In the matter of NL Mercantile Group Pty Ltd

[2018] NSWSC 1337

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of NL Mercantile Group Pty Ltd [2018] NSWSC 1337

Hearing dates:

6, 7 and 8 June 2018

Decision date:

31 August 2018

Before:

Gleeson J

Decision:

(1)   Declare that the second defendant, Emerald Superannuation and Insurance Pty Ltd (Emerald), holds 50 percent of the one share in NL Mercantile Group Pty Ltd (Mercantile) on trust for Andrew Fulton Rofe.

 

(2) Order that Emerald pass a members’ resolution splitting the one share in Mercantile into two shares in accordance with s 254H of the Corporations Act 2001 (Cth).

 

(3)   Order that upon the said resolution being passed, Mercantile is to record in its register of members that the plaintiff, Andrew Fulton Rofe, holds one of the two issued shares in Mercantile.

 

(4)   Judgment for Mercantile against Mr Rofe in the sum of $51,000.00.

 

(5)   Order that Mr Rofe pay damages to Mercantile in the sum of $179,063.34.

 

(6)   Mercantile and Emerald to pay Mr Rofe’s costs of the statement of claim.

 (7)   Mr Rofe to pay Mercantile’s costs of the cross-claim.

Catchwords:

CORPORATIONS – shares – where plaintiff and third party agreed to carry on business together through a company – where plaintiff transferred sole share in company to third party – whether third party agreed to hold 50 percent of the share on trust for plaintiff – where third party transferred share to second defendant – whether second defendant received share with notice of the trust

 

CORPORATIONS – shares – whether second defendant agreed to transfer 50 percent of the share in the company to plaintiff – whether agreement unenforceable for want of writing – Conveyancing Act 1919 (NSW), s 23C(1)(c) – whether part performance of the agreement

 

CORPORATIONS – directors and officers – directors’ duties – where plaintiff summarily dismissed as managing director – whether dismissal justified – whether plaintiff breached fiduciary and analogous Corporations Act 2001 (Cth) duties owed to first defendant

  TORTS – detinue – damages – where plaintiff wrongfully detained motor vehicle – whether plaintiff liable for consequential damages for loss of use of vehicle – whether owner of vehicle suffered any actual loss

Legislation Cited:

Commercial Agents and Private Inquiry Agents Act 2004 (NSW), s 7
Conveyancing Act 1919 (NSW), s 23C
Corporations Act 2001 (Cth), ss 169, 180, 181, 182, 183, 191, 233, 234, 254H, 1072H, 1305(1), 1317H
Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Adamson v Hayes (1973) 130 CLR 276; [1973] HCA 6
Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57
Allco Securities Pty Ltd [2011] NSWSC 1250
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23
Anthanasopoulos v Moseley (2001) 52 NSWLR 262; [2001] NSWCA 266
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864
Breen v Williams (1996) 186 CLR 71; [1996] HCA 57
Brennan v Pitt, Son & Badgery Ltd (1899) 20 LR (NSW) (Eq) 179
Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342
Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185; [1966] HCA 38
Chep v Bunnings [2010] NSWSC 301
Chew v The Queen (1992) 173 CLR 626; [1992] HCA 18
Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78
Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd [1993] Aust Torts Reports 81-244
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175
Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85
Grey v Inland Revenue Commissioners [1960] AC 1
Hamilton v Royse (1804) 2 Sch & Lef 315
Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21
In Re Montagu’s Settlement Trusts [1987] 2 WLR 1192
John F Goulding Pty Ltd v The Victorian Railways Commissioners (1932) 48 CLR 157; [1932] HCA 37
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Khoury v Khouri (2006) NSWLR 241; [2006] NSWCA 184
Lahoud v Lahoud [2009] NSWSC 623
Laws v London Chronical (Indicator Newspapers) Ltd [1959] 2 All ER 285
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
North v Television Corporation Ltd (1976) 11 ALR 599
Oughtred v Inland Revenue Commissioners [1960] AC 206
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31
PT Ltd v Maradona Pty Ltd [No 2] (1992) 27 NSWLR 241
RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123
Re Application of Sutherland [2014] NSWSC 821
Regent v Millett (1976) 133 CLR 679; [1976] HCA 40
Rosenthal v Alderton & Sons Ltd [1946] KB 374
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Strand Electric & Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246
The Queen v Byrnes (1995) 183 CLR 501; [1995] HCA 1
Vandervell v Inland Revenue Commissioners [1967] 2 AC 291
Vlahos Pty Ltd v Vlahos [2017] VSCA 166
Wade Sawmill Pty Ltd v Colenden Pty Ltd (t/a Pilks Pine) [2007] QCA 455
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Wong v Maroubra Automotive Refinishers Pty Ltd; Ayres v Maroubra Automotive Refinishers Pty Ltd [2015] NSWSC 222
Woolworths Ltd v Kelly (1991) 22 NSWLR 189
Wyllie v Pollen (1863) 3 De G J & Sm 596; 46 ER 767

Texts Cited:

J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths)
J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Andrew Fulton Rofe (Plaintiff)
NL Mercantile Group Pty Ltd (First Defendant)
Emerald Superannuation and Insurance Pty Ltd (Second Defendant)

Representation:

Counsel:
Mr D Allen (Plaintiff)
Mr M Klooster (Defendants)

  Solicitors:
Tomaras Lawyers (Applicant)
Zander Dre Lawyers (Defendants)

File Number(s):

2017/59866

Judgment

1. GLEESON J: Up until December 2014 the plaintiff, Mr Andrew Rofe, was the sole shareholder, director and secretary of the first defendant, NL Mercantile Group Pty Ltd (Mercantile). In late 2014, Mr Rofe and Mr Stephen Payne agreed to carry on a debt collecting business together, with Mr Payne as the holder of the relevant operator licence and Mr Rofe as the operations manager. On 3 December 2014, Mr Rofe resigned as a director and secretary of Mercantile and appointed Mr Payne as director and secretary in his place. Mr Rofe also transferred the one issued share in Mercantile to Mr Payne.

2. Mr Rofe contends that he entered into an agreement with Mr Payne in about December 2014 that Mr Payne would hold 50 percent of the one share in Mercantile on trust for Mr Rofe. Mr Rofe further contends that Mr Payne signed a document styled “Undisclosed Shareholders’ Agreement” dated 4 November 2015 recording the terms of the trust between Mr Payne and himself.

3. On 15 March 2016 Mr Payne resigned as a director and secretary of Mercantile at the request of Mr Rofe and transferred the one share in Mercantile to the second defendant, Emerald Superannuation and Insurance Pty Ltd (Emerald) pursuant to a Share Sale Deed dated 15 March 2016 (the Share Sale Deed). Mr Rofe was appointed a director of Mercantile on 15 March 2016. It is common ground that from this date Mr Rofe was the managing director of Mercantile and had full and unfettered control of the business.

4. Mr Rofe contends that Emerald received the one share in Mercantile with notice of the trust on which Mr Payne held that share, and in addition, that he entered into an oral agreement with Emerald in March 2016 that Emerald would cause Mercantile to issue Mr Rofe with shares to enable him to hold a 50 percent interest in Mercantile. Emerald disputes that it received the transfer of the one share from Mr Payne with notice of the trust asserted by Mr Rofe. Mercantile and Emerald also dispute the existence and terms of the agreement asserted by Mr Rofe. Alternatively, they say that any agreement involves a disposition of an equitable interest in personalty and is unenforceable for want of writing. Mr Rofe relies upon part performance of the agreement to overcome the absence of writing.

5. On 21 October 2016, Mr Rofe was summarily dismissed by Mercantile and also resigned as a director of Mercantile.

6. Mr Rofe claims that he is the beneficial owner as to 50 percent of the one share in Mercantile now held by Emerald. He also claims damages for alleged wrongful dismissal on 21 October 2016. Mr Rofe did not press his claim of relief against Mercantile by way of oppression under s 233 of the Corporations Act 2001 (Cth). He lacked standing as a shareholder under Corporations Act, s 234.

7. By its cross-claim, Mercantile claims damages or equitable compensation against Mr Rofe for alleged breach of his fiduciary and analogous statutory duties as a director or officer of Mercantile and also claims damages for conversion or in detinue in respect of Mr Rofe’s failure to return a Range Rover Sport motor vehicle.

Issues in dispute

8. At the conclusion of final submissions the following issues require determination:

1. Whether Mr Payne agreed with Mr Rofe in about December 2014 to hold 50 percent of the one share in Mercantile on trust for Mr Rofe?

2. If so, whether Emerald received the transfer of the one share in Mercantile from Mr Payne on 15 March 2016 with notice of the trust in favour of Mr Rofe?

3. Whether there was an oral agreement between Emerald and Mr Rofe in March 2016 that Emerald would cause Mercantile to issue shares to Mr Rofe to enable him to hold a 50 percent interest in Mercantile? If so, was that agreement required to be in writing by s 23C(1)(c) of the Conveyancing Act 1919 (NSW), and can Mr Rofe rely upon part performance of the agreement to overcome the absence of writing?

4. Whether Mercantile’s summary dismissal of Mr Rofe on 21 October 2016 was justified? If not, what damages are payable to Mr Rofe in lieu of reasonable notice of dismissal?

5. Is Mr Rofe liable to pay damages or compensation to Mercantile in respect of monies applied for his own benefit in breach of his fiduciary and analogous statutory duties?

6. Is Mr Rofe liable to Mercantile for damages for conversion or in detinue for failure to return the Range Rover Sport motor vehicle?

The witnesses

9. Before turning to the evidence it is of assistance to identify the witnesses called by the parties. Mr Rofe’s case relied upon affidavit evidence from himself and Mr Mick Hakim, an employee of Crystal.com Pty Ltd (Crystal). They were both cross-examined.

10. Mercantile and Emerald relied upon affidavit evidence from Mr Massimiliano Bardella, a director of Emerald, Ms Sarina Karam, a director of Mercantile from 20 July 2016, Mr Ryan Cutler, an associate of Mr Bardella, and Mr Payne, all of whom were cross-examined. Mercantile and Emerald also relied upon a number of documents that were tendered in evidence.

11. As will appear, there are some significant conflicts in parts of the evidence. The parties made submissions concerning the credit of the principal witnesses. Generally, I have approached the conflicting and competing witness testimony on the basis that the contemporaneous documents provide a more accurate indication of what occurred than the recollection of witnesses of events occurring some years earlier.

Issue 1: Did Mr Payne hold the one share on trust?

12. Mr Rofe commenced working in the debt collection industry in about 2003. He was convicted on 30 June 2006 of two drug possession offences in the District Court at Sydney and sentenced to nine months imprisonment. Upon his release, he resumed working in the debt collection industry.

