Bathini v Kumar
[2012] VCC 1604
•26 October 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-09-04830
| MALA BATHINI | First Plaintiff |
| and | |
| ANIL BATHINI | Second Plaintiff |
| v | |
| AAKASH KUMAR | First Defendant |
| ALOKE KUMAR | Second Defendant |
| AUSASIA MANAGEMENT PTY LTD (ACN 123 689 332) | Third Defendant |
JUDGE: | HIS HONOUR JUDGE SHELTON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3, 4, 8, 9 , 10, 11, 12, 15, 16 and 17 October 2012 | |
DATE OF JUDGMENT: | 26 October 2012 | |
CASE MAY BE CITED AS: | Bathini & Anor v Kumar & Ors | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1604 | |
REASONS FOR JUDGMENT
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SUBJECT – PARTNERSHIP
CATCHWORDS – Misleading and deceptive conduct – drawing adverse inference on failure to call witness
LEGISLATION CITED – Fair Trading Act 1999, s9, s158
CASES CITED – Soia v Bennett (No 5) [2012] WASC 289; Watson v Foxman (1995) 49 NSWLR 315; Bovino Pty Ltd v The Casey Group Holdings Pty Ltd [2010] VSC 391; Helton v Allen (1940) 63 CLR 691; Jones v Dunkel (1959) 101 CLR 298; O’Donnell v Reichard [1975] VR 916; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
JUDGMENT – Judgment for the plaintiffs in the sum of $240,000.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J F Richardson | MLJ Law |
| For the First and Second Defendants | Mr J M Selimi | White Ellis Lawyers |
| For the Third Defendant | Mr S Thomas (for Li Lu Khoo, director and shareholder of the third defendant | Cash & Stavroulakis Lawyers |
HIS HONOUR:
1 A registered training organisation (“RTO”) is a body primarily involved in the education of overseas students. The parties in this proceeding were involved in RTOs in the cookery and catering area. In 2008, these were very lucrative businesses. Completion of a course at an RTO by a student facilitated the obtaining of Australian citizenship.
The Parties
2 The second plaintiff is the husband of the first plaintiff. In mid-2008, she was the sole director and shareholder of Chelsea International College Pty Ltd (“CIC”). This company was incorporated on 19 April 2007. CIC obtained registration as an RTO at the end of May 2008. Its maximum capacity was fixed at 325 students. The second plaintiff was the general manager of CIC and ran its day-to-day business. He could not have been a shareholder or director of an RTO such as CIC, since he had a conviction for assault from 2002 on which he was sentenced by way of a community-based order. The first plaintiff gave very short evidence to the effect that she left the complete running of CIC to the second plaintiff. It was not in issue that the second plaintiff acted at all times as agent for the first plaintiff.
3 The first and second defendants (“the Kumars”) were brothers who operated Intercontinental Education and Settlement Pty Ltd (“IES”), which had a one-third share in Australian Institute of Education Pty Ltd (“AIE”), another RTO in the cooking and catering area.
4 The plaintiffs and the Kumars were of Indian background.
5 The third defendant, AusAsia Management Pty Ltd (“AusAsia”) was also an RTO involved in the cookery and catering area. Its directors were Li Lu Khoo (“Khoo”) and Jason Wong (“Wong”). Through AusAsia, they also had a one-third share in AIE. The remaining one-third share in AIE was held by one, Geoff Wallace (“Wallace”).
6 When the trial commenced on 3 October last, the third defendant had been deregistered. Mr Thomas appeared on behalf of Khoo. He indicated that steps were being taken to have AusAsia placed back on the register, and the proceeding against it was adjourned.
7 The trial before me was thus between the first and second plaintiffs and the Kumars.
The Issues
8 The major issue before me was whether the Kumars represented to the second plaintiff, on 24 September 2008, that they had paid $440,000 for the purchase of an RTO carrying on a business in the catering and cookery area known as Australian Institute of Tourism and Commerce (“AITC”). The second plaintiff asserted that this representation had been made orally to him. The Kumars denied that any such representation was made.
9 A subsidiary issue was whether, at about this time, the second plaintiff lent the sum of $20,000 to the Kumars.
10 Evidence relating to these two matters and the factual matrix in which these two issues arose was protracted over ten days.
The Facts
11 The second plaintiff and the first defendant met in 2007 when they were both attending a TAFE training course. A friendship developed, which extended in time to the second defendant.
12 In August 2008, there were discussions between the second plaintiff, Wallace, Wong and the Kumars with a view to them all pooling their resources in their various RTOs and in fact, a company, Ausie Venture Pty Ltd, was formed for this purpose. However, this venture did not proceed, principally, it seems, because of the reluctance of Wallace.
13 The second plaintiff stated that very soon thereafter, he had a discussion with the Kumars about their going into partnership together in an RTO in the catering and cookery area. He understood that AIE had a maximum capacity of one thousand students, so that the first defendant’s one-third interest in AIE approximated to the 325 maximum capacity of CIC.
14 The second plaintiff stated that he was particularly keen to have an interest in a further RTO and then involve his brother, Amaranth, which would assist him in obtaining permanent residency in Australia. He stated that he searched the website of the Commonwealth Register of Institutions and Courses for Overseas Students (“CRICOS”) and located AITC. It was common ground that it had a maximum capacity allowed of fifty students and that it had not been active for a few years. The chief executive officer of AITC was one, David Lawson.
15 The second plaintiff stated that he discussed the possibility of purchasing AITC with the Kumars in mid September 2008. It was common ground that the Kumars were always together for all relevant meetings.
