The Facilitating Deed
37 The Heads of Agreement contemplated that the parties would later execute a formal deed. An instrument called the "Facilitating Deed" was executed on 6 December 2001. The parties are Oswald Park, Mrs Crawford, Mr and Mrs McIntosh and Mr McIntosh's two companies, Mr Harrington and Mr Shirlaw.
38 The recitals to the deed noted the equity proceeding and the cross-claim, and that Mr McIntosh, his two companies and Mrs McIntosh claimed that Oswald Park was indebted to them for services provided, work done and materials supplied. It was decided that all issues, disputes and differences arising in the equity proceeding and the cross-claim between Mrs Crawford, Mr and Mrs McIntosh and Mr McIntosh's two companies had been mediated before Mr Morling QC, and that the deed recorded the agreement reached between them at the mediation.
39 The terms of the Deed include provision for the following matters:
· Mrs Crawford and Mr Shirlaw to be appointed directors of Oswald Park and Mr Harrington to retire as a director;
· the constitution of Oswald Park to be amended so as to provide, in effect, for the entrenchment of Mr Shirlaw as the chairman of directors for the ensuing three years or until winding up;
· Mr Shirlaw to be the sole signatory of Oswald Park's bank accounts;
· Oswald Park to transfer Lot 103 to Mr and Mrs McIntosh for a price to be satisfied by Mr McIntosh's pecuniary legacy in his mother's estate, a debit of $152,500 to Mr McIntosh's credit loan account in Oswald Park, and an advance by Oswald Park to Mr McIntosh of $117,750 repayable by 31 October 2003 and bearing interest in the meantime (eventually recorded in a debit loan account of Mr McIntosh);
· the agreement dated 29 November 1998 relating to Lot 105 was set aside;
· the equity proceeding and cross-claim were to be dismissed.
40 Clause 4 of the Deed provides:
"Without limiting the powers otherwise conferred upon Shirlaw by the Constitution of Oswald Park and these presents, his functions shall include acting in the best interests of Oswald Park in:
4.1 resolving disputes between Crawford and McIntosh in relation to Oswald Park, the interpretation of the Heads of Agreement bearing date 25 September 2001 and the interpretation of this Deed;
4.2 concluding litigation with contractors;
4.3 management and completion of subdivisional matters;
4.4 financial and statutory returns."
41 Clause 10 of the Deed is as follows:
"Crawford, McIntosh, Harrington, Comac, Lachlans and Mrs McIntosh mutually release each other, their employees, agents and assigns from all actions, suits, causes of actions, claims and demands whatsoever which any of them now has against Oswald Park and/or any one or more of the others, their employees, agents or assigns and from all liability arising from or relating in any way to the Proceedings or the Cross Claim save that this clause does not release any loan account as finally determined (without double counting of any item referred to in the Cross Claim)."
Events after the mediation, to Mr Cotman's retainer
42 Mr Shirlaw became chairman of directors pursuant to the provisions of the Facilitating Deed. Mr Harrington gave evidence that in early 2002, Mr Shirlaw instructed him to complete the financial statements for the financial years 1999, 2000 and 2001 and to incorporate the effects of the Facilitating Deed and Heads of Agreement into the 2001 accounts, notwithstanding that the documents were entered into after 30 June 2001. On 25 March 2002 Mr Harrington sent the 30 June 2001 draft financial statements to Mr Shirlaw. He said in his covering e-mail that he had incorporated the effects of the Facilitating Deed and Heads of Agreement as he understood them. He attached the journal entries arising out of implementing those agreements. One of them was as follows:
"Jnl 20 write off to subdivision costs of debit loan account in accordance with the facilitating Deed and Heads of Agreement."
That referred to the debit in Mr McIntosh's loan account of $39,734.05.
43 Disputes continued between Mrs Crawford and Mr McIntosh (for example, in Mrs Crawford's letter to Mr Shirlaw of 15 March 2002). On 13 June 2002 he wrote to Mrs Crawford and Mr McIntosh after having received correspondence from their respective lawyers. He provided them with an update on various matters, including litigation and the financial position of the company. He pointed out that fees were being incurred because of continuing disputes between the shareholders, and that in order to bring some of those disputes to a conclusion, he had made certain determinations after conferring with the mediator and others. He continued:
"I also determined that the journal entries required as a result of the mediation agreement will be put through by the company's long-standing accountants [Harrington McNamara] in the normal manner as they determine."
