Olivero v Ailakis
[2012] WADC 174
•14 DECEMBER 2012
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: OLIVERO -v- AILAKIS [2012] WADC 174
CORAM: SCHOOMBEE DCJ
HEARD: 7 MAY & 10 SEPTEMBER 2012
DELIVERED : 14 DECEMBER 2012
FILE NO/S: CIV 3982 of 2010
BETWEEN: JUAN CARLOS OLIVERO
Plaintiff
AND
ANTHONY AILAKIS
First DefendantRODNEY AILAKIS
Second Defendant
Catchwords:
Agreement to transfer shares - Whether parties intended to create a legally binding contract - Whether negotiations with and work done for third party by nonexecutive director part of his duties in law - Whether such negotiations and work constituted good consideration for other director's promise to transfer shares - Whether similar fact evidence of promises by director to transfer shares to other persons admissible - Whether director repudiated existing contract - Whether nonexecutive director waived his right to terminate the contract by claiming specific performance - Whether repudiation was repeated - Calculation of loss of bargain damages - Whether value of shares to be calculated at the time of breach or time of termination - Whether nonexecutive director's intention of selling shares at a particular time relevant to calculation of value of shares - Whether relevant that nonexecutive director intended to place shares into selfmanaged superannuation fund of which his wife was also a beneficiary
Legislation:
Corporations Act 2001 s 180(1)
Result:
Plaintiff's claim upheld in the amount of $750,000
Representation:
Counsel:
Plaintiff: Mr T R Thies
First Defendant : Mr S Penglis
Second Defendant : Mr S Penglis
Solicitors:
Plaintiff: Timothy R Thies
First Defendant : Freehills
Second Defendant : Freehills
Case(s) referred to in judgment(s):
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Securities & Investments Commissions v Rich (2009) 75 ACSR 1
Australian Securities and Investments Commission v Healey (2011) 196 FCR 291
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424
Australian Woollen Mills Pty Ltd v Commonwealth (1955) 93 CLR 546
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647
Bear Stearns Bank Plc v Forum Global Equity Ltd [2007] EWHC 1576 (Comm)
Brikom Investments Ltd v Carr [1979] QB 467
Brimaud v Boston Securities Entertainment Investments Pty Ltd [1998] FCA 1392
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
Collins v Godefroy (1831) 1 B & Ad 950
Daniels v Anderson (1995) 37 NSWLR 438
Downing v Newsflash Nominees Pty Ltd [No 2] [2012] WASCA 211
Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847
Fazio v Fazio [2012] WASCA 72
Gates v City Mutual Life Assurance Society Ltd (1982) 43 ALR 313
Grivas v Brooks (1997) 69 SASR 532
Gutta v Ierino [2010] WASC 402
Hoyts Pty Ltd v Burns (2003) 77 ALJR 1934
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640
Husher v Husher (1999) 197 CLR 138
International Paper Company v Spicer (1906) 4 CLR 739
Jason v Batten (1930) Ltd; British Traders Insurance Company Ltd [1969] 1 Lloyd's Rep 281
Johnson v Agnew [1980] AC 367
Johnson v Perez (1988) 166 CLR 351
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Larking v Great Western (Nepean) Gravel Ltd (1940) 64 CLR 221
Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571
Martin v Osborne (1936) 55 CLR 367
Masters v Cameron (1954) 91 CLR 353
McKay v National Australia Bank Ltd [1998] 1 VR 173
Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547
Milne v Attorney‑General (Tas) (1956) 95 CLR 460
Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23
Mood Music Publishing Co Ltd v De Wolfe Ltd [1976] Ch 119
Morellini v Adams [2011] WASCA 84
O'Brien v Chief Constable of South Wales Police [2005] 2 AC 534
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444
Oxus Gold Plc v Templeton Insurance Ltd [2007] EWHC 770 (Comm)
Park v Brothers (2005) 222 ALR 421
Pirt Biotechnologies Pty Ltd v Pirtferm Limited [2001] WASCA 96
R v Clarke (1927) 40 CLR 227
Re Brazilian Rubber Plantations and Estates Ltd [1911] 1 Ch 425
Re Casey's Patents; Stewart v Casey [1892] 1 Ch 104
Rodocanachi v Milburn (1887) 18 QBD 67
Ronnoc Finance v Spectrum Network Systems (1997) 45 NSWLR 624
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Shadwell v Shadwell (1860) 9 CBNS 159; (1860) 142 ER 62
Shaw v Holland (1846) 15 M & W 136
Sibbles v Highfern Pty Ltd (1987) 164 CLR 214
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Trident General Insurance Company Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Ward v Byham [1956] 2 All ER 318
Wells v Matthews (1914) 18 CLR 440
Wenham v Ella (1972) 127 CLR 454
Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318
White v Shortall [2006] NSWSC 1379
Williams Brothers v Ed T Agius [1914] AC 510
SCHOOMBEE DCJ: Mr Carlos Olivero claims damages from Mr Anthony Ailakis and Mr Rodney Ailakis on the basis that they repudiated an agreement to transfer 1,000,000 shares to him.
Mr Olivero was a non‑executive director of Redstone Resources Limited, a minerals exploration company. He had been involved with this company since 2001 when he had made a loan to Mr Anthony Ailakis and Mr Rodney Ailakis so that they could carry out a detailed aeromagnetic survey of a tenement in the West Musgraves in Western Australia known as Tollu. At that time Mr Olivero was working as a pilot and operated a charter flight business out of Perth. From 2005 onwards Mr Olivero assisted the Ailakis brothers to raise capital for the public listing of Redstone Resources in June 2006. He subsequently raised capital needed for exploration.
Redstone Resources was involved in the exploration of other mining tenements in addition to Tollu. However, Tollu was expected to yield high grade copper and the prospectus for Redstone Resources issued in June 2006 stated that the company intended to give priority to the exploration of Tollu. The quarterly report by Redstone Resources for the period ending March 2007 indicated that gridding was completed in preparation for drilling on the Tollu tenement.
On 30 April 2007 Mr Anthony Ailakis, who was one of three directors of Redstone Resources, telephoned Mr Olivero and told him that the company had lost Tollu as Mr Ailakis had omitted to lodge a renewal application for the tenement. Another company, Traka Resources Limited, had made application for the Tollu tenement. Mr Olivero immediately met with Mr Ailakis at Redstone Resources' offices. They discussed the potential ramifications of the loss of Tollu and the highly detrimental effect it would have on Redstone Resources' share price and its ability to raise capital for exploration.
Mr Ailakis was particularly concerned that the loss of Tollu might lead to the other director, Professor Groves, disassociating himself from the company. Professor Groves was the head of the Geology Department of the University of Western Australia and a leading and internationally known geologist. The involvement of someone of such high standing gave Redstone Resources considerable credibility and was very important for capital raising. Professor Groves had already resigned as chairman of Redstone Resources in March of that year and had threatened to resign as a director, because of disagreements between himself and Mr Ailakis.
Mr Ailakis did not want anyone to be told of the loss of Tollu. He acknowledged that the exploration team had to be advised to stop their work, but did not wish to tell them the reason for this.
Mr Ailakis and Mr Olivero discussed what could be done to persuade Traka Resources to withdraw their application for the tenement. Mr Olivero pointed out that the directors of Traka Resources were not likely to take payment in exchange for relinquishing the application, as the directors of Traka Resources were apparently wealthy.
