New South Wales Supreme Court CITATION : Wennerbom v Murdoch Produce [2006] NSWSC 264 HEARING DATE(S) : 22 March 2006 JUDGMENT DATE : 22 March 2006 JURISDICTION : Equity JUDGMENT OF : Austin J EX TEMPORE JUDGMENT DATE : 03/22/2006 DECISION : Declaration that the parties reached an agreement CATCHWORDS : CONTRACTS - settlement negotiations for legal proceedings - whether solicitors for parties reached a concluded agreement CASES CITED : Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & ors 40 NSWLR 622 Hugh Murdoch Wennerbom (P) PARTIES : Murdoch Produce Pty Ltd (D1) Anthony Vincent Katter (D2) Justyn Ross McGrigor (D3) FILE NUMBER(S) : SC 3619/05 COUNSEL : V R W Gray (P) R I Bellamy (D) SOLICITORS : Malcolm Johns & Company (P) Holman Webb (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J WEDNESDAY 22 MARCH 2006 3619/05 HUGH MURDOCH WENNERBOM V MURDOCH PRODUCE PTY LTD & ORS JUDGMENT (Ex tempore; revised 31 March 2006) 1 HIS HONOUR: By statement of claim filed in court on 29 September 2005 the plaintiff seeks relief on grounds relating to alleged oppression in respect of the affairs of the first defendant company. The shareholders of the first defendant are the plaintiff, who holds 48 shares, the second defendant, who holds 48 shares, and the third defendant, who holds 24 shares. 2 The statement of claim alleges that the relationship between the plaintiff and the second defendant has broken down completely. It makes specific allegations of various events in 2003 and 2004 with respect to the affairs of the company, accusing the second defendant of oppressive or wrongful conduct. It alleges that the affairs of the company have been conducted and acts and omissions have taken place on behalf of the company that are contrary to the interests of the members of the company as a whole and oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiff. It also alleges that it is just and equitable that the company be wound up. 3 Although winding up is sought as an alternative form of relief, the primary relief sought in the statement of claim is either an order that one of the defendants purchase the plaintiff's shares or an order that the plaintiff purchase the second and third defendants' shares, in each case "for an amount found by this honourable court to be a just price truly reflecting the value" of the shares. 4 By his defence the second defendant admits that the relationship between himself and the plaintiff has broken down but, in various respects, denies the specific allegations made against him. 5 The second defendant has filed a cross-claim which alleges that, under the terms of a shareholders' agreement dated 29 June 1999 between himself, the plaintiff and the first defendant, the plaintiff was obliged to sell his shares in accordance with a stated procedure if he ceased to be employed by the company. The cross-claim alleges that the plaintiff ceased to be employed by the company on 28 February 2004 and, according to the procedure for sale of shares, a valuer was selected, Mr Terry Slattery, to determine the purchase price for the sale. According to the cross-claim Mr Slattery fixed the price at $168,000. 6 The matter comes before me now for the hearing of an interlocutory process filed on 6 March 2006. The plaintiff has, by that application, sought a declaration and orders on the basis that the parties have agreed to settle the principal proceeding. According to paragraph 1 of the interlocutory process there should be a declaration that: "An agreement to settle the current proceedings was reached between the plaintiff and the second and third defendants on 3 February 2006 on terms that: (a) the second and third defendants pay to the plaintiff the sum of $197,000; (b) the plaintiff transfer to the second and third defendants, free of any encumbrance, all of his 48 ordinary shares in the first defendant (in such numbers to each of them as they may direct); (c) each party pay his own costs of the proceedings." 7 The statement of claim also seeks orders requiring the payment of the sum of $197,000 to the plaintiff, the transfer of the plaintiff's shares, and an order that there be no order for costs as to the proceedings up to and including 3 February 2006, with indemnity costs in favour of the plaintiff in respect of the period from 4 February onwards. 8 The issue raised by the interlocutory process is an issue of construction of some correspondence passing between the solicitors for the parties. It is evident from the material before me that by February 2006 the parties were in discussion about the prospect of settlement or mediation. The question of mediation had been the subject of an application determined by Windeyer J on 1 August 2005, when his Honour decided not to order mediation though he made some observations generally supportive of the process. 9 On 6 January 2006 the solicitors for the second and third defendants, Holman Webb, wrote to the solicitors for the plaintiff, Malcolm Johns and Company, addressing the question of valuation of the plaintiff's shares. In their letter Holman Webb pointed out that the difference between the value of the shares determined by Mr Slattery and the value determined by the plaintiff's valuer was approximately $44,000. The letter said: "We are instructed that Mr Katter (the second defendant) will pay to your client the sum of $182,000 in consideration of the transfer to him of 48 shares held by your client in the first defendant, free of any encumbrance." 10 The letter said that the offer would remain open until 20 January and that, if it was not accepted, the second and third defendants would rely on the letter to seek an order for indemnity costs. In the course of the letter it was said that Mr Katter maintained his claims set out in the cross-claim and that the offer had been made in an attempt to resolve the dispute without the necessity of incurring any further costs. 