Forrest v Appleyard & 2 ors

Amalgamated Investment & Property Co Limited v Texas Commerce International Bank Limited (in liq) [1982] QB 84 Biotechnology Australia Pty Limited v Pace (1988) 15 NSWLR 130 Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 CASES CITED : Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 Kardos v Sarbutt [2006] NSWCA 11 MK & JA Roche Pty Limited v Metro Edgley Pty Limited [2005] NSWCA 39 Scammell (G) & Nephew Limited v Ouston [1941] AC 251 Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429

John James Forrest (plaintiff) PARTIES : Leigh Davern Appleyard (first defendant) Geoffrey Martin Pryke (second defendant) Bruce Anthony Kenny (third defendant)

Mr M W Young w Mr J L Doyle (plaintiff) COUNSEL : Mr K P Smark (first & third defendants) Mr E G H Cox (second defendant)

Forshaws Neill (plaintiff) SOLICITORS : Schweizer Kobras (first and third defendants) Kells The Lawyers (second defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4583/03 John James Forrest v Leigh Davern Appleyard & 2 ors JUDGMENT 1 HIS HONOUR: The plaintiff John James Forrest, the first defendant Leigh Davern Appleyard, the second defendant Geoffrey Martin Pryke, and the third defendant Bruce Anthony Kenny, together carried on practice as consulting civil engineers, styled Appleyard Forrest Consulting Engineers ("the Practice"). The Practice was owned by the AFCE Unit Trust ("the Trust"), a unit trust in which the four participants directly or indirectly held units, and of which the trustee was Appleyard Forrest Consulting Engineers Pty Limited ("the Company"), in which each of the participants directly or indirectly held shares. Their affairs were governed by a Shareholders' Agreement dated 1 September 1995 ("the Shareholders' Agreement"). Its provisions regulated, amongst other things, the retirement of participants, and included a process for the purchase of a retiring participant's interest by the remaining participants at a price determined by valuation, but subject, at least in some circumstances, to a discount. 2 Mr Forrest effectively retired from the Practice in late 1999. A valuation was undertaken but, it is now common ground, miscarried. The nominated valuer has since died and the parties have, sensibly, agreed that the value of the practice should be determined by reference to an appropriate referee. Although, initially, it was proposed that the court should give directions in respect of valuation issues which were expected to arise in the valuation process - in particular, as to the relevance or otherwise of Mr Appleyard's intentions to remain in or leave the Practice - I indicated to counsel at the outset that I did not consider it appropriate to make directions in respect of such issues prospectively to the referee, who will be an expert valuer, although I indicated that, prima facie and subject to hearing further argument, I was tentatively inclined to the view that a proper approach to valuation would involve ascertaining what would have been known of those intentions to an arm's length purchaser as at the valuation date, and taking into account the impact of that knowledge on the price which such a purchaser might hypothetically pay. However, that is, at least at this stage, a matter for the referee. 3 Some payments were made to or at the direction of Mr Forrest on account of his entitlement on retirement, for which he will in any event have to give credit. Although there was an issue as to the quantum of those prepayments, that dispute has now been resolved, and it is agreed that the prepayments totalled $55,300. However, the parties, or at least some of them, remain in dispute as to the following matters: · Whether the defendants are bound to purchase Mr Forrest's interest in the Practice and, if so, in what proportions; · What if any discount is applicable to the valuation for the purpose of determining Mr Forrest's retirement entitlement; · Whether the proper payee is Mr Forrest, his nominee company Balvale Pty Limited, or Manoral Pty Limited, a company which holds his and Mr Appleyard's units in the Trust upon trust for them; · Whether specific relief should be declined by reason of Mr Pryke having himself subsequently retired from the Practice; · Whether the amount payable to Mr Forrest should bear interest, and if so from when and at what rate; · How the costs of the proceedings should be borne. The Shareholders' Agreement 4 Prior to mid-1983, Mr Appleyard carried on practice under the style L D Appleyard & Associates ("LDAA"). Mr Forrest trained in that practice under Mr Appleyard's supervision. In mid-1983, they together established a further business, Appleyard Forrest & Associates, which was owned by the Appleyard Forrest Unit Trust, of which Appleyard Forrest & Associates Pty Limited ("AFA") was trustee, and in which the units were owned equally by Mr Forrest and Mr Appleyard. In mid-1989, LDAA and AFA were amalgamated into the Practice, in which originally Mr Forrest and Mr Appleyard had equal interests. 5 In 1995, discussions took place between Mr Appleyard and Mr Forrest, in which Mr Appleyard made clear that he wanted to establish "a clear exit path" for himself in the future, and to restructure the business by introducing new equity partners. It was as a result of these discussions that, on 1 September 1995, the participants entered into the Shareholders' Agreement. Mr Pryke and Mr Kenny each acquired (directly, or indirectly through nominee companies) a 5% interest in the Practice, and Mr Forrest and Mr Appleyard, through Manoral in which they were jointly interested, retained 90%. 6 The parties to the Shareholders' Agreement were the Company, Mr Appleyard, Mr Forrest, Mr Pryke, Mr Kenny, Banadar Pty Limited (which was Mr Pryke's nominee company) and Manoral. The agreement recited that the Company was the trustee of the Trust, and as such conducted the business of consulting engineers; that each of Mr Appleyard, Mr Forrest, Mr Pryke and Mr Kenny (called "participants") were all the directors of the Company and the holders (directly or via their respective nominee companies) of all the issued shares in the capital of the Company (Mr Appleyard and Mr Forrest as to 90 shares, Mr Pryke as to 5 and Mr Kenny as to 5); that Manoral was the nominee company of Mr Appleyard and Mr Forrest, and Banadar of Mr Pryke; and that the units in the Trust were held as to 900,000 by Manoral, 50,000 by Mr Kenny and 50,000 by Banadar. 7 Clause 1 defined: · "Equity Entitlement" and "Equity Participation", to mean the number, ratio or proportion (as the context requires) of the shares in the Company and units in the Trust owned, controlled or held by a party to the agreement and/or his nominee or nominees from time to time. · "Interest" and "Interest in Practice", to mean the shares in the Company, units in the Trust and/or any other legal or beneficial interest in the assets of the Practice owned, held or controlled by a party. · "Participant" and "Participant in the Practice", to mean a person who holds, owns or controls shares in the Company and units in the Trust whether in his own name and/or in the name of a nominee company and/or nominee companies or otherwise, the initial participants being Mr Appleyard, Mr Forrest, Mr Pryke and Mr Kenny. · "Principals" to mean Mr Appleyard, Mr Forrest, Mr Pryke and Mr Kenny jointly and severally. 8 Clause 4 provided as follows: Shareholders in the Company: 4. Unless otherwise agreed by participants owning, holding or controlling not less than 76% of the equity entitlement and despite anything to the contrary contained in the Memorandum and Articles, the principals agree that they or their respective nominee companies shall hold all the shares in the issued share capital of the company in the following proportions: (i) Leigh and John 90% (ii) Geoffrey 5% (iii) Bruce 5% 100% 9 Clause 5 provided as follows: Units in the Unit Trust 5. Unless otherwise agreed by participants owning, holding or controlling not less than 76% of the equity entitlement and despite anything to the contrary contained in the Unit Trust Deed, the principals agree that they or their respective nominee companies shall also hold all the allotted Units in the Unit Trust in the following proportions: (i) Leigh and John 90% (ii) Geoffrey 5% (iii) Bruce 5% 100% 10 The agreement made provision for the transfer and/or transmission of interests in the Practice by participants inter vivos (clause 10); upon death, disablement, bankruptcy, insolvency or liquidation of a participant (clause 11); and upon retirement or removal (clause 12). These provisions, which are central to the present dispute, must be construed together, and were as follows: Transfers of Interest in Practice 10.1 The participants agree (despite anything to the contrary contained in the Memorandum and Articles and/or Unit Trust Deed) not to sell, transfer or otherwise dispose of any of their respective interests or any part of their respective interests in the practice otherwise than in accordance with this paragraph or paragraph 2 of this clause except that a participant may sell, transfer or dispose of any of his interest to any corporation in which he has a controlling interest or in which he is the principal shareholder (a "participant's company") with the prior consent of the other parties which consent shall not be unreasonably withheld. 10.2 If a participant transfers his interest or any part of his interest in the practice to his participant's company then the parties shall use their respective voting powers in Appleyard Forrest and/or the Unit Trust to ensure that such transfer shall only be registered in the books of Appleyard Forrest and the Unit Trust if the participant's company first agrees to be bound by the terms of this Agreement to the same extent as the parties are bound. The parties further agree to ensure that their respective successors in title and assigns shall similarly be bound by the terms of this Agreement. 10.3 Subject to any existing option rights over a party's equity participation and unless all the principals otherwise mutually agreed in writing: (a) A participant who wishes to transfer all or any of his interest in the practice (the "vendor") to any person or corporation (other than his participant's company) for any reason other than his retirement or removal pursuant to this Agreement, shall give to Appleyard Forrest notice in writing of such desire ("a transfer notice"). Subject to the provisions of this Agreement, a transfer notice shall constitute Appleyard Forrest as the vendor's agent for the sale of the interest(s) specified in the notice ("the sale interests") at a price to be agreed on by the vendor and the other participants or, if they cannot agree within fourteen (14) days of the transfer notice, at the price which Robert C Knights of Rob Knights & Co [or if he is no longer in practice or is unable or unwilling to carry out the valuation then at the price which a valuer of not less than ten (10) years experience in valuing professional practices as nominated at the request of any shareholder by the President for the time being of the Australian Institute of Chartered Accountants (New South Wales Chapter)] shall certify in writing to be in his opinion the fair value of the interests as at the last day of the month preceding the date of the transfer notice as between a willing but not anxious seller and a willing but not anxious buyer having regard to the matters set out in Schedules 1 and 2 to this Agreement. Such sum shall be deemed to be the fair value of the interests and in so certifying the valuer shall be considered to be acting as an expert and not as an arbitrator. (b) Upon the price being fixed in accordance with sub-paragraph (a), Appleyard Forrest shall immediately by notice in writing inform the other participants ("the offeree participants") of the number and price of the sale interests and invite the offeree participants to apply in writing to Appleyard Forrest within twenty one (21) days of the dispatch of the notice (which date shall be specified in the notice) for the purchase of that number or portion of the sale interests which is directly proportional (as nearly as circumstances allow) to the interests already held respectively. (c) An offeree party may within the period of twenty-one (21) days referred to in sub-paragraph (b) apply for all or any lesser number or portion of the sale interests offered to him. (d) An offeree participant who desires a transfer of interests in excess of his number or proportion shall in his acceptance state how many or much excess interests he desires to have. If all offeree parties to which the offer is made do not accept their respective full number or proportions, then the unclaimed sale interests shall be applied first to satisfy any claim in excess on a pro-rata basis. (e) Upon receipt of each offeree participant's application, the directors of Appleyard Forrest shall [subject to sub-paragraph (d)] allocate to the applicant the number of sale interests applied for and Appleyard Forrest shall forthwith give notice of such allocation (an "interest allocation notice") to the vendor and to the applicant to whom the sale interests have been allocated and shall specify in that notice the place and time (being not earlier than fourteen (14) and not later than twenty eight (28) days after the date of the notice) at which the sale of sale interests so allocated shall be completed. (f) The vendor shall be bound to transfer the sale interests comprised in an interest allocation notice. If he fails to do so, the chairman of Appleyard Forrest or some other person appointed by the directors of Appleyard Forrest shall be deemed to have been appointed attorney of the vendor with full power to execute, complete and deliver, in the name and on behalf of the vendor, a transfer of the sale interests to the purchaser of the sale interests against payment of the price to Appleyard Forrest. On payment of the price to Appleyard Forrest, the purchaser shall be deemed to have obtained a good receipt for that payment and on execution and delivery of the relevant transfer or transfers, the purchaser shall be entitled to insist upon his name being entered in the register of members of the company and register of Unit Holders of the Unit Trust respectively as the owner or holder by transfer of the respective sale interests. Appleyard Forrest shall forthwith pay the price into a separate bank account in its name and shall hold that price in trust for the vendor. (g) If no application for the purchase of the sale interests or if applications for less than all of them is received by Appleyard Forrest then after the expiration of the said period of twenty one (21) days referred to in sub-paragraph (b) the vendor shall for a period of six (6) months following such expiration be at liberty (but only with the agreement of participants holding, owning or controlling not less than 76% of the equity entitlement of the practice and subject to the entry qualifications imposed on new participants in the practice by this Agreement) to transfer so many of the sale interests as have not been allocated to any person he determines and at any price not less than the price fixed under sub-paragraph (a). (h) In this paragraph a reference to "participants" includes any related corporation of each such party or corporation in which such participant has a controlling interest or in which he is the principal shareholder and to which interests in the practice have been transferred under paragraph 1 of this clause. (i) The costs of valuation of the sale interests referred to in sub-paragraph (a) shall be borne equally by the vendor and the purchaser or purchasers. Death, Disablement, Bankruptcy, Insolvency or Liquidation 11.1 If any participant or any principal controlling any shareholder (the "first participant") dies (other than as a result of suicide or attempted suicide) or becomes mentally ill or permanently disabled or permanently incapacitated or bankrupt or insolvent or enters into an arrangement with his creditors or takes or suffers any similar action in consequence of debt or any party being a company, goes into liquidation or is wound up or has a liquidator, receiver, administrator or official manager appointed (other than for the purposes of reconstruction) (any such event being herein called a "causal event") then the remaining participants shall have the option of purchasing the interest or interests in the practice of the first participant on the terms contained in this clause as from the date of such causal event upon giving written notice of his or their intention to purchase the interest or interest of the first participant to the first participant or his or its legal personal representative, administrator, liquidator, receiver, official manager or trustee, as the case may be, or (in the case of a natural person) if there is no legal representative then to one of the first participant's next of kin within one (1) calendar month of the causal event giving rise to the option. 11.2 The purchase price of the first participant's interest or interests shall be the price as agreed between the first participant or his or its legal personal representative, administrator, liquidator, receiver, official manager, trustee or next of kin (each "the first participant's representative"), as the case may be, on the one hand and the remaining participant or participants on the other or, if they cannot agree within fourteen (14) days of giving the written notice of exercise of option referred to in paragraph 1 of this clause, then at the price which Robert C Knights of Rob Knights & Co [or if he is no longer in practice or is unable or unwilling to carry out the valuation then at the price which a valuer of not less than ten (10) years experience in valuing professional practices as nominated at the request of any party to this Agreement) by the President of the time being of the Australian Institute of Chartered Accountants (New South Wales Chapter)] shall certify in writing to be in his opinion the fair value of the interest or interests of the first party as at the last day of the month preceding the date of the causal even giving rise to the option referred to in paragraph 1 of this clause, but otherwise on the same basis and in the same manner as referred to in paragraph 3 of the immediately preceding clause of this Agreement. 11.3 The costs of the valuation referred to in paragraph 2 of this clause shall be borne by the remaining participant or participants and the first participant or the first participant's representative in the same proportions as all the participants' respective interests in the practice. 11.4 The remaining provisions of the immediately preceding clause of this Agreement shall, with the necessary changes being made, also apply in the event of any of the remaining participants exercising the option granted to him or them by paragraph 1 of this clause. Valuation on Retirement, Removal etc . 12.1 For the purposes of this clause, unless all the remaining participants otherwise mutually agree, the value of the practice shall be the amount which Robert C Knights of Rob Knights & Co [or if he is no longer in practice or is unable or unwilling to carry out the valuation then at the price which a valuer of not less than ten (10) years experience in valuing professional practices as nominated at the request of any principal by the President for the time being of the Australian Institute of Chartered Accounts (NSW Chapter)] shall certify in writing to be in his opinion the fair market value of the practice as at the last day of the month preceding the date at which such valuation is to be made as between a willing but not anxious seller and a willing but not anxious buyer having regard to the matters set out in Schedules 1 and 2 to this Agreement. Such sum shall be deemed to be the fair value and in so certifying the valuer shall be considered to be acting as an expert and not as an arbitrator. 12.2 In the event of a sale, transfer or other disposition of a participant's interest in the practice pursuant to this clause then the purchase price shall mean the fair value (subject, if applicable, to the appropriate discount referred to below) as determined in accordance with paragraph 1 of this clause multiplied by a percentage equivalent to that participant's equity participation in the practice as a proportion of all equity participation in the practice. 12.3 Where a person wishes to retire as a director and employee of the practice otherwise than as a result of any of the events specified in the next succeeding clause (and therefore wishes to sell his interest in the practice in accordance with the provisions of this Agreement) he shall give written notice of his intended retirement date to the other participants. In that case: (i) " notice date" shall be date of the written notice; (ii) " retirement date " shall be the intended retirement date stated in the written notice; and (iii) " deemed valuation date " for the purpose of calculating the fair value shall be the last day of the month preceding the retirement date or, if the retirement date is the last day of a month, then that date. 12.4 If a person wishes to retire within three (3) years from the commencement date then the following provisions shall apply: (i) the discount to be applied in determining the purchase price shall be as stated in paragraph 5 below, depending on the notice period of retirement given; (ii) initial payment for the retiree's interest in the practice shall not be required from the purchaser or purchasers until half the duration between the retirement date and 3 years from the commencement date has elapsed. This adjusted date shall be called the "effective retirement date"; and (iii) timing and proportion of each payment shall be in accordance with paragraph 8 below but determined in relation to the initial payment date. 12.5 For retirement, the discount to be applied to the valuation shall be as stated in accordance with the following schedule: Duration in Months From the Notice Date to the Retirement Date Discount to be applied 18 months or more 10% More than 12 but less than 18 months 20% More than 9 but less than 12 months 30% More than 6 but less than 9 months 35% More than 4 but less than 6 months 40% More than 2 but less than 4 months 45% Less than 2 months 50%

