60
Wenning v Robinson [1964-65] NSWR 614
Whitlock v Brew (1968) 118 CLR 445

PARTIES: Sandtara Pty Ltd (Plaintiff)
Longreach Group Ltd (Defendant)

FILE NUMBER(S): SC 50039 of 2007

COUNSEL: R Dubler SC (Plaintiff)
BW Collins QC/K Williams (Defendant)

SOLICITORS: Verekers Lawyers (Plaintiff)
Truman Hoyle Lawyers (Defendant)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

7 MAY 2008

50039 OF 2007 SANDTARA PTY LIMITED v LONGREACH GROUP LIMITED & ANOR

JUDGMENT

1 The plaintiff, Sandtara Pty Limited, claims a fee or commission for introducing Allied Technologies Limited (Allied) (now known as Longreach Group Limited) to Longreach Group Limited (Longreach) (now known as Longreach Communications Pty Limited) (the Introduction), resulting in the merger of those companies. The merged company, Longreach Group Limited, became the relevant operating company and is the first defendant in these proceedings. Longreach Communications Pty Limited was the second defendant, however it was placed into administration and at the trial, the plaintiff was granted leave to discontinue the proceedings against it.

2 Allied specialised in the design and delivery of communications networks and services, principally to the Department of Defence, other Federal Government Departments and corporate clients across Australia. Longreach specialised in point to point wireless products for a range of domestic and international customers, comprising telecommunications carriers, defence organisations, governments and business enterprises. It owned a significant interest in Startronics, one of the largest diversified electronic manufacturers and repair businesses in Australia.

3 The plaintiff’s Amended Summons claims that the fee or commission is due pursuant to an agreement that did not provide for the quantum of that fee or commission. The plaintiff makes an alternative quantum meruit claim for the Introduction in the amount of $1.5 million or for such reasonable amount determined by the Court.

4 The plaintiff was established in the early 1980s and traded until about 2002 principally as a property developer/owner. It was part of a larger group of companies known as the Capital Land Group (Capital). In the early 2000s the principals of the plaintiff, being also the principals of Capital, John Charles Cawood and the late Barry James Sproule, began to “unwind” their interests. Since 2002 the plaintiff has been one of the principal vehicles through which Mr Cawood has conducted his business affairs. Andrew Denzil Williams joined Capital in the early 1990s and has remained involved in the plaintiff’s affairs and has acted as its CEO for a number of years.

Background to the Introduction

5 In about 2004/2005 another company in Capital, Todbern Pty Ltd, became a shareholder in Allied, holding 778,719 shares. In 2005 and early 2006 Mr Cawood discussed Allied’s activities and prospects with its then Chairman, Michael Addison. Mr Cawood claimed he did this because he was interested to know about Allied’s activities because of the size of Todbern’s shareholding.

6 In about September 2005 Mr Cawood and Mr Addison had a conversation in relation to Allied in which Mr Addison advised Mr Cawood of Allied’s plan to take over or be taken over by an American company. About six weeks later, probably in October 2005, Mr Addison telephoned Mr Cawood and asked him to meet with him at the Royal Exchange Building in Pitt Street, Sydney. Mr Cawood and Mr Williams attended that meeting and Mr Cawood claimed the following conversation took place:

Addison: That ACR deal I told you about has blown up. The US shareholder had tax problems and it’s all over.

Williams: That’s the second time a deal of yours has fallen over. Must be costing you a lot of transaction fees. When are you going to do something positive?

7 Mr Williams’ version of this conversation is as follows:

Williams: How’s the deal going with the American?

Addison: It’s fallen over because he had tax issues in the States.

Williams: Michael, what’s going on? Deals have fallen over a couple of times now. Where is the company heading?

8 In cross-examination Mr Addison admitted that this conversation took place “in around early 2006” (tr 126). This admission is important.

9 Allan Richard Farrar was a director of Longreach between 11 February 1999 and 21 November 2006. He has been a director of the defendant since 22 November 2006. Mr Williams gave affidavit evidence that he has been a personal friend of Mr Farrar for five years and has played golf in a regular Sunday group with Mr Farrar for about three years. Mr Farrar’s affidavit evidence was that he has known Mr Williams “socially” for several years. Mr Williams gave evidence that in the 12 month period leading up to February 2006 he had regular contact with Mr Farrar in respect of proposed property developments in Thailand.

10 Mr Farrar recalled that during a game of golf with Mr Williams in early February 2006 the following conversation took place:

Farrar: If there’s anyone out there that you know that would be interested in coming into the business or merging with us we’d be very interested.

Williams: What sort of thing are you looking for?

11 In about mid to late February 2006 Mr Williams and Mr Cawood met with Mr Farrar in his office in Pitt Street, Sydney. Mr Williams recalls Mr Farrar saying: “I’ve just had a meeting about Startronics and I’m worried there’s going to be a cash call on Longreach”. Mr Farrar’s recollection of the meeting was as follows:

Farrar: I’ve just had a meeting about Startronics and I have a feeling that PEP are planning a call. I’m looking for a merger partner who has the resources to fund the peaks and troughs of Longreach’s business along with any possible Startronics calls.

Williams: I’ll see what I can do.

12 Mr Cawood recalled that Mr Williams requested a further meeting with Mr Farrar for the purpose of collecting up-to-date information about Longreach. At that meeting in Mr Farrar’s office, Mr Farrar provided an oral briefing and read from valuations of Startronics. Mr Cawood said that the following conversation took place towards the end of the meeting:

Cawood: It seems that Longreach is in a bit of trouble and something needs to happen.

Farrar: Yes. Our principal asset is a one third interest in a trust which owns a substantial and successful business (Startronics Trust). The other two thirds are owned by Pacific Equity Partners and they’re trying to get us out. It’s good business but it needs some investment and we are short of cash so we need to find an investor or even better a merger partner with cash and quickly. Our other problem is that our operating costs and overheads as a public company are not justified by the size of our assets at the moment so there would be huge savings in a merger. We could save about $1 million per year. We really need someone else in the defence business because of the government relations and security issues. If you blokes can find us someone that we can merge with or someone who just has cash it will really help.

13 In the next day or so Mr Cawood telephoned Mr Addison and informed him that he had a deal that may be of interest to him that was a good operating defence business looking for a partner that needed cash. At this time Allied had cash reserves of approximately $9 million from the sale of one of its businesses. Mr Addison asked Mr Cawood to arrange a meeting and advised that he would make himself available.

The Introduction

14 In March 2006 the Introduction meeting was held in Mr Farrar’s office at which were present Messrs Cawood, Williams, Farrar and Addison. Mr Williams and Mr Cawood placed the meeting somewhere around 13 or 16 March 2006. Mr Farrar placed the meeting on 9 March 2006 and Mr Addison placed the meeting “in about early March 2006”.

