Jenkins v Bourke[2015] QDC 249

DISTRICT COURT OF QUEENSLAND

1. [1]
   The first plaintiff and the defendants each signed a document said to be executed on 22 November 2013: Exhibit 1. By this action the plaintiffs claim payment of money payable under the contract constituted by that document. The plaintiffs’ case is that it was a contract between the first plaintiff and the defendants personally. The defendants, though not disputing that each of them signed the document, say they signed in each case as the sole director of a company which, as trustee of a trust associated with that director, was a member of a partnership which carried on a chartered accountancy business, and that they are not personally liable on the contract. As the trial was conducted, the only matter litigated was the identity of the contracting parties.

2. [2]
   One might expect that in the case of a contract in writing this would be clear enough, but in fact there are what strike me as strong arguments either way. The document describes the parties as “David Jenkins (‘DLJ’) and the four Moore Stephens Gold Coast Equity Partners (‘the MSGC Partners’)”. On the third page, which just contains the signing sheet, each of the defendants has signed over that defendant’s name followed by the words “Moore Stephens Partner,” while the first plaintiff has signed over the words “David Jenkins, DLJ Financial Planning, Director”. If one looks only at the document, the third page appears to identify the four defendants as the Moore Stephens Partners who are said by clause 1 to be parties to the contract. On the other hand, the first plaintiff appears to be named expressly as a party to the contract in clause 1, though he has executed the document apparently in his capacity as director, presumably of the second plaintiff, as in fact he was.

3. [3]
   There was un-contradicted evidence that the accountancy practice which at the relevant time was carried on under the name “Moore Stephens Gold Coast” was in fact carried on by a partnership of companies as indicated earlier. Hence, if the expression “the Moore Stephens Gold Coast Equity Partners” in clause 1 means whoever those partners really are, the answer to that question is, the four companies associated with the four individuals who signed the document. Each of those individuals was the sole director of the relevant company, and entitled to enter into such a contract on behalf of that company, though there is nothing on p 3 to indicate that that defendant was purporting to contract in that capacity, by contrast with the position with the first plaintiff’s signature. The matter is further complicated by the fact that the first plaintiff has sworn that at the time of entering into the agreement he knew nothing about just what entities were in fact conducting the accountancy practice “Moore Stephens Gold Coast”: p 25-6. There was some challenge to this evidence, but no good reason not to accept it was shown, and I do accept it.

Applicable authorities

4. [4]
   The authorities indicate that the resolution of any ambiguity as to the identity of a contracting party or parties is an aspect of the determination of the true construction of a contract in writing, so that the rules applicable to the construction of contracts apply.^[1]A leading authority in this area is the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. At p 347‑8, his Honour said, in relation to the parol evidence rule:

“The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument… Although the traditional expositions of the rule did not in terms deny resort to extrinsic evidence for the purpose of interpreting the written instrument, it has often been regarded as prohibiting the use of extrinsic evidence for this purpose. No doubt this was due to the theory which came to prevail in English legal thinking in the first half of this century that the words of a contract are ordinarily to be given their plain and ordinary meaning. Recourse to extrinsic evidence is then superfluous… On the other hand, it has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning… This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract.”

5. [5]
   His Honour then referred to a number of authorities before continuing at p 352:

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed… Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and action of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself… Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look… to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.”

6. [6]
   His Honour then went on to identify a possible exception to the rule, which need not be mentioned or considered further because in the present case no party sought to lead evidence of the content of negotiations leading up to the execution of Exhibit 1. The parol evidence rule was there justified largely in terms of the exclusion of evidence of the subjective intentions or desires of the parties, consistent with the objective theory of contract. In one respect the term “parol evidence rule” is a misnomer, because it is not confined to oral evidence; documents are equally inadmissible to the extent that they are reflective of the parties’ actual intentions and expectations. The rule has not always been viewed favourably by commentators. For example, in Cheshire and Fifoot’s Australian edition^[2] the parol evidence rule is said to be diminished, and to be possibly in terminal decline, and the comment is made that on the whole the cases show that the trouble it causes is greater than its worth.^[3]

7. [7]
   The present case is perhaps a good illustration of that, since almost all of the evidence led in it was objected to on the ground of relevance, essentially because it was said that consideration of the evidence would be contrary to the parol evidence rule. In my opinion, subject to crossing the threshold, the test for admissibility involves drawing the distinction identified by Mason J in the passage quoted from p 352. Evidence is admissible to establish objective background facts known to both parties and the subject matter of the contract; what is inadmissible is evidence merely to show the actual intentions and expectations of the parties. Further, admissibility must be tested by reference to whether the party seeks to rely on evidence sought to be led in that way, rather than whether the party’s reliance on that evidence ultimately proves to be persuasive.

