Paycorp Payment Solutions Pty Ltd v Peter Singyin Chai (No 2)
[2011] NSWSC 1400
•22 November 2011
Supreme Court
New South Wales
Medium Neutral Citation: Paycorp Payment Solutions Pty Ltd & Anor v Peter Singyin Chai & Anor (No 2) [2011] NSWSC 1400 Hearing dates: 10, 14, 20 October 2011 Decision date: 22 November 2011 Jurisdiction: Equity Division - Commercial List Before: Brereton J Decision: Declare that pursuant to the share purchase agreement PCI Corp acquired all the shares in the first plaintiff upon the trusts contained in the Deed of Settlement dated 1 March 2010.
Catchwords: CORPORATIONS - Whether second defendant acquired shares in first plaintiff as trustee of a trust the beneficiary and appointor of which was the controlling mind of the plaintiff companies - first defendant as director of second defendant said to have executed trust deed - first defendant disputes he executed trust deed - issues of fact and credit - where both protagonists unreliable, significant weight given to documentary record, source and application of funds, and commerciality - more probable explanation second defendant acquired shares as trustee of trust of which controlling mind of plaintiffs was beneficiary and appointor.
TRUSTS - Whether second defendant validly and effectively replaced by second plaintiff as trustee of trust - controlling mind of plaintiff companies fabricates first defendant's resignation as director and purports to have second defendant resign as trustee - controlling mind of plaintiff companies not sole director and secretary and purported resignation ineffectual - pursuant to trust deed controlling mind of plaintiff as appointor had power to remove and replace trustee - instrument of replacement supportable by that power - second plaintiff validly and effectively appointed trustee.Legislation Cited: (CTH) Corporations Act 2000, s 1308
(NSW) Crimes Act 1900, s 253, s 254Category: Principal judgment Parties: Paycorp Payment Solutions Pty Limited (first plaintiff)
Calcom Enterprises Pty Limited (second plaintiff)
Peter Singyin Chai (first defendant)
PCI Corporation Pty Limited (second defendant)Representation: Counsel:
G A Sirtes SC with J A Arnott (plaintiffs)
B F Katekar (defendant)
Solicitors:
Whittens Lawyers & Consultants (plaintiffs)
O'Neill Partners (defendants)
File Number(s): 2011/74065
Judgment
The plaintiffs contend that all the shares in the first plaintiff Paycorp Payment Solutions Pty Ltd (' PPS') were acquired from Paycorp PLC ('PLC') by the second defendant PCI Corporation Pty Limited ('PCI Corp') as trustee of a discretionary trust called the PCI Trust of which Mr John Paul Caliguri is the appointor and guardian, and he and his wife Nicola Louise Caliguri are the nominated beneficiaries, and that the second plaintiff Calcom Enterprises Pty Ltd (Calcom Enterprises) has since been appointed trustee of the PCI Trust in place of PCI Corp. The first defendant Peter Singyin Chai disputes that PCI Corp acquired the PPS shares as trustee of the PCI Trust, but says that it did so in its own right, and that Mr Chai is the ultimate beneficial owner (as sole shareholder in PCI Corp's holding company, PCI Holdings); further, Mr Chai disputes that PCI Corp has been validly removed and replaced as trustee of any relevant trust.
Background
Since 1997, Mr Caliguri - who has been a director of PPS and its wholly owned subsidiary Business Interface Services Pty Limited (BIS) continually since their incorporation in December 2005 and May 2004 respectively, and of BIS's wholly owned subsidiary Paycorp Holdings Pty Limited (Paycorp Holdings) since August 2006 - has been engaged in the development and provision to banks and corporations of payment processing services - facilitating the movement by authority such as credit card, direct debit authority, BPay authority or POSTBillPay authority, from one bank account to another - initially through a company now called Webpay Pty Limited (Webpay), which developed software to provide an electronic payment process service, the assets and business of which, including software, were sold to Efunds Corporation, a US based supplier of ATM and EFTPOS software, in 2004. BIS conducted a manual payments business that had a contract with Westpac to provide payroll services to Westpac's customers. In 2004, Calcom Holdings Pty Limited (Calcom Holdings), the trustee of Mr Caliguri's family trust (the JPC Family Trust), acquired BIS for about $2.3 million, financed by a loan of $1.6 million from Westpac, which was guaranteed by Mr Caliguri and the trustee company of his father's trust. In 2006, BIS acquired all of the shares in Paycorp Holdings - which had been established by an associate of Mr Caliguri to provide a "full service" payments processing services business in a niche that Webpay was not interested in pursuing, and licensed Webpay's software to operate its business - and their operations merged. In 2007, BIS and Paycorp Holdings moved to premises at Milson's Point, from which they continue to operate to this day.
In June 2007, Mr Caliguri was seeking funding for the expansion of the Paycorp business, and travelled to London to seek investors, where he was introduced to Michael Edelson, who controlled a company called Birch Partners plc, which was listed on the PLUS exchange in London and had $3 million in cash to invest. Mr Edelson proposed to Mr Caliguri that Birch Partners acquire BIS and Paycorp Holdings through the issue of scrip in Birch Partners, and then seek additional investors in advance of and by listing the company on the AIM exchange in London. Mr Caliguri acceded to this proposal, and to facilitate the transaction, BIS became a wholly owned subsidiary of PPS - which Mr Caliguri had registered in 2005 to pursue an acquisition which did not proceed - and the present corporate structure was established, with PPS, BIS and Paycorp Holdings now together carrying on the business of providing payment-processing services, under the name "Paycorp". Current customers of the Paycorp business include Westpac, Vodafone, Hutchison Australia and the Bank of New Zealand.
In April 2008, Birch Partners acquired all of the shares in PPS, nominally for $30 million, paid by the issue of scrip in Birch to Calcom Holdings as trustee for the JPC Family Trust. Birch renamed itself Paycorp PLC, and a s a result, the JPC Family Trust held about 30% of the shares in PLC.
