ADG United Pty Ltd v EG Enterprises Pty Ltd & Ors

By Summons filed on 2 April 2019, the Plaintiff, ADG United Pty Ltd (“ADG”) sought a declaration that, by an exchange of correspondence in February 2019 read in conjunction with a Shareholders Agreement between the parties, the First and Second Defendants, EG Enterprises Pty Ltd (“EG”) and Astro Corporation Pty Ltd (“Astro”) agreed to purchase ADG’s shares in the Third Defendant, Fitness Systems United Pty Ltd (“Company”) on the terms set out in a letter dated 14 February 2019. ADG also sought an order that EG and Astro specifically perform that contract with effect from 18 February 2019. Alternatively, they claimed damages, and also sought a declaration under s 233 of the Corporations Act 2001 (Cth) that certain conduct amounted to oppression, and associated relief.

On 26 April 2019, I made orders that certain questions set out in Annexure A to an Interlocutory Process filed by the Plaintiff on 23 April 2019 be determined separately from, and in advance of, the determination of other matters in the proceedings. The parties agreed that those questions could be determined by reference to what are largely agreed facts, to which I refer below. Those questions were, relevantly:

The Plaintiff’s claim was elaborated by Amended Points of Claim filed, by leave, on 29 May 2019. In the course of the hearing of the separate question before me on that date, a question emerged as to whether the proper parties to any such agreement were the principals associated with Astro and EG, Messrs Dixon and Gregan, rather than those companies. By an Amended Summons filed, by leave, on 31 May 2019, ADG expanded the relief it sought to seek, alternatively, a declaration that Messrs Dixon and Gregan agreed to purchase those shares and an order that they specifically perform that contract with effect from that date. That claim was elaborated by Further Amended Points of Claim filed, by leave, on 31 May 2019.

I set out the factual background to the application, largely drawing upon the facts agreed between the parties. On 5 May 2010, the Company was registered as an Australian company; at the time of registration, Mr Goldberg and Mr Dixon were appointed as directors of the Company and were each allocated 50 ordinary shares in the Company; from that date, the Company was governed by its constitution (“Constitution”) (Ex J1, Tab 1); and, since its incorporation, the Company has developed, manufactured and supplied a variety of fitness accessories.

On 13 April 2012, Mr Goldberg, Mr Dixon, EG and the Company entered into a Shareholders Agreement (“Shareholders Agreement”) (Ex J1, Tab 2). Clause 10 of the Shareholders Agreement dealt with the transfer of shares in the Company to third parties and cl 10.3 required a Shareholder (defined in cl 1.2 as Messrs Goldberg, Dixon and EG) who or which wished to sell or transfer their or its shares in the Company to give written notice to the other parties. That clause provided that, following such notice, the provisions of cll 11.2–11.7 of the Shareholders Agreement applied as if the Shareholder giving that notice was a “defaulting Party” (as defined) and the giving of the notice of intention to sell was a notice of termination given by another party, and:

The terms “Fair Value”, “Default Cost” and “Independent Chartered Accountant” were also defined in cl 1.2 of the Shareholders Agreement as follows:

Clause 11.3 in turn provided that:

On 14 March 2013, Mr Gregan was appointed as a director of the Company. The shares in the Company were restructured on the same date so that Mr Goldberg’s shares in the Company were transferred to ADG, which is a company associated with Mr Goldberg; Mr Dixon’s shares in the Company were transferred to Astro, which is a company associated with Mr Dixon; further shares were issued so that ADG and Astro each held 40% of the issued share capital of the Company, and EG, which is a company associated with Mr Gregan, held 20% of the issued share capital of the Company.

By November 2018, disputes arose between Messrs Goldberg, Dixon and Gregan relating to the Company’s business and affairs. During the course of that dispute, correspondence was exchanged between the parties, their solicitors and solicitors acting for the Company, and a third party was appointed by the parties to attempt to facilitate the resolution of that dispute and the ongoing management of the Company, apparently without success. Several aspects of that dispute were addressed by a letter dated 14 November 2018 from Mr Goldberg’s former solicitors (Ex J1, Tab 5) and, by letter dated 23 November 2018 (Ex J1, Tab 6), Clayton Utz indicated that they acted for Messrs Dixon and Gregan in relation to those matters. By a further letter dated 10 December 2018 (Ex J1, Tab 7), Clayton Utz asserted that Mr Goldberg was in material breach of the Shareholders Agreement and, by letter dated 20 December 2018, Mr Goldberg’s former solicitors denied that breach, without raising any question whether Mr Goldberg or ADG was then party to the Shareholders Agreement (Ex J1, Tab 10).

By letter dated 7 February 2019 (Ex J1, Tab 19), Mr Goldberg’s current solicitors, Bartier Perry, again responded to the claimed breach of the Shareholders Agreement by Mr Goldberg, as asserted by the letter dated 10 December 2018 from Clayton Utz, and pointed out that Mr Goldberg was not a shareholder of the Company. He remained, I should add, a named party to the Shareholders Agreement.