12.6 Where a person is removed as a participant in the practice pursuant to a resolution for removal in accordance with this Agreement, he shall be required to transfer his interest to the remaining principals and/or their respective nominee companies on the terms set forth above and below where "notice date" and "retirement date" shall be the date nominated by the remaining participants, the discount to be applied to the valuation shall be 25% and payment shall be in accordance with paragraph 8 as if the effective retirement date were 6 months after the retirement date nominated by the remaining principals. 12.7 Where a principal dies then, if he is married or has a family, his estate, legal personal representative or next-of-kin as determined by the surviving principals, shall receive the full salary of the deceased principal for a period of up to 3 months after his death or until is interest in the practice is purchased by one or more of the remaining participants, whichever is the earlier. The purchase of the deceased principal's interest shall be by each of the surviving participants in proportion to their interests in the total remaining practice unless all the remaining principals otherwise mutually agree. 12.8 Where, having given the notice required by the preceding provisions, a principal wishes to retire with the effective retirement date being on any day after three (3) years from the commencement date, the retirement date shall be the effective retirement date and the purchase price in respect of the retiring principal's interest in the practice as determined in accordance with the preceding provisions of this clause (the "retiree's purchase price") will be payable by four (4) instalments as follows: (i) a sum equivalent to not less than twenty five percent (25%) of the retiree's price payable on the effective retirement date; (ii) a further sum equivalent to not less than twenty five percent (25%) of the retiree's purchase price payable on or before the day falling six (6) months after the effective retirement date; (iii) a further sum equivalent to not less than twenty five (25%) of the retiree's purchase price payable on or before the day falling twelve (12) months after the effective retirement date; and (iv) a further sum equivalent to the balance of the retiree's purchase price payable on or before the day falling eighteen (18) months after the effective retirement date. 12.10 Where a principal suicides he shall be deemed to have retired on less than 2 months notice, and the remaining participants shall purchase his interest in the practice from the legal personal representative or a next-in-kin of the deceased principal in accordance with the above provisions but only after the date probate or letters of administration of the deceased's estate have been granted except that the legal personal representative or next-of-kin of the deceased principal may, at the discretion of the remaining principals, be entitled to receive the deceased's salary payable in accordance with paragraph 7 of this clause, but only as an ex gratia payment which shall then be taken into account as a pre-payment of the then to be calculated purchase price for the deceased principal's interest. 11 Schedules 1 and 2 to the Shareholders' Agreement, referred to in clause 12, were as follows: Schedule 1 - Method of determining the fair market value of the goodwill of the practice: The goodwill of the practice shall be determined on the basis of whichever is the higher of Future Maintainable Benefit or Return on Investment calculated in accordance with the same principles as used in the attached copy Goodwill Valuation by Rob Knights & Co dated 28 September 1994. Schedule 2 - Method of determining value of fixed assets (on a going concern basis): The fixed assets of the practice shall be determined on a going concern basis by a certified auctioneer and valuer, conducted under the same principles as the attached copy Valuation of Plaint, Furniture and Fittings by Gray Eisdell Timms Pty Limited dated 3 April 1995. 12 Clause 18.2 provided that despite anything to the contrary contained in or implied by the Articles of Association of the Company or the Deed constituting the Trust, participants in the Practice may only sell or otherwise dispose of their equity entitlements in accordance with the procedures laid down in the Shareholders' Agreement. Clause 23.2 provided that no alteration or amendment to the agreement should be effective or enforceable unless made in writing under the seal of the parties to the agreement. Clause 25 provided that the agreement may not be varied except in writing signed by all parties. Mr Forrest's Retirement 13 During 1998 and 1999, there were several conversations between Mr Appleyard and Mr Forrest, in which the former expressed a wish to be able to retire, and the prospect of Mr Forrest succeeding to his management responsibilities was discussed. Also during 1999, Mr Forrest was admitted to a clinic for depression. 14 On 4 August 1999, Mr Forrest sent to Mr Appleyard a memorandum entitled "Notice of Intention to Resign Directorship" which, however, other than in its caption, did not expressly state an intention to retire, and did not nominate any retirement date nor even any timeframe for it, but foreshadowed "further exploration of the issues". On 9 September 1999, Mr Forrest sent a memorandum to the defendants, captioned "John Forrest - Notice of Intention to Resign Directorship - Managing This Opportunity Together", which sought to explain his position, invited the other directors to investigate various possible scenarios, and proposed that the remaining directors and/or investors and new directors be invited to purchase his interest. 15 On 21 September 1999, Mr Appleyard, Mr Pryke and Mr Kenny met and considered the position. They discussed different scenarios by which they might acquire Mr Forrest's interest, one resulting in Mr Appleyard acquiring an additional 10%, and Mr Kenny and Mr Pryke each an additional 17.5%; another with each of Mr Kenny and Mr Pryke only an additional 15%, and Mr Forrest retaining a 15% shareholding; yet another with Mr Appleyard acquiring an additional 10%, Mr Pryke and Mr Kenny an additional 12.5%, and Mr Forrest retaining 10%. The minutes record: - JF to resign or voted out. 16 On 28 September, the defendants wrote to Mr Forrest, inter alia as follows: We are of the view that your resignation should be formalised as soon as possible. Not to do so leaves us with some obvious and real difficulties in planning the way ahead. Some time was spent discussing the issues as to whether or not you might be able to retain your shareholding whilst resigning your directorship. We are also mindful of discussions with and advice by Norbert Schweizer in this regard. It is our view that this matter can be resolved independently of the specific terms of the partnership agreement. The agreement was caused to be created by all of us and we could similarly cause amendments to be made if so required. ... In brief, we now invite your formal resignation. This would be infinitely preferable to us and to our future relations rather than any other course of action. We leave the selection of an appropriate date to you, noting that a date no later than (say) 31 October 1999 would be of value to us in terms of planning. 17 On 8 October 1999, the defendants again wrote to Mr Forrest, relevantly as follows: Accordingly, we reinvite your resignation, suggesting that in fact an operative date of Friday, 29 November 1999 would be convenient in terms of the company's financial reporting dates. 18 In a further letter to Mr Forrest, dated 13 October 1999, the defendants mentioned that the agreement in its present form was the agreed document which governed their actions in the present situation, and emphasised that their suggested resignation date of 29 October 1999 was of particular significance to the future strategic planning of the firm and should be adhered to. 19 Mr Forrest replied on 20 October 1999. Relevantly he wrote: The real significance and urgency to formalise my resignation by the 29 October 1999 is of quite some intrigue to me. I understand that you wish to determine the "future strategic planning of the firm" beyond this date, but I cannot grasp the earnest significance of this in relation to my resignation. I trust this does not result in a further nexus issue. 20 Mr Forrest pointed out that as issues of primary significance were still outstanding and unlikely to be resolved within the suggested timeframe, he would not be able to comply with the invitation to formalise his resignation by 29 October, though it remained his very strong preference to formalise his resignation as soon as the various issues were resolved. 21 During October, November and early December 1999, the defendants discussed between themselves how Mr Forrest's interests might be acquired. It was clearly in the minds of each of them that his interest might be acquired at full value if he resigned, but at a discount of 25% if he were removed by resolution. It is also clear that various possibilities were contemplated as to the proportions in which each might acquire Mr Forrest's interest, and in this respect various scenarios were discussed. In a memorandum dated 24 October 1999 to Mr Kenny and Mr Pryke, Mr Appleyard wrote: Unfortunately, by virtue of John's most recent reply (20 October 1999), I am now of the view that it is most unlikely that John will resign of his own accord on or prior to Friday 29 October as requested. We are therefore faced with deciding whether or not to pass a resolution pursuant to clause 13(e) of the Shareholders' Agreement. This resolution will provide for removal of John as a director and provide also for compulsory acquisition of his shareholding. It is important that we all understand, John included, that this is the only outcome of such an action. While we have discussed the possibility of varying the agreement, this has not been done and - until such time as it may be done - we are bound by, and we agreed to be bound by, the present terms of the agreement. For my part, I am quite content with this position. The mechanism by which John's shareholding may be acquired has only been discussed in general terms. In such general terms, the three of us would be required to contribute to buy John's shareholding at the value to be determined strictly in accordance with the agreement. … 22 Some time towards the end of October, Mr Appleyard and Mr Pryke had a telephone conversation, in the course of which Mr Appleyard said that Mr Forrest would be given two choices: to resign voluntarily and receive 100% of his share value, or to be removed and suffer a 25% discount. A file note made by Mr Pryke on 27 October 1999 records: · LDA prepared to purchase shares if BK and GP not prepared to (reluctantly). · JF given two choices (i) resign voluntarily and gain 100% of residual share value (ii) forced resignation by voting and receive 25% discount. 23 Mr Appleyard agreed, in cross-examination, that it was then (and remained thereafter, at least well into 2000) his belief that, unless Mr Forrest was removed by resolution, no discount would be applicable to the valuation of his interest for the purpose of calculating his retirement entitlement. 24 On 8 November 1999 Werry & Associates, solicitors, acting for Mr Forrest, wrote to the directors of the Company, for the attention of Mr Appleyard, relevantly as follows: 1. Proposal for Mr Forrest's resignation as a director of the company. We act for your co-director, Mr John Forrest, and have been instructed to advise you that Mr Forrest is prepared to resign as a director of the company subject to the finalisation of acceptable terms and conditions. It is anticipated that Mr Forrest will have formulated a proposal for your consideration by 12 November 1999. 25 On 9 November 1999 Messrs Schweizer & Co, solicitors for the Company, responded, relevantly: While our clients naturally hope that acceptable terms and conditions for Mr Forrest's resignation may be negotiated and agreed as soon as possible, in the event that they cannot be agreed by a time acceptable to our clients, then our clients will rely on the directors' shareholders' and unit holders' agreement (the "directors' agreement") in that regard. 26 Also on 9 November, the defendants wrote to Mr Forrest, relevantly as follows: We are each bound by an agreement which we signed in good faith and which was prepared for the specific purpose of guiding our actions in situations such as the present one. Each of us is entitled to like treatment under the terms of this document. … It will be our firm hope that this information and our discussions next Friday (on Friday week) will now enable you to offer a firm date for your resignation which will be acceptable to all parties. … Our view is that a firm resignation date may now be established in the near term, and most preferably by the end of calendar 1999. 27 Werry & Associates wrote again to the directors on 17 November 1999, submitting a proposal in relation to Mr Forrest's resignation, which included: 4. That the remaining directors purchase Mr Forrest's 45% interest in the company's business for an agreed price taking into account the value of the elements referred to in paragraphs 1-3 above. Mr Forrest is inviting the remaining directors to submit a price to him for his share of the business. 28 On 26 November, Werry & Associates wrote to Schweizer & Co, relevantly: As more than seven days have elapsed since our letter was dispatched, we would appreciate a prompt reply especially if we are aiming to achieve agreement prior to 17 December 1999 being the date on which Mr Forrest proposes to resign if all commercial issues can be resolved by then. 29 On 30 November 1999, Mr Forrest forwarded to Mr Garry Leyshon, the accountant for the Practice, an agenda for a meeting to be held that day. The covering letter recorded "As all parties now appear to be in agreement in principle to my resignation on 17 December 1999, the 'quantification' of the numerous parameters will now require extremely alacritous resolution". The agenda included, at item 3.0 "Valuation of JJF's 45% shareholding entitlement". 30 On 8 December 1999, Mr Forrest forwarded a memorandum to the defendants, copied to Mr Leyshon and Mr Werry, in which he wrote: As a result of discussions and correspondences since my initial notice of intention to resign directorship dated 4 August 1999, I have prepared the following summarised valuation of my entitlement as an outgoing director. This valuation has been prepared along broad guidelines as agreed with Garry Leyshon at our meeting of 30 November 1999. The primary purpose of this document is to commence, at long last, some meaningful dialogue in respect to an appropriate and commercially viable buy-out scenario. This analysis has been presented in good faith and without prejudice to future negotiations. … Some brief preliminary comments may assist: · Where available, balance sheet figures have been extracted from draft 1998/1999 assessments. · This analysis assumes full directorship, unit holding and shareholding "removal" in accordance with the conditions of resignation defined in Werry Associates letter dated 17 November 1999. … Based on the attached "summary resignation valuation schedule" the Net Director's Asset Valuation is $407,990. 