I. the result of the case.
26 I should note here that Mr McKeand protested that the claims are not in strict accordance with the pleadings and reminded me that allegations of misrepresentation and the like should not be taken seriously unless they are clearly pleaded and particularised. I will come back to this point.
27 It is necessary to deal with the cases against the first, sixth, seventh and eighth defendants separately. Although the majority of the time at the hearing was spent in the case against the only appearing defendants, Mr Woods and Mr Hanley, it is necessary first to deal with the case against the first and sixth defendants.
28 A. The claim against Coltern is in respect of what I have designated "the Coltern transaction". It is of little value to spend much time on this matter as it is common ground that Coltern has no assets. The plaintiff's evidence shows that a loan was made pursuant to a document called a Loan and Guarantee Agreement of 29 May 2001. The agreement is a deed. It indicates that there is a loan, principal of $200,000; interest is $189,000. The loan was secured over Lots 2 and 61 Kunama Drive, Jindabyne East (this is of no moment because the first mortgagee took the land).
29 The borrower agreed to repay the principal sum no later than the termination date which appears to be a date 12 months from the date of the agreement. The document is odd in that the guarantor is the same person as the borrower, but this is of no moment.
30 I am satisfied that the money was not repaid and accordingly, the plaintiff is entitled to a verdict for $389,000 plus interest from 29 May 2002. The parties agreed that the specified rate of interest would be 12% and that is the interest which must be paid from 29 May 2002 to the date of signing judgment. On my calculations this is $241,180 to 29 July 2007. Thus, the verdict under this item must be for $630,180.
31 B(1) I have to consider under this head what I have designated the Boyle transaction.
32 It is probably wise to commence with Ms Bondarew's evidence as to her initial contacts with Mr Boyle.
33 She says in her affidavit of 9 June 2005 that she saw an advertisement in The Sydney Morning Herald of 5 May 2001 which read as follows:
" REAL ESTATE Joint Venture
We have a unique niche market opportunity in strategically located regional areas specifically targeted to the Govt First Home Grant Scheme. Developments are DA approved and ready to start with exceptional returns fully securitised with virtually no risk exposure. Developer requires $100-$300K or part thereof with returns of up to 100 pc within 12 months. Genuine enquiries only. Phone…"
34 In response to that advertisement Ms Bondarew telephoned the number mentioned in the advertisement and left a message. That number belonged to Mr Boyle who returned her call on 7 May 2001. Ms Bondarew says that she queried Mr Boyle about the passage in his advertisement which said that the loans were "fully securitised with no risk exposure". She asked him what form of security he was offering. Mr Boyle said, "If you provide the funds, in addition to being offered an interest in the project, you would also be given a second registered mortgage over the particular property to secure the monies advanced."
35 Ms Bondarew says that she replied, "That's good because we won't invest unless our money is secured."
36 They arranged a meeting. In fact, the parties had several meetings between May and July 2001 during which time the Coltern transaction and the ACN No 1 transaction were considered and consummated.
37 For ease of reference, I will refer to Ms Bondarew, Mr Junker and Mr Boyle as "the principal parties" and to the home shared by the first named two as the "plaintiff's home".
38 At one meeting between the principal parties prior to 29 May, Mr Boyle produced what he called his standard shareholders' agreement. Mr Junker said that the plaintiff would need the mortgage documents as well. Mr Boyle replied that Larry Hanley would draw them up.
39 On 29 May, the principal parties had another meeting. Mr Boyle said, "I brought the documents with me. They have already been signed and dated today. As soon as you sign them we are in business." Ms Bondarew mentioned the term of the loan as 12 months and asked whether that was a realistic expectation to which Mr Boyle replied that "If anything, it will be less - more like around nine or ten months".
40 Mr Junker said, "Where is the mortgage? We need a mortgage before we can advance the money". Mr Boyle replied, "Larry Hanley's company, High Meadows Pty Limited has also lent on this property. He has already invested $200,000. At the moment he is preparing a second mortgage for both his company and yours for the total advanced. That could take a couple of days but I have minutes of a directors meeting of Coltern held today. Don't worry this is as good as a mortgage, I have signed the minutes as the chairman, the company agreed to sign the mortgage. There won't be any problems. I would appreciate the cheque today to keep things moving on the project. The sooner we get on with things, the sooner we will all be paid out and make a profit." The plaintiff's officers then handed Mr Boyle a cheque for $200,000. This is the Coltern transaction.