13. In September 2005, Mr Rofe set up and operated a debt collection business through a company called AFR Communications Pty Ltd. On 3 July 2014 Mr Rofe changed the name of AFR Communications Pty Ltd to NL Mercantile Group Pty Ltd. From 2012 to 2014, Mr Rofe also set up and operated a debt collection business through a company called New Legal Pty Ltd (New Legal).

14. On 12 May 2014, Mr Rofe had applied for an operator licence under the Commercial Agents and Private Inquiry Agents Act 2004 (NSW) (CAPI Act). In answer to the question “Have you ever been to court in the last 10 years in New South Wales or elsewhere and been convicted of an offence for example monetary penalty, good behaviour bond, community service order etc”, Mr Rofe ticked a box with the answer “No”. That answer was incorrect. In cross-examination, Mr Rofe said that at the time of giving that answer, he thought that his conviction was more than 10 years earlier. That explanation is difficult to accept.

15. On 16 October 2014 the New South Wales Police Force issued a notification of refusal for the grant of a CAPI master licence to Mr Rofe under s 7 of the CAPI Act. It is common ground that in about October 2014, Mr Rofe approached Mr Payne and they discussed collecting debts together. There is a dispute between them as to what was said and agreed between them concerning Mercantile.

16. Mr Rofe deposed (affidavit, 19/3/18, par 4) that he had a conversation with Mr Payne in late 2014 in which he said, “Stephen, I need you to become 100 percent shareholder of the company so that we can obtain master commercial agent licence”, and that Mr Payne replied “Okay that’s fine”. According to Mr Rofe, the conversation continued and he said to Mr Payne, “For doing this, I will split the company with you 50/50. I will be paid the same as you, $1,500 per week and this will increase as the company grows. I will be the operations manager and you can be the managing director”, to which Mr Payne replied “I’m happy with that”. Mr Rofe also deposed that he told Mr Payne that he would get a contract drawn up. However no contract was prepared at that time. As will appear, that occurred later in 2015.

17. In cross-examination, Mr Rofe adhered to his affidavit evidence concerning his conversation with Mr Payne in late 2014 before transferring the sole share in Mercantile to Mr Payne.

18. Mr Payne gave evidence that he first met Mr Rofe about 10 years ago when they were working for the same company; Mr Rofe was in sales and Mr Payne was in collections. In 2014 they were both working for or associated with Quickfund (Australia) Pty Ltd (Quickfund), a debt collecting company associated with Mr Hakim. Mr Payne said there had been discussions in Quickfund about the establishment of a separate mercantile agency and this led to the establishment of Mercantile.

19. Mr Payne said that Mr Rofe told him he had a company which had not traded for several years and had no assets, and to save on incorporation costs it was decided to transfer the share to Mr Payne, appoint him sole director and change the company name. He said that it was Mr Rofe who recommended the share transfer take place and informed him that it would be quick and easy to use the company, so he agreed. He said that there was never any suggestion that Mr Rofe would retain a share or directorship and he did not pay any money for the share. He said that he found out after the event that Mr Rofe could not obtain a licence although he was unaware of the exact reason why and that he subsequently applied for the licence for Mercantile and it was granted. Mr Payne said that there was never any discussion about a trust arrangement with Mr Rofe. He gave as the reason that the company had no value. He said that he later became aware of Mr Rofe’s criminal conviction.

20. As indicated, on 3 December 2014 Mr Rofe resigned as a director and secretary of Mercantile and appointed Mr Payne, as director and secretary of Mercantile, in his place. Mr Rofe described Mr Payne as a business partner.

21. The register of members of Mercantile records the entry of Mr Payne on 3 December 2004 as the holder of one share non-beneficially. On 4 December 2014 Mr Payne signed a Form 484 (Change to company details), which was lodged with ASIC, recording the changes in directors and shareholders and that the share held by Mr Payne was held non-beneficially.

22. Mr Payne accepted in cross-examination that he discussed with Mr Rofe in late 2014 collecting debts together (T125 (13-31)). When asked to recall the exact words of his discussion with Mr Rofe, Mr Payne answered, “Can’t recall” (T124 (24-28)). He denied Mr Rofe’s version of the conversation when it was put to him (T125 (46-48)). He accepted that he believed in December 2014 that Mr Rofe was not eligible to hold a mercantile licence because he had a criminal record and that he did not want it to appear that Mr Rofe was involved in the management of Mercantile because Mr Rofe was a convicted criminal (T124 (50)-125 (5), 126 (4-7)). He also accepted that he signed the Form 484 on 4 December 2014, but asserted that he did not prepare the document and he never read it.

23. Mr Rofe deposed (affidavit, 19/3/18, par 5) that in late 2015 he prepared a document styled “Undisclosed Shareholders’ Agreement”, setting out the terms of his arrangement with Mr Payne. The first version of the shareholders’ agreement recorded that the shareholdings in Mercantile were held by Mr Rofe, 49 percent, and Mr Payne, 51 percent. Mr Rofe accepted that the first version of the document was not signed by either party.

24. A second version of the shareholders’ agreement was prepared by Mr Rofe and is dated 4 November 2015. It recorded the shareholdings of Mercantile as “Mr Rofe as to 50 percent” and “Mr Payne as to 50 percent”, and was signed by both Mr Rofe and Mr Payne, but not before any witness. The named parties to the agreement included Mercantile, New Legal and Biz Freedom Group, but the document was not executed by any of those parties.

25. Mr Rofe proffered in cross-examination that there was a third version of the shareholders’ agreement which was signed by both Mr Payne and himself. He said that he did not have a copy of that signed agreement, but it was kept in Mr Rofe’s office at Mercantile (T20 (34-36)). Mr Rofe had not referred to this third version of the document in his affidavit. It seems unlikely that his evidence in this regard is correct.

26. Mr Payne deposed (affidavit, 30/5/18, par 11) that in or around late October, early November 2015, Mr Rofe presented him with a document that he wanted him to sign and that he refused. Mr Payne said that he told Mr Rofe he was not signing the document because there had never been any agreement for Mr Rofe to have half of the business.

27. By contrast, in cross-examination Mr Payne was somewhat vague about what occurred when he was presented with the shareholders’ agreement in late 2015. He could not recall what Mr Rofe said to him about the document or what he said to Mr Rofe about the document (T132 (30-31) and (48-50)). He denied that Mr Rofe gave him another version of the document (T133 (2-9)). When taken to the second version of the shareholders’ agreement dated 4 November 2015, Mr Payne initially gave evidence that he had not seen the document before, but later accepted that the signature on page 18 of that document appeared to be his signature, while the handwriting underneath was not his (T133 (50)). Mr Payne was not re-examined as to the circumstances in which he signed the second version of the shareholders’ agreement.

12. It is necessary to refer to another matter which was relied upon by Mr Rofe in submissions as providing context for the preparation of the shareholders’ agreement in late 2015.

13. There is evidence in the form of emails referring to discussions between Mr Hakim and Mr Rofe in January 2016 in relation to Mr Hakim acquiring 20 percent of Mr Rofe’s 50 percent interest in Mercantile. It may be inferred from the terms of those emails that those discussions had commenced at least in about late 2015.

14. In cross-examination, Mr Payne was taken to emails dated 8 January 2016 addressed to him at a hotmail.com address referring to these discussions. Mr Payne denied receiving those emails and asserted that he only ever had two email addresses, an NL Mercantile and a gmail address. Mr Payne also denied engaging in negotiations in January 2016 with Mr Rofe and Mr Hakim (T137 (26-34)). The evidence, scant as it is, is insufficient to reject Mr Payne’s denial that he did not have a hotmail email address.

15. However, Mr Payne’s evidence on this topic was otherwise unsatisfactory. While he accepted in cross-examination that in January 2016 he had heard of Crystal from Mr Rofe and Mr Hakim, his response that he could not recall whether he was aware that Mr Rofe and Mr Hakim were in discussions in relation to a future business dealing in January 2016 was unimpressive (T138 (35-37)). It seemed to me that Mr Payne was attempting to distance himself from the discussions between Mr Rofe and Mr Hakim, given that those discussions provided part of the contextual background in which Mr Rofe sought to document the equal interests of Mr Rofe and Mr Payne in the shares in Mercantile.

16. Reference should also be made at this point to a related transaction in January 2016 involving Mercantile, Mr Hakim and Crystal. Mr Hakim deposed (affidavit, 16/10/17, par 4) that he entered into a consultancy agreement with Mercantile on 21 January 2016 to work as operations manager to oversee the day-to-day running of the business. The agreement between Mr Hakim, Crystal and Mercantile dated 21 January 2016 provided that the Consultant, which term was defined to include Mr Hakim and Crystal, would report to Mr Rofe and Mr Payne (cl 2), would devote the whole of the Consultant’s time, attention and skill during normal hours, and at other times as reasonably necessary, to the duties of the Consultant’s office, and would perform the duties, directed by Mr Rofe (cl 5.1). The Consultant was entitled to remuneration of $5,500 net per month and reimbursement of out-of-pocket expenses (cls 6.1 and 6.2).

17. Mr Payne deposed (affidavit, 30/5/18, par 12) that he was unaware of the consulting agreement with Mr Hakim and Crystal. He accepted that his signature appeared to be on the document, while asserting that he was unaware how it was placed there. Mr Payne denied that Mercantile ever engaged Crystal to perform work for it and also denied having seen the consultancy agreement when the document was presented to him in cross-examination (T134 (20-24), (45-49)).

18. Given that Mr Payne acknowledged that his signature appeared to be on the consulting agreement and there is other evidence connecting Mr Payne to the consulting agreement, I do not accept his evidence on this topic. Emails dated 3 February 2016, which were copied to Mr Payne at his email address at Mercantile ([email protected]), referred to the “original agreement between NL Mercantile and Crystal.com dated 21 January 2016” (Ex 1). I do not accept Mr Payne’s evidence that he was unaware of the consulting agreement between Mercantile and Mr Hakim and Crystal.

19. Mr Payne also deposed (affidavit, 30/5/18, par 25) that so far as he was aware Mr Hakim was operating his own business on the basement floor of the Artarmon offices of Mercantile. I reject that evidence. It is inconsistent with Mr Hakim’s evidence given in cross-examination (which I accept), and also inconsistent with the evidence of Ms Karam concerning Mr Hakim’s role as operations manager of Mercantile.

Decision

36. A company is required to maintain a register of members: Corporations Act, s 169(1). For companies with share capital, other than listed companies, the register of members must indicate any shares that a member does not hold beneficially: s 169(5A). When deciding whether a member holds shares beneficially, the company is to have regard only to information given, relevantly, under s 1072H of the Corporations Act which provides for notification to the company that shares are held non-beneficially, when that is the case.

