Tolcher v Loiterton

[2002] NSWSC 373

CITATION:	Tolcher v Loiterton and Others [2002] NSWSC 373
FILE NUMBER(S):	SC 5063/00
HEARING DATE(S):	16/04/02,17/04/02
JUDGMENT DATE:	3 May 2002
PARTIES :	Raymond George Tolcher - Plaintiff/Cross-Defendant John Barrie Loiterton - First Defendant/Cross-Claimant Peter James Loiterton - Second Defendant/Cross-Claimant Ian Robert Hall - Third Defendant/Cross-Claimant
JUDGMENT OF:	Gzell J

COUNSEL :	R K Newton for the Plaintiff R K Weaver for the Defendants Mr Hall in Person
SOLICITORS:	Walker Insolvency Lawyers Phillip Anthony Biber Lawyer
CATCHWORDS:	Corporations - deed of company arrangement - construction - valid resolution of meeting of creditors to enforce administration deed - no estoppel against administrator - no representations - reliance upon legal advice and not representations - not unconscionable - lack of clean hands - no breach of Fair Trading Act 1987
LEGISLATION CITED:	Corporations Law Fair Trading Act 1987
CASES CITED:	Re Vanfox Pty Ltd (1994) 13 ASCR 825 Jones v Dunkel (1958-1959) 101 CLR 298 Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 at 404 The Commonwealth v Verwayen (1990) 170 CLR 394 at 444-446 Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641
DECISION:	See pars 27 and 28

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

FRIDAY 3 MAY 2002

5063/00 RAYMOND GEORGE TOLCHER v JOHN BARRIE LOITERTON & OTHERS

JUDGMENT

1 The defendants as the directors of Leisuremark Australia Pty Ltd (“Company”) resolved to appoint the plaintiff as administrator on 25 August 1998 pursuant to the Corporations Law, s 436A. On 21 September 1998 the second meeting of the creditors of the company was held at which the creditors resolved to accept a proposal for a Deed of Company Arrangement. In accordance with s 444B, the deed was executed on 9 October 1998 as was an associated Administration Deed. The plaintiff claims that the Deed of Company Arrangement is still on foot and that the defendants are liable to pay to him $450,000.00 pursuant to its terms and those of the Administration Deed. The defendants claim that by reason of representations made by and on behalf of the plaintiff, he is estopped from claiming that the defendants are liable to pay $450,000.00. In the absence of prejudice and in order to enable the real dispute between the parties to be determined, I gave leave at a late stage of the proceedings to the defendants to amend their cross-claim to allege that the Deed of Company Arrangement terminated on 31 March 1999 and is no longer enforceable.

2 Clause 2.1 of the Deed of Company Arrangement provided that it was conditional upon the secured creditor agreeing to discharge or assign its security upon payment of $600,000.00 and upon the due execution of the Administration Deed within one month. It is common ground that clause 2.1 was satisfied. Clause 4 of the Deed of Company Arrangement was as follows:

“The Administrator shall within 14 days from the date of this Deed of Company Arrangement enter into an Administration Deed with the Company, the Contributors and the Deferred Creditors which shall provide for:
(a) the Deferred Creditors to be barred until the termination of this Deed of Company Arrangement from making any claims against the Company; and
(b) the Contributors to pay or cause to be paid to the Administrator the total sum $450,000.00 by instalments in the amounts and on or before the respective dates specified in Schedule B .”

The Contributors were the Company and each of the defendants. The Deferred Creditors were the first defendant and a company associated with him and the third defendant and a company associated with him. The scheduled payments were $100,000.00 on 31 March 1999, $100,000.00 on 30 June 1999 and $250,000.00 on 30 September 1999.