41 In June, the plaintiff decided to invest another $200,000 with Mr Boyle's companies (this is the first ACN advance). The principal parties met at the plaintiff's home on 11 June 2001. Mr Boyle brought with him signed documents for the loan in respect of the ACN company's Tumut project. Mr Junker asked where the mortgage documents were, and Mr Boyle replied, "Same story as Jindabyne, it is going to be a group mortgage. There is another investor Sam Hassan, who has advanced $100,000 for Tumut. Larry is preparing that mortgage as well as the Jindabyne mortgage. Here again are copies of the minutes of a meeting of Tumut Valley which is more than enough evidence until the mortgage is signed. When do you think I can have a cheque?"
42 In late June, there was a meeting of the principal parties with Mr Woods and Mr Hanley at Mr Woods' office at Neutral Bay. Mr Woods told the gathering that he was to market and sell the house and land packages and Mr Hanley said that he was the company secretary and accountant for the projects and was responsible for all the paperwork and accounting procedures.
43 In early July 2001, the principal parties again had dinner at the plaintiff's home. Ms Bondarew again asked what was happening with the mortgages and was told that Larry Hanley was looking after them but was very busy because of the end of the financial year.
44 She then asked how the projects were going. Mr Boyle said that whilst the Tumut project was going very well, he was getting frustrated waiting for first mortgage funding to develop the property and that meant that he was continually short of funds to keep the work progressing.
45 Mr Boyle then asked, "Is there any chance you could make a short term commercial loan of $100,000 to keep the project moving quickly, so we can all get paid out as soon as possible?" Ms Bondarew replied, "We can think about it. What are you offering in the way of interest?" Mr Boyle replied, "If you can provide us with $100,000, I will return the money with $50,000 interest within 6 months. This can then all be rolled over into another development I have in Tumut. It will be a private development - just you and me." The plaintiff agreed to lend $100,000. This was the Boyle transaction.
46 The monies for the ACN No 1 transaction and the Boyle transaction became available in mid-July 2001. A bank cheque for $100,000 was provided to Mr Boyle and the evidence shows that it was banked in an account styled "Tumut Valley Property Finance". That was a business the registered proprietor of which was Mr Boyle.
47 There was another meeting of the principal parties at the plaintiff's home on or about 21 July 2001.
48 At this meeting Mr Boyle said, "We have got another investment opportunity in relation to a property at Booral Avenue, Tumut. We have a DA approved for 28 house and land package lots in respect of this land. It is a lovely development. All of the lots have views over Tumut Valley and to the mountains beyond and will be fully serviced and secured. This would be another great investment for you too." The plaintiff agreed to lend $300,000. This is the Brasic transaction.
49 On 25 July 2001, Mr Boyle delivered the shareholders' agreement in relation to this project, the Brasic project, together with a loan and guarantee agreement. Mr Boyle said, "You will get the mortgage document at the same time as you get the others. Larry is working on them at the moment and it should not be too much longer."
50 In early August 2001, the principal parties met at the plaintiff's home and Mr Boyle told the plaintiff's officers that Mr Hassan was unable to lend the $100,000 he had intended to lend on the ACN project and could only come up with $50,000. The plaintiff agreed to advance the other $50,000 (this is the second ACN advance). At about this time Mr Junker asked, "Where are the second mortgage documents for Tumut and Jindabyne?" to which Mr Boyle replied, "I am still waiting on Larry. We will get your copies to you as soon as they have been registered."
51 During August, the plaintiff's officers continued to meet with Mr Boyle approximately once a week and had telephone conversations with him every few days. They say that Mr Boyle would often say, "Tumut and Jindabyne are going well. They are both great projects."
52 I will deal with subsequent facts when dealing with the claims under the Trade Practices Act. What I have already set out is sufficient for present purposes.
53 Exhibit 39 is a piece of paper bearing date 12 July 2001 which suggests that the $100,000, the Boyle transaction, was in respect of something at Griffith (as will appear later in these reasons, Sokido had agreed to purchase some land at Griffith). However, the only real evidence before me is that which I have set out.
54 Mr Boyle did not give evidence, and, apart from the meeting at Neutral Bay, Messrs Woods and Hanley did not take part in making the arrangements for loans.
55 There is no reason to discount the evidence of Ms Bondarew and Mr Junker and I accept it. From this, it would seem inevitable that there must be a verdict on the Boyle transaction for the plaintiff for $150,000 plus interest against Mr Boyle.
56 The term of the loan is unclear, but it would appear to be "short term". Although it probably will not make much difference in the long run, I will order interest from 24 July 2002 at the court rate, which on my calculation is $68,375, making a verdict for $238,375.
57 B(2) The second part of claim B is the Sokido No 3 transaction. The $100,000 was advanced to Sokido as per Exhibit 24. The contract was that the loan was $100,000, the interest $30,000, the loan was to be repaid on 14 February 2002 and Exhibit 35 shows it was guaranteed by Mr Boyle. The loan has not been repaid, Sokido has been deregistered and there is no answer to the plaintiff's claim that it should have judgment against Mr Boyle for $130,000 plus interest at the court rate from 14 February 2002, which on my calculations is $64,133 making a verdict for $194,133.
58 C. Claim C has three parts. I will first deal with facts and circumstances which affect all three parts and then consider the claim against each of the relevant defendants separately.
59 At one of the early meetings, Mr Boyle provided the plaintiff's officers with a sample shareholders' agreement. He indicated that this was the standard way in which he proceeded to obtain investors' funds. The shareholders' agreement used in the Coltern transaction, which is exhibit PX03, is standard to the agreements used generally between the plaintiff and the various defendants.
60 There were four shareholders' agreements. Each was in an identical form. However, not all were signed by all of the individual defendants. It is thus necessary to deal first with the common text and then with the individuals who were parties to those agreements.
61 The Coltern shareholders' agreement bears date 29 May 2001. It notes that its parties are (1) Norman C Boyle; (2) Larry Hanley; (3) Richard L Woods; (4) For the Good Times Pty Limited; and (5) Dhatt Enterprises Pty Limited.
62 I will not set out all the provisions of the agreement. Basically it provided that there would be 1,000 shares; that Mr Boyle would have 320 shares, Mr Hanley 320 shares, Mr Woods 60 shares, Mr Junker and Ms Bondarew 150 shares between them, and another investor, Mr Dhatt, 150 shares; that Mr Junker and Ms Bondarew would loan $200,000; that Mr Dhatt would loan $200,000 and that there was an existing loan by Mr Hanley of $200,000.
63 The term of the loans was 12 months from the date the funds were received and the company guaranteed a minimum return on shareholders' loans of 75% of the expected return, that is, $142,425 with interest at 12% if the loans and expected returns were not repaid within 12 months. The shareholders' loans were to be secured by second mortgage.
64 The key parts of the agreement are that the day to day management of the company was committed to Messrs Boyle, Hanley and Woods who were designated managers. Mr Boyle was to be paid a weekly management fee of $1,100 and expenses and the other managers were to be paid on a contractual basis. The directors of Coltern were Messrs Boyle and Hanley. The directors were to be paid $20,000 per annum with Mr Boyle, as secretary, receiving an additional $10,000 per annum.
65 The agreement provided that the directors and shareholders would meet at least every calendar month and that minutes of such meetings would be promptly circulated.
66 The shareholders' loans (which included the loan from the plaintiff) were to be secured by a second mortgage and there was a cross reference to the "Loan and Guarantee Agreement".
67 The following appeared under the heading "Operation":
"The parties agree that they shall use their best endeavours to ensure that the company conducts business in accordance with the applicable laws and its Memorandum and Articles, this Agreement and any deed or agreement entered into pursuant to this Agreement."
68 Although the document purported to be a deed, it was not properly attested because Mr Boyle's signature was witnessed by Mr Hanley, and Mr Hanley's signature by Mr Boyle. It was initially thought that Mr Woods never signed the document, but at the very end of the evidence a copy of the document signed by Mr Woods was tendered.
69 With respect to the Coltern shareholders' agreement (similar allegations are made in respect of the first ACN shareholders' agreement, the Brasic shareholders' agreement, the second ACN shareholders' agreement and the Sokido agreement), it is alleged by the plaintiff that:
"(i) Messrs Boyle, Woods and Hanley failed to hold directors and shareholders meetings of Coltern at least once every calendar month after the Plaintiff advanced the Coltern Principal to Coltern;
(ii) Messrs Boyle, Woods and Hanley failed to ensure the management of Coltern was undertaken at all times (after the Plaintiff advanced the Coltern Principal to Coltern) by the Coltern Management;
(iii) Messrs Boyle, Woods and Hanley failed to provide quarterly accounts for Coltern to the Plaintiff in each quarter after the Plaintiff advanced the Coltern Principal to Coltern which included;
(a) a report for financial performance of the business of Coltern against budget;
(b) a description of material activities undertaken by Coltern;
(c) summary of unaudited profit and loss and cash flow statement for Coltern;
(d) a balance sheet for Coltern; and
(e) a report of aged debtors and creditors balances.
