Re ACN 096 281 542 Limited (in liq)
[2018] VSC 425
•2 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2018 1244
In the matter of ACN 096 281 542 Limited (in Liquidation) (ACN 096 281 542)
(formerly Biotempus Limited)
| TRANSMEDIA INC | Plaintiff |
| v | |
| IVAN GLAVAS AND PAUL ANDREW BURNESS IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF ACN 096 281 542 LIMITED (IN LIQUIDATION) | Defendant |
---
JUDGE: | RANDALL AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 July 2018 |
DATE OF JUDGMENT: | 2 August 2018 |
CASE MAY BE CITED AS: | Re ACN 096 281 542 Limited (in liq) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 425 |
---
CORPORATIONS – Liquidation – Rejection of proof of debt – Application pursuant to s 90-15 of the Insolvency Practice Schedule and Regulation 5.6.54 (2) of the Corporations Regulations 2001 – Identity of the creditor – Nomination – Rights – Release of debt – Execution of a deed – Foreign company not registered in Australia – Corporations Act 2001 (Cth), s 127 – Consideration to support an agreement – Promissory estoppel – Duress and undue influence.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B P Devanny | Madgwicks |
| For the Defendant | Mr S Rubenstein | Marsh & Maher Richmond Bennison |
TABLE OF CONTENTS
Issued raised........................................................................................................................................ 1
Principles............................................................................................................................................. 1
Background......................................................................................................................................... 3
Value of shareholding..................................................................................................................... 13
Quantum............................................................................................................................................ 14
Consideration.................................................................................................................................... 14
Was Dr Jacobson and/or Transmedia a creditor of the Company who or which, but for other matters referred to hereafter were entitled to prove in the liquidation of the Company?... 14
Reasons.............................................................................................................................................. 14
Did Transmedia execute the Debt Release Document as a Deed? Did Dr Jacobson execute the Debt Release Document as a Deed?................................................................................................. 19
Was the Debt Release Document binding in any event – Consideration?........................... 20
Is Dr Jacobson (and Transmedia) estopped from contending that the Debt Release Document is not binding upon Dr Jacobson (and Transmedia)?.................................................................... 23
Duress and/undue influence......................................................................................................... 24
Conclusion......................................................................................................................................... 32
HIS HONOUR:
An application was made by the plaintiff for orders under s 90-15 of sch 2 to the Corporations Act 2001 (Cth) (‘Corporations Act’)(‘the Schedule’) to appeal the decision made by Ivan Glavas and Paul Andrew Burness in their capacities as joint and several liquidators of ACN 096 281 542 Limited (In Liquidation) (‘the Company’) to reject the plaintiff’s formal proof of debt.
Issued raised
In the outline of submissions and during the course of argument the following issues were identified:
A.Was Dr Mervyn Jacobson (‘Dr Jacobson’) and/or Transmedia a creditor of the Company who or which, but for other matters referred to hereafter were entitled to prove in the liquidation of the Company?
B.Did Transmedia execute the document dated 26 November 2014 (‘Debt Release Document’) as a Deed?
C.Did Dr Jacobson execute the Debt Release Document as a Deed?
D.If no to either or both of the previous two questions, was the Debt Release Document binding in any event?
E.If there were a failure of consideration, are each of Transmedia and Dr Jacobson estopped from denying the efficacy of the Debt Release Document given that the Company acted upon it?
F.If the Debt Release Document is efficacious, is it void or voidable by reason of duress and/or undue influence?
Principles
Regulation 5.6.54(2) of the Corporations Regulations 2001 provides:
(2)A person may appeal against the rejection of a formal proof of debt or claim within:
(a)the time specified in the notice of the grounds of rejection; or
(b)if the Court allows – any further period.
Section 90-15 of the Insolvency Practice Schedule (Replaces s 1321 of the Act). Section 90-15(1) of the Insolvency Practice Schedule provides:
Court may make orders:
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.
The repealed iteration of the provisions was found at s 1321:
A person aggrieved by any act, omission or decision of:
…
(d) a liquidator or provisional liquidator of a company;
May appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.
Notwithstanding the differences in language, no authority was drawn to my attention to posit that the longstanding principles bearing upon the repealed s 1321 have been altered in any way or in any substantial way. Accordingly, I will have regard to those established principles which were set out in In the matter of David Gregory Young in his capacity as liquidator of Great Wall Resources Pty Ltd (In Liquidation); Capocchiano v Young.[1] In that case Kunc J said at [46]:
The relevant legal principles are not in doubt. An appeal against the rejection of a proof of debt is a hearing de novo. The Court must take into account all relevant evidence, whether or not it was before the liquidator at the time the proof was rejected. The fundamental question is whether the claim sought to be proved is a true liability of the company enforceable against it according to law. Nevertheless, the claimant bears the onus to demonstrate that the liquidator was wrong in rejecting the proof. If that onus is not discharged, the Court will not overturn the liquidator’s decision. If the Court is unable to conclude either way whether the proof should be admitted, then the liquidator’s decision must stand.
[1][2013] NSWSC 879 at [46].
Background
The Company was formerly known as Biotempus Limited. Prior to that name it had also been known as ImmunAid Limited between 18 January 2013 to 16 February 2015. Ivan Glavas and Paul Andrew Burness were jointly and severally appointed liquidators for the purposes of a creditors’ voluntary winding up. The appointment date was 2 November 2016. At some time it was a proprietary limited company.
By letter dated 5 February 2010, Dr Mervyn Jacobson was appointed Chief Executive Officer of the Company. That letter in part set out:
Following a decision of the Board of Directors of ImmunAid Pty Limited on 3 February 2010 it is with great pleasure that I wish to confirm your appointment as Chief Executive Officer of ImmunAid Pty Limited with immediate effect. The Board looks forward to working with you to accelerate the progress of the Company towards its commercial goals.
The position will be answerable to and will work at the direction of the Board. …
The Board will also support and oversee your efforts to raise further capital to support the Company’s current and future activities. Following this an appropriate remuneration package can be structured by mutual agreement.
…[2]
[2]Affidavit of Dr Mervyn Jacobson, sworn 26 March 2018, exhibit ‘MJ-2’.
By letter dated 14 October 2010, the Company wrote to Dr Jacobson setting out inter alia:
As agreed at the recent meeting of the Board of ImmunAid Pty Limited (the ‘Company’), the Board now confirms that it will pay you a success fee upon the successful raising of funds for the Company equal to six (6) per cent of the gross funds raised.
The fees shall be payable via the issue of shares in the Company to you, or your nominee…[3]
[3]Ibid exhibit ‘MJ–3’.
