Australian Capital Holdings P/L & Ors v. Mackay City Council; Australian Capital Holdings P/L v Mackay City Council & Ors [2008] QCA 157

**[1] This action concerns the enforceability of a contract entered into between the plaintiffs and the defendant on the 1 August 2005. Although the Statement of Claim includes claims on behalf of both plaintiffs the claim ultimately pursued was a claim for damages arising out of the sale by the first plaintiff to the defendant of shares in the second plaintiff.

[2] The agreement provided for the sale by the first plaintiff to the defendant of five shares, being one half of the issued capital of the second plaintiff.

[3] The first plaintiff claims damages for the failure by the defendant to pay the purchase price for the shares. The purchase price was $1.5 million and the defendant paid $239,182.08 but refused or neglected to pay any further sum.

[4] The first plaintiff and the defendant are medical specialists. They are oral and maxilo-facial surgeons.

[5] The first plaintiff had commenced to practise in this speciality at 183 Kings Road, Pimlico, Townsville in 1997 having purchased a practice carried on at that address.

[6] Practice has at all material times been conducted by the second plaintiff, a company controlled by the first plaintiff with the first plaintiff providing services to the second plaintiff. The defendant also provided services to the second plaintiff in the circumstances which will become apparent during the course of these reasons.

[7] The defendant came to Townsville in 2001 and performed a locum at the practice. He was at this time still a resident training at Adelaide University.

[8] Subsequently in 2002 he returned to Townsville and from time to time whilst he was in his intern year at the Townsville General Hospital, worked at the practice.

[9] He commenced employment at the practice in 2003 pursuant to an employment agreement which is Exhibit 1(1).

[10] Thereafter discussions were entered into between the parties about the possibility of the defendant entering the practice as a principal.

[11] It is fair to say that the defendant's interest in this proposition waxed and waned somewhat. At one time circumstances affecting his partner (also a medical specialist) meant that the defendant and his partner would have to leave Townsville. Subsequently personal circumstances, again affecting the defendant's partner, resulted in the defendant and his partner staying in Townsville.

[12] In late February 2005 the first plaintiff approached the defendant about his attitude towards joining the practice. There apparently had been little discussion on this subject for some time.

[13] When the first plaintiff raised the matter, the defendant told him that he did not want to go ahead with the purchase and when asked why said that he did not want to "buy in any more".

[14] Subsequently and as a result of the defendant's lack of interest in joining the practice, the first plaintiff took some steps to alter the arrangements pursuant to which the defendant saw patients as an employee of the practice.

[15] This lead to a further conversation between them in which the defendant said that the new arrangements "sound like the beginning of the end". The first plaintiff replied that it didn't have to be so but that he did not think that it was appropriate for him to be sharing his patients in the manner that he previously had when the defendant apparently had no interest in joining the practice. The defendant responded that it was not that he did not want to join the practice; it was that he did not want to borrow the money as he did not want to incur a debt and pay interest.

[16] The first plaintiff then put to the defendant an arrangement to which I will refer in a moment as a means by which the purchase price for the shares would be paid. The purchase price was discussed between them and agreed at $1.5 million.

[17] A company, A.J. Admin Pty Ltd, of which the first plaintiff was the sole director provided services to the practice. This company was the trustee of a discretionary trust, the beneficiaries of which were the first plaintiff and his wife. Whilst the defendant was an employee of the second plaintiff which conducted the practice, he retained 50 per cent of the receipts generated by him and the other 50 per cent was paid to A.J. Admin Pty Ltd for the services rendered in respect of his activities.

[18] The first plaintiff proposed that the 50 percent which was paid to A.J. Admin Pty Ltd could be treated instead as a payment of the purchase price for the defendant's "half share in the business." The defendant agreed to this.

[19] The defendant's solicitors prepared an agreement for the sale of the shares (Exhibit 1(E)).

[20] This was executed by the parties on or about 1 August 2005.

[21] As will be seen, the agreement provides for the payment by the defendant of $1.5 million for the acquisition of one half of the shares in the second plaintiff.

[22] Clause 2.2. provided for the means by which the purchase price was to be paid:

"The Purchase Price is to be paid by the Purchaser paying to the Vendor fifty percent (50%) of the gross receipts generated by the Purchaser in the Business until such time as the Purchase Price has been paid in full"

[23] Completion was to take place within seven days from the date on which the defendant paid the purchase price in full to the first plaintiff.

[24] Clause 4 contains a number of warranties and indemnities.

