Aloridge Pty Ltd (Provisional liquidator appointed) v West Australian Gem Explorers Pty Ltd (In liq)
[1996] FCA 1125
•23 DECEMBER 1996
CATCHWORDS
CORPORATIONS - purported removal of director - issue of shares contrary to right of pre-emption conferred by Articles of Association - whether invalid - whether “procedural irregularity” within s.1322 of Corporations Law.
Corporations Law - s.1322
ALORIDGE PTY LIMITED (Provisional liquidator appointed) v. WEST AUSTRALIAN GEM EXPLORERS PTY LIMITED (In liquidation) & ORS
No. G3114 of 1993
BEAUMONT J.
SYDNEY
23 DECEMBER 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G3114 of 1993
)
GENERAL DIVISION )
BETWEEN:ALORIDGE PTY LIMITED
(Provisional liquidator appointed)
First applicant
GEORGE LOUKAS
Second applicant
ANDWEST AUSTRALIAN GEM EXPLORERS PTY LIMITED (In liquidation)
First respondent
GEORGE CHRISTIANOS
Second respondent
FREDERICK SALKANOVIC
Third respondent
AND BETWEEN: GEORGE CHRISTIANOS
Cross-claimant
ANDALORIDGE PTY LIMITED
(Provisional liquidator appointed)
First cross-respondent
GEORGE LOUKAS
Second cross-respondent
CORAM: BEAUMONT J.
DATE: 23 DECEMBER 1996
MINUTES OF ORDER
THE COURT ORDERS:
Direct that the parties respectively bring in draft short minutes of order in respect of the claims and cross-claims respectively.
Costs reserved.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G3114 of 1993
)
GENERAL DIVISION )
BETWEEN:ALORIDGE PTY LIMITED
(Provisional liquidator appointed)
First applicant
GEORGE LOUKAS
Second applicant
ANDWEST AUSTRALIAN GEM EXPLORERS PTY LIMITED (In liquidation)
First respondent
GEORGE CHRISTIANOS
Second respondent
FREDERICK SALKANOVIC
Third respondent
AND BETWEEN: GEORGE CHRISTIANOS
Cross-claimant
ANDALORIDGE PTY LIMITED
(Provisional liquidator appointed)
First cross-respondent
GEORGE LOUKAS
Second cross-respondent
CORAM: BEAUMONT J.
DATE: 23 DECEMBER 1996
REASONS FOR JUDGMENT
INTRODUCTION
In these proceedings, brought by leave of Burchett J. granted on 8 October 1993, the first applicant, Aloridge Pty Limited (Provisional liquidator appointed) (“Aloridge”), a member and shareholder of the first respondent, West Australian Gem Explorers Pty Limited (In liquidation) (“WAGE”) applied to this Court for an order setting aside an allotment,
purportedly made on 30 March 1992, of 9,600 shares of $1.00 each in the capital of WAGE to the second respondent, George Christianos. Subsequently the application was amended to include a claim by Mr Loukas for a declaration that on 23 March 1992 he had been invalidly removed as a director of WAGE.
Some of the earlier history of the litigation is recounted in the reasons for judgment of the Full Court in an interlocutory appeal in this matter (see Christianos v. Aloridge Pty Limited (1995) 131 ALR 129). Originally, by its application filed on 30 April 1993, Aloridge applied, not only for the relief now sought by it, but also, alleging that the affairs of WAGE were being conducted oppressively, for an order that a receiver be appointed to the assets of WAGE. Subsequently, by its amended application filed on 5 August 1993, Aloridge sought, inter alia, an order that WAGE be wound up under the Corporations Law (“the Law”). On 5 August 1993, Burchett J. appointed a provisional liquidator of WAGE. On 8 October 1993, Burchett J. ordered that Aloridge be granted leave to proceed in this matter, subject to a term to be mentioned shortly, and subject to any further order. The term imposed by his Honour was that any judgment obtained by Aloridge was not to be enforced without the leave of the Court. Since then, and after the Full Court judgment, an order has been made, apparently without opposition, for the winding up of WAGE.
The grant of this leave was necessary, if the matter were to proceed, by virtue of the provisions of s.471B of the Law, to the effect that while a company is being wound up, a person cannot begin or proceed with, inter alia, a proceeding in a court against the company except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
By s.468(1) of the Law it is provided, inter alia, that any disposition of the property of the company, and any transfer of shares or alteration in the status of the members of the company, made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.
