FEDERAL COURT OF AUSTRALIA

Tenser v Quigley [2016] FCAFC 178

ORDERS

THE COURT ORDERS THAT:

1.    Appeal allowed in part.

2.    Order 2 made by the primary judge on 17 December 2015 be set aside.

3.    The respondent pay the appellant’s costs of the appellant’s application heard and determined by the primary judge.

4.    There be no order as to costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    Richard Tenser and Shane Quigley enjoyed a short business relationship as shareholders in a company known as Lunchalot Pty Limited (Lunchalot), the operator of a web based business that provides incentives to customers in the form of discounts at restaurants.

2    Mr Quigley provided marketing services to various businesses by implementing search engine optimisation (SEO) services. He conducted his business through Epiphany Solutions Pty Ltd (Epiphany Solutions) which at one stage provided such services to Lunchalot. Mr Tenser, at all times a director and shareholder of Lunchalot, invited Mr Quigley to become a shareholder in Lunchalot and to participate more fully in the business. When that relationship broke down, Mr Quigley sued Lunchalot and Mr Tenser for damages for misleading or deceptive conduct and/or recovery of moneys lent to Lunchalot as well as for declarations and orders relating to his shareholding in Lunchalot.

3    The primary judge ordered Lunchalot to pay Mr Quigley $75,000 and Mr Quigley to transfer to Mr Tenser his shares in Lunchalot and those held by any of his associates. He dismissed a cross-claim brought by Mr Tenser. The costs orders required Lunchalot to pay 50% of Mr Quigley’s costs and Mr Tenser to pay Mr Quigley’s costs of defending the cross-claim.

4    Mr Tenser now appeals from two of these orders.

background

5    The relevant facts, which are set out below, are largely drawn from the judgment of the primary judge: Quigley v Lunchalot Club Pty Ltd [2015] FCA 1421 (Quigley v Lunchalot).

6    On 18 October 2012, Epiphany Solutions and Lunchalot entered into an agreement for the provision of SEO services pursuant to which Lunchalot was to pay Epiphany Solutions $33,000 plus a performance fee. No amount was ever paid under the agreement. However, on 14 November 2012 Mr Tenser and Mr Quigley entered into an agreement (the November Agreement) which relevantly provided:

In consideration for an unsecured loan of $50,000 to the Company on terms outlined below, and the provision of your ongoing services as outlined in the various correspondence between us, you will be issued with 200 shares in the Company which will represent 10% of the issued share capital of the Company. Additionally you will be granted an option to buy further 200 shares from myself for a fixed sum of $50,000 at a timing of your choice up to midnight on November 15th 2013.

The loan monies were to be paid in two instalments: $10,000 on the signing of the November Agreement and $40,000 on the signing of a shareholders’ agreement to be prepared and executed by 30 November 2012. The November Agreement also provided that:

As part of this agreement I [i.e. Mr Tenser] agree to increase my own unsecured loans to the company by an amount equal to the amount you loan. Your loan and my loan will be repaid as and when the Company is in a position to do so and will be paid out in equal percentages of the loan (so that our loans are extinguished at the same time) with interest at 6% per annum paid at that time.

7    The “ongoing services” to be provided by Mr Quigley referred to in the November Agreement were set out in an email dated 13 November 2012 from Mr Tenser to Mr Quigley which relevantly provided that Mr Quigley would be available “at least half a day a week without salary, until the time comes when the business can compensate us both for our time”.

8    Thereafter the following occurred:

(1)    on 21 November 2012, Mr Quigley consented to be a director of Lunchalot;

(2)    on 22 November 2012, 200 shares in Lunchalot were issued to Mr Quigley (the Quigley Shares). At the time Lunchalot had 2000 issued shares; and

(3)    on 30 November 2012, Mr Quigley advanced the first instalment of $10,000 contemplated by the November Agreement to Lunchalot;

9    On 11 December 2012, Messrs Tenser and Quigley met. Although there was a dispute about what was said about the shareholders’ agreement at that meeting, at that time Messrs Tenser and Quigley agreed that they would each advance $40,000 to Lunchalot by 18 December 2012.

10    On 12 December 2012, Messrs Tenser and Quigley had a further meeting at which Mr Tenser made an offer to Mr Quigley about the extent of Mr Quigley’s involvement in Lunchalot’s business. Mr Quigley said he would let Mr Tenser know how much time he could commit to Lunchalot and did so by email dated 13 December 2012.

11    On 17 December 2012:

(1)    by email Mr Tenser made an offer to Mr Quigley (the Alleged December Agreement) which was expressed to be “subject to contract” and which included, among others, the following terms:

1.    You settle the balance of the $50k loan as provided in our agreement by Tuesday as discussed. The initial 10% shareholding has already been allocated to you.