11 Malcolm Johns and Company responded on 16 January 2006 saying that their client offered to settle the proceedings on the basis of five points set out in the letter. One of the points was payment by Mr Katter to the plaintiff of $225,000 "inclusive of interest and costs." Other points covered the transfer of the shares, the payment by each party of their own costs in other respects, the dismissal of the proceedings and cross-claim and "mutual releases by deed." 12 On 20 January 2006 Holman Webb replied rejecting the offer and requiring the parties to attend a mediation. On 27 January 2006 Malcolm Johns and Company wrote to Holman Webb again. They noted that Holman Webb had not put forward any counter-offer in circumstances where Mr Katter had offered "$182,000 plus costs." 13 As counsel for the defendants pointed out today the addition of the words "plus costs" is a gloss on the offer put forward by Holman Webb on 6 January, in which costs were not addressed. Malcolm Johns and Company's letter of 27 January asserted that it was ludicrous to suggest a mediation when the outstanding issue was quantum. They reiterated their client's offer of $225,000 inclusive of costs. 14 I infer that, as at 27 January 2006, the position was that the plaintiff was offering to sell his shares in settlement of the proceedings for $225,000 on the basis that that figure would include his costs and he would have no further claim for costs beyond that amount. Mr Katter had previously made an offer, no longer current, of $182,000 with no mention of costs. The offer had not been for that amount plus costs, contrary to the assertion by Malcolm Johns and Company. 15 Next there was a telephone conversation between Mr Allsop of Holman Webb and Mr Johns, deposed to in Mr Johns' affidavit of 8 March 2006. Mr Johns told Mr Allsop that he had instructions to settle the proceedings if Holman Webb's client were to purchase the plaintiff's shares for $212,000 inclusive of costs. He noted that the previous offer had been $182,000. This time he did not describe the offer as $182,000 "plus costs." He said that the parties were not far apart and suggested that they split the difference so the shares would be purchased for $197,000. He said if Holman Webb's clients were prepared to purchase at that figure he would recommend it to the plaintiff. Mr Allsop said he would get instructions. 16 What Mr Johns put to Mr Allsop was the splitting of the difference between two figures, the higher of which was expressly inclusive of costs and the lower of which did not refer to costs. Mr Johns' proposal was for settling the proceedings, not merely selling the shares. 17 Putting those matters together, I think the appropriate inference is that Mr Johns was proposing settlement at the median point between two offers inclusive of costs, or, to put it another way, two offers of settlement which, if accepted, would mean no further order for costs in favour of either party. The median between $182,000 and $212,000 is $197,000. The median between $182,000 plus costs and $212,000 inclusive of costs would be some other figure. 18 When Mr Allsop responded to Mr Johns by email dated 3 February 2006, his response was in reference to the telephone conversation to which I have referred. He said he had taken instructions from his clients. He spoke in the plural, indicating that what he said was said on behalf of the second and third defendants, not merely the second defendant. He said his clients were "willing to pay" the plaintiff $197,000 for his shares in the company, free of any encumbrance. Counsel for the defendants placed some emphasis on the words "willing to pay", submitting that they suggested something less than a contractual offer capable of immediate binding acceptance. But, in the next sentence of the email, Mr Allsop used the word "offer", which he repeated several times later in the email. The email explained that the offer was on the basis that the shares would be transferred to the two defendants in proportions to be notified. It continued: "This offer has been made on the basis that it represents a 'splitting of the difference' between our clients' earlier offer of $182,000 and your client's offer of $212,000. If the offer is not accepted, our clients will require mediation." 19 The reference to the offer representing the splitting of the difference is significant. In the context of the previous correspondence and the evidence of the telephone conversation, it implies that the second and third defendants' offer was made on a basis that addressed costs. The $212,000 offer by the plaintiff was, as I have said, expressed to be inclusive of costs. The $182,000 offer was referred to in Mr Johns' telephone conversation with Mr Allsop, as I have explained, in a manner that implied that it was inclusive of costs or on a basis that there would be no further order for costs in favour of either party. 20 It follows, in my view, that the offer communicated by Mr Allsop was an offer corresponding with paragraphs (a), (b) and (c) of paragraph 1 of the interlocutory application filed 6 March 2006. 21 Mr Johns responded to Mr Allsop by email on 3 February 2006. He said: "Subject to appropriate orders and a formal deed our client agrees to settle on the basis outlined in your email under reply. Kindly let us have discussion drafts as soon as convenient." 22 The words "subject to appropriate orders and a formal deed," raise a potential problem. If they mean that the plaintiff's agreement was subject to contract there would, on the authorities, be no concluded agreement on 3 February 2006. But, in the context of the correspondence and discussion to which I have referred, it seems to me that these words have a lesser significance. "Subject to appropriate orders" simply acknowledges the necessity that, when proceedings of this kind are settled, some order must be made by the court to dispose of the proceedings. Nothing in the language used by Mr Johns or its context suggests that the "appropriate orders" would have any substantive content other than to reflect the terms of the agreement to settle. 