MOA HD example instruction USYD not that helpful PDF

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MOA HD example instruction USYD not that helpful...

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MEMORANDUM OF ADVICE TO: Dennis Denuto FROM: DATE: 30 September 2018 FILE: Donald Draper SUBJECT: Contract for settlement of debts

PURPOSE OF MEMORANDUM This memorandum demonstrates the research and analysis undertaken to provide a letter of advice to Mr Draper regarding his situation. In an email on 24 August 2018, Mr Draper requested assistance regarding an agreement to settle an outstanding debt owed to him by Mrs Francis. Mr Draper would like advice as to whether an enforceable contract exists between Mrs Francis and himself for the settlement of the debt. The draft letter of advice to Mr Draper is attached at the end of this memorandum and includes a list of recommended provisions for inclusion in any future potential contracts. I recommend that the bibliography and footnotes are removed prior to sending the letter to Mr Draper.

EXECUTIVE S UMMARY AND CONCLUSIONS It appears unlikely that an enforceable contract for the settlement of the debt exists between Mr Draper and Mrs Francis as a result of their November 2017 email exchange. However, it is likely that the original loan agreement between the two parties remains enforceable, as Mrs Francis’s acknowledgement of the d ebt has the effect of resetting the statutory limitation period. 1 It is imperative that Mr Draper and Mrs Francis reach consensus on the essential terms of an agreement to settle the debts. This includes the outstanding amount owed to Mr Draper, the amount to be paid by Mrs Francis and the date on which the payment will be made. This agreement should be recorded in a written contract or, if Mr Draper accepts part-payment of the debt to settle their dispute, in a deed.2

FACTS AND ASSUMPTIONS The facts provided by Mr Draper indicate that the debt may be owed by Mrs Francis to Mr Draper personally or to Cocktails and Cigarettes Pty Ltd (‘CCPL’). It has been assumed that the debt is owed by Mrs Francis to Mr Draper personally based on the following reasoning: Based on a hypothetical investment of $100,000 each by Mr Draper and Mrs Francis, the change to CCPL’s net asset position under each scenario would be as follows: Debt owed to Mr Draper Funds invested by Mr Draper $100,000 Funds invested by Mrs Francis $100,000 (borrowed from Mr Draper) CCPL Net asset position

1 2

$200,000

Debt owed to CCPL Funds invested by Mr Draper Funds invested by Mrs Francis (borrowed from CCPL) Less loan to Mrs Francis CCPL Net asset position

$100,000 $100,000 -$100,000 $100,000

Limitation of Actions Act (Vic), s 24(3). Part-payment of a debt is not considered to provide good consideration. See Pinnel’s case (1602) 77 ER 237.

As the stated purpose of Cocktails and Cigarettes Pty Ltd is to facilitate investment, it is likely that the debt is owed to Mr Draper personally as this would provide the most funds to CCPL for investment. If the above assumption is incorrect this advice should be reviewed as there may be a significant impact on Mr Draper’s situation. Any legal action to recover the debt would need to be undertaken on the behalf of CCPL if the debt is owed by Mrs Francis to the company, as Mr Draper would no longer be a party to the contract.3

ANALYSIS There are generally considered to be four elements required for an enforceable contract to exist: agreement, consideration, intention and certainty.4 The following analysis assesses the likelihood of an enforceable contract to exist under the original loan agreement and the more recent agreement to settle the debts.

Original Loan Agreement Agreement In the absence of a written agreement it is difficult to identify offer and acceptance with regards to the original loan agreement between Mr Draper and Mrs Francis. It would however be likely that an agreement could be inferred without identifiable offer and acceptance, as there appears to be a consensus between the parties that the debts and therefore an agreement exists. 5

Consideration For a contract to be enforceable, consideration must be provided by the party seeking to enforce the contract. 6 In this case, it is likely that Mr Draper has satisfied the benefit/detriment requirement by providing the original loan amount to Mrs Francis. 7 As this consideration was provided in return for Mrs Francis’s promise to pay back the debt later, the bargain requirement is also likely to have been satisfied. 8