3 Clause 5.1 provided that the Administration Fund should consist of all funds paid by the Contributors and the proceeds of realisation of assets. Clause 5.6 provided that the Administrator should distribute the Administration Fund to participating creditors in accordance with the Deed of Company Arrangement. Clause 6 provided for the determination of claims by creditors and clause 7 provided for the distribution of the Administration Fund in payment of the Administrator’s expenses and remuneration and in payments to priority creditors and then to participating creditors. Clause 9.1 defined termination events. It provided:

“For the purpose of this clause 9, a Termination Event occurs on the happening of any one of the following events:
(a) If the Company fails to make any payments to the Administrator in accordance with the terms of the Administration Deed;
(b) If the sum of $600,000.00 is not payed to the Secured Creditor in accordance with the Settlement Deed, or pursuant to such extension or variation thereof as may be agreed to by the parties to the Settlement Deed;
(c) If the Administrator at any time determines that it is no longer practicable or desirable to continue to implement this Deed of Company Arrangement.”

A termination event occurred in terms of clause 9.1(a) on 31 March 1991 when the Company and the defendants failed to pay the first instalment of $100,000.00. Clause 9.2 was in the following terms:

“Notwithstanding anything else contained in this Deed of Company Arrangement, should a Termination Event occur, then the Administrator shall convene a meeting of creditors pursuant to section 445F(1)(a) of the Corporations Law .”

The plaintiff convened a meeting of creditors on 30 April 1999. Clause 9.3 of the Deed of Company Arrangement was as follows:

“At a meeting of creditors convened pursuant to Clause 9.2 above, the Creditors may resolve:
(a) to vary the terms of this Deed of Company Arrangement in accordance with the powers conferred by Section 445A of the Corporations Law ;
(b) to terminate this Deed of Company Arrangement in accordance with the powers conferred by Section 445C(b) of the Corporations Law ;
(c) to terminate this Deed of Company Arrangement and wind up the Company in accordance with the powers conferred by Section 445E of the Corporations Law ;
(d) to enforce the terms of the Administration Deed; or
(e) accept any other proposal permitted by the Corporations Law .”

At the creditors’ meeting on 30 April 1999 the following resolution is recorded as having been passed:

“That the Deed Administrator be authorised and instructed to enforce the service (sic) of the Administration Deed.”

It is common ground that the resolution was to enforce the terms of the Administration Deed.

4 The Administration Deed was executed by the plaintiff, the Company, the defendants and the two companies associated with the first defendant and the third defendant mentioned above. Clause 2 provided that the claims of the Deferred Creditors against the Company were barred until the termination of the Deed of Company arrangement. Clause 4.1 was in the following terms:

“The Contributors shall pay to the Administrator, for payment to the Administration Fund created by the Deed of Company Arrangement, the sum of Four hundred and fifty thousand dollars ($450,000.00) in the amounts and on or before the respective dates specified in Schedule 2 .”

That schedule contained the same payment regime as was provided in the Deed of Company Arrangement. Clause 4.2 provided that any money paid to the Administrator by the Contributors was not refundable. Clause 4.4 was in the following terms:

“If the Contributors fail to make any payment in accordance with clause 4.1 above or within seven days of demand being made then the Contributors shall be in default of this Deed and the provisions of clause 9 of the Deed of Company Arrangement shall apply.”

5 The Corporations Law, s 445C provided:

“A deed of company arrangement terminates when:
(a) the Court makes under section 445D an order terminating the deed; or
(b) the company’s creditors pass a resolution terminating the deed at a meeting that was convened under section 445F by a notice setting out the proposed resolution; or
(c) if the deed specifies circumstances in which it is to terminate - those circumstances exist;
whichever happens first.”

The defendants argue that in terms of s 445C(c), the Deed of Company Arrangement specified in clause 9.1(a) a circumstance in which it is to terminate and, in consequence, upon the failure to pay the first instalment of $100,000.00 on 31 March 1999 the statutory provision operated to terminate the Deed of Company Arrangement. The defendants rely upon Re Van Fox Pty Ltd (1994) 13 ACSR 825. In that case a deed of company arrangement provided for the termination of the deed if there was non-compliance with any of its conditions. One condition was the payment by a named director of moneys to a fund to enable the company to pay off the Australian Taxation Office and to pay a dividend to non-priority creditors. Thomas J held that when the obligation to pay had crystallised and no payment was made, the deed of company arrangement terminated in terms of s 445C(c). In the instant circumstances, however, the Deed of Company Arrangement does not provide for immediate termination upon the occurrence as what is described as a termination event. What is required upon the occurrence of a termination event is the convening of a meeting of creditors in accordance with clause 9.2 and the consideration by that meeting of the alternatives set forth in clause 9.3. It is only if a resolution for the termination of the Deed of Company Arrangement under ss 445C(b) or 445E is passed by the meeting that the Deed of Company Arrangement is terminated. The other possibilities, one of which was activated in the instant circumstances, continues the Deed of Company Arrangement. Since the creditors on 30 April 1999 resolved to enforce the terms of the Administration Deed there was no termination of the Deed of Company Arrangement in terms of s 445C(c) and the deed continues in existence. In this respect the plaintiff is entitled to the declarations sought that the Deed of Company Arrangement is not terminated and that the meeting of creditors held on 30 April 1999 was validly constituted and the business conducted thereat was validly conducted, those matters not having been put in issue in the proceedings before me. It follows that the amendment to the cross-claim alleging that the Deed of Company Arrangement terminated on 31 March 1999 and is no longer enforceable, must fail.

6 The cross-claim is based upon two separate representation events. The first is said to have occurred when the plaintiff and his partner were negotiating with the defendants to formulate the Deed of Company Arrangement to be put to the creditors at the second creditors’ meeting. It is alleged that the plaintiff represented to the first defendant at the first meeting of creditors on 1 September 1998 that the defendants would have no personal liability to make payments for the benefit of creditors under any deed of company arrangement and that if no payments were made the likelihood was that the company would be put into liquidation. It is also alleged that Mark Andrew Franklin, a former partner of the plaintiff, made a like representation to the third defendant thereafter. The second representation event is alleged to have occurred during the second meeting of creditors on 21 September 1998. It is alleged that Mr Franklin represented to the third defendant that if the defendants failed to pay any part of the $450,000.00 they would have no personal liability, the Deed of Company Arrangement would cease and the likelihood was that the company would be put into liquidation.

7 All the deponents of affidavits read in the proceedings were cross-examined. The first defendant said there were no assets in the Company and he made an offer with no strings attached to pay $200,000.00 on the legal advice of Mr Biber at the first meeting of creditors. Mr Biber was the solicitor to a number of companies in which the first defendant was interested. His office was next to the first defendant’s office and they met for about two hours early on each day. The first defendant asserted that he had a perfect recollection of the first creditor’s meeting and the conversation he alleged he had with the plaintiff. The first defendant was shown an early version of the deed of company arrangement which had been sent on behalf of the plaintiff to Mr Biber. He said he did not agree with the document because clause 10(iv) provided that in the event that the company was unable to comply with the document the administrator could convene a meeting of creditors which could resolve to enforce the terms of the deed. In one of his affidavits the first defendant swore that on or about 14 September 1998 he saw a document containing provisions for a proposed deed of company arrangement which he did not recall whether he signed or not but he approved of its contents. Shown a copy of a proposed deed of company arrangement signed by the other defendants on 14 September 1998 and forwarded on that date by the third defendant to the plaintiff’s office, the first defendant accepted that it was the document referred to in the affidavit. That document also contained clause 10(iv). The following exchange took place:

“Q: And where you say in the next sentence of paragraph 9 of your affidavit, “but I approved of its contents”?
A: Yes I now say that I did not sign it but I broadly approved of its contents. I still have reservations otherwise I would have signed it.
Q: What you have said in your affidavit is not strictly correct?
A: Not exactly correct.
Q: A bit careless with the truth?
A: Not true.
Q: In what respect is it not true?
A: At that time when I signed the affidavit I did not recall I had signed it. I now know I signed (sic) it.
Q: The statement, “I approved of its contents”, that’s not true?
A: I think if I had the option of changing it I would say I broadly approved of its contents in the - yes, that’s if I did it today that’s what I would say but I don’t dispute what I put into the affidavit.”

