The email concluded:
"As part of the restructuring of Coastalwatch, effective as of Monday the 6 th November 2006 your position as Managing Director is redundant. In terms of handover and notice period I will write to you on what this [sic] on Monday.
I will still be happy to work with you as a shareholder on the business going forward and wish you all the best."
63 Mr Jago did not attend Coastalwatch premises on Monday 6 November 2006. On 7 November 2006 he sent an email to Mr Sundell:
"While it is clear that you have not made the position of Managing Director redundant, I would be happy to receive, in writing, your proposed offer of settlement."
64 On 9 November 2006, Mr Sundell responded that he had no intention of making an offer of any kind.
65 On 16 November 2006, Mr Jago's solicitors wrote to the secretary of Crown stating that Mr Jago wished to exercise his option to increase his shareholding to 20%. The letter stated that Mr Jago held a bank cheque for $35,000 which he was ready to hand over to Crown together with a signed transfer of the 31,250 shares in exchange for an executed transfer of 50,000 shares.
66 On 17 November 2006, Mr Wooldridge responded stating that Crown had not entered into any agreement granting Mr Jago options over any shares in Coastalwatch.
67 On 7 December 2006 Mr Jago's solicitors referred to earlier correspondence with the secretary of Crown and notified the secretary of Coastalwatch that Mr Jago called for the issue of fully paid shares in Coastalwatch such that he would hold 10% of its issued capital, that he exercised his option to acquire further shares amounting to a total of 20% of the issued share capital of Coastalwatch and he called for the transfer of such shares to him advising that Mr Jago held a bank cheque payable to Crown in the amount of $35,000.
68 On 8 December 2006, the solicitors received a facsimile from Mr Sundell stating that Coastalwatch maintained:
"1 There is no binding agreement with your client in that all that has occurred is that one singular offer, (being an offer incapable of being accepted by your client in part), has been made to your client which offer has not been accepted in accordance with its terms and which is hereby withdrawn, and/or in the alternative,
2 There is no binding agreement with your client as there has been no valuable consideration received by Coastalwatch to support the same, and/or in the alternative,
3 Even if there is found to be an acceptance of the offer and consideration for the agreement asserted by your client (which is not admitted), any agreement constituted thereby is void owing to the absence of agreement having been reached on all of its essential terms."
69 It was submitted on Coastalwatch's behalf that no concluded agreement was reached with respect to the shares in Coastalwatch because a shareholder agreement was not executed. On the other hand, it was submitted on behalf of Mr Jago that the parties reached agreement, orally, with respect to the essential terms of Mr Jago's share acquisition in Coastalwatch and while it was in the contemplation of the parties that a shareholder agreement would be executed, that was to reflect the terms of their agreement. In other words, that submission was that the arrangement fell within the first class of case in Masters v Cameron (1954) 91 CLR 353 at 360.
70 As McHugh JA said in G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634 the decisive issue is the intention of the parties to be objectively ascertained from the terms of the documents read in the light of surrounding circumstances. If the terms of a document indicate that the parties intended to be bound immediately, effect is to be given to that intention irrespective of the subject matter or the magnitude or the complexity of the transaction.
71 If a contract is said have arisen from discussions between the parties, the Court must be satisfied that a consensus as to essential terms was achieved. In R.T. & Y.E. Falls Investments Pty Ltd v The State of New South Wales & Ors [2001] NSWSC 1027 at [50] Palmer J said that where an informal contract arising from discussions or negotiations between the parties is alleged, the Court must be satisfied that the parties arrived at a consensus as to the terms of the agreement, that the terms were sufficiently certain to be capable of forming a binding contract and that the parties, by their words and conduct taken in the context of the surrounding circumstances, evinced a common intention that the consensus at which they had arrived should constitute an immediately binding contract.
72 It was submitted that even if some consensus was reached with respect to some matter it did not amount to a binding agreement upon all the terms of the proposed transaction. Reference was made to B Seppelt & Sons Limited v Commissioner for Main Roads (1975) 1 BPR 9147 at 9151 and to Tasman Capital Pty Ltd v Sinclair & Anor [2008] NSWCA 248 at [86], but they are not in point.
