Helen Anne Henry v Richard James Creswick

[2009] NSWDC 41

CITATION:	Helen Anne Henry & Ors v Richard James Creswick [2009] NSWDC 41
HEARING DATE(S):	18/02/09 - 19/02/09, 27/2/09, 16/03/09
JUDGMENT DATE:	16 March 2009
JURISDICTION:	Civil
JUDGMENT OF:	Rolfe DCJ
DECISION:	See paragraphs 48-50 of Judgment
CATCHWORDS:	Joint Venture Company - Alleged Verbal Agreement amongst shareholders arising out of discharge of company debt - Consideration of background facts and surrounding circumstances where no contemporaneous record kept and critical witness had died.
LEGISLATION CITED:	Corporations Act 2001 Real Property Act 1900
PARTIES:	Helen Anne Henry as Representative of the Estate of Ian Russell Henry & Others (Plaintiff) Richard James Creswick (Defendant)
FILE NUMBER(S):	1558/07
COUNSEL:	D Ash (Plaintiffs) J White (Defendant)

JUDGMENT

1 The plaintiffs in these proceedings have brought an action against the defendant for breach of an oral agreement which they say was made between the parties in August 2002.

2 Helen Anne Henry (“Mrs Henry”), as representative of the estate of Ian Russell Henry (“Mr Henry”), is the first plaintiff in these proceedings.

3 Mr Henry was a director of Bintrak Systems Pty Limited (“Bintrak”) and a director and shareholder of Tingara Pty Limited (“Tingara”). Tingara was a 50% shareholder in Prosna Pty Limited (“Prosna”).

4 The second plaintiff is Mrs Henry in her own right. Mrs Henry was also a director and shareholder of Tingara.

5 The third plaintiff is Stevesmar Pty Limited (“Stevesmar”). Stevesmar was the other 50% shareholder in Prosna.

6 The fourth plaintiff, John David Robson (“Mr Robson”) was the shareholder and director of Stevesmar. Mr Robson was also a director of Bintrak.

7 The defendant, Richard James Creswick, was a director and shareholder of Tagtrak Pty Limited (“Tagtrak”). Mr Creswick was also a director of Bintrak.

8 The background to the case is as follows.

9 Bintrak was incorporated on 5 December 1995 as a special purpose vehicle, namely, to develop and market an electronic weighing system for trucks which were involved in the collection and removal of residential and commercial waste.

10 Bintrak was also a joint venture vehicle. It was owned by two companies in equal shares. On the one hand, Prosna held 50% of the shares effectively on behalf of the interests of Mr Henry, Mrs Henry, Mr Robson and Mrs Robson. On the other hand, Tagtrak held 50% of the shares effectively on behalf of the interests of Mr Creswick. During cross-examination Mr Creswick mentioned that his employee, John Royce Stanes, had a 30% interest in Tagtrak, although this was not evidenced by any of the records held at ASIC in relation to Tagtrak.

11 Over the life of the joint venture, Mr Henry and Mr Robson were the two Bintrak directors who represented Prosna and Mr Creswick and Mr Stanes were the two Bintrak directors who represented Tagtrak.

12 As a result of an ASIC initiated de-registration under s 601 AB of the Corporations Act 2001, Bintrak was automatically de-registered in 2007.

13 The joint venture arose out of Mr Creswick’s idea for the use of an electronic weighing system and his need for a partner to market his idea and provide some capital; see Mr Creswick’s initial business plan which he sent to Mr Henry in July 1995 (exhibit A 1-23).

14 After the business plan was discussed, there followed the exchange of various drafts of a manufacturing licence agreement, a shareholders agreement and a consultancy agreement. The documents were prepared by solicitors acting for the parties (exhibit A 26-210; A 788-900). At the same time, the business of the joint venture vehicle, Bintrak, got under way.

15 Throughout his evidence, both in affidavit form (exhibit 1) and oral testimony, Mr Creswick maintained his understanding that there was in place a binding shareholders agreement consisting of the last draft version (exhibit 1 para 49) circulated amongst the parties. However, this document was never signed and exchanged.