It has been pointed out that s.468 does not prevent a company from making an issue of shares after the commencement of the winding up; and that, although unusual, there could be a case where, for instance, the winding up is to be terminated following the injection of more capital into the company (see H.A.J. Ford and R.P. Austin, Ford’s Principles of Corporation Law, 6th Ed. at 847, and the cases there cited). Here, of course, no fresh allotment is proposed but if orders were to be made in this matter, as asked by Aloridge, setting aside the purported allotment and rectifying the share register accordingly, there would be, presumably, an alteration in the status of a member of WAGE within the meaning of s.468(1). Presumably, the discretionary power of the Court to “otherwise order” would be available in an appropriate case (see Re National Bank of Wales (1897) 1 Ch.298 per Lindley L.J. at 306; per A.L. Smith L.J. at 312; J. O’Donovon, McPherson The Law of Company Liquidation (3rd Ed.) (1987) at 177). In any event, as has been noted, the Court already has control over the continuation of the litigation by virtue of the provisions of s.471B.
So far as concerns the grant of any relief in its claim by Mr Loukas that he was invalidly removed as a director, although it appears that directors lose their powers when a liquidator is appointed by the Court, the directors do not thereby lose office (see Ford at 826).
BACKGROUND
There is no real dispute about the course of the events which occurred as follows:
In July 1990, Roger Michael Lindsay applied for the grant of a mining lease of an area at North Coolgardie, Western Australia. In December 1990, mining lease 31/104 (“the Mining Lease”) was granted to Mr Lindsay, who had identified samples of chrysoprase, a semi-precious stone, whilst fossicking in the region.
In March 1991, WAGE was incorporated.
In May 1991, the third respondent, Frederick Salkanovic agreed to sell one share of $1.00 in the capital of WAGE to Mr Christianos for the price of $5,000. At the same time, Messrs Frederick and Markos Salkanovic agreed to sell to Aloridge 29 shares of $1.00 each in the capital of WAGE for the price of $145,000 (i.e. $5,000 each).
In July 1991, WAGE purchased the Mining Lease from Mr Lindsay.
As at 23 March 1992, the date of the purported removal of Mr Loukas as a director of WAGE, the other directors were Mr Christianos and Frederick Salkanovic. The issued share capital of WAGE consisted of 100 shares of $1.00 each held as follows:
Aloridge- 70 shares
Frederick Salkanovic - 10 Shares
Markos Salkanovic - 20 shares
___
100
For reasons which need not be considered further here, it seems that Aloridge, as from August 1991, may have had a beneficial entitlement to 29 of the shares in WAGE held by the Salkanovics. However, for present purposes, on any view, Aloridge was the holder of the majority of the issued shares of WAGE in March 1992.
As at 23 March 1992, the shareholding of Aloridge was as follows:
George Christianos - 1 management share
Maria Christianos - 1 management share
George Loukas - 1 management share
George Christianos - 300 Class V (i.e. “non-voting”) shares
Tonia Christianos - 100 Class V shares
Melina Christianos - 100 Class V shares
Christian Christianos - 100 Class V shares (600 Class V shares)
Con Loukas- 134 Class V shares
Michael Loukas - 133 Class V shares
Stephen Loukas - 133 Class V shares (400 Class V shares)
As has been noted, both the events now in question occurred in March 1992. There is evidence before the Court, in the affidavit of Mr Christianos sworn on 31 March 1995, giving an account of the earlier history of the dealings between the parties. Mr Loukas did not give evidence. Mr Christianos’ version of these dealings, which was not seriously challenged, was to the following effect:
Between July 1991 and February 1992, there was little mining activity carried out on the area the subject of the lease 31/104. By late 1991, approximately 30 tonnes of chrysoprase had been shipped by WAGE to Sydney to be sold on consignment by Aloridge. Between October 1991 and February 1992, since WAGE received very little income, most of WAGE’s running expenses were paid out of a joint personal account in the names of Mr Christianos and Mr Stephen Loukas. In earlier times, Mr George Loukas “occasionally” contributed to this account, but from about October 1991 he stopped doing so. Between October 1991 and February 1992, WAGE incurred debts of about $65,000 “over and above any running expenses that were paid by [it].”
In a conversation in December 1991, Mr Christianos informed Mr Stephen Loukas that there had been no sales, that nothing was being produced and that “we have got to get some money to keep the mine going”. Mr Stephen Loukas replied to the effect that his family had other business interests, that “we did not need the mining business”, and that “we’re not going to invest any more money into it”.
