Andrews v Racken Pty Ltd - [2007] NSWSC 1010

CITATION: Barry Albert Andrews & 4 Ors v Racken Pty Ltd & 7 Ors [2007] NSWSC 1010

HEARING DATE(S): 19-21/09/06; 14-16/11/06; 12-14/02/07

JUDGMENT DATE :
11 September 2007

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: White J

DECISION: See paragraph 285 of judgment.

CATCHWORDS: PRINCIPAL AND AGENT – Authority of agent – Implied grant of authority to deal with execution page where page signed and delivered on its own by principal to fourth defendant. - CONTRACTS – Unconscionability – Unjust contracts – Borrower in position analogous to that of surety – Contract unjust where terms were not explained and borrower did not understand nature of obligations assumed – No steps taken by first defendant to ensure that contract explained to borrower – Relevance of principles of unconscionability at general law – Question of whether enforcement of contract unjust distinguished from question whether entry into contract unconscionable – Held that contract was unjust in circumstances in which it was made within meaning of Contracts Review Act 1980 (NSW) although other party did not act unconscionably – Purpose of remedy under Contracts Review Act to avoid unjust consequence or result – Held that just to hold borrower to substance of transaction as he understood it to be. - PRINCIPAL AND AGENT – Authority of agent – Scope of actual authority – Ostensible authority – Agent signed parents’ names - Agent with actual authority to mortgage shares but not to enter into contract imposing personal obligations on principals – No ostensible authority where no express representation by principals as to scope of agent’s authority and no usual actual authority of child permitted to negotiate and contract on parents’ behalf in relation to shares owned by parents – Agent purported to enter into contract on behalf of parents granting mortgage over shares and imposing personal obligations upon them –Whether principals bound to extent that provisions within agent’s authority – Where personal obligations not severable – Held that principals not bound by contract. - ESTOPPEL – By conduct – Where beneficial owner of shares represented that he had authority to deal with shares on behalf of bare trustee – Representation of authority induced first defendant to provide finance– Beneficial owner of shares estopped from denying that his signature effective to deal with shares – Held that bare trustee bound by representations of beneficial owner to extent that beneficial owner had actual authority to deal with shares and representation was within scope of authority as agent. - PRINCIPAL AND AGENT – Liability of agent to third persons – Execution of contract by son in name of parents constituting misleading and deceptive conduct –Fair Trading Act 1987 (NSW) s 42 – No requirement that representation constituting misleading and deceptive conduct be made to party claiming loss – Breach of warranty of authority – Measure of damages. - (NSW) Fair Trading Act 1987, ss 42 and 68 - (NSW) Contracts Review Act 1980, ss 7 and 9

LEGISLATION CITED: Contracts Review Act 1980 (NSW)
Australian Securities and Investments Commission Act 2001 (Cth)
Trade Practices Act 1974 (Cth)
Bankruptcy Act 1966 (Cth)
Australian Securities and Investments Commission Regulations 2001 (Cth)
Fair Trading Act 1987 (NSW)

CASES CITED: Masters v Cameron (1954) 91 CLR 353
Wilton v Farnworth (1948) 76 CLR 646
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Mercantile Credit Co Ltd v Hamblin [1965] 2 QB 242
Saunders v Anglia Building Society sub nom Gallie v Lee [1971] AC 1004
Petelin v Cullen (1975) 132 CLR 355
United Dominions Trust Ltd v Western [1976] 1 QB 513
Egan v Ross (1928) 28 SR (NSW) 382
In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Bakarich & Ors v Commonwealth Bank of Australia [2007] NSWCA 169
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41
Macquarie Bank Limited v National Mutual Life Association of Australasia Limited (Cole J, 15 June 1995, unreported)
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
Barclay’s Finance Holdings Ltd v John Robert Sturgess & Ors (Wood J, 29 July 1985, unreported)
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
McKeand v Thomas (2006) 12 BPR 23,593
Tobin v Broadbent (1947) 75 CLR 378
Shephard v Cartwright [1955] AC 431
Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353
Brown v Brown (1993) 31 NSWLR 582
Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271
Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639
ISPT Nominees Pty Ltd v Chief Commissioner of Stamp Revenue [2003] ATC 4,697; (2003) 12 BPR 22,941
Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641
The Commonwealth v Verwayen (1990) 170 CLR 394
Spencer, Bower & Turner, Estoppel by Representation, 3rd ed (1977) London, Butterworths
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522
Hoath v Connect Internet Services Pty Ltd (2006) 229 ALR 566
Gould v Vaggelas (1985) 157 CLR 215
Bowstead & Reynolds on Agency, 18th ed (2006) London, Sweet & Maxwell

PARTIES: Barry Albert Andrews & 4 Ors
v
Racken Pty Ltd & 7 Ors

FILE NUMBER(S): SC 2135/06

COUNSEL: Plaintiffs: P E King, F A Sinclair
1st & 2nd Defendants: R E Dubler SC & S Ivantsoff
4th & 7th Defendants: A J McInerney

SOLICITORS: Plaintiffs: Grahame W Howe & Co
1st & 2nd Defendants: Matthews Folbigg Pty Ltd
4th & 7th Defendants: DLA Phillips Fox

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Tuesday, 11 September 2007

2135/06 Barry Albert Andrews & 4 Ors v Racken Pty Ltd & 7 Ors

JUDGMENT

1 HIS HONOUR: In these proceedings, the first defendant, Racken Pty Ltd (“Racken”) seeks to enforce against the first plaintiff, Mr Barry Andrews, and against the fourth and fifth plaintiffs, Mrs Sophie Khan and Mr Sultan Khan, an agreement for the provision of finance of $250,000 secured by a mortgage of shares held by them in the fifth defendant, Oxyman Pty Ltd (In Liquidation) (“Oxyman”) and the sixth defendant, Laserbond Marketing Pty Ltd (“Laserbond Marketing”). Racken claims that the agreement was entered into on 5 August 2005.

2 There are three separate cases. The first concerns Barry Andrews. He did not see the Agreement for Provision of Finance. He signed an execution page and faxed it to Mr Ron Richmond (the fourth defendant). The principal issues in the claims involving Barry Andrews are:

(i) whether an oral agreement, on terms different from the document tendered by Racken as containing the Agreement for Provision of Finance, was entered into on 20 June 2005;

(ii) whether Barry Andrews became a party to the Agreement for Provision of Finance;

(iii) if Barry Andrews became a party to it, whether he is entitled to avoid the Agreement for Provision of Finance, or is entitled to damages, by reason of misrepresentations allegedly made, and misleading and deceptive conduct allegedly engaged in, by Richmond, Mr Terence Kelly (the seventh defendant) for themselves and on behalf of Mr Kenneth McCracken (the second defendant) and Racken;

(iv) whether Barry Andrews is entitled to relief under the Contracts Review Act 1980 (NSW) and, if so, on what terms; and

Australian Securities and Investments Commission Act

ASIC Act

Trade Practices Act

3 The second case concerns Sultan Khan and Sophie Khan, who did not sign the Agreement for Provision of Finance. Their son, Shaneel Khan, signed the document in their names and purportedly witnessed their signatures. The principal issues in their case are:

(i) Whether an oral agreement, on terms different from the document tendered by Racken as containing the Agreement for Provision of Finance, was entered into on 20 June 2005;

(ii) what actual or ostensible authority Shaneel Khan had to sign the Agreement for Provision of Finance on 5 August 2005 in their names;

(iii) whether they are bound by the Agreement for Provision of Finance;

(iv) whether shares held by Sultan Khan in Laserbond Marketing are held by him on trust for Shaneel Khan;

(v) if so, whether Sultan Khan is estopped from denying that the Agreement for Provision of Finance binds him to the extent it contains a mortgage of shares in Laserbond Marketing held by him on trust for Shaneel Khan; and

4 Racken seeks to enforce the terms of the Agreement for Provision of Finance against Barry Andrews, Sophie Khan, Sultan Khan, Richmond, Zanshin, Kelly and HOD. Richmond, Zanshin, Kelly and HOD did not defend the claims made by Racken against them. If Sophie Khan and Sultan Khan are not liable on the Agreement for Provision of Finance because they did not become parties to it, Racken claims damages from Shaneel Khan for misleading and deceptive conduct and breach of warranty of authority.

Terms of the Alleged Agreement for Provision of Finance

5 The document tendered by Racken as the Agreement for Provision of Finance bears a handwritten date of 8 August 2005. It is expressed to be a deed. It is expressed to be made between Barry Andrews, Mr Garry Andrews (the second plaintiff), Richmond, Zanshin, Kelly, HOD, Sultan Khan, Sophie Khan, Laserbond Marketing, Oxyman and Racken.

6 The Agreement defines the “Oxyman Shareholders” as Barry Andrews, Zanshin, HOD and Sophie Khan. The “Guarantors” were defined as Richmond, Kelly, Garry Andrews, and each of the “Mortgagors”. The “Mortgagors” were defined as Barry Andrews, Zanshin, HOD, Sophie Khan and Sultan Khan. The “Principal Sum” meant $250,000. “HVOF” meant HVOF Australia Pty Ltd. The Agreement recited:

A. At the request of the Oxyman Shareholders and the Guarantors, Racken has agreed to lend to the Oxyman Shareholders the Principal Sum on the terms set out in this Deed.

B. The Oxyman Shareholders have agreed to use the Principal Sum to acquire additional shares in Oxyman.

C. Steps are currently being taken to list HVOF on the Stock Exchange (and such company shall be known when it is listed as Laserbond Ltd).

7 Clause 2.1 provided for Racken to pay the Principal Sum to the Oxyman Shareholders. By clauses 3.1 and 3.2, the Oxyman Shareholders agreed to repay the Principal Sum together with interest at 9% per annum compounded monthly on the “Repayment Date”. The “Repayment Date” was 18 November 2005.

8 By clause 4, the Oxyman Shareholders agreed to subscribe for the allotment of 350 new shares in Oxyman. Barry Andrews and Sophie Khan were to apply for 87 shares each in Oxyman.

9 By clause 5 the Oxyman Shareholders agreed to do all things necessary to acquire unencumbered title to the “Specified Laserbond Ltd Shares”, on Laserbond Ltd being listed on the Stock Exchange. “Specified Laserbond Ltd Shares” were defined as “ ... 1.5 million ordinary shares in Laserbond Ltd. For the sake of clarity and the avoidance of any doubt, the ‘Specified Laserbond Shares’ do not include the shares acquired by Racken in Laserbond Ltd as a result of any action taken by Racken independently of this Deed.”

10 By clause 6, the Oxyman shareholders granted to Racken an option to acquire the Specified Laserbond Ltd Shares within 14 days of Laserbond Ltd being listed on the Stock Exchange. Clause 6.4 provided that if Racken exercised the option and if the shares of Laserbond Ltd were less than $0.20 per share on the fourteenth day after listing, the Oxyman shareholders agreed to make up the difference. If Racken exercised this option, and the Oxyman Shareholders complied with their obligation under clause 6.4, then the Oxyman Shareholders would be deemed to have discharged their obligation to repay the advance of $250,000 and to pay interest under clause 3.

11 By clause 7, the Oxyman Shareholders granted to Racken an option to acquire the 350 Oxyman shares to be subscribed for by the Oxyman Shareholders within 14 days of the shares in Laserbond Ltd being listed on the Stock Exchange. If this option were exercised, the Oxyman Shareholders would be deemed to have discharged their obligation under clause 3 to repay the advance of $250,000 and to pay interest.

12 Racken could exercise one share acquisition option but not both. If it exercised neither, the Oxyman Shareholders remained obliged to repay the advance of $250,000 and to pay interest.

13 Each of the Guarantors (which included Barry Andrews, Sophie Khan and Sultan Khan) guaranteed the payment by the Oxyman shareholders of all moneys which the Oxyman Shareholders were liable to pay. Thus each was liable for the repayment of the advance of $250,000 and the payment of interest, if neither of the options was exercised.

