Cannavo v FCD (Holdings) P/L and 4 Ors

[2000] NSWSC 304

CITATION:	Cannavo v FCD (Holdings) P/L & 4 Ors [2000] NSWSC 304 revised - 13/04/2000
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 5206/99
HEARING DATE(S):	04/04/00, 06/04/00
JUDGMENT DATE:	10 April 2000
PARTIES :	Joseph Cannavo (Plaintiff) FCD (Holdings) Pty Limited (ACN 082 344 992) (First Defendant) John Edgeley Newton (Second Defendant) Patricia Evelyn Page (Third Defendant) Jason Luther Page (Fourth Defendant) Savetime Products Pty Limited (ACN 090 639 400) (Fifth Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	S J Archer/G Lucarelli (Plaintiff) S J Motbey (Defendants)
SOLICITORS:	Serio & Associates (Plaintiff) J Biady & Associates (Defendants)
CATCHWORDS:	EQUITY — Injunction — Interlocutory orders to maintain status quo where specific performance later to be sought of contract to allot 25% equity in joint venture company to exploit an invention — Fundamental requirement that plaintiff be appointed as managing director and co-signatory — No serious question to be tried that plaintiff would be allowed specific performance where plaintiff effectively repudiates contract by requiring power to override majority so as to assert erroneous interpretation — Lack of readiness and willingness to perform —Specific performance also precluded for non-severable appointment as managing director and for on-going joint venture or partnership obligations necessarily entailed — mutuality principles.
CASES CITED:	ANZ Executors & Trustees Ltd v Hulmes Ltd [1990] VR 615 Australian National Airlines Commission v Robinson [1977] VR 87 Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 Forrestt & Son Ltd v Aramayo (1900) 83 LT 335 Hensley v Reschke (1914) 18 CLR 452 J C Williamson Ltd v Sukey and Mulholland (1931) 45 CLR 282 Jefferson v Paskell [1916] 1 KB 57 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd and others (1991) 6 ACSR 63 Mehmet v Benson (1965) 113 CLR 295 Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 Stanton v Richardson (1872) LR 7 CP 421 at 433 (affirmed (1874) LR 9 CP 390; (1875) 45 LJ CP 78)
DECISION:	Application for interlocutory relief fails. No serious question to be tried.

REVISED — 13 April, 2000
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 5206/99
JOSEPH CANNAVO
Plaintiff
FCD (HOLDINGS) PTY LIMITED (ACN 082 344 992)
First Defendant

JOHN EDGELEY NEWTON
Second Defendant

PATRICIA EVELYN PAGE
Third Defendant

JASON LUTHER PAGE
Fourth Defendant

SAVETIME PRODUCTS PTY LIMITED (ACN 090 639 400)
Fifth Defendant

JUDGMENT

10 April 2000

INTRODUCTION

1    These interlocutory proceedings brought by the Plaintiff, Mr Cannavo, are preparatory to proceedings for specific performance primarily, or damages in lieu thereof. The Plaintiff seeks to vindicate his claim to a twenty-five per cent interest in a company formed to exploit an invention developed by John Edgeley Newton, the Second Defendant, Patricia Evelyn Page, the Third Defendant, and Jason Luther Page, the Fourth Defendant, being a counterscrew drill bit. 2    Proffering the usual undertaking as to damages, the injunctive relief sought on an interlocutory basis would prevent the First Defendant formed as FCD (Holdings) Pty Limited, which currently owns the intellectual property in the invention from allotting any shares with a similar constraint upon Savetime Products Pty Limited, the Fifth Defendant, formed to take over and exploit the invention. The injunctive relief also would require the First Defendant not to alienate or otherwise encumber any of its assets constituting the intellectual property in the counterscrew invention. 3    The Defendants dispute, inter alia, that there ever was an agreement binding upon them entitling the Plaintiff to a twenty-five per cent interest in the share capital of the invention owning company and in any event contend that by the reason of Plaintiff’s misrepresentation or repudiation any such agreement is now at an end. Also in dispute is whether, pursuant to the terms of that agreement, the Plaintiff was appointed managing director of the corporate entity call Savetime Products Pty Limited, whether that entity be the First Defendant or the Fifth Defendant. I note that on 23 November 1999 the First Defendant changed its name from Savetime Products Pty Limited to FCD (Holdings) Pty Limited whilst the Fifth Defendant was that day incorporated under the name Savetime Products Pty Limited. 4    It is not disputed for the purpose of these interlocutory proceedings that the Defendants are in difficult financial circumstances. They resist the interlocutory relief sought inter alia on the ground that: “If we are restrained in the way the Plaintiff demands then we will not be able to use any of the Counterscrew assets of the First Defendant to endeavour to raise finance and this may have the effect of placing us in the position that we will not be able to proceed with the venture at all”; see para 7 of Mr Newton’s affidavit of 6 April 2000. 5    Mr Newton also says: “I am also very concerned that a restraining order of this sort that is being claimed will adversely affect our prospects of developing the invention and of raising finance for the reason that the adverse publicity will deter any potential lender.” See para 8 of Mr Newton’s affidavit of 6 April 2000. 6    The Plaintiff for his part expresses concern that if equity were issued by either the First or Fifth Defendants, this would have the effect that if the Plaintiff were successful in the substantive proceedings he would already be diluted from his twenty-five per cent interest, without having had the opportunity to exercise such remedy under the Corporations Law for oppression or breach of fiduciary duty as he might have had as an existing shareholder had the alleged agreement been carried out. In argument, it was accepted on behalf of the Plaintiff that he was not entitled to more than a twenty-five per cent interest or to any greater assurance that that twenty-five per cent interest might not be diluted than was afforded by the Corporations Law in the manner I have described. 7    Finally, I should record that the likely time-span for such interlocutory relief is likely to be relatively short were it granted, given the likely timing of an early hearing date for any final hearing. The Defendants contend that such is the desperate state of their financial position and their urgent need for a substitute investor that even such limited period of interlocutory restraint could jeopardise their developing the invention at all. They also put in issue, even at the level of a serious question to be tried, the availability of specific performance to the Plaintiff. That is so, given the inseparable personal service and personal relationship aspects of the arrangements sought to be enforced, where the Plaintiff is to be managing director of the relevant Defendant and in an on-going joint venture or partnership with the Defendants despite the undoubted breakdown in their relations.

