Plaintiff v IPEX SOFTWARE SERVICES PTY LTD & OTHERS

8. Hosking's employment continued but unhappy differences arose when Hosking requested he be given share scrip for the 5% interest. On Friday 7 February 1997 Joel Schwalb terminated Hosking's employment on the basis that he finished on the following Monday 10 February 1997. Hosking never received any share scrip or other document, beyond the 1994 agreement, which gives him his 5% equity in the Group. By this proceeding he seeks specific performance of the agreement and damages.

11. In addition, Hosking sues on the basis of a misrepresentation. The representation alleged is that of Joel Schwalb and in substance it is that if Hosking permitted the Ipex Group to acquire the business of the Software Services Unit Trust and continued to work for the Ipex Group for a reduced salary, the defendants (to whom I refer below) would give him the 5% equity interest. It is alleged that Hosking relied on the representation, that it was false and that the provisions of section 52 of the Trade Practices Act or´ section 11 of the Fair Trading Act were contravened.

14. A third basis of relief of estoppel was pleaded in the statement of claim but abandoned by counsel in final address.

17. The writ was filed on 27 March 1997. Hosking is the sole plaintiff. The defendants are -

3. Ipex Research and Development Pty Ltd ("Ipex R & D").

27. It is convenient now to say something about the defendants. The first to sixth defendants were named in a definition in cl. 1 of the agreement as constituting the Ipex Group. There is an issue of interpretation whether the definition confines the Group to those six defendants. It is admitted that the seventh defendant is and was at all material times a director of each of the corporate defendants. He is and was at all material times the holder of shares in each of the corporate defendants with the exception of Ipex R & D in which the shares are held by Melton as to 11 and by his son Yoav Abraham Schwalb as to one. The fourth defendant, Toren, had been David Cohen and Jonathan Sheiman's company; from 30 June 1994 Cohen and Sheiman held 55 shares between them while Joel Schwalb and his son Yoav held between them 45 shares.

30. The evidence and the inferences that I draw from it establishes, and I so find, that Joel Schwalb controlled the Ipex group of companies and trusts. He has two sons, Yoav and Yaron Schwalb. At all material times Joel, Yoav and Yaron Schwalb were directors of the defendant corporations. The following persons were also directors -

35. Cohen and Sheiman brought Toren into the Ipex group. In the events which happened Toren was by relevant times (including when the agreement sued upon was signed) part of the Ipex group and, I find, subject to the effective practical control of Joel Schwalb. The agreement that the plaintiff sues upon included Toren as one of the entities which constituted the Ipex group. As will be seen, Joel Schwalb signed the agreement "representing" those entities, and Cohen, Sheiman and Hosking separately signed the agreement on their own behalf. I find that Joel Schwalb had the authority of Cohen and Sheiman or their interests to so sign the agreement. I find that Cohen and Sheiman for themselves and their interests knew and approved of the terms of the agreement both from their own point of view and that of Toren.

38. Ipex S S is and was from 1 July 1992 trustee of the Ipex Software Services Unit Trust the unitholders in which are Melton as to 83 units and Hosking as to 17 units. Hosking also holds 2 of the 12 issued shares in Ipex S S, the other 10 being held by Joel and Yoav Schwalb as to 5 each.

41. Takapana is and was at all material times trustee of the Schwalb Family Trust No. 1, a discretionary trust the specified beneficiaries of which were the children of Joel Schwalb and his wife Efra Schwalb and the general beneficiaries of which included Joel and Efra, their relatives and associated entities.

44. Ipex R & D was known as Binary Amber Pty Ltd ("Binary Amber") from its incorporation on 6 July 1989 until 24 August 1992 when the present name was adopted. It is not a trustee. This entity was acquired as a shelf company. Yoav Schwalb and Hosking were appointed as directors on 8 August 1989. Hosking ceased to be a director on 30 June 1992 on which date Joel Schwalb was appointed as a director. Yaron Schwalb was appointed as a director on 20 September 1993. Formerly, but not for some time (probably since June 1992), Hosking held one share.

47. Toren is and was at all material times trustee of the Toren Unit Trust. From 30 June 1994 the shares in Toren have been held by Cohen as to 44, Yoav Schwalb as to 37, Sheiman as to 11 and Joel Schwalb as to 8. From 30 June 1994 the unitholders have been Melton, Manutech Pty Ltd ("Manutech") and Chandos Holdings Pty Ltd ("Chandos"). The directors of Manutech are Cohen and his wife. Manutech is the trustee of the David Cohen Family Trust No. 2 which is a discretionary trust the specified beneficiaries of which are Cohen and his wife and there is an extended group of general beneficiaries. Chandos is associated with Sheiman. The directors are Sheiman and his wife who hold one share each. Chandos is trustee of a discretionary trust for the benefit of the Sheiman family.

50. Melton is and was at all material times trustee of the Schwalb Family Trust No. 2. This is a discretionary trust the beneficiaries in which seem to be the same or similar to those in the No. 1 Trust.

53. Ipex I T G is a wholly owned subsidiary of Takapana.

56. There is a defence but no counter claim. The defence denies the plaintiff's claim and takes many points against it. Not all the points were pressed in final address. In summary, the points taken in the defence are : the agreement was not intended to be binding and that a binding agreement would not arise until further agreed steps were taken; the agreement was uncertain and incomplete; the agreement was subject to conditions subsequent which were not satisfied; it was a term of the agreement that the plaintiff would have to satisfy any tax liability incurred by Takapana arising from the issue of shares in Takapana for the plaintiff; any corporate restructure had to occur by 1 July 1996 failing which the obligation to procure the restructure lapsed (the latter point was not relied on by counsel for the defendants in closing address and I take it as abandoned); and that the plaintiff repudiated the agreement which repudiation the defendants accepted (this point would have failed on the facts but it was not relied on by counsel for the defendants in final address and I take it as abandoned). The claim of misrepresentation and of contravention of the Trade Practices Act or The Fair Trading Act is also denied. Counsel's submissions developed and refined the points taken in the pleadings. I deal below with the various contentions of the parties as put in final address.

59. The case was fixed for trial on liability only on an estimate of duration of seven to nine days In the event the trial finished on the third day. The plaintiff's case consisted of documents and the evidence of Hosking who was examined on his witness statement. His witness statement was received subject to certain objections. In the end, the resolution of this case does not turn upon the evidence to which counsel made objection. Certainly, in final address counsel for the defendants did not refer to or renew any objection. The defendants put some documents into evidence but called no oral evidence.

62. The plaintiff was cross examined for some hours. He impressed me as an honest witness. Indeed, in a sense it is significant that following his cross examination the defendants elected to call no oral evidence, although several witness statements (which I had not read) had been filed. Further, in particulars to their defence the defendants had alleged and relied on statements of Cohen, Sheiman and Joel Schwalb but none of them were called whether to contradict or qualify evidence given by Hosking or at all. Of course, this may be explained by the defendants on the basis that as the evidence unfolded there was no need for them to call oral evidence as, in their judgment, the plaintiffs claim should fail as it stood. Whether that was the entire reason the fact is that no oral evidence was called to challenge the evidence given by Hosking. I have regard to all of the evidence in concluding that Hosking was an honest and reliable witness and that his evidence should be accepted.

65. In view of the fact that the trial had been on liability the question, in simple terms, is whether the parties made a concluded and binding agreement which the defendants have not honoured and, in the alternative, whether the case of misrepresentation in contravention of the Trade Practices Act or the Fair Trading Act is established. As discussed with counsel, if I reach the stage of concluding in favour of the plaintiff I will stand the case over for consideration of the matter of relief. In relation to damages, I was told by counsel for the plaintiff that further evidence would be required.

68. I now turn to the events which led up to the agreement in 1994.

71. In 1987 Hosking had established Ideal Systems Pty Ltd ("Ideal Systems") with Fausto and Lorenzo Marasco to provide software development and consulting services. The three men owned Ideal Systems as to one-third each. Hosking was approached to see if he would be interested in developing software for Ipex. That led to Hosking and the Marascos meeting Joel and Yoav Schwalb who said they wanted to develop a piece of software for PC based imaging, to scan, store and retrieve images on paper and which later was developed and became known as DART. By early 1989 a joint venture was agreed upon, with Ipex to provide the computer hardware and Ideal Systems the labour for software development. With Hosking being principally involved the software for DART was developed.

74. Later, in about mid 1989, Joel and Yoav Schwalb suggested to Hosking that Ideal Systems become part of Ipex (I refrain at this point from using the expression "Ipex Group" to avoid any confusion with that expression as used in the written agreement) by establishing a new corporation (in which Ideal Systems would be a shareholder) which would trade under the name Ipex Software Services and provide software development and consulting services. The Schwalbs told Hosking that the Ipex Group consisted of Ipex Computers ( involving PC hardware manufacture) and Toren (which was owned by the Schwalbs and Cohen and involved in computer networking). The Schwalbs wanted to be in a position to supply computer hardware and software development and consulting services.

77. Agreement was reached in about mid 1989. Binary Amber was acquired in early August 1989 and Yoav Schwalb was issued with six shares and Hosking with two shares. Binary Amber was to and did trade as Ipex Software Services. Pursuant to the parties agreement, in 1989 the business of Ideal Systems was transferred to Binary Amber for no payment to Ideal Systems or its shareholders. Part of the arrangement was that Hosking and the Marascos would continue to receive the same income as they had with Ideal Systems.

80. Ultimately, an agreement in the nature of a shareholders agreement, dated 15 February 1990, was entered into by Binary Amber, Melton, Ideal Systems, Yoav and Joel Schwalb, Hosking and the Marascos. The Ipex Software Services Unit Trust was settled on the same day. Binary Amber acted as trustee of the trust. The units in the trust were held as to 51 per cent by Melton as trustee of the Schwalb Family Trust No. 2 (thus giving the majority control to the Schwalb interest ) and 49 per cent by Ideal Systems or Hosking and the Marascos as to one-third of that interest each. The shareholders agreement included a right of pre-emption in the event any individual party to the agreement desired to retire from the business. In that event he or his family trust, as the case may be, would have to offer his units for sale to the other unit holders at their fair market value.

