Grego v Terpu
[2004] WADC 154
•22 JULY 2004
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: GREGO -v- TERPU [2004] WADC 154
CORAM: HH JACKSON DCJ
HEARD: 9, 10, 12, 26 & 29 MARCH 2004
DELIVERED : 22 JULY 2004
FILE NO/S: CIV 2003 of 2001
BETWEEN: TONY GREGO
Plaintiff
AND
JOHN SOTIRIOUS TERPU
Defendant
Catchwords:
Contract - Shares and options
Legislation:
Nil
Result:
Judgment for plaintiff in sum of $30,000 plus interest and costs
Representation:
Counsel:
Plaintiff: Mr R H B Pringle QC
Defendant: Mr M G Pendlebury
Solicitors:
Plaintiff: Smyth & Thomas
Defendant: Clayton Utz
Case(s) referred to in judgment(s):
Johnson v Perez (1988) 166 CLR 351
Case(s) also cited:
Nil
HH JACKSON DCJ:
Background
The plaintiff claimed $170,000 by way of damages plus interest thereon and costs from the defendant. The claim arises out of dealings between them in 2000 and 2001. The plaintiff was a share trader as well as being a longer-term shareholder in certain businesses. The defendant was the managing director and a shareholder in Conquest Mining NL (hereinafter called "Conquest"), a publicly listed company.
Claim and defence
The plaintiff says that they agreed orally on or about 3 March 2000, that the defendant would sell to the plaintiff 1,345,310 Conquest options expiring 30 June 2000 to subscribe for ordinary fully paid Conquest shares and 345,310 ordinary fully paid Conquest shares for $120,000, with transfer to the plaintiff of the options and shares to be effected forthwith.
The plaintiff agreed to pay $50,000 immediately, and the balance upon transfer of the options and shares.
The defendant says that the agreement was partly written and partly oral, and that the terms were that the plaintiff would purchase the shares for $79,421.30 or 23 cents each, and the options for $40,359.30. The defendant says that the options and the shares were agreed to be transferred to the plaintiff when the plaintiff paid the sum of $120,000 to the defendant. Of this it was agreed that the plaintiff would immediately pay $50,000 and that the remainder would be paid within two weeks.
It is agreed that on 3 March 2000 the plaintiff wrote and gave to the defendant two cheques, one of which was in the sum of $37,000 with the name of the payee omitted, and the other in the sum of $13,000 naming the defendant as the payee.
It is also agreed that on 15 March 2000 the plaintiff paid to the defendant a further $30,000 by cheque made payable to Valley Brook Investments Pty Ltd (hereinafter called "Valley Brook"). It is agreed that in all $80,000 was thereby paid pursuant to the Agreement.
The plaintiff says that on or about 30 March 2000 the two met and that the defendant told the plaintiff that he would arrange for the shares and options to be transferred to the plaintiff by Monday, 3 April 2000, and that the plaintiff confirmed that he would pay to the defendant the balance of the purchase price, $40,000 upon transfer. It is agreed that the defendant did not transfer the shares and options to the plaintiff by Monday, 3 April 2000.
The defendant's version of the agreement is that he was not obliged to deliver either the shares or the options to the plaintiff until the plaintiff paid the balance of the agreed price, $40,000.
It is agreed that on 3 April a handwritten note was signed by the defendant but the parties differ as to why it was written and its meaning. It is also agreed that the balance of price was not then paid.
The defendant says that in a telephone conversation in July or early August 2000, the plaintiff informed the defendant that he was not prepared to pay the balance of the price and requested that the defendant transfer the shares to the plaintiff. Further, or in the alternative, the defendant says that by an oral agreement made on or about 9 August 2000 they agreed that in satisfaction and discharge of any rights or claims which the plaintiff had or might have had under the agreement, the defendant would cause to be transferred to the plaintiff the shares and a further 85,000 Conquest fully paid ordinary shares.
On or about 14 August 2000 the defendant transferred the shares to the plaintiff. It is the defendant's case that both the transfer of the shares and of a further 85,000 shares was pursuant to the August agreement.
The plaintiff says that in or about January 2001 the defendant offered to immediately transfer to the plaintiff 2,000,000 options to subscribe for ordinary fully paid Conquest shares expiring in June 2005, because of the defendant's failure to transfer to the plaintiff the 1,345,310 options which were to be transferred pursuant to the March 2000 Agreement, and that the plaintiff accepted the offer in satisfaction of his claim against the defendant with respect to the defendant's failure to transfer the earlier 1,345,310 options to him.
The plaintiff says that despite demand the defendant has failed to transfer the 2,000,000 options pursuant to the January 2001 Agreement, and says that at all material times he was ready, willing and able to pay the sum of $40,000 to the defendant in return for the transfer to him of the options. The defendant denies having ever been under any obligation to comply with that demand.