Mr Olivero then raised the possibility of assisting Traka Resources in negotiating with the Ngaanyatjarra Aboriginal elders whose agreement was required by Traka Resources to start exploration on its tenement, which was situated close to Tollu. Mr Patrick Verbeek, the managing director of Traka Resources, had previously expressed his frustration to Mr Olivero about his inability to arrange a meeting with the Ngaanyatjarra elders and had stated his admiration for Mr Olivero's ability to negotiate with Aboriginal people. Mr Olivero had lived and worked in various remote Aboriginal communities in the past and had often negotiated charter flights and payments with them.
Mr Ailakis and Mr Olivero agreed that Mr Olivero would approach Mr Verbeek and propose an agreement under which Mr Olivero would assist Traka Resources to arrange a meeting with the Ngaanyatjarra elders in exchange for Traka Resources withdrawing its application for Tollu.
The next day Mr Ailakis and Mr Olivero met with a lawyer who advised them that there was no legal recourse open to Redstone Resources to recover the tenement. The same day Mr Olivero met with Mr Verbeek and offered to organise a meeting between Mr Verbeek and the Ngaanyatjarra elders and to assist Traka Resources to achieve its goal of an access meeting and negotiations with the traditional land owners. Mr Verbeek told Mr Olivero that if he assisted him in arranging a meeting and did everything possible in his power to get the negotiations with the Ngaanyatjarra elders on foot, Traka Resources would withdraw its application for the Tollu tenement.
When Mr Olivero reported the outcome of the meeting with Mr Verbeek to Mr Ailakis on the telephone, Mr Ailakis was very grateful and told Mr Olivero that he would be rewarded for his efforts.
The next day, on 2 May 2007, Mr Olivero and Mr Ailakis met at the offices of Redstone Resources. They discussed the steps to be taken to assist Traka Resources and Mr Ailakis again expressed his gratitude and relief about the outcome of the meeting with Mr Verbeek. He told Mr Olivero that he had spoken to his brother Rodney and that they had decided to give Mr Olivero 1 million shares in Redstone Resources in appreciation for the work that he was doing and to ensure that the obligations undertaken by Mr Olivero to Mr Verbeek would be met and the Tollu tenement recovered. Mr Olivero thanked Mr Ailakis, asked him to thank his brother and said that he would make sure all obligations to Traka Resources were met. Mr Ailakis, who had been a practising lawyer in the past, told Mr Olivero that he would draft a written agreement as soon as he had the opportunity.
Over the next few days Mr Olivero made preparations for a visit to the Blackstone community in the West Musgraves where the Ngaanyatjarra elders resided. He contacted Mr Rodney Ailakis who was stationed at Redstone Resources' bush camp nearby and asked him to try and locate the Ngaanyatjarra elders to whom Mr Olivero wished to speak. The following week Mr Olivero drove over three days to the remote bush camp. He was accompanied by Mr Edward Barrett who had done some work in the past for the Ailakis brothers on another mining tenement and had also invested in Redstone Resources by way of seed capital and shares.
After their arrival at the Blackstone community and while driving around with Mr Rodney Ailakis and Mr Barrett to find the Aboriginal elders to speak to, Mr Olivero raised the catastrophic effect that the loss of the Tollu tenement would have on the capital raising and share price of Redstone Resources, on employee morale and on Professor Groves' commitment to the company. Mr Olivero told Mr Rodney Ailakis that the whole matter had caused him a lot of anger, stress and embarrassment and had aged him by 10 years. Mr Rodney Ailakis replied that he and his brother understood Mr Olivero's position and appreciated his commitment. Mr Ailakis added that he and his brother were happy to give Mr Olivero the 1 million shares to ensure that Redstone Resources would get back the Tollu tenement. They both wanted the proposed steps to proceed without any problems.
Mr Olivero was assuaged by this and said 'thank you very much'. Mr Barrett confirmed the gist of this conversation during his evidence.
Mr Olivero met with an influential Ngaanyatjarra elder and arranged a future visit at which the elder and other council members would meet Mr Verbeek and discuss his proposals with him.
Approximately two weeks later Mr Olivero accompanied Mr Verbeek by plane to Alice Springs and from there by car to the Blackstone community. He introduced Mr Verbeek to the Ngaanyatjarra elder and other Aboriginal land owners. After some discussion Mr Verbeek obtained the assurance from the Ngaanyatjarra elder that he would speak to the council and arrange a further meeting with Mr Verbeek.
On the flight back to Perth on 26 May 2007 Mr Verbeek gave Mr Olivero a signed and undated withdrawal form for the Tollu tenement. Mr Verbeek gave evidence that he did not know and had not met the Ngaanyatjarra land owners before and did not have the contacts to do so. Traka Resources needed their approval to give it access to its tenements in the West Musgraves. Having met the Ngaanyatjarra elders with Mr Olivero made it possible for him to continue negotiations with the local landowners.
Mr Olivero handed the signed withdrawal form to Mr Ailakis on 28 May 2007. Mr Ailakis told Mr Olivero that he had not forgotten about his shares. Mr Ailakis said that he would organise a document to acknowledge their deal in the next few days and would transfer the shares as soon as he had sorted out the escrow.
In November that year Redstone Resources lodged a renewed application for Tollu and the undated withdrawal form from Mr Verbeek was submitted. Redstone Resources recovered its rights to the Tollu tenement.
From about July 2007 onwards Mr Olivero repeatedly asked Mr Tony Ailakis to sort out the paperwork for the shares to which he and other people who had been involved in capital share raising were entitled. Mr Ailakis always had an excuse, such that he would do it in the next week or would deal with all of the recipients of shares on one occasion. Mr Olivero told Mr Ailakis that he wanted to sell some of the shares to allow his children to put a deposit on a house and wished to place the rest of the shares in his self‑managed superannuation fund.
On 27 July 2009 Mr Olivero sent an email to Mr Rodney Ailakis asking him to remind Mr Anthony Ailakis that he needed to transfer the shares to Mr Olivero.
In about October 2009 there was an irretrievable breakdown of the relationship between Mr Olivero and Mr Ailakis. Mr Olivero resigned from the board of Redstone Resources in November 2009. After that Mr Ailakis did not return Mr Olivero's telephone calls.
On 9 December 2009 Mr Olivero sent an email to Mr Rodney Ailakis stating that it was unfortunate that he and Mr Ailakis had chosen to go back on their word and that he was surprised that Mr Ailakis was denying the existence of such 'a deal'. Mr Olivero reminded Mr Rodney Ailakis that he and his brother had decided to give him 1 million shares in appreciation of his work and that no shares had been transferred.
Shortly after Mr Ailakis had promised Mr Olivero the transfer of the 1 million shares Mr Ailakis admitted the existence of such an undertaking to other people associated with Redstone Resources. Mr William Hayes had some business relations with the Ailakis brothers and had invested in Redstone Resources. He had raised capital for Redstone Resources at various stages. Shortly after Tollu was lost, Mr Hayes was told about this by Mr Olivero. At the end of May 2007 Mr Hayes attended a meeting with Mr Ailakis and Mr Olivero during which the Tollu problem was discussed. Mr Hayes gave evidence that Mr Ailakis appeared to be very nervous and embarrassed and expressed his relief that Mr Olivero was available to help rectify the problem. Mr Ailakis told Mr Hayes that he would make sure that Mr Olivero was rewarded for his efforts in trying to recover the Tollu tenement and that he would give Mr Olivero a million shares because Tollu was an essential part of the capital raising. Mr Ailakis asked Mr Hayes to keep their discussion confidential.