Dr Jacobson also produced contemporaneous notes outlining his work. Those notes were dated October 2011. The opening paragraph to those notes is in the following terms:
In my role as Chief Executive Officer of the start-up company …
1. I have developed …
2. I then helped …
3. I then pursued and helped secure …
4. I now plan to pursue more clinical trials …
5. Finally, I intend to initiate meaningful discussions …[4]
[4]Ibid exhibit ‘MJ–5’.
The exhibit included a memo to the Board of Directors dated 20 April 2012. It outlined shares which had been issued which included:
·Mervyn Jacobson (or nominee) 1,432,392 shares.
·… Lupetto Holdings Ltd, Switzerland 75,000 shares. (It is common ground that Lupetto Holdings represented interests of Dr Jacobson.)
From all of the material contained in exhibit MJ–5, it is clear that Dr Jacobson undertook the task within his purvey and there is no reference to Transmedia.
Transmedia is a corporation registered in the state of Hawaii. It is not registered in Australia as a foreign company or otherwise. The Domestic Profit Corporation Annual Report as of January 1 2014, sets out that there were four officers of which Dr Jacobson was one. I note that he recorded his address as in Switzerland. The Report was signed by Dr Jacobson as the authorised officer.[5]
[5]Affidavit of Dr Mervyn Jacobson, sworn 25 July 2018, exhibit ‘MJ–1’.
The 2014 financial reports for the company[6] includes under the heading ‘Current Liabilities’ – ‘Trade and Other Payables’ $1,077,064.00. Note seven includes in those liabilities ‘loan from related party (note 13)’ – ‘Down from $173,193.00 the year before’.
[6]Affidavit of Ivan Glavas, sworn 1 June 2018, exhibit ‘IG-12’.
Note 13 – related party disclosures – sets out a table under the following heading: ‘Transactions with related parties’. During the 2014 financial year, various fees were paid or payable by the company (excluding GST) to entities associated with the following directors and officers of the company. That table set out the name of the director or officer, position held, recipient of fees, nature of fees paid/payable and the 2014 and 2013 years comparisons. For Dr Jacobson as CEO, the recipient of fees was described as Transmedia Inc. The nature of the fees was consulting fees. It was submitted by the plaintiff that the acknowledgement in the accounts that the sum was paid or payable to ‘entities associated with the …’ was prima facie evidence that the creditor entitled to submit a proof of debt was Transmedia and not Dr Jacobson.
The company overview set out in the annual return sets out that:
[The Company] was incorporated in the State of Victoria, Australia on 21 March 2001 to research, validate, patent and develop the “ImmunAid Technology” which describes methods of leveraging a patient’s immune system to potentially improve the efficiency of treatments for a number of diseases…[7]
[7]Ibid exhibit ‘IG–12’.
During the financial year 2014, the company recorded a net loss from operating activities in the sum of $264,928.00 as compared to the previous financial year of $470,131.00. The only funds generated appear to be from the realisation of a GTG option fee and from the issue of shares. (GTG had previously supported the operations of the Company.)
By 30 June 2014, the net liabilities of the company were $907,829.00 as compared to $654,923.00 in the previous financial year. On any view this Company was in dire straits by 30 June 2014. Albeit that it had been developing and registering patents worldwide and in Australia during the course of the financial year, no value was attributed or assigned to such patents. Total current assets were represented by cash, trade and other receivables and prepayments. The non-current assets included property, plant and equipment at the sum of $2,515.00.[8]
[8]Ibid.
The Company’s creditors list dated 31 July 2014[9] set out that third party creditors as at that date exceeded the equivalent of AUD$200,000.00.
[9]Ibid exhibit ‘IG–10’.
The Company’s Board Minutes of 2 July 2014 demonstrate that the Company was looking towards fundraising. There is recorded:
Mr Bonvino [a director] has also been working on fundraising. He shared some concerns with the Board that he had encountered surrounding the level of related party debts the Company has and he suggested the Company may wish to convert some of this debt to equity to make the Company more attractive to investors.
A minimum of $3–5 million would be required for the next year or two but this depends on what the business model is going forward…[10]
[10]Ibid exhibit ‘IG–18’.
The Company’s Board Minutes of 4 September 2014 outline a report on fundraising efforts.[11]
[11]Ibid exhibit ‘IG–20’.
On 8 September 2014, Dr Jacobson’s criminal trial commenced. He had been charged with offences under s 1041A of the Corporations Act for market manipulation of shares in GTG on the ASX in 2006. He was eventually convicted of those offences.
The Company’s Board Minutes of 4 October 2014 record that the Company’s financial officer reported that:
ii.The Company’s creditors had increased by “several large CPA invoices”.
iii.She reminded the directors of their duty as the Company was trading insolvent. …[12]
[12]Ibid exhibit ‘IG–21’.
There was also a report from Mr Bonvino with respect to further fundraising efforts.[13]
[13]Ibid.
On 5 November 2014, Dr Jacobson was convicted, with the sentencing listed for 19 November 2014.
The minutes of Board Meetings held from 1 November 2014 are maintained consecutively rather than individually.[14] Attendances were mainly by telephone. Dr Jacobson was present for the 1 November meeting. The minutes record as follows:
Mr Bonvino advised that the investors that he had had discussions with may be willing to put money into the company, but not into the hands of the majority shareholder [sic]. There was also a major issue with the amount of existing debt owed to related parties that needs to be covered and he advised that it would likely be difficult to find an investor to put money into the company to cover such debts. He asked the Board for their suggestions as to how this may be addressed. The options discussed were:
(a) pay it out;
(b) convert it to equity for all related party debt; or
(c) write it off.
It was decided to reverse the past two accruals for Dr Jacobson’s monthly fee.
[14]Ibid exhibit ‘IG–23’.
There was a ‘go forward’ plan discussed which involved talking to various potential investors.
The minutes record that Dr Jacobson then confirmed that the 4,500,000 ImmunAid shares that he had received from the share swap did go into a family trust.
At 11 the CEO report sets out that Bonvino had:
·Found a party who were interested in taking a perpetual licence deal with a new entity and provide ImmunAid an upfront fee of $500,000.00 which would cover all existing non-related party debts.
·Found a new group of people (three individuals who have all been touched by cancer) who would invest $3,000,000 at 50 cents. They were not willing to put money into a shareholder’s pocket ie to buy out Dr Jacobson. They have done a due diligence. They are also willing to perhaps put more money in at a later date…
Their current offer is subject to two conditions:
·They require a restructure of the Board, including putting some of their own members on the Board, and Board Members having a different skill set.
·They require the related party debts to be cleared.[15]
[15]Ibid exhibit ‘IG–23’.
The minutes for the meeting of 18 November 2014 record that Dr Jacobson was present. Dr Jacobson did not concede that the insolvency position was dire. Dr Jacobson argued that the Company’s insolvency position had not changed and that there was only a $10,000 shortfall. He was puzzled by the sudden panic of the Company as this was not something new.
·He points out that he is not a director but he is a substantial shareholder and the Board is supposed to act in the interest of all shareholders. Dr Jacobson noted that surely there is some interim funding that can be organised in the short term to put together a business plan to get the other funding.[16]
[16]Ibid exhibit ‘IG-23’.
It was agreed that all directors would have one last look for an investor willing to provide $500,000 only. ‘If nothing else comes up then the option is that Mr Bonvino’s proposal goes forward.’[17]
[17]Ibid.
The minutes for the meeting on 22 November 2014 also record that Dr Jacobson was present but the report from the Austrian director, Dr Tobisch would suggest that he was not. That report included ‘that she has discussed the issue of writing off related-party debts with Dr Jacobson and believes that this is not something to which he would be agreeable...’[18]
[18]Ibid.
Dr Tobisch also reported with respect to Dr Jacobson’s efforts to procure two potential investors.
The minutes record:
Mr Brunelli [ a director] noted that it may take some time to convince Dr Jacobson of Tom’s proposal. In the meantime, he made the suggestion that Mr Bonvino advised the investor group that:
·The Board was willing to issue the 6 million shares at 50 cents per share.
·The Board would hold an AGM where the entire board would be put up for confirmation or reconstitution.
·The Board will make a formal request to the three related parties to waive their debts.
The Company will need to go back to the investment group with a contingent counter-offer, that states that the Company will issue another 6 million shares etc… and if the parties agree to waive the debt then the deal can proceed. …[19]
[19]Ibid.
Dr Tobisch had flown to Australia to, inter alia, provide support to Dr Jacobson during his trial. Dr Jacobson set out:
She attended and provided support to me during the litigation proceedings.[20]
[20]Affidavit of Dr Mervyn Jacobson, sworn 26 March 2018, [13].
On 21 November 2014, Robert Brunelli sent an email transmission to Dr Jacobson and others including Dr Tobisch. There was reference to the action the Company’s auditors might take. After referring to the potential investors, Brunelli continued:
They also sought to have all “related party” debt (approximately $750,000) written off and see a restructure of the ImmunAid board. Obviously, there are issues with the offer, as you expressed at the recent meeting, but it represents a legitimate proposal from what I understand to be qualified investors who would not otherwise require a prospectus for such capital raising …
…
Second and based upon advice from Australian Corporate Counsel, the related party debt can only be retired voluntarily by the debt holder or through a legal process where the validity of the debt is challenged. Accordingly and at this point, it does not appear that you will proceed in this fashion (and I do not mean to suggest one way or the other how you should resolve this issue) and ImmunAid has no current interest in challenging your debt. Accordingly, it does not appear that ImmunAid can satisfy the investors “debt retirement” requirement …[21]
[21]Ibid exhibit ‘MJ–9’.
On 24 November 2014 the Board considered that a report to ASIC by Wednesday 3 December 2014 was required if the matters were not addressed.[22]
[22]Affidavit of Ivan Glavas, sworn 1 June 2018, exhibit ‘ IG–26’.
On 24 November 2014 Mrs Christie emailed Dr Tobisch setting out inter alia:
At a minimum – as per auditors requirements – we need to get MJ, AT & MA to sign a letter that they will not call on the debts until the Company has sufficient funds to pay.[23]
[23]Ibid exhibit ‘IG–27’.
On 25 November 2014 Dr Tobisch emailed Mr Bonvino, Mr Brunelli, Ms Ashdown, Mr Colard and Mrs Christie setting out:
In case Mervyn needs to sign any papers I am assuming tomorrow (Wednesday) will be the last possible he can do that. In fact I am trying to get on the visitors list to see him tomorrow before flying out. On Thursday or latest Friday there will be the sentence and then immediately after that lawyers are already planning on having Mervyn transferred to one of those prison farms … we are not sure how long it will take until everything will be set up and people can visit him which then might not be on the first weekend but after December 5th!!
If the investors have agreed to stay debts, then I am assuming nothing needs to be signed as by Mervyn’s plan generating AUD$500,000 no one would be paid anyway short term.
So please let us know and in case Mervyn needs to sign anything we probably should have Rob or Andrew prepare a paper within the next 24 hours now which I can take tomorrow…[24]
[24]Ibid exhibit ‘IG–28’.
Later on 25 November 2014, Dr Tobisch sent a further email to the same recipients setting out:
Either way I would like Mervyn to sign a document tomorrow as I am trying to see him before I fly out and he will then get transferred to the country.
So that will be either:
i.The written confirmation that he will not call on his debt until the Company has sufficient funds to pay and/or
ii.The written confirmation that he will agree to stay debt even when the funds will be available and/or
iii.Written confirmation that he will agree releasing his related party debt.
Not sure how [we] will be able providing these documents [sic]. And depending on what Tom has achieved yesterday we might only need one document anyway.[25]
[25]Ibid exhibit ‘IG–29’.
Notwithstanding the alternatives referred to in the previous paragraph, only the debt release document was prepared.
On 26 November 2014, Dr Tobisch met with Dr Jacobson at the Melbourne Assessment Prison in Melbourne CBD. Dr Jacobson signed the debt release document for himself and for Transmedia in the presence of Dr Tobisch.
I am not fully informed of what occurred at the Melbourne Assessment Prison. I am not appraised of matters such as the time of visit, the length of visit or what was actually said. Dr Jacobson set out what can only be considered a brief summary of the event. At [17] of his affidavit there is set out:
17.On 26 November 2014, Dr Tobisch visited me in custody at Melbourne Assessment Prison … She handed me a copy of the Debt Release Deed through the partition separating us. Dr Tobisch told me of her communication with Ms Ashdown and Mr Bonvino and said that if I did not sign the document immediately we would be both financially ruined as Mr Bonvino intended to appoint a liquidator to the company the next day. …
18.I was under great emotional stress being held at [the Melbourne Assessment Prison] awaiting transport to more permanent facilities. I was not given an opportunity to read the document and had no possibility of obtaining legal advice whilst being held at [Melbourne Assessment Prison]. I believed Dr Tobisch when she told me that both Mr Bonvino and Ms Ashdown had said that the company would be liquidated forthwith and I would be financially ruined if I did not sign the document, regardless of the fact that I had just been incarcerated.
19.I never had the opportunity to seek and obtain legal advice about the consequences and effect of signing the Debt Release Deed. I was also never provided with an opportunity to consult with the other directors and Board of Transmedia Inc.
On 27 November 2014 at 3.57pm, Dr Tobisch emailed Ms Ashdown stating, inter alia:
I am now in Doha on my way to Vienna and you might wonder what happened yesterday. Well, I visited Mervyn in jail, he signed the Release Deed and then later that day Glenn started making trouble, called Tom, told him that he needs to negotiate some more with the investors to get some money out for Mervyn. Glenn did not tell Tom that Mervyn has signed already. I then handed the originally signed documents (Mervyn and mine) to Tomaso at 10.30pm at Melbourne Airport. Tomaso was supposed to call Glenn later today telling him that the investors did not agree. For whatever reason he talked to him in the morning and started the process all over again.
