The Beautiful Dove Pharmacies Pty Ltd v MindFit Counselling Pty Ltd
[2023] VSC 786
•21 December 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
GENERAL LIST
S ECI 2022 00915
BETWEEN:
| THE BEAUTIFUL DOVE PHARMACIES PTY LTD (ACN 652 795 232) | Plaintiff |
| v | |
| MINDFIT COUNSELLING PTY LTD (ACN 640 651 305) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 28 November 2023 |
DATE OF JUDGMENT: | 21 December 2023 |
CASE MAY BE CITED AS: | The Beautiful Dove Pharmacies Pty Ltd v MindFit Counselling Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 786 |
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CONTRACT – Plaintiff invested in mental health venture – Warranties that all information that might influence decision whether to enter agreement had been disclosed - Plaintiff claims breach of warranties by first and second defendants for failure to disclose prior similar failed business venture associated with key personnel including the third defendant – Whether the second defendant a party to the agreement – Held, second defendant a party to the agreement – Held, plaintiff entitled to damages on a no-transaction basis for breach of warranties – Held, shares in venture of no value – Judgment in default of defence against third defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Dragojlovic | Zervos Lawyers |
| No appearance for the Defendants |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
Construction of the agreement...................................................................................................... 10
Applicable principles.................................................................................................................. 10
Who were the parties to the agreement?................................................................................. 10
What warranties were given by Mindfull Life?..................................................................... 12
Were the warranties breached?..................................................................................................... 12
Consequences of the breach?......................................................................................................... 13
Judgment against the third defendant......................................................................................... 15
HIS HONOUR:
Introduction
This is a claim by the plaintiff for breach of contract. A pleaded claim for misleading and deceptive conduct under s 1014H of the Corporations Act 2001 (Cth) is not being pursued.
The plaintiff is a pharmacist who invested $125,000 into a health delivery business in which the defendants were involved. For his investment he was to receive shares in a company and various other benefits. Warranties were provided in the relevant agreement, including a warranty that no relevant information had been withheld. The plaintiff subsequently learned those involved in the business had been involved in earlier similar businesses that had gone broke, resulting in investors losing their money, and the business had arisen, phoenix-like, from the ashes of its predecessor. The plaintiff’s case is that the warranties were breached by that non-disclosure, and had he known those matters he would not have entered the agreement. He seeks return of his $125,000.
The defendants initially filed notices of appearance and defences, but the solicitors acting for them have since filed notices of ceasing to act. As a result the first and second defendants have been unrepresented since 17 May 2023, and the third defendant since 20 January 2023. The third defendant’s defence was struck out on 14 April 2023 and she notified the Court by email that she would not appearing at trial.
None of the defendants have appeared at trial. Accordingly the trial proceeded undefended. The plaintiff seeks to pursue its claim against the second defendant (‘Mindfull Life’) for breach of contract.
As against the first defendant, the plaintiff seeks orders that the claim be dismissed without adjudication on the merits and with no order as to costs. As against the third defendant, the plaintiff seeks default judgment for $125,000, and this is dealt with at the end of these reasons.
Mr Sameh Khleil is the controlling mind behind the plaintiff and gave evidence essentially adopting as his evidence in chief a witness outline filed on 18 April 2023 that had been filed on his behalf. This evidence is almost entirely documentary.
Background
Mr Khleil is a qualified pharmacist who migrated to Australia from Egypt in 2009. He is the sole director, secretary and shareholder of the plaintiff.
On 12 July 2021, Mr Khleil received an unsolicited message on his LinkedIn account from Ms Sandra (Sandy) Lutersz. Ms Lutersz is the sole director and secretary of the first and second defendants and the sole director, secretary and shareholder of the second defendant. The message was as follows:
Hi Sameh Hope you’re well. Was wondering if you had any interest in being involved with a National venture in the Mental Health space. We are about to close the first round of funding. There are shares currently available if you were wanting to be an investor and we are also looking for appropriate skill sets to sit on our Advisory Board. Let me know if you would like to see our Investor Pack or wanted to discuss, or if you know someone who might be interested. Warm regards Sandy Lutersz Director/Shareholder[.]