SALIENT FACTS

8    The following facts can be taken as generally agreed. Where not agreed, they are at least such as should be accepted for the purposes of these interlocutory proceedings, even if in some cases capable of being challenged at a final hearing. 9    Between February 1999 and August 1999:

(a) John Newton, Patricia Page and Jason Page ("Individual Defendants") were developing a drill bit known as the "Counterscrew"; and

(b) at various times during that period the Individual Defendants consulted the Plaintiff, wealthy and then a friend, concerning the commercial development of the Counterscrew. The extent to which the Plaintiff’s assistance was sought beyond that of a passive investor is in dispute. But for purposes of these interlocutory proceedings I am prepared to accept that at the inception of the arrangements the Defendants wanted the commercial assistance of the plaintiff as managing director of the corporate entity to hold the intellectual property to the Counterscrew.

10    During August 1999:

(a) the Counterscrew had been developed to prototype stage;

(b) the prototype was demonstrated to the Plaintiff at his office by Jason Page (Fourth Defendant); and

(c) the Plaintiff was sent a confidential "Product Evaluation Study" on the Counterscrew by Mr Newton (Second Defendant) under cover of a letter dated 12 August 1999 ("A", Cannavo affidavit 23.12.99).

11    On 15 September 1999 the Individual Defendants attended a meeting with the Plaintiff at the Plaintiff’s home ("September Meeting"). 12    At the September Meeting, according to paras 8 and 9 of the affidavit of the Plaintiff, Mr Cannavo of 23 December 1999, the following discussion occurred between the parties, which is in turn relied upon by the Plaintiff in each of his pleadings, culminating in paras 8 and 9 of his Amended Statement of Claim of 6 April 2000 as the basis of the contract relied upon. I quote first paras 8 and 9 of the affidavit and then para 8(a) to (f) with para 9 of the Amended Statement of Claim, noting that substantial part of the fold typeface of the pleading quoted has no basis in any affidavit filed by or on behalf of the Plaintiff. 13    Paras 8 and 9 of the affidavit provided as follows:

“8. At a meeting at my home at Hunters hill in about mid September 1999 at which John Newton, Patricia Page, Jason Page and I were present a discussion took place with words to the following effect:
JN: “We have thought about this and we would like you to be our managing director. We want you to have a 25% share in Counterscrew. For that you will have to lend the company funds to pay for the registration of the patents. The registration fees fall due at different times but most will fall due in January and February 2000. About $120,000.00 to $130,000.00 is required. You will be paid back when the company can afford it.”
JC: “I am happy to get involved as managing director but so long as you understand I will keep my full time responsibilities at Ryda [an unrelated business owned by me]. The Counterscrew business must be separate from everyone’s other businesses, so the patents should be in a company which is not part of your other businesses. I want each of us to put in $10,000.00 as working capital as well, as soon as you all can.”
JN: “Agreed”.
9. John Newton and I then shook hands. Jason Page then left the meeting and John Newton, Patricia Page and I proceed to celebrate with a few drinks which lasted approximately 1 hour.”

