In a letter dated 21 April 2018, the defendant, Mr Bruce Jeffreys wrote to the plaintiff, Mr Itshak Sheer: "Finally, my commitment to you purchase (sic) all of your shares at a value of $2.5m in five years' time from December 2016 still stands". Unfortunately for Mr Jeffreys, in the events which have happened, that statement (to use a neutral word) has at the very least proved to be rash.
In these proceedings, Mr Sheer says that the statement was a term of a contractual offer by Mr Jeffreys to purchase all of Mr Sheer's shares in a start-up company, Dresden Optics Pty Ltd, which Mr Sheer accepted, and which he now seeks to have specifically performed. The consideration is said to be Mr Sheer's agreement to having his 2.5% shareholding in Dresden diluted by the issue of new shares to an external investor, Investec Australia Limited. Mr Jeffreys denies that the statement has any binding legal effect.
It was common ground that the shares are now worth considerably less than $2,500,000. Nevertheless, for the reasons which follow, the Court has concluded that:
1. The statement is a term of a binding contract between the two men;
2. Mr Sheer is entitled to an order that Mr Jeffreys specifically perform his obligation to purchase the shares for $2,500,000; and
3. Mr Jeffreys' cross-claim under the Australian Consumer Law that any contract should be set aside as having been induced by Mr Sheer's allegedly misleading conduct should be dismissed.
Mr D Robinson of Senior Counsel appeared with Mr M Hazan of Counsel for Mr Sheer. Mr F Corsaro of Senior Counsel appeared with Mr J Rodgers of Counsel for Mr Jeffreys.
[3]
The facts
The Court finds the following facts. Except where indicated otherwise, they were either uncontroversial or not seriously contestable, including being evidenced by contemporary records.
Mr Sheer is experienced in information technology (IT).
Mr Jeffreys is an entrepreneur. Prior to the events which are the subject of these proceedings, Mr Jeffreys had achieved financial success with a business called "Go Get". After that success, he turned his attention to a new business venture, Dresden. This was intended to be an online business by which customers could upload their eye glass prescription from their optometrist for Dresden to make low cost glasses made from recycled plastic products.
In about October 2014, Mr Sheer was driving for Uber. Mr Jeffreys was one of Mr Sheer's passengers. A casual conversation during a journey led to some further meetings between the two men.
By letter dated 17 November 2014, Mr Jeffreys, on behalf of Dresden, offered Mr Sheer employment with Dresden. The letter included:
"Thanks for meeting on Wednesday. I'm excited to make a formal offer of employment to join the Dresden Start-up team.
Job Title: Chief Integrator
Job Description: Dresden will be prototyping new concepts in eyewear and eye health. The business model involves bringing together retail, manufacturing and a clinical eye health practice on the one site that is then scalable across the world.
Your core responsibilities will be to work closely (sic) the 6 person start-up team to:
• develop a clinical practice that automates eye checks and makes it simple to measure and determine the correct prescription for your eyes
• design and develop a database-driven CRM platform that integrates with a) clinical practice b) manufacturing systems including process control, inventory, stock control, and order management c) sales and payment systems d) logistics and delivery systems e) billing, invoicing, accounts f) payroll and staff self-management tools
• assist and support the highly specialised staff within the start-up team to produce their best work
It is our approach that you will not build most if not all of these individual components but work closely with us to identify and then integrate existing systems to provide Dresden with a platform of highly-productive tools that are able to be used by every staff member.
…..
Commencement date: Monday, 17 November, 2014
If you accept the role lets meet this week to kick off what I believe will be a long and fruitful relationship."
Mr Sheer accepted the offer and commenced employment with Dresden.
On 22 November 2016, Mr Sheer received unsolicited information by email through his LinkedIn account about a potential position at Optus. Mr Sheer followed up the email within 20 minutes of receiving it and received a job description from Ms N Van Eck, whose position was described as "Talent Acquisition Specialist - Optus Corporate". The job description (which did not specify a salary) referred to a position with the title of "Head of Spring Release No 2" concerning a particular project within SingTel and Optus and was said to be located in Sydney. In relation to an applicant's education and work experience, the document specified:
Master/Degree in Technology or Equivalent
At least 15 years' experience in large complex IT transformation roles
At least 10 years in senior IT leadership roles leading large groups of people
The Court finds in accordance with paragraph 14 of Mr Sheer's affidavit affirmed 3 September 2021:
14 In about the final week of November 2016, the precise date I cannot presently recall, I met with Bruce at a coffee shop in Newtown, the name of which I cannot presently recall, in which words to the following effect were said:
I said: Bruce, I have been contacted by Optus and asked to interview for a job with them. The job will pay $470,000 plus bonus each year for three years. This is not something I can say no to. My wife and I feel that I need to take this opportunity for our future. I have a very good chance of getting this job because I have experience with Amdocs product and experience with Optus' requirements. I intend to do my best to secure this job.
Bruce said: Dresden is going to be worth more to you than this opportunity.
Bruce then took out his notebook in which he drew a diagram depicting Dresden Optics over the next 5 years. He wrote that in 5 years, Dresden Optics would have 60 shops worldwide and that the value of the company would be over $100,000,0000.
Bruce then said to me:
With 2.5% shares in Dresden Optics the value of your shares will be $2,500,000.
I said: Maybe. I don't want to leave Dresden Optics, but Optus are giving me an opportunity now to earn at least 1.5 million over the next three years. The salary is a sure thing, but 2.5 million is speculative.
Bruce said: I am so confident about the 2.5 million than I am willing to guarantee that I will buy it from you for that price in 5 years time.
I said: This is amazing and thank you. I will need it in writing. Bruce said: No problem, I will send it to you in writing.
The finding in the preceding paragraph is based upon the view the Court has taken as to the reliability of Mr Sheer's evidence over that of Mr Jeffreys' testimony (see [50]) below. In making this finding I expressly reject Mr Jeffreys' evidence about that meeting at the coffee shop, in particular that:
1. Mr Sheer told Mr Jeffreys that he (Mr Sheer) had been offered a job by SingTel; and
2. Mr Sheer had asked Mr Jeffreys to produce what became the 2016 letter (see [17] below) solely for the purpose of showing it to Mr Sheer's wife and placating her alleged concerns about Mr Sheer remaining with Dresden.
On 5 December 2016 at 11:29am, with the subject line "Letter - as discussed," Mr Jeffreys emailed Mr Sheer saying "Hope you had a great weekend. The letter as discussed is attached. Any questions let me know." Attached to that was a letter signed by Mr Jeffreys and addressed to Mr Sheer which contained this paragraph:
"Attached to your allocation of shares will also be an Option Agreement that obligates me to purchase back you (sic) shares at a total price of $2,400,000.00 Australian dollars five years from the date of Option contract. The intent of the Option contract is to give you a forwarded valuation for the value of your shares and also provide an option for you to be able to sell your shares".
Mr Jeffreys accepted in cross-examination that Mr Sheer phoned him "immediately" and asked him to change the figure to $2,500,000. I reject, for the reasons set out in [50] below, Mr Jeffreys' explanation that the figure of $2,400,000 was his estimate that Mr Sheer would have earned $480,000 per annum at Optus and then multiplied it by five. In my respectful view, Mr Jeffreys' ready acquiescence to the change corroborates Mr Sheer's evidence set out in [12] above.
[4]
Fact finding and credit - legal principles
In these proceedings I have applied the legal principles which I summarised in Saravinovska v Saravinovski (No 6) [2016] NSWSC 964:
464 First, at the forefront of the Court's approach has been the oft cited statement of McClelland CJ in Equity in Watson v Foxman (1995) 49 NSWLR 315 at 318-319:
Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction (1995) 49 NSWLR 315 at 319 rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not … attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712.
