Stone v Glendyc Pty Ltd - [2003] WASC 80

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: STONE & ANOR -v- GLENDYC PTY LTD & ORS [2003] WASC 80

CORAM: TEMPLEMAN J

HEARD: 10-14 FEBRUARY & 17-19 FEBRUARY 2003

DELIVERED : 23 APRIL 2003

FILE NO/S: CIV 2400 of 2001

BETWEEN: ERROL DALE STONE
First Plaintiff
ROBYN TERESA STONE
Second Plaintiff
AND
GLENDYC PTY LTD (ACN 008 758 110)
First Defendant
DONALD THOMAS STONE
Second Defendant
PHYLLIS YVONNE STONE
Third Defendant
NOEL RAYMOND STONE
SHAUNA FRANCES STONE
Fourth Defendants

Catchwords:

Contract - Transfer of shares in land holding company pursuant to dissolution of family farming partnership - Whether plaintiff contracted to purchase shares for a consideration payable in ten annual instalments without further payment - Whether arrangement too uncertain to be legally enforceable

Partnership - Family farming business - Retirement of parents - Objective for sons to continue farming independently - Dissolution by division of machinery and land into separate farms for each son - Annual payments by each son to finance retirement - Completion of qualifying period by each son - Payment of further sum by each son after qualifying period before transfer of controlling shares

Equity - Estoppel - Whether detrimental reliance by plaintiff working and improving farm in order to obtain controlling shares - Whether plaintiff estopped from denying obligation to pay further sum as consideration for obtaining controlling shares - Application of maxim "he who seeks equity must do equity"

Equity - Constructive trust - Whether appropriate equitable remedy excludes constructive trust

Corporations - Governing Director - Objective for family to continue farming - Agreement by land holding company to sell its land to plaintiff's brother under purported option to purchase contained in lease - Whether terms of sale of land oppressive as against beneficial owner of company

Legislation:

Corporations Law, s 232

Income Tax Assessment Act 1936 (Cth)

Result:

First defendant restrained from entering into contract of sale dated 31 July 2001 to fourth defendants

Category: A

Representation:

Counsel:

First Plaintiff                :     Dr J T Schoombee & Mr O D Feinauer
Second Plaintiff            :     Dr J T Schoombee & Mr O D Feinauer
First Defendant             :     Mr J C Curthoys
Second Defendant         :     Mr J C Curthoys
Third Defendant           :     Mr J C Curthoys
Fourth Defendants        :     Mr N R Cogin

Solicitors:

First Plaintiff                :     Feinauer & Associates
Second Plaintiff            :     Feinauer & Associates
First Defendant             :     Michael Whyte & Co
Second Defendant         :     Michael Whyte & Co
Third Defendant           :     Michael Whyte & Co
Fourth Defendants        :     Bowen Buchbinder Vilensky

Case(s) referred to in judgment(s):

Allegretta & Anor v Allegretta & Anor [2001] WASC 115
Giumelli v Giumelli (1999) 196 CLR 101
Hall v Busst (1960) 104 CLR 206
In the marriage of Elias (1977) 29 FLR 393
Neesom v Clarkson (1845) 4 Hare 97
Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457
Tinker v Tinker [1970] P 136
Wayde v New South Wales Rugby League (1985) 180 CLR 459

Case(s) also cited:

Attorney-General v Perpetual Trustees Co Ltd (1952) 85 CLR 237
DB & AE Newman Pty Ltd v Barossa Co-operative Winery Ltd (1981) 28 SASR 501
Dougan v Ley & Anor (1946) 71 CLR 142
Dyke v Dyke [1998] VSC 211
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Flint v Flint [1999] 3 VLR 712
Gould v Gould [1970] 1 QB 275
Greig v Insole [1978] 1 WLR 302
Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Jones v Padavatton [1969] 1 WLR 328
JT Stratford & Son Ltd v Lindley [1965] AC 269
Metropolitan Borough of Solihull v National Union of Teachers [1985] IRLR 211
Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105
Pearson v Williams [2001] VSC 509
Placer Development Ltd v The Commonwealth 121 CLR 353
Pritchard v Briggs [1980] Ch 338
Raffaele v Raffaele [1962] WAR 29
Raymond v Cook (1998) 29 ACSR 252
Sefton v Tophams Ltd [1964] 1 WLR 1408
Short v City Bank of Sydney (1912) 15 CLR 148
Woodward v Johnson [1992] 2 Qd R 214
Woolley v Dunford (1972) 2 SASR 243

TEMPLEMAN J:

Introduction

The principal parties to this action are members of an old established farming family in the Quairading area of Western Australia. The first plaintiff is the Reverend Errol Dale Stone who was a farmer for some 20 years until 1993, when, at the age of 40 years, he gave up farming in order to pursue his vocation. The second plaintiff, Robyn Teresa Stone is his wife.
The second and third defendants are Errol Stone's father and mother, Donald Thomas Stone and Phyllis Yvonne Stone. The first defendant, Glendyc Pty Ltd, is a company which has as its sole asset a farming property in the Quairading area, known as Keoringle. At all material times, Glendyc Pty Ltd has been controlled by the second defendant.
The first named fourth defendant, Noel Raymond Stone is Errol Stone's brother. The second named fourth defendant, Shauna Frances Stone is Noel Stone's wife.
As a matter of convenience, I shall refer to Donald Thomas Stone as "Mr Stone", to Phyllis Yvonne Stone as "Mrs Stone" and to their sons and daughters-in-law by their Christian names. I shall also substitute names for parties when I set out extracts from the pleadings. I intend the younger generation of Stones no disrespect when I refer to them in this way.
In this action, Errol contends that in 1990 he entered into a contract with his father (acting on behalf of himself and Mrs Stone) for the purchase of the entire share capital of Glendyc over a period of 10 years.
Alternatively, Errol contends that if there was no contract, his father promised (on behalf of himself and Mrs Stone) that they would transfer the shares to Errol in 2000: and that in the events which have happened, Mr and Mrs Stone are, in effect, now estopped from resiling from that promise.
Although it is said by Errol that the contract and the promise were made by his father and mother, it is not suggested that Mrs Stone played any part in the transactions. Nor has Mrs Stone played any part in these proceedings. In her witness statement, which was tendered by consent, Mrs Stone said, and I accept, that during her long married life she has had no involvement with business decisions. She has left these matters to her husband. Mrs Stone said also that she has not wanted to be involved in the proceedings "because I find it too upsetting to talk about what is going on". I have no hesitation in accepting that evidence.
Mr Stone denies that he entered into any contract. He says arrangements were made between himself, Errol and his three other sons for the transfer of shares in various land holding companies and the vesting of land not held in a company, to each of his four sons on payment of annual instalments of $10,000 over 10 years; and on payment of a further sum he would determine at the end of that 10 year period.
Mr Stone denies that the arrangement constituted a legally binding agreement or that Errol and Robyn have acted in reliance on any promise. Mr Stone did, however, cause 40,000 C class shares in Glendyc to be transferred to Errol in May 1991. Mr and Mrs Stone retained the other two shares in Glendyc, being the one A and one B class controlling shares in the company.
Errol has a further alternative claim. He says that if (which he denies) the arrangements were as Mr Stone contends, a legally enforceable agreement came into existence in about May 2000, when Mr Stone informed him that he would require payment of a further 10 annual instalments of $10,000 before completing the transfer to Errol of the shares in Glendyc.
As an alternative to this claim, Errol contends that Mr and Mrs Stone hold the A and B shares on a constructive trust for him "in terms of the common intention manifested in the Arrangement".
When Errol left Keoringle to study for the ministry, it was agreed between him and his father that the property would be leased to Noel and Shauna and that they should have an option to purchase it. The lease was for a term of four years expiring in 1998. At the end of the lease, a further term of four years was negotiated. The rent was paid to Errol, less the annual instalments of $10,000.
In 1999, Noel and Shauna wanted to increase their land holding by purchasing Keoringle. They entered into negotiations with Errol but were unable to reach agreement. In order to resolve the impasse, Mr Stone stepped in. He had been advised that because he controlled Glendyc, he was entitled to cause Glendyc to sell its sole asset – Keoringle – to Noel and Shauna. Acting on behalf of Glendyc, Mr Stone proposed to enter into a contract with Noel and Shauna for the sale and purchase of Keoringle. The proceeds of sale were to be given to Errol.
In September 2001, Errol commenced this action. His claim against Glendyc and his parents is based on contract, estoppel and trust. He claims also that the terms of the proposed contract were so unfavourable to him as to constitute oppression. Errol joined Noel and Shauna as defendants. He claimed that they had interfered with the contractual relationship between him and his father.
Errol was granted an interlocutory injunction restraining Glendyc from entering into the proposed contract.
Errol claims injunctive relief to prevent any sale of Keoringle and to restrain Mr and Mrs Stone from disposing of their A and B class shares in Glendyc, except to him. Errol then seeks specific performance of the alleged contract for the acquisition of those shares; or an order that Mr and Mrs Stone be held to their promise to transfer the shares to him: and a declaration that pending specific performance, Mr and Mrs Stone hold the shares on trust for him.
Further, or alternatively, Errol seeks relief pursuant to s 232 and s 233 of the Corporations Law (in force at the material time) in respect of the alleged oppression. Errol also seeks damages, equitable damages in lieu of specific performance, and various orders in relation to costs he has incurred. Alternatively, Errol seeks to have Glendyc wound up.
I now turn to the detail, setting out my reasons, and findings of fact in narrative form.

