Maher v Honeysett & Maher Electrical Contractors Pty Ltd - [2007] NSWSC 12

No judgment structure available for this case.

Reported Decision:
(2007) Aust Contract Reports 90-249

New South Wales

Supreme Court

CITATION: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2007] NSWSC 12

HEARING DATE(S): 30/05/06, 31/05/06, 01/06/06, 02/06/06, 18/07/06, 19/07/06, 20/07/06
Written submissions: 10/08/06, 15/08/06, 06/09/06, 20/09/06

JUDGMENT DATE :
29 January 2007

JURISDICTION: Equity Division

JUDGMENT OF: Barrett J

DECISION: See paragraphs 163 to 165

CATCHWORDS: CONTRACTS - general contractual principles - whether terms sufficiently certain to create legal relations - whether supported by consideration - harsh and unconscientious contracts - undue influence - unconscionable conduct - whether one party to knowledge of other labouring under disability - CORPORATIONS - directors - duties of directors - where one director/shareholder induces other to agree to cessation of company's business and transfer of company property to him

LEGISLATION CITED: Corporations Act 2001 (Cth), s.237

CASES CITED: Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149
Bank of Credit and Commercial International SA v Aboody [1990] 1 QB 923
Bridgewater v Leahy (1998) 194 CLR 457
Brunninghausen v Glavanics (1999) 46 NSWLR 538
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Hammond v Vam Ltd [1972] 2 NSWLR 16
Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503
Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91
Johnson v Buttress (1936) 56 CLR 113
Louth v Diprose (1992) 175 CLR 621
Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859
Masters v Cameron (1954) 91 CLR 353
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601
Poosathurdi v Kanappa Chettiar (1919) LR 47 IA
Spong v Spong (1914) 18 CLR 544
Union Bank of Australia Ltd v Whitelaw [1906] VLR 711
Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429
Watkins v Combes (1922) 30 CLR 180

PARTIES: David Maher - Plaintiff
Honeysett & Maher Electrical Contractors Pty Ltd - First Defendant
Mark William Honeysett - Second Defendant

FILE NUMBER(S): SC 6055/04

COUNSEL: Mr A.F. Fernon - Plaintiff
Mr G.A. Sirtes/Mrs S.A. Sirtes - Defendants

SOLICITORS: Low Doherty & Stratford - Plaintiff
Morton & Harris - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

MONDAY, 29 JANUARY 2007

6055/04 DAVID MAHER v HONEYSETT & MAHER ELECTRICAL CONTRACTORS PTY LTD & ANOR

JUDGMENT

Introduction

1 The first plaintiff, David John Maher, and the second defendant, Mark William Honeysett, are electricians by trade. They began trading in partnership as electrical contractors in 1989. In 1994 they incorporated their business as Honeysett & Maher Electrical Contractors Pty Ltd (“HME”) and became equal shareholders and the only directors of that company. HME traded successfully and profitably. It ceased trading on 19 December 2003.

2 Cessation of business of HME occurred after differences had arisen between Mr Maher and Mr Honeysett in about September 2003 concerning the future direction and operation of the business. In brief, Mr Maher wished to see HME expand into the business of the hire and maintenance of construction cranes and associated equipment. He conducted some research into the feasibility and cost of this possibility and then discussed it with Mr Honeysett. Mr Honeysett, however, was reluctant to agree to the proposal. He wanted things to stay as they were.

3 There is substantial dispute between the parties in relation to termination of HME’s business and division of its assets. That is the substance of the proceedings before the court.

4 Mr Maher seeks the following relief in his amended originating process filed on 30 May 2006:

(a) a declaration that there presently exist as between himself and Mr Honeysett two valid and binding agreements, the first made on or about 20 November 2003 and the other dated 15 December 2003;

(b) orders for the specific performance of both those agreements;

(c) an order pursuant to ss.461(e), (k) or (c) of the Corporations Act 2001 (Cth) that HME be wound up on the just and equitable ground; and

5 Mr Honeysett sought leave of the court under s.237 of the Corporations Act to defend the proceedings on behalf of the company and to file a cross-claim. That application was heard by Brereton J on 15 August 2005. His Honour granted leave on 25 August 2005 (Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859).

6 The cross-claim brought by HME, in its amended form of 1 June 2006, seeks the following relief as against Mr Maher, as first cross-defendant, and Demaher Pty Ltd (“Demaher”), a company owned and operated by Mr Maher, as second cross-defendant:

(a) a declaration that Mr Maher has acted in breach of his fiduciary obligations in relation to HME, including the duty to act in good faith for the benefit of HME and a duty to act for proper purposes;

(b) an order that Mr Maher pay equitable damages to HME;

(c) an order for an account in relation to profits made by Mr Maher or Demaher in consequence of the breach of fiduciary obligations;

(d) a declaration that each of Mr Maher and Demaher hold any profits as constructive trustee in favour of HME; and

7 The case thus falls into two main parts. The first involves questions about the validity and construction of the November agreement and the December agreement and an inquiry into the facts that are said to affect Mr Honeysett’s consent to those agreements. The second involves an inquiry into Mr Maher’s conduct in connection with and subsequent to his decision to leave HME, and assessment of that conduct in the context of his duties as director of HME.

8 The questions about the agreements of 20 November 2003 and 15 December 2003 raise the following issues:

(a) whether each agreement is sufficiently certain in its terms and intent to create legal relations so as to be enforceable;

(b) whether each agreement is supported by consideration so as to be enforceable;

(c) whether HME is a party to each agreement and, consequently, whether it is bound by either;

(d) whether Mr Honeysett was acting under a special disadvantage or disability when he entered into the agreements and, if so, whether Mr Maher took advantage of such disability so as to render the agreements unenforceable by reason of their having been assented to as a result of duress or unconscionable conduct; and

9 In relation to the second part of the case, the following factual allegations are made in support of the contention that Mr Maher breached his duty to HME:

(a) the withdrawal, on 11 November 2003, of Mr Maher’s guarantee to Westpac Banking Corporation (“Westpac”) of HME’s indebtedness, resulting in HME’s accounts being assigned the status of “post credits only”;

(b) Mr Maher’s failure to provide an alternative arrangement to Westpac so as to cause removal of the “post credits only” status;

(c) the taking of steps by Mr Maher to prevent HME’s employees from providing their services to HME over the period from 6 November to 24 November 2003;

(d) the alleged withholding of the issue of various invoices to clients of HME, thereby adversely affecting the company’s cashflow;

(e) the taking of preparatory steps to establish a company in competition with HME and the misappropriation of the goodwill and existing customer base of HME;

10 I begin with the contractual aspects of the case. The two documents on which Mr Maher relies in pursuing his specific performance claims are said by him to embody contracts between himself and Mr Honeysett as to things to be done by them towards cessation of HME’s business and the disposal and division of its assets. Each document is brief.

11 The document dated 20 November 2003 is as follows:

“Agreement Between Mark William Honeysett and David John Maher

1. The undersigned agree that both parties will not take legal action towards the other party for company or personel [sic] issues involved or arising from the years of trading due to the actions of the directors or employees of Honeysett & Maher Electrical Contractors Pty Ltd (HME).

2. HME to cease/stop trading on 19th December, 2003.

If the creditors required to be paid exceed the income shown on HME debtors list, the factory will then be able to be used by either party clear their half of the creditors/cash management – super/any other outstanding bills liable to HME.

4. Complete all contract works, no new contract works to be taken on and all service work to be completed and billed by HME at agreed finish date.

5. Invoice all works to date.

6. All chlorguard material (ie, power supplies, frames, ATI gear, etc) will be acquired by David Maher at half the cost price paid by HME, if David Maher continues chlorguard service work.

7. HME to repair all defects on contract works.

8. Pay out leases – Talk to Westpac.

9. Purchases relating to material for work in progress or service work only. (No new tools, etc.)

10. HME to guarantee employee’s wages and entitlements until 19th December, 2003.

11. All equipment/tools/phones and material to be sold/split at agreed value.

12. Creditors priority list.

13. Clients need to be informed by letter re: HME status and whom they can contact for work after the agreed date.

14. Creditors need a letter on the 19th December, 2003 from HME stating that no more trading will take place, there for [sic] no liability by directors.

15. Both the undersigned have the right to establish contact with existing HME employees, existing customers and suppliers. This was agreed to take place outside the trading hours of HME (7.00am – 3.30pm) for most meetings/talks.

16. All jobs, material and labour requirements/bookings need to be confirmed through Kevin Annakin the office manager.

(sgd) (sgd)
Mark William Honeysett David John Maher

Witness: Kevin Annakin (sgd)

Signed at 9/10 Ferngrove Place, Chester Hill, NSW 2162

12 The document of 15 December 2003 is as follows:

“Agreement between Mark William Honeysett & David John Maher Dated 15.12.2003

FACTORY
I Mark William Honeysett agree to sell his half share of the factory unit located at Unit 9 No.10 Ferngrove Place Chester Hill 2162 to David John Maher or any other person or company nominated by David John Maher for a [sic] agreed amount of $170,000.00 (One Hundred & Seventy Thousand dollars Australian) Time frame for starting contacts between parties will be as soon as the unit’s title is handed over from Westpac to Mark William Honeysett & David John Maher or David John Maher or any other person or company nominated by David John Maher can paid Westpac amount needed to release the deeds (title) and take that monies off contract price. Plus I agree that David John Maher or any other person or company nominated by David John Maher for a agree [sic] amount of $200.00 per week to lease the above premises until the title has been signed over as above for an agreed amount.

