Law v Hofstede
[2001] VSC 433
•9 November 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4918 of 2000
| PETER JOHN LAW | Plaintiff |
| V | |
| JOHN JOSEPH JOHANNES HOFSTEDE and Ors | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 19, 22, 23, 24, 25, 29, 30, 31 October 2001 | |
DATE OF JUDGMENT: | 9 November 2001 | |
CASE MAY BE CITED AS: | Law v Hofstede | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 433 | |
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Contract – contract to purchase shares in company – whether concluded agreement reached – uncertainty.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P.J. Hayes | Logie-Smith Lanyon |
| For the First and Third Defendants | Mr Marcus Clarke | Slater & Gordon |
| For the Second Defendant | No Appearance |
HIS HONOUR:
The plaintiff, Peter John Law, alleges that he entered into an agreement in December 1995 with the firstnamed defendant, John Joseph Johannes Hofstede, whereby they became, what he called, equal partners in the waste disposal business conducted by Mr Hofstede.
This agreement, whose existence is denied by the defendants, provides, at the same time, the basis and the difficulty for Mr Law’s claim in this proceeding. The two men worked together in the business from February 1996 until February 2000 when most of the business assets were sold to Theiss Environmental Services Pty Ltd (“Theiss”) for $4.25M. The sellers were the owners of those assets, All-Waste (Melb) Pty Ltd (“All-Waste (Melb)”) and All-Waste Management Pty Ltd (“All-Waste Management”), the second and thirdnamed defendants. Mr Law received no part of the proceeds of this sale. This proceeding was brought by him by writ filed on 4 April 2000 to recover what he says is his share of these proceeds.
It is necessary at the outset to identify the legal and commercial structure of the All-Waste business.
All-Waste (Melb) Pty Ltd
This company was, in 1995, and is controlled by Mr Hofstede. Its share capital is 22,004 fully paid $1 shares of which he held and holds 22,003 shares, and his wife, Joan Doreen Hofstede, the remaining share. He was and still is its sole director and secretary. Late on Friday 15 October 2001, the eve of the trial, the company appointed an administrator pursuant to Part 5.3A of the Corporations Law. On 17 October 2001, there being no opposition to this course from the administrator, I gave leave pursuant to s. 440D for Mr Law to proceed with this proceeding, but only to judgment. In 1995 it was this company which owned most of the assets of and which conducted the All-Waste business. This business was essentially that of transporting liquid waste products. In fact, it was also accustomed to entering into contracts for the disposal of waste products. In such an event it would sub-contract the work of processing this waste to another commercial entity, itself merely performing the trucking work.
All-Waste Management Pty Ltd
This company was in 1995 an inactive shelf company called Mortek Pty Ltd (“Mortek”). Notwithstanding this, it appears that it owned certain motor vehicles, office equipment and plant used in the All-Waste business. It was in 1995 also controlled by Mr Hofstede. Its share capital was four fully paid $1 shares of which he held two and his wife the remaining two shares. He and his wife were its directors.
Sometime prior to 1995 Mr Hofstede decided to establish a liquid waste treatment plant so that All-Waste could itself process the waste products which it transported. The new plant was to be built on land at 53-55 Albermarle Street, Williamstown being part of the premises from which All-Waste conducted its trucking business. The land had been acquired in the name of another company under Mr Hofstede’s control, Peacock Nominees Pty Ltd. Eventually, it was decided that a separate corporate vehicle should be established to construct, own and conduct this waste treatment business and this was to be All-Waste Management as trustee for a unit trust.
And so, on 30 July 1997, the All-Waste Management Trust was established. Mortek, whose name had in 1996 been changed to All-Waste Management Pty Ltd, became the trustee. The subscribing unit holders for the initial $100 trust capital were the trustees of the family trusts of the four persons involved in the project:
¨ Tangles Holding Pty Ltd, a company controlled by Mr and Mrs Hofstede and being the trustee of the Hofstede Family Trust – 60 units.
¨ P & S Law Enterprises Pty Ltd, a company controlled by Mr Law and his wife, Suzanne Law and being the trustee of the Law Family Trust – 15 units.
¨ Jillmerra Pty Ltd, a company controlled by Milton George Tattersall, the accountant of Mr Hofstede and of his companies, and being the trustee of his family trust, the Emdee Family Trust – 15 units.
¨ C & G Peatling Pty Ltd, a company controlled by a Mr Peatling who, I was told, is a plumber who had done some work for the All-Waste business – 10 units.
In 1998, when the construction phase was well under way, the documents show that a further 1.24M units were issued to the same four family trusts. They were distributed to them in the same proportions as before.
¨ Tangles Holding Pty Ltd, 744,000 units (60 percent)
¨ P & S Law Enterprises Pty Ltd, 186,000 units (15 percent)
¨ Jillmerra Pty Ltd, 186,000 units (15 percent)
¨ C & G Peatling Pty Ltd, 124,000 units (10 percent)
In October 1998 the waste treatment plant was commissioned.
The Issues
As I have mentioned, the case for Mr Law depended upon an agreement made between himself and Mr Hofstede that he should become an equal “partner” in the All-Waste business. This was the expression that he said was used in the discussions between the two men leading to the agreement and afterwards. The statement of claim, at least up to the date of the commencement of the trial, used the same expression, referring to the agreement as “the Partnership Agreement”. It became apparent, however, in the course of counsel’s opening that counsel, at least, did not intend by that expression a partnership agreement as that is understood by lawyers. This confusion was overcome by an amendment deleting the word “partnership” from the expression in the pleading. Thereafter the agreement was not further identified; it appeared to be some kind of joint venture agreement. I shall refer to it simply as the December 1995 Agreement.
The proper legal analysis of the December 1995 Agreement and its effect for the purposes of Mr Law’s claim is complicated by the fact that Mr Hofstede, the contracting party, at that time did not own the assets of the All-Waste business; they were owed by All-Waste (Melb), and possibly in part, by Mortek. In his original statement of claim, the plaintiff asserted a proprietary interest in those assets in and after December 1995 and in the proceeds of their February 2000 sale to Theiss. This assertion was dubiously predicated upon the December 1995 Agreement entered into, not between Mr Law and the two companies but between him and Mr Hofstede. The pleaded assertion was cast into further doubt by the fact that a substantial part of those assets were held, since 1997 at least, by the All-Waste Management Trust on trust, not for Mr Law, but for the unit holders. A further complication for Mr Law’s assertion of a proprietary interest in 50 percent of the assets is that he is only one of a class of discretionary objects for which P & S Law Enterprises Pty Ltd held its 15 percent of the units of the All-Waste Management Trust. In their defence, therefore, the defendants contended that this asserted proprietary interest could not be supported by the facts alleged in the statement of claim. The legal gap between the alleged agreement between the two men in December 1995 and the assets which were in February 2000 held by the two companies was never satisfactorily bridged. On day one of the trial these difficulties were addressed for the first time by counsel for Mr Law. A number of proposed amendments were submitted and revised as the trial moved forward. In the end counsel announced himself satisfied with the version submitted on 22 October and leave was granted to amend the statement of claim in its terms.
The statement of claim as so amended was very different from the earlier document. Fourteen of the twenty-seven paragraphs were deleted and others substantially changed. The claims of the plaintiff as they stand following the amendment no longer include any claim against either of the All-Waste companies. The plaintiff seeks against Mr Hofstede declarations that the December 1995 Agreement was entered into; that Mr Hofstede was in breach of it; and that Mr Hofstede holds 50 percent of the share capital of All-Waste (Melb) on constructive trust for Mr Law. He seeks no relief in respect of the share capital of or assets in All-Waste Management. The plaintiff seeks in the alternative damages and certain consequential relief. The parties were agreed that the quantification of any damages should not be the subject of this trial.
This relief is sought on the basis of a breach by Mr Hofstede of the December 1995 Agreement, for his misleading and deceptive conduct contrary to the Fair Trading Act 1985 and arising from an estoppel. It is alleged in paragraph 6 of the statement of claim as amended that the December 1995 Agreement contained three terms:
“(1) The Plaintiff would:
(i)contribute his presentation, sales and marketing skills and expertise and contacts in the waste management industry;
(ii)contribute equity capital to the Second Defendant to be used by the Second Defendant as working capital;
(iii)attract prospective and service existing large and/or corporate clients on behalf of the Second Defendant; and
(iv)be responsible for all incoming business and sales of the Second Defendant.
(2) The First Defendant would:
(i)contribute his experience in the management and logistics of handling waste material;
(ii)issue, assign to, or hold on trust for, 50 per cent of the share capital of the Second Defendant, the Plaintiff; and
(iii)manage the operations of the Second Defendant.
(3)That by reason of the Plaintiff and First Defendant holding equal share capital in the business and undertaking of the Second Defendant, the Second Defendant would then seek the necessary finance to enable the Plaintiff and First Defendant to jointly construct and thereafter operate a Liquid Waste Treatment Plant, proposed to be constructed at Altona or Williamstown.”
I should also mention at this point that, of these terms, only that in paragraph 6(2)(ii) was the subject of any suggested breach. There are evident difficulties, even with this term, insofar as Mr Hofstede covenanted to issue shares in All-Waste (Melb). Perhaps it should be interpreted as meaning that he would cause the shares to be issued by that company which was effectively under his sole control.
The misleading and deceptive conduct claim was not pressed. Nevertheless the representations upon which it was based form also the basis for a claim in estoppel. As pleaded, they are a series of promissory representations made prior to the December 1995 Agreement and repeated from time to time during the whole of the period Mr Law was involved with the All-Waste business. These representations were as follows:
“(1)the Plaintiff and the First Defendant would operate the business and undertaking of the Second and Third Defendant as equal 50:50 partners;
(2)the Second Defendant would manage the operation or act as the vehicle through which the Plaintiff and the First Defendant would operate the business and undertaking of the Second Defendant as equal 50:50 partners;
(3)The Plaintiff would:
(i)contribute his presentation, sales and marketing skills and expertise and contacts in the waste management industry;
(ii)contribute equity capital to the Second Defendant to be used by the Second Defendant as working capital;
(iii)attract prospective and service existing large and/or corporate clients on behalf of the Second Defendant; and
(iv)be responsible for all incoming business and sales of the Second Defendant.
(4)The First Defendant would:
(i)contribute his experience in the management and logistics of handling waste material;
(ii)assign to, or hold on trust for, 50 per cent of the equity of the Second Defendant, the Plaintiff;
(iii)manage the operations of the Second Defendant.
(5)That the Plaintiff and First Defendant as 50:50 partners in the business and undertaking of the Second Defendant, the Second Defendant would seek the necessary finance to enable the Plaintiff and First Defendant to jointly construct and thereafter operate a Liquid Waste Treatment Plant, proposed to be constructed at Altona or Williamstown.”
In his defence Mr Hofstede denies entering into the December 1995 Agreement; he denies making the representations and says, in any event, that the cause of action in estoppel is misconceived.
The December 1995 Agreement
Before I turn to the evidence of the December 1995 Agreement I should make three preliminary observations.
First and foremost is that the defendants did not call any witness. At the conclusion of the plaintiff’s case counsel for the first and thirdnamed defendants announced that he wished to make a no case submission. Put to his election, he called no evidence. This means that, of those present at the meetings at which the oral components of the December 1995 Agreement are said to have taken place and the representations made, the evidence of Mr Law and of his accountant, Peter Graham Donohue, was uncontradicted. Furthermore, I infer that the evidence of Mr Hofstede, who was present throughout the trial, that of his accountant, Mr Tattersall, who was present at least on day one of the trial, and that of his brother-in-law, Russell Stanfield, would, if led, not have assisted the case of the first and thirdnamed defendants. I do not, of course, speculate what their evidence might have been.[1] I draw no such inference with respect to the evidence which might have been led from Mr Gordon Ley of Harwood Andrews, the solicitors for Mr Hofstede and his companies. The evidence shows that Mr Ley is overseas.
[1]O’Donell v Reichard [1975] VR 916.
Second, my impression of Mr Law in the witness box was that of an honest witness, doing the best he could to recount events which date back nearly six years. He did not, however, have the benefit of contemporaneous notes and I have formed the view that his present recollection has been affected by the passage of time and by an attempt to reconstruct what he believes to have been said all those years ago. Furthermore, he showed himself to be not a sophisticated businessman and one who was somewhat naive; he had little understanding of the legal and even the commercial implications of the transactions he was entering into; and he trusted Mr Hofstede, and others to attend to the detail of the arrangements which the two men had arrived at. Indeed, he acknowledged that during the years he was with All-Waste, his concern was only with sales; he took no part in the commercial or other management activities of the business.
Third, although the agreement contended for by Mr Law was essentially an oral agreement, a good deal of evidence was led as to the conduct of the parties in the years that followed. This evidence was led to show the probability that the December 1995 Agreement had been entered into. I shall return to this evidence of post-contractual conduct and to the use which I might make of it.
The Events of November – December 1995
This is, of course, the period in which the December 1995 Agreement was said to have been reached.
Mr Law had in 1995 had a long background in the waste disposal industry as a salesman. He had worked for some 20 years with Sims Metal and then, after approximately 18 months with another company, Onyx, he was from 1994 employed as a sales consultant with Pacific Waste Management. In this organisation he was concerned with dry waste products. When he met Mr Hofstede for the first time in September 1995, he knew him as being concerned with liquid waste removal through his business called All-Waste. The business of All-Waste was that of transporting the waste to a waste treatment plant where it would be processed before it was discharged into the environment.
The two men had over the ensuing weeks talked about the difficulties All-Waste was experiencing with the liquid waste processors with which it dealt. In November 1995 there occurred a short meeting at premises recently acquired by Mr Hofstede in Williamstown. At this stage these premises were simply a large empty industrial building. Present at this meeting were Mr Law, Mr Hofstede and Mr Stanfield. Mr Law told me, and I accept, that at this meeting Mr Hofstede outlined his plans to build his own liquid waste treatment plant on the site. Mr Law said that he was enthusiastic about this proposal for he saw in it an advantage to his employer, Pacific Waste. There was no discussion at this meeting of his own personal involvement in the project.
Sometime later, there occurred a conversation between Mr Law, Mr Hofstede and Mr Stanfield over lunch at the All-Waste offices in Albermarle Street, Williamstown. Mr Law’s account of this conversation was as follows:
“Witness: John said to me that the cost of building a treatment plant was quite expensive and he was looking for an equity partner, particularly someone who would come in with finance and work the business, that was his prime goal, to have someone work the business who was financially involved in the business.
Counsel: Did you respond to that or did he say anything else to you? If you just relate to His Honour the course of the conversation as if His Honour and Mr Clarke and I are eavesdropping on the conversation, as to what we would have heard?
Witness: I recall that that sounded very, very interesting, yes, I felt that was an interest to me. John said ‘We have plans here, we have drawings here; would you be independent [interested?]?’ and I said ‘Yes, I would be interested, is there any information you could give me in regard to financials and also maybe drawings or plans or what you envisage for the treatment plant’ and we spoke then quite generally because John and I got to know each other quite well and I think we had a mutual liking for each other, we liked our business approaches. I felt John would be a very good person to work with because he was strong in the industry, he had a very strong presence in the liquid waste and I was very well-known in the dry waste business and I thought this sounded quite exciting and that was really the end of the conversation on that particular day.”
Following this, in mid-November 1995, Mr Hofstede made available to Mr Law certain technical and financial material relating to the proposed liquid waste plant project. These documents included a finance analysis which showed that a capital investment of $485,000 was required to be expended before the plant was in operation and generating cash-flow and that these funds might be obtained by loan from a financial institution or by restructuring the business with new investors holding 49 percent of the shareholding. Elsewhere in the documents were financial statements for All-Waste (Melb) for the year ending 1995. Mr Law said that he took these documents home and discussed them with his wife. He said that he, and perhaps they, saw this as a business opportunity and he then took the documents to his accountant, Mr Donohue, of Morrow Wheatley & Associates, with a request that Mr Donohue look at the figures.
There occurred a second meeting between Mr Law and Mr Hofstede at the All-Waste office. He told Mr Hofstede that he had examined the project and found it attractive. They might now take the next step. Mr Hofstede expressed satisfaction with this and said to Mr Law that he believed “We would make a great team – a great partnership”. He told Mr Law that he (Hofstede) would talk to the All-Waste accountant, Mr Tattersall. I fix the date of this meeting as November 1995 shortly before 28 November, because it was on that date that Mr Tattersall sent by fax to Mr Donohue certain depreciation schedules for All-Waste (Melb) and for Mortek. The coversheet for this fax informed Mr Donohue that Mortek was to transfer its assets as at 1 July 1995 to All-Waste (Melb). These assets comprised motor vehicles, plant and office equipment whose written down value was some $77,000. The evidence does not show that these assets were transferred.
At some stage about this time, the question of Mr Law’s financial contribution was raised. Mr Law told me that Mr Hofstede first mentioned $400,000 as the price for his entry into the business. This is about the amount of the expected cost of the construction of the new liquid waste treatment plant as it appeared in the financial material provided shortly before. Later, this figure was raised to $500,000 and this increased figure was accepted by Mr Law as the asking price for a 50 percent share in the business. Mr Law was uncertain when these figures were discussed but he was content with this figure at the time when the two men shook hands on the deal in December 1995.
The third meeting was between Mr Law, Mr Hofstede and Mr Tattersall. Mr Law said that it took place in “the first week of December or thereabouts”. This was the first occasion Mr Law met Mr Tattersall and he was introduced to the accountant by Mr Hofstede as “a person interested in joining the company into a partnership”. The meeting, as recounted by Mr Law, was a very positive one. Mr Tattersall was instructed to gather financial information to enable Mr Law to approach financial institutions for finance. Mr Hofstede said he would arrange a meeting with All-Waste’s lawyers, Harwood Andrews “to draw up some agreement and also discuss the financials and how this partnership was going to be handled”. Mr Law, for his part, was to have his own accountant do whatever was necessary to implement his entry. The discussions took place on a very optimistic note with those present expecting “to set the world on fire”. In his evidence-in-chief Mr Law explained his use of this expression:
“Counsel: What was it that was said at that meeting between you and Mr Hofstede that prompted you to say in the witness box just then that your understanding was that you and Mr Hofstede were going to set the world on fire?
… --- Okay, John said that ‘You and I would make a great partnership with my knowledge of the liquid waste industry and with your expertise with major clientele and also the dry waste business.’
And what did you say? --- I said yes. I was very comfortable with John and I said ‘Yes, I believe we would make a great team.’
Was anything else said or did anything else transpire or occur during the course of that meeting? --- I’m not sure.
How did it conclude, to the best of your recollection? --- John and I – because of our enthusiasm with each other and what was happening, we basically spoke in terms that this would be a good way to go and ‑
When you say ‘we spoke in terms’, can you tell His Honour what was said? --- After we said that we would make a good team, at that time we shook hands and said ‘Let’s do it’.
This was, for Mr Law at least, an important meeting. It was from this handshake that he considered himself as a partner in the All-Waste business. The financial and legal implications of this he left to others. It was after this meeting that he provided funds for the All-Waste business when asked. His first payment of $30,000 was made on 20 December 1995. But nothing further was done in the furtherance of the partnership arrangement before the resumption of work after Christmas of 1995.
Mr Donohue spoke of another meeting which took place before Christmas. He said that it was held at the All-Waste office between Mr Law, Mr Hofstede and himself with a possibility that Mr Tattersall was also present. He recalled that Mr Law and Mr Hofstede spoke of being equal partners in the existing and future All-Waste business but did not recall any determination of the financial aspects, such as the price. He said that, at the end of the meeting, the two men shook hands and said “We will do business”. Mr Law did not speak of this meeting.
This, in essence, is the evidence of the December 1995 Agreement. This evidence was, as I have mentioned, uncontradicted although it was put to Mr Law in cross-examination that he had exaggerated the finality of the agreement which he described and that, by the end of December or indeed at any time, the parties did not progress beyond mere negotiating.
Post Contract Dealings
I turn now to the evidence of post contract dealings. Each of the contending parties pressed me with evidence of these dealings over the succeeding four years. For the most part, it was the significance rather than the accuracy of this evidence which was in controversy. When this evidence was being led on behalf of the plaintiff it was said to be corroborative of the evidence of Mr Law as to the existence of the December 1995 Agreement. I should not, of course, receive evidence of his self-serving statements but it was put that, in the end, I should have to choose between his evidence and that of Mr Hofstede and Mr Tattersall which, it seemed, would contradict his account of the conversations which comprised that agreement. It was further put that, insofar as the post-contractual conduct suggesting the existence of the December 1995 Agreement was conduct by Mr Hofstede, it was receivable as an admission against his interest or in anticipation of cross-examination of him on these matters. As things turned out, the decision of the defendants to call no evidence meant that many of these considerations disappeared. The evidence, however, was still relied upon as showing that many significant matters had not been finalised in December 1995, to meet certain post-contractual conduct put against Mr Law as admissions by him, and in support of the estoppel claim. It is convenient that I deal with this evidence as it affects dealings between the parties in the period from January to May 1996, from June 1996 to October 1998 when the waste disposal plant was commissioned, and from 1999 to February 2000 when the business assets were sold.
January 1996-May 1996
Following the Christmas break, the legal and accounting advisers of the two men began the task of documenting the future relationship between them. On 15 January 1996 a meeting was held at the office of Coadys Solicitors to discuss the structure. Present were Mr O’Keefe from Coadys, Mr Hofstede, Mr Tattersall, Mr Law and Mr Donoghue. Only the last two men gave evidence. In his letter of 22 January 1996 Mr O’Keefe confirmed the matters discussed and set out the advice given. He records that the fundamental proposal was that Mr Law acquire a 50% interest in the company All-Waste (Melb). The shares in that company on a net asset value basis ignoring goodwill, were said to be worth about $7.00 each so that 50% would be worth about $77,000. Various alternative structures which had been discussed at the meeting are considered in the letter. The ultimate recommendation of Mr O’Keefe is that All-Waste (Melb) issue a further 22,004 shares to a trust to be established for the Law family. The existing transport business would be conducted by All-Waste (Melb). The proposed waste treatment plant would be owned by a partnership comprising the Law family trust and a trust to be established for the Hofstede family. The operation of the waste treatment plant would be conducted by a different partnership comprising two different trusts, one for each of the Law family and the Hofstede family.
There followed a meeting at the office of Harwood Andrews on 24 January 1996. According to Mr Law, present at this meeting were Mr Hofstede, Mr Tattersall, Mr Donohue and himself as well as Mr Ley. The discussions and decisions of this meeting were confirmed by letter from Harwood Andrews of 5 February 1996. Without going into detail, the proposal at this stage involved the issue to the Law family trust of 22,004 shares in All-Waste (Melb) for $175,000 so that it held 50% of the issued share capital in this company. Mr and Mrs Law were to provide a further $100,000 and, in addition, the Law family trust was to subscribe $317,500 for half of the units in a new class income unit trust, the All-Waste Management Trust, which would operate the proposed waste treatment plant. The cost to Mr Law and his interests would therefore be $592,500, and not $500,000. Moreover, the income from the All-Waste Management Trust was to be distributed equally between the Law unit holders and the Hofstede unit holders but the Hofstede unit holders were entitled to receive the first $500,000 on any distribution of capital.
For a reason which was never made clear, this scheme was not immediately implemented. In fact, no further step was taken to document any agreement during the period presently under consideration. It may be that the two men were awaiting finance for the construction of the waste treatment plant.
On 18 January 1996 an application for finance had been made to St George Bank. The details of this are not in evidence. The application included personal details of and a statement of assets and liabilities of Mr and Mrs Law as guarantors of the finance accommodation sought. On 27 March 1996 St George Bank offered to All-Waste (Melb) facilities totalling $1M on terms which included a guarantee by Mr and Mrs Law and a registered first mortgage over their home in Mt Eliza. This offer was apparently not accepted by the company.
In the meantime, the company was also seeking finance from the National Australia Bank, for on 25 March 1996 that bank offered to provide an overdraft of $385,000 plus, perhaps, further facilities. Again, Mr Law was to provide a mortgage over his home to secure the repayment of the loan. This application, too, was not pursued.
By this time Mr Law had provided further funds to All-Waste in response to requests from Mr Hofstede. He paid $23,000 on 12 February 1996, $65,000 on 28 March 1996 and $20,000 on 2 April 1996. This last payment was provided by an extension of $70,000 to an existing asset-builder loan of $130,000 made by the Bank of Melbourne to Mr and Mrs Law on 20 March 1996. The total sum invested by them in All-Waste at this stage was $138,000.
This last figure permits me to conclude that it was some time after 2 April 1996 that a telephone conversation took place between Mr Hofstede and Mr Ley of Harwood Andrews. All I have of this conversation is a handwritten memorandum of Mr Ley which was admitted in evidence pursuant to s. 55 of the Evidence Act 1958. The writing is not easy to read and the notes are brief and in point form. I approach this document, therefore, with a degree of caution. It appears to concern a sale to or a takeover of the All-Waste company or the business by Heinz Liquid Waste. Mr Ley appears to record his advice to Mr Hofstede that he (Hofstede) pay out Mr Law’s loan before he (Law) finds out about the takeover and that Mr Hofstede make sure that Mr Law is kept on as an employee.
I should note at this point that on 16 February 1996 Mr Law had left his employment with Pacific Waste and became employed as sales manager of All-Waste on a salary of $40,000 plus mobile phone, plus superannuation, plus car. He described this as a salary sacrifice which was consistent with his belief that, as a part owner of the All-Waste business, he had the prospect of sharing in its profits. He said that his salary at Pacific Waste was $45,000 plus car plus mobile phone. The facts support this contention. The Pacific Waste group certificate for 1995 shows a gross salary of $37,805 and that for 1996 a salary prior to his resignation which, annualised, represents $36,579. There is, however, a further income item of $4,735 in this tax return which appears to represent commission received from Pacific Waste. If this, too, is to be extended for a 12 month period it would represent a further $7,461, bringing his salary package from Pacific Waste up to $44,000.
