Nowland v Maiolla Casbee Properties Pty Ltd v Eastwood Air Conditioning Pty Ltd - [2013] NSWSC 1958

Supreme Court

New South Wales

Medium Neutral Citation: Nowland v Maiolla Casbee Properties Pty Ltd v Eastwood Air Conditioning Pty Ltd [2013] NSWSC 1958
Hearing dates: 6-9 August, 16 September 2013
Decision date: 20 December 2013
Jurisdiction: Equity Division
Before: Robb J
Decision:
(1)Direct the parties in each matter to bring in short minutes to give effect to these reasons for judgment.
(2)I will hear the parties as to costs.

Catchwords: SPECIFIC PERFORMANCE - intention to create legal relations - existence of contractual consideration - effect and legal consequences of failure to enter into lease as required by purported contract - misleading and deceptive representations - minority oppression claim - refusal of leave to amend application made during trial - VALIDITY OF LEASE - claim for reasonable compensation for use and occupation of property.
Legislation Cited: Corporations Act 2001 (Cth)
Fair Trading Act 1987
Trade Practices Act 1974 (Cth)
Cases Cited: Ermogenous v Greek Orthodox Community of SA Inc 209 CLR 95
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97
Green v Sommerville (1979) 141 CLR 594
Jones v Dunkel (1959) 101 CLR 298
Langman v Handover (1929) 43 CLR 334
McFarlane v Daniell (1938) 38 SR (NSW) 337
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618
Category: Principal judgment
Parties:
2012/85607

Dean Nowland (First plaintiff)
Taimi Nowland (Second plaintiff)
Gian Franco Maiolla (First defendant)
The Casbee Group Pty Limited (Second defendant)

2012/136262
Casbee Properties Pty Limited (Plaintiff)
Eastwood Air Conditioning Pty Limited (Defendant)
Representation:
Counsel:
2012/85607

N Kidd SC (Plaintiffs)
A Grant (Defendants)

2012/136262

A Grant (Plaintiff)
N Kidd SC (Defendant)
Solicitors:

2012/85607

Gadens Lawyers (Plaintiffs)
Snelgroves Lawyers (Defendants)

2012/136262
Snelgroves Lawyers (Plaintiff)
Gadens Lawyers (Defendant)

File Number(s): 2012/85607; 2012/136262

Judgment

The protagonists in this matter are Mr Dean Nowland and his wife Taimi on the one side, and Mr Gian Franco Maiolla, who is known as Franco, on the other. Ms Nowland is the daughter of Mr Maiolla.

The other significant actors in the events that have given rise to these disputes include Mr Paolo Maiolla, who is Mr Maiolla's son. Mr Kim Seng Chew has principally been involved in conducting the business of Eastwood. A company called Casbee Pty Ltd ("Casbee") has also participated in events relevant to the dispute.

Mr Nowland owns the majority of shares in a company called Eastwood Air Conditioning Pty Ltd ("Eastwood"). Mr Maiolla owns the majority of shares in a company called The Casbee Group Pty Ltd ("Casbee Group"), which in turn owns all of the shares in Casbee Properties Pty Ltd ("Casbee Properties"). Casbee Group is the second defendant. It has not in practical terms participated in the proceedings in any manner that is separate to the course taken by Mr Maiolla.

The Proceedings

There are two proceedings before the court for determination. In one, Mr and Mrs Nowland seek orders primarily to force Mr Maiolla to transfer shares in Casbee Group to each of them. Casbee Group is the second defendant in these proceedings. In the other, Casbee Properties seeks orders against Eastwood to oblige that company to pay rent and outgoings in relation to property owned by the former and occupied by the latter for a period in which no such payments were made.

Mr and Ms Nowland's claim against Mr Maiolla is formulated in their second further amended statement of claim, and is based primarily on an alleged contract which they say was entered into between themselves, Mr Maiolla, Paolo Maiolla and Mr Chew on the basis of a letter dated 14 July 2008, which was sent on behalf of Mr Maiolla to Mr and Ms Nowland by the accountant for the group, Mr Kennedy. Mr and Mrs Nowland say that under the contract it was agreed that four steps would be taken to restructure the shareholdings in the group of companies constituted by Casbee Group, Casbee Properties, Casbee and Eastwood. They say that the first three steps were completed, as was part of the fourth step. The part of the fourth step that was not completed involved Mr Maiolla transferring part of the shares he held in Casbee Group so that Mr and Mrs Nowland each henceforth hold 15% of the shares in that company.

Mr and Mrs Nowland principally seek an order for the specific performance of the uncompleted part of the fourth step required by the contract. They seek alternative contractual relief if the court declines to order specific performance. In the alternative to their contract claim Mr and Mrs Nowland seek relief, based upon essentially the same facts, in which they rely upon a proprietary estoppel, on Mr Maiolla's conduct being misleading and deceptive, and on that conduct constituting oppressive conduct for the purposes of s 232 of the Corporations Act 2001 (Cth), using the term "oppressive conduct" as the commonly used shorthand for the conduct that triggers the operation of that provision. The specific relief claimed by Mr and Mrs Nowland will be considered more fully below, in so far as that may be necessary for the purpose of determining the dispute.

Casbee Properties' claim against Eastwood arises out of the latter's occupation of part of the former's property at 4 Stanton Road Seven Hills ("Stanton Road"), for the period between 30 June 2009 and 12 March 2012, during which time Eastwood did not pay any rent or share of outgoings to Casbee Properties. There is an issue as to whether Eastwood was party to a lease dated 1 July 2007 between itself as lessee and Casbee Properties as lessor, or alternatively whether that lease was invalid by reason of the circumstances in which it was executed. Before 30 June 2009 Eastwood had occupied part of Stanton Road and had paid rent on a monthly basis. Casbee had also occupied part of Stanton Road and paid rent to Casbee Properties. Eastwood learned that Casbee had ceased paying rent, so it also ceased making the payments that had hitherto been made. That situation continued until 12 March 2012, when Casbee Properties re-entered possession and shut Eastwood out of Stanton Road. Casbee Properties primarily claims an order against Eastwood for the payment of rent and outgoings calculated in accordance with the terms of the lease. If the lease is found to be invalid, Casbee Properties seeks an order for the payment by Eastwood of an occupation fee calculated on the basis of the rent that Eastwood had paid in the period leading up to 30 June 2009.

Background

Eastwood has at all relevant times conducted a business of installing and maintaining air-conditioners and related mechanical services. Mr Nowland purchased the shares in Eastwood in about mid-1991. In 1992 Mr Chew purchased 50% of the shares in Eastwood. Since that time Mr Nowland and Mr Chew have together operated Eastwood's business.

Mr Maiolla acquired shares in Casbee in about 1990, and by about 1995 he owned all of the shares in that company. Initially, and for at least most of the period since that time, Casbee conducted a civil earth works contracting business in the building and construction industry. There is an issue in the case as to whether Casbee ceased to conduct its business at about the same time as it ceased to pay rent to Casbee Properties for occupying part of Stanton Road. When Mr Maiolla became the sole shareholder in Casbee, he appointed Paolo Maiolla as a co-director of the company. During the subsequent period of its operations Mr Maiolla and his son have effectively managed the business of Casbee.

In 1997 the participants in the businesses of Eastwood and Casbee agreed to merge those companies. Casbee Group was incorporated on 24 July 1997. The shares in Casbee Group were issued in the following proportions - Mr Maiolla (85%), Mr Nowland (5%), Mr Chew (5%) and Paolo Maiolla (5%).

Mr and Mrs Nowland claim that, as between the members of Mr Maiolla's family, this distribution of shares was not intended to reflect the real agreement between the shareholders as to what their respective entitlements were to the beneficial ownership of the shares in Casbee Group, and to the profits earned by the company. They say that the proportion of the shares issued to Mr Maiolla was artificially inflated relative to the proportion of the shares issued to the other shareholders, as the family members, and principally Mr Maiolla, wanted to ensure that Mr Chew, as an outsider, held as few shares as possible. This issue is relevant to the question of whether the four-step process involved an intention to create legal relations, and also whether consideration was provided for Mr Maiolla's alleged promise to transfer some of these shares to each of Mr and Ms Nowland. I will return to this issue.

As part of the merger Mr Maiolla transferred all of the shares in Casbee to Casbee Properties. Mr Nowland and Mr Chew transferred their shares in Eastwood to Casbee Properties.

In March 1998 Casbee Properties was incorporated for the purpose of acquiring Stanton Road. Casbee Group has at all times held all of the shares in that company. Casbee Properties acquired Stanton Road from a company called Consonic. A term of the contract of sale required Casbee Properties to construct a new building on the property. When constructed the part of the property containing the new building became known as No. 4A Stanton Road. In accordance with the agreement No. 4A was leased to a company associated with Consonic. Other unrelated companies have leased parts of Stanton Road. Mr and Mrs Nowland claim that, at all times since its acquisition, Eastwood and Casbee have occupied part of Stanton Road. Mr Maiolla contradicts this claim by asserting that Casbee effectively ceased to carry on business from about the end of 2008.

As of the time when Casbee Properties was incorporated, the company structure was that Mr Maiolla held 85% of the shares in Casbee Group and the other three shareholders held 5% each. Casbee Group held all of the shares in Casbee, Casbee Properties and Eastwood.

Each of the four shareholders in Casbee Group was made a director of the company.

Demerger of Casbee Group

From about mid-2007 discussions took place between the shareholders in Casbee Group concerning the demerger of the group. The proposal was that Mr Nowland and Mr Chew would become the owners of the shares in Eastwood in the proportion of Mr Nowland (75%) and Mr Chew (25%). In May 2008 this position was adjusted, on the insistence of Mr Maiolla, so that the proposed shareholding became - Mr Nowland (60%), Mr Chew (25%) and Paolo Maiolla (15%). Mr Maiolla and Paolo would become the owners of the shares in Casbee in the proportion Mr Maiolla (85%) and Paolo Maiolla (15%). The agreement between the parties was, at least in principle, that Mr Chew would cease to be a shareholder in Casbee Group, and Mr Maiolla would transfer sufficient numbers of his shares in that company so that Mr Nowland, Ms Nowland and Paolo Maiolla would each hold 15% of the shares, leaving Mr Maiolla with 55% of the shares.

As this proposal involved Mr Maiolla disposing of 30% of the shares in Casbee Group (putting aside the arithmetical effect of Mr Chow's 5% being cancelled), the implementation of the proposal might attract a substantial capital gains tax ("CGT") liability, and also a significant stamp duty liability, as Casbee Group owned all of the shares in Casbee Properties, which owned valuable real property in Stanton Road. Substantial investigations were carried out by the accountants retained by the group, at a cost that was agreed to be limited to $100,000, to ascertain whether the proposal could be implemented without incurring substantial CGT and stamp duty liabilities, and to arrange the financial affairs of Mr Maiolla in the manner necessary to achieve this result.

It is not necessary to consider the detail of the steps taken to ensure that Mr Maiolla could participate in the implementation of the proposal without being subjected to substantial CGT and stamp duty liabilities, save that it must be noted that the principal requirement was that, at the time the proposal was implemented, it was necessary to ensure that Mr Maiolla was eligible for small business capital gains tax concessions. His eligibility depended upon the value of his total net assets (defined in a technical manner) not exceeding $6 million. The requirements for achieving that criterion, and the steps that were necessary to do so, are discussed in a letter from Mr Kennedy to Mr Maiolla dated 13 December 2007.

On the evidence Mr Maiolla satisfied this requirement at the time that it was initially proposed to implement the demerger proposal. The existence of the requirement remains relevant to the determination of the dispute, because Mr Maiolla claims that discretionary equitable relief should be denied to Mr and Mrs Nowland because their delay in seeking the relief has caused Mr Maiolla to lose the protection of the small business capital gains tax concession which he initially had. I will return to this issue.

