Weiss v Chesterfield
[2015] ACTSC 299
•25 September 2015
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Weiss v Chesterfield & Anor |
Citation: | [2015] ACTSC 299 |
Hearing Dates: | 13, 14, 15, 16, 28 April 2015 |
DecisionDate: | 25 September 2015 |
Before: | Mossop AsJ |
Decision: | See [125] |
Category: | Principal Judgment |
Catchwords: | ESTOPPEL – Counterclaim brought by former director and shareholder of company against remaining director and shareholder of company for entitlements in relation to salary, share of profits, director’s fees and personal tax liabilities – entitlements said to arise from representations made by remaining director and shareholder – representations not established – counterclaim dismissed |
Legislation Cited: | Australian Consumer Law s 18 |
Cases Cited: | Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 |
Parties: | Stefan Weiss (Counterclaimant) Paul Bruce Chesterfield (First Defendant to Counterclaim) React Metal Roofing Pty Ltd (Second Defendant to Counterclaim) |
Representation: | Counsel Mr T Crispin (Counterclaimant) Mr G Theakston (First and Second Defendants to Counterclaim) |
| Solicitors S & T Lawyers (Counterclaimant) Goodman Law (First and Second Defendants to Counterclaim) | |
File Number: | SC 221 of 2014 |
Introduction
These proceedings involve the determination of a counterclaim brought by Stefan Weiss against Paul Chesterfield and React Metal Roofing Pty Ltd (RMR). The original claim was one brought by Mr Chesterfield against Mr Weiss. It was heard in the Magistrates Court and judgment was given in favour of Mr Weiss. The undetermined counterclaim was then transferred to this Court.
The pleaded counterclaim
Mr Weiss pleads that prior to March 2010 he and Mr Chesterfield discussed forming a “joint business venture” involving a company called React Guttering and Facia Pty Ltd (RGF) of which Mr Chesterfield was then the sole director and shareholder. It is alleged (Counterclaim [12]) that Mr Weiss and Mr Chesterfield agreed on the following terms (the RGF terms):
a) [Mr Weiss] would purchase 49% of the shares of [RGF] for the sum of $70,000.00.
b) [Mr Weiss] would be appointed a director of [RGF].
c) [Mr Weiss] would have primary responsibility for the sales side of the business.
d) [Mr Chesterfield] would have primary responsibility for the company finances and would exercise total control thereof.
e) [Mr Weiss] would be paid a salary by [RGF] of $1,200.00 per week after tax for the first 3 months of the agreement, and $1,500.00 per week after tax thereafter.
f) [Mr Weiss’] PAYG taxation obligations would be funded by [RGF].
g) [Mr Weiss’] PAYG taxation obligations would be handled by the company’s accountant.
h) At the end of each financial year, any profits retained by the company would be distributed to the directors. [Mr Weiss’] share of this distribution would be 50%.
i) [Mr Weiss] would be entitled to 50% of any distributions by the company, including director’s fees.
Mr Weiss alleges that he became a director of RGF in March 2010. On 24 March 2011 Mr Weiss and Mr Chesterfield incorporated RMR and Mr Weiss held 49% of the shares (Counterclaim [15]). He pleads that his “employment and shareholding of [RMR] were on the same terms as his employment and shareholding of [RGF]”.
The counterclaim then pleads a number of payments which were alleged to have been required to be made but were not paid or only partly paid by RGF or RMR. The amounts claimed fall into a number of categories:
(a)salary (Counterclaim [16]-[17]);
(b)amounts of tax alleged to have been payable by RGF or RMR (Counterclaim [18]-[20]);
(c)a share of profits (Counterclaim [21]-[22]);
(d)director’s fees and management fees (Counterclaim [23]-[25]).
The amounts can be summarised as set out in the following table:
Category of claim Company owing Relevant period Amount not paid Salary RGF and/or RMR March 2010 to January 2012 $12,200.00 Amounts of tax RGF July 2009 to June 2010 $6,000.00 RGF and RMR July 2010 to June 2011 $18,800.00 RMR July 2011 to June 2012 $5,000.00 Share of profits RGF March 2010 to June 2011 $111,012.98 Director’s fees RGF $7,485.04 RMR $34,241.00 Management fees RMR $25,355.00
The claim in relation to management fees was abandoned during the course of the hearing.
Estoppel against Mr Chesterfield: Mr Weiss pleads a claim of equitable estoppel against Mr Chesterfield. The estoppel is pleaded as a sword rather than as a shield. The equitable estoppel is alleged to have the effect that Mr Chesterfield is bound by representations that he made that he would ensure that RGF complied with the RGF terms as pleaded and that RMR would retain Mr Weiss on substantially equivalent terms.
Mr Weiss alleges (Counterclaim [26]) that Mr Chesterfield made the following representations to him:
a) That [Mr Chesterfield] would ensure that [RGF] would comply with the terms of the agreement outlined in paragraph 12.
b) That upon [RGF] ceasing to trade, [Mr Chesterfield] would ensure that [RMR] would retain [Mr Weiss] on the same terms as those outlined in paragraph 31 below.
The reference to the terms pleaded in paragraph 31 of the Counterclaim is a reference to terms equivalent to paragraphs (a)-(i) of the RGF terms except that the relevant entity was RMR and entitlement to 49% of the shares in RMR was not contingent upon paying any further amount of money. I will refer to these as the RMR terms.
Mr Weiss alleges that the representations were made with the intention of inducing him to rely upon them, that he did rely upon them and that as a consequence of that reliance he suffered detriment. The detriment alleged (Counterclaim [29]) is:
(a)the payment of the sum of $70,000;
(b)the expending of labour and personal exertion; and
(c)the incurring of liability to the Australian Taxation Office for tax which ought to have been withheld pursuant to the PAYG scheme.
As a consequence it is alleged that “it would be unconscionable for [Mr Chesterfield] to resile from those representations” (Counterclaim [30]).
The effect of this pleading would be to burden Mr Chesterfield personally with the obligations of RGF and RMR.
Estoppel against RMR: Next Mr Weiss alleges an estoppel against RMR. He alleges that RMR (through its agent, Mr Chesterfield) made representations to him to the effect of the RMR terms.
He claims that those representations were made with the intention of inducing him to rely upon them, that he did rely upon them and that he suffered detriment. The detriment alleged (Counterclaim [34]) is said to include:
(a)“expending labour and personal exertion”; and
(b)“incurring a liability to the Australian Taxation Office for tax which ought to have been withheld pursuant to the PAYG scheme”.
As a consequence it is alleged that “it would be unconscionable for [RMR] to resile from those representations” (Counterclaim [35]).
The effect of this claim would be to burden RMR with the obligations in the RMR terms even though there was no contract entered into by RMR to the effect of those terms.
Deceit / misleading or deceptive conduct by Mr Chesterfield: The next causes of action allege that the making by Mr Chesterfield of representations that:
(a)RGF would comply with the RGF terms; and
(b)RMR would comply with the RMR terms;
amounted to deceit or alternatively misleading or deceptive conduct (Counterclaim [36]-[43]).