Intention The loan agreement between Mr Draper and Mrs Francis was entered into following their divorce in 2001. Courts have generally been more likely to find an intention to create legal relations between spouses where the parties have divorced or separated. 9 The loan was used to provide funds to Cocktails and Cigarettes Pty Ltd for the purposes of investment and is therefore likely to be considered a commercial arrangement , which would likely satisfy the intention requirement. 10 Since the decision in Ermogenous v Greek Orthodox Community of SA Inc the onus of proof would be upon the party seeking to establish there was no intention in the context of a commercial arrangement. 11

Certainty Although there is some uncertainty surrounding the original agreement between Mr Draper and Mrs Francis, courts will generally prefer an agreement to have effect rather than be found void. 12 Although there is no 3

Jeannie Paterson, Andrew Robertson and Arlen Duke, Contract: Cases and Materials (Thomson Reuters, 13th ed, 2016) 263. Ibid, 41. 5 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 179. 6 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847. 7 Currie v Misa (1875) LR 10 Ex 153, 162. 8 Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424. 9 Merritt v Merritt [1970] 1 WLR 1211. 10 However, if the courts held that the relationship between Mr Draper and Mrs Francis was still largely a familial relationship, the commercial nature of the agreement would likely satisfy the intention requirement. See Roufos v Brewster (1971) 2 SASR 218. 11 (2002) 209 CLR 95. 12 Hall v Busst (1960) 104 CLR 206, 239. 4

agreement as to the term of the loan, this is understood to create an obligation to repay the debt immediately or on request of the creditor.13

Limitation of Actions In this situation, the obligation for Mrs Francis to repay the debt was created immediately when the loan was made. 14 Therefore, the loan is subject to a six-year limitation period which accrues from when the borrower receives the money.15 It appears based on the facts that the loan was made in 2001 and as such could be outside the limitation period. However, as Mrs Francis acknowledged the debt in her email on 26 November 2017 the right for action will being to accrue from the date of acknowledgement16 which provides Mr Draper with a further six years to act to recover the debt.

November 2017 Agreement to Settle Debts Agreement On 26 November 2017 Mrs Francis emailed Mr Draper a ‘Proposal’ containing what is likely to be considered two offers capable of being accepted or rejected on their specified terms:17 1. 2.

Payment of $150,000 on or before 1 st March 2018; or Payment of $300,000 paid not before 1st March 2019

In his email response on 29 November 2017 Mr Draper stated that ‘I accept your proposal of $300,000 payable by the 1st March 2018.’ Although the language of ‘I accept’ indicates an acceptance, acceptance requires an assent to the terms of the offer without change.18 Acceptance is determined by the courts objectively through an analysis of what the words and conduct would have led a re asonable person in the other party’s position to believe. 19 The written acceptance of the proposal by Mr Draper states ‘1st March 2018’ rather than ‘1 st March 2019’ as the date for the payment of $300,000. Therefore, it is unlikely that a reasonable person in the position of Mrs Francis would be led to believe Mr Draper had assented to the terms of either offer contained in her email. This statement by Mr Draper could be held to constitute a counter-offer which would result in a contract if subsequently accepted by Mrs Francis.20 If this was considered by the courts to be a counter-offer, it would be a rejection of the original offer21 and Mrs Francis’s offers would therefore no longer be open for acceptance.22

Consideration There appears to be some considerable disagreement between the accountants acting for Mr Draper and Mrs Francis as to the total value of the outstanding debt and to who the debt is owed . As outlined above, for the purposes of this advice it is assumed that the debt is owed to Mr Draper personally and not to Cocktails and Cigarettes Pty Ltd. The sufficiency of the consideration provided by Mrs Francis will depend on the amount she has agreed to pay to settle the debt: 1.

13

If Mrs Francis were to pay $150,000 to settle the debt, this would be unlikely to constitute good consideration as the accountants for both parties have determined the minimum amount owed by Mrs

Gleeson v Gleeson [2002] NSWSC 418, [44]. See also Young v Queensland Trustees Ltd (1956) 99 CLR 560, 566; Ogilvie v Adams [1981] VR 1041, 1044. 14 Ibid. 15 Limitation of Actions Act (Vic), s 5(1). 16 Ibid, s 24(3). 17 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 171. 18 Paterson, Robertson and Duke, above n 3, 73. 19 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40]. 20 Hyde v Wrench (1840) 49 ER 132. 21 Harris v Jenkins [1922] SASR 59. 22 Tinn v Hoffman & Co (1873) 29 LT 271, 278.

