Breese v Cowper

Peter's apprehension, clearly enough, was that substitution of a company as purchaser might mean that two lots of ad valorem duty became payable. Stamp duty referable to a purchase at $715,000 is of the order of $28,000. 16 According to Peter's evidence, his agreement (and that of Jillian) to the substitution of a company was subject to acceptance by the others of a rule of unanimity in relation to corporate decisions and receipt of advice that there would be no stamp duty exposure. Assuming that the latter was, as Peter says, laid down as some form of condition in a conversation between him and Wayne, it may be dealt with shortly. Peter deposes that he spoke with Mr Williamson (the registered conveyancer acting for the six) about the stamp duty issue and that Mr Williamson said: "I can assure you that provided all the original partners are shareholders and directors, the contract can be amended by changing the name of the purchaser from the individuals' names into the company's name." 17 Peter also deposes to having discussed the matter with Mr Merrell, with the latter saying: "I assure you that if all parties were directors and shareholders double stamp duty would not be applicable." 18 There can thus be no doubt that, on Peter's own evidence, he received from both the conveyancer handling the purchase and the accountant who had been consulted about the transaction "favourable advice in relation to any stamp duty exposure". There was considerable debate before me as to the correctness of this advice. It seems to me, however, that it does not matter whether, as an objective matter of the correct construction of the Duties Act and the practices of the Chief Commissioner, the advice was right or wrong. On his own account of matters, Peter stipulated only that favourable advice should be forthcoming. Favourable advice was forthcoming from both sources. That was enough to satisfy any condition imposed by Peter, as described by him. 19 The other condition asserted by Peter was as to the unanimity of decision making within the company. This needs to be put into context. Having become purchasers as individuals under the original contract, the six were on the way to becoming co-owners of the property. As co-owners in the way described in the contract (that is, with each couple holding an undivided one third share as joint tenants), they would be in a position where each couple could deal independently with its undivided one third interest, to the extent that any meaningful dealing could be undertaken in relation to such an interest, but the property as a whole - the unencumbered fee simple in possession - could be assured to an ultimate purchaser (or, for example, to a mortgagee) only by the concerted action of all six of them. Likewise, a builder retained to carry out work on the property and dealing on arm's length terms would in all probability want to see all six signatures on a building contract before going ahead with the contracted work. These factors indicate to me that Peter's implicit assumption, at the time of being asked about the substitution of a company as purchaser, that there was already in force a unanimity requirement was, in practical terms, a well-based assumption. 20 Peter's apprehension was, clearly enough, that if a company came to own the land, decisions as to what it would do would be taken in accordance with its constitution. That might cause things to be undertaken by the company by means of majority vote that would require the concurrence of all owners if the six came to be the registered proprietors of the property. 21 Peter says that he raised the unanimity requirement squarely with Wayne after being informed of Mr Merrell's advice about using a company and that Wayne answered: "That will not be a problem." 22 Wayne gave quite different evidence. After some preliminary questioning on the subject in Wayne's cross-examination, the transcript shows the following: "Q. No. I said to you Mr Breese said he would only agree to the company being substituted if everyone agreed that all decisions would be unanimous? A. To that question I say 'no'." 23 There was thus a direct denial by Wayne of what was asserted by Peter. Wayne also said that he had suggested that Peter speak to Mr Merrell about the matter. Peter did speak to Mr Merrell and I accept that this was in accordance with the suggestion made by Wayne. Mr Merrell then prepared a draft heads of agreement for consideration by the parties in connection with the proposed move to a corporate structure. This draft contained provisions requiring decisions on certain matters to be unanimous. Mr Merrell testified that he prepared the heads of agreement after his initial conversation with Peter. It was put to him in cross-examination that he had prepared them (with the unanimity provision) upon instructions from Wayne but he denied this, maintaining, consistently with his affidavit, that he had done so after discussion with Peter. Mr Merrell further said that he had not considered the unanimity provision a good idea: "Q. Provisions for certain key decisions be unanimous was a good idea? A. No. Q. I thought you said a moment ago that you thought it was? A. No. I don't believe that's a good idea at all. I put that in because Mr Breese suggested it. Q. In the phone call at 7am? A. That's right. It was one of the matters that I believe needed to be discussed and agreed between the directors." 24 Both Yvette and Lee gave evidence relevant to this issue. They say that they learned of Peter's preference (or requirement) for unanimity from Wayne and, upon seeing the unanimity provisions in the heads of agreement prepared by Mr Merrell, expressed to Wayne a view that any unanimity requirement would be unworkable and that they would not accept the heads of agreement as drafted or any unanimity regime. The evidence of the Cowper parties is that they discussed the draft heads of agreement among themselves on the evening of 14 October and that the views I have just mentioned were expressed on that occasion. Peter says in his affidavit that, in a telephone conversation he had with Wayne the next day, 15 October, about the signing of the guarantees needed in connection with the substitution of the company as purchaser, he said to Wayne that he was uncomfortable with the four-to-two situation and sought Wayne's assurance that all decisions in the company would be on a unanimous basis, to which Wayne replied, "I agree that all decisions will be on a unanimous basis". In his affidavit, Wayne admits that Peter said what Peter says he said; but Wayne denies that he made the reply attributed to him by Peter, the response he actually made being, "I'll speak to the others about that." 25 I prefer the evidence of Wayne over that of Peter as to the reply Wayne made to Peter's request on 15 October for an assurance that company decisions would have to be unanimous. The evidence of Wayne, Lee and Yvette is that they discussed the draft heads of agreement the previous evening, 14 October, and that Lee and Yvette did not accept any unanimity principle. In those circumstances, the most that Wayne would have said in response to Peter's request for an assurance is that he would "speak to the others". With the negative attitude of Lee and Yvette fresh in his mind, Wayne would not have given the unequivocal positive assurance attributed to him by Peter. 