Anthony James Gee v David Cam

[2009] NSWSC 683

CITATION:	Anthony James Gee v David Cam [2009] NSWSC 683
HEARING DATE(S):	7 July 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Rein J
EX TEMPORE JUDGMENT DATE:	8 July 2009
DECISION:	Judgment for the plaintiff for the sum of $645,000 plus interest and costs.
CATCHWORDS:	CONTRACTS – general contractual principles – consideration – offer to obtain for the plaintiff a beneficial interest in shares in a company controlled by the defendant – total failure of consideration – no issue of principle
CATEGORY:	Principal judgment
PARTIES:	Anthony James Gee (Plaintiff) David Cam (First Defendant) Fifth Estate Holdings Pty Ltd (Second Defendant)
FILE NUMBER(S):	SC 1249/08
COUNSEL:	G Carolan (Plaintiff) First Defendant in person
SOLICITORS:	North Shore Lawyers (Plaintiff)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Rein J

Date of Hearing: 7 July 2009
Date of Judgment: 8 July 2009

1249/08 Anthony Janes Gee v David Cam & anor

JUDGMENT (EX TEMPORE)

1 REIN J: Mr Gee seeks to recover the amount of A$645,000 plus interest from Mr Cam. Mr Gee is represented by Mr Carolan of counsel. Mr Cam represented himself at the hearing.

2 The proceedings concern a New Zealand corporation Perfectus Solutions Ltd engaged in the sale of computer software (which I shall refer to as "Perfectus Solutions") of which Mr Cam was a director and, through a trust company of which he was a director and controller, shares in which he had a beneficial interest.

3 Mr Cam solicited from Mr Gee, who was a personal friend of his, an investment in Perfectus Solutions. The proposal for investment is found at pp 2 – 4, 5 – 28 of Exhibit A and is dealt with by Mr Gee in paras 4, 5, 6, 7 and 10 of his affidavit of 20 November 2008, and was to result in Mr Gee holding an interest in Perfectus Solutions equal to Mr Cam’s beneficial interest. The document provided by Mr Cam makes reference to Fifth Estate Trust ("FET") a trust controlled by Fifth Estate Trust Nominees Ltd ("Nominees") which was controlled by Mr Cam. Mr Gee accepted that new the shares in Perfectus Solutions might be purchased by FET with 50% to be held beneficially for him: see T9 – T10.

4 There is no dispute that Mr Gee did in fact, by a number of instalments, and at the direction of Mr Cam, pay the amount of $645,000 into the account of Fifth Estate Holdings Pty Ltd ("FEH"), a company of which Mr Cam is the sole director and sole shareholder: see pp 1 – 4 of Mr Holmes’ affidavit of 7 July 2009. FEH is the second defendant to the proceedings but has been placed in liquidation and the plaintiff on a previous occasion indicated that it did not propose to proceed against FEH.

5 There is no dispute that Mr Gee has never received from Mr Cam, FEH or Nominees or any other entity with which Mr Cam is connected:

(a) any certificates of shares in Perfectus Solutions or any other company of the Perfectus Group;


(b) any declaration of trust or letter of acknowledgement from any company controlled by Mr Cam relating to a supposed shareholding by any trust in Perfectus Solutions or Perfectus Holdings Ltd (“ Perfectus Holdings ”) or any other company related to or connected with Perfectus Solutions or Perfectus Holdings or holding shares in those companies.

6 Mr Gee's case at the hearing was limited to the basis of total failure of consideration. He had contracted with Mr Cam and in return for a payment of $645,000 Mr Gee would obtain a 32.5% stake in Perfectus Solutions. He (or his nominee company) was either to receive share certificates in Perfectus Solutions or a declaration of trust evidencing his interest in the shares in Perfectus Solutions held by the FET.

7 The continued failure of Mr Cam to ever provide Mr Gee with any share certificate in Perfectus Solutions or any acknowledgment of the beneficial interest of Mr Gee in a specified number or any shares held by FET and Perfectus Solutions is relied on in support of the claim. Mr Gee, it is asserted, has received nothing in return for his payment.

