Yakiti Pty Ltd v MacDonald

[2019] NSWSC 1772

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Yakiti Pty Ltd v MacDonald [2019] NSWSC 1772
Hearing dates:	6-8, 18-19 February, 9 April 2019.
Date of orders:	12 December 2019
Decision date:	12 December 2019
Jurisdiction:	Common Law
Before:	Hamill J
Decision:	(1) The plaintiff is entitled to succeed on its statement of claim. (2) The cross-claim will be dismissed. (3) The plaintiff is entitled to possession of the two parcels of land referred to in the statement of claim and to an order for leave to issue the writs of possession. (4) The plaintiff is entitled to recover the debts under the two loan agreements together with interest in accordance with the loan agreement until the date of judgment and thereafter in accordance with s 100 of the Civil Procedure Act 2005 (NSW). (5) The defendant/cross claimant to pay the costs of the plaintiff and cross-defendants. (6) Direct that the plaintiff is to file short minutes of order reflecting those findings and supporting calculations within 7 days. If the defendant takes issue with any of the form of orders it should exercise liberty to apply within 3 working days of the draft orders being filed. In the absence of that, the Court will pronounce the orders at a time to be notified to the parties.
Catchwords:	CIVIL LAW – loans secured by mortgage – loans not repaid – cross-claim – negotiations to take over business to which loan money advanced – whether binding agreement reached – where division of shares not settled – whether essential term of agreement – where borrower ill and hospitalised – unconscionability – whether lender acted unconscionably in proceeding in the absence of the borrower – where business failing – losing money hand over fist – where borrower failed to respond to urgent message – where other communications demonstrate capacity to communicate – evidence inconsistent unconvincing and implausible – double satisfaction – Adam Smith School of Economics   CIVIL LAW – procedure – repeated amendments to cross-claim – refusal by different Judge to allow amendment to third further amended cross-claim – attempt to make further amendments part way through submissions – earnest and spirited debate – dilatory conduct of litigation
Legislation Cited:	Australian Securities and Investment Commission Act 2001 (Cth), ss 12BAA, 12BAB, 12CA, 12CB, 12CC. Australian Securities and Investments Commission Regulations 2001 (Cth), reg 2B. Civil Procedure Act 2005 (NSW), s 100. Real Property Act 1900 (NSW), s 65.
Cases Cited:	Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; [2001] HCA 66 Blomley v Ryan (1956) 99 CLR 362 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; [1982] HCA 53 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 Castellan v Electric Power Transmission (1967) 69 SR (NSW) 159 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Corser v Commonwealth General Assurance Corporation Ltd [1963] NSWR 225 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Curnow Consulting Pty Ltd v JPD Media and Design Pty Ltd t/a Durie Design [2017] NSWSC 1171 Franklins Pty Limited v Metcash Trading Limited (2009) 76 NSWLR 603; [2009] NSWCA 407. Freshwater v. Bulmer Rayon Co. Ltd [1933] Ch 162 G Scammell & Nephew Ltd v Ouston [1941] AC 251 Hempel v Robinson [1924] SASR 288 ING Funds Management Ltd v ANZ Nominees Ltd; ING Funds Management Ltd v Professional Associations Superannuation Ltd [2009] NSWSC 243 Jameson v Central Electricity Generating Board [1998] QB 323 John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Marsden v DCL Developments Pty Ltd (Receivers and Managers appointed) [2016] NSWSC 823 O'Brien v Dawson (1942) 66 CLR 18; [1942] HCA 8 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 The State of Western Australia v Ward (2002) 213 CLR 1; [2002] HCA 28 United Australia Ltd. v. Barclays Bank Ltd [1941] AC 1 Winter v Nemeth [2018] NSWSC 644 Yakiti Pty Ltd v MacDonald (No. 2) [2018] NSWSC 1970
Category:	Principal judgment
Parties:	Yakiti Pty Ltd (Plaintiff/First Cross-Defendant) Kate Marie MacDonald (Defendant/Cross-Claimant) Babak Moini (Second Cross-Defendant) Kon Prin (Third Cross-Defendant)
Representation:	Counsel: V Bedrossian (Plaintiff/Cross-Defendants) L Chan; N Dewani (Defendant/Cross-Claimant)   Solicitors: Crumpton Lawyers (Plaintiff/Cross-Defendants) Kate MacDonald (Defendant/Cross-Claimant)
File Number(s):	2017/00163521
Publication restriction:	Nil

Judgment

1. In the latter half of 2015, a group of companies known as the Henley Group were operating nine Snap Fitness gyms across Sydney in various locations. Kate MacDonald (“the defendant” or “cross-claimant”) was a lawyer who commenced working for the Henley Group in about September 2015. The Henley Group and the nine Snap Fitness gyms were at that stage being managed, or perhaps more correctly mismanaged, by Jake Henley.

2. The businesses were losing money and Ms MacDonald lent Mr Henley something in the order of $242,000 between January and June 2016. [1] In June 2016, Mr Henley requested a further sum of $400,000 from Ms MacDonald. [2] It was in that context that Ms MacDonald came to borrow a sum of $353,300 from Yakiti Pty Ltd (“Yakiti” or “the Plaintiff” or “the first cross-defendant”), a company owned and operated by Babak Moini (“the second cross-defendant”). A further amount of $103,300 was borrowed in August 2016. Those loans, unlike the loans between Ms MacDonald and Mr Henley or the Henley Group, were secured by registered mortgages. There were two registered mortgages. [3]

   1. Court Book (CB) 1, pp. 117-118, Affidavit of Kate MacDonald dated 6 September 2018 at [13]; Defendant/Cross-Claimant’s Statement of Facts at [7].

   2. CB1, p. 118, Affidavit of Kate MacDonald dated 6 September 2018.

   3. Ex B, pp. 1-2; CB2, pp. 86-95, 126-135.

3. By the time of the loans between the plaintiff and Ms MacDonald, the Henley Group was in serious financial trouble and losing money hand over fist. Whilst some of the gyms were more profitable, or less unprofitable, than others, as a group the company was accumulating debt rapidly. The debt was particularly in the form of rent on its various premises, equipment hire and a variety of other expenses including staff.

4. Mr Moini was – and, as he volunteered in evidence, is - a highly successful businessman and he came into contact with Mr Henley in the course of their doing business together. Mr Moini had engaged one of the corporate entities controlled by Mr Henley to fit out a number of Cloud 9 Chocolate Cafés. [4]

   4. CB1, p. 135; Transcript (“T.”), 119.

5. Mr Moini also became involved, along with other associates, in the attempt to resurrect the Snap Fitness business and franchises. Unlike Ms MacDonald, Mr Moini did not leave himself particularly exposed.

6. Over the coming months an attempt was made by Mr Moini, Ms MacDonald and others to take over the Snap Fitness franchises. It was obviously their individual and mutual hope that by saving the franchises they would recover their investments, and ultimately turn a profit and make a great deal of money.

7. The money Ms MacDonald borrowed from Yakiti has never been repaid. As a result, in June 2017, Yakiti commenced proceedings against Ms MacDonald. [5] It sought possession of the two parcels of land subject of the mortgages and leave to issue writs of possession. It also sought repayment of the sums borrowed on the two loan agreements ($353,300 in July 2016 and $103,300 in August 2016) [6] together with interest.

   5. CB1, p. 1.

   6. CB1, p. 5.

8. Ms MacDonald accepts that she has not repaid the money and ordinarily could not resist judgment in favour of the plaintiff. However, by her defence and cross-claim she asserts that in the period after the money was advanced by Yakiti, Ms MacDonald, Mr Moini, Kon Prin (“the third cross-defendant”) and Mr Henley came to a legally binding agreement by which they were to take over the Snap Fitness gyms and the debt she owed Yakiti was subsumed within that agreement. She asserts that Mr Moini and the others breached that contract and deliberately cut her out of the deal. In addition to the alleged breach of contract she asserts that the cross-defendants acted unconscionably, relying on the provisions of the Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”) and the unwritten (common) law. The basis of the claim of unconscionable conduct is that the cross-defendants cut Ms MacDonald out of the deal, and acted to enforce the mortgages against her, at the time when she was hospitalised and particularly vulnerable and thereby at a special disadvantage.

9. Yakiti, Mr Moini and Mr Prin deny the existence of any such agreement and the asserted breach of contract. They also deny the allegation that they acted unconscionably in the course of the provision of a financial service (or, otherwise). They say that, while there were discussions and correspondence in an attempt to reach agreement between Mr Moini, Ms MacDonald and Mr Prin, the negotiations did not reach the stage where legally binding contractual relations were formed. In short, they say the final details of that agreement were never reached and no binding contract was formed. In so far as any “in principle” agreement was reached, it involved Ms MacDonald advancing a further sum of around $330,000, something that she never did in spite of her promises to do so. They say it was necessary to act quickly as the companies and the gyms were rapidly getting to the point where they would be beyond saving. Accordingly, they submit that the cross-claim brought by Ms MacDonald should be dismissed and seek judgment in their favour for the amount of the loans plus interest and an order for possession of the land subject of the mortgages.

10. The plaintiff and cross-defendants position is correct and they are entitled to judgment on the statement of claim and cross-claim. There will be judgment in the sum of the loan together with interest in the plaintiff’s favour and an order for possession of the land subject of the mortgages.

The pleadings

11. The pleadings are in something of a mess. There have been multiple amendments to the defence and cross-claim.

Proposed fourth amended cross-claim

12. Prior to the hearing, the most recent amendment to the pleadings was made on 14 December 2018. On that date, by notice of motion handed up in Court, Ms MacDonald sought leave to file a “fourth further amended cross-claim”. [7] The application was dealt with by Davies J who summarised the history of the cross-claim at [25]:

“It is necessary to say something briefly about the history of the cross-claim. It was first filed on 7 July 2017. An amended cross-claim was filed on 9 March 2018 shortly after the cross-claimant’s present counsel was briefed in the matter. The cross-claim was thereafter amended on 18 May 2018, 20 June 2018 and 3 October 2018.”

7. Yakiti Pty Ltd v MacDonald (No. 2) [2018] NSWSC 1970 at [1].

13. Davies J set out the proposed amendments to the fourth amended cross-claim at [14]-[16]:

“14. The cross-claimant first seeks to insert a further claim for relief as follows:

2B. Further or in the alternative, an order that the first cross-defendant, the second cross-defendant and the third cross-defendant compensate the cross-claimant for her loss and damage pursuant to s 236 of the Australian Consumer Law.

