Gillespie v Novara Furniture (Aust) Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7594 of 2005

COLIN GILLESPIE and KAREN GILLESPIE	Plaintiffs
v
NOVARA FURNITURE (AUST) PTY LTD (ACN 105 052 659) (IN LIQUIDATION) And Ors	Defendants

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JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATES OF HEARING:	13, 16-20, 23-24 November 2009
DATE OF JUDGMENT:	31 March 2010
CASE MAY BE CITED AS:	Gillespie v Novara Furniture (Aust) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2010] VSC 103

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CONTRACT – Loan agreements – Whether third defendant guarantor of first defendant’s obligations – Use of word “guarantor” in loan agreement sufficient to attract guarantor liability.

EQUITY – Specific performance – Plaintiffs paid third defendant for purchase of shares in second defendant under share-sale agreement – Shares held by fifth defendant on bare trust for third defendant – Third defendant refused to procure transfer of shares to plaintiffs and instead directed fifth defendant to transfer shares to sixth defendant – Breach of constructive trust by third defendant – Knowing assistance by sixth defendant – Specific performance – Ancillary relief including injunctions to ensure shares transferred – Shares worthless – Equitable compensation.

TRADE PRACTICES – Misrepresentations as to creditors – Misleading or deceptive conduct by first and third defendants – Contraventions of TPA and FTA – Induced plaintiffs to enter into share-sale agreement – Damages.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M J Colbran QC and Mr I W Upjohn	Mornington Legal
No appearance by or on behalf of the First and Fourth Defendants
For the Second, Third and Sixth Defendants	Dr J S Glover	A I F Lucas & Co
For the Fifth Defendant	Mr P H Solomon	Obst Legal

HIS HONOUR:

Introduction

Colin Brian Gillespie and Karen Elizabeth Gillespie (“the plaintiffs” or Mr and Mrs Gillespie where convenient) sue on two loan agreements (dated 27 May and 30 December 2004 respectively), and a further agreement (dated 1 March 2005) referred to in the pleadings as “the third loan agreement and sale of shares agreement”, but which I will simply call “the share-sale agreement”. In essence, the plaintiffs’ claim comprises two parts.

First, the plaintiffs allege that they loaned $200,000 to Novara Furniture (Aust) Pty Ltd (“the first defendant”), which conducted a business manufacturing timber furniture from a factory in Bayswater. That amount was advanced by Mr Gillespie as to $50,000 under the first loan agreement and $50,000 under the second loan agreement, and as to a further $100,000 by Mr and Mrs Gillespie under the share-sale agreement. The defendants did not dispute the advance of $200,000 to the first defendant under these three agreements. As to repayment, the plaintiffs allege that they were repaid a total of $40,000, leaving an unpaid balance of $160,000. The plaintiffs further allege that Robert William Ives (“the third defendant” or “Mr Ives” where convenient), as director of the first defendant, personally guaranteed the first defendant’s obligations under the first and second loan agreements.

Secondly, the plaintiffs seek specific performance of the share-sale agreement, under which they allege that in addition to the loan of $100,000 referred to above, they paid $300,000 to the first defendant (at the direction of Mr Ives) as the consideration for Mr Ives agreeing to transfer to the plaintiffs half of the issued shares in the first defendant and half of the issued shares in Caprice Investments Pty Ltd (“the second defendant”), the latter company at that time being the owner of the factory at which the first defendant conducted its furniture manufacturing business. At all times there were 100 issued shares in each company. The plaintiffs now seek a transfer to them of half of the shares in the second defendant. Alternatively, they seek equitable compensation of $334,250 for the diminution in value of the shares in the second defendant, which are now effectively worthless. By their pleadings, the defendants did not dispute that the plaintiffs advanced $300,000 to the first defendant under the share-sale agreement. However, they said that the $300,000 was in fact advanced as a further loan to the first defendant, and that the plaintiffs never paid Mr Ives for the shares.

Defendants

The first defendant was incorporated on 11 June 2003 by Mr Ives to operate the Novara furniture business, which Mr Ives had run for many years through a number of different corporate entities. Mr Ives was a director and secretary of the first defendant from its incorporation until 1 February 2008. Mr Gillespie was a director and secretary of the first defendant from 1 March 2005 to 1 April 2005. Apart from the period in which Mr Gillespie was also a director, Mr Ives was the sole director. The first defendant ceased trading in January 2006. It was insolvent, as it had been for some time. On 18 April 2006 an administrator was appointed to the company on the resolution of Mr Ives. On 15 May 2006, on the resolution of creditors, the first defendant went into liquidation and was ultimately deregistered on 1 August 2009. The plaintiffs do not pursue any relief against the first defendant.

The second defendant was incorporated on 25 February 2004 to be the registered proprietor of the property at which the furniture factory was located. Mr Ives was the sole director of the company from its incorporation until 14 March 2006, except for a period when Mr Gillespie was a director from 1 March 2005 until he was removed as a director at a meeting on 17 October 2005. According to the ASIC Company Extract provided by counsel for the plaintiffs, current to 25 February 2008, Mr Ives’ wife, Frances Ann Ives (“the sixth defendant” or “Mrs Ives” where convenient) has been the sole director of the second defendant since 14 March 2006. The 100 issued shares in the company were registered in the name of Robert Ian Wood (“the fifth defendant” or “Wood” where convenient) who was Mr Ives’ then solicitor. Wood held the shares on a bare trust for Mr Ives.

The third defendant is Mr Ives.

Novara Furniture Australia Pty Ltd (“the fourth defendant”) was joined to the proceeding pursuant to orders of Gillard J made on 17 July 2006. The company was incorporated on 21 November 2005 and Mr Ives was the sole director. Shortly after the first defendant ceased trading, the Novara furniture business was transferred to the fourth defendant. The fourth defendant ceased trading in December 2006 and was ultimately deregistered on 10 April 2009. The plaintiffs added the fourth defendant to the proceeding in the context of a plea that the first defendant had transferred its business to the fourth defendant for no consideration, or at an undervalue, and that accordingly the relevant transactions ought be set aside. However, that case was not pressed at trial and no relief is sought against the fourth defendant.

The fifth defendant, Wood, was joined to the proceeding in 2008 pursuant to the order of Byrne J. Wood was Mr Ives’ long-standing solicitor and legal advisor, and was solicitor on the record for the first, second and third defendants up until February 2006[1]. As mentioned, Wood held on a bare trust for Mr Ives the 100 issued shares in the second defendant, which were the subject of the share-sale agreement. On 20 November 2009, in the course of the trial, the plaintiffs and Wood reached a settlement. Accordingly, the claim against Wood is not pursued.
[1]The Notice of Change of Solicitor, dated 1 February 2006, was filed on 3 February 2006.

The sixth defendant, Mrs Ives, was also joined to the proceeding in 2008 pursuant to the order of Byrne J, in circumstances where the plaintiffs apprehended that Wood had transferred to Mrs Ives the shares he held on trust, and that Mrs Ives may be a necessary party in terms of ultimate relief.

History of the proceeding

In order to understand the case that was before me, it is necessary to say something about the history of the litigation.

The plaintiffs commenced the proceeding by writ indorsed with a statement of claim filed on 9 August 2005. The only defendants at that stage were the first, second and third defendants. The relief sought against Mr Ives included an order that he transfer one half of his shares in the second defendant to the plaintiffs. The defences filed contained many bare denials and non-admissions. Relevantly, Mr Ives admitted that he had not transferred the shares to the plaintiffs “but says no monies have been received by him from the plaintiffs”. There was no mention in the defences that the shares in the second defendant were held on trust. In this regard, it is to be noted that Wood was acting for the defendants at this time. Wood ceased acting for the defendants on 3 February 2006 at which time Kalus Kenny commenced to act.

In the meantime, the plaintiffs and their lawyers were seeking to preserve the value of the shares in the second defendant to which they claimed to be entitled, by preserving the equity in the factory. This they sought to do by preventing the defendants from further encumbering the factory, which was already mortgaged. In an affidavit sworn on 17 February 2006, the plaintiffs’ then solicitor, John Charles Hall, deposed that in the context of the plaintiffs’ solicitors threatening to seek an injunction to “preserve the status quo”, Wood “gave a personal undertaking that as the registered shareholder of the shares in the second defendant … he would not deal with the said shares”. A series of undertakings were signed by counsel then acting for the defendants, the last one dated 2 December 2005.

On 15 February 2006, the second defendant filed a summons seeking an order that the last undertaking be discharged so as to enable the factory to be used as security for the obtaining of further loan of funds necessary to keep the first defendant’s furniture business operating. The summons came on before me in the Practice Court. After argument, on 21 February 2006 I restrained the defendants from further encumbering the factory (which was already encumbered by a first mortgage to Gerder Nominees in the sum of $587,300), save however for permitting the refinancing of the factory by way of the second defendant drawing upon a loan advance of $661,500 from Challenger Financial Services Group to discharge the mortgage to Gerder Nominees and that after deduction of proper costs and expenses of and incidental to the loan advance, and payment to the plaintiffs of $10,000 in reduction of the loans referred to in the statement of claim, the balance was to be applied to the first defendant to be used by it in the ordinary course of its business. It is to be noted that my orders were made on the understanding that the first defendant was a going concern, as distinct from being insolvent and having ceased trading. As to that, in an affidavit sworn on 9 February 2006, Mr Ives had deposed that “Novara is in the position where it now needs funds to finance its day-to-day operating costs”[2]. That statement by Mr Ives was grossly misleading. As I refer to the 9 February 2006 affidavit below on numerous occasions, it is convenient to explain at the outset that the affidavit was sworn and filed in proceeding 4567 of 2006, in which Caprice Investments Pty Ltd sought to remove a caveat lodged by the Gillespies over the title to the factory. The 9 February affidavit was also relied on in the present proceeding.
[2]

On 7 March 2006 the plaintiffs filed an amended statement of claim, which did not plead that the shares in the second defendant were held on trust.

On 24 March 2006 the plaintiffs filed a further amended statement of claim which for the first time pleaded the trust arrangement concerning the shares in the second defendant. It was alleged (at para 3) that Mr Ives was entitled in equity to be registered as the sole shareholder of all the shares in the second defendant, as he was the sole beneficiary of a bare trust for the 100 shares of which Wood was the trustee. It seems that there was further discussion regarding proposed amendments, and requests for particulars, and in the end the defendants did not file amended defences to the further amended statement of claim. However, after the plaintiffs filed their “statement of claim for amended writ” dated 17 July 2006, which repeated the allegation in para 3, Mr Ives filed on 1 August 2007 a defence which relevantly admitted the allegation in para 3, namely that he was the sole beneficiary of a bare trust for the 100 shares of which Wood was the trustee.

On 15 November 2006, the Listing Master fixed the proceeding for trial on 27 August 2007 on an estimate of four to five days.

On 27 July 2007 the defendants filed a summons seeking a discharge or variation of the injunction to enable the second defendant to borrow $95,000 against the factory, including $65,000 for the costs of the upcoming trial, $10,000 to refinance the second defendant’s loan, and $20,000 for the costs of the application to the court. The summons also sought an adjournment of the trial fixture. The summons came on in the Practice Court where, on 1 August 2007, Hollingworth J made orders varying the injunction, in substance, to permit the second defendant to borrow an additional $95,000 against the factory to pay legal costs and to refinance the property, the second defendant giving an undertaking to pay the net proceeds of the loan to Kalus Kenny to be held on trust by them and applied only for the purposes referred to in the orders.

On 15 August 2007 Senior Master Mahony vacated the trial date on the basis that the defendants would be unable to fund the costs of the trial as they had not been able to raise in time the loans referred to in the orders of 1 August.

On 28 September 2007, the Listing Master refixed the proceeding for trial on 14 April 2008 on an estimate of seven days.

On 8 April 2008 a further summons by the defendants came before me in the Practice Court and I made orders by consent varying the terms of the injunction to permit the second defendant to grant to Kalus Kenny a mortgage in registrable form over the factory to secure payment of up to $70,000 for legal fees, and to permit the second defendant to borrow $70,000 to be secured against the factory for the express purpose of discharging the mortgage referred to above.

The proceeding came on for trial before Byrne J on 16 April 2008. Counsel gave brief openings of their respective cases on that day, interspersed with discussion as to pleading amendments by both sides. The following day, 17 April, counsel for the defendants (who was not counsel at the trial before me) indicated that Mr Ives wished to amend his defence so as to withdraw the admission in para 3 that he was the sole beneficiary of the shares held by Wood on a bare trust. Counsel for the plaintiffs opposed the amendment, submitting in effect that Mr Ives’ assertion (that Wood held the shares on some form of discretionary trust) fundamentally changed the nature of the case, and was based on unexecuted declarations of trust which had not been provided in discovery by the defendants. He also referred to the affidavit of 9 February 2006 in which Mr Ives had deposed that Wood held the shares on trust for him, with no mention of any discretionary trust. Counsel for the defendants responded by pointing to a supplementary affidavit of documents sworn by Mr Ives on 31 January 2008 which mentioned undated terms of settlement of a proceeding in the Magistrates’ Court (where Wood had sued Mr Ives for unpaid fees) which referred to Wood transferring the shares to Mrs Ives. Byrne J indicated that he would stand over the defendants’ application to 22 April 2008, in effect to allow the defendants to investigate further the factual basis on which they wished to assert that Wood was not a bare trustee for Mr Ives. His Honour made directions for the filing of material in support of the application.

To that end, Michael Jonathan Kenny of Kalus Kenny swore an affidavit on 18 April 2008 which exhibited an unexecuted declaration of trust dated 1 August 2005 (which relevantly states that Mr Ives is the specified beneficiary and Mrs Ives and her children are the residual beneficiaries of the trust of the shares in the second defendant held by Wood), and a share transfer form dated 10 August 2006 signed by Wood and Mrs Ives which specified the consideration as “Nil – Transfer to Beneficial Owner”. Kenny deposed that he first became aware of these documents on 24 March 2008 when he was preparing the defendants’ court book, and he had incorrectly assumed that the defendants had already discovered these documents to the plaintiffs. He did not know why they were not discovered. In para 9, Kenny deposed that on 2 April 2008 Mr Ives told him that “it was always the case from the outset that the shares held by Mr Wood in the second defendant were held on the basis as set out [in the unexecuted declaration of trust dated 1 August 2005]” but that Mr Ives could not recall whether the declaration of trust had been signed, and if it had been, he (Ives) did not have the original or a signed copy in his possession. In para 10, Kenny deposed that Wood had informed him (Kenny) by telephone that: (a) Wood completed the declaration of trust on about 1 September 2005; (b) Wood recalled signing the declaration of trust and handing it to Mr Ives, (c) Wood was unable to say what happened to the signed document, (d) Wood held the shares in the second defendant from the outset on the trusts provided in the written document, and (e) Wood would give sworn evidence to that effect at the trial. Kenny concluded by deposing, in effect, that if he had been aware of these matters, he would not have maintained the admission in para 3 of the defence.

Mr Ives swore an affidavit on 18 April 2008 referring to Kenny’s affidavit “and in particular paragraph 9. The matters deposed to by Mr Kenny in that affidavit and that paragraph are true”.

On 22 April 2008, the trial resumed before Byrne J and counsel for the plaintiffs indicated that he intended to make an application to join Wood as a defendant, in essence because the recently discovered terms of settlement indicated that Wood may have transferred shares to Mrs Ives, and given Mr Ives’ financial position and the potential difficulty in being able to enforce any judgment against him, “we are going to be searching for a solvent defendant, and for an opportunity to recover”. Shortly thereafter, counsel indicated that on the basis of the affidavits sworn by Kenny and Mr Ives, he did not oppose the defendants’ application to withdraw the admission. Counsel for the defendants, however, opposed the plaintiffs’ counsel’s oral application to join Wood. Much discussion ensued and ultimately his Honour adjourned the case to the following day to enable the plaintiffs to file material in support of their application to join Wood.

On 23 April 2008, counsel for the plaintiffs provided a draft amendment, which proposed the joinder of both Wood and Mrs Ives. Counsel referred to a letter from Wood which attached a statutory declaration in which Wood stated that he held the shares for Mr and Mrs Ives on a bare trust. Counsel submitted that the difficulty now was that there were three different versions of the facts given by Wood. First, the version in the original pleading, which Wood himself had prepared as solicitor on the record, namely that he held the shares on a bare trust for Mr Ives. Secondly, the version given by Wood as deposed to by Kenny, to the effect that Wood from the outset held the shares on the terms indicated in the written declaration of trust, notwithstanding that the declaration of trust was prepared much later than the time the trust was established. Thirdly, the position stated in the statutory declaration referred to above. Counsel sought further time to refine his proposed amendments in light of the different possibilities as to the nature of the trust in respect of the shares. Counsel for the defendants neither consented to nor opposed the joinder application, but nevertheless expressed reservations about it. Counsel for Wood (not the same counsel who appeared at the trial before me) opposed the joinder, and a lengthy discussion ensued. His Honour ultimately terminated the trial, gave the plaintiffs leave to join Wood and Mrs Ives as the fifth and sixth defendants respectively, directed amended pleadings, referred the case to mediation and reserved the costs of the terminated trial and the costs relating to the pleading amendments.

On 30 May 2008 the plaintiffs filed a third amended statement of claim, which relevantly pleaded, in paras 3 and 3A respectively, that Wood held the shares on a bare trust for Mr Ives, alternatively on a bare trust for both Mr and Mrs Ives.

By his defence filed 17 June 2008, in response to the above plea, Mr Ives alleged in para 5 that he was a beneficiary of a trust created on 25 February 2004 in respect of the shares in the second defendant which were held on trust by Wood for the beneficiaries referred to in the document prepared by Wood on or about 1 September 2005, which document evidenced the terms upon which Wood held the shares from the outset. Particulars alleged that the trust was partly oral (constituted by discussions between Wood and Mr Ives to the effect alleged) and partly in writing. Mr Ives then alleged in para 6 that by a share transfer dated 10 August 2006, the trustee, at the direction of Mr Ives, transferred absolutely the shares held on trust by him to Mrs Ives, who at all relevant times was one of the beneficiaries of the trust.

Thereafter, there were further disputes about discovery and inspection of documents which led to the parties and their lawyers appearing many times before associate judges. It is not necessary to refer to these hearings, save to note that they reflect the level of disputation and lack of cooperation between the parties.

On 25 March 2009, Kalus Kenny ceased acting for the second, third and sixth defendants.

On 30 April 2009 A I F Lucas & Co commenced acting for the second, third and sixth defendants. A mediation held on that day did not result in a settlement.

On 15 May 2009, the Listing Master fixed the case for trial on 11 November 2009 on an estimate of seven to nine days.

On 12 August 2009, the second defendant’s factory was sold at a mortgagee’s auction for $1,000,000. After payment of sale expenses and moneys secured under a first and second mortgage, the balance of sale proceeds was a mere $26,435.90, which was paid into court on 5 November 2009. Kalus Kenny informed my Associate before the trial that they asserted a claim to the funds in court, and that the firm wished to be heard before any orders were made as to payment of the funds. Kalus Kenny later filed a summons and originating motion on 3 December 2009 claiming an entitlement to the money in court, together with accrued interest, in respect of unpaid fees allegedly incurred from January 2006 to March 2009 which, they claim, are secured by an equitable mortgage granted by the second defendant on 9 April 2008.

Finally, on 11 November 2009 Mr Ives and the second defendant commenced a proceeding by writ seeking damages against Mr and Mrs Gillespie under their undertaking as to damages provided to the court when I granted the injunction on 21 February 2006. The pleading alleges that: the market value of the factory in 2007 was $1,350,000; the injunction prevented the second defendant from selling the factory in 2007; the mortgagee sold the property for $1,000,000 at an auction on 12 August 2009; the second defendant lost the chance of selling the factory for $1,350,000 in 2007 when it was prevented from selling by the injunction; Mr Ives and the second defendant suffered the loss of a chance equal to $350,000 being the difference between the value in 2007 and the price for which the property was actually sold. It became apparent during discussion that this proceeding was an attempt to call up the Gillespies’ undertaking as to damages. As such, the proceeding was both inappropriate and premature. It was inappropriate because such an application should be brought in the proceeding in which the undertaking is given. It was premature because such an application depends upon the result in that proceeding. The question is whether the plaintiff has failed to establish the right in the protection of which the injunction was granted. After discussion, at the request of the Gillespies’ counsel, I extended the date for filing an appearance to 21 days after delivery of judgment in the present proceeding.

Pleadings and key documents

I now turn to the pleadings as they stood at trial. In this regard, I note that amendments were made to the pleadings during the trial, and counsel abandoned reliance on particular paragraphs during final addresses. Unless stated otherwise, what follows is a summary of the relevant parts of the pleadings in their final form, and as ultimately relied on by counsel in final addresses. In this section I include some reference to how counsel put their cases in final address.

Statement of Claim

The plaintiffs filed a Fourth Amended Statement of Claim on 19 November 2009 (“the statement of claim”). Unless stated otherwise, paragraph references in this section refer to the statement of claim.

Starting with the first two loan agreements, the statement of claim pleaded that:

(a)on 1 June 2004 Mr Gillespie advanced $50,000 to the first defendant pursuant to the “first loan agreement” made on or about 27 May 2004; and
(b)Mr Gillespie advanced a further $50,000 to the first defendant, between 30 December 2004 and 1 February 2005, pursuant to the “second loan agreement” made on or about 30 December 2004.

Each loan agreement is alleged to be oral and in writing. Insofar as oral, each was constituted by conversations at the factory between Mr Gillespie and Mr Ives, the latter acting on behalf of the first defendant and on his own behalf (as guarantor). Insofar as in writing, they were contained in a document entitled “Minutes of Loan Agreement” dated 27 May 2004 (the first loan) and a document entitled “Minutes of Loan Agreement” dated 30 December 2004 (the second loan).

The first loan agreement reads as follows:

MINUTES OF LOAN AGREEMENT

  Dated the: 27^TH May 2004
  Between:
MR ROBERT IVES AND NOVARA FURNITURE (AUST) PTY LTD
Of FACTORY 1, 9-13 JERSEY ROAD, BAYSWATER VIC   And
           MR Colin Gillespie of 54 Dorset Road, Mt Martha 3934 VIC

PRESENT:
Robert Ives

Colin Gillespie

It is hereby declared that Robert Ives from Novara Furniture (Aust) Pty Ltd ‘Borrower’ and ‘guarantor’ accepted the borrowed funds of $50,000.00 from Colin Gillespie ‘Lender’.

The purpose of these funds is to supplement the working Capital of the Company.

It is the intention of Novara Furniture (Aust) Pty Ltd to have a sale of Novara Furniture Later [sic] this year prior or after the conclusion of the Perth Homeshow in October 2004, from this sale, payment of monies owing at this time to be paid to Colin Gillespie.

The total liability to the ‘lender’ will be $50,000.00, principal with an interest factor of 12% for the period of the loan, principal & interest to be paid within a reasonable time after using these funds.

SIGNED:

………………………………………. ………………………………………….

ROBERT IVES COLIN GILLESPIE

WITNESS ……………………………

The document was signed by Mr Ives and Mr Gillespie, and signed by Mrs Gillespie as a witness.

The second loan agreement was in the same terms except that it was dated 30 December 2004 and the third paragraph provided that “It is the intention of Novara Furniture (Aust) Pty Ltd to have a sale of Novara Furniture May 2005, from this sale, payment of monies owing at this time to be paid to Colin Gillespie.”

It was then alleged that Mr Ives agreed to guarantee each loan agreement, the guarantees being given in the conversations at the factory referred to above and the respective “Minutes of Loan Agreement”. Then it was alleged that the loans, together with interest of 12% for the period of the loans, would be repaid within a reasonable time of the conclusion of the Perth Home Show in October 2004 (in the case of the first loan), and within a reasonable time of the conclusion of a sale of Novara furniture in May 2005 (in the case of the second loan). The plaintiffs alleged that in late February or early March 2005 they made an oral agreement with Mr Ives that the first loan would be repaid by the first defendant in ten $5000 instalments payable at the end of each month beginning in April 2005 (“the first loan repayment agreement”). They received six $5000 instalments (from April to September 2005 inclusive) and a further sum of $10,000 pursuant to my orders in the Practice Court on 21 February 2006. I interpolate that counsel for the plaintiffs said in closing address that the plaintiffs accepted that they had been repaid $40,000 in total. As to the balance of the loan moneys, it was alleged that the first defendant as borrower, and Mr Ives as guarantor, had failed to repay such monies and had thereby breached the first and second loan agreements, and the first loan repayment agreement.

The statement of claim then pleaded the share-sale agreement by which the plaintiffs:

(a)agreed to lend the first defendant a further sum of $100,000; and
(b)agreed to purchase from Mr Ives 50 shares in each of the first and second defendants for $300,000.

The particulars to this plea stated that the agreement was partly oral, partly in writing and partly implied. Insofar as oral, it was comprised of conversations between the plaintiffs and Mr Ives at the factory on or about 24 February 2005 to the effect that the plaintiffs agreed with Mr Ives to lend a further $100,000 to the first defendant and to purchase Mr Ives’ shares in the first and second defendants for $300,000. The additional $100,000 loan was repayable on demand and was conditional upon the plaintiffs becoming equal shareholders in the first and second defendants. Mr Ives agreed that he would invest the $300,000 in the first defendant, and directed the plaintiffs to pay the $300,000 directly to the first defendant, to be credited to his loan account with the first defendant. The parties agreed that the plaintiffs were to receive 50% of the shares in each of the first and second defendants and that Mr Gillespie would become a director and secretary of both companies. Insofar as the share-sale agreement was in writing, it was contained in an email from Mr Ives to Mr Gillespie dated 27 February 2005 and a document entitled “Letter of Intention” dated 1 March 2005. The email of 27 February is long and covers a range of matters, which are not necessary to set out here. The letter of intention reads as follows:
1^st March 2005
LETTER OF INTENTION
Colin and Karen Gillespie of 54 Dorset Road, Mount Martha, VIC 3934 are to purchase 50% of Novara Furniture (Aust) Pty Ltd and Caprice Investments Pty Ltd from Robert Ives for the amount of $300,000.00 (THREE HUNDRED THOUSAND DOLLARS) to be paid as follows:
$100,000.00 by bank cheque 1^st March 2005
$200,000.00 by bank cheque 8^th April 2005
Colin and Karen Gillespie will also loan to Novara Furniture (Aust) Pty Ltd the amount of $200,000.00 (TWO HUNDRED THOUSAND DOLLARS)[3] to be used for cash flow, this amount has already been deposited into Novara Furniture (Aust) Pty Ltd’s banking account.
[3]It was common ground that this figure of $200,000 referred to the $100,000 already loaned under the first two loan agreements, plus an additional $100,000 to be loaned under the share-sale agreement.
……………………………..                  ……………………………..
SIGNED  SIGNED
COLIN GILLESPIE  KAREN GILLESPIE
……………………………..                  ……………………………..
SIGNED  SIGNED
ROBERT IVES  FRANCES IVES
……………………………..  ……………………………..
WITNESSED  WITNESSED
MARK VAN DER ROSS              PETER AMINDE
Novara Furniture (Aust) Pty Ltd
ABN 79 105 052 659.

The document was signed by Mr and Mrs Gillespie, Mr and Mrs Ives, and witnessed by Peter Aminde. Mark Van Der Ross signed the document later, purportedly as a witness, but he did not actually witness the others sign it.

The statement of claim alleged that, to the extent that the share-sale agreement was implied, it arose from the conduct of the parties, including (a) the payment of $100,000 by the plaintiffs to Mrs Ives by way of Commonwealth Bank cheque number 137790 made out, at the direction of Mr Ives, to the first defendant and deposited by Mrs Ives in the first defendant’s Westpac bank account; and (b) the appointment of Mr Gillespie as director and secretary of the first and second defendants.

It was then alleged that pursuant to the share-sale agreement, the plaintiffs advanced to the first defendant “the further sum of $100,000” and paid the sum of $300,000 in respect of the purchase of shares. The payment of these sums was particularised as follows:

As to the further sum of $100,000:
24 February 2005 - $5,000
25 February 2005 - $10,000
26 February 2005 - $20,000
27 February 2005 - $20,000
28 February 2005 - $20,000

As to the $300,000 purchase price of the shares:
28 February 2005 - $100,000
1 March 2005 - $5,000
1 March 2005 - $15,000
8 March 2005 - $5,000
7 April 2005 - $200,000

It is to be noted that the payments said to make up the further sum of $100,000 actually add up to $75,000, while the payments said to make up the $300,000 purchase price of the shares actually add up to $325,000. Nevertheless, the total amount of the payments is $400,000. I refer below to the detail of the making of the payments.

Breach of the share-sale agreement was then pleaded as follows. As to the further $100,000 loan, it was repayable on demand, and despite an oral demand on 18 May 2005 for repayment of it and the two earlier loans, the first defendant failed to repay the loan. As to the share purchase, Mr Ives had failed, neglected and refused to transfer to the plaintiffs 50 shares in each of the first and second defendants, the refusal being oral and made in discussions at the factory on 18 May 2005.

The next relevant plea also relates to the shares in the second defendant. The plaintiffs alleged that Wood held the 100 issued shares in the second defendant on a bare trust for Mr Ives, alternatively for both Mr and Mrs Ives. Next, it was alleged, in essence, that by reason of Mr Ives’ (alternatively both Mr and Mrs Ives’) entry into the share-sale agreement, Mr Ives (alternatively both Mr and Mrs Ives’) thereafter held on trust for the plaintiffs their rights in respect of the shares, including the right to direct Wood as bare trustee as to how to dispose of or transfer the shares[4]. The trust arose in equity as a result of the share-sale agreement.
[4]Paras 23A and 23B.

Then it was alleged that Wood, among other things, transferred all the shares in the second defendant to Mrs Ives on about 10 August 2006, pursuant to the terms of settlement of a Magistrates’ Court proceeding between Wood on the one hand and Mr Ives and the second defendant[5] on the other[6]. I refer to this matter in some detail below, but for present purposes it is convenient to briefly describe the Magistrates’ Court proceeding. Wood had sued Mr Ives and the second defendant to recover some $30,000 in unpaid fees, and the proceeding was settled at the Ringwood Magistrates’ Court on 10 August 2006, as to which the terms of settlement, contained in the Plaintiff’s Supplementary Court Book, relevantly provided that Mr Ives was to pay $20,000 to Wood, and that Wood was to release all files relating to the present proceeding (in the Supreme Court), and transfer to Mrs Ives all shares he held in the second defendant. In essence, the plaintiffs alleged that Mr Ives’ direction to Wood to transfer the shares, contained in the terms of settlement, was made by Mr Ives dishonestly in breach of the fiduciary duties he owed to the plaintiffs (by reason of his entry into the share-sale agreement).
[5]As to which Mrs Ives signed the terms of settlement as director of the second defendant.
[6]Paras 23F and 23G.

As against Mrs Ives, it was alleged that her receipt of the shares from Wood was a “knowing receipt of property transferred in breach of trust”[7]. Particulars to this plea stated that the plaintiffs relied, in essence, on the following matters: (a) Wood held the shares on a bare trust for both Mr and Mrs Ives, and that by reason of Mr and Mrs Ives’ entry into the share-sale agreement, Mr and Mrs Ives held on trust for the plaintiffs their rights in relation to the shares, including the right to direct Wood as to how to transfer the shares; and (b) the direction given by Mr Ives to Wood to transfer all the shares to Mrs Ives.
[7]Para 23L.

I interpolate that Wood was present in court during the trial before me but gave no evidence. On the morning of the sixth day of the trial, his counsel announced that Wood admitted the plaintiffs’ plea that Wood (a) voted to remove Mr Gillespie as a director of the second defendant[8], and (b) transferred the shares he (Wood) held in the second defendant to Mrs Ives[9], and admitted that those actions were “a knowing assistance by the fifth defendant in the third defendant’s breach of trust (as alleged in paragraph 23A above) or dishonest breach of fiduciary duty to the plaintiffs”[10]. Upon resuming after lunch that day, counsel announced that Wood had settled with the plaintiffs, and sought consent orders dismissing the proceeding against him, which orders were duly made. Wood’s admissions, however, do not bind the other defendants, whose counsel submitted that the purported transfer to Mrs Ives was ineffective and that Wood still holds the shares in the second defendant. I refer to this matter below.
[8]Paras 23F(b) and 23J(b).
[9]Para 23F(c).
[10]Para 23J(b).

The statement of claim pleaded further causes of action as follows.

First, it was alleged that certain acts were done by Mr Ives, Mrs Ives and Wood in contravention of s 7 of the Fair Trading Act 1999 (“FTA”)[11]. Section 7(1) provides that a person must not, in trade or commerce, engage in conduct which is unconscionable within the meaning of the unwritten law. In essence, the acts and facts relied on are:
[11]Para 23M.

(a)the transfer of shares to Mrs Ives was made by Wood pursuant to the terms of settlement entered into by Mr Ives, the second defendant and Wood, and at the direction therein of Mr Ives.
(b)the direction by Mr Ives was made dishonestly in breach of the fiduciary duties he owed the plaintiffs by reason of his entry into the share-sale agreement; this is the plea referred to at [45] above.
(c)Wood’s actions in voting to remove Mr Gillespie as a director and transferring the shares constituted a breach of the trust arising out of the share-sale agreement and the plaintiffs’ payment of the purchase price, or was a knowing assistance in Mr Ives’ breach of trust or dishonest breach of fiduciary duty to the plaintiffs.
(d)Mrs Ives’ receipt of the shares was a knowing receipt of property transferred in breach of trust.

The plaintiffs suffered loss and damage by reason of such contravention, particularised as their entry into the share-sale agreement and advance of $100,000 thereunder and purchase of shares for $300,000. Alternatively, the plaintiffs had lost their opportunity to become registered owners of 50 percent of the shares in the first and second defendants by the aforesaid unconscionable conduct. The plaintiffs would otherwise have been able to procure the appropriate direction from the beneficiaries of the relevant trust, contact the fifth defendant and secure a transfer from him of the shares, which they then could have submitted to the first and second defendant for registration[12].

[12]Para 23N.

Secondly, it was alleged that the plaintiffs were induced to enter into the share-sale agreement by a false representation (made by Mr Ives and the first defendant) that “the creditors of the first defendant were set out in a file of creditors and totalled approximately $150,000”[13]. It is convenient to refer to this as the plea of misrepresentation as to creditors. In particulars it is stated that the creditors’ file did not include the following three creditors: (a) Australian Furniture Supplies Pty Ltd (approximately $160,000); (b) the Rone[14] Superfund (approximately $35,000); and (c) the Ives First Super Fund (approximately $25,000). It is alleged that the conduct (being the false representation) constituted a contravention by the first defendant of s 52 of the Trade Practices Act 1974 (“TPA”) and a contravention by Mr Ives of s 9 of the FTA respectively. As I have mentioned, the claim against the first defendant is not pursued, but against Mr Ives it is also alleged that he was knowingly concerned in the first defendant’s contraventions of the TPA for the purpose of s 75B of the TPA. The plaintiffs’ loss and damage suffered by reason of these statutory contraventions was particularised as the advance of $100,000 and the payment of $300,000 for shares under the share-sale agreement.
[13]Para 24. This claim is pleaded at paras 24 to 32.
[14]Roger Neil.

For the purpose of clarity it remains to mention two causes of action that were abandoned. They are the pleas of misrepresentation in paras 44 to 49 and 57 to 62. These pleas are premised on the shares in the second defendant having been held on a bare trust for Mr and Mrs Ives, or on a discretionary trust; see paras 47 and 60. In view of the disavowal by the second, third and sixth defendants of any such trust, and my finding that there was no such trust, these alternative causes of action fall away and require no consideration.

The prayer for relief was lengthy and need not be set out here. It was supplemented by a document entitled “Relief sought by the plaintiffs”, provided by counsel during closing addresses, which stated the following:

THE PLAINTIFFS CLAIM AGAINST THE FIRST DEFENDANT
A.Not pursued, first defendant was deregistered on 1 August 2009.

THE PLAINTIFFS CLAIM AGAINST THE SECOND DEFENDANT
A.An order for registration by the second defendant of 50 shares in their joint names.

B. Costs.
THE PLAINTIFFS CLAIM AGAINST THE THIRD DEFENDANT
A.Specific performance of the sale of shares agreement requiring the third defendant to transfer 50 Caprice shares to the plaintiffs.
B.Equitable compensation for diminution in the value of such shares, from $334,250 in July 2007 to nil in October 2009, including equitable interest from July 2007[15].
[15]A basis for calculating equitable compensation was stated, and I refer to it below.
C.Damages in respect of the first loan, second loan and third loan under the Trade Practices Act, the Fair Trading Act and/or at common law, totalling $160,000 as at the date of issue of the Writ.
D.In the partial alternative to paragraph C repayment as guarantor of the moneys owing under the first loan agreement and the second loan agreement.
E.Interest pursuant to statute on such damages or debt since 8 August 2005, being the date of issue of the Writ[16].
[16]Interest calculations were provided, but need not be set out here.

F. Costs.
THE PLAINTIFFS CLAIM AGAINST THE FOURTH DEFENDANT
A. Not pursued, fourth defendant deregistered on 10 April 2009.
THE PLAINTIFFS CLAIM AGAINST THE FIFTH DEFENDANT
A.Not pursued, proceeding settled 20 November 2009 as against fifth defendant.

THE PLAINTIFFS CLAIM AGAINST THE SIXTH DEFENDANT
A.An order requiring the sixth defendant to transfer 50 Caprice shares to the third defendant in order to enable him to specifically perform the sale of shares agreement.
B.Alternatively, an order requiring the sixth defendant to transfer such shares directly to the plaintiffs.
C.Equitable compensation, including interest, for diminution in the value of such shares[17].

D. Costs.

[17]Equivalent in amount to the equitable compensation sought against the third defendant.

The above is a sufficient statement of the scope of the relief sought for present purposes, save to note one matter. In the relief sought against the third defendant, Para C has conflated two different aspects of the claim. First, there is the claim for $60,000 as the balance owing under the first and second loan agreements, alleged to be payable by Mr Ives as guarantor of the first defendant. The plaintiffs do not base that claim on the TPA/FTA. Secondly, there are the plaintiffs’ two causes of action pleaded under the TPA/FTA (see [50]-[51] above), which have nothing to do with the first and second loan agreements, and are indeed limited to entry into the share-sale agreement. It was consistent with that pleaded case that the plaintiffs led no evidence that Mr Gillespie’s entry into the first and second loan agreements was induced by the matters pleaded in support of the TPA/FTA claims. And in closing address, counsel for the plaintiffs said that the plaintiffs “seek a judgment in respect of the further loan of $100,000 against him [Mr Ives] based on the misrepresentations that we have pleaded”[18]. That is, $100,000 in damages was sought against the third defendant under the TPA/FTA. That represented the advance of $100,000 under the share-sale agreement. This reflected the fact that the plaintiffs did not seek $300,000 in damages, as that would have been inconsistent with their claim for specific performance.
[18]T 588.

Defences

The second, third, fifth and sixth defendants filed amended defences during the trial, to formalise their respective positions in response to the plaintiffs’ pleading amendments.

It is not necessary to refer to the fifth defendant’s defence.

The defences of the second, third and sixth defendants contain many bare denials which it is neither necessary nor practical to set out. Starting with Mr Ives, the relevant positive pleas are as follows. I include in what follows reference to how counsel put the case in final address.

Mr Ives

The alleged guarantees of the first and second loan agreements were denied. Further or alternatively, the loan agreements, properly construed, do not include an assumption of liability as guarantor, the word “guarantor” in the expression “Borrower and guarantor” being grammatically a description of the first defendant and not Mr Ives. Furthermore, s 126 of the Instruments Act 1958 renders a guarantee unenforceable unless in writing signed by the person to be charged. Hence, even if Mr Ives had undertaken to guarantee repayment of the loans, the mere use of the word “guarantor” in the loan agreements was insufficient to carry the undertaking of obligations as guarantor. That is, as counsel submitted in final address, the evidence did not establish, and the parties never intended, that Mr Ives would guarantee the obligations of the first defendant.

As to the first loan agreement, the first defendant had discharged its indebtedness in full, the particulars to this plea setting out a list of payments totalling $62,059.02. During the trial, counsel for the defendants stated that the correct figure was $52,059.

As to the second loan agreement, Mr Ives denied the allegation that the first defendant (as borrower) and Mr Ives (as guarantor) had failed to repay money advanced under the agreement. No particulars were given of repayments.

As to the amounts paid by the plaintiffs under the share-sale agreement, Mr Ives admitted that the plaintiffs “advanced the sum of $200,000 to the first defendant” and “says further that the plaintiffs advanced the sum of $300,000 to the first defendant and have at all relevant times accepted and confirmed that the aggregate of the loan funds advanced by them to the first defendant was $500,000”. Particulars to this plea stated that Mr Ives relies upon the Proof of Debt[19] and the email from the plaintiffs to “Novara” dated 23 June 2005. I interpolate that the Proof of Debt was filled out by the plaintiffs for the purpose of attending the meeting of creditors of the first defendant. It relevantly states that as at April 2006 the first defendant was indebted to the plaintiffs in the amount of $500,000. The email of 23 June refers to the “loan account”, and the balance being $490,000.
[19]Defendant’s Court Book at 3.

Mr Ives also pleaded that “the plaintiffs did not pay the said sum of $300,000 or any part thereof to the third defendant and repudiated the agreement”[20]. He further alleged that he accepted the plaintiffs’ repudiation[21]. Particulars to this plea stated that his acceptance of the repudiation “appears inter alia from the filing and delivery of the third defendant’s further amended defence dated 3 June 2009”. It is to be noted that these pleas were replicated in the second defendant’s defence (at paras 31 and 32) whereas in her defence Mrs Ives pleaded to the contrary; I refer to this contradiction at [66] below.
[20]Para 53.
[21]Para 53A.

As to the plaintiffs’ allegation that, by reason of Mr Ives’ entry into the share-sale agreement, he held his rights in relation to the shares on trust for the plaintiffs, Mr Ives denied the allegation and pleaded that the alleged trust was unenforceable pursuant to s 53(1)(c) of the Property Law Act 1958.

As to the plea of misrepresentation as to creditors, Mr Ives denied the allegations and alleged that “the plaintiffs were at all relevant times well aware of the true financial position of the first defendant prior to entering into the letter of intention”. Further, even if the pleaded representation was made, the plaintiffs did not rely upon it as a precondition to advancing the sum of $100,000 or entering into the letter of intention.

As to the allegation (in para 23F of the statement of claim) that Wood transferred to Mrs Ives the shares in the second defendant, Mr Ives’ defence (at para 41) “refers to and repeats the matters set out in paragraphs 5 and 6 hereof and otherwise does not plead to paragraph 23F as it contains no material allegation against him”. It is to be noted that paras 5 and 6 (see [Error! Reference source not found.] above) were abandoned by counsel in final address (which abandonment is reflected in the final version of the pleading filed which struck a line through these paragraphs). In effect, Mr Ives’ ultimate position in the pleading was that he denied that Wood had transferred the shares to Mrs Ives, and he no longer alleged that Mrs Ives was a beneficiary of the trust. This was finally the common position of the second, third and sixth defendants in final address, where their counsel stated that Wood “held and still holds the shares for the third defendant only. There has never been a valid transfer of any part of the beneficial interest in the shares to any other party”. In particular, in relation to the purported disposition to Mrs Ives, the requirements of s 53(1)(c) of the Property Law Act 1958 had not been satisfied. Hence, the unregistered instrument of transfer alone was ineffective to assign the beneficial interest in the shares.

Mrs Ives

Mrs Ives’ amended defence alleged that if the parties entered into the share-sale agreement as alleged by the plaintiffs, Mr Ives repudiated the agreement and the plaintiffs had accepted his repudiation[22]. In particulars it was stated, in effect, that the repudiation was constituted by Mr Ives not transferring 50 shares in the first and second defendants when the $300,000 purchase price had been paid. The plaintiffs’ acceptance of the repudiation was evidenced by:

(a)the plaintiffs’ agreement to accept, and the acceptance of, monthly instalments of $5000 in repayment of their loan account;
(b)the content of an email from the plaintiffs to Van Der Ross dated 30 May 2005 whereby, counsel submitted, Mr Gillespie “treated the sum of the payments which the plaintiffs had made as being a loan account”;
(c)the email from the plaintiffs to Mr Ives on 23 June 2005 which referred to the balance of the loan account being $490,000; and
(d)the proof of debt dated 24 April 2006 and signed by the plaintiffs.

[22]Para 32.

It is important to note that this plea directly contradicts the pleas of the second defendant and Mr Ives, that Mr Ives accepted the plaintiffs’ repudiation of the share-sale agreement. The consequence is that counsel appearing for the second, third and sixth defendants had a conflict of position, as to which I note the general rule “that counsel ought not to appear for two clients whose interests may conflict”, as Young CJ stated in Nangus Pty Ltd v Charles Donovan Pty Ltd[23]. It is elementary that the same counsel cannot act for two or more persons where such persons take conflicting positions. In the present case, there was conflict on fact and law. The conflict could only have been properly resolved by counsel opting for one position and abandoning the other, with his clients’ informed consent. Unfortunately, that is not what happened. Rather, in final address counsel sought to rely on both positions simultaneously. As to Mr Ives’ position, counsel relied on the suggestion made by Mr Ives in evidence that the plaintiffs had repudiated the agreement (by not paying him the $300,000 for the shares) which repudiation he had accepted, as the basis for a submission that specific performance should be refused due to the absence of consideration. At the same time, counsel relied on Mrs Ives’ position, namely that Mr Ives had repudiated the agreement which repudiation the plaintiffs had accepted, as the basis for a submission that specific performance should be refused because the agreement was no longer on foot. I refer further to these submissions below from [217] onwards.
[23][1989] VR 184 at 185-186.

As to the allegation (in para 23F of the statement of claim) that Wood transferred to Mrs Ives the shares in the second defendant, Mrs Ives’ pleading also “refers to and repeats the matters set out in paragraphs 5 and 6 hereof and otherwise does not plead to paragraph 23F as it contains no material allegation against it [sic]”. Paras 5 and 6 were to the same effect as those referred to in Mr Ives’ pleading above.

Mrs Ives denied the allegation that her receipt of the shares from Wood was a knowing receipt of property transferred in breach of trust. In final address, it was submitted that there was no relevant trust or fiduciary relationship that affected the parties, as discussed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd[24] and Farrow Finance Co Pty Ltd (in liq) v Farrow Properties Pty Ltd (in liq)[25].
[24](2007) 230 CLR 89.
[25][1999] 1 VR 584.

Second defendant

Save for the reference already made (at [62] above), it is not necessary to set out the second defendant’s amended defence, as it makes no positive allegations different from those raised by Mr and Mrs Ives.

Reply

The matter of a reply arose during final addresses, leading to my ruling which permitted the plaintiffs to file a reply[26]. The reply relevantly pleads that Mr Ives is estopped from relying upon s 126 of the Instruments Act 1958 in relation to the guarantees and, alternatively, alleges that certain conduct of the plaintiffs was unequivocally referable to the oral guarantee provided by Mr Ives and that the plaintiffs accordingly rely on part performance. The conduct, or matters of fact, relied on are that Mr Ives represented to the plaintiffs that he would guarantee the performance of the first defendant’s obligations under the first and second loan agreements, and executed documents which contained the word “guarantor”, and in reliance upon such representations the plaintiffs entered into the first and second loan agreements and advanced the loan amounts and in doing so acted to their detriment.
[26]The reply was ultimately filed on 26 November 2009, but a materially identical draft reply was provided during final addresses.

Witnesses

Before setting out the evidence in detail and making factual findings, it is convenient to mention the witnesses called and make some brief observations about them and their evidence.

For the plaintiffs, evidence was given by Mr Gillespie, Mrs Gillespie and Gregory Claude Angelo.

Mr Gillespie impressed me as an honest witness, who sought to give evidence of relevant events from his best present recollection. He listened carefully to questions, answered responsively, and remained calm and non-argumentative in cross-examination, notwithstanding that he was obviously upset that he had advanced money which had not been repaid and had been driven to costly and protracted litigation to recover it. Mr Gillespie impressed me as a somewhat naïve but trusting and gentle person, who had bent over backwards to help Mr Ives in circumstances where others would not have done so.

Mrs Gillespie also impressed me as an honest witness who gave evidence of relevant events from her best present recollection, answered responsively and maintained her composure. She struck me as more commercially hard-headed than her husband, nevertheless I had the impression that she and her husband consulted each other and made decisions jointly as to financial and business matters. As she worked in the office at the Novara business several days a week, albeit for a relatively short period, she had a better recollection of certain dates and details than did Mr Gillespie, particularly in relation to the making of payments, to which I refer below in setting out the evidence.

I regard both plaintiffs as reliable witnesses whose evidence is to be accepted. In this regard, it is to be noted that much of their evidence was not challenged in cross-examination, and in closing address counsel for the second, third and sixth defendants said that “we are not making any claims to impeach the evidence of the plaintiffs”[27].
[27]T 533.

Angelo also impressed me as an honest witness, however his evidence was not relevant to the issues in dispute. His evidence went to what counsel for the plaintiffs described as “the Phoenix nature of Novara”, in particular “whether it is likely that the fourth defendant is a phoenix company of the first defendant”. In summary, Angelo said that he had purchased furniture from Mr Ives in 2002 (which furniture was delivered) and then purchased more furniture from Mr Ives in 2008 which was never delivered. Upon chasing up his furniture in 2008, he loaned $30,000 to Mr Ives to help him trade out of his financial difficulties, and the loan was ultimately repaid with interest, but only after considerable chasing up and threats of legal action. I heard the evidence subject to the objection taken by counsel for the defendants, who contended that the evidence was similar fact evidence and that no proper basis had been established for its admission. That followed my questioning of counsel for the plaintiffs as to the relevance of Angelo’s evidence to the facts in issue. It is to be noted that in final addresses, counsel for the plaintiffs did not specifically address Angelo’s evidence and made no attempt to persuade me that it was admissible, nor to explain its relevance. In effect, counsel abandoned any reliance on Angelo’s evidence. In any event, in my view the evidence was not admissible as similar fact evidence. Accordingly, I disregard Angelo’s evidence.

In the defendants’ case, evidence was given by Mr Ives, Mrs Ives, Peter Aminde, Mark Van Der Ross, and Mark David Custance.

Mr Ives was an unsatisfactory witness, to say the least. I had the benefit of observing him give evidence over a substantial time. He was delusional and bombastic with an easy tendency to falsehood and self-justification. In giving his evidence he sought to turn the tables on the plaintiffs as though they had caused him trouble when in fact they had improvidently advanced money to his business in order to assist him. His evidence was untruthful on numerous occasions, and deliberately so in my view. He was a witness of no credit and no reliability. Generally regarded, his conduct in the litigation, and attitude towards the plaintiffs, has been despicable. I do not accept his evidence unless it is independently corroborated by a reliable witness, or is otherwise supported by objectively established facts.

Mrs Ives initially did not give evidence, even though her counsel had put to the plaintiffs in cross-examination numerous matters that “Mrs Ives will give evidence about”. It was only at the end of final addresses, and following my ruling permitting the plaintiffs to file a reply that Mrs Ives gave evidence. Her evidence was of limited scope compared to that previously foreshadowed, and mainly related to the conversations relating to the first and second loan agreements and whether a guarantee was given. I found her evidence unpersuasive and reject it whenever it conflicted with the plaintiffs’ evidence.

Aminde, who was a former employee of the first defendant, impressed me as an honest witness, but his evidence was of limited scope and relevance to the issues in dispute. The following is a sufficient summary of his evidence. He worked for the Novara business for some 25 years up until March 2009, being employed by a number of different entities over that time. He was a factory worker at the time he signed the share-sale agreement as a witness. In response to leading questions from the defendants’ counsel, he indicated that the Gillespies had not signed the share-sale agreement when he witnessed it, and that he never saw the Gillespies sign the document. In cross-examination, however, he said that the Ives had asked him to witness their signatures only. And as a piece of paper was held over that part of the document above the spaces where the Ives had signed - it being a private document - he could not tell whether the Gillespies had already signed the document. He did, however, witness Mr and Mrs Ives sign the document and he believed that the Ives and the Gillespies were all present at the time. He also said in evidence that there were ongoing problems with his employer not keeping up to date with superannuation contributions, that he raised this matter with Mr Gillespie once it became apparent that the Gillespies were involved in the business, and that Mr Gillespie said that it would be looked after.

Van Der Ross is a public accountant who performed some work for the Ives in relation to the business of the first defendant. He met the Ives in late 2004, having been referred to them by an ATO officer to assist with their accounting and preparation of BAS statements, as a lot of BAS statements were outstanding. In the witness box, Van Der Ross was variously argumentative, aggressive, defensive, unduly sensitive, and seemed to perceive his role as being to protect Mr Ives and downplay Mr Ives’ appalling business practices as far as possible.

Custance, who is an estate agent, was an honest witness. In essence, he was called by counsel for the second, third and sixth defendants to lend support to Mr Ives’ evidence that there was a conversation in which Mr and Mrs Ives told the Gillespies that they were going to use the $300,000 advanced under the share-sale agreement to repay the mortgage on their family home, and that the Gillespies had agreed to the Ives using the money for that purpose. Improperly, counsel sought to elicit this contentious evidence from Custance by means of leading questions. Following an objection, counsel sought to elicit the evidence in a non-leading way, whereupon it became clear that the witness had no present recollection of what was said during the relevant conversation. His evidence did not assist the defendants’ case, and nothing further need be said about it.

The Evidence

It is convenient to set out here in narrative form Mr Gillespie’s evidence of the background and relevant events, supplemented as necessary by the evidence of Mrs Gillespie on certain details. Unless otherwise stated, I accept as fact the plaintiffs’ evidence as follows.

Mr Gillespie

The plaintiffs migrated to Australia from South Africa in 1999. Mr Gillespie had a long-standing interest in timber and furniture, as his grandfather had owned a furniture making business in the 1950s, Mr Gillespie’s father was the foreman in that business, and Mr Gillespie helped his father at times. Mr Gillespie followed his father’s advice and went into engineering, but he always had an interest in timber and furniture.

Prior to 2003, the Gillespies had seen Mr Ives’ furniture on display and were impressed by its quality. In August 2003 they went to the Melbourne Home Show for the purpose of placing an order for some of Mr Ives’ furniture. They dealt with a man named Don Anderson, who told them that he was representing Mr Ives as the retail arm of Mr Ives’ business, which was Furniture Concepts. Anderson completed the Gillespies’ order form (on Furniture Concepts letterhead) for furniture totalling $29,300, and the Gillespies left a deposit of $200.

Shortly thereafter, the Gillespies attended the Mr Ives’ factory to discuss the leather and timber colours for their furniture. This was the first time they met Mr Ives, who assisted them. Mr Ives gave them a delivery date but Mr Gillespie could not recall what the date was.

In November 2003, the Gillespies placed a second order for furniture with Anderson, as they had realised that they needed additional furniture to fill the space they had. Anderson attended at their home to take measurements and he completed a second order for furniture totalling $16,500. Anderson said the second order would be delivered in March 2004.

In December 2003, the Gillespies received delivery of the whole first order except the buffet hutch, which cost about $6,200. They paid for the first order in full on delivery, even though the order was not complete.

Toward the end of March 2004, the Gillespies phoned Anderson to enquire about the second order, as they had not received their furniture nor the buffet hutch from the first order. Anderson said that he would check with the factory and get back to them, but ultimately he did not contact the Gillespies, and he failed to return their calls.

The Gillespies then phoned Mr Ives to enquire about the furniture. Mr Ives told the Gillespies that he was no longer dealing with Anderson, as Anderson had been taking orders and not passing them on, and keeping customers’ deposits. Mr Ives went to visit the Gillespies in late April 2004. He told them that he was unhappy with Anderson, as he had harmed the business, not done his accounting job properly, and therefore he (Ives) was in trouble with the ATO. Mr Ives then rewrote the second order for $19,300 to include the buffet hutch and an additional piece of furniture; in effect he gave the Gillespies a discount because of the difficulties with Anderson. Mr Ives also said that he was struggling for capital because of Anderson and that if the Gillespies could pay him in full it would assist him in producing the furniture quicker and helping him to have what he needed for the upcoming Sydney Home Show. He also said that the Gillespies’ furniture would be ready at about the time of the Sydney Home Show.

The Gillespies paid $19,300 to the first defendant in full payment of the rewritten order. In late April 2004, the Gillespies emailed Anderson requesting that he repay their deposit of about $3600 on the second order plus the value of the buffet hutch from the first order which the Gillespies had already paid to him in full. They received no response.

By May 2004, the Gillespies had still not received delivery of their furniture from Mr Ives. They telephoned Mr Ives on a couple of occasions but were not able to make contact with him. Just after the Sydney Home Show, the Gillespies went to the factory to ask Mr Ives about their furniture. Mr Ives told them that his sales at the Sydney Home Show did not go as well as expected. He said that he had lots of orders, but did not have the capital to produce the furniture. He asked the Gillespies if they could lend him money so he could produce furniture for sales (including the Gillespies’ furniture) and get himself on his feet. The Gillespies were at the factory for at least two hours, Mr Ives showed them around the premises, and showed them the order book, which Mr Gillespie described in evidence as “quite impressive”, as it looked like he had quite a large order bank for his furniture. The Gillespies told Mr Ives they would go away and think about it.

A day or two later, the Gillespies phoned Mr Ives and told him they would help him and arranged to go back to the factory to speak to him. They went to the factory, and Mr Ives

“… ran us through part of his business and where he was hoping to go into, what he would like to achieve in getting his business on a better footing, and then we discussed the loan agreement and we also discussed Ives’ guarantee on the loan agreement, where he personally guaranteed the loan agreement. After that, when we had signed the agreement, he was very thankful and appreciative that we were able to help him”.

Mr Gillespie said in evidence that the loan agreement was drawn up by Mr Ives on his office computer, and they all signed it there and then. Mr Ives mentioned that he needed the money to produce customer orders, to get the business on a better footing and to get working capital in. Soon after, the Gillespies advanced $50,000 by way of bank cheque.

Mr Gillespie did not ask for security at this stage, apart from the guarantee, because he trusted Mr Ives, the quality of the furniture and the premises were impressive, and he believed that Anderson and others had taken advantage of Mr Ives, who just needed a bit of a helping hand. As to the Gillespies’ own furniture order, Mr Ives asked the Gillespies if they could be patient about receiving their furniture because it would help him if he could produce other orders first and get paid to help the business get going quicker “and because we had befriended Mr Ives at this stage, we actually didn’t push it as hard as we might have”. As to repayment of the loan, Mr Ives said that he would be taking furniture to the Perth Home Show in October 2004 which he intended to sell there to be able to repay the loan.

In November 2004, Mr Gillespie tried to phone Mr Ives to enquire about his furniture and repayment of the loan, but he could not get through so he went to see Mr Ives at the factory. Mr Ives said he did not sell as much in Perth as he had hoped, but that he had received plenty of orders for furniture. Mr Ives showed Mr Gillespie the order bank from Perth, which looked quite impressive. Mr Ives said that he was still in trouble with working capital and asked Mr Gillespie if he could assist the business with another $50,000. Mr Ives did not show Mr Gillespie any accounts at this time, only the order book.

The Gillespies discussed the loan request between themselves. Mr Gillespie said in evidence that:

“Karen and I discussed it and felt we were getting in and we were a bit concerned at that stage of what we were getting in but we thought with the furniture and you could see the potential of the business. There was great potential in the furniture and the business and the demand for the furniture was there, so it looked to us like if Ives could just turn the corner and get the business on a better footing, he would be fine”.

The Gillespies agreed that they would lend a further $50,000. They went down to the factory to meet with Mr Ives and in the discussions that followed, Mr Ives said that the loan was to be made to the first defendant and Mr Ives, that the money was to be used for working capital to produce orders for his furniture and that he would personally guarantee the second loan of $50,000. The second loan agreement was prepared on Mr Ives’ office computer and signed then and there by the Gillespies and Mr Ives. As to repayment, Mr Ives mentioned that he wanted to get the showroom section of the factory up and going and that if they could produce the furniture to get a showroom sale in about May 2005, he could repay the loan from that sale.

Shortly after the second loan agreement was signed, Mrs Gillespie advanced $50,000 by way of bank cheque.

In early 2005 Mr Ives invited the Gillespies to the factory and showed them their furniture which was being made, he also showed them plenty of other people’s furniture at the same stage of assembly, and “he couldn’t thank us enough at that stage for our assistance”. Mr Gillespie thought that Mr Ives “had actually turned the corner and that if he could produce those volumes, that his business could get back in full flow”. Mr Ives asked Mrs Gillespie if she could help him with some accounting and office work as he had nobody to help him, and if she helped in the office it would give Mr Ives more time in the factory to supervise the workers and get the factory going faster. The Gillespies considered the proposal and, as Mr Gillespie said in evidence, “we thought well, to help us to get our furniture and our loans back, it might be a good idea to actually assist him with this”. Ultimately, Mrs Gillespie worked in the office at the factory two days per week, from 19 January 2005 until 18 May 2005, with Mr Gillespie often accompanying her to the factory.

In late February 2005, Mr Ives asked the Gillespies if they would buy into and become partners in the furniture business. Various options were discussed as to how such a transaction might be structured. An email from Mr Ives to the Gillespies dated 27 February 2005 proposed that the factory be transferred to the first defendant and Mr and Mrs Gillespie each be allocated 25 percent of the shares in the first defendant. There was also a reference to plant and equipment being transferred from Jenzar Pty Ltd to the first defendant “call the figure $70,000”. I interpolate that Mr Gillespie agreed in cross-examination that they agreed to buy the shares in December 2004, however I prefer Mrs Gillespie’s evidence that the share purchase was raised in February 2005, given that her evidence is consistent with the date of the email, and also bearing in mind that in late December 2004 the parties had only just signed the second loan agreement making it unlikely that they would have discussed a share purchase at that time.

There was a meeting at the factory on 28 February 2005, attended by the Gillespies, the Ives, and Van Der Ross, at which Van Der Ross asked Mr Ives to repeat what the offer was. Mr Ives repeated the substance of what was in the email of 27 February. Van Der Ross suggested not transferring the factory to the first defendant, and the Gillespies said that it was not necessary to split the shares between themselves as they were happy to hold them jointly. Mrs Ives suggested that some moneys be paid for the plant and equipment and “it was agreed to actually pay $70,000 into Mr Ives’ loan account with Novara Furniture”. That amount was quite separate from the purchase price for the shares. As to the shares, the offer ultimately made by Mr Ives was that the Gillespies pay $300,000 for half of the issued shares in each of the first and second defendants. There was a conversation where Mrs Ives said that she wanted some of that money to be paid off on their family home in Mt Evelyn but Mr Ives insisted that it had to be paid into the first defendant as working capital, which Mr Gillespie agreed with. There was also discussion of a further loan of $100,000. Mr Gillespie said in evidence that he had thought that the $300,000 offered for the shares might come up a bit short, so he offered another $100,000 loan because he believed that the first defendant needed $400,000 in working capital to really get the business going on a sound footing and pay off all the debts. Mr Gillespie said in evidence that he would not have loaned the further $100,000 if Mr Ives had not committed to using the $300,000 as working capital for the first defendant.

At the end of the meeting referred to above, Van Der Ross dictated to Mrs Gillespie a document in the form of the “letter of intention”. As Van Der Ross had to leave for another appointment, Mrs Gillespie typed up the document and then emailed it to Van Der Ross the following day for him to check. He said that they should add Mrs Ives to the document. This was done and the document signed by the parties and witnessed by Aminde that day (1 March 2005). The document was then sent back to Van Der Ross who later signed it as an additional witness and faxed it back.

As to payment of the $300,000 for the shares, a cheque for $100,000 was paid on 28 February 2005 and a cheque for $200,000 was paid on 7 April 2005, in each case to the first defendant at the request of Mr Ives.

By May 2005 the shares had still not been transferred to the Gillespies, and just prior to the Sydney Home Show, Mr Gillespie confronted Mr Ives, “but he [Mr Ives] actually got quite angry that I actually had confronted him about it and said he wanted to deal with the Home Show and didn’t want to deal with it then and stormed out of the building and said we will deal with it when we get back from the Home Show”. After the Home Show, the Gillespies attended a meeting at the factory with the Ives and Van Der Ross, for the purpose, or so the Gillespies hoped, of finalising the transfer of the shares. At the meeting, however, Mr Ives said that he did not want to transfer the shares, that he had changed his mind and would not transfer 50 percent of the shares in the first defendant. Rather, he would transfer 49 percent of the shares in the first defendant and he had decided not to transfer any shares in the second defendant. Mr Gillespie described subsequent events as follows:

“I was extremely upset at that point because I trusted Ives that we had a firm and fixed agreement and he was going against this agreement. I then said that if he’s not going to stick by his agreement then I need to actually get the moneys that I have put into the company, the loan accounts and the shares need to be repaid but he didn’t answer this, just kept quiet after that and at that point, Mark Van Der Ross actually tried to defuse the situation by separating us and the Ives went downstairs to the showroom and we stayed upstairs.”

Van Der Ross went downstairs to speak to the Ives and, approximately half an hour later he returned and told the Gillespies that he was getting nowhere with Mr Ives “and at that point we decided that we couldn’t be there any more under those circumstances, and left”.

At about this time the Gillespies consulted solicitors as to their dispute with Mr Ives.

On 2 June 2005 the Gillespies sent an email to Van Der Ross stating that they had an appointment with their solicitors the following day and asking him to find out “who holds the title deeds to the factory”. Van Der Ross replied by email that day stating “I believe the property is purchased in Caprice’s name and the legal shareholder is Robert Wood who holds the share on behalf of Robert Ives.”

At about this time, Mr Gillespie resigned as a director of the first defendant “because I wasn’t there to be supervising what was happening and was worried about what might happen”. He did not resign as a director of the second defendant at that point “because I was still wanting to get the shares in Caprice”.

On 7 October Mr Ives sent a fax to Mr Gillespie requesting that he sign an enclosed letter of resignation as a director of the second defendant. Mr Gillespie did not do so. On 17 October Mr Ives sent to Mr Gillespie a fax informing him that he had been removed as a director and secretary of the second defendant at a meeting held that day. The meeting minutes were attached and record that Mr Ives and Wood were in attendance.

Subsequently, the Gillespies were informed that an administrator had been appointed to the first defendant. They attended the first meeting of creditors on 24 April 2006. In order to gain entry to the meeting, they were required to, and did, fill in a form entitled Formal Proof of Debt or Claim in which they stated that the first defendant was indebted to them in the amount of $500,000, particulars of the debt stating the relevant dates to be December 2004 and April 2005, and the consideration to be “loan and shares”. The Gillespies submitted an amended proof of debt form on 3 July 2006, stating the debt to be $184,000 comprising loans. No reference was made to shares.

It is now convenient to refer to several matters put to Mr Gillespie in cross-examination by counsel for the second, third and sixth defendants[28].
[28]Mr Gillespie was not cross-examined by counsel for Wood.

As to the first loan agreement, Mr Gillespie denied suggested evidence of Mr Ives that it was signed during Mr Ives’ first visit to his home. He reiterated that it was signed at the factory. As to whether the agreement came from a precedent supplied by Van Der Ross, he said “I can’t answer that, other than Robert Ives drew up the loan agreement from documentation he had on his computer and in reading it, it sounded acceptable to me at the time”. He denied that there was no discussion of a guarantee in relation to the first and second loan agreements. He reiterated his evidence that Mr Ives did guarantee those loans. As to counsel’s suggestion that the loan agreements did not mention any guarantee, he said that he understood the document as referring to Mr Ives as “guarantor”.

Mr Gillespie denied the suggestion that Mrs Gillespie “had control of the accounts of Novara from 1 January to 18 May [2005]”. He said that she only worked there two days a week and “Mr Ives often had control of it”.

As to the purchase of shares in the first defendant, Mr Gillespie initially said in cross-examination that:

“The only time that shares came up was in February [2005] when Robert Ives made us the offer. That was the first and only time. In December there was a couple of conversations with Mr Ives intimating that he might like us to come into the business but the offer came from Mr Ives and not from myself”.

Counsel then suggested that Mr Ives would give evidence that he (Mr Ives) and Mr Gillespie agreed in December 2004 that Mr Ives would sell the Gillespies up to 50 percent of the shares in the first defendant. Mr Gillespie said “that sounds like it is right, yes”. I interpolate that I prefer Mrs Gillespie’s evidence that the share purchase did not arise until February 2005. Mr Gillespie denied that a figure of $150,000 was discussed, as individual values were not mentioned because $300,000 was the price for 50 percent of the shares in both the first and second defendants. He denied that $300,000 was a nominal figure. They were figures given by Mr Ives and figures that were carried through and were part of the agreement. He denied that they had agreed that Van Der Ross would make a valuation of the business, including debtors, creditors and value of stock. Mr Gillespie said that he knew from about December 2004 that the shares were held by Wood on trust, and was told that Wood would only release the shares on payment of his account by Mr Ives, and one of the reasons why the Gillespies loaned the additional $100,000 referred to in the share-sale agreement was so that Wood’s account could be paid and there would be nothing standing in the way of the share transfer.

As to (a), counsel submitted that the plaintiffs had not established that they paid $300,000 to Mr Ives for the purchase of the shares, and consequently could not show that they had provided valuable consideration. In this respect, counsel adopted Mr Ives’ defence (and evidence), namely that by not paying him, the plaintiffs repudiated the agreement whereupon he (Mr Ives) validly rescinded. For the reasons given above, I have found that the plaintiffs did pay Mr Ives the agreed consideration for half of the shares in the second defendant. It follows that there is no substance in counsel’s contention as to (a).

As to (b), counsel conceded that “the third defendant’s history is such that there may be a real question as to whether a judgment for damages would be satisfied in this case”. That is an understatement; there appears no present reality that an order for damages would be paid. I also note that, as counsel for the plaintiffs submitted, the intrinsic value of the shares in the second defendant lay in the control that they would have given the plaintiffs over any commercial decision concerning the land and factory. In effect, the shares would have given the plaintiffs a half-interest in the factory. And while the factory has now been sold, it seems to me that an order for damages would be an inadequate remedy.

As to (c), counsel submitted that the plaintiffs had elected to treat the contract as at an end. In this respect counsel adopted Mrs Ives’ defence that the plaintiffs accepted Mr Ives’ repudiation, which is the reverse of the position at (a) above. The matters constituting the plaintiffs’ acceptance are set out at [66] above, as to which counsel referred to the matters [66(a), (b) and (d)] in final address. In my view, none of these matters, whether taken alone or in combination, support counsel’s submission that the plaintiffs elected to treat the contract as at an end. The email of 30 May is lengthy and unnecessary to set out in full, but relevantly the Gillespies stated in it that they “are looking for a minimum of $5000 per month repayment of our loan account … which is $200,000 plus $150,000 for the 50% of Caprice Investments (Factory) which Robert [Mr Ives] rescinded on according to our agreement”. The email had referred earlier to agreeing to Van Der Ross’ proposal to transfer 50 percent of the shares in the first defendant to them. And after setting out a proposal for repayments, they stated “The agreement which we need to take to our legal advisor needs to have some sort of security attached as a safeguard for us and must mention Caprice Investments and Novara Furniture.” Later, it was stated that “if Robert [Mr Ives] refuses to comply with our request our lawyer has advised us to go in hard to recover our investment, and has stated that we do have a strong case to take this legal”. When Mr Gillespie was asked in cross-examination about the email and whether he was prepared to treat all the monies paid as a loan to the first defendant, he said:

“I wouldn’t have agreed to do that, no. This was just prior[49] to this whole Mr Ives refusing to give us our shares and we were looking at ways of actually – possibilities of getting – securing the money that we had put in, so these were all basically suggestions and for any of these to have been – come to an agreement on any of these we would have had to have the advice of our legal team for this – this email was trying to see and go through the different alternatives of how to sort out the predicament we were in”.

In my view, this answer was entirely honest, and accords with the objective fact that the email canvasses possibilities for recovering money rather than stating a definitive position by the Gillespies that the share-sale agreement was at an end and that they were renouncing their rights under it. In any event, the email contemplated the Gillespies receiving the shares in the first defendant which was part of the share-sale agreement, and it certainly did not say that the Gillespies would no longer take the shares in the second defendant should Mr Ives change his mind. Indeed, as late as October 2005, Mr Gillespie refused to accede to Mr Ives’ request that he resign as a director of the second defendant because he was still hopeful of getting half of the shares in the company.

[49]Mr Gillespie clearly meant to say “after”. Indeed, on another occasion earlier in his evidence he used the word “prior” when he clearly meant to say “after”.

I also note that the evidence of Van Der Ross failed to establish that the plaintiffs had elected to treat the contract as at an end. His evidence amounted to no more than an assertion that Gillespie had told him that he wanted out of the business. There is no evidence that Van Der Ross conveyed that information to the Ives, but even if he did, the information that Mr Gillespie “wanted out” was inherently ambiguous in the circumstances. Further, while there is an email referring to the loan account being $490,000, and there is the $500,000 proof of debt lodged by the plaintiffs at the first meeting of creditors, for the reasons I have already explained, those documents do not support counsel’s submission (based on Mrs Ives’ pleading) that the plaintiffs elected to treat the contract at an end and to forego the possibility of getting half of the shares in the second defendant. Finally, I note Mr Gillespie’s evidence that on 19 May 2005, when Mr Ives effectively reneged on the deal, he told Mr Ives that if he was not going to go through with it, then he needed to get his money back. Again, the mere fact that Mr Gillespie asked for his money back does not establish that the plaintiffs elected to treat the share-sale agreement as at an end. On the contrary, the Gillespies have never ceased to assert their right to half the shares in the second defendant. It follows that there is no substance in counsel’s contention as to (c).

As to (d), counsel submitted that there were two discretionary considerations telling against specific performance, first, that the plaintiffs had failed to pay the price for the shares to the third defendant for a period of over four years; and secondly, there was unfairness, in the sense of the “trick“ referred to by Mr Ives in cross-examination whereby the plaintiffs paid the $300,000 to the first defendant and not to him. I reject the factual premises underlying this submission. It follows that there is no substance in counsel’s contention as to (d).

For completeness, I note that in making the latter point, counsel again raised the inconsistent position of Mr Ives and the second defendant on the one hand, and Mrs Ives on the other hand, as to whether payment was made to Mr Ives and as to who repudiated the agreement. In short, there was an inherent contradiction between counsel’s propositions (a) and (d) on the one hand and (c) on the other. Propositions (a) and (d) - that the agreement could not be specifically performed because of a lack of consideration - reflected Mr Ives’ case, in the sense that he alleged that the plaintiffs did not pay him for his shares with the result that the plaintiffs repudiated the agreement whereupon Mr Ives validly rescinded. Proposition (c) - that the agreement could not be specifically performed because it was no longer on foot - reflected Mrs Ives’ case, in the sense that she alleged that Mr Ives had repudiated the agreement and that the plaintiffs had accepted his repudiation. I reject both of these propositions, yet the fact that diametrically opposed positions were relied on by counsel in final address is symptomatic of the hopeless and desperate nature of the defence.

In my view, in all of the circumstances, the plaintiffs are entitled to specific performance of the agreement for the purchase of shares. The plaintiffs paid the purchase price for the shares and otherwise did all that was required of them under the share-sale agreement. But rather than ensuring that half of the shares be transferred to the Gillespies, Mr and Mrs Ives signed the terms of settlement with Wood, which directed Wood to transfer all of the shares to Mrs Ives. And then Mrs Ives signed the transfer of the shares from Wood. In short, there was not a scintilla of reason or justification for Mr Ives not directing Wood to transfer the shares to the plaintiffs, or for Wood not to have proceeded to have done so, or for Mrs Ives to have signed the transfer of shares. The refusal of Mr and Mrs Ives to ensure that the Gillespies received a transfer of half of the shares was capricious and selfish for the Ives’ own ends. In my opinion, in all the circumstances, upon payment of the $300,000 by the plaintiffs, the shares became, as to one half thereof, subject in equity to a trust in favour of the plaintiffs and that equity is properly to be recognised and enforced by decree, and with such further orders by way of implementation as may be required.

As to that, in the circumstances it is appropriate that orders be made that ensure that the transfer to Mrs Ives is not registered, even though the second, third and sixth defendants conducted the case on the basis that the transfer was ineffective. I regard such an order as warranted as I consider that the second, third and sixth defendants are not to be trusted. I will order that the transfer to Mrs Ives be set aside, restrain the second defendant from registering that transfer and from issuing or resolving to issue any further shares in the company other than on notice to the plaintiffs and in any event subsequent to registration of the transfer from Wood to them (the plaintiffs) of half of the issued shares in the company, and restrain the third and sixth defendants by themselves or their servants or agents from in any way seeking registration of the transfer to Mrs Ives or of any transfer other than in accordance with these orders. That, in combination with an order that Wood execute a transfer to the plaintiffs in registrable form of half of the 100 issued shares in the second defendant, and that the second defendant register such transfer, will ensure that the plaintiffs receive their primary relief. I will also order that if Wood does not, within seven days of its submission to him, execute and return the transfer to the plaintiffs’ solicitor, the transfer be executed by the Prothonotary.

Equitable compensation

As noted at [53], the plaintiffs seek equitable compensation from Mr and Mrs Ives for “diminution in the value of [half of the] shares [in the second defendant], from $334,250 in July 2007 to nil in October 2009”.

The amount of $334,250 is derived from an affidavit sworn by Mr Ives on 26 July 2007. That affidavit was sworn and filed in this proceeding in support of an application by the defendants for a discharge or variation of the existing injunction to enable the second defendant to increase the level of borrowing on the factory; see at [17] above. The application was successful, hence it can be assumed that the Court received the affidavit and relied on it. In the affidavit, Mr Ives deposed that he obtained a valuation of the factory on 6 July 2007 which stated the value of the factory to be $1,350,000, and, by reference to a statement from the mortgagee, Challenger, dated 25 July 2007, that the amount secured on the mortgage was $661,500. Thus, said counsel for the plaintiffs, the equity in the factory at that time was $688,500, being the difference between the value of the factory and the amount secured on the mortgage. Counsel submitted that the appropriate measure of equitable compensation was half the equity in the factory, being $344,250, as that amount represented the value of the shares the plaintiffs should have had as at July 2007. Counsel also sought interest on that amount from July 2007 calculated on an equitable basis involving the compounding at an appropriate interest rate[50].
[50]T588.

In these circumstances, that is to say where Mr Ives had placed evidence before the Court as to the value of the factory and on which the Court had acted, it is perhaps not surprising that counsel for the second, third and sixth defendants remained silent on the evidence as to the amount of equitable compensation and its calculation. In particular, he did not submit that the evidence the plaintiffs sought to rely on was inadmissible or that it should not be relied on for a lack of cogency. Rather, counsel relied on his submission that the plaintiffs were not entitled to any equitable relief at all, in essence because the share-sale agreement was not specifically enforceable. As to that, for the reasons set out above, I have rejected that submission and concluded that the plaintiffs are entitled to specific performance of the share-sale agreement.

To understand the claim for equitable compensation, which was made in addition to the claim for specific performance, it is necessary to closely examine the pleadings and consider the way in which counsel conducted the case.

The plaintiffs’ pleaded case is that by reason of entry into the share-sale agreement, Mr Ives (alternatively both Mr and Mrs Ives) held on trust for the plaintiffs his (alternatively their) rights in respect of half of the shares in the second defendant; see paras 23A and 23B of the statement of claim. Then, it was alleged (at para 23H) that the transfer to Mrs Ives, and the direction to Wood in the terms of settlement, were made by Mr Ives dishonestly in breach of the fiduciary duties he owed to the plaintiffs as set out in para 23A. In this regard it is to be noted that para 23A does not refer to fiduciary duties, but rather pleads the trust just referred to. In other words, the trust/fiduciary relationship is pleaded simply as arising by reason of the Ives’ entry into the share-sale agreement. It is not alleged that a fiduciary relationship arose on some broader basis, for example, on the basis of the overall circumstances of the parties’ relationship and dealings, and on the basis of particular matters which occurred after the share-sale agreement was entered into. Nevertheless, in denying that there was any trust or fiduciary relationship between the parties, the submission of counsel for the second, third and sixth defendants went beyond paras 23A and 23B. Indeed, counsel’s submission addressed the broader issue of whether, in all the circumstances, which included entry into the agreement but also went to subsequent facts and matters, the Court should recognise an equity enforceable by specific performance.

As I concluded (at [223] above), upon payment of the $300,000 for the shares by the plaintiffs, the shares became, as to one half thereof, subject in equity to a constructive trust in favour of the plaintiffs. It is to be noted that both Mr and Mrs Ives signed, and were parties to, the share-sale agreement, albeit Mrs Ives had no positive obligations thereunder. Plainly, they were both aware of the terms of the agreement, in particular that Mr Ives was to be paid $300,000 for half of his shares in the first and second defendants. Further, as both Mr and Mrs Ives were involved in receiving and banking the cheques for $100,000 and $200,000, they knew that the Gillespies had performed their obligations under the agreement and were thus entitled to a transfer of half of the shares. It was in those circumstances that in May 2005 Mr Ives told the Gillespies that he was refusing to transfer the shares. Mrs Ives was present at the factory when the heated discussion took place following Mr Ives’ refusal to transfer the shares, and was thus aware that Mr Ives was refusing to transfer the shares. The next relevant event was the settlement of the Magistrates’ Court proceeding in August 2006. The terms of settlement were signed by Wood, Mr Ives in his own right, and Mrs Ives as director of the second defendant. The terms of settlement provided for Wood to transfer all the shares in the second defendant to Mrs Ives. Mr Ives’ direction to Wood in the terms of settlement, followed by Mr Ives’ instructions to his solicitors to procure from Wood a transfer of the shares to Mrs Ives, was a blatant and knowing breach of trust by Mr Ives. I also find that Mr Ives instructed Wood to vote the shares in the second defendant so as to remove Mr Gillespie as a director of the second defendant. Wood implemented that instruction.

As to Mrs Ives, she signed the terms of settlement and the share transfer form at a time when she knew that the Gillespies had paid for half of the shares, were entitled to those shares, and should already have received the shares. She knew of the plaintiffs’ rights yet went ahead and signed two documents calculated to keep the shares for herself and prevent the plaintiffs from receiving what was rightly theirs in equity. In so doing, Mrs Ives knowingly assisted Mr Ives in his breach of trust. In short, she was, I find, a willing and active participant in the blatant fraud perpetrated upon the plaintiffs.

In my view, the plaintiffs are entitled to equitable compensation against Mr Ives for the loss suffered as a result of his breach of trust, and against Mrs Ives for the loss suffered as a result of her knowing assistance in Mr Ives’ breach of trust[51]. In my view, the method of calculation proposed by the plaintiffs is appropriate in the circumstances. Those circumstances are that deliberately and knowingly Mr and Mrs Ives acted to deny the plaintiffs their entitlement to half the shares in the first and second defendants, and Mr Ives wrongfully procured the removal of Mr Gillespie as a director of the second defendant. Of course, the holding of the position of director by Mr Gillespie reflected the equality of ownership, and was a means whereby the plaintiffs could protect their investment by reason of having an equal vote at the board of directors. The effect of not having the shares, and Mr Gillespie not being a director, was to preclude the plaintiffs from exercising their agreed degree of control over the business and affairs of the second defendant. That control would have enabled them to prevent the diminution in value of the factory as a result of borrowings and wasted expenditure on litigation. In short, the value of the shares derived from the value of the factory. The wrongful conduct of Mr and Mrs Ives led to, or enabled, the equity in the factory to be eroded and in consequence caused the shares to become worthless. In effect, Mr and Mr Ives used what might be called the Gillespies’ share of the factory to fund the litigation. This latter aspect is important and merits close scrutiny.
[51]See Meagher, Heydon, Leeming, Meagher Gummow & Lehane’s Equity Doctrines and Remedies, 4^th Ed, 2002 at [5-260].

The conduct of the litigation

I have set out in some detail (at [10]-[33]) the history of the proceeding, and I do not repeat that here. I merely note that the real issues in the case were straightforward; the defendants did not dispute that the plaintiffs paid over $500,000 to the first defendant, and as to the alleged repayment figures, the difference between the parties was a mere $12,000. One is thus entitled to ask, first, why the case was run at all, and then, why the case took more than four years to get to trial, and why the parties and their lawyers made such an inordinate number of appearances before judges, masters and associate judges of this Court over a lengthy period, which resulted in great vexation, delay and expense. In my view, the blame can be laid at the feet of Mr and Mrs Ives. Rather than facing up to the reality of the case – namely that there was no real defence to the plaintiffs’ claim and that the only sensible option was to settle, allow judgment to be entered, or at the very least cooperate so as to have the case tried expeditiously – they have dodged the real issues and obfuscated at every turn. The result has been a shocking waste of money on lawyers, and an undue prolongation of what in essence was or should have been a straightforward case, which has increased the losses all round.

The first matter of critical importance in this regard was the misleading affidavit of Mr Ives sworn 9 February 2006 which set in train a process by which the equity in the factory owned by the second defendant was eroded to pay for (a) the “day to day operating expenses” of a company which had actually stopped trading and was conceded by counsel at trial to have been insolvent at that time, and (b) the defendants’ legal expenses. The sad irony is that the equity drained from the factory through a series of applications enabled the Ives to continue to fund and fight a case which they should always have known was devoid of merit.

The second matter was the defendants’ conduct in the aborted trial before Byrne J in relation to the question of the terms of the trust on which Wood held the shares in the second defendant. As I have explained, the plaintiffs’ original position in the litigation (as from the time they first pleaded the trust arrangement) was that Wood held the shares in the second defendant on a bare trust for Mr Ives alone. Mr Ives’ defence admitted that. Then, at the trial before Byrne J, counsel then appearing for the defendants (being the same counsel who had appeared before me in the Practice Court but who did not appear at the trial before me) applied to withdraw the admission, on the basis that it was arguable that the trust was a discretionary trust, and that the shares had been transferred to Mrs Ives as a beneficiary of the trust. The basis on which the trust would be pleaded was unclear, and there was inconsistency as between statements in different documents. Byrne J succinctly identified the difficulty as being that on the one hand, the “starting point” was that the defendants admitted through their pleadings and in Mr Ives’ affidavit of 9 February 2006 that Wood held the shares on a bare trust for Mr Ives alone. Yet on the other hand, the defendants wished to plead a new position, namely that there was a discretionary trust for both Mr and Mrs Ives, on the basis of an unexecuted document that predated Mr Ives’ affidavit. His Honour identified the essential inconsistency between the two positions and said:

“Now, Mr Ives will need to explain all that, and it may well be that there is an explanation, I don’t know.
…
The whole thing might disappear if the fact be that the trust deed was never executed, because if the trust deed was never executed, then Mr Wood remains a bare trustee holding [the shares] for Mr Ives, and the admission is correct.”

As I have mentioned, this led to Kenny swearing an affidavit in which he deposed to the nature of the evidence that would support the defendants’ proposed new position on the trust, in particular that Wood was going to give evidence of a discretionary trust and that Wood recalled signing the relevant deed. Mr Ives swore an affidavit to the effect that what Kenny said was true, and on that basis counsel for the plaintiffs no longer pressed his opposition to the defendants’ withdrawal of their admission. The defendants’ subsequent defences pleaded the discretionary trust and alleged that Wood had transferred the shares to Mrs Ives.

It was the defendants’ changing position on the trust, of course, which led to Wood and Mrs Ives being joined to the proceeding. The effect of this was enormous additional complexity in the pleadings and issues, in terms of there being a series of alternative pleas as to the nature of the trust and potential breaches thereof, pleas of knowing receipt and knowing assistance, and a raft of other pleas including as to breach of warranty of authority and misrepresentations, which depended on the premise that the trust was a discretionary trust for both Mr and Mrs Ives. Apart from the aborting of the trial before Byrne J, the new pleadings led to the need for further discovery, inspection of documents, and further prolonged the interlocutory stages. But then, at the trial before me, Wood gave no evidence at all, and Mr Ives’ evidence as to a discretionary trust was weak and unsatisfactory, and he resiled from it when confronted with his earlier affidavit in which he had deposed that the trust was a bare trust for him alone. The result was that in final address his own counsel did not seek to contend for anything other than the original bare trust. Counsel for the second, third and sixth defendants even submitted that the plaintiffs’ evidence did not establish any discretionary trust, and that the plaintiffs did not establish that there had ever been a valid transfer of Mr Ives’ beneficial interest in the shares to any other party. The thing overlooked by counsel was that the plaintiffs had never originally sought to make such allegations, and only did so as a safeguard lest there be substance in the discretionary trust case, as the defendants and their legal advisors had led them and the court to believe was the case.

When push came to shove, the defendants’ position on the discretionary trust was meekly abandoned. By the time of final addresses the game was over, the white flag went up, and the defendants turned full circle and reverted to the original position contended for by the plaintiffs. In effect, the defendants foisted upon the plaintiffs a significant change in the whole outlook of the case, which caused the termination of one trial and enormous additional delay, expense and vexation, and which was not ultimately supported by any proper evidence. Plainly, the case was never capable of being supported.

Conclusion on equitable compensation

In short, the defendants chose to run a hopeless case. Worst of all, it appears that they did not pay for it out of their own pockets, but rather used funds borrowed against an asset the effect of which was to reduce to nothing the value of the very shares to which the plaintiffs were always entitled. It follows that the plaintiffs are entitled to equitable compensation to place them in a position as close as possible to where they would have been if Mr and Mrs Ives had not committed the equitable wrongs referred to above.

Orders

There will be judgment for the plaintiffs against the second, third and sixth defendants and, subject to hearing counsel, orders as follows:

a)The third defendant pay the first plaintiff $60,000 plus interest at 12% per annum under the first and second loan agreements.
b)The third defendant pay the first and second plaintiffs damages of $100,000 plus interest to be assessed.
c)The third defendant perform the agreement for the purchase of half of the issued shares in the second defendant contained in the letter of intention dated 1 March 2005.
d)The purported transfer of shares in the second defendant, contained in the transfer from the fifth defendant to the sixth defendant dated 8 August 2006, (“the purported transfer”) be set aside.
e)The second defendant, by itself, its servants or agents or otherwise howsoever, be restrained from registering the said purported transfer of shares and from issuing or resolving to issue any further shares in the company other than on written notice to the plaintiffs’ solicitor and in any event not before registration of the transfer from the fifth defendant to the plaintiffs of half of the issued shares in the company as referred to below in these orders.
f)The third and sixth defendants by themselves, their servants or agents or otherwise howsoever, be restrained from in any way seeking registration of the said purported transfer of shares or of any transfer of shares in the second defendant other than in accordance with these orders.
g)The plaintiffs forthwith submit to the fifth defendant, and the fifth defendant execute and return to the plaintiffs’ solicitors, a transfer to the plaintiffs in registrable form of half of the issued shares in the second defendant. If the fifth defendant does not within seven days of submission to him of such transfer return the duly executed transfer to the plaintiffs’ solicitor, the transfer be executed by the Prothonotary.
h)The second defendant do all things necessary to effect registration of the said transfer.
i)The third and sixth defendants pay the first and second plaintiffs equitable compensation of $334,250 plus interest to be assessed.

I will hear the parties as to costs.

MINUTES OF LOAN AGREEMENT Dated the: 27^TH May 2004 Between: MR ROBERT IVES AND NOVARA FURNITURE (AUST) PTY LTD Of FACTORY 1, 9-13 JERSEY ROAD, BAYSWATER VIC And MR Colin Gillespie of 54 Dorset Road, Mt Martha 3934 VIC
PRESENT:	Robert Ives Colin Gillespie
It is hereby declared that Robert Ives from Novara Furniture (Aust) Pty Ltd ‘Borrower’ and ‘guarantor’ accepted the borrowed funds of $50,000.00 from Colin Gillespie ‘Lender’.
The purpose of these funds is to supplement the working Capital of the Company.
It is the intention of Novara Furniture (Aust) Pty Ltd to have a sale of Novara Furniture Later [sic] this year prior or after the conclusion of the Perth Homeshow in October 2004, from this sale, payment of monies owing at this time to be paid to Colin Gillespie.
The total liability to the ‘lender’ will be $50,000.00, principal with an interest factor of 12% for the period of the loan, principal & interest to be paid within a reasonable time after using these funds.
SIGNED:
……………………………………….		………………………………………….
ROBERT IVES		COLIN GILLESPIE
WITNESS ……………………………

[2010] VSC 103

31 March 2010