14    I now quote paras 8(a) to (f) of the Amended Statement of Claim with accompanying particulars followed by para 9, the bold typeface representing the Plaintiff’s additions from his previous sworn version of the Statement of Claim:

8. At a meeting at the Plaintiff’s home at Hunters Hill on or about 15 September 1999 the Plaintiff and the Defendants (save for the Fifth Defendant which was not then incorporated) concluded an agreement ("the Agreement").

Particulars
(a) The Agreement was partly express and partly implied. The express part was wholly oral.
(b) The persons present were the Plaintiff and the Second, Third and Fourth Defendants, in their personal capacities and in their capacities as directors of the First Defendant .
(c) At the time the Second, Third and Fourth Defendants comprised all the directors and shareholders of the First Defendant;
(d) The Second Defendant, in the presence of the Third and Fourth Defendants, said to the Plaintiff words to the following effect:
"We have thought about this and we would like you to be our managing director. We want you to have a 25% share in Counterscrew. For that you will have to lend the company funds to pay for the registration of the patents. The registration fees fall due at different times but most will fall due in January and February 2000. About $120,000 to $130,000 is required. You will be paid back when the company can afford it.
We want you to become managing director to assist with the business end, to attend all the critical meetings with the manufacturers and distributors.
Patricia, Jason [the third and fourth defendants] and I will continue with the day to day management but we want you as MD to negotiate the deals and to assist with the marketing and overall commercial development of Counterscrew."
(e) The Plaintiff then said words to the following effect:
(i) "I am happy to get involved as managing director but so long as you understand I will keep my full time responsibilities at Ryda [an unrelated business owned by the plaintiff].
(ii) The Counterscrew business must be separate from everyone’s other businesses, so the patents should be in a company which is not part of your other businesses.
(iii) I want each of us to put up $10,000 as working capital as well, as soon as you all can.
(iv) We should focus on developing the product in Australia in the first instance so we can assess its viability.
(v) I will have to be a joint signatory on the cheque account.
(vi) I will pay for the international patent fees when they fall due. I will pay for the patents to be registered in the major markets first: the US, Europe, Japan and Australia. We will all then see how the product is going in Australia and decide what other countries the patents should be registered in. "
(f) The Second Defendant then said words to the effect "Agreed" or "That’s fine" and by gestures signified his agreement and each of the Plaintiff and the Second Defendant then shook hands.
…..
9. In the premises, at such meeting on or about 15 September 1999 the Agreement was concluded between the Plaintiff and Defendants ( save for the Fifth Defendant which was not then incorporated ) and contained inter alia the following terms :

a) It was an express term of the Agreement that the patent rights, intellectual property and “know how” for and in the “Counterscrew” would be vested in a “clean skin” entity, that is to say, a company which was not involved in any other business (“the Joint Venture Company”).
b) It was an implied term of the Agreement that the Joint Venture Company could be the First Defendant provided it was not involved in any other business.

c) It was an express term of the Agreement that the Plaintiff would be appointed forthwith as the managing director of the Joint Venture Company and that the Plaintiff would perform the duties attaching to that appointment.
d) It was an implied term of the Agreement that the parties would within a reasonable time do all things necessary to formalise the Plaintiff’s appointment as managing director of the Joint Venture Company .
e) It was an express term of the Agreement that the Plaintiff would receive and be entitled to be registered and remain registered as the holder of one-quarter of the Joint Venture Company’s issued share capital.

f) It was an implied term of the Agreement that if the First Defendant was to be the Joint Venture Company, the Second, Third and Fourth Defendants would within a reasonable time do all things necessary to allot fifty (50) fully paid ordinary shares in the capital of the First Defendant to the plaintiff (or such other number of shares as would at the time of the allotment constitute one-quarter of the First Defendant’s issued capital)

g) It was an implied term of the Agreement that if a company other than the First Defendant was to be the Joint Venture Company, the Second, Third and Fourth Defendants would within a reasonable time do all things necessary to allot an equal number of shares in the Joint Venture Company to each of themselves and to the Plaintiff.

h) It was an express term of the Agreement that the plaintiff would, when called upon, to loan the Joint Venture Company sufficient funds to pay for the fees and charges required to register the patents for the Counterscrew in the United States, Europe, Japan and Australia in the first instance, (and in such further markets as the Plaintiff and Second and Third Defendants later agreed), such loans being repayable to the Plaintiff as soon as the Joint Venture Company’s financial circumstances permitted.