14 July 2008 Letter

On 14 July 2008 Mr Kennedy wrote separate letters to Mr and Mrs Nowland in which he set out Mr Maiolla's proposal concerning the restructure of the group. I infer that by some means similar proposals were made to Mr Chew and Paolo Maiolla, although those proposals are not in evidence.

As the terms of the proposal are crucial to the resolution of the dispute, those terms should be fully set out:

"RE: CASBEE GROUP INSTRUCTIONS

As per instructions from Mr Franco Maiolla I am writing to advise that the intended restructure of Casbee Group Companies is as following:

STEP 1

The following two companies being Eastwood Airconditioning and Casbee Pty Limited would be demerged from Casbee Groups (sic).

STEP 2

Eastwood Airconditioning Pty Limited

After share transfer by Franco Maiolla the shareholdings are to be:

Kim Chew and associated entities 25%

Paolo Maiolla 15%

Dean Nowland and associated entities 60%

The directors of this company are to be Kim Chew and Dean Nowland with Dean Nowland as the Company Secretary.

Step 3

Casbee Pty Limited

Again after share transfers the shareholdings are to be:

Paolo Maiolla 15%

Franco Maiolla 85%

The directors of this company are to be Franco Maiolla and Paolo Maiolla.

Step 4

Casbee Group

The Casbee group companies including Casbee Properties Pty Limited are to be owned:

Franco Maiolla 55%

Dean Nowland 15%

Taimia (sic) Nowland 15%

Paolo Maiolla 15%

Property Leases

Following the demerger of Casbee Pty Limited and Eastwood Airconditioning Pty Limited leases are to be signed by each of these companies paying a market rental for leased premises occupied at 4 Stanton Road, Seven Hills and this rent is to be paid monthly to Casbee Properties Pty Limited the owner of said premises.

Mr Franco Maiolla has asked that you reply to this letter within 14 days indicating your approval of the proposed so that the restructure can be implemented as soon as possible as otherwise the restructure will be discarded completely."

It is convenient at this stage to dispose of one false issue. The description in the letter of Step 4 suggests that the four members of Mr Maiolla's family would separately own both Casbee Group and Casbee Properties in the stated proportions. Commercially, that outcome would not be necessary if the four shareholders owned their respective shares in Casbee Group, and that company continued to own all of the shares in Casbee Properties. The issue is of some potential significance because the relief claimed by Mr and Ms Nowland in their second further amended statement of claim concerning the ownership of shares is formulated on the basis that they would each become owners of 15% of the shares in each of Casbee Group and Casbee Properties. However, in their final written submissions Mr and Ms Nowland only claim an entitlement ultimately to own 15% each of the shares in Casbee Group, and not Casbee Properties (par 30). Mr Maiolla in his defence to the second further amended statement of claim accepts this result, assuming of course that Mr and Ms Nowland are entitled to succeed (par 8(i)).

Step 1 as set out in the 14 July 2008 letter required that Eastwood and Casbee be demerged from Casbee Group. In practical terms that meant that appropriate share transfers would take place so that instead of Casbee Group owning the shares in each company, the shareholders in Casbee Group would become owners of the shares in Eastwood and Casbee in the same proportions as they held the shares in Casbee Group.

A significant issue in these proceedings is the significance of the fact that Eastwood did not enter into a written lease with Casbee Properties at a market rental after 14 July 2008 as contemplated by the provisions of that letter under the heading "Property Leases". The resolution of this issue will be considered below, but it is convenient to note, after having set out the terms of the letter, that it required the leases to be signed "Following the demerger" of Casbee and Eastwood. If the letter is construed in accordance with its terms, it required that the leases be entered into after Step 1, and inferentially before the other steps were undertaken.

Mr Maiolla claims that the entry by Eastwood into the required written lease with Casbee Properties at a market rent was a condition to the entitlement of Mr and Ms Nowland to enforce Step 4 of the proposal, so that the absence of the lease means that Mr and Ms Nowland are not entitled to the relief which they claim concerning an entitlement to become owners of 15% each of the shares in Casbee Group. I will return to the validity of this argument.

It is clear that neither Mr nor Ms Nowland replied to the letter within the specified 14 days as Mr Maiolla had requested.

Mr Maiolla claims that, even if the letter contained an offer that was capable of giving rise to a legally binding contract if it had been accepted in accordance with its terms, the effect of the failure by Mr and Ms Nowland to accept within the stipulated time was that the offer lapsed and was incapable of giving rise to a binding contract between the parties.

The evidence establishes clearly that, even though Mr and Ms Nowland did not formally accept Mr Maiolla's offer, within 14 days or at all, all of the parties contemplated by the letter implemented all of the steps except for that part of Step 4 which contemplated that Mr Maiolla would transfer 10% of the shares in Casbee Group to each of Mr Nowland and Paolo Maiolla (given that they each already held 5% of the shares), and 15% of the shares to Ms Nowland. (Again I leave out of consideration the arithmetical effect of Mr Chew's 5% of the shares in Casbee Group being cancelled)

The evidence included share transfers between Casbee Group and each of its shareholders that were necessary to put into effect the demerger. The share transfers state that the transactions occurred on the 1 July 2008. Eastwood and Casbee issued share certificates to their new shareholders dated 1 July 2008. It is clear from the terms of the 14 July 2008 letter, which described the demerger as a proposed Step 1, that the transactions must have taken place after 14 July 2008. The change to company details Forms 484 which were evidently signed by Mr Maiolla and lodged with ASIC state that the forms were signed on 26 August 2008 and lodged on 1 September 2008. Therefore the transactions probably occurred on a date between 14 July 2008 and 1 September 2008.

The demerger of Eastwood involved Casbee Group transferring 79,904 shares to Mr Maiolla and 4700 shares to each of the other three shareholders for a stated consideration of $994,005.76 in the case of Mr Maiolla, and $58,468 in the case of the other three shareholders. The evidence does not show with any clarity how these prices were calculated.

In the case of Casbee the demerger involved Casbee Group transferring 170 shares to Mr Maiolla and 10 shares to each of the other three shareholders. The prices were $1.70 for Mr Maiolla's shares, and $.10 for each of the other shareholders.

Step 2 required Mr Maiolla to transfer all of his (85%) shares in Eastwood so that Mr Nowland (60%), Mr Chew (25%) and Paolo Maiolla (15%) would own all of the shares in that company. The evidence shows that Mr Chew, through his company Kim Chen Chew Pty Ltd, paid Mr Maiolla consideration of $233,884.44 in cash for the transfer of 18,801 shares in Eastwood.

It is necessary to step outside the neat order of steps to see how the cash paid by Mr Chew's company was generated. This involves consideration of how part of Step 4 was implemented. On 4 September 2008 Eastwood paid a dividend of $230,000 to Casbee Group. (According to Mr Nowland, earlier, on 11 February 2008, Eastwood paid a dividend of $700,000 to Casbee Holding). Mr Chew transferred his 14,400 shares in Casbee Group to Mr Chew's company for a price of $14,400. On 10 September 2008 Mr Maiolla signed a notice of a special meeting of members of Casbee Group to be held on 12 September 2008 to consider a selective share buy-back. Mr Maiolla and Paolo Maiolla on the same date signed the consent under s 253(4) of the Corporations Act for the special meeting being held with less than 21 days notice. Also on 10 September 2008 Mr Maiolla signed a notification of share buy-back details on ASIC Form 280. The date of the proposed special meeting was stated as 12 September 2008. Mr Maiolla also signed a notice of a meeting of members of Casbee Group to consider a resolution that the company buy-back 14,400 shares held by Mr Chew's company for a consideration of $246,297. The evidence shows that the meeting of members was apparently in fact held on 14 October 2008. On 24 September 2008 Mr Maiolla signed a further ASIC Form 280 to notify an intention to carry out a share buy-back on 14 October 2008. Mr Maiolla signed a further notice of meeting of members on 24 September 2008. This time the proposed buy-back consideration was $246,257 rather than $246,297. Mr Maiolla on 24 September 2008 signed minutes of a meeting of the directors of Casbee Group, which was stated to have been held on 24 October 2008, at which it was resolved to cancel the shares owned by Mr Chew's company as of 15 October 2008. An ASIC Form 484 of change to company details for Casbee Group, apparently signed by Mr Maiolla on 15 October 2008, and lodged on 24 October 2008, notified the cancellation of 14,400 shares previously owned by Mr Chew's company on 15 October 2008.

The evidence does not explain the various dates on these documents. However, it is clear that Mr Maiolla personally participated in the implementation of this part of Step 4. The $230,000 dividend that Casbee Group received from Eastwood was used to pay part of the $246,257 to Mr Chew's company for the buyback of its 14,400 shares. The company paid Mr Chew $14,400 as the price of the transfer of those shares.

It is now convenient to return to the implementation of Step 2. On 15 October 2008 Mr Maiolla transferred his shares in Eastwood for consideration as follows: Mr Nowland ($643,172.88), Mr Chew's company ($233,884.44) and Paolo Maiolla ($116,948.44). The total amount of the consideration recorded as having been paid to Mr Maiolla was $994,005.76. That was the same total as the amount of the consideration that Mr Maiolla was shown as having paid Casbee Group in relation to the demerger of Eastwood as part of Step 1

Step 3 was also implemented on 15 October 2008. Mr Nowland and Mr Chew both transferred their 10 shares in Casbee to Paolo Maiolla for $.10 each.

Mr Kennedy gave evidence that the only money that changed hands as part of the reconstruction was the payment by Eastwood of the $230,000 dividend, the payment by Casbee Group of the $246,257 buyback price to Mr Chew's company, the payment of the transfer price by that company of $14,400 to Mr Chew, and the company's payment to Mr Maiolla of $233,884.44 for the transfer of shares in Eastwood to the company. No actual payments were made between the members of Mr Maiolla's family.

As part of the restructure in Step 2 Mr Maiolla resigned as a director of Eastwood, and Mr Nowland and Mr Chew continued as directors. Consistently with Step 3, Mr Maiolla and Paolo Maiolla continued as directors of Casbee. Mr Nowland, Mr Chew and Paolo Maiolla resigned as directors of Casbee Group, leaving Mr Maiolla as the sole director of that company. Mr Maiolla was also the only director of Casbee Properties.

Failure to Complete Step 4

The only part of Step 4 that was completed was the removal of Mr Chew as a shareholder of Casbee Group. Mr Maiolla did not transfer the part of his shares in Casbee Group necessary to cause Mr and Ms Nowland and Paolo Maiolla each to have 15% of the shares.

On 10 November 2008 Mr Kennedy wrote a letter to Mr and Ms Nowland. The letter recorded the steps in the group restructure that had occurred as at 5 November 2008. Mr Kennedy stated in relation to Step 4:

"4. Casbee Group

There have been no changes in shareholding as Franco is awaiting finalisation of leases and other documents as required in the letter dated 14 July 2008. It is important these transaction requirements are finalised as soon as possible."

This is not a refusal by Mr Maiolla to complete Step 4. The letter implied that the reconstruction would be implemented provided that the leases which Eastwood and Casbee were required to enter into were completed as soon as possible.

There is a separate and somewhat enigmatic issue in this case about whether Eastwood entered into a written lease with Casbee Properties on 1 July 2007; that is, before the proposal to implement the reconstruction. That issue must be put aside for the moment. It is clear that neither Eastwood nor Casbee entered into a written lease with Casbee Properties after 14 July 2008. Also, Mr Maiolla did not take the steps required of him to complete Step 4 of the reconstruction. The principal issue in this case is whether Mr Maiolla should be required to do so, and if so on what terms.

Before the issues that the parties have raised concerning the enforceability of Step 4 are considered, it will be appropriate to deal with a number of issues whose resolution is important to the outcome of the principal issue.

