Dib & Anor v Taylor & Ors

Supreme Court of NSW|2008-05-21|Before: Jagot AJ

CITATION : Dib & Anor v Taylor & Ors [2008] NSWSC 493

CATCHWORDS : CONTRACT - separate questions - compromise of litigation - whether parties settled their respective claims - whether parties intended to be immediately bound - whether "proposal" constituted an offer capable of acceptance - whether agreement "in principle" constituted acceptance - no intention to be immediately bound

Civil Procedure Act 2005 LEGISLATION CITED : Corporations Act 2001 Uniform Civil Procedure Rules 2005

Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 Branir v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424 Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 CASES CITED : Donaldson Coal Pty Ltd v Pacific National (NSW) Pty Ltd [2007] NSWSC 1446 Masters v Cameron (1954) 91 CLR 353 Michael Davies Associates Pty Limited v Auburn Council [2007] NSWSC 877 P M Sulcs v Daihatsu Australia [2001] NSWSC 636 Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165

PARTIES : FIRST DEFENDANT Barry Taylor

SECOND DEFENDANT AHJ Group Pty Limited (in liquidation)

Mr V R W Gray - plaintiffs COUNSEL : Mr Michael S Henry - second defendant Mr D R Pritchard SC - third defendant

Corporate & Civil Legal - plaintiffs SOLICITORS : Turkslegal - second defendant Watson Mangioni - third defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3399 of 2006 MOHAMED DIB & ANOR v BARRY TAYLOR & ORS JUDGMENT 1 HER HONOUR: By notice of motion filed on the first day of the hearing the plaintiffs (Mohamed and Sanaa Dib) sought orders under s 477(2A) of the Corporations Act 2001 approving a compromise of the plaintiffs' claims against the second defendant (AHJ Group Pty Limited (in liquidation)) (AHJ Group) and AHJ Group's (and its liquidator's) cross-claims against the plaintiffs, and consequential orders based on that agreement. AHJ Group and the third defendant (Salah Dib) contend that there was no binding compromise of the claims, with the consequence that the issue in the proceedings remains who is entitled to money paid into Court and in what amounts.

2 The plaintiffs' notice of motion assumed that there had been such a binding compromise, being a matter disputed by the defendants. Accordingly, and with the agreement of the parties, I ordered that there should be a separate determination of the following questions in advance of all other questions in the proceedings (s 73 of the Civil Procedure Act 2005 and Pt 28.2 of the Uniform Civil Procedure Rules 2005): 1. Did the plaintiffs/cross defendants (the "plaintiffs") enter into a binding compromise of all claims in the proceedings by or against the plaintiffs against or by the second defendant/cross claimants in terms of the letter dated 7 May 2008 from Ferrier Green Krejci Silvia to the plaintiffs, noting that the determination, amongst other things, of issues of whether, what would otherwise have been a binding compromise, was void or unenforceable by reason of: (a) uncertainty; or (b) absence of authority?

If there was a binding compromise, would the Court enforce that compromise?

The Court notes the agreement of the parties that the evidence on this application is, sufficient to reference, to be evidence in any subsequent section 477 application which may be made in respect of the alleged compromise the subject of today's applications.

3 If the separate questions were determined against the plaintiffs, the defendants wished the hearing of the substantive issues to proceed on the dates allocated (if possible). If the separate questions were determined against the defendants, the third defendant wished to adjourn the proceedings to enable evidence to be prepared with respect to the issue of approval of the compromise under s 477(2A) of the Corporations Act.

4 The first defendant (Barry Taylor), as receiver appointed to AHJ Group, paid into Court the sum of $886,746.66 in August 2006. The proceedings against the first defendant were dismissed on 24 July 2006. Pursuant to an order of the Court on 10 November 2006, $221,000 was paid out to AHJ Group.

5 By a statement of claim filed on 18 August 2006 the plaintiffs sought various orders that have been overtaken by events other than in one respect (an order that the money paid into Court be paid out to the plaintiffs and the third defendant in designated proportions).

6 By an amended cross-claim filed on 25 September 2007 AHJ Group sought judgment against each of the plaintiffs for $610,447.37 under s 588FF(1) of the Corporations Act in respect of an unreasonable director-related transaction (s 588FDA), and payment to AHJ Group of so much of the funds remaining in Court as the Court determines.

7 The binding compromise alleged by the plaintiffs involves numerous disputed conversations and other (undisputed) communications as recorded below.

8 Bobi Damcevski, the solicitor for the plaintiffs, said that the parties had participated in a Court-conducted mediation on 18 April 2008. At about 5.00pm on that day he received a telephone call from Scott Howell. Mr Howell is a partner of the liquidator of AHJ Group. According to Mr Damcevski they had a conversation as follows: Damcevski : This is an "off the record" conversation.

Howell : There is no reason why the liquidator cannot settle with Mohamed Dib without Saleh Dib. My advice is that I can. I will propose something that I believe is proper and fair having regard to the proofs of debt and the circumstances of the matter. The liquidator is concerned that the only people making money out of this are the lawyers and the liquidator.

Damcevski : You should do this quickly as we are all on a court-imposed timetable.

Howell : Don't incur further legal expenses as I intend not to as well.

9 Mr Howell said that, in fact, the Court conducted mediation was on 28 March 2008. The conversation occurred between that date and 28 April 2008. Mr Howell denied that he told Mr Damcevski not to incur further legal expenses as he intended not to as well. Mr Howell recollects the conversation as follows: Howell : There is a possibility that the liquidator can negotiate a settlement with your client without needing the consent of Salah Dib. I have received advice that this is possible though it has problems. I will see if I can formulate something that is proper and fair having regard to the proofs of debt and the circumstances of the matter. If this drags on all the funds will end up being spent on the lawyers and the liquidator's fees. We need to see if we can find a settlement.

Damcevski: You should do this quickly as we are all on a court-imposed timetable.

10 Mr Damcevski telephoned Mr Howell on 30 April 2008. Mr Howell told him that a settlement proposal was on its way.

11 On 6 May 2008 Mr Damcevski telephoned Mr Turk, the solicitor for AHJ Group. Mr Turk sent Mr Damcevski an email saying that his client would be sending a without prejudice proposal that day.

12 Mr Damcevski telephoned Mr Howell on 6 May 2008. According to Mr Damcevski they had a conversation as follows: Howell : The proposal is on its way to you. I have been waiting on confirmation from the court as to how much interest has accrued on the moneys in court.

Damcevski : I have not been preparing for the hearing because in principle, Mr Mohamed Dib wants to settle the case having regard to what had been discussed on 28 April and he is waiting for your proposal.

Howell : Don't worry. I have not instructed our barrister anyway.

Damcevski : I'm getting all these letters from Mr Turk.

13 Mr Howell denies that Mr Damcevski said that he had not been preparing for the "hearing because in principle, Mr Mohamed Dib wants to settle the case having regard to what had been discussed on 28 April and he is waiting for your proposal" and that Mr Howell said "Don't worry. I have not instructed our barrister anyway". According to Mr Howell the conversation was as follows:

Howell : The proposal is on its way to you. I was held up trying to get a more accurate calculation of interest. Daniel Turk tells me we cannot get a precise figure for interest from the Court. They could only give accurate figures up to December 2007 and so I have had to make some estimates. You will see this in my spreadsheet.

Damcevski: It is getting close to the hearing date and I don't want to incur any unnecessary costs if a settlement can be reached. My client is keen to settle if possible.

Howell: I also have no desire to incur any unnecessary costs. Review the proposal and get back to me with your comments. I believe our barrister has yet to prepare, but he will begin doing so shortly.

Howell : I don't know what letters you are talking about and therefore can't comment on them. I will talk to Daniel and ask him what they are about.

14 Mr Howell annexed a file note of this conversation that said "Advised proposal just about finalised. Still waiting interest calculation. BD keen to settle. Both of us expressed concern about mounting legal costs."

15 On 6 May 2008 Mr Turk, AJH Group's solicitor, sent Mr Damcevski's firm a facsimile referring to the hearing and the meeting attended by Mr Gray of counsel and Mr Damcevski's clients. The facsimile said that Mr Gray had confirmed that the plaintiffs admitted the amended cross-claim and requested confirmation. The facsimile said that based on that admission the second defendant would proceed to hearing on the basis that the amended cross-claim was admitted, but if Mr Damcevski's instructions had changed he should so advise by noon on 7 May 2008. The facsimile concluded that if Mr Turk did not hear in that regard he would rely on the facsimile with respect to costs if Mr Damcevski's clients no longer admitted the amended cross-claim.

16 On 7 May 2008 Mr Damcevski received a letter from Martin Green (the liquidator) marked "without prejudice" and addressed to the plaintiffs, and copied to Mr Damcevski. This letter said: I refer to my appointment as Official Liquidator on 24 October 2005 and to the meeting held on 28 April 2008 attended by Ventry Gray, Daniel Turk, Mohamad Dib, his son and Scott Howell.

A proposal was put to you at the meeting concerning possible settlement of the Supreme Court proceedings 3399 of 2006. Mr Gray asked that I detail the proposal in writing so that you can make an informed decision regarding same.

Attached is an updated spreadsheet providing the estimated return to the parties under our proposal. Our proposal is to the effect that sufficient funds be paid to the Official Liquidator out of funds in Court so that he can proceed to pay all creditors claims (after payment of his fees and costs).

I wish to make the following points: 1. I advised Mr Gray that all Proofs of Debts submitted by Salah, Mohamad and Sanaa Dib had now been adjudicated upon and all Notices of Rejection served on the relevant parties. All parties can make an application to the court to appeal the Liquidator's adjudication, but to date I have received no notification that such an application has been made by any party. 2. Mr Gray advised that you do not dispute the fact that $610,447.37 will need to be repaid by you or deducted from whatever value the Court ultimately determines your part of the property is worth.

It is the advice of my lawyers that our proposal, if accepted, would need to be ratified by the Court. The proposal is therefore subject to Court approval. The Court is more likely to ratify a settlement whereby no creditor is prejudiced by the settlement. In other words all creditors' claims are paid in full.

Mr Salah Dib has express (sic) dissatisfaction in relation to my adjudication of his claim. It is possible that he may wish to challenge both my adjudication of his claim and any settlement you and I may wish to enter into.

I urge you to seriously consider this proposal as it is likely even if you are successful in court you will end up with less than what is being offered under this proposal (particularly after taking into consideration the legal costs of running the hearing).

Should you require any more information or would like to discuss this matter, please contact Scott Howell of this office on ###.

17 The letter attached a spreadsheet headed "without prejudice for purposes of settlement discussion only". The spreadsheet contained calculations leading to various estimated balances and distributions from the money paid into Court.

18 On the same day, 7 May 2008, Mr Turk sent Mr Damcevski a copy of his facsimile to the Court advising that the second defendant would rely on two affidavits (Martin Green and Salah Dib) and required two people for cross-examination (AP Looby and Mohamed Dib). Mr Turk also sent Mr Damcevski an email asking about the tender bundle and the documents the plaintiffs wanted included.

19 The solicitors for the third defendant also sent Mr Damcevski a facsimile on 7 May 2008. This facsimile noted that the proceedings did not involve any direct claim against the third defendant, advised that they would object to any further amended statement of claim, and sought confirmation as to whether order 1 in the statement of claim (leave to bring proceedings in the name of the company) was pressed and, if so, the evidence on which the plaintiffs relied in that regard.

20 Mr Damcevski conferred with Mohamed Dib on 8 May 2008. He spoke to him again on 12 May 2008. Mr Damcevski then called Mr Howell. Mr Damcevski said they had a conversation as follows: Damcevski : I'm just calling to have an "off the record" conversation to tell you what is happening. My clients accept your proposal. If the court does not approve the settlement then our clients will be put back in their pre-proposal positions.

Howell : Of course. If that happens, all bets are off.

Damcevski : Our counsel is preparing terms in accordance with what was discussed on 28 April incorporating the settlement figure in the proposal you sent me on 7 May.

Damcevski : I will. I have not prepared for this hearing and Mr Turk is still sending me letters about the hearing.

21 Mr Howell denied that Mr Damcevski said "My clients accept your proposal", the words "incorporating the settlement figure in the proposal you sent me on 7 May", and "we still have an agreement" and that Mr Howell replied to the latter "yes". According to Mr Howell the conversation was as follows: Damcevski : I'm just calling to have an "off the record" conversation. My client agrees in principle with your proposal. I have a concern that in the event the court does not approve the settlement, that our respective clients will not be prejudiced and that everybody can revert back to their pre-proposal positions.

Howell : Of course. Any agreed settlement is predicated on approval by the court. No court approval, no deal and we push on with the hearing.

Howell : Send it as soon as you can as the hearing date is fast approaching. Please send it to Daniel as he will need to review it for me.

Damcevski : I will. I have not prepared for this hearing and Daniel is sending me letters about the hearing.

Howell : I don't know about the letters he is sending you.

22 Mr Howell made a file note of this conversation saying "BD has advised his has agreed in principle to proposal. Had concern about if court doesn't approve. He advised Ventry will be preparing terms. Told him to send ASAP to Daniel as hearing is fast approaching."

23 Mr Damcevski wrote to the solicitor for the AHJ Group on 12 May 2008 (about two to three hours after the conversation with Mr Howell). The letter was marked "without prejudice save as to costs". The letter said: We refer you to this matter.

Our client in principal (sic) has a desire to settle these proceedings based on the Liquidators (sic) proposal dated 7 May 2008.

We enclose draft Terms of Settlement for your attention.

24 This letter was copied to Mr Howell by facsimile. The letter annexed draft terms of settlement as between the plaintiffs and AHJ Group. These draft unsigned terms, dated 12 May 2008, were as follows: Subject to any order of the Court under section 447 of the Corporations Act 2001 the Plaintiffs and the Second Defendant agree to compromise and settle all their claims against each other on the following terms: 1. The Court order that the moneys presently in Court are divisible between the Plaintiffs and the Second Defendant in the following proportions, namely: (a) To the Plaintiffs the sum of $873,682.37

Judgment for the Second Defendant against the Plaintiffs on the cross claim in the sum of $610,447.37.

Order that the Second Defendant pay to the Plaintiffs the sum of $263,235.00

The Plaintiffs accept the said sum of $263,235.00 in full satisfaction of all rights claims and causes of action held by the Plaintiffs against the Second Defendant or its liquidator.

All other claims between the Plaintiffs or either of them on the one side and the Second Defendant or its liquidator on the other side whether the subject of these proceedings or not and whether presently known or unknown (including specifically any claim by the Plaintiffs or either of them to lodge with the liquidator any amended proof of debt or to appeal to the Court against any rejection of the whole or any part of any proof of debt heretofore lodged) are hereby irrevocably extinguished and these terms of settlement shall constitute a complete and insuperable and immovable bar to any such claim.

The Plaintiffs and the Second Defendant each hereby agree to abandon and surrender any order for costs heretofore made in these proceedings in favour of either against the other and will ask the Court to vacate any orders heretofore made in favour of either against the other and to make no order for costs as between them in these proceedings.

In the event that the Court does not approve these terms or makes any order the effect of which is to prevent the Second Defendant from performing or to prevent the liquidator of the Second Defendant from performing or causing the Second Defendant to perform every obligation to be performed by the Second Defendant hereunder then all these terms shall become absolutely null and void and the parties shall thereby be automatically restored to their respective positions quo ante as if these terms of settlement had never been entered into.

25 The following day, 13 May 2008, Mr Damcevski called Mr Howell to say he was concerned that nobody had contacted him. According to Mr Damcevski Mr Howell said he would call Mr Turk. He did so and then called Mr Damcevski to advise that Mr Turk was in a meeting and Mr Howell would call him later. Mr Damcevski gave Mr Howell his mobile number.

26 Mr Howell disagreed with this version of the conversation. He recollected the conversation being to this effect: Damcevski : What is going on, nobody has contacted me?

Howell : I cannot make any comment until I have spoken to Daniel. I will call him to discuss our position and get back to you.

Damcevski : I am concerned as I haven't prepared for the hearing.

Howell : I can't tell you where we are at with the proposal until I have spoken with Daniel. You have got to assume the hearing is proceeding until we agree. Daniel has been having discussions with Salah Dib's solicitor about funding the litigation and I don't now where he is at in regard to those discussions. I don't know if what you have put to us can be accepted. I am guided by the advice of my solicitor.

27 Mr Howell said he had a subsequent conversation with Mr Damcevski on 13 May 2008 as follows: Howell : Daniel Turk is in a partner's meeting. He understands the urgency of this matter and intends to contact me after the meeting is finished. I can't tell you what our position is until he speaks to me.

Damcevski : Call me anytime. I will be working late. My mobile phone number is (and he dictated it to me).

28 Mr Turk sent Mr Damcevski a facsimile in reply on 13 May 2008 saying: I refer to your client's letter of offer dated 12 May 2008.

My client is currently considering the offer and will revert to you shortly.

29 The next day Mr Damcevski called Mr Howell three times and left messages asking that Mr Howell call.

30 Also on 14 May 2008 Mr Damcevski received three facsimiles from Mr Turk. One letter said: I refer to your letter of offer dated 12 May 2008. I advised (sic) that my client does not accept the proposal set out in your letter.

31 The other said that Mr Turk had not heard from Mr Damcevski about the tender bundle in accordance with his email of 7 May 2008 and requested a response by 5.00pm that day.

32 The third notified Mr Damcevski that Mr Looby and Mr Mohamed Dib were required for cross-examination.

33 Mr Damcevski called Mr Howell twice on 14 May 2008 asking that he call. He also called Mr Turk. According to Mr Damcevski, they had a conversation as follows: Damcevski : You cannot be rejecting our proposal because it was your proposal and we accepted it.

Turk : There is no offer and acceptance. I do not think the court will approve the settlement anyway because Saleh Dib will object and he actually paid the liquidator money to run the case.

Turk : This is what Saleh Dib's solicitor has written to me. [He then read out what he said was part of a letter asserting that Saleh Dib was entitled to all the money in the liquidation]

Damcevski : This leaves me in a very serious situation as I have not prepared for the hearing.

Damcevski : This is unfair as Scott Howell led me to believe we had a deal and I should not worry about your letters.

Damcevski : Scott Howell contacted me directly weeks ago. I am not sure how he got my mobile number. Probably Brian Silvia gave it to him.

34 Mr Turk denies saying the words "That is a risk of litigation". Mr Turk recollected the conversation as follows: Damcevski : I am shocked as I thought we had a deal.

Turk : There is no agreement Bobi. There is no offer and acceptance. For example in your letter of 12 May 2008 you are proposing that a judgment be entered against my client for over $873,000 and also a payment to your clients of $263,000. After taking into account your proposal as to my client's cross claim then your clients will get a net result of over $400,000. This is materially different to what my client was proposing.

Damcevski : I cannot believe this. I had stopped work on the case. Scott Howell told me not to rack up any more legals so I stopped preparing.

Turk : That was silly of you to stop work. Why are you talking direct to my client anyway? You shouldn't have stopped preparing the case when negotiations were on foot. What were you thinking when you got my letters as to witnesses etc.

Damcevski : Scott Howell called me. I was just told to stop work so I did. We cannot run the case next week. We haven't even paid for our expert, Mr Looby. We owe him $5,000. His report you have is only draft. I didn't know Ventry Gray even gave it to you.

Turk : Salah Dib is funding the liquidator to run the case. Salah does not agree to your client's proposal and would oppose any application for Court approval of it. Salah has proposed a compromise settlement which I will read to you. In circumstances where a major credit and shareholder of AHJ does not agree to the compromise settlement and is funding the liquidator's case it is highly unlikely a Court will approve your settlement proposal as it affects Salah's possible surplus as a shareholder of AHJ Group.

35 Mr Turk annexed his file note of this conversation. The file note says "No deal - he upset. He not ready for hearing - Scott Howell told him not to …Blames Scott. Looby only draft report. Didn't know Ventry sent it."

37 Mr Howell called him back after another attempted call on 15 May 2008. Mr Damcevski said they had a conversation as follows:

Howell : This is "off the record". I feel bad and I'm sorry.

Howell : My legal advice is to pull the proposal because Saleh Dib has paid the liquidator money to fight this case. The proposal to Mohamed Dib would prejudice Saleh Dib.

Damcevski : 48 hours ago you urged me to persuade my client to settle. I did that. 24 hours later Saleh Dib pays you money to fight the case and now the proposal is prejudicial. That cannot be right. Your barrister should talk to mine.

Howell : You might be right. I'm meeting my barrister in the morning and I'll get him to call your barrister.

Damcevski : We are still happy to go to court on Monday with the proposal and have the judge determine it. If the judge says "no" then so be it.

38 Mr Howell disagreed with this version of the conversation and said it was as follows: Howell : This is a "without prejudice" conversation. I am sorry that we could not proceed with the proposal.

Damcevski : This leaves me in a serious situation as I have not prepared for the hearing.

Howell : You knew we were burning the candle at both ends as it were. Until I had an agreement, I had to try to seek an arrangement with both you and Salah Dib. I have followed the advice of my solicitor.

Damcevski : We are still happy to go to court on Monday with the proposal and have the judge determine it. If the judge says "no" then so be it. Your barrister should talk to mine.

Howell : I am having a meeting with my barrister tomorrow morning. Once I have been appraised of where we are at with our case then I will ask him to ring your barrister and see what can be done.

39 Mr Damcevski, Mr Howell, and Mr Turk were each cross-examined about their recollections of the conversations to which they deposed and related matters. Insofar as relevant to the principal issue (whether there was a binding compromise), there was no material change to their evidence. Mr Damcevski confirmed that his conversation with Mr Howell on 12 May 2008 occurred two to three hours before he sent the letter of that date as he was awaiting the terms from counsel. Mr Damcevski agreed that he had used the words "in principle" on 6 May 2008 when talking to Mr Howell and said he used those words frequently in connection with this matter, but did not believe he did so in the conversation on 12 May 2008. Mr Howell accepted that he had many files and made or received lots of communications. It was fair to say that sometimes he could not recall what had been said with respect to which administration. However, he was clear that his recollections of conversations were as set out in his affidavit. Mr Turk said he had perused a draft of the letter of 7 May 2008 before it was sent but had not checked the provisions of the letter as sent against his recommendations. He agreed that the liquidator would not have sought the Court's approval other than with respect to an agreed position.

40 It is not necessary to resolve each and every discrepancy between the witnesses about the conversations. The material discrepancies relate to whether: - (i) Mr Damcevski told Mr Howell on 12 May 2008 that "my clients accept your proposal", (ii) Mr Damcevski, in the same conversation on 12 May 2008, asked Mr Howell "We still have an agreement?" to which Mr Howell answered "Yes", and (iii) Mr Howell told Mr Damcevski to stop incurring legal expenses at any time.

41 Resolution of these issues does not turn on the credit of any of the witnesses. The matters are to be resolved having regard to the whole of the evidence including the circumstances, content and purpose of the disputed conversations and other evidence (such as file notes and the like).

42 I do not accept that Mr Damcevski told Mr Howell on 12 May 2008 "my clients accept your proposal". First, the conversation occurred two to three hours before Mr Damcevski received the draft terms from counsel and forwarded his letter attaching those draft terms. Secondly, the letter itself did not say that the plaintiffs accepted the proposal or refer to an earlier telephone conversation to that effect. Thirdly, the letter uses the same words as Mr Howell said Mr Damcevski used in the conversation (namely, that the plaintiffs agree in principle with the proposal). Fourthly, Mr Howell (but not apparently Mr Damcevski) made a file note of the conversation on the day it occurred. Mr Howell's file note also uses the words "agreed in principle to proposal". Fifthly, if Mr Damcevski's communication was intended to communicate a binding oral acceptance of a written offer then, in the ordinary course, some contemporaneous record of that important event would be expected. Mr Damcevski did not indicate that he had made any such record. Sixthly, Mr Damcevski acknowledged that he used the words "in principle" frequently to describe the plaintiffs' position in this matter but did not believe he did so on 12 May 2008. However, Mr Damcevski's recollections of telephone conversations in cross-examination were more vague and unclear than those of Mr Howell (and Mr Turk). Taken together these facts overwhelmingly support Mr Howell's version of the conversation on 12 May 2008.

43 I do not accept that Mr Damcevski, in the same conversation on 12 May 2008, asked Mr Howell "We still have an agreement?" to which Mr Howell answered "Yes". First, the question and answer makes some, but not compelling, sense in the context of the conversation as alleged by Mr Damcevski. If Mr Damcevski had said his clients accepted the proposal then the fact of Mr Turk sending letters would not seem to warrant the question. Secondly, and more importantly, Mr Howell's file note makes no reference to any such agreement. It is difficult to accept that such an important issue, had it been raised, would have been omitted by Mr Howell despite the abbreviated nature of his file note. Thirdly, Mr Howell denied any such part of the conversation. Fourthly, I have accepted above Mr Howell's version of the opening parts of the conversation. In that context, the closing part alleged by Mr Damcevski makes no real sense. In particular, Mr Howell had referred earlier to "any agreed settlement" requiring Court approval. The material issue is not Court approval but the reference to "any agreed settlement". Those words clearly communicate that there had not been reached an "agreed settlement" at that point by reason of Mr Damcevski having communicated the plaintiffs' in principle agreement. Finally, Mr Damcevski (as noted) apparently made no file note of a conversation in which he is said to have unequivocally communicated acceptance of the proposal of 7 May 2008 and an agreement having been reached. That too seems improbable.

44 I do not accept that Mr Howell told Mr Damcevski to stop incurring legal expenses at any time. I have no doubt that, quite properly, Mr Howell was concerned that, as each day went by, the legal and liquidator's costs were increasing without the parties necessarily obtaining any benefit. He was keen to see if a resolution could be worked out and wanted that to happen sooner rather than later to avoid further costs. However, Mr Howell was not a solicitor (as Mr Damcevski knew). Mr Howell was not responsible for the conduct of the Court proceedings. The fact that, on 12 May 2008, Mr Howell told Mr Damcevski to send the draft terms to Mr Turk is consistent with this fact. In all of these circumstances it is improbable that Mr Howell would have purported to advise Mr Damcevski, a solicitor, on how to prepare (or not prepare) for a hearing subject to Court directions.

45 As noted, I do not consider it necessary to resolve each and every disputed conversation. However, it is apparent that both Mr Howell and Mr Turk had made file notes of certain critical disputed conversations with them. Moreover, as Mr Turk's affidavit discloses there was correspondence between solicitors generally referred to in, but not annexed to, Mr Damcevski's affidavit that sets the context for a number of the discussions (for example, the letter of 13 May 2008 saying the offer was being considered). That letter of 13 May 2008 did not, for example, prompt an immediate letter in response to Mr Turk that, to the contrary, there was already a binding agreement by reason of his acceptance of the proposal of 7 May 2008 orally and in writing on 12 May 2008. These circumstances are consistent with the versions of the subsequent conversations on 13, 14 and 15 May given by Mr Howell and Mr Turk rather than Mr Damcevski. For these reasons, and if it is necessary to say so, where conversations are in dispute I accept the versions as recollected by Mr Howell and Mr Turk as an accurate reflection of what was said.

46 The plaintiffs submitted that: (1) The parties undoubtedly arrived at a consensus. The oral acceptance on 12 May 2008 was unqualified and unconditional.

(2) The consensus related to money claims by the plaintiffs against AHJ Group and the liquidator against the plaintiffs and was thus clearly capable of founding a binding contract, in this case for compromise of all the claims between those parties.

(3) The context of the offer of 7 May 2008 was ongoing discussions relating to proceedings fixed for hearing on 19 May 2008, a likely substantial expenditure on litigation, and a relatively modest pool of available assets.

(4) In this context, the time for further negotiations had passed; it was time for an agreement or not.

(5) The letter of 7 May 2008 was a refinement of the liquidator's proposal at the meeting on 28 April 2008, being a precise offer the plaintiffs could either reject or accept.

(6) Objectively ascertained, the liquidator's intention was to put before the plaintiffs an alternative to litigation capable of acceptance or rejection by them and the plaintiffs' intention was to accept that alternative. Any other intention would be irrational in the extreme. This is supported by the fact that Mr Turk, the solicitor, considered a draft of the letter before it was sent.

(7) The terms of the communication of 7 May 2008 support this approach. It is headed "without prejudice" indicating that, otherwise, it would have legal consequences. The word "proposal" is synonymous with "offer" (see, for example, Michael Davies Associates Pty Limited v Auburn Council [2007] NSWSC 877 and P M Sulcs v Daihatsu Australia [2001] NSWSC 636). The letter invited an "informed decision". It dealt with estimated returns to the parties thus involving binding legal arrangements allowing a distribution by the liquidator. It referred to the proposal being "accepted" in the penultimate paragraph on the first page. The proposal is subject to Court approval as a condition subsequent. Moreover, the only thing that can be approved is a binding compromise. It urged the plaintiffs to "seriously consider" the proposal. Serious consideration can only mean acceptance or rejection in this context.

(8) The words "without prejudice save as to costs" in the letter of 12 May 2008 have no significance ( Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93).

(9) The expression "in principle" has to be seen in context ( Donaldson Coal Pty Ltd v Pacific National (NSW) Pty Ltd [2007] NSWSC 1446 at [89]ff).

(10) The word "desire" in the letter of 12 May 2008 is polite verbiage. The letter of 12 May 2008 constituted an acceptance. Annexing the draft terms of settlement confirmed acceptance. Terms can be drafted in many ways to reflect an underlying agreement. Terms were not required in this case. The fact they were prepared in one form does not undermine the agreement earlier reached.

(11) Insofar as it might be necessary to rely on this principle, the liquidator (as an officer of the Court) is required to behave honourably.

47 The defendants essentially submitted that the case fell into the third class in Masters v Cameron (1954) 91 CLR 353 at 361, namely (excluding footnotes): Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v. Petch . The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summer-greene v. Parker or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v. Miller . Lord O'Hagan said: "Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made".

48 There was no disagreement between the parties as to the principles relevant to resolution of the separate question relating to the existence of a contract. The principles have been conveniently summarised by both Brereton J in Cacace v Bayside Operations Pty Ltd [2006] NSWSC 572 at [7] to [11] (a case the plaintiffs distinguished insofar as it also dealt with an "in principle" agreement at [18]) and Bergin J in Donaldson at [84] to [91].

49 In summary: (1) The question is one of intention, objectively determined. In other words, what would a reasonable person understand the terms to have meant having regard to the text, surrounding circumstances known to the parties, and the purpose and object of the transaction ( Donaldson at [84] citing Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40]). Or, as posited by Mahoney JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 326, "In considering this question, in a context such as the present, it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?" (2) Written documents will "often be the starting point" but regard must be had to the factual context and any oral basis for the documents ( Cacace at [9] citing Branir v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424 at [272] - [293]).

(3) Masters v Cameron identified three classes of contract of relevance ((i) parties reach finality, intend to be immediately bound, and propose restatement of terms in a fuller or more precise form but not different in effect, (ii) parties have completely agreed all terms but performance of one or more terms is conditional on execution of a formal document, or (iii) parties did not intend to make a concluded bargain at all). To this must be added the fourth class identified in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 (parties intended to be bound immediately and exclusively by agreed terms while expecting to make a further contract in substitution containing, by concept, additional terms).

(4) Conduct of parties after the supposed agreement is relevant ( Cacace at [11] citing Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at [25]. Also, to the same effect, Donaldson at [91]).

50 Bergin J in Donaldson also reviewed decisions dealing with the significance, if any, of the words "in principle" at [86] to [91] concluding, at [91], as follows: It is inappropriate to construe the words "'in principle' agreement" without placing them in the context in which they appear and the commercial setting in which the parties were operating. It is also necessary to analyse the nature of the transaction in which the parties had reached such an agreement. Much will depend upon the individual circumstances of each case as to whether those words demonstrate that the parties had or had not reached a consensus on the essential terms of their bargain and whether they intended to be immediately bound by them.

52 First, the letter of 7 May 2008. I do not accept the plaintiffs' submission that this letter was in terms capable of acceptance so as to give rise to a binding contract. Looked at as a whole, both in terms of its text and the surrounding context, it was (as the third defendant put it) an invitation to treat. The factors relied on by the plaintiffs are insufficient to overcome the true import of the letter as a whole. The background is the meeting on 28 April 2008 in which, according to the letter, Mr Howell put a proposal "concerning possible settlement" of the proceedings. Mr Gray of counsel had requested that Mr Howell detail the proposal in writing so that the plaintiffs could make an "informed decision about the same". The letter is from the liquidator to the plaintiffs directly in the context of Court proceedings where both parties were legally represented. It attached an updated spreadsheet (that is, updated from that available at the meeting on 28 April 2008) "providing the estimated return to the parties under" the proposal. Although the penultimate paragraph on page 1 refers to the proposal "if accepted" requiring Court approval, it is immediately followed by a paragraph referring to the fact that Salah Dib may wish to challenge "any settlement you and I may wish to enter into". The letter urged the plaintiffs to "seriously consider" the proposal and ended with Mr Howell's contact details should the plaintiffs "require any more information or…like to discuss this matter". The attached spreadsheet is headed "without prejudice for purposes of settlement discussion only".

53 Read as a whole, in the context of the earlier discussions apparently held (about which the plaintiffs called no evidence) and the impending hearing, the letter of 7 May 2008 is an invitation to the plaintiffs to give serious consideration to a proposal for settlement. It is not an offer capable of an immediate and binding acceptance. This emerges from (amongst other things) the proposal being "to the effect" set out in the second paragraph of the letter, the letter's contemplation that settlement would be "any settlement you and I may wish to enter into", and the spreadsheet being for discussion purposes only.

