Morris v Hanley & 10 Ors [2004] NSWCA 41 | Case summary

Tuesday 17 February 2004 JANINE MORRIS v JACK NORMAN HANLEY & 10 ORS Judgment 1 MEAGHER JA: The Court is now in a position to give judgment. I will ask Ipp JA to give the first judgment. 2 IPP JA: Before dealing with the issues raised by this appeal, I think it appropriate to refer to some of the difficulties that occurred during the hearing of the appeal. 3 The appellant is not represented and while she struggled valiantly with the task before her, it was plainly too much for her to carry out properly. There are some twelve volumes of evidence, the pleadings are complex, the grounds of appeal not properly identified and this was not the kind of matter that an unrepresented litigant could present to the Court with any facility. 4 The appellant was assisted by her husband and brother-in-law and this compounded rather than alleviated the difficulties. During much of the argument, discussion took place between the persons assisting the appellant and the appellant. Often she simply repeated what she was told, apparently not always understanding what was said. There were long pauses between questions and answers and generally this method of presenting the argument made the task of the Court far more difficult than it otherwise would have been. 5 There were other difficulties in the case. 6 On 29 July 2003 the appellant filed her submissions of forty six pages. On 31 July 2003 the registrar gave directions including granting the appellant leave to amend her submissions by expanding upon any point raised and including references to the appropriate pages of the blue and black books. The registrar also ordered that the appellant's amended submissions be filed by 31 October 2003. 7 The appellant did not comply with these directions and in January this year filed two books of written submissions, amounting to some 467 pages. They arrived too late for the respondent's counsel to consider them and in the course of the hearing this morning the Court pointed out to the appellant that the appeal could not proceed on the basis of the new written argument, therefore it was for the appellant to choose whether to proceed on the original written submissions or seek an adjournment and pay costs. She chose to proceed on the original submissions. 8 I would add that the need to include references to the appropriate pages of the blue and black books was an important matter, as the original submissions of the appellant omitted any of these references, again making it extremely difficult for the Court to know whether she was making assertions or submissions or relying on evidence and, if she was relying on evidence, where that evidence was. 9 A further matter compounding the difficulties is the notice of appeal. The case proceeded on a document called a further amended notice of appeal. This contained eleven grounds of appeal. These basically were bald assertions. None properly described the true errors said to have been made by the judge. All were in very general terms. There is every prospect that had the respondent applied to have the notice of appeal struck out the application would have succeeded but the respondent did not so apply. 10 Thus, the Court was faced with an unrepresented litigant who had extreme difficulty in appreciating and coming to terms with the issues, written arguments which did not refer to the evidence and a notice of appeal which did not identify the issues. Nevertheless, from my reading of the material, I consider that the appeal is in fact hopeless. I propose to set out now the reasons for this conclusion. 11 Before doing that, I should note that the appellant asked leave to put in a further written submission after the oral argument had concluded. In my opinion this should be refused. The appellant has had ample time, several months indeed, to put her argument properly before the Court. This litigation has to come to an end. Moreover, in my view, on the material and the way in which the case has been presented, I do not see any basis on which a further written argument would assist. 12 I shall set out briefly the relevant facts which gave rise to the appellant's claim. 13 The appellant and the first ten respondents were shareholders of the eleventh respondent, to which the trial judge referred as the company and I shall do the same. For some years before November 1987 the company conducted a business of manufacturing beef jerky. This business had been conducted since 1977 by the Mariani family. As at November 1987 the first eight respondents were permanent employees of the company. The first respondent Hanley was the accountant and the second respondent, Reid, was the general manager. Cecil Bellchambers, the tenth respondent, was the father of the ninth respondent, Gail Hanley. Gail Hanley became an employee of the company in 1988 as did Bellchambers. 14 In November 1987 a group of the employees of the company discussed putting together an offer to purchase the company. Certain information concerning the Worker Enterprise Corporation, to which I shall refer as WEC, came to their attention. WEC was an organisation set up by the New South Wales Government to foster the conduct of small businesses on what were called workers' co-operative principles. WEC had at its disposal funds which could be lent to foster the setting up or development of businesses of this type. 15 Negotiations ensued between the company and WEC and on 13 May 1988 a deed of loan between WEC and the company was entered into. The deed of loan related to a fully drawn advance of $250,000 for the purchase of the business and the real estate on which the business was conducted. The term of the loan was to be six years. The deed of loan contained the following provisions: "11. The Borrower shall at all times during the currency of the loan conduct its operations in accordance strictly with accepted principles of worker co-operation and shall comply in all respects with any directions which may be given in this regard by WEC to the Borrower from time to time. 12. Where the Borrower is a company at the date hereof then at the direction of WEC given at any time during the currency of the loan: (a) the borrower shall without delay and at its expense cause to be made and registered such changes to its Memorandum and Articles of Association as WEC may require for establishing the Borrower as a worker co-operative company and shall not otherwise permit any changes to be made to its Memorandum and Articles of Association without first obtaining the express written consent of WEC thereto. …" 16 Also on 13 May 1988, a general meeting of the company took place and special resolutions were passed for the alteration of the articles to a form which had been agreed with WEC. I shall refer to these articles as the 1988 articles. All ten members of the company were present and consented to the resolutions. 17 The 1988 articles contained the following provisions: "9. Except for founder members and holders of A or B class shares: (a) Every member shall hold at least one hundred (100) shares. (b) Every member shall be an employee of the company. (c) Except in the circumstances set out in articles 15(a) and 16 every employee of the company shall be a member. … 10. … (c) The board shall accept any application for shares required to admit to membership an employee who has completed six months employment with the company, and may accept such an application from an employee who has completed less than six months such employment. Providing that if the board has determined, no later than the date of considering the application, to terminate the person's employment, it shall not accept the application for membership. The board may at its discretion refuse any application for shares additional to the minimum shareholding established in article 9(a) herein. … 15. … (b) The company shall enter into a written contract of employment with every permanent employee other than an indentured apprentice in or to the effect of the form set out below: 16. … (a) the employment of any person who is a member of the company shall be immediately terminated if that person ceases to be a member for any reason other than as a consequence of either the bankruptcy of that person or because that person has entered into an agreement with his or her creditors in accordance with Part X of the Bankruptcy Act (1966) (which agreement is in this article called a Part X Agreement)." 18 On 13 May 1988 each of the first ten respondents was issued with 10,000 ordinary shares; 46,000 A class shares were issued to Bellchambers, who had made an additional investment of $46,000. 19 A management buy-out of the company was effected on 31 May 1988. 20 The company needed funds and unsuccessfully sought a loan from a commercial bank. WEC, however on 1 July 1988, promised the company $350,000 by way of loan finance and implemented this promise pursuant to a deed of loan. On 1 July 1988 an institution described as NSWIC advanced the company a further $360,000. 21 Later both NSWIC and WEC transferred their businesses to the Australian Association of Co-operatives Limited, known as AAC. 22 At about this time one Mr Rogers was appointed a director of the company. Thereafter, the Board consisted of the first, second and eighth respondents, (Messrs Hanley, Reid and Mrs Armfield) and Mr Rogers. 23 On 12 March 1990 AAC wrote to Reid, stating that the company had failed to comply with the spirit of the agreement of which the deed of loan (pursuant to which WEC had lent $350,000 to the company) was a part. This led to the company deciding to pay back the loans to the AAC. A loan was raised from the Commonwealth Development Bank and, by the end of September 1990, the borrowings that had been made from WEC and NSWIC and which were owed to AAC were paid out. 24 After the loans had been so paid and AAC shares redeemed, the company on 5 March 1992, by special resolution, replaced the 1988 articles with articles in conventional form ("the 1992 articles"). The special classes of shares were distributed equally among the ten shareholders and became ordinary shares. 25 The appellant had become an permanent employee of the company on 1 June 1988. In mid 1994 she and her husband became shareholders in the company and from that time on received additional benefits in the company equivalent to those received by other shareholders. 