Supreme Court New South Wales Medium Neutral Citation: Andrew Michael Page v Good Impressions Offset Printing Pty Ltd (Administrators Appointed) [2012] NSWSC 1047 Hearing dates: 11, 12 July 2012 Decision date: 12 July 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Proceedings dismissed; plaintiff to pay second defendant's costs on the ordinary basis until and including 26 June 2012 and thereafter on the indemnity basis Catchwords: Contract - whether parties agreed on essential terms - whether post-contractual conduct can be taken into account - whether agreement on price evidence of binding contract - essential terms still to be agreed - evidence that negotiations were ongoing Corporations - oppression - whether oppressive conduct established - whether share-buy out order appropriate Costs - whether indemnity costs should be ordered - whether offer of compromise made - whether basis to depart from ordinary rule Legislation Cited: (Cth) Corporations Act 2001, s 233(1)(d) (NSW) Uniform Civil Procedure Rules 2005, r 20.26, r 42.15A Cases Cited: Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68 Barrier Wharfs Limited v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9215 Clifton v Palumbo [1944] 2 All ER 497 Calderbank v Calderbank [1975] 3 All ER 333 Category: Principal judgment Parties: Andrew Michael Page (First Plaintiff) Good Impressions Offset Printing Pty Ltd ACN 002 306 587 (Administrators Appointed) (First Defendant) Peter Bruce Edwards (Second Defendant) Representation: Counsel: D C Eardley (Plaintiff) M Doble (Solicitor) (First Defendant) J Darvall (Second Defendant) Solicitors: Herring & Associates (Plaintiff) Eakin McCaffrey Cox (First Defendant) Paul Mattick & Associates (Second Defendant) File Number(s): 2011/43083 Judgment (ex tempore) 1HIS HONOUR: The plaintiff Andrew Michael Page and the second defendant Peter Bruce Edwards are the shareholders, in proportions twenty per cent and eighty per cent respectively, and were, at least until very recently, both the directors of, the first defendant Good Impressions Offset Printers Pty Limited, a company currently subject to a deed of company arrangement following the appointment of voluntary administrators by Mr Edwards and his wife in their capacity as secured creditors of the company. In these proceedings, Mr Page sues for specific performance of an agreement allegedly made on 6 October 2010 for the purchase of his shareholding in the company by Mr Edwards for a price of $400,000, and alternatively for damages for breach of contract. The pleadings also claim, in the alternative, relief for oppression by way of an order that Mr Edwards purchase Mr Page's shares for their fair market value; however, the only evidence of value being a valuation by an accountant, retained to value the shares in the company on a market basis in October 2010, which attributed to each share a nominal value of only 1 cent, so that Mr Page's shareholding of 2,000 shares would be worth $20 in all. Counsel sensibly did not spend time and effort in pursuit of the oppression claim. Background 2Although the evidence to some extent traverses the history of the company not much of that history before 2010 is of great, if any, relevance to the issues in the case. But it is potentially germane to record that the company was initially established by Mr Edwards, with some other third party shareholders, in the early 1980s, and carried on business in the printing industry. The other shareholders left. Mr Page joined the business, initially as an employee in about 1987. After he had been there for about five years - the documents suggest in 1993 - Mr Edwards transferred a 20 per cent shareholding to him and, at the same time, he became a director. In 1999, the parties entered into a shareholders agreement regulating the conduct of the affairs of the company. 3As a matter of practicality there was a division of labour and responsibility: Mr Edwards and his wife, Mrs Lynn Edwards, attended to administration, accounting, finance and governance; Mr Page managed the sales, production and invoicing. The company grew for a couple of decades, but was affected by a general downturn in the printing industry in the latter part of the first decade of the 21st century. A combination of bad debts, the decline in the industry generally and financial pressures resulted in its being in significant financial difficulty by 2010, when it was the subject of winding up proceedings instituted by the Commissioner for Taxation for unpaid taxation liabilities. By mid 2010, both the directors were contemplating the sale of the company and their extraction from it, preferably by a sale to a third party, but, alternatively, by one purchasing the interest of the other. The evidence 4It is necessary to make some observations about the witnesses, the only two being the chief protagonists, Mr Page and Mr Edwards. 5So far as Mr Page is concerned, I believe he gave his evidence honestly and endeavoured to do so accurately. From time to time he made concessions against interest, but I think he was prone, perhaps influenced by the shape his case had taken, to assume events and impressions rather in his favour. He was particularly prone to assume that an agreement had been concluded where it had not been. This was not limited to the crucial events of 6 October. In a number of respects his case appeared somewhat artificial. For example, it at least implied criticism of the rejection of an offer by a third party for the company of $1.8 million, when Mr Page himself conceded that he would not have wanted it sold at that price. Many of the allegations, on which the oppression case was built of exclusion from management were artificial, in the sense that they were the natural result of the division of labour on which the parties had agreed, and Mr Page acknowledged that he had access to financial information if he wished and that, if he asked questions about it, they were answered. Also, the allegation that he was unaware of the problems with the Australian Tax Office, until notified by the Australian Securities and Investment Commission of the pendency of winding up proceedings, was shown to be misconceived in cross-examination. 