The Stuart James Marshall Family Trust and the Estate of Stuart James Marshall v Harrop - [2014] SADC 110

District Court of South Australia
(Civil)
THE STUART JAMES MARSHALL FAMILY TRUST AND THE ESTATE OF STUART JAMES MARSHALL v HARROP
[2014] SADC 110
Judgment of His Honour Judge Stretton
20 June 2014
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - OTHER MATTERS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSIDERATION - FAILURE OF CONSIDERATION
Monies were conveyed by the plaintiff to the defendant for the acquisition of shares in the defendant’s company. There was an initial $250,000, and a further $300,000 advanced in instalments over the following year. The plaintiff asserts the monies were a loan to be converted into shares. It was common ground no shares were conveyed to the plaintiff. The plaintiff purported to terminate the agreement some four years later, and asserted an entitlement to the return of the sums advanced.
Held:
1       In relation to the initial $250,000 there was a written contract with a term that the transfer of shares was required within a specific and limited time. In all the circumstances that term was either a fundamental term or an intermediate term of sufficient importance such as to justify termination of the contract upon its breach. The defendant’s failure to transfer the shares the subject of the contract within that time or at all breached that term. The plaintiff was hence entitled to terminate the contract, which it did. There was a complete failure of consideration by the defendant. The plaintiff is entitled to the return of its $250,000.
2       In relation to the subsequent $300,000 there was a contract only partly evidenced in writing. It contained no specific term as to how or when the shares were to be transferred. The transfer and timing of transfer of those shares was not a fundamental term or a term of sufficient importance to justify termination upon breach. Accordingly, the plaintiff’s remedies lie only in specific performance or damages, neither of which are pursued.
3       The plaintiff is entitled to judgment in the sum of $250,000.
Bunt v Nati [2012] FCA 1089; Nati v Bunt [2013] FCAFC 60; Roxborough v Rothmans [2001] HCA 68, applied.

THE STUART JAMES MARSHALL FAMILY TRUST AND THE ESTATE OF STUART JAMES MARSHALL v HARROP
[2014] SADC 110
Introduction

This is an action by the Executor of the estate of Stuart James Marshall and the trustee of the Stuart James Marshall Family Trust for the return of $550,000 it says the former trustee paid to the defendant Barrie Harrop in 2007-2008. Stuart James Marshall was the former trustee. He died on 2 August 2011.
The plaintiff claims those monies were lent by Stuart James Marshall (‘the deceased’) the former trustee of the Stuart James Marshall Family Trust, pursuant to a written agreement which provided that the funds were to be initially loaned to the defendant, then converted into a purchase of shares from the defendant within 60 days. The agreement envisaged that the funds would then support a project to be undertaken by the company to which the shares related. The agreement foreshadowed further share purchases.
The defendant denies there was any such agreement, rather that there was an agreement with the Stuart James Marshall Family Trust to acquire shares, and monies were paid direct to the company for that purpose, which such shares he was always prepared to transfer, and which he did not transfer at the time due to discussions with the deceased.
It is common ground that the shares were never transferred. The project was unsuccessful, and the company effectively ceased operations by 2009.
The Genesis of the Action
James Stuart Marshall is the son of the deceased, the executor of his estate and the new trustee of the Stuart James Marshall Family Trust, having taken over from the deceased upon his death. Both the plaintiff and the deceased were closely involved with their family construction business Marshall & Brougham.
In 2011, in the course of his duties as the executor of the deceased’s estate, the plaintiff discovered that a significant sum of money had been paid to the defendant, seemingly pursuant to a written agreement concerning a loan concerning shares in a company called Velocitimage. He had inquired with the defendant about the ‘Velocity group’ and whether the shares still existed. He received an email reply from the defendant indicating that the shares hadn’t been issued, and that it all related to an imaging kiosk project which the defendant had ‘put on the back burner’ with the suggested blessing of the deceased.
Mr Marshall looked into that company, reviewed the records of Marshall & Brougham and his deceased father, and on 2 August 2012 wrote to the defendant observing that pursuant to a written agreement, which he claimed was a loan agreement, the deceased had lent the defendant $500,000.00 between 8 June 2007 and 21 July 2008, that the defendant had failed to allocate and transfer from his shareholding certain shares mentioned in the agreement within the period specified in the agreement, and consequently asserted that such failure was a fundamental breach of contract entitling the plaintiff to terminate it as executor of the estate. The return of the $500,000.00 was demanded. It was not paid. Hence this litigation.
