Gangemi v Osborne
[2009] VSCA 297
•15 December 2009
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| ANTONIO GANGEMI | No 3812 of 2008 |
| Appellant | |
| v | |
| RICHARD OSBORNE | First Respondent |
| and | |
| PASQUALE LANCIANA | Second Respondent |
| AND | |
| No 3813 of 2008 | |
| BLOOMINGDALE HOLDINGS PTY LTD (ACN 074 447 859) | First Appellant |
| and | |
| ANTONIO GANGEMI | Second Appellant |
| v | |
| 63 BUCKLEY STREET PTY LTD (ACN 099 836 361) (in its own capacity and as trustee of the Buckley Street Unit Trust) | First Respondent |
| and | |
| KOUROSH JAFARI | Second Respondent |
| and | |
| PASQUALE LANCIANA | Third Respondent |
| and | |
| RICHARD OSBORNE | Fourth Respondent |
| and | |
| THE REGISTRAR OF TITLES | Fifth Respondent |
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| JUDGES | NETTLE, MANDIE and HARPER JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 16 November 2009 |
| DATE OF JUDGMENT | 15 December 2009 |
| MEDIUM NEUTRAL CITATION | [2009] VSCA 297 |
| JUDGMENT APPEALED FROM | [2008] VSC 168 (Hargrave J) |
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CONTRACT – Formation – Intention to create legal relations – Heads of Agreement – Not signed by all named parties – Whether binding as between signatories – Subsequent conduct – Whether admissible as evidence of existence of agreement – Breach – Failure to complete sales of land under contracts contemplated by Heads of Agreement – Whether breach of Heads of Agreement – Repudiation – Whether attempted evasion of tax, other improprieties and attempts to re-negotiate Heads of Agreement evinced an intention no longer to be bound thereby.
TRUSTS AND TRUSTEES – Constructive trust – Whether terminated upon variation of underlying contract.
EQUITY – Estoppel – Statements by party of no longer being involved in project – Whether unconscionable later to assert rights as if still involved in project – Whether estopped as against third party dealing with project on faith of statements.
CORPORATIONS – Shares – Directors – Transfer of share and issue of further shares implemented by disqualified de facto director – Whether valid – Whether appropriate to make validating orders – Corporations Act 2001 (Cth), ss 201M(1), 254E, 1322(4).
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Appearances: | Counsel | Solicitors |
| In Proceeding No 3812 and 3813 of 2008 For the Appellants | Mr R Kendall QC with | Isakow Lawyers |
| In Proceeding No 3812 of 2008 For the First Respondent (Osborne) | Mr I H Percy | Christopher Bunnett |
| For the Second Respondent (Lanciana) | Mr A K Panna SC with Mr J D Mattin | N A Young & Co |
| In Proceeding No 3813 of 2008 For the First Respondent (63 Buckley Street Pty Ltd) | No appearance | |
| For the Second Respondent (Jafari) | Mr K Jafari in person | |
| For the Third Respondent (Lanciana) | Mr A K Panna SC with Mr J D Mattin | N A Young & Co |
| For the Fourth Respondent (Osborne) | Mr I H Percy | Christopher Bunnett |
| For the Fifth Respondent (The Registrar of Titles) | No appearance |
NETTLE JA
HARPER JA:
This is an appeal from a judgment given in the Commercial List in two proceedings concerning the ownership and control of land situate at 61 and 63 -67 Buckley Street, Footscray (‘the Buckley Street properties’).
The judgment below
The appellants (‘Bloomingdale’ and ‘Gangemi’) were the plaintiffs in the principal proceeding. Gangemi was a builder and property developer and used Bloomingdale as the vehicle for his building and property development activities. The respondent, Pasquale (Percy) Lanciana (‘Lanciana’) was a property developer and businessman and he used Pre Need Services Pty Ltd (‘Pre Need’) and Clapana Pty Ltd (‘Clapana’) as corporate vehicles for his development and other business activities. Until the events in issue in the proceedings, Gangemi and Lanciana were close friends.
The respondent, 63 Buckley Street Pty Ltd (‘63 Buckley’), was the registered proprietor of the Buckley Street properties. It was incorporated at the behest of Gangemi and Lanciana as a corporate vehicle for investment in and development of the Buckley Street properties (‘the Buckley Street project’). To begin with, Gangemi was the sole shareholder and director of 63 Buckley. One of the issues in the principal proceeding was whether Gangemi was still the sole shareholder and director of 63 Buckley.
The respondent, Kourosh Jafari (‘Jafari’), was also a property developer and, until the events in issue in the principal proceeding, he too was a friend of Gangemi. He invested $350,000 for a 25% interest in the Buckley Street project. He claimed that, as a result of arrangements between Gangemi and Lanciana in 2003, and between Lanciana and Jafari in 2005, he became entitled to sole legal and beneficial ownership of 63 Buckley and, as such, entitled to develop the Buckley Street properties for his sole benefit. He also claimed damages pursuant to s 118 of the Transfer of Land Act 1958 (Vic) resulting from caveats lodged by Bloomingdale over the titles to the Buckley Street properties.
The respondent Richard Osborne (‘Osborne’) was another close friend of Gangemi. He agreed to invest $200,000 for a 12.5% interest in the Buckley Street project on condition, as the judge found, that the $200,000 was to be repaid with interest of $50,000 if the necessary planning permit for development were not obtained within 18 months of the investment. In the events which occurred, the permit was not obtained in that time and, in the second proceeding (‘the Osborne proceeding’), which was tried with the principal proceeding, Osborne sought repayment of the $200,000 plus the $50,000 interest and interest thereon.
Following an extensive analysis of the evidence and competing contentions[1] the judge found that:
[1]The judge’s reasons extend to over 150 pages.
1) Lanciana, Gangemi, Jafari and Osborne had invested in the Buckley Street properties and the Buckley Street project in return for an agreed percentage of ownership of the Buckley Street properties, and an agreed percentage of the ultimate profits of the Buckley Street project, as follows:
(a) Subject to conditions, Osborne invested $200,000 for a 12.5% interest;
(b) Jafari invested $350,000 for a 25% interest;
(c) Gangemi and Lanciana together invested borrowings of $504,000 (‘the Perpetual loan’) (which was secured by a mortgage over the Buckley Street properties and guaranteed by Gangemi and Lanciana), the value of their work, and all moneys (including consultants’ fees and permit fees) required to obtain a planning permit to allow the Buckley Street project to proceed. It was intended that they should receive in return a 62.50 per cent (31.25 per cent each) interest but be jointly responsible for repayment of the Perpetual loan of $504,000 from their own moneys or share of the profits of the project;
(d) Once the planning permit was obtained, the Buckley Street project was intended to proceed by way of project funding from an external financier.
2) Initially, it was intended that the investments by Lanciana, Gangemi, Jafari and Osborne be held through unit holdings in a unit trust to be established under the name of ‘The Buckley Street Unit Trust’. But in fact no such unit trust was ever established.
3) Osborne invested $200,000 in the Buckley Street project on the condition that, if the development permit were not obtained within 18 months, Gangemi and Lanciana would repay $200,000, together with $50,000 interest. The planning permit was not obtained within 18 months, which expired on 4 September 2003, and Osborne was accordingly entitled to judgment against Gangemi for $250,000 together with interest on that amount from 4 September 2003.
4) Initially, Gangemi and Lanciana were jointly responsible for the payment of Osborne’s debt but, by Heads of Agreement executed between Gangemi and Lanciana in 2003, Gangemi gave up his right to contribution from Lanciana.
5) There was no substance in claims made by Gangemi that his execution of the Heads of Agreement and of other instruments signed by him pursuant to the Heads of Agreement were procured by duress. Even if there were, Gangemi had by his conduct affirmed the Heads of Agreement and further or alternatively was by his conduct estopped from contending that the Heads of Agreement were not binding by reason of duress.
6) The Heads of Agreement constituted a binding agreement between Lanciana and Gangemi.
7) There was no substance in claims by Gangemi that the Heads of Agreement were terminated or abandoned.
8) Pursuant to the Heads of Agreement, in 2003 Gangemi transferred full ownership and control of 63 Buckley to Lanciana and, in 2005, Lanciana transferred full ownership and control of 63 Buckley to Jafari. In each case, the steps involved in the transfers were attended by gross informality and procedural error. But the processes were nevertheless valid or else should be declared valid under s 1322(4) of the Corporations Act 2001 (Cth).
9) Each of Gangemi and Lanciana had represented to Jafari, in trade or commerce, that the Buckley Street properties would be purchased unencumbered, and they had thereby engaged in conduct which was misleading or deceptive or likely to be mislead or deceive contrary to s 9 of the Fair Trading Act 1999 (Vic). Although Jafari made no claim against Lanciana in that regard, he sought contribution or indemnity from Lanciana and, in those circumstances, it was appropriate to declare that each of Gangemi and Lanciana had engaged in misleading and deceptive conduct contrary to s 9 of the Fair Trading Act 1999 (Vic). Questions of causation and quantification of any loss or damage suffered by Jafari by reason of the contravention, and issues concerning contribution or indemnity between Gangemi and Lanciana, were left to be determined in a separate trial.
10) Bloomingdale had not had reasonable cause to lodge caveats over the Buckley Street properties. The caveats which it lodged had the effect of preventing Jafari and 63 Buckley from dealing with the Buckley Street properties, and it was apparent that it had caused each of them some damage. Accordingly, they were entitled to a declaration that Bloomingdale had no reasonable cause to lodge the caveats, and for an order for compensation to be assessed under s 118 of the Transfer of Land Act 1958 (Vic).
11) There were a number of revenue matters which needed to be referred to the Attorney-General for investigation and possible referral to revenue authorities and, if it transpired that Gangemi or Bloomingdale were liable for any duties or taxes arising out of the Heads of Agreement or their implementation, Lanciana was bound to indemnify them in respect of that liability. The only exception to that was in respect of any stamp duty payable by Gangemi upon his acquisition of Lot 17 in the Hoddle Street development.
The judge, therefore, gave judgment as follows:
1) In the Osborne proceeding, judgment for Osborne against Gangemi for $250,000 together with interest thereon computed from 4 September 2003. Gangemi’s claim against Lanciana for indemnity or contribution was dismissed.
2) In the principal proceeding, declarations as follows:
(a) In September 2003 Gangemi transferred the only issued share in 63 Buckley to Lanciana. That share transfer was not invalid by reason of any contravention of the provisions of the constitution of 63 Buckley.
(b) In September 2003, Gangemi resigned as the sole director of 63 Buckley and appointed Lanciana to act as a director in his place. The appointment of Lanciana as a director of 63 Buckley was not invalid by reason of any contravention of the constitution of 63 Buckley.
(c) On 1 July 2005, Lanciana transferred all of the issued shares in 63 Buckley to Jafari and appointed him as the sole director of 63 Buckley. The transfer and appointment were not invalid by reason of any contravention of the constitution of 63 Buckley.
(d) By representing to Jafari that 63 Buckley would acquire the properties at 61 and 63-67 Buckley Street, Footscray free of any encumbrances, each of Gangemi and Lanciana engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 9 of the Fair Trading Act 1999 (Vic).
(e) Bloomingdale lodged caveats numbered AD824331J and AE12488F with the Registrar of Titles without reasonable cause.
3) In the principal proceeding, judgment:
(a) for 63 Buckley and Jafari against Bloomingdale for compensation to be assessed under s 118 of the Transfer of Land Act 1958 (Vic); and
(b) for Jafari against Gangemi for damages to be assessed in respect of the contravention by Gangemi of s 9 of the Fair Trading Act 1999 (Vic).