16 The second plaintiff stated that on 24 September 2008, the Kumars told him that they had a discussion with Lawson and had already purchased AITC for the sum of $440,000. He said that it was agreed that there would be a partnership between the plaintiffs and the Kumars in which the plaintiffs would bring CIC into the partnership and the Kumars would contribute their one-third share of AIE and their shares in AITC. The Kumars stated that they had paid the sum of $220,000 towards the purchase of AITC and that the plaintiffs would have to pay $220,000 also. The second plaintiff stated that at this meeting, the Kumars stated that they did not have a copy of the purchase agreement for AITC but that it was with their lawyers. It is the representation with respect to the sum of $440,000 made at this meeting which is the major issue in this proceeding. The second plaintiff stated that he did not see the agreement for the purchase of AITC until requested by his solicitors in April 2009.
17 It is appropriate at this stage to turn to that agreement.
18 This agreement is entitled “Sale of Shares Agreement” and is dated 24 September 2008 and is made between Kaicheng International Pty Ltd (“Kaicheng”) and the Kumars (“the Sale of Shares Agreement”). The Sale of Shares Agreement recites that Kaicheng owns two fully paid ordinary shares in South Pacific Group Pty Ltd (“South Pacific”), which operated AITC. Relevant provisions of the Sale of Shares Agreement are:
“1.15“Completion” means completion of the sale and purchase of the Shares under this Agreement;
1.16“Completion Date” means 18 December 2008, or such other date mutually agreed in writing;
…
1.22 “Deposit” means $22,000;
…
1.37 “Purchase Price” means the sum of $220,000;
…
4.1Completion of the purchase of the Sale Shares is conditional on fulfilment of the following conditions which are for the benefit of the Purchaser and may be waived only by the Purchaser:-
4.1.1.the Company warrants to do at its own cost all necessary audits, including audits by Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) and Victorian Registration & Qualifications Authority (VROA) and obtains Licences required for the Company and/or the Purchaser to conduct the Business and use the Assets after Completion.
4.2.If any of the conditions contained in clauses 4.1 are not fulfilled or waived by the Purchaser (or in the case of clause 4.1.1 the Vendor) on or before the Completion Date then this agreement may be terminated by written notice by the Purchaser (or in the case of clause 4.1.10 [sic] the Vendor).
…
7.1.3.Income
(a)The parties acknowledged and agree that all rights, title and interest in all income, profits and benefits of the Business (“Income and Receivables”)
(i) up to the date of this Agreement are the assets of the Vendor; and
(ii) after the date of this Agreement, are held by the Company pending Completion takes place. In the event Completion does not take place, all Income and Receivables are to be refunded to the students.
(iii) After Completion, the Income and Receivables shall belong to the Company.”
19 As noted, clause 1.3.7 provides that the purchase price for AITC was $220,000, not $440,000.
20 The Kumars’ version of events is substantially different. They stated that it was the second defendant who located AITC and ascertained that David Lawson was its chief executive officer and approached him. They stated that on 24 November 2008, the evening of the purchase of AITC and the signing of the Sale of Shares Agreement, they met with the second plaintiff and offered him a half-share in AITC. They stated that they showed him clause 1.37 in the Sale of Shares Agreement at the office of AIE. On the next day they went to the premises of CIC in Nicholson Street, North Fitzroy where the second plaintiff took a copy of the Sale of Shares Agreement. Thus, on the Kumars’ version of events, the second plaintiff was well aware from the outset that the purchase price of AITC was $220,000.
21 On 30 September 2008, the second plaintiff paid the sum of $100,000 to the second defendant. This cheque was drawn on the account of Chelsea International College Pty Ltd. The butt for the cheque states:
“To buy AITC. To Aloke Kumar for partial payment to purchase AITC.”
22 The second plaintiff stated that he paid the sum of $100,000 on 30 September 2008 because the Kumars stated that they had to make a part payment for the AITC purchase, and he understood that he was paying for his share of AITC. The Kumars, however, stated that the sum of $100,000 was paid by CIC for expenses connected with the purchase of AITC, such as the sum of $60,000 for the use of a kitchen in Thornbury and $22,000 reimbursement of the first defendant’s payment of the deposit under the Sale of Shares Agreement. The cheque butt supports the second plaintiff’s version of events.
23 In early October 2008, the second plaintiff and the Kumars attended on Ben Meir (“Meir”), of Ben Meir & Associates, who were the solicitors for the Kumars. The Kumars gave evidence that they and the second plaintiff attended on Ben Meir on about 6 October 2008, then about a week later, and then on 24 October 2008, when the Partnership Agreement was executed and backdated to 1 October 2008 (“the Partnership Agreement”). The second plaintiff was somewhat vague as to whether there were two or three meetings with Ben Meir, but did not really dispute the Kumars’ evidence. The Kumars stated that at these meetings, the Sale of Shares Agreement was on the table. The second plaintiff denied this.
24 It was common ground that before the Partnership Agreement was executed, Ben Meir took those present through its terms. The second defendant stated that Meir cross referenced the Partnership Agreement to the Sale of Shares Agreement. The second plaintiff stated that he did not read the Partnership Agreement prior to executing it. The parties to the Partnership Agreement are CIC, the two plaintiffs and the Kumars.
25 Recital D provides:
“Chelsea Aakash and Aloke have agreed that Chelsea and South Pacific shall, upon Completion, be for all intents and purposes equal partners in the Business (‘the Partners’) each paying one half share of all costs and expenses including but not limited to wages, services, purchases, taxes and outgoings of, any kind whatsoever (‘the Liabilities’) and each equally entitled to one half share of the net profits derived from the Business (‘the Profits’).”
