Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Mouti v Nguyen [2015] NSWCA 93 Hearing dates: 17 March 2015 Date of orders: 13 April 2015 Decision date: 13 April 2015 Before: Leeming JA at [1] Bergin CJ in Eq at [2] Sackville AJA at [105] Decision: 1.The appeal is allowed. 2.Grant leave to the respondent to bring the cross-appeal. 3.The cross-appeal is allowed. 4.Set aside orders 1 to 3 made in the District Court on 28 March 2014. 5.The parties are referred to court-annexed mediation. Such mediation is to occur by no later than 18 May 2015. 6.The parties are to attend upon the Principal Registrar of this Court forthwith to obtain a date for mediation. 7.After 18 May 2015 the matter is remitted to the District Court for a new trial. 8.The parties are to file written submissions as to the costs orders that should be made in the circumstances by no later than 18 May 2015. 9.Orders as to costs will be determined on the papers, subject to any application to have the matter listed for argument in Court. Any such application must be made prior to 18 May 2015. Catchwords: [APPEAL] – where issue as to whether agreement for sale of half share in business was reached – whether primary judge erred in finding that there was no agreement – whether primary judge erred in failing to make findings of fact necessary for determining whether a contract had been concluded – where conclusions reached on claim and cross-claim irreconcilable Cases Cited: Australian Broadcasting Corporation v XIVTH Commonwealth Games Limited (1988) 18 NSWLR 540 Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Fox v Percy (2003) 214 CLR 118 Howe v Smith (1884) 27 Ch D 89 Masters v Cameron (1954) 91 CLR 353 Sinclair Scott & Company Limited v Naughton (1929) 43 CLR 310 Category: Principal judgment Parties: Fouad Mouti (Appellant) Minh Hai Nguyen (Respondent) Representation: Counsel: A Crossland/K Jones (Appellant) A Tokley SC/BA Mee (Respondent) Solicitors: Kheir Lawyers (Appellant) D Morgan Jones, Solicitor (Respondent) File Number(s): 2014/117024 Publication restriction: Nil Decision under appeal Court or tribunal: District Court of NSW Jurisdiction: Civil Date of Decision: 28 March 2014 Before: Sorby DCJ File Number(s): 2013/61130 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. LEEMING JA: I agree with Bergin CJ in Eq, for the reasons her Honour gives, that the appeal and cross-appeal must each be allowed, and the judgment and substantive orders made by the primary judge set aside. I also agree with Sackville AJA's judgment. I agree with both their Honours that this is an appropriate case for the parties to be directed to participate in a mediation, to attempt to reach a commercial settlement. As their Honours observe, there are a number of reasons why it will be in the interests of both Mr Mouti and Ms Nguyen to avoid another trial. 2. BERGIN CJ in EQ: The proceedings the subject of this appeal arose out of events in 2011 and 2012 in relation to a business known as the Vibe Health and Fitness Centre in Campsie (the Business) owned by the appellant, Fouad Mouti. The respondent, Minh Hai Nguyen, entered into negotiations with the appellant in early 2011 to purchase a fifty per cent share of the Business. 3. The respondent paid the appellant $140,000 of an agreed sale price of $220,000. The respondent also worked in the Business from mid-2011 to approximately mid-2012. In 2012 the parties' relationship soured. The appellant sold the Business in 2013. 4. The respondent (as plaintiff in the District Court) brought proceedings for the return of the $140,000. The appellant (as defendant in the District Court) cross-claimed for the balance of the purchase price, adjusted by amounts consequent upon the sale of the Business. 5. The primary judge, Sorby DCJ, entered judgment for the respondent in the amount of $105,662 with leave to apply for interest [Red 46]. His Honour also found that the appellant's Cross Claim was made out, setting off the amount claimed to reduce the judgment in the respondent's favour from $140,000 to the amount as entered [Red 45-46]. 6. The appellant appeals against the judgment against him. The respondent seeks leave to appeal against the finding in respect of the Cross Claim and the reduction of the judgment amount from $140,000 to $105,662. The pleaded cases 1. The respondent made three claims in the proceedings in the District Court: a contract claim in which she sought the refund of $140,000; a claim for damages for misleading or deceptive conduct in which she sought the amount of $140,000 in respect of the payment made and $80,000 for unpaid labour; and a quantum meruit claim in which she sought $80,000 for unpaid labour. The contract claim 1. On the pleadings [1] in relation to the contract claim, there was no issue that: * in or about June 2011, the appellant "orally agreed" to sell a fifty per cent share in the Business to the respondent for $220,000 [Red 2 F; 9 W]; * on 8 June 2011 the respondent paid to the appellant $140,000 by way of two bank cheques, one for $90,000 and the other for $50,000 [Red 2 K-M; 10 D]; * "when the agreement was made" the "structuring" of the Business was "undecided as to whether it would be a corporation or a partnership or some other structure, as were other matters such as the sharing of business overheads" [Red 2 N; 10 E]; * it was a term of the agreement that "in the event that the sale did not proceed and the contracts failed to exchange" the amount of $140,000 would be fully refunded to the respondent (the Refund Term) [Red 2 P-Q; 10 F]; * the Refund Term was evidenced by a written receipt signed by the appellant on 10 June 2011 [Red 2 R; 10 F]; * the respondent worked in the Business from about mid-2011 to April 2012 "without payment of wages" [Red 2 S-T; 10 H]; * no contracts were exchanged between the parties [Red 2 U; 10 K]; and * the appellant sold the Business in December 2013 leaving him with the amount of $11,323.37 after expenses [Red 28 W]. 1. The issues on the pleadings in respect of the contract claim included: * whether, as the appellant alleged, it was an express term of the agreement that "in exchange for becoming a partner" and "receiving half the profits" of the Business, the respondent would pay $220,000 "into the newly formed partnership" and work in the business for a minimum of 40 hours per week [Red 15 P-T; 21 T]; * whether, as the respondent alleged, the parties agreed that the balance of the purchase price ($80,000) was to be paid by way of her "unpaid labour" (calculated at 40 hours per week for 40 weeks "worth $2,000") [Red 2 J and T; 10 C and J]; * whether, as the appellant alleged, the parties agreed that the balance of the purchase price ($80,000) was to be paid by the respondent when she sold a residential unit in Bankstown [Red 15 U-W; 21 T]; * whether it was an implied term of the agreement that if the respondent did not sell or transfer the Bankstown unit within a reasonable time (by the end of 2011) the $80,000 would become "due and payable to the partnership" [Red 26 W – 27 G]; * whether it was an implied term of the agreement that if the partnership dissolved before the respondent paid the outstanding $80,000, the amount of $40,000 would become due and owing to the appellant [Red 27 H-J]; * whether the appellant owed the respondent $5,661.69 in respect of her share of the Business and if so, whether this amount should be offset against her debt to him of $40,000 reducing it to $34,338.31 [Red 28 Y – 29 E]; and * whether the respondent received a share of the profits of the Business during the period mid-2011 to April 2012 [Red 10 I]. Misleading or deceptive conduct claim 1. In respect of the respondent's claim for misleading or deceptive conduct it was alleged that the appellant represented that if the respondent paid him $140,000 and worked in the Business "unpaid" for 40 hours per week for 40 weeks "worth $2,000 per week", the appellant would convey to her a fifty per cent interest in the Business "by way of partnership or some other means such as a shareholding" [Red 3 D-F]. This representation was in issue [Red 10 N]. The respondent alleged that in reliance on the representation she paid the $140,000 and worked for the 40 hours for 40 weeks "unpaid". It was alleged that the appellant failed to convey to the respondent the fifty per cent interest in the Business. 2. It was not in issue on the pleadings that by signing the "Receipt" on 10 June 2011 the appellant represented that "in the event that the negotiations for the sale did not proceed and the contracts fail to exchange" the amount of $140,000 would be fully refunded to the respondent. It was alleged that the negotiations did not proceed and contracts failed to exchange. It was not in issue that contracts did not exchange but it was in issue whether the "negotiations for the sale did not proceed" [Red 10 S]. 3. In paragraph 16 of the SOC the respondent alleged that the appellant had failed to refund the money. The appellant denied the allegation and curiously contended as follows [Red 10 U-Y]: (a) when the plaintiff demanded a payment of $140,000 it was agreed between the parties that the defendant would pay the plaintiff $1,000 per week (or more per week if funds were available) until the sum was paid back; (b) to date, the defendant has paid the plaintiff the sum of $65,000 in the terms above. 1. The reference to the "terms above" in paragraph (b) was to a claim by the appellant in paragraph 6 of the Defence that the respondent had received a "share of the profits" during the period mid-2011 to April 2012 [Red 10 I]. 