Dentown Pty Ltd v PWI Group Pty Ltd as trustee of the Australia No. 1 Group Trust

[2019] NSWSC 1032

Supreme Court

New South Wales

Medium Neutral Citation:

Dentown Pty Ltd v PWI Group Pty Ltd as trustee of The Australia No. 1 Group Trust [2019] NSWSC 1032

Hearing dates:

29–31 October, 1–2 & 5–9 November 2018; last written submissions received 7 March 2019.

Decision date:

15 August 2019

Jurisdiction:

Equity

Before:

Rees J

Decision:

Judgment for the plaintiffs: see [318]

Catchwords:

PARTNERSHIP AND JOINT VENTURE — Joint venture — Real estate business — Agreement for fixed term — Whether parties fiduciaries — Buyout —— Former venturer excluded but buyout agreement not performed — Appropriate remedies — Buyout specifically enforced.

 

CONTRACT — Formation — joint venture agreement — Partly evidenced by draft agreements — Relevance of post-contractual conduct — buyout agreement — effect of buyout agreement on obligations under joint venture agreement — Buyout agreement not performed — Whether damages inadequate — Buyout agreement specifically enforced.

CORPORATIONS — Directors’ duties — director excluded from management — Whether oral resignation valid — Whether resignation agreed as part of buyout valid — Breach of continuing obligation under Corporations Act, s 183 — No loss to company or profit to director proved — No relief granted.

Legislation Cited:

Acts Interpretation Act 1901 (Cth), s 13
Australian Consumer Law, ss 18, 236
Civil Procedure Act 2005 (NSW), ss 21 56, 60, 100
Corporations Act 2001 (Cth), 180, 181, 182, 183, 191, 203A, 205A, 237, 1317H, 1318.
Partnership Act 1892 (NSW), ss 5, 6, 9, 10, 11, 12, 24
Real Property Act 1900 (NSW), ss 74J, 74LA
Uniform Civil Procedure Rules 2005 (NSW); rr 6.12, 20.14

Cases Cited:

Aalders v Anzax Finance Australia Pty Ltd [2010] NSWSC 699
Ambridge Investments Pty Limited (in liq) (receiver appointed) v Baker [2010] VSC 59
Arambasic v Veza (No 5) [2014] NSWSC 1399
Bans Pty Ltd v Ling (1995) 36 NSWLR 435
Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
C & S Constructions Pty Ltd v Dawson (1991) ATPR 41-148
Campana v State of Western Australia [2008] WASC 230
Celermajer Holdings Pty Limited v Kopas (2011) 16 BPR 30,735; [2011] NSWSC 40
Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184
Chidiac v Maatouk [2010] NSWSC 386
Coulls v Bagot’s Executor & Trustee Co Limited (1967) 119 CLR 460; [1967] HCA 3
Creamoata Ltd v The Rice Equalization Association Ltd (1953) 89 CLR 286; [1953] HCA 40
CSR Investments Pty Ltd v Alcan Northern Territory Alumina Pty Ltd [2003] NSWSC 1137
Degman Pty Ltd (in liq) v Wright [1983] 2 NSWLR 348
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12
Equititrust Ltd v Franks (2009) 258 ALR 388; [2009] NSWCA 128
Feldman v GNM Australia Limited [2017] NSWCA 107
Gibson Motorsport Merchandise Pty Limited v Forbes [2005] FCA 749
Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29; [2012] WASCA 216
In the matter of Aero Marine Consulting Pty Ltd (2003) 133 FCR 1; [2003] FCA 1016
In the matter of Colorado Products Pty Limited (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789
In the matter of IMO Donkey Wheel Ltd [2017] VSC 462
In the matter of Ji Woo International Education Centre Pty Limited [2016] NSWSC 1060
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Krajovska v Krajovska [2011] NSWSC 903
Lord v Direct Acceptance Corp Ltd (in liq) (1993) 32 NSWLR 362
Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303
Macquarie Developments Pty Limited v Forrester [2005] NSWSC 674
Martech International Pty Ltd v Energy World Corporation Ltd (2007) 248 ALR 353; [2007] FCAFC 35
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
McDermott v Black (1940) 63 CLR 161; [1940] HCA 4
Miller & Associates v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31
Murphy v Zamonex Pty Ltd (1993) 32 NSWLR 439
Mushroom Composters Pty Limited v IS & DE Robertson Pty Limited [2015] NSWCA 1
New Galaxy Investments Pty Ltd v Thomson (2017) 18 BPR 36,811; [2017] NSWCA 153
Ogilvie v Adams [1981] VR 1,041
Paal Wilson & Co. A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854
Queensland Phosphate Pty Limited v Korda and Shepard (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269
Rawson v Samuel (1841) Cr & Ph 154; (1841) 41 ER 451
Re Wave Capital Limited (2003) 47 ACSR 418; [2003] FCA 969
Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 83 NSWLR 762; [2008] NSWSC 187
Ronchi v Portland Smelter Services Ltd [2005] VSCA 83
RTS Ltd v Molkerei Alois Müller GmbH & Co KG [2010] 1 WLR 753; [2010] UKSC 14
Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64
Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98
Skinner v Redmond Family Holidays Pty Limited (2017) 123 ACSR 593; [2017] NSWCA 329
Tadrous v Tadrous [2012] NSWCA 16
Thompson v White (2006) 13 BPR 24,537; [2006] NSWCA 350
United Dominions Corp Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49
Wheatley v Kavanagh (2018) 19 BPR 38,691; [2018] NSWSC 1359
Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678
Zagame v Zagame [2014] NSWSC 1302

Texts Cited:

Austin, Ford and Ramsay, Company Directors, Principles of Law and Corporate Governance (LexisNexis, looseleaf)
Lindley & Banks on Partnership (20th ed., Sweet & Maxwell, 2017)
Pearce and Geddes, Statutory Interpretation in Australia, (8th ed, LexisNexis 2014)
Practice Note SC Gen 16
WD Duncan, ed., Joint Ventures Law in Australia (3rd ed., Federation Press, 2012)
Wigmore on Evidence (3rd ed., 1940)

Category:

Principal judgment

Parties:

Dentown Pty Ltd ACN 138 476 141 (First Plaintiff & First Cross-defendant)
Desheng Wang (Second Plaintiff & Second Cross-defendant)
Juan Ma (Fourth Cross-defendant)

  PWI Group Pty Ltd ACN 600 452 739 as trustee of The Australia No. 1 Group Trust (First Defendant & Fifth Cross-defendant)
Ji Wang (Second Defendant & First Cross-claimant)
Chao Nie (Third Defendant & Second cross-claimant)
The DRT Group Pty Ltd ACN 149 277 047 (Fourth Defendant & Third Cross-claimant)
NYL Partners Pty Ltd ACN 166 902 745 (Fifth Defendant & Fourth Cross-claimant)
Prospect Wealth Investment Pty Ltd ACN 155 528 171 (Sixth Defendant & Third Cross-defendant)
J&L Realty Pty Ltd ACN 620 752 687 (Seventh Defendant)
Lan Chen (Eighth Defendant)
Yilin Liu (Ninth Defendant)

Representation:

Counsel:
Mr D Murr SC with Mr S Burchett (Plaintiffs)
Mr JT Svehla with Mr I Leong (Second, Third, Fourth, Fifth & Seventh Defendants)

  Solicitors:
Juris Cor Legal (Plaintiffs)
Metta Legal (Second, Third, Fourth, Fifth & Seventh Defendants)

File Number(s):

2016/120476

Publication restriction:

Nil

Judgment

1. HER HONOUR:   This is a dispute between three Chinese businessmen and their respective companies arising out of a real estate business which they conducted for a time, selling apartments off the plan, mainly to the Australian-Chinese community and overseas Chinese investors. They have since fallen out. These proceedings concern the nature of the business which they agreed to conduct, the terms on which they agreed to part ways, and a variety of loans and commissions said to be owing between them. The parties and witnesses were referred to during the hearing by their English first names, in part, because two of the businessmen have the same surname. I will refer to them in the same manner in this judgment without intending any disrespect to them.

2. Dealings between the businessmen took place over some 2½ years. The amount in issue is in the order of $2 million. I have endeavoured to write a judgment which is commensurate with these features. Whilst I have read the 5,300 pages of affidavits, annexures and exhibits, transcript and submissions, I have not repeated all of the evidence as deposed or given, nor all of the arguments put forward. I have endeavoured to keep this judgment within reasonable bounds by setting out the relevant facts as I have found them to be and the legal arguments which were dispositive of the issues between the parties.

3. Achieving this goal, if I have achieved it at all, was no small task. The late service of almost half of the evidentiary material rendered the court book of little utility. Compendious exhibits to late-served affidavits were not logically assembled nor accurately cross-referenced by the affidavits. This made it difficult and time-consuming to find documents and work out what happened. This in circumstances where the matter was first listed for final hearing in August 2016, vacated and listed for hearing against in March 2018, vacated and listed for hearing again in April 2018 and vacated for a fourth time before I heard the matter in October 2018. Although the hearing concluded on 9 November 2018, the defendants’ submissions were not received until 31 January 2019 after a series of extensions and the matter being re-listed by the Court. Those submissions were 273 single-line spaced pages comprising 1591 paragraphs and 1445 footnotes as well as multiple sub-paragraphs and sub-footnotes. These submissions failed to have regard to section 56 and 60 of the Civil Procedure Act 2005 (NSW) and had the result that submissions in reply were received in March 2019 and delivery of this judgment has been substantially delayed.

4. Despite the amount of paper that was ultimately tendered in this case, there were few documents contemporaneous to key events. Jason, James and Henry chose to conduct themselves without the contracts and formalities ordinarily attending a business enterprise of this nature, such as employment contracts with staff. The informality of the arrangements between the parties has resulted in what could fairly be described as a mess. Whilst the parties posited a range of complex legal relationships and obligations, in the result I have determined the issues in dispute largely by reference to the law of contract and director’s duties imposed by the Corporations Act 2001 (Cth).

The parties

5. The plaintiffs are Desheng (Jason) Wang and his company Dentown Pty Ltd. Jason is the sole shareholder of Dentown. Jason is married to Juan (Michelle) Ma, who is a director of Dentown. Both are licenced real estate agents and Michelle was also a registered conveyancer for a time. Michelle is a cross-defendant.

6. The second defendant is Ji (James) Wang, who is married to Lan (Helen) Chen, the eighth defendant. Michelle and Helen were longstanding friends from student days in China and the continuation of their studies together in Singapore and Australia. Jason met James through Michelle’s friendship with Helen. James is a licenced real estate agent. James’ company, The DRT Group Pty Ltd, is the fourth defendant. James is the sole shareholder of DRT Group. James used DRT Group, initially, to contract his services as a real estate agent before going into business with Jason.

7. The third defendant is Chao (Henry) Nie, who is married to Yilin Liu, the ninth defendant. Henry is the sole shareholder of NYL Partners Pty Ltd, the fifth defendant. Henry is a friend of James. Henry worked in Information Technology, in particular, the internet and “internetworking”.

8. The sixth defendant, Prospect Wealth Investment Pty Ltd, is a company which Jason used for his real estate business and was initially used by Jason, James and Henry for doing business together. However, six months later they incorporated the first defendant, PWI Group Pty Ltd, to operate the business instead. Prospect Wealth Investment and PWI Group were referred to indiscriminately by witnesses and in documents as “PWI”. I have endeavoured to maintain the distinction between the two companies including by inferring wherever possible the company to which reference was being made.

9. The seventh defendant, J&L Realty Pty Ltd, is another company owned by James. J&L Realty was formed after the businessmen had fallen out and has since supplanted Prospect Wealth Investment as the lessee of the business premises and appears to conduct what remains of PWI Group’s business.

10. Ju’Li Asia Ship Consulting (Beijing) Pty Limited is not a party but is worth mentioning. James and Henry entered into an agreement with James’ friend in China, Dan Li, to attempt to expand PWI Group into China. Ju’Li Asia was incorporated by Mr Li in China for this purpose after Jason, James and Henry parted ways.

Witnesses

11. Jason read affidavits deposed by nine witnesses (himself, Michelle, his solicitors, three salespeople, a master selling agent and a developer). Four witnesses were required for cross-examination.

12. James and Henry read affidavits deposed by six witnesses (themselves, their solicitor, a translator Qing Yao, the accountant for PWI Group Aaron Yeung and Jason’s former girlfriend, Yizhu Qu). Three witnesses were required for cross-examination.

Identical affidavits

13. Several witnesses had affidavits which were identical in part or whole to those of other witnesses. On the plaintiffs’ side, three short affidavits prepared for salespeople, Meng (Charlie) Chen, Jigang (Jimmy) Li and Xiao (Jaycy) Zhang were identical in places, and largely identical to the comparable portion of Jason’s affidavit.

14. On the defendants’ side, large portions of James and Henry’s lengthy affidavits were identical. James strongly denied that the identical portions did not set out his actual recollection. Indeed, he said that the affidavits “should be exactly the same” because the affidavits set out the truth. The extent of duplication between the affidavits of James and Henry was such that, on occasion, amendments necessary to ensure that the affidavit was read as having been given by the particular deponent were overlooked. In Campana v State of Western Australia [2008] WASC 230, Jenkins J encountered the same problem, causing her to hesitate before accepting the contents of the affidavits as truth, as “Common sense and experience tells me that independent witnesses will not recall events occurring years earlier in the same way”: at [26].

15. The problem posed by identical affidavits was considered in Seamez (Australia) Pty Limited v McLaughlin [1999] NSWSC 9, where Sperling J was satisfied, having regard to a high degree of similarity in content, detail, terminology and sequence in the affidavits of three witnesses, that the affidavits could not have come into existence “without direct or indirect collaboration”: at [36]. The accounts of each witness could not all be original accounts given according to the respective witness’s genuine recollection. At [38]–[40]:

[38]   Either they are a joint collaboration or only one is a genuine recollection of the detail of what occurred. If one account is truly based on a genuine recollection of events, the other two are not.

[39]   … [I]f one is [a] genuine account, the other two witnesses have given incorrect evidence as to how their respective accounts came into existence.

[40]   … Accordingly, acceptance of one of the three accounts … means not only that the other two are not genuinely recollected, independent accounts. It also means that the authors of those other accounts have misstated the way in which their respective accounts came into existence, and seriously so. The credit of the others would then be worthless.

His Honour proceeded on the basis that one of the witnesses’ accounts was a genuine account and disregarded the evidence of the other two witnesses as being of no weight. His Honour stressed that this was not a finding that the credit of those two witnesses was worthless, but simply that their affidavit evidence on these matters had no weight.

16. In Celermajer Holdings Pty Limited v Kopas (2011) 16 BPR 30,735; [2011] NSWSC 40, Ward J noted that even if there has not been collusion between the witnesses in the sense of changing their evidence to make it fit with that of the other, the fact that the affidavits may not contain the actual words of one or other of the deponents devalues their evidence: at [186]. Her Honour concluded that the identical affidavits in that case presented a common recollection drawn from discussions between family members over the years as to what had happened and thus whatever interpretation or gloss may have been placed, consciously or otherwise, on those conversations over the years in telling or re-telling the events: at [187]. This had the result that her Honour approached the evidence with caution. See likewise Zagame v Zagame [2014] NSWSC 1302 at [65]–[69]; Krajovska v Krajovska [2011] NSWSC 903 at [6].

17. In Macquarie Developments Pty Limited v Forrester [2005] NSWSC 674, Palmer J was confronted with a similar problem and, after expressing concern about identical affidavits, the solicitors gave evidence as to the process by which they had produced the affidavits. His Honour accepted that the mistake was an honest one on the part of the solicitor but noted at [89]–[91]:

[89]   Clearly, the Defendants’ solicitor failed to appreciate that the evidence of each witness must be in the words of that witness and that it is totally destructive of the utility of evidence by affidavit if a solicitor or anyone else attempts to express a witness’ evidence in words that are not truly and literally his or her own.

[90]   Save in the case of proving formal or non-contentious matters, affidavit evidence of a witness which is in the same words as affidavit evidence of another witness is highly suggestive either of collusion between the witnesses or that the person drafting the affidavit has not used the actual words of one or both of the deponents. Both possibilities seriously prejudice the value of the evidence and Counsel usually attacks the credit of such witnesses, with good reason.

[91]   Where the identity of evidence is due to collusion, the devaluation of the evidence is justified but where, as in the present case, the identity of evidence is due entirely to a mistake on the part of a legal adviser, a witness’ credit and a party’s case may be unjustly damaged.