In his affidavit the first defendant said that after 14 September 1998 he saw the plaintiff’s second report to creditors. In cross-examination the following occurred:

“Q: You said a moment ago that you don’t recall having seen the second report to creditors, that is to say the document at page 71. Do you stand by that?
A: Yes, I don’t – until I saw it during the case I don’t recollect it. I don’t previously recollect having seen it.
Q: So, when you say in paragraph 10 of your affidavit?
A: Yes, I understand. I just can’t reconcile the two. At that time obviously I was shown by my solicitors a report to creditors and I have the document in the affidavit. I have stated I subsequently saw the second report. Looking at the document here, I just have no further recollection of the matter but at that time I stand by my affidavit. I just don’t recollect it now.”

Contrary to his assertion of perfect recollection of events, I find that the first defendant’s recollection is imperfect. The first defendant did not take any steps to inform the creditors of his reservations about the document which was the one placed before them at their second meeting. His reservations were reflected in the final documentation and he said, in consequence, they stood on their own feet to the creditors who viewed them. The first defendant said that he received on several occasions from Mr Biber advice that his concerns were addressed in the final documentation. The first defendant did not attend the second creditors’ meeting. It was the third defendant who was attending to this matter. The first defendant did not tell the third defendant to communicate to the second meeting of creditors that he would be under no personal liability in the event that he could not pay. Clause 5 of the proposed deed of company arrangement put to the second meeting of creditors provided: “The Directors will pay to the Administrator $200,000 within sixty days of the Deed’s signing to provide a Deed Fund”. The first defendant agreed that there was nothing in the proposed deed put to the meeting which indicated the absence of personal liability in the event that the directors could not pay. That was a conclusion, he said, that he and the third defendant had reached following advice.

8 During the second creditors’ meeting the fund to be provided by the directors was increased to $350,000 and subsequently to $450,000 payable by instalments and the provision precluding creditors from enforcing personal guarantees against any of the directors was deleted. On 8 October 1998 Mr Biber wrote to the plaintiff’s firm suggesting amendments to the Deed of Company Arrangement and Deed of Administration which had been drafted by the then solicitors for the plaintiff following the second creditors’ meeting. The letter did not contain any suggestion that the directors or the company would not be bound if they were unable to meet the instalment payment schedule. The first defendant said he was satisfied with the terms of the final Deed of Company Arrangement which he executed on 9 October 1998. It still contained the former clause 10(iv) as clause 9.3(d) but he said it was now in the context of clauses 9.1 and 9.2 and that context satisfied him, looking at the Administration Deed in parallel, because they were interdependent upon one another.

9 I formed an adverse opinion of the first defendant and concluded that he was not opportunist. He was prepared to allow a document to proceed to the second meeting of creditors which contained no inkling of an exclusion of personal liability in the event that the directors or the Company could not pay the instalment regime. He says he was advised by Mr Biber that his concerns were satisfied in the final documentation. That satisfaction rests upon the argument, which I have rejected, that the right of a meeting of creditors to enforce the terms of the Administration Deed in terms of clause 9.3(d) of the Deed of Company Arrangement was forestalled by a failure on the part of the defendants and the Company to pay the first instalment, thereby creating a termination event in terms of clause 9.1(a).

10 The first defendant agreed in cross-examination that it was not until after the commencement of the current proceedings that it was asserted that there was no personal liability on the part of the directors of the Company. He denied that it was a recent invention which had not been thought of until after the commencement of the proceedings.