26 In 1995 she first became aware of the deed of loan and the terms of the 1992 articles and in 1996 she made a claim against the company. She claimed that the first ten respondents as members of the company had owed her fiduciary duties which they had breached. She claimed also that the second, third and eighth respondents, as directors of the company, also owed her fiduciary duties which they had breached. She further alleged that the first ten respondents were guilty of a conspiracy against her which caused her damage and finally she contended that the company owed her a duty of care which it had breached. 27 Hamilton J dismissed these claims and the appeal to this Court today is from his Honour's judgment. 28 I have already commented on the notice of appeal and I will turn to that later in these reasons but it is really of little help in defining the issues that have been raised. 29 It is worthwhile I think trying to encapsulate the appellant's basic complaint. She contends in effect that because she became a permanent employee of the company on 1 June 1988 she in some way became entitled to the benefits provided to employees by the 1988 articles. She also contends that she is also entitled to the benefits which she contended were available to her pursuant to the deed of loan, that is between WEC and the company. 30 The principal benefits concerned were rights to certain shares to which, by the 1988 articles, permanent employees of the company were to become entitled. It is worthwhile pointing out at this stage that under those articles the number of shares involved was only one hundred. Nevertheless, the basis of the appellant's claim is that like other shareholders she would have been given 10,000. 31 The appellant advances these contentions even though she only became a shareholder in 1994 when she agreed to do so on the basis of the 1992 articles. She did not know until 1995, as I have mentioned, of the deed of loan or the 1988 articles. Thus she was content to be employed, that is until she learnt the truth about the articles and the deed of loan, on the terms she had then agreed upon. The appellant complains that the respondents concealed from her the terms of the loan and the 1988 articles. She contends basically that she is entitled to be treated as the other ten respondents were treated as shareholders during the period that she was not a shareholder but only a permanent employee. 32 Presenting the case in this way, serious difficulties arise. The first difficulty is the allegation that there was a fiduciary relationship between the appellant and the first ten respondents as shareholders. Throughout the argument, both written and oral, there has been no attempt to define the fiduciary duty which is said to have arisen. The appellant has equated a fiduciary relationship with a fiduciary duty without ever attempting to define or describe the extent of the duty. Of course, the fact that a fiduciary relationship exists does not mean that every single possible fiduciary duty known to the law arises. It has never been made clear what particular fiduciary duty is said to have been breached but I shall now deal with the question of a fiduciary relationship between the appellant and the first ten respondents as shareholders. 33 Hamilton J noted that, according to the respondents at least, the central plank of the case against them was knowledge, that is knowledge of the relevant terms of the deed of loan and the 1988 articles. The judge in this regard found that the requisite knowledge on the part of the first ten respondents as shareholders had not been established. This was challenged in the appeal. 34 The argument was presented without any proper consideration of the principles relating to a challenge to factual findings on appeal. Fox v Percy (2003) 197 ALR at 201 and the other well known authorities indicate that an appellant may establish that a trial judge's factual findings are erroneous where that is demonstrated by incontrovertible facts or uncontested testimony or in quite rare cases where the decision is simply glaringly improbable, or contrary to compelling inferences, or where it is otherwise shown that the trial judge failed to use or misused his or her advantage of hearing or seeing the witnesses. The High Court in Fox v Percy has pointed out that an appellate court must be concerned as to whether the trial judge has too readily drawn conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses and their demeanour and in carrying out this exercise the appellate court should examine contemporary materials, objectively established facts and the apparent logic of events. 35 In some instances the appellant submitted that contemporary materials demonstrated that his Honour was wrong. These materials were letters that had been written in which reference was made either to the deed of loan or to the 1988 articles. The appellant pointed out that there was some suggestion in the evidence that one or more of the first ten respondents had seen the letters or had been at meetings to which the letters referred where the loan and the articles were discussed. 36 The witnesses concerned had given oral evidence that they did not know of the existence of the specific terms of the 1988 articles and his Honour believed them. 37 The documentary evidence relied on by the appellant is not particularly specific and is open to the construction that, while one or other or all of the first ten respondents may have been at meetings where these matters were discussed, no specific reference was made to the 1988 articles. In my view it was open to his Honour to come to the factual finding that he did and I do not think that he erred in this respect. On this basis, the knowledge on which the appellant relied to establish the existence of a fiduciary relationship was not proved. 