2.    You complete the option now to purchase the second 10% of the equity for $50k as envisaged in our agreement, to take your shareholding up to 20%.

3.    This will make the shareholding RT 1,444, SQ 400, MR 120 and TL 36, total 2000.

4.    Following the $50k loans from yourself and the recent top-up loans from myself, my total loan to the company will be approximately $270k … . As part of this new arrangement I propose we both capitalise $50k each, which would reduce my loan to $220k. I would propose that you would loan the company half of this amount payable over 10 months and I would withdraw this money each month in part repayment of my loan (interest free). At that point we would both have loans of $110k repayable when the company can afford, by our mutual agreement.

5.    I have provided a personal guarantee to Westpac in the amount of $132,329 secured against my home. This was required in order to get our online merchant service facility, … . If you are to stand alongside me, as part of this deal, I would want you to provide a guarantee if required up to the same level in the event that further funding is required for the business. If no further funding is required, I am prepared to continue to carry the responsibility for this facility on my own.

…; and

(2)    Mr Quigley advanced the second instalment of $40,000 to Lunchalot.

12    On 17 January 2013, Mr Quigley made a payment of $75,000 to Lunchalot. The primary judge found that this payment was a short term advance repayable within such reasonable time as was necessary to allow Lunchalot to raise sufficient funds to repay it and that at the date of his Honour’s orders it was presently repayable by Lunchalot to Mr Quigley. These findings were not challenged by Mr Tenser.

13    On 30 January 2013, Messrs Tenser and Quigley attended a lunch where they continued to discuss the proposed terms of a written agreement pursuant to which they would have equal shareholdings in the Lunchalot business. On 22 February 2013 Mr Tenser presented a draft agreement titled “Agreement for the Sale and Purchase of Shares of Lunchalot Club Pty Ltd” to Mr Quigley.

14    Following a further meeting on 25 February 2013 discussions between Messrs Tenser and Quigley broke down.

15    On 17 June 2013, Lunchalot and Mr Quigley entered into a settlement agreement (the June 2013 Agreement) pursuant to which it was agreed that $75,000 would be repaid to Mr Quigley in full and final settlement of the advances he had made to Lunchalot and that Mr Quigley would transfer the Quigley Shares to Mr Tenser. The June 2013 Agreement contained a clause which permitted Lunchalot to give notice by no later than 14 July 2013 that the agreement was null and void. That notice was given by Lunchalot on 12 July 2013.

letters of offer of setTlement

16    The appeal book includes without prejudice correspondence, exchanged by the parties in the course of the proceeding before the primary judge, which sets out various offers of settlement. That correspondence was not before the trial judge and neither party made an application to the Court to receive it (or any part of it) as further evidence on the appeal.

17    The correspondence included in the appeal book comprised:

(1)    a letter dated 16 April 2014 from Lazarus Legal Group, solicitors for Mr Quigley, to McCabes Lawyers, solicitors for Lunchalot and Mr Tenser, which provided:

In the circumstances, our client is entirely without prejudice, prepared to settle the proceedings and proposes to settle on the basis that the proceedings are discontinued and that each party bears its own costs; notwithstanding any orders made in respect of payment of costs incidental to the interlocutory application filed 28 February 2014 and costs of 3 April 2014.

(2)    a letter dated 1 May 2014 under cover of which Mr Quigley’s solicitors served a notice of offer to compromise made pursuant to the Federal Court Rules 2011 (Cth) (the Rules) on Lunchalot and Mr Tenser whereby Mr Quigley offered to compromise the proceeding by Lunchalot and Mr Tenser paying $25,000 and legal costs as agreed or assessed;

(3)    a letter dated 2 May 2014 by which Mr Quigley’s solicitors provided Lunchalot and Mr Tenser with a breakdown of their client’s costs incurred in the proceeding as at that date and notified Lunchalot and Mr Tenser that if they accepted Mr Quigley’s offer of compromise he would be prepared to accept a lesser sum for his costs;

(4)    a letter dated 1 December 2014 by which Mr Quigley rejected two offers that had been made by Lunchalot and Mr Tenser, providing reasons for doing so, and put a further offer to Lunchalot and Mr Tenser; and

(5)    a letter dated 5 December 2014 by which Cordato Partners, at that time the solicitors for Lunchalot and Mr Tenser, rejected the offer made by Mr Quigley in his solicitors’ letter dated 1 December 2014 and made a counter offer.

the proceeding before the primary judge

18    Mr Quigley commenced proceedings against Lunchalot and Mr Tenser. In his amended originating application Mr Quigley sought:

    a declaration that the June 2013 Agreement was null and void;

    a declaration that Mr Tenser held 10% of the issued shares in Lunchalot on constructive trust for him;

    an order directing Lunchalot and Mr Tenser to take all steps reasonably required to transfer 10% of the issued shares in Lunchalot to Mr Quigley;

    damages pursuant to s 82 of the Competition and Consumer Act 2010 (Cth) (CC Act);

    an order pursuant to s 87(2)(c) or (d) of the CC Act to pay him the sum of $125,000 plus interest;

    damages at law;

    interest on damages;

    costs; and

    interest on costs.

