Samil Power Company Limited v Luckow
[2013] VSC 382
•1 August 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2012 03307
| SAMIL POWER COMPANY LIMITED | Plaintiff |
| v | |
| PETER SCHNEIDER & ORS | Defendants |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8–9 July 2013 | |
DATE OF JUDGMENT: | 1 August 2013 | |
CASE MAY BE CITED AS: | Samil Power Company Limited v Luckow & Ors | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 382 | |
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CONTRACT – Guarantee – Non est factum.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S W Stuckey | Zervos Lawyers |
| Mr M Luckow appeared in person |
HIS HONOUR:
Introduction
This proceeding was commenced on 8 June 2012 when Samil Power Company, incorporated in the People’s Republic of China, filed a writ and statement of claim seeking payment under a guarantee in the sum of USD2 251 060.25. The guarantee was alleged to have been executed on 12 December 2011 in Melbourne, to secure past and future debts of Cool World Australia Pty Ltd. The defendants were Peter Schneider, John Williamson and Michael Luckow. There was a fourth guarantor, Trevor Shane McTaggart, who had been declared bankrupt two days after executing the guarantee. By their joint defence and counterclaim, each defendant admitted their directorship of Cool World Australia, and that they had signed the guarantee, although they contended that it was in favour of Samil China Co Ltd, not the plaintiff, Samil Power.
The guarantors guaranteed payment to Samil Power for amounts due under four invoices following the supply of solar energy equipment and services from China. The goods and services had been ordered by and delivered to Cool World Australia. One shipment had been despatched from Shanghai on 22 August 2011, and arrived about a month later. The total value of that shipment was USD795 120. The terms of trade required Cool World Australia to pay for the goods within 70 days of shipment, which meant that payment was due in early November. The balance of the goods were ordered on 3, 4 and 15 November, with arrival in Melbourne anticipated in the second week of December 2011. Delivery of the goods was admitted by the defendants. There was no issue concerning the identification of the goods, price and the amount invoiced.
Save for two payments of USD3000 each, made on 8 and 14 December 2011, Cool World Australia did not pay for the goods. On 14 March 2012, Cool World Australia was placed in liquidation.
The substantive defence alleged by the defendants involved negotiations between Samil Power, Solar 360 Pty Ltd and Cool World Australia for the formation of a joint venture to be conducted through a new entity, eventually incorporated known as Cool World International Pty Ltd. Negotiations for the joint venture commenced at around the same time as the initial orders were placed with Samil Power, and continued until early December 2011, when they collapsed.
The defendants alleged that a Memorandum of Understanding, dated 4 October 2011, had been prepared and signed on behalf of Samil Power, that Cool World International had been incorporated, and that some customers of Cool World Australia had agreed that Cool World International would take over the supply of products from Cool World Australia. They alleged that at and following a dinner held at Silks Restaurant, Crown Casino, on 4 December 2011, attended by representatives of Samil Power, Solar 360 and Cool World Australia, Samil Power represented that the joint venture would proceed, and that it would execute the joint venture documents produced at the dinner. The documents were executed on that evening by all parties except for Samil Power, who refused.
The defendants counterclaimed for damages on the basis that the representations of Samil Power were false, misleading or deceptive in that it did not proceed with the joint venture, or execute the joint venture documents. The defendants sought to raise a defence to the amount due under the guarantee by way of set‑off.
By another writ and statement of claim, filed in the County Court at Melbourne on 21 June 2012, Solar 360 claimed against two of the defendants in this proceeding, Peter Schneider and John Williamson, the amount of $294 674.73, plus interest and costs. That sum was alleged to be payable under a guarantee given by them, on or about 9 August 2011, to secure the payment of amounts due under a number of invoices for goods sold and delivered by Solar 360 to Cool World Australia. The defendants in that proceeding alleged that Michael Anthony, a director of Solar 360, represented that Samil Power would sign the joint venture documents and give effect to the proposed joint venture. They also alleged that Anthony had supplied Samil Power with the form of the guarantee that was converted into a guarantee in favour of Samil Power and given to the defendants in this proceeding for execution. They alleged that at or around the same time, Anthony represented to them that if they signed the guarantee Samil Power would proceed with the joint venture. The County Court defendants alleged that the representations were false, misleading or deceptive, and claimed damages from Solar 360 which they sought to set‑off against the claim made under the Solar 360 guarantee.
The defendants in the County Court proceeding applied to have the proceeding transferred to this Court and consolidated with or heard at the same time as this proceeding. Orders transferring the County Court proceeding to this Court were made on 27 December 2012, and it was thereafter managed to trial with this proceeding.