18. There was no evidence before me from the solicitors who prepared James and Henry’s affidavits. It appeared to me, however, from James’ evidence that James and Henry wrote their affidavits together and both contributed to a combined product. This has the consequence that I cannot be confident that their affidavits contain the actual recollection of either of them. Rather, their affidavits contain a combined version. The position is similar to In the matter of Colorado Products Pty Limited (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 where Black J concluded that identical affidavits substantially devalued the weight to be given to the affidavit of each witness to the point where neither’s affidavit evidence could be treated as reflecting a genuine individual recollection of events as distinct from a collective reconstruction: at [18]. I have come to the same conclusion. Whilst I found James’ explanation in cross-examination as to how the duplicate affidavits came about to be plausible, the result is the same: the affidavits record a combined recollection rather than the separate and independent recollection of James or Henry. Overall, I consider that James and Henry’s oral evidence is likely to be more indicative of what actually happened than events as described in their duplicate affidavits.

19. I have taken the same approach to the identical affidavits of Charlie, Jimmy and Jaycy. However, in respect of the identical evidence as to what happened at a meeting on 21 March 2016, Jaycy was not required for cross-examination and the defendants’ counsel put the entire contents of the affidavit to Jimmy as a positive proposition which he accepted, unsurprisingly, as an accurate account of the meeting. I therefore accept that portion of their affidavits.

Plaintiffs’ witnesses

20. Jason was cross-examined for almost three days and gave evidence in a straightforward, sincere, respectful and honest manner. He was intelligent and alert and gave clear answers. I was not always satisfied that Jason understood the full import of some of the questions which were put to him, some of which were vaguely worded and lengthy. On occasion, when Jason agreed with a proposition, I was not prepared to treat his answer as a reliable and unqualified acceptance of everything inherent in the question. On occasion, Jason appeared to agree for the sake of agreeing or for the sake of politeness but where he did not appear to understand the question. Sometimes this led to inconsistent responses. But I did not have the sense that Jason was dishonest.

21. Jason made reasonable concessions and accepted wrongdoing such as moving a sale across from PWI Group to Dentown “because we are having a dispute”. Jason readily accepted where he had behaved in a less than honourable fashion, although it appears that he was not alone in behaving in this manner. Jason said that he felt betrayed and upset and that he needed to save himself. Whilst I did not accept Jason’s evidence on everything, overall, I formed the impression that he generally gave truthful evidence.

22. Michelle was not centrally involved in events and her knowledge of the business arrangements for the key period was slight. I had no reason to doubt her evidence, although her credit was not really in issue.

23. Meng (Charlie) Chen and Jigang (Jimmy) Li were two salespeople. Their affidavits were sworn without the assistance of a translator but both gave their evidence entirely through a translator. Their affidavits were, in parts, identical, and I have proceeded on the basis that their oral evidence is likely to be more accurate. Charlie gave evidence in a straightforward manner. He was keen to say how dissatisfied he was with PWI Group under James and Henry’s management. Charlie lacked recall of things that were not very long ago, but it may be that those matters were not particularly significant to him at the time, such as the precise corporate entity with which he was dealing. Jimmy gave evidence in a serious, attentive, succinct and accurate manner. I accept their evidence.

Defendants’ witnesses

24. James was cross-examined for two days. James gave evidence mainly in English but needed a translator for more difficult words. James did not appear to me to understand the subtleties, sophistication and nuance of English words which appeared frequently in his affidavit. James’ fluency in English was inconsistent with the level of English displayed in his affidavit. This may reflect on his solicitor more than him. Making these allowances, however, James was a most unsatisfactory witness. He tended to give very long answers which were not responsive to questions but sought to advance his case. James was keen to add unsolicited material to his answers in an attempt to damage Jason wherever possible. James was prone to significant overstatement and exaggeration. He attached titles and formality which were unsupported by reality. For example, the people working for PWI Group were largely university students working on a casual basis in the same room and sharing computers. James described these people as, variously, interns, sales teams, sales directors, sales managers and senior sales managers. He frequently referred to requirements and rules “in place by the company” which, so far I could tell, did not exist or at least were entirely undocumented. I do not think James was giving untruthful evidence in this regard as he believed what he was saying: but the fact that he consistently perceived matters in this way had the result, from my perspective, that I could not rely on his descriptions as accurate.

25. James gave evidence which was less than true, for example, James gave evidence that sales team members worked from 9.00 am in the morning until 10.00 pm at night in order to earn more commissions by selling properties and that they were working very hard, supervised and encouraged by their team leaders. When it was pointed out that Charlie was only allowed to work 20 hours a week under a student visa, James said Charlie “sometimes” worked longer than 20 hours, and did not look at all troubled in giving this evidence.

26. On 21 November 2016, after these proceedings had commenced, rent paid by a tenant into PWI Group’s rental trust account was transferred to DRT Group’s trust account. The tenant thereafter paid rent directly to DRT Group’s trust account. Initially, James denied that rent payable to PWI Group was being transferred to his company:

No. If that ever happened I would order DRT to repay whatever has been received by DRT back to PWI because these two companies are totally independent from each other.

James then said this happened when he was in China and he was not aware of it. I consider this excuse to be improbable. The same thing happened on 28 November 2016 in respect of a second tenant and, on 5 December 2016, in respect of a third tenant.

27. On 19 January 2017, the developer of “Aqua” paid the second half of commission in the amount of $187,852.50. Whilst the first payment had been made to PWI Group’s bank account in August 2014, the second payment was made to DRT Group’s bank account. Implausibly, James denied that this was a sale made by PWI Group. Then he said he was told that the commission payable to PWI Group had been transferred to Dentown “and that is why I was using the DRT Group bank account to hold this particular payment of commission and I would like the court to make a decision on the direction of the payments of this particular commission”. James was prepared on occasion to say whatever he thought would help him regardless of whether it was true. Further examples are set out in this judgment at [127] and [276].

28. Henry was the last witness to give evidence, having been present in court during the evidence of all preceding witnesses. The level of English in Henry’s affidavits was again inconsistent with Henry’s fluency in English as displayed in the witness box. He did not understand some words in his affidavit without the assistance of a translator. Henry was prone to long, non-responsive, self-serving submissions in answer to questions. Henry failed to make reasonable concessions, for example, in the face of an email which he authored. Henry disclaimed having anything to do with the accounts, which was odd as Jason and James had both referred to him as being the person responsible for that aspect of the business. Henry denied matters which he should readily have accepted, saying he was “100% sure”. Henry said he did not know when the joint venture between PWI Group and Dan Li happened and also said he did not deal much with the expansion of the business to China. This seemed improbable. He denied that repayment of his personal loan from Jason was discussed at critical meetings, which seems unlikely and was inconsistent with his affidavits. Some of Henry’s evidence was plausible, such as the tenor of the meeting on 14 December 2015, but overall I was not prepared to accept Henry's evidence in the absence of contemporaneous corroborative material, the evidence of another credible witness, or unless he gave evidence against his own interest.

29. Yizhu was also an unsatisfactory witness. Yizhu was reluctant to agree to propositions which she thought may assist Jason’s case and volunteered unhelpful and damaging material at every opportunity. On several occasions, Yizhu sought to impugn Jason’s conduct by reference to contemporaneous documents which did not support her evidence. Yizhu said she was neither happy nor unhappy when their relationship ended but this was not consistent with the manner in which she gave evidence, nor with an agreed fact that the relationship ended badly. It seems to me that Jason trusted Yizhu at the time of these events and needed her assistance with IT, secretarial and accounting support. He was foolish to do so. Many of the documents exhibited to Yizhu’s affidavit were extracted from a mobile phone which she had given to Jason during their relationship and which he later returned. In the result, I suspect the fact that Yizhu disclosed all confidential communications between herself, Jason and others over the key months had the result that Jason was utterly candid in his evidence and why I am prepared to accept Jason’s evidence in preference to the defendants’ witnesses.

The Industry

30. The business in which Jason, James and Henry were engaged was a real estate agency selling off-the-plan apartments to, mainly, the Australian-Chinese community and overseas Chinese investors. According to Jason, there are some 500 agents in Chinatown alone who are engaged in this industry. The success of such businesses is critically dependent on entering into agreements with developers to sell apartments or, more often, entering into an agreement with a master selling agent who already has an agreement with a developer.

31. Some insight into this industry was given by a master selling agent, James Keats, who was not required for cross-examination. As a master selling agent, Mr Keats entered into contracts with developers to market and sell their developments. Whilst his company has had exclusive selling agreements with developers, such exclusivity was usually limited to around three months. Mr Keats’ company then engaged some 30 independent real estate agents to assist in promoting and selling the apartments to achieve a more efficient and expeditious sales process. Mr Keats very rarely gave exclusive rights to these agents in respect of a development but offered all agents the opportunity to sell apartments in respect of all developments. Mr Keats’ evidence is consistent with my review of some 67 agency agreements produced by the plaintiffs. The agent, whether Prospect Wealth Investment, PWI Group or Dentown, was generally given non-exclusive rights to sell apartments in a particular development or, if exclusive rights were given, the exclusivity was limited to specific apartments and for a specific and generally short period of time of three months. By way of example, on 3 May 2014, Prospect Wealth Investment entered into a Master Selling Agency Agreement with Gondon Five, the developer of 179 apartments at a development known as “Gondon Macquarie” in North Ryde. Prospect Wealth Investment was appointed together with two other selling agents to sell the apartments for three months, after which the developer could appoint further agents. Prospect Wealth Investment and its “approved network” were permitted to sell the project overseas “using their existing networks and connections”. Prospect Wealth Investment was entitled to commission of 4% of the sale price with half to be paid within 14 days of exchange once the deposit had been released and the balance to be paid within 14 days of settlement of the contract of sale.

32. Mr Keats sends bulk emails to all agents every week with updated lists of available developments, apartments and prices. All agents had access to all of his company’s information about the developments. In Mr Keats’ experience, agents tended to pick and choose the developments which they promoted and marketed. Further, as Jason explained, even if an agent did not have an agency agreement in respect of a development, or particular apartments in that development, the agent would ring other agents who did and, if a sale eventuated, be paid a fee by the agent with the rights to sell the property.

33. PWI Group became part of Mr Keats’ network of agents in 2014. Mr Keats introduced PWI Group to 23 developments but none was on an exclusive basis. PWI Group had access to all of the developments for which Mr Keats’ company was master agent. Mr Keats said that, after Jason left PWI Group, Dentown became part of the network of agents and, in 2017, so did DRT Group.

34. Within each agency, or at least the agencies with which the three businessmen were involved, there were sales teams which appeared to be informal and ever-changing, undocumented by employment or other written contracts. According to one of PWI Group’s sales managers, Charlie, he had no contract with PWI Group. He recruited a team of “referrers” working underneath him who did not have contracts either. If one of his referrers sold an apartment, then PWI Group would receive a commission, part of the commission would be paid to Charlie, and part of the commission would be paid to the referrer. The referrers did not work exclusively for PWI Group and also received commissions from other agencies. In addition, if people or companies in China facilitated the sale of an apartment to a Chinese investor, further fees and commissions were paid to each of the people and companies involved in China in bringing about the sale.

35. The sale of an off-the-plan apartment in a development has a long life span and may take one or two years to complete. The stages generally included a purchaser paying a small fee to record their interest in an apartment and then a holding deposit. Contracts would be exchanged once the development had been constructed, and, finally, the contract of sale was completed. Generally, the agent received half of their commission on payment of the deposit and the other half on completion of the sale of the apartment. The evidence indicated that agents only received the last 50% of their commission when the developer paid the commission to the master agent and onto the independent agent, sales manager and referrer. The commissions paid to agents were substantial when compared to selling existing houses or apartments, presumably reflecting the additional difficulty, risk and delay in selling such apartments. One of the matters which Jason, James and Henry discussed when parting ways was the payment of commission in respect of sales effected whilst conducting business together, but not completed until after they had parted ways. This is likely the largest component of Jason’s claim, thought to be some $1.5 million.

36. On occasion, the agency agreements provided for the agents to offer prospective purchasers a rental guarantee as an additional incentive: rental income of a specified level was assured with the agent to cover any deficiency. Potential liability under rental guarantees was another matter which Jason, James and Henry discussed when parting ways.

Before business together

37. In 2011, James became a licensed real estate agent and incorporated DRT Group. He contracted through DRT Group as a sales manager to Apex Investment Alliance Pty Ltd, which sold off-the-plan residential apartments to Australian and overseas Chinese investors. James says that, since 2012, two sales managers had worked for DRT Group who had been particularly good: Charlie and Jimmy. They ran sales teams who had lots of contacts within the Chinese community.

38. In 2012, Prospect Wealth Investment was incorporated to conduct a real estate business. Jason was one of five directors and shareholders of the company. Prospect Wealth Investment registered the domain name and established a website. Jason became a licensed real estate agent. From late 2012 until mid-2013, all the directors of Prospect Wealth Investment apart from Jason resigned to set up their own real estate businesses, leaving Jason as the sole director of the company. He continued to conduct a real estate business through Prospect Wealth Investment, concentrating on off-the-plan sales.

39. From time to time, James sold apartments for Jason. By the Amended Cross Claim, DRT Group seeks payment of $104,348.75 in commissions from Prospect Wealth Investment or Dentown in respect of the sale of 10 apartments from June 2013 to May 2014 which were due to settle in 2015 or 2016. I will consider the details of this claim in due course.

Doing business together

40. James agreed that, in 2013, his main job was sales. He did not have direct contact with developers or master agents. He was a sales manager with a sales team which went out to sell apartments. Jason thought that James was a good salesman and, if James worked for him, James could manage the sales team, allowing Jason to concentrate on sourcing more developers for Prospect Wealth Investment. In late June 2013, Jason and James began to discuss this.

Initial discussions

41. According to Jason, James asked to go into partnership with Jason through Prospect Wealth Investment. They agreed that James would become a director and own 50% of the shares of the company. Jason would concentrate on sourcing developers and James would concentrate on sales and the sales team. Profits would be divided equally. At that time, Prospect Wealth Investment leased premises at 97–99 Bathurst Street, Sydney but the lease was due to expire in February 2014. They agreed to work together for three years from the expiry of that lease. They would rent a new office and each would lend Prospect Wealth Investment $100,000 to start the business together.

42. In November 2013, James told Jason that he had a friend, Henry, who he had gone to university with. Henry was working for Cisco and, although he did not have any real estate experience, James said Henry was trustworthy and reliable. James asked whether Henry could also be a partner and assist with the administrative side of the business. Jason met Henry and agreed that he could become a partner but with a lesser shareholding. They agreed that Henry would initially receive 10% of the shares and that this would increase to 15% in the second year and to 20% in the third and final year of the business relationship.

43. James and Henry disagreed with the content of these initial discussions, but not until their fourth affidavits filed shortly before the hearing, said to be in reply but in fact largely in chief. Why they did not depose to these conversations in their earlier affidavits is not explained. According to James, in July 2013 Jason asked whether they could go into business together and confessed that he had had some disagreements with the other directors at Prospect Wealth Investments and they had decided to go their own ways. James expressed interest in doing business together, but only in a new company of which James was managing director so that he could guide its direction and selling. The tenor of James’ recollection is that Jason was not doing very well and needed James’ help. A further discussion took place in August 2013 at which James apparently said that he wanted control of the company, that is, 51% of the shares but was happy for Jason to have 51% of the profit for the privilege of control. Whilst such a proposal may be considered unlikely in the usual course, the feature of this proposal which does ring true with James’ evidence generally was the need to be in control. According to James, a third meeting took place in September 2013 at which it was apparently agreed that James would control the new company. Given the problems with identical affidavits and credibility referred to earlier, I prefer Jason’s evidence as to what was said in these initial discussions.

44. On 16 November 2013, Jason emailed James and Henry regarding “PWI recent affairs”, setting out a list of tasks to be attended to: establishing office premises, a company logo and website, advertising, and the company’s “internal framework” in respect of individual responsibilities, commission and personnel management. They agreed that the English name for the business would be “PWI”. James came up with a Chinese name for the business, Ju’Li Investment where Ju’Li meant “gathering together in strength”. They agreed that the Chinese name for the business would be the Chinese characters for Ju’Li. Henry set about commissioning a logo design and website. Henry also incorporated his company, NYL Partners.

45. On 3 December 2013, Jason began negotiating for the lease of new premises at 66 Goulburn Street Sydney. A lease proposal was provided by the managing agent on 5 December 2013 and accepted on 9 December 2013. As the lease over the new premises expired in August 2017, Jason suggested that the partnership should last until then, and James and Henry agreed.

41. Although Jason in his affidavit used the words “partner” and “partnership”, he explained in cross examination that they discussed everything in Mandarin and he used the words which, when translated, mean “business partner” or “co-operation partner”. Of course, how people refer to the arrangements between them is an indication, but is not determinative, of the legal relationship which they formed. As Jagot J said in Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678 at [25]:

Statements of intention by the parties may be relevant but do not determine whether a partnership exists, as the issue is determined by reference to the “substance and reality of the transaction being adjudged to be a partnership”: Fenston [v Johnston (1940) 23 TC 29] at 35-6.

Similar comments were made by Vickery J in respect of the use of the term “joint venture” by parties when describing their dealings with one another: Ambridge Investments Pty Limited (in liq) (receiver appointed) v Baker [2010] VSC 59 at [29].

Draft shareholders’ agreement

47. Jason and James met with a solicitor, Ms Zheng, who had done some conveyancing work for them and agreed to prepare a document at no charge. On 5 December 2013, Ms Zheng sent James and Jason a draft “Shareholders Agreement”. The draft was replete with question marks: Henry’s surname was not known, nor were the proposed shareholdings of Jason, James or Henry, nor was the name of the company of which it was proposed that they would be shareholders. At that time, they had not decided whether the company through which they would do business would be Prospect Wealth Investment or a new company: James preferred to have a new company but Jason said that Prospect Wealth Investment was an established business with relations with developers. James agreed to proceed with Prospect Wealth Investment as it “has already signed sales contract with some other businesses”.

48. Jason agreed that the agreement was that any of them could only leave if the others agreed, and this agreement included their companies, Dentown, DRT Group and NYL Partners. Jason then agreed that this was not discussed but rather all committed to staying in the business for three years and not competing with the business during that time. This was one example of Jason, I think, not entirely understanding the somewhat confusing questions and agreeing for the sake of it.

49. On 17 December 2013, a second draft “Shareholders Agreement” was forwarded by Ms Zheng. By now, many of the question marks had been removed. Jason said that there was no further meeting with the solicitor before the second draft but then agreed that they did meet. “What I mean is because I can’t seriously remember, like, how many times I see [the solicitor], but from your reasoning, I agree”. Jason agreed that he, James and Henry agreed during this time to use Prospect Wealth Investment as the company and their respective companies — Dentown, DRT Group and NYL Partners — as the shareholders. Jason agreed that, before the second draft shareholders’ agreement was received that he, James and Henry had further discussed how Henry’s shareholding would increase over time.

50. On 18 December 2013, Ms Wang emailed Jason and James noting that her office would be closed for Christmas and New Year from 20 December 2013 until 5 January 2014, and asked “what further amendments you would like to make so that we can finalise the agreement by close of business tomorrow”, otherwise it would have to wait until after New Year. On 20 December 2013, Jason replied:

We have not read through the details of the agreement yet, so it is impossible we get it fixed before Christmas. As all of us are sincere and genuine, the agreement is just binding in legal side, we will go through it and get it done when you are back to the office.

Jason agreed that, before sending this email, he spoke to James and Henry about the further draft and they agreed that Henry would be entitled to an additional 5% shareholding each year regardless of the total sales of the business. Other than that, everything in the document was agreed. However, such an admission is not consistent with the text of the email.

51. The draft shareholders’ agreement was never finalised or executed by the parties but is a likely repository of the terms on which they agreed to do business and thus warrants close examination. Jason, James and Henry’s respective companies were to be shareholders in Prospect Wealth Investment: Jason and James’ companies were to hold 45% of the shares, and Henry’s company was to hold 10% of the shares. Henry’s shareholding was to increase each year from 2014 to 2017 depending on the total sales achieved by Prospect Wealth Investment each year: clause 9, schedule 4. Essentially, Henry’s shareholding would increase to 20% by 2017, but would achieve that shareholding more quickly if the company sold more than 150 apartments each year. The draft shareholders’ agreement did not provide how this increase in Henry’s shareholding would be effected, that is, how Jason and James’ shareholdings would be reduced. As already mentioned, they had separately agreed that Henry’s shareholding would increase regardless of total sales, contrary to the second draft agreement.

52. Clause 2 provided:

No shareholder may have any interest in or be associated with the business which competes directly with the business of [Prospect Wealth Investment].

53. The shareholders’ agreement did not appoint a managing director, but simply said that Jason, James and Henry were directors: clause 4. James was to be the chairman of shareholder meetings and to have a casting vote in the event of an equality of votes: clause 12(a) and (b). Unless the directors agreed otherwise, board meetings were to be convened at least once every three months on at least seven business days’ notice of the date and agenda for each meeting: clause 12(e). Although the draft shareholders’ agreement referred to procedures for calling meetings, none of the directors adhered in any shape or form to these requirements until their co-operation was over.

54. The shareholders, being Jason, James and Henry’s respective companies, gave covenants (clause 13(b)):

Each shareholder covenants with the other shareholders:

(i)   To co-operate and use its reasonable endeavours to ensure that the company and its subsidiaries successfully carry on the business;

(ii)   Not to use confidential information of the company or any of its subsidiaries in a way which damages, or is reasonably likely to damage the company, or any of the other shareholders or any of the company’s subsidiaries;

(iii)   Not to unreasonably delay any action, approval, direction, determination or decision required of it;

(iv)   To make approvals or decisions that are required of it in good faith, in the best interests of the company, its subsidiaries and the carrying on of the business as a commercial venture; and

(v)   To be just and faithful in its activities and dealings with the other shareholders and not to act contrary to the interests of the company, any of the company’s subsidiaries or the business.

Similar obligations were contained in clauses 17 and 20 to promote and assist with the development of the business, and in respect of confidentiality. Prospect Wealth Investment also gave various covenants including that the company was not a party to, or threatened with, any claim or litigation in any court, tribunal or otherwise: clause 16(g).

55. A bank account was to be opened in the name of Prospect Wealth Investments and all of the transactions of the company were to go through that bank account: clause 15. Prospect Wealth Investment was obliged to provide and make monthly profit and loss accounts and a balance sheet available to each shareholder: clause 6. This was never adhered to.

56. The draft shareholders’ agreement also contained a restraint in clause 19:

At any time whilst they are a shareholder, or within three years after they cease to be a shareholder, or otherwise associated with the company, or the business conducted by the company, then such shareholder covenants and warrants to the company, and other shareholders that they must not directly or indirectly and whether solely or jointly with or as director, shareholder, manager, agent, servant, adviser, consultant, investor, trustee, partner, joint venture, or any of them, carry on or be engaged or interested in any business of a like nature to the business conducted by the company or any significant component thereof, or permit their names to be used in connection therewith …

The restraint was to apply to James, Jason and Henry for three years and three months and an area of 10 kilometres: clause 19(b), schedule 3. Presumably, the reference to 10 kilometres was intended to be a 10 kilometre radius from the business premises but it is not specified: C & S Constructions Pty Ltd v Dawson (1991) ATPR 41-148 per Waddell CJ in Eq. Even if the document had been executed by the parties, the enforceability of this vaguely-worded clause is questionable.. Jason agreed that the timeframe of 3 years and 3 months was selected because it was the period of time that the directors would be liable under the lease of the new business premises, including by their personal guarantees. If that is why the timeframe was selected, then it was not a logical selection as the restraint applied, if enforceable, for 3 years and 3 months after a shareholder ceased to be such, which might be at any time during or at the end of the term of the lease. Nor is it clear how observance of the restraint would enhance the enforceability of personal guarantees supporting the lease. This seemed to me to be an example of the witness not understanding the questions on this subject.

57. The shareholders agreed that nothing in the shareholders’ agreement constituted or could be construed as constituting any shareholder as the partner of any other shareholder or Prospect Wealth Investment: clause 22(b). This clause suggests that the parties did not intend to form a partnership.

58. The agreement was to continue in force and effect until termination by written agreement between the shareholders and the company: clause 23(a). This clause was markedly at odds with the agreement between Jason, James and Henry that their co-operation would continue until August 2017, when the sub-lease of business premises expired.

59. Clause 24, “Special Compliance” contained a series of obligations which appear to have been specifically drafted to meet the needs of the proposed venture:

Special Compliance

At all times, all the parties shall comply with the following rules and in case there is any inconsistency between the other terms of this Agreement and this clause, this clause prevails:

(a)   All the incomes and expenses must be processed through the bank account of the Company.

(b)   All the sales must be completed through the Company and no party is allowed to accept or receive any payment of financial gain in any form from a third party.

(c)   Dividends will be paid half yearly on the 30th day of June and 31st December each year.

(d)   In case there is a breach of any terms and conditions of this agreement, the parties agree that the party at fault will be personally liable for all the loss and damages caused to the Company, other shareholders or parties outside the Company.

(e)   The parties have a right to inspect all the bank accounts of the other shareholders whether or not that bank account is opened in the sole name of the shareholder or in the joint names of the shareholder and its spouse or its related parties.

(f)   Each party indemnifies the other parties from all claims and/or complaints whether made against him personally or his company for the events happened or sales achieved prior to 1 January 2014.

(g)   Each party shall work professionally and diligently at all times for the best interest of the Company and the interest of the Company shall prevail if it is in conflict with the party’s individual interest.

60. It is reasonable to think that Jason, James and Henry agreed to do business together along the lines of the draft shareholders’ agreement. However, the draft shareholders’ agreement omitted one clear term of their discussions: that the business co-operation would continue for the term of the sub-lease. In circumstances where Jason, James and Henry never signed the document, nor necessarily “read through the details”, I am reluctant to regard it as a binding agreement in its entirety, or at all, but simply one form of evidence of the terms on which the parties agreed to do business. Other forms of evidence available to me are the other contemporaneous documentary evidence, oral evidence and the subsequent conduct of the parties. As to the latter, post-contractual conduct is admissible on the question of whether a contract was formed but not on the question of what a contract means: Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]–[26]. Post-contractual conduct is an aid to finding what the terms of the contract were: Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 at [125]–[126] per Campbell JA which whom Basten JA and Sackar J agreed. Subsequent conduct may also indicate what was important or essential to the transaction and indicate the parties’ contractual intention: Queensland Phosphate Pty Limited v Korda and Shepard (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269 at [37].

Getting on with it

61. On 6 January 2014, Jason lodged a Change to Company Details form with the Australian Securities and Investments Commission (ASIC), noting the appointment of James and Henry as directors of Prospect Wealth Investment. DRT Group and NYL Partners also became shareholders of the company, although the resulting shareholdings did not align with the draft Shareholders Agreement: Jason and James each held 40% of the shares whilst Henry held 20%. However, as Prospect Wealth Investment only had five ordinary shares on issue, it would not have been possible to issue 10% of shares to Henry without revising the issued share capital and shareholdings overall. Jason confirmed the share division was different to what had been agreed “because Prospect Wealth Investment did not have enough shares to create such allocations and we did not consider issuing new shares”. James agreed that, even though Henry received one share that equalled 20% of shares, the agreement was that he had 10% which would increase to 20% over time.

62. On 7 January 2014, Prospect Wealth Investment opened a business account at the Commonwealth Bank. It seems to me that, by this time, Jason, James and Henry had reached agreement on the terms on which they would do business together. It is not clear to me, however, that they had also agreed that it was necessary to document their agreement in a signed contract. In terms of the three classes of situations considered in Masters v Cameron (1954) 91 CLR 353 at 360; [1954] HCA 72, the first class applies most readily: “the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which might be fuller or more precise but not different in effect”. That proposal to have the terms of the agreement formalised, however, appears to have been abandoned or forgotten as Jason, James and Henry got on with doing business together. For the reasons already stated, I do not think that the second draft shareholders’ agreement necessarily encapsulated what they had agreed, as it was in some respects different to what they had talked about and in other respects did not address their discussions at all. I will defer setting out what I have found to be their agreement until sufficient post-contractual conduct has been canvassed, which gives me enough comfort to find what the terms of their agreement were.

Business begins

63. On 17 January 2014, Dentown deposited $10,000 to Prospect Wealth Investment’s account, described in the bank statement as “PWI contribut Jas”. Jason says that he deposited the funds to enable Prospect Wealth Investment to pay day-to-day expenses and the costs of moving into the new office. Payments were made from this bank account to print business cards, purchase a hard drive and to pay Regina Yu, administration officer of “PWI Group”. Dentown has never been repaid the $10,000. The second draft shareholders’ agreement did not address directors’ or shareholders’ loans or the repayment of such loans, but the loan was recorded in the financial statements of the business as such and the defendants accept in their submissions that Dentown deposited $10,000 “by way of loan”.

64. In February 2014, Jaycy began to work for Prospect Wealth Investment as a sales manager. So did Jimmy and Charlie. On 4 February 2014, DRT Group deposited $100,000 to Prospect Wealth Investment’s bank account, described as James’ contribution. The same day, $55,000 was paid for the security deposit for the lease of the new premises. Rent of $8,758.72 was paid for Prospect Wealth Investment’s existing offices at 97–99 Bathurst Street for January and February 2014. On 7 February 2014, Dentown deposited $100,000 to the account, recorded as “Jason contribution”.

65. On 17 February 2014, Prospect Wealth Investment’s sub-lease of the new premises at 66 Goulburn Street commenced, although the sub-lease was not executed for some months. The sub-lease was to expire on 17 August 2017 and there was no option for a further term. Jason agreed that the period of his agreement with James and Henry to co-operate extended until that time. No-one knew what was going to happen after that.

66. On 20 February 2014, the first of three payments of $19,206 was made for the fitout of the new premises and, on 27 February 2014, Prospect Wealth Investment received its first commission of $17,050. In March 2014, the second and third payments for fitout were made and a further $17,696 was paid for office furniture.

67. Jason says that each attended to their allocated roles: Jason sourced developers; James made sales and managed the sales team; and Henry attended to office and bookkeeping duties as well as communicating with developers in relation to particular sales. James agreed:

After the companies was incorporated, there was a split of responsibilities, where Jason was responsible or contacting or liaising with the developer and sig[n]ing new contracts with new developers, while my major responsibilities involved sales, management of the sales team and the operation of the business.

James agreed that the resources which he brought to the business were the two sales teams headed by Charlie and Jimmy as well as his own sales skills.

68. Overall, it appeared to me that Jason, James and Henry had quite different personalities. Jason was a personable, “big picture” salesperson who was good at doing deals. He was flamboyant and friendly. James was a “detail” person who liked to be in control. He was process-driven and austere. Henry is apparently younger than James and more diminutive. He appeared to follow James’ instructions without independent thought and thus, from the outset, Jason was effectively in the minority.

69. According to Jason, the directors met each Thursday evening to discuss Prospect Wealth Investment and the business. However, Jason said that often the meetings involved arguments between Jason and James about the direction of the business. It would appear that difficulties emerged between the parties fairly soon after they began to do business together. The different personal qualities of Jason and James meant that co-operating would potentially benefit each of them as one could bring strengths where the other had weaknesses; but it also created the potential for conflict. Here it led to tension between them and the eventual breakdown of their co-operation.

68. In early 2014, James asked Jason to help out with sales, as it would save Prospect Wealth Investment paying commission to sales people, enable them to cut costs and achieve more sales. Whilst Jason was not happy with this, he agreed to do it for the first year to try to lessen tension between the directors. In about May 2014, Jason began assisting with sales in addition to his other duties. In 2014, Jason says that he made 49 sales which earned gross commission of $1,238,211 and a net profit of $894,320 for Prospect Wealth Investment. He received no addition remuneration for this work. Henry disagreed with Jason’s figures, dissecting commissions earned by Jason for direct sales from those made by Jason’s sales team. I do not understand the rationale behind this dissection but, in any event, Henry says Jason earned gross commission from direct sales of around $300,000 that year, with the remainder being sales by his sales team.

69. On 11 May 2014, $20,000 was paid to NYL Group as a distribution. Distributions appear to have been made from time to time by Henry without any resolution of the directors. Indeed, none of the usual formalities of board meetings were attended to: no notices of meeting were issued and no minutes kept until after the directors had decided to part ways. In saying that these and subsequent payments to Dentown, DRT Group and NYL Partners were “distributions”, I am repeating Henry’s evidence without having been able to verify this by reference to, in some cases, bank statements and, in all cases, resolutions or financial statements adopted by Jason, James and Henry.

Move to PWI Group

72. In late March 2014, Jason had a problem with a sales person which pre-dated James and Henry joining Prospect Wealth Investment. A salesperson had taken a deposit on a Meriton apartment but spent it gambling. On 24 March 2014, L’Orient Legal Solicitors sent Jason a draft affidavit in relation to the incident for him to check. Jason talked to James and Henry about this and they decided to seek advice as to how to protect the new business from such matters.

73. On 20 June 2014, Jason, Henry and James met with new accountants, Cabot Square. Aaron Yeung, who was not required for cross-examination, said he was told by Jason, Henry and James:

We would like to set up a new structure to conduct our business so that there is no possibility of any old liabilities of Prospect Wealth Investments damaging us.

Mr Yeung suggested that they set up a new company in which they were directors and shareholders and that the company be trustee of a unit trust which each of their companies being unitholders. This had tax advantages and was an effective way to distribute the income of the business. Mr Yeung suggested that they set up the structure to start in the new financial year on 1 July 2014 but to also record all of the transactions from 1 January 2014 so that the first year’s accounts would be for an 18-month period. They agreed. Mr Yeung also suggested that they register “PWI” as a trademark, but Jason discussed this with Henry and James and they decided that it was not worth the time and costs involved.

74. On 1 July 2014, PWI Group was incorporated, with an 87 page constitution. Jason, James and Henry were appointed directors. Of the 100 issued ordinary shares, 45 were issued to Jason and James and the remaining 10 were issued to Henry. This was consistent with the shareholdings proposed in the second draft shareholders’ agreement.

75. PWI Group was appointed as trustee of Australia No 1 Group Trust, which was also established that day. The unitholders of the trust were Dentown and DRT Group (45 units each) and NYL Partners (10 units). Clause 6 of the trust deed provided that nothing in the deed would constitute the relationship of partners between the unitholders. Again, this clause suggests that the parties did not intend to form a partnership.

76. Clause 17 of the trust deed provided that the trustee would hold the net income of the trust fund in each financial year in trust for the unitholders in proportion to the number of units held by them and might, in its absolute discretion, make an interim distribution of net income as it thought fit during the financial year among the unitholders in proportion to their units. The distributions in fact made by PWI Group did not conform to the trust deed but were made by Henry from time to time as he thought fit and in the proportions which they had discussed at the outset, that is, 10% to Henry (increasing gradually over time) with the remainder in equal portions to Jason and James. This was another example of Jason, Jason and Henry conducting themselves in accordance with what they had discussed rather than what any particular document said. Whether the distributions were of “net income” is not known as no financial statements were prepared until after Jason, James and Henry agreed to part ways, and these financial statements have not been adopted by all of them.

77. Jason, James and Henry did not obtain any legal advice in relation to these documents, nor does it appear that the accountants gave any detailed explanation of the import of the constitution of PWI Group or the trust deed. Jason understood that what was proposed was essentially the same structure as that of Prospect Wealth Investment. Jason said that he agreed to the transfer of the business and assets of Prospect Wealth Investments to PWI Group. However I think this was another occasion when Jason answered questions on matters which he made clear were outside his role in the business, but then nonetheless agreed to propositions which it was not clear to me that he actually understood or to which he knew the answers.

78. On 3 July 2014, the sub-lease of the premises at 66 Goulburn Street was finally signed. The sub-lessee was Prospect Wealth Investment rather than PWI Group. The directors signed as guarantors. Presumably it was easier to sign the sub-lease in the name of the old company, Prospect Wealth Investment, than to negotiate with the sub-lessor to change the sub-lessee, or to assign the sub-lease to PWI Group. Rather, a licence agreement was prepared between Prospect Wealth Investment and PWI Group in respect of the sub-lease, although the licence agreement was not signed until 18 months later.

79. On 11 July 2014, a new bank account was opened with the Commonwealth Bank for PWI Group as trustee for Australia No 1 Group Trust. The first deposit to this account was $187,850.50 on 1 August 2014, being commission on a development called “Aqua”. This commission had been earnt by Prospect Wealth Investment but Jason, James and Henry simply ‘rolled over’ the banking into the new PWI Group bank account. PWI Group paid distributions to Dentown, DRT Group and NYL Partners of $135,000 for James and Jason and $10,000 for Henry. Taking into account the $20,000 already paid to Henry in May 2014, this equated to a distribution of 45% to Jason and James and 10% to Henry.

80. James agreed that once PWI Group was established, the activities of the business were uninterrupted. The same staff came to work in the morning and did the same things they had done the day before. The same logos, websites and email addresses were used. They had the same client base, used the same computers and the same system of work and distributed profits in the same way as before. The employees of Prospect Wealth Investment became employees of PWI Group and banking was transferred to the new PWI Group bank account. There was no formal transfer of the assets of Prospect Wealth Investment to PWI Group, nor was Prospect Wealth Investment a party to the trust deed for Australia No 1 Group Trust.

81. PWI Group obtained a real estate licence which commenced in September 2014. The business continued to use Prospect Wealth Investment’s real estate licence in the interim. In September 2014, PWI Group signed its first agency agreement in respect of a development in Canterbury, under which PWI Group was given non-exclusive rights to sell units at the property for 2½ months.

82. Henry says that in mid- to late 2014, he started to have contacts with developers and to sign agency agreements. This became part of his responsibility, according to Henry, although it seems to me that his role was essentially administrative, that is, attending to paperwork rather than to the relationships themselves. On 21 October 2014, Henry signed a deed of agreement with Gondon Five appointing Prospect Wealth Investment as the exclusive selling agent for 14 apartments in the development. Presumably, the deed of agreement was not entered into by PWI Group as either an oversight or because the directors did not want to forego any benefits which Prospect Wealth Investment might enjoy by reason of its existing relationship with Gondon Five.

83. In October and November 2014, further distributions were made to the directors’ companies being $90,000 to Jason and James and $20,000 to Henry, aligning with their unitholdings and shareholdings of 45:45:10.

84. On 20 November 2014, Cabot Square posted expenses paid by Jason to PWI Group’s accounts as a loan from Jason. These expenses totalled $46,190.44 and included monies expended on office furniture and equipment, fitout, website and rent. These expenses were in addition to the $10,000 advanced by Jason at the commencement of the new business. On 9 December 2014, Dentown was repaid some $30,000, but not the balance of the loan. According to the financial statements for Australia No 1 Group trust for the year ended 30 June 2015, the trust owed Jason $26,190.

85. Also in December 2014, further distributions were paid being $135,000 to Dentown and DRT Group and $30,000 to NYL Partners. According to the bank statements, by the end of 2014, total distributions had been paid to Dentown of $360,000, to DRT Group of $375,000 and to NYL Partners $80,000. There was an overpayment of $15,000 to James.

Nature of business arrangement

86. This is an appropriate juncture at which to consider the nature of the legal relationships between the parties and thus clarify the obligations which each owed, whether those obligations were breached, and any consequences which flow. The parties have proffered a range of possibilities as to the precise nature of the legal relations between the parties including a partnership, joint venture, shareholders’ agreement, some other kind of agreement or a combination of these. The range of possibilities put forward by the parties is reflective of the “mess” which has resulted from the parties refraining from properly documenting their agreements, or changes in their agreement over time, perhaps encapsulated by the plaintiffs’ submission that:

The parties have from the start of their association acted on the basis, that the legal entities and structures on which they have operated were subsidiary forms to be moulded to the substantive real or quasi-partnership or joint venture agreed upon at the end of 2013. Acceptance of this basic premise of their relationship explains the otherwise contradictory forms, that it has taken from time to time.

The plaintiffs submitted that, as long as the Court considers that the parties reached a binding agreement to part ways in February 2016, the precise nature of the pre-separation relationships does not matter. As attractive as that proposition is, I think it is necessary to identify the legal relations between the parties when they did business together.

87. The plaintiffs contend that there was: a partnership between Jason, James and Henry; a joint venture between Dentown, DRT Group and NYL Partners; and an agreement of shareholders of Prospect Wealth Investment until 30 June 2014 and of PWI Group from 1 July 2014. By reason of these agreements, PWI Group’s role as trustee of the Australia No 1 Group Trust and Jason, James and Henry’s roles as directors of Prospect Wealth Investment and subsequently PWI Group, James and Henry owed fiduciary duties at all relevant times to Jason, Dentown, Prospect Wealth Investment and PWI Group. In addition, the plaintiffs say that James and Henry owed statutory duties as directors of PWI Group to Jason as their fellow director and member of the body of shareholders of PWI Group under sections 181, 182, 183 and 191 of the Corporations Act.

88. The defendants deny that there was any partnership or joint venture agreement or agreement between shareholders of either Prospect Wealth Investment or PWI Group. A different agreement is pleaded, being an agreement between Jason, James and Henry to do business together in a new company. The central feature of the posited agreement is said to be a “Not-Separate/Not-Compete Term” which, with the characteristic brevity of the defendants’ counsel, was said to comprise:

Until the end of the 2014 Sub-Sub-Lease, Jason, James and Henry and their respective companies, Dentown, DRT and NYL:

(i)   would be bound together (in their words stay/remain together);

(ii)   would devote themselves fully to the New Business, so as to be fully committed to it;

(iii)   would not engage in any business in competition with the New Business. The exceptions to this were: receipt of commissions to be paid from historical sales of:

(A)   Prospect Wealth (the Old Prospect Wealth Business);

(B)   DRT,

would not form part of the New Business;

(iv)   would not be able to sell their shares in Prospect Wealth without the consent of the other members and if such consent was forthcoming, the continuing members would have a right of pre-emption to acquire an outgoing shareholder’s shares in Prospect Wealth.

The defendants also say there was then a corporate trading unit trust structure in which it was said that the “Not-Separate/Not-Compete Term” continued to operate. Whilst the defendants accept that Jason, James and Henry owed fiduciary obligations as directors of both Prospect Wealth Investment and PWI Group, any other obligations are denied.

89. As to whether there was a partnership, Jagot J helpfully summarised the indicia of a partnership in Yacoub v Commissioner of Taxation at [24]:

The indicia of the existence of a partnership include: — (i) a mutual interest in the carrying on of the business for the purpose of profit or gain (in this regard, it has been said that all partnerships involve a joint venture but not all joint ventures involve a partnership, for example, Whywait Pty Ltd v Davison [1997] 1 Qd R 225 at 231), (ii) mutual confidence that the parties will engage in the venture for joint advantage only (for example, Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407-408), (iii) sharing of profits and losses from the venture or a so-called community of profit and loss (Fenston v Johnston (1940) 23 TC 29 at 34), and (iv) mutual agency in the sense that each party is a principal of the business and may bind the other (for example, Momentum Productions Pty Ltd v Lewarne (2009) 174 FCR 268; [2009] FCAFC 30 at [36]–[44] (Momentum Productions)).

Not all of these indicia appear to me to exist here, in particular, the last-mentioned, nor does it appear that Jason, James and Henry contemplated that they would enjoy all the rights and privileges normally associated with a partnership, such as the right to dissolve the firm and share in the value of goodwill on dissolution: Lindley & Banks on Partnership (20th ed., Sweet & Maxwell, 2017), at [5-23]. The obligations which Jason, James and Henry undertook to each other do not appear to me to have had a fiduciary quality but were more like a straightforward business proposition. A relationship of trust and confidence was not present. Less relevantly, I do not think it occurred to Jason, James and Henry that their business relationship would have the consequences described in sections 5, 6, 9(1), 10(1), 11, 12 or 24(1) of the Partnership Act 1892 (NSW).

90. As to whether there was a joint venture, in United Dominions Corp Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49, Mason, Brennan and Deane JJ considered the nature of a joint venture at 10:

The term “joint venture” … connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. … The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a “joint venture” and what should more properly be seen as no more than a simple contractual relationship may, on occasion, be blurred.

Their Honours also noted that whether the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken: at 11.

91. More recently in Gibson Motorsport Merchandise Pty Limited v Forbes [2005] FCA 749, Crennan J noted that the recognisable and common characteristics of joint ventures include, at [80]:

1.   Participants hold proprietary interests in the assets of the joint undertaking, often, but not necessarily, as tenants-in-common …

2.   Participants exercise joint control of the undertaking.

3.   Participants contribute to the joint undertaking, not necessarily equally; such contributions may be disparate: Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327; Television Broadcasters Limited v Ashton’s Nominees Pty Ltd (No.1) (1979) 22 SASR 552.

4.   Participants in the joint undertaking enjoy rights and assume obligations, which are often several, and calculated by reference to ownership of shares and/or contributions made.

5.   Participants have a joint (or community of) interest in the performance of the undertaking’s purpose: Cummings v Lewis (1993) 41 FCR 559 at 314/315 (per Cooper J).

6.   Participants associate in the undertaking for mutual commercial gain which can be mutual profits.

Her Honour noted that these characteristics could be “found in various permutations and constellations such that it is not appropriate to attempt to isolate which characteristics would be both necessary and sufficient for the constitution of a joint venture agreement” and it was always a question of fact whether any particular undertaking constituted a joint undertaking for mutual commercial gain: at [81].

92. And, as Vickory J explained in Ambridge Investments v Baker at [32]:

A joint venture, properly called, may be constituted as an incorporated joint venture in which the participants become shareholders in a joint venture corporate vehicle. Alternatively, it may be structured as an unincorporated joint venture having the characteristics of a partnership, with a separate legal personality, or it may simply be an association which does not exist as an entity separate from the legal personality of its participants.

93. Whilst Gibson Motorsport does not set out a ‘checklist’, it seems to me that the characteristics listed by Crennan J are present in this case.

1. To the extent that the joint undertaking of Jason, James and Henry had assets, those were, essentially, the sub-lease and a real estate licence. Through Dentown, DRT Group and NYL Partners’ shareholdings in Prospect Wealth Investment and, later, Jason, James and Henry’s shares in PWI Group, and Dentown, DRT Group and NYL Partner’s unitholdings in Australia No 1 Group Trust, Jason, James and Henry either directly or through their wholly-owned companies had an interest in those assets.

2. They exercised joint control of the undertaking, albeit James appears to have considered that he had overriding control notwithstanding, not something supported by any agreement at the outset, but which happened by default as Henry invariably supported James in whatever James wanted to do.

3. The participants contributed to the joint undertaking, although not equally, as Henry did not have the funds to make an initial contribution.

1. The participants’ rights to share in the mutual profits of the undertaking were calculated by reference to their ownership of shares in the corporate vehicle employed and units in the unit trust.

2. Jason, James and Henry had a community of interest in the performance of the undertaking’s purpose, and associated for mutual commercial gain in the form of profit.

3. The joint venture was for a fixed term, being the term of the sub-lease. It was not indefinite.

94. It seems to me that the legal relationship between the parties was a joint venture but not a partnership. Having regard to the evidence canvassed thus far, I find that the terms of the joint venture were:

1. The participants in the joint venture were Jason, James and Henry, through their respective wholly-owned companies. The undertaking was a real estate business for a fixed term, being the term of the sub-lease.

2. It was an incorporated joint venture in that the participants, either directly or through their wholly-owned companies, became shareholders in a joint venture corporate vehicle which was, initially, Prospect Wealth Investment and, subsequently, PWI Group as trustee for Australia No 1 Group.

3. Each of the participants would exercise joint control of the undertaking.

4. Jason’s contribution to the joint undertaking comprised advances totalling $110,000 together with the goodwill of Prospect Wealth Investment in the form of its existing contracts with developers and master selling agents and the right to occupy business premises, together with the accoutrements of an existing company. Jason also brought his experience as a real estate agent and his skills in dealing with developers. James’ contribution was an advance of $100,000 and his experience as a real estate agent together with the sales teams with whom he had relationships through DRT Group. Contribution by Henry to the joint undertaking was far less, but came in the form of his qualifications and experience in IT and administration.

5. The participants in the joint venture agreed to share the mutual profits of the joint undertaking in proportions which reflected the ownership of shares and differing contributions made and which changed in an agreed manner over the three years of the undertaking.

6. The participants agreed not to operate a competing real estate business during the term of the joint undertaking.

7. The participants agreed to spend reasonable time and effort in devoting themselves to the joint undertaking.

Beyond these terms, the joint venture did not include a “Not-Separate/Not-Compete Term” in the terms contended for by the defendants.

95. There is no doubt, and it is agreed, that Jason, James and Henry owed fiduciary obligations as directors of Prospect Wealth Investment and, subsequently, PWI Group, to those companies. The provisions of the Corporations Act relied upon require a director to exercise their power and discharge their duties in good faith in the best interests of the corporation and for a proper purpose (section 181); to not improperly use their position, or information gained in their position, to gain an advantage for themselves or someone else or cause detriment to the corporation (sections 182 and 183); and to give the other directors notice of a material personal interest which they have in a matter that relates the affairs of the company (section 191). Beyond their fiduciary obligations as directors, I do not think that the relationship between the joint venturers was fiduciary. The High Court in United Dominions Corporation made clear that the form and content of the agreement, and the obligations which the parties undertake, will determine whether any particular joint venture involves fiduciary obligations. Because the parties did not conclude a formal agreement, I am reluctant to find that they intended to be each other’s fiduciaries when I have concluded that the agreement did not in fact constitute a partnershuip. That the parties chose a corporate structure, albeit with their wholly-owned companies as shareholders, points towards an intention to impose fiduciary duties with respect to the company, but not between the directors. Rather, the joint venturers simply agreed to do business with one another on the terms of the joint venture agreement as I have found those terms to be.

96. Like any agreement for a fixed term, it was always open to the participants to agree to terminate their joint venture before the end of the term: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 424 (Stephen, Mason & Jacobs JJ); [1978] HCA 12; Paal Wilson & Co. A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 at 915 (Lord Diplock); Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29; [2012] WASCA 216 at [208] (McLure P, with whom Newnes JA and Le Miere J agreed). Likewise, there was nothing to stop some of the joint venturers buying out the interest of another joint venturer during the term of the joint venture. Of course, if one party had unilaterally purported to terminate the joint venture before the end of its term, they might have been obliged to pay damages for breach of the joint venture agreement suffered as a consequence.

97. The terms of the joint venture were not in writing, nor did any termination of the joint venture need to be in writing to be effective: McDermott v Black (1940) 63 CLR 161 at 187; [1940] HCA 4 (Dixon J, with whom Rich & McTiernan JJ agreed); Creamoata Ltd v The Rice Equalization Association Ltd (1953) 89 CLR 286 at 306 (Williams ACJ), 326 (Kitto J); [1953] HCA 40; Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703 at 718 (Handley JA); Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 at [122] (Gleeson JA, with whom Meagher and McCallum JJA agreed). Indeed, a written contract can be terminated orally as long as the contract contains no provision to the contrary. Even in such a case, as long as the parties agree to vary the requirement that any variation of the contract be in writing when they vary the contract orally, it will still be effective.

98. On termination, the terms of the joint venture agreement did not have continuing operation unless the parties otherwise agreed: Paal Wilson at 915; Martech International Pty Ltd v Energy World Corporation Ltd (2007) 248 ALR 353; [2007] FCAFC 35 at [22]–[23] (special leave refused). See, generally, WD Duncan, ed., Joint Ventures Law in Australia (3rd ed., Federation Press, 2012) at [1.12] as to the possibility of duties surviving termination when parties are in fact fiduciaries, unlike the present case. In particular, the participants’ obligation to devote themselves to the joint understanding ceased. Any obligation not to compete with the joint undertaking during its term ceased on termination, unless the parties otherwise agreed that this term should survive.

Loan from Jason to James

99. In September 2014, James and his wife exchanged contracts to buy a home in Gordon for $2,210,000. As the completion of the purchase drew near, James asked Jason for a loan of $220,000. Jason said he would have to discuss it with his wife and asked when James would be able to pay him back. James said he would pay the loan back before the end of June 2015 out of his share of the profits and would also pay 5% interest, paid monthly. Michelle deposed, and was not cross-examined on the subject, that Jason told her that James wished to borrow $220,000 to buy a new home and had offered to repay the whole amount by the end of June 2015 together with interest at 5% per annum to be paid monthly. Despite her concerns about the informality of the arrangement, Michelle agreed because of her long and close friendship with Helen and Jason’s close business relationship with James. On 9 December 2014, Jason obtained a bank cheque for $229,490.41 which James used to complete the purchase of the Gordon property.

100. James agreed that he borrowed the money on the understanding that he would pay 5% interest and would repay the loan promptly. But he also contended that it was agreed that he would repay the loan on payment of the $104,000 commissions owed by Dentown to DRT Group:

… before I ask for the loan from Jason I asked Jason if I could be paid in advance the commissions related to the DRT [Group], which is more or less AUD100,000. Jason told me that … quite a number of properties were not settled at that time so it is virtually impossible to pay in advance the commissions to DRT, and then I ask Jason if it would be possible for me to take out a loan from him to settle my property … After I took out a loan from Jason, because at that time we trusted each other so we didn't mention anything about the timelines of the repayment of the loan and Jason didn't even ask or mentioned anything about the interest relating to the loans. In fact I mentioned promptly that I would pay 5% as interest of the loan that I took out from Jason. It was my understanding at that point in time that Jason and I would have talked about the repayment of the loan when the commissions from selling the properties in Dentown could be issued to me and then I will be able to pay back the loans that I took out from Jason.

James did not suggest, in this extract, that Jason and he agreed that the loan would only be repaid when Dentown paid the commissions to DRT Group: rather, it was his understanding. In any event, as James eventually acknowledged, the commissions owed by Dentown to DRT Group were insufficient to repay the loan in any event.

101. Contrary to James’ offer, James did not pay any interest for three months, then paid four months interest on 13 April 2015, and then made no further payment of interest or repayment of principal.

Relations deteriorate

102. In 2015, James referred to tensions arising when he changed the policies and procedures of the business, became tougher on those working for the business and changed the business culture:

… there were significant changes taking place in 2015 because in that year we introduced more regulations to make sure that we were conducting business on a more regulated basis. For example, we have already introduced the policies to more layers of distributing the commissions by selling the properties and also we have introduced the new policies and regulations in terms of the management of the company and in terms of asking for leave and asking for absence, and also in terms of recruitment of new staff into the company. So there are significant changes or noticeable changes in the year of 2015. Why these changes were taking place in the year of 2015, since some of the staff members have already used to the less regulated or relaxed policies and regulations going about in the old company, since I have already introduced tougher demand and requests on Jimmy and Charlie, they may have some complaints against the new company, however, since I'm a very tough person in this company, I think by doing so it is a fair treatment to the rest of the staff members of the company and I think Jason sometimes is nicer than I in the company.

James’ description of himself as “a very tough person in this company” appears to have been apt.

103. In 2015, Jason continued to work in sales as well as undertaking his duties with developers. He earned gross sales commission revenue for PWI Group of $1,489,147.73 with an estimated net profit of $1,130,000. Jason received no extra remuneration for this work. Henry, again, disagreed with these figures saying that Jason earned gross commission on direct sales of around $700,000 that year which, interestingly, was more than the $450,000 to $500,000 commission made by James in direct sales. Henry still did not take on sales work.

104. In February 2015, PWI Group entered into another selling agency agreement with Gondon Five in respect of “Gondon Macquarie”, giving PWI Group selling rights in respect of 37 units. Tracy Cui was a director of Gondon Five. Ms Cui, who was not required for cross-examination, deposed that PWI Group was engaged as the main agent in relation to the promotion and sale of units in the development. She got to know Jason through his work for PWI Group and they became friends. Perhaps less fortuitously, Yizhu Qu was interested in buying an apartment at Gondon Macquarie and dealt with Jason. In March 2015, they began a relationship.

105. In late May 2015, Jason was asked to give a seminar in China. Jason says that he, James and Henry discussed increasing marketing activity by PWI Group in China. According to James, Jason said that he was interested in expanding in China and James was very interested. Henry says they started to talk about PWI Group going to China. James and Henry referred to this as “the Chinese Expansion Strategy”, which apparently included establishing a branch in China. This seems to me to have been an overstatement on their part: it appears that Jason simply had an opportunity to present a seminar in China. There were no contemporaneous documents to corroborate the existence of “the Chinese Expansion Strategy” beyond those concerning the seminar. Henry later accepted that Jason had never mentioned setting up a branch in China but maintained that Jason said they could work with other parties in China and that it was Jason’s idea to step into China. James ultimately agreed that Jason never suggested establishing a branch of PWI Group in China, nor setting up a separate company in China, nor going into a joint venture with a Chinese company.

106. Jason says that during 2015 he began to get the sense that he was being excluded from the management of PWI Group. In June 2015, Henry asked Jason for the password for the server system as apparently James and Henry had decided to change to a new server. Jason asked why he hadn’t been told about this and was assured that James and Henry would manage the issue. Since late July 2015, Jason has not had access to the administrator password for the new system despite numerous requests.

107. In June and July 2015, further distributions were paid totalling $297,500 to Dentown and DRT Group (42.5% each) and $105,000 to NYL Partners (15%). In July 2015, payments were also made from PWI Group’s bank account for director loan repayments totalling $200,000, which was the $100,000 initially contributed by each of DRT Group and Dentown.

Jason becomes sole director of Prospect Wealth Investment

108. On 2 July 2015, Jason lodged a Change to Company Details form with ASIC, reporting that James and Henry had ceased to be directors of Prospect Wealth Investment and that the company’s registered office had changed to that of its tax agent. The shareholders remained unchanged. Jason said that he discussed this with James and Henry: James asked that the accountant remove them as directors of Prospect Wealth Investment; James told him that they were content to resign as directors of Prospect Wealth Investment, “He said — because everything moved over to PWI Group, so there’s no need to — you know — like — keep them as directors on the old company”.

109. James and Henry deny this and say they were unaware that they had ceased to be directors until these proceedings. The defendants submitted that Jason’s evidence should not be accepted as he said, in cross-examination, that the discussion occurred outside the business premises whilst he and James were smoking cigarettes. The submission was put on the basis that Henry, who Jason said joined this conversation, does not smoke and therefore was “unlikely in the extreme” to have joined in. I consider this submission to have little force, but in any event, in a contest between Jason’s evidence on the one hand and James or Henry’s evidence on the other, I generally prefer Jason’s evidence.

110. The defendants say that they would not have agreed to cease being directors of Prospect Wealth Investment because that company was the sub-lessee of the business premises. However, in circumstances where the shareholders of Prospect Wealth Investment remained unaltered, the joint venturers continued to have an interest in the sub-lease, albeit Jason became the sole decision-maker in respect of the sub-lessee, subject to his duties as a director of the company. The fact that, at the hearing, the defendants could point to reasons why James and Henry should have continued to be directors of Prospect Wealth Investment does not suggest to me that, in July 2015, James did not ask Jason to remove him as director of a company which had become somewhat obsolete in the joint venture. I think it is consistent with an appreciation by James and Henry that they no longer needed to use Prospect Wealth Investment as the joint venture corporate vehicle, as PWI Group had come to fulfil that role. James did not want to remain a director of Prospect Wealth Investment in the circumstances. Jason was clearly attached to the company with which he had been associated before doing business with James and Henry, and they had no objection to him becoming the sole director.

111. The defendants complain that the resignation of James and Henry as directors of Prospect Wealth Investment took place in circumstances where there was no meeting of directors of the company removing them and they did not sign a notice of resignation. This is unremarkable in circumstances where Jason, James and Henry held no formal meetings of directors of that or any other company before this dispute nor signed documents in the usual course. As explained in more detail at [196] to [199], directors may resign orally and the company may accept such a resignation. Here, all directors of Prospect Wealth Investment agreed to this course. James and Henry seek rectification of ASIC’s register to restore them as directors of Prospect Wealth Investment. I decline to do so for the reasons stated.

Unpaid home loans and a demotion

112. In about mid July 2015, Jason asked James to repay the home loan and outstanding interest, and James said that he didn’t have the money. Notwithstanding recent distributions from PWI Group, James explained that he had been renovating his home and, when the renovations were complete, he hoped to refinance the loan for a greater amount which would allow him to repay Jason. Jason was not happy, and James offered to transfer his share of the business to Jason together with all of James’ rights and entitlements to the profits of the business if he had not repaid the loan by the end of March 2016. James denied that he promised to repay the loan by the end of March 2016 or that there was ever any mention of a time to repay the loan. I accept Jason’s evidence on this subject.

113. In about July 2015, James suggested that from now on Henry would contact the developers who spoke English and James would start to contact all of the developers who spoke Chinese and Jason could “take a break”. Jason did not think this was appropriate and did not understand why they wished to suddenly assume what had been his role from the outset. This was a significant event, it seems to me. Jason’s role in the business was to deal with developers. He was now effectively sidelined from that completely. It seems to me that this would have been perceived by Jason as a significant demotion and an odd one to make to a joint venturer, a director and one of the major shareholders of the company. It was not clear to me why James thought he was entitled to dictate this change of role to Jason, save to say that James considered himself to be in charge of the business and to have authority over Jason. With Henry’s support, James effectively was in control of the business as, together, they held 60% of the shares and Jason was thus a minority shareholder.

114. As James explained the change in Jason’s role, he was concerned that Jason was spending less time in the company and was not 100% focussed on the business of the company. In an effort to bring more benefit to the corporation and shareholders, they asked Jason to organise his own sale team and undertake direct sales. As Henry explained it, Jason’s full responsibility was to make sales. The abiding thesis of James and Henry was that Jason was not pulling his weight in the business. There is no contemporaneous evidence to support this. As I do not find James or Henry to be credible witnesses, I do not accept their evidence as to this matter. Nor it is clear to me the significance of it, even if proved: if the second draft shareholders’ agreement had been binding, then DRT Group and NYL Partners may have been entitled to sue Dentown for breach of its obligation to use reasonable endeavours to promote the business. Under the terms of the joint venture agreement as I have found them to be, the joint venture participants may have been entitled to assert that Jason was breaching the terms of their agreement to use reasonable endeavours to achieve the objects of the joint venture. But no such claim was made; nor do James and Henry accept the existence of a joint venture agreement, nor do they claim that Jason’s conduct during this period amounted to a breach of section 180 of the Corporations Act. I think the more likely explanation is that James and Henry did not get on with Jason and were beginning to exclude him from management and the critically important relationships with developers.

Loan from Jason to Henry

115. By June 2015, Henry and his wife wished to purchase a home for $2,066,000. Like James, Henry asked Jason for a loan of $220,000. Jason was reluctant, but said he would agree if Henry repaid the loan by December 2015 together with 5% interest paid monthly.

116. Michelle deposed that in June 2015 Jason told her about Henry’s request for a loan, and she was not cross-examined on the subject. Michelle was reluctant as they had already lent more than that amount to James and “he is yet to pay on time”. Michelle called Henry about his request and expressed reluctance to assist him in buying a home in circumstances where she was also looking to buy a property and needed money herself. Henry assured her that if she did him this favour, “It’ll be remembered well. I’ll make sure that the loan and interest are repaid as soon as possible”. Michelle thought about Henry’s request further and was reassured, to some extent, by Jason telling her that he had previously lent $50,000 to Henry and it was repaid quite quickly. So she agreed.

117. Henry denied that he spoke to Michelle about the loan, but this denial was not put to Michelle in cross-examination. Henry also said that he did not understand from Jason that he would have to get Michelle’s approval before lending him the money. “I thought Jason can make a decision in his family. … I think he’s a powerful man in the family, yeah”. Henry denied promising to repay the money by the end of the year but said he agreed to repay the money from the distributions from PWI Group. I accept Jason and Michelle’s evidence on this subject.

118. On 31 July 2015, Jason transferred $220,000 to Henry’s bank account. In September 2015, Jason provided Henry with the details of a bank account of Jason and his wife, to which Henry made various interest and repayments of principal. The last payment was made in February 2016.

preparing to part ways

119. In July 2015, Jason travelled to China and presented the seminar. This resulted in the sale of one apartment. Jason was disappointed.

120. In September 2015, James, Jason and Henry had a further discussion about investigating the market in China. James said he was going to take a trip to China to investigate the possibility, and Jason agreed provided that James didn’t spend too much money. According to Jason, he said at this meeting:

Only one sale was made in China during my trip there in July. I strongly discourage you guys from continuing with any aggressive marketing campaign and incurring significant costs on functions and events in China.

James agreed that “Jason’s attitude as always was not to spend too much money on new things”. It seems to me Jason was reluctant to spend more money expanding into China, but James was excited about it: it appealed to his keen ambition.

James and Henry seek advice from PwC

121. In October 2015, James and Henry approached PricewaterhouseCoopers for advice. They did not tell Jason. On 20 October 2015, PwC sent Henry and James a proposal, “Structuring alternatives and potential taxation strategies”. The email and proposal referred to “recent discussions”. Although the proposal was largely directed to restructuring PWI Group for tax advantages, PwC also provided a scope of work for,

… providing options in relation to the potential buyout of Dentown’s interest in PWI Group having regard to optimal commercial and tax outcomes.

Jason was not aware that Henry and James were seeking this advice, nor was he copied on any of the emails with PwC.

122. James said he approached PwC for advice in circumstances where the shareholders’ agreement was falling apart and he didn’t know what to do as Jason did not want to be involved anymore. James said it was “not convenient” to bring Jason into the discussions,

I think it was not appropriate for me to bring such information to Jason’s attention before we actually had enough information or advice from an external body because that will result in a very big argument with Jason.

Somewhat inconsistently, James said that he and Henry had not decided at that time to buy out Jason nor were they making preparations to do so.

123. Henry said that part of the reason they were consulting PwC was to get tax advice in anticipation of extending the operations of PWI Group into China. Henry said he also sought advice on how to deal with the situation at PWI Group as he was not happy working with someone who didn’t focus on the business as this was not fair. Henry agreed that they did not invite Jason to the meetings with PwC as they were “still in the consulting stage” and the discussions, in part, concerned difficulties they were having with Jason. Henry agreed that he and James made big decisions about PWI Group in the absence of Jason because they anticipated that Jason would not cooperate with them.

124. There is no credible evidence that PWI Group was planning on extending its operations into China at this time. It seems to me, rather, that James and Henry were keen to do so whilst Jason was not, and this was one of several disagreements between them such that James and Henry wished to remove Jason from PWI Group. Nor is there any credible evidence that Jason was not pulling his weight in the business. Rather, he had been divested of his primary role by James: Jason had effectively been relegated to a sales manager in his own business. It was hardly fair for James and Henry to criticise Jason for not working as hard as they thought he should when they had taken his job away from him.

125. In October 2015, Henry removed Jason’s right to access some of the files on Google Cloud. Henry agreed that he did this notwithstanding that the documents stored on the Cloud included records to which it was important for all directors to have access, including sales records and commissions payable. Jason could no longer access the profit and expense accounts or sales records of the business or find out who was the responsible sales person for the sale of a particular property.

126. In October 2015, further distributions were made to Dentown and DRT Group of $212,500 each (42.5% each) and NYL Group of $75,000 (15%). Jason said the decision to make the distribution was made without reference to him and he only found out about it after he received the dividend in his bank account. He expressed surprise to Henry who said, “As long as we did not forget your share, I don’t see a need to tell you”.

127. On 29 October 2015, James emailed Jason ten invoices from DRT Group for unpaid commission. It seems to me that James was endeavouring to tidy up loose ends with Jason. On 8 November 2015, Jason replied to James’ email regarding unpaid commission. In respect of the invoices on which DRT Group sues, the response was, generally, that Jason had not received the commission from the developer. Some of the sales had only recently settled whilst Jason had been chasing the developer for commission in respect of other sales for some time. Jason concluded his email:

If you need to use money now, you can repay my money when these commissions are received.

I take this to mean that, until James’ cash flow problem had resolved, Jason was amenable to James deferring payments in respect of the home loan. James said that Jason told him that he didn’t have to repay the home loan at all until all the commissions were paid, but I do not accept that evidence. It is not consistent with the email, nor with logic, as the commissions when paid were not sufficient to repay the loan in any event. I consider this to be an example of James saying whatever he thought would assist him.

128. On 30 October 2015, Jimmy was demoted as sales manager for PWI Group and says he began to think about leaving the company as he disliked James and Henry’s management and was unhappy about his demotion. James agreed that Jimmy was demoted from a “senior sales manager” to a “sales manager” but still led a sales team. Jimmy said, after his demotion, “I was kind of in holiday”, that is, he didn’t do any sales for PWI Group. James said he knew that Jimmy was not very happy, but was still very surprised when he later left PWI Group. Charlie was also thinking of leaving PWI Group as he had lost faith in the management of the company, specifically the management of James and Henry.

129. On 23 November 2015, PwC emailed Henry to ask whether he was still considering the proposal. Henry replied:

At the moment, we are having some internal changes and we will come back to you once it is done. I think we might need to have another meeting sometime in December …

Henry said no one knew what the result would be of the “internal changes” to which he referred. He agreed that he and James had discussed splitting with Jason but all three needed to talk further, “because by this time it’s already close to December and then we only have chance after Jason come back from America …”. He denied that a firm decision had been made at the time but rather that “we saw the issue”.

130. The next day, Henry emailed PwC again.

As we mentioned before [at our meeting in October 2015], another director has the different direction with James and myself so we might wanted to buy him out.

Now James and myself have decided to do so then can quickly form the structure and be more efficient.

Now we need to get prepared for that. I believe you can definitely help from the company structure perspective, I would like to ask if you have any partners in legal industry who can help us to get ready from legal perspective before we speak to our partner for the change.

It would appear that, by November 2015, James and Henry had made a firm decision to buy out Jason’s interest in the joint venture. The reason for the buyout was said to be that Jason had a “different direction” from James and Henry. I take this to be a reference to the fact that Jason was not interested in pursuing expansion into China in the same way as James and Henry were. There was no suggestion to PwC that Jason was not pulling his weight. Further, James and Henry wanted to have the legal and accounting aspects of this plan in place before they spoke to Jason about it. They had in mind, it would appear, to present the buyout as a fait accompli. James agreed that the only people who were discussing breaking up the business were James and Henry and that Jason had never suggested that he was going to leave PWI Group or that he wanted James and Henry to leave PWI Group.

131. Henry denied that a firm decision had been made, contrary to the text of the email, but accepted in cross-examination as follows:

Q. So, at the very least by 24 November 2015, you and James were actively considering separating from Jason; correct?

A. WITNESS: We have considered that.

Q. And discussed it between yourselves?

A. WITNESS: We have discussed.

Q. And it was one of the reasons why you were consulting PWC?

A. WITNESS: That’s one of the reasons.

Q. Yes. Not a word to Jason about any of this, was there?

A. WITNESS: No, no.

Henry said that PwC gave him the name of a solicitor to see about the matter.

The relevance of Yizhu

132. In November 2015, according to Yizhu, Jason said that he would transfer some money into her company’s bank account so that they would have money to go out with. Yizhu sent him the account details for her company, Aoya International Pty Ltd, which Yizhu had established to publish articles on WeChat, a social media platform popular amongst the Australian-Chinese community. On 16 November 2015, deposits of $3,000 and $9,000 were made to Aoya International’s bank account. The descriptions of the entries on the bank statements indicate that the deposits appear to be introducer fees for two apartments. Jason said that the person who referred the buyer to PWI Group did not claim the commission so he put Aoya International as the introducer. It appears that he did so to confer a benefit on his girlfriend. I understand the relevance of this to be to Jason’s credit and that he was not concentrating on the business. Jason appears to have transferred monies to which Yizhu was not entitled, but it does not cause me to reject his evidence overall.

133. According to Yizhu, from about November 2015 to shortly before Christmas 2015, Jason said to her that he was thinking of getting involved in developments “separate from PWI. There’s more money in that than being an agent selling units in the developments. I’m going to start investigating this market”. He said he would send her information about the developments that were out there and get her to look at the numbers for him. The conversation as recalled by Yizhu is consistent with Jason considering becoming a developer or property investor, and I note that he was applying for a Work Safely in the Construction Industry (or “white card”) at around this time. On 26 November 2015, Jason forwarded Yizhu five emails from developers about development projects. On 7 December 2015, Jason and Yizhu exchanged WeChat messages about 1300 numbers, increasing WeChat presence and various developments. The emails and messages are benign and do not suggest that Jason was planning to establish a business in breach of any obligations which he owed to PWI Group or his joint venturers. The defendants point to these emails as evidence that Jason was not working as hard as he should in the business. Toying with an idea is hardly that. Jason said that he did not like his major job being taken off him (which I accept) so he started to look into this area for PWI Group to bring business to PWI Group and to develop his new role. I think it is more likely that Jason sensed that things were not going well with James and Henry and was beginning to look into doing something else. Jason said that as he had worked with James for several years, he knew James’ personality and he could sense what he thought, even though when he brought it up James denied it: “I have a strong feeling they want me to leave”.

134. In mid December 2015, Jason and Yizhu discussed Yizhu applying for a real estate licence. Yizhu was interested in property investment, and Jason suggested that it would be advantageous to have her own real estate licence as she could then act as a vendor and not incur commissions to external agents. It does appear that real estate and property investment was a shared interest, and some of the communications between them are likely referable to this factor alone.

135. Overall, despite the amount of focus on these matters at the hearing, I do not consider this evidence to indicate that Jason was in breach of any obligation he owed as a joint venturer participant or director.

Preparing for change

136. In about December 2015, James and Henry agreed to employ a new accountant, Andy Bai, without consulting Jason. Mr Bai’s salary was $56,000 a year. Jason questioned why they had hired Mr Bai without consulting him. As Henry’s main role was to do the bookkeeping for PWI Group, Jason did not consider that it was necessary to hire a fulltime accountant for that role. Jason’s queries as to what steps they had taken to ensure that Mr Bai was suitable and was being paid a suitable amount were dismissed. In an extremely long speech, Henry agreed that they hired Mr Bai without consulting Jason and, ultimately, blamed the need to recruit Mr Bai on Dentown’s activities in interrupting the settlement of property purchases, which makes little sense as Dentown did not commence real estate activities until three months later.

137. On 3 December 2015, Henry sent L’Orient Legal the signed licence agreement between Prospect Wealth Investment and PWI Group for 66 Goulburn Street. Henry had signed the licence agreement for PWI Group and Jason had signed for Prospect Wealth Investment as “sole director”. The plaintiffs submitted that this is evidence that Henry, at least, was aware that Jason was the sole director of Prospect Wealth Investment at the time. I agree. It also indicates that Henry was endeavouring to tidy up loose ends with Jason and Prospect Wealth Investment before he and James presented their fait accompli.

James returns from China

138. Whilst in China, James met with Dan Li, a friend from university, and discussed a joint venture between PWI Group and Mr Li, where PWI Group would be a shareholder with Dan Li in a new company. James accepted that the establishment of such a company was a significant matter for PWI Group, saying “I think it is a very important matter”. James considered “it will open the door to a very big market like China and which means that we will have a very huge potential of business”. It was a matter for the directors of PWI Group to decide.

139. On 14 December 2015, James returned from China and, according to James, reported his discussion with Mr Li at a meeting with Jason and Henry. The description of what was said at this meeting as set out James and Henry’s affidavits was in stark contrast to their oral evidence, which I prefer to their affidavits, although, for other reasons, may also be unreliable. According to James, he told Jason and Henry about his meeting with Mr Li, saying, “It’s time for us to do something big”. Jason apparently said he was about to go on holidays and he would let them take control of it. I reject James’ evidence. In circumstances where James and Henry had plans afoot to buy out Jason’s interest in the joint venture, I doubt that James would have mentioned a new business venture which he expected would be successful and in which he wanted Jason to have no part. Nor would James have wished that such a new business venture might give Jason any reason to want to stay in business together. As Jason was not enthusiastic about expanding into China, it seems to me that James decided to go down this path without Jason, and secretly.

140. According to Henry, Mr Li was mentioned in the meeting, and also “briefly mentioned there is a potential … for working together in the Chinese market”. Apparently, James said there was a potential for working together in the Chinese market and Jason was happy with the result of the trip. Jason denies having any discussion with James on his return from China about Mr Li. Jason says he had never heard of Mr Li nor was he ever told of any discussions or negotiations with Mr Li or any discussions or negotiation of a joint venture by PWI Group with any other person or entity in China. I accept Jason’s evidence.

141. James said that this meeting was one of the occasions on which he raised his concerns with Jason about not giving 100% to the business, although James did not mention this in his four affidavits. Whilst James said that the sales performance of PWI Group doubled from $2 million in 2014 to $4 million in 2015, he considered that Jason’s contribution to sales was only $500,000, which meant that the remaining $3.5 million was achieved by sales teams led by James. However, in circumstances where Jason’s role was to develop relations with developers rather than make sales, that could hardly be grounds for dissatisfaction, albeit that James had unilaterally changed Jason’s role in mid-2015 to sales only. James accepted that “there were new contracts signed into the new company, however, it’s separate from me getting 100% satisfied or Jason making 100% focus on the company”. It would seem that James was a hard man to please. In contrast, according to Henry, there was no fighting at the meeting and the directors went their separate ways on good terms. I find that James did not mention his meetings with Mr Li to Jason, nor his planned joint venture with Mr Li, on 14 December 2015, and the directors parted ways for holidays.

142. On 16 December 2015, Jason enrolled Yizhu in a real estate agent course. It appears that it was contemplated that Yizhu would operate through Aoya International and, again, there was nothing untoward in this apart from making a gift to his girlfriend. On 20 December 2015, Jason went to the United States on holidays for about four weeks. By the end of 2015, PWI Group had made distributions of $510,000 to both Dentown and DRT Group and a further $180,000 to NYL Partners. This was effectively 42.5% to Jason and James and 15% to Henry.

138. On 6 January 2016, PWI Group employed River Chu as Property and Sales Manager for a salary was $120,000 a year plus bonuses. James signed the contract for PWI Group. Her recruitment was not discussed with Jason, who considered Ms Chu’s salary to be excessive, pointing to advertisements placed for property managers up to $65,000 per annum. Henry agreed, after a long non-responsive speech, that the hiring of Ms Chu was not discussed with Jason despite the fact that he was a director. Notwithstanding that the salary was quite a significant amount of money, Henry considered that James was the Chief Executive Officer and could make that decision. Also in about January 2016, Jaycy began to think of leaving PWI Group because of issues with the management of the company. Jaycy was not required for cross-examination and no objection was taken to her affidavit.

James and Henry make a move to expand to China

144. James said that in early January 2016 he had a telephone conversation with Mr Li. Although, when in China, they had discussed an arrangement where PWI Group would be a shareholder with Mr Li in a new company, James now said that he wasn’t clear about the future of PWI Group:

… it could be that PWI Group Pty Ltd would get involved in the joint venture or it could be another company who'd be involved in the joint venture. Because at that time one of the directors of PWI Group Pty Ltd was not focussing 100% in the business, so we haven't decided yet exactly on the details of the establishment of the new joint venture. What was decided at that time was that more negotiations or discussions needed to happen, and after that we can decide if we would like to use PWI Group Pty Ltd to get involved in the joint venture or only we ourselves to establish a joint venture with the new company. Because we haven't we didn't know at that time whether it would be Jason who would buy us out or it would be us who buy Jason out. If Jason would focus 100% onto the business of PWI Group Pty Ltd, it means the three directors from PWI Group Pty Ltd will take the entire company to enter into a joint venture with Dan Li.

They agreed that Mr Li would register a new company with himself as the sole director and shareholder. James agreed that this was before he had discussed anything with Jason about Jason leaving PWI Group or James and Henry leaving PWI Group. In seeking to exploit a commercial opportunity identified in the course of his role as a director of PWI Group, the proposal to Dan Li was in breach of James’ duties as a director of PWI Group as he now proposed to exploit that opportunity outside PWI Group.

145. On 8 January 2016, Henry paid $21,118.20 from PWI Group’s bank account to New Century 2001 Pty Limited, a foreign exchange company to which Australian dollars could be paid for payment on to a Chinese bank account in Chinese yuan. Jason was unaware of this. Henry says the payment was to the host of an exhibition in Beijing in May 2016 on migration and overseas properties, and tendered undated photographs taken of a stall for PWI Group at the 7th Property and Immigration Exhibition in China together with photographs of “Ju’Li Asia Office”. It was suggested to Henry that this was, in fact, a payment to Mr Li to establish a Chinese company for the purpose of a joint venture with PWI Group. Henry’s evidence on this subject was evasive. The description of the transaction in the bank statement was “PWI Group”, but Henry said that he used “PWI Group” as a default description for transactions when doing online banking. The lacuna of documentary evidence to support Henry’s evidence — where Henry might be expected to be in possession of documents to corroborate his account — points in favour of a conclusion that the money was used as the plaintiffs suggest: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 at 320 per Windeyer J, citing with approval Wigmore on Evidence (3rd ed., 1940), “the failure to bring before the tribunal some circumstance, document or witness…”; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [134] (Callinan J) Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [44] (Eames JA, with whom Buchanan JA agreed); Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 at [131]–[132]; Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 at [112].

146. The defendants submitted that I should not so find as “it is inconceivable” that it would cost this amount to register a company in China and it was “commercially rational” that payment for a stand at an international exhibit would be required months in advance. It would have been simple for the defendants to put the matter beyond doubt by tendering a single piece of paper to establish when the stand at the exhibition was booked and that the payment related to that stand. Having failed to do so, I think it is more likely that the monies were transferred by Henry from PWI Group’s bank account to China for the purposes of Mr Li establishing a new company in which it was apprehended that PWI Group would undertake expansion into China, and I so find.

147. On 24 January 2016, Yizhu completed the real estate course. According to Yizhu, Jason suggested that he should get a website for a real estate business but, in fact, Yizhu established a real estate website for Aoya International. On 4 February 2016, Yizhu and Jason exchanged further WeChat messages about the establishment of a website, apparently for a construction company. On 4 February 2016, Yizhu began to create a website for Aoya International. It appears that efforts were being directed to set up Yizhu in a business.

148. In about early February 2016, Jason pressed Henry for repayment of the home loan and Henry said he would fully repay the loan within one month. The loan was not repaid.

Separation agreement

149. This portion of the judgment is entitled “Separation Agreement” as the parties referred to it as such in their pleadings and affidavits. A more accurate heading would be “Buyout Agreement” but I have continued to adopt the parties’ terminology in an effort to avoid confusion.

150. On 3 February 2016, James and Henry saw a solicitor who had been recommended by PwC and received advice.

First separation meeting

151. On 5 February 2016, Mr Keats (who it will be recalled was a master selling agent) invited Jason, James and Henry to attend a function in Strathfield. After the function, Jason, Henry and James went into the city and had dinner at James’ suggestion as, “We have something important to discuss”. In cross-examination, Jason recalled what they said:

James and Henry told me to leave PWI and that to we separate because the marketing very hard, if we combine together, those — or three of us will die, so if we separate, so, like everyone can come for his own and they ask me to leave PWI. … James gave the reason why we should separate, the market is very hard, home loan, mortgage, and I could all receive funds hard to come through.

Whilst Jason agreed with James and Henry that times were hard, he suggested that they work together more closely. According to Jason, James said:

I think that it is better if you work on your own. That way both of us can survive. If we stay banded together there is too much disagreement to make it successful. It is better for all of us if we work out terms on separating.

Jason replied:

We have agreed to work together in a partnership for at least until August 2017 when our lease ends. We shouldn’t discuss separating now. That would be unfair to me. Don’t forget that I started PWI. It is my brand and my company. If anyone should leave PWI Group, it should be you and Henry.

James disagreed and said that he and Henry thought that Jason should leave PWI Group with them. Jason said that he would need a few days to think about it and they should discuss it then.

152. Henry said that he proposed a new business structure over dinner — that a new company be established with the same shareholdings as PWI Group but with Jason as the sole director, with Jason to cease to be a director of PWI Group — to give greater responsibility to Jason alone and urge him to work harder. But Henry was unable to explain how the proposed new structure would have that result. Nor could James: the structure of the proposed new company was the same as that of PWI Group so that any income that PWI Group or the new company derived would be shared with Jason in the same proportions as the existing structure. Henry said the purpose of the meeting was to try to sort things out with Jason and to push him and encourage him to work harder. I do not accept this evidence in circumstances where James and Henry had already obtained accounting advice directed to buying out Jason’s interest and also legal advice.

153. I accept Jason’s evidence of what was said at this meeting. The explanation given by James and Henry as to the reason to separate — a tough market — was disingenuous. Rather, James and Henry thought they were about to embark on a profitable venture in China and did not want to do it with Jason. James agreed that he made no attempt to tell Jason, before the meeting on 5 February 2016, that Mr Li wanted to take up the opportunity to enter into a partnership with PWI Group in a Chinese company, nor did he mention it at the meeting with Jason that evening. He did not tell Jason that he had spoken to Dan Li and agreed in principle that they would join together and that Dan Li was setting up a company for that purpose. James said he did not tell Jason about his potential joint venture in China because “I didn’t trust Jason anymore but I didn’t want to say anything before I had proper evidence”. I found James’ evidence on this matter to be remarkable.

154. Yizhu met Jason after the dinner. Jason told her that James and Henry had told him that they wanted to separate. Jason was surprised and upset and did not say anything further on the subject that evening. Michelle recalls that Jason told her at this time, “James and Henry have asked me to leave PWI”.

155. PWI Group was the joint venture corporate vehicle. On one view, by James and Henry telling Jason to “leave PWI”, they were giving notice that they wished to terminate the joint venture before the end of its fixed term. But I think that the better view is that James and Henry were proposing to buy out Jason’s interest in the joint venture, with the joint venture to continue without him. Whilst the terms on which they proposed to buy out Jason’s interest were to be negotiated, Jason was not given any other options, nor did he have any prospect of being able to persuade James and Henry to change their minds. There was nothing to stop James and Henry offering to buy out Jason’s interest or, failing agreement on a buyout or early termination, unilaterally terminating the joint venture agreement, although the latter course may have exposed them and their companies to a claim for damages for breach of the joint venture agreement.

Jason starts getting Dentown ready for business

156. The next day, on 6 February 2016, Jason started to get Dentown ready to operate a real estate business. He asked Yizhu to help him advertise for staff, find premises, establish a website and establish a WeChat account. Yizhu understood from Jason that this was to be done as quickly as possible “because he said James and Henry want to separate with him”. Importantly Yizhu agreed in cross-examination:

Q.    All the time that you knew [Jason] up until 5 February he had been working for PWI?

A.     WITNESS:  Yes.

Q.     … [I]t's the case, isn't it, that up until 5 February 2016 he hadn't done any separate work as a real estate agency and by separate I mean separate from Henry and James?

A.     WITNESS:  No. …

Q.     When you said no, you were agreeing with the question, is that right?

A.     WITNESS:  Yeah, agree, yep.

157. On 6 February 2016, Yizhu posted advertisements for staff. On 8 February 2016, Yizhu purchased a domain name for Dentown’s website. By 9 February 2016, the Dentown website was operational, but with much to be added before it was presentable. Yizhu began looking for premises in consultation with Jason. Yizhu says that, on 8 or 9 February 2016, Jason said to her that he was going to start competing with James, Henry and PWI Group. Jason emphatically denied that he said this and I accept his denial. Jason agreed that he told her that he needed to work quickly to set up his own business in Dentown.

158. On 11 February 2016, Yizhu assisted Jason to open a trust account in his name as a licensed real estate agent. Yizhu also sought to amend an application she had already made for a corporate real estate licence for Aoya International to an application by Dentown, of which Yizhu would be licensee in charge. Late in the evening of 11 February 2016, James sent a WeChat message to Jason asking whether it would be convenient to meet the next day to “communicate well again” in advance of a directors’ meeting on 16 February 2016. Jason was reluctant: “Really have things to do”.

159. The defendants suggested that Jason was involved in wrongdoing at the time in respect of two matters. First, the defendants object to the steps that Jason was then taking to set up another business to be conducted by Dentown. As I understand the argument, such steps were contrary to the “Non-Compete” portion of the “Non-Separate/Non-Compete” Term. This was not a term of the joint venture agreement but, in any event, there is no evidence that Jason conducted any business through Dentown at this time but, rather, was making preparations to do so.

160. Second, on 11 February 2016, a referrer, Iverson Ting, sent a WeChat message to Henry asking whether an (unspecified) apartment was available, giving the details of some interested purchasers. Mr Ting recalled the message at 5.50 pm. Henry called Mr Ting, who said the client was no longer interested in the property. Jason says he received a similar call from Mr Ting, but the client later decided to buy a cheaper and smaller apartment and paid a deposit on that apartment a few days later. In fact, on 12 February 2016, Jason issued a receipt for an expression of interest deposit paid to PWI Group by the same interested purchasers on apartment A126 at a development in Epping. Contracts were exchanged on 30 March 2016 in the amount of $638,000, by which time, as will become apparent, relations between the parties had broken down. Although a sale of PWI Group, Jason placed Aoya International on the contract as the vendor’s agent to hide from PWI Group that he was taking the sale for Dentown. Ultimately, the sale was made by Dentown. Jason said that he also called the vendor, who was a partner of the developer, and told him what he was doing and the developer said that Jason could change the contract to Dentown. Jason said he moved the sale from PWI Group to Dentown “because we have a dispute”.

161. The commission which Dentown thereby obtained, at PWI Group’s cost, should be repaid, but the amount of the commission unclear. According to a spreadsheet kept by Dentown, commission was incompletely noted as “paid ½ deducted from the …”, but the spreadsheet does not record the rate or amount of commission. The entry in the spreadsheet is shaded green which, Michelle explained, meant that the transaction had settled but the commission had not yet been paid. It would appear, therefore, that the final commission had not been received by Dentown when the spreadsheet was produced to the Court in about June 2018.

162. There is in evidence a spreadsheet prepared by the defendants’ former solicitor, Helen Sin, which states that the commission rate was 3% of which half was paid to Mr Iverson and the balance, $9,570, was “Dentown gross profit after sales manager commission”. Ms Sin, who was not required for cross-examination, took spreadsheets that had been produced by Jason and Dentown in answer to notices to produce and “caused the entire Excel spreadsheets to be recreated by putting the pages together like pieces of a jigsaw”. Ms Sin then exhibited a series of summaries prepared from these recreated spreadsheets, although she did not say in her affidavit who prepared the summaries or how they were prepared. Ms Sin’s affidavit then included a table summarising the summaries of the recreated Excel spreadsheets. The “Dentown gross profit” is contained in one such table. I am not prepared to rely on the suggested 3% commission and the $9,570 as being Dentown’s gross profit in the absence of a document establishing these matters. But this can be ascertained on any calculation of commission owing to the plaintiffs.

163. On 13 February 2016, Yizhu made further changes to Dentown’s emerging website, changing the background image to the same as that used for PWI Group. On 15 February 2016, Yizhu acquired a Dropbox link for Dentown. Yizhu added developer logos and development projects to Dentown’s website. Jason provided Yizhu with the codes or passwords needed to access the PWI Group Dropbox, so that Yizhu could copy information and documents into Dentown’s Dropbox. This was completed before 16 February 2016, although Jason clarified “that Dropbox is open source” which I understood to mean that the information contained in it was distributed widely by the developers to all of their agents. By availing himself of documents and information in PWI Group’s Dropbox, Jason was in breach of his duties as a director of PWI Group, although there is no evidence that the documents or information were confidential or, more importantly, that by doing so, Jason made a profit for which he should account to PWI Group. Later that evening, Jason sent a WeChat message to James confirming the time of the meeting the next day.

164. On 16 February 2016, Jason completed an application for a corporation licence with the Office of Fair Trading. Yizhu was to be the licensee in charge for Dentown. Dentown’s Chinese name was added to its website.

Second separation meeting

165. Later on 16 February 2016, Jason, James and Henry met at PWI Group’s office. James says that he raised issues of Jason’s performance with him before the meeting, when they were smoking cigarettes downstairs. I doubt it: the time had passed for such a conversation. According to Jason, the meeting proceeded as follows:

1. James said, “We want to stop our partnership before the end of the month. If you agree to leave the business, Henry and I will agree to pay you $450,000 before 31 December 2016”. Jason wanted part of the money up front and, after discussion, they agreed to pay Jason $180,000 by the end of the month in the form of a distribution of $300,000 (of which Jason was already entitled to receive 40% or $120,000) with the remaining $270,000 by the end of the year.

2. In respect of commissions for properties sold before the end of February 2016, James and Henry agreed to pay Jason 40% of the commission.

3. James said that Jason must resign as a director of PWI Group and transfer his shares in PWI Group and units in the Australia No 1 Group Trust to them. They agreed that Jason could keep a 1% share, which would entitle him to review the bank accounts and commissions paid.

4. James wanted to continue to use the PWI brand and Jason agreed to let him use the Chinese business name Ju’Li only. James disagreed. Jason said to them that “PWI” was his, “Because I start to use PWI since 2012.”

5. James and Henry wanted to retain the office, and Jason agreed as long as they indemnified him against any claim by the landlord for breach of lease after February 2016.

6. James and Henry asked for an extension of the personal loans made to them until 30 June 2016 and Jason said, “Provided that everything goes according to plan we are discussing, I will allow that extension”. James and Henry said that the personal loans were not discussed at this meeting. I find this unlikely, nor is it consistent with contemporaneous emails.

7. James and Henry agreed that they would repay Jason’s loan to the company.

292. Two questions arise. Who should be ordered to pay the loans? The loans are recorded in the accounts of Australia No 1 Group as a loan to the trust, but James and Henry agreed to repay the loans under the separation agreement, in their capacity as participants in a joint venture and either in their individual capacity and / or on behalf of their wholly-owned companies. Accordingly, the order to repay the loans should be made against the second to fifth defendants, being James, DRT Group, Henry and NYL Partners.

293. The second question is whether the amount paid to Dentown should include interest on the $26,190 loan, given that the separation agreement did not include a term as to when the loans were to be repaid. Absent an express time stipulation, it is to be implied that the loans were to be repaid within a reasonable time. In the absence of submissions from either party on this issue, I consider that a reasonable time was 31 December 2016, being the time for payment of the second instalment under the separation agreement. The usual rate of pre-judgment interest should apply from the date of breach of the separation agreement, being 31 December 2016: section 100(1) of the Civil Procedure Act, read in conjunction with rule 6.12 of the Uniform Civil Procedure Rules 2005 (NSW) and Practice Note SC Gen 16; Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 83 NSWLR 762; [2008] NSWSC 187 at [83]; Arambasic v Veza (No 5) [2014] NSWSC 1399 at [12]; Wheatley v Kavanagh (2018) 19 BPR 38,691; [2018] NSWSC 1359 at [183].

Home loans and relief against properties

296. The loans from Jason to James and Henry are repayable on demand unless the parties agreed by clear words that the loans were not repayable before a certain date or event: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566; Ogilvie v Adams [1981] VR 1,041 at 1,043; Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224 at [26]–[30]; Chidiac v Maatouk [2010] NSWSC 386 at [234]–[239].

297. James pleaded various agreements with Jason to the effect that he did not have to repay the loan until, essentially, he was able to do so. Michelle deposed, and was not cross-examined on the subject, that at no time before she was told of James’ defence in these proceedings, was she ever told that there was any agreement or suggestion that James was to repay the money only when he had renovated his home, had it revalued or refinanced or that he only had to pay the interest as or when he was able, or that Jason had agreed that James did not have to repay the loan until Prospect Wealth Investment or Dentown paid commissions owing to DRT Group. Ultimately, James’ various contentions largely evaporated at trial. In the end, James said he was deferring repayment of the loan until a judgment in this case, “Because I don’t know how to do. I don’t have experience. This is my first time here”.

298. It does seem to me that Jason, from time to time, asked that James repay the home loan and James gave various reasons why he wasn’t able to and Jason gave him further time to pay. But those accommodations came to an end when the separation agreement was made in February 2016 when Jason agreed to extend the date for repayment of the loan until 30 June 2016. James wholly failed to perform the separation agreement and thus it seems to me that the conditions on which the home loan was extended were not satisfied. James is obliged to repay the loan with interest, being $229,490.41 from 9 April 2015 to date together with the agreed 5% interest per annum (which I note is less than the statutory rate of interest): section 100(3) of the Civil Procedure Act, Degman Pty Ltd (in liq) v Wright [1983] 2 NSWLR 348; Bans Pty Ltd v Ling (1995) 36 NSWLR 435.

299. James claims an offset against the home loan for the amounts owing to him in respect of commission. Having failed to prove that these commissions are payable, this fails, but in any event I would not have found that the circumstances necessary to permit an offset exist here, since the debts are not owed between the same parties, and therefore are not “mutual” within the meaning of section 21 of the Civil Procedure Act, and because the debts do not have the necessary connection for a right of set-off to arise in equity: Equititrust Ltd v Franks (2009) 258 ALR 388; [2009] NSWCA 128 at [46]; CSR Investments Pty Ltd v Alcan Northern Territory Alumina Pty Ltd [2003] NSWSC 1137 at [35]; Murphy v Zamonex Pty Ltd (1993) 32 NSWLR 439 at 464–5; Lord v Direct Acceptance Corp Ltd (in liq) (1993) 32 NSWLR 362 at 367 (Court of Appeal); applying Rawson v Samuel (1841) Cr & Ph 154 at 178–9; (1841) 41 ER 451 at 458.

300. Likewise, Henry pleaded various agreements with Jason to the effect that he did not have to repay the loan until he was able to do so. Michelle denied having heard the suggestion, or agreeing to lend money to Henry on terms that he would only repay the loan from monies paid to NYL Partners or as much as was reasonably practicable from any distribution from the trust. At trial, Henry did not seriously press these defences. Henry simply said he didn’t have the money to repay the loan. Henry said, “I do appreciate the loan”. However, since the beginning of 2016, Henry said that the company and his personal life had been “really struggling” including the legal costs of the proceedings and he had had to rent out the house. “The reality is I don’t have the money”. Henry said, “After this proceeding I will work even harder and harder to try my best with my best efforts to repay the loan as soon as possible”. Henry is liable to pay Jason $160,000 from 25 February 2016 to date together with the agreed 5% interest per annum.