Background

The Stone family is long established in the Quairading area. Mr Stone is now 75 years old. He has been a farmer for the whole of his working life. Mr and Mrs Stone were married in 1950. They have four sons: Gratton born in July 1951, Errol born in May 1953, Noel born in July 1955 and Lex born in October 1958.
In about 1953, Mr Stone purchased approximately 700 acres of farmland on a conditional purchase basis. In about 1960, he inherited the property known as Peppin Park of some 2,200 acres from his parents. As I understand it, this property, which is owned by Peppin Park Pty Ltd, is now known as Wardstone.
On 1 July 1965, Mr and Mrs Stone commenced farming in partnership together under the firm name D T Stone & Co.
All of Mr and Mrs Stone's sons became farmers. Each was admitted into the partnership when he returned home after completing secondary education at boarding school, or working elsewhere to gain experience. Lex was the last of the sons to join the partnership, which he did in about 1976.
In September 1972, Mr and Mrs Stone established a trust known as the D T Stone Children's Trust. The creation of the trust was a step towards the fulfilment of Mr Stone's ambition to acquire sufficient land to provide each of his sons with the opportunity to live on, work and manage his own farm. It was Mr Stone's intention to structure his affairs so that when he felt the time was right, he could distribute the properties to his four sons.
With this objective in mind, Mr Stone started to increase his land holding. Through Glendyc, he purchased Keoringle pursuant to a contract of sale dated 19 December 1972. The price was $120,000 of which one half was paid immediately. The balance was paid over a period of 10 years at an interest rate of 7 per cent per annum. At that time, commercial interest rates were approximately 9 or 10 per cent. Mr Stone obtained favourable terms because the vendor of Keoringle was an old friend of his.
In May 1974, Mr and Mrs Stone acquired a property known as Simaveston from Mr Richard Simpson and his son Brian Simpson. The price was $112,200, of which $40,300 was paid immediately. The balance of $71,900 was paid over a period of 10 years at a lower than commercial interest rate.
At the time, Richard Simpson's daughter was married to Gratton. Mr Stone obtained the favourable interest rate on the basis that Gratton and Carol would live on Simaveston.
Again, Mr and Mrs Stone did not acquire Simaveston in their own names but through a company, Simaveston Pty Ltd, which was purchased or incorporated specifically for that purpose.
The final farm to be purchased was then known as "Smiths". It is now known as Jubuk Downs. It was not purchased through a corporate structure, but by Mr and Mrs Stone as trustees for the D T Stone Children's Trust. The property was purchased in November 1980 for the sum of $465,000. The property was purchased outright, with the aid of funds borrowed from the AMP and Westpac Bank.
Before acquiring Jubuk Downs, Mr Stone asked his sons if they intended to continue farming. Mr Stone told them he wanted to know, because if they did not, there would be no need to purchase additional land. Each son said he did intend to farm.
The three land-holding companies, Peppin Park Pty Ltd, Glendyc Pty Ltd and Simaveston Pty Ltd were all structured in the same way. The issued capital of each company comprised one A class ordinary share, one B class ordinary share and 40,000 C class ordinary shares. The A and B class shares were held by Mr and Mrs Stone respectively, in their own right. They held the C class shares as trustees for the D T Stone Children's Trust.
The A class shares in each of the companies confer on Mr Stone, during his lifetime, the rights of Governing Director. These include the right to exercise "all the powers, authority and discretions" which, under the articles of association of the company are expressed to be vested in the directors generally. In addition, on a resolution put to the vote at a meeting of shareholders or a meeting of the directors, the governing director has three times the number of all votes capable of being cast.
This structure was established on the advice of the accountants Bird Cameron (now RSM Bird Cameron). That firm has acted for Mr Stone since 1965, when the D T Stone & Co partnership was formed.
In 1988, Gratton and his wife Carol separated. At that stage, their son Ross was about 12 years old. The separation resulted in some acrimony between Gratton and Carol. Gratton wanted Carol to leave Simaveston before Christmas 1988.
Late in 1988, there was meeting at Simaveston between Carol, Gratton and Mr Stone for the purpose of informing him about the separation. Carol was then concerned to ensure that Simaveston, which had belonged to her father and brother, remained in her family and passed to Ross in due course. Carol told Gratton and Mr Stone that she would agree to leave Simaveston, provided they would guarantee that the property would go to Ross and would not be sold. Mr Stone gave that guarantee, although no details were discussed or agreed at that time.
Mr Stone was as good as his word. On 26 June 1991, the Ross Stone Trust was created. Mr Stone's brother, Joseph Walter Stone, was the settlor and Mr Stone was the trustee. The trust was a discretionary trust having Ross Stone as the primary beneficiary. The secondary beneficiaries what are, in essence, Ross' relatives by blood or marriage. Subject to a power of appointment in favour of the secondary beneficiaries, the trust property was to vest in Ross Stone as from 1 January 2006, the vesting day nominated in the trust instrument. The appointor is Mr Stone (or such other person as he may by Deed or Will appoint) and following his death, Carol, Lex and Noel jointly.
On 25 June 1991, in anticipation of the creation of the trust, Mr and Mrs Stone as trustees of the D T Stone Children's Trust transferred the 40,000 C class shares in Simaveston Pty Ltd to Mr Stone as trustee for the Ross Stone Trust.
Not only did Mr Stone safeguard his grandson's interest. He agreed also to purchase a house and a car for Carol. According to Carol the house cost approximately $118,000 and the car about $20,000. It seems that these purchases were made using partnership funds which had been borrowed wholly on partly from a bank. In a letter dated 12 April 1989 from Bird Cameron to Mr and Mrs Stone "and family", there is a reference to the partnership purchasing a house property for $147,230. I draw the inference that this was the total cost of the house (and possibly the car) purchased for Carol.
It is not clear how the expenditure was recorded in the partnership accounts. According to Noel, who was aware of the purchase of the house and car for Carol, no adjustment was ever made to the other partners' accounts. Noel said he regarded this "as just one of those things that the family had to absorb."
There was a conflict of evidence between Gratton, who said he did not learn of the purchases for Carol until 1989 or early 1990, and Mr Stone, who said he told Gratton immediately. This is not an issue arising on the pleadings, and it is not necessary to resolve it. It is, however, significant, in my view, that expenditure of this magnitude was incurred by the partnership, apparently on Mr Stone's sole initiative, without consulting his sons. It demonstrates the informal nature of the partnership. Although it was a commercial enterprise, it was very much a family arrangement involving mutual co-operation, trust and goodwill, but subject to the general control and guidance of Mr Stone.
During the period 1976 until 1990, all of Mr Stone's sons and their families were living on the respective farms: Gratton on Simaveston, Errol on Keoringle, Noel on Wardstone (from 1983 when he and Shauna were married) and Lex on Jubuk Downs (from 1980).
At some stage during that period, Mr and Mrs Stone moved from Wardstone to a house at 32 Suburban Road, Quairading, which has remained their home. The cost of building the house was borne by the partnership.
All the farms were operated jointly by the family. Gratton was responsible for carting fertiliser. Errol and Gratton drove the header at harvest. Errol was in charge of the bulldozer which was used for clearing and building banks. Noel was responsible for the sheep stud and associated matters including culling, shearing, sales and the general management of that side of the business. Lex and Mr Stone were responsible for grain carting at harvest time. Lex drove the tractor during seeding.
When other work was required on the properties, Mr Stone and his sons carried this out jointly. Thus, all members of the family contributed to the business: and all were equal partners. The farms were not, however, partnership property.
By the end of 1989, Mr Stone had substantially realised his ambition of building up all of the four farming properties to a similar standard (although there was then no shearing shed on Jubuk Downs).
Over the years, there had been general discussion in the family about the dissolution of the partnership so that each of the brothers could operate independently.
In 1989, representations were made to Mr Stone that the partnership should be dissolved. There is a conflict on the evidence about whether the initiative came from Gratton or Errol. However, that is immaterial. It is the fact that all members of the family agreed that the partnership should be dissolved. Mr Stone took advice from Bird Cameron. The accountant with whom he dealt in Bird Cameron's Quairading office was then Mr Stephen Cross. He advised Mr Stone that the appropriate date for dissolution was 30 June 1990.

It was the practice for Mr Stone and his sons to meet in February of each year, to discuss their farming budget for the next twelve months. That was one of the few occasions on which Mr Stone and his four sons all met together. The budget meeting of February 1990 was significant. I now set out my findings in relation to that meeting.

The budget meeting of February 1990

The budget meeting took place at 32 Suburban Road, Quairading on or about 9 February 1990. Mr Stone and his four sons were present.
At the start of the meeting, Mr Stone asked each son individually whether he wanted to continue farming. Each son said he did. Mr Stone then asked his sons whether they wanted to draw lots for the farms or whether they were happy to continue working and living on the farms they were currently occupying. Each son said, in substance, that he was content with his present position.
It was then agreed that the partnership would be dissolved as from 30 June 1990, that the sheep would be divided between the sons, that the machinery would be valued with a view to later division and that the farms would be valued as at the dissolution date.

Events following the Budget meeting

In the week 14 – 20 February 1990, the partnership's sheep were divided between the four sons. The machinery was valued by Alan Edwards, a machinery dealer from Elders in Quairading. The valuation was completed in about late May 1990.
Although there had been discussion at the budget meeting about valuing the farms, this was not done.
In anticipation of the dissolution of the D T Stone & Co partnership, Errol and Robyn prepared to commence their own partnership as from 1 July 1990. They sought advice from Mr Cross who completed on their behalf an application for the registration of the business name E D & R T Stone. The form was signed by Errol and Robyn on 18 June 1990. Until the form was shown to Errol in cross-examination, he maintained that he had taken no steps to establish his partnership until after the meeting of 2 July. This is but one example of the unreliability of Errol's recollection of the events of so long ago.
The form showed the partners of E D & R T Stone to be Errol, Robyn and Glendyc. Errol must therefore have known on or before 18 June, that he was to have the shares in Glendyc vested in him. This, I find, was a consequence of the February budget meeting. There is no evidence from any member of the Stone family that financial matters had been discussed before 2 July. However, as I have noted, the form was completed by Mr Cross, who knew, from his discussions with Mr Stone, what was proposed. Accepting, as I do, that Errol relied on Mr Cross to make the appropriate arrangements to establish his new partnership, I draw the inference that Glendyc was included as a partner on Mr Cross' advice.
The fact that Errol took steps to establish his partnership before the July meeting is significant. It demonstrates that he was content to commit himself to a new partnership without making any formal financial arrangements or agreements with his father or his brothers in relation to the dissolution of the then current partnership, the ownership of Keoringle or the establishment of a new business. At the time, Errol was, I think, somewhat naïve, commercially. As I have said, he trusted his father to safeguard his interests; and he proposed to rely on Bird Cameron for financial advice. Although Errol had attended the annual budget meetings, he had played no part in the financial management of the partnership. As he said in his evidence, and as I accept, his principal occupation, and that of his brothers, was labouring.
Financial matters were not Mr Stone's forte either: he had always relied on Bird Cameron. It was not surprising, therefore, that Errol (and his brothers also) should follow the same path.
Against that background, I turn to the crucial meeting of July 1990, on which Errol's case is based.