In relation to deceit, it is alleged that the representations were false and that Mr Chesterfield made the representations knowing that they were false or, alternatively, being reckless as to the truth of those representations.
Next it is pleaded that they were made with the intention that Mr Weiss would rely on them, that he did rely on them and that as a consequence he suffered harm.
Alternatively, it is alleged that the representations were made in breach of s 18 of the Australian Consumer Law in that they were made in the course of trade or commerce and were misleading or deceptive or likely to mislead or deceive.
Deceit / misleading or deceptive conduct by RMR: There is an equivalent pleading in relation to RMR which is alleged to have made the representations by its agent, Mr Chesterfield (Counterclaim [44]-[51]).
Intentional interference with contractual relations by Mr Chesterfield: It is next alleged that RGF and RMR each “breached its contract with [Mr Weiss]” by failing to make the payments alleged to be due to him by each company (Counterclaim [52]-[53]).
It is then alleged that Mr Chesterfield had full control over the financial affairs of RGF and RMR and that, by exercising his powers as director, Mr Chesterfield induced RGF and RMR to breach their respective contracts with Mr Weiss.
This pleading is curious in that nowhere else is it explicitly alleged that there was in fact a contract between Mr Weiss and either of the companies.
Breach of fiduciary duty: Finally, it is alleged that Mr Chesterfield, in his roles as director of RGF and director of RMR, as well as because he was Mr Weiss’ business partner, owed a fiduciary duty to Mr Weiss (Counterclaim [57], [59]). It is alleged that Mr Chesterfield breached that duty by inducing RGF and RMR to breach each company’s contract with Mr Weiss (Counterclaim [58], [60]).
I repeat the comment that I made above about this pleading having regard to the absence of any pleading that a contract with either company actually existed.
Damages: The pleading then alleges that Mr Weiss has incurred liabilities to the Australian Taxation Office for tax which should have been withheld and paid by one or other of the companies and that because tax had not been paid he was required to account personally for that tax obligation.
Mr Weiss claims damages in the sum of $220,094.02. This is the sum of the amounts set out in the table above. He also claims interest.
Chronology of the dealings between Mr Weiss and Mr Chesterfield
RGF was registered in June 2004. Prior to entering any business relationship with Mr Weiss, Mr Chesterfield was the sole shareholder and director of RGF. During that period no tax was paid or withheld by the company on behalf of Mr Chesterfield.
Prior to entering any business arrangement with Mr Chesterfield, Mr Weiss was working for Sedcom Communications, a company that sold commercial phone systems, as its sales manager. He did not have much experience with the workings of a small private company. He was earning around $1,200 per week gross. The critical portion of the evidence in chief in relation to the terms on which he entered into business with Mr Chesterfield was as follows (Transcript 39):
Have you previously been in a business relationship with Mr Paul Chesterfield?---Yes I have.
When did you enter into that arrangement?---Aahh
Roughly is fine?---The beginning of, I think it was 2009 wasn’t it? Sorry got my dates a little bit.
That’s alright. Could you tell the court about the first time you spoke with Mr Chesterfield about entering into a business arrangement?---We’d been friends for a fair while through a business relationship that we made at a current employer. He mentioned that he wanted a partner and we discussed it on and off for a few weeks, and then after about a month I decided to go ahead and take him up on his offer and become his partner.
You mentioned an offer. What was the offer that was made to you?---That I would be the director of sales. That I’d be responsible for sales and that I would receive a weekly income of $1200 which was clear and that was his exact words, “$1200, clear.” I double checked with him, reconfirmed with him that we were talking after tax, he said, “Yes the company will take care of your taxes at the end of the financial year.” And then I would also receive 50 per cent of any profits the company would make. That was pretty much the whole discussion about that part of things.
You mentioned a figure of $1200 a week. Was the salary to remain at that level or was that going to be subject to change?---It would be subject to change if we were performing well then we would increase that amount.
Did he specify what to?---Not specifically at the time.
It was this evidence which Mr Weiss submitted provided the basis for making a finding that Mr Chesterfield had made each of the representations to Mr Weiss. As will be apparent, the evidence is not specific as to when or in what circumstances the representations were said to have been made.
Similarly, in cross-examination the evidence about the discussions that led to him becoming involved in the business was equally general (Transcript 48-49):
You have provided evidence to suggest that you were invited to join React Gutterings and Fascia in I think it was early 2010, is that right?---Yes.
You had conversations with Mr Chesterfield over a period of weeks?---In the end yes, we had conversations over the period of – you know, nearly a year we would play cards together and have a few beers together and we lived close by each other.
Are you suggesting you had a social relationship with Mr Chesterfield for about a year beforehand, is that what you’re suggesting?---Yes, yes.
In relation to just the discussions about you joining the business how long did that occur, over what period of time?---A few weeks. Actually he probably brought it up a couple of months beforehand but I thought he was joking and then when it became obvious that he was serious then I started having serious considerations on whether I was going to do that or not.
In relation to any arrangement about profits Mr Weiss’ evidence in chief was (Transcript 41):
You mentioned earlier that there was going to be some arrangement about profits. Could you tell the court what that arrangement was?---The arrangement was whatever profits that we would have would be split 50/50, irregardless [sic] of my 49 per cent shareholding, the profits themselves would be handled on a 50/50 basis.
Right. Was there any discussion about when those payments would be made?
---Not really. No, nothing specific at least.
In relation to whether or not his payments were clear of tax he said (Transcript 42):
I understood that that meant that every penny that was going into my bank account was going to be after tax and that the company would be taking care of my tax debt and I was reassured of that on numerous, numerous occasions by, by Paul.
He said that his tax was not in fact paid by the company and he ended up with a tax bill that led to the final argument before he chose to get out of the business. The transcript continued (Transcript 42):
So how did you discover that no arrangements had been made?---I was assured over and over again that the arrangements would be made at tax time when tax time came around they had not been taken care of and I questioned Paul about whether or not the company was going to do it and he said “Don’t worry. We’ll get to it as soon as we have a little bit more money” and then when, when Paul demanded that I get my tax returns done so that we could get a loan for the business, I had no choice but to demand that, that the sums be paid. I even went so far as to have my wife call him directly and ask him the question of whether or not he was going to be paying the taxes because she was asking me the questions and in the end I, I, I couldn’t be a part of it anymore because I’d keep on gathering more tax debt.
Meeting with Michael Sinclair
Mr Sinclair had been the accountant for RGF since 2009.
On 29 January 2010 Mr Chesterfield and Mr Weiss had a meeting with Mr Sinclair. Mr Sinclair made notes in advance of the meeting identifying the matters that he proposed to discuss with Mr Chesterfield and Mr Weiss and also made notes and drew diagrams during the course of the meeting. Those notes, as explained by Mr Sinclair in his oral evidence, provide a reliable source of evidence about what was discussed at the meeting.
