Wright v Tonic Bros Pty Ltd - [2013] QSC 143

SUPREME COURT OF QUEENSLAND

CITATION:

Wright v Tonic Bros Pty Ltd & Ors [2013] QSC 143

PARTIES:

COLIN ROBERT WRIGHT
(applicant)
v
TONIC BROS PTY LTD ACN 076 102 657
(first respondent)
and
HALROSE PTY LTD ACN 055 750 233
(second respondent)
and
GOFFMAN INVESTMENTS PTY LTD
ACN 136 335 772
(third respondent)
WARRALODGE HOLDINGS PTY LTD
ACN 142 810 768
(fourth respondent)
and
WARRALODGE PTY LTD ACN 077 503 630
(fifth respondent)
and
GIBB FARMING COMPANY PTY LTD
ACN 115 592 071
(sixth respondent)

FILE NO:

12369 of 2012

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

4 June 2013

DELIVERED AT:

Brisbane

HEARING DATE:

17, 24 January 2013

Written submissions

JUDGE:

Daubney J

ORDER:

1. There will be judgment in the proceeding for the respondents.

2. I will hear the parties as to costs and any further orders which may be appropriate.

CATCHWORDS:

CONTRACT – FORMATION OF CONTRACTUAL RELATIONS – ACCEPTANCE – GENERALLY – where the applicant contended that a contractual term as to the payment of a share of retained profits had been agreed to – whether the parties in face agreed to such a term

COUNSEL:

P Looney SC for the applicant
APJ Collins for the respondents

SOLICITORS:

Bennett and Philp for the applicant
HWL Ebsworth for the respondents

The fifth respondent, Warralodge Pty Ltd (“Warralodge”), is a wholly owned subsidiary of the fourth respondent, Warralodge Holdings Pty Ltd (“Warralodge Holdings”). The sixth respondent, Gibb Farming Company Pty Ltd

(“Gibb Farming”), is also a wholly subsidiary of Warralodge Holdings. Through Warralodge, Warralodge Holdings conducts a fruit business at the Rocklea Markets and a farming business (collectively “the business”).

As at 8 October 2012, the issued capital of Warralodge Holdings was held in equal shares by the following entities:

(a) The applicant, Mr Colin Wright (“Colin”);
(b)The first respondent, Tonic Bros Pty Ltd (“Tonic Bros”), the principal of which is Mr Nicholas Gibb (“Nick”);
(c)The second respondent, Halrose Pty Ltd (“Halrose”), the principal of which is Mr Anthony Gibb (“Tony”);
(d)The third respondent, Goffman Investments Pty Ltd (“Goffman Investments”), the principal of which is Mr David Goffman (“David”).

These four men, through these various corporate entities, operated the business as a quasi-partnership. The applicant and the principals of the other shareholders were the directors of Warralodge Holdings and Warralodge.

On 8 October 2012, the four men had a meeting. In the course of the meeting, Colin informed the others that he wanted to leave the business and wanted to sell his shares to the others.

There was a Shareholders’ Agreement in place with respect to Warralodge Holdings. It provided, amongst other things, that in the event of one shareholder wishing to sell his shares, he had first to offer the shares to the other shareholders. The Shareholders’ Agreement provided a mechanism for the giving of notice by the exiting shareholder, the valuation of shares for the other shareholders, and for the transfer of the exiting shareholder’s shares. The total value of Colin’s shares, as provided for under the Shareholders’ Agreement, was $750,000. The formalities of the Shareholders’ Agreement with respect to the giving of priority notice were not followed in this case, but nothing turns on this. It is clear enough that the parties agreed that Tonic Bros, Halrose and Goffman Investments would acquire Colin’s shares for a total of $750,000.

On 29 November 2012, a written Share Sale Agreement was entered into by which each of Tonic Bros, Halrose and Goffman Investments agreed to acquire 25 of Colin’s 75 shares in Warralodge Holdings. The total sale price was $750,000 ($10,000 for each share). Settlement was due to be, and was in fact, effected on

31 December 2012.

Colin, however, contends that at the meeting on 8 October 2012 it was also agreed that he would be paid a dividend equal to 25 per cent of the retained profits of the business for the period 1 July 2012 – 31 December 2012.

In this trial, the only real question for determination is that described by counsel for the applicant as “the critical disputed fact”, namely “whether or not at the meeting on 8 October 2012 it was agreed between the principals that in addition to agreement being reached in relation to the sale of the shares it was also agreed that a dividend would be paid of 25 per cent of the retained profits”.[1] This, I should note, is different from the question originally posed by the applicant for this trial. The applicant’s primary claim in the originating application first filed on his behalf was for rectification of the Share Sale Agreement to allow for the inclusion of a clause to the effect that the applicant was not obliged to transfer his shares until payment to him of an amount equal to 25 per cent of the retained profits for the period to

31 December 2012. By an amended originating application, filed on the first day of trial, the applicant abandoned his claim for rectification. The principal relief sought in the amended originating application was:

“(a)a declaration that on or about 8 October 2012 the applicant and the first to third respondents entered into a contract (the Oral Contract) to the effect that in consideration of the applicant entering into a document substantially in the form of the undated document entitled ‘Share Sale Agreement’ between the applicant and the first to fourth respondents being exhibit ‘SRJ-23’ to the affidavit of Shane Robert Jones dated 19 December 2012 (the Agreement), that prior to the applicant transferring to the first to third respondents the ‘Sale Shares’ as that term is defined in the Agreement the first to third respondents would cause the fourth respondent to declare a dividend in favour of the applicant of an amount equal to one-quarter of the retained profits of the fifth respondent as at 31 December 2012 and to cause that amount subsequently to be paid to the applicant less the value of the motor vehicle then driven by the applicant to be transferred to him by the fourth respondent on 31 December 2012.”

[1]Applicant’s written submissions, para 13.

As the evidence, particularly of the applicant, emerged at trial, however, it became clear that there was no agreement about the motor vehicle at the meeting on

8 December 2012, and accordingly the focus of the applicant’s case became the question identified above.

Background

Prior to 2010, the “Gibbs Bros” fruit business had effectively been owned in equal shares and operated by Colin, Nick and Tony through Warralodge as a corporate vehicle. Mr Goffman joined the enterprise in 2010. That involved a corporate restructure, with Warralodge falling under the umbrella of Warralodge Holdings. The details of the corporate restructure are not relevant for present purposes. In essence, David paid $250,000 to each of the existing shareholders in return for acquiring a 25 per cent interest in the business.

The basis of David’s buy-in was summarised in a “Term Sheet” prepared by the business’ accountant, Mr Yuen Sun (“Yuen”) and its lawyer, Mr Shane Jones (“Jones”). This Term Sheet was signed by each of Colin, Tony, Nick and David on 19 February 2010. A formal share sale agreement was executed on 17 December 2010, and settlement of David’s acquisition of the shares by which he acquired an interest in the business, via his corporate entity, was effected.

The Term Sheet relevantly provided:

“It is agreed that the existing shareholders are entitled to a fully franked dividend representing the retained profits of Warralodge up to 31 December 2009 (as per the Financial Statements $385,441). This dividend will be paid once the company cashflow position permits and before any dividend of profits made after 1 January 2010.”

The rationale for this arrangement was that David was to start working in the business from January 2010. It was agreed that the retained profits of the business for the period prior to his commencement would be fully distributed to the existing shareholders because, in effect, that represented the fruits of their labours and David had not contributed to those profits being earned. This agreement was to allow the newly constituted quasi-partnership to start with a “clean slate”, i.e. with a retained profits balance of nil.

On 17 December 2010, the applicant, and Tonic Bros, Halrose and Goffman Investments (i.e. all the “new” shareholders of Warralodge Holdings) executed a Shareholders’ Agreement. I have already referred to this as providing for a mechanism for the disposal of shares by a shareholder. The Shareholders’ Agreement also provided:

“8. Distribution Policy
If in respect of any financial year the Company has after tax profits available for distribution, the Shareholders must procure that:

(a)subject to the prudent financial requirements of the Company and of Warralodge, maximum distributions are made by the Company and of Warralodge whether by loan, Dividend or other means as agreed within three months after the end of that year; and

(b)where appropriate, the Company and Warralodge pays part of the profits as a half-yearly distribution within three months after the end of the half year.”

This distribution was put into practice by the shareholders in consultation with the business’ accountants. It is sufficient to refer to Colin’s evidence, in which he confirmed[2]:
[2]Transcript 1-21, 22.

-      These dividends were usually paid every six months;
-      The shareholders decided how much of the retained profits would be distributed under the dividend after consultation with the business’ accountant;
-      The amount paid as a dividend varied because the shareholders did not pay out the entirety of the retained profits;
-      The amount paid out depended on the company’s financial position at the time and the need to have account of both fluctuating periods of income for the company and the need to retain funds to pay expenses.

Each of these payments was called a “divvy” by the shareholders. As Colin said[3]:

“2.The word ‘divvy’ is a term that has been commonly used by Tony, Nick and myself as slang for ‘dividends’ paid by Warralodge Pty Ltd (‘Warralodge’). This slang usage of ‘divvy’ continued after David joined Gibbs Bros and applied to Warralodge Holdings Pty Ltd (‘WHPL’).”

[3]Affidavit sworn 11 January 2013.