11 In one of his affidavits the first defendant had sworn that during April 1999 the third defendant telephoned him and advised him that the administrator had called a creditors’ meeting to consider what to do since the first instalment under the Administration Deed had not been paid. The third defendant reported to him that he had told the plaintiff that there was no alternative other than to put the Company into liquidation. The first defendant swore that he agreed with that view. In cross-examination he was asked whether it occurred to him that the creditors might resolve to take the step of enforcing the Administration Deed. He said his advice was to the contrary and then:

“Q: Was your advice that they would not or could not?
A: My advice was that it was simply that, I don’t know the legal terms for it, but my advice from the solicitors was that in the event that where unable to make the first payment then the Deed would fail, the Deed would cease. I think the words, I can’t remember whether it was ceased or terminated automatically, but they were the sort of words that we used.
Q: And was that advice given in April 1999 or was that the earlier advice to which you refer?
A: It was a consistent advice.

Q: So apart from that advice you have no reason for saying that there was no personal obligation?
A: Apart from that advice, again I say that when the documentation was executed, there was a genuine position that I intended and I assured each of the directors were going to pay the funds. Circumstances between 9 October and 31 March had changed dramatically, and as a consequence legal advice was provided to us that seeing we were unable to pay, that the document - the administration had ceased. I mean there was a lot more to it than that but that was the broad base of it.”

In re-examination the first defendant said that the relationship with Mr Biber had existed for 13 to 15 years and had ceased about three to four months before the trial. The first defendant said that the advice as to the operation of clause 9 of the Deed of Company Arrangement was received from Mr Biber when he signed the document of 9 October 1998. The following exchange took place in re-examination.

“Q: And did you have any reason to consider that that advice was contrary to what you’d understood from Mr Tolcher when you first met him?
A: No, I had no – as far as I was concerned - when I discussed with Mr Tolcher earlier in the piece it was a different context because the documentation wasn’t in front of me, but in discussions during the drafting and finality of these documents with Mr Biber, he was unequivocal about the position, notwithstanding it was our genuine intent to pay those moneys.”

12 In one of his affidavits, the third defendant swore that between the first meeting of creditors and the second meeting of creditors, he had a telephone conversation with Mr Franklin in which the following exchange occurred:

“Hall: “What does all this mean? Does this mean we are putting something firm up to the creditors or that the creditors are taking this as a comfort thing to withhold action to force the company into liquidation on the hope that they will receive some proceeds from these contributions?”
Franklin: “It’s that later situation that’s the reality.”
Hall: “If it doesn’t work do we go back to the position that we were in and the process continues?”
Franklin: “Well that’s close to it because any amount you put forward for this purpose you can’t be forced to pay but the company will most certainly go into liquidation.”
Hall: “Look if we get that money then we will pay it but I’m still concerned about what happens if we can’t pay?”
Franklin: “Any amount you put forward for this purpose you can’t be forced to pay. A deed will simply create a moratorium so that if you do fail to pay the most likely consequence, as I said, is that the company will go into liquidation.”

On a number of occasions the third defendant indicated he was prepared to be less than honest in his dealings. During the above conversation he alleged that he said to Mr Franklin that the defendants were only prepared to cover the Administrator’s fees. In cross-examination it was put to him that at the time of this alleged telephone conversation there was no intention on the part of the defendants to pay any money to the creditors of the company the answer was:

“No I am not saying that at all. What I’m saying is that we entered into a situation and we were commercial people as against legal people and as against administrators. We entered into a discussion and were negotiating.”

It was put to him that Mr Biber’s letter of 29 April 1999 challenging the validity of the meeting of creditors convened for 30 April 1999 did not raise the argument that there was no personal liability on the defendants. He answered:

“There is an expression that I have heard around, that sort of goes: keep the musket dry. Don’t fire all your shots at once. There was no need. We were talking about a meeting, not about other matters.”

13 The third defendant said that he signed the draft deed of company arrangement to be put to the meeting of creditors notwithstanding that it did not cover all his points of concern:

“Q: You took great care to ensure that it covered the points of concern to you?
A: Well, I don’t think it had yet – I think it, as it was written as the proposed deed, I don’t think it covered everything. It was a go forward document in my book.”