8 Mr Cam disputed that he ever promised to obtain a direct 50% shareholding in Perfectus Solutions, but he admitted, in effect, that he promised to arrange for Mr Gee to beneficially own 50% of the shares in Perfectus Solutions held by FET, which he later changed to another trust entity, Fifth Estate Trust Number 2 which I shall refer to as “FET No 2”. He contends that he in fact made those arrangements. He does not assert that in reaching agreement with Mr Gee he was doing so on behalf of anyone else. He also maintains that FET No 2 obtained 66% of the share capital in Perfectus Solutions and hence that Mr Gee beneficially owned 32.5% of the issued share capital in Perfectus Solutions. Further, he maintains that since receipt of the money paid by Mr Gee to FEH, and according to Mr Cam paid by FET No 2, there has been a restructuring of the Perfectus Group which has resulted in FET No 2 holding 20% of the capital in the new company Perfectus Holdings Ltd (“Perfectus Holdings”) which, Mr Cam says, continues to trade. Mr Gee disputes that he was ever told, at the time of his providing money to FEH at Mr Cam’s direction, of the involvement of FET No 2 or its trustee FET Nominees No 2 Ltd.

9 Mr Cam has to this day not provided Mr Gee with any evidence that FET No 2 has any shares held by it on trust for Mr Gee. The most that Mr Cam has done is provide Mr Gee with a draft declaration of trust from FET No 2: see pp 307-311 of Mr Cam's affidavit of 9 June 2009. That was provided in November 2008: see para 48 of Mr Cam's affidavit. I shall say more about that draft declaration of trust shortly but first I need to set out what Mr Cam asserts and to deal with the issue of credit.

10 Mr Cam claims that FET No 2 purchased shares in Perfectus Solutions through a company called IP Services Ltd ("IPS"). He annexed copies of resolution of Perfectus Solutions relating to this to his affidavit: see pp 37-39 of Mr Cam’s affidavit. He also annexed a copy of an agreement described as a subscription agreement dated 22 December 2005 between Perfectus Solutions and IPS. He claims that IPS bought two parcels of shares, one parcel being of 140 million shares in return for IPS taking over Perfectus Solutions' debt of approximately NZ$5.5 million (“the first parcel of shares”) and one parcel for some unspecified number of shares. I say unspecified because although Mr Cam relied on a resolution of Perfectus Solutions (see: p 37 of Mr Cam’s affidavit) to issue a parcel of shares, that resolution is in fact a resolution for the issue of “up to 53,191,489 shares” which I shall refer to as “the second parcel of shares”. There is no evidence as to how many shares, if any, were in fact issued in relation to the second parcel.

11 Mr Cam claims that he told Mr Gee of the involvement of IPS and FET No 2, which Mr Gee denies. Mr Cam contends that subsequent to the purchase of shares the transactions between Perfectus Solutions and IPS became unwound and he claims that FET No 2 became a shareholder in a new company, Perfectus Holdings, of which he is not a director. He claims that Mr Gee beneficially owns shares in both Perfectus Solutions now called “Technology Developments (In Receivership and In Liquidation) Limited” (“Technology Developments”) and in Perfectus Holdings which he maintains is a healthy thriving company. He admits that IPS sold the first parcel of shares as well as the debt for one dollar. Support for his claim to a rewinding of the transaction is found at p 98 of Exhibit A which is part of a prospectus for Perfectus Holdings dated 21 February 2007 starting at p 86 of Exhibit A. That document also provides some support for his contention that former shareholders of Perfectus Solutions as at 2007 had shares held on trust for them by Perfectus Trustees Ltd. Perfectus Trustees Ltd is a company that does hold approximately 501,000 shares in Perfectus Holdings out of approximately two million shares - see pp 28 and 29 of Mr Holmes' affidavit of 7 July 2009. The prospectus to which I have referred does not establish who the shares were beneficially held for in 2007, although there is a reference at p 98 of Exhibit A to that aspect in that it says:

“On 20 November 2006 PHL was incorporated to acquire 100% of the shares of PTL and on 15 February 007 the beneficial interest in 500,000 ordinary shares in PHL (representing almost 100% of the share capital) was allotted to the shareholders of TDL (i.e. the Beneficial Shareholders). These shares are held on trust for those shareholders by Perfectus Trustees Ltd."

12 The Reference to PHL is a reference to Perfectus Holdings. The reference to PTL is a reference to Perfectus Technology Ltd. The reference to PSL is a reference to Perfectus Solutions, the name of which was changed to Technology Developments Ltd. The only search which has been provided to the Court in relation to Perfectus Holdings is a search annexed to the affidavit of Mr Holmes which I am informed is a search current as of this week. It shows Perfectus Technology Ltd as the shareholder of Perfectus Solutions. The position as to shareholding is, to say the least, opaque. The document at p 98 to which I have referred is not an official document nor is it a search and in any event it does not itself specify who the beneficial shareholders were as at the time of that document.