Was there an agreement, and if so, for what?
The plaintiff tendered a series of documents. These documents show that the Marshall & Brougham office manager Ms Kaylene O’Donovan faxed a document to the defendant on 12 June 2007 which was signed by the defendant then faxed back to the deceased who signed it as well. That is the document that the plaintiff claims constituted a contract by the deceased as trustee to lend money to, and purchase shares from, the defendant. Given the importance of that document, I attach it below in full.
Banking and financial records were then tendered. Ms Kaylene O’Donovan, the Marshall & Brougham accounts manager gave evidence. The records show that on 12 June 2007 $250,000.00 was transferred from Marshall & Brougham to the deceased, who then paid $250,000.00 out. Ms O’Donovan’s evidence and other records establish that those monies were originally from Marshall & Brougham but were booked to the deceased’s private account and then paid by cheque to Velocitimage. The effect of that, according to Ms O’Donovan, which I accept is the case, is that the deceased was advanced those monies by Marshall & Brougham, which were then booked as a sum he owed to Marshall & Brougham, and the funds were then paid by way of cheque to Velocitimage. Similarly, on 10 September 2007 $100,000.00 was paid, on 13 December 2007 $50,000.00 was paid, on 21 January 2008 $50,000.00 was paid and a further $50,000.00 was paid on 14 July 2008.
Ms O’Donovan gave evidence, and I accept, that all of these sums were booked to the deceased’s private account at Marshall & Brougham, where in the ordinary course, along with other private accounts that members of that firm would draw against, it would be brought to account at the end of each tax year. They were I find, drawings by the deceased from that business.
Extensive email correspondence between the deceased and Mr Harrop was also tendered. I have regard to, but do not repeat it all here. In short, the documents show that over the course of the next year or so, a digital imaging kiosk project was developed by Velocitimage, and efforts were made by Mr Harrop to place these kiosks in retail premises and that included overseas chains of shops. Ultimately, that business was not successful. There is no email or other correspondence anywhere that refers to the issuing of shares, or that contains any discussions, directions or otherwise between the deceased and the defendant about the issuing of shares or the repayment of the monies advanced by the deceased.
The deceased’s will, dated simply “2008”, was tendered. It is plain from that will that the deceased thought the shares had been issued to him.
On the basis of Ms O’Donovan’s evidence I am satisfied that Marshall & Brougham were instructed to and did treat the payments they made totalling $500,000.00 as a loan from the company personally to the deceased, which would be accounted for and paid back or relevantly set off against other financial arrangements, at the end of each relevant tax year. The documentation indicates that the monies were paid to the deceased as trustee for his family trust. The alleged loan document also states that the deceased was acting as trustee for his family trust.
Ms O’Donovan also gave evidence that prior to the execution of the suggested loan agreement previously set out in this judgment, the defendant had forwarded a differently worded proposed ‘Memorandum of Understanding’ to the deceased on or about 7 June 2007. I will not set that out in full, but it is relevant to note that that document proposed a Memorandum of Understanding between the defendant and Marshall & Brougham Pty Ltd whereby monies would be advanced by Marshall & Brougham Pty Ltd to Velocitimage, the defendant would simultaneously grant Marshall & Brougham options to purchase shares, the options to be exercisable by way of certain payments. Other terms were included, including provision for what would occur if the options were not exercised. The defendant signed that and faxed it to the deceased. It is plain that the deceased did not agree to or accept that, and instead the parties executed the document earlier set out.
I accept the evidence of James Stuart Marshall and Kaylene O’Donovan. They were straightforward witnesses whose evidence was not realistically challenged.
The defendant gave detailed evidence. He said he had known the deceased for many years and they had not only been friends but undertaken a number of commercial projects together.
