Quigley v Lunchalot Club Pty Ltd

Federal Court of Australia|2015-12-17|Before: Edmonds J

Background 1 For some time since early 2012, the first respondent ("Lunchalot") has developed a website-based business that provides incentives to customers in the form of discounts at restaurants. The second respondent, Mr Tenser, and his wife ("Mrs Tenser") have worked in the business on a full-time basis since it commenced. Mr Tenser is a director and shareholder of Lunchalot. 2 The applicant, Mr Quigley, has experience in marketing for various businesses by implementing search engine optimisation ("SEO") services (for example, through Google) that raise the profile or ranking of a brand's internet presence. He conducted this business through an entity known as Epiphany Solutions Pty Ltd ("Epiphany Solutions") which was based in the United Kingdom and Australia. 3 Mr Quigley and Mr Tenser first met in about mid October 2012. On 17 and 18 October 2012, Mr Quigley sent proposals to Mr Tenser in respect of the SEO services that Epiphany Solutions could supply to Lunchalot. 4 On 18 October 2012, Epiphany Solutions and Lunchalot entered into an agreement for the provision of SEO services, and Epiphany Solutions commenced supplying SEO services to Lunchalot at that time ("the Epiphany/Lunchalot agreement"). The persons who were involved in the provision of SEO services on behalf of Epiphany Solutions included Mr Quigley (the CEO of Epiphany), Mr Ryan Townsend and Ms Sophie Lassman (Mr Quigley's wife). 5 The SEO services to be provided by Epiphany Solutions under the Epiphany/Lunchalot agreement included the items listed in cl 1.2 thereof. The Epiphany/Lunchalot agreement was for a term of one year from 1 November 2012 (see cl 4), for a fee of $3,000 per month plus a performance fee, with the first month being free (see cl 2.3). The total amount payable under the agreement was $33,000 plus the performance fee. No amount of the monthly fees was ever paid by Lunchalot to Epiphany Solutions.