By letter dated 12 February 2019 (Ex J1, Tab 20), Bartier Perry referred to a proposed directors’ or shareholders’ meeting, which they indicated that Mr Goldberg would not be attending, and advised that Mr Goldberg (or, possibly ADG) would shortly commence proceedings seeking a range of relief, including:

By letter dated 14 February 2019 (Ex J1, Tab 26) (“14 February Letter”), Clayton Utz referred to Bartier Perry’s letter dated 12 February 2019 relating to Mr Goldberg’s foreshadowed application for an order for the purchase of ADG’s shares in the Company and advised that:

By their response dated 18 February 2019 (Ex J1, Tab 27) (“18 February letter”), Bartier Perry responded that:

There is a real question whether that offer was there purportedly accepted by ADG or Mr Goldberg, since Bartier Perry acted for both ADG and Mr Goldberg, but referred to one client accepting that offer. It is not necessary to determine that question given the findings that I reach below. Paragraph 2 of that letter treats Messrs Dixon and Gregan as being the clients of Clayton Utz who made that offer, consistent with Clayton Utz’s previous identification of its clients; and otherwise precisely reflects the offer set out in Clayton Utz’s letter, other than for an obvious typographical error which replaced the word “or” with the word “of”. The matters there noted by Bartier Perry reflected those stated by Clayton Utz, although Bartier Perry plainly left open whether the amount of $156,000 was owed by Mr Goldberg to the Company; made an immaterial change in language in referring to the inclusion of legal costs and disbursements; and a further typographical error referred to “your client’s” rather than “your clients’”. That letter also addressed several suggested steps to “facilitate the performance of the Agreement”, including an evaluation of the debt owed by Mr Goldberg; the amount of damages suffered by the Company as a result of the purported breach of the Shareholders Agreement; and selection of a joint valuer and an agreed letter of instruction. I will return to whether other aspects of that letter undermined the purported acceptance of that offer below.

Further correspondence followed, in which the solicitors debated, inter alia, whether damages were in fact owed by Mr Goldberg to the Company as a result of breaches of the Shareholders Agreement; discussed the steps to be taken to give effect to the purchase of ADG’s shares in the Company; noted that Clayton Utz proposed to prepare a deed of sale to give effect to the sale of the shares; and did not reach agreement as to the identity of an expert valuer. By a further letter dated 13 March 2019 (Ex J1, Tab 32), Clayton Utz engaged in a transparent recharacterisation of the offer made in the 14 February Letter as a “proposed offer” and advised that:

It is common ground between the parties that a further dispute has now arisen as to whether the parties have settled the dispute through the exchange of the 14 February Letter and the 18 February Letter. ADG contends that, by the letter dated 13 March 2019 from the solicitors for EG and Astro, or alternatively Messrs Gregan and Dixon, stated that they would no longer perform the contract (FAPOC [13]) and seeks specific performance of the contract (FAPOC [14]). By the agreed facts between the parties, Mr Goldberg also acknowledges and agrees that he is indebted to the Company in the sum of $105,885.47, and the Company agrees that at least $105,885.47 is owing by Mr Goldberg to the Company but contends that there are other amounts in addition that are also owing.

ADG pleads (FAPOC [9]) that the Shareholders Agreement was novated on or about 14 March 2013 so that the parties to it became ADG, EG and Astro. Alternatively, ADG contends that it, Astro and EG, or alternatively ADG and Messrs Dixon and Gregan have conducted themselves on the basis that they were bound by the Shareholders Agreement in their dealings inter se, and made claims against the others referable to rights arising from that agreement (FAPOC [9A]). It is not necessary for me to determine this question given the conclusions that I reach below on other grounds. However, against the contingency that an appellate court may take a different view, I should indicate that it does not seem to me that the novation of the Shareholders Agreement is established.

In Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336 at 345, Dixon J referred to the requirement for intention to establish a novation of a contract, in the form of consent by way of a tripartite agreement; and observed that the intention may be express or, importantly for a case such as the present, may be implied from conduct and circumstances. The same view was expressed in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at [78]. In ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue [2012] HCA 6; (2012) 245 CLR 338 at [12], the High Court described the elements of novation as follows:

ADG contends that an implied novation arose from the change in shareholdings on 14 March 2013, to which I referred above, and the relevant individuals or their associated companies subsequently conducted themselves on the basis that the Shareholders Agreement regulated their rights. Mr Giles (who appears with Ms Thrift for the First, Second, Fourth and Fifth Defendants) responds that, while each of these parties was aware of the Shareholders Agreement, the claim that the Plaintiff and First and Second Defendants have conducted themselves on this basis fails to pay the necessary attention to the ways in which this is said to have been done, and whether such conduct is referable only to the Shareholders Agreement or to other circumstances or obligations. It might be added that the conduct of the Second Defendant cannot provide any real support for a novation, where it rather than Mr Gregan was party to the Shareholders Agreement. Mr Giles submits that, in these circumstances, and where cl 10.1(b) of the Shareholders Agreement required incoming shareholders to execute a deed binding them to the terms and conditions of the Shareholders Agreement, there is a very real question as to whether the parties had the requisite intention to novate that agreement as alleged.