Grounds of appeal
(i) Grounds 1 to 8 and 9 to 28
Under cover of Grounds 1 to 8, it was submitted that the judge erred in that, having found that 63 Buckley at one point held the Buckley Street properties on constructive trust for Jafari, Osborne, Bloomingdale and Lanciana, his Honour failed to make a declaration to that effect. Under cover of Grounds 9 to 28, it was further submitted that the judge erred in finding that the Heads of Agreement were effective to terminate the constructive trust and vest the beneficial interest in the Buckley Street properties in 63 Buckley or in Lanciana in his capacity as shareholder of 63 Buckley. In effect, those two submissions were parts of but one complaint that the judge should have found that Gangemi was still beneficially interested in 63 Buckley. The appellants, however, advanced a number of arguments in support of that contention, with which it is appropriate to deal in turn.
Whether Heads of Agreement a valid and binding agreement
The first argument was that the Heads of Agreement was not a valid and binding agreement because it expressly provided that ‘the terms of settlement will take effect upon the signing of these Heads of Agreement by the parties’, and because the Heads of Agreement were not signed by Clapana, Pre Need, Daniel Leigh Lanciana, Sam Abate and 87 Stevedore Street Pty Ltd (who were all referred to in the Heads of Agreement as ‘parties’).
The judge gave the following reasons for concluding that the Heads of Agreement were valid and binding despite being signed only by Gangemi and Lanciana:
1) There were three meetings between various of the parties to resolve their differences over the Buckley Street project and, by the time of the third meeting, it was clear that none of Osborne, Jafari or Abate wished to continue as an investor in the project. Abate had only made a small investment, which had been repaid or was the subject of agreement with Lanciana that it be repaid, and, therefore, Abate was not making any claim against 63 Buckley, Lanciana, Gangemi, Osborne or Jafari. Osborne and Jafari wished to have their investments in the Buckley Street project repaid, and did not care who repaid them, and there appeared to be no issue that Osborne and Jafari would be repaid. The Heads of Agreement thus described their investments as ‘loan monies’ and the only issue was how the repayments would be achieved, which in turn depended on resolution of the wider dispute between Gangemi and Lanciana.
2) The wider dispute involved only Gangemi and Lanciana. Although there were a number of companies and unit trusts holding the assets involved in Gangemi’s and Lanciana’s joint endeavours, each such company and trust was under the effective control of either Gangemi or Lanciana. Viewed objectively, therefore, this was a dispute between two businessmen, Gangemi and Lanciana.
3) In an endeavour to resolve the dispute, Gangemi and Lanciana had engaged the ‘mediation services’ of Mick Gatto and Mario Condello, and none of Osborne, Jafari, Abate or Daniel Lanciana was involved in that process.
4) Each of Gangemi and Lanciana had engaged solicitors to assist them to resolve the dispute and those solicitors dealt only with each other, Gangemi and Lanciana, Gatto and Condello. Between them, they produced a number of drafts of the Heads of Agreement.
5) Gangemi and Lanciana attended the third meeting willingly and, if viewed objectively, it appeared that their purpose was to endeavour to resolve the overall dispute between them.
6) The final draft of the Heads of Agreement was prepared by Gangemi’s solicitors on his instructions and represented the terms upon which he was prepared to settle his dispute with Lanciana. Gangemi took it with him to the third meeting.
7) Gangemi and Lanciana were the only natural persons named as parties who attended the third meeting.
8) The third meeting consisted of a commercial negotiation at the end of which Lanciana and Gangemi signed and initialled the Heads of Agreement and, viewed objectively, their conduct signified an intention that they be bound by the Heads of Agreement as so amended, without need for the other proposed parties to sign the document.
9) There was no evidence of any subsequent request by Gangemi, Lanciana or any other person that the Heads of Agreement be signed by any other proposed party.
10) The subsequent conduct of the parties, viewed objectively, reinforced the impression that Gangemi and Lanciana had intended to conclude an agreement between them on the terms set out in the Heads of Agreement.
11) There was no commercial reason for the Heads of Agreement to be signed by Daniel Lanciana, Abate, Clapana, 87 Stevedore or 63 Buckley, because:
a. Daniel Lanciana was a mere ‘puppet’ director for his father, Lanciana. The companies of which he was a director, Clapana and Pre Need, were under the effective control of Lanciana. Gangemi well knew that to be so, and there was no doubt, as the judge found, that Lanciana had full authority from Daniel Lanciana to bind Clapana and Pre Need to any obligation which Lanciana thought fit.
b. None of Clapana, 87 Stevedore or 63 Buckley undertook any obligation, or received the benefit of any promise, under the final draft or the Heads of Agreement as signed. Clause 2 of the Heads of Agreement contained acknowledgements and agreements on the part of the Gangemi parties and the Lanciana parties, but none of Clapana, 87 Stevedore or 63 Buckley was included in the definitions of ‘the Gangemi parties’ or ‘the Lanciana parties’. The obligations for which the Heads of Agreement provided included procuring that contracts of sale would be executed by Clapana as vendor and Gangemi and Gangemi’s mother-in-law, or their nominees, as purchasers but it did not impose obligations on Gangemi’s mother-in-law or nominee. The Gangemi parties and the Lanciana parties agreed that Gangemi would remain the builder at the Hoddle Street project but, in effect, that was a promise by Lanciana as controller of Clapana.
c. Abate was not a necessary party because there was no evidence that he was making any claim. His investment in the Buckley Street project had either been repaid or was the subject of agreement between him and Lanciana that it would be repaid.
d. Gangemi’s solicitor, Mr Alderuccio, had adopted a cautious approach and endeavoured, on a ‘belts and braces’ basis, to protect his client by including all possible parties. But at the end of the day, after the final negotiation, the evident intention of Gangemi and Lanciana, objectively discerned, was to proceed on the commercial terms stated in the Heads of Agreement as a concluded agreement between them alone.
12) Gangemi and Lanciana were between them in effective control of Clapana, Pre Need, 87 Stevedore and 63 Buckley and, to the extent necessary, they were authorised to bind those companies to the Heads of Agreement.
Counsel for the appellants submitted that Clapana was a necessary party because it owned apartments 15 and 16 in the Hoddle Street, Richmond project, which the Heads of Agreement provided would be sold to Gangemi for a nominal consideration, and Lot 17 (also known as Lot S2) in the Hoddle Street Project, which the Heads of Agreement provided would be sold to Gangemi’s mother-in-law for a nominal consideration; and that those sales were the principal benefit to Gangemi of the Heads of Agreement. In those circumstances, counsel said, it should surely be inferred that Gangemi would have regarded it as essential that Clapana be bound.
We do not accept that submission. It does not withstand the judge’s finding that Lanciana had effective control of Clapana. The Heads of Agreement once signed were objectively to be seen as a binding promise by Lanciana to procure that Clapana enter into the sales proposed.
Counsel for the appellants further submitted that Daniel Lanciana, Pre Need Services, and Abate were also necessary parties, because the Heads of Agreement provided that they were to indemnify Gangemi against claims by third parties including claims of trade creditors, financiers, contractors and sub-contractors in respect of Clapana, Pre Need, Victoria Pre-cast Panels, 87 Stevedore Street, 63 Buckley and the Mitchell Street, Buckley Street and Bute Street Unit Trusts.
We do not accept that submission either. It is met by the judge’s findings that Daniel Lanciana was a mere ‘puppet’ director for his father, and that Clapana and Pre Need were at all relevant times under the effective control of Lanciana who had full authority from Daniel Lanciana to bind Clapana and Pre Need to any obligation which Lanciana thought fit. Admittedly, that leaves Abate unaccounted for. But we see no reason to suppose that Gangemi considered his apparent commitment to the Heads of Agreement as conditional upon Abate undertaking to indemnify Gangemi in respect of companies in which Abate either had no interest or was forthwith to cease to have any interest.
Counsel for the appellants submitted that, inasmuch as Lanciana appeared to have concluded that there was no need for some persons to be parties to the Heads of Agreement, as was demonstrated by his deletion of the names of Victoria Pre-Cast Pty Ltd and Jafari from earlier drafts, it should be inferred that he intended that the parties whose names he did not delete would be parties to any agreement.
We do not think that takes the matter any further. Accepting, as we do, that the agreement was one in effect by Lanciana to procure certain actions by named parties under his direction and control, the fact that he may have deleted some previously named parties from the third draft of the Heads of Agreement seems to us to be irrelevant.
Finally, on this section of the matter, counsel for the appellants submitted that the judge erred in finding that Lanciana had full authority from Daniel Lanciana to bind Clapana and Pre Need to any obligation which Lanciana thought fit, and authority to the extent necessary to bind Clapana and Pre Need to the Heads of Agreement. As counsel would have it, the judge’s conclusion in that regard was contrary to Lanciana’s evidence that he did not sign the Heads of Agreement on behalf of Clapana; contrary to the fact that Lanciana was in any event disqualified for the time being from acting as a director; and belied by the fact that Daniel Lanciana was not called to give evidence as to Lanciana’s authority.
Those submissions appear to us to be misdirected. They assume that the judge found that Lanciana executed the Heads of Agreement on behalf of Clapana and Pre Need. That was not his Honour’s finding. He concluded that the Heads of Agreement as signed constituted an agreement to which Gangemi and Lanciana were the only parties, and that Lanciana’s power to control Clapana and Pre Need, and the authority impliedly conferred on him by his ‘puppet’, Daniel Lanciana, of which Gangemi well knew, were considerations which, as a matter of objective assessment, impelled the conclusion that Gangemi and Lanciana were satisfied to proceed upon the basis of an agreement to which only they were parties.
Lanciana’s subsequent conduct
The appellants’ second principal argument was that the judge erred in holding that the parties had by their actions after signing the Heads of Agreement evinced an intention to be bound by the Heads of Agreement. It was submitted that, contrary to his Honour’s conclusion, Lanciana had by his subsequent conduct evinced an intention to repudiate the Heads of Agreement.[2] Counsel relied on (1) Lanciana’s subsequent conduct in failing to procure the other named parties to execute the Heads of Agreement; (2) Lanciana’s failure to execute a Deed of Indemnity which, it was said, was contemplated by the Heads of Agreement; (3) Lanciana’s instructions to Coadys, solicitors, who were retained to provide tax advice, that he was seeking advice in relation to an ‘hypothetical’ agreement; (4) Lanciana making demands by fax of 29 June 2004 that were said to be inconsistent with the Heads of Agreement, including a proposal that Lot 16, Hoddle Street be sold to him, that he pay Osborne and that Jafari be paid from the Hoddle Street
Project;[3] (5) Lanciana seeking to misappropriate Bloomingdale’s 50% interest in the Clapana Hoddle Street Unit Trust; (6) Lanciana failing to procure the completion of the sale of Units 15 and 16 Hoddle Street, Richmond; (7) Lanciana causing the rescission of the contracts for those sales and entering into contracts to sell the properties to third parties; (8) Lanciana appropriating to himself the whole beneficial interest in the Mitchell Street, Maidstone property, which was held by Clapana as trustee of the Mitchell Street Unit Trust, and creating a fiction in order to defraud the revenue that Clapana held the Mitchell Street property on trust for the Mitchell Street Development Unit Trust; (9) Lanciana failing to procure the release of Gangemi from his guarantee in respect of 87 Stevedore Street Pty Ltd; (10) Lanciana seeking to enforce the contracts for the sale of apartment 5, 3-9 Anchor Place, Prahran, despite having failed to procure the release of Gangemi from all guarantees; and (11) in pleadings filed in proceedings for specific performance of the contract of sale, Lanciana denying that the Heads of Agreement were binding.
[2]Assuming it was ever operative.
[3]These demands and proposals were repeated in a letter from Lanciana’s solicitors to Gangemi’s solicitors dated 6 July 2004 (AB Vol 4 P.D416–417), to which the judge did not refer in his reasons.
The argument reiterates a large part of submissions advanced below which the judge rejected. His Honour dealt with each of the matters on which counsel relied, and explained at length why, despite those matters, it was to be concluded that the parties reached a binding agreement. We are not persuaded that there is any error in that part of his Honour’s reasoning.