73 Reference was also made to what Palmer J had said in R.T. & Y.E. Falls at [53] that common sense would suggest it was inherently improbable that commercial people would intend to bind themselves to a substantial transaction in a haphazard and imprudent fashion potentially productive of dispute when they had recognised the need for a formal contract to record the terms of the transaction.
74 To similar effect was the passage from Gleeson CJ's judgment in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 that other things being equal, as a matter of fact and common sense the more numerous and significant the areas in respect of which the parties had failed to reach agreement, the slower a Court would be to conclude that they had the requisite contractual intention.
75 On the other hand, where an oral arrangement is partially performed before the execution of a document reflecting its terms, the more readily a Court will conclude that the parties had reached a consensus before the execution of the document because the performance presupposed a binding agreement of the parties. In Azzi & Ors v Volvo Car Australia Pty Ltd [2007] NSWSC 319 at [22] Brereton J, after referring to the above passage from Palmer J, said:
"But a less cautious approach is called for where there are commercial dealings between parties who act as if they are in legal relations and document their arrangements, albeit imperfectly: it is far more difficult to say that a contract which is apparently part-performed is no contract at all, since to do so must attribute to the parties an intention to perform work either at no cost, or alternatively on a basis yet to be determined, even though the work has been done in the context of an apparent agreement to perform it."
76 In early negotiations in September 2002, the strike price of $10,000 for the shares then in contemplation was a reflection of what Mr Sundell had put into the business. It was submitted that the parties intended there to be no binding agreement until a shareholder agreement was executed because of the increasing investment of Mr Sundell in the business.
77 It was submitted that the general ledger supported Mr Sundell's reference to $750,000 as the basis for a strike price in his email of 3 November 2006. At 31 October 2006 the indebtedness stood at $753,805.58.
78 It was submitted that the meeting that Mr Jago put at 2 December 2005 and Mr Sundell put at 21 December 2005 was more likely to have been the occasion when a strike price of $350,000 was nominated, because the general ledger showed a debt of $353,393.54 on 16 January 2006 whereas the figure on 24 October 2005 was $201,290.97.
79 Mr Jago was confused about what was discussed in October 2005 and what was discussed in December 2005. His confusion as to dates is evident from his statement that within a day or two of his meeting with Mr Sundell in December 2005 he sent an email to Mr Lasky on 10 January 2006.
80 What is clear is that the agreement that Mr Jago should become the managing director of Coastalwatch occurred at the December meeting.
81 Mr Jago maintained that what was agreed was that he would have a three-year contract for $100,000 a year. Mr Sundell maintained that there was to be no increase in Mr Jago's salary unless key performance indicators were met.
82 Mr Jago volunteered in cross-examination against interest that performance indicators were not met for the year ended 30 June 2006. Yet Mr Sundell approved an increase in Mr Jago's salary to $100,000 in January 2006. That evidence is supportive of Mr Jago's version of the agreement and constituted part-performance of it.
83 Mr Jago's version of events is also supported by the entries in his notebook. There is reference to the three-year employment contract under "Kims offer" as an item to be discussed. And "Mals offer" was for $100,000 plus a bonus of $20,000. The blue ink notation made upon agreement at the meeting or the day after of "$100k increase 3 year & bonus" supports Mr Jago's testimony as does the entry for 2 December 2005.
84 It was submitted that little weight should be given to the entries in Mr Jago's notebook. First, there was the separation of the relevant entries by 23 pages. That may be explicable on the basis of Mr Jago's original evidence that the first entries related to his meeting with Mr Sundell in October 2005 at the restaurant, and the later entries related to the December 2005 meeting.
85 Secondly, there was no entry of consequence on the second page albeit that the entries were made during the meeting. The issues for decision were set out on the first page. If there was agreement in relation to them, there was no need to repeat them on the next page.
86 Thirdly, attention was drawn to the reference to a six-month review which Mr Jago said referred to the bonuses when the note appeared on the same line as the reference to the three-year contract.
87 The annual bonus to which Mr Jago said there was agreement was subject to review. It is more likely that Mr Jago's explanation was correct. No other documentation links a review to a three-year contract. No reduction in the term of the employment by reason of a review was pleaded and there was no evidence that as a result of an adverse review, Mr Jago's employment was terminated.