26 My finding on the unanimity issue is that, while Peter expressed to Wayne a desire for a rule of unanimity in corporate decision making, Wayne did not assent to any such rule being adopted. He suggested that Peter speak to Mr Merrell. Peter did so and, when Mr Merrell prepared draft heads of agreement, he included a requirement for unanimous decisions as to certain matters. Mr Merrell did this not because he thought such a provision was a good idea but because Peter asked him to. When the draft heads of agreement were reviewed by the Cowper parties, Lee and Yvette expressed opposition to the unanimity requirement. The heads of agreement were never signed. 27 After his initial conversation with Wayne on the subject of unanimous decision making, Peter pursued the matter through Mr Merrell. The draft document prepared by Mr Merrell then became the vehicle through which the notion was communicated to the other Cowper parties (as well as being reinforced to Wayne). They did not accept it. Adoption of a rule of unanimous decision making, in any binding sense, would have required either a contract by which the six unanimously adopted the unanimity rule or insertion of an appropriate provision into the company's constitution by a process involving notice to all shareholders and an opportunity for all to vote. Neither of these things occurred. There was thus neither adoption of any unanimity rule by contract or otherwise nor any representation by any Cowper party that such a rule was accepted. Nor did Peter receive any assurance on the question of unanimity in the conversation he had with Wayne on 15 October. Substitution of the company as purchaser 28 I proceed now to consider the matter of substitution of the company as purchaser. As originally conceived, the proposal involving the company was that the three women would be the directors and the three men would be the shareholders. This was later changed so that all six would be both directors and shareholders. The reason was related to stamp duty. Mr Williamson advised that, if double stamp duty was to be avoided - that is, ad valorem duty on a contract between the vendor and the six individuals, followed by the same ad valorem duty on a transfer by the vendor to the company - it was necessary, having regard to the provisions of the Duties Act 1997, that this form of structure, as to shareholdings and directorships, should be adopted. Mr Merrell, the accountant, took steps to arrange matters accordingly and, by the time action was taken to substitute the company purchaser for the six individuals, all six were both shareholders and directors. 29 The moves vis a vis the vendor to substitute a company purchaser began on 11 October when Mr Williamson faxed the vendor's solicitor, Mr Tuckerman, as follows: "Our clients request that the purchaser be amended to 28 Narrabeen Park Pty Ltd ACN 102 474 233. The directors of this company will be identical as that of the current purchasers. Please advise if you are agreeable to altering the contract to reflect the company as purchaser." 30 On 14 October, Mr Williamson faxed Mr Tuckerman again, saying: "Cool-off expires today and we ask for your urgent confirmation that the purchaser be amended to the company name as per our fax 11/10. You may desire to have the following SC 34 inserted. We note that Section 18 of the Duties Act allows for this provided the parties are related and that the definition in the Act includes the case where the directors are identical with the original purchaser under the contract. We look forward to your urgent reply." 31 Mr Tuckerman replied to both faxes on 14 October: "We refer to your letters dated 11 and 14 October, 2002. Provided 28 Narrabeen Park Pty. Limited is an existing Company and you provide us with a Guarantee signed by the Directors in acceptable form, the Vendor agrees to 28 Narrabeen Park Pty. Limited being substituted as the Purchaser." 32 On the same day, Mr Williamson faxed to both the Cowpers and, separately, the Breeses (who had gone to Queensland) a form of guarantee by the six of the obligations to be assumed by the company under the substitution arrangement. These were both signed and, in due course, Mr Tuckerman received one copy signed by the four Cowper parties, with the signature spaces for the Breeses blank, and a second copy signed by the two Breese parties with the signature spaces for the Cowpers blank. 33 I turn now to the process by which the company purchaser was substituted for the six individual purchasers. There is in evidence a copy of the front page of the contract signed by the vendor in which the originally included specification of the purchasers ("See annexure 1", which referred to an annexure naming the six and the shares in which they intended to buy) is crossed out and "28 Narrabeen Park Pty Ltd", followed by the Australian Company Number, is written in instead. Because this page is signed by the vendor, I readily infer that it belongs to the part of the contract that came into the purchasers' representative's possession on the original exchange, so that the crossing out of the reference to annexure 1 and the writing in of the new name was effected at the purchasers' end, more than likely by Mr Williamson, their conveyancer, particularly in light of his reference in his letter of 11 October to Mr Tuckerman to "altering the contract to reflect the company as purchaser". It is not at all clear from the correspondence or from the evidence Mr Williamson gave that he appreciated the conceptual process involved in a substitution of this kind, namely, tripartite contractual novation under which the vendor agrees to release the original purchasers upon the new purchaser undertaking to the vendor to adopt and perform the contract in place of those original purchasers. Mr Williamson, I think, preferred to think in uncomplicated and literal terms of "altering the contract to reflect the company as purchaser", that is, picking up the part of the exchanged contract in his possession (being, of necessity, the part signed by the vendor), crossing out the reference to the original purchasers (identified by means of annexure 1) and writing in instead the company's name. 34 There is in evidence as part of Exhibit D what I accept to be the front page of the part of the contract held by Mr Tuckerman, solicitor for the vendor, both immediately after exchange and at all material times thereafter. This bears the signatures of the six individuals. There is nothing to suggest that Mr Tuckerman, like Mr Williamson, took his pen to the part he held in some attempt to delete the original purchasers and to write in the name of another. 