Chappell v Goldspan Investments Pty Ltd [No 4]

[2019] WASC 434

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   CHAPPELL -v- GOLDSPAN INVESTMENTS PTY LTD [No 4] [2019] WASC 434

CORAM:   ALLANSON J

HEARD:   17-21, 24-26 SEPTEMBER 2018

DELIVERED          :   29 NOVEMBER 2019

FILE NO/S:   CIV 1597 of 2014

BETWEEN:   PAULA SUSAN CHAPPELL as executor of the estate of ROBERT HASTINGS HITCHCOCK

Plaintiff

AND

GOLDSPAN INVESTMENTS PTY LTD

First Defendant

KEVIN ROBINSON

Second Defendant

NEIL ROBINSON

Third Defendant

PETER ROBERT HALLAM

Fourth Defendant

Catchwords:

Where the plaintiff the executor of the estate of the late Robert Hitchcock who died after commencing proceedings but before trial

Contract - Where the deceased and three defendants parties to shareholders agreement - Where company required to provide information to shareholders - Where shareholders agreed to procure compliance by company - Whether company failed to provide regular reports to shareholders - Whether failure breach of shareholders agreement - Whether plaintiff suffered loss

Contract - Where deceased released company from liability under share buy back - Whether defendants can claim benefit of release

Contract - Release - Where first defendant held shares on behalf of deceased - Where deceased released first defendant from liability in connection with the shares - Whether release confined to claims relating to first defendant holding the shares as trustee

Equity - Fiduciary duties - Where deceased and three of four defendants parties to shareholders agreement - Whether shareholders agreement and other circumstances gave rise to fiduciary duty on defendants to disclose information where non-disclosure might prejudice interests of the deceased

Practice and procedure - Whether fiduciary duty case at trial consistent with pleadings

Estoppel - Whether plaintiff estopped by conduct of deceased from asserting fiduciary or contractual duties to disclose information - Whether deceased and defendants had proceeded on common underlying assumption intended to affect their legal relations - Whether deceased had induced defendants to assume that he no longer asserted his contractual or other rights to be provided with information - Whether requirements of good conscience would bind deceased to the assumptions pleaded

Misleading or deceptive conduct - Where deceased resident in United States of America - Where defendants provided deceased with information about financial position and prospects of company - Where deceased sold his 20% shareholding to company in share buy back for $1.15 million - Where deceased not advised that defendants negotiating for the sale of the company as a going concern for $16 million plus earn out payments over two years - Whether deceased accepted price and terms as a result of non-disclosure - Whether conduct of defendants misleading or deceptive

Unconscionable conduct under statute - Where plaintiff relied on deceased's special disability due to ill health - Whether special disability proved

Practice and procedure - Statutory construction - Whether plaintiff may bring action for statutory causes of action following death of deceased - Whether plaintiff a person who suffered loss or damage by conduct of defendants in contravention of statute

Legislation:

Australian Consumer Law, s 236, s 237
Australian Securities and Investments Commission Act 2001 (Cth), s 12CB, s 12DA, s 12GF
Corporations Act 2001 (Cth), ch 2J div 2, s 1041H, s 1041I
Evidence Act 1906 (WA), s 79C
Fair Trading Act 1987 (WA), s 77, s 79
Judiciary Act 1903 (Cth), s 79
Law Reform (Miscellaneous Provisions) Act 1941 (WA), s 4
Law Reform (Miscellaneous Provisions) Act 1956 (NT), s 5
Trade Practices Act 1974 (Cth), s 82, s 87

Result:

Plaintiff's claim dismissed

Category:    B

Representation:

Counsel:

Plaintiff	:	J C Giles SC & D H Solomon
First Defendant	:	P Greenwood SC & B Katekar
Second Defendant	:	M C Goldblatt
Third Defendant	:	M C Goldblatt
Fourth Defendant	:	P Greenwood SC & B Katekar

Solicitors:

Plaintiff	:	Solomon Brothers
First Defendant	:	Russells Lawyers
Second Defendant	:	Murcia Pestell Hillard
Third Defendant	:	Murcia Pestell Hillard
Fourth Defendant	:	Russells Lawyers

Case(s) referred to in decision(s):

Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd [2017] VSCA 326

Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Attorney‑General (ACT) v Eastman [2008] ACTCA 6; (2008) 163 ACTR 46

Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35

Australian Securities and Investments Commission v Kobelt [2019] HCA 18

Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440

Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352; (2006) 236 ALR 720

Briess v Woolley [1954] AC 333

Brunninghausen v Glavanics [1999] NSWCA 199; 46 NSWLR 538

CAG v Public Trustee of Queensland [2008] QCA 252

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 64

Fletcher v St George Bank Limited [2010] WASC 75

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1

Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215

Grant v John Grant & Sons Pty Limited [1954] HCA 23; (1954) 91 CLR 112

Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296

Hancock Prospecting Pty Limited v Rinehart [2017] FCAFC 170; (2017) 350 ALR 658

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

Hitchcock v Goldspan Investment Pty Ltd [2015] WASC 277

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41

Howard v Federal Commission of Taxation [2014] HCA 21; (2014) 253 CLR 83

Ipstar Australia Pty Limited v APS Satellite Pty Limited [2018] NSWCA 15; (2018) 356 ALR 440

John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392

Kalejs v Minister for Justice and Customs (2001) 111 FCR 442

Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 [

Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

Masson v Parsons [2019] HCA 21

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357

Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199

Pritchard v Racecage Pty Ltd (1997) 72 FCR 203

Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40

Rizeq v Western Australia [2017] HCA 23; (2017) 262 CLR 1

Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [No 6] [2014] WASC 203

Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272

Thorne v Kennedy [2017] HCA 49

TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343

Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514

Table of Contents

The parties

The pleadings

The claim

The pleaded causes of action

The defences

The application to amend

The evidence

The witnesses

The statement of Mr Hitchcock

The Share Buy Back Agreement

The documents

A chronology of events

From 2007 to October 2008

October 2008 to September 2010

September 2010 to November 2010

December 2010 to March 2011

April 2011 to July 2011

Koon Holdings

July 2011

Events after the execution of the Agreement

The evidence of the plaintiff

The evidence of the defendants

Neil Robinson

Kevin Robinson

Thierry Van Veen

Peter Hallam

The issues

The releases

The effect of Mr Hitchcock's death on the statutory causes of action

Fiduciary duty

Consideration

The claim in contract

Consideration

Estoppel

The statutory claims

Misleading or deceptive conduct

Causation

Unconscionable

Damages

Apportionment

Conclusion

ALLANSON J:

1. In July 2011, Robert Hastings Hitchcock sold his 20% shareholding in a company he had founded in 2003.  The shares were purchased by the company and cancelled,[1] leaving each of the four remaining shareholders with a 25% interest.  Mr Hitchcock sold his interest for US$1.15 million.  The remaining shareholders sold the whole of their interest in the company to Forge Group Ltd in January 2012 for more than A$30 million.

   [1] Pursuant to Corporations Act 2001 (Cth) s 257H.

2. Mr Hitchcock brought this action in 2014, seeking, in effect, a 20% share of the price paid by Forge.  Underlying the action is the allegation that his fellow shareholders, three of whom were directors, did not give him information about the financial position of the company, and misled him about the prospects of the company and the value of his share.

3. Mr Hitchcock died after these proceedings were commenced.  The plaintiff is his widow and the executor of his estate.  I will maintain the distinction and refer to Mr Hitchcock by name, otherwise to the plaintiff.

4. The company was initially called Capital Turbines Australia Pty Ltd ACN 103 678 324, later named CTEC Pty Ltd and finally Forge Power Pty Ltd.  I will refer to it as CTEC, except when directly quoting from documents.

The parties

1. At the time he sold his interest, Mr Hitchcock held a beneficial interest in 20% of the issued shares in CTEC.  The legal title was held by the first defendant, Goldspan Investments Pty Ltd (Goldspan).

2. Goldspan was also a shareholder in CTEC, initially holding 20% and later 40% of the issued shares with 20% of the issued shares held on trust for Mr Hitchcock.

3. The other defendants, Kevin Robinson, Neil Robinson and Peter Hallam, were directors of CTEC.[2]  Kevin Robinson and Neil Robinson each held 20% of the issued shares.  Mr Hallam was not a shareholder, but was the sole director and sole shareholder of Goldspan.

   [2] Where it is necessary to distinguish between the second and third defendants, I will use their given names.  Normally, the context will make clear to which Mr Robinson I refer.

4. The fifth shareholder, Thierry Van Veen, was not named as a party to this action.  Mr Van Veen was a director of CTEC and held 20% of the issued shares.  Later those shares were held for him by Energy Century Developments Limited. 

The pleadings

The claim

1. In or around 2002, Mr Hitchock, Mr Hallam and Mr Van Veen agreed to form a new company 'for their mutual benefit'.  They agreed that Mr Hallam would approach Neil and Kevin Robinson.  CTEC was formed in 2003.  The company was formed to provide 'turnkey services' in the power industry.[3]

   [3] Statement of claim [6]. I assume the expression is used to signify that the final design responsibility rests with the contractor: see Hudson's Building and Engineering Contracts (12th ed, 2010) 495,'[t]he expressions 'turnkey' and 'design-and-build' can now be said to be synonymous'.

2. On or about 16 March 2005, Mr Hitchcock, Goldspan, Kevin Robinson, Neil Robinson and Mr Van Veen entered a written agreement, titled 'Shareholders Deed ‑ Capital Turbines Australia Pty Ltd'.[4]  

   [4] Statement of claim [7].

3. The plaintiff alleged that, by reason of these arrangements, the defendants, alternatively the other parties to the Shareholders Deed (that is, not including Mr Hallam), owed a fiduciary duty to Mr Hitchcock.[5] 

   [5] Statement of claim [9].

4. The plaintiff pleaded that, in the period from about September 2010 to November 2011, CTEC submitted expressions of interest and engaged in tendering for four projects.[6]  It was awarded contracts for two projects:  a procurement and construction contract worth $39,800,000 plus €19,568,204 by Merredin Energy Pty Ltd at Merredin;[7] and a contract worth approximately $150,000,000 for the construction of the West Angelas power station.[8]

   [6] Statement of claim [10] - [13].

   [7] Statement of claim [11].

   [8] Statement of claim [13].

5. The plaintiff further alleged that, before July 2011, CTEC developed 'a relationship and informal arrangement with' Forge Group Ltd, which resulted in Forge's takeover of, and merger of operations with, CTEC.[9]

   [9] Statement of claim [14].

6. On or about 13 January 2012, Forge entered into a conditional agreement for the purchase of the entire share capital of CTEC from its then shareholders for a total maximum payment of (approximately) $38 million (the Share Purchase Agreement).[10]  There were then 16 shares in CTEC, held by the first to third defendants, and Mr Van Veen. 

   [10] Statement of claim [15]. The precise amount, and the amount received by each of the defendants, was agreed at trial.

7. CTEC purchased, and then cancelled, the four shares held by Goldspan on behalf of Mr Hitchcock on or about 30 July 2011 pursuant to a Share Buy Back Agreement.[11]  The consideration for the shares was US$1,150,000.[12]  Mr Hitchcock also entered a Deed of Variation of the Shareholders Deed, by which he was removed as a shareholder of CTEC.[13]

   [11] Statement of claim [22].

   [12] Statement of claim [24].

   [13] Statement of claim [25].

8. The plaintiff pleaded that between 2009 and 30 July 2011, Mr Hitchcock and the defendants negotiated the sale of his shares to CTEC.[14]

   [14] Statement of claim [17].

9. The plaintiff pleaded that during negotiations, Neil Robinson and Peter Hallam made statements in five emails sent to Mr Hitchcock between September 2010 and 10 February 2011.[15]

   [15] Statement of claim [18].

10. The plaintiff alleged that the four emails sent in 2010 were sent by Neil Robinson and the statements made by Neil Robinson were made with express, alternatively apparent authority, of each of the other defendants.[16]  The email of 10 February 2011 was sent by Peter Hallam.

    [16] Statement of claim [18].

11. The plaintiff alleged that some of the statements made in the emails were false at the time they were made; and that other statements subsequently became false.[17]

    [17] Statement of claim [19].

12. The plaintiff alleged that during the course of the negotiations for the sale of Mr Hitchcock's shares, none of the defendants disclosed to him that the statements were false or 'became false', or disclosed or caused CTEC to disclose information regarding projects for which CTEC was tendering, CTEC's 'true financial position and prospects', and its relationship and negotiations with Forge.[18]

    [18] Statement of claim [20] ‑ [21].

13. The plaintiff alleged that Mr Hitchcock entered the Share Buy Back Agreement and the Deed of Variation induced by and in reliance on the statements and the non-disclosure. [19]

    [19] Statement of claim [23].

14. The plaintiff alleged that Mr Hitchcock was under a 'special disability' as a result of poor health, and his need for money for medical expenses, as well as the non-disclosure.[20]

The pleaded causes of action

[20] Statement of claim [28] ‑ [30].

1. The plaintiff alleged the conduct of each defendant breached the fiduciary duty pleaded in statement of claim.[21]

   [21] Statement of claim [26].

2. The plaintiff alleged that Goldspan, Neil Robinson and Kevin Robinson breached cls 2.1, 8.3 and 21 of the Shareholders Deed.[22]

   [22] Statement of claim [27]. Mr Hallam was not a party of the Shareholders Deed.

3. The plaintiff pleaded statutory causes of action, in the alternative, for misleading and deceptive conduct in contravention of the Australian Consumer Law, the Trade Practices Act 1974 (Cth), the Corporations Act 2001 (Cth), and the Fair Trading Act 1987 (WA).[23]

   [23] Statement of claim [30] - [32].

4. Alternatively, the plaintiff alleged the defendants engaged in unconscionable conduct in breach of the Australian Consumer Law, the Australian Securities and Investments Commission Act 2001 (Cth), the Trade Practices Act, and the Fair Trading Act.[24]

   [24] Statement of claim [30] - [32].

5. The plaintiff pleaded that, but for the breaches, Mr Hitchcock would not have entered the Share Buy Back Agreement, and would have participated in the Share Purchase Agreement with Forge.  The plaintiff alleged the loss suffered was a 20% share of the amount paid by Forge for the shares in CTEC ($6,047,199.15).[25]

   [25] Statement of claim [33] - [35].

The defences

1. Mr Hallam and Goldspan were jointly represented and filed a joint defence.  The Robinsons were also jointly represented and filed a joint defence.

2. Some matters were common to the defences of all defendants.

3. The defendants pleaded that the proceedings were not maintainable by the plaintiff in respect of the relief claimed under the statutory causes of action, and that those actions did not survive the death of Mr Hitchcock or enable his estate or representative to recover the loss or damage for contravention of those statutory provisions.[26]

   [26] Defence of first and fourth defendants [2A]; defence of second and third defendants [1A].

4. Mr Hallam and Goldspan pleaded a release given by Mr Hitchcock to Goldspan under cl 9(a) of the Share Buy Back Agreement.[27]

   [27] Defence of first and fourth defendants [36].

5. The defendants denied that the facts alleged gave rise to the equitable duty pleaded.[28]  The first and fourth defendants further pleaded that the fiduciary duty alleged in statement of claim [9] was unknown in law or equity.

   [28] Defence of first and fourth defendants [9]; defence of second and third defendants [9].

6. All defendants pleaded that after 15 December 2010, alternatively 9 March 2011, the plaintiff was estopped from asserting that any of them owed Mr Hitchcock a fiduciary or other duty to provide him with information; or were bound, in relation to Mr Hitchcock, by the terms of the Shareholders Agreement.  The estoppel was based on the plea that the parties conducted their relationship on a mutual assumption that either CTEC or the remaining shareholders would purchase Mr Hitchcock's shares in CTEC, the share purchase would take place in the near future, and in the meantime Mr Hitchcock would have no further participation in the business or affairs of the company. [29]

   [29] Defence of first and fourth defendants [10]; defence of second and third defendants [8.9].

7. The Robinsons also pleaded an equitable promissory estoppel.

8. All defendants pleaded the effect of a Deed of Release, made by Mr Hitchcock and CTEC on 10 September 2012.[30]

   [30] Defence of first and fourth defendants [1A]; defence of second and third defendants [27.2].

9. The defendants joined issue on factual matters which are dealt with below.

10. There were some factual differences in the defence cases.  In particular, Mr Hallam and Goldspan denied that statements made in emails sent by Neil Robinson were made either by them or on their behalf, but were made by Mr Robinson on his own behalf or in his capacity as Chief Executive Officer of CTEC.[31]

    [31] Defence of first and fourth defendants [20].

11. Mr Hallam and Goldspan further pleaded that, in the course of regular telephone conversations between Mr Hitchcock and Mr Hallam between January 2010 and March 2011, Mr Hallam advised Mr Hitchcock about the negotiations or tendering for the award of contracts with respect to the McKee project, the Merredin contract, and the Diamantina contract, and further discussed various options available to CTEC for its acquisition by another company.[32]  There is no suggestion on the pleadings that Mr Hitchcock was advised about the dealings with Forge.

    [32] Defence of first and fourth defendants [22].

12. Mr Hallam and Goldspan pleaded that the statutory claims were apportionable claims and that each of Neal and Kevin Robinson was a concurrent wrongdoer.[33]

The application to amend

[33] Defence of first and fourth defendants [37] ‑ [38].

1. On the first day of trial, by consent, the court granted leave for each party to amend its pleadings.  One application for leave to amend was opposed.

2. The contested amendment was to introduce a claim that Mr Van Veen was a concurrent wrongdoer.  The proposed plea was in very general terms.  The amendment was refused and I gave reasons at the time.  I will briefly include them in these reasons.

3. It is wrong, in principle, to approach a late application to amend on the basis of an entitlement to amend, subject to payment of costs by way of compensation to the plaintiff.[34]  The power to grant leave is discretionary.  The factors relevant to the exercise of the discretion include the substantial delay in bringing the application; the wasted costs which an amendment might produce; the effect of the amendment on the trial timetable, including whether an adjournment might be required; the prejudice to the defendants in being kept out of an arguable defence; the prejudice to the plaintiff in the late introduction of the defence; and the explanation for the delay.

   [34] See Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175; Fletcher v St George Bank Limited [2010] WASC 75 [25].

4. There were several factors which I took into account in refusing the application. 

5. First, the pleading was too general.  The plea needed to be particularised beyond the bare allegation pleaded in the proposed amendment.  That defect could have been cured, but by a more extensive amendment. 

6. Second, the effect on the evidence in the proceedings was likely to be minor.  It should have been able to be accommodated within the existing trial time. 

7. Third, the proposed amendment was important to the defendants.  A finding that Mr Van Veen was a concurrent wrongdoer could reduce the damages awarded against the defendants to reflect the extent of their responsibility for damage or loss suffered by Mr Hitchcock.  

8. Fourth, the corollary of the third factor was the consequence of amendment for the plaintiff in the possible reduction of the damages awarded.  The limitation period for the plaintiff to bring proceedings against Mr Van Veen had expired when the application to amend was made.   

9. Fifth, there can be no doubt that both plaintiff and defendants were aware of the position of Mr Van Veen.  Each party could have acted earlier to avoid the consequences that a late amendment would produce.    

10. The final factor, was the absence of any sufficient explanation for the delay.  The defendants relied on the discretion of the court to grant leave being exercised in their favour.  An application at such a late stage required explanation, and none was offered.

11. Having regard to the consequences for the plaintiff of the late amendment, it was not a proper exercise of the court's discretion to grant leave in the absence of a reasonable explanation.

The evidence

The witnesses

1. The plaintiff gave evidence.  Two witness statements she prepared for the purposes of the proceedings were received in evidence, subject to rulings on evidence. 

2. The plaintiff also adduced (subject to a ruling on admissibility) a draft witness statement or affidavit which was being prepared for Mr Hitchcock for use in the proceedings, but which was incomplete and unsigned at the time of his death. Part only of that affidavit was admitted pursuant to s 79C of the Evidence Act 1906 (WA), following a voir dire regarding the circumstances in which it was prepared.

3. An affidavit and report of Grant Whiteley, dated 15 December 2017, was tendered by the plaintiff.[35]  The effect of the evidence was that Mr Hitchcock had a quite sophisticated computer set up at his home, and also that emails that were recovered from Mr Hitchcock's computer had been opened and read.  None of the defendants sought to cross‑examine Mr Whiteley.

   [35] Exhibit 3.

4. Neil and Kevin Robinson and Mr Hallam gave evidence, and the defendants also called Mr Van Veen.

The statement of Mr Hitchcock

1. I ruled at trial on the admissibility of the statement of Mr Hitchcock.  I will include a brief statement of my reasons and some further comment. 

2. Mr Hitchcock's affidavit was prepared in draft by the solicitors for the plaintiff, solely from documents provided to them by IMF Bentham Limited, a litigation funder, and without having spoken to Mr Hitchcock.  The witness statement, which included statements about Mr Hitchcock's state of mind, was drafted from those documents by reference to the pleadings.[36] 

   [36] ts 255 ‑ 256.

3. The document was originally produced for the purpose of an application for a freezing order.  A draft statement was prepared by a solicitor employed in the practice, Mr Roberts, and settled by his supervising partner, Mr Solomon.  The statement was sent to Mr Hitchcock (addressed to the plaintiff, Ms Chappell) on 17 July 2014, described in the covering letter as 'a draft copy of your witness statement which has been prepared based on the documents provided to us by Bentham IMF'.[37]  It was then prepared as a draft affidavit, again settled by Mr Solomon. 

   [37] ts 263 ‑ 264.

4. Mr Roberts, then travelled to Florida in the United States of America, where Mr Hitchcock was living.  He spoke to Mr Hitchcock to 'review' the draft.  The plaintiff was present while this was done.  Mr Roberts typed changes directly into the version of the affidavit on his laptop.  The changes were marked as 'tracked changes' either then or later.[38]

   [38] ts 271.

5. I admitted part only of the document - in effect, only those paragraphs that I was satisfied directly reproduced information provided by Mr Hitchcock to Mr Roberts.[39]

   [39] That is, [4], [5], [6], [7], [8], [10], [11], [12], [14], the last sentence of [37], [78] and [84] of exhibit 1.

6. As a separate issue, the process followed in preparing the draft affidavit must affect the extent to which the court can rely on the evidence.  There are many statements in the authorities regarding the caution to be exercised in considering evidence of what a person would have done when that evidence is given with the benefit of hindsight of what actually occurred.[40] The facts here go further. Mr Hitchcock was approached by a litigation funder, and subsequently provided with a statement prepared by lawyers from their analysis of the documents provided by the funder and the case they had pleaded. Had I been of the view that the balance of the statement did come within s 79C(1) of the Evidence Act 1906, that is, that the acknowledgement by Mr Hitchcock was sufficient for the court to find that the statements in the document reproduced or were derived from information in statements made by a qualified person, those statements may have been admissible.  But the reliability of evidence obtained in that way is questionable. 

   [40] See, for example, Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232, 272 ‑ 273; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 [16], [24] ‑ [26], [109], [155], [158].

7. The statement included matters that may be characterised as subjective ‑ for example, Mr Hitchcock's statements as to being 'surprised' by particular matters.  The state of mind or subjective views held by Mr Hitchcock, where relevant, may be inferred from a course of correspondence or from his actions in the proved circumstances.  But the inferences to be drawn are a matter for the court. 

8. The issue of reliability is not confined to the statements of subjective matters.  At the time this statement was prepared, the Western Australian Bar Association Best Practice Guide for Preparing Witness Statements for Use in Civil Cases stated:

   The modern process whereby statements of evidence in chief are prepared outside the scrutiny of the courts means that it is especially important that lawyers observe their duties in the preparation of the statements and ensure that they are a true and proper record of the testimony of the witness.

9. The manner in which this statement was prepared was a serious departure from both best practice and what I regard as proper practice. 

10. The comments regarding reliability apply also to those paragraphs, which I admitted.  I have treated that evidence with caution, although little of it is directly relevant to facts in contention.  I have taken into account the extent to which that evidence is supported by the documentary record.

11. I accept the evidence that in early 2009, Mr Hitchcock decided that he needed to sell his shares in CTEC as 'serious health issues' had then arisen. In a conversation with Mr Hallam at that time, Mr Hallam told Mr Hitchcock that he should wait until CTEC was in a better financial state to obtain a better price for his shares.  In around March 2009, Mr Hitchcock received from Neil Robinson a draft principles of sale agreement into which Mr Hitchcock inserted a sale price of $2,300,000 to be paid in four instalments. [41]

    [41] Exhibit 1 [14].

12. Mr Hitchcock said that after 14 September 2010, and before completing the sale of his shares in CTEC, he did not receive financial data concerning CTEC.[42]  That is corroborated by the absence of any evidence that Mr Hitchcock received any financial records.

    [42] Exhibit 1 [37].

13. Mr Hitchcock said that he stayed in rehabilitative hospital for three days following his neck surgery, and underwent physical therapy for several weeks after.[43]

    [43] Exhibit 1 [78].

14. Mr Hitchcock said that, but for one late payment, all payments were made to him in accordance with the terms of the Share Buyback Agreement.[44]

    [44] Exhibit 1 [84].

The Share Buy Back Agreement

1. The form of the transaction ultimately entered into was that CTEC bought back and cancelled Mr Hitchcock's shares pursuant to ch 2J div 2 of the Corporations Act.

The documents

1. The parties' cases relied heavily on the documentary record, including many hundreds of pages of emails, with frequent repetition of chains of emails.  Before the addition of two supplementary volumes, the trial bundle filed included 2457 documents - the index alone was 187 pages.  The bundle was reduced following trial to 891 documents, which still included much duplication, and many of which were not referred to in evidence or submissions.  It may be necessary to take these matters into account when costs orders are made.

2. In these reasons, documents which remained in the trial bundle are referred to as 'TB', followed by their page number.

A chronology of events

1. I will set out the email communication between CTEC and Mr Hitchcock, together with the evidence about CTEC's tendering for new work and its relationship with Forge, in chronological order.  It is necessary to deal with the correspondence in some detail because, although the plaintiff pleaded five specified emails, they must be considered in the context of the ongoing correspondence between Mr Hitchcock and the defendants.

2. All written communication was by email.  When I refer to a party writing, the reference is to a letter sent by email.  Emails from Mr Hitchcock were generally either sent to, or copied to, Neil Robinson, Kevin Robinson, Mr Hallam, and Mr Van Veen.  Similarly, emails from Neil Robinson to Mr Hitchcock were copied to the others.  I specify where an email was not more generally circulated.

3. Mr Hitchcock was living in the United States of America, at first in Tennessee and later in Florida.  The Robinsons and Mr Hallam were in Western Australia, and Mr Van Veen in Europe.  Time differences between the countries are reflected in the apparently inconsistent dates which appear on emails.  Ultimately, the precise time of emails has not proved to be important - the relevant time frame was larger.

4. Mr Hitchcock was one of the founders of CTEC.  The original business model was that CTEC would tender for projects, using second hand equipment.  Mr Hitchcock's strength (and it appears his only role from 2007) was finding second hand equipment.  As the business developed, it became more difficult to use that equipment.[45]

   [45] ts 438.

5. Mr Hitchcock remained in the United States of America.  It appears that there was no system in place to ensure that he received financial and other information regarding CTEC.  Neil Robinson only provided information if asked, and could not recall being told by Mr Hallam and Mr Van Veen that they had given information to Mr Hitchcock.[46]

   [46] ts 442.

6. Mr Hitchcock received an ongoing monthly payment from CTEC, paid against invoices for consultancy work.  The monthly amount increased over time to US$15,000.  While paid against invoices for consultancy work, the monthly payments were treated as an advance against annual dividends and were set off against the dividend payable to Mr Hitchcock for the particular financial year.[47]

From 2007 to October 2008

[47] Exhibit 8.1 [41] - [43].

1. In 2007, the parties were considering a plan to list CTEC on the ASX.[48]  Mr Hitchcock appears to have supported the idea of listing but not the proposed structure, which would have given control of the company to the Robinsons and one of their associates.[49]    

   [48] TB 632.

   [49] TB 635.

2. On 15 November 2007, Mr Hitchcock put forward a proposal for discussion at a shareholders meeting which was to consider listing CTEC.  Under his proposal, CTEC would pay out all the profits it could to the shareholders in the first week of July 2008 and then move towards an initial public offering of shares on the ASX.  Mr Hitchcock also said that he needed his monthly payments to be increased as he needed to pay off 'a ton of medical bills'. [50]

   [50] TB 761 ‑ 762.

3. It is uncontroversial that from about late 2007, or early 2008, Mr Hitchcock was considering retirement,[51] and discussed selling his shares in CTEC. His assessment of price appears to have been $2.4 million.[52]  The defendants were willing to purchase the shares, and end Mr Hitchcock's involvement in CTEC.  But no binding agreement was reached until much later.  Price was an issue, and, from CTEC's perspective, an important consideration was the effect that paying the purchase price would have on the company's cash flow.

   [51] TB 680.

   [52] TB 766 (email of 28 November 2007); 794 (email of 22 April 2008).

4. Part of Mr Hitchcock's consideration was his recognition that he was likely to be the first to retire, and his desire to leave Mr Hallam and Mr Van Veen with control of the company.[53]

   [53] TB 727.

5. On 9 January 2008, Neil Robinson asked all shareholders to provide information regarding their assets and liabilities for the purpose of acquiring a performance bond for a project.[54]  Mr Hitchcock responded with details showing a small amount of personal property ($34,000), otherwise his assets were confined to the value of his shares in CTEC.[55]  The ability of Mr Hitchcock to provide security later became an issue.

   [54] TB 768.

   [55] TB 773.

6. On about 5 February 2008, CTEC signed a contract to engineer, procure and construct (EPC contract) a power station in Kwinana.  The contract was to commence in October 2008 and be completed in June 2010, with the option of an operation and maintenance contract.  In announcing the contract to the shareholders, Neil Robinson referred to the three years in which they had been working to secure it.[56] 

   [56] TB 781.

7. On 10 April 2008, Neil Robinson advised the others of a setback.  CTEC had approached the insurer QBE to provide a performance bond of approximately $15 million for the Kwinana project.  QBE had advised that it required to see a full 12 months audited accounts before it would provide the bond.[57]

   [57] TB 791 ‑ 792.

8. On 21 April 2008, Mr Hitchcock advised Neil Robinson that he needed at least $50,000.  Neil Robinson proposed, 'we should get him his buyout ASAP, are we still all in agreement that we will purchase Bob's 20% for $2M AUD'.  Mr Hitchcock responded immediately that the number discussed was '2.4'.[58]

   [58] TB 794.

9. In July 2008, CTEC was able to provide performance security in two bank guarantees from the Commonwealth Bank of Australia (CBA).[59]

   [59] TB 957 ‑ 259.

10. Negotiations for the possible sale and purchase of Mr Hitchcock's shares progressed slowly, if at all, until late 2008.  Mr Hitchcock was not then showing any urgency in disposing of his shares. 

11. In September 2008, however, he asked Mr Hallam if CTEC still intended to buy his shares.  Mr Hallam confirmed that it did and that he would 'push things along'.[60]

October 2008 to September 2010

[60] TB 1291.

1. From October 2008, Mr Hitchcock began to press for things to happen.

2. On 24 October 2008 and 9 November 2008, Mr Hitchcock wrote asking whether Neil Robinson and the others had any idea when a purchase agreement for Mr Hitchcock's stock would get done, and urging on them that he was getting low on funds.[61]

   [61] TB 1467; 1472.

3. Neil Robinson responded, stating, 'The plan is still the same, we are just strapped for cash at the moment with the Kwinana job, things should ease early in the New Year'.[62]

   [62] TB 1472.

4. On 10 February 2009, Mr Van Veen wrote to the others that he had had a call from Mr Hitchcock asking about the status of the sale contract for his shares.[63]  Neil Robinson responded, 'unfortunately the way things are we are a little strung out'.[64]

   [63] TB 1982.

   [64] TB 1984.

5. On 19 February 2009, Mr Van Veen wrote again that he had spoken to Mr Hitchcock, who was 'asking if we were going to start on the paperwork'.  Mr Van Veen asked Neil Robinson if he could confirm that they would send Mr Hitchcock a concept in the next three weeks.[65]  Mr Hitchcock wrote to Mr Hallam on 19 February that he had been promised a contract for purchase of his 20% within three weeks.[66]

   [65] TB 2020.

   [66] TB 2037.

6. During this period, Mr Hitchcock was repeatedly asking about the payment of his monthly consultancy fee.

7. In February 2009, Neil Robinson prepared a draft Principles of Sale Agreement and Shareholders Deed of Proxy 1 March 2009.  The sale price provided was $2,300,000, with a deposit of 10% and three further payments at six monthly intervals, ending on 31 December 2010.[67] 

   [67] Exhibit 4.1 [44]; TB 2139 ‑ 2141.

8. On 10 March 2009, Neil Robinson circulated the proposed agreement among the other shareholders.  The terms in this document were substantially the same although the price was A$2 million. [68] 

   [68] TB 2110 ‑ 2114.

