8 Neither the Grintara Loan Agreement nor the Grintara/PRWI Loan Agreement contained any ancillary rights in respect of the charges they purported to create.
9 In conformity with the Grintara Loan Agreement, on 12 September 2005, Grintara paid $250,000 to the Company, which was deposited in the Company's bank account. On 14 September, $100,000 was paid out to Kenneth Sommerville, and $50,000 was paid out to John Sommerville. Between then and December other transactions took place on the account, but the balance of the account always remained several thousand dollars above $100,000 until, on 15 December 2005, $100,000 was paid out to Mr Georges. However, the deposit of $37,500 under the Share Sale Agreement was not paid on 19 September 2005 or, for that matter, at all.
10 On 3 April 2006, in apparent part performance of the obligations of the lenders under the Grintara/PRWI Loan Agreement, PRWI paid $250,000 to the Company, which was deposited in the Company's account; that amount was paid out to Mr Georges on 6 April 2006, contemporaneously with the appointment of Kristie Wieland as a director of the Company and Mr Hawkins commenced acting as accountant for the Company. As had always been contemplated, Mr Georges left the business to take a vacation. However, the Share Sale Agreement was not completed on 22 April - in the sense that the balance purchase money was not paid, and the shares were not transferred. Nonetheless, on 16 May 2006, the first defendant Peter Wieland was appointed a director of the Company and thereafter acted as such. Thereafter, the Wielands had practical control of the Company and the Business, although Mr Georges remained the sole registered shareholder and, nominally at least, a director.
11 The lenders had advanced $500,000 of the $600,000 that they were obliged to advance under the two loan agreements, and the Company had repaid to Mr Georges $350,000 of the $450,000 that he had been owed on his loan account. However, $100,000 remained outstanding on his loan account, and the purchase price under the Share Sale Agreement of $150,000 also remained unpaid. Over the ensuing twelve months from May 2006 numerous conversations took place between the parties in respect of payment of the purchase price under the Share Sale Agreement and the remaining $100,000 of Mr Georges' loan account. It is unnecessary for the purposes of this judgment to recite those conversations or their outcomes, suffice to say that Mr Georges remains unpaid in both respects.
12 On 1 May 2007, apparently following a decision to relocate the Business from premises at Granville to new premises at Parramatta, the Wielands caused the Company to enter into a sub-lease from Repco of premises at 5/85-93 Victoria Road, Parramatta. During May 2007, the Wielands caused the stock, fittings and fixtures of the Business to be transferred to the Victoria Road premises, and the telephone number also to be transferred. The Victoria Road premises were fitted out in a get up similar to that of the premises that the Company had occupied at Granville.
13 On 8 May 2007, the Wielands had a meeting with their solicitor, Mr Scott, at which a number of decisions were made so far as the future course of the Business was concerned. Time for registration of the charges contained in the two loan agreements had expired. A deed of fixed and floating charge with Grintara and PRWI was executed by the Company, by its then officers Mr and Mrs Wieland. It was envisaged that this charge would lead, in due course, to the appointment of a receiver to the Company. The Business was transferred to a new company which was incorporated on 29 May 2007 as Parramatta Tools Pty Limited, of which the Wielands to the exclusion of Mr Georges, were the shareholders. It was decided also to procure the transfer of the lease of the Victoria Road premises from the Company to the new company Parramatta Tools, and that the Wielands would extricate themselves from any responsibility in connection with the Company by resigning as directors of it.
14 As I have said, Parramatta Tools was incorporated on 29 May 2007. Between that date and 14 June 2007, the practical transfer of the Business of the Company to the new company was achieved. Mr and Mrs Wieland resigned as directors of the Company on 11 July 2007, having caused its sub-lease of the Victoria Road premises to be surrendered; the sub-lease was renewed, in favour of the new company, on 1 August 2007.
15 On 20 December 2007, Grintara, exercising its rights under the Deed of Charge, appointed a receiver to the company. Following the resignation of the Wielands as directors, Mr Georges was the sole remaining director. As such, on 19 April 2008 he adopted a resolution to rescind the fixed and floating charge. On 21 April 2008, Mr Barbaro sued Mr Georges for $100,000 rent arrears under the lease of the previous Granville premises; that claim remains unresolved. The new company Parramatta Tools was wound up on 29 August 2008. The receiver of the Company retired on 25 May 2009, and Mr Georges has resumed control of it.
16 In these proceedings, three main issues arise. The first is Mr Georges' application for enforcement of the Share Sale Agreement, in respect of which the purchase price remains unpaid and the shares remain untransferred. The second is the application of the Company, now under Mr Georges's control, for enforcement of the Grintara/PRWI Loan Agreement to the extent it remains unperformed, namely, the advance of the outstanding $100,000. The third is cross-claims by Grintara and PRWI, for repayment of the moneys they have advanced under the two loan agreements.
Enforcement of the Share Sale Agreement
17 The defendants admit the Share Sale Agreement; do not dispute its terms; admit that Grintara is in breach by failing to pay the deposit or the balance purchase price, but pleaded, at least until today, that they ought not be held liable on the footing that the Share Sale Agreement should be declared void ab initio pursuant to (CTH) Trade Practices Act 1974, s 87 by reason of an alleged misrepresentation that the Business was the legal and beneficial property of the Company, when - so it was alleged - it was never transferred to the Company but vested in Mr Georges personally. That was the only defence mounted to the claim for enforcement of the Share Sale Agreement. No other substantive or discretionary defence to the claim for specific performance has been advanced.
18 Today, counsel for the defendants indicated that the defence under the Trade Practices Act was no longer pressed. In my view, that concession was rightly, if belatedly, made, for at least three reasons. The first is that there was no misrepresentation such as was alleged. The evidence - including in particular, but not limited to, that of Elee Georges - plainly establishes that Mr Georges intended to purchase the business on behalf of a company not yet registered, but which was registered prior to completion. The loan agreement of 22 April 2005 records that Mr Georges funded the acquisition of the Business on behalf of the Company, and the Company promised to repay him the funds he advanced. The resolutions of 22 April 2005 similarly establish that intention. The transfer of the business name on 25 April 2005, and subsequent transfer of the trademark, shows that it was the intention of Mr Georges and the Company that the Company be the beneficial owner of the Business.
19 There were at that time two relevant minds, that of Mr Georges as the nominal purchaser, and that of the Company (of which Mr Georges was coincidentally the sole director and shareholder). In both capacities Mr Georges plainly intended that the Business be owned and conducted by the Company, not by himself permanently. As I have said, the 2005 and 2006 accounts reflect the Business as an asset of the Company. The warranty given in the Share Sale Agreement corresponds with that intent. It is true that there was no formal assignment of goodwill to the Company, but no formal assignment of goodwill is necessary.
20 The second reason is that, even if there was such a misrepresentation as alleged, it could not possibly cause loss, in circumstances where the Company's entitlement to the Business was never disputed by anyone, and could only have been disputed by Mr Georges, who would plainly be estopped from doing so. No one has ever suggested that the Company was not entitled to carry on the Business for its own benefit, either before or after the sale of the shares to Grintara. The only person who could conceivably mount a claim adverse to the Company in that respect would be Mr Georges, but his involvement in the Share Sale Agreement and the obligations contained in it would plainly estop him from mounting any such argument. The manifestly clear situation is that the Company has been able to carry on the Business free from any claim by Mr Georges to its assets; indeed, after the Company, under the control of the Wielands, transferred the Business to the new company, Parramatta Tools was able to carry on the Business free from any claim by Mr Georges. There is simply no basis for supposing any loss could be or could have been occasioned to Grintara by any breach of the warranty in question, when no one has sought to assert a position inconsistent with the warranty.
21 The third reason is that there has been a fundamental change in position since the Share Sale Agreement, caused by the Wielands themselves. They have caused the Company to sell or transfer the Business to Parramatta Tools, and thus obtained for themselves the benefit of the Business, until its winding up. By procuring the transfer of the Business from the Company to Parramatta Tools, they have put beyond reach any possibility of restitution and have, in effect, adopted or acknowledged the ownership of the Business by the Company prior to its purported transfer to Parramatta Tools.
22 The proposition that the Company did not have title to the Business was untenable. The proposition that any loss was occasioned by the alleged misrepresentation was equally so. The legal entitlement to the goodwill has had absolutely no impact on the ultimate commercial or financial outcome. Accordingly, the defence was correctly abandoned, and the plaintiff is entitled to have the Share Sale Agreement enforced.
23 Though it is an agreement for sale of shares, it has not been suggested that there is any discretionary reason for not granting specific performance as a remedy. Indeed, there are many reasons why, in the context of this case, and despite being a contract for the sale of shares, it should be specifically enforced. The first is that the shares are in a proprietary company, which have since been apparently devalued by the defendants' conduct of and dealings with the Business while the Company was in their control, such that it would likely not be possible to find a replacement purchaser for those shares. The second is that, for the same reason, there would be considerable difficulty in calculating damages. The third is that there is a powerful alternative case for a remedy for oppression, since Mr Georges has been out of the Business, and an available and appropriate remedy in that event would be an order for the purchase of his shares. The fourth is that, in effect, the agreement seen as a whole was partially performed. When I say "seen as a whole", I mean to convey the context of the two loan agreements as well as the Share Sale Agreement, the combined effect of which was to extricate Mr Georges from the Company by April 2006 by paying him $150,000 for his shares and by repaying him his loan account. In part performance of this, as anticipated, practical control of the Business was given to the purchasers, whose nominees were appointed as directors; and Mr Georges departed on the vacation that had always been envisaged. Moneys were paid, pursuant to the loan agreements, being some of the consideration.