I believe that as Mervyn has signed and I witnessed, Tom needs to use this as we cannot wait until Glenn has worked it out whatever happened today when they had a window visit in jail.…[26]
[26]Ibid exhibit ‘IG–31’.
On 27 November 2014 at 4.34pm Dr Tobisch emailed Mr Bonvino, Ms Ashdown, Mr Colard and Mr Brunelli stating:
Glenn has confirmed, all okay. Wow, what a trip![27]
[27]Ibid exhibit ‘IG–32’.
Further, on 27 November 2014 at 5.29pm, Dr Tobisch emailed Mr Bonvino, Mr Brunelli, Mr Colard responding to Mr Bonvino’s email of that day:
…I have now arrived in Doha on my way to Vienna and just saw your email. Mervyn has signed the Release Deed yesterday when I visited him in jail and he was okay signing but later that day Glenn tried to interfere to get some money out. I thought you would call Glenn in the evening after he visited with Mervyn and tell him that there is no way to get these investors to pay the related debts.
I don’t believe that Glenn even has authority to interfere after Mervyn has already signed. …[28]
[28]Ibid exhibit ‘IG–33’.
On 21 December 2014, the Subscription Agreement was executed. The investors had agreed to the subscription being in three tranches, $1,000,000 on 21 December 2014, $1,000,000 on 8 January 2015 and $1,000,000 on 23 January 2015.[29]
[29]Ibid exhibit ‘IG–37’.
On 23 December 2014, Grant Thornton completed the audit of the Company’s financial report for the year. The audit certificate noted inter alia:
ii.Subsequent to the year ended 30 June 2014, a signed Debt Release Deed was received from related parties who hold shares in the Company releasing the Company from paying these debts.[30]
[30]Ibid exhibit ‘IG-12’.
On 4 December 2015, Madgwicks Lawyers, on behalf of Dr Jacobson and also on behalf of Dr Tobisch, wrote to the Company alleging that Dr Jacobson and Dr Tobisch entered into their respective Debt Release Deeds under duress. The alleged conduct was said to be, inter alia, that Louisa Ashdown made statements to Dr Tobisch to the effect that if Dr Tobisch and Dr Jacobson did not sign their respective Debt Release Deeds, the Company would be wound up and Dr Jacobson would lose everything.[31]
[31]Ibid exhibit ‘IG–39’.
On 30 June 2016, K&L Gates filed proceedings on behalf of the Company seeking declarations that the Debt Release Deed was valid and enforceable.[32]
[32]Ibid exhibit ‘IG–40’.
On 26 September 2016, the liquidators were appointed voluntary administrators of the Company.
On 6 October 2016, the plaintiff lodged a proof of debt.[33] The proof of debt was submitted on behalf of Transmedia and signed by Dr Jacobson.
[33]Ibid exhibit ‘IG–2’.
On 19 May 2017, Dr Jacobson emailed the liquidators’ office and set out inter alia:
(a)indeed, as previously explained, it is a fact that I was personally intimidated and forced to personally sign a document under duress, with no opportunity to even read the document nor to get any legal advice, and it is also a fact that there was never any approach by ImmunAid to the Board of Directors of Transmedia, Inc, – which is an independent American company – with an independent board made up of individuals based in Australia, Hawaii & Colorado – who were never approached and never agreed to ease such debt release;
(b)indeed, I am informed that the claims asserted by the new management of ImmunAid that the debt was released are false and fraudulent.[34]
[34]Ibid exhibit ‘IG–41’.
On 27 February 2018 notice of rejection of the proof of debt was sent by post and email.
On 27 March 2018, Madgwicks sent a letter to the liquidators which inter alia, advised that the notice of rejection of proof of debt had not been received until 16 March 2018 and requested that the rejection be reconsidered and set out further grounds of the duress claim.[35]
[35]Ibid exhibit ‘IG–45’.
The further grounds set out read more like an argument rather than grounds save that it raised two further matters. Firstly, that there was no consideration for Dr Jacobson executing the Deed of Release and that the Deed did not comply with the strict requirements in order to be valid.
Value of shareholding
Indication of the value of the shares at the end of 2014 can be distilled from:
(a) the new investors willing to invest $3,000,000 for six million shares (50 cents each);[36]
[36]Ibid exhibit ‘IG–23’.
(b) Dr Jacobson sought clarification from the Board on 1 August 2014 as to whether it was willing to approve the issue of new ImmunAid shares referring to a previous swap deal with GTG where ImmunAid ‘ImmunAid shares were deemed to be around $1.67 at the of the swap deal’;[37]
(c) Dr Jacobson was looking to secure other investors to come in at $1per share;[38] and
(d) Consultancy fees of $200,000 due to Dr Jacobson for the financial year ended 30 June 2012 were paid by way of equity allocation of 200 shares worth $1 each. Albeit that 2012 is fairly remote to November 2014, the price of $1 each is consistent with the shares having a significant value.
[37]Ibid exhibit ‘IG–19’.
[38]Ibid exhibit ‘IG–23’.
The reference to the shares being set at 50 cents each through to $1.67 is not determinative of the share value. However, it is reasonably open to me to determine that as at 26 November 2014 the shares held by Dr Jacobson or an entity representing his interests had a significant if not substantial value. Further, I am uncertain as to the exact number of shares held by Dr Jacobson or his interests. Notwithstanding the reference to 4,500,000 shares held by him or his interests, in the minutes of 8 November 2014[39], the summary register of members as at 28 September 2014 (as annexure A to the Subscription Agreement) sets out inter alia that Lupetto Holdings Ltd held 1,201,951 shares and Dr Jacobson held 352,392 shares.[40]
[39]Ibid.
[40]Ibid exhibit ‘IG–37’.
Quantum
Each of the liquidators and Transmedia agree that the proof of debt ought to be amended to take into account the debt equity swap in 2012. Accordingly, the quantum is either $470,842.75 or $470,843.00. I am not concerned by the minor difference.
Consideration
Was Dr Jacobson and/or Transmedia a creditor of the Company who or which, but for other matters referred to hereafter were entitled to prove in the liquidation of the Company?
Answer: Dr Jacobson is the creditor of the Company, not Transmedia.
Reasons
There is no evidence before me of any contractual arrangement whereby Transmedia was to provide the services of Dr Jacobson in return for reward. Further, there is no evidence of any novation or assignment of any of the benefits to which Dr Jacobson was entitled being novated or assigned to Transmedia.
The plaintiff submitted that the compliance accounts of the Company were sufficient to demonstrate that Transmedia was the creditor. I disagree.
