Hannebery v Domain Capital Pty Ltd - [2009] VCC 54

No judgment structure available for this case.

IN THE COUNTY COURT OF VICTORIA

Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST

EXPEDITED CASES DIVISION

Case No. CI-08-04037

RICHARD HANNEBERY and ANOTHER	Plaintiffs
v
DOMAIN CAPITAL PTY LTD and OTHERS	Defendants

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	19–23 January 2009
DATE OF JUDGMENT:	25 February 2009
CASE MAY BE CITED AS:	Hannebery v Domain Capital Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VCC 0054

REASONS FOR JUDGMENT

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Catchwords:

Contract – Agreements for equity participation in private company –
Alleged to be partly written, oral, and to be implied – Adequacy of
evidence to establish necessary agreements

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M.A. Robins	Nathan Kuperholz
For the Defendants	Mr M.J. Galvin	Maddocks
HIS HONOUR:

1           Richard Hannebery, Richard Horne, and Andrew Ristrom had a business relationship between about January 2006 and July 2008. Through the company, Domain Capital Pty Ltd, they were involved in the business of investment banking and the provision of financial services. The present proceeding arises because they failed to adequately record the arrangements they reached about the nature and extent of Hannebery’s interest in the company and the basis upon which he was to be remunerated.
2           In the claim, the plaintiffs rely upon agreements which were alleged to be partly in writing, partly oral, and partly to be implied. In the counter-claim, the defendants rely upon a further agreement they allege was partly in writing and partly oral. I heard evidence from the three individuals and other incidental witnesses. The evidence of the critical conversations in which the arrangements between the parties were apparently finalised was, in my view, largely reconstructed by reference to a limited number of notes, drafts, calculations and other documents. The result of the litigation will depend in large part upon objective examination of that documentation and the chronology of events.
3           For the plaintiffs’ part, there are claims for:

a. a 25% shareholding in Domain Capital and a consequential taking of accounts of the company;
b. the payment of $75,000 (plus interest) as a retainer for Hannebery for the year to 30 June 2008.
4           The defendants’ counter-claim is for the return of options and shares in Water and Carbon Group Pty Ltd consequent upon the defendants alleging that the first plaintiff had “voluntarily” ceased his involvement with Domain Capital.

Hannebery’s early involvement in Domain Capital
5           Domain Capital was incorporated in March 2005. The directors and shareholders were four individuals (or their respective personal company): Horne, Ristrom, Andrew Perkins and Guy Aird. The four directors each held 5,000 fully-paid shares in the company.
6           Hannebery was introduced to the company in about January 2006 through Horne. Hannebery was at that time involved in a number of companies, mostly in the biotechnical field. It was hoped that the companies would be publicly floated. The core business of Domain Capital was to make the necessary arrangements for such companies to raise capital by publicly offering shares, and it was anticipated that substantial fees would be earned for Domain Capital through this process.
7           At the time, Hannebery was a director and a shareholder of at least one of these companies, Genera Pty Ltd. He was an executive director with the title of “Director of Corporate Development”, and his total remuneration package for the year ended 30 June 2007 was about $250,000.
8           The directors of Domain Capital were aware that Hannebery was a director and shareholder in Genera and an “investor” in at least one other company whose business he hoped to promote through Domain Capital. The directors were not aware of the extent of Hannebery’s remuneration from those companies.
9           The relationship of the four original shareholders in Domain Capital was governed by a comprehensive “Shareholders’ Agreement” dated 27 June 2005. A minute of a directors’ meeting on 8 June 2005 recorded the proposal to issue up to 5,000 ordinary fully-paid shares to each of the four directors.
10         After Hannebery joined the company, “Heads of Agreement” were drafted in February 2006. The document made provision for execution by Hannebery and the company. Hannebery admitted that he had signed a version of the document. The copy of the document in evidence records a number of significant matters. It was not suggested that the version signed by Hannebery did not contain these provisions:

a.

Hannebery was to work with the company and to operate out of its offices “at no cost”;

b.

Hannebery “may be offered the opportunity to be a partner in Domain in a restructured group from the 1st July 2006”;

c.

specific “deals” were not to be “part of the future partnership” in certain circumstances;

d.

Hannebery was described as a “director and seed investor” in Genera and a “seed investor” in another company the subject of the potential deals;

e.

revenue from these deals was to be shared 70% to Hannebery and 30% to Domain Capital up to 1 July 2006, and 50% / 50% after 1 July 2006 if Hannebery “joins Domain as a partner”.
11         Hannebery said that in July 2006 he was unconditionally offered a 20% interest in the partnership. No shares, however, were ever issued to Hannebery. He said that he was treated as though he had a 20% interest in the company, and no one told him he did not have such an interest.
12         The evidence of Horne and Ristrom (and confirmed in this respect by Perkins and Aird) was that no shares in Domain Capital were offered to Hannebery. However, all parties accepted that after July 2006 Hannebery was to share equally with the four shareholders in the profits of the company. At the trial, the defendants consistently asserted that Hannebery was never a shareholder (or entitled to shares in the company), and was only ever entitled to share in cash surpluses.