9. On 13 March 2009, Neil Robinson sent an email to Mr Hitchcock attaching the draft documents and stating, 'things are going reasonably well here at CTEC, we moved into new offices in late December, it is looking good, all we need now as ever is the next project'.[69] 

   [69] TB 2137 ‑ 2141.

10. Mr Hitchcock wrote to Mr Van Veen and Mr Hallam on 13 March 2009.  It is apparent from that email that he was not contemplating severing ties altogether with CTEC, but was looking for a commission or fee on sales he arranged or for an annual salary as a consultant.[70]

    [70] TB 2147.

11. On 14 March 2009, Mr Hitchcock sent proposed changes to the draft documents, and Neil Robinson sent a revised Deed of Proxy to Mr Hitchcock for the purposes of a board meeting to be held on 16 March 2009 to discuss procurement of Mr Hitchcock's shares.[71]

    [71] TB 2150 ‑ 2154; 2164.

12. On 18 March 2009, Neil Robinson sent a further email to Mr Hitchcock proposing a deal with a 'drop dead date, then if we cannot come up with the cash the position reverts back to the status quo'.[72]

    [72] TB 2182 ‑ 2187.

13. On 19 March 2009, Mr Hitchcock wrote stating, among other things, that if the sale didn't happen he needed a draw of $100,000 to fulfil his current obligations.[73]  On 20 March 2009, Mr Hitchcock sent a further email in which he said he would be prepared to give Neil Robinson or CTEC a proxy in respect of his shares.[74]

    [73] TB 2182 ‑ 2187.

    [74] TB 2188.

14. On 9 April 2009, Mr Hallam wrote to Mr Hitchcock regarding an 'audit sign off'.  Mr Hitchcock was requested to sign a letter stating that monies received on a monthly basis were treated as a loan with those amounts to be internally adjusted against his dividend account.  Mr Hallam said that the sale agreement was being finished and this should be with Mr Hitchcock early the next week.[75]

    [75] TB 2253.

1. On 21 April 2009, Mr Hitchcock wrote saying that he needed extra money for personal reasons related to his sister.[76]  On 24 April 2009, Mr Hitchcock asked for an advance of $100,000 against the purchase of his shares.[77]  On 27 April 2009, Mr Hitchcock wrote again, urging that he wanted the sale done as soon as possible.[78]

   [76] TB 2300.

   [77] TB 2327.

   [78] TB 2330.

2. On 28 April 2009, Neil Robinson wrote to Mr Hitchcock about the position of CTEC at the time and its cash flow.  He wrote:

   A $100k may be a stretch, and I think we should bring you up to date with where things are, as you have been a little out of the loop lately.

   …there has been a significant change in the remaining shareholders risk profile with the company and more particularly on the Kwinana job, to get the contract across the line we (Thierry/Pete/Kev/Neil) have had to pledge personnel security to cater for the $15M bank guarantee, this security is covered by mortgages over our houses, so as you will appreciate, we are particularly nervous on cash flow.

   In reality as we have not concluded our deal we should have really included you in the security deal, however as we have an in principal agreement for the purchase of your stock we did not ask you, as it would have made things more difficult.

   The intention is as it has always been to procure your shares, but unfortunately it is taking longer than anticipated…

   To be fair to you Bob, we either continue down the current path and see where it takes us, or the alternative is you try to get a buyer for your stock, this is obviously not what we would like, but if you are desperate for ongoing funds it may be the only way.[79] 

   [79] TB 2342 - 2343.

3. Mr Hitchcock replied, asking how much of the $100,000 CTEC could manage.[80]  On 1 May 2009, he wrote again urging that the matter be taken care of 'as soon as possible' and asking for at least $75,000.[81]  When Neil Robinson responded that he thought $25,000 was the best they could do, Mr Hitchcock wrote again pressing for at least $50,000.[82]  He asked Mr Van Veen and Mr Hallam to 'lean on Neil'.[83]

   [80] TB 2342.

   [81] TB 2355.

   [82] TB 2358.

   [83] TB 2361.

4. On 19 May 2009, Mr Hitchcock wrote to Mr Hallam, Neil Robinson and Mr Van Veen, asking them to 'get something out soon please'.[84]  On 20 May 2009, he asked Mr Hallam to 'take a few minutes please and have the girl get me some funds'.[85]  On 25 May 2009, he wrote again to Mr Hallam that, 'I don't know what the issue is but I have to try to get it done ASAP'.[86]

   [84] TB 2419.

   [85] TB 2422.

   [86] TB 2433.

5. It appears that $25,000 was sent, and Mr Hitchcock asked if more could be had in the next two or three weeks.[87]

   [87] TB 2434 ‑ 2435.

6. On 16 June 2009, Stephen Harris, General Manager-Commercial & Support Services for CTEC, wrote to Mr Hitchcock regarding the acquisition of his shareholding and attached a Declaration of Trust for a formal trusteeship/proxy held by Goldspan on his behalf for his shareholding in CTEC.  Mr Harris advised that a Shareholding Sale Agreement was being drafted.[88]

   [88] TB 2510.

7. Mr Hallam emailed Mr Hitchcock the same day, urging him not to sign the proxy because it removed his voting rights before he had sold his shares.[89]  Mr Hitchcock took that advice, advising Mr Harris that he saw no reason to change the current arrangement until there was an agreement to purchase the shares.  Mr Harris responded that a lawyer had been instructed to prepare a Shareholding Sale Agreement.[90]

   [89] TB 2518.

   [90] TB 2537.

8. On 7 August 2009, Mr Hitchcock wrote to Mr Hallam and Mr Van Veen.  He told them he had been in hospital 'checking some heart issues I have been having'.[91]  On 12 August 2009, he wrote again to Mr Hallam and Mr Van Veen, telling them that his doctor had advised him to update his will and that he really needed to get his shares sold.[92]

   [91] TB 2712.

   [92] TB 2749.

9. On 23 September 2009, Mr Hitchcock wrote to Neil Robinson asking for $20,000 as soon as possible for a medical procedure (a stent).[93]  Neil Robinson copied the email to the other shareholders.  He then asked Mr Hitchcock to provide an invoice for consultancy/inspection services, and Mr Hitchcock provided an invoice for those services for the sum of US$20,000.[94]

   [93] TB 2900.

   [94] TB 2904 ‑ 2907.

10. On 25 September 2009, Mr Hitchcock advised Mr Robinson and the others that surgery was set for 1 October 2009.[95]  On 3 October 2009, Mr Hitchcock sent another email testifying to the success of the procedure.[96]

    [95] TB 2911.

    [96] TB 2917 ‑ 2919.

11. On 22 October 2009, Terry Muir (a CTEC employee) sent an email to the Robinsons, Mr Van Veen and Mr Hitchcock regarding a project in Auckland, finishing his email, 'We are one of their confirmed suppliers for when this project proceeds'.[97] 

    [97] TB 2955.

12. In October 2009, CTEC was also considering a merger with another firm, Emerson Stewart.  On 27 October 2009, Mr Robinson wrote regarding the proposal, including whether any of the current shareholders of CTEC would want to exit before the merger.[98]

    [98] TB 2978 ‑ 2979.

13. Mr Hitchcock wrote again on 1 November 2009, stressing the need to get the sale transaction done as soon as possible, saying, 'This last hospital stay shows what could happen at any time at my age'.[99]

    [99] TB 3009.

14. On 19 November 2009, Mr Hitchcock wrote to a third party (Mr Wolfe).  He said that he was looking to retire and sell his interest in CTEC and asked whether Mr Wolfe knew an investor.[100]

    [100] TB 3129.

15. On 3 December 2009, Mr Muir wrote again, including to Mr Hitchcock, that things were progressing well and CTEC had an excellent chance to secure the Aukland job without the need to tender.[101]

    [101] TB 3166.

16. On 4 December 2009, Mr Hallam advised Mr Hitchcock, regarding the shares, not to push too early, 'we are trying to get you a good position.  I reckon we could have something to you in a week or two'.[102]

    [102] TB 3171.

17. On 18 December 2009, Mr Hitchcock advised another third-party that he was basically retired and in the process of selling his shares.[103]

    [103] TB 3207.

18. In January 2010, Mr Hitchcock endeavoured to accelerate the process.  On 16 January 2010 he wrote:

    I really need to get this sale of my shares going if at all possible.

    Here is a proposal that you guys might consider.

    Make some kind of good faith payment like 250 K to 500 K.

    Then increase the monthly amount I receive to 15 or 20 K and apply all but 2.5 K to a stock buyout and the 2.5 K to office overhead so 100% of the payments are now deductible for the corporation.[104]

    [104] TB 3241.

19. On 26 January 2010, Mr Hitchcock asked Mr Van Veen and Mr Hallam how it was going with the stock sale.[105]

    [105] TB 3272.

20. On 24 February 2010, Mr Hitchcock wrote again to Neil Robinson, advising that he needed another heart procedure, and saying:

    Decision time is NOW.  The doctor advises me to get my affairs settled as this next procedure is much more risky.

    The sale of my stock is now imperative.  Neil find a way to get this done.[106]

    [106] TB 3363 (emphasis in original).

21. On 2 March 2010, Mr Muir gave a further update (including to Mr Hitchcock) on the position in New Zealand in which he said that the Industrial Portfolio Manager of Energy For Industry 'is very keen to work closely with us, not only on the Whirinaki project but in all new projects and would like to meet with the directors of Ctec'.[107]

    [107] TB 3399.

22. On 15 March 2010, Mr Hitchcock again pressed his need to get the sale over with as soon as possible, suggesting the general terms be settled even if payment could not be made at that time.[108]  He wrote to Mr Hallam and Mr Van Veen again on 17 March 2010.[109]

    [108] TB 3451.

    [109] TB 3455.

23. On 23 March 2010, Mr Hitchcock wrote that he needed $43,000 by 3 April 2010 for medical expenses.  He further said, 'I would like to see at least a general Letter of Intent to buy my 20% stock.  Amount, Terms of Payment, etc. can be shown to be negotiated at a later date'. [110] 

    [110] TB 3457.

24. On 30 March 2010, Neil Robinson wrote to Mr Hitchcock, regarding the sale of the shares, in these terms:

    We have spoken about the problem, and unfortunately we haven't reach a resolution yet.

    I think the only way forward is we draft a sale document, and proxy where we each represent 25% of your voting rights, as per my proposal last year,

    could you revisit that and let me know your thoughts, and let's get something down on paper in a formal manner,[111]

    [111] TB 3460.

25. Mr Hitchcock wrote again on 30 March 2010, that the 'approach is okay'.[112]

    [112] TB 3461.

26. On 26 April 2010, Mr Hitchcock told Neil Robinson and the others that his heart now had an electrical problem and that he was going into hospital for the implant of a pacemaker.  He again said, 'I really need to get the process started to sell my share of the company'. [113]

    [113] TB 3485.

27. On 24 June 2010, Ms Warner advised the directors of CTEC that, from 2 July 2010, CTEC would be overdrawn.  'In an attempt to get through the next couple of months, we are holding back on all payments that are not deemed to be a threat to the completion of the [Kwinana] project.[114]

    [114] TB 3571.

