Brown v Tavern Operator Pty Ltd

[2018] NSWSC 1290

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Brown v Tavern Operator Pty Ltd [2018] NSWSC 1290

Hearing dates:

14-18, 21, 22 May 2018

Date of orders:

22 August 2018

Decision date:

22 August 2018

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

1.   Dismiss the plaintiff’s amended summons and points of claim with costs.
2.   For the avoidance of doubt, declare that the document purportedly executed by the parties as a deed on 21 September 2012 is not binding and enforceable.
3.   Order the plaintiff to deliver up to the defendants’ solicitors within 14 days any originals of the documents signed by the defendants on 21 September 2012 that remain in the plaintiff’s possession custody or control.
4.   Declare that, as between the plaintiff and the defendants, the defendants are entitled to the moneys held in a trust account in the name of the defendants’ solicitors and representing 50% of the net settlement proceeds from the sale of the property known as 170 Menangle Road, Menangle Park, in the State of New South Wales, and any remaining funds out of the net settlement proceeds from the sale of the defendants’ business.

Catchwords:

EQUITY – Equitable interests in property – Claim by plaintiff to a one-half beneficial interest in real property and other assets pursuant to a document purportedly executed as a deed – Finding that defendants’ execution of the purported deed was not witnessed by the person who later signed the document as a witness – Held the document was not validly executed as a deed

 

CONTRACTS – Formation – Whether the purported deed was enforceable as a contract entered into between the plaintiff and the defendants for good consideration – Held that the only consideration for the agreement recorded in the purported deed was past consideration and that the defendants’ subsequent conduct did not otherwise amount to acceptance of the purported deed – Held there was no implicit acceptance by the taking of a benefit under the purported deed

 

DEEDS – Whether valid attestation of purported deed where person present at time of signing later attests in affidavit to the witnessing of the execution of the deed – Held it was a requirement for the valid execution of a deed that the attesting witness be present at the time of signing and sign as witness at that time

 

AGENCY – Ostensible authority – Whether the plaintiff by his conduct held others out as authorised to negotiate or make representations on his behalf in relation to the use to be made of the document purportedly executed as a deed

  CONSUMER LAW – Cross-claim for relief in respect of alleged misleading or deceptive conduct by representation, made through the plaintiff’s agent(s), that document purportedly executed as a deed would be put “in a drawer” and used only as “security” – Alternatively, cross-claim for relief on the basis of unconscionable conduct in plaintiff now seeking to enforce the purported deed

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Schedule 2 – Australian Consumer Law, ss 2, 18, 21, 22
Conveyancing (Amendment) Bill 1976 (NSW)
Conveyancing Act 1919 (NSW), s 38
Corporations Act 2001 (Cth), ss 249A, 249T, 250E
Evidence Act 1995 (NSW), s 128
Land Transfer Act 1908 (NZ)
Native Land Act 1873 (NZ)
Property Law Act 1958 (Vic), s 73
Property Law Act 1969 (WA), s 9
Real Property Act 1900 (NSW), ss 46, 117
Real Property Regulations 2008, reg 6

Cases Cited:

AG (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261
Airways Corporation of New Zealand Ltd v Geyserland Airways Ltd [1996] 1 NZLR 116
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63
Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 96 FCR 491; [2000] FCA 2
Australian Competition & Consumer Commission v Woolworths Ltd [2016] FCA 1472
Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Brown v Brown (1905) 5 SR (NSW) 146
Brown v lnnovatorOne Plc [2012] EWHC 1321
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49
Crane v The Mission to Seafarers Newcastle Incorporated [2018] NSWSC 429
Damien v JKAM Investments Pty Ltd [2015] NSWCA 368
Day v Perisher Blue Pty Ltd (2005) 62 NSWLR 731; [2005] NSWCA 110
Deacon v Auckland District Land Registrar (1910) 30 NZLR 369
Doe on the Demise of Mansfield v Peach (1814) 2 M & S 576; 105 ER 496
Doe on the demises of John Hotchkiss and his wife Mary v Pearce (1815) 6 Taunt 402; 128 ER 1090
Dome Resources NL v Silver (2008) 72 NSWLR 693; [2008] NSWCA 322
Ellison v Vukicevic (1986) 7 NSWLR 104
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; 11 ACSR 642; 11 ACLC 952
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Gippsreal Ltd v Melbourne Linh Son Buddhist Society Inc [2016] VSC 324
Harvey v State of New South Wales [2006] NSWSC 1436
HCK China Investments Ltd v Solar Honest Ltd [1999] FCA 1156; 165 ALR 680
James v Australia and New Zealand Banking Group Ltd (1986) 64 ALR 347
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5
Liao v State of New South Wales [2014] NSWCA 71
Lindsay-Owen v Winton Partners Funds Management Pty Ltd [2017] NSWCA 78
Macquarie Developments Pty Limited v Forrester [2005] NSWSC 674
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70
Makita (Aust) Pty Limited v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305
Malco Engineering Pty Limited v Ferreira & ors (1994) 10 NSWCCR 117
Mostyn v Mostyn (1989) 16 NSWLR 635
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] 3 WLR 1519; [2016] EWCA Civ 553
Netglory Pty Ltd v Caratti [2013] WASC 364
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28
Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134
Seamez (Australia) Pty Ltd v McLaughlin [1999] NSWSC 9
Shah v Shah [2001] 3 WLR 31; [2002] QB 35; [2001] 4 All ER 138; [2001] EWCA Civ 527
Silver v Dome Resources NL [2007] NSWSC 455; 62 ACSR 539
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Wright v Wakeford (1811) 4 Ves Jun 455; 34 ER 176 (Court of Chancery); (1812) 4 Taunt 213; 128 ER 310 (Court of Common Pleas)

Texts Cited:

Edward Hilliard (ed), Sheppard’s Touchstone of Common Assurances (7th ed, 1820, J & WT Clarke)
Gerald Dworkin, Odgers’ Construction of Deeds and Statutes (5th ed, 1967, Sweet & Maxwell)
New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 30 September 1976
New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 14 September 1976
Nicholas Seddon, Seddon on Deeds (2015, Federation Press)
Norton on Deeds (Robert Morrison and Hugh Goolden, Norton on Deeds (2nd ed, 1928, Sweet & Maxwell)
Peter Butt, Land Law (6th ed, 2010, Lawbook Co)
R.A. Donnell (ed),Gibson’s Conveyancing (21st ed, 1980, Eastern Press Ltd)
Russell Miller, Miller’s Australian Competition and Consumer Law Annotated 2016 (38th ed, 2016, Thomson Reuters)

Category:

Principal judgment

Parties:

James Ian Brown (Plaintiff)
Tavern Operator Pty Ltd (First Defendant)
Gregory John Nixon (Second Defendant)
Bronwyn Megan Tallis (Third Defendant)

Representation:

Counsel:
M Bennett (Plaintiff)
J Morris SC with AJ O’Brien (Defendants)

  Solicitors:
Marsdens Law Group (Plaintiff)
Gibson Howlin Lawyers (Defendants)

File Number(s):

2015/00374702

Publication restriction:

Nil

INDEX

JUDGMENT – WARD CJ in Eq			[1]
Introduction			[3]
Summary			[15]
Background			[18]
Acquisition and initial development of the Menangle property		[18]
Poker machine entitlements		[21]
Building works in 2011		[30]
Attempts to obtain finance in late 2011		[33]
March 2012 – offer to sell the Menangle property		[45]
Demand for cancellation fee		[46]
ANZ short term loan		[47]
Position as at April/May 2012		[48]
Initial discussions		[57]
Ron’s account of the first conversation with Greg		[63]
10 May 2012		[67]
Bronwyn’s account of first meeting with Mr Lambrinos		[71]
14 May 2012		[73]
Provision of information to Mr Lambrinos		[86]
22 May 2012 meeting		[87]
Heads of Agreement dated 22 May 2012		[94]
Retainer of Mr Moloney		[98]
Payment of $17,000 to ANZ on 23 May 2012		[101]
Claim by Global Capital and threatened caveat over the property		[102]
Preparation of draft deed		[111]
Payment to the two charities on 14 June 2012		[120]
Draft versions of the deed		[123]
June 2012 draft (CB 824)		[132]
Caveat		[144]
17 June 2012		[147]
Amendment to the first draft deed		[148]
19 June 2012		[149]
20 June – 29 June 2012		[157]
Payment for the builder/demand by Ron for repayment of the “loan”		[158]
3 July draft deed (CB 837)		[167]
Further communications in July 2012		[180]
Commencement of payments to Ron		[187]
Suggestion that Ron decided in mid-August 2012 not to proceed with arrangement for “purchase” of half of the hotel		[188]
August 2012 draft deed (Exhibit 8)		[192]
August communications in relation to proposed finance		[194]
Late August 2012 communications in relation to threatened winding up proceedings		[198]
September 2012 communications		[206]
September 2012 amendment to name of contracting party in draft deed		[207]
September Deed as signed		[211]
Other documents signed on 21 September 2012		[215]
Differing parties’ accounts of the September 2012 meeting		[216]
James’ account		[217]
Ron’s account		[225]
Lana’s account		[234]
Mr Lambrinos’ account		[240]
Greg’s account		[242]
Bronwyn’s account		[249]
Witnessing of James’ signature		[254]
November 2012		[258]
December 2012		[261]
ANZ re-finance		[265]
Withdrawal of Global Capital’s caveat		[266]
Commencement of operation of poker machines at the Menangle property		[267]
Further attempts to obtain finance in 2013		[268]
2014		[271]
February 2015		[273]
Alleged discussions about James’ entitlements		[274]
April 2015		[275]
Sale of Property		[288]
Proceedings			[289]
Issues			[291]
Evidence			[296]
Credit			[299]
My assessment of the witnesses		[305]
James and Ron		[313]
Lana		[331]
Mr Lambrinos		[334]
Mr Moloney		[342]
Defendants’ witnesses		[344]
Greg		[346]
Bronwyn		[347]
Determination			[348]
Heads of Agreement		[349]
James’ submissions	[349]
Determination	[359]
September Deed		[370]
The critical documents		[372]
Substantive changes between penultimate and final versions of the document		[380]
Incompleteness of the documents		[386]
Lack of any evidence from Mr Moloney as to the changes		[388]
Finding as to who drafted the final version of the September Deed		[390]
How did the documents come to be at the 21 September 2012 meeting?		[396]
How was the meeting of 21 September 2012 arranged?		[400]
Who was at the meeting?		[401]
Conclusion that Lana did not witness the documents		[407]
Commerciality of the September Deed		[412]
Other factual disputes in relation to the meeting		[418]
Post contractual conduct		[419]
Making of alleged representations – cross-claim		[424]
Legal issues arising out of the above factual findings		[448]
Attestation	[448]
Determination on the issue of attestation	[459]
Is the September Deed nonetheless enforceable as an agreement?		[497]
Determination as to enforcement of the September Deed not as a deed but as an agreement		[503]
Contention that the agreement contained in the September Deed is not the entirety of the agreement and that in substance the agreement is a mortgage		[511]
Misleading or deceptive conduct		[515]
Agency		[528]
Unconscionable conduct		[542]
Determination		[554]
Final observation			[560]
Conclusion			[561]

Judgment

1. HER HONOUR: In this matter, the plaintiff (James Brown) seeks relief in relation to an alleged binding agreement, said to have been entered into by way of deed, with the second and third defendants (Gregory Nixon and Bronwyn Tallis), and the company controlled by them (the first defendant, Tavern Operator Pty Limited, to which I will refer as Tavern Operator) acting as trustee for the Tallis Trading Trust.