14 Clause 9 provided that each of Barry Andrews, HOD, Zanshin, Sultan Khan and Sophie Khan, mortgaged his, its and her shares in Laserbond Marketing and Oxyman to Racken to secure the payment of moneys and the performance of his, its and her obligations under the Deed. Clause 9.12 provided that each of the Mortgagors should deliver a signed transfer of their shares in Laserbond Marketing and Oxyman and share certificates. The Deed conferred on Racken powers of sale in the event of default. By clause 16 each of the other parties to the Deed irrevocably appointed Racken as his, its and her attorney to execute documents in such party’s name to give effect to the Agreement.

15 The Agreement consists of sixteen pages of text, followed by execution pages numbered 17, 18 and 19, followed by annexures on pages numbered 20 to 24. None of the pages is initialled. Page 17 consists of execution clauses for the signatures of Barry Andrews, Garry Andrews, Richmond, and Kelly. One copy of page 17 is signed by Garry Andrews, Richmond and Kelly. Another copy of page 17 is a faxed page containing Barry Andrews’ signature. Page 18 consists of execution clauses for Sophie Khan, Sultan Khan, Zanshin, HOD and Laserbond Marketing. It bears what appear to be the signatures of Sophie Khan and Sultan Khan witnessed by their son, Shaneel Khan. Kelly and Richmond also signed for Zanshin, HOD and Laserbond Marketing. On page 19, Kelly signed for Oxyman and Mrs Rachel McCracken signed for Racken.

16 Barry Andrews did not see the rest of the agreement. He signed only the execution page numbered 17, against the words “Executed as a Deed”. The page had been faxed to him by Richmond. He signed it in the presence of his wife who witnessed his signature and faxed it back.

17 Neither Sophie nor Sultan Khan signed the document. The signatures which purport to be theirs were affixed by their son Shaneel Khan who falsely signed as a witness attesting that they had signed in his presence.

The Plaintiffs’ Claims

18 Barry Andrews, Sultan Khan and Sophie Khan deny that they became parties to the alleged agreement. Alternatively, they seek to have the agreement set aside on a variety of grounds. They assert that a different agreement was entered into on 20 June 2005, involving the sale of shares. They claim that this contract was repudiated by Racken and discharged. They seek orders for the retransfer to them of shares now registered in Racken’s name which were the subject of the alleged mortgage, as well as other relief.

19 Barry Andrews, Sophie Khan and Sultan Khan claim that on 20 June 2005, they made an agreement with McCracken that, through Racken or some other vehicle nominated by him, he would invest $250,000 in Oxyman, the consideration for which would be that at his option he would take up shares in Laserbond Ltd after HVOF (which was then to be known as Laserbond Ltd) was listed at a value of $0.20, but at a discount price to him of $0.17, or alternatively would take up 350 shares in Oxyman. He was to exercise the option within 14 days of the listing of HVOF. His entitlement to the exercise of either option was to be secured by a transfer of shares held by Barry Andrews, Sophie and Sultan Khan, Zanshin and HOD in Laserbond Marketing which conferred rights to the issue of shares to the value of $62,500 in HVOF (that is, to the total value of $250,000, being $62,500 x 4).

20 Although it was not pleaded in this way, the plaintiffs’ claim was argued on the basis that the agreement reached on 20 June 2005 was subject to the satisfaction of two conditions. One condition was that McCracken would do due diligence in relation to HVOF to be satisfied with the proposal. The plaintiffs contended that McCracken carried out such due diligence and reached the relevant state of satisfaction by 22 July 2005. The other condition was that the agreement be formalised in writing. It was said that both conditions were satisfied. It was also said that the second condition was not a condition to the existence of a binding agreement. Rather, it was submitted, the case was one falling within the first category of case discussed by the High Court in Masters v Cameron (1954) 91 CLR 353 (at 360), namely, one where the parties had reached finality in arranging all of the terms of their bargain and intended to be immediately bound to the performance of those terms although proposing to have the terms restated in writing in a fuller or more precise way, but not to different effect.

21 Barry Andrews, Sophie Khan and Sultan Khan do not contend that this agreement is still on foot. They claim it was discharged because it was repudiated by McCracken and Racken. They claim to have accepted the repudiation and rescinded the agreement by filing proceedings. They claim damages, but there is no evidence of their having suffered any damage as a result of the breach of the agreement they allege. Any damage they have suffered arises from Racken’s claim to have had the right to control the disposition of their shares in Laserbond Marketing pursuant to the mortgage in the Agreement for Provision of Finance. If they are bound by the Agreement for Provision of Finance, then that agreement superseded any agreement of 20 June 2005. If not, Racken has no right to security over their shares in Laserbond Marketing or Oxyman irrespective of whether or not an earlier agreement on different terms had been made.

22 Barry Andrews, Sophie Khan and Sultan Khan allege that their signatures (or in the case of Sophie Khan and Sultan Khan their purported signatures), which are appended to the execution pages of the Agreement for Provision of Finance, were procured by fraud. They allege that Richmond, acting as agent for Racken and McCracken, dishonestly procured signatures of Barry Andrews, and of Shaneel Khan on behalf of Sophie Khan and Sultan Khan, by presenting a single sheet of paper which Barry Andrews and Shaneel Khan signed in the belief that the document was paperwork giving effect to the share sale agreement which they allege was made on 20 June 2005. They allege that Richmond represented to them that the single page presented for signature was an accurate and true reflection of the agreement reached (even though it contained no terms), or was part of, or gave effect to, a share sale transaction that they allege was made between the parties on 20 June 2005. They allege that Richmond made this representation knowing it was false, or not caring whether it was true or false, and intending that they act on it.

23 Barry Andrews, Sophie Khan and Sultan Khan also allege that Racken, McCracken and Zanshin represented that the transaction they were asked to sign was an investment, when in fact it was a loan personally guaranteed by them. They allege that Racken, McCracken, Zanshin, Richmond, Kelly and HOD represented that the value of Oxyman prior to August 2005 was not less than $15,000,000, when in fact the company was insolvent at the time. This representation was alleged to have been made “between February and August 2005” by Kelly on behalf of himself and Racken and McCracken. It is also alleged to have been made by McCracken to Shaneel Khan.

24 They also allege that McCracken, Racken, Zanshin, Richmond, Kelly and HOD represented that:

(a) Oxyman was able to pay its debts as and when they fell due prior to August 2005 when in fact the company was insolvent at the time; and

25 They allege that Zanshin, Richmond, Kelly and HOD represented that the financial accounts of Oxyman were a fair and accurate representation of the state of the company’s accounts, when the accounts were inaccurate and did not represent the company’s true financial position. There was no evidence of the defendants making the alleged representations referred to in this paragraph, let alone of reliance being placed on such representations by Barry Andrews or Sophie or Sultan Khan, or anyone on their behalf.

26 Barry Andrews, Sophie Khan and Sultan Khan allege that all the defendants engaged in unconscionable conduct in connection with the supply or possible supply of financial services in contravention of ss 12CB or 12CC of the ASIC Act, or s 51AC of the Trade Practices Act. They rely also on the Contracts Review Act to avoid the Agreement for Provision of Finance. The particulars of unconscionable conduct, and the grounds relied on for the claim that the Agreement for Provision of Finance was unjust in the circumstances relating to the contract at the time it was made, were:

(a) Unfair tactics were utilized by the Defendants in that the Plaintiffs were requested to sign a one page document on the assumption that this represented or was part of the agreement referred to at paragraph 3 when that was not the case;

(b) Undue pressure was applied to the Third Plaintiff on 5th August 2005 in that he was pressured to sign the one page document in a rushed moment with the Fourth Defendant saying ‘Quick we need the money’;

(c) The Fourth Defendant sent only a one page fax to the First Plaintiff;

(d) The 8 August written agreement was not reasonably necessary for the protection of the legitimate interests of the First Defendant;

(e) The First, Fourth and Fifth Plaintiffs were unable to understand the documents they signed or which were signed for them on 5th August 2005;

(f) Sharp practice by the First and Second Defendants their servants or agents;

(g) Unreasonable failure to disclose the intended conduct of the First and Second Defendants namely to use the signatures of the Plaintiffs to achieve loan transactions and guarantees that the said Defendants well knew the Plaintiffs would not otherwise have entered into.

27 The second plaintiff, Garry Andrews, is Barry Andrews’ son. Garry Andrews was made bankrupt on 12 April 2006, and the proceedings brought by him are stayed pursuant to s 60(2) of the Bankruptcy Act 1966 (Cth).

28 The third plaintiff, Shaneel Khan, is the son of Sophie and Sultan Khan. He was not a party to the agreement with Racken. He brought a claim against McCracken and Kelly alleging that they were directors of Oxyman and allowed Oxyman to incur debts to him when they knew, or should have known, it was insolvent. I was told that the parties had agreed that Shaneel Khan would not proceed with his claims, although no leave to discontinue was then sought. On the first day of the hearing, counsel for the plaintiffs announced that, as no relief was being sought at this hearing on behalf of Shaneel Khan, counsel and the plaintiffs’ solicitors would cease to act for him. After much shifting of position, the plaintiffs’ counsel ultimately sought and was granted leave to amend to raise the issue of whether Shaneel Khan had authority to cause his parents to enter into the alleged agreement. Racken then cross-claimed against Shaneel Khan for breach of warranty of authority, and misleading and deceptive conduct. Thereafter, Shaneel Khan was represented by counsel and solicitors who acted for the plaintiffs.

29 Mrs Rachel McCracken is the director and shareholder of Racken. She was not a party to the proceedings. All of the negotiations for the entry into an agreement or agreements in which Racken was engaged were conducted by McCracken on its behalf.

Racken’s Claim

30 Racken filed an interlocutory process in the nature of a cross-claim. It sought a declaration that the Agreement for Provision of Finance was valid and effective, a declaration that it is entitled to exercise its power of sale of the shares that are the subject of the mortgage, judgment for the sum of $250,000 with interest at the rate provided for in the Agreement for Provision of Finance, an order dissolving an interlocutory injunction given by Barrett J on 13 July 2006, and ancillary relief.

31 Racken also sued Shaneel Khan for breach of warranty of authority or misleading and deceptive conduct in the event it is held that Sophie Khan and Sultan Khan are not bound by the Agreement for Provision of Finance. It alleges that Sophie Khan and Sultan Khan held out Shaneel Khan as having authority to act on their behalf, and that Shaneel Khan acted within the scope of his actual or ostensible authority in executing the Agreement for Provision of Finance on their behalf. It also alleges that the shares in Laserbond Marketing registered in the name of Sultan Khan were held by him on trust for Shaneel Khan. It alleges that Sultan Khan, as bare nominee or trustee for Shaneel Khan, cannot dispute the validity of the mortgage of the Laserbond Marketing shares given by Shaneel Khan’s execution of the Agreement for Provision of Finance using the names of his parents.

32 Racken pleaded that Sophie Khan and Barry Andrews ratified or affirmed the Agreement for Provision of Finance after they were aware that Racken was asserting and relying on a written agreement and asserting its right to be repaid the sum of $250,000 and interest, by maintaining their entitlement to 87 shares each in Oxyman which were acquired from the funds provided by Racken and by communicating any dispute about the terms of the agreement, or seeking to rescind it, or offering to repay the $250,000.

33 Racken made no restitutionary claim to recover the sums of $62,500 paid to Barry Andrews and Sophie Khan for them to subscribe for shares in Oxyman in the event it were held that there was no contract between them.

34 It is necessary to describe in more detail the businesses of Oxyman and Laserbond Marketing, the shareholdings in those companies, the negotiations for the injection of capital to Oxyman, the negotiations leading to the signing of the execution pages of the Agreement for Provision of Finance, the circumstances relating to their being signed, the compilation of that document, and the alleged misrepresentations.

Oxyman and Laserbond Marketing

35 Oxyman held distribution rights to a range of products loosely described as nutritional oxygen supplements. It commenced business in about 2004. Its business consisted of selling such products into the health food and sports drink markets, and in marketing its products to owners or trainers of thoroughbred or other horses. On or about 8 May 2006, a voluntary administrator was appointed to Oxyman. On 5 June 2006, notice was lodged with ASIC that the creditors had resolved that Oxyman be wound up.