Mr Khleil responded positively and a Zoom meeting was scheduled for 14 July 2021 to further discuss the proposal. On 12 July 2021 at 1:13pm Ms Lutersz sent an email from the email address ‘[email protected]’ to Chloe Coles ([email protected]), and copying in Jodie Brenton ([email protected]) with the subject line ‘new lead’. Ms Lutersz wrote ‘another lead from linkedin, book in appt for this Wed 14/7 3pm with myself and Jodie …’.
On 14 July 2021, Mr Khleil attended a Zoom meeting with Ms Mary Magalotti and Ms Jodie Brenton, at which he was provided with an information pack by PowerPoint presentation. The information pack describes Jodie Brenton as co-founder and CEO, Mary Magalotti as co-founder and clinical director, and Chloe Coles as client services care manager.
Mr Khleil says that from the information provided to him during the Zoom meeting and in the information pack he understood the business venture that was being proposed involved investment of a total sum of $250,000 in order to acquire 10 shares in MindFit Counselling Pty Ltd (‘MindFit Counselling’). That is consistent with what is stated in the Investor Pack. Mr Khleil says that he could not afford an immediate outlay of $250,000 and was invited to acquire five shares for $125,000 and then subsequently to acquire another five shares for a further $125,000. After considering this information he decided to create a new company, being the plaintiff, for the purposes of his investment. The plaintiff was incorporated on 13 August 2021.
At about this time Mr Khleil says he had a further discussion with Ms Brenton in which he asked about warranties being included in any formal contract to cover the information he had been provided during earlier conversations and included in the Investor Pack. Ms Brenton said she would ask her lawyer to add the appropriate warranties.
On 25 August 2021, Ms Brenton sent a document dated 24 August to Mr Khleil entitled Share Purchase Agreement via DocuSign, which Mr Khleil subsequently signed as director of the plaintiff. The terms of the agreement are as follows.
The parties to the agreement are recorded as being:
Mindfull Life Family Trust ABN/ACN: 80 185 279 438 on behalf of Mindfit Counselling Pty Ltd, 1 Lincoln Road, Essendon, Victoria 3040 (a Sale Shareholder)[.]
Beautiful Dove Pharmacies Pty Ltd ABN/ACN: 652 75 232 of 1 Hutton Road, Werribee, Victoria, 3030 (the Buyer)[.]
The identity of the parties is not as clear as it might be. MindFit Counselling is the first defendant, but it is not trustee for the Mindfull Life Family Trust. The trustee is the second defendant, Mindfull Life. The proper construction of the agreement is considered below.
The operative part of the agreement, under the heading background, provides ‘[t]he Buyer has agreed with the Shareholder to buy the Sale Shares at the Purchase Price.’ ‘Purchase Price’ is defined as ‘the total price paid today for the Sale Shares.’ The relevant term setting out number of shares, price and dates for payment is cl 3(3) which provides that:
3.The buyer will receive the share value as each payment is made as per the agreement of;
(a) $75,000 paid on or by Friday 27th August, 2021 (3 shares)
(b) $50,000 paid on or by 30th of September, 2021 (2 shares) and;
(c) $125,000 on or by 5th January 2022 (5 shares).
The following definitions are included in the agreement:
(a) ‘Shareholder’ means ‘every person who is a shareholder immediately before [the] agreement is completed’;
(b) ‘Sale Shareholder’ is defined as meaning ‘a shareholder who sells his shares in the trust on behalf of the Company in the terms of this agreement’;
(c) the ‘Company’ is defined as meaning ‘Mindfit Counselling Pty Ltd ABN/ACN: 66 640 651 305 1 Lincoln Road Essendon, Victoria 3040’;
(d) ‘Sale Shares’ means ‘1 [sic] ordinary shares of $25,000 each being the shares to be bought and sold under [the] agreement’;
(e) ‘Warranties’ means ‘any warranties given in [the] agreement.’
Clause 2.4 provides that ‘the schedules form part of [the] agreement.’