[25] Of critical importance is Clause 5 which provides as follows:

"On or before the completion date as a condition to this agreement, the parties must, with no further consideration to be provided by either party, enter into and complete contemporaneously the following:-**

(a) Business contract for the sale of fifty percent (50%) interest in the medical service business to the Purchasers entity;

(b) Partnership Agreement between the Vendors Medical Service Trust and the Purchaser's Medical Service Trust entity;

(c) Shareholders' agreement between the Vendor, the Purchaser and the Company"

**[26] Clauses 7.7 and 7.8 provide respectively as follows:

"7.7: the Vendor, the Warrantor and the Purchaser shall sign, execute and deliver all such documents, instruments and writings and shall do all such other acts and things as may be necessary or desirable to give full effect to this Agreement'

7.8: 'This Agreement contains the entire understanding of the parties with reference to the subject matter and there is no other understanding, agreement, warranty or representation whether express or implied in any way extending, defining or otherwise relating to the provisions hereof or binding on the parties hereto with respect to the sale of the shares or any of the matters to which these presents relate"

[27] Some reliance was placed by the first plaintiff upon the former and by the defendant upon the latter.

[28] By a letter dated 4 January 2006 the defendant gave to the first plaintiff notice in the following terms (Exhibit 1(41)):

"As you know I have been considering whether I wish to continue my services to you. I have decided that I would like to leave and wish to provide you with one (1) month's written notice of termination and my intentions in this regard.

[29] No further payments were made by the defendant after that date and he left the practice.

[30] Prior to that time, solicitors acting for the defendant had written to the solicitors for the plaintiffs raising a number of issues about the agreement and also about the nature of the relationship between the plaintiffs and the first defendant and also the position of A.J. Admin Pty Ltd. The letter sought information about a number of matters and expressed the view that the defendant had the right to terminate the agreement. It asserted that the agreement was so uncertain as to render it void or voidable at the instance of either party.

[31] The defendant spoke to the first plaintiff at about this time and said to him that he (the defendant) had received bad advice from his former solicitors and apologised for causing the first plaintiff so much trouble and putting him and his family through so much stress, stating that it was not the first plaintiff's fault.

[32] At the time the payments by the defendant to the plaintiff ceased, about $240,000 had been paid pursuant to the agreement in respect of the shares.

[33] Before turning to the issues raised by the defendant in its defence and counterclaim I should mention an issue raised by the pleadings as to the means by which payment for the shares was to be made.

[34] The first plaintiff in paragraph 6(8) of the amended statement of claim pleaded that it was an implied term of the agreement "that the defendant would provide and perform services as an oral and maxilo-facial surgeon as reasonably required until the purchase price had been paid in full." Such a term was to be implied by necessary implication and to give business efficacy to the agreement.

[35] The defendant denied that such a term was to be implied on any basis. (See paragraph 6.8 of the amended defence and counterclaim.)

[36] In argument before me it was submitted that the implication of such a term was excluded by the terms of clause 7.8 of the agreement.

[37] It seems to me that since it was by means of the income generated by the defendant's services that the contract price was to be paid the implication of the term alleged in the statement of claim is necessary. In my view it meets the test of an implied term which is to be found in cases such as BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20.

[38] Clause 7.8 cannot be construed in such a way as to deny the agreement of which it forms part efficacy.

[39] By its pleading the defendant alleges that the contract is void for uncertainty. The argument before me focussed on clause 5 of the agreement. The argument that the contract was uncertain was primarily based on what was said to be the absence of a concluded agreement because the agreement left the contracts which clause 5 provided for to be agreed upon between the parties. In addition it was contended that the terms in clause 5 were uncertain in the sense of lacking intelligibility.

[40] As far as the latter matter is concerned it was argued that clause 5(a) made the contract conditional upon the parties entering into an agreement for the sale of an interest in the medical service business.

[41] This was owned by A.J. Admin Pty Ltd which was not a party to the contract. It was also argued that in providing in clause 5(b) for a partnership agreement between "the Vendors Medical Service Trust and The Purchaser's Medical Service Trust Entity" the clause was not sufficiently certain to be able to give effect to.

[42] There were thus, in relation to the question of uncertainty raised by the defendant, elements of both uncertainty in the sense of an absence of meaning and incompleteness.

[43] I take as a starting point, for a consideration of these matters, the statement by Lord Tomlin in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503 at p 512:

"The problem for a court of construction must always be so as to balance matters, that without violation of essential principles, the dealings of men may as far as possible be treated as effective and that the law may not incur the reproach of being the destroyer of bargains."