15. The cross-claimant then seeks leave to make the following amendments:

(a) Paragraph 10 particular (i) – the proposed amendment is as follows (amendments underlined):

Loss of a chance to have a 33% share in New Company which had net assets valued at approximately $4.65 million in November 2016.

(b) She seeks to insert the following new paragraph:

44A. From about 15 December 2016, while the cross claimant was under the Disability, the cross defendants took all necessary steps to seize the assets of the Henley Group of Companied, being the 9 Snap Fitness Gyms and to have the assets including but not limited to, the leases and the franchise agreements for each Snap Fitness Gym, vested in the New Company.

(c) She then seeks to amend paragraph 45(c)(iii) as follows:

(iii)the first cross-defendants acquired the assets of Jake Henley and the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the first and second cross defendants had already made to Jake Henley and the Henley Group of Companies; and/or

(d) The substantive amendments then sought to be made are to add the following two sub-paragraphs to paragraph 45(c):

(iv) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross defendant has already received satisfaction of the loans, that it has made to the cross claimant: and/or

(v) the actions of the cross defendants deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies.

16. Coupled with those amendments to paragraph 45(c) are the following amendments:

45AA. Further or in alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was:

(a) in trade and commerce:

(b) in connection with the acquisition of goods from the Henley Group of Companies being the 9 Snap Fitness Gyms; and

(c) unconscionable within the meaning of s 21 of the Australian Consumer Law in circumstances where:

(i) the cross defendants had on 5 November 2016 represented to the cross-claimant that she did not need to comply with the term pleaded in paragraph 4(g) above until after she was discharged from hospital; and/or

(ii) the purpose of the mortgages provided by the cross-claimant to the first cross-defendant was to secure the loans that the first cross-defendant had made to Jake Henley and the Henley Group of Companies; and/or

(iii) the cross-defendants acquired the assets of Jake Henley and the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the cross defendants had already made to Jake Henley and the Henley Group of Companies; and/or

(iv) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross defendant has already received satisfaction of the loans that it has made to the cross-claimant; and/or

(v) the actions of the cross defendants referred to in paragraph 44A above deprived the cross-claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies.

45A. Further or in the alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the first cross defendant in enforcing the July Agreement and the August Agreement and the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was:

(a) in trade and commerce;

(b) in connection with the supply of financial services within the meaning of s 12BAA(7)(k) of the Australian Securities and Investment Commission Act 2001 and Regulation 2B(1)(a) and (f) of the Australian Securities and Investment Commission Regulations 2001, to the cross claimant; and

(c) unconscionable within the meaning of the unwritten law from time to time and within the meaning of s 12CA of the Australian Securities and Investment Commission Act 2001 as:

(i) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross-defendant has already received satisfaction of the loans that it has made to the cross claimant; and/or

(ii) the actions of the cross defendants referred to in paragraph 44A above deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies.

45B. Further or in the alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44A above and in particular, the conduct of the cross defendants in failing to award the cross claimant a 33% shareholding in the New Company was:

(a) in trade and commerce;

(b) in connection with the acquisition, of goods, being the 9 Snap Fitness Gyms, from the Henley Group of Companies; and

(c) unconscionable, within the meaning of the unwritten law from time to time and within the meaning s 20 of the Australian Consumer Law as the actions of the cross defendants referred to in subparagraph (b) above deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies.”

14. Davies J noted at [17] that “no objection was taken to the proposed amendments referred to in (a) and (c) above” (italicised in [13] above). His Honour refused leave to make most of these amendments, describing Ms MacDonald (at [34]) as being “almost completely unsuccessful in seeking to amend”. The following orders were made:

“(1) Leave to the cross-claimant to amend paragraphs 10 and 45(c)(iii) of the third further amended cross-claim in the manner set out in paragraph [15] of this judgment. The amendments are to be made in writing on the third further amended cross-claim.

(2) The cross-claimant is permitted to rely on the evidence in the affidavit of Jake Robert Henley sworn 5 December 2018 excluding paragraphs 11 to 19, and to rely on the evidence in the affidavit of Kate Marie MacDonald sworn 5 December 2018 excluding paragraphs 29 to 32.”

15. His Honour made the following observations as to the cross-claimant’s conduct of the litigation to that point at [31]-[34]:

“31. Counsel for the cross-claimant submitted that the dictates of justice required that the cross-claimant be allowed to amend in this way so that the real issues between the parties could all be determined. Section 58 of the Civil Procedure Act 2005 (NSW) deals with the dictates of justice. Considerations in s 58(2) include, in general terms, the way a party has conducted the proceedings. The dilatory way that the cross-claimant has conducted these proceedings is partly considered in an earlier judgment of mine: Yakiti Pty Ltd v MacDonald [2018] NSWSC 1392. Despite that dilatoriness, the cross-claimant was granted some induIgence by being allowed to rely on evidence served outside time limitations, some of which she volunteered.

32. Her approach to the litigation, where she is effectively the moving party, is also apparent from her failure to serve the third further amended cross-claim until 3 October 2018 when it was directed to be served by 10 September 2018, by her failure to comply with the direction to serve her evidence in reply by a stipulated date, by the fact that she is seeking now to rely on evidence in chief in her reply evidence, and by the fact that no attempt has been made to amend the cross-claim in the way she now seeks despite there being five earlier iterations of that cross-claim.

33. The only amendments which should be permitted are those to paragraph 10 particular (i) and to 45(c)(iii) but not including the words ‘and/or’ at the end of that sub-paragraph.

34. The cross-claimant has been almost completely unsuccessful in seeking to amend. Further, she was seeking an indulgence in relation to being allowed to rely on her evidence in reply because of her failure to comply with an earlier direction. In those circumstances, the cross-claimant should pay the cross-defendants’ costs of the application to amend the cross-claim, and to rely on the evidence contained in the cross-claimant’s affidavit and Mr Henley’s affidavit both sworn 5 December 2018.”

A further proposed amendment

16. After the evidence and cross-examination had concluded, and part way through the hearing of submissions, Ms MacDonald made yet another application to amend the cross-claim. The evidence concluded on 18 February 2019 and counsel for the cross-claimant made their submissions on 19 February 2019. The matter was adjourned until 9 April 2019. This was partway through the cross-defendants’ submissions. It was then that Ms MacDonald sought to make further amendments to the cross-claim.

17. On 5 April 2019 counsel for the cross-claimant sent an email to my Associate enclosing a “notice of motion filed on 28 March 2019”. If that document was filed in the Registry, it did not find its way onto the file. Further, I was told by counsel that the wrong version of the proposed “FOURTH FURTHER AMENDED FIRST CROSS-CLAIM STATEMENT OF CROSS CLAIM” was filed with the notice of motion, but the correct version was included with the email. [8]

    8. T.368-369, MFI 15.

18. The further amendment was opposed and submissions on the issue were heard on the final day of the hearing. The amendment sought to include the words “regardless of whether the October Agreement had been formed” in two places in the pleadings, as follows:

“45.   The conduct of the cross defendants pleaded in paragraphs 35 to 44 above and in particular, the conduct of the first cross defendant in enforcing the July Agreement and the August Agreement and the cross defendants in failing to award the cross claimant a 33% shareholding, and regardless of whether the October Agreement had been formed, in the New Company was:

(a) in trade and commerce;

(b) in connection with the supply of financial services within the meaning of s 12BAA(7)(k) of the Australian Securities and Investment Commission Act 2001 and Regulation 2B(1)(a) and (f) of the Australian Securities and Investment Commission Regulations 2001, to the cross claimant; and

(c) unconscionable within the meaning of s 12CB of the Australian Securities and Investment Commission Act 2001 in circumstances where:

(i) the cross defendants had on 5 November 2016 represented to the cross-claimant that she did not need to comply with the term pleaded in paragraph 4(g) above until after she was discharged from hospital; and/or

(ii) the purpose of the mortgages provided by the cross-claimant to the first cross defendant was to secure the loans that the first cross-defendant had made to Jake Henley and the Henley Group of Companies; and/or

(iii) the cross-defendants acquired the assets of the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the cross defendants had already made to Jake Henley and the Henley Group of Companies.

45A. In the alternative, the conduct of the cross defendants pleaded in paragraphs 35 to 44 above and in particular, the conduct of the first cross defendant in enforcing the July Agreement and the August Agreement and the cross defendants in failing to award the cross claimant a 33% shareholding, and regardless of whether the October Agreement had been formed, in the New Company was:

(a) in trade and commerce;

(b) in connection with the supply of financial services within the meaning of s 12BAA(7)(k) of the Australian Securities and Investment Commission Act 2001 and Regulation 2B(1)(a) and (f) of the Australian Securities and Investment Commission Regulations 2001, to the cross claimant; and

(a) unconscionable within the meaning of s 12CA of the Australian Securities and Investment Commission Act 2001.”

19. The amendment would allow the argument that, regardless of whether a legally binding contract was formed between the parties, the cross-defendants acted unconscionably in not including Ms MacDonald in the takeover and by enforcing the mortgages. It was submitted: [9]

“We say that whether or not the October agreement was formed, in the circumstances of this particular case, the cross-defendants’ actions in not proceeding or cutting my client out of this October agreement was unconscionable in the circumstances.”

9. T.370.

20. It was also submitted that the amendment to the pleading did little more than bring the pleadings in line with the way the case was conducted. [10] This was disputed. [11] Counsel for the cross-defendants provided a number of examples of the way in which he might have conducted the case differently had the cross-claim plainly stated the unconscionability claim was not predicated on the existence of a binding agreement in October or November.

    10. T.370-371.

    11. T.372.

21. I am not convinced that the proposed amendment to the pleading is critical to the viability and success of the unconscionability claim. In other words, in spite of the earnest and spirited debate about whether the amendment should be allowed, I do not think the amendment would affect the outcome of the case. That is because the cross-claim, as it stood after the decision of Davies J, in December 2018 was not predicated in terms on the existence of a binding and final agreement. The October 2016 agreement is referred to on several occasions, and the cross-claimant’s case on unconscionability relies on the negotiations in late October and early November 2016 and on representations made by the cross-defendants which were said to “affirm the October 2016 agreement”. But, in my view, the unconscionability claim would not fail merely on the basis that the Court found there was no final and legally binding contract. If the parties were close to agreement, and the cross-defendants cut Ms MacDonald out of the deal and enforced the mortgages against her while she was in hospital – and if such conduct was unconscionable in the circumstances – Ms MacDonald would be entitled to succeed in her claim under the ASIC Act based on the pleadings as they stand.