6The most significant illustration of the difficulties with Mr Page's evidence, however, pertains to his evidence concerning his resignation on 6 October 2010. According to his affidavit evidence, it was clear enough that he resigned before the conversation in which he says the agreement was made on that date. In the course of his cross-examination, he said at first that he had resigned after the agreement was made, but when taken to his affidavit material, he reverted to the original version. Even then, from time to time he asserted or implied that he had resigned on the faith of, or in reliance on, there being an agreement. I think what he meant is that he resigned because he thought that there was a basic understanding or belief that he would resign and be paid something in the order of $400,000. But it is clear, even on his own version, that no such agreement had been reached before he in fact resigned. 7Mr Edwards on the other hand was, I thought, precise and accurate in his evidence, and demonstrated a good recollection of the events. It must be said that he was, in the course of cross-examination, not infrequently combative in demeanour, but in the context of the propositions with which he was then being taxed, I thought that to be understandable. One significant difficulty in his evidence is his assertion that a payment, described as an ex gratia payment, which was referred to in the negotiations, was to be made not to Mr Page but to Mr Page's wife. There was no contemporaneous reference to this in any of the communications between the parties, and, indeed, Mr Edwards ultimately conceded that it was not communicated at the time. If this was in Mr Edwards' mind in the course of the negotiations, it was definitely not objectively communicated between the parties. 8In most cases, then, where there is conflict in the evidence between the parties I would be inclined to prefer that of Mr Edwards to that of Mr Page. However, little turns on it, and, indeed, on the crucial events of 6 October for reasons to which I shall come, I think Mr Page's evidence should be accepted. As will transpire, however, not much turns on the differences between the parties in terms of their evidence. The contract claim 9By about February 2010, a third party, so far as the evidence discloses called STI, had made an offer of $1.8 million for the company, which Mr Edwards rejected. As was pointed out, that would not have repaid even his loan account, he being the largest creditor of the company. Mr Page did not wish that offer to be rejected, and proposed that Mr Edwards seek a purchase price of $3 million. 10By July 2010, there were some discussions on foot between Mr Edwards and one Mark Harvey. The evidence does not disclose in detail the content of those discussions, but it may be assumed that there was some contemplation that Mr Harvey was a potential purchaser. 11Some time in or about July or August 2010, Mr Edwards prepared a spreadsheet containing a number of calculations as to what Mr Page might receive on departing from the company in the event of the various selling prices being attained. One calculation was based on hypothetical selling price of $1.8 million, reflecting the STI offer; another was based on a selling price of $1 million; and a third on a selling price of $3 million. Mr Edwards provided these spreadsheets to Mr Page. On one of them, being that which reflected the $3 million selling price, Mr Edwards wrote "Andrew, you need to have a time schedule for some of the profit share". This was a reference to the fact that the schedule indicated that, on the relevant hypothesis, Mr Page might receive repayment of his director's loans of $100,000, repayment of his share capital of $2,000, and 50 per cent of the net equity left after repayment of liabilities of $234,515.50: a total of $386,515.50. 12Mr Page says that he had a discussion about this document with Mr Edwards, in which he sought confirmation that the total of $386,515.50 was the value of his interest. He says that Mr Edwards responded, "That's the calculation I have come to"; whereas, Mr Edwards says that his response was to the effect, "I will discuss it with Lynn". Nothing really turns on the difference. It is clear on each version that there was some discussion about a figure of $386,000, approximately, on that occasion. The document, however, also makes clear that it was founded on an assumed total price for the company of $3 million, and is consistent with assuming a sale to a third party at that price. 13On 3 August 2010, Mr Page sent a letter to Mr Edwards apparently invoking the terms of their shareholders agreement. In it he said: I, Andrew Page, formally offer sale of my 20 per cent shares in the company Good Impression Offset Printers Pty Ltd to you, Peter Edwards. We have previously come to an agreed price for the company to be $3,000,000.00. Therefore I offer to you my 20% share as $600,000.00 plus my [long service leave] and annual leave entitlements to date of termination. Payment terms. 10% of shares being the value of $300,000.00 to be paid in full by 03.09.2010 Final 10% of shares being the value of $300,000.00 plus LSL & annual leave entitlements to the date of termination to be paid in full by 03.03.2011. 14A number of observations need to be made about this document. The first is that in cross-examination, Mr Page was unable to identify any agreement between Mr Edwards and him that the price for the company was $3 million. Secondly, even on the basis that there was an agreed gross value of $3 million, an offer of 20 per cent at $600,000 was patently absurd, in the sense that it failed to take into account any of the liabilities of the company referred to in the schedules that I have described. Thirdly, because terms of payment will become important at a later stage, it is significant that at this stage Mr Page was contemplating payment of 50 per cent of the amount due by 3 September 2010, and the balance by 3 March 2011 - in other words, all within not much more than six months. 15Mr Edwards responded the same or the following day, in a letter incorrectly dated 2 August 2010, offering Mr Page his 60 per cent shareholding and his wife's 20 per cent shareholding on identical terms, that is to say for $2.4 million plus long service leave, annual leave and their shareholder's loan account, the full amount to be payable on 3 September 2010. As Mr Edwards described it in evidence, this was an absurd reply to an equally absurd offer. But both are important as indicating how far the parties were apart at that stage. 