PLC did not succeed in attracting additional investors or obtaining listing on the AIM exchange, and its funds were exhausted by April 2009. In August 2009, Mr Caliguri was appointed Executive Chairman of PLC, and commenced to implement some restructuring and economies. However, BIS was still indebted to Westpac for $2 million, and in addition PPS owed $300,000 to Webpay for consulting fees, and approximately $1 million in other potential liabilities; Mr Caliguri's family assets and cash secured the BIS debt to Westpac. In or about August 2009, PLC appointed Mr Kenneth Carr to assist its recovery programme, and from December 2009, Mr Carr was seeking offers to acquire PLC's shares in PPS.
In January 2010, Westpac demanded reduction of the BIS debt, then about $1.62 million, by $400,000. Mr Caliguri agreed to advance this amount, plus $50,000 for working capital, and pursuant to a loan agreement made on 5 February 2010 between BIS and the second plaintiff Calcom Enterprises - the trustee of another of Mr Caliguri's family trusts - Calcom Enterprises advanced $450,000 to BIS.
Meanwhile, by April 2009, Mr Caliguri had discussed with the first defendant Mr Chai (to whom he had been first introduced in March 2009, in the context of a potential investment in a technology company in China which did not proceed) the possibility of purchasing the Australian business of PLC. In about August 2009, he caused information about PPS to be provided to Mr Chai. According to Mr Caliguri, in January 2010, he met Mr Chai in the Paycorp boardroom at Milson's Point, and told him that he wanted to buy the PPS shares from PLC, and to use Mr Chai as a nominee so that the board of PLC would not demand a premium on account of Mr Caliguri's interest and relationship with the business, and that once he had regained control of the business then, if Mr Chai could find a purchaser for the business, he would give Mr Chai 50 per cent of the amount by which the purchase price exceeded five times the EBITDA of the business. Mr Caliguri says that Mr Chai agreed to this proposal. Mr Chai disputes it, and says that he expressed interest in acquiring the Australian Paycorp business, and understood that Mr Caliguri wished him to do so in order to remove it from the control of the PLC board and one Mr Adrian Roche (who had a minority interest), and relieve Mr Caliguri of his exposure to the Westpac debt of BIS.
On 13 January 2010, Mr Caliguri discussed with two acquaintances - Mr Henry Packham and Mr Graham Kinder - the structure that he would use to effect the acquisition, and he decided to establish a new trust structure with a new trustee company, with either Mr Chai or some other independent person as director, to hold the PPS shares as trustee for him. This is corroborated by the affidavit evidence of Mr Kinder, which was not challenged, and by a chain of emails between Mr Caliguri and Mr Kinder on that and the following day, which included the following (on 13 January at 6.25pm):
Hi Graham, Henry
Thanks for the time today, I know you guys are experts in all this and I really appreciate your help and professional advice on this matter. As you know I would like the simplest and most cost effective way to set this up.
Here is a summary of our discussion today:
Should I use one of my existing family Trust structures to buy the 1000 Paycorp PS shares from UK Paycorp PLC
Calcom Holdings ATF JPC TRUST (Already the owner of Paycorp PLC UK Shares)
Calcom Enterprises ATF Calcom TRUST
OR
Set up a new TRUST structure specifically to hold the PPS shares
My family members and related co.'s to be the beneficiaries and to utilize tax losses
Issues for Consideration:
I want to include an independent director in the Trustee co. (Not sure if its Peter Chai or someone else yet, I will decide in a couple of weeks)
Trustee co. should only show the independent director in any ASIC search, I will be added at a later date
I can remove the independent director if necessary
The ownership of the Trustee co. should remain in my control
thanks
John P. Caliguri
Prior to 29 January 2010, Mr Chai made an oral offer to Mr Carr for the acquisition of the PPS shares, for a price of $2.45 million. Mr Chai says that his intention was to pay $50,000 to PLC by way of deposit on exchange, then following completion of due diligence a further $400,000 to PLC to complete the purchase, $1.6 million to Westpac to discharge the BIS debt, and $400,000 to discharge the Calcom Enterprises loan.
Shortly thereafter - and still prior to 29 January - Mr Carr informed Mr Caliguri that he was concerned that Mr Chai may not have the necessary resources to complete the purchase. Mr Caliguri told Mr Carr that he would back PCI Corp as purchaser and guarantee the payment. In his affidavit, Mr Carr said that he formed the view that the PCI Corp bid was in truth a bid by Mr Caliguri; but in cross-examination said that he was never sure what was the relationship between Mr Caliguri and Mr Chai. In an email on 29 January to the PLC board commenting on the four offers received, Mr Carr observed that he had assurances "from Mr Chai's backers" that the money was available; that must have been a reference to Mr Caliguri. Mr Chai denies knowledge of those matters, but in the context that Mr Caliguri forwarded that email the same day to Mr Chai, without then apparently provoking any comment or query, his denials are improbable, and - for this and other reasons that will later appear - I find that he knew that Mr Caliguri was relevantly "his backer".
On 1 February 2010, Mr Caliguri used an Internet-based service provided by Patricia Holdings to acquire shelf companies that became PCI Holdings and PCI Corp , and a discretionary trust deed, which was to become the deed of the PCI Trust. PCI Holdings was issued all the shares in PCI Corporation, and Mr Chai was issued all the shares in Holdings; however, the application for registration recorded that he did not hold those shares beneficially. Mr Caliguri says that he acquired PCI Holdings solely to hold the shares in PCI Corp, and PCI Corporation solely to act as trustee of the PCI Trust. At one point Mr Chai claimed to have incorporated these companies, but it is clear that it was Mr Caliguri who procured them from Patricia Holdings and paid for them by Internet transaction. Mr Chai says that he stood behind Mr Caliguri and gave him instructions, including as to the name of the companies, as he did so. Belatedly, in cross-examination, Mr Chai said that he reimbursed Mr Caliguri in cash, but no document corroborates this. Mr Chai says that he instructed Mr Caliguri to call the companies "PCI", representing "Peter Chai Investments", but Mr Caliguri says that the letters denote "Payment Card Industry"; although at first I was highly doubtful of this, the evidence established that PCI is indeed an established industry acronym, although its direct application in the context of the naming of these entities was less clear. Importantly, if Mr Chai's version were accurate, and he were standing over Mr Caliguri at the time of the acquisition of the companies, then he would have been aware of the simultaneous purchase of the PCI Trust Deed.