15 Mr Cawood gave affidavit evidence that “after initial introductions” a conversation in the following terms took place:

Williams: Naturally, we are looking for a fee for this introduction. Can we discuss that now?

Farrar: We know that but let’s see if we are going to get anywhere before we talk about that.

Williams: We’d like to work it out now before we start.

16 Mr Cawood claimed that he saw Mr Addison nod at this time and that Mr Cawood then said:

17 Mr Cawood gave evidence of the descriptions given by Mr Addison and Mr Farrar in relation to what each of their respective companies wanted and claimed that at the end of the meeting the following conversation occurred:

Farrar: This has been a very fruitful meeting.

Addison: Yes, I agree.

18 Mr Williams’ recollection of the meeting was that after initial introductions he said “[w]e want confirmation of our introduction”. He claimed that neither Mr Farrar nor Mr Addison responded, so he said “[g]uys, you need to confirm our introduction”, to which Mr Farrar responded: “We recognise you guys have introduced us, a reasonable fee will be paid”.

19 Mr Addison’s affidavit evidence was that it was towards the end of the meeting that either Mr Cawood or Mr Williams said: “Of course we’ll get paid an introduction fee for this” to which Mr Farrar responded in the affirmative and Mr Addison agreed by nodding. Mr Addison said that this was the only conversation that he could recall about the fee during the meeting.

20 Mr Farrar gave evidence of the discussion that took place at the meeting and placed the conversation in relation to a fee towards the end of a discussion about the various interests of the respective companies. His evidence was that the following was said:

Williams: We’ll expect a fee from you guys if the merger goes ahead.

Subsequent Communication

21 On 17 March 2006 Mr Cawood wrote to Mr Farrar and in a separate letter to Mr Addison, in the following terms:

Introduction Fee re Proposed Merger/Strategic Alliance

We are pleased to have been able to provide the necessary serious introduction for the merger which we believe has long term benefits for both companies. We are happy to assist in any way possible to facilitate the alliance.

22 On 21 March 2006 Mr Farrar, as Chairman of Longreach, wrote to Mr Cawood in the following terms:

Re: Introduction Fee re Proposed Merger

We acknowledge receipt of your letter of March 17, 2006 and advise that the matter will be raised with our Board and that independent assessment of the proposed fee will be undertaken to ensure that it is commercially acceptable.

23 In late March or early April 2006 Mr Farrar telephoned Mr Cawood and a conversation to the following effect took place:

Farrar: Can you do me a favour and ring Addison. Don’t let him know that you are ringing at my request. I just want you to try to push him along a bit. Ask him how things are going and say you’ve heard they were slowing down and ask him why it’s not going quicker.

24 Shortly after that conversation, Mr Cawood telephoned Mr Addison and asked him how the negotiations were going and informed him that he had heard things had slowed down a bit. Mr Addison informed Mr Cawood that it was going “okay” but that the other side were a “bit slow”. Mr Cawood then telephoned Mr Farrar and said:

You perceive that Addison is the problem and he perceives that you are the problem but I formed the impression that he is keen like you to do the deal.

25 Mr Farrar’s recollection of these conversations was that he rang Mr Cawood and the following was said:

Farrar: John this process seems to be bogging down with Michael wanting to engage in acquisitions before the merger. Can you call Michael and try and push him along a bit? Ask him how things are going and ask him why it’s not going quicker.

26 Mr Farrar recalls that Mr Cawood telephoned him subsequently and the following conversation took place:

Cawood: I’ve let Michael Addison know the deal needs to move forward quickly. I formed the impression that he is keen like you to do the deal but he suggests that your guys are the ones slowing it down. You perceive that Addison is the problem and he perceives that you are the problem.

27 On 5 April 2006, Mr Cawood wrote again to Mr Farrar in the following terms:

Thank you for your letter in response to my letter.

I would appreciate if you could confirm that:

1. I have been the introducing party to both yourself and Allied, and

28 On 8 April 2006, Mr Cawood wrote to Mr Addison in the following terms:

I am very disappointed that you have not acknowledged our arrangement. Is there any reason to this? I cannot imagine there would be.

29 On 18 April 2006, Mr Cawood wrote again to Mr Farrar (with an identical letter to Mr Addison) in the following terms:

Further to clarify our position, our fee is based on whether proceedings occur by way of merger, share swap or whatever form is ultimately determined between the parties.

30 On 24 April 2006, Mr Farrar responded to Mr Cawood’s letter as follows:

Further to your letter of April 18, 2006 we confirm that in the event of a successful “merging” of the two companies the “merged” entity will pay to Sandtara Pty Limited a reasonable fee based on advice from our professional advisers taking into account the introductory roles of Sandtara Pty Limited in the “merger” transaction.

It is their opinion that the fee proposed by Sandtara to both companies is excessive.

Independent opinion is currently being obtained by the advisers of both companies and upon our receipt of that advice we will propose one fee to be paid to Sandtara Pty Limited by the merged entity which is considered reasonable by those advisers.

31 On 2 May 2006, Mr Cawood wrote to Mr Farrar as follows:

Thank you for your letter of April 24, 2006.

32 On 2 May 2006 and 5 May 2006, Mr Cawood wrote to Mr Addison in the following terms:

33 On 11 May 2006, Mr Cawood wrote to Mr Farrar in the following terms:

34 On 11 May 2006, Mr Cawood wrote again to Mr Addison in the following terms:

I am disappointed and concerned that I have had no response to my letter seeking acknowledgement from the company regarding the introduction fee between yourself and Longreach.

35 It is apparent that Mr Cawood and Mr Williams met with Mr Wilks, a director of Longreach, in late May 2006. Mr Wilks was brought in to do the negotiations because Mr Farrar decided he should remove himself because of his social relationship with Mr Williams. On 31 May 2006, Mr Wilks wrote to Mr Cawood in the following terms:

As an initial point, I am very happy to confirm that the Boards of both companies are grateful to you for the introduction provided to each company - we believe there is real merit in pursuing this transaction, and we are presently working very hard to reach an outcome acceptable to both companies.

However, as we discussed, we remain some distance apart on the appropriate quantum of the fee to be paid (as you know, based on metrics I am familiar with in the industry, a simple calculation would lead to a fee of the order of $25k, whereas I understand your view is that the fee is closer to $500k).

Obviously, this is an area where there is little science and the size of the fee payable is fairly arbitrary and inevitably subject to a great deal of debate.

We discussed some of the key parameters which we considered in reaching our conclusion as to the appropriate fee:

(a) precedent from other transactions in which the various folk at Longreach and Allied have been involved;

(b) subjective issues around 'effort' and 'value' (including the alternative transactions available to the company, such as those we briefly discussed, and therefore the implicit value of this proposal compared to those; and the prospect of each party independently identifying the other as a prospective target); and

(c) perhaps most importantly for us - the simple metric of the overall size and capacity to pay of Allied and Longreach (both separately, and as a merged unit).