'Real' intended shareholding in Casbee Group

The first issue is whether, notwithstanding that, at the time of the original merger; the shares in Casbee Group were issued to Mr Maiolla, Mr Nowland, Mr Chew and Paolo Maiolla in the proportions 85%, 5%, 5% and 5%, there was an agreement between the family members, excluding Mr Chew, that the 'real' arrangement was that the shareholders would ensure that each family member shareholder would enjoy an equal share in the profits of the enterprise to be conducted by Casbee Group.

The resolution of this issue may have some significance to the resolution of the arguments as to whether the parties to the reconstruction proposal set out in the 14 July 2008 letter had an intention to enter into a binding contractual relationship, and also of the question whether Mr Maiolla's undertaking to divest himself of part of his shareholding in Casbee Group as part of Step 4 was supported by consideration.

In par 4I(c) of their second further amended statement of claim, Mr and Ms Nowland plead that, as part of the original merger whereby Casbee Group was formed, the shares in that company were issued within the family to Mr Maiolla (85%), Mr Nowland (5%) and Paolo Maiolla (5%) on the basis that "any profits earned by them from the operation of the Casbee Corporate Group would be split between them or in accordance with their agreement".

In their final written submissions Mr and Ms Nowland argued that the arrangement between the family members was that their combined 95% shareholding in Casbee Group was held for the benefit of Mr Maiolla, Mr Nowland and Paolo Maiolla in equal shares (par 37(a)).

I cannot accept this submission, as it goes further than the claim pleaded. That was not that the family members would have an equal beneficial ownership in 95% of the shares, but rather that 95% of the profit would be split between them or disbursed in accordance with their agreement.

Mr Nowland said in his evidence that, at the time the shareholding distribution in Casbee Group was discussed, Mr Maiolla said to him: "The reason we should keep your shareholding low is that this is a family arrangement. You have a business partner and we will have to give him the same shareholding that we give to you. We should also give that same shareholding to Paolo. This is why your shareholding will only be 5%" (16 July 2012 affidavit par 21); and that Mr Maiolla also said: "we will split the profits the family earns between us equally or as suits us" (9 July 2013 affidavit par 11). Mr Nowland said that, as a result, he understood that Mr Maiolla, Paolo Maiolla and he would split the profits earned from running the corporate group between them, "and direct distributions to our mutual family benefit" (19 July 2013 affidavit par 12).

Mr Maiolla denied in cross-examination that there was any such arrangement between the family members (T 275.35). In particular, he denied that the fact that Mr Chew was an outsider to the family was the catalyst for his agreeing to the shares in Casbee Group being issued in numbers that artificially limited the number of shares issued to Mr Nowland, so that Mr Chew's shareholding would also be reduced, but that profits would be distributed between family members on a basis other than proportionate shareholding (T 273.46 - 274.09).

At the time of the merger the only consideration that Casbee Group provided for the transfer to it of the shares in Eastwood and Casbee was the issue of shares in Casbee Group to the shareholders in those two companies in the proportions Mr Maiolla (85%), Mr Nowland (5%), Mr Chew (5%) and Paolo Nowland (5%). As Mr Nowland and Mr Chew had formerly owned all of the shares in Eastwood, and they received together 10% of the shares in Casbee Group, that meant that Eastwood and Casbee were treated as having values described by the ratio 10:90. Mr Maiolla agreed in cross-examination that this disparity in the notional value of the two companies was not supported by any formal valuations (T 272.45).

Mr and Ms Nowland submitted that the relatively extreme disparity between the notional values of Eastwood and Casbee, in the absence of evidence supporting the differential, should assist the Court to infer that the family members must have artificially depressed the notional value of Eastwood to reduce the proportionate shareholding in Casbee Group that Mr Chew would expect to receive, given his apparent entitlement to receive the same shareholding as his 50% 'partner' in Eastwood. I do not think that the evidence allows me to draw this inference. Mr Maiolla contested the proposition, and there was some cross-examination of Mr Nowland that was intended to support the argument that the disparity in apparent value was real (such as at T 54.10). Ultimately, the evidence is too inconclusive to enable any useful conclusions to be drawn.

Mr and Ms Nowland also relied upon two documents that initially appeared to provide evidence that the family members who were shareholders of Casbee Group actually adjusted the payment of dividends to ensure that equal distributions were made to Mr Maiolla, Mr Nowland and Paolo Maiolla, while Mr Chew only received dividends proportionate to his 5% shareholding. The documents appear to relate to the years ended 30 June 2005 and 30 June 2006.

The first document assumes that Casbee Group will pay a dividend of $300,000. It starts by dividing that sum between the four shareholders in proportion to their shareholdings. It then calculates the "after-tax cash" position for each shareholder after taking into account imputation credits and tax payable at 48.5%. The result is that Mr Maiolla is shown as being entitled to receive $187,607, and the other shareholders $11,036 each. The final line shows Mr Chew's entitlement as being $11,036. However, there is a line in the calculation called "redistributed cash". That line shows a deduction from Mr Maiolla's entitlement of $117,714, and an addition to the entitlement of Mr Nowland and Paolo Maiolla of $58,857 each. The final line, called "net cash" shows each family shareholder being entitled to $69,893 and Mr Chew being entitled to $11,036.

The second document takes the same form and contains comparable calculations for the year ended 30 June 2006. The total dividend is assumed to be $143,078. Mr Chew is shown as being entitled to receive $5263. The entitlement of the three family members is calculated at $33,333 each, even though the starting position was a dividend calculated in proportion to their actual shareholdings.

The evidence established, however, that the two documents were only working drafts, and did not record the actual dividends paid by Casbee Group in the two years, or how those dividends were distributed between the shareholders. Mr Kennedy gave evidence that in fact, in the year ended 30 June 2005, Casbee Group experienced an operating loss of $16,654, and not a profit that supported the declaration of a $300,000 dividend. Accordingly, a dividend was not paid in that year.

In the year ended 30 June 2006 Casbee Group declared a dividend of $430,115, not $143,076. The annual financial statements of Casbee Group support Mr Kennedy's evidence. Mr Nowland accepted this outcome in cross-examination (T 65.40).

The 30 June 2006 dividend was not distributed in accordance with the formula contained in the two documents. Mr Kennedy explained in evidence what was done with the dividend. In fact Mr and Ms Nowland, in par 5E of their second further amended statement of claim, pleaded how the dividend was distributed in a manner that is consistent with Mr Kennedy's evidence.

It is first necessary to understand that, at an earlier date, property in East Ryde had been purchased by Mr Maiolla, Mr and Ms Nowland, and Paolo Maiolla in equal shares, and that Casbee had advanced the four purchasers $300,000 to assist in financing the purchase. That advance effectively gave rise to a $75,000 debt owed by each purchaser to Casbee. The dividend that was available for the year ended 30 June 2006 was declared in favour of Mr Maiolla ($365,598) and the other three shareholders ($21,506 each). However, the family member shareholders caused their collective shares in the dividend to be paid as to $300,000 to Casbee in repayment of its advance, and the balance of $107,961 to be paid to Mr Maiolla. The effect of these payments was that Mr Maiolla received a total benefit of $182,961 and Mr and Ms Nowland and Paolo Maiolla received $75,000 each (in Ms Nowland's case even though she was not a shareholder of Casbee Group).

The parties did not explore the significance of these payments any further in the evidence. In Casbee Group's financial statements for the year ended 30 June 2006, note 4 to the balance sheet contains an explanation of the current creditors and borrowings of the company. An entry states that "Loan from Shareholders" was $47,019 as at 30 June 2006. The equivalent note to the subsequent year's financial statements recorded "Loans - Unsecured" of $48,000, as well as a loan from Mr Maiolla of $47,019. The significance of these entries in the financial statements is a matter for supposition. On the face of the financial statements there is no evidence that Casbee Group treated any part of the payments of $75,000 made on behalf of Mr and Ms Nowland and Paolo Maiolla as loans to those persons. It may be more proper to treat parts of the payments as loans by Mr Maiolla. It is not possible to resolve this issue on the evidence.

While the two documents discussed above concerning the years ended 30 June 2005 and 30 June 2006 were apparently only "draft working papers", as Mr Kennedy described them, their very existence, even as drafts, suggests that the members of the family at least contemplated that the dividends which might be available to be paid by Casbee Group, in two consecutive years, would be adjusted so that they would be split equally between the family members. The evidence as to what in fact happened concerning payment of the dividend for the year ended 30 June 2006 does not show an even split, but it does tend to corroborate Mr Nowland's claim, at least in respect of one year, that the agreement was that the dividends available to be paid to the family members would not automatically be paid in accordance with their relative shareholdings, but would be paid "in accordance with their agreement".

Notwithstanding that there was no direct evidence of other dividends payable by Casbee Group being paid equally to the family members, Mr Kennedy gave the following evidence in cross-examination (T 331.39 - 333.6):

"Q. But there were occasions when distributions were considered, or were considered to be made involving a proposal for a cash dividend to be received by the shareholders?

A. Yes, sir.

Q. And the [document containing the proposed recalculation for the equalisation of the dividends paid by Casbee Group for the year ended 30 June 2006] was a document that was prepared in contemplation of such an occasion, do you recall that?

A. Yes, sir.

Q. And it's a calculation of what transactions would need to be implemented if there was to be a cash payment of a dividend by Casbee Group so that each of the family members received an equal amount of after-tax cash, correct?

A. That, these discussions came just on or prior to my starting with Macquarie Partners, had been discussed with my predecessors. I was most uncomfortable with these transactions because of a lot of angst between, particularly Mr Maiolla, because he was paying tax on dividends he was not receiving.

My recollection is there is a number of these calculations trying to make an equitable position after the distribution of the cash.

...

Q. And there were complications about how one would go about equalising the cash payment?

A. That is correct, sir.

Q. So that each of Franco, Paolo and Dean received an equal cash dividend from Casbee Group, correct?

A. Yes, if they were paying equal cash dividends to the three of them. The problem is that, beneficially and legally, Mr Maiolla, senior, Franco owned 85%. That was the number that had to be put in (sic) of the dividend, cash dividends to be put into his tax return, but the way the franking system works, that means that he had to pay additional tax on monies he was not receiving.

...

Q. You were involved in the preparation of this document and documents like it, do you agree?

A. Yes. There are multiple versions of documents like it trying to work out an equitable basis for that.

Q. Well, not only equitable, but an equal cash payment to the three family shareholders, don't you agree?

A. If there had been an equal cash payment, that would have been, that was what it was trying to work out.

...

Q. And did either Dean or Franco say to you during these discussions that the reason they were doing this was that, from the beginning, the understanding between the family members was that they would, despite the legal ownership of the shareholdings in the group, they would be entitled, as between them, to equal interests in Casbee Group?

A. No, sir. I was never made aware of that position."

The effect of this evidence is not entirely clear, but in my view it does provide some support for the conclusion that the arrangement between the family member shareholders of Casbee Group was that dividends payable to them would not necessarily, or automatically, be paid in proportion to their legal shareholding. Rather, there would be discussions between the family members to determine an appropriate and fair distribution for each year in which a dividend could be paid.

As I have noted above, Mr and Mrs Nowland did not allege that, at the time the merger was implemented, there was an agreement that the family shareholders in Casbee Group would hold their shares on the basis that the three shareholders would share equally in the company.

The evidence is not sufficient to establish that there was an agreement between the three family shareholders that, when Casbee Group was able to pay dividends, adjustments would be made so that each of the three would receive an equal amount.

The evidence does not even establish that there was an actual agreement between the three family shareholders that they would discuss and agree upon the appropriate distribution of dividends as between themselves. Even if an agreement to this effect had been proved, it could hardly be contractually binding given the uncertainty of its terms.

