- County Securities Pty Ltd v Challenger Group Holdings Pty Ltd

The Defendants' Cross-Claim

As I noted above, by their Cross-Claim, the Defendants seek an order that Mr Kovacic perform an agreement with Buildcon and Brokers to transfer shares in Centura to them by transferring 33 class A shares to Buildcon and 34 class A shares to Brokers and causing Centura to register the transfers in its registers of members.
The structure of the Defendants' Cross-Claim emerges, to a limited extent, from the pleading of its Defence and Cross-Claim. The Defence pleads that: "7. At the end of 2013 an agreement was reached. 8. In June 2013 Nick [Kalantzis] and [Mr Kovacic] had a meeting at Woolloomooloo. 9. They sought some sustenance. 10. They found some at an establishment known as Harry's Cafe de Wheels. 11. Whilst eating at the said cafe Nick [Kalantzis] and [Mr Kovacic] came upon the concept of setting up a similar business at Gosford. 12. They then jointly pursued the Concept. 13. Nick [Kalantzis] then: a obtained a suitable van for the cafe; b pursued a lease or licence of lease for use of part of the Gosford waterfront. 14. The company [WCA] then lodged an expression of interest for use of part of the Gosford waterfront for the Concept. 15. Both Nick [Kalantzis] and [Mr Kovacic] then lobbied for the grant of a licence for use of part of the Gosford waterfront for the Concept. 16. At that stage [Mr Kovacic] represented to Nick [Kalantzis] that: a [h]e had a company called Centura Global Holding; b [i]t was a dormant company; c [t]hat it was a suitable vehicle for he and Nick to pursue a lease or licence for use of part of the Gosford Waterfront for the Concept. 17. [Mr Kovacic] and the following parties then made an agreement: a Buildcon through its agent Nick [Kalantzis]; b Centura Global Holdings, through its agent [Mr Kovacic]. 18. The terms of the agreement included: a [Mr Kovacic] would transfer 33 of the 100 issued shares in Centura Global Holdings to Buildcon; and b [Mr Kovacic] would transfer 34 of the 100 issued shares in Centura Global Holdings to Brokers. 19. The consideration for the transfer of shares was the agreement by Buildcon and Brokers through Con [Kalantzis] and Nick [Kalantzis] to participate and pursue the business being contemplated by Centura Global Holdings, being the development and conducting of a fast food restaurant known as Eat Street Cafe. 20. When the agreement was made there was an enforceable agreement: a [c]apable of specific performance including an order that the share register of Centura Global Holdings be amended to show the agreed change in shareholding; and b [a]menable to an order pursuant to section 175 of the Corporations Act 2001 requiring Centura Global Holdings to correct its register of members by recording the transfer of shares agreed to above. 21. The agreement was not conditional upon the performance of any condition."
The Points of Cross-Claim pleaded by the Defendants were even more economical, pleading merely that: "2. There was an agreement to the effect that Buildcon and Brokers were to be given or transferred shares in Centura Global Holdings. 3. This agreement was made for valuable consideration. 4. Accordingly Buildcon and Brokers are entitled to orders that: a [Mr Kovacic] and Centura Global Holdings specifically perform the agreement to cause the transfer of shares in Centura Holding[s] from [Mr Kovacic] to Buildcon and Brokers to be recorded in the Register of Members of Centura Global Holdings; and b [p]ursuant to section 175 of the Corporations Act 2001 that Centura Global Holdings correct its registers by recording that: i [t]he issued share capital of Centura Global Holdings is 100 shares; ii That Buildcon holds 33 shares; iii That Brokers holds 34 shares; iv [Mr Kovacic] holds 33 shares."
