Siev v Magid - [2003] NSWSC 222

No judgment structure available for this case.

CITATION: Siev v Magid [2003] NSWSC 222

HEARING DATE(S): 10, 11, 12, 13 December 2002

JUDGMENT DATE:
14 April 2003

JURISDICTION:
Equity Divison
Commercial List

JUDGMENT OF: Master Macready at 1

DECISION: Paragraph 88

CATCHWORDS: Contracts. Agreement for sale of shares. Purchase price payable by two instalments with the title to pass on payment of first instalment. Whether there was a breach of this and other implied terms. Breach found and vendor denied recovery of remaining instalment.

PARTIES :
Dav Siev v Robert Magid

FILE NUMBER(S): SC 50135/2001

COUNSEL: Mr JE Robson for plaintiff
Mr D Hammerschlag SC and Ms EM Frizell for defendant

SOLICITORS: Hunt & Hunt for plaintiff
Blake Dawson Waldron for defendant

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Master Macready

Monday 14 April 2003

50135/01 Dan Siev v Robert Magid

JUDGMENT

1 Master: This is the hearing of a claim in which the plaintiff seeks the sum of US $750,000 and interest from the defendant pursuant to an agreement made between the plaintiff and the defendant on 23 March 2000. Under the agreement, the plaintiff sold the defendant his shareholding in two companies for a price of US $1,500,000. The purchase price was to be paid in two instalments. The first instalment of US$750,000 was to be paid within 21 days of the agreement and the second instalment of US$750,000 was to be paid within 15 months. There were terms of the share sale agreement that after payment of the first instalment the shares would be transferred. The defendant has filed a cross-claim which raised a series of express and implied terms and alleges a breach of the terms. It sought a return of US$750,000 that was paid by the defendant to the plaintiff.

2 This matter came before me when I was an Acting Judge of the court and I have continued to deal with the matter pursuant to s 37 (3A) of the Supreme Court Act.

3 The defendant’s written submissions helpfully set out the background facts which I will, with some modifications, incorporate into this judgment.

The background facts

4 The defendant is an Australian businessman. The plaintiff is an Israeli businessman. Mr Aharon Ben-Shahar is an Israeli lawyer.

5 In 1999, the defendant acquired a minority interest in an enterprise referred to as RomanSoft which was to conduct an on-line casino. The structure was simple. The Romansoft enterprise comprised two companies, Romansoft Limited, a company incorporated in Cyprus which owned the intellectual property, i.e. the software (132), and ICM Limited, an Israeli company which had an agreement with IBM Denmark enabling it to authorise credit card details to merchant and customers on the internet to third parties (9).

6 One Lucien Alter had conceived the enterprise. The plaintiff had been introduced to Lucien Alter via the lawyer, Ben-Shahar, as a potential investor. The original ownership in the enterprise was 50/50 between the Alter interests and the Siev interests, with the lawyer, Ben-Shahar, acquiring a 1.5% interest within the Siev Group.

7 The defendant acquired an interest in 1999 of 12.5% for which he paid US$1 million, (unless otherwise stated all $ denominations referred to herein are for US$) being $200,000 for the interest in ICM and $800,000 for the interest in Romansoft. The arrangements were embodied in a Subscription and Shareholders Deed for ICM dated June 1999 (5-66) and an equivalent document for RomanSoft (128-189).

8 As at 23 March 2000, the shares in Romansoft were held entirely by a Maltese company called Veline Limited and the shares in Veline Limited were held as to:

12.5% by Wisp Investments Limited, a British Virgin Islands (BVI) company controlled by the defendant;

37.5% by Belix Investments Corp. (“Belix”), a BVI company with an issued share capital of 10,000 bearer shares held as to 9,333 by the plaintiff and the balance by his partners in the venture Yarak and the lawyer Ben-Shahar; and

50% by Dangriga Holdings Limited, a company owned and controlled by one Lucien Alter and partners including one Froike Itzkowitz.

9 ICM was held as to 12.5% by Calrod, a company incorporated in the Netherlands controlled by the defendant, 37.5% by the plaintiff and partners and 50% by Alter and partners.

10 A diagrammatical representation of the Romansoft structure is as follows:

11 As is evident from this structure, the Siev shareholding in Belix gives control of that company and, accordingly, the power to vote 37.5% of the shares in Veline which, together with the Wisp shareholding, constitutes a blocking interest of 50% in Veline and hence Romansoft.

