Henderson v McSharer
[2015] FCA 396
•28 April 2015
FEDERAL COURT OF AUSTRALIA
Henderson v McSharer [2015] FCA 396
Citation: Henderson v McSharer [2015] FCA 396 Parties: SUSAN JANE HENDERSON AND KIM HENDERSON v WILLIAM BERNARD McSHARER, HAILEY MARIE McSHARER AND ASTRAEA GROUP PTY LTD File number: WAD 176 of 2012 Judge: GILMOUR J Date of judgment: 28 April 2015 Catchwords: CONSUMER LAW – misleading or deceptive conduct – s 18 of the Competition and Consumer Act 2010 (Cth) Sch 2 – transfer and sale of livestock – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – whether incorrect representations misleading or deceptive in all the circumstances – misleading or deceptive conduct established – whether applicants relied upon representations – reliance established – loss and damage established.
CONSUMER LAW – unconscionable conduct – 21 of the Competition and Consumer Act 2010 (Cth) Sch 2 – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – bullying, intimidation and pressure towards the applicants to engineer sale of livestock – whether incorrect representations, intimidation and pressure unconscionable in all the circumstances – unconscionable conduct established – inducement – loss and damage established.
CONSUMER LAW – compensation orders – exercise of power under ss 237 and 243 of the Competition and Consumer Act 2010 (Cth) Sch 2 – compensation for loss of ownership and loss of income from livestock – agreements declared void ab initio – order requiring disclosure to applicants of location of sheep and wool – order requiring respondents to permit applicants to collect sheep and wool.
TORTS – tort of deceit – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – deceit established.
DAMAGES – tort of deceit – exemplary damages – first respondent’s conduct in an ongoing consultancy relationship – whether the first respondent’s conduct amounted to contumelious disregard of the applicants’ rights – exemplary damages awarded.
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB, 12DA
Competition and Consumer Act 2010 (Cth) Sch 2, ss 2, 18, 21, 237, 243
Corporations Act ss 182, 1041F, 1041H, 1041ICases cited: Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200Backwell v AAA [1997] 1 VR 182
Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Croft v Evertop Investments Pty Ltd (No 2) [2011] FCA 749
Derry v Peek (1889) 14 App Cas 337
General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Gray v Motor Accident Commission (1998) 196 CLR 1
Henjo Investments Pty Limited v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546Lamb v Cotogno (1987) 164 CLR 1
Magill v Magill (2006) 226 CLR 551
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357
Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251
Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165
Watson v Foxman (1995) 49 NSWLR 315
Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71
XL Petroleum (N.S.W.) Proprietary Limited v Caltex Oil (Australia) Proprietary Limited (1985) 155 CLR 448Date of hearing: 30 June 2014 - 4 July 2014 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 938 Counsel for the Applicant: Mr LA Warnick Counsel for the Respondents: Mr PG McGowan Solicitor for the Respondents: Chan Galic
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 176 of 2012
BETWEEN: SUSAN JANE HENDERSON AND KIM HENDERSON
ApplicantsAND: WILLIAM BERNARD McSHARER
First RespondentHAILEY MARIE McSHARER
Second RespondentASTRAEA GROUP PTY LTD
Third Respondent
JUDGE:
GILMOUR J
DATE OF ORDER:
28 APRIL 2015
WHERE MADE:
PERTH
THE COURT DECLARES THAT:
(1)The Letter of Engagement dated 22 July 2011 is void ab initio.
(2)The Stock Purchase Agreement dated 24 August 2011 is void ab initio.
(3)The 16 February Agreement dated 16 February 2012 is void ab initio.
THE COURT ORDERS THAT:
1.Within 7 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information:
(a)the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);
(b)the precise location(s) of all of the sheep;
(c)the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales);
(d)the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.
2.Each of the respondents be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.
3.Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, the second respondent, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in the third respondent.
4.The respondents do all things necessary to deliver up the sheep and the wool bales for collection and removal by the applicants within 21 days of judgment or such further period as the Court may permit on application by the applicants.
5.Within 28 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.
6.The respondents, jointly and severally, pay to the applicants compensation in the sum of $1,912,050 in respect of the first respondent’s contraventions of the Competition and Consumer Act 2010 (Cth) Sch 2, in which the second respondent and the third respondent were involved.
7.The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under order 4, with the value to be assessed by an expert valuer appointed by the Court.
8.Liberty granted to the applicants to apply to the Court for the appointment of an expert valuer for the purposes of order 7.
9.The award of compensation be stayed until further order to enable time for compliance with orders 1, 4, 7 and 8.
10.The first respondent pay the applicants $20,000 in exemplary damages in respect of the first respondent’s deceit.
11.Liberty granted to the parties to apply on the question of any interest that should be paid with respect to the compensation awarded under order 6, as well as on the question of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 176 of 2012
BETWEEN: SUSAN JANE HENDERSON AND KIM HENDERSON
ApplicantsAND: WILLIAM BERNARD McSHARER
First RespondentHAILEY MARIE McSHARER
Second RespondentASTRAEA GROUP PTY LTD
Third Respondent
JUDGE:
GILMOUR J
DATE:
28 APRIL 2015
PLACE:
PERTH
REASONS FOR JUDGMENT
TABLE OF CONTENTS
INTRODUCTION
[1] BACKGROUND
[4]
THE APPLICANTS’ CASE
[16]
THE RESPONDENTS’ CASE
[22]
THE FACTS
[28]
Factual issues
[28]
The McSharers’ evidence
[29]
The Hendersons’ evidence
[31]
Phase 1: The initial communications
[36]
20 July 2011
[39]
Mr McSharer’s evidence
[39]
Mr Henderson’s evidence
[48]
21 July 2011
[54]
22 July 2011
[61]
Mr McSharer’s evidence
[63]
Mrs Henderson’s evidence
[69]
23 and 24 July 2011
[84]
The McSharers’ evidence
[87]
The Henderson’s evidence
[97]
Analysis of evidence
[101]
25 and 29 July 2011
[110]
25 July
[110]
The McSharers’ evidence and analysis
[111]
The Hendersons’ evidence and analysis
[145]
August 2011
[163]
The McSharers’ evidence and analysis
[164]
The Hendersons’ evidence and analysis
[184]
The qualifications, experience and role of Mr McSharer
[192]
The McSharers’ evidence and analysis
[192]
The Hendersons’ experience
[243]
McSharers’ evidence
[243]
Mrs Henderson’s evidence
[245]
Phase 2: The Childers meetings
[253]
Discussions as to Mr McSharer’s skills and experience
[258]
Mr McSharer’s evidence and analysis
[258]
The Hendersons’ evidence
[274]
Agreement for the provision of services or joint venture agreement?
[292]
The McSharers’ evidence and analysis
[292]
The Hendersons’ evidence and analysis
[330]
The formation of a new company
[349]
The McSharers’ evidence
[349]
The Hendersons’ evidence and analysis
[360]
Remuneration
[374]
Remuneration of Mr McSharer for services
[374]
Directors’ fees
[382]
Reimbursement for Childers visit
[389]
The transfer of the sheep to Astraea
[391]
The McSharers’ evidence and analysis
[393]
The Hendersons’ evidence and analysis
[405]
Phase 3: From the Childers meetings to 6 February 2012
[420]
Corporate governance and structure of Astraea
[421]
The McSharers’ evidence and analysis
[421]
The Hendersons’ evidence and analysis
[453]
Provision of services and advice
[471]
The McSharers’ evidence and analysis
[471]
The Hendersons’ evidence and analysis
[504]
The impact of events on the Hendersons
[532]
Phase 4: The Ascot Waters meetings
[536]
Further legal advice and services
[538]
Sale of the sheep
[547]
The McSharers’ evidence
[548]
Ms Manner’s evidence
[568]
The Hendersons’ evidence
[570]
Consideration of Ascot Waters evidence
[583]
Phase 5: Communication between 10 February 2012 and the end of February 2012
[602]
The McSharers’ evidence
[602]
Consideration of McSharer’s evidence
[635]
The Hendersons’ evidence and analysis
[651]
Phase 6: The breakdown of the relationship
[665]
The McSharers’ evidence and analysis
[666]
The Hendersons’ evidence and analysis
[696]
Phase 7: The period from July 2012
[706]
The McSharers’ evidence and analysis
[708]
SUMMARY OF CRITICAL FINDINGS
[766]
APPLICANTS’ CLAIMS AGAINST THE RESPONDENTS
[768]
MISLEADING OR DECEPTIVE CONDUCT CLAIMS
[776]
Section 18 ACL
[780]
In trade or commerce
[781]
Engage in conduct
[783]
Misleading or deceptive
[786]
The representations
[794]
The disclaimer
[810]
Mrs McSharer and Astraea as persons involved in the contravening conduct
[813]
CAUSATION, LOSS AND DAMAGE
[824]
Causation: misleading or deceptive conduct
[825]
Loss and damage: loss of ownership and loss of capacity to derive income from sheep
[829]
Loss and damage: loss of opportunity
[832]
Loss and damage: mental distress
[833]
UNCONSCIONABLE CONDUCT CLAIMS
[840]
Unconscionable conduct under s 21 of the ACL
[840]
Mrs McSharer and Astraea as persons involved in the contravening conduct
[852]
Causation: unconscionable conduct
[861]
DECEIT CLAIM
[862]
Causation: deceit
[870]
RELIEF
[872]
Sections 237 and 243 of the ACL
[874]
Declaratory relief
[882]
Quantum
[889]
Damages for deceit
[921]
Aggravated damages
[922]
Exemplary damages
[925]
DECLARATIONS
[937]
ORDERS
[938]
INTRODUCTION
This case involves commercial dishonesty. It primarily involves the first respondent, Mr William McSharer, by conduct which was both misleading and deceptive, taking advantage of the applicants, Mrs Susan Henderson and Mr Kim Henderson, who were in a position of special disadvantage at a time when they had lost control of most of their assets built up over a lifetime of hard work and were confronting the prospect of personal bankruptcy. They looked to Mr McSharer for advice and assistance to ameliorate their financial position. The impugned conduct was also unconscionable conduct.
I find, for reasons I set out below, that he, for his part, represented that he had the capacity to assist the Hendersons in ways which were well beyond his actual capacities. He lied about his qualifications and exaggerated his experience. He engaged in misconduct for his own personal financial advantage.