22. On one view, that means that the amendment to the cross-claim merely brings the pleadings in line with the case as it was argued and that there is no real prejudice to the cross-defendants. However, the dilatory conduct of this litigation and the delay in raising this proposed amendment is so extreme, coming as it does part way through the closing submissions and after four days of evidence, that I would refuse leave to rely on the amendment. As I say, this refusal would not impact the outcome of the case as I have analysed the evidence. However, another Court may take a different view and it would be unfair, in light of the history of this case, to prevent the cross-defendants from conducting their case in the way that counsel indicated he would have had he been aware of the proposed amendment.

23. The application for leave to amend is refused.

The Factual Background

24. On 26 October 2016, Ms MacDonald, Mr Henley and Mr Moini met at the Ovolo Hotel in Woolloomooloo to discuss the Henley Group. In an effort to save the gym businesses and to preserve the monies they had invested, it was proposed that the contributions made by the various parties to the Henley Group would be reconciled and converted to equity. [12]

    12. Ex D, Affidavit of Jake Henley at p.8 [42]; CB1, pp.123-124 [32]; CB1, pp. 144-145 [52]; T.155 [44]-156[4]; T. 156 [31]-[33]; T. 157[6]-[39],190.

25. Following the meeting, Mr Moini sent an email to his solicitor and Ms MacDonald which indicated that the parties had engaged in preliminary discussions about the proposed take-over and subsequent sale of the nine Snap Fitness gyms:

“Lambrini… I had a meeting with Kate and Jake and the aim is to have Kon and I reduce our shareholdings at Zetland, Bondi and DB and to hold a smaller share across all gyms. I am working with Kate and Jake in the background and will update you as I have more information at hand.

Kate… Let’s undertake all financial work / transactions ASAP so we can then proceed towards selling the gyms one at a time or in one line. Let’s aim to chat daily.” [13]

13. CB2, pp. 166; T.154.

26. Ms MacDonald says that she met with Mr Moini, Mr Henley and Mr Prin on 31 October 2016 to continue discussing the proposed takeover of the gyms. Mr Prin and Mr Moini disputed Mr Prin’s attendance at this meeting. [14] Whether he was or was not in attendance is not a matter of great moment in reaching the conclusions that I have. Initially, counsel for Ms MacDonald maintained that her client’s version should be accepted but she later submitted “Mr Prin wasn’t at the meeting.” [15] Further, she implicitly conceded in closing submissions that Mr Prin may not have been at the meeting by submitting “after that meeting, Mr Moini reported to Mr Prin what had happened”. [16]

    14. T.166, 295; Plaintiff and Cross-Defendants Closing Submissions p. 7.

    15. T.313-314.

    16. T.316 [37].

27. Ms MacDonald’s case is that, while the agreement may not have “crystallised exactly” on 31 October 2016, [17] on or around that date she entered into a legally binding agreement with Mr Moini, Mr Henley and Mr Prin relating to the acquisition of the Henley Group’s gyms and related assets. This was referred to throughout the proceedings as the “October Agreement”. The terms of the October Agreement were said to be contained in an email sent by Ms MacDonald at 4:20pm on 31 October 2016 and, in most respects, form the basis of the pleadings. At 4:35pm, Mr Moini forwarded Ms Macdonald’s email to the other parties with his own underlined observations:

    17. T.316 [36].

“Hi Babak

My understanding of what we agreed today is as follows:

I need to put in a further $330K and Kon and yourself need to put in a further $220K and in those circumstances our contributions will then be balanced. This is roughly correct, and we need to balance it to the nearest dollar. I can have Kon go through the accounts with you to balance exactly. For the time being, let’s assume this is correct.

With our contributions balanced on any gym sale that distribution of the sale price should be Kon/Babak $1.00/KM$1.00 to ensure that we are repaid at the same time in equal proportions Correct, we get paid first before Jake gets paid. Kon and you should sit across this.

You may loan me the $120K to pay Surry Hills rent (secured against the mortgage you already have) so this rent can be paid today/ASAP and I will reimburse you once my funds clear later in the week Correct. Please confirm that I can pay the $120K to the landlord at SH directly and you will sign any paperwork this week (if required) to effect this loan/security. This may not be necessary given you anticipate your funds to come in this week.

I will start the process of obtaining my funds tomorrow so they should be cleared by the end of the week. Noted.

The most critical payments are Potts point rent ($23K), Double Bay rent ($30K), Surry Hills rent ($121K), Paddington rent ($18K), Bondi rent ($32K) and Bondi Equipment ($24K). Noted.

Please advise if you require any corrections.” [18]

18. CB2, p. 182.

28. In accordance with the first paragraph of the email, Ms MacDonald’s understanding was that she was to contribute a further $330,000 and the other partners were to contribute a further $220,000. [19] However, at 4:36pm, Mr Moini emailed his solicitor in the following terms:

“Lambrini … Please advise the total loans (including interest) I have outstanding as of today to each of Jake and Kate.” [20]

19. See also CB2, p. 182.

20. CB2, p. 179.

29. At 4:39pm, Ms MacDonald advised that she would “tally up my contributions to the nearest dollar so we know how much precisely is required to balance with yourself and Kon”. [21]

    21. CB2, p. 184.

30. Ms MacDonald said that around this time her “health was deteriorating” and she “started to come up with ways to protect my loans and restructure my investment”. [22] She acknowledged that the operation of the Henley Group (certainly the Snap Fitness franchises) was on a “knife edge” because, in all likelihood, landlords were hours or days away from locking out the Henley companies from some sites. [23]

    22. CB1, p. 123, Affidavit of Kate Marie MacDonald dated 6 September 2018 at [31].

    23. T.23.

31. On 1 November 2016 Ms MacDonald provided details of her contributions to Mr Prin and Mr Moini, which amounted to $944,380. [24] Mr Prin was delegated the responsibility of reconciling each party’s contributions to the Henley Group and running Mr Moini through the final calculations once they had been completed. [25] Ms MacDonald said that she met Mr Prin on the same day and they were “undertaking the reconciliation”. [26]

    24. CB1, p. 118; Affidavit of Kate Marie MacDonald dated 6 September 2018 at [8]; T. 21; CB2, p. 190.

    25. CB2, pp. 190-191.

    26. CB1, pp. 149-150.

32. On 3 November 2016 at 11:16am Mr Henley sent an email to Mr Moini and Ms MacDonald, with Mr Prin copied in, which referred to the further funds required of Ms MacDonald, and provided an update as to the status of the nine Snap Fitness gyms:

“Hi All

I hope you are having a good start to the day?

We are making some really good progress, with the court matters and now protecting our position with Surry Hills. However we had a very short window to resolve a number of other matters that I want to bring them to a close this week as well if we can.

Kate, can you provide us with an update on where you are at with obtaining funds and when they will be accessible?

Other priorities as I see it this week

- HWL ebsworth conditioning SNAP and prepping for mediation on the 14th & 15th

- HWL putting Ezi-debit on notice for Surry Hills ezi-debit

- Getting Zetland Ezi-debit & Fitware activated

- Paying urgent rents

- Paying equipment suppliers

If you guys have any other priorities, please add this in the email.

I need to express the urgency here on informing me on what is going on as I am trying to keep in front of all the issues so we can close the sale with SNAP.

Thanks in advance” [27]

27. CB2, pp. 207-208.

33. At 11:19am, Mr Moini replied (to all) by email and identified various “urgent” matters to be attended to, finalised and agreed upon by the parties:

“All S urgent matters:

1. Kon reconciling amounts we have all put in

2. Agreeing on split of shares across all gyms (we had previously talked about 33% to each party), but to be finalised)

3. Kate advising of monies received from her aunty

Happy to meet as soon as we have advice on items 1 and 3.” [28]

28. CB2, p. 206.

34. Later that afternoon, at 3:01pm, Mr Prin circulated a reconciliation spreadsheet (“reconciliation 1”). [29] Reconciliation 1 treated the loans from Yakiti to Ms MacDonald as contributions by both her and Mr Moini to the Henley Group. Those contributions, the source of which were the loans from Yakiti secured by registered mortgages over Ms MacDonald’s Woolloomooloo properties were included in both ledgers. Mr Prin gave evidence that reconciliation 1:

“was a mud map of us – of me, I was – I was the person that put it together and it had – I wasn’t involved – I wasn’t at the meeting on 31 October and this is me trying to basically listen to everyone else’s instruction including Kate’s and Babak’s to try and come up with a working document. This is one of many iterations, as you can see. The previous document that I had, you know, it didn’t have the amount for Zetland. This is a work in progress. This was a work in progress proposal.” [30]

29. CB2, pp. 192-195; T.200; T.205 [46] – T.206[17].

30. T.295.

35. Ms MacDonald gave evidence that she met with Mr Prin that day to discuss the reconciliations. She said Mr Prin told her that the loans from Yakiti were to be treated as her contributions to the Henley Group. [31] At around 3:34pm, Ms MacDonald circulated an updated reconciliation spreadsheet (“reconciliation 2”) which removed reference to these contributions from Mr Moini’s ledger. [32] Ms MacDonald did not raise any concerns with the other parties regarding the suggestion that she was required to provide further funds. Further, the placement of these contributions in Ms MacDonald’s column of the reconciliation suggests that the loan arrangement between her and Yakiti remained extant.

    31. Outline of submissions of Kate MacDonald dated 18 February 2019 at p.3 [19]

    32. CB2, pp. 249-254; T.208 [4] – 209[30].

36. At 3:51pm, Mr Henley sent an email to the parties requesting $148,296.32 to pay “urgent” outstanding invoices. [33] At 3:52pm, Mr Moini asked Ms MacDonald if she could “pay these once your money is cleared tomorrow” and asked Mr Prin to update the reconciliation schedule. [34] At 3:59pm Ms MacDonald advised that it was more likely that “my monies” would “clear Monday or over the weekend” and that she would “keep checking for cleared funds”. [35] Ms MacDonald gave evidence that the monies were in a bank account controlled by her aunt and that she had asked her aunt to obtain “special clearance” for the $300,000. [36]

    33. CB2, p. 205.

    34. CB2, p. 204.

    35. CB2, pp. 203-204.

    36. T.25-26, 28.

37. At 4:04pm, Mr Prin circulated a third reconciliation (“reconciliation 3”) which included Mr Moini’s contribution of funds towards the rent of the Snap Fitness gym at Surry Hills. [37] The updated contributions were recorded as follows: “Kate: $944,380 (42.27%), Babak: $619,616 (27.74%) and Kon: $670,000 (29.99%)”. [38] Included in “Kate’s” contribution was the money borrowed from Yakiti and secured by mortgage.

