Woodward & Anor v Hetherington
[2005] QDC 104
•29 April 2005
DISTRICT COURT OF QUEENSLAND
CITATION: Woodward & Anor v Hetherington [2005] QDC 104
PARTIES: COLIN RAYMOND WOODWARD
First Applicant
and
COLROSE ENTERPRISES PTY LTD
(ACN 010 197 654)Second Applicant
v
PETER ALAN HETHERINGTON
Respondent
FILE NO/S: 45/05
DIVISION: Planning & Environment
PROCEEDING: Application
ORIGINATING COURT:
Southport
DELIVERED ON:
29 April 2005
DELIVERED AT:
Southport
HEARING DATE: 7 March 2005
JUDGE: Rackemann DCJ
ORDER: CATCHWORDS: Cases cited:
COUNSEL: Mr B Porter for the applicant
Mr K Fleming QC for the respondent
SOLICITORS: Bernard Ponting & Co Solicitors for the applicant
McCowans Solicitors for the respondent
The applicants apply, by originating application, for a declaration that a valid and enforceable contract was made between the applicants and the third respondent on 3 December 2004, declarations as to the proper construction of the contract, together with an order for specific performance.
The basis for the proceedings being commenced by originating application is that the only, or main, issue in the proceedings is an issue of law and a substantial dispute of fact is unlikely (rule 11(a)). I am satisfied that is so. There is no significant controversy as to the facts in this matter, which have been placed before the Court in the affidavit material. The main issues are as to the correct legal characterisation of what has taken place and as to the appropriateness of the remedies claimed in the circumstances.
The first applicant (Woodward) and the respondent (Hetherington) are involved in an accountancy practice, the ownership of which is represented by:
(a) shares in a trading company, Piper and Holmes Pty Ltd;
(b) units in a unit trust of which Piper and Holmes Pty Ltd is trustee; and
(c) shares in a personnel company, Piper and Holmes Personnel Pty Ltd.
The Woodward interest and Hetherington interest hold equal interests in each.
Piper and Holmes Pty Ltd carries on the accounting business as trustee for the Piper and Holmes unit trust (PHUT). It has 400 shares of which Mr Woodward and Mr Hetherington own 200 each. Messrs Woodward and Hetherington are the directors.
There are 10,000 units issued in PHUT:
(a) 5,000 are owned by the second applicant (Colrose) whose directors and shareholders are Woodward and his wife;
(b) 5,000 are owned by PAH Holdings Pty Ltd (PAH) whose directors are Hetherington and his wife. Hetherington is the sole shareholder of PAH. The company’s units are apparently held on trust for the objects of the Hetherington Family Trust.
Piper and Holmes Personnel Pty Ltd employs staff for the practice. It has:
(a) 100 ordinary shares of which Woodward and Hetherington own 50 each;
(b) 1 E class share held by Colrose;
(c) 1 E class share held by PAH Pty Ltd.
The applicants claim that a contract was formed in an exchange which took place between 2 and 3 December 2004.
On 2 December 2004 the respondents’ solicitors sent an email transmission to the applicants’ solicitors in the following terms:
“Re Piper and Holmes Pty Ltd – termination of business relationship between Peter Hetherington and Colin Woodward
Our client has received a valuation of the goodwill of the business. We enclose a copy. Please feel free to contact the author directly with any queries you may have.
On the basis of that valuation, Mr Hetherington is prepared to purchase Mr Woodward’s shares in Piper and Holmes Pty Ltd for an all up figure of $200,000 or he will accept that figure from Mr Woodward. Any sale at this figure will be free of all trading restraints and ongoing liabilities by the outgoing shareholder.
This offer will be open for acceptance until 5pm on Monday 6 December 2004. After that time Mr Hetherington’s offer is withdrawn leaving the only way to resolving the impasse between the parties as being:
1. The company continues on with the business being under different management with the shareholders each running their own independent businesses;
2. The practice is sold and the company liquidated or sold; or
3. The company and practice are liquidated.
You might care to take instructions and advise.”
The solicitors for the applicant responded on 2 December 2004, seeking clarification in the following terms:
“Piper and Holmes Pty Ltd.
Thank you for your without prejudice letter of 2 December 2004. I assume that the reference in the second paragraph to shares in Piper and Holmes Pty Ltd is intended to include as well the corresponding units in the Piper and Holmes unit trust, and the corresponding shares in Piper and Holmes Personnel Pty Ltd. Would you please confirm that that is so so that I can advise my client.”
That was, in turn, responded to on 3 December 2004 by an email from the respondent’s solicitors in the following terms:
“Re: Piper and Holmes Pty Ltd – termination of business relationship between Peter Hetherington and Colin Woodward.
Thanks for your email from yesterday afternoon.
I wish to confirm that Mr Hetherington’s offer includes the shares in Piper and Holmes Personnel Pty Ltd and the units in the Piper and Holmes unit trust.
Also, as a matter of clarity, the offer includes half the cash funds available to the company at the time the offer was made and not at the time the offer is accepted (if indeed it is accepted). ”
The solicitors for the applicant responded on the same day accepting the offer in the following terms:
“Piper and Holmes Pty Ltd.