However, in my view the evidence which I have considered above justifies a conclusion, on balance, that the shareholders of Casbee Group, other than Mr Chew, had formed an informal agreement or understanding, quite possibly inchoate, that there would be discussions between family members and some appropriate agreement would be reached whenever dividends could be paid, and a fair and equitable distribution be made, notwithstanding the legal ownership of the shares in Casbee Group. It may be that if the existence of an agreement to that effect were in issue in proceedings, Mr and Ms Nowland could not prove the agreement, or prove that any agreement in fact made was enforceable. However, that is not the issue in the present proceedings.

The issue in the present proceedings is whether Step 4 set out in the 14 July 2008 letter was part of an enforceable agreement between the shareholders in Casbee Group. The precise nature of any agreement between the family member shareholders made at the time of the original merger is relevant only in so far as it has a bearing on whether the 14 July 2008 letter was intended to form the basis of a legally binding agreement, and whether Mr and Ms Nowland provided consideration for any promise made by Mr Maiolla.

Mr and Ms Nowland did not directly submit that an implicit aspect of the agreement based upon the 14 July 2008 letter was that, although Mr Maiolla's shareholding in Casbee Group was to be reduced from 85% to 55%, he would hold the 55% on his own account and be automatically entitled to participate in dividends as to 55%, free of any preceding claims that the legal entitlement to sharing dividends was subject to some obligation to discuss and agree appropriate adjustments with other family member shareholders.

I have concluded, however, from the manner in which the case was conducted that this outcome was in fact implicit in Step 4 of the reconstruction.

If that conclusion is correct, then the issue of the pre-existing intra-family agreement as to how dividends payable by Casbee Group should be distributed, though inchoate and contested, could provide the basis of a finding supporting an intention to create a legally binding agreement, and provide consideration to Mr Maiolla. Step 4, if implemented, would clarify Mr Maiolla's entitlement to participate in dividends paid by Casbee Group, and would free him of the earlier claims made by Mr and Ms Nowland, which could be of advantage to him even if, had their claims been tested, they could not sustain them.

Consideration for 14 July 2008 Agreement

There was an issue as to whether the court should conclude that even if all of the other criteria for the creation of a binding contract based upon the 14 July 2008 letter are established, no contract binding Mr Maiolla could have arisen because his participation in the restructure ultimately involved no more than his agreeing to reduce his shareholding in Casbee Group from 85% to 55%, and this could only be considered as a gift on his part.

I do not accept that any agreement between Mr Maiolla and the other participants in the reconstruction was devoid of consideration provided to Mr Maiolla.

First, the restructure must be considered as a whole, and one aspect of the restructure that was actually implemented is that Mr Maiolla received $233,884.44 cash from Mr Chew's company for the transfer of shares owned by Mr Maiolla in Eastwood to that company. If it is proper to treat the restructure proposal as having given rise to a single agreement between all of the participants, then receipt of this payment by Mr Maiolla from Mr Chew's company is capable of being consideration which supports the enforcement of the agreement by Mr and Ms Nowland.

Secondly, the ultimate structural effect of the implementation of the whole restructure is capable of being good consideration for the promises made by Mr Maiolla. There is evidence to support the conclusion that Mr Maiolla preferred that Mr Chew's interest be removed from the businesses in which Mr Maiolla wanted to continue to participate. The implementation of the restructure would remove Mr Chew's shareholding in Casbee Group, and accordingly also his interest in that company's subsidiary, Casbee Properties. Mr Maiolla would regain ownership, together with his son, of Casbee, which historically was the company operated by Mr Maiolla.

Thirdly, Mr Maiolla achieved the benefit of becoming the sole director of Casbee Group, Casbee Properties and Casbee. It is an insufficient answer to this proposition to say that at any time Mr Maiolla could have used his shareholding power as the 85% shareholder in Casbee Group to make himself the sole director of that company and its subsidiaries. One feature of the original merger was that Mr Nowland, Mr Chew and Paolo Maiolla were made directors of Casbee Group notwithstanding that each only had a 5% shareholding in the company. Mr Maiolla may well have been prevented by an agreement entered into as part of the original merger, or by the provisions of the Corporations Act that may make it oppressive for a party with legal power over the affairs of a company to ignore agreements which formed the basis upon which members created the company, from simply removing the other directors: e.g. see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97.

Fourthly, as has been considered above, the implementation of the restructure would have reduced Mr Maiolla's shareholding in Casbee Group from 85% to 55%, but he would henceforth hold the remaining percentage free of all claims that had earlier been made that he could not enjoy the fruits of that shareholding entirely on his own behalf.

Fifthly, at Mr Maiolla's insistence Paolo Maiolla secured a 15% ongoing interest in Eastwood. Paolo had never participated in Eastwood's business, and the effect of this variation to the proposed restructure was that Paolo Maiolla would, at Mr Maiolla's request, get the benefit of a continuing shareholding in Eastwood.

Sixthly, if the restructure agreement is otherwise enforceable, a term of that agreement obliged Eastwood and Casbee to enter into a written lease with Casbee properties at a market rent, and inferentially on commercial terms. Before 14 July 2008 both of the companies had paid an agreed rent on a monthly basis as determined by discussions within the family, and had not contributed to outgoings. The agreement by the participants in the restructure to cause Eastwood and Casbee to enter into the leases would, if performed, confer a benefit on Casbee Properties, and accordingly on its parent company Casbee Group. While Mr Maiolla's shareholding in Casbee Group would reduce to 55%, he might enjoy a greater share in dividends flowing up to that company from additional rent and outgoings reimbursement made by Eastwood and Casbee.

Intention to create legal relations

Next, the issue arises as to whether the parties to the proposed restructure intended to enter into a binding legal agreement.

I find that the parties did have that intention. The principles that must be applied are set out in Ermogenous v Greek Orthodox Community of SA Inc 209 CLR 95 at [24]-[28], and require the parties to have objectively intended to subject their agreement to the adjudication of the courts.

In this regard, first, although three of the participants in the proposed reconstruction were members of the one family, Mr Chew was not. I have already found that the reconstruction should be regarded as a single, interlinked, proposal comprised of the four steps set out in the 14 July 2008 letter. There is no basis for concluding that when Mr Chew agreed to participate in the reconstruction, his agreement was on the basis that Mr Maiolla was free to decline to continue to implement the restructure after Mr Chew had taken the steps required of him, including accepting Paolo Maiolla as a 15% shareholder in Eastwood.

Secondly, even as between the family members, the business activities of Casbee Group and its subsidiaries had for many years been the source of their living, and the whole context was undeniably commercial.

Thirdly, the terms in which the 14 July 2008 letter were written, and an acceptance required within 14 days, suggest that acceptance was intended to give rise to a binding contract.

Fourthly, there is no doubt that, if the leases required by the 14 July 2008 letter had been entered into by Eastwood and Casbee, it was intended that the leases would be legally binding. That consideration supports the conclusion that the wider agreement contemplated by the letter itself was intended to be legally binding.

Fifthly, it is necessary to take into account the participants' actions before the 14 July 2008 letter was written and they began to implement its terms. In addition to the dividend payment that Eastwood made to Casbee Group on 4 September 2008 to fund part of Stage 4 and thus Stage 2, Mr Nowland gave evidence that in early February 2008, during the course of discussing the proposed demerger with Mr Maiolla, Mr Maiolla said: "You need to pay the $700,000 to the group before I'll talk to you." Mr Kennedy stated in his 13 December 2007 letter to Mr Maiolla that the $1,100,000 bank loan owed by Casbee Properties should be repaid as soon as possible, as that would facilitate the demerger of the companies as at 31 July 2007. From that date, Mr Kennedy said, it would not be possible for payments to be made to Casbee Properties except for payment of market rent. On 11 February 2008 Mr Nowland caused Eastwood to pay a dividend to Casbee Group of $700,000. Casbee Group used this payment to fund Casbee Properties' paying off the remaining debt in relation to the Stanton Road property. Although this transaction was preparatory to, and not part of, the restructure agreement, it supports the conclusion that the participants, or at least Mr Nowland, implemented significant transactions to alter the financial position of Casbee Group and Casbee Properties in a manner beneficial to those companies and disadvantageous to Eastwood. In this context the steps that the family members subsequently took to put the demerger agreement into place ought to be seen as involving an expectation that the agreement would be legally enforceable.

Finally, however, perhaps the most persuasive reason for finding that the participants intended that Step 4 of the restructure agreement would be legally binding is that they implemented Steps 1 to 3 as well as that part of Step 4 that was necessary to enable Step 2 to be funded by Mr Chew's company, and for that purpose Mr Maiolla, and the other participants, must have on a number of occasions made arrangements concerning the practical implementation of the successive steps.

The issue of whether or not the demerger agreement was intended to be legally binding has not arisen in a context where the 14 July 2008 letter was written by Mr Kennedy on behalf of Mr Maiolla, and accepted by the other participants within the 14 days allowed, and then Mr Maiolla has refused to proceed with the agreement before any of the steps had been implemented. Even in that context the evidence would justify a finding that the participants intended that the demerger agreement would be legally binding. But even if it was not originally intended to be legally binding, Mr Maiolla's participation in the steps that were implemented, and the positive inducements that he must have given to the other participants to implement those steps themselves, should have caused all of the participants to understand that none would be free legally to decline to complete the balance of the reconstruction.

Acceptance of 14 July 2008 offer

Mr Maiolla submits that the 14 July 2008 letter could not have given rise to a binding agreement with Mr and Ms Nowland, as it expressly required acceptance within 14 days, "otherwise the restructure will be discarded completely", and the offer was not accepted within the period.

This submission should be rejected. The evidence clearly establishes that Steps 1 to 3 and part of Step 4 were implemented. Mr Maiolla participated in the implementation, and signed a great many of the documents that were necessary for that purpose. The evidence does not disclose the specific day-to-day steps taken by each of the shareholders to prepare for and implement the restructure. However, the evidence shows that Mr Kennedy generally acted upon the instructions of Mr Maiolla. Mr Maiolla must have instructed Mr Kennedy, or his staff, to prepare the documents that were necessary to put the restructure into effect. Either Mr Maiolla directly, or Mr Kennedy or his staff on the instructions of Mr Maiolla, must have contacted the other participants in the restructure to invite them to implement at least the steps that were put into effect.

The only conclusion that is available is that Mr Maiolla either waived the requirement for an acceptance of the offer contained in the 14 July 2008 letter within 14 days, or impliedly made a new offer on those terms, which was accepted by the other participants by their actual participation in the reconstruction, or by words and actions which must have happened but are not disclosed in the evidence.

Failure of Eastwood to enter into lease

The next issue that arises for consideration is the significance of the fact that Eastwood did not enter into the lease with Casbee required by the 14 July 2008 letter.

The evidence shows that, in relation to the proposed lease by Eastwood, neither Mr Nowland nor Mr Maiolla took any positive steps to cause that lease to be created. On Mr Nowland's part, on 17 November 2011 he sent a letter of demand addressed to Mr Maiolla in which he required Mr Maiolla to honour the promise to make transfers so that Mr and Ms Nowland would each hold 15% of the shares in Casbee Group. No mention was made of the required lease by Eastwood.

There is no suggestion at all in the evidence that Mr Maiolla gave any attention to causing Casbee to enter into the required lease with Casbee Properties. It was common ground that from about 31 December 2008 Casbee simply ceased to pay any rent at all to Casbee Properties.

When Mr Nowland learned that Casbee had ceased paying rent to Casbee Properties, he caused Eastwood also to cease paying rent. That action led to Casbee Properties commencing its claim for payment of rent and contribution to outgoings for the period from 30 June 2009 to 12 March 2012.

In a number of parts of their second further amended statement of claim Mr and Ms Nowland plead that Mr Maiolla wrongly failed to exercise his power to cause Eastwood to enter into the required lease with Casbee Properties: see pars 11A, 11B and 31. There is an air of unreality about these claims. On any view Mr Maiolla cannot be held solely responsible for the failure of Eastwood to enter into the required lease. He may well be responsible for the failure of Casbee to do so.