    37. CB2, p. 258-259.

    38. CB2, p. 259.

38. At 4:13pm, Mr Henley asked Ms MacDonald, Mr Moini and Mr Prin to make arrangements for the funds to be made available as a matter of urgency. Mr Moini replied at 4:16pm and recommended that Mr Henley “wait to see if Kate’s money has cleared by tomorrow am”. [39] Mr Moini further advised that “as it stands, Kon and I have deposited $345k more than Kate.” [40] Ms MacDonald replied to the email chain and stated that it is likely she will have $300,000 clearing “hopefully tomorrow more likely Monday”. [41] Again, Ms MacDonald did not dispute the suggestion that she needed to contribute further funds. She gave evidence that she was “very ill” and “wasn’t drafting very long emails at that point in time. It was the day before I went to hospital and didn’t come out for six weeks”. [42]

    39. CB2, p. 203.

    40. CB2, p. 203.

    41. CB2, p. 202.

    42. T.26.

39. The next day, 4 November 2016, Ms MacDonald was admitted to hospital. [43] Notwithstanding her hospitalisation, Ms MacDonald notified the parties that she had “no cleared funds as of yet”. [44]

    43. CB1, p. 126.

    44. CB2, p. 200.

40. On 5 November 2016, Mr Moini sent an email to Ms MacDonald, Mr Henley and Mr Prin:

“Kate terrible to hear, but I know you are strong and will get through this. In Kon and me, you have two new friends so reach out whenever you like.

On a positive financial note, I believe we are sitting in the best position we ever have and we have a high likelihood of not just recovering [our] capital but an amount over and beyond. I will also be assisting Jake with getting his equity out without leaving it exposed to creditors.

Call me if you should need anything.

Mwah! X” [45]

45. CB2, p. 199; T.214 [24]-[36]

41. At 1:03pm, Mr Prin replied to the email chain in the following terms:

“Hope you make a speedy recovery Kate…all the best.

And thanks Babak amazing business strategist!” [46]

46. CB2, p. 199.

42. During cross examination, Mr Prin agreed that there was no suggestion from him to Ms MacDonald in the above email “that she need concern herself with anything beyond getting well speedily”. [47]

    47. T.298.

42. On 8 November 2016, Mr Moini sent an email to his solicitor advising that the additional payment of $121,000 which was advanced for the Surry Hills rent “may” be converted to equity. Shortly after this, at 2:47pm, Mr Moini sent Ms MacDonald a text message advising that the significant contributions made by the parties to the Henley Group were at risk of being dissipated:

“Kate … Can you talk? I’m worried that the clubs will be closed very soon and we’ll lose our entire investment.

It’s urgent we have a chat.” [48]

48. CB2, pp.165; T. 29; Ex C, p. 5293 [27602-27603].

44. The text message from Mr Moini to Ms MacDonald at 2:47pm was the last record of correspondence or communication between the pair until 23 December 2016 after Ms MacDonald was discharged from hospital. [49]

    49. T.30.

45. Ms Macdonald gave evidence that she did not communicate with Mr Moini on 8 November 2016 because she “had an infliximab infusion, which is similar to chemotherapy; and was not in a position to be responding to text messages or calls”. [50]

    50. T.30.

46. However, telecommunication records indicate that Ms MacDonald and Mr Henley remained in regular contact. [51] Between 8 and 10 November 2016, there were around 10 calls between Ms MacDonald and Mr Henley ranging from 1 minute to almost 20 minutes in duration. An example is at 3:38pm on 8 November 2016 when the pair participated in a 12 minute ‘phone call. [52] Ms MacDonald, in cross examination, gave the following evidence regarding the content of that telephone call:

“I can’t recall exactly what we spoke about, no. I was very sick at the time…

When I spoke to Mr Henley while I was sick, I would give him an update as to what was happening. So, I probably would have been explaining to him that I was having the infusion. I remember [it] was starting in the afternoon and I had specialist appointments in the morning, so that would have taken up some of the call. Most of the time, Jake would say things back to me like, ‘Just focus on your health,’ whenever I would ask about the companies, so I can’t say with any certainty if we discuss the text message or back (sic); I could not give you any certain answer.” [53]

51. Ex C, pp. 5293-5392, MFI 13, T. 32-40.

52. Ex C, p. 5293 [27619], MFI 13.

53. T.35-36.

47. At around 8:00pm, Ms MacDonald and Mr Henley spoke on the ‘phone for a further 20 minutes. Ms Macdonald gave evidence that she did not discuss the proposed takeover and that on 8 November 2016 she:

“was concerned that my colon was going to be removed if the infliximab treatment that they were doing that day wasn’t going to work, which ultimately happened. So that day, the only thing I was thinking about was the treatment that I was having that was either going to save my colon or cause me to have a colostomy bag. That’s what I thought about that day, sorry.” [54]

54. T.38.

48. The evidence of Mr Henley and Ms MacDonald of the content and extent of this communication is discussed in more detail below at [138]-[143].

49. On 11 November 2016 Mr Moini sent an email to Mr Henley as follows:

“Jake … On Saturday could you please send anticipated payments for the next two to four weeks, net of expected income from all sources e.g Zetland, Surry Hills and CBD catchup and client income across all sites. Please be very careful on this, as I’d hate for you to be missing a big payment. You’re better off being conservative.

Please also advise whether the franchisee is likely to have any issues if your shares are transferred to Kon/me.

Kon … Apologies I had to rush, but I had to meet two friends and the discussions were quite circular. The options I see are:

You buy Zetland in lieu of the $660k you have paid and arrange transfer of equipment lease, property lease and franchise agreement to your entity. That is 100% safe and you don’t have Jie/Tri etc to worry about. According to Jake, you then need to pay the bond for the rental deposit, but this is something I’ll leave with Jake and you to discuss/negotiate. If you want this option, the amount you transferred today will be repaid to you.

You stay in for the 2/3rds with me and we match each other dollar for dollar in our investment. I don’t want to be putting more money into this than you. Jake then transfers all shares to us early next week.

We both walk away from our investment and this will likely make the whole thing collapse.

I don’t have any additional financial information than you have access to. My aim is to start cutting every additional expense from next week with the aim of being cashflow positive in a matter of weeks. My focus is not on accounts, but money in / money out.

At the moment there is zero to be gained by having Shane/Terry look at the accounts, as they’ve been used as a cash cow for the other businesses and out of control costs.

Could you please advise by 2pm, Sunday which of these options you prefer. If it is option 2, could you please update the spreadsheet. Once you advise, let’s stick to that option and not go back/forth.” [55]

55. CB2, p. 225-226.

50. Two days later, on 13 November 2016, Mr Moini sent an email to Mr Henley in the following terms:

“Jake just confirming that you will manage the Kate situation with respect of no shares being assigned to her?

My preference is that I not have to deal with Kate directly, as our agreement is with you.” [56]

56. CB2, p. 228.

51. On 14 November 2016, Mr Moini sent the following email to Mr Henley:

“Jake … As cruel as this may read, I believe we need to cease Kate’s salary.

Let’s add this to our discussion when we next chat.” [57]

57. CB2, p. 229.

52. On or about 15 November 2016, a new company was created, All About Fitness Gym and Health Clubs Pty Ltd (“All About Fitness”), the shareholders of which were Yakiti and a company directed by Mr Prin. [58]

    58. Fourth Further Amended Cross-Claim at [5]; CB1, pp. 90, 100; First Defendant’s Further Amended Defence to Cross-Claim at [5]; Third Cross-Defendant’s Defence to Further Amended Statement of Cross-Claim at [7] - The Fourth Further Amended Cross-Claim referred to in this judgment incorporated the amendments to the Third Further Amended Cross-Claim in accordance with the orders of Davies J in Yakiti Pty Ltd v MacDonald (No. 2) [2018] NSWSC 1970.

53. Ms MacDonald remained in hospital until around 13 December 2016 and gave evidence that, once cleared, the $300,000 remained in a family account. [59] At no point did Ms MacDonald notify the others that the funds had cleared. Rather, she said that:

“I am certain, although I have a vague memory at some points while I was in hospital, I am certain that the entire time when I was in hospital, Jake, Babak, or [Kon] never mentioned the money which I was relieved about because I wasn’t certain that that was the correct amount of money I was supposed to be putting in. I needed time to work out why I was putting in more when I had already put in more money than everybody else, and I didn’t get that opportunity because I went to hospital. So I was grateful that nobody asked me about the money while I was in hospital. I thought they were doing the right thing because they were my friends.” [60]

59. T.26-27.

60. T.36.

54. Mr Moini, Mr Henley and Mr Prin remained in contact and discussed alternative options to save the Snap Fitness gyms. Ms Macdonald was not involved in these negotiations and the proposals did not include her. Those alternative options, which included Mr Henley, never eventuated and on 19 December 2016 Mr Moini emailed him in the following terms:

“Jake,

As I have no faith in your intention or ability to transfer leases to our entity, this is what will occur tomorrow:

•   Snap will be requested to withhold Ezi-Debit deposits and I will provide them with an undertaking to stand in their shoes in case you peruse legal action.

•   Snap will be requested to transfer all franchise agreements and I will provide them with an undertaking to stand in their shoes in case you peruse legal action.

•   I will advise Sean or any other legal firm that you appoint that you are unable to pay legal fees and that they should only undertake work if they have monies held in trust.

•   I will seek to buy a debt against Gym & Tonic and appoint a liquidator.

As an aside, I now have agreement from three landlords to transfer leases to Kon’s/my entity as soon as you are in default. CBD will also be in my corner if TVH falls into default. I shall then contact Jie to offer him 12 months’ rent in advance on his Waterloo property or an outright offer to purchase.

Kon and I are meeting a couple of interested parties at 1pm tomorrow at the café at the EY building (200 George St). It is in your interest to attend so that I may cut you in on a deal. If you are not there, any deals we have discussed before are off the table.” [61]

61. CB3, pp. 501-502.

55. At 10:55pm, Mr Henley replied to the email:

“Babak

I am extremely disappointed to receive your threatening email this afternoon. The tone and conduct of your email is not conducive to our working relationship. Please be clear that I will not be strong-armed by you or anyone when it comes to my businesses.

Firstly, Snap are unable to withhold our Ezidebit income at your request. Snap will not transfer the Franchise Agreements to you. They simply will not agree to your demands with out my consent or my signature.

You have no right to contact Sean or any other lawyers I may choose to retain regarding my accounts with their firm. If you attempt to buy a debt of Gym and Tonic and appoint a liquidator those proceedings will be defended.

You have no authority to sell my businesses without my consent. I will however attend the meeting as a sale of the gyms/cafes is still my intention and what we have been working towards. I however suggest you reconsider your approach to asking me to attend a meeting in the future as I will not respond to baseless threats or intimidation. I wish to sell these businesses and have all monies returned as we have discussed on numerous occasions.

Thanks” [62]

62. CB3, p. 500.

56. On 20 December 2016, Mr Moini, Mr Prin and Mr Henley met. Allegations were raised against Mr Henley regarding his conduct and dealings with the Henley Group of Companies. Mr Henley refused to sign a number of documents that were handed to him at the meeting. [63] Shortly after, Mr Henley and Ms MacDonald attended Surry Hills Police Station to make a police report. [64] There is no evidence that the police took any action and it is not a matter of relevance other than to show that Mr Henley was aggrieved.

    63. Ex D, Affidavit of Jake Henley filed 22 December 2016 at [47]-[50].

    64. CB3, pp. 585-586.

57. On 20 December 2016, Mr Henley lost control of the Henley Group of companies and access to his business bank accounts. [65] He made an urgent application to regain access to those bank accounts. [66] By 2 February 2017, the nine Snap Fitness franchise agreements issued to the Henley Group were terminated. New agreements were issued to All About Fitness. [67]

    65. T.248-249; CB3, pp. 529, 762; Ex D, Affidavit of Jake Henley filed 22 December 2016 at pp.13[63]-14[64]-[66].

    66. T.252; CB3, pp. 540-547, 584.

    67. T.258; CB3, p. 712, 758; Plaintiff and Cross-Defendants Closing Submissions at p. 20[88].

The claim for breach of contract

58. The plaintiff and cross-defendants contend that the October Agreement, as pleaded by Ms MacDonald, “was never concluded between the parties and never constituted a binding and enforceable contract”. [68] Ms Macdonald submitted that if the contract was not concluded on 31 October 2016, it was certainly concluded by 3 November 2016 when the third reconciliation was circulated. [69]

Legal principles

68. Plaintiff and Cross-Defendants Written Submissions dated 1 February 2019 at p.5 [11].

69. CB2, pp. 258-259.

Objective determination of whether a contract exists

59. The question of whether the parties intended to be contractually bound is determined objectively. The relevant principles and authorities were summarised by Campbell J in Winter v Nemeth [2018] NSWSC 644 at [56]-[60]:

“…It is settled by the Common Law in Australia that the objective theory of contract is “in command of the field”: Taylor v Johnson(1983) 151 CLR 422 at 429. As explained in Toll (FGCT) Pty Ltd vAlphapharmPty Ltd(2004) 219 CLR 165; [2004] HCA 52 (‘Toll’) at [40]:

‘This Court … has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.’

It is trite that not every promise, however sincerely made, is legally enforceable. In Ermogenousv Greek Orthodox Community(2002) 209 CLR 95; [2002] HCA 8 at [24] - [26], a plurality of four justices of the High Court said:

‘To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet ‘[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts’.

Because the inquiry about this last aspect may take account of the subject-matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the ‘intention to create contractual relations’ requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules.’ [Footnotes omitted.]

As was made expressly clear in a later passage, when deciding whether an arrangement was made with an intention to create legal relations, the same objective approach applies. In particular, intention is:

‘[U]sed in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements or actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties’. [Footnotes omitted.]

Ashton v Pratt(2014) 88 NSWLR 281; [2015] NSWCA 12 establishes that when considering the question of the intention of the parties to create legal relations, recourse should not be had to any presumptions arising out of the nature of the social relationship between the parties: (at 295 [73]), Bathurst CJ. However, the nature of the social relationship between the parties remains part of the relevant, objective, surrounding circumstance.

Having regard to the terms in which the promises were allegedly made (at [41] above), it may be necessary to bear in mind the principles concerning the so-called unilateral contracts. In Australian Woollen Mills Pty Ltd v the Commonwealth(1954) 92 CLR 425 (‘Australian Woollen Mills’), a unanimous High Court referred to such arrangements as a promise offered as consideration for the doing of an act at the request of the offeror: 456 - 458. Their Honours said at 457:

‘It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. In such cases as the present, therefore, in order that a contract may be created by offer and acceptance, it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. The intention, must, of course, be judged in the light of the principle laid down in Freeman v.Cooke but, in the light of such an intention, actual or imputed, the alleged ‘offer’ cannot lead to a contract: there is, indeed, in such a case no true ‘offer’.’(Footnote omitted.)

The principle in Freeman v Cooke(1848) 2 Ex 654; 154 ER 652 (at 663) relates to a species of actionable estoppel which need not be further mentioned here as no such cause of action is pleaded. Doubtless, the question of intention in this context equally must be ascertained by application of the objective theory I have discussed above.”

60. In Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65, Campbell JA made the following observations regarding the notion of “objective intention” at [264]:

“But the purpose and object of the transaction is itself ascertained objectively – it is ascertained by considering what a reasonable observer, in the situation of the parties, would conclude was the purpose and object of the transaction. In Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237, Lord Wilberforce noted that Lord Blackburn’s judgment in River Wear Commissioners v Adamson (1877) 2 App Cas 743 at 763 had said that the task involved in construction required one to ‘… inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view’.”

The admissibility and relevance of post contractual conduct and admissions

61. Parts of the evidence tendered in the hearing related to things that were said and done after 3 November 2016. Post-contractual conduct and admissions are admissible for the purpose of determining whether or not a legally binding contract was formed. [70] However, they cannot be used to determine the construction or terms of a contract, other than in established circumstances. [71]

    70. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61; Winter v Nemeth [2018] NSWSC 644 at [56]-[60] (Campbell J); Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [121]-[125],[141]-[145] (Campbell JA); Franklins Pty Limited v Metcash Trading Limited (2009) 76 NSWLR 603; [2009] NSWCA 407.

    71. County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [18]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [26]; Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [124].

62. In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24, Mason J (as he then was) held at 352:

“…when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”

63. One circumstance where post contractual conduct or the “actual intention” of the parties may be admissible in construing the terms of a contract was contemplated:

“There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.” [72]

72. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 at 352.

64. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61, Heydon JA said at 164 [26]:

“…post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed.”

65. The first, and most significant, dispute in the present case is whether Ms MacDonald, Mr Moini and Mr Prin entered into a legally binding agreement in late October 2016 or in the days thereafter. Post-contractual conduct is admissible in determining that issue. [73] I have considered whether the conduct of the parties, and the correspondence between them, after the October meetings was consistent with having reached a final and binding agreement.

    73. Franklins Pty Limited v Metcash Trading Limited [2009] NSWCA 407; (2009) 76 NSWLR 603; Winter v Nemeth [2018] NSWSC 644 at [56]-[60] (Campbell J); Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [121]-[125],[141]-[145] (Campbell JA).

Traditional offer and acceptance analysis problematic in the circumstances

66. The defendant submitted that the “conventional” offer and acceptance analysis may “not work” in the circumstances of this case. [74] Specifically, it was submitted that although it may be difficult to identify the precise moment that an offer was made and accepted by the parties, a contract was nevertheless concluded by 3 November 2016 when the necessary reconciliations were carried out. [75]

    74. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61,

    75. T.316.

67. In some cases, the traditional offer and acceptance analysis may not be sufficient to determine the question of whether a contract has been formed. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, Heydon JA (as his Honour then was) stated at 177 [71]:

“…While the process by which many contracts are arrived at is reducible to an analysis turning on the making of an offer, the rejection of the offer by a counter-offer and so on until the last counter-offer is accepted, that analysis is neither sufficient to explain all cases nor necessary to explain all cases.”

68. Heydon JA also provided examples of circumstances where the traditional offer and acceptance analysis has limited utility. His Honour contemplated “contracts between numerous parties, or even two parties, negotiated at meetings but not assented to until each party executes counterparts.” [76]

    76. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 176 [71]; [2001] NSWCA 61.

69. Counsel for Ms MacDonald cited Curnow Consulting Pty Ltd v JPD Media and Design Pty Ltd t/a Durie Design [2017] NSWSC 1171. Slattery J summarised the relevant principles concerning offer and acceptance at [234] – [237]:

“The relevant legal principles may be shortly stated. If it is not possible to make a finding about what were the particular words of a putative contract that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed: County Securities Pty Limited v Challenger Group Holdings Pty Limited & Anor [2008] NSWCA 193 at [7] – [8] (“County”) per Spigelman CJ. This can be done in the absence of findings about what particular words the parties used to make their agreement, as Spigelman CJ said, at [7] in County:

A need to identify the particular subject matter of the contract has often arisen, even in the case of a written agreement where there is a form of words to be interpreted. In the present case, the subject matter and the concomitant terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?

Such inferences should be drawn cautiously and with consciousness of the dynamic nature of commercial contracts. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 (“Brambles Holdings”), at [74], Heydon JA (as his Honour then was) cited with approval the following statement of McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR (“Integrated Holdings”):

In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117–11,118, McHugh JA (Hope JA and Mahoney JA concurring) said:

‘It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship…

Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.’” [77]

77. Curnow Consulting Pty Ltd v JPD Media and Design Pty Ltd t/a Durie Design [2017] NSWSC 1171.

70. In John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451, Hammerschlag J warned against placing too much reliance on the spoken words of the parties. His Honour said at [94]:

“Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw vBriginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfekv McElroy (1965) 112 CLR 517 at 521; Watson vFoxman (1995) 49 NSWLR 315 at 319.” [78] (Emphasis added)

78. John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94].

Were the essential elements of a contract established?

71. Ms MacDonald contends that a contract was concluded on the terms contained in her email of 31 October 2016 although it may have “crystallised” later when the third reconciliation was circulated on 3 November 2016. [79]

    79. T.311; T.316.

72. Those terms were detailed as follows in the pleadings:

“4. On about 31 October 2016 the cross-claimant, Jacob Robert Henley ("Jake Henley"), the first cross-defendant, the second cross-defendant and the third cross-defendant entered into an agreement ("the October 2016 Agreement"), the terms of which were as follows:

(a) each of the cross-claimant, the first cross-defendant, the second cross-defendant and the third cross-defendant ("the Equity Parties") would establish together a new company ("the New Company");

(b) Not used.

