Healthybook Living Pty Ltd v. Heurston Group PLC
[2017] VCC 1313
•20 September 2017
IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted
Suitable for Publication
AT MELBOURNE COMMERCIAL DIVISON GENERAL LIST
Case No. CI-16-04814
HEALTHYBOOK LIVING PTY LTD Plaintiff
v.
HEURSTON GROUP PLC Defendant
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| JUDGE: | His Honour Judge Anderson |
| WHERE HELD: | Melbourne |
| DATEOF HEARING: | 13 and 14 September 2017 |
| DATEOF JUDGMENT: | 20 September 2017 |
| CASE MAY BE CITEDAS: | Healthybook Living Pty Ltd v. Heurston Group PLC |
| MEDIUMNEUTRAL CITATION: | [2017] VCC 1313 |
REASONS FOR JUDGMENT
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Catchwords: Contract – Loan to a company – Secured by the issue of a convertible note – Conflicting versions of events.
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APPEARANCES: | Counsel | Solicitors |
For thePlaintiff | Ms J. Findlay of Counsel | White Cleland Lawyers |
For the Defendant | Mr N. Jones of Counsel | ComLaw |
County Court of Victoria, 250 William Street, Melbourne
HIS HONOUR:
1Grant Booker is an investor who lives in outer Melbourne. He conducts his business affairs through a number of companies, including the plaintiff, Healthybook Living Pty Ltd (“Healthybook”).
2Marino Sussich is the managing director of the defendant Heurston Group plc
(“Heurston”), a publicly listed company in the United Kingdom. Heurston was until 16 March 2016 known as 2Up Gaming plc. I shall, however, consistently refer to the company as Heurston. It is a “start-up” technology company. Mr Sussich is also a director of other companies, including companies through which he conducts his personal affairs. These personal companies include Cres Pty Ltd (“Cres”).
3In May 2015, both Mr Booker and Mr Sussich (through their respective companies) had substantial personal shareholdings in Heurston. On 25 May 2015, Mr Sussich phoned Mr Booker seeking an injection of working capital so that Heurston could meet its ongoing expenses.
4As a result of that approach, Mr Booker arranged for a total of $200,000 to be paid to Cres; $50,000 on 26 May and $150,000 on 27 May 2015. On 27 May 2015, Peter Lombardo, a director of Heurston, forwarded to Mr Booker a convertible note. The note certified that Healthybook could convert the issue price of $200,000 for shares in Heurston at 20c each, if the principal was not paid within 12 calendar months of the issue of the note. If not so converted, the debt would become immediately payable.
5Healthybook chose not to convert the liability to shares. Heurston refused to pay the sum of $200,000 and the accrued interest thereon. It is in respect of those matters Healthybook seeks, by this proceeding, to recover what it says is owing to it by Heurston.
6Both counsel agreed that essentially the Court should determine this matter on the basis of whether or not I accepted the evidence of Mr Booker rather than Mr Sussich in relation to what was discussed and agreed between them in two telephone conversations on 25 and 26 May 2015. In this regard, the onus of proof was upon Healthybook.
7Mr Booker said that in the conversations, he agreed that Healthybook would advance the sum of $200,000 to Heurston. The advance would accrue interest at the rate of 8% per annum and would be secured by Heurston providing a convertible note for shares in the company for each 20c of the advance outstanding after 12 months. At Mr Sussich’s direction, the sum of $200,000 was to be paid to Cres.
8Mr Booker agreed to pay $50,000 on 26 May but said that he would not pay the balance until the whole advance was secured by Heurston providing the convertible note. The convertible note was provided by Heurston on 27 May, following which Mr Booker arranged for the further sum of $150,000 to be transferred to Cres.