28. On 30 June 2010, Mr Hitchcock advised Mr Robinson and the others that the doctors were going to try to do a pacemaker implant on 8 July.[115]

    [115] TB 3581.

29. On 10 July 2010, Mr Hitchcock advised that he was home after the pacemaker implant and all looked okay.[116]

    [116] TB 3630.

30. CTEC's outlook was not sound in the third quarter of 2010.

31. On 14 July 2010, Ms Warner advised Mr Robinson about amounts outstanding for CTEC's creditors, where an invoice was overdue and the creditor had been requesting payment.[117]

    [117] TB 3650.

32. On 26 July 2010, Neil Robinson was advised of potential back charges on the Kwinana project of around $1 million.[118]  He informed his fellow directors. 

    [118] TB 3753.

33. On 2 August 2010, Ms Warner advised the directors that, on a revised cash flow, the balance in the cheque account at 31 December 2010 had dropped to - $99,977.[119]  

    [119] TB 3754.

34. On 4 August 2010, Ms Warner advised Neil Robinson that variations for the Kwinana project had been rejected and an amount of $1,221,583 would not be received.  Neil Robinson advised his fellow directors, describing the position as a dead loss.[120]

    [120] TB 3771.

35. The financial news for CTEC worsened on 11 August 2010, when Western Energy (the principal on the Kwinana project) advised that it intended to set off an amount of $1,014,515 from the contract price.[121]

    [121] TB 3801.

36. On 16 August 2010, Ms Warner sent Neil Robinson a sheet of suppliers who were harassing CTEC for payment, two of whom had threatened legal action.[122]

    [122] TB 3821.

37. On 25 August 2010, Perth Energy Pty Ltd advised CTEC, in an email to Neil Robinson, that it would offer a non-exclusive arrangement with 2-3 engineering, procurement and construction providers for the Merredin  project with 'first to the line takes the project'.[123]

September 2010 to November 2010

[123] TB 3876.

1. On 8 September 2010, CTEC was invited to tender for the Diamantina project.[124]

   [124] TB 3908.

2. Cash flow, however, remained poor.  A revised cash flow forecast, provided to the directors on the 9 September 2010, gave a final balance at 31 December of $-1,793,956.[125]

   [125] TB 3910 ‑ 3929.

3. On 9 September 2010, Neil Robinson wrote to Mr Hitchcock and told him that CTEC had advice that the best way to buy his shares was for the company to buy back the shares.  I accept that Mr Robinson had received that advice, although he could not recall the source of it.[126]

   [126] TB 3933; exhibit 4.1 [73].

4. Mr Hitchcock replied on 9 September 2010 that $2.5 million 'has always been the price' to be paid as a $500,000 up front payment and then 12 equal monthly repayments.  He wanted to retain current monthly consulting payments of $15,000 until full payment was made.[127]

The first pleaded email

[127] TB 3933.

1. Neil Robinson responded in detail.  This is the first of the emails pleaded by the plaintiff as misleading or deceptive.  There are copies of this email dated 9 September and 10 September 2010.[128]  The email is pleaded as dated 10 September 2010. 

   [128] TB 3936; 3947.

2. Neil Robinson told Mr Hitchcock CTEC was 'just not worth' what Mr Hitchcock was asking, and that the cash was not there.  He wrote:

   Currently we are struggling to keep things going which you have no doubt observed with the late payment process, this is due to us being a one project company struggling with cash flow from one project, had we been able to continue our development with additional projects we would not be in this position, which as shareholders is a responsibility for all of us.

   We have not secured any further work since Kwinana, and as that is now finished, we have no substantial further income.  We pulled out of Georgia due to the political situation with Geno.

   Hence we are busy looking for other work, however if we don't get any then we will be living of the retained cash, which will be around $3M AUD until the defects liability period expires on Kwinana on the 8 September 2011.  I don't know if you know but Pete, Thierry, Kev and I all have our houses on the line as a security of $15M held by the bank for bank guarantees on the Kwinana project, $8M of which will be released on practical completion which we achieved on the 8 September with the balance held until the completion of the defects liability period.

   Unfortunately we need to look at change as we cannot continue with our current business model, and this is probably the first step Bob, to get things cleaned up, if we don't get things cleaned up and new projects, I will be proposing we wrap it up and split what will be in the bank at the end of the Kwinana defects liability period, which I assume will be a couple of million.

   It's worth mentioning also that I will not be extending any further liabilities on my house or personal assets to act as security for CTEC business, the risk is just to great, as I would hate to have to start again. I think [the] others probably have the same viewpoint.

   The long and the short of it Bob is that we have had probably five companies through CTEC looking to buy in, but once they see what we have they decline to continue, as we are only worth what our current order book is, plus cash in the bank, so the traditional earnings multipliers don't apply, hence as we have no order book to speak of, and an overhead consuming funds we are worth what we have as retained earnings, we have also looked at listing on the stock exchange, either front door or back door with no success, so we have probably kicked over enough cans to understand the reality of it all.

   In a nutshell the company today is probably worth in the region of $3M million, which will decrease over the coming 12 months unless we get more work, and as we have no more security to put up, this is going to be a tough call.

   Hopefully Bob you can read between the lines as to where we are, my suggestion is you probably should cash out earlier rather than later.[129]

   [129] TB 3947; 3936.

3. The plaintiff pleaded that Neil Robinson made the statements in this email on behalf of the other defendants.  The email, however, has an introductory paragraph which is addressed to Mr Hallam, Mr Van Veen and Kevin Robinson, but included in the email sent to Mr Hitchcock:

   Guy's I have wrote a response to Bob's email, however it occurred to me that is probably relevant to all of us as it captures the reality of the situation, so we should all read and appreciate the circumstances.

4. While the other defendants were aware of what Neil Robinson had said, I am not satisfied that it was written or sent on their behalf.  Rather, Neil Robinson was attempting to inform his fellow shareholders and directors - including Mr Hitchcock but also the others - of his opinion on the state of CTEC and the need for a change of business direction.  It is, however, part of the factual context in which the emails and conduct of the defendants must be assessed.

5. Mr Hitchcock replied on 12 September 2010, asking to be sent the 'Year ending balance sheet from 2009 and the last years (8) P&L statements' so that he could have his accountants review them and give an answer.[130] 

The second pleaded email

[130] TB 3947.

1. Neil Robinson replied on 14 September 2010 that he would get the data 'when we complete our year end accounts'.  He further wrote, in response to a query from Mr Hitchcock about the profit margin for the Kwinana project, that the gross margin of $10 million had been earned over a three-year period, and CTEC would be in a better position if it had secured additional work over those three years, 'but the reality is we didn't'.[131]

   [131] TB 3967.

2. On 15 September, Neil Robinson wrote again, suggesting that Mr Hitchcock speak to Mr Hallam and Mr Van Veen, who may be able to advise him.[132]  Neil Robinson said that his email reflected his pessimistic view at the time (in my view justified), where CTEC was having difficulty closing out the Kwinana project, getting a replacement security for the bank facility, and raising funds to pay outstanding bills and claims. [133]

   [132] TB 3972.

   [133] Exhibit 4.1 [82].

3. On 19 September 2010, Mr Hitchcock sent an email in which he said:  'The nature of this business is such that in one day it can suddenly be in very good condition'.  That is, he was aware that the financial position of CTEC could change.[134]

   [134] TB 3994.

4. Neil Robinson wrote on 20 September 2010 and told Mr Hitchcock that the only way to develop CTEC's business was by using personal assets as security, and he was unwilling to continue to do that

   …unless we JV with a larger big brother we will not be able to provide sufficient company based security to raise the bank guarantees, so will be unable to provide a bankable solution to the customer, which will disqualify us for most projects in this part of the world that are funded by banks'. [135]

   [135] TB 3993.

5. Mr Hitchcock replied on 21 September 2010.  He said that he had asked for monthly or quarterly or annual P&L statements for five years and had received only one.  There is no record of those requests.  Mr Hitchcock suggested that CTEC may be able to take opportunities to sell new or used machines if there were no new plant installations, and further suggested downsizing to everyone except the five owners, 'in order to survive until the right opportunity comes along'.[136]

   [136] TB 3993.

6. On 27 September 2010, Mr Hitchcock sent his invoice for monthly consulting services, and also asked for an answer on his offer to sell.  Neil Robinson responded that Mr Hallam and Mr Van Veen would call him regarding the sale.[137]

   [137] TB 4021; 4023.

7. The audited Annual Financial Report for CTEC for the year ended 30 June 2010 was signed on 29 September 2011.[138]  CTEC showed a loss, after provision for income tax, of $173,271, even though revenue ($59,970,916) was substantially up from the previous year.  Total equity was $4,474,612, down slightly from the previous year.

   [138] TB 3602 ‑ 3624. 

8. The directors reported that CTEC had successfully tendered for the Merredin project, and also that they had entered into an agreement to buy back the shares held by Mr Hitchcock as at August 2011.[139]  Both statements were an optimistic view of the evidence then available.  The financial statements give the bare figures.  Neither party called evidence that enables me to make any finding about the value of the business then, or at any later time.

   [139] TB 3605.

9. On 29 September 2010, Neil Robinson advised Mr Hitchcock that 'Kerri [Warner] in accounts' told him she was being blocked from sending emails to Mr Hitchcock's computer.[140]  On the evidence, it is likely that Ms Warner was attempting to send a document with the heading 'Offer and Payment' and a loan agreement balance for Mr Hitchcock to sign.[141]  There is no evidence that she was attempting then, or at any other time, to send him financial data.

   [140] TB 4045.

   [141] See TB 4059 - 4060.

10. Updated cash flow forecasts were provided, internally, to the other directors.  The evidence does not show that there was internal reporting of other financial information.  The cash flow forecasts consistently showed a negative balance at the end of the calendar year.

1. On 4 October 2010, Neil Robinson sent to Mr Hallam, Kevin Robinson and Mr Van Veen, an email 'update on where we are with the current opportunities and our plans'.  He listed four potential contracts, two of which he described as having real potential for income that calendar year and an immediate start, the third was in early days, and the fourth he described as blue sky.[142]  Mr Hitchcock was not included in the email. 

   [142] TB 4073.

2. For two of those four contracts referred to by Mr Robinson, CTEC was subsequently successful: the Merredin Contract and the Diamantina Contract.

3. On 6 October 2010, in an email to Ms Warner, Neil Robinson listed six potential contracts.  The Diamantina contract was described as 'probability low', with the income from it in 2012 to 2014.[143]  Of those potential contracts, three did not proceed with CTEC, the McKee project went ahead but a year later, and the tender for the Diamantina project was successful a year later and doubled the size of the original scope.[144]

   [143] TB 4079.

   [144] Exhibit 4.1 [92].

4. On 15 October 2010, Mr Hallam advised the Robinsons and Mr Van Veen that a $350,000 overdraft had been approved for CTEC.[145]  Mr Hitchcock was not included in that email.  The overdraft was required to mid‑December 2010 to meet invoices on which payment was expected to be made over the next 60 days.[146] 

   [145] TB 4102.

   [146] TB 4105.