About this time, too, there occurred a meeting between Mr Law and Mr Hofstede in the latter’s office. Mr Law said that it was in April or May and in any event before 27 May 1996. It seems that Mr Hofstede at this meeting expressed his concern that word had been put around that he had sold All-Waste to Mr Law and he inquired whether Mr Law was its source. Mr Law told Mr Hofstede that he did not know where the story had come from. Mr Law accepted before me that, in this conversation, Mr Hofstede asserted that the company was his company and that he (Law) did not dispute this to his face.
Against these facts there occurred two significant events. First, on 27 May 1996 Mr Law signed a document which was presented to him by Mr Hofstede. It is in the following terms –
“I acknowledge that, unless and until formal agreements are entered into, I have:
(a) no legal interest in All-Waste (Melb) Pty Ltd;
(b)no claim against All-Waste (Melb) Pty Ltd or its directors in respect of a proposed joint venture, which has been discussed, but the terms of which have not as yet been agreed.”
A similar document was signed on this day by Mr Stanfield with whom Mr Hofstede had had some discussions in March about taking a 10% interest. Mr Law said that he protested when asked to sign the document but in the end he did so. He offered the following account of his reaction when he and Mr Russell Stanfield were asked to sign the documents:
“John stated to Russell and I could we please sign this form stating that we had no interest in All-Waste and I said ‘Why do we need to sign any form, if he hasn’t had an interest?’
HIS HONOUR: You said what, you said?---And Russell Stanfield when Russell had not had any interest or involvement in the company and he said ‘No, this is to protect us down the track, down the line.’ and I said ‘But Russell hasn’t put any money in, Russell has not been involved in the business.’ and I refused to sign it. John was pretty annoyed about it at the time and I think one or two days may have gone by. Russell had said to me because we share the same office “Why won’t you sign that letter?” and I said “There is no need for me to sign any letter, there was no agreement in place. Why do you need to sign it?” He said ‘I don’t have a problem signing it’ I said. Probably not, you haven’t put anything in the business but I have, there is no need for me to sign it.” and that sort of finished the conversation. The next day we had the sales meeting and John was quite jovial, we had had some good victories in picking up some nice contracts and so forth and John again said “Will you and Russell please sign this form.” and I again refused, I said ‘No, I don’t believe that’s necessary, John, because nothing happened, there’s no need for it.’ and he said “Well, it’s in our interests for down the track.” and I said – so I queried it and I had difficulty in signing it but John was a very forceful type person, he was getting pretty angry about the whole thing and I felt really, nothing has happened, there’s probably no harm in signing it anyway but I was very uncomfortable about it but I did it really for the sake of harmony in the business and – oh well, I made a mistake by signing it because I knew I shouldn’t have and I did but it happened.”
On the following day occurred the second event. Mr Hofstede and Mr Tattersall handed to Mr Law a handwritten document apparently recording the state of Mr Law’s loan account with the company and showing a balance due to Mr Law of $141,840.42. He was also handed two cheques for this sum, one for $122,097.63 payable to Mr and Mrs Law and one for $19,742.79 payable to the Commonwealth Bank. Mr Law took these cheques and banked them, the larger in his Bank of Melbourne account and the other in his Commonwealth Bank account. He said that he was told that this was “a distribution of funds”. Elsewhere, he said that he was told that it was “a dividend” or “a dividend … from the royalties”. I make no finding that the word “dividend” was mentioned. It is clear, however, from the accompanying document and from the amounts involved, that it was not a dividend but rather that it was paid and accepted as a repayment of the loans. I reject as improbable Mr Law’s evidence that he accepted it on any other basis.
The position, then, as things stood at the end of the first period is that the arrangement upon which the two men had shaken hands in December 1995 had not been formalised and that Mr Law had in a formal document acknowledged this fact and that he had no legal interest in All-Waste (Melb). This document had, however, no legal effect for my purposes other than as an admission that no agreement of the kind contended for had been made in December 1995 or, if it had, it was no longer on foot and that no reliance was placed on it by Mr Law. Further, Mr Law had paid into the business $138,000 which had been repaid in full with interest. Mr Law was then not committed as a guarantor of any loan to the company nor was his home encumbered by any mortgage as security for any such loan.
In terms of the inferences which I am asked to draw from these events as supporting or otherwise the existence of the December 1995 Agreement, my task is more difficult. For this purpose, I am not concerned with Mr Law’s state of mind or belief during the post-contractual period that such an agreement existed. I accept the uncontradicted evidence offered on behalf of the plaintiff of the November and December conversations which I have summarised in paragraphs [23] to [30] above. The events after that do not cause me to doubt this evidence. I accept, too, that until 27 May 1996 Mr Law believed that he was part of the All-Waste organisation and that he would, in the way that the lawyers and accountants would eventually decide, directly or indirectly own and conduct the business with Mr Hofstede on an equal footing. This made him ready to offer himself as guarantor and his home as security for the business debts to the bank. I find, too, that his conduct on 27 and 28 May 1996 shows that Mr Law no longer had this belief or understanding. From then on-wards, at least until July 1997, he was content that his interest in the business lie in the future.
June 1996 to October 1998
This period ends with the commissioning of the new waste treatment plant in October 1998.
