Fletcher in his capacity as Trustee for the Brian Fletcher Family Trust v Cowling
[2002] WASCA 300
•8 NOVEMBER 2002
FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST & ANOR -v- COWLING [2002] WASCA 300
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASCA 300 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:152/2001 | 23 JULY 2002 | |
| Coram: | WALLWORK J TEMPLEMAN J MATHEWS AJ | 8/11/02 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed in part | ||
| B | |||
| PDF Version |
| Parties: | BRIAN FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST BAYSILK HOLDINGS PTY LTD (ACN 053 428 603) JAMES JOHN COWLING |
Catchwords: | Practice and procedure Appeal Contract of employment and collateral agreement for transfer of shares Cessation of employment Whether express or implied abandonment of right to receive shares Turns on own facts |
Legislation: | Income Tax Assessment Act 1997 (Cth) |
Case References: | Collin v Duke of Westminster [1985] 1 QB 581 Devries v Australian National Railways Commission (1993) 177 CLR 472 Fitzgerald v Masters (1956) 95 CLR 420 Cameron v Murdoch (1983) WAR 321 Central London Property Trust v High Trees House Ltd [1947] 1 KB 130 Commercial Union Assurance Company of Australia v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Countryside (No 3) Pty Ltd v Bayside Brunswick Pty Ltd, unreported; SCt of NSW; 20 April 1994 Delta Corporation Ltd v Davies [2002] WASCA 125 Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563 DTR Nominees Pty Ltd v Mona Homes Proprietary Limited (1978) 138 CLR 423 Enzed Technology v Benge (1989) 1 WAR 164 Furness v Adrium Industries Pty Ltd [1996] 1 VR 668 Gillett v Holt [2000] 3 WLR 815 Giumelli v Giumelli (1999) 196 CLR 101 Government Employees Superannuation Board v Martin (1997) 19 WAR 224 Greasley v Cooke (1980) 3 All ER 710 MSC Mediterranean Shipping Co SA v BRE-Metro Ltd [1985] 2 Lloyds Rep 239 Mulcahy v Hoyne (1925) 36 CLR 41 Osborne Park Co-operative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77 Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854 Pearl Mill Co Ltd v Ivy Tannery Co Ltd [1919] 1 KB 78 State Rail Authority of NSW v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588 Summers v The Commonwealth (1918) 25 CLR 144 The Commonwealth v Verwayen (1990) 170 CLR 394 Thompson v Palmer (1933) 49 CLR 507 Walsh v Law Society of NSW (1999) 164 ALR 405 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Wayling v Jones (1995) 69 P & CR 170 White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : FLETCHER in his capacity as Trustee for the BRIAN FLETCHER FAMILY TRUST & ANOR -v- COWLING [2002] WASCA 300 CORAM : WALLWORK J
- TEMPLEMAN J
MATHEWS AUJ
- First Appellant (First Defendant)
BAYSILK HOLDINGS PTY LTD (ACN 053 428 603)
Second Appellant (Second Defendant)
AND
JAMES JOHN COWLING
Respondent (Plaintiff)
Catchwords:
Practice and procedure - Appeal - Contract of employment and collateral agreement for transfer of shares - Cessation of employment - Whether express or implied abandonment of right to receive shares - Turns on own facts
(Page 2)
Legislation:
Income Tax Assessment Act 1997 (Cth)
Result:
Appeal allowed in part
Category: B
Representation:
Counsel:
First Appellant (First Defendant) : Mr M J McCusker QC & Mr C P Stokes
- Second Appellant (Second Defendant) : Mr M J McCusker QC & Mr C P Stokes
- Respondent (Plaintiff) : Mr G H Murphy
Solicitors:
First Appellant (First Defendant) : Chris Stokes & Associates
Second Appellant (Second Defendant) : Chris Stokes & Associates
Respondent (Plaintiff) : Minter Ellison
Case(s) referred to in judgment(s):
Collin v Duke of Westminster [1985] 1 QB 581
Devries v Australian National Railways Commission (1993) 177 CLR 472
Fitzgerald v Masters (1956) 95 CLR 420
Case(s) also cited:
Cameron v Murdoch (1983) WAR 321
Central London Property Trust v High Trees House Ltd [1947] 1 KB 130
