Lentinan Corporation Pty Ltd v Taylor

SUPREME COURT OF VICTORIA

CAUSES JURISDICTION

Not Restricted

No. 5262 of 1997

THE LENTINAN CORPORATION PTY LTD	Plaintiff
v
BARRY KEITH TAYLOR AND WESTPAC BANKING CORPORATION ARBN No 007 457 141	Defendants

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JUDGE:	Ashley J
WHERE HELD:	Melbourne
DATE OF HEARING:	30 and 31 March, 1, 2 and 6 April, 22 June 1998
DATE OF JUDGMENT:	13 November 1998
MEDIA NEUTRAL CITATION:	[1998] VSC 77

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Contract - Subject matter - Issue of construction

Trade Practices - Contractual promise - Implied representation

Company - Liquidation - Whether liquidator was agent of company when entering into a contract for the sale of assets

Agency - Whether liquidator was agent of chargee when entering into a contract for the sale of charged assets

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr W.T. Houghton, Q.C. with Mr J. Gorton	MacMillan Segal & Lenton
For the First Defendant	Mr O.P. Holdenson	Irlicht & Broberg
For the Second Defendant	Mr J.W.S. Peters	Minter Ellison

HIS HONOUR:

The claims

The plaintiff, the Lentinan Corporation Pty Ltd (Lentinan), was incorporated, it appears, in about August 1996. Its sole director was, and remains, Mr Andrew Savva (Savva). The company was set up, according to Savva, to purchase the assets of the Organically Grown Mushroom Company Pty Ltd (Mushroom).

Savva and an associate, Roy Stenning (Stenning) were the directors of Mushroom. They resolved on 22 July 1996 that Mushroom was insolvent, and to appoint Barry Keith Taylor (Taylor), the first defendant, as administrator pursuant to s.436A of the Corporations Law.

The administration was pursued until, by resolution of creditors on 19 August 1996, the company was placed into liquidation, Taylor being appointed liquidator.

The second defendant, Westpac Banking Corporation, is the successor of Bank of Melbourne Limited (the Bank). In December 1995 the Bank provided Mushroom with a working overdraft to a limit of $100,000. The facility was secured by a fixed and floating charge over all the assets of the company. In March 1996 the limit was increased to $200,000. The change crystallised when Taylor was appointed administrator of the company.

The plaintiff alleges, by its Further Amended Statement of Claim, that by agreement made between Lentinan and Taylor on 11 September 1996 Lentinan agreed to acquire all Mushroom's assets as at the date on which the company ceased trading, but excluding a property at Jeparit, for $60,000 - such amount to be paid within 14 days of 11 September. The plaintiff alleges that the last day of trading was 2 August 1996.

The plaintiff pleads that the agreement was partly in writing, partly oral, and partly to be implied. It relies upon four documents passing between Taylor and Lentinan in the period 28 August 1996 to 11 September 1996. It relies upon a conversation said to have taken place on or about 5 or 6 September 1996 between Savva and Mark Penkethman (Penkethman), then a member of Taylor's staff. Insofar as the agreement is alleged to be implied, the implication is said to arise from the need to give business efficacy to the relationship between the plaintiff and the defendants.

Focusing upon the claim against Taylor, it is alleged that all Mushroom's assets as at 2 August 1996, including those set out in five schedules annexed to the statement of claim (but excluding the Jeparit property), were to be sold to the plaintiff. Those assets (I describe them in an abbreviated way) were said to be:

Schedule 1:    lease of premises at Mascot, NSW
  lease of Toyota 1 tonne van
  plant, equipment and sundries at those premises
  telephone and fax numbers at those premises
  client list(s) kept at those premises
  20kgs dried mushrooms.
Schedule 2:    lease of premises at Mt Waverley, Vic
  plant, equipment and sundries at those premises
  telephone and fax numbers at those premises
  administration files kept at those premises.
Schedule 3:    plant and equipment at "Arkona Farm" (a farm property
  near Dimboola)
  10 bags of dry mushrooms
Schedule 4:    household items at the "Jeparit residence".
Schedule 5:    Debtors
  Claim for about $302,000
  Supply and licence agreements with Chinese authorities
  "All rights to name, market and intellectual property
  rights of and connected with" Mushroom.

The plaintiff's further allegation is that a deposit of $6,000 was paid on 11 September 1996. Then, on 20 September, the settlement date was extended to 2 October. On the latter date the plaintiff tendered the amount due, but in breach of the agreement Taylor refused to accept it. This repudiation of the agreement was accepted by Lentinan.

An alternative claim is put. Taylor is alleged to have misrepresented to the plaintiff, in the period 28 August to 11 September that he would deliver possession of all Mushroom's assets as at 2 August to the plaintiff. It is alleged that he had no reasonable grounds to believe that he would comply with the representation that he would do so. It is claimed that he was in breach of s.52 of the Trade Practices Act 1974 (Cth) and/or s.11 of the Fair Trading Act 1985; and in breach of obligations under Chapter 5 of the Corporations Law. The plaintiff claims that it relied upon the representation in entering into the sale agreement and paying the deposit.

By his defence Taylor admits that, in his capacity as liquidator, he had negotiations (with the plaintiff). He denies that they resulted in a completed contract. He alleges that if a contract was made, it was repudiated by Lentinan, the repudiation being accepted by him. In substance he says that either there never was agreement about the subject matter of the proposed sale; or, if there was, then Lentinan later sought to add to the subject matter so as to repudiate the contract. He denies the claim based upon alleged misrepresentation. He further says that the claim is brought against him in his personal capacity, not as liquidator; and that no such claim will lie.

I turn to the claim against the Bank. It was originally pleaded that the alleged contract was made with the Bank's consent and authority; likewise the variation of contract in respect of the settlement date. The plaintiff alleged that the Bank had induced Taylor to breach the contract. A claim based upon alleged misrepresentation was raised against it.

The claim against the Bank was amended more than once. In November 1997 it was alleged - in the alternative to the plea that Taylor entered into the contract with Lentinan - that Taylor entered into the contract as agent for the Bank; and that Taylor acted in that capacity when agreeing to extend the settlement date.

The Statement of Claim was further supplemented at trial. It was then pleaded, in the alternative, that the Bank represented to Lentinan that Taylor had authority to sell Mushroom's assets on its behalf; that Lentinan had relied upon such representation in entering into the sale agreement; and that the Bank was estopped from asserting that it was not bound by the alleged contract.

The Bank pleads that it agreed to the sale of Mushroom's assets for $60,000, Taylor to pay it the proceeds of sale less his costs, it to facilitate the sale by providing a partial withdrawal of the charge. But it denies that any contract was in fact made by the plaintiff with Taylor or it. Taylor was not its agent. Any agreement was "illusory, uncertain and incomplete". In any event, the plaintiff did not intend to be bound by the alleged agreement. If there was a contract and it was breached by Taylor, the Bank did not induce the breach. There were no misrepresentations. But if that was wrong, there was no reliance.

Having reviewed the pleadings I should immediately note two matters. First, at trial the plaintiff did not pursue its claim that the Bank had induced Taylor to breach the alleged contract (see T619). Second, by my order made 13 March 1998 the trial was limited to questions of liability only.

Events preceding 19 August

I have already described Mushroom's directorships and the bones of its corporate demise. That skeleton needs to be fleshed out.

Mushroom was established in about February 1994. Its business was growing and selling shiitake mushrooms, the spores of which were imported in "logs" from China. The mushrooms were grown on a farm property at Dimboola (the Arkona farm). Title to that property was held by Ruspana Nominees Pty Ltd. Ruspana, at relevant times, was trustee of the Savva Family Trust. Savva was appointor of the trust. I add, for the sake of completeness, that Lentinan is now the trustee of the trust; and is a defendant to a County Court proceeding brought against it by Mushroom - in substance, the liquidator.

Mushroom leased the property from Ruspana. Buildings were erected on the property and plant and equipment was placed on site, so that the mushrooms could be grown.

Mushroom leased premises at Mt Waverley and at Mascot for use as distribution centres. The terms of those leases were in issue at trial. Coolrooms were installed on the premises. They were fitted out with some plant and equipment. As at 2 August, according to Savva's evidence at trial, there were also substantial quantities of extremely valuable dried mushrooms at both premises. His evidence upon that matter did not sit easily with the schedules annexed to the statement of claim.

Mushroom production commenced, it appears, early in 1996. The company had available to it the facility granted by the Bank in December 1995; and, as time passed, the increased overdraft limit granted in early 1996. Despite the availability of those funds, before June the company was in financial difficulties. Its operators claim that this was a consequence of contamination (in one case) and excessive refrigeration (in another case) of logs of spores imported from China. Whether that is a correct explanation of the reason why Mushroom got into financial difficulties is not important for present purposes.

On 19 July, the company being in default under the terms of the facility granted to it by the Bank, a demand was made for payment of moneys owing thereunder. The amount exceeded $222,000. It was this action by the Bank which precipitated the directors' resolution on 22 July to appoint an administrator.

According to the administrator's first report to creditors, dated 24 July 1996, the company, in addition to the secured debt, had unsecured debts of more than $1.1m. The largest unsecured creditors, according to proofs of debt which they lodged, were Ruspana and Stenning. Ruspana's proof was for the sum of $484,000, being for "consultancy fees - lease of land and buildings and vehicles". The amount claimed under the lease was $78,000. The lease, I note, was said to have been entered into in January 1994 (at about the time Mushroom was established), and to have been for a 15 year period. Consultancy fees, apparently in respect of services provided by Savva, were alleged to amount to $350,000. Miscellaneous out of pocket expenses were a neat $30,000. Stenning's proof was for $222,639.59. It largely represented, I was told, moneys that he lent the company.

The first meeting of creditors was held on 29 July 1996. Mr Vartelas of Taylor's office acted as chairman. He told the meeting that there were persons indebted to the company but that "debtors are very minimal, under $10,000". The meeting was told about a claim (or claims) by Mushroom arising out of contamination or loss of spores by seawater. The details of that claim were sketchy. The amount claimed was said to be $367,000, largely consisting of alleged loss of profits. It was reported that the company's solicitors were not "overly optimistic" about the claim, "more negative than positive".

The minutes of the meeting, which are extensive and which I accept as being an accurate record of what transpired, disclose that Savva addressed the meeting and answered questions. In evidence, he could not recall having answered questions. The minutes record that the chairman told the meeting that the company's best sales month had been July 1996, in which turnover was about $50,000; and that overheads - including rental, wages and utilities - were about $12,000 per week. The minutes further record that the chairman told the meeting that it would be a difficult decision by the administrator (or a liquidator) to trade the company for another three to four months with the hope of selling it as a going concern, having account of the weekly drain of outgoings. Savva could not recall the chairman saying that company overheads were about $12,000 per week. But if that was said then, as I understood his evidence, he did not believe it was accurate. It was wrong for the administrator to have said, if he did, that sales receipts would not cover fixed overheads and wages. But he, Savva, had not drawn these reported inaccuracies to the attention of the meeting.

On 26 July Taylor wrote to the lessors of the two depots indicating his anticipation that the company would continue to trade, of his consequential intention of remaining in occupation, and of his liability - as administrator - for rent. But Taylor's anticipation that the company would continue to trade soon ended. The day after the first creditors' meeting, Vartelas told Stenning that Taylor intended to close down the business unless the company's directors, Stenning and Savva, injected $15,000 (or perhaps $10,000) into it. The receipts of the business were insufficient to cover outgoings. But the directors did not make any injection of funds.

By late July the Bank had appointed Coopers & Lybrand to investigate Mushroom's books and to advise on the course that the Bank should take. The particular accountants involved in this exercise were Messrs McEvoy and Bourton.

In late July they met and spoke by telephone with Mushroom's directors. On the first occasion that the two men met with Bourton, Savva said that he wanted the Bank to take possession of the business and assets under its charge and then sell the business back to him. He disclaimed the prospect of there being any other interested party, asking "Who would be interested in a business on somebody else's land?"

On 31 July Savva told McEvoy and Bourton that he expected the company to be placed into liquidation at the second meeting of creditors. His only interest, he said, was in ensuring that the Bank was repaid. He had no interest in the amounts owed to other creditors. He said his preference was that an offer for the company's assets be made to a receiver. He and Stenning seemed to believe that the administrator could not effect a sale. They were told that, in the accountants' view, any proposal for the purchase of assets could be negotiated with the administrator.

Later on 31 July Savva spoke to McEvoy again - on this occasion by telephone. He complained that Taylor was jeopardising the prospects of keeping the business going, or achieving a sale. He was pursuing debtors too vigorously.

The Bank, having been presented with options by Coopers & Lybrand, decided to neither appoint a receiver or a controller; but rather that the administration should continue, assets being realised. It was appreciated that this course would probably result in some - but incomplete - discharge of the Bank's secured debt. There is relevant correspondence dated 5 August between Coopers & Lybrand and the Bank, and between the Bank and Taylor. But this course of action was in fact determined in late July or very early August.

On 2 August 1996 Taylor closed down the business. The depots were closed, and staff were dismissed. Taylor advised the lessors of this development. They were asked to "close the company's account and ... not provide any further services". Seven days later he wrote to the Mt Waverley lessor. He purported to exercise rights available to him under s.443B(3) of the Corporations Law. The notice was served too late. The effect of such a notice, had it been validly given, is specified by s.443B(4).

Taylor - in this description I include hereafter his partner Vartelas and his employee Penkethman, except when I make a specific differentiation - had the company's plant, equipment and sundries at Dimboola and Mt Waverley valued by Kirkhams. The valuation, dated 2 August, valued the Dimboola items for auction purposes at $64,815, and the Mt Waverley items at $6,730. On a going concern basis the valuations were, respectively, $141,949 and $11,830. The Dimboola valuation did not address shedding or other fixtures.

No valuation was made in early August of the contents of the Jeparit home. Nor was there valuation of plant, equipment and sundries at the Mascot depot.

The Mt Waverley valuation did not refer to any stock of mushrooms on site - whether fresh or dried.

At Dimboola, shedding had been erected and farming was done on land owned by Ruspana. Speaking practically, there could have been no sale of items at that site on a going concern basis unless the operation continued there. This presupposed Ruspana's willingness to lease the property to a person purchasing the items. Ruspana, now itself in liquidation, was trustee of the Savva Family Trust. Savva was, and remains, appointor of the trust. The prospect of the business being conducted on "somebody else's land" - that is, by a purchaser other than himself - had been cynically made clear to Bourton by Savva on 26 July.

The second creditors' meeting was held on 19 August. In the period between closing the business down and that date Taylor had attempted to sell the assets of the company. By that I mean that he attempted to sell the physical assets of the company of which he was aware. When I refer to "physical assets" I mean plant, equipment and sundries. He gave evidence, which I accept, that Savva and Stenning never provided him with a list of Mushroom's assets, nor provided him with a report as to its affairs. In consequence his awareness of the physical assets of the company was always deficient.

Taylor's attempts to sell the assets - that is, the physical assets valued by Kirkhams - involved him sending letters to a number of people together with a copy of the valuation (but with the prices deleted). It also included placing an advertisement in the Australian Financial Review. The advertisement, in the edition of 13 August 1996, had the appearance of offering the business for sale as a going concern. It was directed to the production business carried on at the Dimboola farm. No doubt Taylor would have been delighted if a buyer had been found who would make such a purchase. That, for reasons described, was not a realistic prospect. It was sheer humbug for Savva to claim that reading the advertisement conveyed to him matters such as continuance of the leases of the depots, maintenance of telephone and fax lines, and continuance of a motor vehicle lease.

Let me go back a little. I am satisfied that in very early August Savva rang Taylor, saying that he wished to attend the latter's office and discuss with Taylor the sale of assets of the Dimboola farm "as he wished to purchase the business".

I am next satisfied that, probably a little before 14 August, Savva spoke to Vartelas by telephone. He said that he wanted to know if a valuation had been done of the Dimboola farm assets. He wanted to know what the valuation was. Vartelas would not tell him. He wanted to know what was being done about the sale of assets. He was told about advertising in the Financial Review. He requested a list of the assets which were for sale. He asked about the Mt Waverley premises. He was told that the premises had been vacated, the lease disclaimed, and the assets moved to Kirkhams. They could be purchased. Savva said that he was interested in the Dimboola assets, but not the Mt Waverley assets. Vartelas, he said, had fucked up the premises at Mt Waverley by removing the assets.

Mr Houghton, senior counsel for the plaintiff, understandably attacked Vartelas' evidence concerning this conversation. Nothing had been said about it in Vartelas' witness statement. It referred to a document - the letter of 14 August to which I shall in a moment refer - which was late-produced. The document itself previewed an advertisement, yet the advertisement had already been published. Vartelas' explanation of this was far-fetched.

These were weighty criticisms. But I am satisfied that the letter was sent. That implies the likelihood of a conversation - probably a day or so before 14 August. The list of items for sale which was enclosed with the letter tends to support Vartelas' account of the assets which were discussed. Inclusion of a list of the Mt Waverley items was - upon that scenario - surplusage.

The letter of 14 August read as follows:

"Further to your telephone conversation of even date, I enclose herewith list of plant and equipment which are (sic) available for sale as requested. As already discussed, I am not in a position of revealing the individual values attached to the items valued and listed, the list however, represents an exhaustive recording of all items sighted at Mt Waverley and Dimboola by Kirkhams.
I confirm my verbal advise (sic) that the plant and equipment of the abovenamed company will be advertised for sale in the Financial Review and in this regard I must ask again for your co‑operation in allowing my staff access to the premises for the purpose of inspecting the plant and equipment as required from time to time. Kindly give this matter your outmost (sic) attention.
In the meantime, should you require any further information, please contact my office."

Savva denied receiving the letter and the list. This was one of a number of instances in which Savva either denied, or said he could not recall, making or receiving communication adverse to the plaintiff's case. There were, moreover, matters of which he gave evidence that were at odds with contemporaneous documents, alleged errors in documents which he attributed to his solicitors past and present, and a series of instances where his evidence not only departed from his recently prepared witness statement but was inconsistent from moment to moment. When I add to that his constant refusal to answer questions squarely - though I do not doubt that he understood them - I must say that I formed a very unfavourable opinion of the accuracy and reliability of Savva's evidence.

I do not believe the denial presently under consideration.

It is to be noted that the letter of 14 August, and the attached list, identified plant and equipment "which are available for sale".

Savva did not attend the second meeting of creditors, but Stenning did so. Taylor reported that the only option available was liquidation. No proposal had been received from the creditors. It was unlikely that the Bank, as the secured creditor, would be paid in full. Unsecured creditors would get nothing. There was a problem selling the business as a going concern because of Ruspana's attitude. Through Savva it was refusing the administrator access. Running costs, including lease payments, had exceeded receipts during the period that the business had been kept running.

It was resolved, at the second meeting of creditors, that the company should be put into liquidation. The Bank's representative, Mr Jesson, was the mover of the relevant motion. Taylor became the liquidator.

Savva told me that it was his belief in the period 2 August to 30 September that Taylor - as administrator and later as liquidator - would have kept the Mt Waverley and Mascot leases in force. He told me that there had been plenty of money, by his reckoning, to make lease payments. Stenning had not reported what the administrator's representative had said on 19 August in respect of receipts and running costs.

It is perfectly obvious that, viewed objectively, there was not a lot of money available to Taylor to make lease payments after the business was closed down. If it could be relevant, I do not believe Savva's evidence that he was of a contrary belief. Even if Stenning did not tell Savva what was said by Taylor's representative at the creditors' meeting on 19 August in respect of receipts and running costs, the picture was made clear enough at the creditors' meeting attended by Savva on 29 July. That was followed by Taylor's unsuccessful request for funds from the directors, and then the business being closed down.

It follows from what I have just said that I reject Savva's evidence that he believed, in the period when negotiations for a sale of Mushroom's assets were being conducted, that the leases of the premises were on foot. I similarly reject any suggestion that he believed that a motor vehicle lease was being continued; likewise telephone and fax numbers at the Mt Waverley and Mascot premises. Viewed objectively, I add, the facts did not give support for any such belief.

Events which occurred between 19 August and 11 September

On 19 August, the date of the second creditors' meeting, Taylor sent letters to Ruspana and Savva. The first advised that Mushroom had been put into liquidation that day. It requested Ruspana's consent to Taylor entering the property to show "the company's assets" to potential purchasers. The second advised Savva that he had until 22 August to submit an offer for "the company's assets".

On 26 August Taylor, as liquidator, disclaimed the Toyota van which had been the subject of a finance arrangement between Toyota Finance Australia Ltd and Mushroom: see s.568(1)(e) of the Corporations Law.

Savva's witness statement refers to a conversation which he and Stenning allegedly had with Taylor between 19 and 28 August. Taylor's witness statement also refers to such a conversation. Nothing said in the conversation is relied upon by the plaintiff as being part of the oral content of the alleged contract. The varying accounts of the meeting should nonetheless be set out.

According to Savva, he said that he was "making an offer for all of the assets as from the last day the company was still running". There was no discussion about what he meant by "all of the assets".

Taylor asserts, by his witness statement, that at a meeting on 22 August the two men told him they wished to make an offer to purchase the assets at the Dimboola farm. He made it perfectly clear that the only assets for sale were the assets of the Dimboola farm listed in the valuation. There was no dispute about this by the other men.

Stenning's witness statement refers to a meeting attended by Savva, Taylor and himself, held at a restaurant or hotel in St Kilda Road, at which Taylor asked them whether they were going to offer to buy the business, and at which Savva said that he was. Stenning denied, viva voce, that there had been a meeting at Taylor's office on 22 August at which Taylor had said the things which he - that is, Taylor - claimed to have said.

In cross-examination of Savva and Stenning, it was suggested that there had been a meeting on 26 August between the two of them and Taylor. But I conclude that there was one meeting after 19 August and before 28 August when the three men met face to face and discussed a possible offer. It was held on 22 August. It was the meeting to which each of the men referred in evidence.

Generally speaking, I accept Taylor's version of what occurred at that meeting. Savva's recollection of the sequence of conversations that he had with Taylor was confused; and his alleged recollection of what was said seemed to me to owe more to his desire to further the plaintiff's case than to his desire to inform the court what had actually occurred. It seems to me, by contrast, highly likely that Taylor then had in mind the physical assets of the company. After all, he had closed the company's accounts with the Mt Waverley and Mascot lessors on 2 August; his report to creditors dated 9 August had treated the realisable value of stock and materials on hand, and the chose in action represented by the damages claim, as nil. There was nothing in that report to indicate that in his opinion the business, or its name, had any good will value. He acknowledged that he knew that the men wanted to carry on "the operation of the farm". That made reference to the assets at the farm explicable. That is so notwithstanding that the list of plant and equipment sent to Savva with the letter of 14 August included items that had been at Mt Waverley.

I come to the first of the documents relied upon by the plaintiff. Dated 28 August 1996 it said this:

"We refer to the assets held by the Company as at the date that the Company ceased trading - including the name 'The Organically-Grown Mushroom Company'.
We offer to purchase all of these assets for an amount of $60,000 payable within 14 days of acceptance of this offer."

The plaintiff contends that this was intended to and did pick up, clearly and unambiguously, all the assets referred to in the five schedules annexed to the statement of claim; and others besides. For Savva told me that the schedules failed to list a quantity of dried mushrooms that were at the Mt Waverley premises on 2 August, those mushrooms having a value, to Lentinan, exceeding $500,000; and that they understated, very considerably, the quantity of dried mushrooms that were then at the Mascot premises - those mushrooms being also worth an amount of that order in Lentinan's hands. That omission and that understatement he attributed, in substance, to the ineptitude of his solicitors.

This letter of offer, with its reference to "the assets held by the company" and to "all these assets", was much relied upon by the plaintiff. But I consider that this document does not carry the meaning for which the plaintiff contends. That is a matter to which I must return.

According to Savva, he was thereafter contacted by Penkethman, who told him that he had received the letter of offer; but that any sale could not include the Jeparit property - which I divert to say was apparently encumbered in favour of a third party, and is the subject of some other dispute. Penkethman agrees that so much of the alleged conversation did take place.

Savva goes on to say that in the conversation there was no discussion about the chattels on that property. Penkethman agrees. He says that he had no knowledge that there were any chattels at that property. That seems likely to be correct. There had been no valuation of those chattels at that time - although Kirkhams had evidently travelled to the nearby Dimboola farm.

On 30 August Taylor wrote to the Bank. The author of the letter was apparently Penkethman. The signatory was Vartelas. The letter detailed realisation costs and communicated Lentinan's offer "to purchase the assets". It continued "I request that you indicate whether you would want Mr Savva's offer to be accepted in the present circumstances". The whole thrust of the letter, unequivocally, was that the assets the subject of the offer were the physical assets, particularly at Dimboola.

I next come to the second document upon which the plaintiff relies. It is dated 5 September 1996. Penkethman was apparently the author. Vartelas was the signatory. The addressee was Savva. The letter relevantly read:

"In respect of your offer to purchase the assets of the company for an amount of $60,000.00, I assume that you are not including the disputed property at No. 4 Riverside Street, Jeparit in that figure. On the basis that the house is excluded from the assets which you wish to purchase, I request that you advise me whether this is your final offer, as I have received a number of other offers in respect to the assets of the company.
I further request that you inform me as to whether your family company, Ruspana Nominees Pty. Ltd., of which your wife and son are directors, will be allowing my staff and any prospective purchaser access to the Arkona property, to view the assets which are for sale."

Its language creates the strongest impression that the proposed agreement concerned the physical assets of the company - subject, of course, to the company name having also been specifically identified. At least principally, the physical assets were those at the Dimboola farm. The reference to access being sought to that property so that any prospective purchaser could "view the assets which are for sale" is just another pointer. I pause to say that the identification of assets on the Dimboola farm which could be the subject of sale itself posed difficulties. There was the question whether certain assets had become fixtures.

The statement of claim pleads, by late amendment, that there was an oral content to the alleged agreement. It was constituted by a statement made on or about 5 or 6 September by Savva to Penkethman "the substance of which was that the plaintiff's offer was for all of the assets of Mushroom including the client base, the Melbourne and Sydney sites, and the name".

Each of Savva and Stenning say, by their witness statements, that Savva said, when telling Penkethman that he would not increase the offer, that he was offering to buy all the assets including the depots, the client base and the company name. In viva voce evidence Savva said that he had used the word "sites". It is not said that the word "leases" was used. Savva says by his witness statement that Penkethman rang him and said that he had put his offer to Taylor, and that Taylor would get back to him.

Savva gave evidence, viva voce, that Penkethman rang him, a couple of days later, saying that Taylor accepted that the assets being sold were, in effect, the assets he - Savva - had specified. There is no record of this alleged conversation in Savva's witness statement. I am satisfied that it is just a fabrication.

Penkethman's recollection is that, in a telephone discussion, Savva referred to "assets" at Mt Waverley and Mascot. There was reference to "depots" at those places. He could not recall whether there had been any reference to a client base. There had been mention of the company name.

Penkethman spoke to a Bank official, Tracy McGowan, on 6 September. The file note that she took is in evidence. Its text supports Penkethman's recollection of what was said. I consider that it also supports a conclusion that Savva said nothing about a client base. What Penkethman did, I consider, was to tell Ms McGowan what was new about the offer. That, at the least from the perspective of Taylor and his staff, was the inclusion of the physical assets at Mt Waverley and Mascot.

Before going on, I should refer to a letter dated 6 September sent by the Bank to Taylor and signed by Ms McGowan. It referred to Taylor's letter of 30 August, and to recent discussions with Penkethman. It said that the Bank would be prepared to release its charge only over the Dimboola assets for a $60,000 consideration - to be paid to it less pertinent costs and charges. This partial release fell short of what would have been required to effect a sale of the physical assets at Dimboola, Mt Waverley and Mascot, let alone the company name and the other assets (for present purposes I so describe them) set out in the schedules annexed to the statement of claim.

I come to the third document relied upon by the plaintiff.

It was a response by the plaintiff to Taylor's letter dated 5 September. It was dated 6 September. It said that "The offer of $60,000 is our final offer". It addressed, briefly, the question of access to the Dimboola farm.

The fourth and last document relied upon by the plaintiff was Taylor's letter to the plaintiff dated 11 September 1996. It said this:

"I refer to your letter dated 6th September, 1996 and to your subsequent conversations with Mark Penkethman of my office.
I will accept your offer to purchase the assets of the company, excluding the property in Riverside Street Jeparit, for $60,000.00 subject to payment being made by bank cheque within fourteen (14) days of the date of this letter."

The plaintiff's court book includes Taylor's letter to the Bank dated 12 September advising acceptance of Savva's offer. Nothing in that letter, if it could be used to cast light on the subject matter of a contract, assists the plaintiff; rather, the converse.

Events which occurred between 12 September and 8 October

On 16 September the Bank orally informed Taylor that it would release its charge over the Dimboola, Mt Waverley and Sydney assets.

On 17 September the Bank put that position in writing. The plaintiff sought to gain some assistance from the Bank's statement that "while Mr Savva has apparently offered to purchase the assets of the company, the Bank will only be releasing its charge over" the Dimboola, Mt Waverley and Mascot plant and equipment. Perhaps this was said to record an admission made by Taylor as to the subject matter of a contract. In the circumstances which I have detailed, I could not so regard it. The Bank's file note dated 16 September shows that it did not know of any other assets. None, save (possibly) the company name, had been drawn to its attention by Taylor.

Two events occurred on 18 September. First, consistently with Taylor's letter dated 11 September and advice given orally by Penkethman to the Bank on 16 September a letter was faxed to the plaintiff confirming that the settlement date was 25 September.

Second, Savva met with Taylor. He sought extension of the settlement date by a week, saying that he had an investor interested, but that there might be difficulty raising all the money he wanted by 25 September. He apparently sought from Taylor something to show the investor. He also gave Taylor a cheque for $6,000 "as a show of good faith".

Taylor gave Savva something to show the investor. Dated 18 September, and addressed "To whom it may concern", it said this:

"This letter confirms that I, Barry Keith Taylor, of 8th Floor, 608 St. Kilda Road, Melbourne, Liquidator of The Organically-Grown Mushroom Co., Pty. Ltd., (In Liquidation) (ACN: 062 986 841) have sold all of the assets of The Organically-Grown Mushroom Co., Pty. Ltd., (other than the property at Riverside Street, Jeparit) to the Lentinan Corporation Pty. Ltd., (ACN: 073 418 210)."

The plaintiff relies upon this document as an admission. But in my opinion it cannot be read otherwise than in the context of the contract (if contract there was) to which it referred.

Savva gave evidence that Taylor told him that he would have to obtain the Bank's permission to extend the date for settlement. Taylor denied saying any such thing. That is not the tenor of his letter to the Bank, signed by Vartelas, dated 20 September. In his witness statement Taylor wrongly says that the settlement date was to have been 18 September; and that he agreed to extend it by seven days. Nothing turns on this obvious error in the chronology. Upon the important issue - the conflict between his evidence and that of Savva - I prefer his account.

In the event, by letter faxed to the plaintiff, dated 20 September, Taylor advised the plaintiff of a new time for settlement - 11.00 a.m. on 2 October. The letter gratuitously asserted - it was no part of any contract - that if the balance was not paid, then the deposit money would be forfeited to the liquidator.

On 27 September, the Friday preceding the settlement proposed for Wednesday 2 October, Savva faxed the following letter to Taylor:

"We refer to the settlement that is to take place on Wednesday 2nd October 96 at 11.00am.
To enable us to arrange the correct settlement amount please advise by return fax today details of debtors of the Company as at 2nd August 96 and details of those debtors collected since that date. Please also advise amount of adjustments in relation to the Melbourne and Sydney depots and lease payments regarding the Toyota van.
Could you also send today by return fax draft documents in relation to the transfer of the Company name and transfer of the leases."

The letter raised, in the context of adjustments, the proposition that the sale of assets had included

·         Mushroom's debtors;
·         the leases of the Mt Waverley and Mascot premises;
·         the lease of the Toyota van.

There was nothing said about telephone or fax lines; nor about client lists. Nothing was said about who was to bear the costs associated with transfer of the company name, or with assignment of the property leases, and the motor vehicle lease.

Taylor, by letter signed by Vartelas, faxed a reply the same day. It said, in short, that the leases, and debtors were no part of the sale, which related to "fixed assets". That phrase was inapt, but its import was - in the context of all that had passed before - clear. Generally speaking, the letter might have been crafted with more precision. But again I am in no doubt that its import was clear.

Following this correspondence Savva engaged solicitors - in particular, Mr Kuperholz of Holding Redlich. On Monday 30 September Kuperholz faxed a letter to Taylor. It asserted, forcefully, the substance of the case that the plaintiff now makes. It purported to waive what was claimed to be a breach by Taylor of the alleged contract by his letter of 27 September.

The assets the subject of sale were said to be "at least" the assets specified in five schedules appended to the letter. In the case of assets at Dimboola, they were claimed to be the subject of sale to the extent that they had not become fixtures.

The Holding Redlich letter required execution by Taylor of "appropriate" instruments of assignment. Any necessary consents of lessors were to be procured by the settlement date. Nothing was said about who was to bear of the cost of all this work. "Appropriate" instruments of assignment were not provided for Taylor's consideration.

The schedules included the phone and fax numbers, also "client lists" at Mascot and "administration files" at Mt Waverley. Nothing was said about the mechanism of transfer of the phone and fax lines, or who was to bear any cost associated therewith.

The schedules also included debtors, items referable to the Jeparit residence, the right of action for over $300,000 to which I have earlier referred, and supply and licence agreements with Chinese authorities.

According to the Holding Redlich letter, the schedules of assets had been prepared by "our client". They made no reference to dried mushrooms at Mt Waverley, and referred to only 20 kilograms of dried mushrooms at Mascot. This bears upon Savva's criticism of the ineptitude of his solicitors, past and present.

Taylor responded to the Holding Redlich letter by letter faxed to that firm on Tuesday 1 October. It was not, I think, a full response to each of the assertions that had been made. But it made some points powerfully.

It revealed what I consider to be the liqidator's understandable anger that assets whose existence had not been disclosed by Savva or Stenning were now said to be the subject of sale.

This was consistent with what I accept Vartelas told Kuperholz orally on 1 October - that is, that negotiations about the purchase of assets had only involved the plant, equipment and stock which had been disclosed to the liquidator.

It further made the sensible observation that a claim was being made that the sale included assets which could not sensibly have been thought to be available - leases of premises long since shut down, and of a motor vehicle that could not have been used in months in a business which Savva and Stenning knew had been shut down; and debts which when recovered, as Savva and Stenning must have known, had been used to pay business costs in the period of operations after 22 July.

Taylor's response did make some concessions - in what I consider was an attempt to preserve the opportunity of getting some moneys out of the Mushroom wreck. He said that he was willing to include in the sale agreement the right of action, the supply and licence agreements and the rights associated with the company name. The last of these, clearly, was the subject of any contract concluded by 11 September.

The plaintiff's then solicitors, understandably in light of what must have been their instructions, did not accept Taylor's response. Instead they faxed to Taylor assignments of lease which sought to impose upon the liquidator, in each instance, one quite onerous obligation.

The correspondence which passed between the plaintiff and Taylor on and after 27 September led on to a meeting on 2 October. As might have been expected, no settlement resulted from that meeting. There was disagreement about the terms of any contract. Kuperholz formally tendered a cheque for $54,000. Taylor said he would not accept it because he believed that there was an attempt to alter the terms of the sale. In substance, he accepted what he treated as the plaintiff's repudiation of a contract. Savva said, I am satisfied, that Penkethman had said that the lease properties were to be included in the assets. Penkethman, I am satisfied, denied this. I accept the truth of his denial.

Following the abortive settlement there was a little correspondence. Holding Redlich twice advised Taylor that the plaintiff treated his conduct as repudiation of the contract (no such allegation was made against the Bank). In each case Taylor was addressed as the liquidator. Vartelas composed and signed a letter, dated 8 October. He sent it to Holding Redlich. It was a self-serving document, going over old ground - in one respect inaccurately, in that it stated that the negotiations "related to the fixed assets at Dimboola". It asserted that the plaintiff's position had been discussed with the Bank shortly before the settlement meeting and that Taylor's office "was advised under those circumstances the Bank would not consent to the settlement and would not discharge its security over those assets". In substance it was a reiteration of Taylor's acceptance of what he regarded as the plaintiff's repudiation of a contract.

The leases
Mt Waverley

Exhibit E is a letter dated 27 February 1995 written by Kalvar Gold Pty Ltd to Mushroom. It related to the sub-lease of 1,500 square feet "to the north of the sandwich bar", the commencement date being "the date that repairs are completed", the term being (apparently) to 1 March 1997, there being no defined option, rental being $687.50 per calendar month payable in advance, outgoings being likewise payable monthly in advance, and rent review being due "in conjunction with the head lease. Next one May 1996". All other terms and conditions were "as per the enclosed copy of the head lease".

The head lease was not produced. Exhibit E, itself, was produced late in the trial. I am satisfied that no lease in respect of the Mt Waverley premises was available to Taylor during the period of his appointment as administrator, and as liquidator up to 2 October 1996.

On 2 August 1996, as I have said earlier, Taylor closed the premises. The staff were dismissed. The locks were changed. Savva could not gain access.

On the same day Taylor wrote to the sub-lessor advising that the company had ceased to operate and asking the sub-lessor to close the company's account. Later he sought to make use of s. 443B(3) of the Corporations Law. Mr Houghton submitted that Taylor was not empowered, as administrator, to act as he did. Let the correctness of that submission be assumed. It does not follow that the lease was not in fact brought to an end by the sub-lessor's acceptance of what was, in essence, Taylor's repudiation of the sub-lease. In fact, as appears from Stenning's cross‑examination, the sub-lessor re-leased the premises. Evidently it accepted Taylor's action.

I am satisfied that the sub-lease payments were up to date when the administration commenced. Had the sub-lease been continued, and had it been the subject of any contract, the consent of the sub-lessor and sub-lessee would have been required before there could be any assignment; and probably also the consent of the head lessor. Provision must have been made as to who should bear the burden of rental paid after 22 July 1996; and as to the costs and expenses of and incidental to assignment. An appropriate form of an instrument of assignment must have been agreed.

There was discordant evidence whether the sub-lease was guaranteed. I accept Stenning's evidence that it was not. Possible further complications arising if guarantees had been given need not be considered.

Mascot

Exhibit F is a copy letter dated (in error) 28 March 1997 signed by Stenning and addressed to the directors of a company trading as "Delta Car Rentals". It was late‑produced at trial.

The document, agreed by "Carlene" on behalf of Delta, records an agreement by which "we will be allowed to store our coolroom on your premises for a rental of $20 per week payable monthly in arrears"; that amount to include power.

According to Stenning, offices and car park spaces were also leased at Mascot. There was a lease, for two or three years. No such lease was produced at trial. Further according to Stenning, there was some oral content of the Mascot lease. It remained undefined. Again, there was uncertain evidence whether there were guarantors of the Mascot lease.

Stenning's evidence was not, I think, internally consistent; nor consistent with the vague evidence of Savva upon the matter. The evidence in connection with the Mascot lease was, in substance, uncertain and inadequate.

On 26 July Taylor advised his intention that the company remain in occupation of the premises. But on 2 August he sent a letter to Delta identical to that sent to Kalvar Gold on that day. There is nothing to indicate that Taylor's repudiation of whatever lease existed was not accepted.

There was evidence that the lessor was owed moneys when the administration commenced. Stenning said he believed that no rental was then owing; but he said nothing at the creditor's meeting on 29 July to challenge the administrator's report that the lessor was an unsecured creditor. I am satisfied that there was an arrears of rental.

It is extremely difficult to know just what was to be assigned in the event that there was a contract which required assignment of the lease of the Mascot premises. The nature and terms of any lease were opaque at trial, let alone in the period which is critical to this proceeding.

Again, if there was a contract which required assignment of a lease of the Mascot premises, there must have been, I should think, a payment of the rental arrears. The lessor was hardly likely to consent to an assignment - particularly to a corporate re‑creation of Mushroom - if such a payment was not made. Again, there were likely to be costs and expenses of and associated with assignment. Who was to bear the burden of paying rental arrears as at 22 July, rental assumedly paid by the administrator, later the liquidator, and the costs and expenses associated with assignment? Again, an appropriate form of instrument of assignment must have been agreed.

Toyota van

No lease was produced. Stenning said that he was a guarantor. Presumably, had a contract included provision for assignment of the motor vehicle lease, and had the lease been on foot, assignment would have required consents by the lessor, lessee and guarantor. There would or may have been costs associated with the assignment. No doubt lease payments must have been up to date at the time of any such assignment. The amount and burden of such costs and payments were matters pertinent to any contract, as was the form of assignment.

As liquidator, Taylor disclaimed the van on 26 August. His letter referred to s.568(1)(a) of the Corporations Law. The body of the disclaimer shows that he relied on s.568(1)(e).

Telephone/Fax lines

According to the schedules enclosed with the Holding Redlich letter of 1 October (and annexed to the statement of claim) the assets the subject of the alleged contract included telephone and fax numbers at Mt Waverley and Mascot.

Presumably, if application had been made to transfer the particular numbers, Telstra (or any other relevant provider) would have had the final word.

According to the first report to creditors, dated 24 July 1996, Telstra was an unsecured creditor in an amount of $1,856.86. It appears to me highly unlikely that Telstra would have agreed to any transfer of the numbers to which that amount related unless arrangements had been made to discharge the outstanding bill. Who was to pay it? What, next, was to be done about the cost of any calls made in the period 22 July to 2 August? On the assumption that rental of the various numbers had been continued, who was to bear the burden of that expense? If there were, as might be supposed, costs associated with the transfer of numbers from one customer to another, where was the burden of such costs to fall?

Did the negotiations result in a contract?

There is no doubt that Savva and Taylor negotiated towards a sale of assets of Mushroom. There is no doubt that, in the period between 11 and 27 September, Lentinan and Taylor believed that there was a contract for the sale of assets. That belief was reflected in the deposit paid and accepted on 18 September.

There is further no doubt that Lentinan's letter of 27 September proposed that the agreement included items (leases and debtors) which Taylor, subjectively, considered were not included in that sale. The same may be said of items which, by the schedules annexed to Holding Redlich's letter of 30 September, the plaintiff proposed were the subject matter of sale. In this connection I refer to the client lists, the telephone and fax numbers, the claim for over $300,000, and the supply and licence agreements.

Between 11 and 27 September there is no doubt that Taylor, at least, did not consider that there was anything left about which to negotiate. If (the company name apart) the sale was simply a sale of the physical assets still at Dimboola, which had been at Mt Waverley, and which still were at Mascot, they had been identified and valued. Insofar as there was doubt whether particular items were or were not fixtures upon the farm, it mattered little. One way or the other Lentinan would have the benefit of them. It would either be as purchaser from Taylor; or else because Savva, as appointor of the Savva Family Trust, could ensure that the person with title to the farm - it being trust property - would be amenable to use of the items by Lentinan.

Whilst it might be said that there could be no certainty about the subject matter of such a contract in the absence of agreement between Taylor, the trustee and Lentinan (in its role as purchaser) as to what was a fixture and what was not, I would be prepared to conclude that this difficulty would not, in the particular circumstances, deprive the contract of operation by reason of uncertainty.

I am in no doubt, again, that if the further items referred to by Lentinan and by Holding Redlich in their communications dated 27 and 30 September were to be the subject of sale, then there remained - on 11 September when the plaintiff pleads that a contract was made, and thereafter - a considerable number of matters about which discussions were not simply at a very incomplete stage, they had not been commenced. I have outlined, in connection with the leases and the telephone numbers, the sort of matters to which I am now referring. Having regard to the fact that the sale price was only $60,000, the impact of some of the likely expenditures was potentially very significant.

In my opinion Lentinan and Taylor did make a contract. But its subject‑matter was not as pleaded by the plaintiff. Its subject-matter emerges from Lentinan's offer of 28 August and Taylor's letter of 5 September, together with what passed orally between Savva and Penkethman on about 6 September. There is really nothing in the letters of 6 September and 11 September which adds to the picture. In short, in my opinion, the subject matter is disclosed to be the plant, equipment and sundries which were situate at Dimboola, Mt Waverley and Mascot on 2 August 1996; and the company name. That construction excludes the property and motor vehicle leases, the telephone and fax numbers, debtors, the right of action for over $300,000, the Jeparit property and its contents, and the supply and licence agreements.

I favour this construction without having recourse to extrinsic evidence. The reference to the company name in the letter of offer provides a counterpoint to the concept of physical assets implied by the reference to "the assets held by the company". The reference in Taylor's letter of 5 September to "the assets which are for sale" at Dimboola is entirely consistent with the construction which I place upon the correspondence. Remembering that the Jeparit residence was used by Savva when he was working at the Dimboola farm, the exclusion of that property (about which there was a dispute) from "the assets which you wish to purchase" was readily explicable, and consistent with, such a construction. Taylor's letter of 5 September focused upon the Dimboola assets. That focus extended to, but not beyond, the physical assets which were (or had been) at Mt Waverley and Mascot after Savva spoke with Penkethman on about 6 September.

Even if the plaintiff alleged that the contract upon which it relies was wholly in writing, extrinsic evidence might possibly be admitted as an aid to its construction. The general principle was expressed by Mason, J in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 C.L.R. 337 at 352; see also Shenker & Co (Aust) Pty Ltd v. Maplas Equipment & Services Pty Ltd and Anor [1990] V.R. 834 (Full Court) at 837 per McGarvie, J, and B & B Constructions (Aust) Pty Ltd v. Brian A. Cheeseman & Associates Pty Ltd (1994) 35 N.S.W.L.R. 227 (Court of Appeal) at 233-236 per Kirby, P.

If contrary to the opinion I have formed, the subject matter of the contract is not disclosed by the documents and conversation upon which the plaintiff relies, then I consider that extrinsic evidence would be admissible to assist in construing an ambiguity - that is, the meaning of "the assets held by the company".

The expression was ambiguous not simply because it did not descend to particularisation, but because (assuming that I am wrong in concluding that the subject matter could be ascertained in the written and oral communications relied upon by the plaintiff) there could be a legitimate difference of opinion amongst ordinary intelligent readers whether it was intended to embrace - in addition to plant, equipment and sundries - items which might be thought to be liabilities rather than assets of the failed enterprise (for example, the property leases; perhaps the telephone and fax numbers and the motor vehicle lease) or which might be thought to be of no value (for example, the company name of the failed business). The reach of ambiguity is considerable: B & B Constructions at 234-236. In the present case one need not travel anywhere near the boundaries of the concept to see that ambiguity was present.

When regard is had to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in that setting, the conclusion I have otherwise reached is reinforced. I would not conclude, upon such an approach, that the ambiguity was incapable of resolution. The questions of construction could be resolved: see Upper Hunter County District Council v. Australian Chilling & Freezing Co Ltd (1968) 118 C.L.R. 429 at 436-437.

The framework of facts includes Taylor's letter of 14 August and the attached lists, which marked out the subject matter of any sale. It includes also the conversation between Vartelas and Savva not long before 14 August. It is noteworthy that Savva denied receipt of the letter and attached list; and denied the conversation with Vartelas.

Further, Mushroom's financial position, as described by Taylor, was known (directly or indirectly) by each of Savva and Stenning in the period of the administration. It was grossly improbable in the circumstances that leases of depots and a motor vehicle would be kept on foot. It is noteworthy that Savva said that he was of a different belief when giving his evidence. I have rejected that evidence.

Likewise, in the financial circumstances which Taylor described to creditors (who included Ruspana and Stenning) it was grossly improbably that telephone and fax numbers would have been maintained.

There is other evidence of prior negotiations which bears upon ascertainment of the objective framework of facts within which the contract came into existence. There was the meeting between Taylor, Savva and Stenning on 22 August. I have, generally speaking, accepted Taylor's version of what occurred at that meeting.

In a somewhat different category, but strongly tending in favour of the conclusion I would otherwise reach if my primary conclusion was wrong, is Savva's account of his conversation with Penkethman on about 6 September - which I reject - and his fabrication, as I have concluded it was, of a conversation in which Penkethman said that Taylor accepted that the assets being sold were the assets allegedly specified by Savva. To me, Savva's evidence upon these matters was a transparent attempt to give the written words a colour which inherently they did not bear.

The facts which, in my opinion, very clearly point in favour of the subject matter of the contract being as I have concluded it was make Lentinan's conduct in the period from 27 September difficult to understand. The apparent incongruity of the position which it adopted caused me to think carefully whether there might have been some fault in my analysis. After further consideration, however, I am not at all persuaded that I should have arrived at some different conclusion. I think it would be very unwise to try to read anything into Savva's behaviour. He did not impress me as a straightforward man.

If each of the conclusions I have so far expressed was wrong, if the words of the offer should be taken to mean what the plaintiff contends for, then serious questions would arise whether the terms of the suggested contract were so incomplete as to lead to a conclusion that there was no intention to make a binding contract; or else that, despite there being such an intention, there was failure to agree upon such terms as were in the circumstances legally necessary to constitute a contract. As to the former of these matters see the judgment of Brooking, J in Toyota Motor Corporation Australia Ltd & Anor v. Ken Morgan Motors Pty Ltd & Ors [1994] 2 V.R. 106 at 131. As to the latter see Thorby v. Goldberg (1964) 112 C.L.R. 597 at 607 and Vroon B.V. v. Foster's Brewing Group Ltd [1994] 2 V.R. 32 at 67-71.

In the present instance, upon the plaintiff's case, it would be necessary to imply certain terms into the supposed contract - dealing with matters to which I have adverted when considering the property leases, the motor vehicle lease and the telephone and fax numbers. Some, not all, of those matters had financial implications. In the residual category were matters such as the terms of assignments of the various leases.

Whatever be the encouragement the courts strive to give to the arrangements and expectations of men of business there must be limits. In the present case, in the postulated circumstances, I do not consider that the implied terms to be inserted were obvious. I do not consider that they would meet the criteria for inclusion required by the authorities. In my opinion, in the postulated circumstances, there was a failure to agree upon all the necessary terms; and the court could not by implication of terms fill in the gaps.

Repudiation of the contract

Upon the construction of the agreement which I prefer (whether reached independently of, or giving consideration to, extrinsic evidence) Lentinan and Taylor concluded a contract.

Lentinan's letter of 27 September, Holding Redlich's letter of 30 September, what was said by Kuperholz to Vartelas on 1 October, the tender on 2 October of a cheque in exchange for which the plaintiff required, inter alia, executed assignments of the property and the vehicle leases, and what was said by Kuperholz on 2 October show an intention on the plaintiffs part not to be bound by the contract. Mr Houghton submitted that this had not been established. Taylor, he said, should have accepted the cheque but not provided the assignments. Only then could the plaintiff's true position have been established. I do not agree with that submission. It is not compatible with the disclosed position of the plaintiff in the period 27 September to 2 October.

Mr Houghton further submitted that by his defence Taylor relied only upon the Holding Redlich letter of 30 September as evidence of repudiation, and that the pleaded repudiation had not been accepted - see Taylor's letter of 1 October. In my opinion that submission should be rejected. Of the five connected matters which in my opinion were acts of repudiation, Taylor's defence refers to the second and third expressly, and to the fourth and fifth in an indirect way - that is, as a working out of positions adopted on 1 October.

Further, it is in my opinion plain that there was oral acceptance of the repudiation on 2 October, a position which was in substance confirmed in writing on 8 October.

The claim based upon misleading and deceptive conduct

Let it be assumed that a contractual promise would amount to an implied representation that the promisor then had an intention and a present ability to carry out that promise: Futuretronics International Pty Ltd v. Gadzhis [1992] 2 V.R. 217 at 239. I have concluded that a contract was made; but not the contract alleged by the plaintiff.

Paragraph 17 of the statement of claim pleads that at the time when certain alleged representations were made - it embraces the period 28 August to 11 September - neither Taylor nor the Bank had reasonable grounds to believe that they would comply with the representations to deliver possession of "all of the assets" of Mushroom as at 2 August to the plaintiff. That is the starting point of claims made under the Trade Practices Act and/or the Fair Trading Act.

I note two matters at the outset. First, the plaintiff does not rely upon any conduct of the Bank independent of Taylor's conduct as its asserted agent. That is the effect of paragraph 11 of the Further and Better Particulars of the statement of claim dated 22 December 1997.

Second, in his final submissions Mr Houghton contended that the critical representation was made in the fourth document upon which the plaintiff relies to establish the contract; and in three later documents. That is outside both paragraph 17 of the statement of claim and paragraph 11 of the further and better particulars.

I return to the main point. According to the plaintiff's contention, in the relevant period neither Taylor or the Bank had any intention of delivering possession of "all of the assets". Had a representation been made that all of the items identified by the schedules appended to the Holding Redlich letter of 30 September were "assets" of Mushroom and would be delivered to the plaintiff, then the plaintiff would have a starting point. But that was not the promise which Taylor made by entering into the contract. His promise was to deliver certain plant, equipment and sundries; and that promise he had the ability and intention to make good.

