Ashton v Pratt [2015] NSWSC 770 | Case summary

Factual background

Some aspects of the factual background are uncontroversial, although others are the subject of significant factual contest. Several aspects of the parties' evidence are in stark contradiction, such that both versions of the evidence cannot be true. In closing submissions, Mr Ogborne rightly pointed out that the evidence of Mr Elfar and the evidence of Mr Tiplady could not be reconciled, and it will be necessary for the Court to determine which evidence was to be accepted (T89). A further possibility is that the Court is left in a position where it is unable to reach that determination, given the inadequacies in the evidence before it, and in that case Mr Elfar must fail, on the basis that he has not satisfied the onus of proof which rests upon him as the plaintiff in the proceedings.
Mr Elfar's evidence is that, since 2000, he has been involved in companies known as "Civil & Civic Hydraulic Services Pty Ltd" and similar names. Mr Elfar was disqualified by the Australian Securities and Investments Commission from being a director of a company for two years from 25 August 2010. In October 2010, Mr Elfar was arrested in relation to importation charges; he was released on bail in January 2013; and was, at least at the time of his affidavit sworn in February 2015, still on bail. Mr Elfar met Mr Tiplady while they were both in prison on remand. Mr Tiplady then advised Mr Elfar that he, Mr Tiplady, had a Bachelor of Laws degree and Mr Elfar says that he, for reasons that are not further explained, then suggested that he and Mr Tiplady should "get together under the Civil & Civic banner" when they were respectively released from prison.
Mr Elfar's evidence is that he had a further conversation with Mr Tiplady, after his release on bail, in which Mr Elfar indicated he would use his superannuation and long service leave payment to fund the Company, and that everything would be "split 50/50" with "equal pay and equal dividends", and Mr Tiplady agreed to that proposition. While Mr Tiplady accepted that there was discussion of Mr Elfar obtaining his superannuation, he denied that that was for the purpose of funding the Company, and instead suggested that it was directed to "setting up a variety of businesses and multiple streams of income" and that Mr Elfar "was going to help me out as a young and up and comer by giving me a loan" (T72). I reject that evidence. It seems to me highly unlikely that Mr Elfar would have withdrawn his superannuation for the purposes of making such a loan generally, as distinct from the funding of a company in which he expected to have an interest, albeit that interest was not, as I will note below, held on terms that were legally enforceable.
Mr Elfar's evidence is that he attended a meeting with Mr Tiplady and Mr Elfar's accountant, Mr Kotselas, on about 4 July 2013, where reference was made to starting up Civil & Civic again; to Mr Elfar and Mr Tiplady working together on the basis that they will "get equal pay and share profits equally"; and that Mr Tiplady would be doing the administration and Mr Elfar would be handling the works. Mr Tiplady in turn denied, both in his affidavit evidence and in cross-examination, that Mr Elfar had, at the meeting with Mr Kotselas, referred to starting up Civil & Civic again, or to equal pay and an equal share of profits, or to an allocation of work between administration done by Mr Tiplady and works done by Mr Elfar (T71).
Mr Kotselas gives evidence of a further meeting held on 2 August 2013, attended by Mr Elfar, Mr Tiplady and several associates of Mr Elfar who worked in the construction industry, at which Mr Elfar said: "Until all the paperwork is done, the shares should be held by [Mr Tiplady], [Mr Tiplady] will hold 50% on my behalf under a gentlemen's agreement. [Mr Tiplady] should be the sole director and secretary of the company." That cannot have been understood by any of the participants as amounting to merely a short term arrangement, until the Company was incorporated, since that occurred promptly and Mr Tiplady remained as the sole shareholder in the Company. It is also consistent with an arrangement in the nature of a "gentlemen's agreement", to which I will refer below.
Mr Elfar refers to a further meeting with Mr Tiplady and his accountant on 4 August 2013, which may be the same meeting as that to which Mr Kotselas refers although they differ as to its date and who attended it, where Mr Elfar claims he said words to the following effect: "Due to the criminal proceedings against me at the moment, I do not believe I should hold my shares in my name. I would prefer that Ben [Tiplady] hold 50% of the shares in [the Company] in trust for me under a gentlemen's agreement. I trust Ben [Tiplady] and believe he should be the sole director and secretary of the Company." I have italicised the words "under a gentlemen's agreement" to which I will refer below. Mr Elfar did not explain why he considered that the criminal proceedings meant that it was undesirable that he hold the relevant shares in his name. Mr Elfar's evidence was also that the Department of Fair Trading would not then reinstate his plumber's licence, and another plumber, Mr McGroder, was employed by the Company as its licence holder.