Commercial Union Assurance Company of Australia v Ferrcom Pty Ltd (1991) 22 NSWLR 389
(Page 3)
Countryside (No 3) Pty Ltd v Bayside Brunswick Pty Ltd, unreported; SCt of NSW; 20 April 1994
Delta Corporation Ltd v Davies [2002] WASCA 125
Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563
DTR Nominees Pty Ltd v Mona Homes Proprietary Limited (1978) 138 CLR 423
Enzed Technology v Benge (1989) 1 WAR 164
Furness v Adrium Industries Pty Ltd [1996] 1 VR 668
Gillett v Holt [2000] 3 WLR 815
Giumelli v Giumelli (1999) 196 CLR 101
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Greasley v Cooke (1980) 3 All ER 710
MSC Mediterranean Shipping Co SA v BRE-Metro Ltd [1985] 2 Lloyds Rep 239
Mulcahy v Hoyne (1925) 36 CLR 41
Osborne Park Co-operative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77
Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854
Pearl Mill Co Ltd v Ivy Tannery Co Ltd [1919] 1 KB 78
State Rail Authority of NSW v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588
Summers v The Commonwealth (1918) 25 CLR 144
The Commonwealth v Verwayen (1990) 170 CLR 394
Thompson v Palmer (1933) 49 CLR 507
Walsh v Law Society of NSW (1999) 164 ALR 405
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Wayling v Jones (1995) 69 P & CR 170
White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169
(Page 4)
1 WALLWORK J: I agree with the reasons for judgment and the conclusions of Templeman J.
2 There is nothing I wish to add.
TEMPLEMAN J:
Introduction
3 In April 1996, Baysilk Holdings Pty Ltd (the second appellant) was carrying on a health club and gymnasium business under the name "BC The Body Club", at various locations in Western Australia. At the time, Baysilk's directors were Brian Fletcher (the first appellant) and Shaun Michael McCabe. Mr Fletcher held three of Baysilk's four issued shares. The other share was held by Mr McCabe.
4 On 23 April 1996, Baysilk entered into two contracts with the respondent, James John Cowling.
5 By the first of these contracts ("the Deed of Employment") Baysilk agreed to employ Mr Cowling as its financial director for a period of three years. The second contract ("the Share Agreement") to which Mr Fletcher was also a party, was expressed to be collateral to the Deed of Employment. It contained a number of inducements for Mr Cowling to enter into the Deed of Employment. The relevant inducements were:
(1) that Mr Fletcher would immediately transfer to Mr Cowling the legal and beneficial ownership in shares equivalent to 5 per cent of Baysilk's fully paid ordinary shares at no cost (cl 3); and
(2) that Mr Cowling's ownership of those shares would carry with it the right for Mr Cowling to receive and be paid (on a monthly basis in arrears) 5 per cent of Baysilk's gross cash profit (cl 4).
6 Clause 8 of the Share Agreement contained an irrevocable and unconditional agreement by Mr Fletcher that at any time up to 60 days following the expiration of the period of employment, Mr Cowling could require Mr Fletcher to purchase the shares referred to above for a price of $150,000. I shall refer to that right as "the put option".
7 I digress to note that I have referred to share percentages rather than numbers. This is because there was obviously some confusion about the numbers of shares issued. For example, by cl 2(a) of the Share Agreement, Mr Fletcher warranted that he was the owner of 150 fully paid ordinary shares in Baysilk. That was never so: but nothing turns on it.
(Page 5)
8 The commencement date of Mr Cowling's employment was not specified in the Deed of Employment. It is common ground that he took up his employment during April 1996.
9 It is also common ground that Mr Cowling's employment came to an end on 31 December 1996, when Baysilk's business was sold to Tonesports Pty Ltd, a company in which Mr Cowling had a substantial interest.