The Hendersons relied upon his (false) representations to engage his services and ultimately to transfer a valuable flock of sheep to a company practically controlled by him which were then sold. The Hendersons never received any of those proceeds.
BACKGROUND
The Hendersons conducted a successful sheep farming enterprise for many years. However, in the years 2006 to 2008 they became involved, through Bonthorpe Pty Ltd (Bonthorpe), the trustee of their family trust, in an off-farm business venture. The Hendersons are the directors of Bonthorpe and conducted their farming business on properties owned by Bonthorpe as partners under the name K & SJ Henderson Partnership. This venture, a land subdivision near Denmark, Western Australia, failed (the Denmark Subdivision). Failure of the venture left Bonthorpe, and the Hendersons as guarantors, indebted to the National Australia Bank (NAB) in an amount of some $16 million.
By mid-2011, the Hendersons were experiencing financial difficulty. Their counsel, at trial, rightly described their situation as “desperate”.
NAB had appointed partners of the firm McGrath Nicol as receivers and managers to Bonthorpe, and they had taken possession of the farm at York (the York farm) owned by Bonthorpe and operated by the Hendersons. I will generally refer to the receivers and managers as “the Receivers” generically even when, for example, correspondence is sent to only one of them or to any employee of the firm. The Hendersons subsequently entered into an agreement with the Receivers to lease the York farm from Bonthorpe.
The Hendersons had been forced to sell various properties including their home in Perth and the home they had purchased for their disabled son. They still owed a substantial amount of money to NAB. NAB had obtained a default judgment against them, and had commenced bankruptcy proceedings by having a bankruptcy notice issued against them.
Mr Trevor Brickhill, the Hendersons’ then lawyer, had been consulted to advise the Hendersons on their dealings with the NAB and subsequently was able to secure them employment in the pawpaw ointment business in which he was involved. They moved to Queensland to take up this employment. However, the relationship with Mr Brickhill deteriorated. The Hendersons had their employment terminated in September 2011.
The Hendersons believed that the debt to NAB could be paid or reduced if they could realise value from certain rights held by Bonthorpe: the rights to a deposit of bauxitic gravel located on the York farm (the Gravel Project), and the rights to bring action against parties involved in the Denmark Subdivision (the Denmark Litigation Rights). However, by July 2011 the Hendersons had not succeeded in persuading the Receivers to transfer those rights.
Against this background, in July 2011 a mutual business contact referred the Hendersons to Mr McSharer. The first communication between the parties occurred on 20 July 2011.
In the period leading up to his first contact with the Hendersons, Mr McSharer had experienced his own share of financial and emotional distress.
After a career of some 20 years as a commercial rock lobster fisherman, he had established a security business which specialised in providing security services carried on in a publicly unlisted company. Mr McSharer was its executive chairman. However, this company failed and was placed in voluntary administration and subsequently in liquidation. Not long before this, Mr McSharer and his first wife were divorced.
Mr McSharer then married Hailey Manners (Mrs McSharer) in January 2009. Not long after, he suffered a cerebral haemorrhage which left him incapacitated for some time.
In August 2009 Mr McSharer was declared bankrupt on the petition of the Australian Taxation Office. In November 2009 receivers and managers were appointed to Skyprince Pty Ltd (Skyprince), trustee of the McSharer Family Trust. As a consequence, the McSharers suffered, to use Mr McSharer’s own words, severe personal and financial hardship.
The relationship between the Hendersons and the McSharers is central to the present litigation.
THE APPLICANTS’ CASE
The Hendersons claim that by misleading or deceptive conduct in contravention of s 18 of the Competition and Consumer Act 2010 (Cth) Sch 2 (ACL) or, alternatively, unconscionable conduct in contravention of s 21 of the ACL, Mr McSharer induced them to accept him as a provider of business consultancy services to them, and, on his advice, to transfer their last remaining asset – a flock of approximately 6,000 sheep – to a company, for all practical purposes, controlled by him – Astraea Group Pty Ltd (Astraea).
The conduct involved continuing representations express and implied that Mr McSharer was a qualified lawyer and had the necessary experience as a business consultant to resolve the Hendersons’ financial problems and in particular to resolve their very significant debt obligations to the NAB. During the period when Mr McSharer was providing consultancy services and providing advice to the Hendersons he also stated that he had been bankrupt but impliedly represented that he was no longer a bankrupt and that he was in relatively good financial standing.
The Hendersons say that the initial misleading or deceptive conduct was ongoing. It was never corrected and was aggravated by further unconscionable conduct which resulted in the sale of the sheep and the proceeds therefrom being retained by Mr McSharer or his interests.
They also contend that this conduct amounted to the tort of deceit.
The Hendersons claim that, because of Mr McSharer’s conduct (in which Mrs McSharer and Astraea were involved), they have suffered loss for which they are entitled to compensation. The Hendersons also claim compensation from Mrs McSharer and Astraea as persons involved in the conduct of Mr McSharer.
Alternatively, the Hendersons claim damages for deceit and, in any event, exemplary damages.
THE RESPONDENTS’ CASE
The respondents’ case is that Mr McSharer never provided any assurances or undertakings that he could assist the Hendersons, and did not provide services to them. The respondents say that Mr McSharer disclosed to the Hendersons that he was a business consultant, had a law degree but was not admitted to practise law and was an undischarged bankrupt.
The respondents’ case is that when the Hendersons advised Mr McSharer that they could not pay for the services of Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy (Fides Consulting), pursuant to a letter of engagement dated 22 July 2011, the Hendersons suggested that they and the McSharers should enter into a joint venture involving a new company which could pursue:
(a) the primary production of sheep and wool;
(b) the cause of action in relation to the failed Denmark subdivision; and
(c) the rights to exploit the minerals and gravel on the farm.
The respondents say that the Hendersons never wanted to be directors of Astraea due to their financial situation. They also assert that it was the Hendersons’ suggestion to transfer the sheep to Astraea to pursue the joint venture, and that it was also they who suggested the final terms and conditions for the sale of the sheep.
The respondents say that the Hendersons agreed to:
(a)the designation of “A” and “B” class shares between the parties;
(b)the director of the company having the power or discretion to distribute dividends to any class of the shareholders; and
(c)the director of Astraea receiving directors’ fees of $500.00 per week.
The respondents say that the dispute over whether or not the sheep should be sold was caused by the notice of termination of the grazing licence on the farm and the Hendersons wish to pursue the issue of their “property rights”. This will be discussed in more detail below.
Accordingly, the respondents say that they did not engage in misleading or deceptive conduct, unconscionable conduct or deceit.
THE FACTS
Factual issues
There is a substantial conflict as to facts, primarily between the evidence given by Mr McSharer and by Mrs Henderson.
The McSharers’ evidence
Mr McSharer’s evidence was generally confused and confusing. He dissembled on numerous occasions. I find much of Mr McSharer’s evidence to be inherently improbable. His evidence was often evasive, internally inconsistent and displayed the hallmark of reconstruction. He would assert with confidence a matter to be fact and it was immediately demonstrated under cross-examination to be wrong. He was an unreliable and dishonest witness. Examples of his untruthful evidence are too numerous to identify individually.
Mrs McSharer’s evidence sought to corroborate much of her husband’s dishonest evidence. In the main, I do not accept her evidence as reliable.
The Hendersons’ evidence
The Hendersons, by contrast, were credible witnesses. They gave evidence carefully. Their evidence was not shaken in cross-examination.
Mrs Henderson kept contemporaneous notes of most of her conversations with Mr McSharer, and placed these notes in evidence. She also produced relevant telephone call records, to the extent that they were available to her. The Hendersons’ version of what occurred is entirely consistent with contemporaneous documents, including documents adduced by the respondents, other than some of the latter category, which I have concluded were fraudulent.
The McSharers, by contrast, produced only very few documents said to be contemporaneous notes and no telephone records. I found Mr McSharer’s explanation about not keeping records of his business consultations – that he now considered this to be very bad practice and that this matter had been “brought home to [him] with spades” only in the last few weeks preceding trial – to be disingenuous.
For these reasons and for the reasons set out below, to the extent that the McSharers’ evidence is inconsistent with the evidence given by the Hendersons, I have preferred the evidence of the Hendersons.
It will be convenient to approach the facts using the “phases” of the relationship identified by counsel for the Hendersons.
Phase 1: The initial communications
The Hendersons were referred to Mr McSharer in July 2011.
By email to the Hendersons on 15 July 2011, Mr Michael Taylforth, a town planner and principal of Land Insights, offered to introduce them to another client who ran a quarrying business and was “buying up other sites…in the wheatbelt”.
Around 18 July 2011, Mr Taylforth contacted Mr McSharer in relation to the Hendersons. Mr Taylforth emailed Mr Henderson to say that while the operator he had in mind was not in a position to assist at present, Mr Taylforth had spoken to “their business advisor” who mentioned that he would be interested in assisting the Hendersons with “any issues pertaining to approvals, finding JV partners or operators to buy the site”. The Hendersons were provided with the telephone number of Mr McSharer.
20 July 2011
Mr McSharer’s evidence
It seems to be agreed that on 20 July 2011, Mr Henderson had a telephone conversation with Mr McSharer. Mr McSharer explained that what he said to Mr Henderson during this conversation included that:
(a)the Hendersons may seek to engage the services of Fides Consulting to assist them;
(b)he was speaking to Mr Henderson on behalf of Fides Consulting and if Fides Consulting did work for Mr Henderson it would be Mr McSharer who did the work;
(c)Fides Consulting provides strategic business services in assisting clients with “a host of commercial matters”; and
(d)if a client has any issues with which they require assistance, he (Mr McSharer) looks at the issues and advises the client if Fides Consulting can assist, otherwise he tells them to seek other advice.
Mr McSharer’s further evidence as to this initial conversation was as follows.
Mr Henderson gave him a brief outline of the issues confronting them, including telling of the Denmark Subdivision and that it had “gone horribly wrong”, leaving them with “financial problems as a result”. Mr Henderson told him of the appointment of the Receivers and the application for bankruptcy, and that Mr Henderson was most concerned about the potential bankruptcy and the attitude of NAB.
After the discussion, Mr Henderson asked if Mr McSharer “could be of assistance to them and would [he] be prepared to undertake specific tasks on their behalf”. Mr Henderson said he would provide more information about him, his wife, the company, their financial position and the Extractive Industries Licence (EIL) approval. Mr McSharer said that he had said that Fides Consulting Pty Ltd would need more information before it could determine whether or not it could help. Mr McSharer told Mr Henderson that he, as an employee of Fides Consulting, may be able to help but did not know anything about the Hendersons or the scope of what may be required.