Mr Chilvers, an airline pilot, had also assisted Redstone Resources with capital raising since about mid‑2005. He gave evidence that Mr Olivero told him in early May 2007 that Tollu had been lost. Mr Chilvers was angry about the fact that Mr Ailakis had not told him about this with the result that he had continued to promote Redstone Resources and its entitlement to a tenement which was no longer available.
At a later stage Mr Olivero told Mr Chilvers that he had managed to recover the Tollu tenement. Shortly after this, in early June 2007, Mr Chilvers attended a meeting with Mr Ailakis and Mr Olivero at the offices of Redstone Resources. Mr Chilvers expressed his anger and irritation at what had occurred and said he hoped that Mr Ailakis had looked after Mr Olivero because if it had not been for him the tenement would have been lost. Mr Ailakis said to Mr Chilvers 'we are going to give Carlos a million shares for getting Tollu back'.
Mr Ailakis had also promised to transfer shares to Mr Chilvers as payment of a commission for the total share capital that Mr Chilvers had raised. A similar promise had been made to Mr William Hayes. Both Mr Chilvers and Mr Hayes gave evidence that after some initial problems in getting a response from Mr Ailakis they received the promised transfer of shares. Mr Olivero submitted that this evidence was admissible as similar fact evidence and supported his contention that the agreement between him and Mr Ailakis was a legally binding agreement.
The Ailakis brothers did not give evidence, but their counsel made it clear that they do not deny that Mr Anthony Ailakis told Mr Olivero that he and his brother would give him 1 million shares in Redstone Resources or that Mr Rodney Ailakis subsequently ratified this promise to Mr Olivero. However, the Ailakis brothers submit that there was no contract constituted by an offer and acceptance, no intention on their part to create legal relations and no consideration passing from Mr Olivero to them. They say that subsequent references by Mr Olivero to the alleged agreement show that he regarded Mr Ailakis' offer to transfer the shares as a promise or a gift which is not legally enforceable.
The Ailakis brothers further allege that any work performed by Mr Olivero to recover Tollu was done as part of his duties as a non‑executive director and that the performance of an existing legal duty cannot be good consideration.
Mr Olivero contends that the Ailakis brothers repudiated the agreement to transfer the shares in June 2007 by failing to do so within a reasonable time after the agreement was entered into and again on numerous other occasions between 2007 and 2009 when they failed to comply with requests by Mr Olivero to transfer the shares. Mr Olivero alleges that the Ailakis brothers again repudiated the agreement by denying its existence in the defence filed in April 2012.
The Ailakis brothers contend that should a valid contract have come into existence, Mr Olivero waived his right to terminate the contract when he initially sued for specific performance and was no longer able to terminate the contract and claim damages when he purported to do so.
Mr Olivero initially claimed specific performance of the transfer of the shares, but changed his mind and terminated the contract by written notice to the Ailakis brothers handed to their counsel on 11 May 2012. In his re-amended statement of claim filed on 18 May 2012 Mr Olivero relied on the earlier refusals to transfer the shares and on the repudiation set out in the defence as grounds for the termination. Mr Olivero now claims the value of the 1 million shares as at 8 June 2007, alternatively the amount that he would have recovered if he had sold the shares at the time that he intended to do so.
The Ailakis brothers submit that should the termination have been valid, the value of the shares are to be determined at the time of termination on 11 May 2012 at which time the share price had fallen to $0.16 in comparison to the price of $1.20 claimed by Mr Olivero.
Alternatively, the Ailakis brothers submit that in calculating the loss suffered by Mr Olivero the court needs to take into account what Mr Olivero intended to do with the shares and when he would have sold them based on his own evidence of this. This approach would result in a lesser return from the shares as Mr Olivero only intended to sell 200,000 shares in June 2007 and would have placed the remainder in his self‑managed superannuation fund and only sold them in January 2011 by which time the share price had fallen to around $0.61.
The Ailakis brothers also contend that by reason of Mr Olivero's evidence that he would have asked Mr Ailakis to transfer 800,000 of the shares directly into his superannuation fund of which both he and his wife were members, Mr Olivero is at best only entitled to half the value of the 800,000 shares as at January 2011, which is the benefit he lost by reason of the superannuation fund not being able to sell the shares as intended.
Issues to be decided
This raises the following issues to be decided:
1.whether there was an offer and an acceptance and whether the parties intended to create a legally binding contract;
2.whether the subsequent conduct by the parties indicated that no legally binding agreement had been entered into;
3.whether the evidence of similar undertakings by Mr Ailakis to other people which resulted in a transfer of shares was admissible and indicative of an intention to enter into a legally binding agreement;
4.whether there was valuable consideration;
5.whether Mr Olivero had a duty in law as non‑executive director to perform the work to recover Tollu;
6.whether Mr Olivero lost his right to terminate the contract because he initially claimed specific performance;
7.assessment of damages and whether it is relevant what Mr Olivero intended to do with the shares;
8.whether the damages should be assessed at the time of the breach or at the time of trial;
9.Mr Olivero's credibility.
Whether there was an offer and an acceptance and whether the parties intended to create a legally binding contract
Counsel for the Ailakis brothers submitted that the alleged agreement between Mr Ailakis and Mr Olivero did not constitute a legally binding contract as it did not consist of an offer and acceptance, but was only a unilateral promise to make a gift. At best, counsel contended, it was a statement or representation of intention as to a future course of action, but no estoppel or reliance upon the representation had been pleaded. Counsel submitted that there had been no intention on behalf of the Ailakis brothers to create a legally binding contract.
It is trite law that a binding contract has to be constituted by an offer and acceptance: R v Clarke (1927) 40 CLR 227, 233. In order to qualify as a proper offer the statement made by the offeror must have been intended to give rise, on its acceptance, to legal relations. A useful test for determining whether there has been a true offer is to ask whether there has been a request, either express or implied, to do something. Another way of formulating the test is to ask whether the offer was made in order to induce the doing of an act by the offeree: Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424, 457 ‑ 459 (affirmed in Australian Woollen Mills Pty Ltd v Commonwealth (1955) 93 CLR 546).
The question whether the offer was intended to give rise, on its acceptance, to legal relations, has to be decided on an objective basis. The question is how a reasonable person in the position of the offeree would have interpreted the offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, 266; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571, 578.
Mr Ailakis' statement to Mr Olivero was that he and his brother had decided to give Mr Olivero 1 million shares in Redstone Resources in appreciation for the work that Mr Olivero was doing and to ensure that the obligations undertaken by Mr Olivero to Mr Verbeek would be met and the Tollu tenement recovered. This statement conveyed three reasons why the shares were to be transferred. Firstly, in appreciation for the work that Mr Olivero was then doing, secondly, to ensure that he would take the steps that he had promised Mr Verbeek and thirdly, so that the Tollu tenement could be recovered.
The second stated reason for the offer was to induce Mr Olivero to ensure that he carried out the steps that he had promised Mr Verbeek. The statement by Mr Ailakis was not only an expression of his appreciation for work that Mr Olivero had already done, nor was it only an expression of a future intention to reward Mr Olivero should the Tollu tenement be recovered. The undertaking to transfer 1 million shares was given, at least partly, in order to induce Mr Olivero to perform the work he had undertaken vis-à-vis Mr Verbeek. The fact that Mr Olivero had come up with the idea of what he could offer Mr Verbeek and had already discussed this with Mr Ailakis does not detract from the fact that Mr Ailakis then offered Mr Olivero 1 million shares for carrying out the work he had promised Mr Verbeek.