I find that, for the whole of the period after the original merger, Mr Nowland was the principal manager of the affairs of Eastwood, and Mr Maiolla was the principal manager for the affairs of the other companies. I use the word "principal" so as not to shut out the possibility that, at least while the parties were on good terms, the other shareholders participated in the running of the businesses.

If at any time Eastwood was going to enter into a written lease with Casbee Properties, the terms of that lease would have been agreed between Mr Maiolla on behalf of Casbee Properties and Mr Nowland, after consultation with Mr Chew, on behalf of Eastwood. It is not just or possible to lay the blame for the failure of Eastwood to enter into the required lease at the feet of one of Mr Maiolla or Mr Nowland to the exclusion of the other.

Mr Maiolla cannot be relieved of blame because he was the principal representative of the lessor, Casbee Properties, and it is almost universal practice for an intending lessor to avail itself of the benefit of preparing the first draft of the lease.

On the other hand Mr Nowland was the person who wanted to enforce Mr Maiolla's promise to cause he and his wife to be put into the position where they each held 15% of the shares in Casbee Group, and it was obvious from the terms of the 14 July 2008 letter that it was required as part of the demerger agreement that Eastwood enter into the lease.

The position that Mr Kennedy adopted on behalf of Mr Maiolla in his 10 November 2008 letter appears to have been reasonable, as Mr Maiolla was entitled to require Eastwood and Casbee to enter into leases no less than he was himself required to complete Step 4. Mr Maiolla's motivation is, however, unclear. He did not pursue his requirement that leases be entered into. He simply did not complete Step 4. Furthermore, before the end of the year, not only did he not cause Casbee to enter into a written lease, but also he caused that company to cease paying rent at all.

The requirement in the 14 July 2008 letter that Eastwood and Casbee sign leases following the merger was not expressed to be a condition for the legal liability of the participants to complete Steps 2 to 4 to arise. I reject Mr Maiolla's argument that he had no obligation to complete Step 4 because Mr Nowland did not cause Eastwood to enter into the lease.

The better view is that the participants' obligations to perform the steps that were to occur after the demerger were dependent on performance of the requirement that the leases be entered into, so that the participants could have declined to implement the subsequent steps unless and until the leases were entered into. In other words, these were dependent obligations (see Green v Sommerville (1979) 141 CLR 594 at 609, where the term "interdependent obligations" is used).

However, so far as Mr Maiolla was concerned, he did not require that the leases be entered into before he permitted Steps 2 to 4 to be implemented. Instead, he allowed those steps to take place and took the benefit of that part of Step 4 that enabled Mr Chew's company to pay him the price for the transfer of Mr Maiolla's shares in Eastwood, before he declined to complete Step 4. In taking that course Mr Maiolla waived the right to argue that the failure of Eastwood to enter into the lease was a breach of the demerger agreement that discharged Mr Maiolla from the obligation to complete Step 4.

Furthermore, while Mr Nowland had the primary control of Eastwood, it was Mr Maiolla who had the primary control of Casbee. Casbee also did not enter into the required lease. Mr Maiolla was responsible for that failure. He could not rely upon Casbee's failure to enter into the lease to discharge his obligation to complete Step 4. Mr Maiolla also could not selectively rely upon Eastwood's failure, and ignore Casbee's failure, because the demerger agreement required both to enter into leases, and as Mr and Ms Nowland were to acquire increased shareholdings in Casbee Group, Casbee's obligation to enter into a lease was as essential as Eastwood's.

Consequences of failure to enter into leases

A number of difficult questions arise in determining the legal consequences of Eastwood and Casbee not entering into leases with Casbee Properties, and Mr Maiolla not completing Step 4.

First, the demerger agreement was entered into at the level of the shareholders of the companies in the group, and there is no justification for finding that the companies were parties to the agreement. Eastwood, Casbee and Casbee Properties did not have any obligations to enter into leases. Immediately after the demerger involved in Step 1 the four shareholders in Casbee Group held the shares in the three other companies in the same proportions as their shareholdings in Casbee Group. Mr Nowland and Mr Chew were the directors of Eastwood. Mr Maiolla was the director of Casbee Properties. He and Paola Maiolla were the directors of Casbee. The directors had immediate control of the affairs of the companies. Mr Maiolla as the 85% shareholder in all companies had ultimate control of those companies.

Even if the offer made in the 14 July 2008 letter had been formally accepted, it was not capable of giving rise to an enforceable promise on the part of Mr Nowland to cause Eastwood, and Mr Maiolla to cause Casbee, to enter into leases with Casbee Properties. There was no agreement as to the period of the lease, which is an essential term. The evidence justifies a finding that, in the case of the leases of other parts of Stanton Road, Casbee Properties used a standard form of lease. Exhibit 1 is a lease dated 27 January 2005 between Casbee Properties and Atlas Copco Construction & Mining Australia, a division of Atlas Copco Australia Pty Ltd. Exhibit 2 is an undated lease between Casbee Properties and Consolidated Ultrasonics (NSW) Pty Ltd. The general contractual terms and the format of these two leases are identical. There are differences in the reference schedule in relation to issues such as area leased, lease term, commencement date, renewal rights, rent reviews and the like. The existence of these common terms might alleviate in part the difficulty in determining the terms of the leases that the participants intended Eastwood and Casbee to enter into, but it does not obviate the absence of agreement as to matters such as the lease term, renewal rights, rent review rights, obligations to contribute to outgoings, and the like.

Mr and Ms Nowland submitted that there should be implied into the merger agreement an obligation on the part of the participants who controlled Eastwood, Casbee and Casbee Properties to negotiate in good faith the terms of a lease with market rent, relying upon United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618. No party to the proceedings has sought the enforcement of any term of the demerger agreement having this effect, so it is unnecessary to explore this question further.

Also, Mr and Mrs Nowland submitted that, if the term of the demerger agreement that required participants to procure the leases being entered into was uncertain, that term was severable from the enforceable promises to perform Steps 2, 3 and 4: McFarlane v Daniell (1938) 38 SR (NSW) 337 at 345 per Jordan CJ; Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 at 411. The High Court accepted and applied a test of severability stated by Jordan CJ in these terms: "If the elimination of the invalid promises changes the extent only but not the kind of contract, the valid promises are severable."

I am unwilling on the state of the evidence to make a finding that any term of the demerger agreement that required the leases to be entered into is severable using this test. The uncompleted part of Step 4 required Mr Maiolla to divest himself of shares in Casbee Group so that his shareholding would be reduced from 85% to 55%. It seems to me that the principal part of the benefit that was intended to accrue to Mr Maiolla was that two of the existing occupants of Stanton Road would enter into market leases with Casbee Group's wholly-owned subsidiary, Casbee Properties. I infer that it was expected that the effect of the new leases being entered into would be that the revenue of Casbee Properties would be increased in a manner that could benefit the shareholders of Casbee Group. Relevantly, the demerger agreement without the lease term changes the nature of the contract.

The 14 July 2008 letter left so many terms of the proposed leases at large that the only way the requirement in the letter that leases be entered into could be put into effect was if the relevant participants actually negotiated mutually satisfactory terms after the completion of Step 1, and caused the relevant companies to enter into the leases. Had the participants attempted that exercise and failed, that may have absolved the participants from having to complete Steps 2 to 4. The participants would not be much worse off by reason of the failure because, although Step 1 of the demerger would have been completed, they would all still hold the shares in each of the companies in the same proportions as their shareholdings in Casbee Group.

However, none of the parties insisted upon the negotiation taking place before Step 2 and the following steps were implemented. On Mr Maiolla's part, he allowed all of the steps to be taken that were to his advantage, before declining to complete Step 4. He took no steps to cause Casbee to enter into a market lease with Casbee Properties. As the party in control of Casbee Properties, the proposed lessor, he took no steps to offer the terms of a lease to Eastwood. However, for present purposes Mr Nowland was equally responsible because he totally ignored his obligation to cause Eastwood to negotiate a satisfactory lease with Casbee Properties on market terms. Both Mr Maiolla and Mr Nowland caused the companies they controlled to continue to occupy part of Stanton Road. I will deal later with an issue raised by Mr Maiolla whereby he suggested that from about the end of 2008 Casbee ceased to use the part of Stanton Road that it had previously occupied.

If Mr Nowland had been the only party who ignored the lease requirement in the 14 July 2008 letter, in the sense of failing to cause Eastwood in fact to negotiate a commercial lease satisfactory to Casbee Properties, before the time came to complete Step 4, it is possible that may have constituted a breach which discharged Mr Maiolla's obligation to complete that step. It is possible that Mr Maiolla would have been required to give Mr Nowland something in the nature of a notice to complete before he could treat the breach as one which discharged him. However, Mr Nowland was not the sole party in breach, Mr Maiolla was also in breach, and in my view there is no proper basis for distinguishing their relative culpability.

Mr Maiolla was not required to complete Step 4 without satisfactory leases being entered into, because if completion took place, for all practical purposes, the opportunity to cause leases to be entered into would be lost. The result is that the mutual failure of Mr Nowland and Mr Maiolla to comply with the demerger agreement has been that the agreement has been in a state, so to speak, of suspended animation.

The fact is that on 12 March 2012 Casbee Properties re-entered and terminated Eastwood's occupation of part of Stanton Road. As I understand the evidence, by that date Casbee had for all practical purposes ceased to use the property. Neither company paid rent to Casbee Properties for a substantial period as a result of Mr Maiolla first causing Casbee to cease paying rent, which later caused Mr Nowland to follow suit and cause Eastwood also to stop paying rent.

The practical effect of these events is that there is no longer any purpose or practical benefit in considering whether Mr Nowland and Mr Maiolla ought to be required to cause Eastwood and Casbee respectively to enter into good faith negotiations with Casbee Properties to enter into leases, as such leases could only be in effect from, say, the commencement of Step 2 to about 12 March 2012.

If Mr Maiolla's obligation to complete Step 4 is still in principle alive, but both he and Mr Nowland have by their own conduct once and for all ended the possibility of satisfactory leases being entered into between Eastwood and Casbee and Casbee Properties, on what basis may the completion of Step 4 be enforced?

The answer in my opinion is, so far as it applies to Mr Maiolla, governed by the fact that Mr and Ms Nowland seek specific performance of Mr Maiolla's obligation to complete Step 4, and their entitlement to that remedy is qualified by the principle that he who seeks equity must do equity: see Langman v Handover (1929) 43 CLR 334 at 351.

It will be a condition of the court ordering Mr Maiolla to specifically perform his promise to complete Step 4 that Mr Nowland cause Eastwood to pay an amount of money to Casbee Properties which is assessed as being the net present value of the money it would have paid to Casbee Properties under the lease contemplated by the 14 July 2008 letter. As the period to which that payment will apply will be from, say, 26 August 2008 (being the date Mr Maiolla signed that ASIC Form 484 as part of the implementation of Step 1) to 12 March 2012, the problem caused by the parties not having agreed the periods of the proposed lease will be obviated. The orders that the court ultimately makes will have to provide for a process for determining this amount, if the parties cannot agree.

Save for its relevance to Mr and Ms Nowland's claim based upon minority oppression, the consequences of Mr Maiolla's failure to cause Casbee to enter into a lease with Casbee Properties is not an issue in these proceedings. On the face of it, the demerger agreement required Mr Maiolla to cause Casbee to enter into good faith negotiations with Casbee Properties (albeit that Casbee Properties was controlled by himself), and he should have done so before he allowed the following steps in the reconstruction that benefited him to be completed.