465 Second, the concept of actual persuasion was elucidated by Emmett J as his Honour then was) in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No 2) [2011] FCA 1123; (2011) 297 ALR 56:
48. Under s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act), the Court must, in deciding whether it is satisfied that a case has been proved to the requisite standard, take into account:
● the nature of the cause of action or defence;
● the nature of the subject matter of the proceeding; and
● the gravity of the matters alleged.
When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2).
466 Third, there is the statutory successor of the rule in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 in s 140 of the EA:
140 Civil proceedings: standard of proof
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence, and
(b) the nature of the subject-matter of the proceeding, and
(c) the gravity of the matters alleged.
467 Fourth, evidence is to be preferred which is inherently probable in the circumstances or is given by a witness against their interest.
468 Fifth, evidence of independent witnesses, i.e. persons who have no reason to be partisan, may be decisive in resolving the conflicting evidence of interested parties.
469 Sixth, where a witness has been found to be lying about one thing that does not automatically mean that they are to be disbelieved about everything else. The Court is not bound to accept or reject a witness' evidence in its entirety. This approach was expressed by O'Loughlin J in Cubillo v Commonwealth of Australia (No 2) [2000] FCA 1084; (2000) 103 FCR 1:
118 Before commencing a detailed analysis of the evidence in this case, I desire, in the first instance, to make clear the approach that I have taken to the evidence of a witness where I have found some, but not all, aspects of the evidence of that witness to be unreliable. Simply because I find against a party or a witness on one issue and reject some part of the evidence of that person, it does not mean that what remains is tainted, or otherwise lacks probative force, with the consequence that I should dismiss all the evidence of that person. The principles enunciated in the cases indicate that the trial judge is entitled to believe part of the evidence given by a witness and to reject the rest. After making an assessment of the evidence, after utilising the advantage of having seen and heard all the witnesses, and after forming an impression of each, the confidence that the judge reposes in a particular witness is assessed accordingly. Where evidence has a logical probative value, a judge will rely on it; where it contains discrepancies, displays inadequacies, is tainted or otherwise lacks probative force, the judge will, in all probability reject it or, at least, not rely on it. I mention some authorities that support those propositions.
…
121 A trial judge is not restricted in his or her assessment of a witness. By this I mean that if, on peripheral issues, the trial judge reaches conclusions adverse to the credibility of a party, it does not necessarily follow, consistently with such conclusions, that these must be findings adverse to that party on the issues that are central to the determination of the matter. There is no rule of law or practice that states that an adverse finding on any aspect in the evidence of a witness means that the whole of that witness' evidence must be rejected.
470 Seventh, and closely related to the preceding point, in Sangha v Baxter [2009] NSWCA 78 Basten JA (with whom Handley AJA agreed) cautioned against global credibility findings:
155 There are risks in making global findings about credibility of any particular witness. Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
156 Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].
471 Eighth, disbelieving a witness that "X" was the case does not mean that "not X" has been proven. The Court respectfully adopts what fell from Gibbs J (as his Honour then was) in Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 694 (citations omitted):
The fact that a witness is disbelieved does not prove the opposite of what he asserted: Scott Fell v. Lloyd [1911] HCA 34, (1911) 13 CLR 230, at p 241 ; Hobbs v. Tinling (C.T.) & Co. Ltd. (1929) 2 KB 1, at p 21 . It has sometimes been said that where the story of a witness is disbelieved, the result is simply that there is no evidence on the subject (Jack v. Smail [1905] HCA 25, (1906) 2 CLR 684, at p 698 ; Malzy v. Eichholz (1916) 2 KB 308, at p 321 ; Ex parte Bear; Re Jones [1945] NSWStRp 50, (1945) 46 SR (NSW) 126, at p 128 ), but although this is no doubt true in many cases it is not correct as a universal proposition. There may be circumstances in which an inference can be drawn from the fact that the witness has told a false story, for example, that the truth would be harmful to him; and it is no doubt for this reason that false statements by an accused person may sometimes be regarded as corroboration of other evidence given in a criminal case: Eade v. The King [1924] HCA 9, (1924) 34 CLR 153, at p 158; Tripodi v. The Queen [1961] CHA 22, (1961) 104 CLR 1. Moreover, if the truth must lie between two alternative states of fact, disbelief in evidence that one of the state of facts exists may support the existence of the alternative state of facts: Lee v. Russell (1961) WAR 103, at p 109 .
472 Ninth, for reasons set out in Saravinovski (No 5) at [76] and following, the Court gave leave for certain of Chris' affidavits to be relied upon, notwithstanding that his loss of mental capacity meant that he could not be cross-examined. The way such evidence should be treated was considered by Hallen J in Fulton v Fulton [2014] NSWSC 619:
111. However, affidavit evidence, however good, which, for whatever reason, is not subject to cross-examination when cross-examination is required, will always be discounted, as appropriate, if the affidavit is used with leave without cross-examination. The degree to which it will be discounted may depend on various factors, including the circumstances that lead to cross-examination being dispensed with, the nature of the evidence and its centrality and degree of significance to the case. The degree of discount appropriate will be judged according to all the circumstances of the case: Re O'Neil, Deceased [1972] VicRp 35, [1972] VR 327, per Anderson J, at 333 - 334; Citibank Ltd v Liu; ABN Amro Bank Ltd v Liu [2002] NSWSC 86, per Hamilton J, at [5].
473 Tenth, the Court can only do the best it can on the evidence which it has. Some issues may need not be resolved or should not be resolved. It may be that they cannot be resolved given the nature of the evidence which the parties have adduced. This case has many similarities to the family dispute considered by Robb J in Aytul Ak-Tankiz v Ferat Ak & Ramazan Ak [2014] NSWSC 1044. Of the evidence in that case, his Honour said:
187. The principal evidence relating to these issues consisted of the uncorroborated evidence of the witnesses, or alternatively the only corroboration available was the testimony of other witnesses. The evidence distilled into the word of one witness against the word of one or more other witnesses. Most of the events relevant to the issues occurred many years ago. The evidence relevant to the issues generally consisted of a series of assertions, and counter-assertions by various witnesses. Evidence of the objective context was generally not available, so it has not been feasible to test the versions of events that were in contest by reference to the objective probabilities, based upon uncontroversial contemporary circumstances. Though the issues are not entirely irrelevant, their significance is limited, and their resolution has not been necessary for the purpose of determining the real issues in the case. Any attempt to resolve the issues by making judgments about the relative credibility of the individual witnesses on an issue-by-issue basis was likely to be based on illusory foundations.
To these I would respectfully add and have applied this recent summary by Leeming JA (sitting at first instance) in Dedakis v Deligiannis [2024] NSWSC 1018;
15 All of the events occurred more than a decade ago, and many occurred more than three decades ago. Memory is fallible and malleable, especially memory concerning past beliefs. One of Lord Leggatt's first judgments contains an extensive and influential consideration of the frailties of memory, including (relevantly for present purposes) that memories of past beliefs are revised to make them more consistent with present beliefs: Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at [18]. It is usually desirable to start with reliable contemporaneous documents and uncontroversial facts. "Usually, the rational resolution of an issue involving the credibility of witnesses will require reference to, and analysis of, any evidence independent of the parties which is apt to cast light on the probabilities of the situation": Camden v McKenzie [2008] 1 Qd R 39; [2007] QCA 136 at [34] (Keane JA). That is not to deprecate the potential significance of testimonial evidence. In particular, as was said by Bell P in ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24; 388 ALR 128 at [27]-[29], testimonial evidence may provide valuable assistance in explaining the context of, and omissions from, the contemporaneous documents…..