Starting with Lanciana’s failure to procure any other parties to execute the Heads of Agreement, the judge identified an array of indicators that Gangemi and Lanciana intended to be bound even though they were the only persons who signed the Heads of Agreement.[4] In addition to the matters already referred to,[5] they included the following:
[4]Bloomingdale Holdings Pty & Anor v 63 Buckley Street Pty Ltd & Ors [2008] VSC 168, [411].
[5]Above, [10].
a) There was no evidence of any subsequent request by Gangemi or any other person that the Heads of Agreement be signed by any other person.[6]
[6]Reasons, [419].
b) After the Heads of Agreement had been signed, Lanciana or Gangemi forwarded a copy of it to Suncorp Metway to have Gangemi released from his obligations as guarantor[7] and, when Suncorp refused to do so, Lanciana approached ANZ to refinance on terms that he be the sole guarantor.[8]
[7]Ibid [312].
[8]Ibid [313].
c) After the Heads of Agreement were signed, Gangemi entered into a contract to purchase Unit 5, 6 Anchor Place, Prahran for $735,000, and insisted upon a handwritten insertion to reflect a handwritten amendment to clause 8 of the Heads of Agreement providing for settlement ’90 days from the signing of the contract provided release of all guarantees are obtained’.[9]
[9]Ibid [314].
d) After the Heads of Agreement were signed, Lanciana caused a contract of sale of Lot 17 (also known as S2) in the Hoddle Street project to be prepared for the sale of that unit to Gangemi, and it was later transferred to Gangemi for nominal consideration, as the Heads of Agreement provided it should be.[10]
[10]Ibid [315].
e) Following a later dispute about the appointment of Rala Nominees Pty Ltd to replace Capana as trustee of the Hoddle Street Development Unit Trust, Gangemi and Lanciana issued a joint letter of instructions to solicitors:
the parties will pursue the completion of the Contracts of all units sold (with the exception of LS2 which is being transferred to A. Gangemi by way of distribution without consideration from the Trust) expeditiously so that settlements will occur within 14 days of registration of the Instrument of Transfer aforesaid.[11]
[11]Ibid [318] (emphasis added by the judge).
In terms, the letter was consistent with a reaffirmation of the entitlement of Gangemi under the Heads of Agreement to receive Lot S2 for nominal consideration.
f) After the Heads of Agreement were signed, Lanciana caused contracts to be prepared for the sale of Lot 15 in the Hoddle Street project to Gangemi’s mother-in-law and Lot 16 to Gangemi as the Heads of Agreement provided.[12]
[12]Ibid [326] and [327].
g) By letter dated 14 April 2004 from Gangemi’s solicitors, Gangemi relied upon and sought to enforce one of the terms of the Heads of Agreement relating to the sale to him of Unit 5, 3-9 Anchor Place, Prahran, which Gangemi had insisted be added to the Heads of Agreement.[13]
[13]Ibid [334].
h) After the Heads of Agreement were signed, Lanciana contacted Perpetual Nominees, which was the financier of 63 Buckley, and arranged for Gangemi to be released as guarantor, as the Heads of Agreement provided.[14]
[14]Ibid [335].
i) In a letter dated 24 May 2004 to Lanciana’s solicitor, Gangemi’s solicitors wrote:
…
In broad terms the parties’ rights and obligations are set out in the following documents:
– building agreement dated 1 June 2002
–development finance facility and mortgage of Suncorp Metway with Clapana Pty Ltd as borrower and mortgagor, Antonio Gangemi, Percy Lanciana and Pre-Need Services Australia Pty Ltd as guarantors.
– Heads of Agreement dated 9 September 2003.
...
The Heads of Agreement signed by the parties sets out the terms of settlement between the parties and their related entities. However as there are still a number of unresolved disputes we suggest that the parties attempt to resolve these disputes informally and failing resolution agree to appoint an arbitrator.[15]
[15]Ibid [339] (emphasis added by the judge).
j) In February 2004, when Gangemi was served with a penalty notice for unpaid tax, he told Lanciana that he was required to pay all Clapana’s liabilities to third parties under the terms of the Heads of Agreement, and Lanciana paid the penalty.[16]
[16]Ibid [339].
k) On 17 January 2005, Gangemi wrote to Lanciana’s solicitors in connection with the sale of Unit 6 in the Anchor Place development, as follows:
I am completely shocked by this information given that my solicitors had advised you in writing that your client has failed to comply with Condition 8 of the Heads of Agreement dated 9 September 2003.
As you are well aware the Contract of Sale of the above premises has been rescinded on the basis that your client has not been able to meet the terms of Condition 8 of the abovementioned agreement.
...
I had not and would not at any time waived the benefit as mention [sic] in Special Condition 7 of the Contract of Sale dated 29 September 2003 in reference to Condition 8 of the Heads of Agreement.
I am informed that my solicitor Mr Alderuccio is on annual leave until 21 January 2005 and I shall provide him with further instructions upon his return as to the enforcement of the entirety of the Heads of Agreement.[17]
[17]Ibid [341] (emphasis in the original).
l) In a letter to Gangemi on 2 June 2004 concerning the payments due to Osborne, Lanciana wrote:
…
I have received a letter from Richard’s lawyer concerning the funds outstanding. This is totally your responsibility and any costs/actions needed to attend to this will be sought from you personally ...
Gangemi did not respond to the letter or otherwise deny that he was liable under the Heads of Agreement for repayment of Osborne’s investment.[18]
[18]Ibid [343] (emphasis added).
In our view, it was well open to the judge to conclude that the foregoing evidenced an intention on the part of Gangemi and Lanciana that the Heads of Agreement be binding without the need of other named parties signing the document.
Counsel for the appellants argued that it was impermissible to have regard to the parties’ conduct following the third meeting because, in his submission, the law is that the meaning of a contract must be determined at the time when it is made and, therefore, that evidence of subsequent conduct is inadmissible.
We reject that submission. The law is that post-contractual conduct is inadmissible in the interpretation of a written contract.[19] But where, as here, the question is one of whether a contract has been concluded, as opposed to the interpretation of a written contract about the existence of which there is no dispute, there is no doubt that it is permissible, and often necessary, to have regard to the parties’ conduct following the supposed point of formation of agreement.[20]
[19]L. Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, 252; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 348; FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 346–350; Magill v National Australia Bank [2001] NSWCA 221, [50]–[53].
[20]Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68, 77–78; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647, 662 and 669; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163–164 [25].
The judge did not deal as such with the suggestion that Lanciana failed to execute the Deed of Indemnity contemplated by the Heads of Agreement. But the Heads of Agreement did not in terms refer to a Deed of Indemnity, simply to the Lanciana parties providing indemnities. There was no evidence of Gangemi ever requiring Lanciana to sign a Deed of Indemnity, as opposed to simply indemnifying Gangemi against third party liabilities. And, as has been noted, the judge found that, when Gangemi was served with a penalty notice for unpaid tax, and requested Lanciana to pay it as part of Lanciana’s obligation to pay all Clapana liabilities to third parties under the terms of the Heads of Agreement, Lanciana paid it.[21] In those circumstances, we are not persuaded that the absence of a Deed of Indemnity is an indication that the Heads of Agreement were not binding.
[21]Reasons, [339].
The judge dealt specifically with the significance of the instructions to Coadys to advise in respect of a ‘hypothetical’ agreement. Based on a detailed consideration of the evidence, his Honour concluded that:
Taken as a whole, I find that the evidence of the dealings with Coadys is not inconsistent with Mr Gangemi and Mr Lanciana treating the heads of agreement as binding upon them. I accept that they may have given Mr Jorgensen the impression that the arrangements between them under the heads of agreement might be the subject of further agreement to take account of revenue implications. However, no such further agreement was reached. Instead, Mr Lanciana simply took Coadys advice on board and took unilateral steps to ensure that any revenue obligations were avoided. Of particular relevance is Mr Lanciana’s exploitation of the fact that the intended Buckley Street Unit Trust deed had not been executed and Mr Lanciana’s rewriting of past events regarding the Mitchell Street Unit Trust, thus ensuring that he, Mr Gangemi and Bloomingdale did not have to pay any stamp duty or capital gains tax.
Furthermore, the evidence establishes that Mr Lanciana was of the view that, under the Heads of Agreement, he was obliged to assume all liability to pay stamp duty and taxes arising from the transactions contemplated by the Heads of Agreement, with the exception of any stamp duty payable in respect of any transfer of Lots 15, 16 or 17 (S2) in the Hoddle Street development (where the Heads of Agreement provided that the purchaser was to pay such stamp duty). Mr Lanciana was correct in that assumption. Clause 4(c) of the Heads of Agreement contains a broad indemnity which so provides. Based on this understanding, Mr Lanciana assumed all liability to pay any taxes owing, acted on the basis that there was no need for him to execute the deed of indemnity and in fact paid any unpaid taxes when Mr Gangemi brought them to his attention. As a result, Mr Gangemi has not been exposed to any tax liability at the present time. If, following investigation by the relevant authorities, Mr Gangemi or Bloomingdale are liable in respect of any unpaid taxes resulting from the transactions effected pursuant to the Heads of Agreement, other than stamp duty in respect of the transfer of Lot 17 (S2), Mr Lanciana must indemnify Mr Gangemi for that liability pursuant to his obligations under the Heads of Agreement.[22]
[22]Ibid [361]–[362].
We agree with the judge that the evidence of the dealings with Coadys was not inconsistent with Mr Gangemi and Mr Lanciana treating the Heads of Agreement as binding upon them.
Counsel for the appellants argued that Lanciana’s ‘unilateral steps to ensure that any revenue obligations were avoided’ were in truth unilateral steps to evade tax and, as such, evinced an intention to repudiate the agreement. In our view, there are at least three difficulties with that submission. First, even if Lanciana’s conduct in attempting to evade tax could otherwise be viewed as repudiatory of the Heads of Agreement, there is no logical explanation for his having engaged in the conduct unless he conceived himself bound by the Heads of Agreement to indemnify Gangemi against tax and sought to escape the economic consequences of that liability. Hence, the nature of conduct does not detract from the judge’s conclusion that Gangemi’s conduct after signing the Heads of Agreement was indicative that he and Lanciana signed with the intention that the Heads of Agreement be binding upon them. Secondly, assuming once again that Lanciana’s conduct in attempting to evade tax could be viewed as repudiatory of the Heads of Agreement, the repudiation was not accepted. To the contrary, Gangemi continued to assert vociferously that the Heads of Agreement were binding.[23] Admittedly, it may be that Gangemi did not know of Lanciana’s conduct at the time, and so might have rescinded the Heads of Agreement after first learning of it.[24] But in fact he did not purport to rescind the agreement on that basis even after it was clear that he knew of the conduct. Thirdly, there was no such repudiation argument advanced below – the only case of repudiation put there was based on subsequent conduct in connection with an attempted renegotiation of the Heads of Agreement – to which we shall come later – and, as counsel for the appellants properly conceded, it is too late now to be advancing such arguments for the first time on appeal.[25]
[23]Cf Turner v Labafox International Pty Ltd (1974) 131 CLR 660, 670 (Mason J).
[24]Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 878–9; Sargent v ASLDevelopments Ltd (1974) 131 CLR 634, 642–645 (Stephen J), 655–658 (Mason J); Australian Horizons (Vic)Pty Ltd v Ryan Land Co Pty Ltd [1994] 2 VR 463, 494 (Hedigan J).
[25] Suttor v GundowdaPty Ltd (1950) 81 CLR 418, 438; Coulton v Holcombe (1986) 162 CLR 1, 7–8; Whisprun Pty Ltd v Dixon (2003) 200 ALR 447, 461 [51]; Geelong Building Society (in liq) v Encel [1996] 1 VR 594, 608.