VEHICLES Transfer to begin as of the 19.12.2003.
I Mark William Honeysett & David John Maher agree to that Demaher Pty Ltd or any other person or company nominated by David John Maher repaid all existing leases over three motor vehicles plus all running costs etc and paid all stamp duty &any other charges in transferring vehicles (Personal & Company’s names etc) when signed over from Honeysett & Maher Electrical Pty Ltd.
Rego VXL 920 Mercedes Van.
Rego XVZ 341 Ford Ute with XL Body
Rego XTA 696 Ford Ute normal tray back

I Mark William Honeysett & David John Maher agree to sign over two vehicles owned by Honeysett & Maher. Honeysett & Maher Electrical Pty Ltd to paid all stamp duty & any other charges in transferring vehicles to names agreed to on transfer date (Personal & Company’s names etc.)
Rego VTS 074 to Mark William Honeysett or any other person or company nominated by Mark William Honeysett.
Rego WVA 375 to David John Maher or any other person or company nominated by David John Maher.

TOOLS & MATERIALS Transfer to begin as of the 19.12.2003.
I Mark William Honeysett & David John Maher agree to sign over all tools (other than personal hand tools and ladders as agreed) plus all material to David John Maher or any other person or company nominated by David John Maher that is under Honeysett & Maher Electrical Pty Ltd control covering but not limited to all contends [sic] of unit 9 No. 10 Ferngrove Place Chester Hill, tools & material located in vehicles rego VXL 920, XVZ 341, XTA 696 plus other tools & material located outside these areas, work sites etc.
David John Maher or any other persons or company nominated by David John Maher agrees to purchase the above for agreed amount of $15,000.00 with funds to go to Honeysett & Maher Electrical Pty Ltd.

CHLORGUARD MATERIAL Transfer to begin as of the 19.12.2003 if David John Maher or any other person or company nominated by David John Maher has an agreement with Orica Vic. I Mark William Honeysett & David John Maher agree to sign over all Chlorguard material at a agreed cost of $30,000.00 to Honeysett & Maher Electrical Pty. David John Maher or any other person or company nominated by David John Maher agrees to purchase the above for agreed amount funds to go to Honeysett & Maher Electrical Pty Ltd.

PHONES Transfer to begin as of the 19.12.2003.
OFFICE: Honeysett & Maher Electrical Pty Ltd to pay out any monies owing on phones then I Mark William Honeysett and David John Maher agree to sign over all Honeysett & Maher Electrical Pty Ltd office phone numbers to David John Maher or any other person or company nominated by David John Maher. They include phone numbers of the Fax 9743 8377 & Internet 9743 8400 plus three incoming lines 9645 3350, 9645 3416, 9645 3601.

MOBILES: Honeysett & Maher Electrical Pty Ltd to pay out any monies owing on phones then I Mark William Honeysett and I David John Maher agree to sign over four nokia mobile phones & there [sic] numbers to each other or any other person or company nominated by Mark William Honeysett & David John Maher.
Mobile numbers Mark William Honeysett 0418 453 054, 0419 609 634, 0418 498 616
Mobile numbers David John Maher 0418 678 839, 0414 382 005, 0417 662 185, 0438 609 630

INTERNET & EMAIL ADDRESS
Internet (Ihug) to be cancelled 31.12.2003 (to be done by Mark Honeysett account holder)

POST OFFICE BOX Transfer to begin as of the 19.12.2003.
I Mark William Honeysett agree to sign over Honeysett & Maher’s Electrical Pty Ltd PO Box 349 at Chester Hill NSW to David John Maher or any other person or company nominated by David John Maher.
I Mark William Honeysett & David John Maher agree to the above agreement signed at Unit 9/10 Ferngrove Place Chester Hill on this date 15.12.2003.

Mark William Honeysett David John Maher
Director Honeysett & Maher Director Honeysett & Maher
(sgd) (sgd)

13 The amended originating process seeks specific performance of both agreements in their entirety. However, Mr Fernon of counsel, who appeared for Mr Maher, indicated in opening that, as at the date of the hearing, almost all of the obligations contained in both agreements had in fact already been performed, or else had ceased to be relevant. The only outstanding issue pressed by Mr Maher is that concerning the transfer of certain motor vehicles from the ownership of HME to Demaher, this being an obligation said to be contained in clause 8 of the 20 November 2003 document and clause 2 of the 15 December 2003 document.

14 The vehicles the subject of dispute are only those three listed in the first paragraph of clause 2 of the December document as having vehicle registration numbers VXL 920, XVZ 341 and XTA 696. The remaining two vehicles were used in a personal capacity by Mr Maher and Mr Honeysett in the course of HME’s active trading. It appears that by consent of the parties reached before commencement of these proceedings in apparent pursuance of that clause, ownership of the vehicles registered as VTS 074 and WVA 375 has passed to Mr Honeysett and Mr Maher respectively.

15 The evidence before the court is that the disputed vehicles have been in the possession of Mr Maher or Demaher since 19 December 2003. In addition, I am satisfied, for reasons appearing at pp.436 to 438 of the transcript (which need not be repeated here) that Mr Maher paid $40,000 to HME which in turn paid an equivalent amount to the lessor of the vehicles, with the result that Mr Maher (or Demaher) provided consideration for the transfer of the vehicles.

16 It is clear that clause 2 of the December document covers in greater detail and with more particularity the matter reflected in clause 8 of the November document. It follows that specific performance of the provision of the later agreement would put Mr Maher in the position he seeks. I proceed nevertheless to consider the effect of both documents.

17 Mr Sirtes of counsel, who appeared for the Honeysett interests (including Mr Honeysett as derivative claimant on behalf of HME), submitted that the November document should be held, in a contractual sense, to be void for want of certainty, being “entirely constituted by clauses which are deficient of essential terms” and should instead be characterised, at its highest, as a “to-do list”. He criticised each clause on several bases. With regard to clause 8, he observed that it does not specify which leases are to be paid out, who is to pay them out, a timetable for any such payments, the party to whom the payments are to be made or upon what other terms the payments are to be made; nor does it specify who is to “talk to Westpac”, by when, or what the subject matter of that conversation is to be. It also does not specify what is to happen to the subjects of the lease upon their having been paid out. These deficiencies, it is said, render the clause “incapable of comprehension” and therefore incapable of specific performance.

18 Mr Fernon submitted that the document had been prepared by the two shareholders and directors of HME and its office manager of nine years’ standing (Mr Kevin Annakin) and that it must be accepted that the two principals had identified with sufficient precision for their own purposes the essential matters requiring attention. He pointed out that there had been no complaint by Mr Honeysett about any essential matter that had not been dealt with by that agreement or any notice given by him of any perceived uncertainty in its terms.

19 There is force in Mr Sirtes’ submission, so far as the precise words are concerned, but I would not consider those factors to deprive the clause of all meaning whatsoever, as he contends. The long-settled approach of the courts, following what was said by Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at p.514, is to interpret the language used broadly and fairly, particularly when the document in question is drafted by lay persons or business persons in the course of their dealings in relation to matters with which both (or all) are familiar. What may, to an outsider, appear to lack precision may very well be perfectly intelligible and comprehensively complete to the particular insiders whose subject matter is in issue. In Hammond v Vam Ltd [1972] 2 NSWLR 16, Sugerman P observed (at p.18) that it is the duty of the courts to put a “fair meaning” on the words unless it is “utterly impossible” to do so. His Honour there followed the well-known statement of Barwick CJ in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at p.437 that

“… a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which [the court]… decides is its proper construction: and the court… will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it… So long as the language employed by the parties… is not ‘so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or intention, be resolved.”

20 This is not a situation in which the court is unable to ascertain the intention of the parties. Although the language employed is cursory, it is still possible to place a meaningful construction on it in the particular context. The clause really contains one primary operative obligation, that is, an obligation on some person, natural or corporate, to pay out certain leases. The factors said to be lacking are the specification of the leases in question, the identity of the payor and payee, and the time by which payment had to be effected.

21 It may, in the particular context, be safely be inferred that the very fact that the clause does not specify which leases are to be paid out meant that the parties were in agreement about which leases were being referred to. On the facts, there are no leases in question other than those relating to vehicles – for example, leases over plant, premises or any other equipment – to which the reference could pertain. The words “Talk to Westpac” appearing immediately afterwards identify the subject matter with further specificity. The evidence before the court is that three vehicles owned by HME were encumbered by financial arrangements with Westpac and one was encumbered by an arrangement with AGC, a wholly-owned subsidiary of Westpac at the particular time. There can be no doubt that it is only, and all of, the three vehicles leased from the Westpac group to which the clause pertains. That the subject matter is not some subset of those three vehicles is, again, evident from the absence of mention of some more specific arrangement.

22 The identification of the leases necessarily carries with it the identification of the payee, that is, Westpac (or the Westpac group). The identity of the payor must be HME in the first instance since it was the lessee and the party in a contractual relationship with each lessor giving it the standing or ability to “pay out”.

23 Insofar as the words “Talk to Westpac” also appear as an imperative term in the clause, it is obvious from the context that the intended substance of that conversation with Westpac could only relate to the paying out of those leases and was regarded by the parties as being simply a necessary or adjunct step towards that outcome rather than an obligation in itself. Mr Maher deposes that, in circumstances to be examined in detail presently, the drafting of that clause occurred after business hours on 20 November 2003 and that it was therefore not possible to consult the bank at that time in relation to the current state of the leases. He says that he said to Mr Honeysett words to the effect of “Let’s see the bank tomorrow and talk to Ray” (this being a reference to Ray Dawson, the bank manager in charge of HME’s accounts) and that Mr Honeysett agreed that this was a good idea. In cross-examination Mr Maher gave similar evidence to the effect that Mr Honeysett had agreed that it would be necessary to telephone the bank in order to confirm the “pay-out figures” before being able to proceed. Because, as will be seen, Mr Honeysett’s evidence is that he is unable to recall most of what happened on the relevant occasion, there is no reason to doubt that general state of affairs. The absence of specificity as to who was to actually talk to Westpac is not material.

24 The remaining issue is whether the absence of a timetable for the repayments constitutes the absence of an essential term. There is some ambiguity as to what is “essential” in this context. In Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Ipp J cited the judgment of Lloyd LJ in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 (at p.619) in which it was said:

“It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether they are important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, ‘the masters of their contractual fate’. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’.”

25 The clause clearly contemplates further details being obtained before the logistics of the pay-outs could be effected. Therefore, any timetable would be necessarily dependent upon the consultation with the bank. It does not seem to me that its absence in this clause should be regarded as “essential” in a way so as to void the clause of content altogether. The truly important term is that the parties agree that HME is to bear the cost of the lease repayments. Such an agreement would not be altered by deferral of the question of when that payment was to occur. I do not think that in these circumstances the clause should be seen as an unenforceable “agreement to agree” in the sense contemplated by the so-called third class in Masters v Cameron (1954) 91 CLR 353.

26 It should be noted that the Honeysett parties also rely on the fact that HME is not a signatory to either the November document or the December document and cannot be bound by it to perform any obligations arising therefrom. It is true, of course, that the company could not be bound as a contracting party in its own right, but the situation is specific to these facts. Mr Maher and Mr Honeysett, as the named contracting parties in each case, are the only shareholders and directors of the company in question. To that extent, Mr Maher and Mr Honeysett may be seen to have contracted with each other to exercise their individual powers as directors to wind up the business of the company in a manner consistent with their expressed decision as the only shareholders to divide and dispose of the capital of the company between them. The company would be bound not as a direct function of the contract but by a decision of its board of directors. It could not do otherwise.

27 Mr Fernon nevertheless submitted that the contracts should be read as including HME as a party, albeit one “not expressly named”. He submitted that each of Mr Maher and Mr Honeysett was acting in his capacity as a director of HME in making each of the agreements and thereby had authority to bind it. That concept is really only useful in situations where a company is contracting with some other external person or entity. It is not meaningful to speak of a company contracting with itself to do certain things. Nor is it correct to conceive of a company’s obligations to comply with decisions of its directors in contractual terms. Those “obligations” – or, more accurately, the legal consequences of controllers’ actions - arise separately from the operation of principles of company law. It is accordingly not necessary to attempt to find some basis on which HME can be seen to be a contracting party.

28 Mr Fernon submitted that clause 2 of the December document does nothing more than flesh out and add definition to the arrangement contained in clause 8 of the November document and that it is not affected by any ambiguity. Mr Sirtes submitted that the December clause should be held incapable of specific performance because unsupported by consideration and, as a matter of construction, imposes no personal obligation on Mr Honeysett to do anything. Instead, it is said, the clause constitutes some kind of an acknowledgement that Mr Maher or a nominee specified by him will undertake to repay the leases and associated costs of the vehicles in the event that the vehicles are “signed over” from the ownership of HME to Demaher.

29 A further objection is taken on the grounds that the parties to the agreement are improperly defined. It is said that for the purposes of this particular clause, the promisor is “presumably” HME, the promisee is “presumably” Demaher or “its nominee”, and that Demaher is “presumably… in truth” seeking specific performance of “the obligation contained in the clause”. That can only refer to an apparent obligation upon HME to transfer the vehicles to Demaher which emerges from the phrases “Transfer to begin as of the 19.12.2003” and “Demaher Pty Ltd… repaid [sic] all existing leases… & any other charges in transferring vehicles… when signed over from Honeysett & Maher Electrical Pty Ltd”. It was not argued that there was any ambiguity inherent in the use of the word “when” in the final part of the first paragraph and so I take the content of that obligation to be agreed, in that it denotes a definite and intended event rather than a condition precedent. Mr Sirtes says, however, that because Demaher is not a party to the contract, Mr Maher, having signed in his capacity as a director of HME, cannot seek specific performance on Demaher’s behalf of what is really an obligation owed to a third party.

30 These submissions may be dealt with in the following manner. The clause expresses two ostensible “obligations”, one being that of HME to transfer the vehicles to Demaher and the other of Demaher to pay the associated costs. However, since neither HME nor Demaher is a party, neither can be said to be the promisor or promisee. The promise being sued on is, in reality, one given to Mr Maher by Mr Honeysett to join in such action as is needed to cause HME to transfer the vehicles to Demaher or another nominee of Mr Maher or to acquiesce in such a transfer. The agreement is again one between the two persons constituting the whole of the membership and board of directors of HME and defines a course of conduct which they will cause to be adopted by and in relation to that company and its property. As consideration for Mr Honeysett’s promise, Mr Maher promised to Mr Honeysett to cause Demaher, a company under his control (or “any other person or company” nominated by him, within the obvious limits defined by his ability to control such an agent), to pay the costs of the transfer. Consideration having therefore moved from Mr Maher, it is not material to the operation of the contract that he signed as a director of Honeysett & Maher (a status which could not, merely because “specific”, be exclusive of all other offices he might have held) or that the benefit in the form of the vehicles themselves accrues to a third party. Mr Maher is entitled to sue because he is the true promisee in these circumstances.

31 It is also said that there is a legal “impossibility of performance” inherent in the clause because it contemplates the repayment of the moneys only after the vehicles are “signed over”, but as a matter of the ordinary operation of transfer of leases, no “signing over” of the vehicles could occur until the leases had first been paid out. The correct interpretation of the clause again turns on the use of the word “when” in the final sentence of the first paragraph. I do not think that “when signed over” should necessarily be read as “after signing over has occurred” in that context. The word “when” merely denotes an event occurring at the same general time as another event. It is not straining the words of the clause to construe them as meaning “when the vehicles are to be signed over”. Given that the “signing over” of the vehicles would not be an instantaneous event but a process taking some measurable amount of time, that would also not be inconsistent with the repayments actually being made before the transfer was effected, as legally required, but within that same general period of time. Nor is the mere fact that the words “signed over” are in the past tense significant, particularly when the clause suffers generally from what are conceded to be non-fatal errors of grammar and syntax.

32 In summary, therefore, I am not satisfied that any of the arguments based on the terms of the clauses regarding the leased vehicles, the absence of any necessary party or the absence of consideration acts as a barrier to the entitlement of Mr Maher to have the court’s assistance in compelling compliance by Mr Honeysett with the requirements of those clauses.

33 Having reached these conclusions about the provisions of the agreements as they stand, I must turn to the questions of duress and unconscionable conduct and the contentions on behalf of Mr Honeysett that the agreements are vitiated or made subject to avoidance by such matters.

34 In approaching those matters, I should refer to some further background. It is clear that it was Mr Maher who initiated moves towards separation and the scheme of separation eventually set out in the documents of 20 November 2003 and 15 December 2003. His proposal that HME expand into the crane hire business and Mr Honeysett’s negative attitude to that were the catalyst. Mr Maher raised the possibility based on crane hire with Mr Honeysett in September 2003. Mr Honeysett, according to Mr Maher, said that Mr Maher should speak to Mr Gleeson about it. Mr Gleeson, a solicitor, is the brother of Mrs Honeysett. Mr Maher raised the matter with Mr Gleeson (with whom he was well acquainted) and gave him a number of documents. Those are mentioned in a letter of 19 September 2003 sent by Mr Gleeson to Mr Maher. The letter is of almost nine pages and refers in detail to numerous matters relevant to the proposal Mr Maher wished to see HME pursue. The letter concluded with a general observation that there were a number of matters still requiring consideration in relation to the proposal.

35 Mr Gleeson wrote a second letter to Mr Maher on 29 September 2003. It commented on further documents submitted by Mr Maher. The letter concluded with generally negative comments about the usefulness of a process in which Mr Gleeson was asked to comment on drafts prepared by Mr Maher rather than being instructed to draft the documents himself. Mr Gleeson invited Mr Maher to contact him if he wanted to “talk about the conceptual issues” and said, “but otherwise I really think that I have taken things as far as I can because I am sure that continuing to have me involved in a critiquing fashion is bound to end in tears”.

36 There was apparently no further contact with Mr Gleeson about the matter but Mr Maher continued to press on Mr Honeysett his desire to have HME branch out into crane hire. Mr Maher says that Mr Honeysett’s only response was that he should speak to Mr Gleeson. That produced in Mr Maher a sense of frustration. He told Mr Honeysett that, as Mr Honeysett would not commit to the cranes proposal, he (Mr Maher) was going to “leave the company” and “go out on my own”. This happened in the early days of October 2003. Mr Honeysett apparently interpreted Mr Maher’s statements to mean that the HME business would be “closing down”. He became worried about the implications of that, particularly because he had let Mr Maher develop greater day-to-day contact with the major customer, Orica. He was worried that “without the business structure we had developed at HME, I would be just thrown on the scrap heap at forty years of age”. Mr Honeysett had been on extended leave attending to house renovations. He says that his conversations with Mr Maher caused him to decide to go back to work on 7 October 2003, which he did. Until then, he had been away from the day-to-day activities of HME for some months.

37 It was in the context that had developed in this way from September 2003 that Mr Maher had his solicitors, Mills Cameron Gallagher, write to Mr Gleeson on 14 October 2003. After stating that they acted for Mr Maher and that they understood Mr Gleeson to act for Mr Honeysett, Mills Cameron Gallagher conveyed on Mr Maher’s behalf a request that a meeting take place between Mr Honeysett and Mr Maher (and the respective solicitors) “to discuss our client’s proposal to leave the Company”. Mr Gleeson replied on 15 October 2003 saying that Mr Honeysett was “agreeable to such a meeting occurring” and asking for an outline, in advance, of Mr Maher’s proposal referred to in the Mills Cameron Gallagher letter. The letter concluded:

“In the meantime, may I remind your client, through you, that as each of the respective clients are directors, then each owe the company fiduciary obligations. It is being reported to my client by customers that your client is telling them, in words to the effect, that Honeysett & Maher is finished. You would appreciate that such comments are, to say the least, premature and certainly are not in the interest of the company as a whole.”

38 Mills Cameron Gallagher wrote on 16 October 2003 giving an outline of Mr Maher’s proposal. It was, in essence, that HME simply cease operations and go out of business:

“(a) That all existing Contracts with Honeysett & Maher Electrical Contractors be completed by Honeysett & Maher Electrical Contractors.

(b) That the Office Manager for Honeysett & Maher Electrical Contractors be engaged to collect all debts due to the Company and pay all creditors and then liquidate the Company after payment of all expenses and divide all assets of the Company between the shareholders equally.

(c) That from the date of agreement, each of the shareholders be free to form a new business.

39 It seems, however, that this letter had not reached Mr Gleeson by 22 October 2003 since, on that date, he wrote to Mills Cameron Gallagher again requesting an outline of Mr Maher’s proposal. On 23 October, Mills Cameron Gallagher sent Mr Gleeson a copy of the 16 October letter and asked what would be a suitable date for the meeting; but then, in a subsequent letter of the same date (23 October), Mills Cameron Gallagher said that Mr Maher did not wish to proceed with a meeting and believed that since Mr Gleeson had acted for Mr Maher in the past “there may be a potential conflict of interest”. Mr Gleeson responded on 28 October saying, in relation to the first matter, “What does your client therefore wish to do?”; and countering the suggestion of possible conflict of interest.

40 Thereafter, on 4 November 2003, Mr Gleeson wrote an apparently unsolicited letter to Mills Cameron Gallagher commenting on the proposal briefly outlined in that firm’s letter of 16 October. He commented that the effect of the proposal would be to destroy HME’s goodwill and that, to the extent that any new business established by Mr Maher involved existing HME clients, the arrangement “would deprive my client of his entitlements to a share of the goodwill of the company”. He added that, since the trading position was strong, sale as a going concern appeared feasible. Mr Gleeson then again referred to fiduciary duties:

“As both our clients have fiduciary obligations to the company, it would seem that the taking of any action which would have the effect of destroying the property of the company would be an action which is not in the best interests of the members as a whole. The primary role of the directors remain to act in the best interests of the company and this would include an obligation to preserve not destroy, its assets.”

41 At one point in October or early November 2003, Mr Maher offered Mr Honeysett $50,000 “out of the goodness of my heart” to agree to a course generally in line with his proposal as outlined by the solicitors. Mr Honeysett did not accept the offer. By early October 2003, Mr Maher had formed his own company, Demaher. He had also spoken to some HME clients about the possibility that he would leave HME.

42 Several events in November 2003 are of significance, particularly bearing in mind that, by the beginning of that month, discussions on separation had reached a stalemate. The correspondence between solicitors had ceased. Mr Honeysett had rejected the proposal involving an additional $50,000 to him. On 6 November 2003, Mr Maher gave instructions that the employed electricians were not to attend work. Those instructions were relayed to them by Mr Annakin, the office manager, at the request of Mr Maher. On that same day, Mr Annakin saw his doctor and went on “stress leave”. He was absent (in the sense of not attending the office on a daily basis) from 6 to 23 November but was in contact by telephone during that period. Mr Annakin, it may be noted, was friendly with and had loyalities to each of Mr Maher and Mr Honeysett. It is understandable that differences between them were stressful to him. His own future was involved in what was happening.

43 On 11 November 2003, Mr Maher gave Westpac notice of termination of his guarantee of HME’s indebtedness. That caused Westpac to put the HME accounts on to a “post credits only” basis, the practical result being that HME could not draw cheques with any expectation that the bank would pay them. The accounts were effectively frozen.

44 The third matter to be mentioned is that, by mid-November 2003, there had been no invoicing of customers since the preceding September.

45 The first of the written agreements was signed on 20 November 2003. Within a very short time thereafter, invoicing of customers re-commenced (a total of some $53,000 was rendered), the employees returned to work and Mr Maher’s guarantee to Westpac was reinstated. This sequence of events presents the clear possibility that Mr Maher took his original action in relation to each of these three matters (or, at least, in relation to the bank guarantee and the employees) in order to put pressure on Mr Honeysett. Whether that possibility should be accepted will be determined in large measure by inquiring whether Mr Maher’s actions were a logical response to some particular stimulus – in other words, whether there was good reason for him to act as he did, unrelated to the exertion of pressure on Mr Honeysett.

46 The apparently odd decision to send the employees home is said by Mr Maher to have resulted from a belief that workers compensation insurance was no longer in place (there is also evidence of some undefined “OS&H issue” having been raised but, in the end, it appears to be the absence of insurance that was the pretext). Mr Maher was informed of this by Mr Annakin. He said in evidence that he did not want HME or its principals to be “at risk of prosecution or claims” while the insurance “was in doubt”. The source of the apprehension about absence of workers compensation cover was apparently non-payment of a premium instalment. Mr Annakin had prepared the necessary cheque for signature on 27 October, that is, before he went on stress leave on 6 November. The cheque needed the signatures of any two of Mr Maher, Mr Honeysett and Mrs Honeysett. The practice within HME was for cheques prepared by Mr Annakin to be left in the office so that two signatories could sign as and when they went there (or Mr Honeysett could take them home for signature by Mrs Honeysett). Mr Annakin did not actively solicit signatures, beyond leaving the prepared cheques in the agreed place.

47 So far as Mr Annakin was aware, the cheque prepared on 27 October 2003 had not been signed when his leave began on 6 November 2003. Mr Annakin says that, on that day, he was of the opinion that non-payment of the premium instalment due meant that there was no cover and so informed Mr Maher. Mr Maher, in turn, told him to inform the employees not to turn up for work as from that date. Mr Annakin’s precise evidence was:

“I told them [the employees] that David [Maher] does not want us at work. He will ring us when we are required back at work.”

48 This was a very odd state of affairs. According to Mr Annakin, the cheque for the premium, if signed by two signatories (being any two of Mr Maher, Mr Honeysett and Mrs Honeysett) and presented would have been paid by the bank. But that, of course, was subject to the effect of the “post credits only” status of the accounts that commenced on 11 November 2003. Mr Honeysett, who had returned to work on 7 October and was working on electrical work for the client Mullaly, continued that work despite the perceived problem arising from the non-payment of the workers compensation insurance. And the immediate cause of the problem, at least from 11 November, was the freezing of the bank account – something that flowed directly from Mr Maher’s withdrawal of his guarantee.

49 Mr Maher accepted in cross-examination that, even though the HME bank account had been frozen on 11 November 2003, there was still a way in which the perceived workers compensation insurance problem could have been solved – and, moreover, solved by him unilaterally. I quote from his cross-examination:

“Q. After November there was not much he could do because you had taken steps to stop withdrawals on any of the accounts?
A. What date?

Q. After 11 November?
A. Yes, after that I took away my personal guarantees but then again I would have paid out of my personal money if I had to.

Q. But again, just to be quite clear about this, you didn't?
A. No one asked me to, no.

Q. You were the co-owner of this business, weren't you?
A. Yes.

50 The reasonable inference – and the inference I draw – is that although, in reality, Mr Annakin was mistaken in the view that non-payment of the premium caused the insurance to be no longer operative, Mr Maher, as the director to whom Mr Annakin relayed the perceived problem, seized on it as a means of suspending the company’s operations, so far as employees’ activities were concerned; that this was, for Mr Maher, after 11 November, an unexpected yet welcome by-product of his action in giving the bank notice of termination of his guarantee; and that Mr Maher deliberately preferred to see HME’s operations suspended rather than reinstating his guarantee or taking other available steps to create a situation in which the premium could be paid. Mr Maher conceded in cross-examination that, at least before the bank account was frozen, he could have asked Mr Honeysett to sign a cheque for the insurance premium but was not prepared to do so.

51 This leads to a consideration of the rationale for Mr Maher’s giving the bank notice of termination of his guarantee. Guarantees by both Mr Maher and Mr Honeysett had been in place for a long time. Each must have known that the guarantees were relied upon by the bank in continuing HME’s facilities. Mr Maher’s evidence is that he gave notice of termination of his guarantee because of a desire to see Mrs Honeysett removed as one of the three cheque signatories in circumstances where any two of the three could sign. He said that, on 10 November 2003, he raised with Mr Honeysett the point that Mr Honeysett and Mrs Honeysett together could “take the money out of the company” and asked that Mrs Honeysett be removed as a signatory, to which Mr Honeysett replied, “No don’t you trust me”. Mr Maher says that his response to this was:

“No not while this is going on. I am going to the bank to take away my personal guarantee.”

52 It is Mr Honeysett’s evidence, however, that the action Mr Maher took in relation to the bank was taken without consultation with him. He had no recollection of Mr Maher raising with him a concern about the possibility that, while Mrs Honeysett remained a cheque signatory, Mr Honeysett and Mrs Honeysett together might clear out the bank account.

53 Mr Maher was challenged in cross-examination about the plausibility of this supposed concern:

“Q. But he had never done anything like that, had he?
A. Like I said, I hope not.

Q. You had no knowledge he had done anything like that?
A. How would I even, I just signed over the bank.

54 Mr Maher thus made it perfectly clear that he had no real or reasonable apprehension that Mr Honeysett and Mrs Honeysett, acting together behind his back, would extract money from the company. They had been in business together for some fourteen years and there had never been any suggestion whatsoever of any predisposition of Mr Honeysett in that respect. Mr Maher had taken extended leave in 2001-2002, leaving all cheque signing in the hands of Mr Honeysett and Mrs Honeysett. I do not accept that, in November 2003, he suddenly developed a mistrust of two people who had previously been trusted by him and had respected that trust. His desire to see Mrs Honeysett removed as a signatory had no objectively rational basis, in the sense of being a rational reaction to some threat or other state of affairs.

55 After Mr Maher had withdrawn his guarantee, Mr Gleeson contacted the bank in an attempt to have the HME accounts restored to operative status. He said in evidence that he had been asked by Mrs Honeysett, not Mr Honeysett, to do this. The bank declined to act while Mr Maher’s guarantee was not available. Mr Honeysett gave evidence that, in the days following termination of the guarantee, Mr Maher said to him:

“It will all go to shit and you will lose your house.”

“I will have the boys over here working earning money and you’ll have nothing.”