10 The Baysilk shares to which Mr Cowling was entitled pursuant to cl 3 of the Share Agreement were not transferred to him. This would have been impossible because, as I have noted, only four shares in Baysilk had then been issued. There was, however, an allotment of shares on 28 June 1996. According to the Notice of allotment, 96 Baysilk shares were allotted on that date: 70 to Mr Fletcher, 21 to Mr McCabe and 5 to Mr Cowling and his wife. Thus, the issued shares were increased from four to one hundred, of which Mr and Mrs Cowling were entitled to 5 per cent. It seems that no share certificates were ever issued.
11 Although Mr Cowling had an entitlement to 5 per cent of Baysilk's gross monthly cash profit, he did not receive any such profit: nor did he attempt to obtain it. Mr Cowling did not claim that entitlement, or his right to exercise the put option, until December 1998, when Tonesports was sued for moneys due in respect of the purchase of Baysilk's business.
12 Mr Fletcher and Baysilk defended Mr Cowling's claims on a number of grounds. These were amended as the matter proceeded to trial, and during the trial itself.
13 There were two principal defences which are relevant to this appeal. The first was based n an allegation that Mr Cowling had waived expressly his right to receive 5 per cent of the shares in Baysilk (and hence the right to the gross monthly cash profit which that shareholding carried). It was alleged that at some time between August and November 1996, Mr Cowling had informed Phillip Gannon (an accountant, who was Baysilk's company secretary) that he was not proceeding with the share acquisition because he had commenced negotiations for the purchase of Baysilk's business.
14 Secondly, Mr Fletcher and Baysilk alleged that there was an agreement between the parties to abandon the Deed of Employment and the Share Agreement. This was said to have arisen either expressly (from the alleged conversation between Mr Cowling and Mr Gannon) or impliedly, from the fact that Mr Cowling's employment with Baysilk
(Page 6)
- ended on 31 December 1996 and the fact that Mr Cowling took no steps to enforce the Share Agreement until December 1998.
The Findings at Trial
15 The action was tried on 19 - 21 September 2001. At the conclusion of the trial, the learned trial Judge gave judgment ex tempore. Dealing with the factual issues, his Honour said:
"the central issue was whether Mr Cowling told Mr Gannon not to proceed with the share allotment."
16 Of particular significance in relation to that issue, was an Australian Securities Form 106, being a "Notification of Notice to Withdraw Lodged Document." The form, which was signed by Mr McCabe on 28 October 1996 and lodged by Mr Gannon's firm, requested that the Allotment of Shares of 28 June 1996 be withdrawn, the allotment document having been "lodged in error". That was, of course, untrue. The reason for withdrawal given on the form was "share allotment has been discontinued". That was a more accurate statement, but not entirely so.
17 Mr Gannon gave evidence that in early November 1996, he had a telephone conversation with Mr Cowling in which he informed Mr Cowling that the allotment of shares to him had been completed and the necessary lodgement made. According to Mr Gannon, Mr Cowling said he no longer wished to proceed with the allotment, because of the capital gains tax implications when he bought the Body Club business. Mr Gannon said that was not a problem and that he would "fix it".
18 As the learned trial Judge pointed out in his judgment, if the fixing of the problem was the withdrawal of the allotment of shares, Mr Gannon must have been mistaken about the date of the instructions he claimed to have received from Mr Cowling. But Mr Cowling denied that he had given any such instructions.
19 After reviewing the evidence and taking into account the shifting grounds of the defence, the Judge concluded:
"Something certainly caused Mr Gannon to cancel the allotment. However, I am not persuaded on the balance of probabilities that the cause was a telephone call from Mr Cowling. In particular, I do not accept Mr Gannon as a reliable witness about the telephone call. I am therefore not
(Page 7)
- satisfied on the balance of probabilities that Mr Cowling ever purported to cancel or waive the share allotment."
20 The Judge then addressed the question: "Why did Mr Cowling not extract the 5 per cent cash profit?" As to that, his Honour held:
"There is no evidence that the failure to arrange payment was due to any neglect by Mr Cowling in the circumstances, nor do I regard the failure as constituting a waiver of his entitlements."