83. The merger involved Ideal Systems customer base being given to and becoming customers of Binary Amber trading as Ipex Software Services. The business was located at premises in Kavanagh Street, South Melbourne which were leased by Ipex. The former Ideal System's staff (Hosking, the Marascos, a secretary and a consultant) were located there together with the Ipex Computers sales staff (two salesmen and a secretary who sold hardware to retail customers). In fact and to outward appearances there was one business under the Ipex name. The only exception was in the accounts where the entities remained separate, and the two businesses would charge each other for outgoings and services.

86. At the same time Ipex Computers had a separate location in Mentone at which it employed some 20 people. Toren was located at Elsternwick where it employed some four people.

89. The day-to-day management of Binary Amber was undertaken by Yoav Schwalb, Fausto Marasco and Hosking however any important decisions had to be made with Joel Schwalb in attendance. Joel Schwalb had the final say. At the urging of Joel and Yoav Schwalb the salaries of Hosking and the Marascos were kept down on the basis that it was better to keep money in the business. In that way wealth generation would come through company growth and dividends, according to the Schwalbs. Hosking's wage was agreed at $35,000 which was paid by Ideal Systems and which, in turn, was reimbursed by Binary Amber in the form of a management fee.

92. I find that at all relevant times Hosking's interest and expertise was in the computer software area and not in business matters. Perhaps in consequence but it is a fact, he did not obtain professional advice on the merger or subsequent events until a late time when relations between the parties had hit a low point. Consistently with this position and with the Schwalb family control, the Binary Amber accounts, which were prepared by Ipex's accountants, included expenses charged by Ipex to Binary Amber only some of which were discussed with Hosking.

95. In the period to early 1992 effort was put into developing DART and VOCAL, another software product which provided voice mail services. Neither had achieved significant sales. Telecom had been given exclusive marketing rights for VOCAL. Yoav Schwalb had refused to sell the property in VOCAL to Telecom which had sought an option to purchase for $350,000. Hosking had also been engaged in selling Ipex Group products and services.

98. In about January 1992 Yoav Schwalb told Hosking that all the Ipex companies including Binary Amber would be relocated to the one premises. In March Joel and Yoav Schwalb selected premises in Sandringham.

101. In about March 1992 the Marascos decided to sever their involvement with Ipex. Hosking considered whether to stay. Joel Schwalb asked Hosking to stay to continue running Ipex Software Services as software was an important area for the Ipex Group. He said that Hosking would be a key partner in the Group. Hosking decided to stay. He made his decision on or about 18 March.

104. At about the same time Ipex commenced litigation against the Marascos. On or about 18 March it was agreed between Yoav Schwalb, Hosking and the Marascos that the Marascos would take control of Ideal Systems and that the units held by Ideal Systems in the Ipex Software Services Unit Trust would be transferred to the Schwalb interest. In the result Hosking was left with a 17% interest in the Ipex Software Services Unit Trust.

107. The Marascos formal letters of resignation are dated 23 March 1992. By the letters they submitted their units in the Ipex Software Services Unit Trust for sale to the other unitholders. The units were transferred to Melton by instruments of transfer dated 1 April 1992 for a price of 10 cents per unit (being 49 A and 49 B class units respectively). By instruments of transfer of the same date they transferred their shares (two each) in Binary Amber to Melton for a consideration of $2, that is, $1 per share. Hosking was not aware of any other amount being paid to the Marascos for their interest.

110. Hosking's decision to stay was largely due to Yoav Schwalb's urging. Yoav said it was a great opportunity and that Hosking would have complete control of Ipex Software Services, that the companies would be coming together and that as with all the partners Hosking would be playing a key role, and that software development and consulting would be of growing importance. Hosking's wage was increased to $45,000. Yoav further said to Hosking that he would play the alter-ego role of Cohen but in Software, and be able to increase his shareholding and remain a key director in the Group. Yoav and Hosking also signed a hand-written document dated 18 March 1992 in the following terms:

"Agreement between Mark Hosking and Takapana Investments P/L. 1. Mark Hosking will receive [a] 17% shareholding in Binary Amber after the departure of Ideal Systems. 2. All existing articles of association will remain in force. 3. In the case of a financial shortfall in Ideal Systems to Takapana Investments, Takapana will waiver [sic.] all claims that Mark Hosking will be personally liable to Takapana Investments. 4. Mark Hosking will have an option within time to purchase up to 49% shareholding in Binary Amber from the current 17%. 5. A mechanism for additional equity purchases for Mark Hosking and the inclusion of other partners will be established."

114. The Marascos having left, business returned to normal and was conducted from the Sandringham premises. Hosking almost exclusively ran Binary Amber. In particular, further development work was done on VOCAL and the rights to market PICS were acquired. PICS is an electronic parts catalogue which utilises the technology in DART.

117. It is obvious that Joel Schwalb is a person who is alert to the need to structure his business affairs in a manner that will minimise liability to tax and he regularly obtained professional advice to that end. In about mid-1992 the Ipex Group appointed one Sidney Kahn as accountant to advise. He is a partner in the accounting firm Gaddie, Metz and Kahn. Kahn reviewed the Group structure. In the result changes were made, which I mention below.

120. Hosking saw Kahn at Yoav's request. Kahn told him that a company called Ipex S S was to be set up to run the software services business run by Binary Amber and that Ipex S S would be the trustee of the Ipex Software Services Unit Trust. Kahn discussed with Hosking the most appropriate structure for him. After discussions a firm of solicitors called Roth Warren formed Hosking Pty Ltd and the Hosking Family Trust on the instructions of Kahn and Hosking. Roth Warren also advised Joel Schwalb and his interests. Indeed that is how they came to be involved.

123. The decisions concerning the structure of the Group were made by the Schwalbs. Hosking was advised of the changes decided upon.

126. The structural changes were made in August 1992 on legal and accounting advice. What was done, in summary, was this. By a deed back-dated to 1 July 1991 Ipex Engineering and Technologies Pty Ltd replaced Binary Amber as trustee of the Ipex Software Services Unit Trust. The scheme was that from 1 July 1991 Binary Amber would continue to carry on in its own capacity the business activities previously carried on by the Ipex Software Services Unit Trust. This would make Binary Amber eligible for a government research and development allowance in the 1991/1992 tax year. In these circumstances Binary Amber changed its name to Ipex R & D in August 1992. The changes meant that the Ipex Software Services Unit Trust did not itself trade in the 1991/1992 tax year. Then, by another deed, this one back-dated to 30 June 1992, Ipex Engineering Technologies Pty Ltd retired and Ipex S S was appointed as trustee of the Ipex Software Services Unit Trust. Hosking's 17% interest was then reflected in a shareholding in Ipex S S, and the holding of units in the Ipex Software Services Unit Trust. It seems that the units were held by Hosking Pty Ltd as trustee of the Hosking Family Trust. Because his interest was shifted to Ipex S S he ceased to be a director and shareholder in Binary Amber, which was then owned by the Schwalb interest. The intention was that Ipex S S be engaged in selling and consulting on software. Accordingly, the assets and staff of Binary Amber were transferred to Ipex S S , which continued to trade and to sell VOCAL and PICS. Correctly, Hosking understood that he owned 17% of the software business however he was not advised and did not know until recently that the ownership of VOCAL, DART and PICS had stayed with Binary Amber which charged Ipex S S for its use of the intellectual property in the products. As I have mentioned, Hosking had no independent advice.

129. By late 1992 Yoav Schwalb had told Hosking that "the companies" would be merged and that Hosking would receive shares in a new consolidated company. The merger would make the company more attractive to a potential purchaser or the market and Yoav mentioned listing in particular in the United States. Yoav said that Hosking, Cohen, Sheiman and some others would have shares in the consolidated company. Soon after these discussions Yoav moved to Israel. Hosking then dealt with Joel Schwalb in all company and management decisions.

132. In his witness statement Hosking also referred to conversations with Cohen in which Cohen referred to Joel Schwalb having spoken to him about the merging of the companies in the Group. Cohen said that Joel Schwalb had agreed to the physical merging of the companies beginning, and that it was Cohen's project to merge the accounts of Toren as the first step in this process. The first step was to move Toren's accounts and customers to Ipex, with Ipex S S to follow it in that course in respect of its business. That was done on 1 July 1994. Cohen and Hosking decided on the timing as they had become responsible for carrying out the transfers. Hosking said that the accounts were to be moved to Ipex I T G and Ipex R & D, the invoicing to be through Ipex I T G and the expenses to be booked through Ipex R & D. Hosking said that this was part of the merger. Cohen had spoken to Joel Schwalb who Hosking assumed approved of these arrangements which were to be implemented to coincide with the merged structure commencing on 1 July 1994. I find that the changes were made with the knowledge and approval of Joel Schwalb.

135. At some point between late 1993 and mid-1994 Cohen, who Hosking said (and I accept) was the principle negotiator with Joel Schwalb in relation to how and when the shares in the consolidated entity would be issued, told Hosking that as a result of tax implications and the complexity of the company structures Joel was "dragging his heels" and that Kahn was awaiting legal advice as to how to structure the merger. In or about March 1994 Cohen told Hosking that he would attempt to get a written agreement put into place which would reflect what had been discussed as to the merger. Cohen said that Joel had received advice that suggested that a final solution may involve a few years of working towards the merger particularly to deal with a potential tax problem. Hosking did not know the details of what was involved or of any problems. He said in evidence that he understood that the merger was a complex business issue; of course it is to be remembered that Hosking was not experienced in such business matters and in that sense his view could not have been an informed one. Cohen also told Hosking that Joel had asked Kahn to prepare a document to reflect the agreement reached with respect to the merging of the Ipex Group.

138. Hosking's understanding from all the discussions was that his 17% interest in the business of the trust would be transferred in the restructure. He meant by that, I find, that the interest and business would be incorporated in the new or restructured entity. He used the word merger as reflecting his understanding.

