Re Pacific Springs Pty Ltd

[2020] NSWSC 1240

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Pacific Springs Pty Limited [2020] NSWSC 1240

Hearing dates:

14, 15, 16, 17 July 2020

Date of orders:

11 September 2020

Decision date:

11 September 2020

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Refuse application under s 175 Corporations Act to correct share register.

Order under s 1322(4) Corporations Act that appointment and acts of director and secretary not invalid.

Catchwords:

CORPORATIONS – parents lend $800,000 to son to buy ice cream business in Australia – parents live overseas – company formed – parents are shareholders and son is director – son runs business – son repays half of loan – son allotted 1,800 shares and becomes majority shareholder – son repays loan – son dies leaving shares to de facto husband – parents seek to correct register 14 years after shares allotted.

SHARE ISSUE – power to allot shares – principles at [115]-[126] – allotment with knowledge and consent of parents.

DIRECTORS – power to appoint director – whether director had power to appoint replacement director by a Will – cannot ‘hand down’ a directorship – power to appoint director ceased on death, at [154]-[159] – s201F Corporations Act 2001 at [170]-[171].

PROBATE – whether executor can exercise power to take appointment as director prior to grant of probate, considering Lockrey v Barnard James Fussell [2019] NSWCA 299 at [163]-[167] – appointment ineffective in any event – section 44 Probate and Administration Act does not cure invalid acts.

CORPORATIONS – s 1322 Corporations Act – “just and equitable” at [176] – “substantial injustice” at [178].

EVIDENCE – events 16 to 20 years ago – reliance on what deceased said at [7] – forgery – onus and standard of proof at [8]-[9] – comparison of handwriting at [82] – Jones v Dunkel inference from failure to produce documents at [138]

EQUITY – laches at [181]-[194] – estoppel at [195]-[199] – plaintiffs’ silence did not amount to a representation as no duty to inform the defacto husband

Legislation Cited:

Companies Act 1961 (NSW), reg 68 of Table A in the Fourth Schedule

Corporations Act 2001 (Cth), ss 175, 178A, 178D, 201F, 254X, 1322, 1322(4), 1322(4)(a), 1322(6), 1322(6)(a)(iii), 1322(6)(c)

Evidence (Audio and Audio Visual Links) Act 1998 (NSW), s 22C(4)

Evidence Act 1995 (NSW), s 140(2)

Probate and Administration Act 1898 (NSW), ss 44, 61

Cases Cited:

Alexiou v Alexiou [2020] NSWSC 748

Amaya v Everest Property Holdings Pty Ltd; Firmstone v Everest Property Holdings Pty Ltd; Sarkar and Islam v Everest Property Holdings Pty Ltd (2010) 15 BPR 28,695; [2010] NSWCA 315

Ansett v Butler Air Transport Ltd(No 1) (1957) 75 WN (NSW) 299

Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337

Ashburton Oil NL v Alpha Minerals NL (1971) 45 ALJR 162; (1971) 123 CLR 614

Beck v LW Furniture Consolidated (Aust) Pty Ltd [2011] NSWSC 235

Bell Group Ltd (in liq) v Westpac Banking Corp (No 9)and (No 10) (2008) 39 WAR 1; [2008] WASC 239; [2009] WASC 107

Blatch v Archer (1774) 1 Cowp 63; 98 ER 969

Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134

Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336

Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17

Byers v Overton Investments Pty Ltd (2001) 109 FCR 554; [2001] FCA 760

Car Buyers Australia Pty Limited v Australian Securities and Investments Commission [2020] FCA 599

Carolyn Deigan as executrix for the estate of the late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299; (2019) 19 BPR 39,853

Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184

Chung-Yi Pty Ltd v Chih-Yang Chang (No 2) (2018) 128 ACSR 585; [2018] NSWSC 1112

Clementi v Rossi [2019] VSC 725

Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12

Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410

DAC Finance (NSW/QLD) Pty Limited [2020] NSWSC 182

Damjanovic v York Agencies Pty Limited [2003] NSWCA 222

Darrington v Caldbeck (1990) 20 NSWLR 212

Darvall v North Sydney Brick & Tile Co Ltd (1989) 15 ACLR 230; (1989) 16 NSWLR 260

Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31

Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415

Ex parte Callan; Re Smith [1968] 1 NSWR 443

Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664

Fysh v Page [1956] HCA 13; (1956) 96 CLR 233

Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181

Gillespie v Gillespie [2013] QCA 099; [2013] 2 Qd R 440

Gofur v Bangladesh Islamic Centre of NSW (BIC) [2020] NSWSC 652

Grant v John Grant & Sons Pty Ltd (1950) 24 ALJR 374; (1950) 82 CLR 1

Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641

Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207

Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 42 ALJR 123; (1968) 121 CLR 483

Hewitt v Gardner (2009) 3 ASTLR 407; [2009] NSWSC 705

Hindle v John Cotton Ltd (1919) 56 Sc LR 625

HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228

Howard Smith Ltd v Ampol Ltd [1974] 1 NSWLR 68; [1974] AC 821

Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 6 ACLC 426; (1988) 13 ACLR 110

Jeans v Cleary [2006] NSWSC 647

Jones v Dunkel [1959] HCA; (1959) 101 CLR 298 8

Keech v Sandford (1726) Sel Cas Ch 61

Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395

Kokotovich Constructions Pty Ltd v Wallington [1995] NSWSC 54; (1995) 17 ACSR 478

Lamshed v Lamshed (1963) 109 CLR 440; [1964] ALR 321

Lazarus v Director of Public Prosecutions (NSW) [2015] NSWSC 426

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221

Mancini v Mancini (1999) 17 ACLC 1570; [1999] NSWSC 799

Manthey Redmond (Aust) Pty Ltd (In Liq) v Manthey (2017) 121 ACSR 389; [2017] QSC 145

Marshall v DG Sundin & Co Pty Ltd (1989) 16 NSWLR 463

Mavris v Level 12 Property Holdings Pty Limited [2018] NSWSC 957

Mills v Mills (1938) 11 ALJR 527; (1938) 60 CLR 150

Neat Holdings Pty Limited v Karajan Holdings Pty Limited [1992] HCA 66; (1992) 110 ALR 449; (1992) 67 ALJR 170

Ngurli Ltd v McCann (1953) 27 ALJR 349; (1953) 90 CLR 425

Orr v Ford [1989] HCA 4; (1989) 167 CLR 316

Permanent Trustee Co Limited v Bernera Holdings Pty Limited [2004] NSWSC 56; (2004) 11 BPR 21,505

Plunkett v Bull (1915) 19 CLR 544; [1915] HCA 14

R v Doney (2001) 126 A Crim R 271; [2001] NSWCCA 463

Re A Bliss Clinic Pty Limited v Goodwin (No 2) [2020] FCA 869

Re Bleriot Manufacturing Aircraft Co (1916) 32 TLR 253

Re Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62

Re Compaction Systems Pty Limited & the Companies Act (1976) 2 ACLR 135; [1976] 2 NSWLR 477

Re ICandy Interactive Limited (2018) 125 ACSR 369; [2018] FCA 533

Re Ledir Enterprises Pty Limited (2013) 96 ACSR 1; [2013] NSWSC 1332

Re Motasea Pty Ltd (2014) 97 ACSR 589; [2014] NSWSC 69

Re Novonix Limited (2019) 141 ACSR 636; [2019] FCA 2198

Re Queensland Bauxite Limited (2018) 364 ALR 661; [2018] FCA 2113

Re Sutherland and Arnautovic [2014] NSWSC 821

Ronchi v Portland Smelter Services Ltd [2005] VSCA 83

Royal British Bank v Turquand (1856) 6 E&B 327

Saad v Doumeny Holdings Pty Limited [2005] NSWSC 893

Savage v Lunn [1998] NSWCA 203 (unreported)

Savage v Lunn [1998] NSWCA 204

Scallan v Scallan [2001] NSWSC 1129

Sidhu v Van Dyke (2014) 251 CLR 505

Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98

Super John Pty Limited v Futuris Rural Pty Limited (1999) 32 ACSR 398; [1999] NSWSC 627

Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462

Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947; [1986] AC 80

Talga Ltd v MBC International Limited [1976] HCA 22; (1976) 133 CLR 622

Tasoulas v Tasoulas [2018] NSWSC 861

TC Newman (Qld) Pty Ltd v DHA Rural (Qld) Pty Ltd (1987) 12 ACLR 257; [1988] 1 Qd R 308

The Chinese Cultural Club Limited (2004) 49 ACSR 568; [2004] NSWSC 432

Thomas v MacKay Investments Pty Limited (1996) 22 ACSR 294

Watson v Foxman (1995) 49 NSWLR 315

Way v A G Way & Co Pty Ltd [1959] ALR 855; [1959] VR 370

Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14

Whitehousev Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285

Winthrop Investments Pty Ltd v Winns Ltd [1975] 2 NSWLR 666

Wood v Inglis (2008) 68 ACSR 420; [2008] NSWSC 1147

Worcester Corsetry Ltd v Witting [1936] Ch 640

Texts Cited:

Dr I. C. F. Spry, Principles of Equitable Remedies (9th ed, 2014)

J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths)

K. R. Handley, Estoppel by Conduct and Election, (2nd ed, 2016, London, Sweet & Maxwell)

Wigmore on Evidence (3rd ed., 1940), vol. 2

Category:

Principal judgment

Parties:

Gani Mualim (First Plaintiff)
Jorida Mualim (Second Plaintiff)

Ricards Dzelme (First Defendant)
Pacific Springs Pty Limited (Second Defendant)

Representation:

Counsel:
Mr Grieve QC (First and Second Plaintiffs)
Mr Pritchard SC / Mr A Macauley (First and Second Defendants)

Solicitors:
RBHM Commercial Lawyers (First and Second Plaintiffs)
Swaab Attorneys (First and Second Defendants)

File Number(s):

2019/55505

Judgment

1. HER HONOUR: The plaintiffs, Gani and Jorida Mualim, are the parents of Dean Mualim, who died in 2018 aged 53. The first defendant, Ricards Dzelme, was Dean’s de facto husband. Without intending any disrespect, I will refer to the parties by their first names.

2. In 2000, the plaintiffs and their son incorporated Pacific Springs Pty Limited, the second defendant, for the purpose of acquiring an ice cream manufacturing business in Paddington called “Nice Cream”. The parents were the shareholders of the company and their son was the director. The parents provided $800,000 to assist in the purchase. In 2004, Dean resolved to issue 1,800 shares in Pacific Springs. He had power to do so under the constitution of the company. The shares were allotted to Dean and made him the majority shareholder of the company. The parents contend that the shares were issued for an improper purpose – to gain control of the company – and seek an order that the register of members be corrected under section 175 of the Corporations Act 2001 (Cth). The defendants say that Dean issued and allotted the shares with the knowledge and consent of his parents, but if that was not the case, then equitable defences of laches and estoppel are relied upon.

3. When Dean died – after what appears to have been many years of declining health – Ricards was appointed as a director of Pacific Springs and inherited Dean’s shares in the company. This case also concerns whether Ricards’ appointment as director was valid or whether any order should be made under section 1322(4) of the Corporations Act to regularise his appointment. If the 1,800 shares were not properly issued and allotted to Dean, then Ricards does not wish to remain a director and this issue will fall away.

4. Gani and Jorida are from Indonesia and reside in both Indonesia and Singapore. They are in their late 70s. Gani and Jorida have three children being, in order, Dean (or his Chinese name, Ping Kheng), then daughter Yohanna (also known as Josephine) who lives in the United States and son Irwan, who lives in Indonesia. Irwan is married to Ellis Thamrin. It is also relevant to note that Jorida’s brother-in-law is John Tjandra, the Mualim family company in Indonesia is called PT Gadjah Ruku, and there is another Indonesian entity called “CV Megah Chandra Insani” of which Gani and Jorida say they have no knowledge.

5. Gani and Jorida gave evidence through a Mandarin interpreter. Jorida speaks and understands English to a limited extent and Gani does not speak or understand English at a relevant skill level to enable him to converse in English. Now and then, Ms Thamrin has also helped Gani as he cannot read English well. Although the parents are the plaintiffs, their solicitor Michael Horton communicated with the plaintiffs through Yohanna and Irwan and has not “corresponded or discussed issues directly with the first and second plaintiff at any time”.