9Mr Sussich said that two separate transactions were discussed in a short conversation with Mr Booker on 25 May 2015:
a.Mr Booker agreed to advance $200,000 to Cres. As Mr Booker could not provide the whole of the sum in one payment, $50,000 was transferred on 26 May 2015 and $150,000 on 27 May. In respect of the advance, Mr Booker said to “pay it back when you can”. There was no discussion about the payment of interest on the advance or the provision of security by way of a convertible note;
b.Mr Booker agreed that if a convertible note were sent to him by Heurston in the sum of $200,000, he would consider making a further advance of that sum which would give him the option of taking up further shares in Heurston. This was the reason the convertible note was forwarded to Mr Booker on 27 May 2017. Mr Booker had not paid the further sum of $200,000 to Heurston, so therefore the convertible note had had no operation.
10For the reasons I shall set out below, I have in relation to these matters accepted the evidence of Mr Booker and rejected the evidence of Mr Sussich. Accordingly, I propose that there shall be judgment for the plaintiff against the defendant that the defendant pay to the plaintiff the sum of $200,000 together with interest thereon at the rate of 8% per annum.
Earlier advances by Mr Booker
11During 2014, Mr Booker had arranged for the direct payment of certain liabilities of Heurston. These payments were later secured by a convertible note provided by Heurston to Healthybook in the sum of $150,000 on 25 November 2014. This indebtedness was later converted to shares in Heurston.
12A summary of the background to this transaction is as follows:
a.on 14 July 2014, Mr Sussich forwarded to Mr Booker an email from the Heurston chief financial officer, Albert Sommer, attaching a list of Heurston’s “outstanding payables as at today”. The total of the accounts was $112,309.12 including “priority payments” of $54,023.78. In respect of the accounts marked for priority, Mr Sommer said, “some of which are getting serious in the delays.
Plus Super, Tax, C Teoh, etc of course”;
b.on 15 July 2014, Mr Sussich sent Mr Booker a copy of the “convertible note instrument we use”. Mr Sussich had suggested that this might be used to secure any advances by Mr Booker. On 17 July 2014, Mr Sussich and Mr Booker agreed to use a convertible note for advances totalling $500,000;
c.an email to Mr Sommer and Mr Sussich on 2 September recorded 10 payments made pursuant to the arrangement between 4 and 20 August 2014 totalling $146,485.35. This included 5 payments to Cres totalling $40,000;
d.on 26 November 2014, Mr Booker transferred $3,514.65 to Heurston which took the “figure to $150,000 from me”. He asked Mr Sussich and Mr Sommer to “email me the convertible note for the figure of $150,000 made out to Healthybook”;
e.later that day, Mr Sussich sent Mr Booker the convertible note. The note certified that Healthybook was the holder of an “interest bearing AUD
$150,000 convertible note”. The interest rate was 10% per annum, the conversion rate was to be “GBP 0.10 per share” of “the outstanding principal amount” and repayment was to be made within 12 calendar months of the issue of the note;
f.on 5 March 2015, the “convertible loan notes” that had been issued to Healthybook (including the convertible note for $150,000 on 26 November 2015) were converted into issued shares in Heurston.
Conversations in late May 2015 between Mr Booker and Mr Sussich
13Mr Booker said that prior to May 2015 he knew that Heurston was attempting to upgrade its stock market listing. On 14 March 2015, Mr Sussich had informed him by email that underwriting to the extent of USD $50 million was available. Mr Booker regarded this as a very encouraging sign for the company’s future.
14On 25 May 2015, Mr Sussich phoned Mr Booker. Mr Booker said that Mr Sussich asked him to provide further “cashflow assistance”. He said that $200,000 was required. Ideally, Mr Sussich wanted to raise this amount through the issue of shares in Heurston.
15Mr Booker said he told Mr Sussich he was not prepared to purchase further shares and suggested a convertible note with interest at 8% per annum, a conversion rate of 20 cents per share and repayment in 12 months. Mr Booker told Mr Sussich that he
would not release the funds until he had the convertible note. Mr Sussich agreed to have Mr Lombardo prepare the note and send it to Mr Booker.
