Crossman v Taylor (No 3)
[2011] FCA 734
•29 June 2011
FEDERAL COURT OF AUSTRALIA
Crossman v Taylor (No 3) [2011] FCA 734
Citation: Crossman v Taylor (No 3) [2011] FCA 734 Parties: LYNETTE MARIE CROSSMAN v BRENDAN TAYLOR and WHITE MARINA PTY LTD File number: SAD 32 of 2010 Judge: BESANKO J Date of judgment: 29 June 2011 Catchwords: TRADE PRACTICES — Action for misleading or deceptive conduct in contravention of s 56 of the Fair Trading Act 1987 (SA) (‘the Act’) — where plaintiff and first defendant formed second defendant company for purpose of acquisition and operation of marina business — where plaintiff and first defendant in personal relationship —where first defendant said to have made oral representations which induced plaintiff to enter into the venture including representation that both parties would contribute equally to funding of business — where plaintiff made substantially greater financial contribution to the company — where plaintiff seeks damages or compensation pursuant to ss 84 and 85 of the Act — whether representations were in trade or commerce — whether representations were representations as to future matters for purpose of s 54 of the Act — whether plaintiff entitled to recover all of her contributions
CORPORATIONS —claim by plaintiff for equalisation of contributions made to company under s 233 of the Corporations Act 2001 (Cth) on basis of first defendant’s oppressive conduct under s 232 — where plaintiff said failure to make equal contributions was oppressive conduct — whether failure to meet a pre-incorporation understanding between incorporators of company is in conduct of a company’s affairs for purpose of s 232 — whether even if failure to make contributions was in conduct of a company’s affairs an order for equalisation of contributions would be appropriate under s 233 — where other forms of oppressive conduct might be made out but would not lead to relief sought
EQUITY — where plaintiff alleged existence of fiduciary relationship between plaintiff and first defendant because of proposed joint venture — no fiduciary relationship between incorporators of company
HELD: The defendant had engaged in misleading and deceptive conduct contrary to s 56 of the Act and the plaintiff was entitled to damages in the amount of all of her contributions to the company with interest. The plaintiff did not succeed in the oppressive conduct case or the fiduciary duty case.
Legislation: Corporations Act 2001 (Cth) ss 232 and 233
Evidence Act 1995 (Cth) s 81
Fair Trading Act 1987 (SA) ss 56, 84, 85
Federal Court of Australia Act 1976 (Cth) ss 22, 23Cases cited: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, cited
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, cited
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, cited
Crossman v Taylor (No 2) [2010] FCA 707, cited
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, cited
Fasold v Roberts (1997) 70 FCR 489, cited
Fox v Percy (2003) 214 CLR 118, cited
Friend v Brooker (2009) 239 CLR 129, cited
Hearn v O’Rourke [2003] FCAFC 78, cited
Henville v Walker (2001) 206 CLR 459, cited
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, cited
Houghton v Arms (2006) 225 CLR 553, cited
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, cited
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413, cited
March v Stramare (E. & M. H.) Pty Ltd (1991) 171 CLR 506, cited
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, cited
McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230, cited
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525, cited
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, cited
North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60, cited
Potts v Miller (1940) 64 CLR 282, citedQueensland Mines Ltd v Hudson (1978) 52 ALJR 399, cited
Re Leeds United Holdings Plc [1997] BCC 131, cited
Roufous v Brewster (1971) 2 SASR 218, cited
Sykes v Reserve Bank of Australia (1998) 88 FCR 511, cited
Ting v Blanche (1993) 118 ALR 543, cited
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514, cited
Weatherall v Satellite Receiving Systems (Australia) Pty Ltd [1999] FCA 218, citedDate of hearing: 27, 28, 29, 30 September, 1, 8, 26, 27, 28, 29 October,
2 November, 6 December 2010Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 308 Counsel for the Plaintiff: Mr R J Whitington QC with Mr B J Doyle Solicitor for the Plaintiff: Sykes Bidstrup Counsel for the Defendants: Mr M Hoile with Mr G Finlayson Solicitor for the Defendants: Grope Hamilton Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
SAD 32 of 2010
BETWEEN: LYNETTE MARIE CROSSMAN
PlaintiffAND: BRENDAN TAYLOR
First DefendantWHITE MARINA PTY LTD
Second Defendant
JUDGE:
BESANKO J
DATE OF ORDER:
29 JUNE 2011
WHERE MADE:
CANBERRA VIA VIDEO LINK WITH ADELAIDE
THE COURT ORDERS THAT:
The plaintiff bring in draft minutes of orders reflecting the conclusions in these reasons and the parties be at liberty to make further submissions on the appropriate orders.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
SAD 32 of 2010
BETWEEN: LYNETTE MARIE CROSSMAN
PlaintiffAND: BRENDAN TAYLOR
First DefendantWHITE MARINA PTY LTD
Second Defendant
JUDGE:
BESANKO J
DATE:
29 JUNE 2011
PLACE:
CANBERRA VIA VIDEO LINK WITH ADELAIDE
REASONS FOR JUDGMENT
A. INTRODUCTION
In this proceeding the plaintiff, Lynette Crossman, claims damages or compensation from the first defendant, Brendan Taylor. The second defendant, White Marina Pty Ltd, took no active part in the proceeding for reasons which will become clear.
The principal events which are relevant to the plaintiff’s claims took place between July 2005 and about February 2010. The plaintiff and the first defendant were in a personal relationship for part of that period and were engaged to be married in May 2006. The relationship came to an end and there is now considerable antagonism between the plaintiff and the first defendant.
The plaintiff’s claims relate to a joint venture between her and the first defendant which involved the acquisition and operation of a marina for houseboats on the River Murray near Mannum. The joint venture vehicle was the second defendant and it in turn was the trustee of a discretionary trust called the White Marina Trust. The second defendant acquired the business and commenced operating it in August 2006. The business ceased trading in February 2010.
Earlier in this proceeding I determined as a separate issue an application by the plaintiff under ss 232 and 233 of the Corporations Act 2001 (Cth) (‘Corporations Act’) for orders directed towards achieving the sale of the second defendant’s business. In substance, I made the orders sought by the plaintiff and my reasons for doing so are set out in Crossman v Taylor (No 2) [2010] FCA 707 (‘Crossman v Taylor (No 2)’).
The plaintiff’s claims against the first defendant rely on three causes of action.
The plaintiff’s first cause of action is for loss or damage caused by misleading or deceptive conduct engaged in by the first defendant in contravention of s 56 of the Fair Trading Act 1987 (SA) (‘Fair Trading Act’). The misleading or deceptive conduct is said to consist of representations made by the first defendant to the plaintiff before the plaintiff made her decision to enter into the venture. The principal representation relates to the financial contributions each party would make to the venture. Both parties made contributions to the venture but, over the course of the venture, the contributions made by the plaintiff substantially exceeded those made by the first defendant. The contributions consisted of lump sum payments, payments by a party to a third party for the benefit of the second defendant, and transfers of property to the second defendant. There was an issue raised as to whether the contributions were loans to the second defendant or contributions to the trust property of the White Marina Trust. I will deal with that issue later in these reasons, but at this stage I will simply refer to the payments made to, and other benefits conferred on, the second defendant as contributions. Over the period in question some payments were made the other way, that is, by the second defendant to one or other of the parties. The plaintiff’s case was that at the date of trial the net contributions she had made to the second defendant totalled an amount of $661,444.23 and the net contributions the first defendant had made to the second defendant totalled an amount of $195,018.15.
The plaintiff’s case is that she would have not entered into the venture, or made the contributions, but for the representations made by the first defendant, particularly the representations about the contributions to be made by the parties. She seeks to recover from the first defendant under s 84 or s 85 of the Fair Trading Act damages or compensation of $661,444.23 and an amount for interest of $216,168.76. She accepts that to the extent the first defendant pays these sums to the plaintiff he should be subrogated to the plaintiff’s rights against the second defendant.
The second and third causes of actions advanced by the plaintiff involve alternative claims for damages or compensation. In other words, she does not seek damages or compensation in relation to the first cause of action and damages or compensation in relation to the second or third causes of action.
The plaintiff’s second cause of action is based on ss 232 and 233 of the Corporations Act. The claim is that the first defendant engaged in various acts before and during the venture which mean that the affairs of the second defendant were conducted in a manner which contravened one or both of s 232(d) and s 232(e). For ease of reference I will refer to this cause of action as the oppressive conduct cause of action. The plaintiff seeks an order under s 233 for damages or compensation which will result in an equalisation of the contributions made by her and by the first defendant. The amount claimed is $341,297.42 taking into account an entitlement to interest, or $233,213.04 excluding an entitlement to interest. The amounts are calculated by adding the respective contributions and then dividing the total by two. That calculation gives a notional figure for equal contributions. The first defendant then pays the plaintiff an amount which will bring his contribution to that figure and reduce the plaintiff’s contribution to that figure.
The plaintiff’s third cause of action is based on an alleged breach by the first defendant of fiduciary duties which the plaintiff alleges he owed to her. The claim is that the venture was in the nature of a quasi-partnership and that the first defendant owed the plaintiff fiduciary duties in addition to the fiduciary duties he owed to the second defendant. She claims as equitable compensation an amount which will result in an equalisation of each party’s contributions. In other words, the amount claimed is calculated in the same way as the amount claimed in relation to the second cause of action. As I have said, the plaintiff cannot recover, and does not seek to recover, both the amount of her contributions and an amount which would ‘equalise’ the contributions.
The representations which form the basis of the plaintiff’s Fair Trading Act cause of action were made orally and in circumstances where only the plaintiff and first defendant were present. The credibility and reliability of each of the plaintiff and the first defendant is therefore an important issue in the case. Each of them gave evidence. The bulk of their evidence-in-chief was presented in written form, that is, by way of written statement or affidavit and each was cross-examined at length. In the case of each of them there was a substantial attack on their credibility and reliability.
In addition to the evidence of the parties, each party called witnesses and tendered documents in support of her or his case.
The structure of these reasons is as follows. Section B sets out my findings of fact in relation to the issues in the proceeding. Section C sets out the relevant legal principles for the Fair Trading Act cause of action and my conclusions in relation to that cause of action. Section D sets out the relevant legal principles for the oppressive conduct cause of action and my conclusions in relation to that cause of action. Section E sets out the relevant legal principles for the fiduciary duty cause of action, and my conclusions in relation to that cause of action. Section F sets out my conclusions in the proceeding.
In Section B I have, subject to a number of qualifications, tried to deal with events in chronological order. The first qualification is that where the evidence of a witness who deals with a limited number of issues first becomes relevant I have decided that it is convenient to deal with all of their evidence at that point. Secondly, where it is necessary for me to make a finding about an important statement or representation alleged to have been made I have gone on to address the particular matters said by one or both parties to be relevant to the finding which should be made even where that involves a consideration of later events. Although I address the particular matters at that point the finding I make is made having regard to all the evidence and in particular the credibility and reliability of the witnesses. Finally, there are certain matters which span the life of the venture and which it is convenient to deal with as a whole at the end of Section B. They are certain alleged acts of oppressive conduct and matters of a bookkeeping or accounting nature concerning the second defendant’s financial records and the quantum of the plaintiff’s claims.
B. THE FACTS
The plaintiff gave her evidence in a careful and considered fashion. By contrast, the first defendant was evasive and at times paused for some time before giving his answer. I formed the view that his pauses resulted from an overriding concern not to give an answer which he thought might be damaging to his case rather than a concern to tell the truth. However, as far as possible I have tried to reach my conclusions on credibility and reliability on the basis of contemporary materials, objectively established facts and the apparent logic of events (see Fox v Percy (2003) 214 CLR 118 at 129 [31] per Gleeson CJ, Gummow and Kirby JJ).
For the reasons set out below I formed the view that the plaintiff was an honest and reliable witness. Again, for the reasons set out below, I formed the view that in a number of significant respects the first defendant was not a credible or reliable witness. I do not accept his evidence except where it is corroborated by other evidence which I do accept. In reaching these conclusions I have considered all of the challenges to honesty and reliability. Those challenges relate to a wide range of topics and they are dealt with below. I have considered the challenges to credibility and reliability individually and collectively.
The plaintiff called four witnesses. They were Ms Jody Sitters, a bookkeeper, Mr Hugh McPharlin, an independent accountant, Mr Nic Minicozzi, a solicitor, and Ms Cheryl Galloway, a clerical assistant. They were all honest and reliable witnesses and I accept their evidence. The first defendant did not challenge the honesty or reliability of these witnesses.
The first defendant called three witnesses. They were Mr Jim Daly, a former employee of the second defendant, Mr Klaus-Peter Wegener, the principal of a building firm, and Ms Julianne Price, a friend of the first defendant. I formed the view that Mr Daly and Mr Wegener were not reliable witnesses and I do not accept their evidence unless it is corroborated by other evidence which I do accept. Ms Price gave evidence on two relatively narrow issues. In the end I do not think her evidence is of assistance in resolving the issues in this case.
The plaintiff is a naturopath. In 2005 she owned a clinic in Adelaide and she conducted her practice from that clinic. Her practice was a successful one and it generated a substantial income. The plaintiff owned a property at Coffin Bay, Port Lincoln, (the Coffin Bay property) which she planned to develop. The plaintiff had been married previously and she has children and grandchildren.
In 2005 the first defendant had a background in real estate sales and had some experience in managing a marina for houseboats. Between 1994 and 1996 he managed a marina for houseboats near Mannum called ‘Kia Marina Houseboat Hire’. He had for many years had an interest in houseboats and he bought his first houseboat in 1987. In 2005 he owned a houseboat called ‘Flat White’. It had cost him $560,000 to have built. At that time Flat White was moored at another marina near Mannum which operated under the name, ‘Temptation Houseboat Holidays’. The operators of that marina were Henry and Beverley Laskowski. In April 2006 the first defendant entered into a contract for the construction of a second houseboat. That contract involved a substantial financial investment on the part of the first defendant. The houseboat was constructed and was given the name ‘White Water’. It was owned by Maritime Ten Pty Ltd, which was a company controlled by the first defendant.
Some time well before February 2006 the first defendant was interested in purchasing Temptation Houseboat Holidays. It seems that in May 2005 Mrs Laskowski sent the first defendant a Form 2 for the business, being a trading statement for the business for the previous three years. It is this marina which was subsequently acquired by the second defendant and I will refer to it, depending on context, as the marina or marina business.
The plaintiff and the first defendant met in July 2005. At that time the first defendant was living in Sydney and the plaintiff was living in a house at Hyde Park in Adelaide. The plaintiff leased that house. The plaintiff and the first defendant commenced a personal relationship and in December 2005 the first defendant moved into the plaintiff’s house at Hyde Park. They lived together in that house until March or April 2007.
The plaintiff’s claims against the first defendant are based largely, but not entirely, on conversations she had with the first defendant before 4 April 2006. The significance of that date is that the second defendant was incorporated on 4 April 2006 and the plaintiff and the first defendant became the directors and shareholders of the company. Each of them held one $1 share in the second defendant. The White Marina Trust was established by trust deed executed on 5 April 2006 and the second defendant was the trustee of the Trust. The White Marina Trust was a discretionary trust and the class of beneficiaries were the plaintiff and her children and the first defendant and his children. The first defendant has no children. The second defendant and the trust were established with a view to the purchase of the marina business.
The relevant conversations between the plaintiff and the first defendant took place between July 2005 and early April 2006. The important conversations appear to have taken place in about February and March 2006 although there were no doubt conversations either side of this period. On the evidence it is not possible to identify the dates of any of the conversations more precisely than that.
At an early stage in their personal relationship, the first defendant told the plaintiff that he had substantial assets and he identified Flat White, an apartment at King Street in Sydney (the King Street apartment), a residential property at Kara Street in Lane Cove in Sydney, a town house at Moana, South Australia, a shack on the River Murray, two Jeeps, a Porsche motor vehicle, jet skis, a speedboat and a motor cruiser boat moored on Sydney Harbour.
The first defendant also told the plaintiff that he had been a real estate agent for 30 years and that he had been very successful. He told her he had previously owned Kia Marina on the River Murray near Mannum and that it had been a successful business. The first defendant did not say anything to the plaintiff to indicate that he had any substantial debts. The first defendant took the plaintiff to see the property at Lane Cove, the property at Moana, the Flat White houseboat, the motor cruiser and the speed boat.
Again at an early stage in their personal relationship, the first defendant told the plaintiff that he wished to return to Adelaide to live and that there was a marina he would like to purchase. He identified it as the marina at which he moored Flat White. The first defendant made statements to the plaintiff which led her to believe that the existing marina business was run down. The first defendant denied saying to the plaintiff that the business was run down and gave evidence that it was not. I prefer the plaintiff’s evidence. It is consistent with the works subsequently done by the second defendant and the plans for further works discussed by the parties.
The first defendant took the plaintiff on excursions on Flat White and she was able to observe the condition of the existing marina business.
The first defendant told the plaintiff that the asking price for the marina business including one or two houseboats was $1.2 million. He told the plaintiff that he might be able to acquire the marina business and assets for about $650,000. He told the plaintiff that he was planning to fund the purchase with a bank loan.
The first defendant’s plans came to a head in February 2006. At about that time he prepared in the presence of the plaintiff a handwritten sheet showing his assets and liabilities. The document was tendered in evidence. It showed a substantial excess of assets over liabilities. It shows an estimated value of $1.2 million for the King Street apartment, and a liability in respect of that apartment of $823,000. The handwritten sheet also showed an asset in the amount of $60,000 for ‘commission’. The evidence establishes and it is not disputed that that was a reference to real estate commissions owed to the first defendant by third parties.
The first defendant’s counsel cross-examined the plaintiff at length about her knowledge of the first defendant’s assets both at this time and later. The plaintiff was cross-examined about her knowledge before she decided to enter into the venture and before settlement of the likely price which could be achieved on the sale of the King Street apartment and the first defendant’s commitments under the contract to construct White Water. The first defendant never made clear what findings of fact he was seeking in relation to this topic. Presumably he was contending that his financial position was such that it was unlikely that he would make a statement about providing contributions to the second defendant over and above the sum of $250,000 which he did contribute. The findings I make are that the plaintiff believed that the first defendant had substantial assets and, in particular, the King Street apartment and the outstanding real estate commissions. No doubt she knew he had liabilities. That much is plain from the handwritten sheet previously referred to and from the fact that he approached her for funds to assist him in the purchase and development of the marina. However, none of the evidence on this topic leads me to doubt her evidence about what the first defendant said to her about contributions or her belief that he could and would match her contributions to the second defendant.
The first defendant told the plaintiff that he was having difficulties in raising finance for the purchase of the marina. He asked the plaintiff to lend him a sum of money. The plaintiff’s recollection as to the precise amount the first defendant mentioned is not clear, but she said that it was in the order of $350,000. The plaintiff told the first defendant that she did not have ‘free funds’ and that to provide the funds she would have to borrow on a line of credit facility which she had with Bank SA. She said that she would have no security if she simply lent funds to the first defendant. In taking this approach the plaintiff also had in mind her need for funds in relation to the proposed development of the Coffin Bay property.
The first defendant denied saying to the plaintiff that he was having difficulty or trouble getting finance, but I prefer the plaintiff’s evidence. The first defendant was cross-examined on this topic and I consider that he was guarded on this topic (as he was on a number of topics) because he did not want to say anything that he thought might damage his case. Although he said in his affidavit that he would be ‘stretched’ at a purchase price of $750,000 plus plant and equipment or his cash reserves would be ‘stretched’, when it was put to him in cross-examination that at ‘750’ he would be ‘stretched’ he said ‘possibly’.
The first defendant was cross-examined about his ability to purchase the marina at a purchase price of $750,000. The cross-examination proceeded on a premise as to the amount of the bank loan which was different from the amount ultimately lent to the second defendant by the ANZ Bank. At a purchase price of $750,000 plus the first defendant’s estimate of expenses of $35,000 to $40,000 and a loan from the ANZ Bank of $550,000 (the loan was in fact $500,000) the first defendant would have had to contribute $240,000 from his own moneys. As I understand it that was about the limit of the funds he had readily available. The first defendant said that he would need $100,000 for working capital and contingencies. There was also the costs associated with the making of improvements to the marina. I think the evidence establishes that with a bank loan of $550,000 the first defendant may have been able to purchase the business at a price of $750,000 plus expenses but there would be no funds for working capital and contingencies and improvements. At a purchase price of $650,000 he would have some funds for working capital and contingencies, but no funds for improvements. The first defendant needed the plaintiff to be involved if the purchase of the marina business was to proceed. The fact that he had asked her for a loan of $350,000 seems to make that conclusion quite plain.