19    At the hearing of the appeal Mr Tenser informed the Court that in the course of the hearing before the primary judge Mr Quigley had abandoned parts of his claim alleging misleading or deceptive conduct by Lunchalot and Mr Tenser. Counsel for Mr Quigley agreed that had occurred but not to the extent outlined by Mr Tenser. Based on what the Court was told, it seems that those parts of the amended statement of claim pressed by Mr Quigley were allegations that:

(1)    in November 2012:

(a)    Mr Tenser on behalf of Lunchalot and on his own behalf commenced negotiations with Mr Quigley with a view to Mr Quigley becoming involved in Lunchalot’s business, becoming a director and shareholder of Lunchalot and advancing funds to Lunchalot by way of an unsecured loan;

(b)    in the course of those negotiations Mr Tenser on behalf of Lunchalot and on his own behalf represented to Mr Quigley, among other things, that Mr Quigley and Mr Tenser would enter into a formal written shareholders’ agreement;

(c)    in making that representation Lunchalot and Mr Tenser engaged in conduct that was misleading or deceptive and which contravened s 18 of the Australian Consumer Law (being Sch 2 to the CC Act) (ACL) because Lunchalot and Mr Tenser did not intend to enter into a shareholders’ agreement;

(d)    at the time the representation was made, Lunchalot and Mr Tenser did not have reasonable grounds for making it and thus the representation was misleading and made in contravention of s 4 of the ACL; and

(e)    induced by and in reliance on the representation Mr Quigley entered into the November Agreement and on 30 November 2012 advanced $10,000 by way of an unsecured loan to Lunchalot, has suffered loss and damage in the sum of $10,000 and by the amended statement of claim rescinds the November Agreement;

(2)    in January 2013:

(a)    Mr Tenser on behalf of Lunchalot and also on his own behalf represented to Mr Quigley that Lunchalot required urgent additional funding; that he could not raise the funds himself; that provided Mr Quigley, among other things, paid an additional sum of $11,000 per month or a lump sum of $75,000 to Lunchalot, Mr Quigley could take up the role of CEO of Lunchalot; and that Messrs Quigley and Tenser would each hold 1,444 shares in the capital of Lunchalot representing about 47.5% of the issued shares of Lunchalot;

(b)    by making the representations Lunchalot and Mr Tenser engaged in conduct which was misleading or deceptive and in contravention of s 18 of the ACL because Mr Tenser had no intention of taking any steps to appoint Mr Quigley as CEO of Lunchalot or of making Mr Quigley an equal shareholder in Lunchalot and Mr Tenser was in a financial position to provide the requested funding; and

(c)    induced by and acting in reliance on the representations, on 17 January 2013 Mr Quigley advanced $75,000 to Lunchalot as an unsecured loan;

(3)    Mr Tenser was personally liable to Mr Quigley for the contraventions set out in sub paras (1) and (2) above and the loss and damage suffered by Mr Quigley because:

(a)    he made the representations on his own behalf as well as on behalf of Lunchalot;

(b)    in the alternative Mr Tenser was a person involved in the contraventions by Lunchalot within the meaning of s 2 of the ACL and s 75B of the CC Act;

(c)    in the premises, Mr Tenser was a primary contravenor of ss 4 and 18 of the ACL; and

(d)    further or in the alternative the representations were made by Mr Tenser with the actual or apparent authority of Lunchalot and the conduct engaged in was deemed to have also been engaged in by Mr Tenser pursuant to s 84(4) of the CC Act;

(4)    Mr Quigley made unsecured loans to Lunchalot:

(a)    the following advances were made:

(i)    $10,000 on 30 November 2012 (the First Advance);

(ii)    $40,000 on 17 December 2012 (the Second Advance); and

(iii)    $75,000 on 17 January 2013 (the Third Advance);

(b)    the First Advance was made pursuant to the November Agreement whereby it was agreed that Mr Quigley would pay $10,000 to Lunchalot as an unsecured loan repayable when Lunchalot was in a position to enable repayment to be made;

(c)    Mr Quigley had validly rescinded the November Agreement and the First Advance was due and payable but, despite demands, Lunchalot failed to pay the First Advance;