16On or about the same day, however, Mr Edwards - in apparent pursuance of the shareholders agreement - wrote to Sidney Edwards, an accountant, in the following terms: After twenty five odd years Andrew and I have decided to go our own ways in business. Our partnership agreement requires us to formally ask you to value the business and the valuation you recommend is binding on both of us. It is to be valued as a third party transaction with a willing buyer as at 30th June 2010 and a reflection of current market values (low and high) are to be provided. We will accept the high value. We need a value for the share transfer and business equity. We also understand that you may wish to engage outside advice. We are willing to pay any fees you incur however the recommendation is your advice only. We are both willing to answer any questions you may have but we would also want a speedy resolution. 17This appears to be an attempt to invoke the transfer provisions of the shareholders agreement, and to obtain a valuation for that purpose. 18On 16 September 2010, Messrs Herring & Associates, solicitors who had been retained by Mr Page, wrote to Mr Edwards in the following terms: I advise that I act for Andrew Page, who has sought my advice on his current relationship with you as a director, shareholder and employee of Good Impressions. I understand that over the past few months both you and Andrew have been exploring ways in which your relationship might be brought to an end, which has included the possibility of a third party purchasing an interest in Good Impressions. I also understand however that this third party is no longer interested in acquiring that interest and so Andrew has sought my advice in relation to the various options available to him. Andrew instructs me that he is genuinely hoping to find a mutually acceptable and amicable resolution to this matter and asked me to write to you in the hope that an objective dialogue can commence absent any emotional stressors. Andrew seeks to bring to an end his relationship with Good Impressions on the following terms: 1. Andrew will resign as a director and shall be indemnified by you and Good Impressions for any liabilities that might arise in relation to his having held that position. This would include a release of any personal guarantees that Andrew has given in relation to the liabilities of Good Impressions; 2. Andrew's director loan account will be cleared and Andrew will release you and Good Impressions for [sic] any liabilities associated with that account; 3. Andrew's employment with Good Impressions will be terminated and Andrew will release you and Good Impressions from any liabilities associated with his annual leave and long service leave entitlements; 4. Andrew will sell his shares to you or as you direct; 5. In consideration of the above matters, you or Good Impressions (or a combination of you both) will pay to Andrew the sum of 400,000.00. If you are agreeable with the above proposal, I would be pleased to prepare an appropriate agreement reflecting those terms. I would appreciate your earliest considered response and ask that you direct all correspondence in relation to this matter to me, now that I represent Andrew in this matter. 19Of significance is the penultimate paragraph of the letter, which asked whether the Edwards' were "agreeable with" the proposal and, if so, foreshadowed preparation of an appropriate agreement reflecting the terms. In other words, at that point it was clear that if the parties could agree in principle on the terms set out in that letter, then a formal agreement would be prepared to document it. 20On or about 30 September 2010, Mr Edwards wrote to Mr Page in the following terms: I have changed a number of things in order for Good Impressions to survive. Lynn and I have stopped taking a salary and are drawing down our loan account. The accompanying letter sets out a new pay structure which is both sustainable, should the business be sold and repays your loan account. There is an extra $1000 per month toward paying down your mortgage. At $5,000 a month it will take 20 months to repay your loan account should no interested party be found in the interim. This will also put your salary in a structure that is attractive to any purchaser and also allow you to take your accountants [sic] advice on becoming the highest paid employee in the company. Do not tell anybody that the business is for sale that will intensify the rumours that the business is in trouble. If you would like to nominate your mortgage account to have the $5,000 paid directly please do it next week. 21In effect, this proposed a significant reduction in Mr Page's remuneration package. If that stood on its own, it might have been relevant to the oppression suit. But it needs to be borne in mind that by 30 June 2010 the company had a negative equity of about a million dollars, and was in financial peril; that the packages of other employees were reduced at the same time; and that Mr Edwards and his wife stopped taking a salary at all, and were drawing on their loan account. In those circumstances, this proposal cannot be seen as an act of oppression. 22On 28 September, Mr and Mrs Edwards responded to Mr Herring's letter in the following terms: Andrew and I have a partnership agreement for just such an eventuality. To protect him as a minority shareholder he nominated the accountant to value the company. I have attached the 2010 Financial Report and his nominated accountant's valuation. If Andrew's offer is fair and reasonable and it appears he is valuing his 20% shareholding at $400,000.00 then he would value our 80% at $1,600,000.00. This being the case we will sell Andrew our 80% not for the $1,600,000.00 of his valuation but for the $80.00 value his accountant placed on the shares. I would expect Andrew to afford me the same terms he is requesting, that is: 1. I resign as a director and shall be indemnified by Andrew and Good Impressions for any liabilities that might arise in relation to my having held that position. This would include a release of any personal guarantees that Lynn or I have given in relation to the liabilities of Good Impressions; 2. My loan account will be cleared and Lynn and I will release Andrew and Good Impressions for [sic] any liabilities associated with that account; 3. Both Lynn's and my employment will be terminated and Lynn and I will release Andrew and Good Impressions from any liabilities associated with our annual leave and long service leave entitlements; As my counter offer is significantly more generous than Andrew's proposal please discuss the matter with him and if appropriate prepare an agreement on those terms. This offer remains valid until 31 October 2010. 