With all this background, I confirmed that we recognised that the 'nominal' fee of the order of $25k was not an appropriate recognition of the value that your introduction may provide for us, and hence I proposed that we settle on a fee of $100k, payable on successful completion of the transaction.

I understand that you are not comfortable with this proposal, and you advanced a very strong position in relation to the future value created by virtue of your introduction. I have therefore discussed with my colleagues from both companies a further fee component, which both maintains your interest in assisting us to reach and implement a successful transaction, and reflects a return based on the long term value created by that transaction.

Our proposal then is:

i. A cash payment of $100k, due and payable on successful completion of a merger or equivalent transaction between Longreach Group and Allied Technologies; and

ii. At the same time, we will include in any merger arrangement a formal recommendation to shareholders that we issue you (or your nominee), at no cost, one million ATZ options with a 25c strike price, exercisable over a reasonable period following the transaction (eg three years).

This proposal allows us to address the near term cash flow issues associated with what are, after all, relatively small companies; while still recognising and allowing you to capture a part of the value that is created as a consequence of the transaction.

It also allows us to ensure that shareholders see that both you and we value the equity in the company, and recognise that rewards flow only from an increase in value.

I do not intend to insult you by suggesting this as a basis for further negotiation on the fee - if your view is that this is not an acceptable arrangement we should immediately get together to try to identify some other mechanism by which we may resolve this impasse. At this stage, I cannot see any such alternative.

I confirm that the Boards of both companies value your contribution by way of an introduction to this transaction, and we believe that our proposal is a reasonable and very effective way of recognising the value of that contribution.

I look forward to your confirmation that this approach is acceptable to you.

36 On 31 May 2006, Mr Cawood wrote to Mr Farrar in the following terms:

We refer to our meeting with Stephen Wilks who we understand was appointed by both companies to discuss what was the basis of our fee regarding the proposed merger.

We do not believe that we heard anything in that discussion that would warrant a reassessment by us of the fee. The main argument seems to be based on the fact that the companies do not have a lot of funds. This is really not a rational argument given that the merger is of major significance and for both companies offers a significant transformation for the companies and creates significant saving advantages whilst providing some obvious synergies.

We believe our fee is more than reasonable and as explained to Mr Wilks that prior to attending the meeting with him we had made some independent enquiries regarding the fee. In all instances we were advised that the fee was reasonable and in a couple of instances it was suggested that the fee could have been higher.

For all of the above reasons basically relying on our own assessment in the first instance we believe the fee is reasonable and confirm our position as previously indicated.

37 On 7 June 2006, Allied and Longreach issued a joint ASX and media announcement in which they announced a planned merger and that it was expected to be completed in September 2006. That announcement included the following:

Longreach Chairman Allan Farrar agreed adding, "The merger will deliver significant benefits to shareholders and stakeholders of both companies, as well as provide the merged entity with a strong platform for future growth.

38 On 19 June 2006, Mr Cawood wrote to Mr Wilks by email in the following terms:

We have written to you subsequently and received no response either written or verbal. On that basis we can only assume that you have agreed to our fee.

39 Mr Wilks responded on the same day by email in terms that included the following:

While I'm confident that you're not serious that you could "assume that we agreed with your fee" simply because we told you we didn't agree to it, and haven't added anything since then - I can clarify that now in any case: we do not agree with the fee you have proposed.

That said, we believe that we have come up with a proposal that addresses the issues raised in our meeting and which will be acceptable to you.

Although my primary focus at the moment is trying to ensure that the proposed transaction takes place, I will seek to prepare a formal response to you in the next few days.

I look forward to discussing that proposal with you shortly.

40 In a series of emails between Mr Williams and Mr Wilks between 20 July 2006 and 8 August 2006, Mr Williams chased Mr Wilks for the promised proposal and Mr Wilks apologised for the delay and promised to put something to Mr Williams shortly. Finally on 8 August 2006 Mr Wilks advised:

I can confirm that we have discussed an alternative proposal for you to consider in lieu of the suggested $100k: you be issued with around 1m ATZ options, with a strike price at the implied deal valued price (ie $0.20). Those options can be issued to you free of charge, once ATZ is in a position to do so - which will be following the transaction, after a further shareholder general meeting where it can clear its ability to issue further options. On the assumption that the deal we are implementing yields the sort of value uplift both you and we believe to be possible (for example, an increase in the ATZ share price from $0.20 to $0.40) the value of the options will significantly increase (in the example, realising a net $200,000) and, of course, increasing over the life of the options - say, three years.

41 On the same day, Mr Williams acknowledged the receipt of the proposal and advised that a response would be given "in due course". Mr Cawood provided that response in an email to Mr Wilks on 30 August 2006, in which he advised that he was "extremely disappointed" with the proposal and claimed that it did not reflect the tenor of their discussions. The email included the following:

42 Mr Cawood advised that he was in England for a further six weeks but invited Mr Wilks to contact him whilst he was away. On the same day, Mr Wilks responded by email advising that there was no fee without a successful transaction and that it would not be concluded until after Mr Cawood was due back in Australia and accordingly further discussion could await his return. However the email included the following:

1. You introduced the two companies to each other, and we are grateful and hope that much success flows.

2. If successful, we would anticipate making an ex gratia payment of an intro fee to you.

3. The quantum you have proposed has never been acceptable, and falls outside every metric I discussed with you as ordinary course of business (indeed, it represents more than 100% of the normalised earnings of the business - a fairly extraordinary position to propose!).

4. I suggested that the $25 to $35k would ordinarily be appropriate, but that we were willing to settle on $100k as a gesture of continued goodwill.

5. When that appeared not to be agreeable, we suggested a significant options package in the merged entity - which, if you believe your introduction added value, should have provided you with substantial upside …

I look forward to finalising this on your return …

43 Mr Williams gave evidence that in about July 2006 (this would appear to have been close to or in August 2006) Mr Farrar telephoned him and the following conversation occurred:

Farrar: We are having trouble with one of Allied’s biggest shareholders, Nightingale. They’ve gone to the market and announced a takeover offer on the basis that this merger does not proceed. Would you be prepared to buy some shares in Allied to sure up the voting?

Williams: We’ll have a think about it and get back to you.

Farrar: Don’t forget that your fee depends upon the merger going ahead.

44 A few days later Mr Williams telephoned Mr Farrar and asked him how the problem was going with Nightingale and Mr Farrar advised him that the problem had gone away. Mr Farrar denied that he said to Mr Williams “don’t forget that your fee depends upon the merger going ahead”. He also denied that in a subsequent conversation he said the problem had gone away but rather claimed that he advised Mr Williams that “[t]hey have withdrawn their takeover offer”.