Occupation of Stanton Road by Casbee

I have mentioned above that Mr Maiolla has argued that Casbee ceased to operate its business from about the end of 2008, thereafter it had no need to occupy its portion of Stanton Road, and that it did not do so, so that it has no continuing obligation to pay rent to Casbee Properties. Mr Maiolla seemed also to argue that this change in circumstances obviated any obligation on his part under the demerger agreement to cause Casbee to enter into good faith negotiations with Casbee Properties to agree the terms of a lease at market rent.

In so far as this argument is relevant to the determination of the dispute in the present case, I reject it. On the evidence, throughout the period in 2008 when the demerger agreement was being implemented, Casbee was in occupation of part of Stanton Road and was carrying on business. After Step 1 was completed, and before the parties embarked upon the subsequent steps, the demerger agreement obliged Mr Maiolla to take proper steps to procure an agreement at market rent between Casbee and Casbee properties. Furthermore, Casbee remained under an obligation to continue to pay rent to Casbee Properties under whatever agreement was then in place. Any decision made by Mr Maiolla to begin to wind up the business affairs of Casbee could not unilaterally extinguish Mr Maiolla's legal obligations to the other parties. If any change in Casbee's business circumstances obviated its continuing need to occupy part of Stanton Road, the only way forward for Mr Maiolla was to negotiate a termination of Casbee's rights of occupation, presumably under a lease of one form or other, which because of his control of Casbee Properties may in practical terms have required that the negotiations be had at the level of Casbee Group, in a manner that made proper provision for any conflict of interest on Mr Maiolla's part.

In the circumstances it is not necessary for me to examine in detail the evidentiary dispute between the parties as to whether in fact Casbee wholly ceased occupation of Stanton Road from the end of 2008. My finding on the evidence is, however, that Casbee may have reduced the level of its activities at Stanton Road progressively over the period following 2008, but it did not cease entirely to occupy the part of the property that it had previously occupied.

Misleading and deceptive conduct

Mr and Ms Nowland's misleading and deceptive conduct case is based on the alleged making by Mr Maiolla of six separate representations, which are called respectively the No Written Lease Representation, the Demerger Payment Representation, the Demerger Representation, the Share Ownership Representation, the July 2008 Lease Representation and the Share Transfers Representation.

No Written Lease Representation

The No Written Lease Representation is pleaded in par 5G, where it is alleged that between 20 November 2007 and January 2012 Mr Maiolla represented, on his own behalf and on behalf of Casbee Properties, to Mr Nowland, on his own behalf and on behalf of Eastwood, that there was no written lease between Eastwood and Casbee Properties in relation to Stanton Road.

There are strange features of the pleading of the claim based upon this alleged representation. Unlike the other alleged representations, there is no claim in par 22 that this representation was made in trade or commerce, and no claim in par 23 that the representation was misleading or deceptive. It is not clear from par 24 that Mr Maiolla is alleged to have contravened s 42 of the Fair Trading Act 1987 (NSW) or that Casbee Group has contravened s 52 of the Trade Practices Act 1974 (Cth), in making this representation.

Mr and Ms Nowland allege in par 5I that the No Written Lease Representation was false or misleading because on or about 1 June 2007 Mr Maiolla purported to execute a lease between Eastwood and Casbee Properties in relation to part of the Stanton Road property. The validity of this alleged lease will be considered in relation to Casbee Properties' claim against Eastwood. If Eastwood's claim that the lease is not valid succeeds, then this aspect of the misleading and deceptive conduct claim will disappear, because the representation will be correct.

At the outset I find, in relation to this representation, that Casbee Group, which is the second defendant, did not make this representation. Casbee Properties is the owner of Stanton Road. It is not a party. If Mr Maiolla's conduct impliedly amounted to a representation by any company, the company could only be Casbee Properties.

The claim in par 5H is that Mr Nowland caused Eastwood to remain in occupation of Stanton Road without executing a written lease, and commissioned a valuation of Stanton Road on 20 February 2008, on the basis that there was no written lease in reliance upon the No Written Lease representation.

There is an element of unreality about this claim. It does not follow from the fact that Casbee Properties accepted payments of rent on a monthly basis in agreed amounts that there was an implied representation that there was no written lease. Furthermore, Mr Nowland did not cause Eastwood to enter into a written lease when the terms of the 14 July 2008 letter required him to do so in order to gain the benefit of Steps 2 to 4. The claim that Mr Nowland did not cause Eastwood to enter into a written lease because he was induced to believe that there was no written lease is in my view a non sequitur. The valuation referred to was required for the purpose of establishing that Mr Maiolla was eligible for small business capital gains tax concessions, and was essential to the restructure proceeding. Mr Nowland advised the valuer of the rent that was being paid by Eastwood, which is the rent stated in the lease in any event, and it cannot be accepted that the alleged representation induced Mr Nowland to act in the way alleged.

The misleading and deceptive conduct claim based upon the alleged No Written Lease Representation fails.

Demerger Payment Representation

The Demerger Payment Representation is alleged in par 5K to have been made by Mr Maiolla and Casbee Group in early February 2008. The representation alleged is that Mr Maiolla would agree terms for the demerger following the payment by Eastwood of the amount of $700,000. This is the amount of the dividend payment to which I have referred above.

There is no basis for any finding that any representation at all was made by Casbee Group. The proposed demerger was an agreement at the shareholder level. Mr Maiolla was not the only director of Casbee Group. The statements that he made could only have been made on his own behalf.

I have already found, in dealing with Mr and Ms Nowland's contract claim, that Mr Maiolla did enter into a legally binding demerger agreement, although the issue of whether that agreement is enforceable, in the absence of Eastwood and Casbee having entered into lease agreements at market rent with Casbee Properties, is complex for the reasons considered above. In any event, Mr Maiolla did accept the terms of the demerger agreement.

The evidence that Mr Nowland gave in par 48 of his 16 July 2012 affidavit does not prove that Mr Maiolla made the alleged representation. All Mr Maiolla said was that, if the $700,000 payment was made by Eastwood, "I'll talk to you". Mr Maiolla did talk to Mr Nowland, and went further by entering into the demerger agreement.

Mr and Ms Nowland allege in par 23 that the Demerger Payment Representation, as well as the other representations, except for the No Written Lease Representation, was misleading and deceptive for two reasons. The first is that Mr Maiolla did not intend to cause Step 4 to be implemented until and unless Eastwood executed a lease with Casbee Properties at market rates. It is almost certainly true that Mr Maiolla did not intend to implement Step 4 fully unless at least Eastwood had entered into the lease. He was perfectly entitled to proceed upon that basis, as it was a term of the demerger agreement. The existence of the intention does not falsify the representation, if it was made. Further, Mr and Ms Nowland could not have understood Mr Maiolla as having made any representation that he would act in a manner that the demerger agreement did not require of him.

The second alleged reason for the representations being misleading and deceptive is that Mr Maiolla knew there was a real likelihood that Step 4 would not be completed. That allegation is not established on the facts. Mr Maiolla was not in a position to know whether or not Eastwood would comply with the requirement that it enter into a written lease with Casbee Properties on market terms, at the time it is alleged he made the Demerger Payment Representation.

This reasoning applies equally to the remaining alleged representations and will not be repeated as part of the consideration of the claim based upon those representations.

Demerger Representation and Share ownership Representation

In par 8A Mr and Ms Nowland allege that Mr Maiolla made the Demerger Representation, which is in effect a representation that Mr Maiolla would cause all four steps in the 14 July 2008 letter to be implemented. This claim is pleaded in the alternative to the claim in par 8 that the parties entered into an effective demerger agreement. As a further alternative, an allegation is made in par 8B that Mr Maiolla made the Share Ownership Representation. This representation was, in effect, that Mr Maiolla would cause Mr and Ms Nowland each to hold 15% of the shares in Casbee Group. The Share Ownership Representation is therefore, as it were, a subset of the Demerger Representation.

The particulars given for the Demerger Representation are limited to the 14 July 2008 letter. Particulars are not given for the Share Ownership Representation, but the same particulars are clearly implied.

Any representations made by the 14 July 2008 letter must be qualified by what the letter said concerning the need for Eastwood and Casbee to enter into leases at market rents with Casbee Properties.

The reason why the demerger agreement was not completed at the time expected was that Eastwood and Casbee did not enter into the required leases. Mr Nowland was at least equally responsible with Mr Maiolla for that outcome.

In these circumstances I find that even if Mr Maiolla made the Demerger Representation and the Share Ownership Representation in the terms alleged, they were not misleading or deceptive. The evidence does not establish that Mr Maiolla did not intend to complete the demerger agreement. He did not do so because of the subsequent failure of Eastwood and Casbee to enter into the leases.

July 2008 No Lease Representation

The July 2008 No Lease Representation is pleaded in par 8B. The express basis of the representation is said to be the 14 July 2008 letter. I accept that the letter by the words used implied that Eastwood was not at the time already a party to a written lease with Casbee Properties.

However, the basis upon which this representation is alleged to have been misleading or deceptive is as pleaded in par 23, which is considered above. I only add in the case of this representation that a representation that no written lease existed cannot logically be falsified by an intention not to implement a particular transaction unless a new written lease required by the agreement relevant to that transaction is entered into.

Share Transfers Representation

In par 15A Mr and Mrs Nowland plead that Mr Maiolla represented that he would, within a reasonable time, cause Step 4 to be completed by transferring additional shares in Casbee Group to them so that they would each hold 15% of the shares. The representation is called the "Share Transfers Representation". The claim is that Mr Maiolla made the representation orally in response to verbal demands made by Mr Nowland between 10 November 2008 and 17 November 2008. Mr and Mrs Nowland plead in par 15B that, in reliance on the Share Transfers Representation, they did not take steps to compel Mr Maiolla to make the transfers.

I am not satisfied on the balance of probabilities that the Share Transfers Representation was made. It is probable that Mr Maiolla did not make the representation, because it is inconsistent with the stance that he has maintained since November 2008 that he would not transfer the additional shares in Casbee Group unless Eastwood entered into the lease required by the 14 July 2008 letter. I accept that that conclusion does not sit comfortably with the fact that Mr Maiolla also asserts that Eastwood entered into the written lease on 1 July 2007, upon which Casbee Properties relies in its proceedings against Eastwood. This is another situation where Mr Maiolla's case is confounded by his adopting inconsistent positions. Nonetheless, I am not satisfied that the making of the representation has been proved.

If I am wrong, and the Share Transfers Representation was made, its only alleged effect was to cause Mr and Mrs Nowland to delay in commencing the present proceedings. It has not been established how that delay has caused them any detriment, and if any detriment has arisen, it has not been quantified. The claim based upon the Share Transfers Representation fails.

Estoppel

Mr and Ms Nowland plead in par 29, in an outline way, a claim that Mr Maiolla is estopped from denying an obligation to transfer the relevant number of shares in Casbee Group to them to complete Step 4, because of all of the matters pleaded in pars 1 to 28. In essence this is a claim that Mr Maiolla is estopped from claiming that he is not legally obliged to complete Step 4 because he represented that he would do so, and only refused to do so after he received the benefit of the implementation of all of the other steps in the restructure.

This claim must fail because Mr Maiolla only represented that he would complete his part of the demerger agreement in accordance with its terms. One of those terms was that Eastwood and Casbee would enter into the required leases after the completion of Step 1, and in any event before the implementation of all of the steps made it practically impossible for Mr Maiolla to require that the leases be entered into. Mr Maiolla refused to complete Step 4 because Eastwood did not enter into the lease. He did not depart from any representation that he may have made.