There are three sets of warranties: sale shareholder warranties in cl 5; trustee warranties in cl 6; and schedule 3 warranties. The sale share warranties are set out in cl 5 as follows:
The Sale Shareholder jointly and severally warrant to the Buyer that:
1. For Sale Shareholder [sic] that are companies, that each of the representatives signing this Agreement on behalf of the Sale Shareholder, that each of them has power and authority to perform its obligations under this agreement;
2. There is no charge over or affecting any of the Sale Shares;
3. The Sale Shareholder is entitled to transfer the Sale Shares to the Buyer on the terms of this agreement without the consent of any third party;
4. The Sale Shareholder is entitled to transfer the Sale Shares to the Buyer on the terms of this agreement without being in contravention or breach of any law or binding agreement;
5. The Warranties are not limited in time or monetary value.
The trustee warranties in cl 6 are in the following terms:
Each of the Trustees warrants:
1. That he/she has legal title to all the Sale Shares held in his or her name or the name of his or her beneficiary;
2. That he has both the power and all necessary permissions to sell the Sale Shares;
3. That he has no knowledge of any circumstance unknown to the Buyer, which, had the Buyer known, may have affected his decision to enter into this agreement.
The schedule 3 warranties are as follows:
1. All of the information and data provided in the schedules to this agreement is accurate and true.
2. All information concerning the Company, given by the Sale Shareholder remains, true, accurate and complete.
3. All facts and data which could reasonably be expected to be disclosed to a prospective buyer, have been disclosed.
4. No information has been held back which, if provided, might have influenced the Buyer against entering into this agreement.
5. No governmental organisation is now investigating any of the affairs of the Company.
…
The plaintiff pleads that it relied on warranties given by the first, second or first and second defendants (particularised by reference to schedule 3) that:
(a) ‘[a]ll information concerning the first defendant, given by the second defendant remains, true, accurate and complete’;
(b) ‘[a]ll facts and data which could be expected to be disclosed to a prospective buyer, have been disclosed’; and
(c) ‘[n]o information has been held back which, if provided, might have influenced the Buyer against entering into [the] agreement.’
In performance of the agreement the plaintiff on 25 August 2021 paid $75,000 and on 22 September 2021 paid $50,000. Share certificates were subsequently issued as consequences of these payments as discussed further below.
In addition to his investment discussed above, Mr Khleil personally was employed as ‘Health Development Manager of Mindfit Counselling Pty Ltd’ pursuant to an employment contract signed by him on 25 August 2021. That aspect of his role is not relevant to the current claim.
In mid-November 2021, Mr Khleil discovered that Ms Brenton and Ms Magalotti had previously been involved in other companies and business ventures in the area of mental health and the development of the franchise business models. He says that he became aware that such companies had been placed into liquidation and that there had been allegations of insolvent trading and illegal phoenix activities and other complaints to ASIC in relation to those companies. Mr Khleil refers to an ABC news article posted on 23 July 2019 headed ‘[p]sychologists financially ruined after joining failed counselling franchise’. The article describes Mary Magalotti and Jodie Brenton as being the founders of psychology franchise Life Resolutions, and states:
The pair sold prospective franchisees a dream: “success without the stress”.
All the marketing, advertising, client referrals and bookings would be handled by head office. The practitioners merely had to do what they do best, and watch the cash roll in.
But the dream quickly unravelled. Many psychologists who had borrowed heavily to buy in found they were unable to earn enough to repay their debt.
They claim the head company charged exorbitant fees, failed to deliver clients in sufficient numbers, and was tardy in paying franchisees for clients they had counselled.
They say their experience was at odds with the bold promises that have appeared on Life Resolutions website – including a “100 per cent success rate”, “guaranteed” minimum income of $120,000 during the first year, “extensive” support and “ongoing new clients” – that lured them in.
…
In Ms Kucuk’s [an investor’s] contract, the company even guaranteed she would receive a full refund if she failed to sell two Life Resolutions franchises, worth a total of $110,000, to other psychologists in her first year.
…
On October 12 last year, Ms Kucuk received a voicemail from Ms Magalotti.
“… Life Resolutions Australia Pty Ltd … has gone into liquidation this week,” Ms Magalotti said.
“Our agreement is therefore null and void and the money you invested is gone.
“The Life Resolutions brand … we’re still going to use that brand, but in a different entity.
“We’re setting [new] practices up for ourselves … company-owned practices.[”]
…
The “different entity” Ms Magalotti mentioned in her voicemail is called Here to Help Pty Ltd (HTH) – one of several companies created by her business partner Ms Brenton, several weeks earlier, on August 30.