The defendant says that in the only discussion which the defendant had with the plaintiff concerning options in January 2001 the defendant suggested that the plaintiff acquire, at a price of 17 cents per share, 2,000,000 ordinary fully paid shares in Conquest that were available for placement at the discretion of the directors of Conquest, each of which shares had an option attaching thereto. He says the plaintiff did not agree.
Quantum of claim
The plaintiff says that he intended to sell the 2,000,000 options or exercise them before their expiration, but that as a result of the defendant's breach of contract, he lost the opportunity to sell them and has suffered loss and damage as a result.
Particulars of loss and damage are quantified thus:
"If the 2,000,000 … options had been transferred by the defendant to the plaintiff pursuant to the January 2001 … Agreement the plaintiff would have sold the options in early March 2001 when their sale price reached $0.105.
Taking into account the shares which were transferred to the plaintiff in August 2000, the plaintiff's loss is the sum of $170,000."
Total value of shares and options which should have been received by the plaintiff:
| 345,310 shares @ $0.175 each (price at time of transfer in August 2000) | $ 60,429.25 |
| PLUS 2 million options @ $0.105 each | $210,000.00 |
| $270,429.25 | |
| less value of shares received | $ 60,429.25 |
| $210,000.00 | |
| less balance of purchase price not paid | $ 40,000.00 |
| $170,000.00" |
The defendant, in addition to denying the plaintiff's version of events and liability pleads that if the defendant breached the 2001 Agreement, then the plaintiff failed to mitigate his loss and damage by not purchasing 2,000,000 options on market as soon as was practicable after the defendant's breach or alternatively by not using the $40,000 still owing to the defendant under the March 2000 Agreement to purchase options as soon as was practicable after the defendant's breach of the January 2001 agreement.
The counterclaim was withdrawn at the commencement of the trial. The plaintiff is to have the costs thereof.
Plaintiff's evidence
The plaintiff describes himself as a company director. At trial he had known the defendant for five or six years through business dealings which commenced in 1998. The plaintiff says that in this period out of dealings between them the defendant came to "owe" him 85,000 Conquest shares.
In March 2000 he was again at the defendant's office when the defendant suggested that he sell to the plaintiff 345,310 shares and 1,345,310 options. The defendant told him he needed to settle some personal matters. He agreed and immediately wrote out two cheques totalling $50,000 as requested by the defendant.
It was agreed that:
"as soon as he transferred the shares I was going to pay the balance, and he was going to transfer the shares straight away."
On 15 March the defendant asked him for more money and the plaintiff asked 'Where are the shares? What's happening with the shares?' However, he agreed to advance a further $30,000 and the defendant agreed to transfer the shares. Thereafter he continued to request transfer of the shares and options.
"Go on?---Just probably at the end of March I got pretty annoyed and I went up to his office and I wanted to know where the shares were and I asked for something in writing with the shares and when I'm going to get the shares, so he gave me that letter – 'I will be doing it on Monday morning' ".
He went with Mr Joe Ravlich. The document is exhibit 5. The defendant agrees that he wrote:
"1 345 310 opp CQTOA
345 310 shares CQT
Consideration $120k
Will be transferred Monday 3-4-2000" and signed.
The shares and options were not transferred however, and he made various phone calls to the defendant asking for them, in addition to discussions at the defendant's office and over lunch. On 28 April he sent the defendant a fax reading simply:
"1. ABN Details
2. Dockers (Diamonds)
3. Mahogany Room
4. Open account with Leo's Brokers
5. T/f 1345310
345310"
He was asked to explain:
"What's ABN?---ABN is my stockbroker.
And what are those details?---My account details
For what purpose?---For the transfer of the shares. Number 2, I'm a member of the Dockers so I've got a membership application form so he would sponsor the Dockers. Number 3, that was ‑ ‑ ‑
…
All right; and then 3? …The third one was a membership for the Mahogany Room in Melbourne.
PRINGLE, MR: What is that?---that's the Casino in Melbourne. …
Who's Leo?---Leo is an acquaintance of ours in Melbourne.
Nothing to do with this case?---No. He's just a broker in Melbourne.
And paragraph 5?---Paragraph 5 is again reminding him, "Transfer 1,345,310 options and 345,310 shares."
He denied that he would have had any problem in paying the outstanding balance of the purchase price. Some attempt was made to prove, and to disprove that, by reference to monies held by the plaintiff in credit in his cheque account at the ANZ Bank. However, no attempt was made in any systematic way by either counsel to explore the other aspects of his financial situation and little can be drawn from such a solitary source. I accept the plaintiff's evidence on the matter. He clearly had no difficulty writing out the earlier three cheques for $80,000 in all and the evidence including exhibits 7-10 points to him having significant other assets and interest.
He agreed that on 18 August 2000 he had received 430,310 shares. By then the original options had expired but they had been able to be extended by a further five years upon payment of 3 cents per option. Despite various promises from the defendant the options were not delivered.