16 For their part, the plaintiffs maintained that no formal agreement had been entered into. Both counsel agreed that it was not necessary for the Court to make a determination in this regard. This was essentially because any agreement reached in 1995 was no answer to the plaintiffs’ claim; nevertheless, the parties’ subjective understanding of a shareholders agreement shed some light on the events which occurred in the lead up to August 2002 when the alleged agreement sued upon by the plaintiffs was said to have been made with the defendant.

17 In early 2000 there was uncertainty about the status of a shareholders’ agreement. This is demonstrated by report No. 6 prepared for the February 2000 board meeting of Bintrak by its general manager Mr Kulakauskas who reported (exhibit A 355):

“It appears to be fundamental to the future of Bintrak that the shareholders come to an acceptable position re the Shareholders Agreement, which is still unresolved after a number of years. The continued failure to do this is now beginning to adversely affect the day-to-day activities of the company and has had a decidedly adverse impact on the attitude of the NAB.”

18 Although the report was prepared by an independent third party, Mr Creswick maintained in cross-examination that the words “which is still unresolved” were untrue.

19 In any event, because of Bintrak’s cash flow problems, there was a need for it to reorganise its facilities with the National Australia Bank Limited (“NAB”). In this respect, at the directors meeting of Bintrak on 16 February 2000 (exhibit A 361) Mr Stanes made the following record:

“Meeting at “Glendallo” – 16 February 2000

Attendees: Ian Henry, Richard Creswick, John Robson and John Stanes

The meeting resolved that:

. All shareholders agreed to continue Bintrak and work together to that end.

. Prosna and Tagtrak to contribute 50/50 for all funds injected to Bintrak and agreed to by shareholders.

. The $125,000 contributed by Prosna is non-refundable and entered as loan funds to facilitate tax minimisation.

. Tek Solutions to receive 5% of “buy price” to Bintrak for all RF tags and readers.

. Richard and John to receive $75,000 each from Bintrak when monies available.

. Have regular meetings with Board members and all staff at 10am Fridays to aid better communication and for Board members to more closely monitor Bintrak’s monetary and personnel performance.

. Ian to reorganise Bintrak’s financial facility and to personally loan $10,000 to Bintrak to pay outstanding instalment on monies owing to ISD/Gemplus.”

20 Mr Creswick described Mr Stanes as a meticulous note-taker. Mr Stanes himself, having recognised that the reference to the meeting being held at “Glendallo” was a mistake (it was held at Mr & Mrs Henry’s residence at “Linden Lodge”, Campbelltown) described himself as an efficient note-taker. I am therefore satisfied, accepting the mistake identified by Mr Stanes and contrary to Mr Creswick’s evidence that there were “no resolutions”, that in all other respects the document is accurate because it was made contemporaneously by Mr Stanes at the time and he had no motive to purposely make an inaccurate note.

21 As a consequence of the last resolution, Mr Henry approached the NAB and applied for approval to increase Bintrak’s overdraft facility to the amount of $400,000. NAB, through its manager, Mr Ken Bond, of the Campbelltown Business Banking centre, approved the facility by letter dated 20 April 2000 and accompanying documentation (exhibit A 394 ff).

22 The NAB overdraft facility was secured by a registered mortgage debenture over the assets and undertaking of Bintrak, together with a joint and several guarantee and indemnity provided to NAB by each of Mr Henry, Mrs Henry, Mr Robson, Mrs Robson, Mr Stanes and Mr Creswick. In addition, Mr and Mrs Henry and Mr and Mrs Robson executed mortgages in favour of the NAB which were registered on the title of their respective residential properties.

23 Although Mr Creswick in his defence admitted paragraph 6 of the Amended Statement of Claim, in his affidavit made on 19 January 2009 (exhibit 1) and in his oral testimony, Mr Creswick asserted that Mr Henry procured his entry into the guarantee, that he did not know what he was signing and that if he had known he was personally obliged to repay the overdraft debt he would not have provided the guarantee. I do not accept this evidence. Mr Creswick understood that he was guaranteeing Bintrak’s debt to NAB. Mr Creswick was experienced in business matters. At the time he gave his guarantee to NAB, Mr Creswick was engaged in complex litigation in the Supreme Court of New South Wales concerning intellectual property which he owned (the “Flexitek litigation”). Indeed, his involvement in the Flexitek litigation had led to him having to mortgage his residence, as a consequence of which he told Mr Henry and Mr Robson he was unable to provide a mortgage to the NAB to secure his guarantee liability. In reality, notwithstanding the resolution passed on 16 February 2000 about future funding being contributed on a 50:50 basis, Mr Creswick held the view that it remained the responsibility of the Henry and Robson interests to comply with their existing funding obligations relating to the joint venture arising out of the last draft of the shareholders’ agreement. (This was also the view expressed by Mr Kulakauskas to the directors: T 14.38-46). In Mr Creswick’s mind, it was therefore the responsibility of Messrs Henry and Robson to mortgage their residential properties. Thus, Mr Creswick was prepared to sign the guarantee in favour of NAB in the expectation that, as a practical matter, any default on Bintrak’s part would result in the bank acting under the mortgages which had been given by the Henry and Robson families over their residential properties. In this respect, in my assessment, Mr Creswick’s appreciation of what rights each of the guarantors might have as sureties to seek contribution from each other was just as poor as that of Mr Robson, whose understanding was that the Creswick-Stanes interests were responsible for 50% of the NAB debt.

24 Some two years later, in April 2002, the NAB cancelled the overdraft facility (exhibit A 599 ff) essentially because the operation on the account had been unsatisfactory from the bank’s point of view. As a result, between April and July 2002 NAB issued formal demands upon Bintrak and the guarantors. In the case of both Mr and Mrs Henry and Mr and Mrs Robson, NAB served on them notices pursuant to s 57 (2) (b) of the Real Property Act 1900. As Mr Robson told the Court in his evidence, once this happened, he well and truly realised that he and Mr Henry had to take action to refinance the NAB debt so as to ensure that the bank did not take any further steps to sell their residences. It may be inferred from the evidence that Mr Henry was similarly aware.

25 In his affidavit made on 12 August 2008 (exhibit B) Mr Robson said he had known Mr Henry for over 25 years. Mr Henry had introduced him to Mr Creswick and they had become involved in the joint venture in 1995. Mr Robson said that from the beginning he played a lesser in the role in the day to day affairs of the business (exhibit B para 21) with Mr Henry handling the day to day management of the business. It was clear from Mr Robson’s oral testimony that, over the years, although he attended board meetings and was consulted regarding major decisions, he did not play a significant role in the business operations of Bintrak and he had played no part in arranging bank facilities.

26 In his affidavit, exhibit B, Mr Robson said (para 54 ff) that he recalled meeting with other directors in or about September 2002 “for the purpose of addressing how the outstanding money owed in connection with the overdraft facility would be satisfied”. Mr Robson said it was agreed that a loan facility would be the best vehicle to pay out the NAB overdraft and the following conversation took place:

“(Richard Creswick)

“I and my company Flexitrek are currently involved in Court proceedings. As such I cannot contribute any money or offer my home as security for any loan at this time. However, I think I will soon be receiving payment or compensation from those proceedings.

Richard went on to say:

I will honour my obligation to pay my fifty percent of the loan facility.

I then recall Ian Henry saying words to the following effect:

What if Robbo and I satisfy the loan now and put up the security to pay out the overdraft debt if you agree to repay us your share of the money when your court case is finalised?

Richard then said:

Yes, okay. Lets proceed on that basis.

Ian then said:

Robbo and myself will secure a loan facility with the NAB to pay out the overdraft. We would each be liable for repaying a quarter of the loan, a quarter of the loan application fee and a quarter on any interest in connection with the loan. That would then represent Prosna’s contribution.

You would be liable for paying the remaining half of the loan, the remaining half of the loan application fee and the remaining half on any interest. That would represent Tagtrak’s contribution.

I said:

I am happy with that.

Richard said:

Yes, so am I.

Ian then went on to say:

Robbo and I believe in the business. We are stretching ourselves on this one and are trusting you to pull through and pay your part of the bargain.