Mr Sinclair described what was discussed at the meeting as “a fulsome outline of all the various alternatives one faces going in to business with someone who wasn’t family” (Transcript 286). The issues which he identified in advance as being issues that needed discussion were:
(a)whether the relationship was structured in a way that was easy to split or hard to split;
(b)how discretionary expenditure on issues such as cars, travel, phones, entertainment and notional wages for proprietors were to be dealt with;
(c)the price to be paid for an interest in the business and how it was to be paid;
(d)whether the transaction was to be done by selling the business to a new entity or by Mr Weiss buying into the current entity.
Based on his discussions with Mr Weiss and Mr Chesterfield, Mr Sinclair identified that Mr Weiss was to be responsible for sales and Mr Chesterfield was to be responsible for the work in the field. These were seen by the parties as being equal contributions. Mr Sinclair emphasised the importance of having regular meetings at which current sales prospects, liquidity and cash position were discussed and any “bitches” could be aired, so that neither party got any surprises. He also identified that the parties wished to make their arrangement easy to split if things did not work out.
His notes identified that the parties were considering a “walk-in walk-out” arrangement for $70,000 and that this would involve selling 49% of the shares in the company for that amount. He went through a discussion of the alternatives for structuring the business either by simply having the company distribute what he referred to as a notional wage to the individuals who would then be personally responsible for that income or, alternatively, by having the business act as an agent for a partnership between entities controlled by Mr Weiss and Mr Chesterfield. He pointed out that this latter alternative made it easy for the individuals to do their own thing with the profits of the business but that it would cost $2,000-$3,000 per annum to maintain each separate entity. He discussed the concept of a notional wage which was a payment to the individuals which would then be characterised towards the end of the financial year as either dividends or a loan. He discussed how profits up to $80,000 would be taxed identifying that, because the company tax rate is 30%, it was normal to take personal income as opposed to company income up to $80,000. He also discussed how an accountant would go about valuing the business by reference to its profit level.
Mr Sinclair made notes of the things that were needed to be done to give effect to the discussions between the parties. He was to contact a solicitor at Goodman Law (a firm of solicitors) to prepare a contract for sale and a shareholders’ agreement. He was also to deal with notification to ASIC. He in fact did contact Goodman Law and was advised to speak to a particular lawyer for whom he left a message.
Mr Sinclair’s notes summarise the matters which were agreed at the meeting and which were intended to provide a basis for the sale of a share in the business and the shareholders’ agreement as follows:
Split - Stefan out in 2 years
after 2 years value [accountant]
- [Company] pay sick & [accident]
- Insolvency - Shares transferred for $1
- Death – 1st 2 years shares [transfer] 1st 2 years $70k
- Drawings - Same
- Vehicles - Vehicle each fully maintained [including] leave
- Telephone - Mobiles no limits
- Travel & [entertainment] - By mutual agreement
In the light of his evidence I find that the discussions that occurred were consistent with an agreement at that stage between Mr Weiss and Mr Chesterfield as follows:
(a)Mr Weiss would purchase 49 of the 100 shares held by Mr Chesterfield in RGF for $70,000;
(b)Mr Chesterfield would remain a director and Mr Weiss would be appointed a director;
(c)drawings from the company by the directors would be equal;
(d)both Mr Chesterfield and Mr Weiss would have fully maintained vehicles and mobile phones;
(e)the company would pay for sickness and accident insurance for the directors;
(f)in the event of insolvency of one of the directors his shares were to be transferred for a price of one dollar;
(g)in the event of death of one of the directors within the first two years his shares would be transferred for an amount of $70,000 with the position after that not being clearly articulated;
(h)should Mr Weiss wish to leave the business within two years he could do so by selling his shares for $70,000 but after that two-year period the price would need to be determined by an accountant’s valuation.
It was intended that these items of agreement be formalised in a shareholders’ agreement. Mr Sinclair spoke to the solicitor from Goodman Law about these matters and obtained an estimate of the legal fees involved in documenting the agreement. When he received the fee estimate he passed it on to Mr Weiss and Mr Chesterfield but they decided that they would proceed without such a documented shareholders’ agreement because they did not want to pay the fees involved.
Mr Sinclair said that he did not recall the company remitting PAYG tax payments to the Australian Taxation Office on behalf of Mr Chesterfield and it would be unusual for a self-employed director to be paying PAYG tax on the money that he took out of the company. That was for two reasons: first, the characterisation of the drawings from the company was only done towards the end of the financial year and secondly, it would deprive the company of the cash that was withheld.
He did not recall there being any discussion of Mr Weiss being paid a salary by the company of $1,200 per week after tax for the first three months. He made no note relating to such a discussion.
Mr Sinclair described Mr Weiss as being a full participant in the meeting. He described that he was concerned that the parties did not have a lot of familiarity with the personalities and capabilities of the other party. His description of Mr Weiss’ participation as recorded in the transcript was as follows (Transcript 296):
Can you describe Mr Weiss’s involvement during that meeting in the conversation?---Oh, he was fully engaged. He seemed to be – seemed to be keeping up with the context. I’ve learned over many years that it’s a terribly important meeting that the parties understand. Because we’re making – you know we’re shaping the future direction and the relationship and the business relationship and the – I found from some experience that it’s worth labouring to get – to make sure that both the parties are fully understanding and (indistinct)
And on this occasion, did you make that effort to?---(Indistinct) – yes.
And do you have any doubt that either of the parties did not understand the content of that meeting?---None at all.
Did Mr Weiss, for example, ask questions?---Yes.
Was he silent for prolonged periods during the meeting?---I don’t believe so. You know I would regard it as critically me delivering this sort of appointment, walking parties through this sort of appointment, that I was taking both of them with me and that they were fully understanding of what we were talking about. So I would have been pretty closely watching their demeanour to make sure that they hadn’t drifted off or – or were becoming confused.
Mr Weiss’ evidence appeared to be that notwithstanding what was recorded in Mr Sinclair’s notes, the representations of which he gave evidence were made and an agreement reached prior to the meeting with Mr Sinclair. His recollection of the meeting with Mr Sinclair was poor. He had difficulty identifying when it occurred and his recollection of what occurred was patchy. He took no notes himself but did recall that Mr Sinclair took notes. He denied fully participating in the meeting and said that he did not ask any questions. His explanation for that appears in the following section of the transcript (Transcript 53-54):
You would have paid attention to what occurred at that meeting?---Yes.
And you would have participated actively in that meeting?---Yes.
Just to be clear, that would mean that you wouldn't just simply take a passive role and listen to a discussion between Mr Sinclair and Mr Chesterfield, because anything you didn't understand you would ask the question. Is that fair to say?---No.
You didn't ask any questions?---Definitely not.