88 Because Mr Sundell's authorisation of an increase in the salary of Mr Jago contradicts his version of the conversations; because Mr Jago's notes support his version of the conversations; because Mr Jago's subsequent correspondence is in conformity with his version of the conversations; because Mr Sundell did not contradict any of that correspondence; and because I found Mr Sundell to be an evasive witness whom I had to admonish during cross-examination, I prefer the evidence of Mr Jago.
89 Coastalwatch, through Mr Sundell, in December 2005 agreed to employ Mr Jago for three years from 1 July 2005 as managing director on a salary of $100,000, a bonus of $20,000 if revenue targets were met and non-cash benefits.
90 It was submitted that the shareholding aspects were not part and parcel of Mr Jago's appointment as managing director but were part and parcel of his involvement in the company. I reject that submission. The arrangement with respect to the gift of shares and the grant of an option to acquire further shares was not isolated from the employment arrangement. There was a remuneration package associated with Mr Jago's appointment as managing director that included non-cash benefits in the form of two tranches of share acquisitions in Coastalwatch.
91 I reject Mr Sundell's evidence that no agreement was reached for the issue of shares or options to Mr Jago. I accept Mr Jago's evidence that part of the remuneration package comprised the issue to Mr Jago for no monetary consideration of 10% of the issued share capital of Coastalwatch together with an option to acquire a further 10% of the issued capital upon payment of $35,000 within 2 and a half years.
92 It was submitted that insufficient terms were agreed orally to give rise to a concluded contract. I reject that submission. The arrangement was straightforward and the essential terms were agreed.
93 The parties had in contemplation that a shareholder agreement would be drawn up, but their agreement was intended to be immediately binding upon them as part of an employment agreement to take effect immediately.
94 The lack of speed with which a draft employment agreement and a draft shareholder agreement were produced and considered is testament to the proposition that a binding oral agreement had already been struck. If the parties intended that no contract would come into existence until documentation was executed, one would have expected Mr Sundell to require the execution of an employment agreement before he gave instructions to increase Mr Jago's salary to $100,000 per annum backdated to 1 July 2005. Equally, one would have expected Mr Jago to have required the documentation to be brought into existence and executed expeditiously to secure his entitlements.
95 There was no suggestion in the evidence of Mr Sundell or Mr Jago that either specified the execution of a shareholder agreement as a prerequisite to Mr Jago's entitlement to acquire a 20% interest in Coastalwatch.
96 The difficulty with the argument that there was no agreement with respect to the shares because no shareholder agreement was executed is that Mr Jago's appointment as managing director took effect immediately. Counsel for Mr Sundell was driven to agree that his client's case was that part of the conversations became a binding agreement but another part of the conversations did not. That is a highly unlikely situation and one that I reject in this case. The entitlement to shares was part of the one transaction - a contract of employment as managing director in consideration of a remuneration package including the entitlement to shares.
97 The conduct of the parties at and after the December 2005 meeting supports Mr Jago's evidence of the agreement reached.
98 Mr Jago's notebook under the heading "Kims offer" supports that as Mr Sundell's position as against "Mals offer" of 20% of the equity at a strike price of $10,000. The strike price of $350,000 was also supported by the entry for 2 December 2005.
99 Mr Sundell was a recipient of an email from Mr Jago to Mr Lane on 9 January 2006 that referred to a strike price of $350,000 for 2.5 years. Mr Sundell did not contradict that statement and say that the strike price would rise during the 2.5 years in accordance with any increased investment in the company by him.
100 Mr Jago's email to Mr Lasky on 10 January 2006 supports his version of the remuneration package. Mr Jago's letter to Mr Sundell of 25 August 2006 confirmed a gift of 10% of the issued share capital of Coastalwatch together with payment of $35,000 for a further 10%. Mr Sundell did not contradict this letter.
101 The draft agreement sent to Mr Jago by Mr Roche on 25 August 2006 confirmed Mr Jago's version of a three year employment contract at $100,000 plus a $20,000 bonus if earnings forecasts were met.
102 Mr Wooldridge's note of 26 October 2006 confirmed an agreement to issue Mr Jago the first tranche of shares in Coastalwatch as did his email response to Mr Jago of 30 October 2006.