He described how he initially embarked upon a digital kiosk project through a company he owned called Velocitimage Pty Ltd. The defendant said he had a lot of existing intellectual property from previous ventures that he put into the new venture, and the plan was to market and install automatic photo printing booths in shops owned by others. He said that after the project was commenced there were opportunities to place kiosks in Australian shops, but they faced increasing competition locally, so the defendant thought to place these photo processing kiosks into the premises of European retailers. As that would require a deal of capital, he approached the deceased and proposed that he invest in the business.
The defendant did not dispute that he had sent a draft proposed Memorandum of Understanding to the deceased on 7 June 2007, nor that the deceased had refused to proceed with that, but rather they had both executed the agreement set out earlier in these reasons, faxed to him by the deceased on 12 June 2007, and executed by them both on that day or shortly afterwards.
The defendant gave detailed evidence as to his efforts to develop the kiosk, to initially place it in Australian retail premises and ultimately with European retail chains. At least one kiosk was installed locally and the court received photos and other materials concerning that. It is clear from the accounts that some income was received for several years, but that the project was ultimately unsuccessful and petered out.
The series of emails tendered by the plaintiff indicating that the defendant regularly communicated with the deceased about how all of this was going over the 2007 and 2008 years, was admitted by the defendant. The defendant said that ultimately they agreed to not proceed with the Velocitimage project for the present, and agreed to focus on another project which went ahead.
He agreed he signed the agreement that is apparently executed by the defendant and the deceased, after he had proposed the earlier Memorandum of Understanding. Mr Harrop agreed that he had not allocated and transferred the shares mentioned in the signed agreement. He said that over time he had discussions with the deceased about issuing the shares but that he was given no indication by the deceased of where the shares ‘would rest’. In other words, to whom they should go. Mr Harrop said this went on for over a year and he got no answer. He said he asked repeatedly. The defendant said that they had deliberately not dated the signed agreement and that the deceased said he would date it when he decided where the shares should go. The defendant said he questioned the deceased about where the shares were to go and was told the deceased didn’t know where to put them.
The court closely scrutinised this evidence as it ran counter to the available documentary evidence.
The agreement itself states that the loan would commence on 8 August 2007. It was accordingly already effectively dated. This runs counter to the suggestion in the defendant’s pleadings and repeated at some points in the defendant’s evidence that the deceased did not want the shares until he dated the agreement. It is clear from the agreement that the deceased required the shares to be transferred to him within 60 days. That ran counter to the suggestion by the defendant that the deceased did not know where he wanted them to go. Further, despite the extensive email correspondence between the parties on all manner of detail concerning the project,[1] there is not a single reference anywhere to the deceased allegedly being unsure where he would like the shares to go nor that he did not want the shares until the agreement was dated. Further, there is no documentary or email evidence anywhere of the defendant’s claimed regular requests of the deceased that he nominate to whom the shares were to go. Finally, it is clear from the deceased’s 2008 will that the deceased thought the shares had been transferred to him.
[1] Some of which is set out in P7.
Whilst it is possible that the discussions asserted by the defendant did occur, where one party is deceased and unable to attend and give their own side of the story, a court must carefully examine the evidence that is given and have close regard to any circumstantial or independent indicators of whether the evidence given by the surviving participant is true, particularly where that is uncorroborated evidence strongly in their own self interest.
In cross examination the defendant agreed that in fact a total of $550,000.00 had been conveyed pursuant to his arrangement with the deceased. He said they had a formula for the price of the shares which was set out in the typed document and said that he and the deceased had a verbal understanding that the deceased would ultimately receive 10% of the equity in Velocitimage in return for the capital he was injecting.
I have had regard to the defendant’s detailed evidence about the development of the kiosk business and of his dealings with the deceased. I do accept that he did develop and progress the Velocitimage business in the overall way that he said he did. I’m less prepared to accept the detail of what was said and done in the absence of documentary support. Regrettably, at times the defendant’s evidence was jumbled and sometimes inconsistent. I make allowance for the fact that these events were six or seven years ago and also make allowance for the difficulties that the defendant explained during cross examination he had had in several ways. Some of the latter emails Mr Harrop sent to the deceased gave an unrealistically optomistic view of the project’s prospects, given the increasingly obvious lack of capital needed to fulfil the ostensible requirements of those with whom he was dealing. In any event, I find that the emails sent by Mr Harrop certainly by January 2008, were quite unrealistically optimistic about the project. So much so that in the final analysis I find they do reflect on his credit.