ADG also relies on the subsequent correspondence between the parties’ solicitors as indicating their common approach that the Shareholders Agreement continued to bind them and regulate their rights and obligations. In particular, ADG relies on a letter dated 14 November 2018, by which Mr Goldberg’s former solicitors wrote to Messrs Dixon and Gregan contending that the Shareholders Agreement continued to bind the parties; a letter in response from Clayton Utz which appears to treat the Shareholders Agreement as continuing to be binding; a notice given by Mr Dixon and Mr Gregan (or EG) to Mr Goldberg on 10 December 2018 under cll 11 and 14.5 of the Shareholders Agreement; and Clayton Utz’s letter dated 21 December 2018 to Mr Goldberg’s former solicitors implicitly asserting rights under the Shareholders Agreement. ADG points out that, on 12 February 2019, its present solicitors, Bartier Perry responded to earlier correspondence, again invoking the terms of the Shareholders Agreement. ADG also relies on Clayton Utz’s reference in a letter dated 12 February 2019 to the fact that its clients “continue[d] to reserve all of their rights under the Shareholder[s] Agreement and at law”; to its further references to the Shareholders Agreement in its letter dated 13 February 2019; to Bartier Perry’s observation on 13 February 2019 that Mr Goldberg no longer held shares in the Company; and to Clayton Utz’s reasserting that reservation of their clients’ rights in a further letter of that date and on 14 February 2019.

The Shareholders Agreement specifies Messrs Goldberg and Dixon and EG as shareholders in the Company, and contemplates that a party to the Shareholders Agreement may hold its shares in the Company through a “Corporate Shareholder” (cl 10.5). That Agreement was therefore capable of taking effect in accordance with its terms, although Messrs Goldberg and Dixon in fact held their interests in the Company through proprietary companies. The parties, by their solicitors, have, in the subsequent correspondence noted above, made various allegations of breach of the Shareholders Agreement, without clearly distinguishing whether Messrs Goldberg or Dixon or their respective companies were party to the Shareholders Agreement or bound by the respective obligations. That correspondence reflects the parties’ recognition that the Shareholders Agreement remained in effect, which was correct in respect of the named parties to it; the allegations made against Mr Goldberg personally are inconsistent with the suggested novation of that agreement; and the correspondence generally indicates an apparent lack of focus on the parties to that agreement and on who was bound by the relevant obligations, rather than any informed consensus indicating a novation of that agreement.

ADG contends (FAPOC [10]) that, on 18 February 2019, ADG, Astro and EG, or alternatively, ADG and Messrs Dixon and Gregan, entered into a binding agreement by which it agreed to sell, and Astro and EG or alternatively Messrs Dixon and Gregan agreed to purchase, ADG’s shares in the Company. That agreement is particularised by reference to the 14 February Letter and the 18 February Letter, to which I have referred above. ADG also contends (FAPOC [11]) that the express terms of the contract were as recorded in those letters, or alternatively as recorded in those letters and certain terms of the Shareholders Agreement regulating the process to be undertaken in valuing ADG’s shares. ADG also relies on several implied or alternatively express terms of that contract (FAPOC [12]) and alternatively contends that, if the parties were unable or unwilling to determine the identity of a valuer, the Court was itself authorised to appoint that valuer (FAPOC [12A]).

The First, Second, Fourth and Fifth Defendants contend that there was no binding contract because the 14 February Letter was an “in principle offer” to resolve the dispute (POD [4(a)(i)-(ii)]). Mr Giles points out, uncontroversially, that whether a contract has been formed depends on the objective intention of the parties ascertained from the terms of the relevant document, read in light of the surrounding circumstances: G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-9; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [66]. Mr Condon (who appears for ADG) in turn emphasises the observations of McHugh JA in G R Securities Pty Ltd above that:

Mr Condon also refers to Lahodiuk v Pace [2013] NSWSC 512 at [18], where Sackar J observed that:

Mr Condon also referred to my summary of the relevant principles in The Owners – Strata Plan No 58087 v Matthews [2015] NSWSC 1906 at [28]ff. I there referred (at [34]) to the Court of Appeal’s decision in Pavlovic v Universal Music Australia Pty Limited [2015] NSWCA 313 and observed that:

In Nurisvan Investment Ltd v Anyoption Holdings Limited [2017] VSCA 141 at [106], the Court of Appeal of the Supreme Court of Victoria similarly observed that:

Mr Condon also submits that the Court can properly have regard to the conduct of the parties after the date of entry into the alleged contract to determine whether they entered a binding contract: Sagacious Procurement Pty Ltd above at [105]; Nurisvan Investment Ltd above at [77]ff, [82]-[83]. Mr Condon also points out that the fact that the parties might negotiate further, additional terms, that were not included in the first agreement, is not necessarily inconsistent with a conclusion that the first agreement constituted a binding contract between them: Nurisvan Investment Ltd above at [107]. Mr Condon also submits, and I accept, that the Court should be slow to conclude that the parties did not achieve what they plainly stated they intended to achieve; that being, an immediately binding agreement: Harold R Finger & Co Pty Limited v Karellas Investments Pty Limited [2015] NSWSC 354 at [123].