12 In an economic sense the Siev shareholding in Belix represents 93.3% of 37.5%, namely 35% in Veline and, accordingly, Romansoft.

13 The Ben-Shahar interest of 3% in Belix is, in a control sense, swamped by the Siev interest. Ben-Shahar’s 1.5% economic interest in Romansoft is in commercial terms at the mercy of the Siev interests and the Alter interests at the Belix and Dangriga level.

14 Belix is a company whose capital is constituted by bearer shares. Although it is incorporated in BVI, Cypriot trustees attended to its incorporation and its director/s are Cypriot.

15 The structures selected were driven; it appears, by the fact that gambling is prohibited in Israel. The operation was thus to be kept off shore from an Israeli perspective.

16 On 23 March 2000, the defendant and plaintiff entered into a written agreement (281-282) under which the defendant bought the plaintiff’s shareholdings in ICM and Belix for a total of $1.5 million, of which $750,000 was to be paid within 21 days of the date of the agreement and the balance within 15 months.

17 The agreement was executed in the Hebrew language and written out by Ben-Shahar.

18 It followed negotiations which commenced at a shareholders meeting. When the defendant and the plaintiff announced their agreement for a sale at $1.5 million, which was negotiated in a room separate from the shareholders meeting room, Lucien Alter raised the issue that the business needed money.

19 The defendant then expressed a willingness to lend $750,000 to the business on the basis that the purchase price was split into two instalments of $750,000, the latter to be paid 15 months from the date of the agreement.

20 There was thus a clear commercial connection, although not a legal one, between the deferral of the second instalment and money to be lent by defendant to the business.

21 Clause 4 of the agreement provides as follows:

“Dan Siev will give an instruction to the Trustee to transfer all his rights in the above shares to Bob Magid upon receipt of the first payment.”

22 The defendant paid the first instalment and lent the business a further $250,000 (Exhibit 4).

23 In addition, the defendant paid a further $10,000 to the plaintiff on account of the fee in respect of the arrangement required by Ben Shahar who required a further $10,000 from plaintiff. This money was paid into the plaintiff’s account with a bank in Liechtenstein (Exhibit 3).

The plaintiff's case

24 The plaintiff’s case relied upon the terms of the agreement of 23 March 2000. It was a simple agreement handwritten by the lawyer Ben-Shahar at his home after the shareholders meeting. It was in the following terms:

25 The plaintiff completed the payment of the first instalment of the purchase price on 12 May 2000. According to the plaintiff, the trustee referred to in clause 4 of the agreement was Ben-Shahar and an instruction was said to have been given to him on 15 June 2000. As has been mentioned, the shares in Belix Limited were bearer shares and in the plaintiff’s submission this instruction was sufficient and all that was required to be done in respect of those shares. There is no dispute that in 2000 there was a transfer of the shares in ICM Ltd to the defendant or his nominee.

26 There is a dispute in respect of the plaintiff's case as to who the trustee referred to in the agreement of 23 March 2000 was. According to the defendant, the trustee was a Cypriot Trust Company. The other dispute in respect of the plaintiff’s case concerns the instruction of 15 June 2000. The defendant contends that it was not brought into existence on the date that it bears but was created probably in May 2001. Several versions of the document are in evidence and it is clear that there was an inserted word in Hebrew which was equivalent of the English word trustee. In a version of the document signed by Ben-Shahar the word trustee has been crossed out by him. The form of the document without the word trustee was as follows:

“Date: 15.6.2000
To: Adv. A. Ben Shahar
From: Dan Siev

Re: Share Purchase/Sale Agreement Between Bob Magid and Myself

This is to confirm that I have received from Bob Magid half the amount due regarding the sale of the shares pursuant-to the Agreement between us dated March 3, 2000.

27 The document with the word trustee inserted read in its last paragraph as follows:

“Therefore, I request that you as trustee will exercise the provisions of clause 4 of the agreement between us.”

The defendant’s case

28 The defendant relied upon breaches of an express term and various implied terms in the agreement of 23 March 2000. The factual circumstances which the defendant alleged in respect of the breach of those terms were also relied upon as a foundation for the submission that there had been a repudiation of the agreement by the plaintiff which repudiation was accepted in a letter from the defendant’s lawyer to the plaintiff purportedly terminating the share sale agreement on 29 August 2001.

29 The express term relied upon was that contained in clause 4 of the agreement, namely, that the plaintiff would give instructions to the "trustee" to transfer all of the plaintiff's rights and shares in ICM and Belix to the defendant. This raises questions as to who was the trustee and whether such instructions were given.

30 The implied terms relied upon were as follows:

Implementation of the agreement.

31 The defendant gave evidence of the conversation between himself and the plaintiff which took place immediately prior to be signing of the agreement of the 23rd March 2000 in these terms:-

Siev: “Immediately upon receipt of my $US750,000.00 Ben Shahar will, on my instructions, fly to Cyprus and arrange the documentation, speak to the trustee in Cyprus and make sure the trustee in Cyprus knows that you are the owner of the shares and not me. For all the documentation, Trust Agreements etc, I am paying Ben Shahar $US10,000.00 and he wants you to pay him $US10,000.00 also.”

Magid: “That is a lot of money, why should we be paying him that much money?”

Siev: “He has a lot of things to do with the trustee which are very complicated. There are various companies involved.”

32 The defendant also gave evidence that he discussed the matter with Ben Shahar in the plaintiff's presence and queried the amount of money he had to pay. According to him, Ben-Shahar indicated that he had to go to Cyprus probably more than once in order to speak to trustees of the various companies. Both the plaintiff and Ben-Shahar denied these conversations and sought to suggest on their evidence that the $10,000 that each of the parties to the agreement had to pay was simply for the drawing up of the agreement. This is inherently improbable and the likelihood is that the explanation proffered to the defendant was in fact given.

33 In July 2000, the defendant sent emails to Ben-Shahar asking for progress of documentation. This led to Ben-Shahar submitting documents for the transfer of the shares in ICM Ltd on 27 July 2000.

34 I referred earlier to the fact that the defendant had advanced US$250,000 pursuant to his agreement at the shareholders meeting. Apparently, by August 2000 it was clear that the agreement ICM had with IBM was about to be cancelled. It was for this reason, according to the defendant, that he did not continue to advance funds. This led to further difficulties in his relationship with Mr Alter and he was taken off his Internet access to the web site which gave day-to-day information on the activities of Romansoft.

35 According to the defendant, by November he was becoming concerned about the situation and he started to inquire about the transfer of the Belix shares to him. In a handwritten note from the plaintiff to the defendant of 6 November 2000, the plaintiff indicated that the director of Belix Limited is and was one of the managers of the Cyprus Trust Company Totalserve. He suggested that when the defendant came in December that he should go to Cyprus and see that all formalities were to his satisfaction. According to the defendant, this was the first time he ever heard who the trustee was in accordance with the conversation he had in March.

36 On 31 January 2001, the defendant sent a fax to the plaintiff in which he asked for assistance from the plaintiff to try and find a buyer for his shares. In the letter he explained that he was finding it too difficult to monitor the business from a distance. The plaintiff responded that he would try but said there were difficulties in getting investors at the time.

37 At a meeting in March 2001 in Israel, the defendant indicated to Lucien Alter that he wanted to get out of the project. He also had engaged a lawyer in Israel, Yuval Horn, to act for him. That lawyer had conversations with Ben-Shahar on 9 April and 17 April in which he discussed the defendant’s shareholding. The lawyer sent a letter dated 17 April 2001 to Ben-Shahar asking for confirmation of ownership in the following terms.

“Further to our telephone conversations of April 9 a ', 2001 and today, I would like to set out my requests in writing, as follows:

I represent Mr. Robert Magid with respect to his ownership of equity interests in Romansoft Ltd., and Internet Capital Merchant Ltd. The power of attorney is attached hereto for your reference at your request.

In our conversation you approved the fact that your firm holds securities consisting of 47.5% of the issued share capital of Romansoft in trust-for Mr. Robert Magid or entities in his control.

38 The response to that letter on 2 May 2001 was in these terms

“In reply to your letter of 17.4.01 by reply, a reply that has been delayed due to me being overseas, but neither I nor my office are holding in Trust any the shares of the companies named in your letter of the above date.”

39 The consternation that such a reply would cause to the defendant would be plainly obvious. Although the answer might have been strictly true as the defendant’s holding was in Belix Limited not the companies referred to in the lawyer’s letter, it seems inconceivable that the response should have been in the terms of the letter of 2 May 2001.

40 The reply prompted the defendant to write the plaintiff a very angry letter of 8 May 2001 in which the defendant set out the difficulties he had in trying to implement the changeover from the plaintiff to the defendant in the company. His complaints were that he should have equal authority in the company as Lucien Alter but he was being excluded and could obtain no co-operation from Ben-Shahar. He stated that he would not pay another penny to the plaintiff if the situation remained as it was. That prompted a reply from the plaintiff on 9 May 2001 in which, for the first time, he claimed that he had done all that was required of him under the agreement of March 2000. Enclosed with the fax was a copy of the alleged instruction of 15 June 2000. Interestingly, it was a copy of the instruction that has the word trustee in it. The defendant also received a letter from Ben-Shahar which claimed inter alia:

Dan Siev has showed me the facsimile transmission which you have sent him earlier.

I would like to inform you that the issues in your facsimile transmission which are related to me are odd and untrue.

As I notified you in the past, your part of the shares of Roman Soft which are held by me, are being kept for you and you can have them whenever you like.

All what I have been asking; from you, was an explicit order, signed by you and verified by a Notary, to whom should I give your part of the shares which are, as you know, bearer shares.

41 In June 2001, the defendant went to Israel and met the plaintiff and later again Ben-Shahar. The plaintiff's account of what then happened is set out in paragraphs 31 and 32 of exhibit 1 in these terms

42 That account is denied by the plaintiff and Ben-Shahar. According to the defendant, he was then asked to sign a document which would convert his Belix shares into shares in Veline. By this stage, he had realised that if he received all of the plaintiff’s shares in Belix, as he was entitled to, he would effectively have 50% control of Veline. He refused to sign it and according to him the following conversation occurred.

“Magid: “Controlling Belix gives the owner equal control of RomanSoft. Ben Shahar's suggestion that I convert my Belix shares to Veline would mean I lose control since I would be in a minority with 47.5% of RomanSoft. I would have to trust that Ben Shahar would simultaneously convert Lucian Alter's and everyone elses shares otherwise I would lose my control."

Siev: "You have nothing to worry about. Lucian Alter understands nothing about laws and contracts and is not interested in them. He trusts Ben Shahar implicitly and Ben Shahar will be able to trick him."

The conversation then continued to the following effect:

43 According to both parties, there were then discussions over lunch about difficulties the defendant had in paying the $750,000 because of problems with a project of his in Sydney. A loan agreement in which that payment was deferred was then produced by Ben-Shahar, signed by the plaintiff but not by the defendant. The defendant said that he wanted his lawyer to check it first and the meeting concluded. The document, Annexure K, referred to in the account of the opening conversation was a written instruction to Ben Shahar to transfer all holdings due to the defendant under the agreement in Veline or Belix to his company Wisp Investments Ltd. All it produced was a letter from Ben-Shahar of 24 June in which he once again submitted documents which effectively would decrease the 50% control which the defendant could exercise in Veline Limited to 47.5%.

44 On 14 June 2001, the defendant sent a fax to Ben-Shahar asking for the transfer of shares to his daughter, Sandra Hoffman. His daughter apparently contacted Ben-Shahar but nothing transpired as a result of that request. In a letter of 25 June 2001 from the defendant to Ben Shahar, the defendant pointed out that he was not interested in the proposal which would dilute his shareholding referred to in Ben-Shahar's letter of 24 June. He emphasised again what he wanted was for the lawyer to hand over to his daughter the 95 percent of the Belix bearer shares which he purchased from the plaintiff. This request was not acted upon Mr Ben-Shahar, according to him, because he had no proof of the signature on the letter. He did not raise this difficulty at the time.

45 In July 2001, the defendant had conversations with Lucien Alter of Romansoft concerning the repayment of the US$250,000 he lent to the company. The plaintiff had apparently refused to allow the return of funds although $100,000 was transferred. The transfer of the balance was blocked by the plaintiff who spoke to the director of Totalserve who actually would make that payment. The plaintiff conceded that he did give these instructions but he says they were given out of frustration with the fact that he had not been paid his second instalment.

46 The lawyers for the plaintiff wrote to the defendant on 20 August 2001 demanding repayment of the final instalment of US$750,000. The defendant wrote a letter fairly setting out his contentions on 28 August 2001. He referred to the failure to transfer the Belix shares and the failure to put him in a position to exercise the authority that he should have as a 50 percent owner in the business. The defendant’s lawyer’s letter of 29 August repeated a lot of these matters and gave notice that the agreement was cancelled.

Credit of the witnesses.

47 The plaintiff I found to be a very unsatisfactory witness. From the outset he endeavoured to insert into his answers statements that would improve the case that he knew he had to present although he well knew they were not an answer to the question. He was a consistent advocate of his case. In addition, a substantial part of his evidence contained an air of unreality and was contradicted by the written documents. The following are some examples.

298

(a) he did not in his letter mean the trust company of Belix but meant the company who created Belix [29 L1-3];

(b) he used the words “trust company” because Total Serve includes the words “trust company” in its “heading” [59 L39-51].

298

.

48 The later analysis of some of the events to which I will turn will also show that the denials of certain conversations and matters are quite inconsistent with contemporaneous documents.

49 Ben Shahar was also an unsatisfactory witness in the same way as the plaintiff. He endeavoured from the opening question to espouse his case on who was the trustee rather than the answering questions that were put to him. This continued throughout his evidence. On a number of occasions he was evasive.

50 Ben Shahar’s evidence that he did not consider himself at the time that the defendant became involved in the business to be in a position of potential conflict of interest [129 L26-29] cannot be accepted when regard is had to his many years of experience as a lawyer and his admission that he was at the same time an investor, a legal advisor and a trustee of the company. He attempted to avoid the conclusion that he was in a position of potential conflict of interest by describing his role as trustee as only a “technical position”, limited to holding the shares and organising the registration [129 L 39-42]. This explanation lacks credulity.

51 There are a number of difficulties with the explanation proffered by Ben Shahar as to the circumstances in which, and the reasons for which, he wrote his letter of 2 May 2001. (302). His characterisation of his response to Yuval Horn as “cynical” [135 L 36] does not accord with the tone of the document itself. He was unable to provide any credible justification for his sending of the letter, albeit that he attempted to do so by reference to both the terms of the letter to which he was responding and the content of an earlier conversation which he allegedly had with Horn, of which he did not make a file note [135 L 43- 137 L 37].

52 The defendant gave his evidence in a fairly straightforward way although at times he tried to give an explanation. He was prepared to accept that he should simply answer the question. His evidence of conversations is also inherently likely given the documentary material that is available. In case of conflict I would prefer his evidence to that of the plaintiff and Ben Shahar.

Who was the trustee referred to in clause 4 of the agreement?

53 When one considers the agreement of 20 March 2000 it is apparent that there is a patent ambiguity as the “trustee” is not referred to by name. Although the trustee is not a party he, she or it obviously plays a part in dealing with the subject matter of the agreement. Indeed, one would infer, given that the subject matter is bearer shares that the trustee was holding them for the vendor. In these circumstances, extrinsic evidence is admissible to show the circumstances in which the parties operated to establish their common intention as to who the trustee was.

54 In the present case, the plaintiff did not know, and did not enquire, as to who the trustee was. In Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853 the Court of Appeal held that if one party to a written contract is content to rely upon a description of the subject matter of the contract proffered by the other party and the subject matter is not identified with certainty by the written words, extrinsic evidence is admissible to identify the subject matter. See, in particular, Hope JA at 75340 – 2 and McHugh JA at 75343. I turn to consider the evidence on this aspect.

55 The plaintiff tendered exhibits E and F with their translations, exhibits G and H. These were said to be the internal documents prepared by Ben Shahar or his partner to record the ownership of the shares. The shares, being bearer shares, were held by him, so he said, in a safe in Cyprus and remained there until two weeks before the trial before me when he brought them with him to Australia. On the face of those documents the shares acquired by the defendant were recorded as being held on behalf of the defendant by Ben-Shahar. According to Ben-Shahar he made the change when he received the instruction letter of 15 June 2000.

56 According to the defendant's submissions, the trustee at the relevant time was a Cyprus company Totalserve. In support of this submission it points to a number of different matters which were as follows:

8

279

3

57 The size of the fee certainly is commensurate and consistent with the evidence of the defendant as to what he was told as to the purpose of the payment of the amount. I am quite happy to accept his evidence on this aspect, as it is inherently probable. The fact that the trustee was the Cyprus company is also borne out by the comments of the plaintiff in his fax of 6 November 2000. As it was the plaintiff whose shares were held on trust for him he would be most likely to know who the trustee was. The recitals in the draft trust deed (279) which was sent to the defendant by the office of Ben Shahar after March 2000 shows a slightly different position. What it contemplated was a trustee in addition to Ben-Shahar as trustee. Apart from the fact that this was never executed it is important to realise that the question is, who was the “trustee” as at 20 March 2000 and not, who later may have become the trustee by some actions taken or assumed by the plaintiff and Ben Shahar after 20 March 2000.

58 Exhibits E and F with their translations are documents created by Ben-Shahar and they probably depend upon his evidence as to when he received the instruction of 15 June 2000. Accordingly I turn to that question.

Was the instruction of 15 June 2000 given to the trustee?

59 The plaintiff's affidavit evidence was that he prepared and sent a copy to the defendant and thereafter he gave it to Ben-Shahar. He says that Ben-Shahar then crossed out the word trustee and signed an acknowledgement on the letter. According to the defendant he did not receive a copy of the document until he received the fax dated 9 May 2001 from the plaintiff. If it is the fact that he did not receive it until 9 May 2001 clearly the document was prepared at about that time and could not have been in existence in 2000.

60 A number of things are to be noticed in respect of the matter. The first is that in the fax of 9 May 2001 the plaintiff does not suggest that he had earlier sent a copy. Given the subject matter of that fax it is very likely that if the instruction had already been sent before by the defendant that it would have been referred to in the fax. There is no documentary evidence of the sending of the instruction earlier than 9 May 2001. The original letter itself has never been produced. The signature of document 313 on 1 June 2001 is also inconsistent with the fact that the instruction had been given on 15 June 2000 and the explanation was not satisfactory. The evidence given by Ben-Shahar concerning the document was also unsatisfactory and he could not say why he did not tell the defendant that instruction had been given to him on 15 June 2000. Also surprising is that there is no reference in the plaintiff's fax of 6 November 2000 to the giving of the instruction. If it had been given it would be logical to have referred to it in that facsimile.

61 Having regard to these matters, I am not satisfied that the instruction of 15 June 2000 was given by the plaintiff to Ben-Shahar at about that time. It seems to me that it was prepared at some time (most likely after receipt of the defendant’s letter of 8 May 2001) when there was a realisation that the plaintiff may not receive the payment due in July 2001.

62 In any event, the instruction of 15 June 2000 was given to Ben Shahar at some time. The fact that he crossed out of the words, “as trustee” is of importance. The letter is addressed to him and those words identified him as the trustee. If he were the trustee there would be no need to delete the words. It seems clear to me that he deleted the words because he well knew that he was not the trustee. It may well be that Ben Shahar may have then recorded changes to the paper (exhibits E and F) which he kept as his record of the ownership of the shares. That does not mean that there had been any change in the identity of the trustee who held the plaintiff’s shares in March 2000.

63 There had been proposals to change the trustees and include Ben Shahar, as one but that had not been implemented.

64 There is in evidence two letters sent to the defendant on 8 June 1999 when he was taking his original stake in Veline. One letter dealt with Belix described therein as the company and the other dealt with Dangriga Holdings Ltd therein described as the company.

65 The substance of the letters was in these terms:-

“Irrevocable Undertaking in relation to Belix Investments Corporation, Company No 319233 (“the Company”).

I hereby irrevocably undertake that those shares which are held in trust for Mr Dan Siev and partners will not be transferred, delivered, dealt with or affected in any way whatsoever except in accordance with the provisions of the Subscription and Shareholders Deed dated June 1999 in relation to the company

Yours sincerely,

Sasson Omer, Adv.”