On September 10, almost a month before the voicemail, Ms Brenton sold $125,000 worth of [Life Resolutions Pty Ltd’s] and [Life Resolutions Australia Pty Ltd’s] assets – like office equipment, furniture and a Volvo XC60 vehicle – to her new company.
In exchange, the new company assumed $300,000 worth of debt. But it only took on the secured debt that was owing to the banks.
The unsecured debt, worth around $2 million which included the money owed to the psychologists, was left with the old company, [Life Resolutions Australia Ptd Ltd], which was put into liquidation later.
The article includes other accounts of investors having lost their money, and of one obtaining default judgment after Life Resolutions failed to attend court. There are also comments attributed to the liquidator that his preliminary view was that the company may have trading while insolvent and also that no dividends will be paid to any classes of creditors.
I note that several of the emails produced in this proceeding are from or to ‘liferesolutions’ addresses, including the email dated 12 July 2021 from Sandy Lutersz copying in Chloe Coles at [email protected], and an email dated 12 January 2022 from Dora Konstantinov at [email protected] to Mr Khleil copying in Jodie Brenton at [email protected]. Dora Konstantinov is described in the MindFit Investor Pack as Financial Controller.
Mr Khleil says that he was shocked when he discovered this information and that if he had known about this history regarding the key people that were involved in the ownership, management and operation of the business, he would not have agreed to invest any money into it. This is the crux of the plaintiff’s claim that there has been a breach of the warranty as to disclosure of relevant information including information that ‘might have influenced [him] against entering into [the] agreement’.
In mid-late November 2021, Mr Khleil called Ms Brenton and requested a return of the funds he had invested and indicated that he did not want to fulfil the contract as per the share purchase agreement. That conversation was confirmed by subsequent emails between Mr Khleil and Ms Brenton including a statement by Mr Khleil that the venture had not been financially successful and ‘as you are aware you [have] use[d] all my funding and I don’t have any money to survive.’ Mr Khleil did not raise the question of the information he had learned at this stage and the explanation proffered was that this was to keep things as amicable as possible.
On 25 November 2021, Ms Brenton emailed Mr Khleil, ‘all good [S]am, I will be speaking with them tomorrow to have your funds returned.’ The following day on 26 November 2021, Ms Brenton wrote a further email to Mr Khleil as follows:
I spoke with the accountant in the following is the outcome of your requests;
1. Have your funds returned that you invested in Mindfit Counselling acquiring 5 shares?
I spoke with the accountants and they have completed your share allocation, please see attached your share certificate, I was not aware of this, which they did a few weeks back it looks like from the date. They have been behind catching up with work and now they are back in the office.
The company is a start-up and does not have the funds to return to you. The funds have been utilised for capital expenditure, including your wages.
The solution I have pushed for is to sell your shares asap on your behalf at no cost to you. A date cannot be determined but I am happy to make it the highest priority, the bad news is that Christmas is coming and everything goes quite [sic] during December & January. I will aim to have your shares sold asap (I am aiming for max. next 3 months).
The attached share certificate is headed ‘MINDFIT COUNSELLING PTY LTD’ and purports to show five ordinary shares having been issued to the plaintiff with an amount payable per share of $1 and an amount paid per share of $1 and total consideration paid of $125,000. The certificate contains a statement that it is ‘[s]igned in accordance with the Constitution of the company on 12/11/2021.’ No signature appears on the certificate.
The standard form transfer of shares in MindFit Counselling from Mindfull Life to the plaintiff was signed by Sandra Lutersz and dated 26 November 2021. The resolution of MindFit Counselling to approve that transfer was signed by Sandra Lutersz for MindFit Counselling and dated 26 November 2021. The change to company details form recording the transfer of shares notes that the share transfer was lodged on 30 November 2021. It is not necessary to determine when the transfer of shares was effected but having regard to the above, there is some doubt as to whether, on 25 November 2021, the shares had in fact been transferred, or whether the transfer was effected after Mr Khleil had asked for the return of his investment and the defendants had agreed to its return.
The money was not returned and on 21 March 2022, the plaintiff issued this proceeding, alleging breach of warranties. The plaintiff claims that information about the commercial failure of the Life Resolutions business, and Ms Brenton’s involvement in it, not only might, but would in fact, have influenced him against entering into the agreement. The plaintiff’s case is that the failure to provide that information was a breach of the warranties, and that had the warranties not been breached, and the information provided, the plaintiff would not have entered into the agreement at all. The evidence of Mr Khleil in this regard was obviously not challenged and I accept Mr Khleil’s evidence that had he been told of those matters, he would not have invested at all.
Construction of the agreement
Applicable principles
It is necessary to consider the terms of the contract. The principles of construction are well-established and need not be canvassed. It suffices to refer to well known cases on construction[1] and observe that a contract is to be construed objectively by reference to the commercial purpose sought to be achieved by it. Sometimes it is necessary to have recourse to things external to the contract in identifying the commercial purpose and objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background or context.
[1]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116–117 [46]-[52] (French CJ, Nettle and Gordon JJ); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 550 [16]-[17] (Kiefel, Bell and Gordon JJ), 560 [42], 562 [52] (Gageler J), 571 [73] (Nettle J).
Who were the parties to the agreement?
The agreement is drafted in terms which suggests parts of it were not drafted by a lawyer. The cover page refers to a legal firm but the name of the parties and the language used in the body of the agreement, including the definitions used, suggest a layperson’s input.
The plaintiff is named as a party to the agreement and otherwise the agreement names:
Mindfull Life Family Trust ABN/ACN: 80 185 279 438 on behalf of Mindfit Counselling Pty Ltd, 1 Lincoln Road, Essendon, Victoria 3040 (a Sale Shareholder)[.]
The difficulty with this description is that the trust itself is not a legal entity and MindFit Counselling is not the trustee, rather Mindfull Life Pty Ltd is. The plaintiff submits that the parties to the agreement are the first and/or second defendants.
There are various factors supporting the conclusion that, Mindfull Life is a party to the agreement:
(a) Mindfull Life is the trustee of the Mindful Life Family Trust which is named as a party to the contract. The most obvious reason for naming the trust as a party is that the drafter of the agreement, perhaps a layperson, erroneously referred to the trust rather than the trustee, or erroneously named MindFit Counselling. There would be no point in referring to the trust as a party to the agreement unless the intention was to bind the trust by the terms of the agreement, and that is properly effected by including the trustee as a party to the agreement;
(b) the agreement is for the transfer of shares in MindFit Counselling, which shares were held by Mindful Life. That is, the shares that are to be transferred by the obligations contained in the agreement are held by Mindfull Life and not Mindfit Counselling;
(c) clause 1 under the heading ‘Background’ provides ‘[t]he buyer has agreed with the Shareholder …’. As noted the Shareholder is Mindfull Life; therefore, this clause in substance describes the agreement as being between the plaintiff and Mindfull Life;
(d) clause 3(1) of the agreement provides that ‘the Sale Shareholders [sic] agrees to sell the number of Sale Shares …’. The intent of the agreement manifest by this obligation is to bind the holder of the shares (being Mindfull Life) to sell them;
(e) the agreement contains ‘Trustee Warranties’ in cl 6, and Mindfull Life is the trustee, not MindFit Counselling. It is apparent on the face of the agreement that the trustee warranties were intended to have contractual force binding the trustee, which supports the interpretation that the trustee was to be a party;
(f) one of the trustee warranties is that ‘he/she has legal title to all the Sales Shares held in his or her name or the name of his or her beneficiary’. Mindfull Life had title to the shares and not Mindful Counselling;
(g) the ‘Warranties by [the] Sale Shareholder’ include that it is ‘entitled to transfer the Sale Shares to the buyer’.
For the above reasons I find that Mindfull Life is a party to the agreement, notwithstanding its identification in the agreement by the name of the trust, or the reference to MindFit Counselling.
What warranties were given by Mindfull Life?
The warranties relied on by the plaintiff are the warranties in the schedule, and most relevantly, that ‘[n]o information has been held back which, if provided, might have influenced the Buyer against entering into this agreement.’
The schedules form part of the agreement, and there is nothing in the terms of the schedule 3 warranties that restricts its application in any way. The purpose of the warranties was to provide comfort to the plaintiff regarding information that had been disclosed, and as to the absence of any non-disclosure of any relevant information. Those warranties were given by Mindfull Life.
Were the warranties breached?