Mr Giles submits that the terms set out in the 14 February Letter, referring only to the sale of the relevant shares at a price to be determined, objectively was not intended by the parties to have a binding effect. He submits that the letter addressed only the major matter between the parties at a “conceptual” level and left all other terms to be determined. He submits that this is indicative that the alleged agreement falls within the third category identified in Masters v Cameron (1954) 91 CLR 353 at 360, that is, there was no intention of the parties to be bound until a formal contract was executed. He submits that conclusion is reinforced by the absence of either an agreed price or a mechanism to fix the price, which was left to be agreed. Mr Giles also points to matters that are said to give rise to uncertainty in the letter, which I address in more detail below, as displacing an intention to be bound. Mr Giles relies, inter alia, on the fact that the 14 February Letter did not determine the damages owed by Mr Goldberg to the Company, which were denied by Mr Goldberg. It seems to me that does not give rise to uncertainty, where that is a separate matter that could be agreed between the parties or readily determined by a Court if it was not. I do not consider that these matters give rise to uncertainty, for the reasons noted below, or are sufficient to displace the language of “offer” in that letter and the invitation to “acceptance” within a short time as indicating an intention to be bound.

Mr Giles also submits that the 14 February Letter did not include terms that would ordinarily be expected; for example, the date or mechanism for settlement; any releases, although the proposal was to settle a dispute between the parties; and usual representations and warranties. He notes that a subsequent letter dated 28 February 2019 from Clayton Utz attempted to address some of these issues by stating that the proposal would “be on terms documented by us in a deed of sale”. I accept that the offer contained in the 14 February Letter was plainly less than a comprehensive resolution of all issues, although the prospects of achieving the prompt acceptance that was sought by that letter would likely be maximised by its simplicity. Mr Giles also points out that, as I noted above, the parties were negotiating further potential terms of an agreement after the 14 February Letter. He submits that the introduction of new terms, and the proposed modifications of others, points to agreement falling within the third category of Masters v Cameron above, where the intention of the parties is not to make a concluded bargain unless and until they execute a formal contract. It seems to me the simplicity of the offer contained in that letter, and the discussion of possible additional terms, is not inconsistent with an intention to enter legal relations. The parties could readily anticipate that acceptance of the offer would likely practically resolve the dispute, or other terms could potentially be agreed in further negotiations, undertaken in circumstances the parties were already bound to a resolution.

Mr Giles submits that a finding that the exchange of letters did not give rise to a binding contract is supported by uncertainty as to the identity of the parties to the alleged agreement. He points out that the letter dated 23 November 2018 from Clayton Utz refers to its clients as Messrs Dixon and Gregan and the 14 February Letter stated that offer was made by Clayton Utz’s clients, ie Messrs Dixon and Gregan. He recognises that the 18 February Letter reiterated that offer was for Messrs Dixon and Gregan to purchase ADG’s shares. He submits that ADG, by commencing these proceedings against the corporate entities related to Messrs Dixon and Gregan demonstrates confusion as to who the parties to the alleged agreement were intended to be. It seems to me there is no uncertainty that, for the reasons Mr Giles point out, Messrs Dixon and Gregan rather than Astro and EG were parties to any agreement formed by the 14 February Letter and 18 February Letter. However, there is a real uncertainty as to whether Mr Goldberg or ADG was party to any agreement arising from those letters. I would be inclined to think that Mr Goldberg was likely the intended party, although such an agreement concerned ADG’s shares, although this application is brought by ADG rather than by Mr Goldberg. I raised the question whether it was necessary to join Mr Goldberg as an additional plaintiff in the course of submissions and Mr Condon responded that it was not necessary to do so, because the identity of the owner of the shares was known (T17). That is the case, but the question of the identity of the contracting party which could seek specific performance of the contract is less clear. It is not necessary to determine that question given the findings which I have reached on other grounds below.

It seems to me that several matters, to which Mr Condon pointed, strongly support the conclusion that the parties intended to be bound by the 14 February Letter and the express acceptance of the offer contained in it by the 18 February Letter, putting aside the uncertainty as to whether ADG or Mr Goldberg was party to it. As Mr Condon points out, the 14 February Letter made clear that it was an offer, and, I note, one would expect solicitors using that term to have done so deliberately. The statement that “this offer is available for acceptance” until a fixed time and date whereupon “it will lapse” seems to me to indicate that the offer had immediate legal significance, subject to that temporal constraint. That is wholly inconsistent with any suggestion the offer was an invitation to treat or not capable of acceptance in accordance with its terms. The purported acceptance of that offer in the 18 February Letter proceeded on the same basis, and expressly treated the further steps proposed in that letter as “facilitat[ing] the performance of the Agreement”.

Mr Condon submits, and I accept, that the context and the parties’ dealings also suggests an intention to be bound immediately. The 14 February Letter referred to paragraph 31 of Bartier Perry’s earlier letter of 12 February 2019, which had advised of ADG’s intent to commence proceedings seeking, inter alia, an order that the Company be wound up or that Messrs Dixon and Gregan purchase “our client’s” interest in the Company at market value (I interpolate that it is again unclear whether “our client” refers to Mr Goldberg, where he has an economic interest in the Company, and the Company a legal interest in its shares). There were obvious advantages to the parties in resolving their dispute promptly, but also finally, with at least the likely practical result of avoiding the commencement of the proceedings.

Mr Condon also submits that the parties’ dealings after the 14 February Letter indicated that, over the next month, they proceeded on the basis that that letter was an agreement, at least until Clayton Utz sought to recharacterise it as a proposed offer in the letter dated 13 March 2019 to which I referred above. I also accept that submission, although it is not necessary to the conclusion that I have reached as to the intent that the offer in the 14 February Letter and its acceptance by the 18 February Letter would give rise to a binding contract, again subject to the uncertainty whether ADG or Mr Goldberg were party to it. Ultimately, a binding contract was not formed for the other reasons that I address below.

It is convenient to deal with these matters together, where they overlap and the Defendants address them together in submissions. The Defendants contend that the reference in the 14 February Letter to “appropriate fair market value” was too uncertain to constitute a binding contract and that letter was an unenforceable agreement to agree (POD [4(a)(iv)]). The Defendants also contend that the 14 February Letter was not sufficiently complete to constitute a binding offer, by reason of the valuation process contemplated by that letter (POD [4(a)(v)]). Mr Giles submits that the terms that the 14 February Letter uses to address the consideration payable for ADG’s shares in the Company is uncertain and numerous terms are not agreed. The Defendants also emphasise the absence of any mechanism to appoint a valuer absent the parties’ agreement and contend that the letters merely constitute an agreement to agree.

Mr Condon responds that the Court will endeavour to give effect to a contract reached between businesspeople, even if its terms are not fully or well stated, although he also accepts that whether the parties have expressed their agreement carefully is a matter relevant to whether they have entered into an agreement: Sagacious Procurement Pty Ltd above at [73]. Mr Condon also points to authority that a court should be reluctant to decide that a contractual provision is void for uncertainty if a reasonable meaning can be ascribed to it, and the Court should seek to put a fair meaning on it unless it is impossible to do so: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436; Hammond v Vam Ltd [1972] 2 NSWLR 16 at 18; Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98 at [143].

Mr Giles accepts that it is possible to ascertain what is meant by “market value” against the background of previous authorities, but submits that the phrase “appropriate fair market value” must be read as a whole and to do otherwise would be to render the words “appropriate” and “fair” nugatory: Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401 at [30]. He submits that there is no indication what the phrase “appropriate fair market value” is intended to mean or what qualification the word “appropriate” is intended to give to “market value”. He submits that concept is vague, although he recognises that that does not in itself equate to uncertainty.

As Mr Condon points out, the concept of “fair market value” is commonly adopted and not uncertain. In MMAL Rentals Pty Limited v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 at [57], in dealing with a provision for the purchase price of shares to be agreed, or determined, by reference to the “fair market value thereof”, Spigelman CJ (with whom Mason P and Hodgson JA agreed) observed that:

Mr Condon submits that the word “appropriate” neither adds nor subtracts from this reasoning because the expression “fair market value” is capable of definition. He submits that the Defendants do not suggest, for example, that there is more than one way to ascertain “fair market value”; but even if there was, that would not render the expression uncertain. It does not seem to me that there is any real difficulty in giving meaning to the expression “appropriate fair market value”, which simply recognises that the fair market value of the shares must also be appropriate in the circumstances. That addition is not superfluous or uncertain where, for example, there may be questions of expert judgement in a valuation of any business.

Mr Giles also submits that there is no mechanism to fix the price to be paid for ADG’s shares absent agreement. Mr Giles seeks to distinguish between the role of the independent valuer in determining the value “of the business of the Company”, being the enterprise value of the business, and the determination of the value of the Company and of ADG’s shares in it. He submits that, even if the “independent agreed valuer” is agreed and that valuer determines the value “of the business of the Company”, there is no mechanism for agreeing or determining the “appropriate fair market value” of ADG’s shares in the Company. He submits that the parties did not agree to some other means to determine the value of the business or any means at all to determine the concept of “appropriate fair market value”.

I do not accept that submission, which seems to me to take an unduly technical view of a simple agreement between commercial parties. It also seems to me that the reference to “such value” at the commencement of the parentheses in paragraph 1 of the 14 February Letter links the references to the value of the Company’s business and the “appropriate fair market value” of the shares in the Company and indicates that the independent valuer is to determine both. I do recognise that there would be real practical difficulty in that process, where the value of the Company’s business was to be determined within a relatively short time (15 days or as soon as reasonably practicable thereafter) of the valuer’s appointment; and the value of ADG’s shares could not be determined until other matters including the amount of the loan to Mr Goldberg and any damages payable by him to the Company were determined, which might need to be determined by the Court over a longer period if the parties could not agree them. I also recognise that there may be real commercial risk to both parties if the value of the business is determined at a time earlier than the transaction can be implemented, because of the need to determine those other matters, since the value of the business may increase or decrease from that amount (the latter being perhaps more likely in the circumstances) before the transaction is implemented. The parties took that risk upon themselves by the structure of the agreement and their inability to implement it in a cooperative manner. It will, however, be relevant to another issue that I address below.

Mr Giles also submits that the 14 February Letter does not specify how the parties are to reach agreement on an “independent agreed valuer” or the mechanism for appointing a valuer if the parties could not agree on a valuer. He submits that the phrase “independent agreed valuer” is inconsistent with the appointment of a valuer other than by agreement, and there is no objective standard to measure the parties’ obligations in appointing a valuer or to provide a mechanism to fix the content of this term. Mr Condon responds that the omission of a term of a contract will not render the contract incomplete and uncertain, and therefore void, unless the term is essential: Australian Goldfields NL (in liq) v North Australian Diamonds NL above at [140].

Mr Condon addresses this difficulty by submitting, first, that the parties should be taken to have contracted on the basis that the conditions of the Shareholders Agreement providing for the appointment of the “Independent Chartered Accountant” (as defined) were incorporated into their bargain. Mr Condon submits, and I accept, that parties can incorporate external standards, such as the terms of earlier contracts, in a contract, or at least contract by reference to a term defined by earlier contracts between them: Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503. Mr Condon submits that, whether or not all of the parties to this litigation were in law bound by the Shareholders Agreement, their correspondence treated that agreement as regulating their affairs. I have referred to that correspondence above. Mr Condon also submits that, having regard to the parties’ mutual intention to procure the transfer of Mr Goldberg’s (or, I interpolate, ADG’s) shares, the Court should infer that they impliedly argued that, in the absence of agreement as to the identity of the valuer, the mechanism stipulated within the definition of “Independent Chartered Accountant” in the Shareholders Agreement should apply.

Mr Giles responds that the definition of “Independent Chartered Accountant” in the Shareholders Agreement specifies that the accountant to be appointed is one appointed by the parties, or in default of agreement, one appointed by the President for the time being of the Royal Australian Institute of Chartered Accountants or his nominee. He submits that is not what was contemplated by the 14 February Letter, which contemplated a valuer (not, or not necessarily, a chartered accountant) who was agreed, not one appointed in default of agreement. Mr Giles also submits that the terms of the 14 February Letter are inconsistent with the application of the mechanism in the Shareholders Agreement by implication. Mr Giles also submits, and I accept, that that implication was not obvious in circumstances in which the parties had stipulated a person from a class of persons with particular skills, the identity of whom was to be agreed.

Mr Giles rightly points out that the offer contained in the 14 February Letter did not expressly incorporate any part of the Shareholders Agreement, including the pre-emptive rights that are created by cl 10 of that agreement. Mr Giles also emphasises the difference in terminology (and, I interpolate, potentially in substance) between the reference in the Shareholders Agreement to an “Independent Chartered Accountant” and to an “independent agreed valuer” in the 14 February Letter, and submits that difference in terminology is inconsistent with an intent on the part of the parties to adopt the mechanism identified in the Shareholders Agreement for appointing an “Independent Chartered Accountant” to determine the identity of an “independent agreed valuer”.

In further submissions for the Fourth and Fifth Defendants on 7 June 2019, Mr Giles adopted the submissions of the First and Second Defendants. He also made the further point, in opposition to the application of the Shareholders Agreement to fill any gap in the 14 February Letter, that Mr Gregan was in a different position from other Defendants, because he had never been a shareholder in the Company and had never been bound by the Shareholders Agreement, since EG was both the shareholder and the party to the Shareholders Agreement throughout the relevant period. Mr Giles submits, and I accept, that it would be more difficult to imply a term that Mr Gregan was bound by a mechanism in the Shareholders Agreement to which he was not party, merely because a proprietary company with which he was associated was party to that agreement.

I am not persuaded that, in the absence of agreement as to the identity of the valuer, the mechanism stipulated within the definition of “Independent Chartered Accountant” in the Shareholders Agreement would apply. While I accept that the Shareholders Agreement was plainly known to the individual and corporate Defendants, there is nothing in the terms of the 14 February Letter that indicates that the parties intended to incorporate any of its terms in a somewhat different transaction, and an implication to that effect is by no means obvious in the circumstances.

In the alternative, Mr Condon submits that the appointment of the valuer was a subsidiary and non-essential part of the parties’ bargain and, as a result, the Court can itself appoint a valuer. He submits, and I accept, that the parties’ primary bargain was the determination of the value of the shares, by reference to the objective considerations referred to in MMAL Rentals Pty Limited v Bruning above. The more ambitious aspect of Mr Condon’s submission is the proposition that, on that basis, the Court can appoint a valuer if the parties do not agree to the identity of a valuer.

In Cameron v Cuddy [1914] AC 651, a contractual reference to arbitration had failed and Lord Shaw observed (at 656) that, in that situation:

Mr Condon also refers to the approach taken by the House of Lords in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 (“Sudbrook”). As he points out, the four lease agreements in issue in that case conferred an option on the lessee to purchase the reversion in fee simple in the leased premises:

Lord Diplock (at 476–479) set out a detailed analysis of the option clause, and treated the exercise of the option as creating mutual legal rights and obligations on the part of both lessor and lessee. His Lordship found that the parties had a primary obligation to appoint their respective valuers to fix a fair and reasonable price for the reversion, but observed that that would, in his view, “also be a necessary implication to give business efficacy to the option clause”. His Lordship characterised the relevant obligations as “a contract for sale at a fair and reasonable price assessed by applying objective standards” and observed that the lessor’s breach of one contractual obligation in failing to appoint a valuer should not prevent an order of conveyance to the lessees against payment of a fair and reasonable price assessed by applying the relevant objective standards.