35 It seems to me that there could be said to have been a novation by which the six purchasers were released and the company 28 Narrabeen Park Pty Limited became, as against the vendor, the purchaser in its place, only if the correspondence between Mr Williamson and Mr Tuckerman - each of whom may be presumed to have written with all requisite instructions and authority, that is, in Mr Williamson's case, the authority of the six individuals and the company - was in truth the source of a contractual novation. Mr Williamson's writing in of a new name in the space for purchaser, in place of the reference to annexure 1, can safely be disregarded for these purposes. 36 Mr Tuckerman's letter of 14 October conveyed the agreement of the vendor to the substitution of 28 Narrabeen Park Pty Limited as purchaser subject to two conditions introduced by the word "Provided". The second was that the directors should provide a guarantee in acceptable form. Given that the guarantee was provided and that there has been no apparent suggestion on the part of the vendor that it was not in acceptable form, this condition must be regarded as having been satisfied. 37 The first condition introduced by the word "Provided" in Mr Tuckerman's letter of 14 October was that "28 Narrabeen Park Pty Limited is an existing company". Mr Francey of counsel, who appeared for Peter and Jillian, invited me to find that "existing company" here referred to a company in existence when the contract was originally entered into on 4 October. He did so by reference to conditions laid down by the Duties Act for obtaining an exemption from a second ad valorem duty where a company becomes the transferee of property the subject of a contract in favour of an individual as purchaser. It is sufficient to note, on this, that one such condition under one of the subsections of s.18 of the Act is that the company which ultimately becomes the transferee must have existed at the time of the making of the contract between the vendor and the original purchaser. This, in Mr Francey's submission, must be taken to indicate a particular meaning of "existing company" in Mr Tuckerman's letter. 38 I do not accept this submission. Mr Tuckerman and his client had no interest in ensuring that the purchaser group did not incur more than one lot of ad valorem duty. Conveyance duty is the responsibility of the purchaser or transferee and a vendor does not logically concern himself with the incidence of this duty. The only concern of Mr Tuckerman on behalf of his client was to ensure that the novation worked in a contractual sense - that is, that the vendor, having let the original purchasers off the hook, obtained in return a commitment to purchase from an existent legal entity, coupled with the guarantees of the six individuals. It must follow that when Mr Tuckerman referred to "an existing company", he intended to refer to a company existing at the time of his letter, being the time at which his client's agreement to accept the substitute purchase was operative, albeit on the conditional basis stated in the letter. The company 28 Narrabeen Park Pty Limited was, of course, in existence when Mr Tuckerman wrote (having been registered on 11 October), with the result that that condition in Mr Tuckerman's letter was satisfied. 39 In summary, therefore, the effect of Mr Tuckerman's letter of 14 October, in the circumstances then existing, was to convey the concurrence of the vendor in a novation arrangement under which the six individuals would be released, vis a vis the vendor, and the company would be accepted as purchaser in their place, upon the guarantee of the individuals being provided to Mr Tuckerman as in fact happened on 18 October. And Mr Williamson, by arranging for the guarantee to be provided (albeit in the form of two separate documents), committed his clients - both the six and the new company - to the novation described in Mr Tuckerman's letter. 40 I therefore conclude that, as from 18 October or thereabouts, there existed a contract for sale between the vendor and 28 Narrabeen Park Pty Limited as purchaser, with the six individuals released from the obligations as purchasers but bound by the form of guarantee given to the vendor. 41 As among the six, the original contract (formed on 4 October and supplemented at the meeting of 5 October) to pursue the development and sale joint venture was varied by the further agreement concerning substitution of a company as purchaser. But the contract among the six was not thereby extinguished or discharged. It cannot have been the common intention that, after the company became the purchaser in place of the six, the parties' agreement became confined to that represented by the company's constitution (by which all, as shareholders, were bound). The parties did not intend that the original contract to pursue the joint venture should be at an end and that the company should become the owner of the property without any agreement among the six or any mutual intention as to how the company would then proceed. It was not as if the directors (or shareholders) were to sit down and decide from scratch what the company would do with the property it was in the course of acquiring. On the contrary, the contract among the six to pursue the development project continued, although varied to the extent of recognising that they would cause the company to be purchaser and to be a vehicle through which the six individuals would pursue the plan to which they were already contractually committed. 