The statement therefore contained a true offer which was intended to give rise, on acceptance by Mr Olivero, to a legally binding obligation to transfer the shares. The requirement that Mr Olivero comply with his undertaking to Mr Verbeek was an integral part of that offer. That is how a reasonable person in Mr Olivero's position would have understood Mr Ailakis' statement.
Counsel for the Ailakis brothers submitted that it was an absurd suggestion to say that after that conversation Mr Ailakis would have been able to sue Mr Olivero for damages, if he had gone back on his promise to assist Mr Verbeek in negotiating with the Ngaanyatjarra people. I do not agree. It is highly unlikely that Mr Ailakis would have sued Mr Olivero under those circumstances, but Mr Olivero would have been in breach of a contractual obligation that he had undertaken in relation to the Ailakis brothers.
In support of the submission that Mr Ailakis' statement was just a promise or a statement of a future intention and not a true offer, counsel for the Ailakis brothers relied on Wells v Matthews (1914) 18 CLR 440. In that case the High Court held that an undertaking by a father to give his daughter a definite share in his estate upon his death in exchange for her giving up some land during his lifetime, and her agreement to this, did not create a legally binding contract but merely constituted a mutual understanding of the father's intention which had been arrived at in light of the relationship of confidence and trust between a father and his daughter. It should be noted, however, that Isaacs J, although he agreed with the conclusion of the plurality, held that the evidence was capable of a construction either in favour of or against a legally binding agreement. In such a situation considerable value had to be placed upon the demeanour of the witnesses and as the trial judge had had the advantage of seeing the witnesses, the appeal should be dismissed.
Counsel for the Ailakis brothers also relied on Milne v Attorney‑General (Tas) (1956) 95 CLR 460, 472 – 473. That case concerned a circular issued by a government authority which contained statements of the government's present intention and policy. The statements did not adequately define the terms of the proposed contract and allowed matters to be left to the discretion of the government authority. Accordingly, the statements were held to be too vague to constitute an intention to affect legal relations.
In my view there is no reason why the statements by Mr Ailakis did not constitute a true offer which invited acceptance or rejection. Although Mr Ailakis did not specifically say: 'if you perform your obligations vis‑à‑vis Mr Verbeek, we will give you a million shares', the statement clearly conveyed that the shares were to be transferred in order to ensure that Mr Olivero performed the work he had promised to Mr Verbeek. Mr Olivero understood it as a request to him which he could accept or reject, because he replied not only 'thank you', but also said he would make sure that all obligations were met in order to recover Tollu. If Mr Olivero had indicated at that stage that he thought it was too difficult to meet his undertaking to Mr Verbeek, this would have constituted a rejection of the offer.
Counsel for the Ailakis brothers relied on R v Clarke for the proposition that there had to be a proper acceptance. Clarke dealt with a situation where there was an offer for a reward in exchange for information which would lead to the arrest of the person who committed a murder. The issue was whether there was acceptance of that offer by way of performance, that is, the provision of the information. It was held that the informant did not provide the information in reliance on the reward, but to protect himself against a false charge of murder and to defend a charge of having been an accessory after the fact (see 234 – 235; 237 and 239 – 241).
In Mr Olivero's case he orally accepted the offer. The acceptance was not constituted by the performance of his obligations under the agreement. It is therefore not relevant whether the work done by him to comply with his undertakings to Mr Verbeek was done in response to the offer of shares or driven by some other motivation.
Mr Olivero's reply in saying 'thank you', asking Mr Ailakis to thank his brother, and also stating that he would make sure that all obligations to Traka Resources were met, constituted a proper acceptance.
In addition to proving an offer and acceptance, Mr Olivero carries the legal burden to show that both he and Mr Ailakis had the intention to create a legally binding contract. That intention is determined objectively by drawing inferences from what the relevant parties said and did in the course of their dealings: Pirt Biotechnologies Pty Ltd v Pirtferm Limited [2001] WASCA 96, [19] - [21]; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548 - 550.
Counsel for the Ailakis brothers submitted that the fact that Mr Ailakis had used the word 'give' indicated that he only intended to make a gift and did not intend to create a legally binding contract.
In Halsbury's Laws of Australia, vol 6, [110-590] the learned author points out that the form of the promise, although important, is not conclusive and that a promise in the form that the promisor will 'give' something to the promisee, if the promisee does an act, does not signify that the promisor has merely promised to make a gift, if the true intention is to make a bargain with the promisee.
The learned author relies on Re Casey's Patents; Stewart v Casey [1892] 1 Ch 104 in support of this statement. In that case the owners of certain patents wrote to their practical manager stating that in consideration of his services in working both patents they agreed to give him a one-third share of the patents. The letter was held to have constituted a legally binding document which created an immediate equitable interest (107, 112 and 115).
In my view an important indication that Mr Ailakis had intended to create a legally binding agreement is the fact that immediately after the discussion of the transfer of shares he told Mr Olivero that he would draft a written agreement as soon as he had the opportunity. This shows that Mr Ailakis understood that a legally binding agreement had been entered into and that this should be placed in writing for probative purposes.
Counsel for the Ailakis brothers submitted that Mr Ailakis' undertaking to produce a written document indicated that the parties had not yet reached the stage of having achieved agreement. But the salient point is that Mr Ailakis is unlikely to have suggested putting anything in writing if he did not have the intention of creating a legally binding agreement.
There is no indication that the parties did not intend to be bound until a formal contract had been drawn up and executed. There was no further detail to be discussed, the agreement was not particularly complex, and there was no need for legal advice as Mr Ailakis had been a practising lawyer. These circumstances point to the fact that the parties intended to be bound immediately, even though Mr Ailakis offered to draw up a written agreement at a later stage. This arrangement would fall into the first category of the various situations discussed in Masters v Cameron (1954) 91 CLR 353, 360.
Accordingly, the discussion between Mr Ailakis and Mr Olivero constituted a proper offer and acceptance and resulted in a legally binding agreement.
Whether the subsequent conduct by the parties indicated that no legally binding agreement had been entered into
Counsel for the Ailakis brothers submitted that the parties' conduct after the alleged agreement indicated that there had been no intention to create a legally binding agreement.
A court may have regard to all the relevant circumstances, including the subsequent conduct of the parties, in determining on an objective basis whether the parties intended to create legal relations: Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647, 669 and 672; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101, [26]. This also applies to an oral contract: Fazio v Fazio [2012] WASCA 72, [193], Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 332.
Counsel for the Ailakis brothers placed considerable emphasis on the fact that Mr Olivero did not take steps to ensure his newly acquired right to the 1 million shares under the agreement with the Ailakis brothers was disclosed to the Australian Stock Exchange (ASX).
Mr Olivero acknowledged that he had signed an undated Notification of Interests Deed pursuant to which he had to provide Redstone Resources with details of all securities registered in his name or in which he had a relevant interest. It was also put to Mr Olivero that he had a duty under a Deed of Indemnity, Insurance and Access signed by him to give to Redstone Resources information in respect of any 'notifiable interest', as this was defined in the listing rules of the ASX. Mr Olivero said he had never looked at the listing rules and that Mr Ailakis had promised him to arrange a seminar by a lawyer who would advise him of all his duties as a non‑executive director. This seminar never eventuated.
Mr Olivero acknowledged that the short form prospectus issued by Redstone Resources in July 2007, which he had approved, did not disclose his interest in the 1 million shares, but only recorded that he had an indirect interest in 837,500 shares. These shares were held by his private company, Exclusive Air Charter Pty Ltd, which later changed its name to Olivero Consulting Group Pty Ltd. He also admitted that Redstone Resources had never filed a change of director's interest notice to advise the ASX of his acquisition of an interest in the 1 million shares.