Minority Oppression

Finally, Mr and Ms Nowland mounted what they called a minority oppression claim under s 232(d) and (e) of the Corporations Act. In par 30 they say that the failure of Mr Maiolla to cause each of them to hold 15% of the shares in Casbee Group was, to use the common shorthand, oppressive. They say in par 31 that it was oppressive for Mr Maiolla to fail to cause Casbee Properties to enter into a written lease at market rates with Casbee and Eastwood. There is a claim in par 31A that Mr Maiolla acted oppressively in allowing Casbee Properties to permit Casbee to occupy Stanton Road after 2008 without paying any rent. Finally, it is claimed in par 32 that, if the claim based upon the demerger agreement and the claim for misleading and deceptive conduct fail, it was oppressive for Mr Maiolla to cause all of the share transfers that happened as part of Steps 1 to 4 to occur without also causing Mr and Ms Nowland to hold 15% each of the shares in Casbee Group.

It is not necessary to consider the principles that are applicable to this aspect of the claim in any detail, although it is accepted that conduct which is inconsistent with the agreements between members of closely held companies as to how the affairs of the company should be conducted may trigger relief under s 233: see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd.

In relation to Mr Maiolla's refusal to complete Step 4 it is likely that relief under s 233 would have been available, if Eastwood had taken all of the steps necessary to enter into the written lease contemplated by the 14 July 2008 letter. It did not. I have explained above my conclusion that the conduct of Mr Nowland and Mr Maiolla, while not entirely explicable, was materially equally culpable in relation to the failure of the demerger agreement to be completed. Mr Maiolla's refusal to complete Step 4 was not 'oppressive'.

Had Eastwood entered into the required lease and performed its terms, Mr Nowland may have been entitled to oblige Mr Maiolla to transfer the required number of shares in Casbee Group to Mr Nowland and his wife. In circumstances where Eastwood complied with its obligations under the lease, Mr and Ms Nowland may well have had a good case that the refusal by Mr Maiolla as the sole director and controlling shareholder of Casbee Group to cause its wholly owned subsidiary, Casbee Properties, of which he was also the sole director, to require that Casbee enter into the required lease and pay rent thereafter was 'oppressive' conduct in relation to the affairs of Casbee Group.

However, Mr Nowland did not cause Eastwood to enter into the lease, and furthermore he caused Eastwood to refuse to pay the agreed rent for its occupation of Stanton Road from 1 July 2009 to 12 March 2012. Mr and Ms Nowland cannot now complain that Mr Maiolla has acted oppressively in relation to the indulgence extended by Casbee Properties to Casbee, because Mr Nowland has unilaterally allowed Eastwood to extend the same indulgence to itself.

Mr and Ms Nowland made the specific submission in their final written submissions that, in January 2012, Mr Maiolla adopted the incorrect and unreasonable position that completion of Step 4 was always contingent on leases being executed. It follows from the discussion above that I reject that submission. The leases were in my view an important component of the benefit Mr Maiolla expected to receive from completing Step 4, and as there was no fixed agreement on essential matters such as the lease periods and rents, among other important issues, Mr Maiolla would have in practical terms lost the ability to require that Eastwood enter into the lease if he had completed Step 4.

I have yet to deal with Casbee Properties' proceedings against Eastwood for non-payment of rent and outgoings. The fact is that Mr Maiolla caused Casbee Properties to commence proceedings to compel Eastwood to pay rent and outgoings, but failed to do so in relation to Casbee.

In their final written submissions Mr and Ms Nowland claim that it was oppressive for Mr Maiolla to cause Casbee Properties to commence proceedings against Eastwood without also doing so against Casbee (par 99(g)). That submission is reasonably within the matters pleaded in par 31A(b) of the second further amended statement of claim.

I have already explained my conclusion that, under the demerger agreement as set out in the 14 July 2008 letter, Mr Maiolla and Ms Nowland were under equal obligations to cause Casbee and Eastwood to enter into leases with Casbee Properties at commercial rents. Mr Maiolla, as the party who controlled Casbee, was required to cause that result to occur. It is no answer for him to claim that Casbee wound down its business and did not occupy the space formerly used, either as much as it had formerly done, or at all. It may have been reasonable for Mr Maiolla to negotiate a termination of the lease, if he had due regard to dealing with his conflict of interest, so that some alternative tenant could be found. As I have also found, Casbee did not entirely cease occupying any part of Stanton Road after 2008.

The failure of Mr Maiolla to use his power, as the sole director of Casbee Group and Casbee Properties, to require Casbee to pay rent, and if necessary to institute proceedings against Casbee to force it to do so, satisfies the requirements in s 232, to enliven the court's power to give relief under s 233 of the Corporations Act.

Mr Maiolla's obligation to ensure that Casbee pays to Casbee Properties the amount of money that it would have paid had it negotiated and entered into the lease required by the 14 July 2008 letter should, in my view, cover the same period as Mr Nowland's obligation in relation to Eastwood; that is, 26 August 2008 to 12 March 2012. I acknowledge that there is scope for argument that this period is not appropriate in the case of Casbee. However, Mr Maiolla caused Casbee unilaterally to cease paying rent, and whether or not Casbee's need to utilise Stanton Road decreased, Mr Maiolla took no steps to negotiate a termination of Casbee's right of occupation. Adopting the same period for both Eastwood and Casbee is fair at a high level, and will save the parties incurring significant additional costs in arguing the issue of what the period should be.

Amendment Application

I should record that on 16 September 2013, which was the fifth day of the trial, Mr and Ms Nowland made an application to file a third further amended statement of claim. The only amendment sought was to add a new par 31A(b1). Had that amendment been allowed, a claim would have been introduced into the proceedings that, since 5 November 2008, Mr Maiolla has caused Casbee Properties to make unsecured loans to Casbee of $1,072,835 as at 30 June 2011, in circumstances where, it was alleged, Casbee had a net deficiency of assets at that time of $2,017,242. Also, an additional claim would have been made that Mr Maiolla has caused Casbee Properties to borrow money from St George Bank Ltd, and to grant a mortgage over Stanton Road, during the year ended 30 June 2011.

During the trial Mr and Ms Nowland tendered some evidence which was capable of supporting these allegations, and Mr Maiolla was cross-examined in some detail about them.

I refused Mr and Ms Nowland's application for leave to make this amendment. Accordingly, I will not make any findings on the issue.

My principal reason for refusing leave to amend was that the new claim had not originally been pleaded, and was too contentious to justify my allowing Mr and Ms Nowland effectively to run the claim at the trial outside the pleadings, and then amend at the end of the trial to include the claim. It appeared to me that Mr Maiolla did not have sufficient notice of the intention to introduce the claim, and had no opportunity to defend himself properly.

I should add that Mr and Ms Nowland commenced the proceedings on 16 March 2012, when they filed a statement of claim that sought relief for breach of what has been called the demerger agreement, and also misleading and deceptive conduct in relation to a representation by Mr Maiolla that he would cause each of them to own 15% of the shares in Casbee Group. On 11 July 2013 I heard a notice of motion, filed by Mr and Ms Nowland, for leave to amend their statement of claim. That hearing took place just short of four weeks before the trial was fixed to commence on 6 August 2013. I granted the leave that was sought. The amendments were significant, but I formed the view that it was reasonably possible for Mr Maiolla to be able to respond and defend himself properly at the trial in the time available. His counsel at the trial indicated that Mr Maiolla was in a proper position to proceed. The pleading that was filed following leave being granted was a further amended statement of claim. My concern about the possibility that the amendments might prejudice Mr Maiolla was such that I said to his counsel during argument: "...the court will do what has to be done to protect your clients if, contrary to the court's intuition, difficulties arise" (T 17/07/13 41.50). On an application made by Mr and Ms Nowland on the first day of the hearing I gave leave to them to further amend their statement of claim by filing the second further amended statement of claim. When they applied again for leave to amend to plead a wholly new claim at the end of the trial, I had in mind the assurance I had earlier given to Mr Maiolla's counsel when I rejected the application.

Casbee Properties' claim against Eastwood

It is now necessary for me to turn to the second of the proceedings before the court, being Casbee Properties' claim against Eastwood.

Casbee Properties' primary claim was based upon the terms of a written lease between itself and Eastwood dated 1 July 2007. The lease was tendered into evidence as part of the exhibit to Mr Maiolla's affidavit of 4 September 2012, and became Exhibit 6, at pp 1097 - 1181 of the Court Book. The lease is in the same form as the other leases entered into by Casbee Properties that were in evidence. It was in three parts, a table of contents, general written terms in 11 parts, and a reference schedule. The reference schedule contains 33 items that provide the details to which the general terms referred. The lease was executed on the final page (p 1181 of the Court Book) by Mr Maiolla as director and Paolo Maiolla as witness. The word "director" under Paolo's signature was crossed out and replaced in handwriting by "witness". Casbee Properties' common seal has been affixed beside the signatures.

Eastwood denies the validity of the lease.

It is common ground that, at the time the lease was signed, Mr Maiolla was not a director of the company. Mr Nowland was a director, and the secretary, and the effective manager of Eastwood.

Accordingly, the lease would be invalid, on the ground that it was not validly executed by duly appointed officers, unless it could be proved that by some other conduct Eastwood accepted that it would be bound by the terms of the lease.

Mr Maiolla gave evidence that he was authorised by Mr Nowland, who had authority to act on behalf of Eastwood and bind it to the terms of the lease, to execute the lease on the company's behalf. Mr Maiolla said that it was the general practice within the group for Mr Nowland to take responsibility for causing Casbee Properties to enter into leases with its various tenants. He said that he found the unexecuted lease in the office one day, already bearing the common seal of Casbee Properties, together with a post-it note on which Mr Nowland had written a request that Mr Maiolla and his son execute the document in Mr Nowland's stead. Mr Maiolla said that he and Paolo complied with the request.

Mr Nowland denied making the request that the lease be executed in the fashion suggested by Mr Maiolla, and further denied all knowledge of its existence.

A number of matters have led me to find, on the balance of probabilities, that the lease was not executed in the circumstances described by Mr Maiolla, and accordingly it is not valid.

First, it is inherently unlikely that, if Mr Nowland caused the document to be prepared, and also caused the common seal to be affixed to the document on the signing page, he would not then and there have signed the document as the director, if necessary with the assistance of Mr Chew. Even though Mr Nowland is a layman, he must have had sufficient experience in business to know that a lease that was signed and witnessed by persons, who were not directors or other authorised officers, would be of dubious validity.

Secondly, the evidence demonstrates that historically, by informal agreement between the parties, Eastwood paid rent at the rate of $2800 per month until about November 2008, when the payment was increased to $3080 per month to include GST. Item 8 of the reference schedule to the lease provided for a rent of $33,600 per annum, or $2800 per month. There is thus an inconsistency between the amount of rent paid by Eastwood from November 2008 and the amount required to be paid under the 1 July 2007 lease.

Thirdly, the lease contains in clause 7.1 a term which required that annual rent be reviewed at the dates in Item 9 in the reference schedule. Item 9 provides for market review dates at each 12 months, on the anniversary of the date of the lease. Clause 7.5 provides that rent reviews are to be to market. If the lease was executed on 1 July 2007, the first anniversary of the lease was 1 July 2008. That was some two weeks before Mr Kennedy, on the instructions of Mr Maiolla, sent the 14 July 2008 letter to each of Mr and Ms Nowland. The letter required that Eastwood enter into a written lease with Casbee Properties for a market rent after the completion of Step 1. However, if the 1 July 2007 lease was in force, Casbee Properties already had a lease with Eastwood that could be reviewed to market.

The terms in which the 14 July 2008 letter were written strongly suggest that Mr Kennedy was not aware of the existence of the 1 July 2007 lease. It is improbable that, if Mr Maiolla was on that date aware of the existence of the lease, he would have failed to advise Mr Kennedy of that fact. The 14 July 2008 letter throws considerable doubt on the validity of the 1 July 2007 lease.

Thirdly, this reasoning is reinforced by the terms of Mr Kennedy's 10 November 2008 letter, in which he stated that Mr Maiolla was awaiting finalisation of the leases before he completed Step 4. Mr Kennedy appeared to be a careful accountant, and it is improbable that he would have put the performance of the demerger agreement at risk by writing this letter, if he was aware that there was already in existence a Lease between Eastwood and Casbee Properties.