(c) the New Company would purchase the assets of the various companies set out in Schedule 1 to this First Statement of Cross Claim (collectively referred to as "the Henley Group of Companies");

Particulars

The assets of the Henley Group of Companies were Snap Fitness Surry Hills, Snap Fitness CBD, Snap Fitness Potts Point, Snap Fitness Double Bay, Snap Fitness Waterloo, Snap Fitness Bondi Junction, Snap Fitness Paddington, Snap Fitness Zetland and 50% of Snap Fitness Pyrmont.

(d) each of the Equity Parties would be issued with shares in the New Company;

(e) the shares to be allocated to each of the Equity Parties would be calculated as a proportional percentage between the Equity Parties based on:

(i) loans made by each of the Equity Parties to the Henley Group of Companies (the Equity Loans); and

Particulars

As at 3 November 2016:

I.   the defendant cross claimant had made a total

of $944,380 in loans to the Henley Group of Companies;

II.   Taking into account the loans that the first cross

defendant had made to the cross claimant, Babak Moini the second cross defendant had made a total of $942,267.04 in loans to the Henley Group of Companies; and

III.   Kon Prin The third cross defendant had made a

total of $670,000 in loans to the Henley Group of Companies

(ii) The cross claimant and the third cross defendants would each advance further sums to the Henley Group of Companies so that each of the Equity Partners would have made a loans in equal amounts to Jake Henley and the Henley Group of Companies;

Particulars

I.   The cross claimant would loan Jake Henley and

the Henley Group of Companies a further $330,000;

II.   The second and third cross defendants would

each loan Jake Henley and the Henley Group of Companies a further $220,000.

(iii) The cross claimant would be issued 33% of the shares in the New Company;

(iv) The first and second cross defendants would be issued 33% of the shares in the New Company; and

(v) The third cross defendant would be issued 33% of the shares in the New Company

(f) the monies lent by the first cross-defendant to the cross-claimant pursuant to the July 2016 Loan Agreement and the August 2016 Loan Agreement, or were to be treated:

(i) as a financial contribution by the second cross-defendant (in his personal capacity and on behalf of the first cross-defendant) to the Henley Group of Companies the cross-claimant; and

(ii) as part of loans made by the second cross-defendant (in his personal capacity and on behalf of the first cross-defendant) to the Henley Group of Companies.

(g) the first cross-defendant released the cross-claimant from all claims the first cross-defendant held against the cross-claimant in respect of the monies lent by the first cross-defendant to the cross-claimant, or owing by the cross-claimant to the first cross-defendant, including under the July 2016 Agreement, the July 2016 Unregistered Mortgage, the August 2016 Agreement and the August 2016 Unregistered Mortgage.

(h) The first cross defendant forebears from taking legal action against the cross claimant to recover the monies lent to the cross claimant under the July 2016 Agreement and the August 2016 Agreement.

(i) A deed of extinguishment of debt would be entered into between the cross claimant and the first cross defendant in respect of the monies lent by the first cross defendant to the cross claimant pursuant to the July 2016 Loan Agreement and the August 2016 Agreement.

Particulars

Term implied in fact

(j) A deed of extinguishment of debt would be entered into between the cross claimant, the first, second and third cross claimants on the one hand and Jake Henley and the Henley Group of Companies on the other hand in respect of the loans that each of cross claimant and the cross defendants had made to Jake Henley and the Henley Group of Companies.

(k) The Equity parties forebear from taking legal action against Jake Henley and the Henley Group of Companies to recover the Equity Loans.

Particulars of the October 2016 Agreement

(i) the October 2016 Agreement is partly in writing and partly oral;

(ii) to the extent the October 2016 Agreement was oral, the October 2016 Agreement is constituted by conversations which took place:

(a) on 31 October 2016 during a meeting between the cross-claimant, Jake Henley and the second cross-defendant (in his personal capacity and on behalf of the first cross-defendant); and

(b) on 1 November 2016 during a meeting between the cross-claimant and the third cross-defendant.

(iii) to the extent the October 2016 Agreement was in writing, the October 2016 Agreement is constituted by the following emails:

i. email from the cross-claimant to the second cross-defendant dated 31 October 2016;

ii. email from the second cross-defendant to the cross-claimant, the third cross-defendant and Jake Henley dated 31 October 2016; and

iii. email from the second cross-defendant to Jake Henley and the third cross-defendant dated 12 November 2016 at 6pm acknowledging the October 2016 Agreement.” [80]

80. CB1, pp. 55-59; Fourth Further Amended Statement of Cross-Claim at [4]; T. 423.

73. The existence of a contract to that effect is not supported by the evidence. The parties had not, with any degree of finality, reached agreement on fundamental terms of the contract including their respective share allocations. It is also not clear that any agreement had been reached as to the status of the mortgages between Ms MacDonald and Yakiti under any purported contract. Considering all of the communications between the parties, I am not satisfied that a reasonable person, viewing the evidence objectively, would believe that a concluded bargain or agreement was reached between Ms MacDonald, Mr Moini and Mr Prin. At times, there appeared to be an intention on the part of the parties to reach an agreement, but that agreement was never reached.

Controversy concerning the allocation of shares

74. Ms MacDonald asserts that the parties agreed to an equal allocation of shares in the new company that would be established to purchase the Snap Fitness gyms. Mr Moini gave evidence that a split of 33% was not finally determined and that the parties discussed the possibility of Ms Macdonald having a 50% allocation, leaving Mr Prin and Mr Moini with 25% each.

75. In submitting that an agreement had been reached, Ms MacDonald relied on the meeting of 31 October 2016 and subsequent email correspondence. She submits that the “only discussion that was had at the meeting on 31 October was that each of Mr Prin, Mr Moini and Ms MacDonald would be issued 33% in this new company”. [81]

    81. T.313.

76. Ms MacDonald referred to Mr Moini’s email of 3 November 2016, which specified urgent matters that needed attention, including relevantly “agreeing on split of shares across all gyms (we had previously talked about 33% to each party), but to be finalised)”. [82]

    82. CB2, p. 206.

77. On the other hand, parts of her evidence suggested that she did not understand the basis of this share allocation and that the final split was yet to be determined. She said she “didn’t understand at the time the percentages and additional contributions [from her] Babak was talking about as I couldn’t rationalise how they added to the amount he stated.” [83]

    83. CB1, p. 170; Affidavit of Kate MacDonald dated 5 December 2018 at [9].

78. She said the parties:

“...agreed to formalise the percentages later I thought I could work through it to understand his figures in my own time when I was feeling better. To date I still do not believe his numbers add up.” [84]

84. CB1, p. 170; Affidavit of Kate MacDonald dated 5 December 2018 at [9]; Plaintiff’s and Cross Defendants’ Closing Submissions at p.6.

79. Ms MacDonald argued that an email from Mr Moini to Mr Henley and Mr Prin on 12 November 2016 (after she was excluded from the further dealings) was a post-contractual admission of a concluded share allocation because it made reference to Ms MacDonald’s “33% share”. [85] The email included:

“Kon… I just thought of a fourth option.

Restrict the amount you have deposited to $660k and you end up with 16.67% (which is exactly the same deal as we had with Kate). I will pay the shortfalls up to the amount that Kate was going to put in to match us and I was going to put in to match you but I will pick up Kate’s 33% share. If we go down this option, you are unlikely to have to put in more money. This is identical to what was going to happen with Kate a week ago in any case, so you are in the exact same position.

If this option is of interest, please also update the Excel spreadsheet and I will then advise at what level you’d have to put additional money in.

Jake/ Kon… Under this option, I would want full control in managing cashflow and particularly removing all excess costs (including staff). In particular, I will actually ask that I make all decisions and may even ask that you have little to no involvement. My specialty is turning around businesses (e.g. TCI has gone from a loss of $6m to a profit of $1m in four months) and I will use all my endeavours to recoup our capital and hopefully much more.” [86]

85. T.397.

86. CB2, p. 216.

80. Mr Moini gave evidence about this email:

“Mr Prin had already invested $660,000. So that $660,000, the deal that Ms MacDonald and I had discussed would lean to Mr Prin having 16.67% of the business. For the amounts I had deposited, I would be obtaining 16.67% of the business. For the amounts that Ms MacDonald had put in, she would receive 33% of the business. However, there had to be balancing amounts to get us to those amounts. The balancing amounts was approximately $345,000 to be paid by Ms MacDonald and $220,000 to be paid by me. On that basis, Ms MacDonald would end up with twice the number of shares that Mr Prin and I would end up with.” [87]

87. T.270.

81. The evidence on this issue is contradictory. The reconciliations upon which Ms MacDonald places such reliance, particularly when considered in conjunction with the requirement that she was to contribute a further $330,000 suggests that Mr Moini’s recollections that the share allocation was to be 50:25:25 is correct. [88] On the other hand, there is also evidence (set out above) supporting the suggestion of an equal (that is, 33:33:33) share allocation.

    88. Ms MacDonald sometimes refers to this contribution as being for “300k”.

82. Ms MacDonald referred to another email from Mr Moini to Mr Henley on 13 November 2016 which stated “Jake … I believe Kon and I have an agreement re each of us holding 33% each, with me managing the overall strategy (over and above you as well).” [89] Mr Moini gave evidence that “there was no Kate at this point. Kate had not come through with her money” and maintained that following their initial conversation, the parties orally discussed a share allocation of 50:25:25 in favour of Ms Macdonald. [90] Mr Moini relies on email correspondence to support his recollection of the conversation. It is not a case where there was no corroborative evidence of the conversation. [91] He relied on Ms MacDonald’s email of 31 October 2016 which stated “with our contributions balanced on any gym sale, that distribution of the sale price should be Kon/Babak $1.00 / KM $1.00 to ensure that we are repaid at the same time in equal proportions”. [92] He also relies on his email of 3 November 2016 which indicated that he and Mr Prin had to date contributed $345,000 more than Ms MacDonald. [93] This is consistent, in a mathematical sense, with Mr Moini’s evidence that the parties later agreed to give Ms MacDonald a greater share in the new company. However, the email of 3 November 2016 also pointed towards an equal allocation of shares: “(we had previously talked about 33% to each party), but to be finalised)”. [94]

    89. CB2, p. 221.

    90. T.219.

    91. Cf John Holland Pty Limited v Kellogg Brown & Root Pty Ltd (supra).

    92. CB2, p. 209.

    93. CB2, p. 203.

    94. CB2, p. 206.

The claim pursuant to s 12CB

170. Pursuant to s 12CB, the impugned conduct must be “in connection with” financial services. In State of Western Australia v Ward (2002) 213 CLR 1; [2002] HCA 28, the High Court held that the word “connection” is ordinarily “one of wide import” and should be interpreted in light of the statutory context. [178] Sections 12BAA and 12BAB define financial services and financial product. Considering those provisions, and in view of the text and purpose of the ASIC Act read as a whole, I am satisfied that s 12CB potentially applies to the transactions.

     178. The State of Western Australia v Ward (2002) 213 CLR 1; [2002] HCA 28, 278.

171. Section 12CC provides a non-exhaustive list of relevant considerations which the Court may have regard to in determining the s 12CB unconscionable conduct claim:

12CC  Matters the court may have regard to for the purposes of section 12CB

(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:

(a)  the relative strengths of the bargaining positions of the supplier and the service recipient; and

(b)  whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c)  whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and

(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and

(e)  the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and

(f)  the extent to which the supplier’s conduct towards the service recipient was consistent with the supplier’s conduct in similar transactions between the supplier and other like service recipients; and

(g)  if the supplier is a corporation—the requirements of any applicable industry code (see subsection (3)); and

(h)  the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and

(i)  the extent to which the supplier unreasonably failed to disclose to the service recipient:

(i)  any intended conduct of the supplier that might affect the interests of the service recipient; and

(ii)  any risks to the service recipient arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and

(j)  if there is a contract between the supplier and the service recipient for the supply of the financial services:

(i)  the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and

(ii)  the terms and conditions of the contract; and

(iii)  the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and

(iv)  any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k)  without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and

(l)  the extent to which the supplier and the service recipient acted in good faith.

(2)  Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 12CB in connection with the acquisition or possible acquisition of financial services from a person (the supplier), the court may have regard to:

(a)  the relative strengths of the bargaining positions of the acquirer and the supplier; and

(b)  whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and

(c)  whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the financial services; and

(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the financial services; and

(e)  the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent financial services to a person other than the acquirer; and

(f)  the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and

(g)  the requirements of any applicable industry code (see subsection (3)); and

(h)  the requirements of any other industry code (see subsection (3)), if the supplier acted on the reasonable belief that the acquirer would comply with that code; and

(i)  the extent to which the acquirer unreasonably failed to disclose to the supplier:

(i)  any intended conduct of the acquirer that might affect the interests of the supplier; and

(ii)  any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and

(j)  if there is a contract between the acquirer and the supplier for the acquisition of the financial services:

(i)  the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and

(ii)  the terms and conditions of the contract; and

(iii)  the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and

(iv)  any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k)  without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the financial services; and

(l)  the extent to which the acquirer and the supplier acted in good faith.

(3)  In this section:

applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.

industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.

172. Where relevant I have taken these matters into account. In particular, I have considered the relative bargaining power of the respective parties. It is true that Mr Moini was far better resourced than Ms MacDonald, but Ms MacDonald was a solicitor and she had worked in the Henley Group of Companies for a period of time and was aware of the strengths and weaknesses of the business subject of the take-over. Even allowing for Ms MacDonald’s illness, I do not find the relative bargaining power of the parties to be a matter of great moment. I do not find that any unfair tactics were employed by the cross-defendants – they were forced to act promptly and attempted to stress the urgency of the situation to Ms MacDonald in circumstances where she had failed to produce the $330,000 over the previous week and before she was admitted to hospital. Neither Mr Moini nor Mr Prin acted in bad faith.

173. This is not a typical case where unconscionable conduct is alleged. There is no suggestion that Ms MacDonald did not understand the situation, in spite of her illness. There is no evidence that she was unable to understand any relevant documents or was subject to any undue influence or pressure under ss 12CC(1)(c) and (d). The unconscionability claim rests upon the plaintiff’s failure to include Ms MacDonald in the new company despite having knowledge of her illness, and their enforcement of the mortgages.

174. Mr Moini’s text message of 8 November made it clear to Ms MacDonald that their investments in the Henley Group were at risk of being completely lost. Ms MacDonald had an opportunity to contact Mr Moini and Mr Prin upon receipt of this text message, if only to ask for more time or to confirm that she was still keen to be part of the deal. She failed to do so.

175. Mr Moini gave evidence of discussions with the landlords of the nine Snap Fitness gyms:

“There was great angst amongst the landlords because of their horrific dealings with Kate and Jake and – previously. They wanted reassurance that the people who were going into this space were able to satisfy the terms and conditions of these leases, the main issue being that the rent was going to be paid and the rent was going to be paid on time. They needed a person of credibility to deal with, and I brought credibility to the equation.” [179]

179. T.126.

176. As it turned out, the leases with the Henley Group were terminated. The new group – All About Fitness – entered separate agreements with Lift Brands Australia Pty Ltd. In this regard, at least from a technical (perhaps pedantic) point of view, it is impossible to accept Ms MacDonald’s submission that the cross-defendants’ acted unconscionably in acquiring the “assets of the Henley Group of Companies, being the 9 Snap Fitness Gyms, for no further consideration beyond the loans that the cross defendants had already made to Jake Henley and the Henley Group of Companies.” [180] On one view there was nothing to acquire. However, this is not a critical matter in coming to the conclusion that I have.

     180. Yakiti Pty Ltd v MacDonald (No. 2) [2018] NSWSC 1970 at [15]; Fourth Further Amended Cross-Claim at 45(c)(iii).

177. In the final analysis, the same considerations that led me to reject the claim under s 12CA apply to the claim under s 12CB. I need not repeat them. I am satisfied that Mr Prin and Mr Moini acted out of necessity and did not act unconscionably in doing so. I am not satisfied that the impugned conduct including the emails particularised in the pleadings were such that the plaintiff unconscionably excluded Ms MacDonald from the agreement or unconscionably enforced the mortgages. In coming to that conclusion I have taken into account circumstances including, but not limited to: Mr Moini’s text message of 8 November 2016 advising that the investments of the parties were at risk of being lost, the fact that there was no concluded contract arising from the October negotiations, the precarious financial position of the Snap Fitness franchises, the failure of Ms MacDonald to contribute the $330,000 as promised, her failure to communicate with the others including through Mr Henley with whom she was in frequent contact, and the desire of Mr Moini and Mr Prin to protect their investments.

178. The claim under s 12CB of the ASIC Act also fails.

Double satisfaction

179. The cross-claimant sought to rely on the principle of “double satisfaction” by suggesting that the cross-defendants acted unconscionably by being repaid for the money outstanding on the loan twice. At the risk of over-simplification, the argument was that Ms MacDonald invested the money acquired by the loans from Yakiti (Mr Moini’s company) in the Henley Group which controlled the Snap Fitness gyms. Therefore, so the argument went, when Mr Moini, Yakiti and Mr Prin took over the Snap Fitness gyms via the new entity, All About Fitness, they effectively obtained repayment of the Yakiti loan money. Reliance was placed on an offer to buy the gyms for an amount far exceeding the contributions of Mr Moini and Mr Prin. [181] Accordingly, it was unconscionable to seek repayment of the loans and to enforce the mortgages because to do so involved being repaid the loan money twice.

     181. CB2, pp. 230-231; Ex E.

180. There are two problems with this argument. The first arises on the pleadings. The second arises on the merits and evidence in the case.

The pleading issue

181. I have already referred to the almost entirely unsuccessful attempt before Davies J to amend the “fourth” further amended statement of cross-claim. [182] Part of the amendment that was sought was an amendment which would have added to 45A(c) the following words:

“(i) the first cross defendant is in effect seeking double satisfaction of the loans that it has made to the cross claimant in circumstances where the actions of the cross defendants referred to in paragraph 44A above means that the first cross-defendant has already received satisfaction of the loans that it has made to the cross claimant; and/or

(ii) the actions of the cross defendants referred to in paragraph 44A above deprived the cross claimant, an unsecured creditor of Jake Henley and the Henley Group of Companies of any chance of satisfaction of her unsecured loans to Jake Henley and the Henley Group of Companies.”

182. Paragraph [14] above and see Yakiti v MacDonald (No 2) [2018] NSWSC 1970.

182. This part of the application was refused by Davies J based on the “dilatory way the cross-claimant has conducted these proceedings” and because the proposed new sub-paragraphs raised “new factual issues”. [183]

     183. Yakiti v MacDonald (No 2) [2018] NSWSC 1970 at [29] and [31].

183. His Honour’s judgment was published on 18 December 2018. Two days later (20 December 2018) Ms MacDonald wrote to the solicitors for the other parties in the following terms:

“I refer to the hearing of this matter commencing 9 February 2019. I put the parties on notice that my counsel will prosecuting the Fourth Amended Cross Claim on the basis that the issues that arise include the following issues which are already implicit in the current pleading and properly arise for consideration.

I accept that there may be argument at the hearing as to whether the identified issues below arise on the pleadings. In relation to paragraph 4 below, my counsel upon mature reflection is of the view that the concession made to Beech Jones J on 4 October 2018 at T 9:37 was incorrectly made:

1.   Whether the cross defendants have received satisfaction for the loans that they made to the Henley Group of Companies by reason of the manner in which the Snap Fitness Franchises were transferred to an entity of the Cross Defendants, All About Fitness Gym and Health Clubs Pty Ltd. In particular, what consideration was provided for the transfer of assets to the New Company. This issue arises from paragraphs 8, 10, 40, 41, 44 and 45(c)(ii) and (iii) of the Fourth FACC;

2.   Whether the first cross defendant has received satisfaction for the secured loans that the first cross defendant made to Ms MacDonald by reason of the manner in which an entity of the Cross Defendants, All About Fitness Gym and Health Clubs Pty Ltd obtained the assets of the Henley Group of Companies and in particular the assets of Gym and Tonic Health Clubs Pty Ltd. This issue arises from paragraphs 8, 10, 40, 41, 44 and 45(c)(ii) and (iii) of the Fourth FACC;

3.   What consideration was provided for the transfer of assets of Gym and Tonic Health Clubs Pty Ltd to the New Company. This issue arises from paragraphs 8, 10, 40, 41, 44 and 45(c)(ii) and (iii) of the Fourth FACC;

4.   Whether the actions of the cross defendants in failing to award the cross claimant a 33% shareholding in accordance with the October Agreement in All About Fitness Gym and Health Clubs Pty Ltd have deprived the cross claimant of any chance of satisfaction of her unsecured loans to Henley Group of Companies. This issue arises from paragraph 4(a) - (e), 5, 8, 41, 45, 45A of the Fourth FACC;

5.   The current net asset position of the Henley Group of companies. This issue arises from paragraphs 8, 40, 41 and 45(c)(iii) of the Fourth FACC.

Yours faithfully

Kate MacDonald.”

184. The letter was tendered in the course of submissions. [184] It was suggested that this letter put the cross-defendants’ on notice that the double satisfaction argument was to be pursued. In view of the decision two days earlier, this seems very doubtful.

     184. Ex 2, tendered during the course of submissions on 9 April 2019; T. 404, 419.

185. Subsequently, while submissions were part-heard, there was an exchange of emails between counsel. This was tendered in response to the tender of Ex 2. [185] Counsel for Ms MacDonald wrote:

“[T]he ‘double satisfaction’ argument does not arise on the pleadings, I maintain the position stated in Ms MacDonald’s correspondence to your instructing solicitors on 20 December 2016. The issue of whether your client has received ‘satisfaction’ of the loans that she obtained from Yakiti implicitly arises on the pleadings and there is no need for any amendment in relation to this issue.”

185. Ex K; T. 419-420.

186. Counsel for the cross-defendants replied:

“In relation to the ‘double satisfaction’ argument, can you please identify which paragraphs in the Cross-Claim contain the material, from which you say there ‘implicitly arises’ this argument?”

187. Counsel for Ms Macdonald replied:

“This has already been identified in detail in the communication sent to Moissons on 20 December 2018 and I rely upon the paragraphs identified there.”

188. If the cross-claimant’s position is correct, it is difficult to understand why it was necessary to seek to amend the pleadings to particularise specifically that “the first cross-defendant is in effect seeking double satisfaction of the loans”, as she did before Davies J. As noted, his Honour held that this raised a new factual issue and refused to allow the amendment.

189. The cross-defendants argued that the cross-claimant ought not be permitted to pursue this “double satisfaction” submission in view of the ruling made by Davies J. It submitted:

“Fourthly, this double satisfaction argument.  I'll come to that specifically because that ‑ leave to amend to include that was run before Davies J in December last year and he rejected that leave.  His Honour rejected that leave, and I'll take your Honour to the reference.  The fifth example is this argument that there's a relevant imbalance in the negotiating position between the parties.  Again, not pleaded.  And that's not just a throw‑away line.  That's of significance because, for example, it would have been open to me to cross‑examine Ms Macdonald as to ‑ obviously she's a solicitor, but her capacity to make decisions at the relevant times et cetera and her educational background and the like.” [186]

186. T. 351.

190. Counsel went on to identify the parts of the judgment of Davies J where he refused to allow the amendment before identifying further prejudice in terms of the way the case was conducted:

“And the issue of double satisfaction would have had an evidentiary impact on the running of the case because my clients, it would have been open to them to go into more evidence and detail concerning exactly the transactions that transpired and also I would have been entitled to cross examine Ms Macdonald about various other issues so that hasn't been pleaded.” [187]

187. T. 352.

191. Ms MacDonald submitted that there was no prejudice and maintained that the double satisfaction argument arose on the pleadings at least in two ways. First, because it is part of the “unwritten law” picked up by the provisions of the ASIC Act. Secondly, because the double satisfaction argument was implicit in the pleadings in paragraph 45 of the cross-claim where it was asserted:

“(c)(iii) the cross-defendants acquired the assets of the Henley Group of Companies, being the 9 Snap Fitness gyms, for no further consideration beyond the loans that the cross-defendants had already made to Jake Henley and the Henley Group of Companies.”

192. I very much doubt that the cross-claimant should be permitted to rely on this argument in view of the history of this litigation. I accept that there is some prejudice to the cross-defendants who have conducted their case on the basis that leave to amend to include the “double satisfaction” argument was refused. Even so, I propose to deal with the issue on its merit.

The double satisfaction argument fails

193. The circumstances of the present case do not fit comfortably (if at all) within the factual or legal circumstances of the authorities to which I was taken. [188] This is not a straightforward case where a party seeking damages seeks to obtain compensation from two separate tortfeasors or parties.

     188. Castellan v Electric Power Transmission (1967) 69 SR (NSW) 159, 180-181; Freshwater v. Bulmer Rayon Co. Ltd [1933] Ch 162,173- 175, 185-187; United Australia Ltd. v. Barclays Bank Ltd [1941] AC 1, 15-16; Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; [2001] HCA 66 at [48]; Jameson v Central Electricity Generating Board [1998] QB 323 at 338.

194. The initial loans to Ms MacDonald were from Yakiti Pty Ltd in the middle of 2016. The money was advanced and mortgages were dated 1 July 2016 and 3 August 3016. [189] Ms MacDonald had already advanced money “to Jake Henley to cover the operational costs of rent and equipment fees for the Snap Fitness gyms.” [190] She then borrowed $350,000 from Yakiti and entered the mortgage for the first loan. While the purpose of the loan was known to Mr Moini, there was no condition that the money advanced was to be invested with, or lent to, Mr Henley, the Henley Group or used to fund the expenses or capital of the Snap Fitness gyms. [191] On 1 July 2016, Ms MacDonald went to the bank with Mr Henley “to disburse the $350,000 on expenses for the Henley Group of Companies”. [192] Ms MacDonald’s account of what happened to the money, or what it was spent on, is set out in the Defendant/Cross-Claimant’s Statement of Facts. [193] Whether it still somehow formed part of the assets of the Henley Group of Companies, or the Snap Fitness Franchises when the Henley franchise agreements were terminated is not known. The same basic scenario applies to the second loan from Yakiti. [194]

     189. Ex B, pp.1-2; CB2, pp. 86-95, 126-135.

     190. CB1, p. 117; Affidavit of Kate MacDonald dated 6 September 2018 at [13].

     191. Fourth Further Amended Cross-Claim at [3A]; CB2, pp. 79-81; Amended Statement of Claim filed 23 June 2017 at [2]-[3]; Defence to Amended Statement of Claim filed 7 July 2017 at [3]; Amended Defence to Statement of Claim filed 9 March 2018 at [2]-[3].

     192. CB1, p. 122; Affidavit of Kate MacDonald dated 6 September 2018 at [24].

     193. Defendant/Cross-Claimant’s Statement of Facts at pp.6-7; CB2, pp. 97-106, 117, 122-125, 145-147, 151, 153.

     194. Fourth Further Amended Cross-Claim at [3B]; Amended Statement of Claim filed 23 June 2017 at [12]; Defence to Amended Statement of Claim filed 7 July 2017 at [11]-[12]; Amended Defence to Amended Statement of Claim filed 9 March 2018 [11]-[12].

195. It was not until around 15 December 2016 that the new company – All About Fitness Gym and Health Clubs Pty Ltd – was established. [195] It was that company, according to the cross-claim – that “acquired the assets of the various companies within the Henley Group of Companies.” [196] Whether, by that stage, those assets included the loan money advanced by Ms MacDonald is not known.

     195. Fourth Further Amended Cross-Claim at [5].

     196. Fourth Further Amended Cross Claim at [8].

196. The cross-claimant relies on an offer dated 25 November 2016 to purchase the nine Snap Fitness gyms. This offer was made by Quadrant Private Equity and was in the sum of $6.5M. [197] This provides some evidence that the contributions made by Mr Moini and Mr Prin were significantly less than the value of the assets they acquired. However, it was a “Non-Binding Indicative Offer” and was conditional on a number of assumptions. One of those assumptions was that the assets were acquired on a cash and debt free sale. The cross-defendants relied on a list of debts and liabilities, contained in an email from Tri Nguyen dated 4 January 2017, that came to an amount in excess of $18M. [198] I have treated that list with considerable scepticism. The cross-claimant submitted that this estimate of the debt was plainly erroneous and included, for example, rent that had since been paid and outstanding franchise fees that had been “negotiated down to $250,000” from something like $400,000. [199] The cross-claimant submitted that “these gyms are worth at least in the order of $4 million”. [200]

     197. Ex E; CB2, pp 230-231, 454-457.

     198. CB3, pp. 595-598; T. 394.

     199. T. 319-320.

     200. T. 320.

197. The dispute over the amount of the debts and liabilities is indicative of the difficulties in making a reasoned assessment of the value of the assets that All About Fitness acquired. Further, the conditional nature of the Non-Binding Indicative Offer made by Quadrant Private Equity means that it provides a valuation of the gyms that is of very little probative value. [201] The cross-claimant referred to a decision of the New South Wales Court of Appeal that establishes an offer may provide some evidence of the value of an asset. [202] However, the offer in that case was of a very different nature. The offer made by Quadrant was conditional on a number of imponderable and disputed circumstances.

     201. Cf MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 at [97].

     202. MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451; T. 10-11.

198. Another glitch surrounding Quadrant’s Non-Binding Indicative Offer was that they hoped to re-brand the gyms whereas the Snap Fitness parent company in the United States would not permit rebranding. [203]

     203. CB2, p. 454.

199. Further, and importantly on the issue of whether he acted unconscionably, Mr Moini wrote to Quadrant Private Equity on 23 November 2016 in the following terms:

“Briefly I need to transfer ownership of Snap gyms into my entity (and one other entity) and need to gauge degree of interest from Quadrant re these sites. I won’t proceed with the transfer if you believe there’s a (good) chance you’ll pick these up.” [204]

204. CB2, p. 452.

200. On the evidence, it is impossible to conclude that the plaintiff and cross-defendants acted other than in good conscience in their dealings in the matter. The circumstances do not allow any finding that they twice received (or sought to receive) return of the money owed on the loan agreements.

201. Assuming that the cross-claimant should be permitted to rely on the “double satisfaction” argument in spite of the issue concerning the pleadings, that argument fails on the evidence and on the merits.

CONCLUSIONS, findings and direction to file orders

202. For the foregoing reasons I make the following findings which will be reflected in the orders to be made in due course:

1. The plaintiff is entitled to succeed on its statement of claim.

2. The cross-claim will be dismissed.

3. The plaintiff is entitled to possession of the two parcels of land referred to in the statement of claim and to an order for leave to issue the writs of possession.

4. The plaintiff is entitled to recover the debts under the two loan agreements together with interest in accordance with the loan agreement until the date of judgment and thereafter in accordance with s 100 of the Civil Procedure Act 2005 (NSW).

5. The defendant/cross-claimant is to pay the costs of the plaintiff and cross-defendants.

6. Direct that the plaintiff is to file short minutes of order reflecting those findings and supporting calculations within 7 days. If the defendant takes issue with any of the form of orders it should exercise liberty to apply within 3 working days of the draft orders being filed. In the absence of that, the Court will pronounce the orders at a time to be notified to the parties.

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Endnotes

Amendments

17 December 2019 - Addition of second sentence to [164]

20 December 2019 - Redaction of mobile number at [140]

Decision last updated: 20 December 2019