31 The attached "summary resignation valuation schedule" listed the Practice assets, including goodwill at a valuation of $2,412,795, and plant and equipment at $275,000. Of that, and included in the calculation which produced the final result of $407,990, there was attributed to Mr Forrest's or Balvale's component the sums of $1,085,757 and $123,750 respectively, which are exactly 45% of those valuations. 32 Also on 8 December, Mr Forrest forwarded to Mr Leyshon his "summary resignation valuation schedule", and mentioned a target resignation date of 17 December 1999. On 9 December 1999, Mr Appleyard sent to Mr Forrest a note, which foreshadowed a more detailed response, and added: Essentially, you will be due a sum of money post 17 December 1999. The value of this sum cannot yet be determined but this will be attended to by the agreed process. Your memo to Garry yesterday may assist in this process. For the time being, the value of the final sum does not matter a great deal. We will put in place a mechanism whereby a weekly payment will be made of a magnitude similar to that which you have been receiving by way of salary. Garry will advise on the preferred method for this in order that both your and our interests from a taxation aspect will be addressed. 33 Mr Appleyard reviewed Mr Forrest's "summary resignation valuation schedule" and forwarded it to Mr Leyshon on or about 9 December, with some handwritten comments endorsed on it in his own handwriting. No issue was taken in those notes with the attribution to Mr Forrest's interests of an undiscounted 45% share of the goodwill and the plant and equipment valuations. On the same day, Mr Leyshon requested a copy of Mr Forrest's schedule of assumptions, explanations and calculations, which underlay his valuation schedule. 34 On 10 December, Mr Forrest sent to Mr Appleyard a memorandum in response to Mr Appleyard's note of 9 December, in which he recorded his understanding that Mr Appleyard was happy with the date of 17 December 1999, and continued: For the purposes of practice valuation and director's resignation valuation, the date of 17 December 1999 will be necessary and of mutual benefit. A copy of correspondence to Garry in respect to director's resignation valuation is attached. 35 Also on 10 December, Mr Forrest provided to Mr Leyshon, Mr Appleyard, Mr Pryke and Mr Kenny an amended "summary resignation valuation schedule", including an explanation of his valuation of the goodwill of the Practice "based on methodology of Rob Knights & Co valuation dated 28 September 1994" - which was what the Shareholders' Agreement required - of which 45% was attributed, undiscounted, to Mr Forrest's entitlement; similarly, it continued to attribute 45%, undiscounted, of the plant and equipment valuation to Mr Forrest. It included other components, more in the nature of employee entitlements or loan account liabilities, to reach a "net directors' asset valuation" of $340,128. In the covering letter to Mr Leyshon, Mr Forrest explained: As the partnership agreement only allows for RKC to determine the "fair market value of the practice", numerous discussions and adjustments with you and my co-directors will be necessary to determine my director's resignation valuation. 36 On 16 December 1999, Mr Forrest, Mr Appleyard and Mr Leyshon met. Mr Forrest says that in the course of the conversation Mr Appleyard said: Friday 17 December will be the official date of your resignation. John, you are to cease all involvement in the business as from that day. You will transfer all your shares in the company, and all your units in the trusts to ourselves at a price equal to 45% of the fair market value as at that date, which shall be the reference date for valuation purposes. Rob Knights has been given a general background briefing and he will be available from 17 January 2000 for the purpose of preparing the necessary valuation. 37 Mr Appleyard gives a different version, according to which, after saying that he was not formally resigning based on legal advice, Mr Forrest assented to Mr Appleyard's proposals that "we should adopt 17 December as the reference date at which and from which all necessary calculations and computations relating to the valuation of your unit holding will be based", that "we propose to pay certain amounts to Balvale as prepayments on account of any amount to which you are or will become entitled under the Shareholders' Agreement as a consequence of your retirement from the Practice", and that "based on the figures which you propose for plant and equipment, I consider that it is unnecessary to do a further valuation of plant and equipment". Mr Appleyard also said that he had instructed Rob Knights to undertake a valuation and that he would be ready to do the work in January. It will be necessary, in due course, to return to this conversation. 38 The following day, 17 December 1999, Mr Appleyard wrote to Mr Forrest, with copies to Messrs Kenny, Pryke and Leyshon, relevantly as follows: I refer to our meeting yesterday afternoon at Sotherton's Sydney office. Garry and I accept your position that your legal advice precludes you tendering your formal resignation today and as foreshadowed in previous correspondence. I confirm your agreement that today is to be adopted as the reference date at which and from which all necessary computations relating to the valuation of your unit holding will be based. As discussed, Rob Knights has been given a general background briefing and he will be available from 17 January 2000. Garry will prepare a briefing document for Knights during the week commencing Monday 10 January. 39 The letter went on to outline the proposed mechanism for ongoing payments "as prepayment on account of the amount due to you pending the final agreed value of your unit holding and as set out below", the first payment to be made on 24 December 1999, payments to be made to Balvale, and Mr & Mrs Forrest to cease to be employees of the company at close of business on 17 December 1999. 40 Mr Forrest responded by facsimile on 19 December, stating: "I am generally in agreement with the contents of the letter". However, the facsimile was captioned "Pre-resignation arrangements - transitional period", which prompted a reply from Mr Appleyard on 21 January 1999: We note that you head the document 'pre-resignation arrangements - transitional period'. We hope that we can avoid future difficulties on this point. At our discussions on Thursday 16 December we made it quite clear that we regard Friday 17 December as being the date of your resignation. In deference to your legal advice which you say precludes your tendering your 'formal' resignation, we have agreed to refer to that date also as a reference date for valuation purposes. To all intents and purposes, this is a concession to facilitate matters. Clearly, there can only be one resignation date and we would regard this as being Friday 17 December. The Knights Valuation 41 Mr Knights delivered his valuation dated 15 May 2000. He expressed opinions based on alternative scenarios, depending upon whether there was no doubt as to the continued management of the Practice, or whether and when there was to be a change in management through the departure of Mr Appleyard. He concluded: Where the future operation is to be on the basis of continuation of the existing management, with development of succession management over the next three/five years, then I recommend the adoption of goodwill values of $1,328,573. Where the existing management continues for two/three years then I recommend adoption of a goodwill value of $664,287. Where agreement/commitment to the above continuations of management is not available, then subject to reasonable handover arrangements over say the next year, I recommend adoption of a goodwill value of $531,429. 42 Between December 1999 and 18 May 2000, the Practice paid to Balvale, on account of Mr Forrest's retirement entitlement, $55,300 by way of prepayments. 43 On 18 May 2000 Schweizer & Co wrote to Werry & Associates, and using the alternatives proffered in Mr Knights' valuation, treating Mr Forrest's share as 45%, and deducting his loan account and the prepayments, suggested that on Mr Knight's most favourable approach there would be a balance outstanding to Mr Forrest of $272,857, but that on the least favourable approach he had already been overpaid $26,071, and concluded: In view of the fact that Mr Forrest may already have received payments in excess of his entitlement, we are instructed that our clients are not prepared to make any further payments to or on behalf of your client at this time. After the Valuation 44 Mr Forrest rejected the Knights valuation. 45 On 22 November 2000, Mr Pryke wrote to Mr Forrest, notifying him that a meeting of the members of the Company and the unit holders of the Trust would be held on 19 December 2000, with the sole agenda item to be consideration of Mr Forrest's resignation or removal. The letter continued: Accordingly, on behalf of all of the other directors for the company, I invite you to submit your resignation before the meeting so that it can be formally accepted at the meeting. Please note that if a resolution of your removal as a director of the company is passed, then the remaining participants in the practice intends to enforce clause 12.6 of the Shareholders' Agreement of 1 September 1995. As you will no doubt recall, this clause imposes a 25% discount on the value of your interest in the practice. 46 At a meeting on 19 December 2000, attended by Mr Forrest, the defendants purportedly removed him as a director, but no party suggests now that anything turns on that resolution. 47 Until April 2003, Mr Forrest made a number of requests for payment. On 24 April 2003, his then solicitors Forshaws Neill wrote to Mr Knights, requesting a valuation in final form, which took into account assets other than goodwill, specified a final figure, disregarded events after 17 December 1999, and corrected some apparent mathematical errors. Those solicitors also wrote to Schweizer Kobras, making the same points and seeking the defendants' cooperation in finalising the valuation process. On 12 May 2003, a similar request was made to Messrs Peedoms, solicitors, who by this time were acting for Mr Pryke. These requests did not produce any further valuation. 48 Mr Rob Knights, the valuer referred to in the Shareholders' Agreement, died on 26 April 2004, after these proceedings were instituted. 49 Meanwhile, on 22 February 2001, Mr Pryke had submitted his resignation to the Practice, in the following terms: Further to my discussion with Leigh on 5th February 2001 I confirm that for personal reasons I am resigning as an employee and director, and therefore wish to transfer all of my interests in the practice as a shareholder and unit holder of the respective entities, Appleyard Forrest Consulting Engineers Pty Ltd and the AFCE Unit Trust. … Whilst it is acknowledged that a formal process exists to resolve my resignation via the directors' shareholders' and unit holders' agreement (DSUA) I am confident we can settle this matter without the need for external valuations and in a timeframe suitable to both parties. 50 In fact, those issues have never been resolved, and Mr Pryke is himself in dispute with Mr Appleyard and Mr Kenny as to his entitlements upon retirement. The Pleadings 51 No new valuation having been produced or even agreed to, Mr Forrest commenced these proceedings by statement of claim filed on 29 August 2003. He alleged that on or about 17 December 1999 the parties had agreed ("The Buyout Agreement") that he would cease his involvement in the Practice and transfer his interest to the defendants at 45% of its fair market value as at that date, determined in accordance with the Shareholders' Agreement. He alleged that the Knights valuation was not a valuation in accordance with the Shareholders' Agreement, and that the defendants had refused to instruct Mr Knights to prepare a valuation in accordance with the Shareholders' Agreement. He claimed specific performance of the agreement of the Buyout Agreement; a declaration that the Knights valuation was not a valuation in accordance with the Shareholders' Agreement; a reference to Mr Knights, or some other appropriate valuer, for inquiry and report, of the valuation of the Practice; and an order for payment to him of 45% of the value so determined plus interest, with a contemporaneous transfer of his shares and units to the defendants. 52 The first and third defendants filed defences, which were substantially identical, on 26 and 27 November 2003 respectively. They admitted that an agreement was made in December 1999 that Mr Forrest would retire or be treated or deemed to have retired with effect from 17 December 1999, which date was to be adopted for valuation of his interest in the Practice, and that Balvale would receive certain prepayments on account of his retirement entitlement. They asserted that such prepayments had been made, and that they thereby acted to their detriment on the basis of the 17 December 1999 agreement. They maintained that the Knights valuation was a valuation of the goodwill of the Practice. They asserted that Mr Forrest was validly removed as a director on 19 December 2000, but had ceased to participate in the Practice from 17 December 1999. They denied that Mr Forrest was entitled to any of the relief he claimed. 53 Mr Pryke filed a defence on 11 November 2003. He did not admit the alleged December 1999 agreement, and he did not admit that the Knights' valuation was not a valuation for the purposes of the Shareholders' Agreement. 54 On the pleadings as they then stood, therefore, there was no issue as to uncertainty or incompleteness of the Buyout Agreement; and there was no allegation that a discount was applicable to Mr Forrest's interest on account of his retirement. What the defendants were disputing was Mr Forrest's contention that there was no valid valuation according to the Shareholders' Agreement. 55 At the commencement of the hearing, each defendant obtained leave to file an amended defence, notice of which had been given to the plaintiff a few days before the hearing. Mr Young, who appeared for Mr Forrest, objected on the grounds that this was not conducive to the efficient conduct of litigation, but very reasonably and properly said that he was not prejudiced by the late amendments and was in a position to deal with them. Accordingly, I granted the defendants leave to file the amended defences. 56 By their amended defence, Mr Appleyard and Mr Kenny admitted that on 16 or 17 December Mr Forrest and the defendants agreed that the date for determination of the fair market value of the Practice pursuant to the Shareholders' Agreement would be 17 December 1999, but denied that the price payable to Mr Forrest would be 45% of the fair market price determined by valuation, asserting that a 40% discount was applicable. They admitted that the Knight's valuation was incomplete, but contended that the prospect of departure of any principal from the Practice was a proper matter for the valuer to be taken into account. As to relief, while denying that Mr Forrest was entitled to specific performance of the Buyout Agreement, they conceded that he was entitled to a declaration that the Knight's valuation was not a valuation of the fair market value of the Practice in accordance with the Shareholders' Agreement, and supported a reference to a suitably qualified valuer to determine the valuation. 57 By his amended defence, Mr Pryke did not admit the alleged agreement of 16 December and said that in any event it was void for uncertainty on the grounds that there was no concluded agreement, and/or no term in the alleged Buyout Agreement or at all, regarding which of the defendants, and/or in what proportions, had agreed to purchase Mr Forrest's interest. He did not admit that the Knight's valuation was not a valuation for the purposes of the Shareholders' Agreement, and contended that no order for specific performance of the Buyout Agreement should be made against him because he never agreed to purchase Mr Forrest's interest, and alternatively on the discretionary grounds that Mr Forrest had an adequate remedy at common law, and Mr Pryke had since changed his own position by resigning, so that specific performance would require the maintenance of a personal relationship and Mr Pryke was unable to transfer, sell or otherwise dispose of his interest without the agreement of the remaining participants, by reason of which it was said that specific performance would be harsh, unfair and unjust. 58 Accordingly, by the amended defences, there were raised, for the first time, the issue of uncertainty and incompleteness (by the second defendant), and the suggestion that a discount was applicable (by the first and third defendants). 59 Once the amended pleadings were filed, at the commencement of the hearing, the issues were identified. Some of the issues fell away in the course of the hearing, and it will be convenient to resolve those that remain in a somewhat different sequence. But, at the outset, no party demurred from the following identification of the issues: · Was there a valid and effective Buyout Agreement, dehors the Shareholders' Agreement? · If so, upon its proper construction and in the events which have happened, does any discount apply to the valuation process? · If there was not a Buyout Agreement dehors the Shareholders' Agreement, was there a valid triggering of the retirement procedure under the Shareholders' Agreement? · If so, what if any discount applies to Mr Forrest's interest? · Who is the proper payee of Mr Forrest's retirement entitlements? · What is the amount of the prepayments for which credit is to be given by Mr Forrest? · Should specific performance, at least as against the second defendant, be declined on discretionary grounds? What was agreed on 16 December? 60 For the reasons that follow, I am not persuaded that express reference was made, as Mr Forrest asserts, in the conversation of 16 December, to 45% of the Practice valuation as Mr Forrest's retirement entitlement. Even if it were referred to, I am not persuaded that it was intended or understood to be a contractual promise. Rather, the effect of the conversation was that the parties agreed, dehors the Shareholders' Agreement, that Mr Forrest would retire (without being required to give any notice) with effect from 17 December (though his formal resignation would be deferred), and that the provisions of the Shareholders' Agreement would operate to determine his entitlement on retirement as at 17 December insofar as the Buyout Agreement did not make provision. 61 First, in cross-examination, Mr Appleyard's version of the conversation was put to Mr Forrest, and Mr Forrest substantially agreed with it. Mr Forrest also agreed that there was no discussion about making amendments to the Shareholders' Agreement. It was put to him that Mr Appleyard never specified the price which Mr Forrest was to receive, to which his answer was (emphasis added): "Mr Appleyard indicated 45% of the fair market value". He was asked (emphasis added): Q. And what I suggest to you is that Mr Appleyard did not go on to say anything like: "And your units in the trust will be transferred at a price equal to 45% of the fair market value". He did not go on to say those words - that is my suggestion to you? A. My understanding is that my shares were valued at 45%. That was the agreement. Q. I am asking you not what your understanding was. I am asking you, as best you can recall, what was said at this meeting. Do you appreciate the difference? A. Mmm. … Q. I am suggesting to you that you do not recall Mr Appleyard using words like that. He did not go so far as to say 45% at that meeting? A. My recollection is that he did. 62 Subsequently he maintained that his affidavit version was an honest and truthful recollection of the discussion, but his oral evidence suggested that he was remembering an understanding or interpretation of the effect of the conversation rather than its words. There is no doubt that he believed that he would receive 45% of fair market value - as did Mr Appleyard. But his oral evidence conveyed the impression that he remembered that understanding or belief, rather than what was actually said. 63 Mr Forrest was asked whether he had a note of the meeting, and answered that he did have file notes of the meeting. None was annexed to or referred to in his affidavit. He said that those notes were in numerous arch files at his office. They were called for, but after an overnight adjournment were not produced. The significance of this is that, in the absence of such a note, Mr Forrest's recollection was almost six years old when he gave instructions for his affidavit, and I cannot accept that it was refreshed by any contemporaneous document. 64 Secondly, the best contemporaneous record is against Mr Forrest's version. Mr Appleyard's letter to Mr Forrest of 17 December did not refer to 45% of fair market value. Mr Forrest conceded that, had such a statement been made at the meeting and not recorded in Mr Appleyard's letter, he would not have regarded the letter as an accurate reflection of the points agreed to at the meeting the day before, by reason of the absence of the reference to 45% of valuation. Yet his reply to that letter recorded that he was generally in agreement with its contents, and did not raise any issue about absence of reference to the price. 65 Thirdly, while Mr Leyshon added little, and said no more than that his recollection did not extend beyond the circumstance that the letter of 17 December appeared to accurately record the discussion, his evidence weighs, albeit slightly, in favour of Mr Appleyard's version. Although it is obvious, as the discussion lasted over some 45 minutes, that much more must have been said than is recorded in the letter, Mr Leyshon's contemporaneous view that the letter was an accurate summary favours, at least a little, the view that there was no reference to price, or if there were any, that it did not form a significant part of the discussion. 66 Fourthly, Mr Appleyard's version is more consistent with the dynamics of the negotiations. He maintained that his recollection was that the 45% of valuation issue was not discussed. He said that there were three salient points discussed at the meeting: first, the reluctance of Mr Forrest to agree to a retirement date, which was the most crucial issue; secondly, that Mr Knights would be asked to prepare an up-to-date valuation; and thirdly, the putting in place of transitional arrangements for some payments to Mr Forrest to meet his day-to-day expenses in the short to medium term. He accepted that there could have been other things said that he has since forgotten, and that one of those things could have been that the price for the shares and units would be equal to 45% of the market value, but he did not accept that it was quite likely that reference was made to the price, as the essential outcome was an agreement to proceed in accordance with the framework which was then recorded in the letter of 17 December. 67 As has been mentioned, the notice of 4 August 1999 given by Mr Forrest did not specify a retirement date. It did not clearly state, other than in the caption, that he was retiring or would retire. It was not a "retirement notice" within clause 12 of the Shareholders' Agreement. After it was given, Mr Forrest showed no urgency about fixing a date for his retirement. It was the defendants who pressed to have the issues resolved. They wanted Mr Forrest to leave as soon as possible, but preferred that he leave voluntarily rather than be removed. No one regarded the 4 August notice as a formal notice of resignation, and no one treated the 4 August notice as a notice which triggered clause 12. It was for that reason that the parties continued to negotiate to fix a retirement date, and that the defendants were pressing for a "formal" retirement. It is also clear that all assumed that if the Shareholders' Agreement applied, Mr Forrest would be entitled to 45% of valuation. 68 Those assumptions of the parties and the negotiations between them are important context in which the conversation of 16 December is to be set. Because all assumed - rightly or wrongly - that under the Shareholders' Agreement, Mr Forrest would receive 45% of valuation - an assumption which was reflected in the absence of any dispute with so much of the proposals advanced by Mr Forrest as had indicated 45% of practice value as the basis for his pay out - price was simply not an issue which required agreement or discussion. That reduces the likelihood that it was addressed. The earlier correspondence - in particular, Mr Appleyard's note of 9 December 1999, which had said that the sum payable to Mr Forrest "cannot yet be determined but this will be attended to by the agreed process", and that "for the time being, the value of the final sum does not matter a great deal" - reinforces that view. The circumstance that the prior negotiations proceeded on that basis, and that all parties assumed that Mr Forrest would receive 45% of valuation, makes it quite improbable that on 16 December they specifically addressed the question of price, let alone that they did so in a way intended to produce a departure from the Shareholders' Agreement. 69 But although I am unpersuaded that specific reference was made on 16 December to price, it does not follow that price was left undetermined. The whole of the negotiations were conducted, quite consciously, on the common assumption that, except insofar as the parties otherwise agreed, their rights would be governed by the Shareholders' Agreement [see in particular the correspondence of 9 November, and 9 December, above]. Ultimately, there was separate agreement, at least in respect of retirement date and notice, but against the background that the parties would otherwise be governed by the Shareholders' Agreement. 70 Although, under clause 12 of the Shareholders' Agreement, retirement was triggered by a notice specifying a retirement date, no such notice was ever given. The agreement was structured to discourage short notice resignations: the discount, where it was applicable, put a premium on length of notice. Financially, Mr Forrest's interests would be served by giving the longest possible period of notice. But it is to be remembered that the defendants saw early retirement as being in their interests and for their benefit: the defendants wanted Mr Forrest's voluntary resignation rather than his compulsory removal, and as soon as possible, not so much for financial reasons as to enable them to plan for the future. They pressed for an early resignation. Eventually, they secured agreement to 17 December, though only on 16 December. Mr Forrest never gave any notice to that effect. Rather, the parties agreed, dehors the Shareholders' Agreement, that without any notice being required, Mr Forrest would retire, with effect 17 December. They intended the valuation mechanism contained in the Shareholders' Agreement to determine the retiree's price, but they dispensed with the provisions which required any notice to be given: this was not a retirement triggered by retirement notice, but one brought about by an agreement, though in the context that the Shareholders' Agreement would otherwise regulate the rights and objectives of the parties, and as if notice were not required. 71 When, in the course of the hearing, it appeared that one possibility was that the agreement that might be enforced was the Shareholders' Agreement, as distinct from a Buyout Agreement dehors the Shareholders' Agreement, Mr Cox, for Mr Pryke, objected that this was not the case pleaded. Mr M W Young, for Mr Forrest, responded that where a contract is pleaded, if the court finds that there is an agreement but one which differs in some respects from that pleaded, it does not simply dismiss the case, but gives effect to the agreement found so long as it supports the relief claimed. He added, not unreasonably in the circumstances, that parties who obtain the indulgence of a last minute amendment to raise a new defence ought not too readily be heard to complain if the consequences include their having to deal with issues not previously raised on the pleadings. 72 However, in my opinion Mr Forrest's case on the pleadings has always been one which combined the alleged oral agreement with elements of the Shareholders' Agreement. Mr Forrest pleaded that the parties entered into the Shareholders' Agreement "for the purpose of regulating the affairs" of the Company and the Trust, and that on or about 17 December 1999, they made the Buyout Agreement whereby Mr Forrest would cease involvement in the Practice and transfer his interest to the defendants "at a price equal to 45% of the fair market value of the Practice as at 17 December 1999, as determined in accordance with the Shareholders' Agreement". Until the amended defence was filed, the main issue on the pleadings was whether the Knights valuation was or was not a valuation in accordance with the Shareholders' Agreement. Originally, Mr Pryke did not admit the Shareholders' Agreement on the basis that he complained that he did not have proper particulars of it. Ultimately, he also contended that it was void for uncertainty. In asserting that the Buyout Agreement was void for uncertainty, he pleaded "there was no term in the alleged Buyout Agreement or at all" to the effect of who were the purchasers or in what proportions. Mr Cox's written submissions, delivered shortly before the hearing, address clause 12 of the Shareholders' Agreement. 73 The written submissions delivered on behalf of Mr Forrest before the hearing articulated his position as being that the Buyout Agreement was collateral to the Shareholders' Agreement, incorporating parts of it and superseding other parts. The position of the first and third defendants was that all that happened on 16 December was to fix a date for retirement, upon which the Shareholders' Agreement would otherwise operate. Accordingly, the interrelationship of the events of 16-17 December and the Shareholders' Agreement was always at the heart of the issues in the case. 74 Mr Forrest's case was always one that relied on the combination of an oral agreement made on 16 December with the terms of the Shareholders' Agreement. A conclusion that the oral part of the agreement was no more than that Mr Forrest would retire and would be permitted to retire without giving notice with effect from 17 December, and that otherwise the provisions of the Shareholders' Agreement would operate, is within the scope of the pleadings. 75 Accordingly, I conclude that the result of the conversation on 16 December was that Mr Forrest resigned, not pursuant to the Shareholders' Agreement but pursuant to an oral agreement - the Buyout Agreement - which stood outside the Shareholders' Agreement, but which incorporated the terms of the Shareholders' Agreement so far as applicable, to the extent that the Buyout Agreement did not make provision.