There is no suggestion that prior to the agreement Mr Khleil, or the plaintiff, knew about the failure of the previous franchise business, or the difficulties faced by unsecured creditors which included investors, as disclosed in the ABC article. Nor have the defendants appeared at this trial for the purpose of establishing that those matters were not true, or that Ms Brenton did not know of them. The question therefore is whether the information as to the earlier failed business ‘might have influenced the [plaintiff] against entering into [the] agreement.’ I find that it might have so influenced the plaintiff and that the failure to disclose it was a breach of the warranty. Mr Khleil has said that he would not have entered into the agreement had he known. But beyond Mr Khleil’s subjective point of view, a reasonable person in Mindfull Life’s position ought to have realised that such information might influence a potential investor against entering the agreement.
Ms Brenton was involved in the Life Resolutions business that failed and was described as CEO of MindFit Counselling, and was appointor and corpus and specified beneficiary of the Mindful Life Family Trust. She was also a key point of contact for Mr Khleil in negotiations for him to invest. Ms Lutersz, who is sole director and secretary of each of MindFit Counselling and Mindfull Life, initiated the contact with Mr Khleil through LinkedIn and then handed responsibility to Ms Brenton to secure his involvement. There is no doubt that Ms Brenton had ostensible authority at least to deal with Mr Khleil on behalf of MindFit Counselling and Mindfull Life. The information about the failed business and the consequences of it was information known to Mindfull Life and MindFit Counselling through Ms Brenton at least, and the warranty required the disclosure of that information to Mr Khleil.
Consequences of the breach?
The plaintiff claims $125,000 on a no-transaction basis. The plaintiff’s case is that if the warranty had not been breached, it would not have entered into the agreement and would not have paid the $125,000. By its claim, it seeks damages in that amount which are calculated by measuring the difference between the price paid and the value of the thing purchased.[2] That value is to be assessed objectively.[3] The plaintiff also sought restitution of that amount.[4]
[2]Viterra Malt v Cargill Australia [2023] VSCA 157, [898]-[904] (Sifris, Walker and Whelan JJA) (citations omitted); PPK Willoughby Pty Ltd v Baird [2021] NSWCA 312 [49]-[81] (‘PPK Willoughby’) (Leeming JA, Basten JA agreeing at [1], Simpson AJA agreeing at [97]).
[3]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 514 [49] (McHugh, Hayne and Callinan JJ) (citations omitted).
[4]Relying on Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 117-18 (Deane J) (citations omitted).
In this case the plaintiff has received the shares in Mindfull Counselling and currently holds them. Its particulars of loss states that ‘[t]he current value of the shares purchased by the plaintiff in the first defendant is zero.’ The company is not publicly listed and accordingly there is no public market for them. As noted above, on 26 November 2021, Ms Brenton emailed Mr Khleil and, having said the day before that the funds would be returned, stated that:
The solution I have pushed for is to sell your shares asap on your behalf at no cost to you. A date cannot be determined but I am happy to make it the highest priority, the bad news is that Christmas is coming and everything goes quite [sic] during December & January. I will aim to have your shares sold asap (I am aiming for max. next 3 months).
Notwithstanding the two years that have passed since that assurance, the plaintiff has not received any indication that his shares have been sold and neither has he received any refund of his money.
On 26 May 2022, Ms Brenton wrote an email addressed to the ‘Shareholders’ which included Mr Khleil, explaining that she was resigning from MindFit Counselling and attaching her resignation letter. The resignation letter dated 12 April 2022 addressed to Ms Lutersz and Ms Magalotti (and set out in the body of an email) states:
It is with the saddest regret that after a lengthy period of time trying to resolve the issues with Mindfit Counselling Pty Ltd that I have repeatedly voiced to Director Sandy Lutersz and major shareholder Mary Magalotti the response has been met with harassment, bullying and no resolution.
Due to these issues I have been incapable of doing my job as CEO of MindFit Counselling and my ability to be able to run the business has been seriously compromised.
I have been unable to run the business for MindFit Counselling (MFC) as;
1. I have been given insufficient funds to run the business and been unable to do my job.
2. I have not been paid renumeration [sic] of [sic] my role, regardless of endless requests leaving me with no income for the term of my employment and that I have funded the business with my own personal funds and leaving me with unmanageable debt and major financial insecurity.