23That letter was apparently received by Herring & Associates on 5 October 2010. It also forwarded the valuation that had been prepared by Mr Sid Edwards, attributing a value of 1 cent per share to the shares in the company. The day after that letter was received, 6 October 2010, Mr Page tendered his resignation as an employee in the following terms: I would like to take this opportunity to respond to the offer dated 01/10/10 wage restructure. You would have received a letter from my solicitor [Andrew Herring] dated the 06/09/10. This letter stated that I would be resigning my position at Good Impressions. Therefore I will not be interested in your new pay structure and will remain on the same pay structure until I leave. My final day will be on 29th October 2010. 24He handed that letter to Mr Edwards in Mr Edwards' office. It involved no agreement or consideration but was a unilateral act of termination of employment by notice. 25On the same day, Mr Edwards replied in the follow terms: Your solicitor did not in any way indicate that you were resigning. There is a request to resign as a Director if a number of conditions are met. Copy of his letter attached. I have also attached my response as he obviously has not responded to you. Both you and Andrew Herring need to work out that this is business and Lynn is not an officer of the company nor a shareholder but an employee and a significant creditor. I will accept your resignation as of the 29th October 2010. You will still have the personal guarantees you have signed and I am willing to discuss indemnifying you under certain conditions. If your solicitor forces any settlement I will enforce all the conditions in the partnership agreement. 26Although there was initially some lack of clarity about it, as I have already mentioned, ultimately the evidence was clear: this exchange or correspondence took place before the conversation that then occurred on 6 October 2010. 27Mr Page describes what then happened in the following terms: Following this, on 6 October 20101 I was in my office and Peter walked past. I called him in and said words to the effect of: "In relation to the document you supplied me a couple of weeks ago, I am prepared to accept $400,000.00 and you can see the ass [sic] end of me". Peter replied by saying words to the effect of: "Well, the figures we have been discussing, where do you think we are going to get the money from". I responded by saying words to the effect of: "Well, I'm accepting the offer you made, I'm not pulling the figure out of the air." I then pulled the document at Tab 12 of exhibit AMP-1 out and said words to the effect of: "These are the figures you wrote down and I am only accepting the figure you offered". Peter did not say anything in response and we both looked at each other for what seemed like several minutes. He then stood up and started to walk out of my office. As he was doing this he said words to the effect of: "Get your solicitor to draw up the papers". 28In his responsive affidavit of 2 November 2011, Mr Edwards said as to that paragraph: I do not recall the specific conversation referred to therein but I say that on a number of occasions the plaintiff said to me words to the effect of 'I will accept $400,000' but at no time did I accept such offer. 29He did not specifically deny any of the words attributed to him in the plaintiff's affidavit as set out above. In the course of his cross-examination, Mr Edwards accepted, at first unequivocally but later with some qualification, that Mr Page had said to him words to the effect "In relation to the document you supplied me a couple of weeks ago I am prepared to accept $400,000 and you can see the arse end of me". Later in the course of his cross-examination, for the first time, he said it was "absolutely incorrect" that he had said to Mr Page, "Get your solicitor to draw up the papers." The fact is that Mr Page, on 7 October, did instruct his solicitor to draw up relevant documents. 30On balance, it seems to me that a conversation substantially to the effect described by Mr Page took place. The precise words "Get your solicitor to draw up the papers" may not have been used, but there was, I find, some reference to their discussions now being progressed so that Mr Page's solicitor would take the next step, probably a document encapsulating an agreement. On the other hand, there is no suggestion that Mr Edwards said anything to the effect "I agree", or otherwise accepted, in a way intending to be bound, the sum of $400,000 or any other sum, let alone the terms on which it would be paid. 31On 13 October 2010, Herring & Associates wrote to Mr and Mrs Edwards in the following terms: I refer to previous correspondence between us, subsequent to which I understand that you have reached an agreement with my client regarding his exit from the company. I have prepared the enclosed Deed of Settlement and Release that I am instructed is in accordance with what was agreed between you. Could you kindly review the document and if it is acceptable to you, please execute it where indicated and return it to me? I will then have my client execute the deed and then send a copy to you. If you require any amendments, please do not hesitate to contact me. I look forward to bringing this matter to a prompt resolution. 32The letter enclosed a draft deed of settlement and release following resignation. Amongst other terms, it included as clause 6, the following: 6. Payment to Andrew (a) In consideration of Andrew's obligations set out in clauses 3, 4 and 5 above, the Company, Peter and Lynn shall pay to Andrew the sum of $400,000.00 (settlement sum), the responsibility for which [is] apportioned as follows: Payer Particulars Amount The Company Employment termination payment $150,000.00 The Company Repayment of the loan sum $175,000.00 Peter and Lynn Purchase of Andrew's shares $75,000.00 Settlement sum $400,000.00 (b) The settlement sum shall be paid to Andrew in equal monthly instalments of $16,666.67 (instalment sum) commencing on 12 November 2010 and on the 12th day of each month thereafter (instalment date) for a period of 24 months. (c) Should the Company or Peter and Lynn fail to pay the instalment sum on each instalment date as required pursuant to clause 6(b) above, the balance of the settlement sum as at that date shall immediately become due and payable to Andrew. 