He did not say anything on 20 July 2011 regarding his tertiary or professional qualifications, his past health, “money”, “life in general”, “people in general”, lawyers, his bankruptcy or contacting the Receivers.
He told Mr Henderson that he would send Fides Consulting’s “usual letter of engagement and schedule of fees”.
However in cross-examination, Mr McSharer said that the whole purpose of the conversation with Mr Henderson was to obtain more information in relation to the issues; he “just made a general statement that [he] would need more information”. He said that “whether Kim Henderson believed that was Fides [Consulting], whether Kim Henderson believed that was me trading as Fides [Consulting], or whether Kim Henderson believed that was…myself, I’ve got no idea.”
When counsel for the Hendersons suggested that he did not actually refer to Fides Consulting at all, Mr McSharer responded that he “would have made mention of it along with the discussion. The whole thing was I would need more information in relation to the issues that he was potentially talking to me about because I did not understand them”.
Mrs McSharer, consistently with what was said by Mr McSharer, said that after a telephone conversation on 20 July 2011, Mr McSharer had said that the caller was a potential client in the York area with some planning issues with which Fides Consulting may be able to assist, and that he would need more information from Mr Henderson.
Mr Henderson’s evidence
Mr Henderson’s evidence was as follows.
Mr McSharer had told him during the conversation on 20 July 2011 that he had suffered a stroke and had an operation on his brain, and that since then he was “more interested in helping people than making money”. He had said that he could help the Hendersons and that he “had ways of taking the bank out of the equation”. This was a most significant representation given that the Hendersons at that time owed the NAB in the order of $16 million. It conveyed to the Hendersons that Mr McSharer had the necessary business and commercial experience to negotiate such an outcome with the Bank.
Mr McSharer also told him that he had a law degree but was not a practising lawyer, that he hated lawyers and that he knew what the Hendersons were going through because he “had been” where the Hendersons now were. This was an allusion to the severe financial distress that the Hendersons were in. It also implied that Mr McSharer was no longer in that position. Mr McSharer did not say that he was still bankrupt.
Mr McSharer told him that he and Mrs Henderson should write a letter to the Receivers to say that Mr McSharer was allowed to talk to them about the Hendersons’ business. Mr Henderson subsequently told Mrs Henderson that Mr McSharer wanted her to write an email to the Receivers to authorise Mr McSharer to speak to them on behalf of the Hendersons.
Mr McSharer never mentioned Fides Consulting in this first conversation, and Mr Henderson did not become aware of the name ‘Fides Consulting’ until 23 July 2011.
I accept Mr Henderson’s evidence. As I have mentioned, I found him to be a reliable and honest witness. The corollary is that I do not accept Mr McSharer’s evidence that he made repeated reference to ‘Fides Consulting’ and that he did not say anything on 20 July 2011 regarding his qualifications, past health, money or contacting the Receivers. Indeed, for reasons I will later explain I find that Mr McSharer and Mrs McSharer gave dishonest testimony in material respects.
21 July 2011
Mr McSharer received emails from Mrs Henderson on 21 July 2011.
He said that he did not say to the Hendersons that he could help them at this stage and that as at 21 July 2011, neither he nor Fides Consulting had undertaken any activities in relation to the EIL. He said that at this point, more information was needed and it would be necessary to undertake due diligence.
Mrs McSharer’s evidence in relation to certain emails from Mrs Henderson on 21 July 2011 was that while she read the emails, she did not take a particular interest and “left it to Bill”.
On 21 July 2011, Mrs Henderson sent an email to Mr McSharer, which included the following:
Kim has told me that he had a lengthy talk with you last night.
From what I understand, we should write a letter to the receivers to say that we give permission for you to contact them. Is this as straight forward as it sounds? Do you wish to make any suggestions as to the content of that letter? Are we saying, as Directors or shareholders, that we give authorisation? Does this mean that you are acting on our behalf? I am not being silly here, rather I want to understand the slant and tone of the letter.
We will write another detailed email tonight to fill some more of the gaps.
In the meantime (I am on my lunch break, so only limited time here) I will try and send a few relevant documents to you to peruse.
We are appreciative that you are willing to work with us in our case with the receivers.
Considering the content of this email, I do not accept Mr McSharer’s evidence that he had not, at this stage, indicated that he would assist the Hendersons. It also further supports Mr Henderson’s evidence that Mr McSharer did indeed discuss contacting the Receivers with Mr Henderson on 20 July 2011. Mrs Henderson thereafter sent another email to which a summary of the licences obtained by the Hendersons was attached. Mrs Henderson’s evidence as to 21 July 2011 was as follows.
In the afternoon of 21 July 2011, she received a phone call from Mr Brickhill informing her that he would be unable to represent the Hendersons in court on 22 July 2011 in a hearing concerning their application in the then Federal Magistrates Court to set aside the bankruptcy notice.
Mr Brickhill said that there was “probably no point in being present”. Mr Brickhill’s statements led her to believe that he did not think that the Hendersons had much chance of avoiding bankruptcy. I accept this evidence.
22 July 2011
On 22 July 2011, Mrs Henderson sent an email to the Receivers which stated:
Please be advised that we authorise Mr Bill McSharer to assist and advise on behalf of the Directors of Bonthorpe, and Bonthorpe in it’s (sic) own right and Susan and Kim Henderson personally, in all financial and corporate matters.
Also on 22 July 2011, Mr McSharer sent an email to Mr Brickhill, asking that Mr Brickhill “please call [Mr McSharer] as soon as possible”, and stating that “Kim and Sue are happy for me to speak to you”.
Mr McSharer’s evidence
Mr McSharer said the following in relation to communications on or around 22 July 2011.
When he received the email of 21 July 2011 set out above, he was “only doing due diligence or compiling documents in relation to the matters affecting the Hendersons”. He did not have any input into the email sent by Mrs Henderson to Mr Norman Oehme of the Receivers on 22 July 2011.
He decided to undertake further due diligence in relation to the issues Mrs Henderson detailed in discussions between Mrs Henderson and Mr McSharer from 21 July 2011 to 10 August 2011.
On 22 July 2011 he contacted Mr Brickhill to enquire as to the progress of the bankruptcy application against the Hendersons. Mr Brickhill told him that the matter was going before the court the following week, but the telephone conversation was brief and he was not able to say anything to Mr Brickhill.
He called Mrs Henderson after speaking to Mr Brickhill, and told Mrs Henderson that in his “personal view if the sequestration order is made you are declared bankrupt and it would be best to speak to the person she had been dealing with at the NAB and try to get them to accept a scheme of arrangement”. This suggestion was based on his previous experience as a bankrupt. He had no memory of saying anything about the Receivers, and did not recall speaking again with Mrs Henderson on 22 July 2011.
As I have mentioned, Mr McSharer’s evidence is that he did not have any input into the email sent by Mrs Henderson to Mr Oehme of the Receivers on 22 July 2011. He attempted, in his evidence in chief and in cross-examination, to distance himself from this letter. I do not accept his evidence in these respects.
Mrs Henderson’s evidence
Mrs Henderson referred to a file note typed by her while speaking to Mr McSharer on 22 July 2011. I accept it as a contemporaneous record of the conversation. The note contains the following:
Email to receiver
We have authorised Bill Mc over the matters relating to the company and ourselves personally.
Cc to Bill and the receiver, and also to Trevor.
The substantial similarities between the note written by Mrs Henderson and the content of the email sent to the Receivers leads me to infer that Mr McSharer influenced its content.
Indeed, it was Mrs Henderson’s evidence that during this conversation, Mr McSharer dictated words for Mrs Henderson to use in an email authorising Mr McSharer to act on behalf of the company and the Hendersons personally. She said that she emailed the Receivers after speaking to Mr McSharer. I accept this evidence.
Mrs Henderson said the following concerning communications on 22 July 2011. During the conversation on 22 July 2011, Mr McSharer said that he had spoken with Mr Brickhill and that “today’s hearing is not a sequestration order”. Mr McSharer told her that it “would normally take about 6 weeks to receive a sequestration order”, so the Hendersons would need to enter into a scheme of arrangement in the next five weeks.
This is consistent with the file note, which contains the statements “We have about 5 weeks to put a deal into place” and “Need to enter into a scheme of arrangement, in the next five weeks”.
On the evening of 22 July 2011, she again spoke to Mr McSharer by telephone. In this conversation, Mr McSharer said that he:
(a)had had a stroke;
(b)could “take the bank out of the equation”;
(c)had a law degree but that he hated lawyers and did not wish to be admitted to the bar;
(d)also hated receivers and that they “would eat their young”; and
(e)“had been” where the Hendersons were at that time.
This evidence is in substance the same as that given by Mr Henderson as to what Mr McSharer said to him in their phone call on 20 July 2011.
Mrs Henderson told Mr McSharer of the Hendersons’ background, including the failed Denmark Subdivision and the potential litigation arising from it (the Denmark litigation), the gravel on the York farm and the discussions and meetings about potential bauxite mining and the possibility of diamonds being present on the property.
Mr McSharer pressed for details of the Hendersons’ debt and equity positions, and she told Mr McSharer that she estimated that the debt was around $8 million to $9 million. She also told Mr McSharer about the sheep, estimating them to be worth $500,000 - $600,000, and told him that the NAB did not have a charge over the livestock.
Mr McSharer said that he could help them and that he wasn’t interested in “revenue raising” for himself.
Mrs Henderson said that she was “especially satisfied” with Mr McSharer’s repeated statement that he could “take the bank out of the equation”, and said that she “had no idea how this could happen” but suspected that “it would be to do with the gravel, through some Joint Venture arrangement – or sale – which would satisfy the debt with the NAB”.
She was, she said, “in awe” of Mr McSharer “who had a law degree as well as the ability and the expertise to change our financial situation”. Her perception was that Mr McSharer was very confident of his ability to achieve a resolution of their financial predicament in relation to the Receivers and the NAB.
Mrs Henderson’s evidence that Mr McSharer told her he could “take the bank out of the equation” is supported by the statement in her email sent on 25 July 2011 to the Hendersons’ accountant, Mr Brian Slatter. In that email Mrs Henderson explained the role of Mr McSharer as follows: “Bill is assisting us with the receivers and may have a solution for the NAB”.
I accept Mrs Henderson’s evidence. I do not accept Mr McSharer’s assertions that he was still undertaking due diligence and did not say to the Hendersons that he could assist them. I find that he did indeed tell Mrs Henderson that he could help them and that this included a representation to the Hendersons that he could “take the bank out of the equation” (Bank Representation).
I infer that the several references to “five weeks” was intended to, and did, have the effect of putting pressure on the Hendersons to seek an urgent solution.
23 and 24 July 2011
On 23 July 2011, Mr McSharer sent a letter of engagement with accompanying documents (Letter of Engagement) to the Hendersons. There were several versions of these documents. One version of the Letter of Engagement contains markings made by Mrs Henderson, pointing out the numerous spelling errors throughout the documents. A schedule of rates was attached, which states, amongst other things, that “Matters of Law” attract a rate of “$130.00/hr”.
The Letter of Engagement contains a disclaimer in the following terms:
Fides Consulting Pty Ltd trading as W.B.McSharer Strategic Business Consultancy shall not and does not accept any legal liability howsoever arising for any advice, opinion or view provided to the recipient.
The suitability and fitness for purpose of all information is the sole responsibility of the recipient.
The accompanying email included the following:
Would you please review the documents and if happy please execute and return as scan documents to myself.
I would suggest the first piece of the cake that we need to address is bankruptcy.
The McSharers’ evidence
Mr McSharer’s evidence as to the 23 and 24 July 2011 was as follows.
He did not say anything to the Hendersons about the terms of the Letter of Engagement nor give any assurances or undertakings at this time.
Mrs Henderson did not say anything about selling sheep to pay Fides Consulting.
He did not recall speaking to Mrs Henderson later on the same day after sending the Letter of Engagement. However, he then referred to “another phone conversation of the 23rd July”, occurring after the Letter of Engagement was sent. When this inconsistency was pointed out to him in cross-examination, Mr McSharer responded that he “can’t remember every single phone call”.
During this later conversation, Mrs Henderson told him that they were unable to pay for Fides Consulting’s services and asked if the McSharers would be interested in establishing a commercial joint venture business with the Hendersons.
Mrs Henderson said that they proposed the joint venture instead of the provision of consultancy services because they were unable to pay for Fides Consulting’s services and “believed a business focused on the issues was likely to produce a significant profit”.
He responded by saying that he and Mrs McSharer would be prepared to investigate the matter further as she was raising the possibility of a business opportunity for himself and Mrs McSharer, as opposed to services provided by Fides Consulting.
On 23 July 2011, Mrs Henderson told him that she did not want to carry on with the consultancy agreement, and proposed instead a joint venture arrangement.
However, the Hendersons returned the Letter of Engagement, executed, the very next day. In cross-examination, the following exchange occurred:
So your evidence is that on the Saturday night, 23 July, the nature of this engagement was transformed from what was described in the letter of engagement to a joint venture?--- My evidence is that it was not transformed: the one was terminated, and the opportunity of another was opened. So, if you like, in a general term, one door closed and another door opened.
But the Hendersons still returned a document to you on the 24th, which related to the first door, didn’t it?--- Ask the Hendersons. I’ve got no idea.
Well, you know they returned it to you, don’t you?--- But I don’t know why they returned it to me. It was and it is a mystery to me.
Mrs McSharer said that on 24 July 2011, she read an email from Mrs Henderson which contained the executed documents. She said that she printed these documents out and placed them into the lever arch file she had opened earlier for this new client, together with other emails from Mrs Henderson. In cross-examination, Mrs McSharer agreed with counsel’s suggestion that it would be important to keep a record of this document, and that it was a contract that Fides Consulting had with the Hendersons.
The Henderson’s evidence
Mrs Henderson gave evidence that in receiving the Letter of Engagement and accompanying documents, she was surprised to receive the schedule of rates, as the Hendersons were not in the process of looking for a consultant, nor actively looking to proceed with any actions associated with Bonthorpe. Mrs Henderson said that she thought that if Mr McSharer was going to assist the Hendersons by arranging a joint venture or a sale, he would benefit through this process. She said she knew that it did not take long for consultancy hours to pile up.
Mr Henderson also testified that he was surprised to receive the schedule of rates, as Mr McSharer had not discussed fees with Mr Henderson “at all” but that Mr McSharer was “the only ray of hope for us at that point in time”, so the Hendersons signed the Letter of Engagement.
The Hendersons both said that they were worried about how they were going to pay fees to Mr McSharer and that Mrs Henderson suggested to Mr McSharer that in lieu of payment for his services, he might like to purchase the newborn lambs for a nominal amount of around $10 per head. The Hendersons said that Mrs Henderson suggested that Mr McSharer could sell the lambs in the spring and make a good profit.
Mrs Henderson said that she thought that this would give the Hendersons some income, as well as solving the problem of not having the funds to pay for Mr McSharer’s services.
Analysis of evidence
In cross-examination, Mr McSharer denied that Mrs Henderson had spoken to him about selling the lambs to pay the fees.
Mr McSharer took no action in response to the receipt of the executed Letter of Engagement. It is highly improbable that, if the Hendersons had conveyed their wish to withdraw from the consultancy arrangement and pursue a joint venture, they would have sent the executed Letter of Engagement to Mr McSharer or that Mr McSharer would not have sought to clarify with the Hendersons this apparently contradictory action and to confirm that they had, as he alleged, terminated the consultancy agreement.
Mr McSharer also said that he would carry out investigations to see whether or not he and Mrs McSharer would be prepared to go into a joint venture with the Hendersons in circumstances where he knew that their only assets were the sheep. I find this to be unlikely.
Further, in my view there is an inherent improbability in Mr McSharer’s assertions that Mrs Henderson proposed a joint venture agreement. It is highly improbable that the Hendersons, who had been farming successfully for many years, would enter into a joint venture agreement in relation to their sheep with two people with absolutely no farming experience. At the time Mr McSharer, by his own admission in cross-examination, “didn’t know much about sheep” and had made a comment to the effect that he did not know one end of a sheep from the other but only that they were good to eat.
Mr McSharer’s own conduct also flies in the face of the existence of a joint venture agreement. Other than a vague reference to a “partnership” in an email dated 13 February 2012, to which I will refer later in these reasons, the Court was not taken to any document in which a joint venture agreement is mentioned by the McSharers.
Mrs McSharer’s evidence is inconsistent with Mr McSharer’s assertions. As I mentioned, she agreed under cross-examination that it would be important to keep a record of the document and that it was a contract between Fides Consulting and the Hendersons.
Whilst, formally, the agreement was between the Hendersons and Fides Consulting, in substance I find that it was one between the Hendersons and Mr McSharer. He was to provide the services personally. Fides Consulting was a mere vehicle introduced by him without any consultation with the Hendersons.
I accept the Hendersons’ evidence as to what occurred on 23 and 24 July 2011. I do not accept Mr McSharer’s assertions that the consultancy agreement was terminated or “torn up”, to use his words in cross-examination.
I find that Mrs Henderson proposed an alternative method of payment for Mr McSharer’s services, being the sale of lambs to Mr McSharer.
25 and 29 July 2011
25 July
On 25 July 2011, Mr McSharer sent an email to Mrs Henderson, stating the following:
Hi Susan,
I propose to contact:
•Receiver to determine their position in relation to developing a scheme of arrangement. (this will include the Bankruptcy issue)
•Contact Phil Bellamy. (Determine if Phil’s group has a capacity to propose a scheme of arrangement)
•Contact Mines Department re mining lease.
Once these questions are answered I will have a better insight to a way forward.
Regards
Bill McSharer
For and on behalf of:
Fides Consulting Pty Ltd, T/A
W.B McSharer Strategic Business Consultancy
…The McSharers’ evidence and analysis
Mr McSharer’s evidence as to 25 and 29 July 2011 was as follows.
He mentioned the scheme of arrangement based upon his personal experience. He was not at this time “going down the track of a joint venture”; the McSharers had not yet made up their minds as to whether or not they would enter into a joint venture with the Hendersons. He and Mrs McSharer agreed that more information was needed. During a telephone conversation with Mrs Henderson, he “reported his findings to date” after also speaking to Mr Oehme of the Receivers.
During the “numerous phone conversations” of 25 July 2011, Mrs Henderson again raised the issue of the joint venture and referred to the Hendersons’ various assets, being sheep, gravel and litigation rights against all parties involved in the Denmark Subdivision.
Mrs Henderson again told him that the Hendersons were unable to pay for Fides Consulting’s services as they had used all of their money in the failed subdivision, but suggested the assets of the joint venture could be the sheep, the gravel deposit and the litigation against parties involved in the Denmark Subdivision.
Mrs Henderson asserted that they were able to deal with the assets of Bonthorpe.
He again told Mrs Henderson that they should “develop a scheme of arrangement in relation to the appointment of the Receivers and their bankruptcy”, and that the Hendersons stood to lose everything if they “could not get NAB to enter into a scheme of arrangement or forebear from any further action until the Hendersons could come up with a financial proposal acceptable to NAB”.
He also said to Mrs Henderson that the Hendersons should sell the stock and pay the proceeds of the sale to the Hendersons as the owners.
Mrs Henderson had then said in response that any joint venture between the parties could buy the stock and if the McSharers were interested, they could approach the Receivers to see if they could develop a commercial arrangement to be able to leave the stock on the farm.
He said to Mrs Henderson that Fides Consulting would approach the Receivers to see if it would lease the farm to Fides Consulting.
Mrs Henderson again said that the Hendersons would like to retain the assistance of Fides Consulting but could not afford to do so, and that she believed a joint venture would produce the best results for both parties.
Mrs Henderson said that the lambs could not be transported.
He asked Mrs Henderson for stock numbers, values and financial data on the viability of sheep farming. In the evening of 25 July 2011, Mrs Henderson sent to Mr McSharer a spreadsheet detailing stock numbers and income projections (Stock Value Email). These were for consideration by Mrs McSharer and himself as part of their “deliberations in relation to undertaking commercial operations with them”. I will return to this document shortly.
In late July to early August, he spoke to Mrs Henderson and said that he and Mrs McSharer agreed in principle to form a new company which would be the vehicle that would purchase the sheep.
He told Mrs Henderson that there was an in-principle agreement for the agistment of lambs and that the Receivers would draft and forward a grazing licence to Fides Consulting for consideration.