The cross-examination of the first defendant about these matters also revealed something about the first defendant’s state of mind concerning the improvements which might be carried out at the marina. At a purchase price of $750,000 plus expenses of $35,000 to $40,000, a loan from the bank of $550,000, a contribution from the first defendant of around $300,000 and a loan from the plaintiff of $350,000 an amount of $410,000 would be potentially available for improvements to be made to the marina.
The conversations were taking place in a context where the first defendant’s primary purpose in acquiring the marina business was to provide him with a facility where he could operate his own houseboats under his control.
After the plaintiff rejected the suggestion of her providing a loan the first defendant raised with her the prospect of them buying the marina business together. The plaintiff’s initial response to that suggestion was that she would not agree to do that. She needed funds for her proposed development of the Coffin Bay property and she had had no experience in operating a marina for houseboats. The first defendant continued to raise the subject with the plaintiff and he told her of his experience in operating a marina, his plans for the marina and the skills he could bring to the conduct of a marina business.
I think the first defendant was very enthusiastic about the purchase of the marina and that he had substantial plans for its improvement. Those plans called for the involvement of the plaintiff and he was keen to have her involved. I do not accept the first defendant’s evidence that he wanted to purchase the marina alone and that it was the plaintiff who was anxious to be involved in the venture.
The first defendant showed the plaintiff a document which set out the profit and loss figures for the marina business conducted by its existing owners. Those figures showed that the business generated no more than a modest profit. The plaintiff examined the figures and said to the first defendant that there was no money in the business. The first defendant said to the plaintiff that the existing owners had no business expertise and had let the business deteriorate. The first defendant told the plaintiff that he could lift the operation of the marina to a whole new level and make it a high-class operation with a better class of houseboats. He also said that he had a particular interest in tourism and his contacts would enable him to make the business a success.
The first defendant’s evidence about the matters I have mentioned to this point was unsatisfactory. I mention some particular examples. First, while the first defendant agreed in cross-examination that he was very enthusiastic about the purchase of the marina business, when asked whether he encouraged the plaintiff to take an interest in the venture he said that he ‘may have’, ‘I don’t know’, and ‘I don’t remember’. I do not believe that the first defendant would be in a state of uncertainty about whether he encouraged the plaintiff to take an interest in the venture or that he would have forgotten about it. Secondly, I do not accept the first defendant’s evidence that he was not enthusiastic about the viability of the business or that his state of mind was that on the purchase of the marina business ‘we could just get by’. Again, I do not believe that the first defendant and I think that all of the evidence leads to the conclusion that he was optimistic, if not very optimistic, about the potential of the business. Thirdly, the first defendant was clearly wrong in his evidence-in-chief when he said that he showed the plaintiff the twelve-page document he said that he faxed to his accountant on 19 January 2006. It was put to the plaintiff in cross-examination that she had seen the document in January 2006. However that was plainly wrong because some of the documents had been created after January 2006. The first defendant accepted in cross-examination that his evidence-in-chief was wrong, but he suggested, somewhat faintly, that someone, presumably on the plaintiff’s side, had caused the mistake by putting the documents together in the way he presented them.
It is the plaintiff’s case that during the conversations between her and the first defendant the first defendant made a number of important statements about the venture and how it would operate. I turn now to examine five of the statements the plaintiff said the first defendant made to her.
First, the first defendant told the plaintiff that he anticipated a purchase price for the marina business of $650,000 and that he intended to pay that by borrowing $500,000 from the ANZ Bank and making a contribution of approximately $250,000 from his own funds. He said to the plaintiff:
I will only go into this venture if you promise to meet the initial funding that I provide, and if we then continue to contribute 50/50 to the funding of the business at all times.
Secondly, he told the plaintiff that his previous marina had 47 berths whereas the marina business they proposed to purchase had only 10 berths and should be a ‘piece of cake’ to operate. He said that he would buy speedboats and hire them out at $500 per day. He said that he would develop cabins on the marina property under a shared ownership arrangement and those cabins would be used as rental accommodation.
Thirdly, he told the plaintiff that once the marina business was established it could largely be run by staff without the need for either the plaintiff or himself to be involved.
Fourthly, he told the plaintiff that upon the purchase of the marina business they could refurbish and improve the facilities. In addition to generating an income they could make a capital gain in the long term.
Fifthly, he told the plaintiff that all major decisions affecting the conduct of the marina business would be discussed between them and decisions would be taken jointly.
Finally, he told the plaintiff that in addition to his initial contribution of about $250,000 he would be able to raise his share of funds by selling the King Street apartment and collecting the commissions of $60,000 owed to him.
With respect to the first statement, the first defendant’s evidence was that he said something to the effect that if the plaintiff put in $250,000 ‘or so’ as he had done then the first defendant and the plaintiff could own the ‘place’ together. He denied making any statement which referred to contributions beyond this amount. The final statement is linked to the first statement. The first defendant denied discussing contributions other than agreeing with the plaintiff that if she put in $250,000 they could buy the property together and use that money to do some renovations. I will analyse both the first and final statements together after I have dealt with the other statements.
With respect to the second and third statements, the first defendant admitted that the parties did discuss how they might increase income and that he did say that once they had taken over and settled down it may be possible to pay a manager to run things without any involvement from them. I accept the plaintiff’s evidence with respect to these statements.
With respect to the fourth statement the first defendant said that he did say that spending about $200,000 on the marina would improve facilities for customers, staff and owners, and should add value. He did not say (and he did not believe) that any particular or overall expenditure would or could significantly increase income in the near term. In this context there was evidence from both the first defendant and the plaintiff about their long term plans in relation to the house on the marina property. The first defendant said that the capital gain was not an important ‘topic’ because they did not intend to resell at a profit and that their plan was to live in the house on the marina property and make it their home. The plaintiff said that she did not suggest to the first defendant and the first defendant did not suggest to her that the reason for going into the marina business was to provide an opportunity for her or them to live by the River Murray. She never aspired to live by the river and she told the first defendant on a number of occasions that the ultimate objective was to develop her coastal property at Coffin Bay and to retire in Port Lincoln.
It is necessary in the context of examining the evidence about the fourth statement to mention the evidence of Ms Price who, as I have said, was a witness called by the first defendant.
Ms Price said that she had known and been friends with the first defendant since 1985. The first defendant was the best man at her wedding to her former husband, Mr Peter Price.
Ms Price gave evidence of two conversations; one which it is not possible to date with any precision, but which probably took place in about May 2006 and the other which took place in August 2009.
Ms Price said that at a dinner held at a city restaurant in about May 2006 the plaintiff told her and other members of the group at the dinner of her plans with the first defendant to buy a house and marina at Mannum. The plaintiff told the group that she and the first defendant were going to live together at the marina. She said that she was going to commute to Adelaide for two or three days per week to maintain her naturopath practice and words to the effect that ‘they were going to improve the house to live in for their life together’.
Ms Price said that in late August 2009 the plaintiff contacted Ms Price by telephone and asked her to help her in maintaining her personal relationship with the first defendant. She was crying and said she was afraid of losing the first defendant. Ms Price said that she did not want to get involved at which point the plaintiff stopped crying and began making comments of a disparaging nature about the first defendant. Ms Price asked the plaintiff not to call again. Cross-examination of Ms Price revealed that there was more to this conversation. It seems that during the conversation the plaintiff raised a concern she had about the first defendant’s mental state and that there was some discussion of his mental state and whether he needed help. Ms Price became very angry with the plaintiff. The evidence did not clarify the exact context of the conversation. Even if Ms Price gained the impression that the plaintiff wished to maintain her relationship or a relationship with the first defendant it is not clear to me in what way this is relevant to any of the issues in the proceeding. The suggestion made by the first defendant seemed to be that the plaintiff has fabricated her claims in order to injure the first defendant. In the context of such a submission I should also mention an email from the plaintiff to the first defendant dated 19 February 2010 which is said by the first defendant to show the bitterness and anger the plaintiff felt towards the first defendant following (so it was said) her discovery that he had commenced a relationship with another woman. I accept that there is probably considerable bitterness between the plaintiff and the first defendant and I accept that the failed personal relationship is probably at least a cause of that bitterness. However, I firmly reject the suggestion that the plaintiff has fabricated her claims in order to injure the first defendant. As I have said, I formed the view that the plaintiff was an honest and reliable witness.
I accept that the plaintiff and the first defendant intended to live in the house on the marina property and in fact they did so for a period in 2007. However, it appears that the plaintiff either also spent a part of her week living at Hyde Park or commuted from the marina on some of the days of the week. I do not think that the plaintiff had any plans to retire from her practice as a naturopath and insofar as she had plans for her retirement, I accept her evidence that she was planning to retire to Port Lincoln. For present purposes the important finding I make is that the acquisition of the house was not the reason the parties purchased the marina business and both of them considered that improvements would add value to the property. I accept the plaintiff’s evidence with respect to the fourth statement.
With respect to the fifth statement, the first defendant’s evidence is that he agrees that once the plaintiff promised to put in $250,000 they agreed that they would be involved together. I accept the plaintiff’s evidence with respect to the fifth statement.
I turn now to examine the findings which should be made in relation to the first and final statements. The findings are crucial to the plaintiff’s Fair Trading Act cause of action. The plaintiff’s case is that the effect of the statements was that she and the first defendant would contribute to the business on a 50/50 basis and that the first defendant had the means to do so. The first defendant’s case is that he and the plaintiff agreed to contribute $250,000 each and that he did contribute $250,000 although that amount has subsequently been reduced in the records of the second defendant due to payments and benefits he has received from the second defendant.
In support of their respective cases with respect to the first and fifth statements both parties advanced matters which they contended were of particular relevance and it is to those matters that I now turn. They are important to a determination of the issues but, as I have said, all matters relevant to credibility and reliability must be taken into account.
Both parties relied on what was said about improvements to the marina property as evidence supporting their version of what was said.
The plaintiff’s evidence was that although there were some improvements which the parties envisaged would be carried out immediately or as soon as possible, there were discussions about a whole range of improvements which were costed at well in excess of $250,000 and that it was in that context that the first defendant made the statement he did about contributions and his ability to make them. By contrast, the first defendant’s evidence was that, with a bank loan of $500,000, it was envisaged that the bulk of his contribution of $250,000 would go in making up the balance of the purchase price of $660,000 and associated expenses. The first defendant’s evidence was that the improvements which the parties discussed were costed by him at about $220,000 and the plaintiff’s contribution of $250,000 would be used to meet that cost. Some time later other improvements were discussed between the parties but they were only ideas or possibilities.
The first defendant prepared some handwritten notes of possible improvements to the marina property and calculations of projected income, expenses and profit of the marina business. Those notes are in the first defendant’s handwriting although there are some additions in the plaintiff’s handwriting. The paper used was mainly vertically lined paper but two pages are graph paper. The original notes were received in evidence and marked as exhibit D6.
The plaintiff produced a copy of the original document as part of her evidence-in-chief. It was document 5 as referred to in her first written statement and was part of exhibit P1. Document 5 consists of 20 pages and is numbered in the book of documents as pages 32 to 51 inclusive. There was a good deal of contention about document 5 and the focus of the parties was those pages in document 5 dealing with improvements (that is, pages 32 to 45 inclusive) rather than the notes containing calculations of projected income, expenses and profit of the marina business.
The parties discussed proposed improvements to the marina by reference to the notes. The plaintiff’s evidence was that the improvements shown in document 5 were discussed at about the time the first defendant suggested she take an interest in the venture and that the discussion involved the improvements and matters shown on pages 32 to 45. The first defendant made the suggestions as to individual improvements, their probable cost and contractors and workmen who might be engaged to carry out the work. The costing of the improvements shown on the summary sheet (that is, page 32) is in excess of $500,000. The plaintiff’s evidence was that although the first defendant identified improvements they should do in particular, document 5 contained the first defendant’s proposal for a scope of works and his likely estimate of costs. The plaintiff’s understanding was that her initial contribution would go towards these works and that thereafter the parties would contribute on a 50/50 basis. The improvements that she said the first defendant identified in particular were as follows:
1.Renovation of the house or log cabin on the property. I will refer to this building as the house.
2.Conversion of part of the toilet block into an office and service area, and improvements to the main toilet facilities.
3.Improvements to the shed, including the addition of a mezzanine floor for storage.
4.Landscaping of the site.
5.Installation of an upgraded electricity supply on the site and to the moorings.
6.Construction of bitumen roads on the site, and a road from the main road directly into the marina rather than through the property of the landlords.
7.Improvements to the boat ramp.
The first defendant’s evidence was that document 5 was in fact a number of documents. The improvements discussed before settlement were those shown on page 43. He referred to that document as his action list. Those improvements were costed by the first defendant at $200,000 plus, according to the first defendant, $20,000 for contingencies and $30,000 for staff. The other pages detailing improvements were discussed between the parties after settlement and were only ideas. The first defendant’s submission was that the plaintiff was not telling the truth about document 5 and that she had attempted to mislead the Court by advancing the documents as one document. She had also arranged or shuffled the documents so that they were in an order which suited her case.
With respect to what the parties envisaged by way of improvements, the first defendant also relied on a letter to houseboat owners sent by the second defendant in October 2006 which was two months after settlement. It advised houseboat owners that improvements would be carried out at the marina and listed the proposed improvements. The list is not said to be an exclusive one but the listed improvements are not dissimilar to the improvements shown in the document the first defendant described as his action list.
I have considered the evidence about document 5 and the improvements carefully. I have decided that the plaintiff’s evidence should be accepted.
I accept that the plaintiff found document 5 in her records and that when she did so it was one document. If the documents are out of order then that was not as a result of an intentional act on her part. The improvements referred to in document 5 were discussed between her and the first defendant before she made her decision to enter into the venture. The discussions probably took place in February 2006 although it is possible that they took place slightly later and after she had expressed to the first defendant some interest in entering into the venture. The plaintiff conceded in cross-examination that it is possible the document described by the first defendant as his action list (page 43) was discussed in about June 2006. It seems to me that even if that was the case it does not make any material difference.
By contrast the first defendant’s evidence on the topic of improvements was unsatisfactory and I do not accept it.
The first defendant accepted in cross-examination that work to the house is not referred to in his action list and yet work to the house was carried out shortly after settlement. He said that in about June 2006, Buildesign, which was a building firm which carried out substantial improvements to the marina property, was engaged to perform work on the house to the value of about $80,000. The money to be spent on the house was not within the plaintiff’s contribution of $250,000 but, said the first defendant, the plaintiff expressly agreed to pay this amount herself. The first defendant agreed that there was no reference in his affidavit to an agreement by the plaintiff to pay the sum of $80,000 for improvements to the house. The topic of improvements was squarely an issue in the case and I think that if there had been such an agreement it would have been referred to in the first defendant’s affidavit. It is not. In addition, the first defendant’s evidence as to the role played by the plaintiff in suggesting improvements was unconvincing. No doubt she had views, but I find quite implausible the first defendant’s evidence suggesting that he did not play the dominant and major role in formulating proposed improvements. He was the one who had had experience in operating a marina; he was the one who had a houseboat and was intending to acquire another; he was the one who had conceived the idea of buying the marina business and he was the one who was to manage and market the marina. The plaintiff had no knowledge of the operation of a marina other than what she had picked up since meeting the first defendant. The letter to houseboat owners in October 2006 does not lead me to a different conclusion. As I have said, the items listed in the letter bear some similarity to the items in the action list. However, the list in the letter does not purport to be exclusive, there is no reference to improvements to the house (I acknowledge of course that one would not expect there to be as those improvements do not concern houseboat owners) and it is clear that at the time the letter was sent the second defendant was in any event carrying out a good deal more by way of improvements than the improvements referred to in the letter.
I reject the first defendant’s challenge to the plaintiff’s credit in relation to her evidence concerning the improvements discussed and I accept her evidence on that topic. The scope of the improvements discussed provides no support for the first defendant’s evidence concerning the first and final statements.
There is a matter related to the improvements discussed by the parties which is conveniently addressed at this point. It is the improvements actually carried out by the second defendant. Improvements were carried out to the marina property by the second defendant after settlement and for the most part those improvements were carried out between August 2006 and March 2007. Buildesign was responsible for carrying out a number of the improvements to the buildings on the property including the office, shed and house. By 31 March 2007 the plaintiff had made contributions to the second defendant totalling about $566,000 and the first defendant had made contributions totalling about $257,000. The first defendant sought to meet the suggestion that the plaintiff would not have contributed so much had he not made the first and final statements by seeking to establish that amounts in excess of her agreed contribution of $250,000 were the result of improvements carried out at the plaintiff’s insistence.
The second defendant spent over $750,000 on the marina property. It is not possible to determine the precise amount spent on the house because for the most part the invoices rendered by Buildesign did not identify its charges with respect to particular buildings. The plaintiff did an estimate which, although imprecise, does provide something of a guide :
$ House 253, 927.35 Office 98,816.52 Shed 106,157.30 Marina external 270,775.46 Plant and equipment 38,781.83 Kyancutta 32,092.86 Miscellaneous (unaccounted for) 17,040.23 Total 817,591.55 If one excludes Kyancutta (see [144], [145] below) the figure is over $750,000.
This does not support the first defendant’s assertion. Furthermore, the plaintiff said and I accept that decisions about the improvements to be carried out to the house were joint decisions whereas decisions about improvements to the office and shed were made by the first defendant. The first defendant was supervising or ‘project managing’ the carrying out of the improvements.
The first defendant called Mr Wegener with a view to supporting his case that a number of improvements resulted from the plaintiff’s insistence and in some cases extravagance.
Mr Wegener gave evidence of the scope of works carried out by Buildesign in the second half of 2006 and the early months of 2007. He gave evidence of conduct by the plaintiff which, on his account, led to an increase in the scope of works. In particular, he gave evidence of three events. First, he said that the plaintiff directed Buildesign to carry out work at her parents’ property at Wudinna which work resulted in an additional cost to the second defendant of over $20,000. Secondly, he gave evidence of the plaintiff requiring the kitchen benches in the house to be redone at an additional cost of $10,000. In that context, he gave evidence of an argument between the plaintiff and the first defendant about the kitchen benches during which the plaintiff allegedly said:
It’s my fucking money! I’ll spend it the way I want to. I deserve it.
He gave evidence that the plaintiff then burst into tears and left the room. Thirdly, he gave evidence of the plaintiff insisting on changes to the bathroom in the house so as to install new windows “so that there would be a continuous view from and to the spa inside the bathroom from and to the unfenced rural backyard”.
Mr Wegener was an unsatisfactory witness. His estimate of the cost of the original scope of works was in the vicinity of $100,000. The plaintiff’s estimate was $150,000 to $200,000 excluding the cost of the bathrooms in the house. I think the plaintiff’s estimate is more likely to be accurate bearing in mind that improvements by Buildesign were to be carried out to the house, office and shed. Mr Wegener’s estimate of Buildesign’s total account for work on the marina property was $350,000 to $370,000. The documentary evidence established that Mr Wegener’s estimate was an overestimate by a considerable margin and he could not explain in a satisfactory way the reason for his overestimate. The documentary evidence establishes that Buildesign’s charges for work done on the marina property was about $235,000 and that for the most part it was the first defendant who completed the cheque stubs and noted payments on Buildesign’s invoices. Mr Wegener’s inaccurate estimate caused me to doubt his reliability.
Buildesign did carry out work on the property of the plaintiff’s parents although it was at Kyancutta not Wudinna as asserted by Mr Wegener. That was done by reason of an arrangement between the plaintiff and the first defendant and was linked to a payment of $38,000 made to the second defendant by the plaintiff on 21 August 2006. I discuss the details of the payment of $38,000 and the arrangement between the plaintiff and the first defendant below (at [144], [145]). It was the first defendant who first approached Mr Wegener about the prospect of Buildesign carrying out work on a property at Kyancutta. It was the first defendant who completed the cheque stubs for the cheques which were used to pay Buildesign for the work done at Kyancutta.
With respect to the kitchen benches, they were made by cabinetmakers Ebert and Jonas, and not by Buildesign. The plaintiff said, and I accept, that the measurements for the kitchen top were never varied from the plans. The plaintiff said, and I accept, that she did not use the words attributed to her by Mr Wegener in the course of a conversation with the first defendant.
With respect to the bathroom, the plaintiff said, and I accept, that at an early stage of the building work she was asked by the first defendant to view changes that had been made. The plaintiff was not happy with the changes and it was agreed that the framework between the two bathrooms would be shifted. Mr Wegener said that no significant further work would be involved. The windows in the bathroom were changed at the plaintiff’s suggestion and with the first defendant’s agreement. Mr Wegener said that little (if any) additional cost would be involved because he could use the windows which were to be replaced on an existing job.
I accept the plaintiff’s evidence that increases in the scope of works to be carried out by Buildesign were agreed between the plaintiff and the first defendant save for a few decisions made ‘on the spot’, to use the plaintiff’s words, by the first defendant. Even if the plaintiff had some firm ideas about improvements to the marina property the evidence establishes that they were really quite minor in terms of costs.
I turn now from the topic of improvements to another area of the evidence which the first defendant contends supports his evidence with respect to the first and final statements.
The first defendant points to the fact that the plaintiff failed to raise the allegation about equal contributions on occasions where one would have expected her to do so if they had been true.
In August 2008 there was a dispute between the plaintiff and the first defendant and each party instructed solicitors. Correspondence passed between the solicitors for the respective parties and various allegations of misconduct were made. In the correspondence from the plaintiff’s solicitors there was no reference to any statement or undertaking by the first defendant to make contributions to the second defendant equal to those of the plaintiff. That was a strong reason, submitted the first defendant, to disbelieve the plaintiff’s evidence that any such statement was made or undertaking given. I have carefully considered that submission, but in the end I have decided that it should be rejected.
The context of the letter from the plaintiff’s solicitors was a response to a letter from the first defendant’s solicitors alleging that the plaintiff had unlawfully removed from the marina, company property, being pot plants, company records and other items. In that context the absence of a reference to the statement or undertaking is not a reason to disbelieve the plaintiff’s evidence. Furthermore, the plaintiff was recovering from a serious illness at that time. In May 2008 the plaintiff became very ill with a collapsed left lung and a partial collapse of the right lung, pleurisy and pneumonia. She was hospitalised for about two weeks and was unable to work for about two months. She was limited in what she could do for a period thereafter.
The first defendant also submitted that it was significant that the plaintiff did not mention the statement or undertaking in her email to him dated 14 December 2009. That email reveals that the plaintiff’s immediate concern was the ongoing operations of the second defendant and again I do not think that the absence of any reference to the statement or undertaking is a reason to disbelieve the plaintiff’s evidence.
I find that the first defendant made the six statements to the plaintiff to which she deposed ([42]-[47] above). I reject all of the first defendant’s challenges to the plaintiff’s credibility and reliability, both those I have already discussed and those discussed hereafter in these reasons.
There were other matters discussed between the parties at or around the time the plaintiff was deciding whether to enter into the venture. They are relevant to the plaintiff’s case and I now turn to consider them.
In the course of the conversations between the parties the first defendant showed the plaintiff rough projections which he had prepared. These projections showed that the business would be profitable.
The plaintiff was aware that in order to provide funds to the marina business she would have to draw on her line of credit facility and that she was required to pay interest on that facility. She told the first defendant that the proposed operator of the business would have to pay interest on her borrowings with Bank SA. She told him that she wanted her accountant to calculate on a monthly basis the amount of interest which she paid to Bank SA and that she expected to be reimbursed on a monthly basis ‘once the company was up and running’. The first defendant agreed to that.
The first defendant gave evidence that he did not agree that the venture company would pay interest on the plaintiff’s contributions calculated by reference to the interest the plaintiff would be paying on her line of credit. Furthermore, he said that the parties did not address the question of whether the contributions each party made to the venture would be loans or some other form of contribution. He asked me to reject the plaintiff’s evidence on these matters. In addition to his evidence he pointed to a number of other matters which he submitted should lead to the rejection of the plaintiff’s evidence.
First, he submitted that it was inherently unlikely that the parties would have reached an agreement that the proposed operator of the business would pay interest in view of the fact that it was unlikely the proposed business would generate sufficient income to be able to pay interest. He referred to the fact that the second defendant would be paying interest on the loan from the ANZ Bank. He also referred to the profit and loss figures of the existing business which he had shown to the plaintiff (see [39] above). I do not place any weight on this consideration. The first defendant had experience in conducting a marina business, owned a houseboat and was planning to buy another. The business was going to make substantial improvements to the marina. The first defendant was very enthusiastic about the venture and he conveyed that enthusiasm to the plaintiff. I think he considered that he could conduct a profitable business and I do not think that he would not have been deterred by an arrangement whereby the business paid the plaintiff’s interest charges.
Secondly, the first defendant pointed to the fact that for a time after settlement the records of the second defendant showed the plaintiff’s contribution to the second defendant as capital introduced and did not record a liability of the second defendant to pay interest to the plaintiff. It does seem to be the case that for a time the plaintiff’s contributions appear in the general ledger of the second defendant as ‘Capital Introduced’ and that there was no regular recording of an interest charge. Furthermore, the plaintiff did not send accounts to the second defendant for the interest charge. It also seems to be the case that Mr Saris, who prepared the second defendant’s balance sheet, recorded the plaintiff’s contributions as a shareholder’s loan under ‘Issued Capital’ for the 2007/2008 financial year, although he did record her contributions under ‘Current Liabilities’ for the 2008/2009 financial year. The plaintiff opened on Mr Saris as a witness she would call, but she did not call him as a witness. I was told by the plaintiff’s counsel, without objection from the first defendant, that Mr Saris had prepared a statement which had been filed and served. The first defendant referred to the way in which the arrangements were initially recorded in the second defendant’s records and submitted that the only reason for the changes was an attempt by the plaintiff to improve her position. He submitted that the plaintiff’s failure to call Mr Saris means that I can more confidently reach that conclusion. It is convenient for me to deal with this submission and the next submission together.
Thirdly, the first defendant pointed to draft agreements the plaintiff had her solicitors prepare in 2008 which recognised the contributions as loans and contained an obligation on the second defendant to pay interest to the plaintiff. She was asking the first defendant to execute those agreements but he did not do so. The first defendant submitted that there would have been no need for the draft agreements to record the contributions as loans carrying interest if there had been a pre-existing agreement to that effect. He submitted that this was yet another example of the plaintiff trying to improve her position.
I have considered these matters carefully but they do not lead me to reject the plaintiff’s evidence.
The context in which the conversations took place is one in which the plaintiff would be borrowing money to make her contributions and the agreement she alleges is that interest would be paid when the company was up and running. In that context such an arrangement is not unusual or such as to throw doubt on the plaintiff’s evidence.
With respect to the way in which the contributions were recorded in the second defendant’s records, I accept the plaintiff’s evidence that the second defendant’s books and records were a ‘mess’ at the beginning of the venture and that there had to be a recharting of the accounts in about March 2007. It seems that the plaintiff did not know how the contributions should be recorded and that she had some notion that they should be referred to as capital because the moneys were used to develop the property. Ms Sitters came in and ‘cleaned up’ the accounts and then later Mr Saris ‘went through it and brought it up to date’. She said that it was Mr Saris who made the changes to the second defendant’s balance sheet and that he did not discuss those changes with her. The first defendant submitted that I should infer from the plaintiff’s failure to call Mr Saris that the plaintiff knew that the contributions were capital contributions to the trust and not loans attracting interest. I decline to draw that conclusion because I accept the plaintiff’s evidence. In the circumstances I do not need to consider whether the other requirements of what is sometimes said to be the rule in Jones v Dunkel (1959) 101 CLR 298 are satisfied.
I should add in the context of discussing the fact that Mr Saris did not give evidence that the first defendant identified a couple of other areas where Mr Saris may have been able to give relevant evidence. Those areas are the reasons the parties went to see him in September 2007 ([160]-[161] below) and the reasons income from the Lyn Crossman Trust was included in taxation returns of the White Marina Trust. However, the only matter where the first defendant identified the inference I should draw related to the changes to the balance sheet and, as I have said, I decline to draw the inference for which the first defendant contends.
With respect to the draft agreements prepared by the plaintiff’s solicitors, there are two draft Domestic Partnership Agreements prepared by Peter Marker and Associates in the period of March to June 2008. The recitals (which are said to be true and correct) contain an acknowledgment of the second defendant’s indebtedness to the parties. The draft agreements also contain quite detailed provisions dealing with what is to occur on the separation of the parties or the death of one of the parties. There is also a draft deed between the parties which bears the year 2008 and draft loan agreements. The draft loan agreements provide for the repayment of principal and interest on the sale of the leasehold and business. I do not think that these draft agreements amount to an acknowledgement or admission by the plaintiff that there was no agreement or understanding that the plaintiff’s contributions were loans carrying interest. If anything they confirm her understanding that they were loans carrying interest. I think the proposed new arrangement as to the payment of interest may be explained by reference to the open-ended nature of the original statement (that is, when the company was up and running) and the changed circumstances of the business. From the plaintiff’s point of view the business was obviously failing and had to be sold. Furthermore, I accept the plaintiff’s evidence that the first defendant’s concern at the time of the draft agreements was the plaintiff’s failure to make him a beneficiary of her life insurance policy, not the characterisation of the contributions or the fact that the draft agreements provide for the payment of interest to the plaintiff.
The contributions made by the parties were not subscriptions for share capital. After two shares were issued at the outset no additional shares were issued. The contributions were either loans or contributions to the property of the trust. In the latter case they would only be recoverable on the winding up of the trust and if there were sufficient funds available.
The conduct of the parties at about the time of settlement and thereafter was consistent with the contributions being loans to the second defendant. Various payments were made to the plaintiff by the second defendant which support the conclusion that the contributions were loans. Those payments are discussed below. They are the repayment by the second defendant of part of the sum of $38,000 paid by the plaintiff on 21 August 2006 (see [144]-[145] below), the payments to the plaintiff of $30,000 and $35,000 respectively in 2008 (see [166]-[167] below) and the interest payments to the plaintiff by the second defendant in the second half of 2009 (see [174] below).
