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."