He said to Mrs Henderson that, subject to agreement by both parties, all dividends in the new company were to be equal unless otherwise agreed and that the new company’s constitution would reflect this. He did not say anything about using a company already incorporated by the Hendersons, about any references to the Hendersons in relation to the new company or say anything about who should hold the shares in the new company on behalf of the Hendersons.
Following the telephone discussions on 25 July 2011, on 29 July 2011 he, on behalf of Fides Consulting, asked the Receivers if they would be prepared to lease the farm to Fides Consulting. He drafted for Mrs McSharer the letter of 29 July 2011 to Mr Oehme of the Receivers containing such request (the 29 July Letter).
Mrs McSharer’s evidence in relation to the 29 July Letter was that Mr McSharer directed that she type a letter which he would dictate to the Receivers, to enquire as to whether or not they would be interested in leasing the York farm. She said she did not know the specifics of the contents in the letter but she knew it was related to the Hendersons.
The 29 July Letter contains, relevantly, the following:
Dear Norman
Further to our discussion of Monday 25th July 2011.
…
Fides Consulting Pty Ltd, or its nominee, is acquiring all the stock (Ewes, Hogget’s [sic], Lambs and Rams) from K and S Henderson.
The stock described in paragraph 4 above is currently located on the farming land owned by Bonthorpe Pty Ltd, to which you have been appointed the Receiver
…
I wish to enquire if McGrath Nicol would consider leasing the property on the Terms set out below:
•Lessee: Fides Consulting Pty Ltd and or its nominee
…
I look forward to your response; please contact my husband, Bill on 0447733372 if you wish to discuss this matter further.
I find much of Mr McSharer’s evidence as to the conversations on 25 July 2011 and the 29 July Letter unconvincing.
It was put to Mr McSharer that it was evident from his email of 25 July that he was doing research in preparation for advising the Hendersons. Mr McSharer denied this, and said that the “contacts” proposed to be made was “me doing my due diligence simply to see whether Hailey and I were even prepared to go into this joint venture that was being proposed by Susan Henderson”.
However, Mr McSharer was unable to satisfactorily explain the relevance of the scheme of arrangement mentioned in this email to the alleged proposal of a joint venture.
The following exchange occurred in cross-examination:
Well, tell me what the scheme of arrangement had to do with the joint venture?‑‑‑ Nothing.
Nothing. Well, why were you going to investigate that?‑‑‑ Originally, I was led to believe that Hendersons were looking to engage Fides Consulting trading as W.B. McSharer Strategic Business Consultancy to try and help them go through all the issues that they had before them of which, basically, I didn’t understand the full scope. That’s why I didn’t make any comment or why I made a limited comment about it because I wanted to try and understand it. Initially, there were general statements in the first instance. I think Kim Henderson made a statement about the NAB and how they felt they were unhappy with them but I didn’t know anything about it in detail.
So you say that originally you were going to advise them on bankruptcy?‑‑‑ No, I said that I was doing my due diligence to try and understand what the issues were. I had no idea. These are difficult and complex issues. There’s not two of them; there’s not three of them; there’s not four of them; there’s not five of them as I know now. That’s subsequent to my knowledge now. That’s my knowledge now. I had no idea and ‑ ‑ ‑
I’m just asking you about ‑ ‑ ‑?‑‑‑ I haven’t finished, please.
…
Right. Well, just now I’m asking you about bankruptcy and when I asked you why you were determining the position in relation to developing a scheme of arrangement which would include the bankruptcy issue you said that was because that’s what the Hendersons originally were going to ask you for?‑‑‑ I didn’t say to them that I was proposing for me to develop a scheme of arrangement. I said to them, “You will need to develop a scheme of arrangement,” whether it was me, Bird Cameron, whoever – I don’t know – but I do remember on more than one occasion mentioning to Hendersons, “You need to develop a scheme of arrangement,” and I never proposed that I was about to do it.
But you jumped into that on the Monday, didn’t you? That’s the first thing you refer to?‑‑‑ As I said yesterday, I think, because of my knowledge having been through it I realised that it was something that needed to be attended to urgently because unlike other commercial matters, when a court orders the – I used the word – I forget what the word was – programming orders, they’re not discretionary.
….
Well, here’s what I think you were doing, Mr McSharer. You got a signed letter of engagement on the Sunday and you jumped into the job on the Monday. Is that what you were doing?‑‑‑ No.
I do not accept Mr McSharer’s evidence as to why he indicated in the email of 25 July 2011 that he would pursue the issue of a scheme of arrangement. Rather, I find that the content of the email is consistent with Mr McSharer commencing work as a provider of consultancy services to the Hendersons.
Furthermore, he knew that the only immediately realisable assets of the Hendersons were the sheep. Considering this fact, and the fact of the Hendersons’ substantial debt, a scheme of arrangement was simply not feasible. However, mentioning that he was pursuing a solution by way of a scheme of arrangement would likely inspire confidence and hope in the Hendersons in their new consultant. I infer that this was the purpose of this communication.
With regard to Mr McSharer’s assertion that Mrs Henderson had said to him that she was able to deal with the assets of Bonthorpe, Mr McSharer denied repeatedly in cross-examination that he did not know that the Receivers had taken possession of all of the assets of Bonthorpe except the sheep. However, he was taken to his affidavit of 5 October 2012, which contained the following at [28]:
The Applicants otherwise told me that a receiver and manager had taken possession of all of their assets except their sheep.
This is but one example of several stark contradictions between evidence given by Mr McSharer at trial and evidence provided by affidavit at an earlier date.
In relation to his evidence concerning the content of his discussions with Mrs Henderson on 25 July 2011, Mr McSharer said under cross-examination that as part of his due diligence he checked the title of the York farm to confirm that it was not alienated by the Crown prior to 1899 and therefore was “private land” to which the relevant provisions of the Mining Act 1978 (WA) applied.
He said that he had established that the freehold was granted after 1899. However, Mr McSharer was subsequently shown the title for the York farm, which showed that it was part of “Avon Locations O and Q”. Mr McSharer was then shown copies of the Crown grants for Avon Locations O and Q, dated 1848 and 1840 respectively.
This is another example of Mr McSharer’s evidence so confidently asserted at trial being shown to be inaccurate.
In cross-examination, Mr McSharer insisted that Mrs Henderson suggested that any joint venture between the Hendersons and the McSharers could buy the stock. He emphatically denied that it was he who suggested purchasing the stock; Mr McSharer insisted that he had suggested selling the stock, but did not refer to buying the stock in the joint venture. He said that they were “Susan Henderson’s words because, at this moment in time, we hadn’t made up our mind”.
Mr McSharer denied the suggestion that Mrs Henderson had proposed that Mr McSharer buy the lambs. However, when counsel referred Mr McSharer to the part of his witness statement in which he stated that Mrs Henderson had said that the lambs could not be transported, he was unable to explain why this was relevant to the conversation of 25 July 2011.
In cross-examination Mr McSharer said that the 29 July Letter sent to Mr Oehme of the Receivers was written and sent to enable himself and Mrs McSharer to determine whether or not they wanted to be involved in the joint venture.
However, the letter contains an express statement that Fides Consulting “is acquiring all the stock”. Mr McSharer agreed in cross-examination that the letter contains a “firm statement” that Fides Consulting or its nominee was acquiring all of the stock.
This firm statement is wholly inconsistent with the suggestion that Mr and Mrs McSharer were still “making up their minds”.
The Hendersons’ evidence and analysis
The affirmative statement that Fides Consulting was acquiring the stock is also consistent with a file note prepared by Mrs Henderson concerning a conversation with Mr McSharer on 25 July 2011.
The Hendersons said that during this conversation the telephone was on ‘speaker’ and Mr Henderson sat next to Mrs Henderson and listened.
Mrs Henderson said that there were probably two conversations that day. She typed notes during them. This file note, which I will refer to as the 25 July Note, relevantly sets out the following:
What are the choices.
1.too late to try and stop the receivership or develop a scheme of arrangement.
2.Bankruptcy will continue if we cant get a SOA (sic).
3.He would let the bankruptcy proceed, not do anything.
4.He thinks that they have well and truly stitched us up,
5.Are they old enough, to sell the ewes and lambs in the next 5 week (sic).
6.It is likely that the bankruptcy would claim the livestock
7.They can’t take the cash unless, they can try and claw back, but it is usually too expensive.
8.Draft email, is OK> it is perfectly reasonable that Alan, it is an estoppal, once they become of a legal then the estoppal disappears (sic).
9.He thinks that we are about to lose everything.
10.Potentially we can negotiate a mining lease with the BRL (he hasn’t done any due diligence as he doesn’t have our authority),
11.Need to negotiate, to allow a mining lease.
12.We could negotiate in secret through a nominee and the people who have the exploration license
13.He is not in the business of ‘revenue raising’
14.He is interested in taking a percentage
15.He will probably come over talk to us.
16.If both parties are happy with each other, one of his companies could enter in negotiation
17.We need a fairy with about $9million
18.Do we have a bag full of the 2nd mineral,
19.We can get Alan to take a sample to Genalysis
20.The lambs should be mulesed.
21.Sell the lambs and ewes, get rid of it all, pay it into K & SJ, before any order for BR is made, otherwise the trustee holds it for the creditors.
…
He and Haley have had a discussion, and they are prepared to go down the track
Exempt Pty Ltd, as trustee2 sheep – they will go ahead with a share-outcome based arrangement.
He will speak to the receiver, and approach him in such a way.
He is the buyer of the stock, and that you want to approach him for a lease arrangements.It would be inappropriate to buy lambs for $10 and sell for $80.
(Emphasis added.)
Mr McSharer denied that the matters set out in items numbered 3, 5, 6, 7, 8, 12 and 21 and the sentence beginning “It would be inappropriate…” were discussed. However, he was unable to answer counsel’s question as to whether or not the rest of the file note was accurate. He said that he did not recall a lot of these things that she had written in the note.
Nevertheless, he had picked out a number of matters which he insisted were not discussed. When counsel pointed this out, he replied that those were the matters of which he did have a firm recollection, but he could not “say for sure that [he] discussed these matters with Susan Henderson and this actual file note is a true and correct record of the discussion”. He denied counsel’s suggestion that he had selected those paragraphs because he believed them to be damaging to his case.
I find it implausible that Mr McSharer was able to recall with certainty that some matters were not discussed, and yet cannot speak to the accuracy of the rest of the file note.