Colin also confirmed that he was paid a dividend after the end of September 2012 and that, if he had remained a shareholder, his expectation would have been that he would next receive a dividend after the end of March 2013.

In September 2012, Colin went away on leave. His first day back from holidays was 8 October 2012. He said that he was told by Nick and David that Tony had called a meeting for 9 am. All four men attended the meeting. It commenced with a discussion about operational issues, which are not relevant for present purposes.

After that discussion concluded, Colin told the others that he wanted to sell out of the business. He had not given the others any notice of his intention to raise this issue. I will canvass later the evidence of each of the attendees about the discussions which ensued. Colin’s case is that it was agreed at this meeting both that he would be paid $750,000 for his shares and that he would be paid 25 per cent of the retained earnings of the business up to 31 December 2012 (which was his proposed departure date from the business). There is no issue about the agreement to pay $750,000 for the shares, but the other attendees dispute that there was any agreement reached at that meeting for the payment of a share of retained profits up to 31 December 2012 to Colin.

After the meeting, Colin consulted with both Yuen and Jones. I will refer to the evidence given by each of them later. Jones, who acted for the business on Colin’s instructions, effectively on behalf of all shareholders, but who was also apparently acting for Colin personally, subsequently drafted a share sale agreement. This document went through several drafts, until a final version was produced. This Share Sale Agreement was executed by all of the shareholders on 29 November 2012.

This executed Share Sale Agreement provided for the sale of Colin’s shares to the other shareholders for $750,000, with settlement to be effected on 31 December 2012. It did not, however, mention the agreement asserted by Colin concerning the payment to him of a 25 per cent share of retained profits. Nor was there any other contractual document (as there had been with the Terms Sheet when David bought into the business) which made reference to such an agreement.

Clause 2.2 of the executed Share Sale Agreement provided:

“2.2 Encumbrances, Rights
The Sale Shares are sold:
(a)free from all charges, encumbrances, options and adverse interests of any kind; and
(b)together with all Rights and privileges attaching to them (including the Right to receive dividends or distributions declared, made or paid for the period after the Accounts Date but not those dividends or distributions declared or made but unpaid for any period before the Accounts Date).”

By the time the Share Sale Agreement was executed, Nick, Tony and David (and their respective companies) had another firm of solicitors acting for them. On

5 December 2012, Yuen sent an email to the solicitor for Tony, Nick and David, copied to Colin’s solicitor, in which he said, amongst other things:

“As part of Col Wright’s exit from the Group, he is to be paid a final dividend equal to his share of profits to 31 December 2012. This will be paid in January, after I have been provided trading figures through to December and then prepare Financial Statements as at 31 December 2012.”

Further emails passed between the professional advisors, including an email sent by Jones to Nick, Tony and David’s solicitor in which he referred to “Col Wright’s entitlement to a share of the profits up to 31 December 2012”, spoke of the mechanism needed to declare such a dividend, and attached a draft of a minute of a directors’ meeting to record the declaration of the proposed dividend. Colin was provided with a copy of this email by Yuen. Colin, in turn, forwarded that email on to Nick on 11 December 2012.

The upshot was that on 12 December 2012, HWL Ebsworth, the solicitors for Nick, Tony and David, wrote to Jones, saying:

“As previously advised, we act on behalf of the above purchasers. We refer to the share sale agreement dated 29 November 2012 (the Agreement).
A draft minute was presented at a meeting of directors of the Company today for the declaration of a dividend prior to 31 December 2012.
We note that the declaration of a dividend is not mentioned as an obligation of the Company in the Agreement. The Agreement states that our clients are to pay $750,000 ($10,000 per share) for your client’s ordinary shares in the Company (Shares). Your client’s ‘F’ Class shares in the Company will also be cancelled at completion of the Agreement.
We are instructed by our clients that the agreed purchase price for the Shares exceeds the value of the Shares calculated on a net tangible asset basis. Until a dividend is declared and paid, all money held by the Company forms part of the Company’s assets which is included in the value of the shares sold.
The directors would be in breach of their duty as directors of the Company to declare a dividend before sighting the accounts of the Company and ensuring that it is prudent to determine if a dividend can be declared and the amount of any such dividend.
In light of the fact that your client presented the Agreement to our clients as an ‘entire agreement’ after taking legal advice from you, the fact that the sale price of the Shares exceeds the value of the Shares calculated on a net tangible asset basis, the fact that any funds in the possession of the Company are included in the calculation of the value of its assets and the fact that the directors of the Company will not be in a position to declare a dividend on or before 31 December 2012, we are instructed that our clients will not agree to any declaration of dividend by the Company prior to or at completion of the Agreement and will not sign any proposed resolution in that respect.
Our clients are ready willing and able to settle the Agreement by paying the purchase price for the Shares on 31 December 2012 and will require completion of the Agreement on that date.
Please confirm that your client will complete the Agreement on 31 December 2012. If your client fails to complete the Agreement according to its terms, or, by its conduct (and contrary to clause 19.3 of the Agreement), places another party to the Agreement in a position where that party cannot complete its obligations under the Agreement, we are instructed by our clients that they will take appropriate action to enforce their rights under the Agreement.”

Colin retained new solicitors, Bennett & Philp. On 17 December 2012, Bennett & Philp responded asserting, inter alia, as follows:

“1 The 4 Directors of Warralodge Holdings Pty Ltd are our client, Tony Gibb, Nick Gibb and Dave Goffman. At a meeting of the parties on 8 October 2012, our client advised that he would like to sell his shares in Warralodge Holdings Pty Ltd for the amount of $750,000 plus a payment of 25% of the retained profits of Warralodge Holdings Pty Ltd as at 31 December 2012 and the release of his guarantees. The date of 31 December 2012 was chosen by our client to exit because it was the end of the half yearly accounting period and more importantly a time when there were no crops in the ground which would complicate the determination of the profits due to adjustments that would need to be made. Our client subsequently asked your clients if he could take his company vehicle and its value be deducted from the 25% share of profits and that was accepted. The exit by our client was on terms that were informal and amicable and certainly not in accordance with the strict provisions of the Shareholders Agreement.”

Bennett & Philp demanded, on behalf of Colin, that the other parties perform the agreement according to the terms contained in the paragraph just quoted.

On 20 December 2012, Colin applied to the Court for urgent relief. On that day, on Colin’s undertaking as to damages, and on the respondents’ undertaking that, upon settlement of the sale of the shares, they would pay $250,000 into trust pending the resolution of this dispute, directions were made for an early trial of the questions then articulated in the originating application.

As I have already mentioned, by the time the matter actually came on for trial, the questions sought to be determined on behalf of Colin had altered. Again, this is of no moment for present purposes – the parties were content to join issue at trial on what is obviously the real issue, namely whether, at the meeting on 8 October 2012, there was an agreement reached between Colin, Tony, Nick and David to the effect that Colin would also be paid a 25 per cent share of the retained profits of the business up to 31 December 2012.

The evidence in chief of most of the witnesses was on affidavit. All witnesses were cross-examined. I will turn now to consider the evidence of the witnesses. It is clear enough, that the principal focus is the meeting of 8 October 2012, and it is to that evidence that my attention will be directed. Some of the evidence given before me was quite irrelevant to the matter which needs to be determined. For example, each of the principals gave evidence about differences of opinion which had arisen between them with respect to the business becoming engaged in farming ventures. None of that has anything to do with my determination of what the parties said and actually agreed to at the meeting on 8 October 2012.

THE MEETING OF 8 OCTOBER 2012

Colin’s evidence

In the affidavit filed originally in support of the application for urgent relief[4] Colin’s evidence as to what transpired during the relevant part of the meeting on
[4]Affidavit sworn 19 December 2012.

8 October 2012 was as follows:

“24.I then told the other directors that I had planned to call them in together to discuss this but since we were all here I was advising them that I intended to sell out.
25.Tony then said he wished I had advised him of that prior to him raising his other concerns. He then asked when I was proposing to leave.
26.I stated that I thought the end of December would be an appropriate time as there would be no crops in the ground therefore the retained earnings and prepaid expenses would be easier to calculate at that time then other times when there are still crops growing.
27.I explained that the shares are worth $750,000.00 as per the Shareholders Agreement and that I would be entitled to that plus 25 percent of the retained earnings up until the 31^st of December 2012.
28.At this meeting I stated the $750,000.00 plus the retained earnings was the same deal as when David Goffman and his company bought into the Gibb Bros business. Everyone (Tony, Nick and David Goffman) agreed that was acceptable.
29.I also offered to stay for the month of January 2013 as I was aware that Nick was going on holidays if they wanted me to.
30.David asked me why I decided to leave. I explained that I was not interested in purchasing the farm and that the business had obviously grown to have a more corporate culture and I simply felt it was time for me to move on.
31.Tony said that they didn’t want anyone here who doesn’t want to be here.
32.There was some further discussions about not prepaying expenses until after 31 December 2012 as that would impact upon the retained earnings I was entitled to. There was also a discussion about a loan that had been given by WHPL to a grower and how that should be treated. It was eventually decided it would be on the balance sheet anyway therefore it didn’t matter if that loan got repaid prior to or after December 2012.
33.Tony then indicated to me that I should contact Shane Jones and Yuen to prepare the appropriate documentation and accounts and also contact Peter Goss the ANZ Bank Manager to discuss the release of the directors guarantee I had given.
34.We all shook hands at the end of the meeting and the comment was raised it was the end of an era.”

