Gray v Staffa
[2004] WASC 131
GRAY -v- STAFFA & ORS [2004] WASC 131
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 131 | |
| Case No: | CIV:1417/2004 | 24 MAY 2004 | |
| Coram: | COMMISSIONER ODES QC | 16/06/04 | |
| 29 | Judgment Part: | 1 of 1 | |
| Result: | Injunction extended | ||
| B | |||
| PDF Version |
| Parties: | PATRICIA DAWN GRAY KEVIN COLIN STAFFA CASHCODE PTY LTD (ACN 051 793 223) SHOREWAVE PTY LTD (ACN 070 099 571) BEAUBOURG PTY LTD (ACN 089 076 639) KANAYA HOLDINGS PTY LTD (ACN 098 864 905) |
Catchwords: | Interlocutory injunction Solicitor a party to a Deed Solicitor also acting for a single member company Company and member both parties to the Deed Whether solicitor owed a fiduciary duty to the member Implied retainer for member Whether fiduciary duty breached Duties of solicitor drafting Deed in conflict situations Whether third party to Deed had actual or constructive knowledge of existence and breach of fiduciary duty Unconscionable conduct of third party under s 51AA of Trade Practices Act |
Legislation: | Corporations Act 2001, s 461(1)(k) Trade Practices Act 1974, s 51AA |
Case References: | ABC v Lenah Game Meats Pty Ltd (2001) 185 ALR 1 ACCC v C G Berbatis Holdings Pty Ltd [2003] HCA 18 ACCC v Samton Holdings Pty Ltd (2002) 189 ALR 76 Commercial Bank v Amadio (1983) 151 CLR 447 Day v Mead [1987] 2 NZLR 443 Hancock Family Memorial Foundation v Porteous (1999) 151 FLR 191 Hospital Products Ltd v United States Surgical Corporation [1984] 156 CLR 41 Maguire & Anor v Makaronis (1997) 188 CLR 449 Oakes v Turquand & Anor (1867) LR 2 HL 325 Pegrum v Fatharly (1996) 14 WAR 92 A H McDonald & Co Pty Ltd v Wells (1931) 45 CLR 506 Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773 Alati v Kruger (1955) 94 CLR 216 Barnes v Addy (1874) LR 9 Ch App 244 Byers v Dorotea Pty Ltd (1986) 69 ALR 715 Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599 Cayne v Global Natural Resources PLC (1984) 1 All ER 225 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Fenton v Kenny [1969] NZLR 552 Haywood v Roadknight [1927] VLR 512 In re Sargent v ASL Developments Ltd (1974) 131 CLR 634 International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368 Jones v Dunkel (1959) 101 CLR 298 Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 Law Society of New South Wales v Moulton [1981] 2 NSWLR 736 Leaf v International Galleries [1950] KB 86 Lord v Spinelly (1991) 4 WAR 158 Mott & Anor v Mount Edon Gold Mines (Aust) Ltd & Ors (1994) 12 ACLC 319 Ninety-Five Pty Ltd (In Liquidation) v Banque Nationale de Paris [1988] WAR 132 O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204 Scottish Petroleum Co (1883) 23 Ch D 413 Seddon v North Eastern Salt Company Ltd [1905] 1 Ch 326 Svanosio v McNamara (1956) 96 CLR 186 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
KEVIN COLIN STAFFA
First Defendant
CASHCODE PTY LTD (ACN 051 793 223)
Second Defendant
SHOREWAVE PTY LTD (ACN 070 099 571)
Third Defendant
BEAUBOURG PTY LTD (ACN 089 076 639)
Fourth Defendant
KANAYA HOLDINGS PTY LTD (ACN 098 864 905)
Fifth Defendant
(Page 2)
Catchwords:
Interlocutory injunction - Solicitor a party to a Deed - Solicitor also acting for a single member company - Company and member both parties to the Deed - Whether solicitor owed a fiduciary duty to the member - Implied retainer for member - Whether fiduciary duty breached - Duties of solicitor drafting Deed in conflict situations - Whether third party to Deed had actual or constructive knowledge of existence and breach of fiduciary duty - Unconscionable conduct of third party under s 51AA of Trade Practices Act
Legislation:
Corporations Act 2001, s 461(1)(k)
Trade Practices Act 1974, s 51AA
Result:
Injunction extended
Category: B
Representation:
Counsel:
Plaintiff : Mr S Penglis
First Defendant : Mr K C B Staffa
Second Defendant : Mr K C B Staffa
Third Defendant : Mr K C B Staffa
Fourth Defendant : Mr A R Beech
Fifth Defendant : Mr M R B Hemery
Solicitors:
Plaintiff : Freehills
First Defendant : Staffa Lawyers
Second Defendant : Staffa Lawyers
Third Defendant : Staffa Lawyers
Fourth Defendant : Karp Steedman Ross-Adjie
Fifth Defendant : Talbot & Olivier
(Page 3)
Case(s) referred to in judgment(s):
ABC v Lenah Game Meats Pty Ltd (2001) 185 ALR 1
ACCC v C G Berbatis Holdings Pty Ltd [2003] HCA 18
ACCC v Samton Holdings Pty Ltd (2002) 189 ALR 76
Commercial Bank v Amadio (1983) 151 CLR 447
Day v Mead [1987] 2 NZLR 443
Hancock Family Memorial Foundation v Porteous (1999) 151 FLR 191
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Maguire & Anor v Makaronis (1997) 188 CLR 449
Oakes v Turquand & Anor (1867) LR 2 HL 325
Pegrum v Fatharly (1996) 14 WAR 92
Case(s) also cited:
A H McDonald & Co Pty Ltd v Wells (1931) 45 CLR 506
Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773
Alati v Kruger (1955) 94 CLR 216
Barnes v Addy (1874) LR 9 Ch App 244
Byers v Dorotea Pty Ltd (1986) 69 ALR 715
Carr Boyd Minerals Ltd v Ashton Mining Ltd (1989) 15 ACLR 599
Cayne v Global Natural Resources PLC (1984) 1 All ER 225
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Fenton v Kenny [1969] NZLR 552
Haywood v Roadknight [1927] VLR 512
In re Sargent v ASL Developments Ltd (1974) 131 CLR 634
International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368
Jones v Dunkel (1959) 101 CLR 298
Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16
Law Society of New South Wales v Foreman (1994) 34 NSWLR 408
Law Society of New South Wales v Moulton [1981] 2 NSWLR 736
Leaf v International Galleries [1950] KB 86
Lord v Spinelly (1991) 4 WAR 158
Mott & Anor v Mount Edon Gold Mines (Aust) Ltd & Ors (1994) 12 ACLC 319
Ninety-Five Pty Ltd (In Liquidation) v Banque Nationale de Paris [1988] WAR 132
O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204
Scottish Petroleum Co (1883) 23 Ch D 413
Seddon v North Eastern Salt Company Ltd [1905] 1 Ch 326
Svanosio v McNamara (1956) 96 CLR 186
(Page 4)
1 COMMISSIONER ODES QC: This is an application for an extension of an interlocutory injunction granted by this Court on 31 March 2004 as a matter of urgency restraining the defendants (who are more fully described below) from disposing or dealing with shares which the plaintiff initially held in a company, Wildbeach Corporation Pty Ltd ("the Company") and further restraining them from taking further steps to wind up the Company. The order granted by Roberts-Smith J on 1 April 2004 was to take effect until a chamber summons seeking an extension of that order on a date to be fixed by the listing co-ordinator could be dealt with. The Court also ordered the court files in COR 16 of 2004 and COR 29 of 2004 be made available to this Court on the hearing of the application to extend the order. These files relate to the winding up applications which have been brought against the Company, which triggered the urgent injunction application. Affidavits have been filed by the parties and others and the affidavits filed in support of the winding up applications have been placed before me. The plaintiff now requests that that order be extended until the trial of an action instituted by her on 31 March 2004.
The Parties
2 The plaintiff was at all times prior to the execution of a Deed of Loan Agreement ("the Deed") referred to below the sole beneficial owner and director of the Company. The latter was incorporated in October 1999 to exploit certain gypsum mining opportunities identified by the plaintiff's brother, Colin Ross Atkins ("Atkins") who, together with the plaintiff, was closely involved in every aspect of the Company's activities. The day to day activities and management of the Company were in the hands of Atkins under the plaintiff's supervision and control.
3 The first defendant is a solicitor practising as such and had been engaged from time to time as a legal advisor by Atkins for various projects. The first defendant also acted for the Company in a number of matters.
4 The second and third defendants are companies which are wholly owned by the first defendant who is a director of both.
5 The fourth defendant is a company, of which Yoganathan Soobiah Naidoo ("Naidoo") is a 50 per cent shareholder and director. As will be seen later, the fourth defendant entered into the Deed with the Company and the plaintiff whereby it was obliged to inject or procure loan capital into the Company in exchange for the transfer of the plaintiff's shares to
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- various parties with the ultimate object of floating the Company on the stock exchange.
6 The fifth defendant is a company owned by Atkins.
The Issues
7 The issues to be determined by me are whether for the purpose of extending the interlocutory injunction there is a serious question to be tried by the trial court in the action commenced by the plaintiff against the defendants in relation to the following questions:
(a) Whether the first defendant owed a fiduciary duty to the plaintiff on one or other basis alleged by the plaintiff; and
(b) If so, whether the first defendant was in breach of that duty.
(c) Whether the fourth defendant, in entering into the Deed and receiving benefits thereunder, had actual or constructive knowledge of the existence and breach of the fiduciary duty alleged to be owed by the first defendant to the plaintiff, and thereby became a constructive trustee of the shares transferred to it by the plaintiff or alternatively whether the fourth defendant's knowledge (actual or constructive) of the circumstances surrounding the execution of the Deed and the implementation of its provisions was such as to render its conduct unconscionable in terms of s 57AA of the Trade Practices Act 1974 ("the TPA").
8 If the above questions (or at least (a) and (b)) are answered in the affirmative, I require to be satisfied that the balance of convenience favours the extension of the injunction requested by the plaintiff.
9 In order to determine the above questions I propose to deal with the salient features of the evidence contained in the affidavits filed in this application, as well as those in the winding up proceedings.
The Affidavit of the Plaintiff
10 In her affidavit dated 31 March 2004 which was filed in support of the urgent interim injunction the plaintiff indicated that the Company was the only commercial venture in which she was involved. She therefore had no cause to have any dealings with lawyers other than in the context of her activities in the Company. While the Company was under her
(Page 6)
- control, the first defendant was employed on a number of occasions to perform legal work on its behalf. Although the contact with the first defendant was primarily made by her brother, the plaintiff was involved in meetings with the first defendant from time to time when the latter was provided with instructions or when he was requested to furnish advice. She usually met the first defendant (she estimates perhaps a dozen times over 24 months) at his office in the company of Atkins. The first defendant submitted invoices to the Company for the services rendered and was paid substantial sums by way of legal fees.
11 The plaintiff and Atkins decided at a particular stage to expand the activities of the Company but required an injection of capital to do so. They therefore considered the possibility of introducing a partner or partners into the Company for that purpose with an ultimate objective of floating it on the stock exchange. The plaintiff deposes further that late in 2001 a company known as Elcor Holdings Pty Ltd ("Elcor") was interested in providing the required capital and a proposal was made whereby she would transfer her shareholding in the Company to Atkins and Elcor in equal shares ("the Elcor proposal"). The Elcor proposal did not proceed but the plaintiff points out that in a letter sent to her personally by the first defendant on 28 November 2001 relating to that proposal, the first defendant emphasised in the section thereof headed "Independent Legal Advice" that he was acting for the purchasers and not the Company or the plaintiff.
12 Because of the inferences which counsel for the plaintiff invites the Court to draw from this section of the letter, it is necessary to quote the relevant portions which read as follows:
"As you know, I have given Wildbeach advice in the past whilst you have been its shareholder and director.
I confirm our recent discussions, to the effect that on this occasion I am acting solely for the purchasers of your Wildbeach shares and for Jan Franke. I am not advising Wildbeach or yourself.
As discussed, I consider that there would be a conflict of interest if I were to advise you in relation to the proposed sale of the shares and also advise the purchasers.
…
(Page 7)
- For the aforementioned reasons, I confirm that you should obtain independent legal, as well as accounting advice …"
13 The plaintiff also refers to a letter addressed by the first defendant to Atkins dated 6 December 2001 in respect of the Elcor proposal in which he raised a number of concerns about the proposed transaction and concluded the letter by suggesting that both "Atkins and I (the first defendant) should alert Jan Franke (Atkins' wife) and Pat Gray (the plaintiff) to the issues I have raised in this letter. It is essential that they understand the risks involved before executing any of the documents".
14 In March 2002 the first defendant introduced Naidoo, a director and 50 per cent shareholder of the fourth defendant to Atkins and the plaintiff. He was introduced to her as a client of the first defendant. The purpose of the introduction was to source loan funds of $9,000,000 through the fourth defendant for the proposed eventual public listing of the Company. It was subsequently proposed by the first defendant and Naidoo that the fourth defendant would arrange for the sum of $9,000,000 to be advanced to the Company by external lenders; the plaintiff would be reimbursed a sum of $220,000 which she had contributed to the Company and she would then transfer her shares in the Company in the following proportions:
(a) the fifth defendant (which as stated above was owned and controlled by her brother) 50 per cent.
(b) the fourth defendant: 40 per cent; and
(c) the first, second and third defendants (the latter companies being owned and controlled by the first defendant): 10 per cent.
15 The plaintiff states that through the transaction, she expected to recover the sum of $220,000 owed to her and continues as follows:
"I also wished to protect and grow my family's substantial investment in the Company. This was to be achieved by Mr Atkins taking a 50 per cent stake in the Company. Therefore, at all times, Mr Atkins and I intended that our family through Mr Atkins, would retain a 50 per cent share of the Company". (Paragraph 25 of her affidavit.)
- It should be noted that a similar arrangement in relation to the retention by her family of 50 per cent of the shares in the Company was mooted for the unsuccessful Elcor proposal referred to above. She states that she and her brother anticipated that with a retention of 50 per cent of the shares in the
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- Company, that equity holding would be reflected in the voting arrangements on the Board.
16 The transaction was to be documented and the Deed which was duly prepared by the first defendant who was the only lawyer involved in the transaction. It is common ground that the first defendant was acting not only as a party but as a legal practitioner. He rendered a bill to the Company for his services.
17 The plaintiff states that she read the draft of the Deed and believed that she understood its contents but states that at no time did the first defendant provide her with any advice as to the transaction or the legal effects of the proposed deed nor did he suggest that she obtain independent legal advice. She also states that the first defendant did not indicate that he had a conflict of interest either by acting for a party other than the Company or herself or by reason of his personal interest in the transaction.
18 On 13 June 2002 the plaintiff with the first defendant, Atkins and Naidoo attended the first defendant's offices to sign the Deed. At that meeting Naidoo indicated that the fourth defendant would not be in a position to provide the loan funds of $9,000,000 upon execution as provided in the Deed but would be able to do so within seven days of execution. In terms of the Deed, the plaintiff should have been paid the sum of $220,000 on execution thereof, but because the loan funds which the fourth defendant was required to pay at execution, were not forthcoming, the sum due to her could not be paid as was stipulated in the Deed. She then alleges that notwithstanding this failure to provide the loan funds on execution, the first defendant requested that she execute the Deed, execute the transfer of shares and resign as company secretary and a director in accordance with the Deed which she duly did.
19 She deposes that at the time she signed the Deed and executed the transfer she had no reason to believe that the first defendant was not acting for her in the transaction given that she still controlled the Company and the first defendant had usually acted for the Company in the past. The first defendant said nothing to suggest otherwise. The first defendant said nothing to her about a conflict of interest he might have in acting for her or anyone else in the transaction nor did he suggest that she obtain separate representation because he stood to benefit personally from the transaction or because her brother's interest might not coincide with hers.
(Page 9)
20 In argument, Mr Penglis, who appeared for the plaintiff, stressed the difference in the first defendant's conduct between the Elcor proposal and the execution and implementation of the Deed, emphasising that in the absence of similar advice given to her in the Elcor matter, the plaintiff had every reason to believe that the first defendant was acting for her and the Company.
21 At no time did Naidoo or Atkins suggest that she obtain independent legal advice. The plaintiff states that, unbeknown to her at the time, the effect of the transaction was that the first defendant, Atkins and Naidoo became directors of the Company, each having a single vote on the Board.
22 She states that contrary to the terms of the Deed the fourth defendant did not advance the $9,000,000 to the Company within the seven days promised by Naidoo at the meeting or at any time since and she did not receive payment of the $220,000 until approximately October 2002 some four months later. She states that she has since been advised that when she did not receive payment of the amounts referred to above, certain legal rights accrued to her. In relation to the non-payment of the amounts in terms of the Deed, she states that the first defendant did not then alert her to those rights nor to the effect of the Deed in relation to control of the Board. She states that had she been informed of her rights and the true position in relation to the control of the Board each of which she states was fundamental to her agreement to enter the transaction, she would have sought to terminate the Deed or would not have entered the transaction in the first place.
23 The plaintiff refers to certain conflicts on the Board of the Company after the execution of the Deed as related to her by Atkins. The latter expressed concern to her about the failure of the fourth defendant to provide the injection of finance contemplated by the Deed but was informed by Naidoo and the first defendant that he had only one third of the voting rights on the Board of the Company and that the other two directors in effect controlled its operations. This information was in fact conveyed to her in late 2003 which was the first time that she became aware that the transaction had, according to her, not been documented to reflect the agreement as she understood it namely that her family through Atkins would retain effective control of 50 per cent of the Company after completion of the transaction. She states also that during the Board meetings of the Company subsequent to the execution and transfer of shares, as a result of differences between the directors, the first defendant wrote a letter advising Atkins to seek independent legal advice which letter she attached to her affidavit.
(Page 10)
24 As a result of the differences between the parties as evidenced by an exchange of correspondence attached to the plaintiff's affidavit, the Staffa entities ie the second and third defendants, moved the Court to wind up the Company which action, as indicated above, triggered the interim injunction being granted as a matter of urgency.
The Affidavit of the First Defendant
25 In his opposing affidavit sworn on 8 April 2002, the first defendant indicates that he had very limited dealings with the plaintiff and that all the dealings were with Atkins and, to a limited extent, with his wife, Jan Franke. His (first defendant's) belief, as far as he could ascertain from Atkins, was that the plaintiff's only interest in the Company was recouping the sum of $220,000 which Atkins told him she had lent to the Company and not being responsible for providing any further financial support to the Company. The first defendant accepted what Atkins told him that the plaintiff had expended $220,000 for the Company but, for reasons which he sets out in his affidavit, he now does not believe her. In support of his belief the first defendant has attached certain documents, some of which were handwritten by the plaintiff which would suggest that deposits and loans were made from the Atkins Property Trust and not from the plaintiff personally. He argues that if in fact this was the case, it was never brought to his attention by either Atkins or the plaintiff and that he had accordingly been misled by the conduct of the plaintiff in executing the Deed and by her accepting payment of $220,000 from the Company in late October 2002.
26 The first defendant states further that he rarely had contact or dealt with the plaintiff even when she was a director of the Company and that his instructions came from Atkins. The only occasion he recalls on which he discussed anything with the plaintiff was in relation to attempts to recover money lent by Jan Franke, Carina Holdings Pty Ltd and the Company to a company called Horizon Star Pty Ltd. In relation to the Elcor proposal referred to by the plaintiff, the first defendant indicates that the Company and the plaintiff did not instruct him in relation to that transaction; his instructions coming from Atkins.
27 I interpose here to note that in the letter sent by the first defendant to the plaintiff personally in relation to the Elcor proposal, the first defendant stated that he was not acting for the Company nor for her personally but for the purchasers. His instructions would therefore not have been given to him by Atkins as stated in his affidavit but by the purchasers.
(Page 11)
28 In dealing with the circumstances leading up to the loan agreement the first defendant states that the plaintiff did not take part in the discussions. At par 19 of his affidavit the first defendant states that the express purpose and intention of the Deed was to pay the plaintiff the sum of $220,000, purchase her shares at par value of $1 each, achieve Atkins' stated aim of severing the plaintiff's ties with the Company and to secure funding for the Company not only for the gypsum project but for other proposed purchases of assets referred to in the Deed. He states further that it was never the understanding or intention of Atkins, Naidoo or himself that the undertaking by the fourth defendant to secure funding for the Company was intended to provide any rights to the plaintiff, certainly no rights to seek a reconveyance of shares in the Company. According to the first defendant, the object as stated by Atkins was for the latter to retain 50 per cent of the shares and for the persons assisting the Company towards a public float, to obtain the remaining 50 per cent between them.
29 The first defendant contents himself by stating that the plaintiff received the full amount of her bargain as expressed in the Deed namely the payment of $220,000 and payment for her shares. [This statement may be slightly disingenuous in that the payment of the $220,000 was to be made against execution of the Deed. In fact the sum was not paid until there was a threat to institute legal proceedings as a result of which it was paid in October 2002.]
30 The first defendant states (at par 36, of his affidavit) in relation to the meeting for the execution of the Deed as follows:
"The discussions on 13 June 2002 were very short. However, it took the parties some time to read through the document. I let them do this at their leisure and invited them to take the documents away and seek independent legal advice. I did this as a matter of course whenever I produced the documents in relation to Wildbeach for any of the directors or anyone else to sign."
31 This passage directly manifests conflicts with the affidavit evidence of the plaintiff, corroborated by Atkins and constitutes a dispute of fact on a most material point which clearly cannot be resolved on affidavit.
32 Paragraphs 37 to 69 of the first defendant's affidavit relate to the dealings of the Company after June 2002. They essentially recite attempts by the Company, at that stage controlled by the Board consisting of the first defendant, Naidoo and Atkins, to raise capital, and to purchase assets
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- for the purpose of floating the Company on the stock exchange. Those paragraphs do not deal directly with the existence of a retainer (if any) between the plaintiff and the first defendant nor with any breach of such retainer. Because of the view that I take of the present application, it is unnecessary (and indeed inadvisable) for me to discuss those transactions in any detail.
33 It suffices to state that the first defendant refers extensively to the conduct of Atkins in relation to a number of defences raised to the claim for the re-transfer of the shares to the plaintiff. The first defendant claims that in acting in the manner outlined in his affidavit, Atkins was the agent of the plaintiff. The conduct of Atkins at Board meetings of the Company in the post Deed execution period was in his capacity as director representing the fifth defendant. No basis for alleging that Atkins was acting for and on behalf of the plaintiff after 13 June 2002, is apparent to me and no such basis was proffered in argument by the first defendant.
34 In the latter portion of his affidavit however, the first defendant returns to the issues relating to the alleged retainer and breach of duty. At par 70, (page 40) of his affidavit, he states that the assertions by the plaintiff that he had a conflict of interest were not made bona fide and are misconceived because he never acted for her, never opened a file in her name, and had never been privy to her personal affairs. He states that he has dealt with her only in her capacity as the director of the Company and a director of Roseport (which was a wholly owned subsidiary of the Company) and even then, only peripherally because he had dealt almost exclusively on instructions from Atkins. He states that he is of the belief that the plaintiff was never the beneficial owner of shares in the Company but was warehousing them for Atkins or his nominee or for the Atkins Property Trust. Much of the content of par 70 of his affidavit, as reflected above, is either an expression of opinion or speculation, to which little or no weight can be attached.
The Affidavit of Naidoo
35 It appears from the affidavit of Naidoo sworn on 15 April 2004 on behalf of the fourth defendant, that further disputes of fact emerge in relation to what transpired at the meeting of 13 June 2002 where he inter alia denies the plaintiffs' allegation that he stated that the fourth defendant would not be in a position to provide the loan funds of $9,000,000 at the time or upon execution of the Deed but would do so within seven days. He says he made no such representation. It is not quite clear from this passage (in par 8 of his affidavit) what it is specifically that he alleges to
(Page 13)
- be false; whether it was that the fourth defendant was unable to provide the loan funds of $9,000,000 at all or whether it would be able to do so within seven days of execution.
36 Naidoo indicates that he was introduced to Atkins at the offices of the first defendant in about March 2002. He sets out the discussions which were conducted at this meeting at which the first defendant was present when the Company's gypsum project was discussed. Atkins had then indicated that it was contemplated that the Company would require $9,000,000 as pre-float funding. Naidoo informed Atkins and the first defendant that he knew of people whom he considered might be prospective lenders including people known to him in South Africa if the project was a sound one. He states further that Atkins then put forward a proposal by which the fourth defendant could become involved in which he set out the possible proportions in which the various companies might participate. These proportions finally emerged, were agreed upon and were eventually incorporated in the Deed. Of importance is the statement by Naidoo that Atkins stated at the same time that "Staffa Lawyers would continue to be retained by Wildbeach as its 'in house pre-float lawyers' (he was quite adamant about that)". There were also discussions that upon the public float occurring the first defendant would receive a commission of $500,000 for developing the business model for the project and Atkins would receive $1,500,000 commission for work that he had undertaken up until that point in time and that the fourth defendant's role would be to introduce prospective lenders to advance $9,000,000 as pre-float funds.
37 Dealing with the discussion in March 2002, Naidoo indicates that the first defendant stated to him that he had been acting as the Company's in house solicitor and that he had also acted on behalf of Atkins in matters unrelated to the Company's affairs. Naidoo does indicate that at no time did either the first defendant or Atkins indicate that the first defendant had acted or was acting as the plaintiff's solicitor or that she considered that he did so.
38 Naidoo states that the first time he met the plaintiff was at the first defendant's offices on 13 June 2002 when the Deed was signed. This assertion may be open to some doubt as an item charged for by the first defendant in his bill of costs to the Company which is attached to one of the affidavits indicates a meeting in May 2002 attended inter alia by Naidoo and the plaintiff.
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39 Naidoo then deposes to the meeting on 13 June 2002 at the offices of the first defendant with the plaintiff and Atkins and states that he (Naidoo) received no legal advice about the purport or the effect of the Deed.
40 Naidoo denies that the first defendant requested the plaintiff to execute the Deed and other documents in his presence. He states further that at the meeting Atkins agreed to the fourth defendant taking action to secure alternative sources of funding which ultimately resulted in the prospective lenders depositing $3,700,000 in the banking account of the fourth defendant entitled "Beaubourg Pty Ltd – Wildbeach Lenders Trust Account". He states further that the actions taken by the fourth defendant were matters discussed by Atkins, first defendant and himself at Board meetings both formal and informal and nothing was said by Atkins by way of complaint about those actions being taken.
41 Naidoo states that, prior to the Deed and the other documents being signed, either Atkins or the first defendant enquired about the availability of the funds from the Bishop family. He (Naidoo) then stated that negotiations with that family were continuing but were not concluded. He also stated that he was pressing the Bishops and informed them that written confirmation was required from them by Monday 17 June 2002 that the moneys would be available within a matter of days after such confirmation and, if not, that the required funding would be sought from other parties.
42 Naidoo then deposes that both Atkins and the first defendant stated words to the effect that if the Bishops did not give the written undertaking sought, the fourth defendant would be required to arrange alternate finance to enable the company to purchase the Brady assets and Remlap Station, (these were assets to be acquired by the Company out of the loan funds under the Deed) the sums required for that purpose in aggregate amounting to $3,700,000. Naidoo says that on behalf of the fourth defendant he agreed that if the funds from the Bishop family did not eventuate the fourth defendant would provide the sum of $3,700,000. He states that the plaintiff was present during the discussion. Naidoo then states that the plaintiff and he on behalf of the fourth defendant signed the Deed after those discussions had taken place.
43 Without making any findings on this alleged discussion and agreement apparently reached, prior to the execution of the Deed, it is prima facie open to cogent argument that if in fact the discussions and alternative funding agreements deposed to by Naidoo did take place, it is improbable that he thereafter would have signed the Deed which obligated
(Page 15)
- the fourth defendant to lend the sum of $9,000,000 as at the date of the execution thereof. This would reflect an obligation which was entirely contrary to the alleged discussions which took place and which were materially different thereto. Moreover if, as has been suggested, Naidoo was an experienced businessman, it would require a convincing explanation, not found in the affidavits, as to why he signed the Deed in the form drafted. Similarly, it would require an explanation from the first defendant, as the solicitor who drafted the Deed and who, on his own version, acted for the Company as to why the Deed was not amended to reflect the alleged discussion and the apparent agreements to lend to the Company a substantially lesser sum which amount would not be forthcoming at execution of the Deed but at some uncertain time in the future.
44 Naidoo states that subsequently the fourth defendant did raise the sum of $3,700,000 from prospective lenders. He admits that the fourth defendant did not advance the $9,000,000 to the plaintiff on 13 June 2002 or within seven days after that date. However, he denies making any promise on 13 June or at any other time that the fourth defendant would advance $9,000,000 to the Company by 20 June 2002 or by any other time.
45 In relation to the Board meeting on 3 February 2004 held at the first defendant's office (which appeared to be the point at which an irreconcilable difference emerged between Atkins and the other directors) Naidoo states that Atkins asserted that as the fifth defendant held 50 per cent of the shares in the Company he was entitled to a 50 per cent voting entitlement on the Board. Both the first defendant and Naidoo disputed this and the first defendant then referred Atkins to the constitution of the Company which reflected that each director has a single vote. They informed Atkins that the voting on the Board had nothing to do with the shareholder entitlement. Naidoo however denies that either he or the first defendant in his presence said words to the effect that Atkins was powerless to address any issues on which Naidoo and the first defendant may have taken a contrary view, (although this appears to have been the effect of the constitution disclosed to Atkins at that meeting).
46 Naidoo states that the fourth defendant has expended substantial sums of money and has undertaken "various matters" for the Company and would not have done so nor would it have provided ongoing funding for the Company's day to day operations had he been aware that notwithstanding the plaintiff's receipt of the moneys claimed to have been
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- owing to her and indicating that she would have no further involvement in the Company, the plaintiff would subsequently assert an entitlement to the return of the shares conveyed by her. Nor would the fourth defendant have become involved with the Company if the basis of it doing so was that Atkins or parties to which he was related or interested held more than 50 per cent of the shares in the Company. (This statement by Naidoo is rather curious because it was open to the Staffa entities to have disposed of their shareholding to a new shareholder whose director might well have aligned himself with Atkins on the Board).
47 Accordingly Naidoo on behalf of the fourth defendant supports the application made by the first defendant to wind up the company because such a course would permit a liquidator to conduct an orderly realisation of the assets of the company.
The Affidavit of Atkins
48 Atkins has filed an affidavit on behalf of the fifth defendant dated 17 May 2004 in which he indicates that he was present at the meeting on 13 June 2002 together with the first defendant, the plaintiff and Naidoo. Atkins states that, although he was not a signatory to the Deed, he did read through it at the meeting because of his interest in the acquisition of 50 per cent of the shares of the Company by the fifth defendant which he controlled. He confirms that the plaintiff and Naidoo read the agreement. Atkins however confirms the version of the plaintiff in denying that at the meeting the first defendant invited him to take those documents away and to seek legal advice. He states further that the first defendant did not in his presence extend such an invitation to the plaintiff or Naidoo at the meeting. In fact at no time prior to the meeting did the first defendant advise him to seek independent legal advice in relation to the Deed or related matters.
49 Atkins also denies the first defendant's statement that he invited the parties to seek independent legal advice as a matter of course whenever he produced documents in relation to the Company for any of the directors or anyone else to sign. Atkins estimates that over the period 1999 to date, the first defendant had prepared approximately a dozen documents with respect to the Company for signature including signature by him (Atkins) in his capacity as director and as controller of the fifth defendant as a 50 per cent shareholder since June 2002. Atkins states that, to his knowledge, the only occasion on which the first defendant had ever invited the taking of independent legal advice was in his letter to the plaintiff dated 28 November 2001 in relation to the Elcor proposal which
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- was annexed to the first defendant's affidavit in the winding up proceedings, sworn 10 March 2002.
Preliminary Issues
50 A preliminary issue was raised by the first defendant to the effect that this Court has no jurisdiction to enjoin a winding up of the Company because the plaintiff is neither a contributory nor a creditor. It is also argued on the authority of Oakes v Turquand & Anor (1867) LR 2 HL 325 that an application for rescission/restitution cannot be made after an application has been made to wind up the Company. In my view there is no substance in either contention raised in so far as it relates to the circumstances of this case. In the first instance the argument misconceives the nature of this application. The Court is not dealing with the winding up order and the fact that the plaintiff is neither creditor nor a contributory of the Company is totally irrelevant. The relief claimed in the action is for a declaration that the shares in the Company forming the subject matter are held in a constructive trust and that the holders thereof be prohibited from transferring those shares. Its purpose is to preserve assets pending the adjudication of a pending trial. The claim is not one for rescission or restitution. Moreover, Oakes is clearly distinguishable. In that case the Court dealt with calls on contributories and the right of members to obtain an order to be removed from the register of contributories after proceedings for winding up had been commenced. The Court held in that case, that after winding up proceedings have been commenced, the Court could not entertain applications by contributories or members to have their names removed from the register of members. Today, calls on contributories for contributions for partly paid up shares no longer exist and are a thing of the past. The ruling in Oakes is therefore unhelpful and can have no possible application to this case. It would indeed be extremely surprising if the very person alleged to be responsible for the present state of affairs of the Company (the first defendant who is alleged to have been under a fiduciary duty and to have been in breach thereof) were, through his companies, (the second and third defendants), able to prevent the issue of an injunction designed to protect the interests of a person who is alleged to have been the victim of his breach. I accordingly reject the first defendant's contention that the Court lacks jurisdiction to grant the relief claimed herein.
51 The first defendant also argues that the Company has not been joined as a party and has not been given an opportunity to be heard. There is in my view no reason why the Company should in fact have been joined as the relief claimed is, as indicated above, designed merely to preserve the
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- assets of a previous shareholder in the Company by granting relief against the subsequent shareholders who have acquired her shareholding. The Company per se has no interest in such an application.
52 It is trite law that in order to succeed in an application for an interlocutory injunction (or an extension thereof) the plaintiff must satisfy the Court that there is a serious question to be tried and that the balance of convenience rests in his or her favour. I proceed to deal with each element in turn.
Serious Question to be Tried
(a) The claim against first to third defendants
53 The basis of the claim by the plaintiff is that the first defendant acted as her legal adviser, owed a fiduciary duty to her and breached that duty. It is common cause that the first defendant, on his own version, acted for the Company and owed a fiduciary duty to it. It is argued from the fact that the fiduciary duty was owed to the Company, the plaintiff being its sole beneficial shareholder and director was the embodiment of the Company itself and that the fiduciary duty was accordingly also owed to her. Counsel for the plaintiff argued in any event that there was an express retainer which had been entered into between Atkins, acting for and on behalf of the plaintiff, and the first defendant: Maguire & Anor v Makaronis (1997) 188 CLR 449 at 466. In the alternative it was argued that a retainer is to be implied in all the circumstances (Pegrum v Fatharly (1996) 14 WAR 92). In the further alternative it is argued by reason of the work and advice provided by the first defendant in his capacity as a solicitor with respect to matters concerning the plaintiff and the Company and the trust and confidence which the plaintiff reposed in him (to the first defendant's knowledge) there was a fiduciary duty owed by the first defendant to the plaintiff (Day v Mead [1987] 2 NZLR 443; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; "The Laws of Australia", vol 15.2, ch 2, [4-11].
54 It is necessary, in the first instance to determine whether there is a serious question to be tried in relation to the existence of a retainer between the plaintiff and the first defendant or at least, of a fiduciary duty between them. On the material before me, I am unable to find an express retainer that the first defendant act as the plaintiff's solicitor in relation to this transaction. None of the deponents depose to that effect while the first defendant denies the existence of any kind of retainer, on behalf of the plaintiff.
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55 However, I am of the view that on the evidence placed before me, a case for an implied retainer is distinctly arguable. As was observed by Anderson J in Pegrum (supra):
"A retainer will be presumed if the conduct of the parties shows that the relationship of solicitor and client has, in fact, been established …
When both parties to a transaction consult the same solicitor and together give him the information needed to prepare the documents in which their respective rights and obligations are to be set out and the solicitor accepts responsibility to prepare the documents without any indication that he cannot fully discharge his professional duties to them both there is a strong bias towards finding that the solicitor tacitly agrees to act for both parties and to undertake the usual professional responsibilities to them both: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] 1 Ch 384 especially at 396. In the absence of a clear indication by the solicitor that the solicitor does not accept one of the parties as his client it is natural in such a case to assume both are relying on him for professional advice and assistance. This follows from the mere fact that both have consulted him. There may be other circumstances which show that there is no reliance by one or other of the parties on the solicitor, but, if not, reliance should be inferred as a fact. And when a solicitor accepts responsibility to do professional work requiring special knowledge and skill and there is in fact a reliance on him to apply his expert knowledge and skill in the performance of that work, there exist 'the elements which lie at the heart of the ordinary relationship between a solicitor and his client...' see Hawkins v Clayton (1988) 164 CLR 539, per Deane J at 578. This is not a special rule applicable only to solicitors, I do not think. For an example of its application to a statutory auditor see Shire of Frankston and Hastings v Cohen (1960) 102 CLR 607 at 619, per Fullagar J.
This does not mean a solicitor whose services are sought by both parties is bound to accept that he is to serve both parties. He can refuse to do so and elect to act for one party only. This requires a very clear statement by the solicitor that this is to be his position. It has even been held that he is duty bound in such a case to positively recommend that the other party get another solicitor and take independent advice before entering into the
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- transaction, and, in the event that recommendation is not followed, to give him proper advice as to the risks in signing the documents: see Irvine v Shaw (1992) ANZ Conv R 83."
56 It is not suggested that the first defendant has in his case acted for all parties or that he purported to act on behalf of Naidoo (although the plaintiff says she was introduced to him by the first defendant as his client). This fact however does not detract from the principles stated by Anderson J insofar as it affected the plaintiff, the Company and Atkins and the conflict of interest situation of the first defendant in the present transaction.
57 As pointed out by counsel for the plaintiff, the approach outlined in Pegrum was in fact followed by the first defendant in relation to the Elcor proposal referred to above where in the letter to the plaintiff personally he indicated that he was not acting for her in that transaction, advised her to seek independent legal advice informing her that the reason for the necessity to seek such advice was the conflict of interest which he had. A letter to that effect was not written in the instant case, the first defendant alleging that he did not write a similar letter in relation to the Deed because he was not acting for the plaintiff on this occasion. However, he was not acting for her in the Elcor proposal either when he saw fit to advise her to seek independent legal advice. The failure to advise the plaintiff as he did in the Elcor proposal that he was not acting for her in relation to her transfer of her shares – can arguably give rise to the inference which plaintiff's counsel invites me to draw, namely that the first defendant was acting on her behalf in relation to the transfer of her shares under the Deed.
58 As indicated above the first defendant has on his own version stated that he did advise her to obtain independent advice in relation to the Deed but it is argued on behalf of the plaintiff that even that did not go far enough because of a failure to inform the plaintiff (who has relatively little commercial experience) as to why that independent legal advice was required. There is nothing before me to suggest that the first defendant (even on his own version) warned the plaintiff of the risks involved in executing the Deed and transferring the shares without simultaneously receiving consideration therefor.
59 It should be noted further that while the first defendant asserts that he only ever acted on behalf of the Company and not on behalf of the plaintiff and that he took instructions from Atkins and not from the plaintiff, there is documentation attached to the affidavit of the plaintiff
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- which casts doubt on those assertions. The letter to the plaintiff in the Elcor proposal in which he informed the plaintiff personally that he was not acting for her in that matter clearly suggests that he had previously acted for her personally, or that she could well be under the impression that he had done so.
60 In addition, in a letter written by the first defendant on behalf of Roseport to the Company dated 19 November 2001, he states that it is written "on instructions from Mrs. P Gray, director of Roseport P/L", which negatives his affidavit assertion to the contrary namely that he only took instructions from Atkins. (Plaintiff's affidavit Annex PDG8.)
61 The first defendant, who, as stated above, appeared personally, drafted and filed an extensive outline of submissions, in which he repeatedly referred to Atkins who instructed him, as "the agent of the plaintiff". When this was put to him in argument, the first defendant stated that the submission was "unfortunate" or badly phrased and that he meant that Atkins was the agent of the Company. However, the submission was made in the context of seeking to hold the plaintiff personally responsible for the conduct of Atkins subsequent to the transfer of the shares. He therefore could not have intended, in that context, to have referred to Atkins as acting on behalf of the Company.
62 Counsel for the plaintiff and the first defendant each pointed to a number of inconsistencies to be found in the affidavits of the deponents in the various proceedings which are on foot between the parties hereto. It would be incorrect for me to make preliminary findings or even comment on these inconsistencies save to indicate that they impact on the credibility of the various potential witnesses should I find (as I do) that there are serious questions to be tried.
63 There is therefore at least a prima facie basis for finding that, in relation to the existence of an implied retainer, there is a serious question to be tried. It is not necessary for me to determine whether, absent such a retainer, a fiduciary duty nonetheless exists on "the trust and confidence" basis submitted on behalf of the plaintiff in light of the authorities referred to above.
64 It remains for me to consider whether there is a serious question to be tried in relation to an alleged breach of that duty. The basis for the breach is stated to be that where a legal practitioner has put himself in a position of personal dealing with a client, the practitioner should not proceed with the dealing unless and until the client is warned of the
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- conflict of interest which the practitioner has in the transaction and has had it explained to the client. The client must be in a position to make a free and fully informed decision about the transaction. Usually, as pointed out by counsel for the plaintiff, this involves the practitioner insisting that the client has the benefit of independent legal advice before allowing the transaction to continue. It was argued that the very least the practitioner would need to show is that he has done everything to protect the client's interests including ensuring that the client is aware of every circumstance that is or might be relevant to the client's decision and advising the client on any aspect of the transaction in respect of which the practitioner may be in a position of advantage over the client. It is contended that the practitioner must demonstrate that he has done as much for his client as he would have done had he been acting for his client and the client was dealing with an independent third party. (Maguire v Makaronis (supra).)
65 The material which has been placed before me throws up a number of disputes of fact which cannot be resolved on affidavit which in my view indicates that there is a serious question to be tried. Nothing is more evident than the serious disputes of fact in relation to what actually transpired at the meeting of 13 June 2002 where according to the version given by the first, second and third defendants there was a discussion as to the non-availability of the $9,000,000 which was to be paid upon execution in terms of the Deed and a discussion that if that amount could not be raised then an amount of $3,700,000 could then be raised in order to buy the Brady assets and the Remlap Station. These allegations are denied by the plaintiff and by Atkins, the plaintiff saying that all she was told was that the $9,000,000 was not immediately available but would be paid within seven days and on that basis she was requested by the first defendant to sign the Deed and to execute the documents transferring her shares to the defendants. Naidoo in his affidavit deposes that at no stage was there a promise to lend $9,000,00 by the fourth defendant.
66 A further conflict of note is the allegation by the first defendant that he did require the plaintiff to seek independent legal advice and to take the documents away to study them. This again is denied by the plaintiff. Without wishing to make any specific findings it is at least arguable that had the discussion about the payment of $3,700,000 instead of the $9,000,000 taken place and been agreed upon at the meeting it is difficult to understand why the plaintiff and the Company were allowed by the first defendant to sign the document in the form in which it was. It could well be argued that, under normal circumstances had there been such a discussion and such an agreement, the Deed would have been amended by
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- recording such a material variation and by the deletion of the phrase that the amounts specified in the Deed were payable "upon execution" thereof.
67 The first defendant's failure to rectify the Deed and his conduct in permitting the plaintiff to transfer her shares to himself and others thereby to relinquish control of the Company without, at the same time, receiving the agreed consideration therefor prima facie constitute a breach of that fiduciary duty.
68 On the first defendant's own version there is a possible further breach of his fiduciary duty in that, he did not explain the risks of the transaction to the plaintiff, nor did he explain his own conflict of interest.
69 I find therefore, in relation to the question whether there has been a breach of a fiduciary duty, that there is a serious question to be tried. I find further, in relation to the plaintiff's claims against the first to third defendants inclusive and subject to an affirmative balance of convenience finding that, the interim injunction should be extended pending the determination of those issues by a trial court.
(b) Claim against fourth defendant
70 The claim against the fourth defendant is based on an allegation that it had actual or alternatively constructive knowledge of the existence and breach of a fiduciary duty owed by the first defendant to the plaintiff, that it entered into the Deed and obtained benefits thereunder with such knowledge and that therefore it holds the shares transferred to it under the Deed on constructive trust for the plaintiff. A further claim against the fourth defendant is framed in terms of a contravention of s 51AA of the Trade Practices Act 1974 ("the TPA") based on its actual alternatively constructive knowledge in relation to the Deed of circumstantial facts which rendered its conduct unconscionable.
71 It is common ground between the plaintiff and the fourth defendant that the latter (through its director, Naidoo) knew the first defendant was a legal practitioner who acted as such for the Company. The fourth defendant also knew that the plaintiff was the sole beneficial shareholder and director of the Company. It is further admitted, on behalf of the fourth defendant at the hearing, that it was aware that the first defendant drafted the Deed in his capacity as solicitor and that, under the Deed, the first defendant was taking a direct and, through the second and third defendants, an indirect interest in certain shares in the Company by way of transfer from the plaintiff.
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72 Mr Beech, who appeared for the fourth defendant, has contended that his client's knowledge of the facts outlined above does not establish that it had actual or constructive knowledge of the existence of a fiduciary duty owed by the first defendant to the plaintiff and of the breach thereof. (Hancock Family Memorial Foundation v Porteous (1999) 151 FLR 191 at 209 [79]). He has correctly emphasised the need to distinguish between a fiduciary duty owed to the Company as opposed to one owed to the plaintiff personally. Counsel has referred the Court to a paragraph in Naidoo's affidavit which refers to a discussion between the first defendant, Atkins and Naidoo at which the first defendant allegedly stated that he was acting as solicitor for the Company and not for the plaintiff. Counsel pointed to the fact that Atkins did not deny that fact.
73 In Hancock's case (supra), Anderson J (at 209 [79]) dealt with the question of recipient liability of trust property in the following terms:
"Recipient liability may be established if the defendant had actual or constructive knowledge at the time he received that relevant property that (a) it was trust property: and (b) it was being misapplied. The defendant will be taken to have constructive knowledge if it is proved that he wilfully shut his eyes to the obvious; that he wilfully and recklessly failed to make such enquiries as an honest and reasonable man would make in the circumstances; and that he knew of circumstances which would indicate the true facts to an honest and reasonable man. If all that is proved is that the defendant had knowledge of circumstances which would put an honest and reasonable man on enquiry, that is not enough."
74 It is in my view of the circumstances disclosed by the affidavits, open to serious question whether in fact the passage referred to in Naidoo's affidavit accurately reflects Naidoo's understanding for whom the first defendant was acting as a solicitor as there are other paragraphs in the same affidavit which would indicate that Naidoo believed that the first defendant was acting for the plaintiff and not the Company. In par 5 of Naidoo's affidavit, Naidoo states that initially he thought that Atkins was the first defendant's client. In par 5(3) of his affidavit, he was told by the first defendant that he was appearing for "a client". A reference in that paragraph to a meeting with that client indicated, arguably, that the "client" was a person and not a company. At par 31 of his affidavit, Naidoo later discovered that the plaintiff, not Atkins was the owner of the shares. It was contended by counsel for plaintiff – and in my view it is clearly arguable – that when Naidoo who believed Atkins to be the client,
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- discovered that it was the plaintiff who was the owner of the shares, any statement by Naidoo that he did not understand the plaintiff to be the first defendant's client but that the Company was, is – according to plaintiff's counsel – untenable. Counsel argued further that it was unlikely that Naidoo, a layman, would have drawn nice distinctions between a corporate personality and an individual. It was probable – so the argument ran – that when he discovered that the plaintiff and not Atkins was the owner of the shares, Naidoo understood the plaintiff to be the client of the first defendant.
75 Given that the fourth defendant accepts the facts referred to earlier as being common ground between the parties, plaintiff's counsel has argued that on Naidoo's evidence, Naidoo understood the plaintiff to be the first defendant's client when he discovered that the person he thought to be the client (Atkins) was not the owner of the shares. It is argued further that with that knowledge, and the knowledge that the first defendant's client was parting with her shares not only to the fourth defendant but to her own solicitor without receiving any remuneration as a consideration therefor and with the further knowledge by the fourth defendant that it was not in a position to pay any of the amounts it was obliged to pay on execution under the Deed or within seven days thereof and did not know when, if at all, such sums would be paid, the requirements laid down by Anderson J in Hancock's (supra)case have been satisfied. This was not merely a case of an honest and reasonable man being put on enquiry. It is argued that Naidoo wilfully shut his eyes to the obvious; Naidoo wilfully and recklessly – so the argument ran – failed to make such enquiries as an honest and reasonable man would make in the circumstances. The argument raised on behalf of the plaintiff is cogent. It suffices for present purposes, to state that I need only find that that issue raises a serious question which needs to be tried, and I so find.
76 In relation to the plaintiff's claim against the fourth defendant under s 51AA of the TPA, counsel for the fourth defendant argued that in making findings of unconscionable conduct, the Court is not at large (ABC v Lenah Game Meats Pty Ltd (2001) 185 ALR 1 at 28) but is limited to established categories of equitable relief. (ACCC v Samton Holdings Pty Ltd (2002) 189 ALR 76 at 92 [48] – [49]). He correctly conceded that those categories are not frozen. (ACCC v C G Berbatis Holdings Pty Ltd [2003] HCA 18 at [38], [40] and [55]). Counsel contended however that the only one of the established categories which had possible application in the instant case was the ground of relief dealt with by the High Court in Commercial Bank v Amadio (1983) 151 CLR 447.
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77 Counsel contended that in order to bring the plaintiff within the reach of unconscionable conduct under s 51AA she had to establish that she was not only under a special disadvantage but also that that was sufficiently evident to the fourth defendant to make it unconscionable for the fourth defendant to seek to retain the shares transferred to it by the plaintiff (Amadio at 474).
78 Counsel for the fourth defendant in addition, relied on the following passage in ACCC v Samton (supra):
"Characterisation of a disadvantage as 'special' involves a recognition that it would be unconscionable knowingly to deal with the person so affected without regard to his or her disability, be it constitutional, in the sense of inherent, or situational, in the sense of arising from a particular set of circumstances." (At [65] per the judgment of the Full Court of the Federal Court).
- The joint judgment proceeded as follows:
"In effect this may require some special conduct or care which is not necessary in the absence of such disadvantage."
80 The disadvantage under which the plaintiff operated to the knowledge of the fourth defendant was – according to the plaintiff's counsel – that she was represented by the first defendant who drew the Deed and acted as her solicitor. As stated above, the fourth defendant was aware that the first defendant, as the plaintiff's solicitor requested or permitted her to execute a Deed and to transfer her shares to the fourth defendant and to himself and his companies (second and third defendant) without the benefit of independent legal advice. Moreover, the execution of the Deed and transfer of shares by her to the fourth and first defendant and his entities were effected without receipt of the sums of money to be
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- paid by the fourth defendant to the Company and to her, at execution of the Deed or within seven days thereof, at a time when the fourth defendant knew that the sum of $9,000,000 payable to the Company and the sum of $220,000 payable to her were not available. In addition the fourth defendant did not know at that time if and when those sums would ever become available for payment to the plaintiff. That disadvantage of which the fourth defendant was aware was "special" in the sense that it was unconscionable for the fourth defendant knowingly to have dealt with the plaintiff without regard to that disadvantage or disability arising from the above set of circumstances. The argument of the plaintiff's counsel proceeds on the basis that it was sufficiently evident to the fourth defendant on these facts (in the sense that it was obvious to the fourth defendant) that it was unconscionable for the fourth defendant to seek to retain the shares of the plaintiff transferred to it, under the above circumstances.
81 I find that if the facts and circumstances relied upon by the plaintiff can be established (and I find that the inferences are distinctly arguable) the provisions of s 51AA of the TPA could well be triggered. The issue is therefore a triable question, which, subject to the question of a balance of convenience considered below, should be determined by a trial court.
Balance of Convenience
82 It has been urged upon me by the first defendant on behalf of himself and the second and third defendants and by counsel for the fourth defendant that the balance of convenience favours the discharge of the interim injunction. It is argued that because of the deadlock on the Board the Company is dysfunctional and cannot survive in that state until the date of a trial; that the Company is insolvent and ought to be wound up and that the Company has incurred so much debt in acquiring assets and has changed so substantially since 13 June 2002 that it is now too late to re-transfer the shares to the plaintiff.
83 The so-called "deadlock", to which the first to third defendants refer, is a disagreement which Atkins as a director representing the fifth defendant has with the remaining two directors (first defendant and Naidoo) on certain issues raised and considered by the Board. However, it is common ground that under the constitution of the Company, each director has a vote with no casting vote being available. The fact that there is a disagreement with Atkins does not render the Board dysfunctional. The two directors can simply out vote Atkins. There is therefore no "deadlock". The fact – as stated by the first defendant from
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- the Bar table – that the remaining two directors feel compelled to accede to Atkins' view is in my view irrelevant.
84 It is contended by the first to third defendants that the Company is insolvent and that the injunction should be discharged in order to permit it to be wound up. The winding up proceedings presently on foot at the instance of the Staffa entities are based on the provisions of s 461(1)(k) of the Corporations Act. That subsection invokes the power of the court to make a winding up order on the ground that it is just and equitable to do so. Insolvency was not the basis of the winding up proceedings.
85 In addition, as was pointed out by counsel for the fifth defendant, the assets of the Company consist exclusively of exploration licences, the statutory fees for which the fourth defendant has undertaken to pay and has in fact paid. There is no day-to-day trading by the Company, its main creditor being the first defendant in respect of his legal fees. The largest creditor of the company, other than the first defendant, is owed approximately $1,800. According to the affidavit of Atkins in the winding up proceedings dated 23 March 2004, Atkins has undertaken to meet any debts of the Company as and when they fall due. As far as the debt owing to the first defendant is concerned, Atkins, in an affidavit dated 5 March 2004 filed to set aside a statutory demand made by the first defendant for his fees, attached a letter from the first defendant to the Company in which he agreed, in effect, to defer payment in respect thereof.
86 Fairly substantial funds have been lent to the Company by the fourth defendant in the interim (but nothing approaching the $9,000,000 required under the Deed or nothing approaching the $3,700,000 alleged by the first to fourth defendants to be paid under the Deed on their version). The monies paid by the fourth defendant are, in terms of the Deed, repayable on the flotation of the Company on the stock exchange. The assets of the Company are accordingly not at risk.
87 The argument proffered by the first defendant that "the Company has changed" by virtue of the purchase of further assets and the investment by the fourth defendant of large sums of money and that it is therefore too late for the plaintiff to claim the relief requested, is unconvincing. The re-transfer of shares will not affect the position at all. The above are liabilities of the Company and the identity of the holders of its shares is irrelevant.
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88 On the other hand, if the injunction were discharged and the defendants were permitted to deal with or dispose of their shares, the plaintiff, if successful in the action, would be deprived of her right to the proprietary remedy which she claims. The action is one in rem and she would be entitled to the re-transfer of the shares if successful. Contrary to the submission made by the first defendant, the payment of damages would not be an adequate remedy. Moreover should the injunction be extended and the plaintiff were successful at trial, the alleged deadlock, which is the basis of the winding up proceedings would, on re-transfer of the shares, no longer exist.
89 I am accordingly of the view that the balance of convenience favours the plaintiff.
90 In light of the conclusion arrived at by me, I am prepared to order that the interim injunction issued by this Court on 8 April 2004 be extended in the terms expressed in that order to the conclusion of the trial of the action or to a further order of this Court.
91 The order which I propose to make subject to hearing counsel on the precise form thereof is as follows:
1. The defendants be restrained and an injunction is hereby granted restraining the defendants whether by themselves, their officers, servants, agents or otherwise, from selling, pledging as security or otherwise disposing of or dealing with their shares in Wildbeach Corporation Pty Ltd (ACN 089 979 224) ("Wildbeach"), until the conclusion of the trial (CIV 1417 of 2004) between the parties hereto or until further order of this Court;
2. The first, second, third and fourth defendants be restrained and an injunction is hereby granted restraining the first, second, third and fourth defendants whether by themselves, their officers, servants, agents or otherwise, from taking any further steps to wind up Wildbeach in proceeding number COR 16 of 2004 before this honourable Court or otherwise, until the conclusion of the trial (CIV 1417 of 2004) between the parties hereto or until further order of this Court;
3. The parties are given liberty to apply on 72 hours notice.
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