26 Recital E provides:
“Aakash, Aloke and Mala have agreed that as soon as practicable after Completion:
(a) Aakash shall resign his position as Director of South Pacific and transfer his share to Mala;
(b) Mala shall consent to act as Director of South Pacific and be so appointed by it;
(c) Mala shall transfer 50 of her 100 shares in Chelsea to Aakash; and
(d)Aakash shall consent to be appointed as Director of Chelsea and be so appointed by it.”
27 Recital F provides that the second plaintiff is to be the manager of AITC.
28 The Partnership Agreement makes no reference to contributions to be made by the parties.
29 The second plaintiff stated that he read through the Partnership Agreement a few days after it was executed and realised that there was no reference to AIE. He raised this with the Kumars. The Kumars stated that this could be attended to upon completion of the purchase of the AITC shares.
30 The second plaintiff stated that at about this time, the Kumars asked him for a loan of $20,000. It was, he said, a personal loan. The request was made at his office at CIC in Nicholson Street. He stated that he gave them $20,000 cash. He stated that the terms of the loan were not discussed and that the loan was not documented between them. The Kumars deny that any such loan was made.
31 Shortly after the execution of the Partnership Agreement, the Kumars indicated that Wong was interested in having AusAsia involved in the partnership. This led to a supplementary partnership agreement being prepared by Ben Meir & Associates. This supplementary partnership agreement is dated 29 November 2008, and the parties to it are CIC, the plaintiffs, the Kumars and AusAsia (“the Supplementary Partnership Agreement”).
32 Relevant provisions of the Supplementary Partnership Agreement are:
“Recitals:
EOn Completion Date or on the Alternate Completion Date (either hereinafter referred to as ‘Completion’), Anil & Maja (jointly), Aakash & Aloke (jointly) and AusAsia shall each be entitled to one third share in the business and assets of Chelsea and South Pacific trading as The Australian Institute of Tourism and Commerce (‘AITC’).
FAnil & Mala jointly, Aakash and Aloke jointly and AusAsia have agreed that upon Completion, they will be equal partners (‘the Partners’) in Chelsea and South Pacific (‘The Business’) each paying one third share of all costs and expenses including but not limited to wages, services, purchases, taxes and outgoings of any kind whatsoever (‘the Liabilities’) and each equally entitled to one third share of the net profits derived from the Business (‘the Profits’).
GAakash, Aloka, Mala, and AusAsia have agreed that as soon as practicable after Completion:
(a)Aakash shall resign his position as Director of South Pacific and transfer his share to Mala;
(b) South Pacific shall issue one share to AusAsia;
(c)Mala and Jason shall consent to act as Directors of South Pacific and be so appointed by it;
(d) Mala shall transfer 50 of her 100 shares in Chelsea to Aakash, Chelsea shall issue 50 shares to AusAsia with the result that each of Mala, Aakash and AusAsia become the owner of 50 shares in Chelsea; and
(e)Aakash and Jason shall consent to be appointed as Directors of Chelsea and be so appointed by it.
(f)Aakash and Aloke shall jointly arrange for and submit to the Partners an account of the income, expenses, bank accounts balances, cash balances and any other outstanding financial matters of South Pacific as at Completion date.
(g) Anil and Mala shall jointly arrange for and submit to of the income, expenses, bank accounts balances, cash balances and any other outstanding financial matters of Chelsea as at Completion date.
…
1 PAYMENT BY AUSASIA
AusAsia shall pay the sum of $500,000.00 as follows:-
a.$50,000.00 to each of Aloke, Aakash, Mala and Anil on the signing hereof;
b.$75,000.00 to each of Aloke, Aakash, Mala and Anil on or before the 31st day of December, 2009.
…
6REPAYMENT OF LOAN TO ACQUIRE SOUTH PACIFIC
The sum of $600,000.00 owed from the Signatories and paid or to be paid for the purchase of South pacific Group Pty.Ltd. from Kaicheng International Pty.Ltd. referred to in Recital A of the Partnership Agreement shall be repaid to the Signatories in equal shares out of the income of the Business as and when the cashflow of the Business so permits.
7NEW ACQUISITION
The Partners intend to purchase the shareholdings of GEOFFREY JAMES WALLACE in the AUSTRALIAN INSTITUTE OF EDUCATION PTY. LTD (ACN 122 933 493) of 390 Sydney Road, Brunswick aforesaid (‘AlE’) and pay for it with Partnership Funds.”
33 The second plaintiff stated that in Clause 6, the sum of $600,000 should in fact have been $660,000, reflecting the payments of $220,000 by the plaintiffs, the Kumars and the one-third share which AusAsia obtained upon payment set out in Clause 1. The second plaintiff stated that the payment of $50,000 to each of him and the first plaintiff was made in accordance with Clause 1(a) of the Supplementary Partnership Agreement.
34 At the end of 2008, the position was as follows.
35 The periodical audit of AITC had not been completed. It was complicated by the fact that the second plaintiff and the Kumars had sought an extension in the maximum capacity from fifty to eight hundred students. The completion date of 18 December 2008 referred to in Clause 1.16 of the Sale of Shares Agreement was extended by virtue of Clause 4.1. CIC, which only started operating in mid 2008, had reached its capacity of 325 students. Many of these students were provided by agents. On the evidence before me, at the time, being an agent, too, was a lucrative business. On 19 December 2008, CIC paid $120,000 to South Pacific Group Pty Ltd. The second plaintiff stated that the cheque was so made payable at the request of the Kumars. The Kumars stated in evidence that this payment was made in advance of the obligation to pay the sum of $220,000 under the Sale of Shares Agreement. This was done on the basis that the audit of AITC appeared to be progressing satisfactorily and the Kumars’ wish to obtain access to student fees, $9,000 per annum per student, which were being held by South Pacific pending completion of the audit.