2. For ease of reference, particularly since both James Brown and his father, Ron Brown, feature in the events giving rise to this dispute, I will refer to the respective individuals (other than those who feature in a professional capacity), by their first names; to Greg and Bronwyn jointly as the Nixons; to the Nixons and Tavern Operator, collectively, as the Nixon interests; and to James and Ron, collectively, as the Brown interests (though I note it is not alleged that Ron was a party to the alleged agreement).

Introduction

3. James contends that under the alleged agreement he was to acquire a 50% interest in certain property at Menangle Park (the Menangle property), 50% of the shares in Tavern Operator, 50% of the units in the Tallis Trading Trust, and 50% of the hotel and function business conducted at the Menangle property (known as The Horse and Jockey Inn); and that he presently has an equitable interest therein as a result. The defendants deny the alleged agreement and have cross-claimed for misleading or deceptive conduct and/or unconscionable conduct in relation to the circumstances giving rise to the execution of the document relied upon by James as a deed and James’ attempt now to enforce the agreement recorded in that document.

4. The registered proprietor of the Menangle property, at the relevant time, was Bronwyn. Bronwyn acquired the property in October 1995 (see Greg’s affidavit of 3 March 2017 at [11] (Greg’s first affidavit); Bronwyn’s affidavit of 3 March 2017 at [12] (Bronwyn’s first affidavit)). Tavern Operator was incorporated in June 2000 and was at the relevant times the operator of the hotel and function business conducted at the property, as trustee of the Tallis Trading Trust.

5. The case for James, in essence, is that as at May 2012 the Nixons: were in a dire financial position; required around $1.125 million to repay creditors, taxes and to acquire poker machine licences; and had made attempts at securing finance for those and general business purposes which had failed. Pausing here, James accepts that the Nixons’ immediate requirement for funds as at April/May 2012 was not for the whole $1.125 million, since that included amounts referable to the acquisition in due course of the poker machine licences and poker machines themselves. Nevertheless, there is certainly evidence (to which I will come in due course) that the Nixons were looking for finance at that stage of around $1 million to $1.3 million.

6. James says that the Nixons sought assistance from his father, Ron, who had previously been involved in the hospitality or hotel industry; that a bargain was struck to assist the Nixons under which James was to receive a half share in the property, company and trading trust; and that the Nixons should now be held to their bargain.

7. He says that what was always the subject of the discussions between the relevant parties was that he would take a 50% interest in the Menangle property and the business but that what was to be provided in exchange for that 50% interest changed during the course of the negotiations (see T 2.46). It is said that initially there was going to be the immediate payment of amounts totalling around $192,000 to discharge the pressing debts of the Nixons; that there was “discussion” that James would secure services from a mortgage broker or a solicitor or other people to assist the Nixons in their then financial position; and, finally, that further funding would be obtained to help the business grow.

8. Ultimately, however, the consideration that James contends was provided by him (for the agreement by the Nixon interests to transfer a half share of the property and business to him), as explained in oral submissions at the hearing, may be summarised as being simply the provision of short term finance (repayable to James out of finance later to be procured for the benefit of the business but in relation to which the Nixon interests or some of them were to be the borrower) and the provision of assistance from the Browns’ financial advisor (Mr Dominic Lambrinos) (and perhaps also their solicitor, Mr Patrick Moloney) for the benefit of the Nixons in relation to their attempts to obtain finance for the business (and, in the solicitor’s case, in relation to the removal of a caveat lodged at one stage on the title to the property). In other words, on James’ version of the deal that was finally struck, he had no obligation to make any monetary contribution to the Nixon interests nor to the business in exchange for the acquisition of a half share of the property and business (other than the provision of short term finance of around $200,000 repayable out of borrowings for which the Nixon interests were to be liable).

9. James contends that the Nixons are commercially sophisticated business people who struck a bargain from a position of weakness and who now “seek to explain away” a binding deed, company records and transfer (all said to have been witnessed by Ron’s partner – Lana Beynon), after “benefiting from James and his professional’s efforts to fix the immediate situation” (James’ written submissions at [2]).

10. James accepts that, had the Nixon not been in dire financial straits, the bargain that was struck may not have been an attractive bargain for them but he says that, in the Nixons’ particular circumstances at the time, it was an attractive bargain (and that in any event it is binding on them).

11. The Nixons do not deny that their business was in financial difficulty in 2011 and 2012 (though, somewhat inconsistently with their affidavit evidence, they do not accept that the position was as dire as the Brown interests portray). They say that this was partly due to the cost of the extensions and variations carried out by a builder exceeding the original quote for building works carried out in that period – but nothing turns on this and there is no basis in the evidence on which I could make a finding to that effect.

12. Nor do the Nixons deny that there was a binding bargain at one stage of their dealings with the Brown interests but they say that this was the agreement comprised in a “Heads of Agreement” document that was signed on 22 May 2012 (and not that on which James now relies – namely, the agreement recorded in a “deed” subsequently signed by them in September that year).

13. The Nixons contend that the “deed” they signed on 21 September 2012 (to which I will refer, solely for descriptive purposes – since its validity as a deed is one of the issues in the proceedings – as the September Deed) was induced by misleading or deceptive conduct (as also, they say, were the other documents signed at the time, including a form for transfer under the Real Property Act 1900 (NSW) in relation to a half share in the Menangle property and ASIC and other documents relating to a transfer of a share in Tavern Operator to James). Indeed, they go so far as to allege fraud on the part of the Brown interests (see [55] of the Nixons’ cross-claim filed on 29 June 2016). The Nixons further maintain that the conduct of James and those allegedly acting as his agents (namely, Ron and Mr Lambrinos) was and is unconscionable within the meaning of s 21(1)(b) of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Schedule 2).

3. There are significant areas of factual dispute – most critically as to what happened at the 21 September 2012 meeting when the September Deed was signed. The respective parties’ accounts differ widely as to most matters relating to that meeting: including, how it was arranged; who was there; where at the Menangle property it was held; whether (and, if so, how) the documents signed at the meeting were provided to the Nixons in advance; and what was said and done at the time the documents were signed. There is also an issue as to who prepared the documents that were signed on the day (the Nixons contending that it should be inferred that Mr Lambrinos made significant changes to the document that was presented to them for signing as a deed on that day). Given the diametrically opposed accounts of the meeting, the contemporaneous documents take on particular significance (as I will explain in due course) and it is necessary to set out in some detail the chronology of events leading up to the present dispute (which I do below).

Summary

15. In summary, for the reasons that follow, I have concluded that James’ claim should be dismissed with costs. It is therefore not necessary to decide whether the relief sought by the Nixons in the cross-claim should be granted; but, had it been necessary, I would have granted that relief in part.

16. I have concluded, applying the necessary standard of proof to the resolution of the various factual disputes (see Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (Briginshaw)), that the evidence of the Nixons as to what occurred at the critical 21 September 2012 meeting should be preferred to that of the Brown witnesses. I am persuaded to the level of actual satisfaction that the meeting with the Nixons on that day was attended by Ron and Mr Lambrinos (as the Nixons contend) not Ron, James and Lana (as the Brown witnesses contend) and that at that meeting the Nixons were presented with documents to sign which they were told were to be used just as “security” and kept “in a drawer” – in effect that the documents would not be relied upon unless there was default in the repayment to Ron of the moneys he had advanced to James for the benefit of the Nixons in order to discharge debts of around $200,000.

17. I find that the September Deed was not validly attested and is not enforceable as a deed; that the agreement recorded in that document is not supported by consideration and not enforceable as an agreement; and that even if one or both of those conclusions were to be incorrect, it would be unconscionable conduct on the part of James now to seek to enforce the said agreement, having regard to the circumstances in which it was executed.

Background

Acquisition and initial development of the Menangle property

18. Bronwyn, a physiotherapist who for many years had operated her own physiotherapy practice, acquired the Menangle property, on which The Horse and Jockey Inn (formerly known as Menangle House) is now located, in 1995. Greg’s evidence was that at that time the building, which is heritage listed, was very rundown and the grounds were overgrown ([16], Greg’s first affidavit). Greg, a former professional rugby league player, had formerly operated a liquor business. His evidence is that he and his wife decided to develop the site as an hotel ([18], Greg’s first affidavit).

19. In October 1999, development approval for certain renovations and conservation work was obtained ([19], Greg’s first affidavit) and in or about 2001 (after the incorporation of Tavern Operator, of which the Nixons are joint shareholders), development approval was obtained for the construction of buildings on the land, including a bar and a restaurant ([20], Greg’s first affidavit). In December 2001, a liquor licence was obtained and construction of other structures was commenced ([21], Greg’s first affidavit). The builder engaged in respect of those works was a Mr Danny Radovic and/or his father Ralph; through a company associated with them – RE Property Group Pty Limited (RE Property Group).

20. The restaurant in the hotel opened for business on 4 November 2003, and the bar about a week later ([22], Greg’s first affidavit). Greg’s evidence is that the business was then able to expand into hosting formal functions such as weddings ([23], Greg’s first affidavit). At the time of the discussions with the Brown interests (to which I refer shortly) Tavern Operator had been carrying on a hotel and functions centre business on the Menangle property for some time and Bronwyn’s evidence was that in 2009 the function side of the business was expanding ([26], Bronwyn’s first affidavit).