54 This conclusion is supported by the AHJ Group's submission, which I also accept, that the two spreadsheets attached, in fact, contain two alternative hypotheses. The common elements are payment of all creditors and satisfaction of the AHJ Group's claim for $610,447.37 (that is, the cross-claim). Otherwise the procedures and results of the two spreadsheets are different (under the first, the plaintiffs would set off their distribution against the $610,447.37 and under the second that issue is left for resolution in accordance with the first page of the letter). The plaintiffs' submission that, to the contrary, the proposal involved a simple offer to resolve all claims in exchange for payment of a sum of money (with all the rest being mere machinery) cannot be sustained in the face of the terms of the document read as a whole.

55 Secondly, and irrespective of the status of the letter of 7 May 2008, the plaintiffs did not on 12 May 2008 accept the proposal so as to create a binding contract. For the reasons given above I am satisfied that Mr Damcevski, in his oral communication, said words generally to the same effect as his later written communication (namely, that the plaintiffs agreed to the proposal in principle and would be sending terms). The text and circumstances of these communications do not support the plaintiffs' submission that this constituted an unequivocal acceptance of an offer as set out in the letter of 7 May 2008, with the terms being a mere formality recording the concluded agreement. In context, Mr Damcevski's communication of the plaintiffs agreeing in principle to the proposal with terms to be sent (in the telephone conversation in the morning) or attached (to the letter sent two to three hours later) did not manifest an intention to accept an offer so as to constitute a binding contract. Consistent with the outcome in Cacace at [18] Mr Damcevski's words communicated that there was a general consensus about the way forward but not yet a final binding agreement. I do not accept the plaintiffs' submission that the fact that Mr Damcevski was speaking to Mr Howell, as opposed to the solicitor, makes the observations in Cacace wholly inapplicable. If anything, a solicitor would be more (not less) careful in dealing with a non-solicitor to ensure they could not be understood as communicating an intention to be immediately bound. This too reinforces Mr Howell's version of the conversation on 12 May 2008, particularly when compared to the highly circumspect words Mr Damcevski chose to use in his letter to Mr Turk later on the same day (namely, "our client in principal (sic) has a desire to settle these proceedings based on the Liquidators (sic) proposal dated 7 May 2008").

56 This conclusion is also supported to some extent by the fact that the letter of 12 May 2008 is marked "without prejudice save as to costs". That suggests the consensus had not yet reached the stage of a binding contract. Similarly, the reference in the letter to the plaintiffs' in principle intentions being a "desire to settle these proceedings" points to the lack of an intention to be immediately bound. As AHJ Group submitted, this was a highly qualified expression of position intended to ensure that the plaintiffs were not bound as at 12 May 2008 but free to further negotiate towards a resolution along the lines of (but not necessarily in accordance with) the suggestions in the letter of 7 May 2008.

57 The fact that the hearing was close does not indicate to the contrary. Rather, it confirms (as the parties were aware) that their negotiations were urgent. This is consistent with the text and tone of the final sentence of Mr Damcevski's letter "We await your reply". It is consistent with Mr Turk's letter of 13 May 2008 to the effect that the offer in the letter of 12 May 2008 was being considered and that Mr Turk would "revert shortly". It is also consistent with Mr Damcevski's conduct in chasing up that reply on 13 May 2008.

58 Further, and contrary to the plaintiffs' approach, the lack of any reference in the letter or discussions to a deed of settlement, deed of release or the like, in the overall circumstances, does not evidence an intention on the part of the parties to be immediately bound. It discloses that the negotiations had not yet reached that stage.

59 Finally, the plaintiffs' reliance on Mr Howell having accepted that he could implement the proposal in the letter of 7 May 2008 does not fully reflect his evidence. Mr Howell qualified his response with words to the effect that the proposal could be implemented if everyone else left the liquidator alone. In any event, Mr Howell's evidence cannot affect the highly qualified expression of a future intention to settle communicated by Mr Damcevski in his oral and written communications on 12 May 2008 (in contrast to an intention to be immediately bound).

60 All of these matters point to a position consistent with the text of the communications of 7 and 12 May 2008, namely, that negotiations were continuing at that time.

61 In these circumstances it is not necessary that I deal with AHJ Group's detailed submissions abut the serious disconformity between the letter of 7 May 2008 and the draft terms. It is sufficient to observe only that the plaintiff's submission that the terms were mere post-contractual machinery (and a draft at that) to bring into effect that which had already been finally agreed cannot be reconciled with all of the objective circumstances surrounding, or the terms of, the communications referred to above. It is also not necessary to determine the issues of uncertainty and authority.

62 The separate questions are answered as follows: (1) No. (2) Does not arise.

63 The parties may address on the consequences for the plaintiffs' notice of motion filed in Court on 19 May 2008.

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Cases Cited (11)