In a conversation later in December 1991, Mr Christianos informed Mr George Loukas that he [Mr Christianos] needed some money to pay bills at the mine site. Mr Loukas replied:
"Aloridge hasn’t got any money to advance you and I’m not going to give you any of my own money. Enough is enough .”
Late in December 1991, a similar conversation took place between them.
THE RELEVANT PROVISIONS OF THE ARTICLES OF ASSOCIATION OF WAGE
The relevant provisions of WAGE’s Articles of Association should be mentioned.
The power to issue shares is dealt with by Article 2.2 as follows:
"2.2Issue of Shares
Subject to Article 2.3, and without prejudice to any special rights previously conferred on the holders of any existing Shares or Class of Shares, Shares for the time being un-issued shall be under the control of the Directors, and subject to the Corporations Law and these Articles, the Directors may at any time and from time to time issue such number of Shares either as ordinary Shares or Shares of a named Class or Classes (being either an existing Class or a new Class) and with such preferred, deferred, or other special rates or such restrictions, whether with regard to dividend, voting, return of capital or otherwise, and whether as preference Shares that are or at the option of the Company are liable to be redeemed, as the Directors shall, in their absolute discretion, determine."
The entitlement to new shares is dealt with by Article 2.3 as follows:
"2.3Entitlement to New Shares
Except when all the Directors otherwise agree or the Company in general meeting by resolution otherwise decides, all Shares shall before issue be offered to existing Shareholders in proportion, as nearly as circumstances admit, to the Shares already held by them. The offer shall be made by notice specifying the number of Shares offered, and limiting the time (not being less than seven days) within which the offer, if not accepted, will be deemed to be declined, and after expiration of that time, or on receipt of an intimation from the person to whom the offer is made that he declines to accept the Shares offered, the Directors may dispose of those Shares in such manner as they shall in their absolute discretion determine."
The appointment and removal of directors is dealt with by Article 11.3 as follows:
"11.3Appointment and Removal of Directors
(1)The holders of a majority of the issued Shares for the time being may at any time and from time to time appoint one or more persons as Directors either as an additional Director, or in the place of a Director who
has been removed, and remove any Director from office, whether appointed under Article 11.1, this Article or Article 11.4.
(2)An appointment or removal under this Article shall be made by written notice to the Company signed by the relevant Shareholders, or in the case of a corporate Shareholder, by any Director or Secretary of the Shareholder. Any such removal or appointment shall take effect immediately on delivery of the notice to the Registered Office or on presentation at a duly constituted Directors meeting."
Vacation of the office of director is dealt with by Article 11.5 as follows:
"11.5Vacation of Office
The office of Director shall automatically become vacant if the Director -
(a)Ceases to be a Director by virtue of Section 224 or any other provision of the Corporations Law.
(b)Becomes bankrupt or makes any arrangement or composition with his creditors generally.
(c)Becomes prohibited from being a Director by reason of any order made under the Corporations Law.
(d)Becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health.
(e)Resigns his office by notice in writing to the Company.
(f)Is removed from office under Article 11.3."
THE EVENTS IN MARCH 1992
By facsimile transmission dated 19 March 1992, Mr Christianos, as WAGE’s company secretary, gave Mr Loukas and Mr Salkanovic notice of a Board meeting to be held on 23 March 1992. The agenda included the time “Restructuring of Board of Directors”.
Mr Loukas replied to Mr Christianos by facsimile transmission dated 20 March 1992 as follows:
"I acknowledge receipt of what purports to be a notice of meeting of Directors dated the 19th March 1992.
I wish to make it clear that this meeting is illegal and invalid. If this meeting proceeds legal proceedings will be instituted to rectify any changes to the status quo.
You may well, as secretary of the company, concern yourself with advising the remaining members of the board as to where certain stock may be located, which apparently is either missing or sold.
Please arrange for yourself and your father.... to attend the offices of the company Aloridge Pty Ltd as 4 Hiles Street Alexandria, NSW, as soon as possible to explain what appears to be d[e]ficiencies in stock and banking."
The minutes of the WAGE’s Board meeting held on 23 March 1992 record that Messrs Christianos and Salkanovic were present and that the following resolutions were passed:
"Resolved: That George Loukas be removed as a Director of the company and that the Secretary be instructed to arrange for the necessary documentation reflecting the removal to be lodged at the National Securities Commission.
That George Christianos be appointed Chairman of the company."
