Sapra Enterprises Pty Ltd v Cooper

Judgment (3 paragraphs)

[1]

Background

On a number of occasions in April and May 2017, Mr Cooper met with Mr Oey and Mr Charan to discuss the terms on which Mr Cooper would be employed in a venture controlled by Mr Oey and Mr Charan.
I prefer the evidence given by Mr Cooper and Mr Oey concerning Mr Charan's personal participation in the discussions. I consider that it is objectively improbable, given the nature of Mr Charan's personality as displayed in his cross-examination, that he would have left the matter entirely to Mr Oey.
However, I do not consider that the circumstances of the negotiations have any significance to the outcome of this case, and do not understand why Mr Charan went to the lengths that he did to deny any significant involvement in the negotiations.
Objective evidence of the result of the original negotiation is found in an email from Mr Oey to Mr Cooper dated 1 June 2017.
That email establishes that the proposal was that Mr Cooper was to be "General Manager - Channel Partnerships". The role related to a business called "No Bankruptcy" operated by O'Corp that was owned as to 50% each by Mr Oey and Mr Charan. Both Mr Oey and Mr Charan were directors of O'Corp.
There was little evidence as to the nature of the business of No Bankruptcy, but I infer that it sought out clients who were at risk of bankruptcy because of their financial situation, and attempted to re-structure their debts by providing finance on appropriate terms with a view to assisting the clients being able to escape bankruptcy.
The email explained that Mr Cooper's objective was to help reach a short term goal of achieving $250,000 revenue per month "by generating leads and revenue from enterprise partners" such as mortgage brokers, accountants and tax agents, as well as Australian Seniors and banks. Mr Cooper was required to represent No Bankruptcy at events and to speak at seminars for the business. The email provided: 2. In addition, we would like you to also be on and Chair our Oversight Committee, and also put forward any candidates with perhaps banking and/or political backgrounds you feel will lend the type of credibility we need for our business.