3. There is no money in MindFit Counselling, the company is not in the position to run and set up practices.
4. I have been threatened and bullied by Sandy Lutersz and Mary Magalotti[.]
5. I believe the shareholders are being kept in the dark, regardless of me advising Sandy of the MFC issues in December 2021, yet Sandy has taken no action to act in the best interest of shareholders or myself.
6. As CEO and major shareholder I have been requesting information from Sandy Lutersz and Mary Magalotti and no or inappropriate responses have been given. I have been denied information about the company that I am entitled.
7. Money has been taken from the company against my and the companies [sic] will.
I have requested Sandy Lutersz and Mary Magalotti resolve the issues amicably and quickly, this has been met with no response regardless of me extending time for them to act.
I have genuinely acted in the best interests of the company and shareholders. I genuinely have accepted shareholders [sic] investments to set up practices and grow the business.
Having regard to the apparent failure to sell the plaintiff’s shares and refund the money over the previous two years despite assurance it would occur within three months, and having regard to the apparent internal difficulties with MindFit Counselling, I infer there is no market for the shares and that they are worthless. These facts also support the conclusion that the shares were worthless at the time they were purchased.[5] That is particularly so having regard to the short amount of time that elapsed between payment for the shares in August and September 2021, and the plaintiff’s complaint and termination of the agreement in late November 2021 which coincided with, if it did not precede, the allotment of the shares.
[5]PPK Willoughby (n 2) [49] (Leeming JA, Basten JA agreeing at [1], Simpson AJA agreeing at [97]).
In those circumstances I assess the plaintiff’s loss as $125,000. The plaintiff also seeks interest pursuant to s 60 of the Supreme Court Act 1986 (Vic) which I will also order. I propose to order the second defendant to pay the plaintiff’s costs on a standard basis to be taxed in default of agreement unless another order is sought, in which case the plaintiff has leave to file short submissions as to costs.
Judgment against the third defendant
The plaintiff also seeks judgment against the third defendant, Jodie Brenton, in default of defence. The third defendant’s defence was struck out by the Order of Matthews AsJ (as her Honour then was) on 14 April 2023, and it was noted in Other Matters that the third defendant had emailed the Court stating that she had filed for bankruptcy. On 3 August 2023, Englefield JR made various procedural orders, including listing the trial on an estimate of half a day instead of the previous estimate of three to four days. Englefield JR noted in Other Matters that one of the reasons for the half day estimate was that the third defendants defence had been struck out and ‘the plaintiff may obtain default judgment … prior to the trial’. The plaintiff did not take that step, in part to keep costs down, but made an oral application for default judgment at the commencement of trial.
Rule 21.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides that judgment may be entered in default of a defence including where a defence has been struck out:
(1) Where any defendant, being required to serve a defence, does not do so within the time limited, the plaintiff may enter or apply for judgment against that defendant in accordance with this Order unless Rule 2.07(1) of Chapter II applies.
(2) Judgment shall not be entered or given for the plaintiff unless an affidavit proving the default is filed.
(3) Paragraphs (1) and (2) shall apply, with any necessary modification, where—
(a) the defendant has served a defence; and
(b) by or under an order of the Court the defence is struck out.
Having regard to the fact that the third defendant was on notice of trial and has chosen not to appear and also having regard to the terms of the orders that have been made on 14 April 2023 and 3 August 2023, I consider it appropriate to dispense with compliance with the requirements of rr 21.02(1) and 21.02(2). I note that a defence had not been filed with the Court at the date of trial and counsel appearing for the plaintiff confirmed his instructions that a defence had not been otherwise served.
In those circumstances I will order that default judgment together with interest and costs be entered against the third defendant.
I will ask the plaintiff to provide orders reflecting these reasons as against each of the defendants, including any calculations of interest.
SCHEDULE OF PARTIES
| S ECI 2022 00915 | |
| BETWEEN: | |
| THE BEAUTIFUL DOVE PHARMACIES PTY LTD (ACN 652 795 232) | Plaintiff |
| - v - | |
| MINDFIT COUNSELLING PTY LTD (ACN 640 651 305) | First Defendant |
| MINDFULL LIFE PTY LTD (ACN 640 648 335) AS TRUSTEE FOR THE MINDFULL LIFE FAMILY TRUST | Second Defendant |
| JODIE BRENTON | Third Defendant |
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