Lord Fraser of Tullybelton observed (at 483) that:

In In re Malpass, dec’d; Lloyds Bank plc v Malpass [1985] Ch 42, Sir Robert Megarry VC treated a provision for the appointment of a valuer as a subsidiary and inessential part of the machinery of the agreement. He emphasised (at 48), that the Court would provide its own machinery only if the machinery laid down by an option was merely subsidiary and inessential, and not if that machinery constituted an essential term of the contract. He also observed (at 50):

In Booker Industries Pty Limited v Wilson Parking (Qld) Pty Limited [1982] HCA 53; (1982) 149 CLR 600 (“Booker”), Gibbs CJ, Murphy and Wilson JJ approved Lord Diplock’s reasoning in Sudbrook, holding that a term was to be implied in an option agreement, in order to give business efficacy to the option, that both parties would do all that was reasonably necessary to procure the appointment of an arbitrator, where the agreement provided for the rent to be fixed by arbitration if the parties could not agree. I do not read Booker, as Mr Giles suggested, as indicating any view as to the wider approach adopted by Lord Fraser in Sudbrook Trading, where it was sufficient for the majority to rely on the approach of implying a term identified by Lord Diplock to resolve matters at issue in that case.

Brennan J, who differed from the majority as to the extent of the remedy, took a somewhat wider view. His Honour quoted (at 614) an observation of Templeman LJ in Sudbrook in the Court of Appeal, as follows:

However, his Honour also observed that that principle had no application where parties had agreed to sell at a fair and just price, which was ascertainable objectively, even if the contracting parties had appointed a third party to ascertain it. His Honour also referred to several earlier decisions where the Court had ordered specific performance, of agreements directed to a sale at “fair valuation”, although one party had not taken the steps necessary for the valuation process to proceed. His Honour also observed (at 617) that:

The reasoning in Sudbrook is noted, without disapproval, by Mr J D Heydon in Heydon on Contract: (Lawbook Co, 2019) at 104-105 where the learned author notes that the English approach permits the Court to intervene, at least unless valuation machinery is an “integral and essential” part of the bargain, if the machinery has not operated, including because of one party’s failure or refusal to operate it, and expresses the view that there is no reason why these principles do not apply in Australia.

In Brooks v Wyatt (1992) 112 FLR 12, Kearney J had to determine whether to grant specific performance of a contract for sale of land, which contained an option for purchase at a purchase price to be agreed between the parties or, failing agreement, to be determined by a real estate valuer to be appointed by agreement between the parties. No agreement as to the appointment of that valuer was reached and the defendant contended (as do the Defendants here) that that provision was an “agreement to agree”. Kearney J there relied on the reasoning of Lord Diplock in Sudbrook to find that an implied subsidiary obligation would have attached to the appointment of the valuer, had the defendant refused to join in the appointment of a valuer. That conclusion was not necessary to his Honour’s decision where, by the relevant time, the defendant had joined in the appointment of a particular valuer, and the Court also found that he was bound by that agreement. That decision was noted, without any negative comment, by Higgins J in Canberra Drag Racers Club Inc v Australian Capital Territory [2001] FCA 332 at [146]-[147].

However, Mr Giles submitted (T42) that Australian law did not permit the approach adopted by Kearney J in Brooks v Wyatt above which he characterised as changing an “agreed valuer” to something that would not be an agreed valuer in the particular circumstances, and changing the parties’ bargain. Contrary to Mr Giles’ submission, there does not seem to me to be any error in Kearney J having applied the reasoning of Lord Diplock in Sudbrook in the circumstances of that case, where the parties’ agreement, in that case for the purchase of the relevant property for the value determined in the specified manner, could take effect so long as the valuer was appointed.

In Candoora No 19 Pty Ltd v Freixenet Australasia Pty Ltd (No 2) [2008] VSC 478, Hargrave J considered the somewhat different position where there was plainly a binding contract; the contractual machinery agreed by the parties had been invoked, but the expert they had appointed had failed properly to undertake his task. His Honour noted at [14] that:

Mr Condon also notes that I referred, with approval, to Sudbrook in Barescape Pty Limited v Bacchus Holdings Pty Limited (No 9) [2012] NSWSC 984. I there observed (at [111]) that:

Mr Condon also refers to Alphater Consulting Engineers Pty Limited v Rozman [2016] VSCA 111, where the parties had agreed to a dispute resolution procedure, which included a valuation to be undertaken by a qualified accountant. The Court held that the applicant’s termination of the appointment of the accountant did not constitute a repudiation of that agreement, treating Sudbrook as authority that, where the valuation machinery breaks down, the Court may substitute other machinery so that the valuation agreement is carried out. The Court observed (at [66]) that:

Mr Condon submits that the Court can appoint a suitably qualified accountant if it is necessary to do so. Mr Giles responds that would be to alter the parties’ agreement, which (if formed) contemplated they would agree the identity of a valuer between themselves. I will assume, without deciding, that the Court has power to appoint a valuer in an appropriate case, even if the parties’ agreement to do so is unenforceable, at least whether the primary and operative parts of that agreement (here, as to valuation on a specified basis) are enforceable. On that assumption, there would still have been formidable obstacles to the exercise of the Court’s power to make such an appointment in this case, where that would likely alter the parties’ agreement as a matter of substance.