56 Statements to this effect are consistent with an approach taken by Mr Maher in March 2006 in relation to these proceedings. In a letter written by him and dated 23 March 2006, Mr Maher told Mr Honeysett that he had instructed new solicitors “to pursue [sic] you personally for my losses over the past two years due to your actions". The letter concluded:

“I have also agreed with the solicitors & have instructed them to place a caveat on your home & investment property, so I can be assured of my debt recovery.”

57 This shows that Mr Maher was able and willing to make threats of loss of or prejudice to Mr Honeysett’s home in an attempt to influence Mr Honeysett’s behaviour.

58 While the state of affairs centred on freezing of the HME bank account and absence of the employees pertained, Mr Maher, Mr Honeysett and Mr Annakin met for about an hour and a half at a club at Menai. This was on 19 November 2003. According to Mr Maher, they discussed “the direction of HME” and Mr Honeysett said to him that “he wanted to make an agreement so we could wind the company up”. Mr Honeysett accepts that the meeting occurred but has no precise recollection of the discussion, although he did say in cross-examination that they were “trying to get the company to function again”. At all events, that meeting seems to have led on to a further meeting the following day, 20 November 2003, at which the first agreement was drafted, typed and signed.

59 There are radically different accounts of what happened at the meeting of 20 November 2003 held at the HME office. There is also a dispute regarding a preliminary matter. Mr Maher says that, when he and Mr Honeysett began to approach the task of writing an agreement, they did not know how to go about it. Mr Maher further says that Mr Honeysett phoned Mr Gleeson and later gave the phone to Mr Maher himself. Mr Maher says that he said to Mr Gleeson, “How do we write this agreement to wind up the company?” Mr Gleeson’s response, according to Mr Maher, was to the effect, “Just write it from your heart”.

60 As will be seen in more detail presently, there is evidence of calls from Mr Honeysett’s phone to Mr Gleeson’s phone on two occasions on the afternoon of 20 November 2003. One call was at 1.34pm and lasted 5 minutes and 7 seconds. Another, of 53 seconds duration, was timed at 5.24pm. Mr Gleeson accepts that he had these telephone conversation with Mr Honeysett and, as will be seen, has a recollection of what was said in the first but no recollection of what was said in the second – although, in view of its short duration, not much could have been said. It is Mr Gleeson’s evidence that Mr Honeysett did not mention the preparation of an agreement in either conversation. Mr Gleeson further says that he did not speak to Mr Maher on that subject of how to “write this agreement to wind up the company” and did not say, “Just write it from your heart”. I am satisfied that, if Mr Gleeson had been asked the question Mr Maher says he asked, Mr Gleeson would not have given the answer attributed to him by Mr Maher. This is because of what the evidence shows about Mr Gleeson’s attitude to the preparation of contractual documents. In his letter of 19 September 2003 to Mr Maher already mentioned, Mr Gleeson said:

“The task of crafting a document intended to meet a specific need is a significant exercise and needs to be done with care.

As I am frequently heard to say to my clients, any commercial document is only as good as the information which the draftsman has at the time of its creation.

61 Someone who speaks of “crafting” a document and likens the task of “creating legal documents” to the work of an architect drawing a plan for a building simply would not say that any document of a legal or commercial kind should be written “from the heart”. There is the added and no less pertinent point that Mr Maher had, in October 2003, raised what he considered to be a conflict of interest on Mr Gleeson’s part precluding him from acting for Mr Honeysett in relation to the proposed meeting to discuss separation. It is inconceivable that Mr Maher would then have looked to Mr Gleeson as a source of advice on how to go about preparing an agreement for that very purpose.

62 As to the persons present at the meeting of 20 November 2003, it is clear that Mr Maher and Mr Honeysett were present throughout, Mr Annakin was there for a large part of the time and Mrs Honeysett was present for a short time at the end. Mr Annakin acted mainly as “scribe”, in the sense that it was he who composed the actual words and typed them on a word processor. Accounts differ as to Mr Annakin’s substantive contribution but I am satisfied that, given his position and the fact that the parties were the two persons he regarded as his “bosses”, it was not great. He may have assisted with some aspects that lay within his particular knowledge as the main administrative officer. Principally, however, Mr Annakin merely put into words concepts not originated by him.

63 Recollections are imprecise as to the time the meeting started and its duration. It seems likely, however, that the meeting finished some time soon after 8pm and lasted for about four hours. On this basis, the first of the telephone calls in which Mr Gleeson was involved, as outlined at paragraph [60] above, occurred before the meeting began; but the second (and much shorter) of the calls occurred during the meeting.

64 In his affidavit, Mr Maher gives a very detailed description of the genesis of each clause of the 20 November 2003 agreement. The account consists of a series of statements to the effect that one party (usually Mr Maher) stated a particular proposition or proposal, that the other (usually Mr Honeysett) expressed simple agreement and that Mr Annakin then composed and typed appropriate words. Statements such as “Yes ok” plus a few additional words of assent, or “Ok”, or “I agree”, or “Yes that’s a good idea”, or “Yes I agree” are attributed on seven occasions to Mr Honeysett and on two occasions to Mr Maher. There is one matter on which both are reported as expressing agreement to something proposed by Mr Annakin. In relation to two matters, the affidavit reports discussion and analysis, as distinct from mere acceptance of a baldly stated position or proposal.

65 Mr Maher denied in cross-examination that his account of the discussions during the preparation of the agreement was the production of “reverse engineering”, constructed from the content of the agreement itself.

66 Mr Honeysett’s evidence is that he had little recollection of events at the meeting of 20 November 2003. I shall come in due course to the question of his mental state at the time. He did, however, appreciate that the purpose of the meeting was to prepare “a document that would resolve the issues that we had”. He knew that, as part of the resolution, the factory (owned by Mr Maher and Mr Honeysett, as distinct from HME) would have to be sold. And he remembered Mr Annakin operating the word processor. Otherwise, he professes inability to recall virtually all that transpired at the meeting. The account given by Mr Maher was put to Mr Honeysett item by item. His uniform response was that he could not recall, that is, that he could neither confirm nor deny the accuracy of what Mr Maher said.

67 The things Mr Honeysett did remember were mainly that he said more than once words such as “You can’t do it this way; it is not right” or “What you’re doing, it’s wrong”; also, he says, that he rang his wife and told her that Mr Maher wanted him to sign a document, to which she replied “Don’t sign anything”. Continued protestations by Mr Honeysett that what was happening was “not right” or “wrong” might be taken to be a form of challenge to Mr Maher’s account. But words to that effect by Mr Maher are not necessarily inconsistent with his engaging in constructive efforts to formulate an agreement.

68 Mr Annakin’s evidence is that he cannot recall all that was said at the meeting, but that both Mr Maher and Mr Honeysett “discussed the terms on which they wished to deal with the company”. He refers in his affidavit to discussion between the two principals as to the date on which operations should cease, with Mr Maher suggesting 31 December 2003 and Mr Honeysett suggesting 19 December 2003 instead, so that the employees would not have to be paid for the public holidays at Christmas. Mr Annakin also says that it was Mr Honeysett that formulated the wording with respect to notification of customers. Mr Annakin further refers to a suggestion he himself made on that aspect and to the acceptance of the suggestion by Mr Maher and Mr Honeysett. Mr Annakin’s evidence on the contribution made by Mr Honeysett in these two particular areas is consistent with Mr Maher’s evidence.

69 It is common ground that Mrs Honeysett came to the office after the document had been prepared. She says that she had told her husband on the phone, “Don’t you dare sign anything until I get there”.

70 Mrs Honeysett testified that, upon arrival at the office, she read the document that had been typed and said, “This is a joke; this is ridiculous”; and, “It’s not worth the paper it’s written on; it’s garbage”. She says that she expressed that opinion about the document because it had not been prepared by a solicitor. Mrs Honeysett also deposed to a conversation involving Mr Annakin (“Kevin”), Mr Honeysett (“Mark”) and herself (“Debbie”) as follows:

“Kevin: ‘Debbie, don’t start this.’

Mark then said: ‘Kev’.

Kevin said: ‘We’re trying to get an agreement done.’

71 Mrs Honeysett deposed to having said this to Mr Maher:

“This is so wrong. How dare you do this to Mark. You can see the pressure he’s under. He’s not well and he shouldn’t sign this.”

72 Mrs Honeysett’s affidavit continues:

David: ‘If he doesn’t sign it, I won’t do anything, I won’t sell the factory. I won’t invoice or anything.’

Mark said: ‘Debbie, if I don’t sign it, he won’t invoice.’

I said: ‘He’s bullying you, Mark.’

Mark said: “I have to sign it.’

I said: ‘Stretch [Mr Maher], this is blackmail. You know it’s morally wrong.’

He said: ‘It is what it is. It’s either this or I do nothing.’

As he said this, he shrugged his shoulders.

I said: ‘You won’t even let us get an agent to get a price on the factory.’

I said: ‘You’re nothing but a big bully.

Mark said: ‘Debbie, I have to sign this. If I don’t, we’ll be insolvent and lose everything.’

David said: ‘Look, I’ve come in to sort this out and I’ve just lost my mother-in-law.’

Mark: ‘Debbie, I’ve got to sign this because otherwise he won’t do anything.’

I said: ‘Mark, just come home.’

Mark said: ‘I can’t. I’ve got to sign this document.’

Mark said: ‘I can’t Deb. He won’t do anything. He’ll just sit and we’ll lose everything.

73 Mrs Honeysett then left. She and her husband had gone to the premises in separate cars. He left after she had departed. He signed the document before leaving.

74 Mr Annakin’s evidence is that he had no conversation with Mrs Honeysett but heard what she said and what was said to her by others. He refers to the following having been said:

“Mrs Honeysett: ‘It doesn’t matter, this is a farce, just sign it … Don’t come home until you’ve signed it.’

Mr Maher: ‘Don’t sign it now, take it home and sleep on it.’

75 Mr Maher’s evidence in relation to these aspects corresponds with Mr Annakin’s. As far as words spoken are concerned, Mr Honeysett’s evidence, so far as it goes, corresponds with that of Mrs Honeysett, in that he recalls her saying words to the effects:

“David, you know this is wrong. He’s signing under duress. You’re nothing but a bully and these are bullying tactics.”

76 Three points of importance came out in Mrs Honeysett’s cross-examination. First, she was of the opinion that pressure was being put on Mr Honeysett because “they wouldn’t invoice” and because “they wanted decisions straight away” and “Mark wasn’t given time to think about any of this”. Yet, as Mrs Honeysett accepted, the scheme laid out in the document was one that was consistent with the course that Mr Maher had been advocating for some time (including in his solicitors’ letter of 16 October 2003), so that, as Mrs Honeysett also accepted, “this deal that was being put forward was no surprise to you, was it, when you read it?” The cross-examination continued:

“Q. Because I suggest, madam, that you considered the situation as inevitable, didn't you, that this is what was going to have to occur in relation to the business?
A. Inevitable, yes.

Q. It was inevitable that David was going to leave the business, correct?
A. Yes.

Q. It was inevitable that the assets of the business were going to be sold?
A. Yes.

Q. And it was inevitable that that had to occur sooner rather than later, correct?
A. Yes.

77 And later:

“Q. You accepted, on 20 November, that the final winding up of the business was inevitable?
A. It was inevitable, yes.

Q. And I am suggesting to you, that in the circumstances where Mark was having difficulty in forming a view as to what approach to take to wind up the business, that the proposition that David put forward was, in the circumstances, an option that that might as well be accepted?
A. No. He wasn't comfortable with it.

Q. How do you know that?
A. How do I know that?

Q. Yes?
A. Because he is my husband.

78 This emphasises the second important point coming from Mrs Honeysett’s cross-examination. The unwillingness to see the document signed was really hers: her husband did not tell her of any unwillingness on his part. That, of course, does not mean that he was not unwilling; merely that her evidence cannot really be the source of any finding as to his unwillingness – to which must be added the reality that, as Mrs Honeysett accepted, the course mapped out by the document was, in this context, a logical one.

79 The third matter emerging from Mrs Honeysett’s cross-examination centres on part of paragraph 61 of her affidavit which is quoted at paragraph [72] above. Mrs Honeysett referred to Mr Maher having dictated the price for the factory at the 20 November 2003 meeting by reference to the recent sale of the adjoining property – something about which she complained, saying, “You won’t even let us get an agent to put a price on the factory”. This, of course, is inconsistent with the terms of the 20 November 2003 document, which expressly contemplated obtaining a valuation. The fixing of $170,000 as the price for a one-half interest in the factory (by reference to an assumed value of $340,000) was something that happened at the subsequent meeting on 15 December 2003. The figure of $170,000 was included in the document prepared at that subsequent meeting.

80 It was put to Mrs Honeysett in cross-examination that she had, in this respect, confused the two meetings. She denied this and adhered to what was said in her affidavit about events at the 20 November 2003 meeting in relation to the setting of the factory price and Mr Maher’s denying of an opportunity to obtain a valuation. But the content of the two documents makes it clear that Mrs Honeysett was confused, in the sense that she recalled as having happened at the earlier meeting something that, having regard to the documents, must have happened at the second meeting. Both meetings took place at the same place. Mrs Honeysett attended towards the end on each occasion and saw a document that had been prepared before her arrival. Confusion on her part is understandable and, as I have said, I am satisfied that it occurred. That has implications for the reliability of her evidence to which I shall return.

81 I refer next to another factual question concerning the meeting of 20 November 2003. Mr Honeysett says in one of his affidavits that, during the period prior to the meeting, he said to Mr Maher, “I can’t make these decisions. I’m sick, sick in the head”. Mr Maher denied that Mr Honeysett said this to him. Mr Honeysett, in cross-examination, resiled from the part of his evidence that fixed the making of the statement as occurring in the period leading up to the meeting of 20 November 2003. The net effect of Mr Honeysett’s evidence is that he did make the statement but could not recall when he made it. Mr Maher, for his part, gave evidence that Mr Honeysett was never good at making decisions, preferred not to make them and always had to consult first with Mrs Honeysett and Mr Gleeson. Mr Annakin denied that Mr Honeysett ever made a “sick in the head” statement in his presence.

82 A final matter related to the events of 20 November 2003 is the evidence of Mr Maher that, after the document had been prepared, he suggested to Mr Honeysett that he “sleep on it” and fax a copy to Mr Gleeson before signing. Mrs Honeysett gave evidence that Mr Maher made no such statement in her presence. But she was not there throughout and left before her husband. Mr Honeysett, for his part, said he did not recall Mr Maher making the statement but could not deny that he had done so. Mr Honeysett further said that he felt he had to sign immediately because “if I didn’t sign, he wasn’t going to invoice, the boys weren’t going to come back to work; he made that quite clear to me”.

83 I turn now to events after 20 November 2003. The very next day, Mr Maher and Mr Honeysett went together to Westpac. Mrs Honeysett was removed as a HME cheque signatory and Mr Maher reinstated his guarantee. These actions were not required by, or mentioned in, the 20 November agreement.

84 Also on 21 November 2003, Mr Maher told Mr Annakin that “we can go back to work on Monday”, that is, 24 November 2003. At Mr Maher’s request, Mr Annakin then telephoned the employed electricians, informing them accordingly, adding that they would only be working until 19 December 2003 as the company would then cease trading. The employees’ return to work was the subject of the following part of Mr Maher’s cross-examination:

“Q. You say that the return to work of the employees was something that was unrelated to Mr Honeysett's execution of the 20 November agreement; is that what you say or do you say something different?
A. Well, I guess the company has got direction. The guys were worried about that. We went down to the bank so we could pay our workers comp and we were off and rolling, yes.”

85 Mrs Honeysett became active after 20 November 2003 in arrangements to implement the course mapped out by the document of 20 November 2003. She gave evidence that, in the week beginning 8 December 2003, she went to the HME office and prepared letters to HME’s customers and creditors notifying them of cessation of trading on 19 December 2003. She put the letters in a bundle but did not post them. Later still (on 19 December 2003), she prepared a checklist of matters to be attended to in closing down the business and received a copy of a printout of all accounts receivable and payable which the external accountant prepared on that day.

86 The next matter to be considered is the circumstances in which the agreement of 15 December 2003 was prepared and signed. Mr Maher says that the meeting that led to the signing of that agreement was initiated by Mr Honeysett who wanted to come to an agreement about the financial aspects of the separation. That is implausible but, if correct, would be a reflection of Mr Honeysett’s acceptance of the inevitability produced by the first agreement. Mr Maher’s evidence (confirmed by Mr Annakin) is that Mr Maher and Mr Honeysett at first met alone and that Mr Annakin joined them later, by which time Mr Maher had already typed part of a draft on the word processor. Mr Maher’s evidence refers to the steps taken in discussion between himself and Mr Honeysett to reach the various positions recorded in the document. According to the accounts given by Mr Maher and Mr Annakin, Mr Annakin took over the typing from Mr Maher after arriving. Mr Honeysett’s evidence is that Mr Maher and Mr Annakin were both present when he arrived and that he was handed a typed document. Mr Honeysett says that, as he read the document, he said, “This is wrong. You can’t do this. All this stuff belongs to the company”; and that Mr Maher replied, “We are the company, we own it”.

87 Again, Mrs Honeysett appeared. Mr Annakin then went outside. According to Mr Maher, Mrs Honeysett read the document, laughed and said: “David, what you’re doing is wrong”; and when he asked “How”, she said, “You just can’t leave, you can’t do what you’re doing”. Mr Maher further says that he suggested to Mrs Honeysett that she take the document away and have Mr Gleeson review it, in response to which Mrs Honeysett said to her husband, “Mark just sign it”, whereupon Mrs Honeysett left. Mr Honeysett followed her out and then came back in with Mr Annakin whereupon, according to Mr Maher, he suggested to Mr Honeysett that he fax the document to Mr Gleeson and “sleep on it tonight”. Mr Honeysett’s response, according to Mr Maher, was “You heard what she said”, after which they both signed.

88 Mr Honeysett accepts that he signed the document and refers to an argument with his wife. He has little further recollection. Mrs Honeysett accepts that she made the protests described by Mr Maher. She deposed to a conversation between her husband and herself in a context where she felt it did not matter what she said and people had already been told that HME would cease trading on 19 December 2003:

“I said: “Well, sign it then and let’s go home.”

Mark then said “But I don’t want to sign it.”

I said: “Well, don’t sign then.”

Mark said: “I’ve got to sign.”

89 Mrs Honeysett says that she said these things because she was angry and frustrated since “he was being pushed into signing something he didn’t want to”. But, as with the 20 November 2003 agreement, the evidence is really that it was Mrs Honeysett, not Mr Honeysett, who was against signing.

90 The agreement of 15 December 2003 settled financial aspects of the cessation of business and provided, in effect, for transfer to Mr Maher or his nominee of the substantial bulk of the operational capability of HME. Mr Maher had already formed Demaher and established bank accounts for it. Demaher was ready to start business. The effect of the agreements, as they were played out after cessation of the HME business on 19 December 2003, was described in Mr Maher’s cross-examination:

“Q. Just so that we are clear, if its not already clear, on 19 December 2003 Honeysett & Maher stopped trading?
A. As per all the agreements, yeah, and the check list and all that we stopped it, yes.

Q. And effectively on the next work day Demaher Pty Ltd continued working out of the same factory?
A. What day was that?

HIS HONOUR: Q. 20 December, unless that was a weekend?
A. I would have worked Saturdays, if it was a Saturday I would have been in there.

SIRTES: Q. The next day Demaher continued working from the same factory premises?
A. Well, as per the agreement, yes, we had the lease and everything sorted out.

Q. I understand that you keep on wanting to say "as per the agreement" but just answer the question I am putting to you?
A. Sorry, sir.