[5]
Mr Jeffreys' credit
As might be expected, each of Mr Sheer and Mr Jeffreys was extensively cross-examined. Another witness called in Mr Jeffreys' case, Mr Jason McDermott, was also cross-examined, but by the end of the case it was not suggested that Mr McDermott's evidence had any impact upon the issues to be decided.
There were only two disputed conversations between the parties which remained of any relevance by the end of the case (see [12] and [27] above). Even then, Mr Robinson SC made it clear, that those conversations were not relevant to Mr Sheer's case in contract. Nevertheless, at least in relation to Mr Jeffreys' cross-claim, it is necessary for the Court to make findings about those conversations.
For the reasons which follow, the Court had determined that where their evidence is in conflict, the evidence of Mr Sheer is to be preferred over that of Mr Jeffreys. The Court will only accept Mr Jeffeys' evidence if it is against interest, inherently likely or independently corroborated, including by contemporaneous documents.
In assessing Mr Jeffrey's reliability, the seminal exchange in Mr Jeffreys' evidence is what occurred when he was asked about the statement (Tcpt, 25 October 2023, p. 227(45) - p.228(27))
ROBINSON: Now with regard to the letter at 426 [the second page of the 2018 letter], you said you would buy the shares at that price at that time and these shares were identified. Do you intend to buy the shares?
HIS HONOUR: At what point in time is that question addressed?
ROBINSON: Now.
Q. Do you intend to buy the shares now?
A. No, I don't.
Q. What is the reason why you do not intend to buy the shares?
A. The shares would - sorry, can you say - I just don't understand what the question is.
Q. At the top of 426, there is a sentence where you say that you have a commitment to buy a specific parcel of shares for a specific price at a specific date. What is the reason why you do not intend to buy those shares and have not done so yet?
A. Because the value of the, the valuation that we wanted to - we wanted to achieve a valuation and a growth in value of the business and that hasn't been achieved.
Q. And that's the only reason, Mr Jeffreys, is it?
A. The main reason is that things that Itshak said he would do, he never delivered. So when we met in the café in 2016, it was about how do we create value in this business. It was about his role in creating value in this business. It was about the plans, it was about delivering on the investment both from Investec and also from a government funding perspective, so we had the capital deliver on our plans. Itshak was an important part of that and he never delivered on those plans.
Q. And that is the reason why you have not honoured your commitment set out at the top of 426.
A. That's correct.
HIS HONOUR
Q. And you accept sir, don't you, that the commitment on the top of page 426 is unqualified by any of the things you've just told me?
A. I accept that
For completeness, I also record that later in his evidence Mr Jeffreys said that he had not performed what Mr Sheer contended were Mr Jeffreys' obligations because Mr Sheer had never followed him (Mr Jeffreys) up about the option agreement, and that in relation to both the 2016 letter and 2018 letter he said (Tcpt, 25 October 2023, p.230(29-30))
After this letter and the subsequent letter there was no more - there was - he - there were no questions asked.
Finally, also in re-examination, Mr Jeffreys gave this evidence about his email of 16 February 2021 reproduced at [41] above: (Tcpt, 25 October 2023, p.233(10-47)
Q. If you go back to the document I asked you about earlier at 884. You used the words, "There is no commitment." Do you see that?
A. Yes.
Q. Can you assist his Honour as to how you were able to write the words at court book 426, which refer to the word, "my commitment to you" yet say there was no commitment when you wrote the document at 884. So in other words, how do you explain the use of the words at 426 and then the denial of the use of a commitment in the subsequent document? Do you understand what I'm asking you?
A. I do understand what you're asking.
Q. Can you just explain to his Honour.
A. Your Honour, it's because it was to be based on the valuation of the business.
Q. What do you mean?
A. What I mean is that the shares will be bought back if the business was valued--
Q. At what?
A. At that value in the future.
Q. What value?
A. Well in the $2.5 million of Itshak's shares in the business.
Q. But I'm sorry, in that answer you've told his Honour that it was subject to or referrable to a value.
A. Yes.
Q. A value of what? What was the amount of the value? What is the number?
A. There was no value.
Q. I'm sorry. Can you just explain that to his Honour.
A. Well it hadn't been done. There was no, there was no process, no outline of how, like the business - there was no mechanism, nothing had been done to value the business.
I note that at least as a matter of pleading, Mr Jeffreys contended that any agreement was conditional on Dresden reaching a value of $100 million, and that Mr Sheer had to be employed by Dresden in December 2021. To the extent these defences were pressed, they are rejected because the Court finds no such conditions were ever written or said between the parties.
Returning to what I have referred to as the seminal exchange set out in [51] above, what the transcript does not record is Mr Jeffreys' demeanour and pauses in answering the question, which only fortified the impression I took from the words he used. It was abundantly clear from his answer, and how he gave it, that he understood perfectly well at a subjective level that the statement represented a completely unqualified commitment by him to purchase the shares in accordance with its terms. Tellingly, his answer was not that the statement was never intended to be binding and had been produced only to placate Mr Sheer's wife. Instead, the answer referred to what he accepted was an unstated condition precedent in his mind as to the value of Dresden.
This exchange crystalised what I considered to be Mr Jeffreys' entire approach to his evidence. That was to concede nothing that might possibly suggest that he had any obligation to buy the shares, and to proffer whatever reason he could as to why he did not have to buy the shares. His evidence was pervaded by what I might refer to as the clear subjective acknowledgement of obligation to Mr Sheer conflicting with a visceral response of wanting to avoid that result because it would lead to, for him, the completely uncommercial outcome of having to purchase shares which, it was common ground, are worth far less than $2,500,000 million, if they are worth anything.
In making these observations, I am not drawing the conclusion that Mr Jeffreys was consciously attempting to mislead the Court. I did not form the view that he was deliberately telling untruths, but rather that his evidence was unreliable because it was completely coloured by the conflict to which I have referred in the preceding paragraph, such that his evidence on critical matters could not be accepted where it relevantly differs from that of Mr Sheer.
Modern science has proven the truth of McClelland CJ in Equity's classic observation quoted in [46] above that "human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are relayed, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." So it is that the Court accepts that Mr Sheer referred to his wife in his conversation with Mr Jeffreys in November 2016 (see [12] above), but not to the effect which Mr Jeffreys says he now recalls.
That "ordinary human experience" referred to by McClelland CJ in Equity has now been the subject of extensive scientific examination. It is well understood that each time a memory is recalled, it is reconstructed. That process of reconstruction, when combined with a witness' interest in the outcome, can lead to a distortion of witnesses' memories. Witness memory has been said to be inherently frail and potentially unreliable. While the science has been devoted largely to the accuracy of memory in the criminal jurisdiction, the same question, including the impact of witness preparation, is now being explored in the civil context (see MJ Steele, JM Chin and C Van Golde "Witness Preparation and the Corruption of Memory: A Survey of Australian Trial Judges" (2024) 48 (1) Melbourne University Law Review (Advance)).
In referring to Mr Jeffreys' subjective understanding in [55] above, and before turning to the question of Mr Sheer's credit, two matters should be made clear:
1. The view which I have formed about Mr Jeffreys' subjective understanding was relevant for the purposes of assessing his reliability as a witness. I have given it no regard in determining the contractual dispute between the parties which is necessarily governed by the objective theory of contract.