In Shot One,[41] Sloss J addressed the application of s 1305 of the Act. Her Honour said:
[41]Shot One Pty Ltd (in liq) v Day [2017] VSC 741.
The plaintiffs contend that the financial statements and general ledger files of Shot One listed above are clearly ‘books’ within the meaning of s 1305(1) and thus provide (and would have provided at the time the Deed of Settlement was entered into) prima facie evidence of the loans made by Shot One to Rising Rocket.
The defendants, on the other hand, accept that a company’s general ledger and financial accounts are books for the purposes of s 1305(1), but they do not accept that the loan account entries recorded in the books of Shot One can be relied upon as prima facie evidence of their contents. Relying upon observations made by their Honours in Whitton v Regis Towers Real Estate Pty Ltd and Livingspring Pty Ltd v Kliger Partners, the defendants submit that the mere existence of entries in a company’s general ledger and financial accounts does not establish a presumption that the matters stated therein are prima facie true and correct and accurate. Rather, they submit, the true or correct position is, as Austin J explained in ASIC v Rich, that while the books are treated as prima facie evidence of the matters stated in them, the weight to be attached to that evidence is a matter which is to be measured in accordance with the common sense of the tribunal.
In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:
Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.
Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:
LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established “a presumption that company accounts are prima facie true and correct and accurate”. The provision does no such thing. All that s 1305(1) provides is that a company’s books (relevantly, its financial reports and records) are admissible and are “prima facie evidence of any matter stated or recorded” in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.
More recently, in ASIC v Rich, Austin J said:
Section 1305(1) does not make the company’s books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact…
In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company’s books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.
Austin J then referred to the purpose of s 1305(1) as outlined in the explanatory memorandum to the Companies Bill 1981, which introduced the provision, and said:
Therefore s 1305(1) allows a company’s books to be introduced in evidence as they are, without any ‘authenticating’ evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is ‘recorded’ in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.[42]
[42]Shot One [237]–[242].
Her Honour went on to follow the approach of Austin J, determining that while the books in question were ‘generally to be treated as prima facie evidence of the matters stated in them’, that prima facie evidence ‘was rebutted or “outweighed” (to adopt Austin J’s language) by … other evidence’.[43]
[43]At [244].
I determine that the end of year financial accounts for the Company do not demonstrate that Transmedia was the appropriate creditor. The entry in relation to related party creditors is such that in each year a table is set out at note 13 which explains that Dr Jacobson held the office and that Transmedia was designated as the recipient.[44] That does not go so far as to acknowledge that Transmedia is the creditor nor that it has rights as a creditor. The accounts do not create any prima facie position.
[44]Affidavit of Ivan Glavas, sworn 1 June 2018, exhibit ‘ IG–12’.
On the contrary, the material in support of the debtor/creditor relationship being with Dr Jacobson is:
(a) the letter dated 5 February 2010 where Dr Jacobson was appointed Chief Executive Officer including reference to ‘following this an appropriate remuneration package can be structured by mutual agreement’;[45]
[45]Affidavit of Dr Mervyn Jacobson, sworn 26 March 2018, exhibit ‘MJ–2’.
(b) the recognition of the ability to nominate in the letter of 14 October 2010 wherein reference was made to ‘success fees… being payable via the issue of shares in the Company to you (Dr Jacobson or your nominee)’;[46]
[46]Ibid exhibit ‘MJ–3’.
(c) no shares were issued to Transmedia pursuant to the 2010 arrangement. However, I note that I am not provided with any material as to whether there was a successful raising of funds at the time;
(d) shares were not issued to Transmedia pursuant to the fee equity swap in 2012. If Transmedia had a contractual entitlement to the fees I would have expected it to seek the issue of the shares to itself;
(e) the debt release document does not of itself set out that Transmedia is the creditor nor does it create any estoppel binding upon the liquidators. The debt release document was a pro forma document to be executed by various related parties. In this instance the schedule includes:
Name and address of related debtor:
Dr Mervyn Jacobson and Transmedia, Inc…
At its highest, there has been a nomination.
A nomination does not give rise to enforceable rights. See for example 428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd[47] where in a contract of sale of property which identified the purchaser (and/or nominee) was under consideration. A written nomination had been provided and the nominated purchaser sought to enforce rights. Judd J formulated the issue in that case as follows:
The issue to be decided is whether there is an arguable case that the plaintiff was or became a party to the contract of sale, by notation or otherwise.[48]
[47][2009] VSC 133.
[48]Ibid [18].
Judd J referred to Nettle J’s decision in Commissioner of State Revenue v Politis where Nettle J said:
Plainly, however, under most nomination clauses the nominee would not acquire any rights as against the vendor, let alone the rights of the purchaser; for most nomination clauses constitute no more than a power in the purchaser to require the vendor to complete the contract by transfer of the land to the purchaser’s nominee. …
But the nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract. …[49]
[49]Ibid [25].
Accepting that Transmedia is a nominee, in the absence of a novation wherein a new contract is created between the company and Transmedia which would become enforceable at the suit of Transmedia, the mere nomination does not confer any rights on Transmedia.
Windeyer J in Olsson v Dyson[50] said of novation:
Novation is the making of a new contract … in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. …[51]
[50](1969) 120 CLR 365.
[51]428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd [2009] VSC 133 [27].
Judd J also referred to Scarf v Jardine[52] dealing with the issue of novation as follows:
…that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract.[53]
[52](1882) 7 App Cas 345.
[53]428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd [2009] VSC 133 [28].
If there be any doubt that the arrangement between Dr Jacobson and the Company was retained, such doubt was dispelled by the debt equity swap in 2012 where I can only conclude that the shareholding of Dr Jacobson or of Lupetto Holdings increased.
Accordingly, at all times Dr Jacobson remained the only creditor entitled to prove in the liquidation of the Company. That is the end of the matter. However, I was invited to and agreed to continue to consider the other issues raised in this proceeding to avoid the inconvenience and expense of Dr Jacobson providing a fresh proof of debt.
Did Transmedia execute the Debt Release Document as a Deed? Did Dr Jacobson execute the Debt Release Document as a Deed?
The plaintiff’s counsel submitted that s 127 of the Corporations Act provides a mechanism for the faculty of execution of documents (including deeds). Section 127 does not have application as Transmedia is not a company for the purposes of the Corporations Act. Section 9 of the Corporations Act defines ‘Company’ to mean a company registered under the Act. It may also include a part 5.7B body but Transmedia is not a registered foreign company to bring it within that part. However, the plaintiff conceded that the debt release document was a Deed insofar as it had been executed by Dr Jacobson. Notwithstanding that concession, the liquidators’ counsel conceded that the Debt Release Document could not be characterised as a Deed in any event. My attention was drawn to s 73 and s 73A of the Property Law Act 1958 (Vic) and to Maclean v RC & MF Holdings Pty Ltd.[54]
[54][2011] VSC 447.
In Maclean’s case Ferguson J (as the Chief Justice then was) said at [131]:
For a document to be a deed, it must be signed, sealed (or expressed to be sealed) and delivered. … The execution clause for Mr Celarc stating that it is “signed sealed and delivered” is consistent with execution as a deed and in the absence of other evidence, then the fair inference is that it is in fact a deed. However, the execution clause for Mr Maclean makes no reference to sealing or delivery and is not consistent with the document being a deed. … There is no statement of intention on the face of the document that it is a deed nor is its overall form suggestive of a deed. …
I note that this particular Debt Release Document commences on its opening page ‘Debt Release Deed’ that is in a bold font and larger font than the body of the document (save for the headings). Likewise on the execution page there is again in bold and a larger font size ‘Executed as a Deed by the Parties:’. Further, the release provision at clause 1(a) commences: ‘By the execution of this Deed…but for this Deed exist at the date of this Deed which…’.
Thereafter, the Debt Release Document is replete with references to ‘Deed’ in just about every clause thereafter save for clause 2(a) & (b). It may be that this particular document would satisfy Ferguson J’s observation that contrary to the document before her, there was ‘…statement of intention on the face of the document that it is a deed…its overall form suggestive of a deed.’[55] However, given the concession made by the liquidators’ counsel I do not need to grapple with that issue.
[55]Ibid [131].
Was the Debt Release Document binding in any event – Consideration?
The plaintiff submitted that:
Neither Dr Jacobson or Transmedia, Inc provided any consideration in exchange for the release of debts otherwise owing to them. For the document to be enforceable it must be executed as a Deed.[56]
[56]Plaintiff’s Outline of Submission, 25 July 2018, [16].
During the course of oral submissions, the plaintiff’s counsel submitted that neither Dr Jacobson nor Transmedia received any consideration in exchange for the release of the debts. Further, the arrangement brokered with the new investor was coincidental and could not constitute consideration. I disagree.
In Yaroomba Beach Development Company Pty Ltd v Coeur De Lion Investments Pty Ltd[57] Giles J held that:
(2)Extrinsic evidence is admissible to prove the real consideration where (a) no consideration, or a nominal consideration, is expressed in the instrument, or (b) the expressed consideration is in general terms or ambiguously stated, or (c) a substantial consideration is stated, but an additional consideration exists, provided the consideration proved is not inconsistent with the instrument.[58]
[57](1989) 18 NSWLR 398.
[58]Per headnote.
Giles J referred to Pao On v Lau Yiu Long.[59] The Privy Council set out at 631 the basis for the summary provided by Giles J. Further, at 632 it was said:
Their Lordships do not doubt that a promise to a perform, or the performance of, a pre-existing contractual obligation to a third party can be valid consideration.
[59][1980] AC 614 at 631.
The circumstances set out in the Company’s Board Meeting Minutes readily enable me to formulate a consideration which might be expressed in terms of:
The Company will or will endeavour to refinance the operations of the Company to preserve or sustain Dr Jacobson’s shareholding or Dr Jacobson’s interest in shareholding in the Company.
Such consideration would not be inconsistent with any of the provisions of the Debt Release Document.
However, I do not need to go that far as a consideration, albeit not expressed as such, is readily distilled from the document itself. The recital at C under the heading Background includes the following:
The proposed investors have indicated to ImmunAid that if they are to continue with their investment in ImmunAid, they require the funds they contribute in subscribing for new shares in ImmunAid to be solely applied to ongoing development of ImmunAid’s technology and therefore they have requested that the related debtor release and discharge ImmunAid from the related debt.
At clause 1(b) the following appears:
The release and discharge in paragraph 1(a) is conditional on ImmunAid on or before 31 December 2014 raising at least $1,000,000 in cash subscriptions for new ordinary shares in ImmunAid at an issue price of 50 cents or greater.
It is inescapable that from the content of those clauses or, at least clause 1(b), that the consideration was that the Company would continue to treat with the proposed investors and, in any event would raise at least $1,000,000 in cash subscriptions by 31 December 2014 for the benefit of the Company including its shareholders. As it transpired the Company did secure the $1,000,000 prior to 31 December 2014 and the further tranches thereafter.
As to the submission that no consideration flowed to either Dr Jacobson or Transmedia and was required to flow in that direction, I reject the argument.
The issue is not whether the consideration flowed to Dr Jacobson or Transmedia but whether the consideration flowed from the Company. It is trite to say that a contract may be founded upon mutual promises. One of the criteria set out in Cheshire & Fifoot Law of Contract[60] sets out:
[Although] the promisor might be legally bound if the promisee could prove that the promise was part of a transaction to which he or she had contributed a material share, in other words, that the promise was part of a reciprocal exchange.
At 4.2 the authors refer to the maxim: ‘Consideration must move from the promisee’.
[60]10th Ed, N. Seddon, R Bigwood, M Ellinghaus at 4.1.
The liquidators’ counsel also referred me to paragraph 3.7 of Cheshire & Fifoot where consideration of ‘Tripartite collateral contracts’ was undertaken. The authors set out:
Another example of multiparty transactions is the curiously named tripartite collateral contracts. In these cases the courts are prepared to hold that a contractual relationship exists between A and B when A makes a promise to B who, in reliance on the promise, enters into a contract with a third party, C, when the contract is of some benefit to A. The consideration given by B for A’s promise is the indirect benefit that A derives from the contract between B and C.
In this particular instance, the benefit to Dr Jacobson was the preservation of the Company as a going concern after 3 December 2014. The benefit derived by Dr Jacobson was the preservation of his shares or his interest in shares in the Company even if at, perhaps a diluted value and even if only preserved for some 18 months after 3 December 2015.
Notwithstanding that the plaintiff’s counsel conceded that the Debt Release Document was executed as an agreement, I note that I have not been provided with any relevant law in the State of Hawaii (or USA) nor have I been provided with a copy of Transmedia’s constitution or other document dictating any formal requirements as to execution of documents. The plaintiff bears the onus of proof. The plaintiff has not derived evidence which would enable me to conclude that Dr Jacobson was not authorised to execute the document. Alternatively, I rely upon the statement by Kunc J setting out the principles applicable to this proceeding.[61]
[61]Paragraph [6] herein.
In any event, it could be said that Dr Jacobson has ostensible authority to execute the document by reason of his consistent dealings on behalf of Transmedia. He signed the proof of debt, he instructed Madgwicks and, in this proceeding he has deposed that he is authorised to swear the affidavit on behalf of the plaintiff without reference to any resolution of the Board of Transmedia or other authorisation.