The July 1990 Meeting

The plaintiffs' principal case is pleaded in par 5 of the statement of claim in the following terms (I mention again, that I have substituted the parties' names, for ease of reference):
"On 2 July 1990 at 32 Suburban Road, Quairading, Errol and Mr Stone … entered into an oral agreement in terms that Mr and Mrs Stone undertook to transfer to Errol each of their share holding in Glendyc upon Errol paying to Mr Stone the sum of $100,000 in ten instalments over a period of 10 years ('the share acquisition agreement').
PARTICULARS
At a meeting held on the said date and at the said place, Mr Stone said words to the effect that he was willing to distribute the farming properties held in the family to his four sons. He further said words to the effect that this would be done by the issuing of shares to the sons in the respective companies holding the various properties and by transfer of the A and B class controlling shares in such companies held by Mr and Mrs Stone, to each son in the position of Errol upon payment by such son of $100,000 over ten years to Mr Stone. Errol accepted this offer by nodding and not raising any query to the proposal."
It is common ground that there was a meeting between Mr Stone and his sons at 32 Suburban Road, Quairading on 2 July 1990.
It is also common ground that the principal business of the meeting was to divide the farm machinery and equipment owned by the partnership, between Mr Stone's four sons. This was done by notionally grouping the various items, all of which had been valued, into similar categories, and then drawing lots. The result was recorded in detailed contemporaneous notes made by Errol and Noel.
Nothing turns on this aspect of the meeting: nor on various administrative matters which (according to the notes) were also discussed.
The sons referred to the meeting as "the chook lotto", a term which Mr Stone (as he said in his evidence) found offensive, because it trivialised what was a serious matter. It is, perhaps, significant, that none of the participants referred to the meeting in terms consistent with Errol's case. That is to say, they regarded it as a meeting to agree the distribution of machinery: not to agree the terms on which they might acquire their respective farms.
Errol gave evidence about the meeting well before the trial, in an affidavit sworn on 11 September 2001 in support of his application for an interlocutory injunction to restrain Glendyc from selling Keoringle to Noel and Shauna.
In his affidavit, on which he was cross-examined at the trial, Errol stated that at the meeting, his father said words to the effect that he was willing to distribute the farming properties held in the family to his four sons; to each the farm on which he was farming at the time. According to Errol, Mr Stone said further that this would be done by issuing to each of the sons, shares in the companies holding the various properties. Mr Stone would control the companies by virtue of being the holder of the only A class share. His mother would succeed his father in the case of his death, because she held the only B class share in each of the companies. Errol continued, in his affidavit:
"My father proposed that each of the sons should pay him $10,000 in instalments over 10 years at the beginning of each year, and on completion of that, that the A and B class controlling shares in the relevant company would be transferred to the son, giving him total control of the company and the land held by the company. In relation to Keoringle and (Glendyc), I accepted this proposal by nodding and not raising any query in relation to the proposals."
Errol's evidence-in-chief at the trial was in substantially the same terms. However, he added that Mr Stone had said words to the effect that a proposition had been put to him by Bird Cameron with regard to additional payments, but that he would not implement their proposition.
Errol exhibited to his affidavit (as EDS5) 12 pages of notes on A4 size paper which, he said, he had taken at the meeting. He drew attention to a note he had made on the sixth page. It is in the following terms:
"To D.T. $100,000 INDEXED 10%. 1st JAN 2000 IN FULL. A & B SHARES."
This, Errol said, recorded the agreement with his father that the payment to him (ie D.T. Stone) of $10,000 per year, payable in full by 1 January 2000, would entitle Errol to the transfer of the A and B class shares in Glendyc.
By the time the matter came to trial, Errol realised that he had been mistaken about the notes said to have been taken at the 2 July 1990 meeting. In his evidence-in-chief, Errol said:
"There was a subsequent meeting with Steve Cross of Bird Cameron at Keoringle approximately one or two months after the July 1990 meeting. Steve Cross and myself attended the meeting. The purpose of that meeting was to discuss with Mr Steve Cross the manner in which I would generally set up the business affairs and operate Keoringle in the light of what was agreed at the July 1990 meeting. I refer to (exhibit EDS5) which are my notes taken by me at that meeting that reflect the discussions at the meeting." (my emphasis)
Errol went on to refer to the same short note which he had said previously was taken at the 2 July meeting.
Again, Errol was mistaken. As is now clear, and as he accepted at trial, the first five pages of the notes exhibited to his affidavit were taken at the meeting of 2 July 1990. The remaining pages (or at least the sixth page) were notes taken at the subsequent meeting with Mr Cross.
In cross-examination, Errol said that when it was suggested that he should seek advice from solicitors, he was told that he would have to "prepare material, look at material". He then went out to the country, where he had stored his documents. He said that having found the notes which appear at pages 133 to 139 of the agreed bundle (that is, the notes made at the meeting with Mr Cross one or two months after the 2 July meeting) he used them to refresh his memory about the meeting on 2 July 1990.
This demonstrates again, the unreliability of Errol's recollection. The notes of the meeting with Mr Cross refer to a whole range of matters relating to the new partnership of E D & R T Stone which commenced on 1 July 1990. But those matters were not discussed at the meeting of 2 July. I make that finding because the notes taken by Errol at the meeting accord almost exactly with notes taken by Noel at the same meeting. They do not refer to matters which were the subject of Errol's later meeting with Mr Cross.
If, in 2001, when he consulted his solicitors, Errol had a genuine recollection of the meeting of 2 July 1990, it would have been obvious to him that the notes on which he relied as being a record of that meeting had not in fact been taken at that meeting.
Furthermore, if Errol had a genuine recollection of the meeting, he would have identified correctly the notes he took then. He would not have said that those notes were taken at the subsequent meeting with Mr Cross.
Errol said in his cross-examination, that at the 2 July meeting, his father said that the A and B shares would be transferred after he had received ten annual payments of $10,000: that Bird Cameron had suggested there be another $100,000 above that, but Mr Stone said he believed that was unfair and he would not accept it.
Errol said he therefore asked Mr Cross, when he came out to the later meeting "… what it was that my father was not happy with, what he deemed as not being fair – what he deemed as being unfair". According to Errol, Mr Cross said he could not show him, but would tell him. And so, Errol said, he wrote some things down which "reflected similar or identical to what my father had said at the (2 July meeting)".
I think it highly improbable that on 2 July 1990 Mr Stone said Bird Cameron had suggested a final payment of $100,000. As appears from a Bird Cameron file note of 25 June 1990, to which I shall refer in more detail below, their understanding was that the payment would be $250,000.
The figure of $100,000 in Errol's note of his meeting with Mr Cross, against which is written "INDEXED 10%" was, I think, intended to refer to the total of the 10 payments of $10,000, albeit these were to be indexed at 8 per cent per annum. The final payment (ie, payment "in full") was to be made on 1 January 2000. I infer that Mr Cross did not tell Errol about the proposed further payment of $250,000. I draw that inference for two reasons. First, because I am satisfied that if Errol had been told, he would have noted the figure. Secondly, I think it improbable that Mr Cross would have told Errol any more than he needed to know in order to establish his business. It is therefore improbable that Mr Cross told Errol how much Mr Stone proposed by way of further payment. That is because I accept Mr Cross' evidence, to the effect that he did not discuss Mr Stone's business with his sons. Mr Cross had no recollection of the meeting.
The process of refreshing recollection by reference to contemporaneous documents is quite legitimate. In the present case however, Errol has, I think, created his recollection, rather than refreshing it. Although I accept that Errol believes in the truth and accuracy of his evidence about the meeting of 2 July 1990, that evidence is not based on recollection, but on a reconstruction which has no proper foundation.
There is another reason for doubting the accuracy of Errol's recollection. As I have said, the notes he made at the 2 July meeting accord very closely with Noel's notes, and yet neither set of notes contains any reference to payments of $10,000 per annum. If Mr Stone had then made that stipulation, it is surprising that neither Noel nor Errol recorded it, given the importance to them of such payments. Nor is there any reference in either set of notes to the A and B class shares. Noel's notes do contain a reference to the areas of each farm as follows:
"GERRY TOOVEY HAS TITAL (sic) DEEDS"

ED

2800 ACRES IN TOTAL

1134 HA

BOX 90

QDG

NR

2800 ACRES IN TOTAL

1134 HA

BOX 62

QDG

LD

3100 ACRES IN TOTAL

1255 HA

BOX 140

CGN

GJ

3364 ACRES IN TOTAL

1362 HA

BOX 50

QDG

At what was apparently the same point in the meeting, Errol recorded the areas of the farms, in hectares, under the heading "AG CENSUS". He made no mention of the title deeds, however.
I infer from these references that Mr Stone said something about the farming properties, and about the titles being held by one Gerry Toovey (of Westpac Banking Corporation). However, for reasons which I shall set out in due course, I am not persuaded that by 2 July 1990, Mr Stone had decided what payments he would require his sons to make.
Errol's evidence was supported, to a certain extent, by Gratton. In his evidence-in-chief, Gratton referred to a meeting in 1990 which he attended with his father and his brothers. Gratton said the meeting was conducted informally by Mr Stone:
" … to pronounce that each son would acquire their farm by paying 10 payments of $10,000.00 each upon which final payment the controlling shares and the respective companies that own the respective farms would be transferred to the sons."
Gratton went on to say:
"Without any doubt whatsoever I was to get back my controlling shares in the company upon the payment of $100,000.00 to my father and after the A and B shares were allotted, it was then to be sorted out on a, let's wait and see basis, what payments if any would be made to my father and mother. Any such further payment to my father and mother was in the form of a voluntary payment and was only addressed in 2000 and were not part of the agreement reached at the 1990 Meeting."
The reference to a further payment "on a let's wait and see basis" is inconsistent with Errol's evidence. It is, however, consistent with the evidence given by Noel, Lex and Mr Stone.
I doubt the accuracy of Gratton's recollection. That is because he clearly conflated the February and July meetings. In his evidence-in-chief he said that at "the 1990 Meeting" his father asked his sons if they wanted to continue farming. I am satisfied that Mr Stone asked that question at the budget meeting of February 1990. However, in his evidence‑in‑chief, Gratton was adamant that the question was put at the July meeting. Although Gratton said he had made notes at the meeting, they were not produced, nor was any explanation given for their absence.
Noel's evidence was somewhat vague. In his evidence-in-chief he said he could not remember who told him, or when he was told, but that "from the time of the July 1990 meeting" he was always aware that an agreement of some kind was to be drawn up between his mother and father and the four sons regarding their parents' succession planning. Noel said Errol told him that there was to be "a big lump sum payment" which would have to be paid to their parents before the farms were transferred to the sons. Noel said that when he was told this, he knew he was not to be entitled to the farm until he did whatever his father required, although he had no clear knowledge of what that was to be. He said he assumed Errol had discussed the matter with his father or with Mr Cross and was aware of his father's views. He said at some time in 1990 he was told either by his father or Mr Cross that he would have to pay his father and or his mother $10,000 per annum as a contribution to their living expenses.
In cross-examination, Noel said he had no recollection of any discussion about the payment of $10,000 for ten years at the July meeting. He pointed to the fact that there was no reference to these payments in his diary notes. Although he conceded that it was "distinctly possible" that he did not write everything that happened in his diary, he said he was sure he would have written everything important said at the meeting.
Lex was equally vague in his recollection. In his evidence-in-chief, he said:
"I have had for many years a firm recollection that all of us did discuss the issue of the ten payments of $10,000 per annum to be paid to (his parents). I have a very firm recollection that there was to be a significant lump sum payment paid to (Mr Stone) at the end of the ten year period. I think it was in the order of about $250,000.00 but I can't be sure on the precise amount. (Mr Stone) said words to the effect 'We will worry about that when we get to it'. Thus it has been my understanding since that meeting that I would have to pay (my father) a lump sum amount at the end of the first ten year period if he made that demand of me."
In cross-examination, Lex said that when he spoke of a discussion of the ten payments of $10,000 between "all of us", he said he had no recollection but the discussion was "probably between my father and my accountant".
Mr Stone's evidence was that the sole purpose of the meeting of 2 July 1990 was the division of machinery. He said to the best of his knowledge he did not discuss the distribution of the properties or any payment figures.
In cross-examination, Mr Stone said that a proposition had been put to him by Bird Cameron that there should be ten (annual) payments of $10,000, with a lump sum payment at the end. The lump sum payment was to be $250,000 and the $10,000 payments were to be at interest. Mr Stone said:
"Knowing what farming was like and how it was to get going I said the interest will be forgotten on the $10,000 each year … and they will not pay $250,000 at the end, but I never, and I repeat never, ever said they would pay nothing at the end."
This is consistent with Gratton's "let's wait and see" evidence, and Lex's "we'll worry about that when we get to it" evidence. It would explain the vagueness of Noel and Lex about any future payment.
Mr Stone said he could not recall when he had told his sons what he proposed. He put it as some time after November 1990. That is supported by a letter dated 15 November 1990 from Mr Rhys Gray of Bird Cameron summarising "our discussions and recommendations re family affairs". However, it is apparent from a file note prepared by Mr Gray on 25 June 1990, that he had discussed these matters with Mr Stone before that date.

Mr Stone said also in his cross-examination that he did not tell all of his sons together what the financial arrangements would be. That is consistent with his evidence that he did not tell them at the meeting of 2 July. And it is common ground that there was no later meeting between Mr Stone and all his sons.
Mr Stone said also that Errol knew quite some time before the others what the arrangements would be. That is consistent with Noel's evidence that it was Errol who told him about a lump sum payment.
Mr Gray's file note of 25 June 1990 refers to the proposed dissolution of the D T Stone & Co partnership on 30 June and the commencement of four new partnerships on 1 July. Details were given of the four new partnerships, including their respective trading names. I am satisfied that this information was given to Bird Cameron by the individual sons. I say that because I accept Mr Stone's evidence that he had no dealings with Bird Cameron in relation to the post 1 July 1990 business activities of his sons. Bird Cameron had acted for Mr Stone over many years, as I have noted. His sons each instructed Bird Cameron to act on his behalf and Bird Cameron thereafter took instructions from the sons individually.
Mr Gray's file note went on to record that it had been agreed between the family that there be a partial vesting of the D T Stone Childrens Trust. This was to be effected by transferring 40,000 C class shares in each of Glendyc, Simaveston and Peppin Park to the relevant sons.
There was then reference to Gratton's divorce. Mr Gray recorded that Gratton's wife had stated that his shares must be owned by their son so that there would have to be an immediate transfer to him. As I have noted, that was not the arrangement put in place ultimately.
The note continued as follows:
"It has been agreed between the family that Mr. & Mrs Stone Senior each receive $10,000 per annum from each son, and this amount be indexed to inflation. After discussing the matter fully with Steve (Cross), it was agreed that four Acknowledgements of Debt be drawn up for a principal sum of $100,000, the lenders being Donald Thomas Stone and Phyllis Yvonne Stone and the borrowers each respective partnership.
The terms of each debt to be ten years, commencing from 1^st January, 1990 with interest payable on 31^st December of each year, the first year on 31^st December, 1990. The interest to be indexed at 8% per annum so that the first years interest would be $10,000, the second 10,800 and the third 11,664 etc.
On 1^st January 2000 the capital sum of 100,000 to be forgiven if each borrower enters into an agreement with Mr. & Mrs. Stone Senior for a consideration of $250,000. For three of the sons this agreement will be for selling the one A and one B class share in their respective companies and for Lex, the condition would be that the trustee of the D.T. Stone Childrens Trust vest the assets (being farmlands) in favour of Lex. The terms of the option can be varied if mutually agreed, and the $250,000 consideration could be borrowed by a further Acknowledgement of Debt."
It was stated in the file note that a copy had been sent to Mr Cross.
Although the file note recorded on two occasions that matters had been agreed between the family, I am satisfied this was not so. If there had been any such agreement, it must have been made before 25 June 2000, the date of the file note. And yet no family member has given evidence of any meeting or discussion about this matter before 2 July. Further, the file note implies an agreement on the part of Mr Stone's sons to pay $250,000, a proposal by Bird Cameron which, I find, Mr Stone did not accept.
I think the more probable explanation for Mr Gray's note, is that Mr Stone told him there had been agreement because he assumed that in due course, there would be agreement. I have no doubt that at the time, Mr Stone's sons trusted him and would have been prepared to accept what he proposed.
It is clear from the notes made by Errol at his post 2 July meeting with Mr Cross, that he was unaware of the arrangements in relation to the transfer of Keoringle. His note posed questions to be put to Mr Cross:
"Questions
What is debt structure?
What happens to land – what security do we have of that?"
The relevant part of the note relating to these matters contains the extract, part of which I have set out above:

"$215,000 1999

8% = capital appreciation

D.T. $100,000 indexed 10%

1 Jan 2000 in full

90,000 Debt

A & B shares

1^st 91 $ 10,800.00

$ 11,664.00"

The "90,000 Debt" is a reference to a Commercial Bill by which part of the debt of the D T Stone & Co partnership was refinanced.