21 After dealing with an estoppel claim, to which it is not necessary to refer at present, the Judge turned to the other issues. His Honour said that while the Deed of Employment and the Share Agreement had a nexus, they were capable of independent effect. Later in his judgment, his Honour continued:
"The share agreement was drafted as an inducement for an act in April 1996, namely entering into the contract of employment. The deed of employment was to be performed over a three year period. The (appellants) pleaded that the contract was abandoned …. I have found that there was no oral agreement.
So far as the implications are concerned, the pleadings and the implications which are sought to be drawn, relate, it would seem, to the employment contract. In my opinion, the obligations under the share agreement arose in April 1996 when Mr Cowling executed the employment agreement. That agreement is capable of continuing beyond 31 December 1996, independently of the deed of employment.
The (appellants) failed to grant Mr Cowling his rights to shares and it is no answer to say that somehow the contract has come to an end. There is, moreover, no implied refusal by Mr Cowling to perform his obligations under the share contract. Indeed he has performed them. The defendants do not seem to plead that there was consideration for the alleged agreement to abandon the share agreement."
22 In those circumstances, the Judge went on to hold that Mr Cowling was entitled to 5 per cent of Baysilk's gross profit from 23 April to 31 December 1996 and that he had been entitled to exercise the put option in December 1998. the Judge therefore gave judgment in favour of Mr Cowling for:
(Page 8)
- (1) damages of $150,000, representing the value of the opportunity he had lost of exercising the put option; and
(2) an amount of $64,415.16, being 5 per cent of the relevant gross cash profits.
The Appeal
23 The first ground of appeal is as follows:
"1. The trial judge erred in law and in fact, in failing to hold that the contract of 23 April 1996, on which the plaintiff (respondent) relied had been either expressly or impliedly abandoned, when:
(a) although the contract provided for an issue of shares to be made to the respondent upon execution of the contract, no share issue was made, and the respondent with knowledge of that fact made no request for the shares to be issued, and there was no reasonable explanation for his failure to do so, in all the circumstances, other than there having been a mutual abandonment;
(b) the basis on which the contract was made and the reason for it, namely the employment of the respondent by Baysilk, was, after negotiation, later changed, and the employment agreement abandoned, when a company controlled by the respondent acquired its business;
(c) the respondent only raised the question of the share issue under the contract when the appellant sought payment of the unpaid purchase price for Baysilk's business, and as a counter to that claim."
25 Paragraph (a) above is obviously misconceived. It is incorrect to say that "no share issue was made". That is because, as I have noted above, shares were allotted to Mr and Mrs Cowling on 26 June 1996. And it is
(Page 9)
- unlikely that Mr Cowling did not know about the allotment (or that it was to take place). That is because it is unlikely that Mrs Cowling would have been nominated as an allottee without Mr Cowling's knowledge and consent.
26 The appellants' principal contention on appeal is encapsulated in Ground 1(b), which was expanded considerably by a number of related submissions during the course of argument before the Full Court. In summary, the argument is as follows:
(1) it was agreed between the parties that Mr Fletcher should be paid $1.8 million on the sale of Baysilk's business to Tonesports;
(2) had it been intended that Mr Cowling should retain the right to 5 per cent of Baysilk's gross profits from April to December 1996, and to exercise the put option which required Mr Fletcher to pay $150,000, Mr Fletcher would have received considerably less than the agreed price;
(3) since that result would have been commercially unrealistic, it must be inferred that Mr Cowling agreed not to pursue those rights;
(4) that inference is supported by the fact that the allotment of shares to Mr and Mrs Cowling was in fact withdrawn in October 1996, shortly before the parties entered into the agreement whereby Tonesports acquired Baysilk's business;
(5) the inference is supported further by the fact that in 1997, when a substantial dividend was paid to Mr McCabe in respect of his shares, Mr Cowling made no claim to a dividend, and must therefore be taken to have acknowledged that he was no longer a shareholder in Baysilk;
(6) there is nothing in the agreement for the acquisition of Baysilk's business by Tonesports, which recognised or preserved Mr Cowling's entitlements under the Share Agreement.
