DISTRICT COURT OF QUEENSLAND
CITATION:
Hilchrist Pty Ltd v Visual Integrity Pty Ltd and ors [2018] QDC 97
PARTIES:
HILCHRIST PTY LTD
(Plaintiff)
v
VISUAL INTEGRITY PTY LTD
(First Defendant)
and
ANDREW DARRELL BUTCHER
(Second Defendant)
and
ZOE CLARE BUTCHER
(Third Defendant)
and
EXCELLEX PTY LTD
(Fourth Defendant)
And
ALLAN HILTON JONES
(Second Defendant by Counterclaim)
FILE NO/S:
D2887/2016
DIVISION:
PROCEEDING:
Civil trial
ORIGINATING COURT:
District Court Brisbane
DELIVERED ON:
1 June 2018
DELIVERED AT:
Brisbane
HEARING DATE:
28-30 August, 1 September, 15 November 2017
JUDGE:
McGill SC DCJ
ORDER:
Judgment that the first defendant pay the plaintiff $584,433.41, including $49,434.41 by way of interest. Declare that the transfer by the first defendant to the fourth defendant of the shares in Sign Site Pty Ltd and the units in the Sign Saint Hybrid Unit Trust is void as against the creditors of the first defendant. The claims against the second and third defendants dismissed. The counterclaim dismissed.
CATCHWORDS:
CONTRACT – Agreement contemplating formal document – whether formal agreement superseded informal agreement – effect of change of parties.
CONTRACT – Conditions and warranties – interpretation of terms – whether breaches of warranties proved – whether substantial damages proved
EQUITY – Equitable estates and interests – vendor’s lien – whether available over personalty – whether arising.
FRAUD, MISREPRESENTATION AND UNDUE INFLUENCE – Alienation of property with intent to defraud – nature of intent – whether proved.
TRADE PRACTICES – Misleading and deceptive conduct – whether representation made – whether relied on
Property Law Act 1974 s 228
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 114 ALR 355 – cited.
Adderley v Dixon (1824) 1 Sim & St 607, 57 ER 239 – cited.
Re: Albert Life Assurance Co. ex parte Western Life Assurance Society (1870) L.R. 11 Eq 164 – followed.
Ashala Model Agency Pty Ltd v Featherstone [2017] 2 Qd R 1 – considered.
Australian Securities Ltd v Western Australian Insurance Co Ltd (1929) 29 SR (NSW) 571 – distinguished.
Australian Workers Union v Bowen (1946) 72 CLR 575 – distinguished.
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 – cited.Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 – cited.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 – applied.
Carrick v Armstrong [1969] Qd R 185 – cited.
Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636 – considered.
Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 – considered.
Concut Pty Ltd v Worrell (2000) 75 ALJR 312 – considered.
Davies v Thomas [1900] 2 Ch 462 – cited.
Deputy Commissioner of Taxation v Peter Sleiman Investments Pty Ltd [2016] NSWSC 1657 – cited.
Equus Financial Services Ltd v Glengallen Investments Pty Ltd [1994] QCA 157 – applied.
General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 – followed.
George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387 – considered.
Harrison v Southcote (1751) 3 Ves Sen 389, 28 ER 249 – cited.
Hewett v Court (1983) 149 CLR 639 – considered.
Holdway v Arcuri Lawyers [2009] 2 Qd R 18 – applied.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 – cited.
Jenkins v Burke [2015] QDC 249 – cited.
Johnson v Leader Computers Pty Ltd (2014) 118 SASR 408 – cited.
Langen and Wind Ltd v Bell [1972] Ch 685 – cited.
Mackreth v Symmons (1808) 15 Ves 329, 33 ER 778 – considered.
Marcolongo v Chen (2011) 242 CLR 546 – considered.
Masters v Cameron (1954) 91 CLR 353 – applied.
Re: McCallum, Beard v McCallum (1907) 7 SR (NSW) 523 – considered.
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 – distinguished.
Midland Brick Co Pty Ltd v Welsh [2006] WASC 122 – cited.
Monarch Steamship Co Ltd v Karlshamns Oljefabriker A/B [1947] AC 196 – cited.
Moore v Devanjul Pty Ltd [2010] QSC 250 – followed.
Noakes v J Harvy Holmes and Son (1979) 37 FLR 5 – cited.
Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] 1 WLR 1803 – cited.
Olsson v Dyson (1969) 120 CLR 365 – cited.
Park & McIntosh v Lanray Industries Pty Ltd [2010] QCA 257 – applied.
Patel v Lal [2011] NSWSC 603 – cited.
Puglia v Basol [2005] NSWSC 1271 – cited.
Rudder v George Hudson Holdings Ltd [1972] 1 NSWLR 529 – considered.
Re Stucley, Stucley v Kekewich [1906] 1 Ch 67 – cited.
Stuntz v The Australian Joint Stock Bank (1891) 12 LR (NSW) Eq 325 – considered.
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 – applied.
William Brandt’s Sons & Co v Dunlop Rubber Company Ltd [1905] AC 454 – applied.
Walker v Wilsher (1889) 23 QBD 335 – cited.Wossidlo v Catt (1934) 52 CLR 301 – applied.
COUNSEL:
D de Jersey for the plaintiff
JD Byrnes for the defendant
SOLICITORS:
HWL Ebsworth Lawyers for the plaintiff
Thomson Geer for the defendants
In early 2015 a company Sign Site Pty Ltd (“Sign Site”) carried on the business of supplying signs as trustee of a unit trust, the Sign Saint Hybrid unit trust. The plaintiff, a company associated with Mr Jones, who was one of the directors of Sign Site, held one third of the shares in Sign Site, and one third of the units in the unit trust. In April 2015 the plaintiff’s shares and units were transferred to the first defendant, a company associated with the third defendant, the wife of Mr Butcher the second defendant, who was the managing director of Sign Site. This was pursuant to a contract under which the first defendant was to pay, over a period of time, $600,000, but only $65,000 of that has been paid. The plaintiff claims from the first, second and third defendants the balance of $535,000. That claim in contested, on various grounds including a set-off for damages for breach of that contract.
In February 2016 the shares and units were in turn transferred by the first defendant to the fourth defendant, a company associated with Mr Butcher, which the plaintiff says was in breach of a contractual constraint on transfer until the whole amount had been paid. The plaintiff seeks relief against the fourth defendant, in equity or under the Property Law Act 1974, in respect of the transfer of those interests from the first defendant. There is also a counterclaim against the plaintiff for damages for breach of contract and for misleading and deceptive conduct, and against Mr Jones for damages for misleading and deceptive conduct. That claim is also contested.