Does the Buyout Agreement Fail for Uncertainty or Incompleteness? 76 Mr Pryke contends that there was no agreement as to which of, and/or in what proportions, the defendants were to be the purchasers of Mr Forrest's interest in the Practice. Mr Cox submitted that, while the possible purchase arrangements had been discussed between the defendants in late 1999, no agreement had been reached between them as to the proportions in which they would acquire Mr Forrest's shares; that no express term in the conversation of 16 December addressed it; that no express term in the Shareholders' Agreement did so (save in the case of death which was inapplicable); that the conditions for implication of an implied term were not satisfied; and that as the identification of the purchasers and proportions was an essential part of an agreement for sale their absence made the agreement incomplete. Mr Cox acknowledged that courts will endeavour to uphold contracts where it is possible to do so, but submitted that neither the process of construction nor that of implication could bind Mr Pryke to purchase an unspecified portion of Mr Forrest's interest.

77 In the context of commercial arrangements, courts do not adopt a "narrow or pedantic approach" in eliciting from the language and conduct of the parties sufficient content to permit a particular contractual intention to be attributed to them. As Barwick CJ said in Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 (at 436-437): But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connection in Hillas & Co Limited v Arcos Limited [(1932) 147 LT 503, 512] ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Limited v Ouston [[1941] AC 251] is not "so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved. 78 Similarly, in Biotechnology Australia Pty Limited v Pace (1988) 15 NSWLR 130, Kirby P (as his Honour then was), though finding in that case that the relevant contract was illusory, observed that courts will endeavour to uphold the validity of agreements and to avoid frustrating the wishes of contracting parties so far as those wishes may be ascertained from the agreement between them - though not where asked to spell out to an unacceptable extent that to which the parties have themselves failed to agree, or to clarify the irremediably obscure. 79 It is true that the conversation of 16 December did not specify who were to be the purchasers. That was not its function. Dispensing with notice, the parties fixed a retirement date, and left it to the provisions of the Shareholders' Agreement otherwise to regulate their affairs. The parties did not on 16 December need to agree specifically on the identity of the particular purchasers or the proportions in which they were to purchase, because they were negotiating against the background of the Shareholders' Agreement to which they were content to leave such matters as were not otherwise specifically agreed. One of those matters, though it had been the subject of earlier discussion between the defendants, was in what proportions the defendants would purchase Mr Forrest's interest. That remained unresolved, so it was left to be regulated by the Shareholders' Agreement. Accordingly, that there was no express agreement made on 16 December as to who would be the purchasers or in what proportions they would purchase Mr Forrest's interest does not mean that the Buyout Agreement was incomplete; the deficiency such as it was was filled by the Shareholders' Agreement, which the parties intended would regulate their positions save to the extent that the oral Buyout Agreement made provision. The question then becomes whether the provisions of the Shareholders' Agreement failed to identify the purchasers, or the proportions in which they were to purchase. 80 Clause 12 of the Shareholders' Agreement must be understood as the third of three clauses which deal with the transfer of interests in the Practice, each applying in different circumstances. 81 First, clause 10 deals with sale or transfer by a participant who wishes to sell all or any part of his interest, other than upon retirement or removal. It provides for that participant to give a transfer notice, upon which offers are made to the other participants at valuation of the interest proposed to be transferred, pro-rata according to their existing interests (although provision is made for acquisition of more than a pro-rata share by one participant if another does not take up his full entitlement). Significantly, clause 10 includes no provision for any discount, and it does not oblige the other participants to purchase: it gives them a right of pre-emption, and then gives the intending transferor a qualified right to transfer to a third party at not less than valuation, to the extent that the other participants do not exercise their pre-emptive rights. 82 Next, clause 11 deals with transfer by the legal personal representative of a participant who becomes incapable, insolvent or deceased (other than by suicide). It confers on the other participants an option to purchase at valuation the relevant participant's interest. It imports the provisions of clause 10 in the event that the option is exercised, thus importing the pro-rata aspect of clause 10. It provides that the cost of the valuation is to be borne pro-rata according to the interests of the purchasers in the Practice. Once again it does not impose an obligation, but confers an option, on the other participants to acquire the relevant participant's interest. It too, contains no provision for a discount. 83 Finally, clause 12 deals with transfer of interests upon retirement, removal or suicide - the subject matter that has been "carved out" of clauses 10 and 11. (As will become apparent, it deals to some extent also with death other than by suicide, in a way that may be inconsistent with clause 11). It provides for the giving of a retirement notice specifying a date of retirement, or a resolution for removal (specifying a date of removal). It provides that the retiree's price is to be that participant's percentage of the value of the whole of the Practice, but (unlike clauses 10 and 11) subject, at least in some cases, to a discount. The provision for a discount benefits the purchasers. Also unlike clauses 10 and 11, clause 12 contains provisions which defer the payment of the price: these too are for the benefit of the purchasers. In the case of removal, it expressly stipulates that the purchasers are the remaining principals. It provides expressly that in the case of death, the purchasers are the surviving participants pro-rata to their remaining interests. And it provides expressly in the case of suicide not only that the purchasers are the remaining participants, but also that they shall purchase the relevant interest, thus apparently imposing an obligation, as distinct from an option, to purchase, at least in the eventuality of suicide. 84 In my view, clause 12 on its proper construction imposes inn all the circumstances in which it is applicable, an obligation on the remaining participants to purchase the retiree's interest, pro-rata according to their existing interests in the Practice. Clause 12.8 is to be read as if, after the words "will be payable", were inserted the words "by each of the remaining participants in proportion to their interests in the total remaining practice unless all the remaining principals otherwise mutually agree". This conclusion can be reached by a process of construction, having regard to the surrounding clauses, but if not, then a term to that effect is implicit. 85 First, such words already appear at the end of clause 12.7 (dealing with death) and, substantially though in an abbreviated form, in clause 12.10 (dealing with suicide, which is deemed to be a retirement). Secondly, the above comparison of clauses 10, 11 and 12 shows that clause 12 contains protections for the benefit of the purchasers not present in the other clauses in particular the discount, and the provision for deferred payment of the price. There would be no reason to provide such protections for external purchasers; they were included because it was intended that the purchasers under clause 12 would be the remaining participants, and that, in distinction to clauses 10 and 11, they would be obliged to purchase. 86 Thirdly, this conclusion is strongly reinforced by clause 12.6 (dealing with removal), which identifies the remaining principals as the purchasers; clause 12.7 (dealing with death), which identifies the surviving participants as the purchasers; and clause 12.10 (dealing with suicide), which identifies the remaining participants as the purchasers. The inclusion of retirement in that context, with the mechanisms beneficial to the purchasers to which reference has been made, is indicative of an intention that upon retirement the remaining participants would be obliged to purchase the retiring participant's share. 87 Fourthly, consistently through the Shareholders' Agreement, obligations are imposed and benefits conferred on participants pro-rata according to the respective quantum of their interests. Within clause 12, that is explicitly so in Clause 12.7. It would be quite anomalous if the obligation were borne in any other way upon retirement. 88 Mr Cox submitted that the parties should not be taken to have intended to impose an obligation on remaining participants to purchase a retiring participant's share, particularly in the context that two of the participants had only 5% interests, yet might by a retirement be required to purchase the 45% share of one of the larger participants. Reference was also made to the circumstance that a series of retirements could result in one participant being required to purchase the entire practice. I do not accept this submission. Clause 12.10 makes plain that in the case of suicide it was intended that there be an obligation on the remaining participants to purchase the deceased participant's interest. If such an obligation were intended in the case of deemed retirement by suicide, then there is no reason why it would not also have been intended in the other instances dealt with in clause 12, including retirement. 89 Accordingly, the effect of the Buyout Agreement made on 16 December, in conjunction with those provisions of the Shareholders' Agreement which it incorporated, in the events which have happened, is that the remaining participants - the defendants - were obliged to purchase Mr Forrest's interests, pro-rata according to their own existing interests. The Buyout Agreement does not fail for uncertainty or incompleteness. What If Any Discount Is Applicable? 90 By making this a retirement by agreement, rather than a retirement pursuant to notice, the parties took it outside the scope of those provisions of the Shareholders' Agreement which required notice to be given and which penalised short notice. Clause 12.8 applies, according to its terms, only to retirements by notice, but it was plainly the intention of the parties that it operate in the circumstances, though there was to be no notice, as if notice were not required. Insofar as clause 12.5 might otherwise have been applicable, it was excluded; it is only capable of application to retirements by notice, and not to retirements by agreement. Accordingly, the effect of the agreement of 16 December - that Mr Forrest could and would retire on and with effect from 17 December, without notice being required - was that no discount would be applicable to his retirement entitlement. 91 If this conclusion were wrong, and Clause 12.5 were applicable, it would be necessary to resolve whether it operates to apply a discount to a retirement after three years from the commencement date of the Shareholders' Agreement. Clause 12 - like the Shareholders' Agreement as a whole - contains a number of inconsistencies, which make it difficult to distil a clear intention in some respects. The following observations can be made: · In clause 12.2, the use of the words "if applicable", with reference to the discount, show that it was contemplated that a discount would not be applicable in every circumstance in which clause 12 is engaged. The circumstances in which clause 12 is engaged are retirement, removal, and suicide. [Although there is a question as to whether it also has application in the context of death other than by suicide, overall consistency with clause 11, and the omission of an obligatory provision from clause 12.7 (when compared to 12.10) suggests that it does not. Although clause 12.7 deals with death, death was already covered by clause 11, which gave the surviving participants an option, rather than an obligation, to acquire the deceased participant's interest from his estate. Clause 12.7 does not explicitly provide that the deceased's interest must be purchased in that eventuality; it is capable of meaning that if purchased, it shall be by each of the surviving participants in proportion to their remaining interests. Its prime function is to provide for on-going payments to the estate or next of kin for up to three months or until his interest in the Practice is purchased whichever is the earlier, which suggests that the interest may not be purchased within three months (and, therefore, conceivably not at all)]. · The express reference in clause 12.4(i) to the discount, in the context of retirement within three years from the commencement date, makes clear that it was intended that there be a discount in the case of such a retirement. Clause 12.6 makes clear that there was to be a discount in the context of removal. Because clause 12.10 deems suicide to be retirement on less than two months' notice, it is clear that there was intended to be a discount in the case of suicide, at least within the first three years of the operation of the Shareholders' Agreement. Clause 12.8 deals with retirement more than three years from the commencement date and complements clause 12.4. Unlike clause 12.4, it contains no explicit reference to the discount, and though it refers to the purchase price "as determined in accordance with the preceding provisions of this clause", that phrase, while capable of referring to clause 12.5, is also capable of referring only to clause 12.2. The omission of express reference to the discount, in contrast to clause 12.4, is a significant matter. 