14 The third defendant and Mr Biber attended the second creditors’ meeting and the third defendant took advice from Mr Biber throughout. He accepted that he did not advise the meeting and nor did anybody else that the directors would be under no personal liability if they did not pay. Mr Biber advised that there was no personal liability with respect to the final documentation which the third defendant thought was a good point because it verified the belief he had that the directors were not going to be attacked individually or personally for the funds if they were unable to meet the programme. If the third defendant genuinely believed that the Administrator’s officers had represented that there would be no personal liability, one would have thought that he would not allow the draft deed of company arrangement, which did not contain such an exclusion of liability, to go forward to the meeting. That he did allow it to go forward suggests either that the alleged conversation did not take place, or that the third defendant was prepared to promote a subterfuge to the creditors.

15 The second representation alleged to have been made by Mr Franklin at the second meeting of creditors does not constitute a representation that no personal liability would arise if the directors were unable to pay. All that was alleged by the third defendant was a statement by Mr Franklin as follows:

“Hall: “Well, that’s good, but what happens if we fail to make a payment. You said to me that the directors can’t be called upon personally to pay?”
Franklin: “Yes. If you can’t pay, then at that time the deed fails and the company will return to the directors, the likelihood is that it will be placed into liquidation.”

When the quality of the representation was put to the third defendant in cross-examination he said that it was in his mind that any personal liability was removed because of the much earlier conversation he had had with Mr Franklin. There was, therefore, no second representation event upon which any alleged reliance was based.

16 In affidavits read in the proceedings both the plaintiff and Mr Franklin denied making the representations. They were both cross-examined. The plaintiff said that he had no recollection of any conversation with the first defendant at the first creditors’ meeting on 1 September 1998 but he adhered to his denial of the conversation alleged by the first defendant to have taken place. Later in cross-examination he said that if he had had the discussion he would have remembered it and he was surprised to read the first defendant’s affidavit where he said he had a detailed discussion with him because the plaintiff had no recollection of it. When it was put to him that he did have the conversation deposed to by the first defendant he said: “I don’t agree”. Later in cross-examination the following exchange occurred:

“Q: Yes, but it makes sense to find out what the directors are and potential contributors might be prepared to put in to get the ball rolling, wouldn’t that make sense?
A: That’s not an unsensible comment to make, no.
Q: What I suggest to you that you did have that conversation with Mr Loiterton and you did discuss the figure of $200,000?
A: Well I don’t recall.
Q: But you don’t say I didn’t discuss it?
A: I’m strong enough to be able to say I didn’t have that discussion at that time or any other time with Mr Loiterton.”

And later still:

“Q: And I put it to you Mr Tolcher that in response to Mr Loiterton’s concern as expressed in relation to not wanting to get into any further personal guarantees, you said you don’t have any personal liability in this matter, if you can’t find the funds on time, what would happen is that we would go back to the creditors and extend the agreement?
A: I didn’t say that.
Q: And then you said if that doesn’t work then the company would be wound up and we would be appointed liquidator?
A: I don’t recall saying that.
Q: You may not recall it Mr Tolcher but you did say it didn’t you?
A: No I did not.”

The plaintiff was not shaken in cross-examination and his answers that he had no recollection were consistent with his denial. His surprise at reading the allegation in the first defendant’s affidavit was, in my view, genuine for had he said such a thing he would have remembered it. It is inconceivable that an administrator would suggest putting to a meeting of creditors a deed of company arrangement that did not even cover the costs of the administration let alone a dividend to creditors if those responsible for establishing the fund had no personal liability in the event that they were unable to pay the agreed contributions.

17 Mr Franklin was extensively cross-examined. Early in the cross-examination the following occurred:

“Q: Do you recall any conversations with Mr Hall to the effect of not paying or not meeting the amount that was agreed to be paid under the administrative deed arrangement?
A: Yes in meetings leading up to the creditors’ meeting, yes.
Q: Did Mr Hall express to you his concern he didn’t want to see himself placed in a difficult position personally?
A: No.
Q: Did you know, you thought that was a little unusual?
A: No, because the company had no assets, there was always going to be the payment for the deed coming from our resources being the resources of the directors so it was always going to be a term of the deed that it was to be paid by the directors.”

