Rural Insurance (Aust) Pty Limited v Reinsurance Australia Corporation Limited

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

50119/01 RURAL INSURANCE (AUST) PTY LIMITED v REINSURANCE AUSTRALIA CORPORATION LIMITED JUDGMENT The Proceedings 1 Rural Insurance (Aust) Pty Ltd, being a shareholder in Insure That Pty Ltd ("the company") seeks a declaration that it is entitled to acquire the balance of the shareholding from the other shareholder, Reinsurance Australia Corporation Limited. The plaintiff also seeks an order for the delivery to it of a duly executed transfer for the subject shares on payment of the sum of $22,556. The Shareholders Deed 2 On or about 20 January 2000 a Shareholders Deed ["the deed" or "the shareholders deed"] was entered into between the plaintiff, the defendant, Mr Peter Hayward and the company. The deed had apparently been signed sometime earlier by the plaintiff and bears the date 27 December 1999. It was signed by the defendant on or about 20 January 2000. The deed provided for the initial funding of the company by the plaintiff and the defendant as shareholders to the extent of $100 and for the issue of 30 ordinary shares to the defendant and 70 ordinary shares to the plaintiff. 3 The deed recited that the shareholders agreed to establish a joint venture insurance underwriting agency business to be operated through the company and that the parties wished to regulate the activities of the company and their relationship with one another and the company in accordance with the terms of the document. 4 The company had been incorporated in June 1999. Until February 2000, Mr Hayward was the only shareholder, holding 10 ordinary shares and also being managing director of the plaintiff. 5 The defendant, a listed public company, was a reinsurer licensed to operate as an insurer and had commenced to provide funding to the company in September 1999. 6 On 15 October 1999 the defendant, which wished to commence its insurance business for rural and crop insurance products, appointed the company as its agent for the purpose of developing and selling such products. The appointment was by formal Agency and Outsourcing Agreement letter ["the agency agreement"], which provided that the agreement could be terminated at any time by either party provided that 90 days written notice was given. [Clause 11 (a)] 7 The defendant provided funding to the company in October and November 1999 and thereafter. 8 It was against that background that the shareholders deed was executed. The deed recognised the existing relationship between the company and the defendant and the underlying basis upon which the defendant was to become a shareholder in the company. 9 On 8 February 2000, 60 shares in the company were allotted to the plaintiff and 30 shares were allotted to the defendant. On the same day Mr Hayward transferred his shareholding to the plaintiff. 10 The shareholders deed provided: · For the payment by the defendant to the company of $300,000 on a non-refundable, non-interest bearing basis to be applied to meet the working capital requirements of the company in accordance with its current budget and business plan. · For the provision by the defendant to the company of an overdraft facility in the amount of $400,000. 11 $300,000 of the advances by the defendant to the plaintiff were by way of non-refundable deposits in September 1999 and in January 2000. The defendant also provided loan funds to the company in the amount of $400,000 which have now been repaid. 12 The agency agreement was terminated by the defendant by written notice dated 11 February 2000. The notice provided that the termination was to have effect on 9 May 2000 (being 90 days thereafter), "unless an alternative underwriter can be arranged prior to that time". I do not accept that the termination of the agency took place on 11 February 2000 by reason of Mr Hayward signing and "noting" the notice of termination. This submission was not ultimately pressed by the defendant's counsel. 13 On 2 March 2000 the company entered into an agency agreement with Lumley General Insurance ["Lumley"] which agreement apparently took effect from 1 April 2000. Depending upon the question of construction of the words "arranged prior to that time", it is arguable that the agency agreement was terminated on 2 March, 1 April or on 9 May 2000. The issue as to which of those dates was the correct termination date is of no particular importance to the matters here litigated. 14 Clause 26.1 (c) of the shareholders deed provided that the deed would terminate on the lawful termination of the agency agreement. 15 In the result the shareholders deed would have terminated as a matter of law either on 2 March, 1 April or 9 May 2000. 16 On 15 March 2000 the defendant announced to the Australian Stock Exchange that it would no longer write new reinsurance business and would operate in managed run-off. On 2 May 2000, APRA appointed an inspector to the defendant. 17 It is common ground, and Mr Hayward gave evidence to this effect, that in early 2000 the defendant was in financial difficulty and ceased to underwrite business by agreement with the insurance regulator. It was in this setting that on approximately 10 May 2000, Mr Hayward, a director of the plaintiff (still being the managing director of the company), met with Mr Vines who was then the Senior Executive Officer - Strategy and Planning of the defendant and who became, on 15 May 2000, its Chief Executive Officer. Amongst matters which were discussed at the meeting were issues existing between the defendant and the company in terms of the repayment of loans made to the company and vacation of the defendant's office space, which was apparently surplus to the defendant's requirements. I return to the meeting below. 18 It seems appropriate from the evidence and the addresses to accept that the defendant's termination of the agency agreement occurred by reason of the defendant's financial position as part of the complete winding down of the defendant's relevant affairs. Likewise it seems appropriate from the evidence and the addresses to accept that the substratum which had led to the involvement of the defendant in the company had disappeared once the agency agreement had been terminated and the company had entered into the new agency agreement with Lumley. Once the defendant had ceased to underwrite insurance by agreement with the insurance regulator, the whole purpose of its involvement with the plaintiff in the company had disappeared. Save for the regular winding up of relevant affairs, including the important tasks of attending to past claims and the provision of run-off cover, the defendant was simply left with an asset, namely its shareholding in the company. 19 This was the setting against which the communications between the parties, to which I now turn, took place. 20 The communications took place between 10 May 2000 and 1 June 2000 and concerned the defendant's shares in the company. The issue in these proceedings is whether these communications constituted an enforceable agreement for the sale by the defendant to the plaintiff of the shares held by the defendant in the company. 21 The number of relevant communications are few. There is virtually no issue as to their terms. As a matter of convenience I propose to number these communications. The numbers will be given in bold emphasis and italicised. Meeting on approximately 10 May 2000 [1] 22 The communications appear to have commenced with the meeting already mentioned, between Mr Hayward and Mr Vines. The meeting had been to discuss the replacement of the defendant as the underwriter to the company's business by Lumley for the reason already referred to, that the defendant was in financial difficulty and had ceased to underwrite business by agreement with the insurance regulator. The competing versions of the conversation are as follows: Version of Mr Hayward Mr Hayward : "Does [the defendant] want to sell its shares in the company or retain them? Mr Vines: "Peter, I think we would like to sell our shareholding in the company since we will no longer be underwriting the business for the company. What would be your suggested price for the shares? Mr Hayward : "I think the best thing to do is to determine a price and I will advise you" Version of Mr Vines Mr Hayward : "Is [the defendant] interested in selling its shares in [the company]? Mr Vines: "Given that we are no longer business partners, there does not seem to be much point in retaining any investment in [the company]. I would be prepared to consider an offer for our shares in [the company]". Mr Hayward: "I think the best thing to do is to determine a price and I will advise you". 23 The critical portions of the following communications were: · A letter from Mr Hayward to Mr Vines written on letterhead of the company and dated 17 May 2000:

"I refer to our conversation of 10.05.00. You advised that Reinsurance Australia Corporation Limited would like to sell its shareholding in insure that and asked me to assign a suggested price to the shares. I advise as follows: In accordance with section 15 of the Shareholders Deed, I confirm that the remaining shareholders are prepared to purchase the shares subject to agreement as to the price. Section 18 of the Shareholders Deed details a methodology to value the Fair Market Value of the shares. This is based upon conditions at the end of the Financial Year immediately preceding the current Financial Year. As we have not been trading for a full year, it is not possible to apply the methodology described. The intention of the clause is clearly to fairly value the shares based upon the recent trading position of the company. The company has operated at a trading loss of ($118,208.35) in the period from inception (16.09.99) to 31. 04.00. The result during May will have increased this loss. In view of the clear loss making position of the company, I suggest that the shares be repurchased at their issue value of $1 per share (total $30). While technically not related, I suggest that it would be equitable that the share transfer be made conditional upon insure that completing the loan repayment to Reinsurance Australia Corporation Limited referred to in your letter dated 10 May 2000. I look forward to your advice." [2] · E-mail from Mr Vines to Mr Hayward of 19 May 2000: "Thanks for your letter dated 17 May re the above. Can I assume that you would be willing to sell your interest in the business for $70? " [3] · E-mail from Mr Hayward to Mr Vines of 1 June 2000 at 9.58am: ".. Can you let me know whether you have another figure in mind or should we just get a valuation done as per the shareholders agreement?" [4] · E-mail from Mr Hayward to Mr Vines of 1 June 2000 at 10.03am: "I would be happy to consider a valuation done by a reputable firm of accountants." [5] · E-mail from Mr Hayward to Mr Vines of 1 June 2000 at 1.17pm: "We have just appointed Horwath (NSW) as accountants to [the company]. I have asked them whether they would be prepared to conduct an evaluation. They have confirmed that they would be prepared to do this. Their Director of Valuation Services is Mr Trevor Vella. Please advise whether this would be acceptable to [the defendant] ." [6] · E-mail from Mr Vines to Mr Hayward of 1 June 2000 at 1:32pm: "Yes indeed." [7] 24 Approximately five weeks later on 12 July 2000 Mr Hayward sent an e-mail to Mr Vines in the following terms: "I think that you will now have received the Valuation of Shares from Horwath Investment Services. I confirm that we would be prepared to buy back the shares in question for the assessed amount of $22,556. Can you please confirm whether this is acceptable to you. We can then arrange payment and transfer of the shares." [8] 25 The Horwath Valuation of Shares report was commissioned by letter from Mr Hayward of 5 June 2000, not copied to the defendant. The letter relevantly includes the following sentence: "As discussed, would like to arrange a valuation of the ReAC shareholding pursuant to section 18 of the Shareholders Deed." 26 The Horwath Valuation letter was received by Mr Hayward on or about 27 June 2000 and bears that date. It was sent to Mr Vines on 28 June 2000. 27 On 12 July 2000, Mr Hayward sent an e-mail to Mr Vines. As with many of the earlier e-mails, the reference was: "Subject: ReAC shares" or similar. This e-mail read: "Have you had a chance to consider the above?" [9] 28 A further e-mail dated 31 July 2000 was sent by Mr Hayward to Mr Vines reading: "I appreciate that you have other things to consider, however can we please have your decision in relation to the shareholding in [the company]". [10] 29 By letter dated 10 August 2000, Mr Hayward on company letterhead wrote to the defendant to the attention of Mr Vines as follows: "I refer to previous correspondence between us. As you aware, on 10 May 2000 you advised of the intention of Reinsurance Australia Corporation Limited to sell its shareholding in this Company. That advice was relayed to all other shareholders who agreed to such sale subject always to the determination of the fair market value pursuant to Clause 18. Within the period of 14 days specified in Clause 15.4, written notification to that effect was sent to you. In accordance with the provisions of Clause 18, the fair market value was determined. Accordingly, it is our advice that the sale will be complete upon the payment of the fair market value by the other shareholders on behalf of either the Company or themselves. It seems that it would be prudent to complete the sale without delay and accordingly, I seek your advices in relation to when you will be in a position to execute all necessary transfers and receive payment in exchange for them." [11] 30 By letter dated 25 August 2000, the plaintiff's solicitors wrote to PricewaterhouseCoopers Legal as follows: "As you are aware, we act for Insure That Pty Limited ("the Company") and its shareholders, save for your client. According to our instructions:

1. Our respective clients entered into the Shareholders Deed ("the Deed") earlier this year.

2. Your client gave notice to the Company of its intention to sell its interest in the Company.

3. Our client shareholders advised that, subject to valuation pursuant to Clause 18, our client shareholders would purchase your client's shares.

4. A valuation was prepared by Messrs. Horwath & Horwath and our client shareholders have written to your client seeking transfer of your client's shares at valuation. Could you urgently advise whether there is any reason why your client will not proceed, as the Deed seems to require, to finalise this transaction.

We await your urgent reply." [12] 31 By e-mail of 15 November 2000, Mr Hayward wrote to Mr Vines as follows: "I refer to my letter of 10 August and subsequent telephone messages. As indicated we consider that there has been agreement to transfer the shares for a consideration of $22,556. Can you please confirm your acceptance of the valuation of the shares in [the company] so that we can arrange payment and conclude the matter." [13] 32 By e-mail dated 17 November 2000 and headed "Without prejudice" [the privilege if any was waived as both parties accepted], Mr Vines wrote to Mr Hayward as follows: "[The defendant] has no interest in selling its shares in [the company] unless it can recover the full cost of its investment including the non-refundable loan and all other outstanding amounts owed to [the defendant]. I had every confidence you will make a success of the business and we are prepared to be patient." [14]