37. A book kept by a body corporate under a requirement of the Corporations Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book: Corporations Act, s 1305(1). Accordingly, the prima facie position is that Mr Payne held the one share in Mercantile non-beneficially.

38. Support for that prima facie position is found in the Form 484 signed by Mr Payne on 4 December 2014. While Mr Payne denied that he agreed with Mr Rofe to hold 50 percent of the one share in Mercantile on trust for Mr Rofe, it is telling that Mr Payne did not say in his evidence that either the Form 484 that he signed, or the register of members, were incorrect in recording that the one share in Mercantile was held by him non-beneficially.

39. As mentioned, Mr Payne asserted that the one share in Mercantile had no value and relied on this as the justification for there being no discussion of a share arrangement with Mr Rofe in late 2014. I do not find that explanation compelling. Mr Payne accepted in cross-examination that he discussed with Mr Rofe collecting debts together, that they agreed to use Mercantile for this purpose and that he did not want to publicly identify Mr Rofe’s involvement in the business, given his past criminal record.

40. Plainly, Mr Payne and Mr Rofe each intended that Mercantile would develop as a successful business. It is most unlikely that Mr Rofe would give up entirely his ownership interest in Mercantile when agreeing to go into business with Mr Payne in December 2014, as Mr Payne suggested that he did. The better explanation for the transfer of Mr Rofe’s one share in Mercantile to Mr Payne is that they both wanted to avoid publicly identifying Mr Rofe’s involvement in the management of the business given his past criminal record.

41. I accept that Mr Rofe was generally attempting to relay his best recollection of events, albeit parts of his evidence were argumentative and on occasions his responses were flippant. In part that seemed to be attributable to Mr Rofe’s hostility to some of the cross-examination directed to his credit, particularly his prior criminal record for drug possession offences in 2006, and the suggestion in cross-examination that Mr Rofe was not diligent in performing his role at Mercantile. Nonetheless, I accept the evidence of Mr Rofe where it conflicts with Mr Payne’s evidence concerning Mr Payne holding one share in Mercantile on trust as to 50 percent for Mr Rofe.

42. The terms of the shareholders’ agreement dated 4 November 2015 signed by Mr Payne and Mr Rofe, are consistent with there being a trust arrangement between Mr Payne and Mr Rofe in relation to the one share in Mercantile transferred to Mr Payne in December 2014. I find that, at about the time this document was created in November 2015, Mr Rofe was discussing with Mr Hakim that he or his company would provide capital to Mercantile by acquiring 20 percent of Mr Rofe’s 50 percent interest in Mercantile. That was part of the context in which Mr Rofe requested Mr Payne to sign the shareholders’ agreement reflecting their equal shareholding in Mercantile. Although Mr Payne denied sending or receiving the emails in Ex P1 dated 8 January 2016 and also denied that he had a hotmail email address (T136), the emails between Mr Rofe and Mr Hakim in Ex P1 support such an inference as to the context in which Mr Rofe prepared the shareholders’ agreement for signing by Mr Payne.

43. Mr Payne’s evidence concerning the circumstances in which he signed the shareholders’ agreement was unimpressive. His affidavit evidence denying that he signed an agreement around 4 November 2015 or at any time was shown to be incorrect. I find that he was presented with two versions of the shareholders’ agreement. He did not sign the first version. His lack of recollection of any conversation with Mr Rofe in relation to the second version is difficult to accept.

44. Given that Mr Payne identified the signature on the second version of the agreement as his, and there is no allegation by Mercantile and Emerald of a forgery (on which they would have the onus of proof: Re Application of Sutherland [2014] NSWSC 821 at [65]), I find that Mr Payne signed the shareholders’ agreement dated 4 November 2015. That Mr Payne signed the shareholders’ agreement is inconsistent with his contention that he was the sole owner of the one share in Mercantile.

45. I find that Mr Payne held the one share in Mercantile as to 50 percent on trust for Mr Rofe. Counsel for Mr Rofe submitted that the trust is a bare trust, since the terms of the trust are not expressly stated, except that Mr Payne was holding the 50 percent interest for Mr Rofe and there was no prohibition on Mr Rofe to make a call for the share. Counsel for Mercantile and Emerald did not put any submission to the contrary.

46. While it is often said that a bare trustee has no “active duties” to perform, that is an oversimplification of the position: Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 398; J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [3-15]. As a bare trustee, Emerald continued to hold the one share in Mercantile as to 50 percent on trust for Mr Rofe and had an obligation to safeguard the trust property.

47. In closing submissions, Mr Rofe sought the following relief, which differed in terms from that set out in the statement of claim:

1. the Court declares that Emerald holds 50 percent of the share in Mercantile on trust for Mr Rofe;

2. an order that Emerald pass a member’s resolution splitting the share in Mercantile into two shares in accordance with s 254H of the Corporations Act;

3. an order that upon the said resolution being passed, Mercantile is to record in its register of members that Mr Rofe holds one of the two issued shares in Mercantile.

48. While it might be argued that any relief should be limited to the grant of a declaration, Emerald (and Mercantile) did not oppose the terms of the relief sought by Mr Rofe in the event that Mr Rofe succeeded on the notice point, being Issue 2 to which I now turn.

Issue 2: Whether Emerald received the share in Mercantile with notice of the trust?

49. In April 2015, Mr Rofe discussed with Mr Bardella the possibility of his company, Emerald, investing in the business conducted by Mercantile by financing the purchase of book debts for Mercantile to collect. Mr Bardella, who was an accountant, deposed that he obtained an ASIC search of Mercantile in April 2015. In cross-examination, Mr Bardella was shown a copy of an ASIC search of Mercantile obtained in February 2017, which recorded that Mr Payne was the sole director and held the one share in Mercantile non-beneficially. Mr Bardella gave evidence that he did not recall seeing the words “Beneficially Owned No” in April 2015. His evidence continued:

But when I did, I did ask the question why Steve – why Andrew was not there. I definitely asked that question as part of my due diligence but we weren’t buying the company when I first met Andrew. We were buying a debt book. (T108 (46-49))

There is no reason why either Mr Payne or Mr Rofe would not have given a truthful answer to the “question” asked of them by Mr Bardella, which may be taken to be why Mr Rofe was not shown as a director or shareholder of Mercantile.

50. Mr Bardella also gave the following evidence:

Q: And you understood that he [Mr Rofe] had some equitable interest in the business of the company?

A: Not once, but I did assume he was very heavily involved. I assumed I was working with the business owner, yes, that brought me that deal. (T110 (21-24))

51. While the answer “Yes”, is somewhat equivocal, Mr Bardella’s evidence continued:

Q. Was it your understanding though, between April 2015 to 24 June 2015, as Mr Rofe had an interest in the business, he also had an interest in the shareholding of NL Mercantile?

A. Like I said, I - when it - when he brought the deal to me, I assumed he was an owner, had full authority to bring it to me. Yes.

Q. And did your assumption ever change in the period of April 2015 to 24 June 2015?

A. No it didn't, because we were taking profits directly from transactions in a loan book, not that of a company by way of dividends. (T110 (33-42))

52. Mr Bardella agreed that he undertook due diligence before Emerald entered into the Share Sale Deed with Mr Payne in March 2016. He said that he did not look at the company register, but did his own searches. I accept that evidence. While Mr Bardella did not say what those searches were, given his practice in April 2015, it is likely that he obtained another company search of Mercantile in March 2016, as he had done in April 2015. Even if Mr Bardella did not obtain a second ASIC search in about March 2016, his evidence in cross-examination set out above is consistent with him being aware in March 2016 that Mr Rofe was an owner of Mercantile.

53. There was some conflicting evidence as to who suggested the removal of Mr Payne from Mercantile. Ultimately, little turns on this. It is common ground that there was a meeting at a restaurant known as The Vinery in Annandale in February 2016 at which Mr Rofe and Mr Bardella, among others, discussed that topic. Mr Rofe gave evidence that on the day of the meeting he had a brief telephone conversation with Mr Cutler in relation to the removal of Mr Payne, which he then reported to Mr Bardella and Mr Wade Lamont at the meeting at The Vinery. Mr Cutler deposed (affidavit, 6/11/17, par 5) that Mr Rofe wanted Mr Payne gone. According to Mr Rofe, it was Mr Cutler who said that he wanted Mr Payne gone. While I prefer Mr Rofe’s evidence on this topic, I accept that Mr Rofe also wanted Mr Payne to be removed.

54. Mr Rofe gave evidence that he reported Mr Cutler’s view to Mr Bardella and Mr Lamont, and that Mr Bardella responded with words to the effect “Andrew, I am guided by you. Who is going to become the director?”, to which Mr Rofe responded that Mr Payne was just upsetting clients and did not know how to engage with the staff and was causing a lot of problems, he ruled with an iron fist and it was just not working and that he, Mr Rofe, was happy to be a director. Mr Rofe said that Mr Bardella responded, “We have always backed you 100 percent. The decision is yours and you need to take care of it. What do you want me to do next?”. According to Mr Rofe, he responded that he could negotiate with Mr Payne to buy him out and he thought he would accept between $150,000 and $200,000.

55. Mr Bardella deposed (affidavit, 18/9/17, par 34) that in about mid-February 2016 following a telephone call from Mr Rofe, they met at The Vinery in Annandale, and Mr Lamont attended halfway through the meeting. Mr Bardella deposed to the following conversation:

Mr Rofe:   “Stephen’s got to go.”

Mr Bardella:   “Are you kidding, you’re the one who told me he had to be a director. Why does he have to go?”

Mr Rofe:   “He is not the right person for the business, we have to get rid of him. He is upsetting clients and he doesn’t know how to work with staff.”

Mr Bardella:   “Andrew, I’m guided by you. You know him better than me. Are you sure you want to get rid of Stephen Payne? Who’s going to be a director?”

Mr Rofe:   “I can be a director.”

Mr Bardella:   “The decision ultimately rests with you. You’re actively involved in the business. If that’s the best thing for the business and you’re certain, I’ll back you Andrew.”

Mr Rofe:   “He needs to go.”

Mr Bardella:   “Why are you raising this with me now? Have you spoken to Stephen? Does he know?”

Mr Rofe:   “I’ve dropped some hints and I know that all he wants to do is pay off his mortgage.”

Mr Bardella:   “What do you want to do?”

Mr Rofe:   “You take the entire company. You get 100% of everything. I can negotiate that with Steve. I think he will accept between $150,000.00 and $200,000.00 as he owes $150,000.00 on his mortgage.”

Mr Bardella:   “Are you okay to have this conversation with Stephen?”

Mr Rofe:   “Yes.”