36 At this time, and into early 2009, the second plaintiff kept pressing for a copy of the Sale of Shares Agreement and states that the Kumars said that it was with their lawyers. By early 2009, the Kumars, with assistance from Lawson, were running AITC. Since CIC had reached maximum capacity, the second plaintiff stated that he referred forty five students to AITC and that commission was agreed at the standard thirty per cent of the first year’s fees. The second plaintiff kept pressing the Kumars for the financial records of AITC, but these were not provided. The second plaintiff stated that in early 2009, he kept pressing for a copy of the Sale of Shares Agreement and proof that the Kumars had paid the sum of $220,000 to Kaicheng. He stated that he started becoming suspicious early in 2009.
37 A new Commonwealth Bank account was opened at its Brunswick branch on 11 March 2009 in the name of CIC. The signatories to the account were the second plaintiff, the first defendant and Wong. On 12 March 2009, the sum of $30,000 was deposited in this account by CIC. The purpose of the account was, according to the second plaintiff, in anticipation of the Partnership Agreement becoming effective upon completion of the Sale of Shares Agreement. The Kumars rather, stated that the purpose of the account was to pay into it substantial fees which had been received by CIC. They state that they were surprised when only $30,000 had been paid in.
38 Matters came to a head at a meeting at the CIC premises on 15 March 2009. The second plaintiff was continuing to press for evidence of the payment of $220,000 by the Kumars. He was told at this meeting that they had paid the sum of $220,000 “under the table” and that their lawyer and accountant were present at this meeting. The Kumars denied that any such payment was made and that they had stated to the second plaintiff what was alleged.
39 Then followed a series of emails which become increasingly terse (“the March emails”). The ill feeling between the second plaintiff and the Kumars which arose at the 15 March 2009 meeting, and is obvious from the March emails, was due, according to the second plaintiff, to his learning that the Kumars had made a supposed “under the table” payment for the purchase of AITC. The Kumars, on the other hand, stated that the ill feeling arose from the failure of the second plaintiff to pay into the Commonwealth Bank account the substantial fees which had been received by CIC.
40 The March emails are set out in what was agreed was the chronological order, although their dates do not reflect this:
“Mon, 16 Mar 2009 …
…
Dear Mala/Anil
Pls send me the financial transaction till date and PRISMS report asap.
Regards
Aakash Kumar
DirectorChelsea International College.”
“Tuesday, March 17, 2009 …
Dear Aakash Kumar,
Pls send me the financial transaction till date, Cash payment of AITC Transactions ASIC details of share transfers which you presums you have paid $220000
+ and remaining balance of $220000 in total ($440000 purchase price contract), and can you return us $ 235000 and AITC PRISMS report ASAP and talk to Cyril Fernandes my lawyer 9841 5633.
Regards,
Mala Moni Bathini.
DirectorChelsea International College.”
“Mon, 16 Mar 2009 …
From: aakash …
…Dear Mala
Who are you to ask about AITC?Are you a shareholder or Director of AITC at this point of time?Can u pls confirm that you are the one who has sent this mail. Next time send the email through your email id.
Not even me is a director or shareholder of AITC,so this an irrelevant question.And I think you are deviating from the point that i have asked in my last email.
Looking forward for the transaction and PRISM report asap.”
“Tuesday, March 17, 2009 …
Dear Aakash,
Now you have forgot who am I? I am the director of Chelsea, the same person who we lend you and your brother money. As I told you understand the company laws properly and ask me the question. Can you please talk to my lawyer.
Regards,
Mala and Anil Bathini.”
“Mon, 16 Mar 2009 …
Dear Mala
I understand that you are a director of Chelsea and you are responsible for CIC operation not AITC operation.Ask your lawyer to communicate in writing and my lawyer will get back to him.
Regards
Aakash Kumar.”
“Tuesday, March 17, 2009 …
Dear Aakash,
I hope you understand the circumstances, before my lawyer communicate with you hereafter can you please repay the load back ASAP of which we have lend to you and your brother ASAP and financial’s of AITC.
Mala and Anil Bathini.”
“Mon, 16 Mar 2009 …
…
Dear Anil
Just to let you know that you are the General Manager of the company and it is your duty and responsibility to provide financial,academic and admin record to all directors whenever asked for.Why this is taking so long?
Anything that Mala needs to know ask her to communicate to me directly.I understand all the circumstances and i am well prepared for it.
As i understand Mala is not keeping well and is on TAC as per the information provided by you and Liloo is overseas so it is my responsibility as a Director to supervise you for the best interest of the company and all other director
I am still waiting for the reports.
Aakash Kumar
DirectorChelsea International College.”
“Tuesday, March 17, 2009 …
Dear Aakash,
Please hereafter communicate with my lawyer directly.
Mala.”
(sic)
41 Some explanation is necessary. A “PRISM report” was a report which showed full details of each overseas student, including their passport details.
42 Upon completion of the Sale of Shares Agreement, the first defendant and Khoo were to become directors of CIC. In anticipation of this, the accountant for the partnership, Mohan Arunasaslam, had forwarded documents online to ASIC to appoint the first defendant and Khoo directors of CIC. However, the first plaintiff would not sign the appropriate form to validate this change. ASIC records show that the first defendant and Khoo were appointed directors on 3 March 2009 and that their appointment ceased on that date.