The Principles 33 The principles which generally obtain are not in issue. I have had occasion recently to refer in some detail to those principles and in particular to repeat what are currently regarded as the four classes in Masters v Cameron (1954) 91 CLR 353, following the decision in Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 622 of McClelland J where His Honour referred to a fourth class in terms of Masters v Cameron [see John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43, Supreme Court, unreported]. It seems to me unnecessary to repeat for present purposes what appeared in paragraphs 217 - 238 in John R Keith. Those principles are accepted as a given for the purpose of determining the issues which arise in these proceedings. 34 It follows that in determining the circumstances surrounding the formation of an agreement, the matrix of facts, it is the objective intent that is paramount. Whether any relevant individual party to the negotiations thought that an agreement existed or did not exist is irrelevant to the exercise, unless there exists an argument concerning estoppel. As Lord Wilberforce has said: "When one speaks of the intention of the parties to the contract one speaks objectively-the parties cannot themselves give direct evidence of what their intention was-and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties". [R eardon-Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989] 35 A fundamental question falling for consideration is whether the conduct of the parties, viewed in the light of surrounding circumstances, shows or is indicative of an agreement having come into existence. 36 In Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61, Heydon JA made the point that post-contractual conduct is admissible on the question of whether a contract was formed. The authorities cited by his Honour are set out in paragraph 227 of John R Keith. Authorities supporting the proposition that, in ascertaining the intention to contract, relevant circumstances may include prior negotiation and subsequent conduct are to be found in paragraph 229 of John R Keith. Dealing with the issue 37 Accepting that the task is to ascertain the objective intent by reference to the subject matter and the surrounding circumstances, including the nature of and the relationship between the parties and previous communications between them, as well as by reference to standards of reasonable conduct of persons engaged in commercial transactions in the known circumstances, there remain several somewhat curious aspects going to the environment in which the subject communications took place. During address it was suggested that the court ought by no means necessarily infer that during the course of the spate of May/June communications ([1] - [7]), either Mr Hayward or Mr Vines would necessarily have had a lawyer's knowledge that the shareholders deed had been terminated. 38 Further, both parties, either in written submissions and/or in address, tended to move constantly between approaching the critical question upon the basis that: · the shareholders deed, whether or not formally regarded by the parties as terminated, was being effectively treated as the vehicle by reference to all or some of the provisions of which the dealings relating to the business matter under discussion was to be regulated; or · The parties were simply dealing, albeit relatively informally, with one another and should be taken to have left the formality of the shareholders deed provisions out of contention. 39 There is no doubt as it seems to me that the critical question is whether: · as the plaintiff submits, the objective intent of both Mr Hayward and Mr Vines capable of being discerned from all the circumstances, was to enter legal relations by commencing upon a path such that, following the sending by Mr Hayward of e-mail 7, the parties were to be bound in some precise fashion once the Horwath valuation was carried out. [The plaintiff's contention is that the manner in which the parties would be bound would inter alia import the entitlement to dispute a valuation, which entitlement had been provided for when the shareholders deed had been in force by the clause 18 (c) mechanism.] · as the defendant submits, the whole of the relevant circumstances and the terms of the communications record only a general interest by the defendant in being prepared to consider a valuation carried out by Horwath - in the sense that such a valuation would provide adjectival information which the defendant might or might not find useful in continuing the informal discourse concerned with whether it might or might not be persuaded to sell its shares to the plaintiff at a price which the Horwath valuation might fix or by reference to such price. 40 The plaintiff very strongly contends that the Court must approach the matter in terms of this being clearly a commercial negotiation. As Kirby P pointed out in Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310 at 314, courts are concerned to take closely it into account the manner in which commercial parties would normally agree. I accept that this is the proper approach to take to the question in hand, particularly bearing in mind the relatively informal approach taken in these e-mails. At the same time I accept also that " offer and acceptance analysis does not work well in certain circumstances." [cf Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61] 41 Having said that it is necessary to return to the essential burden of the respective submissions. 