Mr Bardella:   “See how you go.” (Emphasis added)

56. In cross-examination, Mr Bardella did not adhere to his affidavit evidence attributing to Mr Rofe the words “You take the entire company. You get 100 percent of everything”. Rather, Mr Bardella gave the following oral evidence:

Q: At that meeting, Mr Rofe said to you, did he not, “Mr Payne has to go and he owns 50% of his share on trust for me”.

A: No. He said “Mr Payne has to go”.

Q: Did he say anything else about the shareholding at that meeting?

A: Not a word about shareholding, no.

Q: Did he say anything about who would own the business after Mr Payne’s departure?

A: No, he didn’t.

Q: Did he say anything about who would own NL Mercantile?

A: No.

Q: Did he say anything about who would own the business operated by NL Mercantile?

A: No, he didn’t.

(T111 (42)-112 (8))

57. Mr Bardella further deposed (par 35) that he was speaking to Mr Rofe on a daily basis around February 2016 and during one of those conversations he said to Mr Rofe, “Andrew, you’re in, Stephen’s out”, to which Mr Rofe replied that he could be a director, but he could not go on the Mercantile licence so Mr Payne was going to have to stay on and they would need to pay him $1,000 per week until Mr Rofe could go on the licence. Mr Rofe said that could take as long as 12 months. Mr Bardella said he agreed. Mr Bardella gave instructions shortly after 24 February 2016 to his solicitors, Zander Dre Lawyers, to prepare the document to have Mr Payne leave Mercantile. That document was the Share Sale Deed.

58. Mr Bardella also deposed (par 38) that he went through the draft deed with Mr Rofe on 26 February 2016 and discussed the entire deed, including warranties and various changes. He said that at no point did Mr Rofe inform him that Mr Payne held his share on trust for the benefit of Mr Rofe, or that Mr Rofe expected additional shares in Mercantile to be issued to him at some point in the foreseeable future or that the purchase price Emerald was paying was for anything other than 100 percent of the issued shares in Mercantile.

59. Mr Rofe deposed (affidavit, 16/10/17, par 18) that when discussing the draft Share Sale Deed he had a conversation with Mr Bardella to the following effect:

Mr Rofe: “Don’t forget, Stephen holds 50 percent of the shares on trust for me, and we need to sort out the shares, so that it is correct.”

Mr Bardella said: “I told you it’s fine, I will get the paperwork done and we will sign it up.”

60. Mr Bardella denied having a conversation in these terms with Mr Rofe (affidavit, 30/10/17, par 15).

61. Mr Rofe also gave the following evidence (affidavit, 19/3/18, pars 10 and 12) concerning his conversation with Mr Bardella on or about 15 March 2016:

Mr Bardella: “It is agreed we get rid of Payne and that Emerald will become the shareholder of NL Mercantile. You will be the sole director.”

Mr Rofe: “Don’t forget that Payne holds my 50% shares on trust for me, I am not giving up that interest.”

Mr Bardella said: “Emerald once it has the shares, it will transfer to you 50% of the shares.”

…

After this conversation I, at times I do not recall, but before 15 March 2016, the day the Share Sale Deed between Payne and NL Mercantile was executed, I had a conversation with Max Bardella to the effect:

Mr Rofe: “Don’t forget, Stephen holds 50% of the shares on trust for me and we need to sort to the shares, so that it is correct.”

Mr Bardella said: “I told you its fine, I will get the paperwork done and we will sign it up.”

62. Mr Rofe deposed (affidavit, 23/02/17, par 40), that after March 2016 he requested confirmation from Mr Bardella that he had been allocated his 50 percent shareholding in Mercantile. He also deposed (par 41) to a conversation with Mr Bardella in which he asked, “What is happening with my shares? Have you transferred the shares in my name?”, to which Mr Bardella replied, “Yeah, yeah mate. I will do it. I told you I will do it and I will take care of it”. Mr Rofe said he responded, “I’m the managing director of the company now and I want to make sure my 50 percent shareholding is in place”.

63. Mr Bardella denied that Mr Rofe requested confirmation that he had been allocated a 50 percent shareholding in Mercantile. Mr Bardella also denied having a subsequent conversation with Mr Rofe in which he said he would take care of the issue of shares to Mr Rofe (affidavit, 18/9/17, pars 46-47).

64. Mr Rofe deposed (affidavit, 16/10/17, par 23) that in about May 2016 he had a meeting with Mr Bardella about Mercantile’s cashflow, during which the following conversation occurred:

Mr Rofe:   “What’s happening with my shares? I know you have fixed the ASIC register to put me in as a director. Have you updated the shares?”

Mr Bardella:   “Yeah mate, we’re just working on it now, it will be done soon.”

Mr Rofe:   “I just want to make sure everything is in order and done properly.”

65. Mr Bardella denied that this meeting took place (affidavit, 30/10/17, par 19).

66. Mr Rofe also deposed (affidavit, 16/10/17, pars 24 - 25) that he continuously followed-up Mr Bardella in relation to the shares and sought confirmation whether they had been allocated at the end of most of his weekly meetings with Mr Bardella to which Mr Bardella responded that it was being worked on and he should not worry. Mr Bardella denied having weekly meetings with Mr Rofe and also denied that Mr Rofe made enquiries of him about the allocation of any shares to him at any time (affidavit, 30/10/17, par 20; T119 (8-11)).

67. Mr Rofe deposed (affidavit, 16/10/17, par 22) that in about late July / August 2016 he had a meeting with Mr Bardella and Mr Cutler at North Sydney, at which Mr Hakim was also present, and the following conversation occurred:

Mr Rofe:   “I need confirmation that I have been allocated my 50% shareholdings in the companies.”

Mr Bardella:   “It’s all been taken care of. You just keep going and doing what you do to keep this business heading in the right direction.”

Mr Rofe:   “No worries, I trust you. At some stage we need to get all this finalised.”

Mr Cutler:   “Andrew, this is your baby it always has been. We are guided by you.”

68. Mr Hakim deposed (affidavit, 16/10/17, par 13) that he attended the meeting at North Sydney with Mr Rofe, Mr Bardella and Mr Cutler and that the conversation was to the following effect:

Mr Rofe:   “What’s happening with my shares have they been allocated yet? I need the 50% shareholdings put in my name for peace of mind.”

Mr Bardella:   “No worries mate, leave it with me. It’s being done.”

Mr Cutler:   “Andrew this is your business. We are guided by you.”

Mr Rofe:   “Don’t worry mate, we will always be riding in the right direction.”

69. Mr Hakim’s account is consistent with the answers he gave in cross-examination (T151 (19-46)).

70. Mr Bardella agreed that he met Mr Rofe and Mr Hakim, together with Mr Cutler, at the office of DBW Group at North Sydney in about late July/August 2016. He said that the conversation of the meeting concerned Mr Rofe attempting to convince him to purchase more debts for Mercantile, but Emerald refused. Mr Bardella denied that Mr Rofe discussed Mr Payne holding shares on trust for him at this meeting or at any time (affidavit, 30/10/17, par 18). In cross-examination, Mr Bardella denied Mr Rofe’s version of the conversation (T121 (23-37)).

71. Mr Cutler gave a similar account of this conversation in his affidavit as was given by Mr Bardella. He deposed (affidavit, 6/11/17, par 9) that the conversation was about purchasing debts. However, in cross-examination (T156 (39)-157 (41)), it was apparent that he had no independent recollection of the terms of the conversation other than to say that the conversation was “mostly” about the debts.

72. Mr Rofe deposed (affidavit, 16/10/17, par 35) that on the day he was summarily dismissed by Mr Bardella on 21 October 2016 he disputed Emerald’s ability to dismiss him given that he owned 50 percent of Mercantile and was the managing director. Mr Rofe said that Mr Bardella responded, “According to ASIC, we are the 100 percent owner. You have stolen money from the business, and we have lost faith in you”. After disputing that claim, Mr Rofe said he asked, “What’s happening with my shares? Where’s my 50 percent shares?”, to which Mr Bardella responded, “Sign this, when you leave here go straight to your lawyer and get the agreements drafted and bring them back and I will sign them”. In cross-examination, Mr Bardella denied Mr Rofe’s version of this conversation (T119 (13-19)).

Did Emerald acquire the share in Mercantile with notice of the trust?

73. The priority dispute between Mr Rofe and Emerald involves competition between the holders of an equitable interest and a later legal estate in the one share in Mercantile.

74. Emerald pleaded in its defence (par 22.8) that at no time was Emerald made aware of any purported trust prior to entering into and performing its obligations under the Share Sale Deed with Mr Payne. While Emerald did not specifically plead a defence of bona fide purchaser of the legal estate for value without notice, no objection was taken by Mr Rofe to this omission in the pleading and the case was conducted on the basis that the only issue was that of “notice”. Mr Rofe did not suggest that there was either an absence of consideration (Emerald having paid $150,000 to Mr Payne) or a lack of bona fides on Emerald’s part.

Onus of proof – bona fide purchaser for value without notice defence

75. The parties approached the matter on the basis that Mr Rofe bore the onus of proof that Emerald had notice of the trust. However, the better view is that the onus of proof of the defence of bona fide purchaser for value without notice lies on the holder of the legal estate: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [8-240]-[8-270] and [8-300]; Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804 at 806. Nonetheless, in view of the conclusion I have come to on the question of notice, the outcome does not depend on who has the onus of proof.

76. Notice for the purpose of the doctrine of bona fide purchaser for value without notice includes actual knowledge, imputed notice and constructive notice.

77. As to actual knowledge, the existence of knowledge is a question of fact, the proof of which, in the absence of an admission by a party, is always a matter of inference: RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123 at 125 (in relation to the meaning of “knowledge” for the purposes of s 103 of the Copyright Act 1968 (Cth)).

78. Knowledge is to be distinguished from “notice” and has a positive connotation of awareness: In Re Montagu’s Settlement Trusts [1987] 2 WLR 1192 at 1199. In inferring knowledge, it is necessary to consider first, the opportunities for knowledge and lack of obstacles to the particular person acquiring the relevant knowledge and second, the credibility of any denial by the person of such knowledge: RCA Corporation at 126.

79. There may be occasions where knowledge is acquired but subsequently forgotten: In Re Montagu’s Settlement Trusts at 1211; Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 32, [22.36] (von Doussa J). A court would closely scrutinise evidence denying any actual knowledge on the basis that the witness had forgotten about the matter: Brennan v Pitt, Son & Badgery Ltd (1899) 20 LR (NSW) (Eq) 179 at 184.

80. There may also be room for contest as to whether a party has knowledge of all facts brought to its attention in past transactions: Hamilton v Royse (1804) 2 Sch & Lef 315; Brennan v Pitt, Son & Badgery Ltd at 184.