Mr Kovacic accepts that there was an agreement between him and the Messrs Kalantzis, formed about the end of 2013, by which they would become equal shareholders with Mr Kovacic in Centura, upon their making equal capital contributions to the establishment and operations of the cafe. That agreement is pleaded as follows in paragraph 14 of Mr Kovacic's Points of Claim: "At or about the end of 2013, Mr Kovacic, Nicholas and Constantine [Kalantzis] entered into an agreement pursuant to which Nicholas and Constantine would become equal shareholders with Mr Kovacic of Centura upon Nicholas and Constantine [Kalantzis] making equal capital contributions to the establishment and operations of the Eat Street Cafe. PARTICULARS The agreement was partly oral and partly implied. In so far as it was oral, it was contained in a conversation between Mr Kovacic, Nicholas and Constantine [Kalantzis] as set out in paragraph 22 of Mr Kovacic's affidavit sworn 30 October 2015 in these proceedings. In so far as it is implied, it was implied from that conversation that to when [sic] Nicholas and Constantine [Kalantzis] had made equal capital contributions, they would receive an equal shareholding." That proposition is denied by the Defendants' Defence, presumably on the basis that they contend that agreement did not require such contributions from them. Mr Kovacic pleads that the Messrs Kalantzis have not made equal or any capital contributions to the establishment and operation of the Eat Street Cafe and have not become entitled to become shareholders of Centura and those propositions are also denied by the Defendants.
It is common ground that the primary issue between the parties is as to the terms of, and any conditions to, an agreement which both parties accept contemplated the transfer of shares in Centura by Mr Kovacic to the Messrs Kalantzis, although there is a dispute as to whether the obligation to transfer those shares was unconditional, or arose only when the Messrs Kalantzis made proportionate contributions to the cost of developing the cafe.
It is also common ground that the Court may have regard to the subsequent conduct of the parties in reaching findings as to whether such an agreement existed (which is here not in dispute) and as to its terms, as distinct from questions of construction in respect of such an agreement. In Mears v Safecar Security Ltd [1983] QB 54 at 77, Stephenson LJ (with whom O'Connor LJ and Sir Stanley Rees agreed) observed that: "I have already expressed my view that this agreement was oral, but even if it was partly in writing, we are concerned with the search for a term that was not written down, and there is nothing in those authorities which prevents the court from looking at the way the parties acted for the purpose of ascertaining what that term was. Common sense suggests that their subsequent conduct is the best evidence of what they had agreed orally but not reduced to writing, though it is not evidence of what any written terms mean… ." This observation was approved by Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239 at [2668] and by Murphy JA (Pullin & Newnes JJA agreeing) in Fazio v Fazio [2012] WASCA 72 at [192]-[195].
In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193, to which Mr Allen referred, Spigelman CJ (at [24]) described post-contractual conduct as a matter of "significant weight" in identifying the subject matter of an alleged oral contract. McColl JA also there noted (at [161]-[162]) that, although subsequent communications cannot be looked to as an aid to construction of a contract, they can be looked to "as an aid to deciding whether a contract has been entered into" and subsequent conduct can also constitute an admission of the state of the parties' rights, although care must be taken in identifying the fact said to have been admitted.
In Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [143], Campbell JA observed that: "… the task in ascertaining what are the terms of a contract that is not wholly in writing … is finding as a fact what the parties have agreed. A range of post-contractual conduct could be relevant to ascertaining what the parties have agreed. For example, their conduct in carrying out the contract could itself be objective evidence of what they had agreed, an admission of one of the parties could assist in ascertaining what they have agreed, and business records created to record or report on the contract rather than carry it out could also assist in that task."
In Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295 at [98]-[99], Edelman J similarly observed that: "… subsequent conduct is a relevant matter to consider in finding whether, as a fact, the alleged oral promises were made. … This approach also accords with principle. It would be peculiar if courts were to be constrained in the exercise of finding facts from considering any relevant matter subsequent to the alleged occurrence of the fact in issue."
