Wenzel v Maltby - [2000] WADC 206

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: WENZEL -v- MALTBY [2000] WADC 206

CORAM: HH JACKSON DCJ

HEARD: 1, 2 AND 8 JUNE 2000

DELIVERED : 21 AUGUST 2000

FILE NO/S: CIV 4288 of 1998

BETWEEN: HENRY WENZEL
Plaintiff
AND
EVAN MALTBY
Defendant

Catchwords:

Contract - Implied terms - Breach -

Legislation:

Nil

Result:

Judgment for the plaintiff

Representation:

Counsel:

Plaintiff: Mr P T Arns
Defendant: In Person

Solicitors:

Plaintiff: P T Arns & Associates
Defendant: In Person

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Nil

HH JACKSON DCJ: The plaintiff claims $62,000, damages and interest pursuant to what he says was an agreement made between himself and the defendant on 10 January 1998 in which he says the defendant agreed to purchase his shareholding in Dynatrans Nominees Pty Ltd and his units in the Dynatrans Unit Trust. Mr Arns conceded that although the statement of claim seeks both payment of $62,000 under the agreement and also damages for breach of it, the two equate in amount and cannot both be allowed.
The statement of claim pleads the terms of the agreement as being, inter alia, that:
"(a)the plaintiff would resign as a director of Dynatrans;
(b)the plaintiff would transfer his shareholding in Dynatrans ("the Shares") to the defendants and effect a transfer of units held by Silesian Pty Ltd in the Dynatrans Unit Trust ("the units") to companies controlled by the defendants respectively.
(c)the defendants would pay into a National Australia Bank Loan Account 666101211 ("the loan account") the sum of $62,000 or alternatively make arrangements with the Bank to assume liability for part of the loan then remaining outstanding in the total amount of $62,000;
(d)the defendants would cause Dynatrans to repay to the plaintiff the sum of $4,700 being a loan advance to the company;
(e)the plaintiff would cease to have any active involvement in the business conducted by Dynatrans."
The defence was prepared and filed by the defendant's then solicitors, although at trial he appeared in person. It denies that any agreement was made by the defendant to purchase the plaintiff's shareholding in Dynatrans Nominees Pty Ltd or his units in the Dynatrans Unit Trust.
The defence says further that the parties never passed beyond the state of negotiating an agreement, that the language used by the parties was not sufficiently precise and/or clear in meaning to identify the scope of the rights and obligations purportedly agreed to, thereby rendering the alleged or any contract void for uncertainty, and that essential terms of the alleged or any contract were not agreed upon, thereby rendering the alleged, or any contract, a failure for incompleteness.
The two fundamental questions which arise are whether the parties entered into a legally binding agreement in January 1998 and if so, whether that agreement was subsequently varied or terminated.
A book of documents tendered by the plaintiff by consent is Exhibit 1.
The defendant tendered in evidence by consent a number of documents as Exhibits 2 and 2A

Background

The parties are engineers. In early 1996 they, with another engineer, Tyszka, agreed to acquire the engineering business already trading as Dynatrans.
The plaintiff said the three men negotiated the purchase of Dynatrans as a going business in the field of power transmission, for $375,000, being $200,000 for stock and $175,000 for goodwill. Between themselves they initially agreed that each would contribute $105,000 of this. They took advice from Mr L Mills who was the personal accountant of Tyszka and himself and became the accountant for the business.
Mr L D Mills gave evidence of this:
"How did you become introduced or become involved as an accountant with that company? --- Henryk told me at some stage that he was becoming involved in a business deal involving two friends of his, Jerzy Tyszka and Evan Maltby; that they were going to purchase a business called Dynatrans; that they would need to form a company or some other structure to acquire the business in and to protect their relative interest in, which I attended to.
You gave advice in relation to the structure of the business? --- Yes. At that stage I reasoned that for tax purposes and for control purposes it would be appropriate to have a company with a trust structure underneath it with the three parties more or less having equal shares in the trust and equal physical shares in the corporate trust."
Dynatrans Nominees Pty Ltd became trustee for the Dynatrans Unit Trust.
Each of the plaintiff, the defendant and Tyszka, was married and each controlled a private or family company. The plaintiff's family company was Silesian Pty Ltd; the defendant's was Etcon Pty Ltd which itself was trustee for the Etcon Unit Trust; and Tyszka's was Trice Pty Ltd. Those family companies held equal units in Dynatrans Unit Trust.
To raise the agreed contributions of $105,000 for each of the three purchasers it was agreed to obtain individual loans from National Australia Bank Ltd. In addition, Dynatrans Nominees Pty Ltd was to borrow $100,000 secured by the stock in trade of the business.
The plaintiff borrowed on his home but could still only raise $64,000 to contribute to the acquisition. The defendant and Tyszka agreed that the plaintiff's wife would work in the business as a bookkeeper. She, it seems, agreed to contribute her wages therefrom to the plaintiff's capital until the shortfall of $41,000 had been made up.
It seems clear enough that from the beginning the business lacked an adequate capital base.
Not only did the new owners lack capital but, it seems, they lacked management skills. Tensions emerged between them.
Mr Arns, in opening, said the turnover had been misrepresented. This was not the subject of extensive evidence, however nothing turns on it as between the plaintiff and defendant.
The overdraft with National Australia Bank was extended and the three shareholders and directors were under pressure to make further capital available from their own resources. The plaintiff said the directors had difficulty communicating with each other, meetings were infrequent and decisions were taken without consultation. From January 1997 Tyszka assumed the role of managing director. The defendant says that he assumed Tyszka was managing director from the outset; the plaintiff that he thought initially that the defendant was so acting.
The defendant says there was ongoing conflict between the plaintiff and Tyszka in which the others involved him as an intermediary.
By early 1997 the new owners were considering proposals for restructuring the ownership and financing of the business.
The financial position continued to deteriorate. National Australia Bank Ltd refused to extend further credit on terms the directors considered acceptable. The defendant raised an additional $50,000 from ANZ Bank secured over the defendant's property. The other directors agreed that no further funding would be required of him in case of any other financial difficulties and to arrange security for this borrowing.
The plaintiff's evidence is that from May 1997 he assumed the role of managing director. He developed a proposal to bring in an additional partner or to replace one or more of the existing partners with outside investors. Alternatively, he was prepared to sell out his interest. Meetings were held and correspondence flowed between the three directors.
On 5 October 1997 the plaintiff and Tyszka signed a memorandum to the defendant:
"The partners of Dynatrans Nominees PTY LTD H Wenzel (also Director of Silesian PTY LTD) agree to provide financial security in Dynatrans stock for Director E Maltby of Etcon LTD to the sum of $50,000 as a loan for future Dynatrans operation. Both partners H Wenzel and J Tyszka agreed that the interest rate for this loan will be payed off by Dynatrans Power Transmission as required by the ANZ Bank.
The loan funds will be used by Dynatrans to pay Trade Creditors only.
Any payment or decision concerning future Dynatrans operation will be made only after signing of an agreement by a minimum of two Directors of Dynatrans Nominees."

The Alleged Agreement

In late 1997 the plaintiff says that orally and in writing he made proposals to his co-directors and that a meeting was held on 8 January 1998 with an exchange of correspondence on 10 January. That correspondence is at pages 29, 30 and 31 of the plaintiff's book of documents, Exhibit 1.
The defendant wrote to the plaintiff with a copy to Tyszka, as follows:
"Dynatrans Sale/98 Financial Year
At our directors meeting of 8th January, we discussed the poor cash flow of Dynatrans over the first six months to end of December.
We also discussed ways to turn the business into a more profitable organisation, eg increased borrowing's and also the option to sell for an expected maximum return of $420,000 to the directors.
From advice given by others, and obviously from our accounts, just increasing our borrowing's will increase our liability to bankrupt.
If sale was successful, we estimated a loss of approximately $50,000 to $60,000 would be made by all directors.
The remaining option discussed was restructure. This included a previous proposal that all directors take up full time positions in the company for minimum rates of pay (for example $12,000).
For the sake of directors and the company it is agreed by myself and Jerry that an attempt at restructure should be made prior to a sale at loss.
We formally offer you the opportunity to take your part in this arrangement though we are aware you may not be unable to resource such a step.
Should you be unable to make yourself available, we would then take up your offer for others to purchase your share of the Company. The intended purchase price would be the value of the Silesian NAB loan.
We trust you will give earliest consideration to this opportunity to restructure and confirm your intended position in writing to Evan or Jerry by Tues 13th Jan."
On the same day the plaintiff replied:
"re: DYNATRANS SALE
Herewith my position to the Dynatrans Sale.
I am open for a few options.
1.        If both of you wish to sale your shares to an outside party and that party is financially strong I would not hesitate to stay within the company. If required I could run that place and develop other activities like engineering and project management. It should generate enough money to support my position. At this situation (contracting full time) I have to reject occasional projects for Dynatrans. For leaving parties it would be more attractive than the whole sale as the agent's fees should be much smaller and the transaction could be smoother.
This might be less possible option, but if you consider selling your shares please place that proposal to brokers.
2.        Other option is in line with your proposal of transferring my shares to existing party or parties. This is also rather easy to achieve and will keep the continuity of Dynatrans. I believe that I gave enough examples about my commitments to this company and even if I am out of this business I would be happy to see it going well. You have to appreciate that the company started to see the light. Daily sales monitoring, company running expenses assessment, overseas telephone register, Terraflex, Airsprings, pulleys from China, Dunlop machine (approx $20,000 profit), etc happened when I got more control of the company. Yes, it is right that I cannot work for Dynatrans full time and therefore I will take your offer and sale my shares to you. In this arrangement I was thinking about covering one third of Dynatrans losses. Silesian equity of $41,000 is probably more that this one third, but we can still accept that. However, we cannot accept leaving the remaining $4,732 as that is a part of the $7,000 'temporary' loans. Both of you withdrew those loans back. We (feeling the guilt of the poor ones) left the money in Dyantrans account and they still debiting our credit cards.
We are expecting: $62,000 - Silesian loan; $4,700 - private loan (those figures to be confirmed).
3.        This, and the least preferable option is the total sale of the Company. The losses are higher and it would be confirmation of another failure.
If there is no other option - let it be, but I would rather prefer to keep this show going as it is."
The defendant replied again on 10 January 1998:
"Dynatrans Sales/98 Financial Year
Thankyou for your consideration of todays earlier correspondence regarding a restructure proposal.
Jerry and I have discussed your options and hereby confirm that we will accept and follow Option 2 (transferring your share to existing parties). The agreed value of transfer will be your NAB loan plus the 'temporary' loan as requested.
Most likely Jerry will contact you in the immediate future regarding payment and other details.
I agree you have made considerable contribution and lets face it - if you win the lottery tomorrow, please allow me to offer my shares to you!"
The plaintiff's evidence is that the reference in his letter to "$62,000 Silesian loan" and in the defendant's reply to "your NAB loan" is a reference to the then outstanding balance owing by the plaintiff through his company Silesian Pty Ltd to National Australia Bank Ltd, a sum approximating $62,000. During trial I was told that the exact amount was in fact $61,840 and that the plaintiff amends his claim thereto.
For reasons unknown to me the reference to $4,700 "private loan" or "the temporary loan" was not pursued in the legal proceedings.
The plaintiff says prior to 10 January he had been working daily, albeit not full time in the in the Dynatrans business. He had other full-time employment elsewhere as his co-directors knew.
After this correspondence he says he ceased working at Dynatrans. His wife, Bozena, had still been working at the business part-time as a bookkeeper. He was asked:
"Tell us what, if anything, was discussed between either yourself, Mr Maltby and Mr Tyszka about your continuing to work at the company dafter 10 January 1998? --- When I reported to work I found that Mr Tyszka was sitting behind my desk, and he showed me very clearly that I'm unwanted in that premises. Soon later I gave keys to the premises and returned the keys for the cabinet, which includes the company stamps and cheques and all the company documentation. So practically - from this moment I didn't have my way of getting to company on my own will.
If I can just interrupt you there, what was the last day that you worked at the company in January 1998? --- It was 12 January 98.
Did your wife continue to work at the company? --- Not after 12 January 98.
Well, when did she finish up with the company? --- She reported to work and 12 - she was asked by Mr Tyszka to pack her things and leave with immediate result.
What day was that, I'm sorry? --- It was 12 January 98."
They accepted the position as part of the policy of the new management of the business, but his wife was disappointed. On 28 January he wrote to the company about it and the $4,700 private loan: see p35 of Exhibit 1.
Mrs Wenzel gave evidence essentially corroborative of some of her husband's evidence.
