Wright v Somerton[2004] QSC 231

SUPREME COURT OF QUEENSLAND

[1] DOUGLAS J:  This is an application for, amongst other things, a declaration that an exchange of correspondence between the solicitors for the parties created a binding contract for the sale by the applicant, Ms Wright, to the respondent, Ms Somerton, of Ms Wright’s half share in a business known as “Just Gardens” and for specific performance of that agreement.

[2] The relevant parts of the first facsimile of 10 May 2004 are:

“We refer to the above matter and to recent correspondence.

We once again reiterate;

(a)That our client reserves her rights in relation to the business as set out in our letter to your client of the 27 February 2004;

(b)That likewise, and subject to the above, our client maintains that there is a valid contract on foot for the sale of the subject business to her on the basis reached by exchange of correspondence.

Without in any way resiling from her rights, as set out above, our client is prepared to make the following offer to resolve the matter which in effect for-shadows [sic] the valuation process, which is an integral part of the two positions set out in sub paragraphs (a) and (b) above.  Our client is prepared to purchase your client’s interest in the business for the sum of $100,000.00 plus 50% of the stock in trade on the date of stocktake. 

So far as the remainder of the business is concerned the matters set out in our letter of 20 April 2004 are to be taken into consideration.  Debtors and creditors and cash at bank will be adjusted between the parties and shortfall paid.  Likewise provision will need to be made for tax liability and outstanding GST to be remitted.

Conversely our client has no objection to selling her half of the business to your client on the same terms.  In this regard, however, we do reiterate that our client would have to be released from any further obligations under the Lease, a set out in our letter of 20 April 2004.

We are further instructed that if your client insists on a receiver being appointed and that the net return to her on sale of the business, taking into consideration the receivers fees, agents commission and the like is any less advantageous to our client in this offer then our client puts your client on notice that she will be seeking damages from your client in that regard.”

[3] The letter submitted to constitute the acceptance of the offer said to have been made in the facsimile of 10 May 2004 is dated 12 May 2004.  Its relevant parts are: 

“Our client instructs us that your client’s offer to sell for $100,000.00 plus 50% of the value of the stock in trade and subject to the various conditions to which you have referred in your letter and your previous letter of April 20 is acceptable.  By tomorrow we will have had prepared and submitted for your consideration a Contract incorporating the above terms and conditions. 

To facilitate the early disposal of the matter we suggest that arrangements be made to close the business next Tuesday (which our client says is normally a quiet day) and to engage an independent Stocktaker from the list available in the Yellow Pages to complete a stock count and valuation in the presence of both parties.  Immediately the value of the stock is known our client will deposit into your Trust Account the $100,000.00 plus 50% of the value of the stock to be retained there pending finalisation of the release of your client’s guarantees, etc and the assignment of the Lease.  In return our client requires that your client cease participation in the running of the business and cease attending the premises.  Our client will continue to run the business in a proper manner in the interests of both parties pending settlement of the transaction.

Immediately the guarantees have been released and coincidentally with the assignment of the Lease, the funds held in your Trust Account (subject to any adjustment pursuant to the Contract) can be released to your client.”

[4] Ms Wright and Ms Somerton have been partners since they entered into a deed of partnership on 16 September 2002.  They had carried on the business called “Just Gardens” since 12 July 2003.  It has not been a harmonious relationship.  By early 2004 the difficulties were such that Ms Wright no longer wished to work in partnership with Ms Somerton.  One of the main sources of disagreement was the involvement in the business of Ms Somerton’s husband and a proposal to pay him for work done by him for the business. 

[5] By 20 February 2004 Ms Wright’s solicitors gave Ms Somerton notice of termination of the partnership and of the exercise of an option by Ms Wright under the partnership agreement to purchase Ms Somerton’s share of the business.  Ms Somerton’s solicitors replied by their letter of 24 February 2004 denying that there had been a breach of the partnership agreement and any right in Ms Wright to determine the partnership or exercise the option to purchase but expressing Ms Somerton’s preparedness either to sell her interest or to purchase Ms Wright’s interest and offering on behalf of Ms Somerton to pay the purchase price immediately if Ms Wright wished to sell.  The earlier exchange of correspondence on 24 and 27 February 2004 was the basis of the assertion in Ms Wright’s solicitor’s letter of 10 May 2004 that there was already a valid contract on foot.  That assertion has not been pursued in these proceedings.  It is relevant, however, to note that the parties were, well before the exchange of correspondence of 10 and 12 May 2004, communicating through their solicitors.

[6] On 14 May 2004 Ms Somerton’s solicitors sent Ms Wright’s solicitors a draft contract for their consideration, something they had proposed in their letter of 12 May 2004.  That was a draft in the form of the REIQ Standard Conditions of Sale for the sale of a business and was rather more detailed than the arrangement discussed in the exchange of correspondence.  The terms and special conditions set out in that document were unacceptable to Ms Wright and her solicitors informed the solicitors for Ms Somerton on 18 May 2004 that “she now intends to retain her 50% interest in the business and will continue to work in the business”. 

[7] In reply, on the same day, 18 May 2004, Ms Somerton’s solicitors asserted that she remained ready, willing and able to purchase Ms Wright’s share at the relevant price and went on to say that she “indeed maintains that she is entitled to do so”. 