Richard said:

Don’t worry Ian. I will pay you guys back.”

27 The plaintiffs rely on Mr Robson’s evidence to make out their case that there was an agreement under which Mr Henry and Mr Robson would arrange a facility with the NAB to pay out Bintrak’s debt on the basis that each of them would be liable to repay 25% of that loan and Mr Creswick would be liable to repay 50% of that loan: see paragraphs 11-18 of the Amended Statement of Claim.

28 Mr Creswick denies there was any such agreement. He maintained throughout his evidence that the conversation upon which the plaintiffs rely did not take place. Mr Stanes also gave evidence that the conversation did not take place.

29 Mr Henry was a central player in the issues in dispute between the plaintiffs and the defendant. Regretfully, Mr Henry died after the proceedings commenced and before they were fixed for hearing. Unfortunately, therefore, the matter has to be determined without the Court having the benefit of hearing Mr Henry’s evidence. In addition, the conversation is alleged to have taken place more than six years ago and Mr Robson made no note of what was said at the meeting. As well as this, I approach Mr Creswick’s denial of the conversation with a great deal of caution because, from the outset, he gave his evidence in an unsatisfactory way by not answering questions squarely, making speeches and being argumentative with a view to getting across his point of view. Mr Creswick gave Mr Stanes a copy of his statement before Mr Stanes saw the defendants’ solicitors. In my assessment, this infected Mr Stanes’ recollection of the events in question and his evidence was coloured by what Mr Creswick had put in his statement. In showing his statement to Mr Stanes I have no doubt Mr Creswick intended that Mr Stanes provide corroboration of his version of events. As an employee of Mr Creswick upon whom he relied for remuneration, I am satisfied that Mr Stanes was influenced by Mr Creswick’s version of events. Thus, as I have said, Mr Stanes’ evidence was tainted by what Mr Creswick had told him.

30 It is therefore necessary to look at the surrounding circumstances in August 2002 and certain documents brought into existence.

31 First of all, Mr Robson conceded in his evidence (T 12) that he was unsure as to the exact date of the meeting because it was a long time ago, “around August/September of 2002”. In this respect, when he got into the witness box, Mr Robson had to change the reference in paragraph 54 of exhibit B “on or about September 2002”. Other variations on this evidence during cross-examination were “before mid August 2002” (T 16.44) and “not before mid 2002” (T 16.50). The change in Mr Robson’s evidence was hardly surprising given the contents of the NAB internal document headed “credit memorandum” which came into existence on 16 August 2002 (exhibit A 648 ff). This memorandum was drawn to Mr Robson’s attention just before he went into the witness box. It recorded in part:

“This application seeks approved borrowings in the joint names of Stevesmar Pty Limited atf (sic) the Robson Family Trust, Ian Russell Henry & Helen Anne Henry to $480,000 to clear borrowings in name of Bintrak Systems Pty Limited. Bintrak Systems Pty Limited is currently “watch” status and demand has been served on the guarantors under our security.

Whilst we have not received a response from the other guarantors on account of Bintrak Systems Pty Ltd, Ian Henry & John Robson, principal of Stevesmar Pty Limited, have approached the Bank to provide them with finance to meet the demand. It is intended that this debt will be cleared within 6 months from varying sources as follows:

. Dividend to be paid from associated company Salamander Projects Pty Ltd upon completion of development at Salamander Bay. We have provided finance for this development.

. Dividend from Salamander Projects Pty Ltd following successful completion of court case against Port Stephens Council. Claim is for breach of contract and estimated claim is $2.5M (min).

. Sale of property located at Varroville owned by Ian Henry. Property on market for $3.5M

. Claim against other director of Bintrak Systems Pty Limited for $240,000.”

32 The credit memorandum is the only NAB document referred to by counsel in their submissions to the Court concerning the information provided by the plaintiffs to NAB about the facility. In this respect, the memorandum was prepared by the manager, Mr Bond. Mr Bond was not called by either party to give evidence. Mr Bond’s reference in his memorandum to a “claim against other director of Bintrak” is not supportive of any agreement having been reached between the plaintiffs and the defendant. In this respect, it was the plaintiffs’ case that the conversation relied on occurred before the NAB were approached about the new facility.

