Plaintiff v IPEX SOFTWARE SERVICES PTY LTD & OTHERS

Plaintiff v IPEX SOFTWARE SERVICES PTY LTD & OTHERS - [1999] VSC 28 - VSC 1999 case summary — Zoe

[62]

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.

[98]

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).

[121]

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.

[123]

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.

[129]

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.

[177]

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.

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Judgment (179 paragraphs)

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