In January 2001 he again approached the defendant about the options and the defendant offered him 2,000,000 of the then current options "instead of the 1,435,000".
"What did you say to that?---Of course, I accepted. I accepted it and I waited for them to be transferred, and then nothing happened.
Did you ever see him again in his office?---Yes. Then in about – you know I always believed, 'Yes, next week' or, 'At the end of the month' something was going to happen and then at the end of May I went up to his office and – sick and tired of waiting and I just said, 'Where's the shares?' and he says, 'No, I don't have to give you any shares, any options' and that was it. I left it at that and I says ‑ ‑ ‑
Did you say anything to him at the time? --- Yes, I said, 'I'll fix you up with something. I'll fix you up' and meaning, 'I'll see you in court one day,' and that's it."
Cross-examined the plaintiff agreed that at the original meeting in March 2000 the defendant had said he required urgent funds. The plaintiff had thought he was getting a good deal compared with acquiring the shares and options on the open market. Although he described the initial arrangement several times the plaintiff's evidence essentially is that he was to pay $50,000 immediately, which he did, and that thereupon, "within about a week" the defendant would transfer the shares and options to him, whereupon he immediately became liable to pay the balance of the price. From a pencil note on exhibit 5 he recalled that the shares had been sold at 25 cents each and the options at 3 cents each and the total rounded off.
He denied that delay was because he had not been able to pay the balance and that he had told the defendant of such a problem and that he had paid $30,000 because the defendant had complained of his non‑payment. There is no evidence to suggest any significant default in payments at anytime by the plaintiff notwithstanding what is clearly a very active share trading history at the time.
He also denied that exhibit 5 was intended to confirm that he had to pay the balance of the price by 3 April. The defendant had never asked him why he had not paid the balance. Rather the defendant made excuses for non-transfer of the shares and options. Nor had he asked the defendant to transfer shares to him so that he could raise the balance of purchase price by selling them in the then rising market. After agreeing to transfer the shares and options to him by 3 April, exhibit 5, the defendant still failed to do so and accordingly the plaintiff had phoned him a number of times and sent the fax of 28 April. By then the market had fallen but he was not concerned and in fact bought additional Conquest shares in the market. Nor was he concerned that the options expired on 30 June because the defendant had told him that for 3 cents per option they could be extended until 2005.
He agreed that in July or August 2000 he had supplied the defendant with his account details at his brokers, the name of Fiona Rigg who handled his account, and that the defendant was told to transfer 430,310 Conquest shares to him at his trading account.
He had continued to "pester" the defendant "and then finally he says, okay. I'm sorting this bit out for you."
The plaintiff said he was abiding by the agreement notwithstanding that the market had fallen. The options he had purchased had expired "and he didn't deliver so obviously he had to deliver new options." He had never raised the prospect of the defendant repaying the $80,000.
On 15 August he received 430,310 shares. That was not the result of calculating with the defendant how many shares were needed for him to recover on sale the $80,000 he had paid. It represented 85,000 shares the defendant had owed him from 1999 plus the 345,310 shares he had agreed to purchase and had paid for.
It was put to him by way of cross-examination that he had already received the 85,000 shares from 1999 in March 2000. He denied that that was so. A printout of the plaintiff's holdings in Conquest from 27 August 1999 to 9 October is exhibit 16. He denied receiving either 85,000 Conquest shares or the proceeds of sale thereof in March 2000.
He had approached the defendant about the outstanding options and been offered 2,000,000 options. He denied later approaching the defendant and expressing regret at not having accepted such a placement and then, after being told it was no longer possible, demanding to be given 2,000,000 options. He did not recall but agreed it was possible also that the defendant in January 2001 had offered to place with him 2,000,000 shares at 17 cents each with an option to take upon further shares.
On 26 March, during examination-in-chief of the defendant, the plaintiff was recalled by consent to give further evidence arising out of certain late discovery developments it is not necessary to dwell on now.
His evidence that exhibit 15, tendered earlier by the defendant, related entirely to another transaction was conceded by counsel for the defendant.
He agreed that he had sold shares in Conquest through ABN Amro in January and February 2000. However, there had been no need to obtain additional shares to cover his trading. He had checked his records to confirm that generally, and to confirm that he had not received 85,000 Conquest shares from one of the defendant's private companies, Valley Brook. Further he had no memory of it or of discussing it with the defendant. He tendered his account at ABN Amro and his holding statement at Conquest as evidence; exhibits 26 and 27. He denied that a number of other documents put to him by counsel for the defendant established that he had received 85,000 such shares in March 2000 from Valley Brook. Nor, he said had he told the defendant he wanted 85,000 Conquest shares to resolve that matter before he would pay the balance of the $120,000.00.
