Avery v Saree Holdings Ltd; Lava Ltd v Avery

Supreme Court of NSW|2012-08-10|Before: Slattery J

Judgment 1This is my third judgment in these proceedings. The Court's previous findings and conclusions in these proceedings are set out in the Court's 9 May 2012 principal judgment (Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463 - "the principal judgment") and the Court's 10 August 2012 second judgment (Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 938 - "the second judgment"). Events, matters and things are referred to in this third judgment in the same way as they were in the principal and second judgments. The Court again describes these two sets of related proceedings, which were heard together, as "the Lava proceedings" and "the Saree proceedings". 2This judgment assumes the prior reading of these two earlier judgments. This judgment does not re-explain the background to these complex proceedings. That background is already fully detailed in the principal judgment at [11] to [64]. Nor does this judgment repeat the findings of fact in the earlier judgments, except to the limited extent necessary to demonstrate steps in the present reasoning. The narrative of findings of fact set out in paragraphs [18] to [44] and [229] to [231] of the principal judgment are particularly relevant background to the issues determined in this third judgment.

Introduction 3After the principal judgment the Court made consequential orders in the Lava proceedings and provided for the taking of an account between mortgagor and mortgagee on the Saree Mortgage in the Saree proceedings. The second judgment dealt with two of four supplementary matters in relation to the taking of this account in the Saree proceedings; and, explained the finalisation of the Lava proceedings. This third judgment deals with the two remaining account-related matters in the Saree proceedings. 4In the Saree proceedings the Court was not prepared to grant the declaration that Ms Avery sought that there was nothing owing on the Saree Loan and the associated Saree Mortgage. The Court rejected Ms Avery's contention that the Saree Mortgage was the result of her and Mr Sorensen colluding to create a sham second mortgage over Apartment 901 for submission to the Family Court of Australia in her proceedings in that jurisdiction. The Court found that the Saree Mortgage was not a sham and was likely to secure something and that accordingly there was no basis for its removal from the register: the principal judgment, at [265]. But at the time of the principal judgment the Court did not determine what was owed on the Saree Mortgage. Saree argued that the Saree proceedings should be dismissed against Ms Avery, as they were not properly framed as a redemption suit. The Court rejected that argument in the principal judgment, and found that in substance the Saree proceedings were in the nature of a redemption suit; so, the Court reserved for further consideration the question of the redemption of the Saree Mortgage until after an accounting had taken place: the principal judgment, at [262] to [266]. 5The parties made further submissions about a final accounting and offered their calculations of the amount owing on the Saree Mortgage. In the meanwhile, Ms Avery's redemption suit was adjourned with liberty to apply once the remaining matters were resolved. 6The parties asked the Court to determine four matters in relation to the accounts being taken on the Saree Mortgage. The parties contemplated that in the light of the Court's findings they could then attempt to calculate what was owed. These four matters were: (1) the legal effect of certain directions to Saree to conclude these proceedings; (2) for whom Saree holds the benefit of the Saree Mortgage; (3) did Saree overpay Ms Avery using money it held on account of interests unrelated to Mr Donoghue, in addition to the moneys Saree did intend to advance to her at Mr Donoghue's direction; and (4) subject to the determination of the other matters, what is the correct arithmetical calculation of the sum due under the Saree Mortgage by way of principal, interest and costs. 7Of these four matters the second judgment dealt both with matter (1) and with some of the costs questions in matter (4). Final costs orders have not been made in the same proceedings pending the result of matters (2) and (3). This judgment deals with matters (2) and (3) but does so in reverse order for the reasons explained below. These two remaining matters are re-stated in these reasons as questions. 8In the meantime the Court has been told that Apartment 901 has been sold, pursuant to the exercise of the mortgagee's powers under the Lava Mortgage.

The Two Questions for decision 9The first question [matter (4)] is: did Saree overpay Ms Avery using funds that it did not hold on behalf of Mr Donoghue's interests? Saree's contention is that it did and that it is entitled to recover the claimed overpayment of NZ$309,507 under the Saree Mortgage, which the Court has now found to be valid as between Saree and Ms Avery. But Ms Avery disputes that there was any overpayment. 10If, and only if, the overpayment is established, then a second question [matter (3)] arises: whether Lava has any interest in the funds so overpaid. If Saree did overpay Ms Avery, it contends that it made the overpayment using Lava's funds and that it, Saree, now holds the benefit of the part of the Saree Loan accounted for by the overpayment, on trust for Lava. This is the second question to be answered in these reasons: who has the benefit of the Saree Loan and Mortgage with respect to any such overpayment? This question can only be answered after the overpayment issue is resolved, and need not be answered if there was no overpayment. 11The Court concludes in these reasons: that Saree did not overpay Ms Avery the disputed NZ$309,507; and that it is therefore not necessary for the Court to answer the second question.

Competing Contentions about the alleged overpayment 12How did the alleged overpayment arise? Although the facts are relatively complex, the overpayment contest turns upon two competing versions of conversations and written communications mainly between Mr Donoghue and Mr Sorensen between January and May 2006 concerning the sale of a parcel of 19.026 million shares that he controlled in Plus SMS. Aspects of these conversations have already been the subject of findings in the principal judgment, at [225] and [227]. In support of Ms Avery's case, Mr Donoghue says that he sold this parcel of 19.026 million shares for a total consideration of NZ$10.425 million. Ms Avery says that sale proceeds in this amount, together with other sale proceeds from Plus SMS options, were sufficient to fund the purchase of Apartment 901 for her. But Saree says that the parcel of shares was sold for a lower total consideration of NZ$7.3 million. 13The difference of NZ$3.125 million (NZ$10.425 less NZ$7.3 million) between these two figures is important. One of several results of an agreement between Mr Donoghue and Mr Sorensen at the lower figure would be a shortfall of exactly NZ$309,507 from the funds that Ms Avery required to complete the purchase of Apartment 901. But an agreement at the higher figure between them would have been sufficient for her wholly to complete the purchase of the apartment with funds wholly directed from Mr Donoghue out of these larger sale proceeds. The purchase of Apartment 901 did settle in May 2006. Ms Avery says that it settled out of the NZ$10.425 million proceeds of Mr Donoghue's sale of Plus SMS shares. Saree says that Mr Donoghue only made available NZ$7.3 million to fund the Apartment 901 purchase, and that the purchase only settled because Saree mistakenly applied NZ$309,507 of other money to make up the shortfall in purchase monies. Saree claims that it mistakenly applied money which it held on trust for Lava, and that it can recover this money from Ms Avery under the Saree Mortgage. 14More detail is required about both these competing versions. At the opening of 2006 Mr Donoghue controlled both shares and options in Plus SMS through Plus Trustee. He controlled 19.026 million Plus SMS shares and 6 million Plus SMS options. 15The Avery/Donoghue version. On Mr Donoghue's version he agreed with Mr Sorensen to the sale of the 19,026,000 Plus SMS shares. He says that the deal he negotiated with Mr Sorensen was for Plus Trustee to sell 18,000,000 of these Plus SMS shares for NZ$10.425 million (or approximately NZ$0.58 per share), with the balance of 1,026,000 shares that he, Mr Donoghue, controlled through Plus Trustee being transferred to third parties in Hong Kong for no additional consideration. Mr Sorensen denied the making of any such agreement. 16This judgment sometimes refers to the sale of "19 million" shares rather than the exact number of Plus SMS shares that Mr Donoghue controlled through Plus Trustee of 19,026,000 shares. But because the transfer of the odd number of shares, 1,026,000, was for no consideration and was not in dispute, the parties themselves tended to refer to the sale of "19 million" shares. So with that minor clarification the Court has often adopted the parties' own language without further explanation that the numbers are not perfectly correct. 17Mr Donoghue also says that he agreed to sell his 6 million Plus SMS share options to Mr Ken Wikeley for NZ$2.1 million. But if Mr Donoghue is right in both his allegations, he, or the trusts for whom he speaks, would have been entitled to receive total sale proceeds of NZ$12.525 million (being NZ$10.425 million for the shares and NZ$2.1 million for the options). These proceedings did not involve any attempt by Mr Donoghue to recover that NZ$12.525 million, which he alleges remains partly unpaid. Rather, Ms Avery's contentions about the correctness of Mr Donoghue's version of these conversations have a simpler purpose: to show that there were sufficient proceeds from these Plus SMS share sales to answer Saree's contentions that to complete the purchase of Apartment 901 it had applied NZ$309,507 of funds it held on behalf of Lava, rather than funds Mr Donoghue controlled. 18The Saree version. Mr Sorensen's version is that between late October 2005 and 31 January 2006 he did discuss with Mr Donoghue the sale of the 19,026,000 Plus SMS shares that Plus Trustee held for Mr Donoghue's interests. And Mr Sorensen says that at Mr Donoghue's direction he did apply some of the proceeds of those sales to the purchase of Apartment 901. He says the following share and option transactions took place, on the following dates and generating the following sale proceeds: on 21 October 2005 Mr Donoghue's Family Trust (of which Plus Trustee was the trustee) sold 8 million shares in Plus SMS for NZ$2,500,000; on 25 January 2006 Mr Donoghue's Family Trust sold 3 million shares in Plus SMS for NZ$600,000; on 31 January 2006, Mr Donoghue's Family Trust sold 6 million options in Plus SMS for NZ$2,100,000; and, on 31 January 2006 Mr Donoghue's Family Trust sold 7 million shares in Plus SMS for NZ$2,100,000. Thus, on Mr Sorensen's version the sales of Plus SMS shares generated total proceeds of NZ$7.3 million, and the sale of Plus SMS options generated proceeds of NZ$2.1 million. 19But NZ$7.3 million from the sale of the Plus SMS shares was not enough to meet all Mr Donoghue's then pressing financial commitments: the first group of which were for Mr Donoghue's own domestic and business financial obligations, and the second group of which involved Ms Avery's financial obligations for the settlement of Apartment 901. Mr Sorensen says that NZ$3,710,215.40 of this NZ$7.3 million was paid at the direction of Mr Donoghue to Mr Donoghue's wife, to lawyers, to bankers and other persons, who had nothing to do with Ms Avery's apartment purchase. According to Mr Sorensen, that left a balance of the proceeds of the Plus SMS share sales of NZ$3,589,784.60 (being NZ$7,300,000 less NZ$3,710,215.40) to be applied, as Mr Donoghue directed, in relation to the purchase of Apartment 901. 20Mr Sorensen says that this balance of the proceeds of Plus SMS shares of NZ$3,589,784.60 was indeed paid by Saree at the direction of Mr Donoghue and that it was paid in three separate funds transfers: the first transfer was to fund the deposit of A$370,000 paid to the vendor of Apartment 901 upon the exchange of contracts; and, the balance of the funds were to put Dibbs Abbott Stillman (DAS) in funds to settle the conveyance of Apartment 901. Those payments were the following: a payment on 1 March 2006 of NZ$416,291.63 (the March 2006 NZ$ equivalent of A$370,000) into the trust account of Allen Wong and Co, the Apartment 901 vendor's solicitors, on account of the deposit; a payment on 31 March 2008 of NZ$1,950,000 into the DAS trust account; and a payment on 5 April 2006 of NZ$1,223,493 also to the DAS trust account (part of a larger transfer payment of $1,533,000 between Saree and DAS). These monies (NZ$416,291, NZ$1,950,000 and NZ$1,223,493) total the balance of NZ$3,589,784.60. 21The key to Saree's claimed overpayment is the circumstances of this last funds transfer of NZ$1,223,493 to DAS on 5 April 2006. On Mr Donoghue's version, this funds transfer undoubtedly included NZ$1,223,493 in proceeds from the sale of his Plus SMS shares. But Saree claims, and the evidence establishes, that it did direct a larger single payment of NZ$1,533,000 to be made to DAS on that date. Saree contends that the difference between the NZ$1,533,000 last payment made to the DAS trust account and the amount actually available for payment at Mr Donoghue's direction from the proceeds of sale of his controlled Plus SMS shares was NZ$309,507 (being NZ$1,533,000 less NZ$1,223,493). Saree claimed this is the mistaken overpayment that it made to Ms Avery from Lava's funds rather than from funds of the Donoghue Family Trust, or Mr Donoghue. 22The mathematical calculation of the overpayment is not in issue. The parties agree there is no dispute about Mr Sorensen's calculation of the overpayment is not in issue. If Saree's contentions about the consideration agreed for the sale of Plus SMS shares between Mr Donoghue and Mr Sorensen are accepted by the Court, then the parties accept that the amount Saree actually overpaid is NZ$309,507. 23The legal consequences of Saree mistakenly overpaying Ms Avery are clear and may be shortly stated. Saree claims that the overpayment was made as a result of a mistake of fact. If that is established, it would generate a personal restitutionary liability on the part of the recipient of those funds, Ms Avery, to repay the amount of the mistaken overpayment to Saree; "the prima facie liability to make restitution is imposed by the law upon the person who has been unjustly enriched": Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662, at 673. 24The terms of the Saree Mortgage are broad enough to secure to Saree the repayment of monies, the obligation to repay which arises in restitution. The relevant terms of the Saree Mortgage were set out in the Court's second judgment at [11] to [18]. The definition of "Monies Owing" in the Saree Mortgage includes monies "whether or not within the contemplation of the parties"; "amounts owing or remaining unpaid to the Mortgagee in any manner and on any account whatever by the Mortgagor"; and, "monies owing... by reason wholly or partly of past events or by reason of any thing done or omitted by the mortgagee". The Saree Mortgage was entered into in September 2006 and registered in April 2007. All the payments and discussions presently in issue between the parties took place between October 2005 and May 2006. They were "past events" when the Saree Mortgage was executed. If they were payments then made by mistake, they resulted from the mortgagee's actions or omissions, and were remaining unpaid on account of Saree's restitutionary claim for their return. They fall within the Saree Mortgage's definition of "Monies Owing". 25So, what is in issue? Counsel for Ms Avery advanced a useful table to show what in all these transactions is really in issue. The account above of the two competing cases is accurately illustrated in this table. 26The table shows that the core dispute between the parties about the price of the 19 million shares is about the precise consideration for the parcel of 7 million Plus SMS shares agreed to be sold on 31 January 2006. There is no dispute: about the 1 million shares to be transferred to a Hong Kong company for no additional consideration; about the 3 million shares to be transferred to Lava for NZ$600,000; or, about the 6 million options to be transferred for NZ$2.1 million. There is a minor difference about the price of the 8 million shares to be transferred to Mr Wikeley (Saree says NZ$2.5 million and Ms Avery says NZ$2.505 million). But this discrepancy is not material for present purposes and can be disregarded. If Ms Avery is right the overall sale proceeds will cover this discrepancy. 27The parties' competing positions about the 7 million Plus SMS shares can be put concisely: Ms Avery says the consideration for these 7 million shares was NZ$7.32 million, whereas Saree (and Lava) say it was $2.1 million. The difference in contentions about the price of the 19 million shares (leaving aside the discrepancy about the 8 million shares), is therefore NZ$5.22 million (being the Avery/Donoghue NZ$10.42 million less the Saree/Lava NZ$5.2 million). This overall difference is accounted for by the same NZ$5.22 million difference in the 31 January parcel of 7 million shares (being NZ$7.32 million less NZ$2.1 million). 28Thus an important indicator in the fact finding process of the correctness of the Avery/Donoghue version will be whether documents and communications refer to a total consideration for the 19 million shares at a figure of NZ$10.42 million, or a lesser figure. An equally important indicator of the strength of the Avery/Donoghue case would be whether consideration for the 7 million shares said to have been sold on 31 January 2006 was NZ$7.32 million or a lesser figure. As the evidence emerged there was quite strong documentary support for the sale of the 19 million Plus SMS shares for a total consideration of NZ$10.425 million (allowing for the NZ$50,000 discrepancy). 29Another important indicator of the correctness of the Avery/Donoghoe version is timing. Mr Donoghue says he only discussed at Mr Sorenson's suggestions the sale of an additional 10 million shares (later broken into parcels of 7 million and 3 million shares at Mr Sorenson's suggestion) between 13 and 17 January 2006. Mr Sorenson says in contrast, that the 7 million and 3 million share parcels were negotiated between Mr Wikeley and Mr Donoghoe, and Mr Wikeley told him about the negotiations in December. The objective evidence that emerged is for more consistent with Mr Donoghue's version. 30This summary of the competing contentions and of the way the alleged overpayment arises, introduces the issues. But their resolution requires a closer analysis of the circumstances surrounding the sale of the Plus SMS shares that Mr Donoghue controlled through Plus Trustee.

Further Analysis - October 2005 to January 2006 31There is no doubt that on 5 April 2006 Saree authorised Lava to pay NZ$1,533,000.00 on its behalf to Ms Avery. The documentary evidence establishes this authorisation from an instruction issued from the accounting firm Gibson and Associates to that firm's bankers to make this transfer to DAS's trust account on account of Ms Avery. The amount appears on the documentary instructions to the bank to be related to the sale of shares. Gibson and Associates instructed their bankers to record the transfer on Lava's account as "Share Deposit". They also instructed their bankers that the transaction be recorded at the payee's end as being in relation to "Avery". Mr Sorensen says Mr Donoghue directed him to pay these funds. 32Saree's case focuses on the source of these 5 April transferred funds, which are said to be the proceeds of Plus SMS's share sales on 31 January 2006. The other share sales, on Mr Sorensen's version, are identified above at paragraph [18] of these reasons. Mr Sorensen says that on 31 January 2006 Mr Donoghue's Family Trust sold 7 million Plus SMS shares for NZ$2,100,000, or NZ$0.30 per share. This sum represents a consideration for that sale of 30 cents per share. This price per share is disputed. Ms Avery and Mr Donoghue say that the price agreed on this 31 January 2006 sale was NZ$7.32 million, not NZ$2.1 million, inferring on their case a price per share of a little over NZ$1.00. 33Saree says that: the figure was much lower, at 30 cents per share; that the total proceeds therefore were only NZ$2,100,000; and, that the purchaser of these shares was a Mr Ken Wikeley. In contrast, Mr Donoghue said that Mr Sorensen was himself the purchaser. But Mr Sorensen denied this. Both Mr Sorensen who negotiated the deal with Mr Donoghue, and Mr Wikeley, the putative purchaser, gave evidence. They both said that the agreed consideration for the Plus SMS shares sold on 31 January 2006 was 30 cents and that Mr Wikeley was the purchaser. 34Mr Wikeley said that he had two conversations with Mr Donoghue about buying Mr Donoghue's Plus SMS shares, the first in October 2005 and the second in December the same year. Mr Wikeley's version is that in the first conversation Mr Donoghue said he needed "to raise some money" to "pay out a loan on my boat" by selling some Plus SMS shares. According to Mr Wikeley, Mr Donoghue complained he could not publicly sell his Plus SMS shares because as a founding Plus SMS shareholder he was restricted from selling them so soon after the issue of the shares to him in the June 2005 Plus SMS listing. 35So Mr Wikeley says that he offered to assist Mr Donoghue. He says that he made a written agreement with Mr Donoghue to reflect this assistance. I am inclined to accept much of Mr Wikeley's evidence as to the making of the first part of this agreement, including his evidence that Mr Donoghue resisted putting the agreement in writing because, as Mr Wikeley said, Mr Donoghue explained to him, "I do not want to sign anything in relation to this sale at the moment because it is illegal. Let us do it on a handshake". Mr Wikeley refused and insisted on a written and signed agreement. The written agreement dated 21 October 2005, on its face appears to confirm Mr Wikeley's version of events up to this point: it records the sale of 8 million Plus SMS shares; 7 million of the Plus SMS shares would be sold at 30 cents per share to Mr Wikeley (NZ$2.1 million); the remaining 1 million Plus SMS shares would be sold by Mr Wikeley at no less than 40 cents to help pay out Mr Donoghue's NZ$1.5 million boat loan. The total consideration was NZ$2.5 million. The written agreement was made as Mr Wikeley says. I accept Mr Wikeley's evidence that he arranged with Mr Sorensen for Mr Donoghue to be paid under the 21 October 2005 agreement out of Lava's bank account, and that he gave instructions for this to be given effect through Gibson and Associates. 36But this transaction is not in issue. Both sides accept that the first 8 million shares were sold in October 2005 for $2.5 million. 37Mr Donoghue approached Mr Wikeley again in December 2005. This is where the differences arise. Mr Wikeley says that he then agreed to buy another 7 million Plus SMS shares at 30 cents per share for Mr Donoghue. According to Mr Wikeley, this time Mr Donoghue explained that he had "promised Leanne that I will help her with the purchase of an apartment in Sydney and [I] need some money". This conversation coincides in time with and is consistent in substance with Mr Sorensen's evidence. 38Mr Wikeley says that he then instructed Mr Sorensen to give effect to this agreement. Speaking of the sale of the further 7 million shares, he says that he instructed Mr Sorensen to "look after the share purchase through Lava", and Mr Sorensen agreed. 39Mr Wikeley's version of events seems to be partly confirmed through the evidence of Mr Howard Thomas, a barrister and solicitor of the High Court of New Zealand. But I ultimately do not accept his evidence of a further 7 million shares at NZ$0.30. 40Mr Thomas gives a comprehensive account of his dealings with Mr Sorensen and Mr Donoghue between 26 October 2005 and 8 March 2006, a period spanning the transactions in question. I generally accept the correctness of his affidavit and oral evidence. He was a credible witness. He had almost daily contact with Mr Sorensen in particular during this period. Mr Thomas worked at Lowndes Associates, New Zealand barristers and solicitors. It is quite apparent from reading his email correspondence during this period and his file notes that he was a meticulous record keeper, who made good summaries of the substance of conversations with his principal clients on important transactions and who identified the real issues that required his client's attention. Although sometimes what his clients told him was not very clear. 41Mr Thomas commenced employment at Lowndes Associates assisting a principal partner in the firm, Mr Mark Lowndes. The firm was involved in executing various instructions on behalf of Mr Donoghue and Mr Sorensen to effect their share and option sale arrangements: from Mr Donoghue and Plus Trustee on the one side and Mr Wikeley and Lava on the other. Mr Thomas had principal carriage of these instructions on behalf of the firm under the supervision of the partner and his correspondence shows his close management of the matter. 42It is not necessary to include every one of Mr Thomas' communications during this period. But a number of themes emerge from the course of his correspondence. These themes are set out below: (1) Mr Wikeley was either the purchaser of, or was in a position to nominate the purchaser of, the full 19,026,000 shares which Mr Donoghue was negotiating to sell; (2) the total agreed consideration for the sale of the shares was NZ$10.425 million; (3) Mr Donoghue was aware that the total share sale consideration was NZ$10.425 million and aware that that was the figure to be notified on behalf of Plus SMS to the New Zealand Stock Exchange ("NZX") at the conclusion of the transactions. 43Mr Thomas' evidence is a basis to conclude that Mr Donoghue and Ms Avery's contentions are correct. His evidence is the appropriate point of reference as he was the most reliable witness of all about the events. For example the Court had little confidence in Mr Sorenson's version, which was very uncertain as to when Mr Wikeley told him of the sale of the additional 10 million shares. But Mr Thomas' evidence reveals a rather more complex transaction. 44According to Mr Thomas, the first phase of the dealings started on 26 October 2005 to accommodate Mr Donoghue's interest in re-financing his boat "Destination Waiheke". Mr Sorensen was a regular "go-between" to carry out instructions from and receive communications for Mr Donoghue. In that role he contacted Mr Thomas on 26 October 2005 to explain that an arrangement was being negotiated in which a third party would pay out an existing loan on the vessel and would receive Plus SMS shares from Mr Donoghue in return. 45Until about mid January 2006 this is just how the transaction looked to Mr Thomas: Mr Donoghue was re-financing his boat with some surplus funds to be applied at Mr Donoghue's direction. It was only in mid January 2006, in the next phase of the transaction, that the additional idea emerged of selling Plus SMS shares to generate funds to be used for the benefit of Ms Avery. 46On 31 October 2005 Mr Sorensen instructed Mr Thomas that Mr Donoghue was selling 8 million shares in Plus SMS to repay the funder of Mr Donoghue's vessel and that the monies would be provided by Mr Ken Wikeley. Then on 2 November 2005 Mr Thomas' instructions were expanded. Mr Sorensen told him that Mr Donoghue was selling 6 million two-year (July 2007) Plus SMS options in addition to the 8 million Plus SMS shares. 47Mr Sorensen provided Mr Thomas with more information about the structure of the transaction on 14 November 2005. It was contemplated that Mr Donoghue would sell 8 million Plus SMS shares for NZ$2.5 million (representing a price of approximately 31.25 cents per share) and the 6 million Plus SMS options for NZ$2.1 million (representing a price of 35 cents per SMS option). Mr Sorensen again confirmed to Mr Thomas that Mr Wikeley was the counter party to the transaction and that the present owner of the shares was Plus Trustee, although the options were owned by Mr Donoghue in his own name. Mr Sorensen confirmed all this to Mr Thomas. 48So far Mr Thomas' evidence is uncontentious. Both sides agree that the consideration for the sale of the first 8 million shares was $2.5 million. 49Within a few days the numbers of shares proposed to be sold was adjusted. This was the first of two adjustments, that ultimately led to the number of Plus SMS shares being sold approximating 19 million. On 17 November 2005 Mr Sorensen told Mr Mark Lowndes that 9 million shares had now been sold, not 8 million, a change which required Mr Donoghue's approval. In fact the extra 1 million (actually 1,026,000) Plus SMS shares were those to be transferred for no extra consideration. 50According to Mr Thomas, the next and more important adjustment to the number of shares to be sold came later, on 19 January 2006, when Mr Sorensen made clear to Mr Thomas that a further 10 million shares had been sold for Ms Avery's benefit. Thus, the original 8 million shares proposed to be sold first became 9 million shares, and then became 19 million by 19 January 2006. I accept Mr Thomas' account that shortly before 19 January there was an increase of 10 million in the number of shares being sold.

Early to mid-January 2006 - Internal Discussion 51A deadline started to impact on these negotiations. Plus SMS was due to report its interim results for the half year ended 31 December 2005 to the NZX on 12 January 2006. Under the market listing rules the announcement of its results to the Exchange would allow a limited period (until about the end of January) in which directors of Plus SMS could trade in their shares, without attracting regulatory attention for insider trading. The initial plan was to announce Mr Donoghue's share sales to coincide with the Plus SMS interim announcements on 12 January. Mr Thomas worked through his summer vacation to see whether this objective could be achieved. 52Anticipating a need to complete by 12 January, Mr Thomas had contact with Mr Donoghue and Mr Sorensen in the first week of January 2006. On 5 January Mr Thomas sent Mr Donoghue transfer forms and draft notices for NZX disclosure for the planned market release on 12 January 2006. It was clear from these draft notices and associated correspondence that Mr Wikeley would account in a public disclosure for the purchase of 8 million of these shares. But other purchasers, who were to be arranged by Mr Wikeley, would account for another 1 million shares, making up the 9 million which were then proposed to be sold. The correspondence also makes clear that Mr Donoghue's 6 million options were being sold for NZ$2.1 million. 53But the present controversy starts about mid-January, when Mr Donoghue succeeded in selling more Plus SMS shares. An adjustment to the share sale numbers seemed to filter through to Mr Thomas about 17 January. In mid January Mr Thomas first found out by email from the chairman of Plus SMS, Mr Jim Bracknell, that the arrangement was now for Mr Donoghue to sell a total of approximately 19 million Plus SMS shares, together with 6 million options. The timing of this communication fits Mr Donoghue's version well. 54On 18 January Mr Thomas sought to confirm these changed arrangements (the sale of the extra 10 million shares) with Mr Donoghue. But Mr Donoghue quite often did not reply to emails. And when he did, he often sent only very abbreviated responses. Lacking information from Mr Donoghue about the actual transaction, Mr Thomas telephoned Mr Sorensen. I accept Mr Thomas' account, confirmed in a file note, that Mr Sorensen said to him that the 19 million shares being sold would be "placed by Ken". There were also discussions on this day between Mr Sorensen and Mr Donoghue about the preparation of fresh declarations for the NZX, to account for the extra 10 million share sales now contemplated. Again, the timing of this confirms Mr Donoghue's version. Mr Sorensen's statement that the 19 million shares would be "placed by Ken" does not indicate that Mr Wikeley negotiated the purchase of these extra 10 million shares. 55Mr Donoghue responded the next day to Mr Thomas' enquiries about the transaction. On 19 January 2006 he emailed Mr Thomas who had been enquiring whether "you now intend to sell 19 million shares to Ken Wikeley or individuals to whom Ken has placed the shares". Mr Donoghue's response was "yes, 10 mill are for Leanne, have signed the forms and Jim has sent them on, Garry". This supports the inference which I draw that Mr Donoghue thought the share sale proceedings would all be for Ms Avery's purchase. I accept Mr Donoghue's evidence that he negotiated the sale of the extra 10 million shares with Mr Sorenson. That Mr Wikeley would later place them does not detract from this. 56At first Mr Thomas misunderstood Mr Donoghue's instructions. He concluded that Ms Avery was actually purchasing the extra 10 million shares. Given the scant detail in Mr Donoghue's email this was not surprising. So he queried Mr Donoghue about this ambiguity. Mr Donoghue quickly cleared it up. He emailed Mr Thomas on 19 January saying, "no, they are being sold for the benefit of Leanne, in other words we will pass on the proceeds of 10 million shares to her". But Mr Donoghue did not provide Mr Thomas with any details about the now important question of the consideration for the 10 million shares. But shortly afterwards Mr Sorensen did provide more information. 57An important conversation took place four days later on 23 January between Mr Sorensen and Mr Thomas, who recorded it in a file note. It is clear in this conversation that Mr Sorensen was continuing to fulfil a role of communicating information to other persons in relation to various transactions in which Mr Donoghue was involved. I infer from the tone and content of their mutual email correspondence that Mr Donoghue was familiar with Mr Sorenson playing this role. 58On 23 January Mr Sorensen explained to Mr Thomas the revised structure of the transaction. Mr Sorensen was explaining there would be two offers from Mr Wikeley, one for 16 million shares (8 million, plus 8 million) and another for 3 million shares. The full text of the Thomas 23 January file note is as follows:- "Sorro, 2 offers Ken - 16m and 3m in Lava name (same consideration). Complicated. Ken 8m net off boat. Remaining shares are transferred as paid for. Lava - 3m shares will be settled as agreed. Total consideration is $600,000. This can come through us. $8m. Cc Ken and Sorro. Also copy Judith Burson. Ken's offer for options stays the same." 59This Sorenson-Thomas conversation is quite confusing. Mr Sorensen was making clear to Mr Thomas that: Lava was the purchaser of one special parcel of 3 million shares for $600,000; but that the identity of the purchaser of the other 16 million shares was clear as to 8 million: it was Mr Wikeley, in an arrangement to fund Mr Donoghue's boat. The purchaser for the other 8 million was still not finalised: "Remaining shares are transferred as paid for". 60The confusing part of this conversation is that the description of the structure of the transaction has changed. What had been an agreed transaction for the sale of 9 million shares was now becoming one for 19 million. But this was not achieved by doing the obvious - adding 10 million shares through another transaction. Curiously, the original 9 million shares are broken up instead, and one million detached to make another 8 million parcel with a 7 million share sale and a 3 million separate share sale. Mr Donoghue says Mr Sorenson wanted it split up that way and I accept that as correct. In my view this note is based on Mr Sorenson's fairly confusing explanations to Mr Thomas. Even Mr Thomas could not turn it into a persuasive account of what the revised transaction really was. And in the end I put little weight on this note. 61But Saree's case is that the words "same consideration" in the Thomas 23 January note are a reference to 16 million shares of the total shares being sold, all being sold at the same price per share. This is certainly consistent with Mr Wikeley's evidence that he had agreed to purchase a further 7 million shares at the same price as the earlier tranche of 8 million shares, at about 30 cents. And this conclusion is supported by the fact that 3 million shares were to be sold at a different price from the original 8 million shares, namely $600,000 or 20 cents per share. This was clearly "a different consideration". The words "same consideration" cannot refer to the "16m" and the "3m". They might therefore refer to two parts of the 16 million shares. But that is not satisfactory either because, for example, some of the original 8 million shares (1 million) were being sold for 40 cents per share. 62In the result this file note has little authority. In the end Mr Thomas created his own telling hint that this was all so complex that it really needed more clarification: he wistfully wrote "Complicated" at the most confused part of the note.

From late January 2006 - external communications 63On 24 January 2006 Mr Thomas began putting together the formal letters of offer for the initial 8 million shares and 6 million options. It was clear that the proposed consideration of NZ$2.5 million for the initial 8 million shares was proposed to be applied as to NZ$1.05 million to pay out the loan on Mr Donoghue's boat. A separate letter of offer for the 3 million shares to be sold for NZ$600,000 was also prepared. 64This correspondence from about 24 January is very difficult to reconcile with Saree's contention that a second 8 million shares was being sold for the "same consideration as the first 8 million shares sold in October 2005. The later correspondence strongly suggests a higher figure - and indeed the exact one for which Ms Avery and Mr Donoghue contend. 65Mr Thomas sent all the documentation he had prepared to that point to Mr Donoghue on 25 January. But this only accounted for the initial parcel of 8 million shares and the supplementary parcel of 3 million shares. Mr Thomas had not yet prepared or sent to Mr Donoghue any documentation for a further 8 million shares. 66I accept that Mr Sorensen made clear to Mr Thomas on 31 January that by then "all has been done. The Lava offer and the Wikeley offer shares and options have been signed by both parties". But just what had been done was unclear. 67But what must have happened to make up the total of 19 Million plus SMS shares Mr Donoghue was selling can nevertheless be inferred, in my view, from what followed. On 1 February 2006 Mr Thomas met Mr Sorensen in the Lowndes Associates' boardroom. Mr Sorensen there explained to Mr Thomas that Mr Donoghue was selling 8 million Plus SMS shares for NZ$2.505 million and 11 million shares for NZ$7.92 million, making a total of NZ$10.425 million. I accept Mr Thomas' evidence that he made a note of this conversation and of these amounts at the time. His note supports his evidence. I accept that this is what Mr Sorenson told him on 1 February. He agreed with this in cross-examination. It is consistent Mr Donoghue's version and Ms Avery's case. I do not accept Mr Sorenson's or Mr Wikeley's versions to the extent they are inconsistent. 68Moreover, I accept Mr Thomas' evidence that on 3 February 2006 he telephoned Mr Donoghue and Mr Donoghue confirmed to him that 19 million shares were being sold. I also find that Mr Donoghue knew that Mr Thomas then intended to prepare disclosure notices to the NZX in relation to these sales. Mr Donoghue confirmed to Mr Thomas that he was "in a position to check drafts to date". 69But exactly when the notices were first sent to the NZX is unclear. They appear to have been re-sent to the NZX on Monday, 13 February 2006. The same day Mr Thomas informed Mr Donoghue about the "disclosure position" and verified a total consideration of $10.425 million the following way: "We have spoken to John S and he has informed us that there are 2 transactions, for a total of 19m shares for $10.425m which will settle today, 13 February 2006. We can verify that this is correct for the 8m Wikeley shares as the shares have not yet been divested by Plus Trustee Limited (until the boat loan settles)." 70This re-confirmed back to Mr Donoghue the instructions that Mr Sorensen had originally given to Mr Thomas on 1 February. All of this confirms the Donoghue/Avery version that the 19 million shares were being sold for a total consideration of $10.425 million, and not a total consideration of $7.3 million. 71Mr Donoghue did not get back to Mr Thomas. But it is clear from the email correspondence that there were email exchanges between the two after this time. I infer that the information in Mr Thomas' email to Mr Donoghue quoted above, came to Mr Donoghue's attention on or about 13 February 2006. There is no evidence that Mr Donoghue dissented from it in reply to the further communications to Mr Donoghue from Mr Thomas in early March. 72Finally, the disclosure notice to the NZX made clear that the 19 million ordinary shares were being sold for NZ$10.425 million. I infer that these notices also came to Mr Donoghue's and Mr Sorensen's attention. They were not disputed or changed at Mr Sorenson's or Mr Wikeley's request. 73Saree seeks to answer the objective evidence that favours the Avery/Donoghoe version of the sale of the 19 million shares for $10.425 million by contending that this figure is an artifice for accounting purposes and that Mr Donoghoe had said that the share sales could be treated as a distribution from Mr Donoghoe's family trust. 74But there are many problems with this unpersuasive Saree response. Plus Trustee still made the $10.425 million figure public via NZX announcement with Mr Sorensen's knowledge. Lava could produce no internal records consistent with and supporting the truth of the Saree version that Lava's money was advanced. And in my view this is not the kind of mistake that an astute man like Mr Sorenson would ever have made. 75In the result I conclude there was no overpayment of NZ$309,500 as Saree alleges.

Who has the benefit of the Saree Mortgage? 76As the Court has not found an overpayment by Saree of money, it is not necessary to determine who has the benefit of the Saree Mortgage.

Conclusions and orders 77In this third judgment given in these two related proceedings the Court has now reached conclusions on the two remaining questions for the accounting being undertaken in the Saree proceedings. The Court has found that: (1) Saree did not overpay Ms Avery with some of its own money when it made advances to her on the Saree Mortgage, and therefore (2) it is not necessary to determine for whose benefit any overpaid funds are held by Saree. 78As a result of the determinations in this judgment the parties will still have to conclude the accounting in the Saree proceedings before redemption of the Saree Mortgage can take place, if at all. This will either be done by consent, or after a further contest. The parties may also ask the Court to determine any residual questions of costs. The Court will now give the parties an opportunity to put submissions about how the Court should deal with any remaining issues. 79Accordingly, the Court makes the following orders and directions: (1) direct the parties by 5.00pm on Friday 23 August 2013 to bring in short minutes of order to give effect to these reasons; and (2) to the extent that the parties cannot agree on the short minutes directed in (1) above, further direct the parties by 5.00pm on Friday 23 August 2013 to file and serve any written submissions in relation to such non-agreed matters and in relation to issues of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 August 2013

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