By letter dated 23 March 1992, Mr Christianos replied to Mr Loukas as follows:
"I refer to your letter of the 20th March 1992.
I note that your correspondence has at the bottom the notation W.A. Gem Explorers.
Would you please note that at a Meeting of Directors held on the 23rd March 1992, you were removed as a Director of W.A. Gem Explorers Pty Ltd. In these circumstances, you are no longer entitled to carry out any function on behalf of W.A. Gem Explorers Pty Ltd and you are specifically advised and notified that you have no authority in any manner whatsoever to carry on any activity on behalf of W.A. Gem Explorers Pty Ltd.
In these circumstances, I am not prepared to discuss any company business with yourself."
On or about 24 March 1992, Mr Christianos, acting through Mossensons, a firm of Perth solicitors, caused a notification of change of office holders to be lodged with the Australian Securities Commission to the effect that Mr Loukas had “resigned” as a director of WAGE. However, there is no evidence of his resignation, as distinct from his purported removal.
According to the affidavit evidence of Mr Christianos, shortly before 30 June 1992, he spoke to Mr Salkanovic pointing out to Mr Salkanovic that, in his opinion, Mr Christianos had lent WAGE “too much money personally to pay [its] bills”; that Mr Ian Mossenson, his solicitor, had advised him that he “should secure this debt against the property of WAGE or arrange for a debt equity swap”; that, since WAGE had no property (to mortgage), “the only alternative was to arrange for a debt equity swap”; and that “this mean[t] issuing a number of
shares in the company to [him] [as] there [was] no other way [he] [could] secure the moneys owed to [him]”.
According to the evidence of Mr Christianos, Mr Salkanovic agreed, and Mr Christianos suggested that there be a meeting on 30 March “to do this properly”.
The minutes of the Board meeting of WAGE held on 30 March 1992 record that Mr Christianos and Mr Salkanovic were present and that the following was resolved.
"ISSUE OF SHARES;: It was resolved that the company indebtedness to GEORGE CHRISTIANOS be reduced by issuing Nine thousand six hundred (9,600) ordinary shares to GEORGE CHRISTIANOS at $1.00 per share with a premium of $6.00 per share.
It was resolved that the above shares be issued and that the Secretary be instructed to enter same in the company’s register and issue the appropriate Certificates.”"
There is no evidence to suggest that the shares the subject of this resolution were first offered to any other shareholder of WAGE.
CONCLUSIONS ON THE CLAIMS MADE IN THE PRINCIPAL PROCEEDINGS
It will be convenient to deal with the two claims in turn.
(a)The purported removal of Mr Loukas as a director of WAGE
As has been noted, by Articles 11.3 and 11.5, a director of WAGE could be removed by notice given by the holders of a majority of the issued shares. But no such notice was given. It will be recalled that, at that time, the shareholders of WAGE were Aloridge (70 shares), Mr Frederick Salkanovic (10 shares), Mr Markos Salkanovic (20 shares). Thus, the power to remove a director of WAGE could then only have been exercised by Aloridge. That power was not exercised, and the directors themselves did not possess a power of removal. Whether Aloridge might or, as a joint venture company, might not, have exercised its power of removal, is beside the point. It follows that, prima facie at least, the purported removal was beyond power and invalid.
On behalf of Mr Christianos and Mr Salkanovic, reliance is placed upon s.1322 of the Law.
By s.1322(2) of the Law, it is provided that a proceeding under the Law is not invalidated “because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid”.
By s.1322(1) of the Law, it is provided that in s.1322, a reference to a “proceeding” under the Law is a reference to “any proceeding whether a legal
proceeding or not”; and a reference to a “procedural irregularity” includes a reference to the absence of a quorum and “a defect, irregularity or deficiency of notice or time”.
In my opinion, it is at least doubtful that the present aspect of the matter could properly be described as a “procedural irregularity” for the purposes of s.1322. But, although there is much force in the contention that the present point is substantive, rather than procedural, I need not finally decide that question. In my view, the making of an order under s.1322(4) validating the purported removal of Mr Loukas would cause him a substantial injustice, bearing in mind in particular the facts of his membership and directorship of Aloridge, and the fact that Mr Loukas protested at the proposed course of action in his letter dated 20 March 1992. The more general context should also be taken into account, that is, that Aloridge was in the nature of a vehicle for the conduct of a corporate joint venture, or a “quasi-partnership” in which Mr Loukas and his family were members of the joint venture “partnership”, with an expectation of a right to participate and to continue to participate, in the conduct of the affairs of the venture. In these circumstances, to be excluded from the management of WAGE, the operating subsidiary of the “partnership” would, in my opinion, cause Mr Loukas a substantial injustice. It is true that Mr Christianos claimed, as has been noted, that WAGE owed him money. But this was no justification for the informal expulsion of Mr Loukas from the Board of WAGE. In any event, there is expert evidence before the court from Mr Lonergan, which I accept, that WAGE could have repaid those debts itself.
