Wainter Pty Ltd v Ansearch Ltd
[2006] WADC 152
•22 SEPTEMBER 2006
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: WAINTER PTY LTD -v- ANSEARCH LTD [2006] WADC 152
CORAM: STAVRIANOU DCJ
HEARD: 22-24 MAY 2006
DELIVERED : 22 SEPTEMBER 2006
FILE NO/S: CIV 335 of 2004
BETWEEN: WAINTER PTY LTD (ACN 008 725 586)
Plaintiff
AND
ANSEARCH LTD (ACN 001 287 510)
Defendant
Catchwords:
Contract - Assignment - Rule that assignee takes subject to equities - Property Law Act, s 20
Contract - Rectification - Common mistake - Unilateral mistake
Trade practices - Consumer protection - Misleading and deceptive conduct - Whether promise which is later not carried out actionable - Representation as to future conduct
Legislation:
Property Law Act 1969, s 20
Trade Practices Act 1974 (Cth), s 52, s 82 and s 87
Result:
Judgment for plaintiff for $133,333.33 plus interest
Representation:
Counsel:
Plaintiff: Mr D H Solomon
Defendant: Mr H Robinson
Solicitors:
Plaintiff: Solomon Bros
Defendant: Haydn Robinson
Case(s) referred to in judgment(s):
Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Ghirardi & Anor v Allregal Corporation Pty Ltd & Ors [2001] WASCA 366
Jones v Dunkel (1959) 101 CLR 298
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Pukallus v Cameron (1982) 180 CLR 447
Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419
Taylor v Johnson (1983) 151 CLR 422
Case(s) also cited:
Australian Competition and Consumer Commission v Global Prepaid Communications Pty Ltd (in liq) [2006] FCA 146
Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124
Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214
Bank of Boston Connecticut v European Grain & Shipping Ltd [1889] AC 1056
British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616
Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd R 712
Chang v Registrar of Titles (1976) 137 CLR 177
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Cooper v Phibbs (1867) LR 2 HL 149
Dare v Pulham (1982) 148 CLR 658
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Dilwyn v Llewelyn [1873] All ER 384
Earl of Chesterfield v Janssen (1751) 28 ER 82
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
Jedda Investments Pty Ltd v Krambousanos (1997) 72 FCR 138
KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288
Krambousanos v Jedda Investments Pty Ltd (1996) 64 FCR 348
Lane v Conlan (2004) 28 WAR 337
Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601
Lysaght v Edwards (1876) 2 Ch D 499
MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152
Mackenzie v Albany Finance Ltd [2004] WASCA 301
McDermott v Black (1940) 63 CLR 161
McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656
Mitchell v Purnell Motors Pty Ltd (1960) 78 WN (NSW) 26
Mummery v Irvings Pty Ltd (1956) 96 CLR 99
Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255
Oraka Pty Ltd v Leda Holdings Pty Ltd (1997) ATPR 41-558
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Quinlivan v Australian Competition and Consumer Commission (2004) ATPR 42-010
Raffety v Schofield [1897] 1 Ch 937
Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84
Re Harry Simpson & Co Pty Ltd [1964] NSWR 603
Riddington v Pye (1989) 9 BPR 16,643
Roxburghe v Cox [1881] 17 Ch D 520
Solle v Butcher [1950] 1 KB 671
Stern & Anor v McArthur & Anor (1988) 165 CLR 489
Trade Practices Commission v Manfal Pty Ltd (in liq) (No 3) (1991) 33 FCR 382
Vlasic v Federal Capital Press of Australia Pty Ltd (1976) 9 ACTR 1
White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169
Yorke v Lucas (1985) 158 CLR 661
Young v Queensland Trustees Ltd (1956) 99 CLR 560
STAVRIANOU DCJ:
Introduction
By about the middle of 2002 the defendant was in financial difficulty. It was involved in the development of an holistic water supply business and was in desperate need of funds. It had debts in excess of $1,000,000 and was short of cash.
Part of the security issued by the defendant included convertible notes. The holder of a note was entitled to assign all or part of its rights under it. A noteholder also had the right to accept, in repayment of principal and interest outstanding under the note, an issue of shares at a specified price. Any money owing under a note and not satisfied by an allotment of shares was repayable to the noteholder.
The plaintiff seeks to recover $133,333.33 plus interest as the assignee of a convertible note issued by the defendant and dated 6 September 2002.
The defendant admits the terms of the note relied upon by the plaintiff but contends that the claim cannot be maintained for a number of reasons. In essence the defendant submits that the plaintiff, as assignee of the note, takes subject to all equities that had matured by the time notice of the assignment was given.
The defendant submits that it had claims and defences available to it against the Assignor and that these are all available as against the Plaintiff. Rectification, misleading and deceptive conduct under the Trade Practices Act 1974 ("the Act"), estoppel, mistake, rectification, equitable fraud and unjust enrichment are raised. The defendant also contends that the plaintiff has no right to maintain the action, as the plaintiff has disposed of its interest in the note.
Dramatis personae
The plaintiff is a company associated with Mr Barry Glanville Waller who was a director of that company during the period to which this dispute relates. Mr Andrew Waller is the son of Mr Barry Glanville Waller and was a director at the relevant time of Glentril Investments Pty Ltd
Cristalle Securities Limited is a company associated with Mr Jonathon Leaver.
Consolidated Securities Pty Ltd is a company associated with Mr Peter Jeffrey Jermyn, who has many years experience in the restructuring and management of companies.
The defendant is a company associated with Doctor Albert Ho and was previously named Optum Health Limited and before that Optum Group Limited. Dr Ho became involved with the Defendant in 1999 and became its Chairman and Chief Executive Officer. In August 2002 Mr Jermyn became a director of the Defendant.
Flandron Pty Ltd and Mediplus Management Pty Ltd are companies associated with Dr Ho.
The parties in this case were all experienced in commercial transactions.
Overview
On 30 June 2000 the defendant issued Convertible Note No 1. Flandron Pty Ltd was described as the noteholder. There was a term of the note requiring repayment of the amount advanced under a facility agreement by 30 September 2000 or such later date as may be agreed.
Flandron Pty Ltd lent money to the defendant under the Facility Agreement. The debt was not repaid by 30 September 2000 and by August 2002 the amount payable by the defendant to Flandron Pty Ltd was $985,376.00. Convertible Note No 1 provided for an interest rate of 10 per cent per annum.
Mediplus Management Pty Ltd also lent money to the defendant and by August 2002 the amount repayable to it was $273,035.00.
Because of its inability to repay its indebtedness and its shortage of cash, the defendant, through Dr Ho, engaged Grange Consulting Group Pty Ltd, a firm of corporate advisers, to act on its behalf. Representatives of Grange Consulting Group Pty Ltd introduced Dr Ho to Mr Jermyn.
It was Dr Ho's evidence that he had a number of meetings with Mr Jermyn in relation to the raising of funds for the defendant. The first of these meetings occurred in June 2002. It was Dr Ho's evidence that Mr Jermyn agreed to make $250,000.00 immediately available for the defendant to provide a much needed 'cash injection'. A restructuring of the defendant was also discussed.
On or about 1 July 2002 Mr Andrew Waller appointed Mr Jermyn to act as the agent for Glentril Investments Pty Ltd to negotiate and enter into an agreement with the defendant for Glentril Investments Pty Ltd to participate in the restructuring of the defendant.
On or about 15 July 2002 Mr Leaver orally appointed Mr Jermyn to act as the agent for Cristalle Securities Limited to negotiate and enter into an agreement with the defendant for Cristalle Securities Limited to also participate in a restructure of the defendant.
A rights issue of shares in the defendant was discussed between Mr Jermyn and Dr Ho with the intention of raising $2,350,000.00 for the defendant. The possibility of a Mr Rienets being involved in the restructure was also discussed.
