Hillier Hewitt Elsley Pty Ltd v Laidlaw [2009] HCATrans 213 (4 September 2009)

Last Updated: 10 September 2009

[2009] HCATrans 213

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S81 of 2009

B e t w e e n -

HILLIER HEWITT ELSLEY PTY LTD

Applicant

and

JOANNE LEE LAIDLAW

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 SEPTEMBER 2009, AT 3.07 PM

Copyright in the High Court of Australia

MR M.A. ASHHURST, SC: May it please your Honours, I appear with my learned friend, MR A.G. ROGERS, for the applicant. (instructed by Hewitts Commercial Lawyers)

MR A.S. BELL, SC: May it please your Honours, I appear with my learned friend, MR P.G. BOLSTER for the respondent (instructed by Verekers)

FRENCH CJ: Yes, Mr Ashhurst.

MR ASHHURST: Your Honour, the applicant submits that this application raises the issues of general importance of when can an agreement be inferred by a specific act in the absence of an express offer and acceptance. The second issue that we say it raises is, when can a final agreement be reached on some issues whilst other issues remain unresolved? The minority judge in the Court of Appeal described the question as, did the inability of the solicitors to bring an agreement into existence prevent the parties themselves from achieving exactly that?

The facts are relatively straightforward. The applicant and the respondent, as your Honours will see from our written submissions, were partners in an accounting firm. The partnership was dissolved. Pursuant to the terms of the partnership agreement, the assets of the company were to be sold, including the client files that represented the goodwill of the former partnership. Rather than selling the client files, the parties decided, however, to apportion the files between themselves as each party’s entitlement to the goodwill from the former partnership.

Now, importantly, your Honours, it was decided that the applicant, being the only party then conducting an accounting practice, would maintain all the client files and keep the client files whilst the parties negotiated the terms of their dissolution. The respondent at this stage had gone into a form of employment and had left the private practice.

On 1 July 2004, the respondent wrote to the applicant setting out the basis upon which she would be prepared to settle her entitlement to goodwill. That letter set out, your Honours, at page 8 of the application book, importantly, in paragraph 1, that the respondent would take over the service of particular clients. In paragraph 2 it was set out that in order to service the client list she needed certain things, obviously the client files, then a computer, then there was a sum of money that was negotiated and then there was office furniture that she required and there were also letters of reference and some access to information.

BELL J: Mr Ashhurst, if one were to cut to the chase somewhat, the reference in the letter of 1 July to servicing the clients was regarded as very significant in the approach that Mr Justice Handley took.

MR ASHHURST: Quite.

BELL J: One sees, as it were, the distinction between Mr Justice Handley’s approach being that the conventional basis upon which the parties proceeded, having regard to the letter of 1 July and, I think, certain other dealings, was that the handover of the client files to Ms Laidlaw was consistent only with there being an agreement in relation to the distribution of the goodwill of the partnership.

MR ASHHURST: Yes.

BELL J: Whereas the majority in the Court of Appeal considered that there was limited evidence from which one could draw a conclusion and, in particular, Justice Macfarlan was of the view that more than one explanation was reasonably open, including that she was maintaining the goodwill of the clients whilst they continued their negotiations. That is the area of dispute, is it not?

MR ASHHURST: It is. That is the first area of dispute. Can I say firstly in that regard, in relation to the finding that it may have been that these files were provided on an interim basis, Justice Macfarlan himself says that there was no evidence to support that. That is in paragraph 14 at page 54 of the application book:

True it is that neither party said that the servicing by the appellant of the files from 19 July was to occur on an interim basis only –

Can I raise two more important points. The first of them is that there already was an interim arrangement in place. That was that the applicant would maintain the files, given the fact that the applicant was the only one who had an existing accounting practice to run. It is the second point that is critical. The respondent only came back into private practice upon the allocation of these files. If this was going to be an interim basis only, it would have meant that she would have commenced her practice, received the equipment all for an interim basis only and that it may well be that she would have had to have returned all the equipment and sold the files and given up the business. Now that, we say, is simply not a possibility. That statement I just take your Honours to is at page 58 of the application book, paragraph 25 of Acting Justice Handley’s decision:

In May the appellant commenced as Group Management Accountant with NIB Health Funds but resigned in July to resume private practice on her own account.

We know that it was 16 July that she sent the letter saying, “Can I collect the equipment?” Remember, it is not just client files, it is the office equipment to run the practice.

BELL J: Mr Ashhurst, so far all of this goes to the fact that two members of the Court of Appeal thought one inference open, another considered that the evidence all pointed one way. How do you get to the broader point of principle?

MR ASHHURST: The first argument, we say, is on this issue, that the Court of Appeal was demonstrably wrong and that there has been a miscarriage of justice. There simply was not available an inference that these files were being provided on an interim basis. Not only was there no evidence to support it, all the evidence was to the contrary. I am not trying to dodge your Honour’s question, but just on that issue, the trial judge set out in considerable detail the reasons why he came to the conclusion that it could only be that this material was being provided on a final basis. It is paragraph 56 of the trial judge’s judgment at page 21 of the application book. Firstly, he says in subparagraph (1):

The matrix of facts in which the July correspondence is placed is consistent only with the latter approach –

that is, it being a final basis –

and what occurred on or shortly after 16 July is clearly referable to the contents of the letter of 1 July and its broad acceptance.

The second thing he found was critical was that the delivery of the files was coupled with the delivery of the office equipment that I have already referred to. Thirdly was the letter that was sent out:

In order to make this transition as simple as possible for all concerned, we have agreed on which clients would be best serviced by us. As a result, your file is with Jo Laidlaw.

That is from the respondent. At item (5), the trial judge found:

It would be most unlikely that the parties would agree to a transfer from the Company which was “maintaining the files” by agreement to Laidlaw to “maintain” pending sale. Nothing in the correspondence is said to that effect.

Add to the fact that she would, in effect, have been setting up an entire business on an interim basis only. Now can I answer your Honour’s question. The question of law is really considered by Acting Justice Handley in paragraph 92 of his decision where he has regard to the majority decision. The majority decision had two aspects. The first aspect, as I have outlined, was the finding by the majority that these files could have been handed over on an interim basis as well as on a final basis, and I have already said why we say that is incorrect. The second basis was that Justice Macfarlan found that the parties could not have been reaching an agreement in respect of the goodwill in circumstances whilst they were still negotiating the terms of their settlement.

FRENCH CJ: That was a factual matter. That did not involve any application of, for example, a restrictive view based on Masters v Cameron, did it?

MR ASHHURST: It is unclear - - -

FRENCH CJ: They never even cited the case, did they?

MR ASHHURST: Firstly, the trial judge had. The trial judge went through not only Masters v Cameron but also Baulkham Hills Private Hospital v GR Securities, the so-called home of the fourth option in Masters v Cameron. It is certainly the case that Justice Handley did. If I could just take your Honours to paragraph 92. He says:

Since preparing the above I have had the benefit of reading the judgment of Macfarlan JA. I agree with his view (paras [15]-[16]) that on 16 and 19 July 2004 the parties contemplated that they would execute a deed which would cover all aspects of the winding up of their partnership. However, in my opinion this did not prevent them legally or factually from entering into a more limited contract in the meantime.

That is a reference back to what his Honour said earlier at paragraph 71:

The inability of the solicitors to bring a binding contract into existence did not prevent the parties from doing this.

BELL J: Mr Ashhurst, I think it is more if you go to paragraph 93 in Mr Justice Handley’s judgment. He expresses his view, contrary to that of the majority, that the conduct of the parties on 19 July was unequivocal. One does not understand, or at least I do not necessarily, that the majority were at odds as to the legal principle.

MR ASHHURST: Your Honour Justice Bell, it is unclear. The relevant passage that Justice Handley is referring to in Justice Macfarlan’s decision is at page 55 of the application book. It is paragraph 15 and it seems to be towards the end of that paragraph at about line 32:

If that had been the case an agreement outside the deed as to division of goodwill and a contemplation that a deed would still be executed might have been able to stand together. However, the division of goodwill was a, and arguably the, principal subject of the draft deed. The contention that the parties concluded a contract as to division of goodwill by transferring the files is in my view inconsistent with their continued intention to seek to agree the terms of, and execute, a deed in light of the fact that the division of goodwill figured so prominently in the then current draft of the deed.

FRENCH CJ: So if special leave is granted, you come back and you say there is a fourth Masters v Cameron category and Justice Handley was right in that respect. Then what do you do about this?

MR ASHHURST: About that finding?

FRENCH CJ: Yes.

MR ASHHURST: With respect, the finding that the parties could not reach a concluded agreement about a portion of the issues between them but leave to determine at a later stage, is really the essential legal issues raised by the so-called fourth option in Masters v Cameron. If special leave was granted and this Court came to consider the issue and accepted the argument that there is, in fact, the possibility of the parties agreeing to determine finally the division of goodwill between them and leave for another date determination of such matters as GST, then, with respect, that answers the issue that was before the trial judge and before the Court of Appeal because what was at issue in this matter was whether or not there had been a final division of the goodwill between the parties.

FRENCH CJ: The point I think I was trying to get at, you can answer in the affirmative, you might get an answer in the affirmative to the proposition that they could enter into such an agreement. The proposition here is not whether they could but whether they did, is it not?

MR ASHHURST: With respect, that is already the finding by the trial judge. It seems that the only impediment along that road, as findings of fact go from the majority, was the finding by the majority that these files may have been handed over only on an interim basis. There does not seem to be any finding of fact, if the Court accepts that the fourth category of Masters v Cameron is available as a legal principle. There does not seem to be any finding of fact in the road of that happening because, as the trial judge said and Mr Justice Handley said, there can be no other alternative factually but that these files were provided on a final basis. Now, if that is right, then that has constituted by an act, even without the requisite offer and acceptance, the intended division of the goodwill between the parties and they have done by themselves what their solicitors were still negotiating to do, which was to complete the terms of the deed of dissolution.

Therefore, the very finding that we ask this Court to make in relation to the fourth category in Masters v Cameron, we say in this particular situation, given the findings of fact already in our favour, will cause us to be successful. We will not need to go back for any further determinations of fact. This statement by the majority will not stand in our way.

BELL J: The majority considered that, viewed objectively, the conduct of the parties was consistent with a view other than that they had concluded an agreement with respect to the division of the goodwill of the partnership. That was a factual conclusion which, in the exercise of their appellate function conducting a rehearing, it was open to them to arrive at. It seems to me that this is not perhaps so much a debate about whether or not there was a division of opinion in the court about what some people described as a fourth category of Masters v Cameron as a difference in opinion as to the inferences fairly open on the evidence.

MR ASHHURST: With respect, Justice Bell, if that is what the finding at page 15 by Justice Macfarlan is supposed to be – in fact, his Honour does not refer to any evidence that supports it – it seems to be premised on the finding that the files may have been handed over only on a final basis, because if the finding of fact were, as the majority held and as the trial judge held, that these files were handed over on a final basis, then there no longer is available the finding that the parties had not reached a concluded agreement in respect of the goodwill.

Now, once that is done, then this finding at paragraph 15, page 55, becomes irrelevant. Once the court accepts that these files were given on a final basis, whatever else the parties intended to do, they intended that the goodwill between them would now be divided up by splitting up these files, then the question of whether or not the fact that they had not yet signed their deed takes on far lesser significance to the overall determination. The statement made by Justice Macfarlan at page 55 must therefore rest on the premise that the files may have only been handed over on an interim basis because once that is gone, then that finding cannot remain.

It cannot be said that factually the parties had not intended to complete at least the division of the goodwill if the files were intended to be handed over on a final basis. That is why this analysis by

Justice Macfarlan, which we say is patently erroneous, is so critical to the determination of not only this issue but also to this Court’s consideration of the fourth limb of Masters v Cameron. I see the red light is flashing.

FRENCH CJ: Yes, thank you. Yes, Dr Bell.

MR BELL: May it please the Court. My friend opened by identifying two questions as follows, when can an agreement be inferred by a specific act? The answer is, it depends on the facts. The second question was, when can an agreement can be reached on some issues but not on other issues? The answer, always, but it depends on the facts. This case is pure fact. This case involves a characterisation by the majority of conduct as equivocal, and a different characterisation reached by Justice Handley. The consequence of the majority’s characterisation, consistent with the decision of the House of Lords in Brogden v Metropolitan Railway Co referred to by Justice Macfarlan at 52, is that one cannot infer or imply agreement from acts which bear an equivocal character.

So there is a fundamental factual obstacle standing in the way of my friend’s case. Your Honour the Chief Justice was correct to point that out, as was your Honour Justice Bell on a number of occasions. There is no special leave question at all. There is, with respect, no patent error whatsoever. There is a classical identification of relevant principle by the majority and then an application of that principle to the facts of the case. In any event, the attack on the factual finding is, with respect, extremely weak.

What their Honours in the majority were concerned to identify was that there are situations when people do things in anticipation of a contract about to come into existence. That does not mean a contract has come into existence. It can mean that but it does not necessarily mean that, and their Honours found that this was such a case. The critical piece of evidence my friend passed over, the absolutely critical piece of evidence, is the unchallenged evidence set out by Justice Macfarlan at page 53 of the application book, which was the conversation between the solicitors, set out there in paragraph 11:

did you get that deed I emailed to you . . . Do you have instructions about this yet?

Just pausing there, it was my friend’s side of the record who said a week earlier this needs to be done by deed. So here was the deed, did you get it, have you got instructions:

Not yet. My clients have instructed me that there are some issues with GST that they are looking into. I’ll get back to you about that.

This is the critical evidence:

Okay. Jo is concerned about the clients on her proposed list –

Language of futurity –

as they may become dissatisfied.

