Scheuer v Bell

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 6815 of 2000

STEVEN SCHEUER	Plaintiff
v
PHILLIP EMMANUEL BELL AND ORS	Defendants

‑‑‑

JUDGE:	KAYE J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	2 to 5 March; 9 to 12 March; 15 to 19 March; 22 to 26 March; 29 March to 1 April; 6 and 7 April; 14 to 16 April; 19 to 21 April 2004.
DATE OF JUDGMENT:	3 June 2004
CASE MAY BE CITED AS:	Scheuer v Bell and ors
MEDIUM NEUTRAL CITATION:	[2004] VSC 71

CONTRACT – Total failure of consideration – Construction of contract - Misleading and deceptive conduct – Pre-contractual negotiations - Misrepresentation – Agency – Reliance - Rescission– Damages – Cross-claims – Fiduciary duties – Contribution.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D. Meagher Q.C. with R. Strong	Efron and Associates
For the 1^st, 2^nd and 3^rdDefendants	Mr P. Crennan	Stedman Cameron
For the 4^th, 5^th and 6^th Defendants and Third Party	Mr J. Evans	Harwood Andrews

CONTENTS PAGE

BACKGROUND................................................................................................................................. 3

Negotiations with the Plaintiff....................................................................................................... 4

Heads of Agreement.......................................................................................................................... 6

February 2000 – July 2000.................................................................................................................. 8

Events after July 2000...................................................................................................................... 10

ISSUES............................................................................................................................................... 11

Cross Claims............................................................................................................................. 14
The Trial..................................................................................................................................... 16
Order of Determination of Issues.......................................................................................... 16

PLAINTIFF’S FIRST CLAIM: Money had and Received........................................................ 17

(I)     Were the Heads of Agreement an Agreement for the Sale of Shares?.................... 18
(II)    Did BPR and Tetley Have an Interest in the Shares in MPDL?................................ 21
(III)   Did MPDL Own the Copyright in the Multi‑Point Data Link Product?................ 26

PLAINTIFF’S SECOND CLAIM: Termination of Heads of Agreement pursuant to clause 9.1 29

PLAINTIFF’S THIRD CLAIM: Representations made before Agreement.......................... 39

What representations were made?....................................................................................... 39
(A)    Representation as to the State of Development of Product...................................... 41
(B)    Representation as to the Basis on which Phillip Bell was to be involved in the Business 45
(C)    Representations as to Shareholding of MPDL............................................................ 48
(D)    Representation as to the entitlement of MPDL to exploit the product................... 51

Conclusion on Representations.................................................................................................... 52

Representations – Agency of Tony Bell.............................................................................. 52

(III) Were the representations false?............................................................................................ 55

(A)    The State of Development of the Multi‑Point Data Link system............................. 55
(B)    Phillip Bell’s Intention to Work Full‑time................................................................... 67
(C)    Representation that MPDL was Entitled to Exploit the Product............................. 68
(D)    Ownership of MPDL...................................................................................................... 70

(IV) Misrepresentations and Reliance......................................................................................... 71

THE EVENTS OF JULY 2000: Rescission.................................................................................... 76

THE EVENTS OF JULY 2000: Tony Bell’s Defence.................................................................. 77

Conclusion Concerning the Events of July 2000 and Thereafter: Tony Bell’s Defence..... 84

THE EVENTS OF JULY 2000: Phillip Bell’s Defence.............................................................. 95

THE PLAINTIFF’S FOURTH CLAIM: Against Tony Bell for money lent after July 2000 98

REMEDIES UPON RESCISSION.............................................................................................. 101

CLAIM AGAINST MPDL PTY LTD.......................................................................................... 104

DAMAGES...................................................................................................................................... 104

CROSS-CLAIM BY PHILLIP BELL, BPR AND AIS AGAINST TONY BELL AND TETLEY 111

Shareholding Issue........................................................................................................................ 112

Shareholding Issue: Decision............................................................................................... 120

Heads of Agreement: Negotiations between Phillip Bell and Tony Bell........................... 128

Failure to Issue Shares to BPR and Phillip Bell....................................................................... 139

INDEMNITY AND CONTRIBUTION...................................................................................... 141

CONCLUSION............................................................................................................................... 143

HIS HONOUR:

The plaintiff’s claims arise out of agreements which he entered into in late March and early April 2000 for the acquisition by him of an interest in the sixth defendant, MPDL Pty Ltd (“MPDL”). The plaintiff claims that he validly rescinded those agreements in early July 2000, and seeks to recover monies which he paid in respect to the agreements. In addition the plaintiff claims damages in respect of representations which he alleges were made to him before he entered into the agreements, which representations he claims were false. The damages claimed by the plaintiff consist of monies paid by him pursuant to the agreements.

The first, second and third defendants have a cross-claim against the fourth, fifth and sixth defendants. The plaintiff’s claims, and the cross-claim, involve a considerable number of disputed issues of fact and law between the respective parties. I shall set out in summary the facts, summarise the issues, and then determine the issues which are in dispute.

BACKGROUND

The first defendant, Phillip Bell (“Phillip Bell”), is a computer programmer. At all relevant times he has conducted his business through the second defendant, Advance Information Systems Pty Ltd (“AIS”). Phillip Bell is the elder brother of the fourth defendant, Anthony Bell (“Tony Bell ”).

In 1995 Phillip Bell was approached by Mr Terry Hughes. Mr Hughes had extensive experience in the motor car repair industry, particularly as a loss assessor, and also as a collision repair facility manager and chief assessor of the State Insurance Office. Hughes requested Phillip Bell to write software which would enable participants in the motor vehicle crash industry to communicate with each other. Those parties included insurers, repairers, loss assessors, and parts providers. Hughes and Phillip Bell entered into a joint venture. The project was known as “Multi‑Point Data Link”. Phillip Bell was to write the software for the project. Hughes was to market it.

The development of the project was more prolonged and expensive than the parties had initially expected. By mid‑1998 Phillip Bell and Hughes were out of funds. Accordingly Tony Bell was induced to invest $100,000 in the venture. Initially each of the three participants were to have a one third share. Tony Bell was to finance the project, Phillip Bell to continue to develop the software, and Hughes to market it.

In August 1999 Hughes left the joint venture. Phillip Bell and Tony Bell disagree as to the terms on which Hughes left. In particular they do not agree what their respective shares were in the joint venture before the plaintiff entered into it in 2000. That disagreement is one of the issues which I must determine in this proceeding. Tony Bell claims that, as a result of agreements between himself and Phillip Bell, and between himself and Hughes, he had an eighty percent interest, and Phillip Bell had a twenty percent interest, in the joint venture. Phillip Bell, on the other hand, claims that Tony Bell and he each had a fifty percent interest in the joint venture.

The sixth defendant MPDL Pty Ltd (“MPDL”)was incorporated on 3 February 1999. Tony Bell was registered as its only shareholder and director. He was the company secretary.

In July 1999 the third defendant, BPR Investments Pty Ltd (”BPR”) was incorporated by Phillip Bell to hold his interest in the joint venture. The fifth defendant, Tetley’s Company Pty Ltd (“Tetley”), is owned and controlled by Tony Bell and was intended to hold Tony Bell’s interest in MPDL.

Negotiations with the Plaintiff

The plaintiff, Mr Steven Scheuer (”Scheuer”) is a qualified accountant. He carried on practice between 1980 and 1983. Thereafter Scheuer took over and conducted a family clothing import business known as “R‑Jay Pty Ltd”. Scheuer has known Tony Bell for over twenty years. They are business colleagues and friends. Tony Bell acted, and still acts, as Scheuer’s customs agent.

Scheuer had a limited background in and understanding of computer technology. He had an interest in the public company Webjet Ltd, which is an Internet based travel company. Scheuer is a director of that company, but his major involvement in that company concerns matters of finance.

Between January 2000 and early March 2000 Scheuer entered into discussions, primarily with Tony Bell, concerning acquiring an interest in the venture. There was an initial discussion in January 2000. Subsequently there was a more detailed discussion when Tony Bell visited Scheuer’s premises in Gipps Street, Collingwood in February 2000. On that occasion Tony Bell provided documentation to Scheuer which included an Information Memorandum and a Business Plan. Further discussions ensued between Tony Bell and Scheuer in February 2000. Near the end of February 2000 a verbal agreement or understanding was reached between the parties. Under that agreement Scheuer was to acquire a one third interest in the venture for a price of $1,000,000. Thereafter there were further discussions between Scheuer and Tony Bell. Tony Bell told Scheuer that in fact he would be receiving a thirty‑five percent interest. Twenty‑five percent of the interest was to come from Phillip Bell and ten percent from Tony Bell. Tony Bell explained to Scheuer that the two brothers were disposing of different proportions because Tony Bell had provided a greater amount of funding to the venture. A further discussion occurred on 10 March 2000 between Scheuer and Phillip Bell at Scheuer’s premises at Collingwood. That discussion primarily concerned the terms on which Scheuer was to make payments to Phillip Bell.

The plaintiff claims that a number of representations were made to him in the course of the negotiations to which I have referred. Those representations (as pleaded) were that:

(i)MPDL or its predecessors had developed computer software for use in the automotive repair industry known as “Multi‑Point Data Link” and MPDL was entitled to exploit the product.

(ii) The product had the capacity to generate substantial revenue.
(iii)The product was already installed at over one hundred sites ready for commercial exploitation.
(iv)The product was installed and ready to be used in approximately one hundred locations.
(v)The product was capable of being marketed to major companies at 1200 locations throughout Australia.
(vi)The product had already reached the stage where it was capable of being commercially exploited in its then state of development.
(vii)Phillip Bell would be actively involved in the day to day operation, management and development of the product.
(viii)Phillip Bell and Tony Bell, or their corporate entities, each respectively owned fifty percent of the shares of MPDL.

The plaintiff claims that, in making the representations, Tony Bell acted as agent for and on behalf of Phillip Bell and his interests. He alleges that each of the representations were false.

Heads of Agreement

After conclusion of the negotiations, Scheuer instructed his solicitor, Graham Efron and Associates (“Efron”), to prepare agreements to be entered into with Phillip Bell and his companies and with Tony Bell and his company. Efron prepared those agreements. Heads of Agreement were executed on 31 March 2000 between Phillip Bell, AIS, BPR, Scheuer (and/or his nominee) and MPDL. The preamble to that Head of Agreement recited that BPR, as trustee for the P & R Bell Family Trust, agreed to divest part of its equity in MPDL to Scheuer. Separate Heads of Agreement were entered in to with Tony Bell, Tetley, Scheuer (and/or his nominee), and MPDL in early April 2000.

Each Head of Agreement provided that Scheuer was to pay the sum of $500,000 by instalments. The Heads of Agreement set out the times at which the instalments would be paid. Under the Heads of Agreement involving Phillip Bell and his companies (“the Phillip Bell Heads of Agreement”), the last instalment of $100,000 was to be paid by Scheuer on 30 June 2001. Under The Heads of Agreement involving Tony Bell and his company (“the Tony Bell Heads of Agreement”) the last instalment of $150,000 was to be paid on 30 April 2001. Under the Phillip Bell Heads of Agreement, BPR agreed to sell fifty percent of its shareholding in MPDL, consisting of twenty‑five percent of the issued capital of that company, and amounting to 147,500 shares. Under the Tony Bell Heads of Agreement, Tetley agreed to sell twenty percent of its shareholding (consisting of ten percent of the issued capital) in MPDL totalling 59,000 shares. Thus, in total, Scheuer was to receive thirty‑five percent of the shares in MPDL for a total payment of $1,000,000.

The two Heads of Agreement also provided that working capital was to be contributed by the parties pro‑rata to their shareholding, so that forty percent was to be contributed by Tetley, thirty‑five percent by Scheuer, and twenty‑five percent by BPR. The Phillip Bell Heads of Agreement provided that if BPR did not pay its share of the working capital, Scheuer would make a contribution on its behalf, and that contribution would be deducted from the balance of the purchase price payable by Scheuer under the Phillip Bell Heads of Agreement.

Both Heads of Agreement had a number of common provisions. Clause 1 of the Heads of Agreement defined the term “the Four Agreements” to mean: A Sale of Shares Agreement between BPR, Scheuer (and/or nominee) and MPDL; a Sale of Shares Agreement between Tetley, Scheuer (and/or nominee) and MPDL; a Consultancy Agreement between MPDL and AIS; and an Employment Agreement between Phillip Bell and AIS.

The schedule to each Head of Agreement provided that the Four Agreements would be executed on or before 30 April 2000. Clause 3 of the Heads of Agreement provided that the parties intended to create legal relations by the execution of the Heads of Agreement and to be bound by the terms and conditions set out in them. Clause 5.2 of both agreements provided that Phillip Bell on behalf of AIS was to execute a Consultancy Agreement with MPDL by which AIS was to provide consultancy services for a period of five years. AIS was to be paid $4,000 per calendar month for those services. Phillip Bell was to be employed by AIS throughout that period.

Clause 7 of the Heads of Agreement provided that each of the parties were to deal in good faith with each other party including any dealings in the course of negotiation. Clause 9 of both Heads of Agreement provided as follows:

“9 INTER‑RELATEDNESS OF AGREEMENTS
9.1 Right to terminate
The parties all warrant and agree that Both Heads of Agreements and the Four Agreements shall be inter‑related and in the event the negotiations are frustrated and or cancelled legally or otherwise between any party and any other party, Scheuer shall be entitled to rescind and terminate any arrangements made up to that point.
9.2 Cost of termination
9.2.1In the event of termination under clause 9.1 all costs and expenses and Liabilities of the Parties pursuant to this Agreement (inclusive of legal costs) are to be born by MPDL; and
9.2.2In the event of termination under 9.1, MPDL agrees to indemnify Scheuer for all costs (legal or otherwise) already paid by him.

9.3 No waiver
Nothing in clause 9.1 shall serve as a waiver of the legal rights of any party to these Heads of Agreement”

February 2000 – July 2000

From late February 2000 Scheuer commenced to participate in the business. He collaborated with Tony Bell to produce a document entitled “Multi‑Point Data Link February 2000 Information Memorandum”. Scheuer paid the amounts which were due under the two Heads of Agreement. Thus he paid $400,000 to purchase shares under the Phillip Bell Heads of Agreement, and he paid $350,000 to purchase shares under the Tony Bell Heads of Agreement. In addition, in April 2000 Scheuer met his obligations in respect of a call for working capital of $100,000. Scheuer paid $35,000 to MPDL on his own behalf, and $25,000 to MPDL on behalf of BPR.

From about April 2000 Scheuer became concerned about a number of matters relating to MPDL. First, he became concerned that, contrary to what he had previously been told, the roll out of the technology had not commenced. Secondly, he became concerned that Phillip Bell did not attend full‑time to the business of MPDL. Thirdly, he became concerned whether MPDL was legally entitled to use the software and computer technology involved in the Multi‑Point Data Link product.

Scheuer discussed those concerns with Tony Bell on 28 June 2000. That discussion occurred after the weekly management meeting between the parties. Subsequently, after a weekly management meeting on 5 July 2000, Scheuer told Tony Bell and Phillip Bell that he was terminating the arrangements between himself and them because he was not happy with the progress of the Multi‑Point Data Link project, and because the business was not as it had been represented to him.

On 8 July 2000 Scheuer sent a letter to each of Tony Bell (and Tetley) and Phillip Bell (and AIS) in the following terms:

“Further to our meeting on Wednesday 5^th July, I formally advise that, under the current circumstances I no longer, in clear conscience, can be involved in the business of MPDL Pty Ltd with its partners as listed above.
I have therefore requested that the monies paid to the above parties by me be refunded as soon as possible. Further, at the meeting of 5 July, I asked that by Friday 7 July a formal payment plan be put to me: I have received no response from either party!!
I do not wish to drag this matter out over a long period and therefore I demand full repayment be made to me no later than by 24 July 2000 by both Phillip Bell and Tony Bell.

As you appreciate, none of us wish to involve ourselves in costly legal arguments, I ultimately trust in your common sense to avoid this. I am disappointed neither of you bothered to come back to me with a plan of action.
As you are aware I have signatory rights to the MPDL Bank account: I have put a freeze on this account and the monies, awaiting your formal reply. Needless to say you are aware that wages, bills etc require payment. I therefore urge you to respond to this matter no later than by 5pm today.”

The plaintiff claims that by his letter of 8 July he terminated and rescinded the two Heads of Agreement under clause 9.1, or alternatively as a result of misrepresentations which he claims were made to him.

Events after July 2000

In late June and early July 2000 Tony Bell and Scheuer entered into discussions, the substance of which concerned the continued involvement by Scheuer in the Multi‑Point Data Link project. I shall return to those discussions later. Scheuer states that he told Tony Bell that he would only remain involved if Phillip Bell was not involved, and if his own involvement was in a new entity. Tony Bell and Scheuer consulted B2B Lawyers. In the ensuing month three drafts of an agreement between the two parties were produced. Scheuer annotated amendments to the first two drafts and forwarded them to Tony Bell. The last draft was put to Phillip Bell by Tony Bell as a proposal to buy his interest. Phillip Bell rejected the proposal. However after that time Phillip Bell played no further part in the business.

Scheuer remained in the business of MPDL between July 2000 and September 2001. He had become, and remained, a director of the company. Scheuer and Tony Bell attempted to sell the assets and undertaking of the company or alternatively shares in the company on a number of occasions. In July 2001 Tony Bell and Scheuer entered into an arrangement with Mr Kevin Mark and Mr Chris Bishop. Under that arrangement MPDL was to sell the business to a new entity. The shareholding in the new entity was to be sixty percent Tony Bell and Scheuer, and forty percent Mark and Bishop. The arrangement was short lived. Bishop and Mark terminated their involvement in the project by letter dated 24 September 2001. From shortly after that date MPDL has not been operational. The business involving the Multi‑Point Data Link technology has not been functional. Scheuer has not recovered any of the monies invested by him.

ISSUES

The plaintiff makes five claims, namely:

(i)The consideration for the two Heads of Agreement wholly failed, as a consequence of which the plaintiff is entitled to repayment of all money paid by him under those agreements.
(ii)By his letter dated 8 July 2000 he validly terminated and rescinded the two Heads of Agreement pursuant to clause 9.1 on the grounds that by 5 July 2000 the defendants and the plaintiff had not entered into the four agreements and no shares in MPDL had been transferred to him. Accordingly he is entitled to repayment of moneys paid by him under the two Heads of Agreement.
(iii)The representations made to the plaintiff before he entered into the Heads of Agreement were false, as a consequence of which the plaintiff rescinded the two Heads of Agreement. Accordingly he is entitled to repayment of all money paid.
(iv)The representations were misleading and deceptive in contravention s.52 of the Trade Practices Act 1974 or s.9 of the Fair Trading Act 1999, as a consequence of which the plaintiff has suffered loss and damage. That loss and damage consists of the sums paid by the plaintiff pursuant to the Heads of Agreement and also a sum of $145,638.46 paid by the plaintiff in an attempt to mitigate his loss.
(v)In July 2000 the plaintiff and Tony Bell had conversations concerning the reorganisation and transfer of the business of MPDL to a new entity in which the plaintiff would be allocated fifty percent of the shares. Pending that reorganisation and transfer of business, the plaintiff lent Tony Bell $145,638.46 in order to keep the business of MPDL intact and capable of being transferred to the new entity.

The principal defences (as pleaded) of the first, second and third defendants (Phillip Bell, AIS and BPR) may be summarised as follows:

(i)The plaintiff was not entitled to terminate and rescind the Heads of Agreement under clause 9.1. The plaintiff did not request the defendants to execute the four Agreements and the plaintiff waived that requirement. The Heads of Agreement were binding without the need to execute the four Agreements.
(ii)It was an implied term of the Heads of Agreement that the right to terminate the agreements under clause 9.1 be exercised in good faith. The plaintiff did not exercise that right in good faith.
(iii)In respect of the alleged false representations made before entry into the Heads of Agreement –
(a)Tony Bell was not authorised to make those representations on behalf of the first, second and third defendants. He did not make those representations as their agent.
(b)In any event if those representations were made they were not false. In particular MPDL was entitled to exploit the product, the product had not been developed using pirated software, the product was capable of commercial exploitation in its then form, and market research had been carried out and a pricing structure had been developed.

(iv)Although the plaintiff purported to bring the Phillip Bell Heads of Agreement to an end in July 2000, Phillip Bell denied that the plaintiff did in fact rescind or terminate that agreement.

Originally the second further amended defence of the first, second and third defendants contained a number of pleas. Many of those defences were abandoned by the completion of the trial. In particular the first, second and third defendants did not pursue the following pleaded defences:

(i)That the plaintiff was estopped from seeking repayment from BPR for the monies paid under the Heads of Agreement;
(ii)That the exercise by the plaintiff of his rights under clause 9.1 of the Heads of Agreement was unconscionable contrary to s.7 of the Fair Trading Act.
(iii)The first, second and third defendants also abandoned their counterclaim against the plaintiff.

In summary, the principal defences (as pleaded and as amended at the conclusion of final addresses)of the fourth, fifth and sixth defendants were as follows:

(i) The plaintiff had not validly rescinded the Heads of Agreement.
(ii)The plaintiff was in breach of obligations under the Heads of Agreement, and was thereby disentitled from exercising his right to rescind the agreement under clause 9.1.
(iii)On or about 10 July 2000 the plaintiff and the fourth, fifth and sixth defendants entered into an agreement to vary the Heads of Agreement or alternatively enter into a new agreement. Under that varied or new agreement the plaintiff was to remain involved in the business, was not obliged to make any further payment for his interest in it, and would be allocated a fifty percent shareholding in MPDL. It was a term of the agreement that the plaintiff would not require repayment of monies paid by him under the Tony Bell Heads of Agreement. Pursuant to that varied or new agreement the plaintiff remained involved in the business and contributed to the costs and expenses of it. Accordingly the plaintiff waived any entitlement to require repayment of the money paid under the Heads of Agreement.

(iv) In respect of the plaintiff’s claim based on misrepresentation:
(a)In negotiating with the plaintiff Tony Bell was only acting as agent for Tetley.
(b)Tony Bell did not make certain of the representations alleged by the plaintiff concerning the status of the development and rollout of the product.
(c)Tony Bell did not represent to the plaintiff that he and Phillip Bell each had a fifty percent share in MPDL.
(d)The representations which were made by Tony Bell to the plaintiff were true.
(e)The plaintiff did not act in reliance on the representations alleged.

The fourth, fifth and sixth defendants also pleaded that the termination by the plaintiff under clause 9.1 of the Tony Bell Heads of Agreement breached an implied term of that agreement that such termination be exercised bona fide and not for any ulterior purpose. That plea was abandoned at trial.

Cross Claims

The first, second and third defendants brought a cross‑claim against the fourth, fifth and sixth defendants. They also had third party proceedings against Heron Tower Pty Ltd (“Heron Tower”), a company owned and controlled by Tony Bell. Those third party proceedings were resolved during the trial. Consent orders were made dismissing them.

The legal formulation of the various claims made by Phillip Bell and his companies against their co‑defendants was complex. However in essence Phillip Bell and his companies made the following four claims:

(i)Tony Bell was authorised by Phillip Bell to negotiate the Heads of Agreement with the plaintiff. In negotiating those agreements Tony Bell achieved a better deal for himself than for Phillip Bell. In particular, Tony Bell was to receive $500,000 from the plaintiff for twenty percent of Tony Bell’s interest in MPDL, whereas Phillip Bell received the same amount for fifty percent of his interest in the company. In negotiating an agreement which gave him a more favourable deal than Phillip Bell, Tony Bell breached fiduciary duties owed by him to Phillip Bell.
(ii)The first, second and third defendants claimed indemnity or contribution against Tony Bell and Tetley should the plaintiff be entitled to relief arising out of the lack of any shareholding by Phillip Bell in MPDL. In that event Phillip Bell alleged that Tony Bell owed Phillip Bell and his companies a duty to ensure that shares in MPDL were issued to the Phillip Bell interests in such a way as to enable the sale to the plaintiff to proceed. If Phillip Bell did not have a fifty percent interest in the shares of MPDL at the time of the sale, that lack of shareholding was due to the breach of duty owed by Tony Bell to Phillip Bell and his companies.
(iii)In respect of the claims by the plaintiff based on misrepresentations made to him before the Heads of Agreement were entered into:
(a)Tony Bell was not authorised by the Phillip Bell interests to make those representations. Accordingly the first, second and third defendants are entitled to be indemnified by Tony Bell in respect to any liability to the plaintiff arising from those representations.
(b)Alternatively the first, second and third defendants are entitled to contribution or indemnity under s.23B of the Wrongs Act 1958 (Victoria) or alternatively in equity in respect of any liability to the plaintiff.

(iv) BPR also claimed declarations against MPDL as to its shareholding in MPDL.

In its original form the second further amended notice of claim by the first, second and third defendants against the fourth, fifth and sixth defendants comprised eighty‑six paragraphs and was forty‑four pages in length. A number of the claims, originally contained in the notice of claim, were abandoned by the conclusion of final submissions. In particular the first, second and third defendants abandoned the claims in paragraphs 18 to 30, 34 to 46, 63 to 64, and 65 to 69 of their cross‑claim. They relied on the allegations contained in paragraphs 23 to 30 of the cross‑claim to support the claim (in paragraphs 31 to 33) based on the breach of fiduciary duty, but not as a separate claim.

Heron Tower made a cross‑claim against the first and third defendants. That cross‑claim was resolved during the trial and consent orders were made dismissing it.

In addition, the fourth, fifth and sixth defendants, by a separate notice of claim, seek contribution against the first, second and third defendants in respect of the claims by the plaintiff.

The Trial

The trial lasted thirty sitting days. The plaintiff was represented by Mr D Meagher QC and Mr R Strong. The first, second and third defendants were represented by Mr P Crennan. The fourth, fifth and sixth defendants and the third party (until the claim against it was dismissed by consent) were represented by Mr J Evans. In addition to the plaintiff, Mr A Crow and Mr C Bishop gave evidence on behalf of the plaintiff. The first defendant was the only witness called on his behalf and on behalf of the second and third defendants. In addition to the fourth defendant, Mr R Romanin gave evidence on behalf of the fourth, fifth and sixth defendants. Each witness, and in particular the plaintiff, the first defendant and the fourth defendant, gave lengthy evidence, and were subjected to lengthy and detailed cross‑examination.

Order of Determination of Issues

I shall consider and determine the various claims and issues in the following order:

(i)The plaintiff’s claim for money had and received.
(ii)The plaintiff’s claim to have terminated and rescinded the Heads of Agreement under clause 9.1.
(iii)The claim of the plaintiff based on representations made to him before he entered into the Heads of Agreement. That claim involves the following issues:
(a)What representations were made by Tony Bell to Scheuer before he entered into the Heads of Agreement?
(b)In making those representations did Tony Bell act as agent for the other defendants?
(c)Were any of those representations false or misleading?
(d)Did Scheuer rely on those representations in entering into the Heads of Agreement?

(iv)       The events of July 2000 and thereafter.
(v)        The plaintiff’s claim against Tony Bell for monies lent after July 2000.
(vi)       Relief sought by Scheuer against the defendants:
(a)If the plaintiff is entitled to rescission, what orders is he entitled to?
(b)Damages

(vii)Relief claimed by Phillip Bell against Tony Bell in the cross‑claim.
(viii)Issues of contribution between the Phillip Bell parties and the Tony Bell parties.

PLAINTIFF’S FIRST CLAIM: Money had and Received

The claim by the plaintiff for money had and received was made on the basis that there was a total failure of consideration for the amount paid by him under the Heads of Agreement. It was made on three grounds:

(i)Under the Heads of Agreement, Scheuer did not receive any interest in the issued shares of MPDL. The Heads of Agreement only constituted an agreement by, respectively, BPR and Tetley, to enter into a further agreement for a sale of shares.
(ii)If the Heads of Agreement themselves constituted an agreement for the sale of shares by BPR and Tetley, neither of those companies held shares in MPDL.
(iii)If BPR and Tetley held shares in MPDL which could be sold to Scheuer, those shares were valueless, because MPDL did not have any interest or property in the Multi‑Point Data Link product.

In response the defendants contended:

(i)The Heads of Agreement did constitute a contract for the sale of shares, rather than a contract to enter into a further agreement for the sale of shares.
(ii)BPR and Tetley each held an interest in shares in MPDL which were capable of being sold by them to Scheuer.
(iii)The shares in MPDL had a value. Property in the Multi‑Point Data Link product had passed to MPDL.

(I) Were the Heads of Agreement an Agreement for the Sale of Shares?

The first question is whether the Heads of Agreement contained an agreement by, respectively, BPR and Tetley to sell shares in MPDL to Scheuer. The plaintiff contended that the Heads of Agreement contained no such agreement. The plaintiff referred to a number of specific provisions of the two Heads of Agreement which, it was contended, rendered them no more than agreements to enter into a subsequent contract for the sale of shares.

In particular the plaintiff relied on recital F to the Phillip Bell Heads of Agreement (recital E of the Tony Bell Heads of Agreement) which stated that the parties “are to sign Sale of Share and Consultancy Agreements by the anticipated date….”. Clause 4.1 and 4.2 contained warranties by the intending vendor that MPDL was to have no outstanding liabilities, and that the shares in MPDL should not be encumbered, “at the date of execution of the formal agreements for the settlement of the shares in MPDL….”. It was submitted that the provision of those warranties at the date of execution of the formal agreements, rather than at the date of the Heads of Agreement, was significant. Reference was also made to clause 5.2 of the Heads of Agreement which provided that, at the same time of the signing of the contracts for sale of shares, Phillip Bell on behalf of AIS was to execute a Consultancy Agreement with MPDL.

The difficulty with the plaintiff’s submission arises from clause 5.4 of the Phillip Bell Heads of Agreement (which, with appropriate changes, is the same as clause 5.3 of the Tony Bell Heads of Agreement). That clause provides:

“BPR agrees to sell and Scheuer agrees to purchase 50% of his holdings in MPDL Pty Ltd being 25% of the issued capital in the company and being 147,500 ordinary shares subject to the terms and conditions set out in this clause 5.”

By its clear terms, clause 5.4 of the Phillip Bell Heads of Agreement (clause 5.3 of the Tony Bell Heads of Agreement) is expressed as an immediate contract of sale, rather than as an agreement to enter into a subsequent further contract of sale. Mr Meagher QC contended that the form of expression used by the draftsman was inaccurate, and does not detract from the overall intention of the Heads of Agreement. However, I do not consider that I am at liberty to disregard the plain words of clause 5.4 of the Heads of Agreement. They are not ambiguous. Their meaning is clear. The Heads of Agreement were drafted by a solicitor. They use terms which encapsulate legal concepts. The choice of terminology in clause 5.4 was not, in my view, adventitious, but intentional.

Two further considerations support my conclusion that clause 5.4 of the Phillip Bell Heads of Agreement (clause 5.3 of the Tony Bell Heads of Agreement) should be given its plain and ordinary meaning. First, as Mr Meagher later contended, the Heads of Agreement contained all the necessary provisions required to constitute a sale of shares. Indeed, in another context, Mr Meagher submitted, correctly, that little more needed to be negotiated for inclusion in the intended formal Sale of Shares Agreements. Accordingly it is not surprising that the Heads of Agreement themselves constituted a contract of sale of shares, in circumstances in which the parties intended “… to have the terms restated in a form which will be fuller or more precise but not different in effect”[1].
[1]Masters v Cameron (1954) 91 CLR 353 at 360.

A second relevant consideration is that, pursuant to the Heads of Agreement, significant payments were to be made by Scheuer before the time fixed by the Heads of Agreement for entry into the formal Sale of Shares Agreement. Under the Phillip Bell Heads of Agreement $140,000 was to be paid before the time fixed for the Sale of Shares Agreement. Under the Tony Bell Heads of Agreement $200,000 was to be paid before that date. The payment of such amounts by Scheuer supports the conclusion that clause 5.4 was intended to take effect as a contract for sale of shares, rather than as a contract to negotiate for a contract for sale of shares.

I should also note that if, contrary to the above conclusion, the Heads of Agreement did not constitute a contract for the sale of shares, but rather a contract to enter into a later contract for sale, such a construction would not result in the conclusion that there was a total failure of consideration. The plaintiff did not suggest that the contract was void for uncertainty, as being no more than an agreement to agree[2]. The Heads of Agreement contained an express provision (clause 7) that the contracting parties would act in good faith to each other in bringing into being the formal Sale of Shares Agreement. They also contained (in clause 8) obligations by the contracting parties to do all things necessary to put into effect the objective of the Heads of Agreement. Thus valuable consideration would have been provided, in any event, to Scheuer, even if I were to construe the Heads of Agreement as a contract to enter into a contract for the sale of shares, on the terms already specified in the Heads of Agreement.
[2]Compare for example Thorby v Goldberg (1964) 112 CLR 597 at 605 (per Kitto J).

(II) Did BPR and Tetley Have an Interest in the Shares in MPDL?

The second contention made by the plaintiff, in support of his claim for money had and received, is that Tetley and BPR (as trustee of the P & R Bell Family Trust) did not each own the shares which they agreed to sell to Scheuer under the Heads of Agreement.