It was Dr Ho's evidence that there was an agreement reached in relation to the restructuring of the defendant. The restructuring involved:
(a)Flandron Pty Ltd assigning $400,000.00 from Convertible Note 1 to Cristalle Securities Limited, Consolidated Securities Pty Ltd and Glentril Investments Pty Ltd equally.
(b)Flandron Pty Ltd releasing the defendant from part of Convertible Note number 1 so that the amount payable by the defendant to Flandron Pty Ltd would be reduced to $400,000.00.
(c)Mediplus Management Pty Ltd releasing the defendant from its liability to repay its indebtedness of approximately $275,000.00; and
(d)The defendant being released from its liability to repay further interest pursuant to the Convertible Note number 1.
It was Dr Ho's evidence that the effect of the arrangement with Mr Jermyn would have been to make it easier to raise capital for the continuation of the defendant's business. This was because the defendant's debt would have been reduced.
Dr Ho provided instructions to Mr Peter Landau of Grange Consulting Group Pty Ltd to prepare a written agreement evidencing the transaction. There was a draft deed prepared. I find that the evidence adduced on behalf of the defendant as to the circumstances in which changes were made to the draft and incorporated into the final form of executed deed dated 6 August 2002 was vague and unconvincing. Dr Ho and Mr Jermyn had no detailed knowledge or recollection of the draft. In this regard I find their evidence unreliable.
On or about 6 August 2002 Flandron Pty Ltd, Cristalle Securities Limited, Consolidated Securities Pty Ltd, Glentril Investments Pty Ltd, the defendant, Mediplus Management Pt Ltd and Dr Ho executed a Deed of Assignment. By the deed Flandron Pty Ltd assigned $133,333.33 (defined in the deed as the "Assignees Portion") of Convertible Note No 1 dated 30 June 2000 to each of Cristalle Securities Limited, Consolidated Securities Pty Ltd and Glentril Investments Pty Ltd. The deed had been prepared by Mr Peter Landau.
On 8 August 2002 the solicitors for Cristalle Securities Limited emailed Mr Peter Landau of Grange Consulting Group Pty Ltd. That email noted that Mr Landau was to arrange for the stamp duty on the Deed to be paid and for Cristalle Securities Limited and the other assignees to be registered as the holders of the Convertible Note. The email attached what was described as a "restructure proposal as prepared by you on 26 July 2002 and amended with my comments etc…" The email requested Mr Landau to call the solicitors for Cristalle Securities Limited "to discuss the other amendments to the Restructure Proposal as prepared by you on 26 July 2002 in particular when will the Shareholders Agreement between OPM and Rienets be executed…" There was also a request for advice as to what agreements have to be executed. The email referred to the allotment and issue of shares in the restructure occurring on 1 November 2002.
On 6 September 2002 at the request of the solicitor for Cristalle Securities Limited the defendant executed Convertible Note No 2 naming Cristalle Securities Limited as noteholder and with a face value of $133,333.33.
In or about September 2002 Mr Leaver on behalf of Cristalle Securities Limited, informed Mr Jermyn that Cristalle Securities Limited would not be participating in the proposed restructuring of the defendant. There was no evidence of any demand being made of Cristalle Securities Limited in relation to that advice.
On 19 September 2002 Messrs Hardy Bowen, as solicitors for Mr Rienets, advised Dr Ho that Mr Rienets would not participate in the proposed restructure.
By deed dated October 2002 made by Cristalle Securities Limited, the plaintiff and Mr Andrew Waller, Cristalle Securities Limited assigned to the plaintiff all of its legal and beneficial title to and property in both Convertible Note No 2 dated 6 September 2002 issued by the defendant, and a loan made to the defendant and evidenced by a certificate dated 9 September 2002.
A demand for payment in relation to Convertible Note No 2 and the loan was made by the solicitors for the plaintiff to the defendant by letter of 15 August 2003. The loan is not at issue in these proceedings.
Dr Ho responded to the demand on behalf of the defendant, by letter of 22 August 2003. In that letter Dr Ho stated that there was no documentation evidencing that the plaintiff had assigned the convertible note and/or the loan. The letter referred to a lack of consent by the defendant to the assignment, and also to the fact that there was an undertaking given that no repayment demand on the note would be made prior to completion of a proposed rights issue to raise approximately $2,350,000. The letter does not make reference to an understanding that the note would not be enforceable in the event the rights issue did not proceed.
On 8 September 2003 Mr Jermyn sent a facsimile to Mr Barry Waller. In the facsimile he referred to Mr Leaver's departure from the defendant's proposed restructure. The facsimile states:
"The upshot of that was that Andrew advised myself and Ho that he could not handle Leaver's weird behaviour and that he was taking Leaver out at cost. My understanding was that was being transacted on behalf of Andrew and myself to take the position back to where it was prior to Leaver. Andrew was requested by myself to advise me of the figure…"
The facsimile does not refer to payment of Convertible Note No 2 being conditional upon the successful completion of the rights issue. What appears to be contended by Mr Jermyn in the facsimile is that Mr Andrew Waller should not have "the notes traded…". Thereafter there were discussions between Mr Barry Waller and Mr Jermyn concerning the plaintiff's demands for payment.
The Deed of Assignment dated 6 August 2002
On the settlement date of 6 August 2002 specified in the deed the sum of $10 was required to be paid by Cristalle Securities Limited, Consolidated Securities Pty Ltd and Glentril Investments Pty Ltd as the assignees to Flandron Pty Ltd as the assignor. Further, pursuant to the deed Mediplus Management Pty Ltd released the defendant from its loan of $273,035.77. The amount owing by the defendant to Flandron Pty Ltd was at the date of the deed $985,376.87. The effect of the deed was to significantly reduce the indebtedness of the defendant. Flandron Pty Ltd, Cristalle Securities Limited, Consolidated Securities Pty Ltd and Glentril Investments Pty Ltd each agreed not to make any repayment demand until after the date for completion of the proposed rights issue, which was, by the terms of the deed, proposed to be undertaken by the defendant in or about September 2002.
The deed of assignment dated 6 August 2002 defined the defendant as the company and provided in cl 2 that:
"2.1Absolute Assignment
Subject to clause 3, in consideration of the covenants contained in this deed by the Assignor in favour of the Assignees and the payment of the Price by each of the Assignees, the Assignor transfers and assigns to each of the Assignees severally, independently of each other and absolutely, with effect from Settlement, all the right, title and interest of the Assignee Proportion in respect of the Convertible Note.
2.2Notice
(a)The Assignor will give or concur in the giving of any notice required by the Assignees to be given to the Company in respect of the Assignment.
(b)The Company acknowledges that this deed constitutes sufficient notice to it of the Assignment.
2.3Consent to Assignment
The Company hereby consents to the Assignment and, in all other respects, confirms and ratifies its obligations in respect of each of the Assignee Portions and the Reduced Assignor Amount of the Convertible Note.
2.4Release by Assignees and Company
Subject to Settlement occurring and in consideration of the Assignor entering into this deed, each of the Assignees and the Company release the Assignor its servants and agents and each of them from any and all actions, proceedings, claims, demands, losses and liability whatever which the Assignees or the Company (or any of them) have or may have in relation to the obligations of the Assignor its servants and agents and each of them in any way relating to the Assignee Portions of the Convertible Note.
2.5Release by Assignor
Subject to Settlement occurring and in consideration of the Assignees paying the Price to the Assignor, the Assignor releases the Company its servants and agents and each of them from any and all actions, proceedings, claims, demands, losses and liability whatever which the Assignor has or may have in relation to the obligations of the Company its servants and agents and each of them in any way relating to the Assignee Portions of the Convertible Note.
2.6Reduction of convertible Note and Forgiveness of Loan
Subject to Settlement occurring and in consideration of the Assignees and the Company entering into this deed, the Assignor and Mediplus agree that as from Settlement:
(a)the total amount owing by the Company to the Assignor pursuant to the Convertible Note will be reduced to a total amount of $400,000 which will only comprise of principal on which interest will not accrue;
(b)the Loan will be forgiven and released with no further repayment obligation on the part of the Company; and
(c)in accordance with clause 2.6(b), they release the Company its servants and agents and each of them from any and all actions, proceedings, claims, demands, losses and liability whatever which Mediplus has or may have in relation to the obligations of the Company its servants and agents and each of them in any way relating to the Loan.
2.7No Repayment Demand
The Assignees and the Assignor acknowledge and agree that they will not make any repayment demand on the Company until after the date scheduled for completion of the Proposed Rights Issue in respect of the Assignee Portions and the Reduced Assignor Amount held by each party respectively."
The Deed of Assignment dated 6 August 2002, whilst referring to the proposed rights issue did not contain any covenant on the part of Cristalle Securities Limited, Consolidated Securities Pty Ltd or Glentril Investments Pty Ltd requiring them to participate in the rights issue. There is no reference in the deed dated 6 August 2002 to what was to occur if the rights issue did not proceed.
The Deed of Assignment of October 2002
By a Deed of Assignment dated October 2002, Cristalle Securities Limited assigned to the plaintiff the full legal and beneficial title to the property (as defined) free of all encumbrances.
The plaintiff as assignee was required to pay Cristalle Securities Limited on the settlement date the sum of $43,343.33. The property assigned to the plaintiff on the settlement date comprised the convertible note and the loan.
The Deed of Assignment included definitions of the "Convertible Note" and the "Loan" as follows:
"'Convertible Note' means the Convertible Note with a face value of $133,333.33 acquired by the Assignor from Flandron Pty Ltd by way of a Deed dated on or about 6 August 2002 as evidenced by the Convertible Note Certificate No 2 issued by the Debtor a copy of which is in Schedule 1.
'Loan' means the loan with a face value of $33,333.33 advanced by the Assignor to the Debtor as evidenced by the Loan Agreement dated on or about 6 August 2002 and the Loan Certificate No 1 issued by the Debtor a copy of which is in Schedule 2."
It was the evidence of Mr Barry Glanville Waller that $43,343.33 was paid to Cristalle Securities Limited and the plaintiff then took an assignment of Convertible Note No 2 with a face value of $133,333.33 and the Loan with a face value of $33,333.33. The plaintiff also acquired 8,815,025 shares in the defendant. The transfer form produced in evidence shows that the consideration for the transfer of shares to the plaintiff was $56,191.25.
The evidence
Barry Glanville Waller is a director of the plaintiff and gave evidence on its behalf. He has considerable wealth and many years of experience in business.
It was Mr Barry Waller's evidence that on 24 October 2002 he delivered to the defendant's premises at 56 Melville Road, South Perth a copy of a Notice of Assignment of Debt dated October 2002 and executed by Cristalle Securities Limited.
Mr Barry Waller told me that he was not provided with a copy of the Deed of Assignment dated August 2002 until January 2004. Mr Barry Waller denied any knowledge or that he had any notice at any relevant time that the consideration for Flandron Pty Ltd assigning to Cristalle Securities Limited $133,333.33 (being part of the Convertible Note dated 30 June 2000) constituted the completion of a proposed rights issue by Cristalle Securities Limited in relation to the defendant.
Mr Barry Waller denied entering into any settlement agreement or arrangement with the defendant, or with Mr Jermyn, concerning Convertible Note No 2. Specifically, the plaintiff did not agree to transfer Convertible Note No 2 to Mr Jermyn or his nominee or any other person.
Mr Barry Waller's evidence was that he was asked by his son Andrew Waller whether the company wished to purchase a convertible note from Cristalle Securities Limited. Mr Barry Waller said he purchased Convertible Note No 2 and a loan together with some shares in the defendant. He said the shares were of doubtful value.
It was Mr Barry Waller's evidence that the notice of assignment was delivered by him to either Mr Willis or Dr Ho. In his evidence, Mr Barry Waller produced an extract dated 24 October 2002 from a note book which referred to his delivery of the notice by handing it to Mr Craig Willis. Dr Ho was there when the notice was delivered.
Mr Barry Waller was cross‑examined concerning the reference in the definition of Convertible Note in the deed of October 2002 to the deed dated 6 August 2002. He was similarly cross‑examined in relation to the reference in Convertible Note No 2 to the Deed of Assignment dated 6 August 2002. Mr Waller agreed that he had read Convertible Note No 2 before he signed the Deed of Assignment of October 2002.
Mr Barry Waller referred to the Convertible Note No 2 providing that repayment could not be demanded until "after a scheduled date which happens to be September 2002".
Mr Barry Waller gave evidence that he agreed to become involved in the defendant because his son had requested him to do so. He said that he trusted his son's judgment and that he did not know anything about the defendant's financial position before entering into the assignment. He said he would not have taken the assignment but for his son's involvement. The impression I formed was that he was prepared to take a chance.
Mr Barry Waller said that the plaintiff purchased shares in the defendant for consideration of $56,191.21. By cheque dated 7 October 2002 the plaintiff paid $98,534.54 to Cristalle Securities Limited. Mr Barry Waller told me that the sum of $98,534.54 was allocated between the shares, the Convertible Note No 2 and the loan of $33,333.33 assigned by Cristalle Securities Limited. He was unable to recall whether the plaintiff was still the owner of the shares it had purchased from Cristalle Securities Limited.
Mr Barry Waller agreed that he received a facsimile from Mr Jermyn dated 9 September 2003. In that facsimile Mr Jermyn referred to the possibility of someone acquiring the plaintiff's interest in the defendant for $50,000.
Mr Barry Waller told me that he had a telephone discussion with Mr Jermyn in which Mr Jermyn had talked about the convertible note. Mr Barry Waller was cross‑examined at length about his discussions with Mr Jermyn. He was asked about rental outstanding in relation to the premises at 56 Melville Parade, South Perth and also about repayment of the loan of $33,333.33.
Mr Barry Waller denied that there was an agreement made with Mr Jermyn for him to receive Convertible Note No 2. He told me that the only way the Convertible Note No 2 would be released would be by getting paid for it. He said Mr Jermyn kept on making promises and proposals in relation to various indebtedness but there were no agreements.
Mr Barry Waller was cross‑examined in detail and at length. His evidence in examination‑in‑chief had been partly by written statement. His evidence was direct and responsive to questions and I accept his evidence as honest and truthful. It was detailed and reliable.
Linton John Scott is an accountant and has been a director of Glentril Investments Pty Ltd since 1986. He is also a director of the plaintiff.
Mr Scott told me that Mr Andrew Waller had full conduct and control of the affairs of Glentril Investments Pty Ltd.
Mr Scott told me that Mr Barry Waller told him of the plaintiff's acquisition of an interest in the defendant. He was told of the purchase of shares, a convertible note and a loan. He could not recall any specific discussion of price.
Mr Scott gave evidence that prior to the assignment of the Convertible Note No 2 he had no knowledge or notice of any allegation by any person that the content of Convertible Note No 2 was not an accurate reflection of its terms.
In his evidence, Mr Scott said that the plaintiff had no knowledge or notice at any material time that the consideration for Flandron Pty Ltd assigning to Cristalle Securities Limited part of Convertible Note No 1 constituted the completion of a proposed rights issue by Cristalle Securities Limited.
Mr Scott was not cross‑examined as to his personal knowledge of the deed of 6 August 2002. He said he had not heard of Mr Leaver and did not know of a company called Cristalle Securities Limited.
Dr Albert Ho gave evidence that he had discussions with Mr Jermyn concerning the raising of money for the defendant to enable it to proceed with the development of its proposed business of the supply of holistic water. At that stage the defendant was "cash‑strapped" in other words, the defendant needed funding to carry on the business and was not in a position to repay the debts owing to Dr Ho's companies without raising the necessary capital.