24 As Kay J said in Hart v Hart (1881) 18 Ch D 670, at 685, "when an agreement for valuable consideration between two parties has been partially performed, the Court ought to do its utmost to carry out that agreement by a decree for specific performance" [see also Beswick v Beswick [1968] AC 58; Milliangos v George Frank (Textiles) Ltd [1976] AC 443, 467; [1975] 3 All ER 801; (Lord Wilberforce); Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280, 290-291].
25 In my view, therefore, notwithstanding that this was an agreement for the sale of shares and notwithstanding that it is effectively a vendor's suit for specific performance, it is one in which the remedy of specific performance is appropriate; the contrary has not been suggested.
The Grintara/PRWI Loan Agreement
26 The starting point is that the Company remains indebted to Mr Georges on his loan account under the 22 April 2005 loan agreement between him and the Company for $100,000, and interest, effectively at 8 percent from 22 April 2008. Grintara advanced the $250,000 that it was obliged to advance under the Grintara Loan Agreement, but Grintara and PRWI advanced only $250,000 of the $350,000 that they were obliged to advance under the Grintara/PRWI Loan Agreement. Their obligation (to advance the remaining $100,000) was one owed to the Company, not to Mr Georges personally. However, as set out above, the agreement provided that, upon receipt of the funds, the Company was to apply them in repayment to Mr Georges of the debt still outstanding to him.
27 I have already averted to the circumstance that these contemporaneous transactions made on or about 19 September 2005 must be seen each in the context of the other as one whole transaction, the obvious purpose of which was to sell all of Mr Georges' interest in the Company - both as a shareholder and as a creditor - to the Wieland interests, so that the shares in the Company would be conveyed to the Wielands, and the Company would not have any outstanding interest of or obligation to Mr Georges.
28 In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, [1968] 3 All ER 651, the House of Lords affirmed that arrangements for the payment of a person's creditors by a third person, on the basis that the money advanced was to be used exclusively for that purpose, gave rise to a relationship of a fiduciary character or trust, primarily in favour of the creditors and, secondarily, if the primary trust failed, in favour of the third person. As Lord Wilberforce explained, in that context legal obligations of and relationships of creditor and debtor, and lender and borrower, could operate in parallel with and in the same transaction as equitable obligations of trustee and beneficiary: the one did not exclude the other. In particular, his Lordship rejected as "unattractive" the proposition that the arrangement, being one of loan and giving rise to a legal action of debt, necessarily excluded the implication of any trust enforceable in equity. His Lordship said at (665H):
My lords, I must say that I find this argument unattractive. Let us see what it involves. It means that the law does not permit an arrangement to be made by which one person agrees to advance money to another, on terms that the money is to be used exclusively to pay debts of the latter, and if, and so far as not so used, rather than becoming a general asset of the latter available to his creditors at large, is to be returned to the lender. The lender is obliged, in such a case, because he is a lender, to accept, whatever the mutual wishes of lender and borrower may be, that the money he was willing to make available for one purpose only shall be freely available for others of the borrower's creditors for whom he has not the slightest desire to provide.
I should be surprised if an argument of this kind - so conceptualist in character - had ever been accepted. In truth it has plainly been rejected by the eminent judges who from 1819 onwards have permitted arrangements of this type to be enforced, and have approved them as being for the benefit of creditors and all concerned.
29 In Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER 377 Lord Millett said (at 185):
[73] A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash flow. Commercial life would be impossible if this were not the case.
[74] The question in every case is whether the parties intended the money to be at the free disposal of the recipient (see Re Goldcorp Exchange Ltd (in receivership) [1994] 2 All ER 806 at 823, [1995] 1 AC 74 at 100 per Lord Mustill). His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case:
A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out], the money was to be returned to [the lender]: the word "only" or "exclusively" can have no other meaning or effect. (See [1968] 3 All ER 651 at 654, [1970] AC 567 at 580.)
In the Quistclose case a public quoted company in financial difficulties had declared a final dividend. Failure to pay the dividend, which had been approved by the shareholders, would cause a loss of confidence and almost certainly drive the company into liquidation. Accordingly the company arranged to borrow a sum of money 'on condition that it is used to pay the forthcoming dividend'. The money was paid into a special account at the company's bank, with which the company had an overdraft. The bank confirmed that the money would only be used for the purpose of paying the dividend due on 24 July 1964. The House held that the circumstances were sufficient to create a trust of which the bank had notice, and that when the company went into liquidation without having paid the dividend the money was repayable to the lender.