Access Training Group Limited v James Michael Jane; Access Group Training Limited v Venture Capital Fund Australia Limited

[2023] NSWSC 1416

Supreme Court

New South Wales

Medium Neutral Citation:

Access Training Group Limited v James Michael Jane & Ors; Access Group Training Limited v Venture Capital Fund Australia Limited [2023] NSWSC 1416

Hearing dates:

4 – 6 October 2023; 11 October 2023; 13 October 2023; 16 October 2023; further written submissions provided on 24 October 2023, 30 October 2023 and 1 November 2023

Date of orders:

22 November 2023

Decision date:

22 November 2023

Jurisdiction:

Equity

Before:

Nixon J

Decision:

The Court:

(1) Directs the parties to bring in short minutes of order, by 5pm on 6 December 2023, to give effect to these reasons for judgment, including:

(a) orders that deal with interest and costs, insofar as those matters can be agreed; and

(b) insofar as interest and/or costs are not agreed, proposed directions for evidence and submissions in respect of issues of interests and/or costs.

Catchwords:

CONTRACT – Payments totalling $1.3m were made by plaintiff to defendant following discussions between principals – Dispute as to whether payments represented a loan to defendant or payment for services rendered by defendant – Subsequent conduct of parties revealed a common assumption that a loan agreement had been entered

CONTRACT – Parties agreed to share office premises and to share, on an equal basis, rent and outgoings over the term of a three-year lease – Whether the agreement was breached – No breach or loss found

RESTITUTION – Common counts – Claim for money had and received – Payment of $1.7m made to defendants as deposit for sale of their shares to plaintiff – Sale of shares did not proceed – Whether a total failure of consideration – Whether the parties entered into a Share Sale Agreement – Agreement found to be entered – No total failure of consideration – Terms of agreement govern repayment of deposit

CONTRACT – Set-off – Share Sale Agreement provided for payments due from plaintiff or related parties to be set off against defendants’ obligation to repay the deposit – Whether defendants established the existence of payments due from plaintiff or related parties – Effect of set off

Legislation Cited:

Corporations Act 2001 (Cth) ss 50AA; 127(1); 228(1)

Evidence Act 1995 (NSW) ss 91; 92(2); 97(1)(a); 140; 149

Cases Cited:

Ainsworth v Burden [2005] NSWCA 174

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Briginshaw v Briginshaw (1938) 60 CLR 336

Brogden v Metropolitan Railway Co (1877) 2 App Cas 666

Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd (1929) 43 CLR 247; [1929] HCA 27

Coshott Family Pty Ltd v Lyons [2022] NSWCA 216; (2022) 110 NSWLR 44

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48

Elomar v R; Hasan v R; Cheikho v R; Cheikho v R; Jamal v R [2014] NSWCCA 303

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523

Equuscorp Pty Ltd v Haxton; Equuscorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham’s Warehouse Sales Pty Ltd (2012) 246 CLR 498; [2012] HCA 7

Federal Commissioner of Taxation v Steeves Agnew & Co (Vic) Pty Ltd (1951) 82 CLR 408

Forte Sydney Construction Pty Ltd v N Moit & Sons (NSW) Pty Ltd [2022] NSWCA 186

Gibbons v Pozzan (2007) 209 FLR 233; [2007] SASC 99

Harmony and Montague Tin and Copper Mining Company (1873) LR 8 Ch 407

Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68; [1907] HCA 38

In the matter of Integrated Growth Solutions Pty Ltd [2017] NSWSC 368

Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150

Law Institute of Victoria Limited v Kerridge [2005] VLPT 5

Northside Veterinary Property Pty Ltd v Dalmacija Sydney Croatian Club Ltd [2022] NSWSC 589

Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313

Re Keith Bray Pty Ltd (1991) 5 ACSR 450

Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516; [2001] HCA 68

Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp (Sinochem International Oil Co Ltd, third party) [2000] 1 All ER (Comm) 474; [2000] 1 Lloyd’s Rep 339

Traxys Europe SA v Balaji Coke Industry Pvt Ltd [2011] FCA 1132

Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51

Texts Cited:

R Derham, Derham on the Law of Set-Off (4th ed, 2010)

Category:

Principal judgment

Parties:

2019/374869:
Access Training Group Limited (Plaintiff)
James Michael Jane (First Defendant)
Judith Anne Jane (Second Defendant)

2020/219022:
Access Group Training Limited (Plaintiff)
Venture Capital Fund Australia Limited (Defendant)

Representation:

Counsel:
2019/374869:
P D Gray (Plaintiff)
T Crispin (First and Second Defendants)

2020/219022:
T Crispin (Plaintiff)
P D Gray (Defendant)

Solicitors:
2019/374869:
Benjafield & Associates Lawyers (Plaintiff)
Lloyd & Lloyd Solicitors (First and Second Defendants)

2020/219022:
Lloyd & Lloyd Solicitors (Plaintiff)
Benjafield & Associates Lawyers (Defendant)

File Number(s):

2019/374869; 2020/219022

Publication restriction:

Nil

Judgment

Introduction

1. These proceedings arise from an abandoned attempt to list a vocational training business on the Australian Stock Exchange (ASX). Each of the two main sets of commercial entities involved in this failed endeavour claims to be owed money by the other.

2. Access Group Training Pty Ltd (AGT) is a company that provided, in the period from early 1997 to late 2019, nationally accredited vocational training services in New South Wales, Queensland, Victoria and the Australian Capital Territory.

3. At all relevant times, all of the shares in AGT were held by two married couples: James and Judith Jane, and John and Suellen Goard (the AGT Shareholders). Each of the four AGT Shareholders held 25% of the shares in AGT, and each was a director of AGT.

4. Venture Capital Fund Australia Limited (VCFA) was incorporated on 13 January 2015, and specialises in identifying venture capital opportunities for high net-worth investors. Ross Lambert was a founder of VCFA and is its managing director.

5. Mr Jane and Mr Lambert met in the mid-1990s and they became, together with each other’s spouses, close friends.

6. From around mid-2014, Mr Lambert and Mr Jane had a number of discussions regarding the possibility of expanding AGT’s operations into the Chinese market. Mr Lambert and his business associates were looking, at this time, to develop the aged care sector in China, and thought that AGT could assist with the training and accreditation of Chinese aged care workers.

7. Mr Lambert suggested that Mr Jane should consider listing AGT on the ASX. He explained that this would assist AGT to become registered in China as a vocational training provider, and would also mean that the AGT Shareholders could get a return by selling shares in the business to Chinese investors.

8. The proposed listing would also have been for VCFA’s benefit. In order to provide training for aged care workers in China, VCFA needed either to be included in the Chinese Central Government’s education curriculum or to offer its training services through a listed education company on a respected international stock exchange.

9. Initially, the proposal being discussed involved the listing of AGT. However, because of a concern that this course of action might affect profitable contracts which AGT held with the Commonwealth government, the proposal subsequently changed. Instead, the plan became to set up a parent company to hold all of the shares in AGT, and to list this parent company on the ASX. For this purpose, a company which was called Access Group Training Holdings Limited (Holdings), was incorporated on 20 October 2015. (Its name was subsequently changed to Access Training Group Limited and then, after it was converted from a public company into a proprietary company, Access Training Group Pty Limited.) Initially, all of the shares in Holdings were owned by the AGT Shareholders.

10. It was proposed, in broad terms, that the following steps would be taken in respect of the proposed listing: VCFA would subscribe for 17m shares in Holdings for a price of $1.7m (or $0.10 per share), and would thereby acquire a 74% stake in the company; Holdings would use this $1.7m for the sole purpose of paying a deposit to the AGT Shareholders for the purchase of their shares in AGT; Holdings would become the sole shareholder of AGT; Mr Jane would enter an employment agreement with Holdings and become its managing director; Holdings would issue 6 million shares to Mr Jane (representing a 26% shareholding); and Holdings would then undertake an initial public offering (IPO) at a price of $0.20 per share, with a view to listing on the ASX by 31 December 2016.

11. In late August 2016, pursuant to the terms of a Share Subscription Agreement between VCFA and Holdings, VCFA acquired a 74% stake in Holdings for the payment of $1.7m. Holdings immediately paid this sum to the AGT Shareholders. At the time of payment, the terms of an agreement between Holdings and the AGT Shareholders relating to the sale of the shares in AGT (the Share Sale Agreement) had been negotiated, but had not been executed. As matters transpired, the planned IPO did not proceed, and the AGT Shareholders did not transfer their shares in AGT to Holdings, but retained the $1.7m deposit.

12. These events led to two proceedings, which were heard together.

13. In the first proceeding, numbered 2019/374869 (the 2019 Proceeding), Holdings sues the four AGT Shareholders for the return of the amount of $1.7m which was paid to them in August 2016. Holdings contends that, in circumstances where this sum was paid to the AGT Shareholders and where the proposed Share Sale Agreement was never executed, let alone completed, the AGT Shareholders are liable to repay this sum as money had and received.

14. In response, the AGT Shareholders contend that a Share Sale Agreement was in fact entered in around late February 2017. They acknowledge that, pursuant to the terms of this agreement, they were obliged to repay the $1.7m deposit to Holdings by the date 12 months after the termination of that agreement. However, the AGT Shareholders contend that they were entitled, pursuant to the terms of the Share Sale Agreement, to set off against that obligation any amounts payable to AGT by either Holdings or VCFA.

15. In the second proceeding, numbered 2020/219022 (the 2020 Proceeding), AGT sues VCFA for repayment of a loan of $1.3m said to have been made by AGT, together with interest. VCFA accepts that payments totalling $1.3m were made to VCFA, but disputes that those payments were made by way of a loan, and instead contends that those payments represented a fee for services which had been rendered by VCFA in relation to the proposed expansion of AGT’s business into the Chinese market.

16. In the 2020 Proceeding, AGT also claims money said to be owed by VCFA pursuant to an agreement between them which was entered in 2015, relating to shared office premises in Chatswood. It is common ground that AGT and VCFA agreed to share, on a 50/50 basis, the rental and outgoings in respect of those premises. The only issue in dispute is whether AGT has established that any amount is outstanding pursuant to this agreement.

17. Mr Doyle Gray appeared for the plaintiff in the 2019 Proceeding (Holdings), and the defendant in the 2020 Proceeding (VCFA). VCFA is now the holder of 100% of the equity in Holdings.

18. Mr Crispin appeared for the defendants in the 2019 Proceeding (the AGT Shareholders) and for the plaintiff in the 2020 Proceeding (AGT). The AGT Shareholders remain the holders of 100% of the equity in AGT.

19. Because the events which are the subject of the 2020 Proceeding precede those which are the subject of the 2019 Proceeding, I deal first with the claim made by AGT against VCFA in respect of the alleged $1.3m loan; secondly with the claim by AGT against VCFA in respect of the rent and outgoings on the Chatswood premises; and thirdly, with the claim by VCFA against the AGT Shareholders for repayment of the $1.7m deposit.

2020 Proceeding

Claim for repayment of Loan

20. It is common ground that AGT and AGT Management Pty Ltd (AGT Management) paid, between August 2015 and March 2016, the sum of $1.3m to VCFA. The main dispute regarding those payments is whether they represented the payment of fees for services which had been rendered by VCFA (as VCFA contended); or instead, loans made by AGT to VCFA (as AGT contended).

21. There was no document predating the payments which recorded, or referred to, either an agreement for services or an agreement for loan. Each of AGT and VCFA contended that the agreement which gave rise to the payments was an oral agreement between Mr Jane of AGT and Mr Lambert of VCFA.

22. According to Mr Lambert, in around 2015, he proposed to Mr Jane that, in order to strengthen the proposed listed business, it would be beneficial for AGT to offer certain educational businesses in China as part of the IPO. These included an online game-based maths teaching program, a training management system, and a company to offer AGT vocational training courses in China (the Chinese Businesses). Mr Lambert deposed that the Chinese Business required considerable cost and time to develop to a point of being operational and available for AGT to offer as part of the IPO.