It is strictly unnecessary to say anything more about this aspect of the statement of claim. But I add this: paragraph 11 of the further and better particulars ties the representation to the "correspondence giving rise to the sale agreement" and implications "by law as a result of entering into the sale agreement". If, contrary to the conclusion I have reached, the plaintiff and Taylor reached an agreement in respect of the assets of Mushroom as the plaintiff would have it, nonetheless I would conclude that no binding contract came into existence. In consequence, it seems the plaintiff would fall at the first of the various obstacles he would have to clear to make good its statute-based claim.

Other issues

Two other issues were debated at trial. First, was Taylor the Bank's agent when entering into the pleaded contract and thereby making the representation relied upon in the claim founded in statute? Second, was Taylor personally liable upon the contract and representation?

Because the pleaded contract and the pleaded representation have not been made out it is strictly unnecessary to say anything about those two matters. But it is probably desirable that I make some, but brief, observations about them.

Agency: according to paragraph 2 of the plaintiff's further and better particulars the pleaded agency was to be implied from a variety of circumstances there set out. That did not inhibit Savva giving evidence by his witness statement which - going beyond the pleading and particulars - asserted that McEvoy of Coopers & Lybrand had told him that the Bank had appointed Taylor "to deal with its assets". Nor did it inhibit him, in viva voce evidence, from going further, and asserting McEvoy had said that Taylor would act as the Bank's agent to deal with its assets. Neither again did it inhibit Savva giving evidence that Taylor had told him (in what must have been the conversation held on 22 August) that he was the agent of the Bank.

Savva's evidence upon these matters was not credible. His account of when and by what medium (that is, by telephone, or face to face) McEvoy had made the alleged remarks was, to be generous, contradictory and confused. It did not accord with the contents of an affidavit he had sworn in Magistrates' Court proceedings in September 1997. McEvoy denied making the remarks. I accept his denial.

I turn to the remark attributed to Taylor. In viva voce evidence he denied making it. The remark was not referred to or relied upon in the extensive particulars provided by the plaintiff in late December 1997. Nor was there a hint of it in Savva's witness statement - which was prepared shortly before trial. I accept Taylor's denial.

The allegation that Taylor was the Bank's agent in effecting the sale was made fairly belatedly. That would be explicable, I think, if the agency was said to arise by operation of law. That was not the tenor of Savva's evidence. It is another reason for me rejecting that evidence.

Mr Houghton submitted, in his final address, that even if I rejected those parts of Savva's evidence to which I have just been referring I should conclude that there was an ostensible agency; or else that there was an implied agency.

Let it be assumed that the statement of claim and further particulars permit the plaintiff to allege an agency arising in either of those ways. The circumstances in which a principal may be estopped from denying agency, in the absence of actual agency, were described by Diplock, LJ in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 Q.B. 480 at 506. That formulation had been approved by the High Court more than once: Crabtree -Vickers Pty Ltd v. Australian Direct Mail Advertising Company Pty Ltd (1975) 133 C.L.R. 72 at 78 and 80 per Gibbs, Mason and Jacobs, JJ; see also Northside Developments Pty Ltd v. Registrar General & Ors (1990) 170 C.L.R. 146 particularly at 172-174 per Brennan, J.

Mr Houghton submitted that, through McEvoy, the Bank held out Taylor as its agent for the purpose of selling its assets. It mattered not, he submitted, that McEvoy had no actual authority to hold out Taylor as the Bank's agent. Dicta to the contrary in Freeman and in Crabtree-Vickers were wrong. He cited Bowstead on Agency 15th Ed., p.287, in support of that submission. But I think that authority binds me to the contrary.

The statement of claim pleads that Taylor entered into the contract as agent for the Bank. The contract, as I have said many times, is pleaded to have been created by documents and a conversation in the period 28 August to 11 September 1996. In that period Taylor was liquidator of the company.

In my opinion, McEvoy did not have actual authority to hold out Taylor to be the Bank's agent. But if that is wrong he did not in fact hold out Taylor to be the Bank's agent. I have already rejected Savva's evidence in connection with this matter. No other evidence supports the plaintiff's case. It is rather to the contrary.

Mr Houghton's submission that Taylor had implied actual authority to sell Mushroom's assets was more confined than the allegation made by the further and better particulars. It was as follows: only the Bank had power to sell the assets. It permitted Taylor to enter into a contract to sell them.

An implied agency may arise from conduct between parties where mutual consent to the relationship of agency may properly be discerned. See Field v. Shoalhaven Transport Pty Ltd [1970] 3 N.S.W.L.R. 96 at 103 per Asprey, JA.

In my opinion the matters particularised by the plaintiff do not lead to a conclusion that there was an implied agency. First, when the Bank's charge crystallised it did not become "the owner" of the assets. It stood back, allowing the administrator, later liquidator, to sell the assets and account to it for the proceeds. That was an available option. It was compatible with provisions of the Corporations Law. See, in the case of an administrator, s.442C (2).

Second, McEvoy did not say that the Bank had appointed Taylor to deal with its assets, or as its agent to deal with its assets.

Third, the fact that the Bank moved that Mushroom be placed into liquidation (and apparently that Taylor be appointed liquidator) does not suggest implied agency. A liquidator's obligations are to a very considerable extent specified by the Corporations Law. There is authority that a liquidator may sell charged property, accounting for the proceeds to the chargee.

Fourth, Taylor denied, and I accept his denial, that he told Savva that he would have to obtain permission from the Bank to an extension of the settlement date.

Fifth, the Bank's awareness of negotiations and of the making of the contract was for the most part after the event. But in any event it could be expected that Taylor would keep the Bank advised of developments. A discharge of its security was required in respect of any assets which were sold.

Taylor's personal liability on the contract

It was common ground that, normally, a liquidator acts as the agent of the company when exercising his powers as liquidator. In the present case, however, according to Mr Houghton's submission, Taylor did not act as Mushroom's agent when entering into the contract. Once the charge crystallised, only the Bank had power of sale. Mushroom could not sell its own assets. Therefore Taylor must be personally liable except if he was the Bank's agent and was protected from personal liability by agency principles. If there was such an agency, he was not so protected.

Contrary submissions were made by Mr Holdenson, counsel for Taylor. The liquidator, he submitted, was required to collect and realise the assets of the company. The charge had crystallised. In consequence, the Bank had an equitable interest in the assets. Title remained with the chargor. The liquidator was authorised to realise the assets. But he could not have transferred them unless the Bank released its security. What Taylor did was what he was empowered to do as liquidator. He did not thereby act personally.

My provisional view is that Mr Holdenson's submission ought be accepted. McPherson's Law of Company Liquidation, 3rd Ed at p.263, a passage in the judgment of Tadgell, J in Moodemere Pty Ltd (in liq) v. Waters & Anor [1988] V.R. 215 at 229, and the judgment of Byrne, J in Vibex Industries Pty Ltd v. Gaylor & Ors (1997) 15 A.C.L.C. 750 point in that direction. In the last-mentioned case Byrne, J explained, I think, the extent of reach of a passage in the judgment of Gleeson, CJ in Fire Nymph Products Ltd v. The Heating Centre Pty Ltd (in liq) & Anor (1992) 7 A.C.S.R. 365 at 373 upon which Mr Houghton relied. In re Benjamin Cope & Sons, Limited [1914] 1 Ch 800, upon which he also relied, did not raise the point now at issue. Beyond these brief observations I should not go in the circumstances of the present proceeding.

Conclusion

There should be judgment for the defendants.

[1998] VSC 77

13 November 1998