United Rural Enterprises Pty Ltd v Lopmand Pty Ltd

[2002] NSWSC 1178

CITATION:	United Rural Enterprises v Lopmand [2002] NSWSC 1178
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4039/99
HEARING DATE(S):	25/11/02-29/11/02, 2/12/02
JUDGMENT DATE:	12 December 2002
PARTIES :	United Rural Enterprises Pty Limited (Plaintiff) Lopmand Pty Limited (First Defendant) Tracey John Lake (Second Defendant)
JUDGMENT OF:	Campbell J

COUNSEL :	M Cashion SC; J White (Plaintiff) B DeBuse (Defendants)
SOLICITORS:	Kemp Strang (Plaintiff) McCooe Raves & Poole (Defendants)
CATCHWORDS:	CONTRACTS - factual findings re terms of particular contract - findings re construction of particular contract - factual findings relevant to whether rectification of contract should be granted - no question of principle - CONTRACTS - discharge and breach - difference between termination of contract following repudiation, and rescission of contract in equity - CORPORATIONS - oppression - whether oppression arises from corporation A becoming registered as holder of cross-claimant's share and in consequence excluding cross-claimant from participation in affairs of corporation, when corporation B entitled to become registered as holder of cross-claimant's share and exclude cross-claimant from participation in affairs of corporation - MORTGAGES - mortgage over share by deposit of share certificate - rights of mortgagee to enforce security - rights of mortgagee to receive reports and notices of meeting, and to vote - CORPORATIONS - right to receive reports and notices, and to vote, when share subject to mortgage by deposit of share certificate and mortgagee becomes registered - CORPORATIONS - order for inspection of records - rectification of register
LEGISLATION CITED:	Corporations Act 2001 (Cth) Supreme Court Act 1970
CASES CITED:	Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Deverges v Sandemen Clark & Co [1902] 1 Ch 579 Ghana Commercial Bank & Chandiram [1960] AC 732 Harold v Plenty [1901] 2 Ch 314 Heyman v Darwins Ltd [1942] AC 356 Joachimson v Swiss Bank Corporation [1921] 3 KB 110 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Moschi v Lep Air Services Ltd [1973] AC 331 Musselwhite v C H Musselwhite & Son Ltd [1962] 1 Ch 964 Pukallus v Cameron (1982) 180 CLR 447 Siemens & Co Ltd v Burns [1918] 2 Ch 324 Stubbs v Slater [1910] 1 Ch 632
DECISION:	Parties to bring in short minutes

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

CAMPBELL J

12 DECEMBER 2002

4039/99 UNITED RURAL ENTERPRISES PTY LIMITED v LOPMAND PTY LIMITED & ANOR

JUDGMENT

HIS HONOUR:

Nature of the Proceedings

1 United Rural Enterprises Pty Ltd (“URE”) is a company controlled by Mr Gregory Lindsay-Owen. Lopmand Pty Limited (“Lopmand”) is a company controlled by Mr Tracey Lake. In these proceedings, URE sues both Lopmand, and Mr Lake, seeking to recover an alleged debt, together with interest. Those defendants say that the arrangements between URE, Lopmand and Mr Lake are not such as result in Lopmand having a presently enforceable obligation to pay any money to URE. They say that Mr Lake never undertook to pay money to URE. They also say that URE claims interest at the wrong rate. Mr Lake’s wife was once a defendant in these proceedings, but the claim against her has been discontinued.

2 Lopmand and Mr Lake bring a cross-claim against URE, Mr Lindsay-Owen, another of Mr Lindsay-Owen’s companies, called Lindsay-Owen Holdings Pty Ltd, and Painten Holdings Pty Ltd (“Painten”). The cross-claimants assert that they have an interest in two of the three issued shares in Painten. They seek orders for the rectification of the share register of Painten, an order that they be permitted to inspect the books of Painten, and orders for the winding up of Painten, or alternatively that Mr Lindsay-Owen be required to purchase the interest of Lopmand in those shares. As a step towards obtaining that relief, the cross-claimants assert that there was an agreement (the “Letter Agreement”) entered in about June 1996 which is relevant to the nature and quantum of that interest, and also seek the rectification of a settlement agreement, entered on 9 November 2000, relating to these present proceedings and other proceedings.

Background to the Disputed Transactions

3 Painten is a company which came to be used, from 1993 on, as the corporate vehicle for a real estate development project. The project related to the purchase and strataing of seven industrial units in the western Sydney suburb of Marayong, and eventual sale of at least some of those units. Initially the venture was one between companies associated with three men, Mr Lake, Mr Lindsay-Owen, and Mr John Alexander. Mr Alexander held his interest through a company he controlled, Gilbert Frank Investments Pty Ltd (“Gilbert Frank”). Mr Lake, Mr Lindsay-Owen and Mr Alexander were also associated in two other business ventures, one relating to the development of the Milton Tennis Club in Brisbane, the other relating to a product for the surfacing of tennis courts called Ultraclay.

4 There have at all relevant times been three issued shares in Painten. According to the share certificates which were issued for those shares in July 1993, the shares are individually numbered. However, as the parties did not, in their later dealings with the shares refer to them by their identifying numbers, it is convenient to refer to those shares by reference to the names of their initial allottees. Thus, the share held by Lopmand is referred to as the “Lopmand Painten Share”, and the share held by Gilbert Frank is referred to as the “Gilbert Painten Share”. The third share was issued to the trustee of Mr Lindsay-Owen’s family trust, and has at all times thereafter continued to be held by that trustee, so it does not need an individual name.

5 The purchase of the Marayong property was financed as follows. Gilbert Frank lent Painten an amount of $227,500 for payment of a deposit or other initial expenses of the project. The purchase price of the property, together with legal fees, stamp duty and finance and valuation fees, amounted to $4,870,000. Painten borrowed the entirety of that amount from Macquarie Bank. Macquarie Bank took security which included a personal guarantee from each of Mr Lake, Mr Alexander and Mr Lindsay-Owen. As well, Macquarie Bank was given a bank guarantee in the sum of $400,000 by National Australia Bank (“NAB”). National Australia Bank in its turn took guarantees for the payment of that $400,000 from Mr Alexander, Mr and Mrs Lake, Mr Lindsay-Owen, and Gilbert Frank. That guarantee of Mr and Mrs Lake to NAB was secured by a mortgage over their home. In some fashion, NAB also came to have a mortgage over Mr Alexander’s home.

6 The Macquarie Bank loan was drawn down on 29 September 1993. From the money advanced by Macquarie Bank, Gilbert Frank was repaid the $227,500 it had advanced to Painten.

7 On 29 September 1993 Mr Lake signed a letter, on the letterhead of Lopmand Pty Ltd, addressed to Mr Alexander. It said:

“Dear John

RE: Loan of $250,000 to Lopmand Pty Limited
I confirm receipt of the above loan and that it is to be repaid in 12 months time with interest paid six monthly in advance.
Security for the loan will comprise a charge over our one-third interest in Painten Holdings Pty Limited (by way of a signed share transfer for $1.00 for our one-third shareholding) and signed Sales Agreements for two of the subdivided blocks of land at 80 Cabbage Tree Road, Bayview for $125,000 each.
Thank you for your assistance.”

8 Eighty Cabbage Tree Road Bayview was the address of the home of Mr and Mrs Lake. At the time, they were in the process of subdividing the land on which their home was built, with a view to selling off two vacant lots. That subdivision had not been registered by 29 September 1993.

9 On the strength of this letter, Gilbert Frank advanced an amount of $238,000 to Lopmand. It seems to have been the intention of Mr Alexander and Mr Lake that the reference to $250,000 in the letter dated 29 September 1993 included a certain amount of interest in advance.

10 In early 1994 Mr Alexander fell out with Mr Lake. Mr Alexander also came to have some concerns about whether the loan would be repaid. He decided to explore the possibility of severing his various business relationships with Mr Lake and Mr Lindsay-Owen. He went to see his solicitor, Mr Peter Ellis of P J Ellis & Co. Mr Ellis told him that the security he was holding for the loan was not worth the paper it was written on. On Mr Alexander’s instructions, Mr Ellis drafted a loan agreement (“the Ellis Loan Agreement”), which Lopmand and Mr and Mrs Lake executed and returned to Gilbert Frank no later than, and probably on, 4 May 1994.