Both proceedings were fixed for trial to commence on Monday 8 July 2013. Shortly before trial, the Court was notified that Schneider and Williamson had been declared bankrupt.
At a directions hearing on 28 June 2013, Luckow, attending in person, informed the Court that he would withdraw his counterclaim, and did not propose to defend the claim by Samil Power under the guarantee. He said that he would not oppose judgment entered against him. During the following week, however, he informed the Court that he may change his mind. When he attended court on the first day of the trial, he said that he wished to advance a defence. The case eventually advanced by him was inconsistent with his earlier announcement and pleaded admissions.
The trustee in bankruptcy appeared on the first day of the trial to inform the Court that he had not yet considered the merits of the litigation, but would do so as promptly as possible. Accordingly, the County Court proceeding, and the claims by and against Schneider and Williamson in this proceeding, were stayed. The trial proceeded only against Luckow.
Notwithstanding his admission that he was, at all material times, a director of Cool World Australia, Lucknow contradicted his admission at trial. He claimed to have been formally removed as a director and shareholder many months before the guarantee had been executed. While he did not resile from the fact that he had signed the execution clause on the last page of the guarantee, he claimed to have been tricked into doing so by McTaggart, who had witnessed his signature. Nevertheless, he informed the Court that he proposed to call McTaggart as a witness.
Luckow attached great importance to the fact that he was no longer a director or shareholder. There were two aspects to this part of his case. Although not clearly articulated, he seemed to contend first, that it was unlikely he would have been asked for a guarantee when not a director or shareholder. Second, that in such circumstances he would not have agreed to sign a guarantee of debts. Both aspects were called in aid by Luckow to bolster his version of events, about what he had been told by McTaggart and the circumstances in which he thought that he had signed a guarantee of a different obligation.
Luckow said that he was removed as a director and shareholder of Cool World Australia in early 2011. The records of ASIC, available at trial, did not record Luckow as ever having been a director of Cool World Australia, although he remained a shareholder with the other guarantors. He said that he had been removed as a director and shareholder when he had refused to execute a guarantee in favour of a trading partner of Cool World Australia, and that the reason for his refusal was well understood by McTaggart. He said that he was risk averse. He gave the following account:[1]
I signed a two-page document in the belief it was only a guarantee that I would provide the new Danks contract to Cool World International. As I found out, it was in fact a seven-page document giving a personal guarantee to Samil and I have already said Mr McTaggart and I had a huge argument over what I told him wasn't acceptable. He told me not to worry as the merger would go ahead. He did this I believe as he knew I was risk averse, as I have said twice before, and that if I had seen the full document I would have at the very least sought legal clarification as to any liability I might incur and I wasn't able to seek that legal help in any case and I would never have signed a personal guarantee as I had not done so on two previous occasions because I was risk averse.
[1]T54–55.
In keeping with his evidence about his exclusion from the business of Cool World Australia in early 2011, Luckow sought to distance himself from active participation in the business, pretending to have little or no relationship with Cool World Australia. He went so far as to contend that his only business relationship was with Cool World International, incorporated in around November 2011, in anticipation of the joint venture with Solar 360 and Samil Power. Luckow restated the circumstances in which he came to sign the guarantee in the following terms:[2]
Trevor McTaggart from Cool World Australia told me that I needed to sign the guarantee for Samil guaranteeing that I would bring across the Danks contract or get it changed from CWA to CWI.
…
Your Honour, if I can, on about 12 December 2011 I'm called to the office and I'm asked by Trevor McTaggart to sign a guarantee. It wasn't a personal guarantee, it doesn't say that, it just says a guarantee, that I would bring to the table the Danks contract from CWA to CWI and if I did that I would guarantee the merger would go forward because that's what Samil wanted. They didn't have that part of it. To me that was a non-issue. I would have signed it a thousand times. I knew it would finally get done, and it did. But what I didn't know was that when I was signing that guarantee, that I was guaranteeing that I would get the contract signed, that in fact it wasn't a two-page contract, it was a seven-page contract and it was for a personal guarantee for all the stock that Samil had given to Cool World Australia and I wasn't a director of that.
[2]T58.
Notwithstanding the ASIC records, the position of Luckow as an officer and shareholder of Cool World Australia was not as straightforward as he would have it. Jingcheng Zhu, sales manager for Australia for Samil Power, said that Luckow had been introduced to him in China by Anthony as a director of Cool World Australia. He said that Luckow had never contradicted that description. Under cross‑examination, Luckow agreed that Anthony may have introduced him as a director, but claimed that he had no right to do so. Luckow said that Anthony knew he was not a director, otherwise he (Luckow) would have been required to sign the guarantee in favour of Solar 360, as had Williamson and Schneider.
In the joint venture documents, that Luckow and other representative of Cool World Australia had assumed would be executed by Samil Power at the dinner, Luckow was described, along with the other defendants, and McTaggart, as a director of Cool World Australia. In that capacity, he was to give certain warranties. He executed those documents that evening. The representatives of Samil Power who were in attendance, Zhu and Cui, refused to execute them. The dinner was a critical turning point in the relationships. It was obvious that Luckow and McTaggart were deeply distressed by the fact that Samil Power had refused to execute the documents that evening. At the time, Cool World Australia was unable to pay for stock already delivered, and more stock was due to arrive from Shanghai a few days later. Without the new stock the business would falter, if not collapse. The joint venture was to provide a lifeline.
The defence advanced by Luckow was in the nature of non est factum,[3] in support of which he relied upon a misrepresentation about the nature of the document he signed. He said that had he known the true nature of the document, he would never have signed it.
[3]The legal principles applicable to a defence of non est factum are set out with sufficient clarity, for present purposes, in Petelin v Cullen (1975) 132 CLR 355 at 360; see also Ford v Perpetual Trustees Victoria Ltd [2009] NSWCA 186.
The plaintiff did not object to Luckow advancing a completely new, unpleaded case at trial. Luckow did not seek to advance his counterclaim, and I take it to have been abandoned. The only issue for determination at trial was his new defence, under which he sought to be relieved from any obligation under the guarantee.
The new case advanced by Luckow was without merit. Luckow gave sworn evidence. As with any adversarial proceeding, the attendance before the court of a litigant in person, presenting his own case, and giving sworn evidence, imposed an unusual and difficult burden on the Court. Luckow was extended significant latitude when giving his evidence, as well as some assistance by the Court, to ensure that everything he wished to say and rely upon was introduced into evidence.
Luckow said that on Monday morning, 12 December 2011, he went to his office at the Brighton office of Cool World Australia. When he arrived, he was approached by McTaggart and asked to sign a document to guarantee that Danks Group would enter into a supply contract with Cool World International. He was told by McTaggart that Samil Power was concerned that the transfer of the contract had not taken place. Luckow said that he was confident that he could bring about the transfer, and so willingly signed the two‑page document presented to him by McTaggart, who also witnessed his signature.
Luckow said that McTaggart only provided him with two pages from the guarantee document. One page contained information such as his name, address, telephone number and email address. That page had been completed by someone other than himself. The second page contained the execution clause, made provision for his signature as ‘Guarantor 4’, and for acceptance on behalf of Samil Power. Luckow claimed that McTaggart misrepresented the documents to him, as a guarantee to procure the transfer of the business of Danks Group, an existing customer of Cool World Australia products, to Cool World International.
Luckow said that when he opened his emails that evening, he discovered for the first time that the document he had signed was in fact a guarantee for the amount owed by Cool World Australia to Samil Power. He said that when he discovered the deception, he and McTaggart ‘had a massive argument over the phone and he told me not to worry as the merger would still go ahead’. Luckow gave several versions of the conversation. At one point, he said that he told McTaggart, ‘I will kill you if this merger doesn’t go ahead’.
In November 2011, Samil Power was becoming increasingly anxious about payment for goods that had been delivered in September. It was pressing Cool World Australia for a payment plan. On Tuesday 29 November 2011, McTaggart sent a payment plan, as an attachment to an email, to Anthony and Zhu. At the time, Cool World Australia was also indebted to Solar 360. The email was copied to Williamson, Schneider and Luckow. It proposed payments to Solar 360 and to Samil Power throughout December. The dinner at Silks Restaurant took place a few days later.
The Memorandum of Understanding, dated 4 October 2011, had been signed by Cui. It contemplated that the ‘current Cool World directors’ would have 40 per cent of the shareholding in the new entity, Cool World International. An entity representing Samil Power was to have an interest of 30.5 per cent; and Solar 360, 29.5 per cent. Anthony was regarded by Cool World Australia as the deal facilitator. In his evidence, McTaggart continually referred to Anthony as the ‘facilitator’ for the joint venture. Various points of agreement and expectations were set out in the document. One requirement of Samil Power was that:
Existing entity [Cool World Australia] should pay back all the debts to Samil before the end of November, 2011.
The parties had expressly agreed that the Memorandum of Understanding did not contain legally binding obligations, except for an exclusivity period of 20 working days. The document recited conditions precedent to completion, one of which was that contracts with Mitre 10 and Danks Group be transferred to the new entity.
Against that background, it is surprising that Luckow and the other defendants could have been optimistic about the likelihood of Samil Power committing to a joint venture agreement at the dinner. But they knew also that commitment was vital to the survival of Cool World Australia.
Luckow cross‑examined Cui about his reasons for refusing to execute the joint venture documents. Cui had explained, in his evidence in chief, that he did not execute the documents because the Memorandum of Understanding requiring payment of all outstanding debts by the end of November, and payment had not been made. He said that he had not yet had a chance to review the documents. He also said that he needed board approval. The general purpose Luckow’s cross‑examination of Cui was elusive, except to reveal a sense of extreme disappointment on the part of Luckow that Samil Power had been unwilling to proceed immediately with the joint venture. He appeared to be searching for some understanding as to why.
The significance to Cool World Australia of Samil Power’s refusal to immediately proceed with the joint venture was profound. The communications between representatives of Cool World Australia, Samil Power and Solar 360 that followed, provide an insight into the close connection that Luckow had to the fortunes of Cool World Australia, and his awareness of the crisis within the business, and contradicted his attempt to isolate himself from the business and its liabilities. It would not overstate the position to describe the defendants and McTaggart, in the days following the dinner at Silks, as in a state of panic.
The conduct of the defendants towards Samil Power, revealed in internal emails following the dinner at Silks, became increasingly disrespectful, racist and ultimately dishonest. They demonstrated a willingness to encourage Samil Power to release goods that had recently arrived, and to supply further stock, without any intention of ever paying for the stock. They devised a plan which they hoped would release capital for the acquisition of stock from other suppliers, at the expense of Samil Power. It was a dishonest scheme, and Luckow was an active participant.
On 6 December 2011, Eric Song, the chief financial officer at Samil Power, wrote to Schneider enquiring after a cash flow document that had been promised. He referred to the proposed joint venture documents, and the requirement for board approval. He said that payment from Cool World Australia would be important in convincing the board that Cool World Australia was capable of paying its accounts and that it carried on a sustainable business. He reminded Schneider that payment for the first shipment was overdue. On the following day, Schneider sent some information to Song. It was copied to Williamson, McTaggart and Luckow. Song responded by thanking Schneider for the information, reminding him:
One thing extremely important in convincing Samil’s board is the payment from CW for the first and second shipment from Samil, which proves that CW is capable of paying and the business model of CW is sustainable, thus the board of Samil can be more confident. Could you let me know the plan for payment to Samil?
On 8 December 2011, Schneider responded, attaching further information as requested. Schneider said:
Samil can be at ease knowing that we have sufficient monies owing to CWA to pay Samil’s debt.
Song replied:
In terms of payment amount and timeline, the schedule is too much below our expectation and what we agreed in the sales contract and terms sheet, I think my board will have big concern regarding the cooperation with CW.
On Friday, 9 December 2011, McTaggart sent an email to, amongst others, Anthony pointing out that Samil Power was withholding paperwork for four containers due on the following Sunday and Monday. He emphasised that this would affect cash flow and their ability to pay. He recognised that the joint venture may never go ahead. Anthony responded, thanking McTaggart for the update, and continued:
Will sort your paperwork today, given cool heads prevailing!
There followed communications between Zhu and Anthony concerning the predicament. Anthony persuaded Zhu to deliver the containers that were about to arrive, on the basis that the ‘four directors’ would each sign a personal guarantee in favour of Samil Power. Zhu obtained board approval, and was given a form of guarantee by Anthony that had already been employed to obtain the guarantees from McTaggart and the defendants in the County Court proceeding. Zhu made some changes to the document to reflect the identify of the new beneficiary. At one point his attention was directed to a reference to ‘Samil China Co Limited’ as the beneficiary. He said that it was an error. In my opinion, there was no ambiguity about the identity of the beneficiary of the guarantee. It was the plaintiff, Samil Power Co Limited, as other references in the document made clear.
Once the form of guarantee had been prepared by Zhu, it was sent to Anthony, who was to arrange for execution by the directors of Cool World Australia. Anthony sent the document by email to Williamson and McTaggart at 9.11 am on Monday 12 December 2011. The email referred to a discussion with them about the guarantee. McTaggart said that he had responsibility to ensure that the document was executed by all directors and returned to Samil Power. McTaggart sent a PDF of the completed document to Zhu at 11.10 am on Monday 12 December 2011. Thus, the turnaround time was approximately two hours. Luckow said that he signed the two pages presented to him by McTaggart at around 10.00 am. He was the last to sign. The complete document, sent by email, was copied to Williamson, Schneider and Luckow.
Within minutes of the guarantee having been fully executed, McTaggart sent an email to Zhu, with a copy to Anthony, Williamson, Schneider and Luckow, in which he said:
Given that you now have our Personal Guarantees, we would appreciate you arranging for the appropriate paperwork to be sent to Operations Manager, Sonia Krolke at email …
McTaggart’s email set out the paperwork that would be required to have the containers released into the possession of Cool World Australia. The containers were subsequently released to Cool World Australia.
Only two small payments had been made by Cool World Australia to Samil Power. The first was on 8 December, and the second on 14 December 2011. Each payment was in the sum of USD3000. On Wednesday 21 December 2011, Zhu wrote to Williamson noting that Samil Power had not received any further payments. He asked if he could arrange for Schneider to meet the payment schedule that had been sent two weeks earlier.
On Friday 23 December 2011, McTaggart sent an email to Williamson, Luckow, Schneider and an employee, Sonia Krolke. It is in that and subsequent emails that the character and scheme of the defendants and McTaggart is exposed. McTaggart wrote:
Morning Team
We have yesterday lodged an order with Samil for the following:
1.16,000 panels
2.700 Inverters from 1.5kW through 5.0kW
It is important that we are all on the same page regarding this order. We must all spin the following tune:
1.This covers us for the period 1 December 2010, January 2011, February 2011 and march 2011.
2.The stock we have at present is all allocated due to our increased production over the past few months.
3.Nothing sold as at December 1, 2010 has been installed.
4.The new stock ordered is at the new price (90c per kW). Our sell price on the systems sold since December 1, 2010 is based on this stock purchase price.
5.Nothing will be installed on units sold under the new price until we receive the new stock. We have minimum installation guarantees with the chain stores and our customers which have to be met.
If there is a lack of enthusiasm, I note the following for your consideration:
…3.All parties involved in this deal, assured us that the ‘deal was done’. Samil (Michael Zhu), Solar 360 (Michael Anthony and Eric Khera), and CWA (John Williamson) all said ‘done deal’ and the money was in the Bank.
4.The fact that someone forgot to include the CEO of Samil (Peter), meant that the deal was suddenly off. CWA had made a number of changes to accommodate the new entity starting December 1 and BANG; nothing!
5.We owe Solar 360 and we owe Samil. We are lucky after their fuck ups we are not broke; they should be thankful.
If we are to get on with business (with or without an equity partner), the stock must flow. If Samil won’t give it to us, we will go elsewhere.
The key to this is NOT to let Samil delay sending the stock. This will be a tactic they will use to try to minimize their exposure and have part of the CWA debt paid down. At our production level, we will be ‘fucked and far from home’ if we don’t get this new stock. Therefore, if Samil won’t play the game, we must use the cash from the sale of their stock we currently have to buy new stock from some other benevolent soul.
…
I am 100% confident that if we ‘sing the same tune’, Samil will cough up. However we must be firm and be relentless in our pursuit of this latest order.
Regards
T[r]evor McTaggart
Cool World Australia Pty Ltd
At 4.24 pm on 23 December 2011, Zhu sent an email to Schneider, McTaggart and Williamson in which he elevated the complaint by Samil Power about payment. He said that there was roughly $800 000 overdue from the first shipment and that only $6000 had been received. Williamson forwarded the email to Luckow who responded, challenging the assertion that only $6000 had been paid. His frustration was evident. He concluded the email:
Mate enough is enough. If you believe you cannot handle the Chinese then delegate it off to someone else.
LUCKOW
At 2.37 pm on 28 December 2011, McTaggart wrote to Zhu, with a copy to Schneider, Luckow and Williamson:
Dear Michael
Thank you for your email. I trust you are enjoying your holiday break.
As you know, I am the Partner responsible for operations at Cool World Australia Pty Ltd (CWA). It is my job to ensure that systems are installed and customers are happy with what they receive. In addition, internally, I am responsible for the financial health of the organization.
The proposed equity participation by Samil in CWA has unsettled our organization. We had a December 1 hand over date where sales were recorded under a new entity (Cool world International Pty Ltd (CWI)) and this new operating entity would receive $800,000 in working capital. The new company was incorporated, all new sales from December 1 allocated to it, agreements were signed; all was in readiness for the CEO of Samil to visit us and sign off on the deal. Unfortunately this didn’t happen.
There are a number of flow on effects from this deal not happening as of December 1, 2011. These are:
1.We were asked to start a number [of] things by Solar 360 (S360) which we did. These included restructuring our pricing based on purchase cost of product and materials. All sales as of December 1, 2011 are at our new price, taking into account the cost savings under our new arrangement with Samil. We now need stock at these prices to fulfil our orders. Hence our order of 22/12/2011 (order no: 221211) for 16,000 panels and 700 Inverters. It is absolutely essential that we receive this stock otherwise we lose on the systems.
2.Senior Management of CWA has been locked away with S360 people for hours discussing the new venture (CWI). This appears to all be for nothing. CWA has been robbed of precious time, energy and money for no return.
3.CWA systems have been reviewed and criticized to the extent that changes were recommended and implemented, adversely affecting our operations. My view is that the people conducting these reviews are under qualified and incompetent.
It seems the priority of Samil now is the recovery of monies owed to it by CWA. My difficulty here is the timing. CWA has continually been ‘forced’ into payment schedules which I believe now are unachievable. We simply can’t achieve what we said we could given the failed equity buy in by Samil and the adjustment to our enterprise by S360. Cash will be tight for the first 3 months of 2012.
My solution to this situation is as follows:
1.Samil provide the $800,000 in stock currently requiring payment by CWA to CWA as equity. For this, we will allocate 30% of shares in CWI to Samil. Samil will also receive a seat on the Board of CWI with full voting rights. I remind you Michael that the Directors of CWA have signed Personal guarantees for the payment of stock supplied by Samil. It is not payment I am objecting to more the unrealistic payment scheduling that cause us concern.
2.S360 will retain a seat on the Board of CWI but will not have a shareholding. They will be retained as specialist suppliers of stock in the event Samil decide not to fulfil the order of 22/12/2011. S360 will add a margin to stock sourced or possibly a fee for liaising with Samil in regard to the supply of stock. Let me be clear Michael; S360 have been unimpressive in the supply of stock to date and they bring absolutely nothing to the table in terms of operations. This will be reflected in the new arrangement.
3.CWI enter into an exclusive arrangement with Samil for the purchase of solar panels and inverters. I envisage this to be a 2x2x2 term arrangement.
As you know, we have shattered all production records late in 2011. Production is one thing but we must deliver and install. Unfortunately some of the people negotiating our future don’t understand the significance of this. We need the new stock ordered on 22/12/2011 ‘yesterday’. None of our December sales will be installed before February. This is far too long.
I look forward to your timely response. My aim is to finalise stock arrangements by Wednesday January 4, 2012.
Regards
Trevor McTaggart
Cool Australia Pty Ltd
Luckow replied to McTaggart:
Nice!!!!!!!!!!!!!!!!!!!!!!!!!!!!
On the following morning, McTaggart wrote to Luckow at 9.53 am:
Morning Mate
Yep; I reckon it sums us up. They haven’t got the money but they need the distribution network. I have had enough of S360’s crap. Time we disposed of them.
...
Bottom line? We can’t pay and we won’t pay. However this is the same as a cash injection. We will smash ‘em!
...
We can do this; with or without them!
Regards
Trevor McTaggart
Cool World Australia Pty Ltd
Luckow responded a few minutes later:
I’d put the knife in on the poly panels too mate! Compensation is such a lovely word!
On Friday 30 December 2011, at 1.28 am, Zhu replied to McTaggart’s email of 28 December, expressing alarm at the outstanding debt. On Sunday 1 January 2012, McTaggart wrote to Williamson, Schneider and Luckow:
Afternoon All and Happy New Year!
Below is the email sent to us all from Michael Zhu. …
Let’s look at MZ’s email:
…
4.After 60 days, Samil is forced to report the ‘bad debt’ situation to Sinosure. Trouble is MZ can’t add up the days. As with others involved with Samil, they forget the original deal of 70 days from delivery (or was it from dispatch from China). Whatever it was, it exceeds credit terms by definition. They purposely breached their own guidelines in order to get rid of old (poly) stock and sell new stuff.
5.If Sinosure commences legal action against our company (CWA), we immediately counter with poly panels and not receiving our original quantities in the Purchase Order. Should be sorted in a year or so!
6.Sinosure can’t sue CWI as Samil people were the Directors. This was a JV. However CWI and CWA can counter sue Samil for non performance. They said they were going to marry us and didn’t. We join Solar 360 and this should be sorted in 2 years!
7.I think MZ means they supplied us with $800k worth of stock. Nevertheless, we are collecting the money as circumstances allow. They have Personal Guarantees; no risk. We will pay.
What MZ’s email doesn’t say is as follows:
...
So where does this leave us? As I see it, the situation is simple. Our action plan should be:
1.No payments are made to S360 from today onwards. This cash will be diverted to Installers and transport companies so we can get the last of the Samil stock delivered (half payment) and installed (balance of payment).
2.No payments are made to Samil from today onwards. This cash will be diverted to Installers and transport companies so we can get the last of the Samil stock delivered (half payment) and installed (balance of payment).
...
My view is that we are in the worst cash position we have ever been in. Our overheads are sucking the guts out of what we earn and our non profitable areas have been let go on for far too long. We need to make changes and fast in order to survive.
…
I will write to MZ now asking about our last order. Who would like a wager on his response? Note my header in my email below: Private & Confidential; Commercial in Confidence and Without Prejudice. This doesn’t mean you cc in your adversary! If he says it was an accident, we have the ‘nigger in the woodpile’.
Regards for the first time in 2012.
Trevor McTaggart
Cool World Australia Pty Ltd
Having sent the previous email, McTaggart wrote, as he had proposed, to Zhu on 1 January 2012 at 6.22 pm as follows:[4]
[4]Emphasis added.
Dear Michael
A Happy New Year to you and yours.
Thank you for your email. Unfortunately we are not able to make a payment before the end of 2011. I realize this makes it difficult for you with the Samil Board, but unfortunately our failed joint venture has placed enormous stress on our situation.
One thing you didn’t address in your email was our last order. It is essential we know your attitude on this as if this order is not coming, we must put in place alternative arrangements to ensure that our customers’ needs are met. I would appreciate your answer by return.
You have our Personal Guarantees in regard to payment for stock so it is not a case of ‘if’ but ‘when’ you will be paid. The provision of our latest order will assist with this greatly.
In regard to the option of legal proceedings, this really is a matter for Sinosure. I know our Board at its first meeting of 2012 will be looking at the merits of issuing against Samil and Solar 360 for non performance. Again, the matter is out of your and my hands.
Please let me know in regard to the new order as this is first on my priority list.
I wish you the very best for 2012 in the hope you have a prosperous and successful year.
Regards
Trevor McTaggart
Cool World Australia Pty Ltd
Luckow called McTaggart to give evidence on his behalf, even though he had painted him as dishonest, having tricked him into signing a document by misrepresenting its character. From that point, according to Luckow, his relationship with McTaggart ‘was broken’, although the evidence was to the contrary.
McTaggart had been declared bankrupt on 14 December 2011, two days after signing the guarantee in favour of Samil Power. Luckow said he only found out about the bankruptcy on 24 December 2011. He said that having discovered the bankruptcy, he ‘nearly went ballistic’. Yet shortly thereafter, as the email exchanges demonstrate, he was applauding the tactics of McTaggart.
The evidence given by McTaggart did not support Luckow’s case in critical respects. He denied telling Luckow that the guarantee concerned the transfer of the Danks contract. He did not recall any particular argument with Luckow on the evening after the guarantee was executed, or that Luckow had accused him of deception in relation to the execution of the document. McTaggart said that Luckow often abused him over the telephone. He had no specific recollection of an accusation of deception made in relation to the guarantee. His inability to recall specific accusations of dishonesty may not be surprising, if his conduct towards Samil Power was an example of his business practices.
McTaggart agreed that he only presented two pages to Luckow for signature. He said that the two pages were on a table, ready for signature, when first seen by him. McTaggart recalled a discussion with Williamson and Schneider concerning a requirement that Luckow sign the documents.
McTaggart knew that Anthony had been speaking with Zhu and Cui about security for the debt, so as to ensure that the new shipment would be released. He also knew and that Anthony had propounded a form of guarantee to be executed by all four directors. McTaggart understood that the two pages, presented to Luckow for his signature, came from the document that Williamson, Schneider, and he had already signed. He was under no misunderstanding about the nature of the obligation to be incurred by the signing the guarantee. McTaggart believed that Williamson had explained the guarantee to Luckow, who was reluctant to sign, although said that he did not participate in those discussions.
I am satisfied that all guarantors were present in the Brighton office of Cool World Australia at some time during the two‑hour period following receipt of the document and its return. McTaggart had arranged for each person to sign the document. All four men understood the impending crisis if the guarantee was not completed and returned to Samil Power that morning. The crisis and the solution would have been the most important topic of discussion between them that morning. I accept the evidence of McTaggart that there were discussions in the office that morning, concerning Anthony’s requirement that they all execute the guarantee. It is inconceivable that Luckow would have been left out of those discussions, even if they included attempts to persuade him to sign. He may have been reluctant, but I am satisfied that he knew the true nature of the obligation he was undertaking when he signed the execution page.
The giving of a guarantee was, of course, of little consequence to McTaggart. He would be declared bankrupt in two days’ time. He was no doubt aware that such a declaration was imminent, and yet was prepared to sign the document and encourage the other to sign, in the knowledge that he would not be exposed. Thereafter, he continued to propound the guarantee to Samil Power as a valuable security, even after he had been declared bankrupt. He did not advise Samil Power that his guarantee was worthless. While the evidence did not reveal when all other guarantors discovered McTaggart’s bankruptcy, Luckow said he was told on 24 December.
McTaggart did not attempt to hide his contempt for ordinary concepts of honest business practice, or for Samil Power and its representatives. He had no apparent reason for giving a false account of what transpired on the morning of 12 December 2011 at Brighton. While I regard the conduct of McTaggart towards Samil Power and others, reflected in the email communications mentioned above, as racist, dishonest and wholly inexcusable, he gave the impression in the witness box of a man who saw nothing wrong in what he had done. He obviously regarded deception as a legitimate commercial tool.
If there was a deceit practiced by McTaggart that morning, it was his failure to inform his co-guarantors that his guarantee would be worthless. But given the nature of the crisis, and the only available solution (a guarantee given by the four directors in favour of Samil Power), it is most unlikely that disclosure by McTaggart of his imminent bankruptcy, if not already known by the others, would have made any difference. The directors, including Luckow, had no choice but to sign. The subsequent conduct of Williamson, Schneider and Luckow demonstrated, that they were complicit with McTaggart in an attempt to defraud Samil Power.
I accept the evidence of McTaggart, insofar as it concerned the circumstances in which the guarantee was executed by Luckow. I accept that Luckow was presented with two pages, one containing his name, address and other particulars, and the other, an execution clause prepared for his signature. It was plain on its face that the pages were part of a guarantee. The crisis confronting Cool World Australia, and the solution arranged by ‘the facilitator’, Anthony, was well understood by Luckow when he was asked to execute the guarantee on the morning of 12 December 2011. I accept that while he may have been reluctant to execute the guarantee, Luckow was not under any illusion as to the nature of the obligation that he was undertaking.
I do not accept the evidence of Luckow to the effect that he was told by McTaggart that the document he was signing was a guarantee of an obligation to deliver the Danks Group account. While Luckow set out to demonstrate the dishonesty of his witness, he was condemned by his own evidence and conduct. Under cross‑examination Luckow was taken to various emails that he had received shortly prior to signing the guarantee and afterwards. One such email was sent by McTaggart at 9.36 am on 10 December 2011 to Anthony, with a copy to Luckow and others. The email concerned sales figures for Cool World Australia. In the third paragraph, McTaggart stated:
I spoke to Michael Luckow this morning and he reflected on his disappointment at yesterday’s proceedings. It seems the gap between us is widening. Of consequence to me is the availability of stock. This will be my sole focus on Monday, for resolution Tuesday.
Luckow denied that he had spoken with McTaggart that morning. He said there was no such conversation. When asked whether he was of the view that McTaggart had lied in the email, Luckow said:
I would have taken it with a grain of salt because it would have been one of many.
He would not go so far as to say that McTaggart was not to be trusted. He said that sometimes McTaggart stretched the truth. He had received that email two days before signing the guarantee. Furthermore, the email correspondence mentioned above, in which Luckow actively participated, was inconsistent with his contention that he was not intimately concerned with the business of Cool World Australia and the crisis confronting the business.
Notwithstanding his evidence to the effect that he had been seriously betrayed by McTaggart, Luckow took no step to inform others of the betrayal. He did not advise Samil Power that he had been tricked into executing the guarantee. Instead, he allowed McTaggart to continue to rely upon the guarantee in communications with Samil Power to assure it that stock already delivered, and to be delivered, would be paid for, when all guarantors knew would not be done. Thus, even if the version of events presented by Luckow were true, he participated in a continuing representations to Samil Power that the guarantee was valuable security for the debts of Cool World Australia. He knew that Samil Power was being induced to act upon it. In so doing, Luckow unequivocally adopted the guarantee in full knowledge of its terms.
Furthermore, Luckow’s admissions in his defence, and his concession of liability made to the court, on 28 June 2013, are inconsistent with his defence. Notwithstanding a medical condition, details of which were not fully explained, Luckow presented on 28 June as a person in full control of his faculties, lucid, articulate and fully aware of the significance of the concessions he was making.
Luckow was extended the latitude to advance an unpleaded case that was inconsistent with his defence and concessions. That un-pleaded case was raised for the first time at the commencement of the trial. His defence had all the hallmarks of recent invention. It is wholly rejected. I am satisfied that Luckow knew the true nature of the document, and the obligation he was about to undertake, when he signed the execution page on the morning of 12 December 2011.
At the conclusion of the trial, Luckow complained about the absence of the original guarantee, executed by Samil Power, as an exhibit before the Court. The guarantee had been admitted by Luckow in his defence. In the circumstances, the plaintiff may be excused from producing the original document, executed by Samil Power, in order to prove its case.
The amount of the debt is not in dispute. I find that Luckow is liable to the plaintiff under the guarantee in the sum of USD2 251 060.25. I will hear the parties on final orders, including interest and costs.
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