Charter Pacific Corporation Ltd v Belrida Enterprises Pty Ltd
[2002] QSC 254
•30 August 2002
SUPREME COURT OF QUEENSLAND
CITATION:
Charter Pacific Corporation Ltd v Belrida Enterprises Pty Ltd & Ors [2002] QSC 254
PARTIES:
CHARTER PACIFIC CORPORATION LIMITED
(plaintiff)
v
BELRIDA ENTERPRISES PTY LTD
(first defendant)
THOMAS QUINN
(second defendant)
MICHAEL JOHN COVENTRY and LYNETTE
HELEN COVENTRY as trustees of theMIKE AND LYN COVENTRY FAMILY TRUST
(third defendants)
BARRY TABE as trustee of the TABE FAMILY TRUST
(fourth defendant)
ANDREW COVENTRY
(fifth defendant)
MICHAEL JOHN COVENTRY and LYNETTE HELEN COVENTRY as trustees of the MIKE AND LYN COVENTRY FAMILY TRUST
(first cross-claimants)
BARRY TABE and ANDREW COVENTRY as trustees of the TABE FAMILY TRUST
(second cross-claimants)
v
CHARTER PACIFIC CORPORATION LIMITED
(first defendant by counterclaim)
KEVIN JOHN DART
(second defendant by cross-claim)
BRYAN GERRARD DART
(third defendant by cross-claim)FILE NO/S:
SC No 784 of 1994
DIVISION:
Trial Division
PROCEEDING:
Claim, counterclaim and cross-claim
ORIGINATING COURT:
Supreme Court
DELIVERED ON:
30 August 2002
DELIVERED AT:
Brisbane
HEARING DATE:
24 January 2000 – 3 March 2000; 28, 29, 31 August 2000; 1 September 2000 – 6 October 2000; 11 October 2000 – 13 November 2000; 15 November 2000 – 23 November 2000; 28 November 2000 – 8 December 2000; 29 January 2001 – 16 February 2001; 26 February 2001 – 6 April 2001; 17 April 2001 – 24 April 2001; 26 April 2001 – 2 May 2001; 28 May 2001 – 1 June 2001.
JUDGE:
Fryberg J
ORDER:
Judgment for the plaintiff against the third, fourth and fifth defendants for $604,634.30 plus interest to date, calculated from 1 June 1994 at the rate which is one per cent higher than the benchmark rate of the National Australia Bank from time to time.1.
Judgment for the first cross-claimants against the plaintiff for $397,600 plus interest to date, calculated on $360,000 from 1 June 1994 and on $37,600 from 29 July 1994, at the rate which is one per cent higher than the benchmark rate of the National Australia Bank from time to time2. .
Judgment for the second cross-claimants against the plaintiff for $397,600 plus interest to date, calculated on $360,000 from 1 June 1994 and on $37,600 from 29 July 1994, at the rate which is one per cent higher than the benchmark rate of the National Australia Bank from time to time.3.
4. Action relisted for further argument as to the form of order and costs.
CATCHWORDS:
EQUITY – Fraudulent and innocent misrepresentation – Materiality, inducement and reliance upon misrepresentation – Where misrepresentation objectively likely to induce party to contract – How reliance proved
CORPORATIONS – Corporate finance – Shares – Valuation – Whether agreement induced by misrepresentations could assist in determining value – Most appropriate method of valuation
DAMAGES – General principles – Whether costs recoverable as damages
BANKRUPTCY – Administration of property – Proof of debts – What debts provable – Damages and contingent liabilities – Damages under s 1005 Corporations Law – Whether damages “by reason of a contract” – s 82(2) Bankruptcy Act 1966 (Cth)
EQUITY – Equitable remedies – Injunctions – Interlocutory injunctions – Undertaking as to damages – Where injunction refused at trial – Whether interlocutory injunction reasonable attempt to mitigate apprehended loss – Whether undertaking should be enforced
Bankruptcy Act 1966 (Cth), s 82(1), s 82(2)
Corporations Law (Cth), s 1005, s 1325
Trade Practices Act 1974 (Cth), s 52
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, followed
Aliferis v Kyriacou (2000) 1 VR 447, followed
Commissioner of Succession Duties (SA) v Executor Trustee and Agency Company of South Australia Ltd (1947) 74 CLR 358, considered
Gould v Vaggelas (1985) 157 CLR 215, considered
Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547, considered
I & L Securities Pty Ltd v HTW Valuers Pty Ltd [2000] QCA 383, followed
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, followed
McMahon v Pomeray (1991) ATPR 41-185, not followed
Potts v Miller (1940) 64 CLR 282, followed
QIW Retailers Ltd v Felview Pty Ltd [1989] 2 Qd R 245, followed
Spencer v The Commonwealth (1907) 5 CLR 418, considered The Duke Group Ltd v Pilmer (2001) 75 ALJR 1067, followed
Watson v Foxman (1995) 49 NSWLR 315, followedCOUNSEL:
B D O’Donnell QC, with D R J Wenck, for the plaintiff and for B G and K J Dart
D W Spain (solicitor) for the defendants from 24 January – 3 March 2000; D A Savage SC for the defendants from 28 – 31 August 2000; thereafter M and A Coventry in person, no appearance for the other defendantsSOLICITORS:
McCullough Robertson for the plaintiff
Spains Solicitors for the defendants until 31 August 2000
TABLE OF CONTENTS
1. INTRODUCTION............................................................................ 1
Definitions................................................................................................................. 1
The action.................................................................................................................. 1
The parties and their companies............................................................................... 2The plaintiff and the Darts............................................................................ 2
The Coventrys and Evtech............................................................................ 2
Belrida and Thomas Quinn........................................................................... 3
Parties on the record.................................................................................... 3
2. THE ORIGINS OF EVTECH........................................................... 3
Zedprime and Intechnologic..................................................................................... 33. THE STATE OF THE ART IN 1992................................................ 8
Computers................................................................................................................. 8
Operating systems..................................................................................................... 9Modems................................................................................................................... 10
Communications software...................................................................................... 11
Telephone systems.................................................................................................. 13
Modem to telephone interface................................................................................ 14
4. EVTECH DURING 1992............................................................... 15
Corporate arrangements.......................................................................................... 15
The product............................................................................................................. 16
Funding and staff.................................................................................................... 16
The joint venture..................................................................................................... 17
Development work: the modem.............................................................................. 18
Development work: Electrocomm.......................................................................... 21
Financial position.................................................................................................... 225. NOVEMBER 1992 TO APRIL 1993.............................................. 23
The state of the plaintiff.......................................................................................... 23Negotiations............................................................................................................ 24
The Bundaway Agreement..................................................................................... 27
The importance of NEC.......................................................................................... 28
Peter Gillmore......................................................................................................... 30
Product development January to March 1993........................................................ 31
Control of Evtech.................................................................................................... 34Evtech’s documents..................................................................................... 34
Funding....................................................................................................... 36
The making of the First Deed................................................................................. 37
The licence agreement............................................................................................ 38
The licence agreement: credibility.......................................................................... 41
6. THE REPRESENTATIONS........................................................... 49
Statement of claim para 6(o)................................................................................... 50
Statement of claim para 6(p)................................................................................... 50
Statement of claim para 6(q)................................................................................... 50
Statement of claim para 6(r)................................................................................... 50
Statement of claim para 6(n)................................................................................... 51
Statement of claim para 6(s)................................................................................... 52
Statement of claim para 6(m).................................................................................. 52
Statement of claim para 6(k)................................................................................... 52
Statement of claim para 6(j)................................................................................... 53
Statement of claim para 6(t)................................................................................... 56
Statement of claim para 6(a)................................................................................... 61
Statement of claim para 6(aa)................................................................................. 61
Statement of claim para 6(b)................................................................................... 61
Statement of claim para 6(c)................................................................................... 61
Statement of claim para 6(e)................................................................................... 61
Statement of claim para 6(y)................................................................................... 62
Statement of claim para 6(x)................................................................................... 627. FROM DEED TO DEED................................................................ 63
The employment of Peter Gillmore........................................................................ 63
Shares in Charter Pacific......................................................................................... 69Completion of the First Deed.................................................................................. 70
Evtech cheques........................................................................................................ 72Electrocomm........................................................................................................... 74
The IMS modem..................................................................................................... 75
Relationships among the Evtech directors.............................................................. 77
Evtech’s cash flow.................................................................................................. 79
The Second Deed.................................................................................................... 88
8. WERE THE REPRESENTATIONS MISLEADING OR DECEPTIVE? 98
Statement of claim para 6(o)................................................................................... 98
Statement of claim para 6(p)................................................................................. 100
Statement of claim para 6(p) ................................................................................ 105
Statement of claim para 6(r)................................................................................. 105The importance of ASCII data transmissions........................................... 106
Loss of valid data...................................................................................... 107
Statement of claim para 6(q) ................................................................................ 109
Statement of claim para 6(s)................................................................................. 110
Statement of claim para 6(m)................................................................................ 112
Statement of claim para 6(b)................................................................................. 117
Statement of claim para 6(c)................................................................................. 117Users.......................................................................................................... 118
Designers................................................................................................... 123
Forensic testing......................................................................................... 124
Mr Boucher and Mr Welstead, August 1999................................. 125
Mr Welstead, November 1999....................................................... 129
Mr Boucher and Mr Welstead, 8 December 1999........................ 130
Joint testing, 14 December 1999................................................... 131
Mr Welstead, August 2000............................................................ 133
Mr Welstead, 17 September 2000................................................. 136
Mr Welstead, 18-19 September 2000............................................ 138
Mr Welstead, 9-10 October 2000.................................................. 138
Ms Shepherd, 17 September 1998................................................. 138
Dr Graham, 7 September 1999..................................................... 139
Ms Shepherd, 22-24 January 2000............................................... 140
Dr Graham, 10 March 2000......................................................... 140
The defendants’ submissions regarding reliability................................... 141
Summary: representations regarding reliability........................................ 143
Statement of claim para 6(k)......................................................... 144
Statement of claim para 6(a)......................................................... 144
Statement of claim para 6(aa)....................................................... 144
Statement of claim para 6(b)......................................................... 144
The field testing representation................................................................. 145
Mr O’Connor and Mr Morgan...................................................... 146
Mr Morgan.................................................................................... 146
Telecom Australia......................................................................... 146
Fisher & Paykel............................................................................ 147
The commercialisation representation...................................................... 148
Statement of claim para 6(e)......................................................... 152
Was MNP10 operating in the IMS modem?............................................. 152
Was Electrocomm able to turn MNP10 on and off?................................. 156
Did the IMS modems contain MNP10 from 26 May to 7 June 1993?..... 157
Statement of claim para 6(x)......................................................... 158
Statement of claim para 6(y)......................................................... 159
Silicomm and Electrocomm...................................................................... 160
The agreement of October 1990............................................................... 160
Valuable consideration................................................................. 161
Interpretation and application of cl 4.1........................................ 163
9. CAUSATION AND RELIANCE.................................................. 166
General.................................................................................................................. 166
Reliance: making the First Deed........................................................................... 170
Reliance: completion of the First Deed................................................................ 178
10. THE CONTRACTUAL REPRESENTATIONS AND NONDISCLOSURE 181
The contractual representations............................................................................ 181Nondisclosure........................................................................................................ 184
11. THE SECOND DEED.................................................................................... 184
The making of the further representation.............................................................. 184
Was the further representation misleading or deceptive?..................................... 187The Fujitsu order...................................................................................... 188
Distributor and representatives................................................................ 191
Reliance................................................................................................................. 191
The Second Deed as mitigation............................................................................ 192Miscellaneous....................................................................................................... 195
12. AUGUST 1993 TO MARCH 1994............................................... 195
Performance of obligations under the deeds......................................................... 195
The Chinese project.............................................................................................. 196The IMS modem................................................................................................... 196
Bankruptcy for the Coventrys............................................................................... 203
13. FINDINGS ON CREDIT.............................................................. 204
Bryan Dart............................................................................................................. 204
Kevin Dart............................................................................................................. 205
Steven Cole........................................................................................................... 206