Fourthly, Mr Nowland did not write a formal letter of demand to Mr Maiolla until 17 November 2011. His solicitors, Gadens Lawyers, also wrote a letter of demand on 30 November 2011. Mr Maiolla's solicitors, Snelgroves, responded by letter on 9 January 2012. They said in part:

"... It necessarily follows that step 4 was always contingent on leases being executed and on our instructions although leases had been executed for an (sic) on behalf of our client they have not been executed by Eastwood Airconditioning Pty Limited, a company solely in the control and ownership of your client."

Snelgroves were apparently aware of the existence of a lease. They must not have been aware that the lease had been signed on behalf of Eastwood, albeit by Mr Maiolla and Paolo. If Snelgroves had sighted the 1 July 2007 lease, it is improbable that they would have made this statement in their letter. If they were only acting upon Mr Maiolla's instructions, it is strange that he would have told them that Eastwood had not signed the lease at all, if he recalled that he had signed it on Eastwood's behalf.

On 27 January 2012 Snelgroves wrote a further letter to Gadens. They attached a copy of Annexure A (the table of contents) and the reference schedule of the lease and stated: "We are instructed the Lease has never been executed by your clients (sic) company. The lease itself cannot be located." At that stage it appears that the entire lease that was tendered into evidence (which includes the general terms) was not part of the document that Mr Maiolla made available to his solicitors. Strangely, the final page of the attachment bore the signatures of Mr Maiolla and Paolo Maiolla on behalf of Eastwood.

Finally, it is significant that Paolo Maiolla was not called to corroborate his father's evidence of the circumstances in which the 1 July 2008 lease was executed. There was no evidence that Paolo was unavailable to give evidence. This is a clear example of a situation in which it is appropriate to apply the rule in Jones v Dunkel (1959) 101 CLR 298.

I accordingly find that Casbee Properties is not entitled to succeed in its claim against Eastwood on the basis of the 1 July 2007 lease.

However, it is clear that Eastwood occupied part of Stanton Road as a tenant of Casbee Properties under an informal oral lease under which, from November 2008, it was obliged to pay $3080 each month to Casbee Properties.

In its amended statement of claim in the lease proceedings, Casbee Properties makes an alternative claim for reasonable compensation for Eastwood's use and occupation of Stanton Road. In its final written submissions it argued that a rent of $2800 per month was the appropriate basis for calculating the amount to which it is entitled (par 329). The amount should be calculated on the slightly higher basis of $3080 per month.

In addition, Casbee Properties is entitled to interest calculated at the court rate.

Any amount that Eastwood pays to Casbee Property under the judgment to be given in this action should be set off against Mr and Ms Nowland's obligation to pay an amount, as discussed above, in consequence of Mr Nowland's failure to cause Eastwood to enter into the lease contemplated by the 14 July 2008 letter, in order to do equity in return for the transfer of Mr Maiolla's shares in Casbee Group to them. This may be a greater sum than the amount payable by Eastwood, because it will have to be calculated on the basis of market rent.

In my view the pleadings are deficient in that they do not enable the court to make appropriate orders in relation to the corresponding failure of Casbee to pay rent to Casbee Properties. That issue has to be addressed as part of the relief granted to Mr and Ms Nowland in relation to their oppression claim.

Mr and Mrs Nowland will have to institute new proceedings if they wish to do anything about the issue that they sought leave to raise in their draft third further amended statement of claim.

Credibility of witnesses

In various ways Mr and Mrs Nowland submit that the court should not accept the evidence given by Mr Maiolla, and should not treat him as being a credible witness. Mr Maiolla also submits that I should not accept all of the evidence given by Mr Nowland.

I do not propose to make detailed findings about the credibility of the two witnesses. Neither witness's evidence was entirely satisfactory. Both gentlemen reacted defensively to some questions in cross- examination, and, for substantial parts of their cross-examination, they appeared to adopt a passive-aggressive response to the questions put to them. It is fair to say that they did not appear to relish the process of having to sit in the witness box and limit their responses to direct answers to the questions put to them by counsel.

However, it is not necessary, and it would not be fair or appropriate, to be unduly critical of either witness. Generally, I have been prepared to accept most of their evidence, but it appears that each witness now harbours considerable antipathy towards the other. I formed the view that aspects of each witness's evidence appeared to be coloured, perhaps unconsciously, by the witness's perception of his self interest.

Ultimately, in deciding the issues that have been in contest in this matter, I have been guided by what I regard as being the probabilities based upon the objective evidence. I have not relied upon the evidence of one of the witnesses over the evidence given by the other.

That observation is subject to one exception. I have not accepted Mr Maiolla's evidence on the issue of whether Mr Nowland authorised him to sign the written lease dated 1 July 2007 on behalf of Eastwood. To that extent I have accepted the evidence of Mr Nowland in preference to that given by Mr Maiolla. I would have come to the same conclusion based upon the objective facts in any event, for the reasons I have given above.

Relief

It follows from the reasons that I have set out above that it is not feasible or convenient for me to formulate and make definite orders at this time that resolve the whole of the controversy between the parties. In particular, further steps will be required, either by agreement between the parties, or further proceedings (whether in the court or before a referee) to deal with the consequences of the failure of Mr Nowland and Mr Maiolla to cause Eastwood and Casbee to enter into the leases required by the 14 July 2008 letter.

In paragraphs 17 to 19 above I have referred to the steps that were taken to ensure that Mr Maiolla was eligible for small business capital gains tax concessions, and to deal with other relevant matters, to ensure that the implementation of the demerger agreement did not attract burdensome CGT or stamp duty obligations. Mr Maiolla submitted that I should not grant the relief sought by Mr and Mrs Nowland because they had delayed the commencement of their proceedings so long that Mr Maiolla's circumstances had changed and he would no longer be eligible for the concessions that were available when the demerger agreement should have been completed. Mr Maiolla did not, however, lead any evidence that proved that claim. In that circumstance it may be proper for me to ignore Mr Maiolla's submission. In my judgment it would not be appropriate for me to take that course, as it would be extremely unfortunate if the orders that I make in these proceedings have the unexpected and unintended consequences that the performance of the orders will subject any party to onerous revenue obligations. Leave is given to Mr Maiolla to put evidence before the court, if he wishes, to prove the revenue consequences that will follow if the court makes the orders provisionally set out below. It should be understood that if any onerous revenue consequences are established, that will not cause me to refuse relief to Mr and Mrs Nowland. It might cause me to grant different relief, such as perhaps damages, to give them the same effective result.

I will accordingly direct the parties to confer and bring in short minutes which give effect to these reasons for judgment, and if agreement cannot be achieved, each party should provide to my Associate the minutes of order which they ask the court to make.

I will also hear the parties on the issue of costs, as it is likely that the costs incurred in relation to each of the two proceedings will differ significantly, and it is not possible to discern a single event for the purpose of the general rule that costs follow the event.

In order to assist the parties, I will set out below the orders that I would be inclined to make in the absence of further submissions from the parties. The parties should feel free to suggest changes to the provisional orders.

The orders that I would provisionally make, in so far as I can now formulate them, are:

Proceedings No. 2012/85607

(1) Declaration that the first defendant, by an agreement between the first defendant and the plaintiffs containing the terms set out in the letter dated 14 July 2008 written by Mr Kennedy to the plaintiffs, is obliged to transfer to each of the plaintiffs a sufficient number of the shares held by the first defendant in the second defendant so that each of the plaintiffs will hold 15% of the issued capital of the second defendant.

(2) Order the first defendant, subject to par 3, to specifically perform his obligation as set out in the declaration in par 1.

(3) The first defendant's obligation under the order in par 2 is subject to the proviso that it need not be performed unless, at the same time as the transfer takes place, the first plaintiff causes Eastwood Air Conditioning Pty Ltd (Eastwood) to pay to Casbee Properties Pty Ltd (Casbee Properties) an amount of money equal to the net present value at the date of payment of Eastwood's occupation of the property at 4 Stanton Road, Seven Hills (Stanton Road) between 26 August 2008 and 12 March 2012 on the basis that Eastwood was obliged to pay to Casbee Properties a market rent, and a share of outgoings in the proportion that the area occupied by Eastwood bears to the whole net lettable area of Stanton Road that has generated the outgoings.

(4) Order that the amount payable by the first plaintiff the subject of par 3 may be set off by the first plaintiff against the amount that Eastwood is required to pay to Casbee Properties under the orders made in Proceedings No. 2012/136262.

(5) Declaration that the failure of the first defendant to cause Casbee Pty Ltd (Casbee) to negotiate with Casbee Properties and enter into the lease required by the letter dated 14 July 2008 written by Mr Kennedy to the plaintiffs was conduct by the first defendant in the affairs of the second defendant that was contrary to the interests of the members of the second defendant as a whole, and oppressive to the first plaintiff as a member of the second defendant.

(6) Order the first defendant to pay to Casbee Properties an amount of money equal to the net present value at the date of payment of Casbee's occupation of the property at 4 Stanton Road, Seven Hills (Stanton Road) between 26 August 2008 and 12 March 2012 on the basis that Casbee was obliged to pay to Casbee Properties a market rent, and a share of outgoings in the proportion that the area occupied by Casbee bears to the whole net lettable area of Stanton Road that has generated the outgoings.

(7) Stand the proceedings over for further directions concerning the assessment of the amounts payable under pars 3 and 6.

(8) Liberty to all parties to apply on 3 days' notice.

Proceedings No. 2012/136262

Order Eastwood to pay to Casbee Properties an amount equal to $3080 per month between 30 June 2009 and 12 March 2012, plus interest at the court rate.

Decision last updated: 08 January 2014

Medium Neutral Citation:	Nowland v Maiolla Casbee Properties Pty Ltd v Eastwood Air Conditioning Pty Ltd [2013] NSWSC 1958
Hearing dates:	6-9 August, 16 September 2013
Decision date:	20 December 2013
Jurisdiction:	Equity Division
Before:	Robb J
Decision:	(1)Direct the parties in each matter to bring in short minutes to give effect to these reasons for judgment. (2)I will hear the parties as to costs.
Catchwords:	SPECIFIC PERFORMANCE - intention to create legal relations - existence of contractual consideration - effect and legal consequences of failure to enter into lease as required by purported contract - misleading and deceptive representations - minority oppression claim - refusal of leave to amend application made during trial - VALIDITY OF LEASE - claim for reasonable compensation for use and occupation of property.
Legislation Cited:	Corporations Act 2001 (Cth) Fair Trading Act 1987 Trade Practices Act 1974 (Cth)
Cases Cited:	Ermogenous v Greek Orthodox Community of SA Inc 209 CLR 95 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 Green v Sommerville (1979) 141 CLR 594 Jones v Dunkel (1959) 101 CLR 298 Langman v Handover (1929) 43 CLR 334 McFarlane v Daniell (1938) 38 SR (NSW) 337 Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618
Category:	Principal judgment
Parties:	2012/85607 Dean Nowland (First plaintiff) Taimi Nowland (Second plaintiff) Gian Franco Maiolla (First defendant) The Casbee Group Pty Limited (Second defendant) 2012/136262 Casbee Properties Pty Limited (Plaintiff) Eastwood Air Conditioning Pty Limited (Defendant)
Representation:	Counsel: 2012/85607 N Kidd SC (Plaintiffs) A Grant (Defendants) 2012/136262 A Grant (Plaintiff) N Kidd SC (Defendant) Solicitors: 2012/85607 Gadens Lawyers (Plaintiffs) Snelgroves Lawyers (Defendants) 2012/136262 Snelgroves Lawyers (Plaintiff) Gadens Lawyers (Defendant)
File Number(s):	2012/85607; 2012/136262