(d)    the Second Advance was made pursuant to an agreement entered into on 17 December 2012 between Mr Quigley and either Mr Tenser or Lunchalot whereby it was agreed that Mr Quigley would make the Second Advance and that it was repayable on demand;

(e)    the Third Advance was made pursuant to an agreement between Mr Quigley and either Mr Tenser or Lunchalot entered into on 15 January 2013 whereby it was agreed that Mr Quigley would make the Third Advance and that it was repayable on demand; and

(f)    despite demands being made, and in breach of the agreements pursuant to which the Second Advance and the Third Advance were made, Lunchalot failed to repay those amounts and Mr Quigley suffered loss and damage;

(5)    in relation to the Quigley Shares:

(a)    the transfer of the Quigley Shares in Lunchalot to Mr Tenser on 11 July 2013, in purported reliance on the June 2013 Agreement, was fraudulent given what Lunchalot and Mr Tenser knew at the time. In the premises, Mr Tenser holds 10% of the issued shares in Lunchalot on constructive trust for Mr Quigley;

(b)    in the alternative, in transferring the Quigley Shares, Mr Tenser received a benefit at Mr Quigley’s expense and in the circumstances it would be unjust to allow Mr Tenser to retain shares in Lunchalot amounting to 10% of its issued shares; and

(c)    further by reason of the transfer of the Quigley Shares at no cost, Mr Quigley suffered loss and damage.

20    Mr Tenser filed a cross-claim naming Mr Quigley as cross-respondent in which he sought orders that Mr Quigley transfer the Quigley Shares to him and for damages, being the difference in the current value of Mr Tenser’s shareholding and the value of that shareholding had Mr Quigley provided the services he had agreed to provide to Lunchalot pursuant to the November Agreement and the Alleged December Agreement.

21    On 17 December 2015 the primary judge made orders that:

(1)    Lunchalot pay $75,000 to Mr Quigley within 21 days of the date of the orders by way of tender of a bank cheque;

(2)    on tender of the sum referred to in Order 1, Mr Quigley tender a signed registrable transfer of all shares in Lunchalot registered in his name or any person associated with him in favour of Mr Tenser or as Mr Tenser directs; and

(3)    Lunchalot pay 50% of Mr Quigley’s costs of his claim as agreed or taxed and Mr Tenser pay Mr Quigley’s costs of defending the cross-claim as agreed or taxed.

22    In his judgment the primary judge:

(1)    held that Mr Quigley was only entitled to be repaid the advance of $50,000 (i.e. the First Advance and the Second Advance) if Lunchalot “is in a position to do so” or was in a position to do so at any time in the past and that Mr Quigley had to establish that Lunchalot had sufficient “free moneys or other realisable assets, free of any charge or encumbrances, to enable Lunchalot to discharge Mr Quigley’s loan and any other indebtedness which is required to be paid out on a pro rata basis with Mr Quigley’s indebtedness”. He had not established those matters. For that reason Mr Quigley’s claim for the First Advance and the Second Advance could not succeed: Quigley v Lunchalot at [36]-[37];

(2)    rejected the alternative claim that Mr Quigley was entitled to damages pursuant to s 82 of the CC Act for $50,000 for the misrepresentation that “we would have a shareholders agreement that would further protect your position” because Mr Quigley paid both of the instalments making up the $50,000 late and paid the Second Advance notwithstanding that no shareholders’ agreement had been brought into existence: Quigley v Lunchalot at [38];

(3)    found that the Third Advance was paid, following a meeting which took place on 15 January 2013 between Messrs Quigley and Tenser, as a short term advance repayable within such reasonable time as was necessary to allow Lunchalot to raise sufficient loan funds to repay it and that the Third Advance was presently repayable by Lunchalot to Mr Quigley: Quigley v Lunchalot at [46]-[47];

(4)    found that Mr Tenser’s amended cross-claim was totally without merit – there was no Alleged December Agreement; the only agreement that was ever reached between the parties was the November Agreement and the primary judge was not prepared to rely on any of Mr Tenser’s evidence in support of Mr Quigley’s alleged breaches of the November Agreement either in respect of the purchase of shares in Lunchalot or the provision of services by Mr Quigley to Lunchalot: Quigley v Lunchalot at [49].

the appeal

23    There is no challenge to the first order made by the primary judge requiring Lunchalot to repay $75,000 to Mr Quigley. In his amended notice of appeal Mr Tenser seeks orders that:

(1)    orders 2 and 3 made by the primary judge be vacated;

(2)    within 14 days of this Court making orders Mr Quigley tender a signed registrable transfer of the Lunchalot shares in favour of Mr Tenser;

(3)    Mr Quigley pay Mr Tenser’s costs of Mr Quigley’s application as agreed or taxed;

(4)    Mr Quigley pay Mr Tenser’s costs of Mr Tenser’s cross-claim as agreed or taxed;

(5)    Lunchalot pay 50% of Mr Quigley’s costs as agreed or taxed; and

(6)    Mr Quigley pay Mr Tenser’s costs of the appeal.

24    There are six grounds of appeal included in the amended notice of appeal. They are lengthy and we do not propose to set them out in full. On analysis they raise three issues for consideration on the appeal:

    first, whether the primary judge erred in not making an order that Mr Quigley pay Mr Tenser’s costs of Mr Quigley’s application (ground 1);

    secondly, whether the primary judge erred in making order 2 concerning the retransfer of the Quigley Shares at all or, alternatively, conditional on the repayment of $75,000 by Lunchalot (grounds 2 and 3); and

    thirdly, whether his Honour erred in making an order that Mr Tenser pay Mr Quigley’s costs of his cross-claim and failing to order that Mr Quigley should pay Mr Tenser’s costs of the cross-claim (grounds 4, 5 and 6).

The second and third issues are closely connected.

Legal principles

25    The grounds of appeal principally relate to the cost orders.

26    The power of the Court or a Judge to award costs is discretionary: see s 43 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). In DSE (Holdings) Pty Limited v InterTAN Inc [2004] FCA 1251 at [14], Allsop J (as his Honour then was) observed that “section 43 of the Federal Court of Australia Act is a broad and ample power not to be read down otherwise than by judicial principle conformable with the amplitude of the power”.

27    In Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 at [37] White J said the following about the exercise of the Court’s discretion to award costs under s 43 of the Federal Court Act:

37    Section 43 vests a wide discretion in the Court with respect to costs as the examples in subs (3) indicate. It is, however, a discretion which must be exercised judicially. The principles bearing upon the exercise of the discretion are well developed. The judgment of Toohey J in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748 at 48,136 is often cited as a starting point:

1.    Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order ...

2.    Where a litigant had succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed ...

3.    A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. ...

To these may be added the principle that costs are compensatory in nature and not punitive.

28    As an award of costs is discretionary the Court will not interfere with such an order unless it can be shown that an error of the type identified by a majority of the High Court (Dixon, Evatt and McTiernan JJ) in House v The King (1936) 55 CLR 499 has been made. Their Honours said at 504-505 that:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

29    That is, it must be shown that the primary judge made an error in exercising his or her discretion, either by acting on a wrong principle, taking into account extraneous or irrelevant matters, mistaking the facts or failing to take into account a material consideration. An error in the exercise of a discretion can also be inferred by an appellate court if the decision is, on the facts, plainly unjust or unreasonable. 

30    In Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd (2010) 265 ALR 112; [2010] FCAFC 16 a Full Court of this Court (Jacobson, Siopis and Foster JJ) said at [113]:

113    There is no doubt that appellate courts are loathe to overturn discretionary costs orders made by single judges. This reluctance reflects a history of caution expressed by appellate courts when asked to overturn discretionary judgments generally.

Should Mr Quigley have been ordered to pay Mr Tenser’s costs of his claim?

31    Mr Tenser alleges that the primary judge erred in failing to order that Mr Quigley should pay his costs of defending Mr Quigley’s claim. Mr Tenser submitted that Mr Quigley abandoned all of his claims in the amended statement of claim that were made against him personally bar one and that claim was dismissed by the primary judge.

32    According to Mr Quigley, he maintained two of his claims against Mr Tenser personally: the first in relation to the November representations and the second in relation to the January representations. Mr Quigley noted that the primary judge had disposed of the claim based on the alleged November representations in favour of Mr Tenser but did not deal with the claim based on the January representations. Mr Quigley made no complaint about that matter. He has not filed a cross-appeal and he submitted that whether that claim was abandoned, as Mr Tenser alleged, or not pressed or dismissed did not really matter.

33    Notwithstanding the outcome of the claims based on the alleged representations, Mr Quigley submitted that the primary judge had not made an error as alleged by Mr Tenser in failing to make an order that he pay Mr Tenser’s costs. Mr Quigley submitted that at [45] to [62] of his amended statement of claim he:

(1)    sets out the June 2013 Agreement including that:

(a)    Lunchalot would pay Mr Quigley $75,000 in full and final settlement of the moneys owed by it to Mr Quigley in 24 equal monthly instalments;

(b)    Mr Quigley authorised Lunchalot to transfer the Quigley Shares to Mr Tenser or his nominee;

(c)    a potential investor would have three weeks to carry out a due diligence and if the potential investor decided not to invest in Lunchalot, the June 2013 Agreement would, by notice from Lunchalot to Mr Quigley, be null and void unless Lunchalot committed to nevertheless adhere to the terms of the June 2013 Agreement;

(d)    because the proposed investor decided not to invest, Lunchalot gave Mr Quigley the required notice and the June 2013 Agreement was, in accordance with its terms, null and void; and

(2)    alleges that, notwithstanding that the June 2013 Agreement was null and void, Lunchalot transferred the Quigley Shares reducing Mr Quigley’s shareholding to zero in purported reliance on that agreement.