16On 26 May 2015, Mr Booker said he received a phone call from Mr Sussich who told him that Mr Lombardo was preparing the convertible note. However, Heurston needed the money that day as it had bills and wages to pay. Mr Booker said that he told Mr Sussich that he would pay $50,000 that day but would not release the balance of $150,000 until he had the convertible note. He asked Mr Sussich where he wanted him to put the money. Mr Sussich told him to put it into Cres. Mr Booker confirmed that he would make the initial payment that afternoon.
17Mr Sussich said that he had one conversation with Mr Booker on about 25 May 2015.
He phoned Mr Booker and told him that Heurston required money. He said he asked Mr Booker to lend the money to Cres. Mr Sussich told Mr Booker that if he lent the money to Cres, Mr Sussich would invest the money in Heurston and would also see that Heurston gave Mr Booker a convertible note.
18Mr Sussich said that the convertible note was not to be security for the advance to Cres but that Mr Booker would need to pay a further $200,000 to Heurston for the convertible note to have any operation.
19Mr Sussich said that he and Mr Booker did not discuss the terms of the advance to Cres. There was no discussion of interest and the only discussion about repayment was that he should “pay back the money when he can”. Mr Sussich said that Mr Booker said that he could only pay $50,000 immediately and would need more time to pay the rest of the advance.
Events following the agreement by Mr Booker to advance $200,000
20It was common ground that Mr Booker arranged for $50,000 to be transferred to Cres on 26 May and $150,000 on 27 May 2015. Earlier on 27 May, Mr Booker had received a convertible note by email from Mr Lombardo.
21The note is dated 27 May 2015 and is signed on behalf of Heurston by Mr Sussich and Mr Lombardo. The note certifies that Healthybook is the “registered holder of one interest bearing AUD $200,000 convertible note” which would convert to 1 million shares at 20 cents per share.
22The note had attached conditions which referred to an interest rate of 8% per annum, a conversion rate of 20 cents per share and repayment of the loan “12 calendar months after the issue date”, which was specified as 27 May 2015.
23Mr Sussich said that the $200,000 paid by Mr Booker to Cres was used to purchase shares in Heurston for 18 cents per share. No other evidence was provided of this purchase. Later, Mr Sussich said that Cres was not a shareholder in Heurston. Statements in the directors’ report forming part of Heurston’s Financial Report for the year to 30 June 2015 noted that, “Subsequent to 30 June 2015” the board of directors and Cres had agreed to convert a convertible loan note “to 17,181,277 new shares” in Heurston.
Events 12 calendar months after the issue of the convertible note
24On 5 May 2015, Mr Booker wrote to Heurston’s Secretary, Nigel Harrison, informing him that he wished to be repaid the advance of $200,000 plus interest of 8% on the repayment date of 27 May 2016.
25Mr Harrison had been the company secretary of Heurston since about June 2015. He said that he had no personal knowledge of the transaction in May 2015. He made enquiries from Mr Sussich and Mr Lombardo. He was informed by Mr Sussich that the advance by Mr Booker had been made to Cres.
26On 9 May 2016, Mr Harrison wrote to Mr Booker as follows:
“Now that Marino and Peter have returned, as promised I have been able to enquire further into your $200,000 loan and corresponding convertible loan note copy that you sent to me.
I confirm that we have tracked the original transfer of funds, although it appears it wasn’t paid direct to 2Up Gaming PLC, but not the original loan note which you said was never given to you.
Given that you have elected to receive a repayment and not shares, I suggest we focus on that. I can confirm that the directors are happy to refund the loan in full but will make the repayment in the first week of July, a delay of only a few weeks. For reasons I am sure you will appreciate, this will allow for the receipt of further scheduled tranches of capital and should not put the company under cash flow stress.
Please confirm that this is acceptable to you”.
27The only directors of Heurston at this time were Mr Sussich, Mr Lombardo and Sorin Pigulea. Jackie Gurr, who was also a director in May 2015 although apparently resident in Vietnam, had resigned as a director on 25 April 2016. Mr Harrison confirmed, in his oral evidence, that when he wrote to Mr Booker on 9 May he had
earlier been informed by Mr Sussich that the $200,000 had been paid to Cres.
28On 10 May 2016, Mr Booker responded rejecting the offer to repay the money in early July. It is clear from the contents of the email that relations between Mr Booker and the Heurston directors had broken down. Mr Booker referred to the fact that he had invested funds in Heurston on the basis of “information about the company and its future prospects/projections” which had been “incorrect”, and that Heurston although “a public company [was] run like a private company”.
29On 25 May 2016, Mr Harrison wrote to Mr Booker as follows:
“Further to the matter of the $200k loan and the copy of a convertible note delivered to the offices here, I reconfirm that no payment was received by 2Up Holdings PLC from you at the time that would form the basis of the loan note. On checking with Marino it appears that around that time a $200k payment was made to Cres Pty Ltd by you. Can you confirm if this was the payment you are referring to?”
30Later that day, Mr Booker replied as follows:
“I paid a variety [of] ways for my 2up shares/convertible notes. Mostly were to a couple of Marino’s companies direct, some were direct to Streamark as part of the Sale process, some were fees due to creditors direct, some were fees due to potential financiers. Marino basically directed where he wanted the payment to go…..This extra $200,000 was made as a convertible note as I informed him in my opinion I had enough 2up shares and Marino suggested a convertible note was the way to go, I know he was desperate for the money as contracts were signed with the Indians and income was imminent. So I arranged for the note to be sent through from 2up direct and signed off by the 2up directors.. I note also that this convertible note information was not in the last annual accounts and it should have been”.
31No part of the advance of $200,000, or interest thereon, has been paid to Mr Booker or Healthybook by either Heurston or Cres.
Claims by Healthybook
32The proceeding to recover the principal and interest was commenced by writ in October 2016. A defence was filed on 19 December 2016. The defence denied any agreement for the advance of $200,000 to Heurston and said that the payments of
$50,000 and $150,000 were “not at the direction of Heurston”. The defence alleged that the copy of a Heurston convertible note was provided to Healthybook on the basis that an original note would be issued upon the payment of $200,000 into the bank account of Heurston. This payment was never made and Heurston did not
receive the sum of $200,000 and did not provide an original convertible note to Healthybook.
33At the commencement of the trial, plaintiff’s counsel Ms Findlay made an application to file and serve an amended writ and statement of claim. Leave was granted to Healthybook after time had been allowed to Heurston to consider the proposed amendments and to deliver a proposed amended defence.
34The amended statement of claim raised a claim for rectification of the convertible note. This claim was said to be necessary because the original defence appeared to rely upon the terms of condition 14 of the convertible note which required “payment to be made” of the $200,000 to a specified bank account of Heurston. It was suggested that clause 14 might be rectified to include words such as “unless otherwise agreed”, as Mr Sussich had directed Mr Booker that payment should be made to Cres.
35The amended statement of claim also pleaded that Heurston should be estopped from denying that payment to Cres would be treated by Heurston as a payment to it. Defendant’s counsel Mr Jones commenced his final submissions by submitting that it was unnecessary for the Court to consider these further issues as the case would essentially be decided on what version of the agreement, as variously alleged by Mr Booker and Mr Sussich, should be accepted. Final submissions proceeded on that basis and I consider that Mr Jones’s submission was correct.
36Certain other issues which appeared to arise on the pleadings were also not argued in final submissions. I only mention them to dismiss them from further consideration:
a.the convertible note is numbered. It is executed on behalf of Heurston by two directors. It is by its terms (apart from the requirement to make payment to the specified Heurston bank account) consistent with what I am satisfied the parties discussed on 25 and 26 May 2015. No relief is sought pursuant to the convertible note. In the circumstances, the absence of an “original” note would appear to be of no significance;
b.payment was made to Cres. I am satisfied that this was at the direction of Mr Sussich. Mr Sussich was in May 2015 the managing director of Heurston, and remains in that position today. There is no suggestion that he lacked the authority (ostensible or express) to direct payment to the third party Cres as, effectively, payment to Heurston.