45 Mr Farrar’s recollection of the first conversation was that it was between himself, Mr Cawood and Mr Williams on speaker phone in which the following was said:

Farrar: I hope you blokes aren’t supporting the Nightingale offer. It will kill the merger.

Cawood: No, we know Nightingale and we don’t like them. I can’t work out what they are trying to do. We’re supporting the merger and will be voting for it.

Farrar: Would you consider buying a parcel of Allied shares to support the price? I believe there’s a parcel worth about $1 million coming up.

46 On 19 September 2006, Allied issued a document entitled "Update on Longreach Merger" which referred to a court order that a meeting of Longreach members be convened. The document also included the following:

On 30 August 2006, Nightingale Partners Pty Limited announced an intention to make a partial, off-market, takeover bid for Allied. The takeover proposal was subject to a number of conditions, including Nightingale becoming entitled to not less than 50.1% of Allied's share capital and on no application being made to any court in respect of the proposed Scheme.

47 On 19 September 2006, Mr Cawood responded to Mr Wilks’ email of 30 August 2006 in terms that included the following:

Not in any way can I agree with your contention that our fee is excessive. From my discussions with the companies it is clear the merged entity will provide these companies with substantial benefits well in excess of $1 million per year.

Another way to assess the reasonableness of our fee is to point out that in another discussion in which I am involved, a firm of stockbrokers is charging a 6% fee for raising $5 million. On any referable basis we believe our fee is more than reasonable and allows the two companies to be a much more potent force once the merger is complete and our fee will be recouped many times over as a result of the merger.

For these reasons the various proposals and suggestions put forward in your email are totally unacceptable. We have made our position clear and expect it to be honoured.

48 On 23 October 2006, Mr Cawood wrote to Mr Farrar in the following terms:

I understand you are having a meeting tomorrow with Michael Addison and I assume Steph [sic] Wilks in relation to the merger. As you are aware Sandtara Pty Ltd, through myself and Andrew Williams, was responsible for introducing the two companies.

I am very disappointed that we have still not received formal confirmation by you of the acceptance of our fee of $500k. Although both companies are equally responsible for the debt I assume that it will be paid by the merged entity. In any event you will all be on the Board of the merged entity. I would have thought that the merger is a wonderful result for both companies providing cash where necessary, excellent synergies where appropriate, the availability of large tax loss benefits and an annual administrative cost saving well in excess of our one off fee. I reject as irrelevant, indeed a white herring, to try and relate it to earnings. Indeed one of the main purposes of the merger is to increase earnings.

As we all know each other I am now finding it rather embarrassing to have to repeatedly seek confirmation of that which is a fair and reasonable figure in all circumstances.

49 On 26 October 2006, Mr Wilks wrote by email to Mr Cawood in terms that included the following:

… we can confirm that:

a. We agree that you were responsible for the introduction of the two companies to the merger.

b. The merged company will pay you an introduction fee on the successful completion of the merger.

c. We remain willing to 'settle' on a fee of $100k.

While we believe that $100k is the appropriate fee in the circumstances (particularly given the size and scale of the current respective operations of Longreach and Allied), we remain open to discussing other mechanisms which more specifically and directly capture a share of the value prospectively 'created' by the merger. We previously proposed issuing you with a substantial option package in the new merged entity, and would be delighted to discuss any alternative you propose around this sort of approach.

50 On 9 November 2006, the Federal Court of Australia approved the merger, effective from 13 November 2006. On 13 November 2006, Mr Cawood wrote to Mr Farrar and Mr Addison in the following terms:

As you are no doubt aware, we held a meeting with Stephe Wilks on Friday (10/11/06) which did not seem to progress matters in any useful way.

As the two people present when the introduction fee was first raised I believe it is essential that Andrew Williams and myself have a meeting at which both Allan Farrar and Michael Addison are present. This should definitely happen as soon as possible as I simply cannot allow this matter to drag on any further in time. It will either need to be resolved forthwith or I shall unfortunately be forced to take other action.

51 On 28 November 2006, Mr Wilks wrote to Mr Cawood by email advising him that at the Board meeting of the merged company, the "introduction fee payable" to the plaintiff was discussed. That email continued:

At that meeting we also discussed the possibility of raising the fee to $150k (from the previously stated position of $100k).

I am now able to confirm that, provided that it settles the matter once and for all, the Board has agreed that it will pay a once off fee of $150k to you in consideration of your introducing [the companies] to each other.

We raised the issue of your requested higher fee level, and the Board is unanimous in its view that no further fee is due and payable, and we can see no reason to engage in any further review on the matter.

Clearly, we would all like to see this matter settled now - can you please confirm that you are agreeable to a final fee of $150k and I will arrange to have a cheque drawn (can you also please advise how you would like that cheque to be directed).

52 On 29 November 2006, Mr Cawood responded expressing his disappointment that the parties were such a long way apart and advising as follows:

We see absolutely no justification for reducing the fee but in an effort to resolve this matter would be prepared to structure it as follows:

1. An initial payment forthwith of $250,000.

2. The balance of $250,000 payable (without interest) twelve months from the date of the initial payment.

3. In relation to the second payment we reserve the right to take that payment in the form of shares in Allied based on a share price of twelve cents.

I see this as a fair compromise as it leaves the company with extra liquidity over the next twelve months.

I look forward to your early response.

Proceedings commenced

53 The parties failed to reach agreement on the fee and the plaintiff commenced these proceedings on 23 March 2007. When asked to explain why the plaintiff claimed $1.5 million when the most that the plaintiff had claimed from the defendant was $500,000, Mr Cawood said that the claim for $1.5 million was based in part on his own knowledge of the “outside upper reasonable fee that could have been charged in this type of situation” (tr 16-17).

54 The matter was heard on 17 and 18 March 2008 when Mr R Dubler SC appeared for the plaintiff and Mr BW Collins QC leading Ms K Williams of Counsel appeared for the defendant.

Was there a binding contract?

55 The plaintiff submitted that the agreement reached with Allied and Longreach to pay it “something reasonable” for the Introduction is a binding agreement. It was submitted that it was not necessary to stipulate the actual amount and that in the absence of agreement between the parties the Court could fix the reasonable amount. The defendant agreed that there was a statement at the meeting at which the Introduction took place that Allied and Longreach would pay the plaintiff a “reasonable” amount for the Introduction, however it was submitted: (a) there was no consideration and thus no binding agreement; and (b) if it is held that there was consideration, any agreement is void for uncertainty because the agreement did not include any mechanism(s) for the identification of the reasonable amount.

Consideration

56 It is agreed between the parties that during the Introduction meeting in March 2006, the plaintiff requested a fee for the Introduction. The plaintiff claimed that the request was made at the beginning of the meeting and the defendant claimed that it was made at the end of the meeting. The defendant relies upon the timing of the request to claim that there was no consideration because the Introduction had already occurred. It was submitted that the Introduction was past consideration, that there was no other consideration moving from the plaintiff for the payment of a “reasonable” fee, and that the conversation did not give rise to a binding contract. In support of this submission the defendant relied upon Roscorla v Thomas (1842) 3 QB 234 and Pao On v Lau Yiu Long [1980] AC 614 at 629.