First, this was not a case where the Defendants refused to nominate a valuer, as the first step in performing that agreement, but where the parties were unable to agree the identity of the valuer to be appointed. It is difficult to see how that constitutes a breach of the agreement by the Defendants, any more than by the Plaintiff, unless the clause is read as imposing an obligation to agree, and not only to take the necessary steps that would allow agreement to be reached.

Second, the parties’ agreement plainly contemplated a process by which the value of the Company’s business would be promptly determined after the appointment of an agreed valuer; the amount of Mr Goldberg’s loan and any damages payable by Mr Goldberg to the Company as a result of an assumed breach of duty to it would then, presumably also promptly, be determined; and the value of Mr Goldberg’s shares in the Company would be determined in consequence. If the Court were now to nominate an independent valuer, that process could occur but it could no longer occur promptly. While a valuation of the Company’s business could be determined by the valuer within the short time provided in the 14 February Letter, the parties have not agreed the amount of Mr Goldberg’s loan; not only the amount of damages payable to the Company by Mr Goldberg, but also whether he is in breach of the Shareholders Agreement is now in dispute; and there is no agreed mechanism for the determination of those disputes, which would potentially have to be determined by the Court before the valuer could make a determination of the value of ADG’s shares in the Company. I have also referred above to the commercial risk to the parties if the value of the Company’s business is determined at an earlier point in time but the transaction cannot be completed until significantly later, after the Court has determined the remaining issues. That does not seem to me to reflect the substance of the parties’ bargain, and that may be good reason why the Court should have made an order appointing an independent valuer in that situation. It is not necessary to express a final view as to that question where I find below that a binding agreement was not reached, by reason of the last and simplest of the issues in dispute.

The Defendants contend that the 18 February Letter constituted a counter-offer (POD [4(a)(vi)]) rather than an acceptance of the 14 February Letter. Mr Giles points out that the 14 February Letter contained an express requirement that the valuation of the “appropriate fair market value” of ADG’s shares was to take into account the amount of damages owing to the Company as a result of Mr Goldberg’s breaches of the Shareholders Agreement. Mr Giles observes that the 18 February Letter purportedly records an acceptance of that offer, but denied that Mr Goldberg was in breach of the Shareholders Agreement and contended that, if he was, no damages have been suffered. Mr Giles submits that the rejection by the Plaintiff of the proposition that any damages have been suffered is a rejection of the terms of the offer contained in the 14 February Letter. Mr Condon responds that the 18 February Letter was not a counter-offer. I accept that, as Mr Condon points out, that letter initially stated that Mr Goldberg or ADG assented to the terms recorded in the 14 February Letter, adopting its terms as I noted above. The balance of the matters raised were characterised as addressing matters that would “facilitate the performance of the Agreement.”

It seems to me that an essential aspect of the offer contained in the 14 February Letter was that the “appropriate fair market value” of ADG’s shares take into account “the amount of damages owed to the Company suffered as a result of the breaches by [Mr Goldberg] under the [Shareholders] Agreement”. It may have been open to Mr Goldberg or ADG to accept that offer on the basis that such breaches existed but the amount of damages suffered by the Company was nil. The 18 February Letter went further, to deny that the relevant breaches of the Shareholders Agreement existed. That was, in my view, not to accept a material term of the offer, where an assessment of the value of ADG’s shares where the existence of a breach of the Shareholders Agreement was in issue was a substantively different matter from an assessment of that value when that breach was assumed or accepted. The asserted agreement did not come into existence because Mr Goldberg did not, in fact or in substance, accept the offer made in the 14 February Letter, but made a counter-offer which left open his ability to agitate whether there was a breach of the Shareholders Agreement, as he did in subsequent correspondence. The first of the separate questions must be answered “no” on that straightforward basis.

The separate questions also seek the Court’s determination as to when the relevant Defendants are required to purchase ADG’s shares. Mr Condon submits that the language of the 14 February Letter indicates that conveyance of the shares is to occur within a reasonable period of time after the determination by the valuer. There would have been some complexity in this question, where the value of ADG’s shares would depend not only on a determination of the value of the Company’s business by an independent valuer, but also on a determination, possibly by the Court, of the amount of the loan owed by Mr Goldberg to the Company; whether Mr Goldberg was in breach of the Shareholders Agreement; the amount of damages owed to the Company as a result of any breaches by Mr Goldberg under the Shareholders Agreement; the amount of any properly recoverable legal costs and disbursements; and the value of ADG’s shares as distinct from the value of the business as determined by the independent valuer. This question does not arise where the offer was not accepted by Mr Goldberg or ADG.

The Defendants did not submit that, if the parties’ correspondence constituted an agreement and the Court appointed an independent valuer, specific performance should otherwise be refused. ADG submits, and I accept, that the subject matter of the transaction is shares in a closely held company which are not readily marketable and specific performance of the agreement would likely have been ordered on that basis. This question also does not arise where the offer was not accepted by Mr Goldberg or ADG.

Accordingly, I answer the separate questions (as amended address the issue as to the identity of the parties to the alleged agreement) as follows:

The Plaintiff must pay the First, Second, Fourth and Fifth Defendants’ costs of this application, as agreed or as assessed.