141. It is in this context that on 29 March 1994 Kahn wrote to the directors of Takapana. The letter was headed "Corporate Restructure - Valuation Considerations" and commenced by referring to "recent discussions relating to the proposed Ipex Group restructure" and confirmed "your instructions for us to prepare valuations of the businesses of the" Ipex Group and the Toren Group. It is a reasonable inference in the circumstances, and I make it, that the "discussions" referred to had been with Joel Schwalb. It is a long letter. It is from an accountant who is seeking to identify issues relevant to the restructure. The subject matter is clear enough and I mention only some aspects of the letter. It commences by identifying the entities which comprise the Ipex Group. They were stated to be the Schwalb Family Trust No.1 (trustee: Takapana), Ipex R&D, Ipex S S Unit Trust (trustee: Melton), Ipex Computers Ltd (New Zealand), and Ipex Information Technology Group Pty Ltd. It was then stated that -

"All the above entities are controlled by the Schwalb Family with the only minority interest being the 17% held by M. Hosking in Ipex Software Services Trust."

The letter then went on to refer to the Toren Group and recorded the current unit holding in the Toren Unit Trust as:

The letter then stated the understanding of Kahn as being that "the purpose of the valuations is to assist in the allocation of equity in a new consolidation [sic.] Ipex structure". The letter then went on to suggest an approach to the matter of valuation and set out an analysis. It then went to a conclusion as to the comparative values of the Ipex and Toren Groups and stated that "the equity in the restructured group company should be allocated approximately as follows:

Hosking's 17% minority interest was included in the 89.5% Schwalb Family interest. The letter concluded by identifying "other matters that may be relevant to the group restructure proposal", namely, mechanics, treatment of loan accounts, additional shareholding issues, shareholders agreement issues and profit deferral agreements. On mechanics it was proposed that on 1 July 1994 the net assets and goodwill (if any) of all relevant entities be acquired by Ipex Information Technology Pty Ltd. Capital gains tax was also referred to as an issue. On shareholders agreement issues, there were listed a number of matters as to management, dividend policy, dealing in shares, dispute resolution, remuneration, financing and scope of operations in the new structure. The letter concluded by referring to the matters mentioned as being useful in finalising decision-making relevant to the Group restructure, stated that there were a number of important issues to be considered but believed that a commencement date for the restructure of 1 July 1994 was achievable.

152. As the defendants called no evidence, in particular as no evidence was given by Joel Schwalb, one is left to piece together from Hosking's evidence and documents, such as Kahn's letter just mentioned, what was happening on the matter of the restructure. It is clear that Joel Schwab was pursuing this matter and that on his instructions his advisers were at work.

155. In notes headed "Ipex Restructure" and written on 10 May 1994 Kahn recorded a number of points. The notes run over two pages and I mention only some of the points. The first point stated is that the objective is that the Group be "fully restructured" with effect from 1 July 1994 "allowing for equity holding by key Schwalb family members, Toren unitholders and selected key staff members". The second point is that the restructure vehicle is to be Ipex Information Technology. The third point set out the approximate proposed shareholding in the new company which so far as relevant included Hosking as to 5%. The next point recorded an agreement of all parties that the Toren and Ipex Software Services businesses have no goodwill due to their dependence on the Ipex Group. Then, after further points concerning shareholding, it is stated that on 1 July 1994 the operating businesses of Takapana, Toren, Ipex R&D and Ipex S S are to be sold to Ipex I T G. The only other point I mention is that only Takapana will have a goodwill element attributable to the business.

158. Next is a file note of Warren, Schwalb's solicitor, dated 17 May 1994, of a meeting he had with Kahn on that day on the matter of restructuring Ipex. Again, the document runs over several pages and I mention only a few points. Under the heading "Objects" it was stated that an object was to transfer the business from Takapana (as the 100% owner of Ipex I T G) to Ipex I T G in the most tax efficient manner and to allot shares in Ipex I T G to key non-family member employees. Following this, in a discussion of what was proposed it was stated that from 1 July 1994 the business carried on by Ipex R&D and Ipex Software will be taken over by Ipex I T G. It was noted that Ipex R&D is 100% owned by Takapana whilst Ipex Software is owned 83% by Takapana and 17% by Hosking, and it was stated that Hosking's interest "will be reflected in the restructured" Ipex I T G. It was stated that there is no goodwill in Ipex Software. The note then recorded questions or issues to be considered such as how the transfer of the business of Takapana would be effected, with an emphasis on capital gains tax considerations, the matter of shares being issued to employees and the effect of cessation of employment and tax considerations on a change of ownership, the composition of the board and the articles.

161. This was followed a few days later, on 23 May, by a meeting which Kahn and Warren had with counsel at which the tax and commercial considerations raised in Warren's note were discussed.

164. Continuing on with work that was being done by Joel Schwalb's advisors, on 23 June 1994 Kahn sent Warren for his review a revised draft of an agreement. On the same day he also sent a copy to Joel Schwalb, Cohen and Sheiman with a request that they "all review the enclosed revised outline of your agreement". This is the forerunner of the agreement in writing which the plaintiff signed in August and which he sues upon. The evidence reveals that Kahn sent Warren a further draft of the agreement on 23 August. The document in final form was signed on 29 and 30 August 1994 although back-dated to 29 and 30 April 1994. The back-dating was done for tax and commercial reasons.

167. Hosking said in evidence that in mid-1994 he was told by Cohen that the document to be prepared by Kahn was well under way, and was nearly ready. In the circumstances the probability is that this was said. I also accept Hosking's evidence that he asked Joel Schwalb how the Ipex Group was to be structured, and what he was getting and when.

170. Although Hosking spoke to Joel Schwalb from time to time (he indicated once every couple of weeks) his clear recollection was of one meeting in which their discussion concerned the subject matter of the document that came to be signed in August. He said that that meeting occurred "a couple of weeks" before the document was signed. I readily accept that there was such a meeting and that the subject matter may have been - and probably was - mentioned in the course of conversation at other times. Whether the meeting occurred a couple of weeks before the signing of the document is unclear but the result in the case does not turn on the accuracy of that recollection which I find was honestly given. The probability is that a meeting such as Hosking described, that is, in which he was shown the document or a draft thereof and had a conversation with Joel Schwalb, occurred. I find that there was such a meeting.

173. Hosking said in evidence that he went and saw Joel Schwalb after Cohen had told him that the agreement was ready and that Joel had it. Joel did have a document. He said it was not final. I interpolate that it may have been the draft which Kahn sent on 23 June. Joel gave Hosking the document to read but said it was not the one to sign, the final version would come shortly. Hosking said that Joel was in a buoyant mood, that he talked about the Ipex Group and said that "as the companies were being merged into one company you will be getting your shareholding as agreed". When he had read the document Hosking gave it back to Joel. Joel expressed his appreciation of everyone's contribution to the company including Hosking. He said that now we had the agreement, we were coming together and things were going well. He said that certain other key Ipex employees (who he named) were to receive shares. Importantly, he told Hosking that he was going to get 5% which he described as final. He said that was to be Hosking's shareholding in the merged group. Hosking told Joel that he was happy with the 5% shareholding. He said he was not told what shareholding the others were getting and that he regarded that as a matter between them and Joel. This evidence is consistent with the fact that the 23 June draft did not state the equity entitlement of Hosking, Cohen or Sheiman. Finally, Joel said that the agreement would be ready in a couple of weeks. Hosking said that Joel did not mention or intimate that Hosking would have any liability to tax as a result of acquiring the shares.

176. Hosking was subjected to a deal of cross-examination concerning this meeting including his understanding of what he had read. In the latter respect he was directed to the document that was signed. I mention this because there are differences between the document in its final form and the 23 June draft. I have mentioned a difference, and in that respect add that neither Hosking nor his percentage equity interest were mentioned in the 23 June draft. It is thus understandable that Joel Schwalb confirmed not only that he was to have an interest but that he told him the actual percentage interest.

179. At the outset of this particular cross-examination Hosking was asked to look at cl.17(a) of the document that was signed. I shall set the document out later but for the moment I merely mention a point concerning the cross-examination. The point is that cl.17 in the document that was signed was not in the 23 June draft. The latter did not refer to Hosking at all and while it had a provision or provisions that were the forerunner of cl.17(a) the final drafting and internal arrangement was different. I emphasise that Hosking was not a person experienced in business matters, that prior to signing the document on 30 August he had "the" document in his hand for perusal at one meeting only and then for a short time and while he read it Joel was talking, and that he never received advice upon it prior to signing it. Nor was he given it for the purpose of obtaining advice upon it. The document is technical both in its content and context. I am in no doubt that Hosking's account of the conversation was given honestly and from his best recollection, but I am somewhat doubtful as to the extent of the understanding of all the terms of the document that he had when he read it in Schwalb's presence and at all times up to when he signed the document on 30 August. I find that the document he was shown by Joel Schwalb was not in its final form. Of course any uncertainties in the areas I have mentioned and on matters concerning the meeting on which he was cross-examined could have been clarified by Joel Schwalb by giving evidence but, as I have mentioned, the defendants took the course of electing not to call evidence, as a result of which they did not call any person into the witness-box. Of course the defendants were entitled to take this course and I determine the case on the evidence given and the inferences to be drawn therefrom. It should also be noted that the defendants took this course notwithstanding that in his cross-examination a number of suggestions were put to Hosking as to what Joel Schwalb had said in their conversation and as to other matters. As I have said, Hosking was an honest and reliable witness and I accept his evidence.

182. I find Hosking's position to have been that he did not know the steps that would be involved in implementing the restructure and granting him his 5% interest. I find, as he said, that he appreciated "there were complex issues" to be addressed. He also agreed that "the commercial aspects of the restructuring were likely to take a considerable period of time to put in place", although, it should be said, in my view he did not know or understand what the "commercial aspects" (to use the cross-examiner's expression) were. I also find that Hosking's understanding was that his 5% was not a mere expectation, something that would come about if and when the shares were issued to him, but was an immediate entitlement upon signing the agreement to 5% of the group.

185. I find that on a subsequent occasion, on 30 August 1994, Hosking was asked to and did sign the final form of document. I accept that he signed it in the office of Pansy Kwan, the internal company accountant. The other signatories to the document were Joel Schwalb, Cohen and Sheiman who had signed on 29 August 1994. The document showed their date of signing as 29 April 1994. Hosking received no explanation of or concerning the document prior to him signing it, in addition to what Joel Schwalb had given him in their earlier meeting. Nor did he seek or obtain any legal or accounting advice upon the matter. I accept Hosking's evidence that he did not obtain legal advice on the matter until August/September 1996. The document is in the following terms:

"The parties agree that the following is an accurate outline of agreement reached between J Schwalb, "Ipex Group", D Cohen (or nominated entity) "DC", J Sheiman (or nominated entity), "JS" and M Hosking (or nominated entity) "MH". 1. The Ipex Group, "the group" is defined as all current and future Australian trading entities consisting of:

a) Takapana Investments Pty Ltd ATF The Schwalb Family Trust No 1.

e) Ipex Software Services Pty Ltd ATF Ipex Software Services Unit Trust.

f) Melton Gully Pty Ltd ATF The Schwalb Family Trust No 2

2. The parties hereby agree that the following agreement is to be effective from 1 July 1994 ("The effective date"). 3. The fundamental basis of the agreement is that David Cohen and J Sheiman and M Hosking are to become entitled to the following % of the equity in the group:

4. The above entitlements are unconditional and effective immediately except that in the case of JS the following vesting arrangement is to apply:

b) Balance of entitlement to be "vested" over 2 years commencing 1 July 1994 in equal proportions for each completed year.

c) In the event of a formal group restructure or listing prior to the expiry of the 2 year period the balance of the entitlement % will automatically vest in JS.

d) Once the full entitlement position is reached any debts and obligations not currently recorded in the accounting records will be extinguished and JS entitlement will vest fully without any encumbrance. Thus any such unrecorded debts and obligations are reduced in proportion to the vesting period completed.

e) In the event of resignation/termination prior to the expiry of the full vesting period, the balance of any unrecorded debt will be taken into account in any settlement payments.

5. Due to commercial constraints the parties agree that a formal restructure of the group is not currently feasible but that the agreement is intended to be as legally and commercially binding as if a restructure had been completed. 6. The group referred to in 1. above consists of companies and trusts and thus have different taxation treatments applying to profits generated in the respective entities." 7. Notwithstanding the above, it is agreed that all future profit generated in trust structures will be distributed to companies in the defined group, such that the value of the group will be increased each year by the increase in the groups net profit after tax. (i.e. not assets). 8. Furthermore, if dividends are paid from companies in the group then a proportionate distribution of profits will be made from trust structures to entities associated with DC or JS or MH. (It is noted however that dividends and distributions are in any case restricted by conditions imposed by the group bankers, Hong Kong Bank.) 9. The entitlement referred to in 3 above is to be formally restructured and given effect to in the following circumstances:

a) A proposed sale of the group or part thereof prior to or in the course of a formal restructure or listing of the group, or

10. In the event of the death, or total & Permanent Disability of DC, JS or MH prior to a formal restructure, the Ipex Proprietors (Schwalb family) will be required to make a termination payment to DC, JS or MH in a manner mutually agreed between the parties.

11. The termination payment shall, in the absence of an agreed amount to be determined by reference to the following formula:

G = Goodwill of the group calculated as being the average group net profit after tax for the prior 3 completed financial years multiplied by a price/earnings multiple of 10.

NA = Consolidated net tangible assets as at 30 June of the last completed financial year.

LA = Insurance amount payable referred to in 14 and 15 below (if any).

12. By way of indication based on the group consolidated results for the 3 years ended 30 June 1993, the goodwill valuation would be approximately $10M and net tangible assets were approximately $1.8M at that date.

13. Any loan account balances owing at the time of death, will also need to be paid out or deducted as the case may be.

14. In order to facilitate the payments referred to in 11 above Ipex agrees to fund death/TPD Cover for DC, JS and MH of the following amounts in the most appropriate manner from time to time:

The owners and beneficiaries of the policies are to be DC, JS, MH or their dependants.

15 Any amount due under 11 above shall be paid to DC, JS or MH or their beneficiaries as soon as possible but at least at the rate of equal monthly instalments over 3 years with interest accruing at bank overdraft rates from time to time on the outstanding balances.

16. Any loan account balance referred to in 13 above is to be payable over 12 months with interest accruing at bank overdraft rates, from time to time on the outstanding balances.

17. In the event of resignation or termination the following procedures are to apply:

a) The departing party is to remain entitled to the equity percentage referred to in 3 above and will be entitled to a formal shareholding consequent on the events specified in 9 above.

b) The departing party will be free to dispose of his entitlement or shareholding in any manner and to any party, subject to a first right of refusal being held by the remaining parties.

c) The value of the entitlement or shareholding and terms of sale is not hereby fixed but will be subject to negotiations between the parties at that time.

d) Any loan accounts owing at the time of resignation or termination will be payable over 12 months with interest accruing at bank overdraft rates from time to time on the outstanding balances.

18. Consolidated group financial accounts at 30 June 1994 are to be prepared and presented to the parties by 31 December 1994, setting out the net assets of the group at 30 June 1994.

J Schwalb _______________________

D Cohen _______________________

J Sheiman _______________________

M Hosking _______________________

233. Ipex S S carried on the software business of the Ipex Group until 30 June 1994 at which time the business (and Toren's business) was moved across to Ipex I T G as trustee for the Ipex Software Services Unit Trust. In the year to 30 June 1995 Ipex S S had nil sales. Hosking continued his employment with Ipex I T G, although not as a director. There were no shareholder meetings, and Hosking did not receive financial information concerning Ipex I T G. Hosking referred in his evidence to the events which occurred internally following the taking over of the business by Ipex I T G. One aspect was that cheques had to be signed by a Schwalb and that Hosking did not have access to any Ipex or Ipex S S bank account. At the same time, Hosking became more involved with the affairs of the entire Group. He became the temporary marketing manager for Ipex I T G over a 10 to 18 month period. It should be noted that Ipex S S and the trust continued to exist. Hosking insisted that Ipex S S did not trade after 30 June 1994. He was not involved in the preparation of the accounts, and did not have control over the accounts of the entities in the Group and in particular the matter of the proper separation of income and expenses between the entities and including off-sets that were effected between the entities. Such matters were controlled and determined by Joel Schwalb and his advisers. The Ipex S S accounts for the year ended 30 June 1995 show a modest profit which Hosking explained was residual trading for 1994, and that no wages were charged to the business. It seemed however that wages attributable to Ipex S S for the 1994/1995 year were in the order of $295,000. Hosking had not known that at the time, which is not surprising but he knew that Ipex R&D existed and would have presumed that costs were taken up by it. In short, it appears that Ipex S S continued to do some work but in a real and practical sense the business was no longer with the Ipex S S trust but was taken over by the group. Apart from the matter of the accounts Hosking pointed to the fact that Ipex S S did not issue invoices and receive and process cheques as it had. Hosking's wage was paid by Binary Amber in 1992/1993 and from that year by Ipex R&D (formerly Binary Amber).

236. Matters continued on but no shares were issued to Hosking, Cohen and Sheiman. By mid-1996 Hosking was concerned that the agreement be acted upon and the shares issued. After speaking to Cohen he decided to pursue the matter. It should be noted that although shares had not been issued insurance cover on Hosking's life had been taken out pursuant to cl.14 of the agreement. Cohen told Hosking that sometime around July/August 1996 he had spoken to Kahn to see if Joel had actioned or begun to move towards the merger. Subsequently Cohen told Hosking that he had spoken to Kahn who told him that under Joel's instructions he had begun to investigate the option of restructuring the group in the most tax effective manner. About late October/early November 1996 Cohen told Hosking that Kahn had told him that the legal/tax investigations had shown a virtually zero dollar cost option to consolidate the group.

239. On a number of occasions Hosking had asked Joel Schwalb what was happening with the merger to which Joel would respond that he was waiting for the end of year accounts to be finalised or for Kahn to finalise some details or he would change the subject. In October Cohen told Hosking that Joel had met with Kahn and a tax solicitor, and that the latter had provided a report. I infer from the evidence that Kahn had advised Cohen of these matters. Cohen, also told Hosking that Kahn had told him that Joel was not interested in the final solution and that he would be happy if there was not a solution. Kahn confirmed this to Hosking when Hosking rang him on 6 Nov. Hosking became concerned and decided to approach Joel directly. Also, it would seem in October 1996, Joel had told Hosking that Ipex would have a profit distribution or issue "dividends", which Hosking understood to be part of the merger process. Hosking used that as an excuse to again raise the merger issue.

242. On 29 October 1996 Hosking sent Joel Schwalb an E-mail in which he asked what was happening with the company restructure and the issuing of shares. He sought a discussion. Joel responded that day saying, in part, that there would be a virtual shareholder meeting. On 1 November Hosking and Joel Schwalb met: Joel said the lawyers had come back with a proposal that was unsatisfactory to him and it would result in Hosking receiving 0.6% equity in the Ipex Group. Joel said he had asked the lawyers to look at alternatives. He also said that the document should have reflected an entitlement based on 5% of the Ipex Group's profits over the past two years (i.e., 1994 to 1996), and added that as the profits were in the order of $10M Hosking was due $500,000 of the profits. Joel further said that that entitlement would be used to purchase shares in the Ipex Group and on that basis he would receive 0.6% equity in the Group. Hosking sought a meeting with Cohen, Sheiman and Joel Schwalb to discuss the proposal. Joel said he would arrange it when he had received the revised proposal.

245. Hosking was shocked by what Joel had said as it was at odds with what Cohen had said as to a zero dollar cost without any potential tax liabilities. On 6 November he telephoned Kahn who told him that the current contract clearly defined Hosking's equity as 5% of the entire Ipex Group. Kahn further said that Joel was not interested in the proposal presented to him. Kahn said that the proposal allowed for the restructure in accordance with the goals of the document for an almost zero dollar cost to the Group. Kahn said that he was looking at alternatives to the proposal involving differential shares, capital shares and dividend shares.

