Richard Harding as Trustee for RN Harding Investment Trust v Merrylees - [2020] WADC 54

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   RICHARD HARDING as Trustee for RN HARDING INVESTMENT TRUST -v- MERRYLEES [2020] WADC 54
CORAM:   GILLAN DCJ
HEARD:   28-30 JANUARY 2020
DELIVERED          :   4 MAY 2020
FILE NO/S:   CIV 3866 of 2017
BETWEEN:   RICHARD HARDING as Trustee for RN HARDING INVESTMENT TRUST
Plaintiff
AND
DEAN LEWIS MERRYLEES
First Defendant
KALMECH PTY LTD
Second Defendant

Catchwords:

Debt recovery - Undocumented - Oral agreements - Agreements between friends - Advances for a share of business and for loan - Variation of agreements - Dispute about who was the borrower - Turns on own facts

Legislation:

Nil

Result:

Judgment for the plaintiff in a sum to be determined

Representation:

Counsel:

Plaintiff	:	Mr M C Goldblatt
First Defendant	:	In person
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Fairweather Litigation
First Defendant	:	Not applicable
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

Andrews v Nominal Defendant (1968) 70 SR (NSW) 419
Atwell v Roberts [2013] WASCA 37; (2013) 43 WAR 507
Bechara v Sotrip Pty Ltd [2011] NSWSC 252
Falk v Haugh [1935] HCA 35; (1935) 53 CLR 163
Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd [1998] 1 VR 50
Fazio v Fazio [2012] WASCA 72
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
Porter v Sundance Resources Ltd (No 2) [2015] WASC 493
Re Clune; Ex parte Verge v Isabella Nominees Pty Ltd (in liq) (1988) 14 ACLR 261
Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78
Reinforced Concrete Pipes Pty Ltd v Bonlar Pty Ltd (Unreported, WASC, Library No 950402, 7 August 1995)
Sims v Bond (1833) 5 B & Ad 389, 393; (1833) 110 ER 834
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
Vasse Felix Pty Ltd v Marton (Unreported, WASC, Library No 980101, 6 March 1998)

GILLAN DCJ:

In his capacity as trustee of the RN Harding Investment Trust, the plaintiff claims the recovery of the balance of funds allegedly advanced by the plaintiff out of trust funds in July 2012 by a first advance of $300,000 and a second advance of $600,000. Part of those advances have allegedly been repaid.
The plaintiff claimed from the first defendant:
(a)the sum of $542,532.49; and, either
(b)outstanding interest on that sum at the rate of 7.54% per annum calculated from the date of each advance of funds pursuant to a loan agreement as amended to the date of payment. In closing a claim for that interest compounded on a daily basis was not pressed; or
(c)in the alternative, interest on the sum of $542,532.49 at a rate of 6% per annum from the date of each advance pursuant to a loan agreement as amended to the date of judgment pursuant to s 32 of the Supreme Court Act 1935 (WA).
The basis on which the funds were advanced was alleged to be pursuant to oral agreements made and later varied and entered into after negotiations conducted solely between the plaintiff and the first defendant. At trial there proved to be a considerable amount of common ground between the two witnesses and this action falls to be resolved on a determination of what was orally agreed at various times between them, who each of them were acting for during those negotiations and what was the legal effect of those various agreements.
The plaintiff's claim is brought as trustee. Unless it becomes necessary to do so, I intend to refer to the plaintiff without drawing the distinction between his personal and trustee capacity and will deal later in these reasons as to whether the plaintiff has made out his entitlement to recovery as trustee.
The action was commenced against the first defendant, an individual, and the second defendant, a company, seeking recovery against them jointly. The second defendant was placed into liquidation on about 2 April 2019. The claim against the second defendant was accordingly stayed and no application for leave to proceed was made.
I was told from the bar table, and it appeared at trial to be common ground, that a proof of debt in the insolvency of the second defendant was lodged and there is unlikely to be any return to unsecured creditors.

Plaintiff' pleaded case

The plaintiff's pleaded case is that, as a consequence of the failure to fully repay the two advances, the first defendant or the first defendant jointly with the second defendant owes him the sum of $542,532.49.
The plaintiff pleads that the first advance of funds in the sum of $300,000 was made 5 July 2012. That advance is alleged to have been made pursuant to the request of the first defendant on behalf of the first and second defendants in consideration for the acquisition by the plaintiff of 25% of:
(a)the shares in Conwal Pty Ltd (then known as Kalmech Pty Ltd); and/or
(b)the business and assets of the business trading as 'Kalmech Mechanics and Motor Engineers' and 'Kalmech Truck Mechanics',
(together the Kalmech Business), which the first and second defendants had agreed to acquire from Mr Cornelius Carr Wallace (Mr Wallace) who was the sole director, secretary and shareholder of Conwal.
The advance of $300,000 is alleged to have been made by electronic funds transfer from the plaintiff's bank account with the National Australia Bank to the second defendant's bank account with Westpac Banking Corporation.
The plaintiff further pleads that on or about 11 July 2012, at the request of the first defendant, the plaintiff and the first and second defendants entered into an oral agreement by which the plaintiff agreed to lend the further sum of $600,000 to the first and second defendants to enable the first and second defendants to complete the acquisition of the Kalmech Business from Mr Wallace (the Loan Agreement).
A second advance in the sum of $600,000 was made on or about 13 July 2012 pursuant to the Loan Agreement. The advance is alleged to have been made by electronic funds transfer from the plaintiff's bank account with the National Australia Bank to the second defendant's bank account. The advance of $600,000 is alleged to have been made to the first and second defendants and to be repayable on demand.
It is further alleged that subsequent to 23 July 2012:
(a)the first and second defendants conducted the Kalmech Business;
(b)the plaintiff did not acquire 25% or any part of it. I pause here to note that the plaintiff's position at trial was that the plaintiff did not know and could not have known who the parties to any acquisition of the Kalmech business were, the terms on which it was acquired or, with any certainty, who operated it after acquisition. I will come back later to which of the defendants acquired and operated the Kalmech Business and the basis of its acquisition; and
(c)at the request of the first defendant, the plaintiff and the first and second defendants orally agreed to amend the Loan Agreement, so that the first advance of $300,000 would be converted to and treated as a loan by the plaintiff to the first and second defendants on the same terms as applied to the advance of $600,000.
The plaintiff pleads that two substantial part repayments were made by the second defendant to the plaintiff of $100,000 on 3 May 2013 and $416,500 on 4 September 2013. Payment of those sums by the second defendant were admitted by the first defendant.
The plaintiff pleads that on or about 26 February 2014 at the request of the first defendant the plaintiff and the first and second defendants orally agreed to further amend the loan agreement so that in consideration of the plaintiff not immediately demanding repayment of the outstanding balance and payment of statutory interest, the first and second defendants would pay interest to the plaintiff on the money lent them from the date of each advance of funds to the date of payment at the rate of 7.54% per annum compounded on a daily basis.
It is then pleaded that between 14 August 2014 to 17 January 2018 further sums were paid by the second defendant usually in weekly intervals of $1,000.
By the close of the evidence the sums advanced and repaid were uncontentious. I will come back to this later in these reasons.

The defendant's pleaded case and the conduct of the trial

The first defendant's defence dated 28 November 2017 consisted of some admissions of formal matters and that most of the payments from the second defendant to the plaintiff had been made but otherwise consisted of a series of non-admissions and a denial that he, personally, owed money to the plaintiff.
The second defendant had, prior to liquidation, filed a substantive defence which among other things denied that the first defendant was liable to the plaintiff and set out a detailed case as to why. Up until liquidation in April 2019 both defendants had been represented by the same firm and that firm continue to represent the first defendant until it obtained an order that it cease to act in late 2019. Notwithstanding, the first defendant had never adopted the substantive defence filed by the second defendant.
Pre-trial directions were made with respect to the conduct of the matter leading up to and at trial. Those directions included that the parties' evidence‑in‑chief would be on affidavit subject to the trial judge giving a different direction at trial and providing for the exchange of those affidavits prior to trial. Directions were also made regarding giving notice of objection to the contents of the affidavits exchanged. In each case after directions were originally made timetabling those events, the time for compliance had been extended.
The first defendant had not, prior to trial filed or served any affidavits containing the evidence in chief to be led on his behalf and had not given notice of any objection to the affidavit material filed on behalf of the plaintiff.
When the matter came on for trial, counsel for the plaintiff opened his case in detail and then I heard from the first defendant as to what his case was. In summary, the first defendant's position in opening and as it developed throughout the trial was that at all times the first defendant was, to the knowledge of the plaintiff, acting solely as director of and on behalf of the second defendant, any arrangements between the parties although conducted through him were between the plaintiff and the second defendant and that as a consequence he owed no personal liability to the plaintiff.
Counsel for the plaintiff pressed me to preclude the first defendant from cross-examining outside of his pleaded case which he submitted was essentially a bare denial. The plaintiff's counsel said the first defendant should be precluded from putting positive assertions of different and un-pleaded factual scenarios to the plaintiff.
Counsel for the plaintiff also contended that I should not allow the first defendant to give any evidence because of his failure to comply with the requirement that evidence‑in‑chief be on affidavit.
My view was that the matters raised by the first defendant in opening appeared to me to consist of a denial of the terms of the agreements as alleged by the plaintiff rather than an assertion of a positive alternative case. The matters raised were so intrinsically linked with the plaintiff's pleaded case that the first defendant should be entitled to cross‑examine consistently with the matters raised in his opening address but should be limited from cross-examining about any matters that fell outside of those disclosed in his opening address.
I also took the view that notwithstanding the first defendant's failure to put on affidavit material, that, if the plaintiff's counsel were given an opportunity to prepare a cross‑examination after having heard the first defendant's evidence‑in‑chief then there would be no material prejudice to the plaintiff. Accordingly, I allowed the first defendant to give evidence in the trial.
Matters proceeded on that basis.

Evidence and general assessment of witnesses

Both the plaintiff and the first defendant gave evidence in this matter. They were the only witnesses. The plaintiff's evidence‑in‑chief was contained in his affidavit sworn 12 June 2019 and the annexures to that affidavit.[1] The plaintiff was cross‑examined.
[1] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, with attachments RNH1 tabs 1 - 11.
The plaintiff's affidavit evidence-in‑chief was generally cogent and consistent with the documents annexed to his affidavit. Cross‑examination was fairly limited and he was not substantially shaken in his evidence on cross‑examination.
Viva voce evidence was given by the first defendant. I have real reservations about the first defendant's evidence in general because the first defendant demonstrated little real knowledge or understanding of the business structures he had put in place and,[2] his evidence was on occasions self-serving and lacking in specificity. The first defendant did not make discovery of documents and on his own repeated admission he did not have a very good recollection of any of the events. For those reasons I am reluctant to accept his evidence unless it is substantiated by documentation or was consistent with other evidence.
[2] ts 269 - ts 270.
The evidence also consisted of exhibit 2 - exhibit 11.

Matters in issue

At the end of the evidence it was apparent that there was considerable common ground. I agree with the submissions made by counsel for the plaintiff at the close of evidence that it was uncontentious that:
(a)in the time leading up to July 2012 the plaintiff and the first defendant in their personal capacities had known each other for years, the first defendant had been employed by a company associated with the plaintiff and they were good friends;
(b)all discussions between the parties with respect to these matters were between the plaintiff and the first defendant. The plaintiff did not disclose during those discussions that he was acting in his capacity as trustee of the RN Harding Investment Trust;
(c)on 5 July 2012 there was an advance of $300,000 from a NAB bank account in the name of RN Harding Investment Trust at the direction of the first defendant into the bank account of the second defendant which was then known as Degime Pty Ltd;
(d)the $300,000 was paid after the plaintiff and the first defendant had reached agreement that after the Kalmech Business was acquired from its then owner, the payment $300,000 was in consideration of the plaintiff obtaining 25% of that business. Except to the extent that the acquiring party would be associated with the first defendant, the manner of acquisition either by the purchase of the assets comprising the Kalmech Business or shares in any company then owing that business was not settled at that early stage and the legal form which any 25% interest would take was then the subject of discussion but not agreement between the plaintiff and the first defendant;
(e)on 13 July 2012 there was a further advance of $600,000 from a NAB bank account in the name of RN Harding Investment Trust at the direction of the first defendant into the bank account of the second defendant;
(f)the $600,000 was a loan to enable the completion of the purchase of the Kalmech Business and that it would be repaid as soon as possible. There was then no agreement to pay interest on the $600,000, it was not expressly agreed to whom the loan was made;
(g)on 3 May 2013 the sum of $100,000 was paid by the second defendant to the plaintiff;
(h)on 4 September 2013 the sum of $416,500 was paid by the second defendant to the plaintiff;
(i)on 14 August 2014 the sum of $25,000 was paid by the second defendant to the plaintiff; and
(j)in the period from 25 July 2016 to 27 March 2019 further sums were paid by the second defendant to the plaintiff instalments of $1000 dollars usually in weekly intervals. The evidence discloses that the further sums amounted to $133,000.[3]
[3] Exhibit 1, affidavit of plaintiff sworn 12 June 2019 with attachments RNH1 tabs 56.
At the end of the trial the plaintiff's counsel's analysis of the issues that I need to resolve as paraphrased and added to by me were:
1.was the first defendant acting in his personal capacity or for himself and also for the second defendant or solely on behalf of the second defendant in reaching agreement for the acquisition of a 25% share in the Kalmech Business by the plaintiff in return for $300,000? The plaintiff contends that the first defendant was acting in his personal capacity or for both himself and the second defendant. The first defendant contends he was acting solely on behalf the second defendant. I add to this: what were the terms of that agreement?;
2.was the first defendant acting in his personal capacity, for himself and also for the second defendant or solely on behalf of the second defendant in reaching agreement for the loan of $600,000 by the plaintiff. I would put that issue another way, to whom was the loan of $600,000 made? The plaintiff contends that loan was to the first defendant because the first defendant was acting in his personal capacity or to the defendants jointly as the first defendant was acting for both himself and the second defendant. The first defendant contends the loan was to the second defendant and he was acting solely on behalf the second defendant;
3.was further agreement reached on about 25 ‑ 26 February 2014 between the plaintiff and the first defendant:
(a)that the advance of $300,000 would be converted to a loan repayable on demand, and if it was, was that agreement to take effect immediately or on the execution of a written agreement; and
(b)if I find that the prior agreement relating to purchase of a 25% share in the business for $300,000 and the loan agreement were made with the first defendant in one capacity, was that capacity altered so that the loan would be repayable by the first defendant personally or both the first and second defendants jointly;
(c)in return for not making an immediate demand, was it further agreed on or about 25 ‑ 26 February 2014 that interest would be paid on the sum of $300,000 and any of the outstanding balance of the $600,000 loan:
(i)at the rate of 7.54% per annum to be compounded daily;
(ii)from the date of each advance;
4.was the plaintiff acting on behalf of the RN Harding Investment Trust in respect to these matters.
While the plaintiff's counsel included in his analysis of issues whether there was an agreement as to compounding of any interest daily he also expressly abandoned the plaintiff's claim to compound interest.
The defendant's position is encompassed within the analysis of the issues for resolution undertaken by counsel for the plaintiff and added to by me but put simply it is that at no time did he personally take a loan or engaged in any of the negotiations other than in his capacity as a director of second defendant and that he was not personally liable for the repayment of any outstanding sum.