For my purposes, the most significant events were two payments by Mr Law or by him and his wife to All-Waste: $60,000 on 5 June 1996 and $35,000 on 29 July 1996. The circumstances as related by Mr Law were as before. In each case, Mr Hofstede asked him if he had more funds to “put in” and he provided what he could. The two cheques which were drawn on Mr and Mrs Law’s cheque account with the Bank of Melbourne took the account overdraft in the sum of $191,799 against its limit of $200,000.
There was debate before me as to whether these payments were by way of loan or by injection of equity capital. There is little evidence other than the fact of payment and, as will be seen, repayment.
No financial records of Mr Law shed any light on the question except that his tax return shows that no interest was received on these sums if they were loans and if interest was paid.
Such entries from the All-Waste financial records as were in evidence do support the payments as being current liabilities, loans at call or as a non-current liability, term loan account. There were, too, some ledger entries but these were never fully explained. I should say that I approach the financial records of All-Waste with some caution. Mr Law said that he was told by Mr Hofstede that there were in fact three sets of books kept: one for the tax department, one for the bank and one for the company. For what it is worth, there appeared to be discrepancies between the figures in the 1997 financial statements of All-Waste (Melb) and its tax return for the same year. Mr Law was never challenged on this matter and neither Mr Hofstede nor Mr Tattersall was called to deny or explain this serious allegation. I will, therefore, not treat the accounts of the company as reliable.
Again, in the context of the issues which I must decide, the nature of the payments is of very little, if any, significance.
The only other significant events in the period under consideration occurred in mid-1997. It may be that this was when the construction of the waste disposal plant was under way. At this time a legal structure for the ownership and the operation of the plant was set up. It appears to be similar to that suggested by Harwood Andrews in February 1996. It involved the registration of a new company, P & S Law Enterprises Pty Ltd and its installation as trustee of the Law Family Trust which was established on or about 25 July 1997. Under these documents as implemented, the Law Family Trust took only 15 percent of the All-Waste Management Trust units. Shortly before this date, on 4 July 1997, finance from the National Australia Bank had been put in place.
This multipurpose facility was to be provided under different arrangements to each of All-Waste (Melb) and All-Waste Management. For All-Waste Management, the bank provided a total accommodation of $1.24M and this was supported by a guarantee from all the persons behind the four unit holders, including Mr and Mrs Law, and by mortgages, including a registered first mortgage over the Laws’ home. The overdraft of $50,000 granted to All-Waste (Melb) was not supported by any guarantee or mortgage from Mr or Mrs Law. Indeed, their names are struck out in that part of the bank letter of offer to All-Waste (Melb).
In order to provide the mortgage to the National Australia Bank it was necessary for the Laws to discharge their mortgage in favour of the Bank of Melbourne which secured their $200,000 overdraft facility. This account, which in November 1997 was a little over the limit, was paid out on 5 November 1997 by a new home loan of $150,000 granted by the National Australia Bank on security of a mortgage over the Laws’ home and by a payment of $62,464.22 by All-Waste (Melb) to the Bank of Melbourne. For what it is worth, this sum is shown as a credit to the current liabilities of that company under the heading of “loans at call (unsecured)”. The Laws’ mortgage in favour of the National Australia Bank is dated 19 December 1997.
As I have mentioned above in paragraph [8] a further 1.24M units in the All-Waste Management Trust were issued in 1998 of which 15 percent were issued to the Law Family Trust. The consideration for these 186,000 units as expressed in the application signed by Mr and Mrs Law is “by P & S Law Enterprises Pty Ltd assuming responsibility as principal debtor for payment of the sum of $186,000 being part of a larger amount presently owed by the Trustee to National Australia Bank”. In July 1998, too, the Law Family Trust was issued three shares in All-Waste Management, being 15 percent of its issued shares capital and Mr Law became a director of that company. It is clear beyond a shadow of doubt that, by the time of the sale to Theiss, Mr Law was not a 50/50 partner in the All-Waste companies or their assets, whatever may have been the position previously. I should add that I reject his evidence that he did not know what he was doing when he had these documents prepared by his lawyers and accountants and when he executed them. I reject the submission put on his behalf that these documents have no legal effect and should be put to one side.
1999 – 2000
I can deal shortly with this last period. As a director of All-Waste Management, Mr Law participated in various transactions involving the assets of this company. He was consulted when some were sold to Theiss by agreement dated 11 January 2000. The sale was a sale by All-Waste (Melb) and All-Waste Management as vendor of all of their assets except certain freehold land, cash at bank, a number of tanks, certain insurance policies and their book debts as at 1 February 2000. The price was $4.25M. Mr Law stayed with the business, becoming an employee of Theiss as its sales manager at a salary package of $77,000 plus car. About this time, February 2000, Mr Tattersall handed to Mr Law a handwritten document which recorded the state of his loan account, starting with the two payments in June and July of 1996 totalling $95,000. They show the payment of $62,464.78 made in partial discharge of the Bank of Melbourne mortgage in November 1997 and other payments made to him as credits, producing a net indebtedness by him to the company of $10,325.78. Mr Law said that he went through the figures with Mr Tattersall and that he accepted them and now accepts them, with the exception of three payments to him in November 1996 to April 1997 each of $5,000. He said he did not receive this money. The deduction of these sums produces the result that he was then owed about $5,000 on his loan account in February 2000.
Mr Law told me, too, that sometime soon after 1 February 2000, Mr Hofstede came into his office and left a cheque for $20,000, saying that it was to help him with his school fees and credit cards. Mr Law said he banked the cheque.