103 Mr Sundell's email of 3 November 2006 acknowledged an agreement to give Mr Jago 10% of Coastalwatch and a further 10%. The difference was that Mr Sundell asserted a strike price aligned to the level of Coastalwatch's outstanding debt.
104 In his email of 5 November 2006, Mr Sundell acknowledged that low pay was more than offset by "the equity upside". In cross-examination, Mr Sundell, eventually, conceded that he meant by this to include the gifting of 10% of the issued share capital of Coastalwatch. That is consistent with Mr Jago's version of the first tranche of his equity entitlement. Mr Sundell's reference to Mr Jago as a shareholder confirms there was an agreement that Mr Jago should take up shares in Coastalwatch.
105 In his affidavit, Mr Sundell referred to the arrangements with respect to Mr Jago holding 12.5% of the shares of Coastalwatch non-beneficially and then said that at no subsequent time was a concluded agreement reached with Mr Jago about the terms of a shareholder agreement.
106 But Mr Sundell gave no evidence of any conversations he had with Mr Jago subsequent to the arrangement with respect to the 12.5% shareholding concerning any entitlement of Mr Jago to take up shares in Coastalwatch. Nor did he controvert Mr Jago's assertions in subsequent correspondence.
107 It was submitted that it was a prerequisite to either of the share tranche entitlements that Mr Jago execute a transfer of the 31,250 shares held by him non-beneficially in Coastalwatch. There was no pleading to this effect.
108 There was no evidence from Mr Sundell or Mr Jago that such a requirement was raised in their conversations. I am not prepared to imply the requirement as a condition precedent to the exercise of the option with respect to the second tranche entitlement to the shares. At best such a requirement might be implied as a condition precedent to settlement.
109 And Mr Jago had offered to execute a transfer of the shares in his solicitor's letter of 16 November 2006.
110 It was submitted that there was a prerequisite with respect to both share tranche entitlements that a dispute between Coastalwatch and Mr Lane as to his intellectual property rights be settled before Mr Jago acquired any further shares. I dismiss that submission. There was no evidence that such a requirement was mentioned in any conversation and nor should resolution of a dispute with a third party be implied as a condition precedent to the gift of shares in Coastalwatch or to the grant of an option to acquire shares in Coastalwatch.
111 Coastalwatch breached its agreement with Mr Jago in two respects. It determined that the position of managing director was redundant and it terminated Mr Jago's three-year contract. Secondly, it refused to accept the tender of $35,000 and a transfer of the 31,250 shares in Coastalwatch in exchange for a transfer of 50,000 shares.
112 On Friday 3 November 2006 Mr Jago was offered alternative employment by Coastalwatch at the same salary. But that offer was impliedly withdrawn on 5 November 2006 when his position as managing director was made redundant.
113 It was submitted that it was Mr Jago who repudiated his employment contract by refusing to accept his demotion and determining to leave the employ of Coastalwatch. It was put to Mr Jago in cross-examination that after his meeting with Mr Sundell on 3 November 2006 he decided that he was not prepared to continue with Coastalwatch unless he was the managing director. Mr Jago said the position was made redundant on 5 November 2006. It was put to him that he was not prepared to take on the role that Mr Sundell outlined to him at the meeting on Friday. Mr Jago said that was incorrect. I accept his evidence.
114 In summary, therefore, Mr Jago was employed as managing director of Coastalwatch for three years from 1 July 2005 at a salary of $100,000 per annum together with a bonus $20,000 per annum if revenue targets were met. They were not in 2006. As part of his remuneration package Mr Jago was entitled to 10% of the shareholding in Coastalwatch or 25,000 shares for no monetary consideration and for a period of two and half years, Mr Jago had the option to acquire a further 10% of the issued share capital of Coastalwatch for $35,000.
115 In rendering the position of managing director redundant and terminating Mr Jago's services and in refusing to execute a transfer to Mr Jago of 20% of the issued capital of Coastalwatch, it was in breach of its contract.
116 I will stand the balance of the statement of claim over before the Registrar for directions.
117 As to the cross-claim, no issue was taken with the relief sought and I will make a declaration that Mr Jago holds 31,250 class A shares in Coastalwatch's issued share capital on trust for Crown and I will order Mr Jago forthwith to transfer the shares to Crown for no consideration.
118 I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.