Universal Music Australia Pty Limited v Pavlovic

1. [1]

   This matter concerns two questions. The first is whether or not the plaintiff (Universal) entered into a binding agreement with the first, second and third defendants (collectively the Pavlovic Parties) on the terms contained in a deed of release, despite the fact that the deed was never executed by the defendants. The second is whether, if there was a binding agreement between the parties, it was lawfully terminated on 23 February 2015.

2. [2]

   On 10 April 2015 I made orders facilitating the determination of these matters as a separate question. The plaintiff’s summons, filed on 13 March 2015, seeks other forms of relief relating to a distribution agreement with the first defendant (Mr Pavlovic). Those matters do not bear upon these reasons.

3. [3]

   The fifth defendant (Modular) is a business which was founded by Mr Pavlovic in 1998. Modular’s business activities include signing artists, recording music and the sale, marketing and promotion of music recordings. The second defendant (Modularpeople) and the third defendant (Pavlovic Investments) are business entities of Mr Pavlovic. The fourth defendant (Ms Pavlovic) is Mr Pavlovic’s sister.

Background Facts

1. [4]

   From 2005, Mr Pavlovic’s shares in Modular have been held on trust for him by Ms Pavlovic. On 2 December 2005 Mr and Ms Pavlovic entered into a variety of agreements with the plaintiff, including a shareholders’ agreement (Shareholders’ Agreement). The effect of the Shareholders’ Agreement was that, from that date, Modular became a joint venture between the plaintiff and Mr Pavlovic. Each of Mr Pavlovic and the plaintiff held 500 shares in Modular.

2. [5]

   In 2009, 2011 and 2013 the terms of the Shareholders’ Agreement were varied, such that the expiry date of the joint venture relationship between Mr Pavlovic and the plaintiff was extended

3. [6]

   The Shareholders’ Agreement provided that Mr Pavlovic had primary responsibility for the artists and repertoire of Modular, whereas the plaintiff controlled Modular’s financial, accounting, and legal affairs.

4. [7]

   In late 2013 Mr Pavlovic and the plaintiff became embroiled in a dispute regarding monies allegedly owed to and by each of the plaintiff and Modularpeople under an International Distribution Agreement dated 31 May 2010 and monies allegedly owing by the plaintiff to Mr Pavlovic. Attempts to resolve these disputes were made during late 2013 and early 2014.

5. [8]

   An email of 24 September 2014 from the plaintiff to Mr Pavlovic refers to the position of the parties as being “untenable”. Mr Pavlovic’s response on 7 October 2014 acknowledges that the “relationship is untenable”.

6. [9]

   Specific discussions concerning the purchase of Mr Pavlovic’s shares in Modular and the provision of various mutual releases commenced in September 2014. These negotiations were conducted on behalf of Mr Pavlovic by Mr Stephen Gorry (Mr Gorry) of Henry Davis York and on behalf of the plaintiff by Gilbert + Tobin.

7. [10]

   On 20 November 2014 Mr Gorry wrote to Gilbert + Tobin. This email included the following remark about Mr Pavlovic’s salary:

8. [11]

   Gilbert + Tobin responded as follows:

9. [12]

   It appears that a settlement meeting took place, and on 2 December 2014 Gilbert + Tobin emailed Mr Gorry a draft of the deed. Clause 2.2(a) provided that Mr Pavlovic’s resignation would be effective on 14 November 2014. Clause 2.2(b)(i) an (ii) are identical, in that version, to their final iteration in the version sent through on 24 December 2014.

10. [13]

    On 19 December 2014 at 1.39pm Mr Gorry forwarded an email of Mr Pavlovic to the plaintiff on Mr Pavlovic’s instructions. The email outlines grievances Mr Pavlovic had concerning remarks said to have been made by an employee of Universal to a work colleague of Mr Pavlovic. Mr Pavlovic indicated he would not sign the deed unless amendments were made to the “background” section or it was removed completely, the confidentiality clause was amended, and a band managed by Mr Pavlovic was moved to another Universal label. Mr Pavlovic went on to say:

11. [14]

    The plaintiff replied at 4.28pm indicating its willingness to agree to a reciprocal non-disparagement clause and going on to say:

12. [15]

    On 23 December 2014 the plaintiff’s solicitors emailed Mr Gorry attaching a proposed deed of release between the plaintiff, the defendants, and Modular (Proposed Deed). This document was expressed as being in “final form for execution”. The Proposed Deed contained various schedules, two of which were proposed deeds themselves – a deed of termination of the Shareholders’ Agreement and a deed of assignment of the trade marks.

13. [16]

    This email also set out a proposed process for entry into the Proposed Deed. This process involved the plaintiff executing the Proposed Deed on 24 December 2014, sending the original and a scanned copy along with a cheque for $100 to Mr Gorry, and then the defendants executing the Proposed Deed and sending the original and a scanned copy to the plaintiff’s solicitors.

14. [17]

    Mr Gorry sought instructions from Mr Pavlovic and there is a file note dated 24 December 2014 which reads as follows:

15. [18]

    At 2.36pm on 24 December 2014 Mr Gorry replied to the plaintiff’s email and said “[h]e [Mr Pavlovic] will sign…I want to discuss arrangements

16. [19]

    At 2.46pm Mr Gorry sent a further email to Ms St John in the following terms:

17. [20]

    At 2.58pm Mr Gorry received a reply:

18. [21]

    At 3.06pm Mr Gorry emailed Mr Pavlovic saying “[t]hey want to sign this afternoon. Can you? Sign and scan back.” At 3.13pm Mr Pavlovic replied that “[m]y sister is not around and I am now on [sic] black town buying a gift for my daughter”. At 3.15pm Mr Gorry asked whether he could tell the plaintiff when Mr Pavlovic proposed to sign the documents. Mr Pavlovic responded “NYE??” and then, almost immediately, emailed Mr Gorry again to say “[v]ery symbolic”.

19. [22]

    At 3.29pm, Mr Gorry sent another email to Gilbert + Tobin, saying “…Assuming I get all the documents today, I will forward them to him, he will sign tomorrow, and then he will scan and forward the documents back to me and then to you on 26 December…”

20. [23]

    At 4.13pm the plaintiff’s solicitors replied to Mr Gorry, saying “[i]n the circumstances our client is prepared to allow Mr Pavlovic a further 48 hours to sign the documents and forward copies to us.” The plaintiff did not send an executed copy of the Proposed Deed, or the cheque for $100, to Mr Gorry or Mr Pavlovic until after Mr Pavlovic sought to terminate the agreement on 23 February 2015. None of the defendants executed the Proposed Deed.

21. [24]

    On 27 December 2014, the plaintiff’s solicitors emailed Mr Gorry asking for confirmation that the Proposed Deed had been executed by the defendants.

22. [25]

    Further follow up emails were sent by Mr Dario Forato on 7 January 2015 and 9 January 2015 and by Ms Karen Don on 5 January 2015, 9 January 2015, 15 January 2015 and 19 January 2015. Ms Don’s email of 15 January 2015 asks Mr Pavlovic whether there is “any news on when [Ms Pavlovic] will be signing the documents?” Her email of 19 January 2015 asks Mr Pavlovic to please let her know when the plaintiff will be receiving the signed documents.

23. [26]

    An email of 20 January 2015 between Mr Pavlovic and Mr Unger-Hamilton, a Universal employee, concerning the movement of a band managed by Mr Pavlovic from one label to another, is in the following terms:

24. [27]

    On 23 January 2015 Gilbert + Tobin wrote to Mr Gorry, saying that the plaintiff had not received a signed copy of the Proposed Deed, despite Mr Pavlovic’s indication on 6 January 2015 that he had signed it, and that attempts by the plaintiff to contact Mr Pavlovic has been unsuccessful.

Submissions of the parties

1. [28]

   The plaintiff submits that the parties entered into a binding agreement on or around 24 December 2014, when Mr Gorry informed the plaintiff’s solicitor that Mr Pavlovic would sign the Proposed Deed. It says that, in the circumstances, this was a clear indication that agreement between the parties had been reached. The plaintiff’s primary submission is that the evidence does not support the conclusion that the execution of the Proposed Deed was a necessary precondition to it binding the parties.

2. [29]

   The plaintiff points to the fact that all material terms had been agreed and recorded in writing. It relies on, as part of the context in which the agreement is said to have been entered into, the inference it says can be drawn that the solicitors were negotiating with a view to resolving the dispute prior to the Christmas break. In this way, the plaintiff submits that the parties reached finality in the terms of their bargain and intended to be bound immediately to the performance of those terms, while also expecting to later exchange executed copies of a written agreement in the same terms.

3. [30]

   The plaintiff relies on the following factors in support of the conclusion that a binding agreement was reached:

   1. (1)

      The substance and expression of the terms of the Proposed Deed were agreed on or before 24 December 2014;

   2. (2)

      The clear meaning of Mr Gorry’s statement that Mr Pavlovic “will sign” was that his client had agreed to all the terms and the deal had been finalised;

   3. (3)

      It is a common feature of commercial life and contractual negotiations that parties negotiate looking to an impending deadline (whether real or merely a time when, for example, people habitually take holidays);

   4. (4)

      Mr Pavlovic stated in emails to the plaintiff in early January that he had signed the Proposed Deed;

   5. (5)

      The purpose of the negotiations between the parties was the resolution of a serious dispute in which the plaintiff had communicated an intention to pursue substantial claims for damages and compensation against the defendants;

   6. (6)

      Another purpose of the negotiations was to effect the severance of any ongoing contractual collaboration or joint enterprise between the plaintiff and the defendants;

   7. (7)

      Mr Pavlovic took steps during January 2015 for which the plaintiff says the only reasonable explanation is that he was performing his obligations under the Agreement and extricating himself from the joint venture;

   8. (8)

      The recitals and terms of the Deed, which make reference to the fact that the parties “have agreed to settle their disputes on the terms set out in this deed” support the position that the execution of the Deed was to formalise an enforceable agreement already subsisting between the parties;

   9. (9)

      The written agreement is not expressed to require, as a precondition to its effectiveness, that it be executed, and none of the obligations of the parties are dependent on the exchange of an executed deed;

   10. (10)

       The performance of certain obligations by Mr Pavlovic is consistent with the timing contemplated by the deed;

   11. (11)

       The fact that there were additional documents that were to be executed by the parties, and that the plaintiff pursued Mr Pavlovic for signed copies, is unsurprising given that the parties were unwinding their affairs concerning a joint venture.