13
original shareholders in about June 2006 seemed to me to be a matter of
considerable significance. The February 2006 Heads of Agreement anticipated that
from 1 July 2006 Hannebery might be admitted to partnership in a “restructured
The initial alteration of the relationship of Hannebery with the company and the four 1 July 2006 Hannebery was entitled to share equally with the original shareholders in the profits of the company. This was reflected in a distribution made by the company in December 2006 when the second plaintiff and, presumably, each of the other participants received $24,750.
14         The parties did not explore this arrangement in any detail at the trial. The plaintiffs’ counsel, Mr Robins, dismissed the arrangement as only being of “historical interest”. In cross-examination of the plaintiff, and in the evidence of his own witnesses, defendants’ counsel Mr Galvin adduced evidence that only minimal income from Hannebery’s anticipated deals had been achieved by 1 July 2006. If this evidence was adduced to suggest that an offer of a “partnership” to Hannebery would have been unlikely, it does not explain why Horne, Ristrom, Aird and Perkins accepted that Hannebery was admitted as an equal recipient of the profits of the company from 1 July 2006.
Restructure of Domain Capital Pty Ltd in 2007
15         In March 2007 it became apparent that Aird and Perkins wished to cease their involvement with the company. They eventually retired as directors as from 15 June 2007, and the change of shareholding (so that the Horne and Ristrom interests became the sole shareholders) was lodged with ASIC in late September 2007.
16         From at least March 2007, Horne, Ristrom and Hannebery discussed the consequences of Perkins and Aird leaving the company. On 19 March 2007 Hannebery sent Ristrom an email entitled, “A fair and transparent proposal with interests aligned”. The email was forwarded on by Ristrom to Horne, although it is not clear to what extent Horne was involved in any discussions. Horne said that he was generally excluded from the discussions. In a spreadsheet attached to the email, Hannebery summarised various proposals. Some proposals involved Peter Mann, a consultant who was by then working with Domain Capital. In discussing the proposals which included Mann, Hannebery wrote:

19
Hannebery to have a 25% share. These percentages were adopted as the applicable
“If Peter Mann at 15% equity current proposed split assumes RH [i.e.
Hannebery] gets diluted down to 21.25%. Assuming that future equity partners buy in at NTA, RNH [i.e. Hannebery] would be better off waiting a few years and getting paid a wage in meantime and buying in at NTA later on aca Peter Mann. Equity split as per current proposal post Peter
Mann at full clip ...”

17
was little concentration on the whole of this passage. The initials “NTA” were not
explained. However, read in context, the passage suggests that discussions had
occurred which would involve Peter Mann obtaining “equity” in the company (this was
described as the “current proposal”), and in that event Hannebery’s “equity split”
would be “diluted down to 21.25%”. The reference to “future equity partners buying
Although this document was referred to in evidence on a number of occasions, there “later”, supports the view that as at March 2007 Hannebury was asserting that he was already an “equity partner”.
18         In the section of the spreadsheet that excludes reference to Mann, the “proposals” of each party are set out. They appear to be a single proposal by Ristrom and two proposals by Hannebery. Whereas the discussion of the “split” including Peter Mann seems to relate to “equity” participation in the company, the position in relation to the proposals by Ristrom and Hannebery is not as clear. A footnote refers to income generated and the reduction in what appears to be Hannebery’s share of income if the income targets were not met. This would seem to be more akin to a profit share than necessarily involving equity participation in the company.
Ristrom’s proposal was for he and Horne to each have a 37.5% share and for Hannebery said that from that time he was entitled to 25% of the equity in the company, and the other two were each entitled to 37.5%. Ristrom and Horne asserted that these percentages simply reflected their respective entitlement to profit share.
20         In May and June 2007 there were discussions between the parties about the arrangements for winding up Aird’s and Perkins’ involvement in Domain Capital and for the ongoing arrangements between Ristrom, Horne and Hannebery.
21         The finalisation of Aird’s and Perkins’ involvement seems to have been negotiated without Hannebery. Certainly the “finalisation” agreement dated 14 June 2007 was only executed by Aird, Perkins, Horne and Ristrom. Hannebery was not a party to the

agreement, although his involvement in the company was a critical part of the
finalisation, particularly as Hannebery asserts he had been entitled to 20% of the
shares of Domain Capital since July 2006.
22         The finalisation agreement appears to treat Hannebery as a special case. There is a specific section of the agreement headed “Richard Hannebery” which commences with the words, “The profit share for Richard Hannebery shall be $63,288 inclusive of GST”. The agreement provided that, at Hannebery’s request, the payment of his profit share would “not be paid out of this settlement” but would be arranged “post settlement with the ongoing directors of Domain (Horne and Ristrom)”.

23
Agreement (apart from the appendices). The appendices to the agreement (stated to
be prepared by Aird on 30 May 2007) set out the calculation of Hannebery’s one-fifth
Hannebery said in evidence that he had not previously seen the Finalisation “payable on invoice from GST paying entity of Richard Hannebery”.