EVIDENTIARY MATTERS

6. The critical events occurred from 2000 to 2004, that is, 16 to 20 years ago. As such, the passage of time may have exacerbated the general problem that recollections given in the course of legal proceedings may be distorted, albeit innocently, by a desire to succeed. As McLelland CJ in Equity noted in Watson v Foxman (1995) 49 NSWLR 315 at 319:

… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

7. Both sides relied on what Dean had said to them, in respect of which I have borne in mind that, in a claim based on communications with a deceased person, the Court will treat uncorroborated evidence of such communications with considerable caution and will regard as of particular significance any failure of a party to bring forward corroborative evidence which was, or ought to have been, available: Plunkett v Bull (1915) 19 CLR 544; [1915] HCA 14.

8. A number of serious allegations were made in these proceedings, including that the parents’ signatures on various documents had been forged and that Dean had fabricated invoices rendered by CV Megah Chandra Insani. Some of these allegations were pleaded and others arose during the hearing and closing oral submissions. The standard of proof remains, of course, the civil standard being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: section 140(2), Evidence Act 1995 (NSW); Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362. As the High Court explained in Neat Holdings Pty Limited v Karajan Holdings Pty Limited [1992] HCA 66; (1992) 110 ALR 449; (1992) 67 ALJR 170 at 170-171 (citations omitted):

The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.

9. The onus is on the party alleging a forgery to show that a signature was a forgery and not on the other party to show that the signature was genuine: Damjanovic v York Agencies Pty Limited [2003] NSWCA 222 at [25]; Re Sutherland and Arnautovic [2014] NSWSC 821 at [65] per Kunc J.

Witnesses

10. The plaintiffs relied on the evidence of Gani and Jorida as well as their solicitor, Mr Horton. Gani and Jorida were cross-examined. The defendants relied on evidence of Ricards; Pacific Springs’ accountants, Saba Salameh and Douglas Trood of Trood Pratt & Co; Pacific Springs’ former solicitors, Timothy L’Orange of Mills Oakley Lawyers and Tom Suttie of HWL Ebsworth Lawyers; Pacific Springs’ office manager, Bradley Teuma; and, an electrician and refrigeration mechanic who worked for Pacific Springs, Brian Summerfield. Ricards and Mr Summerfield were cross-examined.

11. The cross-examination of witnesses was undertaken by different means. At the plaintiffs’ request and over the defendants’ objection, Gani and Jorida’s evidence was taken over a videolink from Singapore pursuant to section 22C(4) of the Evidence (Audio and Audio Visual Links) Act 1998 (NSW). The process was assisted by an independent Singaporean solicitor. To ensure that neither party gained a forensic advantage by having their witnesses cross examined by video, I initially directed that the defendants’ witnesses also be cross-examined by the same method but, by consent, Ricards and Mr Summerfield gave evidence in person.

12. Gani was a very pleasant older gentleman. Gani appeared to be the family patriarch who has now left financial matters and matters of detail to his children. In re-examination on day three, Gani did not remember being asked about a matter on the first day of the hearing. Gani may have poor short term memory. Although Gani gave evidence through a translator, I observed him appear to read documents in the English language while giving evidence, and note Mr Horton says Gani cannot read English well.

13. As cross-examination progressed, Gani was, on occasion, non-responsive and argumentative. Gani took opportunities to give unsolicited answers to advance his case, for example, see [23]. Gani made unreasonable denials, for example at [89]. When Gani got into difficulty, he was very charming and suggested that events had happened too long ago for him to now recall. But, whilst Gani disclaimed any ability to recall something which happened more than 10 years ago, he nonetheless asserted an accurate recollection of events some 20 years ago and disclaimed the defendants’ version of events as “impossible”.

14. It will be seen from what follows that Gani lied more than once: see [16], [83], [89] to [96] and [100]. On occasion, Gani said that he did not understand and I accept that was sometimes the case. Overall, I am reluctant to rely on Gani’s evidence in the absence of corroboration from a contemporaneous document, another reliable witness or if his evidence is adverse to his own interests.

15. Jorida was an elegant lady who was initially emotional when speaking of her son. But her evidence encountered similar difficulties to that of her husband. Jorida volunteered comments which she thought would assist, for example, at [106]. She repeatedly stated, whether in answer to a question or not, that she and Gani were “100 per cent owner” of Pacific Springs and that money paid to them from the company were profits (and thus, presumably, not in repayment of their loan): for example, see [24] and [73]. Jorida took opportunities to say something unkind about Ricards. Some of her answers were non-responsive or inexplicable, for example, see [31], [60]. Jorida also lied: see [16], [91] to [96]. Jorida had little direct knowledge of the transactions in question but I am reluctant to accept her uncorroborated evidence unless it is against her own interest.

16. A troubling piece of both Gani and Jorida’s evidence was their denial that their son was in a long term homosexual relationship with Ricards. Although Gani knew that Dean and Ricards slept in the same bed, he repeatedly denied knowing that they were in a long term relationship. Jorida went so far as to say that the reason they slept in the same bed was, “Because we came to visit them, they had to stay in the same bed.” Whether their evidence was referable to cultural, generational, religious or personal attitudes towards homosexuality, their insistence on repeatedly denying the undeniable under oath was troubling.

17. Ricards appeared a decent, straightforward fellow. Ricards hails from Latvia and English was not his first language. It was clear that Ricards had little background in financial or legal matters. His evidence was nonetheless precisely given as to what he did and did not know at particular points in time. Ricards did not overstate the extent of his knowledge or involvement in Pacific Springs or Dean’s financial affairs. I accept his evidence without hesitation. Mr Summerfield appeared to me to be an honest witness. Mr Summerfield was clearly close to Dean and Ricards and remembered Dean fondly.

10. Some time was spent by both senior counsel cross-examining witnesses on pleaded facts and admissions as indicating the state of knowledge of the witness at the time the pleaded events occurred. It was reasonably apparent that the pleaded facts and admissions were how the parties understood matters to be when they verified the pleading but not necessarily at an earlier point in time. I made no adverse finding against Gani or Ricards in this regard.

11. The missing witness in this case was, obviously, Dean. This case was mostly about what Dean said, thought and did. Dean appears to have surrounded himself and his partner with professional lawyers, accountants and loyal staff who had not a bad word to say about him. Both Gani and Jorida agreed that they had a good relationship with Dean, spoke to him regularly and regarded him as honest and reliable and of good character.

Documentary evidence

20. The issue of shares followed upon conversations between Gani, Jorida and Dean to which Ricards was not a party and, indeed, conducted in a language which he did not speak. Gani and Jorida’s recollections of these conversations so long ago may not be reliable, particularly as both said they could not remember things which happened much more recently due to their age. Thus, much turns on the contemporaneous documents. The only documents of any note were produced by Ricards from Dean’s papers. Dean was the record keeper for Pacific Springs and, it appears, a good record keeper. For example, minutes of meeting survive for each financial year, when Dean resolved to pass the accounts. It is relevant to note that, each year, Dean did not recommend the payment of any dividend.

21. The parents produced one contemporaneous document from the critical period, being the share certificates issued in 2000. This was produced by Gani during cross-examination rather than in answer to a notice to produce earlier served. Mr Horton forwarded the notice to produce to Yohanna and Irwan and had numerous conversations with them concerning the notice. Yohanna and Irwan told Mr Horton that they had asked their parents to provide any documents that fell within the notice. Mr Horton then advised the defendants’ solicitors that, beyond the documents which were already attached to affidavits filed in the proceedings, the plaintiffs had no other documents in their possession.

22. Whilst I do not doubt Mr Horton’s evidence, it appears that, notwithstanding the advice conveyed to Gani and Jorida by Yohanna and Irwan, neither made a proper search for documents answering the notice to produce or, according to their evidence, any search. Gani gave evidence as follows:

Q.    Sir, as far as you recall, your daughter has never asked you to produce all documents relating to the affairs of the company, has she?

A.   INTERPRETER: No. She hasn't asked that.

…

Q.   … apart from the share certificate produced a couple of days ago, your daughter has never asked you to produce documents relating to the issue of shares in the company, has she?

A.   INTERPRETER: Yes, you're right.

23. Gani’s explanation as to why he had not made a search for documents did not make sense:

Q.   So you have not looked in your records, is this right for documents concerning the issue of shares in the company, correct?

A.   INTERPRETER: I don't have to check any records because I 100 percent own this company.

When asked why he had not produced the share certificates earlier, Gani said, “Because I own 100 per cent of the company. There is no need to provide a share certificate to prove that”. When asked whether he had checked whether there were any other documents Gani said, “Because I've never changed the shares so there wouldn’t be any other document existing in the world”.

24. Jorida gave evidence as follows:

Q.   Madam, I just need to make sure you understand the question. Has anyone – [Mr Horton], your daughter, anyone – asked you to search your records for any documents you might have in relation to the issue of shares in the company?

A.   INTERPRETER: No. Not to me. Maybe the request was made to Gani, but not to me.

…

Q.   You haven’t had a chance to search out your records for any documents in relation to the issues of shares in the company. Is that right?

A.   INTERPRETER: Well, all the document – all the documents were taken care of by Gani, and I don’t know anything about that. I only know that I own 100 shares of the company and Gani own 100 shares, and we are the sole owners of the company and we set up this company for our son. That’s all I know.

This was one example of Jorida volunteering a remark which she perceived may advance her case.

25. A submission frequently made by the plaintiffs’ senior counsel was that the absence of contemporaneous documents proved the plaintiffs’ case or disproved the defendants’ case. However, I am not satisfied that the plaintiffs have disclosed all documents within their possession relevant to these proceedings as the plaintiffs have not made a proper search.

FACTS

26. More than 40 years ago, the Mualim family established a manufacturing business in Indonesia, apparently a rubber plantation and factory. Gani later established a family hotel business. Over the years, Dean told Ricards a number of times that his parents were wealthy and operated a multi-million dollar business.

27. Dean did not live in Indonesia nor work in the family’s manufacturing business. He worked in Sydney as a bond or securities trader for Yamaichi Securities. On 9 June 1995, when on his way to Europe for a holiday, Dean met Ricards in Bangkok and they started a relationship. Dean and Ricards travelled widely and then moved to Australia and began living together. In about February 1996, Ricards first met Gani and Jorida and spent time with them in Palembang, where the family business was based.

Finding a business to buy

28. Sometime between 1997 and 1999, Dean told Ricards and Gani that he did not want to work as a securities trader anymore. He wanted to buy a country hotel or motel. Dean told Ricards that Dean was the beneficiary of a Singaporean-based trust which had about $2 million in assets and it would be much easier to get his parents to agree to pay money from the trust if there was real estate involved. Dean and Ricards visited a number of hotels and motels in country Australia but, after inspecting a few, Dean changed his mind and said, “I don’t think I’m suited to country life”. In 2000, a business broker suggested purchasing a business called “Nice Cream”. According to Jorida, it was her idea. She suggested to Dean, “Why don’t we set up a business in Australia. You can work for us and run that business for us?”, to which Dean expressed enthusiastic agreement.

29. As the parents describe it, they made the decision to purchase the business and Gani negotiated the price. Gani says that he and his wife met with Dean and the vendors of the Nice Cream business in Paddington, together with the business broker. They walked around the factory and tried the ice cream. Gani was concerned as to why the business was being sold and the vendor showed Gani a tax return, which showed that the business was making a profit. As Ricards recalls it, Gani and Jorida visited Australia when negotiations were well advanced and Dean and Ricards took them to Paddington to show them around the business premises.

30. The parents say that they agreed with Dean that the business was purchased for the Mualim family and on the basis that Dean worked in the family business. Gani says he asked Dean, “Dean are you willing to work in this business for me over a long term? … Unless you are willing to go into this for the long term and to look after my interests I am not prepared to invest in this business.” Dean assured his father that he would work hard for Gani.

31. According to Ricards, Dean never mentioned having such conversations which his parents. Dean never said that he was working for Gani in a family business. Dean did tell Ricards that he had had an argument with his mother about the money from his trust in Singapore. Dean said,

“It’s my money. She says she is concerned about my ability to run Nice Cream and keeps telling me not to waste the money. They don’t believe the business will be profitable.”

Jorida denied such a conversation with her son, and denied that she held such concerns, “Because my son likes … eating ice cream. I have never doubt about that”.

32. The parents say there is no Singaporean-trust. Ricards agreed that Dean never showed him any document establishing the existence of a Singapore trust, nor had he found any documents concerning such a trust in Dean’s papers. In cross-examination, it was suggested that Ricards knew at the time that Dean had no money to contribute to the purchase price.

Q.   … But at the time of the purchase on 24 November 2000 by Pacific Springs Pty Ltd of the business known as Nice Cream, to your knowledge Dean had no money at all to contribute to the purchase price.

A.    Not to my knowledge, because he had the money in overseas. That's what he has told me on numerous occasions.

Q.   I see. But he's produced no evidence at all to satisfy you that any money came to him from any trust in Singapore. That's right, isn't it?

A.   Sorry, but I never asked him to show me anything.

Q.   Yes.

A.   And it would not be appropriate for me to start asking to - to show me his personal - it's a large amount of money and for me to start asking to satisfy me on what basis do I need to be satisfied

This evidence seemed inherently plausible. It was hardly for Ricards to investigate Dean’s finances.

Pacific Springs

33. On 20 July 2000, Pacific Springs was incorporated. Dean was appointed sole director and secretary. Gani and Jorida were allotted 100 ordinary shares each. Gani says that when the company was incorporated, Gani, Jorida and Dean met with the solicitor acting on the purchase of the business. Gani asked the solicitor, “Our family is buying the business … because Dean thinks it will make money. … how can we be sure that our investment will be protected?” The solicitor advised that the business was being purchased by the company and, as Gani and Jorida were the only shareholders of the company, no one could take the company away from them. Tom Suttie and Timothy L’Orange, then both employed by Hunt & Hunt Lawyers, acted for Pacific Springs on the purchase of Nice Cream. Neither recalled speaking to Dean’s parents, which may suggest that the meeting did not happen. Given how long ago the meeting is said to have taken place, it is also possible that Mr Suttie and Mr L’Orange simply no longer recall such a meeting.

34. Dean told Ricards that he was going to purchase the business for himself through a company he had just set up. Dean did not tell Ricards how Pacific Springs was structured. Ricards assumed that Dean was the only shareholder and director of the company. During the course of their relationship, Dean never told Ricards that his parents held shares in Pacific Springs. Nor did Gani and Jorida ever say they were shareholders.

35. In November 2000, Pacific Springs exchanged contracts to buy “Nice Cream” for $910,000, with a deposit of $95,000 and the balance due on completion. The purchase settled on 19 February 2001. According to Gani, he and his wife travelled to Sydney to sign the paperwork for the purchase of the business and the incorporation of the company. Given the dates on which Pacific Springs was incorporated and the date when the contract was exchanged, more than one trip to Sydney may have been necessary.

36. The parties agreed that, notwithstanding the lack of any documentary evidence, the parents advanced $800,000 to acquire the business and the balance of the purchase price, being $110,000, was thus most likely paid by Dean. The parents said that the $800,000 was provided from their own funds or funds under their control. In his fourth affidavit, Gani said, “All of that money was in fact lent to Pacific Springs Pty Limited by me from my own funds. I anticipated this loan to be repaid to me.” Gani agreed that he understood at all times that the money advanced to Pacific Springs was a loan. Ricards did not know that Dean’s parents had lent $800,000 to Pacific Springs to fund the purchase.

Running the business

37. From the time that Nice Cream was purchased until Dean died, Dean dealt with the administrative and financial side of the business whilst Ricards looked after the operational side. Dean dealt with the company’s accountants, paid Pacific Springs’ bills and reconciled the company’s accounts. Ricards dispatched ice cream, dealt with suppliers and customers and managed staff and contractors. This delineation of roles is confirmed by Mr Trood, Mr Salameh, Mr Summerfield and Mr Teuma, each of whom has worked for or with the company since 2001 or 2002.

38. Ricards often observed Dean introduce himself to new employees, customers and suppliers of Pacific Springs as the director and owner of the business. Ricards says that when Dean and his parents spoke in his presence, he sometimes heard Jorida refer to the business as “Dean’s business” or “Dean’s factory”. Jorida denies this.

39. The parents’ role in the business is also reasonably clear. Gani and Jorida were not involved in the running of the business. Gani and Jorida visited Dean and Ricards two to four times a year, staying with them for about a week on each visit. According to Ricards, Dean occasionally took them to visit Nice Cream’s factory on their way to the airport on their flight back to Indonesia if they wanted to take some ice cream with them. On these occasions, Dean introduced Gani and Jorida to the staff as his parents and showed them around the factory and gave them ice cream to sample. Ricards never saw Dean introduce his parents as the shareholders or owners of Pacific Springs or Nice Cream. Gani and Jorida would spend about 15 minutes at the factory and Ricards would pack a few boxes of ice cream with dry ice for them. Mr Teuma gave similar evidence. According to Gani, he and Jorida visited Dean at the company’s premises about twice a year, during which time they carried out a quick visual check on the progress of the business, with visits usually lasting about 30 minutes. Gani and Jorida agreed that when they came to Australia to visit Dean, he told them what was happening with the company but they never asked him for financial documents.

40. According to Gani, he spoke to Dean about once a week and, during these conversations, always discussed the progress of the business. Dean assured Gani that the business was doing well and he was making a lot of money for Gani. Gani said he had never obtained or sought financial records in relation to the company. However, Gani denied that this was consistent with him regarding Pacific Springs as owned by his son and explained, “I believe my son will be able to manage the company well”.

41. According to Jorida, she spoke to Dean by telephone about once a week from 2000 until he became seriously ill, after which she spoke to him almost every day. On occasion, they discussed issues concerning the company’s business. According to Jorida, she counselled Dean against employing illegal immigrants as he would get the company and his parents in trouble. Once, Jorida asked what happened if a fridge failed and Dean told her they had backup systems in place. On another occasion, they talked about whether the company should sell products outside Sydney and Jorida thought this was a good idea. Dean suggested expanding the business into China and Jorida was not in favour as she did not want to live in China. This evidence was improbable as on no view did Jorida have such a level of involvement in the business as to necessitate her moving to China to support the export of products to that country.

42. According to Jorida, Dean discussed with her opening other outlets and putting fridges in shops to sell their product. In about 2009, Dean asked whether Jorida thought they should get advice to create a company to avoid tax as they were paying so much tax, and Jorida said, “No we should not do anything illegal”. According to Jorida, they discussed selling lower quality products at a lower price and Jorida was in favour of this. They discussed whether to continue selling ice cream to Qantas, and Jorida agreed as long as they were making a profit. She did not think they should sell to Singapore Airlines at a much lower price as, if Qantas found out, they would want the same price. They discussed replacing the business van and getting a car for Mr Teuma and Jorida said, “Sure go ahead because he has been working for us for years”.

43. Dean never told Ricards of regular telephone conversations with his parents about the progress of the business.

44. Mr Trood and Mr Salameh have never met or dealt with Dean’s parents in relation to Pacific Springs or otherwise. So far as they were aware, Dean’s parents were not involved in managing the affairs of Pacific Springs and did not make any decisions for the company. Mr Trood does recall having a conversation with Dean in which Dean told him that his parents had lent Pacific Springs some money around the time that it was incorporated. Dean said the loan was not subject to a loan agreement and was otherwise unsecured. Mr Trood suggested to Dean that his parents could ask Pacific Springs to grant them a charge over its assets to secure the loan, but Dean said they would not be interested in doing that as it would cost too much.

45. Mr Summerfield understood that the business was owned by Dean through Pacific Springs. At some time, and Mr Summerfield cannot recall exactly when, Dean told Mr Summerfield, “A large portion of the purchase price of the Nice Cream business was contributed by [Ricards] and me. My parents provided some of the funds too, but this is basically coming out of my inheritance”. Dean also said, “My parents are shareholders of the company because they gave me some money to help me with the purchase of Nice Cream”.

46. In 2002, Mr Teuma began working for Nice Cream as the office manager. Dean introduced himself to Mr Teuma as the owner of the business. Mr Teuma worked closely with Dean in Nice Cream’s office, assisting with paperwork and managing the business’ customer base. Mr Teuma always assumed that Dean was the shareholder and director of Pacific Springs. Dean never mentioned that his parents provided him with funds to pay the purchase price of the business or otherwise helped fund its operations. Over the next 18 years, Mr Teuma did observe Dean’s parents visiting the ice cream factory about once or twice a year and they never identified themselves as the owners of the business.

47. Gani and Jorida both agreed that they never spoke to Ricards about the business but only spoke to Dean. Nor, according to Mr Teuma, did they ask him anything about the business nor, according to Mr Summerfield, did the parents ever ask them anything about fit out of the premises, a matter with which Mr Summerfield became involved, particularly when the business moved to premises in Wolli Creek and Marrickville.

CV Megah Chandra Insani

48. Amongst Dean’s books and records, Ricards found a bundle of invoices issued by CV Megah Chandra Insani to Pacific Springs for management services. Ricards had never heard of CV Megah Chandra Insani and was not aware of any management services provided by CV Megah Chandra Insani to Pacific Springs. The first invoice is dated 31 July 2001 for $8,000 for “Services for the month of July in relation to The management of Pacific Springs Pty Limited”. The letterhead included an address and telephone number in Jakarta. The invoice bore a stamp for CV Megah Chandra Insani of Jakarta and a signature. The invoice also had two stamps, “ENTERED” and “PAID”. It was the first of 105 invoices rendered by CV Megah Chandra Insani to Pacific Springs on a monthly basis from July 2001 to February 2010 totalling $1,068,000. A review of the invoices suggests that the invoices, although said to have been issued monthly, appear to have been issued and paid in batches. I say this because of the differing font and format used in the invoices over time, the payment details recorded in handwriting on the invoices, and having regard to available bank records.

48. It was suggested to Ricards in cross-examination that he had produced no evidence that these invoices had been paid by Pacific Springs, to which Ricards replied:

A.   A couple of invoices has Dean’s handwriting. These I recognise as Dean’s handwriting … and when I look at the company’s - we use MYOB. I can only go back up to 2010, and there's - there is reference to CV Megah Chandra, but I can't find before that, but the original invoices was filed in the folder in one of the - the - what is called filing cabinet.

…

Q.   It’s your evidence, is it, that Mr Dean Mualim, at no stage during your relationship with him, ever told you that CV Megah Chandra Insani had in fact provided management services to‑‑

A.   Not that I can remember, sir, but there is no reason why he would keep the invoices in his personal filing cabinet in the office. Why would there be a folder?

Q.   Sorry, I didn’t understand that answer. What's the‑‑

A.   It’s just a filing cabinet where Dean used to keep some of the - what is not often used. I just go through a filing cabinet for his folders, and when I start looking, I found this folder, this CV Megah Chandra. The folder itself has his writing, “CV Megah” whatever.

Q.    Is the folder one of those‑‑

A.    It’s - those - like, Manila folder - yellow‑‑

Q.   Just a moment. Is the folder in the filing cabinet one of those drop‑in sleeves that holds documents?

A.   Yeah, yeah, yeah, the yellow ones - those ones. It’s still in the office, and it has his handwriting on it.

50. In his fourth affidavit, Gani said he had no knowledge of CV Megah Chandra Insani or any commercial dealings between Pacific Springs and that company, nor the reason for the rendering of these invoices. “No, I don’t know this company at all”. Jorida said she had never heard of CV Megah Chandra Insani. When asked why she had not stated this in her affidavits, Jorida said,

Because this company is not related to us at all. We don’t even know what this company is. So we – we forgot to mention it.

As will become apparent, Gani was associated with CV Megah Chandra Insani and his evidence to the contrary was untrue.

Payments to Mr Tjandra

51. CV Megah Chandra Insani issued a letter dated 23 August 2001 to Pacific Springs requesting, “Please remit amounts payable to …” and providing the details of a Jakarta bank account in the name of Mr Tjandra. The letter bore the company stamp and a signature. By February 2003, twenty invoices had been rendered by CV Megah Chandra Insani totalling $160,000. On 19 February 2003, Pacific Springs paid US$80,000 and US$13,721.74 to Mr Tjandra. This amounted to AUD$160,056. The invoices rendered from July 2001 to February 2003 had the same format, type font, stamps and signature whilst the invoices rendered from March 2003 had a different font. This suggests that the first 20 invoices were rendered in one batch and at about the time that Pacific Springs transferred funds to Mr Tjandra.

52. In his fourth affidavit, Gani said he was not aware of any commercial dealings which took place between Pacific Springs and Mr Tjandra, nor the reason for these payments. In cross-examination, Gani agreed that Mr Tjandra was Jorida’s brother in law, although he had not mentioned this detail in his affidavit. Gani’s evidence was broadly that he did not request that these payments be made.

Q.   And was this money which you asked Dean to send to Mr Tjandra in the same way that you asked Dean to send money to your daughter in law from time to time?

A.   INTERPRETER: I don’t know. I couldn’t remember.

Q.    And there’s another example of this at page 460. I think it’s the same date. Do you remember whether you asked Dean to send money to Mr Tjandra?

A.    INTERPRETER: No, I’ve never made that request.

… Q.   Do you know anything about this direction to Pacific Springs to pay moneys to Mr Tjandra – T-J-A-N-D-R-A?

A.    INTERPRETER: No, no.

… Q.   You have no recollection, do you, one way or another as to why the payments will be made to this gentlemen, is that right?

A.   INTERPRETER: I'm fully unaware of it.

53. Gani was cross-examined as to why he had not made any inquiries of Mr Tjandra since becoming aware of the payments made by Pacific Springs to him. Gani said that Pacific Springs was operated by Dean and all monies were handled by Dean, “I've never been involved in operation of the company and every year my son would report to me about the profit and loss and that's good enough to me.” Further, Gani did not now want to question the payments as Dean had died. The fact that Gani did not think it necessary to enquire of his relative as to what the payments were for is also consistent with an acceptance by him that the payments were in order.

54. Jorida was not involved in these payments but left it to her husband:

Q.   And is it fair to say that your husband mainly dealt with Dean about money coming back, or were you involved in it too?

A.   INTERPRETER: I'm not involved in that. My husband is dealing with Dean about the money coming back.

Q.   And dealing with him in relation to who the money went to. Is that right?

A.   INTERPRETER: Yes.

Of the monies paid to Mr Tjandra, Jorida agreed that he was her relative, “but I do [not] know about this money”.

Payments to Ms Thamrin

55. On 29 December 2003, CV Megah Chandra Insani sent a letter to Pacific Springs requesting, “Please remit amounts payable to …” an account of Ms Thamrin with a bank in Indonesia, for which an account number was provided. The letter bore the stamp and signature of CV Megah Chandra Insani, as had the monthly invoices. Gani said that he directed that these monies be paid to Ms Thamrin.

Q.    Why did you ask your son to send the money to the daughter in law?

A.   INTERPRETER: I couldn’t remember why. It has been more than ten years. Too long ago.

… It has been more than 10 years and I couldn’t remember the reason why there was a request to – or instruction to send the money to my daughter in law. Maybe she was in need of the money for some purpose but I couldn’t remember it.

The fact that instructions to make the payment to Ms Thamrin were contained in a letter sent by CV Megah Chandra Insani suggests that the company was associated with Gani, who had given the same instructions to Dean.

56. On 31 January 2004, CV Megah Chandra Insani issued an additional invoice to Pacific Springs for, “Consultacy [sic] and works performed for 2000 to 2004” for $100,000. In addition to the usual company stamp, signature, “ENTERED” and “PAID” stamps, this invoice bears a handwritten note “EFT 4/2/04”. Ricards recognises the handwriting as Dean’s. In evidence is a National Australia Bank telegraphic transfer application dated 5 February 2004, arranging the transmission of US$80,000 to Ms Thamrin at the specified account in Indonesia.

57. Before the contentious share issue, Pacific Springs had paid $356,000 in respect of the CV Megah Chandra Insani invoices, almost half of the $800,000 advanced by Gani and Jorida to buy the business.

Allotment of shares to Dean

58. Article 97 of Pacific Springs’ constitution provided:

The shares shall be under the control of the Directors who may allot … the same to such persons on such terms and conditions and at such consideration and at such times as the Directors think fit. …

59. Ricards says that in about late 2003, Dean told him that he had sent some paperwork relating to Pacific Springs to his parents by facsimile. Dean said this was to give effect to what he had agreed with his mother during a telephone call earlier that day. Dean said,

“My mother said she doesn’t care about Pacific Springs and Nice Cream anymore. She said I can have my wings”.

60. Jorida denied such a conversation with Dean.

A.   INTERPRETER: No, it’s impossible my son would say something like this to us.

Q.   Why is it impossible, madam?

A.   INTERPRETER: Because I taught him to use the money or to buy properties because in Sydney it’s easier to make money from the properties.

… I don’t remember I’ve used the word “wings”. What I should have said to him is to ask him to buy properties and sell it when the price are high.

61. Gani agreed that it was possible that around 2004, Dean said to him "I want to be the owner of the company. That is because I'm running it and making all the decisions".

62. In about 2004, Mr Salameh recalls Dean mentioning to him that his parents had given him control of Pacific Springs. Dean said to Mr Salameh words to the effect,

My parents have agreed to me being allotted most of the shares in Pacific Springs as I am the one who is running it and making all the decisions.

Mr Salameh was instructed by Dean to prepare paperwork for the allotment of 1,800 new shares in Pacific Springs to Dean, which he attended to. Mr Salameh was not required for cross-examination.

63. Mr Summerfield recalls that, in about 2004 when he was with Dean in the office, he saw Dean preparing some paperwork. “Dean was very fixed on what he was doing.” Dean told Mr Summerfield:

I’ve changed my parents’ allotment of shares and have reduced their holdings. I’ve sent Mum and Dad all the paperwork. I’ve spoken to them about it.

64. Mr Summerfield’s work diary recorded that he was at Nice Cream that day doing a specific job. He was in the office looking up an equipment manual on the computer. The equipment manuals were kept in a file on the computer server and Mr Summerfield referred to the file often to research the problems being experienced with the machines. He was in Dean’s office for about an hour and they talked on and off while he looked up the relevant manual. Mr Summerfield was firm that Dean had used the work “allotment” saying,

Dean was fairly precise in – in – in his wording, and always liked to be correct in what he was saying, you know.

… He – he was very precise on paperwork, Dean. So if he said he did something, we – we all just took it as gospel.

65. On 16 March 2004, Dean resolved to allot 1,800 ordinary shares to himself. A share certificate was issued. On 7 April 2004, a Form 484 Change to Company Details form was lodged with the Australian Securities and Investments Commission (ASIC) by Trood Pratt & Co. The register of members of Pacific Springs as at 7 April 2004 recorded that Gani and Jorida each held 100 ordinary shares and Dean held 1,800 shares.

66. After this, Mr Summerfield said that he used to talk to Dean “quite a bit” about “what had transpired with the company”.

… he mentioned it on quite a few occasions that he – he had changed the shareholdings of the company and he was the major shareholder of the company at that stage, from that point in time after, you know.

67. To a large extent, events after this date are irrelevant to whether or not the issue of 1,800 ordinary shares by Dean and the allotment to himself was done with the knowledge and consent of his parents. Subsequent events remain peripherally relevant to the extent that they may indicate Gani and Jorida’s knowledge, and also to the defences of laches and estoppel.

Payments continue to Ms Thamrin

68. In July 2004, the typeface of the monthly invoices changed again and the monthly fee increased to $10,000. On 8 October 2004, Pacific Springs transferred $80,000 to Ms Thamrin at her nominated account in Indonesia. The monthly invoice for October 2004 bore a handwritten note, said by Ricards to be in Dean’s handwriting, “Paid $2,000 … $80,000, 8/10/04”. The monthly invoices continued.

69. On 7 April 2005, Dean resolved to adopt the accounts for the year ended 30 June 2004 and did not recommend the payment of any dividend. Unlike the financial years ended 30 June 2002 and 30 June 2003, there are no minutes of an annual general meeting of members of Pacific Springs recording that Gani and Jorida attended the meeting. The defendants point to the fact that no shareholders meetings with Gani and Jorida were documented after the issue of 1,800 shares to Dean as consistent with Dean effectively becoming the owner of the company. Gani and Jorida say that they did not in fact attend any meeting of shareholders.

70. On 1 June 2005, Pacific Springs transferred $88,000 to Ms Thamrin at a bank account in Singapore. The National Australia Bank telegraphic transfer application contained a message, “Ref: C.V. Megah Chandra Insani”. The monthly invoices continued. The invoice for 30 December 2005 bore a handwritten note that $60,000 had been paid on 6 March 2006. Ricards recognises the handwriting to be that of Dean.

71. On 2 February 2006, Gani sent a handwritten facsimile to Dean (Ricards recognises it to be Gani’s handwriting) in Bahasa Indonesian saying “money send to”. The details of a Singapore bank account in the name of Ms Thamrin were provided. The facsimile transmission details on the top of the document indicate that the facsimile was sent from “PT. Gadjah Ruku”, being the plaintiffs’ family company. On 6 March 2006, Pacific Springs transferred $60,000 to Ms Thamrin at the nominated Singapore account. The National Australia Bank telegraphic transfer application bore the same message, “Ref: C.V. Megah Chandra Insani”. The telegraphic transfer accords with the handwritten note appearing on the invoice dated 30 December 2005 already mentioned at [70].

72. Approximately $570,000 of CV Megah Chandra Insani’s invoices had been paid by the end of 2006. These payments roughly accord with Gani's third affidavit, a paragraph of which was tendered by the defendants:

In the years following the company’s incorporation until about 2006 … my wife and I received dividends totalling approximately $500,000 from the company.

73. Jorida was also asked about this:

Q.   And it's about $500,000 between 2000 and 2006. Does that sound right?

A.   INTERPRETER: Well, the money was from the profit of the company.

74. As to whether the payments made by Pacific Springs were loan repayments or dividends, Dean resolved each financial year, when adopting the accounts, not to declare a dividend. Gani agreed that he had no documents to corroborate that the money which he received from Pacific Springs was a share of profit, and nothing to show that the company was making a profit at the time beyond Dean’s verbal reports to his father.

75. On 17 January 2007, Pacific Springs transferred $60,000 to Ms Thamrin in Singapore with the same message, “Ref: C.V. Megah Chandra Insani”. The fact that three National Australia Bank telegraphic transfers – being transfers which Gani directed Dean to make – referred to CV Megah Chandra Insani suggests there was a connection between Gani and CV Megah Chandra Insani.

76. When asked about the monies paid to Ms Thamrin, Jorida did not know why $368,000 had been paid to her daughter in law, nor could she even remember when she last spoke to Ms Thamrin, “I’m over 70 years old, close to 80 years old, I couldn’t remember”.

Payments to Gani

77. On 31 January 2007, CV Megah Chandra Insani rendered a monthly invoice which differed from the previous invoices. The invoice concluded, “Please remit payment to …” and gave details of the National Australia Bank account which corresponds with an account in Gani’s name, being an NAB Retirement Account. Gani said that the bank accounts were operated by Dean for Dean’s benefit and, although the bank statements contained numerous transactions referring to Gani and Jorida, he did not know anything about these transactions.

78. Gani and Jorida had some 29 bank accounts in Australia. In evidence are two bank forms: one in which Gani nominated Dean as an additional cardholder on an account and another in which Gani authorised Dean and Ricards as signatories on the bank account. It would thus appear that Gani trusted his son and Ricards to operate at least some of his bank accounts. I think the more likely explanation is that Dean was authorised to operate at least some of his parents’ Australian bank accounts and, from time to time, his parents deposited funds to those accounts and Dean made payments from those accounts to his parents but, given the passage of time and that Gani appeared to now leave financial matters to his children, Gani no longer recalls specific transactions.

79. Further, Gani could not remember whether he had received money from Pacific Springs after 2007.

Q.    So, you can't remember one way or another whether you received any money from the company after the beginning of 2007, is that right?

A.    INTERPRETER: Yes, you're right.

Q.    And I take it you can't remember giving Dean direction to pay other people, including family members after the beginning of 2007 money from the company, is that also correct?

A.    INTERPRETER: No, I couldn't remember.

Q.    You may have, you may not have, but you just don't remember one way or another, that's what you're saying, is it?

A.   INTERPRETER: Yes, you're right.

80. The CV Megah Chandra Insani invoices from 2007 on bear a handwritten note providing the date on which the invoice was paid by electronic funds transfer (EFT). Ricards recognises the handwriting on one of these invoices as being Dean’s handwriting. A scattering of National Australia Bank bank statements from this period are in evidence but it is not easy to reconcile the monthly invoices with deposits to the bank accounts. Payment of six invoices on 2 April 2008 $60,000 is likely linked to a deposit made to another NAB bank account of Gani’s on the same day but for half of the amount, being $30,000, with the description, “CV Megah Chandra”. These monies were then transferred from the account with a description in the bank statement, “Gani”. The fact that a deposit was recorded as made by “CV Megah Chandra” and a transfer was made to “Gani” suggests there was a connection between Gani and CV Megah Chandra Insani.

A “C” class share to Gani

81. According to the constitution of Pacific Springs, the capital of the company could be divided into share classes including ordinary shares and “C” class shares. Ordinary shares entitled the holder to vote whilst “C” class shares did not. Where there was more than one class of shares on issue, the company could declare a dividend or distribution of profits in respect of particular classes of shares. On 31 August 2007, Dean resolved to allot one “C” class share to Gani. In evidence is a letter from Gani applying for the allotment of the share. The letter was found by Mr Salameh amongst the books and records of Pacific Springs held by Trood Pratt & Co. On 21 September 2007, a Form 484 was lodged with ASIC in respect of the share issue. Gani said he never applied for a “C” class share. Gani said the signature on the letter was not his.

82. Whether or not a signature is genuine is a question of fact to be determined having regard to the evidence, both oral and documentary, lay and expert. The Court can make its own comparison of handwriting, albeit that particular attention should be paid to any expert evidence on this issue: Jeans v Cleary [2006] NSWSC 647 at [157] per Johnson J citing R v Doney (2001) 126 A Crim R 271 at 280; [2001] NSWCCA 463 at [61] per the court); Tasoulas v Tasoulas [2018] NSWSC 861 at [30] per Rein J; Lazarus v Director of Public Prosecutions (NSW) [2015] NSWSC 426 at [70]-[71] per Garling J; Re Application of Sutherland and Arnautovic at [67] per Kunc J.

83. The signature on the letter applying for the allotment of the “C” class share appears exactly like the signature on Gani’s passport. As a consequence of the letter, Gani was bestowed with a valuable right, being a C Class share. There is no reason to forge Gani’s signature on the letter. I find that the signature was Gani’s and, further, that Gani would have immediately recognised the signature on the letter to be his, and lied when he said it was not.

A loan agreement and charge

84. In December 2009, Pacific Springs Investments Pty Limited was incorporated. Dean and Ricards each held one share. Pacific Springs Investments was appointed as trustee of the Pacific Springs Trust. Dean and Ricards were beneficiaries of the trust. The company and trust were established on the advice of Mr Salameh. At the time, Pacific Springs was in dispute with the landlord of the Paddington premises, who claimed that the property had been damaged by water leaking from Pacific Springs’ fridges. Dean told Ricards that he had spoken to Mr Salameh and was going to transfer the equipment and trademarks out of Pacific Springs and into the trust “just in case we get sued by the landlord”.

84. On 6 February 2010, three documents were executed:

1. a Loan Agreement between Pacific Springs, Gani and Jorida;

2. a Fixed and Floating Charge between Pacific Springs, Gani and Jorida; and

3. an Asset Sale and Purchase Agreement between Pacific Springs and Pacific Springs Investments Pty Limited.

86. The documents were prepared by Mr L’Orange of DLA Philips Fox. Under the Loan Agreement, Gani and Jorida agreed to make a cash advance facility available to Pacific Springs and, in clause 1.2, acknowledged that, at the date of the agreement an Advance of $800,000 had been provided and received by Pacific Springs. Apart from the Loan Agreement, there is no documentary evidence that Gani and Jorida had in fact advanced $800,000 to Pacific Springs. By the Fixed and Floating Charge, Pacific Springs granted Gani and Jorida a charge over Pacific Springs’ rights, assets and undertaking to secure the payment of any monies owed by Pacific Springs to Gani and Jorida.

87. Under the Asset Sale and Purchase Agreement, Pacific Springs sold its equipment and intellectual property to Pacific Springs Investments. The purchase price was to be specified in clause 3.1 but the ‘blanks’ were not completed on the executed agreement in evidence. In addition, Pacific Springs Investments and Pacific Springs entered into a trademark licence and an equipment lease agreement in respect of the trademarks and equipment transferred to the Pacific Springs Trust.

88. The documents only came to light shortly before the hearing, when Ricards was searching through Dean’s papers in the course of finalising his reply affidavit and in circumstances where Ricards had recently moved house and had stored Dean’s papers in boxes which had yet to be unpacked. The defendants submitted that it stood to Ricards’ credit that, having found the documents – and being under no obligation to disclose the documents in the absence of any order for discovery – he brought the documents to the plaintiffs’ attention where the documents apparently regularised a time-barred debt of $800,000 and gave the parents a charge over the assets of Pacific Springs. I agree. Ricards’ evidence was, in every respect, accurate and fairly given.

89. The original documents were in evidence. Each bears the original signatures of Dean on behalf of Pacific Springs and Gani and Jorida, the latter signatures being witnessed by Ricards. However, Gani and Jorida were not in Australia on 6 February 2010. According to their passports, they were in Singapore. Gani and Jorida denied that they signed the documents.

90. According to their passports, Gani and Jorida were in Sydney from 18 to 22 February 2010, when both agreed that they met with Dean and Ricards. Gani agreed that the signature on the documents belonged to Dean but denied that he had signed the documents or that it was even possible that they were provided with the documents to sign during their visit. As to why it was said to be impossible, Gani said “Since the time we’ve acquired ice cream business I’ve never signed any other documents”. Gani also denied requesting his children in Indonesia to send his old passport to Singapore to see whether he was in Australia when the documents were signed.

Q.   And the reason you asked your child to send you the 2007 to 2012 passport over the weekend was to see whether you were in Australia in February 2010 being the date on these documents you saw for the first time on that weekend, correct?

A.    INTERPRETER: No.

Q.    So, that is a lie, sir.

A.   INTERPRETER: No, I didn't lie.

Gani did not agree that he signed the documents in 2010 but had since forgotten about it.

91. Jorida emphatically denied that she signed the documents:

Q.   And it was possible that you were asked to sign this document … isn't it?

A.   INTERPRETER: No.

Q.   Why is it not possible?

A.   INTERPRETER: Because we've never viewed with any document.

Q.   But you say you've never signed document ever about the company. Is that what you say, Madam?

A.   INTERPRETER: No. Only when we set up the company I've signed documents.

92. Of course, ten years later, it is entirely possible that Jorida signed these documents but does not now recall having done so. In circumstances where her signature was, as far as I could see, identical to that appearing on her passport, her willingness to disclaim her signature was consistent with her general approach to giving evidence, which was to say whatever she thought she needed to say to advance her case, whether it was true or not.

93. Ricards does not recall witnessing Gani and Jorida’s signatures but recognises his signature. Ricards does not recall or know the circumstances in which the documents were signed. Ricards said that he would never sign documents purporting to witness the signature of another person if he did not actually witness their signature. It was put to Ricards strongly in cross-examination that he had not in fact witnessed Gani and Jorida’s signatures. His evidence was firm and convincing:

A.   I would sign only if they see - if I see them signing. I would not sign as a witness in a signature, if I don’t see them signing.

…

A.   …I would not sign if I didn’t see them sign it.

…

A.   If I have signed the documents, they would be present. I don’t have recollection of these documents at all, besides what I already stated, that I found them in a box together with Dean’s personal medical records, in a plain envelope stating, “confidential”.

Q.   Mr Dzleme, the truth of the matter is, is it not, that you were not present when the signatures, which purport to be those of Mr and Mrs Mualim, were affixed to this document?

A.   The question you already ask to me and I answer this question. I don’t recall anything about a document. I insist that I will not sign as a witness, if they would not be signing - if I don’t see them signing.

94. There is no doubt that Gani and Jorida did not sign the documents on 6 February 2010. It is perfectly conceivable that they signed the documents whilst they were in Australia soon afterwards, between 18 and 22 February 2010. The Fixed and Floating Charge was stamped for duty on 26 March 2010, that is, after Gani and Jorida had visited Sydney. The charge was registered with ASIC on 30 June 2011.

95. There was no expert handwriting evidence although, as the authorities referred to at [82] make plain, I can compare the signatures myself. Gani's signature was the same – as far I could see – with his signature on his passport, bank documents and his affidavits filed in these proceedings. Jorida's signature was also the same – as far as I could see – with the signature on her passport and affidavit. The signature is not the same as her signature on the document referred to at [112], and Jorida was not sure about that signature herself.

96. I do not accept the plaintiffs' denials as to their signatures and find their signatures to be genuine. There is no rational explanation why Dean, or anyone else, would have forged their signatures on the documents. By these documents, the plaintiffs were bestowed with valuable rights, being an acknowledgement of an advance of $800,000 and a charge over the assets of Pacific Springs. The most likely explanation is that the plaintiffs have simply forgotten about these documents with the passage of time. However, both refused to concede this possibility and alleged that their signatures had been forged. This reflected poorly on their credit. They may not recall signing the documents a decade ago – that would not be surprising – but their readiness to disclaim signatures which were so clearly their own was concerning.

97. The last monthly invoice was rendered by CV Megah Chandra Insani on 26 February 2010. The fact that in February 2010 – after nine years and 105 invoices – both the last invoice by CV Megah Chandra Insani was issued and the Loan Agreement and Fixed and Floating Charge were executed is unlikely to be a coincidence. It may be that Gani and Jorida – having been more than repaid – were content to receive no further payments from Pacific Springs on recognition of rights as recorded in the Loan Agreement and Fixed and Floating Charge.

98. Gani says that at no time did Dean or Pacific Springs repay any money that had been advanced to either of them by Gani and Jorida. But it became apparent that Gani had never checked.

Q.   Have you searched your bank account records for the purpose of this case to see what money you’ve received from the company or may have received from the company?

A.   INTERPRETER: No, I’ve never checked or searched my bank records.

Q.   Accordingly, is it the case you just don’t know how much money you have received from the company over the years. Is that what you’re saying?

A.   INTERPRETER: Yes, it is the case. I don't know how much money I received.

Q.   And you don’t know how much money your wife or your family members have received either. Is that right?

A.   INTERPRETER: Yes.

Gani agreed that he had no records in respect of the receipt of the monies and who the money was paid to.

99. In respect of the CV Megah Chandra Insani invoices, the plaintiffs submitted in oral reply submissions that it was “palpably obvious” that Dean “created all these invoices, and apparently did so for the purpose of giving rise to false or [fictitious] liabilities for supposed management services”. When asked the basis for this submission, the plaintiffs submitted “because they [came] from his records, and there’s no evidence at all that CV Megah had anything whatever to do with the plaintiffs”. The plaintiffs submitted that the invoices demonstrated “a disposition on the part of Mr Dean Mualim to create false or [fictitious] transactions of no commercial reality whatsoever, and it’s entirely consistent with our contention that he effected this allotment in his own interests, with no disclosure whatsoever to his parents”.

100. There are several pieces of evidence which strongly point to a connection between CV Megah Chandra Insani and Gani. First, Gani told Dean to make the transfers to Ms Thamrin totalling $368,000, and the transfers post-date a letter from CV Megah Chandra Insani requesting that payments be made to Ms Thamrin. Three of the telegraphic transfer documents issued by the National Australia Bank in respect of payments to Ms Thamrin contain the message "REF: CV MEGAH CHANDRA INSANI". Payments of $160,000 to Mr Tjandra post-date a letter from CV Megah Chandra Insani requesting that the payments be made to him, and Gani made no effort to contact Mr Tjandra and inquire as to the reason for the transfers in circumstances where, if the transactions were untoward, one might expect Gani to enquire of his relative. From January 2007 to February 2010, the invoices issued by CV Megah Chandra Insani, totalling $380,000, contained the bank details for an account with the National Australia Bank in Gani's name. One of Gani’s National Australia Bank bank accounts records a deposit recorded as made by “CV Megah Chandra” and a transfer as made to “Gani”. I conclude that Gani lied about having no knowledge of, or connection with, CV Megah Chandra Insani.

101. Given the connection between Gani and CV Megah Chandra Insani, the payments by Pacific Springs of these invoices were in truth payments to the plaintiffs or at their direction, such direction being given by Gani. The more likely explanation as to why the invoices came from Dean’s records is that the invoices were issued to him and he thought the invoices were sufficiently important to keep for many years afterwards, in particular, to confirm that he had repaid his parents’ loan. Given the plaintiffs’ failure to comply with the notice to produce, the fact that copies of these invoices or related accounting or taxation records were not produced by the plaintiffs does not detract from this finding.

102. Thus, it appears on the evidence – and in the absence of any reliable evidence from Gani and Jorida to the contrary – that the $800,000 which they advanced to Dean to buy “Nice Cream” was more than repaid. Further, notwithstanding repayment, a Loan Agreement and Fixed and Floating Charge were executed to recognise the loan and grant a charge over the assets of Pacific Springs in respect of it.

Pacific Springs moves premises

103. In November 2010, Pacific Springs Investments purchased a property in Wolli Creek. The business moved to these premises. On about 17 April 2015, Pacific Springs Investments exchanged contracts to purchase an industrial unit in Marrickville and, on 23 April 2015, exchanged contracts to sell the Wolli Creek property. From July 2015, Nice Cream traded from the Marrickville property and still does. Whilst Gani and Jorida say that they made, or were involved in making, the decision to buy and sell the Wolli Creek property and to buy the Marrickville property, their evidence is inconsistent with that of Ricards and the solicitor acting on the transactions, Mr L’Orange, and also Mr Summerfield, who did the fit out. Two examples suffice.

104. First, Jorida says that she spied the Marrickville property while having coffee with her son and suggested that Pacific Springs buy the property, including because the lot number was her lucky number 13. Gani agrees with Jorida’s evidence. In contrast, Ricards says he found a listing for the Marrickville property on a website and went to inspect it by himself as Dean was in hospital or at home resting after being discharged from hospital. Ricards negotiated the purchase of the property on behalf of Pacific Springs Investments and dealt almost exclusively with the agent. Emails between Ricards and the agent are in evidence, which corroborate his involvement in the negotiation of the purchase. Ricards dealt with DLA Piper Australia, the solicitors for Pacific Springs Investments, in respect of the purchase. Correspondence between that firm and Ricards is also in evidence. Mr Summerfield recalls that he went with Ricards to inspect the Marrickville property and, after it had been purchased, Mr Summerfield fitted out the property to make it suitable for the production of ice cream. Mr Summerfield says that Dean’s parents were not involved in the purchase of the Marrickville property and were not around at the time.

105. Second, on 25 November 2016, Gani and Jorida transferred $500,000 to Dean. Gani says that Dean had asked for money to fit out the new factory and Gani agreed to transfer the money to him for that purpose. However, Ricards says that the fit out of the Marrickville property was done between June 2015 and the end of 2015 before Nice Cream moved into the property in early 2016. The costs of fit out were about $300,000 and the majority of the work was done by Mr Summerfield. Some $400,000 had been received by Pacific Springs Investments from an insurer for damage caused to the Wolli Creek property by severe storms and damage from a neighbouring development. The fit out was paid for with the insurance monies or the proceeds of sale of the Wolli Creek property.

Dean dies

106. In January or February 2018, Dean was admitted to a hospital in Bangkok for about a month. Dean had been attending this hospital for treatment for several years. Ricards and Jorida had an argument in Dean’s hospital room. According to Ricards, he said he could not stay in Bangkok and needed to go back to Sydney for four to five days to take care of the business and Jorida said, “Do what you want. It is your business. I don’t care what you do, I only care about my son”. According to Jorida, Ricards said he needed to go back to Sydney and she said that she did not care what he did as she was just interested in her son. Jorida supplemented her evidence in cross-examination as follows:

Q.    In any event, [Ricards] said something along the lines of, "I can't stay in Bangkok. I need to get back to Sydney for four or five days, to take care of the business Nice Cream," something like that.

A.   INTERPRETER: Yes, I remember [Ricards] went back to Sydney from Bangkok, because I ask him to take care of the Nice Cream business, and no one was taking care of the business in Sydney at that time.

Such a matter was not referred to in Jorida’s affidavits and struck me as a last minute flourish to improve her case.

107. On one occasion when Mr Summerfield was visiting Dean in hospital, he saw Jorida shouting loudly at Dean something about money and Dean asked the hospital staff to remove Jorida because she was shouting. Jorida was removed from Dean’s hospital room by security officers. Dean told Mr Summerfield,

“We were fighting about money. She won’t give me my money. It is rightfully mine. She has no right to not give it to me.”

108. On 25 June 2018, Dean made his last Will appointing Ricards as his executor and trustee and bequeathing his estate to Ricards. On 9 September 2018, Dean passed away. On 14 September 2018, on Mr Salameh’s suggestion, Ricards was appointed as director and secretary of Pacific Springs. Mr Salameh prepared the necessary documents, which were lodged with ASIC. As mentioned, the validity of Ricard’s appointment is in issue.

Financial position

109. According to financial statements for Pacific Springs for the year ended 30 June 2016, the company incurred a loss of $166,649 and carried forward tax losses totalling $431,239. Issued capital was reported in a note to the accounts as comprising 2,000 ordinary shares fully paid and one “C” class share fully paid. In addition, the balance sheet records non-current liabilities of $844,275, being unsecured shareholder loans. Ricards does not know about these loans. Mr Salameh says Pacific Springs does not retain separate accounts for shareholder loans so he cannot say how much money each shareholder has lent to the company but does remember Dean telling him on occasion that he often paid the company’s expenses using monies belonging to Ricards and Dean and, if the company could not reimburse them in the short term, Dean wanted these amounts recorded as a liability of the company to Ricards and Dean. To the best of Mr Salameh’s knowledge, these amounts were recorded in the financial statements as liabilities.

110. Mr Salameh says he has not been able to prepare the tax returns or financial statements for Pacific Springs for the 2017 and 2018 financial years as Dean had not finished completing the necessary accounting entries before he passed away. Based on Business Activity Statements (BAS) lodged to 30 June 2018, it appears that the company did not make a profit in the 2017 or 2018 financial years. Pacific Springs has a current debt to the Australian Taxation Office in the amount of $10,271.99 (which Ricard has since paid) and, on lodging further BAS statements, this debt will likely increase by another $15,000 to $20,000. Mr Salameh estimates that the value of Pacific Springs’ assets is considerably less than its potential liabilities. In cross-examination, Ricards said Pacific Springs supplied restaurants and the company was not really trading given the COVID-19 pandemic.

These proceedings

111. In Gani’s third affidavit, he deposed that, since 2017, Gani, Jorida and other members of their family and Gani’s company, Star Horizon Global Limited, have lent Dean $938,000. Gani agreed that these loans were to Dean and not Pacific Springs and that, when Dean died, Gani became concerned about getting any of the money back. Gani agreed that he was very disappointed that he had not got this money back from Dean. Gani agreed that he was bringing these proceedings as he wanted to try and get back assets owned by Dean, “Yes, I would need to get back what I deserve to get back”.

112. On 23 October 2018, the plaintiffs’ solicitors wrote to Ricards’ solicitor, copied to the Irwan, enclosing details of their interest in Dean’s estate. The solicitor advised that there were a number of debts owed to the parents “but perhaps a more pressing issue is the management of Pacific Springs Pty Limited which owns a business called Nice Cream, which is wholly owned by the deceased[’s] parents but was operated by the deceased as director”. Attached to the email was a document bearing the signature of Gani and Jorida, although Jorida’s signature did not resemble that in her passport. Jorida said that it was her signature but then was not sure. Nor am I. Either way, the enclosure stated:

162. As to whether acts done by an executor before a grant of probate are valid, the law may presently be said to be unclear. There is much authority for the proposition that in New South Wales an executor cannot effectively commence legal proceedings before a grant of probate: Marshall v DG Sundin & Co Pty Ltd (1989) 16 NSWLR 463 at 473 per Yeldham J; Darrington v Caldbeck (1990) 20 NSWLR 212 at 214 per Young J; Byers v Overton Investments Pty Ltd (2001) 109 FCR 554; [2001] FCA 760 at [28] per Branson, North and Stone JJ; Scallan v Scallan [2001] NSWSC 1129 at [10] per Windeyer J cf Hewitt v Gardner (2009) 3 ASTLR 407; [2009] NSWSC 705 at [74] per Ward J. There is also longstanding authority that an executor cannot issue a notice to quit on behalf of a deceased landlord before a grant of probate: Ex parte Callan; Re Smith [1968] 1 NSWR 443 at 448 per Isaacs J.

163. However, these authorities were reviewed and a different view was taken by White JA in Carolyn Deigan as executrix for the estate of the late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299; (2019) 19 BPR 39,853 (Lockrey v Fussell). In that case, an executor issued two notices to rescind a contract for sale of land which had been entered into by the deceased as vendor. The first notice was issued shortly after the vendor’s death and before a grant of probate. The second notice was issued after a grant of probate. White JA gave a learned exposition of the case law and concluded at [173]:

In my view, the nettle should be grasped. Is it the case that before a grant of probate a bank cannot transfer moneys standing to the credit of a deceased’s account into an estate account in the name of the executor? Can an executor, before or without the grant of probate, not use those moneys to pay debts, funeral or testamentary expenses? Can an executor, before or without grant of probate, not transfer chattels to those entitled under the will? In my view on a purposive construction of ss 44 and 61 of the Probate and Administration Act, considering the background of those provisions, the executor does have such powers.

165. White JA noted that the title of the NSW Trustee under section 61 was a bare legal title with no powers of management or administration: at [174]. Further, under the general law, on the testator’s death, the executor was the beneficial owner of the real and personal estate which he or she held for the purpose of carrying out the functions and duties of administration and was a trustee in that sense: at [175], citing Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 at 17-18. At [176]:

Thirdly, an executor has authority derived from the will to collect assets, pay debts, manage the estate for the benefit of the beneficiaries, and make distributions. That authority is removed only to the extent that such removal is necessarily implied by the provisions of ss 44 and 61. Section 61 is concerned only with the vesting of legal title in the NSW Trustee for the limited purpose of preventing a possible gap in legal ownership of the estate. Section 44 provides for the estate of the deceased to pass to and become vested in the executor or administrator upon the grant of probate or administration, but that vesting operates as from death. In the interim there is no restriction on the executor’s authority to deal with the assets, except as arises by necessary implication from the fact that legal title is outstanding in the NSW Trustee. The NSW Trustee could not assert title against a person acquiring assets from the executor before grant, even if no grant was ever forthcoming.

166. Thus, his Honour concluded that the notice of rescission issued shortly after the vendor’s death was validly given by the executor but, if not, upon the grant of probate, the contractual rights were taken to have been vested in the executor as from the deceased’s death and the rescission was taken to be validly exercised: at [180]-[181]. The Chief Justice and Macfarlan JA approached the matter on the basis that the second notice of rescission was valid and thus it was not necessary to decide whether the executor had the power to issue the first notice before a grant of probate. Per Bathurst CJ at [5]:

In those circumstances, it is not necessary for me to express an opinion on the question of whether Ms Deigan, although named as executrix in the will, could not before the grant of probate exercise the right of rescission on behalf of and for the benefit of the estate, or on the question of whether if she did her action was retrospectively validated. The issues involved in the latter question are of considerable complexity and as White JA with respect correctly points out the conclusion which he has reached is contrary to at least that of Emmett J in Byers v Overton Investments Pty Ltd (2000) 106 FCR 268; [2000] FCA 1761 and the same conclusion reached by the Full Court of the Federal Court in that case, (2001) 109 FCR 554; [2001] FCA 760 at [24]-[28]. Although there is great force in the reasoning of White JA, it does not seem to me appropriate to decide that the decision of the Full Court of the Federal Court was plainly wrong in circumstances where it is unnecessary to do so.

167. I note Bathurst CJ’s description of White JA’s reasoning as having “great force”. This case does not concern the commencement of legal proceedings by an executor before a grant of probate, with which Byers v Overton was concerned. By parity of reasoning, however, the conclusion reached by the Full Court of the Federal Court in Byers v Overton would produce a different result than the conclusion reached by White JA in Lockrey v Fussell. This issue was not argued before me.

168. The answer in this case emerges from the fact that the appointment of Ricards as director and secretary was ineffective in any event. On 14 September 2018, Ricards consented to act as a director and secretary of Pacific Springs. On 14 September 2018, Ricards signed a “Memorandum of Resolutions of the Sole Director of the Company” in which it was recorded:

It was resolved that, having consented to act as a director of the company, [Ricards] be appointed …

169. That is, Ricards resolved that he be appointed. The resolution pre-supposed that he had power to do so. Ricards had no power under Pacific Springs’ constitution to appoint a director. Dean’s power to appoint a director had ceased on his death. The constitution did not envisage a director appointing a replacement director by a Will and Dean did not attempt to do so. The power to appoint a director thus rested with the company in general meeting. Section 44 of the Probate and Administration Act does not operate to render valid something which was invalid when done: Ex parte Callan; Re Smith.

170. Nor does section 201F of the Corporations Act assist. Section 201F provides:

Special rules for the appointment of directors for single director/single shareholder proprietary companies

…

(2)   If a person who is the only director and the only shareholder of a proprietary company:

(a)   dies; or

…

and a personal representative or trustee is appointed to administer the person’s estate or property, the personal representative or trustee may appoint a person as the director of the company.

…

(4)   A person who has a power of appointment under subsection (2) … may appoint themselves as director.

(5)   A person appointed as a director of a company under subsection (2) … or (4) holds office as if they had been appointed in the usual way.

171. Section 201F was utilised in Alexiou v Alexiou [2020] NSWSC 748 where the deceased was the sole shareholder in and director of the company and, after a grant of probate, the executrix transferred the share capital to herself and became a director in a company: at [8]. In Mavris v Level 12 Property Holdings Pty Limited [2018] NSWSC 957, Slattery J considered that section 201F(2) did not apply where neither letters of administration nor probate had yet been granted: at [3], [6]. Rather, his Honour appointed the deceased director’s wife as an administrator of the estate under section 74 of the Probate and Administration Act, under which the Court may, if it thinks necessary or convenient, appoint an administrator with the administration limited as the Court thinks fit. So appointed, the director’s wife could appoint herself as a director of the company under section 201F. But section 201F does not apply here as Pacific Springs had more than one shareholder, including shareholders other than the company’s former sole director. Thus, Ricards’ appointment as director was invalid.

SECTION 1322

172. Section 1322 of the Corporations Act provides:

Irregularities

…

(4)    Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a)    an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; …

and may make such consequential or ancillary orders as the Court thinks fit.

…

(6)   The Court must not make an order under this section unless it is satisfied:

(a) in the case of an order referred to in paragraph (4)(a):

(i)   that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii)   that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii)   that it is just and equitable that the order be made; and

…

(c)   in every case–that no substantial injustice has been or is likely to be caused to any person.

173. A case directly on point is the High Court’s decision in Weinstock v Beck, which concerned an order made under section 1322(4) in respect of the invalid appointment of a director where the company’s constitution was relevantly identical. There, the sole director of a company had been acting as a director for some 30 years. In fact, the director was not validly appointed as his appointment had lapsed by operation of the articles of the company at an annual general meeting in 1973. The director was unaware of this. In 2003, the director appointed another director under the equivalent of Article 36 and it was accepted that, as the appointing director was not himself validly appointed, nor was the additional director. In three separate judgments, their Honour’s upheld an order made by Barrett J under section 1322(4) declaring that the appointment of the additional director in 2003 was not invalid by reason of the fact that the appointing director did not hold office as a director at the time. The approach to be taken to construing and applying section 1322(4) was described by French CJ at [39]-[40]:

[39] Corporations, in contemporary Australian society, serve the purposes of enterprises, large and small, owned and operated by men and women, some of whom are sophisticated, knowledgeable and well-advised on matters of corporate governance and some, perhaps many, of whom are not. Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form.

[40] The dispensing power conferred on the Court by s 1322(4)(a) is not in the nature of a general absolution for all past errors. It does not authorise the making of an order declaring that an impugned act, matter or thing is valid. It allows a determination by the Court that the act, matter or thing done "is not invalid" by reason of a provision of the Corporations Act or a provision of the constitution of a corporation. The remedy may be sought by a party fearing or suspecting invalidity on such a ground or, as in the present case, to meet a contention of invalidity advanced by another party in adversarial proceedings. The effect of a declaration under the provision is limited to overcoming invalidity flowing from a particular contravention or contraventions. It could not be otherwise. It is only with respect to particular contraventions that the Court can reach the state of satisfaction required by s 1322(6).

See also Hayne, Crennan and Kiefel JJ at [53], [56] and Gageler J at [60]–[65].

174. Before an order can be made under section 1322(4), the Court must be satisfied of any one of the conditions set out in section 1322(6)(a)(i) to (iii) and, as such, the power to make an order under section 1322(4)(a) is not limited to cases of procedural irregularity: Weinstock v Beck at [10] per French CJ. Thus, it is not necessary for the defendants to establish that Ricards’ appointment was essentially of a procedural nature or that Ricards acted honestly, as the defendants sought an order on the basis that it is just and equitable that the order be made, that is, under section 1322(6)(a)(iii).

175. Noting the plaintiffs’ submissions that it would be difficult for the defendants to prove that Ricards acted honesty, I will address this suggested difficulty. In Re ICandy Interactive Limited (2018) 125 ACSR 369; [2018] FCA 533, Banks-Smith J collected the case law in respect of determining whether someone has acted honestly for the purposes of section 1322: at [54]-[57]. Relevant considerations include whether proper competent and expert advice was sought and obtained and whether the person has acted without deceit or conscious impropriety. Mr Ricards said that he was appointed as director at the suggestion of Mr Salameh. Mr Salameh deposed that he expressed the view that Dean’s Will had a provision which allowed Ricards to apply for and accept directorship of Pacific Springs and, given that the plaintiffs had a minority shareholding in the company, lived overseas, had shown no interest in the company in the past and were unlikely to do so now that Dean had died, Mr Salameh asked whether Ricards would like him to prepare the paperwork to make Ricards a director, to which Ricards agreed. Mr Salameh was not required for cross-examination. Thus, the unchallenged evidence is that Ricards acted in accordance with the advice of the company’s accountant. Ricards was entitled to assume that the advice was correct. I find that Ricards acted honestly.

176. As to section 1322(6)(a)(iii), “just and equitable” is not defined in the Corporations Act. In The Chinese Cultural Club Limited (2004) 49 ACSR 568; [2004] NSWSC 432, Campbell J, when considering section 1322(6)(a)(iii), adopted Barrett J’s review of the authorities considering how the phrase has been construed in other legislation in Eddy Lau Constructions Pty Limited v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273 at [45]-[47]. See likewise in Re Queensland Bauxite Limited (2018) 364 ALR 661; [2018] FCA 2113 per McKerracher J at [37] and Re Novonix Limited (2019) 141 ACSR 636; [2019] FCA 2198 per Jackson J at [27]-[28].

177. Taking the same approach, the words “just and equitable” are words of the widest significance and do not limit the jurisdiction of the Court to any case; it is a question of fact and each case must depend on its own circumstances: Re Bleriot Manufacturing Aircraft Co (1916) 32 TLR 253 at 255. A court directed by statute to proceed according to what is “just and equitable” is given a wide discretion with no necessary limit on the generality of the words, to be applied in their ordinary meaning as calling for the exercise of judgment in the conventional way: Thomas v MacKay Investments Pty Limited (1996) 22 ACSR 294 at 302 per Owen J. In Talga Ltd v MBC International Limited [1976] HCA 22; (1976) 133 CLR 622, Stephen, Mason and Jacobs JJ considered whether it was just and equitable that a transaction be treated as valid under the Banking Act 1974 (Cth). In reaching such a conclusion, at 634:

… The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters … which have no rational connexion with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.

178. Before making an order under section 1322(4), the Court must also be satisfied that no substantial injustice will be caused by the order sought: section 1322(6)(c). As to “substantial injustice”, detriment per se is not the same as substantial injustice. The question is whether the remedial order is unjust in the sense of causing such prejudice overall as to be unfair or inequitable, taking into account the interests of those directly affected: Super John Pty Limited v Futuris Rural Pty Limited (1999) 32 ACSR 398; [1999] NSWSC 627 at [14]-[15] per Santow J. 'Injustice' requires the Court to consider real, and not merely insubstantial or theoretical, prejudice. It is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice is in favour of making the order: Re Compaction Systems Pty Limited & the Companies Act (1976) 2 ACLR 135 at 150; [1976] 2 NSWLR 477; followed by French CJ in Weinstock v Beck at [11] per French CJ. See also In the matter of DAC Finance (NSW/QLD) Pty Limited [2020] NSWSC 182 at [35] per Gleeson J; Gofur v Bangladesh Islamic Centre of NSW (BIC) [2020] NSWSC 652 at [41] per Sackar J; Re A Bliss Clinic Pty Limited v Goodwin (No 2) [2020] FCA 869 at [104]-[107] per Colvin J; Car Buyers Australia Pty Limited v Australian Securities and Investments Commission [2020] FCA 599 per Gleeson J at [31]-[32].

Conclusion

179. I am satisfied that an order should be made under section 1332(4)(a) of the Corporations Act in respect of Ricards’ appointment as a director of Pacific Springs and any actions which he has taken since. The appointment was made on the advice of Pacific Springs’ accountant in circumstances where Ricards was the executor named in Dean’s Will, the beneficiary of Dean’s Estate and thus soon to become the majority shareholder, and the operations manager of the business for 18 years. Ricards was the obvious person for the job.

180. There is no evidence that Ricards has acted in any way untoward in the role of director since his appointment. Ricards is supported by professional accountants and lawyers and a long-serving office manager, Mr Teuma. The minority shareholders had never taken a role in the business and live overseas. Calling a meeting of shareholders will inevitably result in Ricards’ appointment, with no particular benefit to be gained from the time and cost involved in that process. Nor should those who have dealt with the company since Ricards’ appointment be left in any doubt about the validity of those dealings. I consider it just and equitable to make the order sought, and that no substantial injustice will arise from such an order.

LACHES

181. It is not necessary for me to consider the defences of laches and estoppel. I will however do so briefly. The defendants submitted that the proceedings were not commenced until almost 15 years after the 1,800 shares were allotted to Dean. Since that time, a significant amount of irremediable prejudice made it unconscionable to sanction the plaintiffs' relief. First and foremost, Dean had passed away. His evidence may have "cast a different complexion on the matter ". It was likely that documentary evidence had been lost by reason of the passage of time. Assuming that Dean owned the company, Ricards allowed Dean to make advances from their personal joint accounts to Pacific Springs as and when the company required working capital. Dean routinely paid business expenses incurred by Pacific Springs using his credit cards, particularly when the company was not generating sufficient cash flow to cover these expenses when they fell due for payment. Ricards marked-up a bundle of credit card statements identifying such payments. Dean then paid his credit card using Dean and Ricards’ personal bank account. Ricards marked-up a bundle of bank statements identifying such payments. Dean told Ricards that Pacific Springs would reimburse their joint bank account when the company was generating enough cash; amounts remaining unpaid would be recorded in the company’s accounts payable ledger in the meantime and, if Pacific Springs could not reimburse the monies in the short term, Dean would record the amounts as a loan to the company. An aged payables report for Pacific Springs indicates that some $300,000 of business expenses is yet to be reimbursed.

181. Ricards would not have agreed to this if he had known that Dean’s parents claimed to be substantial shareholders in the company. Nor would he have agreed to work for Nice Cream for the modest annual salary which he received, being from $20,000 to $40,000 a year from 2013 to 2016. Nor would Ricards have agreed to Pacific Springs Investments making unsecured loans to Pacific Springs, recorded in Pacific Springs’ balance sheet for 2016 at $183,467, being rent owed by Pacific Springs to the Pacific Springs Trust, which amount of indebtedness has since increased as Pacific Springs has not paid any rent since. Nor would Ricards have allowed Pacific Springs to occupy the Wolli Creek and Marrickville properties without paying market rent to the Pacific Springs Trust.

182. Even if the Court were not satisfied that the plaintiffs consented to or acquiesced in the share allotment, the plaintiffs were said to have been put on notice of the allotment many years ago. The plaintiffs were informed by Dean of his desire to be the effective owner of Pacific Springs. The plaintiffs stopped being involved in the annual general meetings of Pacific Springs from 2004 onwards, in circumstances where they had previously been involved. Such a fact, along with the lack of any financial reports delivered to the plaintiffs, would have indicated that Dean had decided to take over and operate the company as if it were his own consistent with his stated desire. The plaintiffs refrained from taking any steps to monitor the company or their shareholding, including by consulting publicly available material or the records of Pacific Springs, to ensure it remained unaffected notwithstanding indications that Dean had decided to take it over as if it was his own. It was implausible that the issue had not arisen earlier, in circumstances where the plaintiffs were receiving substantial payments from Pacific Springs, which they were treating as dividends. It was difficult to see how the shareholding of Pacific Springs would not have arisen whilst the plaintiffs managed their own tax affairs. In light of these matters, the Court would be satisfied that it would be practically unjust to grant the relief sought.