Dr Ho told me that he had several meetings with Mr Jermyn from about early June 2002 to discuss promotion of the defendant's holistic water business. Dr Ho stated that at one of the meetings, an agreement was reached that there would be an injection of $250,000 into the defendant to enable it to continue to operate, and that there was also a discussion about the raising of $2,350,000 by a rights issue. Dr Ho told me that Mr Jermyn and his associates were to take an assignment of Dr Ho's debt of $400,000 as a fee to raise the sum of $2,350,000. In his evidence, Dr Ho described the assignment of the debt as a "success fee" for the rights issue. The reference to the $400,000 being a "success fee" does not appear in any relevant document.
It was Dr Ho's evidence that by July 2002 there was an agreement with Mr Jermyn to proceed on the basis of the raising of the $2,350,000 and the assignment of part of the defendant's debt.
Dr Ho gave evidence that he gave instructions to Mr Peter Landau from Grange Consulting Group Pty Ltd to prepare a written agreement. When taken to the terms of the agreement as finally executed, Dr Ho said that if the rights issue did not proceed then the "intended fee would not be payable or rectified." He said that he mentioned to Mr Jermyn, that if the rights issue did not proceed, then he would expect the assignment to be set aside and that this was agreed.
In his affidavit sworn 18 May 2004 Dr Ho stated that Mr Andrew Glanville Waller was to take over the interest of Cristalle Investments Limited in the rights issue and that he (Mr Andrew Waller) was to make the necessary arrangement to effect that change. In other words, the rights issue was to proceed.
Dr Ho told me that the rights issue did not proceed. He said that it was important to the defendant and without it there would have been no transaction entered into with Consolidated Securities Pt Ltd, Glentril and Cristalle Securities Limited.
Dr Ho accepted that on 19 November 2002 the defendant received notice of the assignment of the defendant's indebtedness to Cristalle Securities Limited. He said that he could not recall Mr Barry Waller handing a notice of assignment to him prior to that date.
Dr Ho told me that he was involved in the negotiation of the deed dated August 2002. He was shown a draft of the deed in cross‑examination and said he had not seen the document before. The document was identified in the list attached to the defendant's affidavit of discovery which he swore on its behalf.
By a letter dated 22 August 2003 sent to the solicitors for the plaintiff, Dr Ho outlined the defendant's position. In that letter he stated that the defendant had "…sighted no documentation evidencing that Wainter has acquired from Cristalle Securities Ltd (or indeed any other party) the convertible note and/or loan…" In his evidence Dr Ho accepted that he received notice of the assignment.
The letter of 22 August 2003 contained some detail as to the defendant's version of events.
Dr Ho said in evidence that at the date of execution of the deed dated August 2002, Mr Jermyn was not representing the defendant. In his affidavit of 18 May 2004 Dr Ho swore that "Jermyn and I agreed to the proposal on behalf of the defendant."
According to Dr Ho Consolidated Securities Pty Ltd had transferred back to his company its share of the Convertible Note but this had only taken place in 2005.
In the course of cross‑examination Dr Ho accepted that the change in the wording of cl 2.7 of the draft of the deed of 6 August 2002 to that as appeared in the executed deed, was made by the Defendant's agent Mr Landau. Dr Ho gave evidence that he understood the draft cl 2.7 and the final version to mean the same thing.
Dr Ho's recollection of events was imprecise and he was unable to provide relevant detail. His evidence was vague and unacceptable, and consequently I find Dr Ho's evidence to be unreliable.
Peter Jeffrey Jermyn became a director of the defendant in August of 2002. He gave evidence that he has been involved since 1970 in the restructuring and management of listed public companies. In about May 2002 he was looking at developing a health water product and was introduced to Dr Albert Ho.
In the course of his meetings with Dr Ho, Mr Jermyn ascertained that the defendant was severely under‑capitalised and had very little funds.
Mr Jermyn had several discussions with Dr Ho and introduced Mr Lee Rienets to him.
Mr Jermyn told me that he reached an agreement that there would be funding provided to the defendant on an initial basis and then there would "be a bigger reconstruction of the company and a further capital raising." He stated that Dr Ho had told him that the defendant urgently needed $250,000.
It was Mr Jermyn's evidence that he spoke to Mr Andrew Waller concerning the defendant and that he also spoke to Mr Jonathon Leaver. He said that Mr Andrew Waller and Mr Leaver were interested in the defendant and it was decided that each of Messrs Jermyn, Waller and Leaver would participate equally. He told me that he was to do all of the negotiating with the defendant and that he received oral authority from Mr Andrew Waller and Mr Leaver to that effect. At that time Mr Andrew Waller nominated Glentril Investments Pty Ltd to be the involved entity on his behalf. Mr Leaver nominated Cristalle Securities Limited to be the involved entity on his behalf.
Mr Jermyn described that the forgiveness of a considerable amount of debt by entities associated with Dr Ho would be attractive to shareholders. Mr Jermyn told me the assignment of the total sum of $400,000 to Cristalle Securities Limited, Consolidated Securities Pty Ltd and Glentril Investments Pty Ltd was the basis that they undertook and underwrote the $2,350,000 capital raising. Mr Jermyn said any repayment of the $400,000 was subject to conclusion of the rights issue.
Mr Jermyn told me that the deed of assignment was executed in August 2002, and that thereafter, he received a telephone call from Mr Leaver who told Mr Jermyn he was not proceeding in any form with the rights issue.
It was Mr Jermyn's evidence that he could not say whether there had been a draft of the Deed.
Mr Jermyn gave evidence that from or about September 2003 he commenced negotiations with Mr Barry Waller concerning the claim made by the plaintiff. He said he agreed to take a transfer of Convertible Note No 2 from the plaintiff.
Melissa Ann Neal is a manager for Computer Share Investor Services which is the share registry manager for the defendant. She produced a record detailing the top 200 shareholders of the defendant. She also produced a record detailing that on 1 August 2003, 8,815,025 shares in the defendant, which had been purchased on 9 October 2002 were sold.
During the course of the trial an Australian Securities and Investment Commission search dated 22 May 2006 was received as an exhibit and indicated the plaintiff was still the holder of 8,815,025 shares. There were considerable submissions regarding the admissibility of documents produced by Ms Neal. I found that no basis to refuse the tender of those two documents had been made out and therefore the documents were properly admissible. The substance of Mr Jermyn's evidence on the shareholding was that he closely watches the share registry of the defendant and that the number of shares recorded in the plaintiff's name in the Australian Securities and Investments Commission record dated 22 May 2006 was in error. I accept Mr Jermyn's evidence in that respect. In my view the record from the share registry produced by Ms Neal should be accepted as accurate. The Australian Securities and Investments Commission record required the transmission to it by the defendant of relevant information. Mr Jermyn's evidence supports an acceptance of the evidence in relation to the shareholding.
The plaintiff's claim
The plaintiff's claim is as the holder of Convertible Note No 2 dated 6 September 2002. The note is signed under the seal of the defendant.
Cristalle Securities Limited is named in Convertible Note No 2 as the noteholder. The plaintiff became the noteholder pursuant to a Deed of Assignment dated 7 October 2002. Notice in writing of the assignment was given to the defendant on or about 24 October 2002 by delivery by Mr Waller alternatively on or about 5 September 2003.
The terms of Convertible Note No 2 (and as pleaded) were:
(a)The amount of the Convertible Note was $133,333.33.
(b)Demand for repayment would not be made by Cristalle Securities Limited until after the date scheduled for completion of a proposed rights issue by the defendant, namely, in or about September 2002.
(c)Cristalle Securities Limited had the right to elect to accept repayment of some or all of the principal and interest outstanding under the Convertible Note from time to time by an issue of shares in the defendant at an issue price of $0.15 per share.
(d)Cristalle Securities Limited was entitled to assign some or all of its rights under the Convertible Note;
(e)Any monies owing under the Convertible Note not satisfied by an allotment of shares would be repayable in cash; and
(f)Interest payable would be 10 per cent per annum and payable quarterly in arrears.
The Defence admits the pleaded terms of the Convertible Note.