On 4 February 2010, the PLC board discussed the offers received for the PPS shares. Mr Carr reported that of the four received, PCI Corp's offer was the best; although in his principal affidavit, read in the plaintiffs' case, he said that he reported that it was really a bid by Mr Caliguri , I do not accept that he did so: he was at best unsure of the position, and moreover in an earlier affidavit, provided at the request of Mr Chai's lawyers, he had effectively denied that the sale was effectively one to Mr Caliguri, a matter which is not insignificantly adverse to his credit; however, I accept that he may well have said that the PCI Corp bid was backed by Mr Caliguri, as it was. On 5 February 2010, PLC entered into heads of agreement with PCI Corp for the sale of the PPS shares for a price of $2.45 million, payable as to $50,000 on exchange and the balance on completion: however, provision was made for the price to be adjusted if, instead of repayment of the Westpac and Calcom loan facilities on completion from the purchase moneys, those lenders agreed to leave the facilities in place. The heads of agreement were executed by Mr Chai as director of PCI Corp, and by Mr Caliguri as director of PLC, and witnessed by Mr Carr.
Two minutes of meetings of directors of PCI Corporation dated 1 March 2010 and signed by Mr Chai as chairman record that in Mr Chai's presence, the PCI Trust deed to be settled by Peter Parsons was tabled, and that PCI Corp resolved to accept its appointment as trustee of the PCI Trust , and not to undertake any other operations than acting in its capacity as such trustee. Mr Chai says that he signed these minutes in June or July 2010, at Mr Caliguri's request, "for the Company's records", that he did not read them carefully, trusted Mr Caliguri, saw no difficulty with them, and does not recall noticing any reference to the PCI Trust. In the light of the content of these two minutes, however, the most cursory glance would have revealed reference to the PCI Trust, and - for this and, again, other reasons relevant to his credit that will later appear - I do not accept that he was unaware of the references to the PCI Trust.
The PCI Trust Deed is in the form of the "Standard Discretionary Trust (No Charity is a Beneficiary)" procured from Patricia Holdings and apparently prepared by NJR Corporate Lawyers. Clause 15.2.1 of the PCI Trust Deed permits the appointor to remove any trustee, to appoint any additional trustee or trustees, and to appoint a new trustee or trustees in place of any trustee who resigns, is removed or is disqualified. Under clause 15.6.2.1, a trustee being a corporation is disqualified from holding office if it enters into liquidation, whether compulsory or voluntary, other than voluntarily merely for the purposes of amalgamation or reconstruction. The trust deed is accompanied by a separate execution page and schedule, on which are named, inter alia , the settlor, the trustee and the beneficiaries. These pages have the indicia of being a computer-generated form, in the sense that the printed version reflects the entry of the relevant data into an online form. A significant indicator of this is that typographical layout, errors and peculiarities in respect of names and addresses are replicated identically, both in the schedule and on the execution page.
There are in evidence two forms of the execution page and schedule, both bearing the apparently computer inserted date "The 1ST OF MARCH 2010". In one ("the Caliguri version"), the settlor is described as:
Mr Peter Parsons
of:
Ground Floor, suite 3
410 Church Street Nth Parramatta
NSW 2151 Australia.
The trustee is PCI Corp; the nominated beneficiaries are Mr Caliguri and his wife, with Calcom Enterprises, Calcom Holdings and Webpay as additional general beneficiaries; and the appointor and the guardian is Mr Caliguri during his lifetime and after his death such person as he by deed or will appoints .
In the other form of the execution page and schedule ("the Chai version"), the settlor is described as:
Mr PJ Parson
of:
40 Church Street Nth Parramatta
NSW 2151 Australia.
The trustee is PCI Corp, the nominated beneficiary is Mr Chai; there are no additional general beneficiaries; and the appointor is Mr Chai.
Mr Chai says that he first saw both versions in "the corporate file" on 5 November 2010. In his affidavit, he denied having ever signed any such document. In an Amended Commercial List Response, however, Mr Chai admitted that he signed an execution page, albeit not until June or July 2010. In supplementary oral evidence he said that he signed it in March 2010, as a single page, with "the loan document which we were doing then" - a reference to an alleged loan agreement between Calcom Enterprises and PCI Corp, which has never materialised. In cross-examination, he said that it was his understanding that what he was signing was associated with the $450,000 loan. Indeed, he said that the execution page was practically blank when he signed it, but having regard to the manner in which I conclude it was produced by computer, this is highly improbable.
Consistently with the minutes of 1 March 2010, Mr Caliguri says that on 1 March 2010, he met Mr Chai at Paycorp's offices at Milsons Point, and that at this meeting, Mr Chai executed the Caliguri version of the deed.
Mr Peter Parsons, a chartered accountant, recalls settling the PCI Trust at Mr Caliguri's request in about March 2010 and remembers reviewing the schedule to it. He recalls that Mr Caliguri was a beneficiary of the PCI Trust and its appointor. He also recalls that Calcom Enterprises and two other companies that he knew to be associated with Mr Caliguri were beneficiaries. He has reviewed the Caliguri version and says that it accords with his recollection, and that the Chai version does not. Although he conceded in cross-examination that it was "possible" that he settled the trust in May or June, this amounted to no more than acknowledgement of a possibility of error in his recollection, and did not detract from his belief that it was in about March.