8. [8]
   In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 three of the five judges in a joint judgment said at [11]:

“Interpretation of a written contract involves, as Lord Hoffmann has put it:

‘… the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’

That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen’s ironing board.”^[4]

9. [9]
   The application of that test was considered by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, where the Court said in a joint judgment at [22]:

“The case provides a good example of the reason why the meaning of commercial documents is determined objectively…. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction.”

10. [10]
    That passage in turn was referred to by the Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]:

“This court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”

11. [11]
    The continuing authority of the “true rule” in Codelfa was confirmed by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 where the majority said expressly at [39] that Australian courts should continue to follow Codelfa unless and until the High Court decided otherwise. That was repeated by the Court in Western Export Services Inc v Jireli International Pty Ltd (2011) 86 ALJR 1 at [3], [4].

12. [12]
    The High Court returned to the approach of the interpretation of contracts in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, where four members of the Court said at [35]:

“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.^[5]As Arden LJ observed in Re Golden Key Ltd^[6], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.^[7]”

13. [13]
    Perhaps I should add that I do not understand that the High Court is, in these more recent passages, intending to depart from the fundamental distinction drawn by Mason J in Codelfa between objective circumstances and the desires and expectations of the parties. I consider that the reference to the commercial purpose or object of the contract is to be understood as a reference to what can be objectively demonstrated as to the commercial purpose or object of the transaction, rather than the parties’ subjective purposes and objects for the transaction. This follows from the proposition that one interprets the document on the basis that the parties intended to produce a commercial result, rather than by reference to the parties’ intention as to the commercial result they desired. I consider that this is authority for the proposition that the Court is entitled to look at the practical outcome of a particular interpretation of the contract contended for in order to ascertain whether objectively it makes commercial sense, on the basis that it would be consistent with the objective approach to the interpretation of a commercial contract to prefer an interpretation which objectively does make commercial sense. I think that it is important in the application of that approach to avoid assessing the matter with the benefit of hindsight.

14. [14]
    An issue has arisen recently over whether evidence of surrounding circumstances is admissible only in a case where the language is ambiguous or susceptible to more than one meaning. That limitation was rejected by the New South Wales Court of Appeal in Mainteck Services Pty Ltd v Stein Heurty SA (2014) 310 ALR 113.^[8]That approach has been endorsed by the Full Federal Court^[9] but merely noted by the Courts of Appeal in Queensland,^[10] Victoria^[11] and Western Australia.^[12]I need not however be concerned about that approach, because, as pointed out by Jackson J in Gladstone Area Water Board v A J Lucas Operations Pty Ltd [2014] QSC 311, there are decisions of the Queensland Court of Appeal binding him (and me) to proceed on the basis that a lack of plain meaning or ambiguity is required for the admission of evidence of surrounding circumstances in accordance with the true rule test: [163], on the basis of decisions in [164]-[166].^[13]

15. [15]
    Jackson J did however at [158] note that an exception exists where there is a latent ambiguity. Mason J himself in Codelfa at p 347 acknowledged that cases of latent ambiguity were an exception to the parol evidence rule.^[14]This is a situation where the existence of the ambiguity will not be apparent on the face of the document, and it has always been the case that evidence is admissible in order to demonstrate the existence of a latent ambiguity in a document. It must be the case that the concept of ambiguity for the purposes of the application of the “true rule” threshold extends to latent ambiguity, and once that is recognised, evidence must be admissible to show the existence of a latent ambiguity.

16. [16]
    The question of what amounts to ambiguity for the purpose of the rule has also excited some disagreement. It has been suggested that it is sufficient if the written contract is “for any reason doubtful”.^[15]What may be a more limited test was adopted by the decision^[16] of the New South Wales Court of Appeal in Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642. Priestley JA, with whose reasons Glass JA agreed, said at p 657:

“What I mean by ‘not ambiguous’ for present purposes is not having two or more plausible meanings when the context of the words in the document is taken into account in light of the knowledge any ordinarily intelligent reader of the document would bring to the reading of it.”

17. [17]
    The word “context” there may mean simply the context of the words in the document read as a whole, rather than the context of the words in terms of their commercial setting, but what is meant by “the knowledge any ordinary intelligent reader of the document would bring to the reading of it”? That seems to involve more than simply how a reasonably intelligent person would read the document, knowing nothing else about the matter. What is the knowledge that would be brought to bear? I suspect that the knowledge in question was the sort of thing which would be considered when applying the presumption that the parties intended to produce a commercial result. It is all very difficult.

18. [18]
    So long as a latent ambiguity is recognised as an ambiguity for the purposes of the “true rule” evidence must be admissible to demonstrate the existence of the latent ambiguity in the language of the written contract. Once that is shown, evidence of surrounding circumstances generally becomes admissible. All of which seems to me to confirm the proposition that the parol evidence rule causes more trouble than it is worth. It is I think unfortunate that these matters should be discussed in terms of admissibility of evidence, rather than simply looking at the question of what is, objectively, the correct interpretation of the contract.

19. [19]
    Perhaps I should say that if in the present case I simply read the document Exhibit 1 as a whole, and took into account no other factual material, I would have to say that the description of the parties to the contract was not ambiguous in the sense used by Priestley JA: it did not have two or more plausible meanings. There is nothing in the document itself to reveal the existence of any company or trust associated with the four Moore Stephens Gold Coast Equity Partners, or to suggest that that expression might have any meaning other than a partnership between the four individuals, each of whom signed as partner on p 3. All of the evidence sought to be relied on by the defendants as showing that they were not personally parties to the contract was evidence of surrounding circumstances. If such evidence is not admissible unless it is apparent just from reading Exhibit 1 and with no knowledge of any other facts that there is more than one plausible meaning of the clause which defines the parties to the agreement, I would have to say that that test is not met. If that is the correct approach, the plaintiff succeeds.  

Background circumstances

20. [20]
    Before dealing finally with the question of admissibility of evidence, I will set out the background circumstances to this contract as revealed by the evidence that I have in fact heard.^[17]The business Moore Stephens Gold Coast was at the relevant time carried on by a partnership established by a partnership agreement made 21 July 2009.^[18]The agreement recited that a former partnership was dissolved with effect from 30 June 2009, and that the partners agreed to form a new partnership on 1 July 2009 to conduct the business under the trading name. The business was providing professional accounting services under the then trading name PFK (Southport). At the time the agreement was executed there were two classes of partner, equity partners, of which there were six, and one non-equity partner. The equity partners were four companies and two natural persons, one of whom was the fourth defendant, but each equity partner was a partner in the capacity of trustee for a particular named trust: Schedule 1. The non-equity partner was a company which was the trustee of a named trust.

21. [21]
    The partners constituted a partnership for the conduct of the business on the terms of the agreement: clause A1.1. The partners did not carry on the business directly: Clause B1.1 provided that the manager shall, acting as agent of the partnership, conduct the business of the partnership in accordance with the direction of the board.^[19]The manager was a company with the ACN 126 095 707, which at that time had the name Kovari (Gold Coast) Pty Ltd: Exhibit 2. It has subsequently had changes of name. Recently it had the name MMBB Pty Ltd: Exhibit 17. At one time it had the name Moore Stephens (Gold Coast) Pty Ltd: Exhibit 2.^[20]Under the partnership agreement each equity partner was to nominate a key person to be a member of the board of the partnership, and also a director of the manager: clause A2.2.

22. [22]
    By the end of 2012, there had been some changes in the business, though it was still one of providing professional accounting services. The business was then carried on under the business name “Moore Stephens Gold Coast”, two of the original equity partners and the non-equity partner had left,^[21] and the fourth defendant was no longer an equity partner himself (as trustee), a company having been appointed as a new trustee of that trust.^[22]In that respect therefore the position was the same with all four equity partners: each was a company acting as trustee of a trust the benefactors of which included or were associated with one of the defendants, and that defendant was the sole director of that company. That defendant was also a member of the board of the partnership, and a director of the manager company.^[23]Hence the four defendants were in control of the respective partners, the board of the partnership, and the board of the manager company^[24]: all of the levers were in their hands.

23. [23]
    The first plaintiff is a financial planner: p 12. He also had a company, the second plaintiff, which was not the trustee of a trust: p 29. Prior to December 2012 there was a business by the name of Quantum Financial Solutions which was in practice operated by him and another financial planner, Mr Skellen. A company, Quantum Financial Solutions Pty Ltd, operated this financial planning business itself, but it was also involved in a joint venture with Moore Stephens Gold Coast, under which financial advice was provided specifically for clients of Moore Stephens Gold Coast.^[25]It too had a complicated structure: there was a company, Future Planning Solutions Pty Ltd, which was the trustee of a unit trust (p 27), half the units in which were held by Quantum Financial Solutions Pty Ltd and half by people or companies associated with Moore Stephens Gold Cost.

24. [24]
    It is not necessary to go into the detail of the business arrangements between the first plaintiff and Mr Skellen, because the latter was bought out and effectively disappeared from the picture in September 2012.^[26]From then on, the first plaintiff had his own financial planning business carried on through the second plaintiff, and was also involved in the joint venture with the Moore Stephens partners. That business was carried on by the trustee company of the unit trust of which from September 2012 the second plaintiff held half the units; the other half were held from July 2011 by the four companies which were then the equity partners in the partnership carrying on the business of Moore Stephens Gold Coast.

25. [25]
    The changes in the unit holders for the unit trust are set out in Exhibit 18. That shows the second plaintiff received half the units in the trust (500) on 28 September 2012, from Quantum Financial Solutions Pty Ltd, and that 125 units were held by each of the four companies associated with the defendants. On 31 January 2014 each of those companies transferred its units to the second plaintiff. This register also recorded that the units which had been held by the fourth defendant were on 1 July 2011 transferred to the company associated with him, the new trustee of the trust associated with him.

26. [26]
    On 12 December 2012 the first plaintiff signed a document in the form of a letter but headed “heads of agreement” and dated 11 December 2012, indicating acceptance of the terms and conditions outlined therein. The document was on the letterhead of “Moore Stephens Accountants and Advisers” and at the foot of the page the name Moore Stephens (Gold Coast) Pty Ltd appears.^[27]The document was signed (without any designation of their capacity) by the second, fourth and fifth defendants, and by the second defendant on behalf of the third defendant.^[28]The agreement was said to be for the first plaintiff’s (or nominee’s) investment in Moore Stephens Southport,^[29] but I cannot work out from the terms of the document the form that investment was to take. However on the last page the document provided that the transaction for the contribution (i.e. the investment) was subject to the preparation and execution of a formal contribution agreement, and in fact such an agreement was executed, dated 20 December 2012: Exhibit 9.

27. [27]
    This agreement was entered into between the manager company^[30] and the first plaintiff “or nominee”, and provided for the plaintiff to pay the company $600,000 towards the cost of the rapid development and growth of the Moore Stephens business. In return the first plaintiff was to receive the greater of $120,000 or 10% of the yearly net profit of the Moore Stephens business, after certain deductions, to be paid each quarter until one of a list of things happened, plus 10% of the annual fees to be paid for the net proceeds of any sale of the Moore Stephens business: clause 2.4. I was told that the $600,000 payable under that agreement was in fact paid to the manager company.^[31]That agreement also used the term “partners” which was defined to mean the shareholders in Moore Stephens Gold Coast Pty Ltd: clause 2.15. That was at that time the defendants: Exhibit 2.

28. [28]
    For most purposes of course a trust does not have legal personality. One area however where a trust is treated as a distinct entity is under the income tax laws, where in some circumstances a trust can be treated as a taxpayer. For practical purposes the obligation falls on the trustee in the capacity of trustee of that trust. In September 2013 Moore Stephens Gold Coast prepared a tax return for the Quantum Planning Fixed Unit Trust, which evidently was lodged electronically. For that purpose, the first plaintiff signed an electronic document declaration, and a fuller declaration as authorised person in respect of the tax return: Exhibit 11, signed on 12 September 2013. This document disclosed that among the beneficiaries were the four trusts associated with the four defendants, the four companies which were the equity partners of the partnership as trustees. On the same day the first plaintiff and the fifth defendant as directors signed a letter acknowledging responsibility for the financial report for the Quantum Planning Fixed Unit Trust on behalf of the trustees of that trust: Exhibit 12. This document showed a distribution of profits including for the 2013 financial year of an amount to each of those four trusts, and an amount shown as “owner/shareholder’s equity” in respect of each of those four trusts. The plaintiff and the fifth defendant also signed a director’s declaration of the same date.

29. [29]
    There was also an admission made on behalf of the plaintiffs at the beginning of the trial (p 10): “That at the time of entry into the November 2013 agreement the defendants might reasonably have expected Mr Jenkins to know that the units in the QPFUT were owned by DLJ Capital, the second plaintiff, as to 50%, and by the trustees of the four trusts I have mentioned as to the other 50%.”  It was clarified that this was a reference to their owning separate parcels of units which added to 50%. That would be consistent with what one would derive for example from the contents of Exhibits 11 and 12.

Terms of the contract

30. [30]
    The contract Exhibit 1 was headed “Terms of Agreement, David Jenkins’ Acquisition of 50% Interest in Quantum Financial Planning Joint Venture”.^[32]I have already mentioned the description of the parties which constitutes clause 1. The first plaintiff was denoted as “DLJ” and the four Moore Stephens Gold Coast equity partners as “the MSGC partners”. Counsel for the defendants submitted that on the evidence the business “Moore Stephens Gold Coast” was carried on by a partnership of trustee companies, which had four equity partners, so they were the entities referred to as the second party to the contract.
31. [31]
    Clause 2 was headed “Recitals” and was in the following terms:

3. “(a)
   DLJ and the MSGC partners have conducted a financial planning joint venture in the name of Quantum Financial Planning Fixed Unit Trust (QPFT).

2. (b)
   DLJ holds 50% of the units in the fixed unit trust and the MSGC partners between them hold 50% of the unit trust units.

3. (c)
   The MSGC partners will soon merge their chartered accounting and legal practice with Moore Stephens Queensland (MSQ).

4. (d)
   As a consequence of merging with Moore Stephens Queensland the four partners need to divest their 50% equity in the units of the fixed unit trust.

5. (e)
   DLJ has agreed to purchase from the MSGC partners their 50% equity in QPFT on the following terms and conditions.”

32. [32]
    Counsel for the defendants submitted that, in the light of the way in which the Moore Stephens Gold Coast business was in fact carried on, and bearing in mind that the units in the unit trust were held by the four trustee companies, these recitals only made sense if the reference to the MSGC partners was a reference to the real partners, that is the four trustee companies that did carry on the business in partnership. They were the ones who held 50% of the unit trust units between them, they were the ones that had a chartered accounting business which was to merge with Moore Stephens Queensland, and they were the ones who were selling the units that they held in the unit trust. That supported an interpretation of the agreement that the reference to the four equity partners was a reference to the real equity partners, and the execution of the agreement by the four defendants was done by them in their capacity as the sole director in each case of the relevant trustee company which as trustee was an equity partner of the partnership.
33. [33]
    Recitals in a contract can assist in the construction of a contract, by setting out the surrounding circumstances and purpose of the transaction, but a recital is not an operative part of the contract and, therefore, cannot cut down operative words that are clear and unambiguous.^[33]It follows that the recitals are in much the same position as other evidence of surrounding circumstances, when admissible under the “true rule”.^[34]If the agreement is ambiguous the formulation of the recitals can assist in resolving that ambiguity. The defendant’s submission was that the agreement is ambiguous, as to the identity of the four Moore Stephens Gold Coast equity partners, but that when evidence of the surrounding circumstances is introduced, it is seen that it is the four trustee companies who are the equity partners in that business, and they are also the holders between them of 50% of the unit trust units, which reinforces the proposition that that is the correct interpretation of that description of one of the parties to the contract.^[35]It is true that, if one looks only at the first page, the agreement does not identify the four partners, and that, if they are not identified in the document, evidence is admissible to show which entities met the description used in clause 1.^[36]But it is necessary first to look at the document as a whole.
34. [34]
    The contract provided a purchase price ($200,000), an effective date (30  November 2013), that the purchase price will be offset against the $600,000 that “the MSGC partners owe DLJ in respect of the contribution amount that DLJ made to the MSGC chartered business in terms of the contribution agreement executed on December 2012”: clause 5. Clause 6 headed “Refund of Contribution Amount” provided:

“The contribution amount of $600,000 that David Jenkins contributed to the MSGC chartered business in terms of the contribution agreement dated December 2012 will be returned to the DLJ as a consequence of the MSGC merger with Moore Stephens Queensland. After deducting the QPFT purchase price of $200,000 the remaining balance of $400,000 will be paid to DLJ (or his nominated entity) within 30 days of the date of this heads of agreement.”

35. [35]
    Clause 7 contained an acknowledgement by “the MSGC partners” that “as at today’s date they owe DLJ an amount of $30,000 in respect of arrears monthly profit distributions in respect of the contribution amount”. It was agreed that this will be paid with the $400,000, together with a further $10,000 which would accrue on 30 November 2013 and a further pro rata profit distribution at the rate of $10,000 a month up to and including the settlement date. Clause 8 provided:

“Parties agree that a formal deed to record this transaction in its entirety will be prepared by MST Legal Group and that that deed will also include a lock out clause per the attached.”