24
Hannebery submitted an invoice dated 4 June 2007 from his company EG Capital the invoice was issued on 8 June and was backdated. The figure was derived from the appendices given to him by Perkins. Hannebery agreed that the figure he claimed was his entitlement to the distribution out of the cash surplus in the company. Hannebery said Ristrom had told him that part of the sum was to be retained as equity in the company, and therefore a revised invoice was issued for $38,791.50 on 28 June 2007.
25         The revised invoice was issued after a meeting between Ristrom, Hannebery, and Horne on 27 June 2007. At the meeting they discussed how they would proceed with the operations of the company. In anticipation of the meeting, Ristrom had prepared a number of pages of calculations which were distributed to Hannebery and Horne. Three pages are in evidence. One headed “Pre-Distribution” refers to a number of payments. The document seems to suggest that the running costs of the company had been met by contributions from Horne and Ristrom and had later been repaid or reimbursed to them. It is impossible, however, to relate the amounts or the cheque numbers to any other documents in evidence, including bank statements, an extract from the company’s general ledger for June 2007, and a reconciliation report for May and June 2007. The reference to “new arrangement, 25%, 37.5%” does not assist in determining whether any new arrangement related to profit sharing or equity participation.
26         A second page is headed “Costs”. The first part of the document refers to “A. Set-up Costs” of $67,055, which apparently were to be contributed to by Horne and Ristrom each as to 37.5% and by Hannebery as to 25%. Then the following note appears, “To
be repaid so that any new equity participants are not charged a portion of these

costsB. Ongoing Costs
then continues, “Funded via loans. Currently Andrew Ristrom $12,355, R. Horne
$12,355, R. Hannebery $8,237, $32,947”. Mr Robins submitted that “set-up” costs
referred to the cost of re-establishing the company after the withdrawal of Aird and
”. The next heading is “”, and these total $360,000. The note document to “any new equity participants” could not, he said, refer to Ristrom, Horne or Hannebery.
27         Coincidentally, at this time the company was required to relocate its operations to premises at Level 16, 379 Collins Street. This involved certain expenses associated with fitting out the new offices. The defendants contended that the reference to “set- up costs” in the document simply referred to the costs of moving offices and ongoing expenses, and there was nothing in the document which supported the conclusion that Hannebery was already an equity participant or had been offered equity participation at that time.
28         The third page of Ristrom’s notes for this meeting calculated the amount available for distribution, being cash at bank less GST, the April/May costs, and the final distribution to Aird and Perkins. This led to a balance of $166,662 which, split three ways, amounted to $55,554, to which Ristrom, Horne and Hannebery were each entitled.

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capital” to be provided in the agreed proportions of 25% for Hannebery and 37.5% for
each of Ristrom and Horne. Each person’s share was to be contributed by two
payments: firstly by forgoing from the distribution sum their respective share of the

Ristrom then arbitrarily determined that the company would need “$100,000 new in the case of each of Ristrom and Horne, $37.5% or $25,145), and in relation to the balance of $32,945 (to bring the “new capital” up to $100,000) by loaning to the company a proportion according to their respective share (in Hannebery’s case, $8,237, and for each of Ristrom and Horne, $12,355). This calculation was reflected in Hannebery’s amended invoice on 28 June 2007. The sum claimed of $37,791.50 was the agreed post-Aird and Perkins distribution of $55,554.50 for each of them, less the 25% share of the “June costs” ($16,763) retained in the company.
30 Ristrom and Horne said in evidence that the “June costs” of $67,055 would have needed to be deducted before the cash available for distribution at the end of the financial year could be determined and made the distribution in accordance with the

and these would be dealt with by a “capital” contribution by each of the participants.
profit-sharing arrangement. There were further costs which needed to be covered, be “share capital”.
31 Hannebery said that at the meeting on 27 June 2007 the agreed shares in the reconstituted company would be 25%, 37.5% and 37.5%, and that the new company required further equity capital which he and the other participants would contribute in the proportion of their share of the company. This was a critical meeting, and on the basis of what was discussed I must determine the first issue of whether Hannebery had an entitlement to 25% of the issued shares in the company or was simply entitled to share in any cash surpluses in that proportion.

Alleged agreement for the payment of a retainer

32
In July or August 2007, two further consultants commenced with Domain Capital; $75,000. A strategy meeting was called for 23 August 2007. Ristrom, Horne, Hannebery, Deveraux and Mann attended. Hannebery said that at the meeting it was agreed that he, Ristrom, and Horne would receive a retainer of $75,000, and Deveraux a “top-up” of $25,000, all payable in arrears at the end of the financial year.
33 Ristrom and Horne said that the discussion at the meeting related to determining the basis for distributing any profits from the company at the end of the financial year. The company operated on the basis that surplus cash (i.e. income less expenses) would be distributed, rather than retained in the company. This would be achieved by each participant submitting an invoice for the appropriate share as “consulting fees” when the surplus could be ascertained.
34 At the strategy meeting the participants discussed the anticipated income of the company. This was apparently in the range of $1 million to $1.5 million. The discussion of the basis for determining and calculating their remuneration centred around a document prepared by Ristrom headed, “Distribution Formula”. The document reads as follows:
“Income?
1. Costs $360,000.
2. Return on capital actual/notional say 20% $72,000.
3. Repayment loans.
4. Allocation to bring non-monthly retainers to same level 3 x $75,000 AR / RH / RNH $225,000.