Hetherington and Woodward
My clients, Colin Woodward and Colrose Enterprises Pty Ltd, accept your clients’ offer contained in your without prejudice letter of 2nd December 2004 and your without prejudice letter of 3rd December 2004 to purchase their shares in Piper and Holmes Pty Ltd and Piper and Holmes Personnel Pty Ltd and the units held by Colrose Enterprises Pty Ltd in the Piper and Holmes unit trust for $200,000.
I will prepare transfers of the shares and units and have them available for exchange for payment early next week.”
The solicitors for the respondent responded by a further email transmission of the same date which provided, in part, as follows:
“Piper and Holmes Pty Ltd – termination of business relationship between Peter Hetherington and Colin Woodward.
Thank you for letter. We note that we now have an agreement. Mr Hetherington has an appointment with his bankers at 3.30pm next Monday to arrange the finance to enable this matter to proceed. He obviously will expedite matters but at this stage we don’t have a date upon which the money will be available. Finance has been approved in principle and it remains only to document the loan and thereafter put it in place.
…
For the record, our client yesterday remitted to your client the sum of $43,489.71 representing half the cash in bank of the company as at that date after the retention of approximately $13,000 to cover Mr Hetherington’s holiday pay outstanding.
Obviously, the holiday pay will be refunded to the account forthwith and the amount due and owing to your client therefore will be $156,510.29.
We will liaise with our client next week to develop a list of documents and transfers which we will require as settlement.”
On 6 December 2004 the solicitors for the applicants wrote in the following terms:
“Piper and Holmes Pty Ltd.
I am now holding share and unit transfers duly executed by my clients in readiness for settlement. Please get in touch to appoint a time for settlement to take place. Copies of the transfers are enclosed.
At settlement we will hand you the three original transfers in exchange for a bank cheque for $156,510.29 payable to my trust account.”
The dispute between the parties has arisen because, subsequent to that exchange, the solicitors for the respondent prepared a number of versions of a document headed “Terms of Settlement” which, in material respects, went beyond that which was contained in the previous exchanges between the parties. Indeed, there were some four versions of the “Terms of Settlement” which the applicants were requested to execute.
By letter dated 23 December 2004 the solicitors for the applicants made their position clear, that the contract was that concluded by their letter of acceptance of 3 December 2004 and that their clients would not sign the Terms of Settlement document. In particular it was stated that “Performance of the contract requires only that my client should execute and deliver transfers of the shares in units, and that your client should pay the agreed price of $200,000. That is how my clients wish to proceed, and they are ready willing and able to do so.” The solicitor for the respondent responded, on 23 December 2004, stating, in part, that “We do not agree with your views about what our client’s rights in the matter are. He does not agree to pay anything unless all issues are resolved and that is that.” Each of the parties maintained their position, settlement has not occurred and the present proceedings have ensued.
The nature of the agreement between the parties appears to be relatively straightforward on the face of the exchanges said by the applicant to give rise to the contract. The offer in the respondent’s solicitor’s email transmission of 2 December 2004, as “clarified” or amended by the subsequent transmission of 3 December 2004, was to pay $200,000 to acquire all of:
(a) Woodward’s (200) shares in Piper and Holmes Pty Ltd;
(b) The (5,000) units in PHUT owned by the Woodward interests in the name of Colrose;
(c) The shares held by the Woodward interests (50 shares owned by Woodward and 1 E class share held by Colrose) in Piper and Holmes Personnel Pty Ltd;
(d) Half the cash funds as at 2 December 2004.
The sale at that figure was to be “free of all trading restraints and ongoing liabilities by the outgoing shareholder”.
While neither of those transmissions made express reference to the involvement of Colrose, that is a matter which is implicit in the reference, in the respondent’s solicitor’s transmission of 3 December 2004, to the shares in Piper and Holmes Personnel Pty Ltd and the units in the PHUT.
The response by the solicitors for the applicant is properly characterised as an acceptance of that offer. While it did not refer to the cash funds, there was no rejection of that part of the offer included in the transmission of 3 December 2004, which transmission was specifically referred to in the acceptance. The matter was mentioned as a matter of “clarity” only in the transmission of 3 December 2004 and appears to have been taken in that way. It does not appear to have been controversial. As already noted, half the cash at bank was, in fact, paid to Woodward shortly thereafter and each of the parties regarded that as part payment of the $200,000 referred to in the agreement (see the respondent’s solicitor’s transmission of 3 December 2004 and the applicant’s solicitor’s response of 6 December 2004).
It was submitted, on behalf of the respondent, that, while the agreement, in form, might have been one relating to the transfer of shares and units, it was, as the heading on the transmissions from the respondent’s solicitors suggested, in furtherance of a plan to terminate the business relationship between Hetherington and Woodward. It was submitted that the contract, as contended for by the applicants, did not deal with all of the matters which would need to be the subject of agreement, if the relationship was to be wholly terminated. It was submitted for the respondent that the real agreement between the parties was to do those things that were necessary to give effect to the complete termination of the business arrangement. It was said that there was an implied term whereby the parties agreed to do all such things as are necessary, on their part, to enable the other party to have the benefit of the contract and that “It is the applicant who is in breach of the contract in refusing to give effect to the termination of business relationships” by executing the Terms of Settlement document tendered by the respondent’s solicitor. It was also submitted that there was no contract as contended for by the applicants and that such a contract would be incomplete and uncertain. I do not accept those submissions.