Francis to be $250,000. In an agreement to discharge a debt, part-payment of that debt cannot be considered to provide good consideration.23 2.

If Mrs Francis were to pay $300,000 to settle the debt, this would be likely to constitute good consideration, as the accountants for both parties have determined that the maximum amount owed by Mrs Francis is $299,000. In this case, Mrs Francis would be providing fresh consideration for the agreement to discharge the debt. 24

Therefore, for any contract to exist between Mr Draper and Mrs Francis the agreed amount to be paid by Mrs Francis must be $300,000 as a payment of $150,000 would not provide sufficient consideration. However, if Mr Draper was willing to accept part-payment of the debt to settle the dispute, the requirement for consideration could be avoided through the execution of a deed.25

Intention The language used by Mr Draper and Mrs Francis in their emails and their intention to engage lawyers indicate an objective intention to create legal relations, regardless of any subjective intent.26 However, it is also likely that the emails between Mr Draper and Mrs Francis constituted a preliminary agreement which was not intended to be immediately binding. The High Court in Masters v Cameron 27 held that language such as ‘subject to contract’ indicated that a preliminary agreement was not intended to be binding. In this case, Mr Draper’s email on 29 November 2017 begins with the statement ‘WITHOUT PREJUDICE’ indicating that any statements made in the email were made as part of negotiations for settling the dispute with Mrs Francis and should be inadmissible as evidence beyond a willingness to reach a compromise.28 Furthermore, Mr Draper’s acceptance was made on the ‘condition that our lawyers prepare suitable documents’ indicating that there would be no agreement unless formal documents were prepared. 29 Finally, the preparation of Deeds of Settlement by lawyers for both Mr Draper and Mrs Francis indicate that the parties only intended to be bound upon singing formal Deeds of Settlement. 30

Certainty It appears that the agreement is not sufficiently complete as consensus has not been reached on an essential term, in this case the due date of the payment. Although the original debt agreement between Mr Draper and Mrs Francis would likely be considered to be payable on demand,31 in this case the due date of the payment objectively appears highly important to both parties and would therefore likely be regarded as an essential term of any potential contract. 32 The contract therefore cannot be enforced without a due date for payment and the courts will be unlikely to imply such an essential term in order to make the contract enforceable.33

23

Pinnel’s case (1602) 77 ER 237. Hartley v Ponsonby (1857) 119 ER 1471. 25 Ballantyne v Phillott (1961) 105 CLR 379, 389. 26 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105-6. 27 (1954) 91 CLR 353. 28 Ray Finkelstein and David Hamer (eds), LexisNexis Concise Australian Legal Dictionary (LexisNexis Butterworths, 5th ed, 2015). 29 Masters v Cameron (1954) 91 CLR 353, 361. 30 Ibid. 31 Gleeson v Gleeson [2002] NSWSC 418, [44]. 32 Van den Esschert v Chappell [1960] WAR 114. 33 Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695, 702. 24

Dennis Denuto & Associates “It’s justice, it’s law, it’s the vibe.” 123 Mabo St, Coolaroo VIC 3048 Phone: (03) 8765 4321 Fax: (03) 8765 4322

Mr D Draper Sterling Cooper Draper Pry ce 1142 Madison Ave New York, NY 10028 USA

Dear Mr Draper, Re: Contract for Settlement of Debts Further to your email on 24 August 2018 we are writing to advise you in relation to the settlement of the debts owed to you by Mrs Francis. This letter outlines our analysis of your current legal position and recommended course of action. We have also provided you with a list of recommended provisions for inclusion in any future contracts. This advice is based upon the assumption that Mrs Francis owes the debt to you personally and not to Cocktails and Cigarettes Pty Ltd (CCPL). We recommend that you confirm with your accountant regarding who Mrs Francis’s debts are owed to as this may significantly impact our advice to you. Regarding your question as to whether you have a contract with Mrs Francis, there are two potential contracts that must be investigated. Firstly, the original loan agreement with Mrs Francis that was made in 2001. Secondly, the agreement to settle the debts as outlined in the copies of the emails you have provided to us. Original Loan Agreement Based on the information you have provided us, it is likely that an enforceable contract exists between yourself and Mrs Francis regarding the original loans. 34 Furthermore, neither you nor Mrs Francis has disputed the existence of th is contract. Agreement to Settle Debts The potential agreement between you and Mrs Draper following your November 2017 email exchange is a more complicated situation. Generally, you will need to prove four requirements to be able to enforce a contract: agreement, consideration, intention and certainty35 and we will address each in turn: 1.

2.

34

You and Mrs Francis have each provided different terms for the repayment of the debt in your emails, and as such it is unlikely that an objective analysis by the courts would determine that you have reached agreement.36 If Mrs Francis repays less than the full amount of the debt owed to you, this would not be sufficient consideration and the contract would not be enforceable. 37 If you wish to accept a part-payment of the debt as a compromise to settle the debts, it would be necessary to record the agreement in a deed. 38

See ‘Original Loan Agreement’ in attached Memorandum of Advice for analysis of contractual formation elements. Detailed analysis of this agreement has been omitted in order to simplify our advice to Mr Draper. 35 Paterson, Robertson and Duke, above n 3, 41. 36 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40]. 37 Pinnel’s case (1602) 77 ER 237. 38 Ballantyne v Phillott (1961) 105 CLR 379, 389.

3.

4.

The language used in your email39 and your condition that lawyers prepare formal documents would likely lead a court to determine that you did not intend to be legally bound until formal Deeds of Settlement were prepared and signed.40 The emails indicated that you and Mrs Francis have not agreed upon the terms of the repayment (due date and amount) and as such the agreement would be unlikely to be considered sufficiently certain to be enforceable.41

As outlined above, it appears unlikely that an enforceable contract exists between you and Mrs Francis as a result of your November email exchange. There is however likely to be an enforceable contract for the original debts owed to you by Mrs Francis. Next Steps In order to achieve a swift resolution of your dispute with Mrs Francis, we recommend that you take the following action: 1.

2. 3. 4.

Come to an agreement with Mrs Francis regarding the total outstanding debt owed to you, and the amount that Mrs Francis will repay. a. If you reach a compromise with Mrs Francis to allow a part-payment of the debt to settle your dispute, the agreement must be recorded in a deed.42 Come to an agreement with Mrs Francis on the date the amount will be repaid to you. Record your agreement in a written contract (or deed if required as above), subject to the provisions we have recommend in the attached document. Ensure that the written contract is reviewed by Dennis Denuto & Associates prior to signing.

Please note that any action to recover the debt is subject to a six-year limitation period from the date on which Mrs Francis acknowledged the debt (26 November 2017).43 Please do not hesitate to contact us if you have any further questions or concerns.

Yours sincerely,

Dennis Denuto Dennis Denuto & Associates

39

Masters v Cameron (1954) 91 CLR 353. Masters v Cameron (1954) 91 CLR 353, 361. 41 Van den Esschert v Chappell [1960] WAR 114. 42 Ballantyne v Phillott (1961) 105 CLR 379, 389. 43 Limitation of Actions Act (Vic), s 5(1). 40

APPENDIX 1 Recommended Provisions for Loan Contracts Please see the below list of recommended provisions for inclusion in any future contracts you may wish to enter into. Please note that we would recommend any contracts are reviewed by Dennis Denuto & Associates prior to making any formal commitments. Provision

Comment

Lender

Clearly identify who is lending the money.

Borrower

Clearly identify who is borrowing the money from the lender.

Loan Amount

Specify the full amount of the loan. It is also important to specify if the loan is intended to be drawn as one lump-sum or over multiple draw downs.

Term

Specify the term of the loan.

Interest

Specify whether any interest will be payable for the term of the loan. If the loan is to be subject to interest, the interest rate should be specified and whether the rate is variable or fixed.

Fees

Specify any additional fees that may be payable by the borrower for the loan.

Security

Specify whether any security has been provided for the loan, and any terms and conditions relating to the enforcement of the security.

Repayment

Clearly set out the terms for the repayment of the loan. This may include specifying whether the loan is to be paid in instalments or in one lump sum.

Default

Specify what happens in the event of a default by the borrower. This should include potential remedies and how they would be enforced.

Termination

Specify on what terms the parties can terminate the agreement.

Dispute Resolution

Specify how disputes are to be resolved between parties if they arise.

Jurisdiction

Specify the governing law that a...