The judge dealt specifically with Lanciana’s demands by fax of 29 June 2004 and the question of whether they had the effect of bringing the Heads of Agreement to an end. His Honour concluded that:
… Although there are some confusing aspects of the later disputes and negotiations between Mr Gangemi, Mr Lanciana and their lawyers, there is no evidence of any concluded agreement being reached to put aside the Heads of Agreement and to replace them with any other agreement. I reject Mr Gangemi’s reliance upon statements or acknowledgements made in draft proposals for settlement, which appear to have been based upon the parties putting the Heads of Agreement to one side and restating a different agreement. As I have said, none of these proposals were accepted and no agreement was reached.[26]
[26] Reasons, [363].
With respect, we are unable to discern any error in that aspect of his Honour’s reasoning. Based on the evidence to which the judge referred, it appears to us that it was the appropriate conclusion to draw.
The judge was more concerned by the effect of Lanciana’s apparent attempts to take control of the Clapana Hoddle Street Unit Trust. His Honour accepted that such conduct was inconsistent with the Heads of Agreement but, in the end, was satisfied that nothing turned on that because Gangemi was by that time in control of the trust and there was no evidence that the situation changed. As his Honour explained:
In December 2004, Mr Lanciana arranged for Clapana to issue further units in the Hoddle Street unit trust to him, so as to ensure that he had a majority unitholding. This conduct by Mr Lanciana is inconsistent with the Heads of Agreement, in the sense that the Heads of Agreement did not provide that Mr Gangemi or Bloomingdale were to transfer their interests in the Hoddle Street development to Mr Lanciana. No doubt the parties believed that they would continue to be equal joint venturers in the Hoddle Street development. That was the effect of the commercial arrangement reached and recorded in the Heads of Agreement. In these circumstances, Mr Lanciana’s conduct in seeking to obtain control of the Hoddle Street unit trust was, probably, a breach of an implied term of the Heads of Agreement. However, nothing turns on this. Control of the Hoddle Street unit trust was by this time with Mr Gangemi and there was no evidence that this position changed as a result of Mr Lanciana’s issuing of further units. Further, in the events which transpired, although the Hoddle Street project yielded sufficient income from sales of apartments to repay the loans provided by Suncorp Metway, there were no profits arising from the Hoddle Street project available for distribution to unit holders. In its capacity as trustee of the Hoddle Street unit trust, Clapana remained indebted to various creditors at the time that it was placed in administration, liquidation and was deregistered.[27]
[27]Ibid [367].
We agree with the judge. In our view, Lanciana’s attempt to obtain control of the Hoddle Street Unit Trust was a breach of the Heads of Agreement. But for present purposes the breach was immaterial. As his Honour elsewhere remarked, even if the breach evinced an intention to repudiate the Heads of Agreement, the repudiation was not accepted, notwithstanding that Gangemi learned of the relevant circumstances;[28] and the fact that Lanciana did not rescind, and that he and Gangemi thereafter continued with the Hoddle Street project to completion as they did, is consistent with a binding agreement in terms of the Heads of Agreement.
[28]Ibid [364].
The suggestion that the judge erred in his conclusions concerning the rescission of contracts for the sale of Units 15 and 16 in the Hoddle Street project to Gangemi, and the subsequent sale of those units to third party purchasers, appears to us to be unwarranted. Evidently, the argument advanced below was that, because Clapana rescinded the contracts of sale, and because Clapana was under Lanciana’s control, Lanciana acted so inconsistently with the Heads of Agreement as to imply that the Heads of Agreement were not intended to be binding. The judge disposed of that argument summarily and, with respect, correctly, with the observation that:
… in my view, no breach [of the Heads of Agreement] was involved. Mr Lanciana’s obligation under the Heads of Agreement was to procure that Clapana entered into the contracts of sale [which was done]. No obligation was cast upon him to ensure that those contracts were completed.[29]
[29]Ibid [446].
On appeal it was sought to put a different argument. Counsel for the appellants argued that it was an implied term of the Heads of Agreement that Lanciana would do all such things as were necessary on his part to enable Gangemi to have the benefit of the Heads of Agreement;[30] that, by misappropriating funds from the Hoddle Street project to Lanciana’s other interests, Lanciana had deprived Clapana of the economic capacity to complete the contracts of sale; that Lanciana had thereby breached his implied duty of co-operation; and that the breach was of such a nature and magnitude as to amount to a repudiation of the Heads of Agreement.
[30]Mackay v Dick (1881) 6 App Cas 251, 263; Butt v McDonald (1896) 7 QLJ 68, 70–71; Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607.
That new argument faces difficulties at a number of levels. To begin with, as the judge remarked, no claim was made below that Lanciana breached the Heads of Agreement by causing Clapana to be unable to complete the contracts of sale for Units 15 and 16.[31] In the second place, if Lanciana’s conduct in misappropriating Clapana’s funds were repudiatory, the repudiation was not accepted, and Gangemi knew by the time of the trial that Lanciana had misappropriated Clapana’s funds. In the third place, any rescission of the Heads of Agreement based upon acceptance of repudiatory conduct of the kind in question would have taken effect only from the point of rescission,[32] leaving intact the rights and obligations accrued up to the point of rescission, including the rights of Lanciana and Clapana to deal with the third party purchasers. We reject the argument.
[31]Reasons, [364].
[32]McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 469–70, 476–7; Victorian Economic Development Corporation v Cloverdale Pty Ltd [1992] 1 VR 596, 603.
In our view, there is also no substance in the appellants’ criticisms of the judge’s reasoning as to Lanciana’s dealings with the Mitchell Street Unit Trust. The Heads of Agreement contemplated that the Mitchell Street development would remain with the Lanciana parties and that Gangemi should cease to have any interest in it. Other things being equal, Gangemi would have been required to transfer his units in the trust to the Lacniana parties and to pay stamp duty on the transfers. As the judge found, however, Lanciana created a fiction designed to evade duty, as follows:
Following the execution of the Heads of Agreement, and in order to avoid stamp duty being payable on the transfer by Mr Gangemi … of his units in the Mitchell Street Unit Trust, and to avoid any capital gains tax payable by Mr Gangemi on that transfer, Mr Lanciana decided to ignore the existence of the Mitchell Street Unit Trust and to create a document designed to mislead the revenue authorities. The document is a ‘Deed of Appointment’. Under it the fiction was created that Clapana was at all times the trustee of the ‘Mitchell Street Development Unit Trust’. The existence of the Mitchell Street Unit Trust was simply ignored. Michie Investments was purportedly ‘appointed’ as the new trustee of the Mitchell Street Development Unit Trust in place of Clapana, and the document was relied upon by Mr Lanciana to avoid any stamp duty on the transfer of legal ownership of the Mitchell Street property from Clapana to Michie Investments. Neither the State Revenue Office nor the Australian Taxation Office was informed that Mr Gangemi had previously been a beneficial owner of one half of the units in the Mitchell Street Unit Trust and had transferred those units to Mr Lanciana.[33]
[33]Reasons, [358].
Not surprisingly, the judge regarded that conduct as reprehensible and referred it to the Attorney-General for investigation and appropriate action. But, although it was reprehensible, it was not inconsistent with the Heads of Agreement.[34] As with Lanciana’s attempts to evade duty on the transfer of Gangemi’s interest in 63 Buckley, Lanciana’s conduct in attempting to evade duty on the transfer of units in the Mitchell Street Unit Trust may have breached the Heads of Agreement but it bespoke the existence of the Heads of Agreement. As counsel for Lanciana submitted, it is difficult to conceive of a logical explanation for the conduct other than that Lanciana regarded himself as bound by the Heads of Agreement to indemnify Gangemi against taxes, and sought to evade tax in order to escape the economic consequences of that liability.
[34]Ibid [360].
We turn to the way in which the judge dealt with the argument that Lanciana’s failure to procure Gangemi’s release from the guarantee to Suncorp Metway was indicative of an absence of binding agreement. The relevant facts, as his Honour found, were these:
soon after the Heads of Agreement were signed, either Mr Lanciana or Mr Gangemi forwarded a copy of the Heads of Agreement to Suncorp Metway. Mr Gangemi acknowledged that he was in contact with Suncorp Metway at that point in time and knew that a copy of the Heads of Agreement had been provided to it. The Heads of Agreement provide that Mr Lanciana will procure a release of Mr Gangemi’s guarantee of the obligations of Clapana to Suncorp Metway. Suncorp Metway was not prepared to entertain any release of Mr Gangemi. Accordingly, by letter dated 10 October 2003, Suncorp Metway sought to have Mr Gangemi and Mr Lanciana amend their Heads of Agreement to remove any obligation upon Mr Lanciana to obtain a release of Mr Gangemi’s obligations under the Suncorp Metway guarantee.
In this context, Mr Lanciana approached another financier, the ANZ Bank, in about November 2003 and organised to refinance the Hoddle Street project, in an amount sufficient to pay out Suncorp Metway’s finance and to provide some additional funding. This refinance was on the basis that Mr Lanciana would be the sole guarantor, and a guarantee from Mr Gangemi would not be required. The refinance involved Mr Gangemi signing some documents. He refused to do so on the basis that ‘the documents were wrong’. Initially, Mr Gangemi said that he understood that the ANZ refinance ‘wasn’t so much for the guarantee, I think it was purely to increase the amount of borrowings against Hoddle Street’. Later, Mr Gangemi said that he could not remember why he thought the documents were ‘wrong’, but thought that they would increase his liability under his existing guarantee. I do not accept this evidence. Although the documents which Mr Gangemi was given to sign were not produced by him, and appear to have been misplaced, it is clear from the ANZ security documents presented to the finance broker acting on behalf of Mr Lanciana and Clapana that ANZ was offering to provide finance to replace the Suncorp Metway facility on the basis of guarantees of Mr Lanciana and Pre Need. There is no evidence that any guarantee was being sought from Mr Gangemi and I find that it was not. Of course, the refinance would have had the effect of releasing Mr Gangemi from his obligations as a guarantor of the Suncorp Metway facility.[35]
[35]Ibid [312]–[313].
It appears to us, as it did to his Honour, that Lanciana’s attempts to procure Gangemi’s release as a guarantor were consistent with a binding Heads of Agreement.
The judge also rejected the contention that Lanciana was guilty of repudiatory conduct in connection with the sale of Unit 5 Anchor Place, and so do we. His Honour said this:
reliance was placed on behalf of Mr Gangemi upon a statement by Mr Lanciana’s solicitor (Mr Blott) in a letter dated 13 December 2004 in connection with the proposed settlement of Mr Gangemi’s purchase of Unit 5 in the Anchor Place development. In response to Mr Gangemi’s solicitor seeking to rely upon Clause 8 of the Heads of Agreement, as incorporated into the contract of sale, Mr Blott stated:
I would note your view that the contract herein is conditional upon the release of your client from guarantees under an Agreement of the 9 September 2003. I would also note that the Agreement has become so convoluted by both the subsequent actions and agreements of the parties since that time as to be of questionable interpretation. Notwithstanding I would advise that on my instructions your client has waived the benefit of that special condition in the Contract of Sale by his very conduct in relation to the guarantees that are in place.
It was submitted that this statement by Mr Blott demonstrated that Mr Lanciana did not regard himself as bound by the Heads of Agreement. I do not accept this submission. Mr Blott’s statement is ambiguous and only his opinion. It was written in the context of a dispute and contains an assertion of waiver of the special condition under discussion in the correspondence.[36]
[36]Ibid [365]–[366] (emphasis in the original).
We agree with his Honour’s reasons. Repudiation of a contract is a serious matter, not lightly to be inferred[37] and, where the terms of a contract are ambiguous, even sustained insistence on a particular erroneous interpretation of a contract may not amount to repudiation if recanted after time to consider.[38]
[37]Shevill v Builders Licensing Board (1982) 149 CLR 620, 633–4.
[38]DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 432–3; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, 251; Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127, 130–1, [9]–[15].
Acceptance of repudiation
It was next contended on behalf of the appellants that the judge had erred by holding that, if Lanciana had evinced an intention to repudiate the Heads of Agreement, Gangemi had not accepted the repudiation. The judge’s reasoning on that point was as follows:
Mr Gangemi raised two final answers to the defences of Mr Lanciana and Mr Jafari based upon the Heads of Agreement. First, Mr Gangemi alleges that Mr Lanciana repudiated the Heads of Agreement and that he accepted that repudiation and thereby terminated the Heads of Agreement. Second, Mr Gangemi alleges that it should be inferred from [identified evidence of conduct] that he and Mr Lanciana abandoned the Heads of Agreement. For the reasons given below, neither of these allegations has any merit.
The evidence does not establish that Mr Lanciana repudiated the Heads of Agreement. I do not accept the evidence of Mr Gangemi that Mr Lanciana expressly did so by saying to Mr Gangemi that there were ‘no fucking agreements’ between them. Nor do I accept that Mr Lanciana has, by his conduct, evinced an intention to no longer be bound by the terms of the Heads of Agreement. To the contrary, Mr Lanciana’s conduct, when viewed as a whole, has been to rely upon the efficacy of the Heads of Agreement. Moreover, in the face of any arguable breaches of the Heads of Agreement by Mr Lanciana, Mr Gangemi continued to rely upon the Heads of Agreement and elected to affirm them as a result. This affirmatory conduct is wholly inconsistent with any acceptance by Mr Gangemi of a repudiation of the Heads of Agreement by Mr Lanciana.[39]
[39]Reasons, [447]–[448].
Counsel for the appellants submitted that his Honour’s analysis overlooked the effect of proceedings instituted by Bloomingdale and Gangemi in July 2005, of which it was said that details had been explained to the judge in the course of opening, and that their effect was an unequivocal acceptance of Lanciana’s repudiation of the Heads of Agreement.
We do not find that submission persuasive. Whatever was said about the specific performance proceeding in the course of opening to the judge (and we note that we were not provided with any of the details of the opening or of the specific performance proceeding), it appears that the matter was so little if at all mentioned for the remainder of the trial that the judge deemed it unnecessary even to refer to it in his reasons for judgment. Nothing was said on the appeal to persuade us that his Honour was wrong to regard the matter in that fashion.
Error in relation to the transfer of Lot S2
Counsel for the appellants argued that the judge was guilty of specific error in relation to the parties’ dealings with Lot S2 Hoddle Street.
Under the Heads of Agreement, Clapana in its capacity as trustee of the Hoddle Street Development Unit Trust was required to enter into a contract to sell to Gangemi or his nominee Lot 17 (also known as Lot S2) in the Hoddle Street project ‘for a nominal value’. The judge found that pursuant thereto, Lanciana had arranged for a contract of sale to be drawn up for the sale of Lot S2 to Gangemi for $250,000, and that Gangemi signed the contract on or about 1 November 2003, but that for one reason or another the contract proceeded no further before Clapana was placed into administration in October 2004. It was later agreed that Rala Nominees Pty Ltd (‘Rala’) would be appointed to replace Clapana as trustee of the Hoddle Street Development Unit Trust, Rala being owned in half shares by Gangemi’s son and Gangemi’s friend, Wayne Morpeth. But then a dispute arose as to whether Rala was an appropriate trustee and Lanciana purported to remove Rala as trustee by a ‘deed of appointment and removal of trustee’ dated 27 December 2004. That led in turn to a meeting on 9 February 2005 at the offices of a solicitor, Mr Blott (who from time to time acted for both Lanciana and Gangemi) attended by Gangemi, Lanciana, Morphett and Mr Blott. The meeting resulted in a joint ‘letter of instruction’ to Mr Blott, signed by Lanciana, Gangemi and Morpeth, and the judge held that, among other things, the joint letter evidenced an agreement between Lanciana and Gangemi that, pending the registration of Rala as legal owner of the Hoddle Street property:
the parties will pursue the completion of the Contracts of all units sold (with the exception of LS2 which is being transferred to A. Gangemi by way of distribution without consideration from the Trust) expeditiously so that settlements will occur within 14 days of registration of the Instrument of Transfer aforesaid.
The property was later transferred to Gangemi and he was registered as proprietor in September 2006.
At trial, counsel for Gangemi put to Lanciana that Lot S2 was transferred to Gangemi by way of a distribution from the Hoddle Street Unit trust, without consideration, because Gangemi ‘was owed a lot of money on the project’. Lanciana denied that was so and said that the transfer for nil consideration was in furtherance of the Heads of Agreement. Counsel for Gangemi tendered a loan agreement which appeared to have been made on 8 December 2004 between Rala and Gangemi and Gangemi gave evidence that the loan agreement related to funds he had advanced to Rala for the purposes of the Hoddle Street development. It provided for Rala to repay Gangemi $255,450 in respect of advances made by him for the purposes of the development and, as security for the loan, that Rala had charged its interest in Lot 17 (or S2) in the Hoddle Street development in favour of Gangemi. It was contended that the $250,000 consideration referred to in the contract was in effect the amount of that loan. But Lanciana denied that was so, albeit conceding that he recalled some discussion before signing the joint letter of instruction to Mr Blott in February 2005 to the effect that Gangemi was complaining that he had provided funds for the Hoddle Street development.
The judge was not persuaded that the sale was by way of repayment of the loan. As his Honour observed, the joint letter of instruction made no reference to a loan agreement as the source of obligation for the sale, and did not say anything of a set-off between Gangemi’s obligations to pay $250,000 under the contract of sale and Rala’s obligations to pay Gangemi under the loan agreement. As such, the letter was consistent with the parties reaffirming Gangemi’s entitlement under the Heads of Agreement to receive Lot S2 for nominal consideration:
by this time [of the transfer], Mr Gangemi knew that the Hoddle Street project was not sufficiently profitable to enable Suncorp Metway to be repaid in full and for him to receive Lot 16 for a nominal consideration. Clapana had been placed in administration in October 2004 and went into liquidation thereafter. Although there was sufficient funds to repay Suncorp Metway, there were other unsecured creditors of the Hoddle Street development. In these circumstances, I find that Mr Gangemi did whatever he could to protect his position. Mr Lanciana said that he specifically recalls Mr Gangemi saying that ‘he wasn’t going to walk away from this with nothing’ and, although his answers on the issue contained much evasion, Mr Gangemi frankly acknowledged that the purpose of the loan agreement and related charge over Lot S2 was to protect his position in all the circumstances. In my view, this is not inconsistent with Mr Gangemi’s entitlement under the Heads of Agreement to receive Lot S2 for a nominal consideration.
That left a question as to why a price of $250,000 was specified in the contract of sale, although it was not explored in the evidence. But as the judge observed, the Heads of Agreement did cast an obligation upon Gangemi to pay the stamp duty in respect of the transfer of Lot S2, and his Honour considered that the sum of $250,000 might have been stated in the contract in an endeavour to provide a basis for the assessment of stamp duty; although whether it was a genuine estimate or otherwise his Honour could not say.
Counsel for the appellants attacked the judge’s reasoning. In counsel’s submission, it flew in the face of the manner in which the joint letter of instruction singled out the transfer of Lot S2 as to be made by way of distribution without consideration from the Trust as opposed to by way of completion of the Contracts, and in his submission there was simply no basis from which to infer that the sum of $250,000 was included in the contract of sale as a means of pegging stamp duty as opposed to more or less reflecting the amount of the loan outstanding.
There is some force in those submissions. It does seem odd that, if the intention were to transfer the Lot S2 to Gangemi by way of distribution from the trust, the parties should structure the transaction or, perhaps more accurately, pretend that the transaction was one of sale for $250,000. The relatively close correspondence between the outstanding loan of $255,450 and the specified sale price of $250,000, coupled with Lanciana’s concession that he recalled some discussion about the loan shortly before the joint letter of instruction was signed, also suggest that the sale may have more to do with repayment of the loan than with a distribution in specie.
On the other hand, if the consideration were truly the outstanding loan of $255,450, why specify a sale price of only $250,000, and where was the evidence, in accounts or otherwise, that the loan of $250,000 was ever treated as repaid? In circumstances where Rala was under the control of Gangemi at the time at which the loan agreement was created; there was no other documentary or other evidence of the existence of the loan or its repayment; and Lanciana gave evidence that he had never seen the loan agreement, it is not surprising that the judge was not satisfied by what Gangemi had to say about it. And, in a case where a lot depended upon the assessment of credit, we accord particular importance to the judge’s point of view. At all events, we see no error in his Honour’s conclusion.
Complaint was also made about the judge’s conclusion concerning the Mitchell Street property, that:
Mr Lanciana simply took Coadys advice on board and took unilateral steps to ensure that any revenue obligations were avoided. Of particular relevance is Mr Lanciana’s exploitation of the fact that the intended Buckley Street Unit Trust deed had not been executed and Mr Lanciana’s rewriting of past events regarding the Mitchell Street Unit Trust, thus ensuring that he, Mr Gangemi and Bloomingdale did not have to pay any stamp duty or capital gains tax.[40]
[40]Reasons, [361] (Emphasis added).
Counsel for the appellants contended that his Honour’s reasoning was erroneous because Bloomingdale and Gangemi had no liability for stamp duty in respect of the Mitchell Street property – the stamp duty liability fell on the transferee – and that, although it was true that Gangemi and Bloomingdale were liable to pay capital gains tax, Lanciana’s actions had not avoided tax. Rather, they were an attempt to evade tax which was inimical to Lanciana’s obligation under the Heads of Agreement to indemnify Bloomingdale and possibly productive of penalties which Gangemi would have to bear.
We do not think that argument to be persuasive. In the context in which this series of transactions occurred, the judge’s description of events as ‘tax avoidance’ was not inapposite and, whether or not they amounted to tax ‘evasion’, they were not inconsistent with the binding nature of the Heads of Agreement. No doubt, for a tax lawyer, the conceptions of ‘tax avoidance’ and ‘tax evasion’ are two different things. The oft-asserted, albeit sometimes doubtful, validity of that dichotomy[41] has sustained a tax avoidance industry for more than seventy years. But the subtlety of the distinction is unlikely to have loomed large in the minds of the property developers who were here involved. Upon the evidence, it is plain that Lanciana took the view that what the revenue did not know would not hurt him, or Gangemi or Bloomingdale and, to that extent, that his obligations as indemnifier would be reduced. We agree with the judge that Lanciana’s conduct bespoke a recognition of the binding force of the Heads of Agreement.
[41]See, for example, Gorton v Federal Commissioner of Taxation (1965) 113 CLR 604, 627 (Windeyer J).
Error as to negotiations between Gangemi and Lanciana from April 2004
Counsel for the appellants contended that the judge was in error in holding that negotiations between the parties which began in April 2004 were an attempt to re-negotiate the binding agreement constituted of the Heads of Agreement, as opposed to negotiating to reach a concluded agreement for the first time.
That submission is not persuasive either. In substance, it repeats the contention which we earlier rejected that it was not open to the judge to conclude that the negotiations which followed execution of the Heads of Agreement were not inconsistent with an intention that the Heads of Agreement be a binding bi-partite agreement.