34    First, Mr Quigley submitted that he sought declaratory relief that the June 2013 Agreement was null and void and that the primary judge found that the June 2013 Agreement was null and void. Next, Mr Quigley submitted it was only after commencement of the proceeding, as disclosed in Lunchalot and Mr Tenser’s defence at [41(a)], that on 19 December 2013 the board of Lunchalot resolved to transfer the Quigley Shares back to Mr Quigley. Thus Mr Quigley contended that his claim was not entirely unsuccessful against Mr Tenser and Mr Tenser was properly a party insofar as declaratory relief was sought in relation to the Quigley Shares, although ultimately the primary judge did not need to address that relief because of the events which occurred.

35    It is not in dispute that Mr Quigley was not successful in obtaining any relief against Mr Tenser in the proceeding. None of the declarations or orders he sought against Mr Tenser were made. The finding at [30] of the judgment that the June 2013 Agreement was null and void did not result in the making of a declaration.

36    On the face of the judgment, the primary judge does not appear to have turned his mind to the question of Mr Tenser’s costs of defending the proceeding. The order that Lunchalot pay half of Mr Quigley’s costs does not, in our opinion, evidence that there was consideration of Mr Tenser’s position or, in particular, of the fact that Mr Tenser had been wholly successful in the defence of his claim. That order, which is not the subject of this appeal, demonstrates that his Honour turned his mind to Mr Quigley’s partial success against Lunchalot in the proceeding.

37    Mr Quigley submitted that there was no error on the part of the primary judge in not awarding costs in favour of Mr Tenser because he was a necessary party. But that could only explain why he was joined. It does not explain why, when no finding or order was made against him in the proceeding, he was not able to recover his costs. In any case, once the Quigley Shares had been transferred back to Mr Quigley, it is difficult to see how Mr Tenser was a necessary party in relation to that aspect of Mr Quigley’s claim. At that point it was open to Mr Quigley to discontinue or not press that part of his claim against Mr Tenser, thereby minimising any exposure to a costs order. Not only did he not do that, but he sought substantive relief (including damages) against Mr Tenser, all of which was refused.

38    To the extent that the primary judge made no order for costs as between Mr Quigley and Mr Tenser on Mr Quigley’s claim, his discretion miscarried. As we have already observed, his Honour failed to give any reasons for this decision. In our respectful opinion, the result, the reasoning for which is not exposed, is plainly unjust. If his Honour did turn his mind to the question, it seems to us that he failed to take into account a relevant and material consideration. That is that Mr Quigley failed to obtain any relief against Mr Tenser.

39    It falls to us, then, to re-exercise the discretion. Based on the material before us, we would order that Mr Quigley pay Mr Tenser’s costs of his claim against Mr Tenser as agreed or taxed. In doing so we have not taken into account the correspondence which was exchanged by the parties setting out various settlement offers. In our view, it is not appropriate to do so. First, that correspondence was not before the primary judge and was not a matter he took into account. Second, if the parties wished to rely on the exchange of offers on the question of costs, the appropriate time to do so was when the matter was before the primary judge. Finally, while the correspondence was included in the appeal book, neither party applied to the Court under s 27 of the Federal Court Act and r 36.57 of the Rules to receive the correspondence as further evidence on the appeal.

Did the primary judge err in making order 2?

40    Order 2 requires Mr Quigley to reconvey the Quigley Shares upon receipt of the payment of $75,000 from Lunchalot. It is therefore tied to order 1 which requires Lunchalot to pay Mr Quigley $75,000. As we have already observed, order 1 is not challenged in the appeal.

41    Mr Tenser does not take issue with the requirement that the Quigley Shares be reconveyed but submitted that the only basis upon which the conveyance of the shares could have been ordered was pursuant to his cross-claim and not conditional on the payment of $75,000 by Lunchalot. He contended that the order should have been made on the basis pleaded in his cross-claim that Mr Quigley had repudiated the November Agreement because he failed to provide the services he had agreed to provide pursuant to that agreement.

42    The primary judge gave no reasons for ordering the transfer back of the Quigley Shares. Mr Tenser argued that the order could not have been made because of the repayment of the $50,000 loan made by Mr Quigley to Lunchalot since the primary judge had rejected Mr Quigley’s claim for repayment both under the terms of the November Agreement and under s 82 of the CC Act. Mr Tenser submitted that the only possible basis on which Mr Quigley would be disentitled to the Quigley Shares was if his conduct warranted a transfer back to Lunchalot and that could only occur if his cross-claim were upheld.