Mr Allen submits that the shares in Centura were to be transferred in consideration for the Messrs Kalantzis' involvement in the business of Centura and that there was no condition to such a transfer requiring the making of any proportionate or other contribution by them to the development of the cafe, although he accepted in closing submissions that the parties likely contemplated that such a contribution would in fact be made. Mr Allen also submits that the agreement for which the Defendants contend does not preclude adjustment being made between Centura and the shareholders for money they actually contributed, and he refers to Mr Nicholas Kalantzis' evidence (to which I referred in paragraph 12 above) that he was willing to make a contribution (T176), although that evidence was in the context of a suggested borrowing of the funds to do so. I should also note that Mr Constantine Kalantzis did not lead corresponding evidence.
Mr Allen submits that the version of the agreement for which the Defendants contend is more probable since the issue of shares is not usually conditioned on the performance of a condition precedent, when persons embark on a joint enterprise, and shares are acquired at the outset. I do not consider that the Court can proceed on the basis of any assumption as to any usual practice in that regard, quite apart from the fact the facts of this case involve a transfer of existing shares rather than an issue of new shares. Mr Allen emphasises, and I recognise the importance of, Mr Kovacic's evidence that he made Buildcon and Brokers shareholders. However, where the transfer of shares to Buildcon and Brokers were not effective, as the Defendants accept, Mr Kovacic cannot now be compelled to retransfer those shares unless a binding and enforceable agreement requires him to do so, its conditions are satisfied, and an order for specific enforcement of that agreement can properly be made.
Mr Allen also submits that WCA was not paid for works for which it would usually be paid, if it were involved in the project as a builder rather than by reason of the parties each owning shares in Centura. The evidence is unclear as to whether WCA incurred monetary expenses in respect of the project, although I accept that the Messrs Kalantzis and WCA devoted time to the project, and the evidence is also unclear as to whether it was paid such expenses or for its work. Mr Allen submits that the rational explanation is that the work was performed without charge because each of Mr Kovacic, Buildcon and Brokers had a third interest in the Beecroft project being performed by WCA and a third interest in Centura. Mr Allen also refers to the lack of records of the parties' financial contributions, and submitted that accurate records of expenditure would have been kept if that was a precondition to the transfer of the shares. It did not seem to me that the parties would necessarily have kept comprehensive records whatever their contractual arrangements. There do, however, seem to have been some records of expenditures, to which I have referred above. It has not been established that there is a lack of records of the financial contributions made, such that the parties could not assess their respective contributions, although the parties have not made any adequate attempt to lead evidence of those matters at the hearing.
Mr Allen fairly recognised, in closing submissions, that much of the subsequent conduct of the parties, although admissible, was equivocal since it would be explicable by both versions of the agreement for which the parties respectively contended. It seems to me that that concession was correct. If the Defendants' version of the relevant agreement is correct, and performance of it was not conditional on their making proportionate contributions to the cost of developing the cafe, their assisting with the development of the cafe would be explicable as their seeking to maximise the value of the shares to be transferred to them. If Mr Kovacic's version is correct, then they also had an interest in making such contributions, both to satisfy the relevant condition, and in anticipation that they would benefit from the transfer of shares in Centura to them when that condition was satisfied. If a third version, for which no party contends, that there was a contractual obligation to make such contributions which was not a condition precedent or subsequent, were correct, then the conduct may amount to partial performance of that obligation. A fourth possibility, noted by Mr Allen in submissions, is that there was an informal understanding between the parties that the Messrs Kalantzis would make such a contribution, or that they were willing to do so voluntarily, without being under any obligation to do so (T179). The evidence that the parties were working together in respect of the development of the cafe, and WCA was also involved, therefore does not take further the question whether the transfer of shares to the Messrs Kalantzis was or was not conditional on a proportionate contribution to the costs of the project.
In closing submissions, Mr Allen recognised that there was a middle ground, between the Defendants' case and Mr Kovacic's case, that an agreement was reached for the immediate transfer of shares from Mr Kovacic to Buildcon and Brokers and a term of that agreement, although not a condition precedent, was that the Messrs Kalantzis were required to pay an equal amount of the capital contribution required to set up the business of Eat Street Cafe. However, as Mr Allen pointed out, neither party had contended for that position, and he made clear that the Defendants "certainly" did not contend for it (T176). Mr Fernon responded that the Court should determine the case that was put by the parties, which involved a question as to the conditions of the relevant agreement and a claim for specific performance, and that Mr Nicholas Kalantzis had led no evidence of his ability to make any payment so as to satisfy a requirement for proportionate contributions in respect of the project (T201). (I note, for completeness, that Mr Constantine Kalantzis had also led no such evidence.) Mr Fernon also emphasised that Mr Kovacic had understood the case that was put by the Defendants as that it was simply not part of the agreement that there be any form of capital contribution by them; that the Messrs Kalantzis had not (or, I interpolate, had at least not adequately) sought to establish any such contribution; and that Mr Kovacic had therefore not been required to respond to evidence of such a contribution, where it was not part of the case put against him (T201).
Mr Fernon also pointed out that, as I have noted above, paragraph 21 of the Points of Defence, which appears to have been adopted by the Cross-Claim, had pleaded that the agreement was not conditional upon the performance of any condition by the Messrs Kalantzis, and that pleading did not raise any suggestion that there was any other express or implied term that contemplated any equalisation of contributions of shareholders in Centura (T201).
As I had noted in the course of submissions, it does not seem to me appropriate to determine a case that neither party had advanced, and which would have raised issues as to, for example, whether sufficient information had been provided by Mr Kovacic to the Messrs Kalantzis to allow them to make any relevant contributions; whether the Messrs Kalantzis were willing and able to perform any obligation of making such contributions, as a term of any order for specific performance in their favour; and whether the Court would order specific performance, if a contractual term requiring contributions by them had not been satisfied by them. None of those matters had been adequately addressed in evidence or submissions where neither party contended for that possibility.
Mr Fernon in turn relies on the principles in Watson v Foxman (1995) 49 NSWLR 315 and on my summary of those principles in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7], as matters that do not support the finding that such an agreement existed. I there observed that: "It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136 ; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56]."
Mr Fernon submits that the discussions as to the Messrs Kalantzis becoming shareholders in Centura required that they contribute equal capital with Mr Kovacic; that no evidence is led by them to establish the payment of any such capital; and no entitlement to become shareholders arose from the alleged agreement. Mr Fernon also submits that, given the substantial contributions apparently made by Mr Kovacic to the development of the cafe, there is no reason shown why he would have transferred a shareholding in Centura to the Messrs Kalantzis if no equal contributions were to be required from or be made by them.
It should be recognised that the first conversation on which the Defendants relied, as set out in paragraph 26 of Mr Nicholas Kalantzis' affidavit dated 14 December 2015, involves no element of promise by Mr Nicholas Kalantzis, whether as to making contributions by him to the development of the cafe or otherwise. The second conversation, relating to the introduction of Mr Constantine Kalantzis to the venture, again does not include any commitment by the Messrs Kalantzis. The third conversation relates to the arrangements as to who would hold Mr Constantine Kalantzis' shares and again involves no commitment by the Messrs Kalantzis. Both Mr Nicholas Kalantzis and Mr Constantine Kalantzis accepted, by the evidence referred to in paragraphs 12 and 16 above, that they understood they would be responsible for contributing a "fair share" (or a proportionate share) of the "capital" (used in the broader sense noted above, referring to funding required for the project) although they claimed in evidence to have done so.