11 The Ellis Loan Agreement acknowledged that Gilbert Frank had lent Lopmand $238,000 on 22 September 1993, repayable on 29 September 1994. The Agreement contained terms providing for an interest rate of 8.5% per annum calculated on monthly rests, with interest payable six monthly in advance. The Agreement defined “Security Documents” as “The Agreements for Sale and this Agreement”. The “Agreements for Sale” were agreements for the sale of the two lots in the subdivision, at a price of $125,000 each. There was provision for Gilbert Frank to take title under those contracts if ever there was default, resell the lots, and pay to Mr and Mrs Lake any net proceeds of sale which exceeded the amount which Lopmand owed. Thus the arrangement was, in effect, a mortgage over the two lots in the subdivision as security for Lopmand’s obligation to repay principal and pay interest.

12 Around the time he consulted Mr Ellis, Mr Alexander realised that he did not have the share certificate for the Lopmand Painten Share nor any documentation (besides the letter dated 29 September 1993) to give effect to a charge over the Lopmand Painten Share. On 4 May 1994 Mr Alexander received from Mr Lake a share transfer document whereby Lopmand transferred to Gilbert Frank one share in Painten, together with a statement, executed under seal by Lopmand, that it had lost the Share Certificate relating to its share in Painten, and undertaking that if it should be found it would be immediately sent to the company for cancellation. The Share Certificate relating to the Lopmand Painten Share had been found by the time of the trial before me – the share certificates relating to all three issued shares in Painten were produced to the Court in April 2000 pursuant to a subpoena served on Allen Allen & Hemsley. There is no evidence to suggest that the company ever issued a replacement Share Certificate.

13 By 11 May 1994 Mr Alexander had instructed Mr Fitzpatrick of Norton Smith to act for him and Gilbert Frank. On 13 May 1994 a deed was entered into between Gilbert Frank (called the “Mortgagee”), Lopmand (called the “Company”), Mr and Mrs Lake (called “the Shareholders”), Sydney Land Corporation Limited (called “SLC”), Mr Alexander (called “Alexander”), and Mr Lindsay-Owen (called “GLO”). Sydney Land Corporation Limited is a company in which interests associated with Mr Lindsay-Owen held 45% of the shares, interests associated with Mr Lake held 45% of the shares, and a listed New Zealand corporation, with which Mr Lake had a connection, held the remaining 10%. The Deed provided:

“A. The Mortgagee, the Company and the Shareholders entered into an Agreement on [space for date] (the “Loan Agreement”) whereby the Mortgagee lent to the Shareholders the sum of $238,000.00 (the “Loan”) and the Company provided security by way of execution of Security Documents as therein provided. The Loan has now been repaid.
B. SLC and Alexander have interests in connection with a project known as “Ultraclay” for the surfacing of tennis courts (the “Ultraclay Project”).
C. SLC and Alexander have also participated in the proposal for the development of the Milton Tennis Club in Queensland (the “Milton Project”).
D. The Mortgagee and Alexander of the one part and the Company, the Shareholders and SLC of the other part have agreed to separate their commercial interests.
IT IS AGREED as follows.
1. (a) The Mortgagee hereby acknowledges receiving, in full satisfaction and discharge of the Loan, $250,000.00 from Tracey John Lake and Alyson Rosemary Lake.
(b) The Mortgagee and Alexander hereby acknowledge receiving $40,000 in full satisfaction and discharge of all other outstanding loan accounts of SLC, the Company and the Shareholders.
2. Simultaneously with the execution of this Agreement, the Mortgagee will hand over to Lopmand Pty Limited all contracts for sale, transfer of Lopmand’s share and Lopmand’s share script in Painten Holdings Pty Limited (“Painten”) and all other security documentation of whatsoever nature, in respect of the Loan.
3. As a condition of this Agreement Lopmand Pty Limited, Tracey John Lake and GLO shall use all reasonable efforts to procure as soon as possible the discharge and release of John Alexander from the guarantee that he has granted to Macquarie Bank of all of the obligations of Painten in respect of the Marayong Project, other than the $400,000 National Australia Bank Guarantee which shall remain in place, and shall indemnify Alexander from any and all liability associated with his guarantee to Macquarie Bank.
4. In consideration of Alexander and interests associated with him (which Alexander hereby agrees to procure) transferring all his rights, total and interest in and to the Milton Project to SLC, SLC and Tracey John Lake hereby shall and shall procure interests associated with them, to transfer all their right, title and interest in and to the Ultraclay Project, including any intellectual property rights and rights in the name, to Alexander and Alexander hereby accepts such transfer. Alexander shall indemnify SLC, Tracey John Lake and GLO and be responsible for payment of all costs associated with the Ultraclay Project.
5. In consideration of SLC and Tracey John Lake and interests associated with them (which SLC and Tracey John Lake hereby agree to procure) transferring all its and their rights, title and interest in and to the Ultraclay Project to Alexander, Alexander and interests associated with him (which Alexander hereby agrees to procure) agree to transfer all their right title and interest in and to the Milton Tennis Club Project including all intellectual property rights, to SLC and SLC hereby accepts such transfer. Tracey John Lake and GLO will indemnify Alexander and be responsible for payment of all costs associated with the Milton Project, including but not limited to the architect’s fees.
6. While it is acknowledged by the parties that each of the parties may undertake other business in the tennis industry for their own account, whether in tennis clubs or otherwise, each of the parties agree with the other that they will not do anything to prejudice the ongoing success of the Milton Project and the Ultraclay Project.
7. It is the intent of the parties that they will not continue to have any involvement in the management or benefit of the other’s business activities other than in the case of Alexander, his continuing shareholding in Painten.
8. Each of the Mortgagee and Alexander of the one part and the Company, the Shareholders and SLC of the other part hereby releases the other from any claims and liabilities of any nature (including without limitation any costs whether or not the subject of a court order) connected with or incidental to the Loan Agreement, the Securities, the Milton Project and the Ultraclay Project, other than as may arise by reason of this Deed, and any other circumstances whether or not connected with the above or otherwise which could reasonably have been known to them as at the date of this Deed.
11. This Deed contains the entire agreement between the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and, to the full extent permissible by law, supersedes all earlier conduct made by or existing between the parties with respect to its subject matter.”

14 On 13 May 1994 Mr Lindsay-Owen caused an amount of $290,000 to be withdrawn from a deposit which URE had with Rothschild Australia Limited. A cheque in that amount was drawn in favour of Gilbert Frank. That cheque was handed to Mr Alexander’s solicitor, at a settlement which occurred on 13 May 1994. In return Mr Alexander’s solicitor handed to someone who attended the settlement on behalf of Allen Allen & Hemsley the documents he had relating to security for the loan to Lopmand. The $290,000 which was paid consisted of $250,000 to pay out the loan which Gilbert Frank had made to Lopmand, and $40,000 as an agreed amount paid as part of a settlement of all business relations which Mr Alexander had with the other parties to the deed. At this time Mr John Allen, of Allen Allen & Hemsley, acted for both the various Lake interests, and the Lindsay-Owen interests.

Terms on Which URE Paid Out the Loan From Gilbert Frank

15 The first contentious issue in this case concerns the terms on which URE came to pay out Lopmand’s loan from Gilbert Frank. The contention of URE is that Lopmand’s loan was repaid by URE on the basis that Lopmand, Mr Lake and Mrs Lake would each be liable to repay the amount which had been advanced, that the loan would be secured by the Lopmand Painten Share, that the loan would bear interest at 2% above the Westpac Indicator Rate from time to time, compounded monthly, and that the two blocks of land over which Gilbert Frank had held security would also be available as security.