Mr J Ravlich
Mr Ravlich a plumber who had known the plaintiff for 15 years described him as a friend who had been a business partner of his. He had also met the defendant a number of times at the plaintiff's office. He had visited the defendant's office with the plaintiff once three or four years previously.
"I sat one side; Tony sat on the other side then they were discussing some options and Tony has said that he gave him some sort of money or some reasonable amount of money I thought it was about 80, 90,000 or whatever. Mr Terpu was, sort of, saying, 'Yes. I acknowledge that,' but there was talk about some other moneys, then Tony said, 'Well the other moneys sort of come in when he gets his paperwork for his shares or for his options' and Mr Terpu acknowledged that Tony gave him the money and Mr Terpu started writing something and then Tony says, 'When can I have these shares?' and Mr Terpu said, 'Well, we can't do these things … it's got to go through a procedure and this procedure, you will have your paperwork and your options on Monday.' He write something down, Tony left – I didn't read the letter and we left and I expected that everything's okay and it will be all right Monday but obviously I'm here so it can't be all right."
Cross-examined he was asked:
"It is your recollection that Mr Terpu asked when he was going to get the rest of the money?---No. My recollection was that Tony had already given him money and Tony has gone down there to find out where's his shares or where's the options are and what's happened with this money? He wanted to leave that room…
I put it to you that Mr Terpu in that meeting asked when he was going to get the balance of the money that was owed to him?---I can't recall – well, he might have ---
You've got no recollection of that?---He might have asked on him…
So you can't say with any certainty that he did not ask that question of Mr Grego?---There was discussion of some money that Tony gave him and there was discussion of some more money but Tony wanted to get the shares that he already paid for first before they would talk any further as far as I understood. Now that was between them. I wasn't in that business."
Defendant's evidence
The defendant became a director of Conquest in mid‑1999. He had had dealings with the plaintiff in relation to the company and to other commercial and mining matters since 1998. In March 2000 he needed funds personally. At the time his friend Mr Paul Melanko controlled Newpark Enterprises Pty Ltd (hereinafter called "Newpark") which held a $500,000 convertible note in Conquest: exhibit 20. The two of them also owned another business together. The note was convertible to shares and options. Mr Melanko advised the defendant that if the defendant sold some of them on Newpark's behalf he would lend the money raised to the defendant.
Accordingly the defendant approached the plaintiff at the plaintiff's office:
"Mr Grego immediately indicated that he was very interested in doing the deal so long as we agreed on a fairly substantial discount to the market price and that is how we came up with – I told Mr Grego that I needed $120,000 and he preferred more options rather than shares. It was more of a matter of leverage. He could get more of them for less money so we had agreed that we would do more options rather than shares and then it was a matter of working backwards once we had agreed what the market price or the discount to the market price would be.
Once you worked backwards what did you arrive at?---We arrived at 345,310 shares and 1,345,310 options.
What discussions, if any, did you have with Mr Grego about when you were to get that $120,000?---I told Mr Grego that I 'd bought a boat and I wanted some money and it wasn't a matter of any real problems it was a matter of just becoming liquid and putting some money in the bank and having a little bit in reserve and having a bit of fun and I told him I wanted it right away because I'd committed to a boat and he said, 'No problems'."
Cheques were written out for $50,000 accordingly. He says the plaintiff told him that the balance of the funds would come shortly after. The defendant accepted that. He says he told the plaintiff he would only transfer the shares and options once he had received all the funds.
In mid March he received a further $30,000 from the plaintiff at the plaintiff's office. "I asked Tony when the balance of the funds would come and his remark was that it would be shortly after, there's not a problem." He accepted that.
"I told Mr Grego that there was a matter of urgency from his behalf because the options had a life on them and they were due to expire in June 2000, and it was important that he settled so we could get his shares and his options. I don't exactly recall without having paperwork in front of me what the market was doing on any of those particular days but I believe it was pretty good, so it was to his advantage to settle so we could get what he wanted and take advantage of his discount that he'd got.
What was Mr Grego's response to that statement?---He agreed. He agreed with everything I was saying."
Exhibit 5 was written during a meeting with the plaintiff and his associate at the defendant's office on 30 March.
"I'm writing out as we're talking about the amount of shares and the amount of options and the consideration was 120 K; that he would get that many shares and options, if he paid me 120 K. Then he got a little heated. He said, 'Well, right, when will I get my shares and options?' and I said, 'Well, when you give me the money.' He said, 'Monday we'll do them,' and on that particular day. So we wrote them and he made me sign it there and then and said, 'That's it. We'll settle on that day.' That day never came.
We know that Monday, 3 April 2000, came. So when you say 'that day never came' what do you mean by that?---There was no balance of funds paid.
At that meeting what discussion, if any, did you have about when the balance was to be paid?---The balance would be paid on transfer and that was the 3/4/2000.
Who said that?---Mr Grego said that.
You say on transfer, the balance would be paid on transfer. Was this going to be an off-market transaction or an on-market transaction?---This would have been a similar transaction that we'd done earlier, even that month, where we had dealt with Ms Fiona Rigg at ABN Amro. She has in the past always dealt with Mr Grego's affairs. I would have expected a call, her calling me, saying, 'Mr Terpu, I have funds here ready to settle. Would you like to – how do we arrange transfer of these shares?' That never happened."
The balance was never paid and the shares and options were not then transferred.
His evidence was that 85,000 Conquest shares which the plaintiff had requested be transferred to him were transferred to the plaintiff in March 2000 by a company the defendant controlled, Valley Brook, through the plaintiff's broker, ABN Amro. The explanation was that the plaintiff had lost money in share trading in Conquest shares in October 1999 and was unhappy and that in March 2000 the plaintiff asked to have 85,000 "to replace the shares that he claimed he had lost – to recover losses." "To keep the peace I decided to give him the shares back." He understood that after he delivered the shares the plaintiff had received the proceeds of them into his bank account although the defendant was not certain of the sequence of events. The documentation he referred to is exhibits 11, 12, 13, 14 and 15.
He and the plaintiff had discussed this both before and after the event. The plaintiff had confirmed that he had received the proceeds.
Subsequently at trial counsel for the defendant conceded that the payments made to the plaintiff's bank account previously thought to be the proceeds of 85,000 Conquest shares were not such proceeds.
The defendant's evidence was interrupted by adjournment of the trial and then by the calling of interposed witnesses.
When recalled he was asked about the arrangements made with the plaintiff for him to transfer 85,000 Conquest shares to the plaintiff. His evidence is that they discussed this when the plaintiff and he discussed the agreement by the plaintiff to pay $120,000 for Conquest shares and options or at about that time.
"Tony had said, 'let's once and for all just square it up,' and he---
When you say "square it up," what are you referring to there?---Just an issue that he had had with the Johnson Taylor stockbrokers month beforehand and he was complaining about 85,000 shares, and I transferred – I agreed. He was doing me a favour, I said that I would give him the shares.
When you say he was complaining was that the first occasion that he was complaining about the 85,000 shares?---No. He had complained on other occasions but I – it wasn't my problem. I ‑ ‑ ‑
You say it wasn't your problem but what was it that prompted you to transfer the 85,000 shares to him?---The fact that he was helping me out and buying some shares off me and just squaring up once and for all."
He then told Fiona Rigg of ABN Amro that he held the shares at Johnson Taylor. As a result Nicole Feast of ABN Amro sent him the fax of 3 March exhibit 12.
He later had various dealings with the plaintiff who had in passing agreed that the matter had been sorted out when the defendant collected the cheques for $30,000 from him on 15 March. He had then told the plaintiff he needed the balance of the $120,000 as soon as possible. At that time the plaintiff told him "Don't worry it's coming."
He denied the plaintiff's evidence about their discussion on that matter. "We were under a clear understanding if all the funds weren't paid, I was not going to transfer anything. The onus was then onto him."
"When you say you were of the clear understanding, that might have been your understanding but what makes you think it was Mr Grego's understanding?---It's just commonsense. Tony was benefiting from the transaction. I mean, the whole idea was he was getting a discount to the market. It's simple. Then he had access to the shares and options and he could make a profit.
…
PENDLEBURY, MR: But you do recall saying to him, 'I could have sold them to someone else'?---Yes, because he was messing me around. It was meant to be a clean transaction, a clean, fast transaction and I said to him, "I could have sold this on market and got the money quicker than jerking around like this."
…
At the meeting we talked about transferring the shares and options for sure on a particular date and getting the balance of the money. I think I even heard Mr Ravlich talk about the balance of the money.
When you say getting the balance of the money, what was the date for that?---The date that we had written on that piece of paper. That's when I was meant to deliver the shares and I was meant to get the balance of the funds."
However, he had not received the balance of funds on 3 April.
"Did you discuss – sorry, did you have any discussion with Mr Grego as to why that was not the case or why you did not receive those?---Not on the particular day and I never got a phone call from Fiona Rigg. I never got any contact at all.
So that day came and went. There was no shares transferred, there was no money paid. Did you have any subsequent discussions with Mr Grego about that matter?---Yes, I did. I don't recall what day, whether it was on that day or shortly after I discussed with him about what was happening, 'When's the balance of the money coming?'
So it was your query to him, was it?---Yes.
What did he have to say in response to that query?---At that stage he was claiming that he was struggling and he couldn't get it together.
Getting it being?---Getting the money together, I'm sorry."
The options expired on 30 June. He and the plaintiff had many discussions thereafter.
"I was urging Tony to pay up the money so I could transfer the options to him, so he could be able to trade them within – before they expired.
His response to your urging?---He always agreed that he would get there and he would do it and it just didn't happen.