The informality which attended the appointment of Lanciana as a director of 63 Buckley Street and the issue of 10 shares to Lanciana
It was then said that the judge had erred in concluding that the steps taken to transfer full ownership and control of 63 Buckley to Lanciana, and subsequently to Jafari, were valid or capable of being rendered valid by declarations of validity under s 1322(4)(c) of the Corporations Act 2001 (Cth) (‘the Corporations Act). Counsel for the appellants submitted that it could not be so, given that:
a. The only share ever issued in 63 Buckley was one ‘A’ class share, recorded in the register in the name of Gangemi;
b. Gangemi’s evidence was that he signed a blank transfer, no stamp duty was ever paid on it, it was not submitted for approval or recorded in the register, and Article 42 of the company’s constitution provided that a transferor is deemed to be the holder of a share until the transferee’s name is entered in the register;
c. Although Gangemi signed the blank transfer, it was never used - instead Lanciana simply acted as if the one ‘A’ class share did not exist and pretended to issue 10 new shares to himself;
d. There was no transfer of those 10 new shares to Jafari, although Jafari claimed to be the owner of them;
e. Gangemi did not cease to be a director of 63 Buckley and Lanciana was never appointed as a director of 63 Buckley, because he was disqualified from acting as a director by reason of previous criminal convictions;
f. Lanciana was, therefore, unable to cause the issue of the 10 further shares in the company which he purported to sell to Jafari and, in any event, the purported transfer of those shares was ineffective because it was never registered in accordance with the company’s constitution;
g. These failings, it was said, were not simply ‘procedural irregularities’, as the judge concluded, but indicative of the fact that transfers of ownership which the judge found to have occurred simply did not take place.
In our view, his Honour’s reasoning on the points mentioned was not erroneous. Beginning with the efficacy of Gangemi’s resignation as a director of 63 Buckley, the judge said this:
soon after the Heads of Agreement were signed, Mr Gangemi signed a handwritten note resigning as a director of 63 Buckley effective on 9 September 2003. The handwritten resignation is in the following form:
I ANTONIO GANGEMI GIVE NOTICE THAT I AM
RESIGNING FROM MY POSITION AS DIRECTOR SECRETARY
IN 63 BUCKLEY STREET PTY LTD EFFECTIVE 9/9/03
(ACN 099 836 361)
(SIGNED)
It was submitted on behalf of Mr Gangemi that his resignation as a director was defective because it did not comply with rule 90(d) of the constitution of 63 Buckley, which provides that the office of a director becomes vacant if the director ‘resigns his office by notice in writing to the Company’.
There was no invalidity involved in Mr Gangemi’s resignation. In circumstances where he was the sole director and shareholder in 63 Buckley, had agreed in the Heads of Agreement to resign as a director and transfer his share to Mr Lanciana and signed the handwritten resignation, that conduct constituted his resignation by notice in writing to the company. There was nothing further that he needed to do.
If there was some technical invalidity in this process of resignation, it does not affect the validity of Mr Gangemi’s resignation. There are two reasons for this. First, even an oral agreement to resign will be valid if tendered to the company and accepted. This is so even where the company’s constitution contains a requirement, like here, that a resignation must be by notice in writing to the company.[42] Second, the Court has power to declare that Mr Gangemi’s resignation as a director is not invalid by reason of any failure to comply with rule 90(d) of the constitution of 63 Buckley.[43] If it were necessary to resort to this power, I would have no hesitation in doing so.[44]
[42]Knight & Ors v Bulic & Ors (1984) 13 ACSR 553, 561.
[43]Corporations Act 2001 (Cth), s 1322(4).
[44]Reasons, [454]–[457].
We agree with his Honour. In our view, Gangemi’s resignation as a director was effective and, if it were not, it was appropriate to declare that it was not invalid by reason of failure to comply with rule 90(d).
Section 1322(4)(a) of the Corporations Act enables the Court to declare that ‘any act, matter or thing purporting to have been done, … under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation’, provided the contravention is essentially procedural; or that the persons concerned acted honestly; or that it is just and equitable that an order be made,[45] and provided that no substantial injustice has been or is likely to be caused to any person.[46]
[45]Corporations Act 2001 (Cth), s 1322(6)(a).
[46]Corporations Act 2001 (Cth), s 1322(6)(c).
In this context, ‘injustice’ means real and not merely insubstantial or theoretical prejudice, and in order to determine whether there has been or would be real injustice the Court is required to weigh any alleged prejudice against the prejudice which would be suffered by other members and creditors of the company if an order were not made.[47]
[47]Re Compaction Systems Pty Ltd & The Companies Act [1976] 2 NSWLR 477, 493 (Bowen CJ in Eq).
If, as Gangemi contended, his resignation was invalid for failure to comply with rule 90(d) of the company’s constitution, the non-compliance was a ‘contravention’ of the constitution.[48] It was also ‘essentially of a procedural nature’,[49] whether or not it arose from inadvertence or accidental non-compliance.[50] And we are satisfied that no substantial injustice has been or is likely to be caused to any person by reason of the contravention.[51]
[48]Re Centennial Coal Co Ltd (2006) 56 ACSR 698, 703 [14]–[15].
[49]Deputy Commissioner of Taxation v Portinex Ltd (2000) 34 ACSR 391, 402 [45] (Austin J).
[50]Re Pembury Pty Ltd [1993] 1 Qd R 125, 126–7; Whitehouse v Capital Radio Newtwork Pty Ltd (2004) 13 Tas R 27, 36–37, [14]; cfRe P W Saddington & Sons Pty Ltd (1990) 19 NSWLR 674.
[51]Re Pembury Pty Ltd [1993] 1 Qd R 125, 126–7.
Next, as to the efficacy of the transfer of Gangemi’s one ‘A’ class share in the company to Lanciana, the judge said this:
There is no doubt that the share transfer does not comply with the constitution of 63 Buckley and was not registered in accordance with its requirements. However, the share transfer must be viewed in its context. Notwithstanding the procedural irregularities attendant upon it, the fact remains that it was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to resign as the sole director of 63 Buckley and to transfer the sole issued share in 63 Buckley to Mr Lanciana. In other words, the share transfer formed part of an agreement to transfer complete ownership and control of 63 Buckley from Mr Gangemi to Mr Lanciana. The clear intention was to enable Mr Lanciana to then become the sole director and shareholder in 63 Buckley, in place of Mr Gangemi. In these circumstances, it is appropriate that the Court exercise its undoubted power to validate the share transfer. That power is contained in s 1322(4)(a) of the Corporations Act 2001…
…
The share transfer form was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to transfer full ownership and control of 63 Buckley to Mr Lanciana. Subsequently, Mr Lanciana dealt with Mr Jafari and agreed to transfer full ownership and control of 63 Buckley to him. These circumstances call for the beneficial exercise of the Court’s discretion to validate the transfer. The irregularities are essentially procedural in nature, my findings as to the lack of duress mean that Mr Lanciana should be taken to have acted honestly in this regard and, especially have regard to the intervention of Mr Jafari’s rights, it is just and equitable that a validating order be made.
Further, the making of a validating order will not, on the view I take of the facts of the case, occasion injustice to Mr Gangemi. This is because he was contractually bound under the Heads of Agreement to bring about the result that Mr Lanciana obtained full ownership and control of 63 Buckley.[52]
[52]Reasons, [460]–[464].
Again, we agree with his Honour. Given the circumstances as found, it was just and equitable to exercise the broad discretionary power conferred on the court by s 1322(4) to validate the transfer of the one ‘A’ class share from Gangemi to Lanciana.
As to the efficacy of Lanciana’s acts as director of 63 Buckley and, in particular, his acts in causing the issue of the 10 further shares to himself and then selling those shares to Jafari, his Honour reasoned that, notwithstanding the deficiencies in Lanciana’s appointment as a director, his acts as director were rendered effective by s 201M(1) of the Corporations Act,[53] or alternatively could be validated under s 1322(4).
[53]Ibid [467]. Section 201M provides that:
An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company’s constitution (if any) or any provision of this Act.
Strictly speaking, that is not altogether correct. Section 201M is limited to cases in which a director has been purportedly appointed as such but the appointment is defective. Like its predecessor sections,[54] it ‘is not framed so as to render valid a resolution passed by any persons who without a shadow of title assume to act as directors of a company’.[55] Arguably, it has no application either to cases in which the purported appointment of the director was made by a person or body not authorized to make the appointment.[56] It also has no application to the invalid acts of a person who never claimed to be a director.[57]
[54]Or the sorts of articles of association on which its predecessor sections were based.
[55]Dawson v African Consolidated Land and Trading Co [1898] 1 Ch 6, 14 (Chitty LJ); Morris v Kanssen [1946] AC 459, 472 (Lord Simonds); Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1, 52–53 (Kitto J); Official Trustee in Bankruptcy v Buffier (2005) 54 ACSR 767, 775–776 [27]–[28]; Ford, Austin, Ramsay, Ford’s Principles of Corporations Law (13th ed, 2007) [15.020]–[15.070].
[56]Wood v Inglis (2008) 68 ACSR 420, 433–4.
[57]Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd (2004) 182 FLR 431, 435 [39].
Furthermore, in contradistinction to its predecessor sections, s 201M(1) does not deal with the question of whether an effective act by a director binds the company in its dealing with other people or makes the company liable to another
person.[58] Consequently, even if s 201M(1) were otherwise applicable in this case, s 201M(2) would exclude its validating effect in relation to the issue of the ten further shares in 63 Buckley.
[58]Section 201M(2) provides that:
Sub-section (1) does not deal with the question whether an effective act by a director:
(a) binds the company in its dealings with other people; or
(b)makes the company liable to another person.
That said, however, we think that it would be open to the court to make an order validating the terms of issue of the ten further shares pursuant to s 254E of the Corporations Act.[59] One problem about that is that Lanciana was never a validly appointed director, with the result that the purported issue of the shares was not the act of the company. In that sense, the shares are void and there is some authority which suggests that a predecessor section to s 254E did not apply to void issues of shares as such.[60] The better view, however, is that ‘invalid’ in s 254E includes ‘void’, and thus that the section can apply.[61]
[59] Section 254E provides that:
1) On application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if:
(a) the issue is or may be invalid for any reason; or
(b) the terms of the issue are inconsistent with or not authorised by:
(i) this Act; or
(ii) another law of a State or Territory; or
(iii) the company's constitution (if any).
(2) On lodgement of a copy of the order with ASIC, the order has effect from the time of the purported issue.
[60]Millheim v Barewa Oil & Mining NL [1971] WAR 65, 67 (Burt CJ).
[61]Re Swan Brewery (No 2) (1976) 3 ACLR 168, 171–172 (Gillard J); see also Re Monitronix Ltd (1987) 12 ACLR 161, 174–5 (Kennedy J).
Of course, the power under s 254E is discretionary. Relevant considerations include possible prejudice to a party the result of validating the issue; legitimate expectations of innocent parties; and public interest.[62] On one view of the matter, the cavalier manner in which Lanciana went about issuing and transferring the 10 further shares without the slightest regard to his disqualification as a director tends to suggest that it would be contrary to the public interest to validate the issue.[63] But as against that, Jafari was not involved in any way in the short cuts taken by Lanciana or in Lanciana’s attempts to defeat the revenue. As the judge found, he was a bona fide purchaser for value without notice of any impropriety or invalidity. There are also to be considered the rights and interests of the third party creditors and other persons who dealt in good faith with Jafari in the belief that he was the holder of the shares in the company. In our view, the importance of giving effect to his legitimate expectations, and those of the persons with whom he dealt, far outweighs any competing considerations which might otherwise militate against a positive exercise of the discretion in a case of this kind.[64] Equally, as the judge observed, there would be no prejudice to Gangemi if the issue were validated, because he was bound under the Heads of Agreement to bring about the result that Lanciana obtained full ownership of 63 Buckley, and Lanciana bound himself to transfer full ownership of 63 Buckley to Jafari.
[62]The cases are collected in Ford’s Principles of Corporations Law, above n 55, [17.450].
[63]Re Monitronix Ltd (1987) 12 ACLR 161; Moran v Moranco Enterprises Pty Ltd (1996) 22 ACSR 65, 68.
[64]See and compare Alpha Resources Ltd v CAC (1987) 5 ACLC 844, 846–7; Ford’s Principles of Corporations Law, above n 55, [17.450].
A new trial should not be ordered
We earlier referred to the principles which apply to an application for a new trial based upon an inadequacy of discovery. According to Quade, whether or not to order a new trial in this proceeding depends in the end upon our assessment of what will best serve the interests of justice, ‘either particularly in relation to the parties or generally in relation to the administration of justice’ after taking into account the degree of Lanciana’s culpability for failing to make documents available, any lack of diligence on Gangemi’s part and the extent of any likelihood that the result would have been different if Lanciana had complied with his obligations to make discovery and the material which he did not discover had been made available.
Counsel for Gangemi also urged upon us a number of decisions including the decision of the Full Federal Court in Londish v Gulf Pacific Pty Ltd,[112] in which it was observed that the stringent rules which ordinarily apply to the grant of a new trial may be relaxed where the reason for the non-production of evidence at trial is the failure of the successful party to comply with discovery obligations; and the decision of Lander J in Brookfield v Yevad Products Pty Ltd,[113] where his Honour remarked upon the importance to the discovery process in ensuring that the parties are accorded a fair trial and that litigants may lose confidence in the court’s processes and decisions if they think that a party might avoid giving proper discovery and not later be held to account.
[112](1993) 45 FCR 128.
[113][2004] FCA 1164.
We start with the degree of Lanciana’s culpability for failing to make documents available. As at present advised, we judge it to be high. Due to the fact that the issue arose late and had to be dealt with quickly, the affidavit material filed on both sides was not all that it might have been. That means that there are a number of aspects of the facts which remain unclear, and we have not had the benefit of hearing the deponents cross-examined. But our impression based upon the limited material with which we have been provided is that Lanciana did far less by way of discovery than was required of him.
We turn next to whether there has been any lack of diligence on Gangemi’s part. In our view, there has been. Much of the material on which Gangemi relies in order to support the application for new trial was available to him at the time or at least from a time a few months after the trial, more than a year ago. It is also to be observed that a good deal of the inadequacy in discovery which is now complained about would have been, or at least should have been, obvious before trial and should have been pursued to completion before the matter was heard. There is also no explanation as to why the processes recently undertaken to obtain documents now relied upon to support allegations which were made in the trial could not have been undertaken before trial and would not have been successful if so then undertaken. Significantly, the documents relating to accounts 666 and 728, which are at the heart of the application for new trial, were obtained by early return subpoena in another proceeding and, so far as we can see, could just as well have been obtained by early return subpoena in this proceeding.
We turn then to our assessment of whether there is a realistic possibility that the documents not discovered would have made a difference to the outcome if they had been available at trial. For the reasons already given, we do not think that they would have made any difference to the judge’s determination that the Heads of Agreement was a binding legal agreement. The objective evidence as to the existence of a concluded contract, including in particular the parties’ conduct in pursuance of and in accordance with the contract, was so powerfully demonstrative of its binding nature as on that question to make credit issues based upon past dishonest or dishonourable conduct in effect de minimis.
As we have explained, that is not necessarily so in relation to the question of whether Gangemi was induced by fraudulent or otherwise unconscionable conduct to enter into the Heads of Agreement, or whether as a consequence of fraudulent, unconscionable or other breach of the Heads of Agreement, Gangemi would be entitled to rescind the Heads of Agreement or otherwise treat Lanciana as disentitled from relying upon the Heads of Agreement. But for the reasons already given, it is too late now for Gangemi to seek rescission ab initio, either at law or in equity. If there is to be a rescission it could only be prospective. And although there may be greater scope for relief under the Fair Trading Act 1999, there is no prospect of such relief being awarded against Jafari. The new material does nothing to affect the judge’s conclusion that Jafari was a bona fide purchaser for value as against whom Gangemi is estopped from denying the validity of Jafari’s title.
What remains, therefore, is the possibility of a new trial limited to a claim by Gangemi that he is in one way or another entitled to rescind the Heads of Agreement or otherwise treat them as not binding in the way described. As has been explained, however, the precise nature of that claim is yet to be identified, let alone pleaded. As matters stand, therefore, it is impossible to assess how likely it is that it would succeed. Nor can it be said whether such a claim based on the newly discovered documents would be any more likely to succeed than one of the same kind based on the material which was available at the time of trial. In the end, it may be that Gangemi is no better positioned now than he was before to advance that sort of claim. All that can be said is that, because of some of the ways in which the claim might be put, there is a possibility that the newly discovered documents could make a difference.
Finally, it is important to recall that such a claim could just as well be advanced in a fresh proceeding after the claim has been formulated and pleaded and that, if Gangemi makes good his assertion that he was unable to advance it at trial because of inadequacy of discovery, there is no reason why he could not succeed for the same relief in the new proceeding as he could in any retrial. We do not overlook Lander J’s observations as to the importance of the discovery process in ensuring that parties are accorded a fair trial or that litigants may lose confidence in the court’s processes and decisions if they think that a party might avoid giving proper discovery and not later be held to account. But in this case, if Gangemi’s claim is sound, Lanciana can be held to account without a retrial.
In all the circumstances, we consider that the interests of justice in relation to each of the parties and the administration of justice generally will be best served by
leaving Gangemi to bringing such fresh proceeding for rescission or other relief as he may be advised.
MANDIE JA:
I have had the benefit of reading in draft the reasons for judgment of Nettle and Harper JJA. Subject to what appears below in relation to the issues raised by the appellants under the Corporations Act, I agree with their Honours’ reasons.
Clause 6 of the Heads of Agreement provided that Mr Gangemi and Bloomingdale would sign and deliver to Mr Lanciana documents prepared by Mr Lanciana to cause Mr Gangemi’s resignation as a director of various companies including 63 Buckley Street Pty Ltd and to transfer his shares in respect of a number of companies including 63 Buckley Street Pty Ltd.
His Honour found that:
· Mr Gangemi signed a handwritten document prepared by Mr Lanciana resigning as a director of 63 Buckley Street Pty Ltd and that he also signed a blank share transfer in respect of that company, which was later completed in favour of Mr Lanciana.[114] His Honour found that these documents, among others, were signed by Mr Gangemi in performance of his obligations under the Heads of Agreement.[115]
[114]Reasons, [290].
[115]Reasons, [309].
· In or about February 2005, Mr Jafari purchased from Mr Lanciana all of the then supposedly issued shares in 63 Buckley Street Pty Ltd.[116]
[116]Reasons, [382]-[383].
· In June 2005 Mr Jafari and Mr Lanciana agreed that Mr Lanciana would transfer the 10 issued shares in 63 Buckley Street Pty Ltd to Mr Jafari and that a ‘Change to company details’ form was filed with ASIC on
3 August 2005 recording that Mr Jafari had become the sole shareholder in and the sole director of 63 Buckley Street Pty Ltd in place of Mr Lanciana from 1 July 2005 but the documents effecting those transactions were not in evidence.[117]
· Once Mr Jafari had assumed control of 63 Buckley Street Pty Ltd, Mr Jafari refinanced the existing mortgage loan over the Buckley Street properties and increased that loan from $504,000 to $840,000 and provided security to the financier over the Buckley Street properties (and also a property at 59 Buckley Street owned by him).[118] His Honour noted that Mr Jafari and 63 Buckley Street Pty Ltd were incurring substantial interest costs as a result.
[117]Reasons, [388].
[118]Reasons, [389].
His Honour held (in my view, correctly and justifiably upon the evidence before him) that Mr Gangemi was estopped from denying that Mr Jafari had acquired full ownership and control of 63 Buckley Street Pty Ltd, to the exclusion of any interest of Mr Gangemi.[119] This conclusion was based upon findings that, inter alia, Mr Gangemi had told Mr Jafari that he and Mr Lanciana had resolved their dispute and that Mr Gangemi had transferred 63 Buckley Street Pty Ltd to Mr Lanciana and that Mr Jafari was repeatedly told by Mr Gangemi that he was ‘out of the Buckley Street project’ and that Mr Jafari had dealt with Mr Lanciana in reliance on these representations.[120] Although he said that it was unnecessary to decide it, his Honour added (and again I would agree with this conclusion) that he found that in those circumstances it would be wholly unconscionable for Mr Gangemi to assert against Mr Jafari that Mr Lanciana had no capacity to transfer ownership and control of 63 Buckley Street Pty Ltd to Mr Jafari.[121]
[119]Reasons, [440].
[120]Reasons, [441], [442].
[121]Reasons, [443].
Mr Gangemi signed a handwritten note stating that he gave notice that he was resigning from this position as director/secretary in 63 Buckley Street Pty Ltd effective 9 September 2003.[122] It was submitted on behalf of Mr Gangemi at trial that this notice was defective because it did not comply with rule 90(d) of the Constitution of 63 Buckley Street Pty Ltd which provided that the office of a director becomes vacant if the director ‘resigns his office by notice in writing to the Company’.[123] His Honour held that there was no invalidity involved in the circumstances where Mr Gangemi was the sole director and shareholder and had agreed in the Heads of Agreement to resign.[124] His Honour further stated that, if there was some technical invalidity in the process, it did not effect the validity of Mr Gangemi’s resignation because even an oral agreement to resign would be valid if tendered to the Company and accepted. Further, his Honour said that the Court had power to declare, pursuant to s 1322(4) of the Corporations Act, that Mr Gangemi’s resignation was not invalid by reason of any failure to comply with rule 90(d) of the constitution of 63 Buckley Street Pty Ltd and that, if it were necessary to resort to this power, he would have no hesitation in doing so.
[122]Reasons, [454].
[123]Reasons, [455].
[124]Reasons, [456].
His Honour found that soon after the Heads of Agreement were signed Mr Gangemi signed a standard form of share transfer and, with the exception of the name of 63 Buckley Street Pty Ltd being completed in handwriting, none of the other details were completed at the time Mr Gangemi signed. His Honour found that, subsequently, Mr Lanciana completed parts of the form by writing in Mr Gangemi’s name as the seller and his (Lanciana’s) name and address as the buyer – however, the form remained blank as to the quantity of shares and the consideration for their transfer.[125]
[125]Reasons, [458].
His Honour noted[126] that it was submitted on behalf of Mr Gangemi that the share transfer was invalid and ineffective because it did not comply with the procedures specified in rules 42 to 48 of the constitution of 63 Buckley Street Pty Ltd because the share transfer was incomplete and thus not ‘in the usual form’,[127] had not been duly stamped,[128] had not been submitted to Mr Gangemi as the sole director of 63 Buckley Street Pty Ltd for registration[129] and was not registered.[130]
[126]Reasons, [459].
[127]Rule 43.
[128]Rule 42.
[129]Rules 44, 45.
[130]Rules 42.
His Honour accepted that the share transfer did not comply with the constitution of 63 Buckley Street Pty Ltd and was not registered in accordance with its requirements.[131]
[131]Reasons, [460].
His Honour then stated:[132]
[132]Reasons, [460]-[464].
However, the share transfer must be viewed in its context. Notwithstanding the procedural irregularities attendant upon it, the fact remains that it was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to resign as the sole director of 63 Buckley and to transfer the sole issued share in 63 Buckley to Mr Lanciana. In other words, the share transfer formed part of an agreement to transfer complete ownership and control of 63 Buckley from Mr Gangemi to Mr Lanciana. The clear intention was to enable Mr Lanciana to then become the sole director and shareholder in 63 Buckley, in place of Mr Gangemi. In these circumstances, it is appropriate that the Court exercise its undoubted power to validate the share transfer. That power is contained in s 1322(4)(a) of the Corporations Act 2001, which provides that the Court may:
(a) [make] an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken … in relation to a corporation is not invalid by reason of any contravention of … a provision of the constitution of a corporation;
The power to make an order under s 1322(4)(a) is constrained by s 1322(6) of the Corporations Act. Relevantly, that sub-section provides that no order shall be made under s 1322(4)(a) unless it relates to a matter which is essentially procedural in nature, the person or persons concerned in the contravention or failure acted honestly or it is just and equitable that the order be made.[133] It is enough if any one of these three requirements is satisfied, provided that the Court is also satisfied that no substantial injustice has been or is likely to be caused to any person by reason of the order.[134]
Section 1322(4) of the Corporations Act gives the Court a broad discretionary power. It is ‘a remedial provision to be applied with liberality’.[135] Apart from the mandatory matters about which the Court must be satisfied, the discretion is unfettered and exists to prevent injustice.[136]
The share transfer form was signed by Mr Gangemi in performance of his obligations under the Heads of Agreement to transfer full ownership and control of 63 Buckley to Mr Lanciana. Subsequently, Mr Lanciana dealt with Mr Jafari and agreed to transfer full ownership and control of 63 Buckley to him. These circumstances call for the beneficial exercise of the Court’s discretion to validate the transfer. The irregularities are essentially procedural in nature, my findings as to the lack of duress mean that Mr Lanciana should be taken to have acted honestly in this regard and, especially have regard to the intervention of Mr Jafari’s rights, it is just and equitable that a validating order be made.