33 On 27 September 2002 NAB approved the new facility. The bank’s facility letter of that date (exhibit A 656) was addressed to Mr and Mrs Henry and Mr and Mrs Robson. Those parties were clearly the borrowers. From NAB’s point of view, Mr Creswick had nothing to do with it and it was not suggested he had any contact with the bank about it. There is also no evidence that Mr Creswick ever saw a copy of the facility letter at the relevant time.

34 Once the plaintiffs’ NAB facility was drawn down, it is common ground that Bintrak’s debt was discharged on 24 September 2002 (exhibit A 678) and the Court is not to concern itself with any claim for contribution amongst sureties.

35 In the conversation relied upon, the plaintiffs attempt to set up an agreement with a condition subsequent, namely, Mr Creswick’s settlement of the Flexitek litigation. In fact, that litigation was settled by formal deed of settlement entered into in May 2002 (exhibit A 635). This was well in advance of the alleged meeting. In this respect, the plaintiffs discovered printouts of the Supreme Court’s daily lists for 18, 21 and 22 March 2002 (exhibit A 598.1 ff). The lists show the Flexitek litigation being heard by Hamilton, J. The lists had been stored at Mr Henry’s property. The inference I therefore draw is that the handwritten marks made on the lists were those of Mr Henry. Clearly, he was following the progress of the litigation.

36 It was not put to Mr Creswick that he lied about the Flexitek litigation still being on foot in August 2002. In circumstances when he had told Messrs Henry and Robson in the past that he was hoping to achieve a satisfactory settlement, it seems to me unlikely that Mr Creswick could have kept the settlement secret from Messrs Henry and Robson for very long. That makes it less likely that Mr Creswick would have said in August 2002 he would soon be receiving payment or compensation when the settlement was a fait accompli. The Court has taken this into account in its determination of the plaintiffs’ claim.

37 Mr Henry arranged a meeting at Linden Lodge on 6 December 2002 with Mr Creswick and Mr Stanes. Mr Robson did not attend. Mr Stanes kept the notes (exhibit A 658). At this meeting, Mr Henry proposed to Mr Creswick that he purchase Prosna’s shares in Bintrak so he could take advantage of $600,000 worth of tax losses. The notes reveal that mention was made of the NBA (sic) debt of $480,000, but they do not identify who the borrower was.

38 The upshot of this discussion was that Mr Creswick arranged for his solicitors to prepare some draft heads of agreement (exhibit A 660-661) and Mr Stanes then discussed the documentation with Mr Henry over the next few weeks. Mr Robson was not involved in the discussions about which Mr Stanes made the contemporaneous notes at exhibit A 658-659. Mr Robson was not given a copy of the draft heads of agreement until 13 January 2003 (exhibit A 690).

39 There is nothing in Mr Stanes’ notes of these discussions (exhibit A 658-659) which identifies any NAB debt owed by the plaintiffs. Moreover, paragraphs 4 of the draft heads of agreement provides:

“Bintrak to discharge its obligations with National Australia Bank which are expected to be $490,000.00 and obtain a discharge of all security held by the bank which in respect to the overdraft facility which includes any mortgage provided by Ian Henry and any personal guarantees provided by any directors of Bintrak and obtain from the bank a release of any charge over Bintrak.”

40 The inference which the Court draws from paragraph 4 of the draft heads of agreement is that Mr Creswick was ignorant of the fact, first, that any approach had been made to NAB to refinance Bintrak’s overdraft debt and, secondly, that the debt had been repaid. This inference supports a conclusion that there was no agreement made between the plaintiffs and the defendant in August 2002 along the lines pleaded by the plaintiffs.

41 In the same vein, the NAB did not tell Messrs Creswick and Stanes about the matter until 20 January 2003 when Mr Bond wrote to both of them in the following terms (exhibit A 705):

“We advise that the principal debt owing in respect to Overdraft formerly in the name of Bintrak Systems Pty Limited is $480,000.