Background
Around the year 2000 Mr Willems developed in the United States of America a concept of designing and selling signs over the internet, which he exploited through a business Speedy Signs: p 2-94. That became a technology company as well as a sign company, and in due course provided its technology to another American sign business, Signarama,[1] which used it to sell signs over the internet. That business operated through franchises, including in Australia. There was prior to 2012 a Signarama franchise operated in North Sydney by a company Duskheat Pty Ltd, which was associated with Mr Jones: p 45. There were also two Signarama franchises in Brisbane, operated by the fourth defendant.[2] Subsequently Mr Willems established a business Sign Site in America, selling signs over the internet, and a business with the same name was established in Australia.[3]
[1]The “-arama” word ending was popular among businesses in America in the ‘40’s and 50’s: Bryson, B “Made in America” (Black Swan 1998) p 253.
[2]Butcher p 3-24.
[3]Willems p 2-95; Exhibit 1 tab 1 sets out the basic structure: p 2-96; Jones p 45. See also Exhibit 1 tab 3; this copy is unsigned but a copy was signed: Willems p 2-96; Jones p 46.
A company Sign Saint Pty Ltd was incorporated on 9 March 2012; it later changed its name to Sign Site Pty Ltd.[4] In March 2012 the Sign Saint unit trust was established.[5] After the Sign Site business was established, Mr Jones wound up the Signarama business and transferred assets and staff to Sign Site, including the office manager, Ms Campbell: p 28.[6] Mr Butcher also wound up his Signarama franchise business, and concentrated on the Sign Site business. The franchisor was not happy about this, and proceedings were commenced in the Supreme Court against Mr Jones and Mr Butcher in relation to their Signarama franchises.[7] In response to earlier correspondence (tab 5), Mr Jones and Mr Butcher resigned as directors of Sign Site and transfers of the first defendant’s shares in Sign Site to the other shareholders were signed, but after the Supreme Court proceedings were resolved between the parties they became directors again, and the transfers of the shares and units were formally rejected by the trustee company.[8]
[4]Exhibit 1 tab 2. The name change took effect on 16 April 2012.
[5]Exhibit 1 tab 10 refers at p 32 to the trust deed by which the trust was established on 13 March 2012. The agreement at tab 10 is undated, so it took effect when the last person signed: clause 1.1. Jones said this was in March 2013: p 2–18. The minutes at Exhibit 1 tab 22 suggest it occurred after 27 March 2014. See also Butcher p 3–53, 54: April 2014.
[6]He said he continued to work finalising the affairs of Signarama for some time later, although he spent one or two days at Sign Site each week: Jones p 2-18.
[7]Exhibit 1 tab 7, commenced in April 2013. There were also other defendants.
[8]Jones p 47, 48; Exhibit 1 tabs 2, 6, 8; Butcher p 3-30; Exhibit 2 tab 13. Butcher also ceased to be a director of the first defendant, but continued to run it: statement of claim para 2, defence para 2; Ms Butcher p 3–22.
The Sign Site business sold signs, which would be ordered by a customer, manufactured by the company and ordinarily installed by the company: p 58. Mr Butcher was the managing director,[9] with particular responsibility for sales and marketing, while Mr Jones was the operations director, with responsibility for production.[10] In that capacity he would keep track of the level of orders, but he maintained that he had no particular involvement in the preparation of accounts, or in providing material for those accounts: p 49. He said that the business activity statements which the company lodged were prepared by Ms Campbell: p 50.
[9]He was appointed to this position at some stage in early 2013, as reflected in the Trust Agreement Exhibit 1 tab 10 Schedule 1 item 8. Although there was some delay in getting this document signed, he described himself as “Managing Director” in August 2013: Exhibit 2 tab 35.
[10]Willems p 2-97; Butcher p 3–28.
Initially the company accounts for Sign Site were prepared in the United States by people associated with Mr Willems,[11] but difficulty arose because of their lack of familiarity with the requirements of Australian tax law.[12] Subsequently local accountants, Prudent Partners, were engaged who were responsible for preparing the accounts of Sign Site in Australia, and other accounting functions.[13] No-one from that practice concerned with the company’s accounts was called as a witness, though that firm remains the accountants for the company. Initially the company used the Quickbooks accounting system. In July 2014 however the company changed to the Xero account system, at the suggestion of the accountants.[14]
[11]Jones p 2-20; Willems p 2-98; Butcher p 3–26. Data entry was done by Ms Campbell in Australia or by Ms Willems: p 2-20; p 2-98.
[12]Campbell p 32, p 43; Exhibit 3 – BAS forms were not submitted; Jackson p 2–63; Exhibit 2 tab 12.
[13]They were involved by 23 October 2012: Exhibit 2 tab 9. They had been Butcher’s accountants.
[14]Jones p 52; Exhibit 2 tab 145.
One aspect of the company accounts was that at times, when an order for a sign was placed, an internal invoice was raised for the work involved, which was however not sent to the customer; the customer was only invoiced after the sign or signs had been manufactured and installed, which could well be some time later.[15] This was referred to during the trial as “pre-invoicing”, and it had the effect that work in progress was treated for the purposes in the company accounts as income at its full value as soon as the order was placed. Mr Butcher said this was done to meet sales objectives, p 4–61. In fact it was done to make the company’s financial position look better at a time when it was seeking an increased overdraft.[16] It had the effect of inflating the income of Sign Site artificially: p 4–65.
[15]Jones p 56: done at direction of Butcher; Butcher p 3–43. This was done at the end of the 2012 – 13 financial year: p 3–44. It was not done all the time: p 4–64.
[16]Exhibit 11; Exhibit 1 tab 11 p 3; Exhibit 2 tab 89 re extension of overdraft.
Work in progress has value, particularly when the work extends over a considerable period of time, though the issue of valuing work in progress can be complex.[17] Attributing no value to work in progress tends to understate the financial position of a company, but is seems to me that valuing work in progress at the full invoice price from the time the order is placed will overstate the financial position of the company.[18] Whether this overstates the asset or the income position (or both) depends on how the pre-invoices have been brought to account as income and on the balance sheet of the company. Mr Jones said this was done from an early stage, and that it occurred at the direction of Mr Butcher: p 56, 58. Mr Butcher agreed that it occurred. I shall deal with this further later.
[17]For the purposes of a trial I once had to value the work in progress of a solicitors’ practice on two dates twelve months apart: Thompson v Royds [2003] QDC 288 – a good cure for insomnia.
[18]That is my own impression without the benefit of relevant expert evidence at the trial.
The company initially had grand ambitions: Exhibit 1 tab 3. It did not live up to them, and appears to have struggled even as a business within a part of the Australian market.[19] It is unnecessary for me to trace the breakdown of the relationship between Mr Jones and Mr Butcher. By early 2015 it had reached the point where, at a meeting of the board of directors of Sign Site on 6 February 2015, Mr Jones was removed as a director.[20] Whether this was effective in terms of his position as director does not matter;[21] for practical purposes he was excluded from the management of the company, and he ceased to be employed as chief operating officer.[22] The plaintiff still held units in the unit trust however and Mr Jones remained its representative at meetings of unit holders.[23] The plaintiff also remained a shareholder in Sign Site.