Consideration

For the reasons that follow I find that Sapra is entitled to the relief that it seeks in these proceedings.
Many of the defences raised by the defendants as well as claims made in their cross claim were misconceived and untenable, and indeed not pursued in their final submissions.
As the defendants did not formally withdraw any of their claims, it was necessary for Sapra to deal with all of the claims in its final written submissions.
Subsequently, when the defendants served their final written submissions, it emerged that they had not put submissions to support many of the issues that they had raised.
The evidence justifies a finding that CHL failed to establish a viable revenue stream before its available loan capital was exhausted. This was because it was unsuccessful in converting the leads that were identified in the 'pipeline' from time to time into commission-earning finance contracts, and the attempt to reverse that outcome by means of the sponsorship agreements was unsuccessful.
The evidence does not permit any finding as to the practical reasons for that outcome. The possibilities range from there being no viable commercial opportunity to inadequate competence on the part of CHL's managers and employees, to just plain bad luck.
Mr Cooper's initial involvement in providing consultancy services to O'Corp evolved immediately into his role as the managing director of CHL's start up finance broking business in circumstances where no capital was available to CHL.
Such capital as was provided was made available in the form of the three loans made by Sapra.
Mr Cooper was reasonably experienced in business and was well aware of the personal risks involved in permitting CHL to enter into the loan agreements supported by guarantees given by Mr Cooper.
It may be accepted that Mr Cooper had misgivings about CHL entering into the loan agreements and Mr Cooper guaranteeing its obligations. Mr Cooper had a choice on each occasion, and whether or not Mr Charan placed 'pressure' on Mr Cooper, Mr Cooper had and exercised in commercial terms a free choice to execute the loan agreements. It is not surprising that there was some level of pressure, because CHL progressively became increasingly indebted and revenue was not earned in a timely way to service the increasing indebtedness. Mr Cooper had the choice of cutting his losses or undertaking increasing risks in order to realise the potential economic benefit of his shareholding in CHL.
At first glance the terms of the loan agreements appear lopsided in that the guarantors underwrote the entire risk of CHL's business failing, but on the other hand, Mr Charan through Sapra took the risk that neither CHL nor the guarantors would be able to repay the debts.
I am satisfied that Mr Charan did involve himself in the management of CHL's business to a much greater degree than he was prepared to admit. It is not surprising that he did so given the increasing exposure of Sapra as lender and the emergence of doubt as to whether CHL could turn leads referred to in the 'pipeline' into revenue.
As I have stated above, the evidence does not justify a finding that Mr Charan usurped entirely the management roles of Mr Cooper and Mr Oey, while the latter remained involved in the management of CHL. Mr Cooper remained managing director and it was a matter for him to exert his authority. There is force in the question put by senior counsel to Mr Cooper in cross-examination: [62] "You are both grown men capable of making your own decisions and minds up weren't you?"
Mr Oey left the business in December 2017 for reasons that were not explained. It is probable that his sudden departure reduced the viability of CHL's business.
The Melbourne Victory and the Brisbane Roar sponsorships did not yield significant returns for CHL in the relatively short period they were in operation.
However, the evidence does not establish that the failure of CHL to generate sufficient revenue in a timely fashion to service the loans made by Sapra was caused by CHL's entering into the sponsorship agreements, or any negligence or inadequate management by Mr Charan of the opportunities afforded by the sponsorship agreements.
The primary reason the business of CHL failed was its incapacity to turn finance broking leads in the 'pipeline' into revenue, which was primarily the responsibility of Mr Cooper as managing director.
I am satisfied that Mr Charan became increasingly active in the management of the business of CHL because he was indirectly a major shareholder and his company, Sapra, was at risk in respect of the loans that it had made and he had a genuine objective to use his commercial experience to turn around CHL's prospects.
Mr Charan was the agent of Sapra for the purpose of negotiating and agreeing to the terms of the three loan agreements. It does not follow that everything that Mr Charan said or did in relation to his involvement in the affairs of CHL was done as an agent of Sapra or that his conduct could in all cases be sheeted home to Sapra.
No doubt Mr Charan made statements and claims from time to time concerning how CHL should conduct its business and how Mr Charan might contribute positively by his efforts to a successful outcome. The evidence does not establish that statements made by Mr Charan of that nature, whatever they may in fact have been, were made as a representative of Sapra, or as part of an inducement by Sapra to cause CHL to accept the loans from Sapra that were made, or to cause the guarantors to guarantee those loans.
I find that the loans made by Sapra to CHL were facilities offered for the benefit of CHL in the same way as would have been loans made by a bank. CHL needed capital and Mr Charan was persuaded by the information available to him, including in particular the 'pipeline', that it was in his and CHL's ultimate commercial interests for Sapra to make the facilities available. In that he was wrong, as it has turned out, but no doubt Mr Charan appreciated the commercial risks involved.
The defendants have failed to persuade me to the necessary degree of satisfaction that Mr Charan made the statements that he has been alleged to have made in terms or in a context that could reasonably have been construed by the defendants as being promises or actionable misrepresentations, in the sense of being misleading or deceptive conduct that would exonerate the defendants from their liability under the three loan agreements.
It is likely that Mr Charan made many statements concerning his commercial abilities and the likely prospects of his involvement, which may even have gone so far as to be boastful.
However, the significance of any statements or claims that Mr Charan may have made must be judged in the light of the information provided to him by CHL, for which Mr Cooper was ultimately responsible, by means of the 'pipeline'.
I infer that the 'pipeline' information that was provided to Mr Charan by CHL were somewhat more extensive than is actually found in the evidence. There are statements in the evidence that suggest that the provision of 'pipeline' information was recurrent.
The circumstances in which CHL provided 'pipeline' information to Mr Charan was sufficiently proximate to the making of the loans by Sapra to satisfy me that the 'pipeline' information was a significant inducement to cause Mr Charan to arrange for Sapra to make the loans.
The evidence does not permit findings as to the reasons why the forecasts in the 'pipeline' information failed to materialise. The Court could not make a positive finding that the information was misleading or deceptive. That said, the forecasts in the 'pipeline' information failed so consistently and so absolutely that it is doubtful that the forecasts were reasonable.
However, the issue in this case is not whether the defendants misled Sapra into making the loans, but whether Mr Charan on behalf of Sapra misled or otherwise wrongly induced the defendants into entering the loan agreements.
In that context, the failure of the forecasts in the 'pipeline' information remains relevant, but only in the general context of whether it was the conduct of Mr Charan, on behalf of Sapra, that has vitiated the loan agreements on the basis of the application of proper legal principle.
It should be added that the evidence does not establish that CHL was deprived of the value of the three loans because of any consequences of the statements alleged to have been made by Mr Charan. CHL received full value for the loans. It applied the money in meeting its operating costs and it was the commercial failure of its business that ultimately deprived CHL of the money that it had borrowed from Sapra.