13 So far as the credit of the witness is concerned, the cross-examination of Mr Gee was very limited. Mr Gee was taxed with the fact that he had previously claimed in other proceedings that he loaned the $645,000 to FEH. He has also made a claim through a credit bureau alleging that he had loaned money to Mr Cam. It is clear that money was never advanced by him as a loan to Mr Cam or to FEH but Mr Gee explained at T7.30 – .35 that the failure of Mr Cam to produce any documentation or satisfactory explanation of what had occurred with and to his money left him, in effect, uncertain as to how the payment should be characterised. I do not find that uncertainty, in all the circumstances, particularly surprising.

14 A most important factor in Mr Gee's version of events is that it is entirely consistent with the documents which have been tendered in evidence. Mr Cam's version, on the other hand, involved him asserting that he communicated matters that are not found in any letter or email and indeed in several instances are not even to be found in his own affidavit: see T33.5 - T34.9, T37.45 - T38.16, T38.25 - .34, T39 and T44 – T49. At T34 Mr Cam blamed his solicitor for not having included a reference to evidence but immediately he was taxed on this he had to admit the affidavit had been prepared when the solicitors had ceased to act.

15 Mr Cam was unable to produce evidence of critical matters asserted by him. Some of those I have already referred to earlier. Another problem with Mr Cam's evidence is an email found at p 57 of Exhibit A. It was written on 19 December 2006, a date which has relevance for reasons I will explain in a moment. In that email Mr Cam purported to summarise the investment position of "Perfectus". His next paragraph of that email was in the following terms:

“By way of a recap, we purchased approx. 160 million shares in Perfectus late last year for $7.0 million. $5.4 was debt and $1.6 in cash. This holding gave us 55% of the company. 42.5% for debt and 12.5% for cash. In June 2006 we sold approx 101 million of the shares in return for full repayment of the debt plus accrued interest. This leaves us with 20% of the company (an uplift of 7.5% on our December 2005 purchase) and no debt.

In addition to the above we have acquired a 50% interest in a company which has the non exclusive worldwide rights to Perfectus software. This company is actively engaging with parties to promote and sell the software and the company for a capital sum.

We therefore own 20% of Perfectus (the one that I started) plus 50% of a company which owns the rights to the identical software and is active in a segment of the market that Perfectus is not active in. This company is Virgil Investments Limited.

The restructuring of Perfectus into a new holding company to tidy up nearly 7 years of history has been achieved and the company is making sales and growing customer numbers well. I expect this company will provide the capital return on the sale in due course. In addition to this I expect that an initial modest capital sum plus an ongoing income stream then a further more significant capital sum will be achieved out of Virgil. So we end up with both Perfectus in one market plus Virgil with identical software in another market and can hopefully achieve a healthy return on both.

I’ll give you a further update when we catch up. I am at the farm but back late today."

16 The email makes no reference to the fact that Perfectus Solutions had been placed in receivership in August 2006 and shortly after that in liquidation. Mr Cam asserted that he had told Mr Gee about this and he asserted that the words "by way of a recap" established that he had. I do not accept that evidence and the email’s failure to make any reference to the fate of Perfectus Solutions which must be "the company" referred to in the first two paragraphs, at least, is a significant piece of misinformation and indicative, in my view, of a lack of probity and honesty on the part of Mr Cam.

17 Another matter of significance, relevant not only to the case generally but to credit, is his provision to Mr Gee of a draft declaration. I deal in detail with that matter later.

18 Another aspect to be remarked upon in relation to the email to which I have just referred is that there is a reference to Virgil Investments Ltd. In that email nowhere has Mr Cam asserted what he has asserted before this Court, namely that Mr Gee has a beneficial interest in Perfectus Holdings. The picture which emerges from the evidence is a very unsavoury one so far as Mr Cam is concerned. I prefer the evidence of Mr Gee to that of Mr Cam. I would not accept any evidence of Mr Cam that was not independently corroborated.

19 I return to the draft declaration of trust: see pp 307 – 311 of Mr Cam’s affidavit. It suffers from a number of problems:

(1) It is only a draft. It is part of a chain of correspondence in which Mr Cam promised to provide documentation to Mr Gee but has not done so. One example of this is an email of 23 October 2007, (see p 69 of Exhibit A). At the end of first paragraph Mr Cam wrote:

“Therefore your interests own a 50% share in FET2’s interest in Perfectus. I apologise for not having forwarded appropriate documentation previously however have instructed that a Declaration of Trust be prepared reflecting your shareholding as well as other appropriate share documents. I will forward this to you ASAP".

No such declaration was ever forwarded except for the draft to which I am now referring.