(iv) Messrs Boyle, Woods and Hanley failed to ensure the Coltern Management provided the Plaintiff with copies of half yearly accounts for Coltern within a few months of the end of each half year after the Plaintiff advanced the Coltern Principal to Coltern;
(v) Messrs Boyle, Woods and Hanley failed to provide the Plaintiff with annual accounts for Coltern within 3 months of the end of each financial year and after the Plaintiff advanced the Coltern Principal to Coltern;
(vi) Messrs Boyle, Woods and Hanley failed to ensure that Coltern granted the Coltern Mortgage to the Plaintiff over any of the Original Coltern Land, the Specified Coltern Land or the Coltern Land;
(vii) Messrs Boyle, Woods and Hanley failed to ensure that Coltern repaid the Coltern Principal to the Plaintiff together with an expected return of $189,900.00 (or guaranteed return of $142,425.00) within 12 months of the date of receipt of the Coltern Principal; and
(viii) Messrs Boyle, Woods and Hanley failed to ensure that Coltern paid the Plaintiff interest on the Coltern Advance calculated at the applicable Additional Interest Rate from the date which was 12 months after the date on which the Plaintiff advanced the Coltern Principal to Coltern."
70 I should add that some subsidiary allegations were made with respect to breaches of the other shareholders' agreements, but essentially the main claims were as I have set out in respect of Coltern.
71 There is no doubt that Messrs Boyle, Woods and Hanley each signed the Coltern and Brasic agreements.
72 There is no copy of the shareholders' agreement in the ACN company signed by Mr Woods in evidence. Mr Parsons asked me to draw the inference that this was in fact signed by Mr Woods. I do not consider that there is sufficient material to enable me to draw such an inference. The ACN agreement was signed by Mr Hanley.
73 The Sokido agreement was only signed by Mr Boyle, and, although it purports to show a signature of Mr Woods, it is clear that that signature was in fact affixed by Mr Boyle.
74 The Loan and Guarantee Agreements were in standard form. They provided, inter alia, that the loans made to the various companies would be secured because (cl 7) "the Borrower will give to the Lender security in the form of a second ranking Mortgage over the Property (in a form acceptable to the Lender) as security for the payment to the Lender of the Total Owing and also as security for the due performance of the Borrower's other obligations thereunder."
75 It is useful to note here who were the directors, managers and secretaries of the various companies and for what period they held office.
76 Exhibit DX1376, a search of ASIC records, shows that Coltern was incorporated on 4 April 1995. Mr Boyle was appointed a director on 18 December 1998, Mr Hanley was a director from 18 December 1998 to 7 May 2003 and Mr Woods was a director from 29 April 2003. Mr Hanley was the secretary from 18 December 1998 to 10 September 2003 and Mr Boyle was the secretary from 10 September 2003.
77 Exhibit DX1377, another search of ASIC records, shows that ACN was incorporated on 16 July 1997. Mr Boyle was a director from 18 May 2001, Mr Woods was a director from 20 November 2002 and Mr Hanley was a director between 16 December 1998 and 20 November 2002. Mr Hanley was the secretary from 16 December 1998 until 18 May 2001 and thereafter Mr Boyle was the secretary. The inference from the search is that this company was originally one where Mr Hanley's company High Meadows Pty Ltd owned all the issued shares, but that the company was acquired by the Boyle interests in 2001.
78 Exhibit DX1378, another search of ASIC records, shows that Brasic was incorporated on 26 August 1999 and was acquired by the Boyle interests in 2000. Mr Boyle was a director from 29 June 2000, Mr Woods from 20 November 2002 and Mr Hanley between 25 July 2001 and 20 November 2002. Mr Boyle was its secretary from 29 June 2000.
79 Another search of ASIC records annexed to Mr Junker's affidavit, shows that Sokido was incorporated on 17 May 2001. Mr Boyle was a director from incorporation, Mr Woods was a director from 1 June 2001 until 28 November 2002. Mr Boyle has always been the secretary. There are 200 issued shares, 90 held by each of Messrs Boyle and Woods and 20 by Mr Hanley.
80 Exhibit DX1375, another search of ASIC records, shows that Griffith Development Co Pty Ltd was incorporated on 23 April 2003. For the whole of its existence, Messrs Boyle and Woods were its directors and Mr Woods its secretary.