92 Mr Smark, who appears for Mr Appleyard and Mr Kenny, emphasised that clause 12.5 spoke of retirement generally and not retirement within three years, and that the scale of discount depended on the length of notice given, and bore no relationship to the three-year period. These are valid points, telling in favour of the view that the discount applies regardless of whether retirement was before or after three years. The different provisions made by clause 12.4 and 12.8, depending on whether retirement is before or after three years, could be explained by reference to the different deferred payment provisions which apply in each case. Yet in that differential context, the omission of the express reference to the discount in clause 12.8, when contrasted with clause 12.4, remains striking. 93 Mr Smark argued that the use of the word "the" at the commencement of clause 12.4(i), rather than "a", was more consistent with a discount which applied generally. There is some force in this, but in the context of the infelicities of drafting that appear throughout the agreement, I could not give it much weight. 94 Mr Smark suggested that the circumstance that clause 12.10 deems suicide to be retirement on less than two months' notice favoured the view that a discount applied after, as well as before, three years. This adds little to the argument based on clause 12.5. An answer to it is that it is conceivable that the parties took the view that while in the case of retirement within three years retirees should suffer a discount depending on the amount of notice they gave, three years was enough and after that, regardless of the circumstances and degree of notice, they should recover full value. 95 Ultimately, I do not think that it can be said that any clear policy can be discerned from the Shareholders' Agreement that favours one construction over the other. One is left, then, on the one hand, with the matters identified by Mr Smark in clause 12.5; and on the other with the words "if applicable" in clause 12.2 - which, unless death is truly covered by clause 12.7 and not by clause 11, would have no work to do if a discount applied to retirement after three years - and the omission from clause 12.8 in contrast to clause 12.4 of any express reference to the discount. Not without hesitation, I have concluded that the better guide to the parties' intention is to be found in the recognition, in use of the words "if applicable" in clause 12.2, that a discount was not of universal application, and more particularly in the contrasting omission from clause 12.8, when compared to clause 12.4, of reference to the discount. Accordingly, I conclude that the preferable construction of clause 12 is that a discount does not apply in the case of a retirement where the effective retirement date is after three years from the commencement date. 96 The conclusions which I have reached - that clause 12.5 is not applicable in the circumstances, but that if it was, it does not apply a discount in the case of a retirement after three years - render it unnecessary to invoke any conventional estoppel - which, as Mr Smark rightly submits, was not pleaded - that might have held the parties to a construction of the Shareholders' Agreement to the effect that the discount provisions did not apply to retirement after three years; although, at first sight, such an argument has much to commend it. Where parties to a contract by their course of dealing put a particular interpretation on its terms, on the faith of which each to the knowledge of the other acts and conducts their mutual affairs, they are bound by that interpretation, just as much as if they had recorded it as a variation of the contract, because by their course of dealing they adopt a conventional basis for the governance of their relations which binds them, it being unjust to allow either to insist on the strict interpretation of the original terms when, having regard to the dealings between the parties, it would be inequitable to do so [Amalgamated Investment & Property Co Limited v Texas Commerce International Bank Limited (in liq) [1982] QB 84, 121 (Lord Denning MR); Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641]. Despite the reference to inequitability in what Lord Denning said, such a "conventional estoppel" or "estoppel by convention" is a common law and not an equitable estoppel [MK & JA Roche Pty Limited v Metro Edgley Pty Limited [2005] NSWCA 39 [71]]. 97 In this case, all parties assumed (as at December 1999) that if Mr Forrest retired forthwith, no discount would be applicable. They assumed that the proper construction of the Shareholders' Agreement was that which I have preferred above. They negotiated on that basis, as appears from some of the communications to which I have referred, specifically those in which the defendants asserted to Mr Forrest that retirement was preferable in everyone's interest to removal, and those in which Mr Forrest submitted calculations based on 45% of valuation: those communications demonstrate the requisite mutuality of the relevant assumption. I do not think that Mr Forrest would have resigned with effect from 17 December had he supposed that that would result in a 40% discount. Thus, although it is unnecessary to rely on it, even if I were wrong in concluding that the effect of the Buyout Agreement was that clause 12.5 was rendered irrelevant, and alternatively in adopting the construction of clause 12 which I have preferred, a conventional estoppel would bind the parties to that construction, even if it were not the correct one. Who is Entitled to Receive the Retirement Payment? 98 For Mr Appleyard and Mr Kenny, it was argued that it was not Mr Forrest personally who was entitled to be paid the retirement benefit, but (initially) Balvale, and (ultimately) Manoral. This has potential consequences as to the setting-off of loan accounts against his retirement entitlement. Balvale is the legal owner of the 45 shares that represent Mr Forrest's interests in the Company. Manoral is the legal owner of the 900,000 units representing the interests of Mr Appleyard and Mr Forrest in the Trust, and holds 450,000 of them on trust for each of Mr Appleyard and Mr Forrest. Having accepted that it was the Trust which beneficially owns the Practice, Mr Smark conceded that there was no basis for treating Balvale as the person entitled to the payment. But he submitted that since it was Manoral whose units were being acquired, Manoral was the proper payee and the party who could give a proper discharge. 99 Clause 10.3 treats a participant who wishes to transfer all or any of his interest in the Practice as the vendor and provides (by 10.3(f)) that the price is payable, ultimately, to the vendor (in the event of a transfer under that clause). It speaks of the transfer of an "interest in the Practice" by a "participant". Clause 11 deals with acquisition of "the interest or interests in the Practice" of a deceased, disabled, incapacitated or insolvent participant, and provides for a purchase price for that participant's interest or interests to be agreed between that participant (or his legal personal representative) and the remaining participants, or determined by valuation "of the interest or interests of the first party", the costs of such valuation to be borne "by the remaining participant or participants and the first participant or the first participant's representatives" pro-rata to their respective interests in the Practice. 100 Clause 12.2 identifies the basis for calculation of a purchase price for "a participant's interest in the Practice". Clause 12.8 calls it the "retiree's purchase price", the retiree being "a principal" who "wishes to retire". The retiree's purchase price is "the purchase price in respect of the retiring principal's interest in the Practice". 101 Although there is no clear consistent distinction made in the Shareholders' Agreement between use of "principal" and "participant", both concepts are used to identify the natural person - Mr Forrest, Mr Appleyard, Mr Pryke or Mr Kenny - who stands behind each beneficial interest in the Practice. The clauses to which reference has been made make provision for the transfer of what the Shareholders' Agreement recognises to be a principal's or participant's interest in the Practice as a whole. That interest is represented by shareholdings in the Company and unit holdings in the Trust, which may be held directly by the principal/participant or may be held indirectly through nominee companies. But however held, the interest in the Practice is treated by the Shareholders' Agreement as ultimately that of the principal/participant, under whose control the actual legal shareholder and unit holder is. Where any of clauses 10, 11 or 12 comes into operation, the effect is that the transferring participant must procure the transfer by his controlled entities of the shares and units which they hold. But as between the parties to the Shareholders' Agreement, the person given rights is the participant, and specifically in clause 12.8, the retiring principal, not his controlled entities. 102 The valuation mechanism makes no provision for apportionment of the price between shares in the Company and units in the Trust. It seeks to place a value on a participant's interest in the Practice. The payment to which a retiring principal is entitled is one in respect of his equity participation in the Practice. His obligation is to procure a transfer of the shares and units which represent that interest. As between him and the other participants, it is he who is entitled to receive the price. The position between him and his controlled entities may be another matter, but that is not something, which concerns the other participants. 103 Mr Forrest, and not Manoral or Balvale, is therefore entitled to receive the retirement payment. Should Specific Performance Be Declined on Discretionary Grounds? 104 For Mr Pryke, Mr Cox argues that it would be inequitable to compel him to purchase a further interest in the Practice in circumstances that he resigned from the Practice and ceased any active role in it in early 2001 - up to which time it is said Mr Forrest was not ready and willing to sell his interest - and that Mr Pryke would now not be able to sell that further interest without the consent of the other defendants, who together have more than 75% of the shares, and that his relationship with the two remaining participants is now not workable. 105 As has been mentioned, Mr Pryke gave a notice on 22 February 2001 that he wished to resign as an employee and director and therefore wished to transfer all of his interests in the Practice, effective 30 March 2001. His letter acknowledged the existence of a formal retirement process under the Shareholders' Agreement, but expressed confidence that the matter could be resolved without the need for external valuations. So far as the evidence goes, the terms of Mr Pryke's departure from the Practice have not yet been resolved between the remaining participants. For present purposes I am prepared to accept that the relationship between him on the one hand, and Mr Appleyard and Mr Kenny on the other, is now such that it would not be reasonable to expect them to work together in the quasi-partnership relationship of the Practice. However, clause 12 of the Shareholders' Agreement provides a means by which Mr Pryke can require Mr Appleyard and Mr Kenny to acquire his interest, including any such interest as he is compelled to acquire from Mr Forrest, as Mr Pryke seems to have contemplated as the "formal process" referred to in his 22 February 2001 notice. 106 When Mr Pryke submitted his resignation, he was plainly on notice of Mr Forrest's retirement, and of his claim to be paid a sum of money in return for the transfer of his interests. I do not accept the submission that at that time Mr Forrest was not willing and able to perform; he had rejected the Knights valuation - as it now appears to be common ground he was justified in so doing - and in those circumstances a refusal to transfer his interest, in the absence of a proper valuation, does not evidence an absence of willingness or ability to perform the agreement so far as it was to be performed by him. Mr Pryke, being on notice of Mr Forrest's claim, could not create a discretionary defence to its enforcement against him by resigning when already affected by that notice. 107 It is unnecessary to resolve in these proceedings whether the effect of Mr Pryke's retirement notice is that he is entitled to pass on his obligation to purchase Mr Forrest's interest to the remaining participants, Mr Appleyard and Mr Kenny. Mr Pryke kept his issues with the other defendants apart from this case, until raising them as part of his discretionary defence at the last moment. There is no cross claim upon which they could be resolved in this litigation. 108 In those circumstances, I am satisfied that Mr Pryke's subsequent resignation does not provide reason to withhold specific enforcement of Mr Forrest's rights against him on discretionary grounds.