Language of context. In other words, the parties were anticipating that some of the clients would go in one direction. This was a regional accounting practice. She looked after Cessnock clients. The other side of the partnership looked after Newcastle-based clients. So she was naturally concerned that if these were coming into her stable once agreement was reached, they not go away in the meantime while the parties were negotiating, in other words, that the goodwill did not walk out the door while people’s accounts were not done. I go back to the passage:

She is keen to collect the files of the clients she will be looking after –

That is futurity, once we have finalised this agreement –

so they don’t go elsewhere.

Context, that is, pending agreement I want to make sure that the people who are going to be my clients, once we reach agreement, are being looked after, so that I do not find out that I get a deed in October, once we have got to the bottom of GST, et cetera, and all my Cessnock clients have gone elsewhere. That is why their Honours in the majority were perfectly correct to say the handing over of the files on the following Monday was an equivocal act. There was not one explanation and one explanation only. His Honour Justice Macfarlan regarded it as very significant that the first time the notion of a handover was raised was in that conversation. So in the very conversation where the solicitors say, “We have not got agreement yet”, a suggestion, and no doubt borne of anxiety about when this was going to be resolved, led to conduct which was capable of being characterised as an interim arrangement.

At the end of the day, in my submission, your Honours, this is quintessentially a factual case. Can I add this. It is about an extremely small amount of money. It is not a case which has any commercial significance whatsoever. It would be most unfortunate for these parties, frankly, and certainly my client – the total goodwill at the time was $460,000. That was to be divided. So one can imagine in a 50/50 partnership what is really being discussed here, what is really being fought

over, it is a fraction of a small amount. This is not a case either of legal merit or commercial significance. May it please the Court.

FRENCH CJ: Thank you. Yes, Mr Ashhurst.

MR ASHHURST: Just on that last point, we have referred in our written submissions in reply that the respondent, in fact, put on an affidavit in the Court of Appeal establishing that the amount in issue was over $100,000. There has not been any quantification other than that and other than the known fact that the files that were in issue were $460,000. In respect of the conversation at page 53, it is entirely equivocal. It does not assist and I do not think it is correct to say that even the majority held that this conversation assisted the interim argument. It is just an equivocal statement:

Do you have instructions about this yet?

Mr Hewitt: ‘Not yet. My clients have instructed me that there are some issues with GST that they are looking into. I’ll get back to you about that’.

Me: ‘Okay. Jo is concerned about the clients on her proposed list as they may become dissatisfied. She is keen to collect the files of the clients she will be looking after so they don’t go elsewhere’.

That is entirely consistent with what we say happened when she in fact asked for the files to be delivered. It is not in any way inconsistent with the final basis whatsoever. The letter that she sent on the same day as the conversation is set out at page 12 of the application book. If ever there was going to be a statement about the files being provided on an interim basis, this is where it would have occurred:

We refer to our email of 15 July 2004 enclosing further draft Deed.

One thing that is stated in our written submissions but I have not made clear here is that by this stage all the clients had been agreed and all of the issues between the parties, other than the GST, had been agreed:

Please find enclosed draft Schedule 4 letter to the clients to be taken over by Jo Laidlaw.

That is the letter saying that the parties have agreed, this is going to be the split up:

Our client is keen to collect the partnership files of the clients she will service from the Cessnock office –

Now we know – this was Justice Handley’s point – what “service” means because it was in paragraph 1 of the letter of 1 July 2004, at page 8, that “service” means on a final basis –

Our client is keen to collect the partnership files of the clients she will service from the Cessnock office –

that is, she will have on a final basis –

so that she may commence working on their matters –

Now, commence working on their matters had serious connotations. It meant leaving her job and starting up private practice –

Please obtain instructions from your client regarding for our client to attend the Cessnock office –

With respect, it is patently wrong to describe that in any way, shape or form as allowing the inference that this was an interim basis. There is a clear miscarriage of justice in respect of the applicant’s position. It raises a very important issue as to whether or not parties themselves can agree on a division of goodwill on a final basis in circumstances whilst their solicitors are still negotiating. One would have thought that whilst the principles are said to be relatively well known – so it was said in Alphapharm that the principles of whether or not an exclusion clause ought to apply were relatively well known, and we all know how important that case has become. In my submission, this is a clear vehicle for investigating exactly that issue.

FRENCH CJ: Thank you very much, Mr Ashhurst.

This case, in our opinion, does not raise any question of principle which would warrant a grant of special leave. It involves primarily contested inferences from and characterisation of primary facts.

Special leave will be refused with costs.

AT 3.36 PM THE MATTER WAS CONCLUDED