[8] One of the problems posed for Ms Wright by the draft agreement sent by Ms Somerton’s solicitors appears to have been a proposed restraint clause but there were other sources of disagreement.  Eventually Ms Somerton withdrew her offer to purchase Ms Wright’s interest by her solicitor’s letter of 9 June 2004. 

[9] There are several insuperable difficulties associated with treating the exchange of correspondence on 10 and 12 May 2004 as a concluded agreement.  The “offer” contained in the letter of 10 May 2004 does not propose a settlement date.  It also says that “the matters set out in our letter of 20 April 2004 are to be taken into consideration”.  That ambiguous reference may have been to proposed terms that payment be made immediately and that Ms Wright be released from all guarantees and indemnities but the words used do not make that clear.  The passage immediately following reads: “debtors and credits and cash at bank will be adjusted between the parties and shortfall paid.  Likewise provision will need to be made for tax liability and outstanding GST to be remitted”.  Those words do not define the offer clearly.  They may be matters which are capable of being made certain. 

[10] Nor does the letter of 10 May address many issues that the respondent contends needed to be addressed such as, the date of the stocktake, the name of the stocktaker, what happens to the stock until the stocktake was completed, who was to pay for the stocktake, what arrangements should be made for assignment of the premises leased including the releases of guarantees and the provision of new guarantees and covenants to comply with the lessor’s requirements, the settlement date relative to such releases, control of the business in the interim, the return of keys, liability for tax and wages and a significant number of other matters detailed in paragraph 5(b) of Ms Somerton’s affidavit.  It may well be that many of those are clauses that might be described as non-contentious, the absence of which may not necessarily lead to a conclusion that agreement has not been reached where the substantial terms have otherwise been agreed; see e.g. South Coast Oils (Qld and NSW) Pty Ltd v Look Enterprises Pty Ltd [1988] 1 Qd R 680, 698-699. 

[11] When one proceeds to examine the letter of 12 May 2004 the problems are compounded.  It does say that Ms Somerton instructed her solicitors that Ms Wright’s offer was acceptable but that has to be seen in the context that it is a solicitor’s letter which goes on to say that the solicitor will prepare and submit for Ms Wright’s solicitors’ consideration “a contract incorporating the above terms and conditions” and then proceeds to set out a number of proposals concerning the engagement of a stocktaker, the date of the stocktake, retention of the payment by Ms Somerton in Ms Wright’s solicitors’ trust account “pending finalisation of the release of your client’s guarantees, etc and the assignment of the lease”.  It also proposes a requirement that Ms Wright cease participation in the running of the business and cease attending the premises.  The language is, to my mind, only explicable as part of a process of negotiation “to see if consensus could be achieved on general points before deciding whether it was worthwhile descending into working out the contractual detail”; see Teviot Downs Pty Ltd v MTAA Superannuation Fund [2004] QCA 57 at [39].  It does not seem to me to be capable of being described as an acceptance of an offer.

[12] This is a logical conclusion also because this is correspondence between solicitors and, “a solicitor authorised to negotiate and agree the terms of a contract does not for that reason ordinarily have authority to enter into a contract … In Australia, at least, the tendency is not to treat a solicitor as having ostensible authority to contract, still less to alter a contract”; see Pincus JA in Kent v Hogarth [1995] QCA 472; Nowrani v Brown [1989] 2 Qd R 582, 586 and Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146, 152, 154, 158.  As Pincus JA said in Kent v Hogarth:

“A reason why people use solicitors in business transactions is to ensure that their dealings will be properly documented; one would not usually expect a solicitor, engaged in relation to a prospective contract, to have authority to contract orally, creating a situation fraught with the risk of dispute about the content and indeed existence of the contract, risk of avoidance of which is one of the purposes of engaging a solicitor.  It is my opinion that the solicitor Mr Tows had neither actual nor ostensible authority to make an oral agreement to extend the lease and that therefore the conversation of 17 June did not bring such an agreement into existence.”

[13] Mr Atkinson, for Ms Somerton, also argued that the applicant repudiated the agreement now advanced by her solicitors’ letter of 18 May 2004 and that that repudiation was accepted at least by 9 June 2004 when Ms Somerton’s solicitors wrote saying that she was not prepared to proceed further with the proposed purchase of the business.  Mr O'Sullivan’s submission in respect of that argument was that Ms Somerton had already elected through her solicitor’s letter of 18 May 2004 not to accept his client’s repudiation.  Because of the conclusion I have reached that no agreement was in fact created by the exchange of correspondence relied upon by Ms Wright it is unnecessary for me to deal with this argument. 

[14] As, in my view, the exchange of correspondence of 10 and 12 May 2004 is best characterised as part of the negotiation process and as dependent upon the execution by the parties of the formal agreement  proposed in Ms Somerton’s solicitors letter of 12 May 2004 I do not believe that the transaction can, appropriately, be characterised as an agreement under the first limb of the decision in Masters v Cameron [1954] 91 CLR 353, 360.  That was submitted by Mr O'Sullivan, particularly in reliance on Wharf Street Pty Ltd v M Star Learning Pty Ltd [2004] QCA 256.  The language of the letters, the fact that they form part of correspondence between solicitors who were not authorised to agree on behalf of their clients and the proposal to submit a formal contract contained in the second letter have all led me to the conclusion that no agreement has been formed and that no decree of specific performance should be ordered.

[15] The parties are otherwise agreed that the partnership should be dissolved and a receiver appointed to sell the partnership property.  I shall hear further submissions as to costs and the form of any appropriate orders.