2. To similar effect, I admitted provisionally parts of Mr Jeffreys' affidavit and cross-examination evidence going to his uncommunicated intentions about the 2016 letter and the 2018 letter and the arrangements with Mr Sheer more generally. The relevant affidavit evidence was identified in a schedule to Mr Sheer's written submissions dated 10 November 2023. Objection was pressed in the closing submissions to that evidence, although it played no real part in the issues as ultimately presented by the parties. Nevertheless, I accept the point made in those submissions that such evidence is inadmissible on the question of construction of a contract. However, as I observe in [80] below, the case was not ultimately about construction, but concerned intention to contract. On this latter issue, uncommunicated intentions (in contrast to one party saying to the other "I'm only joking") are also inadmissible. The evidence identified in the submissions, together with like evidence given orally, is rejected.
[6]
Mr Sheer's credit
The Court was strongly urged by Mr Corsaro SC not to accept Mr Sheer as a witness of truth. I shall deal with the particular criticisms of Mr Sheer in what follows. However, it is convenient to begin with a general observation. Mr Corsaro SC brought the full force of the cross-examiner's art to bear on Mr Sheer's evidence. He taxed Mr Sheer about every available inconsistency in his evidence that could be established from available contemporaneous material. Nevertheless, and with absolutely no disrespect intended, the end result was that the cross-examination appeared to be straining out gnats.
Mr Sheer's essential evidence was, in my respectful opinion, completely unshaken by the cross-examination because his narrative was a simple one, depending on two unequivocal statements in letters signed by Mr Jeffreys both in his capacity as a director of Dresden and in his personal capacity. Mr Sheers' subjective (and through his lawyers, legal) position was perfectly clear: he had been made a promise by Mr Jeffreys and he was entitled to have that promise honoured.
None of the matters complained of by Mr Corsaro SC in relation to Mr Sheer's evidence strike me as sufficiently significant or central to his narrative as to cause me to doubt Mr Sheer's reliability, in particular in contrast to the conclusion that I have drawn about Mr Jeffreys. Nor has Mr Jeffreys' case identified any part of Mr Sheer's affidavit or oral evidence which is objectively demonstrable as false.
One of the issues explored with Mr Sheer in cross-examination was his representation of his professional qualifications, including having attended the Sivan Computer College in Israel, and the difference between having a masters degree or having undertaken a course of study equivalent to a masters degree. The upshot in relation to Mr Sheer's qualifications, as appeared from other documents in evidence, was that he had what he described as the equivalent of a masters degree. That equivalence he said had been established by an immigration agent having approached a professor at the University of Auckland to express a view as to the appropriate comparison between the studies that Mr Sheer had undertaken with a university degree. Issue was also taken with the description of Mr Sheer's qualifications in the IM (see [21] above). I accept Mr Sheer's evidence that the document had been prepared by Allunga and he had only seen it "briefly".
There was also cross-examination about evidence Mr Sheer had given about having found a problem with Adobe Postscript which led, according to Mr Sheer, to the head of development of Adobe asking Mr Sheer if he would be interested in a job at Adobe, to which Mr Sheer told him that he was not. The cross-examination never went further than expressing incredulousness as to the truth of this, but without demonstrating any basis on which it could be found that the evidence was false.
Finally, it was submitted for Mr Jeffreys that Mr Sheer's credibility was fatally undermined in relation to the November 2016 coffee shop conversation (see [12] above) by his email of 9 February 2021 (see [40] above) which referred to him having "agreed to reject the job offer which I received from Sing Tel Optus" when it was clear that the most he had was the offer of an interview. Having observed Mr Sheer give his evidence, I accept his explanation that English not being his first language explains the difference.
In any event, whether it be an issue of language or an exaggeration born of his reaction to Mr Jeffreys' point blank rejection of any commitment, neither this issue nor any of the other matters tested in cross-examination is sufficient to displace the view which I formed watching Mr Sheer give his evidence that he was doing his best to give a truthful account of what had occurred, and that he was unshaken by an intense cross-examination from his essential narrative, which was supported by the terms of the two letters that he had had been given by Mr Jeffreys.
[7]
Mr Sheer's submissions
Mr Sheer's pleaded case in his statement of claim filed on 6 June 2021 was:
17 On about 9 March 2018 the plaintiff was issued 25,000 shares in Dresden Optics.
18 By letter dated 21 April 2018, the defendant wrote to the plaintiff:
(a) advising that Dresden Optics intended to raise funds by issuing new shares to Investec Australia Limited.
(b) informing the plaintiff of Dresden Optics' intention to dilute his shareholding in Dresden Optics from 2.5% of the total amount of shares issued in Dresden Optics to 1.87% of the total amount of shares issued in Dresden Optics;
(c) offering to purchase the defendant's shares in Dresden Optics at a value of $2,500,000 in December 2021, irrespective of the dilution; and
(d) implicitly seeking the plaintiff's agreement to the proposed issue of new shares to Investec Australia Limited.
19 On about 9 May 2018 Dresden Optics, the defendant and Investec Australia Limited entered into the Subscription Agreement dated 9 May 2018.
20 On about 17 May 2018 the plaintiff accepted the defendant's offer contained in the defendant's letter of 21 April 2018 (and pleaded at [18] above) and agreed to the dilution of the plaintiff's shareholding in Dresden Optics by signing the following documents:
(a) Deed of Termination;
(b) Shareholders' Deed; and
(c) Resolution of members.
By the time of final submissions, Mr Sheer's case was slightly different. It was that the contract between the parties was wholly in writing signed by Mr Jeffreys (being the 2018 letter), with the written offer having been accepted orally on 21 April 2018. The oral acceptance was submitted to be the April conversation (see [34] above). Mr Sheer's case was that in that conversation, Mr Sheer had agreed to the dilution of his shares if Mr Jeffreys changed the content of the letter to reflect the promise that he would buy all of the shares for $2,500,000 million, five years from December 2016.
To adopt the language used by Mr Robinson SC in Mr Sheer's closing written submissions, it was intended that "the parties have adopted the terms of the document as the repository of their agreement, upon the change requested being acceded to, and made to the document". The consideration provided by Mr Sheer was said to be his agreement to the dilution of his shareholding in Dresden and thereafter taking the necessary steps for that to occur by executing the relevant documentation (see [37] above).
In the course of address, I had this exchange with Mr Robinson SC
ROBINSON: The document which now has on the top centre of the page S1, those are the numbers I will use. And there's a summary set out. And your Honour can see that contract contended for is one where all of the terms are complete, in the 2018 letter. There is obviously a historical connection to the 2016 letter, but so far as the terms relied on, they are contained in the 2018 letter. And the submission made is that the parties were content that the repository of their entire agreement was in this particular letter. And that is derived from the manner in which it was negotiated. And also, arises from the manner in which changed conditions determined that outcome.
They are the submissions in respect of it. In terms of contractual terms, there's a penultimate written offer by Mr Jeffreys. There's a conversation in which Mr Sheer says that he will agree if a change is a made. The change is made, and that is the parties' agreement, your Honour. That's the way in which we put the case.
HIS HONOUR: It's not how it's pleaded though, is it?
ROBINSON: It's not precisely pleaded that way, that's correct. But what is pleaded is the acceptance of the letter by conduct. Now, there can be no difference. And in the submissions set out before your Honour, it's put as either an oral acceptance of, "I promise to execute documents," or the actual execution of those documents. Either way, the same result applies at law (Tcpt, 14 December 2023, p.238 (27-49).
The Court has accordingly proceeded on the basis that the case presented by Mr Sheer for determination is that the terms of the parties' agreement is set out in the 2018 letter (in particular, the statement), which was either accepted by Mr Sheer in an anticipatory way by reason of the April conversation, or by Mr Sheer's conduct in permitting the dilution of his shares in Dresden by executing the documents referred to in [37] above. Mr Robinson SC also made it clear that it was not necessary for Mr Sheer's case that the 2016 letter have binding legal effect and that the Court was not being asked to determine whether it did have that effect.