Q. As from the next working day, Demaher Pty Ltd continued working from the factory premises that had previously been occupied by Honeysett & Maher Electrical Contractors, that's so, isn't it?
A. Correct.

Q. Continued to service the customers, particular Orica, of Honeysett & Maher?
A. Not all of Orica, but yeah.

Q. And continued to use the plant, equipment, telephones, et cetera that had been previously used for the purposes of running the business conducted by Honeysett & Maher Electrical Contractors Pty Ltd?
A. Yeah, after I bought them out, yes, we just stayed in situ.

91 I refer next to the evidence concerning invoicing in the period leading up to 20 November 2003. It was put to Mr Maher in cross-examination that HME had invoiced only $8,264 or thereabouts as at 8 October 2003 and had not issued any further invoices thereafter. He said that that would not surprise him and “they are always erratic”. Mr Maher also explained that Mr Annakin dealt with invoicing, so that if he was absent or otherwise occupied, invoicing would not occur. It was put to Mr Maher that, as Mr Maher stated in his affidavit, he had said to Mr Honeysett at the meeting of 20 November 2003 that, unless he signed the agreement, Mr Maher would not invoice Orica for work done. Mr Maher denied this. Mr Annakin also said that he had not heard Mr Maher say any such thing at the meeting.

92 In cross-examination, Mr Honeysett confirmed that Mr Maher had said to him that he would not invoice Orica until Mr Honeysett signed. But, when cross-examined, he could not say when Mr Maher said this. In his affidavit, he said that such a statement had been made by Mr Maher at the 20 November 2003 meeting and on several occasions over the preceding week. In cross-examination, he could not identify any occasion or occasions when Mr Maher spoke the words in question but insisted that he had spoken them. Mr Honeysett also said that he was concerned to find, when he returned to work on 7 October 2003, that invoicing was behind.

93 There is, however, evidence that, as Mr Maher testified, invoicing by HME was irregular, in the sense that there could be large differences in the amounts invoiced month by month. A sales register put into evidence showed invoices of $2,367.75 for October 2002 and $8,569.00 for April 2003. These contrasted with some $291,000 in August 2002, $75,000 in November 2002 and $71,000 in December 2002. The figure for September 2003 was $153,541.90.

94 Against that background, Mr Honeysett was cross-examined about his supposed worry that lack of invoicing by Mr Maher would imperil HME’s solvency and expose him (Mr Honeysett) to personal liability:

“Q. No, put it this way, sir, that was a substantial amount of invoicing that would have assisted the cash flow throughout October/November of 2003 for Honeysett & Maher?
A. Yes - I don't know what outgoings - again, this number does not tell me what outgoings were related to that. You know--

Q. But your concern I understand at this stage was whether sufficient invoices had been issued for the purpose of cash flow?
A. That's correct, yes.

Q. And in September 2003 an amount of $153,000 approximate had been invoiced?
A. Correct, yes. Then again, it does not show what that cost, just an invoice.

Q. I am suggesting to you that at no time when you returned in October 2003 was there any true reason for you to be concerned in relation to the cash flow of Honeysett & Maher, was there?

136 Central here is a concept of “unfair advantage” to the person exerting influence and “injury” to the person upon whom the influence is brought to bear. The agreement of 20 November 2003 was advantageous to Mr Maher. It laid the ground for cessation of HME’s business in the way he wanted and to which Mr Honeysett had been unwilling to agree. While there was, on the face of that agreement, an appearance of equal treatment or even-handedness, any such appearance is, in reality, illusory. There are two reasons for this. First, cessation of business was what Mr Maher wanted, not what Mr Honeysett wanted (his solicitor had already aired concerns that such a course would destroy the company’s goodwill to the detriment of its owners); and, second, Mr Maher was given a clear and unwarranted benefit by clause 6 (being the right to acquire certain company property at half its cost to the company). The property concerned (the “Chlorguard” materials) was relevant to the performance of the work HME did for Orica. The agreement was advantageous to Mr Maher and disadvantageous to Mr Honeysett.

137 Any appearance of even-handedness was, however, abandoned altogether when it came to the agreement of 15 December 2003. Under that agreement, Mr Maher (or his company or nominee) obtained a right to buy Mr Honeysett’s share of the factory for a price stated in the agreement but in fact dictated by Mr Maher (plus a right to rent, pending purchase); a right to take over the business vehicles on payment of whatever was necessary to pay out the finance leases; a right to take all tools and materials (except “personal hand tools and ladders as agreed”) for $15,000; a right to purchase the Chlorguard materials for $30,000 (this being relevant to continuation of the Orica work); and a right to take over, for nothing, the company phone and fax numbers as well as the post office box. The vehicles driven by the individuals and the mobile phones they used were to remain with them. I am satisfied that all the specified amounts of money were decided by Mr Maher and passively accepted by Mr Honeysett without any process of valuation or analysis.

138 The net effect of the two agreements was that HME would go out of business and that Mr Maher would have, to the exclusion of Mr Honeysett (albeit upon payment of the sums fixed in the unsatisfactory way I have mentioned), the business premises, all the business vehicles, the Chlorguard materials relevant to continuation of the part of the business centred on Orica, the totality of the tools and materials (except “personal”) and the means of incoming client communication by phone, fax and mail. Mr Honeysett, for his part, was to receive the vehicle he habitually drove, his “personal” tools and three mobile phone services. In other words, virtually the whole capacity to continue the HME business was to accrue to Mr Maher to the exclusion of Mr Honeysett. Upon completion of these transfers, Mr Maher and Mr Honeysett would be equal shareholders in a company that no longer possessed the means to carry on its business (and in fact ceased business) and had as assets, in addition to any net balance of receivables (and cash on hand) over payables, the several sums paid in by Mr Maher pursuant to the 15 December 2003 agreement.

139 The evidence shows that Mr Maher promptly took advantage of the position that arose by virtue of the two agreements on 19 December 2003. Demaher commenced business as soon as HME ceased business. Mr Maher caused Demaher to turn to account for his personal benefit the several advantages accruing to him from and as a consequence of the two agreements. Mr Maher accepted in cross-examination that Demaher, in effect, took up where HME left off: see the passage of cross-examination quoted at paragraph [90] above. The employed electricians and Mr Annakin all joined Demaher. There was apparently some delay in Demaher obtaining an electrician’s licence and one document in evidence, signed by one of the employed electricians, suggests that Demaher may have used HME’s licence number on one occasion, although there is always the possibility that he used the wrong number by mistake.

140 This analysis leaves no doubt in my mind that Mr Maher’s exercise of his influence over Mr Honeysett in relation to the 20 November 2003 agreement and more particularly in the follow-on that produced the 15 December 2003 agreement was “undue” in that it caused Mr Honeysett to accept a position that was very advantageous to Mr Maher and very disadvantageous to Mr Honeysett.

141 That being so, the question is whether Mr Maher can rebut the proof of undue influence by showing that Mr Honeysett’s decisions to enter into the agreements were independent, voluntary and conscientious: Johnson v Buttress at 123 (Latham CJ), 124, 126 (Starke J), 135 (Dixon J), 142-143 (McTiernan J). In Spong v Spong (1914) 18 CLR 544 at 552, Rich J stated the relevant test in these terms:

Smith v Kay

142 I am satisfied, in the present case, that Mr Honeysett was not able to judge for himself. Mr Maher had manufactured an atmosphere of emergency in which the employees were not working and the company’s bank accounts were frozen. Mr Honeysett felt trapped and there was good reason, created by Mr Maher, for him to feel that way. He was unable to make objective decisions.

143 Mr Honeysett’s case based on undue influence accordingly succeeds, subject to questions of laches and acquiescence to be considered presently. I proceed nevertheless to consider his challenge to the agreements based on unconscionable conduct. The relevant principle was explained by Deane J in Amadio at p.474:

“The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable …”

144 The judgment of Mason J in Amadio at p.462 is also instructive:

145 The relevant principles were further discussed in Louth v Diprose (1992) 175 CLR 621. In that case, a majority of the High Court (Mason CJ, Brennan, Deane, Dawson Gaudron and McHugh JJ, Toohey J dissenting) set aside a gift of a house from a man to a woman with whom he had been “utterly infatuated”. The court found that woman had tolerated the man’s attentions because of the material advantages to her, manufactured a false atmosphere of personal crisis and played upon his love for her by making suicide threats. Mason CJ said at p.626:

“By dishonestly manufacturing an atmosphere of crisis with respect to the house, the appellant played upon the respondent’s susceptibility where she was concerned. Her conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, him to enter into a transaction which was improvident and conferred a great benefit upon her.”

146 Deane J at p.638 stated:

Louth v Diprose

victimisation

147 In Bridgewater v Leahy (1998) 194 CLR 457, the High Court held that it was unconscionable for a nephew to acquire land for seriously inadequate consideration from his uncle whom he knew to be emotionally dependent on him, particularly because the acquisition had been at the nephew’s initiative.

148 Mr Honeysett was in a position of “special disadvantage” of the kind with which these principles are concerned. He was, as I have found, of a general disposition that made him unable to make, in a normal and confident way and unaided by his wife and Mr Gleeson, business decisions of any significance at all. His disability in that respect became the object of the pressure deliberately applied by Mr Maher. Furthermore, Mr Maher, who had been in business with Mr Honeysett for fourteen years, knew of his disability, took the particular steps in relation to absence of the employees and withdrawal of the guarantee with the deliberate aim of capitalising upon the disability and then took advantage of the exacerbated disability by having Mr Honeysett sign the agreements of 20 November 2003 and 15 December 2003. It is beside the point that Mr Maher may have suggested, on either or both of the occasions, that Mr Honeysett not sign immediately but “sleep on it” and speak to Mr Gleeson. The atmosphere of emergency he had created by sending the employees home and causing the company’s bank accounts to be frozen was such that, as he well knew (indeed, hoped and intended), Mr Honeysett should view the matter as so pressing and urgent that there would be no delay. This was so principally in relation to the first agreement (20 November 2003). But it was that agreement that set the stage for the subsequent agreement.