36 Kelly was the managing director of Oxyman. As at 2 August 2005, there were twenty-one shareholders and 7,035 issued shares in Oxyman. The largest shareholder was HOD. Zanshin was also a shareholder. Sophie Khan held 705 shares, or just less than 10% of the issued capital. A Mr Terry Griffiths was also a shareholder. On 9 May 2005, Racken had paid $100,000 to subscribe for 210 shares, then about 3% of the issued capital. Following Racken’s acquisition of shares in Oxyman, McCracken assumed the role as chairman of the management committee which supervised the management of Oxyman. He acted in that role from May 2005 to December 2005.

37 Some of the shares in Oxyman held by HOD were held on behalf of Garry Andrews. He said, and Kelly did not deny, that he had a beneficial interest in about 29% of the shares issued in Oxyman, although that interest had been diluted to about 23% by January 2006 as further capital was raised. He was the sales and marketing manager, and subsequently , the acting general manager, of Oxyman.

38 Prior to 5 August 2005, neither Barry Andrews nor Sultan Khan held shares in Oxyman, although Sophie Khan did. Racken and McCracken contended that the shares held by Sophie Khan in Oxyman, and those held by Sultan Khan in Laserbond Marketing, were held by them on trust for Shaneel Khan.

39 Oxyman and Laserbond Marketing shared the same offices. They also shared the same computer server. However, there was no formal relationship between the companies. Some persons held shares in both companies.

40 Laserbond Marketing had entered into an agreement on 13 February 2004 with HVOF to distribute the products of HVOF. HVOF carried on a business known as HVOF & Laser Technologies. The marketing agreement of 13 February 2004 recited that HVOF specialised in the reclamation and surface engineering of industrial components operating in severe industrial environments. On 13 February 2004, an agreement was made between HVOF, Laserbond Marketing, and the then current shareholders of HVOF and Laserbond Marketing, for Laserbond Marketing to acquire shares in HVOF. The agreement provided for Laserbond Marketing to acquire 39% of the share capital in HVOF for just over $1,990,000. The evidence did not disclose what shares were acquired by Laserbond Marketing in HVOF.

41 The then current shareholders of Laserbond Marketing were described in the agreement as Zanshin, HOD, Mr Sherjeel Khan, Griffiths and Naidu Australia Pty Ltd. Sherjeel Khan is Shaneel Khan’s brother. The agreement also recited that Zanshin and HOD held shares beneficially for Garry Andrews. The agreement was signed by Kelly and Richmond who control HOD and Zanshin respectively.

42 To raise the deposit, Laserbond Marketing entered into a loan agreement with Barry Andrews on 9 March 2004. The agreement recited that Barry Andrews had agreed to lend Laserbond Marketing $200,000 to facilitate the purchase of HVOF’s shares. The finance was raised by a loan from the Bank of Adelaide secured over the house of Barry Andrews and his wife. The agreement provided that Laserbond Marketing would service the interest on the loan. It provided that Laserbond Marketing would issue a further 23 shares in Laserbond Marketing to Barry Andrews, and that when Laserbond Marketing was in a position to repay the loan, Barry Andrews could elect either to have the loan repaid with a high rate of interest, or to retain the 23 shares in Laserbond Marketing and continue to pay the interest to the Bank of Adelaide himself.

43 Whilst the agreement of 9 March 2004 between Laserbond Marketing and Barry Andrews provided for the issue of an additional 23 shares to him, contemporaneous minutes and subsequent events show that the parties must have agreed to vary the number of shares so as to reflect an issue to him of shares representing approximately 40% of the issued capital of Laserbond Marketing.

44 Laserbond Marketing had been acquired as a shelf company on 19 December 2003. The share register and the allotment journal show a confused picture in relation to the issue, re-issue and cancellation of shares up to September 2004. Shares were issued to Sherjeel Khan in January 2004, but those shares were cancelled in September 2004. In September 2004, three hundred shares were issued to Sultan Khan. At some time prior to early 2006, Richmond prepared a document from the company’s records summarising the shareholding in Laserbond Marketing. There were then 3,100 shares and 172 convertible notes on issue. Barry Andrews was the largest shareholder with 1,254 shares representing 38.33% of the issued capital.

45 The shareholders of HVOF and of Laserbond Marketing proposed that HVOF would be “floated”. The details of the proposed float were not in evidence and were unclear. It was proposed that HVOF would be converted to a public company, its name changed to Laserbond Ltd, that shares would be issued to the public, the share issue would be underwritten, and Laserbond Marketing’s shareholding in HVOF would be restructured so that the shareholders in Laserbond Marketing would acquire shares and options in the company to be known as Laserbond Ltd.

46 Barry Andrews thought that, on the float of HVOF, the shares in Laserbond Marketing would be converted to shares in Laserbond Ltd and listed at a minimum of twenty cents.

47 The document prepared by Richmond showing the holders of shares and convertible notes in Laserbond Marketing also showed the shares in Laserbond Ltd to which each shareholder of Laserbond Marketing would be entitled on the conversion of HVOF to a public company and the issue of shares. The parties did not dispute the accuracy of the document, but there was no evidence to substantiate the premises on which it was prepared. The document stated that the shareholders in Laserbond Marketing would be entitled to 5,500,000 shares on the float at an assumed value of twenty cents each, with options to take up further shares over the following five years. There was no evidence of any agreement between the shareholders of Laserbond Marketing and the shareholders of HVOF as to how this would work. Be that as it may, if Richmond’s calculations as to how shares in Laserbond Ltd would be issued to the shareholders of Laserbond Marketing on the float of Laserbond Ltd were correct, and if the assumed values of those shares were correct, Barry Andrews’ shareholding of 1,254 shares in Laserbond Marketing would give him a right to shares in Laserbond Ltd with an assumed value of $421,577 at the time of the float. Sultan Khan’s 300 shares in Laserbond Marketing would translate to 504,279 shares in Laserbond Ltd at an assumed value at the date of the float of $100,856.

Negotiations for Injection of Further Capital to Oxyman

48 Between late February 2005 and 9 May 2005, McCracken considered making an investment of $100,000 in Oxyman. During that period, he considered various financial statements of Oxyman provided to him, and discussed its financial position and its business with Garry Andrews, Shaneel Khan, Richmond and Kelly. On 5 May 2005, Richmond forwarded to McCracken a copy of a valuation provided by Benwest Investment Services Pty Ltd. Benwest observed that Oxyman had net assets in the range of $600,000 to $650,000, and had effectively only been operating for five months. Benwest opined that Oxyman had a fair market value based on the capitalisation of estimated future earnings of between $15,000,000 to $18,000,000. This was based upon the acceptance at face value of the directors’ forecasts of future earnings and the assumptions underlying those forecasts. Both Richmond and Kelly regarded this valuation as over-optimistic.

49 On 9 May 2005, Racken agreed to take up 210 shares in Oxyman for a price of $100,000 which was said to equal 3% of the capital of the company. Racken did so on condition that McCracken was appointed as chair of the management committee of Oxyman commencing from 13 May 2005. Two hundred and ten shares were duly issued to Racken on 9 May 2005.

50 Oxyman continued to experience cash flow difficulties. According to Garry Andrews, he attended a meeting with Richmond, Kelly and Shaneel Khan in early June 2005 and suggested that a proposal be made to McCracken that he invest a further $250,000 in Oxyman on the basis that he could be given shares to that value in Oxyman, or to the same value in HVOF when HVOF listed. If he chose to take shares in HVOF on listing, he could do so at a discount price of seventeen cents instead of the twenty cent listing price.

51 Garry Andrews telephoned McCracken. According to him, he said to McCracken:

I have got an offer for you. I believe it to be a win-win for you and Oxyman. I have spoken to Terry, Ron and Shaneel and we have agreed that if you invest $250,000 in Oxyman we would give you shares to that value in Oxyman and offer you shares in Laserbond at a discount price of 17 cents as opposed to the listing price of 20 cents and you can decide whether you want to take up the Laserbond shares and make a 15% profit, or take up the Oxyman shares. You can hold both as security if you like. You will make a profit out of Laserbond or if Oxyman gets good coverage from A Current Affair, you might want to stick with them. Your call.

52 McCracken said that he might be interested and asked that the offer be put in writing and that he would do due diligence and speak to Garry Andrews. According to Garry Andrews, he subsequently sent such a proposal to McCracken by email, although the email was not produced.

53 McCracken gave evidence of the telephone call with Garry Andrews on 17 June 2005. According to McCracken, he was asked if he knew of a financier who would be interested in lending Barry Andrews, Shaneel (Khan), Ron (Richmond), and Terry (Kelly) $250,000 to be used to take up new shares in Oxyman so that Oxyman received the $250,000 for working capital. According to McCracken, Garry Andrews said to him that:

We would all provide the financier with security for the loan. The security would be the parties’ shares in Oxyman, their shares in Laserbond Marketing with the associated rights to take up shares in Laserbond, and we would all provide the financier with personal guarantees.

54 According to McCracken, Garry Andrews proposed that the financier would have the option to take up the parties’ shares in Oxyman, or to participate in the float of Laserbond by “the allotment of the number of the parties’ rights accruing from Laserbond Marketing’s entitlement in the float that would result from dividing $250,000 by a discounted price of 17 cents per share. This option, if taken, would have to be within fourteen days of listing”. If the option were taken up, its exercise would be in lieu of repayment of the loan.

55 The matter was discussed at a management committee meeting of Oxyman on 20 June 2005. There were conflicting accounts as to what happened at that meeting. I prefer the account recorded in the minutes of that meeting. It is the most closely contemporaneous record of what occurred. The minutes state:

“ Investment into Oxyman via Laserbond Marketing

1. Chairman [McCracken] informed meeting of telcon from GA inviting investment in LBM at $250,000 to purchase shares at 17 cents held by GA, TK, SK and RR who would in turn re-invest those funds into Oxyman, purchasing shares at $5 million valuation.

2. Investor would be able to hold on to the Oxyman shares purchased by GA, TK, SK and RR as security until the LBM shares are floated and sold for at least 20c.

3. Chairman said the investment of $250,000 is available but he would need a prospectus, his lawyer would put an agreement together, and would have to be satisfied that the float is underwritten at 20c and at the low level of risk.

…

56 The minutes make no mention of the investment of $250,000 being by way of loan.

57 According to Barry Andrews, in June or July 2005, he received a telephone call from his son, Garry. According to Garry Andrews, in early June 2005, he spoke to his father about the proposal. Neither Garry Andrews nor Barry Andrews gave evidence in their affidavits as to what passed between them in relation to the proposal. Barry Andrews deposed that he called Richmond in June or July 2005 and told Richmond that Garry Andrews had told him that McCracken was buying Laserbond shares at a discount price, and that the money was going into Oxyman. He asked how that worked. According to Barry Andrews, Richmond said to him:

That’s right. That money will go straight into Oxyman, and further Oxyman shares will be issued. He is putting in $250,000 and you will receive Oxyman shares to the value of $62,500. When the Laserbond float happens, Ken [McCracken] can decide whether he wants to take the Laserbond shares at a discount price of 17 cents per share or take the Oxyman shares.

58 Barry Andrews said that he told Richmond that that was what Garry had said, and asked what Richmond thought. Richmond replied that “Ken has got a choice. He can take the Oxyman or the Laserbond shares. He can’t lose.” According to Barry Andrews, he asked “What about me?” and Richmond replied, “You can’t lose either. When Laserbond floats Ken gets the shares. It doesn’t cost you anything.” He asked Richmond what he would have to do and Richmond replied “At the moment, nothing. We’ll be in touch.”