In a further affidavit[5], Colin gave the following further information:
[5]Sworn on 11 January 2013.

“2.The word ‘divvy’ is a term that has been commonly used by Tony, Nick and myself as slang for ‘dividends’ paid by Warralodge Pty Ltd (‘Warralodge’). This slang usage of ‘divvy’ continued after David joined Gibb Bros and applied to Warralodge Holdings Pty Ltd (‘WHPL’).
3.Once or twice a year Rex Sun (‘Rex’) or Yuen Sun (‘Yuen’) or both came out to the Gibb Bros premises at Rocklea and meet with all Directors (with the 3 Directors, Tony, Nick and myself, prior to David becoming a Director and with the 4 Directors after David became a Director) to discuss whatever figures for Gibb Bros were completed at that time (meaning the relevant financial statements). During these meetings Yuen commonly used the term ‘retained profits’. During one of those meetings Yuen also explained in layman’s terms to Tony, Nick, David and myself the meaning of ‘retained profits’ to be in words to the effect ‘all the after tax profits of Gibb Bros at a certain date’.
4.Yuen also emailed to the Directors of Gibb Bros the quarterly figures (by this I mean the quarterly financial statements for Gibb Bros) in draft and in final usually around 6 weeks after the end of each quarter. [Sentence deleted after objection].
5.The term ‘retained profits’ was also commonly used and discussed between Tony, Nick and myself and Yuen in relation to the buy in by David into Gibb Bros.
6.At the 8 October 2012 meeting with Tony, Nick and David I used the term ‘retained profits’ and not ‘retained earnings’ as suggested in paragraphs 26, 27 and 32 of my First Affidavit. I understand the terms to mean the same thing.”

Under cross-examination, Colin said that the proposal he put at the meeting, relevantly, was that 25 per cent of the entirety of the retained profits in the company would be drawn down and paid to him; Colin’s evidence was “I said 25 per cent of the retained profits as we did with Dave.”[6] It was put to Colin that the situation with David coming in as a new shareholder was a different scenario. Colin disagreed, and particularly disagreed with the proposition that, as an existing shareholder, his shareholding value represented the profits that the company made. He insisted that he actually used the words “retained profits”. He also said that he understood that what he was looking for represented payment as a dividend over and above the dividends provided for under the Shareholders’ Agreement notwithstanding the fact that there was nothing in the Shareholders’ Agreement about the payment of a special dividend on the transfer of a share.
[6]T 1-30.

The tenor of Colin’s evidence under cross-examination about what occurred at the meeting on 8 October 2012 is apparent from the following passage of

cross-examination:

“Yes. You’ve told us about this meeting where you said ‘I want to be paid 25 per cent of retained profits.’?-- I think they were all stunned initially.
Yes?-- But then we all just started talking about the deal and what was going to happen.
But did they say, ‘Yeah, that’s fine.’? You know, ‘That’s fine, Col, we’ll pay you 25 per cent of the entire retained profits of the company as a special dividend.’?-- It didn’t come out of their mouth like that but they agreed.
Well, how do you say they agreed?-- Well, they just said yes, and then we started talking about how it would work and reducing the-----
But when you say they were stunned, what do you mean by that?-- Well, I don’t think that’s what they were expecting.
Right.
HIS HONOUR: What – what do you mean? What isn’t what they were expecting?-- Announcing that I wanted to – to get out.
So when you say they were stunned initially they were stunned at your announcement of your retirement?-- Yeah.
MR COLLINS: And then about what about the use of the words ‘retained profits’? Did that stun them at all?-- Nothing was said.
Right. No response at all?-- They just said yes.
See, I’m putting to you that this is something you’ve created yourself, this claim for the retained profits out of the company because you’ve suddenly worked out that you didn’t think you were getting enough from the company when you left?-- No.
And I’m suggesting to you on that date there was no mention of the word ‘retained profits’ by you at all?-- No, there was.
...
MR COLLINS: Well, to the effect that your heart’s not in it, it’s best that you go, et cetera?-- Well, he said, ‘If someone doesn’t want to be here you’re better off going.’
Okay, and at that stage I suggest you said, perhaps a bit more quietly or reluctantly – you thought you would also get a divvy?-- No.
You used the word ‘divvy’?-- No.
You never used the word ‘divvy’?-- No.
Did you ever use the word ‘divvy’ in conversation?-- Yes.
And can I suggest to you that-----?-- Not at that meeting.
Sorry?-- Not at that meeting.
No, I appreciate that but at other times-----?-- Yes.
----- you referred to divvy?-- Yes.
And divvy is the word you used for dividends when the company declares them – sorry, divvy is what you used in respect of the terms reflecting the dividend you were paid effectively twice a year?-- Yes.
And when you used that term, ‘Look, I think I should get a divvy.’, that Dave Goffman said to you words to the effect, ‘You’ll get what you are entitled to under the shareholder’s agreement. That’s why we have one.’, or words to that effect?-- Well, I didn’t say divvy and that wasn’t said.”

Under cross-examination, Colin also agreed that he read the Share Sale Agreement before he signed it.

In his final affidavit[7], Colin gave some expanded evidence about the discussions at the meeting on 8 October 2012:
[7]Sworn 11 January 2013.

“25.In the 8 October 2012 meeting between Tony, Nick, David and myself words to the effect as set out below were said by the relevant persons and expands on the matters set out in my First Affidavit and in particular paragraphs 26, 27 and 32 of it:
(a)Myself ‘31 December is a good time. It is the end of an accounting period, no crops in the ground and all expenses paid in advance would be in’

(b)Nick ‘There is a $40,000 loan to Quirkie (meaning Bradley Quirke)’ but after general discussion we recalled the loan was in the accounts and agreed that it would not matter if it was paid back or not.

(c)Tony ‘What do we do now?’ (by which I took to mean my departure).

(d)Myself ‘We draw a line in the sand at 31 December and settle on the shares. Yuen should have the figures done by first week of February (meaning February 2013) and that is when the 25% of retained profits would be paid’

(e)Nick, Tony and myself discussed not paying expenses in advance and, in particular, we made reference to Lindsay Bros (the transport company which was pre-paid about $250,000 before 30 June 2012), Withcot Seedlings, the carton company (the name of which I do not recall but who supplied Gibb Bros with cartons) and the fertilizers and sprays for the farm. These were all major supplier creditors to Gibb Bros that had received large prepayments in the last financial year.

(f)Tony ‘Yuen and Rex know what to do anyway’.”

Tony’s evidence

Tony’s evidence in chief was contained in one affidavit.[8] He gave evidence about the initial discussion at the meeting, which concerned the proposed purchase of a farm at Toowoomba. He then said:
[8]Sworn 4 January 2013.

“16.I didn’t talk for very long, only a few minutes at the most. CW didn’t say much to me until I had finished.
17.He then said ‘I was actually going to come up to the farm today to see you and tell you that I’ve decided to sell my shares’. Or words to that effect.
18.I was a bit surprised and wondered if he was just saying it as a reaction to what I had said about him needing to improve his work. Even though I was a bit surprised it did make sense with CW’s attitude and having been generally a bit slack. In this business if you are not passionate about what you are doing you need to get out. The work is too hard and the hours are long so when you stop enjoying it, it is definitely time to leave.
19.I remember that my first reaction was to tell him that he could have said something before I said my piece. At about the same time someone else asked why CW was going. I can’t remember who asked him this.
20.CW said words to the effect that he thought that the company was becoming too corporate and that we were more interested in serving large corporate clients while he just wanted to deal with people.
21.I said something like ‘so what happens now’ and he said that the shares are worth $750,000 and that he wanted to finish on 31 December as there would be no crops at the farm and it was the end of an accounting period. It was then that I mentioned that I would be overseas for all of December and would not be back for settlement.
22.He didn’t use the phrase retrained (sic) profits or earnings at all and I would have been surprised if he did because it just wasn’t the sort of words that he or any of us would have normally said. I don’t think I have ever heard CW refer to retained profits.
23.I definitely would have said something if CW had suggested that he should receive a payment of 25% of the retained profit of WHPL. That is not how we work out a dividend at WHPL. When we declare dividends we look at all aspects of the operation and whilst we consider the amount of profit, it’s not the determinative factor and the dividend is never calculated as a set amount of profit.
...
29.After we had discussed this a bit I went to leave and said to CW something along the lines of it being better for it to be out in the open if his heart wasn’t in it and I shook his hand. It was then that he also said, almost a bit reluctantly that he also though he would get a ‘divvy’.
30.Divy is the term that we all, CW, NG, DG and I use for dividends when WHLP declare them which we normally do twice each year if there is enough money at bank to declare a dividend.
31.When CW said that he thought he would get a divvy he said it almost like a question, as if he was asking if he would get a dividend. I remember that I looked at DG when CW asked me this and DG quickly responded with words to the effect of ‘you’ll get what you are entitled to under the shareholders agreement, that is why we have one.’
32.I took the reference that DG made to the shareholders agreement to be reference to the shareholders agreement between WHPL, CW, Tonic Bros Pty Ltd, Halrose and Goffman Investments dated 17 December 2010 (Shareholders Agreement). I crave leave to refer to the affidavit of Collin Robert Wright sworn 19 December 2012 and in particular exhibit CRW – 1 which is a copy of the Shareholders Agreement.
33.I don’t recall everything that was said at that meeting and there may have been things that CW mentioned that I have forgotten but there is no way he mentioned retained profits or being paid a percentage of them. It would be so out of ordinary and out of order that I would definitely remember if he did.”

