Hudson Investment Group Ltd v Australian Hardboards Ltd & Ors [2006] HCATrans 617 (10 November 2006)

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Hudson Investment Group Ltd v Australian Hardboards Ltd & Ors [2006] HCATrans 617 (10 November 2006)

Last Updated: 20 November 2006

[2006] HCATrans 617

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S220 of 2006

B e t w e e n -

HUDSON INVESTMENT GROUP LIMITED

Applicant

and

AUSTRALIAN HARDBOARDS LIMITED

First Respondent

HUDSON TIMBER PRODUCTS

Second Respondent

AH BREMER PARK PTY LIMITED

Third Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 NOVEMBER 2006, AT 10.21 AM

Copyright in the High Court of Australia

__________________

MR F.M. DOUGLAS, QC: May it please the Court, I appear with my learned friend, MR J. STOLJAR, for the applicant. (instructed by Baker & McKenzie)

MR C.R. NEWLINDS, SC: If the Court pleases, I appear with my learned friend, MS N.L. SHARP, for the respondents. (instructed by Corrs Chambers Westgarth)

GLEESON CJ: Yes, Mr Douglas.

MR DOUGLAS: If it pleases the Court, the issue of public importance in this case is whether parties may conclude a binding agreement in circumstances in which the parties also contemplate that subsequently a further agreement will be entered into.

GLEESON CJ: There is no doubt that they can.

GUMMOW J: No doubt about that.

MR DOUGLAS: Yes. What we say in this particular case is that it was simply an agreement for the purchase of shares in a company for $100 - - -

GUMMOW J: It is entirely fact specific, is it not?

MR DOUGLAS: It would be difficult to get a case like this which was not a reasonably factually intensive inquiry if parties have left matters undocumented, but certainly it is a factually intensive case. It does not depend upon oral evidence. It depends upon documents. It is a situation in which you had a group reconstruction where one of the shareholders, a major shareholder, was taking some of the interests in the company and the remaining interests were being left with the company.

As the trial judge’s judgment makes clear, from about page 165 of the application book, there were heads of agreement between the parties of which the transfer of the shares in Bremer Park was only one. All of the other parts of the
agreement were implemented between the parties, including the cancellation of my client’s controlling shareholding in the group. So that, ultimately, when it came to the implementation of the last part of the agreement it did not proceed when both parts of the group were in different shareholdings.

The question, really, which one has to consider in those circumstances is, if you look at the letter, the letter says we have agreed to transfer half of our shares in Bremer Park for the sum of $100. There is an acknowledgement in the documents that it will be subject to a mortgage of 5.5 million. There is an acknowledgement by the parties that the relationship with the mortgagee of the shares, GE, was of importance to the obligation of the transferor to transfer the shares so that if, in fact, you could not secure their agreement they are under no legal obligation to transfer the shares. Secondly, it was without prejudice to the interests of Wingate with whom there was a putative agreement at that particular point of time for the transfer of another share.

Now, there is no specific time stipulated for the agreement but it would be completed within a reasonable time. What seems to have happened in this particular case is that agreement really having being reached on all of the essential terms for the transfer of a share in the company, there were then negotiations between the parties where other matters came into play, matters which were not contemplated by the parties at the time, but not matters which were essential for the agreement to which they had in fact had reached, matters which were, if I could put it that way, part of the overall legal relationship which would ensue once the transfer of the shares had in fact taken place.

If neither of the preconditions to the transfer of the shares, namely, reaching an appropriate arrangement with the mortgagee were satisfied or if, in fact, it was not possible to satisfy that element of the agreement that it was without prejudice to the interests of Wingate, then, obviously, ultimately there would have been no compulsion which we would be able to exert in equity to obtain specific performance of a contract. But the material which was referred to by the learned trial judge, particularly at page 178 to 179 as being matter which, if I could put it that way, made it quite evident that there were further matters to be agreed, is essentially, from paragraph 328 of his judgment on page 178, correspondence which reveals an anxiety on the part of my client to obtain specific performance of the contract which had been entered into.

GUMMOW J: We are looking at the Court of Appeal. What do you say about Justice Santow’s statement at page 283, paragraph 124? I know he has criticised some factual slip, but what do you say about paragraph 124 at the bottom of 283?

MR DOUGLAS: Firstly, the Wingate agreement did not come into effect if one has regard to the provisions of clause 2.1 on page 315 which says that:

On the date that clause 4.2 of this agreement is satisfied and in consideration for Wingate paying AHL $200.00, AHL will transfer to Wingate one $1.00 ordinary shares . . . This Agreement will take effect immediately from that transfer.

