Murray & Anor v Wheeler & Ors

Judgment 1The applicants, Craig Donald Murray and S.T.A.T. Security Training and Tactics Pty. Limited (STAT) (a company of which Mr Murray is a director and shareholder), seek an order pursuant to Part 5 sub-rule 5.3(1) of the Uniform Civil Procedure Rules 2005 (NSW). That sub-rule provides as follows: 5.3 Discovery of documents from prospective defendant (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. 2The applicants rely upon the affidavits of Candice Alana de Bressac, the applicants' solicitor, sworn on 25 June 2012 and those of Mr Murray of 25 June 2012 and 17 December 2012. The respondents, Craig Wheeler, Mobile Witness Australia Pty Limited and Digital Video Witness (Aust) Pty Limited, have relied upon the affidavit of the first respondent, Mr Wheeler, sworn 12 October 2012. 3Mr Murray and Mr Wheeler met through their involvement in the security industry. In October 2008 they received an offer from Terrence William Ainsworth for the purchase of Say Security Pty Ltd (Say). The proposal was for the upfront purchase of a 50% share in Say with an option to purchase the remaining 50% at a later date. The purchase was to be made by a company established by Mr Wheeler and Mr Murray. Over time, the nature of the offer changed and different options to purchase or invest in Say were canvassed. 4Mr Murray's evidence was that no agreement was reached at least so far as he was concerned. He also gave affidavit evidence that on 14 April 2009 STAT "began to advance loan monies to Say". He said that he became aware that Mr Wheeler also commenced making payments to Say. 5Mr Murray claimed that between 14 April 2009 and 14 June 2010, at the request of Say and Mr Ainsworth, STAT advanced various loans to Say. Mr Murray said "[s]uch loans were made by way of direct cash payment to Say, and payment of Say's company expenses and employees salaries" and that "[t]he loans total $132,626.50". Mr Murray's evidence was that during the same period he, Mr Ainsworth and Mr Wheeler discussed various business opportunities. One of those business opportunities related to what is known as the "Mobile Witness" product, a security camera to be installed into motor vehicles. The three men agreed that taxi cabs throughout Australia would be a primary focus market for the product. Accordingly, Say commenced promoting the supply of the Mobile Witness product in various States and Territories. The three men travelled together or separately to parts of Australia promoting the product. 6In the period December 2009 to January 2010 Say lodged applications in Victoria, South Australia, Western Australia and the Northern Territory in respect of the supply of the Mobile Witness technology. Mr Murray also applied to IP Australia in respect of obtaining a trademark in respect of Mobile Witness for Say. 7On 25 March 2010 Mr Wheeler became a 50% shareholder in Say Accounting Group Pty Ltd (Say Group). Mr Ainsworth was the other 50% shareholder. On the same day Say Group changed its name to Mobile Witness Australia Pty Ltd. On 26 March 2010 Verdant Group Pty Ltd (previously known as Craig Wheeler Group Pty Ltd) became a 50% shareholder in Mobile Witness Australia Pty Ltd in place of Mr Wheeler. 8In mid-2010 Mr Ainsworth advised Mr Wheeler and Mr Murray that Say was performing poorly. On Friday, 25 June 2010, Mr Ainsworth wrote by email to Mr Murray providing a formal offer to "all investors in Say" as a "onetime offer to re-pay your investment on the following terms". Mr Ainsworth offered a repayment at $10,000 per month until the "investment" was repaid in full and that if the term exceeded twelve months then interest would be paid on the balance in accordance with the current bank rates. 9Mr Ainsworth advised that during the term of the repayments, investors would have no input into the daily running or operation of Say; that they would have no claim on the assets, either existing or gained after the settlement date; that they would have no claim for any expenses from Say; and that they would have no claim at all in any form in respect of past, present or future events. Mr Ainsworth required a response to the proposal by Monday, 28 June 2010. 10On Friday, 25 June 2010 Mr Ainsworth wrote again by email to Mr Murray and Mr Wheeler advising that, on reflection, he should make further information available to them. He said this: 1. When you guys decided to make an investment I said that I would not see you lose money. This has not been the case and we can all throw stones as to why. Bottom line it is not working the way it was planned. 2. I really do want to get out of the security industry and have been looking for other products in other areas. I have found one that is of great interest to me. 3. I have two potential parties that are interested in buying part or whole of SAY Security. 4. The first is a Chinese company of which the principle [sic] wish's [sic] to move to AU and this would satisfy the visa requirements. As such he would like to buy the lot at a price that equals the investors [sic] loan accounts, no more and no less. This would mean I would get my money back and you would get your money back. 5. The other has shown an interest in expanding and as he owns all the software that we would use it could be a good choice for him. If Jason buys in then you [sic] two would get your money back but mine would be left in the company. If Jason buys in then I would offer my personal guarantee that you get paid out and this is where my offer came from this morning. 