[44] This principle has been restated many times. In Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 Mason J (as he then was) referred to it as "the traditional doctrine".

[45] The mere fact that a contract might be capable of more than one possible meaning cannot render it void for uncertainty. It will bear the meaning that the court decides is its proper construction as long as it is capable of some meaning. See Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429.

[46] I do not accept the argument that clauses 5(a) and (b) are incapable of having any meaning ascribed to them.

[47] So far as clause 5(a) is concerned, whilst it is clear that the medical service business was the property of A.J. Admin Pty Ltd, this company was controlled by the first plaintiff and there is no difficulty in construing the contract as imposing upon the first plaintiff an obligation to do all things necessary to procure the transfer by the company of a 50 per cent interest in the service business to the defendant or some entity nominated by him.

[48] Similarly in relation to clause 5(b) whilst the reference is to an agreement between two trusts, there is again no difficulty in giving business efficacy to this requirement by reading it as a reference to the trustee on the first plaintiff's discretionary trust (A.J. Admin Pty Ltd) and the defendant or some legal entity nominated by him. It seems to have been assumed by those who prepared the document that it was probable that as was the case with the first plaintiff, the defendant would similarly have a discretionary trust and that the transfer would be to the trustee in that event.

[49] The solicitors for the plaintiffs under cover of a letter of 22 March 2006 enclosed copies of contracts intended to satisfy the requirements of clause 5. By this time the defendant had ceased making payments under the agreement and had left the practice.

[50] There is an issue raised in the pleadings as to the right of the first plaintiff to terminate the agreement because of the defendant's repudiation of it. The defendant asserts that the first plaintiff wrongly terminated the agreement. However it seems clear to me that the failure by the defendant to continue making payments under the agreement and his leaving should be regarded as a repudiation, which the first plaintiff accepted in the statement of claim.

[51] The issue of greater substance it seems to me is whether there has been a completed agreement in view of the terms in clause 5 which clearly countenanced the execution of three further agreements. These were not executed.

[52] The agreement for the sale of the shares is expressly made conditional upon such agreements. This must mean that such agreements are a condition of completion of the contract for the sale of shares.

[53] This is not a case in which the terms of those outstanding agreements have been left to either a third party or one of the parties. The Courts in many cases have held such agreements to be enforceable. See Powell v Jones (1968) SASR 395, and Godecke v Kirwan (1973) 129 CLR 69.

[54] To meet this the first plaintiff alleged in paragraph 6(7) of the statement of claim:

"That the defendant would negotiate for and enter into the contract agreement and deed referred to in clause 5 of the share sale agreement on reasonable terms upon payment in full of the purchase price under the share sale agreement."

[55] This, it is said, is the effect of clause 7.8 or is to be implied as a matter of necessary implication. There are other implied terms alleged in the Statement of Claim which are, it seems to me, of the same effect as paragraph 6(7).

[56] A claim based upon an obligation to negotiate, which is the essence of what is alleged here, is it seems to me, problematical.

[57] There have been cases in which one can find statements to the effect that an express promise to negotiate may be enforceable. See Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, Hillas & Co Ltd v Arcoss Ltd (147) LT 503 per Lord Wright at 515-517. In those cases it was thought that damages recoverable would probably be limited to the nominal.

[58] Equally there are cases in which the courts have emphatically rejected the suggestion that an obligation to negotiate confers any enforceable rights. See Carr v Brisbane City Council (1956) St. R. Qd. 482, Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd (1975) 1 WLR 297, Mallozzi v Carapelli SPA (1976) 1 Lloyds REP 407 and Handley JA in Coal Cliff Collieries (supra).

[59] This of course is not a case in which there is any express obligation to negotiate.

[60] Clause 7.7 in my view cannot be construed as imposing such an obligation. It does no more than provide expressly for what would be implied under the principle in Mackay v Dick (1881) 6 App Cas 251. The clause and the implied term assume a concluded contract.

[61] I do not think that the first plaintiff is entitled to damages for the defendant's failure to complete the contract upon this basis.

[62] However the fact that some matters may remain to be agreed upon does not necessarily conclude the matter in the defendant's favour.

[63] I take the relevant principle to be that found in Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597 in the judgment of Kitto J (with whom McTiernan and Windyer JJ agreed) at p 603:

"It is only where future agreement is required in order that the agreed provisions and those to be agreed shall operate together as one contract that the agreed provisions cannot be treated as themselves constituting a contract."

