Central Coast Projects Pty Ltd v Hannan
[2012] QSC 313
•24 October 2012
SUPREME COURT OF QUEENSLAND
CITATION:
Central Coast Projects Pty Ltd v Hannan & Ors [2012] QSC 313
PARTIES:
CENTRAL COAST PROJECTS PTY LTD
ACN 106 251 647
(plaintiff)
v
GREGORY PATRICK EDWIN HANNAN AS TRUSTEE OF THE GH AND RH HANNAN FAMILY TRUST
(defendant)
and
CABIT INFORMATION TECHNOLOGIES PTY LTD
ACN 010 515 312
(first defendant added by counterclaim)
and
KEVIN ROBERT ISLES
(second defendant added by counterclaim)
and
JODI LYNELLE BEARDMORE
(third defendant added by counterclaim)
and
TULLAMORE TRADING (FUND NO 2) PTY LTD
ACN 010 511 378
(fourth defendant added by counterclaim)
and
KEVIN ROBERT ISLES AND DIANE LYNELLE ISLES AS TRUSTEES FOR THE WARDELL CORPORATION SUPERANNUATION FUND
(fifth defendant added by counterclaim)
and
WARDELL CAPITAL LIMITED
ACN 102 002 684
(sixth defendant added by counterclaim)FILE NO:
4397 of 2011
DIVISION:
Trial Division
PROCEEDING:
Claim
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
24 October 2012
DELIVERED AT:
Brisbane
HEARING DATE:
19 and 20 September 2012
JUDGE:
Applegarth J
ORDER:
There be judgment for the plaintiff in the amount of $1,787,358.22.1.
The plaintiff recover possession of the property described as Lot 42 on RP 228847, County of Stanley, Parish of Cleveland, title reference 17506234.2.
The counterclaim is dismissed.3.
The defendant pay the plaintiff’s costs of and incidental to the proceeding to be assessed on the standard basis.4.
The defendant pay the costs of the defendants added by counterclaim of and incidental to the counterclaim to be assessed on the standard basis.5.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – OFFER AND ACCEPTANCE – MATTERS NOT GIVING RISE TO BINDING CONTRACT – Other matters – where defendant entered into an agreement granting a mortgage and guarantee – where plaintiff sues to enforce mortgage and guarantee – where defendant alleges that an oral agreement was reached with the plaintiff to release the mortgage and guarantee – whether agreement was reached – whether, if agreement was reached, that agreement was final and binding and intended to have immediate legal effect
Trade Practices Act 1974 (Cth), s 52
Watson v Foxman (1995) 49 NSWLR 315, cited
COUNSEL:
M R Bland for the plaintiff and the defendants by counterclaim
J P Rivett for the defendant (direct brief)SOLICITORS:
Eaton Lawyers for the plaintiff and the defendants by counterclaim
The plaintiff sues to enforce a guarantee and a mortgage given in support of it.
The defendant (“Mr Hannan”) defended the claim on the basis that the plaintiff’s director (“Mr Isles”) and he entered into an agreement (“the Cabit Agreement”) in November 2010 that was partly oral and partly in writing, which included terms that:
· a new company (“Cabit PL”) would be owned 50 per cent by a company nominated by Mr Isles and 50 per cent by Mr Hannan’s interests;
· Cabit PL would become the sole guarantor of the loan;
· Mr Hannan would be released from the guarantee;
· the mortgage over his property would be released.
Although Mr Hannan’s pleaded case is that the oral part of the alleged Cabit Agreement was agreed on 2 November 2010 at the Coffee Club, Racecourse Road, Ascot, and that the written part consists of an agreement signed on 15 November 2010, his final case was that:
·the oral agreement was in fact reached over the telephone on 2 November 2010; and
·the subsequent written agreement was an entirely different agreement to the oral agreement.
In final addresses Mr Hannan accepted that his defence depended on proving that an oral agreement in the terms alleged by him was made on 2 November 2010 over the telephone, and that the parties intended it to be final and binding, and not conditional on it being documented.
The plaintiff, Mr Isles, his daughter and companies associated with him who were joined as parties to a counterclaim deny that the alleged oral agreement was reached. They also deny that any agreement reached on 2 November 2010 would be immediately binding. They say that the parties conducted themselves on the basis that any agreement reached would be documented, that the parties were continuously engaged in attempts to reach a written agreement and that the written agreement signed by them on 15 November 2010 reflects their actual agreement. Importantly it refers (as did earlier drafts of it) to the loan agreement that the plaintiff seeks to enforce, and makes no reference to releases of Mr Hannan’s guarantee or mortgage. Mr Hannan was conscious of this when he signed the agreement. The written agreement is inconsistent with the oral agreement which
Mr Hannan says was reached.
Mr Hannan pleaded many other defences, including claims under the
Trade Practices Act1974 (“TPA”) and unconscionable conduct. However, these were not pressed. As a result, the issues in the proceeding are simple:
(a)Was an oral agreement reached between Mr Hannan and Mr Isles in the terms alleged by Mr Hannan on 2 November 2010 which included terms to release the guarantee and the mortgage?
(b)If so, was it a final and binding agreement which was intended by the parties to have immediate legal effect?
Because in final addresses Mr Hannan abandoned the pleaded case based on
the so-called Cabit Agreement, which was alleged to be partly oral and partly in writing, his counterclaim for breach of that agreement should be dismissed. However, his final submissions allege that the various parties added by counterclaim breached the “shareholders (sic) agreement and the TPA as set out in para 26e of the defence, effectively ‘running dead’ on the management of Cabit and closing it down thus causing the defendant to suffer damages.” There are a number of problems with this revision and remnant of the original counterclaim. Many of the parties added by counterclaim are not alleged to be parties to the shareholders’ agreement. An alleged breach of contract cannot be equated with a contravention of the TPA. The acts and omissions alleged in paragraph 26(e) of the defence and counterclaim are alleged to be those of Mr Isles, not any other party. Some of the matters alleged in paragraph 26(e) relate to the fact that Mr Isles and interests associated with him have not taken steps to have Cabit Information Technologies Pty Ltd commercialise certain intellectual property. Their case is that they elected to terminate the arrangement when their due diligence led them to realise
Mr Hannan had misrepresented matters.
I shall return to the counterclaim after determining the issues in the principal proceeding of whether the alleged oral agreement of 2 November 2010 was effective to release the guarantee and the mortgage which the plaintiff seeks to enforce. If it did not do so, then there is no dispute that the plaintiff is entitled to judgment for the amount claimed by it and to recover possession of the property over which it has a mortgage.
Background
Mr Hannan has a background in information technology. His businesses developed software for eCommerce, and one product called “CabIT” was designed for use on mobile phones to enable a taxi customer to pay the fare. By 2010, Mr Hannan was desperate for funds to pay bills and to launch products.
Mr Isles is now retired due to a serious health problem. Before that he worked for more than 30 years and ran companies associated with the Wardell Group. Wardell Corporation, of which he remains a director, has been engaged in property development, funds management and finance. It assesses business opportunities. Mr Isles was assisted by his daughter, Ms Jodi Beardmore, and employees. One of the businesses that it developed was a QCard ATM business. Mr Isles was interested in selling that business and he was put in contact with Mr Hannan who explained how his company, MainStreet International Group Ltd (“MainStreet”), was working on technology and a smart card program. Nothing came of this. Later, Mr Hannan and an associate, Mr Leif Schipper, explained that they were in discussions with a stockbroking firm about refloating a delisted public company, Ultrapay. However, those discussions were faltering, and MainStreet needed a short-term loan facility.
After discussions, a loan agreement dated 21 July 2010 was entered into between Mr Isles and his wife as trustees of the Wardell Corporation Superannuation Fund (“the Wardell Superannuation Fund”) as lender and MSI (Holdings) Pty Ltd (“MSI”), which Mr Hannan represented as having substantial interests in MainStreet and Ultrapay. The loan agreement was stated to be for specified purposes by way of advances in aggregate up to the amount of $430,000. The loan was for a period of 60 days from the date of the first advance, and the interest rate was 120 per cent per annum. MSI granted a fixed and floating charge on the same day. Mr Hannan as trustee of the GH & RH Hannan Family Trust gave a guarantee and indemnity dated 21 July 2010. In the same capacity he executed a mortgage in favour of the Wardell Superannuation Fund over the property in which his family lived. It was a second mortgage.
MSI defaulted in its obligation to repay the loan. Mr Isles “left the door open” for Mr Hannan to find a way to repay the loan. However, by early October 2010 he was seeking an urgent solution, and accused Mr Hannan of having lied about matters in order to obtain earlier advances. Advances had not been used for their intended purpose, and Mr Isles felt that he could not trust Mr Hannan. In email communications on 30 September and 1 October 2010 Mr Isles suggested that
Mr Schipper could not be trusted, and that it was in the interests of Mr Hannan, his family and his assets that the truth be told and that Mr Isles and Mr Hannan deal “in reality of commercial fact”.
By this time Mr Isles was being assisted in negotiating and documenting matters by a consultant, Mr Owen Tallentire.
On 12 October 2010 a Variation Deed was reached between the Wardell Superannuation Fund, MSI and Mr Hannan. The loan sum became $500,000 and the loan could be terminated upon the giving of seven days’ written notice.
On 17 October 2010 Mr Isles expressed his displeasure at a draft Memorandum of Understanding (“MOU”) that Mr Hannan had advanced. This was a draft MOU between Wardell Corporation Pty Ltd, Wardell Capital Ltd and MainStreet. It included a provision for the existing loan between the Wardell Superannuation Fund and MSI to be extinguished. Mr Isles treated this as an attempt to “change the rules”.
On 27 October 2010 Mr Isles reiterated, in the strongest terms, that the MOU
Mr Hannan had advanced was completely wrong and that he was having second thoughts about proceeding with any arrangement. In early November 2010
Mr Tallentire assumed the role of drafting an appropriate MOU. On the morning of 2 November 2010 he communicated to Mr Hannan his understanding that there was to be only one MOU and that Mr Hannan was working on the version that
Mr Tallentire had previously sent to him.
An email on 1 November 2010 had previewed a meeting for the next morning with participants to include Mr Isles and Mr Hannan. Mr Isles gave evidence of what was discussed at a meeting between him and Mr Hannan on the morning of
2 November 2010. Although Mr Hannan’s defence pleaded that an oral agreement was reached at a meeting on 2 November 2010 at the Coffee Club, Racecourse Road, Ascot, when his case was opened his position changed and it was that no such meeting occurred, and that the oral agreement was reached later on
2 November 2010 during a telephone conversation. Mr Hannan’s counsel explained that the pleading of a meeting and agreement at the Coffee Club was the result of Mr Hannan having “reconstructed that to some extent by looking at the emails”. Ultimately, in his evidence Mr Hannan did not deny that a meeting with Mr Isles occurred on 2 November 2010. He just could not remember it.
Mr Isles says that such a meeting took place and there was a general discussion.
The contemporaneous emails do not prove, beyond doubt, that such a meeting took place. However, I accept Mr Isles’ evidence it did. It was his modus operandi to conduct meetings over a cup of coffee. Such a meeting was previewed on
1 November 2010 for the following morning, and I conclude that such a meeting probably took place.
The email traffic on 2 November 2010 between the parties indicates that Mr Isles had discussions that day with a number of consultants, and that he needed to discuss the matter further with Mr Tallentire. A number of important issues were previewed. Importantly, Mr Hannan in the contemporaneous emails does not refer to any agreement having been reached, and at 4.01 pm on 2 November 2010 he sent an email to Mr Isles and Mr Tallentire that stated:
“Anyway I have made changed (sic) to the MOU Owen sent me - I guess we start again do we?”
This statement is inconsistent with the proposition that a concluded agreement had been reached, and reflects the fact that both before and after 2 November 2010 the parties were negotiating matters on the basis that any agreement would be in writing. Mr Isles responded at 4.09 pm in an email which previewed a meeting to keep things moving because of time constraints. He referred to “a whole range of issues [that] have been raised but are suggested so that both of us are protected ...”.
Time was of the essence because Mr Hannan and his companies were in dispute with the Australian Taxation Office (“ATO”) and desperately needed funds to seek an adjournment of proceedings that were due back in Court a few days later.
Mr Hannan’s evidence is that he had a telephone conversation with Mr Isles on
2 November 2010 in which they discussed “the elements of the MOU”. These included that there would be two directors representing the Wardell/Isles’ interests and one representing the Hannan/MSI interests. Interest on funds advanced would be at the rate of 23 per cent and the new company (described in other evidence variously as “Newco”, “Cabit” or “Cabit Information Technology”) would grant security in support of the loan that was to be moved to it. Mr Hannan says that he was unhappy that provision had not been made for the security to be released from his property.