Soon after her arrival at the business on Monday 12 January 1998 she received a note from Mr Tyszka left in the office message book:
"From our correspondence between E.M. and H.W. we understand that J.T.E.M. buying H.W. shares now. We intend to repay entitlement by Silesian $4,700.00 in four monthly ……
All business administration will change from now immediately.
Book keeping shall be administered by our self."
The plaintiff said he discussed the position with Mr Mills and wrote to the National Australia Bank Limited. Staff, suppliers, the bankers and others were informed.
At the end of March he received correspondence from Mr Mills addressed to the directors of Dynatrans:
"re: DYNATRANS - BUYOUT OF HENRYK WENZEL
Two months ago it was decided and agreed that Henryk Wenzel was to leave Dynatrans and his shares were to be transferred to the remaining two directors.
The agreed price was that Henryk would pay $41,000 in exchange for his shares in Dynatrans Nominees Pty Ltd and units in the Dynatrans Unit Trust being transferred to the remaining shareholders and unit holders. The mechanism for this was that Jerzy and Evan would pay $62,000 against the NAB Loan A/C 66 610 1211 and that Henryk would assume responsibility for the balance of the loan.
Although it was expected that finance for this buyout would be quickly obtained, it is now more than two months since the original agreement was made. It is therefore appropriate that a more formal sale agreement be prepared and signed, that Henryk's resignation and share transfers be prepared and executed, and that a 'Vendor Finance' type agreement be put in place pending the ultimate refinancing or sale of Dynatrans by the remaining two Directors.
…
To date, the following documents have been prepared:
1)Resignation as Director of Dynatrans Pty Ltd - Henryk Wenzel;
2)Transfer of 20 shares in Dynatrans Nominees Pty Ltd from Henryk Wenzel to Jerzy Tyszka and Evan Maltby;
3)Transfer of 20 units in Dynatrans Unit Trust from Silesian Pty Ltd to Trice Pty Ltd and Etcon Pty Ltd;
It is proposed that the a sale agreement be prepared encompassing the following:
1)Resignation as Director and transfer of shares and units as mentioned above;
2)Six month "Vendor Finance" agreement to cover the $62,000 payment within that time;
3)Limitation of liability for Henryk and Bozena to National Australia Bank to only $41,000 of the Loan A/C 66 610 1211;
4)Limitation of equity in Dynatrans by Henryk and Bozena to only the $62,000 payout
These documents and agreements are designed to protect all parties concerned, by formally completing the buyout at an agreed price while extending the time the remaining Directors have to complete their refinancing.
On behalf of Dynatrans, it is my intention to instruct a solicitor to prepare a draft of such an agreement, without delay. Please advise me as soon as possible if you believe that this is not the most appropriate course of action to take."
Mr Mills, in examination-in-chief, was asked:
"Can you tell us the circumstance by which you became aware that Mr Wenzel was going to cease his involvement with the company? --- An agreement had been formed that Henryk and his company Silesian were going to be bought out of the business and his involvement in the company was going to cease altogether - the terms of that agreement were being negotiated, but from discussions I had with Henryk and with Evan it was quite clear to me that Henryk was going to leave the company and not return; that he was going to be bought out and go.
Who told you first of all that Henryk's interest was going to be bought out? --- I don't recall clearly who told me first of all. My understanding is that it was Henryk who told me that his interest was going to be bought out.
But then you subsequently had conversations with one of the other directors, did you? --- Yes. I subsequently had conversations with Evan and confirmed that Henryk was going to be bought out; that he was going to resign as a director and that his shares and units were going to be transferred; that he would no longer have any part in the business at all.
This conversation that you had with Mr Maltby - was that over the telephone, was it in your office or was it elsewhere? --- During that period, the period before - towards late 97, early 98 I had many conversations and discussions with Evan, particularly, as well as the other directors; many conversations over the phone, several meetings face to face in my office. Once or twice I even went out to the premises and these sort of matters were discussed. It would have been in one of those telephone conversations or one of the meetings face to face that this was discussed.
Can you tell us if there was a price agreed and what was being acquired for that price? --- Quite specifically I was aware that the business had lost money and that therefore all three directors, all three parties, had suffered a loss. In terms of the arrangement to buy Henryk out, he was going to sustain some of that loss and walk away with it. So the price that he was being offered was a sort of combination of being offered cash to walk away, but he was also going to take debt with him along with it. So in fact he was going to take away with him his share of the loss of the company.
Can you tell us what the cash component of the arrangement was? --- The cash component was $60,000 or thereabouts.
Or thereabouts? --- Either 60 or 61 or 62. Without reference to the paperwork I couldn't say precisely.
… Were you asked by Mr Wenzel to take any action in respect of that transaction at any time? --- Yes … I had discussed with him several times the idea of him being bought out and the difficulty of giving all three people together; the difficulty of getting arrangements in place; the difficulty of getting finance in place. It wasn't going to be an easy thing to do to get all the threads together, so at one point I offered to prepare an outline of an agreement that … would confirm the terms of the agreement that they were going to use to buy Henryk out. Not being a legal practitioner, I wasn't prepared to prepare the agreement, but I was certainly prepared to prepare an outline that would have the effect of putting in writing quite clearly, so there was no misunderstanding between anybody, what the terms of the arrangement were and what the effect of that arrangement would be; that is to say, what units would be transferred, what shares would be transferred, who was going to resign, what guarantees would be lifted, how much money would be paid across and who would assume liability for what debts.
Apart from the agreement … did you seek to communicate with the directors about this in any other way? --- I had … at least one conversation with Henryk discussing the terms of this agreement, in my own mind to be clear that this is what they were going to do. I also had a conversation, although I can't recall the exact date or time, with Evan Maltby confirming also that this was the nature of the agreement that they had struck and … these were terms of the outline that I should prepare."

He prepared a document which he described as a draft agreement as follows:
"It is hereby agreed that, in relation to the Dynatrans Unit Trust, Dynatrans Nominees Pty Ltd as Trustee, trading as 'Dynatrans' (hereafter referred to a Dynatrans):
1)This agreement is a formal affirmation of an original agreement made on 12 January, 1998 to transfer 20 units in the Dynatrans Unit Trust from Silesian Pty Ltd to Trice Pty Ltd and Etcon Pty Ltd, and also to reorganise the debts and associated guaranteeships of Dynatrans;
2)10 Units in Dynatrans Unit Trust will be transferred from Silesian Pty Ltd to Trice Pty Ltd for $10 consideration;
3)10 Units in Dynatrans Unit Trust will be transferred from Silesian Pty Ltd to Etcon Pty Ltd for $10 consideration;
4)Henryk Wenzel will resign as Director of Dynatrans Nominees Pty Ltd;
5)Henryk and Bozena Wenzel will assume responsibility for NAB Loan Account 66 610 1211 to the extent of $41,000 only, and Jerzy Tyszka and Evan Maltby or their nominees will assume responsibility for the balance (currently approximately $62,000);
6)The Directors will cause Dynatrans to repay $4,700 to Henryk and Bozena Wenzel, being an amount previously advanced by them to Dynatrans;
7)Henryk and Bozena Wenzel will be relieved of their responsibilities as Guarantors for any of Dynatrans' debts or loans to National Australia Bank, except to the extent referred to in point 5), above, and Jerzy Tyszka and Evan Malty agree to repay any sums that may be paid by Henryk and Bozena Wenzel in excess of this amount to National Australia Bank in relation to Dynatrans;
8)Henryk and Bozena Wenzel will not be liable for any other debts incurred by Dynatrans, and Jerzy Tyszka and Evan Maltby agree to repay any such sums that may be paid by Henryk and Bozena Wenzel in relation to Dynatrans;
9)The Directors of Dynatrans shall use their best endeavours to either refinance the existing National Australia Bank loan facilities or take such other steps as are necessary to repay the $62,000 sum owing against National Australia Bank A/C 66 610 1211 and to relieve Henryk and Bozena Wenzel of their Guarantorships to National Australia Bank, within a period of six months from the date of the original agreement, ie, six months from 12 January, 1998;
……………………/…/…     …………………     …/…/…
JERZY TYSZKA      DATE       EVAN MALTBY     DATE
……………………/…/…     …………………     …/…/…
HENRYK WENZEL   DATE      BOZENA WENZEL DATE "
He then sent the letter of 31 March 1998.
Mr Mills was asked:
"In your discussions with Mr Maltby was there any doubt or were you in doubt about whether those matters that had been put to you by Mr Wenzel were the subject of disagreement at all, that's in your discussions with Mr Maltby I'm referring? --- No, not at all at that time. My discussions with Mr Maltby at that time, I was quite clear that this was the nature of the agreement. This was the agreement that they had all agreed to. Subsequent to that, over the next 3 to 6 months it became apparent that the agreement wasn't going to be put in place. Further correspondence ensured there were further discussions and … arguments as to what else they might do instead or, you know, other ways to resolve the problem or to … either reorganisations or restructures that might occur, but certainly at that time, no, I was quite clear that this was the nature of the agreement. That's why I took the time and trouble to set out in writing, so that it was … there on public record.
You referred earlier to the preparation or an outline of a sale agreement. Could you please look at page 39 of the book there? Is this the sale agreement that you were referring to? --- Yes, it is.
The parties there are described as Silesian Pty Ltd, Tryce Pty Ltd and Etcon Pty Ltd. What are those companies? --- Those companies were the trading companies, I guess, that the three directors were using to conduct their private businesses through and they were also the companies that they had bought the units in the Dynatrans unit trust in, so these three were the three entities who had effective ownership over the business Dynatrans.
This agreement seems to be concerned primarily with the transfer of units from Silesian to Tryce and Silesian to Etcon, but there is no specific reference to the transfer of shares. Why not? --- I'm not altogether certain why this particular agreement doesn't refer to the transfer of shares. The transfer of shares is in relation to the control over the trustee company … this agreement was more referring to the ownership of the business which was carried on through the unit trust. Simultaneous with preparing this outline I had also prepared resignation of director letters, transfer of share certificates, transfer of unit certificates and notification of asset and so on as a complete package. In other words, it was clear in mind that all these things were going to be done simultaneously. There was no point in transferring the units and not the shares or vice versa.
… it was intended to ultimately have a solicitor prepare a deed? --- That's right. "
Cross-examined, Mr Mills agreed that the defendant had raised with him the question of addressing the fact that the $50,000 loan made by the ANZ Bank had been made although Mr Mills did not know whether the defendant had refused to accept Clause 8 of the agreement Mr Mills had prepared and if so whether that disagreement related to the ANZ Bank loan. He said he had advised the plaintiff not to formally resign as a director until a formal agreement confirming all the terms of the arrangement had been made. He also agreed that there had been no discussions between himself and the directors as to what the agreement "meant as to what was to be transferred, what funds were to be handed over and so on".
He said, giving oral evidence:
"So these draft documents on page 40 were leading to a formal legal agreement. That's what you have just said. Is that correct? --- ? --- Yes. I was in an invidious situation. Not being a lawyer I couldn't prepare a legal agreement for the three directors to sign, but being aware of the agreement that they had come to I was anxious to put something in writing so that at the very least we could move the process forward and get the deal effected because the history of this was of - Jerry Tyszka, for example, particularly was a person prone to changing his mind or saying one thing one day and, you know, saying another thing the next day. It's very hard to get clear well understood agreement and so I figured that by putting this in writing and presenting it to the three directors and getting them to sign off on it that that would in fact bring that aspect to a close."
Asked to comment on why the draft agreement does not deal with transfer of share in Dynatrans Nominees Pty Ltd he said:
"I guess this is a reflection of the fact that not being a lawyer it's not my place to be preparing legal agreements. Maybe it's possible, or maybe the way legal agreements are prepared, the agreement could have been made between Silesian, Tryce, Etcon, Jerzy, Evan and Henryk, and referred to the share transfers all at the same time; but my understanding was that the share transfers, which would have happened simultaneously with this agreement and the units transfers and so on - that was all part of the same agreement. The fact that the share transfers weren't specifically mentioned - I took that to be - the reason why I didn't put it in there was because this wasn't an agreement between the three directors as well as their three companies. This was an agreement between the three companies and their interests in the units of the trust. The trustee company was secondary to that."
Still under cross-examination, Mr Mills added:
"… to put into effect an agreement that says Jerzy and Evan will buy Henryk out, being a very broad and loose agreement, to put that into place more technically what it refers to is the transfer of units, the transfer of shares, resignations as directors, a whole variety of points, indemnities and the like. This agreement, which was - or this document that was prepared was referring solely to the three companies, and referred the companies Silesian, Tryce, and Etcon and the units in the unit trust. Because it only referred to those three companies it only dealt with the transfer of units. That's why I didn't choose to deal with the shares. To deal with the shares you would need to have included the three directors at the top of it; but once again, that's a legal issue. It wasn't really my place to be getting too involved in preparing it all, so that's why I didn't include those details in this particular document, although it was clear in my mind that the shares would be transferred at the same time."
The Statement of Claim pleads that the particulars of the agreement made between the parties are comprised of the plaintiff's letter of 10 January, the defendant's reply of that date, Mr Mills' letter and the sale agreement.
On 26 February 1998 the defendant and Tyszka appointed agents to sell the Dynatrans business, that is plant and equipment, stock and work in progress and goodwill. They each initialled an acknowledgment of being "the sole proprietors of the said business and/or property or authorised by the proprietors thereof to enter into" the appointment.
The essence of the defendant's evidence is that he reached no agreement with the plaintiff. He says that matters which he considered essential terms of any agreement were never agreed although they were the subject of ongoing negotiations.
The defendant in essence argued that the plaintiff had made a set of proposals which the defendant and Tyszka had agreed to investigate. Eventually Tyszka had said that he, Tyszka, could not afford to acquire any of the plaintiff's interest. From the defendant's perspective there were a number of issues to be negotiated - the plaintiff wanted to be relieved of guarantees, the defendant to be recompensed in respect of his contribution through the ANZ Bank loan of $50,000. All the final letter of 10 January did was to confirm the approximate value of the plaintiff's interest in Dynatrans, not agree to acquire it, he said.
The defendant gave evidence about the correspondence of 10 January 1998 in this way:
"… Page 30 of the exhibit number 1 provides three options, and … it's a reply to the previous document which ended, 'On Saturday, 10 January 1998.' This is a series of options - a series of proposals. In the first option Mr Wenzel tells us … if we want to sell our shares to outsiders take them to the brokers. In option 2 he's referring to my proposal transferring my shares to existing or other parties. I don't know where that statement comes from. I never made a proposal transferring Mr Wenzel's shares to existing parties. I don't see that anywhere. I've said quite the contrary. I've said on 10 January, 'Sell the shares to outside parties.' …
Then he states:
I will take your offer and sell my shares to you.
Once again there's no offer. I've made no offer to sell his shares. I don't know what this is all meaning … He says we're expecting 62 and the Silesian loan of 4700, and states that these will be confirmed later on. The third option, the least preferable, is to sell the company. I've got no comment there. Your Honour, my next exhibit is page 31 of exhibit 1. This is from myself to the plaintiff and to Mr Tyszka. This is on the same day and, it was said earlier, it was 2 hours, part or thereabouts. This is in answer to the proposals that Mr Tyszka has put forward. … well, I rang Mr Tyszka and said 'Look, he's got three options here. What do you want to do?' Well, Mr Tyszka obviously said, 'Well, what do you want me to say?' because once again Mr Tyszka wasn't going to talk to Mr Wenzel about it, so the best I could come up with from that conversation was:
Jerry and I have discussed your options and hereby accept and follow up option 2, that is, transferring your share to existing parties. Following that, the agreed value of the transfer will be your loan.
So what we did there was, in the time available, we - well, out of those three options we'll just go for option 2 and for the purposes of negotiation we'll just set the value to be the rough loan value because it's not confirmed anyway and go from there. We had to seek finance. There were all sorts of issues such as finance and the NAB had to be contacted. Anyhow, I was off to Port Hedland at that time, on the 12th I was away, so I - what did I say here:
Most likely Jerry will contact you in the immediate future regarding payment and other details.
The other point about this is that I had no interest in purchasing shares. The main reason for that is that I had already shortfalled myself $50,000 into this company mainly on the request of the plaintiff, so I had no intention of pouring any more money out. Mr Tyszka had the difference with Mr Wenzel … The best I could do was put that proposal and leave it with Mr Tyszka to sort out. If he was desperate to get rid of Mr Wenzel, so be it. He could make arrangements as he wished. The next exhibit is … page 32 of Exhibit 1.
We understand that JT buying shares now. We intend to pay Silesian 4-monthly. All business administration will change from now immediately.
As I said, I had no knowledge that this was being trumped up down in the office. I was well and truly away by then. I can only think that - remembering that this was a day that Mr Wenzel's wife was, so-called, sacked. He made a statement there, but certainly had no discussion with me about that statement."
He also gave evidence about the documents prepared by Mr Mills:
"This agreement, … was never signed. It talks about Dynatrans units. It talks about parties being Silesian and Tyszka. I know there are signatures there for me but I still to this day haven't found out which party is purchasing these shares. As I said I had no intention, subject to terms regarding outstanding obligations with the ANZ loan, of signing and therefore that is why I didn't sign it … "
He said the figure owing on the loan to Silesian Pty Ltd had never been confirmed and more importantly, that there was no agreement to pay any amount to the plaintiff and that the transfer value could be offset by other issues.
"It's only a negotiating proposal."
"We just put up some goalposts so that we can go away and investigate whether it's a feasible proposition."
"Dynatrans would have had to go to the NAB and explore what were the implications of one of the directors resigning … and what loans do we have to guarantee in the absence of Mr Wenzel."
One of the outstanding issues, the agreement of National Australia Bank Ltd on acceptable terms, never resulted. Another was the issue of "finalisation of the ANZ security" by the defendant being given security over the stock in trade of Dynatrans. The defendant says that the plaintiff and Tyszka had agreed to do so in October 1997 and that it was understood that that was to be done, and their obligation to do so. In addition, Tyszka wanted to sort out a matter of Dynatrans' unequal treatment of repayment of partners' loans.
On 13 March 1998, the defendant said he wrote to the other directors:
"Once again we are at the crossroads, with an overdraft facility over the limit. This is in spite of the fact that I have contributed $50,000 (as requested) six months ago in September 1997. In August 1997 in a letter to the National Bank, I tried to get some interest in debt reduction but received no reply.
Again I advise that our repayment of debt (now $5,500) per month is a major factor resulting in the negative cash flow.
The situation is very clear, eg:
Unless further contributions are made to cover the monthly shortfall the company is not going to survive at its present turnover.
Jerry has no capacity to provide funding
Henryk has no capacity to provide funding.
In September 1997 the situation was identical.
Since there is a stalemate situation I recommend that Henryk and Jerry meet with Lachlan Mills to resolve differences, understand accept the true financial situation and work out a more equitable support package."
It was put to him in cross-examination that the letter had not been "discovered" until trial, that it was written using different type to other letters and not on Dynatrans letterhead as with other letters and that it had been written after the event to boost his case. He denied that.
In any event there were also various other areas of uncertainty left by the exchange of correspondence, even if an agreement were to be achieved; the identity of the purchasing parties and the proportions in which they were to hold interests in the business. The defendant denied that Mr Mills had acted on his authority or by his direction in preparing the various documents he did. Nor did Mr Mills' documents deal with the question of the transfer of shares as distinct from units in the trust.
"What discussion I did have with Mr Mills was that he phoned me one day and said, 'What are we doing about this agreement?' and I said 'Well, we'd better write something down for somebody to sign because there's no terms and there's no clarification of what we're doing. We need something to sign to have an agreement,' and that was it. He went away from there and composed an agreement … I didn't instruct him. I just said, 'Well, if an agreement is considered, if there's some claim that there is an agreement, I haven't seen it yet and we need documents to sign. We need an agreement. We need details and …
Your honour, I just want to discuss the issue of the plaintiff being willing and able to resign and transfer his shares. The plaintiff prepared documents for resignation from 9/10/98, page 49 and exhibit E23, but I believe that because the agreement was not complete and no agreement had been signed, he actually postponed that until very late. I think it was August 99, just prior to the liquidation of the company. So I'm, not convinced that he was willing and able to resign, especially not willing. With regard to the transfer of shares, page 37, which is the letter from Mr Mills; said the documents were prepared. These documents were never sent out, I'd never signed them, so I believe that the reason for that was because agreement once again hadn't been completed and hadn't been signed and finalised."
The defendant denied seeing the plaintiff in the business other than very rarely either before or after January 1998 and said that after January 1998 they had had various discussions in relation to the affairs of the business. He denied knowing there had been any change in the management arrangements concerning the plaintiff and his wife after 10 January.
At times during cross-examination the plaintiff even seemed to withdraw from this position and to assert that the last letter of 10 January contemplated the plaintiff selling his shares to outsiders. That of course is entirely inconsistent with the whole of the document.
The defendant says it is not to be assumed that, acting without legal or accounting advice, on 10 January he did or must be taken to have understood and agreed to the various terms said by the plaintiff to have been agreed by necessary implication.
Mr Arns for the plaintiff argues that the defendant's contentions in relation to the documents are implausible and that the only reasonable construction of them is that each of the defendant and Tyszka personally agreed to purchase the plaintiff's share in the company but that it is a matter between the defendant and Tyszka whether they were to acquire it equally or otherwise. Each of them is jointly and severally liable on the contract.
A necessary implication, Mr Arns says, given the structures used by the parties and Tyszka, to acquire and operate the Dynatrans business, is that although the correspondence of 10 January refers only to "share" the agreement required the plaintiff to transfer his unit in the Dynatrans Unit Trust as directed by the purchasers. Other necessarily implied terms, he said, were that on settlement the plaintiff would retire as a director and that the purchasers would make payment of the agreed sum within a reasonable time. Mr Arns suggested that that might in the circumstances of this matter be regarded as six months but that in any event there had been clear evidence of repudiation of the agreement by the defendant and of a clear intention not to be bound thereby.