(2) It is a draft declaration in the name of FET No 2, not FET. I accept Mr Gee's evidence that he was never told of the existence of FET No 2. There is no mention of it in any of the documents provided to Mr Gee.

(3) The draft, at p 311 of Mr Cam’s affidavit, defines Mr Gee's shares in respect of which the declaration is to be given as follows:

“Shares acquired as per a subscription agreement made between Perfectus Solutions Limited (NZCN 1007255) and IP Services Limited (NZCN 1736938) dated 22 December 2005".

There is nothing in any documentation provided to Mr Gee which refers to IPS. I accept Mr Gee's evidence that Mr Cam never sent him the letter of 28 November 2005 addressed to I-Cap Mezzanine Partners Ltd which is annexed to Mr Cam's affidavit at pp 1 – 4. I reject Mr Cam's evidence that he told Mr Gee about it. Mr Cam has asserted in his defence that IPS was wholly owned by FET No 2 and there are some documents written by him in evidence which are consistent with that. However, the only search produced of IPS which is annexed to Mr Holmes' affidavit shows that all of the shares in IPS were owned by Perfectus Technology Ltd (see pp 8 – 9 of Mr Holmes' affidavit). Mr Cam was not a director of that company.




(4) IPS is a company that was removed from the register in May 2007 (see p 303 of Mr Cam's affidavit) and it had been placed in liquidation prior to that (see the searches annexed to Mr Holmes' affidavit). That is well before the time that Mr Cam sent the draft declaration to Mr Gee.

(5) There is no evidence that IPS had shares additional to the shares in the subscription agreement issued to it or, if so, how many. The number of shares sold by IPS for one dollar and the debt is also not established.

(6) The draft declaration referred only to the shares acquired as per the subscription agreement, that is the first parcel of shares (140 million shares) and it makes no mention of the second parcel nor does it mention any shareholding in Perfectus Holdings.

20 Mr Cam's assertion that his provision of documents at pp 33 and 39 of Exhibit A were nothing to do with the purchase of an interest in Perfectus Solutions by Mr Gee is very difficult to accept. I accept Mr Gee's evidence that he completed and forwarded those documents to Mr Cam at Mr Cam's request, understanding that they were required so that he could obtain shares in Perfectus Solutions. I also find that Mr Gee was never told of the involvement of IPS or FET No 2.

21 Mr Cam has produced no evidence that FET or FET No 2 ever owned 66% of the shares in Perfectus Solutions as, even on his own evidence, he said it would. At most, there is evidence that FET owned approximately 20% of Perfectus Solutions (see the affidavit of Mr Holmes at pp 4 – 5). Mr Cam has produced no evidence that FET or FET No 2 owned shares in Perfectus Holdings either directly or beneficially. Mr Cam produced no share certificates relating to any holding of shares in Perfectus Solutions or Perfectus Holdings (see also Exhibit B which included FEH's List of Documents).

22 Mr Cam has annexed a bank statement of FEH which shows some disbursement of funds out of FEH's account to Perfectus Solutions. He has produced no document which establishes that payments made by FEH to Perfectus Solutions are payments for the issue of shares in Perfectus Solutions pursuant to any agreement. Indeed Mr Cam's case is that the shares were bought by IPS. Payments to creditors of Perfectus Solutions and to Mr Cam himself which appear in the bank statement are not established to have been made pursuant to any arrangement between FEH, FET or FET No 2 - either between themselves or between them and Perfectus Solutions. Mr Cam has failed to make good any of his defence in that:

(1) He has not established that FET No 2 made payments by way of subscription capital.

(2) He has not established that FET No 2 obtained any subscription capital or became entitled to shares in Perfectus Solutions.

(3) He has not established that FET No 2 was ever agreed between himself and Mr Gee to be part of the arrangement.

(4) He has not established that IPS was a wholly owned subsidiary of FET No 2.

(5) He did not inform Mr Gee about the status of FET's investment, or that of FET No 2, at any relevant time.

23 In short Mr Gee has received nothing for his $645,000 and there has been a total failure of consideration with the consequence that Mr Cam must repay the money paid to him by Mr Gee.

24 In my view there should be judgment for Mr Gee against Mr Cam in the amount of $645,000 together with an amount for interest.

25 I order that the first defendant, David Cam, pay the plaintiff's costs on the usual basis, the fact that Mr Gee did not press his claims based on misrepresentation not being a sufficient reason for the usual orders not to apply. I will put the matter in on Friday at 9:30am for the handing up of the interest calculation. Exhibits are to be retained for a period of 28 days and returned thereafter in the absence of an appeal.