5. In October 2010, CTEC was also negotiating to replace the security bond currently in place for the Kwinana project.  The question arose whether CTEC had four or five shareholders.[147]  CTEC was then operating as though there were four, despite the lack of any settled agreement with Mr Hitchcock.

   [147] TB 4107.

6. On 21 October 2010, Mr Hitchcock wrote asking if anyone had decided if CTEC could buy his shares.[148]

   [148] TB 4121.

7. On 9 November 2010, Assetinsure Pty Ltd presented terms of an offer for a $10.5 million security bond facility, secured by deeds of indemnity from CTEC, two related entities, and the directors and their family trusts.[149]  The liability of the directors was limited to $2.5 million each.[150]  The ongoing availability of the facility was subject to annual review.[151] 

   [149] TB 4168 - 4178.

   [150] TB 4172 - 4173.

   [151] TB 4174.

8. CTEC accepted the terms, with Neil Robinson and Mr Van Veen executing the agreement.[152]  The Deed of Indemnity and Guarantee is undated, but it appears not to have been executed until January 2011.[153]

   [152] TB 4178.

   [153] TB 4496.

9. On 10 November 2010, CTEC was advised that another company was intending to present a proposal for a full EPC contract for the Merredin project, and Perth Energy required a 'fall back option' should CTEC not be able or willing to pursue the project.[154]

   [154] TB 4179.

10. On 12 November 2010, CTEC wrote to APA Power Generation Group concerning a tender for the Diamantina Power station project.[155]

    [155] TB 4231.

11. On 22 November 2010, Neil Robinson wrote to Mr Hitchcock advising him that the parties needed to either agree a position, or roll Mr Hitchcock back into a more operational role, 'as we are currently renegotiating our guarantee facilities with the banks and need to make some commitments, which will include same for all shareholders'.  He advised Mr Hitchcock that CTEC had the opportunity to negotiate a better deal for a bank guarantee with another provider, to replace the Commonwealth Bank of Australia, at a reduced cap of $10.5 million.  The shareholders were essentially the guarantors and would share the burden proportionally, that is 20% each.  He advised Mr Hitchcock that things hadn't changed much over the last months, 'we are still chasing works, and have some prospects but nothing definite'.[156]

    [156] TB 4250.

12. On 26 November 2010, CTEC received a letter of intent from Hoperidge Enterprises Pty Ltd, as the preferred contractor for the Merredin Energy Power Project.  The parties were to complete and execute the EPC Contract within four weeks of the date of signing the letter of intent, with Hoperidge retaining the right to terminate the letter of intent if the contract was not executed within four weeks.[157]

    [157] TB 4278 ‑ 4279.

13. The uncertainty over arrangements for the purchase of Mr Hitchcock's shares was added to by uncertainty about whether CTEC would continue in its present form, or possibly be listed as a public company.

14. On 26 November 2010, Mr Van Veen advised the Robinsons and Peter Hallam that he had spoken to Mr Hitchcock that day and told him that they had agreed on offering him $600,000 in cash on a payment schedule, $400,000 in shares when CTEC was floated, and the deduction of his loan account.[158]  Neil Robinson followed this up on 30 November 2010, with an email to Mr Hitchcock in which he advised that he was meeting lawyers to prepare a draft sale document for CTEC to purchase the 20% held by Mr Hitchcock.[159]  The consideration was $1.5 million, with amounts advanced through the loan account for hospital bills and other requests deducted, leaving a balance of US$1 million.  This was to be paid $600,000 in cash and $400,000 equivalent value in shares if CTEC was listed.[160]  The email was apparently resent on 1 or 2 December 2010.[161]

    [158] TB 4284.

    [159] The shares were held legally by Goldspan, but on behalf of Mr Hitchcock. 

    [160] TB 4291.

    [161] TB 4295.

15. At this time, CTEC was also in correspondence with APA, seeking either a letter of intent or heads of agreement with regard to the EPC contract for the Diamantina project.[162]

December 2010 to March 2011

The third pleaded email

[162] TB 4297.

1. On about 2 December 2010, Neil Robinson resent the email sent to Mr Hitchcock on 22 November 2010 regarding the contribution shareholders were to make to bank guarantees.[163]

   [163] TB 4313; 4275.

2. Mr Hitchcock replied and inquired about the bank guarantees, asking if the shareholders intended to use $8.4 million cash to pay their amounts to secure the guarantee.[164] 

   [164] TB 4315 ‑ 4316.

3. Neil Robinson responded that the facility was $10.5 million, and that if they were able to provide adequate security through guarantees, they could 'give the CBA bank the flick' and get back their houses in the short term.  'Nobody is actually giving CTEC any cash to spend, it's all bank guarantees to third parties secured by shareholder guarantees, which will be equal for the five of us'.[165]

   [165] TB 4315.

4. In a further email on 8 December 2010, Neil Robinson set out three options: they agree a sale value and payment plan based on cash and stock; they cannot agree the sale value and things stay as they are from an ownership perspective and all shareholders 'place similar personal liabilities on the line, currently requirement is 10.5/5= 2.1M each'; they stay as they were from a shareholder perspective but merge with a third-party which could result in shares being held in escrow for up to two years, but may yield a better long-term value.  The income for non‑employed executives would be limited in the short term.  The third option would also require personal guarantees from the shareholders.[166]  Neil Robinson described the first and third options as, from CTEC's perspective, 'the only practical solutions to our cash flow problems'.

   [166] TB 4319.

5. Mr Hitchcock asked for further clarification.[167]  Neil Robinson briefly explained that with the third option they would relinquish control of the business.  The authority to pay monthly fees to a shareholder would be a board issue, and the present owners would not have a majority on the board but be one voice only.  He also explained that a merger with a public company would result in the shareholders being unable to trade their shares for a defined period, generally two years.  Finally, he advised that banks would require real security in either cash or assets they could sell.[168]

   [167] TB 4324.

   [168] TB 4323.

6. On 10 December 2010, Mr Hitchcock, referring back to Neil Robinson's email of 30 November 2010, offered to sell for $1.5 million with $900,000 in cash based on an agreed payment plan and $500,000 in cash paid over a two-year period.  The payments total $1.4 million; the balance appears to be a set-off of $100,000 already provided on account.[169]

The fourth pleaded email

[169] TB 4341.

1. On 13 or 14 December 2010 (there are copies of the email for each date, due to differences in time zone), Neil Robinson wrote to Mr Hitchcock.  As it is one of the emails pleaded I will set it out in full:

   Have discussed internally and have been advised to try and meet in the middle at a sale price of $1,150,000 AUD, with terms to be confirmed which will essentially be a cash upfront payment and then an instalment process.

   If we are able to agree, then there will be no need for you to provide a guarantee for the banking facilities.

   If we are unable to agree, or need further time to negotiate we will need to forward the guarantee legal papers for [your] review and signature, which essentially equate to a personal guarantee provided by each of us for circa $2.1 M AUD each.  I'm delaying the process as long as possible, and have rescheduled the [meeting] with our lawyer 3 times, but we are running thin on cash so not much time left.[170]

   [170] TB 4402.

2. Mr Hitchcock asked Mr Hallam and Mr Van Veen their opinion of the offer. [171]  On 15 December he wrote:

   We may be close enough to reach an agreement.

   What is the cash upfront amount you have in mind.

   And how many payments over how long a time period?

   The Currency needs to be USD or AUD whichever is worth the most.

   Monthly consulting payments of 15 K would need to continue, until the balance is paid, as an incentive to finish the payments as soon as practical.

   I would need a standard Agency agreement to cover any future sales.[172]

   [171] TB 4404.

   [172] TB 4406 - 4407.

3. Neil Robinson responded that he would draft a term sheet for review and approval.[173]

   [173] TB 4411.

4. At around this time, it appears that Neil Robinson was also actively pursuing a merger with another entity, but nothing came of it.[174]

   [174] TB 4415.

5. On 30 December 2010, and again on 11 January 2011, Mr Hitchcock wrote to Neil Robinson asking about progress on the sales contract.[175]  On 12 January he made a similar inquiry with Mr Hallam, telling him  that he would like to get the sale concluded as soon as possible as his 'heart guy' wanted him to get to warmer climate and a single story home.[176]  Mr Hitchcock continued to press for the contract wording on 16 and 18 January 2011, on the latter occasion asking Mr Van Veen and Mr Hallam:  'Would you guys mind building a fire under Neil on the share sale.  I really need to get this done'.[177]

   [175] TB 4425; 4435.

   [176] TB 4438.

   [177] TB 4440; 4444.

6. Neil Robinson forwarded the contract wording for review on 25 January 2011.[178]  In substance, the proposed terms were that the shares were offered unencumbered to CTEC; Mr Hitchcock agreed to sell the shares for an agreed price of US$1,150,000 with a deposit of 20% and four payments, each of 20%, on 31 December 2011, 30 June 2012, 31 December 2012, and 30 June 2013. [179]

   [178] TB 4460.

   [179] TB 4462 ‑ 4463.

7. Mr Hitchcock responded on 26 January 2011, again saying that he needed to conclude the sale as soon as practicable, and suggesting an accelerated payment schedule, with a first payment of 60% on or before 1 February 2011, and two further payments on 1 December 2011 and 1 June 2012.  The shares were to be sold to the Robinsons, Mr Hallam and Mr Van Veen.  Mr Hitchcock sought to retain some security by retaining an interest in the shares until final payment.[180]  It is not in dispute that the transaction could not have been structured in that way.

   [180] TB 4464.

8. Neil Robinson responded that he needed to check cash flow and discuss the offer with the others.[181]

   [181] TB 4477.

9. Mr Hitchcock asked Mr Hallam about progress again on 29 January 2011.[182]

   [182] TB 4535.

10. Between 29 January 2011 and 31 January 2011 Mr Hitchcock and Neil Robinson negotiated on the structuring of the payments (although not on the price), and the continuation of the monthly payments.[183]

    [183] TB 4539; 4542; 4546; 4557.

11. In late January 2011,[184]  a Deed of Indemnity and Guarantee was made in favour of Assetinsure by each of CTEC, two related companies, and:

    (1)Neil Robinson, and Neil Robinson and Gillian Robinson as trustees for The Robinson Family Trust;

    (2)Mr Hallam and Goldspan;

    (3)Kevin Robinson, and Kevin Robinson and Maxine Robinson as trustees for The Robinson Family Trust; and

    (4)Mr Van Veen.

    The liability of the individual guarantors was limited to $2,500,000.[185]

    [184] In the index to the trial bundle the parties date it at 28 January 2011.

    [185] TB 4501.

12. In January 2011, CTEC produced a document titled 'Company Information Memorandum'.  It stated that it was subject to a 'confidentiality agreement signed by both companies'.  It also stated that there were five equal shareholders of CTEC.  The document also listed a current order book and a future order book, with the Kwinana O&M Contract and the Merredin EPC Contract part of the current order book.  The future order book listed a possible Kwinana expansion and Merredin expansion, a New Zealand project (McKee), and, separately, Diamantina.[186]  

    [186] TB 4529 ‑ 4534.