57 Roscorla v Thomas was a case in which the plaintiff, at the request of the defendant, had purchased the defendant’s horse, and in consideration of that purchase the defendant promised that the horse was sound and free from vice. Lord Denman CJ said at 236-237.

implied

express:

implied

express

58 In Pao On v Lau Yiu Long one question that was raised for determination was whether a written guarantee stated a consideration sufficient in law to support the defendants’ promise of indemnity against a fall in the value of certain shares. In dealing with circumstances in which an act done before the giving of a promise may be consideration for the promise, Lord Scarman said at 629:

An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of some other benefit, must have been legally enforceable had it been promised in advance.

59 In the present case Mr Addison was very clear in his evidence that in the conversation that was prior to the plaintiff organising the meeting at which the Introduction occurred, he informed Mr Williams that any introduction would be “recognised” (tr 126). At the Introduction meeting Longreach agreed to pay a reasonable fee for the Introduction and Allied confirmed its promise that the Introduction would be recognised by agreeing with Longreach’s statement that a “reasonable” fee would be paid.

60 As to the first pre-requisite identified by Lord Scarman in Pao On v Lau Yiu Long: there is no doubt that the Introduction was at the request of both Allied and Longreach.

61 As to the second pre-requisite: Allied understood that a fee was to be paid well prior to the Introduction meeting when Mr Addison informed Mr Williams that the Introduction would be recognised. Mr Farrer’s evidence in cross-examination included an agreement that he was concerned that Startronics may make a call on Longreach and that if Longreach did not find an investor or merger partner it may lose some or a substantial part of its $10 million investment. Mr Farrar agreed that he informed Mr Cawood and Mr Williams that Longreach needed to find a merger partner with cash but claimed that this was largely to fund the network’s business (tr 63). I am of the view that Mr Farrar was very concerned about the prospect of a call being made on Longreach by Startronics and that there was a sense of urgency in seeking the plaintiff’s assistance. Mr Farrar suggested that because the fee had been requested at the Introduction meeting, he felt it should be paid (tr 70). However I have no doubt that at the time the various meetings took place prior to the Introduction meeting, Mr Farrar would not have believed that the plaintiff would provide its services for free. I am satisfied that prior to the meeting at which the Introduction was made, Mr Farrar, a most experienced businessman, understood that Longreach would have to pay a fee to the plaintiff for the Introduction.

62 As to the third pre-requisite: the plaintiff is entitled to enforce the promise having regard to its entitlement to payment of an amount on a quantum meruit basis.

63 I am satisfied that if the request was made at the end of the meeting, the circumstances of this case satisfy the three pre-requisites identified by Lord Scarman in Pao On v Lau Yiu Long. However compliance with these three pre-requisites does not mean that it will automatically follow that the relevant act done before the promise was made will amount to consideration for the promise. It will depend on the particular circumstances of the case. I am satisfied that there was a promise made by Allied to the plaintiff for recognition for the Introduction well before the meeting at which the Introduction occurred. On the assumption that Longreach’s promise was not made until after the Introduction, I am satisfied that the earlier promise of recognition by Allied combined with the abovementioned circumstances that comply with or satisfy Lord Scarman’s three pre-requisites make this a suitable case in which the Introduction should be treated as consideration for the promises by the two companies at the meeting. Accordingly I do not accept the defendant’s submission that there was no consideration. In these circumstances it is unnecessary to decide between the competing versions as to when the request was made at the Introduction meeting.

Void for uncertainty

64 In support of its submission that there was a binding agreement notwithstanding the absence of a specified amount to be paid to it, the plaintiff relied upon Hall v Busst (1960) 104 CLR 206. In that case, the majority of the High Court (Dixon CJ, Fullagar & Menzies JJ) allowed an appeal from the Full Court of the Supreme Court of Queensland dismissing an appeal from Jeffriess J, who held that pursuant to an indenture between the appellant and the respondent, the appellant was obliged to give to the respondent first option to purchase the land the subject of the indenture prior to offering it for sale to others. Clause 5 of the indenture provided as follows:

65 The appellant claimed that clause 5 was uncertain so that the option was unenforceable. Dixon CJ held that the expression “the value of all additions and improvements” was not sufficiently certain to give rise to an enforceable contract (at 216). Fullagar J held that a contract that expressed the sale price as “a reasonable price” was not sufficiently certain (at 222). Menzies J held that the option was not effective because the agreement did not provide a means whereby the price to be paid pursuant to clause 5 could be calculated (at 235).

66 Kitto J, in dissent, said (at 227):

consensus ad idem,

67 Windeyer J, also in dissent, said (at 238):

I do not find any logical difficulty in the idea of a reasonable price for land in a system of law that by statute asserts that there is a reasonable price for goods of all kinds – for a picture, a race-horse, or an ancient vase, for example, just as much as for a loaf of bread or a pound of tea. Rare chattels are, I suppose, seldom bought and sold without the price being fixed. But if such a sale does occur the difficulty of ascertaining a reasonable price cannot affect the validity of the contract: see White v Schrafft [(1948) 94 N.H. 467; 175 Am. L.R. 242] – a decision of the Supreme Court of New Hampshire concerning sales of antiques.

…

68 Windeyer J also said at 239-240:

Hillas and Co. Ltd. v Arcos Ltd.

Tomlin

Warrington

Macmillan

York Air Conditioning & Refrigeration Case

69 The case in Dyer’s report to which Windeyer J referred was Mervyn v Lyds (1554) 1 Dyer 90a; 73 ER 195, the following passage from which Windeyer J cited at 236:

70 Hillas and Co Ltd v Arcos Ltd (1932) 147 L.T. 503 was a case in which the plaintiffs, who were timber merchants, sued the defendants for breach of contract. The contract included a term that the plaintiffs agreed to buy a certain number of softwood goods “of fair specification”. Clause 9 of the contract was in the following terms:

71 The trial of the action was in the Commercial List and judgment was entered in favour of the plaintiff. On appeal (Scrutton, Greer and Romer LJJ) the judgment was set aside and judgment was entered in favour of the defendants. On appeal to the House of Lords that judgment was set aside and the decision of the trial judge, MacKinnon J, was reinstated. Wright LJ observed at 514:

verba ita sunt intelligenda ut res magis valeat quam pereat.

72 Wright LJ held that the contract was not uncertain and that the parties could arrive at an equitable or reasonable apportionment according to various quality, sizes and the like. However his Lordship observed that if the parties failed to do so, “the law can be invoked to determine what is reasonable in the way of specification, and thus the machinery is always available to give the necessary certainty” (at 516). His Lordship continued (at 516):

73 His Lordship concluded that there was a complete and binding agreement, not dependent on any future agreement for its validity (at 517).

74 The plaintiff also relied upon Wenning v Robinson [1964-5] NSWR 614. In that case the owner of a shop agreed to sell a business for the purchase price of “£1350 (plus stock at valuation)”. At first instance the defendant applied for a verdict by direction based on the contention that the contract was unenforceable because of its uncertainty and because an essential term had not been agreed upon by the parties. The trial judge, Herron CJ, refused this application. The jury returned a verdict for the plaintiff. On appeal (Walsh, Ferguson & Asprey JJ), Walsh J, with whom Ferguson J agreed, said at 616:

75 Walsh J also said at 619:

76 Asprey J said at 624-625:

77 A further case relied upon by the plaintiff was Barbagallo v Clifton Fletcher Pty Ltd [2004] NSWSC 699. In that case the plaintiff sought a declaration that a valid and binding contract existed between him and four other directors of the defendant company that they would purchase his 25% shareholding at "fair market value". Cripps AJ said:

[33]

…

[36]

[37]

Wenning v Robinson

78 In the present case it is quite clear that the plaintiff and Allied/Longreach agreed that the plaintiff would be paid a “reasonable” fee in recognition of the Introduction of Allied/Longreach if a successful merger was achieved. The defendant submitted that there was no express agreement to negotiate the amount of the fee and that no such agreement should be inferred from the brief discussion about the fee. The defendant submitted that the lack of any mention of the fee prior to the Introduction would be good reason for not inferring such an agreement. That latter submission fails to take into account Mr Addison’s conversation with Mr Williams that Allied would “recognise” the Introduction. It is true that the word “fee” was not mentioned at that time, however I am satisfied that this latter submission should not be accepted having regard to this earlier mention of recognition of the plaintiff’s services.

79 In respect of its submission that there was no express agreement to negotiate a fee, the plaintiff relied by comparison upon Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. In that case heads of agreement in respect of a joint venture for a coal mine recorded that the parties would "proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture capital agreement". Kirby P, with whom Waddell A-JA agreed, said at 20-21:

more

80 The defendant submitted that in the present case there was no comprehensive or detailed agreement, merely a statement that the defendants would pay the plaintiff a reasonable fee. The defendant also submitted that any agreement to negotiate the "reasonable" fee would be too vague and illusory to be enforceable. In any event it was submitted that the parties did not agree upon any procedures whereby the amount of the "reasonable fee" could be settled if they were unable to negotiate a fee. In support of these submissions the defendant relied upon the following passage from Coal Cliff Collieries in which Kirby P, Waddell A-JA agreeing, said at 26-27:

Hillas

Donwin

Mallozzi

Australia & New Zealand Banking Group Ltd v Frost Holdings Pty Ltd

Foster v Wheeler

Axelsen v O’Brien

Biotechnology

Godecke v Kirwan

Whitlock v Brew

Powell v Jones

Sweet and Maxwell Ltd v Universal News Services Ltd

Meehan v Jones

Jillcy Film Enterprises

Ridgeway Coal Co

Biotechnology

Adaras Development Ltd v Marcona Corporation

81 Whitlock v Brew (1968) 118 CLR 445 was a case in which a clause in a contract of sale provided that upon taking possession of the subject land the purchaser would grant a lease of a portion of the land to Shell Co of Australia Limited. In the passage above from Coal Cliff Collieries when dealing with agreements in which, notwithstanding the parties having given power to a third party to settle ambiguities, the Courts have classed the agreements as illusory or unacceptably uncertain, Kirby J referred to the following passage from Kitto J’s judgment at 456-7 as follows:

I am prepared to assume that the vendor is right in saying, as he does, that this description is sufficient to enable the portion to be identified. As regards the term of the lease, it sufficiently appears, I think, that the commencing date is to be the date when the purchaser obtains possession. But upon no other topic does the document indicate what the provisions of the lease are to be. It does say that the lease is to be granted “upon such reasonable terms as commonly govern such a lease”, and that would have been enough if evidence had established that for such a lease an ascertainable set of reasonable terms are in common use. But this has not been established, and the result is that the document does not record a consensus ad idem as to the duration of the term, the rent, or anything else except the commencing date and the premises intended to be let. Provision is indeed made for arbitration in the event of any dispute between the parties “as to the interpretation or operation of this clause”, and I should have understood this as extending to any dispute as to what terms are reasonable and commonly govern such a lease, if in fact any such terms had existed. But it clearly would not authorize an arbitrator to force upon the purchaser such terms as he (the arbitrator) might think are reasonable and ought commonly to govern such a lease, for to do so would be to alter the contract.

82 The defendant submitted that all the parties did was “merely” agree to negotiate or agree upon a reasonable fee in the future and submitted that an agreement to negotiate or agree was not enforceable: Booker Industries Pty Ltd v Wilson Parking (QLD) Pty Ltd (1982) 149 CLR 600. The evidence establishes that the parties had a number of meetings at which they discussed the amount of the fee, notwithstanding the defendant’s submission that the plaintiff did not really negotiate because it refused to shift from its original position that $250,000 from each company was reasonable.

83 The plaintiff provided a commercial service to Allied/Longreach, the Introduction. Many hundreds of introductions occur in the real estate environment every week, pursuant to which real estate agents introduce prospective purchasers to vendors. However real estate agents provide more than a mere introduction. There is the marketing and promotion of the property, negotiating the sale and/or the auctioning of the property. The commission that real estate agents receive for their services is the subject of well-settled written terms. The sale of a property by a real estate agent in an environment that is governed by statutes is a very different situation to that of the spotter or introducer in the so-called heady commercial environment of mergers and acquisitions.

84 Fees for introductions, or “spotter’s fees”, are not subject to the same type of regulation that exists in the sale of real property. The parties seeking to identify a commercial opportunity with the assistance of a head-hunter or a spotter, create their own contractual terms to suit the particular “deal” that is being pursued. Commercial entities with commercial nous usually ensure that the detail of their entitlement to fees, quite often in the hundreds of thousands or millions of dollars, is clearly agreed and documented before the service is provided. That did not happen in this case. So many questions were left unanswered. So many important aspects of what was to happen were not addressed.

85 What did the parties intend and understand was to happen when Mr Farrar, with Mr Addison's agreement, said that the plaintiff would be paid something "reasonable"? Did they intend that the reasonableness of any fee was to be decided by the merged entity, the defendant? Did they intend that Allied and Longreach would set the fee when it was known that the merger was to go ahead, but just prior to going ahead; or did they intend that the plaintiff would have a say in what was "reasonable"? Did they intend that the plaintiff and Allied/Longreach would negotiate the fee and if so, when and on what basis were such negotiations to proceed? What was to happen if the parties could not agree on the reasonableness of the fee? Many of the cases upon which the plaintiff relied were decided prior to the development of a sophisticated and successful alternative dispute resolution environment. In the present environment it is not simply a matter of the court being able to decide what is "reasonable" if the parties are unable to agree upon a figure. The question must be asked whether the parties would have intended a commercial mediator to assist them to reach such a figure prior to going to court.