6. SAY Security is going down the tubes and any blind man can see that, so we all have two choices here; we take one of the offers and walk away with our investment back and get away scotfree [sic]. Or, decide not to take any offer and suffer all losses that will be incurred. As I see it as the sole director, very shortly I will have no option but to liquidate the company and you lose everything. I hope this give [sic] you a better overview of the situation and the fact I am trying my best to ensure neither of you lose a cent. The choice as always is yours to make and I will abide by that decision. You can get legal advice, you can get accounting advise [sic] but neither will change the fact, SAY Security will not survive the way it is going, no sales = not income. No income = no profit. No profit = we are f...d! We can no longer just throw money at a dead horse as no matter how much you kick it it will not run. As the financial year is about to end I requested your reply by Monday so that I can start the process either to liquidate or sell. CW, I know you as bad off as me financially and as such I will endeavour to have a job offer made to you whichever way we decide to go. We all had a good ride and from my perspective, it is time to get off the horse and say thanks for the ride. 11On Monday, 28 June 2010, Mr Murray responded to Mr Ainsworth advising that he was "willing to accept the offer". He then requested information as to whether the payments would be made weekly, fortnightly or monthly. Mr Ainsworth responded to Mr Murray the same day with a copy to Mr Wheeler. He advised Mr Murray that he was currently looking at the books of Say and that it was "not a pretty sight from where I sit". He said that there were some issues which he needed to sort out before he could confirm the actual start date for repayments. However, he advised Mr Murray that one of the issues was the "verification of both of your loan accounts". He claimed that he had been asking for this for some time and that it would assist him greatly if Mr Murray would prepare a full and concise report for the loans. He said that the "bottom line" was that the repayments would be made monthly in arrears from the date of settlement and that they would be guaranteed personally by him directly to Mr Murray. 12On 29 June 2010, after Mr Murray had agreed to the regime for the repayment of his "investment", he received a telephone call from an officer of the Department of Lands and Planning of the Northern Territory (the Department) with whom he had dealt in previous negotiations in respect of the technical aspects of Mobile Witness' capabilities. That officer advised Mr Murray that the Northern Territory Government had announced that day that taxi camera systems were being made compulsory for all taxis from November 2010. 13When Mr Murray inquired of the officer about the approval process for a company seeking to supply the cameras, he was advised that the officer had already been in contact with Mr Ainsworth by email regarding the approval process, and that Messrs Ainsworth and Wheeler had attended the National Taxi Conference in the Northern Territory from 30 May to 4 June 2010. The officer also advised that an installer had made contact with him indicating that the installer would make contact with Say in the near future. 14On 8 July 2010, Mr Ainsworth affirmed his personal guarantees to Mr Murray to "repay your investment" but now at a rate of $5,000 per month. 15On 16 September 2010 Mr Ainsworth advised Mr Murray that "his worst fears" had been proven because Say was trading on the edge of insolvency. He advised that unless Mr Murray and Mr Wheeler could "pull the rabbit out of the hat" by the end of September 2010 Say would have to be placed into liquidation. Mr Murray responded that the communications in June 2010 constituted a contract and he would assess his options. Mr Ainsworth responded on the same day suggesting that Mr Murray had left his partner, Mr Wheeler "out to dry" and that Mr Wheeler had invested twice as much to keep the doors open. 16In October 2010, Mr Murray telephoned Mr Wheeler and asked how things were going with Say. Mr Wheeler's response, deleting the expletives, was that there were "no approvals, nothing at all, no sales". 17On 27 October 2010, Mr Murray spoke with Say's apprentice who advised him that one of Say's employees was in Darwin for installation of the Mobile Witness cameras into taxi cabs in that city. 18On 29 October 2010, Mr Murray spoke again with the officer of the Department and was advised that Say had been given approval to supply the taxi cameras together with another company called "Verifeye". On the same day Mr Murray wrote to Mr Wheeler. He informed him that on his visit to Say's office to collect some personal belongings he had been advised that Say was doing some installations for taxis both in New South Wales and in the Northern Territory. He said "all the hard work must be turning things around". Mr Wheeler responded on the same day advising that there was no "official approval process" in New South Wales and they were "running the gauntlet" and had sold twenty units in regional New South Wales. Mr Wheeler also advised Mr Murray that he had attended the New South Wales country taxi drivers conference two weeks earlier and that "our mates Verifeye have stitched up the market". However, he said there were a few sales to "keep the doors open". 19Mr Wheeler then advised that the company had "approval for Darwin and sold 5 systems" but that the company still did not have approval for Queensland, Victoria, Tasmania, South Australia or Western Australia. Mr Wheeler advised that the biggest drama they had was that Streaming (a third party supplier) had stopped selling to Say. He advised that he was of the view that future sales were in jeopardy and that Mr Ainsworth was in a legal fight with the third party. He informed Mr Murray that it was not an easy battle because everything was very hostile and that even though a meeting had occurred that day there was still no resolution. Mr Wheeler concluded by informing Mr Murray that he was "doing small sales each month" and trying to cover expenses. He said that every sale keeps the doors open "that bit longer". 20In December 2010 Mr Murray unexpectedly met Mr Wheeler at Darwin airport. He asked him what was happening with the systems and once again Mr Wheeler informed him that things were difficult (to use a neutral term). He said that he had been working for the previous six months and had not been paid. He also advised Mr Murray that he had put more money into the company and asked whether Mr Ainsworth had paid Mr Murray back any of his "investment". Mr Murray advised him that he had not. 21On 6 June 2011 STAT commenced proceedings in the District Court of New South Wales against Say and Mr Ainsworth (as first and second defendants respectively). On 21 December 2011 Mr Murray was joined as the second plaintiff. The Amended Statement of Claim pursuant to which Mr Murray was joined, verified by Mr Murray, included the following: 4. The Second defendant in his capacity as director of the First defendant and in his own right on or around 29 October 2008 invited the Plaintiffs and another person, Craig Wheeler ("Wheeler"), to join with him and invest in the First defendant. 5. The Plaintiffs accepted the invitation and at the request of the First and Second defendants, the Plaintiffs advanced monies to or paid monies for and on behalf of the First defendant ("Advances") in the sum of $132,626.50. Particulars 6. Annexed hereto and marked "A" is a record of all such Advances totalling $132,626.50. 7. The Advances constituted a loan to the First defendant repayable at call. 8. The First defendant has refused to repay the Advances. 9. The Second defendant induced the Plaintiffs to continue to make advances to or on behalf of the First Defendant and guaranteed the repayment of the Advances. 10. The Second defendant has refused to repay the Advances pursuant to the said guarantee. 11 The Second Defendant has admitted the existence of an unsecured loan from the Plaintiffs to the First defendant. 12. The Plaintiffs claim interest pursuant to s100 of the Civil Procedure Act, issue and service fees and costs. 22The break up of the Advances as particularised in the Schedule to the Amended Statement of Claim included the payment of salaries ($66,350.50), loans ($33,500) and expenses ($32,776) during the period 14 April 2009 to 11 June 2006. Although it is not in the evidence I have been informed by counsel for the applicants, Mr O'Connor, that Summary Judgment was entered against Mr Ainsworth in the District Court on 19 June 2012. 23The affidavit evidence of Ms de Bressac includes correspondence between the solicitors for STAT and Mr Murray on the one side and the solicitors for Mr Wheeler and Mr Wheeler personally on the other side. On 15 December 2011, that is a week before the Amended Statement of Claim was filed in the District Court, the solicitors for the applicants in these proceedings and the plaintiffs in the District Court proceedings wrote to Mr Wheeler in terms that included the following: We are instructed that you were the General Manager of SAY Security Pty Ltd from approximately June 2010 until at least September 2010 and are a current director of Mobile Witness Australia Pty Limited ("Mobile Witness"). During this period certain arrangements were negotiated with the Northern Territory Government for the installation of security cameras in taxi cabs. It would be appreciated if you would, within 7 days, provide us with details of this tender transaction including how many units were supplied and details of the payments received from the NT Government. We should also appreciate your response within the same timeframe with information in relation to the following matters: a) What products does Mobile Witness sell in Australia? b) Which of these products (or rights to sell) were acquired from SAY Security Pty Limited and when were these acquired? c) What consideration (if any) was paid to SAY Security Pty Limited for the acquisition of those products referred to at (b)? Subject to the information received we will be in a position to determine whether we will proceed to join you personally to the proceedings. Your earliest response would be appreciated. 24There was no reply received from Mr Wheeler by 21 December 2011 when the Amended Statement of Claim was filed. 25On 22 December 2011 the solicitors for the plaintiffs in the District Court served a subpoena on Mobile Witness Australia Pty Ltd. That subpoena sought the following documentation: The documents or things you must produce are as follows: 1. All bank statements for Mobile Witness Australia Pty Limited from 1 January 2010 to current. 2. All documentation (including contracts, correspondence and other documentation) in relation to agreements, arrangements and dealings for the sale and/or supply of security camera products for taxi cabs. 3. All documentation (including contracts, correspondence and other documentation) in relation to any agreement, arrangement or dealings regarding the acquisition of products, or rights to sell products, from SAY Security Pty Limited. 26On 30 January 2012 the solicitors for the applicants/plaintiffs wrote again to Mr Wheeler noting that there had been no response to their letters of 15 December 2011 and 21 December 2011. That letter included the following: We now propose to join you to these proceedings. Please indicate whether you will consent to being joined, failing which we will apply to the Court for an order that you are joined. We remind you that as a director of Say Security Pty Ltd you have a fiduciary duty to act in the best interests of the company. Your response to this letter by 6 February 2012 (being the next Court date) is required. 27On 1 February 2012 Avondale Lawyers, who were instructed by Mobile Witness Australia Pty Ltd in respect of the subpoena, wrote to the applicants'/plaintiffs' solicitors claiming that the subpoena that had been served was a "fishing expedition". On 2 February 2012 the solicitors for the applicants/plaintiffs responded in terms that include the following: Our clients justifiably suspect that your client has entered into business transactions regarding the supply of security camera products, for which such products, and/or the rights to sell same, were acquired from SAY Security Pty Limited, the first defendant in the above proceedings. In this regard, the subpoenaed information/documentation is highly relevant to the proceedings, particularly in the case of your client gaining commercial benefit or profit from those aforementioned transactions. There are a numerous interrelationships between your client and the first defendant as follows: