S.E.A. Food International Pty Ltd v Lam, Theng Pew and Anor Lam, Theng Pew and Anor v S.E.A. Food International Pty Ltd and Ors Megamix Pty Ltd v S.E.A. Food International Pty Ltd

[1998] FCA 130

FEDERAL COURT OF AUSTRALIA

CONTRACT - breach of - agreement to lease - whether concluded agreement - whether enforceable without essential term - statute of frauds - “authenticated signature fiction” -

ESTOPPEL - promissory estoppel - whether reliance - whether detriment - remedy - minimum equity.

EQUITY - fiduciary relationships - director - breach of duties - relief - equitable compensation - loss of opportunity to operate a business - whether diversion of business opportunity - quantum of equitable compensation - causal connection between loss and breach.

TRADE PRACTICES - misleading or deceptive conduct - action for damages - whether representations relied upon - omissions - identification of loss or damage - interest.

CORPORATIONS LAW - winding up - oppressive or unfairly prejudicial conduct - just and equitable ground.

Federal Court of Australia Act 1976 (Cth) s 51A
Trade Practices Act 1974 (Cth) s 51A, s 52, s 53, s 82
Corporations Law s 260, s 461

Property Law Act 1974 (Qld) s 59

Re Rossfield Group Operations and Morton Holdings (ACT) Pty Limited [1981] Qd R 372 - Appl
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 - Appl
Cummings v Lewis (1993) 41 FCR 559 - Appl

Masters v Cameron (1954) 91 CLR 353 - Appl

South Coast Oils (Qld and NSW) Pty Ltd v Look Enterprises Pty Ltd [1988] 1 Qd R 680 - Cited
Riches v Hogben [1986] 1 Qd R 315 - Cited
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 - Cited
Harvey v Pratt [1965] 1 WLR 1025 - Appl
Godecke v Kirwan (1973) 129 CLR 629 - Appl
Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 - Cons
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 - Cons
Pirie v Saunders (1960) 104 CLR 149 - Cons
Leeman v Stocks [1951] Ch 941 - Cons
Farrelly v Hircock (No 1) [1971] Qd R 341 - Cons
Sturt v McInnes [1974] 1 NZLR 729 - Cons
Neill v Hewens (1953) 89 CLR 1 - Cons
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 - Appl
The Commonwealth v Verwayen (1990) 170 CLR 394 - Appl
Austotel Pty Ltd v Franklins Selfservice Pty Ltd (1989) 16 NSWLR 582 - Appl
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 - Appl
Warman International Ltd v Dwyer (1995) 182 CLR 544 -Appl
Bell v Lever Brothers Ltd [1932] 1 AC 161 - Cited
Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 - Cited
Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779 - Cited
Chan v Zacharia (1984) 154 CLR 178 - Cited
Industrial Development Consultants v Cooley [1972] 1 WLR 443 - Cons
Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371 - Cons
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 - Cons
Peso Silver Mines Ltd (NPL) v Cropper (1966) 58 DLR (2d) 1 - Cited
Phipps v Boardman [1967] 2 AC 46 - Cited
Hospital Products Ltd v United States Surgical Corporation (1984) 150 CLR 41 - Cited
In re Goldcorp Exchange Ltd [1995] 1 AC 74 - Cited
Maguire v Makaronis (1997) 71 ALJR 781 - Cons
Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 - Cons
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 - Cited
Kendall v Masters (1860) 2 De GF & J 20; 45 ER 598 - Cited
In re Jarvis [1958] 2 All ER 336; [1958] 1 WLR 815 - Cited
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 - Cited
Commonwealth Bank v Smith (1991) 42 FCR 390 - Cited
Wan v McDonald (1992) 33 FCR 491 - Cited
Target Holdings Ltd v Redferns [1996] 1 AC 421 - Appl
Canson Enterprises Ltd v Boughton & Company (1991) 85 DLR (4th) 129 - Cons
Permanent Building Society v Wheeler (1994) 11 WAR 187 - Cited
Malec v J C Hutton (1990) 169 CLR 638 - App
The Commonwealth v Aman Aviation Pty Ltd (1991) 174 CLR 64 - Appl
Hughes v Western Australia Cricket Association (Inc) (1986) 19 FCR 10 - Appl
Bevanere Pty Ltd v Lubidineuse (1984) 7 FCR 325 - Appl
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 - Cited
Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 - Cited
Rhone-Poulenc Agrochime SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 - Cited
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 - Cited
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 - Appl
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 - Appl
Gates v City Mutual Life Assurance Society Ltd (1968) 160 CLR 1 - Appl
Gould v Vaggelas (1985) 157 CLR 215 - Appl
Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 - Cited
Yorke v Lucas (1985) 158 CLR 661 - Appl
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 - Cited
Thomas v H W Thomas Ltd [1984] 1 NZLR 686 - Cited
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 - Cons
Warwick Howard (Aust) Pty Ltd (1982) 7 ACLR 441 - Cited
Re London School of Electronics Ltd [1986] 1 Ch 211 - Cited
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 - Cons
Thomas v Mackay Investments Pty Ltd (1997) 22 ACSR 294 - Cited

S.E.A. FOOD INTERNATIONAL PTY LTD v THENG PEW LAM, HUXHAM PTY LTD (BY ORIGINAL ACTION) and THENG PEW LAM AND MEGAMIX PTY LTD v S.E.A. FOOD INTERNATIONAL PTY LTD, LAKE YALE PTY LTD AND TEH YEW CHOONG (BY CROSS-CLAIM)
QG 193 OF 1994

MEGAMIX PTY LTD PTY LTD v SEA FOOD INTERNATIONAL PTY LTD
QG 3014 OF 1995

COOPER J
BRISBANE
27 FEBRUARY 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 193  of   1994

BETWEEN:

S.E.A. FOOD INTERNATIONAL PTY LTD
APPLICANT

AND:

BY ORIGINAL ACTION

BY CROSS-CLAIM

THENG PEW LAM
FIRST RESPONDENT

HUXHAM PTY LTD
SECOND RESPONDENT

THENG PEW LAM
FIRST CROSS-CLAIMANT

MEGAMIX PTY LTD
SECOND CROSS-CLAIMANT

S.E.A. FOOD INTERNATIONAL PTY LTD
FIRST CROSS-RESPONDENT

LAKE YALE PTY LTD
SECOND CROSS-RESPONDENT

TEH YEW CHOONG
THIRD CROSS-RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 3014 OF 1995

BETWEEN:	MEGAMIX PTY LTD APPLICANT
AND:	SEA FOOD INTERNATIONAL PTY LTD RESPONDENT

JUDGE:	COOPER J
DATE OF ORDER:	27 FEBRUARY 1998
WHERE MADE:	BRISBANE

MINUTES OF ORDER

IN PROCEEDINGS QG 193 OF 1994
THE COURT ORDERS THAT:

1. There be judgment on the application for the respondents.

1. The application be dismissed.

1. The applicant pay the respondents’ costs of and incidental to the application, including reserved costs, if any, to be taxed if not agreed.

1. There be judgment on the cross-claim for the cross-claimants against the first and third cross-respondents.

1. The first and third cross-respondents pay to the first cross-claimant the sum of $478,493.14.

1. The cross-claim be dismissed against the second cross-respondent.

1. Upon the solicitor for the second cross-claimant filing an affidavit attesting to the principal sum and interest payable and unpaid to the second cross-claimant by the first cross-respondent pursuant to the agreement that the second cross-claimant advance to the first cross-respondent the sum of $300,000 on the terms recorded in the Deed of Settlement executed on 11 October 1994 and in the minutes of the extraordinary meeting of the shareholders of the first cross-respondent held on 11 October 1994, there be judgment for the second cross-claimant against the first cross-respondent for such sum.

1. The first and third cross-respondents pay the cross-claimants’ costs of and incidental to the cross-claim, including reserved costs, if any, to be taxed if not agreed.

IN PROCEEDINGS QG 3014 OF 1995

THE COURT ORDERS THAT:

1. The application be dismissed.

1. The applicant pay the respondent’s costs of and incidental to the application, including reserved costs, if any, to be taxed if not agreed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 193 of 1994

BETWEEN:

S.E.A. FOOD INTERNATIONAL PTY LTD
APPLICANT

AND:

BY ORIGINAL ACTION

BY CROSS-CLAIM

THENG PEW LAM
FIRST RESPONDENT

HUXHAM PTY LTD
SECOND RESPONDENT

THENG PEW LAM
FIRST CROSS-CLAIMANT

MEGAMIX PTY LTD
SECOND CROSS-CLAIMANT

S.E.A. FOOD INTERNATIONAL PTY LTD
FIRST CROSS-RESPONDENT

LAKE YALE PTY LTD
SECOND CROSS-RESPONDENT

TEH YEW CHOONG
THIRD CROSS-RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

QG 3014 OF 1995

BETWEEN:	MEGAMIX PTY LTD APPLICANT
AND:	SEA FOOD INTERNATIONAL PTY LTD RESPONDENT

JUDGE:	COOPER J
DATE:	27 FEBRUARY 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

INTRODUCTION

The applicant, S.E.A. Food International Pty Ltd, formerly Tealmist Pty Ltd (“SEA”), seeks against Theng Pew Lam (“Mr Lam”) and two companies controlled by him, Huxham Pty Ltd (“Huxham”) and Megamix Pty Ltd (“Megamix”), damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) (“the TPA”) for contravention by Huxham and Megamix of s 52 of the TPA (for which Mr Lam is said to be responsible by operation of s 75B of the TPA), a declaration that Huxham is estopped from denying the existence of a lease of certain property situated at Thurecht Parade, Scarborough (“Thurecht Parade”), damages against Huxham for breach of contract and damages against Mr Lam for breach of fiduciary duties owed by him to SEA as a director of that company. A claim by SEA against Mr Lam for damages for negligence was abandoned.

Mr Lam and Megamix cross-claim against SEA, Lake Yale Pty Ltd (“Lake Yale”) and Teh Yew Choong, also referred to as Ray Teh (“Mr Teh”), seeking various relief against them said to flow from contraventions of s 52 and s 53 of the TPA, relying in part upon s 51A, the operation of s 75B of the TPA and breach of contract. There is also an application brought by Megamix which seeks that SEA be wound up pursuant to s 260 or, alternatively, s 461 of the Corporations Law (“the Law”). That application was filed in the Supreme Court of Queensland and was cross-vested to this Court by order of Mackenzie J made on 17 August 1995. An order was made by Drummond J on 15 December 1995 that the trial of the winding-up application be heard together with the trial of the proceedings commenced in this Court.

As will be seen, much ultimately turns in these proceedings on issues of fact and the proper inferences to be drawn from the facts as found.  It has been necessary to have close regard to the context in which the parties have conducted themselves at the relevant times and to the chronology of certain critical events and conduct.

BACKGROUND AND FACTS

As at May 1994, the beginning of the relevant period in these proceedings, SEA operated a seafood export and processing business from premises at 19 Tubbs Street, Clontarf (“Tubbs Street”).  SEA’s activities involved the purchase of fresh seafood from commercial fishermen in Queensland or New South Wales for export as live product to Taiwan, Singapore, Malaysia and Japan, for processing and export as frozen product and for sale to domestic wholesalers.  SEA also sold and distributed, domestically and overseas, live lobster and live fish from premises in Tasmania and sub-contracted packing operations in Sydney to Coral Live Products Pty Ltd.

The directors of SEA were Mr Teh and his wife, Jillian.  The shares in SEA were owned by Lake Yale, a company owned and controlled by Mr Teh and his wife.  The day to day operation and management of SEA were undertaken by Mr Teh and SEA’s operations manager, Kevin Bostock (“Mr Bostock”), who had been with the company since April 1991.

Mr Lam is a retired stockbroker and was, at the relevant times a citizen of, and resident in, Malaysia.  He had, in May 1994 at least, considerable financial resources. 

In May 1994, Mr Lam came to Australia looking for what he called “passive investment opportunities”.  Mr Lam arrived in Brisbane on or about 30 May 1994 and was contacted by Mr Teh shortly thereafter at the hotel at which he was staying.  One of Mr Lam’s daughters is married to one of Mr Teh’s brothers.  Mr Teh knew or was told by Mr Lam that he was looking for investment opportunities.  Mr Teh told Mr Lam about his business, SEA, and it was arranged that Mr Lam would visit SEA at Tubbs Street the following day.

On 31 May 1994, Mr Teh collected Mr Lam and his wife at their hotel and drove them to Tubbs Street.  During the journey to Tubbs Street, Mr Teh made and received a number of telephone calls on his mobile telephone.  He told Mr Lam that he was doing business with people in Taiwan.  During a tour of Tubbs Street, Mr Teh told Mr Lam that SEA purchased seafood and processed it for local and overseas consumption.

After the tour, Mr Lam and his wife and Mr Teh had lunch at Morgan’s, a nearby seafood restaurant.  Mr Lam’s evidence, given by way of statement, was that during lunch, Mr Teh said to him words to the effect of :-

“The existing factory at Clontarf [Tubbs Street] is too small and he needed to expand it.  Are you interested in investing in SEA?  The Port Authority and the local council are prepared to lease a two acre piece of land at Redcliffe for a twenty year period at $800 per acre per year.  I’ll take you out and show you the Redcliffe site once we’ve finished lunch”.

Mr Teh’s evidence, also given by way of statement, was that he “mentioned” to Mr Lam at lunch that the Brisbane Port Authority and the local council were interested in having a development and that he may have mentioned how long a proposed lease would have to be and the cost per acre of such a lease.

It is not disputed that after lunch Mr Teh drove Mr Lam and his wife to a block of vacant land at the Redcliffe breakwater, which land Mr Teh proposed to be the site for the expansion and development of SEA’s business.  I will refer to this land as “the Redcliffe site” to distinguish it from Thurecht Parade.

It is clear from the evidence given by Mr Lam in cross-examination that, whatever words were used by Mr Teh to describe the proposed development at Redcliffe, Mr Lam did not understand Mr Teh to have said that SEA had received approval from the Port Authority and the local council for a lease in the terms described above.  However, I am satisfied that Mr Teh did convey to Mr Lam that an application for such a lease would be looked upon favourably and stood a “good chance” of being approved or “was likely” to be approved and that this was conveyed to Mr Lam in the context of an exposition by Mr Teh of his plans for the expansion and development of the SEA seafood business.

There was tendered into evidence a document, prepared by Mr Teh, entitled “SEA Food International Pty Ltd - Company Profile”.  The document is an important one to the issues in these proceedings, particularly with respect to SEA’s damages claims, and I will set out the contents of it in full, save for the final two pages which contain personal profiles of Mr Teh, his wife and Mr Bostock :-

“S.E.A. FOOD INTERNATIONAL PTY LTD - COMPANY PROFILE

The company was formed over 4 years ago with the view to long term export markets from Australia as well as from external (overseas) countries to other countries, but controlled and functioned from Australia.
We recognised that there was an apparent lack of interest in exploration of niche markets both in this country as well as overseas and set out to explore this.

LIVE-FROZEN EELS FROM ASIA TO EUROPE
From Asia to the European market.  Considerable market research had revealed product quality was never as good as it should have been due to the lack of understanding and communication barriers.  We provided the technical expertise and the communication bridge and within 2 years, had export orders of 260,000 kgs from mainland China/Taiwan to Europe.  All letters of credit were directed to Australia and negotiated locally.
Depending on seasonal factors and supply of ‘Glass’ & ‘Elver’ eels (baby eels) to Taiwan, we see this segment of the market as an ongoing business mainly because of our contacts in Asia as well as in Europe.

FROZEN SPANNER CRABS
At the same time in Australia, we noticed that the once lucrative market in frozen spanner crab exports had slowly but surely been declining for a number of years.
Investigations revealed that overseas buyers were terribly disenchanted with the quality, price and nonchalant attitude of Australian exporters re the product they represented.  The crabs sold had an inherent problem of turning black on the underbelly when thawed as well as meat quality suffered when being processed.
We took on the task of finding out why these problems were occurring, and with help from the Food Research Institute of the DPI in Queensland, it was discovered that a natural phenomena in body metabolism happens when spanner crabs die - thus causing blackness to appear only after freezing and thawing.
Armed with this information, we approached a new factory in Bundaberg and after a couple of trial shipments, perfected the art of freezing spanner crabs correctly.
The rest is now history as we contracted yet another factory in Bundaberg to cope with demand and now have the top 2 brands of crabs in Taiwan.
We are the only exporters in season to regularly ship an average of one sea container a week overseas.  The closest competitor in this field would at the utmost ship out one sea container every 2 - 3 weeks.
‘S.E.A.’ is by far the largest exporter of spanner crabs in Australia.  Using our acquired technology in Tasmania, we can also now export ‘live’ crabs overseas with higher margins than the frozen crabs.

MULLET ROE/GIZZARDS/MILTS
The ‘S.E.A. Food International’ brand is one of the most recognisable and approved brands of this expensive item in the Taiwanese marketplace.  Every year we fetch among the top prices for frozen mullet roe and by-products.
This factor was not achieved overnight but by years of development and clever packaging & marketing.
This year 1994 will prove to be one of the most lucrative yet as there is a shortage from the North & South American countries in the supply of roe to Asia.  Also the relatively new by-products of mullet gizzards & fresh (air flown) milts will show a remarkable increase in acceptance as well as price.
We see this line as one of our most important growth sectors.

FROZEN REEF FISH - CORAL TROUT & OTHER SPECIES (COD, ETC)
S.E.A. Food International pioneered this newly introduced fish item into Taiwan and within months, the fish had taken the Taiwanese market by storm.  At one stage, we could not keep up with the demand for over 18 months.  Demand has now levelled off due to an overpricing situation, but we envisage that by the end of 1994, the market will boom again.

LIVE EELS FROM AUSTRALIA
This species of eels is completely different from the Asian eels sold to Europe.  Our Australian freshwater eels are caught in N.S.W. and Queensland.  We have tanking systems which are capable of holding over 2 tonnes of live eels and in season, we supply buyers in Hong Kong, Taiwan and mainland China with this high demand item.
We see an increasing market in mainland China which has just only begun earlier this year, but is already buying 50% of all our exports.

DAVIDS HOLDINGS
Is the largest privately owned grocery distributor in Australia and we have completed negotiations to start supplying ‘Austrimi’ Seafood Products (a value-added fish based product, eg seafood sticks), into their stores in Victoria.  Within 12 months, we hope to have the contract to supply Davids Holdings’ major wholesale outlets throughout Australia.  This is another huge potential market where independent supermarkets, corner stores, pizza parlours, restaurants (which depend on wholesale distributors for their supplies) will see our product being introduced to replace imported substitutes.
Of course, the current takeover and merger plans of David Holdings with interstate grocery companies can offer us a foothold into other outlets with our other seafood lines.

CROCODILE - P.N.G.
After 2 visits to P.N.G. (one visit with the overseas buyer), we were successful in obtaining a contract to purchase and sell 50,000 kgs of dressed crocodile carcasses to Taiwan.
Taiwan currently purchases alligator meat from Florida in the U.S.A., but due to the fact that we are able to obtain commercial quantities and that our crocodile meat actually tastes better (being fed chicken instead of fish), the Taiwanese market easily changed to this new delicacy.

With an enlarged & new factory operation, we could also be importing the carcasses from P.N.G., processing them into smaller cuts, repacking the cuts and exporting these to places like Singapore and Hong Kong which currently does not recognise P.N.G. health regulations for crocodile meat.
We are now negotiating with Canberra in regard to reprocessing this item in Australia.
By-products will be sold on the domestic market.
This is a new product line which will prove to be very lucrative, both overseas as well as within Australia.
‘S.E.A. Food’ is already the largest exporter of crocodile meat in the world.

QUAILS
We exported our 1st large quantity of dressed frozen quails a few months ago and the results are very positive.
We expect demand to increase dramatically when it is winter in Asia (our summer months) and anticipate orders of more than 10,000 birds per week representing over $15,000 in revenue per week.  This is a first for Australia as no on [sic] else is exporting this item of any commercial quantity.
Concentration will have to be made on clever packaging and presentation of the product.  There is only 1 farm in Australia currently capable of producing such large amounts, and we have an exclusive agreement to sell their quails overseas.

TASMANIAN OPERATIONS
This factory was purchased from an owner/operator in November 1992.  The factory is approximately 16 klms from Hobart and has tanking capacity up to 10,000 kgs of live lobsters, king crabs, molluscs and live fish.
The previous owner, Tony, still works at the factory.  Tony is very well known in the seafood [sic], especially the lobster industry in Tasmania and the company now enjoys a large following of loyal fishing vessels.

In a matter of under 18 months - from an almost 100% domestic market, we have turned the factory into a 70% live export oriented facility with plans to go 90% export by the end of next season.  We have also contracted a Sydney based live seafood factory to handle our product to be sent overseas from Sydney.  This is because Hobart lacks direct international airline connections to countries like Taiwan and Japan.

We have improved and increased the capacity of the tanking systems since taking over with the introduction of high tech bacteria formulations to stabilise water filtration and waste cycles.  Our mortality in export markets is down to lower than 2% per air shipment and now have firm standing orders booked every week for overseas.

By-products like frozen cooked lobsters, lobster tails, are sold off in Tasmania or sent to Brisbane for resale through our normal wholesale operations.

Another big seller for us recently has been the live deep sea ‘king crab’.  We have managed to control the mortality in these very sensitve [sic] creatures by flying them from Tasmania to Sydney (for on freighting) by private charter plane.
We would now be one of the largest exporters of this item in Australia - and this was achieved only within the past 6 months.

The last 18 months saw a considerable amount of expenditure into the Tasmanian operation in order to bring it up to a high export standard.  Of course, we suffered from a lack of experience in packing methods and sustaining higher than normal mortalities during our overseas export push.
We also initially had to sacrifice margins in order to obtain our current level of overseas clients.
But we are now reaping the benefits of that hard work and development program as we currently have an excellent list of overseas customers as well as being able to maintain a very high level of quality export live seafood.

We see the Tasmanian operation as one of our top income spinners within a matter of two years.  We are already now one of the largest lobster buyers in Tasmanian and have a reputation of being price leaders & looked up to as price setters in the industry (alongside ‘Safcol’).

OTHER TRADING - WHOLESALE/DISTRIBUTION/IMPORTS
We have a unique opportunity of a natural expansion into restricted wholesale activities in Queensland (as well as Tasmania) where our main operations are based.
In Queensland, we have mullet, tailor, fresh reef fish, and other fish products in season;  in Tasmania we have crustacean and much in demand fish fillets (orange roughy, couta).
Employment of the appropriate personnel to handle the seafood retailers, restaurants, take-away food bars, etc, could see increased turnovers and much higher margins of by-products we currently sell off to other distributors & wholesalers.

In imports, we have the Coles Supermarket chains of which we are already “preferred suppliers” - but unable to progress as a major supplier due to restricted cash input.
We have outstanding overseas processors from which we are able to purchase incredibly cheap items like :-  flake, barramundi fillets, snapper species and other ‘Australian oriented’ skinless, boneless, white fish fillets.  For example, we supplied Coles Supermarkets in just 2 states during the months of February & March 1993 with over 7 m/tonnes of fish fillets which we purchased from other importers with profit margins of over 40% on cost.

We see this as another huge potential money spinner for the simple fact that major supermarket chains do not import seafood items on a direct basis.

EXPANSION INTO NEW PREMISES
‘S.E.A. Food International’ has outgrown its present factory site at Clontarf in Queensland.  It currently suffers from a lack of efficiency, duplicated labours [sic] costs, unnecessary additional freezing costs and inadequate working space for processing and distribution.

We find that we have to employ more labour to handle raw material because we cannot utilise machinery (eg conveyor belts) due to lack of space.  Staff is [sic] less efficient due to cramped working conditions, insufficient flow through handline procedures, etc.
We have to plate freeze (contact freezing) our mullet roe externally as we do not have the space to install our own plate freezer.  We have to also blast freeze our fish fillets and whole fish externally for the same reasons.
These additional freezing costs add up to around $80,000 per year.  On top of this, we have to store bulk frozen products like bait & expert whole fish in external cold stores costing another $15,000 per year (again due to lack of space).
Savings of $100,000 per annum can be made in reducing our C.O.S. by conducting our own freezing and it is estimated we will save around another $40,000 per year in unnecessary labour costs if we had the space to make our workers more efficient.

ADDITIONAL PRODUCT LINES IN NEW FACTORY
As per sales budget & forecast, we will begin production of scallops and frozen spanner crabs in Brisbane.
The scallop season fits in nicely just outside the mullet roe season and this is another area in making the factory much more cost efficient.  Spanner crabs which are already a major part of our turnover, will contribute a higher profit margin when we process them in our own factory.  The net profit margin will be about 300% better than contract processing.
We will, however still maintain our excellent relationships with our outside processors and continue to dominate the overseas market with our brands.

With a new factory, we can also process crocodile carcasses for re-export and local sales.
With the increased activities, the wholesale revenue will also automatically pick up.

SCARBOROUGH SPIT - BOAT HARBOUR
Scarborough Harbour is the most important fishing boat harbour in the vicinity of Brisbane and the adjoining Moreton Bay area is of course a major fishing waterway.
Negotiations are already underway for the lease of harbourside land in this stunning waterview area of Brisbane.
The land is owned by the Port Authority of Brisbane which will lease this waterfront land for the purposes of a marine/seafood related project only.  We fall nicely into this category.  The development will be carried out in 3 to 4 stages.

STAGE ONE
Will see the building of a seafood processing factory which will have all necessary freezing equipment and storage. 
Included will be live seafood tanks to enhance the export of live seafood like spanner crabs, eels, fish, Moreton Bay bugs, and in transit - our Tasmanian factory lines of live lobsters, king crabs, abalone, etc to take advantage of international airline routes.

Jetties will be built alongside the factory to encourage fishing vessels to unload their seafood, and we should see a dramatic increase in turnover from this alone.

There will also be a large retail shop based on the Sydney Pyrmont ‘fish markets’ style of ‘open retailing’.  We will be building live seafood tanks surrounding the retail area and offer an impressive visual display of fresh and live seafood.
There is nothing in Queensland which even goes close to this concept.  We expect people from all over Brisbane to come to us.

A cooked food (fish & chips, takeaway) shop will be built on the premises to allow customers to purchase their cooked seafood and enjoy the fantastic views and amenities of the spit area.
The retail shop and cooked food outlet will add at least $50,000 per week turnover to the company.  It is anticipated that this figure will be more like $70,000 per week within 12 months.

STAGE TWO
Of the development will see a Bistro type restaurant which will offer fresh seafood displays with live tanks (& live seafood) for customers to pick and choose their own selections.  We will offer probably 4 types of cooking (Western, Mediterranean, Chinese, Japanese) for customers to decide the way they wish to have their meals presented.  We will have catering facilities to handle large numbers of overseas tourists whom we will be encouraging to visit our site - refer next stage (three).

STAGE THREE
Will see tourist attractions built nearby.  We will have the normal tourist shops with souvenirs, etc, but we will also have a most unique ‘tourist supermarket’ where the visitors can purchase their seafood for taking back home.
Some of the biggest sales in so called duty-free stores at the international airports in Australia consist of frozen cooked lobsters, canned & frozen abalone and value-added dried mullet roe.  The margins are extremely high, but is well justified as the Japanese or Taiwanese tourist still pays at least 100% to 200% more for the same product in their home land.

We have the huge advantage of being able to process our own products at a much lesser cost and spend more time and effort in better and superior packaging than our airport counterparts.
We can offer these tourists the added incentive of dropping off their food purchases, all neatly & nicely packaged in insulated cartons/eskies, on the morning of their departure.
The duty-free stores at the new Brisbane International Airport have been tipped to have a turnover of over $40,000,000 per year.  We intend to ‘poach’ some of that business before the tourist even gets to the airport.  We hope to obtain $1 to $2 million revenue per annum from these tourist shops.

We aim to promote our site as an overseas tourist destination for the beautiful location, unique shopping facilities, unbeatable eating experience and perhaps even short tours of the factory (particularly the live seafood facilities).  We can achieve this by approaching the tourist operators to include our site as one of their stopover points.  Brisbane lacks interesting tourist attractions unlike Sydney and the Gold Coast - this is an opportunity to ‘cash’ in on what the newspapers say that Brisbane & Queensland is [sic] poised to be the fastest growing tourist destination in Australia.

STAGE FOUR
Will with approval see the development of some commercial offices & buildings on the site.  Government departments’ occupation is the most ideal, with some professional offices making up the balance.
This development stage will add extra security and income to the total project.
We also intend to see an open air market aptly named ‘Scarborough Fair’ conducted on weekends on the spit, earmarking our large carpark grounds for this function.
This market will serve to increase the patronage of the retail and food ships as well as provide easy income on the rental of ‘shop sites’ in the open market.
.....”

In cross-examination, Mr Teh acknowledged that the document was prepared by him in 1994.  So much is clear, in any event, from the reference on page two of the document under the heading “Mullet Roe/Gizzards/Milts” to “This year 1994”.  Mr Teh also acknowledged that the document (and another document setting out the projected sales, margins and profit of the expanded enterprise, to which I will return (exhibit 3)) was prepared to show to potential investors in SEA.

Mr Teh was not asked when in 1994 the document was prepared.  It is possible however to identify the date of preparation of the document by reference to the contents of it.  On page 2, under the heading “Mullet Roe/Gizzards/Milts” there appears a sentence commencing “This year will prove to be one of the most lucrative yet ...” (emphasis added).  It is more probable than not that the document was prepared prior to the commencement of the 1994 mullet season.  Were it otherwise, one would expect that the sentence quoted above would use the present or past tense, ie “is proving” or “has proved”.  A mullet “season” runs from March to August.  I am satisfied that the document (hereinafter referred to as “the company profile”), or at least that part of it up to the heading on page 9, “The Company”, was prepared by Mr Teh at some time prior to the commencement of the 1994 mullet season, and certainly prior to 30 May 1994.

On 5 or 6 June 1994 Mr Lam and Mr Teh met by chance at a Brisbane restaurant.  Mr Teh invited Mr Lam and his wife to dine at Mr Teh’s home that evening.  The conversation between Mr Lam and Mr Teh on the evening of 5 or 6 June 1994 is not particularised in the cross-claim as an occasion upon which any actionable representations were made by Mr Teh.  Nonetheless, anything said or done, or not said or not done, by Mr Teh on 5 or 6 June forms part of the background to and context of relevant conduct by the parties.

According to Mr Lam, Mr Teh said to him, on 5 or 6 June 1994, words to the effect of :-

“(a)We (SEA) will achieve a turnover of $10 million (Australian) for the year ended 30 June 1994.  Our company (SEA) is a very profitable one and you will get a good return for your money if you want to invest in it.  You won’t regret it.

(b)The profit margin is really good as we are purchasing the whole Sea Mullet at $4-5 a kilo.  The female mullet roe alone is exported at $30 plus a kilo;  the gizzard, also at $18 plus a kilo.

(c)The price that we put in the shipping documents is understated to help the Taiwanese importers as they have to pay import duty in Taiwan on the basis of the purchase price.  The balance between the actual price and the understated price is paid offshore.”

Mr Lam gave further evidence to the effect that he could not recall whether the difference between the actual price and the understated price was paid from offshore (Taiwan) or to an offshore account.

In his evidence, Mr Teh acknowledged that he “would have mentioned at some stage in response to an inquiry from Lam that the company’s turnover is ten million dollars” and denied saying the words in the second sentence of (a) above but allowed that he did say something like, “if you are interested in investing in the company you would not regret it”.  Mr Teh’s evidence in relation to (b) was that prices would have been discussed but the figures quoted by Mr Lam are “totally incorrect” and would not have been used by him (Mr Teh).  In relation to (c), Mr Teh’s evidence was that he said “that the balance between the actual price and the stated price is remitted from offshore to Australia” so that all funds whether derived in Australia or overseas were remitted to the company’s account in Australia.  In cross-examination Mr Teh conceded that he could have said the words set out in (a) and that he said the words set out in (c), although what he said was an oversimplification.  It is unnecessary to resolve the remaining conflict in the evidence in relation to (b).  I am satisfied that on 5 or 6 June 1994 at his home Mr Teh said to Mr Lam the words attributed to him in (a) and (c) above.  The statement contained in (a) accords with Mr Teh’s expressed views as they then appeared in the company profile.

Mr Lam and Mr Teh again met by chance at a Brisbane restaurant on 14 June 1994.  Mr Lam was having lunch with his son, James Lam and James’ wife and children.  It was resolved, either on 14 June 1994 or in a telephone conversation between Mr Lam and Mr Teh on 16 June 1994, that Mr Lam and James Lam would visit Tubbs Street.

On 16 June 1994 Mr Teh collected Mr Lam and James Lam from their accommodation and drove them to Tubbs Street.  The men also visited the Redcliffe site.  There is a conflict in the evidence between Mr Lam and Mr Teh as to what was said during the course of 16 June 1994.  James Lam was present on 16 June 1994.  He gave evidence by way of statement, and was not cross-examined :-

“12.On the way there Ray Teh and at the proposed expansion site explained the activities of SEA and the expansion plans he had for it.  He kept stressing the expansion project and the ‘value-added’ and downstream activities SEA would be able to undertake and the profit/money that would be obtained from those operations.

.....

17.On reaching the ‘proposed site’ in Redcliffe, LTP [Mr Lam] asked Ray Teh, in my presence, specifically what the progress was of Ray’s discussion with the Council regarding their offer on the site.

18.LTP stressed the feasibility of the project subject to the Council extending the lease to a 20 year term.  LTP also stressed the development of the access road to the ‘site’ by the Council.

19.Ray Teh replied to the effect ‘They are happy to have this investment here.  We will be providing a lot of jobs for the locals with all our downstream projects.  Extending the lease will not be a problem.’

20.While walking towards the site, I said ‘It’s a long walk to the site and the access road will be expensive.’  Ray Teh said to the effect that ‘We are choosing the piece of land towards the end as it is the widest and best piece.  We are working to get the Council to build the access road.’

21.At the site, Ray Teh briefed me on the downstream projects comprising the expansion of the SEA factory with bigger freezing capacity, the retail outlet similar to those in the Sydney fish market and the seafood restaurant all next door to each other.

22.He stressed that we could do about AUD$10,000,000.00 to AUD$15,000,000.00 turnover and that the profit would be very high as there would be no wastage, doing the value added products and downstream activities - such as filleting the fish and a [sic] upmarket packing for retailing and export, and opening a retail outlet to the restaurant if the fish are not sold.

23.I said ‘There are not many people here to patronise the retail outlet and seafood restaurant.’  Ray Teh replied ‘Why, you should see them on a Friday and weekend - this place is crowded.  People from all over nearby and even from Brisbane come out to eat here’.  If we have the restaurant here and the fish retail outlet next to it, the customers will buy the fresh fish to take home as well - they can’t get it any fresher.  People have no place to buy their fresh seafood here.  If we can pack and price our product correctly, people will buy.’”

According to Mr Lam, while at the Redcliffe site, Mr Teh said words to the effect of :-

“I have great plans for expansion in this area.  The council and Port Authority are going to give us a 20 year lease as they are really pleased with SEA which will employ 50 - 60 more local Redcliffe residents.”

Mr Lam also gave evidence that after visiting the Redcliffe site, the men returned to Tubbs Street where Mr Teh told Mr Lam, in response to a question about the progress in relation to the site, that the council and the Port Authority were very happy because more locals would be employed in the enlarged plant, that he (Mr Teh) would have an offer in writing within the next few weeks and that once the rent was paid and plans were submitted for approval, SEA would be able to move in and that this should happen by the end of the year.  Mr Lam’s evidence was that Mr Teh then said that SEA was achieving a turnover of $10,000,000 in 1994 and that “we will then go ahead in leaps and bounds and achieve an annual turnover of $15,000,000.”

When cross-examined on this issue, Mr Lam did not resile from his evidence as to what was said by Mr Teh in the relevant conversations.

Mr Teh denied the substance of Mr Lam’s evidence.  Mr Teh’s evidence-in-chief was that he understood that the local council and the Port Authority would consider giving SEA a twenty year lease because SEA was a local employer and the “relevant authorities” wanted a marine related industry on that site and that he said words to the effect that they (the Port Authority) would consider giving the lease.  Mr Teh was not specifically cross-examined in relation to his conversation with Mr Lam on 16 June 1994.

The relevant alleged representation for the purposes of the cross-claim arising out of the conversations on 16 June 1994 is that pleaded in paragraph 11(e) of the further amended defence and cross-claim, namely that SEA had received approval from the Port Authority and the Redcliffe Council to lease two acres of land at Redcliffe for a term of twenty years at a rental of $800 per acre per annum for development of new premises.  It is interesting to note that the pleading substantially repeats the words attributed to Mr Teh by Mr Lam at the 31 May 1994 meeting.

I am satisfied that, on 16 June 1994, Mr Teh said words to Mr Lam, the effect of which was that an application by SEA to the Port Authority for a lease of the Redcliffe site and an application to the local council for approval for the proposed development would be looked upon favourably and would be very likely to succeed.  That this was Mr Teh’s view, or at least the view he was willing to express to potential investors, is apparent from the company profile which refers to negotiations for such a lease being “already underway” and from the unchallenged evidence of James Lam set out above.  Mr Teh’s evidence, when cross-examined generally on this point and the evidence referred to below relating to Mr Teh’s later statements on this issue also support a finding in those terms.

However, it is equally apparent from the evidence given by Mr Lam in cross-examination that he did not understand Mr Teh to have said that the relevant approvals had been obtained, merely that they would very likely be obtained should application be made and that Mr Teh was confident in this respect.  I am not persuaded that Mr Teh made a representation as pleaded in paragraph 11(e) of the further amended defence and cross-claim on 16 June 1994 or at any other time relevant to these proceedings.

The next meeting of consequence between Mr Lam and Mr Teh took place at Mr Teh’s home on 18 June 1994.  There was, ultimately, little conflict between Mr Lam and Mr Teh as to what occurred on that day.

Mr Lam’s evidence was that, after dinner, he and Mr Teh retired to Mr Teh’s study whereupon Mr Teh asked him if he was interested in investing $1,000,000 in return for forty percent of the shares in SEA.  Mr Teh told Mr Lam that he needed the money for the expansion of SEA and to :-

(a)negotiate the lease of the Redcliffe site to build a larger processing plant for the “very lucrative” mullet roe business;

(b)expand the existing premises as they were not suitable for handling spanner crabs;

(c)go into “down stream” projects such as retail sales of fresh and cooked seafood;

(d)go into value added products such as advance packing of seafood for the tourist industry and the sale of such products at the new Brisbane airport terminal;

(e)purchase additional plant and equipment at an auction in Tasmania;  and

(f)purchase a larger freezer truck for SEA’s holding station in Hobart.

According to Mr Lam he told Mr Teh that, because of the family relationship, he would advance the money to Mr Teh and his wife as “an advance for the immediate future”.  Mr Teh told Mr Lam that the money should be advanced to Lake Yale because it was close to the end of the financial year and Mr Teh did not want to “confuse the accounts”.  Mr Lam and Mr Teh then discussed Mr Teh’s offer that Mr Lam purchase forty percent of the shares in SEA and Mr Lam’s evidence was that, in the course of that discussion, Mr Teh said :-

“I’ll be able to give you complete accounts for the years ended 30 June 1991, 1992 and 1993.  I will expedite the closing of the accounts for the year ended 30 June 1994.  You will be pleased to note that we expect to have a turnover of $10 million by the end of the financial year.”

After his discussion with Mr Teh, Mr Lam asked James Lam to arrange for the telegraphic transfer of $1,000,000 to Lake Yale, as soon as James and his family returned home.  Mr Lam’s evidence was that he was prepared to make the money available as a loan initially.

Mr Lam’s evidence in cross-examination about the events of 18 June 1994 was somewhat confused.  The tenor of his evidence was that he told Mr Teh that he had $1,000,000 to invest and Mr Teh, after setting out the uses to which that sum would be put ((a) to (f) above) indicated that he was prepared to give Mr Lam forty percent of the shares in SEA in return for an investment of that amount.  Mr Lam also gave evidence to the effect that Mr Teh’s offer in those terms was not immediately accepted by him but was, in effect, subject to provision by Mr Teh of the accounts of SEA for the previous three years or so.

Mr Teh’s initial statement of evidence is unhelpful in resolving the conflicts in the evidence.  Mr Teh, in that statement, does not descend into particularity as to what was said and by whom on the relevant dates.  However, Mr Teh’s statement in reply responds directly to the evidence-in-chief of Mr Lam.  Relevantly, Mr Teh’s evidence was as follows  :-

“21.In relation to paragraph 36 I say that the impetus for the discussion of investment came from Lam rather than me.  He had indicated his interest in investing on a number of occasions and the original discussions in relation to investment had involved Lam developing the site and SEA leasing the developed site from him.  However, during the social chit-chat over the previous days the idea had been introduced by him that he may be interested in investing in the company as well.  He thought that it made sense for the development of the land and the investment in the company to be tied together.  Lam Senior did not invite his son into the office.

22.In relation to the comments in sub-paragraph (a), (b), (c), (d), (e) and (f) of paragraph 36 I say that the conversation started with Lam Senior asking if I was interested in him investing in the company and how much money would I want and what sort of percentage would he be looking at if he invested in the company.  The figure of one million dollars ($1,000,000.00) arose during the discussion as a result of the business migration requirements.  Even though Lam Senior had no intention of migrating he indicated his son James did.  I understood $500,000.00 per party for business migration was the relevant figure.  I think Lam thought it was a good idea to have the option available to him to emigrate.  This means one million ($1,000,000.00) had to be invested.  In return for this I offered one third of the company.  Lam then negotiated upwards by saying ‘well how about forty per cent (40%)’ and the agreement was struck at that time.  The comments in sub-paragraphs (a), (b), (c), (d), (e) and (f) were not made specifically to me at that time or in that context but the substance of these comments would have been made during our many conversations.  He did not make the comment that the money was an ‘advance’.  The family relationship was mentioned and I may have mentioned Lake Yale Pty Ltd which is a holding company.

23.In relation to paragraph 37 Lam did not make those comments at any time.  He did ask for accounts at some stage and I said that we were trying to get the accounts up to date but I did not make any other comments.  Specifically, I did not say I would give him completed accounts as he had never requested them.  I did not say I would expedite the closing of the accounts.  However, I had told him previously that the company’s turnover was $10,000,000.00.  The statement at the top of page 9 were made by me at a much later date as a result of Lam’s accountants Saccasan Bailey Roy advising him in relation to director’s duties and responsibilities.  One strange thing is that all the accounting is done at the office and at no time has it been done at home.  The final year accounts have always been done by a firm of external accountants.

24.In relation to paragraph 38 I deny that the money was made available as a loan at any time.  As I said, the money was to purchase a percentage of the company which was the agreement struck.  No reference was made by anyone at any time to a ‘loan’ or ‘advance’”.

Mr Teh also said that on 18 or 19 June 1994 he gave Mr Lam the 1991, 1992 and 1993 financial records of SEA to “keep over the weekend and to copy” and that Mr Lam gave those records back to Mr Teh on 20 June 1994.

In cross-examination, Mr Teh’s evidence was that on 18 June 1994 Mr Lam asked him how much he required to be invested in SEA and Mr Teh suggested that $1,000,000 “would be a good figure”.  Mr Teh’s evidence in relation to (a) to (f) above went further than his evidence-in-chief.  Mr Teh agreed that those were things that he had said to Mr Lam at some point on or prior to 18 June.  Ultimately, Mr Teh agreed that he may have said those things on 18 June, but could not recall.  Mr Teh confirmed his evidence that he did not recall Mr Lam indicating that the $1,000.00 was to be a temporary loan to Mr Teh and his wife, nor did he understand that the money was to be advanced on that basis.

I am satisfied that the matters set out in (a) to (f) above were said by Mr Teh to Mr Lam on 18 June 1994 or “cumulatively” on the relevant dates up to and including 18 June 1994.  I am also satisfied, for the reasons set out below, that Mr Teh said he would provide the 1991, 1992 and 1993 financial records of SEA to Mr Lam and that he would provide the 1994 financial records as soon as they became available after the end of the financial year.

On 20 June 1994, Mr Lam and Mr Teh had further conversations at Mr Teh’s home, where Mr Lam was now staying, having checked out of his hotel.  Mr Lam’s evidence in relation to those conversations was as follows :-

“He [Mr Teh] said:    ‘The financial accounts for the year ended 30 June 1994 will show that the company has achieved a $10,000,000 turnover.  I am in dire need of another $1,000,000 (meaning a second $1M) to expand the processing plant in Redcliffe.  Presently it’s too small in capability to handle Spanner Crab business and the Sea Mullet season ends in June.  I need additional capital and space to process Spanner Crab and this will increase the turnover to $15,000,000 in 94/95’.

He also said :             ‘The company also owns a large lobster factory in Tasmania and an export distribution facility at St Peters in Sydney.’

‘The Redcliffe Council and Port Authority are very keen and anxious to offer my company the two acres at the tip of Redcliffe for a 20 year lease at a very low and favourable rental.  The Council have assured me that there will be no problem for me to get the land as I employ 50 - 60 employees all from Redcliffe.  With this downstream project I am in dire need of assistance from your son James and his wife, Jean.’

‘I have a big competitive edge against my Australian exporters as I am Australian, Chinese and a Malaysian.  The Taiwanese prefer to deal with a Malaysian who is receptive to doing business under the table.’

I [Mr Lam] said:       ‘With your enormous turnover surely your company is showing big profits?  What is the profit before tax?’

He said:‘There are many ways to get around this as I have a company with tax losses to offset the SEA profits and thus pay no tax at all.’

.....

I said:‘Can you please give me your accounting records for the last three years.  I need to see your profit and loss accounts, balance sheets, the paid up capital, price earnings per share ratio.’

He said:I have the three years profit and loss accounts and can give you a photocopy any time.  Don’t worry the profits are very good and you will never regret taking an equity in my company.’”

Mr Lam agreed that he could not recall that Mr Teh told him that SEA owned the facility in Sydney and that he assumed that this was the case.  I am satisfied that Mr Teh did not make the representation, pleaded in paragraph 11(b) of the further amended defence and cross-claim, that SEA owned a packing plant in Sydney.

Relevantly, Mr Teh denied that he made the comment about doing business under the table, that Mr Lam had requested SEA’s financial records and that he made the reply attributed to him by Mr Lam.  Mr Teh’s evidence was that he made general comments of the nature recalled by Mr Lam at various times, but not necessarily on or only on 20 June 1994.  Mr Teh acknowledged that he did mention that “the holding company had tax losses to offset against SEA.”

Mr Teh’s evidence in cross-examination did not take the matter substantially beyond the position recorded above other than to acknowledge that the tenor of what he told Mr Lam about SEA was positive :-

“All right.  And that you certainly would not have wanted him to go away thinking that an investment in your company was not a good investment?---Yes.

And you certainly would not want him to go away thinking that your company had not been trading at a profit?---That’s correct.”

Mr Teh also said that he did not at any stage tell Mr Lam that SEA had traded at a loss in the period from the 1991 financial year, because he “wasn’t asked”.  Mr Teh’s evidence was that he told Mr Lam that SEA in Queensland was trading at a profit but that Tasmania was in a situation of loss or had problems or difficulties.

It is tolerably clear that, whether on 20 June 1994 or at some other relevant time, Mr Teh said to Mr Lam words to the effect that the 1994 accounts of SEA would show a turnover of $10,000,000, that SEA needed $1,000,000 to expand Tubbs Street to handle spanner crabs to increase the turnover to $15,000,000, that the Redcliffe Council and the Port Authority were “very keen and anxious” to offer SEA a twenty year lease of the Redcliffe/Scarborough site at “a very low and favourable rental” and that SEA’s holding company had tax losses to offset against SEA’s profits.  Similarly, the evidence is that during the period up to and including 20 June 1994, Mr Teh sought to impress upon Mr Lam that an investment by him in SEA would be a sound one and that SEA was a company performing well and earning profits.  Although Mr Teh’s evidence does not go so far as to say that he told Mr Lam that SEA was profitable, I am satisfied that, even if Mr Teh did not say so expressly, he sought to convey and did convey to Mr Lam that that was the case.  There is, for example, no warrant to speak about offsetting tax losses if there are no profits to offset.  Equally, discussion about turnover of $10,000,000 per annum and an investment being one that would not be regretted suggests that the subject company is a successful and profitable one.

Further, for reasons which will become apparent, I am satisfied that Mr Teh did not provide any financial records to Mr Lam, at least prior to 23 June 1994, and that on 18 June 1994 and/or on 20 June 1994, Mr Teh told Mr Lam that SEA’s accounts for the 1991, 1992 and 1993 financial years were available and could be provided and that the 1994 accounts would be provided as soon as they became available.

On 22 June 1994, Mr Lam wrote to James Lam via facsimile requesting that he, as a matter of urgency, remit two lots of $500,000 ($500,000 in Mr Lam’s name and $500,000 in James Lam’s name) to Lake Yale’s account at the Commonwealth Bank at Mt Ommaney.  Mr Lam enclosed two “specimen forms” directed to the Standard Chartered Bank at Ipoh for the remittance.  Although one form expressed the applicant to be Mr Lam and the other, James Lam, the account to be debited was the same in each case.

On 23 June 1994, James Lam wrote to Mr Teh, also via facsimile, advising that $1,000,000 had been remitted by telegraphic transfer and asking Mr Teh to confirm by facsimile as soon as the funds had been received.  Mr Teh provided the requested confirmation on 28 June 1994, Lake Yale having received the funds on 27 June 1994.  The whole of the $1,000,000 was not transferred or made available to SEA immediately.  Rather, the money was transferred to SEA’s current account by payments of $300,000 on 30 June 1994, of $100,000 on 13 July, 18 July, 12 September, 11 and 26 October 1994 and a payment of $200,000 on 17 October 1994.

Mr Lam, Mrs Teh and her children had travelled to Noosa Heads on 22 June 1994 to stay at the Teh’s unit there.  Mr Teh joined them on 24 June 1994.  On 26 June 1994, Mr Lam wrote a note to Mr Teh, which relevantly contained the following :-

“...

4.        Please let me have 2 receipts for the 2 x AU$500,000 remitted to your A/c with Commonwealth Bank of Aust, one in my name & one in L.S. Hon’s name [James Lam] - as temporary loan to your self & Jill (Lake Yale Pty Ltd).

5.        Can you please put in paper your offer to James & myself (Att Jean) as participating directors of SEA Food Int Pty Ltd) - Salary, perks etc so that I can hand it over to James on my return.

6.        When your A/c for 1994 are ready & audited [sic] pl. Give us a copy soonest, so that we can look into it closely - & off [sic] course your impending restructing [sic] SEA Food Int in which we intend to take equity.

7.        Your future proposal for expansion and any other related points for our mutual benefit.”

According to Mr Lam he handed the letter to Mr Teh on 27 June 1994, before Mr Teh left for Brisbane, and said to Mr Teh :-

“Please give me the financial information that I have requested so that I can come to a decision to participate in your company.  Would you also please give me two receipts of funds for the money, which you have confirmed is in your Lake Yale bank account.”

Mr Teh said he would attend to those matters upon his return to Brisbane.

Mr Teh’s evidence was that he was given the letter on 26 or 27 June 1994 and that Mr Lam asked him for receipts, but not in the formal manner recalled by Mr Lam.  Mr Teh denied that Mr Lam made a request for financial information.

On 27 June 1994, Mr Lam was again at Mr Teh’s home.  Mr Teh handed to Mr Lam receipts dated 27 June 1994, which had been signed by Mr Teh, and asked him to sign them. The receipts, on Lake Yale letterhead and headed “Receipts of Funds”, acknowledged that Lake Yale had received $500,000 from each of Mr Lam and James Lam “[f]or the purpose of advances of funds re part purchase of 40% (percent) of shares in ‘SEA Food International Pty Ltd’”.  Each receipt was amended by handwriting to change the reference to forty percent to “39.9% (thirty-nine point nine percent)” and recorded that the $500,000, in conjunction with the other $500,000 contribution, represented “AUD700,000.00 for payment of 40% (forty percent) of the shares in ‘SEA Food International Pty Ltd’ and AUD300,000.00 towards working capital.”  Each receipt was signed by Mr Teh as a director of Lake Yale.  Mr Lam signed one receipt on his own behalf and the other on behalf of James Lam.

It is sufficient for present purposes to record that the contents of the receipts and the basis upon which the $1,000,000 was paid was the cause of significant conflict between Mr Teh and Mr Lam at the time and in the evidence they gave in these proceedings.  Having regard to what subsequently occurred in relation to this dispute, the conflict in the evidence does not require resolution.  I will note at this point that Mr Lam’s evidence was that $500,000 was contributed by him and $500,000 by his son James, as recorded in the receipts.

On 28 June 1994, Mr Teh and Mr Lam went to Sydney and met a Mr Chu of Coral Live Products Pty Ltd and on 29 June 1994 the men went to Hobart, where they met Mr Bostock and his wife.  Nothing of consequence to these proceedings occurred on those days, except that, for reasons which are not apparent to me, Mr Lam became concerned about the $1,000,000 investment or advance.  Mr Lam left Hobart for Sydney on 2 July 1994.

Shortly after returning to Sydney, Mr Lam met with Mr Bruce Bailey and Mr Peter Saccasan of Saccasan Bailey Roy, Accountants (“Saccasan Bailey”), and appointed that firm as his accountants in Australia to “examine [Mr Lam’s] intended investment in Ray Teh’s group of companies particularly SEA.”  On 5 July 1994, Mr Lam wrote to Mr Teh advising him of the appointment of Saccasan Bailey and the reason for it.  Mr Lam’s letter foreshadowed a request by Saccasan Bailey for information about “the trading history of the group as well as the proposed structure of the new company to take into account my recent investment ...” and asked that Mr Teh provide the information when it was requested.  Mr Lam’s letter to Mr Teh was sent to Mr Teh under cover of a letter to Mr Teh from Saccasan Bailey dated 5 July 1994 in which a request was made for the financial records of SEA for the previous three years (including profit and loss statements and balance sheets), for the 1994 financial records once completed and for a “pro forma” balance sheet as at 1 July 1994 showing Mr Lam’s investment and all relevant liabilities.

Mr Lam returned to Malaysia on 7 July 1994 without further communicating with Mr Teh.  On 21 July 1994 Saccasan Bailey wrote to Mr Lam by facsimile to report on the results of their searches with the Australian Securities Commission in relation to SEA and Lake Yale.  Saccasan Bailey noted that SEA had reported operating losses in 1991 and 1992 of $38,000 and $75,000 respectively and an operating profit in 1993 of $46,858 (a result which did not “add up”) and that Lake Yale had reported losses in 1991, 1992 and 1993 of $50,000, $38,600 and $10,000 respectively.  The letter stated :-

“In looking at the value of your investment on an earnings basis it can only be said that the investment is not supported by the past earnings history of the company, however as we are not in possession of any detailed information on the profitability of the company, we are unable to shed any further light on its past performance, and reasons for the results obtained.”

Mr Lam wrote to Mr Teh by facsimile on 22 July 1994, relevantly as follows :-

“... As stated in my letter [of 5 July 1994], I have appointed Mr Bruce Bailey and Mr Peter Saccasan of Saccasan as my representative Accountants in Australia to seek financial information concerning my proposal to invest in SEA Food Int Pty Ltd, at your kind invitation.

To date of writing my Australian accountants informed me that you have not had the courtesy to respond to their written and oral requests.

At your request and in good faith, I have very kindly on 23rd June 1994, remitted to your company, Lake Yale Pty Ltd, the large sum of one million Aust dollars so as to assist you to be in a very good position to bid at the 3 auctions in Tasmania for your necessary additional equipments in Horbat [sic], Redcliff [sic] and the expansion of SEA Food, the leasing of the land in Redcliff [sic], and to build your own factory and down stream projects.

As you are not prepared to provide my appointed Accountants with your track records for the past 3/4 years despite repeated written and oral requests, I have decided not to accept your offer for equity participation in SEA Food.

Under the above circumstances I shall be obliged if you would now refund me the one million Aust dollars, to be paid into my company’s account in Sydney. ...”

Mr Teh responded by a facsimile transmission dated 23 July 1994 [TPL 109] :-

“... After speaking to you yesterday and reading the contents of your fax, it appears to me that I have let you down badly in communications over the past 2 weeks.  If I have done this, please accept my humble apologies - I can assure you that this was due to circumstances and not out of intention.
.....
At this stage, I can advise that I had already instructed our external accountant in Tasmania to conduct our annual audit and preparation of year end accounts (as at 30 June 1994) during the last week of July.
Our Tasmanian accountant could not have done this any earlier due to his schedule of other clients and it is normal to wait about 3 weks [sic] for all invoices & paperwork to flow through the office.
I had also requested our Brisbane accountants to conduct the preparation of our year end accounts at the same time and finalisation of the total company accounts was due to take place in the 2nd (second) or 3rd (third) week of August.

Please also note that I had not received any telephone calls from the offices of ‘Saccasan Bailet [sic] Roy’ at all to date - although you mentioned in your fax that they have made repeated written and oral requests.  This is simply not true.  I have had only that one letter from them.
This is not an excuse - as I said I do apologise for not communicating with you earlier - but I could not have responded with our 1994 accounts as they were not due for another few weeks.  Mr Saccasan in his letter appreciated the fact that this finalisation of accounts would take some time as well.

This past week, I have had 2 meetings with the local council, port authority (who owns the spit of land at Scarborough), inspected 4 properties for temporary expansion sites (will elaborate later on), try to finalise our year-end accounts as Jill could not go into the factory this past week due to Stephanie injuring her hip in a fall & is still immobile in bed, prepare 2 export containers, met with our Queensland & Canberra quarantine officials re the import & export of crocodiles from P.N.G., met with Canberra fisheries research officers, got called to Bundaberg by our processors & fishermen up there on Thursday afternoon and returning on Friday morning (22 July) re price increases of spanner crabs, plus my normal day activities.
Frankly speaking, it has been a pretty busy week for activity.
The very good thing about this past week are the achievements and progress that I managed to make in regard to the business.  Mind you, this was only possible beacuse [sic] of your investment in ‘S.E.A. Food International’ - allowing us the increase in working capital, etc in order to expand our activities.
.....
Other properties
As I mentioned, I had a look at some properties (warehouses, buildings) in the Redcliffe area with the view of moving ‘S.E.A. Food’ temporarily as we have now embarked on our expansion program very quickly.
The ‘Scarborough’ project will take another 18 to 24 months, but we need extra space to accomodate [sic] our new items like our local spanner crabs, scallops, live seafood, etc.  The properties were looked at as well with the idea of having a retail shop included.
We have come up with some interesting ideas and would like your opinion on a couple of alternatives.  It will take me another 5 - 7 days to sort out the figures and proposals, but I shall fax you once I have everything together.  One of the alternatives is the opportunity to purchase an excellent commercial factory/warehouse for a good price and even after ‘S.E.A. Food’ moves into Scarborough Spit, the complex can be turned into an income producing source.

Scarborough Spit
We had very beneficial talks with the port authority where the authority now is happy to have us as tenants for a majority of the area.
The second meeting yesterday on Friday morning was with the Redcliffe Council Development Committee with the port authority present as an observer.  The development committee has promised to consider funding part if not all, of the beautification (greening, trees, plants) of the spit.  The committee has also undertaken to do a quick study re the costings of sewerage and roadworks for the area and advise us accordingly.  We all agreed that as part of the proposal, the Redcliffe member of State Parliament will be approached to request our State Government to looking at funding the infrastructure of the spit (for economic, employment, local interest reasons).
Most importantly the meetings resulted in the authority & the council both agreeing that ‘S.E.A Food’ has the best potential for acceptance as the main tenant for the spit area.  Also at the meetings, it was revealed that the yacht club (beside Morgan’s takeaway shop) has asked for around 2 acres of land for parking of their cars, trailers, boats.  This will be at the start of the spit area near the convenience shop.  This is great as this means the State Government will be pressured to help in roadworks.

As you can see, I have not been idle the past couple of weeks.
I must admit that I am at fault for not communicating with you earlier, although my intention was to write to you via fax this weekend to report on the above happenings.

Again, I am sorry if I have neglected my communications - but I am sure you will consider the fact that I am still very much a one man band in regard to exports, administration and further expansion of the company.
This is why I have repeatedly stated that it would be marvellous to have help in the above areas with James and Jean.

I will get in touch with Mr Bruce Bailey on Monday morning and have a talk to him in regard to my timetable for our accounts.  As I said, if I had known it was so urgent and if Mr Bailey had just bothered to telephone, I certainly would have cancelled my past week’s work commitments (which were made the week before when I was up north) and concentrated on completing our June 30 year end accounts (although finalisation would have had to depend on our external accountants work schedules).

Please accept this letter as an explanation of my breakdown in communications.  I am completely in error of judgement and I can see that your priority should have come first.”

Saccasan Bailey wrote to Teh on 25 July 1994 on Mr Lam’s behalf requesting that the 1992 and 1993 financial accounts and tax returns of SEA be couriered to them.  The letter continued :-

“In our initial letter to you we requested this information before you had the current years figures finalised as we appreciated these would not at this stage be ready.  We have been given a copy of your fax dated 23 July, 1994 to Mr Lam wherein you talk about the timing of completing of these accounts and the fact that we had not telephoned you since our first letter.

We did not ask for the current years figures with the prior years figures, but said we would like them forwarded as soon as they become available.  We did ask if you had any interim figures for the 1994 year that we could have a look at to see how the company was travelling.  If you do not have any current figures for the 1994 year we will wait until your accountants finalise the annual balance sheet and profit and loss but please send prior yeas [sic] in advance.
.....
Mr Lam has also asked us to advise him how you have disbursed the funds he advanced to the company.  Can you send to us a breakdown of how the funds $1,000,000 have been spent and how much is still on hand.  When sending the Balance Sheets of the company we will also want the depreciation schedule and details of any amounts owing to associated parties.”

Mr Teh wrote to Mr Lam by facsimile transmission dated 27 July 1994 :-

“.....
I read with interest the summary on duties of a director of a company in Australia.  I take it that ‘Saccasan Bailey Roy’ only meant this letter to be more of an information brief rather than to be specifically directed at our company.
If you recall, I was to give you indemnity for all past actions and doings of ‘S.E.A. Food International’, and if requested, I shall also do the same for all new trading and actions where if you as a director is [sic] not directly involved in the decision making.
Mind you, all major decisions should be made by all directors of the company anyway - so, consultation will be sought beforehand.

I have responded to a second letter from Bruce Bailey and sent him the financial results for the past 3 years of the company and I will forward the 1993-94 results as soon as it comes to hand.
I shall also be faxing Mr Bailey a projected sales budget for a 12 months [sic] period after establishment of new premises in order to take advantage of the newly acquired plate freezer. etc.
I will also be sending a company profile with an explanation as to what we have been doing, achieving and will be doing in the future.
At least, can you please wait until Mr Bailey gives you an opinion as to our company?  Thank you.

I will try my very best to give Mr Bailey all information that he requires to make a good assessment, but forgive me if I take just a little bit longer in answering all questions as we have an urgent family problem which has stressed us all during the past 2 - 3 days. ....”

Mr Teh had not in fact sent the financial records to Saccasan Bailey at that time. 

It is plain from the correspondence set out above that Mr Teh’s evidence that he gave the 1991, 1992 and 1993 financial records of SEA to Mr Lam on 19 June 1994 and that Mr Lam returned them on 20 June 1994 is incorrect.  The events subsequent to that date, particularly Mr Lam’s engagement of Saccasan Bailey and their requests for those financial records, and the contents of Mr Teh’s facsimile transmission of 27 July 1994, lead inevitably to that conclusion.  I do not accept Mr Teh’s evidence that he took the requests made by Saccasan Bailey as requests for printed copies of the accounts he had earlier given to Mr Lam.  The contemporaneous correspondence simply does not support Mr Teh’s evidence in this respect.  As I have said, I am satisfied that Mr Teh told Mr Lam, prior to 23 June 1994, that the 1991, 1992 and 1993 financial records of SEA were available and would be provided and that the 1994 financial records would be provided as soon as they were available.  The course of correspondence after that date provides ample support for my acceptance of Mr Lam’s evidence on this issue and for a finding in those terms.  If Mr Teh had earlier provided the 1991, 1992 and 1993 records to Mr Lam, it is not unreasonable to expect that, in the face of the repeated requests for those records made subsequently and the obviously escalating dispute with Mr Lam over this issue, Mr Teh would have made some mention of that earlier provision of the records or would have simply sent copies of them to Saccasan Bailey or Mr Lam.  Instead, Mr Teh apologised for his communication failures, asked Mr Lam to delay his decision to withdraw his investment until Saccasan Bailey had provided their report and, on 27 July 1994, told Mr Lam (falsely) that he had sent the 1991, 1992 and 1993 records to Saccasan Bailey and that he would forward the 1994 results to them as soon as they were to hand.

At some time after receipt of Mr Teh’s facsimile of 27 July 1994, Mr Lam engaged a firm of solicitors, Long & Company, to act on his behalf in relation to his dealings with SEA. Long & Company wrote to Lake Yale on 18 August 1994 demanding repayment of $700,000 paid for the purchase of shares and, on 19 August 1994, to SEA demanding repayment of the $300,00 loan. 

Mr Teh engaged HC Fong and Associates, solicitors, to act on behalf of SEA and Lake Yale.  Correspondence passed between HC Fong and Associates and Long & Company in relation to the disputed dealings through August and early September 1994.  Little progress, it seems, was made towards resolution.

It is important to record at this point that Mr Bostock had had an interest, independent of his involvement with SEA, in developing the premises at Thurecht Parade from where Scarborough Fish Markets Pty Ltd (“SFM”) operated, as early as in or about November 1993.  Indeed, in or about October 1993, Mr Bostock prepared a proposal document for the purchase and development of SFM’s business at Thurecht Parade.  The document envisaged an investor providing the funds and Mr Bostock being responsible for the running of the business and receiving a proportion of the after tax profits of the new enterprise.  Mr Bostock did not show the document to Mr Teh nor did he discuss the proposal with him, although Mr Bostock knew Mr Teh was also interested in Thurecht Parade at the same time.  Apparently, Mr Teh thought Thurecht Parade was “too dear”.  Mr Bostock had also had an independent interest in the development of the Redcliffe site prior to Mr Teh becoming interested in it.  Mr Bostock wrote to the Port of Brisbane Authority on 4 May 1994, on behalf of his company, Namville Pty Ltd (“Namville”), inquiring as to the availability of land for a seafood processing and export business for lease at the Scarborough Boat Harbour.  Mr Bostock received a reply dated 7 June 1994 advising that land was only available in the north-eastern side of the harbour.  Apparently Mr Teh became interested in the Redcliffe site after Mr Bostock showed him the reply, making it unlikely, in my view, that the reference in the letter of 4 May 1994 to the proposed relocation of a seafood processing and export business was a reference to SEA.

In or about early September 1994, Mr Lam contacted Mr Bostock.  Mr Bostock told him that SFM was for sale, that Mr Teh was interested in it and that it was a very good investment.  Mr Lam told Mr Bostock that he was coming to Brisbane in the near future and Mr Bostock invited Mr Lam to visit Thurecht Parade and to meet Lee Bryan, the “owner” of SFM.  There is no evidence other than that contained in Mr Lam’s statement of evidence (the effect of which is set out above) as to what Mr Lam and Mr Bostock discussed on these occasions.  Nonetheless, it is clear that there was some contemplation or discussion of Mr Lam providing the funds for something along the lines of Mr Bostock’s proposal to develop Thurecht Parade, independently of or without the involvement of Mr Teh and SEA.  So much is apparent from a letter from Mr Lam to Mr Bostock dated 6 September 1994 :-

“I have much pleasure to send you photostat copies of the following correspondence which, I hope, will be of revalent [sic] & mutual benefit to you in our dealings with Ray Teh.  Please keep all these correspondences strickly [sic] confidential, before we take drastic action, either individually or jointly against Ray Teh.
.....
I shall be very much obliged if you could telephone me in Ipoh - 05/548689, preferably at night - (you are 2 hrs ahead) in [sic] your receipt of this parcel of papers sent by courier to your home address in Redcliff [sic].

For your absolute royalty [sic] to Ray Teh over the past weeks, how have [sic] he treated you?  Or is he also playing you out, just like he did to his own brother-in-law, Ms Teh Yew Lam husband (Decd).  Any information will be kept in strick [sic] confidence ...”

Mr Lam and his son Boyd arrived in Australia on 18 September 1994 and were in Sydney for six days.  On 21 September 1994, Mr Lam had a telephone conversation with Mr Bostock.  Mr Lam did not recall what was said but gave evidence that it concerned “the possible purchase of Scarborough Fish Markets and a possible arrangement between me and SEA concerning that business.”  Mr Bostock did not give any evidence about the telephone conversation.  However, diary notes made by Mr Lam relating to the telephone conversation and other events on 21 September 1994 were tendered into evidence :-

“21.9.94 - Studied Ken Long’s [Mr Lam’s solicitor] LTP report put into legal wordings fax copy to James # 34 Rd for him and Jeya to study - This was faxed to Ipoh before we left for St Mary’s.

Studied my report.  Very worried whether I can answer in Court when I am in the box under cross examination.  Jeya and Hon rang at 12.30 AM - I could not sleep & kept pondering whether I should proceed with legal action or drop proceeding for legal suit.  By morning I have made a firm decision to call it off & go down to Brisbane to see Kevin [Bostock] & Ray Tay [sic] & resolve the problem & misunderstanding.  Kevin was at meeting but returned my call at 11.00am.  I told Kevin to ring Ken Long at 11.00am in the morning & tell Ken Long exactly what he told me & about the Scarborough Sea front site with building on a 10 + 10 years lease.  Port Authority review lease in 2 years time.  SEA Food to lease at $700,000 + $600,000 for renovation - $1,300,000 over 20 years - rental will be $3,000 per week a small sum to pay for SEA Food.

Conclusion on the cross-claim

There will be judgment on the cross-claim for the cross-claimants.  There will be an order that Mr Teh and SEA pay to Mr Lam $478,493.14 ($350,000 + $128,493.14) and an order that SEA pay to Megamix $300,000 plus that sum calculated to be due in the affidavit of debt referred to above on account of interest.  The cross-respondents will be ordered to pay the cross-applicants’ costs of and incidental to the cross-claim.  Lake Yale’s position is materially identical to that of Megamix on the application.  There will be no separate or special order in relation to its costs of the cross-claim.

THE WINDING-UP APPLICATION

On or about 14 February 1995 Megamix received from SEA a Notice of General Meeting to take place at 7.00 pm on 1 March 1995. The only agenda item was a resolution, in accordance with regulation 62(2) of the Articles of Association of SEA, that Mr Lam be removed as a director of SEA and that the position remain vacant. On 1 March 1995, Megamix filed in the Supreme Court of Queensland an application seeking an interim injunction restraining the passing by SEA of any resolution removing Mr Lam as a director and certain final relief, including that SEA be wound up pursuant to s 260 or s 461 of the Law. Dowsett J granted the interim injunction on 3 March 1995. On 7 March 1995, Dowsett J ordered, by consent, that the interim injunction extend until the trial of the action or earlier order and made directions for the further conduct of the action, including as to the delivery of the pleadings.

On or about 16 March 1995 Megamix received from SEA a further Notice of General Meeting for 4.00 pm on 31 March 1995 to consider a resolution that the plant, equipment and other assets of SEA’s Brisbane operation be sold and that SEA’s Tasmanian operation be sold.  Undertakings were given by SEA not to dispose of any of its assets other than in the ordinary course of business. 

Megamix delivered a statement of claim in the winding-up proceedings on or about 3 April 1995.  The statement of claim pleads the making of the agreement of 11 October 1994 recorded in the deed and adopted by SEA on that day.  It alleges that the effect of the deed was to create a partnership between Lake Yale and Megamix to be carried on through the corporate structure of SEA (paragraph 9).  It alleges breach of the agreement by Lake Yale and/or SEA (paragraph 17).  The statement of claim also pleads that Lake Yale, Mr Teh, and SEA, made representations substantially identical to those pleaded in the cross-claim in the proceedings in this Court (paragraph 20), that Mr Lam invested $1,000,000 and entered into the agreement in reliance on those representations (paragraphs 22 and 23), that each representation was false or grossly inaccurate (paragraph 24) and that, as a result, Megamix and Mr Lam “have lost all faith and trust in Lake Yale and its directors and their ability to manage and conduct the affairs of [SEA] in the interests of its members” (paragraph 26). 

These allegations go to support the application to wind up SEA on the basis that it is “just and equitable” that such an order should be made (s 461(k) of the Law).

The pleading continues :-

“26.     Since on or about 11 October 1994 the company has made the following decisions:

(a)to a [sic] notice terminating its tenancy of the Tubbs Street premises at Redcliffe;

(b)not to provide its financial accounts to Huxham;

(c)not to comply with those terms of the agreement referred to in paragraph 10 hereof [that Mr lam would represent the interest of Megamix on the board of SEA];

(d)that action be commenced in the Federal Court of Australia against Mr Lam and Huxham;

(e)to call a meeting to consider a resolution to remove Mr Lam as a director;

(f)to refuse to undertake not to hold the meeting referred [to] in (e) above and to incur legal expenses in that regard;

(g)to call a meeting to consider a motion to sell all of the companies [sic] undertaking;

(h)to cease to operate its business rather than find premises from which such business could operate.

27.      Neither the applicant nor Mr Lam was consulted about, given notice of, or in any way involved in any of the said decisions until after the same were made.

28.      The applicant had to seek an injunction from this Honourable Court in order to restrain the company from holding the meeting referred to in paragraph 19(e) hereof.

29.      Unless restrained the company will hold the meeting referred to in paragraph 19(e) hereof and the proposed resolution will be passed.

30.      In the premises:

(a)the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole;

(b)the directors have acted in the affairs of the company in a manner which appears to be unfair and unjust to other members;

(c)the affairs of the company are being conducted in a manner that is oppressive and unfairly prejudicial to the applicant as a member of the company;

(d)the proposed resolution that Mr Lam be removed as a director of the company would be oppressive and unfairly prejudicial to the applicant as a member of the company;  and otherwise

(e)it is just and equitable that the company be wound up.”

These allegations in paragraphs 26 to 30 inclusive of the statement of claim go to make out a ground for relief under s 260 of the Law.

Section 260 of the Law

Section 260 of the Law provides that the Court may make orders, including that a company be wound up, if the Court is of the opinion that :-

(a)affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole;  or

(b)an act or omission or a proposed act or omission, by or on behalf of a company, or a resolution or a proposed resolution of a class of members of a company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole.

Conduct prescribed by s 260 is not limited to conduct affecting a member qua member but extends to conduct which affects a member in any other capacity (s 260(5)(b) and s 260(5)(c)). In the instant case, the conduct complained of is conduct affecting Megamix as a member, and its nominee Mr Lam as a director of SEA.

The phrase “oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member” is to be viewed as a composite whole.  Conduct will be oppressive if, in the eyes of a commercial bystander, there has been or will be commercial unfairness (Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 471 - 472 per Brennan J; Thomas v H W Thomas Ltd [1984] 1 NZLR 686; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 per Young J).

The essence of the alleged oppression in these proceedings is the exclusion of Mr Lam (as nominee of Megamix) from the management of SEA and the proposed or attempted removal of Mr Lam as a director.  It is not in dispute that the removal of Mr Lam as a director of SEA by ordinary resolution of the company in general meeting would be lawful in the sense of being permitted by the Articles of Association (see regulation 66(2)) and could not therefore, of itself, be oppressive (Warwick Howard (Aust) Pty Ltd (1982) 7 ACLR 441 at 443). It is also not in dispute that Mr Lam has been excluded from the management of SEA. The question is whether the proposed removal of Mr Lam as a director and the exclusion of him from the management of the company would be or was oppressive of Megamix in the sense of amounting to commercial unfairness.

Once regard is had to the basis of Mr Lam’s and Megamix’s investment in SEA and what subsequently occurred, it is plain that there is no oppression in excluding him from the management of the company or in seeking to have him removed as a director.  Nor is it contrary to the interests of the members as a whole to do so or to seek to do so.  It will be recalled that Mr Lam came to Australia seeking “passive” investments.  He invested in SEA on that basis.  It was always intended that Mr Lam, through Megamix, would have a minority interest in SEA and that control of the company and its day to day operations would remain with Mr Teh and his wife.  That this was the intention is evidenced by Megamix’s forty percent shareholding leaving control of the company with Mr Teh and his wife, and by the fact that Mr Lam, on his own admission, knew nothing about the seafood processing business engaged in by SEA.  Mr Lam was appointed a director of SEA to represent Megamix’s minority position in pursuance of the deed executed on 11 October 1994, Mr Lam being the controlling mind and will of Megamix.  Subsequently, through another company controlled by him, Mr Lam reneged on a promise to grant a lease of Thurecht Parade to SEA and set up in opposition to SEA from those premises.  In those circumstances, it was not commercially unfair to exclude Mr Lam, as Megamix’s nominee, from the management of SEA or to seek to have him removed as a director.  The action taken in this regard was necessary to protect the interests of SEA from a competitor.  It cannot, in my view, be commercially unfair to Megamix to exclude its nominee from the management of SEA and to seek to remove him as a director once regard is had to the basis upon which Megamix became a member of the company, and to the basis for the exclusion being to prevent the controlling mind of a competitor from becoming involved in and privy to the day to day management of the company and decisions as to how SEA should respond to the changed circumstances brought about by the failure of Huxham to grant a lease of the premises at  Thurecht Parade and to carry out improvements to those premises as had been promised on 11 October 1994.  It is also relevant to the question of oppression that Mr Lam did not seek to be involved in the management of SEA and, in his evidence before me, indicated that he had no desire to so become in the future.

Mr Lam’s conduct in reneging on the agreement to lease and in setting up business in competition serves to strengthen the conclusion that the conduct by SEA which is complained of was not unfair in the relevant sense (Re London School of Electronics Ltd [1986] 1 Ch 211 at 221 - 222.

The application to wind up SEA, insofar as it is founded upon s 260 of the Law, fails.

Section 461 of the Law: the “just and equitable” ground

Megamix also relies upon the “just and equitable” ground (s 461(k) of the Law) for an order that SEA be wound up. Counsel for Megamix submitted that the agreement of 11 October 1994 (recorded in the deed and the minutes) should be viewed as a form of joint venture or partnership combining the skills of Mr Teh and Mr Bostock with Mr Lam’s money which proceeded on certain assumptions, which the evidence reveals to be incorrect, including that SEA was a profitable business looking to expand. The whole basis of the joint venture or partnership having now broken down (in the circumstances recounted at length earlier in these reasons), counsel submitted, it is just and equitable that SEA be wound up.

Counsel’s submission, as I understood it, was based upon the following passage from the opinion of Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379 - 380 :-

“My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words ‘just and equitable’ and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise.  Certainly the fact that a company is a small one, or a private company, is not enough.  There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles.  The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements:  (i)  an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company;  (ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of the shareholders shall participate in the conduct of the business;  (iii) restriction upon the transfer of the members’ interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves.  To refer, as so many of the cases do, to ‘quasi-partnerships’ or ‘in substance partnerships’ may be convenient but may also be confusing.  It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist:  the words ‘just and equitable’ sum these up in the law of partnership itself.  And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure.  But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations.  A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.”

It is immediately apparent from the detailed recitation of the facts earlier in these reasons, and from what I have said in relation to the basis for and circumstances of Megamix’s minority shareholding in SEA, that the considerations spoken of by his Lordship have no application to these proceedings.  The suggestion that the agreement of 11 October 1994 was some from of joint venture or quasi-partnership so as to bring into play the equitable considerations referred to by Lord Wilberforce, is, for the reasons I have already expressed at length, not supported by the evidence and I reject it.  Mr Lam was a passive investor in SEA under an arrangement which was a purely commercial one.  The investment was in an existing company with an existing business to provide equity capital and working capital to enable the company to expand its operations in the way described in the company profile set out at length at the beginning of these reasons.

That the relationship between Mr Teh and Mr Lam is now one of mistrust and disharmony is not to the point (cf Thomas v Mackay Investments Pty Ltd (1997) 22 ACSR 294 at 302). This is not a case where the parties commenced their relationship based on mutual trust and common goals and intentions where that relationship has now broken down making it just and equitable that their enterprise be disbanded.

Similarly, this is not a case of deadlock.  SEA can continue to operate and has done so to date on the basis that Mr Teh and his interests control the company, in accordance with what was always intended.

Counsel for Megamix then submitted, as a factor in favour of granting the relief, that Megamix was “locked in” because its shares in SEA could only be transferred with the approval of the directors of SEA (regulation 5 of the Articles).  There is no evidence upon which I would conclude that Megamix is necessarily “locked in” to SEA.  There is nothing to suggest that Megamix has sought to transfer its shares but that the directors have declined to register the transfer without good reason.  Nor could it be said that the controlling directors have evinced an intention to adopt that course.  It is premature to conclude that Megamix is “locked in” in the absence of a proper examination of the prospects of finding a purchaser of Megamix’s shares acceptable to the directors of SEA, or indeed the prospects of Megamix’s shares being purchased from within SEA and a proper examination of the value at which those shares could be sold (Thomas v H W Thomas at 696, 697;  Morgan v 45 Flers Avenue at 708).

Finally, the conduct of Mr Lam leading up to these proceedings, would, in my view, have been a strong circumstance in favour of declining to grant the relief sought or any relief had grounds for such relief otherwise been made out.  It would be an absurdity if Mr Lam and his companies, having created a situation where it was virtually impossible for the majority shareholder in SEA, acting in the best interests of SEA as a whole, to allow him to participate in the management of the company, were entitled to relief on the basis that he had not been allowed to participate.  Had grounds for relief on the just and equitable ground been otherwise established, I would have declined to grant any relief for this reason, whether “unclean hands” operates by way of defence (Ebrahimi v Westbourne Galleries Ltd at 387 per Lord Cross) or whether one simply looks at the conduct of the applicant for relief in determining whether it is just and equitable to grant relief (Re London School of Electronics at 221 - 222;  Morgan v 45 Flers Avenue at 708). The conduct of Mr Lam in creating the circumstance which gave rise to his exclusion from management operated to effectively deny him a remedy under s 461(k) of the Law.

The application for an order that SEA be wound up pursuant to s 461(k) of the Law also fails.

Conclusion on the winding-up application

The application will be dismissed.  Megamix will be ordered to pay SEA’s costs of and incidental to the application, including reserved costs, to be taxed if not agreed.

I certify that this and the preceding one hundred and One hundred and five (105) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper

Associate:

Dated:             27 February 1998

Counsel for the Applicant/Cross-Respondents:	A Morris QC and M Martin
Solicitor for the Applicant/Cross-Respondents:	H C F Lawyers
Counsel for the Respondents/Cross-claimants:	S Doyle SC and R Lilley
Solicitor for the Respondent/Cross-claimants:	Deacons Graham & James
Dates of Hearing:	6, 7, 8, 9, 12 and 13 May and 18, 19 and 20 August 1997
Date of Judgment:	27 February 1998