86 Against what criteria was the reasonableness of any fee to be measured? Was the fee to be wholly cash or partly cash and partly shares or options, or wholly shares or options? Did the parties intend that the fee would be paid immediately after the Introduction, or some time after the Introduction but prior to the merger, or after the merger had been completed? Certainly Mr Addison regarded the plaintiff's actions in demanding $250,000 from each of the companies immediately after the Introduction as "abnormal" because his experience was that such fees were not paid until after the successful merger had occurred. Was it really a "success" fee as opposed to a fee for the Introduction? In the subsequent correspondence between the plaintiff and Allied/Longreach it appears that the parties may have intended that the fee was not merely for the Introduction but was to be paid only if a merger or some other combination of the two companies occurred. The evidence does not establish an answer to any of these important questions. In my view these are not simply mechanical matters or matters of machinery, but rather essential aspects to a contract alleged to have been reached for the payment of half a million dollars.

87 Judicial statements to the effect that the Courts should not be seen as contract wreckers and that implications of what is just and reasonable are able to be ascertained by the Court as a matter of machinery where the contractual intention is clear but silent on some detail are not controversial. In my view they are not applicable in this case. The cases relied upon by the plaintiff are all cases involving tangible objects such as real or personal property, stock, shares or businesses that are able to be valued at a particular time in accordance with well-trodden valuation principles and, depending upon the particular item to be valued, taking into account such factors referred to by Walsh J in Wenning v Robinson (at 619): see also Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41 at par 19.

88 In my view the Court must be very careful to examine the circumstances of the particular case so as to ensure it does not trespass into the arena of commercial contracts and impose its view as a term of the contract when the parties did not agree to such a term. Although much focus was placed upon the term "reasonable" fee, it can be seen that so many essential aspects of this agreement to pay the plaintiff were not agreed. I am satisfied that the word "reasonable", in the context of the conversation at the Introduction meeting, was so vague and illusory as to render the promise unenforceable. The plaintiff's claim in contract fails.

Quantum Meruit

89 Allied and Longreach requested the plaintiff to provide its services. Allied/Longreach and the defendant benefited from the plaintiff's services. The promise to pay the plaintiff a reasonable fee is not enforceable as a contract. In all the circumstances of this case the plaintiff is entitled to recover on a quantum meruit claim: see e.g Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221.

90 The defendant submitted that the plaintiff did not need to undertake any work to determine that Allied would be interested in being introduced to Longreach and vice versa. It placed emphasis on the short time of the initial meeting (only 30 to 45 minutes) and submitted that the Introduction did not involve any special skill or effort on the part of the plaintiff. In the correspondence between the plaintiff and Allied/Longreach in which various offers were made to the plaintiff, it was suggested that Allied/Longreach wanted the plaintiff to maintain its "interest" in assisting them to reach and implement a successful transaction. It was also suggested that one of the offers would allow the plaintiff to "capture a part of the value that is created as a consequence of the transaction". I do not accept that the plaintiff did not have to undertake any work to determine that Allied would be interested in the Introduction to Longreach and vice versa. It had to either know or find out if the companies had the attributes that were being sought by the respective companies. True it is that there was material in the public arena that may have enabled Longreach to be aware of the cash position of Allied by reason of its recent sale of an aspect of one of its businesses, however Longreach appears not to have known that. The plaintiff had also to identify a company that would have the desired “synergies”, to use that rather unfortunately popular term, for the proposed merger.

91 It was submitted that the plaintiff took the risk that Allied and/or Longreach might decline to pay a fee. It was also submitted that the plaintiff took the risk (which came to fruition) that the parties would fail to agree on a fee. It was also submitted that the failure of that agreement was no fault of the defendants because the plaintiff did not engage in the negotiation in any meaningful way. It was further submitted that the plaintiff’s assumption of the risk that the amount of the fee might not be agreed means that the plaintiff is not entitled to any award on a quantum meruit basis. In support of this submission the defendant relied upon Vivian Fraser & Associates Pty Ltd v Shipton [1999] FCA 60. In that case Lindgren J referred (at par 340) to the assumption of risk that there may not be a contract, or alternatively that the parties would not reach agreement on the terms of the retainer. Lindgren J said (at par 338):

William Lacey (Hounslow) Ltd v Davis

92 The defendant submitted that there is no external standard or benchmark by reference to which the Court could assess a fair and reasonable introduction fee in this case. It was submitted that if it was a matter to be negotiated between the parties, they have been unable to agree after one year of negotiations. It was also submitted that any attempt to work out such a fee would do an injustice to the defendant and would perversely reward the plaintiff for having taken the risk of failing to reach agreement and having adopted a negotiating stance that merely exerted increasing pressure to extract a sum demanded unilaterally and that culminated in the commencement of these proceedings claiming, it was submitted, three times the amount demanded during the negotiations.

93 The defendant submitted that even if the Court were to award an amount to the plaintiff on the basis of quantum meruit, the amount would need to reflect the work actually done by the plaintiff to arrange the initial meeting. It was submitted that such amount should not be quantified as a percentage of the enterprise value of the merged entity as this would fall into error of treating the merger rather than the opportunity as the benefit. Furthermore it was submitted that the first defendant should not be held liable to pay more than one half of the amount, because it was only one of two parties who acknowledged at the initial meeting that “something reasonable” would be paid.

94 Mr Addison gave evidence that after the Introduction meeting, Allied instructed Grant Thornton to provide “desk-top valuation” of the two entities to assist in working out the merger. Grant Thornton provided valuations of Allied and Longreach and also a valuation of the interest in Startronics. Mr Addison believed that he would have discussed the figure for the potential fee to be paid to the plaintiff with the advisers from Grant Thornton (tr 127).

95 Mr Addison has experience in spotters’ fees and introduction fees. One matter that he would look to in terms of ascertaining a reasonable fee for the plaintiff would be the Grant Thornton valuations. He gave evidence that this is the way such an estimate would be made “in normal circumstances”. In this instance he regarded the plaintiff’s request for payment prior to the conclusion of the transaction as “abnormal”. He said (tr 128):

The plaintiff sent a letter dated 17 March 2006 requesting the payment of the fee prior to conclusion of the transaction, so I would suggest that that’s abnormal because most fees of an introductory nature, or of an introductory nature or of a contributory nature, are submitted following successful conclusion of the transaction.

96 Mr Addison agreed that the merged entity, the defendant, made an offer of $150,000 to the plaintiff, in which he was involved and with which he concurred (tr 128).