The figures $10,800 and $11,664 are apparently those referred to in Mr Gray's file note as being the second and third payments of interest on the sum of $100,000 which was to be the subject of the acknowledgement of debt. The reference to "$215,000 1999" is, I think, to the total amount of interest payable to 31 December 1999. That is, the interest on $10,000 per annum, indexed at eight per cent. (The exact figure was $215,893).
On 8 August 1990, Mr Gray sent a memorandum to Mr Cross saying:
"Now that we have finalised partnership rearrangements for Gratton and Lex … we can now tackle the other matters as per my file note of 25^th June (copy attached).
Could you please confirm that the partial vesting of the D T Stone Childrens Trust as per the note is to proceed as outlined and that the four Acknowledgement of Debts are to be drawn up, also as outlined."
On 27 September 1990, Mr Cross responded to Mr Gray by a file note in which he referred to his memorandum of 8 August. He said there were a few changes to the file note of 25 June. One of those changes was to "page 2, fourth paragraph (commencing – on 1^st Jan 2000)".
The change to which Mr Cross referred was the deletion of the consideration of $250,000 and substitution for that figure of $100,000. It is not clear who made this alteration. I accept Mr Cross' evidence that it was not him.
On 9 October 1990, Mr Gray sent a memorandum to Mr McQueen at Quairading. He had replaced Mr Cross, who left in about September. Mr Gray said he had given further thought to the four Acknowledgements of Debt. He was now of the view that a better solution to the inflation problem was to index the capital sums rather than the interest. He said that by indexing the debt in this way:
" … the $100,000 debts will have grown to $215,893 by the 31^st December 1999, which is close to the $250,000 required for the acquisition of the respective company A and B class shares."
Mr Gray's proposals were set out in a letter he wrote to Mr Stone on 15 November 1990 in which he summarised "our discussions and recommendations re family affairs".
Mr Gray then referred to his proposal that Partial Vesting Deeds be prepared in relation to the transfer of 40,000 C class shares in Glendyc, Peppin Park and Simaveston: the last to a newly created trust, the Ross Stone Trust.
Mr Gray said that a further vesting Deed would be prepared relating to the farm known as "Smiths" (which was the former name of Jubuk Downs) to Lex. Mr Gray continued:
"Initially control of all farm lands will remain with yourself and your wife through your "A" and "B" class governing directors shares in the three companies and by virtue of your trusteeship of the D.T. Stone Childrens Trust. However in ten years time, or earlier date, you will relinquish this control in favour of your sons.
The partners of the respective partnerships of each of your sons will sign an Acknowledgement of Debt, with you and your wife as the lenders, for a capital sum of $100,000, interest at 10% per annum and repayable in full on the 1^st January 2000. To retain your interest in real terms in these debts, the principal sum will be indexed at a rate of 8% per annum, which will mean by the 31^st December 1999 the capital amount will be $215,893. The interest will be paid annually on the indexed principal sum so that the first years interest due on the 1^st January 1991 will be $10,800, on the 1^st January 1992 $11,664 etc."
This was the first occasion on which Bird Cameron's proposals had been put formally to Mr Stone. I accept his evidence that it was not until after he received these proposals that he decided the amounts in question were too great for his sons to meet. It was then, I find, that he decided not to insist upon the payment of interest but to require only the payments of $10,000 per annum for a period of ten years. This confirms my view that these matters were not agreed between the parties at the meeting of 2 July 1990.
There is another piece of evidence which supports this view. A Cash Flow and Profit Budget was prepared by Bird Cameron for the E D & R T Stone partnership for the period 1 July 1990 to 30 June 1991. It is dated 7 August 1990. It makes no provision for the payment of $10,000 to Mr and Mrs Stone.
Errol, in cross-examination, was unable to explain why that was so. The explanation, I find, was that the meeting with Mr Cross, which Errol said took place "one or two months after the 2 July meeting", took place after 7 August, but before Mr Cross left Quairading, in September.
Returning to Errol's evidence: I do not accept that in the notes of his post 2 July 1990 meeting with Mr Cross, he recorded the matters his father had not agreed to. At that meeting, he recorded what Mr Cross told him about his father's intentions. I accept that this did involve the transfer of the A and B class shares to Errol on 1 January 2000. I emphasise, however, that this was only Mr Stone's intention: he had no contractual obligation to do so.

Findings in relation to the 2 July 1990 meeting

Having regard to the vague and inconsistent nature of the evidence relating to the meeting, it is unrealistic to attempt to make findings about what, precisely, was said and by whom. However, it is not necessary to make exhaustive findings. Ultimately, the question is whether Errol has proved his case on the balance of probabilities. In my view, he has not.
I find that the principal business conducted at the meeting was drawing lots for the machinery owned by the D T Stone & Co partnership. While I accept that there was some mention of the farming properties, I find that there was no discussion about the transfer of the A & B class shares in the respective land holding companies or about any of the payments which would be required from the sons. I do not accept the evidence of Errol or Gratton about these matters because I regard them as unreliable witnesses. I prefer the evidence of Mr Stone, that he said nothing about those matters because he had not then reached any decision. That is why it was necessary for Errol to ask Mr Cross what the financial arrangements would be.
Further, I think it improbable that Mr Stone would have entered into a contract with Errol, and not with his other sons. And he would hardly have entered into a contract with Gratton which would have resulted in Gratton obtaining all the shares in Simaveston Pty Ltd, when he (Mr Stone) had already agreed with Carol that the Simaveston property would ultimately pass to Ross.
In making these findings, I reject the submission of counsel for the plaintiffs that Mr Stone was willing, in cross-examination, to agree with the evidence given by Errol and Gratton about the 2 July meeting. Counsel's submission is based on a proposition that when those versions were put to Mr Stone, he declined to say that Errol and Gratton were mistaken. The evidence was as follows:
"SCHOOMBEE, DR:
If we go to the meeting of 2 July, certainly two of your sons, Errol and Gratton, say that at that meeting there was a discussion and agreement between everybody concerned that they would be paying 10,000 by 10,000 over 10 years and that they would at the end of that get the A and B-class shares in the company. Lex in a statement also says that he has a firm recollection that, 'All of us did discuss the issue of 10 payments of $10,000 per annum to be paid by (Mr and Mrs Stone)' and then in fairness I'm happy to say what he says further. He says, 'I have a very firm recollection that there was to be a significant lump sum payment to be paid to (Mr Stone) at the end of the 10-year period.' He says, 'I think it was in the order of about 250,000 but I can't be sure of the precise amount.' I just want to pause there for a moment and I want to put it to you that at the meeting on 2 July 1990 you have three of your sons saying that the 10 by 10 payments over 10 years were discussed and agreed upon. Are you saying that they are all mistaken?---No, I'm not sir. I don't recall it being discussed at that meeting because I had not decided what the final was going to be. They may have seen the letter of Bird Cameron but, no, I cannot recall it being discussed as such, otherwise I would have made it more firmly what my intentions were. No-one has mentioned that."
Although the question "Are you saying that they were all mistaken?" was short, the preamble was, with respect, somewhat convoluted.
Mr Stone suffered from deafness. As he said, he relied to a considerable extent on lip reading. Although it is not apparent from the transcript, Mr Stone answered the question immediately, without any pause or hesitation. As a result, I was left in some doubt whether he had understood precisely what was being put to him. However, if he had absorbed the preamble, he would have recognised that Lex's evidence differed from that of Errol and Gratton, and was more in accord with his own position: there was to be "a significant lump sum payment" at the end of 10 years. That being so, Mr Stone would hardly have said that Errol, Gratton and Lex were all mistaken. In any event, Mr Stone made it plain, as he did elsewhere in his evidence, that he had no recollection of these financial matters being discussed at the meeting.
Mr Stone was a very impressive witness. Although his memory was not perfect, he had a generally clear recollection of the detail of events which happened well in the past. He gave his evidence in a frank and forthright manner. I am satisfied that the reason he had no recollection of discussing financial matters at the meeting of 2 July 1990, is that there was no such discussion.

The Defence case

In par 12 of their defence, Mr and Mrs Stone and Glendyc deny the allegations pleaded in par 5 of the statement of claim. They plead that:
"Glendyc, and Mr and Mrs Stone deny each and every allegation contained in paragraph 5 of the amended statement of claim and state that subsequent to the July Meeting, Mr Stone, or an accountant at accountants Bird Cameron, or both, advised Errol Stone and the other three sons that:
(a)Mr Stone proposed to distribute the Farm Lands as follows:
(i)A partial vesting of the Trust transferring:
(A)40,000 'C' class shares in Glendyc Pty Ltd to beneficiary Errol Stone;
(B)40,000 'C' class hares in Peppin Park Pty Ltd to beneficiary Noel Stone;
(C)40,000 'C' class shares in Simaveston Pty Ltd to the Ross Stone Trust.
(ii)A vesting deed in respect of the D.T. Stone Children's Trust transferring Jubuk Farm to Lex Stone on the vesting day of the Trust;
(iii)The transfer of the 'A' and 'B' class shares in the Companies.
(b)Mr Stone was to be paid:
(i)yearly instalments of $10,000.00 over a ten year period for the transfer of the assets of the partnership ('the initial Payment').
(ii)a further sum ('the Final Payment') to be determined by Donald Stone at the expiration of the ten year period for:
(A)the transfer of the controlling 'A' and 'B' class shares in each of the Companies;
(B)the transfer of Jubuk Farm pursuant to a vesting deed in respect of the Trust."
There is no clear evidence of any meeting between Mr Stone or an accountant from Bird Cameron with any of the sons at which the sons were informed precisely in these terms. The meeting between Errol and Mr Cross cannot have been the occasion. As I have noted, Mr Cross left the Quairading office in about September 1990, before Mr Stone had decided that he would not require interest on the annual payments of $10,000. I have found that Mr Stone did not make that decision until after he had received Mr Gray's letter of 15 November 1990.
Clearly, the sons must have agreed to make the annual payments: they all did so. And, as I have noted, Noel and Lex thought further payment would be required, and Gratton expected to make further payments, albeit voluntarily, on a "let's wait and see basis". This is, in essence, Mr Stone's evidence, which I accept. It is, I think, inherently improbable that Mr Stone, who was then aged 63 and apparently in good health, would have effectively denied himself and Mrs Stone any income from the year 2000 onwards.
Although I am unable to make precise findings, I draw the inference, and find as a fact, that at some time in or after November 1990, each of Mr Stone's sons was informed that he would be required to pay $10,000 per annum to Mr and Mrs Stone, for 10 years, when (in Errol's case) the A and B class shares in Glendyc would be transferred to him, provided he then agreed to make such further payment as Mr Stone would then determine. I infer also, that each son agreed to that arrangement. That is the scheme set out in Mr Gray's file note of 25 June 1990.
Mr and Mrs Stone and Glendyc contend that this arrangement, did not constitute a legally enforceable agreement, and the parties did not intend to create such an agreement.
I accept that as a matter of law, the arrangement could not have constituted a contract because the final payment was uncertain. It might not have been rendered certain for 10 years: and never, if Mr Stone had died prematurely.
It is not appropriate, therefore, to consider whether the parties intended to create a contract. Such a question can only arise if an agreement is reached, which satisfies the requirements for a binding contract: see Halsbury's Laws of Australia, par [110 – 940].