27 In order to emphasise the commercial unreality of Mr Cowling's claims, the appellants point to the fact that Mr Cowling has considerable commercial experience. Before his involvement with Baysilk, he had a 22-year career in banking, although he has no accounting qualification.
(Page 10)
28 Mr Cowling's submission in answer to these various points is that the obligation imposed upon Mr Fletcher pursuant to the put option was a unilateral obligation. The consideration provided by Mr Cowling for Mr Fletcher's obligation was not executory: it was executed by his entry into the Deed of Employment.
29 In those circumstances, it is submitted, absent any express agreement (and there was none), there could be no question of implied mutual abandonment.
30 Counsel for Mr Cowling referred to the judgment of Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 432, where their Honours held that the rights which had been acquired by a party who had partly performed a contract, could not be lost or destroyed by mere inaction on his part. Such rights could only be lost or destroyed by release or express agreement.
31 Counsel relied also on the decision of the Court of Appeal in Collin v Duke of Westminster [1985] 1 QB 581. There, Oliver LJ considered the question of abandonment of a contract. At 595, his Lordship accepted that in order to reach a conclusion that a party had abandoned a unilateral right, it was necessary to show either some reliance and change of position amounting to an estoppel. "… or what amounted, in effect, to a contract for mutual release". Oliver LJ noted there was no question in that case of an express contract. It was therefore necessary to consider whether there was material from which mutual promises could be implied.
32 Applying that principle to the present case, it is necessary to consider whether, there is evidence from which it should be implied that Mr Cowling agreed to abandon his rights under the Share Agreement in consideration for Mr Fletcher's agreement to sell Baysilk's business to Tonesports.
33 In my view, there are several matters which lead to the conclusion that such an agreement should be implied in this case.
34 The first matter is the fact that although Mr Fletcher owned only 73 per cent of the issued shares in Baysilk, he apparently regarded the company as his own. This was acknowledged by Mr Cowling in cross-examination. He was asked about the proposal for the acquisition of Baysilk which he had submitted to his accountant, Mr John Nicholas of Ernst and Young, on 13 September 1996. In the submission, Mr Cowling referred to the purchase of the shares "of the major shareholder Brian Fletcher". A little later in the submission, Mr Cowling wrote:
(Page 11)
- "… Brian believes that now is the time to sell his interest."
- When that passage was put to Mr Cowling in cross-examination, he said:
"… the actuality of the company is that Brian (Fletcher) actually believed it was all his business and treated it such as it was – used it as a bit of a piggy bank. So when I say "sell his interest", I'm referring to selling the business in total."
36 Mr McCabe's apparent acquiescence in the loss of his interest is at least consistent with Mr Cowling's evidence that Mr Fletcher regarded Baysilk as his own.
37 This concession by Mr Cowling explains the agreement that Mr Fletcher should receive $1.8 million for the sale of Baysilk's business. Clearly, Mr Fletcher would have received at least $150,000 less than that amount unless Mr Cowling abandoned his rights under the Share Agreement.
38 I turn to the provisions of the Sale Agreement between Baysilk and Tonesports relating to Baysilk's employees. In my view, these provisions are inconsistent with the continued existence of Mr Cowling's rights under the Share Agreement.
39 Clause 15.1 of the Sale Agreement required Baysilk to notify its employees of the termination of their employment on the day before the settlement date. Clause 15.2 empowered Tonesports to offer employment to those employees on such terms and conditions as might be agreed, or failing agreement, on the same terms and conditions as each then enjoyed.
40 Clause 15.3 provided:
"On the Settlement Date (Tonesports) must pay to each Employee who does not receive or accept (Tonesport's) offer of employment under clause 15 all amounts due to him as at Completion in respect of wages, salaries, commissions, bonuses, allowances and other emoluments, holiday pay (with
(Page 12)
- loading), long service leave, sick leave and any redundancy entitlements accrued while in the employment of (Baysilk)."
- Mr Cowling was named as an employee of Baysilk in the relevant schedule to the Sale Agreement.
