New South Wales Supreme Court CITATION : Spies v Francis [2001] NSWSC 143 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 20602/96 HEARING DATE(S) : 27/2/01-2/3/01 JUDGMENT DATE : 15 March 2001 Peter Mannery Spies (Plaintiff) PARTIES : v Murray Bowler Francis (Defendant) JUDGMENT OF : Newman AJ at 1 COUNSEL : P: Mr J Agius SC D: Mr G Van Der Vlag SOLICITORS : P: Clinch Neville Long D: Goldrick Farrell Mullan CATCHWORDS : Damages - breach of contract - whether documented in personal capacity or as disclosed agent - whether binding contract. LEGISLATION CITED : Limitation Act, 1969, s14 Contracts Review Act, 1980, s57 Masters v Cameron (1954) 91 CLR 353 Browne v Dunn (1893) 6 R 67 CASES CITED : McNally v Jackson Spanney (1938) 42 WALR 27 Southwell v Bowditch (1876) 1 CPD 374 Oracle New Zealand Ltd v Price Waterhouse Administration Ltd (1996) ANZConvR 297 DECISION : Judgment for defendant. IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION NEWMAN AJ THURSDAY, 15 MARCH 2001 20602/96 - PETER MANNERY SPIES v MURRAY BOWLER FRANCIS JUDGMENT 1 HIS HONOUR: This is a claim for damages for breach of contract. The alleged contract is one for the sale of a business previously conducted by a company, Sterling Nicholas Duty Free Pty Limited (hereinafter referred to as "SNDF"), of which company the plaintiff was, at all relevant times, both Managing Director and a leading shareholder. On 29 October 1990, SNDF was placed into official liquidation. Mr J. E. Star as Liquidator of SNDF on 13 June 1996 assigned any rights that company might have in relation to the alleged contract to the plaintiff. 2 The alleged contract is evidenced by a document dated 14 May 1990. There is no issue in these proceedings that this document was in fact properly executed by both SNDF and the defendant on that date. However, it is the defendant's contention that:- (a) he did not execute the document in a personal capacity but as the disclosed agent for a New Zealand corporation, Compass Duty Free Limited (hereinafter referred to as "Compass"); and (b) that, in any event, the document was not a binding contract for the sale of the business of SNDF but merely formed part of the negotiations being carried out in relation to the proposed sale. In other words, it was a mere "agreement to agree" of the type referred to by the High Court in Masters v Cameron (1954) 91 CLR 353. 3 Furthermore, the defendant relies upon s 14 of the Limitation Act, 1969, s 57 of the Contracts Review Act, 1980 and contends that he did not have the mental capacity to enter into a contract at the relevant time, as additional matters of defence. 4 Essentially, the resolution of the issues raised depends upon the Court's assessment of the credibility of Messrs Spies and Francis, the plaintiff and the defendant. In relation to the first issue raised, namely, whether Mr Francis was acting as the disclosed agent of Compass, I am of the view that he bears the onus of establishing that matter on a balance of probabilities. 5 I turn now to the factual background. 6 SNDF had been trading in Sydney as a retailer of duty free goods from about March 1970. Initially, it traded from a store at 113-115 Oxford Street, Darlinghurst, but later added two city stores to its operation, one in Pitt Street in 1979 and another in Hunter Street in 1988. However, as its balance-sheet for the year ending 30 June 1990 clearly reveals, SNDF, by 1990, was in a parlous financial situation. In that year, SNDF sought and secured advice as to what action it should take. That advice was to sell the business. The plaintiff in his capacity as Managing Director then set about that task. As I have said, not only was he so employed but he was also a leading shareholder, holding 45% of the issued shares in SNDF. 7 The defendant had also been engaged in the duty free retail trade. He had been so engaged from 1985 to 1990 as a shareholder and Managing Director of Compass. Prior to that activity, he had a business career as the proprietor of a suburban weekly newspaper and then as a director and executive of a building company. He was thus no stranger to contractual documentation. Compass, like SNDF, had run into financial problems and, in 1990, he sold out his holding in Compass to American interests, at a considerable loss of capital to himself. 8 It was common ground that the plaintiff and defendant had met at a duty free conference in Singapore in 1988. Contact was remade between the parties in 1990. It is there that the common ground between the parties ends. Mr Spies claims that Mr Francis rang him in early May 1990. On the contrary, Mr Francis claims that Mr Spies rang him in late April of that year. Mr Spies deposes that Mr Francis, when he rang him, stated that he sold out of Compass and was looking to acquire a duty free operation in Australia. Mr Francis deposes that when Mr Spies rang him in April, he offered the sale of jewellery to Compass, which SNDF had recently acquired. Later, Mr Francis deposed that Mr Spies rang him again (in May), this time raising the matter of the sale of SNDF to Compass. If there be any common ground between the parties over these conversations, it is that both agree that Mr Francis had advised in a telephone conversation that he had sold out of Compass and that others now controlled it. However, that is about the end of any agreement between them. 9 The position taken by the parties as to the issue of agency may be simply stated. Mr Spies maintains that, not only did Mr Francis not disclose at any stage before the execution of the document of 14 May that he was acting as agent for Compass, but, on the contrary, Mr Francis was maintaining that he was acting solely for himself. Mr Francis is equally adamant that, at all times, he made it clear to Mr Spies that he was acting as agent for Compass. Indeed (and this also goes to the second issue), he contends that he could not agree to anything on Compass's behalf without due authorisation for such agreement from the company. It was submitted on behalf of Mr Francis that Mr Spies was clearly aware that, when he executed the document dated 14 May:- (a) Mr Spies knew he was acting as agent for Compass; and (b) that he did not have any authorisation from Compass, at that time, to complete a binding agreement on that company's behalf. 10 In this situation, where the parties were maintaining positions as to what was said at relevant times which are as distinct as black is from white, counsel for both parties agreed not to cross-examine on the details of conflict. Counsel thus agreed to waive any point which might arise in terms of the principle discussed in Browne v Dunn (1893) 6 R 67. However, both Messrs Spies and Francis were challenged in cross-examination as to their veracity. 11 One such challenge which I regard as being important involves the contents of paragraph 26 of Mr Spies' affidavit of 2 November 1999. It reads as follows:- "26. I telephoned Mr Francis on 21 May 1990 and had a telephone conversation with him to the following effect:- Spies: 'Murray, I had no idea that you were depending on anyone other than yourself to complete the business that we had discussed. You never indicated to me that you were anything other than an independent individual who may, if you wish, make side arrangements with regard to the business. You did not tell me that you were acting for someone else and that everything depended on someone else to complete what you had started.' Francis: 'I thought you understood all along that I was acting for Compass.' Spies: 'No Murray, what you gave me to understand is that this was your deal and you might take someone else along with you or you may even have someone else complete the deal for you. You did not elaborate and I did not pursue your personal business. But I will say to you, I look to you as being the responsible party in the contract we signed and you are the one we shall chase if you continue to default. You are the responsible party. Now if I can assist you in any way to complete the contract, then all you have to do is ask. But, whatever I do will be done 'without prejudice' to this company's rights. What we want to know is, when do you intend going ahead with the matter and when can we have the deposit? Francis: 'I am trying to get a deal going.' Spies: 'Murray, tell me what the situation is with Compass. Are you having problems?' Francis: 'Michael Seamer of Compass is very keen to go ahead with Australia but he wants to be sure there is no mistake. He is not familiar with Australian customs regulations. So much needs to be planned in detail. I have given Michael my opinion which is positive. Michael is very keen. I will contact you as soon as I hear from Michael.' " 12 In cross-examination, the contents of a file note, said by Mr Spies to have been made contemporaneously, recording the conversation referred to in paragraph 26, was put to Mr Spies. That file note is in the following terms:- "Phoned MF at 12.17pm (Sydney Time). Operator advised he was in a meeting and he should be available in approx. 20 minutes. A message was left by PS for MF to ring back. ------------------------------------------------ Phoned MF again at 2.51pm. MF answered the phone. PS asked MF if he had received his message. MF replied yes, but that he was waiting for MS to contact him. MF told PS that he was upset with the lawyers, he stressed that he cannot decide on things by himself. MF said he is waiting for MS to call him back (Michael has just returned from overseas - Malaysia, HK). PS asked MF when they are expecting MS. MF replied that he knows MS is in another office, he is on the phone with an overseas call. … conversation re Mr. L. Newton's health. PS to MF: 'Murray, can you tell me what the situation is with Compass? Are they giving you any problems?' MF to PS: 'Michael is very keen to go ahead with Australia … but he wants to be sure that there is no mistake … We are not familiar with Australian Customs Regulations … we depend a lot on you … so much needs to be planned in detail … I have given Michael my opinion, which is positive. Michael is very keen.' MF then said he would contact PS as soon as he hears from Michael this afternoon." 13 I found Mr Spies' answers to that challenge to be unconvincing. It seems to me that, if Mr Spies had stated his bewilderment at Mr Francis's revelation of agency in the terms he deposed to in paragraph 26, or in terms anything like those, he would have made some record of it. Instead, what he did record is consistent with Mr Francis's position that Mr Spies was, at all relevant times, aware that Mr Francis was acting as agent for Compass. 14 I should add that Mr Francis did not escape unscathed from cross-examination. In particular, when taken to a statement he had made to a Detective Payn of the New Zealand Police Force in March 1995, he did not give convincing answers as to differences between his evidence in this case and what he was recorded as telling Detective Payn. Specifically, while it was his evidence here (as I have already mentioned) that it was Mr Spies who first raised the question of the sale of SNDF, he is recorded as telling Detective Payn that it was himself who first raised the proposition that Compass was interested in acquiring an Australian duty free business. Also, his statement to Detective Payn, that there was an additional page to the document of 14 May 1990 which made it clear that what was being agreed to was the creation of an option, did not sit easily with his evidence in chief. 