That has never happened and had not happened at that date. Clause 4.2 is set out on pages 316 to 317 and that effectively sets out the preconditions to the obtaining of a consent of GE which were reflected in the 23 July letter. So when you go back to what Justice Santow said at page 283, paragraph 121, a right of pre-emption which is referred to there was not in existence at the time because Wingate was not a shareholder. Secondly, even if in fact they were or had some rights which were capable of enforcement, the letter of 23 July made it quite clear that such rights as we obtained under the letter of 23 July were subject to such rights as Wingate had under the shareholder’s agreement.

So if, in fact, we were unable to obtain the consent of GE or the consent of Wingate to the transfer in terms of the clauses which are referred to by Justice Santow, then that is a condition subsequent to the agreement which would not have been fulfilled and we would have lost our rights. As events have turned out, neither of those matters were of significance. My friends do not say they are of significance. When they originally responded to our statement of claim in these proceedings they admitted the agreement but then amended their pleading so as to say that there was no agreement.

What it is basically, if this case is one where an agreement is reached on a very simple matter, that is, the transfer of a share for $100 subject to a mortgage of $5.5 million, subject to such existing rights as Wingate had and the obligation to transfer the shares was subject to GE releasing the mortgage which it had over the shares. That is what is formulated in the letter of 23 July. If over the ensuing six months the parties sought to make other matters the subject of their agreement such as the obtaining of an easement over the land and specific details in relation to the water treatment plant which is referred to in the letter, those are not matters which were the subject of the agreement of 23 July and they were matters which were required to be worked out from the position of my party as a shareholder in Bremer Park, not from the position as it stood where the respondents were capable of controlling the situation and effectively refusing to transfer the shares.

I accept that there are a lot of factual matters tied up in that, but if one is trying to isolate what is the special point, we would say that the letter of 23 July from the applicant to the second respondent apparently identifies all or sufficient of the matters which might typically be taken to comprise a binding share sale agreement: the parties to the agreement, the price for shares and the subject matter of the sale. The time of the transfer contemplated by the agreement had not been agreed upon, but that would be a reasonable time.

We would say that in the passage which Justice Gummow referred to from Justice Santow’s judgment the Court of Appeal seems implicitly, if not explicitly, to have been applying a principle described in May and Butcher Ltd v The King, namely that no agreement may be concluded in circumstances in which the parties have left a vital or essential matter to be agreed at a later time. Whether in fact the parties had left a vital or essential matter to be agreed at a later time is something which must be looked at from the perspective of 23 July.

One can, of course, have regard to such conduct in order to determine whether in fact parties regarded themselves as being bound by the letter of 23 July, but that does not, in our respectful submission, involve looking at subsequent matters in respect of which agreement was sought relating to the overall legal relationship between the parties as distinct from the legal relationship sought to be constituted by the letter of 23 July.

If, in fact, that principle in May and Butcher was the principle which was behind Justice Santow’s reasoning in those paragraphs, it in turn raises difficult further issues of principle, including whether if and so how this principle can be reconciled with the fourth Masters v Cameron category identified in Baulkham Hills referred to by Justice Einstein at application book 154 and, in particular, whether the additional terms of the further substitute agreement contemplated in the decision of Justice McLelland in that case are confined to incidental matters or matters of minor significance or might in an appropriate case extend to terms that are more fundamental or even essential.

Whether this Court should endorse the views expressed by the Court of Appeal of New Zealand in Fletcher Challenge, namely, that May and Butcher should not be followed, at least to the extent that it stands for a proposition that there is a presumption that if something essential is left to be agreed upon by the parties at a later time there is no binding agreement, as held by the New Zealand Court of Appeal, the intention of the parties as discerned by the court should be paramount.

Another aspect of the matter, as we would see it, relates to the way in which the explanatory memoranda which were circulated to both of the
parties’ shareholders, whether one has to have offer and acceptance to constitute an agreement, because the case as put below was not limited to the letter of 23 July but to the antecedent conduct as well. We would suggest that the Brambles Holdings decision, the learning in the case shows that concluded contracts may be reached despite any offer and acceptance in a conventional sense and that may not have been part of a generally understood framework of contract law at the time of Masters v Cameron.

Those are the matters we would wish to put in respect of the application for special leave.

GLEESON CJ: Thank you, Mr Douglas. We do not need to hear you, Mr Newlinds.

On the issue in respect of which the applicant seeks special leave to appeal the outcome at first instance and in the Court of Appeal turned on a finding of fact concerning the absence of a contractual intention of the parties to what is claimed to be a binding agreement. The decisions did not turn on any controversial question of legal principle but involved the application of settled principle to the facts and circumstances of the particular case. The case raises no issue of law suitable to a grant of special leave and we are not persuaded that the interests of justice require such a grant. The application is dismissed with costs.

AT 10.34 AM THE MATTER WAS CONCLUDED