At this stage it is necessary to consider the history of the Multi‑Point Data Link project, and of the subsequent issue of shares in MPDL. I shall refer again later in these reasons to that history in the context of the cross‑claim by Phillip Bell against Tony Bell. However, relevant to the plaintiff’s claim, the history discloses the following:

(i)The original persons involved in the joint venture were Terry Hughes and Phillip Bell. The joint venture was unincorporated.
(ii)At all times, including at the time at which he entered into the joint venture, Phillip Bell conducted his own business as a software designer as an employee of AIS. In his evidence, which I accept, he stated that he continued his involvement in the joint venture as an employee of AIS.
(iii)Tony Bell joined the joint venture in 1998. The joint venture was still unincorporated. It appears that Heron Tower provided the funding, at least for the capital payment made by Tony Bell in respect to his acquisition of an interest in the joint venture. In evidence, both Phillip Bell and Tony Bell, at least implicitly, considered that Tony Bell, rather than Heron Tower, was a member of the joint venture. Although the matter is not entirely clear on the evidence, I consider it more probable that it was Tony Bell and not Heron Tower which was the relevant member of the venture.
(iv)On 3 February 1999 MPDL was incorporated. One share was issued to Tony Bell. The venture was not transferred or assigned into MPDL. That company remained a shelf‑company at least until shortly before the execution of the Heads of Agreement.
(v)Terry Hughes exited the joint venture in August 1999. At that time terms of settlement were executed between Heron Tower, Hughes and Phillip Bell. Although Heron Tower, and not Tony Bell, executed the terms of settlement, nevertheless that document provided that Hughes sold and transferred his interest in the joint venture to Tony Bell and Heron Tower “collectively”.
(vi)BPR was incorporated in July 1999. It ended up having two functions. That dual role of BPR has generated substantial debate in the present case. First, Phillip Bell stated in evidence that BPR was incorporated to hold his interest in the joint venture. On 1 July 1999 a trust deed was executed between BPR (as trustee) and Phillip Bell (as the initial unit holder). That trust deed constituted the trust known as the “Bell Investment Trust”. At about the same time, in July 1999, Phillip Bell persuaded two ladies who were his secretaries and friends, Anna Sznyta and Joanna Van Exan, to invest $200,000 in the business. An Agreement was signed by Phillip Bell, Sznyta and Van Exan. Clause 1 provided that Phillip Bell had set up the Bell Investment Trust to hold the equity ownership of the investment in what was described as the “MPDL Trust”. I interpolate that at that time it had been contemplated that an MPDL trust would be constituted, but that did not come to pass. In any event, the intent of the agreement between Phillip Bell and Sznyta and Van Exan was clear that those two ladies would invest in the Multi‑Point Data Link business. Clauses 2 and 3, in combination, provided that Sznyta and Van Exan were to be provided with a thirty percent interest in the Bell Investment Trust. Thus each of those two investors were to gain thirty percent of Phillip Bell’s interest in the joint venture.
(vii)The second role of BPR needs to be mentioned at this stage. A trust known as the “P & R Bell Family Trust” was established by a deed dated 23 October 1998. Phillip Bell was the trustee of that trust. By a deed executed by Phillip Bell and BPR dated 1 July 1999, Phillip Bell resigned as trustee, and appointed BPR as the trustee of the trust.
(viii)It might be thought that, as at July 1999, AIS, rather than BPR, should have been the owner of the “Phillip Bell” interest in the joint venture. It seems clear on the evidence however that it was BPR, and not AIS, who was considered to be the owner of the “Phillip Bell” interest as from July 1999. Phillip Bell controlled AIS. If in fact AIS, and not Phillip Bell, had previously owned the relevant share in the joint venture, then the conclusion would be clear that Phillip Bell had acted as the agent of AIS in effecting an arrangement whereby BPR was to hold that interest to its exclusion. Alternatively, as from that date, and particularly as from the date in which Sznyta and Van Exan invested in the Bell Investment Trust, and thereby invested in the “Phillip Bell” interest in the joint venture, AIS would be estopped from asserting its interest in the joint venture to the exclusion of BPR.
(ix)Indeed, in his outline submissions, the plaintiff accepted (correctly) that the conclusion might be drawn that the Bell Investment Trust took up the interest in the joint venture previously held by Phillip Bell, and not AIS.
(x)Thus, as at January 2000, the relevant persons who held an interest in the joint venture were Tony Bell and BPR as trustee of the Bell Investment Trust.

In that background, it is necessary to examine whether, at the time of execution of the Heads of Agreement, BPR (as trustee of the P & R Bell Family Trust) and Tetley held shares in MPDL (that is, MPDL Pty Ltd) which were capable of being sold by those two entities to Scheuer pursuant to the terms of the Heads of Agreement. The history of the issue of shares in MPDL both before April 2000, and indeed subsequently, is not easy to unravel. At the very least, there was an imprecision in attention to ordinary procedures and to the usual steps required to issue shares in a private company. Secondly, the question of the relevant shareholding in MPDL became clouded in July 2000. As will be seen later, from that time Tony Bell strove to exclude his brother Phillip from holding any relevant interest in MPDL, so that he could induce Scheuer to continue in MPDL after Scheuer had purported to terminate and rescind the Heads of Agreement. However, the contemporaneous documents, together with some evidence given about them, establishes the following:

(i)On 6 March 1999 Romanin lodged a notification of share issue signed by Tony Bell as director of MPDL with the Australian Securities and Investment Commission (ASIC). The document was numbered OE4415453. It recorded two issues of ordinary shares which were stated to have been issued for cash. One issue was for 295,000 shares at a price of $1 per share; the other issue was for 294,999 shares at $1.53 per share.
(ii)On the same date, and apparently by error, a second notification of issue of shares was lodged with ASIC. That document was number OE4415454. It was in the same form as the document referred to in sub‑paragraph (i) above.
(iii)On or about 14 April 2000 the records of ASIC were appropriately amended by deleting document number OE4415453, and leaving document OE4415454.
(iv)Two share certificates were tendered in evidence from the secretarial file of MPDL. Both share certificates bore the common seal of MPDL, and were signed by Tony Bell as sole director and sole secretary. The first share certificate certified that Phillip Bell as trustee for the P & R Bell Family Trust was the registered holder of 295,000 ordinary shares. The second certificate certified that Tetley was the registered holder of 294,999 ordinary shares in MPDL. Both certificates purported to be dated 5 February 1999. However, the evidence of Tony Bell and Romanin was that the certificates were sent to Tony Bell on or about 30 March 2000, and were signed and executed by Tony Bell shortly after that date. I accept that evidence.
(v)Consistently with the above transactions the company extract of MPDL dated 14 July 2000 recorded Tony Bell as holding one issued share, recorded the two notifications of allotments dated 6 April 2000, and recorded that cancellation of the document number OE4415453 on 14 April 2000.

From the above evidence I conclude that, shortly after 30 March 2000, MPDL issued 294,999 shares to Tetley, and 295,000 shares to Phillip Bell as trustee of the P & R Bell Family Trust. There was no contention that that share issue was invalid for want of formality, or for want of adherence to appropriate procedures. Based on that evidence I conclude that, at or shortly after the date of execution of the Heads of Agreement, Tetley owned 294,999 shares in MPDL, Tony Bell owned one share, and Phillip Bell, as trustee of the P & R Bell Family Trust, held 295,000 shares issued in MPDL.

The plaintiff, in this context and in the context of other claims made by it, places some reliance on documents and transactions which indicate that, at some date after April 2000, steps were taken to cancel the allotment of shares. I shall return to this aspect of the case later. Even if such a cancellation of the shares did occur, it would not nullify the fact that shares had been issued in the manner which I have described above. At no time did Phillip Bell, or BPR, consent to any cancellation of the allotment. Further it has not been established that any such cancellation took place before 5 July 2000.

The position, then, is that, either at or shortly after the date of execution of the Heads of Agreement, Tetley owned 294,999, and BPR, as trustee of the P & R Bell Family Trust, held 295,000 shares, in MPDL. Each of those two companies contracted to sell their shares to Scheuer under the two Heads of Agreement. In light of that conclusion, Tetley clearly owned shares, and therefore was able to comply with its obligation to sell shares under the Tony Bell Heads of Agreement. The position relating to BPR is more confused. As I have already noted, before the issue of the shares, BPR as trustee of the Bell Investment Trust, and not as trustee of the P & R Bell Family Trust, owned the relevant interest in the joint venture. Yet BPR, in its capacity as trustee of the P & R Bell Family Trust, held the issued shares, and contracted to sell them to Scheuer.

While much was made of this apparent discrepancy, it does not produce the result that BPR, as trustee of the Bell Family Trust, could not sell shares to Scheuer. Certainly, it would be clear that BPR, as trustee of the Bell Family Trust, would receive any consideration paid by Scheuer on trust for the Bell Investment Trust. Likewise, the P & R Bell Family Trust (and its trustee BPR) would hold the issued shares in MPDL on a constructive trust for the Bell Investment Trust. However those considerations, and the complex legal tangle which has ensued, does not alter the simple point that the party which contracted to sell shares to Scheuer was the same party which held the legal interest in the issued shares in MPDL. In so far as the beneficial interest in those shares was, ultimately, owned by the Bell Investment Trust, it is clear that Phillip Bell controlled BPR in his capacity as trustee of both trusts. He was the majority unit holder in the Bell Investment Trust. He gave evidence, which I accept, that he told Van Exan and Sznyta of the sale of part of the interest of the Bell Investment Trust to Scheuer. In those circumstances, I accept the argument of the defendants that the Bell Investment Trust would be estopped by convention from denying the right of BPR to dispose of the legal and equitable interest in the shares pursuant to the Heads of Agreement. I therefore conclude that BPR did have the relevant interest in the shares sold under the Heads of Agreement. There was therefore no failure of consideration based on the second proposition advanced by the plaintiff.

(III) Did MPDL Own the Copyright in the Multi‑Point Data Link Product?

The third contention of the plaintiff, in support of his claim for money had and received, was that MPDL did not derive any interest in the Multi-Point Data Link software as a result of the Heads of Agreement. Accordingly the plaintiff contends that any shares sold under the Heads of Agreement were valueless.

The plaintiff developed that contention at some length. In summary the steps to the submission were:

(i)Originally the copyright in the software was owned by Phillip Bell and Terry Hughes. The copyright remained the property of the joint venture after Tony Bell joined it, and after Terry Hughes left it.
(ii)The joint venture consisted of, on the one hand, Tony Bell or Heron Tower, and, on the other hand, BPR as trustee of the Bell Investment Trust.
(iii)The Heads of Agreement contemplated the execution by Phillip Bell, on behalf of AIS, of a Consultancy Agreement which was to contain a term (inter alia) that MPDL was to have the sole rights to have possession, ownership and control of all intellectual property generated and/or created by Phillip Bell and/or AIS. However that clause was not effective to assign copyright in the software to MDPL, since it was not owned by AIS.

In response the defendants contended:

(i)AIS was at all times the legal owner of the copyright in the Multi-Point Data Link software.
(ii)Clause 5.2(d) of the Heads of Agreement operated to assign either the legal or equitable interest in that software to MPDL.

I consider the submissions made by the defendants to be correct.

Section 35 of the Copyright Act 1968 (Commonwealth) provides that the “author” of a literary, dramatic, musical or artistic work is the owner of any copyright subsisting in the work. Section 10 of the Act defines a “literary work” to include a computer program or compilation of computer programs. Section 35(6) of the Act provides that where a literary work is made by the author in pursuance of his or her employment by another person under a contract of service, that other person (the employer) is the owner of any copyright subsisting in the work. I accept that Phillip Bell was, at all times, the author of the software. The plaintiff argued that Hughes was also an author of it, since he was the originator of the idea for it. However, it is a basic principle of copyright law that copyright does not subsist in an idea, but rather in the expression of that idea in a material form[3]. In any event Hughes released his interest in the copyright under the terms of settlement pursuant to which he departed from the joint venture.
[3]See for example Donoghue v Allied Newspapers Ltd [1938] Ch. 106 at 111.

At all times Phillip Bell developed the software as an employee of AIS. Accordingly, AIS remained the owner of the copyright in the software until the execution of the Heads of Agreement. No doubt the relevant parties to the joint venture, namely Tony Bell and BPR (as trustee of the Bell Investment Trust), each had interests in equity in the copyright in the software. The question is whether clause 5.2(d) was effective to assign an interest, either legal or equitable, in the software to MPDL. Clause 5.2 did not, of itself, constitute an assignment of the software. Rather, clause 5 provided for the execution of a Consultancy Agreement, a term of which was to include an agreement whereby MPDL was to become the owner of the software. Thus clause 5.2(d) of the Heads of Agreement was not effective to assign the legal interest in the software to MPDL. However, by virtue of that provision, MPDL derived an equitable interest in the software. That conclusion is supported by the decision of the Court of Chancery in Colburn v Duncombe [4]. In that case the plaintiff’s bill alleged two agreements by which he claimed to have acquired the copyright in a book relating to the memoirs and times of King George IV. Sir Lancelot Shadwell V-C held that the first agreement was ineffective. His Lordship characterised the second agreement as “nothing more than an agreement to assign the copyright (in the book) when called upon to do so”. Accordingly the second agreement did not operate as an assignment at law. However His Lordship held that, under the second agreement, the plaintiff had obtained a good title in equity which supported a claim by him for an injunction to protect that copyright.
[4](1838) 9 Sim 151; 59 ER 316.

Accordingly I conclude that, pursuant to the Heads of Agreement, MPDL derived an interest in equity to the software. As I have noted, the members of the joint venture, Tony Bell and BPR (as trustee of the Bell Investment Trust) also had interests in equity in the copyright to the software. Tony Bell was a party to the Tony Bell Heads of Agreement. All the unit holders of the Bell Investment Trust knew of and assented to the agreement to sell part of the interest of the trust, and thus were bound by the transfer of the interest in equity to MPDL. I therefore conclude that the shares in MPDL did have a value, consisting of the underlying value of the software of the Multi-Point Data Link product.

PLAINTIFF’S SECOND CLAIM: Termination of Heads of Agreement pursuant to clause 9.1

The second claim of the plaintiff is that, by his letter of 8 July 2000, he validly terminated the two Heads of Agreement pursuant to clause 9.1 of each of those agreements on the grounds that, by 5 July, the defendants and plaintiff had not entered into the Four Agreements and no shares in MPDL had been transferred to the plaintiff.

The defendants submitted that the two Heads of Agreement had not been validly terminated by Scheuer pursuant to clause 9.1 for the following three reasons:

(a)There was no basis for Scheuer to exercise the right of termination under clause 9.1;
(b)If there was such a basis for Scheuer to exercise that right, he was only entitled to exercise it before 30 April 2000, and not thereafter;
(c)In any event, the plaintiff himself was in breach of obligations under clauses 7 and 8 of the Heads of Agreement to negotiate the Four Agreements. By reason of that breach, he was disentitled from relying on his right to terminate the Heads of Agreement under clause 9.1.

I consider that the first submission of the defendants, outlined above, is correct. Clause 9.1 provided a right of termination to Scheuer in “…in the event the negotiations are frustrated and or cancelled legally or otherwise between any party and any another [sic] party.” On the evidence, there was no frustration or cancellation of any negotiations. Accordingly the occasion for Scheuer to exercise a right of termination under clause 9.1 did not arise.

Shortly before the Heads of Agreement were executed, Efron prepared a draft Consultancy Agreement, a draft Employment Agreement, and two draft Sale of Shares Agreements, being the Four Agreements contemplated by the two Heads of Agreement. Scheuer stated that he received copies of those draft documents shortly before the Heads of Agreement were executed. However, there is no evidence that copies of those four draft documents were forwarded to or made available to either Tony Bell or Phillip Bell. Scheuer did not discuss those documents with Tony or Phillip Bell. He did not ask Efron what was the status of the draft agreements. The draft Consultancy Agreement was plainly incomplete. In particular the section of the draft agreement entitled “Scope of Works” (to be undertaken by the contractor, AIS) was left blank. In the meantime Scheuer became involved in the affairs of the business. He attended regular weekly management meetings. Tony Bell and he prepared a new Information Memorandum. His accountant, Ms Bee Lim, took over the book-keeping functions of the business. At Scheuer’s instigation, Tony Bell and he conferred with a patent attorney. Scheuer and Tony Bell drew business plans and projections. They visited a large insurer (AAMI) and some motor vehicle dealers. It is plain on the evidence that the parties ignored, or did not advert, to the provisions in the Heads of Agreement which provided for the negotiation for, and execution of, the Four Agreements.

Mr Efron was not called by the plaintiff to give evidence relating to the provision by him of copies of the four draft agreements to either Phillip Bell or Tony Bell. The plaintiff led no evidence to establish that drafts of any of those documents had been provided to Tony or Phillip Bell. There was no evidence at all that Phillip Bell received them. He denied doing so. In his evidence in chief, Tony Bell also stated that he did not receive any of the four documents. During cross‑examination, his attention was drawn to paragraph 50 of the outline of evidence prepared by his solicitors and served before trial. That document attributes to Tony Bell the statement that he did receive “at some stage a draft of the Consultancy Agreement which was proposed between AIS and MPDL.”[5]. When that statement was put to Tony Bell in cross‑examination he was genuinely surprised. He accepted that he told his solicitors the truth when the statement was being prepared. However I do not consider that his evidence amounts to an adoption by him of the accuracy of paragraph 50 of his outline. Even if it did, technically, amount to such an adoption, that evidence would not be sufficient, on its own, to establish on the balance of probabilities that either Efron or Scheuer provided to Tony Bell the draft of the Consultancy Agreement prepared by Efron. Further, and in any event, there is no evidence that any of the parties, Mr Scheuer, Tony Bell or Phillip Bell, gave any consideration to negotiating the Four Agreements contemplated by the Heads of Agreement. If one thing is clear, it is that the parties, from April 2000, conducted their relations on the underlying assumption that the agreement between them was governed by the Heads of Agreement, and without reference to any contemplated formal agreements to be negotiated between them.
[5]Emphasis added

Mr Meagher contended that, notwithstanding the matters which I refer to above, there were nevertheless negotiations for the Four Agreements and that those negotiations were frustrated.

Mr Meagher first contended that, before execution of the Heads of Agreement, negotiations for the Sale of Shares Agreement, the Employment Agreement, and the Consultancy Agreement had commenced. Mr Meagher submitted that such an inference should be drawn from the amount of detail in the Heads of Agreement concerning the topics which would later be covered by the Four Agreements. Indeed, Mr Meagher pointed out that all the fundamental terms relevant to the Sale of Shares Agreement were already included in the Heads of Agreement, and he contended that little was left to be negotiated.

The submission by Mr Meagher ignores the import of clauses 7, 8 and 9 of the Heads of Agreement. Those clauses in the Heads of Agreement envisaged and provided for further negotiations to occur after their execution, to formalise the Four Agreements. It is to those further negotiations which the obligations in clauses 7 and 8 are directed. Clause 9.1 does not apply to any negotiations. By the use of the definite article in the phrase “the negotiations”, clause 9.1 was intended to apply to negotiations occurring after the Heads of Agreement. The scheme of the Heads of Agreement was that negotiations were to take place in good faith (clause 7); the parties were to do all things necessary to fulfil the objectives of the Heads of Agreement including the execution of further agreements (clause 8); and if those further negotiations were frustrated or cancelled then Scheuer should be entitled to rescind and terminate the Heads of Agreement (clause 9.1).

Mr Meagher then contended that, in any event, little needed to be negotiated in respect of the Sale of Shares Agreement. While that submission may be correct, nevertheless the Sale of Shares Agreement drafted by Efron contained substantially more detail than the Heads of Agreement. Mr Meagher relied heavily on a letter from Tony Bell’s accountant, Romanin to Efron dated 14 April 2000. That letter suggested a rearrangement of the sale of shares proposing that Tony Bell would transfer the entire thirty-five percent equity to Scheuer, and would be paid $1,000,000 for it. The letter apparently envisaged that, by a separate arrangement, Tony Bell and Phillip Bell would adjust that purchase price between themselves. The letter stated that Tony Bell and Scheuer had discussed and agreed to the change of circumstances. That statement in the letter was plainly incorrect and not supported by either Tony Bell or Scheuer. The letter stated:

“As the vendor, our client has requested that his solicitor prepare the contract of sale.”

In that context Mr Meagher contended that the letter constituted negotiations, and cast on Tony Bell the onus of formulating and proffering a Sale of Share Agreement. It was contended that the failure of Tony Bell to proffer such a Sale of Share Agreement constituted a frustration of negotiations between the parties for such an agreement.

There is no evidence that the letter of Romanin to Efron dated 14 April 2000 was discussed or negotiated between the parties. As I have already set out, neither Tony Bell nor Scheuer stated that they had discussed the contents of the letter between themselves. Romanin’s evidence was that, after he sent the letter, nothing further happened in relation to the proposal contained in it. The plaintiff did not call Efron to give evidence although he was plainly available to do so. In those circumstances I cannot, and do not, infer that any negotiations concerning the contents of that letter occurred either before or after it was sent. The letter was no more than a suggestion by Romanin, no doubt with a view to alleviate or avoid the imposition of capital gains tax. On the evidence the letter was ignored. Indeed, Mr Scheuer kept making payments under the Heads of Agreement to both Phillip Bell and Tony Bell. After the letter, Scheuer made three further payments to BPR. In those circumstances, I do not accept that the letter evidenced any negotiations between the parties for the Sale of Shares Agreement. If, by some stretch of the English language, the letter was to be characterised as a step in negotiations, there is no evidence that any such negotiations were frustrated or cancelled. The fact that a proposition or suggestion is made and not pursued does not constitute a frustration of negotiations, as that term is understood in everyday parlance or as it is understood in a legal context such as the frustration of contracts.

The plaintiff then submitted that negotiations for the Consultancy Agreement and Employment Agreement were frustrated. It was pointed out that those agreements would have two aspects, namely, providing for consultancy and employment services by AIS and Phillip Bell, and secondly, providing for the assignment of copyright from the joint venture to MPDL. In that context the proposed Consultancy Agreement and Employment Agreement were to provide for matters which were of substantial significance. Further, Scheuer was not to be a party to the agreements. The agreements were to be between AIS and Phillip Bell on the one hand, and MPDL on the other hand.

The topic of Phillip Bell’s employment was discussed in about June 2000 when Scheuer (and Tony Bell) became dissatisfied with the apparent lack of involvement by Phillip Bell in the technical side of the business. However those discussions were not negotiations in respect of formal agreements contemplated by the Heads of Agreement. Rather the discussions concerned Scheuer’s dissatisfaction with Phillip Bell’s lack of input into the business. As a result of Scheuer’s concerns, he had stopped making monthly payments of $4,000 to Phillip Bell at the end of May 2000. At a management meeting on 28 June 2000 Lockhart, Scheuer and Tony Bell put to Phillip Bell that, rather than being on a monthly salary, Phillip Bell should tender quotations which would be paid by the business when the work was done. Both Scheuer and Phillip Bell gave evidence, which I accept, that Phillip Bell reluctantly accepted that proposition. In those circumstances, it is plain that no negotiations occurred in respect of a proposed consultancy or Employment Agreement. Further, and in any event, if such negotiations occurred, they resulted in an accord, and were not frustrated or cancelled.

Finally, the plaintiff contended that negotiations for the Consultancy Agreement were frustrated because the defendants made a deliberate decision that copyright in the software should not be transferred from the joint venture to MPDL due to the potential impact of capital gains tax as a result of any such transfer.