The offer contained in the transmissions of 2 and 3 December 2004 from the respondent’s solicitor was accepted on 3 December. The agreement evidenced in that exchange sufficiently identifies the essential terms of the agreement. Those terms can be performed, regardless of whether the terms sought to be added by the Terms of Settlement document are included. There is no indication in the offer or acceptance that there is any obligation on the part of the applicants to subsequently execute the “Terms of Settlement” tendered by the solicitors for the respondent. The sale was to be “free of all trading restraints and ongoing liabilities by the outgoing shareholder and, while there were things to be the done in the performance of the contract, particularly execution of the relevant transfer documents, and while the parties may have been subject to an implied obligation to do all things necessary to enable the other to have the benefit of the contract, that obligation did not go so far as to require the applicant’s execution of the Terms of Settlement document.
The subsequent execution of the Terms of Settlement document is not necessary to give effect to the intention of the parties evidenced in the exchange of 2 and 3 December. As counsel for the applicant pointed out, the contract provided for the transfer of all of the units and shares held by the Woodward interests. While the subsequent Terms of Settlement document contained other terms for which the respondent might have negotiated, he did not do so at the time of offer and acceptance.
Senior counsel for the respondent sought to make something of the fact that the exchanges of 2 and 3 December did not deal with matters such as the resignation of Woodward as a director, the surrender of his Piper and Holmes credit card and the cross-vested life insurance. As counsel for the applicant pointed out however, these are not issues which necessarily require a written contract for their resolution. Upon the transfer of the shares there would be no reason for Woodward to remain as a director and he could be removed as a director if he did not otherwise resign. The company would have the power to withdraw Woodward’s authority to retain and use a company credit card. The nomination of beneficiaries under life insurance policies can be changed from time to time. Hetherington would be free to nominate someone other than Woodward. Woodward could, if he wished, continue to nominate Hetherington as the beneficiary under his policy, but inevitably that would also be changed.
Reference was made to the trust deed for the PHUT and, in particular, clause 12 which contained a process to be followed before a unit holder could sell or transfer any of the units. Under that process the holder of the units must give written notice to the trustee, which then becomes the agent of the holder for the purposes of sale. There is a process whereby the trustee makes the units available for sale to existing unit holders first and then to any person selected by the trustee as someone whom it is desirable, in the interests of the trust, to admit as a unit holder. It is only on the failure of the trustee, within a stated period, to sell the units, that the proposed transferor then acquires the right to sell to any person at the fair value.
As counsel for the applicants point out, the trust deed, by its terms, cannot make it illegal for Hetherington to have promised to purchase the Colrose units. While it is, at least theoretically, possible that another registered holder could seek to enforce the deed and prevent the sale, the only unit holder which is not a party to the contract is PAH, a company of which Hetherington is a director and the sole shareholder, which must have knowledge (via Hetherington) of the agreement and in respect of which there is no suggestion that the company or the beneficiaries of the Hetherington family trust, for which it holds its units, wish to prevent Hetherington from obtaining the Colrose units.[1]
[1] Counsel for the applicant also submitted that Hetherington could, in any event, complete the contract
That specific performance of a contract would result in a breach of the terms of a trust does not act as a bar to an order for specific performance, although it is a powerful discretionary consideration. In the particular circumstances of this case, however, I would not be prepared to exercise my discretion so as to refuse specific performance in the circumstances.
Senior counsel for the respondent submitted that the contract was not of a nature which may or would be subject to an order for specific performance and that damages would be an adequate remedy. I accept the submissions of counsel for the applicant that the contract, being for the sale of specific property, namely shares and units which are not readily available on the open market and which represent ownership of the accountancy practice, is of a nature which equity would not refuse to specifically perform.
Finally, there was a disagreement as to the appropriate way to express the consideration on the transferred documents. Counsel for the applicant pointed out that the issue is one of no real importance from the point of view of the calculation of stamp duty, since the transfer documents are collateral. It is a matter likely to be resolved. The applicant does not seek any declaration in that regard at present, but the originating application seeks an order that each party have liberty to apply on five clear business days’ notice in respect of the performance of the specific performance order. That is appropriate in the circumstances.
The applicants submissions proceeded on the basis that all that was required for settlement was its exchange of the relevant transfers in return for the balance funds. It was unclear to me whether there was anything further that would be required in order to take the benefit of the promise that the sale would be “free of all trading restraints and ongoing liabilities by the outgoing shareholder”. I will therefore delay in making orders so as to give the parties the opportunity to address that matter.
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but take the units on trust. It was also noted that the Terms of Settlement document tendered by the
respondent envisaged the redemption of the Colrose units upon settlement.
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