Now, Mr Terpu, it is common cause that by 30 June 2000 those options had no – were not trading any more?---That's right."
However, he had discussed with the plaintiff that the options could be extended to 30 June 2005 by payment of an extra 3 cents per option.
At a later meeting the two of them had agreed that the matter needed to be resolved.
"Was there discussion about resolving it?---The discussion was one way or another whether Tony was going to give me the $40,000 or we were just going to call it quits. Tony wanted to call it quits – be transferred the shares – in actual fact we'd agreed just for him to get his $80,000 back.
Whose idea was it that he get the $80,000 back?---His. He suggested that he all he wanted was his money back.
…
What did he say?---He asked for enough shares back so he could get his $80,000.
At that time – There's no dispute about this, that the price of Conquest securities…was lower than when you first struck this agreement back in March 2000?---Yes.
Were there any discussions about that fact?---That was the biggest part of the discussion,…
Did you agree on a market price or did you consider the market price?---Yes, we considered the market price and decided on a market price.
…
Given the reduction in value of the Conquest securities since March 2000, what was agreed about how he was going to get his money back?---That once we'd finally agreed on a price…we'd organise to have it transferred.
…
We know that or its common cause that 430,310 shares were transferred to Mr Grego, that being 85,000 shares more than the March 2000 agreement?---That's right.
What does the difference in number of shares represent?---Getting his $80,000 back. That's squaring up. I mean if you worked out the market price on the day for the shares that we had agreed on 345,310 was short. If you put a value to the 85,000 shares and you add that to what you would have got on a market price or the price that we had agreed on the day, because Mr Grego had actually sold them on the day that we transferred them for less than we had agreed. He was prepared to take a small loss than we had agreed. He was prepared to take a small loss but he wanted liquidity there and then.
Are you telling me that the agreement was not so much to get him $80,000 but to give him the opportunity to get the bulk of it back?---Yes.
So the number of shares being 430,310, was that discussed on that particular day?---I don't recall if that specific amount was discussed. It was more so a natural thing you would work backwards. We knew that 345,310 shares were his. He'd committed to them to a market price and if I wanted to play hardball, I could have given them to him at that market price, which was like you said, higher than on the day we were having these discussions.
But did you play hardball?--- To a degree, but in the end, no. I think it was a matter of a cent or two we got it down to.
A cent or two; I take it that's per share, is it?---Per share difference."
He told Fiona Rigg to liaise with Mr Melanko as the shares were to be transferred by Newpark. The 85,000 extra shares then transferred to the plaintiff was a different parcel of 85,000 shares to that earlier discussed. "That 85,000 had been taken care of when we initially agreed on doing the transaction …" He had told Mr Melanko to transfer 430,000 shares which he did but "there was a bit of a dispute there" for an additional 310 shares. He told Mr Melanko: "Give it to them. It was such a small amount." He had then "owed Newpark the shares … or the cash or whatever Paul and I had worked out". However, he said, he no longer owed that.
In January 2001 he met the plaintiff again.
"I initiated Tony to come and see me in the office and we had a general discussion about Conquest and what was going on and that we were doing a placement and there was exciting things happening in the company. The company's prospects were very good and Tony was looking at an investment opportunity.
…
Now, at that time, how would you describe your relationship with Mr Grego?---Pretty good. You know, we got on well.
Mr Grego has given evidence to the effect that between August 2000 when those 430,310 Conquest shares were transferred to him and your meeting with him in January 2001 there remained outstanding the issue of what he says is your failure to comply with the terms of the March 2000 agreement. What is your evidence on that?---That's not true. We squared up once and for all in August. It was all over. Game over."
There had been no further discussions about it. In January 2001 he offered to place with the plaintiff 2,000,000 Conquest shares, at market price with free attaching options. The plaintiff had been interested but in the end "he just didn't have that sort of money to put in." The share price went up and their discussions ended within a week. There had been earlier discussions about the plaintiff taking some options but "by the time he had got himself together we'd placed them and he was unhappy about that."
They had met again in May 2001 and argued:
"What did you argue about?---Tony just came out and started talking about options and lost opportunity and what he ---
…
What did you say to that?---I told him where to jump.
What did he say about lost opportunities?…The fact that he'd missed out on the options rolling over. Blamed me, that I should have waited from him. The placement that I could've made to him. I should've done it to him.
…
So he raised that in that discussion in May?---He raised everything. I mean, right from word dot when me met and ---
…
Of the fact that the opportunity that you had suggested he take up to acquire Conquest shares with a free carried option had passed?---Yes"
Cross-examined he said he had repaid Mr Melanko for the 430,310 Conquest shares transferred to the plaintiff from Newpark by their mutual accountant setting the amount off against loans in their accounts.