41 In my view, the gross monthly net profit to which Mr Cowling was entitled under the Share Agreement must at least be regarded as an emolument within the meaning of cl 15.3. As Tonesports was liable to Mr Cowling for the relevant amount, it must be inferred that he had agreed not to pursue Baysilk for his share of the profits. And since Mr Cowling's entitlement to the 5 per cent share of the profits was an incident of his holding 5 per cent of the shares in Baysilk, it must also be inferred that he agreed to relinquish that right. This is consistent with the fact that the Share Agreement was expressed to be collateral with the Deed of Employment. Thus, when Mr Cowling's employment ceased, the Share Agreement might be expected to cease also.
42 If I am wrong in that conclusion, I think that, as a matter of construction, Mr Cowling lost the right to exercise the put option after the expiration of 60 days from 31 December 1996. I take that view because cl 8 of the Share Agreement entitled Mr Cowling to exercise the put option:
"…up to 60 days following the expiration of the Period…"
- The Share Agreement provided that "the Period" was as defined in the Deed of Employment. Clause 7 of that Deed provided that the Period should determine either on the expiration of three years from the commencement date or:
"(upon) breach by either party of the terms and conditions hereof."
44 Alternatively, I consider that the circumstances give rise to the implication that the parties agreed to terminate the Deed of Employment on 31 December 1996, thereby determining the Period. On either basis,
(Page 13)
- the 60 day period expired long before Mr Cowling purported to exercise his rights under the put option.
45 The trial Judge held that "the Period" as defined in the Share Agreement was not capable of alteration by the early termination of the Deed of Employment. I agree with his Honour. However, that does not affect the rights of the parties to agree otherwise.
46 In my view, the combination of the factors to which I have referred above, leads, on the balance of probabilities, to the conclusion that an agreement should be implied between Mr Fletcher and Mr Cowling to the effect that Mr Fletcher agreed to accept $1.8 million for Baysilk's business on a basis which included the abandonment by Mr Cowling of his rights under the Share Agreement. In other words, although there is no evidence of an express agreement in these terms, the agreement reached between Mr Fletcher and Mr Cowling is explicable only on that basis.
47 I have reached that conclusion without reference to the fact that in 1997, Mr Cowling assisted Mr McCabe to settle a dispute between him and Mr Fletcher on terms which apparently involved Mr McCabe receiving a substantial dividend on his shares in Baysilk. (The relevant agreement did not become an exhibit, because no stamped copy could be produced). If Mr Cowling had been a shareholder at the material time, he would have been entitled to a dividend also. However, no dividend was paid to him: and he made no complaint about that.
48 The appellants submit that the only inference to be drawn from these facts is that Mr Cowling had agreed to abandon his claim to shares in Baysilk.
49 While that inference may be open, it cannot be drawn without rejecting Mr Cowling's evidence that no dividend was actually paid to Mr McCabe but that there was "an accounting entry". As I understand Mr Cowling's evidence, it was that Mr McCabe was credited an amount which offset his loan account with Baysilk and enabled him to achieve his ambition "to be clear and shot of everything". Such an attitude on Mr McCabe's part, would have been consistent with relinquishing his interest in Baysilk.
50 Of greater significance was Mr Cowling's evidence that in assisting Mr McCabe to deal with Mr Fletcher he had no regard to his own position as a shareholder, nor was he concerned about Mr Fletcher's "dividend structure". According to Mr Cowling, that was not discussed with Mr Gannon, by whom the arrangements were made. Mr Cowling said he
(Page 14)
- always believed he was a shareholder. It would be inappropriate at this stage to comment on Mr Cowling's credibility. However, assuming he held that belief, it was quite unrealistic, given the basis on which he and Mr Fletcher had reached agreement
51 Having regard to the conclusion I have reached, it is not necessary to consider that ground of appeal by which the appellants challenge the trial Judge's finding that Mr Cowling did not instruct Mr Gannon to cancel or waive the share allotment. In any event, I am not persuaded that the Judge erred in making that finding. His Honour was clearly entitled to prefer Mr Cowling's evidence to that of Mr Fletcher and Mr Gannon. I am not persuaded that he "failed to use or palpably misused his advantage … of seeing and hearing the witnesses", to use the now hallowed expression: see Devries v Australian National Railways Commission (1993) 177 CLR 472, 479.
52 Furthermore, Mr Cowling's evidence that he had not given the instruction to Mr Gannon is not glaringly improbable. The instruction could have been given by Mr Fletcher. The evidence was that Mr Gannon had been Mr Fletcher's accountant for over 20 years. It is therefore likely that Mr Gannon acted on Mr Fletcher's instructions. Furthermore, it was in Mr Fletcher's interest to have Mr Cowling's share allotment cancelled, given Mr Fletcher's perception that he owned Baysilk.
53 Against that, there was evidence that the cancellation was a device by which Mr Cowling and Mr McCabe could avoid a potential liability to Capital Gains Tax. That was a matter about which Mr Nicholas advised Mr Cowling. However, it was Mr Cowling's evidence that he obtained advice for all parties: and that, ultimately, arrangements were made which accommodated Mr Fletcher.
54 The appellants' remaining ground of appeal asserts an error by the trial Judge in dismissing their claim that Mr Cowling was estopped from claiming to be a shareholder in Baysilk.
55 The estoppel claim was based on the alleged instruction given by Mr Cowling to Mr Gannon not to proceed with the transfer of the Baysilk shares; the terms of the agreement whereby Baysilk's assets were sold to Tonesports and the failure of Mr Cowling to claim a dividend on his shares when the dividend was paid to Mr McCabe. The appellants then alleged that in paying a dividend to Mr McCabe, Mr Fletcher relied on Mr Cowling's conduct.
(Page 15)
56 The Judge dismissed the estoppel claim because Mr Fletcher had given no evidence of reliance. His Honour was invited to draw an inference of reliance but declined to do so, when Mr Fletcher could easily have given direct evidence, had there been any.
57 The appellants' ground of appeal relating to the estoppel raises only that point: the Judge ought to have held that reliance could be inferred from the circumstances.
58 In my view, that ground of appeal should be dismissed. The Judge held that other inferences were equally available. I agree. Furthermore, the inference favourable to Mr Fletcher could not be drawn without rejecting Mr Cowling's evidence in respect of matters about which no findings were made by the Judge.
Conclusion
59 For the reasons set out above, I am of the view that the appeal should be allowed, on the basis that there should be implied from the objective facts, an agreement between Mr Fletcher and Mr Cowling that the latter would abandon his claim to a 5 per cent shareholding in Baysilk and the associated claim to gross monthly profits.
60 I would dismiss the grounds of appeal by which the appellants seek to reverse a crucial finding of fact made by the trial Judge and his Honour's finding that Mr Fletcher had not raised an estoppel against Mr Cowling.
61 I have referred to the fact that Mr McCabe, who was a potentially important witness, did not give evidence. This, and the paucity of evidence about the circumstances in which the Baysilk share allotments were cancelled, leads me to suspect that there was more to this dispute than emerged at the trial.
62 It is not, of course, for the Court to conduct an enquiry. The role of the Court is to resolve disputes upon the evidence which the parties choose to adduce. But if, in so doing, the Court becomes aware of matters which warrant scrutiny by an appropriate authority, then, in my view, the Court should refer the matter to such authority for consideration and, if thought appropriate, for investigation.
63 In the present case, I am troubled by the notion that a Capital Gains Tax "problem" could be "fixed" by the cancellation of shares.
(Page 16)
64 In my view, the cancellation of the Baysilk shares was arguably a Capital Gains Tax Event, akin to a disposal. If that is so, it may have triggered a corresponding liability which has thus been evaded, rather than avoided.
65 In these circumstances, I consider it appropriate for the Court to send a copy of these reasons to the Deputy Commissioner of Taxation to take such action as he may think fit.
66 MATHEWS AUJ: I have had the benefit of reading the reasons for judgment of the Hon Justice Templeman. I am in agreement with those reasons and have nothing further to add.
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