59 Richmond denied this conversation. I do not accept Barry Andrews’ evidence that such a conversation occurred. It would not make sense to say that Barry Andrews could not lose on the deal allegedly explained to him. Barry Andrews stood to lose some of his shares in Laserbond Marketing if McCracken elected to take up the option to acquire those shares, which he would be expected to do if the Laserbond Marketing shares were more valuable than the shares to be issued by Oxyman. Whilst Barry Andrews would retain the newly issued shares in Oxyman in that event, he would lose in the deal unless either McCracken elected to take the Oxyman shares or, if McCracken elected to take the Laserbond Marketing shares, McCracken’s judgment as to the relative value of the shares in Laserbond Marketing and Oxyman proved erroneous.

60 Neither Barry Andrews nor Richmond was an impressive witness. Barry Andrews repeatedly failed to answer questions in cross-examination. Richmond’s later evidence concerning the compilation of the Agreement for Provision of Finance was confused and inaccurate. The parties’ recollections of conversations is coloured, possibly unconsciously, by their perception of where their interest in the litigation lies. Barry Andrews was at pains to emphasise that he knew nothing of any proposal for the moneys to be advanced by McCracken being by way of loan. I accept this part of his evidence. He was also at pains to minimise his reliance on his son Garry to inform him of the proposal, by casting Richmond in the role of adviser. I do not accept that Richmond assumed such a role, or that Barry Andrews was relying on anyone other than his son Garry.

61 It was put to Barry Andrews that, following his telephone conversation with his son Garry, he understood that Garry would discuss with McCracken the things Garry had discussed with his father. Barry Andrews did not accept that. He said he did not know what Garry’s intentions would have been and that Garry simply outlined the deal that he was discussing with McCracken. Barry Andrews said that he then telephoned Richmond to confirm what he had been told by Garry. I do not accept his evidence of his conversation with Richmond.

Alleged Agreement of 20 June 2005

62 The plaintiffs allege that, at the meeting of 20 June 2005, an agreement was entered into between Barry Andrews and others including Sophie and Sultan Khan, and McCracken and Racken, which was subject to the two conditions subsequent referred to earlier at para [20].

63 The agreement which it was said was arrived in this way on 20 June 2005 was originally pleaded in the following way:

By an agreement between the Plaintiffs and the Defendants their servants or agents in late July 2005 [McCracken] through his vehicle [Racken] or another entity nominated by him agreed to invest the sum of $250,000 in [Oxyman] in consideration of the purchase of shares by [Racken] or his nominee in HVOF Laser Technology Pty Ltd [sic] to be known as Laserbond Limited when listed at a value of 20 cents at a discount price to him of 17 cents or alternatively at his option to take up 350 shares in [Oxyman] (one or the other) which option was to be exercised by him no later than 14 days of the listing of HVOF Laser Technology Pty Limited [sic] to be known as Laserbond Limited when listed, such entitlement to be secured by the transfer to him of shares belonging to [Barry Andrews] and [Sophie Khan] or [Sultan Khan] and [Zanshin] and [HOD] in [Laserbond Marketing] with rights to the issue of shares to the value of or which would equate to $62,500.00 in HVOF Laser Technology Pty Ltd [sic] to be known as Laserbond Limited when listed namely 224 shares in [Laserbond Marketing] and/or 350 shares of the said parties in [Oxyman]

64 Notwithstanding the pleading, Sophie Khan did not hold shares in Laserbond Marketing. I gave leave to the plaintiffs to amend this paragraph to correct the name of the company to be floated. I refused an application for leave to amend in other respects as the allegation in this paragraph formed the basis of a plea of fraudulent misrepresentation and the application to amend was made after cross-examination of the plaintiffs’ witnesses.

65 How was this contract allegedly made? Garry Andrews said that at the management committee meeting on 20 June 2005, McCracken said that:

I’ve had a telephone conversation with Garry asking for investment of $250,000 into Oxyman via Laserbond by purchasing Laserbond shares held by or on behalf of Garry [Andrews], Terry [Kelly], Shaneel [Khan] and Ron [Richmond] at a price of 17 cents per share. The investor will hold onto the Oxyman shares as security until the Laserbond shares are floated. The investment of $250,000 is available but I will need a prospectus and my lawyer will put an agreement together. The lawyer will have to be satisfied that the float is underwritten and at the low level of risk.

sale of Laserbond shares to be invested in Oxyman

66 This is not the language of contract. Even on the plaintiffs’ case, McCracken, whilst indicating that he had secured an investor with money to invest, was still considering the investment. No mention was made of the shares held by Barry Andrews. Garry Andrews did not hold shares in Laserbond Marketing. It was not submitted by any party that Barry Andrews held his shares on trust for his son.

67 Shaneel Khan was not at the meeting of 20 June 2005. It is impossible to see how a contract could have been made with his parents at that meeting.

68 In any event, the details of the proposal were indefinite. Nothing was said as to what would happen if the float did not proceed. There was no clarity as to how many shares in Laserbond Limited would be issued to McCracken or his nominee.

69 It is quite clear that no agreement was made on 20 June 2005. The parties had only started negotiations. Considered objectively, there was no intention of the parties to be bound.

70 Notwithstanding the manifold difficulties facing the argument that an agreement was reached on 20 June 2005, the plaintiffs persisted in that submission to the end of the hearing. The submission necessarily involved an implicit admission that someone at the meeting had acted on behalf of Barry Andrews and Sophie and Sultan Khan in causing them to enter into an agreement with McCracken or Racken.

71 Following the meeting, Garry Andrews dictated a letter to Kelly to send to McCracken. The letter is dated 20 June 2005 and states:

To assist the capital raising for Oxyman Pty Ltd, Barry Andrews, Ron Richmond, Shaneel Khan and myself have agreed to sell to an entity nominated by you $250,000 worth of 20c shares in Laserbond Pty Ltd at the discounted rate of 17c. As additional security for this investment the above persons will personally guarantee the performance of the investment in Laserbond and will make available to hold as security the share certificates in Oxyman. Laserbond Pty Ltd is a company scheduled to be floated on the Australian Stock Exchange in August 2005. The $250,000 raised by this sale will be invested in Oxyman Pty Ltd shares at a fair nominal value of $5,000,000 to be used as working capital.

Your entity would retain control of both the Laserbond and Oxyman shares until the Laserbond shares are listed. Then within 14 days of the listing you would elect in writing whether you wish to keep the Laserbond or the Oxyman shares.

We understand that you will liaise with your legal representative to prepare a suitable document to formalize this arrangement as soon as possible.

On behalf of the team, please accept my sincere thanks for this commitment to us and to Oxyman, and we look forward to achieving a successful future for the Company together.

72 The letter is obscure. It does not say how many shares in Oxyman would be issued, although it might be inferred that the number of shares to be issued would be such as would represent 5% of the issued capital of Oxyman after issue. The letter suggests that the agreement was to sell 1,470,588 shares in Laserbond Limited to McCracken in return for the payment of $250,000 to be invested in Oxyman (i.e. $250,000 ÷ $0.17). There is no explanation as to what is meant by the offer by Barry Andrews, Richmond, Shaneel Khan and Kelly to personally guarantee the performance of the investment in Laserbond. Nor is there any reference to the term alleged in the statement of claim that the entitlement to shares in the listed company would be secured by a transfer of shares belonging to Barry Andrews, Sophie and Sultan Khan, Zanshin, and HOD, in Laserbond Marketing.

73 It is to be inferred from the amended statement of claim that the plaintiffs allege that the agreement was that the number of shares in Laserbond Marketing to be transferred by way of security would be that number of shares which gave each shareholder the right to receive $62,500 worth of Laserbond Limited shares on listing. This was alleged in the statement of claim to be 224 such shares. The letter did not refer to such a term.

74 No agreement was made, whether conditionally or otherwise, on 20 June 2005.

Preparation of Agreement for Provision of Finance

75 McCracken deposed that Garry Andrews described the proposal as a loan in both his telephone conversation of 17 June 2005 and at the Oxyman management committee meeting on 20 June 2005. I do not accept that evidence. Neither the minutes, nor the letter of 20 June 2005 make reference to a loan, as distinct from an investment in Laserbond Marketing.

76 Prior to 29 June 2005, McCracken had a meeting with his solicitor, Mr Phillip Brophy of Mathews Folbigg. Brophy sent an email to Garry Andrews on 29 June 2005, asking that it be passed on to McCracken, setting out matters that Brophy needed to know in order to document the proposal as evidently it had been discussed by McCracken with him. Brophy described the proposal as one involving a sale of “Laserbond” shares, a subscription for shares in Oxyman, an option in favour of Racken to either settle the purchase of the shares in Laserbond, or alternatively acquire from “Andrews”, Richmond, “Khan” and Kelly their shares in Oxyman, for that option to be exercisable within 14 days of the Laserbond float or, if it did not proceed, by an agreed date, and a mechanism to determine and adjust for any difference in the value of the two shareholdings. It is also clear from the email that McCracken had spoken to Brophy about receiving personal guarantees, which may well have been guarantees for the repayment of the moneys if the float did not proceed. The details at this stage were so unclear that Brophy said he was not sure at which point money would change hands and find its way to Oxyman.

77 On 30 June 2005, there was a further management committee meeting of Oxyman. The minutes record that McCracken was obtaining more details on the prospectus and listing.

78 That negotiations were still in train also appears from a letter written by Garry Andrews on 22 July 2005 to McCracken. The letter commenced by Garry Andrews stating that after long discussions with “the guys” “it became quite confusing and messy when trying to create a fair and mutual percentages vs shares etc.”. He then made the following proposal:

Our decision was to keep it simple. Therefore the shareholders in LaserBond Marketing (LBM), Ron Richmond, Barry Andrews, Sophie Khan (sic) and Terry Kelly, have agreed to hand over their LBM share certificates as security. These include the shares in LaserBond Pubco, options in LaserBond Pubco as well as shares in LBM. You are aware that LBM has the right to a 20% commission on sales that it generates, and we intend to hold a shareholders meeting to decide whether we keep the existing company or sell it to LaserBond Pubco at a fair and reasonable price.

Obviously you would hold the LBM share certificates, along with $250,000 worth of new shares in Oxyman as agreed until the listing come October. At that time you would decide whether to take up the Oxyman shares or $250,000 worth of LaserBond Pubco shares at the agreed price of 17c.

79 After outlining the projects for which Oxyman had an urgent need of funds, he concluded by saying that “We are all ready for the completion of the agreement at your earliest convenience. We obviously believe that the deal has become much easier as we, the shareholders, can hand over the share certificates immediately.”

80 On the face of it, the offer was to hand over certificates for all of those shareholders’ shares in Laserbond Marketing, as well as any shares they held in HVOF, (which must be the company referred to as “Laserbond Pubco”). However, it is not suggested that any of the shareholders in Laserbond Marketing were also the holders of shares in HVOF at that time.

81 On 21 July 2005, McCracken attended a meeting at the premises of HVOF Australia with Messrs Wayne and Greg Hooper, who are the directors of that company. He was taken on a tour of the factory and was impressed by the improvement in the Laserbond products and processes from the time of his previous visit in about 2004. It was only at that stage that McCracken decided to proceed. On 21 July 2005, he gave instructions to Brophy in relation to the proposal. He also had a telephone conversation with Richmond. He told Richmond that he was impressed with his visit to Laserbond, that he had had it confirmed that funds were available and he had instructed Phillip Brophy to proceed with the preparation of an agreement. He told Richmond that “to get this within the time frame that you want, the best course is for you to be the point of contact between all the parties to negotiate and document the deal. We previously discussed you being the point of contact between the parties and Phillip Brophy for the transfer of information back and forth. Are you still OK with that?” Richmond said “Yes, no problem.”

82 The plaintiffs contend that McCracken appointed Richmond as his agent to negotiate an agreement with the plaintiffs, although somewhat inconsistently they also contend that a binding agreement had already been made. The defendants say that Richmond being an intermediary or point of contact did not make him anybody’s agent. The defendant’s submission is correct. McCracken did not give Richmond any authority to act for him or Racken.

83 McCracken understood Garry Andrews’ letter of 22 July 2005 to be a proposal that Racken have an option to take up shares in Laserbond Limited directly, together with associated rights, instead of its having an option to take up “rights” in Laserbond Marketing. He asked Garry Andrews how Racken would get its rights to Laserbond shares.

84 A further meeting of the management committee of Oxyman was held on 26 July 2005. It was attended by, amongst other people, McCracken, Kelly, Garry Andrews and Richmond. Shaneel Khan did not attend. The minutes record under the heading “Legal Agreements” the following:

ITEM

BUSINESS

REPORT BY

1. Laserbond Marketing/Oxyman/Racken

a. Phil Brophy of Matthews Folbigg to call re documents needed, ie LBM shareholdings, Prospectus, etc

b. Agreement to be between Racken, Oxyman and LBM

c. KM to have option on 1.5 million Laserbond Ltd shares for $250,000

d. KM will hold 4 actual LBM major shareholders certificates over 70% of LBM shares as security

e. LBM major shareholders to invest the $250,000 into Oxyman shares (those share certificates also to be held as security by KM)

f. Document how Oxyman to utilise the $250,000

g. KM to have option to take Oxyman shares instead of LLtd shares at time of listing

h. KM to discuss tax implications of purchase with accountant

85 McCracken denied that the matters under paragraphs 1(b), (c), (d) and (e) were discussed at the meeting. However, I think it more likely that the minutes in these respects are accurate.

86 It is clear that the parties were still negotiating.

87 On 27 July 2005, Brophy forwarded to McCracken a “preliminary draft” of a share acquisition deed. In the covering email, Brophy wrote that:

“As I indicated to you when we spoke, there are a number of issues in relation to which I need your instructions. I have flagged the issues in the Deed with a double asterisk. The Deed is deliberately vague in certain places for the reasons you and I have discussed. Without covering all of the issues here, I should mention in particular that the details in relation to the ‘rights’ to acquire shares in Laserbond Pty Ltd have not been provided to me and I have drafted the Deed entirely on the basis of your instructions in this regard. Obviously enough, there could be something in the detail regarding those rights of which I am not currently aware which could have some impact on this Deed. At this stage I note that I have not yet received a copy of the prospectus for Laserbond Ltd and would be grateful if you could get that to me as a matter of urgency.”

88 The plaintiffs attributed sinister significance to the statement that the deed was deliberately vague in certain places. However, there is nothing sinister in that statement. As the following sentence makes clear, it refers to the fact that Brophy had to be vague when he did not have enough information properly to draft an agreement. The draft share acquisition deed which followed provided for numerous details to be inserted. These included the date on which Racken would make payment of $250,000, details of a loan to be made between the Laserbond shareholders and Oxyman, the number of shares in Oxyman to be allotted to Racken, and indemnities to be given by Barry Andrews, Richmond, Kelly and Khan.

89 McCracken responded to this email late on the evening of 27 July 2005. He advised that:

Under this new offer, by virtue of the guarantors advice, the need for ‘rights’ no longer exists. It is a share with all of its attached benefits that is being offered. My advice is that LBM has a 7.92% interest in HVOF represented by 5.5M shares. As consideration for a loan of $250,000 to the guarantors I will (among other things) be entitled to exercise an option, within 14 days of listing HVOF in the name of Laserbond Limited, to convert that to 1.5 million shares in Laserbond Limited or have transferred to me the shares in Oxyman purchased by the guarantors for the $250,000 based on the company value of $5M

90 This information was provided by email. The email was sent by McCracken to Brophy again on 28 July 2005. This time, a copy was sent by email to Richmond. On the same day, Richmond copied the email correspondence to Kelly, Garry Andrews and Shaneel Khan. He also sent a copy of it to Mr Terry Griffiths. Griffiths was asked to perform a consulting role in relation to the proposed agreement.

91 McCracken made it clear in this email that the payment of $250,000 would be a loan, repayment of which was to be guaranteed, and which would also entitle him to exercise an option either to take a transfer of shares in Oxyman which would be purchased by “the guarantors” for the $250,000 to be advanced, or to exercise rights attaching to the shares in Laserbond Marketing to take up 1,500,000 shares in Laserbond Limited after listing.

92 Richmond forwarded the email to Kelly, Garry Andrews, Shaneel Khan and Griffiths using headers which stated that the subject was “FW: Oxyman/Laserbond deal” and the importance of the email was “High”.

93 Garry Andrews said that he was incompetent with computers. This was not challenged. He said that his practice at the offices of Oxyman was that a Mr Tim Michaels would print out for him headings of the emails he received and he would decide to which emails he wished to reply, and reply using Michaels. In cross-examination, Garry Andrews said that he was given a printout in the morning of the names of the senders of the emails and the person to whom they were sent. He said that if they were not addressed to him personally but only copied to him, and were not his department or realm of business within the company, he would not act on them. He said that he had located the original document that he had received from his personal assistant (whom I take to be Michaels). He produced the document which he said he had found over the weekend. It is a document dated Thursday, 28 July 2005 headed “List of Emails”. It was created for him on that day by Michaels. The document he produced set out the text of seven emails, including two emails which were otherwise in evidence from Richmond to McCracken and copied to Garry Andrews at 3.49pm on 27 July 2005, and from Griffiths sent to Richmond, Kelly and Andrews at 6.31pm on 27 July 2005. The document produced set out the text of the emails as well as, in some cases but not all, the heading.

94 This is consistent with Garry Andrews receiving at the beginning of each day the text of emails sent to him the previous day. However, it is not clear that there would have been printed out for him the text of the preceding emails forwarded to him. He was not cross-examined on the text of McCracken’s email to Brophy of 27 July 2005 which was forwarded to him as part of a string of emails by Richmond at 10.09am on 28 July 2005. I do not find that Garry Andrews read the email from McCracken to Brophy forwarded to him as part of a string of emails on 28 July 2005.

95 However, Shaneel Khan did not have the same difficulties in dealing with electronic communications. I find that he received, and I infer that he read, the email.

96 A further meeting of the management committee of Oxyman was held early on 2 August 2005. The minutes record “Legal agreement being completed by Phil Brophy of Matthews Folbigg – to liaise with RR for LBM matters.” McCracken deposed that at the meeting, Richmond said that the other parties should liaise with him in relation to the agreement and in relation to any Laserbond matters. I accept that evidence.

97 On 2 August 2005, Brophy sent an email to McCracken attaching a document entitled “Summary of Proposed Arrangements” which set out his understanding of the deal. The document provided that the $250,000 would be a loan from Racken to Barry Andrews, Zanshin, Sophie Khan and HOD, repayable within three months and carrying interest of 9% per annum. It provided for Oxyman to issue 350 shares to those persons. It provided for Racken to elect within 14 days of the listing of shares in Laserbond Limited to take either a transfer of 1,500,000 in Laserbond Limited or 350 shares in Oxyman. On the exercise of either of those rights, the loan would be forgiven and the mortgage over shares referred to later in the document would be discharged.

98 The document dealt with what the position would be if the share price of Laserbond fell below twenty cents on the close of business on the fourteenth business day after listing. It provided for Barry Andrews, Zanshin, Sophie Khan and HOD to make up the difference between such a closing price and twenty cents in respect of the 1,500,000 shares. The document also provided for Barry Andrews, Zanshin, Sophie Khan and HOD to mortgage the shares they held in Oxyman, being both the shares they then held and the shares which would be allotted to them, to secure repayment of the loan and to support the guarantee as to the value of the Laserbond shares. The document provided for Garry Andrews to guarantee the performance of Barry Andrews in relation to his obligations concerning the loan and the guarantee as to the value of the Laserbond shares, for Richmond to do the same in respect of Zanshin’s obligations, for Sultan Khan to do the same in respect of Sophie Khan’s obligations, and for Kelly to do the same in relation to HOD’s obligations.

99 On 2 August 2005 at 11.00am, McCracken sent an email to Brophy, copied to Garry Andrews, Richmond and Kelly thanking Brophy for the document and noting that he had made some insertions. At 12.08pm on 2 August 2005, Richmond sent an email to McCracken, Brophy and copied to Garry Andrews and Kelly advising them of some further minor changes, and advising that the last paragraph (that is, the paragraph dealing with the allotment of further shares) was fairly critical. He said that “overall we find the agreement is straightforward and easy to understand.” Brophy’s summary of the proposed arrangements was an attachment to these emails. The changes included Shaneel Khan rather than Sultan Khan guaranteeing the performance by Sophie Khan of her obligations in relation to the loan and guarantee. It also contained a note as to the intention to invite existing shareholders to take up new shares.

100 Garry Andrews said he did not receive the email. He said that it was possible that if he received the email, he may not have asked Michaels to print, or even open it because “as far as I was concerned, the share sale deal had been concluded.”

101 I do not accept that Garry Andrews believed that the share sale deal had been concluded. There was nothing to justify such a belief. Garry Andrews said that there was no discussion between him and Richmond, or between him and his father, regarding the topic in the last paragraph of the document attached to the email, that is the paragraph relating to the dilution of existing shareholdings and compensation for the same.

102 Richmond did not say that he specifically discussed the summary of proposed arrangements with Garry Andrews. Nor did Kelly give such evidence. Richmond did say that between 28 July 2005 and 4 August 2005, on three, four or five occasions, he asked Garry Andrews whether he had any comments on the proposed arrangements for the $250,000 from Racken. He told Garry Andrews that Griffiths and Kelly had emailed their comments on the proposed arrangements. Garry Andrews replied “If it’s OK with Terry Griffiths, then it is OK with me.” Garry Andrews said to Richmond on 2 August 2005 that he was checking on the progress of the agreement for $250,000 as he needed the money for certain transactions of Oxyman. I accept this evidence.

103 I find that, despite his denial, Garry Andrews was aware of the terms of Brophy’s summary of the proposed arrangement. He knew that Brophy had provided a summary of the proposed arrangements and that his comments were sought. The practice of Michaels was to set out the text of important emails of which this was one. The text of the email from Richmond referred to the last paragraph of the summary of arrangements as being fairly critical. The document was important to Garry Andrews as he must have appreciated that it set out the proposed terms on which $250,000 of required working capital would be provided to Oxyman, as well as dealing with his father’s shares in Laserbond Marketing. I infer that Garry Andrews read the attached summary of the proposed arrangements.

104 On the evening of 2 August 2005, Garry Andrews made a telephone call on his mobile phone to his parents’ number at 8.28pm. The conversation lasted two minutes and thirty seconds. There was no evidence as to what was discussed at that time. Having regard to the shortness of the length of the call, it is unlikely that Garry Andrews raised any significant concern with his father about the document, sent to him by email that day, which described the proposed arrangements and the changes from what had previously been proposed. He had a further telephone call to his parents’ home the following morning at 9.23am, but that call lasted only one minute. Of course, that is not to say that there may not have been other telephone conversations between them not initiated by Garry Andrews on his mobile phone.

105 On 4 August 2005 at 12.55pm, Mr David Fullerton of Matthews Folbigg sent a draft deed for the provision of finance by email to McCracken and Richmond. In his email to Richmond, Fullerton stated:

“ Ron, can you please note that we act solely for Racken Pty Ltd in relation to this transaction. Each of the other parties to this Deed should obtain independent legal advice on the document before they execute it.

Please let me know if any changes are required.

106 This document was forwarded by Richmond at 1.04pm on 4 August 2005 to Kelly, Garry Andrews, and Griffiths. The draft agreement provided in substance all of the important terms which were included in the final agreement, although changes were later made to the number of shares to be issued by Oxyman. Relevant provision included that the advance of $250,000 was by way of loan, which attracted interest at 9% per annum compounded monthly; that the “Oxyman shareholders” (Barry Andrews, Zanshin, HOD and Sophie Khan) agreed to repay the loan on 18 November 2005; that the obligations of the Oxyman shareholders would be guaranteed by the “guarantors” (Barry Andrews, Garry Andrews, Richmond, Zanshin, Kelly, HOD, Sophie Khan and Sultan Khan); that the obligation to repay the loan would be discharged if Racken exercised its option to take up shares in “Laserbond” or the shares to be issued in Oxyman; that Barry Andrews, HOD, Zanshin and Sultan Khan would mortgage all of the shares held by them in Laserbond Marketing as security for their obligations to Racken; and that Sophie Khan would do likewise with respect to her existing shares in Oxyman.

107 This draft deed was forwarded by Richmond to Shaneel Khan at 1.39pm on 4 August 2005. Shaneel Khan said he did not recall receiving the email, but I accept that it was sent to him. Counsel for the plaintiffs submitted that Shaneel Khan gave evidence that he did not receive the 1.39pm email of 4 August 2005. That is not a correct statement of Shaneel Khan’s evidence. Shaneel Khan said he did not recall reading the email. Counsel submitted that Shaneel Khan’s evidence (wrongly said to be that he did not receive the email) was corroborated by Richmond’s own evidence. Counsel referred to para 46.2 of Richmond’s affidavit of 7 November 2006 and quoted Richmond as having said:

Annexed hereto and marked RR11 are true copies of three emails which were forwarded by me to ... Shaneel Khan on 4 and 5 August 2005.

108 Counsel pointed out that the annexure RR11 did not include the 4 August 2005, 1.39pm email. However, counsel again misquoted the evidence. In fact, Richmond’s evidence was that annexure RR11 were true copies of three emails he had forwarded to Griffiths, Kelly, Garry Andrews and Shaneel Khan on 4 and 5 August 2005 and that copies of the other emails as sent by him were annexed to his affidavit of 23 May 2006. His affidavit of 23 May 2006 included the email from him to Shaneel Khan of 4 August 2005 at 1.39pm.

109 Counsel for the plaintiffs said of that document that a careful comparison of it with the email forwarded to Kelly, Garry Andrews and Griffiths on 4 August 2005 shows that it could not have been sent as Richmond asserted as the typeface was different and it appeared to have been pasted onto earlier emails in time. I do not accept that the annexure to Richmond’s affidavit of 23 May 2006 which included the email of 4 August 2005 at 1.39pm attaching the draft deed for the provision of finance was a fabrication as counsel asserted. I see no difference in the typeface as counsel asserted, and see no significance in the difference in spacing.

110 Despite Shaneel Khan’s denials, it is likely that Shaneel Khan opened the email and identified the nature of the attachment (being the draft deed for the provision of finance). Shaneel Khan was a most unimpressive witness who, as appears below, was prepared to forge his parents’ signatures. I think it likely that he opened the email and the attachment and read the attachment which had been designated as having had high importance.

111 At 2.36pm on 4 August 2005, Richmond sent an email to Fullerton, McCracken, Griffiths, Kelly, Garry Andrews and Shaneel Khan. Richmond’s first comment was to question whether Garry Andrews should be a party to the agreement, as he did not physically own any shares in Laserbond Marketing or in Oxyman. He noted that Barry Andrews was the main shareholder in Laserbond Marketing and would be receiving the shares in Oxyman which would be held by Racken as security. Richmond asked a number of pertinent questions concerning the definitions of Laserbond, Laserbond shareholders and Laserbond Marketing. One of his comments related to clause 15.1 on page 14. He said “I presume the irrevocable Power of Attorney to Racken expires upon the obligations being met and the option being exercised?” The clause referred to provided for each party to the deed (other than Racken) to appoint Racken as its attorney to execute documents in the party’s name in order to give effect to the agreement.

112 If the practice of Michaels opening emails for Garry Andrews, as depicted in exhibit U, were followed, and there is no reason to think that it was not, then the forwarding of the draft deed for the provision of finance by Richmond on 4 August 2005 at 1.04pm, and Richmond’s email of 2.36pm on 4 August 2005, would have been printed for Garry Andrews and been available to him at the commencement of business on 5 August 2005. It does not follow that the draft deed itself would have been printed for him, but in view of the importance of the subject, and the fact that he and his father were referred to in Richmond’s first comment on the draft, it is likely that he opened the attachment and read the draft deed for the provision of finance.

113 At 2.57pm on 4 August 2005, Griffiths sent an email to Richmond also commenting upon the terms of the draft deed. Griffiths’ comments were sent by Richmond to McCracken and Fullerton at 4.03pm. Griffiths comments do not take the matter any further.

114 On 5 August 2005, at 12.19pm, Garry Andrews had a telephone conversation from his mobile phone to his parents’ phone lasting four minutes and thirty seconds. At 4.27pm, Fullerton sent an email to McCracken enclosing the final version of the deed for the provision of finance both in marked-up form and “clean copy” form. In his email, Fullerton noted that, in accordance with McCracken’s instructions, the deed provided that the Oxyman shareholders were required either to repay the loan, or to transfer to McCracken’s trust (i.e. Racken) 1,500,000 shares in Laserbond Limited, or to transfer to McCracken’s trust 350 shares in Oxyman. McCracken forwarded the email to Richmond at 4.37pm. According to Richmond, there was attached to the email sent to him at 4.37pm the “clean copy” agreement for the provision of finance. This document consisted of sixteen pages of text, followed by pages numbered 17–19 containing provision for the document to be executed, and pages 20-24 consisting of annexures.

115 In his 4.37pm email, McCracken said to Richmond “Please call to finalise arrangements”. McCracken sent another email to Richmond at 4.45pm on 5 August 2005. He said “This is copy notations against final amendments. I’ve had a quick scan through and looks OK to me. I’m sending it to assist you and would appreciate comment on anything that needs correction.” According to Richmond, there was attached to that email a marked-up version of the agreement. This document was marked as “draft” and had changes to a previous draft marked on it. The previous draft must have been a draft prepared by Matthews Folbigg after 4 August 2005. Thus, the document did not show that any changes had been made to clause 4.2 of the deed dealing with the number of shares the Oxyman shareholders were to apply for in Oxyman, notwithstanding that the numbers had changed from those appearing in the same clause in the draft sent on 4 August 2005. I infer that there had been a number of changes to the draft before it was sent on 5 August. The marked-up version of the draft had the same substantive provisions as the clean copy. However, it consisted of seventeen pages of text followed by three pages for the affixing of signatures (pages 18-20) and followed by a further four pages of annexures.

116 The plaintiffs disputed the authenticity of the email correspondence of 5 August 2005. They disputed that the documents which Richmond identified as attachments to the emails of 5 August 2005 were in fact attached.

117 However, I accept Richmond’s evidence that he received the emails from McCracken which he exhibited, and that the final drafts of the Agreement for Provision of Finance which he exhibited were attached to those emails. It is clear from Fullerton’s email to McCracken of 5 August 2005 at 4.27pm that the deed had reached its final form at that time. The documents were sent by Fullerton to McCracken for the purpose of being forwarded to the parties for signature. There is no reason McCracken would not have forwarded the documents to Richmond and every reason why he would have done so. The emails from Fullerton to McCracken and from McCracken to Richmond do not contain the words “attachment” with a document reference. There was no evidence that, if a document were to be attached to the email, some such identification would necessarily appear. The text of the emails shows that the documents were attached.

118 Richmond deposed that it was probable that he forwarded the email he received at 4.37pm (attaching the “clean” final version of the agreement) to Kelly, Griffiths, Garry Andrews and Shaneel Khan. He no longer had a copy of such a “sent” email. He gave evidence, which I accept, that after Oxyman went into administration (in May 2006) his computer was taken by an auctioneer acting on the instructions of the administrator. Whilst the auctioneer was packing other computers in the office, Richmond saved the “received” emails from his “in-box” but did not manage to save all of the “sent” emails.

119 Richmond had prepared an affidavit originally dated 12 May 2006, although signed on 23 May 2006. He prepared that affidavit before he had legal representation. Some “sent” emails were annexed to that affidavit. They did not include any emails which he sent to Garry Andrews or Shaneel Khan enclosing the final version of the draft deed. Even allowing for the fact that Richmond did not then have legal advice, it would be surprising if he would not have attached such “sent” emails to his May 2006 affidavit if they existed. I therefore do not accept that Richmond sent the final version of the document to Garry Andrews or Shaneel Khan by email on 5 August 2005.

120 Richmond also gave evidence that he printed out a number of copies of the agreement annexed to the email of 4.37pm and handed a whole copy of the agreement to Garry Andrews and another copy of the whole agreement to Shaneel Khan in their office shortly after 4.37pm. At that time, they were both together and he said to them “The final form of the agreement document has arrived. I have had a quick look at it. You guys should also check it and we should arrange signatures”.

121 Garry Andrews and Shaneel Khan denied that such a conversation took place, or that they were given copies of the agreement. However, I prefer Richmond’s evidence. Both Shaneel Khan and Garry Andrews signed the execution page of the agreement that afternoon, and I think it probable that, if they had not earlier been given the agreement they were asked to sign (or in Shaneel Khan’s case on which to obtain his parents signatures), they would have asked to see the document.

258 Richmond produced a schedule of shareholders in Laserbond Marketing and the number of shares and options in HVOF to which each such shareholder in Laserbond Marketing would be entitled on the float. One of the shareholders listed was “Global 02”. Shaneel Khan deposed that that was a business name which belonged to him. I do not accept the submission for Racken that in cross-examination Shaneel Khan accepted that the shares were in fact issued to him. Rather, he said that that was what the document produced by Richmond showed. It appears to me that I should act on the basis of the register of members of the company which records Sultan Khan as being the member holding 338 shares.

259 There was no dispute that the shares were issued as a result of Shaneel Khan’s work for Laserbond Marketing and that, prior to their issue, Shaneel Khan was entitled to direct to whom the shares would be issued. He said that he directed that the shares be issued to his father as a repayment for free ongoing board that his parents had provided him in 2003 and 2004, for loans that they had made to him, and for ongoing support which they had given him in relation to a number of unsuccessful business ventures. Sultan Khan gave evidence to like effect. He said that the shares were provided to him as a gift (T341).

260 Richmond gave evidence that in January 2004, Shaneel Khan asked him and Kelly to “please issue my shares in the name of my brother Sherjeel Khan as I am concerned that investors, licensees or franchisees in previous companies I was involved with may try and bankrupt me.” Richmond says that Shaneel Khan later told the board “I would prefer my shares to be in my father’s name than my brother’s. Please transfer them.” The fact that Shaneel Khan felt able to direct the transfer of shares of which his brother was the legal owner, and that his brother apparently made no objection to that course, is consistent with Shaneel Khan’s being the beneficial owner of the 66 shares registered in Sherjeel Khan’s name prior to their “transfer” (or their being cancelled and reissued) to Sultan Khan.

261 There is no direct evidence contradicting that of Shaneel Khan and Sultan Khan that the shares were issued in the name of Sultan Khan as a gift. However, neither was a witness of credit. There are strong inferences that Sultan Khan held the shares for Shaneel Khan.

262 At first blush, Racken’s contention that Shaneel Khan wanted to keep the shares out of the reach of creditors would suggest that Shaneel Khan intended to make a gift of the shares to his father. Otherwise the transfer of shares into his father’s name would not be effective. However, that is too simplistic an approach. It could equally be said that Shaneel Khan intended only to present to creditors the appearance that the shares were owned by his father when that was not the fact. I can more readily draw that inference from the fact that Shaneel Khan retained the power to dispose of the 66 shares issued to his brother.

263 There is no presumption of advancement. The presumption of resulting trust is not lightly rebutted (Shephard v Cartwright [1955] AC 431 at 445; Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 365; Brown v Brown (1993) 31 NSWLR 582 at 596).