43 The second plaintiff stated that he composed the emails stated to be emanating from the first plaintiff or the first and second plaintiffs.
44 There is a further email which fits somewhere into the above sequence. It reads as follows:
“Tuesday, 17 March 2009 …
…
Dear Aloke and Aakash Kumar,
Please provide us the receipt of purchase price of AITC including under table cash $220000 + $22000+ total prisms list+cash collected until now + Anil has loaned out a major share in purchasing the AITC + my brothers students commission which we have provided in filling the AITC + total expenses incurred until now ASAP.
Regards,
Amarnath Bathini,
Director,AITC.”
45 Amarnath Bathini, as mentioned, was the second plaintiff’s brother. He was not a director of AITC as stated. The second plaintiff stated that he composed this email. It would appear that the reference to “$22,000” should read “$220,000”.
46 On 18 March 2009, Khoo wrote to Mohan Arunasaslam as follows:
“Dear Mohan,
I understand from Jason that there are some disputes between the other 2 business partners in CIC - namely Aloke & Aakash Kumar on one part, and Mala & Anil Bathini on the other part.
It is essential that pending the resolution of whatever issues that may be causing the dispute between the 2 business partners, you remain neutral as a party. This means that you should not accept instruction from any one party unilaterally which may be a conflict of interest to the other party.
As per the ASIC filing on 3 March 2009, the 3 directors of CIC are Mala, Aakash and myself, with our respective family trust as shareholders in equal one third proportion.
As such any instruction given to you will need to reflect the collective or majority decision of the above 3 directors, until there is a resolution of the dispute.
As both Jason and myself are currently overseas, the dispute may only be settled by a round table discussion between all 3 parties in Melbourne.
In the meantime, it is important to maintain the status quo as per the official ASIC filing on 3 March 2009.
Thank you for your kind understanding and cooperation in this matter.
Best Regards,
Li Lu KHOO
Director
Chelsea International College Pty Ltd
18 March 2009.”
47 Mohan Arunasaslam forwarded a copy of this email to the second plaintiff on 19 March 2009. On the same day, he replied to Khoo with a copy to the second plaintiff, his lawyer and the first defendant:
“In response to your e-mail it would be my desired preference to leave the company as it stood after the ASIC filing on the 3 March 2009 with the appointment of yourself and Aakash Kumar as directors and the transfer of 100 Ord shares to Ausie Venture Pty Ltd. I prepared and lodged the ‘necessary ASIC form 484 as a matter of urgency online as requested by all three parties in the good faith that the documents would be signed in due course.
Unfortunately Mala has refused to sign the lodged ASIC Form 484 and related secretarial documents that we are obligated to obtain. Therefore, under the ASIC Corporations Law we have no alternative but to lodge the form 106 Request to withdraw a lodged document. We have tried on numerous occasions(sic) to have the documents signed by Mala since the 3 March 2009 and on each occasion have been refused.
I have discussed this matter with both my lawyers and ASIC but no other option is available to me other than to lodge the Form 106.
It is my hope that all three parties will be able to resolve the issues that are preventing the company changes being actioned.
Mala & Anil have indicated to me that they are happy for the 1/3 transfer to go ahead once the issues have been resolved. This morning I was handed a cheque for $100,000 from Mala & Anil on instruction from their lawyer. This is the money that Jason paid for his 1/3 share in the company This cheque will be retained by me until the dispute is rectified.
I hope that you will understand my legal responsibility to withdraw the original lodged documentation.
Regards
Mohan Arunasalam
DirectorArun Accounting & Taxation Services Pty Ltd.”
48 I understand that the sum of $100,000 is still being held in Arunasalam’s trust account. In this proceeding, the third defendant was claiming the return of this sum.
49 On 29 May 2009, Slater & Gordon, acting on behalf of the Kumars, wrote to Wisewoulds Lawyers, who were acting on behalf of the plaintiffs, as follows:
“Chelsea International College Pty Ltd (CIC) & Anil and Mala Bathin
I refer to my letter dated 26 May 2009.
I advise that the Sale of Shares Agreement between Kaicheng International Pty Ltd and Aloke and Aakash Kumar was completed on 29 May 2009. I attach a copy of the ASIC Company Extract in relation to the Australian Institute of Tourism and Commerce Pty Ltd (AITC) (formerly South Pacific Group Pty Ltd) ACN:101236499.
My clients are now in a position to complete their obligations under the Partnership Agreement signed 1 October 2008 and the Supplementary Partnership Agreement signed 29 November 2008.
As such I have been instructed to organise a meeting as soon as practicable between our respective clients so that all ASIC documents can be completed to effect the transfer of shares and appointment of directors in both AITC and CIC as set out in clause G of the Supplementary Partnership Agreement.
Please advise by 5pm on Tuesday 2 June 2009 as to a time and date which would suit your clients to meet in conference for this purpose.”
50 Thus completion of the Share Sales Agreement, which was intended for 18 December 2008, finally occurred on 29 May 2009.
51 The partnership was short-lived. On 11 June 2009, Slater & Gordon wrote to Wisewoulds as follows:
“I advise that my clients have accepted your clients’ repudiation and they hereby bring the Partnership Agreement signed 1 October 2008 and the Supplementary Partnership Agreement signed 29 November 2009 to an end.”
52 It was common ground that the partnership constituted by the Partnership Agreement and the Supplementary Partnership Agreement came to an end on 11 June 2009.
The Legal Issues
53 The plaintiffs claim that the defendants engaged in misleading and/or deceptive conduct in breach of s.9 of the Fair Trading Act 1999 (“the Act”) in representing that the purchase price under the Sale of Shares Agreement was $440,000. They plead that on the basis of this representation they made the loan to the partnership of $220,000 and entered into the partnership with the Kumars, neither of which they would have done had they been aware of the true position.