[8]
Mr Jeffreys' submissions
While Mr Corsaro SC drew to attention Mr Sheer's departure from his pleaded case, there was no suggestion that Mr Jeffreys was not in a position to meet the case that was ultimately put.
Mr Corsaro SC began by drawing to attention this statement: "Assessing the existence and content of an offer is a question of construction from the point of view of a reasonable in the putative offeree's position" (JD Heydon, Heydon on Contract (2019, Thomson Reuters) at [2.130]).
From that starting point, it was submitted (Tcpt, 14 December 2023, p. 245(19-24):
…. The core issue is, it all depends on how one construed the letter of 21 April, and whether or not the letter can rationally be construed as being a de novo offer divorced of the 2016 context divorced of the discussion on its face, how a reasonable person in the offeree's position would have understood the words of that letter and whether or not it was accepted by [conduct]".
It was submitted that the correct characterisation of the statement was that it was the reiteration of a non-binding agreement, and which could not be made binding by its reiteration. The legal analysis underlying this general proposition was contended to be:
1. The reference to "my commitment" in the statement is a reference to the 2016 letter.
2. This meant that the 2018 letter could not be read without the 2016 letter and, if the 2018 letter was an enforceable contract, it had to incorporate the 2016 letter.
3. The 2016 letter referred to provision of an "Option agreement", which had never been provided.
4. Reading the two letters together, the terms of the 2016 letter brought any agreement within the third category of Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, being that the parties did not intend to enter into legal relations until the formal contract arising out of their agreement had been made.
5. The formal contract was the Option agreement under the 2016 letter which had never been entered in to by the parties.
6. There was therefore no enforceable agreement constituted by the terms of the two letters when read together.
It was next submitted that any agreement that might have otherwise been brought into existence, failed for want of consideration. This was because, it was said, the shares would have been diluted whether Mr Sheer had agreed to it or not by reason of clause 7.12 of the March Shareholders Agreement, being what was referred to as a "drag along" provision.
Finally, it was contended that any agreement was superseded by the entire agreement clause of the May Shareholders Deed.
[9]
Determination
For the reasons which follow, the Court finds that there is a binding agreement between Mr Sheer and Mr Jeffreys that Mr Jeffreys would purchase all of Mr Sheer's shares in Dresden for $2,500,00 million during December 2021.
In setting out how the Court has reached this conclusion, it is helpful to begin by observing what the case is not about. As ultimately argued by the parties, it was not about the proper construction of the statement or the 2018 letter as a whole. In other words, it was no part of Mr Jeffreys' case that if there was a binding agreement, there was any doubt about what Mr Jeffreys had to do to perform that agreement.
As I will develop in what follows, confronted with the unequivocal language of the statement, the heart of Mr Jeffreys' defence was an attempt to demonstrate on the facts that the Court should not be satisfied that the parties intended to be legally bound. This was the purport of the evidence advanced by Mr Jeffreys, which the Court has not accepted, that both the 2016 and 2018 letters were being provided to Mr Sheer not as the record of a binding agreement, but as pieces of paper brought into existence to be shown to Mr Sheer's wife to "placate" her but otherwise not having any legal effect.
In my respectful view, there can be no doubt that the statement represents a promise. The reference to "my commitment" is, in accordance with the ordinary meaning of the word in that context, a reference to a promise or a pledge. If it can properly be inferred from all the circumstances (in this case including the language of the statement and the April conversation) that a promise is being made, it does not matter that the language is not strictly promissory: see Ballantyne v Phillott (1961) 105 CLR 379 at 397 per Menzies J.
While not strictly necessary to decide, I consider that the use of the words "still stands" in the statement fits more neatly into the category of a contractually binding warranty. As Zelling J (with whom Wells J agreed) said in Ellul v Oaks [1972] 3 SASR 377 at 387:
"But all these factors are at best only secondary guides, and they are subsidiary to the main test of contractual intention, that is, whether there is evidence of an intention of one or both parties that there should be a contractual liability in respect of the accuracy of the statement. The question therefore is: On the totality of the evidence, must the person making the statement be taken to have warranted its accuracy, i.e. promised to make it good?"
So understood, the question of whether or not the 2016 letter was legally binding becomes irrelevant. In any event, for the reasons set out in [89] below, the statement was, to use Mr Corsaro SC's language set out in [75] above, a de novo offer made in a materially different factual context to the circumstances which gave rise to the 2016 letter, and irrespective of whether that earlier letter was legally binding or not.
As I have noted in [69] above, Mr Robinson SC clearly presented Mr Sheer's case on the basis that the 2018 letter represented the agreement between the parties. So understood, the case is best assessed by reference to the three questions posed by Mahoney JA (as his Honour then was) in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 327:
1. Did the parties arrive at a consensus?
2. If they did, was it such a consensus as was capable of forming a binding contract? and
3. If it was, did the parties intend that the consensus at which they arrived should constitute a binding contract?
The first question should be answered "yes". As I develop further in [89] below, I reject Mr Corsaro SC's submission that the 2018 letter must be read with, or somehow incorporate the terms of, the 2016 letter. Other than the possibility of the 2016 letter, there was no suggestion as the case was finally argued that there were any other terms between the parties to be found outside the 2018 letter.
Mahoney JA's second question should also be answered "yes". There was no suggestion that, for reasons of uncertainty or anything else, the consensus represented by the 2018 letter was not capable of forming a binding contract.
Mahoney JA's third question invites application of the proposition that such intention must be objectively ascertained from the terms of the relevant document when read in the light of the surrounding circumstances. The statement, in the context of the 2018 letter, bespeaks a binding contract. As appears from [27] to [35] above, its terms were negotiated. The fact of negotiation points to an intention to be bound, especially when understood in the context of the April conversation. It would require clear language between the parties (not found in this case) to reduce the process of negotiation to a solemn farce, which is what it would be if there was no intention to be bound.
Next, I accept Mr Robinson SC's submission in reply that there are a number of surrounding circumstances known to the parties which both negative the incorporation of the 2016 letter and support the inference that the 2018 letter was intended to be a newly created or standalone legal obligation. These were:
1. The shares referred to in the 2016 letter were not allocated in "early 2017" as that letter had stated;
2. The shares were allocated in March 2018 in the quite different circumstances of the impending Investec transaction;
3. At the time of the allocation of the shares and the discussions between the parties leading up to the 2018 letter, both parties knew that no option agreement had been propounded and that no option agreement was being offered as part of the new arrangements;
4. Whatever arrangements may have been made in 2016, the 2018 letter came into existence at a time when both parties knew that existing agreements would have to be superseded to allow the issue of shares to Investec;
5. The subject matter of the 2018 letter is commercially different to that of the 2016 letter, because the 2018 letter deals with all of Mr Sheer's shares in Dresden after their dilution. The same consideration was being offered for what was now 1.87% of the issued share capital of Dresden.
The paramountcy of the objective determination of the parties' intention is particularly evident when it is understood that the process of negotiation in commerce does not always fall easily into the traditional analysis of offer and acceptance. Nevertheless, in this case the Court accepts the alternative position advanced on behalf of Mr Sheer that the offer was made to Mr Sheer by Mr Jeffreys in the form which Mr Sheer had foreshadowed would be acceptable (the 2018 letter) and that this was accepted by Mr Sheer by his conduct in executing the documents necessary to permit the issue of shares to Dresden with the consequential dilution of his shareholding in Dresden.
The same result could be achieved by analysing the sequence of events as:
1. Mr Jeffreys made an offer by sending the first draft of the 2018 letter;
2. That offer was rejected and a counteroffer was made by Mr Sheer in the April conversation;
3. Mr Sheer's counteroffer was accepted by Mr Jeffreys sending the 2018 letter.
Either analysis demonstrates the working out of the Court's ultimate conclusion, being that objectively the parties intended to be bound by the 2018 letter.
Insofar as the terms of the agreement between the parties are concerned, there is one other matter which should be noted at this point. That is the source of Mr Sheer's obligation, as he contended it to be, that he would agree to the dilution of his shareholding. Because Mr Robinson SC contended that the agreement between the parties was wholly in writing as evidenced by the 2018 letter, any such obligation on Mr Sheer had to be implied. This is because the 2018 letter does not contain any express request that Mr Sheer agree to the dilution of his shareholding.
The need for an implication was recognised in paragraph 18(d) of Mr Sheer's statement of claim (see [68] above), which referred to the 2018 letter as "implicitly seeking the plaintiff's agreement to the proposed issue of new shares to Investec Australia Limited". The Court accepts that, having regard to the totality of the 2018 letter, what should be implied into it as a matter of business efficacy is a term that Mr Sheer agree to, and do all things necessary to give effect to, the dilution of his shareholding by entering into the documents. In return, Mr Sheer received the benefit of the promise contained in the statement.
Again, other analyses might be used to reach the same result. For example, even if the Court's conclusion about the implication of a term is wrong, given that the April conversation was common ground, there can be no unfairness to Mr Jeffreys in the Court finding (as it does, as an alternative) that the contract between Mr Sheer and Mr Jeffreys was partly oral and partly in writing. The oral part was the April conversation and the written part was the 2018 letter. So understood, it is clear that Mr Sheer assumed a binding obligation to agree to the dilution of his shareholding in Dresden in return for Mr Jeffreys undertaking the obligation contained in the statement.
Turning to the issue of consideration, the argument put for Mr Jeffreys was that Mr Sheer's acceptance of the dilution of his shareholding could not be consideration because Mr Sheer was already bound to permit this to occur by reason of clause 7.12 of the March Shareholders Agreement. It was submitted that a promise to perform an extant contractual duty could not be good consideration: Silver v Dome Resources NL [2007] NSWSC 455 at [127].
Clause 7.12 of the March Shareholders Agreement relating to "drag along" included:
"(a) If Shareholders holding 55% or more of the Shares accept an offer to Transfer those Shares (Offer) then the person who has offered to take a Transfer of those Shares (Offeror) may extend the Offer to any or all other Shareholders (Remaining Shareholders), with all necessary changes, on the same terms and at the same price per Share."
The Court accepts Mr Robinson SC's argument that clause 7.12(a) had no application because what was being proposed did not involve an offer to transfer existing shares in Dresden. Instead, the parties were entering an agreement whereby further shares would be issued to a new shareholder, Investec, thereby diluting the existing shareholders' interests in Dresden. Contrary to the argument put on behalf of Mr Jeffreys, the Court finds that Mr Sheer's promise to agree to the dilution of this shareholding was good consideration.
There is also a more fundamental difficulty with relying on the March Shareholders Agreement. This is that it was an essential condition precedent to the Investec transaction that all the existing shareholders should consent to the termination of the March Shareholders Agreement. That is what occurred (see [37] above) including those shareholders releasing and waiving any claims (broadly defined) they may have had against each other under the March Shareholders Agreement.
Mr Jeffreys' final answer to Mr Sheer's case was to rely on the entire agreement clause in the May Shareholders Deed:
"22.9 Entire Agreement
This Deed supersedes all previous agreements in respect of its subject matter and together with the Subscription Agreement embodies the entire agreement between the Shareholders."
Mr Sheer was a "Shareholder" for the purposes of the May Shareholders Deed.
Mr Corsaro SC's argument turned on the definition in that deed of "Shareholder", being "a person entered on the register of the members of the Company from time to time being initially the Existing Shareholders". While not relevant to the outcome, the parties acknowledged that there was no definition in the new shareholders deed of "Existing Shareholders".
Nevertheless, it was put that the definition of "Shareholder" was very broad and that Mr Jeffreys was a party to the May Shareholders Deed, as well as his trustee company, Harika, which held what had been Mr Jeffreys' shares in Dresden. It was therefore submitted that, having once been on the register, Mr Jeffrey was a "Shareholder" so that the entire agreement clause was sufficient to include any agreement between Mr Sheer and Mr Jeffreys about the shares.
The Court accepts the arguments put on behalf of Mr Sheer as to why the entire agreement clause has no operation in the present case:
1. The May Shareholders Deed necessarily speaks as at the date of its execution and into the future. The expression "from time to time" did not operate retrospectively. As at the date of the deed, Mr Jeffreys was not a "Shareholder". He was, in terms, personally a party to the deed as the "Founder". The relevant "Shareholder" was Mr Jeffreys' trustee company, Harika. Therefore, the entire agreement clause did not include an agreement between Mr Sheer and Mr Jeffreys in his personal capacity.
2. Further and alternatively, the clause related to the "subject matter" of the May Shareholders Deed. That subject matter was set out in Recital B:
"The Shareholders have entered into this Deed to record their aims and objectives in relation to the Company and to provide for the operation and administration of the Company and the relationship between the Shareholders".
The subject matter of the deed was not an agreement between a shareholder and a third party (being Mr Jeffreys personally, and not as a "Shareholder") to purchase shares in Dresden or, for that matter, even if (which the Court does not consider to be the case) Mr Jeffreys was a "Shareholder". What the deed did provide was the binding framework within which that sale and purchase must occur: Bennett v Goodwin [2005] NSWSC 513 at [39] per Campbell J (as his Honour then was).
In this case, that framework was provided by clause 8 which included:
"8. Transfer of Securities
8.1 Permitted disposals
(a) Subject to clause 8.1(b), a Shareholder may only Transfer Securities:
(1) with the prior written approval of all of the other Shareholders (excluding Employee Share Scheme Shareholders); …"
Mr Jeffreys has the benefit of the "Consent to Proposed Transfer" dated 16 April 2021 (see [43] above), the effect of which is that there is no impediment under the May Shareholders Deed to Mr Sheer transferring the shares to Mr Jeffreys.
[10]
Mr Jeffreys' cross-claim
Mr Jeffreys' cross-claim was premised upon the allegation that both the 2016 and 2018 letters were induced by the misleading and deceptive conduct of Mr Sheer insofar as it alleged that Mr Jeffreys produced both letters on the understanding given to him by Mr Sheer that their content was only to be used for the purposes of Mr Sheer placating his wife and otherwise not having any legal effect. By reason of the Court's findings in [13] and [28] above, Mr Jeffreys' cross-claim fails on the facts because the Court does not accept that Mr Sheer said anything about either letter being required to placate his (Mr Sheer's) wife.
In any event, I accept the submission made for Mr Sheer that Mr Jeffreys' cross-claim also should fail for not establishing causation. Taking Mr Jeffreys' evidence of the two relevant conversations at face value, there was no evidence from Mr Jeffreys that he relied on what was allegedly said by Mr Sheer having to placate his wife as the basis for offering to buy the shares. Nor does Mr Jeffreys give any evidence to the effect that absent the alleged statements about needing the letters to placate Mr Sheer's wife, he (Mr Jeffreys) would otherwise not have offered to purchase the shares and, in particular, that he would not have made the statement.
Finally, for completeness, I reject Mr Corsaro SC's submission that, assuming the 2016 letter was the product of misleading and deceptive conduct, the 2018 letter was "infected" by that conduct. For the reasons set out in [89] above, the Court has concluded that the 2018 letter was brought into existence against the background of new and different factual circumstances. Whatever may have been the cause of the 2016 letter, those new and different factual circumstances broke any chain of causation that might otherwise have connected the 2016 letter to the 2018 letter.
[11]
Conclusion
The Court accepts Mr Sheer's evidence that he is ready, willing and able to do all things necessary to transfer his shares to Mr Jeffreys upon the latter tendering the purchase price of $2.5 million. Accordingly, Mr Sheer is entitled to an order for specific performance of the contract found in paragraph [79] above. Subject to hearing the parties, my present view is that the order should specify that settlement of the sale should occur eight weeks after the date of the order.
Mr Jeffreys' cross-claim will be dismissed.
Subject to any special arguments about costs of which the Court is not currently aware, Mr Jeffreys should pay Mr Sheer's costs of the proceedings.
The parties will be given an opportunity to bring in short minutes of order to give effect to these reasons.
[12]
Amendments
13 September 2024 - Correction to hearing dates
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 13 September 2024
At 8:03am on 12 December 2016, with the subject "updated letter", Mr Jeffreys emailed Mr Sheer:
"Updated letter attached, look forward to seeing you at 12.30 today!".
The attachment was a letter on Dresden letterhead dated 12 December 2016 addressed to Mr Sheer (2016 letter). The "update" was the change in the proposed purchase price for the shares to $2,500,000. There was no dispute that Mr Jeffreys signed the letter both in his personal capacity and as a director of Dresden.
The text of the 2016 letter was (emphasis added):
This letter confirms in writing that as a founding member of the Dresden team you will be allocated Class A ordinary shares in the proprietary limited company. This will give you a 2.5% share in the business.
The allocation of these shares will be made to you early in 2017 once I have successfully obtained finance for the equipment we have already purchased for the business.
The condition of the allocation of these shares is that I and the other Directors in Dresden Optics Pty Ltd maintain a first right to purchase all of your shares in the event of a sale. A shareholder agreement will be drafted to reflect this and you will get plenty of chance to talk with the Dresden lawyer and also receive independent advice.
Attached to your allocation of shares will also be a Option agreement that obligates me to purchase back you (sic) shares at a total price of $2,500,000.00 Australian dollars 5 years from the date of the Option contract. The intent of the Option contract is to give you a forward evaluation of the value of your shares and also provide an option for you to be able to sell your shares.
If you need any clarification or further details please let me know.
Mr Sheer never followed up Mr Jeffreys about the "Option agreement" referred to in the December 2016 letter. To the extent that requires an explanation, the Court accepts Mr Sheer's explanation that he felt his entitlement was secure because he had the 2016 letter.
The issue of the shares did not happen quickly. During 2017, Mr Jeffreys set about finding external investors for Dresden. He retained a firm of corporate advisors, Allunga Advisory, to assist. Allunga prepared an information memorandum (IM) during 2017.
The IM included a section about Dresden staff. There was a photograph of, and details about, Mr Sheer which described his position as "chief integrator" and listed his qualifications as "M. Computer Science." It said of him:
Isaac has extensive experience in program and project management, customer relationship management, and business improvements within the Telecommunications and e-Commerce industries.
He has previously delivered projects for Woolworths, Sing Tel, RP Data and the Australian Securities Exchange. Isaac has also successfully managed 7 large-scale projects internationally totalling over $500m.
On 23 January 2018, Mr Jeffreys sent an email to Dresden executives, including Mr Sheer, attaching a term sheet for a proposed investment by Investec.
On 25 January 2018 Mr Sheer emailed Mr Jeffreys and the other executives:
Hi,
Question:
-Investec are buying 25% for 4M on company Value of 12M , based on my calculation 25% of 12M is 3M, what am I missing here ?
-Who they are buying it from ?
-What is our % after the sell ?
-Lets assume that in 4-5 years Dresden is value at 100M, new investors are interested to buy 25%, we agree to sell, how we calculate the % of our shares in the company and what is the value of our shares in this case.
-What is the base calculation to value the company, if in 2021, Investec value Dresden as 10M, what arguments can we have against it?
The above will help to understand the benefits of the investors and the impact of our shares.
Thanks
Isaac
While the transaction with Investec was being negotiated, on 9 March 2018 Mr Sheer was issued 25,000 shares in Dresden, being 2.5% of its then share capital. On the same day, Mr Jeffreys ceased to be a shareholder in Dresden, with nearly all of his shares being transferred to Harika Holdings Pty Ltd, the trustee of his family trust. Also on or about 9 March 2018, Harika, Mr Sheer, Dresden and other Dresden executives (or their entities) - but not Mr Jeffreys - entered into a shareholders agreement in relation to Dresden (March Shareholders Agreement).
While Mr Sheer did receive his 2.5% share in Dresden, he never received the "Option agreement" referred to in the penultimate paragraph of the 2016 letter. However, as will become apparent from what follows, the need for such an agreement was overtaken by the sending of the 2018 letter in the context of Investec being issued shares in Dresden.
As part of the arrangements for Investec to invest in Dresden, Investec was to be issued shares in the company. This would necessarily dilute the existing shareholders' interest in Dresden, including Mr Sheer's interest, and a new shareholders agreement would be required. Therefore, Mr Jeffreys proceeded to seek the consent of all the parties to the March Shareholders' Agreement to the proposed arrangements.
The Court accepts Mr Sheer's evidence that sometime in April 2018 (which by reason of what follows the Court finds was before 21 April 2018) he had a conversation with Mr Jeffreys at a coffee shop in which they had this exchange:
Mr Sheer: I hope that the dilution of the shares will not impact the agreement that we have between us.
Mr Jeffreys: Don't worry, there will be no impact. Buying your shares for $2.5 million will be a bargain for me.
Mr Sheer: I will need that in writing.
The finding in previous paragraph is based upon the Court's conclusion as to the respective reliability of Mr Sheer's and Mr Jeffreys' evidence (see [50] below). In making this finding, the Court expressly rejects Mr Jeffrey's evidence as to the conversation he deposed took place at this time. In particular, the Court rejects that Mr Sheer asked Mr Jeffreys to provide the letter which became the 2018 letter (see [35] below) solely to placate Mr Sheer's wife's alleged concerns about the effect of the dilution on Mr Sheer's shareholding.
On 21 April 2018, Mr Jeffreys sent Mr Sheer a letter about what was to occur with Investec.
On 21 April 2018 at 1:21pm, Mr Sheer emailed Mr Jeffreys saying "Can you please update the letter to reflect the Investec impact on the 2.5 percent but not on the value amount."
On 21 April 2018 at 1:22pm, Mr Jeffreys emailed Mr Sheer "Will do later today. Cheers Bruce".
On 21 April 2018 at 6:51pm, Mr Jeffreys replied to Mr Sheer, "Here it is. Call me if you like. I'll give you a call anyone(sic) just to make sure this is what you want." The letter attached to that email included this sentence, "Finally, my commitment to you purchase (sic) all of your shares at a value of $2.5m in 5 years times still stands."
Conformably with his email, Mr Jeffreys telephoned Mr Sheer.
Mr Jeffreys accepted in cross-examination (and the Court finds) that he and Mr Sheer then had a telephone conversation (April conversation) in which Mr Sheer said:
"Your letter doesn't say you will buy my shares five years from December 2016. It just says 'in 5 years'. The letter is OK otherwise and I agree to the dilution if you change the letter to reflect that you will buy my shares 5 years from December 2016."
On 21 April 2018 at 7:20pm, with the subject line "Re: updated letter", Mr Jeffreys emailed Mr Sheer, "Letter updated with the date starting from Dec 2016". The attachment was a letter dated 21 April 2018 (2018 letter) to Mr Sheer signed by Mr Jeffreys (there being no dispute that he did so as a director of Dresden and in his own right) in these terms (emphasis of the statement added):
This letter confirms that as a founding member of the Dresden team you have been allocated Class A ordinary shares in the proprietary limited company and now hold 2.5% of the company.
We intend to close a funding round with Investec, or another like investor, within the next 1-3 months that will mean your share of the business will be diluted to 1.87% of the company.
The value of these shares at the post-investment price agreed by Investec is $299,200.00
Under the existing shareholder agreement and the new shareholder agreement to be agreed with Investec their exists mechanisms to sell any or all of your shares at a time of your choosing. Your shares will be first offered to all the existing shareholders and I believe there is already demand for your shares from existing shareholders at a price above the value as agreed above.
Under the existing and new shareholders agreement you will now formally have an option to not just sell your shares to me but to sell them to other shareholders when and in whatever amount you wish to do so.
This option exists for other shareholders and Investec, as a cornerstone investor, will make a yearly review of what they believe the 'market value' of their investment is. This review is an internal Investec process but they will share with us this review.
Investec intends to exit the Dresden business at anytime in the next 3 years at an evaluation of $36 per share. This means your 25,000 shares are would be (sic) worth $900,000 in the case of an (sic) sale of Investec's shares. The option exists for your (sic) to sell your shares together with Investec's shares as a part of this process. This is called a 'tag-along'. You have the option to 'tag-along' with Investec on any share sales if you choose to.
After 3 years from the commencement of the agreement with Investec there will be a process in which Investec's share will be either i) sold back to the other shareholders ii) sold to another investor iii) sold as a part of a sale or IPO listing of the whole company.
Through this process you will again have the option to sell or some (sic) of your shares in any of the above scenarios.
Finally, my commitment to you purchase (sic) all of your shares at a value of $2.5m in 5 years time from December 2016 still stands.
I believe in delivering the funding provided by Investec I have also delivered on my commitment to you to give you a stake in our business and have also delivered the option for you to sell your shares at any time and in any amount of your choosing.
If you need any clarification or further details please let me know.
On or about 9 May 2018, Investec, Dresden and Mr Jeffreys (described as "Founder") entered into a Share Subscription Agreement whereby Investec would be issued shares in Dresden. The transaction was expressed in that agreement to be subject to a number of conditions precedent, including each of the existing shareholders (including Mr Sheer) consenting to the share issue, terminating the March Shareholders Agreement and entering into a new Shareholders Deed (May Shareholders Deed). The Court finds that Mr Sheer then executed the relevant documents to enable Investec to receive shares in Dresden, with the consequential dilution in Mr Sheer's interest in the company.
On 17 May 2018, Mr Sheer executed the documents to which he was a party necessary to give effect to the transaction with Investec, including:
1. A Deed of Termination terminating the March Shareholders Agreement and including mutual waivers and releases;
2. The May Shareholders Deed, which included a table setting out the new capital structure of Dresden recording Mr Sheer as holding 42,341 shares, being 1.88% of the new total share capital.
By the end of 2018, relations between Mr Jeffreys and Mr Sheer had soured as a result of complaints which Mr Jeffreys had about alleged deficiencies in Mr Sheer's performance of his duties.
On 25 March 2019, Mr Jeffreys emailed Mr Sheer:
This email provides you confirmation that you Contract of Employment (sic) has been discontinued as of Wednesday the 20th of March. Under your contract you will receive 3 months of notice. I'm proposing this 3 months of notice will run from April 1st to June 30th, 2019. You have built up a large unclaimed leave balance of 51 days and this leave balance will not be paid on top of the 3 month notice period but will instead be adjusted to reflect the periods of leave that you took and intend to take and were not recorded.
You are now on what is termed 'gardening leave'. This means you are only required to work as directed and to be available to answer calls and emails when staff get in touch to ask or request something from you. My suggestion is that we meet this week, on say Wednesday or Thursday to structure the hand-over so that you have a clear idea of the time requirements from Dresden over this notice period and can prioritise your time.
The offer made to you last Wednesday to assist you with finding new work was made and I stand ready to help.
I will also be guided by you in how you would like staff to be informed that you will no longer be working at Dresden and the way that is communicated. In the meantime I will not being announcing it until I have heard from you.
I remain determined to ensure that this transition period is both constructive and supportive and if there is anyway in which I can help please let me know.
Having left Dresden, and nearly two years later, Mr Sheer emailed Mr Jeffreys on 9 February 2021:
I hope this email finds you well.
I write to you with relation to your commitment to buy my shares at $2.5M in December 2021, which you made when I agreed to reject the job offer which I received from Singtel (Optus Owner).
As our personal circumstances have changed (Chaya ran into some health problems - I will elaborate more when we meet), I wonder if you'd agree to bring the purchase date forward by 8 months, to April 2021. I will of course pay you interest (say 6% per year) for that period.
Please advise.
On 16 February 2021, Mr Jeffreys emailed Mr Sheer:
Sorry to hear about Chaya having health issues.
There is no commitment for me to buy your shares either for that price or in that timeframe. You were given at no cost shares in Dresden and if you are not (sic) looking to sell these shares I will work with the management team and other shareholders to offer to buy back your shares.
I'll be in touch within the next couple of weeks with an offer.
On 25 February 2021, Mr Sheer replied to Mr Jeffreys by email:
I am surprised and I am hurt by your response. I waited several days before replying, so my email would not be emotional.
The shares were issued to me in the course of my employment. Your commitment (which you confirmed repeatedly on several occasions) was given very clearly in writing and for the purpose of stopping my recruitment by Optus.
It was only the safety net of $2.5M that you promised which induced me to pass over the opportunity to take a much better paid and better secured position with a blue-chip market leader (Optus}, in favour of a small start-up with a questionable future (Dresden).
Bruce, I do not wish to escalate the relationship with you. However, this is a large amount to which I am entitled. It was offered to me as a safety net in the event that Dresden will not go up in value as planned. Well, it seems that now worse came to worst: not only that Dresden did not perform, but on top of it, I was fired from it. It's time that your commitment will kick in as promised.
In your response you mention that you intend to make me an offer for my shares, ignoring your commitment. I notify you that unless you confirm, within 14 days, that either a) your offer will be in the neighbourhood of $2.5M; or that b) you will honour your commitment to buy my shares this year for that amount, I will take legal steps to enforce my rights.
By a document entitled "Consent to Proposed Transfer" dated 16 April 2021, all of the shareholders in Dresden (including Investec) gave their consent to any transfer of Mr Sheers' shares in the company to Mr Jeffreys at any time in the future and waived any pre-emption rights that they may have under the May Shareholders Deed in relation to that transfer. There is therefore no impediment under the May Shareholders Deed to the relief sought by Mr Sheer in these proceedings.
Mr Sheer commenced these proceedings by a statement of claim filed on 6 June 2021 for relief including:
1. Declare that there is a valid and enforceable agreement between the defendant and the plaintiff that the defendant will purchase the plaintiff's shares in Dresden Optics in December 2021 for $2,500,000.
2. Order the said share purchase agreement be specifically performed.
3. Directions for the fixing of a date for the completion of the share purchase agreement.
4. In the alternative to orders 1 and 2, an order that there be an inquiry into the quantum of equitable compensation for detrimental reliance upon the defendant's promissory representation pleaded at [10(c)].
By a cross-claim filed on 13 September 2022, Mr Jeffreys sought orders against Mr Sheer including:
1. An order under s 237 of the Australian Consumer Law (ACL) declaring void or refusing to enforce the share purchase agreement the subject of prayers 1 to 3 in the statement of claim filed on 6 June 2021.
2. Further, or in the alternative, damages under s 236 of the ACL.