The significance of the annual payments of $10,000

As I understand Errol's case, he does not claim that the annual payments of $10,000 represented the purchase price for the sale of the A and B class shares.
The advice given by Bird Cameron was that the annual payments should be regarded as interest on debts of $100,000, these being the amounts of notional loans between Mr and Mrs Stone and the partnerships of their respective sons. I have referred above to Mr Gray's file note of 25 June 1990 in which he said:
"After discussing the matter fully with Steve (Cross): it was agreed that four acknowledgements of debt be drawn up for a principal sum of $100,000 …"
Thus, the way in which the annual payments of $10,000 were treated in the accounts of the various partnerships was left to Bird Cameron to decide.
It was put to Mr Stone in cross-examination, that his decision to require ten payments of $10,000 was "an important issue". He replied:
"No, it wasn't that important, sir. I'm sorry to say this, but it wasn't that important. We farmed as a family farm and there was an awful amount of trust. We trusted one another. That has stopped.
You say you trusted one another?---Yes. We farmed on trust. That's why there was no agreement. If I had have wanted to make sure that I was going to get these payments, I would have made it an agreement, but I was sure, because I trusted them all, but something can be misconstrued and it changes everything.
…
So are you saying that it wasn't important for you to be receiving 10,000 times 10 even though you were not having any partnership (indistinct)?---What was important to me, sir, was that the boys got on farming and farmed well. It didn't matter what happened to us. We were looking after the boys. We wanted to set them up and we got the farms for them, and that's what we wanted to happen. We wanted them to farm and be successful farmers."

I accept that evidence. It explains why, although the four acknowledgements of debt were prepared by Bird Cameron, they were never executed.
There was no evidence of any intention on the part of Mr or Mrs Stone, in July 1990, actually to lend $100,000 to each of their sons. Rather, I find, it was their intention on the dissolution of the D T Stone & Co partnership, to make gifts of the farms and the partnership assets to their sons who would also, of course, assume the liabilities of the partnership.
I draw that inference because no payment was required by Mr and Mrs Stone for the partnership assets. They were valued, to ensure that each son received plant and equipment of equal worth. The farms were not valued. There is no evidence of their values: and it is improbable that they were of equal value. There is no suggestion that the total payment of $100,000 by each son and such further sum as Mr Stone might determine, was intended by anyone to represent a purchase price for his particular farm, or for the shares in the company which owned the property.
I appreciate that there is a reference in Mr Gray's file note of 25 June 1990, to "selling" the A and B class shares in 2000, "for a consideration of $250,000". However, that, I think, reflects the Bird Cameron interpretation: not Mr Stone's intention.
By relinquishing their interest in the farms and the partnership Mr and Mrs Stone were depriving themselves of the opportunity to earn the income from the farming business which, I infer, was their sole source of income. There is no evidence that Mr and Mrs Stone had other means of financing their retirement from farming. It was Mr Cross' evidence, that it was important that Mr and Mrs Stone were assured of a cash flow from their sons, after the D T Stone & Co partnership was dissolved. Mr Cross said he advised Mr Stone in relation to this matter, and "many of our discussions centred around what (Mr and Mrs Stone) would need to guarantee an income during retirement". I accept this evidence.
As appears from the accounts of the D T Stone & Co partnership, the net profit for the year ended 30 June 1989 was $142,922. For the year ended 30 June 1990, the net profit was $129,283. Mr and Mrs Stone were entitled to one-third of that profit. Thus, their income for the 1989 year was about $47,600 and for the 1990 year, about $43,000.
That being so, it is no coincidence in my view, that the total annual payments Mr Stone required from his sons following the dissolution of the partnership amounted to $40,000 per annum. I have referred above to Noel's evidence, which I accept, that at some time in 1990 he was told by either his father or Mr Cross that he would have to pay his father and or his mother $10,000 per annum as a contribution to their living expenses.
That, I find, was the basis on which the payments were made.

The significance of the 10 year period

As at 1 July 1990, Mr Stone's sons had never farmed independently, although they had considerable experience in farming together as a family. Mr Stone had acquired land over the years for the purpose of establishing his sons as independent farmers when the time was right. He established the D T Stone Children's Trust for that reason. In February 1990, he foreshadowed the distribution of his farming properties to his sons on the basis that each would continue to farm. That is what each son said he wanted to do. The ten year period proposed by Mr Stone before he was prepared to hand over control of the farms to his sons was, I infer, in the nature of a qualifying period. It was important to Mr Stone that the properties remain in the family. I think he would not have wanted to risk losing any of the farms, as would have happened if, for example, one of the sons failed.
Lex's evidence was that he regarded the ten year period as "our probationary period". He said:
"My understanding was that if we didn't stick out the ten years on the farm (Mr Stone) would not transfer the farm at the end of the ten years. This was not expressly stated by (Mr Stone) but it is a very clear understanding that I took away from the July 1990 meeting."
As I have already noted, in his cross-examination, Lex was unsure whether the meeting to which he referred was the 2 July meeting or a later meeting between him, his father and the accountant. However, setting that aside, I find that Lex's understanding was correct.

The C class shares are vested in Errol

By a Deed of Vesting dated 29 May 1991, Mr and Mrs Stone, as trustees of the D T Stone Children's Trust, vested 40,000 C class shares in Glendyc and 40,000 C class shares in Peppin Park in Errol and Noel respectively.
This, I find, was by way of gift. As I have held, the agreement to pay $10,000 per annum for 10 years on the part of each son, was not a consideration for the transfer. However, as from the vesting date, Errol effectively became the beneficial owner of Glendyc, although the company remained subject to the control of Mr Stone, both at board level, and as the shareholder with the majority voting power.

Errol leaves Keoringle

The arrangements made in 1990 between Mr Stone and Errol continued until 1994. Errol and Robyn farmed Keoringle in partnership from 1 July 1990 and made the annual payments of $10,000 to Mr Stone.
Then, in January 1994, Errol felt he had been called to become a minister. In answering that call, he had the conviction that he should study at the Far Eastern Bible College in Singapore: it was something he had to do.
Errol told his parents about his decision. He said he expected to be away for some years. He told Mr Stone that he wanted to sell Keoringle, but Mr Stone did not agree to the farm being sold.
It was Mr Stone's evidence, which I accept, that he wanted to keep Keoringle in the family in case Errol should change his mind about the ministry. I accept also that Mr Stone told Errol that if he did not return to Keoringle, Noel was to be given the opportunity of buying it.
It was therefore agreed between Errol and Mr Stone that Keoringle should be offered for lease to Noel and Lex.
Errol telephoned Lex and offered a lease of Keoringle (or one half of the property: Lex could not be sure) but he declined. He told Errol that because Noel had two sons, the farm should be offered to him. That was Mr Stone's view also.
On 14 February 1994, Errol telephoned Noel and told him he intended to cease farming. He asked Noel if he wanted to lease Keoringle. Noel said "Yes" immediately. They met in the kitchen at Keoringle on 21 February to discuss the proposed lease. At that meeting, Noel told Errol he would like to buy Keoringle at a later date. He said "I will look after the farm as if it were mine."
On 5 May 1994, Errol and Robyn held a clearing sale on Keoringle. This was conducted by Wesfarmers Rural. The net proceeds of the sale were $232,366.55. Errol and Robyn received an additional amount from Noel and Shauna, to whom they sold a Toyota utility vehicle, some sheep, and other chattels. The precise amount of this sale is not in evidence. It was put to Errol in cross-examination that it was "about $50,000". He said that was "possibly correct". It is not disputed that there was such a sale. I therefore take Errol's answer to mean that the proceeds were of the order of $50,000.

Keoringle is leased

On 11 May 1994, an Agreement to Lease Keoringle was executed. I shall refer to it as "the lease", or "the 1994 lease", as appropriate. The parties were Glendyc as lessor and D T Stone & Co as lessee (Noel and Shauna had retained the name of the original partnership). Although the partnership was named as lessee, the lease was executed by Peppin Park. This is of no significance for present purposes.
The lease document was a standard form produced by Wesfarmers Ltd. The details were negotiated between Errol and Noel. Mr and Mrs Stone executed the lease on behalf of Glendyc, but were not involved in negotiations.
The term of the lease was four years from 1 March 1994, expiring on 28 February 1998. Clause 4 contained a provision described as an option to purchase. However, although the form left space for the insertion of a price at which the option was to be exercised, the parties inserted in that space, the words "to be negotiated": and they added:
"Sale of land would only occur at the discretion of the Lessor."
Clause 4 is not, therefore an enforceable option: Hall v Busst (1960) 104 CLR 206. Clearly, in the absence of a price, Keoringle could not have been sold unless Glendyc, its owner, agreed. But Mr Stone controlled Glendyc.
The only other significant matter in the lease is the provision for the payment of rent, in cl 18. Rent was to be paid at $9.00 per acre for 1994, $12 per acre for 1995, $15 per acre for 1996 and $12 per acre for 1997. Payments were to be made on 1 July and 1 January in each year. The January payments were to include:
"$10,000 to D T Stone on behalf of E D & R T Stone".
Thus the annual payments of $10,000 which Errol had agreed to make to his parents, were to be paid by Noel and Shauna out of the rent due to Glendyc.
It is alleged in par 9 of the statement of claim that it was Mr Stone who stipulated that the annual payments of $10,000 to be made to him and Mrs Stone should be paid out of the rent received by Glendyc from Noel and Shauna. However, Errol's evidence does not support that contention. His evidence, which I accept, was that this was suggested by Mr Paul Steber of Bird Cameron, and that Mr Stone agreed. Again, this was typical of Mr Stone's approach to financial matters: he relied on the advice of Bird Cameron.
The agreement that Errol was to be paid the balance of the rent received by Glendyc is consistent with his ownership of the company, subject to Mr Stone's control until Errol should become entitled to the A and B class shares.

1998 – Keoringle is re-leased

On 30 June 1998, the parties to the 1994 lease executed a new agreement to lease Keoringle. This was for a further term of four years, commencing on 1 March 1998. The new agreement (to which I shall refer as "the 1998 lease") contained the "option" to Noel on the same terms as in the 1994 lease.
Further, the 1998 lease contained the same provision for the payment of $10,000 per annum to Mr Stone in the years 1998 to 2001, inclusive.
This provision is inconsistent with Errol's case. He contends that he was obliged to make only ten annual payments of $10,000, the last of which was to be made in 2000. But two further payments were made, in 2001 and 2002.
Errol was asked in cross-examination, whether the two additional payments were made by mistake. He said:
"… the reason that this came up was because Noel asked in 1998 for a re-lease and he did not want it for any short – he wanted it for long term and he wanted it expressly for four years. At that time … I was not aware that he had already received his A and B-class shares and that he had gone in this agreement two years beyond when we should have received our A and B-class shares, so … I was deceived in that sense. So we paid the extra two payments …"
When asked whether he was saying that he should not have had to pay that $20,000, Errol answered:
"I'm saying … what should have happened is the A and the B-class shares should have been handed over honestly, in all fair and honesty, and on the year 2000 … and so we were deceived in that sense, that after we had signed we realised what had gone on but we then allowed it, but we did not receive the A and the B as promised … ." (my emphasis)
The evidence is, that Errol and Noel were unable to reach agreement about the rent to be paid under the 1998 lease, and that Mr Stone intervened to resolve the matter. That was the evidence of both Mr Stone and Errol, which I accept (although elsewhere in his evidence, Errol denied that his father had been involved in the negotiation).
I am prepared to accept that Errol did not know that the 1998 lease made provision for the continuation of the annual payments of $10,000 beyond 2000. However, if he was then as certain as he is now, that he was required to pay only $100,000 to acquire the A and B class shares, it is surprising that he did not complain when he received $10,000 less rent than (on his case) he should have done, in two consecutive years. Neither did he demand that the A and B class shares be transferred to him.
I do not accept Errol's evidence that "after we had signed we realised what had gone on". Neither Errol nor Robyn signed the 1998 lease. I am satisfied that Errol was content to permit the payments to Mr and Mrs Stone to continue, because he believed he had an obligation to do so.