81 Exhibit PX503, another search of ASIC records, shows that Leeton Land Company Pty Ltd was incorporated on 4 September 2001. Messrs Boyle, Woods and Hanley all became directors on that date, Mr Hanley ceased to be a director on 20 November 2002. Mr Boyle has been its secretary at all times.
82 Essentially, then, the position is as pleaded in the statement of claim; that at all material times Mr Boyle was a director of Coltern, ACN, Brasic, Sokido, Griffith Development and Leeton Land Company Pty Ltd. Mr Hanley was a director at all material times until 20 November 2002 of Coltern, ACN, Brasic and Leeton Land Company, and indeed was a director of Coltern through to 7 May 2003. He was also a director of a corporation known as High Meadows Pty Ltd. Mr Woods was a director of ACN and Brasic after 20 November 2002, a director of Coltern after 29 April 2003, a director of Sokido up until 28 November 2002, and of Griffith Development from 23 April 2003. He was also at all material times a director of the Leeton Land Company.
83 The plaintiff claims $200,000 plus interest in respect of the Coltern transaction, $250,000 plus interest in respect of the two ACN transactions and $300,000 plus interest in respect of the Brasic transaction from all three of Messrs Boyle, Woods and Hanley, and additionally from Mr Boyle and Mr Woods in respect of the Sokido transactions, a total of $250,000 plus interest, though this includes the loan of $100,000 in the Sokido No 3 transaction.
84 Mr Parsons says it is quite evident that no-one connected with Coltern (or any of the other companies which signed identical agreements) used best endeavours to ensure that there was a second mortgage provided to the investors. Not one mortgage was actually effected. Not only that, but mortgages were granted to third parties to secure collateral obligations, and indeed, those mortgages resulted in the Coltern and Brasic lands being sold by the mortgagees.
85 As Mr McKeand correctly submitted, a promise to use best endeavours must be construed in the context in which it was made, it includes an obligation not to hinder or prevent the fulfilment of the relevant purpose and the obligor is bound to do all that he or she reasonably can do in the circumstances to achieve the contractual object, but no more. Those propositions stem from the judgment of Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 64.
86 It is, of course, necessary for the plaintiff to prove that Mr Woods and the other gentlemen did not use their best endeavours rather than Mr Woods and others to prove that they did use their best endeavours to carry out their contract.
87 Mr McKeand puts that the plaintiff's case really is that the result did not come about. The plaintiff says that this is a gross oversimplification.
88 The key factor in this head of claim is that there were no regular meetings of directors, managers or shareholders, that there was no regular reporting and that there were no accounts produced. There was no attempt to see that investors' money was directed for the purpose for which it was lent.
89 C(1) With this background, I will now turn to the case against Mr Boyle.
90 As mentioned earlier, Mr Boyle did not appear at the hearing.
91 There seems little doubt that Mr Boyle was the person with the most influence over the companies. He was a professional property developer and appears to have been the person who found the sites, arranged for advertisements to be placed to attract investors, interviewed investors and provided documentation.
92 The whole of the evidence shows clearly that Mr Boyle was solely or jointly in charge of each of the companies where a shareholders' agreement was in force. It does not appear that in any of those companies there was any attempt to comply with the terms of the shareholders agreement. The document seems to have been considered by Mr Boyle merely as something that "the girls" would type up when an investor needed assurance.
93 It is quite clear that no regular directors' meetings were held and that no real attempt was made to provide the plaintiff with a second mortgage over any of the relevant lands.
94 Draft mortgages were produced in September 2002: I will deal with the facts surrounding this event when considering the Trade Practices Act claim.
95 Mr Boyle did virtually nothing to fulfil the other obligations to the plaintiff under the shareholders' agreements. Indeed, he seems to have treated them as mere bits of paper to be churned out when needed to assist his fund raising.
96 It is true that the plaintiff could have been more active in protesting and taking some action of its own to force the issue. However, the reality is that it trusted Mr Boyle and left things to him, in hindsight, for too long.
97 The breach by Mr Boyle of each of the shareholders agreements is plainly established.
98 What follows from this will be considered under heads F and G.
99 C(2) Mr Woods is a real estate agent by profession and he carries on business in Neutral Bay, far removed from the lands in the Riverina which Mr Boyle was developing. Mr Woods describes his participation in the schemes as being "on the marketing side". He was to use his skills as a real estate agent in selling the lots that would be created by the subdivisional activities of the various companies.
100 Mr Woods' counsel made, inter alia, the following submissions: