Radoman Pty Limited v Vexapu Pty Limited

(i) $2,700,000.00 apportioned as follows Goodwill: $1,135,000.00 Equipment: $145,893.00 Land $1,204,107.00 (ii) one half of the difference between $2,700,000.00 as apportioned in (a) above and the respective market value of the goodwill, equipment and land as at the date of exercising the option where the total of same exceeds $2,700,000.00." 6 The duration of the option is dealt with in clause 6 which provides, in essence, that it will subsist until the later of the expiration of the term of the management agreement and the expiration of two years from 29 November 2004, subject to earlier termination in events of no present relevance. 7 In August 2006 (that is, within the period of two years from 29 November 2004), Vexapu entered into a contract for the sale of the Royal Hotel to a third party for $3.95 million. Completion of that sale took place on 17 October 2006. The claim in contract 8 Radoman's claim in contract is pleaded in points of claim. Paragraph 3 pleads an oral agreement made on or about 12 July 2006 "whereby the defendant [Vexapu] agreed to pay the plaintiff [Radoman] the sum of $625,000 plus GST if the plaintiff [Radoman] surrendered its option entitlement to purchase the Moree Hotel [ie, the Royal Hotel at Moree] from the defendant [Vexapu] (pursuant to a written agreement between the parties dated 29 November 2004) by allowing a third party to purchase the hotel instead of the plaintiff [Radoman]". 9 Radoman's points of claim continue: "4. It was an implied term of the agreement that the defendant [Vexapu] would make payment to the plaintiff [Radoman] the sum of $625,000.00 plus GST within a reasonable time after the defendant [Vexapu] sold the said hotel. 5. In performance of the agreement, the plaintiff [Radoman] surrendered its option by allowing the defendant [Vexapu] to sell the Moree Hotel to a third party on or about the 17th of October, 2006 for the sum of $3,950,000.00." 10 Vexapu says in reply to paragraph 3 that: "(a) it denies that any such contract was entered into; (b) further and in any event, no action may be brought on a contract of the kind alleged by virtue of the operation of section 54A of the Conveyancing Act 1919 (NSW); (c) further and in any event, a contract of the kind alleged would fail for want of consideration in circumstances where the plaintiff had no option entitlement because it did not pay any consideration for the alleged grant of the option." 11 Paragraphs 4 and 5 of the points of claim are denied. 12 Three issues thus arise: (a) whether the conversation between Mr Smith and Mr Ryan on or about 12 July 2006 (in which it is accepted that they spoke for their respective companies) brought into existence an oral contract in the terms alleged in the points of claim; (b) whether, if such an oral contract was formed, it was unenforceable because of the absence of writing satisfying the Statute of Frauds (in the form of s 54A of the Conveyancing Act 1919); and (c) whether Radoman had legally enforceable rights under the option agreement of 29 November 2004 upon and in relation to which the alleged oral contract could have meaningful operation. 13 It is convenient to deal with the two questions of law before addressing the factual issue. The Statute of Frauds defence 14 The contract, as pleaded, is one by which Vexapu promised to Radoman that Vexapu would pay money to Radoman if Radoman surrendered its option to purchase by allowing a third party to purchase instead of Radoman, with payment being made within a reasonable time after sale to the third party. 15 The question posed by Vexapu's reliance on the Statute of Frauds is whether the contract thus pleaded is, in the words of s 54A(1) of the Conveyancing Act, a "contract for the sale or other disposition of land or any interest in land". Section 54A(1) is in these terms: "No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged." 16 Mr M R Elliott of counsel, who appeared for Vexapu, submitted that the starting point in addressing this question is the proposition that a person to whom the owner of land has granted an option to purchase has an equitable interest in the land. That proposition - confirmed by high authority (see, for example, Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674, Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57) - was referred to by White J in GPT RE Ltd v Lend Lease Real Estate Investments Ltd (2005) 12 BPR 23,217. His Honour said (at [51]): "The grant of an option to a third party to acquire land gives the optionee an equitable interest in the land in respect of which the option is given. In Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, Gibbs J said (at 76) that this was explicable on the basis that an option is a conditional contract to sell the land which creates a contingent equitable interest in the land, but that it would be artificial to treat a contract which did no more than provide that an offer should not be revoked as giving the party to whom the offer was made a right to call for a conveyance of the land and an equitable interest in it. In this case, the option takes the form of an offer with a contract that it not be revoked. However, it is clear that even an option in that form gives the optionee an interest in the land. (See Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 9 BPR 17,079 at 17,091-17,092 and the cases there cited, in particular, Commissioner of Taxes (Qld) v Camphin (1937) 57 CLR 127 at 132)." 17 As White J also pointed out (at [62]), such an equitable interest operates as an imposition on the landowner's title, not as a subtraction from it. 18 Assuming that the option agreement of 29 November 2004 was supported by consideration and otherwise valid and binding, there is no reason to think that Radoman would not have been entitled to such assistance from a court of equity as would have caused it to have an equitable interest in the Royal Hotel. The subsequent oral agreement, as pleaded by Radoman, was one under which Vexapu was obliged to pay money to Radoman "if the plaintiff [Radoman] surrendered its option entitlement to purchase [the hotel] … by allowing a third party to purchase the hotel instead of the plaintiff [Radoman]". What is here called the "option entitlement to purchase" is, in reality, the equitable interest in the hotel property that Radoman had by virtue of the grant to it by Vexapu of the option to purchase. 19 The oral contract was concerned with a future event that might or might not happen. That event was a "surrender" by Radoman of "its option entitlement to purchase", with the "surrender" occurring "by allowing" purchase by a third party - in other words, inaction by Radoman in the face of a known threat by Vexapu to effect a sale to a third party, which sale, it was acknowledged, would cause Radoman no longer to have "its option entitlement to purchase". 20 The effect of the alleged contract was thus that it was left to Radoman alone to decide whether or not to "allow" purchase by a third party from Vexapu (an event which, it was agreed, would be or result in "surrender" of Radoman's "option entitlement to purchase"). If Radoman made a positive decision, Vexapu would be liable to pay the specified sum to Radoman; but if Radoman made a negative decision (by exerting its right to prevent sale by Vexapu to - and therefore purchase by - a third party), Vexapu would not be liable to pay the specified sum to Radoman. 21 In the case of a positive decision by Radoman there would, in my view, be a "disposition" of Radoman's equitable interest. The term "disposition" is defined by s 7 of the Conveyancing Act in this way: " Disposition includes a conveyance, and also an acknowledgment under section 83 of the Wills, Probate and Administration Act 1898 , vesting instrument, declaration of trust, disclaimer, release and every other assurance of property by any instrument except a will, and also a release, devise, bequest, or an appointment of property contained in a will; and dispose has a corresponding meaning." 22 The reference to "release" in this definition is significant in the present context. "Release" connotes relinquishment so that property or some right is let go or given up. A person with an equitable interest under a trust who gives up that right may be said to release or surrender it to the trustee: see the observation of Lord Radcliffe in Grey v Inland Revenue Commissioners [1960] AC 1 at 16 quoted by Giles J in PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 at 249. 23 The statutory concept of "disposition" thus extends beyond the kind of transfer that sees one person come to own that which was previously owned by another. If one person's title to property ceases to be subject to imposition because the other person gives up his or her separate interest in the property, it seems to me that there is a "release" by the second person of the kind caught by the statutory definition. A surrender of lease or surrender of easement causes the person having the right of possession or right of user to lose that right and the landowner's title no longer to be subject to the right. A contract for a surrender of either such kind is within s 54A: see, as to surrender of lease, Tasita Pty Ltd v Sovereign v State of Papua New Guinea (1991) 34 NSWLR 691 and, as to surrender of an easement, Finlayson v Campbell (1997) 8 BPR 15,703. 24 It follows, in my opinion, that surrender and relinquishment by Radoman of the equitable interest that the pleaded agreement calls its "option entitlement to purchase" would be a "disposition", in Conveyancing Act terms, of that equitable interest. Because of the surrender or relinquishment, Radoman would no longer have the equitable interest and the title of Vexapu would no longer be burdened or qualified by that interest. 25 The release or surrender by Radoman contemplated by the agreement must therefore be regarded as a disposition of an interest in land. That raises the question whether the operation of the agreement with respect to the interest and the disposition of it causes the agreement to be a "contract for the … disposition" of the interest. 26 In Powercell Pty Ltd v Cuzeno Pty Ltd [2003] NSWSC 600; (2003) 11 BPR 21,385, Campbell J had occasion to consider "what sort of relationship between the contract in question and the sale or other disposition of land or an interest in land is required by the preposition "for", in "contract for the sale or other disposition of land or an interest in land". His Honour then identified several cases in which the relevant relationship had been found to exist and others in which it had been found not to exist. None of them seems to provide any definitive guidance for the present case. 27 The question addressed by Campbell J was, to some extent, answered by Sedley LJ in Nweze v Nwoko [2004] EWCA Civ 379, a case concerning the analogous provision of the Law of Property (Miscellaneous Provisions) Act 1989 (UK) where the relevant words are "contract for the sale or other disposition of an interest in land". His Lordship said (at [29]): "The word 'for' in the expression 'a contract for the sale … of an interest in land' is capable, as a matter of language, of meaning one of at least two things. It may mean a contract which is to result in such a sale; or it may mean a contract by which such a sale is effected." 28 According to either of these formulations, sale or disposition of an interest in land must be the product of the contract, in that the contract will either "result in" or effect the sale or disposition. One party must come under some contractual obligation the performance of which involves sale or disposition, even if the subject matter is an interest of a somewhat remote kind, such as rent not yet due: Ex parte Hall; In re Whitting (1878) 10 Ch D 615. The obligation to which the contract gives rise need not be one involving sale or disposition to or in favour of the other party to the contract: see, for example, Cocking v Ward (1845) 1 CB 858. Nor is it necessary that the party incurring the obligation have the particular interest in land at the time the contract is made: Riches v Hogben [1986] 1 Qd R 315. But disposition of the interest in land must be provided for by the contract, in the sense that performance of the contract involves the disposition. 29 The oral contract, as pleaded by Radoman, was one under which Radoman, being the holder of the interest in land, did not, in terms, agree to do anything by way of disposition of that interest. Rather, Vexapu, being the other party to the contract, agreed to pay money to Radoman as the holder of the interest if Radoman elected to do the thing entailing disposition of the interest. The pleaded contract was not one that could ever have given rise to a claim by Vexapu to compel Radoman to "surrender" its "option entitlement to purchase" and thereby to dispose of its interest in land. Radoman alone had unfettered control over whether there would be a disposition of the interest. If Vexapu had threatened to sell the hotel property to a third party, Radoman, if it chose, could have prevented the disposition envisaged by the alleged oral contract by itself exercising its option to purchase from Vexapu or suing for an injunction to restrain sale to the third party while its option subsisted. Alternatively, Radoman could have stood by and allowed the happening of the event constituting or resulting in the disposition of its interest. 30 The only action that could have been brought on the contract, as pleaded, is an action for payment of the stipulated sum if and when Radoman, according to its own election, chose to "surrender" its "option entitlement to purchase by allowing a third party to purchase" and thereby to dispose of its interest. Unless and until Radoman made its own decision to allow a sale by Vexapu to a third party, there would have been nothing for anyone to do by way of performance of the contract - and even then, as I have said, performance would have entailed only the payment of money by Vexapu to Radoman. 31 I am accordingly of the opinion that the oral agreement, as pleaded, was not a "contract for the sale or other disposition of land or an interest in land". 32 That, however, is not the end of the inquiry as to the applicability of s.54A of the Conveyancing Act. This is because of the rule that a contract varying a contract which, as required by s.54A, is evidenced by writing must itself be evidenced by writing: see Phillips v Ellinson Brothers Pty Ltd [1941] HCA 55; (1941) 65 CLR 221. It is therefore necessary to consider whether the oral agreement pleaded by Radoman was in truth an agreement varying the option agreement of 29 November 2004. That option agreement was obviously a contract in respect of which the s.54A requirement as to writing both applied and was satisfied. 33 The foundation for the rule about variation of contracts that must be evidenced by writing was said by Lord Atkinson in Morris v Baron [1918] AC 1 at 31 to be "that after the agreed variation the contract of the parties is not the original contract which had been reduced into writing, but that contract as varied, that of this latter in its entirety there is no written evidence and it therefore cannot in its entirety be enforced." 34 An illustration of the application of this rule is found in McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 where one party sought unsuccessfully to rely on an unwritten agreement changing the date for completion specified in a written contract for the sale of land. A parol variation concerning the amount of the deposit and the completion date was likewise held unenforceable in Burnitt v Pacific Paradise Resort Pty Ltd [2006] QCA 309. 35 In both cases just mentioned there was a question as to whether the subsequent agreement varied the original contract or was merely collateral to it. The validity of that distinction was explained in the judgment of Williams J in Phillips v Ellinson Brothers Pty Ltd (above) at CLR 243: "It is clear law that a contract required to be in writing by the Statute of Frauds cannot be varied orally (Morris v Baron & Co [1918] AC 1 ; British and Beningtons Ltd v N W Cachar Tea Co [1923] AC 48; Dowling v Rae (1927) 39 CLR 363, at pp. 370, 371; and, as to deeds, Berry v Berry [1929] 2 KB 316), but 'a distinction has been pointed out and recognized between an alteration of the original contract in such cases, and an arrangement as to the mode of performing it. If the parties have attempted to do the first by words only, the court cannot give effect, in favour of either, to such attempt; if the parties make an arrangement as to the second, though such arrangement be only made by words it can be enforced' ( Plevins v Downing (1876) 1 CPD 220, at p. 225). And, as Goddard J (as he then was) pointed out in Besseler Waechter Glover & Co v South Derwent Coal Co. [1938] 1 KB at 417: 'It does not appear to me to matter whether the request comes from one side or the other, or whether it is a matter which is convenient to one party or to both. What is of importance is whether it is a mere forbearance or a matter of contract.' If an arrangement amounts to a parol variation of the original contract it is ineffective either to enable the contract to be enforced as so varied or to prevent the original contract being enforced in its unaltered form." 36 The question is thus whether the intended effect of the subsequent contract is to prevent the original contract being enforced in its unaltered form - because, for example, a different date for completion is specified or a different price is payable; or whether, by contrast, the subsequent agreement leaves the parties in a position where performance of the original contract can be both required and tendered according to the terms originally agreed. 37 In the present case, the option agreement of 29 November 2004, on the assumption stated at paragraph [18] above, remained operative in its original form despite the subsequent agreement alleged by Radoman. Radoman's entitlement to require sale of the hotel property to it by giving notice as provided by the option agreement within the option period remained extant, unaltered and undiminished. Subject only to due exercise, Vexapu's obligation to sell and convey the property to Radoman in return for the "purchase price" remained extant, unaltered and undiminished, as did Radoman's obligation to take the property and pay that price. The subsequent agreement, as pleaded, contemplated no more than that Radoman might give up its right to buy and to hold Vexapu to a sale accordingly. That, in my view, did nothing to alter the original contract. 38 My conclusion on this part of the case is that, if Radoman succeeds in proving the oral contract on which it seeks to rely (as pleaded in the way described at paragraphs [8] and [9] above), s.54A of the Conveyancing Act will not be an obstacle to its claim for payment pursuant to that contract. Validity of the option - the consideration point 39 I turn now to the question whether the alleged oral contract would fail because Radoman did not, in reality, have the postulated "option entitlement to purchase". The contention of Vexapu in this part of the case is that no such entitlement or interest arose in Radoman because the grant of option purportedly made by the agreement of 29 November 2004 was not supported by consideration moving from the grantee, that is, Radoman. That being so, it is argued, the supposed option was never more than an offer (Bristow v Manning (1988) 4 BPR 9337) and the event giving rise to Radoman's supposed right to payment under the oral contract (that is, surrender of its "option entitlement to purchase by allowing a third party to purchase") never occurred because it had no such "entitlement" and no right to prevent sale to a third party. 40 It is said by Vexapu that, although the option agreement makes express reference to the payment of a consideration of $10.00 paid by Radoman to Vexapu "the receipt of which is hereby acknowledged" (see paragraph [4] above), there is no evidence that the sum was ever paid; added to which searches in the books and records of Vexapu have failed to find any record of its receipt. 41 A number of reported cases have dealt with similar fact situations. Three of them should be mentioned. In Lydia Court Pty Ltd v Panousis (unreported, NSWSC, 7 September 1973), Street CJ in Eq held, on the assumption that an option fee of one dollar acknowledged to have been received had not in fact been paid, that the grantor of the option was not bound. Subsequently, in Gas & Fuel Corporation of Victoria v Barba [1976] VR 755, Crockett J observed that the decision of Street CJ in Eq was a decision on an interlocutory application "when the authorities appear not to have been examined". Crockett J referred to earlier cases which led him to the conclusion that, if an instrument contains an acknowledgement of receipt of the specified consideration but it is proved that the consideration was not paid, there is rebuttal of the prima facie position created by the acknowledgement (that is, that receipt - and therefore payment - have occurred), so that the consideration is to be regarded as an as yet unfulfilled promise to pay the specified sum. 42 This latter approach was preferred by Giles J in Himbleton Pty Ltd v Kumagai (NSW) Pty Ltd (1991) 29 NSWLR 44. His Honour said (at 52): "It is true, as Kumagai pointed out, that cl 1 of the put option describes the dollar as 'paid' rather than 'payable', but it is quite clear that it was intended that the payment of a dollar be consideration for the grant of the put option. Had there been a substantial rather than nominal consideration, Kumagai would have been entitled to go behind the word 'paid' and the acknowledgment of receipt in order to enforce a promise by Himbleton to pay the consideration. If there be a promise to pay for that purpose, then equally Himbleton can go behind the word 'paid' and the acknowledgment of receipt in order to assert the same promise as consideration for the put option." 43 It seems to me that the analysis that commended itself to Crockett J and Giles J is to be preferred, so that if, as the evidence tends to indicate, the acknowledged payment of $10.00 was not made by Radoman to Vexapu, Radoman's promise to pay that sum stands as consideration for the grant of the option by Vexapu. 44 It is also recognised in the cases that, although an instrument expresses a monetary consideration and refers to the relevant sum having been paid and received, there may in reality be some other consideration for the benefit or promise conferred by the instrument. In Barba v Gas & Fuel Corporation of Victoria [1976] HCA 60; (1976) 136 CLR 120, it was observed that, in the circumstances of the case that had come before Crockett J at first instance, there had been an antecedent promise by the grantee to pay $10.00 - by which I mean that such a promise had been made independently of the content of the document that was later executed. Gibbs J (with whom Stephen J and Jacobs J agreed) said (at CLR 131-132): "Oral evidence was admissible to prove that the written instrument was in truth given for valuable consideration: In re Holland; Gregg v Holland [1902] 2Ch 360, at p.388; Frith v Frith [1906] AC 254, at 258-259. The promise to pay the sum of $10 was sufficient consideration for the grant of an option." 45 The existence of other consideration was also relevant to the decision in Soyfer v Earlmaze [2000] NSWSC 1068 where it again appeared that a monetary consideration expressed to have been paid and received had not changed hands. Hodgson CJ in Eq said (at 104]): "In my opinion, the option was not invalid for want of consideration. As submitted by Mr. Gleeson, there was other consideration: since Earlmaze is bound by the execution of the option agreement, with its reference in cl.6 to the loan, it is bound to treat the loan as consideration. In any event, in my opinion, the provision concerning $1,000.00 should be construed as giving rise to a promise to pay $1,000.00, as discussed in Himbleton ." 46 In the present case, the grant of the option to purchase was part of the wider arrangement under which Radoman was retained by Vexapu to manage the Royal Hotel. The management agreement, in its recitals, stated that Vexapu wished to appoint Radoman to manage the business of the hotel "subject to the terms and conditions of this Agreement" and that Radoman accepted the appointment "under this Agreement and in accordance with the terms of this Agreement". The creation of the option was expressly provided for in clause 10.1 of the management agreement (see paragraph [3] above). The grant of the option thus formed part of the totality of the benefits Vexapu conferred upon Radoman in return for Radoman's promises concerning the provision of management services to and for the benefit of Vexapu. It must follow that the grant was supported by consideration apart altogether from the nominal sum of $10..00 referred to in the option document itself. 47 I would accordingly apply here the reasoning adopted by Hodgson CJ in Eq in Sofyer v Earlmaze Pty Ltd (above). There was, in the circumstances, consideration other than the specified $10.00, but, as discussed in Himbleton v Kumagai (above), the provision with respect to the $10.00 is the source of a promise to pay that sum if it has not already been paid. 48 On this basis, I do not accept Vexapu's contention that, because no option was in truth created by the option agreement (so that no "option entitlement to purchase" ever existed), the oral agreement pleaded by Radoman could not have effected effected the "surrender" in return for which Radoman considers itself entitled to payment pursuant to the oral agreement. 49 I am, in any event, not persuaded that execution of the option agreement, as a separate document, was necessary in order for Vexapu and Radoman to be committed to its terms. Clause 10.1 of the management agreement said that Radoman "shall be granted" an option to purchase "as set out in the Option Agreement marked 'O' and annexed to this agreement". The situation was, in my opinion, one in which clause 10.1 itself may be seen as the source of a grant of the option. There was no express requirement that the separate document be executed. Had it remained unexecuted, the parties could have looked to clause 10.1 alone. Its execution merely recorded in a formal fashion the agreement already embodied in clause 10.1: see, for example, Petelin v Deger Investments Pty Ltd [1976] HCA 4; (1976) 133 CLR 538.