Did you have a speaking role at all at this meeting?---I was supposed to have a speaking role at this meeting. However, there was a conversation that came before the meeting where I was told that I should keep my mouth shut in the meeting and let Paul do all the talking, and when I said, "Are we going to talk about the texts?" he said, "Don't worry about that. Michael doesn't need to be a part of this. It's between you and me. We don't have a trust issue, do we?"
That was said, what, shortly before the meeting?---On the way to the meeting.
So it is your evidence that as a consequence of that conversation with Mr Chesterfield you physically attended the meeting but did not ask any questions. Is that what you said?---Yes. I think the only questions I asked were rudimentary questions about how many shares and just clarifying things as they came up. So I would've said yes and no. I don't recall what else really was said, other than what Michael and Paul spoke about.
Why don't you recall what was said between the two other men?---Well, it was four years, five years, six - five years ago now.
Are you suggesting that you may have been asked only a handful of questions?---I would've been asked if I understood the terms of our agreement. I remember that I was asked, "Do you understand that he's the managing director and you're the sales director?" I recall that there was a conversation about a vehicle, about a phone, but these were typing [sic] to the type of industry, so it was the kind of package that I would have gotten at any number of places. There was nothing out of the ordinary, other than the fact that I was going to become a shareholder.
Later in his evidence he said (Transcript 60):
I think Paul had a set way he wanted to go with the meeting and I just went along with it so I, I, I didn’t really have much of an opinion in the matter whatsoever other than that I wanted to just get everything finished and start moving ahead.
In cross-examination he agreed with the proposition that the issue of the company withholding tax on his behalf was not discussed at the meeting and that he did not raise the issue. He said “I was directed by Paul to keep my mouth shut about that and that we trusted each other and that he would never rip me off, he would never burn me.”
He did however agree with the proposition that the ultimate income from the business on a weekly basis would depend upon the health of the business and its cash flow so that if things were bad then the directors would not get paid. He therefore understood that any representation as to weekly income would always be contingent on there being enough money to pay it.
In relation to the meeting Mr Weiss:
(a)had substantial difficulty recalling when the meeting had occurred;
(b)said that the walk-in walk-out period was not two years and was “a very short window of time”, later describing it as “only a few months”;
(c)could not recall any discussion of payments by way of a “notional wage” or the characterisation of payments to directors towards the end of the financial year;
(d)could recall no discussion of what would happen in the event of insolvency;
(e)could not remember any discussion of a shareholders’ agreement;
(f)demonstrated little understanding, even now, of basic concepts associated with the operation of a small proprietary company.
Mr Chesterfield explained the purpose of the meeting as follows (Transcript 146-147):
But just maybe refer to your own memory at this stage?---Yes. Absolutely, yes. No. It was definitely discussed. At this stage we were – I always thought right to the end we were still friends, any [sic] being his mate, the last thing I wanted to do was drag him in in the dark to something he didn’t understand, and the whole reason of involving Michael [Sinclair] was so he had a clear understanding of what was going on (indistinct) he had no business experience prior to this.
And so can you just perhaps summarise what was the purpose of this meeting and what was achieved from this meeting?---So the purpose of this meeting was to introduce Stefan to the accountant to come up with a set of – a business plan or some ground rules or some sort of an idea of how he expected things to go, how I would expect things to go, and if everything went bad, a way out.
And was there an agreement at the meeting?---Yes. Absolutely.
In relation to what Mr Weiss said about being told to be quiet, Mr Chesterfield said (Transcript 142):
Prior to this meeting starting with Mr Sinclair on 29 January did you have a conversation with Mr Weiss about how that meeting may go?---Yes, I explained to Stefan – in fact I used to mention this to Stefan a lot, have a think about what you want to talk about before we go and see Michael because if we can keep it to a minimum because he does charge by the hour it would be beneficial for the company so we didn’t pay a lot of accountancy fees.
He gave evidence consistent with that of Mr Sinclair as to what was discussed and agreed at the meeting.
Mr Weiss becomes involved with the business
Mr Weiss commenced work in the business between 7 and 17 March 2010. He received his first pay on 17 March 2010.
Some time between February and May 2010 Mr Weiss paid Mr Chesterfield $70,000 and 49 shares in RGF were transferred from Mr Chesterfield to Mr Weiss. There was a delay in relation to the payment of stamp duty on those shares. The notice to ASIC in relation to the appointment of Mr Weiss as a director of RGF was signed by Mr Chesterfield on 17 May 2010.
Even at this early stage things were not proceeding well. On 18 May 2010 there was a directors’ meeting between Mr Chesterfield and Mr Weiss. A document recording what was discussed provided as follows:
Topics discussed during director’s meeting at our office, 1/70 Dacre Street Mitchell on 18th May 2010
Stefan Weiss has:
Failed to act in the best interests of the company on many specific occasions.
Failed to attend business meetings and discharge the legal responsibilities of a company directory [sic], even when specifically requested to do so.
Not maintained his supplied vehicle in a professional manner, keeping it clean and tidy.
Not been punctual for appointments with clients and trading partners.
His continuing recalcitrance in the face of suggestions for improvement has cost the company, and Stefan, money and damaged the goodwill and reputations of all concerned.
All these matters will be reviewed on the 1st of June, and an appropriate course of action will be determined and implemented.
The document is signed by both Mr Chesterfield and Mr Weiss. However it was prepared by Mr Chesterfield and reflects his point of view at that stage. Clearly, Mr Chesterfield was, at this point, having second thoughts about his business arrangement with Mr Weiss. On 19 May 2010 he rang and spoke to Helen McKenzie, one of Mr Sinclair’s senior managers. Ms McKenzie recorded that Mr Chesterfield had enquired whether Mr Weiss was a director or just a shareholder. He was told that the signed ASIC form recording that Mr Weiss had become a director had been lodged with ASIC. The notes taken by Ms McKenzie then record:
Paul thinks he will get legal advice
Stefan not working out
Doesn’t turn up for work
Drawing weekly wage
Out of control - will send Paul broke
This was then passed on to Mr Sinclair who spoke with Mr Chesterfield on 19 May 2010 and suggested that he meet with Mr Weiss, set out the problem in writing and document agreed requirements to be fixed within a week. He also advised him that he should document if the requirements were not fixed or dismiss Mr Weiss as a director and repurchase his shares.
On 20 May 2010 Mr Chesterfield and Mr Weiss signed a document in the following terms:
Meeting held in office at 1/70 Dacre St Mitchell 20th may 2010.
As of the date of my appointment as director (18th day may 2010) and as agreed by myself and Paul chesterfield . I unreservedly accept 49% of all accounts/debt held and any debt accrued whilst being a part of React Gutter and Fascia Pty Ltd.
This document was signed so that it could be provided to suppliers to the company.
Copies of the documents dated 18 May 2010 and 20 May 2010 were communicated by email to Mr Sinclair’s office. Mr Chesterfield also communicated that another meeting had been scheduled for 1 June 2010 in order to review progress.
On 16 June 2010 Ms McKenzie had a discussion with Mr Chesterfield in which Mr Chesterfield reported that the state of the business and his perception of Mr Weiss’ performance had improved. Ms McKenzie recorded the substance of the conversation in an email, which she sent to Mr Sinclair and another staff member, as follows:
I spoke to Paul today.
He said Stefan has really picked up his game since their meeting.
They had a second meeting 2 weeks ago and agreed to review again in 3 months.
So the share sale has not been reversed.
Note: I’ll be arranging lodgement of the Share Transfer Form for Stamp Duty assessment this week.
Paul also said business is going well, he’s cleared up all business debts and has money in the bank.
There is little evidence as to what occurred between June and December 2010. The absence of any records suggests that relations had improved to some extent.
The December 2010 meeting with Michael Sinclair
On 20 December 2010 Mr Sinclair met with Mr Chesterfield to discuss Mr Chesterfield’s dissatisfaction with Mr Weiss’ performance within the business. When ringing up to make the appointment with Mr Sinclair, Mr Chesterfield spoke to Mr Sinclair’s personal assistant, Angela Wilkin, who recorded a series of dot points arising out of that conversation. This, in effect, formed the briefing for Mr Sinclair prior to the meeting. The document recorded:
*Stefan not doing his work
*Paul said it’s not working out
*Thought the new car would change things but it hasn’t
*Worried they’re not going to meet their deadlines & will become insolvent
*More court cases & complaints than ever, since he started because of his incompetency
*Bill has said it is damaging his reputation so Paul needs to do something.
*Paul has told Stefan it’s not working.
Meeting - Monday 20/12/10 10am.
The reference to Bill is a reference to Bill Durham, the previous owner of RGF and the owner of another company bearing the “React” name with which RGF shared a website.
Mr Sinclair’s evidence was that at the meeting on 20 December 2010 Mr Chesterfield complained that Mr Weiss was not generating the sales that the company needed, not following up leads or capturing clearly what it was that clients wanted done so that the quotes were not clear. He also complained of a lack of action, unreliable attendance and unreliable performance on Mr Weiss’ side of the business, namely sales.
Mr Sinclair gave practical advice about how to deal with the issue raised by Mr Chesterfield. That included reaching an agreement with Mr Weiss about leaving the business or implementing the original arrangement, namely, repayment of the $70,000 and the transfer of shares back to Mr Chesterfield. Another alternative that was considered was Mr Chesterfield’s idea of having a directors’ meeting and agreeing to Mr Weiss’ remuneration from the business being based on commission so that if he did not work effectively he did not get paid.
It appears that Mr Chesterfield chose to seek to implement the latter option. The minutes of a directors’ meeting on 21 December 2010 attended by Mr Chesterfield and Mr Weiss record:
Stefan will be put on a sliding scale of income based on performance.
turnover will be calculated at the end of each month and paid accordingly.
$70,000 = 50% of set wage
$80,000 = 70% of set wage
$90,000 = 80% of set wage
$100,000 = 90% of set wage
$110,000 = 100% of set wage
Wages are set at $1500 p/w and to be reviewed at march 2011.
Any actions unbecoming of a director that could harm company reputation or damage the image of the react group is penalized with a fixed fine of $5000.00 and will be implemented in writing with just cause to Stefan if necessary.
The minutes were prepared by Mr Chesterfield. The minutes are signed both by Mr Chesterfield and by Mr Weiss. There is no evidence that the “fixed fine” system was ever implemented. The position in relation to payment on a sliding scale proportional to sales figures is less clear.
Mr Weiss said that he thought that the decision recorded in the minutes was simply to please Bill Durham. While Mr Weiss recognised that in May and June 2011 his drawings were reduced to $700 a week he denied that this was because of poor performance. I will address below those periods when there was a difference between the payments made to Mr Weiss and Mr Chesterfield.
On 24 March 2011 a second company, RMR, was established to assume the operation of the business. The arrangements between Mr Chesterfield and Mr Weiss continued with the new company. Although for the purposes of a number of the causes of action pleaded, specific representations are alleged to have been made by Mr Chesterfield on his own behalf or as an agent for RMR about the conduct of RMR, no attempt was made during Mr Weiss’ examination in chief to elicit any evidence of such representations being made.
Mr Weiss’ tax position
At no stage was any tax withheld and remitted to the Australian Taxation Office by RGF or RMR in relation to payments made to Mr Chesterfield or Mr Weiss. On 28 October 2011 Mr Weiss had an appointment with Mr Sinclair in order to get advice in relation to his personal tax returns. There was some urgency in getting his 2011 tax return completed because it was needed for some transaction with RMR’s bank. During the meeting with Mr Sinclair an estimate of his tax liability for 2011 was discussed and it was identified that he would need to file an amended return for 2010 which had previously been prepared by H & R Block. At that stage the estimate for the 2011 financial year was a liability of some $19,964. An amended return for 2010 provided to Mr Weiss on 24 February 2012 identified additional tax payable of $397.21. At the same time an estimate of $13,816 was given for the 2011 financial year.
At this meeting Mr Weiss agreed that he had not raised with Mr Sinclair his present contention that the company was obliged to have withheld amounts on account of taxation and paid them to the Australian Taxation Office. His evidence was that he was assured by Mr Chesterfield that he “didn’t need to, that it would be sorted out”. Mr Chesterfield’s evidence was that Mr Weiss did not raise the issue with him and that he first heard about it after Mr Weiss had left the business and correspondence was received from Mr Weiss’ then solicitor.
Mr Weiss described being “totally and completely” surprised by the tax debt because he had never had to pay tax on his own before and had previously had it withheld by an employer “like everybody else”. His evidence was (Transcript 129): “I was under the assurances consistently that this debt would be settled by the company, and I asked every time that I went to go spend any money out of my bank account, are you sure?”
Payments to directors during the course of the business relationship
From 16 March 2010 until 29 September 2010 the directors each received a weekly drawing of $1,200. In that period Mr Chesterfield received a total of $33,600 and Mr Weiss $35,020. On 2 October 2010 both directors received a drawing of only $1,000. From 5 October 2010 each director received weekly drawings from either RGF or RMR of $1,500 subject to the following exceptions:
(a)for five weeks between 10 May 2011 and 7 June 2011 Mr Weiss received only $700 each week in drawings while Mr Chesterfield received $1,500 during each of those weeks;
(b)for the two weeks recorded as 23 August 2011 and 30 August 2011 Mr Weiss received only $1,000 each week in drawings while Mr Chesterfield received $1,500 during each of those weeks;
(c)in the period from 1 November 2011 the amounts received by the directors varied so that Mr Weiss received $18,290 in total and Mr Chesterfield received $16,500 in total.
The total amounts received by the directors during the period 16 March 2010 until 27 January 2012 were as follows:
Weiss Chesterfield RGF $90,520 $93,100 RMR $42,790 $42,000 Total $133,310 $135,100
The difference between the amounts received by each of the directors is $1,790. Different and imprecise explanations were given for the slight variation in the overall amounts received by the directors. On the evidence I cannot be satisfied that the slight difference was not the result of an agreement between the directors.
The end of the business relationship
As with almost everything in this case the reason for the end of the business relationship was explained differently by Mr Weiss and by Mr Chesterfield. Mr Weiss explained that he was upset at the refusal by Mr Chesterfield to have RMR pay his tax obligations. Mr Chesterfield however gave evidence that over the Christmas break Mr Weiss had been involved in a boating accident in which somebody got killed and that Mr Weiss had explained to him that being part of the business was too stressful and hence he would move on. On 25 January 2012 there was a meeting between Mr Weiss, Mr Chesterfield and Mr Sinclair. At that meeting there was discussion of dissolution of the business relationship between the two men. Mr Sinclair told Mr Weiss and Mr Chesterfield that the meeting was a formal meeting of directors and shareholders. There were no minutes made of the meeting other than the two pages of notes made by Mr Sinclair which were headed “Directors Shareholders Meeting”. Mr Sinclair’s notes of that meeting include three points under the heading “Agreed” which have been signed and dated by each of Mr Weiss and Mr Chesterfield. That portion of his notes is as follows:
Agreed.
1. Advise ASIC of resignation as director.
2. Paul to pay $70,000 to UHY Trust A/c.
3.On signature by Stefan of document “Restraint” UHY is authorised to pay the $70,000 to Stefan.
The status of the second page of notes, which appears to be a list of steps necessary to carry out the transfer of shares including a transaction with Mr Sinclair’s trust account, is not clearly established by the evidence.
Following this meeting, Mr Weiss and Mr Chesterfield met at the Belconnen Mall and, notwithstanding that a deed of restraint had not been signed, Mr Chesterfield paid Mr Weiss $70,000 directly. There was a difference in their evidence as to whether this was a prearranged or chance meeting. It is not necessary to resolve that difference. Further, several days later Mr Chesterfield gave to Mr Weiss a 1966 Chevrolet Impala which had been acquired by RMR or RGF and restored, in part, at the expense of one or other or both of the companies. Once again there is a dispute as to whether the Impala was given as repayment of an additional amount of $10,000 alleged by Mr Weiss to have been paid to Mr Chesterfield when going into the business or given simply as a gift. It is not necessary to resolve this issue.
In June 2012 Mr Chesterfield brought proceedings in the Magistrates Court against Mr Weiss arising out of the payment of $70,000 in circumstances where the deed of restraint had not been signed and was ultimately not signed. Mr Chesterfield sought the return of the $70,000. In January 2014 the claim by Mr Chesterfield for the return of the $70,000 was dismissed by a magistrate. The proceedings before me involved the counterclaim made by Mr Weiss in those proceedings which was not determined by the magistrate. They were transferred to the Supreme Court in December 2014.
Assessment of the key witnesses
The evidence in chief of Mr Weiss was led in a disorganised and non-chronological fashion. It extended over only nine of the 435 pages of transcript. The answers that Mr Weiss gave on critical issues were non-specific yet emphatic. His evidence was either vague or unreliable in relation to dates. He had poor recollection of the detail of the meeting with Mr Sinclair in January 2010. He appeared to be relatively unsophisticated when it came to the details of business arrangements. He does not appear to have paid sufficient attention to advice he was given by Mr Sinclair. The cross-examination (Transcript 61-64) about how money might be drawn from the company demonstrated that Mr Weiss still had a very imperfect knowledge of basic mechanisms by which money could be drawn from a small proprietary company.
He gave me the impression that his evidence was very much affected by the unhappy circumstances in which he left the business and that those circumstances coloured his recollection of what occurred at the commencement of the business. He portrayed himself in his evidence as being very much the victim of a dominant and threatening Mr Chesterfield.
Mr Chesterfield was a more sophisticated witness. He appeared to have been very well prepared to give evidence. He had the benefit of having heard Mr Weiss give evidence. He was quite willing to make adverse comments about Mr Weiss that would assist his case. I got the impression that he is likely to have been the dominant member of the partnership both by reason of his personality and because of his prior experience and ownership of the business. While I did not regard him as a particularly impressive witness, his evidence was led in an organised way and was consistent with the documentary evidence that was available. As to what occurred at the meeting with Mr Sinclair in January 2010 his evidence was consistent with the evidence given by Mr Sinclair.
Mr Sinclair impressed me as a thorough and careful accountant. His records disclose a careful and methodical approach to dealing with clients and the provision of advice. I am satisfied that he recognised the hazards of the joint business arrangements Mr Weiss and Mr Chesterfield were entering into and also understood the relatively modest level of business sophistication possessed by both men. Notwithstanding that he had previously had Mr Chesterfield as a client I find that he gave his advice in a manner which was neutral and realistic taking into account what he knew about the circumstances of the two men. I accept that the evidence that he gave to the Court was reliable.
Conclusions in relation to representations
At the core of most of the various causes of action pleaded are representations made either prior to Mr Weiss commencing in business with Mr Chesterfield in March 2010 or at the time when RMR was established and became the operating company for the business. It is therefore convenient to make findings in relation to the representations before turning to the individual causes of action that have been pleaded.
Representations alleged to have been made prior to entry into business
In relation to the representations alleged to have been made prior to Mr Weiss commencing in business, it is appropriate to start first with my findings in relation to the meeting on 29 January 2010. That is a significant meeting because it was contemporaneously documented by Mr Sinclair and casts light on whether or not the representations alleged by Mr Weiss to have been made were made. In relation to what occurred at the meeting I prefer the evidence of Mr Sinclair and Mr Chesterfield to that of Mr Weiss. As a consequence I am satisfied that the matters discussed and agreed at the meeting were as described in Mr Sinclair’s evidence. I am satisfied that Mr Weiss understood the effect of the agreement reached during the meeting with Mr Sinclair and that the agreement documented in Mr Sinclair’s notes reflected the agreement between the parties.
In relation to Mr Weiss’ evidence that he was told to “keep [his] mouth shut” at the meeting generally and specifically in relation to the withholding of tax, I prefer the evidence of Mr Chesterfield to that of Mr Weiss. On any view of the matter, the meeting occurred at a stage where the relationship between the two men was good. They were not yet in business and all of the potential difficulties which subsequently arose between them during the course of the business were in the future. In those circumstances it is unlikely that Mr Chesterfield would have been acting, at that stage, in the domineering manner which Mr Weiss’ evidence suggests. Rather, consistently with Mr Chesterfield’s evidence, the purpose of the meeting appears to have been to ensure that both parties obtained advice as to how their envisioned relationship should be structured and in those circumstances it is likely that Mr Chesterfield did point out that Mr Sinclair’s time was expensive but did not impose a gag on Mr Weiss.
Because of what occurred at the meeting with Mr Sinclair, I am satisfied that Mr Weiss was aware at the time of that meeting that:
(a)payments made from RGF would be subject to variation as a result of decisions made by its directors;
(b)payments made to him from RGF would be characterised at the end of the financial year depending upon the company’s performance.
Further, I am satisfied that there was no discussion at that meeting which would indicate that the company was to bear the tax obligations of the individual directors or that the company would be responsible for the preparation of their tax returns.
My findings in relation to the representations said to have been made prior to entry into the business are as follows.
(a) Mr Weiss would purchase 49% of the shares of RGF: It is uncontroversial that the arrangement between the parties was that he would purchase 49% of the shares and in fact he did so.
(b) Mr Weiss would be appointed a director of RGF: It is uncontroversial that this was the arrangement between the parties and that it was implemented.
(c) Mr Weiss would have primary responsibility for the sales side of the business: It is uncontroversial that this was the arrangement between the parties and that it was implemented.
(d) Mr Chesterfield would have primary responsibility for the company finances and would exercise total control thereof: Mr Weiss did not give evidence of Mr Chesterfield having said this to him or otherwise making such a representation. It was uncontroversial that the arrangement between the parties involved Mr Chesterfield having primary responsibility for the work in the field but the evidence does not extend to any representation relating to Mr Chesterfield’s role as involving primary responsibility for the company finances or total control over them.
(e) Mr Weiss would be paid a salary by RGF of $1,200 per week after tax for the first three months of the agreement, and $1,500 per week after tax thereafter: This representation is not established. While I am satisfied that the figure of $1,200 was discussed between Mr Weiss and Mr Chesterfield, representing an amount approximately equivalent to that received in Mr Weiss’ then current employment with Sedcom Communications, I am not satisfied that Mr Chesterfield made a representation that the amount would be after tax.
My reasons for that conclusion are:
(a)I am not satisfied of the reliability of Mr Weiss’ recollection;
(b)the evidence as to the making of the representations was imprecise as to when, where or the circumstances in which the representations were made;
(c)Mr Chesterfield denied the making of the representations;
(d)the making of after tax payments was not the practice of RGF when Mr Chesterfield was its sole director;
(e)it is unlikely that, if there had been some clear representation about the details of tax treatment prior to the meeting with Mr Sinclair, it was not discussed at the meeting when that meeting discussed the basic structure of the business relationship and how directors were to be paid;
(f)such an arrangement would be inconsistent with the manner in which Mr Sinclair explained the making of payments to directors by the company, in particular the fact that those payments would only be characterised close to the end of the financial year and hence the tax payable would not be predictable if, as alleged, tax was to be paid on a PAYG basis;
(g)the amount of tax payable would be dependent upon the personal circumstances and other financial arrangements put in place by Mr Weiss.
Insofar as the representation is said to have incorporated the term “salary” I am not satisfied that there was any representation that amounts received would be by way of a salary as distinct from payments which would at some point be characterised with advice from the company’s accountant. Finally, even taken at its highest, Mr Weiss’ evidence did not extend to the increase in payments after three months to $1,500.
More generally, Mr Weiss, notwithstanding his many years as a salesman, demonstrated, even when giving evidence, a very significant level of ignorance about the workings of a small proprietary company. While I think it is more likely than not that his evidence as to the terms of the arrangement was affected by his retrospective unhappiness as to how he was treated, it is also possible that in his enthusiasm to become part of the business venture he simply failed to pay enough attention to what he was being told and had a genuine misunderstanding, based on his business naivete and ignorance, as to what the arrangements were. It is not essential that I reach a conclusion on whether that was the case. It is enough that I find that the representations alleged by Mr Weiss in relation to the payment of tax and the preparation of tax returns have not been proved on the balance of probabilities to have been made.
(f) Mr Weiss’ PAYG taxation obligations would be funded by RGF: For the reasons that I have given in relation to the previous representation I am not satisfied that this representation was made.
(g) Mr Weiss’ PAYG taxation obligations would be handled by the company’s accountant: I am not satisfied that this representation was made. Mr Weiss did not give evidence that Mr Chesterfield said to him or otherwise represented that his PAYG taxation obligations would be handled by the company’s accountant. Even if the representation had been made and the point of the representation was that Mr Weiss should have had his personal tax returns prepared by the company’s accountant at the company’s expense, then there is no component of the damages claimed in the counterclaim which relates to that representation.
(h) At the end of each financial year, any profits retained by the company would be distributed to the directors.Mr Weiss’ share of this distribution would be 50%: Mr Weiss’ evidence was that the arrangement between the parties was that profits would be split on a 50-50 basis regardless of the fact that he only had a 49% shareholding. He did not give evidence of any representation that “at the end of each financial year, any profits retained by the company would be distributed to the directors”. Such a representation would incorporate the assumptions that:
(a) all profits were to be distributed and none were to be retained; and
(b) the distribution of profits was to occur at the end of the financial year and not otherwise.
Such an arrangement would be inconsistent with the arrangement identified during the meeting with Mr Sinclair. It is not at all clear how such an arrangement would work having regard to periodic payments by the company to the directors during the course of the year, the possibility that in some years the company would make a loss and that in any year the extent of any profit or loss would only be determined some months after the end of the financial year. I am therefore not satisfied that the pleaded representation was made.
(i) Mr Weiss would be entitled to 50% of any distributions by the company, including director’s fees: While Mr Weiss did not give express evidence of any statement or representation by Mr Chesterfield to this effect, it is consistent with the arrangement that was entered into.
Representations alleged to have been made upon the establishment of RMR
The claims relating to the operation of RMR, namely the claims of deceit or misleading or deceptive conduct by Mr Chesterfield and RMR, are reliant upon Mr Chesterfield having made a representation that RMR would comply with the RMR terms. It will be recalled that the RMR terms are similar to the RGF terms dealt with above except that they did not involve the payment of any additional money by Mr Weiss. No specific evidence was given by Mr Weiss that Mr Chesterfield had said that RMR would comply with the RMR terms. The understanding between Mr Weiss and Mr Chesterfield was that the business would continue to be conducted by RMR in the same manner as it had been conducted by RGF. That is very different from a representation that, in effect, repeated the representations made prior to first entry into the business. I am therefore not satisfied that the pleaded representations were made.
The report of Henry Kazar
Although the damages identified in the pleadings were somewhat different, at the hearing Mr Weiss relied upon a report of Henry Kazar, a chartered accountant and insolvency practitioner, dated 9 April 2015 to quantify most aspects of the damages claimed. In that report Mr Kazar calculated, based on the accounts of RGF and RMR, amounts which were said to be owed to Mr Weiss. The calculations were based upon the instructions received by Mr Kazar. So far as they go, the calculations were accurate. However, the fundamental difficulty with reliance by Mr Weiss upon Mr Kazar’s report is that the assumptions and information that he was given were not accurate. I will explain that conclusion by reference to each of the categories of payment dealt with by Mr Kazar.