13. In opening, the plaintiff said that a version of this document was sent to Forge 'in due course'.[187]  It is unlikely that, in January 2011, a document of this nature would have been prepared in relation to Forge, except on a very speculative basis.  The confidentiality agreement with Forge was not made until months later.  The evidence does not show for what purpose the document was produced, or whether it was in furtherance of any specific relationship.  In evidence, it was put to Mr Hallam who said that he had not seen it before.[188]   

    [187] ts 210.

    [188] ts 577.

14. On 2 February 2011, Neil Robinson sent to Mr Hitchcock signed copies of altered agreements, that is a Shareholders Deed of Proxy and a Principles of Sale Agreement, both dated 1 February 2011.[189]  The Principles of Sale Agreement was between Mr Hitchcock as the Seller, and CTEC represented by 'the following remaining shareholders', Kevin Robinson, Mr Hallam, Mr Van Veen, and Neil Robinson, collectively the Buyer.  It contained the following clauses (not, I assume, drafted by a lawyer):

    [189] TB 4615 ‑ 4617.

    The purpose of this principle of sale agreement (PSA) is to detail the principles upon which The Seller shall sell its entire shareholding (The Shares) in the Company known as CTEC … to The Buyer.

    PSA is to establish that commercial-in-confidence discussions have and will continue to take place between the two Parties, and the Parties have agreed that the parameters and general framework outlined below will form the basis for their business dealings.

    It is mutually agreed that both parties will work exclusively to facilitate the sale of The Shares in timely manner.

    It is hereby agreed that The Buyer will purchase The Shares from The Seller providing the following conditions are met

    a)The Shares are offered unencumbered by the Seller to the Buyer

    b)The Seller agrees to sell the shares to the Buyer for the agreed price of the $1,150,000 USD

    c)the Buyer offers the following terms of payment to The Seller.

    i.Deposit of 50% paid by the 10 February 2011

    ii.Second Payment of 20% paid on or before 31 December 2011

    iii.Third payment of 20% paid on or before the 30 June 2012

    iv.Final Payment on or before the 10 December 2012

    d)The Seller signs a single Deed of Proxy to the Buyer with regards to the Buyers voting rights associated with the company, detailing the amount of shares, 10% per payment or an amount equal to the amount paid, to be transferred equally to each of the above [4] four people as the payments are made in order to transfer all 20% as the payments are made and received.

    e)The Buyer shall continue to utilise the services of the Seller both during and after the purchase of the shares in [CTEC], at terms and conditions similar to those [CTEC] has utilised in the past for services of this kind.  The current agreement for consulting payments will continue until final payment is made and final transfer of ownership is made.

    f)This PSA constitutes the entire agreement of the parties with respect to the subject matter hereof and thereof, no modification of the PSA shall be binding on the parties hereto unless it is in writing and signed on or subsequent to the date of this [Letter of Intent] by authorised representatives of all parties hereto.

    g)This PSA shall be governed, construed, and enforced in accordance with the laws of Western Australia.[190] 

    [190] TB 4616 ‑ 4617.

15. It is admitted on the pleadings that Mr Hitchcock signed the document.[191] 

    [191] Reply to defence of second and third defendants [8].

16. Mr Hitchcock continued to press for a quick agreement.  On Sunday, 5 February 2011, he wrote to Neil Robinson asking, 'please give the sale your first priority on Monday'.[192]  Neil Robinson forwarded the email to Mr Hallam.  On 9 February 2011, Neil Robinson advised Mr Hitchcock that Mr Hallam and Mr Van Veen would call him to discuss.[193]  Mr Hallam, however, was not available to speak to Mr Hitchcock because one of his children was critically ill.

    [192] TB 4620.

    [193] TB 4621.

17. On 8 February 2011, Bay of Plenty Energy called for expressions of interest for an EPC contract for the McKee project.  The estimated program for the contract was for a close of expressions of interest on 23 February 2011, tender documents issued mid-March 2011, tender submissions by the end of April, and appointment of a contractor in early June 2011. [194]

    [194] TB 4624.

18. On 10 February 2011, Mr Van Veen wrote to Mr Hitchcock (not copied to others).  He suggested a payment structure under which monthly fees would continue in 2011, but stop in 2012, to be resumed if CTEC did not make full payment of the shares in 2012.[195]  Also on 10 February 2011, Mr Hitchcock sent an email, copied to all of the defendants, in which he referred to Mr Van Veen's email and urged that 'we get this done with this new agreement ASAP'. [196]

    [195] TB 4635.

    [196] TB 4637.

19. Mr Hitchcock pressed again on 11 February 2011.[197]  He proposed a sale at US$1,150,000, with a 50% deposit paid immediately, and two further payments of 25% in December 2011 and June 2012.[198]

    [197] TB 4644.

    [198] TB 4645 ‑ 4646.

20. Neil Robinson asked Mr Hallam to have a discussion with Mr Hitchcock, 'he is becoming very frustrated and needs to be brought up to speed, there is obviously some urgency in the transaction, can you talk to him today'.[199]

The fifth pleaded email

[199] TB 4647.

1. Mr Hallam wrote to Mr Hitchcock, copied to Mr Van Veen.  I will set this email out in detail as it is the last of the pleaded emails.  Relevantly Mr Hallam said:

   It seems this whole thing is becoming very complicated.

   We need to bring this back to a basic sale agreement.

   What I believe is the best in everyone's interest is the following:

   1.Agree on a price

   2.Agree on a down payment

   3.Balance to be paid by Bob providing vendor finance and paid an interest rate until the amount is paid off.

   (there should be a structured minimum repayment amount and timeline… say at 18 months max)

   Bob … one of the problems is that CTEC …has only 5 shares.. of which one is held by me in trust for you.

   We can't enter into progressive share transfers as payments are made because we can't transfer parts of a single share.

   I suggest we do the above..write up a sales contract that is signed by the company and the other shareholders.. providing a personal guarantee and the job is done..

   You get the first payment and sign over the share and then receive your vendor finance payments monthly/quarterly and interest until full payment.

   In regard to your personal side of things in the event that you kick the bucket.. we would pay into your estate which would no doubt be left to Paula or we can actually word this in the contract to continue paying Paula.. your call.

   The other issue is that this has to work alongside CTEC's ability to pay and cash-flow.

   Monthly payment 15 K.. I will be quite honest that we can't afford to maintain a share payment and a 15 K monthly payment until the sale is finalised.

   If we could I would probably take the same deal myself!!

   We are not setting the world on fire at the moment but I will only suggest a deal for you that we can guarantee to fulfil.

   We obviously also wish to maintain a link to you and hopefully make some bucks by continuing to seek opportunities…

   Let's talk over the weekend and get you sorted out.[200]

   [200] TB 4656 ‑ 4657.

1. The timeline shows that the Merredin and Diamantina projects were the most significant at the time that Mr Hitchcock was still negotiating the sale of his shares.  In particular, although he was given general information, he was not told about the Merredin contract award or the conditional agreement and early purchase agreement for Diamantina. 

2. This must be viewed in the context of a seller who had, on the basis of what he had been told, reduced his expectations from $2.4 or $2.5 million, and been prepared to accept less than half that amount.  He had also been negotiated down in the payment terms - in particular the initial payment - and his desire to keep up monthly payments until the deal was completed.

3. On the evidence, I find that the first discussions about a close relationship between CTEC and Forge were in early June 2011.  The first draft of the CTEC Long-Term Relationship Heads of Agreement, under which Forge would acquire the whole of the issued shares in CTEC was dated about 15 June 2011.[479]  On 20 June 2011, Neil Robinson advised the other shareholders of the proposed merger.  Between 22 June and 24 June 2011, Mr Robinson and Mr Hutchinson exchanged proposals for an acquisition. 

   [479] TB 5422.

4. On 24 June 2011, Neil Robinson forwarded documents to Mr Hitchcock regarding the purchase of his shares, with modified payments to help CTEC with its cash flow.[480]  The first enforceable agreement between CTEC and Mr Hitchcock was on 26 or 27 June 2011.

   [480] TB 5545

5. In light of their previous negotiations, including what Mr Hitchcock had been told about CTEC's order book and its prospects, is it likely that Mr Hitchcock would have agreed the price of $1.15 million if he had known that the Merredin contract had been awarded, and that preliminary agreements had been made in relation to Diamantina?  

6. Would Mr Hitchcock have agreed to sell his shares for $1.15 million, on the terms of payment proposed on 26 June 2011 if CTEC had disclosed that it was negotiating for the sale of CTEC as a going concern?  What was the likely effect of withholding that information from him when it was disclosed to all other shareholders?

7. The potential for an acquisition by Forge only became significant late in the negotiations with Mr Hitchcock.  But it was not too late.  And even though the outcome was then uncertain, the reward for shareholders should the acquistion proceed was so high that it must have made a difference.

8. Having regard to what Mr Hitchcock had been told in the preceding months, resulting in him accepting a price and terms that were so favourable to CTEC, and having regard to his reliance on the defendants for information about CTEC, I am satisfied that he was misled into entering the agreement on 26 June 2011.

Causation

1. It is well settled that the court should apply a practical common sense approach to causation.[481]   Further, the contravening conduct need only be one cause of the plaintiff's actions:  so long as the defendant's breach materially contributed to the loss or damage suffered, the necessary connection exists and the plaintiff may recover.[482]

   [481] Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525.

   [482] See Kenny & Good Pty Ltd v MGICA(1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 [118]; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [14], [106] - [109].

2. The defendants submitted that I should not find that Mr Hitchcock was misled and that it is not sufficient if the circumstances do no more 'than give rise to conflicting inferences of equal degree of probability'. [483]   

   [483] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 304 ‑ 305.

3. There is no direct evidence that Mr Hitchcock relied on and was induced by the defendants' conduct as outlined above.  But the inference that he was is not just more likely, but overwhelming when one looks out how his expectations dropped to less than half of what he had been asking for over the previous three or more years. 

Unconscionable

1. The plaintiff relied also on the conduct of the defendants being unconscionable.  That term is to be understood as bearing its ordinary meaning and applies to conduct that 'objectively answers the description of being against conscience'.[484]  In ASIC v Kobelt, in relation to s 12CB of the Australian Securities and Investments Commission Act, Kiefel CJ and Bell J said that the values that inform the standard of conscience include:

   the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage.[485]

   [484] Australian Securities and Investments Commission v Kobelt [2019] HCA 18 [14].

   [485] Australian Securities and Investments Commission v Kobelt [14], quoting Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd(2015) 236 FCR 199 [296].

2. In determining whether a party to a transaction is in a position of 'special disability' or 'special disadvantage' the court must have close regard to the facts of the particular case.  'Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power:  a special disadvantage is one that "seriously affects" the weaker party's ability to safeguard their interests'.[486]

   [486] Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 [118]; Thorne v Kennedy [2017] HCA 49; 263 CLR 85 [113].

3. In the pleaded case, the plaintiff relied on the disadvantage or 'special disability' as pleaded in [28] and [29] of the statement of claim.  The particulars of [29] are quite specific in referring to Mr Hitchcock's heart surgery (stent), medical expenses, pacemaker surgery, cataract and back surgery, his recovery from surgery, and his need to move to a warmer climate. 