42 The plaintiffs' case proceeded in part on the footing that the contract to substitute the company as purchaser somehow continued as a separate executory contract after that substitution, its separate existence and effect being such that it stood side by side with the contract among the six to pursue the venture and was capable of being terminated in such a way as to leave the latter contract undisturbed. I do not accept this. Once the company was substituted as purchaser vis a vis the vendor, the contract among the six to effect the substitution was fully performed and the original contract, varied by and because of the contract to effect the substitution, continued as a single and on-going contract. The feasibility studies 43 I pass now to a new phase of events. On 11 October, Yvette spoke with Mr Grant of Cornerstone Property Group, a professional development company with offices across the hall from her place of work. She told Mr Grant in general terms of the development proposal the six were pursuing. Mr Grant offered to "do some sums" for her. Mr Grant later had to leave and asked Mr Page of Cornerstone to make a feasibility study, as Mr Grant was concerned about the figures. On the afternoon of 11 October, Mr Page gave Yvette four sheets of paper showing projected financial outcomes on four different assumptions as to gross realisations on the developed property. He said to Yvette that the figures were not good and that "the profit you were hoping for is just not there". 44 Yvette went home to 47 Narrabeen Park Parade and showed Wayne, Joan and Lee the Cornerstone feasibility studies. They were concerned and, as the cooling-off period under the contract was still current (the six thought it expired that day, although in reality it continued to Monday 14 October), Wayne, according to his account of events, went across the road to Peter's house with the papers prepared by Mr Page. Wayne says that he told Peter of concerns held by, in particular, Joan and Yvette about the viability of the project and suggested they sort things out quickly as they could rescind at minimal cost if they did so by 5pm (it was by then about 4.45 or 4.50). Wayne says that Peter preferred to discuss matters relevant to continuation of the project and that he "rambled about different ways to approach the project". Thinking that any opportunity to rescind had been lost, Wayne let the matter rest and went home. There is evidence of Joan that Wayne went to see Peter with the feasibility studies on that evening and returned home after 5 o'clock saying that Peter did not want to talk about them. Two days later, on Sunday, 13 October, Peter and Jillian left by car for Queensland. 45 Peter's evidence is that he first heard of the feasibility studies on 21 October in the course of a telephone conversation he had with Wayne. He asked Wayne to fax the studies to him (Peter and Jillian were then in Queensland) and Wayne did so. They reached Peter the next morning, 22 October. On reviewing the studies, Peter formed an opinion that the figures were inflated so far as marketing costs and interest were concerned. 46 There was debate before me as to the accuracy and reliability of the work done by Cornerstone particularly because it assumed a project life of 18 months while the parties had spoken in terms 12 months; Cornerstone assumed full agent's commission on re-sale; and the interest rates assumed by Cornerstone were somewhat higher than those indicated as available by finance brokers approached separately by Peter and Wayne. I do not consider it necessary at this point to come to a view about the quality of the feasibility reports. It is sufficient to note that they were the expressed reason for a letter Wayne faxed to Peter dated 23 October. I now turn to that letter. The events of 23 to 25 October 47 In his letter to Peter dated 23 October, Wayne referred to the feasibility studies and expressed the opinion that the profits the parties had been expecting were "unrealistic" and that the project would be "a high risk project". Wayne, obviously speaking also for Joan, Lee and Yvette, went on to propose five possible "solutions" for consideration by Peter and Jillian: "1. Lee & Yvette Cowper, Wayne & Joan Cowper sell their shares to Peter & Jillian Breese. 2. Peter & Jillian Breese sell their shares to Lee & Yvette Cowper and Wayne & Joan Cowper. 3. Lee & Yvette Cowper as the only current investors having raised the deposit of $71,500.00 proceed with the purchase and make this their family home. 4. The property is put back on the market on as a DA is not an option. 5. We employ a liquidator to oversee the disbursement of the company."

This letter did no more than invite the attention of Peter and Jillian to certain possible courses of action that the six might together consider worthy of adoption in the light of the reservations the Cowper parties by then held about the project's financial viability. 48 The next day, 24 October, Peter faxed a copy of Wayne's letter to Mr Williamson, having first spoken to him by phone. He said he was "leaning to option 1" and asking for the best way of "solving the stamp duty problem" - a reference, obviously enough, to an apprehension that ad valorem duty would be incurred again if Peter and Jillian became the sole buyer of the property or bought out the other shareholders in the company. On the same day, 24 October (and, it appears, before Peter had received any reply from Mr Williamson), Wayne sent another fax to Peter and Jillian as follows: "Further to our fax on 23/10/02 I wish to advise that after consultation with Joan we have agreed to the following: 1. We are resigning as Directors of the Company and selling our shares to Lee & Yvette Cowper. 2. Lee & Yvette Cowper intend to contact David Willet to arrange finance for their 2/3rds share of the project. We have taken this step as we believe for the reasons previously put forward that this project will not be a good investment." 49 On 25 October, Peter sent a fax to Mr Merrell as follows: "We refer to Wayne's letters to Jill & I of 23/10 and 24/10/02 and advise that the reason I did not wish to be a shareholder in a project company have now been realised. I only agreed to the company format on the basis of resurance (sic) from Wayne that all the decisions of the company would be on the basis of unanimous agreement following a detailed discussion with Wayne. We do not agree with the transfer of shares from Wayne & Joan to Lee & Yvette. Further we would not agree to Lee & Yvette funding their share of the project cost by pledging the company's asset. Simply there is no cashflow in the company and it would not be able to meet its obligations (without shareholder support) when due. As directors we could agree to a breach of the Corporation Law. Jill & I propose to resign as directors of the company and our resignations are set out as follows."

There followed, in the body of the fax, handwritten resignations of Peter and Jillian as directors (albeit with the company wrongly described as "28 Narrabeen Park Parade Warriewood Pty Limited"), incorporating a request, in each case, to "cancel the 20 shares allotted to me as I no longer wish to be a member of the company". The fax concluded: "Ralph we will post this fax to you to-day and I would be grateful if you would confirm to that our instructions have being (sic) implemented FAX 99694966. Thank you for your attention to this matter." 50 Later on 25 October, Peter again faxed Mr Merrell. On this occasion he asked that the instructions in the earlier fax (as to resignation as directors and cancellation of shares) be disregarded, saying that he had thought the resignations of Wayne and Joan would cause the arrangement to revert to a contract with the six individuals as purchasers - this appears to be a misapprehension born of the knowledge that the substitution of the company as purchaser would be successfully implemented only if all six were directors and shareholders of the company, but missing the point that the species of success concerned was no more than stamp duty avoidance and assuming that a move away from the stamp duty efficient form of company arrangement would somehow cause things automatically to be reversed. By the time he sent the second fax, Peter had apparently realised that this was not so and wanted to revert to the previous position. 51 Before Peter's second fax was received, Mr Merrell had prepared the forms called for by the Corporations Regulations to notify to ASIC a change of officeholders and a reduction of capital or share buy-back. Lee went, at Wayne's request, to Mr Merrell's office at Mosman to sign those forms as a director. The forms were then promptly lodged with ASIC electronically. The lodgment confirmation shows lodgments at 11.39am and 11.41am on that day. Mr Merrell faxed Peter on 28 October confirming that his original instructions had been carried out and that any question of reinstatement would have to be taken up with the directors of the company. 52 It is necessary to consider whether, as a matter of law, Peter and Jillian did resign as directors and their shares were cancelled. The fact that Mr Merrell lodged with ASIC forms stating that both these things had happened is neither here nor there. Saying something in an ASIC lodgment does not cause it to be real. The records of ASIC are in no sense analogous with a register of indefeasible interests under the Torrens system. 53 Clause 14(b) of the company's constitution says that a director ceases to be a director if the director "resigns under … this Constitution". Clause 12 says that a director may resign from office "by giving the Company notice in writing". Clause 6 says that, unless the context indicates a contrary intention, an expression in the constitution dealing with a matter dealt with by a provision of the Corporations Act has the same meaning as in that provision of the Act. Section 109X of the Corporations Act contains interpretative rules to be applied in giving effect to a provision for the "service" (which, by virtue of s.109X(7), includes "giving") of a "document" on a company. The section says that a document may be served on a company by leaving it at or posting it to the company's registered office or delivering a copy personally to a director who resides in Australia or an external territory. 54 An ASIC search in evidence shows that, since the date of incorporation, 11 October 2002, the registered office of 28 Narrabeen Park Pty Limited has been at 47 Narrabeen Park Parade, Warriewood. The signed forms of resignation forwarded by Peter by fax on the morning of 25 October were forwarded to a fax machine at Mr Merrell's office at Mosman. It is clear nevertheless that Peter, for himself and Jillian, intended thereby to communicate with the company. The evidence shows that Mr Merrell faxed the documents to Joan at 47 Narrabeen Park Parade, so that they did, on the day he received them, reach the registered office. Joan's evidence makes it clear that the fax with the resignations reached her at the registered office before Lee went to Mr Merrell's office to sign the ASIC forms, which was before Peter's later fax to Mr Merrell seeking to withdraw the resignations. Receipt of the faxed resignations at the registered office, via Mr Merrell, must be regarded as having caused the offices of Peter and Jillian to become vacant in accordance with the constitution. 55 The only evidence concerning the supposed cancellation of Peter and Jillian's shares is the inclusion in the resignations faxed to Mr Merrell of a request for cancellation and lodgment with ASIC of notification of a capital reduction signed by Lee as a director, plus statements in the witness box by each of Wayne, Joan, Lee and Yvette that they consented to the shares of Peter and Jillian being cancelled. 56 Clause 90 of the company's constitution is in the following terms: "Subject to the Corporations Act, the Company may reduce its share capital, or buy-back Shares in itself, on any terms and at any time." 57 The opening words make it clear that, so far as the compact that is the constitution is concerned, any reduction of capital should be effected in accordance with the procedures laid down by the Corporations Act. This is the effect of the words "Subject to the Corporations Act". The ASIC notification shows that it was the reduction of capital provisions that were seen as relevant to the share cancellation. If a capital reduction is to be effected in accordance with the Act, there must be resolution passed at a general meeting in accordance with s.256C. Where the reduction is a "selective reduction" (as this would have been), the resolution must conform with either paragraph (a) or paragraph (b) of s.256C(2). Furthermore, where the reduction involves cancellation of shares, there must be a special resolution passed at a meeting of the shareholders whose shares are to be cancelled. Unless these steps are taken, a selective cancellation is not effected in accordance with the Act. 58 In the present case, of course, none of these steps was taken. There was, at most, a written statement by the two affected shareholders that they wished their shares to be cancelled and a statement in the witness box by each of the four other shareholders that he or she consented to the cancellation. What was done at the time, apart from Lee's signing the ASIC form after receipt by Joan, through Mr Merrell, of Peter's fax containing the statements of Peter and Jillian as to resignation and share cancellation is unclear. But I consider the evidence to show that there was a period on 25 October, before Mr Merrell's receipt of Peter's second fax, during which all six shareholders individually assented to the cancellation of Peter's shares and those of Jillian, although there was no communication of the individual assents in such a way as to warrant any conclusion that each knew of the assent of all the others. In particular, Peter and Jillian did not know at any point that the Cowper parties had consented to the cancellation - indeed, the fax by which they initiated it proceeded on an implicit assumption that cancellation could be achieved merely by their own unilateral act notified to the accountant. It is reasonably clear, however, that the communications by phone and fax between Mr Merrell, Joan, Wayne and Lee were sufficient to show that the last three acted upon two messages received from Peter and Jillian. There is no evidence that the company's share capital account or register of members was in any way adjusted to reflect cancellation of Peter and Jillian's shares. 59 I am satisfied, however, that communication by Peter and Jillian of the request that their shares be cancelled, coupled with, first, the actions of the Cowper parties on the same day and before knowledge by them of the second message from Peter and Jillian and, second, the ASIC lodgment, was sufficient, in accordance with the principles of unanimous assent discussed at para 7.590 of H A J Ford, R P Austin and I M Ramsay, "Principles of Corporations Law" (looseleaf), to constitute in fact a cancellation of the shares of Peter and Jillian, if on no other basis than that, in the light of those events, each party would be estopped from proceeding on any other basis. 60 Of particular significance, it seems to me, is the fact that the contentions advanced on behalf of Peter and Jillian in these proceedings do not, as I understand them, include any contention that they are still directors and shareholders in the company, except a contention based on the fact that the company name was misstated in their documents as "28 Narrabeen Park Parade Warriewood Pty Limited". That misdescription cannot be regarded as vitiating. In the particular context, there was no doubt as to the identity of the company to which they were referring. 61 That a cancellation of shares (and hence a reduction of capital) occurred in fact without any attempt to observe the requirements of the Corporations Act relating to reduction of capital or to follow the statutory procedures is of no moment when it comes to considering the effectiveness of the de facto position. This is made clear by s.256D(2); and see Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 40 ACSR 221. Nor is the effectiveness of the de facto position compromised by any departure there may have been from the requirements of the constitution since, in that regard, the unanimous assent to which I have referred would have been of particular relevance. 62 In all the circumstances, it must be accepted that Peter and Jillian ceased to be shareholders of 28 Narrabeen Park Pty Limited on 25 October 2002. The position after 25 October 63 Immediately after the events so far recounted, Peter and Jillian were no longer directors or shareholders of the company established by the six parties as the vehicle for their venture, which company had by then become the purchaser under the novated contract with the vendor. But Peter and Jillian had withdrawn for one reason and for one reason only, namely, the notification to them by Wayne that he and Joan were resigning as directors and selling their shares to Lee and Yvette who intended contacting a particular party "to arrange finance for their 2/3rds share of the project". 64 This letter from Wayne conveyed an unmistakeable message. Wayne (and, I hold, Joan on whose behalf he also wrote) saw "the project" as continuing. What they foreshadowed in clear terms was that they intended withdrawing in such a way that "the project" would continue with Lee, Yvette, Peter and Jillian as parties and with Lee and Yvette accounting for a two-thirds share as against Peter and Jillian's one-third. The withdrawal announced by Wayne and Joan in the 24 October letter was a withdrawal from the venture as a whole. 65 It was both logical and natural that Peter and Jillian should view a project excluding Wayne and Joan and leaving only Lee and Yvette on the Cowper side quite differently from one that included all four Cowpers. According to the original conception (the subject of the contract of 4 and 5 October, as subsequently varied), Wayne would bring to the venture building skills and experience acquired over thirty years, while Peter would concentrate on the financial side. Lee, aged 28 and obviously lacking his father's commercial and practical experience in the building industry was, according to Joan's notes of the 5 October meeting, to be the site manager. Withdrawal of Wayne and Joan would mean very significant departures from the original plan. Despite Peter's later attempt to reverse his withdrawal and that of Jillian from the company, I am satisfied that that withdrawal (which, as I have found, was effective) was a direct response to the statement that Wayne and Joan were resigning as directors and selling their shares to Lee and Yvette who would then have a two-thirds "share of the project". 66 As I have said already, it is to my mind clear that, on 4 and 5 October, the six became parties to a contract under which all six would be participants in a joint enterprise involving the purchase of the property, the construction of a new house and eventual re-sale, there also being a mutual expectation of profit which would be shared equally among the three couples. The introduction of a company at a later stage did not involve any abandonment of that original contract. It was, rather a playing out of that contract (or a supplement to it) as to the form in which the parties' interests in the venture should be arranged and held. The company was a vehicle through which or with the aid of which the six were to carry out their original contract. I have already observed that it cannot be suggested that the company and its constitution were actively accepted by the six as entirely superseding their original agreement. They clearly contemplated a continuing contractual relationship among the six. There is evidence of Mr Merrell's having drafted the heads of agreement already mentioned and of a shareholders agreement having been drafted. While neither of these was ever signed, the fact that they were considered lends weight to the reality that the individuals never saw themselves as having become no more than co-shareholders in the company they caused to be formed as an instrument for pursuing their original agreement centred upon a project or venture having the six as participants. 67 The intimation by Wayne and Joan to Peter and Jillian, through the letter of 24 October, of an intention of withdrawing from the project and leaving Peter and Jillian as co-venturers with Lee and Yvette was a statement by Wayne and Joan that they no longer intended to be bound by, or to perform, the contract that the six would embark upon and carry through to its conclusion the project of acquisition, building and re-sale. That statement was made without legal justification. Wayne and Joan thus repudiated that original agreement and that repudiation was wrongful. 68 Peter and Jillian were, as a technical matter, put to their election by this repudiation. The election they made was conveyed by their first letter of 25 October to Mr Merrell which, as I have already found, was intended by them as a means of communication with Wayne, Joan, Lee and Yvette and in fact came to their notice virtually immediately. By that letter, Peter and Jillian made it clear that they in turn were withdrawing from the company, thus signifying in unequivocal terms their decision, prompted by the repudiation of Wayne and Joan, to put and end to the contract that had to that point existed among the six. This was not changed by subsequent attempts to reverse what they had done. 69 As a result of the events of 24 and 25 October, the contract which had existed among the parties since 4 October (albeit in terms that had undergone some modifications over time) came to and end and all parties were discharged from further performance. This was, of course, without prejudice to the rights of Peter and Jillian to damages for the breach constituted by the repudiation on the part of Peter and Jillian. The pleadings 70 By their amended statement of claim, the plaintiffs claim various declarations as the existence of certain contracts as follows: "1. A declaration that there is and/or was a binding agreement between the Plaintiffs and the First, Second, Third and Fourth Defendants dated on or about 4 or 5 October 2002 for the purchase of the land described in the Schedule and known as 28 Narrabeen Park Parade, Warriewood ('the property'). 2. A declaration that there exists and/or existed a binding agreement between the First and Second Plaintiffs and the First, Second, Third and Fourth Defendants that the said agreement for the purchase of the property was subject to a further agreement between them involving the following conditions: (a) the property would be developed and sold as a joint venture between the parties; (b) a covenant would be placed on the property for the benefit of our client's property at 26 Narrabeen Parade, Warriewood (Lot 25 in Deposited Plan 15763) in respect of building height at the rear of 28 Narrabeen Park Parade, Warriewood (Lot 24 in Deposited Plan 15763) pursuant to which no structure or flora shall be permitted that exceeds five metres in height in that area of 28 Narrabeen Park Parade, Warriewood bounded to the west by the rear boundary, to the east by a north south line parallel to the rear boundary commencing at a point adjacent to the north eastern corner of the balcony currently existing on the Plaintiffs' property and bounded on the north and south by the side boundaries of No. 28 Narrabeen Park Parade, Warriewood; (c) Newstart 250 Pty. Limited T/as Wayne R. Cowper or another Cowper building company would be the builder for the project; (d) profit on the joint venture would be split equally three ways between Peter Craig Llewellyn Breese & Jillian Margaret Breese, Wayne & Joan Cowper and Lee & Yvette Cowper. 3. Alternatively, a declaration that there is a binding contract between the First and Second Plaintiffs and the First, Second, Third and Fourth Defendants that the said agreement to purchase the property will be performed by the Fifth Defendant subject to the further agreement set out in 2 above."