36. [36]
    Clause 9 went on to provide a right of first refusal to the MSGC partners in an attached list of clients if DLJ capital decides to sell the register at some point in the future. That was followed by the date and the execution as already described.
37. [37]
    The defendants rely on the fact that it was not the four individuals who owed money under the agreement, or to whom the contribution had been paid; the contribution had been paid to the manager company,^[37]and under the agreement it was the manager company that had the obligation to make the quarterly payments, though it entered into that agreement as agent for the partnership between the four trustee companies. It was submitted that this reinforced the identification of those companies as the MSGC partners. As to clause 8, it was common ground that no formal deed to record the transaction was ever entered into, but a plea that as a result there was no concluded agreement was withdrawn prior to the trial, and there was no dispute at trial that Exhibit 1 was a valid contract.

Capacity of defendants signing

38. [38]
    There was one other issue about the admissibility of evidence, which stands on a different footing. The defendants when identifying their signatures on Exhibit 1 were asked to say in what capacity they signed that document, and each said (over objection) that he or she signed it as a director of the relevant trustee company.^[38]In circumstances where each defendant was the only director of the respective trustee company, there would be no doubt that the defendant as director had the authority of the company to enter into a contract on its behalf, and in substance the witnesses was being asked to say what his or her intention was in executing the contract.
39. [39]
    In some circumstances a person who is in fact acting as agent can give evidence of an intention to act in that capacity, where the issue is whether an undisclosed principal is liable or entitled to sue on the contract entered into by the agent apparently in the agent’s own name. The doctrine of the undisclosed principal is well established, and is based on commercial convenience rather than strict legal theory.^[39]The law in relation to undisclosed principal was summarised by Lord Lloyd when delivering the judgment of the Privy Council in Siu v Eastern Insurance Co. Ltd [1994] 2 AC 199 in the following five propositions:

“1. An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority.

2. In entering into the contract, the agent must intend to act on the principal’s behalf.

3. The agent of an undisclosed principal may also sue and be sued on the contract.

4. Any defense which the third party may have against the agent is available against his principal.

5. The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.”

40. [40]
    It is apparent from the second of his Lordship’s points that, if the issue is whether the principal is entitled to sue, or liable to be sued, on the contract, it is relevant to show the agent’s intention in entering into the contract. Hence, in Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203, such evidence was held admissible. In that case the agent had executed a contract and it was sought to resist the admissibility of the agent’s evidence as to his intention on the ground that such evidence if admitted would contradict a term in the contract itself: p 206. In that particular case the agent was described in the contract as “charterer” and this was held not to exclude the liability of other parties, specifically the principal, as charterer. At p 210 Lord Sumner drew a distinction between a contract construed as “AB who prior to this contract was and who under it is and will be the single owner” and words which can only mean “AB who by this contract becomes liable to the obligations and entitled to the rights which this contract allots to the charterer.” So analysed the fact that the agent contracted for others was consistent with the contract and evidence to prove that was admissible.^[40]

41. [41]
    The court was there concerned to distinguish earlier cases where a party had contracted as “owner” or “proprietor”, where it was held that such a description precluded the admissibility of evidence to show that some other person, the undisclosed principal, was the owner or proprietor.^[41]Apart from Drughorn, cases where terms have been held not to be contradicted by evidence of an undisclosed principal involved the terms “tenant”,^[42] “landlord”^[43] and “vendor”.^[44]Hence the evidence in the present case would be admissible if the issue was whether the trustee companies could be sued, or could sue, on the contract. But that is not the issue; the plaintiffs are suing the defendants and, as noted earlier, the existence of an undisclosed principal does not mean that an agent is not also personally liable.^[45]

42. [42]
    The basic principle as to the liability of an agent is set out in Halsbury^[46]:

“Prima facie a party is personally liable on a contract if he puts his unqualified signature to it. In order, therefore, to exonerate the agent from liability, the contract must show, when construed as a whole, that he contracted as agent only, and did not undertake any personal liability.”