Background to the relationship between the parties

It is convenient to say a little about each of the plaintiff and the first defendant and how they came to be friends.
The plaintiff is now some 56 years of age. By trade he is a fitter and machinist and came to Western Australia from Victoria in about 1987 when he was 24 years of age. After initially working in Perth he then took work as a fitter and welder for various companies in the mining industry in Western Australia and in Northern Territory.
Eventually the plaintiff ended up in Kalgoorlie, the goldfields, and in about May 1992 he started his own company called Preventative Maintenance Team Pty Ltd, as he said, 'with a white Toyota ute and a dog'.[4] That company initially provided breakdown maintenance services.
[4] Affidavit of plaintiff sworn 12 June 2019, par 8.

Over time business grew and developed into other areas and in 1998 the name of the company was changed to Orion (WA) Pty Ltd and it was then providing services to the mining industry which included labour hire, machine rental and heavy haulage.
On about 6 November 1998 a trust called the 'RN Harding Investment Trust' was formed and the plaintiff was appointed the trustee of that trust.[5]
[5] Affidavit of plaintiff sworn 12 June 2019, pars 26 - 27, RNH1 tab 1.
The plaintiff further expanded his business interests and in 2009 he together with another person formed a company called Orionstone Pty Ltd which was a success but which ultimately passed from the plaintiff's control and from July 2012 the plaintiff was a non‑executive director of that company.
The plaintiff and the first defendant met in about 1989. At that time the first defendant was an apprentice fitter and had come to work on a mine where the plaintiff was also employed. They, along with a third man, became firm friends and the plaintiff would stay at the home of the first defendant or at the home of the other man when the plaintiff came to Perth and they would all socialise together.
In mid-2007 the first defendant moved to Kalgoorlie and came to work at Orion (WA) Pty Ltd as a workshop supervisor. The first defendant later worked at Orionstone and ran the Kalgoorlie depot for Orionstone until 2012.

Was the first defendant acting in his personal capacity, for himself and also for the second defendant or solely on behalf of the second defendant in reaching an agreement regarding the acquisition of a 25% share in the Kalmech Business for $300,000? What were the terms of the agreement?

I will first set out my findings with respect to how the agreement was made and the terms of the agreement along with the plaintiff's state of knowledge about the agreement reached for the acquisition of the Kalmech Business.

Background to the agreement regarding the acquisition of a 25% shareholding on the Kalmech Business

In the first half of 2012 the first defendant came to the plaintiff and told him that he was interested in leaving Orionstone and buying a truck maintenance business in Kalgoorlie called 'Kalmech' owned by Cornelius Wallace (Mr Wallace). The plaintiff's diary entry confirms that occurred on 1 June 2012.[6]
[6] Affidavit of plaintiff sworn 12 June 2019, par 32, RNH1 tab 2.
The plaintiff knew Mr Wallace and his evidence was that Mr Wallace owned the Kalmech Business which was considered by the plaintiff to be a good business. For reasons I will set out later, in June 2012 the Kalmech Business was owned by a company then known as Kalmech Pty Ltd (ACN 101 496 137). I will refer to Kalmech Pty Ltd (ACN 101 496 137) as Kalmech One in these reasons.
I accept the first defendant's evidence that the plaintiff told the first defendant in very general terms about the desirability of using a company and a family trust structure to purchase a business. They were friends, the plaintiff was familiar with such structures and the first defendant had not previously owned or operated his own business and it is likely the plaintiff gave this general assistance to him.
I am satisfied that the first defendant then, of his own accord, approached an accountant and:
(a)on 8 June 2012 Brutum Pty Ltd (ACN 158 886 536) (Brutum) was incorporated and had as its founding directors the first defendant and his wife, Gina Merrylees, and each of the first defendant and his wife had an equal shareholding in it; and
(b)on 12 June 2012 Degime Pty Ltd (ACN 158 927 890), as the second defendant was then known, was incorporated and had as its founding directors the first defendant and his wife and, as its sole shareholder, Brutum.
The first defendant's evidence was that a family trust was created of which Brutum was the trustee[7] but he did not produce any trust deed and the company search of Brutum[8] is inconsistent with that evidence because it shows that the shareholding in that company is held beneficially by the first defendant and his wife. Nothing turns on this but it is an example of inconsistency between the first defendant's evidence and the documentary evidence.
[7] ts 239.
[8] Exhibit 5.
The plaintiff and the first defendant gave consistent evidence that there was then no financial information about the Kalmech Business in the possession of the first defendant and that no financial information was provided by the first defendant to the plaintiff. The plaintiff relied on his own knowledge of the Kalmech Business and its assets in his assessment of the proposed business dealing.
The plaintiff's uncontested evidence was that he was not involved in any of the negotiations between Mr Wallace and the first defendant[9] regarding the sale of the Kalmech Business and that the first defendant at that early stage told him that the first defendant intended to buy the shares in the company that owned that business. The plaintiff did not recall the first defendant telling him whether the first defendant would personally purchase those shares or buy them in the name of another entity.
[9] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 36.
It was in dispute between the plaintiff and the first defendant whether the possibility of the plaintiff acquiring some share of the Kalmech Business was first raised by the plaintiff or the first defendant. It is unnecessary for me to resolve that dispute. It is clear that regardless of who first made the suggestion the parties eventually went forward on the basis that the plaintiff was going to take a 25% interest in the Kalmech Business however that would be structured.

The terms of the agreement regarding the acquisition of a 25% shareholding on the Kalmech Business

I have already said that it was common ground that the $300,000 advance was made on the basis that after the Kalmech Business was acquired, the $300,000 was in consideration of the plaintiff then acquiring 25% of that business: see [31](d).
The plaintiff's case was that no final agreement as to how that would be achieved was reached. I accept the plaintiff's evidence that by early July 2012 the plaintiff and the first defendant had discussed a proposal that the shares in Mr Wallace's company, Kalmech One would be acquired by the first defendant. Thereafter 75% of the shares would be held by the second defendant (then still named Degime Pty Ltd) and 25% of the shares would be held by a nominee of the plaintiff, FGI Holdings Pty Ltd,[10] but that the mechanism by which that outcome would be achieved was never finalised.
[10] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 39.
I accept the plaintiff's evidence about this because:
(a)the plaintiff's uncontested evidence was that it was never proposed that he or FGI Holdings Pty Ltd would acquire shares in Kalmech One, or the Kalmech Business directly from Mr Wallace;[11]
(b)the plaintiff's evidence, consistent with the first defendant's evidence, was that only first defendant and Mr Wallace ever discussed the terms of the acquisition of the Kalmech Business; and
(c)the plaintiff's evidence was that he did not know the purchase price and his uncontested evidence was that after the purchase was concluded he did not know who the acquiring party was or whether it was the shares in Kalmech One or the business assets and name of the Kalmech Business which had been acquired.
[11] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 39, 46, 48.
To the extent that the first defendant gave a different account of the way in which matters unfolded between himself and the plaintiff and between himself and Mr Wallace, I have difficulty in accepting any of his evidence because:
(a)the first defendant's evidence‑in‑chief was that he and Mr Wallace came to a verbal or handshake agreement sometime in June 2012 that the second defendant would acquire the business assets of the Kalmech Business together with the business name;[12]
(b)he denied that it was ever discussed that the purchase would be of Mr Wallace's company, Kalmech One,[13] but he could not remember any of the conversation that took place between the plaintiff, the first defendant and the solicitor, Ms Adamson[14] referred to below. The cross‑examination relating to these matters[15] demonstrated amply that the first defendant had little real recollection of what was discussed with Mr Wallace or with the plaintiff or any understanding of the legal implications of what was discussed;
(c)on cross-examination the first defendant stated several times that the discussions between himself and Mr Wallace were always 'to purchase Kalmech and all the assets'[16] which is inconsistent with his assertion that the second defendant would only purchase the assets and the name;
(d)The first defendant's evidence was also that there was never any sale agreement, only a tax invoice for the assets.[17] The alleged complete lack of documentation as to what was being acquired is an unusual or unorthodox approach to the sale of substantial business assets (including the name of the business) for a large amount of money. This is particularly so because the first defendant's evidence was that he never saw any financial information relating to the Kalmech Business, not even a profit and loss,[18] but that in addition to the business assets, all of the employees and the premises were taken over in some way.[19] The first defendant said all there was, was a list of assets being purchased and they (Mr Wallace and the first defendant) went through the shop and looked at those assets. Mr Wallace shut up shop on Friday and 'we opened' on Saturday in the same premises.[20] I therefore have difficulty in accepting the first defendant's evidence that there was no documentation other than a tax invoice when employees and premises went over along with the other business assets;
(e)neither the first or second defendant made discovery of any contract pertaining to the sale of shares in Kalmech Pty Ltd (ACN 101 496 137) or the Kalmech Business or any tax invoice for the assets. I was told from the bar table, that searches revealed no registered business name;
(f)the first defendant's evidence‑in‑chief[21] (which he reiterated during cross‑examination)[22] was that in March, April or May of 2012 the agreement reached between him and the plaintiff was that the plaintiff would acquire a 25% share on the agreed basis that the plaintiff would be a silent partner in the business, however, the plaintiff and the first defendant agreed in their evidence that on 3 July 2012 they together attended on a Ms Lynn Adamson, a solicitor with Valenti Lawyers, and discussed with her the preparation of a shareholders agreement between them;
(g)the draft shareholders agreement (expressed to be for discussion purposes) prepared by Ms Adamson and sent to both of them on 6 July 2012[23] says nothing about how the shares would be acquired but anticipates the acquisition of the shares in Kalmech One, and that after the acquisition there would be joint ownership of its shares as to 25% by FGI Holdings Pty Ltd as trustee for the RNH Investment Trust and 75% by the second defendant (then still named Degime Pty Ltd). This is inconsistent with the first defendant's evidence that in June 2012 he had agreed with Mr Wallace that the second defendant would purchase only the business name and assets and not Kalmech Ore; and
(h)further, while there was common ground that the plaintiff was never intended to be a director of any company, the fact that there was a discussion draft raising for discussion their ongoing relationship as shareholders is inconsistent with any final agreement on the role of the plaintiff, after acquisition, as silent partner having been reached.
[12] ts 240.
[13] ts 269, ts 271.
[14] ts 270.
[15] For example ts 271 - ts 273.
[16] ts 269.
[17] ts 240 - ts 241.
[18] ts 243.
[19] ts 243.
[20] ts 242.
[21] ts 238.
[22] ts 267.
[23] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 43, 45, RNH1 tab 6.
Following closely after agreement was reached between the plaintiff and the first defendant, that the plaintiff would acquire a 25% share in the business to be acquired, the first defendant finalised the acquisition of the Kalmech Business from Mr Wallace on a different basis altogether than that which until then had been anticipated. What occurred was the acquisition by the second defendant of the assets used in the Kalmech Business and its business name.

Whether the plaintiff knew that it was the assets and the name that were purchased, the terms of the purchase and who the purchaser was

The plaintiff's case that was that it was evident to him that from about 12 July 2012 that either the first or second defendant was operating the Kalmech Business, but he had no way of proving who it was because he had no direct knowledge of:
1.who the seller actually was;
2.the terms of any agreement by which that occurred;
3.the price paid;
4.who the purchaser actually was; or
5.the mechanism by which the sale came to pass.
The first defendant said that the plaintiff knew he was acting on behalf of Degime Pty Ltd in his negotiations. It is convenient here to deal with those assertions.
I am satisfied that as a consequence of further negotiations between Mr Wallace and the first defendant occurring sometime after 3 July 2012 but prior to 13 July 2012, the second defendant purchased the assets of and the name of the Kalmech Business. Thereafter from soon after 13 July 2012 the second defendant came to operate a business with the same name using those assets because:
(a)on 3 July 2012 the plaintiff and the first defendant had both instructed Ms Adamson that it was intended that the shares in Mr Wallace's company, Kalmech One, would be acquired but by reason of the matters below I infer that proposal later changed;
(b)both the $300,000 and the $600,000 advances had been made by 13 July 2012 and it was common ground that the $600,000 advance was for the purpose of finalising the purchase of the Kalmech Business;
(c)on 22 July 2012, Kalmech One changed its name to Conwal Pty Ltd but Mr Wallace remained its director and sole shareholder;[24]
(d)on 22 July 2012, the second defendant changed its name from Degime Pty Ltd to Kalmech Pty Ltd. The first defendant and his wife remained as the second defendant's directors and Brutum remained its sole shareholder;[25]
(e)the first defendant's evidence was that after 22 July 2012 it was the second defendant who was operating the business and after that date Kalmech Pty Ltd appeared on the business emails and other documents;
(f)clearly, and it was common ground, that an entity or person associated with the first defendant was operating the Kalmech Business and none of the documentation would suggest that it was not the second defendant;
(g)after 22 July 2012 emails sent by the first defendant were expressed to be from [email protected] and on the email under his signature there was a company name, Kalmech Pty Ltd and its contact numbers;[26] and
(h)after 22 July 2012 the plaintiff was living in Perth but had access to and used his own email address associated with the Kalmech Business, [email protected], to assist to try and enhance the new business of Kalmech Pty Ltd,[27] including by advising the first defendant on appropriate business practices, following up leads for the purchase of new plant and equipment and by seeking out new work for Kalmech Pty Ltd.
[24] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH 1 tabs 3 and 10.
[25] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH 1 tabs 4 and 11.
[26] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH1 tab 12.
[27] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH1 tab 12.
None of that evidence establishes that the plaintiff should or could have known exactly what was purchased, what the purchase price was and who the Kalmech Business was operated by after mid‑July 2012 because:
(a)the plaintiff's evidence, which I accept, is that because he was not a party to the negotiations he did not know that only the assets and business name were purchased or know what Mr Wallace had been paid by way of purchase price;
(b)the first defendant's evidence confirmed that he did not understand or draw the distinction between purchasing the assets and name and purchasing the company[28] so he was unlikely to have accurately imparted any difference to the plaintiff;
(c)the plaintiff would have known from the emails[29] that a company called Kalmech Pty Ltd was operating the business but he had no reason to assume that was not Mr Wallace Wallace's company, Kalmech One. There is no company number on any of the emails or other information that would point to the fact that Kalmech One had not continued to operate the business;
(c)it is not evident from the only balance sheet of Kalmech Pty Ltd provided to the plaintiff[30] dated 6 May 2013[31] that Kalmech Pty Ltd had previously been named Degime Pty Ltd;
(d)further, the balance sheet refers in the asset column to an item 'company purchase' valued at $500,000. That entry might have suggested to an accountant that this was not Kalmech One's balance sheet but the same cannot be said of a lay person even one as successful in business as the plaintiff. The balance sheet does not break down the assets owned by Kalmech Pty Ltd (which were not shares in a company) into their composite parts; and
(e)The fact that the plaintiff commenced proceedings against the second defendant and the reference to 'Kalmech Degime' at the top of a loan calculator prepared in March 2014 by the plaintiff's accountant does not cause me to doubt the plaintiff's evidence about this because the plaintiff knew that the loan pertained to the acquisition of the Kalmech Business, the advances had been deposited to the second defendant's account and other documents show that as at 12 November 2013 the plaintiff's accountant was enquiring about the business structure.[32]
[28] ts 271 - ts 272.
[29] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH1 tab 12.
[30] Exhibit 8.
[31] Exhibit 5.
[32] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, RNH1 tab 25.
I also find that the plaintiff did not know the true purchase price that had been paid for the business. The plaintiff's evidence‑in‑chief was that he had initially been told by the first defendant that the purchase price was $900,000 consistently with the initial advance for a 25% share of $300,000 and the request for a short term loan of $600,000.[33] The position was put a little differently by the plaintiff in cross‑examination where he was firm in his evidence that he was told the purchase price was $900,000 but to explain why a 25% share was worth $300,000 he also said there had been a working capital requirement of $300,000. The working capital, when added to the purchase price of $900,000, meant a total of $1.2 million. He said, 25% of $1.2 million is $300,000.[34] The plaintiff went on to say that he knew that the first defendant had approached the bank for a loan of $600,000 but that the first defendant was required to put in additional funds of his own.[35]
[33] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 49, 51.
[34] ts 216.
[35] ts 216.
The plaintiff's evidence about the working capital requirement of $300,000 was consistent with the email he later wrote on 26 March 2013.
The first defendant denied ever telling the plaintiff that the purchase price was $900,000. The first defendant's evidence about what the plaintiff was told about the purchase price was inextricably linked with his evidence about the price to be paid for the 25% of the shares and how much he was intending to borrow from the bank. The evidence was hopelessly vague, confused and made no sense at all and in the end the first defendant confirmed that the purchase price was $500,000 but he did not say that he had told the plaintiff that the purchase price was $500,000.[36]
[36] ts 276 - ts 279 and ts 280.

I find that the purchase price for the assets of the business and the business name was $500,000 and that the plaintiff was not told that. For that reason, I also find that the first defendant was not frank in his dealings with the plaintiff from the beginning and this is an additional reason to look closely at his evidence before accepting it.

Who was the first defendant acting on behalf in respect to the intitial advance of $300,000

I find that the first defendant was acting on his own behalf in reaching the agreement because:
(a)I have already found that any agreement between the plaintiff and the first defendant had been made by 3 July 2012 when they met with Ms Adamson at which time it was proposed that the shares in Kalmech One would be purchased. This did not occur. The fact that the first defendant was in control of who the purchaser would be and the terms of the purchase is evidence which supports a finding that he was acting on his own behalf;
(b)I have already found that the plaintiff was not aware of the terms of the purchase or the business structure finally adopted by the first defendant;
(c)the plaintiff obviously knew he had made the two advances first on 5 July 2012 and next on 13 July 2012 to Degime Pty Ltd's bank account. By reason of those advances, coupled with the instructions given to Ms Adamson about who the shareholders might be after acquisition, the plaintiff may well have had reason to assume that the purchaser of the shares in Kalmech One was likely to be Degime Pty Ltd but for reasons I have already set out it was never confirmed to him that was the case and the shares were never purchased;
(d)the first defendant accepted in his evidence that he had never said to the plaintiff that he was acting in a representative capacity[37] and that the plaintiff did not know anything about Degime Pty Ltd, for instance, who its shareholders were,[38] or even if the first defendant was the only shareholder;
(e)for those reasons if the first defendant was, acting on behalf of the second defendant as he alleges, the first defendant could only have been doing so as the agent of an undisclosed principal;
(f)there was no evidence that the first defendant had actual authority to act for the second defendant. Any lack of authority was not a point taken by either the plaintiff or the first defendant and the second defendant was not represented at the trial. Even if I were to assume that the second defendant, at that very early stage, had clothed the first defendant with the authority to bind it in any way he saw fit, there are other reasons why I am not persuaded that the contract was entered into solely on behalf of the second defendant;
(g)an undisclosed principal is not a party to the contract if the terms of the contract indicate that the contracting party is doing so personally or where the personality of the agent is considered to be of such importance as to lead to the implication that the other party intended to contract with him, and him alone: Andrews v Nominal Defendant;[39] Reinforced Concrete Pipes Pty Ltd v Bonlar Pty Ltd;[40] Vasse Felix Pty Ltd v Marton;[41]
(h)I accept the evidence of both parties that their business dealings were predicated on their friendship and the trust that engendered. The plaintiff understood that the first defendant had been approached with the proposal to purchase the business and that the first defendant was undertaking all of the negotiations in that regard;
(i)the plaintiff's evidence, which I have accepted, was that the discussions between the parties were on the basis that the $300,000 paid was for a 25% shareholding in Kalmech One;
(j)the plaintiff trusted that the first defendant would give effect to their agreement by ensuring that after the first defendant had acquired the shares in Kalmech One, whether personally or through a company associated with him, the first defendant would take steps to ensure that a 25% shareholding would be issued to or transferred to the plaintiff's nominee; and
(k)by reason of that personal trust, I find that even if the first defendant did believe himself to be contracting on behalf of the second defendant, the contract he entered into with the plaintiff was personal to him.
[37] ts 274, ts 281.
[38] ts 275.
[39] Andrews v Nominal Defendant (1968) 70 SR (NSW) 419, 424 and 430 ‑ 432.
[40] Reinforced Concrete Pipes Pty Ltd v Bonlar Pty Ltd (Unreported, WASC, Library No 950402, 7 August 1995) (Parker J).
[41] Vasse Felix Pty Ltd v Marton (Unreported, WASC, Library No 980101, 6 March 1998) (Steytler J)
Of course, even if I had found that the first defendant was the agent of an undisclosed principal and this was one of those cases in which the principal was bound by the contract, the law would still allow the plaintiff to sue the first defendant on the terms of that contract: Sims v Bond;[42] adopted in Reinforced Concrete Pipes Pty Ltd v Bonlar Pty Ltd [8]; Re Clune; Ex parte Verge v Isabella Nominees Pty Ltd (in liq).[43]
[42] Sims v Bond (1833) 5 B & Ad 389, 393; (1833) 110 ER 834, 845.
[43] Re Clune; Ex parte Verge v Isabella Nominees Pty Ltd (in liq)(1988) 14 ACLR 261, 267.

Summary of findings in respect to the advance of $300,000

By way of summary my findings with respect to the advance of $300,000 are:
(a)prior to late June or early July 2012 the first defendant had approached the plaintiff with respect to a proposal that the first defendant proposed to purchase an existing mechanics business known as Kalmech. The proposal was to purchase the shares in the company operating the business, Kalmech Ore;
(b)the plaintiff was told by the first defendant that the purchase price would be $900,000 and there would be a requirement for working capital of about $300,000;
(c)the plaintiff and the first defendant agreed that in return for an advance of $300,000 to the plaintiff, after the acquisition of the business, the first defendant or his nominee and the plaintiff or his nominee would hold the ownership of the business as to 75% to the first defendant and 25% to the plaintiff;
(d)the plaintiff was not involved with any of the negotiations for the acquisition of the Kalmech Business and left the first defendant to determine the mechanism by which the Kalmech Business would be acquired and to effect the specific structures to effect ownership in the agreed shares;
(e)the purchase price of the Kalmech Business was in truth $500,000 and in the final agreement between the seller, Mr Wallace, and the first defendant it was agreed that the business name and its assets would be purchased and the employees and premises would also go with those assets and the name. The purchaser would be the second defendant which changed its name to Kalmech Pty Ltd;
(f)the plaintiff made the advance of $300,000 to the first defendant and it was paid at the direction of the first defendant into the second defendant's bank account on 5 July 2012;
(g)the advance of $300,000 was not a loan but was in consideration of the acquisition of a 25% part of the Kalmech Business. The form which the interest would take was left to be arranged by the first defendant after the acquisition of the Kalmech Business;
(h)the first defendant was acting for himself and not as the agent of an undisclosed principal, the second defendant, in respect of the advance of $300,000; and
(i)the plaintiff did not and could not have known who the purchaser of the Kalmech Business was unless it had been disclosed to him by the first defendant. Disclosure was not made.

Was the first defendant acting in his personal capacity, for himself and also for the second defendant or solely on behalf of the second defendant in reaching agreement for the loan of $600,000 by the plaintiff, in other words, to whom was the loan of $600,000 made?

It was common ground between the parties that:
(a)on 13 July 2012 there was a further advance of $600,000 from a NAB bank account in the name of RN Harding Investment Trust at the direction of the first defendant into the bank account of the second defendant; and
(b)the $600,000 was a loan to enable the completion of the purchase of the Kalmech Business and that it would be repaid as soon as possible. There was no agreement to pay interest.
The plaintiff's evidence was that a few days after the advance of the sum of $300,000, the first defendant phoned him and said the deal to buy the Kalmech Business was going to fall over. Specifically, the first defendant said words to the effect:[44]
The bank is mucking me around and I can't get a loan in time to complete the deal with [Mr Wallace]. Can you lend me another $600,000 as a short-term loan and I will pay it back as soon as I can?
[44] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 49.
The plaintiff said that he said words to the effect that he would agree to lend the first defendant $600,000 as a short-term loan and the first defendant again said that he would pay the plaintiff back as soon as possible.[45] The first defendant asked the plaintiff to transfer the money to Degime Pty Ltd's bank account using the same details he had provided previously.[46]
[45] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 52.
[46] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 54.
The first defendant gave evidence that Degime Pty Ltd had made an application to the NAB for finance to complete the purchase, that that was assumed to be going all right until the Thursday or Friday before the sale date when the bank called to say that it would need to do a full appraisal of the assets and that would take some time.[47]
[47] ts 241.
The first defendant's evidence was that he rang the plaintiff to tell him what was happening and the plaintiff offered to 'put the money in - he would give us the money to put into the account to pay that until the loan came through'.[48] He did not remember anything else about that conversation but the money came though and $500,000 was then transferred to Mr Wallace.[49]
[48] ts 241.
[49] ts 242.
The first defendant confirmed in his cross‑examination that he could not recall the words of the conversation where the sum of $600,000 was discussed.[50]
[50] ts 281 - ts 282.
The first defendant said that the employees all came across and the doors were shut with Mr Wallace on Friday and come the Monday 'we opened up'.[51] I have already commented on how I consider this to be a most unusual aspect of the first defendant's evidence and how I find it difficult to accept that all occurred without any documentation of the terms.
[51] ts 242.
The first defendant also said that thereafter he took the advice of the plaintiff and from time to time showed him some accounts on the MYOB system.[52] He said that with respect to the transfer of or issue of shares to the plaintiff or his nominee he believed that he had filled out a form and sent it back (what form or to whom it was sent was not clear) but that he did not understand how to deal with shares.[53]
[52] ts 246.
[53] ts 244.
With respect to the bank he 'sort of dropped the ball'[54] and after the advance of $600,000 he did not progress the bank loan at that time. In other words, he did nothing to progress the loan by which repayment of the short term loan could be effected.
[54] ts 245.
After evaluating that evidence I find that:
(a)I refer the evidence of the plaintiff for the general reasons I have set out above but also because of the first defendant's poor memory of the specific discussions;
(b)the plaintiff was contracting with the first defendant personally with respect to the earlier agreement and there was no material express change in the basis of their further agreement;
(c)a balance sheet of the second defendant prepared on 5 May 2013[55] does not record any liability to the plaintiff in any sum and refers under the heading Equity 'Owner's Capital $900,200'. In other words, no loan or liability relating to the $900,000 was recorded in the second defendant's financial document;
(d)on later occasions the first defendant acknowledged that the loan of $600,000 was made to him personally, by way of example, an email dated 4 July 2013[56] and one dated 6 April 2016[57] and by his failure to take issue with the assertion that the loan was personal to him made in an email dated 29 October 2014[58] along with the tenor of the email from the first defendant to the plaintiff dated 31 July 2015;[59] and
(e)for those reasons, I find that the loan of $600,000 was also made to the first defendant in his personal capacity.
[55] Exhibit 8.
[56] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 21.
[57] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 46.
[58] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 37.
[59] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 43.
I have taken into account the post‑contractual conduct of the plaintiff and the first defendant in resolving these issues. Unlike written contracts, in the case of oral contracts, post‑contractual conduct may be relied upon to prove the existence of a contract as well as its terms: The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9);[60] Fazio v Fazio;[61] Porter v Sundance Resources Ltd (No 2).[62]
[60] The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1 [2668] ‑ [2672].
[61] Fazio v Fazio [2012] WASCA 72 [188] ‑ [195].
[62] Porter v Sundance Resources Ltd (No 2) [2015] WASC 493.
After acquiring the loan because of his friendship with the plaintiff, the first defendant's assertion that he negotiated a further loan solely on behalf of the second defendant smacks of self-interest. At trial, he clearly knew that as a consequence of the second defendant being in liquidation, if that proposition was accepted he would not be personally liable to repay the plaintiff.

Was a further agreement reached in about 25 ‑ 26 February 2014 between the plaintiff and the first defendant that the advance of $300,000 would be converted to a loan repayable on demand and was it further agreed in 2014 that in return for not making an immediate demand that interest would be paid on the sum of $300,000 and any of the outstanding balance of the $600,000 loan:

at the rate of 7.54% per annum to be compounded daily;

from the date of each advance. Was that agreement to take effect immediately or on the execution of a written agreement.

By the end of the evidence it was common ground that a discussion about the conversion of the advance of $300,000 to acquire shares to a loan had taken place and that during that discussion the payment of interest had also been discussed. Whether that agreement could as a matter of law be made and if it was to have immediate effect remained in dispute.
It is convenient to deal first with my factual findings before turning to those issues.
The plaintiff's evidence was that:
(a)after the two advances had been made he provided some guidance and assistance to the first defendant by way of introducing him to the plaintiff's contacts in Kalgoorlie, assisted him in relation to various aspects of the Kalmech business as well as a heavy haulage business which was started up by the first defendant under the name of Brutum, helping with obtaining insurance, financing with Ledge Financing and arranging for Brutum to get priority haulage work from Orionstone for two years, assisting him in reducing wages and helping with accounts;[63]
[63] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 60.
(b)in the early days after the first defendant took over the Kalmech Business, the plaintiff he and the first defendant had discussions to the effect that the plaintiff would be provided with monthly profit and loss documents and that there would be monthly meetings to discuss the business.[64] By the first quarter of 2013 the first defendant had not obtained bank finance and no repayment had been forthcoming;[65]
[64] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 64.
[65] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 65.
(c)the plaintiff started asking for repayment.[66] One example is an email dated 26 March 2013[67] which asked for the repayment of $700,000 rather than the loaned sum of $600,000. The difference between the figures of $600,000 and $700,000 was explained by the plaintiff in cross-examination.[68] The explanation was that sometime after the acquisition of the Kalmech Business the plaintiff discovered that the purchase price was only $500,000 not the $900,000 he had understood it to be. This led him to recalculate the value of the 25% interest in the Kalmech Business he was expecting to obtain as being $200,000 arrived at by taking the purchase price of $500,000 and adding to it a figure of $300,000 of working capital = $800,000 of which 25% is $200,000. The plaintiff then deducted $200,000 from the total of the advances of $900,000 to require repayment $700,000. This explanation is consistent with both the text of the email and the plaintiff's other evidence about what he had earlier understood to be the value of 25% and I accept his explanation;
[66] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 66.
[67] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 13.
[68] ts 216.
(d)the plaintiff's evidence was that the first defendant then told him that 'I want to do it all myself, and I do not want you or anyone else to be involved in Kalmech';[69]
[69] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 68.
(e)neither the plaintiff nor FGI Holdings Pty Ltd as his nominee had at that stage received transfer of or issue of a 25% interest of the Kalmech Business or of Degime Pty Ltd (Kalmech Pty Ltd as the second defendant was then known);[70]
[70] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 69.
(f)there were further discussions and requests for repayment leading into April 2013. On 3 May 2013 there was a repayment of $100,000 made by the second defendant to the plaintiff;[71]
[71] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 70 ‑ 73, tabs 15 ‑ 18.
(g)further emails were sent by the plaintiff requesting payment and eventually on 4 September 2013 $415,000 was paid by the second defendant to the plaintiff.[72] In one of the emails dated 4 July 2013 the first defendant acknowledged that he owed the plaintiff $600,000 but also that '[the plaintiff] have a 25% share in Kalmech which was $200,000'; and
[72] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 74 ‑ 79, tabs 19 ‑ 23.
(h)the plaintiff's evidence was that his accountant told the plaintiff on 10 October 2013 that no shares in Kalmech had issued to the plaintiff. Requests to have this attended to were then made by the plaintiff[73] and further requests for payment were made on 23 and 24 February 2014;[74]
[73] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, pars 80 ‑ 81.
[74] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, par 82, tab 26.
(i)the plaintiff's evidence-in-chief, contained in his affidavit, is that on or about 25 and 26 February 2014 he had discussions with the first defendant to the effect that:
83.On or about 25 and 26 February 2014, I had a number of conversations with Dean in which he said words to the effect that:
(a)Dean did not want me to be a shareholder in Kalmech and he did not want me to be involved in the business;
(b)Dean and Degime would repay the balance of the total sum of $900,000 that I had advanced in July 2012 for him to acquire Kalmech;
(c)Dean proposed that the first $300,000 which I had advanced on or about 5 July 2012 be converted to and treated as a loan by me to Dean and Degime, and that he would repay the balance of the total outstanding loan amount as soon as possible;
(d)Dean could not pay me back and requested that I not call for repayment of the balance of the loan immediately;
(e)Dean proposed that he would pay interest on the money which I had lent from the date of each advance of funds to the date of payment at the rate of 7.54% per annum compounded on a daily basis;
(f)Dean would arrange for a loan document to be prepared by his lawyer.
84. In those conversations:
(a)the proposal to convert and treat the first advance of $300,000 which I had made on 5 July 2012 as a loan from me to Dean and Degime was initiated and communicated by Dean to me after he told me words to the effect that he did not want me to be a shareholder in Kalmech or involved in the business and that he could not pay me back at that time;
(b)the proposal that interest would be payable from the date of each advance of funds to the date of payment at the rate of 7.54% per annum compounded on a daily basis was initiated and communicated by Dean, who said to me words to the effect of 'I will pay you the same as the bank interest rate because I know what that rate is'; and
(c)I said words to the effect that I accepted Dean's proposals.
85.I note from my review of my diary page for 26 February 2014 that it contains the following handwritten note:
'DEANS INTEREST RATE 7.54%'
A true copy of my diary pages for 25 February 2014 and 26 February 2014 is located at tabs 27 and 28 respectively of Exhibit RNH-1 (PD21 and PD22).
(j)the plaintiff then had his accountant prepare a loan schedule showing the calculation of interest. Emails attaching the proposed loan schedule were annexed to the affidavit of the plaintiff but the loan schedules were not. It was the plaintiff's evidence that the emails had been sent from his email address at Kalmech, [email protected], and that after the parties had fallen out his access to that email address was withdrawn. The emails had been discovered by the defendants but the attached loan schedules were not; and
(k)a version of the loan schedules attached to an email trail from the plaintiff's accountant was able to be produced in evidence by the plaintiff on enquiry of his accountant: see exhibit 2. The version was dated 14 April 2014 at 3.13 pm. The plaintiff gave evidence without objection that he had been advised by his accountant that this was the only version still available.