33It is to be noted that the covering letter asked that the Edwards review the document and "If it is acceptable...please execute it", and "If you require any amendments, please don't hesitate to contact me", with a view to "bringing this matter to a prompt resolution". That language is much more suggestive of an agreement still under negotiation than with an already concluded agreement. 34About a fortnight later, on 25 October 2010, Mr Edwards responded in the following terms: It is with some bewilderment that I have received your second letter. The only settlement that Andrew and I have discussed is in the event of the sale of the business. Andrew has resigned. Copy attached. The business is $1,300,000 in debt. You have the latest financials. Andrew and I have a partnership agreement for his resignation and share valuation transfer. The business will need to borrow to find the statutory termination payment for Andrew. It is his responsibility to find his share of the debt or we can place the business into liquidation. Andrew is opting out on his responsibility as a director and shareholder. Please read both the company financials and shareholders agreement. 35At about this point, Mr Sidney Edwards was engaged by the parties to act as a mediator to facilitate a compromise between them. That of itself tends to suggest that there was not already a concluded agreement, but that negotiations remained on foot. On 27 October 2010, Mr Sidney Edwards sent to Mr Page an email in the following terms: Set out below is the offer in Peter's email to me. It seems that he is offering a payout of $392,000 over time. I will advise Peter of your comments regarding the non compete area and could some of the $240,000 be turned into a redundancy payment. 1. $50,000 payment on termination including annual leave and long service leave. 2. Share transfer at $2000 and resignation as director with above. 3. Repayment of loan to company of $100,000 at $5,000 per month commencing April 2011. 4. Ex gratia of $240,000 at $5,000 per month commencing January 2013. 5. Deed of release as director. 6. Non compete agreement to work in any associated industry while loan or ex gratia payments are being made. 7. Phone or keys returned on resignation. 36Although Mr Peter Edwards' offer communicated to Mr Sidney Edwards was not in evidence, he accepted that the contents of this email reflected an offer that he had communicated to Mr Sidney Edwards. It will be observed that the total amount of the figures contained therein was $392,000, not $400,000. 37Mr Page discussed this offer with his solicitor, Mr Herring, who on the same day responded to Mr Sidney Edwards in the following terms: As you are probably aware, I act for Andrew Page in relation to his current dispute with Mr Peter Edwards regarding Andrew's cessation with Good Impressions Offset Printers. I have read your email to Andrew this morning in relation to the further offer made by Peter. I understand that you are effectively brokering a resolution between Andrew and Peter and I thank you for your assistance in that regard. I am instructed that Andrew agrees with the amounts indicated in your email, namely payment to him of: (a) $50,000 by way of his entitlements upon resignation; (b) $2,000 by way of purchase of his 20% share holding in the company; (c) $100,000 by way of repayment of his loan account with the company; and, (d) an ex-gratia payment of $240,000 (preferably to be paid by way of Employment Termination Payment, however I would be grateful if you could clarify this). Andrew is not however prepared to agree to the timetable provided for the payments to be made. I understand that it had been agreed (verbally) between Andrew and Peter that payments would be made in monthly instalments over a period of 24 months. After seeking my advice in relation to the reasonableness of this approach, Andrew agreed with that proposal. It is not, in my view, reasonable for the payments to be strung out over what will be 6 years. This in my view presents too greater [sic] risk to each party in relation to their ongoing obligations. Instead, Andrew will agree to the following payment schedule: (a) Payment of entitlements ($50,000) to be made on 29 October 2010; (b) Balance of monies owing ($342,000) to be paid in monthly instalments of $14,250, to be paid on the 29th of each month. In addition, Andrew is not prepared to sign any restraint of trade or "non-compete" agreement. This was never envisaged by the parties at any stage during their lengthy business relationship. Such an agreement, as proposed, would completely remove Andrew's ability to earn a living over the period. I had previously prepared a deed to reflect an agreement previously reached between Andrew and Peter. With minor amendment that document could be utilised to give effect to the above. I would be grateful if you could convey the above to Peter with a view to reaching an agreement on these matter as soon as possible. Please do not hesitate to contact me if you wish to discuss this matter further. 38It is significant that the third paragraph indicates Mr Herring's, and presumably his client's, understanding that "you are effectively brokering a resolution between Andrew and Peter and I thank you for your assistance in that regard." Had the parties, in particular Mr Page, been of the view that there was already a concluded agreement, one would have expected to see a protestation that there was already an agreement in place rather than thanks for endeavouring to broker a resolution. 