2. This pleading curiosity was the subject of affidavit evidence [Blue 13 C-D; 71 Q – 72 J] and some short cross-examination [Black 110Y – 111M]. However it formed no part of the primary judge's findings. On appeal the appellant eschewed relying on any aspects of this pleading curiosity and evidence on the appeal [Tr 15.40 – 16.36]. The respondent made submissions about the incongruity of it but took it no further [Tr 29.20 – 30.3]. Quantum Meruit Claim 1. The respondent claimed $80,000 for the value of the labour that she provided to the Business on her quantum meruit claim [Red 3 R-T]. The appellant did not plead to this claim [Red 10 Z]. Proceedings at first instance 1. The trial proceeded before the primary judge on 27 and 28 February 2014. Both the appellant and the respondent gave evidence, as did the respondent's son and each was cross-examined. The evidence 1. The respondent gave affidavit evidence that in about April 2011 the appellant gave her a document that was in the following terms (the Business Agreement Document) [Blue 2 I-P; 4]: Minh NGUYEN joined (sic) venture with Fouad (Fred) Mouti owner of the business Vibe gym. Lease is 5 by 5 in equal share of everything, paying all bills in half, minimum hours required is 40 hours of work a week. Rent wages electricity water taxes and maintenance is approximately $5000 per week. Improving the gym in equal share, equal powers, equal say the 10 years lease and 5 years option will be paid in half share. Gym equipment and facilities will be paid in half also. Vibe gym makes about $10,000 per week on average and there is alot (sic) of room for improvement. 1. The appellant gave affidavit evidence that the respondent gave the Business Agreement Document to him soon after their conversations in "early 2011" and that they both said words to the effect "That's what the deal is. I agree" [Blue 10 G-I]. 2. The respondent denied that she said "That's what the deal is. I agree" [Blue 75 T]. However, she gave evidence that "[s]oon after" the appellant gave her the Business Agreement Document she agreed to pay him $140,000 [Blue 2 Q]. In her second affidavit the respondent gave evidence that the appellant gave her the Business Agreement Document and said that he would "take $220,000.00 for half the gym" [Blue 75 P]. She claimed that when she advised the respondent that she did not have $220,000 he said that she should just give him what she had at the moment (agreed to be $140,000) and "the rest you can work for at $2,000.00 per week for 40 weeks" [Blue 75 Q]. The respondent also claimed that the appellant said "if we take $4,000.00 per week we will take $2,000.00 each and pay half of the expenses, if you don't like that you can take a wage as the gym has 1,000 members" [Blue 75 U-V]. 3. The appellant was cross-examined about the Business Agreement Document as follows [Black 91 T – 93 M]: Q. Now, when you had discussions with Ms Nguyen, very early in that stage of discussions you created a document which I'll show you. You created -- A. Yeah, I already know that -- Q. -- that document, didn't you? A. Yep. I didn't no, we both did it together. Q. That was a document that you physically created was it not? A. No, we both created it together. We wrote it together. Q. Who typed it, Mr Mouti? Who typed it out? A. We did it together. … Q. Who typed it out? Did you type it out? I mean -- A. No, I don't remember typing it, but one of my staff I think typed it. Q. I see. A. I thing (sic) my son was good at computers. He typed what we wrote that day. Q. Something was written out in longhand was it? A. No we – we discussed that, we wrote it together. … Q. This is a document that was created in or about May of 2011, was it not? A. Yes. Q. This was, with the exception of the receipt of 10 June 2011, was the only document that came into being, wasn't it? Correct? A. I can't remember that far, but I know that we - that was part of the plan, venture that we're supposed to go in to have equal - equal share. … Q. At the time this document was created it set out all the things that you regarded as having been talked about between yourself and Ms Nguyen concerning the business, correct? A. We discussed a lot of verbal discussion but what's written I'm – I'm sure whatever is in there. Q. These were all the important things, weren't they? A. Yes. 1. The respondent agreed in cross-examination that the Business Agreement Document was created in "the early part of 2011" at the time of her discussions with the appellant [Black 26 N-O]. She initially denied that she had any discussions with the appellant "about taking up a 50% share" in the Business [Black 28 E-F]. However the respondent later agreed that she did have such discussions [Black 29 H]. She agreed that she had discussions with the appellant about her "responsibility for the cost" of the Business [Black 30 H]. 2. The respondent was cross-examined as to whether she had any discussions with the appellant about the Business Agreement Document. She initially denied that she discussed it with the appellant [Black 31 Y]. However when pressed, she said "He explained it but I don't understand at the time" [Black 32 P]. She then conceded that the only thing she didn't understand was the reference to "joined venture" [Black 32 Q]. When it was suggested to her that she understood the rest of the document she said "and I didn't want it" [Black 32 S]. She denied saying that she agreed with the document [Black 32 T]. 3. The appellant's affidavit evidence was that the respondent suggested that they "set up a company to run the business" because she wished to protect her assets [Blue 10 K-L]. The appellant said he agreed with this proposal [Blue 10 N]. The respondent's affidavit evidence was that at the time she paid the $140,000 to the appellant at his solicitor's office (referred to below) the appellant's solicitor informed the parties that they should have a company and transfer the Business to it [Blue 76 C-G]. The respondent agreed in cross-examination that even before she paid the $140,000 to the appellant she "personally", through her accountant, was taking steps to set up a company to run the Business [Black 35 F]. She agreed that she had given some thought to how the Business should be run by her as a fifty per cent shareholder [Black 35 G-H]. There was no issue that it was the respondent's accountants who made arrangements to establish the company. 4. On 7 June 2011 FMM Promotion Pty Ltd (FMM) was established with the appellant and the respondent as directors and equal shareholders [Blue 16-19]. 5. The respondent claimed that she paid the $140,000 at the appellant's solicitor's office at which time the appellant gave her a document that was in the following terms [Blue 2 T-U; 5] (the Receipt): RECEIPT Vibe Fitness Level 1, 43 North Parade NSW 2194 ABN: 69 908 180 548 I, Mouad Fouti (sic) of 102 Macquarie Street, Greenacre being the business proprietor the Vibe /Fitness situated Level 1, 43 North Parade, Greenacre acknowledge receipt of the payment of $140,000.00 being the payment for the 50% share of the Vibe Gym business from Minh Hai Nguyen on 8 June 2011. The details of the structure and details of the sale of the business are yet to be finalised. In the event that the negotiations for the sale of the business do not proceed and contracts fail not to exchange, the amount in the sum of $140,000.00 shall be fully refunded to Minh Hai Nguyen. …………………………………….. Mouad Fouti (sic) 1. There was no issue that the appellant signed the Receipt and dated it 10 June 2011. The respondent's affidavit evidence was that the appellant asked her to put the figure of $140,000 on the Receipt "so I do not pay tax" [Blue 76 C-D]. The appellant denied that such a conversation took place and said that he banked the cheques into the Business bank account [Blue 85 G]. 2. The appellant gave affidavit evidence that at the time he signed the Receipt he and the respondent discussed whether the lessor of the premises from which the Business was operated would accept the respondent as a lessee. He claimed that when the respondent asked him what would happen if the lessor did not accept her on the lease, he advised her that he would "just refund you the amount of $140,000" [Blue 11 K-M]. This evidence needs to be viewed in light of the correspondence with the lessor's solicitors on 11 July 2011 referred to below. 3. The appellant's affidavit evidence was that he had a conversation with the respondent at the time the $140,000 was paid in which she agreed that the money would be used "to upgrade the facilities of the gym and purchase new equipment" [Blue 11 O-S]. The respondent gave affidavit evidence denying that she agreed to this and claimed that the appellant said "put the cheques in my name because I want to reduce my mortgage". Her affidavit included the statement: "He did not buy equipment for the gym with my money" [Blue 76 P-Q]. However her evidence in cross-examination was to the contrary [Black 64 O-T]: Q. Ms Nguyen, when you paid Mr Mouti $140,000, you knew that he [was] going to buy assets or items for the gym with that money. A. He told me that. Q. You believed him and that's the basis on which you gave him the money. A. Yes. Q. You were happy for that to happen because you knew that you would have a half share interest in whatever [were the] assets that he purchased with that money. A. Yes. 1. On 11 July 2011 the appellant's solicitor wrote to the solicitors for the lessor of the premises from which the Business operated advising that the appellant wished to amend the lease so that FMM became the lessee. That letter included the following [Blue 6 L-O]: We confirm that Mr Fouad Mouti will continue as a tenant in respect of the above premises as a half share holder in the above company and he along with the other share holder Minh Nguyen (Directors and shareholders) will provide personal guarantees. We also confirm that our client is no longer selling the business in question and now would like the lease documentation previously forwarded by your office to reflect the above. 