Mr Elfar gave evidence of obtaining $5,000 from his long service entitlements, although further evidence as to how that was applied was rejected by reason of its form with leave. Mr Elfar also gave evidence of obtaining $45,000 from his superannuation trust fund "that was loaned to Ben Tiplady to invest" into the Company. In his first affidavit, Mr Elfar referred to the loan of $45,000 from his superannuation fund, without disclosing that those monies were repaid prior to the commencement of the proceedings. By a further affidavit dated 27 March 2015, Mr Elfar acknowledged that the amount of $45,000 had initially been paid to another entity, Palm Stead Investments, not the Company, and that it had been repaid. He asserted that those funds had been paid to the Company "as start-up capital". That characterisation left unexplained the potential inconsistency involved in the payment being characterised as a contribution to the Company, by way of start-up capital, although it was made to another entity and subsequently repaid.
Mr Elfar gives evidence of a further conversation, at a meeting in early April 2014, after issues had arisen between Mr Elfar and Mr Tiplady as to the level of reporting by Mr Tiplady as to the Company's affairs, in which Mr Elfar said that: "Ben we discussed from the start that both you and I are equal in this Company, and you are holding my share under a gentlemen's agreement. As you are aware there are other parties involved and they will be brought on board once they can put up capital." The reference to other parties in that conversation is to other associates of Mr Elfar who had shown an interest in participating in the Company. By email dated 10 April 2014 (Ex P1, p 10), Mr Elfar wrote to Mr Tiplady stating that: "Ben I am [in] this business also so I need to know what's going on at all times 50% regardless of my issues."
In Mr Tiplady's response on the same day (Ex P1, p 10), he referred to a "gentlemen's agreement" in respect of the shares and did not directly take issue with the claim that Mr Elfar held a 50% interest in them. By that response, Mr Tiplady stated that: "You need to understand the way that things are basically structured. WE HAVE A GENTLEMEN'S AGREEMENT AS TO WHAT IS TO BE DONE. [sic] In practical terms, this is what is actually happening: 1 I am the sole director. I am responsible for all bills. I am responsible for all headaches. I am liable for all law suits. 2. You are being paid for your hours on site, as a contractor. You bear no risk in relation to bills of the Company. You are not liable for anything in any law suit. 3. In relation to profit made on projects, you will be paid your amount in the form of a 'bonus' which is also to be invoiced for …"
Mr Tiplady's evidence in cross-examination was that what was set out below the words in capitals was the content of the "gentlemen's agreement" (T73) and that agreement related to payment of project bonuses, if projects were brought on by Mr Elfar's contacts and made a good profit (T76). I also do not accept that evidence, and I accept that that agreement had a wider character. It seems to me that Mr Tiplady was, in that email, contrasting the "gentlemen's agreement" as to Mr Elfar's interest in the Company with what had occurred in practical terms, where Mr Tiplady was exposed to liability in respect of the Company's affairs and Mr Elfar was not.
A document which, on its face, appears to be signed by Mr Tiplady on 11 April 2014 (Ex P1, p 11), in turn reads as follows: "Deed of Arrangement I Benjamin Tiplady, the sole director of [the Company] hold in trust for Terrance Elfar 50% of this Company under a Gentlemen's Agreement. I therefore recognise Terrance Elfar's right to 50 per cent ownership of [the Company]."
Mr Tiplady's evidence in cross-examination was that the 11 April document was signed with an electronic signature, which was used only for sending correspondence to clients, which Mr Elfar had previously used in emails, and that he had not seen the document before (T86). There was no reference to that position in Mr Tiplady's affidavit evidence in the proceedings although he claimed that he had notified his solicitor straight away of that matter (T86). Mr Johnson, who appeared for Mr Tiplady, accepted that he did not put anything to Mr Elfar in relation to the 11 April 2014 document (T97). It does not seem to me that it is open to Mr Tiplady to put the proposition that the signature to the 11 April document was an electronic signature wrongly applied by Mr Elfar, where that allegation had neither been disclosed by Mr Tiplady's affidavit evidence nor put by Mr Johnson in cross-examination. I do not consider that I could reach such a finding where Mr Elfar has never had the opportunity to answer it.
The 11 April document was plainly not a deed, since the formalities necessary for execution of a deed were not complied with. No party addressed submissions as to whether sufficient consideration existed to support it as an agreement. The document refers to a "gentlemen's agreement" in the first paragraph but the second paragraph, somewhat inconsistently, refers to Mr Elfar having a "right" to "50% ownership" of the Company. Mr Ogborne contends that this document is inconsistent with a characterisation of the "gentlemen's agreement" as a non-binding agreement, on the basis that the terms of that document describe a binding arrangement of ownership and trust (T103). On balance, I consider that the reference to recognising a "right" in that paragraph must be to a right that arises under the "gentlemen's agreement"; raising the question whether that right is legally enforceable which I will address below. If I am wrong in that view, that right could be no more than a beneficial interest in 50% of the Company's shares to which Mr Tiplady then had legal title.
Further disputes between the parties arose from mid-2014, directed to the manner in which Mr Tiplady was conducting the administration of the Company and possibly other companies. By email dated 29 November 2014, Mr Tiplady arranged for third parties to be advised that Mr Elfar was no longer associated with the Company and that orders made by him should not be made on the Company's trade account (Tiplady 6.3.2015, Annexure "D").
A further email dated 1 December 2014 from Mr Elfar to Mr Tiplady (Ex P1, p 17) referred to matters discussed at a meeting with Mr Stefanovski on 29 November 2014, and stated that: "A 50% shareholding is to be transferred to Michael Stephanovski [sic] so he can manage my interest within Civil & Civic Infrastructure." That direction appears within a list of matters to be attended to, at a time the parties were in dispute, and it is not clear whether it is dependent on agreement as to the other matters, which does not seem to have been reached. That direction was also given at a time that, as I have noted, Mr Elfar's "right" to the shares arose under the "gentlemen's agreement" and, if it were legally enforceable, was no more than a beneficial interest in the shares.
Mr Tiplady replied on the same date indicating that "not all of this was agreed" but not identifying the specific matters that were agreed or not agreed. Several further emails followed on 1 December 2014 debating the terms of any agreement between the parties, culminating in a threat by Mr Tiplady in an email sent on 11 December 2014 to Mr Elfar (Ex P1, p 26): "I will recommend to you, that given my position as sole director and my structures in place, you are best positioned to maintain a friendship and anticipate that I will do the same. As a friend, I encourage you to contemplate this: if you are claiming Centrelink, and choose to commence proceedings, you will also expose yourself to a very large charge of defrauding the commonwealth [sic] which will include your legal aid bill also. Be careful how you step." That email seems to me only consistent with the content of the "gentlemen's agreement" involving Mr Elfar's holding an interest of some kind in the Company; otherwise, as was put to, but denied by, Mr Tiplady in cross-examination (T78), the disclosure of that agreement would have had no risk to Mr Elfar in respect of any government benefits or legal aid which he had received.
The amount of $45,000 that had been advanced by Mr Elfar to another entity was repaid by Mr Tiplady on 12 December 2014 (Ex P1, p 27).
An email dated 15 December 2014 from Mr Elfar to Mr Tiplady, Mr Stefanovski and Mr McGroder stated as follows: "Ben [Tiplady] will agree to relinquish the 50% shareholding from [Company] of Terry Elfar's that has been held by Ben Tiplady under a gentlemen's agreement since the conception of the company, this share will be transferred into the name of Michael Stephanovski [sic]. This will also be noted in the minutes of the company register." This email was sent late on 15 December 2014, and contemplated a meeting at a site on which the Company was then working on the next day, 16 December 2014. Mr Ogborne submitted that that email gave effect to an agreement said to have been reached the previous day, by requiring the transfer of the trust property to Mr Stefanovski (T93). The language of that email seems to be more consistent with a proposed agreement that had not yet been formed ("Ben will agree"), rather than with implementing an agreement that had previously been formed. The latter reading of the email is potentially inconsistent with Mr McGroder's evidence that the relevant meeting took place, and a document ("December document") was signed at it, on 14 December 2014; with Mr Elfar's evidence that the meeting took place and the December document was signed on 15 December 2014, and with the date recorded on the December document, of 15 December 2014. However, the real issue in dispute is whether the December document was signed at that meeting, whenever it occurred, and little ultimately turns on the date of the meeting.
The further meeting took place on the site of a project that was then being undertaken by the Company, and the December document was signed at least by Mr Elfar and Mr McGroder, and, on their evidence, also by Mr Tiplady. The December document was titled "Deed of Arrangement of [Company]". The document was not a deed, since the formalities necessary for execution of a deed were not complied with. No party addressed submissions as to whether sufficient consideration existed to support it as an agreement. The December document provided, relevantly: "1. Ben [Tiplady] will agree to relinquish the 50% shareholding from [the Company] of Terry Elfar's that has been held by Ben Tiplady under a gentlemen's agreement since the conception of the Company, this share will be issued into the name of Michael Stephanovski [sic]. This will also be noted in the minutes of the Company register. 2. Ben Tiplady and Terry Elfar agree that 20% of Company will be signed over to Stuart McGroder as Licensee of [the Company]. Ben Tiplady and Michael Stephanovski [sic] both foregoing 10% holding each." Further provisions in the December document dealt with the treatment of current and future funds of the Company, the provision of accounts to Mr Elfar, the preparation of books of the Company, the position if Mr Tiplady wished to end his relationship with the Company, and as to withdrawals made by Mr Elfar and Mr Tiplady from the Company on the basis that such withdrawals: "Should both reflect the original gentlemen's agreement of equal pay rates to Ben Tiplady and Terry Elfar as equal working partners/Share Holders and as noted Michael Stephanovski [sic] holds this share in trust for Terry Elfar." The December document also noted that Mr Tiplady was the current guarantor of Company accounts and that all shareholders must bear that burden.
There is a substantial contest as to what occurred at that meeting and as to whether Mr Tiplady signed the December document. A representative of the client, who was present for part of that meeting, was not called by either party to give evidence. Mr Elfar's evidence is that he prepared a draft of the December document to confirm the parties' arrangements which Mr Tiplady then amended and which Mr Elfar, Mr McGroder and Mr Tiplady then signed. On Mr Elfar's account, and also on Mr McGroder's evidence, a debate then took place as to whether Mr Tiplady had applied his usual signature to the document. Mr Elfar denied in cross-examination that he made a threat to walk off the site at the meeting (T29), although he had referred to that possibility in an email dated 15 December. It appears that Mr Elfar and Mr McGroder did walk off the site, on 17 December, although Mr Elfar sought to attribute that in cross-examination to Mr Tiplady's failure to abide by the agreements reached (T29).
Mr Elfar's evidence as to the meeting was supported to a substantial extent by Mr McGroder. Mr McGroder gives evidence of conversations with Mr Elfar in which Mr Elfar had indicated his concerns about his ability to obtain financial information from the Company and he gives evidence of the relevant meeting, which he says took place on 14 December 2014, at which he says the December agreement was signed. His evidence is that he heard only parts of the conversation between Mr Elfar and Mr Tiplady and observed Mr Tiplady typing on a computer on which the draft document was held, and that Mr Elfar then went away to print three copies of the document and Mr Tiplady signed that document. Mr McGroder also refers to a claim made by Mr Tiplady at that meeting that the document was signed "under duress". Mr McGroder's evidence in cross-examination was that he was present when the December document was signed; was present when the dates were put on; and that occurred on 15 December 2014, although his affidavit had referred to it having occurred on 14 December 2014, and although the email to which I referred above may suggest that it may not have occurred until 16 December 2014 (T51). Mr McGroder denied that Mr Elfar advised Mr Tiplady that he had to sign the document or that Mr McGroder and Mr Elfar would otherwise not finish the jobs, and denied that Mr Tiplady refused to hand over 60% of the Company or referred to his having all the liability on the jobs or to all the trade accounts being in Mr Tiplady's name, although he fairly acknowledged that Mr Tiplady made that point when the parties were first dealing with each other (T54). Mr McGroder also denies that Mr Elfar had put, as Mr Tiplady contended, that if Mr Tiplady did not sign the document, Mr McGroder would revoke the plumber's licence for the Company (T54). In assessing the weight to be given to Mr McGroder's evidence, I am conscious that Mr McGroder has a friendship with Mr Elfar, and subsequently made his plumbing licence available to another company established by Mr Elfar, Civil & Civic Construction Pty Ltd (T55-T56) and that he would have a natural inclination to support Mr Elfar's claim in the proceedings. I also bear in mind that Mr McGroder did not present as a dishonest witness and properly acknowledged that he had not heard all that had occurred at that meeting.
Mr Tiplady's evidence is to the contrary of that of Mr Elfar and Mr McGroder. Mr Tiplady's evidence, by his affidavit dated 6 March 2015, was that he refused to sign the document that Mr Elfar put before him on 15 December 2014; that the scribble next to his name on that document is not his signature; and that he never signed the document or authorised anyone to sign it on his behalf (Tiplady 6.3.2015 [22]). Mr Tiplady also refers to a threat made by Mr Elfar that he must sign the document or Mr Elfar and Mr McGroder would not finish the jobs, and says that he responded to that threat by saying that Mr McGroder and Mr Elfar could "go and get stuffed" and that he would get someone else to finish the job. If Mr Tiplady signed the December document, he did not use his usual signature to do so.
The contention that Mr Tiplady's signature on the December document had been forged was not squarely put either to Mr Elfar or Mr McGroder in cross-examination. Mr Johnson sought to have me draw inferences from the colour of the ink in which Mr Tiplady's signature was written in the original of the 15 December document (Ex D1) and as to the handwriting in which the dates were written. Such inferences would require the exercise of expertise as to handwriting and ink colour which I do not possess, and could properly have been the subject of expert evidence. I am unable to draw such inferences without the assistance of such evidence.
Mr Johnson submitted, with substantial force, that Mr Elfar's subsequent conduct is inconsistent with the December agreement having been signed in mid-December 2014. A container of equipment was removed by Mr Elfar from the site on which the Company was then working on 19 December 2014, and an invoice for that removal in evidence. Mr Johnson puts, with substantial force, that it is unlikely that Mr Elfar would have damaged the Company's business relationship with its client by removing his equipment in that container on 19 December and disclosing the disputes within the Company to clients, as he did over that period, if he then considered there were binding arrangements for him to be a shareholder in the Company (T99). Mr Elfar also commenced operating through a new company, Civil & Civic Construction, in January 2015, using Mr McGroder's plumber's licence (T99). In February 2015, a second container was removed by Mr Elfar from another location. Mr Johnson also submits that that conduct is inconsistent with his having acquired a substantial interest in the Company by the December document.
I am conscious that there may be another possible explanation of Mr Elfar's conduct after the meeting at which the December document was allegedly signed, which neither party chose to advance, because it was not consistent with their respective interests in the proceedings. It may be possible that, by that time, Mr Elfar was seeking to force a recognition of his interest in the Company, and did so by making the threats of withdrawing from the site to which Mr Tiplady refers, while nonetheless intending then to exit the Company or cause its winding up and to establish other companies using the Civil & Civic name, as he did in January 2015. His conduct in removing the container would not then be inconsistent with the signature of the document, if he had no wish to realise value in the Company, having already achieved the repayment of the $45,000 he had lent to another entity, and instead wished to wind it up and establish a competing business under his sole control. As I noted above, neither party advanced that explanation of events. Mr Tiplady may not have done so because it would be inconsistent with his denial of signing the document. Mr Elfar may not have done so where it would cast his conduct in respect of the execution of that document in a poor light, and potentially affect his ability to enforce that document or obtain a winding up order. I do not give weight to that possible explanation of events where neither party advanced it and it was not tested in cross-examination.
By letter dated 13 January 2014 (Ex P1, p 39) to Mr Elfar, Mr Tiplady's accountants recorded Mr Tiplady's denial of the December document and his denial that he agreed to the points listed in it. Mr Elfar did not respond, in writing, to that letter so as to take issue with the allegations made in that letter, although he suggested in cross-examination that he may have rung the accountants to refute those allegations (T37). I do not accept that evidence. Also in January 2015, Mr Elfar purportedly called a meeting of shareholders of the Company to remove Mr Tiplady as a director of the Company and appoint himself.
By a Statement of Claim filed in the Local Court in January 2015, and subsequently not pursued, Mr Elfar brought proceedings against the Company and Mr Tiplady, claiming damages under an alleged employment agreement, which pleaded that: "Despite requests on several occasions [Mr Elfar] has been paid no wages for the period of August 2014 to December 2014 amounting to a fundamental breach of the employment agreement by the Defendant, Ben Tiplady and his company [Civil & Civic Infrastructure]." That Statement of Claim is notable for the lack of any allegation that Mr Elfar had an interest in the Company and indeed for the contrary allegation that the Company was Mr Tiplady's company, as Mr Johnson noted in submissions (T100). At least by March 2015, Mr Elfar was also emailing third parties advising that he had brought winding up proceedings against Mr Tiplady and the Company. Those emails related to the Originating Process initially filed by Mr Elfar in these proceedings in February 2015. That is also inconsistent with the preservation of the economic value of an interest in the Company.
It is certainly possible that Mr Tiplady signed the December document, using a signature other than his usual signature, and I am conscious that Mr McGroder's evidence supports that proposition. There is evidence that suggests the contrary, including the fact that it would be odd that Mr Tiplady would agree to that arrangement shortly after he had repaid substantially all of Mr Elfar's financial contribution to the Company on 12 December; odd that, shortly after the December agreement was signed, Mr Elfar would take significant steps that could only undermine the value of the interest in the Company that would have been confirmed by that agreement, to which I referred above; and odd that, if the December agreement had been signed, Mr Elfar would also shortly thereafter assert, in proceedings commenced in the Local Court, that the Company was Mr Tiplady's company.
I have had regard to the issues as to Mr Elfar's credit and the evidence of his subsequent conduct to which I referred above, and also had regard to Mr McGroder's evidence and his apparent loyalty to Mr Elfar, and I give little weight to Mr Tiplady's evidence denying that he signed the December document. The difficulties with both Mr Elfar's and Mr Tiplady's credit are such that I give little weight to their respective evidence as to the December document, and Mr McGroder's evidence is undermined by Mr Elfar's subsequent conduct that is apparently inconsistent with agreement having been reached on the terms of the December document. Although I have not found the question an easy one, I am not satisfied that it has been established on the balance of probabilities that Mr Tiplady signed the December document, although I am certainly not persuaded to the contrary. In those circumstances, Mr Elfar has not satisfied the evidentiary onus that rests upon him in order to establish his case in respect of the December document.
By letter dated 18 May 2015 (Ex P3), the day before the substantive hearing of the proceedings, Mr Elfar's solicitors wrote to Mr Stefanovski asserting that Mr Stefanovski held his interest in 40 shares in the Company on trust for Mr Elfar, and directing him to transfer his interest in those shares to Mr Elfar. That letter was admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) that it was not proof of the asserted trust. That direction assumed that Mr Stefanovski held an interest in shares in the Company on trust for Mr Elfar, but did not establish that matter, or itself amount to any direction given to Mr Tiplady, consequent upon any agreement reached on 15 December 2014.

Claim for rectification of the register

Mr Elfar seeks an order under s 175 of the Corporations Act 2001 (Cth) or, alternatively, in the equitable jurisdiction of the Court, that the Company rectify its share register by entering his name in that register in lieu of the name of Mr Tiplady as a member of the Company in respect of 40 ordinary class fully paid shares in the Company. (The reference to 40 shares assumed that 20 shares would be transferred to Mr McGroder, 10 from each of Mr Elfar and Mr Tiplady, but Mr Elfar contended at the hearing that 50 shares should be transferred to him.) Mr Ogborne clarified in opening that the claim for rectification is based on the fact that the register became defective from 14 or 15 December 2014, when the so-called "Deed of Arrangement of Civil & Civic Infrastructure", which provided for the transfer of 50 of Mr Tiplady's shares in the Company to Mr Elfar, was allegedly signed (Ex P1, pp 34, 38). Mr Ogborne submits that Mr Elfar's name is wrongly omitted from the register as the owner of the shares and he has a personal equity which the Court should protect by exercising its discretion under s 175 of the Corporations Act to correct the register, and refers to Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 in support of that submission that submission. Mr Ogborne submits that: "The result is that Mr Elfar's name is wrongly omitted from the register as the owner of the shares and [Mr Elfar] has a personal equity which the Court should protect by exercising its discretion under s 175 of the Corporations Act to correct the register."
Section 175 of the Corporations Act provides, relevantly, that a person aggrieved may apply to the Court to have a register kept by a company corrected and, if the Court orders that company to correct the register, it may also order that company to compensate a party to the application for loss or damage suffered and to lodge notice of the correction with ASIC. That section confers a continuing power to correct the register where, for example, an entry is omitted from it: Bon McArthur Transport Pty Ltd (in liq) (recs & mgrs apptd) v Lange [2007] NSWSC 1371. That section operates in parallel to, and arguably assumes the existence of, the court's equitable jurisdiction to rectify a register: Grant v John Grant & Sons Pty Ltd above at 51; Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 at 558-559. The authorities recognise that the applicant for rectification must show a personal equity that the court will protect; prima facie, such an equity is shown if a person's name is wrongly omitted from the register; however, the court has a broad discretion whether to order the correction of the register of members and may decline to order rectification if there is some reason why that should not occur: Grant v John Grant & Sons Pty Ltd above at 51. I summarised the relevant principles in Re Mogul Stud Pty Ltd [2012] NSWSC 1639 at [7] as follows: That section does not itself confer a power to create a register, but assumes that the Court already has such a power at general law: Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1966) 20 ACSR 553; (1996) 14 ACLC 1089 at 1094. In the well known decision of Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 51, Fullagar J pointed to the discretionary character of the power to order rectification of the register and to the fact that in equity warranty rectification would prima facie be established if a person's name was wrongly included or omitted from the register; the same principle is plainly applicable where, rather than the person's name being omitted, the number of shares attributed to that person is incorrectly recorded, so as to impose a disadvantage on that person or on other shareholders. The principles of rectification at general law are relevant, and those draw attention to where the position as recorded in a document reflects the common subjective intention of the parties: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [444]ff.
In his opening written submissions, Mr Ogborne submits that the claim for rectification is based on Mr Tiplady's failure to cause the register to properly record the transfer of 50 ordinary class fully paid shares at the direction of their sole beneficial owner, Mr Elfar. That proposition depends at least on the proposition that Mr Elfar should be treated as the sole beneficial owner of 50 ordinary class fully paid shares in the Company. Mr Ogborne refers to the discussions which took place at the time the Company was incorporated and to the reference, to which I have referred above, to "everything will be split 50/50", to "partnership" and to the split of responsibilities between Mr Tiplady as dealing with the administration and Mr Elfar as dealing with the work. He also refers to the discussion, at a second meeting with Mr Kotselas, of the "gentlemen's agreement" under which Mr Tiplady would hold the shares, referring to Mr Kotselas' evidence in that regard. Those propositions are denied by Mr Tiplady. On balance, I accept that such discussions occurred, and they are supported by Mr Kotselas' evidence, which I accept.
I am satisfied that, from the original discussions between the parties, it was contemplated that Mr Tiplady would hold half of the shares in the Company under an arrangement (putting aside, for the moment, the question whether it was legally binding) for Mr Elfar, which would not disclose his interest in the Company. I am satisfied that the original arrangement between the parties was that Mr Tiplady would hold an interest in the Company to the benefit of Mr Elfar, under the "gentlemen's agreement" to which they repeatedly referred. That view is supported not only by Mr Elfar's and Mr Kotselas' evidence, but also by contemporaneous email correspondence, including an email from Mr Tiplady to a third party, Mr David, dated 1 May 2014 which referred to the fact that neither Mr Tiplady nor Mr Elfar were being paid the amount that Mr David was seeking to be paid by the Company. That reference was consistent with Mr Tiplady and Mr Elfar each having an interest in the Company, so that how much each of them was paid was relevant. The extent of the correspondence between Mr Elfar and Mr Tiplady, and Mr Tiplady's engagement in responding to that correspondence, albeit frequently in an evasive manner, is consistent with Mr Elfar having such an interest in the Company.
However, it seems to me that that arrangement was not intended to be legally binding, and it does not support the orders sought. Mr Ogborne submits (T91) that the term "gentlemen's agreement" was not used in a technical sense or in the way that a lawyer would understand "gentlemen's agreement". I am not able to accept that submission. The parties were at pains to emphasise that the arrangement between them was a "gentlemen's agreement". That position may have reflected, as Mr Elfar claimed, the existence of the then criminal proceedings before him. It may have reflected his previous difficulties with the Australian Securities and Investments Commission, or with the Department of Fair Trading which licences plumbers, or it may have reflected, as a later email from Mr Tiplady implied, that Mr Elfar was receiving legal aid for the criminal proceedings against him or Commonwealth Government benefits on a basis that was inconsistent with his holding an interest in the Company. Whatever the basis of that position, it seems to me clear that the parties', and specifically Mr Elfar's, intention was not then that there be an arrangement between them that was binding in law, as distinct from an informal arrangement that was not binding in law.
It seems to me that a use of the phrase "gentlemen's agreement" is only consistent with that conclusion. While that phrase is perhaps not commonly used, it does not seem to me that it would be used to refer merely to an oral agreement or an informal, but legally binding, agreement, and it connotes an agreement which is not intended to be binding in law. That construction has been given to that phrase in legal dictionaries and in the case law. In R E Megarry, A Second Miscellany-at-Law, p 326 (1973), quoted in B A Garner, Garner's Dictionary of Legal Usage, 3rd ed, p 389, that phrase is defined, perhaps unkindly, as referring to an agreement that: "is not an agreement, made between two persons, neither of whom is a gentleman, whereby each expects the other to be strictly bound without himself being bound at all." In Black's Law Dictionary, 10th ed, the phrase "gentleman's agreement" is described as referring to: "An unwritten agreement that, while not legally enforceable, is secured by the good faith and honor of the parties." A similar construction to the phrase was given to it in More v Lam [1981] VR 559 at 561, where Gobbo J described the term as referring to an "informal or voluntary arrangement" where "no legal contract for transfer of property or arrangement enforceable in law is intended".
I recognise, of course, that there is no suggestion that Mr Elfar and Mr Tiplady consulted legal dictionaries before using the phrase "gentleman's agreement". It nonetheless seems to me that the use of that term, rather than a generic reference to an "agreement" or "deal", must have been intended to refer to an agreement that had a particular character, that was inconsistent with any intent to create a legally binding arrangement, including a trust, at the time of the relevant discussions. A legally binding arrangement might well have been inconsistent with Mr Elfar's objectives, whatever they were, reflected in the choice of a "gentlemen's agreement". In choosing to approach that matter in that way for his own convenience, Mr Elfar had also chosen to take the risk that he would not have recourse to the Courts if Mr Tiplady did not honour those arrangements.
I am satisfied that, from the agreement dated 11 April, that arrangement contemplated that Mr Elfar would have an interest in the shares. However, as I noted above, on balance, and with hesitation, I am not satisfied that the use of the language "right" in that agreement was intended to signify a legally binding arrangement, where the phrase "gentleman's agreement" continued to be used in that document.
I am also not satisfied that the arrangements at that point gave rise to a trust. In JD Heydon & NJ Leeming, Jacobs' Law of Trusts in Australia, (7th ed 2006, LexisNexis Butterworths) at [501], the learned authors note that: "[a] trust will be created, whether or not the creator thereof is precisely aware of so doing, provided that in substance the creator intends that his or her actions should have the legal effect of creating the relationship". The requirements in order to establish a trust were considered, inter alia, in Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 and in Ashton v Pratt [2015] NSWCA 12; (2015) 318 ALR 260. Mr Ogborne points out, plainly correctly, that the decision in Ashton v Pratt above arose in a significantly different context. Nonetheless, the judgment of Bathurst CJ there sets out, in general terms, the requirements for an intention to establish a trust, and it does not seem to me that those requirements are satisfied by arrangements that were not intended to be legally binding, at least prior to the suggested execution of the December document. No submission was put that the discussions between the parties gave rise to any form of constructive trust, and it may well have been difficult to establish such a proposition, where the nature of the parties' dealings may have made it difficult for one to contend that the other's conduct was unconscionable.
As I noted above, I am not satisfied on the balance of probabilities that Mr Elfar signed the December document, although I have recognised the possibility that he did so using a different signature to his usual signature. Mr Ogborne's submissions also refer to a direction sent by Mr Elfar to Mr Tiplady on 15 December 2014. However, the reference given for that direction is an affidavit of Mr Stefanovski which was not read, which in turn appears to refer to an email dated 1 December 2014 to which I have referred above, rather than 15 December 2014. I am also not satisfied that an equity is established to rectify the register to record Mr Elfar as shareholder of 50 or 40, of the Company's shares. The December document, if it took effect, contemplated that any transfer of the shares would be to Mr Stefanovski, who would hold them for Mr Elfar, not to Mr Elfar. An arrangement for the transfer of shares to Mr Stefanovski would not support an order under s 175 of the Corporations Act recording Mr Elfar as owner of those shares, and that position is not changed by the direction recently given by Mr Elfar to Mr Stefanovski, which was directed to neither the Company nor Mr Tiplady. At best, Mr Elfar might have had a claim, as against Mr Tiplady and the Company, for the transfer of legal title in the shares to Mr Stefanovski, on the basis that Mr Stefanovski would then comply with the direction given to him and transfer the shares to Mr Elfar.
There is also a further difficulty with the orders sought, or any variation of them to record Mr Stefanovski as the registered owner of the shares. It is well established that a party who seeks equitable relief, which here underpins the claim to rectification under s 175 of the Corporations Act, must do equity which would require that the order sought be framed so as not to be unjust to the party to whom it is directed: Meagher, Gummow and Lehane's Equity, Doctrines and Remedies, 5th ed 2015 at [3.060]; Cole v Miles [2002] NSWCA 150 at [63]. The arrangement between the parties recorded as late as the December document (which at least expressed Mr Elfar's and Mr McGroder's understanding of the arrangement, whether or not it was signed by Mr Tiplady) contemplated that Mr Elfar would assume a corresponding responsibility for personal guarantees given by Mr Tiplady in respect of the Company. The orders now sought by Mr Elfar do not provide for him to do so.
I offered the parties the opportunity to make further submissions as to the significance of any guarantees given by Mr Tiplady to third parties in respect of the Company's business and Mr Ogborne took up that opportunity. Mr Ogborne submitted that the evidence of Mr Tiplady providing guarantees to third parties in support of the Company's business was indirect and sparse, and that submission is correct, at least to the extent that no such guarantees are in evidence. However, as Mr Ogborne's submission acknowledged, Mr Tiplady gave evidence of a conversation with Mr Elfar on 15 December in which he had claimed that he had "all the liability on these jobs" and that all the trade accounts were in his name (Tiplady 6.3.2015 [22]); Mr Tiplady's email dated 1 December 2014 (Ex P1, p 19) contemplated that he would be "discharged from all current trade accounts" under any arrangement with Mr Elfar; and the December document, notwithstanding the dispute as to its execution, itself acknowledged that it was known that Mr Tiplady was the current guarantor and, once it was in place, "all shareholders must bare [sic] this burden".
Mr Ogborne acknowledged, in those further submissions, that Mr Elfar accepted "in principle" that any order for rectification of the register could be made conditional on Mr Elfar undertaking to indemnify Mr Tiplady against half (or such other proportion as is equal to the portion of the Company's shares found to be owned by Mr Elfar) of any liability incurred by Mr Tiplady under guarantees proven to have been provided by Mr Tiplady to third parties for services or supplies properly provided to the Company in the operation of its business. No such acknowledgment was offered during the course of the hearing before me, and the acknowledgment now offered is expressly offered subject to the existence of sufficient evidence to support findings as to the existence, terms and scope of the relevant guarantees. That evidence could only exist if leave were now granted to reopen the proceedings.
Mr Ogborne also submits that the evidence of guarantees given by Mr Tiplady is insufficient to support a finding that would justify the Court imposing a condition on the exercise of its discretion to rectify the Company's share register. The difficulty with that submission, it seems to me, is that the December document, on which Mr Elfar seeks to rely to support the equity to rectify the register, itself contemplated that he would assume such a liability. Mr Elfar's alternative submission is that, if the Court finds that the relevant guarantees were given, then a condition should only be imposed in respect of written guarantees for trade accounts current as at 15 December 2014. Again, that qualification is not reflected in the December document on which Mr Elfar seeks to rely to establish the equity to rectify the register. Mr Elfar also formulates the condition that could be imposed by the Court as one that he would "indemnify" Mr Tiplady against the relevant proportion of any such liability for trade accounts of the Company current as at 15 December 2014 for services or supplies properly provided to the Company in the operation of its business. An indemnity is, of course, only of practical utility if Mr Elfar had the capacity to meet it.
It does not seem to me possible to fashion orders that would bring about the result contemplated by the December document, if it was executed, that Mr Elfar would assume a corresponding responsibility for personal guarantees given by Mr Tiplady in respect of the Company. That result follows, first, because the arrangements between the Company and its creditors could not be varied without their consent and, second, because I am doubtful whether Mr Elfar would comply with any conditions imposed by the Court, where there is evidence that he has not complied with previous orders made by the Court as to payment of Mr Tiplady's costs of a previous adjournment of the proceedings. In these circumstances, I am not satisfied that an equity exists to support an order under s 175 of the Corporations Act in favour of Mr Elfar or, had it been sought, in favour of Mr Stefanovski.

Ashton v Pratt

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (9)

Cited By (1)