44 On 12 May 2003 Mr RG Humphreys, Mrs Crawford's accountant, wrote a report directed to her solicitors. The purpose of the report was to indicate his opinion on the "current position in regard to the treatment of the disputed items of expenditure in the financial records of Oswald Park and the amendments still to be made". According to Mr Humphreys, the financial statements for the 1999, 2000 and 2001 financial years were to be adjusted to remove disputed amounts prior to signature by the directors. Apparently his opinion was formed on the basis of his interpretation of the releases in the Heads of Agreement and the Facilitating Deed.
45 His report attached a schedule, which summarised the disputed transactions. Apart from matters no longer in dispute, the summary referred to the following:
(a) $10,800 in 1998 for "directors fees" for Mr and Mrs McIntosh, credited to Mr McIntosh's loan account and debited to subdivision costs, and not adjusted in any financial statements. Mr Humphreys said the charge should be reversed in 1999. He described the proposed reversal as "reversal of unauthorised directors remuneration".
(b) $58,400 in 1999 for "director's remuneration for the years 1996, 1997, 1998 and 1999", debited to subdivision costs and credited to Mr McIntosh's loan account, and not adjusted in any financial statements. Mr Humphreys said the charge should be reversed in the 1999 financial statements, again describing the reversal as "reversal of unauthorised directors remuneration".
(c) $600 in 2000 for "director's remuneration", debited to subdivision costs and credited to Mr McIntosh's loan account, and not adjusted in any financial statements. Mr Humphreys said that the charge should be reversed in the 2000 financial statements, as "reversal of unauthorised directors remuneration".
(d) $16,800 in 2000, said to represent: payments made to Comac and charged to subdivision costs $14,400; $2200 charged to subdivision costs and credited as to $1800 to director's salary and $400 to Mr McIntosh's loan account; and $200 charged to subdivision costs and credited to Mr McIntosh's loan account. Mr Humphreys said the $400 and $200 corresponded with the $600 noted at (c). As to the remainder, he said that if the entry were adjusted then subdivision costs would be credited $16,200 and Mr McIntosh's loan account would be debited $16,200, which he described as "allocation of payments made to Comac and L McIntosh".
(e) $16,082 in 2001, said to represent payments made to Comac, being 7 payments of $1200, 2 payments of $1201, one of $480 and 8 of $400, adding up to $14,482. There were also 8 payments of $200 made to Mr McIntosh adding up to $1600. Mr Humphreys said adjustments for those payments had not been made. He said the required entry would be to credit subdivision costs $4882, credit hire charges $3200 and debit Mr McIntosh's loan account $16,082, which he described as "allocation of payments made to Comac and L McIntosh".
46 The total debit to Mr McIntosh's loan account recommended by Mr Humphreys in (a) to (e) above was $102,082. In addition, the report said that as of June 2001, an amount of $39,734.05 was credited to Mr McIntosh's loan account and debited to subdivision costs. This is the amount referred to in Mr McIntosh's affidavit, as noted at (i) above. According to Mr Humphreys, that amount represented the balance of Mr McIntosh's Debit Loan Account and amounted to the writing off of a balance due from Mr McIntosh to Oswald Park. He said that in his view, the transfer was contrary to the terms of the mediation agreement and the write-off was incorrect.
47 At some stage in 2003 Mr Shirlaw proposed to the shareholders that they give consideration to a voluntary winding up of Oswald Park. On 27 May 2003 Mrs Crawford's solicitors wrote to him saying that she would consent to winding up only if agreement was reached between her and Mr McIntosh "as to the appropriate adjustments to be made on the company loan account of the parties". The letter enclosed Mr Humphreys' report.
48 There was a meeting of the directors of Oswald Park on 28 May 2003. According to the minutes Mr McIntosh objected to the contents of the letter as having been dealt with under Mr Shirlaw's authority. Mr Shirlaw said that his determinations had been made and previously notified to members. There followed a heated discussion about Mr Shirlaw's winding up proposal and the meeting was adjourned.
49 At the adjournment of the directors' meeting on 25 June 2003 Mr Shirlaw presented an "Executive Chairman's Report" to the directors. In that report he referred to his letter of 13 June 2002, noted above, saying that he had made determinations in relation to the loan accounts of the two shareholders. There was further discussion at the meeting about voluntary winding up in one of the solicitors for the company suggested that a sum of money be retained until final distribution to allow Mr Shirlaw to re-examine the accuracy of the loan accounts prepared by the company's accountants in accordance with Mr Shirlaw's determination. According to the minutes, the board resolved to pursue this solution.