5.
Bonus pool to be allocated to contractors/principals advisory.”

35
agreed to “top up” Mr Deveraux’s retainer by 25% and that the residual “bonus pool”
would be distributed equally. There was disagreement, however, as to the basis upon
There was agreement in the evidence of the participants that at the meeting it was to Deveraux) – whether, as Hannebery alleges, it would accrue regardless of the trading position of the company, or whether, as the defendants allege, it would only be paid if there was surplus cash at the end of the financial year or half-year.
36 Ristrom and Horne said that the “distribution formula” was to be applied in the priority of items 1 to 5 until the cash surplus of the company was exhausted. Payment of any item would only accrue if there was a cash surplus, and there would be no

entitlement to the additional retainers (item 4) or to a “bonus” (item 5) if there were
nothing left after payment of the costs of the company, interest on capital of 20%, and
the repayment of loans to the company (items 1-3).
37 Subsequently, in 2007, Hannebery made further advances to the company, bringing his total loan funds advanced to $25,436. For the financial year to 30 June 2008 the company made a loss from its operations of $68,655. On 4 July 2008, Hannebery,

through his company EG Capital Pty Ltd, invoiced Domain Capital for the sum of
$111,289, being the repayment of the loan funds advanced with interest of 20% and
the retainer fee of $75,000 plus GST. On 28 July 2008 the total of the loans and the
appropriate interest was paid to Hannebery’s company by Domain Capital. The
retainer fee was not paid.
38         From late June 2007 the business of Domain Capital was conducted from premises at Level 16, 379 Collins Street, Melbourne. In about November 2007, the company had the opportunity to take over the head lease. However, in order to do so the

company would be required to provide a guarantee of $120,000 for future rental
liability. Ristrom approached Hannebery and requested that Hannebery contribute
$30,000, or 25%, of the required sum.
39         Hannebery said that at about this time he conducted a search of the ASIC register and discovered that Perkins’ and Aird’s shares had been transferred to Ristrom and Horne, and no shares had been issued to him. Hannebery said he spoke to Ristrom and Horne about this situation on a number of occasions. He confronted Ristrom in his office and asked him why no shares had been issued. He was told by Ristrom to “go away”.
40         On 11 December 2007 Hannebery sent an email to Ristrom and Horne which read as follows:
“As I’m technically not a director of Domain Capital Pty Ltd, prior to
writing out this cheque for 30K dollars to fund my share of the bond we
need the following items of paperwork sorted:
1. Share issue for my 25% of Domain Capital Pty Ltd.
2. Loan agreement between Domain Capital and myself for loan funds

thus far which consists of $25,000 start-up capital plus $12,500 APIC
last month equals $37,500.
3. Loan agreement for head lease that stipulates 30K dollars bond
amount and annual pro-rata rental income and timing of rental
payments.”

41         Hannebery said that he met with Ristrom and Horne on about 13 or 14 December. Hannebery was given a document prepared by Horne which was headed “Domain Capital Pty Ltd – Statement of capital and loan contributions from 1 June 2007”. The
document set out the contributions of Hannebery, Horne, and Ristrom. For and loan funds comprising “July 2007 loan” of $8,237, “GST refund” in September 2007 of $4,699, and “November 2007 loan” of $12,500. These amounts totalled $25,436. Ristrom said that he was very angry when he saw the document, because it was not correct. A later version of the document was issued with some changes, although it still retained the description “capital contributions: June costs (capital)”.
42         At about this time, Hannebery prepared share-transfer forms to effect a transfer of 5,000 of the 20,000 issued shares in Domain Capital from the Ristrom and Horne interests to himself. He left the documents for Ristrom, but Ristrom returned them to

him. Ristrom told Hannebery that he would personally take care of the rental bond,
and Hannebery was not required to contribute.
43         Hannebery said that, at this time, he prepared a document acknowledging the loans he had made to the company and the company’s obligation to pay 20% per annum interest. He signed the document and left it with Ristrom and Horne. Although the document was not returned to him, a copy of the document is in evidence signed by Ristrom and Horne and dated 17 December 2007. The company repaid the loans with interest in July 2008.

Agreement for shares and options in Water and Carbon Group Pty Ltd
44 At about this time, a document was prepared by Horne dated 3 December 2007 which forms the basis for the defendants’ counter-claim and involved the transfer of ordinary shares and options in Water and Carbon Group Pty Ltd to Ristrom, Horne, Deveraux, Mann and Hannebery. These were securities Domain Capital had apparently received in lieu of fees. The transfer was subject to a condition that:
“If within the 12-month period after the transfer of the securities, an
individual ceases to work with The Group as a result of voluntarily
leaving or lack of performance as reviewed by The Group, the individual
will transfer the securities, pro-rata to the remaining Group members for
no consideration other than the terms of this agreement”.