1. The respondent was cross-examined in relation to the negotiations with the lessor as follows [Black 52 I-Q]: Q. You knew at that point that there were negotiations taking place in which it was proposed that you would be on the lease. A. That's what he told me, yes. Q. You didn't say to him at that point, "I don't want to be on the lease", did you? A. I didn't say that. Q. No, because you were content for those negotiations to proceed along the lines that you would be on the lease. A. I don't know what I were (as said) thinking at that time. Q. Well, I want to suggest to you that because you didn't raise any issue with him and because you didn't say to him, "I don't want to be on the lease", it must be the case that you were content for negotiations with the landlord to proceed on the basis that you would be on the lease. A. I wanted to be on the lease. Q. You knew that you would be on the lease and you wanted to be on the lease as a guarantor. A. Yes. 1. The respondent subsequently claimed that she did not understand the meaning of the word "guarantor" [Blue 53 H-P]. She gave the following evidence [Black 53 T – 55 X]: Q. You didn't understand what a guarantor was. A. No. And what it is for, I don't, I don't understand that. Q. Would you ask Mr Mouti what that meant? A. I don't remember I ask him. Q. Well, I want to suggest to you that you knew very well what a guarantor was because when it was suggested to you that you would be a guarantor, you didn't ask him any questions about it. A. I did ask him something but I don't remember what I did ask him. Q. You just told his Honour that you wanted to be a guarantor, do you remember saying that to his Honour? A. Yes. Q. Well, you must've known what a guarantor was because you wanted to be one. A. At the time because my English was bad so I just do whatever he, he wants me to do. …. Q. You just told his Honour before you didn't understand what a guarantor was. A. Yes. Q. But you agree, don't you, that in about June or August 2011 you wanted to be on the lease? A. Yes. … Q. You expected to be on the lease at that time as a tenant -- A. Yes. Q. -- that was your expectation. And you knew, didn't you, that there were negotiations taking place that would, you hoped, see you put on the lease as a tenant? A. Yes. Q. In July and August 2011. A. Yes. 1. There was no issue that the respondent started working in the Business after she paid the appellant the cheques totalling $140,000. The issue was whether she was paid for her labour. The appellant gave evidence that he paid the respondent $2,000 per week and that he would make a note in an exercise book that these weekly "distributions" had been made [Blue 12H]. The respondent's affidavit evidence was that she completed 40 weeks of work for no pay [Blue 2 V; 76 W]. She also gave evidence that she received $1,000 per week after she had completed the 40 weeks of work for no pay [Blue 76 W]. She claimed that the appellant advised her that at this time the Business could only afford to pay $1,000 instead of $2,000, in response to which she informed the appellant that she would only work "30 hours per week instead of 40 hours" [Blue 76 W – 77 D]. 2. The respondent was cross-examined about the issue of payments allegedly made to her after she paid the appellant the $140,000 [Black 63 C – 64 C]: Q. Well, I'll put this to you and see whether you agree or not, that, in fact, you negotiated with Mr Mouti that you would receive half of whatever the profit of the business was each week. A. No. … Q. Whatever the profit was of the business each week, you were paid that amount, it changed from week to week. A. No. Q. Sometimes that amount was 1,500 and sometimes it was more than 2,000. A. No. Q. You considered yourself, when you paid the $140,000 to Mr Mouti, you considered yourself a partner in this business, didn't you? A. I did. Q. So, a partner who has a share in the business will usually take half of the profits, do you agree with that? A. No. Q. You would've demanded half of the profits because you were a partner, wouldn't you, isn't that what you did? A. I was a partner but I want a wage. Q. Can you go back to page [56]? Have you spoken about this page with your son? A. Yes, yes. Q. You will notice there, won't you, don't you, that the amounts change week to week as notations on that page. The first entry is $1,000, the second is 1,800, do you see that? A. Yes. Q. Now, do you say that your son was also being paid a wage during that period? A. For the last four weeks, yes. Q. When you say the last four weeks, you mean the weeks which are covered by the dates on this page? A. Yes. Q. Do you tell his Honour that it's your understanding that his wage fluctuated between $1,000 and $2,400? A. That's lie because he only get paid 1,000 a week but someone fixed it to 1,800, that's not the amount he got paid. 1. The appellant gave affidavit evidence that the respondent stopped attending the gym in mid-2012. He claimed that she informed him that she was not going to continue working at the Business and that her son would "come and pick up my pay" [Blue 12 Q-T]. The appellant claimed that the respondent's son, Luan Thanh Nguyen, attended the gym on a weekly basis and collected the "profit distribution on his mother's behalf" [Blue 12 U]. The appellant produced a diary page which he claimed acknowledged receipt of the cash payments made to Mr Nguyen. That document records three payments of $1,000, one payment of $1,800 and one payment of $1,500 in August 2012; and one payment of $2,000 and another of $2,400 in September 2012 [Blue 52]. Mr Nguyen gave affidavit evidence that he only received payments of $1,000 and that the figure of $1,800 had been altered from $1,000 [Blue 79 O-P]. Mr Nguyen denied that he received payments for the respondent and maintained that denial in cross-examination [Black 71 U-V]. He also claimed that some of the signatures on the document recording payments purportedly made to him were not his signature [Blue 79 N-O; Black 72 K – 73 F]. 2. The appellant was cross-examined about the diary page purporting to record the payments made to Mr Nguyen. He gave the following evidence [Black 105 E – 106 P]: Q. Mr Mouti, you've said that this document represents payments of profit that were distributed to Ms Nguyen, is that correct? A. That's right. Q. You say you pre-calculated or you calculated at the time the profit of the business prior to making each payment, right? A. That's right. By the end of the week. … Q. You see that's just not true, Mr Mouti, is it? A. Of course it's true. Q. That in fact represented a wage being paid to Mr Luan Nguyen did it not? A. That's – it continues after his mum stopped because she did not want to come to work anymore, so he continued to sign the book after his mum. I asked him to sign for his mum. She tore all the top pages, as I have the book here with me. Q. It's in fact a wage paid to Mister. A. It's not a wage. It's half a share. Q. Paid to Mr Nguyen, wasn't it? A. He's 18 year old. Would you pay a thousand dollars to a child? This is a share of – of a profit. Q. Mr Mouti, that figure, the one for 17 August, it's been changed from $1,000 to $1,800 hasn't it? A. No, it hasn't. That's his writing. If I wanted to exaggerate it, I'd exaggerate the whole book. Q. Mr Mouti, all the numbers commencing from 30 August 2012 to the end of that document are false, aren't they? A. No, they're not. Q. They're fraudulent, aren't they? A. Are you calling me a fraudulent? Q. Yes. A. Excuse me. Q. Those do not bear Mr Nguyen's -- A. That's Luan's signature. Q. --signature and they were not – they do not represent money received by him, do they? A. Of course they do. Of course they do. And I don't appreciate you calling me fraudulent. 1. The respondent gave evidence that she instructed her solicitor to prepare what she described as "a contract for my share of the business" [Blue 77 E]. The covering letter to the appellant enclosing the document headed "Partnership Agreement" included the following [Black 159 M-P]: [P]lease seek independent legal advice prior to the execution of the Partnership Agreement. We understand that at the negotiation stages in 2011 and when payment in the sum of $140,000 was made by our client to you, it was agreed upon by our client and yourself that a net weekly wage of $2,000 is to be paid to our client provided our client works at the fitness centre 40 hours per week. However, since the net weekly wage paid to our client is reduced to $1,000.00, our client will only attend to the business premises 30 hours per week. 1. The front sheet to the Partnership Agreement identified the appellant as the "Existing Partner", the respondent as the "Silent Partner" and the respondent's son as the "Incoming Partner". The terms of the Partnership Agreement provided for a partnership between the appellant and Mr Nguyen. It recorded that it was Mr Nguyen who had paid the appellant $140,000 as the "half share of the business, half value of the existing stock and equipment and also towards the recent purchase of new gym equipment" [Blue 57 H-I]. It provided for a payment of $1,178 per week to Mr Nguyen for working 30 hours per week from 10.00am to 3.00pm Monday to Friday. It also provided that the appellant would be "solely responsible" for any losses of the Business [Blue 57 O-P]. It also included the following [Blue 56 V – 57 D]: 3.2 The parties acknowledge that the lease for the premises situated at Level 1, 43 North Parade, Campsie is currently under the name of FMM Promotion Pty Limited CAN (sic) 151 352 028 of which Fouad Mouti and Minh Hai Nguyen are the directors and agree that it shall remain under the company's name for the remainder term of the lease. The said company shall hold the lease as Trustee on behalf of the partners. The Incoming Partner shall not indemnify the Existing Partner any of (sic) all rental payments and outgoings in connection with the lease for the remainder term of the lease. (emphasis in original) 1. FMM was recorded by ASIC (at least as at 14 October 2013) as the owner of the business name "Vibe Health and Fitness Centre" [Blue 21]. However it is not clear from the evidence when ownership of the Business name was transferred to FMM. 2. It is apparent that after the appellant received the draft Partnership Agreement in which the respondent sought to bring her son into the partnership, the relationship soured. Proceedings were commenced in the District Court on 27 February 2013. The Judgment 1. The primary judge delivered judgment on 28 March 2014. His Honour set out the parties' respective claims regarding the Business Agreement Document [Red 35 H-W [5]-[7]]. His Honour did not refer to the evidence given by the appellant in cross-examination that he and the respondent prepared the Business Agreement Document together. Nor did his Honour decide the competing claims as to whether the respondent said of the Business Agreement Document "That is what the deal is. I agree". 