Further, the making of a validating order will not, on the view I take of the facts of the case, occasion injustice to Mr Gangemi. This is because he was contractually bound under the Heads of Agreement to bring about the result that Mr Lanciana obtained full ownership and control of 63 Buckley.
[133]Section 1322(6)(a).
[134]Section 1322(6)(c).
[135]Citing Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427, [74].
[136]Citing Re Vanfox Pty Ltd (1994) 13 ACSR 209, 216.
His Honour then dealt with other aspects of invalidity relied upon by Mr Gangemi and stated as follows:[137]
[137]Reasons, [465]-[469].
It was submitted on behalf of Mr Gangemi that Mr Lanciana’s appointment as a director of 63 Buckley was defective because rule 84 of 63 Buckley’s constitution was not complied with. That rule relevantly provides:
If the Company has a single member who is also the sole director, the director may appoint another director by recording his or her decision and signing the record.
At the time Mr Gangemi signed the Heads of Agreement, signed his resignation as a director of 63 Buckley and signed the share transfer form, he was the single member and sole director of 63 Buckley. By signing these documents, he effectively appointed Mr Lanciana as a director of 63 Buckley. However, the formalities for the appointment of Mr Lanciana were not observed. For the same reasons as I have given concerning validation of the share transfer from Mr Gangemi to Mr Lanciana, I will exercise my discretion to make validating orders in respect of the appointment of Mr Lanciana as a director of 63 Buckley.
(4) Were Mr Lanciana’s acts as a director of 63 Buckley valid?
In my view, the acts of Mr Lanciana as a director of 63 Buckley, in particular his acts in issuing further shares to himself and subsequently selling those shares to Mr Jafari and arranging for Mr Jafari to take over full ownership and control of the company, are effective acts even though there were deficiencies in the appointment of Mr Lanciana as a director. This result is dictated by s 201M(1) of the Corporations Act, which provides:
An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company’s constitution (if any) or any provision of this Act.
Furthermore, for the reasons stated, if s 201M(1) of the Corporations Act does not have the effect of validating Mr Lanciana’s acts as a director of 63 Buckley, I would nevertheless make validating orders under s 1322(4), for the reasons stated above.
Notwithstanding this result, it appears that no stamp duty and capital gains tax may have been paid in respect of the transfer by Mr Lanciana to Mr Jafari of all of the issued shares in 63 Buckley. The Court cannot allow this situation to go unnoticed. The Court will refer this matter to the Attorney‑General to take any necessary action and refer any appropriate matters to the relevant statutory authorities.
Finally, his Honour stated as one of his conclusions:[138]
… pursuant to the Heads of Agreement Mr Gangemi transferred full ownership and control of 63 Buckley to Mr Lanciana. Subsequently, Mr Lanciana transferred full ownership and control of 63 Buckley to Mr Jafari. Although these steps were attended by gross informality and procedural error, they were nevertheless valid or else will be the subject of declarations of validity under s 1322(4)(c) of the Corporations Act 2001 (Cth).
[138]Reasons, [493].
In accordance with the reasons stated, his Honour made, inter alia, the following declarations:
1.In September 2003, Antonio Gangemi transferred the only issued share in 63 Buckley Street Pty Ltd to Pasquale Lanciana. That share transfer is not invalid by reason of any contravention of the provisions of the constitution of 63 Buckley.
2.In September 2003, Antonio Gangemi resigned as the sole director of 63 Buckley Street Pty Ltd.
3.The appointment of Pasquale Lanciana as a director of 63 Buckley Street Pty Ltd in September 2003 is not invalid by reason of any contravention of the constitution of 63 Buckley Street Pty Ltd.
4.On 1 July 2005, Pasquale Lanciana transferred all of the issued shares in 63 Buckley Street Pty Ltd to Kourosh Jafari and appointed him as the sole director of 63 Buckley Street Pty Ltd. The transfer and appointment are not invalid by reason of any contravention of the constitution of 63 Buckley Street Pty Ltd.
The appellants contended that the judge erred in finding that:
·Gangemi’s one ‘A-class’ share in 63 Buckley Street Pty Ltd was transferred to Lanciana;
·Lanciana was validly appointed as a director of 63 Buckley Street Pty Ltd;
·Lanciana was able to and did issue 10 ordinary shares in 63 Buckley Street Pty Ltd to himself;
·Lanciana was able to and did transfer those 10 ordinary shares to Jafari;
·Lanciana was able to and did appoint Jafari a director of 63 Buckley Street Pty Ltd.
The appellants submitted that:
·The only share that was ever issued in 63 Buckley Street Pty Ltd remained was one ‘A-class’ share registered in the name of Gangemi. The company register of 63 Buckley Street Pty Ltd was produced at the trial by Gangemi and in the absence of evidence to the contrary, is proof of the matters shown in it (Section 176 Corporations Act).
·Gangemi gave evidence that the transfer he signed was blank. The transfer did not state the number of shares or the consideration for the transfer, and no stamp duty was paid on the transfer. It was not submitted for approval or recorded in the company register of 63 Buckley Street Pty Ltd. Article 42 of 63 Buckley Street Pty Ltd’s constitution provides that a transferor is deemed to be the holder of the share until the transferee’s name is entered in the register.
·Although Lanciana procured Gangemi to sign the blank transfer form, Lanciana subsequently acted as if Gangemi’s ‘A-class’ share never existed and did not deal with it at all. Lanciana ignored the existence of the share, in order to evade stamp duty on the transfer. The Court referred this matter to the Attorney General. Lanciana did not notify ASIC that Gangemi had transferred Gangemi’s ‘A-class’ share to Lanciana but advised ASIC that he had issued 10 ordinary shares to himself.
The appellants further submitted that:
·On 29 September 2003, Lanciana lodged an annual return with ASIC advising that he had been issued 10 new ‘ordinary’ shares in 63 Buckley Street Pty Ltd and it was these 10 ‘ordinary’ shares (not Gangemi’s original ‘A-class’ share) which Lanciana purported to sell to Jafari by the agreement dated 4 February 2005. The one ‘A-class’ share held by Gangemi was not referred to at all in the agreement between Lanciana and Jafari dated 4 February 2005. Jafari did not assert that the ‘A-class’ share had been transferred to Lanciana and then to him.
·There was no documentation produced by Jafari or Lanciana at trial regarding the transfer of the 10 ‘ordinary’ shares to Jafari and no transfer was effected in accordance with the constitution of 63 Buckley Street Pty Ltd. Jafari would have been liable to pay stamp duty on the transfer. He did not do so.
·Although Jafari claimed to be the owner of 10 ordinary shares because he bought them from Lanciana, Jafari did not claim to have purchased Gangemi’s one ‘A-class’ share. As a copy of the blank transfer was in Jafari’s possession, Jafari could not have believed that Gangemi’s share was transferred to Lanciana. Jafari never registered the transfer. Jafari produced the transfer at trial. It was still incomplete and was unstamped. Further, the 10 ordinary shares were never issued by 63 Buckley Street Pty Ltd, never paid for by Lanciana or Jafari and never processed in accordance with the constitution of 63 Buckley Street Pty Ltd.
·The Judge’s findings that the purported dealings in the shares were undertaken ‘honestly’ by Lanciana are inconsistent with the finding that Lanciana had acted dishonestly by attempting to avoid stamp duty, a matter which he referred to the Attorney General for investigation.
·The Court held that it would validate the transfer under s 1322(4)(a) of the Corporations Act. However it is submitted the situation was not one involving ‘procedural irregularities’ as the learned Judge found. The share transfers simply did not take place. Lanciana did not register any transfer of Gangemi’s share. No shares were issued to Lanciana. Lanciana could not transfer non-existent shares to Jafari.
·Despite the illegality attached to the dealings the learned Judge made orders validating the purported transfers thereby perfecting the fraud on the revenue.
·Further, Lanciana was not appointed a director of 63 Buckley Street Pty Ltd. The execution of a letter of resignation by Gangemi could not amount to appointing Lanciana as a director as found by the Judge. Lanciana was disqualified from being involved in the management of a corporation or a director of by reason of his criminal convictions. Jafari could not have been appointed a director by Lanciana and Gangemi did not appoint Jafari as a director.
On appeal, it was submitted but, I thought, not strongly pressed by the appellants that Mr Gangemi’s resignation as a director of 63 Buckley Street Pty Ltd was ineffective. In any event I think that the judge’s reasons as to the validity of the notice of resignation were correct. The appellants concentrated their attack on the validity of the share transfer. The appellants said that, since the judgment appealed from, they had obtained access to the original share transfer (of which a copy only had been available at trial) and that they had expert evidence that suggested that the name of the company had not been on the share transfer when it was signed by Mr Gangemi.[139] Counsel for Mr Lanciana submitted that, in all the circumstances that had been found by the judge at trial, the signing of a completely blank transfer by Mr Gangemi in any event constituted authority to Mr Lanciana to complete the share transfer so as to create the transfer of Mr Gangemi’s one share in 63 Buckley Street Pty Ltd as intended by Mr Gangemi and as required by the Heads of Agreement. I think that submission is correct.
[139]It was common ground that the share transfer was otherwise blank when signed by him.
Counsel for Mr Lanciana also pointed out that the share transfer could not be entered in the share register of 63 Buckley Street Pty Ltd because Mr Gangemi had retained possession of the share register.
I think that, revenue matters aside, the failure to register what would otherwise have been a validly completed share transfer was a defect ‘essentially procedural in nature’ within the meaning of s 1322(6)(a)(i) of the Corporations Act. Alternatively, I think that the judge was entitled to conclude that it was ‘just and equitable’[140] to validate the share transfer, given the findings concerning the Heads of Agreement and the estoppel vis-à-vis Mr Jafari. For the same reason, the judge was entitled to be satisfied that ‘no substantial injustice’[141] had been caused to Mr Lanciana (or any other person).
[140]See s 1322(6)(a)(iii) of the Corporations Act.
[141]See s 1322(6)(c) of the Corporations Act.
It does not appear to me that the consequences and relevance of any failure by Mr Lanciana to pay duty on the share transfer pursuant to the Duties Act 2000 (Vic) were fully ventilated at trial and they were certainly not ventilated on appeal. Reference might have been made to ss 270 and 272 of the Duties Act and, in particular, s 272(1) which provides that an instrument that effects a dutiable transaction or is chargeable with duty is not available for use in law or in equity for any purpose unless it is duly stamped. Even on the assumption, however, that the judge either could not or should not have validated the share transfer, having regard to such considerations, I think that the estoppel found by the Court below against Mr Gangemi vis-à-vis Mr Jafari is sufficient to prevent Mr Gangemi from asserting any entitlement as a shareholder in 63 Buckley Street Pty Ltd and that the validation of the share transfer was therefore unnecessary.
I think that the other submissions on this topic on behalf of Mr Gangemi (and Bloomingdale) fall by the wayside because, Mr Gangemi, having resigned as a director and being estopped from contending that he is a shareholder in 63 Buckley Street Pty Ltd, had no standing or interest to challenge the subsequent transactions between Mr Lanciana and Mr Jafari.
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