248. On 7 November Hosking sent Joel Schwalb an E-mail in which he noted his entitlement as 5% of the restructured group and expressed concern at Joel's statements. Later that day Cohen told him that Joel had called a "shareholders" meeting for Sunday afternoon. The meeting was held. Present were Joel and Yarov Schwalb, Cohen, Sheiman and Hosking. Joel said he estimated the accumulated profits for 1994/1996 to be in the vicinity of $8/10M and that on that basis Hosking was entitled to $400,000/$450,000 of retained earnings. Joel said that as the total worth of Ipex was $33M Hosking's retained earnings would convert to a shareholding of between 1.2% to 1.5% of the equity in the Group. Joel said that the agreement was wrong and that what it entitled "us" (meaning Hosking, Cohen and Sheiman) to was a percentage of profits over the relevant period which would then be used by them to purchase equity. Cohen was furious and told Joel that was not his understanding of the agreement. Hosking could not believe what he was hearing. He said that the agreement provided for 5% equity and not just profit. Joel began attacking them and told them they were not performing. He told Hosking he was only entitled to 5% of the growth of the company since 1994. He said that salaries would not now be paid under market rates, that from now the rates for each partner would be at replacement/arm's length value, that there would not be a shareholders agreement and that they could only sell their shares if the company was listed or sold. Joel then said that the meeting was over.

251. On 13 November Hosking spoke to Kahn who said that Joel had instructed him to pursue the restructure on the basis that Joel had stated at the meeting on Sunday. Kahn told Hosking that the most important thing from his (Hosking's) point of view was a shareholders agreement. It is convenient to mention at this point that the evidence includes a letter from Kahn dated 4 October 1996 to Jerrard & Stuk, solicitors, for advice on the restructure. This letter stated that Cohen, Sheiman and Hosking "have been promised equity percentages in the group for some time but practical difficulties and indecision has prevented any restructure to date". Kahn prepared the August 1994 agreement. The letter referred to the group having "become extremely profitable in recent years" and stated that a number of critical issues needed urgent attention including restructure of the group so as to facilitate meaningful equity holdings of up to 25% for key executives, a workable shareholders agreement including issues such as dividend policy, board control and decision-making, buy/sell issues etc, ensuring that the structure can accommodate future situations such as listing or sale of portion of the business, and succession planning for the Schwalb family interest.

254. Jerrard & Stuk responded on 29 October with a long letter that set out several models. It recognised Hosking's equity. The letter stated that the advice was predicated on the accuracy of the instructions received from Kahn. Those instructions included that "the draft agreements merely represent the intentions on the part of the Ipex Group and the participating employees" and that "They were not prepared by lawyers and it was never intended to create binding legal relations between the parties". That was a clear reference to the August 1994 agreement. The letter identified a number of steps to be taken or areas of clarification. I may use the words of Hosking's counsel in his opening:

"... the steps include Cohen, Sheiman and Hosking [acquiring] companies and through the companies and through various complicated tax-driven steps, are to receive equity".

Kahn responded to Jerrard & Stuk on 7 November. The letter stated that Kahn and Mr J Stuk had met with Joel Schwalb in the previous week. Jerrard & Stuk were acting on behalf of Joel Schwalb and his interests.

259. On 18 November Hosking met Joel Schwalb at the latter's request. Joel told Hosking that to wrap up the year's accounts he needed resolution within three days. He said he was prepared to issue Hosking 5% of the shares in the Ipex Group immediately if Hosking accepted the capital gains tax liability of $750,000. Hosking said he would respond. He consulted his accountant who said there would be no such liability immediately.

262. On 19 November Hosking sent Joel an E-mail. He said that he wished, as discussed and as per the agreement, to have the 5% share scrip in the consolidated Ipex Group issued to Hosking Pty Ltd. Joel replied on 20 November. He said Hosking had a 1% share "in hand" and that he had to buy the balance to 5%. He would need to deposit $400,000 in Pansy Kwan's trust account in respect of fringe benefits tax or capital gains tax. He said the shares were not issued as "none of you could pay the tax element". He said that the delay was due to a belief that the government would change one of those taxes.

265. There were then further E-mails between Hosking and Joel Schwalb. On 21 November Hosking said only capital gains tax was relevant, that he would pay it when the shares were realised, and he requested that the appropriate shares be issued. Joel Schwalb responded on 24 November. He said that Hosking was entitled to 1% "fully franked" and that he would receive the additional 4% on depositing the "tax element". On 25 November Hosking responded. He asked why the tax component requirement was not part of the agreement. In reply, Joel Schwalb said he would answer that in court.

268. Meanwhile, Kahn was progressing the restructure proposal. On 29 November 1996 he wrote to Joel Schwalb and Pansy Kwan enclosing a checklist of procedures required, for review and addition. On that basis he believed a restructure date of 1 January was achievable as long as he got authority to start the legal/accounting procedures in the next week. Kahn was, of course, progressing the matter as instructed by Joel Schwalb.

271. By this time the relationship between Hosking and Joel Schwalb was not a happy one. Ultimately, at a meeting on 7 February 1997 Joel terminated Hosking's employment as of that date with one month's notice and on the basis of finishing on the following Monday. That is what happened. While the termination removed Hosking from the Ipex Group he has remained as a director and shareholder in Ipex S S which has no operating connection with the Group.

274. Subsequent to the commencement of this proceeding, Kahn wrote to Stuk on 6 May 1997 concerning the Ipex Group restructure. He said that he had met with Joel Schwalb and had been given firm instructions to proceed to draft documentation to facilitate phase one of the restructure as follows: rollover the goodwill from the Schwalb Family Trust No. 1 to a new company, the new company to acquire the relevant net tangible assets of the Ipex Group entities, and a purchasing and manufacturing agreement between the Schwalb Family Trust and the new company. The letter stated that it was Joel Schwalb's intention that phase two, which included the acquisition of shares by certain key executives, "will only proceed over the next year subject to the satisfactory completion of certain litigation issues associated with" Hosking. The letter went on to say that the probable mechanism in phase two would need to be contemplated when deciding on the rollover mechanisms in phase one. It referred to the probable two shareholders as being Cohen and Sheiman and envisaged there would be adequate franked dividends to fund the share acquisition at reasonable market rates.

277. On 27 June 1997 Stuk wrote to Kahn concerning a sale agreement between the Schwalb Family Trust No. 1 and Ipex I T G. It noted instructions that Ipex I T G is the only entity currently licensed by Takapana to carry on the business, and that that license was entered into on 1 July 1994.

280. Three agreements dated 1 July 1997 were entered into between Takapana and Ipex I T G. They are a license agreement, a sale agreement and a conditions of sale deed.

283. Two further pieces of correspondence were relied on by counsel for Hosking. They are letters dated 3 and 10 June from the solicitors for the defendants to Ipex I T G. I mention them only, although I do not overlook the reliance placed on them by Hosking's counsel. They are in the nature of letters of advice to Ipex I T G in whom it is indicated in the second letter that "the equity in the business now resides... and that it is proposed that the equity will be distributed by way of shareholding in that company to selected parties". That letter set out "critical issues which need to be considered, and resolved, in order to facilitate the distribution of equity to minority equity holders and to prepare the appropriate documentation". The letters indicate that Cohen and Sheiman have not yet been issued shares.

286. The first, and on the arguments of counsel, the primary question that is raised for determination is whether the parties made a concluded and binding agreement under which Hosking is entitled to a 5% shareholding. As I have said, no shares have been issued to him and he seeks specific performance or, alternatively, damages. I now deal with this first issue as to whether there was an agreement.

289. Counsel for Hosking submitted that the August 1994 document constituted a valid and binding agreement whereby Hosking was entitled to a 5% equity interest. It was not, he submitted, an agreement to give a 5% interest if and when the Group restructure should occur. Nor, he submitted, did Hosking have a mere expectation. He had a present entitlement to the 5% interest which in breach of the agreement had been withheld from him. It will be recalled that the first six defendants were the entities which comprised the Ipex Group as it was defined in the agreement, and that the agreement was signed for them by Joel Schwalb who had effective and practical control of them. Counsel submitted that on the proper construction of the agreement:

1. As from 1 July 1994, Hosking was entitled to 5% of the profit of all the "current and future Australian trading entities" in the Ipex Group: see cls.1-8. The expression quoted appears in cl.1.

2. As from 1 July 1996, Hosking was entitled to have transferred to him, or to an entity associated with him, shares or units in one or more of the "current and future" entities in the Ipex Group so that his "equity" or "stake" in the Group was equal to 5% of the total equity of the Group: see the introductory words to the agreement and cls. 1-8 & 9(b).

294. These submissions were based upon the terms of the written agreement. Further to that, counsel relied on admissions by Joel Schwalb and Kahn in November 1996 that he was entitled to 5% of the profits for the years ended 30 June 1995 and 1996. Counsel also relied on an admission by Kahn in his conversation with Hosking on 13 November 1996 that Hosking's share of the profit approximated to 1.6% of shares, in other words, that Hosking had an entitlement to equity. Counsel also relied on Joel Schwalb's statement in November 1996 as to Hosking having 1% "in hand" and as to the issue of the additional 4% being dependant on depositing $400,000 in respect of tax. This conceded an equity interest and based the refusal to give 4% on a tax consideration. Counsel for the plaintiff submitted that the admissions are relevant to the following issues raised by the defendants: whether the agreement was binding, whether there was an intention to create legal relations, whether consideration was given, and breach. In a case such as the present in which the question is whether the parties became contractually bound by the terms of a written document at the time when the document was signed it is necessary to distinguish the purpose for which a subsequent communication between the parties and their agents may be used. This issue was discussed by Gleeson CJ in Australian Broadcasting Corporation v. XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 at 547 - 551. The central questions in the present case are whether objectively considered the parties intended to make a concluded bargain and reached agreement on such terms as in the circumstances were sufficient to constitute a contract. In the Australian Broadcasting Corporation case Gleeson CJ (at 548) pointed out that these are not the same questions although they are "closely related". His Honour pointed out by reference to several authorities (commencing at 547) that reference may be made to subsequent communications for the purpose of showing that the parties contemplated that they were not to be bound until all essential matters had been agreed or a formal contract had been drawn embodying all matters incidental to such a transaction. Thus, in Australian Broadcasting Corporation the subsequent correspondence was a source of information as to what matters were incidental or essential to a transaction of the nature in question. Further, as His Honour pointed out (at 550), subsequent communications may throw light upon the meaning of language used by the parties "for the purpose of determining whether it expresses an intention one way or the other upon the critical matter". In the present case there were no written communications between the parties after August 1994 until October 1996 when Hosking commenced to seek the issue of his shares.