42 The plaintiff's submission is centrally that the objective background circumstances which are important to be taken into account include the defendant's having ceased underwriting insurance and being heavily involved in winding down its affairs. Importantly the plaintiff submit that the court can confidently infer that the defendant no longer had any interest in the company and was then engaged in liquidating all of its assets and liabilities. In this regard the plaintiff seeks to rely upon Exhibit P1, being a copy of the defendant's chairman's Annual General Meeting address to shareholders of 15 May 2000 released on the Australian Stock Exchange. That document does include a statement that, as a consequence of the run-off decision, the company had moved to liquefy all of the company's assets as soon as possible. This document is said to be in evidence as a business record and therefore to be evidence of the truth of what was said in it. The document is said to be one part only of a general matrix of facts, matters and circumstances in evidence or to be inferred from the evidence, making very clear that the defendant had no further interest in the subject shares and was simply interested in selling them for a fair market value presumably reasonably quickly and to the only logical purchaser, being the plaintiff. In aid of its above described submission, the plaintiff relies upon these matters for its central submission that the 1 June 2000 proposal [4] may be appropriately characterised either as: · Invoking the shareholders deed; or · An offer to enter into a new agreement on terms which incorporate the relevant valuation provisions of the shareholders agreement [this characterisation is said to be consistent with the doubts expressed in the third and fourth paragraphs of the 17 May 2000 communication]. [2] 43 The plaintiff further submits that the exchange of e-mails of 1 June 2000 confirmed that the only commercial issue was price. The submission is that the e-mail from Mr Hayward of 1 June 2000 [6] may be characterised either as: · A request to confirm the giving of an instruction pursuant to clause 18 (a) of the Shareholders Deed to calculate the Fair Market Value for the purpose of clause 15; or · Having regard to what had already passed between the plaintiff and the defendant, an offer to determine the price for the sale of the shares outside the provisions of the Shareholders Agreement. [The submission is that in either case the effect is clear, namely that the plaintiff was offering to purchase the defendant's shares in the company at a price to be determined by Horwath] 44 The plaintiff then submits that the response [7] from Mr Vines is equally clear and that the defendant in that response accepted the plaintiff's offer for the price to be determined, in the sense of decided, not merely suggested by that route. The plaintiff's proposition is that it is implicit in the communications at this time that the shares will be sold. The submission is that any qualification communicated on 1 June 2000 [5] by use of the words "to consider" was removed by what the plaintiff describes as an emphatic response from Mr Vines at 3:32pm [7]. 45 The plaintiff's further submissions are: · Whether the Shareholders' Agreement had terminated or whether certain provisions in that Deed had been complied with is irrelevant. The agreement between the plaintiff and the defendant stood entirely outside the Shareholders' Deed or, alternatively, incorporated only those clauses which provided for the determination of Fair Market Value, that is, clauses 18(a) to 18(e) and the definition of "Fair Market Value" in clause 1.1 [AB 94]. [Written submissions paragraph 31] · Once the value was determined by Messrs Horwath & Horwath, or, alternatively, once the period of 10 business days after the date of determination of value had expired (clause 18(b)), then the agreement was perfected. After that point of time, no further correspondence is relevant to the objective question of whether there was an agreement made on 1 June 2000. [Written submissions paragraph 32]

· The alternative submission is that the correspondence referred to above constituted compliance with clauses 15.3 and 15.4 of the Shareholders' Deed. [Written submissions paragraph 33] · By failing to take any point at the time and by acquiescing in the determination of Fair Market Value, the defendant waived any right to insist upon strict compliance with a Shareholders' Deed. In particular, compliance with clause 13.1 [AB 110], with the provision for the shareholder disposing of its shares to make an offer pursuant to clause 15.4 and with clause 26.1(c) [AB 120] which provides for termination of the Shareholders' Deed on the termination of the Agency Agreement. [Written submissions paragraph 34]

The defendant's submissions 46 The defendant's submissions included the following: "plaintiff's case under the Shareholders Deed is misconceived The plaintiff's case that it is entitled to a transfer of REAC's shares in Insure That under the Shareholders' Deed is misconceived.