As to final lines of the note, Mr McSharer said in cross-examination that this was the proposal that Mrs Henderson put to him. He also said that he had said to Mrs Henderson that the McSharers may be interested in going down this road but that there was no final decision and no commitment. He said this note reflected an assumption on her part. When pointed to the reference in the note to “Exempt pty ltd as trustee”, he denied that this was something he had suggested to Mrs Henderson on 25 July 2011.
However, his evidence was also that he and Mrs McSharer had agreed, albeit “in principle”, to “form a new company which would be the vehicle that would purchase the sheep from the Hendersons”.
The similarities between the 29 July Letter and the final lines of the 25 July Note are evident. They do not support Mr McSharer’s assertion that he and Mrs McSharer were still considering whether or not to enter into a joint venture. Rather, they indicate an affirmative decision to purchase the stock and to take steps to conduct negotiations as purchaser. I do not accept Mr McSharer’s evidence that the 29 July Letter to Mr Oehme of the Receivers was sent as part of an information-gathering process.
I also do not accept that Mrs Henderson proposed that any joint venture purchase the stock. Rather, I find that Mrs Henderson proposed to sell the lambs to Mr McSharer. I accept the evidence of the Hendersons as to events on or around 25 July 2011. They gave evidence carefully and their evidence was supported by detailed contemporaneous records. It was during this conversation that Mr McSharer said that he did not know anything about sheep, except that they were nice to eat.
Mr Henderson said that Mr McSharer was pushing the Hendersons to sell the sheep, telling them they were about to lose everything and that the bankruptcy trustee would get the livestock if they did not sell them. He “kept going on about the ages of the lambs”, but the Hendersons told him that they were not old enough to be transported for sale.
Mrs Henderson said the following in relation to 25 July 2011.
During the conversations she had with Mr McSharer on this day, Mr McSharer said, amongst other things, that it was too late to stop the receivership, that the Hendersons should not do anything and let the bankruptcy continue, that they were about to lose everything, and that they should sell the lambs and ewes before any order for bankruptcy was made, otherwise the trustee would hold the livestock for the creditors.
Mr McSharer clearly said that “they would go ahead with a share in an outcome based arrangement”. Mr McSharer said that he would probably come to Queensland to talk to the Hendersons, and that one of his companies could enter into negotiations. Mrs Henderson explained that this reference to “one of his companies” gave the Hendersons confidence that Mr McSharer was a substantial business person. I accept this evidence.
The Hendersons said that Mr McSharer told them that he would approach the Receivers as if he were the buyer of the stock. The Hendersons said Mrs Henderson asked Mr McSharer whether or not he could take his fees as a percentage of any outcome, and that this was suggested as a substitute for selling the lambs. They said that Mr McSharer said that he had thought of the same thing but did not know how to raise the subject.
The Stock Value Email sent on 25 July 2011 by Mrs Henderson containing details of sheep numbers and estimates of their value are set out in full.
Bill,
The stock details as follows:
Description Number Value Total Ewes 2550 $80 $204,000 Hoggets 2150 $80 $172,000 Lambs 1800 $10 $18,000 Rams 50 $100 $5,000 Total $399,000 Shearing/Wool Income
Description Number Kg/head c/kg Total Ewes 2550 5 1000 $127,500 Hoggets 2150 5 1000 $107,500 Lambs 1800 1.5 800 $21,600 Rams 50 6 1000 $3,000 Total 6550 $259,600 Sheep sales income for the last financial year was $217,182.26.
Our usual practice is not to sell the lambs.
As the lambs are bred to continually improve the bloodline, only the old culled sheep and the culled ewe hoggets (12months old) should be sold.
The natural increase in lamb numbers should roughly equal the number of sheep sold in the same financial year, to keep the flock numbers stable.
This equates to around 5000 grown sheep in the summer.Please note, that the values given to livestock at the top, are ‘off-shears’. That is, straight after shearing with ‘no wool’ in October.
The Eastern States buyers are entering back into the sheep market (together with the Live Sheep exporters) and this will keep the price steady or with an upward trend.Consider (sic) may need to be given to grain supplies for sheep feed. We usually grow our own crop for sheep feed and sales, however with the current situation with the Receivers, we were unable (due to the late rain, and their attitude) to put a crop in. The grain is fed to the sheep over the summer and until the break of the season the following year, to keep the sheep (and the wool) in top condition. This would require about 70 – 80 tonne of grain at about $230/t which is about $16,000.
I trust that this is of help. I haven’t checked the sums above. I am too tired.
I will return to the contents of this email later in these reasons.
It follows that I accept that on 25 July 2011, Mr McSharer, in purported performance of giving advice to the Hendersons both as a supposed lawyer and experienced business consultant, told the Hendersons that:
(a)the Hendersons were about to lose everything;
(b)the Hendersons should let the bankruptcy continue;
(c)the Hendersons should sell the stock before a bankruptcy order was made so that it would not fall into the hands of the trustee;
(d)he would approach the Receivers as if he were the buyer of the stock;
(e)that Mr McSharer was interested in taking his fees by way of a percentage in an outcome-based arrangement; and
(f)that one of his companies could enter into negotiations.
August 2011
Mr McSharer’s evidence was that from 29 July 2011 to 2 September 2011, he negotiated with the Receivers for the grazing licence under which the new company, which would become Astraea, could agist the stock. There were numerous emails between Mr McSharer and the Receivers concerning a potential agreement. These disclose that the Receivers would not enter into a lease agreement, but were prepared to enter into an agistment agreement. Early in August, the Receivers proposed a draft grazing licence.
The McSharers’ evidence and analysis
Mr McSharer’s evidence as to events in August 2011 was as follows.
On about 2 August 2011, he contacted Mrs Henderson by telephone and said to her that the Receivers had indicated that they would enter into a grazing licence. Mrs Henderson then requested that Mr McSharer incorporate a new company to purchase the stock and enter into a grazing licence. Mrs Henderson also said that the new company should be owned jointly between McSharer and Henderson interests (at 50% each), and that if the matter went forward she would have the Hendersons’ shareholding held by a nominee who she could not nominate yet but would advise of later.
He did not give any advice to Mrs Henderson as to who should hold the shares in the new company. He told Mrs Henderson that he and Mrs McSharer would need to consider her proposal. He did not “advise or promote with [Mrs Henderson] if or how, or by what means the company be formed”. Mrs Henderson did not say from where she got the idea about incorporating the company. He told Mrs Henderson that if the new company was formed it would need to sign a letter of engagement with Fides Consulting. Mrs Henderson said that it would be necessary for Fides Consulting to “undertake all sorts of matters for the new company”.
During this conversation, Mrs Henderson said that the sale of stock could help to fund legal assistance for the Denmark litigation, and that the basis of dividends from the proposed company would be equal between the members but that the director of the company would have the power to decide when any distribution would take place.
Mrs Henderson questioned him in relation to the “Matters of Law” referred to in the “Fides Consulting Pty Ltd scope of services document”. I assume that this refers to the schedule of rates attached to the Letter of Engagement.
He told Mrs Henderson that he had passed a “Bachelor of Law” some years earlier, but was not a qualified lawyer, was not admitted to practice and had limited knowledge and that the “Matters of Law” referred to undertaking client due diligence when compiling a brief to lawyers. Mrs Henderson told him that she believed in clairvoyants, and that her clairvoyant had told her that, amongst other things, a party would come along and assist the Hendersons in resolving their problems and that there were diamonds in the gravel deposits.
Mr McSharer wanted to meet and understand the Hendersons first before committing to doing anything. During this conversation, which he says he assumes was on 2 August 2011, he did not say anything about:
(a) using a company which the Hendersons had already incorporated;
(b) the name of the new company; or
(c) land being available for agistment if the farm was sold,
but he did say that he did not believe that the parties needed to own land to be in the business of primary production.
Mr McSharer had a discussion with Mrs McSharer “in relation to Hendersons’ proposal for the JV”, and he and Mrs McSharer wanted to wait until they had met the Hendersons in Queensland. During the 2 August 2011 telephone conversation, Mrs Henderson asked him if he had access to a pro forma contract for the sale of the stock that they could use if they proceeded with her suggestion, and that any contract for the sale of the stock would need to be in place from the date of the grazing licence.
On 4 August 2011, Mrs McSharer began collecting information such as details of directors, company secretary and a registered office for the incorporation of a company with Shelf Companies Australia.
Mrs McSharer’s evidence as to events in August 2011 was as follows.
Mr McSharer had asked her on 4 August 2011 to email Mrs Henderson and to enquire as to details for a nominated shareholder to begin collecting the preliminary information for incorporation of a company through Shelf Companies Australia.
Somewhere from 29 July to 1 August, while the McSharers were on holiday, Mr McSharer received a phone call and had told her that it was from Mrs Henderson. Mr McSharer had taken a few telephone calls from Mrs Henderson and although she did not know what was discussed in detail, Mr McSharer had told her that he was considering if they should “take a commercial association with the Hendersons”.
She told Mr McSharer she thought it would be beneficial that they meet with the Hendersons in person before proceeding further. Mr McSharer was the main contact with Mrs Henderson, and she thought it was important that she was able to get an impression of who the Hendersons were. Consistently with this evidence, Mr McSharer said that Mrs McSharer had suggested to him that she and Mr McSharer go to Queensland and “see if the commercial opportunity was real, to get to know the Hendersons personally and to understand the commercial issues and check if we liked the Hendersons”.
Mrs McSharer said that upon the McSharers’ return from their holiday, Mr McSharer requested that she undertake a search on ‘Biztree’, an online subscription-based database, to find a pro forma contract. She said that she did not know what it was for, except that it related to the Hendersons’ matter.
Consistently with the evidence of his wife, Mr McSharer also said that he requested Mrs McSharer to search Biztree for a suitable pro forma contract for the sale of stock. Mrs McSharer said that Mr McSharer asked her to compile a basic pro forma contract in draft form for the Hendersons to consider.
In an email sent on 4 August 2011, Mr McSharer wrote to Mr Ward the following:
It will be necessary to incorporate a separate P/L company for the farming operations. I will do this ASAP.
Once I am aware of the Company name and the certificate of registration number I will execute the agistment agreement with McGrath Nicol.