54 They seek relief under s.158 of the Act and, in particular, an order that the Kumars pay them the sum of $220,000.
55 Courts, in recent cases, have expressed the need for caution when relying upon oral statements as the basis for a misleading and deceptive conduct claim. In Soia v Bennett (No 5) [2012] WASC 289, Commissioner Sleight stated, at paragraph 266:
“A cautious approach should be taken when oral statements made some time ago are the basis of a misleading and deceptive conduct claim. … .”
56 To like effect is the comment of McClelland CJ in Eq. in Watson v Foxman (1995) 49 NSWLR 315, 318-319, which was adopted by Judd J in Bovino Pty Ltd v The Casey Group Holdings Pty Ltd [2010] VSC 391 at paragraph 38:
“’Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as ‘misleading’) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court ‘must feel an actual persuasion of its occurrence or existence’. Such satisfaction is ‘not … attained or established independently of the nature and consequence of the fact or facts to be proved’ including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding’: Helton v Allen (1940) 63 CLR 691 at 712.”
(my emphasis).
57 Here, however, I am not concerned with “subtle nuances”. The simple allegation, which is denied, is that the defendants orally represented that the purchase price for AITC under the Sale of Shares Agreement was $440,000.
58 Mr Selimi, who appeared for the Kumars, submitted that since the cheques for $100,000 and $120,000 were both drawn on the account of CIC, it was CIC and not the plaintiffs who had suffered any loss or damage. I accept the submission of Mr Richardson, who appeared for the plaintiffs, that if any representation was made, it was made to the second plaintiff and, through him, to the first plaintiff, and the fact that the second plaintiff chose to draw the cheques on CIC and not on his own personal account is irrelevant. As Mr Richardson submitted, had one or both payments been made by bank cheque, it would not follow that the relevant bank had the cause of action and not the plaintiffs.
59 Mr Selimi submitted that even if the representation of the purchase price for AITC shares, being $440,000, was made, the second plaintiff did not rely upon this representation since he conceded under cross-examination that even at $440,000, the price of AITC was cheap. As indicated however, the plaintiffs plead that they relied on the alleged representation not only to make the payment of $220,000 but also to enter into the partnership with the Kumars which they would not have done had they known the true position.
Discussion
60 Whether or not the defendants represented to the second plaintiff that the purchase price for the AITC shares was $440,000 and the $20,000 loan was made, depends upon the credibility of the second plaintiff on the one hand and of the Kumars on the other. Apart from the first plaintiff, who gave very brief evidence as indicated above, these were the only three witnesses who gave evidence at trial.
61 Relevant considerations, in my view, on the question of whether I can be satisfied on the balance of probabilities that the Kumars made the representation that the purchase price of the AITC shares was $440,000, are:
(i) The second plaintiff and the second defendant gave many non-responsive answers, both in examination-in-chief and in cross-examination. I am prepared to accept this was due to difficulties with the English language. The first defendant though appeared to have no trouble with questions asked in examination-in-chief, but in cross-examination, he, too, was non-responsive on many occasions.
(ii) The second plaintiff was fairly vague in his recollection of events and appeared to have a poor memory. This, of course, could be taken as honesty on his part.
(iii) The plaintiff stated that the loan for $20,000 which he alleges was made towards the end of September 2008 and of which he sought repayment in the March emails was for a personal loan. However, a copy remittance advice of CIC records, on 28 September 2008 against an entry for $20,000: “Loan to Aloke Kumar - Buss Startup”, which it was agreed meant “Business Start Up”. A similar entry appeared in the Account Transactions [Accrual Journal] and CIC’s Cash Disbursements Journal of the same date.
In a letter of demand of 12 June 2009 to Slater & Gordon, Wisewoulds, in addition to referring to the sums of $100,000 and $120,000 paid by CIC in relation to the purchase of AITC, refer to:
“… the sum of $240,000 being their contribution to the purchase of the AITC business which is comprised of:
a$20,000 cash which was paid directly to the Alash and Aloke Kumar in late September 2008 being the deposit for the purchase of the AITC business:
b$100,000 …
c$120,000 … .”
I infer that the reference to $20,000 being the purchase of the AITC business was written by Wisewoulds on instructions from the second plaintiff. It accords with the internal financial records of CIC. The financial records in this letter suggest that the second plaintiff’s recollection of events surrounding the loan of $20,000, and recollection regarding other matters, may be faulty.
(iv) The first defendant remained out of court while the second defendant was giving evidence, which might tend to lend credibility to the Kumars’ evidence. This, of course, would not have precluded the second defendant from discussing with the first defendant the evidence he had given, although the second defendant denied having done this under oath.
(v) It is somewhat surprising that the plaintiff would pay the sum of $100,000 on 30 September 2008 without having seen the Share Sale Agreement, that the purchase price was not discussed at the four meetings with Ben Meir, that the second plaintiff did not insist upon seeing a copy of the Share Sale Agreement at these meetings, particularly as it is referred to in the Partnership Agreement and the Supplementary Partnership Agreement.
Further, it is surprising to believe that the second plaintiff paid the further sum of $120,000 and thus paid over what he regarded as his half-share for the purchase price for the AITC shares when the audit had not been completed by the original completion date of 18 December 2008 and that he was prepared to make this payment without insisting upon seeing a copy of the Share Sale Agreement.