First, the Shareholders' Deed was terminated at the time of the: (a) alleged "offer" by REAC under clause 15.4 of the Shareholders' Deed (9 or 10 May 2000); (b) alleged "acceptance" by Rural of REAC's "offer" on 17 May 2000; (c) alleged agreement between the parties to procure a valuation of the REAC shares in Insure That for the purposes of clause 15.4 of the Shareholders' Deed; (d) valuation of the REAC shares in Insure That by Horwath Investment Services Pty Limited ("Horwath") relied on by Rural .

Clause 15 is not specified as a provision of the Shareholders' Deed which survives termination (see cl 26.3).

Secondly and alternatively, if the Shareholders' Deed has application, the parties agreed in clauses 13.1 and 15.1 that there would be no transfer by a party of its shares in Insure That within the period of 3 years from the date of the Shareholders' Deed. Even on the plaintiff's case as to the date of the Deed (23 December 1999), clauses 13.1 and 15.1 prohibit the transfer of REAC's shares. Clause 15.2 operates to prohibit the registration of the transfer by Insure That.

Thirdly, clause 15.4 has no application. Clause 15.4 is a pre-emptive provision which applies where a shareholder wishes to sell its shares in Insure That to a third party. There is no claim by Rural that REAC was intending to sell or transfer its shares to a third party, Accordingly, the provisions of clause 15.4 were not enlivened.

Fourthly, prior to clause 15.4 being activated, the provisions of clause 15.3 must be complied with. Clause 15.3 requires a shareholder who wishes to sell its shares in Insure That to seek to obtain unanimous agreement with the other shareholder as to the purchaser and the sale price. Only if such agreement cannot be achieved within 1 month may the selling shareholder sell its shares pursuant to clause 15.4. The plaintiff does not allege (and there is no evidence) that it has complied with the provisions of clause 15.3.

Fifthly, on any version of the conversation between Hayward and Mr Vines on 9 or 10 May 2000 (Hayward 10/8/01 para 8; Vines 13/12/01 para 12 (c)) there was no offer by REAC within the meaning of clause 15.4 (or at general law) in relation to the sale of its shares in Insure That. There was no identification of the purchaser of the shares (cf clause 15.4 (a) - (c)). Nor was there any mention of Fair Market Value (see cl 1.1; 15.4); or of the provisions of clause 15.4 having any application.

Sixthly, the letter of 17 May 2000 - written by Hayward on the letterhead of Insure That (ex GV1 at p128) does not amount to an "acceptance" of any offer by the plaintiff. It appears to amount to an offer or proposal to REAC by Insure That to repurchase REAC's shares at a price of $1.00 per share (which offer was not authorised by the Shareholders' Deed). In his affidavit dated 10 August 2001 Hayward describes the 17 May 2000 letter as an "offer" (see para 10). This offer or proposal was rejected by Mr Vines on 19 May 2000 in an email of that date (ex GV1 at p130).

Seventhly, the valuation by Horwath does not amount to a calculation of Fair Market Value of the REAC shares within the meaning of clauses 1.1 and 18 of the Shareholders Deed. Clause 18 (a) requires a valuation of the shares as at the financial year preceding the current financial year in which the Accountant is instructed to perform the valuation. The Horwath report concedes that the valuation of the REAC shares was not undertaken as at 30 June 1999 in accordance with clause 18 (a). Further, there is no evidence that Horwath was the Accountant within the meaning of clause 1.1, (ie) a person appointed by resolution of a board meeting of Insure That.

Alternatively, there was no agreement made in June 2000 under which REAC agreed to transfer its shares in Insure That to Rural at a price to be determined by Horwath & Horwath (see para 13, Further Amended Summons).

