Too much wasabi on my sushi

Miso Soup – The Introduction

This recent case in the Supreme Court of New South Wales, heard on expedition, concerns feuding former partners of a Sydney based sushi business.

It gives rise to interesting bite sized rolls of various flavoured contractual principles.   It is garnished with a modern taste; that being the use of text message by way of extrinsic material (c.f. paper based documents or emails).

In other words, the case is food for thought and contains many of the essential ingredients of knowledge for every good contract lawyer and civil litigation practitioner.

The central issue was whether an agreement for the disposal of the Defendants’ shareholding in a Japanese sushi restaurant was legally binding.  The Court found the parties did not enter into a legally binding agreement.

A link to the case is here: Case

Osashimi – The Facts

Two husband and wife teams were business partners in Japanese sushi restaurants.  Their relationship lost form and soured.   In August 2017, the husbands met in Westfield Miranda.  At the meeting, the Plaintiff Husband had a short written document. It was in the form of a term sheet for a shareholder sale (the August Document).  It left blank the space for the purchase price of the Defendant’s shareholding.   The amount of $450,000 was handwritten into this space.  The document was signed by each of the husbands.

Following the meeting, the Plaintiffs’ solicitors prepared a more formal written agreement based on the terms in the August Document.  A draft was provided to the Defendant husband.   The husbands then exchanged several text messages.  Ultimately, the Defendant husband attended the restaurant premises and threw food onto the kitchen floor, causing the Plaintiffs to report him to the police.

Pass me the Chopsticks: The Proceedings

The proceedings were commenced seeking specific performance of the August Document.

Nimono: The Relevant Legal Principles

4 Categories of Agreement

There are four categories of agreement (mental note: Masters v Cameron).

  1. The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.
  2. The parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.
  3. The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
  4. The parties are content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

Construing the Contract

  • Whether or not the parties intended the agreement to be immediately binding is to be determined objectively having regard to the language contained in the relevant document.
  • Construction of a document may make it sufficiently clear that the parties were content to be bound immediately by the terms to which they had agreed, notwithstanding they contemplated further documentation.

Admissibility of extrinsic evidence

There are three circumstances in which extrinsic materials can be considered in assessing objectively contractual intentions.

  1. Extrinsic materials can aid in construction of a contract in the event of an ambiguity(although ambiguity is not a necessary prerequisite to reference to extrinsic materials
  2. Pre and post-contractual conduct is admissible to determine the existence of a contract.
  3. Extrinsic materials are admissible as evidence of mutually known facts or descriptive terms.

Green Tea: The Court’s Determination

The Court found that the husbands did not enter into legally binding arrangements at their August meeting. Instead, they  intended a more formal contract to be prepared between the parties (which never eventuated).  Reasons for this included:

  • The parties’ intention was evidenced from subsequent text messages.
  • The more formal (draft) subsequent contract provided for a number of important elements of the deal between the parties.  These were all important provisions that had not been addressed at a sufficient level of detail in the “cryptic document” (ie the August Document).
  • The more formal (draft) subsequent contract did not mention the August meeting.
  • The more formal (draft) subsequent contract provided there would only be a binding agreement between the parties upon execution of a document by each of them (and this did not happen).

Doggy Bag: Take Home Point

When giving legal advice, including legal advice on preparing a case, it is often a very helpful resource to look at recent cases (such as this one) in the relevant jurisdiction to obtain the relevant legal principles and how particular evidence was applied.


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