4. [31]

   In response, the defendants submit that the relationship between the parties had been regulated by a series of agreements, stretching from 2005, which provided that those agreements could only be amended by a written document signed by the parties. He says that each prior iteration of the Shareholders’ Agreement was made by deed and executed by all parties. The Proposed Deed purports to terminate both the Shareholders’ Agreement and the Executive Services Agreement. The defendants submit that the fact that the agreements between the parties could only be amended by written documents signed by all relevant parties is a strong indication that it was the intention of the parties that those agreements would only be amended upon the execution by all the parties of the Proposed Deed.

5. [32]

   Secondly, the defendants say that the dispute between the plaintiff and Mr Pavlovic had been ongoing for well over 12 months by the time the Proposed Deed was finalised, and that the culmination of the process was to be the end of a commercial relationship that had lasted for almost a decade. The defendants say commercial relations between the parties had been governed by a detailed regime of rights and obligations and, in that context, it should not be concluded lightly that the parties intended to resolve the dispute without all of them having executed the Proposed Deed.

6. [33]

   Furthermore, the defendants submit that the fact the negotiation process involved the drafting of the Proposed Deed objectively suggest that the parties did not intend to be bound until the proper formalities were adhered to. In these circumstances, where a deed was prepared, the defendants say it is very unlikely the parties intended to be bound by an email exchange between solicitors.

7. [34]

   The defendants submit that the late December correspondence between the parties cannot constitute the making of a concluded, binding bargain. They say that the email from Gilbert + Tobin of 23 December 2014 set out the process the plaintiff proposed for the parties entering into a binding agreement in the terms contained within the Proposed Deed. That is, the plaintiff would execute the Proposed Deed, the Proposed Deed as executed would be sent to Mr Gorry (with a cheque for $100), and Mr Pavlovic would then execute the Proposed Deed and send it to Gilbert + Tobin. The defendants say there is nothing in the email of 23 December 2014 indicating any willingness on the part of the plaintiff to be bound by the terms of the Proposed Deed after merely receiving an email to the effect that Mr Pavlovic would sign it. They say it is plain that what the plaintiff proposed was that the parties would be bound following the execution and physical delivery of the Proposed Deed by both parties and the delivery of the $100 cheque by the plaintiff.

8. [35]

   The plaintiff submits in response that this explanation was put to Ms Don, who rejected it in favour of communicating her understanding that the email indicated an “administrative process”. The plaintiff says that if the intention had been to establish a process for the Proposed Deed to become binding, one would expect greater precision concerning the time and place of execution and exchange of the documents. In response, the defendants say it would be an error to label the “sole nominated process” for signifying assent to the agreement as an administrative process.

9. [36]

   The defendants submit that the statements that “he will sign” and “Mr Pavlovic is prepared to sign the documents” were, objectively, nothing more than statements reflecting the intentions of the defendants to be bound at a future time upon the mutual signing of the Proposed Deed. He says that the defendants did not communicate their assent and there are no words in the email correspondence from which an inference can be drawn that the parties intended to be bound immediately and without exchange of the physical documents.

10. [37]

    The defendants submit that the email from Mr Gorry which includes the statement “…Assuming I get all the documents today, I will forward them to him, he will sign tomorrow and then he will scan and forward the documents back to me and then to you…” is clearly indicative of an intention that execution and delivery of the physical document was required in order for the parties to be bound. Further, the defendants say the email of Gilbert + Tobin of the same day making reference to giving Mr Pavlovic a further 48 hours to sign the Proposed Deed and forward copies to the plaintiff indicated that the parties had not concluded a binding agreement; if they had, the defendants say it would not have been necessary for the plaintiff to extend the time in this way.

11. [38]

    Further, the defendants say that Mr Gorry had no authority to enter into the Proposed Deed on behalf of Mr Pavlovic.

12. [39]

    The defendants also point to the following features of the Proposed Deed as tending against the conclusion the parties had concluded a bargain prior to the execution of the deed:

    1. (1)

       Clause 2.1(a) states that “[t]his deed is executed by the parties on a without admissions basis” and there is an execution page;

    2. (2)

       The “Execution Date” defined in sch 1 of the Proposed Deed is “the date on which the last party to this deed executes it” and the Proposed Deed contains rights and obligations said to come into effect on and from the Execution Date;

    3. (3)

       The Proposed Deed contains an entire agreement clause;

    4. (4)

       The Proposed Deed contains a clause (7.4) which provides that “[n]o variation of this deed is effective unless made in writing and signed by each party”;

    5. (5)

       The obligation on Mr Pavlovic to procure the transfer of the legal title in the shares of Modular to the plaintiff was in consideration for the payment of $100, “receipt of which is acknowledged” (cl 4.1(a));

13. [40]

    The defendants submit that the conduct of the parties after 24 December 2014 indicates that they did not consider themselves already bound by the terms of the Proposed Deed. The defendants refer to emails from the plaintiff “chasing up” Mr Pavlovic. The defendants say that Mr Pavlovic’s indication to the plaintiff in early January 2015 is not of assistance in establishing whether the parties had entered into a binding agreement at that time. In fact, the defendants say that the reason the sole focus of the plaintiff’s emails was on the signing and physical delivery of the Proposed Deed is indicative of the fact the agreement would not be binding until the execution of the Proposed Deed.

14. [41]

    Furthermore, the defendants say that the plaintiff did not deliver an executed copy of the Proposed Deed to the defendants, did not pay the $100 and did not pay Mr Pavlovic the “Accrued Annual Leave Payment” required to be paid by 7 January 2015 until 6 March 2015, after the defendants had communicated their unwillingness to enter into the Proposed Deed.

15. [42]

    The defendants also submit that many of the obligations that would have arisen had an agreement on the terms of the Proposed Deed come into effect were not performed, including Mr Pavlovic’s resignation as director of Modular. That resignation occurred on 11 March 2015, and the defendants say that it is clear the resignation was not done pursuant to any obligation in the Proposed Deed.

16. [43]

    The defendants submit that the steps that were undertaken were not the principal obligations under the Proposed Deed and were of “small significance”. The defendants say that the failure of the parties to perform most, if not all, the critical obligations under the Proposed Deed indicates that they did not consider themselves bound until the execution and exchange of the Proposed Deed.

17. [44]

    The plaintiff submits that the natural and most reasonable explanation for Mr Pavlovic’s behaviour in January 2015 is that he had accepted the terms of the Proposed Deed and considered himself bound. The parties both accept that this matter does not raise an issue about part performance. Rather, the question is whether Mr Pavlovic’s subsequent conduct goes to demonstrating that a contract existed between the parties. The plaintiff submits that by initiating the return of materials on the date the Proposed Deed had nominated for undertaking that action Mr Pavlovic must have considered himself bound to do so by the Proposed Deed. The plaintiff says that Mr Pavlovic in cross-examination accepted that he was buying time, in the sense of performing the agreement for the time being, with the subjective, unexpressed intention to give further thought to his position

18. [45]

    The plaintiff also points to the fact that there is no evidence any objection was taken at the time to the termination of Mr Pavlovic’s salary payments. They draw attention to Mr Pavlovic accepting a cheque for the amount of his annual accrued leave in the precise amount of the Annual Leave Payment referred to in the Proposed Deed.

19. [46]

    The plaintiff submits that Mr Pavlovic’s assertion that he continued to perform work for Modular should not be accepted and that, in fact, he ceased to perform his duties as an employee and executive of Modular after December 2014.

20. [47]

    The plaintiff says that even if it is accepted that Mr Pavlovic did not sign the Proposed Deed and misrepresented the position to the plaintiff, this does not advance Mr Pavlovic’s case. The plaintiff submits that a reasonable person in the position of the plaintiff in January 2015 would have understood – as the plaintiff did understand – that Mr Pavlovic was admitting and affirming that the contract had been previously agreed and was on foot. The plaintiff says that, to the extent Mr Pavlovic may have had reservations about the contract, he did not communicate these to the plaintiff. To the extent such evidence is relevant, the plaintiff points to the evidence of Ms Don and Mr Ash that they believed that a binding agreement had been concluded between the parties.

21. [48]

    The defendants say that privileged communication between Mr Pavlovic and Mr Gorry, in which Mr Pavlovic instructed Mr Gorry that he would sign, is not relevant to the question of whether a contract had been formed. The defendants, in closing submissions, clarified that they do not rely on an argument that Mr Pavlovic did not instruct Mr Gorry that Mr Pavlovic would sign the Proposed Deed.

22. [49]

    The plaintiff submits that Mr Pavlovic’s denial in his oral evidence that he instructed Mr Gorry to sign the agreement should not be accepted. The plaintiff says that Mr Gorry’s file note is a contemporaneous written record by a solicitor of what occurred and recorded instructions on an important matter. Further, the plaintiff submits that Mr Gorry’s later inquiries as to when not if Mr Pavlovic would sign the Proposed Deed are consistent with the file note being an accurate record of the instructions given to him.

23. [50]

    Furthermore, the plaintiff says that as Mr Gorry has not been called by the defendants to give evidence the Court should infer that Mr Gorry’s evidence would not have supported Mr Pavlovic.

24. [51]

    The plaintiff says that Mr Pavlovic is a person who is prepared to lie and give false accounts of events in order to advance his case. The plaintiff says that Mr Pavlovic’s suggestion that Mr Gorry had told him that it was up to Mr Pavlovic whether he signed the agreement or not is not supported by any contemporaneous materials and is not consistent with the other exchanges between Mr Gorry and Mr Pavlovic.

25. [52]

    The plaintiff characterises Mr Pavlovic as being an unreliable witness and submits that the case advanced by Mr Pavlovic is reliant upon positive assertions by Mr Pavlovic that he lied when he emailed representatives of the plaintiff stating that he had signed the documents. The plaintiff says that it reflects poorly on Mr Pavlovic’s credit that he would make a deliberate representation to a counter-party in a commercial dispute about an important matter.