I reject that submission. The sections of the transcript upon which the submission was based do not support the allegation made by the plaintiff. Indeed, as pointed out by Mr Evans in final address, the allegation which is central to that submission was not squarely put, in cross‑examination, to Phillip Bell, Tony Bell or Romanin, the three persons alleged to have been parties to that decision. The evidence certainly reveals that in April 2000 Romanin and the solicitors for Tony Bell, Messrs Harwood Andrews, were concerned to explore potential methods by which the transaction might be structured in order to alleviate the imposition of taxation on the transaction. However the evidence does not establish, certainly on the balance of probabilities, that Phillip Bell, Tony Bell and Romanin made a conscious decision not to bring into being a Consultancy Agreement because of the potential impact of taxation resulting from such an agreement. As I have already noted, after the Heads of Agreement were executed, the parties became involved in progressing the business, and were not concerned with the formalities which had been stipulated by the Heads of Agreement. The conduct of all three parties, Scheuer, Tony Bell and Phillip Bell, makes it clear that none of them were concerned with, or paid attention to, the execution of the Four Agreements referred to in the Heads of Agreement. The formulation and execution of those documents was simply ignored by the three parties.

Clause 9.1 of each of the Heads of Agreement provides that Scheuer should be entitled to rescind the Heads of Agreement “in the event the negotiations are frustrated and or cancelled legally or otherwise between any party and any another [sic] party”. In my view that event did not occur in this case. The simple fact is that the parties did not choose to enter into negotiations at all. There were no negotiations. A fortiori, there were no negotiations which could be frustrated. Likewise there were no negotiations which could be cancelled. Even if there were, somehow, some negotiations, there is no evidence that they were frustrated or cancelled. Accordingly the circumstances for the operation of clause 9.1 did not arise.

The conclusion which I have reached in the last paragraph means that the plaintiff must fail in his claim based on an exercise of his rights under clause 9.1. Although it is not necessary for me to do so, I shall deal briefly with the other two submissions made in defence of the plaintiff’s claims under clause 9.1 of the Heads of Agreement.

The second submission by the defendants was that it was an implied term of the Heads of Agreement that any right under clause 9.1 to rescind or terminate the agreement must be exercised no later than 30 April 2000. Clause 9.1 does not, in express terms, specify when the right to rescind, provided by it, must be exercised. The defendants pointed to the provisions of the Heads of Agreement which contemplated that the Four Agreements were to be executed on or before 30 April 2000. The defendants contended that the right, provided by clause 9.1, was not open‑ended in point of time, and that it was implicit in clause 9.1 that that right be exercised no later than the date fixed for execution of the Four Agreements.

I do not accept the submission of the defendants that the proper construction of clause 9.1 required the plaintiff to exercise his rights under it by the day contemplated for the execution of the Four Agreements, namely 30 April 2000. No such specific time limit is expressed in clause 9.1. I would be rewriting that provision if I was to incorporate into it, by a process of construction or implication, as a specific time limit fixed for exercise of the rights under that clause, the time fixed for the execution of the Four Agreements.

Indeed there is no necessary connection between the time fixed for execution of the Four Agreements and the exercise by the plaintiff of his rights under clause 9.1. The exercise of those rights does not derive from the fact that the Four Agreements have not been executed. Rather, the exercise of rights under clause 9.1 is dependent upon, and derives from, the frustration and/or cancellation of negotiations for the Four Agreements. Such frustration or cancellation may occur either well before, or indeed, after, the date fixed for execution of the Four Agreements.

It is of course correct to contend that a contractual right, such as that expressed in clause 9.1, would not be open ended in point of time. However, that proposition does not necessitate, or justify, the implication into clause 9.1 of the time limit fixed for the execution of the Four Agreements. It is a trite principle of construction of contracts that where the contract does not specify a time for performance of a particular obligation or exercise of a particular right, that obligation must be performed, and that right must be exercised, within a reasonable time. What is reasonable is to be assessed in the circumstances surrounding the contract. In their final submissions neither defendant advanced a submission that Scheuer had failed to exercise his right under clause 9.1 within a reasonable time. In his submissions in reply Mr Evans did seek to advance such a contention. However the plaintiff had not had the opportunity to respond to it. Further, such a proposition had not been pleaded by the defendants. Indeed the defendants had not specifically pleaded that the right to rescind the Heads of Agreement under clause 9.1 must be exercised by 30 April 2000. In any event, in light of the conclusions which I have already reached in relation to this aspect of the case, it is not possible for me to express a conclusion whether or not Scheuer purported to exercise his rights under clause 9.1 within a reasonable time. For, the exercise of such rights are dependent upon a finding of frustration or cancellation of negotiations. The exercise of rights under clause 9.1 must occur within a reasonable time after such frustration or cancellation. It is not possible, in a vacuum, to determine what is such a reasonable time. Much would depend upon the nature of the frustration or cancellation of the negotiations, and on the circumstances of the case. Since I have found that there was no frustration or cancellation of negotiations, it is not possible for me to express a view on this issue, even if such an issue were open on the submissions and on the pleadings.

The third submission by the defendants was that clauses 7 and 8 of the Heads of Agreement imposed on each of the parties an obligation to negotiate, in good faith, the Four Agreements to be executed by them. It was submitted that by failing to instigate and pursue negotiations for the Four Agreements Scheuer breached that obligation. The defendants relied on the principle that Scheuer was not entitled to take advantage of a circumstance brought about by his own breach in order to terminate the agreement.

The legal proposition on which that submission is based is well founded. Where a contract contains a provision providing for termination or avoidance of the contract if a particular circumstance exists, a party is not entitled to avail itself of that right to terminate or avoid the contract, if the existence of that circumstance is brought about by the breach by that party of its obligations under the contract[6].
[6]See New Zealand Shipping Company Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1 at 6,9; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440, 441; Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 at 987‑988; Zieme v Gregory [1963] VR 214 at 222‑223.

Clause 7 of the Heads of Agreement provides that if negotiations occur, each party must deal in good faith with each other party in the course of those negotiations. However, clause 7 does not either expressly, nor by implication, impose on either party a particular obligation to negotiate the formal agreements, where no negotiations have actually been commenced.

Clause 8 of the agreement provides as follows:

“8. Facilitation
The parties agree to do every act, matter or thing necessary or desirable to fulfil the objective of, and otherwise give effect to these Heads of Agreement, including and without limitation the execution of further agreements.”

With one exception, the Heads of Agreement do not, in express terms, provide for the negotiation and execution of the Four Agreements. The one exception is clause 5.2 of the Phillip Bell Heads of Agreement which provides that at the same time as signing contracts of sale of shares Phillip Bell, for and on behalf of AIS, is to execute a Consultancy Agreement with MPDL on terms which include Phillip Bell being an employee of AIS and to that end, agreeing to execute a formal contract of employment. Otherwise the Heads of Agreement do not expressly provide for the formulation and execution of the Four Agreements, other than in recital F. Nevertheless it is clear from a number of clauses of the Heads of Agreement that the parties contemplated the negotiation, formulation and execution of such agreements. In particular clauses 1, 4.3, 5.1(c) and 6.1, together with items 1 and 2 of the schedule to the Heads of Agreement, are all premised on the execution by the parties of the Four Agreements. Accordingly, I accept that clause 8 does contain an obligation on the parties to do every act necessary to bring about the negotiation, formulation and execution of the Four Agreements, in order to give the effect to the Heads of Agreement as required by clause 8. It is clear that none of the parties complied with that obligation. I therefore accept the proposition advanced by the defendants that the plaintiff was in breach of his obligation under clause 8 to initiate and pursue negotiations for the formulation and execution of the Four Agreements contemplated by the Heads of Agreement. If, contrary to my earlier conclusion, the failure of the parties to negotiate the Four Agreements constituted a frustration (or cancellation) of the negotiations, it follows that that frustration (or cancellation) resulted (inter alia) from a breach by the plaintiff of his contractual obligation under clause 7 and 8. As the plaintiff was in breach of the agreement in such a way as to bring about the circumstance on which he relies to exercise a right of termination under clause 9.1, he was, by the force of the authorities to which I have already referred, disentitled from exercising that right under clause 9.1.

Accordingly, for the above reasons, I conclude that the plaintiff was not entitled to terminate and rescind the Heads of Agreement under clause 9.1. If, contrary to that conclusion, the plaintiff were entitled to exercise his rights under clause 9.1, the question which would arise concerns what right the plaintiff had to recover payments already made by him pursuant to the provisions of both Heads of Agreement. Mr Evans submitted that clause 9.1 did not give a right to rescind, but only to terminate, the Heads of Agreement. I do not accept that proposition. Clause 9.1 expressly provides for a right of rescission and termination. By the use of that terminology the parties clearly intended to provide a right which would encompass recovery of payments already made under the Heads of Agreement. Such a construction would also accord with the commercial realities of the Heads of Agreement, so that, if the right to clause 9.1 be exercised, the parties would be reinstated to the position they were in before the execution of the Heads of Agreement.

Phillip Bell then stated in evidence that, because he had not received a copy of the Heads of Agreement signed by him, he telephoned Scheuer, and spoke to Scheuer’s accountant Mrs Bee Lim. He asked her to fax the document which he had executed. By error Ms Lim sent Phillip Bell a copy of Tony Bell’s agreement. Phillip Bell stated that when he read it he noted that Tony Bell was receiving $500,000 for a sale of a ten percent interest, whereas he (Phillip) was receiving $500,000 for a sale of a twenty‑five percent interest. Having read the document, he then spoke to Tony Bell. He asked Tony what was going on. Tony said that the reason for the differential was because Phillip was getting his money straight away, and that Tony would have to wait for his. Tony stated “I am not going to get it for a long time because I have to put it into super (superannuation)”. Phillip Bell, in his evidence, said he felt pretty sick at that, and that he said to his brother that “look we will just deal with that later”.

Tony Bell’s version of the negotiations with his brother relating to the Heads of Agreement was radically different to that of Phillip Bell. Tony Bell stated in evidence that he attended a meeting at Scheuer’s home on 20 February. Phillip Bell was not at that meeting. Scheuer offered to pay $1,000,000 for a thirty percent stake in MPDL. On the next day, Tony Bell met with Phillip. He said to Phillip that they had received an offer of $1,000,000 for a thirty percent share in MPDL. Tony Bell, in his evidence, stated that he said to Phillip “before you do anything I want $300,000 that I had put into the venture to be repaid to me before we talk about the balance”. Tony Bell said that the $300,000 was an amount which he had contributed to the joint venture. Phillip Bell was reluctant to agree to such a proposition. He stated that he wanted at least $500,000 for the transaction. Tony Bell then struck on a formula which would meet the requirements of both of them. He proposed that, out of the $1,000,0000 purchase price to be paid by Scheuer, he would receive the $300,000, to be applied towards the contributions he had already made to the joint venture. He proposed that rather than selling thirty percent of the venture to Scheuer, thirty‑five percent be sold. In that way each one percent interest would be worth $20,000. Thus, Phillip Bell would sell a twenty‑five percent interest for $500,000 and Tony Bell a ten percent interest for $200,000. Tony Bell stated that Phillip Bell stated to him that he accepted the proposal. Tony Bell then contacted Scheuer by telephone. He told Scheuer that Phillip would sell twenty‑five percent of his shares, and Tony would sell ten percent of his own, for one million dollars.

Having considered the competing versions of the two brothers, which are diametrically opposed to each other, and having observed both witnesses in the witness box, I have come to the conclusion that I do not accept the account of either Tony Bell or Phillip Bell relating to the negotiations which I have summarised above.

It became quite evident during the evidence of Phillip Bell that his memory relating to the negotiations was defective, and had been significantly affected by documents which he had seen in the course of discovery in the proceedings.

In evidence in chief Phillip Bell stated that he did not recall seeing a copy of the draft Heads of Agreement before he ultimately executed the Heads of Agreement. He stated that he discussed the draft Heads of Agreement on the telephone with his accountant, but did not actually see them. Phillip Bell’s answers to interrogatories contradicted that evidence. They stated that he did receive the draft Heads of Agreement and that he showed them to his accountant with whom he discussed them. Phillip Bell conceded in evidence that his answers to interrogatories accurately reflected his memory at the time at which he swore them in February 2002, but that his memory had been affected by documents which he had subsequently seen during discovery in the proceedings. Phillip Bell then stated in evidence that on the day on which he executed his own Heads of Agreement, he contacted Ms Bee Lim, and requested a copy of them. He stated that he received those Heads of Agreement by facsimile shortly after making the request. By error Ms Bee Lim faxed to him a copy of Tony Bell’s Heads of Agreement. It is evident from the fax header on the relevant document that those Heads of Agreement were not faxed to Phillip Bell until 27 April, almost four weeks later than when he stated he received them. The error in timing is of some significance, since it affects the sequence of telephone conversations which Phillip Bell claimed he had with his brother Tony Bell.

It is clear that Phillip Bell’s evidence, relating to this aspect of the case, has been affected by his examination of documents during the discovery process. In his evidence he candidly accepted that he had, in effect, reconstructed his memory because of what he had seen from those documents. The allegations which Phillip Bell makes against his brother Tony in his cross‑claim are serious. They go beyond alleging a breach of fiduciary duty by Tony Bell. Phillip Bell alleges that, when he had ascertained, apparently from the draft Heads of Agreement, that Tony Bell was only selling ten percent of his interest whereas he himself was selling twenty‑five percent, Tony Bell brazenly lied to him as to the reason for the differential in the amount of shares being sold. That is a serious allegation. I would require cogent proofs in order to be satisfied, on the balance of probabilities, that Tony Bell did wilfully deceive his brother as alleged by Phillip Bell [37]. I am not satisfied that Phillip Bell’s memory of the two conversations which he alleges he had with Tony Bell is reliable as to the events which did occur. In particular it has been affected by his sighting of documents in the discovery process. Further, it was clear to me that Phillip Bell’s evidence, on this aspect, carried strong emotional overtones, arising from the rift between Tony and himself, and by which he has been emotionally affected. I consider Phillip Bell to be, basically, an honest witness. I do not consider that he deliberately fabricated either of the conversations about which he gave evidence. However I do not feel sufficient satisfaction about his evidence in this respect to be persuaded, on the balance of probabilities, that the two conversations which Phillip Bell stated he had with his brother were to the effect alleged by him.
[37]See Briginshaw v Briginshaw (1938) 60 CLR 336 at 343‑4, 354, 362‑3;
Rejfek v McElroy (1965) 112 CLR 517; Helton v Allen (1940) 63 CLR 691.

On the other hand, I am also unpersuaded by the evidence which Tony Bell gave concerning his discussion which he stated he had with Phillip Bell in relation to negotiating the Heads of Agreement. I do not accept that a conversation occurred between Tony Bell and Phillip Bell, in which Phillip Bell agreed with the proposition by Tony that Tony, in effect, be entitled to the first $300,000 of the purchase price paid by Scheuer, and that the balance of $700,000 be apportioned by Tony selling a ten percent interest to Scheuer for $200,000 and Phillip selling a twenty‑five percent interest for $500,000. I reject that evidence for the following reasons:

(i)I have already rejected Tony Bell’s evidence that, as at February 2000, Tony Bell had an interest in eighty percent of the joint venture, and Phillip Bell only twenty percent. Thus I have already rejected the underlying premise on which the evidence of Tony Bell, in this respect, was based.
(ii)The evidence by Tony Bell as to the venture “owing” him $300,000, as at March 2000, is unsatisfactory. His accounting records do not support that proposition. Tony Bell attempted to bolster this part of his evidence by claiming that, in his initial negotiations with Scheuer, he told Scheuer that he had already invested $300,000 in the joint venture. On the other hand Scheuer gave evidence that, in those negotiations, Tony Bell told him that he had invested $1,000,000 in the joint venture. I regard Scheuer as the more reliable witness in relation to this aspect of the case.
(iii)Tony Bell alleged that after he spoke to Phillip Bell he then told Scheuer that he and Phillip would be “approaching it (the transaction) from a fifty‑fifty ownership”. Scheuer denied that that conversation occurred. I accept Scheuer’s evidence on this. Tony Bell’s evidence is quite improbable in this respect. Indeed it makes no sense why he would tell Scheuer, virtually out of the blue, that Phillip and he were “approaching” the transaction on a fifty‑fifty basis. If Tony Bell made such a comment to Scheuer, one would expect Scheuer to have asked what Tony Bell meant. Tony Bell did not claim that such a question was asked of him. It was not asked because, I find, Tony Bell did not make that remark to Scheuer. I regard Tony Bell’s evidence in this respect as a further attempt by him to bolster his response to the cross‑claim against him by Phillip Bell.
(iv)The Heads of Agreement do not contain any reference to the adjustment of the shareholding between Phillip Bell and Tony Bell by reference to the amount of $300,000 which Tony Bell claimed was owing to him. No attempt was made by Tony Bell to document the agreement which he claimed he made with Phillip Bell in February 2000 to readjust their shares in accordance with the claimed debt of $300,000.
(v)Tony Bell’s account is not supported by the letter which he wrote to Efron and Associates dated 21 July 2000 to which I have already referred. Tony Bell has already acknowledged that the letter was deliberately untrue. Nevertheless, it would have suited his ends to have referred, in that letter, to the $300,000 transaction, if that transaction had occurred between himself and Phillip Bell. The omission of any reference in that letter to the $300,000 transaction is accordingly significant.
(vi)Romanin wrote a letter to Efron dated 31 July 2000, purporting to support Tony Bell’s claim that he had an eighty percent interest in the venture at the beginning of 2000. That letter contained no reference to the $300,000 transaction. Again, it would have been relevant for Romanin to have referred to that transaction had it occurred. Again, I consider the omission of any reference to that transaction to be significant.
(vii)If Tony Bell’s evidence is accepted, then, without extracting any further consideration from Scheuer, he increased Scheuer’s intended interest in the venture from thirty percent to thirty‑five percent. Scheuer stated that, when he negotiated with Tony Bell, he was to receive a one‑third interest (thirty‑three and one‑third percent) which was later increased to thirty‑five percent. Such an increase, without the payment of any further consideration, is understandable. What is less understandable is an increase from thirty percent to thirty‑five percent without at least asking Scheuer to pay anything further.

For all the above reasons I do not accept Tony Bell’s evidence as to the discussion which he says he had with Phillip Bell before accepting Scheuer’s offer. I am therefore left in the position of not accepting the evidence of Phillip Bell relating to the conversation he had with Tony Bell, and not accepting Tony Bell’s evidence as to the conversations he had with Phillip Bell.

Since I have rejected Tony Bell’s account, it follows that Tony Bell has not established that he expressly made full and frank disclosure to Phillip Bell of the different proportions of shares being sold for the same price, and had thereby obtained Phillip Bell’s informed consent to that transaction. Mr Evans, on behalf of Tony Bell, contended that, if I should so hold, nevertheless I should find that there was implied or inferred consent by Phillip Bell to the transaction.

In his evidence Phillip Bell did acknowledge that, at the time at which he executed the Heads of Agreement, he knew that BPR was selling a twenty-five percent interest, and Tetley selling a ten percent interest, in MPDL. However, the evidence does not establish that, at that time, Phillip Bell knew that BPR and Tetley were each being paid $500,000 by Scheuer, notwithstanding that they were selling different share proportions in MPDL to Scheuer.

In order to contend that Phillip Bell had that knowledge, Mr Evans relied heavily on an answer given by Phillip Bell during his evidence in chief. Phillip Bell gave evidence of the circumstances in which he first saw the Tony Bell Heads of Agreement. Mr Crennan asked him whether he was expecting to see, in that agreement, that Tetley was receiving $500,000 as purchase price from Scheuer. Phillip Bell answered that question with an affirmative “yes… because …. I thought we were both going to get $500,000”. Under prompting from Mr Crennan, Phillip Bell then stated that the $500,000 figure did not surprise him, but that amount of money, based on the number of shares that he sold, did surprise him.

The responses made by Phillip Bell during his evidence in chief, summarised above, do call in question Phillip Bell’s evidence that, at the time at which he signed the Heads of Agreement, he did not know that Tetley was receiving $500,000 in exchange for ten percent of its interest in MPDL. However, I do not find that that part of Phillip Bell’s evidence discredits his evidence. As I have noted Phillip Bell gave his evidence under significant physical discomfort. The question asked of him by his counsel was, at least arguably, ambiguous. The onus relies on Tony Bell to establish, on the balance of probabilities, that he did either expressly or by implication, obtain Phillip Bell’s informed consent to the transaction. I do not consider that that evidence does establish, on the balance of probabilities, that Phillip Bell did give such informed consent to Tony Bell. Accordingly it follows that I find that Tony Bell did breach his fiduciary duties to both Phillip Bell and BPR in negotiating the sale of shares in the venture for and on behalf of Phillip Bell and BPR.

As I have noted, it is a matter of academic interest what relief Phillip Bell and BPR would be granted in respect of that breach of fiduciary duty. I shall deal with it briefly. Phillip Bell and BPR claim that they are entitled to equitable compensation as a consequence of the breach of the fiduciary duty by Tony Bell. That claim is put in the alternative. First it is claimed that Phillip Bell and BPR are entitled to compensation that on the basis that, if all the shares in MPDL had been given an equal value, the consideration payable to BPR under the Phillip Bell Heads of Agreement would have been $714,285.70, instead of $500,000. Alternatively it is put that, on the same basis, Tetley should only have received $285,714.30 for its ten percent share in MPDL, instead of $500,000. On either alternative bases Phillip Bell and BPR claim an entitlement to equitable compensation of $214,285.70.

Although the claim was made both by Phillip Bell and BPR, it seems clear that the appropriate claimant in the cross-claim should be BPR. In my view the alternative method by which its claim for equitable damages is expressed is appropriate and consistent with the principles established in the authorities[38].
[38]See, in particular, Hill v Rose supra at 143.

It was contended on behalf of Tony Bell and Tetley that BPR should not be entitled to any equitable compensation since it had not established that, if Tony Bell had complied with his fiduciary duty, Tony Bell and Phillip Bell would have concluded an agreement whereby each share in MPDL was given an equal value. Even assuming that that factual premise is made out, I do not consider that the argument made by Tony Bell and Tetley in this respect is sound. In Brickenden v London Loan and Savings Company[39], the Judicial Committee of the Privy Council held that where there is a breach of fiduciary duty of the type under consideration in the present case, the fiduciary could not be heard to maintain that disclosure would not have altered the decision by the principal to proceed with the transaction. Their Lordships stated:

“Once the Court has determined that the non-disclosed facts were material, speculation as to what course the (principal), on disclosure, would have taken is not relevant.”[40]

[39][1934] 3 DLR 465.

[40]Supra at 469.