Is Dr Jacobson (and Transmedia) estopped from contending that the Debt Release Document is not binding upon Dr Jacobson (and Transmedia)?
The executed Debt Release Document was delivered back to the Company through the aegis of Dr Tobisch. If I am wrong and there is no consideration to support the contract constituted by execution of the Debt Release Document, I determine that Dr Jacobson (and Transmedia) are estopped from contending that it is not binding upon them. In Walton Stores (Interstate) Ltd v Maher[62] Brennan J said:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in that later case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant had induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance upon the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to avoid the detriment whether by fulfilling the assumption or expectation or otherwise.
[62](1998) 164 CLR 387 at 428–9.
Promissory estoppel as referred to in Walton Stores prevents the departure from promissory statements that have been relied upon.[63]
[63]See also Central London Property Trust Ltd v High Trees House Ltd (1947) 63 LQR 283.
The Debt Release Document contains a promise ‘(unconditionally and irrevocably covenants and agrees) to release and forever discharge the Company from the related debts together with any other indebtedness, liability, costs or claim…’. That Debt Release Document was executed by Dr Jacobson for himself and for Transmedia. It was delivered into the hands of Dr Tobisch who I accept was the agent of the Company for procuring the execution of the document. Dr Tobisch thereafter provided it to the Board. Armed with the Debt Release Document, the Company recommenced or continued with negotiations with the investors and procured the outcome of obtaining the further funds. That outcome was as referred to in the condition subsequent at 1(b) of the Debt Release Document. Given the criteria referred to by Brennan J was made out, it would inequitable for Dr Jacobson (and Transmedia) to resile from the promise. In any event I note that Dr Jacobson did not raise the issue of the efficacy of the Debt Release Document prior to 25 December 2014 or even prior to December 2015. I readily accept it would be more difficult to do so in his circumstances but, I have been provided with material that demonstrates that legal visitation was allowable on a quite liberal basis.[64]
[64]Affidavit of Ivan Glavas, sworn 1 June 2018, exhibit ‘IG–38’.
Duress and/undue influence
In the outline of submission on behalf of the plaintiff there was set out:
22. The elements of duress are that:
(a)D has used a form of illegitimate pressure, physical, economic or psychological, in order to compel P to assent to a transaction;
(b)That pressure left with no reasonable alternative other than to assent to the transaction; and
(c)The pressure in fact caused P to assent to the transaction or was a cause of P assenting to it.
23.The pressure placed by Dr Tobisch on Dr Jacobson was to execute the transaction or else the Company would immediately be placed into liquidation. That pressure was illegitimate in that it ignored Dr Jacobson’s specific instructions not to abandon the plaintiff’s claim against the Company and take advantage of his incarceration in doing so.
24.Further, as Dr Jacobson was incarcerated, he lacked the ability to obtain legal advice about the effect of the transaction. Also, it was made clear to Dr Jacobson that Dr Tobisch was returning to Austria that evening.
25.The plaintiff submits that these matters, together form illegitimate pressure, and an inability for Dr Jacobson to seek advice or to take an alternative other than the document produced by Dr Tobisch.
26.This pressure caused Dr Jacobson to assent to the transaction, it was a transaction from which he, and the plaintiff received no benefit. …
…
28.Together, these actions clearly show that Dr Tobisch had not only procured the signature, but attempted to mask Dr Jacobson’s execution of the document from his representatives until the document had taken effect and new investors had contributed funds to the Company.
The reference to the ‘attempted to mask’ seems to rely upon the contention that Dr Jacobson’s son, Glenn, also visited him after Dr Tobisch left. I am surprised that Glenn has not filed an affidavit in support I but will not deal with that issue further as the liquidators’ counsel did not submit that I ought to make anything of it.
29.In the circumstances, even if the document was executed as a deed (which is denied), that execution ought be set aside as procured by economic duress.
30.In the alternative, Dr Tobisch knew of Dr Jacobson’s special disadvantage (being in goal) and took unfair or unconscionable advantage of the opportunity thereby created so as to make relying on the document unconscionable in all the circumstances.
As I noted in paragraph 43 hereof, I am not appraised of details of what occurred at the visitation. However, I accept that Dr Jacobson was told that the Company would be placed in liquidation unless the Debt Release Document was signed. I note that although the directors have authority to appoint administrators in appropriate circumstances, I struggle with the concept that the Company can be placed into liquidation without shareholders resolutions at the requisite meeting.
During the course of oral submissions the plaintiff also developed an argument that Dr Jacobson was subjected to the undue influence of Dr Tobisch.
In Crescendo Management Pty Ltd v Westpac Banking Corporation,[65] McHugh JA identified the elements of economic duress as follows:
The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct… overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
[65](1988) 19 NSWLR 40 at [46].
In Australia & New Zealand Banking Group v Karam,[66] the New South Wales Court of Appeal said:
The vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, that can be to the legitimate commercial and financial interests of the party. Secondly if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscience taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio.
[66](2005) 64 NSWLR 149 at 168.
In Barton v Armstrong,[67] the Privy Council held:
…in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained—advice, persuasion, influence, inducement, representation, commercial pressure—the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion…
[67][1973] 2 NSWLR 598 at 634.
In Thorne v Kennedy[68] the High Court recently considered undue influence and unconscionable conduct. Kiefel CJ, Bell, Gageler, Keane and Edelman JJ said:
[68](2017) 350 ALR 1.
[37]There was no controversy on this appeal concerning the principles of unconscionable conduct in equity. Those principles were recently restated by this Court in Kakavas v Crown Melbourne Ltd.
[38]A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests”. The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring “victimisation”, “unconscientious conduct”, or “exploitation”. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.
[39] In Amadio, Deane J said that the equitable principles concerning relief against unconscionable conduct are closely related to those concerned with undue influence. The same circumstances can result in the conclusion that the person seeking relief (i) has been subject to undue influence, and (ii) is in a position of special disadvantage for the purposes of the doctrine concerned with unconscionable conduct. For instance, in Diprose v Louth (No 1), the trial judge, King CJ, observed that both doctrines were satisfied where the defendant “was in a position of emotional dominance which gave her an influence over the [plaintiff] which she exercised unconscientiously to procure the gift of the house”. Before the High Court in that case, Mr Diprose relied only upon the ground of unconscionable conduct.
[40]Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required. In Amadio, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:
“In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.”
[citations omitted]
As to unconscionable conduct Kiefel CJ, Bell, Gageler, Keane and Edelman JJ said:
[64]The Full Court recognised that Ms Thorne was labouring under a disadvantage, although the Court did not add the adjective “special”, which, as Mason J in Amadio explained, is used to emphasise that the disadvantage is not a mere difference in the bargaining power but requires an inability for a person to make a judgment as to his or her own best interests. The findings by the primary judge that Ms Thorne was subject to undue influence — powerless, with what she saw as no choice but to enter the agreements — point inevitably to the conclusion that she was subject to a special disadvantage in her entry into the agreements.
[65]Ms Thorne’s special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him. He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it. While Ms Thorne knew Mr Kennedy required her acknowledgement that his death would not result in her receiving a windfall inheritance at the expense of his children, she had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements. Further, Ms Thorne and her family members had been brought to Australia for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer to assist them to return home. These matters increased the pressure which contributed to the substantial subordination of Ms Thorne’s free will in relation to the agreements. Mr Kennedy took advantage of Ms Thorne’s vulnerability to obtain agreements which, on Ms Harrison’s uncontested assessment, were entirely inappropriate and wholly inadequate. Even within that class of agreement, the agreements which Ms Thorne signed involved “gross inequality”.[69]
[citations omitted]
[69]Ibid [64]–[65].
In Amadio,[70] Mason J said:
The will of the innocent party, even if independent and voluntary is the result of the disadvantageous positioning which he is placed and of the other party unconscientiously taking advantage of that position.
[70]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461.
I cannot determine that Dr Jacobson fell into any category of special disadvantage. To the contrary, it is open to me to conclude in the absence of material or evidence to the contrary that:
·Dr Jacobson is well educated both generally and, in particular, with respect to corporate governance being the CEO of the Company. He was fully aware of the difficulties in raising funds.
·Prior to his incarceration he had been aware of the proposal or the proposals for further funds to be injected into the Company. He was aware that the $3,000,000 investment involved the release of related party debt, he just disagreed with that concept.
·Prior to incarceration, Dr Jacobson was aware of the contentions that the Company was insolvent and that the auditors would qualify the audit certificate (going concern) unless something was done. Again, he did not concede that the Company’s position was as dire as others contended, but he was fully appraised of the consequences of the failure to raise funds including the winding up. Although, it was submitted that there might have been some value attached to the patents which had already been registered, it is inescapable that if the Company had been wound up in December 2014 any dividend payable to creditors would have been minimal. No distribution would have been made to shareholders. There was benefit to Dr Jacobson by virtue of his shareholding or interest in shareholding in the Company in entering into the funding arrangements.
·Dr Jacobson was aware that the investment proposal was conditional upon the release of related party debts and the reasoning of the new investors as to why that was required prior to being presented with the Debt Release Document. The Debt Release Document is, in its terms, entirely consistent with the position taken by the proposed investors and known to Dr Jacobson prior to incarceration.
·Although I accept that the trial, conviction and subsequent incarceration would have been harrowing, of itself it does not enable me to conclude that Dr Jacobson was suffering from any special disadvantage of the type categorised by the authorities.
·By signing the document he is taken to have read and understood it.[71]
·Albeit that Dr Jacobson now contends that he was denied legal representation, he does not set forward any material to conclude that he required legal representation contrary to what is set out in clause 2(c) of the Debt Release Document.
·Dr Jacobson did not adduce any evidence that he required legal representation on the day and that requirement was not met. I accept that it was unlikely that he would have been able to obtain legal advice on the first day of his incarceration in the circumstances but there is no reason why he could not have delayed signing the document for at least a few days. Dr Tobisch was not the only person to visit him on that day. It appears that she did so purely because she was leaving Australia the same day.
·Dr Tobisch was a confidant of Dr Jacobson during the trial process. However, that of itself does not lead to a position of undue influence.
·The mere fact that Dr Jacobson signed the Debt Release Document when he had previously resisted the concept of releasing the debt, might be inexplicable but does not of itself give rise to any presumption of acting under duress or undue influence.
·It is almost inescapable that Dr Jacobson’s change of position was as a result of his assessment of the Company’s financial position. Dr Jacobson knew he was no longer able to source other funds for the company. That position is consistent with the statement that the Company would be wound up. Signing the Debt Release Document at that time and the subsequent investor financing provided the only real prospect of preserving his investment in the Company.
[71]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
In Thorne v Kennedy it was said:
There are different ways to prove the existence of undue influence. One method of proof is by direct evidence of the circumstances of the particular transaction. That was the approach relied upon by the primary judge in this case. Another way in which undue influence can be proved is by presumption. This presumption was relied upon by Ms Thorne in this Court as an alternative. A presumption, in the sense used here, arises where common experience is that the existence of one fact means that another fact also exists. Common experience gives rise to a presumption that a transaction was not the exercise of a person’s free will if (i) the person is proved to be in a particular relationship, and (ii) the transaction is one, commonly involving a “substantial benefit” to another, which cannot be explained by “ordinary motives”, or “is not readily explicable by the relationship of the parties”. Although the classes are not closed, in Johnson Latham CJ described the relationships that could give rise to the presumption as including parent and child, guardian and ward, trustee and beneficiary, solicitor and client, physician and patient, and cases of religious influence. Outside recognised categories, the presumption can also be raised by proof that the history of the particular relationship involved one party occupying a similar position of ascendency or influence, and the other a corresponding position of dependency or trust. In either case, the presumption is rebuttable by the other party proving that the particular transaction or transfer, in its particular circumstances, was nevertheless the result of the weaker party’s free will.[72]
[72](2017) 350 ALR 1 [34].
There is no presumption of undue influence which can arise as apart from being a confidant I have not had any material placed before me that deals with ascendancy or influence.
In any event, I find that the statement relied upon by Dr Jacobson to the effect that if he did not sign the Debt Release Document, the Company would be wound up and that he and Dr Tobisch would lose everything was reasonably accurate in the circumstances even if the process leading up to winding up might have been more complicated. I cannot determine that such statement is anything other than the prospect that Dr Jacobson must have appreciated prior to signing the Debt Release Document for himself and for Transmedia.
In those circumstances, that statement or like statements cannot be categorised as economic duress.
In Bloomingdale Holdings Pty Ltd v 63 Buckley Street Pty Ltd[73] Hargrave J said:
[436]The relevant legal principles are not in doubt. If a party’s signature to a contract is procured by duress, the resulting contract is voidable not void. Where there is duress, the contracting party who has been affected by the duress is put to an election. The affected party can either elect to rescind the contract for duress, or can elect to affirm the contract. …
[73][2008] VSC 168.
Albeit that the liquidators do not point to any conduct which constitutes an election to affirm the Debt Release Document it is clear that the Debt Release Document was delivered back into the hands of the Company with it intended to be relied upon. Dr Jacobson knew the timeframe for the refinancing. During the period leading up to the end of December 2014 he did not communicate with the Company that he considered that he signed the Debt Release Document as a result of duress and/or undue influence. Given the circumstances, it may be that such silence was an affirmation. However, I do not need to determine that matter.
Conclusion
The originating process as amended is dismissed.
I will hear submissions with respect to the form of a costs order in favour of the liquidators.
5
3
0