When Mr Olivero was asked why he had not disclosed his interest in the shares to Redstone Resources so that it could disclose the information to the ASX, he answered that he did not understand that there was an obligation to disclose the agreement where he did not yet have the shares. He understood that he only had to disclose shares that had come into his possession. Mr Olivero said the true position was neither explained to him by Mr Ailakis nor did the planned seminar advising him of his obligations as a director take place. Mr Olivero further explained that Mr Ailakis was aware of the agreement to transfer shares to him and that he relied on Mr Ailakis and his knowledge as a former practising lawyer to make any requisite disclosure to the ASX.
In my view Mr Olivero's subsequent conduct in not formally advising the company of the agreement or insisting that his interest in the 1 million shares was disclosed to the ASX does not add much weight to the argument that the parties did not intend the agreement to be legally binding. I accept Mr Olivero's evidence that he did not understand that his right to the shares was an interest that had to be disclosed even prior to the actual transfer of the shares to him. Further, the documents put to him only required that he inform the company of any further acquisition of an interest in shares in Redstone Resources, and Mr Ailakis, who was the managing director of the company and a trained lawyer, already had knowledge of the agreement.
It was not put to Mr Olivero during cross‑examination that the Corporations Act requires a director to advise the ASX of any contract that confers a right to call for shares in the company, although counsel relied on this Act in closing. In light of Mr Olivero's other evidence, he is likely to have said that he did not have knowledge of this requirement. It is not relevant whether Mr Olivero complied with the provisions of the Corporations Act. The fact that Mr Olivero did not formally advise Redstone Resources or the ASX of his right to shares flowing from the agreement with Mr Ailakis is merely relevant in so far as it shows whether he regarded the agreement as binding or not. If he was not aware of this obligation, his failure to comply with it does not indicate that he thought he had no enforceable right to the shares.
Mr Ailakis' failure, as the managing director, to disclose the agreement to the ASX also does not do much to support the argument that there was no legally binding agreement. Mr Olivero gave evidence that Mr Ailakis was very slack in carrying out his duties and that he often had to step in and do things that Mr Ailakis had omitted to do. Mr Ailakis not only allowed the company's rights to the Tollu tenement to lapse by reason of an administrative error, but also failed to make a renewal application for another tenement in 2009 which was consequently lost. It is therefore quite conceivable that Mr Ailakis initially did not bother to or did not get around to making disclosure to the ASX even if he believed that he had entered into a legally binding agreement with Mr Olivero. It seems that soon thereafter Mr Ailakis had second thoughts about following through on the agreement and this is a good reason for his failure to make disclosure.
Counsel for the Ailakis brothers also relied on the email sent by Mr Olivero to Mr Rodney Ailakis on 9 December 2009 threatening legal action to enforce the transfer of the shares. Counsel for the Ailakis brothers pointed out that Mr Olivero had used the words 'promise' and 'decided to give' when recounting the undertaking by the Ailakis brothers. Counsel argued that these words indicated that Mr Olivero only saw the undertaking as a promise to make a gift.
However, Mr Olivero started the email by saying that he was surprised that Mr Ailakis had denied that 'the deal' existed in the first place. Mr Olivero then referred to the promise that Mr Ailakis had made to him in front of several witnesses.
In my view, there is not much value in dissecting the language used by a layperson to describe the arrangements made between the parties. In any event, the fact that Mr Olivero threatened with legal action supports the opposite conclusion, namely, that he thought there was a legally binding agreement in place.
Accordingly, there is nothing in the parties' subsequent conduct which indicates that the Ailakis brothers and Mr Olivero were of the understanding that they had not entered into a legally binding contract.
Whether the evidence of similar undertakings by Mr Ailakis to other people which resulted in a transfer of shares was admissible and indicative of an intention to enter into a legally binding agreement
In further support of the argument that there had been an intention to enter into a legally binding contract Mr Olivero relied on other agreements to transfer shares which Mr Ailakis had made with other persons who had assisted with capital raising and the fact that these undertakings were performed.
I have already found that there was an intention by both parties, assessed objectively, to enter into a legally binding contract. Accordingly, it is not strictly speaking necessary to deal with this further evidence presented by Mr Olivero. However, because the admissibility of this evidence was in dispute and because it was provisionally allowed, I will deal with its admissibility and effect.
Mr Richard Chilvers gave evidence that over the course of several conversations with Mr Ailakis, Mr Ailakis had agreed to give him a 10% commission on all capital he raised and that the commission would be paid in the form of Redstone shares from his own portfolio of shares. Mr Ailakis promised Mr Chilvers to prepare a document describing the agreement, but although Mr Chilvers asked for this document repeatedly, this was never produced. However, in 2008 Mr Chilvers received a trust deed signed by Mr Rodney Ailakis as trustee in respect of the total number of shares that he was owed.
In January 2010 Mr Chilvers received a handwritten note from Mr Ailakis together with a share transfer form for 170,000 shares to be transferred from Mr Rodney Ailakis to Mr Chilvers' partner, as had been requested by Mr Chilvers. Mr Chilvers signed the share transfer form and the 170,000 shares were subsequently transferred into the name of his partner.
Mr William Hayes gave evidence that he and Mr Ailakis orally agreed in 2005 that Mr Hayes would be paid a 10% commission for any seed capital that he could raise for the initial public offering of shares in Redstone Resources. Mr Hayes said Mr Ailakis told him that he would personally pay the 10% commission from his own shares in Redstone Resources. Mr Hayes said that Mr Ailakis made a similar arrangement with him in 2006.
Mr Hayes had to remind Mr Ailakis on more than 10 occasions between 2007 and 2009 to pay him the 10% commission for the total sum of $171,500 which Mr Hayes had raised for Redstone Resources. In 2009 Mr Rodney Ailakis finally transferred the requisite shares to Mr Hayes.
Counsel for the Ailakis brothers submitted that this evidence was not admissible because it was not probative of the issue whether the Ailakis brothers had entered into a legally binding agreement with Mr Olivero.
In Martin v Osborne (1936) 55 CLR 367 the High Court dealt with the admissibility of similar fact evidence in quasi-criminal proceedings. The respondent had been charged with transporting passengers for reward without the vehicle having been licensed for that purpose. It was held that evidence that the respondent had on the two preceding days carried passengers between the same two places should have been admitted because this evidence impacted on the probability that the respondent had charged a fee for carrying passengers on the day in question.
Dixon J held at 375 that where an issue was to be proven by circumstantial evidence, facts had to be established from which the existence of the issue followed as a rational inference. As part of the circumstantial evidence any act or occurrence was admissible as long as it showed the probability or increased probability, judged rationally upon common experience, that the fact in issue existed. Evatt J explained at 385 that it would often be a question of degree whether the circumstantial evidence did have a bearing on the probability or improbability of the fact in issue.
In Grivas v Brooks (1997) 69 SASR 532 the plaintiff had brought a civil action for damages for malicious prosecution against a parking inspector and his employer. The issue was whether evidence by witnesses that the parking inspector had previously made false allegations against other motorists and had deliberately refrained from putting infringement notices on their motor vehicles was admissible. Matheson J (with whom Doyle CJ and Bleby J agreed) came to the conclusion that this evidence was admissible because it was logically relevant to whether the infringement had been issued to the plaintiff without cause and whether the parking inspector had acted maliciously.