23. Mr Lambert gave evidence that he and Mr Jane had a number of discussions in around mid-2015 about funding the costs of the float:

“I do not now recall all the details of these conversations, but Mr Jane and I agreed that the best way to account for AGT’s portion of the funding was for VCFA to invoice the AGT parties for the various services that VCFA would be providing and that the AGT parties would simply pay these invoices. During one of these conversations, Mr Jane said words to the effect of:

Mr Jane: We (the AGT parties) will start with a payment of $600,000 and down the line as we proceed you (VCFA) will issue further invoices when AGT has further funds available.”

24. Mr Jane did not dispute that VCFA was developing the Chinese Businesses. However, it was his evidence that AGT “loaned money to VCFA to further this”:

“It was agreed that if VCFA was successful in expanding the business then it would receive additional shares in AGT at the IPO. AGT also loaned money to VCFA to assist VCFA with another, unrelated IPO that it was involved in.”

25. Mr Jane denied that he requested VCFA to issue invoices to AGT in respect of any of the payments made by AGT. He deposed that “VCFA did not have any contract or agreement with AGT to provide services for which it could invoice AGT”, and that he “always maintained to Ross [Lambert] that the money paid by AGT to VCFA were loans”.

26. Neither party suggested that the payments made by AGT to VCFA were by way of a gift. The argument at trial proceeded on the basis that the moneys must have been paid either pursuant to an agreement for services or pursuant to a loan agreement. That is, one of these agreements must have been in place, and the question was which one had been formed.

27. It is well settled that regard may be had to the subsequent conduct of parties to determine whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25] per Heydon JA; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 at [118] per Beazley P (Bathurst CJ and Meagher JA agreeing). In Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 78; [1907] HCA 38, Griffith CJ said (O’Connor J agreeing) that, where the question was whether the parties had in fact concluded an agreement at a particular time, “any statements or conduct on their part after that date inconsistent with the existence of a concluded contract are relevant for this purpose”.

28. In Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [124], Basten JA (Gleeson JA agreeing) observed that:

“…With respect to an alleged agreement not wholly reduced to writing, the post-agreement conduct of one party known to the other, and communications between the parties, which reveal a common assumption as to the existence and terms of an agreement may provide evidence of such an agreement. However, the subjective views or reservations of one party, undisclosed to the other, cannot provide a basis for inferring the terms of a pre-existing agreement.”

29. In circumstances where the transactions in question arose out of conversations between Mr Jane and Mr Lambert some eight years ago, where neither can recall the specifics of what was said, and where there is disagreement regarding whether the substance of their agreement was one for services or for a loan, it is necessary to examine the objective documentary evidence, including their communications after the time of the alleged agreement, in order to determine the relative probabilities of their respective positions, and in particular, to determine whether those communications reveal a common assumption as to the existence and terms of the agreement between them.

30. As outlined below, although there are some materials that support VCFA’s position, I consider that the evidence overwhelmingly supports the conclusion that the moneys at issue were loaned by AGT to VCFA.

The invoices and the payments

31. VCFA placed particular reliance on three invoices which it issued in August and September 2015. The payments in question were made after those invoices were issued and, except in the case of the third invoice, the amounts of those payments corresponded with the amounts stated in the invoices as being due and payable.

32. The first invoice was numbered 0000001 and was issued by VCFA to AGT Management on 3 August 2015. AGT Management is a related party of AGT. Its directors were Mr Jane and Mr Goard.

33. The invoice was for an amount of $600,000 plus GST, for a total of $660,000. The due date was specified to be the date of issue of the invoice.

34. The description given on the invoice was “AGT float costs as discussed”. There was no detail provided of the matters to which these costs related, or the basis on which the figure had been calculated, with the invoice merely stating “Rate $600,000.00 + GST”.

35. Mr Lambert claimed that there was “a more detailed breakdown” in respect of the amounts claimed on each of the invoices. His re-examination was deferred in order to allow him time to search for what he described as “the detailed document relating to the invoices”. However, none was subsequently produced. It must be inferred that no such document is available.

36. On 4 August 2015, the day after the invoice was issued, AGT Management paid the amount of $660,000 to VCFA.

37. The fact that GST was included in the invoice for $660,000 which was issued by VCFA, and that this amount was paid by AGT Management, provides some evidence in support of the contention that services were rendered by VCFA to AGT. However, as against that, AGT Management did not treat any part of the payment made as being for GST in its own accounts. When Ms Pearce entered this payment in the accounts of AGT Management, she allocated the whole of the payment of $660,035 to the account “Loan – Venture Capital”, and noted that it was “BAS Excluded”. The difference between the amount of the payment received by VCFA ($660,000) and the amount recorded in AGT Management’s accounts ($660,035) was due to a bank fee of $35 that was paid by AGT Management.

38. Mr Jane gave unchallenged evidence that, if the invoices were bona fide and payable, it would have been AGT’s normal business practice to claim a credit for the GST. That makes obvious commercial sense. The fact that the entire payment was treated as “BAS Excluded” is evidence of a contemporaneous view, on AGT Management’s part, that no part of the sum of $660,035 that it had paid represented GST. That is consistent with the view, also expressed in these contemporaneous allocations, that the whole of the amount was paid by way of a loan.

39. On 5 August 2016, Ms Pearce reallocated this payment from “Loan – Venture Capital” to “Loan – Access Group Training Pty Ltd”. Mr Jane explained that this change occurred because, although the payment was made by AGT Management, the entity making the loan to VCFA was AGT, with AGT incurring an intercompany liability to AGT Management for the amount that AGT Management had advanced to VCFA on AGT’s behalf.

31. On 24 September 2015, VCFA issued invoice number 0000002 to AGT. It was for an amount of $400,000 plus GST for a total of $440,000.

32. Again, the due date was specified to be the date of issue of the invoice. The description provided on the invoice was “IPO costs – Preparation of prospectus including copy writing, graphic design, research, creation of charts, and excel spreadsheets”. There was no breakdown of how this amount was calculated, by reference to the work said to be done, with the invoice specifying the “Rate” for the work as simply being “$400,000.00 + GST”.

33. In his affidavit, Mr Lambert deposed that the work the subject of this invoice included:

“…the formation of partnership agreements with Chinese business partners, establishment of partner vocational colleges in China to deliver AGT courses and teaching hospitals, preparation of numerous partnership agreements and memoranda including technical legal translation in China and Hong Kong, the purchase and redesign of the iScholar Platform into Skipper and its offshoots, incorporation of Skipper TMS, Skipper EDU and Skipper Note, and the purchase of Mangahigh licence rights.”

43. If that is correct, then the description on the invoice of the work that was done bore no relation to the work to which the invoice related. Mr Lambert offered no explanation why this was so.

44. On 29 September 2015, AGT paid the amount of $440,000 to VCFA. However, AGT did not claim any input credit for any GST in respect of this payment. Although the payment was initially allocated by an internal bookkeeper on 6 October 2015 to “Equity, Capital Raising & IPO Expenses”, with the tax rate being noted as “GST on Capital”, this was amended by Ms Pearce on 23 November 2015, when she allocated the entire amount of $440,000 to the account “Loan – Venture Capital Fund”, with the tax rate being noted as “BAS Excluded”. Mr Jane gave evidence that the initial entry by the internal bookkeeper was in error, and was subsequently corrected by Ms Pearce, who was AGT’s external accountant, so that no input credit for GST was claimed.

45. On 24 September 2015, VCFA issued invoice number 0000003 to AGT Management, with a due date of 24 October 2015.

46. This third invoice was addressed to AGT Management. According to the description on the invoice, it was issued in respect of the following services:

“Legal work including various documents

Share Sale agreement

Call option agreement

Training contract with Guangzhou college China

Consulting fees as discussed”

47. Again, this description bears little relation to the work which Mr Lambert described as having been the subject of this invoice, namely “obtaining high-level technical copywriting and document translations and the production of a six-minute corporate video for promotion of AGT in China”. The last of these tasks was described as “a mammoth exercise”, since the screen copy needed to be written in both English and Mandarin, and “there were countless storyboards produced in order to end up with a professional quality video”. Further, Mr Lambert deposed that part of the work undertaken related to the building of “an extensive internet boost platform in China” to enable one of its online programs, “Mangahigh”, to run efficiently and stream to hundreds of schools throughout China. Some $300,000 was said to have been spent on the Mangahigh licensing rights and the internet signal boosters, together with translation costs. Despite this, there is no reference in the third invoice to either the video or the Mangahigh project. As with the other invoices, Mr Lambert did not produce any detailed document providing a breakdown of the amounts charged in the third invoice. Nor was there any documentary evidence that AGT or AGT Management had requested VCFA to undertake such tasks on its behalf.

48. The work described in the invoice was billed at the rate of “$200,000.00 + GST”. This invoice showed that $200,000 had been paid as at the date of issue (24 September 2015), such that only $20,000 remained outstanding, which equated to the amount of the GST on the invoice.

49. All of the seven payments (totalling $200,000) which VCFA claimed were made by AGT Management in respect of this invoice were made after the invoice was issued, and in some cases six months after it was issued. VCFA and Mr Lambert did not offer any explanation as to why the invoice wrongly stated that everything except the amount of the GST had already been paid. Nor was there any explanation as to why, on the evidence, VCFA did not appear ever to chase AGT for the payment of the outstanding amount of $20,000.

50. The fact that the invoices in question provide, on Mr Lambert’s own evidence, incorrect information about to the work to which they relate and (in one case) the amount which was outstanding casts significant doubt on the invoices’ reliability, particularly in circumstances where those anomalies are unexplained.

51. Having regard to the matters outlined above, I do not consider that the evidence of the invoices, and the payments made following the invoices, reveal a common assumption by VCFA and AGT as to the existence and terms of the agreement between them.

Communications contemporaneous with the payments

52. In contrast, there are some communications between the parties, in November 2015 and February 2016, which were contemporaneous with a number of the payments in question being made, and which do reveal a common assumption that the substance of the transaction was that the moneys paid by AGT and AGT Management were being advanced as loans to VCFA.

53. First, on 20 November 2015, Mr Jane wrote to Mr Lambert, Mr Poulos and Mr Campbell of VCFA, stating:

“I have just authorised a transfer of $100k to VCFA –

AGT and AGT Management have now advanced as loan funds $1.2 million to VCFA.”

54. This email was sent shortly after the first two payments totalling $1.1m had been made in August and September 2015, and on the day that a further payment of $100,000 was made by AGT Management to VCFA. The email unequivocally states that AGT and AGT Management were of the view that the payments totalling $1.2m, had all been “advanced as loan funds … to VCFA”. There was no reference to any invoice, let alone any suggestion that the payments represented an agreed fee for services.

55. In response, none of the officers of VCFA to whom the email was addressed disputed Mr Jane’s statement that all of the payments which had been made to date represented advances to VCFA. None referred to any agreement for services, or claimed that the amounts were in fact paid in respect of services. Instead, the only response from Mr Lambert, on 26 November 2015, was “Thanks Jim”. Neither Mr Lambert nor Mr Poulos referred to this email, which was attached to Mr Jane’s affidavit, in their own affidavit evidence.

56. The payment of $100,000 to VCFA was entered in AGT Management’s accounts at around that time with the allocation “Loan – Venture Capital”. As with the earlier entries, the tax rate for this payment was “BAS Excluded”, reflecting that no input tax credit was claimed by AGT Management. This payment was reallocated on 5 August 2016 by Ms Pearce from “Loan – Venture Capital” to “Loan – Access Group Training Pty Ltd”, reflecting that there was an intercompany loan by AGT Management to AGT in respect of the moneys that AGT Management had advanced to VCFA on AGT’s behalf.

57. Secondly, on 15 February 2016, Mr Lambert sent, on VCFA’s letterhead, a letter to AGT, marked for the attention of Mr Jane. The letter stated that “we have been honouring our loan repayments as per our agreement and confirm the following loan repayment position”. The letter indicated that the “Amount owed” as at 31 December 2015 was $440,000.

58. The sum of $440,000 was the amount which had been paid by AGT to VCFA as at that date (excluding the payments made by AGT Management). This was the sum that had been reallocated in AGT’s accounts from “Equity, Capital Raising & IPO Expenses” to “Loan – Venture Capital Fund”. That is, the reallocation in AGT’s internal accounts was consistent with the position acknowledged in VCFA’s correspondence to AGT.

59. The February 2016 letter reveals, consistently with the terms of the November 2015 email exchange, a common assumption that the payment of $440,000 by AGT to VCFA represented an advance which was repayable in full. Further, the terms of the letter are inconsistent with any common assumption that the amount in question had been paid as a fee for a service rendered by VCFA.

60. Insofar as Mr Lambert’s letter suggested that loan repayments had been made to prior to the date of the letter, it was incorrect. It is common ground that no amount was paid back to AGT in respect of the $1.3m at issue in these proceedings.

61. Subsequently, AGT Management made six further transfers to VCFA, from mid-February to mid-March 2016, totalling a further $100,000. Although each transfer was effected by AGT Management, each was described in VCFA’s bank statements as “AGT Payment”. Further, each was initially entered in AGT Management’s accounts with an allocation to “Loan – Ross Lambert”, and each was subsequently assigned by Ms Pearce in August 2016 to “Loan – Access Group Training Pty Ltd”, reflecting that the transfers from AGT Management to VCFA were made on behalf of AGT, which incurred an intercompany liability in respect of each transfer. Each such entry designated the tax rate to be “BAS Excluded”.

Mr Lambert’s evidence of the common understanding of the parties

62. Mr Lambert gave evidence in his affidavit to the effect that Mr Jane agreed with him that there was never any loan agreement in place, and VCFA did not need to repay the sum of $1.3m, but asked Mr Lambert to say that this money had been loaned to VCFA (when each of them knew that was not true), in order “to justify this to [the other directors of AGT] when they find out the money’s not there, Jack [Goard] in particular.” This is, in substance, an allegation that Mr Jane requested Mr Lambert’s assistance to create a paper trail, which they both knew to be false, in order to deceive Mr Jane’s fellow directors of AGT.

63. When the trial opened, the parties indicated that they had reached a general consensus, between them, that they would not insist upon a strict application of the rule in Browne v Dunn. In that context, I emphasised to the parties that I would not make any finding that a party had behaved dishonestly, including by creating or signing documents which they knew to be false, unless this was squarely raised with them, and counsel for VCFA acknowledged the need to do so: “we appreciate any allegation in the nature of serious misconduct really does have to be confronted”. Significantly, it was not suggested to Mr Jane in cross-examination that he had any intention to deceive his fellow directors, or that he knowingly created a false document in order to do so. Those were serious allegations which ought to have been put to him in detail, so that he had an opportunity to respond. I found Mr Jane to be an honest witness, who directly answered the questions put to him, who made concessions where appropriate, and whose evidence was consistent with the contemporaneous documents. His version of events was not challenged in any significant way.

64. Those matters provide a sufficient basis to reject any such allegation against Mr Jane. Further, and in any case, Mr Lambert made various concessions in cross-examination which were inconsistent with his affidavit evidence.

65. The most significant of those concessions concerned a document headed “Loan – Venture Capital Fund Transactions”, which was signed by Mr Jane as director of AGT and Mr Lambert as director of VCFA (the Loan Acknowledgement). By this document, AGT acknowledged that the amounts shown in the document, totalling $1,300,035, “have been loaned to [VCFA]”, and VCFA acknowledged that “the above amounts have been received by [VCFA] as a loan from [AGT]”.

66. In the Loan Acknowledgement, the amount of $1,300,035 is broken down into a series of payments from each of AGT and AGT Management. The payments from AGT Management are described as follows: “Loan from Access Group Training Pty Ltd paid via AGT Management Pty Ltd”. This description, and the terms of the acknowledgement by VCFA set out above, support AGT’s claim that all of the payments made by AGT Management were payments on behalf of AGT, and that each of those payments was made by way of a loan.

67. Mr Lambert identified the Loan Acknowledgement as a document which was provided by VCFA to AGT. He gave evidence in cross-examination that the Loan Acknowledgement was produced by VCFA’s auditor, explaining that, in order to sign off on the audit of VCFA’s accounts, the auditor required “everyone who had lent money to the company” to acknowledge the loan.

68. However, on Mr Lambert’s evidence, AGT was not a person “who had lent money to the company”. In cross-examination, when confronted with this issue, Mr Lambert said that the reason why he sent the Loan Acknowledgement to AGT was that VCFA’s “accounts lady” could not find the invoices that had been sent to AGT: “We had to complete our audit, and if it wasn’t income, and we didn’t have the invoices to show that it was income, then it had to be a loan. We didn’t have any other option.” That explanation lacks credibility. Mr Lambert knew that the three invoices in question had been sent to AGT. If the payments from AGT represented income received by VCFA in respect of services rendered by it, and there was a problem with finalising VCFA’s accounts because the relevant invoices could not be located in VCFA’s records, it would have been a simple matter for Mr Lambert to ask his close friend, Mr Jane, to send him copies of those three invoices; and it would have made more sense to take that step rather than to ask Mr Jane to sign a document which (on Mr Lambert’s evidence that no loan agreement was in place) they both knew to be false. The alternative, and more probable explanation for Mr Lambert’s decision to send the Loan Acknowledgement to Mr Jane was that, as the document itself stated, AGT had loaned money to VCFA.

69. In that regard, Mr Lambert conceded in cross-examination that he believed the Loan Acknowledgement to be true at the time that he signed the document. He also conceded that, as far as he could tell, Mr Jane believed that the moneys paid had been paid by way of a loan.

70. Those concessions are directly inconsistent with his evidence that he and Mr Jane in fact believed the opposite to be true, and that documents acknowledging the loan were produced at Mr Jane’s request.

71. Further, and consistently with the terms of the Loan Acknowledgement, Mr Lambert accepted in cross-examination that:

1. VCFA’s profit & loss statement for the financial year ending 30 June 2016 recorded that a nil amount was received by way of income in that financial year (being the year in which all of the payments totalling $1.3m were made by AGT); and

2. VCFA’s balance sheet as at 30 June 2016 recorded, in non-current liabilities, an amount of $1,300,000 as being a “Loan from AGT”.

72. Mr Lambert gave evidence that these financial documents were prepared by VCFA’s accountant, based on information provided by VCFA; that the documents were then checked by VCFA to ensure that they were accurate; and that he was personally involved in this process at the time these particular documents were prepared. Mr Lambert also confirmed that, at the time the balance sheet was prepared (showing the $1.3m loan from AGT), he was confident that it was correct.

73. Mr Lambert said in cross-examination that the reason why the amounts paid in respect of the invoices to AGT were recorded as a loan was because he personally allocated the payments to loans on the bank statements. Those statements were in evidence, with Mr Lambert’s handwritten allocation alongside particular payments.

74. Again, this evidence given by Mr Lambert in cross-examination is inconsistent with his affidavit evidence that he believed that all of the payments represented fees for services, and none was a loan. Mr Lambert sought to deal with this inconsistency by explaining that he allocated the amounts paid by AGT and AGT Management to loans in VCFA’s accounts, “almost like I’d parked them there” because “we didn’t have accounts in our chart of accounts for income, and we didn’t have any income”.

75. I find this explanation implausible. On Mr Lambert’s evidence, VCFA did in fact have income, being the payments by AGT in respect of fees. If these payments had been “parked” to loans, because there was no account available for income, then this would presumably have been brought to the accountant’s attention when Mr Lambert was presented with a P&L which showed no income, and a balance sheet which showed a $1.3m loan. Mr Lambert confirmed that if the payments had been received in respect of the invoices, then they should have been recorded as income in the P&L, but instead no income was shown. However, Mr Lambert, who reviewed those documents for accuracy, did not suggest any changes be made to them.

76. Significantly, the treatment of the payments in VCFA’s own accounts is consistent with the treatment of the same payments in the accounts of AGT and AGT Management, which, as noted above, allocated all of those payments to “loan” accounts, without any element of GST. The consistency of those entries across the two sets of accounts is at odds with Mr Lambert’s evidence that documents describing the payments as a loan were created solely for the purpose of deceiving Mr Jane’s fellow directors of AGT. The more likely explanation, which is supported by the contemporaneous communications and the treatment of the payments in both company’s records, as well as Mr Jane’s own evidence, is that the payments were made by way of a loan, and that both of the companies understood this to be the case.

First Deed

77. In August 2016, Mr Jane, as a director of AGT, and Mr Lambert, as a director of VCFA, signed a deed regarding the amounts totalling $1.3m which had been paid to VCFA between August 2015 and March 2016 (the First Deed).

78. The Recitals to the First Deed were as follows:

“A. [AGT] has advanced principal sums to VCFA of $1,300,035.00 (“The Primary Advances”) as detailed in Schedule 1 hereof.

B. VCFA has not paid the Primary Advances and remains indebted to [AGT] in respect thereto.

C. [AGT] is entitled to interest on commercial terms of the Primary Advances at the rate of 10.00% on the variable balance of the Primary Advances from the date of first advance of 4^th August 2015 to the date hereof and continuing.

D. The interest due on the Primary Advances [is] calculated in accordance with Schedule 2 hereof.

E. VCFA seeks to acknowledge the indebtedness to [AGT] and to secure its indebtedness and enter into this Deed in furtherance of its acknowledgment and covenant Operative Provisions.”

79. Clause 2 of the First Deed provided as follows:

“2. Acknowledgement of Debt

VCFA hereby acknowledges that it is properly indebted to [AGT] for the repayment [of the] Primary Advances and interest thereon repayable under the terms of this Deed and that its liability continues until the full amount of the Primary Advances and interest and recovery costs of any nature are paid without limitation or set off.”

80. Clause 3.1 provided as follows:

“In consideration of [AGT] agreeing to enter into this Deed VCFA hereby agrees to grant unto [AGT] the following securities if required to further and better secure the Primary Advances and all interest and costs thereon (hereinafter called “The Indebtedness”)”

81. Clause 3.3 provided as follows:

“This deed shall constitute prima facie proof of the contents. This deed may be produced in court as to proof of the contents and VCFA consents to judgment against it in any court of competent jurisdiction in regard thereto.”

82. Clause 3.4 provided as follows:

“The parties agree that The indebtedness shall be recovered by the following mechanism and timetable:

3.4.1 to pay interest monthly on the indebtedness at the rate of 10% per annum until 30^th September 2017 at which time the outstanding principal sum together with accrued and unpaid interest thereon will be repaid by VCFA.

3.4.2 In the event that there is any sum remaining unpaid as at 30^th September 2017 then VCFA shall immediately transfer unto [AGT] such unescrowed shares in the capital of [Holdings] held by it to satisfy the remaining obligation to repay principal and interest and costs to [AGT].

PROVIDED HOWEVER that The Indebtedness shall not be deemed to have been discharged or released until and unless repaid in full.”

83. Schedule 1 to the First Deed set out the primary advances made to VCFA. These fell into two groups: first, the advance of $440,000 made by AGT on 24 September 2015; and secondly, the advances made by AGT Management totalling $860,035, comprising the amount of $660,035 on 4 August 2015; the amount of $100,000 on 20 November 2015; and the amounts totalling $100,000 between mid-February and late March 2016. The amounts transferred by AGT Management were listed under the heading “Loan from [AGT] paid via [AGT Management]”.

84. Mr Lambert deposed that the version of the First Deed which he signed did not have the schedules attached. Whether or not that was the case is of little consequence. Mr Lambert deposed that the first draft of the deed was sent to him on 8 September 2016. On that day, Mr Kerridge sent Mr Lambert a copy of the First Deed which included each of the two schedules. It is likely that Mr Lambert reviewed the schedules at that time.