From When Should Interest Run? 109 For Mr Appleyard and Mr Kenny, Mr Smark submitted that interest on Mr Forrest's entitlement should not be allowed, or alternatively should be allowed only at a reduced rate or from a deferred date. He referred in particular to the time which had elapsed before the commencement of proceedings, and the impact which an award of interest at court rates would have. He submitted that on at least one view - if there were no perfected contract - Mr Forrest's entitlement to be paid may have arisen only recently, if at all. 110 On the view that I take, Mr Forrest was entitled to be paid with effect from 17 December 1999. According to the provisions of the Shareholders' Agreement in conjunction with which the 16 December agreement operated, his entitlement was to be paid one-fourth of the "retiree's price" on that day, a further 25% six months thereafter, a further 25% after a further six months, and the final 25% 18 months after 17 December 1999. He has been kept out of his money since then, and though he has not transferred his interest, he has not participated in the Practice and, save for the prepayments of $55,300, has not benefited from it. The benefits and profits of the Practice have been enjoyed during that period exclusively by the defendants. 111 Moreover, the retiree's purchase price will be calculated by reference to a valuation struck as at 17 December 1999. Where a "buyout" figure is calculated by reference to valuations struck not at the date of hearing but at an earlier date, then it will ordinarily be appropriate to allow interest from the date as at which the price is struck [cf Kardos v Sarbutt [2006] NSWCA 11, [98]]. 112 In my opinion, therefore, interest should be allowed from the mid-date of the period over which the payments ought to have been made, which was 17 September 2000, but after giving credit for the prepayment of $55,300. Costs 113 The original defence of Mr Appleyard and Mr Kenny sought to support the Knights valuation, a position that was abandoned before the hearing. It was replaced by other defences which have failed. Although to some extent the difficulties were caused by the Shareholders' Agreement, the main issue raised by the amended defence involved the first and third defendants departing from the (correct) view which they had taken as to applicability of a discount from 1999 until very recently. The defence of Mr Pryke originally was one of non-admission. His amended defence raising uncertainty has failed. In my opinion there is no sufficient reason why the unsuccessful defendants should not pay Mr Forrest's costs. Conclusion 114 Mr Forrest resigned, not pursuant to the Shareholders' Agreement, but pursuant to an oral agreement - the Buyout Agreement - which stood outside the Shareholders' Agreement, but which incorporated its terms so far as relevant, to the extent that the Buyout Agreement did not make provision. Although I do not accept that express reference was made, in the conversation of 16 December, to 45% of the Practice valuation as Mr Forrest's retirement entitlement, or, even if it were referred to, that it was intended or understood to be a contractual promise, nonetheless the effect of that conversation was that the parties agreed, dehors the Shareholders' Agreement, that Mr Forrest would retire (without being required to give any notice) with effect from 17 December (though his formal resignation would be deferred), and that the provisions of the Shareholders' Agreement would operate to determine his entitlement on retirement as at 17 December insofar as the Buyout Agreement did not make provision. 115 The effect of the Buyout Agreement made on 16 December, in conjunction with those provisions of the Shareholders' Agreement which it incorporated, in the events which have happened, is that the remaining participants - the defendants - were obliged to purchase Mr Forrest's interests, pro-rata according to their own existing interests. The Buyout Agreement does not fail for uncertainty or incompleteness. 116 Insofar as clause 12.5 of the Shareholders' Agreement might otherwise have been applicable, it was excluded; it applies only to retirements by notice under the Shareholders' Agreement, and not to retirements by agreement dehors the Shareholders' Agreement. Accordingly, the effect of the oral agreement of 16 December - that Mr Forrest could and would retire on and with effect from 17 December, without notice being required - was that no discount would be applicable to his retirement entitlement. Alternatively, the preferable construction of clause 12 is that a discount does not apply in the case of a retirement where the effective retirement date is after three years from the commencement date. And, although it is unnecessary to rely on this basis, even if clause 12.5 were not rendered irrelevant and on its proper construction a discount were applicable, a conventional estoppel would bind the parties to the construction that no discount was applicable, even if it were not the true construction. 117 Mr Forrest, and not Manoral or Balvale, is entitled to receive the retirement payment. 118 Mr Pryke's subsequent resignation does not provide reason to withhold specific enforcement of Mr Forrest's rights against him on discretionary grounds. 119 Interest should be allowed from the mid-date of the period over which the payments ought to have been made, which was 17 September 2000, but after giving credit for the prepayment of $55,300. 120 There is no sufficient reason why the unsuccessful defendants should not pay Mr Forrest's costs. 121 In my opinion, therefore, orders should be made to the following general effect:

Declare that there is a binding and enforceable agreement between the plaintiff and the defendants that:

1.1 the plaintiff would retire and would be permitted to retire from the Practice, such retirement to take effect from 17 December 1999 for the purposes of calculating his entitlement upon retirement;

1.2 the defendants would pay to the plaintiff a sum equivalent to 45% of the fair market value of the Practice determined in accordance with clause 12.1 of the Shareholders' Agreement as at 17 December 1999, by four equal instalments payable on 17 December 1999, 17 June 2000, 17 December 2000 and 17 June 2001;

1.3 the plaintiff would transfer or cause to be transferred to the defendants all his shares and his controlled entities in the Company and units in the Trust; and

1.4 the price referred to in 1.2 would be payable by, and the share and units referred to in 1.3 would be transferred to, the defendants, in proportions 45:5:5.

Declare that the defendants have paid and the plaintiff has received $55,300 on account of his entitlement referred to in 1.3.

Declare that the document entitled "Goodwill Valuation" dated 15 May 2000 delivered by Robert C Knights does not comprise a valuation of the fair market value of the Practice as at 17 December 1999.

Declare that the agreement referred to in Order 1 ought to be specifically performed and carried into execution.

Order pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 20.14 that it be referred to a suitably qualified valuer of not less than ten years experience in valuing professional practices to inquire into and report what was the fair market value, determined in accordance with the principles set out in the Shareholders' Agreement, of the Practice (comprising the Company, the Trust, and the business of consulting engineers conducted by the Company as trustee of the Trust) as at 17 December 1999.

Directions in accordance with paragraphs 2, 3, 4, 5, 6 and 7 of the usual order for reference contained in Annexure to 2 to Practice Note SC Eq 3.

Order that the defendants pay the plaintiff's costs of the proceedings to date. 122 I would envisage that upon adoption of the referee's report or resolution otherwise of the valuation issue, further directions could then be made, if necessary, in aid of specific performance, to the effect that:

1. The defendants' pay to the plaintiff an amount equal to 45% of the valuation, less the prepayments, plus interest.

2. The plaintiff procure the transfer to the defendants or as they may direct of all shares held by him or Balvale in the Company and all units held by him or on his behalf in the Trust. 123 I will stand the proceedings over to a date convenient to counsel in order to permit short minutes to be brought in to give effect to this judgment. In particular, the parties should in the meantime endeavour to agree upon the valuer to be appointed, and if not, to obtain a nomination or nominations for that purpose from the President of the Australian Institute of Chartered Accountants (NSW Chapter). **********

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