23 The reference to a "formal deed" might possibly be construed as picking up the letter of 16 January 2006, where Mr Johns communicated an offer, one of the terms of which was, "mutual releases by deed." On reflection, however, I do not think that is the correct construction of the email of 3 February. The offer made on 16 January 2006 was formally rejected. By 3 February it was no longer on the table. The email of 3 February refers to a "formal deed." In the context the word "formal" suggests a process of reducing to formal legal language the agreement recorded in the emails, and nothing more. 24 Thus, the formal deed contemplated by the email is a deed that would make provision for the transfer of the shares, for the second and third defendants to notify the proportions in which they would receive the shares, for the payment of the consideration of $197,000, and for the final orders in the proceedings (as, according to the agreement, they were settled). There was no implied agreement as to releases other than such releases as flowed from the fact of settlement of the proceedings. 25 In my view, therefore, the exchange of emails on 3 February 2006 between the solicitors on behalf of their respective clients constitutes an agreement to settle the proceedings on the terms set out in that correspondence. 26 It was submitted that the only offer made on behalf of the second and third defendants was an offer to buy the shares of the plaintiff for $197,000 with nothing being said about the settlement of the proceedings in any other respect, including costs, but, for the reasons I have given, I reject that submission. The offer made by Mr Allsop on behalf of his client was in response to a telephone conversation in which, in the manner I have explained, the question of costs was addressed and the issue under discussion was not merely the sale of the shares but the settlement of the proceedings. 27 It was also submitted that Mr Allsop's email of 3 February 2006 should not be construed as the communication of an offer open to be accepted so as to create a binding agreement, but merely a proposal as to price on conditions to be determined. Reference was made to the discussion of the authorities on this point in J W Carter and D J Harland, Contract Law in Australia (3rd Edition, 1996) page 29. I do not disagree with any of the principles there expounded, but I construe Mr Allsop's email as the communication of a contractual offer and not merely a proposal as to price on conditions to be otherwise determined. 28 It was also contended that the offer, even if a contractual offer, was so devoid of detail and so lacking any clear indication that a concluded agreement was intended to arise if there was acceptance, that no binding agreement should be taken to have arisen. In the context, however, where solicitors were negotiating for the settlement of legal proceedings, I have no difficulty in construing Mr Allsop's email as an offer intended to give rise to a binding contractual relationship upon acceptance and I do not regard it as lacking in sufficient detail to give rise to a contract, in view of the findings I have made about its construction in this context. 29 It was contended that the response by Mr Johns was not an unequivocal acceptance. However, in my view, the position here is as described in the judgments of McLelland J at first instance and McHugh JA on appeal in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & ors 40 NSWLR 622 where their Honours respectively said: "The intention of the parties to be legally bound by their consensus is sufficiently clearly expressed to take the case out of the third class of cases referred to in Masters v Cameron (1954) 91 CLR 353 at 360-362, that is, '... cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own' (at 361). There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron , as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, '... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms'. Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co (1917) 33 TLR 475 at 476, where his Lordship said that: 'It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.'" and "However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction. Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that 'the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms': Sinclair, Scott & Co Ltd v Naughton (at 317)." 30 After 3 February 2006 there was further contact between the parties. The defendants alleged that the plaintiff had been concerned in a business competitive with the first defendant's business, and that they had suffered loss or damage accordingly. These claims were not admitted by the plaintiff. They do not bear on the issue I have to decide today. The question for me to consider under the terms of the interlocutory process is whether there was a binding agreement reached by the exchange of emails on 3 February 2006. I have decided that there was such an agreement. 31 The appropriate course, therefore, is to make a declaration in terms of paragraph 1 of the interlocutory process and orders in terms of paragraphs 2, 3 and 4. I note that, although the issue has come before me by way of interlocutory process, it is clear from the Supreme Court (Corporations) Rules, rule 2.3, that an interlocutory process may seek final relief. 32 I order the second and third defendants to pay the plaintiff's costs of the proceedings from and including 4 February 2006 to date. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.