43    Mr Quigley acquired the Quigley Shares pursuant to the November Agreement. The advance of $75,000 by Mr Quigley to Lunchalot was not made pursuant to the November Agreement. Therefore, the acquisition by Mr Quigley of the Quigley shares was not related to his advance of $75,000.

44    Insofar as the primary judge tied the transfer of the Quigley Shares by Mr Quigley to the repayment by Lunchalot of the $75,000 loan, we are of the opinion that his Honour erred. Accordingly, order 2 should be set aside.

45    However, contrary to the submissions of Mr Tenser, we would not make an order in the form he sought in order 2 of his amended notice for appeal. The primary judge dismissed Mr Tenser’s cross-claim, finding there was no foundation for it and holding at [49] of his judgment that there was no evidence to support Mr Tenser’s claim that Mr Quigley allegedly breached the November Agreement by failing, among other things, to provide the services. His Honour adequately addressed the cross-claim. Having regard to the primary judge’s findings on the cross-claim, which are further considered below, there is no basis upon which Mr Tenser is entitled to a transfer back of the Quigley Shares.

Did his Honour err in ordering that Mr Tenser pay Mr Quigley’s costs of the cross- claim?

46    By order 3(b) of his amended notice of appeal, Mr Tenser seeks an order that Mr Quigley pay his costs of the cross-claim.

47    Mr Tenser submitted that he did in fact obtain the relief he sought under the cross-claim namely the transfer back of the Quigley Shares and that the primary judge erred in holding that the cross-claim had no merit and ordering Mr Tenser to pay Mr Quigley’s costs of the cross-claim. Mr Tenser further submitted that he was not seeking an alternative remedy to the transfer back of the Quigley Shares. He did not allege that he was entitled to the additional claimed relief in his cross-claim, namely an order that Mr Quigley pay damages. He contended that he brought the cross-claim because Mr Quigley asserted his entitlement to the Quigley Shares and the cross-claim was the only way for him to have the Quigley Shares transferred back. Mr Tenser further contended that the primary judge made an order for transfer back by Mr Quigley of the Quigley Shares and that order could only have been made pursuant to Mr Tenser’s cross-claim. Therefore, Mr Tenser, submitted, he was in fact successful on his cross-claim and he should have recovered his costs.

48    In his amended cross-claim Mr Tenser alleged that:

(1)    it was an implied term of the November Agreement that, at least until Lunchalot was profitable enough to repay the loans from Messrs Quigley and Tenser and no earlier than two years from entering into the November Agreement, Mr Quigley was entitled to the Quigley Shares provided he continued to provide services to Lunchalot;

(2)    on about 17 December 2012 Mr Tenser made an offer to Mr Quigley which was expressed to be subject to contract (referred to above as the Alleged December Agreement) by which:

(a)    he offered to transfer further shares in Lunchalot to Mr Quigley monthly in accordance with a loan schedule; and

(b)    in exchange for transferring the further shares, Mr Quigley would commit 25 hours per week to the Lunchalot business without salary; provide the services of his wife and another employee to the Lunchalot business without salary and lend further funds to equalise Mr Tenser’s loan with Mr Quigley’s total loans, with amounts to be lent monthly for a total of ten months;

(3)    on or about 17 December 2012 Mr Quigley agreed to the Alleged December Agreement;

(4)    it was an implied term of the Alleged December Agreement that, at least until Lunchalot was profitable enough to repay the loans and no earlier than two years from entering into the November Agreement, Mr Quigley was entitled to the Quigley Shares so long as he continued to provide the services to Lunchalot and meet his obligations under the Alleged December Agreement;

(5)    on about 15 January 2013 and in furtherance of the Alleged December Agreement Mr Quigley lent $75,000 to Lunchalot;

(6)    on about 23 February 2013 Mr Quigley represented that he was resigning as a director of Lunchalot and that he would no longer provide the services and he ceased providing the services; and

(7)    Mr Quigley thereby repudiated the November Agreement and the Alleged December Agreement and as a result is not entitled to retain the Quigley Shares.

49    Insofar as Mr Tenser alleged the existence of a second agreement, the primary judge found that there was no December agreement as alleged and that the only agreement that was ever reached between the parties was the November Agreement. His Honour held that everything from the date of the November Agreement, 14 November 2012, had been a step along the way to a “second” agreement which was never reached and that everything that was discussed was “subject to contract” in the sense of “the third category of potential relationships coming out of Masters v Cameron (1954) 91 CLR 353”: Quigley v Lunchalot at [49].