81. Imputed notice is notice which an agent either received or should have received had he made proper enquiries, which is imputed to the principal whether the notice is communicated by the agent to his principal or not: Meagher, Gummow and Lehane’s Equity Doctrines and Remedies at [8-265]; Wyllie v Pollen (1863) 3 De G J & Sm 596; 46 ER 767; Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 649.

82. Under the doctrine of constructive notice a person is deemed to have constructive notice of all matters of which the person would have received notice if the person had made the investigations usually made in similar transactions and of which the person would have received notice had the person investigated a relevant fact which had come to that person’s notice and into which a reasonable person ought to have enquired: Meagher, Gummow and Lehane’s Equity Doctrines and Remedies at [8-270].

83. The parties did not direct any submissions to either imputed or constructive notice.

Decision

84. I generally prefer Mr Rofe’s evidence where it conflicts with Mr Bardella’s evidence that in their conversations, both before and after March 2016, Mr Rofe raised the trust arrangement he had with Mr Payne with Mr Bardella, and that Mr Bardella agreed to recognise the trust arrangement and cause Mercantile to issue shares reflecting Mr Rofe’s 50 percent interest in Mercantile. On this topic, and notwithstanding some difficulties with other aspects of his evidence, Mr Rofe impressed me as an honest witness relaying the best of his recollection of these conversations and events.

85. While Mr Bardella, who is an accountant by training, generally gave his evidence in careful and measured tones, there are difficulties with parts of his evidence on the critical topics. When pressed in cross-examination, Mr Bardella protested a little too much, on occasions he avoided giving direct answers and he became an advocate in his own cause as to why he would not have had notice that the one share in Mercantile was held by Mr Payne non-beneficially.

86. I do not accept Mr Bardella’s denial that he did not know in April 2015, or subsequently in March 2016, that Mr Payne was not the beneficial owner of the whole of that one share in Mercantile.

87. Mr Bardella was on notice from the search he had obtained in April 2015 and from having asked the question of Mr Payne and Mr Rofe after obtaining that search, that Mr Payne did not hold the one share beneficially. Mr Bardella was also aware from April 2015 that Mr Rofe was an owner of Mercantile, and it was on that basis that he dealt with Mr Rofe during 2015 when negotiating the terms on which Emerald would fund the acquisition of book debts by Mercantile (for collection by Mercantile).

88. That the information obtained by Mr Bardella in April 2015 was in the context of a different transaction to the share acquisition transaction in March 2016, does not assist Emerald given Mr Bardella’s evidence that his understanding that he was dealing with Mr Rofe as an owner of Mercantile never changed after April 2015.

89. Nor did Mr Bardella give evidence that he had forgotten in March 2016 the information he had earlier obtained from the earlier ASIC search in April 2015 and the responses of Mr Payne and Mr Rofe to the question. Accordingly, no issue arises as to forgotten or lost knowledge.

90. Emerald argued that it was entitled to rely upon the warranties given by Mr Payne in the Share Sale Deed that Mr Payne was the beneficial owner of the one share in Mercantile and that it was significant that Mr Rofe participated in the negotiations with respect to this agreement and also signed the Share Sale Deed on behalf of Mercantile yet, at no time had Mr Rofe raised in the negotiations that the warranty given by Mr Payne was incorrect. All that may be accepted, but it does not assist Emerald’s position on the question of notice of the trust.

91. Mr Bardella accepted (affidavit, 18/9/17, par 34) that he told Mr Rofe at The Vinery in Annandale in February 2016, when he queried the removal of Mr Payne: “The decision ultimately rests with you”. Mr Bardella was also content to leave it to Mr Rofe to negotiate with Mr Payne the terms of his exit from Mercantile. The nature of the arrangements between Mr Bardella and Mr Rofe to remove Mr Payne and the deference of Mr Bardella to Mr Rofe are consistent with Mr Rofe having an interest in Mercantile as a beneficial owner, which Mr Bardella recognised, and he was prepared to defer to Mr Rofe because Mr Rofe had such an interest.

92. I find that Emerald received the one share in Mercantile with notice of the trust on which Mr Payne held that share as to 50 percent for Mr Rofe. That is, Emerald had actual knowledge that Mr Rofe was a beneficial owner as to 50 percent of the one share in Mercantile.

93. Two further matters should be mentioned for completeness. The first concerns imputed notice although I do not base my decision on this form of notice, given that the parties did not direct submissions on this issue. Mr Bardella’s solicitor, Mr Aktuna Oguz, was on notice of the need to obtain a company search of Mercantile in March 2016, given the terms of his response on 11 March 2016 to par 10 of Mr Rofe’s email to Mr Oguz and Mr Bardella of 10 March 2016 (CB 2/197). The solicitor stated that somebody needs to clarify with a company search the number of shares in Mercantile and that “I can do this if required”. That is a proper enquiry which the solicitor should have made in the circumstances, and Emerald should be taken to have imputed notice of the result of such a search, namely, that Mr Payne held the one share in Mercantile non-beneficially and the result of an enquiry of Mr Payne and Mr Rofe, namely, that Mr Payne held the share as to 50 percent on trust for Mr Rofe.

94. The second concerns constructive notice. Again, the parties did not direct any submissions to this issue and I do not base my decision on this form of notice. Nonetheless, it should be observed that the Full Court of the Federal Court remarked obiter in Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 at [110]-[120] (a case involving transfer of company property (bonds) without authority), that any of the five degrees of knowledge referred to by Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 at 235, 242-243, negates the requirement of “without notice”. On any view, Mr Bardella, on behalf of Emerald, had knowledge of circumstances which would indicate the facts to an honest and reasonable man.

ISSUE 3: Whether Emerald agreed with Mr Rofe to issue shares in Mercantile to give him a 50 percent interest?

95. I accept Mr Rofe’s evidence where it conflicts with Mr Bardella’s evidence concerning their discussions in February and March 2016 in relation to Emerald acquiring the one share in Mercantile from Mr Payne. I do not accept Mr Bardella’s affidavit evidence that Mr Rofe said to him at the meeting at The Vinery in Annandale, “You take the entire company. You get 100% of everything”. As indicated, in cross-examination, Mr Bardella did not adhere to this part of his affidavit evidence attributing those words to Mr Rofe.

96. I prefer Mr Rofe’s evidence that he reminded Mr Bardella at the meeting at The Vinery in Annandale in February 2016 that Mr Payne held 50 percent of his share on trust for him and that during their discussions in February and March 2016 concerning the Share Sale Deed, Mr Rofe reminded Mr Bardella that Mr Payne held 50 percent of the shares on trust for him, and that he was not giving up his interest. I also find that Mr Bardella agreed with Mr Rofe that once Emerald obtained the shares in Mercantile it would transfer 50 percent of the shares to Mr Rofe. The reference to “shares” rather than “one share” is consistent with Mr Rofe and Mr Bardella being unsure as to the number of issued shares in Mercantile, at least up until 10 March 2016, as reflected in their emails dated 10 March 2016.

97. Insofar as Mr Rofe relies upon post contract conduct of Mr Bardella on behalf of Emerald, it is necessary to consider whether this is admissible, and for what purposes. It is not legitimate to use as an aid in the construction of a contract anything which the parties said or did after it was made: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [35] (Gummow, Hayne and Kiefel JJ), [163] (Heydon J). However, subsequent communications between the parties are admissible on the question of whether a contract is formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25] (Heydon JA); Lym International Pty Ltd v Marcolongo [2011] NSWCA 303; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149.

98. It has been said that the basis of subsequent communications as admissions is very different. It does not depend on communication between the parties: Sagacious Procurement Pty Ltd v Symbion Health Ltd at [106] (Giles JA, Hodgson and Campbell JJA agreeing). Subsequent communications may be admissible as an admission, being evidence of facts whose assertion is against the interests of one party: Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [121] (Basten JA).

99. However, as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550, “it will often be necessary to identify with some care the fact which is said to have been admitted”. Thus to the extent that the evidence reveals matter of mixed law and fact is involved, or the application of a legal standard, admissibility may be more contentious, and an admission by conduct may bring its own difficulties: Sagacious Procurement Pty Ltd v Symbion Health Ltd at [106].

100. Here, the terms of the conversation between Mr Rofe and Mr Bardella at the meeting in North Sydney in about late July/August 2016 are admissible as an admission by Mr Bardella against Emerald’s interest that he had agreed to issue Mr Rofe shares in Mercantile recognising his 50 percent interest in Mercantile. In this regard, I prefer the evidence of Mr Rofe and Mr Hakim to that of Mr Bardella and Mr Cutler. The other conversations to which Mr Rofe deposed having with Mr Bardella on that topic after March 2016 are also admissible as an admission on the same basis

Is an oral agreement enforceable?

101. Emerald contends that any oral agreement with Mr Rofe is unenforceable as it was required to be in writing by s 23C(1)(c) of the Conveyancing Act which provides:

23C Instruments required to be in writing

(1) Subject to the provisions of this Act with respect to the creation of interests in land by parol:

…

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing.

(2) This section does not affect the creation or operation of resulting, implied, or constructive trusts.

102. There is a preliminary question as to whether the requirement of writing in s 23C(1)(c) applies to the disposition of equitable interests in personalty.

103. In PT Ltd v Maradona Pty Ltd [No 2] (1992) 27 NSWLR 241, after referring to Grey v Inland Revenue Commissioners [1960] AC 1; Oughtred v Inland Revenue Commissioners [1960] AC 206; Vandervell v Inland Revenue Commissioners [1967] 2 AC 291; and Adamson v Hayes (1973) 130 CLR 276; [1973] HCA 6, Giles J said at 251 that there is no compelling reason to require writing for the disposition of an equitable interest in land, but not for the disposition of an equitable interest in personalty, as the English decisions demonstrate.

102. Mr Rofe did not make any submission to the contrary in the present case. I proceed on the basis that s 23C(1)(c) of the Conveyancing Act is not confined to dispositions of real property.

103. It is not in dispute that s 23C(1)(c) is concerned only with the disposition of an equitable interest already subsisting at the time of the disposition: In the matter of Allco Securities Pty Ltd [2011] NSWSC 1250 at [11] (Barrett J). In the present case, the terms of the agreement pleaded by Mr Rofe in par 22 of the statement of claim answers that description insofar as the alleged terms of the oral agreement included:

…

(b)   Emerald would hold half the share on trust for Mr Rofe.

106. Subject to the question of part performance, which is considered below, I find that the oral agreement between Mr Rofe and Emerald is unenforceable for want of writing as required by s 23C(1)(c) of the Conveyancing Act. No argument was advanced by Mr Rofe that the oral agreement upon which he relies answers the description in s 23C(2) of a resulting, implied or constructive trust.

Was there part performance?