Poker machine entitlements

21. The Nixons took steps over a period of time to acquire poker machine licences (or “entitlements”) in order to be able to operate poker machines on the hotel premises. Greg has deposed ([24], Greg’s first affidavit) that from approximately 2005 onwards Tavern Operator had made applications to the relevant authority (then the Casino Liquor & Gaming Control Authority) (Gaming Authority) for the grant of poker machine entitlements ([25], Greg’s first affidavit).

22. The reason for this was to improve or secure the profitability of the business. Greg deposed ([24], Greg’s first affidavit) that:

During the years that Tavern Operator operated the hotel, I came to the view that if the hotel was to be profitable, the company needed to own and operate poker machines on the premises.

23. Similarly, Bronwyn’s evidence was that as at the beginning of 2006 the business was not profitable (see [23], Bronwyn’s first affidavit) and she considered that having poker machines in operation at the property was necessary for the long term profitability of the business ([26], Bronwyn’s first affidavit).

24. It is fair to say that there was somewhat conflicting evidence in cross-examination of each of Greg and Bronwyn as to the viability of the hotel business if poker machine entitlements could not be obtained. In cross-examination, for example, Greg’s evidence was, in effect, that the statement extracted at [22] above should be read as “if the hotel was to be more viable” rather than “if the hotel was to be profitable” (my emphasis) (see T 404.37-T 405.30). However, there is no dispute that at the relevant time in 2012 the Nixons were keen to secure such entitlements. Nor is there any dispute that it was considered valuable for such entitlements to be attached to a hotel business (as indeed was Ron’s view – see his evidence at T 265.41-45) and that it was contemplated that the operation of the poker machines would provide a further income stream to the business; such that the sooner the machines became operable the sooner the profits of the business would increase.

25. Bronwyn’s evidence was that in 2009 she and Greg submitted further plans for extension of the property to Council for approval ([26]).

26. On or about 9 or 10 August 2011, the Gaming Authority notified the Nixons of its approval for an allocation of a poker machine entitlement not to exceed 10 machines ([30], Greg’s first affidavit; [30] Bronwyn’s first affidavit). Greg deposed that the approval for poker machines was to expire on 26 July 2013 ([30], Greg’s first affidavit).

27. The Nixons each deposed to the basis on which such entitlements operate having regard to the regulatory regime then in place in relation to poker machines in New South Wales. In particular, approval was issued permitting the acquisition of five “blocks” of poker machine entitlements (one “block” being three poker machine licences) and there was a requirement that, out of a “block”, one licence was to be forfeited or relinquished to the Gaming Authority; so that out of each “block” the business would retain two poker machine licences ([30], Bronwyn’s first affidavit; [31], Greg’s first affidavit). (See also the letter of approval dated 7 August 2011 at CB 849.) Thus, approval for five “blocks” would translate to authorisation to obtain 10 (not 15) poker machine licences.

28. A condition of the approval was that for each of two years an annual sum of $25,000 had to be contributed to nominated charities – on or before 15 June 2012 and 15 June 2013 – or the entitlements were lost ([32], Bronwyn’s first affidavit; [32], Greg’s first affidavit).

29. Greg deposed that, at the time that the Gaming Authority granted the certificate of gaming entitlement, the cost of purchasing an entitlement to a “block” of two machines (i.e., the two machines for which licences would be retained after one of the three entitlements had been relinquished) was about $198,000 including GST ([31], Greg’s first affidavit). That cost increased during the period in question. The cost of acquiring the actual poker machines was additional to the cost of the poker machine entitlements.

Building works in 2011

30. Prior to the grant of the poker machine entitlements, steps were taken to extend the premises that would ultimately house the poker machines if the entitlements were granted ([27], Greg’s first affidavit).

31. In that regard, both of the Nixons deposed to the acceptance of a quote for the construction of extensions to the premises. Greg said that a quote was accepted from RE Property Group in June 2011 for an extension to the building (referred to by the Nixons as the “West Wing”), which was intended to be used for a poker machine area and sports bar ([27], Greg’s first affidavit). Bronwyn put the acceptance of the quote as being in early 2011 ([27], Bronwyn’s first affidavit). Nothing, however, turns on the difference in the Nixons’ recollections as to the timing of acceptance of the quote.

32. Bronwyn deposed that the original contract price for the extension to the property was $288,000 plus GST but that the total cost of the building work increased to $442,937 inclusive of GST ([28]); that she and Greg had obtained a $500,000 loan facility from ANZ Bank (ANZ) in about August 2008 (which had been drawn down for about $330,000 to expand the property’s function capabilities) ([24]); and that, while some of the amounts owing to the builder were paid out of funds still available under the 2008 ANZ facility, ANZ would not lend the business any more funds. Bronwyn deposed that she renegotiated the terms of that facility to restructure it as a facility of $450,000 and an overdraft of $49,999 ([29]).

Attempts to obtain finance in late 2011

33. In about September 2011, the building work had progressed to the point where the builder was owed approximately $210,000 ([33], Greg’s first affidavit). There was at that stage still the $500,000 loan facility from ANZ, not fully drawn down as referred to above, secured by a first mortgage over the Menangle property.

34. Greg deposed that Bronwyn approached a number of banks to borrow funds using the property as security (including ANZ and Westpac) but that the banks would not provide any further finance ([34], Greg’s first affidavit); and that, at about that time, Mr Ralph Radovic and/or his son Danny introduced Greg to Mr Ron Cooper, a finance broker operating through Diore Pty Ltd ([35], Greg’s first affidavit; [34(a)], Bronwyn’s first affidavit). Greg said that he and Bronwyn spoke to Mr Cooper in an attempt to obtain finance to pay Tavern Operator’s creditors (principally the builder) and to purchase the poker machine entitlements ([35], Greg’s first affidavit).

35. Bronwyn similarly deposed that around September 2011 she and Greg visited the major banks seeking additional finance but were not successful and that they then approached second tier lenders through mortgage brokers ([33]). At [34], she deposed that between September 2011 and May 2012 enquiries were made to five lenders – some of those being unsuccessful (see (b)-(c)) and one of which resulted in an offer that was not accepted by the Nixons (see (e)).

36. At [35], Bronwyn deposed that it was crucial for the future of the business that funds be obtained to make the annual payments of $25,000 and purchase blocks of poker machines before the entitlements granted expired ([35]).

37. As at 31 October 2011 (see CB 300), Mr Cooper advised the Nixons that he had two private offers (of finance apparently of around $1 million), to which Bronwyn responded with concern as to the indicated interest rate and said:

I still think Greg and this business has a lot of scope to look at other avenues.

Ralph [Radovic] cannot finish our projects until he gets paid (and we understand this) so we will make arrangements based on this situation. And postpone all further functions[.]

What we would like to happen right now is just to pay the $287,000 left on ralphs bill to finish the extension.

Do your private lenders want to add this financial situation to their portfolio[.]

38. Pausing here, it can be seen from this email exchange that the Nixons’ stated position at the time was not that it was critical for them at that stage to obtain the whole amount of funding to acquire the poker machine entitlements and machines, rather, a sum of around $287,000 would suffice. Presumably, in that event, the ANZ facility would have been further drawn down to pay the Nixons’ other immediate debts.

39. Greg has deposed that in about November 2011, an attempt was made through Mr Cooper to obtain finance with GP Mortgage Group (see [36], Greg’s first affidavit) and then there was discussion as to a possible borrowing involving Baccus Investment Group (Baccus) and Bleier Mortgage Corporation Pty Ltd (Bleier) (see [36], Greg’s first affidavit). (The relationship between Baccus and Bleier was not made entirely clear, though I note that the two entities apparently shared the same address (comparing the addresses on the document at CB 302).)

40. A Mandate To Act in favour of Global Capital Corporation Pty Ltd (Global Capital), bearing an issue date of 3 November 2011, was signed by Greg on behalf of Tavern Operator on 15 December 2011, appointing Global Capital exclusively and irrevocably to provide services to obtain a finance facility in an amount of up to $1.06 million or up to 30% of the value of the security for a period of up to 12 months (see CB 348). The Mandate To Act provided for a facilitation fee of $23,320 (incl of GST) or 2% of the loan amount and for the charging of a cancellation fee (100% of the facilitation fee) in the event that the borrower decided not to proceed for whatever reason, after the lender had issued mortgage documents.

41. By email on 20 December 2011, Mr Cooper sought information from the Nixons “to move the approval ahead” (see CB 299).

42. An Indicative Loan Offer issued by Bleier for a loan advance in the amount of the lesser of $1 million and 29% of valuation for a term of 12 months at an interest rate of $13.55% pa fixed interest only and on security of a first mortgage over the Menangle property (the property at that stage already being subject to the mortgage in favour of ANZ) was made to Tavern Operator on 30 January 2012 (CB 304). This indicative offer was forwarded via “Global Capital Commercial” – presumably a trading name for Global Capital, though nothing turns on this (see CB 303). By letter of the same date it seems that the indicative offer had been forwarded to Bleier by Baccus (see CB 302).

43. By February 2012, Mr Cooper advised the Nixons that he had “exhausted everyone and every institution” and that the attached indicative offer (which seems to be a reference to the 30 January offer procured through “Global Capital Commercial” referred to at [42] above) was all that he could come up with (see CB 301). (A tax invoice for the facilitation fee was issued on 21 March 2012 “in anticipation of settlement of” the Bleier loan facility – see CB 357).

44. That offer (the Bleier offer) was not acceptable to the Nixons. This led, in due course, to a claim by Global Capital for payment of the cancellation fee provided for under the Mandate to Act (see [46] below).

March 2012 – offer to sell the Menangle property

45. In March 2012, the Nixons made an offer to sell the Menangle property to a prospective purchaser (the NSW Harness Racing Club Ltd) – the entity which ultimately (in 2015) acquired the property. At [40] of his first affidavit, Greg deposed that:

As an alternative to raising finance, Bronwyn and I considered selling the Property and business and in this regard made an offer of sale to NSW Harness Racing Club (Club)[,]

but that the Club at that time did not have the funds to go ahead with purchase. Similarly, at [38] of her first affidavit, Bronwyn deposed that:

Around late March 2012, Greg and I were so concerned about the financing position that an unsuccessful attempt was made to sell the business and property[.]