85. In any case, even without reading the schedules, Mr Lambert was well aware of the payments which the First Deed described as the “Primary Advances”. The Recitals to that deed expressly refer to the amount of $1,300,035 as having been advanced by AGT to VCFA. This is the sum of the payments which, to Mr Lambert’s knowledge, were made by AGT and AGT Management to VCFA between August 2015 and March 2016. The content of Schedule 1 is relevantly the same as the content of the Loan Acknowledgement, which Mr Lambert provided to Mr Jane (see paragraphs 65-66 above). The same individual payments making up the same total figure appear in each document. Accordingly, whether or not Mr Lambert read Schedule 1 prior to signing the First Deed, he must have been aware, when he did sign it, of the specific payments totalling $1,300,035 to which the Recitals of the First Deed referred.

86. As for Schedule 2, it merely provides a calculation of the amount of interest owing as at 30 June 2016, based on the date of payment of each of the amounts in question (which is not in dispute), and applying an interest rate of 10% (which is expressly referred to in the Recitals to the First Deed). Accordingly, whether Mr Lambert saw Schedule 2 is of little consequence, since he was aware of the matters on the basis of which the figures in the Schedule were calculated.

87. Further, Mr Lambert gave evidence that he instructed VCFA’s auditor in around July 2017 that interest totalling some $246,619 should be disclosed in VCFA’s accounts as owing to AGT as at 30 June 2017. Significantly, this amount broadly equates with the interest shown in Schedule 2 to the First Deed. (That Schedule refers to interest as at 30 June 2016 of $105,982.75, with interest accruing at a daily rate from 30 June 2016 onwards of $385.21. Allowing for another 365 days at this daily rate results in a total figure for interest of $246,584.40 as at 30 June 2017.)

88. VCFA contended that the First Deed could not be binding on it because the deed was executed only by Mr Lambert, rather than by two directors of VCFA.

89. As discussed below, it is common ground that Mr Poulos did not sign the First Deed, and disputed its contents. Mr Jane was aware of those matters, and so could not have been of the view that Mr Lambert was signing with the authority or agreement of his fellow directors of VCFA.

90. However, the primary significance of the First Deed lies not in the enforceability of any provisions which it contains concerning matters such as security and repayment, but rather in the acknowledgements set out in the Recitals.

91. The undisputed fact that the First Deed is signed by Mr Jane and Mr Lambert provides evidence that each of them, being the only persons who had knowledge of the conversations that gave rise to the relevant transactions, understood that advances had been made and were repayable. Further, the evidence, provided by the terms of the Recitals in the First Deed, that Mr Jane and Mr Lambert shared this understanding is consistent with the terms of Mr Jane’s email of 20 November 2015, and Mr Lambert’s response; the terms of the letter dated 15 February 2016, which Mr Lambert sent to Mr Jane; and the contents of the Loan Acknowledgement, which each of Mr Jane and Mr Lambert also signed.

92. Accordingly, the First Deed is significant primarily because it reveals a common assumption on the part of each of AGT and VCFA (and, in particular, on the part of the only officers of AGT and VCFA who were involved in the relevant transaction) that there existed an agreement between them that VCFA would repay in full the amount of $1.3m which had been advanced by AGT to VCFA, together with interest from the date of payment.

93. Whether Mr Poulos was of a different view is of little consequence, since he accepted in cross-examination that his only source of knowledge about the relevant transactions was what Mr Lambert told him.

94. Mr Poulos sent an email to Mr Kerridge on 14 September 2016, stating that he was not prepared to sign the loan agreement which had, by that time, already been signed by Mr Lambert. The terms of this email, which were drafted by Mr Lambert, are significant. The email does not dispute that the moneys were paid by way of advances from AGT to VCFA, but disputes that the intention was that AGT would be able to call for repayment of the advances prior to the float being completed (emphasis added):

“…The $1.3M was never a loan as it was an advance that Jim provided to VCFA to build the various VCFA AGT projects that were being developed to add diversification to AGT to ensure a successful float. There was never an agreement for repayment. The general understanding was that AGT would benefit from the upside that they would receive from vending in these projects at IPO and would recoup these funds as a result of the listing. This is why we went down this agreed path in the first case.

Earlier this year Jim asked Ross as a favour to provide a note indicating that the $1.3M was a loan to satisfy his fellow directors as this was going to cause all sorts of problems and Ross agreed to help him out. There was never any intention to turn the advance into a loan. Following this the advance has now manifested into a loan and the Auditor has requested we sign off a loan agreement. Firstly, as compensation for the advanced funds for Jim, we provided additional shares in VCFA. In addition to this, Ross, Louis and I decided to allocate shares in DWF and the allocation was generous. Now you have presented us with a loan agreement which is for the total amount, plus interest which becomes repayable whenever AGT calls in the loan agreement. The agreement takes security over the DWF shares which you have suggested are valueless, security over VCFA via a fixed and floating charge and or security over the shares that VCFA purchased in AGH.”

95. The language of the email is confused, particularly insofar as it is stated that the “advances” were not “loans”. However, it is significant that there is no suggestion whatsoever in this email that any of the “advances” represented the payment of a fee for services provided by VCFA to AGT, and the terms of the email are incompatible with any such arrangement. If such an arrangement were in place, it would not make sense to describe, repeatedly, the payments as “advances”; or to speak of an intention that AGT would “recoup these funds”; or to speak of arrangements being made “as compensation for the advanced funds”. The terms of this email are, like the majority of the other contemporaneous documents, inconsistent with VCFA’s defence to the loan claim, which depends on a contention that all of the relevant amounts were paid pursuant to a services agreement between VCFA and AGT.

96. The emails sent around the time that the First Deed was signed indicate that some pressure was placed on VCFA to sign the deed in order to provide support for the receivable of some $1.3m shown in AGT’s accounts as a loan to VCFA. On the day that Mr Kerridge first sent a draft of the First Deed to Mr Lambert, he stated that: “We will need to close off the doc for the audit. UHYHN [AGT’s auditors, UHY Haines Norton] are pressing to get this done this morning…”. Later that day, Mr Kerridge provided a copy of the First Deed which had been executed by AGT, stating: “In terms [of] the audit please see the enclosed deed in the form approved by the auditors duly executed to be countersigned.” On 14 September 2016, Mr Kerridge again asked Mr Lambert for the deed to be countersigned, stating: “UHYHN have completed audit which is signed off. They are refusing to release until the deed has been returned re the VCFA loan account.”

97. Those matters support rather than undermine the reliability of the First Deed. Each of Mr Jane and Mr Lambert knew that the deed was a document which was going to be provided to external auditors for the purposes of finalising the accounts of AGT as at 30 June 2016. Further, each knew that it was proposed that the profit and loss and balance sheet of AGT as at 30 June 2016 would appear in the prospectus that was being prepared for the proposed IPO, and would therefore be relied upon by investors. Each would have known that it was important that accurate information about the assets of AGT be provided both to its auditors and to prospective investors.

Second Deed

98. On around 19 April 2017, Mr Jane, as director of AGT, and Mr Lambert, as director of VCFA, signed a further deed (the Second Deed). The Second Deed included the following recital C:

“The sums due as the Primary Advances as defined in the Deed of Acknowledgment dated 29^th August 2016 … have not been paid and are due and payable.”

99. The reference to a deed dated “29^th August 2016” is likely a typographical error. There was no evidence that there existed, in draft or final form, any deed dated 29 August 2016. The parties clearly intended to refer to the First Deed, which was dated 30 August 2016.

100. Mr Lambert agreed in cross-examination that, when he signed this Second Deed, it was because he accepted that its contents were true.

101. Again, and consistently with other communications between the parties outlined above, this document reveals a common assumption on the part of VCFA and AGT that a loan agreement had been entered between them, and that the terms of that agreement included that VCFA would pay the full amount of $1.3m which had been advanced by AGT.

Conclusion – Claim in respect of Loan

102. For the reasons set out above, I find that the amount of $1.3m was advanced by AGT to VCFA; that interest accrued on that loan at the rate of 10% from the date of each advance; and that no amount has been repaid by VCFA in respect of the principal or interest on that loan.

103. However, it does not follow that AGT is entitled to an order for repayment for the full amount of the loan and interest thereon, for reasons explained below.

Claim for breach of Lease Agreement

104. It is common ground that in around 2015 AGT and VCFA entered into an agreement to share, on a 50/50 basis, the rent and outgoings in respect of office premises at Chatswood.

105. The only issue in dispute is whether AGT has established that any amount is outstanding pursuant to this agreement.

The terms of the agreement

106. In early 2015, Mr Lambert had a conversation with Mr Jane about finding premises for the Sydney-based head office of the proposed listed company. As Mr Jane was based in Dubbo, and Mr Lambert was based in Sydney, Mr Jane asked Mr Lambert to see if he could find suitable premises.

107. Mr Lambert contacted a number of real estate agents and inspected a number of properties in Chatswood. He selected premises located on level 5, 8 Thomas Street, Chatswood (the Chatswood Premises) as suitable for the listed company.

108. Following discussions which involved, among others, Mr Jane and Mr Lambert, VCFA and AGT reached an agreement that AGT would lease the Chatswood Premises, on the basis that AGT and VCFA would share the use of the premises, and would split the rent and outgoings.

109. In its pleading, AGT alleged that the agreement reached was that AGT would pay the rent only for the first year, and that VCFA would pay the rent thereafter. However, this is at odds with the terms of a letter subsequently sent by AGT’s Chief Financial Officer, Michael McGann.

110. On 30 June 2016, Mr McGann wrote to Mr Lambert setting out the terms of the agreement which had been reached regarding the sharing of rent and outgoings in respect of the Chatswood Premises. Omitting formal parts, the letter stated as follows:

“This letter is to act as confirmation of the Sub-lease arrangement between Access Group Training Pty Limited and Venture Capital Fund Australia Limited for the premises at Level 5, 8 Thomas Street, Chatswood, NSW 2067.

As per this agreement, 50% of rent and outgoings are split between both parties for the duration of the lease, being three years ending 21 May 2018.”

111. When asked about this letter, Mr Lambert confirmed that this represented the agreement between the parties.

112. Accordingly, I find that the terms of the agreement reached between the parties in respect of rent and outgoings were as set out in Mr McGann’s letter (the Chatswood Agreement).

113. On 22 May 2015, AGT entered into a lease of the Chatswood Premises for a term of 3 years with a 3 month rent free period (the Lease). The Lessor was Chatswood RSL Club Limited. The Lease was signed by Mr and Mrs Jane, as directors of AGT. The Lease provided that the annual rent in the first year of the term was $135,600 per annum gross plus GST, and the Lessee (AGT) must pay the annual rent in advance by monthly instalments (cl 5(4)). In the second and third years, the annual rent was the amount of the first year’s rent, or any variation of it resulting from an increase of 4% of the preceding year’s rent (cl 5(3)).

Claim for breach

114. In order to establish a breach of the Chatswood Agreement, it was a simple matter for AGT, as Lessee, to provide evidence of the total amount of rent and outgoings payable in respect of the Chatswood Premises during the term of the Lease, and the total amount which had in fact been paid by AGT for rent and outgoings. If the latter were shown to exceed 50% of the former, AGT would thereby establish a claim under the Chatswood Agreement for the amount of the difference.

115. However, AGT led no such evidence.

116. Instead, AGT relied on the terms of an email which Mr McGann sent to Mr Lambert on 17 October 2017. At this point in time, the Chatswood Lease still had more than seven months to run, until 22 May 2018. Mr McGann attached a summary statement, which was said to show that “AGT is owed $150,608 in rent/expenses (excluding the advanced funds)”. (The reference to the “advanced funds” is likely a reference to the balance of the loan owing from VCFA to AGT. It should be noted that Mr Lambert did not respond to say that no sums had been advanced, and no such loan existed.)

117. The attached statement set out, by number and date, a list of invoices issued to VCFA. Those invoices were not in evidence. Further, there was no evidence that the amounts shown as “due” from VCFA for these invoices as at 31 October 2017 remained due when the Lease ended, or as of today. There was no updated statement as at any date after October 2017, or any primary documentary records to allow the calculation of any amount outstanding from VCFA under the Chatswood Agreement as at the date of the hearing.

118. In his email, Mr McGann stated that: “I regret to advise that unless payment is received by end of month, we will not be making further payments to this lease.” Mr Lambert replied, on the same date, as follows: “I agree we do need to get this up to date”. VCFA tendered documents showing that, from October 2017 through to May 2018 (that is, through to the end of the Chatswood Lease), it paid rent and outgoings directly to the Lessor.

119. Having regard to the evidence of those payments by VCFA, and in circumstances where AGT has not led evidence to establish the quantum of the payments which it made in respect of rent and outgoings over the term of the Chatswood Lease, AGT has not shown that VCFA failed to meet its obligation under the Chatswood Agreement to cover 50% of the rent and outgoings.

Conclusion – Claim regarding Chatswood Lease

120. For the reasons given above, I am not satisfied that AGT has established either breach or loss in respect of its claim concerning the Chatswood Agreement.

121. This aspect of its claim in the 2020 Proceeding must be dismissed.

2019 PROCEEDING

Claim for repayment of $1.7m Deposit

122. It is common ground that:

1. in late August 2016, VCFA and Holdings entered into a Share Subscription Agreement, and VCFA paid an amount of $1.7m to Holdings, representing the subscription price for the issue of 17,000,000 shares in Holdings;

2. those 17,000,000 shares were issued to VCFA;

3. the terms of the Share Subscription Agreement provided for the amount of $1.7m to be used solely for the purpose of Holdings paying a deposit to the AGT Shareholders in respect of the proposed sale of their shares in AGT to Holdings;

4. shortly after the Share Subscription Agreement was entered, Holdings paid the full amount of $1.7m to the AGT Shareholders, in four amounts of $425,000 each;

5. under the terms of a proposed Share Sale Agreement between Holdings and the AGT Shareholders (which was not executed as at the date of this payment), the sum of $1.7m was payable by Holdings to the AGT Shareholders as a deposit for the sale of 100% of their shares in AGT to Holdings; and

6. the AGT Shareholders have retained the $1.7m paid to them, and have not transferred their shares in AGT to Holdings.

123. Holdings brought a claim against each of the AGT Shareholders for money had and received. Holdings submitted that: “the [AGT Shareholders having the deposit paid to them on behalf of [Holdings], and by failing to repay it to [Holdings], have been unjustly enriched at the expense of [Holdings]”.

124. The High Court has emphasised that unjust enrichment is not to be determined by some subjective assessment of the merits of the case, but by reference to whether or not some qualifying or vitiating factor is present. In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ observed (at 379) that:

“it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality. As this Court stated in Westpac Banking Corporation:

‘In other words, receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment.’ …

The respondent's submission that the appellants must independently prove ‘unjustness’ over and above the mistake cannot therefore be sustained. The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust.”

125. One established category of case where a claim for money had and received is available is where there has been a total failure of consideration: Coshott Family Pty Ltd v Lyons [2022] NSWCA 216; (2022) 110 NSWLR 44 at [35] per Kirk JA (Meagher JA and Griffiths AJA agreeing). The notion of “consideration” is not here limited simply to the contractual sense: ibid., citing Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516; [2001] HCA 68 at [101]-[107] per Gummow J.

126. In Equuscorp Pty Ltd v Haxton; Equuscorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham’s Warehouse Sales Pty Ltd (2012) 246 CLR 498; [2012] HCA 7, French CJ, Crennan and Kiefel JJ observed (at [31], footnotes omitted) that:

“Failure of consideration is one of the factors that makes retention of a benefit prima facie unjust. It was recognised by Lord Mansfieldas a ground for a claim for money had and received. It was a criterion of recoverability which survived the rejection in the United Kingdom and Australia of the implied contract theory. This Court has, on more than one occasion, described failure of consideration in terms set out by the late Professor Birks:

‘Failure of the consideration for a payment ... means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself.’”

127. Although there was no reference in Holdings’ pleadings to a total failure of consideration, this was the basis on which the case was put. That is, Holdings contended that the sum of $1.7m, which was the proposed deposit under the Share Sale Agreement, was paid in circumstances where the Share Sale Agreement had not been executed, and was not subsequently executed, such that (in terms of the words of Professor Birks quoted above) “the state of affairs contemplated as the basis or reason for the payment has failed to materialise”.

128. The AGT Shareholders disputed that there had been a total failure of consideration. They contended that a Share Sale Agreement was executed by Holdings and the AGT Shareholders in around late February 2017, or there was otherwise mutual assent by the parties to be bound by its terms; and that the terms of this agreement governed the repayment by the AGT Shareholders of the $1.7m deposit (the Deposit). In particular, they submitted that the relevant clause of this agreement (namely, clause 5.9(d)) permitted the AGT Shareholders to set off, against their obligation to repay the Deposit, any amounts owing by either Holdings or VCFA to AGT.

129. I consider below, first, the background to the payment of the $1.7m to the AGT Shareholders; secondly, whether Holdings and the AGT Shareholders entered into the Share Sale Agreement upon which the AGT Shareholders rely; and thirdly, whether, pursuant to the terms of cl 5.9(d) of that agreement, the AGT Shareholders are entitled to set off against their obligation to repay the Deposit to Holdings, any amounts claimed to be owing by Holdings or VCFA to AGT.

Factual Background

Development of terms of deal prior to August 2016

130. On 7 June 2016, Mr Lambert asked Mr Stafford to draft a Share Sale Agreement based on an initial term sheet which had been prepared in relation to the planned IPO. Mr Stafford was a partner of Eakin McCaffery Cox, who acted for both the AGT parties and the VCFA parties in relation to the proposed IPO.

131. Mr Stafford provided a first draft of the Share Sale Agreement to Mr Jane, Mr Lambert and Ms Pearce on 20 June 2016. Mr Lambert accepted that he was subsequently sent several drafts of this agreement.

132. On 27 July 2016, a document headed “Access Group Training Holdings Ltd – Pre IPO Capital Raising Term Sheet” was executed as “a binding [sic] term sheet” by Mr Jane on behalf of AGT, and by Mr Lambert on behalf of VCFA.

133. This term sheet provided for the issue of new ordinary fully paid securities in the capital of Holdings to form part of the pre IPO Capital of Holdings at $0.10 per share, and for an amount of $1.7m, described as the “Pre IPO Amount” to be paid from the date of execution of the term sheet until “Close”, which was expected to occur on 31 July 2016. The term sheet also included the following provision:

“Failure to List:   The Company agrees that if it fails to complete its listing on the ASX by 31^st December 2016 the sum or sums paid hereunder, shall have the right to

(a) convert the $1.7m to a fully diluted net equity position of 14.16% of the equity of The Company with all rights attaching thereto. Or

(b) secure the money paid as a debt over AGT secured by a debenture charge and obtain repayment of all monies.”

134. Although the language is confused, it appears that this clause is the genesis of what subsequently became cl 5.9(d) of the Share Sale Agreement, which is discussed further below.

135. On 11 August 2016, there was a meeting of the due diligence committee which was established in relation to the proposed IPO. It was attended by, among others, Mr Warwick Kerridge (as chair), Mr Jane, Mr Stafford, Dr Paula Robinson and Mr Lambert (as “observer”). Mr Kerridge was a representative of O’Connell Partners, who were retained in relation to the proposed IPO. Dr Robinson had been proposed, on the recommendation of Mr Kerridge, as a non-executive director of Holdings. She was subsequently appointed to that position on 24 August 2016.

136. The minutes of this meeting record that the “share sale agreement for the sale of shares in Access Group Training Pty Ltd was essentially complete and the balance of the transaction documents would be available in draft form by 17 August 2016 and available for discussion on 19^th August 2016 as required”, with the aim being to “finalise the terms thereof” on 19 August 2016. The minutes record that:

“The structure of the AGT share sale was discussed. It was noted that there may be a number of alterations. It was agreed that the form of the agreement would be reviewed by [Eakin McCaffery Cox], The [AGT Shareholders] and O’Connell Partners and that they would discuss the amendments and submit the final form agreements to the parties after review. This also applied to the subscription agreement. It was agreed that the subscription agreement would then be signed first followed by the share sale agreement once signed off.”

137. On 12 August 2016, Mr Stafford sent an email to Mr Jane attaching a revised draft of the Share Sale Agreement. Mr Stafford added:

“From an optic perspective best to have Paula [Robinson] and the VCFA appointee director sign the Share Sale Agreement on behalf of Holdings”.

138. On 15 August 2016, Mr Jane proposed to Mr Kerridge that clause 5.9(d) of the Share Sale Agreement should be amended to add “that shares 14.16% would be reduced by any debt from VCFA to AGT P/L so maybe $200K of shares not $1.7 million”. The arithmetic indicates that Mr Jane believed that, at this time, a debt of $1.5m was owing from VCFA to AGT (which is broadly in line with the amount of the advances plus interest, as recorded in the First Deed). He was, in effect, proposing that clause 5.9(d), which dealt with the consequences of the listing not proceeding in circumstances where VCFA had already paid the sum of $1.7m, needed to be amended to take into account the outstanding loan liability of VCFA to AGT. In an email sent much later, on 16 May 2018, Mr Jane stated that the reason why cl 5.9(d) was added into the draft Share Sale Agreement was that “we were correctly concerned about having the loan repaid by VCFA”.

“Execution version” of Share Sale Agreement on 24 August 2016

139. On 24 August 2016 at 8.23am, Mr Kerridge sent an email to Dr Robinson, Mr Jane and Mr Lambert, attaching what was described as an “execution copy” of the Share Sale Agreement with a date stamp “19.8.2016”, and a copy of the Share Subscription Agreement. Mr Kerridge stated that the intention was “to finalise the share subscription of 17,000,000 new securities in the capital of [Holdings] @ $0.10 per new security as well as the share sale agreement whereby [Holdings] enters into an agreement to acquire 100% of the issued capital of [AGT]”. He further stated: “It is proposed that both of these agreements will be signed this morning at or about 10.00am.” Mr Kerridge asked Dr Robinson to “execute the signing page of both of the enclosed agreements and return the signed pages”, in order to “facilitate this completion”. He said that he would “then attach these pages to the balance of the document”; and that he would telephone when “the remainder of the signatories are in place to seek your authority to complete exchange”.

140. It is important to note that Mr Kerridge’s proposal for effecting the entry into these agreements involved the following steps: (a) Mr Kerridge would send the entire agreement to each signatory; (b) the signatory would execute and return only the signing page of the agreement (and not the balance of the pages); and (c) Mr Kerridge would then attach the signed pages to the balance of the document. That procedure will be of some significance when it comes to the question of the execution of the Share Sale Agreement.

141. Mr Lambert responded to Mr Kerridge (copied to Mr Jane and Dr Robinson) at 10.00am on 24 August 2016, noting that this was “the first time we have seen the final versions of these documents and need time to review”. Shortly afterwards, at 10.08am, Mr Kerridge sent execution copies of each of the Share Sale Agreement and the Subscription Agreement to Mr Jane, Mr Lambert, Mr Poulos and Dr Robinson, asking them to “use this version for your review”, and to “review the documents as required in order that the final form can be signed off for exchange”. Mr Kerridge proposed that once the final form of these documents was agreed, “the agreements be signed by the respective parties and held until the balance of the subscription funds are received (ie $200,000) into the trust account of Pearce Accountants”. Dr Robinson responded that she would wait until the final version was sent through before execution, and suggested that she might speak to Mr Stafford to confirm the final copy before signing.