It seems to me unlikely that Mr Kovacic would have agreed to transfer the shares to the Messrs Kalantzis without any discussion, even in general terms, of any contribution to be made by them to the costs of the development of the cafe. It also seems to me that the evidence of the surrounding circumstances, and the manner in which Mr Kovacic conducted himself generally, does not suggest that he would so disregard his own economic interests in respect of the cafe to give away an interest in Centura to the Messrs Kalantzis without requiring a proportionate contribution by them to the costs of the cafe, even if they or WCA had already undertaken work in respect of the cafe. It seems to me more likely that Mr Kovacic's account of the conversations records at least the substance of what occurred, namely that shares in Centura were to be transferred to companies associated with the Messrs Kalantzis (or more precisely their daughters) if they made, or on condition that they made, proportionate contributions to the cost of the development of the cafe. The notification of the transfer of those shares in February 2014 is not inconsistent with that view, where Mr Kovacic likely did not recognise that a transfer of shares could not readily be made on the conditional basis that he contemplated. In the event, the transfer of those shares does not assist the Defendants, because it was not effective by reason of the absence of approval for the registration of the transfers.
The evidence suggests that Mr Kovacic has made a substantial financial contribution to the development of the cafe and the Messrs Kalantzis may have made at least some financial contribution, directly or indirectly, to the development of the cafe, but does not presently permit the quantification of any contributions by the Messrs Kalantzis. Mr Allen fairly accepted in opening that the evidence was not such that the Defendants could establish that the relevant contributions had been made, if Mr Kovacic established the proposition that a condition to the relevant agreement contemplated such contributions (T4).
On balance, I am satisfied, on the basis of the admissions made by Mr Kovacic in the Points of Claim, that he had agreed, whether on a contractual basis or by an informal understanding, to transfer shares in Centura to the Messrs Kalantzis (or the entities nominated by them) if they made proportionate capital contributions to the project. It is not necessary to determine whether that agreement or understanding involved, in legal terms, a form of condition precedent to performance of the obligation to complete the transfer of shares, or a condition subsequent, or a contractual obligation (a position for which, as I noted above, the parties did not contend) or was an informal and possibly non-contractual understanding. It is also not necessary to determine whether Mr Kovacic later failed to provide adequate information as to the extent of the monies he had contributed to the development of the cafe to the Messrs Kalantzis, to allow the quantum of a proportionate contribution by the Messrs Kalantzis to be determined. It is not necessary to determine those matters because the Messrs Kalantzis do not seek an order, for example, that Mr Kovacic provide them with such information to allow them to make such a proportionate contribution or seek an order that the shares be transferred on condition that they make such a contribution, or lead any evidence that they or the companies associated with their daughters have the capacity to make such a contribution.
Because of the way in which the parties have put their cases, the Court must determine whether it should make an order for specific performance made without a finding that the Defendants have made a proportionate contribution to the funding of the development of the cafe or a condition that they in future do so, that is, on the basis that the parties' agreement did not require such a contribution by them prior to the issue of the shares to their associated entities (cf Mr Allen's submissions at T209). As I noted above, Mr Allen accepts (notwithstanding some evidence of the Messrs Kalantzis that takes a contrary position) that the evidence does not establish that the Defendants had previously made a proportionate contribution or, in the language used in cross-examination, a "fair" contribution. I am not satisfied that they have established an agreement in a form that would support an order that was not conditional on their having made, or having the capacity to make and making, such a contribution.
Had I reached the contrary view, I would not in any event have made an order for specific performance, as distinct from leaving the Defendants to their rights to damages in lieu of such an order, and allowing them a further opportunity to establish the quantum of their claim for damages to the extent they have paid out monies or provided services in the expectation that they would receive an interest in Centura. It seems to me that an order for specific performance would not have been a proper exercise of discretion where no undertaking was offered by the Defendants to do equity by making proportionate (or "fair") contributions, there is no evidence of their capacity to do so and such an order would have brought parties whose relationship has broken down together in a closely held company, with the likely result of further disputes.
An order for rectification of the share register of Centura also cannot be made in favour of the Defendants, both because the register of Centura has not been produced by any party and it is not clear what is contained in it, and because the proposition that Buildcon and Brokers should properly be recorded in the register of members is not established where the Court has not made an order for specific performance in their favour.

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (22)

Cited By (23)