(vi) The mid-March 2009 emails refer to the purchase price for the AITC shares being $440,000 and that an “under the table” payment was made in respect of the purchase price. A response to these serious allegations might have been expected from the Kumars. These emails also refer on two occasions to a loan, which I take to be the loan of $20,000. Again, this is not responded to. I note though that in these emails, the second plaintiff does not object to the first defendant referring to himself as a director of CIC.
(vii) Mr Selimi submitted that the second plaintiff had reason to allege, in mid-March 2009, that the Kumars told him that the purchase price was in fact $440,000 and that an “under the table” payment of $220,000 had been made. It was then that the Kumars were pressing for financial details of CIC, which was a lucrative business which he did not wish to share with them and so raised the false allegation of the “under the table” payment so that the plaintiffs could escape their obligation to contribute a third of CIC to AITC.
(viii) Mr Selimi submitted that the second plaintiff, who was in de facto control of CIC, should have disclosed to the authority which registered RTOs that he had a criminal conviction. The second plaintiff indicated that it was only after the application for registration as an RTO of CIC was made that his wife was involved in a car accident and then suffered a miscarriage which led to her passive role in CIC. In my view, there was no obligation to make any such disclosure. The fact that the second plaintiff had a criminal conviction for assault is, in my opinion, of little relevance on the question of his credibility.
(ix) Mr Selimi sought to impugn the second plaintiff’s credit by referring to the fact that CIC was placed into liquidation by the Australian Taxation Office on 15 March 2012 after the second plaintiff had transferred the business of CIC to his brother, after having utilised funds belonging to CIC to acquire eleven residential properties in Victoria in either his own personal name or the names of associates. There was insufficient evidence before me on this issue to make any adverse findings as to the credit of the second plaintiff.
(x) Mr Richardson relied upon the failure of the defence to call Ben Meir as a witness. He asked me to draw an inference that Meir’s evidence would not have assisted the defendants’ case. In doing so, he sought to rely upon Jones v Dunkel (1959) 101 CLR 298. The nature of the inference referred to there is conveniently summarised in O’Donnell v Reichard [1975] VR 916, 929, where Newton and Norris JJ stated:
“… It is sufficient to say that in our opinion for the purposes of the present case the law may be stated to be that where a party without explanation fails to call as a witness a person whom he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person's evidence would not have helped that party's case; if the jury draw that inference, then they may properly take it into account against the party in question for two purposes, namely: (a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and (b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again in relation to matters with respect to which the person not called as a witness could have spoken.”
In the course of the trial, I queried with Mr Selimi whether Meir was to be called. I was told that he was on standby. Mr Selimi submitted that there was no necessity for Meir to be called since it has not been specifically put to the second plaintiff that the Sale of Shares Agreement was on the table at the meetings with Meir. However, the second plaintiff stated that he only became aware of the Sale of Shares Agreement in April 2009. In my view, there was no necessity for Mr Richardson to put specifically to the Kumars, in that context, that the Sale of Shares Agreement was on the table at the meetings at Meir’s office. Had Meir given evidence that the Sale of Shares Agreement was on the table at the meetings, this would have been near fatal to the plaintiff’s case. It could well have been, of course, that Meir, having acted for the Kumars on the Sale of Shares Agreement, was familiar with its content and did not need to have the Sale of Shares Agreement on the table.
In the circumstances, I am prepared to draw an inference that Meir’s evidence would not have assisted the defendants’ case.
(xi) Mr Richardson relied upon the plaintiff’s case being consistent throughout, whereas the defendants’ case changed in the course of the proceeding.
In its Defence and Counterclaim dated 9 December 2009, the Kumars stated that in June 2008, when CIC was just established, they entered into an agreement with the second plaintiff that they would receive thirty per cent of the first-year fees of $9,000, that is, $2,700, for each student referred to the college by them, and ten per cent commission, that is $900.00, for each other student who enrolled at the college irrespective of who introduced the student. On this basis, the Kumars claimed that they were entitled to the sum of $553,500.00, being commission payable on 150 students at $2,700 each; that is, $405,000, and for 165 students, $900.00 each, that is, $148,500.
Each of the Kumars conceded under cross-examination that included in the 150 students were students whom Bela International Education Services Pty Ltd (“Bela International”), an agent, had introduced to CIC and in respect of whom only 10 per cent of the first year fee would therefore be claimable. In fact, George James, lawyers, who were solicitors for the Kumars in November 2009, wrote a letter of demand to CIC on 9 November 2009, on behalf of Bela International, claiming the sum of $182,638.50 for commission at the rate of thirty per cent of the first year’s fees for students referred to CIC by its client. Both Kumars gave evidence that they had introduced Bela International to CIC and that Bela Mendirattal of that company regarded the Kumars as responsible for payment of her fees. Clearly, the Kumars had no legal entitlement to fees due to Bela International.
The Defence and Counterclaim then alleged, at paragraph 17, that the sum of $100,000 paid on 30 September 2008 was partial payment to reduce the indebtedness in the sum of $553,500. At paragraph 22, it was alleged that the payment of $120,000 on 9 December 2009 was in further reduction of the plaintiffs’ indebtedness to the Kumars.
About twelve months later, in December 2010, the Kumars made application to amend their Defence and Counterclaim. The second defendant swore an affidavit dated 1 December 2010 and the first defendant swore an affidavit on the same date, stating that the contents of the second defendant’s affidavit were true and correct. In his affidavit, the second defendant sought to abandon the allegation contained in paragraphs 17 and 22 of the Defence and Counterclaim dated 9 December 2009, that the payments of $100,000 and $120,000 were made in discharge of an obligation under an alleged agency agreement. They sought to allege rather that the payment of $100,000 was for various expenses connected with the establishment of AITC and that the sum of $120,000 was for the purchase of AITC. Leave was granted for the Kumars to amend their Defence and Counterclaim accordingly.