26. [53]

    The plaintiff also points to corrections Mr Pavlovic made to his evidence concerning alleged deficiencies in the way the plaintiff dealt with him regarding the books and records of Modular. The plaintiff draws to the Court’s attention Mr Pavlovic’s acceptance in cross examination that he had been selective in his affidavits in order to convey the impression to the Court that he had a grievance concerning the financial information provided to him. The plaintiff also says that Mr Pavlovic’s attempts to emphasise the seriousness of the alleged failure to provide financial information were prompted by his desire to advance his case, and that the structure of the Proposed Deed did not require the participants to come to a view about the value of Mr Pavlovic’s shares.

27. [54]

    The defendants submit in response that these clarifications are not indicative of poor credit; rather, although Mr Pavlovic accepted that he had seen profit and loss statements, he had not received balance sheets or information concerning the overall financial position of the company. The defendants say the evidence supports this assertion. They say further that, as the Proposed Deed involved Mr Pavlovic assigning his shares in Modular, he would have been required to form a view as to the value of the shares he was assigning.

28. [55]

    The plaintiff says, further, that Mr Pavlovic’s word that the payment of his salary ceased “without any prior warning” cannot be accepted in view of the evidence elicited during cross examination and that his assertion that he was stressed and anxious because he was being pursued by the plaintiff is implausible and further demonstrates his willingness to lie to advance his case. The defendants say that Mr Pavlovic did raise the issue with Mr Gorry, and the defendants submit that Mr Gorry’s email of 20 November 2014 in which he says “[Mr Pavlovic] was not paid today. I assume that is because you believe that we are on the brink of settling the dispute. Please confirm my understanding is correct…” corroborates Mr Pavlovic’s account.

29. [56]

    The plaintiff’s submission is that there are two far more probable explanations for the misrepresentations made by Mr Pavlovic. They say that, first, he may have been telling the truth in January 2015 when he said he had signed the Proposed Deed, but then subsequently changed his mind and destroyed the signed documents. Second, they suggest that he may not have signed the Proposed Deed but represented that he had in order to “buy time” while considering how he could escape from the agreement.

30. [57]

    The plaintiff says that Mr Pavlovic’s explanation that he did not sign the Proposed Deed because he was struggling with the indemnity clause should not be accepted. The plaintiff says that this explanation was raised for the first time at the hearing, and is implausible in view of the surrounding circumstances.

31. [58]

    The defendants submit that the evidence before the Court does support the inference that Mr Pavlovic had made representations because he was stressed and anxious. In particular, the defendants point to an email which he had Mr Gorry forward on to Gilbert + Tobin in which he said he was “tired of being harassed and belittled by [the plaintiff]”. He also had Mr Gorry make an assertion to the plaintiff on 29 September 2013 that their conduct “could be characterised as bullying, or commercial duress” and informed his current solicitor on 6 January 2015 that the plaintiff was “pressuring” him to sign and that the threats of legal action by the plaintiff had caused him a “great amount of personal stress”.

32. [59]

    The defendants, as an alternative to the position that there was no binding agreement between the parties, say that, if there was any such agreement, it was validly terminated by the defendants on 23 February 2015.

33. [60]

    The defendants say that the terms of any agreement entered into between the parties would consist of the written terms of the Proposed Deed in addition to other provisions contained within the correspondence of the parties’ solicitors on 23 and 24 December 2014. They allege that the plaintiff failed to comply with the terms of the agreement in three respects:

    1. (1)

       The plaintiff failed to deliver an executed copy of the Proposed Deed on 24 December 2014 or within a reasonable period after that date;

    2. (2)

       The plaintiff failed to make payment of the sum of $100 on 24 December 2014 or within a reasonable time after that date;

    3. (3)

       The Accrued Annual Leave Payment was not paid by the plaintiff on or before 7 January 2015, as required by the Proposed Deed.

34. [61]

    On 23 February 2015 the defendants purported, by letter from their solicitors to the solicitors of the plaintiff, to terminate the agreement (to the extent it had come into force). The defendants say that they are entitled to justify termination by reference to any basis available for termination at the time of termination, whether or not that basis was stated in the notice of termination.

35. [62]

    Consequently, the defendants say that the issue is whether the breaches of the agreement by the plaintiff were of a sufficiently serious nature to give the defendants a right to terminate the agreement. They allege either a breach of an essential term or a fundamental breach of an intermediate term.

36. [63]

    In response, the plaintiff rejects that the emails of 23 and 24 December 2014 concerning administrative matters formed additional terms of the agreement. They say that the Proposed Deed does not specify a time for performance of the steps discussed in the email correspondence and that it is clear that the parties considered these steps to be merely formalities. The plaintiff points out that the letter received on 2 February 2015 from Levitt Robinson made no reference to any failure by the plaintiff to comply with the terms of the agreement. It was not until 23 February 2015 that an reference was made to a termination of the agreement on the basis of a breach of an essential obligation.

37. [64]

    The plaintiff submits that the contention of the defendants that the agreement was terminated depends upon an interpretation of the Proposed Deed that does not have a foothold in the express terms and is without foundation in the context of the dealings between the parties. The plaintiff says that the three grounds relied upon by the defendants as supporting the termination of the agreement do not, independently or taken together, constitute a breach of an essential term or a sufficiently serious breach of a non-essential term. The plaintiff says that they did, in fact, perform their major obligation under the agreement – to refrain from initiating proceedings against the defendants.

38. [65]

    The plaintiff says that there is no indication that time was intended to be of the essence regarding the matters identified by the defendants, and that in context it is clear the contrary is the case. The plaintiff submits that the email correspondence clearly indicates that the parties understood that the obligations would be performed in due course. Further, the plaintiff says that the obligation to make the accrued leave payment was contingent upon Mr Pavlovic signing the relevant documents and returning various assets. The plaintiff submits that there was no particular urgency attendant upon the matters contained in the Proposed Deed and there was only a general expectation (particularly given the intervening holiday period) that matters would be finalised without unreasonable delay.

39. [66]

    The plaintiff says that Mr Pavlovic’s claim he would not have entered into the agreement without the assurance of strict performance of the plaintiff’s obligation to pay his leave entitlement prior to 7 January 2015 should not be accepted, and that the payment of the leave entitlements was, on any view, merely a consequence of his resignation as Managing Director of Modular.

40. [67]

    The plaintiff further submits that, to the extent that the plaintiff was in breach of the agreement due to late performance, it was only notified of that breach on 23 February 2015, at which point it took immediate steps to rectify it. The plaintiff says it was at all times ready and willing to perform its obligations under the agreement. The plaintiff also says that any breach by the plaintiff was a consequence of breaches by Mr Pavlovic, beginning with his failure to return the signed documents and his general silence in January 2015.

41. [68]

    Finally, the plaintiff says that Mr Pavlovic was not ready, willing and able to perform the agreement such that he could be permitted to terminate the agreement on the basis of alleged repudiation by the plaintiff. The plaintiff submits that, in fact, Mr Pavlovic’s conduct from 2 February 2015 onwards in actively disclaiming the existence of the agreement amounted to repudiatory breach, though not one that was accepted by the plaintiff.

42. [69]

    It should be noted that no point of distinction between the defendants was raised by the defendants; there were no arguments made concerning authority that were idiosyncratic to one particular defendant.

43. [70]

    The defendants submit that Mr Gorry’s emails with Gilbert + Tobin were incapable of creating a binding contract in the terms of the Proposed Deed because, except in exceptional cases, solicitors have no authority to bind their clients. The defendants say Mr Gorry had no actual authority to bind Mr Pavlovic because there was no clear and cogent evidence that Mr Pavlovic had expressly authorised Mr Gorry to enter into the contract on his behalf. The defendants point out that the execution page was to be executed by Mr Pavlovic, not a lawyer on his behalf, and that none of the relevant communications in December 2014 contain any explicit (or, Mr Pavlovic says, implicit) conferral of authority.

44. [71]

    The defendants also submit that there is no evidence Gilbert + Tobin had any authority to contract on behalf of the plaintiff.

45. [72]

    Furthermore, the defendants say that Mr Gorry had no ostensible authority to bind Mr Pavlovic. They point to authority to the effect that a solicitor authorised to negotiate and agree terms of a contract does not ordinarily have authority to enter into a contract on behalf of his or her client. They say, further, that the dispute did not take place in a litigious context such that Mr Gorry could be taken to have authority to bind Mr Pavlovic. The plaintiff says in response to this that the settlement did come into existence in a litigious context.

Legal principles

1. [73]

   Discussion of this point must commence with the seminal statement of Dixon CJ, McTiernan and Kitto JJ in Masters v Cameron (1954) 91 CLR 353 at 360-362 (emphasis added, footnotes incorporated into the text):

2. [74]

   In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622, McLelland J made the following observation at 628:

3. [75]

   The matter went on appeal (G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631), and McHugh JA, with whom Kirby P and Glass JA agreed, made the following remarks at 624-5:

4. [76]

   The issue of whether the agreement was intended to be binding is to be determined objectively by reference to the language employed by the parties, in its context and in light of the correspondence between the parties viewed as a whole: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 (ABC v XIVth Commonwealth Games) at 548-550D, 551B-D (Gleeson CJ, with whom Hope and Mahoney JJA agreed); ANZ Banking Group v Ciavarella [2003] NSWCA 304 at [33] (Santow J, with whom Tobias JA and Young CJ in Eq agreed). The commercial context of the dispute must also be taken into account: ABC v XIVth Commonwealth Games at 548.

5. [77]

   The relevant principles were recently summarised by by Sackville AJA (with whom Macfarlan and Gleeson JJA agreed) in Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59] - [63]:

6. [78]

   See also A W Ellis Engineering Pty Limited v Malago Pty Limited [2012] NSWSC 55 at [96]-[113].

7. [79]

   In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105, the Court (Gaudron, McHugh, Hayne and Callinan JJ) considered (footnotes omitted):

8. [80]

   It is also appropriate to have regard to the subsequent conduct of the parties in ascertaining their intentions at the relevant time. In Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386 at [112] Sackville AJA (with whom Hodgson and Campbell JJA agreed) considered that:

9. [81]

   In Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [99]-[106], Giles JA (with whom Hodgson and Campbell JJA agreed) set out the principles concerning consideration of subsequent conduct:

10. [82]

    It is clear that conduct said to demonstrate the existence of a contract will be treated differently to conduct said to demonstrate a contract did not exist.

11. [83]

    In Cleary v Masterton [1999] NSWSC 207 Young J dealt with an issue regarding whether the parties had entered into a binding settlement agreement. In that case, following settlement discussions and a course of correspondence, a draft deed of release was prepared. A letter sent by one party said (emphasis added) “[a]s soon as that document has been sent my client will execute same and will be returned to you fairly shortly in the hope that this matter can be resolved in all it’s [sic] aspects by 13 July, 1998.” Young J considered that there was no binding agreement between the parties. He observed at [37] that the correspondence between the parties suggested that some matters between the parties remained unresolved. Young went on to say at [39]-[40]:

12. [84]

    In Niesmann v Collingridge (1921) 29 CLR 177, which was referred to in Masters v Cameron as an example of the second class of cases, the plaintiff sought specific performance of a contract for the sale of land and the question for determination was whether a binding agreement for the sale of a property was constituted by the verbal acceptance of a written offer. Quoting Lord Blackburn in Rossiter v Miller (1878) 3 App Cas 1124 at 1151, Knox CJ observed at 182:

13. [85]

    In Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 138 Brooking J made reference to the complexity of the arrangements that governed the relationships between the parties in that case. He considered it “extremely unlikely that parties in the position of those said to be contracting in the present case, whose relationships had always been regulated by a series of formal and complicated agreements, would have intended to become bound immediately...”

14. [86]

    At 176 Tadgell J referred to the “nature, magnitude and complexity” of the matters under discussion as informing his consideration of whether the parties intended to be immediately bound. At 198 Phillips J referred to the “complicated and formal” contractual relationships that had previously existed between the parties.

15. [87]

    In Locnere Pty Ltd v Jakk’s Bagel & Bread Co Pty Ltd [2003] NSWSC 1123 Palmer J said at [13]-[15] (emphasis added):

16. [88]

    In that case, directions had been made by the Court in accordance with a document signed by the solicitor for the applicant and counsel for the respondent. The Court noted that the proceedings had been compromised by the parties and that “[s]ubject to the entry by the parties into a mutually agreeable Deed”, the applicant was to file a Notice of Discontinuance. This was considered crucial to the conclusion that the parties had not entered into a binding agreement prior to the Deed referred to being executed in a satisfactory form.

17. [89]

    In QLD Holdings – 1 Pty Ltd v Collingwood Holdings [2009] NSWSC 732 White J considered that an agreement fell into the third Masters v Cameron category, In that case, the plaintiff alleged that a document faxed to the defendant gave rise to a binding agreement for the sale of land. The defendant argued that the parties did not intend to be bound until the paperwork had been finalised by the acting solicitor. At [81], White J observed:

18. [90]

    In Grave v Blazevic Holdings Pty Ltd [2012] NSWCA 329 at [55] Bergin CJ in Eq (with whom Campbell and Barrett JJA agreed), the Court of Appeal observed that the “general rule” stated by Young J in Cleary v Masterton did not rise above an empirical generalisation. There is no doubt that each case will turn upon its facts and the precise circumstances surrounding the alleged agreement.

19. [91]

    In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 Gleeson CJ, Gummow, Heydon and Crennan JJ summarised the applicable principles as follows (footnotes omitted):

20. [92]

    In Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [125]-[126], Sheller, Beazley and Stein JJA considered:

21. [93]

    In Newey v Westpac Banking Corporation [2014] NSWCA 319, Gleeson JA (with whom Basten and Meagher JJA agreed) set out the principles applicable to contractual construction at [88]-[91]:

22. [94]

    In Stewart Upton Pty Ltd v Pindar (1990) NSW ConvR 55-529, Cohen J said:

23. [95]

    The High Court in Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146 considered whether a solicitor had authority to bind his clients. Referring to the terms of the retainer, Barwick CJ made the following observations (footnotes omitted):

24. [96]

    Menzies J (with whom Owen J agreed in relation to this issue) remarked that no express authority had been proved and none could be implied on the basis that “[a] solicitor is not a salesman and a finding that a client had authorized a solicitor whom he consulted to sell his land would require clear and cogent evidence.”

25. [97]

    In Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (1981) 2 BPR 9173 at 9176, Street CJ said:

26. [98]

    In Nguyen v Taylor (1992) 27 NSWLR 48, Meagher JA (Kirby P and Sheller JA agreeing) found that a solicitor did have actual authority to enter into an option agreement on behalf of his client because he had been expressly instructed to take “whatever steps were necessary to complete the purchase…of the land in question.”

27. [99]

    In Lucke v Cleary (2011) 111 SASR 134 the parties had reached agreement on the contractual terms in a deed. The terms were to be reduced to writing in a deed, and one party did not execute the deed. After considering the relevant Masters v Cameron issues, Stanley J (with whom Gray and David JJ agreed) set out the principles regarding ostensible authority starting at [60]:

28. [100]

    In Owners Corporation Strata Plan 62285 v Betona Corporation (NSW) Pty Ltd [2006] NSWSC 216 Gzell J observed at [47]-[48] that:

29. [101]

    In Needlework Warehouse Pty Ltd v Chansonette Pty Ltd [2005] FCA 1525 at [83]-[86], Lindgren J considered:

30. [102]

    In Donellan v Watson (1990) 21 NSWLR 335 at 342, Handley JJA (with whom Mahoney and Waddell A-JA agreed) observed:

31. [103]

    In Harvey v Phillips (1956) 95 CLR 235, the plaintiff claimed that she had not given her consent to a settlement signed on her behalf by her counsel. She had, after been placed under pressure by friends and legal advisers, intimated that she would accept a settlement offer. Senior counsel for each side signed the terms of settlement and the Court was adjourned. The plaintiff then alleged she had never given consent to settle. It was found that the plaintiff was bound by the settlement because counsel had acted within authority, no matter how reluctantly given, when he signed the relevant agreement. The High Court (Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ) considered that “so far as the counsel and solicitors of the defendants knew, the plaintiff’s counsel had his client’s considered and definitive authority to accept the settlement.”

32. [104]

    In Sharjade v The Commonwealth [2009] NSWCA 373 Hodgson JA said at [54]-[57] onwards:

33. [105]

    At [145] Young J expressed his agreement with Hodgson JA that the principle ought to be that expressed by Deane J that “a party who merely wishes to terminate (and recover the deposit), does not have to incur the expense to put himself or herself in a position where he or she can positively demonstrate actual or potential readiness and willingness to perform the contract.” However, his Honour did not consider it necessary to determine the matter.

34. [106]

    In Foran v Wight (1989) 168 CLR 385 Mason CJ at 395-7 said (footnotes omitted):

35. [107]

    Deane J said at 433:

36. [108]

    At 451-452 Dawson J considered several authorities and concluded at 452:

37. [109]

    In Almond Investors Limited v Kualitree Nursery Pty Ltd [2011] NSWCA 198 (Almond Investors) Bathurst CJ (with whom Giles JA and Handley AJA agreed) made the following remarks:

Credit

1. [110]

   A trial judge is in no way restricted in his or her assessment of a witness. He or she is not bound to accept any of that which the witness attests to or indeed may only accept part thereof: Cubillo v Commonwealth (No 2) (2000) 103 FCR 1 at [118]-[123]. Nor is a judge bound to accept the testimony of a witness where there has been no cross examination.

2. [111]

   I am similarly mindful of the remarks of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy (2003) 214 CLR 118 at [30]-[31] where they said:

3. [112]

   In Camden v McKenzie [2008] 1 Qd R 39 at [34] Keane JA (as he then was) made the observation that “the rational resolution of an issue involving the credibility of witnesses will require reference to, and analysis of, any evidence independent of the parties which is apt to cast light on the probabilities of the situation.” This remark was cited with approval by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in New South Wales v Hunt (2014) 86 NSWLR 226 at [56].

Discussion

1. [113]

   I formed a most unfavourable opinion of Mr Pavlovic. He is a self-confessed liar who, it seems, effortlessly resorts to mendacity if he thinks it will suit his commercial ends.

2. [114]

   Indeed, the way the case was put on his behalf proceeds upon the acceptance that in January 2015 Mr Pavlovic deliberately lied when he sent emails to representatives of the plaintiff stating that he had signed various documents.

3. [115]

   Mr Pavlovic is an experienced businessman in the entertainment industry. He has negotiated many contracts over many years. He gave an explanation for the misrepresentations to the plaintiff, namely that he felt under great pressure and wanted to avoid conflict with the plaintiff. He went on to say (affidavit of 7 May 2015 at p 45]) that he was anxious about signing the deed because of the threats made by the plaintiff during September 2014 that if the matter did not settle the plaintiff would initiate proceedings against him. He says he wanted to buy some time so that he could think.

4. [116]

   In general terms the deed negotiated was an effective walk-away exercise. Mr Pavlovic was not required to pay any monies, rather the plaintiff was going to release him from liability, and pay some monies. He obviously got cold feet, perhaps on the basis that he felt he could have done better in the negotiations.

5. [117]

   No medical evidence was tendered in the case to suggest that he was even slightly affected by this so-called pressure. No claim of duress or unconscionability was put forward by him. I regard his evidence on this point as simply another example of a deliberate falsehood.

6. [118]

   He asserts that (presumably in late December or early January) he devised a forensic strategy. That strategy was to tell the plaintiff he had signed the documents when in fact he had not. But the ruse apparently did not stop there. He says he did things so as to falsely give the appearance he was in fact performing the contract.

7. [119]

   There was debate before me as to whether Mr Pavlovic had, in fact, ever signed the documents. The plaintiffs urged me to find he had, whereas the defendants said I should accept he did not. Given his penchant for mendacity, I do not think it is at all far-fetched to conclude, and I consider it likely, that he signed the documents and then, having had second thoughts, disposed of them. In the end, nothing really turns on that matter.

8. [120]

   Rather than him being overburdened or placed under undue pressure, Mr Pavlovic had weeks, if not months, in the latter part of 2014, and with the benefit of his solicitor, to carefully consider what he would or would not do. It is not as if all the negotiations took place over the two day period 23-24 December 2014. That was merely the culmination of what was weeks if not months of negotiations and, I must assume, careful evaluation on his part. The negotiations involved multiple drafts of the deed and other documents.