50 At a board meeting held on 10 December 2003, not attended by Mrs Crawford, it was resolved, on the motion of Mr McIntosh, that his debt to the company together with interest at the rate of 6.8% per annum be payable on the date of the forthcoming distribution to the shareholders. Mr Shirlaw as chairman noted that he had given Mrs Crawford time to make further submissions about the shareholders' loan accounts, the deadline expiring on that day.
51 At a board meeting on 4 February 2004, not attended by Mrs Crawford, Mr Shirlaw tabled his report headed "Determination in regard to disputes over shareholders loan accounts February 2004". In that document he referred to various discussions he had had with the parties and their legal representatives, with a view to ascertaining the meaning of the releases in the Heads of Agreement and Facilitating Deed. He made a number of determinations, which he described as final and in conclusion of the matters determined. He referred to Mr McIntosh's debit loan account of $39,734.05, which Harrington McNamara had reallocated to subdivision costs in the year to June 2001. He noted that this loan account had not been specifically mentioned in the Facilitating Deed and Heads of Agreement and made the determination that the loan account should have remained unchanged by the signing of the Deed and Heads of Agreement, and therefore the entry reallocating the loan account to subdivision costs should be reversed, leaving the balance of the loan account repayable by Mr McIntosh. He referred to the "discount" given to Mr McIntosh in the mediation, on the acquisition by him of Lot 103, and expressed the view that if this was intended to be in full satisfaction of all services provided by Mr McIntosh for the subdivision (including unpaid invoices and earlier payments) it is most likely that the Heads of Agreement and the Facilitating Deed would have said so.
52 Mr McIntosh indicated at the meeting that he would take advice on the content of Mr Shirlaw's report.
53 On 26 March 2004 Mr Shirlaw's firm wrote to Harrington McNamara querying the five entries that had not been reversed, relating to Mr McIntosh's remuneration and reimbursement of associated entities. Mr Harrington replied on 29 March 2004, saying:
"I confirm that as the Facilitation Deed dated December 2001 was not clear in relation to the treatment of reimbursements and remuneration to Mr McIntosh and his associated entities these payments were regarded as reasonably incurred costs relating to the subdivision."
54 On 30 March 2004 Mr Cox, the company's solicitor, wrote to Mrs Crawford's solicitor canvassing various matters, including the loan accounts. He said:
"To put this matter beyond [doubt] Mr Shirlaw has raised, once again, the issue of the reversal and non reversal of certain accounting entries with Harrington McNamara. Harrington McNamara have now advised, inter alia, that in preparation of the accounts all relevant matters contained in the Facilitating Deed were considered. In the circumstances, Mr Shirlaw advises that there is no basis for any further amendment to his determination."
55 At a board meeting on 31 March 2004, attended by all directors, Mr Shirlaw read Mr Harrington's letter of 29 March to the meeting. He then said that Mrs Crawford's query had been answered and he could not take the matter further. The meeting approved the company's accounts up to 2003 and that Mrs Crawford's request, agreed to make any adjustments the chairman might find to be necessary to the 2004 accounts.
56 On 5 April 2004 Mr Shirlaw and Mr McIntosh signed the directors' declaration for the financial statements of Oswald Park for the financial years 1999, 2000, 2001, 2002 and 2003. The accounts up to the 2001 year were prepared by Harrington McNamara and the accounts for 2002 and 2003 were prepared by Mr Shirlaw's firm. Mr McIntosh's loan account recorded his borrowing of $117,750 for the acquisition of Lot 103, and interest. They did not reflect Mr Shirlaw's determination to reverse the writing off of $39,734.05, presumably because the determination occurred after the end of the 2003 financial year. Nor did they reflect any of the reversals recommended by Mr Humphreys of the amounts for Mr McIntosh's remuneration and reimbursement of his related companies. Mrs Crawford gave evidence that she agreed to the lodgment of the financial statements for the years from 1999 to 2003 on the proviso that any adjustments to the accounts could and would be made in the year ended 30 June 2004.
57 The directors met again on 19 May 2004. It appears that by that time Mr Cox, acting on behalf of the company, had obtained a draft advice from Mr Cotman SC. The draft is not in evidence but it appears to have addressed alternative means of putting the assets in the hands of the shareholders, without a winding up. According to the minutes, Mrs Crawford insisted that the company had to be wound up; and that was taken by Mr McIntosh as agreement to the proposed members voluntary winding up. But Mrs Crawford's evidence is that she made it plain that she would not agree to the company being placed into liquidation until the loan accounts had been dealt with in accordance with the Humphreys' report.
58 Mrs Crawford claimed at the meeting that the company owed her $275,000 for bookkeeping over a seven-year period, but she said she would accept $125,000. Mr Shirlaw asked why this claim was not dealt with at the mediation and there was further argument. As to that point, Mrs Crawford has provided evidence indicating that her invoice for her original claim, for $250,000 plus GST, was issued prior to the mediation but it was not referred to in the mediation documents.
59 On 25 May 2004 Mr McIntosh sent a facsimile to Mr Cox asking him whether clause 10 of the Facilitating Deed released Oswald Park from any obligation to meet Mrs Crawford's claim to $125,000.
60 On 26 May 2004 there was another meeting of the directors, which rejected the suggested alternatives to liquidation. Mr McIntosh put forward resolutions for the company to recommence business, to consider restructuring the board and management, and to create a business plan. Those motions were deferred.
61 Mr McIntosh invited Mr Cox to provide advice in response to his letter of 25 May. Mr Cox said that he was waiting on advice from Mr Cotman SC and a comment from Mrs Crawford's solicitor. According to the minutes:
"After discussion, the meeting agreed that Mr Cotman's advice be sought in connection with the legal interpretation of the documents associated with the mediation outcome being joined together with the validity of the claims of Mrs Crawford."
The minutes record that Mr Cox, supported by Mr Shirlaw, proposed to draft an agreement for signature by each party in order to finalise the proposed undertaking and make it binding on the participants, before any meeting with Mr Cotman. It was agreed that the directors would be able to meet with Mr Cotman separately.
The retainer of Mr Cotman SC
62 On 26 May 2004 Mr Cox, the solicitor for the company, sent an e-mail to Mr Cotman SC seeking advice. He referred to Mrs Crawford's claim for bookkeeping fees, and explained that Mr McIntosh had sought clarification as to whether Mrs Crawford's claim had been extinguished by clause 10 of the Facilitating Deed. Mrs Crawford's solicitor had asserted that if Mrs Crawford's claim could not be made, then payments or entries previously credited to Mr McIntosh would have to be reversed. Mr Cotman's advice was sought on these matters.
63 Mr Cox referred to a board resolution on that day, that all matters relating to the resolution of loan account disputes be referred to Mr Cotman for his opinion, having regard to the terms of the various agreements of the parties and as to the legitimacy of the claims. Mr Cox said:
"The parties have agreed that your opinion in relation to the matters in dispute will be final and binding upon them."
He said the board also resolved that each of the relevant parties, namely Mr McIntosh, Mrs Crawford and Mr Shirlaw (as chairman of the company) be permitted to independently put their point of view to Mr Cotman regarding the questions to be answered. It will be noted that Mr Cox's account of the directors' decision to instruct Mr Cotman is different from the account in the minutes. I infer from the correspondence that the minutes were prepared by Mr McIntosh after he had read Mr Cox's e-mail.
64 Mr Cox also sought the advice of Mr Cotman on whether Mr Shirlaw was permitted, having regard to the terms of his appointment and the Facilitating Deed, to vote as a director on a proposal by Mr McIntosh to permit the company to continue to trade and to invest its funds, rather than to proceed to winding up.
65 Mr Cox sent Mr McIntosh a copy of his e-mail to Mr Cotman. Mr McIntosh replied by facsimile that evening. He referred to the motions he had put to the meeting of directors that day, and noted that no votes had been taken on them, and then he said:
"It would be premature, in the circumstances, to action any part of any resolution at this time including, of course, the proposal involving Mr N Cotman SC in respect of loan account issues."
66 On 9 June 2004 Mr McIntosh sent another facsimile to Mr Cox, enclosing the minutes of the meeting of 26 May and saying:
"Since I do not agree to being involved with a quasi-arbitration or 'Kangaroo Court' as explained to you this morning, I would not agree to Mr Cotman being involved other than to provide advice to the Company on points of law."
After noting that he was not present at the time of the negotiations in the mediation, he continued:
"I therefore could not be exposed to, or bound by, such an undertaking since I would be unable to make or defend my position through Mr Cotman by providing direct evidence to the negotiations."
67 Mr Shirlaw, Mr McIntosh and Mrs Crawford made submissions to Mr Cotman. Mr McIntosh was unable to attend Mr Cotman's chambers but he communicated by facsimile. Mr Cotman's written advice, undated but bearing a facsimile imprint with the date 23 August 2004, was tabled at the directors' meeting on 25 August 2004. He concluded, for reasons considered below, that all "related party claims" were released by clause 10 of the Facilitating Deed, whether recorded or not. The principal impact of that conclusion was on Mr McIntosh, for it meant that Mr Humphreys' view that the remuneration and reimbursement claims should be reversed and consequently Mr McIntosh's loan account should be debited with $102,082, was correct. On the other hand, Mr Cotman's advice arguably did not disturb Mr Shirlaw's determination as chairman with respect to the $39,734.05.
68 By letter dated 24 August 2004, Mr McIntosh's solicitors wrote to Mr Shirlaw contending that Mr Cotman's advice had not focused on the exact wording of clause 10, and that he had not examined the cost claim in the 2001 proceeding. The letter asserted that no part of the monies credited to Mr McIntosh's loan account should be reversed.
69 On 25 August 2004 Mr Shirlaw sent a memorandum to Mrs Crawford and Mr McIntosh saying that he had received a letter from Mr McIntosh's solicitors and had referred to Mr Cotman, and he said he would wait for Mr Cotman's final advice before deciding how the loan account should be finalised. He argued that this should not preclude the company from proceeding into liquidation because it would then be possible to pay an immediate distribution pending receipt of Mr Cotman's review.
70 The evidence includes minutes of a meeting of the directors of Oswald Park on 25 August 2004, signed by Mr Shirlaw as chairman. Whereas previous minutes had been prepared by Mr McIntosh, the minutes of this meeting were prepared by Elizabeth Occleshaw, employed as an accountant with Mr Shirlaw's firm. Under the heading, "Approval of Previous Minutes", it is recorded that Mr Shirlaw tabled the minutes of the previous meeting held on 26 May 2004 (wrongly recorded as 24 May), and that Mrs Crawford did not agree with the content of the minutes as drafted. Then the following appears in the minutes:
"Janine Crawford requested the following be added to the previous minutes:
'it was decided between all of the directors to appoint Nigel Cotman to be an independent person to look at each person's submission and to give advice as to his views as to the treatment of the shareholders' loan accounts which would be final and binding on all parties.'
The resolution was carried unanimously."
71 At the meeting on 25 August 2004, Mr Shirlaw recommended, after discussion and Mr Cotman's advice, that the directors resolved to consider the placing the company in liquidation. Mrs Crawford opposed this course, saying she wanted to see the company accounts before making a decision. However, a declaration of solvency, for the purposes of winding up, was put to the directors and carried by Mr Shirlaw and Mr McIntosh, Mrs Crawford abstaining. Then a resolution was carried in the same way, for convening an extraordinary general meeting of members to be held on 22 September 2004, to consider a resolution that the company be wound up. Mr Shirlaw tabled a consent to act as liquidator.
72 Ms Occleshaw gave evidence that she took handwritten notes of all matters discussed at the meeting and afterwards, typed up her notes into formal minutes which she supplied to Mr Shirlaw for review. After Mr Shirlaw signed the minute she distributed them to the directors, keeping a copy of the signed minutes on file. Her handwritten notes, annexed to her affidavit, correspond closely to the minutes in their final form, except that instead of recording that the resolution was carried unanimously, they say "both parties agreed to the above".
73 In his affidavit Mr McIntosh said that Mrs Crawford's statement about the decision at the May meeting was not proposed as a resolution of directors and was not put to a vote. He also said that it was incorrect to record that the statement was carried unanimously as a resolution, because no vote was taken. In my opinion it does not matter much whether there was a vote, if the parties agreed that the statement was correct. According to Ms Occleshaw's handwritten notes, there was agreement. Significantly, Mr McIntosh did not say in his affidavit that he disagreed with Mrs Crawford's account of the decision at the May meeting. Mr McIntosh said that the minutes were not accepted any subsequent meeting, but the copy of the minutes of 25 August 2004 that is in evidence has been confirmed by the signature of Mr Shirlaw as chairperson.
74 Ms Occleshaw's account corresponds in its essential terms with Mr Cox's e-mail of 26 May to Mr Cotman, that the parties agreed that Mr Cotman's opinion would be final and binding (although he was drafting a letter of agreement to "formalise" that aspect). Reacting to Mr Cox's e-mail on the same day, Mr McIntosh did not protest that there had been no agreement that Mr Cotman's opinion would be binding, but only that it would be premature to involve Mr Cotman until the other issues he had raised at the meeting were resolved. His facsimile of 9 June 2004 indicates that by that stage he regarded the arrangement as a "Kangaroo Court", but that was after the event.
75 In all the circumstances, my conclusion is that Mr McIntosh and Ms Crawford reached agreement at the 26 May meeting that Mr Cotman's opinion would be final and binding, as recorded in Ms Occleshaw's minutes. To the extent that the original minutes of the meeting, prepared by Mr McIntosh, are inconsistent with that conclusion, those minutes are wrong. Although a document was contemplated to "formalise" the agreement, it is plain from Mr Cox's e-mail that he regarded himself as authorised to approach Mr Cotman immediately, and his conduct in writing the e-mail implies that as an observer of the directors' decision, he regarded the arrangements reached by the directors as immediately binding on them, notwithstanding that no formal agreement had been drafted. In these circumstances my opinion is that the decision that Mr Cotman's determination would be final and binding was an immediately binding commitment by the directors.
76 Mr Cotman SC provided a written further advice dated 15 September 2004. In this advice (considered further below) he reviewed submissions of the parties and statements he had received from the persons who are present at the mediation. Having reviewed those materials, he reaffirmed his initial opinion.
Mr Cotman's advice
77 In his first advice, Mr Cotman SC made points about clause 10 of the Deed which I shall summarise in my own words as follows:
(1) Clause 10 states that the parties mutually release each other from claims against Oswald Park and any of the others. As a matter of construction, this includes a release by each party of that party's claims against Oswald Park.
(2) The disputed items in the schedule to Mr Humphreys' report of May 2003 (the items adding up to $102,082) were items that had been recorded by crediting his debit loan account and debiting some other accounts such as subdivision expenses ("recorded claims"). The effect of a release of those claims by the Deed would be that the credits to the loan account would be reversed and Mr McIntosh's indebtedness to the company would be increased.
(3) Clause 10 released the company from its liability to meet Mrs Crawford's invoice for $275,000 and the clause released the company from its liability to meet Mr McIntosh's invoices totalling $532,372.75 ("the disputed invoices"). This is presumably on the basis that Mrs Crawford, Mr and Mrs McIntosh and their companies were all releasing parties under clause 10, and as a matter of construction they released Oswald Park from liability for any claims etc they might have against it.
(4) As to whether clause 10 released the "recorded claims":
(a) clause 10 expands on the two clauses in the Heads of Agreement and telescopes them into one clause, adding a new element reserving any loan account as finally determined without double counting;
(b) Mr Cotman received inconsistent statements as to the intended scope of the release, supplied by some of those who were at the mediation, specifically as to whether the "discount" of $185,000 on Lot 103 was intended to be in compensation for remuneration in respect of subdivision work; that is Mr McIntosh's disputed invoices ("the McIntosh view"), or all remuneration including recorded claims ("the Crawford view");
(c) under the mediated commercial arrangements, the company was recognising Mr McIntosh's subdivision work by transferring Lot 103 to him at a "discount" of $185,000, thereby effectively incurring a cost by forgoing revenue on the sale of that property, and there would be "double counting" (that is, Mr McIntosh would be remunerated twice for the same work) to the extent that it had already recorded in its books, as expenses of the subdivision, remuneration to Mr McIntosh;
(d) if the Crawford view were accepted, so that clause 10 operated to release the company from "recorded claims" by Mr McIntosh for remuneration in respect of the subdivision, then the application of clause 10 would lead the company to reverse those journal entries, and consequently increase Mr McIntosh's indebtedness to the company, and so the "double counting" referred to at (c) above would be avoided;
(e) if the McIntosh view were accepted, so that clause 10 only released the disputed invoices, no double counting of the kind noted at (c) above could arise;
(f) consequently, the Crawford view provides a sensible field of operation for the proviso to clause 10, but on the McIntosh view the purpose of the proviso is inexplicable and it is otiose;
(g) in further support of the Crawford view, if the intention of the drafter of clause 10 was merely to release the "disputed" invoices of both parties, that could have been very simply expressed, by the use of significantly different words;
(h) the fact that a company has recognised a claim, by accounting for it, is not inconsistent with the idea that the company may negotiate for the release of that claim, since the released claim can be reversed out;
(i) it follows the clause 10 operates to release all related party claims, whether recorded or not.
78 In their letter of 24 August 2004, Clayton Utz criticised this reasoning on the ground that the proviso about double counting related to items referred to in the cross-claim, and they asserted that Mr Cotman did not examine the cross-claim. However, the first cause of action in the cross-claim relied on the alleged agreement between Mrs Crawford and Mr McIntosh and their mother in January 2003, under which, according to Mr McIntosh, he was entitled to remuneration and expenses with respect to the subdivision. It is a fair inference that he would seek to justify his entitlement to the remuneration and expenses that have been credited to his loan account by reference to that agreement, as well as the disputed invoices. In my view there is no substance to this criticism. Clayton Utz said that Mrs Crawford was properly concerned to ensure that there was no item which Mr McIntosh was "giving up" as part of the commercial settlement, which had already been credited to his account. But if the "giving up" related only to the disputed invoices, it is hard to see how any crediting could already have occurred. That is Mr Cotman's point, as I understand it.
79 Mr Cotman's reasoning in his first advice seems to be directed towards what I have called "the disputed invoices" of both Mr McIntosh and Mrs Crawford, and the "recorded claims" relating to remuneration and expenses of the subdivision, the disputed amount which is now $102,682. He referred to the amount of $39,269 (presumably this is the same as the $39,734.05 now disputed), but it is not clear to me whether he reached a conclusion as to the application of clause 10 to that amount. The evidence before me now indicates that Mr McIntosh claimed that that amount should be written off because he was entitled to be paid the relevant amounts under the 1993 agreement. The 1993 agreement related to his remuneration and expenses in relation to supervision of the subdivision. It seems to me that in principle, Mr Cotman's reasoning should support the view that the company's allowance of this amount to Mr McIntosh, reflected in writing off the loan account debit as at 30 June 2001, should be reversed because the company's obligation (if any) was released by clause 10. Therefore Mr Cotman's construction of clause 10 supports the view taken by Mr Humphreys and Mr Shirlaw that the writing off should be reversed and that the debt remains owing.
80 Mr Cotman's first advice proceeded on the basis that Mr Humphreys' report had been available at the time of the mediation. If there was a report from Mr Humphreys available at that time, it is not the one in evidence before me, which is dated May 2003, well after the mediation had concluded. I have considered whether Mr Cotman's opinion would be affected if he were in error on this matter of fact. In my opinion his reasoning as to the construction of clause 10 stands independently of this matter.
81 In his second advice, Mr Cotman reviewed some additional documents dealing with the factual underpinning of his earlier advice, and reconsidered the issues. For the most part, the second advice is a refinement of the ideas in the first advice, coupled with specific rebuttal of certain arguments put on behalf of Mr McIntosh.
82 There are two issues that, in my opinion, add to the analysis in the first advice in a fashion that should be mentioned here. First, Mr Cotman construed the concept of "double counting" for the purposes of clause 10 so that double counting would not be confined to cases where there is an identical charge in the related party invoices and in a credit to the loan accounts (that is, identical as to amount and also the subject of the charge). In Mr Cotman's opinion, "double counting" also includes charges "of the same type" and as those contained in the disputed invoice, and in his view the relevant type or genus is "related party charges". To the extent that the credit in the loan account reflects a related party charge of the type, though not necessarily identical with, a charge found in the invoices, there is double counting.
83 Senior counsel for Mr McIntosh presented a detailed argument designed to show that if Mr Cotman SC's reasoning were correct, it would be incapable of yielding the conclusion that the sum of $102,682 should be debited to Mr McIntosh's own account. It seems to me plain, however, that the reasoning as I have articulated it, especially given the preference for the interpretation of "double counting", leads to the conclusion that all of the items falling within the $102,682 total fall into the "related party charges" category.