43. [43]
    This passage was cited with approval by Williams J in JS Robertson (Aust) Pty Ltd v Martin (1956) 94 CLR 30 at 56.^[47]If an agent contracts expressly only as agent, by signing “as agent” or “on account of” or “on behalf of” or “for” or “per pro”^[48] or some abbreviation thereof, then it is clear that the person actually signing the contract is doing so only as agent, and will not incur personal liability on it.^[49]It is also possible for the terms of the contract itself to indicate that a person who has signed without qualification is not undertaking personal liability on it.^[50]But any such indication must be found within the document itself, otherwise it will run into the principle discussed, but held not to be applicable, in Drughorn.^[51]If on the face of the document the person is purporting to contract personally rather than as agent, evidence of surrounding circumstances would not be admissible with a view to showing that the person was in fact contracting only as agent, because to do so would be to contradict the terms of the document.

44. [44]
    That is the position here; each of the defendants has signed Exhibit 1 over a typed statement of that defendant’s name followed by the words “Moore Stephens Partner”. There is nothing in that manner of execution to indicate that the individual who signed did so as agent, rather than as a partner personally. Further, there is nothing in the document which contradicts that proposition. The defendants’ argument, that it is contradicted by the identification of one of the parties in clause 1 as “the four Moore Stephens Gold Coast equity partners”, depends on the admissibility of evidence of surrounding circumstances, which would not be allowed in the present situation. Ignoring the surrounding circumstances, the defendants by signing personally and in an unqualified way have undertaken personal liability on the contract. Accordingly, it would be contrary to the true rule in Codelfa to admit evidence of surrounding circumstances with a view to showing that they were not undertaking personal liability when signing the contract, because to do so would not be to resolve some ambiguity, but to contradict the terms of the writing. That is what is not allowed.

45. [45]
    It is not to the point for the defendants to seek to show that their respective trustee companies were parties to this contract as undisclosed principals, because it is clearly established that in that situation the agent does not cease to be personally liable.^[52]The other party is entitled to pursue either the undisclosed principal or the agent at the party’s election, which may not be made until judgment.^[53]Accordingly, it is no defence to the defendants to set up the liability of the trustee companies and, in my opinion, they are personally liable on the contract, Exhibit 1. This is because each has executed that document ostensibly as a partner personally.

46. [46]
    It follows that the evidence of their intention at the time of executing the document is irrelevant, and inadmissible. It also follows that, ultimately, the issue of the liability of the defendants does not depend on the proof of surrounding circumstances: it follows from the terms of the third page of the document, in circumstances where there is nothing in the other two pages to contradict that interpretation. So all of the evidence that was objected to, led by either side, was inadmissible.

47. [47]
    It was not to the point that it was known to the first plaintiff that the units in the unit trust were held by the trustee companies rather than the defendants personally, because that is an example of a surrounding circumstance which, if admissible in accordance with the true rule, could be taken into account, but only to resolve an ambiguity in the document. On the view I take, there is no ambiguity on the crucial point: the fact that the defendants executed Exhibit 1 personally rather than as agents. That was the main point litigated at the trial.

Other issues

48. [48]
    It was further submitted for the defendants that, if Exhibit 1 was a contract with them personally, there was no consideration given, and no consensus ad idem. There was no substance to that submission. The consideration in this case consisted of mutual promises by the parties, in the immediate sense to procure the execution (by the appropriate parties) of a formal document drawn up by lawyers which would give effect to the transaction covered by the heads of agreement, in order to achieve the results set out in the heads of agreement. For the first plaintiff to be able to enforce the contract it was necessary for the first plaintiff to give consideration, but it is not necessary that the consideration to flow to the promisor, that is the defendants.^[54]The first plaintiff was giving up his rights under the earlier contribution agreement (Exhibit 9), which is necessarily good consideration from his point of view.

49. [49]
    This question is caught up with the question of whether at the time Exhibit 1 was executed the first plaintiff was still a party to Exhibit 9. It was pleaded that the first plaintiff had nominated the second plaintiff as his “nominee” under that agreement, and that the effect of that nomination was to substitute the second plaintiff for the first plaintiff as a party to that agreement. There are two difficulties with that argument. The first is that there was no evidence that any such nomination occurred.^[55]The second is that ordinarily the effect of a nomination would be that the nominee would take the benefit of the contract, but would not be substituted as a party to it, in the absence of a novation.^[56]In any case, even if exceptionally this could be seen as a case where the nomination of the second plaintiff made it a party to the contribution agreement, it does not necessarily follow that the first plaintiff ceased to be a party to the contribution agreement. No basis was shown for that conclusion. In those circumstances, for the first plaintiff to give up whatever rights he had under the contribution agreement was necessarily good consideration.