264 The decisive consideration is the way in which Sultan Khan permitted Shaneel Khan to deal with the shares in August 2005. I have already explained (at [154]-[157] why I have concluded that Sultan Khan authorised Shaneel Khan to deal with the shares as he saw fit. Those considerations are more consistent with Sultan and Shaneel Khan regarding Shaneel Khan as being the owner of the shares, than they are with Sultan Khan regarding himself as being the owner. If Sultan and Shaneel Khan understood that the shares indeed belonged to Sultan Khan, one would expect that something more would occur than Sultan Khan simply being told that the deal to sell the shares had been done. Sultan Khan refused to give a responsive answer to the question of what he thought he had got for selling his shares, except to say that if the shares were sold then the money would go to the company to pick up the business. He said that he did not get anything in return (T346). It appears to me that that is consistent with his not regarding himself as being the beneficial owner of the shares. He was not looking to derive any benefit for himself. He did not ask to see any share sale agreement or share transfer. Nor did he sign any such document (T346-347). Shaneel Khan did not tell him that he, Shaneel, had signed any document (T347). Although he did not directly answer the question about it, Sultan Khan did not ask whether there was such a document.

265 I do not accept Shaneel Khan’s and Sultan Khan’s evidence that the Laserbond Marketing shares were issued in the name of Sultan Khan as a gift. I conclude that the presumption of a resulting trust is not rebutted and that the shares were held by Sultan Khan on trust for Shaneel Khan. Sultan Khan had no active duties as holder of the shares. The trust was a bare trust (Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281 and see also Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 650-652; ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] ATC 4,697 at 4,751-4,755 [275]-[295]; (2003) 12 BPR 22,941 at 22,951-22,954 [275]-[295]).

266 Shaneel Khan is estopped from denying that his signature (albeit a signature in the name of his father) is effective to deal with the shares in Laserbond Marketing which he beneficially owns. By signing the Agreement for the Provision of Finance in his parents’ names, Shaneel Khan induced Richmond to tell McCracken that the agreement had been signed. Hence, he induced McCracken to assume that Sultan Khan and Sophie Khan were bound by the agreement, including by having given mortgages over their shares. By reason of that assumption, Racken acted to its detriment by paying $250,000 into Oxyman’s account. Having induced that assumption, it would be unconscientious for Shaneel Khan to depart from it, by denying the validity of the mortgage over the Laserbond Marketing shares of which Sultan Khan is the legal owner (Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641 at 674-676; The Commonwealth v Verwayen (1990) 170 CLR 394 at 444-445).

267 There is nothing in Racken’s conduct which would prevent such an estoppel arising. Whilst Shaneel Khan denied that he understood the terms of the Agreement for Provision of Finance, I have not accepted that denial. In any event, Racken did not contribute to any lack of understanding of the substance of the agreement which Shaneel Khan may have had.

268 Although I was referred to no authority on the point, it seems to me that Sultan Khan is bound by the estoppel which binds Shaneel Khan, having regard to my findings that:

(a) Shaneel Khan had actual authority to deal with the shares on his father’s behalf;

(b) the estoppel is as to a matter within the scope of the agency; and

269 Even though I have concluded that the Agreement for Provision of Finance is not binding on Sultan Khan and Sophie Khan because it was beyond the authority of Shaneel Khan to sign it, and because it contained no distinct and severable transaction within the scope of his authority, it does not follow that an estoppel arising from the representation made by Shaneel Khan through his act of signing may not be binding on them to the extent that Shaneel Khan induced an assumption by Racken on a matter about which he had authority to make representations. A principal is bound by an estoppel arising from a representation made by his agent in the course of the agency (Spencer, Bower & Turner, Estoppel by Representation, 3rd ed (1977) London, Butterworths at [125]). Shaneel Khan’s act of signing the agreement was a representation to Richmond, amongst other things, that he could bind his parents to the mortgage over the shares contained in the agreement. Such a representation was within the scope of his authority to deal with the shares. Sultan Khan has no interest in the shares which might permit him conscientiously to deny that the agreement is effective to create a mortgage over the shares, as Racken assumed it did. Sultan Khan’s only interest is as a bare trustee required to hold the shares for Shaneel Khan. Although Shaneel Khan went further than his authority allowed, I consider that his implied representation that he could mortgage the shares on behalf of his father was as to a matter within the scope of his authority and the estoppel arising from it precludes Sultan Khan from denying the validity of the mortgage.

270 That does not make Sultan Khan or Sophie Khan personally liable under the Agreement for Provision of Finance. The mortgage Sultan Khan is precluded from denying only secures such debts and liabilities as are owed to Racken under the Agreement for Provision of Finance. It does not extend anyone’s personal liability to Racken. There is no inconsistency between the conclusion that Sultan Khan is not a party to the Agreement for Provision of Finance because in signing the agreement Shaneel Khan acted beyond his authority, and my conclusion that Sultan Khan is estopped from denying that the shares held by him in Laserbond Marketing secure debts and liabilities of those who are liable under the agreement. The plea of estoppel acknowledges that the contract is not binding, but precludes Sultan Khan from taking that point in this particular respect.

271 No wider estoppel in relation to Sultan Khan’s 338 shares in Laserbond Marketing was pleaded or argued.

Unjust Contracts and Unconscionable Conduct

272 No claim arises under the Contracts Review Act as neither Sultan Khan nor Sophie Khan is a party to the Agreement for Provision of Finance. That position is not affected by my conclusion that Sultan Khan is estopped from denying that the shares in Laserbond Marketing are mortgaged to Racken to secure payment of moneys owed to Racken under the Agreement for Provision of Finance. In any event, he would not be entitled to relief under that Act in relation to the mortgage as there is nothing unjust in that mortgage in the circumstances in which it was made.

273 For the reasons earlier given (at [228]-[230]), none of the defendants engaged in unconscionable conduct in respect of which Sultan Khan or Sophie Khan (or, for that matter, Shaneel Khan, although he was not an active plaintiff) would be entitled to any relief.

Conclusion in Relation to the Claim by Sultan Khan and Sophie Khan

274 For these reasons, I conclude that Sultan Khan and Sophie Khan are not bound by the terms of the Agreement for Provision of Finance, except that Sultan Khan is estopped from denying that the 338 shares in Laserbond Marketing held by him prior to their transfer to Racken are mortgaged to Racken to secure payment of moneys owed to Racken under the agreement. There should be declarations to that effect.

Recoupment of $62,500 Advanced

275 In final submissions, counsel for Racken submitted that if it were held that the Agreement for Provision of Finance was not binding on Sophie and Sultan Khan, they, or at least Sophie Khan, should be required to repay the sum of $62,500 which was applied in the subscription of shares in Sophie Khan’s name in Oxyman, which were then mortgaged to Racken. There was no pleaded claim to this effect. Whilst, prima facie, such a restitutionary claim might well be available as moneys paid for a consideration which wholly failed, prima facie Sophie Khan would have a defence based upon change of position which would defeat a claim for restitution. This would arise from the fact that Oxyman subsequently went into voluntary administration and then liquidation. There was no evidence before me as to the value of the shares in Oxyman and they may well be worthless. As the claim was not pleaded it should not be entertained.

Racken’s Cross-Claim Against Shaneel Khan

276 Racken pleads that Shaneel Khan represented to it that Sultan and Sophie Khan had executed the agreement or that he had authority to sign the agreement in their names and on their behalf as their agent. That representation is alleged to have been made by his having signed the agreement in their names. It is alleged that it was implicit from the fact that he signed the agreement in their names that he had authority to sign it on their behalf. Racken pleads that it was induced by that representation to enter into the Agreement for Provision of Finance. It is also alleged that Shaneel Khan gave a warranty that he was authorised to enter into the Agreement for Provision of Finance on behalf of Sultan and Sophie Khan and, if it be found that Shaneel Khan was not authorised to sign the agreement on their behalf or to enter into it on their behalf, he breached the warranty of authority. Racken alleges that, in making the implied representation that he had authority to sign the agreement in the names of Sultan and Sophie Khan on their behalf as their agent, Shaneel Khan engaged in conduct in trade or commerce that was misleading or deceptive in contravention of s 42 of the Fair Trading Act 1987 (NSW).

277 McCracken gave evidence in his affidavit that he arranged for the payment of $250,000 to Oxyman after receiving the executed copy of the Agreement for Provision of Finance and noting that it had been signed by Sophie Khan and Sultan Khan, amongst others. However, the position was different. McCracken arranged for the payment of $250,000 to Oxyman on being told by Richmond that the agreement had been signed. Richmond was aware that the agreement had not been signed by Sultan and Sophie Khan but that Shaneel Khan had signed their names. The presentation of the document by Shaneel Khan to Richmond impliedly conveyed a representation by Shaneel Khan that he had his parents’ authority to commit them to the transaction. Although Richmond was not Racken’s agent, there was a direct causal connection between Shaneel Khan’s implied representation that he had authority to commit his parents to the terms of the agreement which he signed and Racken’s payment of $250,000.

278 There was no dispute that such conduct was in trade or commerce. It was also misleading because Shaneel Khan did not have his parents’ authority to enter into the agreement on their behalf. He only had authority to deal with the shares in Oxyman and Laserbond Marketing of which they were the holders. Had Shaneel Khan not signed the Agreement for Provision of Finance, Racken would not have made the advance of $250,000 on 5 August 2005. Had Shaneel Khan disclosed the true limits of his authority, the advance would not have been made unless and until Sultan and Sophie Khan signed the agreement. McCracken deposed that, had he known that Sultan Khan and Sophie Khan had not signed the agreement, he would have taken steps to ensure that Racken did not advance any funds pursuant to the agreement unless and until they signed it. I accept that evidence. Notwithstanding that Richmond was not acting as Racken’s agent, there is a sufficient causal connection between Shaneel Khan’s implied representation to Richmond that he had authority of his parents to sign on their behalf, and Racken’s advance of $250,000, to satisfy the requirement of s 68(1) of the Fair Trading Act that Racken’s loss or damage be suffered “by” conduct of Shaneel Khan that was in contravention of s 42 (Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 at 538 [115]-[116], 539 [123]; Hoath v Connect Internet Services Pty Ltd (2006) 229 ALR 566 at 591-592 [109]).

What is the Measure of Damages?

279 The damage suffered by the representation is not the $250,000 advanced. In return for the advance of $250,000, Racken received promises from Richmond, Kelly, Zanshin and HOD about whose enforceability there is no dispute. It also received security for the performance of those promises including repayment of the advance if the options were not exercised. The value of the rights which Racken obtained from the other parties to the agreement including its securities can be determined in the light of subsequent events (Gould v Vaggelas (1985) 157 CLR 215 at 226, 254-255, 265-266).

280 Racken did not attempt to value its securities or the personal covenants. It was not in a position to do so as it has been restrained from enforcing the securities provided by Barry Andrews and the security provided by Sultan Khan was also in dispute. Its cross-claim against Shaneel Khan only arose following the plaintiffs being given leave to withdraw their admission that the Agreement for Provision of Finance had been signed by Sultan and Sophie Khan. It would be unfair for Racken to fail in its damages claim against Shaneel Khan because it had not adduced evidence as to the amount of its loss. The appropriate remedy for the claim for misleading and deceptive conduct against Shaneel Khan is a declaration that Shaneel Khan engaged in conduct in trade or commerce that was misleading or deceptive by representing that he had his parents’ authority to sign the Agreement for Provision of Finance so as to bind them, and to stand over the assessment of damages.

281 I do not consider that any different measure of damages applies in respect of the claim for damages for breach of warranty of authority. The prima facie measure of damages against an agent who breaches his warranty of authority is the amount that could have been recovered by way of debt or damages from the principal, had the agent had the authority of his principal to enter into the contract, together with the costs and expenses incurred in respect of legal proceedings reasonably taken against the purported principal to enforce the contract (Bowstead & Reynolds on Agency, 18th ed (2006) London, Sweet & Maxwell at [9-074]). The prima facie measure of damages for breach of warranty of authority is inapplicable in the present case where Racken obtained the benefit of choses in action against third parties which may be valuable, notwithstanding the absence of authority for Shaneel Khan to bind his parents. The prima facie measure can also be displaced if it is shown that the purported principal is in any event insolvent, so that the plaintiff would not have recovered under the contract with the purported principal (Bowstead & Reynolds at [9-076]). That may be the position in this case because Sultan Khan deposed that neither he nor his wife were able to pay back $250,000 and interest. No submissions were made about this. If the measure of damages is tortious, it is arguable that Racken would be entitled to more than nominal damages if it fails to recover its advance and interest, even if Sultan Khan and Sophie Khan are insolvent. Those questions can be determined, if necessary, on an application to assess damages.