I would add, as was mentioned in argument, that it is no answer to this claim to seek to rely upon the fact that Mr Mossenson may have acted for, and advised, Mr Christianos.
Nor, in my view, is any significance to be attributed, on this issue, to the failure of Mr Loukas to give evidence.
It follows, in my opinion, that the resolution dated 23 March 1992 was invalid.
(b)The share issue the subject of the Board resolution of WAGE dated 30 March 1992
This resolution is challenged upon several grounds, but, in the light of the conclusion I have reached on this aspect, I need only refer to the first, that is, that the issue was purportedly made in breach of Article 2.3 and thus invalid.
It will be recalled that the operation of Article 2.3 was the subject of two qualifications, of which only one, that “all the directors otherwise agree”, might have been applicable. But, given my earlier finding that Mr Loukas was not lawfully removed as a director, it must follow that all directors did not otherwise agree, so that this qualification to the operation of Article 2.3 was not available. Nor is there any suggestion here of ratification of an improper share issue by a general meeting.
Since no notice of offer of entitlement, required by Article 2.3 to be given, was given, it must follow, in my view, that prima facie at least, the resolution dated 30 March 1992 was beyond power. (See, for example, Gas Meter Company Ltd v. Diaphragm and General Leather Co. (1925) 41 TLR 342; Re Investment Executive Trust of New Zealand (in liquidation) 1937 NZLR 815 at 841; Grant v. John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 29; Whitehouse v. Carlton Hotel Pty Ltd (1987) 162 CLR 285; in the matter of Cameraworld Limited, Jenkinson J., 29 July 1993, unreported; cf. Halsbury’s Laws of England, 4th Ed. 1996 reissue, Vol. 7(1) paras 457, 460.
Again, Mr Christianos and Mr Salkanovic seek to invoke s.1322 of the Law. Again, I doubt whether the point is, in truth, “procedural” rather than substantive. I am, in any event, of the view that to order, in effect, that the other members of WAGE be deprived of the benefit of the pre-emptive rights conferred by Article 2.3 would cause those members, and in particular and specifically Aloridge, as the majority shareholder, a substantial injustice (cf. Caratti Holding Co. Pty Ltd v. Zampatti (1978) 52 ALJR 732).
I would again add, as was mentioned in the course of argument, that it is no answer to the present claim to point to the circumstance that a solicitor was acting in the matter.
Again, nothing here turns on the failure of Mr Loukas to give evidence.
It then follows that, in my view, the resolution for the share issue was beyond power.
ORDERS PROPOSED ON THE CLAIMS
I propose to direct that the applicants bring in draft short minutes of orders in respect of their claims.
THE FIRST CROSS-CLAIM
In order to understand the real issues in this cross-claim, it will be necessary to describe its background.
(a)Background
(i)The cross-claim as pleaded
This cross-claim was pleaded as follows:
(1)By a Deed dated 21 August 1991 (the “Deed”) made between Wallarobba Pty Limited (“Wallarobba”) as lender, Aloridge as borrower and Maria Christianos, Mr Christianos and Mr Loukas as guarantors (the “Guarantors”), Wallarobba agreed to advance the sum of $75,000 (the “principal sum”) to Aloridge. Clause 1 of the Deed provided that Aloridge would pay to Wallarobba the principal sum on or before 30 September 1991. Clause 2 of the Deed provided that Aloridge would pay to Wallarobba the additional sum of $10,000 (the “first additional sum”) on or before 30 September 1991.
(2)In breach of cl. 1 and 2 of the Deed, Aloridge failed to pay to Wallarobba the principal sum and the first additional sum, totalling $85,000, on or before 30 September 1991.
(3)By a further agreement made on or about 30 September 1991, between Wallarobba and Aloridge, in consideration of the promise by Aloridge to pay to Wallarobba an additional sum of $10,000 on or before 30 November 1991 (the “second additional sum”), Wallarobba agreed to extend the date for payment of the principal sum and the first additional sum to 30 November 1991.
(4)Aloridge failed to pay to Wallarobba the principal sum, the first additional sum and the second additional sum, totalling $95,000 (together the “Debt”), on or before 30 November 1991.
(5)By a letter dated 11 December 1991, Wallarobba requested Aloridge and the Guarantors, pursuant to cl. 3(a) of the Deed, to provide further security for the debt owed by Aloridge to Wallarobba, including, amongst other things, a fixed and
floating debenture over the assets of Aloridge and a share mortgage over the shares held by Aloridge in WAGE.
(6)In breach of cl. 3(a) of the Deed, Aloridge failed to execute the additional security documents as requested by Wallarobba.
(7)On 12 December 1991, Wallarobba, in exercise of Wallarobba’s powers as the attorney of Aloridge pursuant to cl. 3(b) of the Deed, executed the following documents on behalf of Aloridge: (a) Share Mortgage dated 12 December 1991, between Aloridge as mortgagor and Wallarobba as mortgagee (the “Share Mortgage”). (b) Debenture dated 12 December 1991, between Aloridge and Wallarobba (the “Debenture”).
(8)By a Deed of Assignment dated 28 July 1992 (the “Deed of Assignment”), between Wallarobba as assignor and Mr Christianos as assignee, in consideration of the payment by Mr Christianos to Wallarobba of the sum of $100,000, Wallarobba assigned to Mr Christianos all of its rights, title and interest in the Debt and the guarantee by Loukas contained in the Deed, together with all interest which had accrued, or which may accrue in the future, on the Debt.
(9)By a supplementary Deed of Assignment dated 28 September 1992 (the “Supplementary Deed”), between Wallarobba as assignor and Mr Christianos as assignee, those parties agreed to vary the Deed of Assignment by Wallarobba assigning to Mr Christianos the estate and interest of Wallarobba in respect of which Wallarobba is the registered proprietor pursuant to the Share Mortgage and the Debenture.
(10)On 25 September 1992, Wallarobba gave written notice to Aloridge of the assignment referred to in para. 8 above.
(11)On 25 September 1992, Mr Christianos made demand on Aloridge for payment of the sum of $101,907.32, but Aloridge has failed to pay to Mr Christianos the Debt, together with interest.
(12)On 28 June 1993, Wallarobba gave written notice to Aloridge of the supplementary assignment referred to in para. 9 above.
(13)On 28 June 1993, Wallarobba gave written notice to Mr Loukas of the assignment of the guarantee contained in the Deed. On 28 June 1993, Mr Christianos made demand on Mr Loukas for the payment of the sum of $101,907.32, pursuant to the
guarantee contained in the Deed. Mr Loukas has failed to pay to Mr Christianos the said sum.
Mr Christianos then claims: a declaration that the Share Mortgage and the Debenture dated 12 December 1991, are each valid and enforceable by Mr Christianos against Aloridge; a declaration that the guarantee contained in Deed dated 21 August 1991, is valid and enforceable by Mr Christianos against Mr Loukas; a declaration that, in the events which have happened, Mr Christianos is entitled to appoint a receiver and manager of the property of Aloridge pursuant to the Debenture dated 12 December 1991; a declaration that, in the events which have happened, Mr Christianos is entitled to appoint a receiver and manager of any shares and options held by Aloridge in WAGE pursuant to the Share Mortgage dated 12 December 1991; judgment against each of Aloridge and Mr George Loukas in the sum of $101,907.32; and interest.
(ii)The correspondence between the solicitors and parties
Although the defence to the cross-claim sought, initially, to put in issue many matters, including the execution of the Deed dated 21 August 1991 (Ex. 3), the defence should be read in the light of the contemporary correspondence between the solicitors as follows:
By letter dated 11 December 1991, Wallarobba wrote to Messrs Loukas and Christianos and Maria Christianos, as directors of Aloridge as follows (Ex. 4):
"LOAN - WALLAROBBA PTY LTD
You will recall, that by a Deed dated 21st of August 1991 Wallarobba Pty Ltd advanced to Aloridge Pty Ltd the sum of $75,000.00 which was to be repaid by the 30th of September 1991 together with an additional sum of $10,000.00.
You will further recall, that on the 30th of September 1991 Aloridge Pty Ltd was not in a position to make the payment, and requested an extension of time. This extension was requested by the Directors of the company.
As a result of the confidence that Wallarobba had in the Directors being Mr G Christianos and Mrs M Christianos, it was agreed to grant an extension of time. It was further agreed that an additional sum of $10,000.00 would be paid to Wallarobba for this extension.
Accordingly as at the 30th of November 1991 an amount of $95,000.00 is due to Wallarobba Pty Ltd.
Since the 30th November 1991, it has come to our attention as a result of conversations with Mr G Loukas and Mrs M Christianos, that the financial circumstances of the company at this point are not good and that there is some conflict between the Directors, assuming that Mr Loukas is in fact a Director of the company. We further note that the records at the Companies Office are not in accordance with what we understood to be the position of the Directors and shareholders of the company and that the financial affairs of the company appear to be in disarray. We further note that Mr Loukas has and is supposedly in control of the financial circumstances of the company.
In these circumstances, we require further security from Aloridge Pty Ltd and the Directors for the advance that has been made.
We accordingly now require pursuant to the documentation that has previously been executed between Aloridge, its Directors and ourselves the following additional security:-
1.A Fixed and Floating Debenture over the assets of Aloridge Pty Ltd.
2.A Share Mortgage over the shares held by Aloridge Pty Ltd in West Australian Gem Explorers Pty Ltd.
3.A Share Mortgage over any shares in Aloridge Pty Ltd held by Mr G Loukas and the Christianos family.
4.Guarantees to be included in the abovementioned documentation by Mr G Loukas, Mrs M Christianos and Mr G Christianos.
5.A term included in the documentation that interest be charged on the outstanding sum being the sum of $95,000 at the rate of 16% per annum commencing from the 1st December 1991.
6.The stamp duty and legal costs to be paid on the Agreement made between Aloridge Pty Ltd and ourselves.
7.Payment of the legal costs and stamp duty for the abovementioned documentation.
We require your confirmation in writing by your signature of a copy of this letter by 9.00am Perth time, Thursday 12th December 1991, that you are agreeable to the executing of all the abovementioned documentation which shall contain the usual terms and conditions of documents of this nature as determined by our solicitors to secure the advance made to Aloridge Pty Ltd by ourselves immediately upon receipt of same. In the event of us not receiving the written confirmation by the time specified we shall use the powers available to us pursuant to the Loan documentation."
By letter dated 18 December 1991, N.G. Cassim & Company, the present solicitors for the applicants and the cross-respondents, wrote to Wallarobba as follows:
"RE: ALORIDGE PTY LIMITED
We act for Aloridge Pty Limited who have been advised by the Registrar General’s Land Titles Office Sydney that a Caveat has been placed on our client’s land at Lot 6, 1-13 Endeavour Road, Caringbah by your Company claiming an interest in that land.
We are instructed that no such interest exists and require you to remove the Caveat forthwith.
If you do not remove the Caveat within twenty one (21) days from the date hereof legal proceedings will be instituted against your Company to remove this Caveat without further notice to you."
By letter dated 23 December 1991, Mossensons replied to N.G. Cassim & Company as follows:
"WALLAROBBA PTY LTD
We refer to your letter of the 18th December 1991 and note your advice that you purport to act for Aloridge Pty Limited.
We advise, that we act for Wallarobba Pty Ltd.
The advice that you have received that there is no interest by our client in property owned by Aloridge Pty Limited is without foundation. The interest is specifically contained in the Deed dated the 21st August 1991 between Aloridge Pty Limited and our client.
We require that you set out the grounds upon [which] you say no such interest lies and we will then consider what you have to say and advise accordingly.
In the meantime, we are of the view that the interest exists and any attempt to withdraw the Caveat will be resisted on our instructions to date."
By facsimile transmission dated 9 January 1992, Cassims communicated with Mossensons as follows:
"Re: Aloridge Pty Limited and Wallarobba Pty Ltd
We have been instructed on behalf of the above Company to advise you that it now intends to discharge its mortgage to your client Wallarobba Pty Limited.
Accordingly, we would be pleased if you would advise us of a payout figure... and indicating how the same is calculated.
We would also be pleased if you would advise us what documents will be handed over on settlement of the discharge."
By facsimile transmission dated 10 January 1992, Mossensons communicated with Cassims as follows:
"ALORIDGE PTY LTD AND WALLAROBBA PTY LTD
We refer to your facsimile transmission of the 9th of January 1992 received by us on the 10th of January 1992.
We advise, that the sum of $101,907.32 is required to settle as at the 10th of January 1992 with a daily rate of $41.64 thereafter.