Mr Caliguri says that on 1 March 2010, and consistent with the advice he had received from Mr Kinder, he also had Mr Chai execute an undated resignation as director of PCI Corp - as an "insurance policy" to ensure that if he wanted to take control of PCI Corp he was able to do so. Mr Chai disputes that he ever signed any such letter. Having regard to the advice that Mr Caliguri had received on this topic from Mr Kinder, which included obtaining just such a letter, it is more probable than not that he did in fact obtain such a letter from Mr Chai.
Minutes of a PCI Corp director's meeting dated 10 March 2010, signed by Mr Chai as chairman, record that Mr Chai reported that PCI Corp as trustee of the PCI Trust had been presented with the opportunity to acquire the PPS shares, and it was resolved that Mr Chai should proceed with negotiations of a sale agreement, be authorised to take whatever action was necessary to implement a purchase if the negotiations were successful, and be authorised to borrow the funds required to complete the transaction. Again, Mr Chai concedes having signed this minute but says that it was in June or July 2010, at Mr Caliguri's request, "for the Company's records"; that he did not read it carefully, trusted Mr Caliguri, saw no difficulty with it, and does not recall noticing any reference to the PCI Trust.
Minutes of a PCI Corp director's meeting dated 25 March 2010, signed by Mr Chai as chairman, record that it was resolved that PCI Corp as trustee of the PCI Trust would borrow $450,000 from Calcom Enterprises "under the terms and conditions set out in the loan agreement", and proceed to complete the transaction with PLC (being the acquisition of the PPS shares), sign the share purchase agreement and pay the deposit of $50,000. Yet again, Mr Chai concedes having signed this minute, but says that it was in June or July 2010, at Mr Caliguri's request, "for the Company's records"; that he did not read it carefully, trusted Mr Caliguri, saw no difficulty with it, and does not recall noticing any reference to the PCI Trust.
On 1 April 2010, PLC and PCI Corp executed a share purchase agreement for the sale of the PPS shares to PCI Corp for a price of $450,000, payable as to $50,000 on exchange and the balance of $400,000 on completion. In approving the agreement, the PLC board noted Mr Caliguri's declaration of interest and undertaking to guarantee the buyer's performance. Mr Caliguri arranged for the amount of the deposit required under the agreement - $50,000 - to be transferred from Calcom Enterprises to PCI Corp, and then to PLC by overseas telegraphic transfer through Westpac. On 3 May 2010, Mr Caliguri arranged for the balance of the purchase price, namely $400,000, to be transferred from Calcom Enterprises to PCI Corp and then for PCI Corp to pay that amount to PLC's solicitors Watson Mangioni. On 4 May 2010, the transfer to PCI Corp of 1000 PPS shares was registered in the PPS Member's Register, which recorded that, with effect from that date, PCI Corp as trustee for the PCI Trust held all the issued shares in PPS.
Mr Chai accepts that he funded none of the purchase price, and that it was entirely funded by companies controlled by Mr Caliguri, albeit that he is liable to repay it. The loan agreement in respect of the $450,000 advanced by Calcom Enterprises to PCI Corp has not been produced, although Mr Chai says that one was executed. He says that it contained his personal g uarantee of repayment. But he does not recall any discussion with Mr Caliguri about his financial position or capacity to repay.
Minutes of a PCI Corp director's meeting dated 10 May 2010 - after the acquisition was completed - signed by Mr Chai as chairman, record that it was resolved that the company appoint Mr Caliguri as director, secretary and public officer. As with the other minutes, Mr Chai concedes having signed this minute, but says that it was in June or July 2010, at Mr Caliguri's request, "for the Company's records"; that he did not read it carefully, trusted Mr Caliguri, saw no difficulty with it, and does not recall noticing any reference to the PCI Trust.
After completion of the purchase, Mr Chai attended the Milson's Point offices from time to time. His claim to have done so full-time was demonstrated, by electronic attendance records, to be considerably exaggerated; his explanation that what he intended to convey was that he was a "full-time non-executive chairman" was specious. He was not allocated a dedicated office, was paid no remuneration and was not involved in management other than one employee-related issue in which a resignation was tendered to him. He was involved to some extent in negotiations with external parties, consistent with interest in a potential sale of the business, but he did not introduce any purchaser such as to become entitled to the 50 per cent share of any excess of purchase price over five times EBITDA that Mr Caliguri says was offered to him.
On 20 September 2010, Mr Caliguri commenced discussions with Archer Capital in relation to a possible acquisition of PPS. Mr Caliguri says that on 21 September 2010, he discovered that the undated resignation letter he had obtained as "insurance" from Mr Chai was missing from the corporate file. He says he had an unsigned copy in his desk, onto which he imprinted the date 21 September 2010 and photocopied Mr Chai's signature from another document. He then lodged this fabricated document with ASIC, to effect Mr Chai's resignation as a director of PCI Corp, leaving himself as the sole director.
At Mr Caliguri's instance, on 22 September 2010 PCI Corp tendered its resignation as trustee of the PCI Trust. By Deed made on 22 September 2010, Mr Caliguri as appointor nominated and appointed Calcom Enterprises to be trustee of the PCI Trust in place of PCI Corp. He executed the deed on his own behalf, on behalf of PCI Corp and on behalf of Calcom Enterprises; Mr Parsons witnessed all three signatures. Mr Caliguri also prepared minutes of a meeting of himself, PCI Corporation and Calcom Enterprises (at which Mr Caliguri was the sole attendee) resolving to accept the resignation of PCI Corporation as trustee of the PCI Trust and to appoint Calcom Enterprises in its place. On the same day, Mr Caliguri purporting to act as sole director and secretary of PCI Corp executed a share transfer of the PPS shares by PCI Corp to Calcom Enterprises.
According to Mr Wright, a business associate of Mr Caliguri, Mr Chai said to him on 8 November 2010 that he owned half of Paycorp. According to Mr Carr, at about the same time, Mr Chai made a similar claim to him. Mr Chai denies having made such statements. Notwithstanding reservations about the evidence of Mr Wright (who was an overtly partisan witness) and Mr Carr (for reasons already explained), the concurrence of their evidence on this point persuades me that it is more probable than not that Mr Chai did make such claims. On the same day, Mr Caliguri caused Mr Chai to be given notice to vacate the Milsons Point premises.