Evidence about matters pre-dating the conversation 50 In addressing the conversation between Mr Ryan and Mr Smith on or about 12 July 2006, it is necessary to begin with evidence given by Mr Ryan about an earlier conversation. In his affidavit sworn on 15 November 2006, Mr Ryan says that, shortly before Christmas 2005, he spent a day with Mr Smith in Sydney and that Mr Smith mentioned having recently indicated to a hotel broker an interest in selling the Royal Hotel for $4,250.000.00 or $4,000,000.00 after costs. Mr Ryan says that he then said to Mr Smith: "If you get $4,250,000 for the place, don't let him out of your sight." 51 Mr Ryan also says that, in the same conversation, he then raised with Mr Smith the point that any sale would require Radoman's consent, a proposition with which Mr Smith disagreed. On Mr Ryan's account, he went on to explain the significance of the option agreement and the pricing for which it provided, to which Mr Smith replied: "I wasn't aware of that but I'm sure we can work it out." 52 Mr Ryan's evidence is that in about June 2006, he became aware from Mr Smith that two potential purchasers were interested in the Royal Hotel. At Mr Smith's request, Mr Ryan prepared financial information for prospective purchasers. At that time, according to Mr Ryan, there was a conversation between himself and Mr Smith to the following effect: Ryan: "We really need to work out the option arrangement to allow this to proceed." Smith: "Yeah, yeah I will work this out." 53 There is in evidence of an email message from Mr Ryan to the solicitor, Mr Gray, on 13 June 2006, that is, about a month before the meeting at the Botany Bay Hotel. Mr Gray was a director of Radoman and it is obviously in that capacity that he became the addressee of Mr Ryan's email. The purpose of the email was to set out possible options for Radoman in relation to the Royal Hotel. There is reference to an attached summary but that does not form part of the copy of the email put into evidence. It is nevertheless clear that the broad strategies Mr Ryan had in mind entailed exercise by Radoman of its option to purchase at a favourably discounted price, coupled with on-sale or leasing or some other arrangement with outside parties to make the most of the purchased asset (there are references to "ING" and "the interested Commonwealth people" in this connection). 54 To the forefront of Mr Ryan's thinking, however, was pressure that Vexapu was under from its bank, coupled with complications arising from the Smiths' matrimonial situation. There was reference to the bank "moving in", from which it might be inferred that Mr Ryan foresaw a possibility that a mortgagee sale would remove the subject matter of the Radoman option. Mr Ryan then said: "St George needs less fro [sic] the Royal than our purchase price but the pressure from Botany is to [sic] much. Bottom line though is that unless we get as cash what we would have got as a price reduction I am not pulling out of buying it at the end of the year. If you are happy with me going ahead I will talk to Kevin about this." 55 It is thus clear, to my mind, that Mr Ryan was, in June 2006, aware of the valuable nature of Radoman's rights under the option agreement and of the potential to turn them to account by means of arrangements with outside parties in conjunction with exercise of the option by Radoman. And Mr Ryan made it clear to Mr Gray that, if Vexapu was to be allowed to sell to alleviate bank pressure and to accommodate financial arrangements between Mr Smith and Mrs Smith, that was something for which Vexapu would have to "pay as cash what we would have got as a price reduction" - otherwise, the interests of Radoman would be better served by "buying it at the end of the year" (a reference, no doubt, to Radoman's exercising the option). The evidence about the conversation 56 Mr Ryan's affidavit account of the meeting with Mr Smith at the Botany Bay Hotel (owned by Mr Smith) on the morning of 12 July 2006 is as follows: "Ryan: 'Kevin, we really need to talk about the option.' Smith: 'Yeah, yeah, yeah.' Ryan: 'No. No. I want you to listen to what I have got to say about the option Kevin.' Smith: 'Ok'. Ryan: 'We gave discussed this before and you understand Radoman has an option to purchase the Hotel during the management period.' Smith: 'I understand that, but I didn't sign the Agreement'. Ryan: 'It makes no difference, it's been signed on your behalf'. Smith: 'Why would you blokes want a pub in Moree'? Ryan: 'Kevin, the Agreement allows for us to buy the Hotel at a discounted price and it suits the company and our plans to buy a Hotel that will return in the vicinity of 20% which is much better than cap rates at some of the Hotels we were looking at. On top of that, Peter the Manager, is quite happy in Moree and is getting married next year'. Smith: 'Is Pete getting married? Why should he be happy'? Ryan: 'Yes he is and he intends on staying in Moree. You need to acknowledge Kevin, that our Agreement needs to be changed for this to go any further and that neither party will be worse off'. Smith: 'I agree with that. I really need this to go ahead to get away from my family and especially my ex missus'. Ryan: 'Do you know how much money this is? It will sell for $3,950,000.00, the original valuation was $2,700,000.00 which leaves $1,250,000.00 to be split. 50% of this is ours which is $625,000.00'. Smith: 'I understand that your share is $625,000.00 and we also owe you some outstanding management fees. It's a better deal than you would have got if I did the Agreement'. Ryan: 'We have all done well out of it. Conditional upon agreeing to change the arrangement, that can happen Kevin. For this to go ahead, you need to understand that for us to forego our option on the Hotel, we need to be sure that we are still entitled to half of the increased sale value of the hotel'. Smith: 'Yes I agree to that. I am a man of my word. I have never dudded anyone in my life'." 57 Mr Ryan deposes that he then made some notes of financial matters for Mr Smith and the two of them discussed aspects of Mr Smith's financial affairs, including the rights or expectations of his estranged wife. Mr Ryan's affidavit continues: "He then did a calculation valuing the increase in value of the Hotel and valued our share at $625,000.00 which left $1,825,000.00. He divided this by two on the basis that he would have to share this with his Wife, being $912,000.00. He said: 'How about we (meaning Lynne) get $1,000,000.00 each'. I said: 'Get fucked'. He said: 'What about if I give you blokes $500,000.00'. I said: 'Get fucked'. I understood that this offer made by Kevin was on the basis that it included all the outstanding fees that we were owed at that stage on top of the renegotiated option. He said: 'Tim, I have taught you everything you know'. As I was not prepared to negotiate below the $625,000.00 the meeting broke up'." 58 In an affidavit of 16 March 2007, Mr Smith deposed to having been remote from the affairs of Vexapu in late 2004 and early 2005 because of depression brought on by certain family events. He says that he did not sign and "was unaware at that time of the terms of" the management agreement and option agreement and the option agreement dated 29 November 2004, although he was "generally aware" in late 2004 that Mr Ryan had been retained to manage the Royal Hotel and that he was using Radoman for that purpose. He says that he was not aware of any option agreement until some weeks after the exchange of contracts for the sale of the hotel (which occurred in August 2006). 59 In the affidavit just mentioned, Mr Smith says that the conversations deposed to by Mr Ryan and quoted at paragraphs [51] and [52] "did not happen". Mr Smith accepts that there was a meeting between the two of them at the Botany Bay Hotel in or about July 2006. He says that he arranged to meet Mr Ryan there because Mr Ryan was bringing to Sydney copies of the contracts for the sale of the hotel that had been prepared by Vexapu's solicitor, Mr Ian Gray, whose practice is in Singleton. The account of the conversation at the Botany Bay Hotel set out in Mr Smith's affidavit is as follows: "Ryan: 'Here are your contracts.' Me: 'Thanks for bringing them'. Ryan: 'No problem. I was on my way through to the Hibernian Hotel anyway'. As I understood it from previous discussions with Mr Ryan, he owned the Hibernian Hotel. After some small talk we then had an exchange in words to the following effect: Ryan: 'If you sell the hotel for $4m, you'd have to give us 50% of the difference between that and $2.7m'. Me: 'Bullshit. Where did you get that from'? Ryan: 'It's what you have to do under the management agreement'. … Me: 'Well I never signed a deal like that. But if that's what the management agreement says I'm sure we can work something out. What if we pay you $500,000?' Ryan: 'Get fucked. You're a hard bastard.' Me: 'Then that makes you one too seeing that I've taught you everything you know.'" 60 Mr Smith deposes that the conversation related by Mr Ryan and set out at paragraphs [56] and [57] above did not take place in the terms stated by Mr Ryan. 61 The position taken by Mr Smith in his affidavit of 16 March 2007 it was reasonably soon after the meeting of 12 July 2006 that he eventually tracked down a copy of the management agreement and the option agreement through his accountants. In an affidavit of 14 November 2007, however, he said that this did not happen until 14 September 2006. 62 Each of Mr Ryan and Mr Smith was cross-examined. Mr Ryan remained firm in the account of events given in his affidavit. Four things of significance did, however, emerge from the cross-examination. First, Mr Ryan accepted that, before the meeting of 12 July 2006, there had been no agreement on the question of Vexapu's selling the Royal Hotel despite the existence of Radoman's option to purchase; and that, while he was cooperating in Mr Smith's plans to sell to a third party, part of his intention in meeting Mr Smith on that day was to attempt to sort out that matter. 63 Second, Mr Ryan acknowledged his awareness that Mr Smith had been ill when the management agreement and option agreement were prepared and executed in November 2004. The signatories, as directors of Vexapu, are Mr Smith's wife Lynette and son Joshua. Mrs Smith, it should be noted, deposed that Mr Smith had been ill at the relevant time and that the agreements had been attended to by her and Joshua to the exclusion of Mr Smith. 64 Third, Mr Ryan agreed that he knew that Mr Smith, by mentioning a figure of $500,000, was trying to negotiate with him. Indeed, Mr Ryan accepted in cross-examination three matters relevant to negotiation: first, that he had told Mr Smith at the meeting that, under the arrangements that were already in place, Vexapu would have to pay Radoman half the difference between $2.7 million and the ultimate sale price if Vexapu sold to a third party; second, that Mr Smith had said that, while he was unaware of the detail of what had been agreed at the outset, if what Mr Ryan said was correct, he was sure something could be worked out; and, third, that Mr Smith then made the suggestion that $500,000.00 be paid. 65 A matter upon which some time was devoted in the cross-examination of Mr Smith was the reason he had proposed a payment of $500,000 if, as he said, he had no knowledge of the option agreement when he and Mr Ryan had their conversation on 12 July 2006. I quote from the transcript: "Q. You say "Well I never signed a deal like that. But if that's what the management agreement says I'm sure we can work something out. What if we pay $500,000.00" see that? A. I do.