I find that at about the time the plaintiff decided to enter into the venture the first defendant agreed to the proposed operator of the business paying interest on the plaintiff’s contributions on the terms deposed to by her. I find that the contributions were loans and were understood to be loans.
At the time of the conversations leading to the plaintiff’s decision to take an interest in the venture she understood that the ANZ Bank would take security over the assets of the marina business and because she wanted as much protection as possible she told the first defendant that he needed to provide the ANZ Bank with a mortgage over his property at Moana. The first defendant’s evidence was to the contrary, but I accept the plaintiff’s evidence.
The plaintiff’s understanding as to the ownership of the property at Moana was that it was owned by the first defendant but that he owed his mother $150,000 in connection with the purchase of either that property or of Flat White. I reject the first defendant’s evidence that he told the plaintiff that his mother had a half interest in the property at Moana.
The plaintiff told the first defendant that she wanted her accountant, Mr Con Saris, to be the accountant for the venture. She wanted to make sure that the books for the business were kept in order. The first defendant agreed that Mr Saris would be the accountant for the venture.
In the conversations at or about the time of the plaintiff’s decision to enter into the venture there was a discussion between her and the first defendant about the terms upon which the first defendant would moor his houseboats at the marina. As I understand it, the practice at the time was that houseboat owners who moored their boats at the marina would pay mooring and management charges and would pay other charges for goods and services supplied such as replacing items on the boats, laundry and cleaning. If a booking for the hiring of a houseboat by a third party was made through the marina then the owner would pay a commission on the hiring fees to the marina. If a booking was arranged by the owner then no commission was paid to the marina on that booking. As I understand it, if a booking was arranged through a third party such as the Houseboat Hirers’ Association then the owner would pay a commission to that party.
The plaintiff and the first defendant agreed that the first defendant would pay mooring and management charges and fees for goods and services with respect to his houseboats. The parties discussed whether the first defendant would pay commission in the same way as other houseboat owners.
The plaintiff’s evidence was that initially the first defendant was reluctant to agree to the payment of commission with respect to his houseboats. In resisting the idea he referred to the fact that he would be working at the marina. Eventually he agreed to pay commission in relation to his houseboats.
As I understand the first defendant’s evidence on this topic he agrees that the question of commissions was discussed but he denies that it was agreed that he would pay commissions on the hire of his houseboats in the same way as other houseboat owners.
Both parties referred to subsequent events which they contended supported their version of the conversation.
The second defendant had a website advertising its facilities and services. The first defendant also had a website in relation to his houseboats. The second defendant kept booking forms and those forms contained provision for recording the party who had arranged the booking. Except for a period in late 2009 when the first defendant was in the United States of America he took the majority of bookings. He had a mobile telephone and bookings could and often were taken outside business hours. When the first defendant took bookings for his own boats he recorded the fact that the booking had been arranged through the owner, namely, himself.
Leaving aside a short period in late 2009 the second defendant never sent an invoice to the first defendant for commissions and the first defendant never paid commissions with respect to his houseboats. On his case there was no agreement that he do so and, in any event, in the case of his houseboats all of the bookings were arranged by the owner, namely himself.
Although the plaintiff contends that there was such an agreement she accepts that it is not possible to calculate the commissions the first defendant ought to have paid. That is because of the recording practices he adopted. The plaintiff attempted to provide an estimate of commissions which should have been paid by the first defendant but it seemed to me to be no more than a rough estimate.
After settlement, and from time to time, the second defendant sent letters to houseboat owners concerning the terms and conditions of mooring their boats at the marina. The first defendant appears to have received similar letters to those sent to other houseboat owners.
In November or December 2006 the plaintiff prepared cash flow projections for the second defendant’s business. The book which contains the projections which she prepared was received in evidence and became exhibit P4. The plaintiff discussed the projections with the first defendant. The projections contained estimates as to hiring fees and the likely frequency at which various houseboats at the marina would be hired. The first defendant tended to downplay his role in the formulation of the assumptions which lay behind the estimates, but I have no doubt, having regard to his experience and expertise and the plaintiff’s relative lack of experience and expertise, that he was the principal source of the estimates with respect to these matters. It is true that commissions are not included in the expenses of Flat White or White Water, where the income and expenses of individual boats appear, but as far as I can see they are not included in the expenses of the other houseboats. The significant point is that commissions with respect to the first defendant’s houseboats are included in the projections for the second defendant’s business. I reject the first defendant’s submission to the contrary.
The cashflow projections were also discussed with a representative of the ANZ Bank in the period leading up to an extension of the loan facility from that bank from $500,000 to $750,000. Both the plaintiff and first defendant were present during that discussion. The plaintiff subsequently sent a copy of the cashflow projections to the ANZ Bank.
In July 2007 the second defendant was looking to increase its loan facility with the ANZ Bank. In fact later in 2007 the ANZ Bank extended the facility by $175,000 (see [164] below). In a letter from the plaintiff to the ANZ Bank dated 27 July 2007 financial details of the marina business and of the plaintiff and the first defendant were provided to the bank. The expenses of Flat White and White Water did not include commissions. I think that this was because the first defendant was not in fact paying commissions rather than because there was no agreement or understanding that he do so.
In 2008, the plaintiff prepared a document entitled ‘White Marina Business Overview’. This document was prepared at a time when the second defendant was attempting to sell the business. I accept the plaintiff’s evidence that the reference ‘n/a’ appearing next to the commissions for Flat White and White Water was there because the first defendant was not paying commissions, not because there was no agreement or understanding that he do so.
Mr Daly gave evidence which was relevant to the question of whether there was an agreement or understanding that the first defendant pay commissions with respect to the hiring of his houseboats. He also gave evidence relevant to other matters and it is convenient for me to deal with all of his evidence at this point.
Mr Daly was employed by the second defendant in about November 2007 and his duties at that stage were cleaning boats and small maintenance tasks. In about August 2008 he started performing some managerial functions after other employees resigned. In late 2009 he was involved in taking bookings for houseboats at the marina. He left the employ of the second defendant in January or February 2010.
Mr Daly said that at about the time he was first employed at the marina (that is, November 2007) the plaintiff said to him:
Brendan does not pay commission on bookings for his boats because he handles his own bookings and does his own dog-work. That arrangement is fine with me.
I do not accept that evidence. I found Mr Daly to be an unsatisfactory witness. I have reached the conclusion that he was an unsatisfactory witness having regard to his evidence as a whole. Some matters are more important than others and in what follows I proceed chronologically rather than in order of importance. Overall I formed the view that his evidence was tailored to portray the plaintiff in an unfavourable light.
Mr Daly gave evidence that in August 2008 he was ‘summoned’ by the plaintiff to her house at Hyde Park. He said the plaintiff offered him money to secure a mooring away from White Marina. Mr Daly accepted in cross-examination that the plaintiff had made a polite request that he attend her house and that she had been polite and civil when he arrived. His use of the word ‘summoned’, although not in itself particularly significant, was part of an overall feature of his evidence, namely, an attempt to portray the plaintiff in an unfavourable light. The circumstances surrounding the plaintiff’s offer were never made clear and the plaintiff denied making such an offer. I accept the plaintiff’s evidence.
Mr Daly referred to an occasion when the plaintiff instructed him to refuel her son’s motor vehicle, an instruction which he did not carry out. Later he discovered that the plaintiff’s son had refuelled his motor vehicle himself. On occasions Mr Daly was instructed by the plaintiff to refuel his motor vehicle where he had been doing some ‘running around’ on behalf of the business. He said that records were kept of any vehicle refuelling and those records were provided to the plaintiff on a regular basis. The point being made about this incident is not entirely clear, but if it is that there was something improper about the plaintiff’s conduct, it would also have been appropriate for Mr Daly to mention that the plaintiff’s son performed work at the marina. He did not mention that.
Mr Daly said that he was not aware of houseboat owners being directed by the first defendant to pay money of the second defendant to the first defendant. He said that all the invoicing was dealt with by the plaintiff’s staff. However, he said that such an activity could not have occurred without him being aware of it, as he was a port of call for all accounts and billing inquiries and any such activity would have shown as an unpaid houseboat owner account and come to his attention. He said the plaintiff never raised any issue of that nature with him during his tenure at the marina. I do not accept that Mr Daly played such a role in the accounting aspects of the marina business that I should prefer his evidence to that of the plaintiff and Ms Sitters.
Mr Daly was cross-examined about his alleged conversation with the plaintiff in November 2007 concerning the first defendant paying commissions. His evidence was unconvincing. He could not recall when he had a conversation with the plaintiff and he said that it could have been in the middle of 2009. When asked to relate the conversation he said that the plaintiff had said something to the effect that the arrangement was an unsatisfactory arrangement.
Mr Daly said that the first defendant went to New South Wales for a period in 2009. He was quite uncertain as to whether that was in July or October 2009.
Mr Daly said that when the first defendant went to the United States he handled bookings at the marina. He ensured the first defendant paid commission and that bookings were dealt with on a ‘first cab off the rank’ basis. Mr Daly said that he had conversations with the plaintiff when the plaintiff said that she disagreed with the first defendant’s practice of giving preference to his houseboats. He could not remember how many conversations he had or when they took place.
Mr Daly referred to an email from a Mr Phillips to the first defendant dated 11 February 2010 complaining about various matters. Mr Daly said that he did not discuss the matters with the first defendant and that he had been sworn to secrecy by the plaintiff as to his involvement in the matters.
Mr Daly said that in November 2009 Ms Sitters spent a day making travel and accommodation bookings for the plaintiff to take a holiday in Queensland and that the second defendant was billed for that work. That allegation was not put to Ms Sitters during her cross-examination and having heard Mr Daly cross-examined on the matter I am satisfied that he has exaggerated the incident.
In this case the representations are properly characterised as a representation as to the representor’s intention (that is, to make contributions) and a representation as to the representor’s financial capacity to contribute. The representation as to intention appears to be a representation as to the first defendant’s present intention and there does not appear to me to be any question of a representation with respect to a future matter. The representation as to financial capacity may involve not only a statement about present capacity but also a statement with respect to a future matter namely, financial capacity to make a contribution when required.
In the latter event, the first defendant will be taken not to have reasonable grounds and the representation will be taken to be misleading unless the first defendant adduces evidence that he has reasonable grounds for making the representation. This Court has also grappled with the effect of the deeming provision in the Trade Practices Act equivalent of s 54(2): McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230. It is clear enough that where the representor adduces no evidence to support a defence of reasonable grounds then he or she is taken to have made a misleading representation. That proposition is sufficient to dispose of the issues in this case and for reasons which will become clear it is not necessary to address the other difficult questions identified by Stone J (at 247 [73]) and discussed by Allsop J (at 274-284 [162]-]197]).
Whether the representations were misleading or deceptive
The first defendant gave evidence under cross-examination that he had no intention of making contributions beyond his contribution of $250,000. His representation that he did intend to match the plaintiff’s contributions was false and, I hold, misleading or deceptive.
The first defendant gave evidence under cross-examination that he did not have the financial capacity to make contributions beyond his contribution of $250,000. He did not adduce any evidence that he had grounds to think that he might be able to do so at some point in the future. In fact such evidence as there is, is quite clearly to the contrary. If the representation as to financial capacity was as to a present matter it was false and I hold misleading or deceptive, and if as to a future matter then it was misleading by reason of s 54(1) of the Fair Trading Act.
Whether the plaintiff relied on the representations
It is well-established that the misleading or deceptive conduct of a respondent need not be the sole cause of the innocent party’s conduct which gives rise to that party’s loss or damage and that it is sufficient if it is a cause of the innocent party’s conduct: I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 (‘I & L Securities’). As I have said I accept the plaintiff’s evidence that the representations made by the first defendant about his willingness and capacity to make contributions influenced her decision to take an interest in the venture. They also influenced her decision to make the contributions she subsequently made to the second defendant. I did not understand the first defendant to submit that at a particular point in time the plaintiff must have known that he was not going to contribute and thereafter such contributions as she made were made voluntarily and at her own risk. Such a submission would in any event fail. It seems that until quite late in the course of events the plaintiff was still looking to the first defendant to sell his King Street apartment. Furthermore, she considered, in my view quite reasonably, that to have any chance of recovering her contributions the second defendant had to be maintained pending the sale of the business. With that in mind she assisted the second defendant in the payment of its creditors.
Simply to contend as the first defendant did that the contributions were voluntary is not to the point. It is true that they were not made under a contractual or other legal obligation. However, the important point is that they were made in reliance on the representations made by the first defendant as to his willingness and ability to make contributions.
I find that the plaintiff has established a sufficient causal link between the representations and her contributions to the second defendant.
Whether there was loss or damage within s 84 and, if so, the amount of loss or damage
The plaintiff claims that at the date of trial her contributions to the second defendant stood at a net figure of $661,444.23 and her entitlement to interest, as calculated by Mr McPharlin, stood at $216,168.74. Her claim against the first defendant is for the sum of $877,612.97. She claims that she has no reasonable prospect of recovering that amount from the second defendant. She has established that fact on the balance of probabilities (see [230] above).
The plaintiff’s submission is that causation is straightforward and that it is appropriate to describe this case as a no‑transaction case. In other words, the plaintiff’s case is that she would not have entered into the venture or made the contributions but for the first defendant’s representations. Had she not acted in this way she would have kept her money and not incurred the liability for interest on her line of credit facility.
The first defendant’s submission is that the plaintiff’s loss or damage is the fact that she cannot recover her loan and interest thereon from the second defendant. That has come about, so the first defendant submitted, because the company is unable to meet its liabilities, not because of any contravening conduct by the first defendant. The first defendant submitted that the Court is unable on the evidence to determine the reasons for the company’s failure. Put another way, the first defendant’s submission is that the plaintiff received what she bargained for or expected to receive when she acted on the contravening conduct. She received her share in the second defendant and her position under the trust and later, when she made the contributions, she received an asset, namely, the company’s debt to her.
There are a number of well-established propositions about the operation of s 82 of the Trade Practices Act. First, the common law test of causation, if not the test of causation under s 82, is certainly of assistance when applying the section: Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 525 per Mason CJ; Henville v Walker (2001) 206 CLR 459 at 470 [18], 474-475 [35]-[36] per Gleeson CJ; 481-483 [65]-[72] per Gaudron J; 489-490 [96], 493 [106], 501-502 [103], 505 [140] per McHugh J, 507 [153] per Gummow J; 509-510 [165]-[166] per Hayne J; I & L Securities at 117-119 [19]-[25] per Gleeson CJ, 127-130 [52]-[61] per Gaudron, Gummow and Hayne JJ.
The common law test of causation requires the Court to take a practical and common sense approach to the issue: March v Stramare (E. & M. H.) Pty Ltd (1991) 171 CLR 506. In I & L Securities the plurality spoke of a cause in terms of a matter which materially contributed to the loss or damage (at 130 [62]).
Secondly, the contravening conduct need only be a cause of the loss and damage claimed: I & L Securities at 119 [25] per Gleeson CJ; at 128 [57], 130 [62] per Gaudron, Gummow and Hayne JJ.
Thirdly, s 82 does not import the common law tortious or contractual notions of remoteness and foreseeability, although they may be of assistance in particular cases: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 (‘Marks’) at 510 [38] per McHugh, Hayne and Callinan JJ; Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 428 [30] per Gaudron J.
Fourthly, and this is perhaps no more than an aspect of the third proposition, the Court should not limit the scope of s 82 by analogy with common law or equitable doctrines. McHugh, Hayne and Callinan JJ made the point in Marks when they said (at 510 [38]):
It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage ‘by conduct of another person’ that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg, s 52) or with equity (eg, s 51AA) but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.
More recently the High Court made the same point in Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 (‘Overton Investments’) at 407 [44]-[45]:
This Court has now said more than once (64) that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the Act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law. No doubt analogies may be helpful, but it would be wrong to argue from the content of the general law that has developed in connection, for example, with the tort of deceit, to a conclusion about the construction or application of provisions of Pt VI of the Act. To do so distracts attention from the primary task of construing the relevant provisions of the Act. In the present case, analogies with the tort of deceit appear to have led to an assumption, at least at trial, that a person can suffer only one form of loss or damage as a result of a contravention of Pt V of the Act.
… What kinds of detriment constitute loss or damage, when a detriment is to be identified as occurring or likely to occur, and what remedies are to be awarded, may all raise further difficult questions.
As Overton Investments illustrates, the Court is not bound to adopt the approach of requiring a plaintiff to identify a capital loss along the lines discussed in cases like Potts v Miller (1940) 64 CLR 282 or consequential loss as that term is understood at common law. The key question is whether the plaintiff has suffered loss or damage by the contravening conduct.
In this case I think that once it is accepted that the plaintiff would not have entered into the venture or made the contributions but for the first defendant’s representations about his willingness and ability to make contributions then those representations are a cause of the plaintiff’s loss or damage. Allowing for an event which breaks the chain of causation does not assist the first defendant because no such event has been identified by the first defendant or raised on the evidence. Furthermore, even if one imported into s 84 a notion of reasonable foreseeability that does not assist the first defendant because it was reasonably foreseeable that if he did not match the plaintiff’s contributions there was a risk the plaintiff would not be able to recover her contributions.
CONCLUSION
In my opinion, the plaintiff is entitled to succeed on the Fair Trading Act cause of action. She is entitled to recover from the first defendant the sum of $661,444.23 and compound interest calculated to 30 June 2010 of $216,168.76.
D. OPPRESSIVE CONDUCT CAUSE OF ACTION
In view of my conclusions in relation to the Fair Trading Act cause of action it is not strictly necessary for me to consider the oppressive conduct cause of action. However, it was argued in detail and it is appropriate that I express my conclusions with respect to it. In my opinion, the relief sought by the plaintiff is not relief that can or should be granted in relation to the conduct of which the plaintiff complains.
With respect to the oppressive conduct cause of action, the plaintiff seeks an order that the first defendant pay her the sum of $341,297.42 taking into account an entitlement to interest or the sum of $233,213.04 excluding an entitlement to interest. That, it is said, will equalise the contributions made to the second defendant by the parties.
The relevant provisions of s 232 and s 233 of the Corporations Act 2001 (Cth) are as follows:
232 Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
Note: For affairs, see section 53.
233 Orders the Court can make
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b) that the company’s existing constitution be modified or repealed;
(c) regulating the conduct of the company’s affairs in the future;
(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e) for the purchase of shares with an appropriate reduction of the company’s share capital;
(f) for the company to institute, prosecute, defend or discontinue specified proceedings;
(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h) appointing a receiver or a receiver and manager of any or all of the company’s property;
(i) restraining a person from engaging in specified conduct or from doing a specified act;
(j) requiring a person to do a specified act.
The conduct which the plaintiff relies upon for the purposes of her oppressive conduct cause of action is said by her to fall within s 232(d) and (e). For convenience I will refer to the conduct simply as oppressive conduct. The order for payment of moneys is said by the plaintiff to be an order that is appropriate in relation to the second defendant within the terms of s 233(1). In the alternative, it is an order within the terms of s 233(1)(j).
The conduct alleged by the plaintiff to be oppressive conduct can be put into various categories as follows:
1.The failure by the first defendant to make equal contributions to the second defendant in accordance with his pre-venture statements;
2.The failure by the first defendant to pay commissions to the second defendant with respect to the hiring of his houseboats;
3.The first defendant’s conduct in preferring his own houseboats when arranging or taking bookings;
4.The first defendant’s conduct in seeking to obtain exclusive control of the business;
5.The first defendant’s conduct in obstructing the sale of the business;
6.The first defendant’s conduct in obstructing the rent review process;
7.The first defendant’s failure to pay his accounts in a timely fashion;
8.The first defendant’s improper use of the second defendant’s funds and property;
9.The first defendant’s conduct in making improper use of the second defendant’s assets after it had ceased trading;
10.Underperformance by the first defendant.