This debt was refinanced into a joint borrowing in the name of Ian Henry, Helen Henry & Stevesmar Pty Limited on 24/09/2002 following service of demands by the bank on all Guarantors for Bintrak Systems.

The Bank was proceeding to take legal action and was seeking Judgement for the amount against all guarantors, including yourselves, for full recovery of the debt when Ian Henry & John Robson put proposal to the Bank to payout the debt in the name of Bintrak Systems Pty Limited.

For your information the debt is as follows:

Loan Amount $480,000.00

Interest charged since drawing $ 10,626.98

Interest Accrued to 17/1/2003 $ 2,780.24

____________

$493,407.22

The above does not represent a pay out figure as on closure there would interest applicable to that date plus a Loan Service Fee of $960.00 due and payable.

Should you wish to discuss the matter further please contact the writer on [phone].”

42 The evidence of Mr Robson was that the NAB had sent by fax an earlier version of this letter to him on 17 January 2003 (exhibit A 698-699). In this respect, I am satisfied that the document addressed to Messrs Creswick and Stanes was faxed to Mr Robson by Mr Bond as a draft for his approval. It was only when the approval was given that Mr Bond sent the letter of 20 January 2003 to Messrs Creswick and Stanes. Further, in my assessment, the letter was crafted on the basis that the intended recipients, namely, Messrs Creswick and Stanes, did not know before 20 January 2003 about the repayment of Bintrak’s debt to NAB on 24 September 2002 and knew nothing about the arrangements made by Mr Henry to refinance that debt. I have therefore taken this into account in reaching my conclusion.

43 The subject matter of the alleged meeting in August 2002 was very important for both the Henry-Robson interests and the Creswick-Stanes interests. Yet there is no contemporaneous record of any such meeting in circumstances where important meetings held previously had been recorded. Mr Stanes usually made notes of such meetings but there is no suggestion that he did so on this occasion. It was also important that such a meeting be recorded because, as Mr Robson acknowledged in evidence, there was friction between Mr Henry and Mr Creswick (T 12.45). As well, there is no evidence of any notice given before the meeting and there was no attempt made after it allegedly took place up until formal demand was made on the defendant in November 2006 (T 37.24) to confirm the occurrence of the meeting.

44 Mr Robson agreed in cross-examination that in August 2002 Bintrak was no longer conducting its business from Glendallo. (The evidence establishes it had moved the office to Iolanthe Street, Campbelltown several years before). Mr Robson also said that the conversation relied on by the plaintiffs occurred at Glendallo in circumstances which were informal. When pressed, his evidence was (T 34.22):

“Q. Are you saying that you did not actually come to an agreement at the meeting?

A. We came to an understanding, a fairly casual understanding, that if we were to provide the resources to allow the refinancing to happen then when Richard was able to he would contribute his share.”

45 In circumstances where the liability to the NAB of the Henry-Robson families and the Creswick family were going to be dramatically altered if an agreement along the lines pleaded by the plaintiff was reached with the defendant, I found this evidence unconvincing.

46 The plaintiffs took no action against Mr Creswick for more than four years, even though the Flexitek litigation settled in May 2002 and Mr Robson was aware in mid January 2003 that Mr Creswick had $325,000 available to him (T 40.17). In this respect, Mr Robson could not offer the Court any satisfactory explanation as to why Mr Creswick was not pursued.

47 I do not regard Mr Robson as a liar. My assessment of him was that he sought to give his evidence honestly. Unlike Mr Creswick, he gave responsive answers to the questions he was asked. The reality is, however, that Mr Robson had left Mr Henry to handle much of the business of Bintrak which affected their mutual interests. In my assessment, Mr Robson’s recollection of the important events which are the subject of this litigation was poor and unreliable. Having regard to the documents I have referred to and the inferences which I have drawn, I am not satisfied that the discussion about which Mr Robson gave evidence in fact took place. Mr Robson was either mistaken or confused about this.

48 Accordingly, there will be a Verdict and Judgment for the Defendant.

49 I direct that the exhibits be returned.

50 Costs on the ordinary basis should follow the event but I will hear from the parties if either of them wishes to make a submission on the matter.

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