Robertson v Murtagh

[2004] QDC 461

DISTRICT COURT OF QUEENSLAND

CITATION:

Robertson v Murtagh [2004] QDC 461

PARTIES:

RUSSELL ROBERTSON

Appellant/First Defendant

v

LINDSAY MURTAGH

Respondent/Plaintiff

FILE NO/S:

D3949/03;  M5735/02

DIVISION:

PROCEEDING:

Appeal

ORIGINATING COURT:

Magistrates Court, Brisbane

DELIVERED ON:

12 November 2004

DELIVERED AT:

Brisbane

HEARING DATE:

9 June 2004

JUDGE:

McGill DCJ

ORDER:

Appeal dismissed with costs.

CATCHWORDS:

APPEAL AND NEW TRIAL – Findings of fact – whether oral agreement between parties – whether superseded by later written agreement.

COUNSEL:

R G Walters (solicitor) for the appellant
A P Crawford for the respondent

SOLICITORS:

Walters and Co Solicitors for the appellant
Russell Handley and Johnson Lawyers for the respondent.

1. This is an appeal from a decision of a magistrate who on 13 November 2003 gave judgment that the appellant/first defendant pay the respondent/plaintiff $20,000 together with interest and costs.  A claim against a second defendant was dismissed, with part costs.  The appellant asserts that the claim against him should also have been dismissed.

1. The respondent’s claim was advanced in a number of different ways in the Magistrates Court, but the magistrate accepted that there was an oral agreement between the parties under which, in the events that had happened, the appellant had agreed to pay the defendant $20,000.  The defence relevantly was that any obligation to pay lay with a company Lindrus Pty Ltd, and that that obligation would not arise until a particular date, which was after the date when the trial occurred.  

1. The appeal was on the grounds that the magistrate went wrong in the following ways:

1.     Finding that there was an oral agreement that the appellant would repay moneys to the respondent.

2.     Finding that moneys had been paid into “a general account” rather than to Lindrus Pty Ltd.

3.     Finding that the parties were not bound by the written agreement dated 21 August 2000.

4.     Finding that the conduct of the respondent and Donald Edward Harris was probative of the oral agreement alleged by the respondent.

5.     Not holding that the conduct of the respondent and Donald Edward Harris was probative of the fact that the moneys were to be repaid by Lindrus Pty Ltd.

6.     Finding that moneys lent to the company Lindrus Pty Ltd were repayable by the appellant.

A pleading point

1. The amended statement of claim filed on 25 July 2002 alleged inter alia as follows:

“1.     In or about April 2000 the plaintiff and defendant and one Don Harris (the ‘contributors’), each contributed $20,000 towards the setting up of [a real estate office] which commenced operation on or about 1 October 2000 (the ‘said agreement’).

2.     It was a term of the said agreement that if any of the contributors left the business the $20,000 contributed by that person would be repaid by the remaining contributors to the departing contributor.”

The pleading went on to allege that Harris had left the business and been repaid by the plaintiff and the defendant, and that at or about the end of May 2001 the plaintiff left the business, and sought the repayment of $20,000 from the defendant which had not been forthcoming.

1. The first of the quoted paragraphs is a little unclear, because although it is identified as constituting the “said agreement” it does not expressly plead any particular agreement.  I think on the whole however that the paragraph should be interpreted as alleging that there was an agreement between the three individuals referred to that they would act in the manner described.

1. An amended defence was filed by the defendants on 22 October 2000.  In respect of paragraphs 1 and 2 of the amended statement of claim that defence pleaded as follows:

“1.     In respect of paragraph 1 of the ASC[1] the defendants say:

[1]Amended statement of claim.

1.1     The contributors agreed to form a company.

1.2     The company formed was Lindrus Pty Ltd … (‘Lindrus’).

1.3     The contributors agreed that Lindrus would operate a business …

1.4     The contributors each agreed to lend $20,000 to Lindrus.

2.     The defendants deny the allegations in paragraph 2 of the ASC and say:

2.1     An agreement was reached between the contributors.

2.2     The agreement was set out in a document entitled ‘Draft Heads of Agreement’ dated 21 October 2000 and signed by the parties.

2.3     The agreement did not contain any provision that if a party left the business his contribution/loan would be repaid by the remaining contributors.”

1. Again, there is some lack of clarity with these paragraphs.  Paragraph 1 of the defence does not in terms deny paragraph 1 of the amended statement of claim, but rather alleges that there were certain things agreed between the three individuals.  Interpreting paragraph 1 of the amended statement of claim as alleging an agreement between those three individuals in the way described, this pleading on its face admits that there was such an agreement but alleges there were additional terms of that agreement.  Paragraph 2 of the amended defence denies the allegations in paragraph 2 of the amended statement of claim, but then goes on to plead what is really a different agreement, in writing, which did not contain any provision such as alleged in paragraph 2 of the amended statement of claim.  But the fact that there was another agreement between the parties which did not contain the provision alleged by the plaintiff was not an answer to the allegation of the plaintiff, unless it was further alleged that the other and later agreement superseded the prior oral agreement relied on by the plaintiff, or that there was no prior oral agreement as alleged by the plaintiff.  Neither of those points was made expressly in the amended defence. 

1. It is not clear from the pleading whether the defendants are saying that there was an agreement other than the agreement referred to in paragraph 2 of the amended defence made between the three individuals, and if so whether it contained the terms in paragraph 1 of the amended statement of claim as well as the additional terms alleged in paragraph 1 of the amended defence.  The argument advanced during the hearing of the appeal on behalf of the appellant was that there was no earlier oral agreement which contained the term alleged in paragraph 2 of the amended statement of claim, and that, if there had been, it would have been superseded by the later written agreement.  The matter was further complicated by the fact that no written agreement dated 21 October 2000 was put in evidence.  What was in evidence (Exhibit 2) was a document dated 14 August 2000.  The document in evidence had not been signed by anyone, but there was evidence that such a document had been signed by the parties, which the magistrate apparently accepted.

1. In an amended reply filed on 1 November 2002, the plaintiff admitted the facts alleged in paragraph 1 of the amended defence, and in relation to paragraph 2 adopted the admission contained in paragraph 2.1, and admitted the allegations contained in paragraphs 2.2 and 2.3, but repeated and relied on the facts pleaded in paragraph 2 of the amended statement of claim as being a term of “the said agreement as set out in paragraph 1 of the amended statement of claim.”  There was a further allegation which re-pleaded in a modified form paragraph 4 of the amended statement of claim, by alleging that Harris left the business in December 2000 and he was repaid his $20,000 contribution.

1. Read strictly, the effect of these pleadings would appear to be that it was admitted on the pleadings by both parties that in or about April 2000 there was an agreement between the plaintiff, defendant and Harris that each would contribute $20,000 towards the setting up of a real estate office which commenced operation on or about 1 October 2000, that they would form a company which became Lindrus Pty Ltd, which would operate that business, and that each contributor would lend $20,000 to that company.  The plaintiff also alleged at paragraph 2 of the amended statement of claim that it was a term of that agreement that if any of the contributors left the business the $20,000 contributed by that person would be repaid by the remaining contributors to the departing contributor;  the defendant denied that that was a term of that agreement, and pleaded that there was a written agreement between the parties which did not contained any such term.  It was admitted by the plaintiff that there was a written agreement between the parties which did not contain any such term, but the plaintiff relied on that term in the earlier oral agreement.

Background

1. I should perhaps say something as to the background of this matter on the basis of the facts found by the magistrate.  These are not always uncontentious, but I will consider the evidence later.  The magistrate found that in April 2000 the appellant, the respondent and Harris began discussions about setting up the real estate agency;  that the appellant was the only one of the three who had business experience;  that the other two knew little about business matters or legal matters or how to set up a business or apply a proper structure;  and that the appellant took over all financial matters pertaining to the business and did not discuss the financial operations or financial structure of the business with what she described as “his partners”.  She also found that there was nothing discussed or agreed to about how the business was to operate financially, and that neither the respondent nor Harris had any real appreciation that the company Lindrus Pty Ltd was a separate legal entity.  She found that in August 2000 draft heads of agreement were drawn up (which became Exhibit 2), and that the plaintiff contributed $20,000 to the business.  She accepted that there was an oral agreement between all three that if any of them wished to withdraw from the arrangement the money advanced by them, $20,000, was to be repaid by the remaining members or member on demand, as alleged in the amended statement of claim.

Submissions for the appellant

1. It was submitted on behalf of the appellant that the admission that the contributors agreed to lend the money to the company was inconsistent with a finding that there was an agreement that, if any of the contributors left the business, the money contributed by that person would be repaid by the remaining contributors.  But I do not think that that follows.  If three people have each put in some money towards the working capital of a business, there are two ways in which one of them can be let out.  One involves repaying to that person the contribution of capital, in effect partly undoing the initial agreement;  the other involves the remaining person or persons buying out the person who is leaving.  Both methods have disadvantages.  The former will mean that the amount of capital available for the operation of the business will be reduced, while for the latter the continuing person or persons will have to raise more money.  For that reason there is always some disadvantage when someone who has combined with others in a business wants to pull out.

1. In the present context where, on the basis of the admission in the pleadings, the capital contributions were made by means of a loan to the company which was the vehicle of the business, the person who was to leave could either receive a repayment of the loan from the company, or be bought out by those continuing in the business, in effect receiving from them the equivalent of the contribution of working capital made to the business by way of loan to the company.  The right to repayment from the company would then pass to those continuing in the business.  In the present case, where first one and then a second of the three pulled out, this had the practical consequence that the third person was left solely responsible for funding the working capital of the business.  But there is no difficulty in principle with an agreement in the terms alleged in circumstances where the contributions of working capital were effected by means of loans to the company.

The reasons of the magistrate

1. There was a conflict of evidence before the magistrate as to whether there was such an oral agreement.  The evidence of the plaintiff was supported by the evidence of the first of the three to pull out, Mr Harris.  The magistrate found that Harris was asked to leave by the appellant and the respondent:  reasons p.5.  Harris demanded the return of his contribution of $20,000, and ultimately received it, by an arrangement embodied in a document which became Exhibit 3.  The magistrate accepted this evidence as establishing that there was an oral agreement in these terms before the business commenced:  p.8.  The magistrate went on the find that it was the intention of all parties that contributions of $20,000 each were to be deposited in a “general account” and thereafter disbursed to whatever structures were put in place.  There was some evidence that that was the understanding of the respondent and Harris, but no documentary evidence showing what actually happened to the money. 

1. The magistrate went on to find at p.10 that “the actions of the first defendant are not inconsistent with a position that recognised the money had to be restored notionally from the company or other – had to be restored notionally to the general account, and the moneys then returned to the lender, the plaintiff in this case, in terms of the oral agreement that I found existed.”  This is a curious finding, because it is not consistent with either the pleaded agreement relied on by the plaintiff in paragraph 2 of the amended statement of claim, or the oral evidence, that the obligation to pay fell on the continuing contributors.  To return to the two ways in which someone leaving the business could be paid out, this assumes that the departing contributor was to receive a refund of the contribution from the business vehicle, rather than be bought out by the continuing contributors.

1. There was however no oral evidence about the agreement which supported the proposition that there was to be a refund of capital.  What this is a reference to is the evidence about the various arrangements which were subsequently made, first to finance Mr Harris’ departure, and then to attempt to finance the respondent’s departure.  When Harris left he was not just paid out by the appellant and the respondent;  the money necessary to pay him out was apparently borrowed by the company, on the guarantee of the appellant and the respondent, so that Exhibit 3 was structured like a return of capital.  These arrangements therefore do not from their terms provide support for the oral agreement relied on by the respondent.

1. That does not mean of course that they were irrelevant.  The position may be that they reflect a recognition by the appellant that there was an obligation on him to pay out the respondent, but their form was the product of a need to arrange matters in some workable fashion.  Presumably he could not afford just to pay out the plaintiff.

1. The magistrate said (p.11) that she treated the various agreements which occurred after 23 May as ineffectual attempts to settle the dispute, which were relevant only as evidence of the existence of a recognition by the appellant of an oral agreement, that is the oral agreement in the terms alleged by the respondent.  The magistrate earlier referred on p.8 to the agreement which became Exhibit 4 as amounting to an implicit acknowledgement of the existence of the oral agreement by the appellant. 

1. The magistrate appears to have treated the fact that Harris’ money was repaid as supporting the existence of the oral agreement: p.3. As against that, Harris had threatened to wind up the company unless he was paid out as he required,[2] and it may be that the agreement to repay him arose as a response to that threat rather than from any prior oral agreement. When the respondent sought to leave, the appellant may well have recognised that he could not be forced to continue, and the matter is further complicated by the fact that at one point the dispute between the parties became physical.

   [2]Harris said in evidence that this was just a bluff:  p.53.

1. The appellant relied also on a document Exhibit 2 “Draft Heads of Agreement”, which, as was admitted in the reply, did not contain any provision that if a party left the business his contribution would be repaid by the remaining contributors.  It is not without reference to someone leaving the business;  clause 5 provides under the heading “shareholders resignation” that “any shareholder may resign at any time, however any shareholder loans cannot be repaid until after the first three year period.”  The agreement also provides in clause 9:  “any licence or course fees paid by the company shall be reimbursed by any shareholder at the time of resignation.”  Clause 10 refers to shareholders loans, but merely provides that “any additional shareholders loans that are required will not be repaid until after the first three year period.”  It assumes that there are already shareholder loans, but does not set out the terms of them.  This document is very sketchy, and contains only a limited number of matters, essentially concerned with the way in which the company is to operate and the relationship between the shareholders and the company.  It is not well drafted or particularly apt in its provisions for those things it does cover;  one cannot resign a shareholding.  It is not necessarily inconsistent with an oral agreement between the shareholders in the terms alleged by the respondent in the amended statement of claim.  It would however be difficult to reconcile with an arrangement under which the departure of a shareholder was to involve a return of capital.

Analysis

1. For the purposes of this appeal, the two crucial questions are whether I should interfere with the finding that there was an oral agreement in the terms relied on by the respondent, and whether the magistrate erred in failing to find that the written agreement Exhibit 2 superseded it.  As to the former, there was evidence from both the respondent (p.6) and Mr Harris (p.49) in support of the respondent’s case in relation to this, and although that was disputed by the appellant it was open to the magistrate to accept this evidence.  If accepted, it provided sufficient basis for the agreement alleged by the respondent.  Although it might be thought to be an unlikely promise for the appellant to have made in the circumstances, and although it does seem a little inconsistent with the express terms of Exhibit 2 (viewed as a contemporaneous document, apart from any consideration of whether an earlier different agreement was superseded), these indications are not so clear as to justify overturning a finding of fact based on an assessment of credibility of witnesses.  Mr Harris was apparently independent of the respondent, and impartial as between him and the appellant.

1. This is an appeal by way of rehearing,[3] but it is necessary for the appellant to show that the decision of the magistrate was wrong.[4]  When the decision is based on an assessment of credibility of witnesses, that generally means that it is necessary to show that the magistrate misused her advantage of seeing and hearing the witnesses.[5]  In this case that has not been shown.  Although there are some aspects of the magistrate’s reasons which struck me as odd, there is no sufficient reason to interfere with that fundamental finding.

   [3]UCPR r 765(1), made applicable by r 785(1): see also Magistrates Courts Act 1921 s 47.

   [4]Allesch v Maunz (2000) 203 CLR 172 at 180.

   [5]Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479. See also Fox v Percy (2003) 77 ALJR 989 at 993-5.

1. The second question is whether, assuming there was such an oral agreement, it was superseded by the written agreement in Exhibit 2, in effect putting responsibility for repaying the money on the company rather than the remaining “partners”.  The difficulty with this argument is that it is apparent that the document was not intended to be a comprehensive statement as to the relationship between the parties, and, insofar as it deals with the circumstances under which money lent to the company is to be repaid by the company, is not inconsistent with a separate agreement between the “partners” under which, if one of them wants to leave, in effect those remaining will buy that one out.  The crucial issue is whether that document as written is inconsistent with the continued operation of such a prior oral agreement.  It does not say that it supersedes all prior oral agreements, so that depends on whether it is in terms inconsistent with the earlier oral agreement, or is so comprehensive that would necessarily be inconsistent with the notion that any prior oral agreement remains in force to any extent.  That test cannot be met.

1. In all the circumstances there has been no good reason shown to interfere with the decision of the magistrate.  The appeal is dismissed with costs.