Demand for cancellation fee

46. Consistently with there having been a decision by the Nixons at that stage not to proceed with the Bleier offer, by letter dated 19 April 2012 Global Capital wrote to Tavern Operator (care of Mr Cooper at Diore Pty Ltd) demanding payment of the cancellation fee provided for under the Mandate To Act of $22,000 (see CB 347).

ANZ short term loan

47. On about 23 April 2012, ANZ made a short term loan to Bronwyn in the sum of $25,000 repayable within a month. This loan was sought by Bronwyn for the purpose of making a payment to the builder ([39]; Bronwyn’s first affidavit).

Position as at April/May 2012

48. The position prior to the initial discussions with Ron and the Brown interests in May 2012, as conceded in the Nixons’ closing written submissions (at [10]), was thus that:

As at April 2012, the Nixons and their hotel operation were burdened by debt, and there were a number of payments to creditors, and contributions to charities, which required immediate attention[.]

49. Those debts included: an amount owing to the Australian Taxation Office (ATO) of around $31,000; an amount due for repayment to ANZ of $17,000 in respect of the short term loan that had been taken out by Bronwyn on 23 April 2012; an amount of at least $150,000 owing to the builder (Mr Radovic or his company, RE Property Group) for the 2011 building works; and debts to family and friends of around $42,000. The Nixons also needed to make payments before 15 June 2012 to the two nominated charities of funds totalling $25,000 (or else they faced losing the poker machine entitlements); and (though this was not included in the list of debts provided for in the subsequent Heads of Agreement) there was also the claim made by Global Capital in April 2012 for payment in respect of a $22,000 cancellation fee on its Mandate to Act (see [46] above).

50. In contemplation at that time (though not yet payable) were the future costs not only of acquiring the poker machine entitlements (which had increased to about $200,000-$220,000 a “block” as at May 2012, according to Greg, and for which a sum of around $1 million - $1.3 million was thought to be required) but also of acquiring the poker machines themselves. This explains the fact that the Nixons were approaching financiers at that stage for finance of around $1 - $1.3 million, though their pressing debts were not of that order.

51. I raise that at this stage because a submission was made for James to the effect that there was a lack of equity in the Menangle property at the time at which the discussions commenced in relation to financial assistance from the Brown interests (see, for example, the submissions at T 545.20ff). As I understand it, this is said to explain why (as a commercial proposition) the Nixons would have been prepared to give James a 50% share in the property and business in exchange for no more than a short term loan of around $200,000 (and, perhaps, for assistance to procure further funding – I say “perhaps” because Ron was adamant in the witness box that the deal was for James to have a 50% interest once the payments were made, without more – see T 272.32; T 272.49.)

52. So, for example, Ron’s evidence was that:

A.   Well, I thought at the time the place was worth about one and a half million. This was my personal estimate. I knew they had about 700,000, so that brought it to 700,000. I knew if I put 200 in then I’d be getting a return of about 350 for my 200 and that was with my 200 included, 350 back so my opinion is, at that time when I entered into that agreement that I was to gain about $150,000 and Jimmy, talking on Jimmy’s behalf, not me personally. That was my thoughts at the time. [T 266.50ff]

and:

A.   I thought it was an attractive deal. Like I said to you before, at the time that I entered into that, I thought our share would be about 350,000 for the 200, so I want to make it clear that this wasn’t about a million dollar property at the time that we entered into that deal. This is six, seven years ago. The Nixons owed a lot of money to a lot of people so the margin was very small when we entered into that deal. [T 267.44]

53. However, the submission based on the level of equity that the Nixon interests then had in the Menangle property must be put into context. As at April/May 2012, not all of the amounts included in James’ calculation as to the debts of the business were then due and payable (in particular, the future cost of acquisition of the poker machine entitlements and of the machines themselves was not a debt payable at that stage). The debts that were pressing were in a much smaller compass (as set out at [49] above).

54. James himself disavowed having any view at the time as to what the deal was worth, placing his trust in his father’s assessment of the opportunity:

A.   At the time I didn’t think it was - it was extremely valuable. Just the way as said in the affidavits they were just floating with their head above the water. I - I couldn’t put a number on it. As I said I was just - I was under instructions from my father who said it was a good investment so I took his word that was a good investment. And I – that’s the way I ran with it. [my emphasis]

Q.   Did you talk to your father about what he thought the value of this hotel was?

A.   No.

Q.   Never?

A.   It - it never came up in topic and exact figure. He - well, he goes, I - he goes, “That’s a good” - he always said, “This is a good opportunity for you, you should take it.” And there was never - no conversation of how much do you think it’s worth to me. My - my upbringing is if my dad tells me something is good for me I – that’s - I take that as foolproof I assume. (T 115.25-.39)

55. Another submission that seems somewhat to have overstated the position was the written submission made for James that the Nixons “have a history of entering binding agreements then later looking for ways to avoid them or needing someone to help them out: the ANZ debts, the ATO liabilities, an inability to secure the poker machines, the debt to the builder, the inability to repay family and friends, the inability to secure funding from any sources”, which was not supported by the evidence and was not ultimately pressed in oral submissions.

56. What is, however, supported by the evidence is that the Nixons were seeking funding at around this time from a number of banks and mezzanine funders; and they either had not been successful on those applications or they had not accepted the terms on which funds had been offered to them, as the case may be in relation to the various potential lenders.

Initial discussions

57. It was in the above context that in around May 2012, there were discussions between one or both of the Nixons and one or both of James and Ron, about the possibility of the provision of financial assistance to the Nixons. The precise chronology of the earlier discussions was not the subject of consistent evidence (as I explain below).

58. Greg’s account of the way in which he first came to discuss financial issues with Ron is that, at the time (i.e., in around May 2012), Ron’s step-daughter (James’ step-sister) was working at the hotel at the Menangle property. Greg says that she facilitated the introduction to Ron ([41], Greg’s first affidavit), whom Greg had met on one or two previous occasions when Ron had been at the property as a guest at functions ([42], Greg’s first affidavit). Greg’s account (that the meeting with Ron was facilitated by Ron’s step-daughter) is consistent with that of Ron (see [12] of Ron’s affidavit affirmed 3 November 2016), though Ron also suggests that another person made a similar approach to him (see [17] of Ron’s affidavit).

59. In contrast, in his first affidavit sworn 25 November 2015 (in support of his initial application for interlocutory relief) James deposed that it was he who was approached by Greg and Bronwyn, who asked if he would be willing to invest money into the business (see [11]). This discrepancy might perhaps have been explicable if James was here referring to the first conversation he had with the Nixons (i.e., after the Nixons had been introduced to Ron as a potential financier), consistent with Ron’s evidence that it was he, Ron, who had first raised the prospect of the provision of finance with James before James met with the Nixons. However, in the witness box James did not suggest this was the explanation for the discrepancy; rather, he accepted that the evidence at [11] of his first affidavit was incorrect (see T 55.15-19) and that he was aware at the time he swore the first affidavit that it was his father (not him) who was approached by the Nixons to invest in the hotel and business (see T 58.37-T 59.19).

60. Leaving aside differences in recollection as to the precise order in, and dates on, which the initial discussions in early May 2012 took place, what is not disputed is that early in the course of discussions with the Browns the Nixons were introduced to Mr Lambrinos, a financial advisor and former accountant (described by Ron in his first affidavit at [24] as a business contact but by Mr Lambrinos himself as a friend, and with whom on any view of the evidence Ron had had a long acquaintance). Mr Lambrinos’ evidence is that he first met Ron in 2001 and that they became friends and kept in contact over the years (see [17]-[18] of his affidavit).

61. Bronwyn deposed that in or about early May 2012, she and Greg met with Ron and she was introduced to Mr Lambrinos for the first time; and that at that meeting she and Greg largely talked about the financial situation of the business and the need for finance (see [43]-[44] of Bronwyn’s first affidavit).

62. Mr Lambrinos says that Ron attended his residence on 7 May 2012 to speak with him about a potential client and spoke with him about “a guy who owns the Menangle Hotel” who was trying to obtain finance and “not having much luck”, asking Mr Lambrinos if he wanted to meet him and see if he could help him out (at [21] of Mr Lambrinos’ affidavit). (If this is accurate then it follows that the initial meeting between Ron and Greg in which financial assistance was discussed must have been on or before 7 May 2012; followed on 10 May 2012 by the meeting at which Mr Lambrinos was first introduced to the Nixons.)

Ron’s account of the first conversation with Greg

63. Ron’s account in his first affidavit ([18]-[19]) is that in the first conversation he had (in around mid-2012) at the Menangle property, Greg told him that he was in trouble financially; that people were putting caveats on his properties for debts he owed them; and that he was around $200,000 in debt and was about to lose everything. Ron says that Greg asked if Ron would be interested in investing in the hotel. According to Ron, he said that he did not have the motivation but that his son James might want to get involved and it might be a good opportunity for him to get started in the industry ([18] of Ron’s first affidavit). Suffice it to say that at least part of what Ron says he was told by Greg in this first account of the first conversation – in particular, the reference to people putting caveats on the properties – is not able to be reconciled with the objective chronology of events. The earliest that there is a reference in the evidence to the possibility that a caveat has been lodged occurs at the end of May 2012 whereas Ron’s first discussion with Greg must have taken place in early May 2012 (see [106] below).

64. In his reply affidavit (affirmed 7 June 2017), Ron gave a more detailed account of the conversation that he had with Greg on this occasion (see [13], reply affidavit). In that affidavit he also recalls that he telephoned Mr Lambrinos, after speaking with James about that meeting (see [17], reply affidavit).

65. Going back to Ron’s first affidavit, there he deposed that at the first meeting he and Greg scheduled to meet at the property about 3 days later at approximately 7 pm (Ron’s first affidavit at [19]). In his reply affidavit at [13], he deposes that Greg asked him to “come back tomorrow”. In any event, Ron has deposed that he returned to the property the following day (see Ron’s first affidavit at [21]) and met with both Greg and Bronwyn; that he told them “I am prepared to lend the $200,000 to James and he will then pass the money on to you if we reach agreement”, and that Greg said the Nixons were prepared to give James a half share in the property and business in exchange for the $200,000 they needed. Ron deposed (at [21] of his first affidavit) that at that meeting there was the following conversation:

Greg:    Bronwyn and I have discussed this at length and we are prepared to give James a half share in the property and business in exchange for the $200,000 we need.