When it was put to him that the third defendant or Mr Biber put to him that there was a concern on the directors’ part to ensure they were not going to be personally liable, Mr Franklin said he did not recall. When he was asked whether he was denying that it was ever said, he repeated he did not recall. When asked could it have been said he answered: “May have”. I regarded this as an honest answer and not an evasive one.

18 Rough notes of the second creditors’ meeting were in evidence. They record a comment by one of the representatives at the meeting that she would not be voting against the proposed deeds because they were not enforceable and someone would apply to have them set aside. Mr Franklin did not recall whether he said anything in response to this comment to the effect that the deeds were enforceable. It is suggested that I should draw some adverse inference against Mr Franklin for his failure to recall whether he confirmed the enforceability of the documentation. I reject that submission. I regarded the witness’s response as an honest one indicating that he did not recall whether he made a response or not. Mr Franklin was asked:

“Q: You did not refute what Ms Foate said because it was consistent with what you told Mr Hall, that is, the deeds would not be enforceable against the directors?
A: No that is not correct.
Q: But remained silent when she said that?
A: Well, I can’t recall whether I remained silent, I can’t recall.”

When it was put to Mr Franklin that the purpose of the Deed of Company Arrangement was to “buy some time”, Mr Franklin denied the suggestion:

“Q: And you agree he said to you, “and then we are only probably to cover the administrator’s fees”?
A: No I can’t recall that sentence at all. It goes against the whole purpose of the, the whole structure of the original proposal.
Q: Well if the purpose that Mr Hall identifies to enter into some arrangement was to buy some time to fix up the NAB and then deal with the other creditors, that would be a consistent thing to say wasn’t it?
A: That is not my understanding of the purpose of the deed.
Q: I put to you he did say that?
A: Well that goes against my understanding of the purpose of the deed.
Q: It may but I put to you that he told you it was more likely to only cover the administrator’s fees.
A: I can’t accept that.”

When it was put to him that he said to the third defendant when asked what happened if there was a failure to make a payment, Mr Franklin denied that he said the directors could not be called upon personally to pay it. When it was suggested to him that he was asked what happened if the company could not pay and he said most likely the company would return to the directors and be put into liquidation, he said he could not remember that conversation but it was possible that he said it. Towards the end of his cross-examination it was put to him:

“Q: You can’t recall a lot about this, Mr Franklin, can you?
A: I rely on my file notes and the letters in file that we have.
Q: Yet you are adamant that you never had a conversation with Mr Hall that he’d never have to worry he wouldn’t be personally liable?
A: That’s true.”

19 In re-examination Mr Franklin said that he did not and would never agree to have a deed put up on the basis on its face it provided for a scheme fund but its real purpose was that it was unlikely that payment would actually be made and its purpose was to procure a delay. I found the evidence of Mr Franklin to be convincing. When he did not recall a conversation he said so and his observation in re-examination must be correct. An administrator could not put to a meeting a deed which on its face proposed the establishment of a fund for the payment of the costs of the administration and a return to creditors when it was unlikely that any payment would be made and the purpose was to procure delay.

20 I find that the representation alleged to have been made to the first defendant by the plaintiff was not made. In so doing I prefer the evidence of the plaintiff to that of the first defendant. I find that the first defendant, opportunistically and after the event, asserted the representation by the plaintiff to bolster up the argument that upon the failure to pay an instalment, all liability ceased in terms of clause 9 of the Deed of Company Arrangement.

21 I accept the evidence of Mr Franklin. I find that the third defendant, also, was an opportunist and, notwithstanding his denial of recent fabrication, I find that the alleged representation by Mr Franklin prior to the second creditors’ meeting did not take place. I also find that no representation was made by Mr Franklin at the second meeting of creditors which might have induced the belief in the third defendant that there would be no personal liability of the directors if they were unable to meet the instalment programme agreed to at that meeting.

22 Evidence was also called from the second defendant and Darren Pearce and they were cross-examined. Their evidence does not, however, advance the question whether the representations alleged to have been made by the plaintiff and Mr Franklin, were in fact made. Mr Biber was not called as a witness. The cessation of the relationship between he and the defendants was only two to three months before the hearing. There was ample opportunity to put on an affidavit from him. The fact that it was not done when he could have shed light upon the alleged representations at the meeting of creditors leads me to infer that his evidence would not have assisted the defendants (Jones v Dunkel (1958-1959) 101 CLR 298).

23 In the seminal case of Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 at 404 Mason CJ and Wilson J observed:

“One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has “played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it”: per Dixon J in Grundt (1937) 59 CLR at 645; see also Thompson (1933) 49 CLR at 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.”

To similar effect are the six criteria developed by Brennan J at 428–429. (See also The Commonwealth v Verwayen (1990) 170 CLR 394 at 444-446 per Deane J). Since I have found that the alleged representations were not made, the defendants’ counter-claim based on equitable estoppel must fail.

24 Even if I had found the representations to be proved, I would still have rejected the defendants’ claim to estoppel. First, it is clear from the evidence that the defendants regarded the Deed of Company Arrangement and the Deed of Administration as finally executed as encompassing the effect of the representations. Their position was not one of acting in reliance upon alleged representations. It was one of reliance upon the advice of Mr Biber that the deeds effected that position. In the absence of reliance upon the representations, as distinct from their legal advice, equitable estoppel cannot arise. Secondly, if the representations were made, the defendants were prepared to allow a document which did not reflect and, indeed, suggested the opposite situation, to be placed before the meeting of creditors. In those circumstances not only is it not unconscionable conduct on the part of the plaintiff to ignore any assumption made by the defendants, but also equitable relief should be refused because the defendants come to this Court with unclean hands (Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641).

25 The Fair Trading Act 1987, s 42(1) provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 72(1) provides that if the court finds that a person has sustained loss or damage by the conduct of another in contravention of provisions including s 42, it may make such orders as it thinks appropriate against the person who engaged in the conduct if it considers that the order will compensate the first-mentioned person wholly or in part for the loss or damage. In the alternative, the defendants seek an order pursuant to this section refusing to enforce those provisions of the Administration Deed which would otherwise make the defendants liable to pay the plaintiff $450,000.00 or such other order as the Court thinks appropriate. My findings that the alleged representations as to lack of personal liability were not made means that there was no breach of s 42 (1) and no ground for the operation of s 72.

26 The third defendant appeared in person. In his submissions he referred to a statement in the cross-examination of the first defendant that $249,00.00 was paid to one of the creditors and that, in consequence, the defendants and the Company had paid portion of the $450,000.00. I reject this submission. The defendants did not put the non-payment of $450,000.00 or any part thereof in issue and until the matter was raised in cross-examination of the first defendant, it was common ground that no part of that sum had been paid. The manner in which the $249,000.00 was paid and its effect were not explored in the evidence before me and I am not prepared to make the finding sought in the submissions of the third defendant, simply on the basis of what was said in cross-examination by the first defendant.

27 I am prepared to declare that the Deed of Company Arrangement dated 9 October 1998 between the Company and the plaintiff has not terminated. I am prepared to declare that the meeting of creditors of the Company held on 30 April 1999 was validly constituted and the business conducted thereat was validly conducted. I am prepared to declare that pursuant to the Administration Deed dated 9 October 1998 between the plaintiff, the Company and others, the first, second and third defendants are liable to pay to the plaintiff the sum of $450,000.00. I am prepared to give judgment for the plaintiff in that amount together with interest. I will order that the cross-claim filed by the defendants be dismissed. I will order the defendants to pay the plaintiff’s costs of the proceedings including the costs of the cross-claim.

28 I direct the parties to bring in short minutes of order to give effect to these reasons for judgment.

Last Modified: 05/13/2002