2. His Honour set out the terms of the Receipt and referred to the respondent's evidence that the appellant's solicitor had suggested that they should have a company and transfer the Business to it [Red 36 Q-R [10]]. His Honour also referred to the appellant's evidence that it was the respondent's idea to establish a company for the protection of her assets. His Honour made no reference to the respondent's evidence in cross-examination in which she accepted that before she paid the appellant the money she was taking steps to "set up a company to run" the Business and had given some thought as to how the Business "should be run in the future" [Black 35 E-J]. However his Honour found that FMM was "established by both parties to run the business" [Red 39 D [20]]. 3. Although his Honour referred to the appellant's evidence about the discussions with the respondent relating to the refund of the $140,000 if the lessor did not accept her on the lease, his Honour made no reference to the appellant's solicitor's letter of 11 July 2011 to the lessor's solicitors requiring changes to the lease in which FMM would replace the appellant as lessee. Nor did his Honour refer to the joint proffering of personal guarantees in that letter. 4. His Honour referred to the parties' competing claims as to how the balance of the purchase price of $80,000 was to be paid and the dispute as to whether the payments made to Mr Nguyen were collected for the respondent or were payments for work performed by him [Red 37 O – 38 J [13]-[16]]. 5. The primary judge referred to the appellant's evidence that he had spent the $140,000 on new equipment and updated the security system [Red 38 K-L [17]]. However his Honour did not refer to the respondent's evidence referred to above in which she accepted that the $140,000 was going to be used to buy assets for the Business and that she was happy for that to happen because she knew she would have a half interest in those assets [Black 64 O-S]. 6. The primary judge described the respondent's case at trial as "in essence, that there was no concluded contract for the sale and purchase of a half share in the business" [Red 40 H [26]]. In this regard the primary judge referred to the Receipt and the respondent's submissions that the evidence "clearly showed" that the parties' intention was "not to make a concluded bargain until a formal contract had been signed" [Red 40 S-U [29]]. After referring to passages in Masters v Cameron (1954) 91 CLR 353 at 360 and 361 the primary judge said [Red 41 S-Y]: 33. On the basis of the history of the business relationship between the Plaintiff and the Defendant, as set out in the term of the document entitled "Receipt", the intention of both parties never reached the point of finality so that a contract could be signed between the parties. In these circumstances, given the terms of the "Receipt", a document drafted by the Defendant's solicitor, I find there was no contract between the parties and the Plaintiff is entitled to her $140,000 paid to the Defendant plus interest. 1. The primary judge then dealt with the respondent's claim for $80,000 or part thereof as "the value of her labour for 'working' in the gym for 40 hours a week" [Red 42 C [34]]. By this stage the primary judge had concluded that there was no concluded agreement between the parties. 2. The issues were whether the respondent had provided the services or work for the 40 weeks; whether she had been paid for that work; and if not (in the absence of a contract between the parties) whether she was entitled to be paid the value of that work at $2,000 per week for 40 weeks, totalling $80,000. His Honour posed the question as to whether the respondent contributed $80,000 to the purchase price through her "unspecified unpaid labour" or whether she received $2,000 (then $1,000) per week as her "share of the profits" [Red 42 O-R [35]]. His Honour held [Red 42 W – 43 D [35]]: I have reached the conclusion that the weekly monies received by the Plaintiff from the Defendant between July 2011 and September 2012 were a share of the business profits. In the absence of some objective evidence as set out above, to support the Plaintiff's claim, the Plaintiff's claim for a share of the $80,000 for her labour in the business, fails. 1. The primary judge also said [Red 43 N [37]]: I have determined that there was sufficient evidence to make a finding that the Defendant paid the Plaintiff a share of the profits in the business of $2,000 and then $1,000 per week. I did find that payments made to the Plaintiff's son were not for any work he did in the business, but the Plaintiff's share of the profits as she no longer attended the business from late July 2012, and the business profit distribution to the Plaintiff's son ceased on 13 September 2012. 1. Notwithstanding this reference to an earlier finding in relation to payments made to Mr Nguyen, there is no such finding in the Judgment. There is no specific reference or detail as to what the "sufficient evidence" was upon which the primary judge determined that the respondent was paid a "share of the profits". 2. However in dealing with the Cross Claim brought by the appellant for the amount of $34,338.31 (representing half of the $80,000 less $5,661.69) the primary judge also said [Red 43 T – 44 Q]: 38. There is no evidence of how much, in total, the Plaintiff was paid by way of a share of the profits in the business up until 13 September 2012. … 41. I have found that the Plaintiff was paid a share of the business profits from 1 July 2011 to 13 September 2012. I made the finding on the basis of the evidence, both oral on the part of the Plaintiff and her son and the Defendant plus the very limited documentary evidence, principally the one page recording payment collected by the Plaintiffs (sic) son [Exhibit 1, Annexure F], which including some payments made above $1,000 per week. 1. The primary judge referred to the respondent's claim that her unpaid work in the Business at 40 hours per week would mean that the $80,000 that made up the purchase price of $220,000 would be accounted for, and she would not be required to make a further payment [Red 42 Q-T [35]]. His Honour also referred to the appellant's claim that the respondent had informed him that a further $80,000 payment would be made when she sold her Bankstown unit. In this regard his Honour said that there was evidence before the Court that the respondent did not at the relevant time own any property at Bankstown [Red 44 V-X [43]]. The primary judge concluded [Red 45 B-K]: 44. The Plaintiff did not sell any further property and pay the Defendant $80,000 she had agreed was part of the purchase price of the business. 45. I have found that the Plaintiff received a share of the profits on a weekly basis from 1 July 2011 to 13 September 2012. This was paid to the Plaintiff when she attended the business and "worked" in lieu of wages. 46. In these circumstances the Defendant's cross claim is made out and the Defendant is entitled to the amount claimed in the cross claim which was not challenged, as his half share of the $80,000 promised by the Plaintiff. 47. This sum will be set off against the sum of $140,000 I have awarded to the Plaintiff. 1. The primary judge entered judgment for the respondent in the amount of $105,662. There was no separate order made addressing the outcome of the Cross Claim. Rather the primary judge reduced the respondent's claim of $140,000 by the amount of $34,338 claimed by the appellant on the Cross Claim and entered judgment for that reduced amount. Costs were awarded against the appellant on the respondent's claim and the respondent was ordered to pay the appellant's costs of the Cross Claim. The Appeal 1. The appellant filed a Notice of Intention to Appeal on 15 April 2014 [Red 47] and a Notice of Appeal on 27 June 2014 [Red 50]. The appellant contends that the trial judge erred: 1. In finding that "the intention of both parties never reached the point of finality so that a contract could be signed between the parties" [Red 51 H]; 2. In not finding that the parties agreed to the sale to the respondent of an equal half share in the Business [Red 51 J]; 3. In not finding that the sum of $140,000 was paid by the respondent pursuant to a contract between the parties for the purchase of an equal half share in the Business [Red 51 L]; and 4. In finding that the appellant was liable to pay the respondent the sum of $105,662 plus interest [Red 51 M]. 1. The appellant seeks an order that the appeal be allowed; that the orders made by the primary judge be set aside; and that judgment be entered on the Cross Claim in the sum of $34,338.31, plus interest. The appellant also seeks an order that the respondent pay the appellant's costs of the proceedings below and the appeal, plus interest on those costs [Red 51 P-S]. 2. By Cross Summons seeking leave to cross-appeal filed on 8 September 2014 the respondent seeks leave to appeal from the primary judge's decision in respect of the Cross Claim. The respondent seeks an order that the Cross Claim be dismissed with costs [White 2]. 3. In the Draft Notice of Cross Appeal the respondent contends that: 1. The primary judge provided no adequate reasons for his decision on the Amended First Cross Claim [White 24]; and 2. The decision on the Amended First Cross Claim is inconsistent with the basis of the decision on the respondent's claim that the parties did not enter into a contract for the sale of an interest in the Business given that the decision on the Amended First Cross Claim is based on the fact that they did [White 24]. 1. The appeal was heard on 17 March 2015. Mr A Crossland, of counsel, leading Ms K Jones, of counsel, appeared for the appellant. Mr A Tokley SC leading Mr BA Mee, of counsel, appeared for the respondent. Consideration 1. In support of their respective contentions both parties relied upon the irreconcilability of the primary judge's finding that there was no concluded agreement between the parties with his Honour's finding that the respondent was paid a share of the profits of the Business. It was accepted that there were unresolved factual disputes the resolution of which was necessary in order to properly determine the intention of the parties [Tr 8.28 – 8.40]. There were also some significant aspects of the evidence that should have been taken into account in determining the parties' intentions to which the primary judge made no reference. It is appropriate at this point to consider these matters. The Business Agreement Document 1. One area of dispute related to the Business Agreement Document. There were factual disputes as to who prepared it and whether it formed the basis of the parties' agreement or "the deal" [Blue 10 I]. The Business Agreement Document included provisions: (1) that the appellant and the respondent were to be parties in a joint venture to operate the Business; (2) that the parties would share equally the expenses of the Business; (3) the parties would make equal capital contributions for the improvement of the Business including for gym equipment and facilities; and (4) each party would work a minimum of 40 hours per week in the Business. 2. The Business Agreement Document was not signed by either party. Each party claimed the other had "produced" it. However the respondent's counsel elicited evidence from the appellant in cross-examination that the parties had "created it together" and had it typed up, probably at the gym [Black 91 T – 93 M]. 3. There was also a dispute as to whether, as the appellant claimed, the respondent said of the Business Agreement Document "That's what the deal is. I agree". The respondent denied that she made this statement. There was no issue on the evidence that the appellant had offered to sell a half share in the Business to the respondent for $250,000 and that the respondent made a counter offer of $220,000 which the appellant accepted [Blue 9 W-Y]. The respondent gave evidence that "soon after" the appellant gave her the Business Agreement Document she agreed to pay him $140,000 [Blue 2 Q]. Her later evidence was that the appellant gave her the Business Agreement Document and said he would "take $220,000 for half the gym" [Blue 75 P]. 4. In the resolution of the dispute as to whether the respondent agreed that the Business Agreement Document was "the deal", it would have been relevant to consider the respondent's evidence in cross-examination in relation to whether she discussed the Business Agreement Document with the appellant, including her initial denial and subsequent concession that the appellant "explained it" [Black 31 R – 32 S]. 5. The primary judge merely referred to the respondent's submission that the Business Agreement Document "preceded in time" the Receipt and wrongly concluded that the Receipt had been prepared by the appellant's solicitor [Red 40 U-X [29]]. It appears that the primary judge believed that because the appellant had caused his solicitor to prepare the Receipt, it superseded the Business Agreement Document and it was unnecessary to consider that document and the discussions about it at the relevant time. 6. If the appellant's evidence in relation to the provenance of the Business Agreement Document and/or the claim that the respondent agreed that it contained "the deal" were to be accepted, it would be a basis for a finding that the parties intended that the purchase of the half share of the Business would be in accordance with (at least) the provisions of the Business Agreement Document. 7. The resolution of that factual dispute was a matter of significance in determining the intention of the parties, in particular in the light of the contents of the Receipt and the other surrounding circumstances. FMM Promotion Pty Ltd 1. Although the primary judge referred to the parties' competing claims as to who made the suggestion that they should establish a company, this difference was not resolved. His Honour said that FMM was "established by both parties to run the business, but apparently it never performed that function" [Red 39 D [20]]. The primary judge did not refer to the fact that at some stage FMM became the registered owner of the Business name "Vibe Health and Fitness Centre" [Blue 21]. 2. The primary judge said that there were "negotiations" for the respondent to "become a lessor" of the Business premises [Red 39 E [20]]. The evidence was that by letter of 11 July 2011, approximately 1 month after the respondent made the $140,000 payment to the appellant, the lessor's solicitors were requested to change the lease so that FMM would become the lessee. The solicitors were also advised that the appellant and the respondent, as directors and equal shareholders of FMM, would provide personal guarantees of FMM's performance under the lease [Blue 6]. The respondent agreed that she knew that there were discussions with the landlord about FMM becoming the tenant and that FMM was going to be the tenant [Black 40 Q – 41 C]. The respondent agreed in cross-examination that "she wanted to be on the lease as a guarantor" [Black 52 Q; 53 E-F]. However, although she accepted that she had so agreed, she claimed she did not understand what that meant [Black 53 I]. In later evidence the respondent claimed that it was her expectation and hope that she would be on the lease as "a tenant" [Black 55 D-X]. 3. The primary judge did not refer to the parties' offer to the landlord to provide personal guarantees under the proposed lease. This was a matter to be considered in all the circumstances of the parties' business relationship to determine the parties' intention. The payment of $140,000 1. The appellant's evidence was that at the time the $140,000 was paid on 8 June 2011, that is two days before the Receipt was signed, the respondent agreed that it was to be used to upgrade the facilities and to purchase new equipment for the Business. The respondent agreed in cross-examination that this was the basis on which she gave the appellant this money [see paragraph [28] above]. This was a significant matter to be taken into account in determining the parties' intentions. However the primary judge made no mention of this agreement between the parties and referred only to the appellant's evidence that he said that the money was used for this purpose [Red 38 K-L [17]]. The balance of the purchase price 1. The primary judge did not determine the competing claims in respect of the agreement that was reached relating to the payment of the balance of the purchase price. The appellant claimed that the respondent had agreed to pay the balance of the $80,000 when she sold some real property in Bankstown. The respondent claimed that the appellant agreed that the 'payment' of the balance of the purchase price of $80,000 could be made by working without payment for 40 hours for 40 weeks at a value of $2,000 per week. 2. The primary judge addressed these claims separately after he had concluded that there was no contract between the parties. As earlier referred to, his Honour reached the conclusion that the "weekly monies" received by the respondent "were a share of the business profits" [Red 42 X [35]]. It is appropriate to set out the passages of the judgment in relation to this aspect of the matter [Red 42-43]: 34. The plaintiff also claims $80,000 or part thereof as the value of her labour for 'working' in the gym for 40 hours a week. The $80,000 made the total offered for the business $220,000. There was no evidence as to what the Plaintiff did in the business, as I said earlier, or what the Defendant expected her to do. There was (sic) no business records tendered or income tax returns that might indicate a role for the Plaintiff in the business and her income. The 'Receipt' document that post-dates the Business Agreement Document, as referred to by the Defendant, does not mention the arrangement the $80,000 balance of the purchase price of $220,000. It says the "payment of $140,000 being the payment for 50% share in the Vibe gym business on 8 June 2011". Nor does the "Receipt" mention the price for 50% of the business being $220,000 but only $140,000. 35. There are no receipts, pay slips, income tax returns or business records before me that might have, in some way, reflected the agreement (if there was one) between the Plaintiff and the Defendant as to the $80,000. That is, did the Plaintiff contribute $80,000 to the purchase price through her unspecified unpaid labour or did she receive $2,000 (then $1,000) per week as her share of the profits of the business? The evidence of the Defendant and the one page document, with amounts paid to the Plaintiff's son over a month period in August 2012, and the business document [Exhibit A, Annexure A] are the evidence that the Defendant relies upon to demonstrate that the Plaintiff was paid a share of the profits of the business on a weekly basis, over the relevant period. I have reached the conclusion that the weekly monies received by the Plaintiff from the Defendant between July 2011 and September 2012 were a share of the business profits. In the absence of some objective evidence as set out above, to support the Plaintiff's claim, the Plaintiff's claim for a share of the $80,000 for her labour in the business, fails. 1. Although dealing with the Cross Claim his Honour also said relevantly [Red 43 N-P [37]]: I have determined that there was sufficient evidence to make a finding that the Defendant paid the Plaintiff a share of the profits in the business of $2,000 and then $1,000 per week. I did find that payments made to the Plaintiff's son were not for any work he did in the business, but the Plaintiff's share of the profits as she no longer attended the business from late July 2012, and the business profit distribution to the Plaintiff's son ceased on 13 September 2012. 1. It was necessary to determine on what basis the respondent was working at the Business for 40 hours per week. It was also necessary to determine on what basis the respondent understood she was required to work 40 hours per week. The respondent's solicitor confirmed the arrangement in the letter to the appellant in mid-2012 enclosing the draft Partnership Agreement (extracted here again for ease of reference) [Black 159 M-Q]: We understand that at the negotiation stages in 2011 and when payment in the sum of $140,000 was made by our client to you, it was agreed upon by our client and yourself that a net weekly wage of $2,000 is to be paid to our client provided our client works at the fitness centre 40 hours per week. However, since the net weekly wage paid to our client is reduced to $1,000.00, our client will only attend to the business premises 30 hours per week. 1. The reference in this letter to the "negotiation stages in 2011" suggests that the parties had moved on from those stages by this time. They had each worked in the Business for 40 hours per week and according to this communication, the parties had also agreed that $2,000 per week was to be paid to the respondent. These arrangements were consistent with the terms of the Business Agreement Document as to the "equal share of everything" and the requirement for the "40 hours of work a week". There was no mention or suggestion in this letter that since the "negotiation stages in 2011" the respondent had been working for those 40 hours for 40 weeks for no pay or contributing $80,000 as the balance of the purchase price. 2. Notwithstanding the primary judge's statement at paragraph [37] of the judgment that he "did find" that the payments to the respondent's son were not for work in the Business, there is no such finding in the Judgment. The primary judge did not determine the period during which the $2,000 per week was paid nor the period during which the $1,000 per week was paid. 3. In any event a finding that the respondent received $80,000 (or something more or less) as a "share of the profits" should have been taken into account in determining whether the parties concluded an agreement in mid-2011. 4. In concluding that the respondent received $80,000 as a "share of the profits", his Honour appears to have been deflected from considering and determining the issue of how the balance of the purchase price was to be paid. The finding that the respondent was paid a share of the profits amounts to a rejection of the respondent's claim that she paid the balance of the purchase price by working for no payment. The appellant's version of how the balance of the purchase price was to be paid (on sale of the Bankstown real property) was neither accepted nor rejected by the primary judge. His Honour observed that there was evidence that the respondent "did not at the relevant time own any property at Bankstown" [Red 44 W-X [43]], but failed to decide whether it was a term of the agreement that the respondent was to pay the balance of the purchase price in this manner. 5. However when dealing with the Cross Claim, his Honour said that the respondent did not sell any further property and pay the appellant $80,000 that "she had agreed was part of the purchase price" of the Business [Red 45 C [45]]. His Honour also referred to the $80,000 "promised by" the respondent [Red 45 I [46]]. It would appear that his Honour took the view that the respondent had promised to pay the balance of the purchase price of $80,000. However there were no express findings in relation to that promise, such as when it was made and how and when the payment was to be made. Certainly the conclusion that the respondent promised to pay the $80,000 was not a matter taken into account by the primary judge in determining whether the parties intended to be contractually bound in mid-2011. It was a matter that was pivotal to that determination. The Receipt 1. The respondent's evidence in her affidavit sworn on 29 August 2013 was that the appellant gave her the Receipt when she paid him the $140,000 at his solicitor's office [Blue 2 T-U]. In cross-examination the transposition of the first letters of the appellant's names in the Receipt, recording them as Mouad Fouti rather than Fouad Mouti, was pointed out to the respondent [Black 35 R-T]. She accepted that the document did not record the appellant's names correctly and agreed that the Receipt was prepared by her lawyer [Black 35R-36J]. The terms of the Receipt are extracted here again for ease of reference: I, Mouad Fouti of 102 Macquarie Street, Greenacre being the business proprietor the Vibe /Fitness situated Level 1, 43 North Parade, Greenacre acknowledge receipt of the payment of $140,000.00 being the payment for the 50% share of the Vibe Gym business from Minh Hai Nguyen on 8 June 2011. The details of the structure and details of the sale of the business are yet to be finalised. In the event that the negotiations for the sale of the business do not proceed and contracts fail not to exchange, the amount in the sum of $140,000.00 shall be fully refunded to Minh Hai Nguyen. 1. The primary judge extracted the last sentence of the first paragraph and the second paragraph of the Receipt in the Judgment [Red 40 N-R [27]-[28]]. His Honour found that the Receipt was "apparently a document prepared" by the appellant's solicitor and later found that the receipt was "a document drafted by" the appellant's solicitor [Red 40 W; 41 W]. It was not suggested that this was a slip by his Honour and that he had intended to say that it was drafted by the respondent's solicitor. The relevant passages of the Judgment are as follows [Red 40 S – 41 Y]: 29. It was the submissions (sic) of Mr Washington for the Plaintiff that the evidence clearly showed that the intention of the parties was not to make a concluded bargain until a formal contract had been signed. Mr Washington submitted that the "Business Agreement Document", as described (see paragraph 5 above) preceded in time the "Receipt" of 10 June 2011, the latter apparently a document prepared by the solicitor for the Defendant. … 33. On the basis of the history of the business relationship between the Plaintiff and the Defendant, as set out in the term of the document entitled "Receipt", the intention of both parties never reached the point of finality so that a contract could be signed between the parties. In these circumstances, given the terms of the "Receipt", a document drafted by the Defendant's solicitor, I find there was no contract between the parties and the Plaintiff is entitled to her $140,000 paid to the Defendant plus interest. 1. As adverted to earlier, it appears that this error may have led the primary judge to conclude that the Business Agreement Document was overtaken or superseded by the Receipt and therefore it was not necessary to consider it. 2. There was no issue that the terms of the Receipt reflected that the parties had agreed that the appellant would sell to the respondent a fifty per cent share of the Business. Equally there was no issue that the agreement was different to that represented in the Receipt. The parties had agreed that the purchase price was $220,000 rather than $140,000. The last sentence of the first paragraph of the Receipt recording that the "details of the structure and details of the sale of the business are yet to be finalised" was also inaccurate in part. There was no sale of the Business. Rather it was a sale of a fifty per cent share in the Business that was recognised in the first sentence of the Receipt. 3. In accordance with the terms of the Receipt, the respondent's entitlement to the return of the $140,000 was triggered if "the negotiations for the sale of the business do not proceed and contracts fail not to exchange". It was necessary to construe this part of the document in the light of other surrounding circumstances, including the Business Agreement Document, the agreed use of the $140,000 and the parties working together in the Business and receiving a share of the profits. 4. The appellant contended that the size of the payment of $140,000 (being 64% of the agreed purchase price) suggests that the parties did not intend that it should be treated as a "deposit" but rather a part payment of the purchase price. In support of this contention the appellant emphasised that the amount was not held by a stakeholder but was paid directly to the appellant on the basis that it be used immediately in upgrading the facilities and purchasing equipment for the Business. A "deposit" is usually paid at the time of making a contract and has been described as "an earnest to bind the bargain" the subject of the contract. It is a payment that is made before the delivery of the item or property the subject of the contract. In Howe v Smith (1884) 27 Ch D 89 Fry LJ said at 101: Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture motive in the payer to perform the rest of the contract. 1. In Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 the High Court said at 351-352 [27] (footnotes omitted): The expression "an earnest to bind the bargain" reflects, as Fry LJ put it in Howe v Smith, the adaptation by the common law of "[t]he practice of giving something to signify the conclusion of the contract, sometimes a sum of money, sometimes a ring or other object, to be repaid or redelivered on the completion of the contract, [which] appears to be one of great antiquity and very general prevalence". The practice was received from Roman law into the mediaeval common law by the time of Bracton, and thus preceded the development of the modern law of contract and of the equitable principles which it includes. The quotation by Fry LJ from Bracton indicates that where something was given by way of a deposit before delivery then if the buyer repented and wished to resile from the contract the buyer lost the deposit; if the seller was responsible for the non-performance then the seller was required to return double the amount of the deposit. Writing in the same period as Fry LJ, Benjamin said that in the modern law "the true legal effect of earnest is simply to afford conclusive evidence that a bargain was actually completed with mutual intention that it should be binding on both [parties]". 1. It is clear that the Receipt failed to record accurately the purchase price of $220,000 and wrongly described the $140,000 as "payment for the 50% share" of the Business. It was silent as to the use to which the $140,000 was to be put and did not reflect the agreement that both parties accepted was reached prior to the time that the Receipt was signed, that the money was to be used immediately for the upgrade of the facilities and purchase of equipment for the Business. The payment was not described as a "deposit" in the Receipt. The whole of the circumstances lead to the conclusion that the $140,000 was part payment of the purchase price with a promise to pay the balance of $80,000, albeit that this aspect of the agreement was not the subject of any proper findings by the primary judge. The Cross Claim 1. The findings on the Cross Claim were based on the determination of whether the respondent's claim that she worked for 40 weeks without pay was accepted. The primary judge rejected the respondent's claim in this regard and, as referred to above, found that the respondent was paid a share of the profits. The primary judge's findings that the respondent promised to pay $80,000 was not the subject of any express findings as to when such an agreement was reached and what the terms of that agreement were as to when the payment was to be made. The fact that the respondent agreed (or promised) to pay the balance of the purchase price of $80,000 is a significant matter that should have been taken into account in determining whether the parties were contractually bound in mid-2011. 2. The primary judge's findings that there was no agreement between the parties and that the respondent was entitled to the return of the $140,000 are inconsistent with the finding that the respondent was paid a share of the profits of the Business for approximately 15 months. It is not possible to reconcile these findings. 3. I am satisfied that the primary judge fell into error in making such findings on the Cross Claim. Conclusions 1. Aspects of the parties later conduct may be taken into account for the purpose of deciding whether an agreement was reached: Australian Broadcasting Corporation v XIVTH Commonwealth Games Limited (1988) 18 NSWLR 540 at 547G-548B per Gleeson CJ, with whom Hope and Mahoney JJA agreed; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163 [25], per Heydon JA. In determining the intention of the parties in a case such as this, it is important that the court "have an understanding of the commercial context in which the dispute arises" a most significant feature of which will be the subject the parties "would ordinarily be expected to regard, as matters to be covered by their contract": Australian Broadcasting Corporation v XIVTH Commonwealth Games Limited at 548C-D per Gleeson CJ. The following observations of Gleeson CJ at 548G-549B are apt to this case: Reference has earlier been made to "intention". Cases which typically give rise to problems of the kind presently under consideration are cases in which there is no doubt that the parties had a common intention that at some stage, and by some means, they would enter into contractual relations. They have entered into negotiations for that specific purpose. The problem which arises is that they have exchanged communications which, on the one hand, use the language of agreement but, on the other hand, disclose an expectation that at some future time a document embodying the terms of their contractual arrangement will be brought into existence. Where, as in the present case, the communications which the parties have exchanged are in writing, the question of their "intention" is, prima facie, to be resolved objectively, and as a matter of construction of the relevant documents. 1. It was necessary to decide the factual dispute about the Business Agreement Document because if it were found to be the basis of the parties' "deal", then the review of the Receipt had to occur in that context. The primary judge's finding that "the intention of both parties never reached the point of finality so that a contract could be signed between the parties" was made in a different context without regard to that document or to the other matters referred to above. 2. The constraints on appellate interference with trial judges' conclusions based on credit findings must be observed: Fox v Percy (2003) 214 CLR 118. However in this case there were incontrovertible facts necessary for consideration in determining the parties' intentions that the primary judge failed to consider. An example of this is the parties' agreement that the $140,000 was to be used to purchase the equipment and upgrade the facilities and the respondent's "promise" to pay the appellant the balance of $80,000. There were also findings of fact (that the appellant's solicitor "apparently prepared" the Receipt; and "drafted" the Receipt) that were inconsistent with the incontrovertible evidence that the respondent's solicitor prepared the Receipt. 3. The Business Agreement Document taken with: the agreement that the sale price was $220,000; the incorporation of FMM (with the parties as directors and joint shareholders) on 7 June 2011; the payment of the $140,000 and the respondent's "promise" to pay the balance of $80,000; the agreement to use the $140,000 for capital improvements; the use of the $140,000 as agreed; the terms of the Receipt; the request to make FMM the lessee of the lease of the Business premises; the joint proffering of personal guarantees of FMM's performance under the proposed lease; the transfer of the Business name to FMM; the parties working a minimum of 40 hours per week in the Business for the following 12 months; and the payment of a share of the profits of the Business for approximately 15 months to the respondent, were all factors that should have been taken into account in deciding the intention of the parties. 4. It was necessary to resolve the factual disputes and to take these matters into account to decide: whether (as the appellant contended at trial) the parties were content to be bound immediately in June 2011 by the terms of the Business Agreement Document, the oral agreements as to the use of the $140,000 and the terms of the Receipt while expecting to make a further contract containing additional terms as to "structure" and other matters: Sinclair Scott & Company Limited v Naughton (1929) 43 CLR 310 at 317 per Knox CJ, Rich and Dixon JJ; or whether (as the respondent contended at trial) the parties intended not to be contractually bound but to reserve a right to withdraw at any time until a formal document was signed: Masters v Cameron (1954) 91 CLR 353 at 361. 5. The draft Partnership Agreement that was forwarded to the appellant was inconsistent with the Business Agreement Document, the payment and use of the $140,000, the terms of the Receipt, and the payments made to the respondent for approximately 15 months. It was a separate proposal that the respondent's son become a partner of the appellant for the operation of the Business in which all risk would remain with the appellant. Of course it was open to the respondent to produce an agreement that was consistent with the parties' intentions. However it appears that at this stage the relationship was irreconcilable. 6. If there were to be a finding that the parties adopted the Business Agreement Document as their "deal" and that the respondent had promised to pay the balance of the purchase price when she sold some real estate, then there is a real prospect that a finding would be made that the parties intended to be bound immediately and expected to make a further contract containing additional terms by consent as to structure and other matters. 7. Subject to the findings of fact that may be made, the combined effect of the Business Agreement Document, the Receipt, the conversations that were not in issue, the admissions on the pleadings and the conduct of the parties would support findings that in June 2011 the parties reached an agreement the terms of which included that: (1) the respondent would purchase a half share in the Business for $220,000; (2) the parties would operate the Business together as a Joint Venture utilising FMM in the "structure", including as lessee of the Business premises; (3) the respondent would pay $140,000 immediately and the balance of $80,000 at a later date; (4) the $140,000 was to be used immediately after payment for purchasing new equipment and upgrading the facilities of the Business; (5) the parties would be equally responsible for the expenses of the Business; (6) the parties would make equal capital contributions for the improvement of the Business; (7) each party would work for a minimum of 40 hours per week in the Business; and (8) the parties would each receive a share of the profits of the Business on a weekly basis. It would be open to conclude that the parties expected to make a further agreement with additional provisions including in relation to the structure of the Business. 8. The fact that the findings on the main claim and on the Cross Claim are irreconcilable supports a conclusion that the primary judge fell into error. The primary judge did not consider the conclusion reached on the Cross Claim – that the respondent was paid a share of the profits of the Business – in determining the main claim as to whether the parties reached an agreement. 9. I am satisfied that the primary judge fell into error in failing to resolve the factual disputes referred to earlier, the outcome of which was pivotal to the determination of the parties' intentions. I am also satisfied that the primary judge fell into error in failing to consider the facts that were not in issue referred to earlier. I am also satisfied that the primary judge made findings of fact that were inconsistent with the incontrovertible evidence of the parties. In all the circumstances, his Honour's conclusions both on the main claim and on the Cross Claim cannot stand. 10. The respondent submitted that this Court should proceed to determine that there was no contract between the parties most significantly because it is clear that they had not even decided the identity of the parties to any contract. I disagree with this submission. If it were to be found that the parties adopted the Business Agreement Document as the "deal" then a reasonable reading of that document with the other surrounding circumstances, including the Receipt, may well lead to the conclusion that the parties to the agreement were the appellant and the respondent. 11. Although this Court was invited to make its own findings as to whether such an agreement had been reached, I am not satisfied that it is possible or appropriate in the circumstances of the pivotal factual findings not having been made to embark on such a process. The only just outcome in the circumstances is for the appeal to be allowed and the matter to be remitted to the District Court for a new trial. 12. Although I am satisfied that the order for a new trial is the only appropriate outcome in this appeal, I should say something about the costs of this litigation in proportion to the amounts in issue. One of the problems that faced the primary judge was the inconsistency between the manner in which the trial was conducted, and the content of the pleadings (Black 124 I-O). The primary judge requested clarification from counsel as to the precise nature of the respective parties' positions (Black 122 T – 123 N). I am not satisfied that the primary judge received the assistance from the parties that he should have in the circumstances. It appears that this may have contributed to the now wasted costs that have been incurred in this litigation. 13. The costs incurred to date both at trial and in this appeal together with the prospect of further costs of a further trial persuade me that the parties should proceed to mediation. The parties should see if they can, with the assistance of an independent mediator, reach a commercial settlement with which they are willing to live rather than continue on for further lengthy periods in what appears to be acrimonious and costly litigation. This Court has power to refer proceedings to mediation at any stage of the proceedings. I am satisfied that it is appropriate to do so at this stage, before the matter is remitted to the District Court for a new trial. 14. The orders I propose are as follows: 1. The appeal is allowed. 2. Grant leave to the respondent to bring the cross-appeal. 3. The cross-appeal is allowed. 4. Set aside orders 1 to 3 made in the District Court on 28 March 2014. 5. The parties are referred to court-annexed mediation. Such mediation is to occur by no later than 18 May 2015. 6. The parties are to attend upon the Principal Registrar of this Court forthwith to obtain a date for mediation. 7. After 18 May 2015 the matter is remitted to the District Court for a new trial. 8. The parties are to file written submissions as to the costs orders that should be made in the circumstances by no later than 18 May 2015. 9. Orders as to costs will be determined on the papers, subject to any application to have the matter listed for argument in Court. Any such application must be made prior to 18 May 2015. 1. SACKVILLE AJA: I have had the advantage of reading in draft the careful judgment prepared by Bergin CJ in Eq. 2. As appears from her Honour's judgment, this case has a number of unsatisfactory features. 3. First, the respondent succeeded in her claim to recover the sum of $140,000 paid by her to the appellant on a ground not pleaded in her statement of claim. The respondent's pleaded case was by no means clear or unambiguous. In substance, however, the respondent appears to have alleged that the parties (that is, the respondent and the appellant) reached an "agreement", but that the agreement included a term that "in the event that the sale did not proceed and the contracts failed to exchange" the amount of $140,000 would be refunded. The pleading did not identify the "contracts" that were to be exchanged. Nor did it state whether a failure to exchange would prevent an enforceable contract coming into existence, operate as a condition subsequent or have some other effect. 4. The ground on which the respondent ultimately succeeded was that the parties had never reached a binding and concluded agreement and thus the respondent was entitled to a refund of the money paid by her. The precise basis on which the primary Judge reached this conclusion is not clearly articulated. In any event, the statement of claim, although referring incongruously to a "total failure of consideration", did not explicitly plead that the parties failed to reach a binding and concluded agreement. 5. Secondly the case was conducted without the parties tendering documents that one would have expected to be prepared as a matter of course and to be readily available. Limited documentary evidence was adduced but it did not include pay slips, income tax returns or accounts of the business. The paucity of documentation was not explained. The respondent gave evidence that when she paid $140,000 to the appellant he said "just put $140,000 on the receipt so I do not pay tax". The appellant denied making the request and the primary judge made no finding about it. The evidence leaves it uncertain whether the records that should have been available were simply not in existence or the parties refrained from tendering them. Whatever the position, documentation which might have assisted in making findings on disputed factual questions was not adduced at the trial. 6. Thirdly, as Bergin CJ in Eq has explained, the primary Judge failed to make findings on critical factual questions and also failed to refer to significant evidence relevant to the resolution of those questions. Moreover in a case where the evidence of the appellant and the respondent was in conflict on a number of issues and each party's credibility was attacked, his Honour did not express a preference for the evidence of one over the other or explain his preference. (His Honour found that the appellant paid the respondent a share of profits but did not explain why he rejected her evidence to the contrary.) 7. Fourthly, as both parties accepted, there is an irreconcilable conflict between his Honour's findings on the respondent's claim and his findings on the appellant's cross-claim. 8. I agree with Bergin CJ in Eq that the parties must bear some responsibility for the unsatisfactory features of the trial. Even so, it is plainly undesirable that the parties be put to the expense, inconvenience and delay of a new trial. It is equally undesirable that the District Court has to bear the cost, in terms of court time and resources, that a new trial will entail. A new trial would be particularly unfortunate because of the relatively modest amounts in dispute. 9. I have given consideration to whether the appeal can be resolved without the need to order a new trial. At one point, such a possibility seemed to me to arise in consequence of the concession by the appellant that he cannot defeat the respondent's claim to a refund of $140,000 unless a finding is made that the parties entered into a binding and enforceable agreement for a sale of the business to the respondent for a price of $220,000. If the appellant must fail on this issue even if his case is taken at the highest, it would be open to this Court to dismiss the appeal. 10. I do not think that this course is open because the evidence as it stands is consistent with the parties having entered a binding and concluded agreement. Whether that is the conclusion that is ultimately reached will depend on findings of fact that have not been made and that this Court is not in a position to make. Similarly, it is not possible to resolve the cross-appeal without further factual findings that depend, in part, on unresolved questions of credit. 11. I therefore reluctantly agree with orders prepared by Bergin CJ in Eq setting aside the judgment and orders made by the primary Judge and remitting the matter to the District Court for a new trial. I agree with the other orders prepared by her Honour, in particular the referral of the parties to Court annexed mediation. In my view, they would do well to avail themselves fully of the opportunity to reach an agreed outcome. ********** Endnote 1. Statement of Claim (SOC) filed on 27 February 2013 [Red 1], Defence filed on 8 April 2013 [Red 9], Cross Claim filed on 22 October 2013 [Red 14], Amended Cross Claim filed in Court on 27 February 2014 [Black 1; Red 25], and Defence to the Cross Claim [Red 21] filed on 5 December 2013. 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: 13 April 2015