i) It was an implied term of the Agreement that such advances as and when made would be recorded in the Joint Venture Company’s books and records as a loan payable to the Plaintiff.

j) It was an express term of the Agreement that the Plaintiff and the Second, Third and Fourth Defendants’ would each contribute $10,000 to the Joint Venture Company’s working capital.

k) It was an express term of the Agreement that the patents and all other intellectual property for and attaching to the Counterscrew would be vested in, and remain vested in, the Joint Venture Company which would not be engaged in any other business or venture. “

15    During October 1999, the Plaintiff was assisted by Patricia Page (Third Defendant) in making the necessary arrangements and appointments required for visit Taiwan and seek to secure manufacturing, marketing and distribution contracts for the Counterscrew. 16    In mid November 1999, Patricia Page instructed Atlas Corporate to provide a shelf company to be called "Savetime Products Pty Limited" and nominated the Plaintiff as director and Chairman and the Individual Defendants as the other directors, and specified the Plaintiff and Individual Defendants as each holding one share. (Exhibit 9) 17    At all material time prior to mid-November 1999, the first Defendant was called "Savetime Products Pty Limited" and the Plaintiff contends, but the Defendants dispute, that John Newton was held out in business cards and in correspondence as its managing director. For present purposes I shall assume that some holding out occurred when in Taiwan; see below. 18    During November 1999, one or more of the Individual Defendants caused to be printed business cards as follows:

"Savetime Products
Joe Cannavo
Managing Director"
and
"Savetime Products
John Newton
Production Manager".

("Business Cards")

19    On 22 November 1999:

(a) John Newton handed the Plaintiff a box of the business cards referable to the Plaintiff;

(b) The Plaintiff and John Newton departed for a ten day business trip to Taiwan;

20    On 23 November 1999:

(a) The first Defendant changed its name from "Savetime Products Pty Limited" to its current name: "FCD (Holdings) Pty Limited";

(b) The new company called "Savetime Products Pty Limited" (ACN 090 639 400) (Fifth Defendant) was incorporated and its directors and shareholders were the Plaintiff and each of the Individual Defendants. The Plaintiff was also nominated as the Chairman.

The application for registration lodged with ASIC disclosed that the Plaintiff was a director and shareholder of the new company Savetime Products.

21    I will accept for present purposes that the Plaintiff and Mr Newton worked long hours in Taiwan during November 1999 promoting the venture’s interests. It is disputed whether the Business Cards were handed out but for present purposes, it can be taken that they were. The Plaintiff contends that in principle agreements were entered into with a manufacturer, distributor and marketing agent. According to the Defendants, the Plaintiff repudiated the agreement in principle during the trip, by stating to the Individual Defendants, through the Second Defendant, that he required forty per cent of the new entity, as he felt the business would require him to do more work than had been anticipated. That can be expected to be in dispute at any final hearing. 22    Save for incidental expenses, all expenses of the Plaintiff and Mr Newton associated with the Taiwan trip were paid by the Plaintiff. 23    According to the Plaintiff, upon return to Australia on 2 December 1999, the Plaintiff and Mr Newton agreed to meet on 6 December 1999 to build on the success achieved in Taiwan. 24    On the way to the 6 December 1999 meeting the Plaintiff spoke to Mr Newton and they had a discussion, the upshot of which was the Plaintiff being informed that there was no longer any agreement between the Plaintiff and the Individual Defendants because of the Plaintiff’s conduct whilst in Taiwan; the Defendant puts it that they terminated all association with the Plaintiff after the trip to Taiwan. 25    Generally what occurred in Taiwan between the Plaintiff and Mr Newton is in dispute. 26    The Plaintiff was offered $20,000 as recompense for his expenditure and effort by Mr Newton. 27    These proceedings were commenced on 23 December 1999. 28    On 23 March 2000, a form 902 was lodged with ASIC removing Mr Cannavo as a shareholder of Savetime Products Pty Limited.

AVAILABILITY OF INTERLOCUTORY RELIEF?