142. The version of the Share Sale Agreement attached to Mr Kerridge’s email had a footer that included the words “AGT SSA execution copy 24.8.2016(4)”. It provided that on the date that the agreement was entered, Holdings would pay the Deposit of $1.7m to the AGT Shareholders in their Respective Proportions (that is, 25% to each Shareholder) without set off or deduction: cl 4.3(a)(i). It also provided that, on the same date, Mr Jane would sign an employment agreement with Holdings and, in furtherance of the execution of that agreement, Holdings would issue 6,000,000 ordinary fully paid shares in the capital of Holdings to Mr Jane, in consideration of his agreeing to act as managing director upon the listing of Holdings (which shall be cancelled in the event of the failure of Holdings to be listed): cl 4.3(a)(ii)-(iii). In addition, Holdings agreed that the AGT Shareholders “shall be entitled to the immediate use and enjoyment of the Deposit”: cl 4.3(b).

143. This ”execution copy” of the Share Sale Agreement provided that Completion would occur at 10.00am on the Completion Date, which was defined as the date when Listing occurs or such other date as agreed between the Parties: cl 5.1. Completion was conditional upon a number of conditions precedent being fulfilled (or waived under cl 2.3) on or before the Sunset Date, which was 31 December 2016 or such other date as agreed to by the Parties.

144. Clause 5.9(d) of this “execution copy” of the Share Sale Agreement provided as follows:

“Without limiting clause 5.9, in the event Completion does not occur for any reason:

(i) [the AGT Shareholders] shall be entitled to retain the Deposit; and

(ii) [VCFA] shall be entitled to:

(1) Subject to reduction of the total conversion sum by reason of payments due by [Holdings] or related party of it to a [AGT Shareholder] or [AGT], 14.16% of all Shares then on issue in [AGT] in consideration for paying the Subscription Price where any reduction in the sum converted will affect the conversion equity pro rate [sic] pari passu (ie each $100,000 of the deposit will reflect 0.83% of the fully diluted equity in the shares in [AGT]); or

(2) at the option of [Holdings] elect to treat the Deposit as a debt due to [Holdings] by [the AGT Shareholders] in their Respective Proportions which shall become repayable within 12 months of the date of termination of this Agreement for failure to so complete, save where non-Completion is due to [Holdings’] breach of this Agreement or where there are payments due by [Holdings] or a Related Party of it to a [AGT Shareholder] or [AGT], then those payments shall be offset by [the AGT Shareholders].”

145. As set out above, each of cl 5.9(d)(ii)(1) and (2) took into account any payments which were due by Holdings or by a related party of Holdings to either AGT or the AGT Shareholders. This drafting appears designed to address the concern that Mr Jane had expressed regarding the recoverability of the moneys that had been advanced by AGT to VCFA.

146. Clause 6A of the “execution copy” of the Share Sale Agreement provided as follows:

“In partial consideration for Jim signing and performing the Employment Agreement, [Holdings] agrees that:

(a) it shall, on the date of this Agreement, issue Jim 6,000,000 ordinary class shares in [Holdings] at a deemed issue price of $0.10 per share (representing 26% of all shares in [Holdings] then on issue), on the basis that such issue may require to be ratified at the first AGM of [Holdings]; and

(b) Jim shall be entitled to additional ordinary class shares in [Holdings] where members of the Group each achieve revenues over the next 3 Financial Years as described in Schedule 8.”

147. On 24 August 2016, Mr Lambert sent an email to Mr Kerridge and Mr Jane, and copied to his fellow directors of VCFA. In this email (which, as noted below, attached the signed Share Subscription Agreement), Mr Lambert stated: “We note several changes from the [previous] versions inclu[d]ing [Mr Jane] Additional Shares Cl[au]se 6A. We are very happy for you jim to receive these.” It is plain that this was a reference to clause 6A of the Share Sale Agreement, which is set out above. It must be inferred that Mr Lambert had reviewed the execution copy of the Share Sale Agreement attached to Mr Kerridge’s email, and was aware of the changes made to that agreement from previous versions, including the insertion of clauses 5.9(d) and 6A. In his affidavit, Mr Lambert deposed that clause 5.9(d) was inserted into the Share Sale Agreement by an amendment after June 2016, and added: “I was a director of Holdings at that time and the clause had never been discussed with me by the other board members or with Mr Stafford”. In fact, clause 5.9(d) was added before Mr Lambert became a director of Holdings; he likely reviewed it at the time; and he did not express any concern about its terms.

148. On 25 August 2016, Mr Jane forwarded Mr Kerridge’s 10.08am email, together with the “execution copies” of the agreements, to Mark Nicholaeff of UHY Haines Norton. He expressly referred to clause 5.9(d)(i) and (ii) of the Share Sale Agreement, and added: “we are of the view that should the deal either not go ahead – Warwick [Kerridge] will talk to you shortly to explain our next steps and the paperwork you will receive to indicate our confidence that we will get our funds + interest”. This email provides further evidence that, from Mr Jane’s perspective, AGT had loaned money to VCFA, and that clause 5.9(d) was amended in order to ensure that, in the event that listing did not proceed, AGT was able to get back from VCFA “our funds + interest”.

149. Mr Kerridge’s email of 24 August 2016 at 10.08am explained that the Share Sale Agreement would be signed, once “the final form is agreed and the 2016 accounts [are] attached”. The “execution copy” of the Share Sale Agreement which was attached to his email had a placeholder page for Annexure A, which was to be a copy of AGT’s “draft balance sheets and profit and loss statements prepared in a manner consistent with [AGT’s] accounting policies and/or conventions for the Financial Year ending 30 June 2016”. Further, it was proposed that by Schedule 2 to the Share Sale Agreement, each of the AGT Shareholders would provide a series of warranties including, relevantly, the following:

“4. FINANCIAL AND TRADING

4.1 The Accounts are true and correct in every material particular and have been prepared to present a true and fair view of the affairs of the Company as at the date they were prepared and contain provisions for all Liabilities (including Employee entitlements) of the Company.

…

4.6 All debts owed to the Company at the Completion Date (if any) (less the amount of any relevant provision for bad and doubtful debts in the Accounts) will be good and fully collectible”

150. The delay in finalising the 2016 accounts, caused in part by the dispute between VCFA and AGT over the loans that had been made and the terms of the First Deed (see paragraphs 89 and 94-96 above), likely explains why the Share Sale Agreement was not in fact executed at the same time as the Share Subscription Agreement.

Entry into the Share Subscription Agreement

151. On 24 August 2016, Holdings and VCFA entered into the Share Subscription Agreement. It was common ground that this agreement was duly executed by the parties, and was binding on them.

152. The agreement was signed by two directors of Holdings, namely, Mr Jane and Dr Robinson. Further, the copy that was executed by VCFA and returned by Mr Lambert to Mr Jane at 5.11pm on 24 August 2016, was signed by two directors of VCFA, namely, Mr Lambert and Mr Dong.

153. Recital A to the Share Subscription Agreement recorded that Holdings agreed to issue the Subscription Shares to VCFA, and VCFA agreed to subscribe for the Subscription Shares on the terms contained in the agreement.

154. The Subscription Shares were defined as 17,000,000 ordinary class shares in the capital of Holdings at the Issue Price of $0.10 per Subscription Share (for a total “Subscription Price” of $1.7m), which “shall represent 74% of the total issued share capital of [Holdings] at the time of their issue to [VCFA]”.

155. Clause 3.2 of the Share Subscription Agreement provided that Completion (meaning completion of the issue of the Subscription Shares to VCFA) will take place and effect as from 9.00am on the Completion Date.

156. The Completion Date was defined as “the date when the Share Sale Agreement is signed or [such] other date as agreed to by the Parties”. The “Share Sale Agreement” was defined as meaning “the Share Sale Agreement between [Holdings] and [the AGT Shareholders] dated on or about the date of this Agreement” (emphasis added). By cl 2.6 of Sch 2 to the Share Subscription Agreement, Holdings warranted that “it has signed the Share Sale Agreement”.

157. Clause 3.3 provided that on the Completion Date:

“(a) [VCFA] shall pay [Holdings] the Subscription Price in immediately cleared funds;

(b) [Holdings] shall allot and issue the Subscription Shares to [VCFA] free from any Encumbrances;

(c) [Holdings] agrees to appoint one (1) person nominated by [VCFA] as a Director having received [his/her] consent to be a Director;

(d) [Holdings] shall:

(i) register [VCFA] as a Shareholder; and

(ii) issue [VCFA] a Share certificate(s)

in respect of the Subscription Shares; and

(iii) apply the Subscription Price immediately and solely for the Purpose;

(e) all Directors existing at the date of this Agreement shall resign as Directors as at Completion save for [Mr Jane]; and

(f) the Shareholdings of the Shareholders be as that set out in section 2 of Schedule 1 [namely, VCFA owning 17,000,000 Shares (or 74% of the issued shares), and Mr Jane owning 6,000,000 Shares (or 26%)].”

158. Clause 3.4 of the Share Subscription Agreement provided that the obligations of the parties in respect of Completion are interdependent. Clause 3.6(a) provided that, soon after Completion, Holdings agrees to undertake an IPO at the IPO Price (of $0.20 per share) with a view to listing on the ASX in the fourth quarter of 2016 (that is, by 31 December 2016), and Holdings would “take all necessary action to progress this”.

(b) request that Access Group Training Pty Ltd (“Access”) provide an updated list of costs incurred by it for and on behalf of the Company in respect of the IPO and related costs (“Costs”);

(c) engage Access about the Costs as soon as practicable to determine and agree upon the Costs to be off set against the deposit paid under the AGT Agreement (“Deposit”) and how existing and future costs are dealt with including how any disputes as to such may be handled and how any excess funds are to be returned to the Company; and

(d) terminate the employment agreement between the Company and James Jane.”

231. The terms of resolution 3 impliedly acknowledged that the parties had entered into the Share Sale Agreement (here called the “AGT Agreement”), since the resolution proceeded on the basis that the agreement could be, and should be, terminated; that “the process under clause 5.9(d)” of the Share Sale Agreement was binding on the parties; and that the “deposit” of $1.7m was “paid under” the Share Sale Agreement.

232. There was no evidence of a notice of termination being sent by Holdings to the AGT Shareholders after the date of this resolution. Nonetheless, Mr Jane was plainly aware of the resolution of 17 July 2018, which he signed; and he stated, in his affidavit filed in these proceedings which was read on behalf of all of the AGT Shareholders, that “the circular resolution terminated” the Share Sale Agreement. I have proceeded on that basis.

233. By the circular resolution of 17 July 2018, Holdings elected “to treat the Deposit as a debt due to [Holdings] by [the AGT Shareholders]” within the meaning of cl 5.9(d). According to cl 5.9(d), and subject to any right of set off, this debt became “repayable within 12 months of the date of termination of this Agreement for failure so to complete”, that is, by 17 July 2019.

234. Paragraphs (b) and (c) of Resolution 3 were relied on by the AGT Shareholders as establishing that, within the meaning of cl 5.9(d) of the Share Sale Agreement, “there are payments due by [Holdings] …. to … [AGT]” which are to be “offset by the [AGT Shareholders]” against their obligation to repay the Deposit in their Respective Proportions. However, these paragraphs do not establish that there were any such “payments due”. Instead, these paragraphs set out a process whereby AGT would provide Holdings with a list of costs incurred by it for and on behalf of Holdings in respect of the IPO, and then Holdings would “engage AGT about the Costs as soon as practicable to determine and agree upon the Costs to be off set against the deposit”. That is, there was to be a process of negotiation leading to an agreement about the quantum of the costs that could properly be set off against the Deposit. There is no evidence that this process was undertaken, or what the results of the process were, and in particular there is no evidence of any agreement between AGT and Holdings that any particular sum of money was “due” to AGT in respect of those costs.