Later in his affidavit, Tony said that the term “divvy” was a term they used for dividends, but those dividends were never worked out as a flat percentage of retained profits. He said “So to me at least ‘divvy’ and ‘25 per cent of profit’ (or retained profit) are two very different things”.

Tony was cross-examined on Colin’s further evidence of matters which were discussed at the meeting on 8 October 2012 (as set out above in the passage quoted in para [36]. Tony’ evidence was that:

(a)each of the matters identified in paragraphs (a), (b) and (c) of that quote were said;
(b)in respect of paragraph (d) Tony said that Colin had said that they should “draw a line in the sand as at the 31^st of December and settle on the shares”. Colin said that Yuen should have the figures done by the first week in February, but Tony said that Colin never mentioned anything about retained profits, nor did he say anything about 25 per cent of retained profits;
(c)he agreed that the matters set out in paragraphs (e) and (f) were said.

Tony was cross-examined at some length about the terms on which David had bought in, and what he understood of Colin’s entitlement to a share of the profits. Importantly, he said that questions as to Colin’s entitlement to profits for the period beyond when he was a shareholder did not occur to him at the time of the discussion.

He was also cross-examined on the reasons for the payment out of retained profits prior to David acquiring an interest in the business. In the course of that evidence, he said[9]:

“The words ‘retained profits’ were never commonly used orally with us. They’re written in our figures, but they’re never commonly used.”

He confirmed, however, that he understood what those words meant.

[9]T2-76.

He was cross-examined specifically in relation to the meeting on 8 October 2012, and confirmed that it was a relatively short meeting – less than 30 minutes. His evidence included[10]:
[10]T2-77.

“And that discussion involved the four of you?-- Yes.
In relation to the terms upon which he was leaving, there was some specific discussion and mention about the terms upon which David bought in on?-- No, I don’t think so.
It was agreed that Shane Jones would prepare the documents, though?-- Yes.
And he was to prepare the documents on behalf of everybody?-- Correct.
And Col was – Col Wright was delegated to be the person to go and speak to Shane and deal with that?-- Yes.
When the meeting was over everybody left, as far as you understood, in good terms?-- Yes.
It was a shock?-- Yeah.
But, nevertheless, there was no animosity or disagreement?-- No.
And the terms, as far as you understand them to be for Col Wright leaving, were discussed and agreed at that meeting?-- Well, they were spoken about.
And people reached agreement about them?-- We outlined what we thought we would do and everyone went away and Col was to go to see Shane and get the document prepared.
But it wasn’t – it wasn’t a case of, well, one group said, ‘This is what I think should happen.’, and the other person said, ‘I’ll go away and think about it and come back to you.’?-- No.
So from your point of view at the meeting, brief though it was and important though it was and a shock thought it was, the terms were discussed and agreed and then it was just a case of documenting them?-- Pretty much, yes.”

Tony then gave evidence to the effect that he had been under the impression that even though it was proposed that Colin would cease being a shareholder at the end of December, he would still receive a dividend (not a share of retained profits) when the figures for the business were received in January 2013. This led to the following passage of evidence[11]:
[11]T2-86.

“Right. So you also in – just when you answered my, attempted to answer my question before and his Honour asked you just to listen again and re-answer it, do I recall correctly that your evidence then was, as at the meeting of the 8^th of December there was a discussion about Col getting – 8^th of October – than you – I’m sorry – 8^th of October 2012 there was a discussion about Col being paid a dividend?-- Yes.
----- and your understanding of the consensus at that meeting was that he would be but it wasn’t going to happen until January?-- Yes.
And that he would be entitled to a quarter?-- Well, that’s what I thought we would do. We had been in business for a long time and-----
Not just – not just what you thought would be done, I just want to clarify your recollection of the meeting is that there was consensus about that concept-----?-- Yes.
-----from what people said?-- Well, he asked me when I walked out office if he could get a divvy.
And were other people still involved in that meeting?-- Yes.
And so as far as you could tell, I mean you can’t say what they heard, but they were within earshot?-- Yep. Well, I didn’t answer when he said that question.
Okay. What did – how was it left?-- I looked at Dave Goffman and he said, ‘You’ll get what you’re entitled to under the shareholders’ agreement’.
Well, can I suggest to you that no such statement as that was made by Mr Goffman?-- Well, I heard him.
I suggest to you that Mr Wright proposed that he would be paid 25 per cent of the retained profits and that was agreed by the people at the meeting?-- No, that wasn’t said.”

Nick’s evidence

In his first affidavit[12], in response to the urgent application for interlocutory relief, Nick said that at no time during the conversation on 8 October 2012 was there any discussion in relation to “retained earnings”. He said:

“I also recall Mr Wright did say ‘$750,000 and any divies owing’, to wish (sic) David responded ‘You will get whatever you are entitled to under the shareholders agreement – that is what it is there for’.”

[12]Sworn 20 December 2012.

Nick elaborated on this in his further affidavit[13], saying:
[13]Sworn 4 January 2013.

“13.When TG finished saying his piece CW said that he had been thinking about things whilst he was on holiday and that he wanted to sell out and that he had changed his mind and no longer wanted to buy into the Westview deal which I understood to be a reference to a farming property at Toowoomba call Westview (Westview Farm) that WHPL was looking to purchase.

14.He said that WHPL was taking a new direction and that now it was targeting and wanting to deal with the big corporates and that he didn’t want that and that he wanted to deal with people and not corporations.
15.I was taken back as I wasn’t expecting this and I think that TG and DG were as well.
16.I think TG responded first and he said something along the lines of ‘well what do we do next’.
17.CW said words to the effect of ‘I guess you guys will buy me out’ and then something about us having the shareholders agreement that would deal with how it all works now. I understood this to be a reference to a share holders agreement dated 17 December 2010 between WHPL, CW, Tonic Bros, Halrose Pty Ltd and Goffman Investments Pty Ltd (Shareholders Agreement). I crave leave to refer to the affidavit of Collin Robert Wright sworn 19 December 2012 and in particular exhibit CRW1 which is a copy of the Shareholders Agreement. He said that under the Shareholders Agreement he gets $750,000.00 and whatever ‘divys’ are owing.
18.When CW said this DG replied with words to the effect of ‘that’s what the Shareholders Agreement is for, so you know for sure what you are entitled to and what you are going to get.’ Or ‘that you’ll get what you are entitled to’.
19.We didn’t have a copy of the Shareholders Agreement at the meeting but I knew that it valued each of our shares at $750,000. I knew this because earlier that year I was considering my financial position after buying an investment property and had given specific thought to my position at WHPL and what I would be entitled to under the shareholders agreement if I left and that it was $750,000.
20.CW never made any mention of retained profits and this is not the sort of language that any of us use. In all the time we have been in business together I don’t think I have ever heard CW use the phrase ‘retained profits’ so if he had said something about retained profits at the meeting I definitely would have remembered it.
21.I recall that there was a discussion about when he would finish and he said he wanted to finish 31 December 2012. He also made a reference to that being a good time because there was nothing in the ground at the farm which I took to mean that we would have no crops planted on the farm.”

In further evidence in chief, Nick confirmed that the word “divvy” was commonly used amongst the shareholders. He could not recall Yuen explaining what “retained profits” were. He could recall Yuen saying the word “profit” during meetings, but not the words “retained profits”. Nick denied that the term “retained profits” was commonly used and discussed between the shareholders.

Nick was cross-examined on a comparison between the deal which was done when David became a shareholder and that which was proposed for Colin exiting the business.

Specifically in relation to the meeting on 8 October 2012, he confirmed that Colin raised the issue of him leaving and the terms on which he would leave, including the date of his departure, i.e. 31 December 2012. He agreed that there was no significance about the departure date of 31 December 2012 so far as the sale price of the shares was concerned. He did not recall there being any discussion about the terms upon which David had bought into the business. He agreed that when the meeting was over, there was nothing further that was left outstanding about which the parties had to come back and decide on or talk about. He agreed with the proposition that Colin’s leaving was discussed, terms were discussed, and it just had to be documented. He recalled there being some discussion about particular expenses not being pre-paid. Nick specifically denied, however, that Colin put the proposition that he be paid 25 per cent of the retained profits[14]:

“Now, I suggest to you that at the meeting on the 8^th of October Mr Wright did in fact put the proposition that he be paid 25 per cent of the retained profits?-- No.
And I suggest to you that having put that proposition it was agreed to by everybody?-- No.”

[14]T2-54.

Nick also said that he seemed to recall that there was some discussion about the car that Colin was driving, but he could not remember whether it was at that meeting or another meeting. Whatever discussions there were about the car, it was not part of the terms of the Share Sale Agreement, and was to be dealt with separately.

Nick was further cross-examined about the conversation which occurred at the meeting on 8 October 2012, and repeatedly denied that there had been a proposal by Colin that he would be paid 25 per cent of the retained profits and that that proposal was agreed to. He also confirmed the evidence he had given about David making a statement to the effect “That’s what the shareholders agreement is for” and “You’ll get what you’re entitled to”. Nick said he remembered “something along those lines”.

David’s evidence

David swore two affidavits in this proceeding. In his first affidavit[15], which was filed in opposition to the application for urgent interlocutory relief, David said:
[15]Sworn 20 December 2012.

“(a)I was in attendance at the meeting on 8 October 2012 together with Mr Wright, Nick Gibb and Tony Gibb.
(b)As to paragraph 26 of the Wright Affidavit, I agree that there were some comments in reference to no crops in the ground. I am 100% certain that during the entire discussion on 8 October 2012, I have never heard the words ‘retained earnings’ or ‘retained profits’.
(c)As to paragraph 27 of the Wright Affidavit:-
(i)I recall Mr Wright did say ‘$750,000.00 and any divies owing’ to which David responded ‘you would be entitled to whatever is under the shareholders agreement- that is what it is there for’.

(ii)I recall there being a discussion and subsequent agreement that the purchase price for the shares would be $750,000. At no time did I hear Mr Wright, or any other director, say the words, or words to the effect, that he had a ‘25% entitlement to the retained earnings up to the 31 December 2012’.

In his second affidavit[16], David gave the following further evidence:
[16]Sworn 4 January 2013.

“16.When TG had finished CW then said that he had some news and that he was going to call a meeting himself but seeing as we were all there he’d tell us now and that was when he said that he wanted to leave the business and do something else.
17.I remember I was quite shocked when he said it as I wasn’t expecting it at all. I think that NG and TG were also surprised.
18.I remember TG saying something to effect of ‘you could have told us 5 minutes ago before I say my piece’.
19.I remember CW saying that he had given a lot of thought as to how the business was going, WHPL was getting more corporate and he wanted it to be more like a family business.
20.The way we were sitting, with me next to CW and him facing NG and TG the conversation kept going between them. I was listening but not paying full attention as I was already starting to think about what this meant to the business.
21.We all have different roles that we perform in the operation of WHPL and we mapped out a longer term 10 year strategy which involved the purchase of the Westview Farm. By way of example CW is mainly involved in looking after the staff so I was thinking about things like who is going to take that on.
22.To some extent I was lost in thought whilst the conversation went on between the other three because I could see CW’s leaving as having an impact on operations at a time when we were expanding and I knew that we had to think about how we would deal with that.
23.That’s not to say that I was thinking about it in a negative sense, I was surprised and wondered how sure CW’s decision was but mainly I was busy thinking in terms of the things we now need to deal with.
24.I remembered CW saying that he thought he would work through until 31 December 2012 and I remember him saying words to the effect of this being a good time for him to finish up because there were no crops in the ground at the farm.
25.I was only half paying attention at this time and it really was a conversation taking place between CW, NG and TG. I didn’t think too much about CW’s comment about finishing 31 December 2012 or about crops being in the ground as it was a sensible time of year for him to finish.
26.Through November and up until Christmas is the busiest time in the business but it really settles down after Christmas.
27.By the end of the year it is too hot where our farm is to grow anything and so TG, who looks after the farm side of thing, usually goes away for most of this time and then comes back in the new year and then NG usually has some time off.
28.When CW suggested 31 December 2012 I thought it was because of these reasons and that it was a convenient time in a practical sense.
29.I also remember that he said something about wanting to keep his vehicle, which was owned by the company and his mobile phone. I don’t remember any in depth discussion about this or what if anything, was decided.
30.I do remember CW saying he didn’t want further expenditure on equipment or assets before the end of December 2012.
31.I also remember there being a discussion about getting the company’s solicitor, Shane Jones (SJ) to do up the paper work for the share sale and that CW would be the person to organise this.
32.Towards the end of the meeting we were all standing and I remember CW saying words to the effect of that he was entitled to a ‘divy’. At the time I wasn’t even certain of what he meant but I do remember that I did respond to that comment and said words to the effect of ‘we have a shareholders agreement in place and you will be entitled to what is in it. That is why we have one’. I was referring to a shareholders agreement between WHPL, CW, Tonic Bros Pty Ltd, Halrose Pty Ltd and GI dated 17 December 2010 (Shareholders Agreement). I crave leave to refer to the affidavit of Colin Richard Wright sworn 19 December 2012 and in particular exhibit CRW1 which is a copy of the Shareholders Agreement.
33.I have always had shareholders agreements in business and I always think the best partnerships/business relationships are ones that have a good clear agreement in them and that decisions should be based on that agreement. It was in my mind and one of the things I was thinking about so that when he made the comment I raised this.
34.I don’t remember if he said anything to me after that.
35.In total I think the meeting from beginning to end probably lasted approximately 10 – 15 minutes.”

In further oral evidence in chief, David confirmed that his role in the business was to look after sales and administration. He agreed with the proposition that he was the “details man” in the company.

Under cross-examination, he described the roles of the others – Colin was in charge of human resources and logistics, Nick was in charge of sales and administration with David, and Tony was in charge of the farming operation.

He confirmed that, by 8 October 2012, all of the dividends that had been agreed to be paid to all of the parties had been paid for the period up to 30 June 2012, and that, as at 8 October 2012, the only profits that were potentially available were those which had accrued from 1 July 2012. David was cross-examined at some length on what the fiscal impact would have been if it were found that there had been an agreement actually reached for Colin to be paid 25 per cent of retained profits to

31 December 2012. This culminated in the following[17]:

“So can I suggest to you that in that economic sense the deal that Mr Wright contends for would have seen him receive all of his share of the profits for the period while the four of you were all shareholders?-- Yeah, but that wasn’t the deal though.”

[17]T2-16.

David was not sure whether he had heard Yuen use the term “retained profits” in meetings, but said that it was a term that he was familiar with in any event.

In relation to the relevant conversation at the meeting on 8 October 2012, David agreed that the share price of $750,000 was reached by reference to the Shareholders’ Agreement, and did not depend on when Colin left the business. He said that he remembered Colin saying that he did not want any further expenditure on equipment or assets before the end of December 2012. He was then pressed on the proposition that comments to that effect by Colin at the meeting only made sense if the agreement for Colin exiting the business involved Colin being paid a share of retained profits. David disagreed with this, saying he did not see it that way at the meeting – “Well, it wasn’t my train [of] thought there and then.”[18]

He was pressed further on this point, and ultimately, reluctantly, agreed with the proposition that, in David’s position as an experienced businessman, he would have understood that if the deal was for Colin to get a share of the profits as at

31 December, it made sense for Colin to have made such comments – David’s response was “I suppose so, yes”.[19]

[18]T2-26.

[19]T2-28.

Specifically in relation to the case advanced by Colin, the following evidence was given by David:

“Mr Wright, at the meeting, proposed as well as the share price that he would be paid 25 per cent of the retained profits to 31 December 2012?-- I don’t remember those words, ‘retained profits’.
But you do remember the concept that he proposed that he would be paid his share of the profits to the point when he was leaving?-- No.”

In re-examination, David gave evidence about the distinction between paying out retained profits and paying a dividend[20]:
[20]T2-38, 39, 40.

“Now, you understand that the distension between retained profits – well, sorry. I’ll start again. Is there a difference between paying out all of retained profits and the payment of a dividend?-- Yes.
Right. What is the distinction?-- Well, obviously retained profits is what the company’s made on the books per annum.
Yes?-- But regarding a dividend, it was always determined by a couple of factors that we used in our business. Mainly cash at bank was the most important thing. You can earn – you can have retained profits, i.e. profit, going forward-----
Yes?-- -----but if you’ve only got so much money in the bank, that’s – if there is a dividend to be paid, that’s – we can work on, that’s all, so-----
In your evidence – sorry, in your affidavit we see the word ‘divvy’ with quotation marks, is that the words that were used on the day?-- Yes.
...
All right. And what was your reaction when you heard the use of the word ‘divvy’?-- No action at all, just very surprised, yes.
Right. Well, is it you that said the words that were there?-- I did, yes.
Right. What prompted you to say those words?-- I just – we’ve got an agreement, we’ve got a shareholders’ agreement in place-----
Right?-- -----and that’s what we run our company by.
My friend asked you about the $750,000, when that was discussed at the meeting being by reference to the shareholders’ agreement?-- Right.
Right. I think you told us in evidence-in-chief you were shocked?-- Mmm. Very shocked.
Did you have the shareholders’ agreement there in front of you at the meeting?-- No.
Right. Did any of you discuss the terms of the shareholders’ agreement at that meeting?-- No. No.”

EVIDENCE OF EVENTS AFTER 8 OCTOBER 2012

Given the conflicting evidence as to what was discussed at the meeting on

8 October 2012, both sides led, and relied on, evidence of events after the meeting on the basis that this would assist on questions of credibility. It was put to Colin in cross-examination that, in effect, his evidence concerning the alleged critical term was a matter of recent invention. Counsel for Colin argued that this was rebutted by the following:

(a)The almost immediate reporting of the terms of the deal by Colin to the solicitor Jones and the accountants;
(b)The terms of a conversation between Tony and Jones on 19 October 2012;
(c)The contents of an email sent by Yuen to the directors on 31 October 2012;
(d)The terms of conversation between Jones and Nick on 6 November 2012; and
(e)The absence of any reference to what was said in the meeting of

8 October 2012 in the letter from HWL Ebsworth on 12 December 2012.

Initial dealings with the accountant and the solicitor

Yuen (who had not provided an affidavit in the proceeding) gave oral evidence that on 8 October 2012, Colin came into his office and met with Yuen and his father Rex. Colin told them that he had had a meeting with the other three and that he had decided to leave. Yuen said[21], “[Colin] said that basically the deal is that he’ll be paid for the shares, 750, 250 from each of the other directors and a quarter share of the retained profits through to 31 December”.
[21]T1-75.

Under cross-examination, Yuen explained the difference between the terms “dividend” and “retained profits” and was adamant that Colin used the words “retained profits” when speaking with him.

Mr Rex Sun had only a scant memory of the detail of this meeting with Colin. He thought that no specific sums of money were mentioned, but said that his best recollection was that the deal was based on the same basis as David’s buy-in.

Later on 8 October 2012, Colin had a telephone discussion with Jones. In an affidavit sworn on 19 December 2012, Jones said:

“5 On 8 October 2012 I had a telephone discussion with Col in which he informed me and I verily believed:-
(a)he was leaving Gibb Bros but it was not as a result of any disagreement with his fellow partners (which I took to mean Directors);
(b)he had advised Tony Gibb (‘Tony’), Nick Gibb (‘Nick’) and David Goffman (‘David’) (his fellow partners) of his decision to leave at a meeting at Gibb Bros office at Rocklea earlier that day;
(c)the terms of his departure were that he was to get $750,000.00 for his shares (being the same amount David had paid to get into Gibb Bros) plus his share of the profits up to 31 December 2012;
(d)he was to leave on 31 December 2012 and had picked that date because at that time there would be no crops in the ground for the farming operations carried out by Gibb Bros so this would make it easy to determine profit. Also it was a convenient date for profit calculation being at the end of a quarter. Exhibited hereto and marked ‘SRJ-2’ is a copy of my contemporaneous handwritten diary note of this conversation.”

Jones’ diary note of that conversation, however, simply does not record a conversation in the terms to which he had deposed. His diary note recorded:

“He has given verbal notice this morning that he wants to retire from Gibb Brothers as at 31 December 2012.
Col thinks this is a good date because it is the end of a quarter and there are no growing crops at that time.
Col has already been to see Yuen Sun this a.m. (morning). Yuen will phone me later today.
Col thinks he will go back into retailing after working in a retail store for 6 months.”

In another affidavit[22] Jones described his “usual and standard practice” over his 35 years as a solicitor as to make an immediate handwritten note at the end of a telephone conversation. He said that on some occasions, he made notes on scraps of paper during a telephone discussion and immediately after that telephone discussion he made the detailed note on a larger piece of paper for the file and would discard the notes made on the scrap paper.
[22]Sworn on 11 January 2013.

Under cross-examination, he confirmed this practice with respect to the making of file notes. He agreed, however, that there was nothing in this file note which “reflects a payment of $750,000 plus 25 per cent retained profits” and also agreed that this information would have been incorporated in the file note if it had been said in this discussion.[23]
[23]T1-59.

Colin’s version, as deposed to in his affidavits, was that he spoke first with Jones and then with Yuen. Colin is clearly mistaken about this chronology.

In any event, Colin deposed that in his telephone discussion with Jones after the meeting on 8 October 2012, he told Jones[24]:

“(a)The deal was the same as when David came in (meaning bought into Gibb Bros). I was getting $750,000 for my shares plus 25 per cent of the retained profits. I was leaving on the 31^st December 2012;
(b)He was to work with Yuen (meaning Yuen Sun) to work out the retained profit;
(c)The date of my leaving on 31^st December 2012 was the end of a quarter and there would be no crops in the ground which would simplify the figures being done.”

[24]Affidavit sworn 28 December 2012, para 4.

Colin deposed to giving similar information to Yuen and Rex Sun.

Significantly, on the contemporaneous documentation, the first mention of Colin receiving retained profits is found in Jones’ diary note of a telephone discussion he had with Yuen on 11 October 2012. That diary note recorded:

“Phoned Yuen Sun

9.45 13mins 11/10/12

Rough figures $750,000
+ Retained Profits: about $250,000
Monday Col told them
Yuen says that the agreement [i.e. the Shareholders’ Agreement] does not really cover the situation where some one just wants to leave.
The 3 remaining cannot be forced to buy out the fourth party. So, if that is so, Col would have to find a buyer and then the shareholders agreement would become effective.
Yuen will email the signed agmnt (agreement) to me.”

In his affidavit sworn on 19 December, Jones referred to this telephone discussion and confirmed that he had been informed of the matters recorded in that diary note by Yuen.

There were then discussions over a number of days between Jones, Yuen and Colin. The contemporaneous notes do not record any mention of the purchase price or of Colin being paid a share of retained profits, but went to questions of the formalities required under the shareholders agreement. The next relevant diary note by Jones is of a call he received from Colin on 17 October 2012 at 5 pm. The diary note records:

“I am to phone Tony Gibb tomorrow.
All is okay. Price agreed $750,000 plus profits to 31/12/12.
All good. No animosity.”

The conversation on 19 October 2012

On 19 October 2012, Jones had a telephone conversation with Tony. This was the first occasion on which Jones had spoken with any of the other interested parties. Jones’ diary note of that conversation recorded:

“I am to write to Peter Goss @ (at) ANZ and to CEO of BML (Brisbane Markets Limited) Andrew Young asking what their requirements are.
In each case ask for Col to be released from Guarantees.
Price $750,000 + share of profits up to 31/12/12 – (less) car which Col wants to keep.
Consider share classes and how this may complicate things.
Tony o/seas (overseas) 30/11 – 2/1.”

Jones’ evidence of that conversation was as follows[25]:
[25]Affidavit sworn 19 December 2012.

“11On 19 October 2012 I telephoned Tony and I said to Tony that Col was leaving and that was a shock to me. Tony informed me and I verily believed:-
(a)it was a shock to him as well. I asked him if the split was amicable and Tony said that it was. I said that was good because if there was a fight amongst the partners I could not act;

(b)he was pleased because if there was a fight he thought I might have to pick which side I would act for. I said that since this is a friendly deal I could prepare the paperwork. I asked how formal did he want me to be in the preparation of the documentation and he said to keep things simple. I said that Col is supposed to give a formal notice that he wanted to sell his shares. Tony said Col had given notice when he told them of his retirement. I asked whether it was in order to regard notice as having being given by Col verbally and Tony confirmed that it was;

(c)Tony said there were 2 classes of shares and that may complicate things. I said there were 2 companies that I had to consider restructuring. Tony said in fact there were 3 companies, a third company having been created to meet a requirement of Woolworths – this was the Sixth Respondent. I said I thought it best that I speak to Yuen Sun to get all the details;

(d)that Col was to be paid $750,000.00 for his shares, the same as David paid, plus his share of the profits up to 31 December 2012. Tony alerted me for the first time that Col wanted to keep his car and that an adjustment would be made to Col’s share of the profits (to deduct the value of the car) but Yuen Sun should be asked how this was to be done.

(e)Tony confirmed that the date (meaning 31 December 2012) was a good date because of the state of the farming operations of Gibb Bros. Tony and I discussed the various personal guarantees Col would have given to Brisbane Markets Ltd and ANZ Bank. Tony said that Brisbane Markets Ltd have a policy of releasing people from their guarantees once they had left and it should be contacted to get things organised. Tony said Gibb Bros were in a strong position with the ANZ Bank and Tony would contact Peter Goss at ANZ and tell Peter that Col’s guarantee to ANZ had to be released. Exhibited hereto and marked ‘SRJ-6’ is a copy of my contemporaneous handwritten diary note of this conversation.”

Tony’s version[26] gives a completely different impression:
[26]Affidavit sworn 4 January 2013.

“44.I crave leave to refer to the affidavit of Shane Robert Jones sworn 19 December 2012 (Jones Affidavit) where he recounts the content of that conversation along with the notes he took. I am not sure it occurred in the order that he suggests in his affidavit but in a general sense we did discuss all of the matters that he says we discussed. The conversation took around half an hour and so while SJ has correctly recorded in his notes all of the topics I can recall being discussed he has let out a lot of the detail.
45.The conversation started pretty light hearted and SJ asked me if the split was amicable as he was concerned about whether he should be acting and I told him it was all fine. I remember asking him to keep everything as simple as possible.
46.We talked about needing to get CW released from various guarantees he’d given as a director and while initially I had agreed that we (meaning the other directors and I) didn’t need formal notice of CW’s retirement as a director, that seeing as SJ would be sending notice to the lessor etc, that he might as well send us notice as well. Shane did not provide us with this notice.
47.I have a pretty good relationship with SJ, he once saved me a lot of money on a deal for which I was grateful and I remember back then offering him use of my holiday unit on the Gold Coast when ever he wanted and that was just the relationship we had so I was used to talking pretty casually about things with him and it was that sort of conversation this day, I think we even joked about a few things.
48.He then asked me what was the price and I remember that he seemed a bit hesitant when he asked and this was quite unusual. I remember thinking ‘here it comes he is going to try to change the price on me’. In response I said words to the effect that CW was to be paid $750,000 and SJ said ‘yes that’s right plus 25% of the profits’.
49.What he doesn’t say in his affidavit is that I then said ‘No Shane, Col will get hat he is entitled to under the shareholders agreement.’ I remember that I used the same words that I had heard DG say to CW at the meeting.
50.He didn’t dispute this and my recollection is that the conversation ended at this point.
51.I am very clear about this conversation, I made it clear to SJ that it was only $750,000 that was to be paid for CW’s share. The suggestion of 25% of profit was made by SJ and I clearly rejected it.
52.This was the first time that I realised that CW might think he was going to get 25% of the profits as part of the sale and I was clear to SJ that my view was that CW would get what he was entitled to under the shareholders agreement. I still didn’t really connect this with the ‘divy’ that CW had mentioned in the 8 October meeting which I thought was just him asking if we was going to get a dividend the next time WHPL declared one in the ordinary course.
53.As I say above divvy is a term we do use for dividends but those dividends are never worked out as a flat percentage of retained profits. So to me at least ‘divy’ and ‘25% of profit’ (or retained profit) are two very different things.”

Under cross-examination, Jones confirmed that the first time he had spoken with any of the parties other than Colin was his discussion with Tony on 19 October. It is sufficient to say that Jones disagreed with Tony’s version of the discussion. So much is clear from the following passage of evidence[27]:
[27]T1-63, 64.

“But when the issue of the retained profits was brought up he’s adamant that he said, ‘No. That’s not included in the agreement.’?-- Yes.
And he made that very clear to you?-- Well, that’s what he says in his affidavit.
Okay. Do you deny that?-- Yes. Absolutely.
What? Deny that he raised any concern about it at all?-- Absolutely. No words like that were used.
All right. I’m suggesting to you that he was very clear in saying that is not the case at all?-- No.
Or words to that effect in Tony Gibb type language?-- No. He did not say those words at all.
All right?-- Or words to that effect.
Now, because, as I’ve identified, that for a 35 minute conversation, the file note is very brief?-- Yes.
And also I think you’ve identified for me previously that sometimes there are matters in the discussion which don’t make their way into the file note?-- Yes.
All right. And I’m suggesting this might be one of those events?-- Yeah. I can remember things that we spoke about that are not there.”

Jones was further cross-examined on the terms of the Share Sale Agreement which he subsequently drafted, and conceded that nothing showed up in correspondence about the retained profit aspect before the parties signed the agreement on

29 November 2012.[28] Despite that, Jones denied the suggestion that this was because Tony had made it clear to him on 19 October that the retained profit aspect was not part of the agreement.
[28]T1-67.

When Tony was cross-examined, he was similarly adamant that he had told Jones that the 25 per cent share of retained profits point was not part of the agreement. So much is clear from the following passage of his cross-examination[29]:

“Now, you’ve already been through in substantial terms on your affidavits what you say occurred in the meeting with Mr Shane Jones on the 19^th of October 2012. You’re adamant, aren’t you, that you said to Mr Jones words to the effect when he said to you the deal involved 25 per cent share of the profits, you’re adamant – your evidence is clear, despite what you’ve seen him say – that you said that in response, ‘That wasn’t part of the deal.’?-- Yes.
I suggest to you that you’re wrong about that, that no such statement was made by you?-- I did make that statement.”

[29]T2-79.

The email of 31 October 2012

On 31 October 2012, Yuen sent to each of Colin, Tony, Nick and David an email entitled “FY13 QTR1 July – Sept draft accounts”. Attached to that email were the draft accounts that Yuen had prepared for the first quarter of the 2013 financial year, i.e. the period from July to September 2012. In the covering email, Yuen set out some information about the accounts. His email then continued:

“December Retained Profits
The Retained Profits at 30 Sept 12 are $1,078,643. A 25% share of the retained profits would currently be $269,660.
In regards to forecasting what the position at 31 December might be, it of course mostly depends on the trading result. If trading and expenses are similar to last year, the Oct-Dec Qtr could add about $500,000 to the retained profits (For example, Oct-Dec11 was $467,307 and Oct-Dec10 was $574,557). Carrying that through, if total retained profits at 31 December 2012 were $1,578,643 then a 25% share would be $394,660.
The December Accounts will need to include all the expense adjustments to properly reflect a closing off date, like we did before David joined. For example, yearly expenses are apportioned (like Workcover), and other expenses accrued and included if not yet paid (like rent to GFF). I would like to prepare a draft soon after December then have you all review them to make sure everything in included.
Peter Goss was chasing the most up to date Financials to assist with the $500,000 loan, so I’ll send these through to him as DRAFT. I would think that the strong result should help with the financing applications.
Kind regards
Yuen”

It was not suggested anywhere in the evidence that this email was the subject of discussion between the parties themselves or that it prompted any further communications between the parties and either or both of Jones and Yuen with respect to, for example, the drafting of the share sale agreement.

Nick’s evidence about that email was as follows[30]:

“39.I received an email from the WHPL’s accountant Sun Yuen on 31 October 2012 and I remember looking at it on my telephone but not opening it fully because that was the day before I was heading to Adelaide for my birthday and it only contained draft figures which I didn’t think was terribly important or something I needed to deal with then.
40.I was only in Adelaide for the weekend but it was a few weeks before I got back to looking at that email. It is not uncommon for me to look at an email quickly on my phone and to decide whether it is something I need to deal with then and there, something I can delete straight away or something I need to look at but can wait until another day. If it doesn’t need my attention straight away and isn’t something I can delete straight away I will usually come back to it some time later when I am on my laptop.
41.I don’t remember precisely when I went back and looked at this email but it was several weeks later and after I had signed the share sales agreement on 29 November 2012 (Share Sale Agreement). The signing of the Share Sale Agreement is dealt with below.”

[30]Affidavit sworn 4 January 2013.

David gave the following evidence[31]:

“47.I remember receiving an email from Yuen Sun, who is the accountant for WHPL, on 31 October 2012 titled FY13 Qtr1 July – Sept Draft Accounts. I crave leave to refer to the affidavit of Lance Craig Pollard sworn 20 December 2012 and specifically exhibit LCP11 which is a copy of that email.
48.It was a pretty standard email from the accountants except for the last section headed ‘December Retained Profits’. I didn’t know why it was included but I thought it related to discussions we had with the WHPL’s bankers with respect to the purchase of the Westview Farm. At no time did I think it had anything to do with CW’s decision to sell or the amount we were going to have to pay him.”

[31]Affidavit sworn 4 January 2013.

Under cross-examination, Goffman described this section of the email of

31 October as being “very unusual”, and agreed that it was not consistent with the usual quarterly or half yearly reporting that was received from Yuen. The rest of the email was consistent with the usual sort of reporting, but this information was unusual. David said he read this information briefly at the time and then looked at it more closely later in November. He agreed that the email used the words “retained profits” but said the use of that term was unusual.[32]
[32]T2-30.

Conversation between Jones and Nick on 6 November 2012

On 6 November 2012, Jones attended on Nick, who had parked in an off-street parking area near Jones’ office, to provide him with the Share Sale Agreement and associated documents for signature. Jones gave evidence[33] that when he met Nick he had a conversation with him in which Nick asked how much money he had to pay on 31 December 2012. Jones said that he had a discussion with the amounts that were being paid. His evidence included:

“Nick said a valuation of Col’s car was being done. I said Col’s car would be deducted from the share of the profits owed to Col and that money would be paid later.”

There was other discussion about banking arrangements and practicalities associated with the fact that settlement was to occur on 31 December 2012.

[33]Affidavit sworn 19 December 2012, para 19.

Jones did not keep a diary note of this discussion. He said that he did not do so because the discussion occurred when he met Nick in the car park.

Nick’s version of that meeting was as follows[34]:

“46.I recall that I was in a hurry and got SJ to come and meet me in my vehicle which I had parked in the driveway at the front of his office to give me the documents. SJ did discuss a few things about the sale with me at that time but just about the different things we needed to get done for the sale such as where we needed to sign the various documents and who had to sign what. There was no discussion about retained profits or the purchase price at all.
47.I don’t remember every detail of the conversation but I am certain that SJ never raised anything about payment of retained profits being part of the agreement because that would have been the first time it came to my attention that CW thought he was being paid retained profits and so I would have remembered it and I would have asked SJ if that was in accordance with the shareholders agreement.”

[34]Affidavit sworn 4 January 2013.

Letter of 12 December 2012

I have set out above the terms of the letter written by HWL Ebsworth on

12 December 2012.

WAS THERE AGREEMENT ABOUT THE RELEVANT TERM ON 8 OCTOBER 2012?

I am not persuaded, on the balance of probabilities, that at the meeting on

8 October 2012 Colin, Nick, Tony and David agreed that, in addition to the total purchase price of $750,000, Colin would be paid a dividend representing

25 per cent of the retained profits of the business to 31 December 2012.

During the trial, I had the advantage of hearing each of those four tested under cross-examination. I do not consider that any of them was a deliberately untruthful witness. It is not surprising that the detail of what each recalled about that meeting differed; Colin was clearly focused on informing the others of his desire to leave, while Nick, Tony and David were not only surprised by what they were hearing from Colin but were processing what they heard from different perspectives and with different priorities.

So far as the meeting on 8 October is concerned, I consider it unlikely that Colin used the phrase “retained profits”. It is much more likely that he used the term “divvy”. This was the term which the shareholders regularly used, albeit that it had come to have a specific meaning for them, i.e. a distribution made in accordance with cl 8 of the Shareholders’ Agreement.

This is not to say that nothing was said at the meeting about the payment to Colin of a sum in addition to the purchase price. This topic was, on any view of the evidence, clearly raised. Whether it was done so assertively, as Colin would have it, or diffidently, as Nick and Tony portrayed it, is not to the point.