Also on 4 August 2011, Mrs McSharer sent an email addressed to Mrs Henderson, which relevantly stated:
Bill and I are in the process of incorporating the company and would ask you to please forward the following details regarding the nominated shareholder as per your discussions with Bill;
Ø Name
Ø Address
Ø Date of Birth
Ø Place of Birth
…
It does not appear to be in dispute that in early August 2011 the Hendersons nominated Ms Katie Payne, Mrs Henderson’s niece, to hold the shares in the proposed new company. The wording of these emails and the evidence of the McSharers as to steps taken to set up a company contradict the repeated assertions that the McSharers were still considering Mrs Henderson’s proposal at this stage, and were not yet prepared to commit to any arrangement with the Hendersons.
These documents contain unqualified, absolute statements that the McSharers were incorporating a company. I do not accept the McSharers’ evidence that they were still, at this stage, in the process of considering whether or not to enter into an arrangement with the Hendersons.
To the extent that it differs from the evidence of the McSharers, I accept the evidence of the Hendersons as to what occurred between the parties in late July and early August 2011.
The Hendersons’ evidence and analysis
Mrs Henderson’s evidence as to this period was as follows.
Sometime between 29 July and 3 August 2011, she spoke to Mr McSharer by telephone. Mr McSharer suggested that the McSharer interests would hold 50% of a new company and the Hendersons or their nominees would hold 50%. Mr McSharer did not say to her that any new company formed would need to sign a letter of engagement with Fides Consulting and said that it was not agreed and not discussed that Fides Consulting would carry out consulting work on behalf of the company.
The “origin of the whole Astraea concept was the advice that [Mr McSharer] gave [the Hendersons] by telephone on Monday 25 July 2011”. The only suggestion that she made was in asking Mr McSharer if he would consider taking payment through a percentage of the outcome from what the parties did. She suggested this because she realised the Hendersons would not be able to pay Mr McSharer’s fees as set out in the schedule of rates attached to the Letter of Engagement.
Mr McSharer repeated to her what he had earlier said, namely, that he was a qualified lawyer but he “didn’t want to get admitted to the bar because he hated lawyers”. Mr McSharer did not tell her that a reference to a “Matter of Law” in the consulting agreement referred to carrying out due diligence when compiling a brief to lawyers. She had not asked Mr McSharer to prepare a pro forma contract for the sale of stock. Indeed, she said that a contract in relation to the sale of stock “hadn’t occurred to [her]”.
Mrs Henderson said she took notes of this conversation. This document was in evidence. Although the document appears to be dated “19.08.11”, Mrs Henderson said that when she was collecting documents for an affidavit she thought these notes were from 19 August and wrote that date on the top, but she could now see that the notes were from a conversation “at the end of July or in early August”.
I accept this explanation and accept the document as a contemporaneous record of the conversation. I also infer that the notes relate to the conversation occurring around 2 August 2011, about which Mr McSharer gave evidence.
Relevantly, in the handwritten note the following appears:
Law – Would never practice.
Basic understanding.(Emphasis in original).
This is consistent with Mr McSharer’s evidence that Mrs Henderson raised the issue of “Matters of Law”, and that he told Mrs Henderson that he was not admitted to practice and did not claim expertise in the law. However, it does suggest that Mr McSharer claimed some understanding of the law. The assertion that Mr McSharer would “never practise” is consistent with Mrs Henderson’s evidence that Mr McSharer had said that he hated lawyers. I accept her evidence. The name “Astraea” is noted at the bottom of the page. I do not accept Mr McSharer’s assertions that the name of the proposed new company was not discussed.
The qualifications, experience and role of Mr McSharer
The McSharers’ evidence and analysis
Here, the Hendersons did provide notice of rescission of the Stock Purchase Agreement to the McSharers. The McSharers refused to accept such rescission. There was no positive affirmation of the agreements by the Hendersons after receipt of the draft deed of assignment.
In Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251, French J said, at 262, the following:
This is not a case in which it appears that in the absence of the principal misrepresentations the applicants would have taken up the lease on terms other than those in fact agreed. Without the representations as to the survey and the prior commitment of other tenants, the Muscas would not have entered the lease agreement. No hypothesis was suggested or presents itself whereby they might have entered into a lease upon terms other than those in fact agreed. No question therefore arises as to the appropriateness of an order varying terms of the lease under s 87(2)(b) in lieu of an order declaring it to have been void ab initio.
The propriety of this course is reinforced by the fact, as I have found, that the entry into the lease was induced by fraud. I will make the order sought in that regard.
These observations are apposite to the present case. I am satisfied that the Hendersons would not have entered into the agreements but for the misleading and deceptive and/or unconscionable conduct of Mr McSharer, in which Mrs McSharer and Astraea were involved.
Accordingly, I will declare that each of the Letter of Engagement, the Stock Purchase Agreement, as varied, and the 16 February Agreement is void ab initio.
Further, I will make the following orders to rectify these thoroughly dishonest commercial dealings by Mr McSharer through Astraea:
(1)Within 7 days of judgment, Mr and Mrs McSharer and Astraea each file with the Court and serve upon the Hendersons’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information:
(a)the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);
(b)the precise location(s) of all of the sheep;
(c)the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales);
(d)the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.
(2)Mr and Mrs McSharer and Astraea each be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.
(3)Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, Mrs Hailey McSharer, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in Astraea Group Pty Ltd.
(4)Mr and Mrs McSharer and Astraea do all things necessary to deliver up the sheep and the wool bales for collection and removal by the Hendersons within 21 days of judgment or such further period as the Court may permit on application by the Hendersons.
(5)Within 28 days of judgment, Mr and Mrs McSharer and Astraea each file with the Court and serve upon the Hendersons’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.
I will additionally assess compensation payable to the Hendersons on the basis that all the sheep and wool bales have been sold.
Quantum
I find that the loss and damage suffered by the Hendersons as a result of Mr McSharer’s conduct is the combination of the following:
(a)value of the sheep as at August 2011
(b)lost income from the sheep from 1 August 2011 to date of judgment;
(c)value of progeny since 1 August 2011
The value of the sheep as at August 2011 may be determined by the estimates made by Mr Henderson at that time, as well as a valuation done by Mr McSharer, albeit some six months later. Mr Henderson’s estimates are shown on a copy of the Stock Value Email from the Hendersons to Mr McSharer containing Mr Henderson’s handwritten annotations in the right-hand margin of the document. I have referred to this document above.
According to the evidence of Mr Henderson, this was used for the purpose of value calculations at the Childers meetings. This document shows per head estimates of $100 for ewes, $100 for hoggets, $70 for lambs and $150 for rams, resulting in the estimate worth of the 6,170 sheep as being $564,600. These values are, I find, somewhat conservative.
Some six months later, sheep values were obtained from Mr Barnsby, commissioned and adopted by Mr McSharer in February 2012. This shows per head estimates, depending on age and sex, of between $90 and $110 for lambs and between $135 and $160 for ewes.
Mr McSharer, using Mr Barnsby’s values, recalculated that the sheep, as at 15 February 2012, were worth $600,000. I will adopt this figure as the value of the sheep as at August 2011 even though some sheep had been sold.
The Hendersons accept that allowance should be made (by way of reduction to the sum awarded) for the amount of $1,000 paid by Mr and Mrs McSharer (or one of their companies) toward the purchase price of the sheep.
I will quantify the loss of the flock of sheep in the amount of $599,000 taking into account the $1,000 paid by the Hendersons.
I turn now to calculating the net earnings that could have been derived from the sheep over the period since they were transferred to Astraea.
I do not consider that the profit and loss statements for periods after February 2012 accurately reflect the net earnings that could have been derived from the sheep if they were being managed by the Hendersons over the period since the transfer to Astraea. The expenses actually incurred by the business were significantly higher after the McSharers became responsible for management. The Hendersons submit, and I accept, that this is attributable to Mr McSharer’s admitted inexperience and the need to pay and accommodate others for husbandry of the sheep.
The Hendersons submit that it is highly likely that the Hendersons could have arranged agistment and husbandry at more favourable rates. I agree. Mr Henderson suggested to Mr McSharer several properties for agistment. It is likely that Mr Henderson, with extensive experience in primary production and therefore contacts and acquaintances in the industry, would have been able to secure favourable agistment conditions.
I have, in assessing damages, used Astraea’s own financial records from 1 August 2011 until the date of judgment adjusted as I will describe to calculate the net income which I find would have been earned by the Hendersons during the year (approximately) 1 August 2011 to 30 June 2012.
I have considered the profit and loss statement for the period of 1 August 2011 to 7 February 2012 in combination with that for 1 July 2011 to 30 June 2012. The former set of accounts provides a more fulsome explanation of certain items in the latter set of accounts. I have adjusted both the figure for Gross Income and that for Gross Expenses. Income was largely from the sale of wool and sheep sales. For example, income from wool sales in the year ended 30 June 2013 was approximately $184,000 and for the following six months a further $178,000, approximately.
I have deducted from the income figure the amount received from sheep sales as this is taken into account in my assessment of the loss of the value of the sheep, including lambs.
Although accounts including Profit and Loss statements for Astraea were tendered for the year ended 30 June 2013 and the period from 1 July 2013 to 2 December 2013, I have no confidence that these reflect the true position so far as concerns the expenses associated with farming the sheep. Payments to Fides Consulting shown as an expense have multiplied by almost 500%. “Farming” costs have multiplied by almost 300%. Legal costs of a further $31,500 approximately relating to this proceeding have been charged as expenses. Agistment costs have multiplied by almost 900%. These massive increases are inexplicable in a period of one year. However I will accept the figures for income.
As to the expenses, I have taken into account that under the management of the Hendersons there would have been no payments to Fides Consulting ($35,000) or, as they would personally have done the work, employment expenses (approximately $69,000); electricity for the home provided for employees ($1,400) or legal costs (approximately $25,000) or licence fees and permits ($20,500). I have left in the “Farming” expense of approximately $66,000 to cover, amongst other things, agistment costs, additional feed, and shearing costs. I have also allowed the expense for book-keeping ($9,000) although this figure seems high in the circumstances. I have rounded the figures up or down to the nearest $500.
This produces the following result:
Income
$280,500
Less sheep sales
$114,500
$166,000
$166,000
Expenses
$249,500
Less
Fides Consulting
$ 35,000
Electricity (House: Alan and Sally)
$ 1,500
Employment Expenses
$ 69,000
Legal Costs
$ 25,000
Licence Fees and Permits
$ 21,500
$152,000
$152,000
$ 97,500
$ 97,500
Net profit
$ 68,500
This produces an aggregate net annual profit of $68,500 which represents a net loss of income by the Hendersons over the period of 3 years and almost 9 months of $256,875. I will round this down to $256,800.