45 In the document “The Group” was defined as Ristrom, Horne, Deveraux, Mann and Hannebery. Hannebery conceded that a copy of the agreement had been given to him. He had told Ristrom that he would sign the document, although he had not actually done so. In my view Hannebery is bound by the terms of the documents. It was not argued otherwise by Mr Robins.

Further deterioration in relations between Hannebery and Ristrom and Horne

46
Hannebery described his relationship with Ristrom and Horne at this time as deals in relation to companies he had introduced. Genera formally engaged Domain Capital to act as the manager of the public offering of shares by letter dated 22 February 2008.
47 Hannebery continued to attend the Domain Capital offices from time to time at weekends to collect documents. In April or May he found his effects packed up in a corner of the office, and someone else had taken up occupation. Hannebery took his possessions and no longer attended the office, although he continued to transact business remotely, through the company’s web server.

48
to the Genera deal. He used a precedent from a previous employer, and, as a
consequence, the letter contained the incorrect Australian Financial Services Licence
On 5 February 2008, Hannebery had drafted an investor commitment letter in relation it was considered this may have for Domain Capital’s licence.
49 On 20 March 2008, the Genera prospectus was ready to be lodged, and Domain Capital was required to execute a management document and consent to its name being in the prospectus. At this time, Ristrom and Horne prepared a document entitled “Referral Agreement” which they hoped would govern the ongoing relationship between Hannebery and Domain Capital. The agreement provided for Hannebery to refer clients to the company “in exchange for an agreed referral fee”.
50 The document was presented to Hannebery by Ristrom at the meeting on 20 March 2008. Hannebery made notes of the discussion immediately it concluded. Ristrom stated that before the Genera formalities were dealt with, Ristrom wanted Hannebery to resign as a “responsible officer” of Domain Capital and “to agree to move to a commission structure”. Hannebery refused to resign as a responsible officer. He recorded the ensuing conversation as follows:
“AR – Okay that’s it then. You’re free to go and pack your things and piss
off if you like.
RH – No Andy I’m going home now before I lose my temper. Have a good Easter and see you next week.”

51         Hannebery said that he did not say to Ristrom or Horne that he would leave Domain Capital. He had no such intention. He took all relevant files and documents home, and worked at home using the Domain Capital email server remotely. Between March and July he sent frequent emails, including to Horne, until his access to the server was cut off on 8 July 2008.
52         On 20 March 2008, Domain Capital filed with ASIC a notice terminating Hannebery’s appointment as an “authorised representative”. Hannebery was not informed that his appointment had been terminated. This was in breach of s.916A(4) of the

Corporations Act. Ristrom and Horne sought to justify this decision in their evidence
on the basis that the appointment was no longer necessary as a change of law
exempted “employees” of the licence-holder from the requirement that they be
appointed a “responsible officer” if they carried out financial service advising. Ristrom
and Horne also said that the revocation of the appointment was done on the advice
of the independent compliance officer, John Rappell.
53         On 27 March 2008, Hannebery telephoned Ristrom to confirm that Domain Capital would consent to being named in the Genera prospectus. Hannebery again prepared notes of the conversation shortly after it concluded. Ristrom agreed to proceed with Domain Capital’s involvement in the Genera capital raising. Then a discussion followed about the fees that would be generated, which included the following exchange:

“RH ... The fees will go into Domain as with all other deals that Domain
does and they will be distributed as we’ve always agreed in
bonuses and dividends to shareholders.
AR Richard, you have no claim over any fees generated by this firm
and you are no longer part of this firm.
RH Is that right is it?
AR Yes. You’ve jeopardised my licence and you’re no longer part of
this firm.”

54 The Genera float was finalised in about June 2008. During that year, until the Genera capital raising was completed, Hannebery continued to work on the matter on behalf of Domain Capital, and wrote all correspondence describing his position as a

“Director”. As a consequence of the float Domain Capital earned a substantial fee,
although because of a shortfall in the taking-up of shares by the public, a large part of
Domain Capital’s fee was paid by the receipt of shares and options. Many of these
shares were sold at a significant loss, although the agreement between Genera and
Domain Capital provided for some compensation to be paid in that event.
55 The termination of Hannebery’s access to the Domain Capital email server followed the submission of the invoice by his company on 4 July 2008. No discussion occurred about the termination of Hannebery’s involvement in Domain Capital. Hannebery did no further work for this company.

General comments on the evidence and the credit of witnesses
56 The credit of the witnesses was important. It appears from the evidence that:

a. considerable hostility presently exists between Hannebery on the one hand and Ristrom and Horne on the other;
b. there seems to be an uneasy relationship between Horne and Ristrom and perhaps also between them and their former co-directors, Perkins and Aird;
c. for much of the time these individuals worked together in the company their dealings were characterised by strained relations and a lack of trust;
d. this was particularly so as between Hannebery, Horne, and Ristrom for a significant period prior to the cessation of their dealings in July 2008;
e.
the expertise of the individuals who participated in Domain Capital was in in the companies’ shares;

f.

Domain Capital operated in a strictly-regulated environment as a licensed financial services provider;

g.

lip service was paid in some instances to these responsibilities, exemplified by the assertion by Hannebery that the description of himself as a “Director” of the company in his communications was simply “a title” and contrasted with the position of Ristrom and Horne who were “ASIC directors”;

h.

the lack of any real attempt (except in some instances by Aird and Perkins in the early days) to record significant decisions about the nature of the relationship between the participants;
i. the documentation of the participants’ own attempts at capital raising for Domain Capital was surprisingly casual in view of the core business of the company and their individual expertise and experience;

j. nevertheless, it must be expected that when these individuals used technical words which were related to “equity” participation in the “capital” of Domain Capital that these terms were not used loosely.
57 The documents in evidence provide a framework for determining the chronology. In the event, there is substantial agreement about most matters. The issues which remain in dispute relate to the critical questions of:

a. whether Hannebery became entitled to a shareholding in Domain Capital or was simply entitled to share in any cash surplus from its operations;
b.
Horne’s and Ristrom’s similar retainer and the top-up of $25,000 for
whether Hannebery’s $75,000 retainer for the year ended 30 June 2008 (and end of the financial period;

c. whether Hannebery ceased work with Domain Capital by “voluntarily leaving” and must therefore return the shares and options in Water and Carbon Group Pty Ltd.
58 The determination of these questions is not an easy matter. I consider that, by reasons of the matter I have referred to above, I can place only limited reliance upon the oral evidence of the witnesses. On the other hand, there is little direct documentary evidence confirming the arrangements alleged by the plaintiffs, and in my view the only satisfactory method of determining the disputed plaintiffs’ claims is from an examination of all the relevant circumstances, including the historical context, the relevant discussions between the parties, and the documentary record, such as it is. Ultimately it will be a question of determining the “probabilities” and whether the plaintiffs and the defendants have ultimately satisfied the onus of proof upon them in relation to the claim and counterclaim respectively.

Hannebery’s claim to a 25% shareholding in Domain Capital
59 The following are the most significant matters which must be considered, including whether they are equally consistent with a conclusion that the plaintiff was only entitled to a share of the profits of the company :

a. when Hannebery joined Domain Capital it was anticipated that he “may be
offered the opportunity to be a partner in Domain in a restructured group from
the 1st July 2006”;

b. from July 2006 there was no change in the shareholding of the company but it was understood that Hannebery would equally share in the profits of the company when surplus cash was distributed at the end of the financial period;
c. a distribution was made by the company equally to each of them in December 2006, including to Hannebery’s company;
d. when it became apparent that Aird and Perkins would leave the company, the share of the remaining participants was agreed at 37.5% for each of Ristrom and Horne, and 25% for Hannebery;
e. the discussions included the possibility of equity participation by Peter Mann and, as Hannebery contended, recognition that he was himself already an equity partner;
f.
Hannebery’s entitlement to share in the company’s distribution was a matter of which Perkins’ and Aird’s involvement would be finalised. However, Hannebery does not appear to have participated in these discussions;

g.
in his notes prepared for the meeting on 27 June 2007, Ristrom referred to provision of part of this capital by Hannebery leaving-in part of the distribution to cover the “set-up” or “June costs”, and the balance by way of loan representing his 25% share of the company’s capital requirements;

h. the Distribution Formula prepared by Ristrom for the strategy meeting on 23 August 2007 referred to “return on capital actual/notional” and made the distinction between “contractors/principals”;
i. further contributions to capital were made by Hannebery during the second half of 2007 – his share of a GST refund in September 2007 was retained and further loans totalling $12,500 were made;

j.

when the company needed to provide $120,000 as a security bond to take over the head lease of the premises it occupied, Ristrom asked Hannebery to contribute a 25% share by way of loan;

k.

the transfer of Aird’s and Perkins’ shares to the Ristrom and Horne interests was effected in September 2007. Hannebery did not conduct a search of the shareholding until December 2007. He then made an unequivocal request for the transfer of shares to reflect his entitlement to a 25% shareholding;

l.

this was repeated in his email dated 11 December 2007, which was never challenged by a written response denying the entitlement from Ristrom or Horne. On 17 December 2007 Ristrom and Horne signed the document
prepared by Hannebery in relation to his loans to the company and the
company’s obligation to pay 20% interest;

m.

at the meeting on about 13 or 14 December 2007, a document prepared by Horne headed “Capital and loan contributions” set out Hannebery’s contributions as “capital contributions: June costs (capital)” and included the various loans totalling $25,436. Although certain alterations were made at a later time to this document, the characterisation of Hannebery’s contributions in the document, as being by way of “capital and loan” was not altered.

been reached. If the Court is satisfied as to the terms of the agreement, any such
agreement should be enforced. There must, however, be evidence from which it can
be concluded that it was the intention of the parties to enter into a binding
arrangement and that the terms of their agreement had been defined with sufficient
clarity for the agreement to be enforced.
62
60 The plaintiffs’ cause of action is in contract. The plaintiffs must establish that there were the necessary elements present to constitute a contract. There is not a written document that records the parties’ agreement, even in the most basic terms. The evidence of the oral discussions, particularly the crucial meeting on 27 June 2007, contained the barest of details. In part this was due to my suggestion to Mr Robins that Mr Hannebery simply adopt the analysis of Mr Ristrom’s handwritten documents as Mr Robins had outlined them in his opening.
61 Nevertheless, there is insufficient detail in the evidence of the conversations which would justify a decision that a concluded agreement had been reached. And yet, an agreement was reached, and the parties acted upon the basis that an agreement had
Mr Robins submitted that the continued involvement in the company by the distribution and the provision of loan funds, was sufficient consideration. Further, it was Mr Robins’ submission that the shares (5,000 of the total issued shares of 20,000 in Domain Capital) should simply be transferred to the plaintiff. No suggestion was made by Mr Robins that the transfer required the presence of any further terms, for example:

65
to be regarded as a shareholder. The final arrangements and adjustments between
the parties can generally (apart perhaps from the references by Ristrom and Horne in

a.

how the additional 5% shareholding was to top-up the 20% shareholding to which Hannebery alleged he was entitled after July 2006;

b.

whether the 5000 fully paid $1 shares would be transferred for any monetary consideration;
c. from what date, the shares were to be transferred;

d.

whether the shares would be transferred by Aird and Perkins or from the Ristrom and Horne interests;

e.

whether the transfer would be subject to a condition similar to the transfer of the shares in Water & Carbon Group Pty Ltd that if Hannebery left Domain Capital in certain circumstances he must transfer the shares back to the continuing shareholders.
63 It is difficult in the circumstances of this case to conclude that the parties reached a final enforceable agreement that 5000 shares in Domain Capital would be transferred to Hannebery or his nominee.
64 In my view, the plaintiffs can only succeed if, from surrounding circumstances it is clearly apparent that the parties had reached an agreement or arrangement which was sufficiently certain to be enforced. On the one hand, the chronology suggests that the parties anticipated that Hannebery would become an “equity” partner and, that later, other persons might also join in on that basis and that at critical times the notes for meetings (particularly those prepared by Ristrom for the meeting of 27 June
2007, for the August strategy meeting, and by Horne for the meeting of 13/14 partner (or shareholder) and having made capital contributions to the company.

On the other hand, there is no document recording the fact that Hannebery is or was having an entitlement to share in surplus cash. The company was in its development stage – a share of cash surpluses after taking account of income less expenses and the payment of 20% interest on loans to the company for it to raise capital, were attractive options and did not carry the risk of responsibility for losses which the company may accrue in the future.
66 I do not have the sufficient degree of certainty from the surrounding circumstances to be satisfied, in the absence of documentation or clear oral evidence, that the parties had reached final agreement for the transfer of shares in the company to Hannebery or his nominee. Such a conclusion does not necessarily or obviously follow from the evidence. Accordingly, the plaintiffs cannot succeed on that claim to be entitled to

5000 shares in the company or the consequential claim for an accounting. If accounts.

Hannebury’s claim to be paid a retainer of $75,000
67         There is no dispute that at the meeting in August 2007, there was an agreement reached that retainers of $75,000 would be paid to Hannebury, Ristrom and Horne. What remains in dispute is whether the payments were only to be paid if, in the year the retainer accrued, there was a cash surplus after the payment of other expenses and liabilities which it was agreed would be afforded a greater priority.
68         The documentation distributed prior to the meeting in August 2007 confirms the oral evidence that each of the participants in Domain Capital was to be paid a retainer of $75,000. It was the basis for Mann’s engagement; Devreaux’s $50,000 retainer was to be topped up by a further $25,000 and each of Horne, Ristrom and Hannebury
were to be entitled to $75,000.
69         The “distribution formula” anticipated the probability that any surplus after the payment of the retainers might be split disproportionately according to the contribution each participant had made to the company earning its income.
70         However, after discussion, this latter proposal was deemed to be impractical and it was agreed that any surplus was to be shared equally. Notwithstanding, a number of later documents referred to the $75,000 retainer to Horne, Ristrom and Hannebery without qualification. There is no document which suggests that the payments were contingent upon there being a cash surplus. In fact there are a number of documents prepared subsequently by Ristrom and Horne which note that the retainer payments to the three of them were “owed” for the year to 30 June 2008.
71         The company’s accounts for the year ended 30 June 2008 do not record the amounts as “owing”. This is not suprising, however, as the accounts were prepared upon the instructions of Ristrom and Horne after the dispute with Hannebery had cystalised in July 2008 by the submission of an invoice by Hannebery and a letter of demand by his solicitor.

77
Genera float, his access to the company’s email service was discontinued. It was this
72 The plaintiffs have the onus of establishing that there was an agreement to pay a retainer. There is little dispute that there was. The evidence does not, in my view, support the suggestion by the defendants that any such agreement was conditional

upon there being a cash surplus. The evidence in subsequent documents suggests
otherwise and in the circumstances Hannebery will succeed with this claim.

Defendants’ counterclaim for the return of the Water and Carbon Group shares
73         The defendants allege that the plaintiff must return the shares because he left Domain Capital voluntarily. In this matter the defendants bear the onus of proof. They have not satisfied the onus. The evidence suggests that Hannebery continued his involvement with the company until the Genera float was completed in late June 2008.
74         In December 2007, Ristrom told Hannebery to “piss off”. Later they cooperated, as necessary, to ensure that the Genera project was completed. Hannebery worked from home. He wrote emails, including to Horne using Domain Capital’s server and continued to use the title “Director” to describe his position with the Company.
75         Ristrom and Horne revoked Hannebery’s appointment as a “authorised representative” of the Company on 20 March 2008. Their explanations for this action (that it was on the advice of Rappell or alternatively that the continued appointment was unnecessary because of a change of law exempting employees from the requirement) were inconsistent and unconvincing. They had a legal obligation to inform Hannebery that his appointment had been revoked, which they failed to comply with.
76         On 20 March 2008, Ristrom said to Hannebery, “You’re free to go and pack your things and piss off if you like”. Hannebery then largely worked from home. His office, presumably upon the instructions of Ristrom or Horne was packed up and allocated to someone else. Ristrom and Horne were well aware that Hannebery was working from home and was using the company’s email server remotely to communicate with them and others to complete the company’s work.
After Hannebery submitted an invoice on 4 July 2008, following the successful company to an end. Accordingly, the defendants have not established the circumstances required by the agreement before Hannebery was obliged to return the shares.

Orders
78 The following orders are appropriate-

a.

Judgment for the first plaintiff against the first defendant for $75,000 and interest.
b. Judgment for the first plaintiff on the defendants’ counterclaim.

82

I will hear the parties further in relation to the form of the orders and on questions of costs.

- - -

Certificate

I certify that these 20 pages are a true copy of the reasons for decision of His Honour
Judge Anderson delivered on 25 February 2009.
Dated: 25 February 2009.
Julien Lowy

Associate to His Honour Judge Anderson

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Citations

Hannebery v Domain Capital Pty Ltd [2009] VCC 54

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a.	Hannebery was to work with the company and to operate out of its offices “at no cost”;
b.	Hannebery “may be offered the opportunity to be a partner in Domain in a restructured group from the 1st July 2006”;
c.	specific “deals” were not to be “part of the future partnership” in certain circumstances;
d.	Hannebery was described as a “director and seed investor” in Genera and a “seed investor” in another company the subject of the potential deals;
e.	revenue from these deals was to be shared 70% to Hannebery and 30% to Domain Capital up to 1 July 2006, and 50% / 50% after 1 July 2006 if Hannebery “joins Domain as a partner”.

“RH	... The fees will go into Domain as with all other deals that Domain
does and they will be distributed as we’ve always agreed in
bonuses and dividends to shareholders.
AR	Richard, you have no claim over any fees generated by this firm
and you are no longer part of this firm.
RH	Is that right is it?
AR	Yes. You’ve jeopardised my licence and you’re no longer part of
this firm.”

f.	Domain Capital operated in a strictly-regulated environment as a licensed financial services provider;
g.	lip service was paid in some instances to these responsibilities, exemplified by the assertion by Hannebery that the description of himself as a “Director” of the company in his communications was simply “a title” and contrasted with the position of Ristrom and Horne who were “ASIC directors”;
h.	the lack of any real attempt (except in some instances by Aird and Perkins in the early days) to record significant decisions about the nature of the relationship between the participants;

b.	from July 2006 there was no change in the shareholding of the company but it was understood that Hannebery would equally share in the profits of the company when surplus cash was distributed at the end of the financial period;
c.	a distribution was made by the company equally to each of them in December 2006, including to Hannebery’s company;
d.	when it became apparent that Aird and Perkins would leave the company, the share of the remaining participants was agreed at 37.5% for each of Ristrom and Horne, and 25% for Hannebery;
e.	the discussions included the possibility of equity participation by Peter Mann and, as Hannebery contended, recognition that he was himself already an equity partner;
f.

j.	when the company needed to provide $120,000 as a security bond to take over the head lease of the premises it occupied, Ristrom asked Hannebery to contribute a 25% share by way of loan;
k.	the transfer of Aird’s and Perkins’ shares to the Ristrom and Horne interests was effected in September 2007. Hannebery did not conduct a search of the shareholding until December 2007. He then made an unequivocal request for the transfer of shares to reflect his entitlement to a 25% shareholding;
l.	this was repeated in his email dated 11 December 2007, which was never challenged by a written response denying the entitlement from Ristrom or Horne. On 17 December 2007 Ristrom and Horne signed the document
prepared by Hannebery in relation to his loans to the company and the company’s obligation to pay 20% interest;
m.	at the meeting on about 13 or 14 December 2007, a document prepared by Horne headed “Capital and loan contributions” set out Hannebery’s contributions as “capital contributions: June costs (capital)” and included the various loans totalling $25,436. Although certain alterations were made at a later time to this document, the characterisation of Hannebery’s contributions in the document, as being by way of “capital and loan” was not altered.