Whether Colin used the term “retained profits” (which I consider unlikely) or the word “divvy” (which I consider more likely), the real question is whether the others signified by word or act their acceptance of whatever it was that was being proposed by Colin.

I accept that the only verbal response at the meeting to Colin raising the prospect of being paid a further sum, regardless of whether he used the words “retained profits” or “divvy”, was David’s statement to the effect that Colin would be paid whatever he was entitled to under the Shareholders’ Agreement. I find that there were no words or actions by any of Tony, Nick or David which signified their accord to whatever it was that was being proposed by Colin in this respect.

Indeed, as noted above, Tony’s understanding at the time of the meeting was that Colin would be entitled to be paid a dividend for the period up to 31 December 2012. It is clear that this was a reference to a dividend paid under the “Distribution Policy” provided for in cl 8 of the Shareholders’ Agreement. There was no inconsistency between Tony being of that understanding and David expressing the view that Colin would receive whatever he was entitled to under the Shareholders’ Agreement. Moreover, any discussion at this meeting of minimization of the payment of expenses which did not need to be paid prior to Colin’s departure on 31 December would have been just as consistent with the notion of maximizing the funds available for the payment of a dividend under cl 8 as it would have been with a proposition that retained profits should be paid out.

Even if Colin considered that, by whatever form of words he used, he was raising the prospect of being paid a share of the “retained profits” (and it is clear enough that all the parties understood the difference between a payment of retained profits and a distribution by dividend pursuant to cl 8 of the Shareholders’ Agreement), it is equally clear that there was no meeting of the minds on this point at the meeting on 8 October 2012. At highest, what was acknowledged expressly by David was Colin’s potential entitlement to be paid a dividend pursuant to cl 8 of the Shareholders’ Agreement. But whether Colin was and is, in fact, entitled to receive such a dividend is not the question to be answered in this case. The only question is whether the parties actually reached agreement on the payment of a share of retained profits at the meeting of 8 October 2012. In my assessment, they did not.

The first professional advisor that Colin spoke with after the meeting was Yuen. The question of Colin being paid a share of the retained profits was discussed by them, but I consider it unlikely that this was as a consequence of Colin having raised it at the shareholders’ meeting. It is much more likely to have been raised in the meeting with Yuen in the context of working out what he thought Colin would be entitled to receive on his departure from the business.

While Colin did have a telephone discussion with Jones after he had met with Yuen, I find that Colin did not, in this discussion, tell Jones either of the purchase price or that he was to be paid 25 per cent of the retained profits. Just as Colin is mistaken about the order in which he spoke with the professional advisors on that day, both Colin and Jones are mistaken about Colin having informed Jones of these matters in the course of this phone call. The fact that Jones did not record these details in his contemporaneous diary note is telling – these details as to the money to be paid to Colin are so important and central to the transaction that, if Jones had been given these instructions by Colin, it is close to inconceivable that he would not have made a note of them.

On the contemporaneous evidence before me, I find that Jones was first given these details not by Colin but by Yuen in their telephone discussion on 11 October 2012. That information was given in the context of Yuen questioning whether the Shareholders’ Agreement covered the situation of Colin’s exit from the business. Whatever the reason for Yuen giving this information to Jones, however, it is not evidence of what was actually agreed between Colin, Nick, Tony and David at the meeting on 8 October 2012.

As to the conversation between Jones and Tony on 19 October 2012, Jones’ diary note is notable for what it does not say. It records the price as “$750,000 plus share of profits up to 31/12/12” – it does not say “share of retained profits”. I accept Tony’s evidence that he told Jones that there was no agreement that Colin be paid 25 per cent of the retained profits. It is, however, completely consistent with Tony’s understanding of Colin’s entitlement to a dividend under the Shareholders’ Agreement for Jones to have recorded that Colin was to receive a “share of profits up to 31/12/12”.

I note parenthetically at this point that, on any view, a payment to Colin of

25 per cent of retained profits was not, and was not considered by any of the parties or by Yuen or Jones, to have been an entitlement under the Shareholders’ Agreement. The fact that there is no record of an agreement to make a payment of retained profits, even in contemporaneous correspondence, and the fact that it was not provided for in the Share Sale Agreement subsequently prepared by Jones, tells strongly against such an agreement ever having been reached, let alone at the meeting on 8 October 2012.

The fact that Yuen considered that Colin ought receive 25 per cent of the retained profits was reflected in the commentary in his email of 31 October 2012. The facts, which I accept, however, are that none of the shareholders paid much attention to that email. The commentary, in any event, may have reflected Yuen’s understanding; it did not, however, tend to prove what had actually been agreed between the shareholders on 8 October 2012.

In respect of the conversation on 6 November 2012, it is again telling that Jones did not give evidence that he used the term “retained profits”. Even on his version of that conversation, the topic of discussion was the deduction of the value of Colin’s car “from the share of the profits owed to Col and that money would be paid later”. The concept of there being “a share of the profits owed to Col” which would be paid later is completely consistent with the prospect of Colin receiving a dividend pursuant to cl 8 of the Shareholders’ Agreement. I find that there was no reference in this conversation to Colin being paid a share of the “retained profits”.

As to the letter from HWL Ebsworth on 12 December 2012, it is not surprising that this letter did not refer to the meeting of 8 October 2012. There is no evidence that it had, at any time prior to that letter, been asserted on Colin’s behalf that an agreement about retained profits had been reached at the meeting on 8 October. That contention was first advanced in the letter from Bennett & Philp of

17 December 2012, in response to the letter from HWL Ebsworth.

I note also that, prior to the parties signing the Share Sale Agreement, there had, on 19 November 2012, been a meeting between Jones and David. David was particularly concerned to discuss the amounts payable to Colin at settlement, and how these amounts were calculated. Both the contemporaneous note kept by David of that meeting and Jones’ diary note of that meeting were in evidence before me. There was no mention in either of those notes of Colin being paid 25 per cent of the retained profits; it is apparent from the diary notes that the discussion concerned the payment of the $750,000 purchase price.

Nor, as I have already observed, did the Share Sale Agreement drafted by Jones incorporate any provision for the payment to Colin of a share of retained profits. Indeed, cl 2.2 of the Share Sale Agreement, which was a provision specifically drafted by Jones, might well be considered apt to preserve Colin’s rights to recover dividends or distributions made pursuant to cl 8 of the Shareholders’ Agreement. That question does not need to be determined here. It was not in issue, however, that cl 2.2 did not confer on Colin a contractual right to receive a share of the retained profits.

It is also apparent that the first occasion on which it was suggested in correspondence to Nick, Tony and David that Colin claimed an entitlement to receive a share of the retained profits was in December 2012, obviously after the Share Sale Agreement had been signed, when there was correspondence about the need for there to be minutes to record the necessary declaration of dividend. Colin sent that email to Nick on 11 December 2012. The fact that HWL Ebsworth’s letter was then dispatched within 24 hours speaks to the proposition that Nick, Tony and David did not consider that there was any such agreement with Colin.

For all of that, however, the resolution of this matter still comes back to the fundamental factual question of what was discussed and what was agreed at the meeting on 8 October 2012. For the reasons I have given above, and even if Colin considered that he had, by whatever words, raised the prospect of being paid

25 per cent of the retained profits of the business to 31 December 2012, there was no meeting of the minds on this question and, accordingly, there was no agreement on 8 October 2012 in the terms contended for by Colin in this proceeding.

In light of that finding, it is not necessary for me to consider whether the collateral contract asserted by Colin could stand in the face of the express terms of the executed Share Sale Agreement.

Conclusion

For the reasons set out above, there will be judgment in this proceeding for the respondents.

I will hear the parties as to costs and any further orders which may be appropriate.

CITATION:	Wright v Tonic Bros Pty Ltd & Ors [2013] QSC 143
PARTIES:	COLIN ROBERT WRIGHT (applicant) v TONIC BROS PTY LTD ACN 076 102 657 (first respondent) and HALROSE PTY LTD ACN 055 750 233 (second respondent) and GOFFMAN INVESTMENTS PTY LTD ACN 136 335 772 (third respondent) WARRALODGE HOLDINGS PTY LTD ACN 142 810 768 (fourth respondent) and WARRALODGE PTY LTD ACN 077 503 630 (fifth respondent) and GIBB FARMING COMPANY PTY LTD ACN 115 592 071 (sixth respondent)
FILE NO:	12369 of 2012
DIVISION:	Trial Division
PROCEEDING:	Trial
ORIGINATING COURT:	Supreme Court of Queensland
DELIVERED ON:	4 June 2013
DELIVERED AT:	Brisbane
HEARING DATE:	17, 24 January 2013 Written submissions
JUDGE:	Daubney J
ORDER:	1. There will be judgment in the proceeding for the respondents. 2. I will hear the parties as to costs and any further orders which may be appropriate.
CATCHWORDS:	CONTRACT – FORMATION OF CONTRACTUAL RELATIONS – ACCEPTANCE – GENERALLY – where the applicant contended that a contractual term as to the payment of a share of retained profits had been agreed to – whether the parties in face agreed to such a term
COUNSEL:	P Looney SC for the applicant APJ Collins for the respondents
SOLICITORS:	Bennett and Philp for the applicant HWL Ebsworth for the respondents