84 The second matter is that according to Mr McIntosh's interpretation of the clause, it had the effect of casting on Mrs Crawford the onus of identifying double counting in the loan accounts (with the result that the release applies). That, said Mr Cotman, was an unlikely construction because in fact, Mrs Crawford and her advisers appear to have done nothing to discharge that onus, in the context of a matter that has generated considerable animosity, trouble and expense. He regarded this as another reason why Mr McIntosh's construction of the clause was unlikely to be correct.
85 Some of the evidence supplied to Mr Cotman was evidence of external circumstances surrounding the making of the agreements reflected in the documents, and evidence of the intention of persons who participated in the negotiations leading to the agreements. Evidence of this kind is generally inadmissible for the purposes of construction of a written agreement. To the extent that Mr Cotman's reasoning relied directly on material of that kind, it would be unsafe of the court to accept his opinion unless it is separately supported by other reasoning. In my view, however, Mr Cotman's essential reasoning stands independently of inadmissible material. Indeed, he discounts much of that material.
86 In my summaries of his two written advices I have endeavoured to isolate the reasoning process permissible for a court to adopt. That is the reasoning process in paragraphs (a)-(i) in respect of the first advice (other than para (b)), and in the two matters that I have singled out for mention from the second advice. Having considered the submissions of the parties, I find myself in agreement with Mr Cotman's reasoning to the extent that I have identified it, and therefore I am in agreement with his conclusion as to the proper construction of clause 10.
The winding up of the company
87 On 27 October 2004 Mrs Crawford and Mr McIntosh as the shareholders of Oswald Park resolved by special resolution that the company be wound up voluntarily and "that the Liquidator be empowered to divide among the members in specie or in kind, the whole or any part of the assets of the Company". Mr Shirlaw was appointed liquidator. At the meeting he tabled a draft plan of distribution (the 2004 Plan). I shall return to this document. I should note, however, that it reversed not only the credit of $39,734.05 to Mr McIntosh's loan account, but also it debited to Mr McIntosh's loan account the 5 amounts recommended for reversal in Mr Humphreys' report totalling $102,082.
88 About this time Oswald Park's draft financial statements for the year ending 30 June 2004 were finalised. Reflecting Mr Shirlaw's plan of distribution, there were reversals debiting Mr McIntosh's loan account with $39,734.05 and $102,682 (the latter reversals were apparently made on a basis that did not accept Mr Humphreys' view that the accounts had double-counted a figure of $600). Interest was also debited to the loan account.
89 On 7 February 2005 the liquidator made an interim distribution to the two shareholders of $600,000 each. In his memorandum to the shareholders of that date, he indicated that Mr McIntosh had submitted claims and proofs of debt against Oswald Park for services rendered by him and his company, The Comac Company Pty Ltd. He said he had taken the advice of Mr Cotman SC and had not formally responded to the proofs of debt. Mr Shirlaw also reported that he was working on some issues with the Australian Taxation Office ("ATO").
90 Mr Shirlaw reported to the shareholders again by memorandum dated 2 March 2005, reporting on issues arising out of a review of the company by the ATO. One of the issues related to loans made by Oswald Park to Mr McIntosh, and another related to payments made by the company to Mrs Crawford and a company called Jensen Enterprises. Mr Shirlaw said in his memorandum these two matters were issues for the shareholders rather than Oswald Park. By another memorandum dated 15 March 2005, Mr Shirlaw forwarded to the shareholders his most recent correspondence with the ATO.
91 Mr Shirlaw's negotiations with the ATO came to an end in July 2005. On 15 July 2005 the ATO sent him a notice to the effect that $1.00 would be sufficient to discharge any outstanding tax-related liabilities of the company. On 21 July 2005 Mr Shirlaw wrote to the shareholders informing them that he had received this notice and that his intention was to distribute the net balance of funds to each shareholder in accordance with the Corporations Act, and to wind up the company's affairs. He said he would retain $50,000 to cover fees and expenses. He asked the shareholders to authorise the finalisation of liquidation by signing copies of his letter. It seems that they did not do so.
92 On 27 July 2005 Mr Shirlaw sent to the shareholders his plans of distribution as at 26 October 2004, and as at 19 July 2005, which are described below.
Mr Shirlaw's Plans of Distribution
93 Mr Shirlaw prepared two plans of distribution, the first at the time of commencement of the liquidation of Oswald Park and the second as at 19 July 2005. He sent both plans to Mr Crawford and Mr McIntosh under cover of his letter of 27 July 2005.