Andrew Coventry.................................................................................................. 207
Michael Coventry.................................................................................................. 208
Tom Quinn............................................................................................................ 208
Peter Gillmore....................................................................................................... 209
Russell Morgan..................................................................................................... 209
Steven O’Connor.................................................................................................. 20914. THE PLAINTIFF’S REMEDIES.................................................. 210
The losses.............................................................................................................. 210
Non-monetary remedies........................................................................................ 211Rescission.................................................................................................. 212
Avoidance and variation under s 1325..................................................... 212
Monetary remedies claimed.................................................................................. 214
Indemnity and breach of warranty............................................................ 214
Damages under s 1005 of the Corporations Law..................................... 215
Advances by the plaintiff...................................................................................... 216
Payments to third parties.......................................................................... 216
Payments to Evtech................................................................................... 218
The $400,000 loan................................................................................................ 218
General principles.................................................................................... 219
The price the plaintiff paid........................................................................ 220
The value of what the plaintiff acquired: the loan.................................... 220
The value of what the plaintiff acquired: the A-class shares in Evtech.... 220
A diversion: the patent applications......................................................... 223
The A-class shares (continued)................................................................. 224
Consequential loss................................................................................................ 226
The defendants’ arguments................................................................................... 228
Conclusion regarding advances............................................................................ 229
Costs of the interlocutory injunction..................................................................... 229
Damages for liability on the undertakings............................................................ 230Interest................................................................................................................... 230
15. OTHER DEFENCES.................................................................... 230
The bankruptcy of the defendants......................................................................... 230Andrew Coventry...................................................................................... 230
Michael Coventry...................................................................................... 231
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd................................ 233
16. THE COUNTERCLAIMS AND CROSS-CLAIMS....................... 234
The 1992 representations...................................................................................... 234The making of the representations............................................................ 235
Inducement................................................................................................ 238
Causation and damage.............................................................................. 238
The 1993 representations...................................................................................... 238
The claim pursuant to the plaintiff’s undertaking as to damages......................... 239The injunctions and the undertakings....................................................... 239
Harm suffered by the cross-claimants...................................................... 241
Discretionary factors: supervening event................................................. 242
Discretionary factors: attempted mitigation............................................. 243
Other discretionary factors....................................................................... 245
Amount of damages................................................................................... 245
The balance payable under Second Deed............................................................. 246
Interest................................................................................................................... 246
ANNEXURE A............................................................................................................ 248
ANNEXURE B1.......................................................................................................... 249
ANNEXURE B2.......................................................................................................... 250
ANNEXURE B3.......................................................................................................... 251
ANNEXURE B4.......................................................................................................... 252
ANNEXURE C............................................................................................................ 253ANNEXURE D............................................................................................................ 254
ANNEXURE E............................................................................................................. 255
ANNEXURE F............................................................................................................. 256
ANNEXURE G............................................................................................................ 2571. INTRODUCTION
Definitions
“Belrida” Belrida Enterprises Pty Ltd
“Evtech” Evtech Pty Ltd
“Fisher & Paykel” Fisher & Paykel Australia Pty Ltd
“IMS” Integrated Memory Systems Pty Ltd
“Intechnologic” Intechnologic Pty Ltd
“TES” Telecom Equipment Supplies Ltd
“TGE” The Great Escape Computer Company
“the Coventrys” Andrew and Michael Coventry“the cross-claimants” Michael and Lynette Coventry and
Barry Tabe and Andrew Coventy
“the Darts” Kevin and Bryan Dart
“the defendants” the third, fourth and fifth defendants
“the fifth defendant” Andrew Coventry
“the fourth defendant” Barry Tabe
“the plaintiff” Charter Pacific Corporation Ltd
“the promoters” Andrew and Michael Coventry and Thomas Quinn
“the third defendants” Michael and Lynette Coventry
“the trustees” the trustee defendants and Belrida
“the trustee defendants” the third and fourth defendants
“Zedprime” Zedprime Pty Ltd
The action
[1] This is an action for misrepresentation. It has been compromised as between the plaintiff and the first and second defendants, but continues between the other parties. The plaintiff alleges that the defendants misled it into acquiring shares from the trustee defendants and lending money to Evtech, thereby causing the plaintiff loss. The cross-claimants allege that the plaintiff and two of its directors, the Darts, misled them into parting with the shares, thereby causing them loss, and that they deprived them of the consideration for the shares, that consideration being options in the plaintiff and cash. The responses to these allegations were complex. A formal mediation, ordered despite the failure of an earlier informal mediation, did not produce a resolution of the dispute. Before the trial began the case was subjected to intensive management. In their final form the pleadings spread over 87 pages. On the 31st day of the trial the defendants withdrew their instructions from the solicitors who had represented them up to that point and thereafter the only defendants who appeared were the Coventrys. The trial lasted 157 sitting days spread over a period of about 18 months. There was an interlocutory appeal to the Court of Appeal. Thirty witnesses were called at trial, the transcript occupied over 11,000 pages, and 342 exhibits were tendered, including one which was a CD ROM on which a large number of documents were imaged. Substantial court resources (including IT resources) have been deployed to deal with the case and since judgment was reserved, it has consumed an inordinate amount of my time and that of court staff. I cannot know what all of this has cost the parties and the taxpayers, but the amount must be horrendous.
The parties and their companies
The plaintiff and the Darts
[2] The plaintiff’s early history is obscure. It seems that it was incorporated some time prior to 1979 as a private company, under the name Dart Developments Pty Ltd. Apparently, it was a vehicle by which brothers Kevin and Bryan Dart carried out property developments in south-east Queensland. In 1988, “just after the crash”, it became a public company. It had a paid-up capital of only $200,000 (or perhaps $300,000) and achieved second board listing, then available on the stock exchange. The Darts were the major shareholders and also included were a number of Hong Kong and Gold Coast investors. Its articles of association provided for one “management share”, the holder of which was entitled to 30 percent of the voting rights at general meetings. That share was held by Charter Investments Pty Ltd, a company equally owned by the Darts. After the second board was abolished the company was listed on the amalgamated board notwithstanding the continued existence of the management share. Under the stock exchange conditions of listing, all shares were required to carry equal voting rights by 31 December 1996 at the latest. Initially the Darts in fact controlled more than 30 percent of the shares, but subsequent capital issues diluted their holding (by November 1992 they controlled about 11 percent of the shares, fewer than the largest single shareholder).
[3] Executive authority in the plaintiff was exercised by the Darts as joint managing directors. The only other director was Bryan Sprod, who was also company secretary and lived in Sydney. The directors did not hold regular meetings but spoke regularly over the phone. Mr Sprod visited from time to time, particularly for annual general meetings. His name occasionally appeared on correspondence, but there is no evidence that he exercised any influence whatsoever on the decision-making processes of the company. The only employees were Steven Cole (the financial controller and bookkeeper) and a receptionist.
[4] Kevin was the older of the Darts. He had no background in technology or computers. His knowledge of mobile phones was that of a user. He could not use a computer. His background was in real estate and property development. Bryan left school after grade 12 and had no training in science or technology. He too used a mobile phone and was computer-illiterate. His experience from 1978 onward was in property development with his brother.
The Coventrys and Evtech
[5] Michael Coventry was born in Adelaide in 1951, the son of a radio engineer. After completing grade 12 he joined the army, where he served for six years. He was employed as a field surveyor. His interest in computing began in 1975, whilst working as a surveyor for a seismic exploration company. He learned programming in Basic. In 1984 he undertook a course in computing studies and did a lot of extra-curricular study of satellite and radio communication. Unable to make ends meet, he drove taxis to supplement his income. He took up a position with the Defence Science and Technology Organisation in 1985, where his duties mainly involved computer network administration. Here he gained knowledge and experience in relation to the remote downloading and uploading of computer files and of protocols used for this purpose. After that he worked in several positions in relation to personal computers. His wife, Lynette, was a party to the action only in her capacity as trustee of their family trust.
[6] Andrew Coventry was born in Adelaide in 1952. At the beginning of the 1970’s he received two and a half years’ training as an electronics technician. Thereafter he gained considerable practical experience in refrigeration mechanics. From that he moved to providing marketing advisory and consultancy services, particularly in relation to innovative technology. He suffers from dyslexia and had difficulty with densely printed documents and financial accounts. Barry Tabe is his son. Mr Tabe played no active part in the litigation, being sued only as trustee of Andrew Coventry’s family trust.
Belrida and Thomas Quinn
[7] In 1992, Thomas Quinn was a real estate agent carrying on business at Springwood. Belrida was the trustee of his family trust. Initially he and Belrida were defendants. They compromised with the plaintiff in 1994, the year the writ was issued. His only role in the trial was as a witness.
Parties on the record
[8] On 8 September 2000 Michael Coventry was substituted for Kathleen Duckford in, and Andrew Coventry was added to, the counterclaim. These changes reflected changes to the trustees of the respective family trusts.
2. THE ORIGINS OF EVTECH
Zedprime and Intechnologic
[9] In 1989 the Coventrys lived in Adelaide. Toward the end of that year, Andrew Coventry had an idea by which he thought he could make money. He discussed it with his brother. Michael Coventry later described it in these terms:
“He had thought of a way that could get Australian software to the marketplace for the ‘back-yard’ programmers we had discussed. He told me that his idea involved a central organization to which programmers submitted their work, which then assessed the programs submitted and placed them into a network of marketers, who would actively promote and sell the programs to end users through franchise type organizations. Royalties would be paid to the software developer on the sale of their programs at a determined rate.”
They decided to call this method of marketing “Multiplex Marketing” and to operate it through a company. The idea was that software developers would license the company to sell their software. The company would pay a royalty to the developer from its sales revenue. Presumably the Coventrys would benefit, not only as employees of the company, but also (hopefully) as its shareholders. In September 1990, in association with a man named Peter Anderson, they acquired a shelf company (Zedprime) for the purpose of the business.
[10] Salaries and dividends were not the only way by which the Coventrys intended to make money from the project. On 29 October 1990, there was a meeting of the directors of Zedprime. The minutes record the following discussions and resolutions:
“1)After the tabling of and subsequent discussion about the documents called Multiplex Marketing, Silicon Cash and Pirate Proof, introduced by Messrs Andrew and Michael Coventry, it was resolved that Zedprime Pty Ltd, and/or its successors, licence from A P & M J Coventry, the rights to use, on-sell and sublicense the Multiplex Marketing system together with Silicon Cash and Pirate Proof – and that Messrs A P & M J Coventry be paid a license fee from Zedprime for the use of the licenses in the aforementioned way.
2)It was further resolved that the license fee for Multiplex Marketing should be no less than $150,000.00 (One Hundred and Fifty Thousand Dollars), but as concern was shown by the directors, as to the limited cash available to the company at this time both A P and M J Coventry accepted that the full payment for the license should be deferred until 1992, however a suitable time payment method would need to be agreed to and put into place before any of the aforementioned rights were transferred.
…
4)These resolutions being acceptable to Messrs A P & M J Coventry, (the owners of the intellectual property in Multiplex Marketing, Silicon Cash and Pirate Proof) it was further resolved that such a suitable agreement be drawn up signed and sealed within seven days of the meeting.”
The documents tabled at that meeting are not in evidence.
[11] Two days later, the Coventrys, as directors of Zedprime as well as in their own right, executed an agreement purporting to constitute a licensing agreement between them and Zedprime. So far as is material, that agreement provided:
“1.1 In this Agreement unless the context otherwise requires the following words shall have the meaning appearing thereafter;
1.1.1‘Confidential Product’ means prototypes, written and published information, technical information and know-how (Whether in written documentary or other recorded or tangible form) in relation to the Multiplex Marketing System developed by the Licensor.
2.Term
Subject to any rights of termination, the Term of this agreement shall be two years.
3.Licensor to provide Licence and Rights of Use
3.1The Licensor agrees to grant to the licensee a non-exclusive non-transferable licence to use and to develop and promote the Multiplex Marketing System subject to the terms and conditions hereinafter defined.
3.2In consideration of the licence granted under the preceding clause (3.1) the Licensee will pay to the Licensor the Licence Fee which sum and payment methods is hereinafter defined.
4.Modification
4.1Any replacement, update or modification of any part of the Multiplex Marketing System by the Licensee shall become part of that system and the rights of the Licensee to use such replacement, update or modifications shall be governed by the terms of this licence and reference to the Multiplex Marketing System herein shall include all such replacements, updates and modifications which are made from time to time.
4.2Any replacement, update or modification of any part of the Multiplex Marketing System by the Licensee must be shown to and approved by the Licensor.
…
7.Termination of Licence
7.1In the event of termination by either party, the Licensor shall not pay any refund or rebate of the licence fee.
7.2The Licensee may terminate this licence agreement at any time by giving of notice in writing to the licensor and complying with the provisions terms and clauses herein.
7.3The Licensor shall be entitled to terminate this Licence forthwith at any time after breach of any term of this Licence by the Licensee.
8.Payment of Licence Fee Sum
8.1The Licensee agrees to pay to the Licensor the sum amount of $150,000 (One Hundred and Fifty Thousand Dollars) to secure the aforementioned licences and rights payment of such sum to be made by method hereinafter described.
8.2Initial Deposit Payment of $2,000 to be paid by the 31st day of May 1991 in the form of two cheques each of half of the deposit amount to be made out in favour of each of the aforementioned Andrew Paul Coventry and Michael John Coventry being joint licensors.
Further Payment of $48,000 to be paid by the 31st day of October 1991 in the form of two cheques each of half of the further payment amount made out in favour of each of the aforementioned Andrew Paul Coventry and Michael John Coventry being joint licensors.
Final Payment of $100,000 to be paid by the 31st day of May 1992 in the form of two cheques each of half of the final payment amount made out in favour of each of the aforementioned Andrew Paul Coventry and Michael John Coventry being joint licensors.
9.Property not to pass
No property in the rights to confidential product licences and provisions hereinbefore mentioned shall be deemed to have passed between the two parties herein until the receipt of the hereinbefore mentioned deposit by the Licensor.”
I shall refer to that agreement later.[1]
[1]Para [551].
[12] It is not clear precisely when the business was commenced, but it was certainly operating by April 1991. It operated under the name Australian Software Publishers or ASP. Michael Coventry was employed full-time as technical director. Andrew Coventry, who by then lived on the Gold Coast, was appointed as main distributor for Queensland. In April it employed Steven O’Connor. Initially, he worked in marketing. However at that time, as he put it, “There were a number of concepts floating around that required communications software and my job very quickly fell into developing communications software full time”. The Coventrys had envisaged that sales representatives would be provided with software which would enable the company to receive almost immediate payment whenever a sale was made. This software was to be called Silicon Cash. To operate, the concept required the company’s computer to be connected to the computer of the State Bank of South Australia. This meant that Silicon Cash required a communications module. Mr O’Connor was put to work developing this module, which became known as Silicomm. On 14 June 1991 Michael Coventry filed application no PK6665 in his own name for provisional protection under the Patents Act 1990 in respect of “Electronic Funds Transfer Method and Means”. At the same time he was investigating the possibility of constructing a proprietary modem. On 10 May Russell Morgan wrote to him, advising that he had located a chipset which he believed could be used for this purpose.
[13] At about the same time new investment brought new money into the company, new directors joined the board and new managers appeared. In fact, five new directors were appointed on 1 July 1991. One of them, Jeffrey George, was appointed managing director and the Coventrys ceased to hold a controlling interest in the company. On 17 July the company was renamed Intechnologic Pty Ltd (“Intechnologic”). A “Company Profile” dated August 1991 described the company as publishing and marketing software products. It recorded that to assist distribution of company products to remote locations, its distributors used “Mobile Manager”. This consisted of a laptop computer in a briefcase with a cellular phone and appropriate interfaces, which together were alleged “to overcome the data communications difficulties inherent in normal cellular telephone communications”. It achieved this by the use of the “communications section built in to Silicon Cash software”.
[14] By the beginning of September Intechnologic was able to run its inaugural “kick-off” conference, an in-house affair which (the company newsletter claimed) saw the introduction of Silicon Cash and also of Mobile Manager. The newsletter claimed that Silicon Cash, though originally developed to support software sales transactions for the company, also had, in its own right, major corporate applications. It gave a description of the program features which was so vague as to merit the appellation “waffle”. There is some doubt whether the program was ever in fact written (Mr O’Connor said that, to his knowledge, no one wrote it), but probably some parts of it at least did exist. Certainly, code for the communications section, Silicomm, was written by Mr O’Connor during 1991. The Mobile Manager also was sold as a product in its own right. A contemporaneous brochure asserted, “Our specifically-produced communications program (Silicomm*) installed in this device, enables the Mobile Manager* to overcome the data communications difficulties inherent in normal cellular telephone communications”.[2] In October negotiations occurred with TGE, a computer sales company operating in Australia and New Zealand, culminating in an offer to that company of terms for the licensing of Silicomm.
[2]The asterisks were in the brochure.
[15] Despite the optimism of the newsletter and continuing negotiations with TGE, Intechnologic did not prosper. In mid-December Michael Coventry ceased to be a director,[3] but through his business, Coventry Computing Services, he became a consultant to the company. Around this time some “bad blood” developed between the Coventrys. In financial difficulty, Michael Coventry entered into a further agreement on 13 December with Intechnologic, purportedly in substitution for that made a year earlier. It is unnecessary here to refer in detail to this agreement and the circumstances under which it was made, since the plaintiff places no reliance upon it. Andrew Coventry did not get on with Jeffrey George and ceased to be a director about a month and a half later. By that time an application to wind up Intechnologic had been filed in the Supreme Court of South Australia.
[3]On this point, I prefer exhibit 273 to the uncertain evidence of Michael Coventry.
[16] In all probability the Coventrys had seen the writing on the wall. At the beginning of 1992 Andrew Coventry was introduced to Thomas Quinn. Andrew Coventry proposed to Mr Quinn that the latter finance the development of a cellular modem driven by software which he and his brother had been developing. The software was to be called “Electrocomm” and the modem was to be that being developed by Russell Morgan. Mr Quinn was interested in providing finance up to $100,000. The Coventrys and Mr Quinn would be the promoters of and shareholders in a company to be acquired as a vehicle for the purpose.
[17] Despite the winding up application Intechnologic continued to carry on business. In February some staff were retrenched and others were required to work shorter hours. Mr O’Connor was not among those retrenched. Negotiations with TGE continued during March, both in Australia and in New Zealand. At the same time Michael Coventry contacted TGE. I am satisfied that he told Mr Macmorran, an officer of the New Zealand branch of that company, of the new business proposed with Andrew Coventry and Mr Quinn, and that he also claimed to be the owner of Silicon Cash and, by implication at least, Silicomm. By letter dated 6 April 1992 Mr George disputed this claim; he also informed TGE that Mr O’Connor had been appointed technical manager. Two days later Michael Coventry wrote to Mr O’Connor offering him a position in the new venture as manager, software development and implementation. Mr O’Connor accepted the offer and started work in his new position on 13 April 1992. The following day, Millican and Co, Gold Coast solicitors acting on behalf of the Coventrys, wrote to Intechnologic terminating the licence granted on 31 October 1990. On 27 May the Supreme Court of South Australia appointed a liquidator to the company.
[18] Before recounting what happened next it is desirable to describe the state of the art in computer communications (so far as is relevant) as at 1992.
3. THE STATE OF THE ART IN 1992
Computers
[19] The decade of the 1980s saw the computer become a mass-market consumer product. At the beginning of that decade most computers in business use were either “mainframes” or “mini-computers” - large machines which could occupy a room. Small or “personal” computers were available from a variety of manufacturers, but their use was confined mainly to hobbyists or electronics enthusiasts. One of the leading brands was Apple, manufactured by a company founded by a group of young enthusiasts. A major change occurred in the early part of the decade when the IBM Corporation manufactured and sold the IBM personal computer. This machine was reliable, affordable, available and backed by the reputation and strength of its manufacturer. IBM made it available by way of outright sale rather than leasing (its policy for larger machines). It realised that to generate sales there needed to be a ready supply of software to carry out the multitude of tasks which could be performed on a computer. It therefore made two important decisions which were to have an effect on how the industry developed. First, it did not tie its personal computer to any particular operating system. Second, it made details of how the system worked relatively freely available. As a result there was a proliferation of software capable of running on the machine and, before long, a host of machines from other manufacturers (“clones”) copying the IBM design. By the end of the decade the terms “personal computer” and “PC” had come to refer to an IBM machine or one of its clones, and the PC was the dominant type of machine in the small computer market. Its main competition came from the Apple computer in its various incarnations.
[20] By the 1990s a number of manufacturers (both PC and Apple) were selling so-called “laptop” computers. These were portable, battery-powered computers, small enough to be carried in a case slung over the shoulder. By comparison with “desktop” computers, this was their only advantage. There were numerous disadvantages: they were relatively heavy, particularly if a spare battery was carried; they had less processor power than a comparably priced desktop machine; disk drive storage space was less; memory was sometimes limited; and battery life was short. These were disadvantages with which those who really needed the machines learnt to cope and which did not trouble those who acquired the machines for only status purposes.
Operating systems
[21] An operating system is software which controls the basic functions which a computer must perform (such as reading and writing to memory and to disk and controlling the video monitor) while it is running the various application programs loaded into it. When IBM released its first PC it did not follow its usual practice of writing its own operating system. It contracted the task to a relatively small company called Microsoft Inc. Microsoft was permitted by the terms of its contract to make the operating system available (with trivial changes) to other PC manufacturers. The operating system which Microsoft wrote was called DOS (Disk Operating System - a misleading abbreviation). While it was not the only PC operating system, by the late 1980s it had established a dominant position in the PC market. It was installed onto and run from a disk drive, preferably the hard disk drive of the computer. It was not “hard wired” into the computer; a user could replace it with another operating system. Similarly, if a software manufacturer writing an application program wished to bypass the operating system and write code which directly controlled some of the various computer components, it could do so; the information needed was publicly available.
[22] Generally, application programs were written so the user was required to interact directly with DOS as little as possible. That was done because the operating system was difficult to learn and counter-intuitive in its operations. It was character based, which meant that the user gave it commands by typing letters or other characters on the keyboard and watching the responses on the video monitor. It was sensitive to the slightest typing error and the range of commands which a user could issue was limited. Application programs generally were controlled through structured menus accessed by the numeral or cursor keys on the keyboard. This was an improvement on DOS, but was still far from satisfactory.
[23] DOS did not work on the Apple computer. That computer came with its own operating system, supplied and tightly controlled by the manufacturer. No other operating system could be run on the computer and application programs were compelled to access the computer’s facilities through the operating system. Software for the computer had to comply with detailed specifications. This tight control gave Apple much more flexibility in what it could do with the operating system. It enabled Apple, at a relatively early date, to move from a character based user interface to a graphics based one, the so-called GUI accessed with a mouse instead of (or as well as) the keyboard. The ease-of-use of this interface compared with that of DOS, together with the superior graphics performance of the Apple computer, led many people to prefer it to the PC. However the Apple computer was, throughout the 1980s, significantly more expensive than an equivalent PC. While it attracted great loyalty and fervour from its devotees, it failed to displace the PC from its position of market dominance.
[24] Criticism of the interface provided in DOS led Microsoft to develop a program called Windows. In the period with which this case is concerned, Windows was not strictly an operating system. It was an interface which loaded on top of DOS and operated through DOS. The first two versions of the program, released during the 1980s, were unsuccessful. However in May 1990 Microsoft released version 3.0 of Windows. While this did contain some “bugs”, it was reasonably reliable and gained a degree of popularity. Some of its problems were corrected in version 3.1, released in about 1991. These developments made it clear by 1992 that DOS had a limited future as an operating system for the PC.
[25] Although Windows was not an operating system, it had some features which made it resemble an operating system. To take full advantage of the benefits of the program, existing application software generally had to be substantially rewritten. Programs written to run under DOS could usually be run on a PC with Windows installed, in the so-called “DOS window”, but this was not true of programs which had been written to bypass certain features of DOS or which did not strictly comply with its rules. Using the DOS window was, however, an unsatisfactory option, since it deprived the user of the GUI and the other advantages of Windows.
Modems
[26] A modem is a device which connects a computer to a telephone or radio system. Computers are an instance of digital electronics and their output signals are in digital form. In 1992 most telephone and radio systems received and transmitted analogue signals. A modem (modulator/demodulator) converted the computer output to analogue form and the input from the communications system to digital form. Modems came in two types: internal and external. The former was built onto a card which could be plugged into the motherboard of the computer inside its case. In theory this was the form preferred for a laptop computer, but in practice the size of the card often made this option impracticable. An external modem came in its own case and usually required its own power. In addition to the power cable it required a cable to connect it to the computer and another to connect it to the telephone system. It was usually equipped with an array of lights (LEDs) and a small audio speaker to indicate what it was doing, and an on-off switch.
[27] A number of different brands of modem were available on the market. In 1992, however, most manufacturers sourced the sets of silicon chips, which constituted the most important parts of the modem, from one of very few manufacturers in the world. One of the most important manufacturers was an American company called Rockwell Corporation. The early 1990s was a period of rapid advances in the chipsets used in modems, and Rockwell regularly released new sets.
[28] All computer chips require a program to control their operations. In a PC most programs were stored on a disk drive (usually the hard disk drive) and were copied into volatile memory (“RAM”) as required. From there they commanded and were accessed by the central processor of the computer. That was not the approach taken with respect to the operating system of the modem. Invariably the program which controlled the basic functions of the modem was burnt onto a chip which formed part of the modem. For this reason it was given the name “firmware”. The earlier forms of such chips (“ROMs”) were unable to be modified once burnt; but by 1992, re-programmable chips were in general use. The work of programming the ROM with the firmware was done by the modem manufacturer, but the program was supplied by the chipset manufacturer. Modem manufacturers were allowed, or even encouraged, to modify some parts of the firmware to suit their own requirements; but other parts were made inaccessible to them. Perhaps because of the rapidity of advances in technology, the firmware supplied by chipset manufacturers often contained faults. From time to time the manufacturers would release upgraded versions to rectify known problems and incorporate improvements. Among the improvements were improved communications protocols.[4]
[4]See paras [37] ff.
[29] In earlier times the chipsets and the firmware had been designed solely with a view to sending and receiving computer data. By the 1990s systems were available which also enabled modems to be used to send and receive faxes. This was a popular facility and a modem which lacked it would by 1992 have been uncompetitive.
[30] As modems became more complex the number of commands recognised by their operating systems increased. By late 1992 there were at least 63 publicly documented commands, one of which[5] had 36 variants to reflect the 36 registers it could address. Some of the commands were simple “on-off” commands, but many of them permitted a selection to be made from a range of options. They were, in short, quite complex. In theory each modem manufacturer or chipset manufacturer could have established its own set of commands; but the inconvenience to users of such diversity would have been intolerable. For this reason the industry adopted a standard set of commands which were devised by the manufacturer of the Hayes modem. These commands are now colloquially known as “AT” commands, because, under the standard, the string of characters containing a command begins with the letters “AT”.
[5]ATSx=n, the S register setting command; x is the register number and n the value entered.
[31] The firmware contained the operating system for the modem, but did not provide a mechanism for the user to send AT commands to the modem or data through the modem. In theory most modem operations could have been controlled by the user typing in a series of AT commands. However, except for the simplest tasks, such a process would be difficult, extremely tedious, time-consuming and clumsy. A well-designed communications program provided a simple interface (or as simple as possible) to generate the commands and send them to the modem without the user having to learn them.
Communications software
[32] The basic function of a communications program was to enable the user to control the modem, although by 1992, most communications software had a number of enhancements. This control enabled the user not only to give such elementary commands as “dial” or “hang up”, but also, if desired, to adjust the large number of settings to which the AT commands gave access. At that time establishing communications between computers was, in technical terms, a particularly complex operation. There were many things which could (and often did) go wrong and many adjustments which could be made to the modem to try to prevent their doing so or to enhance the connection. A communications program simplified the task of correcting and adjusting. It was, however, still necessary for the user to learn something about the arcane art of computer communications. Not everything was standardised. Different computers (or rather, their operators) chose to communicate at different speeds, using different sized packets of information and with a number of other variables. Users had to understand and be able to adjust such settings using the communications software.
[33] As might be expected there were differences between modems manufactured by different manufacturers, and between different models of modems manufactured by the one manufacturer. By 1992 practically all modems recognised AT commands but not all modems worked optimally at the same settings. This was not as severe a problem for communications programs as might be thought at first glance, because a default value for each setting was fixed by the firmware, and modem manufacturers usually set values to optimise their particular modems. However some settings depended on the environment in which the user operated or upon the user’s preference, so the default settings might need to be adjusted. Since the user could not directly access or change the firmware, it was necessary that such adjustments be made each time the modem was used. For this reason most communications programs allowed the user to construct or modify a string of commands, which the program would automatically send to the modem at the beginning of each communications session. Such a string was known as an initialisation string.
[34] The advent of combined data/fax modems led the manufacturers of communications software to enhance programs originally designed only for data communications by adding the capacity to send faxes. Some released programs primarily designed as fax software, although usually these included data transmission capabilities. By 1992 it was clear that a communications program without fax capabilities had little prospect of long-term commercial success. Adding fax capabilities to a data communication program required more than just adding new AT commands and additional menus to interface them. Fax programs had to be able to access documents created on the computer by other programs, particularly word processors. By their nature they not only had to deal with graphics files, they also had to convert text files into graphics files. They had to be designed to trick the PC into believing that there was an extra printer attached to it (the “fax printer”), so that faxes could be sent directly from within other programs, without the user having to open the fax program. Writing the software to perform these tasks posed new challenges for programmers.
[35] In 1992 the Internet as it exists today was practically unknown outside universities and defence establishments. How then did computer users communicate with each other? Direct one-to-one connection was possible, but the procedure was fairly complex and the time taken to establish and operate such connections was commercially unattractive. More popular were bulletin boards. Essentially these were constituted by a computer running specialist software connected to the PSTN system through a bank of modems and multiple telephone lines. Remote users could download data from and upload data to such computers. Such data might take the form of online messages or commands sent as they were typed, or pre-saved computer files. Many bulletin boards existed. Some were operated by amateur computer enthusiasts; some were operated by manufacturers (typically, manufacturers of computer accessories) to support their products; some (for example CompuServe) operated on a commercial basis, providing subscribers with information, the opportunity to exchange messages and files, and various other benefits; and there were other types of boards. Large companies were often interested in the idea of in-house bulletin boards to enable communications with remote employees.
Telephone systems
[36] In 1992 telephony was available in Australia over wired networks and radio networks. By far the most important of these were Telecom Australia’s Public Switched Telephony Network (PSTN) and its Cellular Network. Neither was ideal for the purposes of data communication.[6] To different degrees each was susceptible to interference from various sources. Such interference during a data transfer could and frequently would distort the electromagnetic signals by which the transfer was effected, replacing parts of the data with randomly generated and meaningless data. In many cases where computer files were being transferred, the slightest interference was liable to corrupt the whole file and render it useless. The quality of the connection also limited the speed at which the data could be transmitted between computers, an important consideration if the call were a timed call. The interference was much worse on cellular connections than on PSTN connections; the former were subject to additional, problematic characteristics such as fading and signal fluctuation caused by phase distortion and multipathing[7]. These characteristics manifested themselves as loss of carrier (signal) in certain areas (“dropout”) and possible distortion when a call was switched between base stations. No reliable system for overcoming the inherent difficulties of the medium had been devised.
[6]It was also possible to lease dedicated data lines from Telecom. These provided a higher quality connection, but were expensive.
[7]See para [348].
[37] A number of attempts had been made to devise procedures to deal with these difficulties and to enable modems to understand each other. A number of schemes for detecting the presence of “rubbish” signals and for correcting the errors induced by them were devised. In the United States this work was done by private companies hoping to benefit from the royalties which would be payable if their schemes (“protocols”) were adopted throughout the world. One such company was Microcom Inc, which developed a series of proprietary protocols identified by numbers preceded by the letters “MNP” (Microcom Network Protocol). Elsewhere, the work was done under the auspices of the International Telecommunications Union (“CCITT”), whose publicly available protocols were designated with numbers preceded by the letter “V”.
[38] Four types of protocol are relevant for present purposes.[8] The first dealt with modulation and was designed to increase modem compatibility. For this, most modems available in Australia in 1992 contained both the Bell standards (103A and 212A) usable only in America and the CCITT standards (V.22bis, V.32 and V.32bis) used in the rest of the world. The second was designed to increase reliability. There were three Microcom protocols of this type, one of which (MNP4) provided error control. The CCITT error control protocol was called Link Access Protocol for Modems, written LAPM and pronounced “lap em”. The third type dealt with data compression and was designed to improve performance, particularly speed. Here the competing protocols were MNP5 and MNP7 on the one hand and V.42bis on the other. Finally, by late 1992, Microcom had developed three protocols, MNP6, MNP9 and MNP10, providing what were called “extended services”. One of these, MNP10, was designed to improve reliability over adverse connections. It was described by Rockwell as “the de facto standard for combating particularly harsh line conditions such as cellular”, featuring enhancements which “optimise performance in environments with poor or varying line conditions such as cellular connections, international links and rural telephone service”.
[8]They are helpfully described in exhibit 45.
[39] In all cases, a protocol would work only if it were contained in the firmware of both the transmitting and the receiving modems.
Modem to telephone interface
[40] By 1992 the problems involved in interfacing a modem to the PSTN had largely been solved. Standard connectors (plugs and sockets) were available and the properties of the network signals (for such things as going off-line, hanging up, interpreting audio cues, etc) were widely known. Modems were built to implement these properties in an appropriate way. However it was not possible simply to take a modem designed for this network and plug it into a cellular phone. To begin with, not all cellular phones had sockets. Those with sockets were designed to connect to a hands-free-operation device, not to a modem. Instead of the two wires used on the standard PSTN line, the sockets connected to multiple lines. Because cellular phones had many functions which did not exist on PSTN phones, there were many additional signals to be interpreted. Pin layouts varied among phone manufacturers and the use and voltage of each pin was not standard. Most importantly, with one exception (Ericsson), most major phone manufacturers refused to disclose the functions of the various pins and how the phone worked in relation to them. Consequently anyone who wished to build an interface device between the modem and the phone would have to carry out extensive research (“reverse engineering”) to determine the allocation, nature and strength of signals to and from the phone in order to control it. Then the builder had to purchase or construct a plug to fit the particular phone being interfaced. This plug was required at the end of the cable joining the phone to the modem. Finally, it was necessary to construct a circuit board carrying the hardware and firmware, built with the knowledge obtained from the reverse engineering, to enable the phone and the modem to communicate. At that time a different board was required for each telephone, so the practical way to construct the interface was to build the board into the cable rather than into the modem itself.
[41] Attempts to develop interfaces were proceeding around the world. In Australia, Intercell, a company run by a man named Jim Shamos, had built an interface into a cable designed to run between the modem and the phone. It was a rather clumsy affair, with a substantial bulge along the cable. It was supposed to connect to an NEC phone. The reverse engineering had been done by a man named Carsten Anderson. It was this product which had been proposed for use in the Mobile Manager intended to be sold by Intechnologic.
4. EVTECH DURING 1992
Corporate arrangements
[42] To enable their business to commence, the promoters had to deal with a number of matters. First, a business vehicle had to be created and its structure appropriately organised. Second, the arrangements for Mr Quinn’s loan had to be documented. Third, the business had to acquire the rights to Silicomm and uncertainties surrounding the Coventrys’ ownership of the intellectual property in it had to be taken into account. Fourth, a joint venture agreement had to be entered into with respect to the modem to be used in the product. Fifth, documentation for sales contracts and employment contracts had to be developed. Sixth, arrangements between the shareholders regarding the introduction of new capital and rights of pre-emption needed to be documented. It was decided to have these matters attended to at the Gold Coast, where Andrew Coventry and Mr Quinn resided. Consequently Michael Coventry was not directly involved. Andrew Coventry was incapable of attending to the task personally (he was dyslexic, his linguistic skills were limited, he was incapable of attention to detail in documents and he was busy with other affairs), and he appointed a business associate, Peter Chapman, to deal with the matter on his behalf. He allowed the manager of his business[9], Michael Poulsen, to work for the new venture.
[9]His business was called Australian Surface Protection, abbreviated to ASP. Whether this was more than a coincidence was not investigated during the trial.
[43] In the meantime Michael Coventry was following up his contacts with TGE. He and Mr Poulsen flew to New Zealand and on 13 April Mr Poulsen discussed marketing arrangements with Mr Macmorran of TGE. They were all hoping to obtain a substantial order from Telecom New Zealand’s marketing arm. The next day Mr Macmorran faxed Michael Coventry asking for a profile of the company with which TGE would be dealing, including its name, capital structure, personnel and financial backing and backers. On 15 April Mr Chapman and Mr Quinn retained Feez Ruthning & Co as solicitors and six days later KPMG Peat Marwick as accountants. By then Mr Macmorran was pressing for a company profile. On the accountants’ advice, the promoters decided to adopt a corporate vehicle and the solicitors provided a shelf company which was renamed Evtech Pty Ltd. Initially the two issued shares were held by Belrida and Mr Tabe. The promoters all became the directors and Mr Quinn the secretary. A corporate profile was assembled.[10] The solicitors were instructed to prepare a loan agreement, revised memorandum and articles of association, an assignment of rights in the software and a shareholders’ agreement dealing with (among other things) directors’ unanimity and rights of pre-emption among shareholders. These and other documents were prepared and approved by the promoters by July 1992, but were not then executed.
[10]Michael Coventry wrote the product descriptions. It was probably assembled by Andrew Coventry. It consists of the document G3 (exhibit 2, pp 173-243).
[44] The share structure of the company was integral to these corporate arrangements. Shares were to be divided into three classes. Eighty percent of the shares, the A‑class shares, were held equally by the trustees. These shares carried all of the voting rights as well as some extraordinary powers in relation to the sale of other classes of shares. The remaining shares were distributed to half a dozen or so people who had assisted in the venture. The essential difference between the B and C‑class shares were that the holders of the latter were required to reinvest their after-tax dividends up to a certain level. A total of 3000 shares was to be issued: 10 times the minimum number mathematically necessary to allot in the agreed proportions. This was done because it “would more readily facilitate partial disposals of shares than the small shareholdings created by the issue of only 300 shares”. I am satisfied that from the start the promoters envisaged selling some of their shares. However after their experience with Intechnologic, the Coventrys did not wish to lose control of the company.
The product
[45] What exactly was Evtech aiming to produce? It seems to be common ground that from the outset Evtech intended to produce what its promoters called the “office-in-a-briefcase”. In the beginning this was simply a concept. In 1992 it was a popular concept and a number of people in the computer industry were pushing it. One manifestation was Intechnologic’s Mobile Manager, but there were others. It was thought that a large untapped market existed for such a product and that great wealth awaited whoever was first to develop a reliable system. Such a system would combine in one briefcase the computer, the phone, a modem, a power supply unit and battery, and all necessary cords and interfaces to connect these items. It would include the software necessary for these items to operate reliably together. Such a combination, it was thought, would be attractive to (for example) business and professional people who had to travel frequently, and to mobile sales personnel. The concept was easily enough stated but implementing it was altogether different.
[46] Apart from the communications software, the Evtech-office-in-a-briefcase was intended to be constituted by third party products. No particular computer was specified. Apparently it was envisaged that purchasers would buy laptop computers from the product’s distributors or use their existing laptops. No reseller arrangements were entered into. All major mobile phones were intended to be supported but again, no reseller arrangements were entered into. Little thought seems to have been given to this aspect of the business. Instead the promoters focused their attention on the communications software, the modem, the interface to the mobile phone and a power supply unit.
[47] When Mr O’Connor ceased his employment with Intechnologic, he retained a copy of the source code for Silicomm. The Coventrys claimed to own this and all intellectual property rights associated with it. They renamed it Electrocomm. I find that in April 1992, Electrocomm was simply Silicomm in its state of development at that time. Evtech and its promoters had no capacity to manufacture modems. It was always intended that the modem being developed by Mr Morgan would be the modem for the office-in-a-briefcase. They named it Cell-U-Comm. They envisaged that Mr Morgan would design the interface, which in the first instance was to be for the Ericsson hotline mobile phone.
Funding and staff
[48] Evtech opened an account with Westpac Banking Corporation on 20 May with a deposit of $4,000. That sum, like all of the money received by the company during 1992, was provided by Belrida. Mr Quinn had conditionally agreed to provide a loan of $100,000 interest free for 25 years. He claimed that the loan was secured by a fixed and floating charge, but no such charge was ever registered. Westpac provided Evtech with an overdraft facility of $40,000 which was subsequently secured on property provided by Mr Quinn. The Belrida advance was not paid in one lump sum. Instead, Mr Quinn advanced the funds as required. The largest instalment was some $46,500 on 17 June. Other substantial advances were $13,000 on 6 July, over $16,000 on 23 July and $9,000 on 28 August. In addition almost $10,000 was advanced by way of direct payment to creditors. It is unnecessary to analyse all of the expenditure in detail. The largest single item was $40,000, comprising payments of $20,000 to each of the Coventrys. These payments were for the assignment of intellectual property rights in the technology.
[49] It seems that during 1992 Evtech had four employees. Mr Poulsen was given the title of general manager although he said his work really consisted of project management. Andrew Coventry made Mr Poulsen’s services available to Evtech without charge. Mr O’Connor had been recruited as a programmer by Michael Coventry in mid-April. He was paid wages of $1,500 per fortnight from the commencement of his employment. Carsten Anderson was paid $1,272 per fortnight as wages or fees from August onward. Michael Coventry was paid wages of $1,900 per fortnight until about the end of July 1992. By that time money was tight. Mr Quinn felt that the directors should work without recompense and explained to Michael Coventry that Evtech simply could not afford to pay him. I reject Michael Coventry’s evidence that he continued to be employed until late October or after.
The joint venture
[50] Mr Morgan carried on business through his own company Glenorn Holdings Pty Ltd, using the business name Imprimis CAE, but effectively he was under the direction of IMS, a company whose principals were Mr Burgess and Mr Fitzpatrick. IMS owned the rights to the modem, a fact the full implications of which were not immediately appreciated by the promoters. Initially they seem to have thought that provided the modems were acquired from IMS, the rights would vest in Evtech. The company profile referred to above[11] describes IMS as a consultant. Sometime in the second half of the year, Evtech and IMS began discussions toward a joint venture. These discussions may have been brought about by Evtech’s perceived need for modems to be manufactured in numbers at a time when it could not pay for them. In late October a system of weekly meetings between Mr Poulsen, Mr Morgan and directors of IMS seems to have been established. Mr Fitzpatrick instructed IMS’s solicitors, Steindls, to prepare a draft joint venture agreement. This they did; but precisely when, it is unclear. [12]
[11]Para [43] and note 10.
[12]Despite an attempt by the plaintiff to suggest through cross-examination of Mr Quinn that the joint venture agreement exhibit 158 could be traced to 2 May 1992, I am satisfied that it arose at a later time. It is likely that Feez Ruthning & Co prepared not a draft for an agreement of some sort between Evtech and IMS, but that it was the progenitor of the joint venture agreement subsequently prepared by Steindls (exhibit 158).
[51] In that month, at what might have been the first of the weekly meetings, IMS was notified that Evtech had applied for a patent (misleadingly) entitled “Computer/Telephone Interface Apparatus”[13]. The minutes of the meeting record that Mr Poulsen was to prepare a brief for the joint venture partners about this. Perhaps because of the title, the application appears to have aroused a degree of alarm at IMS. On 2 November, Mr Poulsen was emphasising in a memo to the directors of Evtech the principle that Evtech and IMS were “equal and open partners”. However it seems that he did not prepare the brief just referred to. As late as 1 February 1993 Steindls on behalf of IMS were asking for a copy of the application and asserting that it had been made without the authority of IMS.
[13]Para [68].
[52] On or just before 2 November 1992 the putative joint venturers agreed to establish a joint venture company. Each was to have three directors. There is no evidence that any action was taken to implement this agreement. I infer that other events supervened.
Development work: the modem
[53] Mr Morgan had a laboratory in premises which formed part of an industrial park associated with Bond University at the Gold Coast. During 1991 he had worked on the development of a data/fax modem based on the Rockwell RC9624AC chipset and its associated firmware, to allow the modem to interface directly to a mobile phone. I infer that this was the work he was doing for Intechnologic. There was nothing noteworthy about a modem based on this chipset without more. Mr Morgan assembled the modem on a single large uncased circuit board, which he called a “longboard”. The modem was experimental and was intended, according to Mr Morgan, “to explore the concept”. Only one was built. Mr Morgan said, and I accept, that it was the device which became exhibit 335.
[54] From February until April or May 1992, Mr Morgan developed and constructed a prototype of the modem. The prototype comprised two circuit boards in a “sandwich” configuration. Only one prototype was constructed. Mr Morgan described it as the “breadboard” version of the modem. Again, it was not in a case. Mr Morgan still had it in July 2000.
[55] Version 2.10 of the firmware was released by Rockwell in February 1992. It embodied the relevant Microcom networking protocols up to and including MNP10, as well as the CCITT equivalents described above. In the same month, Mr Morgan entered into a non-disclosure agreement with Rockwell and received the bulk of the source code from which the firmware was derived. Thereafter he was able to modify the code to suit Australian conditions and the modem which he was developing. This was a continuing process as the modem evolved and as Rockwell issued upgraded versions of the code. After modifying the source code, Mr Morgan would compile it (i.e., turn it into machine code) and download it into a programmable memory chip (EPROM) in the modem.
[56] In April 1992 Mr Poulsen went to New Zealand with Michael Coventry.[14] On behalf of the defendants it was put to him, and he accepted, that he took with him “what was termed the longboard, a developmental board with holes and so on that could be populated with trial components ... just as a demonstration of an evolving idea.” I am satisfied that this was an error and that he did not demonstrate the modem on that trip. Later that year, probably before August, he took it to Sydney where he attempted to demonstrate it to a number of officers employed by the communications company NEC. It was a source of some embarrassment to him that this exercise had to be carried out with an Ericsson mobile phone, because the longboard would not work with an NEC phone. Mr Frank of NEC also said that the demonstrations he saw were with an Ericsson phone. Michael Coventry alleged otherwise but I am satisfied that he was wrong. A belated attempt by the defendants to reinforce Michael Coventry’s evidence with evidence from Mr Morgan was unconvincing.
[14]Para [43].
[57] On 28 April 1992 TGE signed an order for 50 “cellular offices”, with six for immediate delivery. At first sight that seems odd, for at that time the modem did not exist – far less did Evtech have a capacity to sell the “office-in-a-briefcase”. The order followed the marketing trip made by Mr Poulsen and Michael Coventry a fortnight earlier. In what purports to be minutes of a meeting between Mr Poulsen and Mr Macmorran of TGE, a tentative timetable is recorded providing (among other things) for an order by 21 April, delivery of the initial six units by 30 April and production delivery in June. I am satisfied that the Evtech representatives could not have believed that such a timetable could be adhered to.
[58] This order was crucially important to the Coventrys. By 15 April Mr Quinn had advanced $6,000 for the venture and indicated his willingness to advance up to $100,000. However he would not advance more than a further $20,000 unless New Zealand Telecom or an appropriate intermediary placed an order within two months. I am satisfied that the Coventrys’ desire to receive the order led them, through Mr Poulsen, to encourage TGE to believe that early delivery was possible. The order of 28 April was the result.
[59] In about July or August Mr Morgan began manufacturing what he termed the IMS mark I version 1 modem. He did this by hand, making approximately ten modems. They operated at the rate of 2400 bps for data and 9600 bps for fax. Like the prototype, they operated only in asynchronous mode utilising an 82C250 UART chip. This meant that they could not be used with the then popular NEC P3 mobile phone, which operated in synchronous mode, but could be used with the Ericsson Hotline phone. To Mr Morgan this was not a problem. What mattered to him was achieving a reliable office-in-a-briefcase, to be marketed as a packaged business solution, not enabling multiple interfaces for specific hardware devices for sale as individual modems. In any event, unlike Ericsson, NEC would not release information regarding the polarity of their phone pins in the various modes of operation. This meant that to develop an interface to the P3 it was necessary to reverse engineer the workings of the phone and deduce the operation of the various pins. Since NEC would not even sell connector plugs for their phones, it was also necessary to design and manufacture that item. Mr Morgan described the situation as “an impasse”.
[60] The development of the IMS mark I version 1 modem did not proceed smoothly. Michael Coventry particularly wanted it with at least a prototype interface section for the Ericsson phone to demonstrate to groups in Melbourne and New Zealand in August. On 14 April he contacted Ericsson Australia to organise technical specifications for Mr Morgan. By June it became apparent that Mr Morgan had not completed his part of the firmware design, contrary to Mr Coventry’s belief. To assist in this work Mr O’Connor was taken off software development in Adelaide and flown to Queensland for a week. Carsten Anderson was also flown to Queensland for that week and in late July was appointed to develop the actual interface. Michael Coventry himself came to Queensland for the week. A Mr Will Vissa was engaged for two weeks’ work in Queensland. All of this was funded by Evtech, though it had not originally been provided for in Evtech’s budget. It seems that the problems and delays were due in part to problems in communication between Mr Morgan at the Gold Coast and Michael Coventry and Mr O’Connor in Adelaide. In part they were due also to Mr Morgan’s natural tendency not to be pro-active in communicating with others, to his lack of resources and to the fact that he was working on other projects at the same time. Other factors causing additional cost and delay were difficulties in sourcing suitable modem components and defects in the firmware code supplied by Rockwell. In mid-September, Michael Coventry wrote:
“Originally we were led to believe that Russ could capably design the hardware logic for the complete fax modem and Cell Phone interface. This may still be the case, but in my opinion, Russ has not shown too much commercial sense in this area and appears to lack a sense of timing and organisation. A view supported by Peter Rovesini himself as late as last Monday!!”[15]
[15]Peter Rovesini was a director of IMS.
[61] What happened to the ten IMS mark I version 1 modems is unclear. At least one was sent to Adelaide and was used by Mr Poulsen and Michael Coventry on their trip to Melbourne and New Zealand. This modem was reliable only on a “send” basis, although in New Zealand they were able to demonstrate both sending to and receiving from a bulletin board over the cellular network. Its firmware was defective in that it did not drop CTS (clear to send) at the appropriate time. That was a problem which Rockwell had rectified with a new release of firmware. However by mid-September Michael Coventry and Mr O’Connor were still waiting for a working modem. The problem may have been in the interface: Mr Morgan said that the Ericsson interface was perfected (only) by September or October. In the meantime, during the August trip to New Zealand, Mr Poulsen identified two items which he thought needed to be addressed in design and production in order “to fill current and imminent orders”. First, the modem did not have an on/off switch. Second, unlike almost all external modems at that time, it had no indicator lights on the front panel to show the progress of a call. Mr Morgan justified these omissions in his evidence[16], but I am satisfied that they were design faults, albeit ones which were easily rectified and were not of major importance to the office-in-a-briefcase.
[16]He made the point that the modem was not designed for stand-alone operation, but for use in a briefcase where lights could not be seen: see para [59].