It was also necessarily implicit in the agreement, Mr Arns says, that the parties would arrange the necessary adjustment to bank accounts with the bank and execute and file the necessary corporate affairs documents.
As to whether the bank would agree to discharge the guarantees by the plaintiff, Mrs Wenzel and Silesian Pty Ltd., Mr Arns says that is neither known nor relevant.

Subsequent Events

The plaintiff says he was anxious to proceed but the defendant and Tyszka ignored the matter. On 2 July he wrote to each of them:
"It is already 6 months since the 'Offer and Acceptance' of Silesian's shares have been placed. Due to various circumstances we did not reach finalization of our agreement.
Talking to all parties I can list a number of outstanding issues obstructing the settlement:
•       Security for EM 50K loan
•       Overpayment of bank loan in favour to Silesian
•       Financial difficulties on JT side.
On the other hand we have a number of components to be fulfilled, like:
•Partial repayment of Silesian's loans (60K) plus outstanding private money.
•Releasing HW assets from guarantor liabilities
•Transfer of shares
•HW Directorship
Please find my proposal to speed up the settlement process:
•EM 50K loan guaranty should be legalized as per original agreement dated 5 October 97 (see copy attached).
•Overpayments of loans would be returned by Silesian (see the Summary of Payments attached).
•Silesian can wait with transfer of shares to JT till his financial situation improves.
How does it work?
We can proceed with proposed settlement in such order:
•EM honours his part of settlement.
•HW will transfer half of his shares to EM
•HW being released from guaranty liabilities will resign from director's position.
•Silesian will retain and service combined loan of 70K (40K + 30K)
•Remaining half of Silesian's shares would be placed on Trust and released to JT proportionally to repayments within agreed time frame.
I believe that this brief plan covers all major outstanding points. Please do not hesitate to phone me at 94205573 or at 92728569 A/H to discuss any details. Please return your comments (preferably acceptance) in writing before 8 July 98 so we can action it ASAP and instruct our solicitors to prepare a draft of such agreement."
Essentially the plaintiff's case as I understand it, is that an agreement had been reached but he was pressed financially and it was necessary to explore ways of implementing the agreement in an amicable and feasible way or alternatively, of exploring other possibilities.
He agreed that the defendant had not signed the draft agreement or the associated documents.
Discussions and correspondence raised a number of issues on which one or other of the directors felt his interests were not being fairly dealt with or in respect of which further funding was not available at least at that time.
The plaintiff agreed, under cross-examination, that the defendant was away from Perth supervising contracts on behalf of the company for various periods.
He said he was concerned that the company continued to suffer problems and that guarantees given to National Australia Bank had not been discharged. His letter was an attempt to provide ways in which the agreement reached could be effected. The agreement itself had neither been varied nor terminated.
Because the agreement was not performed by the defendant and Tyszka he had sold his house but still owes money to the bank under the guarantees. The company had eventually been liquidated.
On 4 July 1998, the plaintiff wrote to Tyszka with a copy to the defendant:
"This is to inform you about the status in negotiations related to our last offer. Yes, we do agree that this offer may not be perfect, but it is the only one on the table. It is open for discussion and any workable propositions are welcome.
We do have an early answer from Evan Maltby who practically wants the same conditions proposed to you.
•Practically, Silesian Pty Ltd would retain and service the whole 100K loan.
•The whole Silesian's shares would be placed on Trust and released to JT and EM proportionally to repayments within agreed time frame.
This is a very wise proposition from Evan, which eliminates any possible disproportion in share holdings between remaining parties. We can consider this proposition.
We do request to receive you comments to all points of the Memorandum or alternative propositions to settle down this dispute in writing before 8 July 98 so we can instruct our solicitors to prepare a draft of the future agreement. This time we would not accept neglecting of our official correspondence."
The defendant argued that this correspondence evidenced the cancellation of any previous agreement and the making of new proposals. The plaintiff denies that. He says his aim was to secure release from the Dynatrans liabilities and to achieve this he was proposing a method of payment for his shares over time by the defendant and Tyszka, the share to be transferred proportionally as payments were made.
During July and August and into September 1998 there was correspondence between the three men: se pp 41 to 53 of Exhibit 1, pp 38, 39 and 41 of Exhibit 2 and pp 35 and 36 of Exhibit 2A. In essence the business was continuing to trade but the financial position seemed to worsen and the parties essentially were attempting to find ways to resolve the various financial issues. The plaintiff's position seems to have been that the January 1998 agreement was in place but that the parties were exploring ways to enable it to be performed; the defendant seems to have been of the view that negotiations remained on foot. However, even the plaintiff seems to have been prepared to consider quite different alternatives, such as sale of the whole business to outsiders.
On 31 August 1998 the defendant wrote to the plaintiff:
"Jerry has agreed to following restructure (pending details of payoff NAB bus. Loan) ÷ 6/78/16 (his suggestion) What is your status now? Is this still an option? Any other suggestions?"
The plaintiff wrote back to the defendant on the same day:
"I got your fax and I am a bit shocked.
Good for you that you mentioned the author of this proposed share restructure. The first question is who is the lucky one to have 6% of failing company after investing over 100K? Knowing Jerry I can assume that is me. Please confirm.
My first option presented to you (and partially accepted) is to transfer my all shares to both, or to one of you for the $60K.
Second option, on which I am working now, is to sell the company quickly. It might mean having a loss of 100K, but no association with the company at all. Tomorrow I am approaching brokers with this option. I believe that you accepted this as well.
I still have an option to sell my shares to others. Legally you have the right to do it first, but you already declined. So I can approach others. The new party should cover 33% of the company loan and 33% of overdraft - some 57K in total. So if I sell it for 100K I would be better of by 40K than in your proposal, and again no association with the company. I was told than there could be interested people from S. Africa.
Bankrupting the company should not be the option for consideration, but I have the least to loose as my bank liabilities are already stretched. I can cover maximum 100K over my existing mortgage. Seeing your proposal with 6% I wonder what is better.
One thing seems to be more obvious that there are some speculations behind my back. Let's face it, seven months ago you accepted buying me off, two months ago I was assured that everything is O.K. and you are looking for additional finance to finalise the deal. Just recently I learned that the company is near collapsing and my shares are going to be stripped from 33% to 6%. Nobody talks about the required operational capital, business plan for the near future. There is only one subject - who can contribute and who should own more.
Please call me ASAP, Henryk."
Giving oral evidence the plaintiff said he was shocked that while in June "we'd been reconfirming the original agreement from January" suddenly it was being suggested he should have ownership of 6% of the business.
The defendant proposed that ownership in the business be redistributed, and subsequently advised the plaintiff that Tyszka had proposed a variation thereof. On 3 September the defendant wrote to the plaintiff:
"Ever since my correspondence to you dated Sat 10th Jan. 1998, regarding transferring your share, I have been getting correspondence concerning a loan of $62,000. Where does this come from" I understand your loan amount does not come to that figure.
The above correspondence does not mention $62,000 and nor should it. Why would Dynatrans pay off capital of your loan and pay it again for share transfer?
I hope you have not been misquoting our agreement to your advantage."
Under cross-examination he agreed that after 10 January there had been no written communications between himself and the plaintiff for about six months, notwithstanding the reference in the letter.
The plaintiff replied:
"Referring to the $62,000 loan it was the remaining amount from the original $64,000 personal loan we took from NAB at that particular time.
At the beginning we have been short of $1,000 to be in level with the other shareholders ($105,000 each party).
The missing $41,000 we paid to the company in cash …
Dynatrans was servicing all three personal loans at the same rate overpaying the Silesian side due to the fact that actually should service only that $64,000 and not the full $105,000. This overpaid money has been calculated and returned to the company - …
Evan, we never ever asked anybody to pay twice. Our agreement referred to the repayment of the NAB loan only in exchange of our 33.3% shares.
…
We still consider this proposal as being fair and do not understand why should you have problems with that.
As for the last statement, the NAB personal loan stands at $60,850.
If you can cover this amount we are ready to transfer to you all our shares, I will resign as a director immediately and we can shake our hands.
We have been ready for this for a long time. …"
Then the defendant replied, on 4 September 1998:
"Thanks for your information/response on your NAB loan balance. I'm sure I have seen different balance figures than $60,000 however that can be sorted out later. (My commitment is under $30,000).
I had every intention of being involved in purchasing your shares because of the ridiculous and damaging conflict between you and Jerry …
At no time did I offer to by you out in total. This idea has only now been pushed because of opportunism.
I have every intention of honouring my commitment to buy half your share although by the time it happens some negotiation may be needed.
I am still waiting for you to get together again with Jerry regarding the ANZ loan.
When you have repaid that loan I can then carry on as planned and honour my part in share changeover.
I treat the ANZ loan as a loan to you and Jerry and I expect that it will be repaid. It is not a gift. It should be sorted out before you leave.
By the way, in providing that loan to you, I abided by the majority decision of the directors, even though I disagreed with your management.
In return, I will expect you to do the same in similar circumstances."
Under cross-examination the defendant said first that this reference to a commitment was a reference to any future commitment and then that the commitment was subject to the proviso that "the parties … sort out the liabilities of the ANZ loan". He agreed both that the three directors had disagreements about respective contributions of capital made to Dynatrans at the time and also that the NAB bank overdraft had been extended and the whole of the assets and undertaking of the business had been secured to the bank.
The plaintiff called a meeting of the three men to discuss the financial position of the business and to resolve the ownership dispute. The defendant did not attend. Further acrimonious correspondence followed in October 1998 but nothing was resolved. On 9 October the plaintiff formally resigned as a director. Action in these proceedings was then commenced. Initially the plaintiff sued Tyszka jointly and severally with the defendant. I am told that the plaintiff and Tyszka had settled those proceedings. Tyszka was not called to give evidence by either party.
Despite the protracted correspondence and discussions, Mr Arns says, the original agreement was neither varied nor terminated.
As to the $50,000 ANZ Bank loan raised by the defendant through his family company for the benefit of Dynatrans, that is not mentioned either in the correspondence of 10 January or in the documents prepared by Mr Mills, nor in other correspondence until some months thereafter. As Mr Arns pointed out there is no necessity to refer to it to make commercial sense of either the correspondence of 10 January or of the documents prepared by Mr Mills. It should properly be looked at as a matter to be resolved or perhaps already resolved between the defendant and Tyszka.

Findings

I found the plaintiff to be an honest and reliable witness whose evidence is supported by that of Mr Mills and by the documentation. On the other hand, where the evidence of the defendant conflicts with that of the plaintiff I clearly prefer that of the plaintiff. The defendant's explanation of the documents sent on 10 January and of subsequent events is quite unsatisfactory.
I am satisfied that on 10 January 1998 the parties reached the agreement alleged by the plaintiff.
I am satisfied that the evidence of Mr Mills and of the plaintiff as to events thereafter should be accepted.
I am not satisfied that the agreement so reached was ever varied or terminated by agreement among the parties. Rather, the parties discussed a variety of possible variations, none of which ultimately reached agreement.
I was not addressed on the law relating to uncertainty of contractual terms either by Mr Arns for the plaintiff or by the defendant, although I was handed papers referring me to passages from a number of standard texts. However, I see no good reason to regard the agreement reached as being so uncertain in its terms that it is unenforceable by the plaintiff against the defendant.
In my view the agreement so reached necessarily implied the terms argued for by the plaintiff and sought to be effected by the accountant. I am not satisfied that the defendant at any relevant time either raised with the plaintiff the necessity for agreement as to the matters concerning the ANZ Bank loan of $50,000 or that the agreement reached was defective for uncertainty. It may of course have been a matter discussed between the purchasers. It may well be of course, that as between themselves, the defendant and Tyszka had agreed either to acquire the plaintiff's interests equally or in some other proportions. The failure to call evidence from Tyszka is regrettable. But those are not issues which imperil the plaintiff's case.
If, as was the case, no specific agreement was reached as to the time for payment of the purchase price the law would imply a reasonable time.
In contract the plaintiff is entitled to the relief sought against the defendant, $61,840.