Credibility of the evidence of Mr Booker and Mr Sussich
37I consider that Mr Sussich was not a credible witness and that Mr Booker’s evidence should be preferred. I base this finding on the following matters:
a.generally, Mr Booker’s evidence was far more convincing than that of Mr Sussich. Mr Booker’s version of the conversations in late May 2015 was more consistent with the relationship between the parties evidenced by the dealings in the second half of 2014, and otherwise made much more sense than the version of Mr Sussich;
b.the following specific comments can be made about the evidence of Mr Booker and Mr Sussich:
i.in May 2015, Heurston was in urgent need of working capital. The company had made large losses in that financial year. It needed to keep trading until it could upgrade its stock exchange listing;
ii.Mr Sussich said that the discussion about a convertible note was separate to the discussion about a loan to Cres. This is unlikely. Mr Sussich said that he asked for a loan of $200,000 to Cres. He said Cres would then use this money to invest in Heurston shares. The loan was to be unsecured, without any discussion of interest and was to be repaid when Cres was able to. As a separate transaction, Mr Booker could, if he so decided, pay a further $200,000 to Heurston, and would be issued with a convertible note on terms that were not discussed and which differed from those included in the convertible note given to Healthybook in November 2014;
iii.the convertible note was sent to Mr Booker by Mr Lombardo on 27 May 2015. This is understandable if it was, as Mr Booker said, the event which triggered the further payment of $150,000. It is less likely if, as Mr Sussich said, it was a separate transaction that Mr Booker could take up if he wished. If that were so, it is surprising that there was no follow-up by Heurston to see if Mr Booker was going to advance a further $200,000;
iv.Mr Booker said that he was only prepared to pay $50,000 to Cres until he received the convertible note from Heurston. As soon as he received the convertible note, he paid the further $150,000 to Cres on 27 May. Mr Booker paid the whole of the sum of $200,000 from the bank account of one of his companies, Bay Vista Close Pty Ltd. The bank statement for that account shows that there was no apparent impediment (as Mr Sussich said he had been told there was by Mr Booker) to paying the
whole sum of $200,000 on 26 May;
v.Mr Booker’s actions, after the May 2015 conversations, were consistent with his version of the transaction discussed; the convertible note was recorded as an asset in the financial records of the Healthybook and Mr Booker notified Heurston, as the 12 month anniversary of the advance approached, that he wanted the repayment of the advance and did not intend to convert the loan into shares;
vi.No documentary evidence was produced (for example from the financial records of Cres) to support Mr Sussich’s evidence that the advance was to Cres and not Heurston.
c.Mr Sussich was asked in cross-examination about the payments made in August 2014 by Mr Booker on behalf of Heurston, including to Cres, which resulted in the issue of a convertible note by Heurston on 25 November 2014. Mr Sussich, a number of times, said that he “would have” spoken about certain matters with Mr Booker;
When asked to clarify that expression, Mr Sussich said that it was “likely” that he had (so spoken) but he did not specifically “recall” because it was a number of years ago. When asked whether his recollection of the events in late May 2015 was any clearer, Mr Sussich said that those conversations were “different” because “they were about a loan to Cres”. I did not accept this as a credible explanation or point of difference;
d.Mr Booker gave evidence of conversations on both 25 and 26 May 2015. In his examination in chief, Mr Sussich said that in May 2015 he requested a loan of $200,000 from Mr Booker. Mr Sussich was asked how many conversations there were on or about 25 May. He replied, “one”. He then gave evidence of one conversation which he said took place on 25 May 2015. In his evidence in chief, Mr Sussich did not give evidence of a subsequent conversation about the loan.