[62] It is not clear on the evidence how Evtech became involved with NEC. Probably it resulted from an approach to the marketing staff of that company by Andrew Coventry. One outcome of the initial approach was Mr Poulsen’s visit to NEC headquarters at French’s Forest. Another was a meeting in Adelaide between representatives of NEC and Mr Poulsen and Michael Coventry. That meeting took place in early August and preceded the trip to Melbourne and New Zealand referred to above. NEC was interested in selling the system, perhaps rebadged, as a standard, shrink-wrapped, packaged solution, not as something which needed to be customised for each customer. The interest from NEC led to Evtech’s making the development of a modem and interface to work with the NEC P3 phone a priority: Andrew Coventry described it as a “sudden panic”. Broadly speaking, the development required the construction of a modem which could operate in synchronous mode and the development of an interface for use between the modem and the P3. It is not clear precisely when Mr Morgan began work on such a modem, but the design seems to have been complete by the end of October 1992. In place of the 82C250 UART communications chip previously used, the new model used a Zilog 85C30 USART chip. At that stage however, it did not contain the firmware needed to drive the new chip. Mr Morgan designated this modem the IMS mark I version 2 modem. It operated at 2400 bps (9600 bps for fax) and its firmware was based on version 2.1 as supplied by Rockwell. The cable for connecting to the computer was hardwired to the modem. Again, Mr Morgan manufactured about ten of these modems.
[63] Although Mr Anderson was appointed originally to develop the Ericsson interface, one of his duties was to specify the code necessary for the connection of the NEC telephone. From some time in or about August 1992 development of the NEC interface became his primary duty. Mr Anderson worked in Melbourne and the only effective way he could be supervised was for Mr Poulsen to fly to Melbourne. For whatever reason, he did not complete his work until mid-April 1993. Mr Morgan described this work as continuing “sporadically”. He said that by late October 1992 the modem was able to send but not receive reliably using the P3. Despite this NEC was given a modem (and the Electrocomm software) for evaluation. Mr Poulsen was told on 2 November that the receive problem was “probably fixed but not tested”.
Development work: Electrocomm
[64] When Mr O’Connor began work for the new venture in April 1992 he worked on the source code of the Silicomm software. At that stage the program was designed purely for data communications and had no fax capabilities. Even so it had some unusual features in its design.
[65] First, it embodied the so-called “Bulldog effect”. This was a marketing term, not a programming term. Mr O’Connor said that it referred to a section of the program embodying a filter designed to remove “rubbish” characters generated by interference in the flow of incoming data of a certain type; and to certain timing settings (controlled by AT commands) set in registers in the modem called the S registers.[17] This code was original and unique. It will be necessary to describe the filter in more detail later; for now it is sufficient to observe that the code embodying it was completely written while Mr O’Connor was employed by Intechnologic. There was nothing unique about the timing settings; they were available in most if not all firmware.
[17]See para [30].
[66] Second, the program included code designed to give it the capacity to control a bulletin board. This capacity was completely unnecessary for most domestic users and suggests that the program was designed for use in a commercial or semi-commercial environment. Few other communication programs were designed with this capacity, at least among those sold “off-the shelf”. It was a capacity of marginal benefit in the context of the office-in-a-briefcase.
[67] Third, the program included code designed to give it “remote control” capabilities. There were several stand-alone programs available which allowed a remote computer to take control of a computer connected to it, provided both computers had the program installed. Few other communication programs (if any) were designed with this capacity. Again this was of marginal benefit in the context of the office-in-a-briefcase.
[68] In June Evtech paid each of the Coventrys $20,000 as consideration for the assignment to it of their rights in (among other things) Electrocomm.[18] On 15 June, the day after Michael Coventry’s provisional protection under patent application PK6665 expired, Evtech filed application PL2932 with the same title and content. A few weeks later Evtech lodged a new patent application entitled somewhat misleadingly “Computer/Telephone Interface Apparatus”. The attached provisional specification described the logic on which the code establishing the filter for the Bulldog effect was based. A certificate of filing was issued by the patent office with the number PL3381.
[18]Para [48].
[69] A report by Michael Coventry in mid-May indicates that Mr O’Connor was then working on developing the fax capabilities of Electrocomm version 1. It also suggests that even at that early stage Michael Coventry envisaged selling the software in shrink-wrapped packaging. By mid-July version 1 was still incomplete. One cause of delay was difficulty in communicating with Mr Morgan. Electrocomm still did not support fax when Mr Poulsen and Michael Coventry took it to New Zealand in early August. In a demonstration to Telecom New Zealand, it was used to send data to, and receive data from a bulletin board, but the commercial program Winfax was used to send a fax.[19] During that visit they called on nine substantial telecommunications or electronics equipment companies. One of the two messages which Mr Poulsen reported to be “coming through loud and clear” was a desire for a Windows version of the product.
[19]At this stage, the modem could not receive faxes - see para [61].
[70] By mid-September Michael Coventry claimed that he and Mr O’Connor had completed the software testing on a third party modem but could not do the testing on an IMS modem because the one which they had was defective. Even so a number of problems remained in regard to the software. Mr Poulsen reported five significant “bugs” to Mr O’Connor on 5 October. On the following day Mr O’Connor replied with a list of (at least) 92 things he was working on, not all of which were minor and some of which persisted for many months afterwards. A number of these related to the fax capacity of the program. That capacity remained relatively primitive. In Mr O’Connor’s vision of Electrocomm, it was regarded as of secondary importance:
“It can be immediately noted at this point that I do not see Electrocomm/Cellucom as simply a ‘mobile fax machine’. To think of it as such would be to miss the whole point of the market. It would be like trying to convince Australia Post that they should buy $100,000 prime movers from us to replace all of their motor scooters. There are such things as portable fax machines that will always cost less than our solution, and will provide a better environment than a computer/faxmodem combination for the user who is only interested in faxes.”
Financial position
[71] The draft loan agreement prepared by Feez Ruthning envisaged that Mr Quinn be satisfied that firm orders had been placed for the supply of a certain number of systems before he became liable to advance more than $26,000. It seems that this agreement was never executed, although the shareholders’ agreement to which it was a schedule was subsequently executed. Nonetheless, Mr Quinn did in fact lend the $100,000 which he had promised. Almost $90,000 was deposited into Evtech’s bank account and the balance was paid directly to suppliers. The last deposit into the bank account occurred on 28 August. Up to that time the account had been managed so as to keep the overdraft below $10,000: whenever it approached this figure, Mr Quinn would make a further deposit. The amount of the loan reached approximately $100,000 with the deposit of $9,000 on 28 August. That deposit placed the account slightly in credit. No further deposits were made to the account between then and December. In that time the bank balance went from the small credit to an overdraft of more than $42,250.
[72] In a message to his brother in April 1992 Michael Coventry had written, “We do however require funding to produce a saleable software unit in any number - perhaps this can be discussed with Tom, Peter and yourself. The orders are there if we are ready to deliver the product!” Eight months and $140,000 later; Evtech was still not ready to deliver the product. It had exceeded its overdraft limit and Mr Quinn was reluctant to advance further funds. Meanwhile the state of the art was improving rapidly and the window of opportunity for Evtech was getting smaller each day. The need for further funding was acute; without it Evtech was insolvent.
[73] In Evtech’s circumstances, there was no possibility of its borrowing further funds without security. The Coventrys could not provide security and Mr Quinn was unwilling to do so. As the overdraft increased they turned their attention to finding further equity funding. Michael Coventry at least was reluctant to take this option, but in early October Mr Quinn’s accountants provided him with some calculations demonstrating how this could be done without significantly eroding their controlling interest in the company. Discussions were held with prospective investors, including some representatives of Telecom Indonesia. Nothing seems to have come of these discussions. At the end of October they advertised for investors. One of the advertisements was seen by David Vickermann, a finance broker.
Discretionary factors: attempted mitigation
[818] I have referred above to the plaintiff’s argument that it is entitled to damages equivalent to the amount payable by it pursuant to the undertakings.[368] If that argument is correct, it would in my view be appropriate to refrain from ordering payment of damages pursuant to the undertakings, in order to avoid circularity. The essence of the plaintiff’s submission was that the liability on the undertakings was incurred in an attempt to mitigate damage. It submitted that the mere fact that the High Court had decided that it suffered no damage in respect of the options did not foreclose this argument. Mr O’Donnell QC recognised that it is unusual for a party to be claiming for liability incurred in an act of mitigation where it subsequently turns out that the apprehended damage was not loss at all and frankly admitted that no case dealing with this situation had been identified. He submitted that it was well established that the fact that an expense or liability incurred in an act of mitigation turned out to be well in excess of the damage in fact suffered (or which otherwise would have been suffered) is no bar to recovery provided the act of mitigation was reasonable. The same result should logically follow, he argued, if the anticipated loss turned out to be minimal or even non-existent. He submitted that the critical question was whether the action taken was a reasonable at the time, on the basis of what was known at the time. The standard of reasonableness in this context was not high. I set out part of his argument in full:
“At June 1994 it was not established that CPC would suffer no loss by issuing the options. Indeed, there was no clear authority on the point (as was noted by the Full Court of South Australia (1999) 73 S.A.S.R. 64 at p. 159, para. 430 & ff.). What slim authority there was on the point favoured the view that substantial damages were recoverable, equal to what CPC could have realised had it sold the options to others (less the value of the shares it received): see Banco de Portugal v Waterlow & Sons (1932) A.C. 452 – as discussed by the Full Court in Duke Group v Pilmer at pp.160 – 161. Also, see Scott Group Ltd. v McFarlane (1978) 1 N.Z.L.R. 553 (in which the Court of Appeal in New Zealand proceeded on the basis that damages could be awarded by reference to the value of shares allotted by a public company to acquire assets). The view could reasonably have been taken, at that time, that CPC did suffer loss by issuing the options, the loss being the difference between what CPC could have realised by issuing the options to a willing but not anxious buyer, less the value of the shares in Evtech Pty. Ltd. which CPC received in the transaction. Indeed, the fact that in May 1999 the Full Court of South Australia in Duke Group v Pilmer unanimously reached a like conclusion (at pp.160 – 162), is strong support for saying that such a view could reasonably have been taken in June 1994.”
[368]Para [777].
[819] This claim was not made on the pleadings.[369] Nor, as far as I can discover, was the question whether, when the plaintiff sought the injunction it was attempting to mitigate its loss explicitly addressed in the evidence. Those are serious obstacles to an argument based on the proposition that it was not the mitigatory effect of what was done which justified the claim, but the reasonable mitigatory intention which did so. And there is an even more substantial obstacle. It is now settled that the risk of error in the grant of an interlocutory injunction must be borne by the applicant. It is not to the point that the law was doubtful at the time the injunction was sought or that the plaintiff did not act unreasonably in the circumstances prevailing at that time. In the absence of unusual circumstances an applicant for relief given on the uncertain basis which always surrounds interlocutory injunctions carries the risk of error.[370] The plaintiff’s submission would circumvent this settled rule. The plaintiff is not entitled to damages on the basis claimed and consequently, circularity does not afford a reason for refusing to enforce its undertakings.
[369]Para [713].
[370]See para [809] above, and Air Express Ltd v Ansett Transport (Operations) Pty Ltd (1979-81) 146 CLR 249 at pp 262-2 per Aickin J, p. 310 per Barwick CJ, and at 322-3 per Mason J. See also Novello v James (1854) ER 1111 at 1112 per Turner LJ; Graham v Campbell (1878) 7 Ch D 490 at 494 and Griffith v Blake (1884) Ch D 474.
Other discretionary factors
[820] Apart from the foregoing issues the plaintiff expressly disclaimed any argument that the Court should refuse to enforce the undertakings in the exercise of its discretion. It did not refer to any other factors as matters justifying such a refusal, and I have been unable to identify any. On the contrary some aspects of the plaintiff’s conduct leading up to the application for the injunction reflect poorly upon it. First, the plaintiff knew of the misrepresentations in August 1993 (as I have found above[371]), but made no application to the court until June 1994. This delay is unexplained. Second, it is apparent that the application had been in preparation for some time; the plaintiff had several lengthy affidavits. Kevin Dart testified:
[371]Paras [656]-[659].
“HIS HONOUR: What was the urgency? I shouldn’t assume something, sorry. The Court record seems to indicate that the proceedings proceeded with some degree of urgency; is that right?-- From memory, I think, your Honour, it was approaching the end of the escrow date.
But this had been known for 12 months. What was the sudden rush? What brought about the sudden rush?-- It was a lot of - it wasn’t a sudden rush, though it may appear that way. There was quite a lot of discussion that led up to this at that period of time, as to whether we were actually going to go down the path of litigation. It was serious consideration.
It appears from the Court record that, when you first came to Court, you did so ex parte, that is, without the other side present; was that right?-- I don’t recall, your Honour, whether that was the case.
Can you think of any circumstances that existed around about 1 June, the day the writ was issued, which amounted to urgency?-- Nothing comes to mind. We would have had advice on it. There would have been a reason for us to do it.”
The plaintiff offered no explanation of why it did not bring the application on notice. It did not even send a letter before action. The circumstances suggest an attempted ambush. In light of my findings it is unnecessary to elaborate on these matters.
Amount of damages
[821] The amount which should be ordered to be paid pursuant to the undertakings is the full amount of the cross-claimants’ loss caused by the injunctions. None of the difficult questions involving remoteness and measure of damages discussed by Aickin J in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd[372] arises in this case. The amount of the cross-claimants’ loss is the value of the options of which they were deprived. The options were of course a chose in action, but they were readily marketable (being listed on the stock exchange) and were freely assignable. Their value is to be measured by the amount for which the trustee defendants could have sold them on the date of the injunction.[373] The trustee defendants each held 400,000 options. The evidence of Mr Willis (who was called by the plaintiff) established that the level of trading in the plaintiff’s options was so low that any attempt to sell parcels of that size on market would have depressed the price significantly. Mr Willis gave evidence that the options would have realised their best price through a private placement. A vendor endeavouring to place parcels of options of this size would have been obliged to accept a discount on the market price. That effect, called “blockage”, has been recognised in a number of cases.[374] Mr Willis valued the options by this method. His opinion was that on 1 June 1994 the options so valued were worth 90 cents each.
[372](1979) 146 CLR 249 at pp 262 ff.
[373]It might have been replacement cost had the defendants treated the plaintiff’s conduct as repudiation of the option contracts, elected to determine those contracts and gone into the market to obtain replacements.
[374]Gregory v Commissioner of Taxation (1971) 123 CLR 547 at pp 570-572 per Gibbs J; Executors of the Estate of Bruce-Smith v Commissioner of Taxation (1973) 130 CLR 340 at pp 345-348 per Stephen J; Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at p 382 per Mason J; Commissioner of Taxation v Pacific Dunlop Ltd (1999) 87 FCR 253 at p 277 (Full Court).
[822] That represented a very substantial discount from the market price of $1.40 on that date. I felt some scepticism about the size of that discount. However in the end Mr Willis’ evidence was unshaken by cross-examination and uncontradicted by any other witness. I have come to the conclusion that I must accept it. It follows that each of the pairs of cross-claimants is entitled to damages of $360,000 pursuant to the plaintiff’s undertaking as to damages.
The balance payable under Second Deed
[823] Under the Second Deed, the third defendants sold their remaining 410 A-class shares in Evtech to the plaintiff and the fourth defendant sold his remaining 400 shares. The third defendants were paid $3,400 on the signing of the deed and the fourth defendant was paid $2,400. A balance of $37,600 each remained payable to the cross-claimants. Curiously, they sought a declaration that the deed remained binding on the plaintiff, but did not seek judgment for the outstanding price.
[824] The cross-claimants have succeeded in relation to the Second Deed.[375] There is, however, a possible problem in making the declaration sought, since Belrida is party to the deed and has compromised its position with the plaintiff. In its written submissions the plaintiff recognised that unless it could avoid its obligations under the Second Deed, it would be liable to the cross-claimants for the outstanding portion of the price. There seems to be no reason why judgment should not be entered accordingly.
[375]Para [723].
Interest
[825] No specific submissions were addressed to me on the question of interest. The cross-claimants are entitled to interest on the balance of the price payable under the Second Deed from the date when payment was due, namely 29 July 1994. As regards the damages payable pursuant to the undertaking as to damages, interest should be payable from 1 June 1994. It is true that the claim was brought only in 2000, but claims of this nature are often not brought until after the trial of the action. In the absence of any reason to adopt a different figure, it seems equitable that interest should be at the same rate as that payable on the plaintiff’s judgment.
[826] I propose to make the following orders:
1. Judgment for the plaintiff against the third, fourth and fifth defendants for $604,634.30 plus interest to date, calculated from 1 June 1994 at the rate which is one percent higher than the benchmark rate of the National Australia Bank from time to time.
2. Judgment for the first cross-claimants against the plaintiff for $397,600 plus interest to date, calculated on $360,000 from 1 June 1994 and on $37,600 from 29 July 1994, at the rate which is one percent higher than the benchmark rate of the National Australia Bank from time to time.
3. Judgment for the second cross-claimants against the plaintiff for $397,600 plus interest to date, calculated on $360,000 from 1 June 1994 and on $37,600 from 29 July 1994, at the rate which is one percent higher than the benchmark rate of the National Australia Bank from time to time.
[827] I shall relist the action for argument as to the form of the order and costs.
ANNEXURE A
TESTING BY MR BOUCHER AND MR WELSTEAD ON 8 DECEMBER 99 (a)
| Test | Sware | From/to | Network | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Total |
| 1 | EC 2.3 | Cptr è fax | Cellular | NA (b) | ||||||||||
| 2 | EC 2.3 | Cptr è fax | Cellular | r | r | r | r(c) | r | r | r | r | r | r(d) | 0/10 |
| 3 | EC 1 | Cptr è fax | Cellular | ü | ü | r | r | r | r | ü | r | ü | r | 4/10 |
| 4 | EC 1 | Fax è cptr | Cellular | r | r | r | r | r | r | r | 0/7 | |||
| 5 | EC 2.3 | Fax è cptr | Cellular | r | r | r | 0/3 | |||||||
| 6 | EC 2.3 | Cptr è fax | PSTN | ü | ü | ü | ü | ü | 5/5 | |||||
| 7 | EC 2.3 | Fax è cptr | PSTN | r | r | 0/2 | ||||||||
| 8 | QL | Cptr è fax | PSTN | ü | ü | ü | ü | r | 4/5 | |||||
| 9 | QL | Fax è cptr | PSTN | 0/? | ||||||||||
| 10 | QL | Fax è cptr | PSTN | ü | ü | 2/2 | ||||||||
| 11A | EC 1 | Cptr è fax | PSTN | r | r | 0/2 | ||||||||
| 11B | EC 1 | Fax è cptr | Cellular | r | r | 0/2 | ||||||||
| 12 | EC 2.3 | Fax è cptr | PSTN | r | r | 0/2 |
(a) All tests used the Evtech mk II modem
(b) Incorrect class of fax machine invalidated test 1
(c) Probable mobile phone problem
(d) A further three redials also failed
ANNEXURE B1
JOINT DATA TESTING USING CELLULAR NETWORK ON 14 DECEMBER 99
| Test | Swre | Modem | From/to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | T |
| 3 | EC 1 | ET mk II | Cptr è BB(a) | r | r | r | r | r | 0/5 | |||||
| 4 | EC 1 | ET mk II | Cptr è BB(b) | ? | ? | ?/2 | ||||||||
| 4A | EC 1 | ET mk II | Cptr è BB(a) | ? | ? | r | ?/3 | |||||||
| 5 | EC 1 | ET mk II | Cptr è ? | r | ||||||||||
| 11 | EC 1 | ET mk II | Cptr è cptr | ü(c) | 1/1 | |||||||||
| 14 | EC 1 | ET mk I v 2 | Cptr è cptr | r | r | r | r | r | r | r | r | r | r | |
| r | r | r | r | r | 0/15 | |||||||||
| 15 | EC 1 | ET mk I v 2 | Cptr è cptr(d) | NA | r | NA | r | r | r | 0/4 | ||||
| 20 | EC 1 | ET mk II | Cptr è cptr | r | r(d) | r(d) | r(d) | 0/4 |
(a) download from bulletin board
(b) upload to bulletin board
(c) file received but sending computer crashed
(d) receiving computer on PSTNNA manually aborted
ANNEXURE B2
JOINT DATA TESTING USING PSTN ON 14 DECEMBER 99
| Test | S’ware | Modem | From/to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | T |
| 8 | EC 1 | ET mk II | Cptr è cptr | ü | 1/1 | |||||||||
| 13 | EC 1 | ET mk I v 2 | Cptr è cptr | r | ü | ü | 2/3 | |||||||
| 16 | EC 1 | ET mk I v 2 | Cptr D cptr | r | r | r | r | r | r | r | 0/6 | |||
| 20 | EC 1 | ET mk II | Cptr è cptr | r (a) | r(b) | r(b) | r(b) | 0/4 |
(a) Cellular to cellular
(b) Sending computer using cellularANNEXURE B3
JOINT FAX TESTING USING CELLULAR NETWORK ON 14 DECEMBER 99
| Test | S’ware | Modem | From/to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | T |
| 1 | EC 1 | ET mk II | Cptr è fax | ü | ü | 2/2 | ||||||||
| 2 | EC 1 | ET mk II | Fax è cptr | r | r | r | r | r | r | r | 0/7 | |||
| 6 | EC 1 | ET mk II | Cptr è fax | r | r | r | r | 0/4 | ||||||
| 9 | EC 1 | ET mk II | Cptr(a) è cptr | ü | ||||||||||
| Fax è cptr | r(b) | ü | 2/3 | |||||||||||
| 10 | EC 1 | ET mk II | Cptr è cptr | r(c) | r | |||||||||
| 12 | EC 1 | ET mk I v 2 | Cptr è cptr | r | r | r | r | 0/4 | ||||||
| 18 | EC 1 | ET mk I v 2 | Cptr è fax | ü | r | r | r | |||||||
| EC 2.3 | Fax è cptr | r | r | 1/6 | ||||||||||
| 19 | EC 1 | ET mk II | Fax è cptr | r | r | |||||||||
| EC 2.3 | r | r | r | r | r | 0/7 |
(a) Sending computer was using PSTN
(b) QEMM error, ie possible extraneous cause
(c) Fax sent, but computer crashed
ANNEXURE B4
JOINT FAX TESTING USING PSTN ON 14 DECEMBER 99
| Test | S’ware | Modem | From/to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | T |
| 7 | EC 1 | ET mk II | Fax è cptr | NA | r | |||||||||
| Cptr è fax | ü | ü | 2/3 | |||||||||||
| 8 | EC 1/EC 1 | ET mk II | Cptr è cptr | (a) | r | |||||||||
| EC 1/EC 2.3 | ü | ü | 2/3 | |||||||||||
| 17 | EC 1 | ET mk I ver 2 | Cptr è fax | r | ü | r | r | r | 1/5 |
(a) data test
ANNEXURE C
FAX TESTING BY MR WELSTEAD USING PSTN ON 2, 15 AND 16 AUGUST 2000
Test Software Modem From/To 1 2 3 4 5 6 7 8 9 10 Total 1 QL II Evtech(a) Cptr è Fax 2 QL II Maestro Cptr è Fax 3 QL II Simple Cptr è Fax 4 EC 2.3 Maestro Cptr è Fax r r r r 0/4 5 EC 2.3 Simple Cptr è Fax r r r r r 0/5 6 EC 2.3 Evtech Cptr è Fax 7 EC 1 Evtech Cptr è Fax 8 EC 1 Maestro Cptr è Fax 9 EC 1 Simple Cptr è Fax 10 EC 2.3 Simple Fax è Cptr r r r r r r r r 0/8(b) 11 EC 2.3 Maestro Fax è Cptr r r r 0/3(b) 12 EC 2.3 Evtech Fax è Cptr r r r 13 QL II Evtech Fax è Cptr ü ü ü ü ü ü ü ü ü ü 10/10 (a)Reference to the Evtech modem is to the IMS Mark I version 2 (“rat’s tail”) modem