297. There is to be found in the subsequent communications an acknowledgement of Hosking being entitled to a present interest but that does not resolve the issue. There is reference to a matter of taxation which is said to be reflective of a matter that required consideration before an agreement could be finally concluded between the parties. There is also, it may be said, an admission as to an agreement having been made in August 1994 while, conversely, it may perhaps be said, there are indications that Joel Schwalb took a contrary view. It may also be said, and I find with accuracy, that Joel Schwalb regarded himself as being free to re-negotiate or even disregard the agreement as he might choose. Doubtless, this attitude emanated, at least in part, from his position of effective practical control of the Group.

300. It is convenient to deal with Joel Schwalb's point about tax. It will be recalled that at that meeting in which Joel Schwalb showed Hosking a prior draft of the August agreement he did not mention or intimate that Hosking would have any liability to tax as a result of acquiring the shares. In para. 10.2(a) of their defence the defendants allege that if the parties entered into a legally enforceable agreement there was a term that any tax liability incurred by Takapana arising out of or connected with the transfer or issue of shares in Takapana for Hosking would be payable by Hosking. In particulars it is stated that the term is to be implied. In my view no such implication could be made. The particulars state two bases for the implication. First, the substance of a conversation between Hosking and Joel Schwalb when the agreement was given to Hosking to the effect that the entitlement was being given subject to it being without cost, in particular taxation cost, to Takapana. This allegation entirely fails because, as I find, there was no such conversation. Indeed Joel Schwalb did not go into the witness box to give that evidence. Secondly, the implication is based upon certain provisions in Takapana's articles of association. These articles relate to a member of Takapana being liable to indemnify the company in respect of liability to tax in connection with that members shares. That does not provide a basis for the alleged implied term. Takapana was only one of six companies which comprised the Ipex Group. If Hosking's 5% interest came to be represented by shares in Takapana he would, speaking generally, take the articles of association as he found them. There is no need for the provisions of the articles to be incorporated into the August agreement by some process of implication. The agreement, assuming there be an agreement, can operate without the implication. Further, there is no basis at all in the discussion between Hosking and Joel Schwalb for the implication.

303. It is also convenient at this point to deal with statements of Joel Schwalb in November 1996 as to Hosking's interest being in the profits in the 1995 and 1996 financial years. That approach was not warranted by the written agreement or anything to which Hosking otherwise acceded.

306. In their final address counsel for the defendants elaborated on the points taken in the defence. The submissions denied an intention to enter into a concluded agreement, contended that there was a failure to agree on essential terms, and contended that there was an absence of consideration. The parties submissions must of course be considered in the context of the pleadings.

309. In the statement of claim it is alleged that in or about mid 1994 alternatively August 1994 the plaintiff and the Ipex Group (being the first six defendants) entered into an agreement whereby in consideration of the plaintiff:

(a) agreeing to and/or not objecting to the acquisition of the computer software business of the Software Services Unit Trust by Ipex I T G on 1 July 1994,

(b) agreeing to continue being employed by the Ipex Group to write computer programmes, advise the Ipex Group as to computer software and participate in marketing of computer equipment, software and maintenance services by the Ipex Group, and

(c) agreeing to continue to accept a salary calculated in accordance with the practice of the Ipex Group that directors accepted reduced salaries in return for increased growth in the value of their shares and units in the Group,

the Ipex Group agreed that the plaintiff was entitled to 5% equity in the Ipex Group.

316. The particulars of this plea cover more than three pages. I will not set them out. It is alleged that the agreement was partly in writing, oral and implied. The writing is constituted by the agreement which Hosking signed in August. The oral part is alleged to be found in conversations between Joel Schwalb for and on behalf of the Ipex Group and Hosking in mid 1994. I will not repeat what I have found to be the relevant course of events and the relevant conversation which Hosking had with Joel Schwalb sometime before he signed the agreement. Nor do I propose to set out the extensive particulars in relation to the aspect of implication. The context in which the agreement was signed is that mentioned above. It is a context of a continuing and developing relationship with discussion of Hosking acquiring an interest in "Ipex", the thing controlled by Joel Schwalb. It was in that context and on that basis of understanding of receipt of an interest that Hosking agreed to, and facilitated, the movement of Ipex S S's accounts and customers to Ipex I T G from 1 July 1994. So, too, was it implicit, indeed so obvious as to go without saying, that Hosking would continue to be engaged in the provision of his services. And so too did it continue to be an aspect of the situation that he was paid somewhat less. These features were a part of the ongoing context which included discussions as to Hosking acquiring an interest, the agreement signed on 30 August and the conversation between Joel Schwalb and Hosking not long before that. While these matters were not specifically mentioned in the written agreement they underlay it and were part of the context in which it was entered into. Further, in relation to the matter of consideration, while Hosking was to receive the 5% he was to give up his interest in the Ipex Software Services Unit Trust. What Hosking was to end up with was a 5% equity interest in the Group. He also was agreeable to continued to work on the lower salary basis mentioned and to have the Ipex S S business in Ipex I T G. For these reasons in my view there was consideration for the agreement.

319. I turn then to the defendants contentions that the parties did not intend to enter into a legally binding agreement, alternatively that any otherwise legally enforceable agreement was incomplete and uncertain and therefore void, alternatively that it was subject to conditions subsequent which were not satisfied. The defendants' contentions are identified at some length in their defence and were elaborated upon in their counsel's written and oral submissions.

322. On the first point of a lack of intention to create legal relations the pleaded defences, in summary, are as follows. First, that the written agreement was merely "an outline of agreement", a reflection of discussions or an expression of intention as to an eventual restructure of the incorporated defendants and the trusts and business concerned. Nevertheless, it was submitted by the defendants' counsel that the "outline" represented a partial although not a complete agreement. There was, they said, a final agreement as to the extent of Hosking's interest namely, that it be 5% in the equity in the Group, and on some other matters. But there was not, they said, yet agreement that he actually held that interest; that required further agreement.

325. A second but related point is that no legally binding agreement could be made by the parties to the "outline", having regard to the trust structures and the ownership position of the entities in the Ipex Group. The several entities had to concur in the agreement. It was submitted that a binding agreement could only arise when all the entities agreed on a method of restructuring and documents to effect it (see para. 9.02(b) of the defence). It was submitted that Joel Schwalb lacked power to effectively circumvent all proper procedures being gone through within each entity and trust. I have found however that Joel Schwalb was in effective control of all the entities in the group and that control, I find, went to the extent of bringing about the result which in his view was appropriate and which he required in this matter of the merger, restructure and issue of "equity" to Hosking.

328. Thirdly, and again related, is the fact that in cl.5 of the "outline of agreement" the parties agreed that a formal restructure "is not currently feasible". There was other language in the agreement which indicated the necessity for future agreement or addressed future events (see cl.3 "are to become", cls.9, 10 and 17(c)). Clause 9 may be regarded as having allowed two years in which to effect the restructure. I have previously noted that the defendants abandoned a plea that in the event that a restructure had not occurred by 1 July 1996 any obligation to procure the restructure lapsed. It was however submitted by counsel for the defendants that cl.9 constituted no more than an agreement on a common target for restructure in a period of time and that to hold a common intention or expectation as to a legally binding contract being entered into in time or at or by a point in time is not equivalent to a promise to implement the target; see Phillips JA in Toyota Motor Corporation Australia Ltd v. Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 193. It was submitted that the language of the agreement revealed that further agreement was required to arrive at and implement the terms of a restructure. It was submitted that the alleged agreement did not embody a promise by the members of the Ipex Group to confer entitlements and did not reflect any reciprocally promised assumption of obligation by the other parties. There was no more than an agreement in principle on some pre-conditions for a binding agreement which it was intended ultimately to conclude. It was, in other words, at best a situation of an agreement to agree in the future, which did not constitute an enforceable agreement.

331. In summarising the points made by the defendants I have had regard to the pleadings and the oral and written submissions. I do not overlook but take account of all the points made by the defendants on the point now under discussion, and on other points.

334. In the particulars to para. 9.02(a) of the defence some further points were raised. I mention some of these matters. I do not accept that Hosking's failure to seek legal and accounting advice prior to signing the agreement supports an implication that his understanding was that the agreement was not intended to be legally binding. I have already dealt with Hosking's approach and attitude. He accepted what he was told, seeing no need for such advice. He was a very different creature from Joel Schwalb whose business actions and outcomes were crafted by legal and accounting advice to advance his commercial and tax position. That another person is of a different - and, it might be said, trusting - mould in that regard is neither a criticism nor a reliable basis on which to conclude in this case that there was a lack of a contractural intention. Then the particulars alleged that an implication that Hosking's understanding and intention was that the agreement not be legally binding was to be found in requests of Hosking, Cohen and Sheiman for distributions of profit and the receipt of distributions contrary to cls. 7 and 8 of the agreement, and, in addition, in Hosking engaging in continuing negotiations in respect to the proposed restructure after the agreement was signed. There is no substance at all in these allegations. I find that at all times following the signing of the agreement Hosking's interest was in having the shares issued pursuant to the agreement and his endeavours were directed to the implementation of the agreement, as he understood it. He did not engage in "continuing negotiations".

337. Not surprisingly the submissions of counsel for Hosking emphasised that the present was a commercial agreeement. They submitted that there is an assumption that commercial agreements are intended to be legally binding, and that there is a "heavy onus" on a party who asserts that no legal effect was intended: see Edwards v. Skyways Ltd [1964] 1 All ER 494 at 500; Halsbury's Laws of Australia, vol. 7, para. 24, and Carter and Harland, Contract Law in Australia, 3rd ed., para. 405. A distinction is to be drawn between the question whether the parties, objectively considered, intended to create legal relations and the question whether the words they used "are words of promise or not": see Kleinwort Benson Ltd v. Malaysia Mining [1989] 1All ER 785 at 791.

340. In Toyota Motor Corporation Tadgell JA (at 177) discussed the difficulty and the concept that an assumption can be a substitute for a promissory intention where, objectively considered a persons words and conduct do not lead to the inference that he intended to make a promise. But His Honour did not doubt that if there was conduct including the use of words appropriately to be classed as involving a promise, the promisor could not be heard to say that he did not intend his promise to have legal effect. In this case the defendants called no evidence from Joel Schwalb, Cohen or Sheiman, the other signatories to the agreement, to seek to establish that the agreement was not intended to have legal effect.