The plaintiffs claim an order for specific performance of the agreement or agreements or damages for breach. 71 In my judgment, the plaintiffs are entitled to a declaration in accordance with prayer 1 but are not entitled to a declaration precisely in accordance with prayer 2, the true position, on the evidence, being that there existed, until 25 October 2002, a binding contract as described in prayer 2 but with element (b) in prayer 2 omitted and the reference to Newstart 250 Pty Limited replaced by a reference to Wayne Cowper Pty Limited, which contract was wrongfully repudiated by Wayne and Joan on 24 October 2002, with Peter and Gillian accepting the repudiation on 25 October 2002. 72 The amended statement of claim contains a claim for damages. Peter and Gillian are entitled to damages for breach of contract and there should be a verdict for them accordingly. I shall come to the question of quantum presently. 73 Peter and Jillian also advance claims based on misleading or deceptive conduct on the part of the defendants contrary to the Trade Practices Act or the Fair Trading Act. There is some lack of particularity as to conduct complained of, although it appears, in part, to be conduct of Mr Williamson and Mr Merrell in the advice they gave as to the stamp duty consequences of the substitution of the company as purchaser. On that, it is sufficient to say two things. First, the defendants have not been shown to be in any way responsible for the conduct of Mr Williamson or Mr Merrell so that, even if the conduct of either or both was proscribed by either Act, liability on the part of the defendants would not follow. Second, it is by no means clear that the advice was defective. I allowed to be put into evidence on 13 December a copy of the contract which appeared to be stamped with ad valorem duty and a copy of an instrument of transfer bearing the fixed duty appropriate to a transfer made in conformity with a stamped contract. This (although not necessarily conclusive) would tend to suggest that the advice was correct, at least in so far as the practices of the Office of State Revenue are concerned and I do not consider it helpful to examine the terms of the Duties Act and the relevant practice note of the Office of State Revenue. I have already dealt with the aspect of the plaintiffs' misleading or deceptive conduct case concerning the restrictive covenant issue. 74 The defendants filed a cross-claim in which they claimed that the actions of Peter and Jillian on 25 October in resigning as directors and submitting to cancellation of their shares amounted to a repudiation of the parties' contract, which repudiation the Cowper parties have accepted; alternatively that the contract had otherwise been terminated. The first proposition cannot be accepted, since, as I have already found, the relevant repudiation was that of Wayne and Joan, not the plaintiffs. The latter proposition is correct, the termination being the one grounded in the wrongful repudiation by Wayne and Joan to which I have referred and for which Peter and Jillian are entitled to recover damages for breach of contract from Wayne and Joan. 75 The declarations sought by the defendants in their cross-claim are: "1. A declaration that the Cross-Defendants have ceased to be directors and shareholders of the Fifth Cross-Claimant. 2. A declaration that the development agreement has been terminated and is no longer binding on or enforceable by any of the parties thereto." 76 Adequate grounds exist for the making of both these declarations. Conclusion 77 The expedited hearing of these proceedings extended over four and a half days. I reserved judgment on the afternoon of Tuesday 10 December. The matter was, at the plaintiffs' request, re-listed on Friday 13 December when, over opposition by the defendants, I allowed the plaintiffs to tender certain further evidence concerning the stamp duty position. I also allowed the defendants to tender, in response, the stamped documents and granted leave for the filing of an amended statement of claim and a defence to it. These were received on 17 and 18 December respectively. 78 Friday 13 December was the due date for completion of the contract for the purchase of the property. I gathered, from what was said in court on that day, that the company was proceeding to complete. I am aware that there was at least a hope on both sides that I would have delivered my judgment on or before 13 December. Once it became clear early in the proceedings that there were many substantial issues of fact that were contested and that the case would run beyond its scheduled two days, I said in open court that it should not be assumed that I would be able to meet that date. The fact that proceedings are granted expedition means no more than that the hearing occurs earlier than it would if left to take its place in the general list. As it happened, I had another two day expedited hearing on 11 and 12 December immediately following this case and thus no opportunity, until 13 December arrived, to spend on this matter anything beyond the short time available before and after court hours. 79 The result of the proceedings is that the court will

(a) make a declaration in a form to be precisely settled but generally to the effect that the development agreement (being the agreement under which the plaintiffs and the first to fourth defendants agreed to purchase the property at 28 Narrabeen Park Parade, Warriewood, to develop the property and sell it as a joint venture and to divide any profit on the joint venture in equal one-third shares among the plaintiffs, the first and second defendants and the third and fourth defendants) was unlawfully repudiated by the first and second defendants, that the plaintiffs accepted the repudiation and that the development agreement is at an end and is no longer binding on or enforceable by any of the parties thereto;

(b) award damages to the plaintiffs accordingly; and

(c) declare that the plaintiffs have ceased to be directors and shareholders of the fifth defendant. 80 It remains to determine the quantum of damages to be awarded to the plaintiffs. In conceptual terms, the amount to be paid is the value of the lost opportunity to be a participant in the joint venture. It is desirable that I have submissions from the parties as to the precise calculation and, indeed, on the quantum of damages generally. 81 I direct that the parties attempt to agree short minutes of orders giving effect to this judgment (except as to quantum of damages) and that any agreed short minutes be delivered to my Associate not later than 7 February 2003. In default of agreement, the form for which each party contends is to be delivered to my Associate not later than 14 February 2003. Written submissions by the plaintiffs as to the quantum of damages are to be delivered by 7 February 2003 and any submissions in reply are to be delivered by 14 February 2003. The proceedings will be re-listed for further oral submissions only if a party so requests or it seems to me, after receiving what is filed, that this is the desirable course. **********

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