[64] In that case a company proposed to demolish an existing building and replace it by a multi-storey building and to dispose of the space in it by selling or letting professional suites, shops and offices. The defendants were the only shareholders in the company and they entered into an agreement with another group of persons the general purpose of which was to bring the capital of the latter group into the company upon mutually satisfactory terms including terms as to rights of occupancy of space in the proposed new building.

[65] Extensive provision was made for rights of occupancy of space in the new building as between the two groups with nothing left for future agreement between them as regards their respective rights. However the agreement provided that the parties would arrange a numbering of the shares such as would ensure under the provisions of the articles which attach rights of occupancy of particular suites to particular shares that the respective rights of the groups as defined could be given effect. The necessary implication is said to be that each group promised to negotiate reasonably with the other for the contemplated arrangement of the serial number of the shares.

[66] Kitto J said in a passage immediately before that already set out:

"The necessary implication is that each group promises to negotiate reasonably with the other to the contemplated arrangement of the serial number of the shares. The presence of such a subordinate and ancillary provision does not prevent the agreement as a whole from being a binding agreement."

[67] Here the parties have expressly provided that the contract for the sale of shares was conditional upon the entering into of the agreements. This in my view must be seen as largely determinative of this issue.

[68] Putting aside the express terms of the contract, the obvious aim of the parties was to bring the defendant into the practice on an equal footing with the first plaintiff.

[69] Whilst undoubtedly the primary step in achieving this was the sale of half of the shares in the first plaintiff which conducted the practice, the agreements provided for in clause 5 played a not unimportant role in my view in bringing this about.

[70] The role played by A.J. Admin Pty Ltd in the arrangements pursuant to which the two specialists provided their services and conducted the practice was to provide the necessary services to support the practice and must be regarded as significant.

[71] As will be seen from Exhibit 1(52) in the financial year ended 30 June 2006 service charges of some $1.217 million were made. In the previous year this had been some $1,169,000. The extensive expenditure involved in providing such services appears in the trading profit and loss statements.

[72] Similarly I think that the partnership agreement countenanced by clause 5(b) pursuant to which A.J. Admin Pty Ltd would continue to provide services but now in partnership with the defendant or an entity nominated by the defendant can only be regarded as a significant feature of the arrangements pursuant to which the defendant would enter the practice on an equal footing with the first plaintiff. The same remarks may be made in relation to the share agreement.

[73] I do not think it is possible to consider these agreements as simply subordinate and ancillary failure to agree upon which would not stand in the way of the agreement for the sale of the shares in the second plaintiff being enforced.

[74] In my view the agreement is incomplete in the absence of the agreements provided for in clause 5 and is thus not enforceable.

[75] The plaintiffs advanced an alternative argument in the event that the contract was held to be unenforceable.

[76] This was based upon an alleged estoppel by representation.

[77] The amended statement of claim alleged a number of representations on the part of the defendant. These are contained in paragraph 12 of the amended statement of claim.

"Further, from on or about June and August 2005 to about 8th December 2005, the defendant, represented to the plaintiff that:-

(1) The Share Sale Agreement was a valid and binding agreement and that he intended to be and was bound by it;

(2) that he intended to and would pay the purchase price to the first plaintiff calendar monthly in arrears on the first day of each month by instalments of 50% on the gross receipts generated by the defendant in the business until the purchase price had been paid in full in accordance with the terms and conditions of the Share Sale Agreement pleaded in paragraph 6(4) above;

(3) That he intended to and would complete the Share Sale Agreement in accordance with the terms and condition of the Share Sale Agreement pleaded in paragraph 6(4) above;

(4) that he intended to and would, on or before the Complete Date of the Share Sale Agreement, enters into and complete contemporaneously the contracts and agreements referred to in paragraph 6(5) above in accordance with the term and condition of the Share Sale Agreement pleaded in paragraph 6(5) above;

(5) that he intended to and would complete, sign execute and deliver all such documents, instruments and writings and do all such other acts and things as might be necessary or desirable to give full effect to the Share Sale Agreement in accordance with the term and condition of the Share Sale Agreement pleaded in paragraph 6(6) above;

(6) that he intended to and would complete negotiations and enter into the contracts and agreements referred to in clause 5 of the Share Sale Agreement on reasonable terms upon payment in full of the purchase price under the Share Sale Agreement in accordance with the term and condition of the Share Sale Agreement pleaded in paragraph 6(7) above;

(7) that he intended to and would complete provide and perform services as an Oral and Maxillofacial Surgeon as reasonably required in the business until the purchase price had been paid in full in accordance with the term and condition of the Share Sale Agreement pleaded in paragraph 6(8) above;

(8) that he intended to and would complete and do everything on his part necessary or reasonable to cooperate with the plaintiffs so as to enable completion of and each to enjoy the benefits for each under the Share Sale Agreement

(9) that he would not hinder or prevent the completion of and the enjoyment by the plaintiffs of the benefits for the plaintiffs under the Share Sale Agreement; and

(10) that he intended to and would complete act reasonable and in good faith and would not act unreasonably under and in relation to the Share Sale Agreement"

[78] Paragraph 13 of the amended statement of claim alleges a reliance upon such representations and detriment on the part of the plaintiffs:

"The plaintiffs and each of them in reliance upon the representations pleaded in paragraph 12 above and acting to their respective detriment:-**

(a) entered into the Share Sale Agreement and undertook the obligations under it;

(b) assumed that the defendant believed the Share Sale Agreement was valid and binding upon the parties to it and that the defendant would perform his obligations under it;

(c) continued to employ and procure the employment as the case may be of the defendant in the business and the True North Surgical Centre and to permit the defendant to provide services of an Oral and Maxillofacial surgeon in the True North Surgical Centre;

(d) expended moneys and caused and procured the expenditure of moneys as the case may be in the operation of and carrying on the business and the True North Surgical Centre and in the provision of facilities and staff and services of an oral and maxillofacial surgeon in the business and the centre; and

(e) assumed that the defendant would continue to provide the services of a maxillofacial surgeon in the True North Surgical Centre until the purchase price under the Share Sale Agreement had been paid in full in accordance with Clause 1 of that Share Sale Agreement

**[79] The difficulty it seems to me is that there is no evidence of either representation or reliance sufficient to support an estoppel in this case. The first plaintiff did not give any evidence of the latter.

[80] The position on my assessment of the evidence is that each of the parties proceeded upon the assumption that an agreement had been reached as something which is not surprising in view of their execution of the agreement for the sale of shares.

[81] In these circumstances I do not think it is correct to regard the defendant's conduct in acting pursuant to the contract as constituting representations of the kind alleged capable of supporting an estoppel. The same must also be said of the allegation of reliance. There is a complete absence of evidence of the reliance necessary to constitute an estoppel.

[82] Further in my view there is the difficulty that upon the argument advanced by the plaintiff the estoppel would operate to prevent the defendant from denying that a contract in terms of the agreement came into existence. The same difficulty associated with non completion it seems to me arises.

[83] It was at one time contended by the plaintiffs that the court might fix the terms of the agreements for which clause 5 provided. However as Gibbs CJ, Murphy and Wilson JJ in their joint judgment in Booker Industries v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600 at p 604 said:

"It is established by authority both ancient and modern, that the Courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future."

[84] It follows that the plaintiffs' claim must fail.

[85] The claim for damages was based upon the difference between the purchase price less the amount paid by the defendant on the one hand less the value of the retained shares on the other.

[86] There was also a claim for interest on the nett sum.

[87] Some argument was advanced by senior counsel for the defendant based upon the terms of clause 6. This was a letter sent by accountants for the plaintiffs to the first plaintiff essentially endeavouring to show the first plaintiff's position and the defendant's position under the proposed agreement for the sale of shares for $1.5 million. A similar exercise was carried out upon the basis that the purchase price would be $750,000.

[88] It was said that in arriving at the loss sustained by the plaintiffs there had to be brought into account the need for the plaintiff to bear the costs of providing the services which the defendant had hitherto borne. These moneys were applied instead towards the purchase price of the shares. In addition it was argued the discounted value of the purchase price would have to be taken into account.

[89] I am not persuaded that the arrangements as to the application of monies which had hitherto been paid to the company providing services should be taken into account for the purposes of reducing the plaintiff's loss upon the failure of the defendant to complete the contract for the sale of shares. Presumably if there was any loss in this regard it would fall upon A.J. Admin Pty Ltd and ultimately be reflected in a reduced distribution to beneficiaries or some of them.

[90] In my view the claim by the plaintiff is in accordance with the usual measure of damages for non-acceptance.

[91] It was also contended that the plaintiff's damages should be assessed after the impact of capital gains tax is taken into account.

[92] Senior counsel for the plaintiff submitted correctly in my view that any monies received by the plaintiff would be taxable in his hands. In the absence of any authority or statutory basis for the defendant's submissions I propose to assess damages on this basis.

[93] I would therefore assess the plaintiff's damages in the sum of $795,268 allowing interest on the amount claimed.

[94] There will be judgment for the defendant against the plaintiffs with costs to be assessed.**