107. In answer to Emerald’s defence relying upon the absence of writing, Mr Rofe asserts part performance of the oral agreement, relevantly, that he agreed to become the sole director of Mercantile.

108. In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 432; [1988] HCA 7, Brennan J referred with approval to the statement by the High Court in Regent v Millett (1976) 133 CLR 679 at 683; [1976] HCA 40 in that:

In order that acts may be relied on as part performance of an unwritten contract, they must be done under the terms and by force of that contract and they must be unequivocally and in their nature referable to some contract of the general nature of that alleged.

109. The requirement that acts relied upon must be unequivocal has been consistently emphasised in the authorities: Khoury v Khouri (2006) NSWLR 241; [2006] NSWCA 184 at [73]-[86] (Bryson JA, Handley and Hodgson JJA agreeing); Vlahos Pty Ltd v Vlahos [2017] VSCA 166 at [100].

110. Applying these principles to the present case, I am not satisfied that Mr Rofe’s appointment as director of Mercantile is unequivocally and in its nature referable to some assurance of the general nature of that alleged by Mr Rofe concerning an agreement to issue 50 percent of the shares in Mercantile to him.

111. The topic of appointing Mr Rofe a director of Mercantile was first raised at the meeting at The Vinery in Annandale in mid-February 2016. That topic arose in the context of the general acceptance by Mr Rofe and Mr Bardella that Mr Payne had to go and that Mercantile needed to appoint someone as a director in his place. Mr Rofe put himself forward to replace Mr Payne as a director. Mr Bardella agreed. That agreement was reflected in the terms of the Share Sale Deed which provided that the appointment of Mr Rofe as a director of Mercantile was an obligation imposed on Emerald as purchaser post-completion, by cl 7.3(b) of the Share Sale Deed.

112. I conclude that the evidence is insufficient to establish that Mr Rofe’s acceptance of the appointment as a director of Mercantile on 15 March 2016 was unequivocally and in its nature referable to some assurance that Emerald would recognise his 50 percent interest in Mercantile and issue him shares reflecting that interest once it had obtained control of the company from Mr Payne.

Issue 4: Whether the summary dismissal of Mr Rofe was justified?

113. It is common ground that there is no written contract of employment between Mercantile and Mr Rofe. Mr Rofe claims that his summary dismissal on 21 October 2016 was a repudiation by Mercantile of his contract of employment and that he is entitled to damages for the absence of reasonable notice of termination of his employment. Mr Rofe contended that 12-months’ notice would have been a reasonable period of notice.

114. In its defence (pars 30-33), Mercantile pleaded that the summary dismissal of Mr Rofe was warranted by reason of the matters referred to in its cross-claim. That was a reference to the allegations in the cross-claim that Mr Rofe owed fiduciary and analogous Corporations Act duties to Mercantile, which he breached by various alleged conduct.

115. The pleading of the fiduciary duties in the cross-claim was in relatively orthodox terms of the conflict rule and the profit rule, reflecting the basic principle stated by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103; [1984] HCA 64:

[a fiduciary] is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect ...

116. The principle was affirmed and restated by the High Court in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558; [1995] HCA 18:

A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd”. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage. (Footnotes omitted)

See also: Breen v Williams (1996) 186 CLR 71 at 93-94 (Dawson and Toohey JJ), 113 (Gaudron and McHugh JJ); [1996] HCA 57; Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [74], [78] (McHugh, Gummow, Hayne and Callinan JJ); Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [84] (French CJ, Gummow, Hayne and Bell JJ); Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [31]-[33] (French CJ and Keane J), [56], [62] (Hayne and Crennan JJ).

117. The cross-claim also pleaded that Mr Rofe owed the statutory duties under ss 180, 181, 182 and 183 of the Corporations Act.

118. At the conclusion of the hearing, Mercantile relied on five matters which it submitted justified the summary dismissal of Mr Rofe because his conduct involved the breach of ss 180, 181 and 182 of the Corporations Act:

• Mr Rofe claimed and received payments from Mercantile for remuneration to which he was not entitled;

• Mr Rofe caused Mercantile to make payments totalling $50,000 to a company in which he had a 50 percent beneficial interest, 1300 Get Loans Pty Ltd, and in respect of which Mercantile received no benefit;

• Mr Rofe caused Mercantile to make payments to Crystal of $31,715 for services other than for the benefit of Mercantile;

• Mr Rofe caused Mercantile to enter into a lease of residential premises for Mr Rofe’s personal benefit in or around 26 August 2016;

• Mr Rofe used a fuel card and credit card provided to him by Mercantile to pay for personal expenses in the amount of $1,901.67 (fuel card) and $13,121.55 (credit card).

119. It is uncontroversial that the general law of contract applies to the termination of contracts of employment. If summary dismissal is claimed to be justifiable, the question is whether the conduct complained of is such as to show the employee-servant to have disregarded the essential conditions of the contract of employment. For this reason, one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show, in effect, that the employee is repudiating the contract, or one of its essential conditions. That is, the disobedience must at least have the quality that it is “wilful”; meaning that it does connote a deliberate flouting of the essential contractual conditions: North v Television Corporation Ltd (1976) 11 ALR 599 at 609 (Smithers and Evatt JJ), citing the remarks of the Master of the Rolls in Laws v London Chronical (Indicator Newspapers) Ltd [1959] 2 All ER 285 at 287, 289; see also Franki J at 616.

120. When considering whether Mr Rofe’s conduct justified summary dismissal, it is necessary to keep in mind that it is common ground that as managing director from 15 March 2016, Mr Rofe was to have full and unfettered control of Mercantile’s finances and management.

(a)   Payment of excessive remuneration

121. Mercantile contends that Mr Rofe was entitled to remuneration of $1,500 per week gross plus motor vehicle expenses. Mercantile also accepted that Mr Rofe was entitled to use of the Range Rover Sport vehicle, which, according to Mr Payne’s evidence, he agreed for Mercantile to purchase for Mr Rofe’s use, at Mr Rofe’s insistence, in or about January or February 2016. Mr Payne guaranteed the lease of that vehicle.

122. As to the position before 15 March 2016, Mr Rofe’s claim that he was entitled to remuneration of $200,000 gross per annum is inconsistent with Mr Payne’s unchallenged evidence (affidavit, 30/5/18, par 14) that, at the time of his termination in March 2016, Mr Rofe was earning the same amount as him, being $1,500 per week gross plus motor vehicle expenses. Mr Payne also gave evidence that he was not aware of Mr Rofe receiving more than that amount plus motor vehicle expenses.

123. Mr Rofe’s evidence was that up until the time when Mercantile acquired the one share from Mr Payne in March 2016, he received the same remuneration as Mr Payne. Given that Mr Payne was the sole director of Mercantile up until 15 March 2016, and there is no evidence that he authorised Mr Rofe to receive remuneration of $200,000 gross per annum, Mr Rofe failed to demonstrate that he was entitled to receive remuneration of that amount before 15 March 2016.

124. To the extent that Mr Rofe submitted and received payment of invoices to Mercantile from October 2015 claiming contractor fees in excess of $1,500 gross per week, I find that those payments were unauthorised by Mr Payne as the sole director of Mercantile. The proposition that Mr Payne authorised payment of those invoices was not put to Mr Payne in cross-examination, and is inconsistent with his affidavit evidence.

125. There is no objective evidence, such as group certificates, tax returns or other employee or contractor records supporting Mr Rofe’s claim that as at February 2016 he was entitled to remuneration in an amount of $200,000 gross per annum. While Mr Rofe gave evidence that he had not filed tax returns since “maybe” 2012 or 2013 (T41 (31-33)), he said that his tax returns for the years since then were currently being prepared and were almost complete or ready for lodging, but no explanation was given for why at least some information in relation to, his salary or income from Mercantile (the subject of his draft tax returns), was not adduced in evidence. Nor did Mr Rofe give evidence that he had sought access to Mercantile’s records and had been denied access.

126. I find that up to 15 March 2016 Mr Rofe was entitled to a remuneration of $78,000 gross per annum plus motor vehicle expenses (including from early 2016, the use of the Range Rover vehicle).

127. Counsel for Mr Rofe submitted that there was nothing preventing Mr Rofe increasing the amount of his remuneration after 15 March 2016, given that as managing director he had full and unfettered control of Mercantile’s finances and management. The difficulty with that submission is that it did not reflect Mr Rofe’s evidence.

128. Mr Rofe did not give evidence that he decided after 15 March 2016 to increase his remuneration as managing director to $200,000 per annum. If that had been his evidence, it would have raised questions as to whether Mr Rofe had disclosed his material personal interest as a director in a contract with Mercantile as required by the Constitution (cl 4.7(e) or (f)) and under s 191 of the Corporations Act, and what consequence flowed from any non-compliance: see Woolworths Ltd v Kelly (1991) 22 NSWLR 189. But that is not this case.

129. Here, Mr Rofe’s evidence was that he was entitled to remuneration of $200,000 gross per annum before Emerald became the shareholder in March 2016 and that entitlement continued after March 2016. Although it was put to Mr Bardella in cross-examination that he had access to the web-based accounting records for Mercantile, it was not put squarely to Mr Bardella (representing the shareholder, Emerald) that he knew, let alone approved or consented, to Mr Rofe receiving remuneration of $200,000 gross per annum after March 2016.

130. I find that Mr Rofe’s receipt of remuneration of $200,000 per annum was unauthorised.

131. The next question is whether Mr Rofe’s conduct in causing Mercantile to pay him remuneration of that amount commencing in October 2015 was a breach of his statutory duty under s 182(1) of the Corporations Act to not improperly use his position to gain an advantage for himself or cause detriment to the corporation. That duty is imposed relevantly on directors, officers and employees. Mr Rofe was an employee of Mercantile in October 2015 (when he submitted contractor fees), and both an employee and a director from 15 March 2016. It is unnecessary to consider the other provisions of the Corporations Act relied upon by Mercantile.

132. The standards of conduct required by s 182 are to be determined objectively: The Queenv Byrnes (1995) 183 CLR 501 at 514–515; [1995] HCA 1 and Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78 at [35]–[37]. By “objectively” is meant the standards of conduct that would be expected of a person in the position by reasonable persons with knowledge of the duties, power and authority of the position, and the circumstances of the case, including the commercial context: Doyle at [35], citing Byrnes at 514–515 and Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23 at [65] (Gummow and Hayne JJ), [72] (Kirby J).

133. To make out a contravention of s 182(1) it is also necessary to establish that, in engaging in the relevant conduct, the director’s (or employee’s) purpose was to gain a relevant advantage or cause detriment: Chew v The Queen (1992) 173 CLR 626 at 632-633 (Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 at [85] (Meagher JA, Bathurst CJ and Beazley P agreeing).

134. In this case, the cross-claim pleaded (in par 11.9) that Mr Rofe rendered falsified and fraudulent tax invoices for services allegedly provided to Mercantile and directed or otherwise caused Mercantile to pay the amount of those invoices to himself. The particulars given of that allegation are that the tax invoices contain a falsified ABN comprising 13 digits; that Mr Rofe had no reason to render such tax invoices as he was employed on a full-time basis by Mercantile during the relevant period; that no services were provided by Mr Rofe to Mercantile; and to the extent any services were provided by Mr Rofe to Mercantile (which is denied), then such services form part of Mr Rofe’s remuneration under his employment contract.

135. The first two particulars are established on the evidence. As to the alternatives in the third and fourth particulars, the position seems to be that the fourth particular is most likely to reflect what occurred. The services provided by Mr Rofe to Mercantile from October 2015 as operations manager and later from 16 March 2016 as managing director formed part of the remuneration under his employment contract.

136. Proof of Mr Rofe’s subjective purpose as being to gain an advantage for himself, which is necessary to make out the alleged contravention of s 182(1) of the Corporations Act (Hart Security at [85]), is established by my earlier finding that Mr Rofe was only entitled to remuneration of $78,000 gross per annum plus motor vehicle expenses, and Mr Rofe’s own evidence that he was entitled to receive the same amount as Mr Payne, which prior to March 2016 was also $78,000 gross per annum.

137. In my view, Mercantile has established that Mr Rofe’s conduct in rendering the invoices and causing payment to be made to himself of amounts in excess of his contractual entitlement was, in the circumstances, a breach of s 182(1) of the Corporations Act.

138. Counsel for Mr Rofe accepted that if Mr Rofe was not entitled to remuneration of $200,000 gross per annum then his claim for summary dismissal must fail. Nonetheless, for completeness, I will consider the other grounds relied upon by Mercantile as justifying summary dismissal since these are also relevant to Mercantile’s cross-claim against Mr Rofe.

(b)   1300 Get Loans

139. According to Mr Rofe, Mr Lamont held all of the shares in 1300 Get Loans, and 50 percent of those shares were held by him on trust for Mr Rofe (affidavit, 16/10/17, par 57). It seems that the proposed business of 1300 Get Loans was that of a payday lender. When Mr Rofe raised with Mr Bardella in or around April 2016 the possibility of Mercantile expanding its business to include the activities of 1300 Get Loans, Mr Bardella told Mr Rofe that he did not want Mercantile to pursue that line of business and that he wanted Mr Rofe to concentrate on the existing business of Mercantile.

140. Nonetheless, Mr Rofe went ahead and established the business of 1300 Get Loans using the services of Mr Lamont, who was an employee of Mercantile. Mr Rofe accepted that he caused an amount of $50,000 to be paid by Mercantile to 1300 Get Loans over a period of about six months for setting up that company. When Mr Bardella subsequently became aware that Mercantile was making payments to Mr Lamont, he again raised with Mr Rofe his objection to Mr Rofe pursuing this line of activity.

141. There are two difficulties with the conduct by Mr Rofe in causing $50,000 of Mercantile’s money to be paid to 1300 Get Loans. First, this conduct was unauthorised. A director may not apply company property, either for the director’s own benefit or for the benefit of another person without the authority of the company. It was not a business opportunity being pursued by Mr Rofe on behalf of Mercantile.

142. Second and in any event, this conduct involved a breach of Mr Rofe’s fiduciary and statutory duties in that he preferred his personal interests to the interests of Mercantile to whom he owed his duties as a director. Mr Rofe’s conduct breached s 181(1) of the Corporations Act. He was not acting in good faith in the best interests of Mercantile and for a proper purpose. He used Mercantile’s money to provide working capital to 1300 Get Loans, being a company in which Mr Rofe had a personal interest and Mercantile was not a shareholder. As mentioned, Mr Bardella had told Mr Rofe that he did not agree to Mercantile pursuing that line of business.

143. For the same reasons, I find that Mr Rofe’s conduct breached s 182(1) of the Corporations Act, given that this subjective purpose was to gain an advantage for himself in causing Mercantile to pay $50,000 to 1300 Get Loans to provide it, in effect, with working capital to commence its business.

144. The contention by Mr Rofe that Mercantile received some type of benefit from 1300 Get Loans is not supported by any objective evidence or corroborated by any witness. There is no evidence documenting any loan or the terms of any loan. The undisputed evidence is that Mercantile expended $50,000 and received no benefit in return.

145. In cross-examination, Mr Rofe sought to justify his conduct by saying that he was doing it “from my side as a loan” (T83 (16-22)). Counsel for Mr Rofe submitted that this answer was to be taken as an acknowledgement by Mr Rofe of a “moral” obligation to repay the $50,000 received by 1300 Get Loans, if Mercantile otherwise could not recover this amount from 1300 Get Loans. A little later, counsel for Mr Rofe informed the Court that he had instructions that Mr Rofe accepted liability to repay this sum to Mercantile (T170 (11)-171 (9)).

139. That Mr Rofe now accepts liability to repay the amount of $50,000 received by 1300 Get Loans does not militate the earlier breach of duty by Mr Rofe in causing this amount to be paid by Mercantile to a company in which he had a personal interest and which was not a business opportunity being pursued on behalf of Mercantile. Given that Mr Bardella had earlier indicated to Mr Rofe that he did not agree to Mercantile pursuing that line of business, Mr Rofe’s conduct was a disregard of his essential duties as managing director to act in the best interests of Mercantile and for a proper purpose. It was also a misuse of his position to gain an advantage for himself in relation to a company in which he had an interest. This conduct also justified Mr Rofe’s summary dismissal.

(c)   Residential lease

147. Mr Rofe caused Mercantile to enter into a lease for residential premises at Hunters Hill for his personal benefit on or about 26 August 2016. The rent was $850 per week. The evidence is that Mercantile made five weekly payments of $850 and one payment of $1,700 for rent in respect of this property. Thereafter, it seems that Mr Rofe paid the rent.

148. Mr Rofe sought to justify these payments by Mercantile on the basis that they were a reduction in his weekly remuneration. At the time, Mr Rofe was receiving from Mercantile, albeit irregularly, an amount of approximately $3,850 per week. He pointed to occasions on which that amount was reduced by $850. The difficulty with this explanation is that Mr Rofe was not entitled to remuneration of $3,850 per week, equating to approximately $200,000 gross per annum. The so-called “reduction” in weekly payments to Mr Rofe did not represent an amount to which Mr Rofe was entitled. Another difficulty with this explanation is that on 15 August 2016, there was no reduction in the weekly amount of $3,850 paid to Mr Rofe, and although the weekly payment to Mr Rofe on 5 September 2016 was $3,000, the payment in respect of rent on 9 September 2016 was $1,700.

149. The lease of residential premises was of no benefit to Mercantile. Counsel for Mr Rofe seemed to accept in closing submissions that the fact that Mercantile entered into the lease was a breach of his contract of employment, but submitted that it was not a repudiation entitling summary dismissal (T172 (18)). I find that Mr Rofe’s conduct in causing Mercantile to enter into the lease was a breach of contract and Mr Rofe is liable to pay damages to Mercantile representing the total amount of rent paid on his behalf, being $5,950 (MFI 5).

150. Given the relatively small amount involved and the practice of Mercantile to reconcile non-work related expenses on a quarterly basis, I am inclined to the view that this conduct would not amount to a repudiation entitling summary dismissal.

(d)   Crystal

151. As indicated, there was a consultancy agreement between Mr Hakim, Crystal and Mercantile dated 21 January 2016 in respect of services to be provided by Mr Hakim and Crystal to Mercantile. There was no challenge by Mercantile that the consultancy agreement was not a genuine arrangement for the provision of Mr Hakim’s services as operations manager of Mercantile.

152. Mr Hakim presented as an honest and reliable witness. Mr Hakim gave evidence, which I accept, that he worked six days per week supervising the telephone call centre at Mercantile’s premises. Ms Karam accepted in her evidence that Mr Hakim opened and locked up the premises on a daily basis. There is no reason for doubting or not accepting Mr Hakim’s evidence.

153. I reject Mercantile’s contention that it received no benefit for the amount of $31,715 paid to Crystal.

(e)   Fuel and credit cards

154. As to the use by Mr Rofe of fuel and credit cards for personal expenses, the amounts involved were not significant (fuel card - $1,901.67; credit card - $13,121.55).

155. I accept Mr Rofe’s evidence that reconciliations were to be conducted by Mercantile on a quarterly basis and that he would repay non-work related expenses to Mercantile when asked to do so by the company’s financial manager. In the circumstances, I do not consider Mr Rofe’s use of the cards for personal expenses (which had not been repaid by Mr Rofe at the date of his summary dismissal) was a repudiation of his contract of employment.

Issue 5: Is Mr Rofe liable to repay or compensate Mercantile?

156. Given the above findings, the question of Mr Rofe’s liability to compensate Mercantile in respect of monies applied for his own benefit can be dealt with relatively briefly. Mercantile is entitled to recover the following amounts as damages or compensation under s 1317H of the Corporations Act.

157. As to the contractor fees charged by Mr Rofe to Mercantile in excess of his entitlement to remuneration of $78,000 gross per annum, the evidence establishes that during the period 28 October 2015 to 24 October 2016 Mr Rofe received amounts totalling $186,090.12. After allowing credit for his entitlement to remuneration of $78,000 gross per annum, the amount of the overpayment to Mr Rofe is $108,090.12. Mr Rofe is liable to pay damages to Mercantile in this amount.

158. As to the misapplication of Mercantile’s funds for the benefit of 1300 Get Loans, as indicated, Mr Rofe accepted personal liability to repay the amount of $50,000 to Mercantile. Mr Rofe is liable to pay damages to Mercantile in this amount.

159. As to rent paid by Mercantile for the residential premises at Hunters Hill, the evidence establishes six payments by Mercantile between 15 August 2016 and 20 September 2016 totalling $5,950 (MFI 5). Mr Rofe is liable to pay damages to Mercantile in this amount.

160. As to the use of fuel card charges for non-work related expenses (cigarettes and sundries) totalling $1,901.67, Mr Rofe is liable to repay this amount to Mercantile.

161. As to the use of credit cards for non-work related expenses in the period 1 July 2016 to 21 October 2016 totalling $13,121.55, Mr Rofe is liable to repay this amount to Mercantile.

162. For the reasons given above, Mercantile’s claim against Mr Rofe for monies paid to Crystal in the amount of $31,715 must fail.

163. The total of the amount of damages payable by Mr Rofe to Mercantile is $179,063.34.

Issue 6: Damages for detention of vehicle

164. Although Mercantile’s supplementary submissions referred to a claim against Mr Rofe in conversion, it was common ground that Mercantile elected to put its claim in relation to the Range Rover Sport vehicle in detinue.