Matheson J held at 547 – 549 that similar fact evidence was merely circumstantial evidence which should be admitted in a civil trial whenever it was logically probative of a fact in issue. The safeguards required in criminal proceedings in relation to similar fact evidence were not necessary in civil proceedings.
His Honour cited with approval a passage from Cross on Evidence (3rd Aust ed) 557, par 11.55, where, insofar as is relevant, the learned author stated the following:
In more recent times the true nature of similar fact evidence has been appreciated. It is merely circumstantial evidence from which the tribunal of fact is asked to infer the existence of the fact in issue. But it is circumstantial evidence of a particular kind because of the prejudice it carries. The law excludes it in criminal cases because of its concern for the interests of an accused person. When there is no question of prejudice to an accused person, as in the case of a civil proceeding, the rule has no place. Like any circumstantial evidence the court will admit it where it is logically probative of a fact in issue.
The passage in the most recent edition of Cross on Evidence (18th Aust ed) [21280] is still to the same effect, although the learned author points out that the courts in Australia have often demonstrated a remarkable reluctance to abandon the criminal rule of exclusion in civil cases.
Matheson J further quoted with approval a passage in Mood Music Publishing Co Ltd v De Wolfe Ltd [1976] Ch 119, 127 where Denning MR held that in civil cases evidence of similar facts was admissible if it was logically probative of the matter in issue provided that it was not oppressive or unfair to the other side and that the other side had fair notice of it and was able to deal with it. Matheson J preferred not to express a definite opinion as to whether the admissibility of similar fact evidence was subject to it not being oppressive or unfair to the other side and not presented without fair notice. His Honour indicated that perhaps the matters of oppression, unfairness or lack of notice were more properly dealt with as part of a court's discretion to exclude any admissible evidence.
Matheson J also made the point that the admission of the evidence was one thing; its use and weight another.
In Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23, 28 – 31 Northrop J held, in reliance on Martin v Osborne, that in a civil case evidence of similar facts was admissible if it was logically relevant to determining the matter in issue. His Honour expressed the view that in civil proceedings evidence which was logically probative of a fact in issue was not rendered inadmissible by reason of oppression or unfairness.
Northrop J also pointed out that the first step was to decide whether the evidence was admissible and that the question of the weight to be given to the evidence arose at a later stage.
In Mister Figgins the issue was whether the agent of the lessor of a shopping centre had made misleading representations to the plaintiff, a prospective tenant. Evidence by a number of other prospective tenants to the effect that similar representations had been made to them was held to be admissible. Northrop J held that because these were prospective tenants of shops in the same shopping centre there was a probability or increased probability, judged rational upon common experience, that similar representations had been made to the plaintiff. Northrop J was of the view that the representations to the other tenants could establish a pattern which could support proof of the fact in issue.
In Gates v City Mutual Life Assurance Society Ltd (1982) 43 ALR 313, 327 – 328 representations were made by an insurance salesman to the plaintiff regarding the extent of benefits payable under a disability insurance policy. Ellicott J held that the evidence of five witnesses who said that similar representations had been made to them was admissible as it showed the increased probability of the representations having also been made to the plaintiff.
In International Paper Company v Spicer (1906) 4 CLR 739, 748 ‑ 750 the issue was whether a person who had contracted on behalf of paper manufacturers with a newspaper publisher had actual or ostensible authority to do so on behalf of the paper manufacturers. The High Court ruled that evidence that the person had contracted on behalf of the paper manufacturers on at least three earlier occasions and that the paper manufacturers knew that he was holding himself out as an agent and subsequently performed the obligations under the three contracts was admissible to prove the disputed agency in relation to the contract with the newspaper publishers.
In England, the House of Lords has accepted that in a civil case the only test for admissibility of similar fact evidence is whether it is logically probative of a fact in issue. In O'Brien v Chief Constable of South Wales Police [2005] 2 AC 534 the House of Lords held that the first step in deciding whether similar fact evidence was relevant in civil proceedings was to decide whether it was probative, in the sense that it was logically probative of a fact in issue. It was not necessary that the evidence be substantially or strongly probative (at [4], [52] ‑ [57], [72] – [75]). The second stage involved a discretionary decision by the trial judge to exclude probative evidence because it might focus the attention of the decision‑maker on matters collateral to the issues to be decided, cause unfair prejudice or be unfairly burdensome on the other party by lengthening the trial or increasing the costs (at [5] – [6], [77] – [79]).
In Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364, 377 - 378 Mullighan J held that there was only one, or potentially two, circumstances in which a court had a discretion to reject admissible evidence in civil proceedings. The first circumstance was where the admission of the evidence would result in procedural unfairness to the other party because it would unnecessarily complicate and prolong the trial. The second circumstance was possibly where the evidence had been illegally obtained.
On the basis of the authorities discussed it seems that it may nowadays be accepted that the only requirement for the admissibility of similar fact evidence in civil proceedings is that it is logically probative of a fact in issue. It does not seem to be necessary that the similar fact evidence be classified as tendency, repeated business practice or line of conduct evidence. Whatever type of circumstantial evidence it may be, the only requirement for admissibility is that it is logically probative of a fact in issue.
The court then has a discretion to exclude relevant evidence by reason of procedural unfairness, but such considerations do not arise in this case. The Ailakis brothers had ample notice of the evidence by Mr Chilvers and Mr Hayes and the evidence of these witnesses did not take up any substantial period of time during the trial.
Once similar fact evidence has been ruled admissible it is another issue what weight should be attached to that evidence.
It appears that Mazza J took a similar approach to the admissibility of similar fact evidence in Gutta v Ierino [2010] WASC 402 [121] ‑ [126].
In the present case the evidence that Mr Ailakis had on two prior occasions entered into an agreement with persons in which he offered a reward of transferring shares held by him personally or by his brother in consideration for the persons performing a service to Redstone Resources and the fact that his undertakings were performed was admissible. The fact that Mr Ailakis had on previous occasions followed through on these agreements is logically probative of the issue whether he intended to enter into a legally binding agreement with Mr Olivero and intended to follow through on that.
This is a similar factual situation to that in International Paper Company v Spicer where the evidence of the paper manufacturers having previously performed their obligations under contracts entered into on their behalf by the same agent was held to have been admissible.
The next question, of course, is what weight this evidence should be given and whether it proves that there was an intention by both parties to enter into a legally binding contract. The intention has to be assessed objectively, but has to be inferred from the surrounding circumstances, including what the parties did and said at the time and also what they did on previous occasions insofar as this bears on the probability of the parties having had the requisite intention on this occasion.
I would not accord any material weight to the evidence of the earlier agreements. It seems that these two agreements were entered into at arms length, whereas Mr Anthony Ailakis and Mr Olivero were business partners and social friends to some extent. Further, the undertaking to transfer shares given by Mr Ailakis in relation to Mr Chilvers and Mr Hayes was in consideration of them raising capital, the amount of which could be measured, and the number of the shares to be transferred was tied to the level of capital raised. In Mr Olivero's case his undertaking was to ensure that the obligations that he had undertaken to Mr Verbeek would be met and the Tollu tenement recovered.
The similar fact evidence further only concerns two earlier agreements where Mr Ailakis promised to transfer shares. This evidence does not support a finding that he was in the habit of entering into agreements under which he promised shares to persons who rendered a service to Redstone Resources.
The similarities between the agreements entered into with Mr Chilvers and Mr Hayes on the one hand and that entered into with Mr Olivero were therefore not such as to make it significantly more probable that the parties intended to enter into a legally binding agreement. As I have already come to the conclusion, based on other circumstantial evidence, that there was an intention to enter into a legally binding agreement, it is not necessary to take into account the similar fact evidence. At best it provides some limited confirmation of the conclusion that I have already reached.
Whether there was valuable consideration
Counsel for the Ailakis brothers submitted that even if there had been an offer and acceptance, the contract could not be enforced by Mr Olivero because he never provided consideration in exchange for being promised the shares. It is trite law that before a contractual promise can be enforced there needs to have been consideration moving from the promisee: Trident General Insurance Company Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 113 (Mason CJ and Wilson J). However it is not necessary that the consideration move to the promisor. It is sufficient if the consideration was given by the promisee to some other person at the promisor's request: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 853. The promisee bears the burden of proving the presence of consideration: McKay v National Australia Bank Ltd [1998] 1 VR 173, 177.
In order for there to be valuable consideration, there must be a connection between the promise made by the promisor and the consideration which is said to support the promise. The promise must have been a quid pro quo for the consideration. If this requisite relationship between the promise and the consideration is absent, the promise may simply constitute an undertaking to make a gift if the promisee does a particular act: Australian Woollen Mills Pty Ltd v The Commonwealth, 456 – 457. In such a case there would be no valid consideration.
Where the promisor requested the promisee to do the act which constitutes the consideration, the necessary relationship between the promise and the consideration has been established: Carlill v Carbolic Smoke Ball Co, 265, 271.
It is not necessary that the consideration provided was the only inducement for the promisor to make the promise. It is sufficient if the consideration was an inducement for the promise: Brikom Investments Ltd v Carr [1979] QB 467, 490.
Consideration may be executory, that is, still to be performed: Shadwell v Shadwell (1860) 9 CBNS 159; (1860) 142 ER 62, 68.
These requirements for valuable consideration are all met by Mr Olivero's undertaking to Mr Ailakis that he would perform the work he had promised to Mr Verbeek. Mr Ailakis' promise to transfer a million shares was a quid pro quo for this undertaking by Mr Olivero. The fact that Mr Ailakis' promise may have been partly given in respect of the past work done by Mr Olivero in negotiating with Mr Verbeek does not mean that the undertaking by Mr Olivero to perform the work promised to Mr Verbeek in the future was not good consideration.
Counsel for the Ailakis brothers relied on the generally accepted proposition that an agreement to perform a contractual duty already owed to a third party is illusionary consideration where the promisee does not obtain the benefit of a direct obligation which he or she can enforce.
In the first place, it is questionable whether Mr Olivero's offer, made on behalf of Redstone Resources, to assist Mr Verbeek and the acceptance of this by Traka Resources created a personal duty by Mr Olivero to Traka Resources. Secondly, even if this was so, the performance of that duty to Traka Resources had considerable benefits for Mr Ailakis personally. Recovering Tollu would not only have saved him severe embarrassment, it would also have prevented the erosion of his large personal and family investment in shares in Redstone Resources. Further, as I have found, Mr Olivero's undertaking to Mr Ailakis that he would perform the work promised to Mr Verbeek would have been enforceable by Mr Ailakis.
Moreover, Mr Olivero did perform his obligations to Mr Verbeek which in itself constituted consideration for Mr Ailakis' promise to transfer the shares. The actual performance of a pre-existing duty owed to a third party may also constitute good consideration: Shadwell v Shadwell (68).
It is not clear from the submissions filed by counsel for the Ailakis brothers whether they contend that there was a pre-existing contractual duty by Mr Olivero personally to Redstone Resources to perform the Tollu work. It was put to Mr Olivero in cross-examination that he was not told by Mr Ailakis at any time prior to him doing the work in relation to Tollu that the board had approved the payment of consultancy fees to him in that regard. Mr Olivero agreed with this. This seems to indicate that counsel for the Ailakis brothers did not rely on a pre-existing contract between Mr Olivero and Redstone Resources, although the written submissions in reply seem to be based on the opposite view.
The issue whether and when a contract between Redstone Resources and Olivero Consulting may have come into existence was not properly ventilated in submissions, but it seems doubtful that such a contract was entered into prior to the agreement between the Ailakis brothers and Mr Olivero regarding the 1 million shares. Mr Ailakis did not want anyone to know about the loss of Tollu and does not seem to have discussed this with Mr Fountain who replaced Professor Groves as chairman on the same day that Mr Ailakis announced the loss of Tollu to Mr Olivero. In any event, even if Mr Ailakis had ostensible authority to bind Redstone Resources in this regard, it is doubtful that the terms of any agreement entered into by him on behalf of Redstone Resources before Mr Olivero went to see Mr Verbeek contained the same obligations that Mr Olivero undertook with regard to the Ailakis brothers when he was promised the shares.
The one issue raised in the 'submissions in reply' which appeared to have relevance to an order for indemnity costs was the allegation that counsel for the Ailakis brothers had misled the deputy-registrar of this court during the hearing of an application to amend the defendants' defence when he told the court that he had not previously signed a certificate by counsel to the effect that he had reviewed the pleadings. However, counsel for the Ailakis brothers dealt with this allegation in a further affidavit and supplied the court with the transcript of the hearing before the deputy registrar.
At the hearing before the deputy-registrar reference was made to an affidavit sworn to earlier by counsel for the Ailakis brothers in which he had stated that the matter had been entered for trial without him having tendered a certificate under r 43(3)(a) of the District Court Rules, but that he would nevertheless explain the reasons for the proposed amendment, as if he had filed such a certificate. Counsel for Mr Olivero pointed out to the deputy-registrar that counsel for the Ailakis brothers had in fact filed a certificate under r 43(3)(a). Counsel for the Ailakis brothers was happy to concede that this could have occurred. The learned registrar then located a copy of the certificate and that was the end of the matter.
It was inappropriate for Mr Olivero's counsel to allege misconduct by counsel for the Ailakis brothers where it was obvious from the proceedings before the deputy-registrar that the alleged 'false testimony' was clearly an oversight, did not go anywhere, and was corrected before any reliance was placed on it.
Counsel for Mr Olivero raised another matter in the 'submissions in reply' which he argued should not have been denied by the defendants in their defence. This matter concerned the issue to which extent the defendants had control over shares in Redstone Resources as some of these shares were held in trusts or by their family members. Counsel for Mr Olivero complained that the defendants had only admitted shortly prior to trial that one of them was a primary beneficiary of one of the trusts and that it had never become clear whether the other defendant was a beneficiary or not. The issue of whether the defendants had direct control over the shares in Redstone Resources was not a major issue at trial. The only relevance was that if the defendants were major shareholders in Redstone Resources, directly or indirectly, they had a lot to lose if the company did not manage to regain the rights to the mining tenement which one of the defendants had inadvertently lost.
It is not unusual for matters regarding the exact entitlement of parties as beneficiaries of trusts to be only clarified closer to trial and this is not a matter which would have occasioned Mr Olivero to expend considerable costs in trying to prove this. The complaint by counsel for Mr Olivero is essentially that some of these matters were apparent on the documents and that there was no reason for the defendants to have denied these matters. However, even if this is correct, these issues played such a minor role that there would certainly be no reason to grant indemnity costs for the whole of the proceedings.
Counsel for Mr Olivero further submitted that indemnity costs should be granted because it was inappropriate and unreasonable for the defendants to have made an application to amend their defence approximately a month prior to the trial and that the inappropriateness of this conduct was evident from the fact that the defendants lost the application. Counsel for Mr Olivero essentially submitted that the application had so little prospect of succeeding that this amounted to oppressive conduct by the defendants which should be met by granting indemnity costs for the trial.
The reasons given by the deputy registrar for refusing the application were that he was not persuaded that the defendants' proposed plea that the agreement to transfer shares was illegal had any proper basis and he raised the concern that the amendment to the defence was only made one month prior to the trial.
There is nothing on the transcript which indicates that the deputy registrar was of the opinion that the defendants had brought a hopeless application or that it was only brought to distract the plaintiff shortly prior to the trial. No application for indemnity costs in respect of the costs of that application was made by Mr Olivero. The fact that the defendants lost the application to amend their defence is no ground for allowing indemnity costs in respect of the trial.
Counsel for Mr Olivero also submitted that the defendants had acted inappropriately in not agreeing to an adjournment of the trial which was sought because of Mr Olivero's illness at the time and was ultimately granted by a registrar of the court. Counsel further submitted that the defendants had at first insisted on witness statements, then abandoned that demand, and ultimately reinstated the requirement, all apparently as part of a tactic to put pressure on Mr Olivero to abandon his claim. Counsel for Mr Olivero also relied on a settlement offer made by the defendants at a second pre‑trial conference approximately one month before the trial when they offered to settle the matter on the basis that each party simply pay its own costs.
The order that witness statements should be filed in this case was made by consent. The fact that the defendants did not agree to vacate the trial and caused Mr Olivero to have to make an application in this regard does not amount to inappropriate conduct. Counsel for the defendants indicated that the application was not opposed upon being heard. There is nothing wrong in making an offer that each party simply pay their own costs.
Having considered the original allegations of misconduct and the additional matters raised in the 'submissions in reply' there is nothing which justifies the grant of an indemnity costs order in respect of the trial.
Even less is there any basis for an order to be made that Mr Olivero have leave to seek an indemnity from the defendants' solicitors and counsel in respect of any costs that remain unsatisfied by the defendants. Such a suggestion first reared its head in a minute of proposed orders filed by Mr Olivero's counsel on the adjourned hearing of the application for costs. In Mr Olivero's original submissions on costs mention was made in passing that the indemnity costs order should be made payable by the defendants' solicitors. However, this issue was not properly addressed in the written or oral submissions and there is no basis for making such an order.
Special costs order
Mr Olivero applied, in the alternative to the indemnity costs order, for a special costs order pursuant to s 280(2) of the Legal Profession Act 2008.
In Heartlink Ltd v Jones as liquidator of HL Diagnostics Pty Ltd (in liq) [2007] WASC 254, Martin CJ held in relation to the predecessor section to s 280(2), which was in exactly the same terms, that before the court could make an order for special costs the court had to form an opinion with regard to two components. The first one was that the amount of costs allowable in respect of the matter under a legal costs determination was inadequate and the second that the inadequacy arose because of the 'unusual difficulty, complexity or importance of the matter'.
Martin CJ explained that there were two alternative ways in which the first issue could be proven by an applicant for a special costs order. The applicant could satisfy the court that it was likely that the bill to be taxed would be greater in respect of any particular item in the costs determination than the limit allowed for that item. Alternatively, the applicant could satisfy the court that there was a fairly arguable case to be put before a taxing officer that the total bill would tax out at more than the limit imposed by the costs determination.
Martin CJ came to the conclusion at [20] that it was not necessary for an applicant to demonstrate that a limit was inadequate by providing a detailed evaluation of a draft bill for taxation. This would lead to 'satellite' or 'parasitic' litigation. Rather, the court should make a determination as a matter of impression and not as a matter of detailed evaluation.
As regards the second requirement of 'unusual difficulty, complexity or importance of the matter' Martin CJ held that the word 'unusual' only qualified the expression 'difficulty'. His Honour also came to the conclusion at [17] – [19] that the requirement of 'importance' of the matter did not call for proof of public importance. The requirement would be satisfied if the matter was important to the parties, the public, the community or other people who had an interest in the outcome of the litigation.
Counsel for Mr Olivero submitted that all scale limits should be removed. Counsel argued that unusual difficulty was created by the maintenance of the denials and non‑admissions by the defendants, their non-cooperation regarding Mr Olivero's illness and the issues concerning the quantification of damages. Counsel for Mr Olivero further submitted that the matter was complex by reason of the defendants' arguments regarding the absence of an intention to create legal relations and the lack of consideration.
In order to support their defence of a lack of intention to create legal relations the defendants relied on the parties' post-agreement conduct and the non‑disclosure of the alleged agreement in Redstone Resources' documentation. The issue also caused Mr Olivero to lead evidence with regard to similar undertakings made by the Ailakis brothers to other people in order to show that such undertakings had been honoured. These matters raised unusual legal issues such as whether similar fact evidence was admissible.
The question whether there was no proper consideration because Mr Olivero was already under a duty to perform the work to regain the tenement also raised some unusually difficult matters of fact and law. It is fair to say that the defences raised made the trial to some extent unusually difficult and complex.
Counsel for Mr Olivero submitted that the total quantum for getting up the case had exceeded the total allowed by the scale by $51,518 after the Calderbank offer had been made. Counsel also submitted that the quantum for the item of discovery had been exceeded by $2,637 after the Calderbank offer had been made. The date of the offer does not seem to have any relevance with regard to whether the costs that will be able to be taxed are prima facie inadequate in comparison to the limit allowed under the scale.
Counsel for Mr Olivero further submitted that the defendants had requested unnecessary documents to be included in the trial bundle, such as the annual reports of Redstone Resources, which were not referred to at trial.
Although the information provided by Mr Olivero is reasonably scant in order to show why the scale limits were exceeded, I accept that there is a prima facie case that the scale limits for getting-up and discovery may have been exceeded. There is no evidence or indication that any other scale limits may have been exceeded. Accordingly I make an order lifting the scale limits that apply to getting up the case for trial and to discovery. It will then be for Mr Olivero to satisfy the taxing officer that the bill to be taxed should amount to more than the scale limits in respect of these two items.
Counsel for Mr Olivero lastly submitted that the scale limits for photocopying should be lifted because he had agreed to a higher rate with Mr Olivero in his solicitor's retainer and had also agreed on a higher rate with the defendants' solicitors when they asked him to provide copies of discovered documents. He had also paid a higher rate to the defendants' solicitors for copies provided by them.
However, the fact that a higher rate was agreed in the retainer between solicitors and their client or the fact that the parties were prepared to pay higher costs per copy for discovered documents is no good reason to lift the scale limit for photocopying.
Counsel for Mr Olivero referred the court to the decision in William Buck (WA) Pty Ltd v Faulkner [No 2] [2012] WASC 257 in which Kenneth Martin J held that, unless otherwise agreed, a party asked to provide copies of discovered documents could only charge the scale costs of 11 cents per copy. Martin J referred to the fact that the photocopying costs had been substantially reduced to 11 cents per page in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2010 in comparison to earlier determinations in 2006 and 2008 where $1 per page was allowed. His Honour came to the conclusion at [25] that this reduction was obviously a measure which endeavoured to make a contribution towards reducing the seemingly ever‑increasing costs of litigation, particularly where the commercial rate for copying documents was more in line with 11 cents per page.
There is no reason to lift the scale limit for photocopying merely because the parties had agreed between themselves to provide each other with copies of discovered documents at a higher rate per page. Mr Olivero could have insisted to be provided with photocopies at 11 cents per page or could have made his own arrangement for the copying of the discovered documents.
Accordingly, the scale limit for photocopying should not be lifted. However, the application for a special costs order is allowed in part.
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