39The letter then goes on to indicate agreement with the amounts that had been indicated, but a disagreement with two matters: first, the terms for payment, which, as communicated on behalf of Mr Edwards, had been $5,000 per month, that is, for a period of four years, whereas the response was a counter offer of payment over two years, and, secondly, as to any restraint of trade. Counsel for Mr Page valiantly endeavoured to establish that there was evidence of an agreement as to a term of payment of twenty-four months, but, ultimately, it is simply not possible to find in the evidence any offer emanating from Mr Edwards, or any consensus, to that effect. The mere fact that it is said on behalf of Mr Page that he is prepared to accept payment over a period of twenty-four months does not mean that an offer to that effect was made, or a consensus reached, any more than his mere statement that he would accept $400,000 to get out of the company indicated that an offer to that effect had been made, or a like consensus reached. The email of 27 October 2010 was in law a rejection and counter-offer, and not a partial acceptance of what had preceded it. 40On 28 October, Mr Peter Edwards, who presumably had by then been informed of Mr Page's response, sent an email to Mr Sidney Edwards and Mr Page as follows: I have attached a copy of our shareholder agreement that deals with all the circumstances of terminating our business agreement. I have given my solicitor a copy of this last Monday 25th October 2010. The matters that need addressing are: Notice of cessation of employment Resignation as director Transfer of shares Repayment of loans Andrew has resigned and I have accepted his resignation. Copy attached. After 23 years I have been given 23 days notice of which I was on leave for 16. Sid prepared the forms for the resignation as director. I have passed these on to Andrew. I will have my solicitor draw up a deed of release and indemnity in accordance with accepted commercial practice. This will only be ready mid to late next week. Transfer of shares. I have ignored the value of $20 as valued by the company accountant and in line with the partnership agreement and placed a face value of $2000 for the transfer. I paid for these shares and transferred them to Andrew for nil cost as per our original agreement. I have given Andrew the share transfer forms. When they are returned and signed I will give him a cheque for $2000. Andrew has a shareholders loan of $100,000. All previous loans have been repaid. Section 6 in the shareholders agreement deals with this repayment. None of the conditions of Section 6.3 have been met. There is a minimum requirement of one month in writing and provision of alternate security ... Both of you are astutely [sic] aware of the company's financial position and recognise that the company needs my personal input to meet the statutory payments to him, let alone repay shareholders loans. This is not incumbent on me. Any demand on the business would lead to administration and then liquidation and a nil return of shareholders funds and a shortfall in the staff entitlements. There are a number of non disclosure and confidentiality areas that are in the agreement and my solicitor will deal with these in the deed of release. There is a final request from Andrew for an Exgratia [sic] payment of $250,000 for his contribution to the partnership over the twenty plus years. I would like to point out that firstly [sic] he has received additional benefits to me over the period and secondly there is no requirement legal or moral for me to make any payment. This figure has come from our discussions on a 50% profit share on selling the business to a willing buyer at a gross price of $3,600,000. This was in June of 2008 and prior to the total devastation of the printing industry... As a gesture of goodwill I have asked my solicitor to offer Andrew $240,000 paid over time and with conditions attached. Andrew has told me his mortgage is $6,000 per month. My payment will cover 80% of this and I am amenable to increasing this to 100% but this is not my liability. My request to Andrew in January this year to contribute to the company's capital position has probably been the trigger to precipitate these events. Sid is in a position to point out that I am the company's single biggest creditor and have been for the 28 years the company has been in business. The highest offer I received for the sale was $1,800,000 which does not even cover the shareholders loans. It did at that time it was offered and in hindsight I should have taken it. Andrew at the time was extremely unhappy about that situation as it did not even cover staff entitlements. I am willing to continue an open discussion however my gracious behaviour is becoming less gracious on a daily basis. It is in Andrew's best interest to make sure this business prospers in the future. 41Mr Page did not respond to that email. On 27 October, however, Mr Sidney Edwards had written to Mr Peter Edwards, in the following terms: Thank you for outlining the position which I have relayed to Andrew (who has relayed it in turn to his solicitor). Andrews [sic] position is that he will accept the payment of $250,000 with the $50,000 of employment entitlements payable on resignation and the balance over two years i.e. $142,500 over two years (personally I think your payment plan is too long) the first payment to be made on 29 November 2010. Andrew does not wish to sign a restraint of trade document however I can understand your need for some comfort in this area. Could we discuss this point at your leisure. I am not a solicitor but I don't believe that a restraint of trade clause will give you much protection in the long run. I am looking into if the ex gratia payment or part there of could be paid as a redundancy package. I will come back to you on this point. I feel we are making progress. 42It is notable, amongst other things, that that letter indicates that there are still areas of dispute, but that Mr Sid Edwards felt "we are making progress". The very fact that the mediator thought that progress was being made towards a resolution tells against there having been a concluded agreement at that time. 43Post contractual conduct is admissible on the question of whether a contract has been formed [Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68, 77; Barrier Wharfs Limited v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647, 668, 669, 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147, 9149, 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9215, 9255]. 44All of the correspondence and communications to which I have referred following 6 October tend against, rather than in favour of, a concluded agreement having been made on 6 October. They all illustrate that terms were still under negotiation. The fact that even price had not been concluded is suggested by the circumstance that Mr Edwards proposed $392,000, in response to the draft agreement which referred to $400,000. 