In giving evidence at trial, the Kumars further varied their story by alleging that by early August 2008, they had referred many students to CIC and came to an agreement with the second plaintiff that they would be partners retrospectively in CIC from when it commenced business in June 2008 and that this would be done in lieu of their claiming fees for referring students to CIC. The first defendant stated that the allegedly outstanding fees were approximately $150,000 whereas the second defendant stated that they were approximately $300,000. No reference is made in the second defendant’s affidavit of 1 December 2010 to this alleged partnership. In fact, in paragraph 6 of the affidavit, the second defendant states that it was only in or about September 2008 that the second plaintiff agreed with him to enter into a partnership with the Kumars.
Mr Richardson submitted that the Kumars’ Defence was “a moving feast” which badly reflected on their credibility as witnesses.
Mr Richardson further relied upon the affidavits sworn by the Kumars on 1 December 2010. Each of the Kumars states in his affidavit that he has read the proposed Amended Defence and Counterclaim “and they reflect the true facts”.
Particulars to paragraph 11(b) of the Amended Defence and Counterclaim dated 13 December 2010, which are in the same form in the Defence and Counterclaim, read as follows:
“The information was provided at a meeting between the First Defendant, the Second Defendant and the Second Plaintiff at Zagame Café Brunswick in or about late September 2009.
The Second Defendant said ‘Me and Aakash have made an agreement to buy South Pacific Group Pty Ltd (now known as Australian Institute of Tourism and Commerce Pty Ltd)’.
The Second Plaintiff said ‘Can I also join in? We do an agreement for both of the colleges together at the same time as Chelsea agreement and transfer of shares is already pending’.
The Second Defendant said ‘We are buying it for $220,000’.
On 28 or 29 September 2008, the First Defendant and the Second Defendant provided the Second Plaintiff with a copy of the agreement with Kaicheng International Pty. Ltd. at Chelsea, in accordance with the request of the Second Plaintiff made a day earlier.”
As appears, these Particulars state the information about the purchase price was provided at Zagame Café. As mentioned, the evidence of both Kumars at trial was that the information regarding the purchase price was provided at the AIE premises next door.
Further, the Particulars state that the second plaintiff was provided with a copy of the Sale of Shares Agreement on 28 or 29 September 2008. Both defendants were adamant in their evidence that the meeting with the second plaintiff was on 24 September 2008 and that, according to them, the Sale of Shares Agreement was copied on the following day, 25 September 2008, at the CIC premises.
When the disclosure was made regarding the purchase price and as to whether it was indicated at $440,000 or $220,000 is a central issue. One would expect the recollection of the Kumars on this issue to be better in December 2009 and December 2010 than October 2012. Further, the Kumars have sworn that information contained in their affidavits was true but it conflicts with the evidence they gave at trial. The attitude of the Kumars to swearing as to the truth of affidavits was somewhat cavalier. The first plaintiff stated that he signed his affidavit on 1 December 2010 on the basis that his brother told him that it was all right for him to sign.[1] The second defendant stated that he signed his affidavit of 1 December 2010 on the basis that his lawyer asked him to sign it.[2] It appears that the Kumars were prepared to swear to anything put before them by their solicitors and had little regard for the solemnity of an oath.
[1]T 973
[2]T 777
All these matters reflect adversely on the credibility of the Kumars.
(xii) The second plaintiff stated that the Kumars’ one-third share in AIE was to be a partnership asset, which the defendants denied. Neither the Partnership Agreement nor the Supplementary Partnership Agreement states this. Mr Selimi relied upon this fact and the importance the law places upon signed documents, (see, for example, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, at paragraphs 42, 45 and 47), as an indication that the Kumars’ share in AIE was not to form part of the partnership assets and that therefore, the second plaintiff’s recollection of events was incorrect, at least in this respect.
On the other hand, neither the Partnership Agreement nor the Supplementary Partnership Agreement make reference to the payment of $220,000 which, it is common ground, was to be made by the plaintiffs or CIC.
(xiii) The second plaintiff was cross-examined upon a draft audit report on CIC conducted by the Victorian Registration and Qualifications Authority. The audit was conducted on 24 and 25 June 2009. The draft report states that “information provided prior to engagement is inaccurate and incomplete” and particularly refers to marketing material as being incomplete and inaccurate. Although the report was only a draft, the second plaintiff readily conceded the allegations made and stated that they concerned relatively minor matters. The inaccuracies, rather than the incompleteness go, to some extent, to the second plaintiff’s credit, but so does his honesty in readily conceding the accuracy of the draft report.
The draft report was provided to the Kumars by an employee of CIC. The Kumars conceded that it was a commercially sensitive document. Mr Richardson relied upon the manner in which the document had been obtained as going to the integrity of the Kumars. I accept that there is some, but not great, merit in this submission.
Conclusion
62 Taking all the above matters into account, and in the circumstances, although I have, as indicated, some reservations with respect to the second plaintiff’s evidence, in the end, I am satisfied on the balance of probabilities that the alleged misrepresentation that the purchase price for AITC was $440,000 was made on 24 September 2008 and that the sum of $20,000 was loaned by the second plaintiff to the Kumars at about that time.
63 There will be judgment for the plaintiffs against the defendants in the sum of $240,000 (Two Hundred and Forty Thousand Dollars).
64 I will hear further from the parties on the question of interest, costs, as to whether an order is required for the taking of accounts and any other matters.
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