(b)The failures referred to in the evidence have arbitrarily been attributed to the earliest attempts
ANNEXURE D
DATA TESTING BY MR WELSTEAD USING PSTN ABOUT 25 AUGUST 2000
Test Software Modem Mode 1 2 3 4 5 6 7 8 9 10 Total 1 EC 1 Evtech(a) Send r r r r r r r r r r 0/10 2 EC 1 Maestro Send r r r r r r r r r r 0/10 3 EC 1 Simple Send r r r r r r r r r r 0/10 4 EC 1 Evtech Receive r r r r r 0/5 5 EC 1 Maestro Receive r (b) (b) (b) (b) 0/1 6 EC 1 Simple Receive r (b) (b) (b) (b) 0/1 7 Supercom Evtech Send ü ü ü ü ü ü ü ü ü ü 10/10 8 Supercom Maestro Send ü ü ü ü ü ü ü ü ü ü 10/10 9 Supercom Simple Send ü ü ü ü ü ü ü ü ü ü 10/10 10 Supercom Evtech Receive ü ü ü ü ü ü ü ü ü ü 10/10 11 Supercom Maestro Receive ü ü ü ü ü ü ü ü ü ü 10/10 12 Supercom Simple Receive ü ü ü ü ü ü ü ü ü ü 10/10 13 QL II Evtech Send ü ü ü ü ü ü ü ü ü ü 10/10 14 QL II Maestro Send ü ü ü ü ü ü ü ü ü ü 10/10 15 QL II Simple Send ü ü ü ü ü ü ü ü ü ü 10/10 16 QL II Evtech Receive ü ü ü ü ü ü ü ü ü ü 10/10 17 QL II Maestro Receive ü ü ü ü ü ü ü ü ü ü 10/10 18 QL II Simple Receive ü ü ü ü ü ü ü ü ü ü 10/10 19 EC 2.3 Evtech Send r r r r r 0/5 20 EC 2.3 Maestro Send r (b) (b) (b) (b) 0/1 21 EC 2.3 Simple Send r (b) (b) (b) (b) 0/1 22 EC 2.3 Evtech Receive r r r r r 0/5 23 EC 2.3 Maestro Receive r (b) (b) (b) (b) 0/1 24 EC 2.3 Simple Receive r (b) (b) (b) (b) 0/1 (a)Reference to the Evtech modem is to the IMS Mark I version 2 (“rat’s tail”) modem
(b) Possible failures – the evidence was ambiguous
ANNEXURE E
FAX TESTING BY MR WELSTEAD ON PSTN ON 18 – 19 SEP 00
| Test | Modem | Software | From V to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Total |
| 1 | Evtec II | QLII Fax | Cptr è fax | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | 10/10 |
| 2 | Maestro | QLII Fax | Cptr è fax | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | 10/10 |
| 3 | Simple | QLII Fax | Cptr è fax | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | 10/10 |
| 4 | Maestro | EC 2.3 | Cptr è fax | ü | ü | r | r | ü | r | ü | ü | r | ü | 6/10 |
| 5 | Simple | EC 2.3 | Cptr è fax | ü | ü | ü | ü | ü | ü | ü | r | ü | r | 8/10 |
| 6 | Evtec II | EC 2.3 | Cptr è fax | r | ü | ü | ü | ü | ü | ü | r | ü | r | 7/10 |
| 7 | Evtec II | EC 1 | Cptr è fax | ü | r | r | r | r | r | r | r | r | r | 1/10 |
| 8 | Maestro | EC 1 | Cptr è fax | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 9 | Simple | EC 1 | Cptr è fax | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 10 | Simple | EC 2.3 | Fax è cptr | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 11 | Maestro | EC 2.3 | Fax è cptr | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 12 | Evtec II | EC 2.3 | Fax è cptr | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 13 | Evtec II | EC 1 | Fax è cptr | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 14 | Maestro | EC 1 | Fax è cptr | r | r | r | r | r | r | r | r | r | r | 0/10 |
| 15 | Simple | EC 1 | Fax è cptr | CANCELLED | ||||||||||
| 16 | Evtec II | QLII | Fax è cptr | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | 10/10 |
| 17 | Maestro | QLII | Fax è cptr | CANCELLED | ||||||||||
| 18 | Simple | QLII | Fax è cptr | CANCELLED | ||||||||||
ANNEXURE F
TESTING ELECTROCOMM AND IMS MODEM BY DR GRAHAM USING CELLULAR NETWORK ON 7 SEPTEMBER 1999
Test Action Phone 1 2 3 4 5 6 7 8 9 10 1 Send short file NEC ü Receive short file ü 2 Send long file NEC ? ü 3 Various NEC ü ü ? ? 4 Receive fax NEC r r r r Send fax ü ü Receive fax r 5 Receive fax Ericsson r r r r Send fax ü ü ü Receive fax r r r 6 Send short file Ericsson ü Receive short file ü : FINDINGS ON MONEY ADVANCED BY THE PLAINTIFFANNEXURE G
Date (a) Payee Payments to third parties claimed by plaintiff Payments direct to Evtech Claimable by plaintiff Not claimable by plaintiff Disputed Total dspd Undsptd Total undspd Item Total Item Total 14/04/93 PM Gillmore Apple & NEC $9,226.21 $9,448.00 20/04/93 Mobiles Galore $1,290.00 21/04/93 Petty Cash $18.95 21/04/93 Evtech Pty Ltd $8,319.00 22/04/93 Sorrento Real Estate $2,345.65 23/04/93 Network Printing $65.00 23/04/93 Allens Fax Hire $120.00 23/04/93 American Express travel $869.90 27/04/93 Network Printing $78.00 27/04/93 Qld Newspapers $899.95 28/04/93 Computerland $521.00 05/05/93 Petty Cash $137.63 05/05/93 Cost Less Car Rentals $738.60 07/05/93 Telecom Australia $572.30 07/05/93 PM Gillmore $9,232.00 07/05/93 PM Gillmore $1,776.80 07/05/93 PM Gillmore $3,120.34 07/05/93 Bank T/T Fee $30.00 14/05/93 Sawyer Public Relations $6,725.00 14/05/93 Telecom Australia $343.75 18/05/93 S. O'Connor $1,501.00 19/05/93 Coventrys TV $56.75 20/05/93 NJK Computer Repairs $495.00 20/05/93 Scotpac Freight $40.00 20/05/93 Power GC Insurance $115.00 21/05/93 Petty Cash-Fuel $33.50 21/05/93 Petty Cash-Travel $137.50 21/05/93 Petty Cash-Repairs $16.50 21/05/93 Petty Cash- Promotion $69.95 26/05/93 Petty Cash-Bank A/c $59.05 Before settlement of First Deed $17,592.21 $4,929.83 $27,561.29 $8,319.00 27/05/93 Evtech Pty Ltd $100,000.00 28/05/93 Petty Cash $198.10 28/05/93 Evtech Pty Ltd $15,000.00 31/05/93 Mastercard $95.80 01/06/93 Evtech Pty Ltd $15,000.00 03/06/93 Cost Less - see 05/05/93 03/06/93 McCullough Robertson $11,529.21 03/06/93 Amex travel - see 24/04/93 03/06/93 TNT Air Couriers $144.60 03/06/93 Telecom Australia $285.15 04/06/93 Petty Cash $44.05 09/06/93 Power Sonic $291.30 09/06/93 Evtech Pty Ltd $30,000.00 11/06/93 Advanced Microsystem Research $5,158.00 16/06/93 Petty Cash $43.55 16/06/93 Evtech Pty Ltd $150,000.00 18/06/93 Evtech Pty Ltd $15,000.00 24/06/93 Allens Fax Hire $240.00 24/06/93 TNT Air Couriers $33.40 30/06/93 Telecom Australia $320.40 30/06/93 F Vaughan $49.95 30/06/93 Evtech Pty Ltd Withdrawn 30/06/93 AMR - see 11/6/93 30/06/93 Gillmore - see 14/4/93 30/06/93 Mastercard $470.90 01/07/93 Evtech Pty Ltd $15,000.00 07/07/93 Deed date for full advance $35,776.67 $5,649.78 $27,561.29 $348,319.00
09/07/93 Petty Cash $201.65 09/07/93 Bailleu Knight Frank $75.00 12/07/93 Evtech Pty Ltd $12,000.00 12/07/93 Actual date of full advance $35,978.32 $5,724.78 $27,561.29 $360,319.00 16/07/93 Evtech Pty Ltd $10,000.00 20/07/93 Qld Newspapers $379.10 20/07/93 TNT Air Couriers $432.32 20/07/93 K Barr Travel to WA $300.00 21/07/93 Courier OfficeSupplies $86.40 21/07/93 Frank O'Neill Locksmiths $87.50 23/07/93 S O'Connor $750.00 28/07/93 $70,000 loan agreement $36,278.32 $7,460.10 $27,561.29 $370,319.00 28/07/93 Petty Cash $8.50 30/07/93 Evtech Pty Ltd $16,000.00 03/08/93 Petty Cash $420.00 04/08/93 Demand for $65,293.75 $36,698.32 $7,468.60 $27,561.29 $386,319.00 10/08/93 Petty Cash Melb Travel $500.00 12/08/93 Telecom Australia $120.50 12/08/93 Evtech Pty Ltd $4,000.00 13/08/93 BelridaEnterprises Pty Ltd $3,000.00 13/08/93 Fern Group Travel $1,107.00 13/08/93 Wetspac Bank Springwood $3,414.93 13/08/93 MJ Coventry $3,427.00 13/08/93 Second deed $40,733.75 $15,002.60 $27,561.29 $390,319.00 18/08/93 Petty Cash $170.00 20/08/93 Hong Kong Travel $4,000.00 20/08/93 Evtech Pty Ltd $40,000.00 27/08/93 Evtech Pty Ltd $20,000.00 27/08/93 Petty Cash $106.30 03/09/93 Evtech Pty Ltd $20,000.00 03/09/93 Petty Cash $100.00 09/09/93 Petty Cash $198.15 23/09/93 Petty Cash $88.25 24/09/93 Evtech Pty Ltd $30,000.00 30/09/93 Petty Cash $141.80 08/10/93 Centrelease Photocopier lease $420.00 08/10/93 Evtech Pty Ltd $10,000.00 08/10/93 Petty cash Travel $754.45 12/10/93 Evtech Pty Ltd $20,000.00 15/10/93 Imprimis CAE oscilliscope Withdrawn 29/10/93 Evtech Pty Ltd $10,000.00 31/10/93 Evtech Pty Ltd motor vehicle $2,600.00 (see also 31/12/93) 01/11/93 New modem proposed $49,312.70 $15,002.60 $27,561.29 $540,319.00 05/11/93 Petty Cash Sydney Trip $400.00 12/11/93 Petty Cash $57.80 12/11/93 Evtech Pty Ltd $10,000.00 24/11/93 PM Gillmore Travel Reimbursements $74.70 24/11/93 Phone Adaptor $8.25 07/12/93 Petty Cash $15.00 16/12/93 Evtech Pty Ltd $25,000.00
17/12/93 Petty Cash $108.75 17/12/93 McCullough Robertson Not proved $245.40 22/12/93 Petty Cash $33.80 31/12/93 Tabe Trust $1,000.00 31/12/93 B Karahalios $1,000.00 31/12/93 Evtech Pty Ltd Motor Vehicle $1,300.00 (see also 31/10/93) 31/12/93 Evtech Pty Ltd Rental Premises Not proved $29,167.00 31/12/93 Evtech Pty Ltd Loan Interest Not proved $29,479.15 07/01/94 Petty Cash $62.60 14/01/94 Petty Cash $247.35 14/01/94 Evtech Pty Ltd $25,000.00 04/02/94 Konica $50.12 04/02/94 Telecom Australia $654.29 04/02/94 Petty Cash Travel $141.00 04/02/94 Petty cash Materials $29.60 04/02/94 Telecom Australia $152.25 04/02/94 Evtech Pty Ltd $25,000.00 16/02/94 Petty Cash $109.90 16/02/94 Petty Cash Materials $222.40 16/02/94 Petty Cash Sales Lunch $32.80 18/02/94 Telecom Australia $430.03 18/02/94 Evtech Pty Ltd $50,000.00 25/02/94 Petty Cash $120.20 TOTAL TO DATE $51,632.22 $17,633.92 $87,752.84 $675,319.00 NOTE: (a) In most cases, the date is the date shown on exhibit 26 (date of payment); but some dates have been changed to the date when the liability was incurred, in order to more accurately show the true position. SUMMARY
Accumulated total to date 26/05/1993 07/07/1993 12/07/1993 28/07/1993 04/08/1993 13/08/1993 01/11/1993 25/02/1994 Disputed and claimable: paid to third parties $17,592.21 $35,776.67 $35,978.32 $36,278.32 $36,698.32 $40,733.75 $49,312.70 $51,632.22 Disputed and not claimable: paid to third parties $27,561.29 $27,561.29 $27,561.29 $27,561.29 $27,561.29 $27,561.29 $27,561.29 $87,752.84 Undisputed: paid to third parties $4,929.83 $5,649.78 $5,724.78 $7,460.10 $7,468.60 $15,002.60 $15,002.60 $17,633.92 Paid to Evtech $8,319.00 $348,319.00 $360,319.00 $370,319.00 $386,319.00 $390,319.00 $540,319.00 $675,319.00 Claimable: paid to third parties $22,522.04 $41,426.45 $41,703.10 $43,738.42 $44,166.92 $55,736.35 $64,315.30 $69,266.14 Claimable: paid to third parties and Evtech $30,841.04 $389,745.45 $402,022.10 $414,057.42 $430,485.92 $446,055.35 $604,634.30 $744,585.14 Claimed: paid to third parties $50,083.33 $68,987.74 $69,264.39 $71,299.71 $71,728.21 $83,297.64 $91,876.59 $157,018.98 Claimed paid to third parties and Evtech $58,402.33 $417,306.74 $429,583.39 $441,618.71 $458,047.21 $473,616.64 $632,195.59 $832,337.98
2
19
3