9. [121]

   In addition to the pressure that Mr Pavlovic said he was under, he also put as a reason that he could not ultimately bring himself to sign the Proposed Deed that he was struggling with the indemnity clause (T79). I do not accept that as truthful or rational evidence either. There is no contemporaneous note of record of either Mr Gorry or Mr Pavlovic suggesting Mr Pavlovic had any concerns about the indemnity clause. For a start, there is nothing in Mr Pavlovic’s affidavit evidence to that effect.

10. [122]

    The particular indemnity clause is that set out in cl 3.6 (CB61). Mr Pavlovic confirmed in his evidence (T101.10-20) that the indemnity is in favour of Modular. What the indemnity required was that Mr Pavlovic be responsible for a licence arrangement which he deliberately entered into through Modular in the United States with a company called BMG Chrysalis. I can see no rational problem in him accepting that responsibility. He must have known what he was doing when he entered the relevant arrangement. He was either entitled or not entitled to do what he did.

11. [123]

    In an email of 23 October 2014 sent at 9.33am by Mr Gorry to the plaintiff’s solicitors, Mr Gorry was clearly instructed to inform his opposite number that Mr Pavlovic “will also deal with the BMG licence agreements” (CB759).

12. [124]

    On 7 November 2014 the plaintiff’s solicitors wrote to Mr Gorry in the following terms:

13. [125]

    It is plain therefore that not only the topic of the indemnity but its very terms (CB775, cl 2.6) were on the table from 7 November 2014. Yet there is not the slightest hint between then and 24 December 2014 that Mr Pavlovic had any concerns whatsoever about the notion of such an indemnity or its terms. He does not impress me as someone who would suffer in silence.

14. [126]

    I am simply unable to accept Mr Pavlovic is truthful on this issue.

15. [127]

    Insofar as an issue to be determined requires a consideration of his credit, I would not accept any evidence from him as truthful without corroboration.

16. [128]

    The plaintiff submits that the agreement or contract is constituted by the terms of the Proposed Deed. It is submitted that Mr Pavlovic instructed Mr Gorry to inform the plaintiff that he would sign the Proposed Deed as a clear indication of an agreement, not that the agreement was to be contingent upon the signature.

17. [129]

    The defendants’ primary submission is that there was no binding agreement. However, if there was such an agreement, the defendants submit that the relevant correspondence concerning the exchanges of documents and signature amount to additional contractual terms. I am not able to accept that submission, for reasons which I will discuss in more detail below.

18. [130]

    I consider the matters concerning signature and exchange of the signed document, objectively viewed in context, amount only to steps in the completion of an administrative process. In my view completion, or indeed timely completion, of this process did not, nor was it intended objectively to, affect the binding nature of the contract. When all the circumstances are taken into account I do not consider the correspondence dealing with signature and exchange can be so elevated.

19. [131]

    The mere fact that a deed was prepared and signature was in due course intended does not, of course, prevent there being a binding agreement in the absence of such.

20. [132]

    These were two sophisticated parties being represented by two sophisticated law firms. If it was seriously intended that there was to be no binding agreement until the deed was signed and signed copies exchanged it would have been simple to say that. I do not consider that the email of the plaintiff’s solicitors on 23 December 2014 has that effect. No attempt was made on either side to advance such a requirement at any stage in the negotiations. There is a difference between reaching a binding agreement and putting in place a regime to attend to meeting administrative requirements.

21. [133]

    It is uncontroversial that up to late December the parties, through their respective solicitors, were attempting to reach a concluded agreement in circumstances where there was no possibility of a rapprochement.

22. [134]

    It is important to focus with some considerable detail upon the events of 23 and 24 December 2014. In addition, both parties to a greater or lesser degree rely upon post-contractual conduct, but for obviously different reasons. I will return to these events separately.

23. [135]

    It is also uncontroversial that the parties, who had been in a commercial relationship, in particular a joint venture since 2 December 2005, had had a serious falling out. Both sides accepted that it was necessary to go their own ways and that their relationship had irrevocably broken down. Mr Forato (from Universal) told Mr Pavlovic that in no uncertain terms on 24 September 2014 (CB757). Mr Pavlovic responded, acknowledging that the commercial relationship was “untenable”, on 7 October 2014 (CB758).

24. [136]

    The dispute was a serious commercial one which had the capacity to affect a number of third parties. It needed to be resolved relatively promptly and finally. Litigation was a serious alternative to negotiation and discussion. A number of matters had undoubtedly been the subject of allegation and counter-allegation.

25. [137]

    With Christmas looming and the possibility of lawyers and others being unavailable over the Christmas/New Year break, there was some need to bring things to finality.

26. [138]

    On 23 December 2014 at 5.47pm Ms St John of Gilbert + Tobin, solicitor for the plaintiff, sent an email to Mr Gorry (CB219). The documents referred to in this email were the Proposed Deed in mark up, showing recent changes, and the Proposed Deed in final form for execution, including schedules. Schedule 4 comprised the deed of termination. This was the culmination of lengthy negotiations about the contents of those respective documents. Ms St John indicated that her client would execute the documents the next day. She invited Mr Gorry to ensure Mr Pavlovic would do the same so that, in effect, there could be a swap of executed documents together with the cheque for $100 as contemplated.

27. [139]

    As at 23/24 December 2014 I should observe that there is no suggestion that any further commercial terms or conditions, or indeed matters of drafting, needed to be negotiated or were outstanding. It was clear in any event that the plaintiff was content with the documents as they stood on 24 December 2014, and said so unequivocally through its solicitors.

28. [140]

    There is no suggestion, in my view, at least in Ms St John’s email of 23 December 2014, that the agreement would be binding only upon execution and exchange of deeds from the plaintiff’s point of view. Nor was any attempt made to send the defendants signed copies and make any swap accordingly part of the contractual process.

29. [141]

    Mr Gorry did not respond to Ms St John’s email of 23 December 2014 until 2.36pm the next day. Mr Pavlovic’s response was by no means hurried and given he and his solicitor’s undoubted familiarity with the documentation at that stage his response on 24 December 2014 was somewhat leisurely.

30. [142]

    Mr Gorry on the evidence did not, it seems, speak to Mr Pavlovic about obtaining instructions until 2pm on 24 December 2014. I infer that some care would have been taken on his part and that of Mr Pavlovic to ensure the documents accorded with the deal they had negotiated. They would jointly and severally, I am sure, have assured themselves nothing more was needed.

31. [143]

    I am satisfied Mr Pavlovic, having carefully considered the documents and his commercial situation, instructed Mr Gorry to tell the plaintiff’s solicitors he would “sign”, meaning he was content with the terms and conditions there set out. One thing he did not do was ask for more time or suggest an exchange of signed documents with the $100 before binding himself. He could have done so. Mr Pavlovic, in his evidence, said he did not read the documents particularly carefully and that he relied upon Mr Gorry to read them and summarise them. I do not accept that as truthful. This was an experienced businessman, adept I am certain at reading contracts, and I am satisfied he would have been careful to ensure the documents accorded with his understanding of the deed he was being asked to sign.

32. [144]

    The language chosen here by both sides in their email exchange, in my view, therefore does not indicate that the agreement would only be binding upon execution or exchange.

33. [145]

    I consider a reasonable person in the position of either of the parties, having reached the end of these negotiations, would have understood a binding agreement had been reached with each side explicitly instructing their respective lawyers to indicate unequivocal acceptance of the terms and conditions embodied in the written document. There were formalities to be attended to and the parties were to do various things in due course, but the essential matter, that was agreement on the terms and conditions, had been reached.

34. [146]

    In evidence, Mr Pavlovic denied that he ever told Mr Gorry on 24 December that he would sign the documents (T73.16-20; T74.6-12; T75.11-12). Mr Pavlovic, however, accepted that he did tell Mr Gorry on 24 December 2014 that one of the reasons that he could not sign the documents was because his sister was unavailable (T 741.46, T758.10). I reject Mr Pavlovic’s denial. The words “will sign” together with the email Mr Gorry sent six minutes later prove to my satisfaction that Mr Pavlovic said those words and gave Mr Gorry instructions to tell the plaintiff he had in effect agreed. I should note that Mr Pavlovic’s counsel made it clear that Mr Pavlovic’s case was not put on the basis that Mr Pavlovic had not instructed Mr Gorry that he (Mr Pavlovic) would sign the agreement.

35. [147]

    At 2.46pm on 24 December 2014 Mr Gorry repeated again to Ms St John that Mr Pavlovic was prepared to sign the documents (CB222).

36. [148]

    At 3.29pm, after some discussions about Mr Pavlovic gathering some documents together, Mr Gorry said to Ms St John that Mr Pavlovic “will sign tomorrow” (CB226).

37. [149]

    Mr Gorry repeated the assertion his client would sign on three separate occasions. It is unlikely in the extreme, given the history of the detailed negotiations, that Mr Gorry would have misunderstood, misheard or, worse, deliberately misstated what his instructions were. I could not accept that he would have done any of those things. It is also clear that Mr Gorry would have told Mr Pavlovic on 24 December 2014 that the plaintiff was going to sign the documents the next day and in that context elicited Mr Pavlovic’s instructions. I am certain Mr Gorry would have informed Mr Pavlovic that he wanted to indicate Mr Pavlovic’s position to the plaintiff’s solicitors.

38. [150]

    Mr Pavlovic, of course, accepted that he did inform Mr Gorry that one of the reasons that he could not immediately sign was because of the unavailability of his sister. Again, it is unlikely in the extreme that Mr Gorry would have been correct concerning half of his instructions and not the other half.

39. [151]

    Mr Gorry’s later enquiry of his client as to when he would sign is obviously important. It is clear Mr Gorry was trying to pin Mr Pavlovic down to the precise time, given the time of the year, not whether or not he would sign. Mr Pavlovic tried to pass off his answers in some of the emails, particularly his reference to “NYE” and “symbolic”, as his rather quirky sense of humour. I regard this as fanciful and contrived.

40. [152]

    Whatever did or did not in fact transpire between Mr Gorry and Mr Pavlovic, Mr Pavlovic certainly learned at some point that Mr Gorry had told the solicitors for the plaintiff that Mr Pavlovic would sign the documents. It is unclear when that was, but there is no record of any written (or for that matter oral) communication in which Mr Pavlovic asserted to Mr Gorry (or anybody else at Henry Davis York) that he had not instructed Mr Gorry to indicate that he (Mr Pavlovic) would sign the documents. It is inconceivable to think that Mr Pavlovic, having found out that Mr Gorry was representing to the solicitors for the plaintiff that Mr Pavlovic had agreed to the terms and conditions and would sign the document, would not have reacted to correct Mr Gorry if that had been incorrect. More to the point, he is commercially sophisticated. He would readily appreciate, as would any reasonable person, that to indicate you will sign something which has been reduced to a deed in agreed terms negotiated over weeks or months means there is a binding contract.