That optimism enabled the defendant to continue to seek and receive the ongoing payments from the deceased that are the subject of this action, both in January and July 2008.
Some other aspects of the defendant’s evidence also gave rise to concerns as to its reliability. In cross examination he indicated that Velocitimage may have some current value, such that the issuing of shares to the deceased or his estate in 2011, or currently, would also represent value. That is plainly not the case. The company has no other business, very significant carry forward losses and the technology it possesses is now some seven years old in a rapidly evolving field. Further, the primary reason he advanced in his evidence for not issuing the shares to the deceased at the time was that the deceased was unsure to whom those shares would go and he could never get any decision out of the deceased as to who they should be allocated to, whereas the only basis for that pled in the defence is that the deceased requested he not do so until the loan agreement was dated.
In the final analysis after giving the closest scrutiny I can to all the evidence, I am not persuaded on the balance of probabilities that there were discussions as claimed by the defendant, whereby the defendant regularly tried to ascertain who to issue the shares to but could not do so due to the deceased not having decided on, or not knowing who the shares should go to, and not dating the agreement.
Accordingly, I find that whilst there was a business developing photo kiosks as outlined by the defendant and as reflected in all the documentation tendered, I accept on the balance of probabilities that the documents signed in June 2007, together with the emails and other documentation tendered represent the events, and are more likely to reflect the tenor and subject matter of the communications between the deceased and the defendant, than the defendant’s evidence. I do not accept on the balance of probabilities that any other arrangements or qualifications as suggested by the defendant and put as the defence case occurred.
The Parties
There has been disagreement in this case as to who the parties were to the arrangements whereby ultimately $550,000.00 was transferred.
I find that it is plain from the rejected proposed initial Memorandum of Understanding, initially proposed by the defendant and rejected by the deceased, and the subsequent ‘agreement’ signed by both the defendant and the deceased, what was ultimately both intended and agreed at the outset, and by whom.
In particular, I find that it is clear who the parties to the arrangement were.
The first party to the agreement was the deceased as trustee of his family trust. It is plain from the document. I find that the current trustee stands in his shoes, validly exercising all the deceased’s rights in relation to this matter. I find that the other party was Barry John Harrop, the defendant, in his personal capacity. That is also plain from the document.
Was there a contract and if so for what and in relation to which sums?
There are a number of elements to the document executed on 12 June 2007 which together make it clear, and I find, that it was intended by the parties to constitute a binding agreement between the deceased and the defendant whereby the deceased agreed to lend the defendant $250,000.00, which loan would be converted into the purchase of a specified quantity of shares by the deceased from the defendant, within 60 days.
The 12 June 2007 document[2] is headed ‘Agreement’. It is expressed to be between ‘Barry John Harrop’ and ‘Stuart James Marshall’. It ostensibly sets out an agreement in plain terms. It is executed by both parties.
[2] Its date is clear from the fax annotations to the document, indicating a signed copy was sent, signed by the other party and returned on that same day.

I find that it was an agreement. I find the agreement was to commence on the specified date of 8 August 2007, was for a loan of $250,000.00 by the deceased as trustee of his family trust to the defendant personally, and contained a term that within 60 days of 8 August 2007 the defendant would convert that loan to a share purchase of shares held by the defendant. This would be effected by transferring 50 of the defendant’s own Velocitimage shares to the deceased.
Was the $250,000.00 contract breached?
I find that, in breach of that contract, the defendant never transferred the shares. I find that the term in the agreement to transfer the shares was either a fundamental term or an intermediate term of importance, it being one of only two primary purposes of the agreement. The breach of either a fundamental term or an intermediate term of sufficient importance, and I find it was of sufficient importance, would entitle the deceased to terminate the agreement.[3]
[3] Bunt v Nati [2012] FCA 1089, upheld on appeal in Nati v Bunt [2013] FCAFC 60, Roxborough v Rothmans [2001] HCA 68, Cheshire and Fifoot Law of Contract 10th Edn at 21.11, Carter’s Breach of Contract 2011 at 6-02, 6.21 to 6.45.