The first defendant took no real issue about whether an agreement to turn the $300,000 to a loan had been reached. The question was who would be repaying that loan. The first defendant's evidence about this matter was that:
(a)Kalmech (the second defendant) ended up going to the bank and getting a loan and paid some money, the sums of $100,000, $25,000 and $416,500 to the plaintiff. At this time the first defendant assumed that the plaintiff was a shareholder in the company; [75]
(b)things were financially very tight for the business and so he met with the plaintiff in Wattle Grove but he could not recall when this meeting occurred. There was discussion about the business going down and the first defendant said that he did not want the plaintiff going down with it;[76]
(c)the plaintiff raised turning the shares into a loan and the first defendant said that was ok;[77]
(d)the first defendant then spoke to his accountant, Paul, in Sydney but he could not say whether it was immediately, a day later or a week later. The accountant said that the plaintiff could not do that could not turn the agreement to take shares straight into a loan;[78]
(e)the plaintiff did send through a loan calculator[79] but it was the plaintiff who had knowledge of interest rates that were 'going around' because of the plaintiff's dealings with the bank. The second defendant also had a loan the rate for which was, he assumed, the rate of 7.54%;[80]
(f)The first defendant would have looked at the loan schedule but he did not agree with it but he does not recall any telephone discussions about the loan schedule where he expressed his disagreement. The business was really struggling and the first defendant found it hard to deal with that and the plaintiff, so, he bought in Paul his accountant to negotiate with the plaintiff.[81] Exhibit 6 is an email trail between the accountant, Paul Siderovski and the plaintiff which I come back to below. The first defendant confirmed that the negotiations between Paul Siderovski and the plaintiff did not take place until some three years after the discussions between him and the plaintiff;[82]
(g)interim payments of $1,000 a week were made after the discussions about turning the $300,000 into a loan and were intended to pay down the shares which had been changed to a loan;[83]
(h)no final figure outstanding was ever agreed with the plaintiff as the plaintiff disagreed with everything put forward by the first and second defendants.[84] This could only refer to the negotiations three years later. The first defendant could not be sure where the figure of $1,000 per week had come from; and
(i)there were other lump sum payments. The second defendant, paid money right up until it was put into liquidation by the Australian Tax Office.
[75] ts 245.
[76] ts 246.
[77] ts 246.
[78] ts 246.
[79] ts 247.
[80] ts 247.
[81] ts 248.
[82] ts 249.
[83] ts 250.
[84] ts 252.
I find that:
(a)as at February 2014, the first defendant had not taken any steps to effect the issue of the equivalent of 25% of its shares by the second defendant to the plaintiff or his nominee or any transfer of 25% of the shares in the second defendant by Brutum to the plaintiff or his nominee. The agreement to acquire a 25% share of the business had not been fulfilled in part or at all;
(b)as at February 2014 the total sum of $600,000 had not been repaid although payments of $100,000 and $416,500 had been paid;
(c)an agreement reached in February 2014, was made between the plaintiff and the first defendant to the effect that the money which had been advanced for the acquisition of a 25% share in the business would be transferred to a loan and the balance of the $600,000 would be repaid by the first defendant and the second defendant;
(d)the loan of $300,000, in fact, the whole of the $900,000 advanced, was agreed to be repaid by the first defendant and to Degime jointly.[85] I note that throughout his evidence the first defendant regularly referred to the second defendant as 'Degime' so I have no difficulty in accepting that he did so during these discussions notwithstanding its change of name to Kalmech Pty Ltd had been effected many years before;
(e)in reaching this agreement the first defendant was acting for himself and as agent of a disclosed principal, the second defendant. There is no reason to assume that by February 2014, the first defendant was not authorised to act on behalf of the second defendant and no issue about lack of authority was raised;
(f)the first defendant's accountant Mr Siderovski was incorrect if he said that the parties could not agree to vary a contract so that a contractual obligation to issue or transfer shares for a price already paid would be treated as a loan;
(g)it might be different had the shares had already issued or be transferred. In that case, the parties could not treat the transfer or the issue of shares as if it had never happened. Whether there were taxation implications in the transaction (adverse or otherwise) is not clear to me but there was, in this case, no legal impediment to the parties agreeing to amend their arrangement to one where the plaintiff gave up his right to enforce an as then unfulfilled contractual obligation to transfer or issue shares to a loan to repay the price paid owed by the first defendant and the company of which he had control;
(h)there was no requirement for such an agreement be in writing. There are few contracts that are required by law to be in writing. The question arises as to whether the amendments to the contract took immediate effect or would only take effect on being reduced to writing. I will deal with this below;
(i)the plaintiff and the first defendant also agreed that in return for there being no immediate demand the first and second defendants would pay interest at the rate of 7.54% per annum from the date of the advances. I am not convinced that there was a clear agreement that the interest would be compounded on a daily basis as there was not any discussion about whether that meant calculated on a daily basis or compounded in daily rests. So while I accept the words the plaintiff says were spoken by the first defendant,[86] do establish an entitlement to interest at 7.54% they do not clearly carry with them that it would be on the unusual basis that interest would accrue and be compounded at daily rates and there was no evidence to establish that was the basis on which the first or second defendant had any loan with the bank;
(i)I do accept that interest would be from the date of advances as that was part of the price of further extension of credit and the plaintiff not seeking to enforce any entitlement to a 25% share in the business; and
(j)the loan schedule forming part of exhibit 2 is the same as the loan schedules attached to an email sent to the first defendant on 14 April 2014[87] and clearly shows a calculation of interest referrable to the rate of 7.54% from the dates of the advances. It compounds that interest by reference an effective annual compound rate of 7.831% but there was no explanation offered to me of how a rate of 7.54% compounded or calculated daily was the equivalent to a yearly rate of 7.831% especially if it were calculated with daily rests. I might, with evidence, have been persuaded that they were the same, but the plaintiff did not press its claim for compound interest at trial. It suffices therefore to say that the schedule is powerful evidence confirming that the parties had agreed that interest at the rate of 7.54% would accrue from the dates of advances but would not, without more, have convinced me that it was to be compounded daily.
[85] Exhibit 1, affidavit of the plaintiff sworn 12 June 2019, par 83(b)(c).
[86] Exhibit 1, affidavit of plaintiff sworn 12 February 2019, par 84(e).
[87] Tab 31.
As set out above, the plaintiff's evidence, which I accept, was that the first defendant would arrange for a loan document to be drawn up. The defendant contended at trial: there was no loan agreement, so, he was not liable to repay the $300,000 loan. The question arises: Was there a concluded agreement between them or an agreement would only be concluded on the document being executed?
In Masters v Cameron[88] the High Court laid down that where parties had been in negotiations and reach agreement but also agree that the matter of their agreement shall be dealt with by a formal contract, the case may belong to three classes.
[88] Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353.
The first is that the parties have reached finality in their agreement and intend to be immediately bound to the performance of the agreed terms but at the same time propose to have the terms restated in a form which may be fuller or more precise but not different in nature.
The second is that the parties have agreed on the terms of their bargain but make performance of one or more of the terms conditional on the execution of a formal agreement.
The third is where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
Here, the evidence does not establish that any agreement was 'subject to' the reduction of its terms to writing in the sense used is either the second or third classes of Masters v Cameron. Indeed, the expression 'subject to' or words analogous to that expression were not said at all.
Further, what occurred is that the first defendant directed the second defendant to make a payment of $25,000 in August 2014 and then start regular payments of $1,000 per week which were intended to be in reduction of the balance of the $500,000 advanced.[89]
[89] See [77](g) above, ts 250.
Finally, the first defendant on at least two occasions confirmed agreement had been reached:
(a)by his email dated 31 July 2015 at 10.00 am;[90] and
(b)by his email dated 6 April 2016 at 8.53 am.[91]
[90] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 43.
[91] Exhibit 1, affidavit of plaintiff sworn 12 June 2019, tab 46.
This evidence is admissible to establish that an agreement was reached[92] and see cases referred to at [77] above.
[92] Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68, 78.
I find that the agreement reached in about February 2014 and then confirmed at a later stage was of the first class of contracts in Masters v Cameron and was binding on the parties although they expected to reduce it to writing.

Was the plaintiff acting on behalf of the RN Harding Investment Trust?

The funds advanced came from the NAB bank account nominated 'R N Harding Investment Trust'.[93]
[93] Exhibit 1, affidavit of plaintiff sworn 12 February 2019, tab 9.
The plaintiff's evidence, which I have accepted, is that it was his intention that had the shares in the Kalmech Business being forthcoming, he would have directed that they be held by a company associated with him, FGI Holdings Pty Ltd.
I note that the draft agreement prepared by Ms Adamson refers to FGI Holdings Pty Ltd as the trustee of the 'RNH Investment Trust'. Even though I am unclear as to whether that was a separate trust by that name and additional to the RN Harding Investment Trust and if any separate trust were then in existence, I am of the view that question does not need to be resolved for the purpose of resolving this issue.
Whether a person contracts in his personal capacity or as a trustee is a question of fact: Re Interwest Hotels Pty Ltd (in liq).[94] A trustee is not obliged to disclose that he is the trustee of a trust at the time they enter into a contract.[95] A trustee is not the agent of a trust and a trust is not a separate legal identity.[96]
[94] Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78, 86 - 92.
[95] Bechara v Sotrip Pty Ltd [2011] NSWSC 252 [22], [23].
[96] Atwell v Roberts [2013] WASCA 37; (2013) 43 WAR 507 [292].
I find that the plaintiff at all times acted as trustee of the R N Harding Investment Trust and that his failure to disclose that did not affect his ability to so contract.

Amount now outstanding and conclusion

In light of those findings, I find that the first defendant is liable to pay to the plaintiff any outstanding balance of the funds advanced being:
(a)$300,000 advanced on 5 July 2012; and
(b)$600,000 advanced on 13 July 2012,
together with simple interest on those sums at the rate of 7.54% from the date of each advance. That liability was, as a consequence of the agreement made in February 2014 joint with the second defendant.
I also find that the plaintiff was repaid the sums of:
(a)$100,000 on 3 May 2013;
(b)$416,500 on 4 September 2013;
(c)$25,000 on 14 August 2014;
(d)$63,000 between 4 August 2016 and 23 October 2017; and
(e)$71,000 between 23 October 2017 and the date of trial.
Altogether the sum of $675,500 has been repaid.
Exhibit 1, affidavit of the plaintiff sworn 12 February 2019 at tab 56 is a schedule of payments made in reduction up until the date of the affidavit. It calculates interest on a compound rather than simple interest and so cannot be accepted as to the final figure outstanding.
I have had prepared a schedule showing the calculation of interest from the dates of advance on a simple basis. The schedule is prepared on the basis that the repayments have been appropriated to the accrued interest before the reduction of the principal sum in accordance with the usual common law rule and in the absence of evidence that there had been any express appropriation by the first or second defendants: Falk v Haugh,[97] Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd.[98]
[97] Falk v Haugh [1935] HCA 35; (1935) 53 CLR 163, 173.
[98] Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd [1998] 1 VR 50, 68 ‑ 71
I will hear the parties on the schedule.
I will also hear the parties as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
ED
Associate to her Honour Judge Gillan
4 MAY 2020