Mr Hannan says that in discussing the proposed Cabit MOU he suggested that the MSI loan from the Wardell Superannuation Fund be moved to Cabit and that Cabit would then pay down the loan under Mr Isles’ control. Mr Hannan says that
Mr Isles explained that the Wardell Superannuation Fund loan might need to be novated to another company in his group for tax reasons. According to Mr Hannan they discussed that the loan or the novated loan would be moved across to Cabit Information Technology Pty Ltd and that the charge over MSI would be released. He also says that they spoke about the guarantee and the mortgage on Mr Hannan’s property being released as well. Discussion also turned to the new company’s need for working capital and a figure of $60,000 per month was mentioned as being required.
Mr Isles denies that there was any such agreement, and specifically denies having agreed to release Mr Hannan’s guarantee and the mortgage, either at a meeting in person on 2 November 2010 or in any telephone conversation that day.
His evidence is that at the meeting at the Coffee Club there was a general discussion to move the Cabit matter forward and that he agreed to “go forward with it in good faith and go through a due diligence process to finally check it all over.” A 50:50 division of interests in the new company was discussed. He says Mr Hannan represented that the new company would be a way of paying back the loan, and that although he would have expected the new entity to become a guarantor of the original loan, that matter was not discussed at the meeting. There was some discussion about making the CabIT intellectual property available to the new company, but discussion was of a general kind. Mr Isles says that there was no discussion about the loan that had been made by the Wardell Superannuation Fund, or any novated loan being, in effect, taken over by Cabit. Mr Isles says that
Mr Hannan knew very clearly his opposition to such a proposal. As Mr Isles explained, “I regard myself as a fair and honourable person but I am not a charity.” He rejects the suggestion that he agreed that Cabit would become the sole guarantor of the loan. There was discussion about Mr Hannan’s need for working capital and a figure of $60,000 per month was mentioned.
Mr Isles rejects the suggestion that at the conclusion of his conversation with
Mr Hannan that day, whether it was on the phone or in person, they had reached a firm agreement on the Cabit transaction and how they were going to document it.
On 3 November 2010 Mr Schipper was involved in preparing a further draft of the MOU. According to Mr Hannan, he dropped Mr Schipper to a meeting with
Mr Isles that morning, and Mr Schipper gave evidence of having a discussion with Mr Isles at the Coffee Club on Racecourse Road. According to Mr Schipper,
Mr Isles expressed the view that the Cabit business was a means by which he could achieve repayment of the Wardell Superannuation Fund loan and also be financially successful. Mr Isles conveyed the advice that he had received about the corporate vehicle through which the business should be conducted. He also mentioned that the loan had to be novated because his accountants had told him that the loan should not have been taken out in the name of his superannuation fund. He said that another entity within his group would have the loan assigned to it. Discussion turned to the share structure and Mr Isles is said to have told Mr Schipper that the agreement should be drafted on the basis that Mr Isles would have 100 per cent, knowing that this would be knocked back and that there would be some horse trading on the percentage split up. There would be controls over the company’s bank account while the loan remained outstanding. The priority for disbursement of any monies was to repay the Wardell Superannuation Fund loan, and until such time as that was done there would be a registered charge on Cabit. After that, profits would be disbursed in accordance with shareholdings. The Wardell Superannuation Fund loan was to be guaranteed by Cabit.
Mr Schipper’s recollection is that Mr Isles said that the charge being put on Cabit was to replace the charge that existed on MSI and that the new company would be the sole new guarantor for the loan, and that the mortgage over Mr Hannan’s property would be removed.
Mr Isles denies having had such a meeting with Mr Schipper and denies that he told Mr Schipper that the guarantee and mortgage granted by Mr Hannan would be removed. Although I have reservations about the reliability of the recollections of Mr Hannan and Mr Schipper respectively, I also have reservations about the reliability of some of Mr Isles’ evidence. I accept that he had little or no respect for Mr Schipper at the time because of past bad experiences, and because he learned of Mr Schipper’s background. Mr Schipper is an accountant by profession, and acts as a corporate adviser. One of his trusts is a shareholder in MainStreet International Group Ltd, having elected to take a shareholding in the company on account of the services that he has rendered over a period of eight years. He is a long-standing business associate of Mr Hannan. He was sentenced to a term of imprisonment in December 2002 on charges of tax fraud.
Despite my reservations about Mr Schipper’s reliability, I accept his evidence that he met with Mr Isles on 3 November 2010. However, as with Mr Hannan’s evidence, I consider that Mr Schipper has no genuine recollection of discussion having turned to the release of Mr Hannan’s guarantee and mortgage. I find that he has reconstructed this aspect of the conversation.
The draft revised MOU that Mr Schipper prepared on 3 November 2010 included clause 4 in the following terms:
“Wardell Superannuation Fund will assign its current loan and further advances made to date to a Wardell corporation associated company or subsidiary. This loan will form part of the ‘consideration’ in the first instance for the acquisition of the 100% interest in CABIT and as such, the Secured Charge will be removed from MSI (Holdings) Pty Ltd (‘MSIH’) as will the ‘Security/Caveat over the property associated with Hannan.”
This clause does not clearly refer to a release of Mr Hannan’s guarantee, although the reference to the removal of the “Security/Caveat over the property associated with Hannan” may have been intended to refer to the guarantee as well as the mortgage that secured it.
The inclusion of this provision is consistent with Mr Hannan’s desire to have his personal guarantee and the mortgage granted by him released. However, that does not persuade me that Mr Isles agreed to such an arrangement either in his discussions with Mr Hannan on 2 November 2010 or in his discussions with
Mr Schipper on 3 November 2010. As matters transpired, Mr Schipper’s draft MOU was not used as the basis for further drafts of the agreement. A clause in the form of cl 4 of Mr Schipper’s draft or a clause that more clearly released the guarantee and mortgage did not appear in any subsequent draft. This is consistent with no agreement having been reached on this point on 2 November 2010 between Mr Hannan and Mr Isles, and Mr Schipper’s draft being a further, failed attempt to introduce a term which had not been agreed.
On 3 and 4 November 2010 Mr Tallentire had the main running in the drafting of an agreement. On the evening of 3 November 2010 Mr Hannan emailed Mr Tallentire and advised:
“I’ve spoken to Leif and gave him my comments for changes about the Hannan security and my entity preferences, why is this so hard, we have already agreed on the elements to add. I just want the profits to go back to MainStreet and I don’t even care if Kevin get (sic) 100% of Cabit which he wants to release everyone, just make it happen as I am off to Melbourne to Cabfare for Jodi.
Agreement draft back at ya......
Call me.”
This email is inconsistent with an agreement having been reached in the terms particularised in the amended defence between Mr Hannan and Mr Isles for the release of Mr Hannan’s guarantee and mortgage. It indicates that Mr Hannan sought the inclusion of such a release in the agreement that was being drafted, even if he was required to cede a 100 per cent shareholding in the new company to
Mr Isles in order to achieve it.
Additional confirmation that no agreement had been reached on 2 November 2010, and that any agreement needed to be documented before it would be binding, appears in an email that Mr Isles sent to Mr Hannan and others at 10.46 pm on
3 November 2010. By that time he had spoken in detail with his solicitors and also spoken to Mr Schipper. The plan was to have Mr Tallentire “put the points into simple bullit (sic) point without the flowery words. The solicitors can do that.”
On 4 November 2010 Mr Tallentire circulated a draft Cabit shareholders’ agreement to Mr Hannan and others. No provision was made for the release of Mr Hannan’s guarantee and mortgage. Clause 6 provided:
“The Parties agree that CabIT will guarantee the current loan of the Wardell Superannuation Fund or any entity that is assigned the loan and that MSI will also place a fixed and floating charge over MSIGL for any advances that have been made by MSI to MSIGL.”
Mr Hannan noted in handwriting on the draft that this clause did not address the Hannan Trust. Later drafts were in a similar form.
On 4 November 2010 Mr Isles was expressing his frustration to Mr Hannan about Mr Hannan and Mr Schipper’s conduct in respect of a $10,000 advance which was required to defer the ATO matter. He suggested that Mr Hannan and Mr Schipper “come to grips with commercial reality”.
It is clear that during this time Mr Hannan appreciated that the draft agreement did not contain provision for the release of his guarantee or mortgage. An email sent by Mr Tallentire to Mr Hannan at 12.52 pm on 4 November 2010 refers to a discussion they had just had on the telephone about the removal of Mr Hannan’s house mortgage. Mr Tallentire’s email indicates that any agreement about that was something that Mr Hannan would have to reach with Mr Isles. Mr Tallentire described his role as doing the paperwork. The email is inconsistent with
Mr Tallentire having been instructed that an agreement had been reached for the mortgage to be released, or believing this to had been agreed. It suggests that no agreement had been reached on that topic, and that it was not his role to negotiate such a provision of the agreement.
In the following days Mr Tallentire continued to revise the drafting of the agreement. He noted in an email that his drafts were for “final drafting by a lawyer”. The draft prepared by him was in a simple form which provided for one of Mr Isles’ companies, Tullamore Trading (Fund No 2) Pty Ltd (“TT”), to own
55 per cent in the new entity and for an entity associated with Mr Hannan to hold
45 per cent. The draft agreement addressed what was described as “the current loan of the Wardell Superannuation Fund to MSI Holdings Pty Ltd or any entity that is assigned the loan”. The agreement provided that the new company (which was to have the name Cabit Information Technologies Pty Ltd) would guarantee that loan.
These draft agreements made clear that the loan was still in existence, and therefore had not been released pursuant to an oral agreement made on 2 November 2010, as Mr Hannan alleges. They anticipated that the current loan from the Wardell Superannuation Fund might be assigned to another entity.
A new company called Cabit Information Technologies Pty Ltd was formed.
Mr Hannan was told about its formation on 5 November 2010.
Exhibit 4, being documents tendered by Mr Hannan, includes a document that was not the subject of cross-examination. It appears to be minutes of a meeting held on 10 November 2010 of Cabit Information Technologies Pty Ltd signed by Mr Isles. The minutes record that at a meeting attended that day Mr Hannan was appointed as a director of the company. Mr Isles and his daughter, Ms Beardmore, had earlier been appointed directors.
During this time Ms Beardmore or other members of Mr Isles’ team of employees and consultants were progressing their due diligence of the Cabit business.
On 12 November 2010 Mr Hannan and other parties entered into a deed of novation which novated the rights and interests of the Wardell Superannuation Fund to the plaintiff. Such a transaction had been previewed by Mr Isles in discussions with
Mr Hannan on 2 November 2010. Mr Hannan made various acknowledgments in the novation deed and confirmed that the collateral securities and Mr Hannan’s obligations and liabilities under the guarantee and mortgage continued and would remain in full force and effect and be enforceable against MSI and Mr Hannan in accordance with their terms. Mr Hannan says that he was prepared to sign the novation deed because Mr Isles had explained the necessity for it, being based on advice that Mr Isles had received about the inappropriateness of the loan being held by a superannuation fund. However, the fact that Mr Hannan was prepared to sign the novation deed on 12 November 2010 which confirmed his liability under the guarantee and mortgage is significant. If, as he alleges, there had been a final and binding agreement on 2 November 2010 to release the guarantee and to release the mortgage, then one would have expected this point to have been raised and he would not have confirmed on 12 November 2010 that these agreements remained in full force and effect.
During this time Mr Hannan continued to appreciate that the draft shareholders’ agreement contained no provision to release the guarantee and to release the mortgage. If this was to be done then the parties who had the benefit of those agreements would need to be parties to an agreement which provided for the release of the mortgage and the guarantee.
On 15 November 2010 two forms of the shareholders’ agreement were prepared and signed by the parties, including Mr Hannan. One was in a form which made MSI the party which was to hold 45 per cent of the shares in Cabit Information Technologies Pty Ltd. The other version had this interest being held by Mr Hannan as trustee for the GH & RH Hannan Trust. The reason for this is that the parties appreciated that MSI was in a precarious state and might “go under”. Each version of the agreement included a cl 6. The version that had MSI as a party stated:
“The Parties agree that CabIT will guarantee the current loan of the Wardell Superannuation Fund to MSI or any entity that is assigned the loan. The parties agree that MSI is to use its apportionment of any cash flowed funds in CabIT to repay the loan to Wardell Superannuation Fund.”
The version which had Mr Hannan as a party included only the first sentence.
When he signed each agreement at a meeting on 15 November 2010, Mr Hannan realised that the agreement did not contain any provision for his guarantee and the mortgage to be released. He did not think that the agreement reflected what had been agreed on 2 November 2010. However, he signed the agreement because he was under financial pressure. He had significant financial issues to attend to across three companies and needed money to pay staff and programmers. He needed about $45,000 that day. He read the agreement, including cl 6 in each document. He accepted that there should be two agreements because MSI and MainStreet were in financial difficulty and were in dispute with the ATO.
The agreement was in a simple form. It confirmed that TT had the right to nominate two directors to Cabit and that upon the full repayment of all loan monies owed by MSI to the Wardell Superannuation Fund or any other party assigned or novated such loans, TT and MSI would appoint one director each and have a mutually agreed third independent director. TT agreed to make available certain resources to assist in regulatory and compliance matters. However, cash flow loans required to operate the day-to-day functions of Cabit depended upon the amount being agreed to by the board of directors.
Ms Beardmore became involved in reviewing documents and meeting with clients who were potential customers of the new company. Her investigations resulted in a number of issues emerging. It is unnecessary to canvass them all. Conflicts arose between Mr Isles and Mr Hannan about delays in the signing of documents.
Mr Isles identified what he regarded as serious legal problems in the way that Cabit was being promoted.
By letter dated 3 December 2010 the plaintiff, through its solicitors, gave notice that its charge over MSI was being crystallised.
On 13 December 2010 Ms Beardmore advised Mr Hannan that “the Wardell Corporation Group [had] decided to decline” his invitation to participate with the MainStreet Group in any commercial dealings. In a further email that day she communicated concerns regarding certain transactions. She contended that certain matters had “left CabIT in a position which (sic) it is unable to commercialise the business”. She confirmed “that unfortunately we will not be continuing the current business relationship.”
On 14 December 2010 Mr Isles met Mr Hannan. He handed Mr Hannan a notice of demand in respect of the guarantee.
The thrust of the evidence given by Mr Isles is that Cabit Information Technologies Pty Ltd did not progress matters because the due diligence undertaken on his behalf in late November and early December 2010 was unsatisfactory from his point of view. In those circumstances, there would be no decision by a majority of directors to invest in the company in an attempt to develop its business. The company was set up in circumstances of urgency and the shareholders’ agreement of
15 November 2010 was signed, according to Mr Isles, so that a due diligence exercise could be undertaken. This was how he operated his business. A corporation was formed so that if the due diligence was positive the business could “move forward”. As he explained: “If in the event it does not pass the due diligence, we advise accordingly and you close it down at that point.”
In an email dated 20 December 2010, and after meeting with Mr Isles in the meantime, Mr Hannan interpreted Ms Beardmore’s email of 13 December 2010 as reflecting a decision to terminate the Cabit Information Technologies Pty Ltd agreement. After this time Mr Hannan had no further involvement in the company and “reverted” back to MainStreet.
Earlier, while the shareholders’ agreement was being documented and soon after it was signed, Mr Hannan had anticipated that certain intellectual property would be transferred to the new company in the form of a licence for it to use certain software. However, there is no evidence that such a licence was granted or that the company retained any intellectual property that was actually transferred by way of licence or otherwise.
Mr Adrian Willmott had been employed by one of Mr Hannan’s companies. He went to work in Wardell’s offices during the due diligence period and the circumstances under which his employment with Mr Hannan’s companies was terminated is unclear. Mr Hannan did not suggest that Mr Willmott was capable of operating the CabIT system on his own. At some stage Mr Willmott went to work for one of Mr Isles’ companies, apparently in relation to property matters.
Mr Willmott returned a MainStreet computer that he was using for Cabit on or around 20 December 2010.
After unsuccessful attempts to negotiate a resolution of the matter, the plaintiff commenced these proceedings against Mr Hannan, seeking a money judgment for the amount owed under the guarantee and under the mortgage, and also an order to recover possession of the mortgage property.
The relevant terms of the guarantee and the mortgage are admitted. No challenge to the effectiveness of the deed of novation is pressed. Subject to the defence based upon the alleged “Cabit agreement” (as pleaded) or the revised defence raised in submissions that the alleged oral agreement of 2 November 2010 provides a ground of defence, Mr Hannan does not contest that the sums claimed by the plaintiff are due and owing or that there is any reason as to why an order for recovery of possession should not be made.
Was the oral agreement reached?
The particulars of the alleged oral agreement are as follows:
“i.The parties would jointly establish a new company to be called ‘Cabit Information Technologies Pty Ltd’ (‘Cabit PL’) which would be owned 50% by a company nominated by Mr Isles, and 50% by the defendant’s interests;
ii.The parties agreed to enter into a venture together through Cabit PL with the objective of commercialising the Cabit iP and they would restructure the Loan and the Collateral Securities as set out below;
iii.Cabit PL would take over as the borrower or sole guarantor of the Loan;
iv.The defendant and Kevin Isles would be directors of Cabit PL;
v.The defendant would cause MSIMG to transfer a license to the Cabit iP to Cabit PL;
vi.The Loan would be re written (sic) to the effect that the loan was made from a company to be nominated by Kevin Isles (the New Lender) to Cabit PL and not to MSI Holdings;
vii.Or, if the Loan was not re written (sic), it would be assigned by Wardell Super to the New Lender;
viii.either way, Cabit PL would become the sole guarantor of the Loan, and
ix.the defendant would be released from the Guarantee; and
x.The Mortgage over the defendant’s Property as defined in the statement of claim would be released;
xi.The Charge over MSI would be replaced with a charge over Cabit PL;
xii.Cash flow from Cabit PL would pay back the Loan. Priority payments from Cabit PL revenues would be used as the sole source of repayments of the Loan;
xiii.Wardell Capital would provide $60,000 per month working capital to Cabit PL to enable it to proceed immediately to establish the business;
xiv.Kevin Isles would instruct McCullough Robertson to draft the documents assigning the Loan and would also instruct the defendant’s accountant and advisor Mr Leif Schipper to draft further documentation recording the agreed terms including the release of the defendant from the Guarantee and the defendant’s Property from the Mortgage and the release of the Charge over MSI and the registration of a new charge over Cabit PL;
xv.The oral part of the Cabit Agreement was a final agreement and was not conditional on the further documentation being entered into;
xvi.The parties would proceed immediately to commence the venture.”
I am satisfied that there was discussion between Mr Hannan and Mr Isles on
2 November 2010 about some of these topics. The critical issue is whether they agreed that Mr Hannan would be released from the guarantee and that the mortgage over his property would be released. Mr Hannan may have had in mind that day that if the new company agreed to guarantee the loan, then it might become the sole guarantor, and that his guarantee and the mortgage that he granted in support of it would be released. It is possible that he may even have mentioned these things to Mr Isles. However, I am not persuaded that he did. Instead, I accept Mr Isles’ evidence that their discussion on 2 November 2010 was a general discussion and that no agreement was reached that day to release the guarantee or the mortgage.
It is improbable that Mr Isles would have agreed to this, simply in the hope that the new business venture would be profitable and repay the loan. If there was any discussion about the new company guaranteeing the loan which had been made to MSI, then Mr Isles probably would have understood it to be in the form of an additional guarantee, and not in substitution for Mr Hannan’s guarantee. It is clear that Mr Isles hoped that the new company would be the source of funds to repay the loan, and Mr Hannan may have said in that regard that he proposed that the new company would guarantee the loan and pay it back from funds that came under its control. Any such general discussion would not have constituted an agreement for the guarantee and the mortgage to be released. Clear words would have been required for an agreement to be reached to that effect. I am not satisfied that such words were used by Mr Hannan and accepted by Mr Isles.
Although Mr Hannan in different emails expressed a concern at the jeopardy in which Mr Hannan’s conduct was placing Mr Hannan’s family, as Mr Isles explained, he was not a charity, and the uncertain prospect of having the new company repay the loan out of funds that became available to it would not have persuaded him to immediately release Mr Hannan from his guarantee and from his mortgage.
I am not persuaded by Mr Hannan’s evidence that an agreement to release the guarantee and to release the mortgage was reached on 2 November 2010.
Mr Hannan’s recollection was poor. By his own admission, he reconstructed the fact that a meeting took place at the Coffee Club on 2 November 2010. He had no recollection of the meeting. He abandoned his pleaded case that such a meeting took place and his evidence is that he could not remember such a meeting. Instead, at the opening of the trial his defence shifted to an oral agreement being made over the telephone. Mr Hannan’s inability to recall whether the agreement was reached at a face-to-face meeting or over the telephone gives me no confidence that he has a reliable recollection of what was agreed that day.
The original defence that was pleaded in this matter does not allege with any specificity that there was an agreement to release the guarantee or the mortgage. It asserts in general terms that the plaintiff was aware that certain agreements were to be transferred to Cabit Information Technologies Pty Ltd.
Mr Hannan’s evidence-in-chief was to the effect that an agreement was struck on
2 November 2010, however, under cross-examination he departed from that evidence and his pleaded case of an alleged Cabit agreement. He contended that there were “two separate deals going”, one in relation to the MainStreet business and the second in relation to the Cabit business.
On earlier occasions Mr Isles had made clear his opposition to a term that provided for the extinguishment of the loan. I am not persuaded that on 2 November 2010 Mr Hannan clearly raised a proposal to release his guarantee and the mortgage. If he had done so then Mr Isles probably would have rejected the proposal.
Mr Isles’ evidence about what was said on 2 November 2010 also comes with its difficulties. He denied having spoken to Mr Schipper that evening, but an email tends to suggest that he did. Like Mr Hannan, Mr Isles had an inclination to remember conversations which suited his purposes, and was unable to recall other conversations. Whilst I am not impressed by Mr Isles’ recollection on certain points of detail, and discount to some extent his emphatic denials of having discussed certain matters, I am still not persuaded by the evidence relied upon by Mr Hannan that the agreement which he alleges was made on 2 November 2010.
The subsequent conduct of the parties and contemporaneous documents do not strongly support Mr Hannan’s case that an agreement was made on 2 November 2010, being an agreement that was final and not conditional upon being documented. The tone and terms of emails that passed on 2 November 2010 are inconsistent with an agreement having been struck that day. Emails that day indicated that many issues needed to be discussed and that eventually terms would be reduced to writing in the form of a simple agreement to be drafted by
Mr Tallentire before being reviewed by lawyers.
The confirmation of the guarantee and the mortgage in the novation deed is inconsistent with an agreement having been reached on 2 November 2010 that the guarantee and the mortgage would be immediately released. Even if Mr Hannan was prepared to facilitate the transition of the loan from the Wardell Superannuation Fund to the plaintiff, so as to assist Mr Isles, he had no reason to confirm on
12 November 2010 that his guarantee and his mortgage remained in place if they had been released 10 days earlier. No email or other communication by him at this time referred to the alleged prior agreement reached on 2 November 2010. Such a reference might have been expected if such an agreement had been reached and was binding.
Negotiations continued between the parties and were documented in a form which made clear that the relevant loan was still “current” and that the new company would be guaranteeing it. This was consistent with the new company providing an additional guarantee.
The draft that Mr Schipper prepared and sent on 3 November 2010 which referred to the removal of the Security/Caveat was not accepted. That draft was effectively rejected when it was overtaken by the drafts prepared by Mr Tallentire.
Ms Bennell, who in mid-2010 was a consultant to Mr Hannan’s companies in connection with exploring mobile applications, software and devices, gave evidence of receiving a telephone call from Ms Beardmore. She had not spoken to
Ms Beardmore before, and thinks that the call was in early November 2010.
Ms Bennell recalls being advised that Ms Beardmore’s father, Mr Isles, had lent MSI and Mr Hannan more than $600,000 and that Ms Beardmore was taking over from her father, who had a terminal illness and was not expected to live more than a few months. Ms Bennell says that Ms Beardmore said that she had taken control of “MainStreet’s subsidiary company called Cabit” and that they had taken control of Cabit because Mr Hannan owed in excess of $600,000 for loans that Mr Isles had arranged and that “her father had agreed to forgive in exchange for controlling equity in Cabit”.
By arrangement between the parties and because Ms Bennell’s evidence had not been opened, Ms Beardmore gave evidence in response. Ms Beardmore recalled having a number of telephone conversations with Ms Bennell over a number of issues that Ms Beardmore was trying to clarify in undertaking due diligence about Cabit. These included understanding the content of proposed agreements.
Ms Beardmore denied that her initial conversations with Ms Bennell occurred before the agreement was signed on 15 November 2010, and thinks that she called her a day or two after the agreement was signed, when she was in the process of commencing due diligence. She denies having discussed issues in relation to the loans that were made by her father to Mr Hannan, and says that she would not have discussed such a matter with Ms Bennell, particularly on a first phone call with a consultant who she had not met before. Because of the short notice of Ms Bennell’s evidence, Ms Beardmore did not have an opportunity to check telephone records before giving her evidence about when she first called Ms Beardmore.
Despite the plaintiff’s submission that it is inherently improbable that
Ms Beardmore would discuss the loan arrangements with Ms Bennell, and
Ms Beardmore’s denial of having done so, I think it likely that Ms Beardmore said something in general terms to Ms Bennell as a means of explaining how the Isles’ interests were in the process of undertaking a due diligence and were in the process of assuming control of a company which might develop the Cabit business if the due diligence proved satisfactory. I have no reason to doubt the honesty of
Ms Bennell’s evidence, however, I find that her recollection of the detail of the conversation does not reflect what Ms Beardmore probably said on that occasion. For example, contrary to Ms Bennell’s recollection, Ms Beardmore would not have spoken about taking control of “MainStreet’s subsidiary company”. The company was a newly-formed company, not an existing subsidiary. Ms Beardmore may have said something about loans that had been made by her father to Mr Hannan and his companies, and Ms Bennell may have understood that this was the basis upon which the Isles’ interests were obtaining equity in the relevant company. There may even have been reference to the fact that the loan was being transferred in some fashion from the existing borrower to the new company. However, I find it improbable that Ms Beardmore would have said that the loan had been forgiven or was being forgiven. Even on Mr Hannan’s case, and on the basis of his evidence about what was discussed on 2 November 2010, the loan was not being forgiven. According to Mr Hannan, the discussion on 2 November 2010 was to the effect that the Wardell Superannuation Fund “would move the loan or the novated loan or whoever had the loan at the time across to Cabit Information Technology Pty Ltd”.
I conclude that Ms Bennell’s recollection of being told that the loan had been forgiven or was being forgiven is something she inferred, but was not actually told by Ms Beardmore. Ms Beardmore may have understood in early November 2010 that there was a proposal for the loan to be transferred across in some fashion so that a new entity would owe the Wardell Superannuation Fund or the Wardell entity to which the loan was novated the amount of the loan. She may have understood that the new company was going to guarantee the loan. She would have had this understanding because drafts of the shareholders’ agreement prepared by
Mr Tallentire in early November 2010, and the agreement that was actually signed on 15 November 2010, provided for the new company to guarantee the loan.
Ms Beardmore would not have understood that the loan had been forgiven. On the contrary, the document that she witnessed on 15 November 2010 and earlier drafts of it described the loan as being current. Because Ms Beardmore would not have understood that the loan had been forgiven or was being forgiven, I find it unlikely that she told Ms Bennell such a thing.
The principal area of contentious evidence concerning the alleged oral agreement and its terms is not what was discussed between Ms Bennell and Ms Beardmore, but what was discussed between Mr Hannan and Mr Isles on 2 November 2010.
As is often the case when parties give evidence about contentious conversations, memories are fallible and the degree of fallibility increases with the passage of time, particularly where litigation intervenes, and:
“the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.”[1]
As to the conversation or conversations between Mr Hannan and Mr Isles on
2 November 2010, there is scope for parties to such a conversation to have different understandings and recollections of what was discussed about matters which had yet to be documented.
[1]Watson v Foxman (1995) 49 NSWLR 315 at 319.
I accept Mr Isles’ evidence that a meeting happened at the Coffee Club that morning. The conversation ranged over a number of issues and was of a general kind, discussing the commercial parameters of a proposed deal by which, if things turned out successfully, the loan owed to the Wardell Superannuation Fund would be repaid. I conclude that it is likely that the discussion that morning, and any further discussion later on 2 November 2010, between Mr Isles and Mr Hannan canvassed the idea that the company that was to develop the Cabit business would take over the loan. Precisely how it would do so was not discussed. One method that may have been in mind was for the company to guarantee the loan or in some other way assume the responsibility to repay it, there being no other apparent source of funds to do so. Mr Hannan may have had in mind that the company which, according to his pleading, would be owned 50 per cent by a company nominated by Mr Isles and 50 per cent by the Hannan interests, would become the sole guarantor. Mr Hannan may have had this in mind, but the quality of his evidence and the other evidence which I have canvassed does not persuade me that Mr Hannan said words to the effect that the company would be the sole guarantor. I am certainly not persuaded by Mr Hannan’s evidence, or any other evidence, that Mr Hannan said in terms that his guarantee and the mortgage on his property would be released.
I conclude that the relevant discussion was to the effect that the new company would guarantee the loan and be the source of funds to repay the Wardell Superannuation Fund or the company to which the loan was to be novated. I am not satisfied that the parties agreed that the guarantee and the mortgage would be released. I am not satisfied that an objective bystander would conclude that an agreement was reached on 2 November 2010 which included terms that Mr Hannan would be released from the guarantee and that the mortgage over his property would be released. Mr Hannan may have had such a thing in mind, but I am not satisfied that he addressed the issue of his guarantee and the mortgage over his property either in a meeting in person or in a telephone conversation on 2 November 2010.
Was the alleged agreement binding?
If, contrary to my finding, Mr Hannan on 2 November 2010 proposed that the guarantee and mortgage be released, then it is unlikely that Mr Isles would have agreed to such terms. If, however, some consensus was reached in that regard between Mr Hannan and Mr Isles on 2 November 2010 then it was not in the nature of a final agreement that was intended to be legally binding.
Mr Isles had no good reason to immediately release Mr Hannan from the guarantee and from the mortgage. The terms of any agreement needed to be recorded in writing.
The evidence given by Mr Hannan about the alleged conversation does not support the conclusion that the parties intended that any oral agreement would be immediately binding. The parties conducted themselves throughout this period on the basis that any agreement reached between them would be documented. They were engaged in attempts to draft a written agreement that would record, in the first instance, the broad outlines of their agreement.
Mr Isles was distrustful of both Mr Hannan and Mr Schipper by early November 2010, but was content to continue discussions with them since he perceived that the Cabit business was, in effect, his only hope of being repaid. He did not trust
Mr Hannan because of the failure to apply the loan funds for their specified purposes, because of defaults in repayment and because of Mr Hannan’s failure to refund an additional $12,500 that had been the subject of a telegraphic transfer.
Mr Hannan’s evidence does not suggest that he regarded any oral agreement reached on 2 November 2010 as being binding. He explained in his evidence that 10 days later when he signed the deed of novation he did not regard the guarantee as having been released. His position is that it would not be released until the parties signed the Cabit Agreement.
Counsel for Mr Hannan accepted during final submissions that the defence to the plaintiff’s claim and the counterclaim in contract depended on establishing that the oral part of the alleged Cabit Agreement was a final agreement, and was not conditional on further documentation being entered into.
Mr Hannan has failed to prove that a final agreement, which was intended by him and the other parties to it to be immediately binding, was reached on
2 November 2010.
Conclusion – the plaintiff’s claim
The defendant has failed to prove that an oral agreement which included terms for the release of the guarantee and the release of the mortgage was reached on
2 November 2010, or that any such agreement that day was a final agreement that was intended to immediately bind the parties to it. As a result, the plaintiff is entitled to judgment.
Exhibit 3 certifies the amount of advances made totalling $538,183. No payments were received in respect of those advances. Interest on the amount advanced at the rate of 120 per cent per annum for the period 18 November 2010 to the date of judgment (being 706 days) is $1,249,175.22.
There will be judgment against the defendant in the amount of $1,787,358.22.
There will also be an order that the plaintiff recover possession of the property described as Lot 42 on RP 228847, County of Stanley, Parish of Cleveland, title reference 17506234.
The counterclaim
As noted, the counterclaim pressed in final submissions does not relate to the pleaded case of the alleged Cabit Agreement consisting of a partly oral and partly written agreement. Because Mr Hannan has failed to prove his pleaded case the counterclaim should be dismissed. However, for completeness I will address the argument urged in final submissions to the effect that there was a breach of the “shareholders (sic) agreement and the TPA as set out in para 26 e of the defence”.
The essence of paragraph 26(e) is that Mr Isles and his associates were “effectively ‘running dead’ in the management of Cabit and closing it down, thus causing the defendant to suffer damages”. Of course, any breach of contract in respect of the shareholders’ agreement is only actionable against a party to the shareholders’ agreement. The relevant party is the fourth defendant by counterclaim, Tullamore Trading (Fund No 2) Pty Ltd, who I have described as “TT”, and possibly Cabit Information Technologies Pty Ltd to the extent that the conduct alleged in paragraph 26(e) was their conduct and breached a term of the agreement. The basis upon which one of them or any other defendant by counterclaim is alleged to have contravened the Trade Practices Act 1974 by engaging in the conduct alleged in paragraph 26(e) is unclear. The conduct in paragraph 26(e) is attributed to Mr Isles, and no-one else. Arguably it was engaged in on behalf of TT or Cabit Information Technologies Pty Ltd. These points were not addressed in Mr Hannan’s written or oral submissions. The basis upon which Mr Isles or anyone else breached the TPA in respect of the conduct alleged against him in paragraph 26(e) is unexplained. Paragraph 26(e) is a particular of alleged conduct in contravention of
s 52 of the TPA by Mr Isles in “negotiating and documenting the written part of the Cabit Agreement”. But the conduct alleged in paragraph 26(e) post-dates that agreement. In any event, the terms of the shareholders’ agreement that the conduct is alleged to have breached are not particularised.
I have previously dealt with most aspects of paragraph 26(e). Contrary to the allegation that Mr Hannan was not appointed as a director of Cabit Information Technologies Pty Ltd, the evidence appears to be that he was. Instead, his appointment as a director was not lodged with ASIC, and this caused some problems with potential customers. Mr Willmott left his employment with one of Mr Hannan’s companies, but there is no evidence that he was enticed to do so by Mr Isles, or would not have left it anyway for greener pastures, or at least to work for a company which had the money to pay its employees. The picture to emerge from the evidence is that Mr Hannan and his companies were in dire straits in November 2010 and had trouble paying employees, consultants and rent. If
Mr Isles did in fact entice Mr Willmott to work for Cabit Information Technologies Pty Ltd then it was not a breach of the Cabit Agreement. There is no evidence that computer equipment that was used during the due diligence period was not returned. It is clear that points of difference quickly developed between Ms Beardmore and Mr Hannan. Ms Beardmore required certain arrangements for meetings with potential customers. To the extent that Ms Beardmore assumed temporary control of Cabit Information Technologies Pty Ltd in November and December 2010 she was entitled to because she was a director and had the support of a majority of directors and a majority of shareholders.
The shareholders’ agreement contained no unconditional promise by TT or anyone else to fund Cabit Information Technologies Pty Ltd. Funding of working capital depended upon the decision of directors, and after investigating the technology and other matters in the course of a due diligence exercise, Ms Beardmore and Mr Isles as directors did not seek further funding.
The evidence tends to suggest that Cabit Information Technologies Pty Ltd was an empty vessel and would only be given working capital and other resources if the board of directors requested the same. It did not do so. Instead, following their due diligence the Isles’ interests decided to not pursue the business. There is no evidence that it retained any intellectual property, or that it was ever granted a written licence to use intellectual property.
The shareholders’ agreement was terminated by notice on 13 December 2012.
Mr Hannan appears to accept that it was terminated at that time.
No issue is joined in the counterclaim that TT was not entitled to terminate the shareholders’ agreement when it did. In any event, the shareholders appear to have abandoned the agreement.
Mr Hannan submitted that he is entitled to judgment on the counterclaim with damages to be assessed at some later hearing to hear evidence on damages. However, Mr Hannan has not proven a breach of the Cabit Agreement pleaded by him, or a breach of the written shareholders’ agreement by reason of the conduct alleged in paragraph 26(e). Nor has he proven a contravention of the TPA in that regard.
Because neither the pleaded case nor the submitted case for breach of contract has been established it is unnecessary to address any question of damages. However, as already noted, the shareholders’ agreement contained no guarantee that the company would be funded. Funding depended on the amount to be loaned being agreed by the Board, and the Board did not agree to borrow funds. There was no promise that any intellectual property that may have been licensed to the company would be commercially developed. There is no evidence that if it had been it would have been a success. What happened is that the Isles’ interests investigated the potential of the business, became concerned about aspects of Mr Hannan’s conduct and terminated the shareholders’ agreement on the basis of alleged misrepresentations. If this course had not been followed then there is no evidence that the company would have been a success. Finally I mention that if it had been a success then cl 6 of the shareholders’ agreement obliged the company to guarantee the loan. That loan has not been repaid and the indebtedness under the loan was always substantial. At the present time it is the amount of the judgment. With a liability to guarantee that debt, the company would have needed to be remarkably successful in order for Mr Hannan to gain any benefit from his 45 per cent shareholding in it. How his damages on the counterclaim might be assessed was not argued. How the alleged breaches are said to have caused the damages claimed in paragraph 10 of the counterclaim was not explained or proven.
In conclusion, the basis for a claim under the TPA against the defendants by counterclaim in respect of the conduct alleged in paragraph 26(e) is unexplained and that claim is unproven. The alleged conduct in paragraph 26(e) has not been proven to have contravened the TPA. The only claim for breach of contract that was pressed is in respect of the conduct alleged in paragraph 26(e). However, a breach of contract on that basis has not been proven. The other parties to the shareholders’ agreement dated 15 November 2010 have not been shown to have breached it by the conduct of Mr Isles alleged in paragraph 26(e).
The counterclaim will be dismissed.
Costs
Costs should follow the event.
Orders
The orders will be:
1. There be judgment for the plaintiff in the amount of $1,787,358.22.
2. The plaintiff recover possession of the property described as Lot 42 on RP 228847, County of Stanley, Parish of Cleveland, title reference 17506234.
3. The counterclaim is dismissed.
4. The defendant pay the plaintiff’s costs of and incidental to the proceeding to be assessed on the standard basis.
5. The defendant pay the costs of the defendants added by counterclaim of and incidental to the counterclaim to be assessed on the standard basis.
0
2
1