29    Ordinarily, that the status quo is being maintained in circumstances such as this for a relatively short time before a final hearing would favour the party seeking that interlocutory relief assuming it could establish a serious question to be tried. Here however the Defendants’ straitened financial circumstances are such that the contemplated constraint could in a practical sense determine the outcome of the proceedings for the Defendants if precluded from raising needed capital from another investor. Though the period of the constraint may be relatively short, Mr Newton in his affidavit of 6 April 2000 describes how he has just returned from a trip to Cologne for industrial show conducted there last month to induce interested parties to place orders for samples, outlaying about $30,000 for this trip with something like thirty prospective customers expressing interest in the invention. 30    Clearly the impact of even a relatively short time constraint in those circumstances does risk the Defendants’ capacity to be able to proceed with the venture at all. This is given their straitened financial positions and need for urgency if they are to replace the Plaintiff, assuming success in the substantive proceedings, at least to the extent of resisting any claim for specific performance or major claim in damages. On the other hand, the Plaintiff, if it can establish a serious question to be tried that it would be entitled to specific performance, has a strong case for interlocutory relief also. 31    The Defendants contend however that the Plaintiff must fail in the substantive proceedings for specific performance on two grounds:

(a) that the Plaintiff could not demonstrate that he was ready and willing to perform his side of the alleged contract, though able to do so, at least in a financial sense, and

(b) the appointment of the Plaintiff as managing director is an integral part of the alleged contract and, as a contract for personal services where the relationship has broken down, could only be the subject of a claim for damages as the Court would not order specific performance of such a contract.

32    As to (b) above, a further consideration not as clearly articulated by the Defendants but inherent in the above proposition is that the ongoing arrangements by way of joint venture or partnership could not for similar reasons be specifically enforced. Indeed if there were already such a partnership in corporate form the result would almost inevitably be that the Court would, with such a breakdown of relations, order the winding up of the corporate joint venture rather than compel its continuance. 33    The Defendants have the relatively heavy onus of establishing that the Plaintiff even at the level of a serious question to be tried could not succeed at a final hearing in obtaining specific performance. 34    Notwithstanding the partial performance of the alleged contract that has occurred, in particular payment for the trip to Taiwan, together with the allotment of shares in the Fifth Defendant which the Defendants have subsequently sought to undo, specific performance is still required if the Plaintiff is to vindicate his rights on that score. In particular, it is the First Defendant which owns the intellectual property rights in the invention whereas it is the Fifth Defendant which may have allotted the twenty-five per cent interest to the Plaintiff though since attempted to be reversed. Thus specific performance would be needed at least of the transfer from the First Defendant to the Fifth Defendant of the relevant intellectual property, or else the Plaintiff would have to have a twenty-five per cent interest in the First Defendant with the latter if necessary stripped out so as to have nothing else but the invention and the associated intellectual property rights. It is therefore appropriate to consider the issue on the basis that specific performance is not overtaken by the degree of part performance that has already taken place. 35    So far as part performance as regards appointment of the Plaintiff as managing director, on the present state of the evidence, no corporate formalities appear to have occurred which would constitute such an appointment. There is merely at its highest the holding out that the Plaintiff was managing director by reason of the business cards issued in relation to whatever entity could be said to be “Savetime Products” at the time the business cards were issued and during the period if at all that those business cards were handed out whilst in Taiwan — a matter in dispute. 36    Even on the present state of the evidence, I would not consider that the necessary corporate formalities have occurred to appoint the Plaintiff as managing director of the First Defendant. On no view could he have been appointed managing director of the Fifth Defendant given that the latter was not incorporated until 23 November 1999, whereas the box of business cards was handed out the day before. However, even were that not so, there are no corporate formalities of appointment as managing director in relation to the Fifth Defendant either. 37    Turning now to the Defendants’ first contention, namely that there is not even a serious question to be tried that the Plaintiff is ready and willing to perform his side of the alleged contract, it is necessary to turn to the evidence given in cross-examination by Mr Cannavo. 38    However, I should first dispose of a preliminary matter. Here it could not be doubted that the readiness and willingness of Mr Cannavo as Plaintiff has been put in issue by the pleadings. Thus paragraph 8 of the Defendants’ Defence asserts that the Plaintiff “is quite unwilling to perform the agreement in principle that in fact occurred”. 39    Thus, readiness and willingness being put in issue by the Defendants’ pleadings, some evidence of readiness and willingness must be presented in order to oblige the other party to prove the absence of readiness or willingness; see Stanton v Richardson (1872) LR 7 CP 421 at 433 (affirmed (1874) LR 9 CP 390; (1875) 45 LJ CP 78); Forrestt & Son Ltd v Aramayo (1900) 83 LT 335 at 338; Hensley v Reschke (1914) 18 CLR 452 at 460, 467; Jefferson v Paskell [1916] 1 KB 57 at 67; Mehmet v Benson (1965) 113 CLR 295; Australian National Airlines Commission v Robinson [1977] VR 87 at 91 and generally see Carter “Breach of Contract (LBC, 1984) at 234-5. 40 In Mehmet v Benson (supra), Barwick CJ said at 307: “the question as to whether or not the Plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the Plaintiff in a suit for specific performance are his essential obligations.” 41 This underlines that not every instance of absence of readiness or willingness is necessarily fatal, and enquiry must be made as to the extent of such absence in that substantive sense: see the discussion in Carter and Harland, “Contract Law in Australia (Butterworths, 1991) at 820. 42 Turning now to the cross-examination of Mr Cannavo, whom I found to be astute and forthright, in the context of a series of questions concerning his understanding of the agreement between himself and the Defendants, he said at a number of points that he must be able to override the will of the majority. His counsel in argument contended that these answers were to be discounted because of the imprecision of the questions. Thus it was said that the questions failed to put clearly enough whether he was unwilling to perform his unfulfilled part of the alleged bargain such as funding the registration of patents if he were not able to override the majority. A fair reading of the transcript refutes that attempt to explain away Mr Cannavo’s responses. At different points, he expressed the need to have further statement of the question or further explanation; in some cases perhaps to avoid being pinned to a precise answer. As I have earlier said, I thought him astute and forthright and do not doubt that he properly understood the questions asked, or at any rate any explanation then given. 43 Thus, at the outset, Counsel in cross-examination of Mr Cannavo said,