On or about 31 May 2011, Mr Chai caused PCI Corp to be placed into voluntary liquidation, in pursuance of an endeavour to obtain litigation funding for these proceedings. The statement of affairs that he then prepared discloses no debts, and in particular no debt of $450,000 to Calcom Enterprises.
The main witnesses:
Ultimately, I am disinclined to act on the uncorroborated evidence of either of the protagonists, each of whose evidence was unsatisfactory in significant respects.
Mr Caliguri fabricated the "insurance" resignation letter. Even if there were an earlier version, this does not detract from his discreditable conduct in (very skilfully) creating a replica and copying a signature onto it, then lodging it with ASIC as if it were an authentic resignation, to procure his registration as sole director. The version given in his first affidavit was at best very selective and incomplete; until a forensic handwriting report proved the fabrication, he was quite content for the Court to be misled. He gave a fuller, more self-incriminating version only after the expert handwriting report had been obtained, which left no doubt on the matter, and even that account was not a complete or fully accurate one: I do not accept that he had a hard copy in his desk onto which he entered the date and copied Mr Chai's signature; it is much more likely that the document was recreated from a computer file. Nor do I accept that Mr Chai's signature block was already on the document, prior to the signature being copied onto it, as Mr Caliguri said, because the relationship of the (copied) signature and the signature block on the fabricated document and the document from which the copy was taken is such that there is a very high degree of improbability that it occurred other than by both being copied onto the fabricated document. I therefore cannot accept that Mr Caliguri has, even now, given a proper account of the creation of the fabricated resignation letter.
Nor was this the only suspicious document. There were two forms of share transfer from PLC to PCI Corp, both identical as to execution on behalf of the transferor PLC, but the first (forwarded under cover of a letter from Watson Mangioni dated 17 May 2010) described the transferee merely as PCI Corporation Pty Limited, whereas the second - which was accepted by Mr Caliguri as "sole director" dated 22 September 2010 - described the transferee as PCI Corporation Pty Limited ATF PCI Trust. Although Mr Caliguri denied having inserted the words ATF PCI Trust , he could offer no explanation for this discrepancy, and given his activities on and about 22 September it is highly probable that the alteration - undetectable except by comparison with the earlier document - was his work. This reinforces that he is prepared to alter documents - and can do so very skilfully - to achieve his ends.
Mr Caliguri also endeavoured to mislead his fellow directors of PLC as to the true nature of his interest in the PCI Corp bid, in order to avoid having to pay a premium for the PPS shares. In addition, he was prone to attribute knowledge or understanding to others in circumstances falling well short of justifying it: this included the other directors of PLC, Mr Carr, and Westpac. He was also prone to giving what sounded like the right answer, regardless of its actual appropriateness - "that's incorrect... absolutely incorrect", usually without rationale. However, although at first I though Mr Caliguri's explanation of the use of the acronym PCI was incredible, further evidence showed it not to be and that it was an acronym used by Mr Caliguri and in the industry - although its relevance in the context of the incorporation of PCI Corp and PCI Holdings, and the creation of the PCI Trust, is not so apparent.
On the other hand, Mr Chai's evidence was no more convincing. Some illustrations of the difficulties with it have already been mentioned. At trial, his case was that he was the ultimate beneficial owner of the PPS shares, as the sole shareholder in PCI Holdings; that he was not party to the creation of any PCI Trust; and that PCI Corp had not executed the Trust Deed. However, at an earlier stage in the proceedings he had appeared to admit that PCI Corp purchased the shares in the capacity of trustee of the PCI Trust, although not that Mr Caliguri was the beneficiary. There were admissions in his List Response, and in his former solicitor's correspondence, to the effect that PCI Corp acquired the PPS shares as trustee for the PCI Trust. He said that these admissions were not in accordance with his instructions; on Mr Chai's present position two lawyers acting for him - his present and previous solicitors - have each got their responses to Mr Caliguri's allegations wrong. Indeed, he repeatedly resorted to "misunderstandings" with his various lawyers - Mr Lim, Mr Purcell, Mr Stevens, and even Mr Katekar - to explain prior inconsistencies in his case. As has been recorded, he sought to explain away the inconvenience of his signature on the various PCI Corp minutes by asserting that he did not read them carefully and trusted Mr Caliguri, and did not notice reference to the PCI Trust; yet Mr Chai was a man of some commercial experience and sophistication and I cannot accept that he noticed none of the many references to the PCI Trust in the minutes that he signed. Mr Chai said that he would be reluctant to assume the onerous obligations of a trustee; yet he signed the trust deed in a form that, even on his own version, described PCI Corp as "the Trustee Corporation" in the attestation clause. His claim to have incorporated PCI Corp was deceptive.
PCI Corp's capacity as purchaser of the PPS shares:
The first issue is whether PCI Corp acquired the PPS shares as trustee of (the Caliguri version of) the PCI Trust. One possible alternative, that it did so as trustee of the Chai version, is unsupported by any evidence and is not advanced by Mr Chai. The remaining alternative is that it did so in its own right.
There is no doubt that at some stage Mr Chai signed the execution page of the Caliguri version, and there is no suggestion - by him or by anyone else - that the Chai version was ever executed by anyone. I do not accept that the execution page of the Caliguri version of the trust deed was so incomplete as he says it was when he signed it. As already mentioned, he said that he signed it in connection with the loan agreement between Calcom Enterprises and PCI Corp. But it is highly improbable that Mr Chai signed the trust deed as director of PCI Corp otherwise practically blank. Although Mr Chai says that he simply signed the execution page, unaccompanied by any schedule or deed, the minutes of 1 March 2010, also signed by him, are to the contrary. Those minutes are consistent w ith Mr Caliguri's version that Mr Chai executed the Caliguri version on 1 March 2010 at Paycorp's offices at Milson's Point. Having regard to the minutes of 1 March 2010 (signed as they are by Mr Chai), to Mr Parson's evidence, and to the computer-produced information on the schedule and execution page, I find that Mr Chai signed the execution page of the Caliguri version on or about 1 March 2010 at Milson's Point, and that (as those minutes record) the trust deed was presented at that time and place; subsequently, during the same month, the trust deed was signed and the trust settled by Mr Parsons. Moreover, there is no plea of non est factum - either in respect of the trust deed or of the minutes - and even if there were, Mr Chai would have had great difficulty in surmounting the heavy onus of establishing it, and in particular of showing an absence of carelessness on his part. In the context of the unreliability of both main witnesses, this documentary record is important.
Mr Katekar, in his able submissions, advanced five factual propositions as telling against Mr Chai having executed the PCI Trust Deed, which may be summarised as follows. First, until March 2010, Mr Chai was going to pay $2.45 million for the PPS shares, of which $1.6 million would discharge the Westpac loan to BIS that Mr Caliguri had guaranteed, and $400,000 would repay Calcom Enterprises' loan to BIS, thus relieving Mr Caliguri from exposure to debt of $1.6 million, and restoring to him $400,000 that was otherwise in jeopardy. Secondly, this changed in March 2010 after Mr Chai became aware of potential impending adverse changes in the affairs of the Paycorp Group, as a result of which he refused to pay off the loan. As a result, Mr Caliguri's only hope of avoiding Westpac enforcing its guarantee was for Mr Chai to proceed with the purchase of the shares and hope that Westpac would not call up its loan; in this way, Mr Chai had adroitly out-manoeuvred Mr Caliguri. Thirdly, PCI Corp purchased the PPS shares in its own right, with Calcom Enterprises lending PCI Corp the $450,000 purchase price. Fourthly, Mr Chai then began working at PPS, as its chairman and ultimate owner. Fifthly, Mr Caliguri engineered the PCI Trust unbeknownst to Mr Chai, and in mid-September 2010, when the outlook for PPS had improved, sprung his trap - yet did not tell Mr Chai until early November.
While I have given close consideration to it, especially bearing in mind that Mr Caliguri's proclivity to creation of documents and concealment of information to advance his own commercial interests is established, I am ultimately unable to accept this analysis. As to the first proposition , discharge of BIS's Westpac and Calcom Enterprises loans was not an essential element of the original $2.45 million proposal, as the terms of the heads of agreement envisaged that the price could be adjusted if, instead of repayment of those loan facilities on completion from the purchase moneys, the lenders agreed to retain them. As PLC was not itself indebted to Westpac or Calcom Enterprises - PPS's subsidiary BIS was the debtor, and the debts did not encumber PLC - there was no reason for the purchaser to pay out those debts, or pay more than $450,000, rather than assume the liabilities, if the creditors would agree to that course. The only beneficiary of such an additional payment was Mr Caliguri, who would have been relieved of the risk that BIS might not repay them, to his detriment. But this was only an imperative from his perspective if he were not to remain beneficially interested in PPS. And t he 13 January 2010 email exchange between Mr Caliguri and his associates, and Mr Kinder's evidence, indicates that at the time of the original proposal - well before the supposed change in March 2010 - his intention was that the PPS shares be acquired beneficially by him or his interests, and not by Mr Chai. Accordingly, I do not accept that the original proposal in substance - as distinct from form - ever contemplated that Mr Chai (or PCI Corp) would pay $2.45 million and discharge BIS's indebtedness to Westpac and Calcom Enterprises. Moreover, there is reason to doubt that Mr Chai had the resources with which to do so: on 15 August 2011 he told the Court that he was "financially strung" and had had to sell his residence, and there is no evidence that he ever had the ability to raise $2.45 million.
As to the second, the eventual terms specifying a price of $450,000 involved no practical difference from the previous one, because that was always the price for the PPS shares. PLC was only ever itself to receive $450,000, and it was consistent with the original heads of agreement that, if alternative arrangements could be made with the creditors, the nominal purchase price could be adjusted accordingly. Importantly, there is no hint in the contemporaneous documentation that the change reflected any concern on the part of Mr Chai arising from due diligence; on this issue, there is no corroboration whatsoever for Mr Chai's version. And while it is correct that the Hutchison contract was due to expire on 3 March 2010 unless earlier renewed (which could have had significant adverse implications for the value of PPS), the others (Bank of New Zealand and Westpac) would continue unless those parties gave notice of termination, of which there was no apparent indication. But most importantly, it is not correct that, to avoid Westpac calling up the loan, Mr Caliguri had no alternative but to meet Mr Chai's terms; to the contrary, Mr Caliguri was in a position to purchase the PPS shares himself on identical terms, with no less risk to him than would obtain if the purchaser were Mr Chai, and the added benefit of acquiring the equity. Alternatively, in his capacity as a director of PLC, if Mr Chai's revised offer was no longer attractive, the other three offers, at least one of which was barely inferior to the original Chai offer, could have been explored.
As to the third , the minutes of 10 March 2010, signed by Mr Chai, record that PCI Corp purchased the PPS shares in its capacity as trustee of the PCI Trust. Likewise, the PPS share register records that PCI Corp acquired its shares as trustee of the PCI Trust. The non-disclosure of any trust on the face of the share purchase agreement is unsurprising - trusts are often not disclosed on the face of contracts or transfers, and there is no requirement that they must be. W hile the non-disclosure - when disclosure would have been appropriate - to his fellow PLC directors that he had a beneficial interest in the purchase is some evidence against Mr Caliguri having any such interest, it is of little evidentiary significance in the context of a transaction structured for the very purpose of concealing that interest from those to whom it ought to have been disclosed. As a matter of reality, as distinct from propriety, disclosure of the existence of the trust to PLC was the last thing to be anticipated; it was to conceal Mr Caliguri's interest that a trust was created. Moreover, o n the a pplication for registration of PCI Holdings, Mr Chai's shareholding was recorded as not beneficially held.
As to the fourth , while Mr Chai may have had a somewhat greater level of involvement in the affairs of the Paycorp businesses after the acquisition than Mr Caliguri would acknowledge, it was nonetheless limited; Mr Chai's version that he was engaged fulltime in the business was a considerable exaggeration, and his subsequent explanation that he had intended this to refer to "a full-time non-executive chair" - a meaningless concept - was specious. Mr Chai's involvement was not greater than could be explained by the role of a nominal chairman, and an interest in 50% of any excess of selling price over five times EBITDA.
As to the fifth , I have closely considered the possibility that from the outset Mr Caliguri embarked on a deliberately ambiguous course so as not to alert Mr Chai to the circumstance that he was but a mere nominee, and I do not overlook that there is but slight evidence, other than Mr Caliguri's, of such knowledge on the part of Mr Chai. However, as I have found, Mr Chai signed the Caliguri version of the PCI Trust deed, on behalf of PCI Corp as trustee, in early March 2010. Moreover, t he documentary record (in particular, the various minutes signed by Mr Chai) provides some evidence of knowledge on his part. Once again, the 13 January 2010 email exchange, and Mr Kinder's evidence, favours the view that, from the outset, Mr Caliguri's intent was that the PPS shares be acquired beneficially by him or his interests, and not by Mr Chai. In the light of the advice received from Mr Kinder, it is improbable that Mr Caliguri would have chanced relying on obtaining Mr Chai's unquestioning signature, in June or July 2010, to minutes that explicitly referred to the PCI Trust. It is also improbable that Mr Chai did not notice those references. While it is correct that it was not until 8 November that Mr Caliguri took steps to eject Mr Chai from the premises, this is not so striking if it be accepted that Mr Chai knew - or was believed by Mr Caliguri to know - of his nominee status, and there was in fact no "trap" to be sprung.
Suspicious as one may be of Mr Caliguri, one must also consider the incredibility of Mr Chai's case, which entails the curious and improbable propositions (1) that he wanted to buy the PPS shares for $450,000 and had the money to do so himself, but instead persuaded Mr Caliguri to lend him the purchase money (through Calcom Enterprises) - unsecured except by Mr Chai's alleged personal guarantee - under a loan agreement said to be in writing which cannot now be produced and the terms of which cannot be recalled; (2) that Mr Chai would thereby acquire the Paycorp business for $450,000, with money lent to him by Mr Caliguri and without expending a dollar himself, while leaving Mr Caliguri exposed as a guarantor of the BIS debt to Westpac, and of the lease of the Milson's Point premises, and in respect of the outstanding Calcom Enterprises loan; (3) yet then, in mid-2011, Mr Chai puts this company into liquidation but does not disclose any indebtedness to Calcom Enterprises in respect of the loan of the purchase money for the PPS shares. If there were any trap to be sprung by Mr Caliguri, it had the peculiarity that the whole scheme involved extracting no substantial contribution or commitment from Mr Chai, and incurring no less risk but significantly less benefit for Mr Caliguri than the alternative of his purchasing the shares for his own benefit.
That the purchase money of $450,000 was advanced to PCI Corp by Mr Caliguri through Calcom Enterprises does not favour Mr Chai's case - it is no more consistent with a purchase by PCI Corp for Mr Chai's benefit than with one for Mr Caliguri's benefit. In fact, the circumstance that Mr Caliguri funded the purchase of the PPS shares favours the view that Mr Caliguri or his interests were intended to be the beneficial purchaser. The alternative is that Mr Caliguri agreed to remain as managing director of a business which he had largely established, yet have no equity in it, in circumstances where Mr Chai contributed nothing (except his alleged guarantee of repayment by PCI Corp of the loan, of which there is no corroboration). This involves Mr Caliguri risking $450,000 on a loan to PCI Corp, secured only by Mr Chai's guarantee, while remaining surety for the BIS debt to Westpac and the Milson's Point lease, and leaving outstanding and in jeopardy the earlier Calcom Enterprises loan, in order to remain the managing director of a business in which he would have no equity or proprietary interest - when for the very same $450,000 he could himself have acquired the PPS shares. This does not make commercial sense or logic. On the other hand, there is an obvious explanation for Mr Chai's inclusion as a mere nominee - namely, to camouflage (from the PLC board) Mr Caliguri's interest as beneficial purchaser.
Given the difficulties with both Mr Caliguri and Mr Chai as witnesses, the more probable explanation of the whole of the evidence is that PCI Corp acquired the shares in PPS as trustee of a trust of which Mr Caliguri (and not Mr Chai) was beneficiary and appointor - namely, the Caliguri version. Mr Caliguri had developed the Paycorp businesses and, following the unsuccessful attempt at listing in the UK, he was interested in the opportunity of re-acquiring full control. He had the requisite funds to do so. He desired to avoid paying the premium that the other directors of PLC might extract, being aware of the special attraction of the business to Mr Caliguri. He procured Mr Chai to act as a nominee, and the trust structure was established to facilitate that course. The documentary record provided by the minutes and the share register support this conclusion. So does the source and application of the purchase moneys: Mr Chai's case - that he acquired the PPS shares through PCI Corp entirely with funds that he borrowed from Mr Caliguri through Calcom Enterprises, and contributed nothing (except a guarantee that they would be repaid) himself - strains commercial credibility; it is much more likely that Mr Caliguri, who was the source of the purchase moneys, was intended to be the true beneficial purchaser . So too does the question, why would Mr Caliguri advance $450,000 to fund the acquisition of the PPS shares for Mr Chai's benefit, secured by no more than Mr Chai's guarantee - when Mr Chai claimed to have had access to the necessary funds himself - and with no other contribution on the part of Mr Chai, while Mr Caliguri would remain exposed in respect of his guarantees of the Westpac debt and the Milson's Point lease, and the earlier Calcom Enterprises loan, when he could have used the same money to buy the shares for his own benefit, and thereby acquire the equity with no additional risk? The idea that Mr Chai, who directly contributed no funds, should acquire the beneficial interest to the exclusion of Mr Caliguri, who directly contributed all of the funds and assumed all of the risk, is strikingly asymmetrical, and highly improbable.