45Mr Page attributed to Mr Edwards a statement to the effect, "We've agreed on the price. It's only the terms that have to be worked out." Mr Page gave evidence to much the same effect himself in his cross-examination: Q. How do you say you had reached an agreement then on 27 October 2010? A. We agreed on the dollars. We agreed on how much was to be paid. How it was to be paid was not agreed upon. Q. And it was a significant matter for you as to the terms of payment, wasn't it? A. Yes. Q. And you would understand from Mr Peter Edwards' point of view that the payment out to you would be a matter of significant concern in negotiations? A. Correct. Q. Because it impacted on his cash flow, didn't it? A. It did. 46There are a number of points to be made about this. The first is that the fact that parties have agreed on price does not mean that there is an agreement between them, there and then intended to be legally binding. In Clifton v Palumbo [1944] 2 All ER 497, Lord Greene MR said (at 498 - 499): The subject matter of the alleged contract was a very large estate spread over a very large area and comprising properties of various types which were subject to various sorts of lease, the whole being subject also to a jointure. There were mortgages outstanding in large sums. The transaction was one which any layman (and I suppose more particularly a layman in the position of the defendant, who was not inexperienced in dealing with real estate) would regard as one of great magnitude, and probably of considerable complication. When parties are beginning to negotiate a transaction of this magnitude it is common experience - and, indeed, it is only business - to find that the first thing they begin to think about is the price, because it is quite useless making elaborate investigations and conducting complicated negotiations if it is going to turn out in the end that their views as to price do not agree. What would one expect, therefore, in a transaction of this kind? The very first thing that the parties would set themselves to explore is the possibility of their seeing eye to eye in the matter of price. Anyone who has had experience of transactions in relation to the purchase of land can recall letters written by vendors saying that they agree to sell at a named price, or that purchasers agree to purchase at a named price. The use of the word "agree" in such a context may or may not involve a contractual result. On the other hand, if you say that the price has been agreed when the contract is being negotiated, you do not use the word "agree" in the sense that any binding contract has been entered into. All you mean is that that particular element in the contract which you are negotiating has been decided. You are agreeing that that is the figure which will be put into the contract and then you go on to debate the other matters which fall for discussion. Therefore, words like "agree," "offer," "accept," when used in relation to price are not to be read necessarily as indicating an intention to make, then and there, a contract or an offer as the case may be. Whether they do or do not must depend entirely on the construction of the particular document. 47Whilst spoken in the context of the sale of land, those observations are, in my opinion, apt in the present case. Even if there was agreement as to price on 6 October 2010, the parties did not intend there and then immediately to be bound. Rather, they had contemplated, at least from the time of Mr Herring's letter of 16 September, that their agreement would be contained in a document to be prepared by the lawyers. There were many terms, in particular the payment schedule, that remained to be agreed, and this was evident on 6 October. 48The second is that, while in many cases, where price is agreed in the absence of a reference to the terms for payment, it may be inferred that the price was to be payable forthwith or upon completion, in this case, any inference that the price was to be payable forthwith or on transfer of the shares or resignation is not open, because from the outset of negotiations, and in particular the spreadsheet to which I have referred, it was clear that both parties contemplated that there would be a schedule for payment and that payment would not take place immediately, and this is reinforced by the concessions made by Mr Page in the passage in his cross-examination to which I have referred, above. 49In those circumstances, it is impossible that there was a binding agreement made on 6 October. The communications that took place between the parties after that did not improve the position. They revealed only that further issues remained to be resolved between them, including, in particular, the question of a restraint of trade. 50For those reasons, in my view the contract case fails. The oppression case 51As I have indicated, the oppression case, although addressed in written submissions, was not pursued in oral submissions. I have already adverted to one aspect that potentially could have been relied on in connection with oppression. It seems to me that, broadly speaking, the oppression case at its highest involved the following propositions: that Mr Page had been excluded from management, that he was at least confronted by a proposed reduction in his salary, that he was removed as a director; and that the company occupied premises owned by Mr Edwards, his family or their corporate associates. I shall deal with these in turn, but relatively shortly. 52So far as exclusion from management is concerned, the evidence establishes, as I have said, that there was a division of roles and labour within the company. It emerged in cross-examination that Mr Page's claimed lack of knowledge of the difficulties with the Taxation Office could not really be sustained. It was established that there were monthly management meetings at which he was provided with balance sheets and lists of creditors and debtors. It was also established that he had computer access to the company's financial records which he could obtain if and when he wished, and he conceded that if he asked questions about it, which he rarely did, the answers were provided. Naturally enough, after he ceased to be an employee in October 2010, the level of his involvement in management decreased, but he continued to be involved in directors' meetings until mid-2011, when Mr Edwards suspended the convening of directors meetings. His exclusion from a voice in management after that date, by reason of the suspension of directors meetings, is potentially an aspect of oppression. The question would be whether, taken with all the other matters in issue, it would make a sufficient case for a buy-out order. 