The Facts 7 While a large number of primary facts are not in dispute, there are a number of critical facts, which have their source in conversations between Mr Quigley and Mr Tenser on various occasions, on which the parties do not agree. With little or no hesitation, I prefer and accept the versions deposed to by Mr Quigley, or given by him in cross-examination, to the versions deposed to by Mr Tenser and Mrs Tenser, or given by them in cross-examination. Normally, that preference and acceptance would persuade me to conclude that Mr Quigley should succeed in the relief he seeks against Lunchalot and Mr Tenser and that Mr Tenser's cross-claim against Mr Quigley should be dismissed. On the other hand, I hesitate to rush to that conclusion in the face of the wording the parties actually used in their written dialogue with each other. 8 I shall deal firstly with the primary facts which do not appear to be in dispute. 9 On 11 November 2012, Mr and Mrs Quigley attended Mr and Mrs Tenser's home and stayed for dinner. The idea of Mr Quigley becoming personally involved in the business of Lunchalot and advancing the sum of $50,000 was raised through the course of the evening. 10 Subsequently, on 14 November 2012 (following an exchange of emails between Mr Quigley and Mr Tenser over the period 12 and 13 November 2012), Mr Quigley entered into an agreement with Mr Tenser, which provided, inter alia: In consideration for an unsecured loan of $50,000 to the Company [Lunchalot] on terms outlined below, and the provision of your [Mr Quigley's] ongoing services as outlined in the various correspondence between us, you will be issued with 200 shares in the Company which will represent 10% of the issued share capital of the Company. 11 The timing of the advance of $50,000 was expressed in the 14 November 2012 agreement to be: - $10,000 payable on signing of these heads of agreement ("first payment"); and - $40,000 payable on signing of a Shareholders Agreement to be prepared and executed by November 30th 2012. 12 On 21 November 2012, Mr Quigley consented to be a director of Lunchalot. 13 On 22 November 2012, 200 shares were issued to Mr Quigley. At the time, Lunchalot had 2,000 ordinary shares on issue and Mr Quigley's holding of 200 shares equated to 10%. (On 11 July 2013, Mrs Tenser filed an Australian Securities and Investments Commission ("ASIC") form 484 whereby notice was given of a change in shareholdings. In particular, notice was given of the transfer of Mr Quigley's 200 shares for $nil. Subsequently, additional shares were issued increasing the total number of shares to 2,000,000 and 188,595 shares [which equates to 9.4% of the total number of shares on issue] were transferred to Mr Quigley. These subsequent dealings with the shares, and the reasons for them, are explained in a letter dated 26 June 2014 from McCabes, the respondents' former solicitors, but are not directly relevant to the issues in dispute. ) 14 On 30 November 2012, Mr Quigley made the first payment of $10,000 to Lunchalot. 15 There was then delay in preparation of the shareholders agreement, a task which Mr Tenser had agreed to undertake. Ultimately, a shareholders agreement was not prepared. 16 The 14 November 2012 agreement also contained a provision requiring Mr Tenser to match Mr Quigley's advances so that he (Mr Tenser) was also required to advance $50,000 to Lunchalot. 17 On 11 December 2012, Mr Tenser and Mr Quigley had a meeting at a café in Warriewood and discussed when Mr Quigley's payment of $40,000 would be made. There is a dispute between Mr Quigley and Mr Tenser as to what was said at this meeting in relation to the shareholders agreement. Suffice to say at this point that Mr Tenser and Mr Quigley agreed that they would each advance $40,000 by Tuesday, 18 December 2012. 18 On 12 December 2012, Mr Tenser and Mr Quigley went to lunch together at a restaurant in Surry Hills known as "Watts on Crown". At this meeting, Mr Tenser made an offer to Mr Quigley concerning the extent of Mr Quigley's involvement in the business of Lunchalot and Mr Quigley said that he would let Mr Tenser know how much of his time he would be able to commit to Lunchalot. 19 Subsequently, on 13 December 2012, Mr Quigley sent an email to Mr Tenser setting out how much time he could commit to Lunchalot. 20 On 17 December 2012, Mr Tenser sent an email to Mr Quigley which made an offer to Mr Quigley, essentially that Mr Quigley take an equal share in Lunchalot, match Mr Tenser's loans to date (which at the time apparently stood at approximately $270,000) and take up the position of CEO. The offer from Mr Tenser was expressed to be "subject to contract". Further, the email provided at the end: "Please confirm if you are in agreement of the above terms and I will arrange for the necessary documentation to be drafted". 21 On 17 December 2012, Mr Quigley made the second payment of $40,000 to Lunchalot. 22 On 19 December 2012, Mr Quigley sent an SMS message to Mr Tenser, which provided: Hi Richard. Had a good chat with Robin and he is fine with our agreement. [I'm] now going to work through financials in the morning and hopefully we can get it all agreed this week. I won't try and negotiate but I would like to discuss Ryan's role further. 23 The reference to not trying to negotiate was made in the context of Mr Tenser's previous statement in his email dated 17 December 2012: "I hope you do not feel the need to further negotiate my proposal …". 24 On 15 January 2013, Mr Tenser and Mr Quigley met at a café in Warriewood. Again, there is a dispute between Mr Quigley and Mr Tenser as to what was said at this meeting, which is dealt with in more detail at [41] to [44] below. Mr Quigley subsequently (on 17 January 2013) made a further payment of $75,000 to Lunchalot by way of the second advance. 25 On 30 January 2013, Mr Tenser and Mr Quigley attended another lunch, this time at a restaurant known as "Catalina" in Rose Bay. They continued to discuss the proposed terms of a written arrangement between them whereby they would have an equal share in the Lunchalot business. 26 On 22 February 2013, at a pub in Glebe, Mr Tenser presented a draft agreement to Mr Quigley titled "Agreement for the Sale and Purchase of Shares of Lunchalot Club Pty Ltd". Ultimately, following a further meeting on 25 February 2013, discussions between Mr Tenser and Mr Quigley broke down and a written agreement was not entered into. 27 Mr Quigley resigned as a director of Lunchalot on 23 February 2013, and stopped providing services to Lunchalot at this time. 28 Mr Quigley paid the total sum of $125,000 to Lunchalot over the period 30 November 2012 to 17 January 2013, which has not been repaid to Mr Quigley. 29 On 17 June 2013, Lunchalot and Mr Quigley entered into a settlement agreement, whereby it was agreed that the sum of $75,000 would be repaid to Mr Quigley in full and final settlement of all the advances Mr Quigley had made to Lunchalot and that Mr Quigley would transfer all of his shares (200 shares which equated to 10% of the issued shares of Lunchalot) to Mr Tenser. 30 The settlement agreement contained a clause (cl 9) which permitted Lunchalot to give notice no later than 14 July 2013 rendering the agreement null and void. Such notice was given on 12 July 2013, and the agreement is null and void.