41. [153]

    Mr Gorry was not called by the defendants. It is accepted that Mr Gorry still practises as a solicitor in Sydney. Notwithstanding the fact that Mr Gorry and Mr Pavlovic have parted ways as solicitor and client I would have expected Mr Gorry, as an officer of the court, were he called to give evidence, to tell the truth about his instructions. It is plain Mr Gorry’s evidence would not have assisted Mr Pavlovic to prove the contention that, in effect, Mr Gorry acted without instructions on the question of the signing of the documents. That is another discreditable act on the part of Mr Pavlovic to be added to the litany.

42. [154]

    Further, in cross examination Mr Pavlovic suggested that Mr Gorry told him on or about 24 December 2014 that the documents negotiated with the plaintiff were as far as Mr Gorry could take the matter and that it was entirely up to Mr Pavlovic whether or not he signed the Proposed Deed (T79.28). I do not accept that as truthful and I reject it.

43. [155]

    The terms and tone of each of Mr Gorry’s emails between 23 and 24 December 2014 give no hint that Mr Pavlovic was going to take the Christmas/New Year break to contemplate whether he would bind himself to the arrangement. Mr Gorry, in my view, I infer, had no such belief or understanding. I cannot accept that Mr Gorry would have so clearly and unequivocally made Mr Pavlovic’s position plain to the plaintiff’s solicitors had his client requested he not do so or if he was in any doubt as to his instructions. He would have no reason at all to misrepresent his client’s truthful position if his client wanted more time. Mr Gorry had no interest in committing his client to something if he thought his client was unsure.

44. [156]

    I consider, in any event, that by no later than 2.30pm on 24 December 2014 Mr Pavlovic had clearly come to the view that he would bind himself to the arrangement which had been negotiated and he was comfortable in that being said.

45. [157]

    There was a slight change in instructions on timing of signatures which must have occurred, as recorded by Mr Gorry in his 3.29pm email of 24 December 2014, by Mr Pavlovic indicating that he would sign the documents on Christmas Day. That is only consistent with Mr Pavlovic confirming his instructions that he was happy to be bound by the arrangements.

46. [158]

    Ultimately, on 24 December 2014 at 4.13pm, the plaintiff’s solicitors indicated that in the circumstances they were prepared to provide Mr Pavlovic with another 48 hours to sign the documents and return the executed copies (CB229). This email is entirely consistent with flexibility in relation to execution and exchange of the documents and underscores, in my view, the administrative nature of that aspect of the process. Given the time of the year, with looming public holidays and availability of people, some time frame was more than desirable.

47. [159]

    I am satisfied that Mr Gorry had actual authority to bind Mr Pavlovic to the terms of the agreement. Furthermore, if the question of ostensible authority were relevant, it is tolerably clear that the agreement came into existence in a litigious or potentially litigious context. The dispute had its genesis in the plaintiff threatening to take legal action against Mr Pavlovic. That is made quite clear in the recitals of the Proposed Deed, and is reflected in the emails headed “without prejudice save as to costs”.

48. [160]

    I consider the better view of the materials, objectively viewed, is that both parties were content and clearly intended to be bound to the terms of the deed.

49. [161]

    The defendants made submissions concerning the entire agreement clause in the Proposed Deed and the stipulation that any amendment to the Proposed Deed be in writing and signed by all relevant parties. I do not consider that these matters bear upon whether or not the parties, at the relevant time, intended to enter into a binding arrangement. They relate to matters subsequent to the formation of a binding agreement; any variations in the respective rights of the parties and the extent to which the Proposed Deed contained a comprehensive iteration of the rights and obligations of the parties. They govern performance, they do not prevent a binding agreement from having been reached. They are both common features of commercial contracts as, indeed, is the expectation that, even if the parties have concluded a binding agreement through a handshake or conversation, relevant documentation will be prepared and signed as a matter of course. Neither requirement supports the inference that a signature was a necessary precondition to the parties being bound.

50. [162]

    The plaintiff, however, in addition relies upon Mr Pavlovic’s subsequent conduct as admission or affirmation of the agreement. Mr Pavlovic says, of course, his statements and his conduct were all a pretence.

51. [163]

    The subjective intention of either of the parties is not part of the question of whether or not a contract has come into existence. The mere fact that Mr Pavlovic on the one hand falsely represented that he was going to enter the agreement, or had entered it, without expressing his true intention, is really not to the point. It seems to me that a reasonable person in the position of the plaintiff during January 2015 would have understood that Mr Pavlovic was admitting, affirming and performing the contract which had been previously agreed. His behaviour, which he says was duplicitous, was actually done so as to convince the plaintiff he was in reality performing the agreement. Objectively that was what a reasonable person would infer he was doing.

52. [164]

    Mr Pavlovic did not, on any view, express any reservations to the plaintiff or to their solicitors at any time between late December 2014 and January 2015 or give any indication that he was having second thoughts. Objectively viewed, again, his assertions and his conduct in January – for example on 6 January 2015 that “I have signed them” (CB232) – are, I consider, admissions by him that a contract existed in accordance with the terms and conditions of the Proposed Deed referred to in December 2014.

53. [165]

    The plaintiff submits, in my view correctly, that the defendants’ submission ([11] on termination) that the only obligations that were required to be performed by the plaintiff were breached is, in fact, inaccurate. As the plaintiff rightly points out, a most important aspect of the agreement from the perspective of the defendants was that the plaintiff agreed to desist from pursuing the defendants in relation to the substantial claims described in the recitals (Recitals C to J). As the plaintiff correctly points out, this has been honoured and performed by the plaintiff since 24 December 2014.

54. [166]

    Insofar as the defendants say that the plaintiff’s failure to comply with the time stipulations in the Proposed Deed are examples of post-contractual conduct tending to indicate the parties had not concluded a binding agreement, I disagree. Both parties were substantially performing their obligations (Mr Pavlovic in taking various steps, such as transferring domain names and returning materials, and the plaintiff in refraining from commencing proceedings). Neither party, it seems, was particularly punctilious about performing their obligations in accordance with the time stipulations in the contract. But in the first half at least of January no one was complaining. Mr Pavlovic, in taking the steps he did, never once insisted on an exchange of executed documents. Of course, given he says he was engaged in a ruse he could hardly do that for fear he would have to do the same.

55. [167]

    One point raised by the defendants was the email exchange between Mr Pavlovic and Mr Unger-Hamilton in which Mr Unger-Hamilton observed that Mr Ash from the plaintiff had told him (Mr Unger-Hamilton) that “your deal [the agreement between the plaintiff and the defendants] is not signed off yet.” I consider this statement to be equivocal, in the sense that it is not inconsistent with the plaintiff believing that a binding agreement had been entered into. Although it mentions the fact Mr Pavlovic has not “signed off”, it also focuses upon the “agreement”. It may be that by this time the plaintiff was entertaining some apprehensions about Mr Pavlovic’s tardiness in returning the relevant documents. That is not inconsistent with the parties having concluded a binding agreement.

56. [168]

    I am satisfied that Mr Pavlovic took deliberate steps during January 2015 for which the only reasonable explanation is that he was performing his obligations under the Proposed Deed and had commenced the process of extricating himself from the joint venture business.

57. [169]

    I am satisfied that in January 2015 Mr Pavlovic returned various physical and digital assets and information of Modular Recordings that had been in his possession, such as computers, computer discs, web site logins, a domain name, subscriber data bases, passwords and the like. More to the point, Mr Pavlovic does not contest that he returned these materials. He also knew at the time that the Proposed Deed and in particular cll 4.2, 4.3 and 4.4 required him to return equipment, documents and information on 5 January 2015 (T86/26). Somewhat flippantly, he tried to suggest the items were those the plaintiff was entitled to anyway. I reject that. Mr Pavlovic says he was involved, as he would have it, in a masquerade. I reject that. He was, in my view, doing exactly what he agreed. That he got cold feet cannot be gainsaid but it is not clear precisely when that occurred.

58. [170]

    Mr Pavlovic said in his evidence, somewhat pathetically, that some of the materials were just lying around and he concluded, independently of any obligations under the Proposed Deed, that he should just return them to the plaintiff (T86.35-87.01). I regard that evidence again as contrived.

59. [171]

    It can be no coincidence that Mr Pavlovic initiated the return of these materials on 5 January 2015, the date nominated in the Proposed Deed. That is, again, evidence consistent with him admitting he was bound by that deed. For what it is worth, he accepted during cross examination that he knew that his communications, for example of 13 January 2015, would be understood by the plaintiff as indicating that he had complied with his obligations under the Proposed Deed (T90.10-90.36).

60. [172]

    Mr Pavlovic knew, in accordance with the agreed arrangements, that his salary had ceased on 14 November 2014. There is simply no evidence in any of the materials before the Court that Mr Gorry, or for that matter Mr Pavlovic, apart from Mr Gorry’s enquiry, took any objection to that matter. Mr Gorry raised the issue with the plaintiff in late November, and after that point no further reference to it was made. It is obvious that both Mr Pavlovic and Mr Gorry accepted this was part of the winding up of their arrangements.

61. [173]

    On any view belatedly, but nonetheless on 6 March 2015, Mr Pavlovic received the cheque for $32,508.89 from the plaintiff for his Accrued Annual Leave Payment pursuant to cl 2.2(b)(iii) of the Deed. He banked the cheque. Mr Pavlovic says that he accepted the payment because he had resigned from his employment and considered that the cheque was a “down payment”. The problem with that is that he has never made a claim for any additional payment for any accrued leave. Again, although it may be belated, Mr Pavlovic’s conduct is entirely consistent with his performance of his obligations under the Proposed Deed and an acceptance or recognition that the plaintiff had performed theirs.