149 Mr Maher deliberately manufactured “an atmosphere of crisis”, to adopt words used in Louth v Diprose, and did so in order make more certain and pronounced the effects of Mr Honeysett’s disability in the matter of decision-making, being a disability of which Mr Maher was fully aware.

150 The circumstances of this case are such as to activate the last part of the extract from Amadio at paragraph [143] above. Conditions (i) and (ii) there being satisfied, it is for Mr Maher to show that “the transaction was fair, just and reasonable”. He has not done that. HME was a profitable company. Had the shareholders wished to vacate the field in the in the way most advantageous to both of them, they would have sold their shares to someone else in the same line of business or caused the company itself to sell its assets and goodwill. Instead, they entered into a transaction which saw Mr Maher alone obtain the ability to step very largely into the company’s shoes from the point of view of continuing its business and taking advantage of its market position.

151 It follows that Mr Honeysett’s case based on unconscionable conduct also succeeds. Again, however, this is subject to the possibility that Mr Maher may establish a defence of laches and acquiescence to which I shall turn in due case.

152 First, however, I consider the derivative claim of HME brought on its behalf by Mr Honeysett in exercise of leave granted under s.237 of the Corporations Act.

153 The principal relief sought on HME’s behalf in the derivative proceeding is a declaration that Mr Maher has acted in breach of fiduciary duty in relation to HME. The relevant fiduciary duty is that owed by a director to his or her company, being a duty to act in good faith for the benefit of the company, to act for proper purposes and not to appropriate any profit from the use of corporation assets, information or opportunities. The existence of such a duty is clear. There is no need to refer to authority.

154 Equity is uncompromising in the standards of conduct it expects of a fiduciary. The primary obligation is to subordinate personal interests to the interests of the person to whom the fiduciary duty is owed. Where that person is a company, the interests concerned are the interests of the company as the personification of the interests of the general body of its members. Intrusion of the interests of creditors is not something that need be considered in this case, as there is no question that the relevant company was in financial difficulties.

155 Numerous cases could be cited and discussed in giving content to the duty. But there is no need for this. I am content to quote the following statement of Arden LJ (with whom Mummery LJ agreed) in Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91 at p.103:

“I prefer to base my conclusion in this case on the fundamental duty to which a director is subject, that is the duty to act in what he in good faith considers to be the best interests of his company. This duty of loyalty is the ‘time-honoured’ rule: per Goulding J in Mutual Life Insurance Co of New York v Rank Organisation Ltd [1985] BCLC 11, 21. The duty is expressed in these very general terms, but that is one of its strengths: it focuses on principle not on the particular words which judges or the legislature have used in any particular case or context. It is dynamic and capable of application in cases where it has not previously been applied but the principle or rationale of the rule applies. It reflects the flexible quality of the doctrines of equity. As Lord Templeman once put it "Equity is not a computer. Equity operates on conscience …" ( Winkworth v Edward Baron Development Co Ltd [1986] 1 WLR 1512, 1516.)

the fiduciary duty of loyalty:

The overwhelming majority of particular rules, doctrines, and cases in corporate law are simply an explication of this duty or of the procedural rules and institutional arrangements involved in implementing it.

Corporate Law

156 In the present case, it is neither necessary nor appropriate to consider independently the separate acts of Mr Maher by way of sending the employees home and withdrawing his guarantee. The appropriate approach is to consider the course of conduct as a whole. The two particular acts were, as I have found, part of a strategy of bringing about a de facto cessation of operations by HME so as to create a fait accompli that would leave Mr Honeysett in a position where there was no real point in opposing formal recognition and implementation of such an outcome. That strategy, which was successful, was part of a broader strategy of Mr Maher (also successful) to create a situation in which HME relinquished, so that Mr Maher might assume, the assets, connections, opportunities and advantages which together made up HME’s successful business.

157 It was contrary and inimical to HME’s interests for Mr Maher to implement both the narrower strategy and the broader strategy. As a director, he was duty bound to foster HME’s business and, in so doing, to subordinate any personal ambition he had to see that business discontinued so that he might himself occupy the relevant field of activity.

158 It is not to the point for Mr Maher to point to agreement on the part of Mr Honeysett, his co-shareholder. While unanimous informal assent of a company’s shareholders may authorise what would otherwise be a breach of a director’s fiduciary duty, at least where there is no suggestion of financial instability, this can be so only where the assent is freely given and not impeachable on equitable grounds. My conclusions with respect to the unconscientious nature of Mr Maher’s conduct in obtaining Mr Honeysett’s concurrence in the agreements of 20 November 2003 and 15 December 2003 mean that Mr Maher is not able to rely on any apparent assent by Mr Honeysett to the course of action entailing breach of fiduciary duty.

159 HME is, for these reasons, entitled to the declaratory relief sought on its behalf by Mr Honeysett, being the relief referred to at paragraph [153] above – subject again to the possibility of successful defence by Mr Maher on the grounds of laches and acquiescence.

160 It is to that possible defence, as relevant to both the claims based on undue influence and unconscionable conduct and the fiduciary duty claim, that I now turn. It is true that Mr Honeysett did not seek to challenge the agreements of 20 November 2003 and 15 December 2003 until Mr Maher had initiated specific performance proceedings. Nor was the derivative claim on behalf of HME pressed until that time. But the passage of time alone is not sufficient. The real issue thrown up by reliance on the particular defences is whether it would be unjust (in the sense of visiting injustice upon Mr Maher) to disturb the status quo, having regard to the passage of time and lack of protest or objection by Mr Honeysett and HME in the meantime.

161 These questions arise for determination in a context where no third party rights have intervened, in that Demaher, under the sole ownership of Mr Maher, has continued in business alone since its inception in December 2003 and Mr Honeysett has taken steps of his own to go back into business as an electrical contractor. Furthermore, it is not shown that, since December 2003, Mr Honeysett or HME has caused or induced Mr Maher to change his position in some way in reliance on an assumption that Mr Honeysett and HME would not attempt to assert the rights that have been vindicated in these proceedings.

162 In short, there is no circumstance pointing to any injustice to Mr Maher because of either the lapse of time between the relevant events and the initiation of action by Mr Honeysett and HME or any change of position by Mr Maher during that period on the basis of some assumption that there would be no action.

163 I pause at this point to re-state my principal conclusions:

1. Clause 8 of the 20 November 2003 agreement and clause 2 of the 15 December 2003 agreement (each being an agreement between Mr Maher and Mr Honeysett) were and are complete contractual stipulations having legal force unaffected by unacceptable vagueness, the absence of any essential term, the absence of any essential party or the absence of consideration.

2. Each such agreement was, however, procured and affected by undue influence and unconscionable conduct on the part of Mr Maher as against Mr Honeysett.

3. In exercising the undue influence, engaging in the unconscionable conduct, taking the benefit of the two agreements and causing Demaher to turn to account for his own personal benefit the several advantages accruing to him from and as a consequence of the two agreements, Mr Maher acted in breach of the fiduciary duty owed by him as a director of HME.

164 The question of consequences is one that should be addressed in further submissions, along with the question of costs.

165 I have said nothing to this point about Mr Maher’s claim for a winding up order in respect of HME. It is clear from the whole of the circumstances to which I have referred that there has been a complete breakdown in relations between the two corporators. HME no longer carries on business. The purpose for which it was formed – to conduct the business formerly conducted by Mr Honeysett and Mr Maher in partnership – is no longer feasible or viable. It is, in those circumstances, just and equitable that HME be wound up. It is submitted on behalf of Mr Honeysett, however, that a winding up order should await final determination of the other aspects of these proceedings, including as to the consequences referred to at paragraph [164]. I agree. The company is inactive, except to the extent that proceedings are being prosecuted on its behalf by Mr Honeysett. A winding up order and an order appointing a liquidator will be among the orders made upon final disposition of the proceedings.

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Citations

Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2007] NSWSC 12

Most Recent Citation

Maher v Honeysett [2009] FMCA 4

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CITATION:	Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2007] NSWSC 12
HEARING DATE(S):	30/05/06, 31/05/06, 01/06/06, 02/06/06, 18/07/06, 19/07/06, 20/07/06 Written submissions: 10/08/06, 15/08/06, 06/09/06, 20/09/06
JUDGMENT DATE :	29 January 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	See paragraphs 163 to 165
CATCHWORDS:	CONTRACTS - general contractual principles - whether terms sufficiently certain to create legal relations - whether supported by consideration - harsh and unconscientious contracts - undue influence - unconscionable conduct - whether one party to knowledge of other labouring under disability - CORPORATIONS - directors - duties of directors - where one director/shareholder induces other to agree to cessation of company's business and transfer of company property to him
LEGISLATION CITED:	Corporations Act 2001 (Cth), s.237
CASES CITED:	Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 Bank of Credit and Commercial International SA v Aboody [1990] 1 QB 923 Bridgewater v Leahy (1998) 194 CLR 457 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Hammond v Vam Ltd [1972] 2 NSWLR 16 Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91 Johnson v Buttress (1936) 56 CLR 113 Louth v Diprose (1992) 175 CLR 621 Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 Masters v Cameron (1954) 91 CLR 353 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 Poosathurdi v Kanappa Chettiar (1919) LR 47 IA Spong v Spong (1914) 18 CLR 544 Union Bank of Australia Ltd v Whitelaw [1906] VLR 711 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Watkins v Combes (1922) 30 CLR 180
PARTIES:	David Maher - Plaintiff Honeysett & Maher Electrical Contractors Pty Ltd - First Defendant Mark William Honeysett - Second Defendant
FILE NUMBER(S):	SC 6055/04
COUNSEL:	Mr A.F. Fernon - Plaintiff Mr G.A. Sirtes/Mrs S.A. Sirtes - Defendants
SOLICITORS:	Low Doherty & Stratford - Plaintiff Morton & Harris - Defendants