He agreed that in March and April 2000 he could easily have sold shares and options on market to raise the money he needed at satisfactory prices. He denied that the reason he had not done so was that he did not have the shares to transfer. He said he had made an agreement to sell the plaintiff shares at a discount. His explanation as to why he did that and his position in dealing with securities owned by Newpark in that way is as follows:
"But why make the agreement if you can sell without a discount on the market?---It's a common thing, sir. I mean, that's pretty well part of my job as being in the MD is placing lines of stock for clients and in this case I was involved with one of those transactions.
But if you were going to borrow the money what right did you have to give a discount against Mr Melanko's company?---For it to happen quickly.
That's why I suggest you went to Mr Grego so that you could get the money which you needed urgently without having to provide the shares and options straightaway?---I went to Mr Grego because he told me that he could perform quickly.
Did Newpark Enterprises hold shares in Conquest at the beginning of March of 2000?---I don't remember."
He was then referred to some of his earlier evidence. His explanation is confusing and not convincing. He was then asked about his response to the arrangement made for a transfer of shares on 3 April.
"Did you do anything between 30 March and 3 April, and if so, what, to arrange to be ready to transfer the shares and options?—I didn't do anything, Mr Pringle, because I never got any notification from Tony. If I can recall, I think 3 April was a weekend. There's nothing I could've done.
What shares were you going to transfer on 3 April if Mr Grego had come up with the money?---The Newpark shares.
Held by whom?---Newpark still had the convertible note and I … could convert that literally within an hour being involved on the management of Conquest and Paul literally being downstairs. We know each other fairly well so it was literally that easy.
…
Did you make an arrangement with Mr Melanko that you would be entitled to do whatever was necessary for the note to be converted immediately?---I don't think we spoke specifically about that. But just again I will refer to Paul and I and the way we operate, is that he relies on me to keep him informed on these sorts of things; how they work and what they do."
He was asked as to how the 430,000 shares he said had been agreed to be transferred to the plaintiff in August 2000 was arrived at.
"How was that?---It was weighed up against a price on the day or a price that Tony and I had agreed on to get him as close as he could do his $80,000 back.
…
Would you look at exhibit 40 please? Do you remember a query arising as to 310 further shares?---Yes, I do.
Was that raised, as far as you know, by Mr Grego?---I don't recall if Mr Grego brought it up. I know that ABN Amro brought it up.
Did you speak to Mr Melanko about the 310 additional shares?---Yes, I did.
Were you conscious of the fact that the 310 shares were needed to make up 85,000 shares in addition to the ones which were the subject of the deal in March?---No, sir. This is just a breakdown in communication. We had agreed on 430,000 shares flat and then somehow between Mr Melanko and the person at ABN Amro having discussions, they had asked for the extra 310. Mr Melanko had asked me and I said, 'Do it'."
He said he did not know if the plaintiff had asked for the additional shares or if he had been given an explanation.
He was cross-examined about a number of other matters. His evidence on some was again confused and confusing and on a number of matters that he had no recollection. On some of these issues that is difficult to accept.
Given what was said to be a relationship of friendship and of ongoing business relations it is difficult to believe that had the position been as the defendant contends that no arrangement could and would have been made much earlier to resolve the issues either by sale of sufficient shares in Conquest held by Newpark to raise the balance of the price or by varying the agreement to transfer a number of shares and options represented by the $80,000 paid by the plaintiff.
Mr Shields
Mr Greg Shields, an operations manger for ABN Amro in Sydney gave evidence by video-link. He was called by the defendant. He gave evidence from the firm's records that in late February and early March 2000 a transaction on the plaintiff's account and numbered 985618 involving 134,900 Conquest shares occurred. ABN Amro ordered them on the plaintiff's behalf from Johnson Taylor. The gross price at 28 cents per share was $37,772. Settlement was due on 3 March. Of that transaction a partial settlement involving 49,9000 Conquest shares held in the plaintiff's name took place on 3 March. Fiona Rigg was ABN Amro's private client adviser involved. A further 85,000 Conquest shares were from Valley Brook's account were settled on 10 March making up the balance of the order. Johnson Taylor delivered those shares to ABN Amro free of charge. He also had located "a copy of a fax from Valley Brook to ABN Amro to receive stock from Johnson Taylor and … a copy of a fax from Valley Brook to Johnson Taylor instructing them to deliver stock to ABN Amro." He did not have personal knowledge of the transactions nor did he produce the original contract note.
Mr P Melanko
Mr Paul Melanko, a director of Newpark and other investment companies, is related to the defendant by marriage and in business. On 19 May 2000 Newpark became the holder of more than 11.1 million shares in Conquest, and a similar number of options. The options expired on 30 June and were not revived.
In 2000 Mr Terpu had approached him for a loan of $80,000 to $100,000. He gave the defendant Conquest stock to the same value in lieu of lending cash. He was not sure of dates or of which event occurred first. There was no discussion about what was to become of the securities.
He had never met the plaintiff. On 9 August at the request of the defendant he faxed Fiona Rigg at ABN Amro asking her to electronically transfer 430,000 Conquest fully paid ordinary shares held by Newpark to the plaintiff.
On the 11th he faxed her to "use the proceeds of the sale of the 430,000 Conquest shares to settle the commitments incurred by Mr Tony Grego on the purchase of the same 430,000 Conquest shares purchased from Newpark."
He learned later that in fact 430,310 shares had been transferred.
Cross-examined he agreed that before 1 August the defendant had asked him to transfer the shares to the plaintiff. The exact number was not known. He had the defendant sign a short acknowledgment that any shares transferred were by way of short-term loan. He had not spoken to the plaintiff at all. He spoke to the defendant on 16 August about the increase in the number of shares transferred to 430,310 and the defendant told him "not to worry about it." He had never discussed sale of Conquest shares or options at a discount with the defendant. As at trial, he said, he had not been repaid the shares or their value by the defendant.
Conclusion
On matters of credibility I clearly prefer the plaintiff's evidence to that of the defendant. His account is simple and commonsense and consistent with the documents. On the other hand the defendant's account is complicated and was at times vague and unconvincing. He shifted ground as circumstances seemed to require and some of his lapses of memory were equally unconvincing. He seemed to act as something of a free spirit so far as separation of his, the company's and Mr Melanko's interests were concerned. He admitted that the counterclaim which had been withdrawn at trial had been made "because he came out with his action against me for no reason."
It was the defendant who in March 2001 was anxious to obtain funds and there was substantial reason for the plaintiff to obtain the shares and options at that time. If he had been short of funds one might expect that the matter would have been resolved earlier.
Of course a finding that a witness is truthful is not determinative of whether the witness is reliable. The plaintiff's recall and documentation were far from complete. So were the defendant's.
It is difficult to accept his evidence that he cannot recall or explain the matters noted in brief in the fax sent by the plaintiff dated 28 April 2000, for example.
If the August arrangement was made as the defendant contends, that is, that the number of shares that were transferred by the defendant's company Valley Brook in August 2000 is a number that was calculated by reference to the prevailing share price of Conquest shares at the time to meet the plaintiff's express wish that he receive back the $80,000 or shares to that value that he had paid to the defendant in March 2000, it seems unlikely that the plaintiff would have raised the question of transfer of a mere 310 shares. Rather I find the number 430,310 is made up of two discrete numbers 345,310 and 85,000. If that is so the parties clearly understood that an amount of 85,000 shares was separately owed by the defendant. Any March transfer of 85,000 shares would be explicable as a separate transaction or even one the parties had overlooked. His explanation is not readily acceptable. Further if the March agreement had been as the defendant contends there would have been no need for him to have agreed to that "settlement" in August, he not being in breach.
I find that the agreement made in March 2000 was that the plaintiff would pay the defendant the balance of the price on transfer to the plaintiff of the shares and options. It was for the defendant to attend to that transfer. The plaintiff had already advanced $80,000. In August the shares were transferred together with a further 85,000 shares the subject of a separate transaction. I reject the defendant's explanation. The August arrangements were not a discharge of the entire March agreement. By then the original options had expired. The defendant later agreed to make good the matter by transferring to the plaintiff 2,000,000 options in exchange for the balance of price. Again he failed to do so.
The plaintiff's claim succeeds. I turn to the issue of quantum.
Damages
Damages are to be assessed at the date of breach: Johnson v Perez (1988) 166 CLR 351.
"As a general rule, 'damages for tort or for breach of contract are assessed as at the date of the breach' (Lord Wilberforce in Miliangos v Frank (Textiles) Ltd [1976] AC 443 at 468). The rule will yield if, in the particular circumstances, some other date is necessary to provide adequate compensation: see, for example, Wenham v Ella (1972) 127 CLR 454; Dodd Properties Ltd v Canterbury County Council [1980] 1 WLR 433: [1980] 1 All ER 928; County Personnel Ltd v Alan R Pulver & Co [1987] 1 WLR 916: [1987] 1 All ER 289."
In my view breach occurred in January 2001 at which time the options were trading at between 3 cents and 4 cents each, save for 31 January when they traded up to 5.9 cents. I allow 3.5 cents per option. Given a total of 2,000,000 options that amounts to $70,000. From that has to be deducted the balance owing by the plaintiff, $40,000. I make no deductions for stamp duty or brokerage given the unit price I have selected.
I make no reduction either for what counsel for the defendant argued to be the plaintiff's failure to mitigate by not using the outstanding balance, $40,000, to trade in the options market. I do not think such an argument can be sustained.
The plaintiff is entitled to $30,000 with interest and costs.
Costs
The trial was interrupted by, and I have no doubt extended by, interlocutory issues which should have been addressed before trial. I will hear counsel as to appropriate costs order.
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