The principal matter upon which the plaintiff relies for the relief she seeks is the first defendant’s failure to make equal contributions to the second defendant in accordance with his pre-venture statements. The other matters are said by the plaintiff to ‘go to prove or to reinforce the oppressive nature of the primary conduct, although the plaintiff does not specifically seek any separate or [sic] compensation in relation to that conduct’. It is said that the further elements of oppression have the consequence that ‘the relief sought by the plaintiff (an effective equalisation of their contributions) is conservative’.
I start with the pre-venture statements about contributions. An understanding between parties prior to the incorporation of a company may be relevant to an aspect of the conduct of a company’s affairs after incorporation. For example, an understanding that the parties will jointly manage a company’s affairs may be relevant to an oppressive conduct claim where one of the parties is excluded from management. A statement about contributions the parties will make to the company may give rise to a pre-incorporation understanding between the incorporators of the company. However, I do not think that of itself a subsequent failure to meet an understanding about contributions is part of the conduct of a company’s affairs within s 232 as distinct from conduct by one incorporator towards another. I acknowledge that there is a wide inclusive definition of a company’s affairs in s 53 of the Corporations Act but I do not think that overcomes the difficulty. The understanding might be a matter relevant to the context of an oppressive conduct cause of action as indeed it was in my earlier decision in this proceeding; however, I do not think that of itself a failure to meet an understanding about contributions is oppressive conduct in the conduct of a company’s affairs.
There are two authorities which support this view.
In Weatherall v Satellite Receiving Systems (Australia) Pty Ltd [1999] FCA 218 Whitlam J considered an application to dismiss a proceeding brought by the applicant, a member of a company, against the company and other respondents. The applicant alleged the existence of a memorandum of understanding between himself and two individual respondents, and that those respondents had failed to fulfil their obligations according to the understanding. He sought relief under, inter alia, s 246AA of the Corporations Law. In the course of his reasons Whitlam J said (at [13]):
The authorities establish that conduct inconsistent with arrangements and understandings between shareholders may be so unfair that it amounts to oppression: Raymond v Cook (1998) 29 ACSR 252 and Fexuto v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, 29 ACSR 290, and 30 ACSR 20. However, s 246AA is concerned with the manner in which ‘affairs’ of a company are being conducted and, whilst s 53 of the Law gives an extended definition of ‘affairs’ for the purposes of s 246AA, it cannot be said that Mr Wang’s failure to pay UST has anything to do with his position as a director or member of the Company so as to constitute conduct in its ‘affairs’. In my view, such a failure is not ‘corporation-related’.
Whitlam J dismissed the proceeding with costs.
In Re Leeds United Holdings Plc [1997] BCC 131, Rattee J considered an application to strike out proceedings under s 459 of the Companies Act 1985. Three parties had been directors of a football club for some years, and had decided to restructure it. They proposed that the shareholders’ agreement should include pre-emption rights, but this was never finalised. They incorporated a new company to acquire the club. One of the members later complained that decisions were being made without consulting him, and when an offer was made for the club which two of the directors recommended to shareholders, the third brought a petition alleging the affairs of the company were being conducted in a manner unfairly prejudicial to the member. The basis for this claim included a legitimate expectation on the member’s part in relation to the pre-emption rights. Rattee J struck out the petition as an abuse of process. In the course of doing so, he considered the meaning of ‘company’s affairs’ and said:
However, there is, in my judgment, another ground on which the proceedings under s 459 are misconceived. In my judgment, the legitimate expectation which the court has held in other cases can give rise to a claim for relief under s 459 must, having regard to the purpose of the section as expressed in s 459(1), be a legitimate expectation relating to the conduct of the company’s affairs, the most obvious and common example being an expectation of being allowed to participate in decisions as to such conduct. An expectation that a shareholder will not sell his shares without the consent of some other or other shareholders does not relate in any way to the conduct of the company’s affairs and therefore, cannot, in my judgment, fall to be protected by the court under s 459.
The wording of the section considered by Rattee J does differ from s 232 but to my mind the differences are not such that a different principle applies in the case of s 232.
There is a second and more fundamental problem with the plaintiff’s oppressive conduct cause of action. Even if the failure to meet the understanding is conduct in the second defendant’s affairs, I cannot see how the conduct can lead to the relief sought by the plaintiff. It might conceivably lead to other forms of relief such as the sale of the company’s business, the purchase of the complainant’s shares or the winding up of the company but I do not think that it can lead to an order for the payment of a sum of money by one incorporator to another for the failure to meet an understanding or expectation. The fact is that an order equalising contributions will not improve the second defendant’s financial position or indeed affect it in any way. Indeed the only effect on the second defendant of the orders sought by the plaintiff will be by way of the ancillary order put forward by the plaintiff.
In Section B I have made findings of fact concerning the other acts of oppressive conduct alleged by the plaintiff. It is unnecessary for me to examine what part of that conduct amounts to oppressive conduct within s 232. In my opinion, even if I can make an order for the payment of damages or compensation under s 233 I would only do so if there was a direct link between the oppressive conduct and the compensation or damages claimed. That would be so whether the conduct is considered as a whole or individual acts are considered. I cannot see any sufficient link between the conduct summarised in [288] and the compensation or damages sought by the plaintiff.
In the circumstances it is not necessary for me to consider the other arguments advanced by the first defendant as to why the plaintiff’s oppressive conduct cause of action must fail. Those arguments included an argument that relief could not be granted under s 233 where the alleged oppressive conduct had come to an end and an argument that as a director and equal shareholder of the second defendant the plaintiff was and is able to bring any alleged oppressive conduct to an end and therefore the sections were not engaged.
I should record the fact that I reject the first defendant’s submission that the oppressive conduct cause of action should be rejected because the plaintiff was aware of the alleged oppressive conduct in August 2008 and yet took no action. There were considerable developments after August 2008 and in any event I would not entertain such an argument in the absence of a proper plea and particulars.
E. THE FIDUCIARY DUTY CAUSE OF ACTION
As with the oppressive conduct cause of action, it is not strictly necessary for me to consider the fiduciary duty cause of action in view of my conclusions in relation to the Fair Trading Act cause of action. However, it was argued in detail and it is appropriate that I express my conclusions with respect to it. I conclude that the fiduciary duty cause of action had not been made out for two reasons. First, I do not think that there was a fiduciary relationship between the plaintiff and the first defendant once the second defendant was incorporated and operating the business. Secondly, and in the alternative, I do not think that there is a sufficient causal link between the equitable compensation claimed by the plaintiff and the alleged breach of fiduciary duty.
The parties chose to conduct their venture through a company and discretionary trust and not through another legal structure such as a partnership. Had they conducted the venture through a partnership they would have owed fiduciary duties to each other. In electing to operate through a company they undertook fiduciary duties to the company but not, on the face of it, fiduciary duties to each other.
It is true that the second defendant was a two-person company and that the genesis of the arrangement was very similar to what one would find in the case of a two-person partnership. It is also true that the categories of fiduciary relationships are not closed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (‘Hospital Products’). However, those matters having been said, there is nothing by way of an express statement or clear conduct to indicate that the parties intended to create legal obligations over and above the obligations which attended the legal structure they adopted after taking accounting advice.
In this respect, this case is similar to Friend v Brooker (2009) 239 CLR 129. In that case the High Court rejected an attempt to use the equitable doctrine of contribution to avoid the consequences of the selection by the parties of the corporate structure. French CJ, Gummow, Hayne and Bell JJ said (at 161 [88]):
That selection brought with it the attendant legal doctrines of corporate personality and limited personal liability. Moreover, at the time of the incorporation of the Company, the Companies Act 1961 (NSW) was in force and this (and the successor legislation) provided for the breakdown of relations between the controllers of closely held companies by such provisions as those for winding up on the just and equitable ground under s 222(1)(h) and for oppression suits under s 186.
(Footnotes omitted.)
The second and alternative reason I reject the fiduciary duty cause of action is as follows. As I understand the plaintiff’s submission it was that the first defendant preferred his own interests over the joint interests of the plaintiff and himself. In other words, he was in a position of conflict of interest and duty and it is said that he profited by advancing his own interests at the expense of the joint interests. He did this by allowing the plaintiff’s contributions to exceed his own and then by not contributing funds to the second defendant, by refusing the plaintiff’s request to quit the business in September 2007 and at various times thereafter and by continuing to operate the second defendant’s business for the benefit of his separate houseboat hiring business.
There are a number of difficulties with this argument. The first is in identifying the point in time when the first defendant first advanced his own interests at the expense of the joint interests. On the evidence it is difficult to determine the point in time when the first defendant first preferred his own houseboats over other houseboats at the marina. In any event, there is no direct link between the profit made by the first defendant by preferring his own houseboats and the loss claimed by the plaintiff. Secondly, in so far as it is argued that the first defendant’s refusal to agree to the sale of the marina business was an act by the first defendant whereby he preferred his own interests over the joint interests then, even if September 2007 is taken as the relevant date, the plaintiff has not established the profit made by the first defendant after that date and has certainly not established that any profit made by the first defendant is reflected in the loss she claims. Finally, I reject the plaintiff’s argument that I can approach the matter broadly and award equitable compensation which equalises contributions as a ‘sufficient proxy’ for the profit the first defendant made by preferring his own interests over the joint interests. I know of no principle which would allow me to do that.
Before leaving my discussion of this cause of action I should record the fact that I reject the first defendant’s submission that the plaintiff gave informed consent to a practice whereby the first defendant preferred his own boats. That was said to be based on the plaintiff’s knowledge before entering into the venture that the first defendant would conduct a business involving his houseboats in conjunction with the second defendant’s business. The first defendant referred to Queensland Mines Ltd v Hudson (1978) 52 ALJR 399. However, fully informed consent in circumstances such as the present required the fiduciary to disclose not only that he would conduct his business in conjunction with the principal business but also how he would conduct that business. That was not done in this case and the first defendant’s submission must be rejected.
F. CONCLUSION
In my opinion, the plaintiff succeeds on her Fair Trading Act cause of action and she is entitled to the amount she claims in relation to that cause of action. The question of ancillary and other orders will need to be addressed.
The plaintiff is to bring in draft minutes of order which reflect the conclusions in these reasons and the parties are at liberty to make further submissions on the appropriate orders.
I certify that the preceding three hundred and eight paragraphs (308) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate:
Dated: 29 June 2011
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