343. I turn then to a consideration of the terms of the agreement. The defendants rely on the word "outline" in the expression "outline of agreement" as indicating that further negotiation was needed to arrive at and implement the terms of a restructuring. Considered alone that may be so but the question is whether the word "outline" produces that conclusion in the context as a whole and having regard to what was said between Hosking and Joel Schwalb. Further, the expression is "an accurate outline of agreement" and the fact is that parties may agree on terms that are sufficient to bind them, even if there is an absence of terms that might often be found in an agreement of the type in question. At present I am not considering an issue of incompleteness or uncertainty in terms.

346. The defendants submit that the expression "current and future Australian trading entities" in cl. 1 exposed at the outset an element that would require working out in the future. That is, in which entity would the 5% interest lie, and with what rights? Then, they rely on the expression "are to become entitled" in cl.3 which, they submit, speaks of a future and not a present entitlement. But it is to be noted that cl.4 states that the entitlements specified in cl.3 "are unconditional and effective immediately" although with the stated exception concerning Sheiman who has an "immediate unconditional entitlement to 1.5%" with express provision for vesting of the balance. The defendants point is that the agreement has fixed on the extent of the interest but the circumstances in which the interest is to fall in, so to speak, or the incidents of the interest, have been left for future agreement.

349. The defendants then point to cl. 5 which provides that due to commercial constraints the parties agree that a formal restructure of the group is not currently feasible. This, they submit, indicates a lack of present intention to contract. The defendants however must permit consideration of the balance of cl. 5 which states "that the agreement is intended to be as legally and commercially binding as if a restructure had been completed". The defendants case comes down essentially to a concession that this provision referred to the agreement as to the extent of the equity interests.

352. The defendants relied on the fact that in cl.9 it was stated that the entitlement in cl.3 is to be formerly restructured and given effect to in the circumstances set out in para. (a) and (b). In other words, that it was only in those circumstances that the entitlement in cl.3 was to be given effect to. That, it was submitted, indicated a future and not a present agreement. The like indication was to be found, it was submitted, in cl.10 which conferred a benefit "prior to a formal restructure" but not the percentage entitlement in the restructured group, and in cl.17 (c).

355. As may be expected, counsel for Hosking submitted that the agreement was intended to be legally binding. He relied on the following to indicate that that was the parties intention: cl.2 and the reference to "the agreement" in cl.3; cl.4 which states that the entitlements are "unconditional and effective immediately"; and the latter part of cl.5. These are the provisions which directly related to the creation of Hosking's interest. There are of course later provisions in the agreement which refer to the entitlement.

358. In my opinion, the agreement does manifest an intention of the parties to enter into legal relations. It is clear that they did so, the critical issue being as to the extent to which they did so and, in particular, as to the extent to which Hosking has an enforceable interest. While counsel's submissions concentrated on the words of the document of agreement, I find nothing in the conversations between Hosking and Joel Schwalb, or with Cohen for that matter, prior to the execution of the document that would deny to the parties an intention to create legal relations. Nor in my view do any of the matters relied upon in para. 9.02(b) of the defence establish (as there pleaded) an intention in the parties that a binding agreement would arise only upon satisfaction of the several matters therein set out. The language of the parties, objectively considered, is against a finding of such an intention. To the extent that the defendants' pleas in para. 9.02(b) rest on facts I find those facts did not exist in terms of discussions or agreement with Hosking or any intention held by the parties. It is true that in a general sense Hosking appreciated there were aspects that would take time to be dealt with but that is a long way from establishing an intention in the parties as to the various and particular matters pleaded in para. 9.02(b) of the defence.

361. It is convenient at this point to say something further about cl.9. In the course of submissions a question arose as to the interpretation of this clause. The question concerns the expression "formerly restructured and ". In my view the clause is saying that in the event of either condition in para. (a) and (b) being satisfied the entitlement in cl.3 is to be given effect to. That means, in my view, that Hosking must at that time be issued with his "formal shareholding" (to use the expression in cl.17(a)) which gives effect to his 5% interest in the Group. It is that sense, in my view, that the draftsman used the word "restructured". It did not mean, in my view, that if a "restructure" had not occurred, some "formal restructure" (cf. cl.5) then had to occur. It meant that he was to receive his 5% equity interest. If there was to be a restructure a period of two years was allowed but at the end of that period the entitlement was to be "given effect to". On this basis the earlier provisions define the entitlement (as 5% of the equity in the Group), and the later provision states the time by or at which the title to that interest must be issued by the Ipex Group upon whom the obligation in that behalf rests.

364. The next, and alternative, stage in the defendants case is that if there was an otherwise enforceable agreement the agreement was void for incompleteness or uncertainty in that the term "equity in the group" was uncertain; there is no provision which identifies what is to be disposed of to Hosking and by whom and no provision for dealing with necessary alterations to interests in any of the entities constituting the group including the constituent documents of those entities, as for instance by the alteration of beneficial interests in a trust (see para. 9.04 of the defence). This was developed at length in written and oral submissions in relation to uncertainty as to the parties (the group could come to include parties in addition to the named entities either as a future entity or as a nominee of a party to the agreement), and as to subject matter (what does "equity in the group" mean?).

367. These matters are also relevant to the question whether the parties did conclude an agreement, and the submissions of counsel for the defendants developed an argument accordingly.

370. I do not propose to set out all the arguments. They may be found, at length, in counsels written and oral submissions. I have regard to them all but think it convenient to move myself, in addition to what I have said above, to what I regard as the appropriate analysis of the agreement.

373. It is common ground between the parties that the agreement intended to and did fix the percentage entitlement of Hosking in the Ipex Group. The effect of cls.2 & 3 is that with effect from 1 July 1994 Hosking's interest was 5%. But was that interest one that then and there was enjoyed by Hosking in the sense of being an enforceable right or had the parties done no more than agree on the quantum of the interest while leaving the entitlement to the interest dependent on further agreement? The answer is to be found in the terms of the agreement regarded in the context in which it was made.

376. It is clear from the agreement (see cls.5 and 9) and the discussions between the parties that it was contemplated the Ipex Group would be restructured. What the agreement did was define the Ipex Group and have Joel Schwalb sign on behalf of the entities in the Group. I have already referred to his position of control of the entities and to his authority to sign the agreement. Thus the person who was in effective and practical control of the entities in the Ipex Group and who in my view must be taken, as I find, to have the authority to do so, signed the document. The agreement is then explicit in stating that with effect from 1 July 1994 Hosking ( and Cohen and Sheiman) "are to become entitled" to use the language of cl.3) to the stipulated percentage "of the equity in the group".

379. It seems to me that the following provisions in the agreement make it clear that the parties intended that the interest was to be enjoyed from 1 July 1994. This meant that they were entitled to share in the profits from that date. But because a restructure (or listing: see cl.9) was contemplated shares or units reflecting that interest could not then be issued. It was understood that some period of time would be required to complete consideration of that aspect of restructure. To deal with this cl.9 imposed a time limit at the expiration of which the percentage entitlement must be given effect to, as I have already discussed.

382. Regarding the actual provisions of the agreement one finds the following. In cl.4 there is the unequivocal statement that the entitlements are "unconditional and effective immediately". Standing on their own these words may be consistent with the interpretation contended for by the defendants, namely, that the agreement only fixed the quantum of the interest. But the balance of cl.4 indicates the contrary. The provisions concerning Sheiman's interest indicate, indeed establish, that Hosking's full 5% interest was intended as an "Immediate unconditional entitlement" in the sense of being a vested interest that then and there existed. The point of paras. (a) - (d) in cl.4 is that Sheiman was to the extent stated exceptional from Cohen and Hosking.

385. Clause 5 is consistent with this understanding of the agreement. It commences with an acknowledgement, a common understanding, that the restructure is not then feasible but the parties otherwise record their intention that the agreement be as legally and commercially binding as if a restructure had been completed. It is not to be overlooked that this document which the parties signed had been preceded by discussion and protracted thought and consideration, particularly on the Schwalb side and that Joel Schwalb is an astute business man who put the document forward intending, as I find, that it be relied upon by Hosking. Both the terms of the document and the statements of Joel Schwalb and Hosking in their discussion manifest an intention to contract, in my opinion. The question, as I have observed, is as to the extent of that intention, objectively considered.

388. To the point thus reached in the agreement one has, as the plaintiff contends, a right to share in profits from 1 July 1994. It is not surprising then that cls. 6, 7 and 8 move on to this aspect. Clause 6 is a statement of the obvious. Clause 7 seems to be a statement of policy as to keeping funds within the group so as to increase the net assets. This is to be achieved by distributing "all future profit generated in trust structures ... to companies in the defined group". Clause 8 states in substance that a proportion of profit will be paid to Cohen, Sheiman and Hosking but notes that the group bankers have imposed restrictions on the matter of dividends and distributions. The clause does not state that those restrictions are particular to Cohen, Sheiman and Hosking as distinct from being restrictions that were then part of the banking arrangements of the group.

391. Next, cl. 9 imposed the temporal limit at which the percentage entitlement must be given effect. I have already discussed this clause.

394. Then, cls. 10-17 dealt with the position if Cohen, Sheiman or Hosking died or suffered total or permanent disability or resigned or had their employment terminated. It would seem plain enough that this was to cover the situation prior to the restructure being carried out. In my view these provisions are consistent with the interest having been "vested" on 1 July 1994. This is consistent with the structure in the earlier provisions.

397. It may be that if an attempt had been made to enforce cl.10 the width of the expression "the Ipex Proprietors (Schwalb family)" may have presented a difficulty. Having regard to the provisions of cls.11-16 and to the clear contractual intention that they manifest it would seem an uncommercial and unlikely result that cl.10 would be held to be infected with such uncertainty as to render the benefit which it confers unenforceable. That is not the case now before me. If it was, there is the fact that the insurance cover that cl.14 stipulated for to facilitate a payment under cl.10 was in fact taken out. In other words, to that extent there was an implementation of the agreement. The arranging of that insurance was reflective of an understanding that cl.10 had created a potential for liability that might fall in on or after 1 July 1994.

400. It should also be noted that the formula in cl.11 recognises, and uses, the percentage entitlement as an element in the formula that will produce the amount owed under cl.10, in the absence of agreement.