Outcome of Proceedings

282 In summary, all of the claims of Barry Andrews should be dismissed save for the relief to be provided under the Contracts Review Act referred to at paras [217] above.

283 A declaration should be made that Sultan Khan is estopped from denying the validity of the mortgage created by clause 9.8 of the Agreement for Provision of Finance, and clauses 9.12–9.21 and 16.1, insofar as those clauses apply to the mortgage created by clause 9.8, but only insofar as the mortgage secures payment of moneys owed to Racken by parties who are personally liable to Racken under the agreement. A declaration should be made that the Agreement for Provision of Finance is not binding on Sultan Khan or Sophie Khan. The other claims of Sultan Khan and Sophie Khan should be dismissed.

284 Racken is entitled to judgment against Richmond, Kelly, Zanshin and HOD. They did not contest their liability to Racken. Racken is not entitled to judgment for the claimed debt from Barry Andrews, Sophie Khan or Sultan Khan. It is entitled to a declaration that Shaneel Khan engaged in trade or commerce in misleading and deceptive conduct by misrepresenting his authority to sign the Agreement for Provision of Finance in the names of Sophie Khan and Sultan Khan. It is entitled to such damages as it may prove for Shaneel Khan’s breach of s 42 of the Fair Trading Act and for breach of warranty of authority. The assessment of damages should stand over.

Orders

285 I propose the following orders to give effect to these reasons.

Claim of First Plaintiff

1. Declare pursuant to subs 7(1)(b) of the Contracts Review Act that the Agreement for Provision of Finance entered into by the first and second plaintiffs, and by the first and third to eighth defendants, and purportedly entered into by the fourth and fifth plaintiffs, on 5 August 2005, being exhibit K in these proceedings (“the Agreement for Provision of Finance”) is void as against the first plaintiff in so far as it imposes personal obligations on him, and is binding on the first plaintiff only in so far as order 4 below gives effect to its terms.

2. Order pursuant to s 8 of the Contracts Review Act that the first defendant (Racken Pty Ltd) re-transfer 1,030 shares in the sixth defendant (Laserbond Marketing Pty Ltd) to the first plaintiff.

3. Order that the first defendant account to the first plaintiff for any dividends paid on the shares re-transferred pursuant to order 2.

4. Order pursuant to subs 7(1)(c) of the Contracts Review Act varying the Agreement for Provision of Finance as from the time when it was made to provide that:

(a) in the event of default of parties owing personal obligations to the first defendant, the first defendant may exercise its power of sale as mortgagee of 224 shares in the sixth defendant transferred by the first plaintiff to it to secure repayment of moneys owing to it under the agreement;

(b) if the first defendant exercises its power of sale over the said 224 shares, it may retain from the proceeds of sale $62,500 plus interest calculated in accordance with the Agreement for Provision of Finance on that sum, and shall account to the first plaintiff for the balance, if any, of such proceeds;

(c) the first plaintiff may redeem the said 224 shares on payment to the first defendant of $62,500 plus interest on that sum calculated in accordance with the Agreement for Provision of Finance;

(d) if the first defendant exercises the Laserbond Call Option (as defined in the Agreement for Provision of Finance) before the said 224 shares are sold in the exercise of the first defendant’s power of sale, or before such shares are redeemed, the first defendant is entitled to exercise any rights which may be attached to the said 224 shares, or otherwise to deal with the said shares, as may be required to take up such number of shares in Laserbond Ltd (as defined in the Agreement for Provision of Finance) to which the holder of 224 shares in the sixth defendant may be entitled; and

5. Order that the claims of the first plaintiff against the first defendant be otherwise dismissed.

6. Order that the claims of the first defendant against the first plaintiff pursuant to the first defendant’s further amended interlocutory process be otherwise dismissed.

7. Judgment for the second to eighth defendants on the first plaintiff’s claims.

Claim of Third Plaintiff (Shaneel Khan)

8. Grant leave to the third plaintiff to discontinue his proceedings with no order as to costs.

Claim of Fourth and Fifth Plaintiffs (Sophie Khan and Sultan Khan)

9. Declare that the fourth and fifth plaintiffs are not bound by the Agreement for Provision of Finance.

10. Declare that the fifth plaintiff is estopped from denying that the 338 shares held by him in the sixth defendant prior to their transfer to the first defendant are mortgaged to the first defendant to secure payment of moneys owed to the first defendant under the Agreement for Provision of Finance by parties having personal obligations to the first defendant thereunder, and otherwise on the terms of the Agreement for Provision of Finance insofar as they regulate the said mortgage.

11. Declare that the first defendant is entitled to exercise its power of sale of the 338 shares held by the fifth plaintiff in the sixth defendant and purportedly mortgaged by him to the first defendant.

12. Order that the claims of the fourth and fifth plaintiffs against the first defendant be otherwise dismissed.

13. Order that the claims of the first defendant against the fourth and fifth plaintiffs in the first defendant’s further amended interlocutory process be otherwise dismissed.

14. Judgment for the second to eighth defendants on the claims of the fourth and fifth plaintiffs.

Claims of First Defendant (Racken Pty Ltd) Against the Third, Fourth, Seventh and Eighth Defendants

15. Declaration in accordance with paragraph 1 of the further amended interlocutory process that as between the first defendant and the third, fourth, seventh and eighth defendants, the Agreement for Provision of Finance is valid and effective.

16. Verdict and judgment for the first defendant against the third, fourth, seventh and eighth defendants for:

(a) $250,000; and

First Defendant’s Claim Against the Third Plaintiff (Shaneel Khan)

17. Declare that the third plaintiff engaged in trade or commerce in misleading or deceptive conduct by misrepresenting his authority to sign the Agreement for Provision of Finance in the names of the fourth and fifth plaintiffs, in contravention of s 42 of the Fair Trading Act 1987 (NSW).

18. Declare that the third plaintiff is liable to the first defendant for loss suffered by the first defendant by conduct of the third plaintiff in contravention of s 42 of the Fair Trading Act and in breach of the third plaintiff’s warranty of authority.

19. Order that the assessment of damages against the third plaintiff be determined separately and after the determination of the other issues in the proceedings.

20. Reserve liberty to the first defendant to apply in respect of the assessment of damages against the third plaintiff.

Proceedings Generally

21. In relation to the orders under the Contracts Review Act, reserve proceedings for further consideration and grant liberty to apply.

286 I will stand over the proceedings to a convenient time to allow counsel to consider the form of these proposed declarations and orders and to make submissions as to whether any other declarations or orders should be made consistently with these reasons. I have not proposed any declarations or orders in relation to shares in Oxyman as the parties do not appear to regard these as having any value. However, if counsel propose orders in relation to the Oxyman shares, I will hear submissions on that.

287 At that time, I will also deal with questions of costs.

******

CITATION:	Barry Albert Andrews & 4 Ors v Racken Pty Ltd & 7 Ors [2007] NSWSC 1010
HEARING DATE(S):	19-21/09/06; 14-16/11/06; 12-14/02/07
JUDGMENT DATE :	11 September 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
DECISION:	See paragraph 285 of judgment.
CATCHWORDS:	PRINCIPAL AND AGENT – Authority of agent – Implied grant of authority to deal with execution page where page signed and delivered on its own by principal to fourth defendant. - CONTRACTS – Unconscionability – Unjust contracts – Borrower in position analogous to that of surety – Contract unjust where terms were not explained and borrower did not understand nature of obligations assumed – No steps taken by first defendant to ensure that contract explained to borrower – Relevance of principles of unconscionability at general law – Question of whether enforcement of contract unjust distinguished from question whether entry into contract unconscionable – Held that contract was unjust in circumstances in which it was made within meaning of Contracts Review Act 1980 (NSW) although other party did not act unconscionably – Purpose of remedy under Contracts Review Act to avoid unjust consequence or result – Held that just to hold borrower to substance of transaction as he understood it to be. - PRINCIPAL AND AGENT – Authority of agent – Scope of actual authority – Ostensible authority – Agent signed parents’ names - Agent with actual authority to mortgage shares but not to enter into contract imposing personal obligations on principals – No ostensible authority where no express representation by principals as to scope of agent’s authority and no usual actual authority of child permitted to negotiate and contract on parents’ behalf in relation to shares owned by parents – Agent purported to enter into contract on behalf of parents granting mortgage over shares and imposing personal obligations upon them –Whether principals bound to extent that provisions within agent’s authority – Where personal obligations not severable – Held that principals not bound by contract. - ESTOPPEL – By conduct – Where beneficial owner of shares represented that he had authority to deal with shares on behalf of bare trustee – Representation of authority induced first defendant to provide finance– Beneficial owner of shares estopped from denying that his signature effective to deal with shares – Held that bare trustee bound by representations of beneficial owner to extent that beneficial owner had actual authority to deal with shares and representation was within scope of authority as agent. - PRINCIPAL AND AGENT – Liability of agent to third persons – Execution of contract by son in name of parents constituting misleading and deceptive conduct –Fair Trading Act 1987 (NSW) s 42 – No requirement that representation constituting misleading and deceptive conduct be made to party claiming loss – Breach of warranty of authority – Measure of damages. - (NSW) Fair Trading Act 1987, ss 42 and 68 - (NSW) Contracts Review Act 1980, ss 7 and 9
LEGISLATION CITED:	Contracts Review Act 1980 (NSW) Australian Securities and Investments Commission Act 2001 (Cth) Trade Practices Act 1974 (Cth) Bankruptcy Act 1966 (Cth) Australian Securities and Investments Commission Regulations 2001 (Cth) Fair Trading Act 1987 (NSW)
CASES CITED:	Masters v Cameron (1954) 91 CLR 353 Wilton v Farnworth (1948) 76 CLR 646 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Mercantile Credit Co Ltd v Hamblin [1965] 2 QB 242 Saunders v Anglia Building Society sub nom Gallie v Lee [1971] AC 1004 Petelin v Cullen (1975) 132 CLR 355 United Dominions Trust Ltd v Western [1976] 1 QB 513 Egan v Ross (1928) 28 SR (NSW) 382 In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Bakarich & Ors v Commonwealth Bank of Australia [2007] NSWCA 169 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Macquarie Bank Limited v National Mutual Life Association of Australasia Limited (Cole J, 15 June 1995, unreported) Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 Barclay’s Finance Holdings Ltd v John Robert Sturgess & Ors (Wood J, 29 July 1985, unreported) Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 McKeand v Thomas (2006) 12 BPR 23,593 Tobin v Broadbent (1947) 75 CLR 378 Shephard v Cartwright [1955] AC 431 Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 Brown v Brown (1993) 31 NSWLR 582 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 ISPT Nominees Pty Ltd v Chief Commissioner of Stamp Revenue [2003] ATC 4,697; (2003) 12 BPR 22,941 Grundt v Great Boulder Pty Gold Mines Limited (1937) 59 CLR 641 The Commonwealth v Verwayen (1990) 170 CLR 394 Spencer, Bower & Turner, Estoppel by Representation, 3rd ed (1977) London, Butterworths Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 Hoath v Connect Internet Services Pty Ltd (2006) 229 ALR 566 Gould v Vaggelas (1985) 157 CLR 215 Bowstead & Reynolds on Agency, 18th ed (2006) London, Sweet & Maxwell
PARTIES:	Barry Albert Andrews & 4 Ors v Racken Pty Ltd & 7 Ors
FILE NUMBER(S):	SC 2135/06
COUNSEL:	Plaintiffs: P E King, F A Sinclair 1st & 2nd Defendants: R E Dubler SC & S Ivantsoff 4th & 7th Defendants: A J McInerney
SOLICITORS:	Plaintiffs: Grahame W Howe & Co 1st & 2nd Defendants: Matthews Folbigg Pty Ltd 4th & 7th Defendants: DLA Phillips Fox