38 There was another ground on which his Honour concluded that no fiduciary relationship as alleged arose. This was on the basis that, for such a duty to arise, it would have to be shown that the ten shareholders had such control over the subject matter of the relevant articles that the imposition of such a duty was justified. His Honour pointed out that it was not possible to conclude on the evidence that the shareholders took decisions that bound the directors as to the governance or management of the company and there was no evidence that at meetings referred to by the appellant the shareholders had taken decisions that were intended to or which in fact dictated or governed what was done by the directors. In my view the proposition embraced by the judge in this regard is unexceptionable. 39 There are other matters which militate against the existence of any such fiduciary relationship. 40 Only four of the respondents, Hanley, Reid, Boyd and Cole, were arguably negotiating with WEC and the reality - as the respondents submit - was that Hanley alone did the negotiating. None of these four purported to represent all employees. 41 Further, there is nothing in the surrounding circumstances that suggest that a fiduciary relationship between the shareholders and the appellant arose. 42 I should mention in this latter respect that the appellant argued that the fiduciary relationship stemmed from the fact that WEC made the loan as a trustee. But the funds lent were not impressed with any trust and there was nothing to suggest that they were lent on any trust. The funds were simply lent as part of a commercial transaction subject to specific conditions. The imposition of conditions does not transform, merely by their existence, a commercial loan into a loan on trust. 43 The appellant also in her oral submissions sought to rely in some way which I found difficult to understand on Trident General Insurance Co. Ltd v McNiece Bros. Pty Ltd (1988) 165 CLR 107. Trident did not concern fiduciary relationships. I would add that a cause of action on this ground was not pleaded, nor was it the subject of the notice of appeal or the written submissions. In my view, the appellant should not be permitted to raise this argument. 44 To summarise on this issue, I consider that his Honour was justified in concluding that no fiduciary relationship existed. 45 I next turn to the cause of action based on the allegation of conspiracy on the part of the first ten respondents. His Honour set out the elements of the tort of conspiracy, namely: "(i) to effect an unlawful purpose; (ii) to effect a purpose which is lawful by unlawful means; (iii) to effect a purpose which is lawful by lawful means but for the predominant purpose of doing harm to another and in the carrying out of that agreement or combination damage is caused to another."

His Honour said further that in order to establish the conspiracy there had to be proved an agreement amongst the alleged conspirators to do an unlawful fact and proof of actual intent to injure the plaintiff, or alternatively although the agreement was not to do an unlawful act, the conspirators' predominant purpose was to harm the plaintiff. 46 The appellant submitted that his Honour was wrong in his exposition but McWilliam v Penthouse Publications Limited (2001) NSWCA 237 is ample authority for the propositions of law expressed by his Honour. 47 His Honour held as a matter of fact that nothing had been said by the relevant parties or done by them to amount to agreements to conspire of the kind alleged by the appellants. These are factual findings made by his Honour and they have not been shown to have been wrong. 48 His Honour found that he was unable to hold that any of the first ten respondents had any intention to harm the appellant. He found that many of the respondents did not think of the appellant at all at any material time. He pointed out that the most that was conceded was some awareness that if a certain course was followed the appellant would not come to share in certain benefits. This he held did not constitute a relevant intention to harm. In my view he was entirely correct in this regard. 49 As part of her submissions in regard to conspiracy the appellant complained, and I should say complained over and over again, that his Honour incorrectly found that in 1987 the company was showing losses of about $1000 per day. As I understood the submission, it was that the company in fact was profitable and the respondents represented to her that it was not profitable with a view to persuading her not to apply for shares in the company. 50 The first point to make is that the finding by his Honour is simply part of an historical narrative when he explains why the previous owners of the company wished to dispose of the business. 51 The second point is that the case based on these misrepresentations was not pleaded, it was not run at trial, it is not part of the notice of appeal. 