403. Finally, in this area, cl. 17 deals with resignation or termination. Again, this clause is consistent with the immediate grant of an enforceable interest. Para. (c) did not provide a mechanism for determining the value . In the context I do not regard this as indicating an absence of overall contractual intention, as I have discussed it in relation to the earlier provisions in the agreement, but as reflecting that on that point the parties preferred to provide for negotiations if and when the point arose.

406. The final provision is cl.18 which stated that accounts are to be prepared and presented to the parties by 31 December 1994 setting out the net assets of the group at 30 June 1994. The purpose of this would seem fairly obvious. It relates to the value of the group, and a percentage interest; see too the reference to net assets in cl. 7 and to net tangible assets in cls. 11 & 12. In common parlance an owner's equity is represented by net asset value.

409. Now, as previously mentioned, the defendants contend (in para. 9.04 of the defence) that even if there was any otherwise legally enforceable agreement entered into then that agreement is void for incompleteness and uncertainty in that:

(a) the term "equity in the group" has no meaning which can be given legal effect, or has such a variety of legal meanings as to be inherently too uncertain to constitute the subject matter of any legal obligation;

(b) there is no provision which identifies the subject matter of any legal obligation or proposed disposition or which identifies the actual proposed disponor or disponors;

(c) there is no provision for the matters set out in para. 9.02 (b) of the defence. These cover a variety of matters such as proper authority from the companies and trusts in the Group for the proposed restructure in accordance with their constituent documents and consistently with existing rights; the establishment of a satisfactory method of restructuring and agreement to it by all interested parties; the agreement of Yoav Schwalb to any transfer of shares in Toren; the agreement of Manutech and Chandos to any issue of units in the Toren Unit Trust; the parties reaching agreement as to the costs of a restructure; the incidents and amount of any taxation liabilities arising as a consequence of any restructure and how and by whom many such costs or liabilities would be met; the amendment of the Toren Unit Trust deed, and of the trust deed of the Schwalb Family Trusts; and preparation and execution of formal legal documents reflecting these matters.

It was contended that as none of these matters had occurred no binding agreement had been made.

416. I turn now to a consideration of these points.

419. The first point concerns the expression "equity in the group" appearing in cl. 3 of the agreement. The Group is defined in cl.1 as consisting of the entities named therein. It is clear from the document and the relevant matrix of facts, that Joel Schwalb signed the agreement on behalf of those entities. He was their agent. He controlled them. He also had the agreement and concurrence of Cohen and Sheiman to sign on behalf of Toren. I find too that it is illusory and against all reality to suppose that Joel Schwalb lacked authority from any entity in the Group to sign the agreement; he controlled them and made decisions concerning their use and conduct as I have described. The existence of the corporate entities and trusts and their use from time to time was determined by him to suit his commercial interests, "his" in this sense meaning the business interests of the entities. It is thus understandable that the agreement was structured as it was in this respect.

422. Then it was argued that the word "equity" was uncertain. Counsel for the plaintiff submitted that it was plain, in the context, that "equity in the group" meant shares or units in an entity mentioned in cl.1 of the agreement. In my view that is correct. It accords with references to holding shares in cl.17. It also accords with a common and well understood meaning of the word equity as referring to the holding of shares in a company. See Ford's Principles of Corporations Law, para's 17.020 and 17.070. It may be noted that the Oxford Dictionary gives as one meaning of the word equity the ordinary shares of a company as opposed to the preference shares.

425. Counsel submitted, with what I regard in the circumstances as being at the heart of the likelihood of the matter, that what the parties were doing here was merging their interests into a vehicle, which may have become Ipex ITG, and agreed that equity in certain proportions will be held in that entity by Cohen, Sheiman and Hosking. The context to which counsel referred was that the entities were related entities involved in the Ipex business.

428. The agreement however did not specify a method of restructure. Nor did it state that the entities would be merged into one, or that the net assets would be controlled by or found in one of the entities. Indeed while a restructure was contemplated it may not have happened by 1 July 1996, in which event effect was to be given to the entitlement. How would that be done? In considering this question a factor not lightly to be put aside is that this is a commercial agreement between people working in business together and that, if the desire was there, the agreement would have been carried into effect. The likelihood is, as counsel for the plaintiff submits, that the percentage entitlements would have been issued in the entity in which the business or control thereof or ultimate return was reposed. In this respect it is not to be overlooked that in cl.7 the parties recorded their agreement that profits generated in trust structures be distributed to companies in the Group.

431. Counsel for the defendants submitted that "equity" might include shares in the companies or beneficial interests in the trusts or a combination of these and contractual rights. Taking the point further, counsel said that the share might be of a particular class with particular voting, dividend and capital participation rights, but while the incidents of ownership were not stated in the agreement I do not regard this as so critical. The agreement itself contained no suggestion of differential rights among the holders of the equity in the group. Bear in mind that the percentage interests of Cohen, Sheiman and Hosking were a minority interest both individually and in the aggregate. Further, shares do not have to have differential rights. There are many matters of the nature mentioned by counsel for the defendants that might be imposed in relation to shareholding rights but agreement on such matters is not a necessary condition to a concluded agreement.

434. In the present situation a restructure has not occurred, and the plaintiff has issued a writ seeking an order for specific performance of the agreement. The writ did not specify the terms of the order that the plaintiff required to obtain specific performance, and perhaps it did not have to. In his submissions counsel for the plaintiff seemed virtually to give up the claim for specific performance, although it must be remembered that the trial was on liability only. Counsel said that there were "lots of reasons here that would make specific performance pretty difficult" and he thought that they could not "ask the court to, in effect, reorganise these companies to give us equity". It is of course one thing to refuse a decree of specific performance on the basis of a discretionary consideration, such as impracticability. But no decree can be granted unless the plaintiff establishes the legal right upon which he sues. The important thing is the establishment of the legal right.

437. Let us reflect on what the plaintiffs case is. As I have said, in the writ he seeks specific performance. He also seeks, in the alternative, damages.

440. The damages are sought for breach of the agreement and for misrepresentation. Dealing first with the claim based on breach, the breaches alleged are not transferring to Hosking shares and/or units equivalent to 5% of the equity in the Ipex Group by 1 July 1996 or at all; not accounting to Hosking for 5% of the profits from 1 July 1994; and commencing a restructure or selling part of the Group without giving effect to Hosking's entitlement. The third aspect of breach relies upon the 1 July 1997 transactions between Takapana and Ipex ITG. The first and third aspects rely upon cl.9 of the agreement; the second aspect upon the contention that as from 1 July 1994 Hosking's 5% interest entitled him to share in profits. At the trial Hosking's counsel based his case upon the first aspect, that is that on the efluxion of time under cl.9, subsequent to which Hosking's employment was terminated, Hosking should have received shares or units which represented his 5% interest. Although the Takapana and Ipex ITG agreements were put in, it was not necessary for counsel to base his case on the third aspect.

443. The statement of claim also alleged, as is the fact, that Hosking was dismissed from his employment by the Ipex Group. Clause 17 of the agreement sets out procedures to apply in the event of termination. Paragraph (a) of cl.17 provides that the departing party remains entitled to the equity percentage referred to in cl.3 and will be entitled to a formal shareholding consequent on the events specified in cl.9. In this case the termination occurred after 1 July 1996 but the principle of continuing entitlement remains the same.

446. The damages claimed for breach are 5% of the equity in the Ipex Group and profits in respect thereof from 1 July 1994. As the trial was on liability this aspect of the case has not been tried, and Hosking's counsel said that work remained to be done on it before it could be presented.

449. On the misrepresentation claim the damages claimed are loss of wages in that Hosking was paid less by the Ipex Group than he would have earned elsewhere, the value of Hosking's share in the business of the Software Services Unit Trust acquired by Ipex ITG, 5% of any dividends paid and the value of 5% of the equity in the Ipex Group.

452. Putting aside the claim for damages for misrepresentation, the claim for damages for breach falls on the defendants as promissors under the agreement to meet their promise by paying to the plaintiff the amount which in damages represents the plaintiff's 5% interest.

455. As I have said, however, the issue before me is liability and not damages, or specific performance for that matter. Matters of relief must await judgment on liability.

458. In the end I conclude, for the reasons already discussed, that the parties did make a binding agreement under which Hosking acquired the right to a 5% equity interest in the Ipex Group. The Ipex Group agreed to give effect to that entitlement by 1 July 1996 at the latest. The Group undertook that obligation. They have not met their obligation. The failure to do so constitutes a breach of the agreement. That is sufficient for present purposes at this stage of the case. In arriving at this conclusion I have given careful consideration to all the defendants' submissions including a contention that any otherwise legally binding agreement was subject to conditions subsequent included in para.9.06 of the defence. The alleged conditions subsequent are in the same terms as the matters alleged in para.9.02(b) of the defence which I have referred to above. In my view none of these matters were conditions subsequent. They relate to matters on the defendants' side, as it were, any of which could have been specified in the agreement and on any of which the defendants could have sought agreement from Hosking. The agreement is a commercial document signed by people in a working relationship in which, doubtless, trust was an important element. Further, the document was the work of the defendants and they put it forward as appropriate in its terms. Then, when on the trial of this case, after Joel Schwalb had changed his mind concerning Hosking, the defendants have scoured the contract books and the fine terms of the written agreement to come up with a raft of arguments as to why, in truth, they never agreed to give Hosking a right to any equity interest at all. I do not consider that these considerations, on their own, can enable a conclusion that a contract was made when objectively considered that conclusion is not open. Yet the relationship of the parties and the nature of the agreement and the circumstances in which it was produced may not be irrelevant; see Vroon BV v. Foster's Brewing Group Ltd. [1994] VicRp 53; [1994] 2 V.R. 32 at 67-68. In this case I am firmly of the view that none of the areas of supposed uncertainty or incompleteness deprive the written record of agreement entered into here, to implement and carry forward the parties' business relationship, of binding legal effect. Accordingly, in my view Hosking was entitled, as his counsel contends, to 5% of the profit from 1 July 1994 and to receive his interest in the Group no later than 1 July 1996. He was entitled to receive that interest whether or not a restructure had been carried out.

461. In light of this conclusion it is unnecessary to deal with the misrepresentation aspect of the case.

464. I will hear the parties on the matter of relief and costs.