1999 – Mr Stone reviews his position

In about October 1999, Mr Stone suffered a series of strokes. He was treated in hospital and returned home in about November 1999. When he recovered, Mr Stone decided he would finalise the arrangements to be made in respect of the farming properties as part of the process of putting his affairs in order. He wanted to ensure that if he should die, Mrs Stone had some security.
By this stage the A and B class shares in Simaveston and Peppin Park had been vested in Gratton (and Ross) and Noel respectively. Mr Stone had agreed to this, despite the fact that the 10 year period had not expired, in order to assist Gratton and Noel to deal with financial difficulties. As I understand it, the problem was, that their banks would not lend against the security of the assets owned by Simaveston and Peppin Park, unless Gratton and Noel, respectively, controlled those companies.
Errol had not, of course, been given the A and B class shares in Glendyc, although it was then Mr Stone's intention that he should have them.
Mr Stone met his accountant, Mr Steber. He told Mr Steber he wanted documents drawn up to formalise the further payments required by his sons. He told Mr Steber that for the most part, each of his sons had managed to pay $10,000 per annum for the past ten years and he wanted to put a similar arrangement in place for the future.
Mr Steber discussed the matter with Mr David Groves of Bird Cameron who wrote to Mr and Mrs Stone on 21 December 1999. In his letter, Mr Groves referred to proposed loans of $100,000. He suggested that the borrowers should be the land owners so that "the loan agreements should be between yourselves jointly and your sons' respective land owning structures." Draft loan agreements were prepared and sent to Mr and Mrs Stone. These provided for the payment of $10,000 per annum over a further period of 10 years.
Once again, it was never intended that Mr and Mrs Stone would advance monies to their sons. The documents were intended only to impose obligations on the sons to continue the annual payments of $10,000.
It is not clear when Mr Stone received the draft loan agreements. However, after he had recovered from his strokes, Noel and Shauna told him of their interest in buying Keoringle. They had prepared a Farm Business Plan as at 23 August 1999, in conjunction with a financial adviser. The long term objectives of the plan included the purchase of additional farming land for the purpose of expanding their operations. Their preference was to purchase Keoringle, although they contemplated a lease for a further four year term, to 2006.
Mr Stone was sympathetic to the approach by Noel and Shauna. He thought it was unsatisfactory for Noel and Shauna to be paying rent for Keoringle because that outgoing was not increasing their equity. He thought it equally unsatisfactory for Errol and Robyn to be servicing the substantial loan they had obtained in order to buy a residential property in suburban Perth, when they returned from Singapore. The solution, as Mr Stone saw it, was for Keoringle to be sold to Noel and Shauna, by giving effect to the "option" in the 1998 lease.
On 5 May 2000, Mr Stone visited Mr Steber at his office. Among a number of issues, Mr Stone asked Mr Steber whether the 1998 lease could be changed "to include a clause stipulating a price to be paid per acre at today's value and CPI paid adjusted to February 2002 (to replace clause 4)." Clause 4 was the option provision.
Mr Steber referred this question to Mr Groves in a memorandum of 5 May 2000 in which he said:
"(Mr Stone) thinks Noel is getting a raw deal with respect to the existing lease in terms of rate and terms. Unfortunately, Errol has shown in the past a tendency to keep Noel 'hanging' until the very end of the lease, before letting him know of his intentions."
On 19 May, Mr Steber wrote to Mr Groves seeking clarification of several matters. One of the questions was whether the A and B class shares in Glendyc should be changed to C class when transferred to Errol.
On 19 May 2000 Bird Cameron instructed the legal firm Hammond King Touyz to prepare various documents, including the proposed loan agreements between Mr and Mrs Stone and (inter alia) Errol and Robyn.

Mr Stone meets Errol

In about May 2000, Mr Stone met Errol at a unit in East Fremantle owned by Mr and Mrs Stone. At the meeting, Mr Stone told Errol about the proposed loan agreement. He explained that he required a payment in the sum of $100,000 by way of ten instalments over a ten year period. This payment would be required in exchange for the transfer of the A and B class shares. Mr Stone told Errol also, that he would not transfer those shares to him unless he honoured the option in the 1998 lease and agreed to the sale of Keoringle to Noel. According to Mr Stone, Errol said that he had no problem with that arrangement. I accept that evidence. However, it was Errol's evidence that he did not agree to accept anything other than a moral obligation to make further payments.
Despite that, the conversation is relied on by Errol as an alternative contractual basis for his claim to the A and B class shares in Glendyc. In par 28 of his statement of claim, Errol pleads that if Glendyc and his parents were to establish "as matters of fact" the arrangement upon which they rely (that is, ten annual payments of $10,000, followed by a further sum to be determined by Mr Stone at the expiration of the ten year period) then:
"(a)A legally enforceable and binding agreement (hereinafter 'the final payment agreement') between Errol and Mr and Mrs Stone having the terms of the Arrangement, came into existence on or about July 1990, alternatively on or about May 2000 in the circumstances set out in sub‑paragraph (c) below;
…
(c)On or about 29 May 2000 at a meeting in Fremantle, Mr Stone … orally determined the Final Payment (pleaded above) in that he sought a sum of no more than $100,000 … payable in ten equal annual instalments … provided that the further instalment payments were payable only as long as Mr and Mrs Stone or either of them remained alive, but not otherwise."
The statement of claim does not go on to allege that Errol agreed to pay the further sum "orally determined" by Mr Stone.
And in Errol's evidence, he denied that any legally enforceable agreement came into existence as a result of that determination. He said:
"I say that I strictly live within the dictates of my faith. I would never deny my parents support in their advancing years. Accordingly, even at the time of the emerging debate over the sale of Keoringle to my brother Noel, I did in correspondence affirm my commitment to this my Christian obligation which in that correspondence I referred to as a 'righteousness' of 'moral debt'. By this I meant to indicate my ongoing commitment to the mandate of my faith in the context of trying to make my position in respect of the proposed sale of Keoringle to Noel known to my father and to my brother. I repeat that at no point was it agreed nor was I required to make any payments outside the $100,000 which were agreed to be paid by each brother for their respective controlling interests in the companies that were employed to hold the farms in question." (my emphasis)
By this evidence, Errol himself denied the facts on which he relies for his alternative claim. The claim must therefore fail. It is, of course, inconsistent with his primary claim.

Mr Hardey did not, however, include the details of the $750,000 recalculation in his report. It has not been possible, therefore, to check his calculations, although he did outline the basis for those calculations in his cross‑examination.
The difference between Mr Hardey and Mr Falconer arises principally from the different productive areas each has used, and the value ascribed to buildings. Mr Falconer assessed the unproductive areas at 98 hectares, Mr Hardey at 45 hectares.
Mr Hardey had the non-productive areas measured from aerial photographs, using a planimeter. He accepted that the planimeter is not suitable for small, thin areas, such as drainage lines and contour banks. He accepted also that the lower areas of Keoringle included numerous creeks, rocky outcrops and contour and level banks. When it was put to Mr Hardey that he had measured only the bush land, and had not taken account of other wasteland in assessing the non-arable land, he said "there would be an element of that".
Mr Hardey relied on a single comparable sale for his revised July 2001 valuation, this being a sale form Venn to Lark (being Sale 4 in the comparables referred to in the Minute of Experts' Conference, Ex 13).
Mr Hardey ascribed a value of $556 per hectare to productive land for the property the subject of sale 4. Mr Falconer's value was $533 per hectare, because his non-productive area was greater.
Mr Falconer had not discovered the Venn-Larke sale, when he carried out his valuation. He accepted that it was a good comparable. And as he pointed out, the value of $533 per hectare of arable land, was close to the value of $520 per hectare which he had ascribed to Keoringle, based on other sales.
Mr Falconer has had 40 years' experience of valuing rural properties in the wheatbelt. I am not persuaded that he erred in the approach he took to the valuation of Keoringle or in the result he obtained. I prefer Mr Falconer's evidence in relation to land values to that of Mr Hardey, because I think his assessment of arable and non-productive areas is more reliable, and because his valuation was more consistent with comparable sales.
In relation to buildings, there was only some $15,000 difference between Mr Falconer and Mr Hardey (at $100,882). Again, I prefer Mr Falconer's assessment, because he has the greater experience in valuing buildings in this area.
I therefore find that the value of Keoringle as at July 2001, was $610,000. However, that valuation was based on the assumption that, following the best practice in the wheatbelt, Keoringle would have been offered for sale in the spring of 2001, rather than in July.