This sum is calculated as follows:-
Original advance $75,000.00
Interest as at the 30th of September 1991 $10,000.00
Interest to the 30th of November 1991 $10,000.00
Interest on the sum of $95,000.00 from
the 1st day of December 1991 until the 10th of January 1992 at 16% per annum being 41 days at $41.64 per day $1,707.39Legal fees as per account of the 23rd of December 1991 $4,791.83
Anticipated legal fees for Withdrawal of Caveats in New South Wales, Withdrawal of Caveat in Western Australia and satisfaction of charge $408.10
__________
$101,907.32
At settlement, you would be provided with Withdrawal of Caveat and satisfaction of charge.
Would you kindly advise when it is anticipated that settlement will take place."
By facsimile transmission dated 13 January 1992, Cassims communicated with Mossensons as follows:
"Re:Aloridge Pty Ltd and Wallarobba Pty Limited
We acknowledge receipt of your Fax of 10th January and note your advices as to the payout figure and how the sum is calculated.
We again note that you have not provided us with copies of the documents which will be given to us on settlement.
If you are unwilling to do so, kindly advise when it would be convenient for us to send our Perth Agent to your office to inspect same."
By facsimile transmission dated 14 January 1992, Mossensons communicated with Cassims as follows:
"ALORIDGE PTY LTD AND WALLAROBBA PTY LTD
We refer to your facsimile transmission of the 13th of January 1992.
We note, that we have not received your advices as to when you anticipate settlement to take place.
We note your advice that you have not been provided with copies of the documents which will be given to you on settlement. Your letter of the 9th of January 1992 contains no request for copies of the documentation.
Until it is clear that settlement is going to take place, we see no point in preparation of the documentation. Once it is clear that settlement will take place, then the appropriate documentation will be prepared.
We look forward to your advices as to the proposed date of settlement."
By facsimile transmission dated 22 January 1992, Mossensons communicated with Cassims as follows:
"ALORIDGE PTY LTD AND WALLAROBBA PTY LTD
We refer to our facsimile transmission of the 14th of January 1992 and note that we have not received any advice from you as to the proposed settlement date.
Will you please advise as to when it is intended for settlement to take place and your confirmation that it is intended [for] settlement to take place."
(iii)Conclusions on the first cross-claim
In the course of the cross-examination of Mr Mossenson, Senior Counsel for the cross-respondents sought information from Mr Mossenson as to the circumstances surrounding the preparation and
apparent execution of the Deed dated 21 August 1991 (Ex. 3). As has been noted, the execution of this Deed was put in issue by the defence to the cross-claim. But, as has been said, Mr Loukas was not called, notwithstanding that on this question (as distinct from the claims already dealt with where the material facts were, in essence, not capable of being disputed), his evidence might have assisted his case. It is further of considerable significance here to note the tenor of the correspondence between the solicitors, which, as has been seen, is consistent only with an acceptance by all parties to the Deed, Ex. 3, that it was binding.
In all of the circumstances, the inference should, I think, be drawn that the Deed was properly executed. In drawing this inference, I should add that, in any event, I am not satisfied that the evidence of Mr Mossenson on this question should be disregarded. It should also be noted that in the course of his submissions, Senior Counsel for Mr Loukas frankly, and properly acknowledged, in this connection, the significance of the correspondence between the solicitors.
It follows that, in the absence of any serious dispute as to its factual foundation, I would, in principle, uphold this cross-claim. I will hear the parties on the form of the relief to be granted. The cross-claimant should bring in draft short minutes of orders.
THE SECOND CROSS-CLAIM
Under the second cross-claim, Mr Loukas seeks contribution from Mr Christianos and from Mrs Maria Christianos in respect of any moneys that Mr Loukas might be held liable to pay under the guarantee the subject of the first cross-claim.
In my opinion, noting that ultimately, the contrary was not seriously contended, there is an entitlement to contribution as claimed. The draft short minutes should reflect this.
ORDERS
Direct that the parties respectively bring in draft short minutes of order in respect of the claims and cross-claims respectively.
Costs reserved.
I certify that this and the preceding twenty-eight (28) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Beaumont.
Associate:
Dated: 23 December 1996
Counsel and Solicitors D. Officer, QC with D Warren instructed by
for applicants: N G Cassim & Company
Counsel and Solicitors J. Robson instructed by Phillips Fox
for first, second and third
respondents:
Date of hearing: 2, 3 December 1996
Date Judgment delivered: 23 December 1996
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