62. [174]

    Mr Pavlovic gave some evidence that suggested that he continued to work for Modular and had, in fact, remained stoically at the wheel (affidavit of 7 May 2015 [64]-[65]). If that evidence is put forward on the basis that he had not accepted the arrangements it runs contrary to all of the other evidence as to his conduct in January 2015. In any event, it does not really address (head on or otherwise) his behaviour on or about 24 December 2014. I regard this evidence as largely irrelevant to a determination of the issues in these proceedings. But even if he did those things, given his track record in the integrity department I would not believe a word he said unless it was corroborated and this evidence is not. It is self-serving, gratuitous and carries no weight, in my view.

63. [175]

    On 5, 7 and 9 January 2015 Mr Pavlovic repeated (according to him falsely) that he would be returning the “signed documents”. Objectively it seems to me that to the reasonable person he was in the process of performing his side of the bargain. Although the plaintiff made efforts to secure the signed documents, the correspondence does not give the sense that they are raising concerns or complaining; rather, they are seeking to complete the administrative formalities attendant upon the arrangement. It is to be noted, of course, that at no point during this period did Mr Pavlovic or his sister raise any concern about the $100 cheque which was clearly intended by the parties to be a token amount.

64. [176]

    The defendants, as an alternative argument, submit that even if the Court were to find that there was a binding agreement as at 24 December 2014, the plaintiff failed to comply with the terms of the agreement in three respects and the defendants lawfully terminated it on or about 23 February 2015.

65. [177]

    The defendants contend that the terms of such an agreement would be constituted by the written terms of the Proposed Deed together with other provisions contained in the correspondence of the parties on 23 and 24 December 2014. This is a matter of controversy between the parties.

66. [178]

    The defendants thus contend that, apart from the terms contained in Proposed Deed, the agreement also included the following terms

67. [179]

    The defendants submit that the plaintiff failed to comply with these terms because, first, the plaintiff failed to deliver an executed copy of the Proposed Deed to Mr Gorry on 24 December 2014 (or within a reasonable time thereafter) and, second, the plaintiff failed to make payment of the sum of $100 (either by delivery of a cheque or at all) on 24 December 2014 (or within a reasonable time after 24 December 2014).

68. [180]

    As will be dealt with later, it is also submitted that the Accrued Annual Leave Payment was not paid by the plaintiff on or before 7 January 2015 as required by cl 2.2(b)(iii) of the Proposed Deed, the terms of which it is submitted form part of the alleged agreement. Mr Pavlovic’s annual leave payment amounted to the sum of $63,708.89 (before tax) requiring the (after tax) sum of $32,508.89 to be paid to him. It is submitted that this was an essential term of the agreement. I will come to this matter after considering the terms said to be contained in the December 2014 correspondence between the parties.

69. [181]

    As at 23 February 2015 the defendants submit that more than eight weeks had passed since the time for performance of the plaintiff’s obligation to deliver an executed copy of the deed and the plaintiff’s obligation to make the payment of $100 to Mr Pavlovic and Ms Pavlovic (and, further, more than six weeks had passed since the time for performance of the plaintiff’s obligation to make the annual leave payment to Mr Pavlovic).

70. [182]

    On 23 February 2015, by letter from its solicitors to the solicitors of the plaintiff, the defendants purported to terminate the agreement. The letter specifically made reference to the plaintiff’s failure to make the annual leave payment to Mr Pavlovic as the basis for termination. However, the defendants are entitled, they submit, to justify the termination by reference to any basis for termination that was available at the time of termination, whether or not that basis was stated in the notice of termination.

71. [183]

    The defendants correctly identified the issue to be determined as whether the breaches of the agreement by the plaintiff were of a sufficiently serious nature so as to give the defendants a right to terminate the agreement. A prelude to consideration of this matter must be, of course, whether or not the December 2014 correspondence comprised terms of any agreement between the parties.

72. [184]

    The defendants rightly point out that neither the terms of the deed nor the correspondence between the parties on 23 and 24 December 2014 contained any clauses setting out the parties’ rights to terminate the agreement upon breach by the other party or parties. As such, their respective rights are to be determined by reference to the common law.

73. [185]

    The plaintiff submits that the arrangement was not validly terminated on 23 February 2015 because the plaintiff performed each contractual obligation on 6 March 2015. It is submitted, correctly, by the plaintiff that the alleged basis of entitlement to terminate is not a failure to perform at all, but rather a failure to perform on time or by the time of the purported termination on 23 February 2015.

74. [186]

    The Proposed Deed contemplated that the plaintiff and/or Modular would do a number of things:

75. [187]

    The first question that arises in relation to the obligations concerning execution and exchange, and the delivery of the $100 cheque, is whether the December 2014 correspondence between the parties comprised terms of a binding agreement between the parties. I agree with the plaintiff’s submission that the language used is not consistent with them being regarded (objectively) as contractual terms, and that there is no basis for implying terms to that effect. As I have already said, the process set out by the parties in those emails was an administrative one that the parties anticipated would be completed in due course. The evidence supports the proposition that at the time of entering into the agreement on Christmas Eve 2014 the parties considered these steps to be formalities which would be completed by the parties in due course either during or after the Christmas break.

76. [188]

    I agree that the tone and terms of the email from the plaintiff’s solicitors of 23 December 2014 sent at 5.47 pm, which attached (amongst other things) the Proposed Deed in final form for execution, do not support the inference that execution and/or exchange were intended to be additional contractual terms.

77. [189]

    However, even if I were to determine that the December 2014 correspondence did give rise to additional contractual terms, I would not be satisfied that the plaintiff’s failure to comply strictly with the obligations concerning the timing of execution and exchange and the delivery of the $100 cheque would be breaches of an essential term or fundamental breaches of an intermediate term. These were both relatively unimportant matters in the scheme of the agreement between the parties.

78. [190]

    The defendants submit that in relation to commercial contracts it is prima facie the rule that provisions dealing with time are usually treated as conditions or essential terms, such that a failure to comply with the time stipulation gives rise to a right to terminate without service of a notice requiring performance. In addition it is submitted that, even if the provision is not construed as a condition or essential term, an unreasonable delay in performance of an intermediate term, such as to render performance substantially different from that intended by the parties, will constitute a fundamental breach and give rise to a right to terminate. The defendants submit, appropriately, that in each case the question of whether a delay is unreasonable is a question of fact, the resolution of which will depend upon the length of the delay, the nature of the contract, and the detriment, loss or disadvantage suffered by the affected party.

79. [191]

    It is submitted by the plaintiff that, generally, the intention of the parties was not to make time of the essence in the contract. Beyond a general expectation that matters would be finalised without unreasonable delay, the parties certainly did not express themselves in terms that the arrangements were affected by any particular urgency. I agree. I think it is a nonsense to characterise such terms as essential. In reality they could not be seen as essential terms. Qualitatively speaking that must be so. I will deal, however, with each in turn.

80. [192]

    Even accepting that the 24 December 2014 correspondence led to the incorporation of additional terms into the contract, I am not satisfied that the plaintiff’s tardy delivery of the executed deed is a breach of an essential term or a fundamental breach of an intermediate term. The additional term, as put by the defendants, is that on 24 December 2014 (or alternatively within a reasonable time after 24 December 2014), the Proposed Deed as executed by the plaintiff and Modular (both a scanned copy and the original) would be sent by the plaintiff’s solicitors to Mr Gorry.

81. [193]

    I am not satisfied that Mr Pavlovic would not have entered into the agreement unless assured of strict compliance with this term. It is clear both parties perceived it as being a primarily administrative step, and it was far-removed from the heart of the bargain between the parties. Failure to comply did not deny Mr Pavlovic of substantially the whole of what he had bargained for.

82. [194]

    The defendants submit that execution was a necessary precondition to a binding agreement coming into effect because there are obligations in the contract which flow from the “execution date”. I accept the plaintiff’s submission that the timing of steps to be taken in performance is qualitatively different from the question of whether final terms have been agreed. I also note in passing the plaintiff’s reference to Recital L, which provides that the parties “have agreed to settle their disputes on the terms set out in this deed” and cl 2.1(b) which repeats this assertion.

83. [195]

    The defendants point to the promise that the plaintiff would pay $100 (contemplated by cl 4.1(a)) “by the execution date” or within a reasonable time thereafter. It is submitted the promise was breached because the $100 was not delivered to the defendants until much later, and certainly had not been delivered to the defendants by 23 February 2015. Again, it is submitted that the failure to deliver the cheque was a breach of an essential term entitling the defendants to terminate the agreement, or alternatively a fundamental breach of an intermediate term similarly entitling them to termination.

84. [196]

    It is submitted by the defendants that the payment of the $100 was an essential term for a number of reasons. It is submitted that the terms of the Proposed Deed could only be accurate if the $100 had been received by the time the terms came into operation because of the phrasing of cl 4.1(a) (“receipt of which is acknowledged”). It is submitted that to execute and deliver the Proposed Deed knowing the $100 had not been received would be to execute it in knowing it contained a false acknowledgement. It is submitted the parties objectively could not have had the intention of executing a deed which contained a false acknowledgement. That rather overstates the matter in my view.

85. [197]

    The plaintiff points out that the settlement agreement provides in respect of the $100, “receipt of which is acknowledged”. The plaintiff submits that equity would not permit that sub-clause to allow the plaintiff to escape the payment if in fact it had not been paid, but further submits that the sub-clause is fatal to the contention that the settlement agreement stipulated a subsequent time for the payment of the $100 that was an essential term of the settlement agreement.

86. [198]

    The execution of the Proposed Deed, containing an accurate acknowledgement of the receipt of the $100, was, the defendants submit, an essential part of the agreement. The $100 was important by virtue of being appropriate consideration for the transfer of the shares. Without it, the transfer would not be supported by consideration and was not going to be legally enforceable. On any view, however, the reality is that the $100 is a purely token amount, and is unimportant in the context of the Proposed Deed as a whole.

87. [199]

    I have already recorded in part the plaintiff’s response to this. They submit that the agreement does not specify a time for the performance of payment by the plaintiff of $100 to Mr Pavlovic and Ms Pavlovic. It is submitted therefore that an alleged failure to pay on time cannot be made out. I consider that to be a correct analysis.

88. [200]

    In relation to the Accrued Annual Leave Payment, the defendants submit that the appropriate construction of the relevant provision (cl 2.2(b)(iii) of the Proposed Deed) is that the plaintiff promised to pay those entitlements on or before 7 January 2015. The defendants submit that this promise was of such importance to Mr Pavlovic that it ought be concluded that Mr Pavlovic would not have entered into the contract unless he had been assured of a strict or substantial performance of that promise. It is further submitted by the defendants that this is manifest from the terms of the agreement and the surrounding circumstances.

89. [201]

    The stipulation of 7 January 2015, the defendants submit, should be treated as a condition such that the plaintiff’s failure to comply gave the defendants a right to terminate without service of a notice requiring performance.

90. [202]

    The defendants also submit that the releases contemplated by cl 3.1 are expressed to be given “on and from the date on which the actions defined in clause 2 occur”. They submit that the payment of the Accrued Annual Leave Payment was one such action and therefore, unless the plaintiff made the payment by 7 January 2015, the plaintiff could prevent the releases and indemnities given in cll 3.1, 3.2 and 3.3 from coming into operation. Further, the defendants submit that those releases and indemnities were an essential part of the agreement. It cannot be gainsaid, however, that the plaintiff in effect applied the relevant releases and indemnities and did not take legal action against Mr Pavlovic.

91. [203]

    In addition, the defendants say that the commercial context was that Mr Pavlovic had not been paid his salary since 14 November 2014. It is submitted that in early January 2015 he had been without payment of salary for some six weeks, and that the payment to him of over $32,000 would be of such importance that he would not have entered the agreement without being assured that the plaintiff would make the payment on or before the date stipulated in the agreement.

92. [204]

    Next, the defendants submit that there was no legal or practical reason that the plaintiff could not perform their obligation to make the annual leave payment. On a proper interpretation of cl 2.2 of the proposed deed, upon that clause coming into operation the parties were to agree that Mr Pavlovic’s employment came to an end on 14 November 2014. It is submitted that the provision of a signed letter of resignation was perfunctory and that it was not the step that ended the employment. The plaintiff had no basis in law for failing or refusing to make the payment on or before 7 January 2015. In that regard, it is submitted in passing, but not unimportantly, that the language of cl 2.2(b)(iii) is unambiguous and unconditional.

93. [205]

    It is therefore submitted that the appropriate conclusion is that the defendants would not have entered the agreement without having been assured that the plaintiff would make the annual leave payment by 7 January 2015 as stipulated. However, even if one construed the obligation as an intermediate term, it is submitted that the delay by the plaintiff in making the payment is so unreasonable that the failure to make the payment was a fundamental breach and went to the root of the contract.

94. [206]

    The defendants emphasise the fact that 7 January 2015 date was added at their instigation to bolster their submission that the payment of the amount by this time was an essential term. I, however, consider it to be insignificant one way or the other.

95. [207]

    Here, it is submitted by the defendants, it was not a case where the plaintiff was a day or two late, but rather that it was many weeks late because payment was not made until 6 March 2015. It is therefore submitted that in the circumstances, whether the terms were essential or intermediate, the defendants had a right to terminate on 23 February 2015.

96. [208]

    The plaintiff submits that the correct construction of cl 2.2(b)(iii) of the Proposed Deed is that the Accrued Annual Leave Payment is a dependent obligation, in the sense that it is a payment to which Mr Pavlovic became entitled upon tendering his written resignation, and which the parties anticipated would be made after Mr Pavlovic had complied with the provisions of the Proposed Deed requiring him to return various assets to the plaintiff.

97. [209]

    The plaintiff submits that cl 2.2 provides that Mr Pavlovic “agrees to resign”. He was then to sign all documents necessary to give effect to his resignation “including by providing the plaintiff with a signed copy of the letter of resignation in Schedule 2 by the execution date”. The next step was that the Accrued Annual Leave Payment was to be made on or before 7 January 2015.

98. [210]

    The plaintiff submits that on the face of the Proposed Deed it appears that the parties contemplated that the plaintiff would make the payment after receiving Mr Pavlovic’s written letter of resignation (as well as the signed Proposed Deed and other attachments and the return of the assets and materials provided for by the Deed). It is submitted that this is consistent with the nature of the payment for Accrued Annual Leave, which conventionally follows a written resignation.

99. [211]

    The plaintiff also points to the fact that under cl 4 (cll 4.2 and 4.4 in particular) Mr Pavlovic was to return certain assets to the plaintiff on or before 5 January 2015. It is submitted that the parties must be assumed to have meant something by the distinction between 5 January and 7 January 2015 dates. It is submitted that the proper inference is that Mr Pavlovic was to return all of the required assets and signed documents before the plaintiff paid the Accrued Annual Leave Payment.

100. [212]

     I think the better view of the sequence of events is that submitted by the plaintiff. There is a certain common sense about it. Mr Pavlovic’s resignation would logically come first. It would follow that having resigned he would have no right to retain certain of the assets and therefore the date of 5 January 2015 for the return of these. This would be followed by payment of the Accrued Annual Leave Payment two days later on 7 January 2015. That was the ideal world that was contemplated.

101. [213]

     The plaintiff points out that at no time did Mr Pavlovic enquire after the payment of his annual leave entitlements (or, for that matter, the $100 cheque) until complaint was made on 23 February 2015. They say, in my view persuasively, that he appears to have accepted that these amounts would be paid in due course once he returned signed documents and all other relevant materials to the plaintiff. This was all regarded as part of a somewhat desultory process. The other factor which cannot be ignored is that the signed documents (which Mr Pavlovic says he would never and did not sign), the $100, and the Accrued Annual Leave Payment are relatively minor matters in the scheme of things, as a matter of practical reality. To elevate them to essential terms, I consider, stretches the bounds of reality and/or reasonableness.

102. [214]

     The obligation, therefore, to pay the Accrued Annual Leave Payment, was dependent on the performance of Mr Pavlovic’s obligations to return various assets and provide copies of the signed documents, including his letter of resignation, to the plaintiff. The plaintiff was not obliged to perform their part of the arrangement until Mr Pavlovic had complied with his obligations. It is submitted that the parties’ conduct, objectively viewed, would indicate that they had proceeded upon that expectation. Of course, Mr Pavlovic did proceed to return the assets and promised to return the signed documents.

103. [215]

     Mr Pavlovic also banked the cheque for the Accrued Annual Leave Payment, but only after he had resigned.

104. [216]

     Given, in my view, Mr Pavlovic’s credit I could not accept the assertion that he would not have entered into the agreement unless he could be assured of strict performance of the plaintiff’s obligation to pay his annual leave entitlements on or before 7 January 2015. His conduct is quite antithetical to that notion. It is, I am satisfied, in fact a belated contrivance for the purposes of securing a particular outcome in this litigation. If the money were truly important to Mr Pavlovic he would have raised it long before 23 February 2015. Would he care about the exchange of documents, the $100, or the payment of accrued annual leave? I think not. He was getting a piece of litigation out of the way, and having the slate wiped clean.

105. [217]

     I cannot accept the alternative proposition, namely that any breach by the plaintiff amounts to a sufficiently serious breach of a non-essential or intermediate term so as to deprive Mr Pavlovic of substantially the whole benefit for which he bargained under the contract, thereby giving him the right to terminate the arrangement. The payment of the Accrued Annual Leave Payment followed his resignation as a director. The resignation was tendered in exchange for a release of the plaintiff’s claims against him and other defendants. The plaintiff had undertaken to give those releases when the agreement was made on 24 December 2014 and was at all times ready willing and able to deliver a signed copy of the deed to him. It was only Mr Pavlovic who lied, seemingly at every turn, and although he pretended he was ready, willing and able to perform the obligations he never had the intention to do so, subjectively at least.

106. [218]

     Further, as is pointed out by the plaintiff, there is no evidence of any real or material prejudice to Mr Pavlovic by being kept out of his $32,508.89 for a period of 8 weeks. I agree with the plaintiff that it was really in the form of a tidying up exercise. There was no doubt the payment was always going to be made, as indeed was the token payment of $100.

107. [219]

     Whilst Mr Pavlovic was busily working on ways of wriggling out of the agreement, he did not bother to raise his concerns with the plaintiff about the delay on their part until 23 February 2015. Immediate steps were then taken by the plaintiff to rectify matters. The plaintiff had also complied with their primary obligation under the agreement; that is, not to pursue litigation against Mr Pavlovic.

108. [220]

     In these circumstances, it is clear that the making of the Accrued Annual Leave Payment was not an essential term. I do not consider, either, that the plaintiff’s failure to make the payment on time was a serious breach of an intermediate term that went to the root of the contract. As such, I do not consider that Mr Pavlovic was entitled to terminate the agreement by virtue of the plaintiff’s failure to make the payment by 7 January 2015.

109. [221]

     In addition, the plaintiff says with some force that even assuming the defendants’ interpretation of the time stipulation in the agreement is correct, Mr Pavlovic breached the arrangements himself. He failed to return materials on or before 5 January 2015, together with signed documents. It is put, again with some force, that he himself was in breach of essential terms and in those circumstances should not be permitted to terminate the agreement.

110. [222]

     The plaintiff says that Mr Pavlovic was not genuinely ready, willing and able to perform his obligations under the Proposed Deed such that he could be permitted to terminate the agreement for the alleged breach or repudiation by the plaintiff. According to him, he never wanted to complete the arrangement but was silently plotting ways by which he could extricate his interests from it. Indeed, as is correctly pointed out by the plaintiff, from 2 February 2015 Mr Pavlovic was actively seeking out ways to disclaim the existence of the agreement in a manner which amounted itself to a repudiatory breach (although not one which the plaintiff or Modular accepted).

111. [223]

     Given the state of the authority and my reasons otherwise I do not propose to deal finally with this matter. There is no need for me, in this case, to express an opinion concerning the divergence of authority flowing from Foran v Wight, and in light of Bathurst CJ’s remarks in Almond Investors I do not consider that it would be appropriate for me to do so.

Conclusion

1. [224]

   In relation to the various matters raised and argued over the course of the trial, I am of the view that, first, a binding agreement between the plaintiff and the relevant Pavlovic Parties came into existence on 24 December 2014. I do not need to set out again my findings regarding the intermediate steps in the reasoning process that has led to this conclusion.

2. [225]

   Secondly, I do not consider that the defendants validly terminated the arrangement on 23 February 2015 or at any other time.

3. [226]

   I invite the parties to prepare short minutes to reflect my reasons and if it cannot be agreed, to have the matter of costs argued.