235. Paragraph (d) of Resolution 3 refers to the termination of the Employment Agreement with Mr Jane, which has been discussed above.

236. On 4 November 2018, a further circulating resolution of Holdings was signed by each of its shareholders (namely, by Mr Jane, and by Mr Lambert and Mr Poulos on behalf of VCFA), and by each of its directors (Dr Robinson, Mr Jane and Ms Cai). The resolutions made included the following:

“4. TERMINATION OF THE SHARE SALE AGREEMENT BETWEEN THE COMPANY AND THE AGT VENDORS RELATING TO THE PURCHASE OF THEIR SHARES IN ACCESS GROUP TRAINING PTY LTD (ABN 76 077 825 355) (“AGT Agreement”)

That the Company:

(a) terminate the AGT Agreement and initiate the process under clause 5.9(d) of the AGT Agreement; and

(b) request the AGT Vendors return the deposit paid thereunder.”

…

6. CANCELLATION OF EMPLOYMENT AGREEMENT WITH JIM JANE.

That having regard to the termination of the share sale agreement to acquire the shares in AGT and the fact that the listing of [Holdings] did not proceed the proposed employment agreement between [Holdings] and Jim Jane be cancelled and the shares issued to Jim Jane thereunder be cancelled.”

237. These resolutions, passed by all of Holdings’ shareholders and directors, again impliedly acknowledged that Holdings entered, and was bound by, the terms of the Share Sale Agreement with AGT; that the sums totalling $1.7m paid to the AGT Shareholders in August 2016 represent “the deposit paid thereunder”; and that “the process under cl 5.9(d)” of the Share Sale Agreement is binding on the parties.

238. Each of Mr Poulos and Ms Cai gave evidence that they signed this resolution because Mr Lambert told them to do so. For his part, Mr Lambert deposed that, although he was not convinced that the 28 February 2017 agreement had been duly executed or was binding, he saw that the resolutions involved the return of the $1.7m and “made a decision to accept them and move forward”.

Return of Deposit – Operation of clause 5.9(d)

239. For the reasons set out above, I have found that Holdings and the AGT Shareholders entered into the Share Sale Agreement dated 28 February 2017.

240. It follows that Holdings’ claim for money had and received must fail, as it was premised on the contention that no such agreement was executed, with the result that there was a total failure of consideration in respect of the Deposit. Instead, and consistently with the position adopted in the resolutions of Holdings in 2018, the repayment of the Deposit is governed by the terms of clause 5.9(d) of the Share Sale Agreement.

241. Holdings did not seek in the 2020 Proceeding any amount said to be due pursuant to clause 5.9(d) of that agreement. However, the AGT Shareholders accepted that, in circumstances where the claim for money had and received failed because I upheld their contention that the Share Sale Agreement had been entered and clause 5.9(d) governed the repayment of the Deposit, it was open to me to determine whether any amount was in fact owing to Holdings under clause 5.9(d), after determining the extent of any set off available under that clause (which was put in issue by Holdings’ Reply).

242. One oddity of the drafting of clause 5.9(d) is that it provides that in the event that Completion does not occur for any reason:

1. the AGT Shareholders “shall be entitled to retain the Deposit” (cl 5.9(d)(i)); and

2. Holdings has the option “to treat the Deposit as a debt due to [Holdings] by the [AGT Shareholders] in their Respective Proportions which shall become repayable within 12 months of the date of termination of this Agreement for failure to complete” (cl 5.9(d)(ii)(2)).

243. That is, the clause appears to provide, inconsistently, for a right on the part of the AGT Shareholders to “retain” the Deposit, and an obligation on the part of the same persons to repay the Deposit “as a debt due” to Holdings.

244. The apparent inconsistency is explained by the balance of cl 5.9(d)(ii)(2) and the circumstances known to the parties at the time when the Share Sale Agreement was entered in around early March 2017.

245. Clause 5.9(d)(ii)(2) provided that the obligation to repay the Deposit as a debt was subject to a right on the part of the AGT Shareholders to “offset” against that debt any “payments due by [Holdings] or a Related Party of it to [an AGT Shareholder] or to [AGT]”. It was common ground that the reference to an “offset” in cl 5.9(d) invoked the legal notion of set off which, in general terms, means the setting of money cross-claims against each other to produce a balance. The reference to “payments due” must be a reference to payments due as at the time that the Deposit itself fell due for repayment. As noted above, this was to be 12 months after the date of termination. As at the time that the Share Sale Agreement was entered, the Sunset Date was 30 June 2017, and therefore any obligation to repay the Deposit as a debt would likely fall due around 12 months after that Sunset Date, that is, around 30 June 2018 (or later).

246. At the time that the Share Sale Agreement was entered, it was known to the parties that VCFA had an obligation to repay AGT the amount of $1.3m which had been advanced to VCFA, together with interest accruing at 10% per annum. On the interest figures provided in the First Deed, the amount that would be owing as at 30 June 2018 (presuming no repayment before then) was the sum of the advances ($1,300,035), plus the amount of interest as at 30 June 2016 ($105,982.75), plus two years’, or 730 days’, interest after that point in time at the daily rate of $385.21 ($281,203,30), resulting in a total amount due as at 30 June 2018 of some $1.687m.

247. Accordingly, it was known by all parties that, unless VCFA chose to repay the advances before 30 June 2018, there would be, at the time that the obligation on the part of the AGT Shareholders to repay the Deposit as a debt arose, a liability on the part of VCFA to repay AGT an amount almost equivalent to the amount of the Deposit.

248. Against the background of those matters, it becomes apparent why cl 5.9(d) provided that the AGT Shareholders were entitled to retain the Deposit, but that Holdings could elect to require the repayment of the Deposit. The parties must have understood that the effect of such an election on Holdings’ part would be that the AGT Shareholders would exercise their right of set off so as to reduce, and likely eliminate altogether, the obligation to pay any amount in respect of the Deposit. In that sense, if Holdings exercised its election, the AGT Shareholders would “retain” the Deposit, but the consequence would be that VCFA’s debt to AGT would be reduced by the amount of the Deposit. Alternatively, if Holdings elected not to require repayment of the Deposit, the AGT Shareholders would retain the Deposit, and VCFA would remain indebted to AGT, but VCFA would be entitled to 14.16% of the shares then on issue in AGT (cl 5.9(d)(ii)(1)).

249. As set out at paragraphs 230 and 236 above, Holdings elected, by the resolutions of its shareholders (including VCFA) and its directors (including the two VCFA nominees, Mr Poulos and Ms Cai), to require repayment of the Deposit as a debt, in the knowledge that this would in turn give rise to the set-off right under cl 5.9(d)(ii)(2).

250. In order to consider the extent of set off under cl 5.9(d), it is necessary to consider any “payments due” by either a related party of Holdings (relevantly, VCFA) to AGT, or by Holdings itself to AGT, as at the date when the repayment of the Deposit fell due.

Set off – Payments due by VCFA

251. In their defences filed in the 2019 Proceeding, each of the AGT Shareholders pleaded (paragraph 58) that:

“the company, [AGT], is wholly owned by the [AGT Shareholders] and:

(a)   [AGT] has brought proceedings against [VCFA], a related party of [Holdings], to recover the sum of $1,876,029.60 (“the Debt”);

(b)   The Debt is an offsetting amount as against any amount due or owing and claimed in the Amended Statement of Claim, pursuant to clause 5.9(d) of the Share Sale Agreement;

(c)   Any amount found to be due or payable to [Holdings] is reduced by the amount of the Debt.”

252. Clause 5.9(d) allows the AGT Shareholders to set off, against their obligation to repay the Deposit in their respective proportions, any “payments due by … a Related Party of [Holdings] … to [AGT]”.

253. The Share Sale Agreement defines a “Related Party” as meaning:

“(a) a Related Body Corporate;

(b) an entity whose board or shareholding is similar to another entity; or

(c) an entity within the meaning of section 228 of the Corporations Act.”

254. The relevant point of time to consider set off is when the Deposit falls due for repayment pursuant to clause 5.9(d), which is the date 12 months after the date of termination of the Share Sale Agreement (namely, 17 July 2019).

255. In November 2018, each of Mr Jane and Dr Robinson ceased to be a director of Holdings. So, by the time the deposit fell due for repayment in July 2019, there is no doubt that Holdings was controlled by VCFA, and VCFA was therefore a related party of Holdings: Corporations Act, ss 50AA and 228(1).

256. It follows that, according to its terms, clause 5.9(d) operates so that the AGT Shareholders can set off, against their obligation to repay the Deposit to Holdings, any debt owed by VCFA to AGT.

257. It is open for parties to a contract to agree not only to set off debts owing by each to the other, but also debts owing by or to related entities of either party: see, for example, Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp (Sinochem International Oil Co Ltd, third party) [2000] 1 All ER (Comm) 474 at [30]; [2000] 1 Lloyd’s Rep 339; R Derham, Derham on the Law of Set-Off (4^th ed, 2010) at [16.02]. In Sinochem, Mance LJ commented that “a straightforward wish to provide for set-off of affiliate indebtedness corresponds with obvious realities of the corporate groupings through which international organisations … commonly conduct their business”.

258. Set off by agreement does not depend on any statutory foundation and is in law equivalent to actual payment on each side: Re Keith Bray Pty Ltd (1991) 5 ACSR 450 at 451 per McLelland J; In the matter of Integrated Growth Solutions Pty Ltd [2017] NSWSC 368 at [25] per Gleeson JA.

259. In Federal Commissioner of Taxation v Steeves Agnew & Co (Vic) Pty Ltd (1951) 82 CLR 408 at 420, Dixon J observed that: “If cross-liabilities in sums certain of equal amounts immediately payable are mutually extinguished by an agreed set-off, that amounts to payment for most common-law and statutory purposes.” His Honour quoted (at 420-421) with approval the following observations by Mellish LJ in Harmony and Montague Tin and Copper Mining Company (Spargo’s Case) (1873) LR 8 Ch 407 at 414:

“Nothing is clearer than that if parties account with each other, and sums are stated to be due on one side, and sums to an equal amount due on the other side on that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides had been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing money backwards and forwards.”

260. Similarly, in Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd(Saxton’s Case) (1929) 43 CLR 247; [1929] HCA 27, Isaacs J observed (at 269-270) that:

“It is established law that a payment in cash does not require that the formality of handing over actual cash shall take place, so long as what is done is virtually payment in cash. If A owes B £1,000 for cattle, and B owes A £1,000 for a house, mutual receipts for indebtedness would in law be payment in cash on both sides. In Larocque v. Beauchemin [[1897] AC at 364] Lord Macnaghten for the Judicial Committee, applying the doctrine of Spargo's Case, pointed to the necessity of independent agreement, each requiring an immediate payment of money down, in order that the setting off of the two demands should amount to a payment in cash.”

261. Although AGT was not a party to the Share Sale Agreement, its only directors and shareholders are the four AGT Shareholders (Mr and Mrs Jane, and Mr and Mrs Goard). Having regard to entry by the AGT Shareholders into the Share Sale Agreement, which provided for a set off in respect of the debt due by VCFA to AGT, and the reliance by the AGT Shareholders in response to Holdings’ claim on the set-off in clause 5.9(d) in proceedings which were heard together with AGT’s claim against VCFA (and in which AGT and the AGT Shareholders were represented by the same solicitors and counsel), I find that AGT has, by its directors and shareholders, unequivocally communicated that it would accept the application of the set-off in clause 5.9(d) in satisfaction of the debt which was due by VCFA to AGT.

262. AGT and the AGT Shareholders opened their case in these proceedings on the basis that:

“Clause 5.9(d)(ii)(2) of the Share Sale Agreement also provides that any debts owing from related entities may be setoff against repayment of the $1,700,000.00. The sums sought in the VCFA Proceedings are such an associated debt.”