Q. You say to the court at that stage you had no knowledge of any detail of management agreement and did not know an option agreement existed? A. Correct.

Q. Despite that you say you offered to pay Tim Ryan $500,000.00? A. That is right.

Q. What was the precise basis on which you made the offer to Tim Ryan in July 2006 that Vexapu pay Radoman $500,000.00? A. Mr Tim Ryan brought up the fact we owed Radoman $625,000.00.

Q. And so your response to that was to knock it down to $500,000.00, is that right? A. Yes.

Q. So what was the $500,000.00 for? A. Well it was a counter offer to Mr Ryan saying that we owed Radoman $625,000.00 which I disputed.

Q. If you disputed it why didn't you say we owe you nothing? A. I did say that further in my affidavit. This was not a formal meeting. This was just a general meeting that Mr Ryan brought down contracts for sale of the Hotel, contracts for sale of the Hotel.

Q. What did the $500,000.00 represent? A. Just an offer.

Q. For what? A. Well Mr Ryan kept on insinuating that we owed Radoman $625,000.00. Where he got that figure from I didn't know at the time until such time as we got closer to settlement of the Hotel.

Q. What did the $500,000.00, in the context of the discussion you say took place, what was it being paid for? A. I really don't know to tell you the truth." 66 Mr Ryan confirmed in cross-examination that $500,000.00 had been mentioned by Mr Smith after Mr Ryan himself had referred to $625,000.00. However, it is Mr Ryan's evidence that Mr Smith had already agreed to the proposal involving $625,000.00 before he mentioned the figure of $500,000.00. 67 Mr Smith was pressed about the conversation referred to by Mr Ryan as having taken place shortly before Christmas 2005. In his first affidavit, Mr Smith denied the part of that conversation in which, according to Mr Ryan, he (Ryan) raised the point that the hotel could not be sold to a third party without Radoman's consent and Mr Smith disagreed. The following emerged on that in cross-examination of Mr Smith: "Q. … Tim Ryan says that shortly prior to Christmas 2005 he had a conversation with you, where you said to you him words to this effect: 'I received some interest from Joel Fischer who is a pub broker who is interested in acting as an agent for the sale of a pub in Botany.' Do you recall you said that to him? A. I - yes, I do actually. I didn't know - I don't recall it being December. I thought it was in January.

Q. And you also told Tim Ryan: 'I then had some discussions with Joel about selling the pub in Moree. I told Joel the price was $4,250,000 or $4 million after costs? A. Correct.

Q. And Tim Ryan said to you if you get $4,250,000 for the place, don't let him out of your sight"? A. That's correct.

Q. It was during that conversation that Tim Ryan also said to you words to the effect: 'Well, Kevin, to do that of course you need Radoman's consent if you intend selling it to someone else', and you said, 'Pigs Arse'? A. Correct. … Q. And he said to you, 'We have the option to purchase the hotel at any time during the management period. We would only have to pay half the amount of the increase in value from the initial valuation', and you said, 'I wasn't aware of that but I am sure we can work it out'? A. Yes, I think I do recall that.

Q. And he said to you, this is Tim Ryan said to you, 'The option allows us to purchase on the basis of paying half the amount of the increase in value from the initial valuation. We would be prepared to forego the option to purchase on the condition we would be no worse off'? A. I don't recall that.