In cross-examination, Mr Sussich repeated that there was “only one conversation” in May 2015. He was then taken to paragraph 3(a) of the amended defence, which pleaded for the first time that, “On or about 25 May 2016 (sic) and 26 May 2016 (sic) there were telephone discussions between Grant Booker, for and on behalf of the plaintiff, and Marino Sussich for and on behalf of Cres Pty Ltd…”;
Mr Sussich then gave evidence that the “main” conversation was on 25 May and Mr Booker said he would pay the balance of $150,000 on the next day or the day following that;
Later in cross-examination, Mr Sussich said that Mr Booker had called him on 26 May and that in the conversation he told Mr Booker that Mr Lombardo was preparing the convertible note;
During this part of his cross-examination, Mr Sussich appeared to (incorrectly, in my view) dispute what he had earlier said during examination in chief in order to explain the apparent contradiction with the pleading in the amended defence. The matter was not addressed during re-examination;
e.during his cross-examination, Mr Sussich was asked about the dealings with Mr Booker which resulted in payments totalling $146,485.35 on behalf of Heurston, including $40,000 to Cres. Mr Sussich volunteered evidence about what he described as “other outstanding issues between Mr Booker and Cres”. He said that Mr Booker had at that time acquired shares from one of his companies (Matlin) and that this was a reason some of the money, paid in August 2014 by Mr Booker, “may have come to Cres”. He also said that he told Mr Booker to pay the money to Cres for the Matlin shares;
These matters were not put to Mr Booker in cross-examination although he had given evidence of purchases he had made from Heurston directors of shares in that company and related companies. Mr Jones did not lead evidence from Mr Sussich in relation to these matters and did not seek to re- examine on them;
Mr Sussich’s evidence on these matters was confused. He said that if Heurston had assumed responsibility, by the issue of a convertible note in November 2014, for monies paid to Cres on its behalf, Heurston would also have been liable to pay that amount to Cres. Despite being pressed by Ms Findlay to further explain this statement, he did not provide an explanation that was understandable. Mr Jones did not raise the issue in re-examination;
f.Mr Harrison’s evidence was necessarily very limited. Nevertheless there was a discrepancy between his evidence and that of Mr Sussich;
Mr Harrison, in cross-examination, agreed that before he wrote the email on 9 May 2016 confirming “that the directors are happy to refund the loan in full but will make the repayment in the first week of July”, he had asked Mr Sussich
about the specific convertible note that had been given to Healthybook by Heurston on 27 May 2015;
Mr Harrison also agreed that when he referred in the email to having “tracked the original transfer of funds, although it appears it wasn’t paid direct to 2Up Gaming Plc”, he knew that the funds had been paid to Cres. Mr Harrison was not re-examined about these matters;
Mr Sussich, in cross-examination, had said that in writing the email dated 9 May 2016, Mr Harrison had “misunderstood” their discussion. Following the receipt of Mr Booker’s email on 5 May 2016, Mr Harrison had asked him and Mr Lombardo whether Heurston should pay outstanding convertible notes. Mr Sussich said that the instructions he and Mr Lombardo gave was to “pay them out in the next series”. He said there “were a number of convertible notes”;
I consider that Mr Harrison’s version should be preferred. It accords with the tenor of the email correspondence which indicates that, although Heurston had agreed to pay out Healthybook’s convertible note, there was a change of mind when Mr Booker indicated that he would not accept an extension of the time for payment until July 2016;
g.Mr Lombardo was not called to give evidence. He is still a director of Heurston and Ms Findlay, without demur from Mr Jones, stated that he had been in court during the proceeding. If called, he could have explained the reason he sent the convertible note to Mr Booker on 27 May 2015, whether the convertible note was only to be operative if Mr Booker transferred a further
$200,000 to Heurston, and why he referred in the note to an interest rate of 8% per annum and a conversion rate of 20c per share if those matters had not been told to him by Mr Sussich as a result of earlier discussions with Mr Booker. As a consequence of the unexplained failure by Heurston to call Mr Lombardo as a witness, I consider that I should prefer Mr Booker’s evidence
to Mr Sussichs’ in relation to the specific matters where Mr Lombardo could have given evidence.
38I will hear the parties further on questions of interest and costs.
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Certificate
I certify that these 11 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 20 September 2017.
Dated: 20 September 2017
Carla Cianfaglione
Associate to His Honour Judge Anderson
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