52 Thirdly, there is in my view ample evidence on which his Honour could have relied for the statement of lack of profitability. Bodycote testified that the company was known to have been losing money (blue appeal book at 237) and the company was having serious financial difficulties (blue book 238). He was not cross-examined about these matters. Hanley said the business was losing $1000 per day (blue appeal book 244.3), and the company was making losses (247). It was not suggested to him this evidence was false. Reid testified the company had struggled financially from 1980 to 1987, and gave examples of shortages of money (blue appeal book 324.6). It would be tedious to go through all the other evidence. It is sufficient to say on the authority of Fox v Percy this point fails. When I say authority, I mean on the approach that appeal courts must adopt when factual issues are raised. 53 Accordingly, in my view the case on conspiracy fails. 54 Next is the argument that the company itself owed a fiduciary duty to the appellant. Again, the fundamental problem of a failure to identify the nature and extent and scope of the fiduciary duty remains. We are not told what this fiduciary duty is. The case is simply put on the basis that there was a fiduciary relationship. 55 Hamilton J found that there was no fiduciary relationship. He referred to the fact that the contractual arrangements that were entered into were commercial, at arm's length, and the appellant was not a party to any of the relevant transactions. The transaction was essentially a matter of contract and his Honour said that he could not infer that the company by entering into the transaction could be taken as making an undertaking or giving a pledge in favour of the appellant or other persons who might become permanent employees such as would give rise to a fiduciary relationship. 56 I am in entire agreement with his Honour. Again I leave in the air, as the appellant did, the nature and extent of whatever fiduciary duty she contended for. 57 Then there is the contention that there existed a duty of care on the part of the company. This is perhaps the most hopeless of all the arguments raised. As Hamilton J said, the imposition of a duty of care on a company to conduct its affairs in accordance with its articles, which it owed to a person not a member, or to inform persons who are not members of the contents of the articles, would be a novelty without basis in authority or principle. 58 The case against the directors based on a duty of care fails on the same grounds as does the case against the company. Just as the nature of the relationship between the company and the appellant is not of any special kind, and is simply a commercial relationship, so is the relationship between the directors and the appellant. Again, there remains the ever present problem of the nature and the extent of the fiduciary duty contended for. 59 Those were basically the grounds on which the appellant relied which I can distil from the broad mass of submissions that were made. 60 I turn however finally to the actual notice of appeal. 61 The first four grounds all raise the contention of error on the part of the judge in not finding fiduciary relationships. I have dealt with those. 62 The fifth ground is that his Honour erred in giving judgment for the respondents and reaching a result which is plainly unreasonable and unjust. This is not an appropriate ground of appeal and I do not propose to address it. It is not open in law simply to assert a proposition in these terms and hope that the appellate tribunal will search through the papers in an attempt to find an appropriate ground of appeal. 63 Next is ground six which is that his Honour erred in making decisions on facts which cannot be supported by the evidence. I have dealt largely with these matters in the course of my reasons so far and I do not propose to go further. Two of the main points made by the appellant in this regard involved complaints against her own counsel. In my view, these are entirely without substance. 64 According to ground seven, his Honour erred in his decision on the credibility of the respondents. Again I think it unnecessary to deal further with this. I have explained why in my view his Honour was entitled to come to the decision that he did. It was plainly based on an examination of particular evidence that had been given by the witnesses to which he referred, on evidence given by the appellant herself, and on the demeanour of the witnesses concerned. In my view, his Honour made the decision in my view entirely in accordance with the duty imposed on him as trial judge. 65 Ground eight relates to findings of law. The only one raised in the argument is that with which I have already dealt, namely relating to the elements of conspiracy. 66 It is said in ground nine that his Honour erred in his interpretation of the appellant's statement of claim. This concerns the allegation in para 14 of the statement of claim: "Further, or in the alternative, each of the first to tenth defendants in combination with each other and/or each of them thereby entered into an agreement..."

Morris v Hanley & 10 Ors

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Judgment (10 paragraphs)

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