“Q. And I then want to get from you what you say you understand this contract that you want to have specifically performed, you are to receive in consideration of what you are ready, willing and able to do …. “ (T, 2.9-.11)

Then followed an enumeration of the various obligations.

44    Later, Mr Cannavo clarifies that there was a “fundamental agreement” that, “I would be the managing director of the company and that the cheque accounts which the company operated from would be co-signatory.” (T, 8.52-55) 45    Mr Cannavo makes clear that the fact that he is writing the cheques places him “in half control”; see T, 9.4-.5. 46    Then he is asked:

“Q. ….. Is it your position that if you don’t get their compliance with your decisions and directions you will not honour your side of the agreement?
A. Well not entirely, no, sir.
Q. Not entirely? Just a little bit?
A. Depends on which ones they are, sir.
Q. So, if they comply with some of your decisions in the future, you are prepared to honour your agreement, is that right?
A. Yes.
Q. But if they don’t comply with all of your decisions in the future, you may be prepared to honour the agreement, is that your situation?
A. Yes, because that is what the partnership is about.
Q. I see. So what you are prepared to do then, as I understand it, is honour your agreement, do your side of the bargain and just wait and see what the others’ attitudes might be to your decision, is that right?
A. Well that is what normal partnerships are about.” (T, 11.18-.40)
He acknowledges that he is only to get a twenty-five per cent interest in the company (T, 12.9-.16) but then at T, 13.32 appears the following question and answer:

“Q. And you don’t suggest, do you, that it is part of the agreement that you seek to have specifically performed that you can, as it were, override the will of the majority in this company?
A. Yes.
Q. Are you agreeing with me?
A. No.
Q. You are not?
A. Correct.
Q. So, you are saying, are you, that you understand this agreement to involve that you will be able to override the will of the majority?
A. Yes.
Q. If you want to do X and the other three don’t want to do X, then you will just have to come to the party?
A. Not necessarily. There is a part answer, if I may be permitted to give it to your Honour.”

47    Then follows an explanation that when it comes to the cheque book, he is there to have an equal say; see T, 14.16-.40. 48    Then he is asked to separate the issue of cheques from the other matter of the right to override the will of the majority so that at T, 15.34 begins the following questions and answers.

“Q. I understand you say admittedly rather belatedly they agreed you could sign on the cheques. I understand you say that. Let’s focus on the other matter, the other matter of the right to override the will of the majority. You don’t suggest, do you, that it was part of the agreement that they, the majority, would relinquish power in favour of your twenty-five per cent interest?
A. Yes, I do and this is why we are here, sir. That is exactly what I am saying to you.
Q. I see. You are saying it is part of this agreement that you will get twenty-five per cent, that you will be one of only four directors, but you will have complete control over the affairs of the company?
A. That’s correct sir, because if I may, if you will permit me to explain why. This was not an interest of money. I am not — wasn’t interested in the returns. Twenty-five per cent shareholding of the proceeds is quite adequate for me. That was not about money and — but it was about control.”

49    Again, in clear and unmistakable terms at T, 16.51-.56 he says:

“Q. But you say that you will have the right to override the decisions of the Board?
A. Yes.
Q. And you are demanding that that promise be performed?
A. Yes.”

50    There is then some sign of prevarication exemplified by the following question and answer:

“Q. You certainly won’t do anything of the sort that you have indicated you promised to do unless you get all of that?
A. No, No. Let me — I don’t know how I am going to answer that. Maybe if you, if you ask me the question again I will think it through a bit better.”

51    He then concedes that there is nothing in either the pleadings or the affidavit and in particular the Statement of Claim “that these people had promised you that you would have the right to override their process of decision in this company” (T, 17.13-.15). 52    I have quoted the transcript in some detail. Only by doing so does it become clear that it is entirely fair to characterise the evidence of Mr Cannavo as containing the assertion that he has the contractual right to override the wishes of the other three shareholders and directors under the agreement as he understands it. This is not by way of veto in refusing to sign cheques; there he sees himself as having equal power though with only a twenty-five per cent interest and being 1 of 4 directors. I have no doubt that he understood the questions asked of him in their overall thrust when those questions were clearly directed to his understanding of what his position was in contractual terms. 53    His assertion of a right to override the will of the majority, being a contractual provision neither pleaded nor substantiated in any affidavit or other evidence, leaves no other conclusion to be drawn but that:

(a) Mr Cannavo has not shown that he would be ready and willing to honour his side of the alleged contract if unable to get his way in overriding the decisions of the Board in exerting control; indeed the inference one would draw from his answers is that he would not, and

(b) he essentially repudiated the contract that he pleaded by asserting such a right, when clearly it was no part of the pleaded contract, or consistent with the evidence he himself gave by affidavit.

54    It is well established that if the promisor evinces an intention to perform in accordance with an erroneous construction, the promisor may be found to have refused to perform in accordance with the contract even though not actually intending to repudiate. Thus, Lord Wright said in Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 72 that it is not “necessary to show that the party alleged to have repudiated should have an actual intention not to fulfil the contract. He may be determined to do so only in a manner substantially inconsistent with his obligations and not in any other way.” 55 An example is provided by Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 where, because of their erroneous construction of the contract the ship owners threatened to act in a way which was substantially inconsistent with their contractual obligations. There was no subjective intention to repudiate, but a repudiation nevertheless occurred even though the ship owners had acted bona fide. 56 The Defendants in para 5 of their written submissions of 7 April 2000 state: “If a promisee can elect to rescind through repudiation an alleged contract (as distinct from an admitted one) by these submissions my clients rescind.” Any determination as to whether the promisee can elect to accept the repudiation is of an interlocutory nature and thus not conclusive in any final proceedings. I would for these interlocutory purposes consider that the Defendants are entitled to elect to rescind for repudiation. That constitutes a further reason, along with the Plaintiff’s unwillingness or unreadiness to perform, as would preclude specific performance, even at the level of a serious question to be tried. 57 Clearly, it is essential to the Plaintiff that he have control. When that is at complete loggerheads with the essential character of the contract pleaded, it could not be said that any exercise of discretion by the Court to permit specific performance would be likely to be called in aid in favour of the Plaintiff. 58 There is however a further reason decisive in itself why specific performance would not be allowed. The question is not simply whether a contract by a company to allot shares is specifically enforceable, when the shares were neither quoted nor otherwise readily available. If it were, the answer would be ordinarily that such a contract was of a kind for which specific performance would be allowed; see generally Spry “Equitable Remedies” (LBC, 1997) at 64-5 and the cases there cited. Here, clearly enough, the shares are the means for access to a piece of property consisting of potentially valuable patent rights for an invention so that the requirement of uniqueness for specific performance is readily satisfied. 59 Nor is there any impediment in the fact that this is a contract sought to be specifically enforced against the company issuing the shares. Thus in ANZ Executors & Trustees Ltd v Hulmes Ltd [1990] VR 615 Brooking J held that a holder of convertible notes issued by a company is entitled to specific performance by the company of its contract to allot the shares, at least where, as in that case, other shares are not generally available in the market. It was no answer that the plaintiff wished not to retain the shares so allotted but to sell them and take a profit. 60 However, what fundamentally differentiates the present case is that the overall arrangements include as an essential feature that, as originally required also by the Defendants if the Plaintiff’s evidence is accepted, the Plaintiff was to be managing director of the relevant company. It can be inferred that the Plaintiff wanted this just as much; he wanted it as a control mechanism along with cheque signing and as a means of ensuring that he could bring value to his investment. Indeed there could be no suggestion that this feature was somehow separable or independent, as emerges from the following question and answer in his cross-examination (T, 8.52-.56):

“Q. All you agreed to?
A. Yes, and in addition to that, there was a fundamental agreement that I would be the managing director of the company and that the cheque accounts which the company operated from would be co-signatory. …..” [emphasis added]

61    Treating this as a fundamental agreement means that there was no room for any suggestion of severability. Where severability applies, that reduces the force of any suggestion that to enforce one party’s obligation would work a hardship if the counterpart obligation were not specifically enforceable; see Spry at 96 and J C Williamson Ltd v Sukey and Mulholland (1931) 45 CLR 282 at 294. 62 Given that specific performance would not be allowed in the case of such a contract of personal services more especially where the relationship between the parties had broken down, clearly enough the Plaintiff could not enforce the effectuation of his appointment as managing director insofar as completion of the corporate formalities to bring that about were concerned. Likewise, were the Defendants to seek to enforce the contract against an unwilling Plaintiff, a situation at odds with reality, the Plaintiff could not be compelled to act as managing director for the same reason. I say at odds with reality, because clearly enough the Defendants would not wish to have the Plaintiff be managing director when their relationship has broken down. In those circumstances it would be quite unfair for there to be one fundamental part of the arrangements that could not be specifically enforced in circumstances where specific enforcement were then applied to the remaining parts of the contract and in particular to the acquisition of the twenty-five per cent equity. 63 That is not to invoke Fry’s much criticised statement of the rule requiring mutuality as appears in his “Specific Performance” 6th Ed at 619: “A contract to be specifically enforced by the Court must, as a general rule be mutual — that is to say, such that it might, at the time it was entered into, have been enforced by either of the parties against the other of them.” 64 As both Meagher Gummow and Lehane in “Equity Doctrines and Remedies” (Butterworths, 1992) at 512 and Spry (supra) at 91-97 make clear, such a doctrine could not be reconciled with a number of well established instances where specific performance is allowed notwithstanding absence of mutuality. The real basis of any notion of mutuality in this context is that it points to the weighing up process that a court necessarily carries out in order to determine whether granting specific performance at the behest of the plaintiff would, by reason of the plaintiff being unable to be required to carry out his obligations in specie, produce such hardship to the defendant that to compel specific performance would be inequitable. 65 Here, the obligation with respect to appointment of the Plaintiff as managing director is not severable. It then becomes a question of whether enforcement of the contract would be such as to cause undue hardship upon the Defendants. This is in forcing them to accept the Plaintiff not merely as an investor with a twenty-five per cent equity but as a managing director, when this was unacceptable by reason of the breakdown of their personal relations. That hardship is such that it clearly would be unjust to require specific performance. This is quite apart from the on-going position as co-venturers to which I now turn. 66 There is indeed a cognate reason why specific performance should not be allowed. Clearly enough, this is a joint venture pleaded as such by the Plaintiff. Entry into such a joint venture, or partnership as the plaintiff referred to it in cross-examination, would not be enforced by a court where relations had broken down. Thus to enforce the obligation to issue the twenty-five per cent equity would necessarily entail enforcing the associated continuing joint venture. But “the authorities are clear that apart from exceptional situations the court does not make [such] an order”; see John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd and others (1991) 6 ACSR 63 at 68 per Young J. In Halsbury’s “The Laws of Australia” (LBC, 1999) at para 15.6.23 it is stated: “Specific performance will seldom be granted of partnership or agency agreements ….” 67 It is not an answer to that contention to say that the Plaintiff is entitled to be put in a position where he is in joint venture, when this can only be in order that the joint venture reach its inevitable termination by reason of the irretrievable breakdown of relations between the joint venturers or partners. The Court would be lending itself to a futility if it were to enforce an agreement only to have it terminated by the just and equitable ground of winding up. And apart from that, if the Plaintiff were successful in any final proceedings, notwithstanding the formidable difficulties in his way, damages would remain an adequate surrogate for what would otherwise have arisen through the forced sale of the company’s assets were it wound up under the just and equitable rule. Indeed the benefit of not forcing a winding up is that such damages, if payable at all, can be calculated without the disruption to the venture that winding up would bring about.

CONCLUSION

68    For the reasons earlier set out, I am satisfied specific performance would not be awarded in any final hearing. That is so clear as to leave not even a serious question to be tried. In those circumstances, with or without the Plaintiff’s repudiation of the agreement, the Plaintiff’s application for interlocutory relief must fail. 69    In those circumstances costs should follow the event. Whilst the parties may address me on costs if they wish, as I presently see matters, the Plaintiff should pay all of the Defendants’ costs to date on the basis that these should be either agreed, as is preferable, or assessed forthwith. 70    I direct the parties to come back before me urgently with orders giving effect to this judgment and to deal with costs to the extent necessary.

Last Modified: 09/25/2000