I will now consider the number of lamb births since August 2011. I have adopted two approaches, both of which take into account that income was employed to extend the size of the sheep flock.
The Astraea accounts disclose livestock sales and livestock purchases. Accordingly it is apparent that income has been employed to revitalise and it seems to extend the size of the sheep flock.
In the first approach I have considered a document titled “Lambing Percentages” which discloses that lambs were born as follows:
LAMBING PERCENTAGES
DETAILS & YEAR EWES MATED % EWES MATED INCREASE LAMBS BORN % INCREASE/
DECREASE% INCREASE LAMBS BORN 2011 – Year of Contract 2500 0 1830 0.73% unknown unknown 2012 – First seasons for us – York 2932 0.1728% 2977 1.02% 0.29% 0.6260% 2013 – Second Season - Greenhead 3775 0.2875% 3488 0.92% -0.09% 0.1716% 2013 – allowing lambs not yet in 3775 3688 0.97% -0.04% 0.2388% (Emphasis in original)
I will now assess the value of the lambs, excluding those born in 2011 which have been taken into account in my assessment of the value of the sheep as at February 2012. Based on the Sheep Reconciliation document, I will assume that the lambs were born in the period May-June of each year.
The price per head will be based on the values provided by Mr Barnsby which vary according to gender and age. For example a lamb born in 2012 would be three years old at date of judgment and would be valued at approximately $120 (an average of the price per head of an ewe and a wether).
Further, I will use the expected 2013 figure as the basis for calculating the number of lambs born in 2014.
Value of lambs
Year
Number of lamb births
Price per head ($)
Value ($)
2012
2977
$120
357,240
2013
3688
$120
442,560
2014
3688
$130
479,440
TOTAL
10,353
$1,279,200
(rounded to the nearest hundred dollars).
The second approach tends upon consideration of the Sheep Reconciliation document. This document, which I earlier referred to, discloses that the number of lambs born in May-June 2012 was 2,977 lambs.
As late as September 2013, Astraea was having 9,500 sheep dipped as disclosed by the invoice number 79 dated 2 September 2013 from Joyl Pty Ltd to Astraea. This is an increase of approximately 3,500 sheep from the original flock valued at $600,000 by Mr McSharer in February 2012 over a period of approximately 18 months.
This significant increase in sheep numbers is despite the fact that there was sheep sale income in that period of $114,500 (2012 financial year), $98,739 (2013 financial year) and $5,195 (1 July 2013 to 2 December 2013) totalling $218,500 (rounded to the nearest $500). This means that at an average price per head of sale price of $120, approximately 1,820 sheep were sold during this period.
This means that as at December 2013, there was an increase in the flock of approximately 5,150 sheep. I will allow a lambing figure for May-June 2014 of 3,300, a 10% increase on the previous year given that the previous year had also shown an increase for the year before.
This produces a total lambs born during the period of 8,450. I will employ a price per head of $125. This produces a value of $1,056,250.
I will use the figure produced by the second approach, although that it is, I consider, conservative.
The total loss and damage is accordingly:
1. Value of sheep
$599,000
2. Lost net income
$256,800
3. Value of lambs
$1,056,250
$1,912,050
The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under the order for delivery up (order 4 under [882]). The amount by which the compensation will be reduced will be assessed by an expert valuer appointed by the Court on application by the Hendersons upon notice to the respondents. There will be liberty to apply in this respect.
I will stay the order for the award of compensation until further order to enable time for compliance with the order for delivery up and the assessment of the value of any sheep and wool bales delivered up. Again, this will be subject to a grant of liberty to apply.
Damages for deceit
The Hendersons submit a claim in damages, including aggravated damages and exemplary damages. The damage suffered and the quantification of damages is the same as I have outlined in relation to the other causes of action.
Aggravated damages
I am not satisfied that the Hendersons have adequately pleaded a claim for aggravated damages. Rule 16.44 of the Federal Court Rules 2011 (Cth) outlines that:
(1)A party who claims damages that includes money that the party has paid, or is liable to pay, must state in a pleading the amount of the money paid or liable to be paid.
(2)If the party claims exemplary damages, the pleading must also state particulars of the facts on which the claim is based.
Although r 16.44 deals in part exclusively with exemplary damages, the underlying principle of this rule is to ensure that the defending party is adequately put on notice of the nature and extent of the applicant’s claim in damages: Croft v Evertop Investments Pty Ltd (No 2) [2011] FCA 749 at [21]. This is consistent with the general principle under r 16.41 of the Federal Court Rules 2011 (Cth).
Whilst the Hendersons have particularised their claim for exemplary damages, they have not done so with respect to their claim for aggravated damages. Further, no evidence was provided in support of such a claim. Therefore aggravated damages will not be awarded.
Exemplary damages
The Hendersons also claim as against Mr McSharer only exemplary damages for deceit.
The claim for exemplary damages is based on two separate aspects of Mr McSharer’s conduct:
(a)the representations he made at the outset of the relationship, which the Hendersons say were flagrantly deceptive and involved blatant breaches of law; and
(b)his conduct after the termination of the relationship, in ensuring that Astraea retained the property obtained through the deceptive representations despite the Hendersons’ rescission of the Stock Purchase Agreement. The Hendersons say this conduct showed a high-handed, cruel and reckless disregard for their interests.
This Court has power to award exemplary damages, and exemplary damages are available in an action for deceit: Musca at 262-268 per French J.
It does not follow, though, that exemplary damages will be awarded in all cases where the tort is established: Musca at 268. It is an exceptional remedy that is awarded rarely, but conduct amounting to conscious wrongdoing in “contumelious disregard of another’s rights” may justify such an award: Gray v Motor Accident Commission (1998) 196 CLR 1 at [12], [14], [20], citing Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71 at 77. The purpose of an award of exemplary damages is to punish the wrongdoer and to deter others from engaging in such conduct: Gray at [15].
Further, the courts have emphasised the need for moderation in awarding exemplary damages: see XL Petroleum (N.S.W.) Proprietary Limited v Caltex Oil (Australia) Proprietary Limited (1985) 155 CLR 448 at 463 per Gibbs CJ; Backwell v AAA [1997] 1 VR 182 at 207-208 per Ormiston JA.
Turning to the two aspects of Mr McSharer’s conduct which the Hendersons rely on, only the first aspect relates to the conduct which established the claim in deceit; the second aspect refers to conduct which occurred after Mr McSharer’s deceit had been established.
This does not mean, however, that the second aspect should be disregarded in assessing exemplary damages. As illustrated in Lamb v Cotogno (1987) 164 CLR 1, a tortfeasor’s conduct which, of itself, may not constitute a tort, or occurred after the tort had been established, may be considered for the purposes of awarding exemplary damages where that conduct amounted to a “cruel or reckless disregard” of the plaintiff’s welfare. The High Court in Lamb went on to explain that it is at least arguable that after having committed the tort, the tortfeasor is “under a duty to take reasonable steps to alleviate the effect of his wrongdoing”: Lamb at 12.
In relation to the first aspect of Mr McSharer’s conduct, I am satisfied that his representations amounted to conscious wrongdoing in contumelious disregard of the rights of the Hendersons, or of the potentially devastating consequences for the Hendersons. He falsely held himself out as having a law degree and as a successful business consultant who could extract them from their serious financial predicament particularly in respect to the debt to the NAB. These representations perpetuated throughout the initial phases of the relationship in order to secure the Hendersons’ trust without regard for their rights and motivated solely by his own self-interest.
Further, I consider Mr McSharer’s conduct following the purported rescision of the Stock Purchase Agreement to amount to a high-handed, cruel and reckless disregard of the Hendersons’ interests. I have found that the Stock Purchase Agreement was entered into as a result of Mr McSharer’s deceit. The rescision of this agreement ought to have provided an opportunity for Mr McSharer to consider, and perhaps alleviate, the effect of his prior conduct. Instead, he engaged in bullying, threatening and intimidatory conduct which included forcing access to the York farm by cutting the chains to the gate, reporting to the police that the Hendersons had committed theft resulting in their arrest and threatening the Hendersons with a defamation suit. Such conduct may, in my opinion, be taken into account as it helps to put the deceit in its full context.
In combination, the nature of the two aspects of Mr McSharer’s conduct is such that the Court should mark it as wholly unacceptable by awarding exemplary damages.
In considering the amount of exemplary damages to award, it is necessary to keep in mind that I have also ordered that the respondents pay a substantial amount to the Hendersons. A “large award of non-exemplary damages will…have a substantial deterrent and punitive effect”: Backwell at 209.
I would, for these reasons, award an amount of $20,000 in exemplary damages to the Hendersons.
DECLARATIONS
I will make declarations that:
(1) The Letter of Engagement dated 22 July 2011 is void ab initio.
(2) The Stock Purchase Agreement dated 24 August 2011 is void ab initio.
(3) The 16 February Agreement dated 16 February 2012 is void ab initio.
ORDERS
I will make the following orders:
(1)Within 7 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information:
(a)the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);
(b)the precise location(s) of all of the sheep;
(c)the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales);
(d)the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.
(2)Each of the respondents be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.
(3)Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, the second respondent, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in the third respondent.
(4)The respondents do all things necessary to deliver up the sheep and the wool bales for collection and removal by the applicants within 21 days of judgment or such further period as the Court may permit on application by the applicants.
(5)Within 28 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.
(6)The respondents, jointly and severally, pay to the applicants compensation in the sum of $1,912,050 in respect of the first respondent’s contraventions of the Competition and Consumer Act 2010 (Cth) Sch 2, in which the second respondent and the third respondent were involved.
(7)The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under order 4, with the value to be assessed by an expert valuer appointed by the Court.
(8)Liberty granted to the applicants to apply to the Court for the appointment of an expert valuer for the purposes of order 7.
(9)The award of compensation be stayed until further order to enable time for compliance with orders 1, 4, 7 and 8.
(10)The first respondent pay the applicants $20,000 in exemplary damages in respect of the first respondent’s deceit.
(11)Liberty granted to the parties to apply on the question of any interest that should be paid with respect to the compensation awarded under order 6, as well as on the question of costs.
I certify that the preceding nine hundred and thirty-eight (938) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate:
Dated: 28 April 2015
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