66 Sasson Omer was a partner in Ben Shahar’s office who initially handled the matter. When he left to go to London, Ben Shahar signed the first of these letters in these terms:-

67 Unfortunately, the subscription and shareholders’ deed referred to are not in evidence and thus no sense can be made of the terms on which the shares were then held. It must not be forgotten that it was Ben Shahar who wrote out the agreement of March 2000. He chose the word “trustee” and if he was at that time the trustee the likelihood would be that he would have named himself rather than using the indeterminate word, “trustee”.

68 As I have said, the relevant date for determining the trustee is the date of the agreement. The evidence of the need to go to Cyprus to deal with the trustee and the plaintiff’s perception that the trustee was Totalserve are the best indications of who was the trustee.

69 In these circumstances the delivery of the letters of 15 June 1000, whenever it took place, did not give notice of a change in the beneficial ownership and was not notification to the trustee in accordance with the agreement.

Breach of the express terms

70 Notwithstanding that the document of 15 June 2000 exists and was clearly made available to Ben-Shahar at some stage in May 2001 there was a breach of the term given the fact that Ben-Shahar was not the trustee.

The breach of the warranty that the plaintiff was in a position to vest legal and beneficial title in all of his holdings in Belix to the defendant.

71 There does not seem to be any suggestion in the evidence that there was a breach of any such a warranty. Clearly the plaintiff was in a position to give title to his holdings in Belix.

Breach of the implied term that the plaintiff would transfer or take such steps as were necessary to cause a transfer of his holdings and rights in ICM and Belix to the defendant upon payment to the plaintiff of the first instalment of the purchase price.

72 There is no doubt that there was a transfer of the rights in ICM. There is little doubt that it would be appropriate to imply a condition to this effect if the literal construction of the agreement meant that the only obligation that the plaintiff had was to give a notice to what might be a recalcitrant trustee or trustee's. Important features of the arrangement in this regard were as follows:

73 Without an obligation to vest the shares in the purchaser the agreement would certainly lack business efficacy.

74 The events leading up to the meeting of 6 June and what transpired at that meeting made it abundantly plain that the plaintiff did not take steps to cause a transfer of his holdings in Belix to the defendant. To the contrary, the instruction of 1 June 2001 signed by the plaintiff was an attempt to dilute the interests of the defendant. Other documentation prepared at and after the meeting and, indeed, letters from Ben-Shahar, all showed a clear plan to dilute the defendant's interest. The purpose of this was no doubt to enable the sale by Ben-Shahar of his minority interest in Belix. He was locked into a position where he had no say in what steps Belix could take.

75 The express instruction given on 6 June 2001 was not implemented nor were requests to transfer the shares to his daughter. All that happened as a result of those requests was once again the tender of documents endeavouring to put forward a plan to dilute the defendant’s shares. In my view, there has been a clear breach of this term in respect of the transfer of the shares in Belix. There was no breach in respect of the transfer of the shares in ICM.

Breach of the term that the plaintiff would do all that was reasonably necessary to enable the defendant to enjoy the benefits of the agreement and would not do any act or thing which would hinder or prevent the defendant from obtaining the benefits of the agreement.

76 The defendant’s complaint is that nothing was done to give him the benefit of the position which he should have enjoyed as a 50 percent shareholder in Veline. The considerations which lead to the implication of the previous term also would lead to the implication of this term. The failure to transfer the shares in Belix has already been adverted to. A breach of this term requires some other factual matter to be established. There really is no evidence of express requests from the defendant to the plaintiff for particular things to happen. For example, there was no attempt by the defendant to have his nominee director appointed to, say, ICM. The attempt by the plaintiff to persuade the directors of Velix or RomanSoft not to repay the company loan is in respect of a subject matter which is quite separate from the share sale agreement. I am not satisfied that there has been a breach of this term. Similarly, in respect of the remaining two terms, if they were to be implied, I cannot see that there has been a breach.

Termination for breach

77 It is necessary to see whether the express and the implied term in respect of which I have found a breach were conditions which gave rise to a right to terminate for breach. In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-2 the principles were stated in these terms:-

Flight v Booth

Bettini v Gye

Bentsen v Taylor Sons & Co

Fullers’ Theatres Ltd v Musgrove

Bowes v Challeyer

Clifton v Coffey

78 As the agreement shows on its face the subject matter of the contract was shares in ICM and Belix. ICM was the company which had the agreement with IBM which allowed the instantaneous clearing of credit card funds and Belix gave the defendant a 50% control of the company which owned the intellectual property that was the core of the businesses that was operated by both companies.