He first deals with an entitlement to a share of the profits of the respective companies. He then assesses by reference to the end of year profit or loss for RGF and RMR the share of profit to which Mr Weiss was entitled. Where Mr Weiss was only involved for part of the relevant financial year, namely for the financial years ending 30 June 2010 and 30 June 2012, Mr Kazar has reduced the percentage to which Mr Weiss was entitled on a pro rata basis for the period of the financial year during which he was involved with the company. There is the potential for some inaccuracy arising from this pro rating process because it assumes that profit is generated uniformly throughout the year but that is not significant for present purposes. Overall the total share of profits that he calculates Mr Weiss was entitled to was $54,910. The validity of this calculation however depends upon the proposition that Mr Weiss was entitled to the disclosed profit or loss of the relevant company at the end of each financial year. Although this was a representation which was pleaded (representation (h)), no representation to this effect has been established. Rather, the representation was that whatever one director took out of the company the other director would also take out of the company. That is in fact, subject to some minor variations, how the business operated. As a consequence I am not satisfied that the assumption upon which Mr Kazar was asked to prepare this portion of the report was accurate.
The next category of payments was described as director’s/management fees. The claim for 50% of management fees during the relevant periods was abandoned after evidence established that the amounts described as management fees involved a book entry between the two companies and did not involve a payment to anyone. In relation to director’s fees, the amount to which Mr Weiss would be entitled is identified in Mr Kazar’s report as $120,317.
The next category is that of dividends. Mr Kazar’s report discloses total dividends payable to Mr Weiss of $2,718.
Including both the share of profits and management fees Mr Kazar reached the conclusion that the overall amount payable to Mr Weiss was $206,853. He then deducted from that the amount of $128,000 which he was instructed was the amount that Mr Weiss was paid and therefore concluded that Mr Weiss may have a further entitlement to distributions in the sum of $78,853.
Removing the claims for distribution of end of year profits ($54,910) and management fees ($28,908) brings the total entitlement of Mr Weiss down to $123,035. At the hearing it was uncontentious that he had in fact received $133,310. Therefore, the report of Mr Kazar when adjusted to reflect accurate assumptions, discloses that Mr Weiss was paid more than he was entitled to.
Estoppel claims against Mr Chesterfield and RMR
These claims are outlined at [7]-[16] above. Counsel for Mr Weiss identified the relevant test as being that in the decision of Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-429. Counsel for Mr Chesterfield emphasised the requirement to demonstrate the unconscionability of the conduct said to be bound by the estoppel: Waltons at 405-406. The estoppel claims must fail for a number of reasons.
First, I am not satisfied that the contentious representations in relation to tax were made. That only leaves the representations about distributions from the company.
Second, I am not satisfied that Mr Weiss suffered any relevant detriment as a result of entering into business with Mr Chesterfield because he received his $70,000 investment back as well as drawings from the company of $133,310 which was in excess of his entitlements based on the arrangements that I have found were in fact made. Mr Weiss never sought to establish that, as a result of entering into the business arrangements that he did, he was in a worse position than he would have been if he had not entered into those arrangements. In other words he did not attempt to establish in evidence that there was some alternative course of conduct available to him which but for the representations made to him would have left him in a better position: cf Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1. It was not established, for example, that remaining an employee of Sedcom Communications would have left him better off.
Third, insofar as the slight discrepancy in the overall amounts received by the two directors from the companies might be relevant I am not satisfied that at the relevant time Mr Weiss was continuing to rely upon the representations about equality of drawings because of his knowledge of decisions of the directors and of Mr Chesterfield in relation to his level of remuneration. Further, in the light of the unclear evidence about the precise reasons for differences in the amounts paid to the directors, Mr Weiss has not demonstrated that the discrepancy did not in fact arise with his agreement.
Deceit / misleading or deceptive conduct by Mr Chesterfield and RMR
These claims are outlined above at [17]-[21]. These claims must fail for a number of reasons.
First, I have not been satisfied that the contentious representations in relation to tax were made. That only leaves the representations about distributions from the company.
Second, in relation to the claim of deceit Mr Weiss has not established that at the time representations about distributions were made Mr Chesterfield knew that they were false or was reckless as to the truth of those representations. On the contrary, the arrangement between the parties as to distributions from the company represented the honestly held view of both men at the time they went into business together.
Third, I am not satisfied that the representations that were made were misleading or deceptive for the purposes of s 18 of the Australian Consumer Law. In my view the representations that were made accurately reflected the understanding between the parties at the time of the meeting with Mr Sinclair. They were always subject to variation by agreement between the directors due to trading circumstances or for other reasons. I am not satisfied that, insofar as the representations as to the amount that Mr Weiss would be paid were departed from, that he was continuing to rely upon those representations when they were departed from.
Fourth, it has not been established that Mr Weiss suffered any damage as a result of any departures from the representations either because no alternative course of action was proven to be more beneficial or because it has not been established that the minor discrepancy between the overall amounts paid by the companies was not with Mr Weiss’ agreement.
Intentional interference with contractual relations by Mr Chesterfield
This claim is described above at [22]-[24]. In relation to this cause of action I accept the submissions of Mr Chesterfield that the decision in O’Brien v Dawson (1942) 66 CLR 18 at 32-34 confirms that directors could neither conspire together nor procure the breaching of a contract by their company when acting in their capacity as directors: see Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 at [27]-[29]. Mr Weiss has not proved that Mr Chesterfield was acting other than as a director when making decisions about the operation of RGF or RMR and, in particular, making decisions about payments to Mr Weiss.
In any event, more fundamentally, it has not been pleaded or established that either of the companies had a contract with Mr Weiss. Rather, Mr Weiss was a shareholder and director of each company and was paid in those capacities. While it would be possible for him to have a contractual relationship with the companies, that has not been established in the present case. As a consequence there was no contract between Mr Weiss and either RGF or RMR which Mr Chesterfield could have induced those companies to breach.
Breach of fiduciary duty
This claim is described above at [25]-[26]. The breach of fiduciary duty alleged is inducing RGF and RMR to breach their contracts with Mr Weiss. I am not satisfied that Mr Weiss had a contract with either of the companies. Rather he was an officeholder in both companies and was paid as a result of decisions of the directors of which he was one. Therefore the pleaded claim of breach of fiduciary duty cannot be made out.
Conclusion
For the reasons I have outlined the counterclaim brought by Mr Weiss must fail. The orders of the Court are therefore:
1. Judgment be entered for the first and second defendants to the counterclaim (Paul Bruce Chesterfield and React Metal Roofing Pty Ltd) against the counterclaimant (Stefan Weiss).
2. The counterclaimant is to pay the costs of the counterclaim of the first and second defendants to the counterclaim.
3. Order 2 does not take effect for a period of 7 days and if notice is given by email to my associate within that period that any party wishes to be heard further on costs, does not take effect until further order of the Court.
| I certify that the preceding one hundred and twenty-five [125] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop. Associate: Date: 25 September 2015 |
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