97 The plaintiff relied upon the evidence of Grant Terrence Kirby, a partner in the Corporate Finance (Merger and Acquisition Advisory) section of Deloittes. Mr Kirby’s qualifications include a Bachelor of Agricultural Science from Adelaide University, a Masters in Forest Science (Economics) from the University of Melbourne and a graduate diploma in Applied Finance & Investment. Mr Kirby claims an industry specialisation in forestry, building products, chemicals and automotive and described his expertise as a speciality in “negotiating and creating innovative deal structures to achieve exceptional results from divestments, acquisitions and mergers”. Mr Kirby’s report was rejected and leave was granted to the plaintiff to call oral evidence from him.

98 Mr Kirby gave evidence that an “introduction fee” or “spotter’s fee” can be either a stand-alone fee for a simple introduction, or a fee for a full advisory role. Mr Kirby described a full advisory role as a level four role and a simple introductory role as a level one role and said he regarded the introduction in this case as a level one role. Mr Kirby regularly seeks to negotiate a fee for the full advisory role but on most occasions has been “pushed back” in negotiations with the client to considering merely a spotter’s fee. He said that in some cases he is happy to take a spotter’s fee because the fee is quite large for the amount of work that is done but there is less certainty of the deal actually being completed. In the eleven years that he has been working in the particular field he has probably been asked to consider taking a spotter’s fee instead of a full advisory role on about ten occasions. His evidence in chief included the following (tr 110):

99 In cross examination Mr Kirby agreed (tr 112-113):

(a) there are no set fee levels or arrangements that advisers and their clients must follow in determining the fees payable to advisers and so the fees are typically negotiated on a deal by deal basis;

(b) there is always a high degree of judgment and opportunistic behaviour involved in the process of arranging a spotter’s fee and it can be influenced by other factors such as the ability and preparedness of a client to pay the fees;

(c) the negotiation in relation to such fees is a human engagement in which the skills, the perceptions, the perceived weaknesses, the ability to bluster and resist bluster are all highly variable factors that play a role;

(d) it is a fairly complex area and introductions are only a very small role in the overall range of services provided; and

100 Mr Kirby described the process of introduction as looking at the financials to determine the profitability and the impact of putting the two companies together. He also said that consideration would be given to the “operational synergies” which are the benefits of merging the two operations for the shareholders and what value that might create from the deal. Mr Kirby was cross examined about the types of fees that may be offered and/or negotiated. He gave the following evidence (at tr 119-120):

101 The defendant made an offer to pay the plaintiff $150,000 for the Introduction and such an offer can be used as a “floor” from which the Court may decide on an amount to be paid to the plaintiff for the services provided to the defendant/Allied/Longreach: MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451 at pars 93 and 97. In any event, during final submissions Mr Dubler indicated that what the plaintiff was seeking by way of a fee on a quantum meruit basis was $165,000, with an undertaking that $15,000 would be accounted for as GST, plus interest from November 2006. Although Mr Collins QC made submissions that such an award would have serious implications in respect of any costs order, there was not any serious submission against such an award, subject to the earlier submissions of the defendant to which I have referred. I am not satisfied that those earlier submissions should be accepted. All parties agreed that a reasonable fee should be paid to the plaintiff for the Introduction. True it is that there was a risk that the parties would not agree, however having regard to the previous history between them it does not seem to me that it would have been perceived as a serious risk.

102 I am satisfied that the amount now sought by the plaintiff is an appropriate figure to award the plaintiff for the services it provided. Notwithstanding the many variables that Mr Kirby agreed would impact on the circumstances of each case, the defendant’s officers and Board and the Boards of Allied and Longreach had considered the figure and the offer of $150,000 was made. The plaintiff now seeks an award that is very similar to that offer although taking into account an amount for GST. I am satisfied in those circumstances that the award sought by the plaintiff in final address should be made.

Conclusion

103 The plaintiff's claim in contract is dismissed. The plaintiff is entitled to judgment in its favour for $165,000, subject to an undertaking that $15,000 will be accounted for as GST should such payment be required. If the parties are unable to agree on interest and/or costs I will hear submissions when this matter is listed for that purpose by arrangement with my Associate. The parties are to contact my Associate to make such arrangement by no later than 20 May 2008.

**********************************

13/05/2009 - Typographical error - Paragraph(s) 71

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Citations

Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373

Most Recent Citation

Nash v Field [2014] SADC 161

Cases Citing This Decision

3

In the matter of Swan Services Pty Limited (in liquidation) [2016] NSWSC 1724

OXS Pty Ltd v Sydney Harbour Foreshore Authority and Minister for Planning and Environment [2014] NSWSC 1174

Nash v Field [2014] SADC 161

Cases Cited

11

Statutory Material Cited

0

Hall v Busst [1960] HCA 84

Barbagallo v Clifton Fletcher Pty Ltd [2004] NSWSC 699

CITATION:	Sandtara Pty Ltd v Longreach Group Ltd [2008] NSWSC 373 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	17 and 18 March 2008
JUDGMENT DATE :	7 May 2008
JURISDICTION:	Equity Division - Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Plaintiff's claim in contract dismissed. Plaintiff entitled to an award of $165,000.00 on a quantum meruit basis.
CATCHWORDS:	[CONTRACT] - whether promise to pay a reasonable fee after the service provided, consideration - whether promise to pay the plaintiff a 'reasonable' fee for introducing two companies for purpose of possible merger void for uncertainty - [QUANTUM MERUIT] - whether service required - whether benefit received - whether expectation of fee for introduction
CATEGORY:	Principal judgment
CASES CITED:	Barbagallo v Clifton Fletcher Pty Ltd [2004] NSWSC 699 Booker Industries Pty Ltd v Wilson Parking (QLD) Pty Ltd (1982) 149 CLR 600 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 Hall v Busst (1960) 104 CLR 206 Hillas and Co Ltd v Arcos Ltd (1932) 147 L.T. 503 Mervyn v Lyds (1554) 1 Dyer 90a; 73 ER 195 MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451 Moonlighting International Pty Ltd v International Lighting Pty Ltd [2000] FCA 41 Pao On v Lau Yiu Long [1980] AC 614 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Roscorla v Thomas (1842) 3 QB 234 Vivian Fraser & Associates Pty Ltd v Shipton [1999] FCA 60 Wenning v Robinson [1964-65] NSWR 614 Whitlock v Brew (1968) 118 CLR 445
PARTIES:	Sandtara Pty Ltd (Plaintiff) Longreach Group Ltd (Defendant)
FILE NUMBER(S):	SC 50039 of 2007
COUNSEL:	R Dubler SC (Plaintiff) BW Collins QC/K Williams (Defendant)
SOLICITORS:	Verekers Lawyers (Plaintiff) Truman Hoyle Lawyers (Defendant)