The reasoning in Brickenden has been applied by intermediate Courts of Appeal in Australia. In Maguire v Makaronis[41], the High Court considered the Brickenden principle. The High Court held that on the facts of the case before it, it was not necessary to express any concluded view on the Brickenden principle, but nonetheless express views which were clearly supportive of the reasoning in Brickenden. Mr Evans correctly acknowledged that I was bound by Brickenden, but sought to distinguish it. I do not consider that that authority is distinguishable from the present case. Accordingly it would follow that, if Scheuer had failed in his claim based upon rescission of the Heads of Agreement, Phillip Bell and BPR would be entitled to equitable compensation in the sum of $214,285.70.
[41]Supra at 471-4.

337 Further, I do not accept the factual premise upon which Mr Evan’s submission is based. In other words I do not accept that if full disclosure had been made by Tony Bell to Phillip Bell, the transaction would have proceeded in the manner in which it was ultimately structured. The question is quite hypothetical. Nevertheless I am not satisfied that, if full disclosure had been made, Phillip Bell would have accepted the disproportionate purchase price paid to Tetley as evidenced by the two Heads of Agreement.

Failure to Issue Shares to BPR and Phillip Bell

338 The second claim by the Phillip Bell interests in the cross-claim was based on the proposition that Tony Bell acted as agent for them, not only in respect of the negotiations with Scheuer, but also in undertaking to implement the agreement reached in those negotiations. The Phillip Bell interests, in particular, claimed that Tony Bell was to act as their agent in ensuring that shares were issued in MPDL such that the sale to Scheuer could take place, and in attending to all administrative and procedural matters required to effect the sale to Scheuer. The Phillip Bell interests claimed that the duty was breached by Tony Bell since Tony Bell failed to ensure that MPDL issued a requisite number of shares to BPR, so that BPR could implement its part of the Heads of Agreement. They claimed that as a result of that breach, these proceedings were commenced against Phillip Bell and his interests.

339 I have come to the conclusion that each step of the second cross-claim advanced by Phillip Bell interests is not made out. First, I have found, on the evidence, that Tony Bell acted as agent for Phillip Bell and BPR in negotiating the agreement with Scheuer. However the evidence does not support the proposition that Tony Bell acted as agent of Phillip Bell in respect of the implementation of steps by MPDL, including the issue of shares, to effectuate the terms of the Heads of Agreement. Certainly, Tony Bell, as director of MPDL, was responsible for ensuring that MPDL took appropriate steps to have those shares issued. However the evidence does not establish that Tony Bell undertook to act, or agreed to act, as agent of Phillip Bell in doing so. Thus the second cross-claim of Phillip Bell fails in limine. It is not claimed, by Phillip Bell, that the duty on which he relies arises from any other relationship than a relationship of principal and agent between Tony Bell and himself.

340 Further, if such a duty as that alleged arose, it was not breached. As I have already found, MPDL did issue 295,000 shares to BPR (as trustee of the P & R Bell Family Trust) shortly after 30 March 2000. I have found that, accordingly, there was no lack of consideration given by BPR for the Heads of Agreement. It is, of course, true that, subsequently, steps seem to have been taken by or on behalf of Tony Bell in an attempt to cancel that issue of shares unilaterally. However, as I have noted, any such steps would have been ineffective at law. The allotment of shares was made, and BPR never consented to its cancellation or withdrawal.

341 In July 2000 Tony Bell and his accountant, Romanin, sought to advance a proposition to Scheuer which was at odds with the issue of the shares, namely, that Phillip Bell's interest was either limited to twenty percent of the shareholding in MPDL, and that the issue of the shares had been cancelled. Those propositions were advanced by Tony Bell in an attempt to persuade Scheuer to remain involved in MPDL. The statements made by Tony Bell may have reinforced in Scheuer the view that he had been induced to enter into the Heads of Agreement by misrepresentations made, inter alia, about Phillip Bell's shareholding. Nevertheless he had already rescinded the Heads of Agreement and sought repayment, from Phillip Bell, of the monies paid under the Phillip Bell Heads of Agreement. I therefore do not accept the proposition that, on the evidence, the conduct of Tony Bell, in July 2000, was an operative cause of these proceedings being commenced against Phillip Bell and his interests. In any event it is not that conduct which is complained of in the cross-claim made by Phillip Bell and BPR. Rather, what appears to be the subject of complaint is the alleged failure of Tony Bell to ensure that MPDL issued the appropriate number of shares to BPR. For all those reasons, I accordingly reject the second claim advanced by the Phillip Bell interests in the cross-claim.

INDEMNITY AND CONTRIBUTION

The third claim by Phillip Bell, BPR and AIS, in the notice of claim, is for contribution and indemnity in respect of the plaintiff's claims. Similarly, by their notice of claim, Tony Bell, Tetley and MPDL claim contribution and indemnity against Phillip Bell, BPR and AIS.

On the conclusions which I have made in relation to the plaintiff's claims, the claims for contribution and indemnity would only be relevant in respect of the award of damages pursuant to s.159 of Fair Trading Act and s.82 of Trade Practices Act. It was accepted that s.23B of the Wrongs Act (Victoria) applies to claims for contribution in respect of the award of damages under the Fair Trading Act[42]. Similarly, it was accepted that the principles of equitable contribution apply to the claims by Scheuer pursuant to s.52 and s.82 of Trade Practices Act[43]. It was also common ground that the principles applicable to the Wrongs Act contribution and to equitable contribution are, for the purposes of this case, the same, namely, focusing on issues of culpability, and of the extent to which each party's act contributed to the loss and damage claim.
[42]See Pricom Pty Ltd v Sgarioto (1994) ATPR 41-365.
[43]See Burke v LFOT Pty Ltd (2002) 209 CLR 282.

It will be recalled that the plaintiff’s award of damages is based upon three principal misrepresentations made to him, namely:

(i)That the Multi-Point Data Link product was ready for and capable of commercial exploitation.
(ii)That Phillip Bell would be involved in the business on a full-time basis.
(iii)That Phillip Bell and Tony Bell (or their corporate entities) were entitled to exploit the Multi-Point Data Link system.

Mr Evans contended that the first matter, the subject of the representations - concerning the capability of the product to be commercially exploited - was based on information which could only have been derived from Phillip Bell. However, as I have found, the product was capable of being used. What was misrepresented to Scheuer was that in its then state of development it was capable of commercial exploitation. Phillip Bell was responsible for the design of the product, and, indeed, from late 1999 was pressing for it to be marketed. On the other hand, as I have found, those responsible for marketing the product elected not to bill customers, or to obtain binding commitments from them, because the product, in its then state of development, was not ready for commercial exploitation. Thus sole culpability for the misrepresentation does not lie at the feet of Phillip Bell, although he does bear substantial responsibility for it.

The second misrepresentation - concerning the basis on which Phillip Bell would be involved in the business - was made by Tony Bell. As I have found, at the time Tony Bell made that misrepresentation he knew that Phillip Bell had other commitments and would not be working full-time. Thus Tony Bell was wholly, or at least substantially, responsible for this misrepresentation.

The third misrepresentation concerned the provenance of the MPDL software. I have found that a misrepresentation was made, because of the use of unlicensed Visual Basic 6 in the development of the product. There is no evidence that Tony Bell knew, or should have known, of this defect. Sole responsibility for this misrepresentation must be borne by Phillip Bell.

It is not possible to postulate which misrepresentation played the greater role in inducing Scheuer to enter into the Heads of Agreement. It might be argued on behalf of Phillip Bell that the third misrepresentation - concerning the unlicensed use of Visual Basic 6 - played a lesser role than the other two misrepresentations. However, on the evidence, it would seem to me that it is not possible to properly apportion the extent to which each misrepresentation contributed to the decision made by Scheuer, They each contributed to that decision, but it is not possible to identify which misrepresentation played the greater role.

In light of the above considerations, I have come to the conclusion that both Phillip Bell and Tony Bell should contribute equally, between themselves, to the award of damages which I propose to make in favour of the plaintiff. I have already found that Phillip Bell was acting as agent for BPR and AIS in respect of the Heads of Agreement. Tetley, in its defence, has admitted that Tony Bell was acting as its agent. In those circumstances it is appropriate to make order apportioning contribution on an equal basis between, on the one hand, Tony Bell and Tetley, and, on the other hand, Phillip Bell, AIS and BPR.

CONCLUSION

In summary, I have upheld the following claims by the plaintiff:

(a)The claim by the plaintiff based upon rescission, in equity, of the Heads of Agreement. I have concluded that pursuant to that rescission the plaintiff is entitled to orders for repayment:
(i)          By BPR of $425,000
(ii)        By Tetley of $350,000
(iii)       By MPDL of $35,000
(b)The claim by the plaintiff for damages in the sum of $810,000 against Phillip Bell, AIS, BPR, Tony Bell and Tetley.

(c) The claim by the plaintiff against Tony Bell for money lent in the sum of $145,038.46.

On the cross-claim by Phillip Bell, AIS and BPR against Tony Bell and Tetley I have concluded:

(a)That Tony Bell breached his fiduciary duty to Phillip Bell, BPR and AIS. However, since I have found that the plaintiff has validly rescinded the Heads of Agreement, the three cross-claimants have suffered no damages.
(b)BPR (as trustee of the Bell Investment Trust) is entitled to fifty percent of the issued share capital of MPDL. The judgment will record the undertaking proffered by the fourth to sixth defendants, and accepted by the first to third defendants.
(c)Phillip Bell, BPR and AIS are entitled to orders for contribution from Tony Bell and Tetley to the extent of fifty percent in respect of the judgment by the against them for damages.

On the cross-claim by Tony Bell and Tetley against Phillip Bell, BPR and AIS, Tony Bell and Tetley are entitled to orders for contribution to the extent of fifty percent in respect of the judgment by the plaintiff against them for damages.

Accordingly, and subject to hearing from counsel on issues as to interest and costs, there will be judgment as follows:

(a)On the plaintiff’s claim for repayment of monies based upon rescission of the Heads of Agreement there shall be:
(i)Judgment for the plaintiff against the third defendant (BPR) in the sum of $425,000.
(ii)Judgment for the plaintiff against the fifth defendant (Tetley) in the sum of $350,000.
(iii)Judgment for the plaintiff against the sixth defendant (MPDL) in the sum of $35,000.

(b)On the plaintiff’s claim for damages for breach of the Fair Trading Act and s.52 of the Trade Practices Act there shall be judgment for the plaintiff against the first, second, third, fourth and fifth defendants for damages in the sum of $810,000, such damages to be reduced by and to the extent of any payments made to the plaintiff under clause (a) hereof.
(c)On the plaintiff’s claim against the fourth defendant (Tony Bell) for money lent, there shall be judgment for the plaintiff against the fourth defendant in the sum of $145,038.46.
(d)On the cross-claim by the first, second and third defendants against the fourth, fifth and sixth defendants there shall be relief as follows:
(i) An undertaking by the fourth to sixth defendants to be bound by the determination of the Court as to the entitlement of the third defendant BPR Investments Pty Ltd (as trustee of the Bell Investment Trust) to fifty percent of the shareholding in the sixth defendant (MPDL Pty Ltd) and to take all reasonable steps to ensure that shares are issued or transferred in MPDL Pty Ltd, if required, so as to reflect that determination.
(ii) It shall be ordered that the fourth defendant and the fifth defendant make contribution in respect of fifty percent of the judgment against the first defendant, the second defendant, and the third defendant for damages in favour of the plaintiff.
(e)On the cross-claim by the fourth and fifth defendants against the first, second and third defendants it shall be ordered that the first, second and third defendants make contribution to the fourth defendant and the fifth defendant to the extent of fifty percent in respect of the judgment by the plaintiff against the fourth and fifth defendants for damages.

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[2004] VSC 71

3 June 2004