The oppression claim - continued

Although I accept Mr Falconer's evidence there is an aspect to the undervalue point which I consider does have merit. The purchase price offered was the value determined by Mr Falconer, less a notional amount for the commission which would have been deducted had a real estate agent been employed to negotiate the sale. This amounts to some $15,250. While this may well be a fair assessment of commission, the fact is, no agent was employed. That being so, I regard it as unfairly prejudicial to Errol to require him to suffer the loss of the benefit he would have derived from proceeding without the services of an agent.
The second matter relied on is that the proposed sale will be:
"effectively upon vendor finance for the entire purchase price with no security for payment by purchasers unable to raise finance for the purchase price from financial institutions."
As appears from the terms of the proposed sale, which I have set out above, Noel and Shauna would pay $50,000 on each of 1 March 2002, 2003, 2004 and 2005. Thus, in four years, they would have paid only about one-third of the purchase price. Furthermore, although interest would be accruing on the unpaid balance, no interest would be payable until 1 March 2006, when the balance of the price was to be paid.
In my view, these terms are unfairly prejudicial to Errol. While it would not, in my view, have been oppressive to ensure that Errol received a price equal to the value of Keoringle as at the date of sale, or a substantial part of it, the value to him is eroded very substantially if the payment is postponed. I accept that vendor terms are commonly adopted in farm sales, as between parties dealing at arms' length. Even then, it is common for substantial initial payments to be made and for interest to be paid at least annually on outstanding balances. That is the basis on which Mr Stone bought Keoringle.
This is not, of course, a sale at arms' length. The terms have been imposed upon Errol by Mr Stone and Noel. In my view therefore, given that Errol was entitled to receive a fair value for Keoringle, he was either entitled to be paid in full at the date of sale, or to be paid at least one half of the price then, and to receive regular interest on the balance.
I do not accept the submission that Errol would be without security during the payment period. Until payment was made in full, Glendyc would be an unpaid vendor which would have a lien over Keoringle capable of being protected at least by the lodging of a caveat.
I appreciate that Errol does not control Glendyc and that Mr and Mrs Stone are not obliged to transfer the A and B class shares to him unless and until he accepts an obligation to pay a further $80,000 to them. However, Errol effectively owns Glendyc. That being so, it would be improper for Mr Stone to take any steps which prevented Errol from having the benefit of Glendyc's lien over Keoringle.
This, I think, disposes of the argument that Noel and Shauna were unable to raise finance for the purchase of Keoringle. That is of no consequence, provided Errol (through Glendyc) is secured.
The third matter of complaint is that although the purchase price is payable over five years under the proposed contract, capital gains tax is "probably" payable by Errol, immediately. In support of that contention, Errol relied on an opinion given by Mr Phillip Rix, a partner in Rix Levy Fowler, chartered business advisors.
Mr Rix's opinion, contained in a letter to Mr Feinauer which was admitted by consent, was that:
"Given my understanding of the background to the company, there indeed has been a majority change in the ownership of Glendyc Pty Ltd. The consequence of this is that the property will loose (sic) its pre CGT status and will then be liable for capital gains tax on disposal."
This opinion is highly qualified. Indeed, Mr Rix commenced his letter by saying that in the short time available to him, his comments could "only be viewed as preliminary".
Despite that, the evidence of Mr Rix (unchallenged as it was) persuades me that if the proposed sale were to proceed, it is more probable than not that Glendyc would be assessed to capital gains tax. However, there is no evidence about either the quantum of any liability or Errol's ability to pay the tax from his other resources. Thus Errol has not made good the allegation in the particulars of par 19 of his statement of claim that the payment of capital gains tax might "compromise (his) financial viability". The meaning of that allegation is not clear to me.
In any event, Errol accepted, when he agreed to Keoringle being leased to Noel, that Noel might purchase the property at some future time. I think it ought to have been apparent to Errol, in those circumstances, that the sale might be on terms of the kind commonly accepted in the farming industry, not necessarily involving payment in full on the possession date. That being so, Errol must be taken to have accepted the potential for a liability to Capital Gains Tax.
On balance, therefore, I am not prepared to hold that this aspect of the proposed transaction renders it oppressive.
The final matter relied upon by Errol, is that the interest rate is lower than the commercial rate, which, it is said, would have been 9 per cent or alternatively, at least 7 per cent per annum.
I am not persuaded that there is any merit in this contention. Commercial rates are charged by commercial lending institutions which frequently borrow the moneys they then lend to their borrowers. Such institutions charge higher rates than are available to depositors because they need to fund their own borrowings, pay for substantial administrative structures and make profits for their shareholders.
Errol is not a commercial institution and I therefore see no justification for him to receive a commercial interest rate. Errol's argument that he should be paid a commercial rate when he is not a commercial lender, is inconsistent with his argument that he should not be required to suffer a deduction of commission, when no commission agent has been employed.
The oppression argument is countered in the defence of Mr and Mrs Stone and Glendyc on a number of bases. They are as follows:
"(a)the sale will further the desires of the directors, or the corporate objects of Glendyc Pty Ltd, or both, by enabling 'Keoringle' to remain in the ownership and control of the Stone family and be farmed by the Stone family;
(b)the 'C' class shares in Glendyc Pty Ltd were vested in Errol Stone and not sold to him;
(c)the total amount of the 'C' class shareholders interest in the capital of Glendyc Pty Ltd is $20,000.00;
(d)the voting majority under the constitution of Glendyc Pty Ltd wish the sale to proceed; and
(e)Glendyc Pty Ltd was set up as a land holding company to be used in due course to augment a succession plan for the continued farming of 'Keoringle' by the Stone family;
(f)sale of 'Keoringle' was negotiated on the basis that the proceeds of sale, net of selling costs, were to be provided to the plaintiffs; and
(g)pursuant to the Memorandum of Association of Glendyc Pty Ltd, and in his position as governing director of Glendyc Pty Ltd, Donald Stone is entitled to sell the assets of the company."
I accept that the sale would enable Keoringle to remain in the ownership and control of the Stone family and to be farmed by them. That has always been one of Mr Stone's principal objectives. However, as I have said, he and Mrs Stone effectively made a gift of Keoringle to Errol in 1991. Although it was then the expectation of all parties that Errol would continue to farm Keoringle into the foreseeable future, there was certainly no express condition attached to the gift, that he should do so. It is not necessary to consider whether, in the circumstances as they existed at the time, the gift was impliedly conditional upon Errol continuing to farm Keoringle: that is not an issue which has been raised in this litigation. That being so, although the C class shares in Glendyc were given to Errol his rights in relation to Glendyc are no less than if he had purchased the shares.
The point that the C class shareholders have an interest in the capital of Glendyc amounting only to $20,000, was not pursued at the trial. In my view, the point is without merit, having regard to Keoringle's actual value.
I regard as equally lacking in merit the point that Glendyc was set up as a land holding company "to augment a succession plan for the continued farming of Keoringle by the Stone family". So it was: but it is not possible to turn the clock back to 1990.
I accept that the voting majority of Glendyc (that is, Mr Stone) wishes the sale to Noel to proceed and is legally entitled to achieve that objective. That is, Mr Stone is legally entitled to use the rights attaching to his property: the A class share.
In general, a shareholder is under no duty to use his voting rights for the benefit of anyone other than himself. However, there are limitations on the power of a majority, in certain circumstances. Thus, as Dixon J said, in Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457, at 511:
"… an apparently regular exercise of the power may in truth be but a means of securing some personal or particular gain, whether pecuniary or otherwise, which does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power."
In my view, that is the position in the present case. Having effectively made a gift of Glendyc to Errol, it is not open to Mr Stone to deny him the right of ownership by imposing on him a sale on terms which are unfair, so as to secure the important (to him) benefit of keeping Keoringle in the Stone family.
In forming that view, I have not overlooked the fact that, over the years, Mr Stone has been very generous to Errol. However, generosity cannot be brought into the legal equation: it cannot be quantified. The recipient of a generous gift of property is therefore as much entitled to exercise his legal rights in relation to it, as would a purchaser for value.
Finally, the fact that the sale of Keoringle was negotiated on the basis that the proceeds of sale would be provided to Errol does not counter the oppression point. That is because of the terms on which the proceeds were to be paid to Errol, to which I have already referred.

Conclusion

I have come to the conclusion, after considerable hesitation, that Errol's claim against Glendyc and Mr and Mrs Stone should succeed on the oppression point only, and that I should exercise my discretion to the limited extent of granting an injunction restraining Glendyc from entering into the proposed contract with Noel and Shauna.
In reaching that conclusion, I am mindful of the need for caution as expressed by the High Court in Wayde v New South Wales Rugby League (1985) 180 CLR 459, at 467-8. It is necessary "to avoid an unwarranted assumption for management of a company". The present case does not, however, involve management: it involves the sale of the company's sole asset.
The question in Wayde's case, was whether the decisions there in issue were such that no board acting reasonably could have made them. The sale of a company's sole asset is not usually a matter for the board, but for the members themselves. However, whether viewed from the perspective of the board or the members, I cannot think it right, on the sale of the asset, to reduce the proceeds by $15,000 for no good reason and then to keep the beneficial owner out of two‑thirds of their value for four years, during which no interest is payable.
I do not consider it appropriate to restrain Glendyc generally from selling Keoringle (whether to Noel or outside the family) because, provided the terms are fair to Errol, he cannot complain about that course.
I am not prepared to order Mr and Mrs Stone to transfer the A and B class shares in Glendyc to Errol. Although the 1998 lease has now expired, I think Mr Stone is entitled to retain control of Glendyc unless Errol binds himself to making payments amounting to $80,000, by 2009.
The effect of the order will be to put the parties back to the position they were in about two years ago. Although this has the potential for deadlock, I am not prepared to make an order for the winding up of Glendyc, which is alternative relief sought by Errol. I say that, because I fear that if Glendyc was to be wound up, and Keoringle offered for sale on the open market, the result might be unsatisfactory for all parties. That is to say, Keoringle might realise a price might be less than Noel is now prepared to pay. This would be unsatisfactory for Errol: and the farm would be lost to the Stone family, which would be unsatisfactory for Mr Stone and Noel.
The claim against Noel and Shauna, which is based only on the existence of some contract between Errol and Mr and Mrs Stone, must be dismissed.
I shall direct counsel to confer for the purpose of formulating an appropriate order to give effect to these reasons.
The only sensible course, in my view, is for the parties now to attempt to resolve their dispute by negotiation. I should make it plain, however, that I do not intend by these reasons to suggest a solution. My role is merely to determine the issues raised in the litigation. Other than encouraging the parties to settle their disputes, it is not for me to advise them how they should now proceed.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: STONE & ANOR -v- GLENDYC PTY LTD & ORS [2003] WASC 80 (S)

CORAM: TEMPLEMAN J

HEARD: 10-14 FEBRUARY & 17-19 FEBRUARY & 3 JUNE 2003

DELIVERED : 23 APRIL 2003

SUPPLEMENTARY
DECISION :24 JULY 2003

FILE NO/S: CIV 2400 of 2001

BETWEEN: ERROL DALE STONE
First Plaintiff
ROBYN TERESA STONE
Second Plaintiff
AND
GLENDYC PTY LTD (ACN 008 758 110)
First Defendant
DONALD THOMAS STONE
Second Defendant
PHYLLIS YVONNE STONE
Third Defendant
NOEL RAYMOND STONE
SHAUNA FRANCES STONE
Fourth Defendants

Catchwords:

Costs - Plaintiffs partially successful against some defendants - One defendant wholly successful - Proportion of costs awarded - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 232, s 233

Result:

No order as to first defendant's costs
Plaintiffs pay second and third defendants' costs less one fifth of plaintiffs' costs
Plaintiffs pay fourth defendants' costs

Category: B

Representation:

Counsel:

First Plaintiff                :     Dr J T Schoombee & Mr O D Feinauer
Second Plaintiff            :     Dr J T Schoombee & Mr O D Feinauer
First Defendant             :     Mr J C Curthoys
Second Defendant         :     Mr J C Curthoys
Third Defendant           :     Mr J C Curthoys
Fourth Defendants        :     Mr N R Cogin

Solicitors:

First Plaintiff                :     Feinauer & Associates
Second Plaintiff            :     Feinauer & Associates
First Defendant             :     Michael Whyte & Co
Second Defendant         :     Michael Whyte & Co
Third Defendant           :     Michael Whyte & Co
Fourth Defendants        :     Bowen Buchbinder Vilensky

Case(s) referred to in judgment(s):

Commissioner of Australian Federal Police v Razzi (1991) 30 FCR 64
Permanent building Society v Wheeler (No 2) (1993) 10 WAR 569
Stone & Anor v Glendyc Pty Ltd & Ors (2003) WASC 80
Wenpac Pty Ltd v Allied Westralian Finance Ltd & Ors (1993) 123 FLR 1

Case(s) also cited:

Nil

TEMPLEMAN J: In concluding my reasons in Stone & Anor v Glendyc Pty Ltd & Ors (2003) WASC 80, I directed counsel to confer for the purpose of formulating an appropriate order to give effect to those reasons.
This they did, but were unable to reach agreement. The matter was then re-listed for further argument, on 3 June 2003. I then heard submissions in relation to three matters:
1.Correction of an error in my reasons.
2.The form of the orders.
3.Costs.
I deal with each in turn.

Correction of an error

The reasons published on 24 April 2003 contained, in what was then par 295, an implied criticism of counsel for the plaintiff, arising from my perception that he had filed submissions late and without leave. Following publication of my reasons, counsel very properly pointed out that I had been mistaken in my perception. Counsel therefore expressed justifiable concern about my remarks.
At the hearing on 3 June, I acknowledged my mistake and apologised to counsel. He was content that I should recall my judgment, delete par 295 and renumber the remaining paragraphs. This I have done, with the result that the reasons now end at par 317. The Supreme Court database contains the corrected version.
I took the opportunity also to correct an error in par 290, where the reference to Noel in the penultimate line was obviously intended to be a reference to Errol.
I mention these matters now, in case there are any copies of the original reasons in circulation. Counsel is entitled to have the record corrected.

The form of the orders

It is common ground that there should be an order in the following terms:
"The first defendant be restrained from entering into the agreement to sell the property known as Keoringle, located at Avon Location 23642 and Avon Location 23652, in accordance with the draft agreement a copy of which is attached to these orders and marked with the letter A."
I accordingly make that order.