[Ron]:    I’m sure James will be happy with that. We’ll need to see a solicitor to have the agreement put in writing.

Greg:    That is fine, but we can’t wait for that to happen to get the money as we are in serious need to [sic] the money.

66. Ron’s evidence is that he thought this was “an attractive deal” (T 267.44). He said he was very surprised at the offer of a half share (he had apparently been hoping for a quarter share) and that after the meeting he said to James “we need to move on this” (T 267.31-36).

10 May 2012

67. Mr Lambrinos’ evidence is that Ron organised a meeting with the Nixons on 10 May 2012 at the Menangle property, which he (Mr Lambrinos) attended with Ron. In evidence there are various pages from Mr Lambrinos’ electronic diary, one of which lists a meeting on 10 May 2012 “Ron with Greg” with a reference to “Horse & Jockey hotel Menangle” (CB 748).

68. Mr Lambrinos gave evidence that at the 10 May 2012 meeting, Greg told him about his financial situation at that time (see [23] of Mr Lambrinos’ affidavit), including the debts that were owing and that they had an offer from Baccus Finance but that it was not enough money for them and they needed more. He said that Ron and Greg “entered into a discussion about financing some of the debts, to reduce the mounting pressure on Greg to repay them as soon as possible” and that Greg said:

I can’t wait any longer; I have to pay these bills right away. Danny [Radovic] has already threatened me and said he won’t wait another day.

to which Ron’s response was that his son, Jimmy, could help with paying some of the debts and “get some of the pressure off”. Mr Lambrinos says that Ron said “[w]e can arrange to have all of these people paid; and then you can pay us back once Dominic has refinanced the Hotel” and “[i]n return Jimmy will own 50% of the hotel same as you and Bronwyn”; and that Greg said he and Bronwyn would agree to this “if you can pay all of these people as soon as possible” (Mr Lambrinos’ affidavit at [24]). Mr Lambrinos deposed that he said he had taken some notes and that he would prepare a draft heads of agreement “to summarise all of the potential possibilities discussed today” and “[y]ou can get a solicitor to draw it up formally later, after you have finalised the deal” ([24]).

69. In his first affidavit, Ron did not depose to a 10 May 2012 meeting. However, in his reply affidavit (at [19]) Ron referred to his first affidavit at [24]-[27], and corrected the number of meetings which had taken place. Ron corrected that evidence after having reviewed Greg’s affidavit and having “phoned Dominic in order to verify dates that various meetings took place”. In that reply affidavit, Ron deposes to meetings which occurred on 10 May 2012 (at the property, with himself, the Nixons and Mr Lambrinos), 22 May 2012 (at the property) and 19 June 2012 (at the offices of Mr Moloney, with himself, the Nixons, James and Mr Lambrinos) ([19]-[20], Ron’s reply affidavit). (That list leaves out the 14 May 2012 meeting to which Greg has deposed – see [47] of Greg’s first affidavit – and to which I will come shortly.)

70. Ron deposes (at [24] of his reply affidavit) that on 10 May 2012 there was a meeting with himself, Greg, Bronwyn and Mr Lambrinos at the property; and that at the meeting he said: “Greg, Bronwyn and James have come to an agreement. James is going to invest $200,000 in the business with Greg and Bronwyn and Greg and Bronwyn and going to give James a half share in the business and property”. Ron deposes that Greg then gave details of the debts which were owed by the Nixons, and emphasised that the Nixons needed the money quickly, as the builder was pressing for payment; and Ron said he would talk to his lawyer to organise a formal agreement. Ron deposed that Mr Lambrinos said he would need some more information from the Nixons about the hotel operations, including its finances.

Bronwyn’s account of first meeting with Mr Lambrinos

71. Bronwyn’s account of the first meeting with Mr Lambrinos (at which she says Greg and Ron were present) is set out in her first affidavit from [43]. She does not put a precise date on it (saying only that it was in or about early May 2012). Her evidence of the conversation on that occasion is consistent with that of Mr Lambrinos insofar as she deposes that Greg gave information as to the debts that they owed and that Ron had said Mr Lambrinos could help with them in their attempts to obtain finance ([43]) but she does not depose to any agreement at that stage for James to assist them. Bronwyn places the discussion in relation to that as occurring at a meeting in the “parlour room” at the Menangle property within a week of the first meeting with Mr Lambrinos and says that at that meeting James was present and it was the first time she had met James (see [45] of her first affidavit).

72. Greg’s evidence places the first introduction to Mr Lambrinos as being at a meeting in or about early May 2012 ([46], Greg’s first affidavit) but before the discussion at which details of the debts were given to Mr Lambrinos.

14 May 2012

73. Both Greg and Bronwyn give evidence of a meeting on 14 May 2012 in the parlour room at the property, attended by the Nixons, Ron, James and Mr Lambrinos (this being the first occasion on which they say they had met James) (Greg’s first affidavit, [47]; Bronwyn’s first affidavit, [45], which does not refer to a date, but which Bronwyn there identifies to be the first time she met James). This appears to be the meeting referred to by James at [16]-[18] of his first affidavit and; [7] of his reply affidavit (although he does not attribute a date to that meeting). Mr Lambrinos does not give evidence of a meeting on 14 May 2012; nor does Ron.

74. Greg’s evidence (at [47] of Greg’s first affidavit) was that at this meeting James said “My father said I may be able to help you”; that Mr Lambrinos asked a number of questions about the business generally and their financial needs; and that he, Greg, said:

We have always been travelling just with our heads above water. Most of the money we are making we have put back in the business, expanding and purchasing equipment or by expanding the facilities in the marquees or the building extensions.

At the moment, we particularly need money to finance the poker machines. Unless we make a donation to the nominated charities of $25,000 before 15 June 2012 we will lose our whole entitlement. Getting the poker machines is the main reason we are here.

…

We have been approved for an entitlement to 10 poker machines. If we can purchase these 10 we can still apply for up to 30 machines but we want to initially acquire at least a block.

75. Greg says that he said they needed over a million dollars to buy the machines and that Bronwyn outlined their debts and wrote down some figures on a piece of paper; and that Mr Lambrinos said that they were going to use “Jimmy’s P&L’s” and that “with Ron’s backing we can arrange those funds for you”. Relevantly, apart from the debts, he says Bronwyn said that they would need at least $1.3 million to purchase the 10 machines. He also says that Ron said he wanted to look after his son’s interest and set him up for the future and that he, Greg, said:

Ok well if you are going to pay all these debts and put $1.3 million into the business then we are happy to give you half.

76. Bronwyn’s evidence is broadly consistent with that of Greg (see [45]-[47]) although she says she was not present during the whole of the meeting. Bronwyn has deposed that at that meeting Mr Lambrinos said that Ron had some money and would put money in the business but wanted something in return to get his money back; and Ron said he had money to draw on and would like to set James up ([45], Bronwyn’s first affidavit). Bronwyn said she wrote on a piece of paper the amounts they needed (see CB 665). She recalled that Mr Lambrinos drew a diagram of a proposed trust structure if James took a half share in the business and property. She said that this was the first time she recalls learning that James might obtain a half share in the business and property ([47], Bronwyn’s first affidavit).

77. As already noted, Ron does not depose to a meeting on 14 May 2012 but in any event Ron denies that Greg said to him the words extracted at [75] above and says (at [25] of Ron’s reply affidavit) that he “would not have agreed to fund his hotel with this amount of money”. (See also his evidence in the witness box at T 307.50). Ron was adamant that this was not a loan (T 306); and that “it was one million percent not a loan; one million percent” – T 307.46).

78. Pausing here, Ron’s first account of the conversation in which a half share was discussed (see [65] above) was that it was during a conversation when only he and the Nixons were present (and that after the meeting he then conveyed this to James – telling him they should move on it – and to Mr Lambrinos). Thus although Ron’s evidence is not consistent with the evidence of Greg and Bronwyn as to there being a 14 May 2012 meeting with James and Mr Lambrinos at the Menangle property; their evidence is consistent with a final decision as to the making of a loan not having been made at the early meeting(s) that Ron attended.

79. According to James, in his second (but first main) affidavit sworn 3 November 2016, he had a conversation with his father before he first met the Nixons ([13]) about them offering a share of the hotel for $200,000 and then a conversation with his father ([15]) in which his father said the Nixons were prepared to give him a 50% share in the property and the business. He says that his first meeting with the Nixons (at which Ron was present) was “[a] few days to maybe a week” later and there was then a conversation (see [16]) to the effect:

[Ron]:   I’m prepared to lend the $200,000 to Jimmy so that he can enter into the agreement with you. We’ve spoken about what you’re prepared to offer and he’s happy with that if that is still the deal?

Greg:    Yes. Bronwyn and I have talked at length and we’re prepared to give a half share in the business and the property. We really need the money quickly to pay some debts. How quickly can you get the funds?

[James]:   Dad and I are working on that. I’d like an agreement prepared, so we’ll get back to you when we talk to our solicitor to arrange the agreements.

Greg:   I’m not sure we can wait for that. We need to pay the debts urgently.

[James]:   Well send me a list of who needs to be paid so I can make payment directly.

Greg:   We can go through it and give you the details.

80. James deposes that he, Ron and the Nixons “went through some paperwork” which the Nixons provided; they formulated a list of who he needed to pay; and it was agreed that he would pay the sums listed in Recital F to the Deed dated 21 September 2012 (i.e., the September Deed) (see [17]). Those sums did not include any amount for the Australian Tax Office debt – and hence this evidence is inconsistent with the Heads of Agreement signed in May 2012 in which provision was made for payment of this debt (see [94]ff below). Coupled with the lack of reference in James’ first two affidavits to the Heads of Agreement, and the admitted error in relation to the months of the year in which the initial payments were made – see [314] below – this strongly suggests that in the preparation of this affidavit James was here engaged in a process of reconstruction based on what appeared in the September Deed without reference to what had earlier been agreed in the Heads of Agreement. In those circumstances I cannot accept that the sums referred to in this paragraph of his November 2016 affidavit were based on his memory alone rather than by reference to the September Deed – cf the tenor of his evidence at T 102.5-8).