Q. Can I suggest to you that whether it is December 2005 or it was January 2006, you had conveyed or told Tim Ryan that you were interested in selling the hotel? A. That's correct." 68 Another significant matter that emerged in Mr Smith's cross-examination was that, shortly before the crucial conversation of 12 July 2006, the price of $3.95 million had been agreed with the party which eventually exchanged contracts in August and completed the purchase of the hotel in October 2006. Mr Smith also accepted that, at the time of the conversation, Mr Ryan was aware that a sale at that price had been negotiated. A factual basis on which the alleged agreement resulting in a sum of $625,000, by reference to the pricing structure under Radoman's option to purchase, is thus demonstrated. 69 Mr Sirtes of counsel, who appeared for Radoman, produced a version of the conversation of 12 July 2006, as deposed to by Mr Ryan, altered to incorporate the matters emerging from Mr Smith's evidence. The parts that Mr Smith accepted are shown in bold. The parts that Mr Smith could not recall but did not deny are in italics. The parts that Mr Smith denied are underlined. The parts that were not the subject of contest are in normal type. The account (which includes some references to transcript added by Mr Sirtes) is as follows: "Ryan: Kevin, we really need to talk about the option. Smith: Yeah, yeah, yeah. Ryan: No. No I want you to listen to what I've got to say about the option Kevin. Smith: Ok. Ryan: We have discussed this before and you understand Radoman has an option to purchase the hotel during the management period. Smith: I understand that, but I didn't sign the Agreement. Ryan: It makes no difference, it's been signed on your behalf. Smith: Why would you blokes want a pub in Moree? Ryan: Kevin, the Agreement allows us to buy the Hotel at a discounted price and it suits the company and our plans to buy a Hotel that will return in the vicinity of 20% which is much better than the cap rates of some of the Hotels we were looking at. On top of that, Peter the Manager is quite happy in Moree and is getting married next year. Smith: Is Peter getting married? Smith: Why should he be happy. Ryan: Yes he is and he intends on staying in Moree (Smith recalls this but not the words - see T42.57). You need to acknowledge Kevin that our agreement needs to be changed for this to go any further and that neither party will be worse off. (See T48.09). Smith: I agree with that. I really need this to go ahead to get away from my family and especially my ex missus. Ryan: Do you know how much money this is? Ryan: It will see for $3,950,000.00, the original valuation was $2,700,000.00 which leaves $1,250,000 to be split. 50% of this is ours which is $625,000.00. Smith: I understand that your share is $625,000 and we also owe you some outstanding management fees. It's a better deal than you would have got if I did the Agreement . Ryan: We have all done well out of it . Ryan: Conditional upon agreeing to change the arrangements, that can happen Kevin. For this to go ahead, you need to understand that for us to forego our option on the Hotel, we need to be sure that we are still entitled to half of the increased sale value of the hotel . Smith: Yes I agree to that. I am a man of my word. I have never dudded anyone in my life . Smith: How about we get $1,000,000.00 each? Ryan: Get fucked. Smith: What about if I give you blokes $500,000.00. (see T44.24) Ryan: Get fucked."

Correspondence after 12 July 2006 70 In deciding whether a contact was formed, a court may have regard to evidence of subsequent conduct: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [25]. I therefore turn to consider, in the first place, correspondence in the period following the meeting at the Botany Bay Hotel. The parties to the correspondence are solicitors. Mr Gray acted for Vexapu on the sale. But, as I have said, Mr Gray was himself a director of Radoman. He came to play a role of advancing Radoman's claims against Vexapu by way of contact with the separate solicitors acting for Mr Smith and Mrs Smith (Vexapu's principals) in relation to their matrimonial property disputes. Those solicitors were Mr McLaughlin, who acted for Mr Smith, and Mr Newnham, who acted for Mrs Smith. After settlement of the sale of the hotel on 16 October 2006, Mr Cox was instructed to act for Radoman in the pursuit of its claim against Vexapu. 71 Contracts for the sale of the hotel were exchanged on 9 August 2006. Thereafter, as Mr Gray, acting for Vexapu as vendor, sought to progress the matter to completion, it became clear that certain financial questions were outstanding between Vexapu and Radoman. On 14 September 2006, Mr Gray spoke by telephone with Mr McLaughlin. There are conflicting accounts of what was said. At all events, the conversation was followed by a letter faxed by Mr Gray to Mr McLaughlin enclosing a "list of fees we are instructed are outstanding and payable on settlement of the matter on 9 October 2006". The list does not appear to be in evidence but it is clear that it was a list of "fees" claimed by Radoman from Vexapu. One item, obviously enough, related to the claim or perceived entitlement that later became the subject of these proceedings. This was made clear by the following passage in Mr Gray's covering letter: "As discussed we are instructed the fee for the difference in the Sale price and the value of the Hotel at the time of the Management Agreement was determined to be payable on the sale as result of agreement between Tim Ryan and Kevin Smith and the other interested parties of Vexapu Pty Limited. It was based on a variation of the Option Agreement and from that Agreement the formula used is apparent. In return for the fee Radoman Pty Limited was to forgo its right to exercise its option and permit an earlier sale of the property, together with waiting for significant management fees in arrears on the settlement of the sale." 72 It appears that this fax did not reach Mr McLaughlin, since Mr Gray sent him a copy by fax with a covering letter dated 15 September 2006 which read in part as follows: "We understand from our discussions with you, and from discussions between Tim Ryan and Kevin Smith, that Mr Smith does not dispute the method of calculation of the fees payable on settlement to Radoman Pty Limited. We will follow up Mr Newnham to determine the position of the remaining director." 