The Advance of $50,000 31 As noted in [11] above, this amount was expressed to be payable in the 14 November 2012 agreement as to $10,000 "on signing of these heads of agreement (first payment)" and as to $40,000 "on signing of a Shareholders Agreement to be prepared and executed by 30 November 2012". 32 The first payment of $10,000 was not made by Mr Quigley to Lunchalot until 30 November 2012, 16 days after it was due to be made. One can only assume that the parties did not regard the due date for that payment, namely, 14 November 2012, as being of the essence of the agreement. 33 The payment of the balance, namely $40,000, was not made by Mr Quigley to Lunchalot until 17 December 2012, 17 days after the date specified in the 14 November 2012 agreement, and no shareholders agreement had been prepared and executed by 17 December 2012. Again, one can only assume that the parties did not regard the date by which the shareholders agreement was to be prepared and executed, viz., 30 November 2012, as the essence of the 14 November 2012 agreement, nor that that date was of the essence of the 14 November 2012 agreement for the payment of the $40,000 balance. Mr Quigley made the payment on 17 December 2012 notwithstanding the effluxion of time and the failure to prepare and sign the shareholders agreement. The parties must be taken to have accepted that course of their contractual bargain. 34 Mr Quigley's loan of $50,000 to Lunchalot on the terms outlined, and the provision of Mr Quigley's ongoing services as outlined, was expressed in the 14 November 2012 agreement to be the consideration for the issue of 200 shares in Lunchalot representing 10% of its issued share capital. At a following paragraph, the 14 November 2012 agreement read: As part of this agreement I [Mr Tenser] agree to increase my own unsecured loan to the Company by an amount equal to the amount you [Mr Quigley] loan. Your loan and my loan will be repaid as and when the Company is in a position to do so and will be paid out in equal percentages of the loan (so that our loans are extinguished at the same time) with interest at 6% per annum paid at that time. 35 The operation of these words is far from clear, in particular, whether they extend to earlier loans made by Mr Tenser to Lunchalot because it is common ground that, unbeknown to Mr Quigley, Mr Tenser did not "match" Mr Quigley's loan of $50,000 to Lunchalot made in November ($10,000) and December 2012 ($40,000), notwithstanding his agreement to do so. 36 Nevertheless, it is clear that Mr Quigley's present entitlement to repayment only arises if Lunchalot "is in a position to do so" and Mr Quigley has not established that Lunchalot is in a position to do so or was in a position to do so at any time past. At best, all he has established is that having regard to Mr Tenser's evidence, Lunchalot may have been put in a position to do so by securing loans from Mr Tenser or others prepared to lend to Lunchalot. That is not sufficient. What needs to be established is that Lunchalot has sufficient free moneys or other realisable assets, free of any charge or encumbrances, to enable Lunchalot to discharge Mr Quigley's loan and any other indebtedness which is required to be paid out on a pro rata basis with Mr Quigley's indebtedness. 37 For these reasons, Mr Quigley's claim in respect of the $50,000 advance cannot succeed. The terms of the 14 November 2012 agreement do not facilitate its present repayment. 38 Alternatively, it was put that Mr Quigley was entitled to damages under s 82 of the Competition and Consumer Act 2010 (Cth) in the sum of $50,000 for the misrepresentation that "we would have a shareholders agreement that would further protect your position". I reject that claim. All of Mr Quigley's instalments of the advance of $50,000 were late and the second, of $40,000, was made notwithstanding no shareholders agreement had been brought into existence and signed. Mr Quigley made the whole of the payment of $50,000 notwithstanding the balance of $40,000 was paid 17 days after the shareholders agreement was due and notwithstanding that at the date of payment, 17 December 2012, it still had not been prepared and signed.