4. The first matter on which the plaintiff relied was the plaintiff's heart surgery to place a stent or stents.  As early as November 2007, Mr Hitchcock told his fellow shareholders that he needed to increase his monthly payments because of medical bills.  Mr Hitchcock had been discussing retirement and the sale of the shares from about this time, if not slightly earlier.

5. In August 2009, Mr Hitchcock told Mr Hallam and Mr Van Veen that he was having heart issues which were being checked, and that his doctor had advised him to update his will.  The letter of 23 September 2009, referred to in the particulars, was a request for $20,000 for a stent procedure.  The procedure was done on 1 October 2009 (about 18 months before the sale of the shares).  Mr Hitchcock confirmed to his fellow shareholders that it was successful.  

6. In February 2010, Mr Hitchcock required another heart procedure which, as he advised the defendants, he had been told was more risky. He then expressed the desire to get his affairs settled immediately.  It was, however, nearly a year before the first Principles of Sale Agreement was signed on 1 February 2011.

7. The pacemaker implant was on 8 July 2010.  On 10 July 2010, Mr Hitchcock advised Mr Robinson and the others that he was home and all looked okay.

8. Throughout this period, Mr Hitchcock pressed the others for an early resolution of the sale.  The defendants did not press him.

9. Mr Hitchcock also made several requests for money for upcoming medical expenses.  On the evidence, I am satisfied that the defendants attempted to meet his requests, but CTEC had significant cash flow difficulties in the second half of 2010.

10. The particulars relating to Mr Hitchcock's further surgery in July 2011 overlook that it was Mr Hitchcock who requested that the sale document be re-sent after his surgery so that he could sign it.  Again, it was not the defendants pressing Mr Hitchcock.

11. In any event, Mr Hitchcock had by then signed the last draft of the Principles of Sale Agreement.

12. In opening submissions, the plaintiff referred to three factors: the defendants' position of advantage due to their knowledge of CTEC's business and facts which informed the value of his shares; the significance of the transaction; and Mr Hitchcock's significant health problems and the defendants' awareness of those problems.

13. In closing submissions, the plaintiff's case was based on Mr Hitchcock being vulnerable because his willingness to sell arose from concern about his health and desire to move to a warmer climate; his wish to not burden the plaintiff 'with a legacy of shares in a Company with other shareholders he did not trust'; and his desire to move from Tennessee to put some distance between himself and his troubled daughter.[487]

    [487] Plaintiff's written closing submissions [174].

14. The case argued in submissions was that, as a result of those circumstances, and knowing that Mr Hitchcock had reasons to sell, the defendants failed to provide him with full information about his shares in CTEC.  In that way, they did not afford to Mr Hitchcock an informed choice, and their conduct fell below acceptable norms, standards or values such as to warrant it being determined to be unconscionable.[488]  In substance, the reliance on Mr Hitchcock's health as a special disability fell away.  Despite the apparently comprehensive pleading, the plaintiff's case was essentially that the defendants

    were, and knew they were, in a position of advantage due to their knowledge of [CTEC's] business.  They also knew facts which informed the value of Mr Hitchcock's shares and did not tell him.  They also knew that Mr Hitchcock had to trust them to provide information to him, and that he had a right to at least some of that information which [CTEC] had not performed.[489]

    [488] Ipstar Australia Pty Limited v APS Satellite Pty Limited [2018] NSWCA 15; (2018) 356 ALR 440 [196].

    [489] Plaintiff's written opening submissions [49].

15. The case based on Mr Hitchcock's health as a 'special disability' or disadvantage would fail.  The defendants were undoubtedly aware that Mr Hitchcock had a range of health conditions - he referred to them in his emails, and the plaintiff advised that he was in surgery when the Share Buy Back Agreement was sent for execution.  They knew that poor health and the desire to retire was one of the reasons Mr Hitchcock had pressed for the sale.  But the evidence does not show that the defendants had any information to suggest that Mr Hitchcock was incapable of making a decision, or that illness impaired his ability to make a decision and act in his own best interests at the time that he negotiated and executed the agreement.  The sale of Mr Hitchcock's shares had been negotiated in fits and starts for about three to four years.  He had signed a Principles of Sale Agreement on 1 February 2011, and had again signed a Principles of Sale Agreement on 27 June 2011.  The sale price of $1.15 million had been agreed by, at the latest, the end of February 2011.  On 29 July 2011, Mr Hitchcock had advised the defendants, in writing, that all of the major symptoms and intense pain had been alleviated 'at least for now'.  It was Mr Hitchcock who asked for the documents to be resent that day.  The plaintiff witnessed Mr Hitchcock's signature on the completed Share Buy Back Agreement.

16. Further, the plaintiff adduced no evidence to show that Mr Hitchcock was in fact impaired in any way by his medical conditions.   

17. The case of vulnerability that was developed in submissions was not the case pleaded.  

Damages

1. Assuming that the plaintiff may recover for loss suffered by Mr Hitchcock, the plaintiff is entitled to recover compensation by reference to the detriment actually suffered as a consequence of the contravening conduct.  Generally speaking, the amount awarded is the sum required to put the plaintiff, as nearly as possible, in the position in which she (or Mr Hitchcock) would have been if the misleading and deceptive conduct had not occurred.[490]  In Marks v GIO Australia Holdings Ltd, McHugh, Hayne and Callinan JJ said:

   a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct. And even this inquiry may not conclude the question.  Analysing the question of causation only by reference to what is, in essence, a 'but for' test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either.[491]

   [490] Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, 12 ‑ 14; Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215, 220 ‑ 221.

   [491] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 [42].

2. The plaintiff did not plead that Mr Hitchcock, as a result of the defendants' misleading conduct, sold his share for less than it was worth, and led no evidence as to its value at the time of the sale.

3. The plaintiff's pleaded case was that, but for the defendants' breaches, Mr Hitchcock would not have entered into the Share Buy Back Agreement and would have participated in the Share Purchase Agreement with Forge and received 20% of the consideration paid by Forge.  That is, the plaintiff alleged that, by reason of the defendants' misleading or deceptive conduct, Mr Hitchcock was no longer a shareholder and could not participate in the subsequent share sale.  Mr Hitchcock suffered loss measured by the amount payable under the Share Purchase Agreement.  

4. To establish that case the plaintiff had to demonstrate, on the balance of probabilities, that the defendants' conduct had caused Mr Hitchcock to sell his shares, when he otherwise would not have. I am satisfied that has been proved.  The court must then take into account future or hypothetical events relating to his loss, and assess the value of what he lost in terms of the degree of probability of those events occurring.[492]

   [492] Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 364 ‑ 366; Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440 [38] - [41].

5. To establish the pleaded case, the plaintiff needs to show that it is more likely than not that Mr Hitchcock would have participated equally with the other shareholders in both components of the share sale price.

6. The plaintiff's pleaded case relies on the following counterfactual:  if Mr Hitchcock had been given full information about CTEC's prospects after September 2010, prior to his signing the Principles of Sale Agreement on 27 June 2011, he would not have signed the Principles of Sale Agreement.  What in fact happened in January 2012 would have happened in exactly the same way except that Mr Hitchcock would have been included as a seller in the sale of CTEC to Forge.

7. The plaintiff submits that Mr Hitchcock would have been prepared to wait and receive one fifth of the eventual payment by Forge.  

8. I accept that, but for the defendants' conduct, it is likely that Mr Hitchcock would have been unwilling to accept the price and terms he did.  It is also more likely than not that he would have been prepared to wait a little longer, having regard to the potential reward, although there was a heightened sense of urgency in his communication with Neil Robinson and the others in 2010 and early 2011. 

9. But in my opinion, the plaintiff's counterfactual assumes that Mr Hitchcock had an unrealistic degree of foresight.  At 26 June 2011, the negotiations with Forge were at a very preliminary stage.  Any agreement was subject to conditions precedent, including the execution of the Diamantina contract (with Forge nominated as the third party guarantor), and comprehensive and unrestricted due diligence.  Forge had an unconditional right to withdraw from discussions and negotiations at any stage during the due diligence period.  

10. The price that was being spoken about in June 2011 for the acquisition of CTEC by Forge, and that eventually agreed, was based upon an initial payment and an 'earn out' over two years.  When the final agreement was reached, part of the price was dependent upon retention of key executives.  Following the meetings between Mr Robinson and Mr Hutchinson in June 2011, it was discussed whether Mr Van Veen might participate only in the initial payment if Forge did not want to retain him. 

11. I do not believe that it is probable that all of the defendants would have agreed (and all needed to agree) to Mr Hitchcock participating in the 'earn out' component of the share price.  It was put to some of the defendants in cross-examination that they would not 'cut off their nose to spite their face' - that as practical businessmen, they would not give up the chance of a payout in the millions of dollars.  On the other hand, the Robinsons were adamant that they would not have accepted Mr Hitchcock being given a 'free carry' when he was not actively participating in the business or prepared to risk his own assets to guarantee financial facilities.[493]

    [493] ts 674.

12. Further, I do not believe that Mr Hitchcock would have wanted to remain part of CTEC during the two-year earn out period, or, given his location in another country and his fears regarding his health, that either Forge or Mr Hitchcock would have thought it possible. 

13. I am satisfied that, had he known about the Forge proposal, Mr Hitchcock would have wanted to participate in it. I am satisfied that the other shareholders would have agreed to him sharing in the initial payment:  each of them agreed to establishing an escrow account to hold a fund to satisfy any claim from Mr Hitchcock, regarding the share buy back process.[494]  It is, however, highly unlikely that he would have remained in CTEC and have been part of the 'earn out'. 

    [494] TB 7298.

14. The result is, had I been satisfied that the plaintiff was entitled to damages for misleading or deceptive conduct, I would have assessed damages as 20% of the $16 million initial payment.

Apportionment

1. Mr Hallam and Goldspan pleaded that should the court find them liable to the plaintiff for damages under the Australian Consumer Law, the Corporations Act, or the Australian Securities and Investments Commission Act, then those claims were apportionable and each of Neil and Kevin Robinson is a concurrent wrongdoer.  The liability of each defendant is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just, having regard to the extent of the defendant's responsibility for the damage or loss.

2. Had I found the defendants liable, each of Neil Robinson, Kevin Robinson, and Mr Hallam would be equally responsible for the loss.  Each of them knew of the negotiations with Forge and the prospect of a substantial initial payment, and each knew what Mr Hitchcock had been told about the prospects of CTEC and the value of his share.  They knew that Mr Hitchcock was not being informed about the sale.

3. Goldspan and Mr Hallam should, in that equation, be treated as one.

4. The order would be that Goldspan and Mr Hallam are liable for one third of the loss suffered by the plaintiff and Neil and Kevin Robinson are together liable for two thirds of the loss.  The Robinsons did not ask for an apportionment between themselves. 

Conclusion

1. The claim for breach of fiduciary duty fails on the facts.  The plaintiff has not established that the defendants owed a fiduciary duty in the terms pleaded.

2. I would dismiss the plaintiff's statutory claims on the basis that they are not claims which, as the executor of the estate of Mr Hitchcock, she can maintain.

3. I will ask the parties to bring in orders to reflect these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CG
Associate to the Honourable Justice Allanson

29 NOVEMBER 2019