53So far as the reduction in salary is concerned, I have already addressed that. In the financial circumstances of the company, as they then were, I do not see that that can be characterised as oppressive in the relevant sense. 54So far as the occupation of the properties in Harley Crescent and the various subsequent premises are concerned, it is not uncommon for a private company to occupy property owned by one of its shareholders, and that is not of itself a matter of oppression. If it were shown that that particular director or shareholder were benefiting disproportionately through an above market rent, or some other means, then that might well be a matter of oppression, but nothing beyond occupation of the relevant property was established in this case. 55So far as Mr Page's removal as a director was concerned, that occurred only in May of this year, and was effected by the administrator, albeit on the suggestion and at the request of Mr Edwards. Given the terms of the shareholders agreement, that could also amount to an oppressive act, but again the question is whether that, together with his exclusion from management after mid-2011 in circumstances where Mr Page had resigned as an employee and was litigating with Mr Edwards and the company was progressing towards and then went into administration, would justify the type of order sort sought. 56Given that the only order that could be made on the evidence would be one for purchase of his shares for twenty dollars, I do not see how those matters, taken together, would warrant the grant of relief - all the more so where Mr Page had himself at one stage proposed that the company be placed in provisional liquidation. Nothing would be gained now by any such order. 57I am not satisfied that such elements of oppression as are established are, in the context of this case, sufficient to warrant a remedy under s 233(1)(d) of the (Cth) Corporations Act 2001. Conclusion 58For those reasons the proceedings should be dismissed, with costs Costs 59The second defendant applies for an order that the costs that the plaintiff must pay be assessed on an indemnity basis from 8 August 2011, or alternatively from 26 June 2012. 60When the plaintiff commenced these proceedings, the principal relief sought was an order that the defendants acquire the plaintiff's shares in the first defendant on a fair market value basis. The defendants at an early stage indicated that they agreed to that relief. It seems that some efforts were then made to obtain a valuation. 61On 8 August 2011, the plaintiff served an expert report. The defendants disagreed with the conclusions that the plaintiff said flowed from that report, but, on 8 August 2011, sent a letter to the plaintiff's solicitor which concluded as follows: If your client accepts his expert's report our client is prepared to accept his resignation as a director. We note your client has not made the offer he represented would be made for the sale of his shares and for that matter it does not even appear that your expert was requested to advise on the point. Indeed, it is to be assumed your expert attributes no value to your client's shareholding. If this be the case, our client will accept the transfer of your client's shares in consideration of the payment to your client the sum of $2,000. 62Insofar as the letter contains an offer, it is expressed in somewhat conditional terms. It is not stated to be intended to have costs consequences in accordance with Calderbank v Calderbank [1975] 3 All ER 333. I do not see any particular reason to elevate this offer to one having significance from the perspective of the costs order that should be made, and I would not make an indemnity costs order on that basis. 63On 26 June 2012, the second defendant made an offer of compromise to the plaintiff under (NSW) Uniform Civil Procedure Rules 2005 (UCPR), r 20.26, in the following terms: 1. This offer is made in accordance with Uniform Civil Procedure Rules 2005, rule 20.26. 2. There be a verdict for the second defendant as against the plaintiff and that each of the second defendant and the plaintiff bear their own costs. 3. The plaintiff shall transfer his shares in the first defendant to the second defendant. 4. The second defendant shall pay to the plaintiff the sum of $22,000. 5. This offer is open for acceptance until 5pm on 10 July 2012. 64Although there are some infelicities in the offer - for example, the reference to a verdict is entirely inappropriate in proceedings in which there is no jury, and if it is read as a reference to a judgment, the references to a judgment for the defendant are inconsistent with the subsequent provisions for the plaintiff to transfer shares to the second defendant and receive a payment in return - the substance of the offer is clear enough: the second defendant would acquire the plaintiff's shareholding for $22,000. 65As I have indicated in the principal judgment, on his oppression case the best the plaintiff could have achieved on the evidence adduced was an order for acquisition of his shares for a price of a total of $20. In this offer, he was offered $22,000 for those shares. Further, while his proceedings have been dismissed, they have been dismissed with costs, and the offer was to the effect that they be dismissed on terms that each party bear their own costs. In both of those respects, the offer was significantly more advantageous to the plaintiff than the eventual outcome of the proceedings. 66UCPR r 42.15A applies where an offer of compromise is made by the defendant but not accepted by the plaintiff and the defendant obtains an order or judgment on the claim as favourable or more favourable to the defendant than the terms of the offer. This is therefore such a case. Sub-rule (2) then relevantly provides: Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made. 67No sufficient reason appears why the court should otherwise order. It follows that the second defendant is entitled to the prima facie order for indemnity costs that is indicated by r 42.15A. Orders 68My orders are: (1)Order that the proceedings be dismissed. (2)Order that the plaintiff pay the second defendant's costs, to be assessed on the ordinary basis until and including 26 June 2012, and on the indemnity basis from 27 June 2012. ********** 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. Decision last updated: 03 October 2012