This accordingly entitled the Stuart James Marshall Family Trust by its current trustee, to terminate the agreement some four years later for that breach, when the term had still not been performed.
The breach meant that there had been a total failure by the defendant to perform his only obligation under the contract, which was to transfer Velocitimage shares to the deceased as trustee for the Stuart James Marshall Family Trust.
I find that the breach entitled the plaintiff to terminate. There was accordingly a total failure of consideration on the part of the defendant, and the plaintiff is accordingly entitled to the return of the $250,000.00 lent to the defendant.
Was there a contract for the further $300,000.00, and on what terms?
I find, in relation to the remaining $300,000.00 advanced by the deceased to the defendant, that the 12 June 2007 document did not itself amount to a binding contract. Rather, it articulated a formula for the future purchase of further shares on an expressed financial basis. I find the document is insufficiently clear as to whether those sales would definitely occur, whether those future transactions would be by way of loan to convert to sale and purchase of shares, or effected by some other method, and too unclear in relation to any time frame, for it to constitute a binding contract for the sale of those shares.
It is plain from all the evidence that a further $300,000.00 was advanced by the deceased to the defendant for the purchase of further shares in Velocitimage.
I find in relation to that further $300,000.00, that when those monies were paid to the defendant it was pursuant to an agreement which is only partly evidenced in writing by the 12 June 2007 document. I find those monies were paid in the expectation by the deceased and the agreement of them both that he would receive shares in the numbers described in that document, which would be transferred to him, and that simply never occurred. When those monies were paid by the deceased and accepted by the defendant, a contract was concluded to purchase the corresponding number of shares set out in the Schedule contained in the 12 June 2007 document for the prices therein articulated. There was however no agreed time frame for such transfer, and in the absence of specific agreement a term to transfer the shares within a reasonable time should be inferred. A subsequent failure to transfer those shares within a reasonable time would represent a breach of a term of that contract.
Was the $300,000 contract breached?
It is common ground that no shares were transferred to the plaintiff, as required by the further contract.
I can however find no evidence that the parties placed any particular importance on the time frame for such transfer, in the way that they did in the 12 June 2007 document for the initial $250,000.00. Accordingly, I do not find that term to be either a fundamental term or an intermediate term of sufficient importance such that its breach would entitle termination. It is I find an ordinary term the breach of which would merely potentially entitle the plaintiff to specific performance or damages.
Accordingly, the plaintiff was not entitled to terminate this subsequent $300,000 contract concerning the purchase of further shares, as he purportedly did in 2011.
Conclusions
Accordingly, I find that a contract existed between the deceased and the defendant whereby the deceased agreed to loan the defendant $250,000.00, such loan to commence on 8 June 2007. A term of that agreement was that within 60 days, in satisfaction of that loan, the defendant was obliged to transfer 50 of his own Velocitimage shares to the deceased. The defendant failed to affect that transfer, although the deceased thought he had done so. That term was either fundamental or at least an intermediate term of sufficient seriousness to justify termination for its breach. The deceased and his successor as trustee were entitled therefore to terminate the contract. There was a total failure of consideration by the defendant. In light of that total failure of consideration, the plaintiff is entitled to the return of that $250,000.00.
I find that there was a further agreement, evidenced partially by the document dated 12 June 2007, that further payments by the deceased would be for the purchase of the defendant’s shares in accordance with the price set out in the 12 June 2007 agreement, which such shares would be transferred within a reasonable time. That term, in all the circumstances, was not a fundamental or serious intermediate term the breach of which would justify termination.
I find that a further $300,000.00 was paid to the defendant by the deceased and that a contract was thus concluded for the transfer of more of the defendant’s shares in accordance with the price set out in the document of 12 June 2007.
I find that those shares were never transferred, in breach of that contract.
I find that the breach of the implied term to transfer the $300,000.00 of shares within a reasonable time was not such as to justify termination, and accordingly that contract was not validly terminated by the plaintiff, and accordingly the plaintiff is not entitled to the return of the further $300,000.00 claimed. It would base an action for specific performance, or damages, neither of which would likely be of any value to the plaintiff, and accordingly no such action has been pursued.
Accordingly, there will be judgment for the plaintiff in the sum of $250,000.00.
I will hear the parties as to any further orders and costs.