80. As noted, James’ affidavit of 3 November 2016 makes no mention of the Heads of Agreement document, nor does he mention any meeting with Mr Lambrinos before the moneys were advanced by him. Indeed, he deposes to the moneys having been paid in September or October 2016 [sic] (at [20]), after $200,000 was transferred from his father to his account in September 2016 [sic]. The references to “2016” rather than “2012” are obviously in error and James said as much in the witness box (T 97.50; 98.16). I draw nothing from this. However, the error in the months in or around which the moneys were paid is less readily explained – and the making of the very same error by both Ron and James strongly suggests that there was discussion between them as to the timing of the relevant events when their affidavits were being prepared (a matter I refer to in due course at [319] below, when addressing the witnesses’ credibility).

81. In his affidavit of 3 November 2016, Ron deposed that he had borrowed $200,000 from ANZ as he was intending on renovating his house; that it took approximately a week for the funds to be released to him; that they were released to him in or around September or October 2012; and that he transferred that amount shortly after to James’ bank account (see [28]-[30], Ron’s first affidavit).

82. By final submissions at the hearing, it was made clear by Counsel appearing for James (T 534.10ff) that it was no part of James’ case that moneys had been paid to the Nixons in or after September 2012 (and, indeed, James accepted in the witness box that no moneys were paid by either of the Browns after the end of June 2012). Hence it is no part of James’ case that the payment of these moneys amounted to consideration for the provisions in the September Deed. The error by both Ron and James in the months in which they first deposed that the payments had been made – around September/October – as opposed to when it is clear that they were in fact made – in May and then in June – is a matter to which the Nixons point when making submissions on the credibility of both Ron and James in these proceedings.

83. It was apparent from Ron’s evidence in the witness box that he considered it a good deal to acquire a half interest in the property and business for around $200,000 (see T 267.29; T 335.45-336.6), although as earlier noted he was at pains to explain that the equity in the property was not as high at that stage and hence his argument that the acquisition represented a return of around $150,000 on his $200,000 investment – see T 267.44) and that he saw this as a good opportunity to set his son, James, up in the business (see, for example, T 286.30 as to his willingness to “back” his son). James also gave evidence to the effect that his father saw it as a good opportunity, as noted above (see [54] above).

84. Ron regarded the provision of any further finance for the business as something that would happen once James was a half owner and that it would not involve a personal contribution by James (T 286.10) and indeed his evidence (spoken with the ring of truth) was that “We were home and hosed in our minds once we paid all the debts” (T 315.32). Similarly, James considered that any obligation in relation to further financing would arise only once he was a half share owner (T 70.14) and even then only if the hotel business could not procure its own finance – see T 72.14:

Q.   And that you were supposed to arrange having put extra security in either from your own resources or your associates under 3G [of the Heads of Agreement], do you agree with that?

A.   My recollection was if the pub couldn’t, on it’s [sic] own merit - once I was a shareholder - that I’ll try and use means of my own.

Provision of information to Mr Lambrinos

86. After 14 May 2012, Greg forwarded some financial information to Mr Lambrinos: see the email dated 16 May 2012 from Mr Lambrinos to Greg in which Mr Lambrinos notes that he is “collating all the information you have given me over the last couple of days” and says that he is “catching up with our mate tomorrow to finalise matters” (CB 340). Further information was sought by Mr Lambrinos by email on 19 May 2012 “to be able to tell the story of the business in the best possible light” (CB 341).

22 May 2012 meeting

87. It is not disputed that there was a meeting on 22 May 2012, attended by the Nixons, Ron, James and Mr Lambrinos, at which a document entitled “Heads of Agreement” was provided to the Nixons. Mr Lambrinos had drafted the Heads of Agreement. I set out the contents of that document in due course – see [94]ff below. There is nothing to suggest that the Nixons saw that document before the meeting (and the Nixons say they did not: Greg’s first affidavit at [55]; Bronwyn’s first affidavit at [48]); nor is there any evidence that they sought legal or accounting advice before they signed that document.

88. Bronwyn deposed that Mr Lambrinos said that he had put the Heads of Agreement together and that “Ron won’t hand over any money until this is signed” ([48]). She recalls that Mr Lambrinos read through the Heads of Agreement line by line, stopping at certain points to provide additional explanation; and she has deposed that at cl 3(g) he stopped and wrote on a piece of paper the assets held personally by James (see CB 666) ([49], Bronwyn’s first affidavit). Greg similarly deposed (at [55] of his first affidavit) that Mr Lambrinos pointed out aspects of the document as they read through it. No one suggests that James took a leading role in the discussion as to the terms of the proposed Heads of Agreement and it is telling in my opinion that James even referred to himself in the witness box as having been under his father’s instructions (see above at [54]).

89. The Nixons say that there was discussion about the order of payment of debts and that Mr Lambrinos advised on the possible use of a unit trust structure.

90. There are differing recollections between the Browns and Mr Lambrinos, on the one hand, and the Nixons, on the other, as to whether it was proposed at that meeting that more formal documentation would be required. Greg says he did not know whether further documentation was required until they received an email from Mr Lambrinos on 31 May 2012 and that he thought the reference to “more formal documentation” was a reference to legal documents to implement the steps envisaged by the Heads of Agreement. Each of Ron, James and Mr Lambrinos states that they discussed this at the meeting on 22 May 2012.

91. Greg deposes (at [56] of his first affidavit) that during the course of the 22 May 2012 meeting, there was a conversation to the following effect:

[Lambrinos]:   I’ve done a Heads of Agreement that will formalise the terms of your agreement.

[Greg]   This is like everything we need.

Bronwyn:   This is great. So, once we sign this when will we receive the initial payments? Because it is really important that we get this money soon as we need to pay ANZ in the next few days, not to mention the money we need to pay to the charities otherwise we will lose the poker machine entitlements.

Ron:   We will get it to you in time.

92. Ron denies that the conversation set out at [56] of Greg’s first affidavit (extracted at [91] above) occurred. He says that at the meeting there was a conversation in which Mr Lambrinos said “This document will give Ron and James peace of mind so they will release the funds to you. In the meantime, we will arrange for Patrick [Moloney] to draw up a final agreement”; and that he told Mr Lambrinos to show Mr Moloney the Heads of Agreement “so he knows what to do when preparing the agreement” ([31], Ron’s reply affidavit). Ron’s evidence was that he had never heard of a heads of agreement before this (T 271.30ff).

93. The Nixons concede that, in circumstances where the Browns were about to expend up to about $200,000 in resolving their short-term debts, further documentation was likely to be in the Browns’ contemplation, but argue that, given the later email of 31 May 2012 in which Mr Lambrinos advised the Nixons that further documentation was required, nothing turns on the dispute as to whether this was discussed at the meeting itself.

Heads of Agreement dated 22 May 2012

94. The Heads of Agreement (CB 343) was signed on 22 May 2012 by James and the Nixons (the latter in both their personal capacities and on behalf of Tavern Operator). The parties to the signed Heads of Agreement were identified as the Nixons “and their associated entities” (together defined as “Menangle House”), on the one hand, and James “and his authorised nominees”, on the other hand (cl 1). Clause 2, headed “[a]pplication” contained statements that the Heads of Agreement related “to the forwarding of monies by JIB [James] to Menangle House” (cl 2(a)) and “to the transfer of interests by Menangle House to JIB” (cl 2(b)), in each case as set out below.

95. Clause 3 then set out a list of undertakings by James, as follows:

a)   JIB agrees to pay Danny Radovic (the Builder) a sum of $150,000 on the execution of this Heads of Agreement.

b)   JIB agrees to pay Danny Radovic the balance of monies owed on the refinance of the property (discussed further hereunder).

c)   JIB agrees to pay the ANZ bank an amount of $17,000 (TBC) to extinguish the temporary overdraft provided by the bank on the execution of this Heads of Agreement.

d)   JIB agrees to pay the Australian Taxation Office outstanding taxes of $31,000 (TBC) on execution of this Heads of Agreement.

e)   JIB agrees to pay $25,000 as a charity contribution being a condition for the new poker machine licenses [sic] before the 15th of June 2012.

f)   JIB agrees to pay amounts owing to family and friends of $42,000 on the refinance of the property (discussed further hereunder).

g)   JIB agrees to arrange finance for the refinance of the hotel on the basis of the net assets available to him personally and through associated entities and guarantors.

h)   The first tranche of finance will be procured on the basis of $500,000 refinance to ANZ, plus a further $350,000 to repay all outstanding loans to JIB, family and friends and the builder.

i)   The second tranche of finance will be procured on the basis of $200,000 for poker machine entitlements (or thereabouts).

j)   The third tranche of finance will be procured on the basis of $500,000 to acquire the balance of 5 poker machines (or thereabouts).

k)   The final tranche of finance will be procured on the basis of $600,000 to acquire the final balance of 5 poker machines (or thereabouts).

96. Clause 4 set out the undertakings of the Nixon interests as follows:

a)   Menangle House agrees to appoint JIB as an equal shareholder and co-director of the Tavern operator Pty Limited.

b)   Menangle House agrees that it will amend the Trust Deed to include the interests of JIB to participate as a beneficiary of the Tallis Trading Trust.

c)   The property owned by Bronwyn Nixon personally will be transferred in equal portion to JIB or his nominee entity.

d)   Stamp Duty on the transfer will be paid through the availability of funds from point 3h above.

e)   The transfer will be conducted after properly considering the effects of Capital Gains Tax.

97. I consider in due course the proper construction to be placed on this document (see [359]-[369] below). Suffice it to note that for James it is emphasised that the only temporal condition on the transfer occurring (see cl 4(e)) was that it be after property consideration of the effects of capital gains tax (see T 548).

Retainer of Mr Moloney

98. On the day that the Heads of Agreement was signed, Mr Lambrinos (expressly acting on behalf of the Browns) instructed a solicitor (Mr Moloney), who had previously acted for Ron, to prepare a more formal document reflecting the Heads of Agreement (see CB 751; 808).

99. Mr Moloney’s account is that on or about 22 May 2012 he received a telephone call from Mr Lambrinos (who he describes as an accountant with whom he had had previous dealings in connection with Ron) asking if he was able to provide assistance to Ron and his son in relation to a transaction involving a hotel in Menangle; and that Mr Lambrinos said to him that he had prepared “a draft heads of agreement which should provide [Mr Moloney] with enough information”; that “[t]he parties need a formal agreement to be prepared”; and that “[w]e need this to be done pretty quickly because payments are due to be made” (see Mr Moloney’s affidavit sworn 4 July 2017 at [8]).

100. The email that Mr Lambrinos sent to Mr Moloney (at 6.15pm on 22 May 2012 (CB 808)) attached an unsigned copy of the Heads of Agreement. Mr Moloney is unsure whether he was ever supplied with a signed copy of that document ([9] of his affidavit). In the email, Mr Lambrinos described this document as “a Heads of Agreement outlining the initial discussions between the two parties”, saying that “[t]his is the basis upon which a more formal agreement is required to be prepared from [sic]” (CB 751; 808).

Payment of $17,000 to ANZ on 23 May 2012

101. On 23 May 2012, i.e., the day after execution of the Heads of Agreement, James deposited the sum of $17,000 with ANZ (thereby discharging the amount outstanding on the short term loan that Bronwyn had taken out). This was one of the three amounts agreed to be paid by James on execution of the Heads of Agreement (cl 3(c)). (Of the other two amounts, a payment was made by Ron to the builder at the end of June 2012 and no payment was made by James or Ron at any time in respect of the ATO debt.)

Claim by Global Capital and threatened caveat over the property

102. On 27 May 2012, Mr Cooper sent an email to the Nixons attaching “past correspondence regarding the payment of a fee for the services of Global Capital” (that being the 19 April 2012 letter demanding payment of the cancellation fee under the signed Mandate to Act – CB 347). Mr Cooper stated in the email (CB 346) that:

This was put on hold when you indicated that you would proceed with the loan. As you have now decided (again) to not proceed with the loan, the demand is once again made for the payment of the fee in terms of the signed mandate, a copy of which is also attached.

Would you please attend to payment as soon as practicable, to avoid any further legal action and consequences attached thereto.

103. On 30 May 2012, Greg sent an email to Mr Lambrinos, stating “Subject previous lenders. I Don’t know if you have some time tomorrow for advise [sic] on the direction to go” (see CB 349).

104. Mr Lambrinos responded to that email on 31 May 2012 at around 6.58/6.59am (see CB 350; 752) in an email to the Nixons, copied to an email address seemingly connected with the Brown interests (since it corresponds to the name of the corporate entity at one stage suggested to be a party to the September Deed in place of James), and most likely James, since there was evidence that Ron did not have an email address. Mr Lambrinos thanked the Nixons “for [their] advise [sic] and suggestion” (it is not clear to what advice/suggestion Mr Lambrinos was there referring) and stated that at the present time he was working on:

The Solicitor - Patrick Moloney in formulating a more formal document between us which reflects the heads of agreement we signed.

- Patrick Moloney in legalising the steps in that Heads of Agreement[.]

105. In that email, Mr Lambrinos also set out what was to be done the following week, namely: lodgement of a new application for finance “with our recommended lenders for the higher amount”; speaking to ANZ “about our arrangement with a view that they will come to the party”; and lodgement of an application for poker machine licence finance. Mr Lambrinos indicated that he would be happy to meet with the Nixons and James the following week (though his work life would be distracted as “we are moving into our new office next week”) and suggested a meeting the following Tuesday morning (i.e., 5 June 2012) at his new Pyrmont office (CB 350; 752).

106. On 31 May 2012, at 10.09am, Mr Cooper again sent Greg an email in relation to the facilitation (or cancellation) fee demanded by Global Capital (CB 352), this time attaching “the original invoice issued at the time settlement of your loan was anticipated” and stating that the amount remained payable on demand, going on to state:

Please attend to payment expeditiously to avoid any further legal action being undertaken. In the interim we advise that a caveat has been lodged against your property to protect our interests.

This appears to be the first reference (at least in the documents I have seen) to the lodgement of a caveat over the Menangle property (cf the account given by Ron of the first conversation in which he says Greg referred to caveats being lodged on the property – see [63] above); and it does not appear that a caveat had actually been lodged at that stage – it certainly had not been registered on the title by then (see [108] below).

107. On the same day, by email sent at 12.14pm, Greg forwarded to Mr Lambrinos the 27 May 2012 communication from Mr Cooper and attached documents, referring to this as “info being sent to me from previous lenders” (CB 353). At 12.15pm (CB 356) Greg forwarded to Mr Lambrinos the 31 May 2012 email from Mr Cooper.

108. There is in evidence (CB 359) a copy of a caveat by Global Capital (dealing number AH19230) claiming an interest in the Menangle property in the following terms “Global Capital Corporation Pty Ltd is lodging a Caveat against unpaid fees” by virtue of the instrument identified as the Mandate to Act dated 15 December 2011 and by virtue of the following fact “[b]y written consent of the Registered Proprietor”. The statutory declaration subscribed by the managing director of Global Capital is dated 20 May 2012 and the caveat is certified by a Justice of the Peace on 30 May 2012. It appears to have been stamped for duty on 25 June 2012, with a “substitute dealing” imprint dated 26 June 2012. It appears only to have been registered on the title on 2 July 2012 (see CB 363) (there being no prior caveat recorded on the title). The existence of the caveat was the subject of a notification to Bronwyn by the Registrar-General by letter dated 3 July 2012 (see CB 358). Thus, as at the middle of May 2012, it seems to have been incorrect for Mr Cooper to assert that the caveat had been lodged and there is no evidence of any threat to lodge a caveat by anyone before this.

109. Pausing here, the Nixons say that the “concern” in this regard was as to the impact of the caveat on whether the refinancing obligations under the Heads of Agreement were to be capable of performance (and the Brown interests point to this as supporting their contention that James was not personally to be the borrower – see T 548.6-30). Mr Lambrinos, on the other hand, was apparently concerned that a caveat might affect “our transfer” – see his later email of 15 June 2012 to Mr Moloney – Exhibit 1, referred to at [144] below.

110. On 1 June 2012, Mr Lambrinos sent an email to Mr Cooper (copied to the Nixons) in relation to the caveat (CB 362), in which he stated that:

I have been passed your name from the ‘Nixons’ as one of my clients [which must in context be a reference to James] is in the process of acquiring a half interest in the hotel as well as funding some of their more immediate creditor responsibilities. [my emphasis]

I have read you [sic] engagement and believe that we may be better suited to meet and come to an arrangement which will avoid the trouble of managing this issue through the courts.

I am in the process of procuring finance for my client (as well as the Nixons) however it may well be that you [sic] finance source could still be used albeit with some minor changes. [my emphasis]

I note that my client [in context this appears to be a reference to James but seems more likely to be a reference to Ron] has however engaged his solicitor to assist the Nixons in the removal of the caveat on the basis that recent court precedents no longer empowers [sic] brokers to place caveats for unpaid commissions (this has also been a problem for my firm).

528. Turning to determine this issue, I accept that there is no evidence of actual authority being conferred by James on either Ron or Mr Lambrinos in relation to the negotiation of any terms beyond those in the September Deed or as to the use to be made of the September Deed.

529. As to the question of ostensible authority, this involves a legal relationship between principal and contractor, to which the agent is not a party (referring to Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd at 502; and see Harvey v State of New South Wales [2006] NSWSC 1436 at [59] per Johnson J).

530. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said at [36] and [38] (footnotes omitted):

… It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company’s conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company’s constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal’s conduct as a whole.

…

A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, for example, the court spoke of the representation that might flow from supplying a particular person with ‘a blank order form, thus arming him with a document which, when he signed it, would bear the hallmark of authenticity’ ((1975) 133 CLR 72 at 80; 7 ALR 527 at 533). The reference to corporate administrative procedures under which an officer is armed with a document to which he or she can, by signature, impart an appearance of authenticity is a reminder of the wider principle of estoppel which may be relevant to a question of ostensible authority (Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 200; 93 ALR 385 at 422; 2 ACSR 161 at 198 per Dawson J, CLR 212; ALR 430-1; ACSR 206-7 per Gaudron J). The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation.

535. Thus, for there to be a finding of ostensible authority, it would be necessary for the putative principal (here, James) in some fashion to have held out to the Nixons that Ron and Mr Lambrinos were authorised to negotiate on his behalf and were authorised, in effect, to make representations that would be binding on him. The holding out need not have been by a direct communication to the Nixons. It might, for example, have arisen out of some conduct or omission on James’ part.

536. On the facts of the present case, the manner in which the deal was done supports the conclusion that James left it to Mr Lambrinos to deal with Mr Moloney and left it to Mr Lambrinos and/or his father to decide the terms on which the arrangement with the Nixons would proceed. Had it been necessary to determine I would have been of the view that, by largely leaving it to Mr Lambrinos to deal with the Nixons (and to instruct Mr Moloney as to the terms of the documentation), knowing that Mr Lambrinos was so doing and not intervening in any way to suggest that Mr Lambrinos was acting without his authority, and acting (as he said he did) “under instructions” from his father Ron, James held Mr Lambrinos out as being authorised to provide instructions on his behalf in relation to the documentation of the transaction.

537. True it is that the Nixons were not privy to the correspondence between Mr Lambrinos and Mr Moloney and hence that cannot amount to a holding out to them, but James attended the 22 May 2012 and 19 June 2012 meetings (the second being with both Mr Lambrinos and Mr Moloney). He left it to Mr Lambrinos (at the first of those meetings) to go through and explain the Heads of Agreement to the Nixons and (at the second of those meetings) to convey instructions to Mr Moloney (in the Nixons’ presence) that realistically could only have come from James or Ron (unless Mr Lambrinos was on a “frolic of his own” – something suggested as a possibility by Ron’s evidence to which I have already referred but not put to Mr Lambrinos). I certainly consider that at the 22 May 2012 meeting James, by leaving it to Mr Lambrinos to explain the document, held him out as someone authorised to act on James’ behalf. I am satisfied that this amounts to a sufficient holding out by James of authority for the purpose of Mr Lambrinos later making representations, binding on James, to the 21 Nixons in the September 2012 meeting as to the execution of the September Deed and what was to be done with it. To the extent that satisfaction to a higher standard (in accordance with Briginshaw) is required in order to find that Mr Lambrinos’ ostensible authority extended to the making of representations to override the deed, I have that level of satisfaction.

538. As to the position in relation to Ron, I have little doubt that the Nixons were left by James with the understanding that Ron was the decision maker in relation to the transaction the subject of the Heads of Agreement and, in due course, the September Deed. They had discussions first with Ron; he made it clear to them that he did not want to be directly involved but that he considered it would be a good opportunity for his son; and he then introduced them to James and to Mr Lambrinos. James himself does not appear to have taken any active role independently of his father. It was clear that the funds (or at least the bulk of the funds) advanced following execution of the Heads of Agreement came from Ron (albeit on James’ behalf). James’ own evidence supports the conclusion that he sat back and left it to his father to “call the shots”, so to speak; and he was aware that Ron had demanded repayment of the initial payments from the Nixons. In so doing, at the meetings that took place with the Nixons, I consider that James held out Ron as being the ultimate decision maker and as having authority to commit him to whatever Ron represented in relation to the documentation of the agreement by which James was to acquire an interest in the Menangle property and business.

539. My conclusion is that, in a practical sense, the Nixons were left with the understanding that the arrangement in relation to the overall transaction was one the terms of which were being determined by Ron but for James’ ultimate benefit and that Mr Lambrinos was the person authorised on the Browns’ behalf to document the transaction and ultimately arrange for the execution of the relevant documents. Accordingly, had it been necessary to determine then I would have found that representations made by Ron and/or Mr Lambrinos at that meeting (in James’ absence) to put pressure on the Nixons to sign the documents were made with James’ ostensible authority.

540. However, in circumstances where I am not satisfied on the balance of probabilities (and having regard to the need to apply the Briginshaw standard for any findings of fraud) that Ron and Mr Lambrinos at the time intended to do otherwise than to use the September Deed and related documents as “security” (in the sense of an earnest for performance) for the repayment of the moneys that had been advanced by Ron to James for the making of the initial payments, then had I concluded otherwise on the issue as to the enforceability of the September Deed (as a deed or as a written agreement), I would not have found that there was misleading or deceptive conduct on the part of James.

541. Thus I have found that the representations as to the putting of the documents in a drawer were made to the Nixons and I accept that the Nixons signed the documents in reliance on those representations and on the basis that they were required to do so if the arrangements (which they understood to be the arrangements under the Heads of Agreement) in relation to the hotel and business were to proceed. But I do not find that the representations were misleading or deceptive at the time they were made. In other words, I do not accept that there was a concerted plan at the time on the part of Ron and Mr Lambrinos to procure the signing of the documents at the time on one basis with the intent to use the documents for a different purpose (particularly since if that had been the case it is difficult to see why steps would not have been taken at an earlier stage to put the documents in registrable form or to give the requisite notice to ASIC). Rather, I consider it more likely that the attempt to rely on the signed September documents, once the sale of the hotel and business appeared a likely possibility, was an opportunistic use of documents that had been obtained for a different purpose. That brings me to the unconscionable conduct claim.

Unconscionable conduct

542. Section 21(1)(b) of the Australian Consumer Law provides:

(1)    A person must not, in trade or commerce, in connection with:

(a)    ...; or

(b)    the acquisition or possible acquisition of goods for services from a person (other than a listed public company),

engage in conduct that is, in all the circumstances, unconscionable.

543. The Nixons submit that the conduct of James (himself and by Ron and Mr Lambrinos as his agents) was conduct in connection with the acquisition by James of an interest in real and personal property and therefore an acquisition of a service within the meaning of s 2 and s 21(1)(b) of the Australian Consumer Law.

544. Insofar as the unconscionable conduct claim is based on conduct of Ron and Mr Lambrinos as agents of James, the same conclusion reached above (as to the finding that they had ostensible authority to bind James to the relevant representations) here applies.

545. Insofar as it is based on James’ own conduct, the proposition is that it is unconscionable for James now to seek to enforce the September Deed and procure for himself the benefits conferred on him under the purported deed or otherwise to rely on the other documents signed at the September 2012 meeting in circumstances where the representation as to use of the documents as security only if the “loan” was not repaid had been made i.e., having regard to the circumstances in which the September documents were executed.

546. James argued that the deal itself was not unconscionable, noting that “unconscionable” in the Australian Consumer Law is not the equivalent of “fair” or “just” (AG (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 per Spigelman CJ); nor is it to be based on the particular judge’s personal intuitive assertions or idiosyncratic notions of commercial morality (see Australian Competition & Consumer Commission v Woolworths Ltd [2016] FCA 1472 per Yates J), and that the existence, and use, of a disparity in bargaining power does not of itself enliven ss 21 and 22 of the Australian Consumer Law (see Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 at [293] per Keane J).

547. It is said that here there was no disparity of bargaining power, no complex contractual terms, no impact on third parties, no breach of contract by the signing of the deed that followed negotiations in which the Nixons were legally represented (in contrast, by way of example, to the circumstances considered in Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226).

548. James argues that the Nixons are “sophisticated and informed”. He argues that there was a “detailed but clear” legal agreement with the Nixons. It is submitted that:

All that occurred here was the offer to the commercial sophisticated Defendants of the Deed, that recorded their bargain and permitted the continued involvement of James, which the Defendants were free to sign or not. They chose, after a “conclave” together, to sign. They never objected. They never raised any issues prior to the Advice Recreation. They merely procured James’ involvement in the Business and, as a result, survived the nadir of the financial woes. The result was the later sale of a viable concern.

549. As noted earlier, James places weight on the fact that there is an entire agreement clause, arguing that where there is an entire agreement clause the Court cannot look to pre-contractual negotiations to determine the terms of the agreement (see Damien v JKAM Investments Pty Ltd [2015] NSWCA 368 at [26] per Tobias AJA (Gleeson & Simpson JJA agreeing)).

550. James notes that the Nixons had a solicitor throughout the relevant period, being LAS Lawyers (CB:762-763); and they accepted that they could have gone to other solicitors or professionals as they thought necessary. It is submitted that their interests were always sufficiently protected.

551. The Nixons rely on the representations referred to above to argue that it would be unconscionable, given the basis on which the Nixons executed the September Deed, and the fact that the loan has been repaid with interest by the Nixons, to allow James to enforce the documents for another unintended purpose, namely to give him a 50% the interest in the Menangle property and business.

552. In relation to the alleged unconscionability, the Nixons also refer to the following matters that I consider support their argument that reliance on the documents executed in September 2012 would be unconscionable: that they were not given an opportunity to obtain independent legal advice or even a reasonable time to read the documents; that Mr Lambrinos, being a person in whom the Nixons reposed their trust, was present and made some of the misleading or deceptive representations so as to induce them to execute the September Deed; and that the consideration sought to be paid by James for the acquisition of his 50% interest (namely a loan of $200,000 repayable with interest) is manifestly inadequate given the real estate on a stand-alone basis was valued at $3.5 million on 14 August 2008, at $2.1 million in 2012 (for business), and was sold for $4.950 million in 2015 (both real estate and business).

553. It is submitted that it is unconscionable for James now to deploy the documents obtained on 21 September 2012 contrary to the representations that were made to the Nixons.

Determination

554. Again, this issue strictly does not arise given the conclusions I have reached on the other issues. However, for completeness, I address this issue briefly as follows.

555. In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 at [99], Gummow and Haynes JJ quoted with approval the following statement by French J in Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd (2000) 96 FCR 491 at 498; [2000] FCA 2:

The fundamental principle according to which equity acts is that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct .... So it can be said that the overriding aim of all equitable principle is the prevention of unconscionable behaviour - a term which can be seen to encompass duress, undue influence and “unconscionable dealing as such” ...

556. Had it been necessary to determine, I would have concluded that there was unconscionable conduct in the presentation to the Nixons of a deed containing a substantially amended agreement from that comprised by the Heads of Agreement (those amendments being to their disadvantage and to James’ very clear advantage – insofar as they removed any obligation on him to arrange further finance and purported to give him an entitlement to the transfer of a half share of the property and business, on execution of the deed, for nothing other than the past consideration in the way of a short term loan) with, in effect, a demand that they sign the document there and then. There is no suggestion that those amendments were explained in any way to the Nixons and I accept their evidence that they were told just to sign and were discouraged from seeking legal advice in relation thereto.

557. I do not accept that the Nixons were commercially sophisticated business people. Their very conduct on 21 September 2012 belies that proposition. By that stage, whatever the dire state or otherwise of their financial position as at the time of the Heads of Agreement, the urgency of the pressing debts had well and truly dissipated. Moreover, to the extent that the Nixons were wishing to rely on the promise of further funding being arranged (which was contained in the Heads of Agreement) there was an obvious disparity of bargaining power between them and the Brown interests.

558. That situation is compounded by the representations that were made to the Nixons as to the use of the documents they were being told there and then to sign. There is something inherently unpalatable about the enforcement by James of documents signed by the Nixon interests in reliance on representations made by his father and his financial adviser to the effect that they would not be relied upon otherwise than if there were default in the repayment of advances that have now long since been repaid. Even if James were not aware of the position at the time, to my mind to allow him now to take advantage of that conduct (whether or not that conduct was by Ron and Mr Lambrinos acting as his agents at the time) in the absence of any evidence that James relied to his detriment on the September Deed and other documents having been signed by the Nixons on 21 September 2012, would amount to unconscionable conduct, and I would have granted relief in effect to preclude James from relying on those documents or seeking to enforce them.

559. Accordingly, had it been necessary to reach a final conclusion on this issue, I would have found for the Nixons that it is unconscionable for James now to seek to enforce the September Deed and to assert benefits under the related documents.

Final observation

560. At one point in oral closing submissions, I raised the question as to where matters would stand if the September Deed was not enforceable, but the common position was that the Heads of Agreement were, or should be treated as, binding. The short answer to this is, as Counsel for James accepted, that James is not here suing on the Heads of Agreement. Had he done so he might well have been met with an argument that it had been repudiated or abandoned by his conduct in relation to the Heads of Agreement. It is not, however, necessary or appropriate here to explore that issue any further.

Conclusion

561. For the reasons given above, I make the following orders:

1. Dismiss the plaintiff’s amended summons and points of claim with costs.

2. For the avoidance of doubt, declare that the document purportedly executed by the parties as a deed on 21 September 2012 is not binding and enforceable.

3. Order the plaintiff to deliver up to the defendants’ solicitors within 14 days any originals of the documents signed by the defendants on 21 September 2012 that remain in the plaintiff’s possession custody or control.

4. Declare that, as between the plaintiff and the defendants, the defendants are entitled to the moneys held in a trust account in the name of the defendants’ solicitors and representing 50% of the net settlement proceeds from the sale of the property known as 170 Menangle Road, Menangle Park, in the State of New South Wales, and any remaining funds out of the net settlement proceeds from the sale of the defendants’ business.

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Decision last updated: 22 August 2018