79 Given the importance of both companies at the time of the agreement, it is obvious that the defendant would not have entered into the agreement unless he received the shares in both companies. The words of clause 4 make it abundantly plain that control of both lots of shares had to be given at the time of payment of the first instalment. Given the rights in the company structures resulting from the ownership of the shares being sold it clearly would have been essential for control of both lots of shares to have passed in accordance with condition 4.

80 In my view, both clause 4 of the agreement and the implied term were conditions the breach of which enabled the defendant to terminate the agreement; which was done when the defendant’s solicitor gave notice in August. This notice of termination was after the second instalment of the purchase price became due on 20 June 2001. In my view that does not mean that the right to receive the second instalment of the purchase price had been unconditionally acquired on 20 June 2001 in the sense to which the High Court referred in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 and McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-7. On my findings there had been no delivery of the shares by the time of termination.

81 In McDonald v Dennys Lascelles Ltd, after the passage to which I have referred, Dixon J said at 477:-

“It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the time treat himself as relieved from the obligation of transferring the property to the buyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract.”

82 To the same effect was the comment by Starke J at 470-471:-

“Consequently, after the rescission of the contract, about June 1931, an action or proceeding for the recovery of the instalment of 1,000 pounds the payment of which had been extended to 24 January 1931, and of the balance of purchase money, could not have succeeded, for the vendors were not entitled to both the land (or their interest therein) and the purchase money.”

83 Although this is not a case where the purchase price is payable by instalments in advance the same principles should apply as there has been no delivery of part of the shares and thus no full completion of the contract. The contract contemplated delivery and completion taking place prior to the payment of the second instalment and I would have thought that such delivery would be a condition precedent to the liability to make the second payment. For this reason the right to the second instalment had not been unconditionally acquired before termination.

84 Accordingly, the plaintiff is not entitled to succeed on his claim.

Repudiation

85 The defendant submitted that there was either an express or implied refusal to perform arising from the plaintiff’s words and conduct. Clearly, the plaintiff was ready, willing and able to perform part of the contract as it did transfer the ICM shares. So far as the balance is concerned, I have found that there have been breaches of conditions which gave rise to a right to terminate which has been validly exercised. There is thus no need to consider the matter of repudiation .

Damages

86 As I have indicated earlier, the plaintiff cannot succeed on the recovery of the second instalment following upon the defendant’s termination of the agreement. The defendant sought repayment of the first instalment with interest and tendered a return of the ICM shares to the plaintiff.

87 Unfortunately, there was no debate before me on the question of damages and there was little evidence tendered on this aspect. The evidence shows that the defendant did not receive the benefit of the Belix shares and thus it is clear that there has been some damage. It is also clear that there has been no total failure of consideration.

88 In these circumstances it is arguable that there can be no recovery of the first instalment but damages for the particular breach must be assessed. The parties may wish to consider this aspect and I will hear submissions on what steps the parties wish to take to resolve that matter.

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Last Modified: 05/05/2003

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Citations

Siev v Magid [2003] NSWSC 222

Cases Citing This Decision

0

Cases Cited

2

Statutory Material Cited

0

Baltic Shipping Co v Dillon [1993] HCA 4

McDonald v Dennys Lascelles Ltd [1933] HCA 25

Baltic Shipping Co v Dillon [1993] HCA 4

CITATION:	Siev v Magid [2003] NSWSC 222
HEARING DATE(S):	10, 11, 12, 13 December 2002
JUDGMENT DATE:	14 April 2003
JURISDICTION:	Equity Divison Commercial List
JUDGMENT OF:	Master Macready at 1
DECISION:	Paragraph 88
CATCHWORDS:	Contracts. Agreement for sale of shares. Purchase price payable by two instalments with the title to pass on payment of first instalment. Whether there was a breach of this and other implied terms. Breach found and vendor denied recovery of remaining instalment.
PARTIES :	Dav Siev v Robert Magid
FILE NUMBER(S):	SC 50135/2001
COUNSEL:	Mr JE Robson for plaintiff Mr D Hammerschlag SC and Ms EM Frizell for defendant
SOLICITORS:	Hunt & Hunt for plaintiff Blake Dawson Waldron for defendant