[19]See e.g. Exhibit 1 tab 11 p 1, p 2. It certainly had cash flow problems, which Mr Butcher managed: Exhibit 2 tab 42, tab 51.
[20]Exhibit 1 tab 25. Jones p 60.
[21]Ordinarily a meeting of directors of a company cannot remove a director: Corporations Act 2001 (Cth) s 203E. Mr Jones believed his removal was effective: p 2-49.
[22]The company’s solicitor denied that he was an employee, Exhibit 1 tab 35. That a director could be an employee was contemplated by the agreement Exhibit 1 tab 10, and p 4 of tab 3, the agreement of 13 June 2012, looks very like an agreement to employ him as Global Operations Director, on a fixed salary. The board meeting on 27 March 2014 adjusted his “wages”: Exhibit 1 tab 22; Exhibit 2 tab 90. Exhibit 1 tab 14 looks like a duty statement. At the meeting on 6 February 2015, the board expressly terminated his employment: tab 25. Mr Willems claimed this was a mistake on his part in the minutes, and that they were not employees: p 3–12, 13. I do not believe this evidence. If I had to make a finding, I would find on the evidence before me that he was an employee.
[23]Such as the meeting on 11 March 2015; Exhibit 1 tab 34.
With a view to bringing this to an end, on 7 February 2015 Mr Butcher sent Mr Jones an offer to purchase the plaintiff’s shares in the company.[24] Mr Jones brought proceedings for wrongful dismissal in the Fair Work Commission,[25] and also complained that the company had not regularised the termination of his employment, as he was owed money for unpaid wages, and on a director’s loan account,[26] and that the plaintiff was owed money for unpaid dividends.[27] For present purposes the rights and wrongs of these claims do not matter, though it does seem clear that when Mr Jones was dismissed no systematic attempt was made to finalise issues such as entitlements as an outgoing employee and director, or loan accounts. On 2 March Mr Butcher made an offer to Mr Jones on condition that he withdraw his unfair dismissal claim, which was rejected.[28]
[24]Exhibit 1 tab 26. The amount was not stated but did not exceed $450,000. It was not accepted.
[25]Exhibit 1 tab 31, on 27 February 2015.
[26]The origin of this account was that when Sign Site started the assets of Duskheat had been transferred to Sign Site without payment: Jones p 48. See also Exhibit 1 tab 2.
[27]Exhibit 1 tab 27, 29, which particularised a total claim of $886,065.74. The response was little more than mere bluster: Exhibit 1 tab 30. There is no reason to think there were unpaid dividends, but the trust tax returns refer to distributions from the trust: Exhibit 2 tab 311 p 7, tab 314 pp 7, 8, and some of these may have been unpaid.
[28]Jones p 62; and see Exhibit 1 tab 33.
On 25 March 2015, there was a conciliation meeting in the Fair Work Commission.[29] I have evidence of this from Mr Jones and Mr Butcher, and their evidence differed as to what happened. Mr Jones’ explanation of what happened on that day was that the Commission said it would examine the information presented: p 2-4. Mr Butcher asserted in effect that the representative of the Commission present said that Mr Jones’ application could not succeed.[30] That seems unlikely since after the meeting Mr Butcher initiated talks with Mr Jones with the view to settling matters between them. Mr Jones said that Mr Butcher rang him and suggested a meeting to resolve the matter, and that at Mr Butcher’s request he withdrew the application to the Fair Work Commission.[31]
[29]Exhibit 1 tab 32.
[30]Butcher p 3-60. Mr Jones said the Sign Site HR consultant said this: p 2-76.
[31]His oral evidence reads as if this was done before the agreement: p 2-4. The signed notice of discontinuance was dated 30 March 2015: Exhibit 2 tab 254. It was apparently provided by the Sign Site HR consultant, and returned to her signed the same day.
On 26 March there was a meeting between them at the apartment hotel where Mr Butcher was staying: p 2–4. Mr Jones said that Mr Butcher did not want lawyers involved in this negotiation, and there were no lawyers involved: p 2–5.[32] Mr Jones said that Mr Butcher made an offer which at his request Mr Butcher put in writing in the form of an email.[33] After the meeting Mr Jones thought about the offer, but decided that the amount was insufficient, and telephoned Mr Butcher and told him as much: p 2-79. A further meeting was arranged for early on the following day. On this occasion Mr Jones asked for $600,000, and after some discussion Mr Butcher agreed to pay that. There was also some discussion about timing of the payments. Mr Butcher then made some amendments to an existing document he had on his tablet, to put it into a form acceptable to Mr Jones, whereupon each of them signed the document electronically on the tablet, and a copy of the signed agreement was emailed to Mr Jones.[34]
[32]Butcher p 3–60: He had arranged to attend without a lawyer and so would not meet unless no lawyers were there. Jones, to the same effect: p 2-76.
[33]Jones p 2–5; Butcher p 3–62; Exhibit 1 tab 37. It offered a total of $400,000.00.
[34]Exhibit 1 tab 38: “the tab 38 agreement”; Jones p 2-6; Butcher p 3–65.
I shall deal with the terms of the agreement later, but on its face it contemplated that there would be a more formal agreement made between them, and ultimately a further agreement was entered into. This was the document in Exhibit 1 tab 42 (“the tab 42 agreement”). Prior to its execution there were negotiations by email between the parties as to who were to be the parties to, and the terms of, this agreement.[35] It is unnecessary for me to refer to the detail of these negotiations. For present purposes it is sufficient to say that Mr Jones pressed to have Mr Butcher and his wife made parties to this agreement,[36] but Mr Butcher refused, and Mr Jones signed the agreement as it was, on its face an agreement between just the plaintiff, the first defendant and Sign Site.
[35]Exhibit 1 tab 41. This is an email from Mr Jones, with comments in blue inserted into it by Mr Butcher, and further comments in green in reply inserted by Mr Jones. If this approach was adopted in order to assist comprehension by someone in my position, it failed. There was also a conversation: Butcher p 3–69.
[36]Jones p 2-84; claiming that this was on the basis of legal advice.
If the tab 42 agreement did supersede the tab 38 agreement, it follows that the earlier agreement cannot give rise to any continuing rights now enforceable against any parties. This is of significance because the plaintiff’s case in contract against the second and third defendants depends on their being parties to the tab 38 agreement, and to their obligations under that agreement surviving, at least as against those parties, notwithstanding the execution of the tab 42 agreement. Although issues as to the effect of the tab 38 agreement arise first in time, if the tab 42 agreement superseded and discharged it, it is strictly unnecessary to decide those issues, though I should do so on a precautionary basis. I should however first say something about the credibility of the witnesses.