15 Having carefully weighed the testimonies of both Messrs Spies and Francis, I have concluded that I prefer the evidence of Mr Francis to Mr Spies. While I am aware of the dangers of over-emphasising one's observations of the manner in which evidence is given by witnesses, I found Mr Spies to be a most unconvincing witness. His answers in cross-examination were given in a glib fashion and the challenge to the contents of paragraph 26, to which I have referred, was extremely damaging to his credit. Even taking into account the matters of inconsistency in Mr Francis's testimony, I am of the view that he was doing his best to truthfully recall the relevant events. In short, wherever their testimonies are in conflict, I prefer the evidence of Mr Francis to Mr Spies. 16 Accordingly, I find that, at the time of the execution of the document of 14 May 1990, the defendant was acting as agent for Compass and that the plaintiff was well aware of that fact. I am fortified in making that finding by the terms of clause 8 of that document. It reads:- "8. The Purchaser may nominate another Purchaser to complete this agreement in place of the Purchaser provided that any such nomination shall be in writing and served on the Vendor at its aforesaid address." 17 It was the defendant's evidence that the purpose of this clause was to facilitate the substitution of Compass as purchaser, should that company decide to finalise the transaction. At the time of executing the document, business hours in New Zealand had finished for the day, thus the defendant was not able to obtain authorisation from Compass to complete a binding agreement. Clause 8, in my view, is both indicative of Mr Francis's disclosed agency and the fact that the document itself was not intended to constitute a binding agreement. As to the latter point, I shall deal with it later in these reasons. However, in relation to the question of agency, as I have said, I am fortified by the wording of clause 8 in finding as I have. However, even if clause 8 did not exist, my finding as to agency would remain the same. 18 It is trite law that the non-disclosure of a principal's name is not of itself sufficient to make the agent personally liable (McNally v Jackson Spanney (1938) 42 WALR 27). Where, as is the case here, there is no reference at all to the principal's name in a document, a strong influence exists that it is the nominated parties who are to be bound by any contract created by the document in question. It is for this reason that I placed the onus of proving agency on the defendant. Essentially, I have found that the defendant has discharged that onus. Accordingly, I find that the defendant drops out of the transaction (Southwell v Bowditch (1876) 1 CPD 374). It follows that there must be a judgment for the defendant. 19 It is thus not necessary for me to consider the other matters of defence raised. In view of the careful arguments presented by counsel, particularly in relation to what I would describe as the Masters v Cameron point, I propose to shortly indicate my views as to whether or not that point has been made out by the defendant. 20 There are a number of features in the wording of the document in question which point to being a negotiating instrument rather than a binding contract. Firstly, its title is, "Heads of Agreement" not "Contract for Sale". Of course, if the wording of the document is such as to evidence an intention by the parties to be bound contractually by it, the heading may be safely disregarded by a court construing such a document. 21 Secondly, the document's preamble states, "WHEREAS the parties have agreed that the Purchaser will purchase the Vendor's Duty Free sales business upon the terms in principle of this Agreement and the parties agree as follows:" (emphasis added). 22 It is the phrase "in principle" which is used in aid of the defendant's contention. Reliance was placed by the defendant on the following observations of McKay J in Oracle New Zealand Ltd v Price Waterhouse Administration Ltd (1996) ANZConvR 297:- "The first response, that of 26 April, said only that NZI agreed 'in principle'. We accept Miss Lennon's submission that that phrase is commonly used to distinguish a non binding understanding from a binding commitment. It is an indication that there is no serious objection or obstacle, and that the party is willing to enter into a contract once details are settled. In commercial negotiations there is often little point in spending time and energy on settling details unless there is agreement in principle. Once that point has been reached, then it is worthwhile negotiating the details, but there is no contact until all issues have been settled. To regard an agreement in principle as binding would be to deprive the qualifying words 'in principle' of any meaning at all." 23 Furthermore, Mr Francis's testimony as to events surrounding the execution of the subject document (which, as I have said, I accept) is indicative of the parties' intentions at the relevant time. 24 Finally, when clause 8 is read in conjunction with the preamble, I am of the view that the document was not intended by the parties to form a binding contract but rather as a negotiating instrument. 25 In the light of my finding as to agency, it is unnecessary for me to deal with the other defences raised by the defendant. 26 There will be judgment for the defendant. I will hear submissions on costs after delivery of these reasons. ********** Last Modified: 03/27/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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