In summary, the communications between the parties in the period May to July 2000 amounted to nothing more than negotiations between Hayward and Mr Vines in respect of the possible sale of REAC's shares in Insure That if a price could be agreed. There was no agreement relating to the sale of REAC's shares or the sale price.

Significantly, it is not apparent from the communications between Hayward and Mr Vines in the period May 2000 to November 2000 that Hayward was at any stage acting for or on behalf of the plaintiff. To the contrary, the letter from Hayward dated 17 May 2000 (ex GV1 at 128); the emails from Hayward of 1 June 2000 (ex GV1 at 131-134); the email from Hayward dated 12 July 2000 (ex GV1 at 149); and the letter of 10 August 2000 on the letterhead of Insure That (ex GV1 at 152), all indicate that Hayward was negotiating on behalf of Insure That.

As referred to in para 22 above, as at 19 May 2000 Mr Vines had rejected the proposal by Hayward on behalf of Insure That in the letter of 17 May 2000 to repurchase the REAC shares in Insure That for a price of $1.00 per share.

The next communication was an email from Hayward to Mr Vines on 1 June 2000. The email from Mr Hayward stated inter alia: "In relation to the REAC share holding in insure that, I take it that you do not like my suggested price of $1 per share. Can you let me know whether you have another figure in mind or should we just get a valuation done as per the Shareholders Agreement?"

Mr Vines' email of 1 June 2000 in response stated inter alia: "I would be happy to consider a valuation done by a reputable firm of accountants." (emphasis added)

Mr Hayward then sends a further email to Mr Vines on 1 June 2000 which states: "Geoff, We have just appointed Horwath (NSW) as accountants to insure that. I have asked them whether they would be prepared to conduct an evaluation. They have confirmed that they would be prepared to do this. Their Director of Valuation Services is Mr Trevor Vella. Please advise whether this would be acceptable to REAC."

Mr Vines' email on 1 June 2000 in response states: "Yes indeed". (See ex GV1 at pp 131-134).

The exchange of emails between Hayward and Mr Vines on 1 June 2000 does not amount to a binding contract between Rural and REAC to do any thing. Properly construed, these communications establish that Mr Vines was prepared ("happy") to consider a valuation of the REAC shares in Insure That performed by a "reputable firm of accountants"; and that Horwath (NSW) were acceptable to REAC.

The non-existence of any binding contract between Rural and REAC is recognised in the email of 12 July 2000 sent by Hayward after Horwath had produced their valuation. First, Mr Hayward is writing on behalf of Insure That (not Rural) and refers to a "buy back" of REAC's shares for $22,556.

Second, the email of 12 July 2000 does not assert the existence of any contract between Rural and REAC. Rather, Mr Hayward states that "…we would be prepared to buy back the shares in question for the assessed amount of $22,556" and requests Mr Vines to "… please confirm whether this is acceptable to you " (emphasis added).

The text of the 12 July 2000 email from Hayward is consistent with the characterisation of the 1 June 2000 communications referred to in para 32 above. There was no contract between the parties established through the 1 June 2000 emails or the earlier communications relied on by the plaintiff in its particulars to paragraph 13 of the further amended summons.

REAC confirmed that it did not wish to transfer its shares in Insure That for a price reflecting the value ascribed to its shares by Horwath on 17 November 2000. Mr Vines' email to Hayward dated 17 November 2000 stated: "REAC has no interest in selling its shares in Insure That unless it can recover the full cost of its investment including the non-fundable loan and all other outstanding amounts owed to REAC. I have every confidence you will make a success of the business and we are prepared to be patient." (see ex GV1 at p154).

REAC was entitled to take the position it did in the 17 November 2000 email. There was no obligation on REAC to transfer its shares to Rural for a price reflecting the Horwath valuation or at all.