I need hardly say that these events have little bearing upon my task in determining whether a binding contract was entered into in December 1995, four years previously.
The Agreement
I return now to the fundamental question, whether, given the findings I have made, I can discern on an objective basis that Mr Law and Mr Hofstede entered into the December 1995 Agreement. The proper inference to my mind is that the two men did reach what commercial people would call an agreement, but it was a very primitive one. It was that Mr Hofstede would give to Mr Law a 50/50 share in the All-Waste business in exchange for Mr Law putting $500,000 into the business. No more than that was agreed. They expected that this agreement would be worked out and documented by the lawyers and accountants in due course.
But such an agreement, in the circumstances of this transaction, is not sufficient to constitute a binding and an enforceable agreement in the eye of the law. In this case the business in which Mr Law was to have an equal share was owned and conducted by a company, All-Waste (Melb), or perhaps two companies. Mr Law was aware of this. There was nothing agreed as to whether Mr Law was to buy half of Mr and Mrs Hofstede’s shareholding and if so for what price, or whether there was to be an issue of 22,004 shares. It is significant that, even at the end of this trial, counsel on his behalf was unable to choose between these very different transactions. It was not agreed whether Mrs Law was to be involved, as she was later. There was no agreement as to when and in what way the $500,000 was to be introduced. Mr Law said that he was to pay the money as and when required but nothing was said as to this.
It was agreed to refer the finalisation of the agreement to the lawyers and accountants. Mr Law had his own accounting adviser. A proper interpretation of the conversations between the two in November and December 1995 suggests that this was seen by the two men as being of such importance that everything depended upon this and until this finalisation was achieved there was no commitment to any particular form of partnership arrangement.
A troubling aspect of this case has been the fact that Mr Law in various ways saw himself as more than a mere employee of All-Waste in early 1996 and acted accordingly. I remind myself, however, that the existence of a legal agreement depends not upon his actual intention or belief, but on the objective inference as to the contractual intention of the two men as evidenced by their conduct.
I conclude, therefore, that the December 1995 Agreement has not been made out.
Estoppel
The second basis upon which the plaintiff’s claim is put is that of estoppel. The plea is contained in one short paragraph:
“13.Further and/or alternatively, by reason of those matters pleaded in paragraphs 8, 9, 10, 10A, 12, 12A, 12B and 12C, the First Defendant is estopped from denying the existence, purport or effect of the Representations and/or Further Representations.”
The relief sought as a consequence is a declaration
“(i).as to the existence and binding effect of the Agreement in the terms pleaded in paragraph 6 above;
(ii).that the First Defendant is in breach of Agreement; “
alternatively, damages.
The paragraphs in the pleading referred to in paragraph 13 are the following:
¨paragraph 8 - this paragraph contains five representations which I have set out in paragraph [15] above;
¨paragraph 9 - this paragraph asserts that these representations were repeated throughout the period in which Mr Law was involved in the All-Waste business;
¨paragraph 10 - in reliance upon the representations Mr Law entered into the December 1995 Agreement and provided consideration to the corporate defendants;
¨paragraph 10A- as amended this paragraph is incomplete;
¨paragraph 12 - this paragraph was deleted;
¨paragraph 12A - this paragraph alleges that Mr Hofstede was in breach of the December 1995 Agreement;
¨paragraph 12B- this paragraph alleges that Mr Hofstede holds 22,003 shares in All-Waste (Melb);
¨paragraph 12C- this paragraph alleges that Mr Hofstede holds 50 percent of the share capital of All-Waste (Melb) on constructive trust for Mr Law.
It is clear enough that paragraph 13 is, as a matter of law a nonsense. Counsel for the plaintiff in argument, however, submitted that the doctrine of equitable estoppel should operate to prevent Mr Hofstede from resiling from the representations which are referred to in paragraph 6 of the statement of claim. It was said that Mr Law acted in reliance upon them to his detriment and that it would be unconscionable if Mr Hofstede were permitted not to do what he said he would do.
The relevant representations for the purpose of this case are those which I have set out in paragraph [15] as (1), (2), (4)(ii), and (5). I do not find that any of the representations were made by Mr Hofstede except the first.
I am satisfied that, even though no contract was entered into, Mr Law relied upon the statement made by Mr Hofstede in paying a total of $138,000 to the company in the period to May 1996 in anticipation of the finalisation of arrangements for his entry into the business. This money was repaid in May at which time Mr Law acknowledged that the promise was not yet fulfilled. By this time at least, however, Mr Law’s state of mind was that of a hopeful negotiator content to let things ride in the expectation that, at some time in the future, some unspecified contract would be entered into which would give him some, but perhaps not a 50 percent, interest in Mr Hofstede’s business.
It follows from all of this that any detriment incurred by Mr Law in the period to the end of May 1996 had disappeared by that time. The money he had paid to the company had been returned with interest; he had been paid for his work as sales manager; he had not committed his own assets to the business as mortgagor or guarantor and his conduct after May 1996 was not made in reliance upon anything more than that his expectancy might be fulfilled in the future.
The claim in estoppel must fail. The evidence does not show any unsatisfied detriment in reliance upon the representation; there is no unconsciounability with which to fix the conscience of Mr Hofstede.
Conclusion
The claims of Mr Law have failed. I would propose that there be judgment for the defendants with costs including reserved costs and costs of transcript.
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