73 On 18 September 2006, Mr Gray faxed to both Mr McLaughlin and Mr Newnham a letter that enclosed an "invoice from Radoman Pty Limited for fees due on settlement". It appears from the affidavit to which this letter is annexed that there were in fact several such invoices. One of them referred to "Fee for Half Difference in Sale price less the value of the Hotel at commencement of the Management Agreement" and an amount of $687,500.00, being $625,000.00 plus GST of $62,500.00. Mr Gray's letter said: "We note for the benefit of Mr Newnham the writer received a call from Mr McLaughlin on Friday latest [sic] whereby his direction in relation to the net proceeds, after payment of the mortgage/hire purchase obligations and Radoman Pty Limited, were to be deposited by us to an interest bearing account pending resolution of matters between the directors of Vexapu Pty Limited. Mr McLaughlin indicated we should obtain directions as to disbursal from Mr Newnham. Could both parties please provide us with a written direction as to the disbursal of the proceeds on settlement of the matter." 74 Mr Gray wrote to Mr McLaughlin alone on 3 October 2006 referring to a conversation on that day. The letter referred to a number of matters outstanding between Radoman and Vexapu and read in part as follows: "In relation to the monies claimed by Radoman for management fees between settlement and the end of the agreement being 29th November 2006, I am instructed Radoman seeks the payment of this amount. Radoman and Vexapu reached agreement to vary the Option Agreement on the proviso of the payment of the half difference in increase in value of the hotel until the end of the agreement period. I have talked to Tim Ryan about reducing the figure to the net amount after expenses, given Radoman will not pay wages and other usual expenses once the hotel is settled but have yet to receive a reply." 75 Mr McLaughlin wrote to Mr Gray on 5 October 2006 referring to a conversation at 4pm that day and to "recent correspondence". He said that he had discussed the settlement of the sale of the hotel with Mr Newnham on that day and had received advice from Mr Newnham that Mrs Smith, "one of the directors of the vendor company", agreed to settlement proceeding on a basis which Mr McLaughlin then set out. One element involved investment of the net proceeds of sale in a controlled moneys account on behalf of Vexapu "pending the reaching of agreement on" five matters, the last being "the payment of a fee calculated by reference to the sale price over and above the figure of $2,700,000". This letter did not indicate that Mr McLaughlin's own client, Mr Smith, agreed to such a course. 76 On 13 October 2006, however, Mr McLaughlin wrote to Mr Gray saying that he had spoken that day with Mr Newnham and had "reached agreement that the Vendor company's instructions to your Firm are as follows". There was then set out a regime for settlement of the sale on 16 October 2006. One element was as follows: "Retain in a separate interest bearing controlled monies account the sum of $600,000.00 pending resolution of the dispute between the Vendor company and Radoman Pty Ltd pertaining to management agreement and option agreement. The Vendor company does not acknowledge any liability whatever to Radoman Pty Ltd and it is hoped that this dispute can be settled post haste with a meeting between officers of the companies." 77 After completion, with moneys retained and isolated in this way, the matter was taken up on Radoman's behalf by its new solicitor, Mr Cox. In separate letters of 17 October 2006 in identical terms to Mr McLaughlin and Mr Newnham, Mr Cox said: "Our client instructs us that it is owed the sum of $694,822.00 from Vexapu, pursuant to a Management and Option Agreement entered into by the parties. Further, we understand that funds representing the sum owed to Radoman are currently being held on trust by Curtis Delaney Gray, Solicitors and Attorneys, of Singleton. We are hereby instructed to demand that your client, as a Director of Vexapu, forward a written direction to Curtis Delaney Gray regarding the release of and payment to Radoman of the monies currently being held on trust." 78 Mr Newnham replied on 18 October 2006 that "the solicitors for the directors of Vexapu Pty Limited" would be meeting on 20 October 2006 and that there would then be "a response to your client's claim". On the same day, Mr Cox wrote to Mr Newnham saying: "We have had the opportunity of closely examining our client's entitlement to the outstanding sum it asserts is owing of $694,822.00. We believe that there is no valid reason for this amount not to be paid and our client has instructed us to pursue the matter through the commencement of formal proceedings if it is not paid. Whilst our client sees little scope for negotiations, in an attempt to resolve this matter we are instructed to confirm that we are prepared to meet with you. As solicitors for the directors of Vexapu are meeting this Friday this would appear to be a suitable day for such a meeting." 79 Some explanation of Radoman's claim was given in letters of 26 October 2006 sent by Mr Cox in identical terms to Mr Newnham and Mr McLaughlin: "As your client will be aware, the monies owed to Radoman Pty Ltd consist of amounts pursuant to its management agreement in respect of monthly management fees and bonus payments (both in arrears) in the order of $75,000.00. Further, there is an amount of $687,500.00 (including GST), representing monies owed to our client in return for it foregoing its option to purchase (under the management agreement) the Royal Hotel Moree." 80 Mr Newnham wrote to Mr Cox on 2 November 2006 as follows: "We do not agree with you on your contention. We have perused the Option/Management Agreement, and we would be pleased if you would point out to us what clause or clauses of the Agreement are relied upon as constituting an obligation by the vendor company to pay your client any monies on the basis of it foregoing its option to purchase." 81 Mr Cox's reply of 8 November 2006 said: "With reference to your letter of 2 November 2006 the contractual obligation upon Vexapu Pty Limited to pay Radoman a fee in respect of it forgoing its option to purchase, was negotiated with Mr. Kevin Smith a Director of Vexapu. You should contact Mr Smith or his legal representative in respect of details of that contractual arrangement." Other events after 12 July 2006 82 As they involved Mr Ryan and Mr Smith directly, events after 12 July 2006 are summarised in the following passage of Mr Ryan's cross-examination: "Q. After the meeting at the pub in July? A. Yes.

Q. You continued to follow-up Mr Smith about the matter you had been discussing, namely payment of $625,000.00 and surrender of option? A. Yes Kevin and I were in regular contact about the operation of the Hotel at that particular time.

Q. He kept saying to you "yes I will look into it, I will get back to you"? A. He did.

Q. By mid September, 2006 Mr Smith told you that he actually had looked into it and he decided nothing was payable to Radoman, correct? A. He did say that." 83 As they involved conversations between the solicitors (some of which are referred to in the correspondence already mentioned), events after 12 July 2006 are the subject of evidence given by Mr Gray and Mr McLaughlin. I have already mentioned Mr Gray's letter of 14 September 2006 to Mr McLaughlin which referred to the matter the subject of these proceedings in a paragraph beginning "As discussed we are instructed …". There is in evidence a file note of Mr Gray dated 14 September 2006 in which he wrote the following: "Mgmt agreement - discussed that there was side agreement for Tim to facilitate sale & receive bonus being half of diff b/n 3.95 - 2.7m"

And later: "Discussed heads of monies owed 1. monthly fee ) advised in arrears 2. bonus ) 3. diff b/n 3.95 - 2.7 / 2" 84 I have also referred to the letter of 15 September 2006 with which Mr Gray sent another copy of his 14 September letter. Mr Gray recorded in a file note of 15 September relating to a conversation with Mr McLaughlin: "Did not get our fax of yesterday but knows the figure of $625K plus O/S" 85 Mr Gray and Mr McLaughlin gave conflicting evidence about aspects of these two conversations. In essence, Mr Gray says that Mr McLaughlin acknowledged the existence of a promise by Vexapu (through Mr Smith) to pay $625,000.00 to Radoman for release of the option whereas Mr McLaughlin denies that he made any such acknowledgment. Assessment of the evidence 86 I proceed now to an assessment of the evidence on the question whether an agreement as pleaded by Radoman was created in the course of the conversation between Mr Ryan and Mr Smith at the Botany Bay Hotel on 11 July 2006. 87 In doing so, I begin with the matter just mentioned, that is, the conflict in the evidence of Mr Gray and Mr McLaughlin as to what passed between them on the telephone in September 2006. 88 I am not persuaded that Mr McLaughlin made the acknowledgment and, on the balance of probabilities, I find that he did not. There are four reasons for this. First, Mr Gray's file note of 14 September 2006 is consistent with Mr Gray having merely informed Mr McLaughlin of Radoman's position or claim. The file note of 15 September 2006 is consistent with Mr McLaughlin's being aware of Radoman's position or claim. Second, Mr McLaughlin was acting for Mr Smith in matrimonial matters and was acutely aware of the position of Mrs Smith and the significance of her solicitor's concurrence. It is most unlikely that a family law practitioner in that situation would have purported to give a unilateral acknowledgment of a commitment of a company owned by both parties to the marriage. Third (and this is probably an aspect of the second point), Mr McLaughlin was careful about what he put in writing. His letter of 5 October 2006 (see paragraph [75] above) conveyed what he had been told by Mr Newnham, on behalf of Mrs Smith, without saying anything about the attitude of Mr McLaughlin's own client, Mr Smith. And his letter of 13 October 2006 (paragraph [76] above) reported to Mr Gray the "agreement" that had been "reached between Mr Smith and Mrs Smith as to "the Vendor company's instructions". 89 The fourth point is that, as Mr Ryan acknowledged in his evidence, Mr Smith's position regarding the $625,000.00, after July 2006, was "I will look into it, I will get back to you". And by September 2006, Mr Smith had told Mr Ryan that nothing was payable. With his client in that frame of mind, it is simply not believable that Mr McLaughlin would have acknowledged to Mr Gray the existence of a contractual commitment of Vexapu of the kind upon which Radoman seeks to rely in these proceedings. 90 I turn now to the evidence about the conversation of 12 July 2006 and the earlier conversation in December 2005 or January 2006. Mr Smith eventually accepted that the earlier conversation occurred and that the matter of Radoman's option to purchase had been raised on that occasion by Mr Ryan, Mr Smith himself having been unaware of it at that time. Mr Smith also accepted that he had said, "I am sure we can work it out". It seems clear, however, that Mr Smith had been ill when the agreements were entered into for Vexapu by his wife and son and did not take steps to familiarise himself with the option arrangement until after July 2006. Until he did so, he had no more than a general awareness. Mr Ryan, by contrast, was acutely aware of the option, its significance and its value. His email of 13 June 2006 to Mr Gray showed that. 91 When Mr Ryan and Mr Smith met on 12 July 2006, Mr Ryan's purpose may be accepted as having been to obtain from Vexapu through Mr Smith a commitment to "pay as cash what we would have got as a price reduction" - this being the formulation in his email to Mr Gray. But Mr Smith did not have in his mind information that would have enabled him to know or calculate what Mr Ryan described as "what we would have got as a price reduction". 92 In those circumstances, I do not accept that Mr Smith spoke the words set out in the first underlined passage in the synthesised version of the conversation at paragraph [69] above ("I understand that your share is $625,000" etc). Mr Smith may have said words to the effect that he understood Mr Ryan to be asserting that Radoman's share was $625,000.00. But his own knowledge, at that time, was not such as to enable him to have an independent understanding of his own as to the contractual position. 93 Nor do I accept that Mr Smith spoke the words in the third underlined passage ("Yes I agree with that" etc). Again, Mr Smith may have said that he understood Mr Ryan to be making a claim or stating a wish or putting a proposal. He may also have said that he was a man of his word and had never "dudded" anyone in his life. But those things would logically have been said in a context where he was absorbing for future consideration the proposition that, in the circumstances of the proposed sale to a third party, Vexapu should pay $625,000.00 to Radoman. Because he did not know precisely what the pre-existing arrangement was, he was in no position to be sure what his (or, more precisely, Vexapu's) "word" had been or what "dudding" of Radoman would entail. 94 The most significant element of the evidence about the conversation is the statement of Mr Smith (deposed to by Mr Ryan and accepted by Mr Smith himself): "What about if I give you blokes $500,000.00." 95 Someone who had just entered into a contract to pay $625,000.00 in a stated eventuality simply would not immediately make a proposal to pay $500,000.00. If, as Radoman contends, Mr Smith, on behalf of Vexapu, had agreed that Vexapu would pay $625,000.00 if Radoman surrendered its option entitlement by allowing a third party to purchase the hotel, there was no conceivable reason why Mr Smith, on behalf of Vexapu, should immediately afterwards propose payment of $500,000.00. That subsequently articulated proposal - testified to by both Mr Ryan and Mr Smith - was quite inconsistent with the existence of a newly formed oral agreement for the payment of $625,000.00. 96 The true position, in my view, is that Mr Smith received and understood Mr Ryan's claim or request in the sum of $625,000.00 and, being unaware of the detail of the pre-existing arrangement (and, no doubt, wishing to cut through to a neat and simple solution), sought to initiate (or continue) a financial negotiation. 97 I consider now the correspondence between the solicitors. Mr Gray's letter of 14 September 2006 to Mr McLaughlin refers to an agreement as the source of an obligation for Vexapu to pay "a fee for the difference in the Sale price and the value of the Hotel at the time of the Management Agreement". However, Mr Gray says that the agreement was made between Mr Ryan and Mr Smith "and the other interested parties of Vexapu Pty Limited"; also that it was "based on a variation of the Option Agreement". Both these elements of the description are inconsistent with the case Radoman now seeks to make. 98 The second paragraph of Mr Gray's letter of 15 September 2006 to Mr McLaughlin is inconsistent with the evidence oif Mr Ryan and Mr Smith referred to at paragraph [82] above. 99 Mr Gray's letter of 3 October 2006 to Mr McLaughlin conveyed an assertion that Radoman and Vexapu had reached agreement "to vary the Option Agreement" in the way stated. Again, this is inconsistent with the case now advanced by Radoman. 100 Significantly, however, Mr McLaughlin's letters to Mr Gray did not acknowledge the existence of the agreement on which Radoman now seeks to rely. The letter of 3 October 2006 reporting the position taken by Mr Newnham on behalf of Mrs Smith referred to retention of money in a controlled moneys account "pending the reach of agreement on … the payment of a fee calculated by reference to the sale price over and above the figure of $2,700,000". This contemplated an agreement to be made in the future, not one already in existence. The letter of 13 October 2006, conveying the position of Vexapu itself, referred to the matter as one of "dispute". And that is the position that pertained when Mr Cox began corresponding on behalf of Radoman. 101 I find, on the balance of probabilities, that Radoman and Vexapu did not become parties to an oral agreement in the terms pleaded by Radoman and that the conversation between Mr Ryan and Mr Smith at the Botany Bay Hotel on 12 July 2006 did not cause any contract at all to come into existence between Radoman and Vexapu. The Trade Practices Act claim 102 Radoman's claim under s 52 of the Trade Practices Act is founded on an allegation stated as follows in paragraph 9 of the points of claim: "On or about the 11th July, 2006 the Defendant expressly represented to the Plaintiff: a) that if the Plaintiff surrendered its option to purchase the Moree Hotel from the Defendant, the Defendant would pay the Plaintiff the sum of $625,000.00 plus GST being half of the increase in the value of the Moree Hotel since the Defendant's valuation of $2.7 million in 2004. b) that the Defendant's representative, Kevin Smith, was a man of his word and would honour the oral agreement. (collectively known as 'the Express Representations')" 103 The express representations thus alleged are promissory representations in the terms relied upon in the contract claim. For the reasons already stated, I do not accept that such promissory representations were made. Conclusion 104 Mr Ryan went to the meeting on 12 July 2006 hoping to reach an agreement with Mr Smith. He put a proposal to Mr Smith involving payment of $625,000.00. Mr Smith put a counter-proposal of $500,000.00. A negotiation had begun but was not completed. Mr Ryan must have been confident that he could conclude the negotiation to Radoman's advantage at a later stage. I say this because Radoman did not seek to enjoin the sale of the Royal Hotel to the third party and Mr Ryan co-operated with Vexapu in relation to that sale. The parties agreed on a regime for the retention of moneys in a controlled moneys account until the issue between them was agreed or otherwise resolved. And that is where the matter ended. 105 Radoman, although successful in resisting defences based on the Statute of Frauds and the alleged absence of consideration, has failed at the factual level in proving its contract case. It has also failed at the factual level in proving its Trade Practices Act case. In those circumstances, the claims in the summons by which the proceedings were commenced (that is, the summons filed on 17 November 2006) will be dismissed. 106 I have not so far mentioned a cross-claim by Vexapu to recover from Radoman management fees overpaid. The cross-claim is conceded, save as to costs. There will accordingly be judgment for Vexapu, as cross-claimant, against Radoman, as cross-defendant, in the sum of $87,745.20. There is a claim for interest but it is not clear to me whether the concession extends to that or the date from which any interest is to be computed. 107 In view of the need to hear argument on costs of the cross-claim and the fact that there was something of a mixed outcome on Radoman's claims (even though all are to be dismissed), I will appoint a time to hear submissions on costs generally and to formulate all orders to dispose of the proceedings. The question of the claim for interests in the cross-claim can be clarified at that point. **********

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