The plaintiff's case is misconceived. It has no entitlement under the Shareholders' Deed or at general law to the transfer of REAC's shares in Insure That. The Court should refuse to grant the relief sought." The Court's Holding 47 This is a case where minds may differ as I accept. Commonly a Masters v Cameron dispute would not be before the Court if there were not two or more ways of looking at the relevant communications. 48 There is a certain strength in the plaintiff's submission that the whole of the chain of communications following the initial conversation: · commences with a relatively formal letter [2] which, at least in the second paragraph, purports to invoke clause 15 of the shareholders deed and goes on in the last paragraph to use a relatively formal term, namely "be made conditional upon &c.". · should thereafter be read with this earlier letter in mind as the relevant backdrop for the, albeit very short, e-mail exchanges which followed 49 It is interesting, it seems to me, to note that the last paragraph of the 17 May 2000 letter [2], dealing with the suggestion that it would be equitable that the share transfer be made conditional upon the company completing repayment to the defendant of what is apparently accepted at the bar table as a reference to the $400,000 overdraft (there being no letter dated 10 May 2000), was not adverted to by either party during the exchange of e-mails in May or July. Regardless of whether, as seems to have been the case, satisfactory arrangements for the stepped repayment of the $400,000 had been or were in due course made, this parameter at the least would be likely to have required consideration or response following the sending of communication [2] and it seems to me is one of the matters which tends against the plaintiff's fundamental proposition. 50 Even disregarding completely the matter referred to in the previous paragraph, the factors which seem to me to tend against the plaintiff's fundamental proposition include the words of the 27 July 2000 e-mail from Mr Hayward [8] which seem to constitute or amount to two things: · a reaffirmation or confirmation of the earlier preparedness to purchase the shares; · a request for the defendant to "confirm whether this is acceptable to you". 51 Each of these suggests that the objective intent had not been that the parties were already bound in the fashion for which the plaintiff contends. Had the plaintiff already been bound by the anterior communications to acquire the shares at the Horwath valuation, there would be no need for a reaffirmation or confirmation from the plaintiff of its earlier preparedness to purchase. The terminology used by the plaintiff suggests that it was entitled, on its side of the exercise, to make up its mind as to whether or not it would be bound to acquire at the Horwath valuation. 52 More particularly the request for the defendant to confirm whether this was acceptable to it seems to me to be a reasonably strong indication from the plaintiff to the effect that it did not regard the defendant as bound. The explanation for the use of this terminology put forward by the plaintiff's counsel in address was that the plaintiff was indicating that it did not wish to dispute the valuation as per clause 18 (c) of the shareholders deed and was seeking an indication from the defendant as to whether it would wish to dispute the valuation as per that clause. It seems to me that this explanation should not be accepted in the relevant context where the Court is endeavouring to identify the intention which reasonable persons would have had if placed in the situation of the parties [cf Reardon-Smith Line Ltd (supra)]. Had this been the intent, it was not difficult for a reference to be made to the dispute procedure. In this regard and at this point in the communications, a level of precision and formality would be required and the Court could not reasonably infer from the terminology used that any such reference was intended. 53 Further it does seem to me that the words "I would be happy to consider a valuation…" do amount to a clear hurdle for the plaintiff's fundamental proposition. The words, even in context and even read in the light of all the facts, matters and circumstances earlier referred to, have a more natural meaning of "I would be happy to look seriously at a valuation". 54 To my mind there is substance in the defendant's submission that in this context, and bearing in mind the content of all the communications, it would considerably strain the use of the words "to consider" to regard them as equivalent to a statement that the defendant was prepared to be bound by such valuation. 55 Likewise e-mail [10] seeking 'your decision in relation to the shareholding' is somewhat inconsistent with the parties having already become bound. 56 In the result the communications between the parties did not constitute a contract. 57 Before dealing with short minutes of order it is appropriate to note: · that it has been unnecessary for the Court to deal with the defendant's submissions seeking to rely upon the fact that Mr Hayward apparently used the letterhead of the company to send the several letters. Had it been necessary to deal with this submission it would have been rejected, as it seems to me that both parties at all material times accepted that Mr Hayward, even in using that letterhead, was writing on behalf of the plaintiff; and · that as I view the correspondence, it is appropriate to infer that document [11] and following appear to have been written on legal advice. Short Minutes of Order 58 The defendant is to bring in short minutes of order. Submissions will be invited from both parties in respect of costs.

I certify that paragraphs 1 - 58 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 13 March 2002

      Susan Piggott
      Associate

13 March 2002

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