16 The contention of Lopmand and Mr Lake is expressed in the Further Further Amended Notice of Grounds of Defence as follows:

2(f) [URE] and [Lopmand] through discussions between [Mr Lindsay-Owen] on behalf of [URE] and [Mr Lake] on behalf of [Lopmand] discussed what they were prepared to pay for the Ultraclay Project the Milton Project and the Gilbert Painten Share. It was ultimately agreed between [URE] and [Lopmand] that they would transfer their rights to the Ultraclay Project to Gilbert, pay $40,000 for the Milton Project and $250,000 for the Gilbert Painten Share which they would own jointly and that [Mr Lindsay-Owen] and [Mr Lake] would work together to get Mr John Alexander the owner of Gilbert released from guarantees he had given to various lenders for the Painten Project. …
(i) The remaining $250,000 of the $290,000 … was paid to Gilbert and Gilbert accepted the sum in settlement of a mortgage owed to Gilbert on [Mr Lake] and his wife’s matrimonial home at Bayview. …
(k) [URE] and [Lopmand] did not receive the Gilbert Painten Share which they anticipated receiving jointly at this time. …
(m) [URE] and [Lopmand] through [Mr Lake] continued to negotiate with Gilbert and ultimately they were successful in releasing Mr John Alexander from his guarantees and they received the Gilbert Painten Share with no further payment. This share was to be owned jointly between [URE] and [Lopmand].
(o) In entering into the agreement referred to between [URE] and [Lopmand] in sub paragraph (f) above it was agreed that the jointly owned Gilbert Painten Share was to be notionally charged with the repayment of the $250,000 advanced for its purchase. The parties further negotiated on interest rates which [Lopmand] claims were at 8.5% per annum …. Additionally it was agreed:
(i) The repayment of the $250,000 plus interest would firstly come out of the realisation of the Gilbert Painten Share;
(ii) If there was any shortfall under (i) above then the balance would come out of the realisation of the Lopmand Share; and
(iii) That the repayment would come when the Painten Project was finalised and the assets sold.
As a result of the matters set out in this paragraph [Lopmand] claims to be entitled to joint ownership of the Gilbert Painten Share.”

17 There is no document which sets out the basis upon which URE advanced the $250,000. The onus is on URE to establish on what terms URE was advancing the $250,000.

18 These proceedings were begun on 9 February 1998, when URE filed a statement of liquidated claim in the District Court. That statement of claim named Lopmand and Mr and Mrs Lake as defendants. It alleged that URE at the request of the defendants and each of them, paid Gilbert Frank $281,474 on or about 13 May 1994, that the defendants had agreed with URE that interest would be paid on the amount outstanding at 2.5% over the Westpac I L R rate, that the principal sum and interest was repayable on demand, and that demand had been made for it on 19 December 1997. By their defence filed 13 March 1998 the defendants denied all of these allegations, save the making of demand. Both in the amount alleged to have been lent, and in the rate of interest, that claim differs from the claim URE now makes. That is a poor start for URE.

19 Mr Lake, for his part, acknowledges that he has some difficulties in recollection. In one affidavit he says:

“Mr Lindsay-Owen and I shared small offices together and it is extremely difficult now to say precisely who said what and when. I have endeavoured where I have a clear recollection to give my evidence in my affidavits and these proceedings in direct speech but in relation to some matters I say we reached agreements through many conversations the exact details of which I cannot now recall although I recall the arrangements made.”

20 At an earlier stage of these proceedings, Mr Lake had a different contention to that which he now advances, concerning the terms on which the $250,000 was made available. In an Amended Notice of Grounds of Defence filed on 18 August 1999 (which Mr Lake verified) it is alleged:

2(c) In April or May 1994, John Alexander on behalf of Gilbert made known to representatives of [URE] and [Lopmand] that Gilbert wanted to transfer its share in Painten for valuable consideration.
(d) The consideration for the transfer of the share was to be the payment of $250,000 together with the release of John Alexander personally from the bank guarantees which John Alexander had given on behalf of Painten.
3 It was agreed between [URE] and [Lopmand] that each would take one half of the Gilbert Share by:
(a) the plaintiff paying to Gilbert the sum of $250,000 which would be repaid to the plaintiff out of the Gilbert Share when all of the assets of Painten were sold;
(b) that, upon the sale of all the assets of Painten, any amount above $250,000 was to be divided between [URE] and [Lopmand] on a basis of one half to each; and
(c) the defendants were to obtain the release of John Alexander from all obligations in relation to bank guarantees.
4. In accordance with the above agreement:
(a) [URE] paid the amount of $250,000 to Gilbert;
(b) [URE] received a share transfer document in respect of the share in Painten held by Gilbert to be held in trust for itself and [Lopmand].

21 This version is incorrect, in the following respects:

(a) By May 1994 Mr Alexander wished Gilbert to retain its share in Painten. Mr Alexander’s evidence is that the transaction he agreed to with Mr Lindsay-Owen and Mr Lake was a payment out of the debt owed by Lopmand, and an assignment of the security which Gilbert Frank held for that debt. Clause 7 of the Deed entered on 13 May 1994 (set out in paragraph 13 above) expressly contemplated that Mr Alexander would continue to have a shareholding in Painten.

(b) There was no agreement with Mr Alexander to release him from all obligations in relation to bank guarantees. Rather, as Clause 3 of the Deed entered on 13 May 1994 expressly contemplated, the agreement was to use all reasonable efforts to procure the release of Mr Alexander from the guarantee he had given to Macquarie Bank, but to keep on foot his guarantee to NAB.

22 That Mr Lake could have given an account of the basis on which the money was advanced, which is wrong in such important matters, casts serious doubt on his overall reliability concerning the basis on which URE made the money available.

23 Both Mr Lake and Mr Lindsay-Owen gave evidence about the conversations which passed between them about the terms on which the $250,000 would be paid out. I do not regard either of these witnesses as deliberately giving false evidence, but neither do I regard either of them as a reliable witness. Each of them has given, in the past, accounts of transactions relevant to this case which they now accept are incorrect. Particularly so far as events of 1994, and 1996, which are disputed in this case, are concerned, they occurred a long time ago, and it is no surprise to find that memories have become unreliable. In the evidence of both men there are, it seems to me, elements of rationalisation and wishful thinking.

Security for the Loan

24 Mr Alexander gives evidence that in about early May 1994 he had a meeting with both Mr Lake and Mr Lindsay-Owen during which he had a conversation with Mr Lindsay-Owen to the following effect:

LINDSAY-OWEN: “I can’t believe you’re not accepting Tracey’s word and his security. You’ve been mates for so long.”
ALEXANDER: “I have to accept what my solicitor tells me – he says the security is not worth the paper it’s written on.”
LINDSAY-OWEN “Bullshit. The security is good.”
ALEXANDER: “If it’s that good, why don’t you take it over.”
LINDSAY-OWEN: “I will. I’ll pay you out if you give me the security.”
ALEXANDER: “Okay I will.”

I accept this evidence.

25 As well, the probabilities seem to me to favour Mr Lindsay-Owen advancing money on terms which were in no respects worse than those on which Gilbert Frank had advanced it, so far as security is concerned.

26 Mr Lake gives evidence of a conversation between himself and Mr Lindsay-Owen as follows:

LINDSAY-OWEN: I’ll loan you $250,000, to pay out Alexander. The terms of the loan will be the same except that I want interest at Bill rate plus 2% and I’ll take over his securities and his Painten share. When we finish the Painten deal and sell off all the units then I’ll get my $250,000 back plus the interest and I’ll take whatever profit there is on his share”.
LAKE: “That’s okay but I won’t agree to you taking over the security that JA had, there is no need. I have already put up nearly $400,000 to the NAB through the mortgage over my home, and you’ve put in no tangible security. If you put in the $250,000 then your exposure will be approximately equivalent to mine and JA’s”
I won’t agree to you taking his share in Painten. When we finish the Painten deal and sell off all the units then you will get first priority, you will get your $250,000 back plus interest, but I won’t agree to an interest rate higher than the rate I am paying JA, then we’ll split whatever profit there is on his share fifty fifty.”
“I cannot remember whether Mr Lindsay-Owen said any words indicating an acceptance of my counter proposal but he said no words or gave any other indication that he did not accept my counter proposal and he never mentioned interest rate, securities or non joint acquisition of Mr Alexander’s share in Painten again and he withdrew his funds on deposit and we proceeded with arrangements to pay out the Gilbert Frank loan to Lopmand.”

27 It seems to me that there is some implausibility in this account of Mr Lake. While he and Mr Lindsay-Owen were friends, I would not expect Mr Lindsay-Owen to be unbusinesslike about lending money. There was simply no reason for him to agree to lend money on terms less onerous than those on which Gilbert Frank had made the loan. The securities which Mr Lake had provided to NAB were for a different obligation to the obligation concerning this $250,000 loan. While the securities which Mr Lake had made available to Gilbert Frank – a mortgage over two lots in an unregistered subdivision, and a charge over a minority interest in a proprietary company – were securities of a kind which were not particularly bankable, it does not seem very likely that Mr Lindsay-Owen would agree to do without them, when the basis of the discussion between Mr Alexander, Mr Lake and Mr Lindsay-Owen (set out in paragraph 24 above) had been that Mr Lindsay-Owen would take over the existing securities.

28 Further, Mr Lake gives two inconsistent accounts of the way in which the terms for URE lending the money were arrived at. One account, given in affidavit evidence (see paragraph 25 above), was to the effect that Mr Lindsay-Owen had asked for the more onerous terms which were noted on the Ellis Loan Agreement, but that Mr Lake had rejected those terms, proposed his own, and Mr Lindsay-Owen had made the loan without further demur. Another version, advanced in cross-examination (T248), was that the terms which Mr Lake said were those on which the loan were made were those which Mr Lindsay-Owen offered. That Mr Lake gives these two inconsistent accounts places an obstacle in the way of accepting either of them.

29 Further, in an affidavit sworn on 25 November 2002 (the Friday before the trial began) Mr Lake said:

“At all material times I had agreed with Mr Lindsay-Owen that should the [Gilbert] Painten share prove insufficient to pay the $250,000 plus interest he could then look to the Lopmand Painten Share which Lopmand had owned since the beginning of the Project for any shortfall.”

This is in substance conceding there was an agreement to a charge over the Lopmand Painten Share. A similar concession was made by paragraph 2(o)(ii) of the Further Further Amended Notice of Grounds of Defence (set out in paragraph 16 above).

30 I conclude that one of the terms on which URE advanced the money was that it would have the same security as Gilbert Frank had had. This conclusion based on the evidence is the same as the conclusion which arises from the presumption that when a third party pays off a mortgage the presumed intention is, unless the contrary appears, that the mortgage shall be kept alive for that third party’s benefit: Ghana Commercial Bank v Chandiram [1960] AC 732 at 745.

Interest Rate

31 It is common ground between Mr Lindsay-Owen and Mr Lake that in 1994 there was a discussion in which Mr Lindsay-Owen had an annotated version of the Ellis Loan Agreement, by reference to which he stated on what terms he would be willing to advance money. There are in evidence two copies of the Ellis Loan Agreement, bearing annotations in the handwriting of Mr Lindsay-Owen. Each of those contains an annotation alongside the interest clause “indicator lending rate plus 2%” and “compound mthly”. One of the copies has an annotation alongside the clause where Gilbert Frank acknowledges lending and Lopmand acknowledges borrowing $238,000. The note is “TJL A Lake or the Co or all”. The other has that same annotation in that place, preceded by the handwritten note “joint & sev”. Mr Lindsay-Owen accepted in cross-examination that this “joint & sev” note must have been added at some stage after 1999. I accept that the other annotations were on the document at the time it was discussed between Mr Lake and Mr Lindsay-Owen.

32 Mr Lindsay-Owen’s account is that he showed the annotated copy of the Ellis Loan Agreement to Mr Lake, and the following conversation ensued:

LINDSAY-OWEN: “The interest on the loan will be the Westpac indicator rate plus 2%. I have made notations on the agreement you had with John to reflect the terms of your loan. Do you agree with those terms?”
LAKE: “Yes I do.”
LINDSAY-OWEN: “I am going to send it to John Allen with the first page of the Contracts for Sale and the Authority and Undertaking that you provided to John, to have him prepare documentation.”
LAKE: “Okay.”

33 Mr Lindsay-Owen says that he forwarded by facsimile a copy of the Loan Agreement to Mr Allen, together with some other documentation relevant to it, for the purpose of a loan agreement being prepared.

34 Allen Allen & Hemsley have been subpoenaed to produce all their documentation relevant to this case. There was no such facsimile to Mr Allen amongst it, nor any copies of the documents which Mr Lindsay-Owen says were to be faxed to Mr Allen. Mr Allen was not called as a witness. There was, however, among documents produced by Mr Lindsay-Owen, a coversheet of a facsimile from Mr Lindsay-Owen to Mr Allen, which, from its date and number of pages said to be attached to the coversheet, is likely to have been the coversheet for a facsimile which Mr Lindsay-Owen sent to Mr Allen for the purpose of preparing loan documentation. It bears the sort of imprint which a facsimile machine makes to record that a transmission has occurred. Notwithstanding an attack which counsel for the Lake interests made in cross-examination of Mr Lindsay-Owen, suggesting that this document is a fabrication, I accept that it is not a fabrication.

35 Even so, the fact that Mr Lindsay-Owen sent the version of the Ellis Loan Agreement containing his annotations to Mr Allen, for the purpose of preparing a loan agreement, and that no loan agreement was actually prepared, and that the documents which Mr Lindsay-Owen sent to Mr Allen for that purpose appear to have been discarded from the file of Allen Allen & Hemsley raises doubt about whether the final arrangement between URE and the Lake interests concerning advancing this money was that expressed in the annotations to the Ellis Loan Agreement.

36 Mr Lindsay-Owen gave evidence in the course of his cross-examination that:

“…the matter of the indicator lending rate plus a margin, compound monthly et cetera and the strict adherence to things like all parties being to the contract so that everyone gets hooked were quite common everyday almost weekly discussed by Mr Lake and myself because I was advancing funds to companies who were associated all the time. They were always on that basis compounded monthly indicator lending rate plus the margin”.

37 There were numerous occasions when Mr Lindsay-Owen had asserted that URE was entitled to interest at 2.5% above the Westpac Indicator Rate from time to time. I have earlier mentioned that the Statement of Claim in these proceedings made such an assertion. As well, in an affidavit which he swore in these proceedings on 11 May 2000 (which was not read in URE’s own case, but on which Mr Lindsay-Owen was cross-examined), he said:

“7. I took the original agreement prepared by P J Ellis & Co, a true copy of which is annexed hereto and marked with the letter “B” and I endorsed thereon various comments including against clause 3.1 the following:
“Indicator lending rate + 2%”.
I then forwarded that document to my then solicitor, Mr John Allen of Messrs Allen Allen & Hemsley with a request that he prepare appropriate documentation to reflect the agreement between the parties and the variation which I required to the original arrangement reflected in Annexure “B”. What was not referred to in my note on Annexure “B” was the basis upon which interest was to be calculated. The note whilst it was intended to convey to Mr Allen my instructions for the preparation of the relevant document contained an error in that the figure 2% should have read 2.5%.
8. When I proposed to make the advance to Gilbert Frank Investments Pty Ltd on behalf of the Defendants hereinbefore referred to I had discussions with Mr Lake as to the rate of interest to be applied. I recall saying to Mr Lake words to the following effect:
“This loan is to be Westpac indicator lending rate plus 2.5% compounded monthly.”
Mr Lake said words to the effect:
“I am agreeable.””

38 By the time he was cross-examined, Mr Lindsay-Owen had changed his evidence about where the mistake lay. When asked about the final sentence in paragraph 7 of the passage I have just quoted, he gave the following evidence:

“Q. What I am suggesting to you is that you made up that sentence in paragraph 7 to explain why you claimed more than you were entitled, even on your own case?
A. It is incorrect. My standard margin is two and a half percent. It is on many loans on our books. That was the standard margin. It was an error.
Q. D you mean it was an error when you spoke to Mr Lake or it was an error when you wrote it?
A. The 2.5 was an error. It was our standard rate of margin above the indicator lending rate.
Q. Which did you have a conversation with Mr Lake about?
A. The 2 percent as the document reads.
Q. You had a conversation with Mr Lake about 2 percent but then - -
A. Whether that came about because he negotiated it or I made an error I don’t know. Probably likely he negotiated it but I don’t know. It’s an error. You are suggesting to me that I am trying to squeeze half a percent out of this whole transaction, sacrifice it for half a percent, that would be commercial suicide.”

39 As well, an interest calculation which Mr Lindsay-Owen presented to Mr Lake in October 1997 (which I discuss in more detail at paragraph 80 below) contained a calculation of the interest at the Westpac Indicator Lending Rate plus 2.5%. Mr Lake, at the time that document was presented to him, put a circle around the rates of interest, and wrote “? Never agreed”. (This note of Mr Lake I do not take as proof that it was never agreed, only as an indication of what Mr Lake’ assertion was at the time. The point of him making such an assertion is that it gave notice to Mr Lindsay-Owen, from a very early time, that the question of what rate of interest had been agreed may well be a matter of dispute.)

40 In all theses circumstances, I am not persuaded that it was agreed that interest would be paid at the Westpac Indicator Rate plus 2%, nor that it was agreed that the interest would compound monthly.

41 Chitty on Contracts, 25th edition, paragraph 3171 says:

“At common law, the general rule is that interest is not payable on a debt or loan in the absence of express agreement or some course of dealing or custom to that effect ( Page v Newman (1829) 9 B&C 378, 381; Re Gosman (1881) 17 Ch D 771; London, Chatham & Dover Ry v South Eastern Ry [1893] AC 429). Thus in the absence of express stipulation, it has been held that interest is not payable on the price of goods sold, although the price was payable on a certain day … nor for money lent to, or paid for, the defendant ( Calton v Bragg (1812) 15 East 223; Carr v Edwards (1822) 3 Stark 132) …”

42 It seems to me most unlikely that there was no agreement at all concerning the rate of interest in the present case. It also seems to me unlikely that Mr Lindsay-Owen would have agreed to URE lending at a rate of interest less than that at which Gilbert Frank had been lending. As well, Mr Lake’s evidence was that he told Mr Lindsay-Owen that he would not agree to an interest rate higher than the rate he was paying Mr Alexander. In all these circumstances, the most that URE has proved is that the agreement was that interest would be paid at the same rate as was payable under the Ellis Loan Agreement.

Parties to the Loan Agreement

43 Mr Lake departed, in cross-examination, from his affidavit account of the conversations about the terms on which URE would advance money in one significant respect. In a portion of his affidavits which I have not quoted verbatim, Mr Lake denied that he had agreed that the loan was to be made to Lopmand, himself and Mrs Lake. However, in cross-examination he accepted (T261) that Mr Lindsay-Owen’s offer was to lend to these three borrowers. While there is no evidence of Mrs Lake ever accepting that offer, it seems to me that Mr Lake accepted it by his conduct in permitting the transaction to go ahead.

44 Further, that Mr Lake is party to the loan agreement is shown by the terms of a document produced in February 1996 (discussed in more detail in paragraph 69 below), which proposed a variation of the arrangements between URE and the borrowers in the Lake camp. The document produced by Mr Lindsay-Owen made provision for execution by each of Lopmand, Mr Lake and Mrs Lake. Mr Lake made a counter-offer which took the form of changing some of the figures in the document in handwriting, and signing the document twice, once on behalf of Lopmand, and once on behalf of himself, while also crossing out the provision for Mrs Lake’s signature. This seems to me to be a significant admission that both Lopmand, and Mr Lake, were parties to the Agreement whereby URE advanced the money.

Time for Repayment of Loan

45 Mr Lake contends that the time for repayment of the loan is when the Painten Project was completed. Mr Lake’s evidence is that around April or May of 1994 Mr Lake and Mr Lindsay-Owen envisaged that the Project would be completed around the middle of 1996. He says, “We had a budget and we had a timeframe”, but no documents to demonstrate the budget, or the timeframe, were tendered in evidence.

46 Mr Lindsay-Owen gives evidence that, when the Marayong development project was first embarked upon:

“The intent was to register a strata … and then to sell off a number of the units, to reduce the debt. The ongoing decision whether to sell them all, or keep some, was yet to be made, but it was definitely to register the strata and to sell down, to what level - - “

It was not put to him that this situation ever changed.

47 While there may have been some discussion of the possibility of the loan being repaid when the Painten Project was finalised, or from proceedings of the Painten Project, I am not persuaded that it was agreed that the loan would in no circumstances be liable to be repaid until such time as the Painten Project was completed. Nor am I persuaded that there was any clear consensus about what was involved in the Painten Project being “completed”. Even assuming that “completion” meant the sale of all units, the loan which Gilbert had made to Mr Lake had had nothing to do with the Painten Project – it was a loan to assist Mr Lake in financing his house – so there is some implausibility in Mr Lindsay-Owen agreeing to the loan not being repayable until the Painten Project was finalised. Particularly is this so when, while there was, even on Mr Lake’s evidence, a target date of finalisation by mid 1996, but there were the uncertainties inherent in any development project about whether that time for completion would be achieved, and whether the eventual profit would be such that Lopmand’s share of that profit would be enough to cover the loan together with accrued interest.

48 I am not persuaded that there was any express agreement between the parties about when the loan would be repaid. In those circumstances, the implication of law is that the money is repayable immediately, unless the parties have stipulated that a demand must be made before the money is due, or there is some commercial practice, such as that existing between banker and customer, to like effect: Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 116-117, 125, 128-129. In this case, there was no stipulation for a demand, nor is there any established commercial practice requiring a demand. It follows that the money which URE advanced was repayable forthwith.

Any Connection of Loan to Purchase of Gilbert Painten Share

49 It is part of the account which Mr Lindsay-Owen gives, of the basis on which the Alexander loan was paid out, that Mr Lindsay-Owen said to Mr Lake, “In return I will want John [Alexander] to transfer his share in Painten to me and to take over the securities which John has taken from you.” Thus, it is an element in the account of both Mr Lake and Mr Lindsay-Owen that they contemplated that the Gilbert Painten Share would be transferred, as part of the severing of relationships between Mr Lake and Mr Lindsay-Owen on the one hand, and Mr Alexander on the other. Even though that was part of the initial plan which Mr Lake and Mr Lindsay-Owen had, it was not carried through into the final terms upon which URE advanced money to pay out the Gilbert Frank loan to Lopmand. I reject Mr Lake’s contention that purchase of the Gilbert Painten Share was any part of the terms upon which URE lent the $250,000.

Conclusion re Terms on Which Money Advanced

50 I conclude that URE advanced $250,000 to Lopmand, and Mr Lake, on the basis that it would have the same security as Gilbert Frank had had (ie a charge over the Lopmand Painten Share, and what amounted to a mortgage over the two subdivided lots at Bayview) but that the interest would be the same as that payable under the Ellis Loan Agreement, and that the loan would be repayment forthwith. URE is entitled to judgment against Lopmand and Mr Lake for the amount of $250,000 plus interest.

Calculation of Interest

51 The Ellis Loan Agreement provided:

“2. Repayment of Principal
2.1 The Company will repay the Principal Sum and any interest thereon remaining unpaid on or before the 29th September, 1994 (“the Due Date”).
2.2 The Company is entitled to pay to the Mortgagee the Principal Sum or any part thereof and interest prior to the Due Date without penalty provided that any such payment shall not be in multiples of less than $10,000.00
3. Interest
3.1 The Company will pay to the Mortgagee interest on the Principal Sum or so much thereof as shall remain unpaid at the rate of eight and one half per centum (8 ½%) per annum calculated on monthly rests.
3.2 All interest will be payable six monthly in advance on the 29th September, 1993 and the 29th March, 1994 on the Principal Sum or so much thereof as shall remain unpaid and in the manner as referred to in Clause 2 above which shall be calculated as simple interest from the 29th September, 1993 until the date of repayment of the Principal Sum.”

52 The drafting of Clause 3.2 is less than crystalline. I construe all the words in Clause 3.2 from “or so much thereof” to the end of the clause as dealing with the manner for calculation of interest in the circumstance where there is early repayment of all or part of the Principal Sum. Thus, those words have no application to the loan which URE made to Lopmand and Mr Lake.

53 The basis upon which URE made its loan to Lopmand and Mr Lake was that interest would be payable, at 8.5%, six monthly in advance. As applied to the circumstances of the loan made by URE to Lopmand and Mr Lake, interest was payable, in advance, on 13 May and 13 November in each year. No such interest has been paid. The failure to pay interest when due should be reflected in the amount for which judgment is given. The appropriate way to do this is to allow interest, under section 94 of the Supreme Court Act, and at the rates prescribed by Schedule J of the Supreme Court Act, in relation to all interest which was unpaid. It is to be calculated as follows. An amount of interest of $10,625 was due on 1 May 1994. Simple interest on that amount of $10,625, at Schedule J rates, for the period from 13 May 1994 to the date at which the judgment amount is calculated, should be included in the judgment amount. On 13 November 1994 an additional amount of $10,625 interest fell due, but was not paid. Interest on that additional amount of $10,625 should be included, at Schedule J rates, for the period from 13 November 1994 to the date as at which the judgment is entered. Similar calculations of section 94 interest should be carried out for the interest which falls due at each six-monthly period thereafter.

The Basis on Which Gilbert Frank Transferred the Gilbert Painten Share

54 Notwithstanding the obligation which Lopmand, Mr Lake and Mr Lindsay-Owen had undertaken, by Clause 3 of the Deed of 13 May 1994, to use all reasonable efforts to obtain the release of Mr Alexander from the guarantee he had given to Macquarie Bank in connection with the Marayong project, no prompt release was obtained of that guarantee. On 31 October 1994 Macquarie Bank approved a variation of the security arrangements (with Mr Alexander’s consent), whereby Mr Lindsay-Owen deposited $300,000 with Macquarie Bank, and mortgaged that deposit to Macquarie Bank. It seems that there may have, by this time, also been a guarantee given to Macquarie Bank by URE, which was released upon the establishment of the $300,000 deposit. Mr Lindsay-Owen, Mr Lake and Mr Alexander each remained liable on their personal guarantees.

55 During the first half of 1995 income from the Marayong Project was insufficient to cover the payments due to Macquarie Bank. To avoid Macquarie Bank making a call upon the guarantees, Mr Lindsay-Owen paid approximately $44,000 on behalf of Painten Holdings.

56 On 21 February 1995 there was a meeting between Mr Lake, Mr Lindsay-Owen, Mr Alexander and Mr Fitzpatrick at the St Leonards office. On that occasion Mr Lindsay-Owen said that there was a shortfall on the Macquarie borrowing, and that a contribution was needed from Mr Alexander. Mr Alexander disputed that he had any liability to contribute to any shortfall on the Macquarie borrowing, but even so this incident increased his desire to be freed from his liability under the guarantees connected with the Painten Project.

57 Mr Lake gives evidence that, after that meeting, he and Mr Lindsay-Owen had a conversation to the following effect:

LINDSAY-OWEN: “JA is very nervous about the Painten deal and he obviously wants out. We’ll take his share if he wants his guarantees released.”
LAKE: “I can’t believe he is doing this but if he is that silly then yes, let’s take his share.”

58 On 9 March 1995 Norton Smith & Co wrote to Mr Lindsay-Owen and Mr Lake saying that Mr Alexander was prepared to accept a payment of $50,000, together with a release from the NAB guarantee, for his one-third shareholding in Painten. Mr Alexander gives evidence as follows:

“On or about 9 March 1995, Mr Fitzpatrick, or someone at Norton Smith on his behalf, said to me words to the following effect:
“Mr Lindsay-Owen has put an offer to you. He will arrange for your release from the bank guarantees and he will forgive the $21,000.00 that you owe him for payments he made to Macquarie Bank on your behalf, if you agree to transfer to him the Gilbert Frank share in Painten Holdings.”
On about 11 April 1995 I said to my secretary Libby, words to the following effect:
“Tell Mr Fitzpatrick to accept Mr Lindsay-Owen’s offer.””

59 Following some further negotiation, Norton Smith wrote again to Mr Lindsay-Owen and Mr Lake on 7 June 1995 saying:

“We refer to our recent telephone conversations with Mr Greg Lindsay-Owen.
It is noted that you are agreeable to acquire 1 share owned by Gilbert Frank Investments Pty Limited in Painten Holdings Pty Limited in consideration for releasing John Alexander and Gilbert Frank Investments from guarantees with the National Australia Bank and Macquarie Bank.
A copy of the share Transfer Form is attached. Would you please note that we are arranging for it to be executed in readiness for settlement. Would you kindly notify us of the name of the purchaser and the date when settlement is expected to take place.”

60 Macquarie Bank would not agree promptly to a release of Mr Alexander. As well, Mr Alexander remained liable on the guarantee he had given to the National Australia Bank.

61 On 5 September 1995 Mr Lake signed two letters, one on behalf of Painten, the other on behalf of himself and his wife. Each letter was addressed to an officer of the National Australia Bank at Mona Vale. The substance of each letter was the same, namely:

“As discussed, we confirm that this Company is agreeable to the release of Mr John Alexander’s supporting joint and several guarantee in relation to the above.
We further confirm that Mr Gregory Lindsay-Owen will be placing $200,000 on deposit in support of the above guarantee. Consequently Mr Tracey Lake’s guarantee is to be reduced and limited to $200,000.”

Mr Lindsay-Owen placed that sum of $200,000 on deposit with NAB.

62 On 8 September 1995 Mr Allen, of Allen Allen & Hemsley, wrote to Norton Smith.

“Reference is made to the various borrowings in respect of the property owned by Painten Holdings Pty Limited at 360 Vardys Road Marayong.
We are instructed by our clients, Tracey Lake, Greg Lindsay-Owen and United Rural Enterprises Pty Limited that they will procure the release of your client, John Alexander from any residual liability in respect of those borrowings to National Australia Bank and Macquarie Bank Limited. John Alexander will transfer his shareholding of [*] shares in Painten Holdings Pty Limited to Greg Lindsay-Owen or as he may direct.
Such executed transfer shall be delivered to Greg Lindsay-Owen’s solicitors, Allen Allen & Hemsley, attention – John Allen immediately upon you being furnished with a release of the guarantee given by John Alexander to the National Australia Bank.
Please confirm your instructions that your client acknowledges that the current arrangement with Macquarie Bank Limited provides for him to be released from that arrangement upon the extension or renewal of the Macquarie Bank facility at the time of rollover on or about 29 September 1995.
Yours faithfully
[signed]
We confirm our instructions that John Alexander agrees with the above and that we have been irrevocable instructed to hand over the duly executed share transfer in Painten Holdings Pty Limited to you upon delivery of the National Australia Bank release.
Signed by
Norton Smith & Co
Date:”
(emphasis added)

63 Mr Fitzpatrick faxed back a copy of that letter, which had various handwritten amendments noted on it. No written agreement resulted from this exchange of proposal and counter-proposal.

64 On 27 September 1995 Mr Alexander and Gilbert Frank were released from the guarantee they had given to the NAB. However, Macquarie Bank was still not willing to release Mr Alexander from the guarantee given to it. Eventually, on 8 November 1995, Macquarie Bank effected a release of Mr Alexander from that guarantee.

65 On 15 November 1995 a transfer by Gilbert Frank of one share in Painten was executed under seal, and sent to Allen Allen & Hemsley. That transfer did not name any transferee, or any consideration for the transfer. It is not clear, on the evidence, whether the transfer was accompanied by a share certificate. Plainly enough, however, the share intended to be transferred by this document was the Gilbert Painten Share. The documents which were sent to Allen Allen & Hemsley in that fashion remained there until 3 September 1997, when Mr Allen handed them to Mr Lindsay-Owen. By 3 September 1997 there had been a falling out of Mr Lake and Mr Lindsay-Owen. Mr Lindsay-Owen has, since 3 September 1997, treated his interests as entitled to the Gilbert Painten Share.

66 Mr Lake says that he had not seen the correspondence that occurred between Norton Smith and Allen Allen & Hemsley from 21 February 1995, and was not aware of the offer and acceptance of which Mr Alexander gives evidence (set out in paragraph 58 above). While Mr Lake does not suggest that Mr Allen wrote his letter of 8 September 1995 without instructions, he says that he (Mr Lake) did not give instructions to Mr Allen to make the offer set out in that letter. On 2 February 1996 Mr Allen sent a fax, addressed to both Mr Lindsay-Owen and Mr Lake, which attached a share transfer form signed by Gilbert Frank. That can only have been the transfer form which Mr Allen received on 25 November 1995.

67 In view of a conclusion which I have come to concerning the effect of a settlement agreement entered in November 2000, it is not necessary for me to express any conclusion about whether the circumstances in which Mr Lindsay-Owen obtained the share transfer dated 15 November 1995 were effective to confer upon him or his nominee effective ownership of the Gilbert Painten Share. What matters for present purposes, however, is that as a consequence of the events I have been recounting so far in this judgment Mr Lindsay-Owen was asserting, in November 2000, that he already had title to the Gilbert Painten Share, while Mr Lake was asserting, in November 2000, that he was entitled to a half interest in the Gilbert Painten Share.

The Letter Agreement

68 On 12 February 1996 Mr Lindsay-Owen caused a document to be prepared, which related to a basis upon which the indebtedness of the Lake interests to URE, arising from URE having paid out the $250,000 loan owed to the Alexander interests, might be settled. This occurred at a time when, as Mr Lindsay-Owen described it, “Lake and I were still sharing offices at this point. We were famous friends.” It is common ground that the document was prepared after Mr Lindsay-Owen had told Mr Lake that he wanted to be “made comfortable” concerning the $250,000 (though Mr Lake puts this “making comfortable” conversation in May or June 1996, rather than in February 1996).

69 By this time two units remained unsold in the Marayong development. Those units had comparatively recently been valued by John Virtue Pty Ltd, Valuers, on behalf of Macquarie Bank. As well, a source which the evidence does not establish had expressed a view about the price at which sales of those units were likely. The proposal was that the Lopmand Painten Share (which at that time remained registered in the name of Lopmand, but over which URE held a security interest) should be transferred to Mr Lindsay-Owen or his nominee for a value derived from taking the mid-point of the two valuations of each respective unit, totalling them (to yield $2,190,000), subtracting the amount then owed to Macquarie Bank, taking one-third of the resulting sum to ascertain the value of the Lopmand Painten Share, and deducting from the value so ascertained the amount owing by the Lake interests to URE. The document read:

“ PAINTEN HOLDINGS PTY LIMITED
Settlement details between shareholders

· United Rural Enterprises Pty Limited

· Lopmand Pty Limited & T J & A Lake

Settlement Valuations
To be struck initially at mid point of likely sales price at 10.5% yield and independent valuation by John Virtue Pty Limited Registered Valuers.

$ Likely Sales	John Virtue	Mid Point
Unit 5	790,000	670,000	730,000
Unit 6	1,570,000	1,350,000	1,460,000
Therefore Settlement Valuations	Unit 5	730,000	net
Unit 6	1,460,000	net


These settlement valuations to be adjusted if the actual realised net sale prior to June 30, 1996 exceeds the settlement valuations.

The settlement valuations attributable to Lopmand Pty Limited are to be deducted from loan funds advanced to T J & A Lake by United Rural Enterprises (URE). Amounts from sale of Units 5 & 6 in excess of settlement valuations will likewise reduce the T J & A Lake indebtedness to URE.

Gregory H W Lindsay-Owen T J Lake
United Rural Enterprises Pty Limited Lopmand Pty Limited
T J Lake A Lake”

70 Mr Lindsay-Owen signed this document, and gave it to Mr Lake. Mr Lake did not agree to the proposal. After taking it away for a time, he gave the document back to Mr Lindsay-Owen, with alternative (and higher) figures written on it for each of the selling prices of the unit, deleting the various references to Mrs Lake, and crossing out the words “prior to June 30 1996” immediately below the table and inserting instead the word “proceeds”. Mr Lake signed it himself, in the two places provided, once for signature on behalf of Lopmand, and the second time in his personal capacity. At the time of handing it back to Mr Lindsay-Owen he said, “I could not get Alyson to sign this even if we agreed”. Mr Lindsay-Owen, upon receipt of this document, crossed out his own signature upon it, and wrote on it the words, “said couldn’t get Alyson to sign even if we agreed”.

71 Mr Lake contends that in May or June of 1996 a “Letter Agreement” was entered between himself and Mr Lindsay-Owen. He says:

“The letter agreement was a document on Painten Holdings Pty Ltd letterhead in a form of a letter. There was a line setting out an agreement that Lopmand Pty Ltd would agree to transfer to United Rural Enterprises Pty Ltd its share in Painten Holdings Pty Ltd for approximately $146,606.50. The $146,606.50 was based on a selling price of unit 6 of $1,550,000.00. There was provision for signature down the bottom left-hand side for Mr Lindsay-Owen and provision for signature by me on the right. There was date “………June 1996”.

123 The letter enclosed a copy of the minutes of the Annual General Meeting, which Mr Alexander had signed on each page.

124 The share register of Painten was not tendered in evidence. Annual returns of Painten lodged with ASIC for each of the financial years ended 30 June 1993 to 1999 inclusive show the company as having three issued shares, held respectively by Gilbert Frank, Lopmand and URE, each of which was beneficially held by the shareholder. The ASIC annual return for the year ended 30 June 2000 shows one of the shares continuing to be held by URE, and two of the shares held by Lindsay-Owen Holdings Pty Ltd, with each share held beneficially by the registered owner.

125 In about 1999 Mr Lindsay-Owen realised that he did not hold a transfer for the Lopmand Painten share. Mr Alexander then, at Mr Lindsay-Owen’s request, procured the execution by Gilbert Frank of a transfer, in blank, of one share in Painten, and gave that transfer to Mr Lindsay-Owen. I infer that Lindsay-Owen Holdings Pty Limited became the registered proprietor of two of the shares in Painten as a result of Mr Lindsay-Owen causing the name of Lindsay-Owen Holdings Pty Limited to be inserted in the space for the name of transferee in the transfer in blank of the Gilbert Painten Share which Mr Lindsay-Owen received from Mr Allen on 15 November 1999, and in the transfer in blank which Gilbert Frank executed in 1999. The transfer in blank which Gilbert Frank executed in 1999 was treated by the Lindsay-Owen interests, when taken in conjunction with the transfer of the Lopmand Painten Share which Lopmand had executed in favour of Gilbert Frank, as creating a chain of title which enabled Lindsay-Owen Holdings Pty Limited to become a registered holder of the Lopmand Painten Share.

126 The Corporations Act2001 (Cth) confers various obligations on a company in relation to its members. Section 249J confers an obligation to give written notice of a meeting of members to each member entitled to vote at the meeting. Section 314 imposes an obligation to send annual accounts and reports to a shareholder.

127 Lopmand has received no financial statements, dividends or Notices of Annual General Meetings from Painten for the 1996, 1998, 1999, 2000 or 2001 financial years. However, it has not been established that any shareholder in Painten received a dividend in any of those years. While Mr Lake remained a director of Painten until his resignation pursuant to the November 2000 Terms of Settlement, he took no part in the administration of Painten from the time, at least, of the May 1998 Annual General Meeting of Painten.

Oppression

128 The Corporations Act 2001 (Cth) provides:

“232 The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs …
is …
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity
233(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up …
(d) for the purchase of any shares by any member …
(e) for the purchase of shares with an appropriate reduction of the company’s share capital …
(j) requiring a person to do a specified act.
234 An application for an order under section 233 in relation to a company may be made by:
…
(c) a person who ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member.

129 Lopmand submits that it is eligible, under section 234, to apply for an order under section 233. This submission could not succeed in relation to Lopmand’s claimed interest in the Gilbert Painten Share, because Lopmand was never a member of Painten in respect of that share. The only claim Lopmand has put forward in relation to that share is that it has certain equitable rights in relation to it. I have held that it does not presently have any such equitable rights in relation to the Gilbert Painten Share. However, even if it had at one time had equitable rights in relation to the Gilbert Painten Share, that would not suffice to bring it within section 234.

130 Lopmand was, once, a member of Painten in relation to the Lopmand Painten Share, and it is no longer a member due to the registration of Lindsay-Owen Holdings Pty Limited as the holder of that share. I will assume, without deciding, that that circumstance suffices to give Lopmand standing to apply for an order under section 233, by virtue of section 234(c).

131 To decide whether the circumstances in which Lopmand came to cease to be a member of Painten, and Lindsay-Owen Holdings Pty Limited became a member of Painten involves conduct which is “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” Lopmand requires a consideration, in light of the findings of fact which I have already made, of the rights and powers which URE had in relation to the Lopmand Painten Share.

132 I have held that URE was entitled, in relation to the Lopmand Painten Share, to have the same security rights as Gilbert Frank had had over it. I infer that it was the intention of Gilbert Frank and Lopmand to have created an equitable mortgage of the share, by deposit of the certificate accompanied by a transfer in favour of Gilbert Frank. This inference is only a very modest advance, if indeed it is any advance at all, over the express terms of the letter dated 29 September 1993 (set out in paragraph 7 above). The loss of the certificate meant that that intention could not be carried out. However, Lopmand’s handing over the declaration re lost certificate amounted, it seems to me, to putting Gilbert Frank into the position of being able to obtain from Painten, upon application, a replacement certificate, and of then having an equitable mortgage by deposit of the replacement certificate, accompanied by a transfer in favour of Gilbert Frank.

133 In Harold v Plenty [1901] 2 Ch 314 at 316 Cozens-Hardy J explained the consequences which arise as a matter of law from depositing a share certificate with a lender as security for the debt:

“The deposit of the certificate by way of security for the debt … seems to me to amount to an equitable mortgage, or, in other words, an agreement to execute a transfer of the shares by way of mortgage.”

134 Such a mortgage entitles the equitable mortgagee to obtain an absolute title to the share himself, unfettered by any equity of redemption, by going through the procedures appropriate to foreclosure (Harold v Plenty [1901] 2 Ch 314), and also confers an implied power of sale, after the mortgagee gives reasonable notice to the mortgagor (Deverges v Sandemen Clark & Co [1902] 1 Ch 579; Stubbs v Slater [1910] 1 Ch 632.)

135 In 1999, Gilbert Frank had no right to execute a transfer in blank relating to the Lopmand Painten Share. By then, all the rights of Gilbert Frank relating to the Lopmand Painten Share had ceased. These had ceased in May 1994, when the debt as security for which it had had rights in the Lopmand Painten Share was repaid. However, at the time that URE obtained from Gilbert Frank that transfer in blank of the Lopmand Painten Share, URE had a right (which it did not exercise) to obtain from Lopmand a transfer of that same share, by way of mortgage.

136 For Lindsay-Owen Holdings to become the registered holder of the Lopmand Painten Share was irregular. One reason was because part of its chain of title relating to the share was the transfer in blank which Gilbert Frank executed in 1999, when Gilbert Frank had no power to execute any such document. As well, though, it was irregular because URE did not effect the transfer to Lindsay-Owen Holdings Pty Limited in exercise of any power of sale which it had over the Lopmand Painten Share. Nor had any notice of intention to exercise any power of sale over that share been given to Lopmand. Thus, Lindsay-Owen Holdings was, and is, not entitled to become a member of Painten.

137 However, it is within the power of an equitable mortgagee of shares by deposit, accompanied by a transfer in favour of itself, to register the transfer so as to itself become the registered holder of the shares. If URE had chosen to do so, it could have become a member of Painten subject to Lopmand having an equity of redemption in that share. If URE had adopted this course, it would have been, notwithstanding that equity of redemption, a “member” of Lopmand for the purpose of Painten’s performance of the various statutory duties which it owes to its members. Thus, it would have been URE which was entitled to receive reports and notices of meeting : Re Fernlake Pty Ltd (1994) 13 ACSR 600. A mortgagee of shares who is on the register can (in the absence of any contract requiring otherwise) vote as it wishes, even before any right to enforce the security has arisen: Siemens Bros & Co Ltd v Burns [1918] 2 Ch 324; Musselwhite v CH Musselwhite & Son Ltd [1962] 1 Ch 964. Thus, URE had the right to ensure that Lopmand did not receive any financial statements or notice of Annual General Meeting, or exercise any vote in relation to the affairs of Painten. That is to say, URE had the right to ensure that Lopmand was placed into the position, concerning the affairs of Painten, which Lopmand says entitles it to an order under section 233.

138 In circumstances where Lindsay-Owen Holdings is wholly owned by Mr Lindsay-Owen, and wholly under his control, and it had notice of all the facts which gave rise to Lopmand having an equity of redemption in the Lopmand Painten Share, Lindsay-Owen Holdings now holds the Lopmand Painten Share subject to Lopmand’s equity of redemption in that share. It is the registration of Lindsay-Owen Holdings Pty Limited which has given rise to Lopmand being cut out, in the various ways in which it complains, from participation in the affairs of Painten. However, what Lindsay-Owen Holdings Pty Limited did in that way is no more than URE was entitled to do. The registration of Lindsay-Owen Holdings Pty Limited was wrongful, but not in a way which has caused Lopmand to have fewer rights than it was entitled to have. All that has happened is that one company controlled by Mr Lindsay-Owen has become the registered owner of the Lopmand Painten Share when it was not entitled to, but in circumstances where another company controlled by Mr Lindsay-Owen was entitled. In these circumstances the action of Lindsay-Owen Holdings Pty Limited becoming the registered holder of that share, and the consequences of its being so registered, do not amount to conduct which is “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” Lopmand. I decline to make any order under section 233 of the Corporations Act.

Rectification of the Register

139 Section 168 of the Corporations Act requires a company to set up and maintain a register of members, containing the information prescribed by section 169 of the Corporations Act. Section 175 of the Corporations Act provides:

“(1) a … person aggrieved may apply to the Court to have a register kept by the company … under this Part corrected.”

140 For reasons which I have already given, Lindsay-Owen Holdings Pty Limited is not presently entitled to be a member of Painten. The identity of the company entitled to be registered in its place, however, depends upon a choice which URE has open to it. Because URE is entitled to have a share transfer from Lopmand, relating to the Lopmand Painten Share, and is also entitled, if it so desires, to lodge that transfer and then become registered, it would be URE who would be entitled to be on the register, if it made that choice. In default of URE making that choice, it is Lopmand which is entitled to be on the register. I propose to make an order for rectification of the register in a way which gives URE that choice. Because there may be implications arising under revenue law relating to which choice it makes, concerning which URE may need to seek advice, I will not require that choice to be made quickly. A form of order appropriate for giving URE that choice would be “Order that the register of members of Painten Holdings Pty Limited be rectified

(a) by removing the entry or entries showing Lindsay-Owen Holdings Pty Limited as the holder of two shares, and replacing that entry or entries with an entry showing Lindsay-Owen Holdings Pty Limited as the holder of one share;

(b) if United Rural Enterprises Pty Limited delivers to the registered office of Painten Holdings Pty Limited on or before [date] 2003, and also delivers to the registered office of Lopmand Pty Limited on or before that same date, a notice in writing that it elects to become registered as the holder of one share in Painten Holdings Pty Limited, by recording United Rural Enterprises Pty Limited as the holder of one share;

(c) in the event that United Rural Enterprises Pty Limited does not deliver the notices referred to in (b) on or before the date referred to in (b), by registering Lopmand Pty Limited as the holder of one share”.

Order for Inspection of Records

141 Lopmand sought an order for inspection of the books of Painten. One basis on which it sought this order was under section 233(1)(j) of the Corporations Act. I have already held that the occasion for making an order under section 233 does not arise. Another basis on which the order was sought was under section 247A of the Corporations Act which reads:

(1) On application by a member of company … the Court may make an order:
(a) authorising the applicant to inspect books of the company …; or
(b) authorising another person (whether a member or not) to inspect books of the company … on the applicant’s behalf
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.”

142 Entitlement to relief under this section is dependant upon Lopmand being a member of the company. As it is not presently a member, it has no present entitlement to such an order. If it were to become a member, the situation would need to be reconsidered. I propose to reject the application now made for inspection of the books of the company, but without prejudice to the right of Lopmand to make a fresh application should it become a member of Painten.

I direct:

(a) the parties to bring in short minutes of order to give effect to these reasons for judgment.

(b) an appointment for the bringing in of such short minutes to made within seven days of the handing down of these reasons for judgment.

**********

Last Modified: 01/06/2003