50    The documents relied on by Mr Tenser to prove the Alleged December Agreement are all expressed to be “subject to contract” or have the character of ongoing negotiations leading to a contract as found by the primary judge:

(1)    an email dated 17 December 2012 from Mr Tenser to Mr Quigley included:

While your other responsibilities understandably prevent you from working full time, the proposal you have made below is substantial so I would like to make the following offer to you, subject to contract:

…

(2)    a text message dated 19 December 2012 from Mr Quigley to Mr Tenser included:

In (sic) now going to work through financials in the morning and hopefully we can get it all agreed this week.

(3)    an email dated 2 February 2013 from Mr Tenser to Mr Quigley which included:

So here’s where I think we are up to following our discussion at Catalina’s and your email below.

…

Regarding funding of the business, you have kindly made a payment of $75k to the company which was not really envisaged in the proposed structure of our arrangement. The plan was for you to provide …

…

You have pointed out a couple of things that you would like to see as part of this deal.

…

Please come back to me regarding the above points and then I would suggest we appoint a sensible lawyer that can draw up a document without undue delay or expense, that reflects the position we agree. We could then sign it and then hopefully put it away for ever …

(4)    an email dated 18 February 2013 from Mr Tenser to Mrs Tenser setting out a draft email to Mr Quigley for comment by Mrs Tenser relevantly included:

Nat has been working on the paperwork for our agreement and there are a few things that we need to agree on for her to complete this.

… While I completely accept your assurances of your future commitment, the agreement needs to reflect this as once the shares are in your name, I will no longer have the opportunity to use that equity to another party who could provide the sort of contribution that the business is enjoying from you. Do you have any thoughts around this issue?

… I would like to agree these figures now and also agree at what point it will be paid. Perhaps we could specify that our combined salaries will equate to not more than say 25% of the company’s profit, so this will ‘shape’ the amounts we pay depending upon the level if the monthly profitability of the business going forward. What are your thoughts around this one?

There are lots of other issues that have arisen from nat’s drafting, but I don’t think there is anything else that could be potentially controversial (other than for the other shareholders).

It would be great to hear from you on the above soon, so we can hopefully put everything to bed tomorrow.

51    That evidence is consistent with the primary judge’s finding that Messrs Tenser and Quigley continued to negotiate. It is inconsistent with the proposition that the Alleged December Agreement was a concluded agreement.

52    The primary judge found Mr Tenser to be an unsatisfactory witness. His Honour was not prepared to rely on any of his evidence in support of Mr Quigley’s alleged breaches of the November Agreement, either in respect of the purchase of shares in Lunchalot or the provision of services by Mr Quigley. Mr Tenser does not challenge the primary judge’s credit findings. Rather he alleges that there was an implied term in the November Agreement that Mr Quigley would provide services for two years. The terms of the November Agreement are set out in a letter dated 14 November 2012 signed by Messrs Tenser and Quigley. There is no mention in that agreement of a two year period for the provision of services by Mr Quigley. As Mr Quigley submitted, the first mention of a two year commitment to the business of Lunchalot appears in an email dated 2 February 2013 from Mr Tenser to Mr Quigley sent in the context of negotiating the Alleged December Agreement.

53    Contrary to Mr Tenser’s submissions, there is no basis on which to imply into the November Agreement the term for which he contended. The judgment of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hasting (1977) 180 CLR 266 does not assist him. The alleged implied term is not necessary to give business efficacy to the November Agreement; it is not so obvious it goes without saying, and it contradicts an express term of the contract because it makes the holding by Mr Quigley of the Quigley Shares conditional on his continuing to provide services to the company when no such term was included in the November Agreement. To imply such a term would ignore the fact that Mr Quigley paid $50,000 by way of an unsecured loan for the Quigley Shares.

54    The primary judge was correct to conclude that Mr Tenser’s cross-claim was without foundation. That being so, there is no error in the exercise of the primary judge’s discretion in ordering that Mr Tenser pay Mr Quigley’s costs of the cross-claim. His Honour applied the principle that costs should ordinarily follow the event.

Costs of the appeal

55    Each party has had some measure of success in the appeal. In particular, Mr Tenser has succeeded in obtaining the benefit of an order that Mr Quigley pay Mr Tenser’s costs of defending Mr Quigley’s claim. On the other hand, Mr Tenser failed in his challenge to the primary judge’s order requiring Mr Tenser to pay Mr Quigley’s costs of defending the cross-claim. In all the circumstances, we consider that justice will be done if Mr Quigley and Mr Tenser pay their own costs of the appeal. Accordingly, there will be no order as to the costs of the appeal.

disposition

56    We will make orders accordingly.

Associate:

Dated:    13 December 2016