The plaintiffs then seek an order that upon Errol undertaking to pay $80,000 to Mr and Mrs Stone by annual instalments to 2009, Mr and Mrs Stone transfer their A and B class shares in Glendyc to Errol, within seven days.
I had said in my reasons that I would not make such an order. However, I considered it appropriate to hear argument directed specifically to this point, given that in closing addresses at trial, counsel could not be expected to deal with every possible outcome, depending on findings of fact yet to be made.
The plaintiffs sought orders on two bases: under s 232 of the Corporations Law and in the equitable jurisdiction.
As to s 232, counsel submitted that an order of the kind proposed, flowed from my finding that Mr Stone had acted oppressively towards Errol by seeking to impose on him a sale of Keoringle on terms that were unfair. In these circumstances, counsel submitted, it would be appropriate to permit Errol to buy out the minority shareholders, thereby eliminating their ability to exercise any further control over his destiny.
Counsel submitted that it would be deleterious to the parties to leave the matter open. He posed the question: "Say … Errol … were to pay $80,000 to his father tomorrow, what happens to the A and B class shares? They would still remain in limbo for an indefinite period of time."
The answer to this question, in my view, is that Mr Stone would not be obliged to accept $80,000 from Errol. There was never any contractual agreement between them to that effect.
In par 179 of my reasons, I accepted Mr Stone's evidence about his meeting with Errol in about May 2000, at East Fremantle. It was then that Mr Stone told Errol he required a further payment of $100,000,over a ten year period, in exchange for the A and B class shares. But this was on condition that Errol honoured the option in the 1998 lease of Keoringle, and agreed to it being sold to Noel. The proceeds of sale were to be paid to Errol.
I found that Errol agreed, although his evidence was that this imposed only a moral obligation on him to make the further payments: he denied the existence of any legally enforceable agreement.
In any event, the agreement was far too vague to have any contractual force: nothing was agreed about the terms on which Keoringle was to be sold.
In these circumstances, I see no justification for ordering Mr and Mrs Stone simply to transfer their A and B Shares to Errol in return for $80,000. I consider that Mr Stone is entitled to retain control of Glendyc – and hence Keoringle. And that, in essence, is the basis on which Errol accepted his C class shares.
If Mr Stone's conduct had been deliberately oppressive, I might have taken a different view. But Mr Stone acted in what he perceived to be the best interests of Errol and Noel.
In my conclusions, I said in what is now par (313):
"I am not prepared to order Mr and Mrs Stone to transfer the A and B class shares in Glendyc to Errol. Although the 1998 lease is now expired, I think Mr Stone is entitled to retain control of Glendyc unless Errol binds himself to making payments amounting to $80,000, by 2009."
This was said in the light of Errol's steadfast refusal to acknowledge any obligation to pay more than $100,000 to acquire the controlling shares in Glendyc: see par 179 of my reasons.
Had I thought, when considering my judgment, that Errol would change his position as he now has, I would have said then, as I do now, that although I would not order Mr and Mrs Stone to transfer their A and B class shares to Errol, if they agreed to do so, Errol would be obliged to pay $80,000, or some other amount, determined by reference to his parents' ongoing living expenses.
So far as the equitable jurisdiction is concerned, counsel's submissions face the insuperable difficulty that I dismissed Errol's equitable claim.
In par 229 of my reasons, I said I was not persuaded that Errol relied on Mr Stone's promise that he would ultimately become the owner of Glendyc to the extent necessary to give rise to an estoppel. I went on in par 230 to say that if I was wrong in that view, I did not think Errol's reliance on Mr Stone's promise was detrimental.
I then continued in par 231-2 to say that if Errol had some claim in equity to the A and B class shares, I thought that equity could be satisfied by Errol receiving the value of Keoringle, less the amount of a reasonable contribution to the ongoing living expenses of his parents.
In my view, it would be quite inconsistent with those conclusions to now order Mr and Mrs Stone to transfer the A and B class shares to Errol. I therefore decline to grant any relief other than the injunction to which I have referred above.

Costs

It appears to be common ground between the parties that costs should follow the event. There is, however, a divergence of views as to the significance of my conclusions.
Errol contends that he succeeded in his oppression case and should therefore be awarded the costs of the entire proceedings. Indeed, had I made an order requiring Mr and Mrs Stone to transfer their A and B class shares to Errol on his undertaking to pay $80,000, he would have sought indemnity costs from the date of an offer to that effect made pursuant to O 24A of the Rules of the Supreme Court.
Against that, Mr Stone says that Errol's claim was largely unsuccessful and that the oppression case succeeded on two narrow points which were matters of submission rather than evidence.
Noel and Shauna contend that they should have their costs because the claims against them were wholly unsuccessful.
In this litigation, Errol chose to pursue a number of discrete claims against Mr and Mrs Stone. He succeeded only on the oppression claim: and then only in part. That being so, I consider it would be quite inappropriate to award him the entire costs of the action. That view is consistent with O 60 r 2(a), as explained in Permanent building Society v Wheeler (No 2) (1993) 10 WAR 569, at 514-5.
In all the circumstances, I have decided to adopt the approach taken by Wilcox J in Commissioner of Australian Federal Police v Razzi (1991) 30 FCR 64 at 69:
"In these days of extensive court delays and high legal costs the courts should use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. If parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take."
I take the quotation from the judgment of Malcolm CJ in Wenpac Pty Ltd v Allied Westralian Finance Ltd & Ors (1993) 123 FLR 1 at 70, a case in which the learned Chief Justice took that approach.
My conclusion is, therefore that Errol's limited success should be reflected in an award to him of a proportion of his costs. I would limit that to a proportion of the costs of the trial itself because the basis on which I found oppression in Errol's failure really emerged only during the trial, albeit partially foreshadowed in correspondence.
If Errol had confined his claim to that upon which he succeeded, the proceedings would have been conducted on affidavit evidence which would have been largely uncontentious and would have occupied the Court for something under two days. As it was, the trial ran for 8½ days.
It would be virtually impossible to carry out a minute analysis of the trial so as to determine precisely how much time was taken up by each issue. But taking a broad view and having regard to the time which ought to have been taken I believe that the fair course would be to award Errol one-fifth of the costs of the trial, including getting up.
I therefore make the following orders as between the plaintiffs and the second and third defendants.
1.The second and third defendants' costs of the action are to be taxed – amount A.
2.The plaintiffs' costs of the trial (including getting up) are to be taxed – amount B.
3.The plaintiffs are to pay the second and third defendants in respect of costs, an amount which is A less one-fifth of B.
I do not consider it appropriate to make any order of costs in relation to Glendyc, the first defendant. Apart from the fact that it has no assets other than Keoringle, it has not been a party in any real sense. The action has been fought between family members.
As to the fourth defendants, Noel and Shauna, counsel for Errol submitted that it would be inappropriate to consider questions of costs until I had ruled on the claim brought against them under s 233 of the Corporations Act. That claim is contained in par (5) which is on p 16 of the prayer for relief:
"(5)Further or in the alternative, relief against the First, Second and Third Defendants pursuant to s 232 and s 233 of the Corporations Law in respect of the conduct of the affairs of the First Defendant that is oppressive to and unfairly prejudicial to the First Plaintiff, and further to that, the making of orders in terms of (1), (2), and (4) above, the setting aside of any contract of sale or the disposal of any interest (other than the leases pleaded above) between the First and Fourth Defendants relating to Keoringle, a declaration that all legal and accounting costs incurred by the First Defendant in respect of the negotiations pleaded in par 16 and par 17 above, and the defence of this action, be borne jointly and severally by the Second and Fourth Defendants, or ordering that the First Defendant be wound up."
In his opening address, counsel for the plaintiffs explained the way in which the s 233 claim was put against Noel and Shauna:
"We have raised an additional cause of action against them in this sense, that where we claim relief under the Corporations Law, we've claimed remitted relief against them because we say that as they were the instigators of an important aspect – or two important aspects, that is, (indistinct) undervalue and the sale per se, and the court has a jurisdiction under s 233 of the Corporations Law to order any person from – or acquire (sic require) a person to do a specified act including payment of money, that's under s 233(1), so it can make an order against a person, 233(1) – or paragraph (j), requiring a person to do a specified act, we would say, and it's not limited to officers of the corporation, that given their involvement into meddling (sic intermeddling) in the affairs, at least Glendyc should not have to pay the costs because of course if we win, we win against ourselves; we win against our own company.
It would be unfair and it would an appropriate exercise of the court's jurisdiction under s 233 to say, 'No, no, no, the true party or the true machinators should bear the costs, both of consulting with Michael White before and of course the cost of this litigation.'" (TS 319 - 320)
Counsel returned to that issue again in closing when he made the following submission:
"But I just make the point that the focus is really between Mr Don Stone, Glendyc the company and Errol as shareholder and Noel is, in that sense, an outsider. But of course we would say on the Corporations Law matter he clearly intermeddled in the affairs and it would really flow or be an adjunct of the interference with contractual relationships because the court can order any person to make a payment under s 233, and we would say that it is clearly a case that if somebody intermeddles in the affairs of the company, for instance gets the company to breach its obligations to a shareholder, then the court can make an adjustment and order that party to pay. In fact, your Honour, that often happens in practice with so-called de facto directors which are not an officer of the company in any sense but they are really the main culprits. Mr Noel Stone isn't in that position but that would be an analogous situation." (TS 1119)
Having concluded that I should grant only injunctive relief, and only against Glendyc (par 309 of my reasons) I regarded the balance of the s 233 claim against Noel and Shauna as sounding only in costs.
As I have already held, I do not think it appropriate to make any order of costs against Glendyc. Likewise, I do not consider it appropriate to order Noel and Shauna to pay legal and accounting costs incurred by Glendyc in respect of the negotiations for the sale of Keoringle. I take that view for similar reasons: the real protagonists were the family members.
Nor do I think it appropriate to make any order for costs against Noel and Shauna on the basis that Noel intermeddled in the affairs of Glendyc, as basis a form of de facto director. Not only is that not pleaded against him, but as counsel accepted in the extract from his closing address to which I have just referred, Noel was not in that position.
It is true that Noel appears to have anticipated that Errol might bring a claim based on allegations of sale at an undervalue. I have in mind the document entitled "D T Stone Farming History and Succession" prepared by Shauna on 30 March 2001 which is at p 566 of the agreed bundle. That was a memorandum which Shauna wrote to a solicitor, in which she referred to Errol's legal advice that "there is an angle upon which a legal challenge in court could be taken". Shauna went on to refer to Noel's view that "Errol's legal "angle" may be "insufficient consideration to the shareholder …".
Despite that, I do not think it appropriate to fix Noel and Shauna with any liability for the oppressive conduct which I have found in Errol's favour. Noel and Errol were negotiating at arms' length. Noel had no control over Glendyc and he was perfectly entitled, as a third party purchaser, to endeavour to acquire Keoringle on the best terms he could.
The pleaded case against Noel and Shauna is not that they intermeddled in the affairs of Glendyc (which in my view they did not) but that they interfered in a contractual relationship between Errol and his father. That case failed in its entirety. I see no reason why costs should not follow the event.
I therefore order the plaintiffs to pay the fourth defendants' costs of the action, to be taxed.
I include in that order the reserved costs of the application before Pullin J to vary the undertakings given previously by the fourth defendants. I do so because I do not think it was necessary for Errol to have sought injunctive relief against Noel and Shauna. Further, I am satisfied that they did all they reasonably could to negotiate with Errol to settle, or extricate themselves from, the action.

ED	2800 ACRES IN TOTAL	1134 HA	BOX 90	QDG
NR	2800 ACRES IN TOTAL	1134 HA	BOX 62	QDG
LD	3100 ACRES IN TOTAL	1255 HA	BOX 140	CGN
GJ	3364 ACRES IN TOTAL	1362 HA	BOX 50	QDG

"$215,000 1999	8% = capital appreciation
D.T. $100,000 indexed 10%	1 Jan 2000 in full
90,000 Debt	A & B shares
1^st 91 $ 10,800.00
$ 11,664.00"