183. The plaintiffs contended that the equitable doctrine of laches had no application as the parents had not acquiesced in the allotment of shares as they had no knowledge that it had occurred. Any prejudice from the passage of time was said to have been attributable to Pacific Springs’ failure to maintain proper books and records as required under the Corporations Act throughout the period during which Dean was its director. The plaintiffs’ evidence indicated that they continued to be involved in the affairs of the company throughout, which was inconsistent with an appreciation by them that they were no longer the controlling shareholders. The Loan Agreement and Fixed and Floating Charge were also said to demonstrate that the defence of laches lacked substance as the documents established the plaintiffs' continuing involvement in the affairs of Pacific Springs (a submission perhaps inconsistent with the plaintiffs’ insistence that they did not execute the documents). Gani said that if he had known that he and his wife’s shareholding in Pacific Springs had been diluted, he would have taken steps to rectify the position earlier.

Principles

185. There was no dispute as to the principles. In Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410 at [163], Young JA (Allsop P and Macfarlan JA agreeing) identified the elements of the defence of laches as comprising three components: knowledge of the wrong, delay and unconscionable prejudice caused by the delay. This summary has been approved in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [415] per Gleeson JA (Meagher and Barrett JJA agreeing); Chung-Yi Pty Ltd v Chih-Yang Chang (No 2) (2018) 128 ACSR 585; [2018] NSWSC 1112 at [96] per Ball J; Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664 at [568] per Riordan J; Clementi v Rossi [2019] VSC 725 at [330] per McMillan J.

186. In Crawley v Short, Young JA also stated (at [164]): "the key element is whether, in all the circumstances, “it would be practically unjust to give a remedy ... Normally, that means that the defendant must show both delay and detriment suffered by the delay". As Young JA further stated in that same case (at [175]):

…all three elements must be taken together and the ultimate question asked as to whether, in all the circumstances, the plaintiff has impliedly, in equity, released the defendant from his or her claim or has so acted as to make it unfair that the claim should now succeed.

187. This evaluative analysis accords with what Meagher JA stated in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [73] (with whom Beazley P and Emmett JA agreed):

The doctrine of laches is directed to a broader and different question. That question is whether, as between the parties, it would be practically unjust to give relief which otherwise would be just. In answering that question, account is taken of the length of any delay, the nature of acts done during the period of that delay, whether the plaintiff had sufficient knowledge to justify the commencement of proceedings, whether there has been prejudice to the defendant or others and the nature of the relief claimed…

188. In respect of the element of knowledge, as Young JA noted in Crawley v Short at [168], the authorities give little guidance as to the extent of the knowledge required. Further, as Young JA observed in Crawley v Short at [180], "it is an unrewarding task to search for some formula as to just what degree of knowledge must exist in any particular case". Instead, it is a "question of fact and degree in each case to be taken together with all the other facts of the particular case ": at [169]. Importantly, however, knowledge encompasses knowledge of the facts giving rise to the cause of action and, as such, the "availability of the means of knowledge is as good as knowledge": Savage v Lunn [1998] NSWCA 204 (unreported) at 3 per the court; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9)and (No 10) (2008) 39 WAR 1; [2008] WASC 239; [2009] WASC 107 at [9306] per Owen J. As the learned authors of Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) state (at [38-070]):

…in the kind of laches which consists of a plaintiff's long delay leading to the defendant (or third persons) reasonably altering their position to their detriment in reliance thereon, there seems to be no reason why the fact that the plaintiff is ignorant of his or her rights should bar a defence of laches.

189. This accords with the authority confirming that it is not necessarily universally, but rather "ordinarily... necessary that there should be sufficient knowledge of the facts constituting the title to relief”: Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 241 per Lord Selborne; Savage v Lunn [1998] NSWCA 203 (unreported) at 28 per the court. As Dr I. C. F. Spry states in his treatise, Principles of Equitable Remedies (9^th ed, 2014), p 447: "It is ordinarily sufficient that the plaintiff has been put on suspicion, that is, that he is aware of sufficient matters to raise in his mind a doubt whether an infringement of his rights has taken place ".

190. In respect of the element of unconscionable prejudice, there must be substantial detriment, not merely a trivial inconvenience, caused by the plaintiff’s delay: Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415 at [153] per Doyle CJ; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) at [9314] per Owen J. The classic example of prejudice is where the defendant has reasonably acted to his or her detriment in reliance on the plaintiff’s delay: Lamshed v Lamshed (1963) 109 CLR 440; [1964] ALR 321; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) at [9312] per Owen J. Prejudice may also arise where evidence is lost or witnesses have passed away. In this respect, the issue is not whether evidence per se may have been lost; rather, it is whether evidence that "may have cast a different complexion on the matter has been lost”: Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 at 330 per Wilson, Toohey and Gaudron JJ; Gillespie v Gillespie [2013] QCA 099; [2013] 2 Qd R 440 at [94]-[95] per Margaret Wilson J (McMurdo P and White JA agreeing).

191. Ultimately, as noted above, an evaluative analysis must be conducted, cognisant of the matters identified by Meagher JA in Gerace v Auzhair Supplies at [73], as well as "the type of transaction" under consideration (see Crawley v Short at [180]). As Dixon CJ, Webb and Kitto JJ said in Fysh v Page [1956] HCA 13; (1956) 96 CLR 233 at 243:

…If a plaintiff establishes prima-facie grounds for relief the question whether he is defeated by delay must itself be governed by the kind of considerations upon which the principles of equity proceed. If the delay means that to grant relief would place the party whose title might otherwise be voidable on equitable grounds in an unreasonable situation, or if, because of change of circumstances, it would give the party claiming relief an unjust advantage or would impose an unfair prejudice on the opposite party, these are matters which may suffice to answer the prima-facie grounds for relief…

Conclusion

192. The elements of delay and prejudice are clearly present. The shares were allotted in 2004 and no issue was taken with the propriety of the allotment until 2018, 14 years later. Prejudice is obvious: Dean is no longer able to give evidence; his evidence would have been pivotal. Whilst some documents survive, it is likely that other contemporaneous records would have been available if this claim had been brought sooner. Further, Dean and Ricards worked in the business in the intervening 14 years and engaged in a series of transactions which may not have occurred if the parents had asserted their ownership of the business sooner, such as providing funds to the business to support cash flow, leasing properties to the business at below market rent and not taking steps to recover unpaid rent.

193. If, contrary to what I have found, Dean allotted the 1,800 ordinary shares to himself without his parents’ knowledge and consent, the following matters are relevant to the element of knowledge:

1. Gani and Jorida are experienced businesspeople. They have been engaged in a manufacturing business and hotel business for some years. Jorida is the president of PT Gadjah Ruku.

2. At no time did the parents involve themselves in the operations or management of Pacific Springs, nor request any financial information from the director of the company.

3. Since 2004, a record of the share issue has been publicly available from a search of ASIC’s records.

4. Although Pacific Springs made regular payments to the parents or at their direction for several years, no payments were made after February 2010. Notwithstanding this, eight more years passed before the parents suggested that they were sole shareholders of the company.

194. If, as the parents said: the purpose of the business was to make money for the Mualim family; Dean regularly told Gani that the business was making money for Gani; the moneys which were paid to them were profits, then the fact that they had not received any money since 2010 must have raised a doubt as to whether the company was profitable as Dean said, or whether their rights as shareholders had been infringed. If the plaintiffs did not know that Dean had allotted 1,800 ordinary shares to himself in 2004, then the plaintiffs had the means of knowledge by performing a simple and inexpensive search of public records. As experienced businesspeople, it would have been within their field of competence to arrange for such searches to be undertaken. Where the parents left the running of the business to the director without any involvement nor return for a protracted period, I consider that the parents were either on notice that the shareholding had changed or were no longer interested in the shareholding of the company. Taking all three elements together, I consider that the defence of laches is established. The plaintiffs acted as to make it unfair that their claim should now succeed.

ESTOPPEL

195. Further, it was said that the plaintiffs did not claim to be substantial shareholders of Pacific Springs and, by their silence, impliedly represented to Ricards that they were not the substantial shareholders of Pacific Springs and, induced by and acting in reliance upon this representation, Ricards acted to his detriment in the manner already described such that the plaintiffs are now estopped from asserted that they are the substantial shareholders of the company. The defendants submitted that, in failing to say anything about Dean's shareholding in Pacific Springs (of which they had sufficient knowledge), they impliedly represented that Dean and not them was the majority shareholder and owner of Pacific Springs. Dean and, more particularly, Ricards have acted to their detriment in reliance upon the aforementioned representation. Ricards gave evidence as to conduct he only undertook, and permitted to be undertaken including working for Pacific Springs for below minimum wage, and allowing Dean to meet company expenses with their joint funds, because he believed that Dean was the owner of Pacific Springs. That conduct flowed, in part, from the implied representation stemming from the plaintiffs as to the shareholding ownership in Pacific Springs as their conduct reinforced that Dean was the owner of the company. As Gageler J observed in Sidhu v Van Dyke (2014) 251 CLR 505 at [90]:

"The respondent did not need to establish that the belief to which she was induced by the appellant's representations was the sole or predominant cause of the course of action or inaction she took but, in the language of Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd, she did need to establish that the belief was a "contributing cause".

196. The defendants submitted that this was met in the present case, as was the proposition that the plaintiffs' implied representation caused Ricards to alter his position: Sidhu v Van Dyke at [92] per Gageler J. If the plaintiffs were not held to their implied representation, prejudice would be sustained by Ricards: Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 at 674-675 per Dixon J.

197. The plaintiffs submitted that their silence could not give rise to an estoppel as a representation must be clear and unambiguous to give rise to an equitable or promissory estoppel: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 435.

Conclusion

198. It has been held that "mere silence or inaction cannot amount to a representation unless there be a duty to disclose or act": Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947; [1986] AC 80 at 110 per Lord Scarman for the court. However, silence can found an estoppel if the omission to communicate, in conjunction with other surrounding circumstances, creates an implied representation: Amaya v Everest Property Holdings Pty Ltd; Firmstone v Everest Property Holdings Pty Ltd; Sarkar and Islam v Everest Property Holdings Pty Ltd (2010) 15 BPR 28,695; [2010] NSWCA 315 at [156] per Young JA (Beazley P and Campbell JA agreeing); K. R. Handley, Estoppel by Conduct and Election, (2nd ed, 2016, London, Sweet & Maxwell) at [4-005] (citing Black CJ in Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31 at 32).

199. On the plaintiffs’ evidence, the only person they spoke to about Pacific Springs was Dean. They never talked to Ricards about the business. It must have been apparent to Gani and Jorida, on their regular visits to Australia, that Dean and Ricards were devoting themselves to a business which Gani and Jorida owned. The question is whether the parents had a duty to disclose their shareholding to Ricards. I am not satisfied that they did. The plaintiffs were entitled to think that Dean would inform his partner about the company’s shareholders, to the extent that Ricards needed to know. The plaintiffs were entitled to think that it was a matter between Dean and Ricards as to how much of Ricards’ time and resources were devoted to the company. The parents were entitled to assume that adequate arrangements had been made to compensate Ricards for his efforts, such as a wage acceptable to Ricards. The plaintiffs were entitled to think that, even if Dean was giving Ricards wrong information about Pacific Springs, then Ricards was unlikely to believe what they told him in preference to what his husband told him. In the circumstances, the plaintiffs’ silence did not amount to a representation that Dean was the majority shareholder in the company as I do not consider that the plaintiffs had a duty to inform Ricards of the true position.

Orders

200. For these reasons I make the following orders:

1. Dismiss the Third Amended Originating Process filed on 19 June 2019.

2. Order pursuant to section 1322(4) of the Corporations Act 2001 (Cth) that the appointment of Ricards Dzelme as director and secretary of Pacific Springs Pty Ltd, and any act performed by him as a director or secretary of Pacific Springs Pty Ltd, is not invalid.

3. Order the plaintiffs to pay the defendants’ costs of the claim and cross claim.

4. Grant liberty for any party wishing to be heard in respect of any variation of Order 3 to apply within 7 days.

**********

Amendments

10 February 2021 - Correction to representation on coversheet.

Decision last updated: 10 February 2021