301. The more difficult question is whether Jason also has equitable interests in the properties purchased by James and Henry using the loans. The plaintiffs submit that each of the loans was expressly for the purpose of James and then Henry purchasing their homes. It was reasonable for Jason to assume, and for the Court to infer, that James and Henry were not intended to retain or deal with the title to their homes without complying with their assurances of repayment which procured those loans. It would be unconscionable for James and Henry not to acknowledge an interest of Jason in the titles to their homes by way of an equitable charge to secure repayment of their loans.

302. The plaintiffs relied on Tadrous v Tadrous [2012] NSWCA 16. In that case, Mr and Mrs Tadrous advanced $560,000 to a brother over a two year period to enable him to redevelop his property by constructing three townhouses. The monies were paid following oral assurances by the brother that, on completion of the redevelopment, they would get their money back and be able to acquire one of the three townhouses at cost. The evidence pointed to numerous discussions about the brother’s aspirations to develop the townhouses, following which Mr and Mrs Tadrous borrowed money secured by a mortgage over their property. Mr Tadrous and his brother maintained extensive records about the expenditure of the money borrowed by Mr and Mrs Tadrous on the development. The brother contended that the arrangement was founded on trust rather than an enforceable contractual obligation and that there was no sufficient expectation to give rise to an equitable estoppel. The Court of Appeal rejected that argument. Per Meagher JA, with whom Young JA and Handley AJA agreed, at [38]–[39]:

[38]   One feature that distinguishes the equitable principle from the enforcement of a contractual obligation is the absence of a legally binding promise. What attracts that principle is an assurance or encouragement which creates an expectation that a interest will be granted and conduct in reliance upon that expectation: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [35] quoting McPherson J in Riches v Hogben [1985] 2 Qd R 292 at 300-301. It is sufficient to give rise to the equity that between the parties the expectation is created and acted upon on the basis that it will be made good: Ramsden v Dyson (1866) LR 1 HL 129 at 170 per Lord Kingsdown.

[39]   An equitable estoppel can be established notwithstanding that the expectation contains elements that would not be sufficiently certain to amount to a valid contract or is formed on the basis of vague assurances: Gillett v Holt [2001] Ch 210 at 226 per Robert Walker LJ. This is particularly so in circumstances, such as in the present case, where the estoppel arises in a domestic or family context.

303. This, however, is a different situation. There is no doubt that the purpose of the loan was to enable James and then Henry to have sufficient funds to complete the purchase of a home. There is no doubt that James and Henry agreed to repay the loan at specified times and with interest. There was a contract in each case which is binding. It does not seem to me, however, to have been anticipated that James or Henry would secure the loans by an equitable interest in the property. Rather, it was understood by the lenders and borrower that the loan was unsecured. Indeed, Michelle felt uneasy about providing the loan to James “because at no time was I informed of any security or formal legal documentation having been offered by him to ensure he did repay by the end of June 2015, as promised”.

304. The plaintiffs relied on New Galaxy Investments Pty Ltd v Thomson (2017) 18 BPR 36,811; [2017] NSWCA 153 in support of the proposition that if it “appears from the whole of the circumstances of the transaction that it was the intention of the parties that the lender have security over the property for his loan”, then the lender, whose loan is used to acquire the property, is subrogated in equity to the vendor’s lien over the titles. However it does not seem to me that the lenders stipulated that they would receive security and so this authority does not appear to me to assist the plaintiffs. As stated in New Galaxy Investments at [118]:

By contrast, if the lender’s advance is intended to be simply an unsecured loan to the purchaser, the lender will not be subrogated to the security which has been discharged by the application of the advance because in such a case, the lender has obtained all that it bargained for. (Footnote omitted.)

305. I accept the defendants’ position that the description by Brereton J in Warden v Mortgage House No 1 Pty Limited (2006) 13 BPR 24,375; [2006] NSWSC 1462 is more apt, at [19]–[20]:

[19]   Secondly, although it is correct that the prevailing view is that, when evaluating the beneficial interests in property of persons who have contributed to the purchase money in shares different to those in which title is taken, it is relevant to have regard to payments towards the costs of acquisition, as well as to the purchase price itself, it does not follow that a loan of money for the purpose of paying stamp duty has the consequence that a beneficial interest in the property acquired results. Ultimately, that will depend on the intention of the parties, actual or implied.

[20]   … The moneys were advanced, not as a contribution to the purchase price (including costs of purchase), but as a loan repayable on terms. A loan does not give the lender an interest in land acquired with the advance, unless it is a secured loan. When money is advanced as a loan, as distinct from as a contribution to purchase price, generally speaking the moneys, once received by the borrower, become the property of the borrower and can be used by the borrower however the borrower pleases. That is so, even if a particular purpose has been contemplated when the loan was applied for - although, where the loan contract contains a term that the proceeds be used only for a particular purpose, to apply them for another purpose may be a breach of the loan contract. Here, there does not appear to have been any express term that the loan moneys were to be used only for the contemplated purpose, but even if there were, and there were a breach of that term, that would be a breach of contract, but not a basis for finding an equitable interest enforceable against third parties such as the registered proprietors.

306. On this occasion, the informality which characterised the parties’ dealings has the result that I am not satisfied that Jason has an equitable charge in the properties purchased using these loans. It follows that Jason does not have a caveatable interest in the properties and the application for the appointment of a receiver and sale of the properties fails. It also follows that I should make orders discharging the orders I made at hearing extending the operation of the caveats, such that those caveats now lapse: section 74LA of the Real Property Act.

Separation agreement

307. The plaintiffs seek orders to enforce the separation agreement, being the payment of the agreed price and to enable the net profit on commissions paid in respect of sales made prior to 29 February 2016 to be calculated and paid. Specific performance of a contract may be ordered where there is a breach of contract and an award of damages at common law will not provide sufficient compensation for the plaintiff, that is, would not put the plaintiff in a situation as beneficial as if the agreement were specifically performed, or as Windeyer J put it in Coulls v Bagot’s Executor & Trustee Co Limited (1967) 119 CLR 460 at 503; [1967] HCA 3: “[W]hen specific relief is given in lieu of damages it is because the remedy, damages, cannot satisfy the demands of justice”.

308. Damages are not an adequate remedy in this case as it would require the Court to quantify the monies which Jason would have received under the separation agreement and then deduct the value of his share in PWI Group and Dentown’s units in Australia No 1 Group Trust, which he continues to hold. But since 1 March 2016, James and Henry have continued to conduct the joint venture through PWI Group without reference to him and, over time, have run down the business and, since at least July 2017, transferred what remained of the business to J&L Realty. The value of Jason’s shares in PWI Group and Dentown’s units in Australia No 1 Unit Trust is unknown but the diminution in value of those assets is likely substantial and has been beyond his control. Accordingly, specific performance of the separation agreement is an appropriate remedy.

309. I have found the agreed price to be slightly higher than that asserted by the plaintiffs as I have not accepted that it was agreed that the price would be reduced by $30,000 in return for use of the PWI name. Thus, Jason is entitled to be paid $180,000 and $270,000. These payments were due to be paid on 29 February 2016 and 31 December 2016 respectively. There was no agreement that interest would be paid in the event that these payments were not made on the agreed dates, so I will award interest at the usual rates under section 100(1) of the Civil Procedure Act.

310. The parties agreed that, in the event that I found a separation agreement which included an obligation to pay commissions in respect of sales effected by the joint venture to 29 February 2016, it would be necessary for this to be ascertained separately. The plaintiffs submit that an accounting should be permitted by derivative action, but it seems to me a better description is simply the quantification of monies payable on enforcement of the separation agreement. The plaintiffs point to benefits obtained by the defendants from, and reductions in the net profit calculation caused by, breaches of duty of the defendants. I share the plaintiffs’ concerns that some of the transactions undertaken by James and Henry since they agreed to buy out Jason’s interest in the joint venture have troubling features. However, the exercise which it seems to me needs to be undertaken in order to fix a figure to pay Jason for the commissions is a more limited one, being:

1. Which of the sales effected by the joint venture as at 29 February 2016 have completed? The first ‘port of call’ in this inquiry would appear to be the spreadsheet provided by Henry to Jason in March 2016. Has the developer paid the commission and, if so, in what amount?

2. What amounts, if any, have been paid in commissions to the sales team in respect of the sale? These amounts should be deducted.

3. What amounts, if any, have been paid in respect of any rebates or amounts owing under rental guarantees in respect of this sale? These amounts should be deducted.

311. This does not require a wholesale investigation into the income and expenditure of the joint venture from 1 March 2016 on but a limited enquiry. The starting point appears to be the spreadsheet at Court Book 10, volume 1, pages 294–301, which formed part of Exhibit X in these proceedings. It seems to me to be a case of updating each of the sales in that spreadsheet to determine whether that sale has completed and whether any of the amounts referred to above have been paid, supported by reliable documentation in all cases. As earlier mentioned, the distribution in July 2017 of $227,137 will need to be taken into account by deducting it from the commission payable to Jason as well as the Australand commission of $11,467.50 and commission on Apartment A126. The most cost effective means of quantifying the commissions payable to Jason appears to me to be a referral under rule 20.14 of the Uniform Civil Procedure Rules, but I will wait to hear from the parties as to the identity of the referee and any associated procedures such as the production of spreadsheets, bank statements, invoices and receipts by the defendants to enable the referee to do his or her job.

312. Finally, the monies owing under the separation agreement are owed by James and Henry and / or their respective companies. On payment of these monies, Jason should also ‘do equity’ and perform his remaining obligations under the separation agreement which are, on payment of the monies owing to him, to transfer his shares in PWI Group and Dentown’s units in Australia No 1 Group Trust to James and Henry or as directed by them.

313. In the event that I did not find that there was a binding separation agreement, the plaintiffs sought relief from oppression under the Corporations Act. Whilst I would readily have concluded that the actions of James and Henry were sufficient to grant this alternative relief, it has not been necessary for me to consider this further.

Conduct after the separation agreement

314. The defendants seek to recover from Jason any commission which he has earned for sales through Dentown from March 2016 on. This is on the basis that Jason remained a director of PWI Group and any such sales were thus secured in breach of his obligations as a director of PWI Group. As I have found he was no longer a director of PWI Group, this claim fails. Nor is it necessary to consider whether leave under section 237 of the Corporations Act should be granted to James and Henry to bring a derivative action in the name of PWI Group to remedy the effects of Dentown competing with it. Given my determinations, there remains no serious question to be tried which would warrant the granting of such leave. Likewise it is not necessary to consider the right of the beneficiary of a trust to sue when the trustee will not: the proposed action by the beneficiaries of the Australia No 1 Group Trust was to prosecute Jason and Dentown for breach of the “Non-Separate/Non-Compete” term. The term did not form part of the joint venture agreement, nor did Jason or Dentown have any continuing obligation not to compete with the joint venture after Jason’s interest in it was agreed to be bought out. This part of the cross-claim falls away.

315. The defendants submit that Michelle was involved in Dentown’s breach, and continuing breach, of the “Non-Separate/Non-Compete” term from the end of April 2016 onwards. As I have found this term did not form part of the joint venture agreement nor, by reason of the separation agreement, have any continuing operation, the defendants’ claim against Michelle for breach of the term fails.

314. The defendants contend that Michelle has accessorial liability for breaches of sections 180 to 183 of the Corporations Act as she involved herself in Jason’s breaches of his director’s duties, including by becoming a director of Dentown, and thus an account is also sought against Michelle for, as I understand it, profits earned by Dentown from 1 March 2016. Jason ceased to be a director of PWI Group on 29 February 2016. The only potential breach of any director’s duty, by him, is of his continuing obligations under section 183, by continuing to access PWI Group’s electronic information for up to two months. It is not clear to me how Michelle would have any accessorial liability for such a breach, even if the breach caused loss to PWI Group, and there is no evidence that it did. As Dentown was at liberty to establish a real estate business and compete from 1 March 2016 on, it follows that Jason, as a director of Dentown, was not in breach of his director’s duties to Dentown and, thus, and Michelle cannot have any accessorial liability. This claim fails.

315. No relief is sought by the plaintiffs in respect of Prospect Wealth Investment. Jason is the sole director of that company. Dentown, DRT Group and NYL Partners remain shareholders. The company appears to serve no continuing function but as no relief is sought, I make no orders.

Orders

318. For these reasons I make the following orders (annexed is a schedule containing the interest calculations incorporated into the amounts in each order):

1. (Loans to joint venture) Judgment for the plaintiffs against the second to fifth defendants in the amount of $29,962.

2. (Personal loan to James) Judgment in favour of the second plaintiff against the second defendant in the amount of $279,480.

3. (Personal loan to Henry) Judgment in favour of the second plaintiff against the third defendant in the amount of $187,795.

4. (First payment under separation agreement) Judgment in favour of the plaintiffs against the second to fifth defendants in the amount of $214,725.

5. (Second payment under separation agreement) Judgment in favour of the plaintiffs against the second to fifth defendants in the amount of $308,846.

6. (Referee) Order pursuant to rule 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) that a referee be appointed for inquiry and report on the commissions owing to the plaintiffs by the second to fifth defendants in accordance with paragraphs [310] to [311] of this judgment.

7. On payment by the second to fifth defendants of the judgments in Orders 1, 4 and 5, and the amount ascertained by the referee under Order 6:

1. Order the second plaintiff to transfer his shares in the first defendant to the fourth and fifth defendants or as directed by them; and

2. Order the first plaintiff to transfer its units in the Australia No 1 Group Trust to the fourth and fifth defendants or as directed by them.

8. In relation to caveat number AN560155 lodged over the land in folio identifier number 3/524698:

1. Discharge order 5 made on 9 November 2018; and

2. Declare that the caveat lapses, pursuant to section 74LA of the Real Property Act 1900 (NSW), effective on the making of these orders.

9. In relation to caveat number AN560149 lodged over the land in folio identifier number 10/793314:

1. Discharge order 6 made on 9 November 2018; and

2. Declare that the caveat lapses, pursuant to section 74LA of the Real Property Act 1900 (NSW), effective on the making of these orders.

10. Otherwise dismiss the Further Amended Summons filed on 9 November 2018.

11. Dismiss the Amended Cross-Summons filed on 29 October 2018.

12. Order the first to fifth defendants to pay the plaintiffs’ costs of the proceedings, being the costs of the claim and cross-claim.

13. Grant liberty to the parties within 14 days to:

1. submit proposed orders identifying a referee, addressing payment of the referee and the production of documents for the referee; and

2. notify any amendment sought to these orders to correct any errors or omissions.

ANNEXURE: Interest Schedules

Order 1: Loans to joint venture

Amount repayable		$26,190
Interest from	Interest to	Number of days	Interest rate	Daily rate	Subtotal
1/1/17	30/6/19	911	5.5% p/a	$3.95	$3,598.45
1/7/19	15/8/19	46	5.25% p/a	$3.77	$173.42
Plus principal amount		$26,190
Total, rounded:		$29,962

Order 2: Personal loan to James

Amount repayable		$229,490.41
Interest from	Interest to	Number of days	Interest rate	Daily rate	Subtotal
9/4/15	15/8/19	1590	5% p/a	$31.44	$49,989.60
Plus principal amount:		$229,490.41
Total, rounded:		$279,480

Order 3: Personal loan to Henry

Amount repayable		$160,000
Interest from	Interest to	Number of days	Interest rate	Daily rate	Subtotal
25/2/16	15/8/19	1268	5% p/a	$21.92	$27,794.56
Plus principal amount:		$160,000
Total, rounded:		$187,795

Order 4: First payment under separation agreement

Amount repayable		$180,000
Interest from	Interest to	Number of days	Interest rate	Daily rate	Subtotal
1/3/16	30/6/16	122	6% p/a	$29.59	$3,609.98
1/7/16	31/12/16	184	5.75% p/a	$28.36	$5,218.24
1/1/17	30/6/19	911	5.5% p/a	$27.12	$24,706.32
1/7/19	15/8/19	46	5.25% p/a	$25.89	$1,190.94
Plus principal amount		$180,000
Total, rounded:		$214,725

Order 5: Second payment under separation agreement

Amount repayable		$270,000
Interest from	Interest to	Number of days	Interest rate	Daily rate	Subtotal
1/1/17	30/6/19	911	5.5% p/a	$40.68	$37,059.48
1/7/19	15/8/19	46	5.25% p/a	$38.84	$1,786.64
Plus principal amount		$270,000
Total, rounded:		$308,846

**********

Decision last updated: 15 August 2019