Cowling v Brian Fletcher in his capacity as Trustee for the Brian Fletcher Family Trust
[2001] WASC 286
COWLING -v- BRIAN FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST & ANOR [2001] WASC 286
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 286 | |
| Case No: | CIV:2444/1998 | 19-21 SEPTEMBER 2001 | |
| Coram: | McKECHNIE J | 21/09/01 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for plaintiff | ||
| B | |||
| PDF Version |
| Parties: | JAMES JOHN COWLING BRIAN FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST BAYSILK HOLDINGS PTY LTD (ACN 053 428 603) |
Catchwords: | Contract of employment Whether entitlement to share in business Case turns on own facts No new principles |
Legislation: | Nil |
Case References: | Nil Alghussein Establishment v Eton College [1988] 1 WLR 587 Atlantic Shipping & Trading Co v Louis Dreyfus & Co [1922] 2 AC 250 Australian Cooperative Foods Ltd v Norco Cooperative Ltd (1999) 46 NSWLR 267 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Enzed Technology Pty Ltd v Benge (1989) 1 WAR 164 Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 Fitzgerald v Masters (1956) 95 CLR 420 G W Fisher Limited v Eastwoods Limited [1936] 1 All ER 421 Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 Legione v Hateley (1983) 152 CLR 406 Morris v Baron and Company [1918] AC 17 Mulcahy v Hoyne (1925) 36 CLR 41 New Holland Mining NL v Weaver Oil & Gas Corporation Ltd, unreported; SCt of WA (Wheeler J); Library No 980112; 12 March 1998 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 Pearl Mill Co Limited v Ivy Tannery Co Limited [1919] 1 KB 78 Re Chas Jeffries & Sons Pty Ltd [1949] VLR 190 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Waltons Stores (Interstate) v Maher (19871988) 164 CLR 387 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
BRIAN FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST
First Defendant
BAYSILK HOLDINGS PTY LTD (ACN 053 428 603)
Second Defendant
Catchwords:
Contract of employment - Whether entitlement to share in business - Case turns on own facts - No new principles
Legislation:
Nil
(Page 2)
Result:
Judgment for plaintiff
Category: B
Representation:
Counsel:
Plaintiff : Mr G A Murphy & Ms L Tuang
First Defendant : Mr C P Stokes
Second Defendant : Mr C P Stokes
Solicitors:
Plaintiff : Minter Ellison
First Defendant : Chris Stokes & Associates
Second Defendant : Chris Stokes & Associates
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
Alghussein Establishment v Eton College [1988] 1 WLR 587
Atlantic Shipping & Trading Co v Louis Dreyfus & Co [1922] 2 AC 250
Australian Cooperative Foods Ltd v Norco Cooperative Ltd (1999) 46 NSWLR 267
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Enzed Technology Pty Ltd v Benge (1989) 1 WAR 164
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336
Fitzgerald v Masters (1956) 95 CLR 420
G W Fisher Limited v Eastwoods Limited [1936] 1 All ER 421
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348
Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190
Legione v Hateley (1983) 152 CLR 406
Morris v Baron and Company [1918] AC 17
(Page 3)
Mulcahy v Hoyne (1925) 36 CLR 41
New Holland Mining NL v Weaver Oil & Gas Corporation Ltd, unreported; SCt of WA (Wheeler J); Library No 980112; 12 March 1998
Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854
Pearl Mill Co Limited v Ivy Tannery Co Limited [1919] 1 KB 78
Re Chas Jeffries & Sons Pty Ltd [1949] VLR 190
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
The Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Waltons Stores (Interstate) v Maher (19871988) 164 CLR 387
(Page 4)
- McKECHNIE J:
Introduction
1 This is a claim for damages for breach of contract.
Background and parties
2 Mr Fletcher developed, through his company Baysilk Pty Ltd, a series of health clubs known as BC The Body Club. Baysilk had another shareholder, Mr McCabe, who was a minority shareholder.
3 Mr Cowling was a banker at St George's Bank whom Mr Fletcher had come to know professionally. Mr Ohayon was employed at BC The Body Club in April 1996 as financial controller. Mr Phillip Gannon had been Mr Fletcher's accountant for many years.
4 In early 1996, Mr Cowling accepted an offer of employment with Baysilk effectively to act as General Manager. To that end, Mr Cowling entered into two agreements concerning the employment. Those agreements are the subject of this action.
5 It would appear that from the time of Mr Cowling and Mr Ohayon's engagement, Mr Fletcher took a diminished role in the company. Later, at the end of 1996, the parties entered into negotiations to buy out Mr Fletcher. Ultimately, at the end of 1996, Tonesports Pty Ltd, a company controlled by Messrs Cowling, Ohayon and McCabe, took over BC The Body Club. The parties appear to have fallen out because, on 25 October 1998, Mr Fletcher issued a District Court writ against Tonesports for recovery of $200,000. On 2 December 1998, Mr Cowling, through his solicitors, issued a letter of demand against Mr Fletcher and Baysilk and these proceedings resulted.
The contracts of employment
6 The parties entered into simultaneous agreements on 23 April 1996. The deed of employment, which is exhibit 4, was in standard form and was preceded, in logic at least, by the agreement, which I will refer to as the share agreement to differentiate between them.
7 The recitals in the share agreement provide:
"B. As an inducement for Mr Cowling to enter into that Deed Mr Fletcher has agreed to transfer to Mr Cowling the
(Page 5)
- legal and beneficial ownership in Ten fully paid ordinary shares in Baysilk, such shares comprising FIVE (5%) per cent of the total issued and aid up capital of Baysilk.
- C. As a further inducement for Mr Cowling to enter into that Deed Mr Fletcher has agreed to grant Mr Cowling an option as hereinafter set out to acquire the legal and beneficial ownership in a further Thirty 30 fully paid ordinary shares in Baysilk, such shares comprising FIFTEEN (%) per centum of the total issued and paid up capital of Baysilk at any time during the period.
D. Mr Fletcher has further agreed to purchase from Mr Cowling upon Mr Cowling so requesting in writing all the shares held by him in Baysilk at any time up to the expiration of 60 days following the period upon the terms and conditions hereinafter appearing."
8 The operative clauses are cl 3 and cl 4:
"3. In consideration of the matters in that Deed and in the premises Mr Fletcher agrees that upon the execution hereof he shall as beneficial owner immediately transfer to Mr Cowling legal and beneficial ownership in Ten (10) fully paid ordinary shares in Baysilk free of all encumbrances at no monetary cost to Mr Cowling and shall tender to him the necessary share certificates and executed transfer therefor.
4. It is agreed between the parties hereto that Mr Cowling's ownership of the Ten (10) fully paid ordinary shares in Baysilk shall carry with it the right for Mr Cowling to receive and be paid (on a monthly basis in arrears) FIVE (5%) per centum of the 'cash profit of Baysilk' which expression shall mean the actual operating revenue received by Baysilk howsoever derived in each and every month less the actual money necessarily paid by Baysilk to third parties in the ordinary course of business as reflected in the monthly management accounts of Baysilk but shall not include any non cash accounting items such as depreciation or payments or accruals to related persons, corporations or other entities but so that the same
(Page 6)
- rights shall attach to every issued share in Baysilk and if necessary Mr Fletcher shall cause the Articles of Association of Baysilk to be amended to allow and ratify the right herein."
9 Mr Cowling described in cross-examination his reasons for the two clauses. The first was to provide him with security and growth capital while the second was more a salary incentive.
10 A question arises as to the proper construction of cl 4. There are two alternative constructions set out by the plaintiff in the statement of claim, par 3. If the first alternative is correct, then the responsibility for any loss or damage would fall on Mr Fletcher for failing to transfer the shares, thereby depriving Mr Cowling of his entitlement. If the second alternative is correct, the responsibility would fall on Baysilk for failing to carry out its part of the bargain.
11 A number of matters are not in issue or are common ground. They are:
1. Mr Cowling entered into the deed of employment and thereafter carried out its terms and conditions until 31 December 1996 when the business was sold to Tonesports.
2. No shares in Baysilk were ever transferred into his name under the share agreement.
3. He never received 5 per cent of the cash monthly profit. That profit has been calculated by Mr Ohayon and confirmed by an independent accountant, Mr Bailey, at $64,415.16.
The defendants' contentions
12 In the course of case management prior to trial, the defendants were given the opportunity to make amendments to the defence. Such amendments were necessary, in part, to respond to the plaintiff's amendments. The defendants did not do so.
13 After the plaintiff's counsel opened its case at trial, and following an interchange with me about the law and the pleaded defence, counsel for the defendants, when he came to open the defence, foreshadowed amendments. On any view, and for many reasons, this is unsatisfactory. At the close of the defendants' case, counsel proposed a minute of amendment. No explanation was proffered for the lateness of the amendment.
(Page 7)
14 Because the amendment did not require further evidence, notwithstanding the above, I allowed the amendment and reserved the question of costs.
15 Counsel then applied for a further amendment because of something the plaintiff's counsel had alluded to in opposing the amendment. This further amendment was refused. The overall impression gained was that the defence was being altered to take account of changing legal circumstances, not because of the discovery of new relevant facts.
16 The defendants' contentions were threefold. First, the contracts of employment and the share agreement were abandoned by the parties by mutual agreement. Alternatively, the plaintiff had waived his rights under them. Alternatively, the plaintiff is estopped from asserting his rights under the share agreement.
17 The defendants accept that they carry the burden of establishing one of the alternatives on the balance of probabilities in order to succeed.
18 The defence thus pleaded raised both legal and factual issues. I shall deal first with the factual issues. The central issue was whether Mr Cowling told Mr Gannon not to proceed with the share allotment.
19 Mr Cowling flatly denied giving these instructions. It was put to him that his reason for not proceeding may have been linked with a possible capital gains tax exposure raised with him by Mr John Nicholas, an accountant he had engaged for advice in the lead-up to the purchase of BC The Body Club. He gave evidence to the effect, which I accept, that the predominant focus in relation to tax was its impact on Mr Fletcher.
20 Mr Gannon gave evidence in his witness statement of a telephone conversation with Mr Cowling in early November 1996:
"16. In early November 1996 I had a phone conversation with James Cowling. I told him that the allotment of shares to him had been completed and the necessary lodgments made. He told me that he didn't want to proceed with the allotment of shares with Baysilk due to the capitals gain (sic) tax implications to him when he bought the business of 'BC The Body Club'. I said that that was not a problem and I would fix it."
21 There is no contemporaneous note of this conversation by Mr Gannon, nor was any time-sheet being produced of it. He, however,
(Page 8)
- says he has a clear recollection of it. In contrast, his recollection of Mr Ohayon's instructions of 8 October 1996 were entirely dependent upon the written note he made at the time.
22 The date of "early November" is unlikely to be right because the cancellation of the allotments to be filed with the ASC had been prepared on 28 October 1996. During cross-examination, Mr Gannon was taken to a number of matters which affected the reliability of his evidence. In his witness statement he did not refer to early preparation of allotment documents which he claimed had to be redone in October because they were out of date. The witness statement reads as if there was no earlier allotment. However, from exhibit 53, discovered from his archives fairly late in the piece, there may have been earlier allotment documents prepared.
23 Mr Gannon had no memory of a possible allotment to Mr Driscoll, even though it appears he had whited out that name in the members' register before adding details of Mr Cowling. Although the witness conceded that, in a busy practice, now and then, it is difficult to remember events going back some years, he denied lack of memory of this conversation and did not accept he could be in error. He also did not accept he was in error in responses to a subpoena issued last year, although he plainly was. Even when pressed, he would not admit in hindsight he had been wrong.
24 Mr Fletcher, in the course of his evidence, said that in 1998 when the issue arose, Mr Gannon was having some difficulty in remembering and he was looking for diary notes. He was "basically raking up his memory, because it occurred three years before." Mr Fletcher also gave evidence that at some time late in 1996 he had been telephoned by Mr Gannon who said words to the effect: "Cowling has told me that he doesn't want these shares."
25 There are significant questions about Mr Fletcher's credibility in relation to this central issue. He was cross-examined about his response to the original letter of demand from the solicitors, when he wrote:
"Further to your letter of the 2nd Dec '98 and the enclosed agreement.
Prior to the sale of the assets of Baysilk to Tonesports, Cowling, at a meeting at the registered office of Baysilk Holdings gave explicit instructions to Baysilk's accountant, Mr G.P.Gannon not to transfer the shares referred to in your letter.
(Page 9)
- This was stated in front of witnesses and is on the record at Mr Gannon's office.
I could waste more time going into the reason for this, but Cowling knows the reason as much as I do, so if he wishes to churn up even more legal fees to pursue his agenda, so be it."
26 He conceded that the statements in that letter could appear to be embellishments. In fact, of course, they were false. Mr Gannon did not give evidence as to any of the matters in the letter save the telephone communication.
27 The progress of the defence is noteworthy. The defence originally pleaded at 4(b)(i):
"on a date unknown to the Plaintiffs but between August and November 1996, the Plaintiff advised Phillip Gannon on behalf of the Defendants that the Plaintiff had commenced negotiations for the purchase of the business of the Second Defendant and was accordingly not proceeding with the transfer of the 10 fully paid shares…"
28 It was pleaded also that the plaintiff was estopped and precluded from relying on the terms pleaded because by par 6(b):
"between September 1996 and 20 November 1996 Fletcher on behalf of the Defendants agreed to reduce the sale price of the Business to the Plaintiff to take account of the fact that Cowling had never taken his 5% shareholding in Baysilk and would be a shareholder of the plaintiff."
29 This was particularised following a request. The particular request was as to paragraph 6(b) of the defence and counterclaim:.
"6. As to paragraph 6(b) of the defence and counterclaim give the usual particulars of the allegation that Fletcher 'agreed' to reduce the sale price."
- The answer given was:
"6. In or about October 1997 (sic: 1996) Cowling advised Fletcher that he was no longer interested in taking a 5% shareholding in Baysilk Holdings Pty Ltd. Upon receiving that advice Fletcher informed Cowling that the sale price of the business was $2 million."
(Page 10)
30 There is a substantial and unexplained difference between that account, about which no evidence was led, and the defence amended at trial, whereby it was pleaded that Mr Cowling was not proceeding because of the capital gains tax implications. I regard this difference as adversely reflecting on the credibility of Mr Fletcher and the reliability of Mr Gannon.
31 On behalf of the defendants, it was submitted that the objective circumstances supported the fact of the telephone call. These included the subsequent purchase of BC The Body Club, allowing Mr Ohayon to prepare a company return in 1997 showing the Baysilk shareholding at $4, taking part in negotiations about the payment of a dividend to Mr McCabe, and knowing of a dividend to Mr Fletcher, and not taking action until after receipt of the writ in 1998.
32 I do not regard these matters singly, or in combination, as leading to an inference that the telephone call was made. The inference equally available is that Mr Cowling had decided not to enforce his rights, a different thing from waiving them, until his company was sued, following which he took action in response. His assistance to Mr McCabe is as consistent with a desire to help extricate Mr McCabe from Baysilk as with a conscious action taken following a decision to forego his rights.
33 Something certainly caused Mr Gannon to cancel the allotment. However, I am not persuaded on the balance of probabilities that the cause was a telephone call from Mr Cowling. In particular, I do not accept Mr Gannon as a reliable witness about the telephone call. I am therefore not satisfied on the balance of probabilities that Mr Cowling ever purported to cancel or waive the share allotment.
Why did Mr Cowling not extract the 5 per cent cash profit?
34 It is common ground that during the relevant period Mr Cowling did not ever arrange to be paid the 5 per cent cash profit. His explanation is that when he arrived, things were "a bit of a mess" and he did not think it was appropriate. Then there were the intense negotiations to buy the business.
35 The state of the business when he arrived is confirmed by Mr Fletcher in his witness statement, particularly at par 11 and par 13:
"11. A couple of months before James Cowling began with Baysilk I employed Joseph Ohayen as the company's
(Page 11)
- accountant. Jonathan Treadgold had recommended him to me and I believed the company needed to be put on a more organized basis. James Cowling and Joseph Ohayen were jointly responsible for the daily operation and management of Baysilk and the clubs. After James Cowling commenced in late April 1996 I only came into the Claremont head office on an intermittent basis.
- …
13. On a few occasions I asked James Cowling whether he was taking his 5% share of the cash profits. I wasn't involved in the day-to-day administration of Baysilk so I wasn't aware exactly what he was doing. He told me that he hadn't been taking any profits because he was having difficulty establishing what these profits were. Baysilk had changed its system of charging club members to a monthly debiting system supervised by Compuline Solutions a consulting company. By the system the members were debiting from their banks accounts and if there were insufficient funds three further attempts were made a week apart. This meant that at the end of any one-month it was uncertain how much had in fact been received and how much had to be paid back."
36 There is no evidence that the failure to arrange payment was due to any neglect by Mr Cowling in the circumstances, nor do I regard the failure as constituting a waiver of his entitlements.
37 The defendants by par 5 of the amended defence plead by par 5(iii):
"(iii) between 26 April and 31 December 1996 the Plaintiff failed to carry out his obligations as financial director in that he failed to calculate and effect payment to himself of the cash profit of the Second Defendant (if any) for that period and the Second Defendant claims against the Plaintiff the amount of any damages awarded in favour of the plaintiff."
38 I assume this to be a counterclaim equivalent in money to the claim on the basis of Mr Cowling's failure to fulfil his duty. There is no evidence as to the nature of the loss counterclaimed. If Mr Cowling is entitled to the money, delay in claiming may affect the interest to be paid out but not the actual amount. In any event, having regard to the state of
(Page 12)
- the affairs of the business at that time, I am not satisfied that the failure to pay was a breach of duty or neglect.
The estoppel claim
39 It is pleaded in pars 6(e) and (f) of the amended defence as follows:
"(e) the Plaintiff having knowledge of the matters pleaded in paragraphs (a) and (d) above, by his failure to raise any objection thereto at or prior to the non-receipt of any payment in respect of the dividend or the purchase price paid under the Sale Agreement and Supplemental Agreement and induced the Defendants to believe that the Plaintiff had abandoned any claims under the Agreement.
(f) in about February 1998 and in reliance on the plaintiff's conduct pleaded above the First Defendant agreed to the Second Defendant issuing a dividend to Shaun McCabe as a twenty five per cent shareholders of the Second Defendant and entered into the Deed of Settlement dated 10 February 1998."
40 No direct evidence was given by Mr Fletcher in support of this plea and in particular in support of the plea in par 6(f) about reliance and agreement. Counsel for the defendant asked me to draw an inference from the surrounding circumstances to support the plea.
41 Where a witness who is capable of giving direct evidence of a fact does not do so, a court will be slow, perhaps very slow, to draw an inference from indirect circumstances. I decline to draw the inference. In any event, other inferences are equally available.
42 Even if I did draw the inference, there is still no evidence that such conduct was detrimental to the defendants. Mr McCabe had taken action against Baysilk to the extent of obtaining an order for the appointment of an auditor. The device settled upon by those in control of Baysilk was to issue a franked dividend to the extent of Mr McCabe's loan account and to purchase his shares for an amount equivalent to his legal costs.
43 A consequence was that a dividend had to be issued to Mr Fletcher as well and there may well have been tax advantages to that course. There is no evidence that Mr Cowling's failure to make a timely request for his entitlements had any effect, detrimental or otherwise, on the transaction. An attempt was made to argue that there was an exposure to civil
(Page 13)
- penalties by, presumably, not issuing a dividend to Mr Cowling. Although Mr Cowling may have had rights to become a shareholder, he was not in law a shareholder when the dividend was franked and paid. I do not see how a possible liability to civil penalties arose.
The legal issues
44 I have so far confined my judgment to finding facts. I now turn to consideration of the law. That commences with a return to the two contracts. While the two agreements have a nexus, they are capable of independent effect. Indeed they are drafted to be so capable. The share agreement gives rise to immediate rights to transfer in cl 3. This is confirmed by cl 8:
"8. Notwithstanding anything contained in this Agreement or that Deed Mr Fletcher irrevocably and unconditionally agrees that at any time from the date hereof up to 60 days following the expiration of the Period, Mr Cowling may by written notice require Mr Fletcher to purchase and Mr Fletcher hereby so agrees to purchase
(a) those Ten (10) fully paid ordinary shares in Baysilk referred to in clause 3 hereof for a purchase price of ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00), such price to be payable within 30 days of the giving of the notice by Mr Cowling and contemporaneously with such payment Mr Cowling shall deliver to Mr Fletcher the share certificates therefor and duly executed share transfers
(b) those further Thirty (30) fully paid ordinary shares in Baysilk referred to in clause 5 hereof (provided that Mr Cowling shall have exercised the option therein contained) for a purchase price of FOUR HUNDRED AND FIFTY THOUSAND DOLLARS ($450,000.00) such price to be payable within 30 days of the giving of the notice by Mr Cowling and contemporaneously with such payment Mr Cowling shall deliver to Mr Fletcher the share certificates therefor and duly executed share transfers."
(Page 14)
45 This view that they are capable of independent effect fits with the recitals. Mr Cowling's obligation was to execute the deed of employment. Once he did so his rights under cl 3 and cl 4 then accrued to him. It should be noted that those rights continued, notwithstanding a failure to enforce them. Lack of enforcement did not constitute a waiver under the contract and that is made clear by cl 9:
"If either Mr Fletcher or Mr Cowling fail to enforce any of their respective rights pursuant to this Agreement or otherwise at law or equity their failure to enforce does not constitute a waiver of any of their respective rights contained within this Agreement."
46 The employment deed commenced at the same time as the share agreement. The only conclusion possible on the facts is that the contract of employment terminated, by mutual consent, on 31 December 1996 when Baysilk sold BC The Body Club to Tonesport. Mr Cowling has not worked for Baysilk since and Baysilk has not paid him. However, it does not follow that because one contract has been determined, the other has also been terminated in some way.
47 The share agreement was drafted as an inducement for an act in April 1996, namely entering into the contract of employment. The deed of employment was to be performed over a three year period. The defendants plead that the contract was abandoned and they plead that in par 4(c) of the particulars. I have found that there was no oral agreement.
48 So far as the implications are concerned, the pleadings and the implications which are sought to be drawn, relate, it would seem, to the employment contract. In my opinion, the obligations under the share agreement arose in April 1996 when Mr Cowling executed the employment agreement. That agreement is capable of continuing beyond 31 December 1996, independently of the deed of employment.
49 The defendants failed to grant Mr Cowling his rights to shares and it is no answer to say that somehow the contract has come to an end. There is, moreover, no implied refusal by Mr Cowling to perform his obligations under the share contract. Indeed he has performed them. The defendants do not seem to plead that there was consideration for the alleged agreement to abandon the share agreement.
50 I have read the cases which both counsel have referred to. I mean no disrespect to their industry when I say that in the event I am able to dispose of this case on factual grounds and on the construction of the particular contracts. In consequence, I do not need to expand these
(Page 15)
- reasons by legal exposition. The contractual principles I have applied are well-settled and not apparently in issue in this case.
51 There remain two further matters before concluding. The first is the construction of cl 4. The plaintiff, as I have said, advanced two alternative constructions. The construction I favour is that pleaded in the statement of claim par 3(a). I note that the defendants' counsel supports this construction. I reach this view by the use of the phrase in cl 4: "… Mr Cowling's ownership of the 10 … shares … shall carry with it the right … to receive and be paid…"
52 In my judgment, the right to the 5 per cent cash profit under the contract does not accrue to Mr Cowling until he obtains actual ownership in the shares. The obligation to transfer the shares rests on Mr Fletcher, not on Baysilk. Consequently, Mr Cowling's claims under cl 4 are against Mr Fletcher only.
Damages and interest
53 Mr Cowling was entitled to 10 shares and to sell them back to Mr Fletcher at any time, after written notice, for $150,000. I am of the opinion that the damages from Mr Fletcher's failure to transfer the shares is fairly calculated, therefore, at $150,000, which is the lost opportunity for selling them back.
54 The time during which Mr Cowling might have made demand was 60 days following the period which, by reference to the contract of employment, was three years from 23 April 1996. I do not consider that the period as defined in the share agreement was capable of alteration by the earlier termination of the employment contract. The share agreement was only to be amended by written amendment executed by all parties.
55 Mr Cowling did not in fact make demand for the transfer of shares to his name, a precursor to transfer back to Mr Fletcher, until 2 December 1998. That demand allowed Mr Fletcher until 18 December 1998 for compliance. It appears that Mr Gannon did prepare transfer papers and allotment papers at some time, probably June or July, but was told by Mr Cowling (exhibit 53) on 14 August 1996 that they had not been executed "as there may be a change". Mr Cowling did not receive the allotment.
56 While I have found that Mr Cowling's actions did not amount to abandonment or waiver, they are nevertheless relevant as to whether I
(Page 16)
- exercise my discretion to award interest. I consider that about one month from the solicitor's letter would have constituted a reasonable time for Mr Fletcher to have transferred the shares. Consequently, on this aspect of the claim I will order that the plaintiff's claim succeeds in the sum of $150,000 and that the plaintiff is entitled to be paid that sum, together with interest, from 1 January 1999.
57 I turn to the claim for cash profits under cl 4. The plaintiff has made out its claim. The calculation of the sum of $64,415 was not challenged by the defendants and I accept it. Mr Cowling was the general manager and had it in his power to make the payment. Mr Fletcher did not ever instruct him against making the payment. Indeed, it is common cause that Mr Fletcher left the running of the business to Mr Cowling and Mr Ohayon.
58 There is no evidence of any demand having been made prior to the issue of the writ on 24 December 1998. In discretion, I do not consider interest should run on the amount of $64,415.16 until 1 January 1999. Therefore, there will be judgment for the plaintiff against Mr Fletcher for the sum of $214,415.16, together with interest upon that sum calculated from and including, 1 January 1999 at the rate of 6 per cent per annum.
0
15
0