Credibility
There were some aspects of Mr Jones’ evidence which I was wary about, particularly the conflict between his evidence and the evidence given by Ms Crawford as to the extent to which Mr Jones had adjusted draft BAS returns which she had prepared.[37] However Ms Crawford was called as a witness for the plaintiff, so counsel for the plaintiff could not cross-examine her, and she is still employed by Sign Site, in effect by Mr Butcher. I found her explanation for having recorded lease payments as assets in the accounts of Sign Site unconvincing,[38] and suspect that this was done because she was aware that similar payments had been treated in that way in the previous financial year, one of the matters Mr Butcher was discussing when speaking about “adjusting” the accounts of the company to produce a profit when the raw accounts showed a significant loss.[39] There was no evidence that the final result of the ATO audit was that the BAS returns signed by Mr Jones regularly understated amounts, in a way which would be consistent with Ms Campbell’s evidence, and a number of the BAS statements Mr Jones signed were prepared by the accountants, and not changed by him.[40] I am not prepared to reject Mr Jones’ evidence just because of this conflict; indeed, it causes me to doubt Ms Campbell’s credibility.
[37]Jones p 2-48: changed one draft BAS at Butcher’s direction; Campbell p 35: changed regularly.
[38]Campbell p 26, p 41.
[39]Exhibit 1 tab 11 p 4.
[40]Exhibit 3, forwarded by Butcher to Jones: Exhibit 2 tab 35. The numbers were the same in the documents signed by Jones: Exhibit 2 tabs 325-8, and see tabs 361-4. He did not adjust the numbers on these returns.
Apart from this, Ms Campbell said she took over preparation of BAS in mid 2013 from the people in America, and Ms Jackson was not involved in Sign Site: p 34. She said she prepared draft returns which were amended, and she filed copies of the draft and final returns: p 35. Ms Jackson said she prepared the BAS until December 2013 (p 2-64) and there are documents in Exhibit 2 in December 2012 and February 2013 consistent with her preparing the BAS for September and December 2012: tabs 12, 14, 19.[41] It appears she later adjusted all BAS from 2012 to the end of 2013: Exhibit 2 tab 131.[42] She spoke of having to “fix up” the returns, to adjust expenses to allow for supplies purchased through the fourth defendant: p 2-59, 71. On 21 May 2014 she emailed the accountants seeking copies of all previous BAS for Sign Site, since Ms Campbell “didn’t keep any copies of any paperwork of the ones that she has lodged”: Exhibit 2 tab 126.[43] This also makes me doubt Ms Campbell’s evidence. Overall, where there is a conflict, I prefer Mr Jones’ evidence.
[41]The first two are duplicates of Exhibit 5 tabs 1 and 2.
[42]Also at Exhibit 5 tab 5. This shows that she revised all BAS for Sign Site before 1 January 2014.
[43]She was sent copies obtained from the ATO.
Ms Jackson spoke of her involvement with Sign Site as essentially confined to sorting account payments made by, or purchases by, the fourth defendant on behalf of Sign Site,[44] but there are a number of early documents which show her involvement with Sign Site was wider. Her email in Exhibit 2 tab 14 shows her involvement with the whole BAS, tab 17 shows her involved in other matters, tab 19 has her commenting on the payroll system, and by tab 31 in June 2013 she was involved with invoices, and reminding Mr Butcher that the PAYG was not paid. In August 2013 she reported to Mr Butcher about arrangements to limit her Sign Site work in favour of Ms Campbell, although in May 2014 she was revising BAS: tab 131.
[44]Jackson p 2-59, 2-68, 69.
It was submitted that Mr Jones had falsely denied or minimised his involvement in the accounts of Sign Site, but my impression is that his involvement was largely formal and superficial.[45] It seems to me that it was Mr Butcher who was mainly involved in dealing with the accountants,[46] and they operated on instructions from Mr Butcher and on the computerised accounts which were the product of Ms Campbell. It was submitted that the various returns and declarations which had been signed by Mr Jones showed that he was familiar with the details of the accounts of Sign Site. Mr Jones said that he believed that what was presented to him for signing was correct: p 2-45, 46. It was argued he could not have had this belief if he did not have regard to the accounts of Sign Site, but the obvious explanation for such a belief is that he trusted Ms Campbell and the accountants to have prepared proper returns.
[45]In Exhibit 1 tab 11 p 5, when Butcher was explaining why the accountants were having to do so much work, he spoke of Ms Campbell having too much to do, but did not mention Jones.
[46]He was the one they talked to or (generally) emailed, and he circulated the documents they produced. They had access to Quickbooks, and later to Xero: Campbell p. 33
The defendants went to some trouble to try to show that Mr Jones was in a practical sense familiar with and responsible for the accounts of Sign Site. There are some formal company documents which allocated responsibility for the accounts to Mr Jones rather than to Mr Butcher or anyone else in particular, but in circumstances where there were only two directors such an allocation is largely nominal. Mr Jones had no accounting training, and he had the very difficult and time consuming task of being in charge of operations, that is to say, the actual production and installation of the various signs which Mr Butcher had sold to customers. That would have been a very demanding task, as shown by the fact that the minutes recorded at times that there were various difficulties in satisfying the requirements of all the customers.
With all this on his plate, I think it most unlikely Mr Jones would have had any time to take much of an interest in the accounts of the company. His responsibility would have been in practice essentially formal and nominal, particularly where it seems that he was only given the responsibility because he worked in Sydney, as did Ms Campbell who was keeping the books on a day to day basis. In those circumstances he would have signed tax return declarations simply because he was the director who was more readily available to do so. It was said that Mr Jones presented reports to the board meetings, but the evidence suggests that in fact it was Mr Butcher who was the liaison between the accountants and the other members of the board in relation to the financial accounts of the company. For example, the BAS statements for the September and December quarter in 2012 and the March and June quarter in 2013 were all signed by Mr Jones but the returns had been prepared by Prudent Partners and sent by them to Mr Butcher and Mr Jones on 8 August 2013: Exhibit 2, tab 35, where Mr Butcher then told Mr Jones to arrange with the accountants for these to be submitted. Mr Jones signed the declarations the following day.
I was referred to an email, Exhibit 2 tab 34 on 6 August 2013, which on its face was instructions by Mr Jones to Ms Campbell to concentrate on getting accounts payable and receivable up-to-date rather than helping other people with their work. The email refers to things that “we have to start looking at” next week. That however was essentially just an exercise in Mr Jones giving instructions about what Ms Campbell was to do herself, and does not demonstrate any particular knowledge of or familiarity with the accounts.[47] When cross-examined about this document, Mr Jones conceded that he was involved with accounts receivable and accounts payable: p 2-28.
[47]I have noticed that the last sentence in that email is in a different font from the balance of the email. How this came about was not explained by evidence during the trial, but it is certainly curious.
It was submitted that his evidence of a personal assurance by Mr Butcher that he would be paid was fanciful,[48] but Mr Butcher struck me as someone who would engage in that sort of theatricality,[49] and I find his evidence decidedly less credible. I would not criticise Mr Jones for the plaintiff’s attempts to build a case against the second and third defendants. Mr Jones also seemed to be quite upset, understandably, at what had been done to him, and at times somewhat nervous in the witness box. On the whole however it did not seem to me that anything particularly damaging to his credibility was exposed during cross-examination.
[48]Jones p 2-6 line 10.
[49]See for example Butcher p 5-32: claimed to be shocked when the plaintiff sued, and p 5-33 “ridiculous, obscene.”
On the other hand, I formed a decidedly unfavourable view of Mr Butcher, and would not place any reliance on any of his oral evidence unless it was supported by other credible evidence, generally contemporaneous documents, or inherently plausible. He manipulated the company accounts to make them look better than they were by the pre-invoicing and the resulting inflation of trade creditors, and therefore the value of assets, in order to keep the bank happy, which I regard as dishonest. Mr Butcher’s statements in the board meeting on 23 October 2014, Exhibit 1 tab 11 on p 3, make it clear that he was the one responsible for this, as a means of hiding losses in the first trading year. On p 4 he spoke of showing a loss in the second year (2014) because “we stole a million dollars from it.” That loss was also covered up by pre-invoicing.
That pre-invoicing was continuing is shown by the transcript of the conversation on 11 March 2015 Exhibit 1 tab 34 at p 11, where Mr Butcher said among other things “the business has pre-invoiced to the tune of about currently $800,000.00 worth of work which is showing on the balance sheet…”. Clearly this was something Mr Butcher was well aware of. Indeed he was responsible for it. It was a matter of manipulating the accounts to conceal from the bank the fact that the company had actually made a big loss during its first year: tab 11 p 3.[50]
[50]The “revised” 2013 tax return, Exhibit 2 tab 312, showed loss of $317,205, if that document has any validity.
In the meeting of 23 October 2014, Exhibit 1 tab 11, Mr Butcher said on p 4:
“But the good news is that we’ve got understated stock and there are other expenses and costs in the business which have been put through to cost of goods when they can be put down as assets and stuff like that[51] so what that means is that we’ve got to wait to spin the numbers a little bit more and just stick it out to putting us into a profit state for that last financial year which I will be doing that over the coming days with the accountant.”
[51]Perhaps payments on finance leases, for example. That would explain why Ms Campbell treated such payments the same way in the 2014 year.
He had earlier said “our zero books is showing a loss of $100.000.00 in that second year.” What he described in that paragraph was adjusting the figures generated by the electronic accounting system so as to get rid of an operating loss of $100,000.00 which appeared on the face of the books of the company for the 2014 year. That this was successfully completed by him and the accountant was shown by net income of $143,143.00 in the profit and loss account for 2014 as submitted to the bank, Exhibit 2 tab 223.[52] This was done in order to deceive the bank as to the true financial position of the company. That in my opinion was dishonest, and is significant for the credibility of Mr Butcher’s evidence.
[52]By the time the tax return for 2014 was put in, the net profit had grown to $176,124: Exhibit 2 tab 314. In an email to the accountants on 27 January 2015, Bishop told them “I have not completed my review of 2014 in Xero. This needs to be adjusted .. .” On 30 January he told them the accounts still contained many discrepancies, and needed a full audit by the accountants.
Apart from that, there were parts of his evidence of the negotiations with Mr Jones which were contrived, and not consistent with the documents. He said for example that at the meeting on 26 March 2015 he put forward two goodwill payments “to ensure that the status of the business as he was presenting it was to be correct and that the good will payments were incentive for him to work with me with regard to the transition from him out of the business”: p 3–64. He also said that the agreement on 27 March came to involve an additional $200,000 by way of an increase in the goodwill payments after he said to Mr Jones: “that’s definitely subject to the business succeeding as far as continuing to trade, that there’s nothing untoward that I don’t know about, that everything is in order and I can rely upon you to transfer all the information that you have back to me so I can properly get on with running this business.”[53]
[53]Butcher p 3-64, 65. Emphasis added to those parts not in Exhibit 1 tab 37 or tab 38.
The difficulty with that evidence is that it is inconsistent with the terms of the document which Mr Butcher himself composed on 26 March, and then modified on 27 March before it was signed: in neither case was the goodwill payment expressly made conditional upon the business having the financial position “presented” by Mr Jones, or that there was nothing untoward about the business that Mr Butcher did not know about. The warranties about the position of the business were only introduced later, by the lawyers. In those circumstances the ideas that this was said expressly to Mr Jones on 26 and 27 March, and that Mr Butcher was in fact concerned about this at the time, are unconvincing and contrived. Mr Butcher did not want Mr Jones to work with him in any transition, he had already been excluded from the business, and Mr Butcher just wanted him gone.
Also contrived was what was said by Mr Butcher at p 3–65, as to why the names of Mr and Mrs Jones and Mr and Mrs Butcher were added after the names of the plaintiff and first defendant in the tab 38 agreement:
“I just suggested it for the sake of not creating confusion that Zoe and I were attached to Visual Integrity and he and Robin were attached to Hilchrist”.
The notion that there might have been some confusion as to which company was the family company of which family is laughable.[54] I strongly suspect that the names were inserted so as to give the widest possible operation to the various releases and discharges included in the document: that would be a logical reason for taking that step, particularly if Mr Butcher had not thought through the implications of adding the individuals as parties to the agreement in this way. Of course once he took the document to lawyers he would have been advised of this, so by the trial he was keen to defuse any suggestion that these people had been deliberately added as parties.
[54]When I questioned him about this later, he first suggested that it was to do with the “restraints” and other (unspecified) conditions, and when I pointed out that restraints did not explain the reference to him and his wife, he added that the agreement was to extend to all personal debts: p 5-37.
His attempts to create an impression that he had very little to do with the accounts, and that the state of the company’s accounts up to the time when Mr Jones was removed from his position were the product of Mr Jones’ efforts alone, were obviously quite contrived, since it was clear that he was the one who had the established relationship, and who ordinarily dealt, with the accountants Prudent Partners, and very clear from the transcript Exhibit 1 tab 11 that he was the one who was responsible for manipulating the accounts in order to present a favourable impression to the bank. He was managing the detail of cash flow problems.[55] He spoke at one point in evidence in chief about “inserting myself as managing director with the external accountants” (p 3–40) but when he was cross-examined about that expression he persistently attempted to distance himself from involvement with the accounts or the accountants.
[55]Exhibit 2 tabs 42, 51. He also met the accountant to discuss finance (tab 44) and told Mr Jones how to reply to a query from a finance company: tab 48.
It was also obvious from some answers, particularly at p 3–27 lines 14, 15, that he was personally very bitter towards Mr Jones.[56] Some of his answers were long-winded and rambling, as if he was attempting to deal with difficult questions just by talking a lot.[57] He was also inconsistent in his answers to me at pp 3–41, 42 about how long expenses for Sign Site were being charged to the fourth defendant, evidence which still did not justify the proposition that there was some continuing ongoing difficulty in “reconciling” accounts between the fourth defendant and Sign Site. At p 3-73 he said he found the notice from the ATO on 7 September 2015 about understated PAYG returns for the 2015 financial year “unbelievable”, and that he had complained to Mr Jones about this (and other things) on 11 September 2015 because Mr Jones was the one who had completed the returns. But the deficiencies in the 2015 financial year in PAYG remissions arose from incorrect returns put in (very late) by Mr Bishop, and he was aware in March 2015 of accounts which showed a debt for unremitted PAYG as at 30 January 2015 of over $300,000: Exhibit 1 tab 19.
[56]Yet he was reluctant to admit that he wanted Jones out of the business: p 5-43, 44, 45.
[57]Examples of long-winded and generally irrelevant answers are at pp 3–29, 30, and p 3–60.
He disclaimed any involvement in BAS until after Mr Jones had been removed from his position (p 3–34), noting that he did not have access to the accounts when they were on QuickBooks: p 4-60. That was contradicted by an email in Exhibit 2 tab 17, which he affected not to recall: p 4–60. That Mr Butcher did not have personal access to the QuickBooks files (if that were the case) is of no great significance, in circumstances where the accountants had such access from about June 2013: p 33.[58] He had access to Xero from July 2014. By March 2015 he was sufficiently familiar with the Xero accounts to assemble Exhibit 12: p 4-106. Mr Butcher was also not forthcoming about the fact that he had partly undertaken a commerce degree at university, no doubt attempting to distance himself from anything to do with accounts.[59]
[58]Ms Jackson was able to log onto QuickBooks from the Brisbane office using a particular programme: p 2–73. So it is not clear why Mr Butcher could not do the same.
[59]Butcher p 3-23, 4-19; Exhibit 9. See also Exhibit 1 tab 11 p 6: “I have the most knowledge when it comes to accounting”.
On 16 October 2015 Mr Butcher affirmed an affidavit filed in the Supreme Court in support of an application to set aside a statutory demand served on the first defendant by the plaintiff on 1 October 2015: Exhibit 1 tab 16. In paragraph 16 he said that a list of taxation liabilities of Sign Site became known to him after the tab 42 agreement was signed. The list included the opening balance figure of $40,055.46, but Mr Butcher was told that a sum of a little more than that was owing in an email from the accountants on 17 Match 2015 (Exhibit 2 tab 250), which was apparently sent again on 2 April 2015: tab 256. Mr Butcher admitted that he did know that this payment was outstanding before the agreement was signed: p 4-88. As well, in paragraph 14 he said that “Mt Jones … had not submitted a large number of lodgements … .” In context this related to BAS and PAYG returns, and the discovery was said to have been made after 21 May 2015. The email of 17 March 2015 tab 250 also advised that the result of the negotiations between the accountants and the ATO about the lodgement of BAS and other lodgements undertaken “as per your request” and listed the returns listed in the defence paragraph 47. The email of 2 April 2015 Tab 256 reminded him that these returns were still outstanding, and that it was “vital that these outstanding items get lodged” by 7 April. Mr Butcher therefore affirmed an affidavit which was false in these two respects.
His evidence that he relied on the accounts of the company for his belief as at 27 March 2015 that the shares and units were worth $7-800,000 (p 4-105) was also false, as shown by the transcript of the unitholders meeting on 11 March 2015 (Exhibit 1 tab 34 p 11) where he spoke of the need to strip pre-invoiced work out of the balance sheet: “the balance sheet position will shift from showing us in a position of 900 odd thousand on the balance sheet to being virtually zero.” This shows that he knew in March 2015 that the accounts of the company had been artificially inflated by the pre-invoicing, and that without this feature the book value of the company was essentially nothing, as his solicitors said in their letter of 11 March 2015: Exhibit 1 tab 35.[60]
[60]I was also not impressed by his attempts to distance himself from that statement in the letter: p 4-105, 6.
There also seemed to have been some surprising holes in the defendant’s disclosure, particularly documentation held by the accountants, or associated with the tax office audit of the accounts of Sign Site. Although by the last day of the trial the tax audit was said to have been completed (p 5-5) no documentary evidence about the outcome of the audit was produced, or to support Mr Butcher’s evidence that he and the accountants had been absolved from fault, although I said its absence would be a matter for comment: p 5-5. Mr Butcher’s account of the difficulty he had in dealing with the company accountants about documentation which they had been asked to produce (multiple times according to Mr Butcher: p 4–50) was really quite theatrical and unbelievable: p 4–50. He said that he did not know what documents solicitors need or don’t need to prove a case; that is not the point, and in any event the solicitors had advised what documents he needed to disclose. I know that, not just because that is what any solicitor would do in the circumstances, but because on 28 August 2017 a certificate by the solicitor about disclosure was handed up in accordance with the practice direction, certifying that the solicitor had “fully explained to my clients the duty of disclosure under chapter 7 of the Uniform Civil Procedure Rules”. Overall I regard Mr Butcher as a thoroughly unreliable witness.
Was the tab 38 agreement superseded?
In my opinion the tab 42 agreement did supersede the tab 38 agreement. The proposition that a relatively informal agreement can be subsequently superseded by a more formal agreement is one which has long been recognised by the law, and one which usually gives rise to difficulty only if the more formal agreement is not ultimately made between the parties. Where it is made however it is well established that its effect is to supersede the earlier agreement.
The essential functions of the tab 38 agreement was to provide for the sale by the plaintiff to the first defendant of the shares in Sign Site Pty Ltd and the units in the unit trust, and for the releases by the plaintiff and Mr Jones of all claims he otherwise had on the company or Mr Butcher or his interests. That was also the functions of the tab 42 agreement. That latter agreement was prepared by solicitors, and was a more formal agreement. It dealt with matters with greater precision of language,[61] and it contained some additional terms of a kind one might expect to find in a more formal agreement. There is the further consideration that there was nothing stated in the formal agreement which expressly or impliedly indicated that any aspect of the earlier agreement was to survive. It expressly recited that the terms of the sale and purchase were to be those “set out hereunder”. Further, special condition six contained a mutual release from all obligations between the plaintiff, the first defendant, the unit trust and the company to each other, other than the obligations contained within that agreement. That would have the effect of discharging any obligations between the plaintiff, the first defendant and the company created by the tab 38 agreement. In those circumstances in my opinion the tab 42 agreement is binding between the plaintiff and the first defendant, subject to any relief granted pursuant to the counterclaim, and superseded the tab 38 agreement.
[61]Perhaps, rather, less imprecision. It is scarcely a model of the draftsman’s art.
Counsel for the plaintiff referred to the decisions in the High Court in Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 and Concut Pty Ltd v Worrell (2000) 75 ALJR 312. In the former the court confirmed the statement in Tallerman & Co. Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 144:
“The parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”[62]
In Sara Lee there was a contract for the sale of land, and a later agreement which varied that contract in important respects, changing both the purchase price and the identity of the purchaser. Nevertheless, the later agreement expressly provided that it functioned as “an amendment” of the earlier agreement, and that “except as provided in this agreement … the [earlier] agreement remains in full force and effect.” In these circumstances the court had little difficulty in concluding that the later agreement took effect as a variation of the earlier agreement, and did not replace it.
[62]This reference to the later agreement shows that it cannot assist the plaintiff to refer to the provision in the tab 38 agreement that the “formal sale agreement” was to contain “no changes to the conditions and terms of sales other than that required by law to enable the sale to take place.”
In Concut (supra) an employee of a company who initially was engaged on an oral agreement entered into a written contract of service “to record the terms and conditions of the employee’s employment with [Concut]”. In subsequent proceedings by the employee for wrongful dismissal, an issue was whether that agreement was a new and discrete contract of employment replacing the earlier oral agreement between the parties. The High Court held that the written contract did not have the effect of releasing any entitlement to terminate which had arisen prior to it because of breach by the employee. Whether it had that effect was decided by reference to the terms of the written agreement, and the surrounding circumstances: [20]. The majority noted that the written agreement recited that the employee was an employee of the company, and manifested no intention to displace accrued rights and liabilities. It specified a term for the employment, but not a starting date. Indeed one clause expressly provided that nothing in the agreement “shall in any way, limit or restrict the accrued rights of the employee with respect to prior service … .” In these circumstances, it was not difficult for the High Court to reach the conclusion that the written agreement modified the existing contract of employment between the parties, but did not substitute a wholly new contract, and did not have the effect that any undisclosed serious misconduct committed prior to that date became irrelevant: [22].
Given the terms of the later agreements considered by the High Court in those two cases, the conclusions reached by that court are unsurprising. There are no equivalent indications in the present case. On the face of it, the tab 42 agreement is a complete agreement between the parties to it, and it contains no express recognition of any relevant earlier contractual relationship such as the tab 38 agreement. This is not an agreement governing a continuing relationship which could be seen to have been modified in some way, but to be otherwise continuing: it was an agreement essentially for the disposition of certain property and for associated releases, and on its face a complete statement of how that process was to be undertaken, and therefore naturally to be read as something which has superseded the earlier agreement. The context provides some support for this, in that the earlier agreement expressly provided that there would be a more formal agreement entered into.
Sara Lee and Concut were referred to and applied by the Court of Appeal in Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636 at [5], [6]. In that judgment McPherson JA expressed the proposition that what was involved was “a comparison of the earlier and later contracts and an assessment of the significance, if any, of the differences between them in the light of the circumstances surrounding the contracts. To establish rescission, the latter contract must … be entirely inconsistent with the earlier contract; or, if not entirely inconsistent with it, be inconsistent with it to the extent that goes to the very root of it.” In that case there had been a written contract for the sale of land under which the balance purchase price was payable at completion. The parties subsequently entered into an agreement which purported to vary the contract to provide for vendor finance, in a way which it was accepted at trial was void for uncertainty. The issue was whether that agreement had nevertheless effected a release of the earlier contract. It is not a test which would naturally apply in circumstances where an informal contract has been followed by a formal contract which essentially covered the same ground, but which had a significant difference. In such a situation, it would not be surprising if the later contract was substantially consistent with the earlier one. The essential issue is whether there was a change in the parties, and the effect on the existing contract of the deliberate omission from the later contract of some of the parties to the earlier contract.
It was submitted by the plaintiff that the tab 42 agreement did not supersede the tab 38 agreement because there were matters covered by the tab 38 agreement that were not covered by the tab 42 agreement. This was related to the submission that the later agreement did not discharge the earlier one because the parties were different. The tab 38 document is drafted without distinguishing between the companies and the people behind them, and it is in other respects drafted without precision. For example the second paragraph speaks of “my offer to purchase your entire unit holding” whereas the reference to the stages talks about “shares” in the Sign Saint Trust. There were in fact shares in Sign Site Pty Ltd, and units in the Sign Saint Unit Trust. There was also a reference to “Site Group Investments” which is obscure.
The agreement stated expressly:
“Seller: HILCHRIST, Alan Jones, Robin Jones
Buyer: VISUAL INTEGRITY, Andrew Butcher, Zoe Butcher.”
That this extended deliberately to two individuals apart from each company was shown by the fact that part of what was promised was that the buyer would arrange “the release of seller from company guarantors [sic] with banks and leases and transfer obligations and guarantees to the buyer.” I expect that bank and other guarantees would have been given by individuals, not by the plaintiff, and if they were to be transferred it would be to Mr Butcher and his wife rather than to the first defendant, if as usual guarantees by natural persons were sought.[63]
[63]As to the bank’s requirements, see Exhibit 2 tab 38. The names of the individuals were put in at the suggestion of Mr Butcher: Jones p 2-79.
The use of the broader definitions of seller and buyer also fitted in better with the special conditions about the assets “provided by the seller”, including assets “in the name of the seller or their associated entities such as Duskheat Pty Ltd … .” The second paragraph under the heading Special Conditions was also obviously intended to extend to individuals rather than just the plaintiff and the first defendant, particularly because of the reference to claimed wages and loans in general. The document was signed by Mr Butcher as “MD Sign Site Pty Ltd, Visual Integrity Pty Ltd.”[64] Overall therefore it seems to me that there are a number of indications to show that the parties to the agreement included Mr and Mrs Jones personally as well as the plaintiff, and Mr and Mrs Butcher personally as well as the first defendant.
[64]A person may sign an agreement in more than one capacity; Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 at [57], [58].
On the other hand, the tab 42 agreement clearly identifies the three parties to it, although there are provisions in the document which refer to the position of “associated entities” or “related parties” to the parties to the agreement: special conditions 2, 3, 4, 5. This document is not well drafted. Although the terms “vendor” and “purchaser” were defined and used generally in the agreement, the special conditions in clause 3 use the expressions “seller” and “buyer”, while clause 7(b) uses the term “vendors” in the plural, and clause 9 manages to use that term in both singular and plural. Nevertheless, there is nothing of substance in the wording of the tab 42 agreement to suggest that there are any parties to it other than the three nominated by the document itself.
That does not in my opinion cause any difficulties in the operation of the later document. To the extent that there are obligations to non-parties, such as the obligation in clause 3 for the purchaser to arrange the required company guarantor releases, they could have been enforced if necessary pursuant to the Property Law Act 1974, s 55. In so far as special condition 2 required assets to be transferred to Sign Site or the trust by persons other than the vendor, the condition amounted to a promise by the vendor that that would occur, in effect a promise to procure such transfers. In the same way, an obligation to release a loan from a related party of the vendor to a related party of the purchaser within special condition 3 could be covered by treating that as an obligation on the relevant party to the agreement to procure such a release from the related party. On the whole I do not think that there is any difficulty caused by interpreting the tab 42 agreement as one just between the vendor, the purchaser and the company. That does mean that to some extent there were obligations contained in the tab 38 agreement which were not carried over into the tab 42 agreement, in particular as to who was liable to make the payments to the seller under the agreement. That is not in my opinion inconsistent with the proposition that the new document superseded the old document.
It is of course possible for a situation to arise where parties will restate in more precise terms part of an earlier agreement, while leaving the balance of the earlier agreement in place.[65] In the present case however the major difference between the two agreements lies in the omission of the natural persons from the identification of the “buyer” and “seller”. In effect, it is a situation where there was a change in the parties to the agreement. It has been said that a situation where there is a change in parties is one which ordinarily involves a new contract coming into existence which replaces the former contract.[66] Commonly this occurs in a situation where a contract between A and B is replaced by a contract between A and C, in which situation the agreement of all three parties is required.[67] In the present case the natural persons who signed the tab 42 agreement were the same as the natural persons who signed the tab 38 agreement, and the difference is that the natural persons who were parties to the earlier contract were omitted from the later. That seems to me to be a good example of a situation where there has been a new contract which replaces entirely the earlier contract, specifically with the intention of omitting those additional parties.
[65]Midland Brick Co Pty Ltd v Welsh [2006] WASC 122 at [244]-[249].
[66]Seddon & Ellinghaus “Cheshire and Fifoot’s Law of Contract” (9th Australian ed, 2008) p 1065.
[67]Olsson v Dyson (1969) 120 CLR 365 at 388.
The alternative interpretation would be somewhat cumbersome. The plaintiff’s argument is really that the later contract may have amended or restated the terms of the agreement between the plaintiff and the first defendant, and the company, but left untouched the contractual obligations owed by and to the natural persons, on the basis that they were not parties to the later contract. That would produce a commercially inconvenient situation, which is in itself a reason not to interpret the later contract in that way. It would mean for example that as between the plaintiff and the first defendant, the entitlement to receive the last two payments was dependent on the plaintiff not having breached the conditions of the tab 42 agreement, whereas the entitlement of Mr and Mrs Jones under the tab 38 agreement was dependent upon them not having breached the conditions of the tab 38 agreement.
There is also a difficulty created by the identification of the nature of the right held by the multiple sellers and multiple buyers. At common law in the absence of anything to sever the obligations, the presumption would be that the promises were joint rather than joint and several, or several.[68] In Queensland that would be subject to the operation of the Property Law Act 1964 s 54, which would make the relevant promises, promises made jointly and severally by each of the persons. The tab 38 agreement however was made in New South Wales, where there is no equivalent to s 54. In those circumstances, the common law rule applies, and the obligations were joint. But the release of one joint promisor discharges of all of them.[69] In the tab 42 agreement, there was an express release of the first defendant from all obligations other than those within that agreement, which would include a release from the obligation to pay money to the plaintiff under the tab 38 agreement. That also released the obligation on Mr and Mrs Butcher under the tab 38 agreement to pay the money. Indeed, even if s 54 had applied, the release of the first defendant would still have operated as a release of all three, because the release of one joint and several covenantor discharges the others in the same way as with a joint covenant.[70]
[68]Glanville Williams “Joint Obligations” (1949) p 35.
[69]Glanville Williams op. cit. p 106.
[70]Glanville Williams op. cit. p 135.
It follows that Mr Jones and the plaintiff could not have known of this, since it did not happen. Indeed there was no evidence that Mr Jones knew of this as alleged in paragraph 8 of the counterclaim. Further, I am not persuaded that Mr Jones knew of the errors alleged in paragraph 49 of the defence, or at least so much of them as have been presently proved. I am satisfied that Mr Jones was not aware of the errors referred to in paragraph 49(c) or paragraph 49(d), though he was aware that there had been pre-invoicing which would have had an effect of distorting the financial position of Sign Site. It was certainly the case that Mr Jones did not inform Mr Butcher during the meeting of those errors. I am not prepared to draw the inference alleged in paragraph 11 of the counterclaim that in the circumstances the state of the accounts referred to in paragraph 6 amounted to a misrepresentation about the financial position of Sign Site by Mr Jones to Mr Richards. To the extent that they were inaccurate, Mr Richards was well aware of that, and indeed had much better knowledge of it than Mr Jones did. There was no misrepresentation by Mr Jones.
I am also not persuaded that there was any duty on his part to say anything about the accounts, in circumstances where Mr Butcher was in a much better position to be aware of the true state of the accounts than he was. Accordingly I am not persuaded that Mr Jones, or the plaintiff acting through him, engaged in conduct which was misleading or deceptive for the purposes of the Australian Consumer Law or the Fair Trading Act 1989. The allegation in paragraph 13 was not made out. It follows that neither Mr Jones nor the plaintiff were involved in a contravention of s 18 of the Australian Consumer Law by the other. Even if there had been some representation of the accuracy of the accounts, there was no reliance on it. The first defendant therefore cannot show that it suffered any damage as a result of any contravention of the Australian Consumer Law, or for that matter the Fair Trading Act. The counterclaim for misleading and deceptive conduct fails. In those circumstances, the counterclaim is dismissed with costs.
Conclusion
The plaintiff is therefore entitled to judgment that the first defendant pay it $534,999 together with interest under the Civil Proceedings Act 2011 s 58. I allow interest on $134,999 from 19 September 2015, on $150,000 from 1 July 2016 and on $250,000 from 1 July 2017, to the date of judgment. According to the court calculator, such interest comes to $49,434.41.[157] There is therefore judgment that the first defendant pay the plaintiff $584,433.41, including $49,434.41 by way of interest. I declare that the transfer by the first defendant to the fourth defendant of the shares in Sign Site Pty Ltd and the units in the Sign Saint Hybrid Unit Trust is void as against creditors of the first defendant. The claims against the second and third defendants are dismissed. The counterclaim is dismissed. I will hear submissions on the question of costs.
[157]$20,755.18 + $16,021.69 + $12,657.54