Legal principles - detinue

165. The essence of detinue lies in a refusal to deliver up goods to a person having the immediate right to the possession of those goods. It must be shown that the detention of the goods is wrongful. That is normally shown by request or demand for their return, and a refusal to comply: John F Goulding Pty Ltd v The Victorian Railways Commissioners (1932) 48 CLR 157 at 167; [1932] HCA 37.

166. In Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342, Allsop P stated at [175]:

The fundamental principle of damages for tort is compensation for loss caused: Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185; and Haines v Bendall (1991) 172 CLR 60 at 63.

167. That statement of principle is consistent with the remarks of Brandon LJ (Donaldson and Ackner LJJ agreeing) in Brandeis Goldschmidt & Co Ltd v Western Transport Ltd [1981] QB 864 at 870 (a case involving damages for detention of goods):

It is for the plaintiffs to prove what loss, if any, they have suffered by reason of a tort, and when, as here, the effect of the tort is potentially adverse interference with the course of their business operations, it is for them to establish by evidence that there was in fact such adverse interference, and that they suffered a properly quantifiable loss by reason of it. …

168. The normal measure of damages in detinue is the value of the goods at the date of judgment, because conceptually damages are in lieu of the return of the goods (Rosenthal v Alderton & Sons Ltd [1946] KB 374), together with damages for the detention of the goods: Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 at 178. Where the goods detained are used by the plaintiff in its business, damages may be assessed by reference to the cost of hiring substitute goods. Where the plaintiff’s business involves the hiring out of the goods, damages may be assessed by reference to the foregone profits from hiring them out: Gaba Formwork at 178.

169. In Gaba Formwork, it was unnecessary for the owner who had been wrongfully deprived of goods to show that he or she could have deployed the goods for reward. It was sufficient that the goods detained were ones that were normally hired out for profit as part of the owner’s business. The suggested rationale of this measure of loss is that a defendant should be obliged to restore to the owner the value of the hiring charge which the defendant avoided paying as the price of retaining the chattel if it had sought to retain the chattel lawfully with the consent of the owner: Wade Sawmill Pty Ltd v Colenden Pty Ltd (t/a Pilks Pine) [2007] QCA 455 at [46] (Keane JA, McMurdo P and Daubney J agreeing).

Damages for value of the vehicle

170. Counsel for Mr Rofe accepted that Mr Rofe is liable for damages for the wrongful detention of the vehicle, being the value of the vehicle at the date of the hearing. That concession was properly made. Although Mr Rofe’s counsel provided the keys to the vehicle on 20 March 2018 and Mr Rofe reported the vehicle as stolen to Bowral Police on 25 March 2018, there is uncontested evidence of an earlier unequivocal demand by Mercantile by email dated 9 November 2016 that Mr Rofe return the vehicle. Mr Rofe’s response to that email was that he refused to return the vehicle.

171. The agreed value of the vehicle at the date of the hearing is $51,000. Damages will be awarded to Mercantile in that amount.

Damages for detention

172. The issue in dispute is whether Mercantile is also entitled to consequential damages for Mr Rofe’s refusal to return the vehicle to Mercantile. Mercantile put its case on the basis of “loss of use” damages, in two ways.

173. First, Mercantile submitted that it had a need for the vehicle and is entitled to the market rate of hiring a replacement vehicle for the period from the date of the failure to comply with the demand for the vehicle’s return until the vehicle is returned: Wong v Maroubra Automotive Refinishers Pty Ltd; Ayres v Maroubra Automotive Refinishers Pty Ltd [2015] NSWSC 222 at [71] (T188 (39-40)). Mercantile also submitted that it does not matter that the vehicle was a non-income earning chattel. Mercantile was unable to point to any authority directly in support of this proposition and relied by analogy on Anthanasopoulos v Moseley (2001) 52 NSWLR 262; [2001] NSWCA 266 at [58] (Beazley JA, Handley JA and Ipp AJA agreeing).

174. This claim was quantified as the cost of hiring a substitute vehicle for the period 9 November 2016 to 8 June 2018 at the rate of $400 per day being $230,800.00. The hire cost of $400 per day is derived from documents produced on subpoena by Ultimate Car Rentals Australia Pty Ltd in respect of hire charges for similar types of Range Rover Sport vehicles covering the period December 2016 to February 2018 (Ex P4). There was no real dispute as to the reasonableness of this figure.

175. Second and alternatively, in closing submissions Mercantile claimed damages for the depreciation in the value of the vehicle over the period from November 2016 to the date of trial in June 2018 (T 189 (48-50)). That claim may be put aside. It was not seriously pressed by Mercantile and there was no evidence of the value of the vehicle as at November 2016.

176. Mr Rofe submitted that Mercantile had not demonstrated a basis for an award of consequential damages because it did not replace the vehicle during the period it was detained by Mr Rofe, and it had not proved that it suffered a loss of chance to put the vehicle to profitable use, or lost the opportunity to sell the vehicle at a higher price at an earlier time than it did.

Decision

177. The evidence in relation to Mercantile’s contention that it had a need for the vehicle is as follows. The vehicle was acquired by Mercantile in early 2016 by finance provided by St George Bank as part of a special arrangement agreed between Mr Payne and Mr Rofe. The vehicle was registered in Mercantile’s name. There is no evidence that other employees of Mercantile were provided with a company vehicle, or that there was a need for Mercantile to provide a vehicle to other employees to travel to business meetings. Nor did Mercantile incur costs of obtaining a replacement vehicle.

178. Ms Karam deposed (affidavit, 7/5/18, pars 5-6) that it is not practical for representatives of Mercantile to travel to business meetings by public transport either because of the location of such meetings, or the bulk of the files required to be brought to such meetings. Importantly, however, Ms Karam did not give evidence as to how those difficulties were dealt with. Indeed, in cross-examination, Ms Karam accepted that Mercantile never rented or leased a vehicle after October 2016. She also gave evidence that she used her own vehicle to travel to business meetings and paid all costs of her vehicle, as a matter of personal choice (T143-144).

179. Ms Karam did not say that any representatives of Mercantile had a contractual entitlement to the use of a company vehicle for business purposes, or were entitled to be reimbursed the costs of using their own vehicle for business purposes, or that any such persons would have used the vehicle for business purposes if it had been returned by Mr Rofe.

180. The reasonable inference is that if the vehicle been returned by Mr Rofe in November 2016 when demanded, Mercantile would have sold it to avoid incurring interest charges on the finance arrangement with St George Bank, given that the provision of the vehicle was part of a special arrangement agreed between Mr Payne and Mr Rofe.

181. As mentioned, there is authority that “loss of use” damages may be awarded where the goods are of a kind that are normally hired out for profit as part of the plaintiff’s business: Chep v Bunnings [2010] NSWSC 301 (McDougall J), referring to Strand Electric & Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246; Gaba Formworks; Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd [1993] Aust Torts Reports 81-244. But that is not the present case. Mercantile did not contend that it suffered a loss of chance to put the vehicle to profitable use.

182. Nor does Anthanasopoulos v Moseley assist Mercantile. There the issue was whether a claimant could be compensated for loss of use caused by damage to property (relevantly a motor vehicle) which was a non-income earning chattel. The complication that arose was that the claimants’ insurer, NRMA, had provided a replacement vehicle to the claimants gratuitously. The Court of Appeal held that damage to property which deprives a claimant of the use of the thing is compensable and it is irrelevant if a third party provides a substitute for the thing damaged and that the principle res inter alios acta applied so as to make it irrelevant as to the basis upon which the third party provided the replacement vehicle. Although it did not involve a claim in detinue, Anthanasopoulos v Moseley is distinguishable because in that case the claimant plainly had a need for the replacement vehicle that had been supplied by the insurer.

183. In the present case, Mercantile has not demonstrated that it suffered any actual loss; it did not replace the vehicle during the period the vehicle was detained by Mr Rofe; and it did not establish a need for that vehicle during that period. It would be inconsistent with the fundamental principle of damages for tort being to compensate for loss caused, to award Mercantile damages in respect of a hiring fee as if a replacement vehicle had been obtained when that did not occur: Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185; [1966] HCA 38. The claim for consequential loss should be rejected.

184. For completeness, I note that no claim for consequential loss was pleaded or put in argument by Mercantile on the basis of “user” damages, that is, as compensation for loss of property per se, abstracted from any particular loss which might flow from its use: see the discussion of this type of claim by Ward J (as her Honour then was) in Lahoud v Lahoud [2009] NSWSC 623 at [178] – [194].

Costs

185. The usual rule is that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

186. Here, there are two relevant events, the outcome of Mr Rofe’s claim and Mercantile’s cross-claim. Mr Rofe has succeeded in establishing his trust claim, but has failed on his claim for damages for summary dismissal. Mercantile has substantially succeeded on its claim for damages other than in three respects: the loan to Mercantile from Mr Rofe’s parents (which claim was not pressed), the payments to Crystal and the claim for consequential damages for loss of use of the Range Rover Sport vehicle. Mercantile also abandoned its claim against Mr Rofe for damages for alleged misleading and deceptive conduct.

187. Given the substantial success of each party on their respective claims, it seems to me that the appropriate costs orders are that Mercantile and Emerald pay Mr Rofe’s costs of the statement of claim and that Mr Rofe pay Mercantile’s costs of the cross-claim.

Conclusion and Orders

188. Mr Rofe has succeeded on his claim for relief that the one share in Mercantile is held by Emerald as to 50 percent on trust for him. He has failed in his claim for damages for summary dismissal. Mercantile has succeeded in its claims for damages or compensation in the cross-claim in the amount totalling $179,063.34 and it is also entitled to judgment for $51,000 in respect of the agreed value of the vehicle.

189. Accordingly, the Court orders:

1. Declare that the second defendant, Emerald Superannuation and Insurance Pty Ltd (Emerald), holds 50 percent of the one share in NL Mercantile Group Pty Ltd (Mercantile) on trust for Andrew Fulton Rofe.

2. Order that Emerald pass a members’ resolution splitting the one share in Mercantile into two shares in accordance with s 254H of the Corporations Act 2001 (Cth).

3. Order that upon the said resolution being passed, Mercantile is to record in its register of members that the plaintiff, Andrew Fulton Rofe, holds one of the two issued shares in Mercantile.

4. Judgment for Mercantile against Mr Rofe in the sum of $51,000.00.

5. Order that Mr Rofe pay damages to Mercantile in the sum of $179,063.34.

6. Mercantile and Emerald to pay Mr Rofe’s costs of the statement of claim.

7. Mr Rofe to pay Mercantile’s costs of the cross-claim.

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Decision last updated: 31 August 2018