The Advance of $75,000 39 The advance in the sum of $75,000 on 17 January 2013 was not pursuant to the 14 November 2012 agreement, nor was it paid pursuant to any alleged "December" or "second" agreement between Mr Quigley and Mr Tenser: the first because it was not contemplated, let alone mentioned, in the 14 November 2012 agreement and the second because I find that there was no such "second" agreement. 40 The $75,000 was paid following a meeting between Mr Tenser and Mr Quigley on 15 January 2013 at a café in Warriewood, where it was raised for the first time. 41 Mr Quigley gave evidence in chief that at the meeting on 15 January 2013, Mr Tenser told him that he was concerned about being able to fund the business moving forward (T 45.11), and requested Mr Quigley to "put more money into the company" (T 45.22). Mr Quigley said he did not feel comfortable putting more money in without a shareholders agreement but that he would advance $75,000 as "a short term cash flow loan" (T 45.32). Mr Quigley gave evidence that Mr Tenser thanked him and said that he would never forget that Mr Quigley had done that for him (T 45.35). 42 Mr Tenser gave evidence in chief that 15 January 2013 was a "fantastic day" (T 129.28) and a "really, really good day" (T 129.31) and that the sum of $75,000 was a figure that Mr Quigley had previously come up with "unprompted" (T 129.37) and "out of the blue" (T 130.14). Mr Tenser disputed Mr Quigley's evidence as to what was said at this meeting (T 133.1-2) and gave the following evidence in chief concerning the need for funding (T 132.41-46): Mr Quigley also said you had raised the need for money, but you didn't specify an amount on 15 January 2013? I didn't. If you just - you recall that---?---I have no recollection of saying that. I don't believe I would have said that. There's no way I would have said that and it wasn't the case. There was money available then. 43 Mr Tenser then gave the following evidence in chief concerning what was said at the meeting on 15 January 2013 in relation to the advance of $75,000 (T 133.4-8): What did happen at the Warriewood office on 15 January; what was said?---When he said about the 75,000, I said, "Well, that figure doesn't appear in our new agreement, but what we can do, if 75,000 is a figure you want to put in, then when you provide the $132,000 personal guarantee to match my 132,000 guarantee, you can take that 75 back out again…" 44 In relation to Mr Tenser's evidence referred to in [42], above, that there is "no way" he would have raised the need for money at the meeting because "there was money available then" (as at 15 January 2013), he gave the following evidence in cross-examination (T 170.21-25): I want to suggest to you, Mr Tenser, that being aware of the cash burn rate of the company as at 15 January, and being aware of the bank account balance of 15 January, you could see that without further funds coming in the company would run out of money in about 10 days?---Unless - unless more cash came in or unless I provided money, yes." 45 The objective undisputed facts (the monthly cash-burn rate of $45,000 and the bank balance as at 15 January 2013 of approximately $15,000) strongly suggest that there was a need for funds at this time and without any funds coming in, the bank account balance would be reduced to nil in about 10 days' time. Funds were clearly required. 46 In my view, Mr Quigley's evidence is to be preferred and I accept it. Further, there are a number of matters which are not in dispute that support Mr Quigley's account of what was said at this meeting. First, the cash-burn rate and bank account balance point to a need for further funds. Secondly, Mr Tenser's evidence in chief was that Mr Quigley could "take that 75 back out again" once Mr Quigley provided a guarantee to match Mr Tenser's guarantee, something that Mr Tenser envisaged would happen in the near future (T 194.23-195.22). Thirdly, the sum of $75,000 was an amount which did not fit with either the 14 November 2012 agreement or the alleged "second agreement". 47 I find that the $75,000 Mr Quigley paid to Lunchalot on 17 January 2013 was a short term advance repayable within such reasonable time as was necessary to allow Lunchalot to raise sufficient loan funds to repay it. According to Mr Tenser's own evidence, "[t]here was money available then", that is, at the time the advance was made to do just that. There was no requirement, as there was under the 14 November 2012 agreement in relation to the $50,000 advance, to show or establish that Lunchalot had sufficient free funds or realisable assets to enable it to repay the advance. For this reason, the $75,000 is presently repayable by Lunchalot to Mr Quigley. 48 It follows from [47] above that I do not accept that Mr Quigley agreed with Mr Tenser that the $75,000 advance to Lunchalot was only repayable by Lunchalot to Mr Quigley on the occasion of Mr Quigley providing a matching $132,000 personal guarantee. It may have been suggested by Mr Tenser to Mr Quigley, but there is no evidence to suggest that it was accepted by Mr Quigley. Mr Tenser saw the $75,000 offered by Mr Quigley as a "gift from heaven" to overcome a short term cash flow problem; to buy further time, and it is not open to find that the time for its repayment extends beyond the purpose for which the funds were raised.

Mr Tenser's Amended Cross-Claim 49 On the view I take, this claim has no foundation at all. In short, it is totally without merit. First, it claims damages for breach of the 14 November 2012 agreement in the sum of $135,093 and secondly damages for breach of a "second agreement" in the sum of $917,300. I have already found (see [39] above) that there is no "second" agreement; the only agreement that was ever reached by the parties was the 14 November 2012 agreement; everything after that date may have been a step along the way to a "second" agreement, but it was never reached. Everything that followed was "subject to contract", in the sense of the third category of potential relationships coming out of Masters v Cameron (1954) 91 CLR 353. And there is no evidence on which I am prepared to rely coming from Mr Tenser in support of Mr Quigley's alleged breaches of the 14 November 2012 agreement, either in respect of the purchase of shares in Lunchalot or in the provision of services by Mr Quigley to Lunchalot.

Conclusion 50 Lunchalot must be ordered to repay to Mr Quigley the sum of $75,000 within twenty-one (21) days of the date hereof. 51 On tender of such sum, Mr Quigley must tender a signed registrable transfer of all shares in Lunchalot registered in the names of Mr Quigley or any person associated with him in favour of Mr Tenser or as Mr Tenser directs. 52 Lunchalot must pay 50% of Mr Quigley's costs of his claim. Mr Tenser must pay Mr Quigley's costs of defending Mr Tenser's cross-claim. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

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