On or about 5 September 2003 the plaintiff made demand for repayment of $133,333.33. The plaintiff has calculated its entitlement to interest pursuant to the Convertible Note up to and including 16 May 2006 as follows:
07/10/02 – 31/12/02 $ 3,114.15
01/01/03 – 31/12/03 $13,333.33
01/01/04 ‑31/12/04 $13,333.33
01/01/05 – 31/12/05 $13,333.33
01/01/06 – 16/05/06 $ 4,968.08
Total$48,082.22
The plaintiff's case is that the Convertible Note had matured by 5 September 2003, when demand for repayment was made. The terms of the note having been admitted, I am satisfied that the plaintiff is entitled to judgment on its claim, subject to the issues raised by the defence and counterclaim.
Defence and counterclaim
The principal area of legal controversy between the plaintiff and the defendant concerns the defendant's assertion that the plaintiff, as assignee, took subject to all equities that had matured at the time of the notice of assignment. On this basis the defendant submits that the plaintiff, as assignee, could be in no better position than that of Cristalle Securities Limited as assignor.
The defendant's submission is that any defences available to it in a claim made by Cristalle Securities Limited were also available to it in a claim by the plaintiff as assignee from Cristalle Securities Limited. Similarly, any relief by way of counterclaim could also be pursued against the plaintiff as assignee.
The defendant's submission in defence is that Flandron Pty Ltd agreed to assign $400,000 to Consolidated Securities Limited, Cristalle Securities Limited and Glentril Investments Pty Ltd, not because of the payment by these assignees of $10 but because they promised to undertake and underwrite a rights issue to raise $2.35 million for the defendant. It is the defendant's claim that the assignee companies did nothing to comply with their obligation to raise the $2.35 million and are therefore not entitled to payment. Had Cristalle Securities Limited not assigned Convertible Note No 2 and Cristalle Securities Limited demanded payment of $133,333.33 under Convertible Note No 2, it would have been met with statutory and equitable defences including the Trade Practices Act 1974, estoppel, mistake, rectification, equitable fraud and unjust enrichment. Whilst the issue of unjust enrichment was raised in submissions there is no pleaded defence based upon it.
The plaintiff submits that it was a bona fide purchaser for value without notice of a legal interest and that accordingly, it took an assignment free of any equity.
The controversy requires a consideration of s 20 of the Property Law Act 1969 and relevant authorities.
| 96 Section 20 of the Property Law Act 1969 provides: "20. Assignment of debts and choses in action (1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim that debt or chose in action, is effectual in law (subject to equities having priority over the right of the assignee), to pass and transfer from the date of the notice ¾ (a) the legal right to that debt or chose in action; (b) all legal and other remedies for the debt or chose in action; and (c) the power to give a good discharge for the debt or chose in action, without the concurrence of the assignor. (2) Where the debtor, trustee, or other person liable in respect of the debt or chose in action referred to in subsection (1) has notice ¾ (a) that the assignment so referred to is disputed by the assignor, or any person claiming under him; or (b) of any other opposing or conflicting claims, to the debt or chose in action, he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the debt or chose in action, or pay the debt or other chose in action into court, under the provisions of the Trustees Act 1962. (3) For the purposes of this section "any debt or other legal chose in action" includes a part of any debt or other legal chose in action. |
In Ghirardi & Anor v Allregal Corporation Pty Ltd & Ors [2001] WASCA 366 Anderson J (Steytler and Templeman JJ agreeing) in dealing with a guarantor's ability to raise a claim under s 87(2)(a) of the Act against an assignee of the original security said:
"15.The general rule is that the assignee of a chose in action takes subject to all equities affecting the assignor. If the bank had obtained the appellants' execution of the guarantee and indemnity by fraud, or otherwise in circumstances rendering the deed liable to be rescinded, the first respondent as assignee of the guarantees would be in no better position and it would be no answer for the first respondent to say that it was a bona fide purchaser for value of the benefit of the guarantees. It is a particular application of the nemo dat quod non habet rule. There is an instructive discussion of the subject and of the leading authorities which support these propositions in Meagher Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed) par 697 - 699. See also Southern British National Trust Ltd (In Liq) v Pither (1937) 57 CLR 89, especially per Dixon J at 110 - 112.
16.One question is whether the rule nemo dat quod non habet extends to cases in which the jurisdiction to set aside the impugned transaction derives not from equitable or common law rules relating to rescission, but exclusively from statute. Mr McCormack submitted that it was arguable that, if a contract is liable to be set aside under a statute such as the Trade Practices Act, the Corporations Law or the Australian Securities and Investments Commission Act for a contravention of a provision of the applicable Act, an assignee of the benefit of the contract takes subject to the right of a competent party to claim that it be set aside. Our attention was not drawn to any direct authority for that proposition but I would accept that the proposition is at least arguable as being a legitimate extension of the nemo dat quod non habet principle. It has been held that, in applying the rule that an assignee of a chose in action takes subject to all the equities, the word "equities" is to be given a wide meaning. Re Harry Simpson & Co Pty Ltd [1964] NSWR 603 at 605.
17.It may be observed in passing that the rule can be modified or ousted by agreement. If the contracting parties agree that the contract may be assigned free from such equities, this can be done: Meagher Gummow and Lehane (op cit) par 6101. In this case, the guarantee and indemnity contains such a provision. Clause 26 provides:
'The Bank may assign its rights under this guarantee and indemnity free of any equity, set-off or counterclaim'."
In my view the assignee cannot take free of the equities that had matured as against the assignor. Section 20 of the Property Law Act 1969 makes that clear. It is therefore necessary to consider each of the specific defences and claims which are alleged to have been available to the defendant as against the assignor, Cristalle Securities Limited, as well as the other pleaded defences.
Misleading and deceptive conduct
The defendant pleads that Cristalle Securities Limited engaged in misleading and deceptive conduct in contravention of s 52 of the Act. By the counterclaim the defendant sought a declaration that the Deed of Assignment and Convertible Note No 2 were void or alternatively, should be set aside, according to s 82 and s 87 of the Act.
The conduct identified by the defendant as being misleading and deceptive is the making of a representation which is pleaded in par 13 of the Defence as follows:
"13.In July 2002 Consolidated, Glentril and Cristalle represented to the defendant they would participate in a restructure of the Defendant, including inter alia:
(a)Consolidated, Glentril and Cristalle would undertake and underwrite a capital rights issue for the Defendant to raise $2.35m;
(b)Ho causing Mediplus to release the Debt;
(c)Flandron assigning $400k of Convertible Note No 1 to Consolidated, Glentril and Cristalle and releasing the Defendant from liability to pay about $185k, being the balance of Convertible Note No 1 in excess of $400k, thereby reducing the amount owed by the Defendant to Flandron to $400k;
(d)from the $2.35m pleaded in (a), $300k be immediately repaid to Flandron leaving a balance of $100k payable to Flandron; and
(e)interest would not accrue on the balance principal payable under Convertible Note No 1
(together 'the Representation').
Particulars of Representation
(i)Letter Grange to Consolidated dated 4/7/02.
(ii)On or about 23/7/02 Jermyn told Ho that Consolidated, Glentril and Cristalle would participate in restructure of the Defendant in the terms described in paragraphs (a) to (d).
(iii)Fax Hardy Bowen to Jermyn and Waller dated 23/7/02.
(iv)Fax from the Defendant to Hardy Bowen dated 24/7/02.
(v)Email from Grange to Hardey Bowen dated 26/7/02.
(vi)Email from Hardy Bowen to Grange dated 28/7/02.
(vii)Letter Grange to Consolidated dated 31/7/02.
(viii)The Representation was implied in the statement by Jermyn and the written communications described in par (i) to (vii)."
Paragraph 14 of the Defence pleads reliance upon the representation as follows:
"14.In reliance upon the Representation, in August 2002 the Defendant entered into a Deed of Assignment ("Deed of Assignment") with Flandron, Cristalle, Consolidated, Glentril, Mediplus and Ho, providing for –
(1)release of the Debt by Mediplus,
(2)release of about $185k and assignment of $400k from Convertible Note No 1 by Flandron to Consolidated, Glentril and Cristalle equally with the consideration for the assignment being $10.00, and
(3)for the liability of the Defendant under Convertible Note No 1 to only comprise principal on which interest will not accrue. The Defendant will at trial refer to the Deed of Assignment for its complete terms and effect."
The letter of 4 July 2002 from Grange Consulting Group Pty Ltd to Consolidated Securities Pty Ltd refers to a share consolidation of the defendant and a renounceable rights issue. Completion of the transactions is referred to as "contemplated to occur on or before 31 October 02." Reference is also made to Grange Consulting Group Pty Ltd providing services in preparation and drafting of formal agreements. Whilst there is reference to a rights issue there is no express reference in the letter to a rights issue of $2,350,000.
The letter of 23 July 2002 from Hardy Bowen the solicitors for Cristalle Securities Limited, sought details on behalf of Mr Leaver "in relation to his potential investment in OPM." It sought particulars of "the proposed rights issue".
The facsimile from the defendant to Hardy Bowen dated 24 July 2002 attached a copy of the Hardy Bowen letter of 23 July 2002. Whilst the cover page contained the words "Please find attached agreement" it did not provide detail of the proposed rights issue.
The email of 28 July 2002 from Hardy Bowen to Mr Landau refers to a proposal being put in writing.
The issue identified by the defendant is not whether the plaintiff has engaged in misleading or deceptive conduct but whether Cristalle Securities Limited has contravened the Act. It is submitted that if it did then that is an "equity or infirmity" which affects the interest of Cristalle Securities Limited in Convertible Note No 2 and consequently affects the interest of the plaintiff in that note.
The case of the defendant is that the promise made by Cristalle Securities Limited was that it would participate in the rights issue and therefore raise $2,350,000 for the defendant. Cristalle Securities Limited did not participate in the issue and on that basis was not entitled to receive the $133,333.33 the subject of the assignment. Further, it is said that in the circumstances, Cristalle Securities Limited (and therefore the plaintiff) is estopped from enforcing its claim. Further it is alleged that because of its knowledge as pleaded in par 28 of the Defence, the plaintiff is estopped from enforcing the Deed of Assignment dated 6 August 2002 and Convertible Note No 2. I will again deal with knowledge later in these reasons. I do not consider there is knowledge or that the alleged representation creates an estoppel. No detriment is pleaded and I am not satisfied that there was any relevant reliance as alleged.
Whether or not the conduct of Cristalle Securities Limited was misleading or deceptive must be determined at the time the conduct was engaged in.
To enter into an agreement with no intention or ability to perform it or a material term of it, may be misleading or deceptive conduct. The fact of non‑performance of a contractual obligation without more does not constitute misleading or deceptive conduct. Serrata Investments Pty Ltd v Rajane Pty Ltd(1991) 6 WAR 419 at 432.
I am satisfied that Mr Leaver and Cristalle Securities Limited did intend to participate in the proposed rights issue when the discussions and negotiations were occurring from in or about July 2002.
The assignment of the debt from Dr Ho's company was, on Dr Ho's evidence, of little value given the defendant's financial position.
Mr Leaver had engaged solicitors who were involved in the negotiations concerning the restructuring. Mr Jermyn's evidence was that Cristalle Securities Limited wanted to be involved and that Cristalle Securities Limited withdrawal was based on a disagreement between Mr Leaver and Mr Andrew Waller. The fact that Cristalle Securities Limited did not proceed with the issue does not establish that it did not intend to perform.
I am satisfied in this case that Cristalle Securities Limited did intend to proceed with the issue, and consequently there has been no misleading or deceptive conduct. Whilst Dr Ho's evidence was that the rights issue was critical I am not satisfied that he relied upon the alleged representation before entering into the deed of 6 August 2002. The defendant was in financial difficulty and negotiations were proceeding when the deed was executed. In the circumstances I do not consider that Dr Ho has relied upon the representation. As a result it is unnecessary for me to consider the issue of whether a claim under s 87 of the Act is an equity for the purposes of s 20 of the Property Law Act 1969.
Rectification
A party seeking rectification must satisfy the Court that either there was a concluded antecedent agreement which was not carried into effect in the written instrument, or there is a disconformity between the words of the instrument and what was the common intention of the parties at the time the contract was executed. (Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365 at 386‑388, Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 351).
The remedy of rectification is not dependent upon the existence of an antecedent agreement. It is available in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention. (Maralinga Pty Ltd v Major Enterprises Pty Ltd) (above at 350 per Mason J).
In circumstances where common mistake is sought to be established by reference to an alleged prior agreement, relief is not granted unless the Court is satisfied that a true concluded agreement was reached before the execution of that written instrument (Cheshire and Fifoot's "Law of Contract" 8th Aust ed, at [12.32]).
The burden of proving mistake common to both parties is upon the party who alleges the agreement ought to be rectified. (Pukallus v Cameron (1982) 180 CLR 447).
The claim for rectification is pleaded in the Defence as follows:
"33.By mistake the Deed of Assignment and Convertible Note No 2 do not correctly record the arrangement agreement or understanding caused by the Representation.
Particulars
(a)The Deed of Assignment should have contained a condition:
If the Proposed Rights Issue (as defined in the Deed of Assignment is not completed by 30 September 2002 this deed is void and of no effect.
(b)Convertible Note No 2 should have contained a condition:
If the Proposed Rights Issue (as defined in the Deed of Assignment) is not completed by 30 September 2002 this note is void and of no effect.
(c)Convertible Note No 2 incorrectly included the requirement by the Defendant to pay interest as pleaded in paragraph 16(f) being inconsistent with clause 2.6(a) of the Deed of Assignment, whereby there should be deleted from Convertible Note No 2 the reference to interest.
34.The mistake is unilateral because the Deed of Assignment and Convertible Note No 2 do not properly record the intention and understanding of the Defendant caused by the Representation, by including the condition referred to in paragraph 33 and the Plaintiff at all material times knew or ought to have known the Defendant was acting under that mistake.
Particulars
The Defendant repeats the particulars in paragraph 28.
35.Further and in the alternative the mistake is common to all parties to the Deed of Assignment and Convertible Note No 2 because those documents do not properly record the intention and understanding of the parties caused by the Representation.
Particulars
The Defendant repeats the particulars in paragraph 28.
36.By reason of the matters pleaded in paragraphs 32 to 35 the Deed of Assignment and Convertible Note No 2 should be rectified by including the conditions described in the particulars to paragraph 33.
A deliberate decision was made to change the wording of cl 2.7 as contained in the draft to that which ultimately appeared in the Deed of Assignment of 6 August 2002. The change was material. The draftsman of the Deed of Assignment was not called to give evidence in the plaintiff's case and there was no explanation as to why he was not called. I conclude that his evidence would not have assisted the defendant's case. (Jones v Dunkel (1959) 101 CLR 298).
I am not satisfied that there was a common intention or agreement, arrangement or understanding which leads to either the Deed of Assignment or Convertible Note No 2 dated 6 August 2002 being the subject of a decree of rectification. Convertible Note No 2 was prepared and signed after the deed. There was no evidence adduced by the defendant in relation to the requirement in Convertible Note No 2 to pay interest at 10 per cent per annum which satisfies me that an order to rectify the note is appropriate. The Deed of Assignment of 6 August 2002 contains a covenant that the loan does not accrue interest. Dr Ho did not explain why the defendant executed the note which included the obligation to pay interest. I would, in any event, have ordered interest to the plaintiff pursuant to s 32 of the Supreme Court Act 1935 from the date of demand.
This was a commercial transaction. Solicitors were engaged and the defendant had a consultant acting on its behalf. I do not accept that the Deed of Assignment of 6 August 2002 and the Convertible Note No 2 were executed by the defendant under mistake. Whilst the proposed rights issue is referred to in the Deed of Assignment, the assented effect of non‑completion of the rights issue was not included. The rights issue was complex and still being negotiated after the date of execution of the deed on 6 August 2002.
The factual basis for the claim to rectify each of the Deed of Assignment dated August 2002 and Convertible Note No 2 is not made out. The claim is dependent, to a significant extent upon my acceptance of the evidence of Dr Ho and Mr Jermyn. I do not consider that their evidence makes out that claim and I am not prepared to act on their evidence.
Further, in relation to the issue of rectification it is clear in my view that the issue of the failure to complete the rights issue was addressed by the draft deed. The draft deed provided that no demand could be made until after the completion of the proposed rights issue. In other words, if the rights issue was not completed a demand could not be made. In contrast, the final form of the deed provided that a demand could not be made until after a reasonably ascertainable date, namely the date scheduled for completion of the rights issue.
The defendant's intention was that there be a change from the wording of cl 2.7 in the draft to that contained in the Deed of Assignment dated 6 August 2002 be made. There was no common mistake.
There was no unilateral mistake. Clause 2.7 of the Deed of Assignment was intentionally and deliberately drafted by the defendant's agent. The Convertible Note No 2 was issued and executed by the defendant. No conduct or omission of Cristalle Securities Limited has been identified which would justify a grant of relief on the grounds of unilateral mistake. (Taylor v Johnson (1983) 151 CLR 422). I do not accept that, even if there had been unilateral mistake, there was any knowledge or conduct on the plaintiff's part which would justify the grant of the remedy sought. The plaintiff was not a party to the deed and not involved in its negotiation, preparation or execution. Further, I am not satisfied there was any such conduct or knowledge on the part of Cristalle Securities Limited.
Discussions between Dr Ho, Mr Jermyn and Mr Andrew Waller in September 2002
The defendant pleads that because of a discussion in September between Mr Jermyn and Mr Andrew Waller and between Mr Ho and Mr Jermyn the plaintiff cannot maintain its claim.
The relevant paragraphs of the defence are as follows:
"26.On or about 30 September 2002:
(a)Leaver told Jermyn that Cristalle would no longer participate in the restructure of the defendant and regarded the involvement of Cristalle in the restructure to be at an end;
(b)Jermyn told Waller what Leaver had told Jermyn as specified in par (1); and
(c)Jermyn and Waller orally agreed neither Consolidated nor Glentril would participate in the restructure of the defendant and they regarded the involvement of Consolidated and Glentril in the restructure to also be at an end.
. . .
37.On or about 30 September 2002 Jermyn told Ho of the discussions described in par 26 and that accordingly the Proposed Rights Issue as defined in the Deed of Assignment would not be proceeding and Consolidated, Glentril and Cristalle did not therefore have any claims against the defendant for any part of Convertible Note No 1, with which Ho agreed."
Dr Ho's evidence as to his discussion with Mr Jermyn was that he mentioned to him that if the rights issue did not proceed he would expect the assignment to be set aside. He said that Mr Jermyn agreed and that he returned his portion of the Convertible Note namely $133,333.33 being one third of $400,000. I find that this evidence was vague and unconvincing.
In his examination‑in‑chief Mr Jermyn was asked about the withdrawal of Mr Leaver and Cristalle Securities Limited from the proposed restructuring of the defendant as follows:
"ROBINSON, MR: Mr Leaver told you something. What did Mr Leaver tell you about the convertible note, sorry, the rights issue?‑‑‑I saw a document that had been sent from Mr Bowen to either myself or the company and I received that notification. I then rang Mr Leaver in Europe. I was to meet with Mr Leaver approximately a week later in Europe with the intention of doing some presentations on the company and in meeting the chairman of Nestle, who was his friend, to further advance the water. Mr Lever told me that he had an argument with Mr Andrew Waller and wouldn't be proceeding in any form with the rights issue or anything else to do with the company.
When you say ‑ it was approximately a week after, was it?‑‑‑Yes, I think so. I think it was early August at that point.
Did you disclose that to Mr Ho, Dr Ho?‑‑‑Yes, I did.
When?‑‑‑Almost immediately. I discussed it with Mr Andrew Waller immediately that I got the notification and then again after I had spoken directly on the telephone with Mr Leaver and then discussed it with Dr Ho.
On the telephone in each instance you say?‑‑‑On the telephone with Mr Leaver, but directly with Mr Andrew Waller and with Dr Ho.
What did Mr Waller say about Mr Leaver withdrawing?‑‑‑He discussed it at some length that it was impossible for him to deal with Mr Leaver. He never gave me any particular reasons but we discussed amongst ourselves that with the withdrawal of Mr Leaver as an underwriter, Mr Leaver was in fact, had expressed to both of us directly that he wished to underwrite the total of the issue rather than just his one third; he was very anxious to get as large a shareholding as he could. Mr Waller and myself discussed that with the withdrawal of Mr Leaver totally that completing the underwriting of the agreement and the capital raising would be substantially more difficult and was probably unlikely to be able to proceed.
When you had this discussion with Mr Leaver about him withdrawing, did you raise with him the convertible note number 2, the assignment of that $400,000?‑‑‑We discussed it briefly at that stage. I was still going to Europe. I was committed to go to Europe on a number of other things as well. We still planned to meet. We weren't going to do the presentations as planned, but Mr Leaver and myself were still to meet. I was hopeful at that stage of changing his mind and recommencing the whole arrangement. We did in fact discuss with ‑ when I got to Europe I was to meet with Mr Leaver. I rang him to inform him that I was in Nice. Mr Leaver at that stage had gone to the States, wasn't in Nice any more, so we didn't meet; we had a telephone conversation.
Just what was expressly discussed, if anything, to do with him about his convertible note?‑‑‑I asked Mr Leaver, told Mr Leaver, that the convertible note should be reassigned back to ‑ if he wasn't proceedings, should be reassigned either to Dr Ho or to Mr Waller and myself.
And his response to that?‑‑‑He said he would think about it.
When you spoke with Mr Andrew Waller about this same matter, Mr Leaver withdrawing, did you discuss with him what should happen to the convertible note?‑‑‑Yes, I did. I said that I thought it was completely wrong that if Mr Leaver wasn't going to participate in the underwriting and the completion of the capital raising, that that's what he had been paid for, that was the fee or the reward, and as it had been Mr Waller who had caused the friction between the two I believed that it was his responsibility to get that assignment back from Cristalle.
And his response to that?‑‑‑He said he would do that.
In your discussions with Mr Ho about what Mr Leaver did, did you discuss with him what would happen to convertible note number 2?‑‑‑I said to Dr Ho that it would be more difficult to proceed and that we would, Mr Waller and myself, would continue to see if we could finalise it, but if it wasn't that the convertible notes would be reassigned.
His reaction to that?‑‑‑He accepted that discussion.
How did he accept it? What did he say?‑‑‑In the normal Dr Ho manner of just nodding his head and saying yes."
I find that there was no evidence adduced that Mr Jermyn had authority to act on behalf of Cristalle Securities Limited to negotiate a compromise with Dr Ho in relation to its non‑participation in the restructure of the defendant. Whilst it was admitted that Mr Jermyn had been authorised by Cristalle Securities Limited to act as agent on its behalf to negotiate and enter into an agreement with the defendant to participate in a restructure there was no admission in relation to authority to act as agent to compromise any claim.
I do not accept that the matters pleaded in pars 26 or 37 of the Defence mean that the plaintiff's claim cannot be maintained. I do not accept Dr Ho's evidence that there was a compromise reached (as alleged) with Mr Jermyn.
I find that Mr Jermyn did not have authority to compromise any claim on behalf of Cristalle Securities Limited in relation to the restructure of the defendant. I find that the evidence of Dr Ho and Mr Jermyn does not establish an agreement to compromise any claim on behalf of Cristalle Securities Limited as alleged.
The interest of Peter Jeffrey Jermyn
The defendant pleads and relies upon an alleged agreement dated 1 November 2003 made between Mr Jermyn and Mr Barry Waller.
The alleged agreement is pleaded as follows:
"40.On or about 1 November 2003 Jermyn orally agreed with Barry Waller:
(a)the plaintiff would transfer Convertible Note No 2 to Jermyn or his nominee;
(b)the defendant would immediately pay arrears of rent for office premises in South Perth which had been leased by the defendant from the plaintiff;
(c)the defendant would immediately repay a loan of $33,333.33 plus interest which loan was assigned by Cristalle to the plaintiff by the October 2002 Deed; and
(d)Jermyn would purchase the shares owned by the plaintiff in the defendant at a price which would provide the plaintiff with a minimum profit of $10k.
41.At all material times when the agreement was made as pleaded in para 40 Jermyn represented himself personally and also Optum in his capacity as a director.
42.By reason of the matters pleaded in paragraphs 40 and 41 Jermyn is the beneficial owner of Convertible Note No 2.
43.Jermyn has not and will not take action to enforce the payment of any monies by the Defendant to Jermyn pursuant to Convertible Note No 2."
It is necessary to outline some further facts, at this stage. The defendant had been the lessee of the office premises situate at 56 Melville Parade, South Perth from the plaintiff. By about September 2003 there was arrears of rental owing to the plaintiff. As at 27 November 2003 the plaintiff alleged a balance of rental owed of $42,231.87. There was an obligation to pay the rent.
As at September 2003 the loan of $33,333.33 referred to in the Deed of Assignment dated 6 August 2002 remained outstanding. Interest was accruing on the loan at a rate of 10 per cent per annum. The loan was evidenced by a certificate dated 9 September 2002 and it was an acknowledged obligation.
In November 2003 the defendant paid to the plaintiff an amount of $1,497.56 in relation to rental and an amount of $3,844.75 in relation to the loan of $33,333.33 .
I accept and prefer the evidence of Mr Barry Glanville Waller to that of Mr Jermyn. Mr Barry Waller's evidence was that he would not relinquish the Convertible Note without payment as there had been problems with payments in the past from the defendant. I accept his evidence.
There was a term of the oral agreement pleaded that Mr Jermyn would purchase shares from the plaintiff in the defendant at a price which would provide the plaintiff with a minimum profit of $10,000.
Mr Jermyn's evidence was generally unreliable and I am not prepared to rely upon it. There are a number of reasons for this. Whilst Mr Jermyn asserted an agreement to pay a minimum profit of $10,000, payment was never made. The evidence is that the plaintiff was no longer the holder of shares in the defendant there was no evidence of a written request made by Mr Jermyn to the plaintiff for details of the shares. Further, all of the alleged outstanding rental was not paid. There was no reason for Mr Barry Waller to enter into the oral agreement with Mr Jermyn. The rental had to be paid, as did the loan, in any event. The obligation alleged was not to pay $10,000 but was to pay for the shares at a price which would provide the plaintiff a minimum profit of $10,000. Mr Barry Waller was concerned about Mr Jermyn's ability to perform obligations. I do not accept Mr Barry Waller would have entered into the oral agreement as alleged. Mr Barry Waller was worried about payment and demands from solicitors had not been met.
Equitable fraud and claim for equitable compensation
The Defence includes a defence of equitable fraud. There is also a claim for equitable compensation.
The relevant paragraphs of the pleading are as follows:
"26.On or about 30/9/92:
(a)Leaver told Jermyn that Cristalle would no longer participate in the restructure of the Defendant and regarded the involvement of Cristalle in the restructure to be at an end.
(b)Jermyn told Waller what Leaver had told Jermyn as specified in paragraph (a); and
(c)Jermyn and Waller orally agreed neither Consolidated nor Glentril would participate in the restructure of the defendant and they regarded the involvement of Consolidated and Glentril in the restructure to also be at an end.
27.Save to say by deed dated October 2002 ("the October 2002 Deed") Cristalle assigned to the Plaintiff its interest in Convertible Note No 2 and the Defendant will refer to the October 2002 Deed at trial for its complete terms and effect, the Defendant admits paragraph 4 of the Amended Statement of Claim.
28.At all material times the Plaintiff knew or ought to have known about the making of the Representation and that the Representation was false because the rights issue promised inter alia by Consolidated, Glentril and Cristalle had not been undertaken or underwritten and would not be undertaken or underwritten.
Particulars of knowledge
(a)The October 2002 Deed expressly refers to the Deed of Assignment.
(b)Convertible Note No 2 expressly refers to the Deed of Assignment.
(c)At all material times Linton Scott was a director of the Plaintiff and Glentril.
(d)The Deed of Assignment expressly refers to the rights issue of $2.35m.
(e)Waller and Glentril are parties to the October 2002 Deed and in that deed consented to the assignment.
(f)The Defendant repeats paragraph 26.
. . .
46.Further and alternatively because:
(a)of the matters pleaded in paragraphs 28;
(b)the Plaintiff knew or should have known Cristalle had paid consideration of only $3.33 for assignment of a debt of $133,333.33 because in the Deed of Assignment the consideration for the assignment of $400,000.00 to Cristalle, Consolidated and Glentril is specified to be $10.00; and
(c)Cristalle had not undertaken or participated in the rights issue to raise $2.35m;
For the Defendant to be required to pay $133,333.33 to the Plaintiff under Convertible Note No 2 would be equitable fraud."
I am not satisfied that there is any equitable fraud in this case as pleaded. I will not repeat all of the previous findings and observations I have made. The defendant was in financial difficulty. A restructuring would be much easier to achieve without debt. By the deed dated 6 August 2002 the debt level of the defendant was reduced. The parties were still in negotiations about the rights issue when the deed dated 6 August 2002 was executed.
The Deed of Assignment dated 6 August 2002 contained no reference to an obligation to carry out the rights issue. Convertible Note No 2 contained no reference to the obligation to carry out the rights issue. Promises had been made but I am not satisfied that the non‑performance by Mr Leaver would entitle the defendant to relief. Mr Leaver had expressed an interest in the restructure of the defendant. There is no evidence that when the restructure was discussed that he did not intend to perform.
The parties, as I have said, were all experienced in commercial transactions. A rights issue was complex and was still being negotiated. Ultimately it did not proceed. The Deed of Assignment dated 6 August 2002 did not provide for what would occur if the rights issue did not proceed. This is understandable in the context of the defendant's financial position. It was in need of funds and an urgent injection of cash to continue its business.
Whilst the Deed of Assignment dated 7 October 2002 and the Convertible Note No 2 expressly refer to the Deed of Assignment dated 6 August 2002 that Deed of Assignment dated 6 August 2002 does not say anything about the effect of non‑completion of the rights issue. A review of the Deed of Assignment dated 6 August 2002 by the plaintiff would not have put the plaintiff on notice that the proposed rights issue would have an effect upon the enforceability of Convertible Note No 2 which had been assigned to it.
Whilst there was no defence pleaded that there was an automatic avoidance of the Deed of Assignment of the 6 August 2002 if the rights issue did not proceed, I am satisfied that the clear language of that deed indicates this was not the case. Clause 2.7 of the Deed of Assignment dated 6 August 2002 is clear. The defendant had admitted in its pleading one of the pleaded effects of the Convertible Note, namely that demand for repayment would not be made by Cristalle Securities Limited until after the date scheduled for completion of a proposed rights issue by the defendant, namely in or about September 2002.
The defendant does not separately plead unjust enrichment but relies upon the facts to demonstrate unjust enrichment as part of the equitable fraud plea. I am not satisfied that either Mr Barry Glanville Waller or Mr Linton Scott had the knowledge sought to be relied upon which would establish such a claim. There is no evidentiary basis for the assertion that the plaintiff knew, or ought to have known, about the making of the alleged representation. If Cristalle Securities Limited was unjustly enriched because of the Deed of Assignment of 6 August 2002 then this was at the expense of Flandron Pty Ltd and not the defendant.
I find that there is no substance in the defence or counterclaim.
Conclusion
The plaintiff is entitled to judgment on its claim of $133,333.33 plus interest in accordance with Convertible Note No 2.
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