263. That is, AGT for its part accepted that clause 5.9(d)(ii)(2) operated so that its debt could be satisfied by application of the set off mechanism. This was confirmed in the closing address for AGT and the AGT Shareholders:

“the way the clause is constructed, it incorporates debts by related entities. So, the idea is to try and make sure that there aren’t any artificial barriers in the way, that, if someone has a debt that’s associated against someone else that’s associated, then, that can be set off, so that everything gets squared out properly.”

264. Similarly, Holdings and VCFA accepted that, if clause 5.9(d)(ii) was binding, then the clause operated so that any debt of VCFA to AGT could be set off against the obligation of the AGT Shareholders to repay the Deposit to Holdings. Counsel for Holdings and VCFA put the position as follows in opening address:

“the way clause 5.9 works is in effect if the plaintiffs in both sets of proceedings are successful, then notwithstanding the difference in parties, the two judgments can be set off”.

265. In circumstances where all the relevant parties are before me, where there is no suggestion that any of them is insolvent, and where they agree that clause 5.9(d), if binding, would operate so as to permit the debt from VCFA to AGT to be set off against the debt of the AGT Shareholders to Holdings, I do not need to consider the issue of the precise mechanism by which the clause would be binding as against a non-party such as AGT, in the event the clause’s application was disputed. Instead, I proceed on the basis that the clause should be interpreted and applied in the way that all of the parties agree.

266. I have found that, as at 17 July 2019, VCFA was indebted to AGT in respect of the Principal Advances of $1,300,035 and interest thereon at the agreed rate of 10% per annum. Using the figures in Schedule 2 to the First Deed, the interest due at 30 June 2016 was $105,982.75, with interest accruing at a daily rate of $385.21 thereafter. The period from 1 July 2016 to 17 July 2019 (inclusive) is a period of 1,112 days. Applying the agreed daily interest rate produces a figure of $428,353.52 for the interest owing for this period. This produces a total indebtedness as at 17 July 2019 of $1,834,371.27.

267. This amount was “due” as at 17 July 2019 by either of two mechanisms. First, if the terms of the First Deed were binding on VCFA, then that deed provided that the whole of the outstanding principal, together with accrued and unpaid interest thereon, would be repaid by 30 September 2017 (cl 3.4.1). Secondly, if that deed was not binding on VCFA, then the loan having been made without a specified date for repayment would have been repayable on demand. A loan of money payable on request creates an immediate debt: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566 per Dixon CJ, McTiernan and Taylor JJ; [1956] HCA 51.

268. Because the amount payable by VCFA to AGT in respect of the loan exceeded the amount of the Deposit as at the date when the Deposit fell due for repayment under cl 5.9(d), namely 17 July 2019, the result is that, after the application of the contractual set-off in clause 5.9(d), no amount is payable by the AGT Shareholders to Holdings in respect of the Deposit.

269. It follows that, in the 2019 Proceeding, the claim made by Holdings for repayment of the Deposit must fail.

270. The application of the contractual set-off mechanism also has consequences for the 2020 Proceeding. As a result of the set-off being applied, AGT is taken to have received, as at 17 July 2019, a payment of $1.7m in respect of the balance of the outstanding principal and interest balance due from VCFA as at that date (being $1,834,371.27). The result is that the amount due by VCFA to AGT was reduced to $134,371.27 as at 17 July 2019.

265. Accordingly, in the 2020 Proceeding, AGT is entitled to repayment of the amount of $134,371.27, together with interest at the agreed rate of 10% on that amount from 17 July 2019 to the date of judgment.

Set off – Payments due by Holdings

272. In their defences, each of the AGT Shareholders pleads that prior to 17 July 2018, it was agreed between AGT and Holdings that costs of the IPO which had been incurred by AGT would be set off against the Deposit; and that on 17 July 2018, Holdings “passed a circular resolution giving effect to the agreement”.

273. However, the resolution of 17 July 2018 does not acknowledge any pre-existing agreement, but instead commits Holdings to undertake discussions with AGT about costs, with a view to reaching an agreement about what is owing (see paragraphs 230 and 234 above).

274. The reason that the resolution was worded in this way appears to be explained by the terms of email correspondence between the directors of Holdings prior to the resolution being passed. In particular, on 20 May 2018, Dr Robinson sent an email to the other directors (Mr Jane and Ms Cai), as well as Mr Stafford and Mr Kerridge, expressing the view that the problem with the proposed set off of IPO expenses incurred by Holdings against the amount owing by the AGT Shareholders to Holdings was that Mr Jane was “on both sides of the fence”. She stated that: “The debts, whatever they are, need to be examined and source documents provided so that they can be approved in a professional manner”. There is no evidence that such a process was undertaken.

275. Instead, Ms Pearce deposed that in June 2018, Mr Jane instructed her to “generate invoices for the IPO expenses that [Holdings] owes to AGT”. Ms Pearce generated two invoices on 25 June 2018, numbers 2273 and 2274. Despite being generated on that date, the invoices were dated, respectively, 30 June 2016 and 30 June 2017, and were stated to be due for payment on the dates they bore. Each invoice was addressed by AGT to Holdings. There was no reference on either invoice to any agreement pursuant to which they were issued. Instead, invoice no. 2273 simply stated that the amount of $113,652 was for consulting and legal fees, without any statement of the subject matter of the relevant work. Likewise, invoice no. 2274 for the amount of $628,193.34 referred to consultancy, legal, accounting and audit fees, as well as directors fees, filing fees and general expenses. The “reference” given on each of these invoices was in identical terms: “expenses paid on behalf”. Ms Pearce did not explain how she arrived at the figures in these invoices, or how she determined that these amounts had been paid by AGT on behalf of Holdings, or were due by Holdings to AGT.

276. Ms Pearce deposed that she subsequently generated two further invoices. On 17 September 2019, she generated invoice no. 2292 for the sum of $219,164.38, which was addressed to Holdings and dated 30 August 2018, with a due date of 29 September 2018. The description on this invoice was “IPO expenses to be reimbursed”, with no indication of what those expenses were for, or to whom they had been paid. On 11 December 2019, Ms Pearce generated invoice no. 2294 for the sum of $24,020.04, which was addressed to Holdings and dated 1 July 2019, with a due date of 31 July 2019. The invoice was described as being for “IPO Expenses Paid – Eakin McCaffrey Cox” for July, August and November 2018, and “Directors Fees – Paula Robinson (21/11/2018)”. Again, Ms Pearce did not give any evidence explaining how she arrived at the figures in those invoices, or why each was backdated.

277. The AGT Shareholders claim that they are entitled to set off, pursuant to clause 5.9(d), the total amount of these four invoices, being $985,029.76 plus interest (presumably from the “due date” specified on the invoices, even though this was a date some months or years before the invoice was actually issued). The fact that invoices were issued does not mean that there was any liability to pay the amounts in the invoices, to which the terms of clause 5.9(d) are capable of applying. Although, according to Ms Pearce, Mr Jane told her that Holdings owed “IPO expenses” to AGT, neither Ms Pearce nor Mr Jane referred in their affidavits to any written document evidencing any such agreement. Nor, as noted above, did the circular resolution of July 2018 provide evidence of an agreement to repay any amount of expenses having been reached prior to the resolution. Nor is there any evidence that, after receipt of the invoices, Holdings acknowledged any liability to pay them.

278. The AGT Shareholders rely on a conversation which, according to Mr Jane, occurred “in 2016” between himself and Mr Goard. It is not clear whether this conversation occurred at a time when Mr Goard was a director of Holdings (a position that he ceased to hold in mid-August 2016). The conversation was in the following terms:

“[Mr Jane]: Jack, we need to progress the listing of [Holdings] and the sale of AGT’s business. Unfortunately, as [Holdings] has no assets, AGT will need to bear the costs of the IPO and be reimbursed by [Holdings] once it has means.

[Mr Goard]: Yes, I know from listening to Malcolm Campbell that there will be a lot of work and expense. I agree with you that [Holdings] should reimburse AGT. Let’s make it happen.”

279. This evidence was not challenged. However, it does not establish a binding agreement between Holdings and AGT for Holdings to reimburse AGT for all costs incurred by AGT in relation to the IPO. It is not clear whether Mr Jane and Mr Goard were at this time intending to speak for each of AGT and Holdings, so as to give rise to a binding agreement between those entities; or were instead discussing, solely from the perspective of AGT, how matters should proceed.

280. There were in evidence a number of invoices that were addressed to AGT by various service providers, which were said by AGT to substantiate the claim for IPO expenses. However, there was no affidavit evidence explaining that each of the relevant invoices received by AGT from third parties related to the IPO, or explaining the relationship between these documents and the invoices which AGT subsequently issued to Holdings, in circumstances where the latter set of invoices are relied upon to establish and quantify the set off claim.

281. Given those matters, the AGT Shareholders have not established that the total amount of the invoices generated by Ms Pearce ($985,029.76) represents, within the meaning of clause 5.9(d), “payments due by [Holdings] … to … AGT” on the date that was 12 months after the termination of the Share Sale Agreement (that is, due as at 17 July 2019). Accordingly, I am not satisfied that this amount is able to be set off against the AGT Shareholders’ liability, pursuant to clause 5.9(d), to repay the Deposit of $1.7m in their Respective Proportions.

282. However, since I have found that the debt of VCFA to AGT may be set off against the AGT Shareholders’ obligation to repay the Deposit under cl 5.9(d), and the former is greater than the latter, the failure of the AGT Shareholders to establish any amount owing by Holdings to AGT does not affect the outcome under that clause.

CONCLUSION

283. I have found that AGT loaned funds totalling some $1.3m to VCFA, and that no amount has been repaid by VCFA in respect of those advances, or in respect of interest which is accruing at the rate of 10% per annum on the loan balance.

284. I have found that a Share Sale Agreement was entered between Holdings and the AGT Shareholders. It follows that Holdings has not established that the state of affairs contemplated as the basis or reason for the payment of the $1.7m Deposit failed to materialise, and therefore has not established that there was a total failure of consideration. Accordingly, Holdings’ claim for money had and received must fail.

285. Further, I have found that the question of repayment of the Deposit was governed by the terms of the Share Sale Agreement, and in particular by cl 5.9(d) of that agreement. Because Holdings terminated the Share Sale Agreement on 17 July 2018, and elected to seek repayment of the Deposit, the AGT Shareholders were, pursuant to that clause, obliged to pay that amount to Holdings by 17 July 2019, but were entitled to set off against that obligation any amount owing by VCFA to AGT in respect of the loan funds and interest accruing thereon. Because the sum owing by VCFA to AGT as at 17 July 2019 exceeded the amount of the Deposit, the effect of the set off being applied pursuant to clause 5.9(d) is that the AGT Shareholders have fully satisfied their obligations under that clause.

286. At the same time, the effect of the set off is to reduce the amount of the debt due by VCFA to AGT as at 17 July 2019 to $134,371.27. It follows that, in the 2020 Proceeding, AGT is entitled to judgment in an amount representing only the balance left after the application of the contractual set off, together with interest accruing at the rate of 10% per annum on that remaining balance from 18 July 2019 to the date of judgment.

287. The parties should bring in short minutes of order to give effect to these reasons for judgment, which deal with interest to the date of judgment.

288. I will provide the parties with an opportunity to confer regarding the appropriate costs orders in the light of these reasons, and to make submissions, with any supporting evidence, in the event that agreement cannot be reached on the proposed form of costs order in each proceeding. Similarly, I will hear any dispute about the interest calculations in the event that these cannot be agreed.

Orders

289. For those reasons, I make the following orders in each of the 2019 Proceeding and the 2020 Proceeding.

The Court:

1. Directs the parties to bring in short minutes of order, by 5pm on 6 December 2023, to give effect to these reasons for judgment, including:

1. orders that deal with interest and costs, insofar as those matters can be agreed; and

2. insofar as interest and/or costs are not agreed, proposed directions for evidence and submissions in respect of issues of interests and/or costs.

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Decision last updated: 22 November 2023