Replacement of trustee by Calcom Enterprises:
The second issue is whether PCI Corp has been validly and effectively replaced as trustee by Calcom Enterprises. It will be recalled that the mechanism for this was as follows. First, on 22 September 2010, Mr Caliguri, purportedly as sole director and secretary of PCI Corp, tendered PCI Corp's resignation as trustee, to Mr Caliguri as appointor, presumably pursuant to clause 15.1 of the trust deed, which provides that the trustee may resign at any time by notice in writing to the appointor. However, this purported resignation was authorised on behalf of PCI Corp only by Mr Caliguri, following his lodgement with ASIC of the fabricated resignation letter. Accordingly, he was not the sole directory and secretary, and the purported resignation was unauthorised by PCI Corp and ineffective.
Secondly, also on 22 September 2010, Mr Caliguri, in his capacity as appointor, and also purportedly as sole director and secretary of PCI Corp, and also as sole director and secretary of Calcom Enterprises, executed a deed which, after reciting that by clauses 15.1 and 15.2 of the trust deed the appointor was empowered to appoint a new trustee in place of any trustee who resigns, that PCI Corp being the present trustee had tendered its resignation, and that the appointor wished to appoint Calcom Enterprises to act as trustee in the place of the retiring trustee, relevantly provided as follows (emphasis added):
NOW THIS DEED WITNESSES that in pursuance of the powers vested in him under the Trust Deed and of all other powers him thereunto enabling the Appointor HEREBY NOMINATES AND APPOINTS the new trustee to be trustee of the Trust in the place of the retiring trustee who is hereby released from and discharged from the trusts of the Trust ...
The emphasised words make clear, first, that although the recitals referred to the power of appointment following resignation, it was intended to invoke and rely on any power under the trust deed or elsewhere which enabled the proposed course, and secondly, that the intent was to appoint the new trustee in place of the former trustee so that it would no longer be trustee. In other words, the deed invoked any available power to procure the result that Calcom Enterprises replaced PCI Corp as trustee. Under clause 15.2.1 of the trust deed, Mr Caliguri as appointor had the power to remove any trustee and to appoint a new trustee or trustees in place of any trustee who was removed. Notwithstanding that there had been no effective resignation by PCI Corp, the same result could be procured by its removal and replacement. The deed executed on 22 September 2010 involved an exercise of the powers of the appointor under clause 15.2.1 and 15.2.3 "by instrument in writing" to remove PCI Corp as trustee and appoint Calcom Enterprises in its place. In this respect, PCI Corp's assent was immaterial, and its purported execution of the instrument irrelevant: it was not a necessary party.
Accordingly, on 22 September 2010, Calcom Enterprises was validly and effectively appointed trustee of the PCI Trust in place of PCI Corp. Additionally, had it not then been removed from office, PCI Corp has since about 31 May 2011 - when it entered into liquidation - been disqualified (under clause 15.6.2.1) from holding office as trustee, and Mr Caliguri as appointor was (and is) the person entitled to appoint its replacement.
Conclusion:
My conclusions may be summarised as follows.
Given the difficulties with both Mr Caliguri and Mr Chai as witnesses, the more probable explanation of the whole of the evidence is that PCI Corp acquired the shares in PPS as trustee of a trust of which Mr Caliguri (and not Mr Chai) was beneficiary and appointor. The documentary record provided by the minutes and the share register support this conclusion. So does the source and application of the purchase moneys. The idea that Mr Chai, who directly contributed no funds, should acquire the beneficial interest to the exclusion of Mr Caliguri, who directly contributed all of the funds and assumed all of the risk, is strikingly asymmetrical, and highly improbable.
The deed executed on 22 September 2010 involved an exercise of the powers of the appointor under clause 15.2.1 and 15.2.3 "by instrument in writing" to remove PCI Corp as trustee and appoint Calcom Enterprises in its place. In this respect, PCI Corp's assent was immaterial, and its purported execution of the instrument irrelevant: it was not a necessary party. Accordingly, on 22 September 2010, Calcom Enterprises was validly and effectively appointed trustee of the PCI Trust in place of PCI Corp.
Subject to any submissions as to their form and any consequential orders, I propose to make orders to the following effect:
1. Declare that pursuant to the share purchase agreement made o n 1 April 2010 between Paycorp PLC as vendor and the second defendant PCI Corporation Pty Limited ("PCI Corp") as purchaser, PCI Corp acquired all the shares in the first plaintiff Paycorp Payment Solutions Pty Limited ("the PPS Shares"), upon the trusts contained in the Deed of Settlement of th e PCI Trust dated 1 March 2010, the original of which is marked PX04, and in particular having:
1.1 As Nominated Beneficiaries: John Paul Caliguri and Nicola Louise Caliguri;
1.2 As Additional General Beneficiaries: Calcom Enterprises Pty Ltd ATF Calcom Trust, Calcom Holdings Pty Ltd ATF JPC Trust, and Webpay Pty Ltd;
1.3 As Appointor: John Paul Caliguri during his lifetime and after his death such person as he by deed or will appoints;
1.4 As Guardian: John Paul Caliguri during his lifetime and after his death such person as he by deed or will appoints.
2. Declare that on 22 September 2010, the second plaintiff Calcom Enterprises was validly and effectively appointed trustee of the PCI Trust in place of PCI Corp.
3. Order that the first defendant pay the plaintiffs' costs.
I will also afford an opportunity to Mr Caliguri to show cause why I should not refer the papers to the Attorney General, in respect of potential offences against (NSW) Crimes Act 1900, s 253 and/or s 254, and/or (CTH) Corporations Act 2000, s 1308(2), in connection with the fabricated resignation.
**********
Decision last updated: 25 November 2011
0
2