50. [50]
    As to the argument that there was no consensus ad idem, that argument would be contrary to the objective theory of contract. If objectively the parties are in agreement, the fact that they differ in their subjective understanding of the effect of the agreement is irrelevant.

Precautionary analysis

51. [51]
    In case the view should be taken elsewhere that I was wrong to apply the “true rule”, and that I should have followed the decision of the New South Wales Court of Appeal in Mainteck (supra), and later decisions of that court and the Full Federal Court, I should say something about how I would analyse the issue if the evidence of the surrounding circumstances was all admissible. If one does look at all the evidence of the surrounding circumstances, the practical situation which has arisen is that, as noted in the recitals, the defendants were seeking to merge the business being carried on under the name Moore Stephens Gold Coast with another Moore Stephens business, and for that purpose it was necessary for them to unwind the relationships which had been entered into with the plaintiffs.^[57]There were two of those: the “contribution agreement” Exhibit 9, and the financial planning business operated by the trustee of the Quantum Financial Planning Fixed Unit Trust.

52. [52]
    That was to be achieved under the agreement by the contribution of $600,000 which had been made to the Moore Stephens Gold Coast business under Exhibit 9 being repaid, together with all monies payable under Exhibit 9 up to the time when the deal was unwound, and for the plaintiffs to buy out the Moore Stephens interest in the unit trust for $200,000, with the two amounts to be set off. Another significant feature of this contract is that it was not one where close attention was paid to the question of legal precision, because the intention was that there would be a further contract drawn up by lawyers which would properly address all those issues. This is shown by the fact that the document describes itself as “heads of agreement”, and by clause 8, providing for a formal deed to be entered into. Indeed, that is what happened previously with the contribution agreement: the parties first signed a document headed “heads of agreement” (Exhibit 8)^[58] and subsequently executed the formal contribution agreement, Exhibit 9. Significantly, in that case also, Exhibit 8 was signed by the natural persons, the first plaintiff and the four defendants, although one signed as an agent for another.

53. [53]
    The other significant feature of Exhibit 1 is that no very close attention has been made in the drafting of it to the issue of identifying the correct parties, particularly as between individuals and associated companies. That is shown by the fact that it is the first plaintiff who is described as one party to the agreement, but recital 2(b) attributes to him holding half the units in the unit trust, when in fact they were held by his company the second plaintiff, and on the third page the first plaintiff signed the document ostensibly as director of the second plaintiff.^[59]When one looks at all the background circumstances, what emerges is that the commercial purpose of this document was to record an agreement between the natural persons who were involved in the transaction (which agreement was intended to be properly formalised by a further document) as to what was to happen in a practical sense to achieve the objectives of separating the Jenkins and Moore Stephens interests, on the basis that the persons signing this document were the people who were in a position to ensure that whatever was agreed would be implemented,^[60] and to ensure that the proper parties, as identified by the lawyers later, signed a properly drafted legal document to give effect to the transaction in due course. The commercial purpose of this document in short was an agreement between the natural persons as to what was to be achieved by the document which was then to be drawn up as a formal agreement between the relevant entities, in order to separate their respective interests.

54. [54]
    In my opinion, in the light of the surrounding circumstances, and the commercial purpose that the agreement, Exhibit 1, was intended to achieve, the objective interpretation of this document is that it was an agreement between the natural persons as to what was to happen, so that the parties to it were the first plaintiff and the four defendants. As it happens, in this case, if I take into account the evidence sought to be led on both sides as to the surrounding circumstances (and if evidence of surrounding circumstances is admissible it seems to me that both lots are) the conclusion that I would arrive at would be same.

Conclusion

55. [55]
    The plaintiffs in the further amended statement of claim claim $400,000 payable under clause 6 of Exhibit 1, $30,000 payable under clause 7.1 of Exhibit 1, and three lots of $10,000 payable under clause 7.2 of Exhibit 1, being the profit distributions accruing at the end of November and December 2013 and January 2014, a total of $460,000. The defendants did not specifically dispute the quantum of the plaintiff’s claim if he was successful.

56. [56]
    The plaintiff also claimed interest from 31 January 2014 pursuant to s 58 of the Civil Proceedings Act 2011. I will allow interest for one and two-thirds years at 5% per annum, which comes to $38,333. Accordingly there will be judgment for the first plaintiff against the defendants for $498,333, including $38,333 as interest. The second plaintiff’s claim, which was brought in the alternative, is dismissed. I will invite submissions as to costs when the reasons are delivered, but I expect they will follow the event.