It will now be appropriate to consider more specifically the particular allegations made by the defendants in their defence and cross claim concerning the conduct of Sapra and Mr Charan that they claim should exonerate them from their obligations under the three loan agreements.
The highest claim made by the defendants was based upon an alleged contract. [63] By reference to what was defined as the November Loan Promise and the November Loan Condition, the defendants alleged in relation to the November 2017 loan agreement that Mr Cooper gave the guarantee in that agreement in consideration of a promise by Sapra, made on its behalf by Mr Charan, to generate 1000 or more new loan applications for CHL's business by the end of November 2017.
There is simply no evidence at all of any statements allegedly made by Mr Charan that were capable of supporting, first, a finding that Sapra entered into any contract with the defendants concerning the commercial outcome of the advance of $300,000, or, secondly, that there was any promise that any loan applications would be made, let alone that there would be 1000 of them by the end of November 2017.
This claim on the part of the defendants was entirely imaginary. For example, taken at its highest, the statements attributed to Mr Charan by Mr Cooper [64] could not be construed as a promise made by Mr Charan to achieve 1000 completed loans by the end of the month of November.
The representations alleged by the defendants in their defence to have been made by Mr Charan on behalf of Sapra were to the effect that interest would not be charged on any of the loans and that the sums advanced would be used to generate business for the benefit of CHL. [65]
As to the first part of the alleged representation, significant interest holidays were provided for in the September and November loan agreements, but they were for limited periods. The defendants must have understood the limitations which appeared clearly from the wording of the loan agreements. The Court could not find that the defendants were induced to enter into the loan agreements by a statement that there would be no interest, when they understood that all that was in fact on offer were interest holidays.
In these circumstances the Court would not be justified in finding that Mr Charan made the statements in the terms alleged.
Mr Charan may well have made some statements capable of being understood as meaning that the sums advanced would be used to generate business for CHL. CHL had no capital of its own. The clear purpose of the making of the loans was to provide capital to fund CHL's business operations. That was the purpose for which the money was used.
There is no basis for the Court to find that Mr Charan said that the use of the funds would necessarily be successful in generating revenue, either at all or to any particular level. In that respect, the alleged representations are formulated in such general terms as to deny them the effect of actionable representations.
The claim made by the defendants [66] that it was unconscionable for Sapra, as lender, to enter into the loan agreements with the defendants and then to enforce its rights is so obviously untenable that it may be rejected without reference to authority. Each of the three loans were genuine commercial dealings entered into by Sapra at the request of Mr Oey or Mr Cooper in circumstances where CHL otherwise had inadequate capital to fund the ongoing operation of its business. The three loan agreements were negotiated at arm's length. On balance, the most significant inducements that operated were CHL's claims concerning its prospects as represented by the 'pipeline'. Sapra accepted considerable commercial risk as a result of its making of the three loans. There was nothing commercially unreasonable in the terms of any of the loan agreements, and indeed the significant interest holidays provided a real benefit to CHL.
The defendants' claim [67] that the defendants were materially prejudiced by reason of the negligent and detrimental way in which the business of CHL was operated by Mr Charan, as the sole director of Sapra, fails entirely for a number of reasons. First, the defendants had not established that Mr Charan engaged in the business of CHL as an agent of Sapra, rather than in his capacity as an indirect shareholder. Secondly, the evidence does not permit a finding that Mr Charan's conduct was a real cause of the failure of CHL's business, or that what he did was negligent.
The defendants' claims that Mr Charan breached the director's duties that he owed to CHL are also entirely misconceived. It could not been a breach of duty by Mr Charan to cause Sapra to enter into the March Loan Agreement at the request of Mr Cooper, in his own capacity and as the managing director of CHL. Mr Charan acted in his capacity as a director of Sapra, and the evidence is entirely inconsistent with Mr Charan having been the moving force behind the defendants' entering the March loan agreement.
The defendants established no basis at all for their claim that, when Mr Charan, acting as the director of Sapra, caused that company to exercise its rights to accelerate the date for repayment under the September and November loan agreements, he was breaching any duty that he owed as a director of CHL.
The suggestion that it is a breach of director's duty by a director of a company to resign as director in order to enable that person to cause another company of which he is a director to enforce its legal rights against the first company is also misconceived.
The allegations made by the defendants in their cross claim [68] as to Mr Charan personally engaging in misleading or deceptive conduct in relation to the assertion that the sum provided under the November loan agreement would generate 1000 or more new loan applications, no interest would be charged under the September loan agreement, or the sums advanced under that loan agreement would be used to generate business for the benefit of CHL fail for reasons that have already been considered above.
The reasons given above also dispose of the claim in the cross claim [69] that it was unconscionable for Mr Charan and Sapra to enter into and enforce the rights under the September loan agreement.
The final observation that should be made about the defendants' claims in their defence and cross claim concerning the wrongful conduct alleged against Mr Charan and Sapra is that there is no real consistency between the way in which the claims were pleaded and the evidence given by the defendants' witnesses as to what was said and done.
It remains necessary to deal with the various claims pleaded by the defendants that were not addressed at the hearing or in final submissions. [70]
In the circumstances, it is only necessary to record that I accept the submissions made by counsel for Sapra as to why these defences fail (noting that I do not understand any more than counsel did the defendants' reliance upon s 925A of the Corporations Act).
Sapra's original case included a claim that Mr Cooper alienated his interest in certain real property to his partner, who was the third defendant, Mr Taylor, once demands had been made in respect of Mr Cooper's obligations as guarantor under the three loan agreements. Sapra alleged that the purpose of the alienation was to defeat Sapra from recovering the debt, contrary to s 37A of the Conveyancing Act 1919 (NSW) (Conveyancing Act).
Mr Cooper was said to have contributed $42,381 to the purchase of a property in Newcastle by way of a loan. When the property was sold, that money was set aside in accordance with an undertaking given by Mr Taylor's solicitor, in lieu of a freezing order that had been made against Mr Taylor.
The payment into court was made in accordance with orders made in chambers by consent on 28 July 2020. Those orders included the following notation: "[t]he third defendant makes no claim to be entitled to any of the trust account moneys and that the persons who claim an interest in the monies are the plaintiff and the first defendant. The plaintiff submits that the Court should order that that sum be paid out to the plaintiff in part satisfaction of any judgment against the first defendant".
As I understand it, the effect of the notation is that it records an agreement by Mr Taylor that he makes no claim to the money paid into court and accepts that the only parties with a claim to that money are Sapra and Mr Cooper.
As the $42,381 was paid into court in these circumstances, Sapra did not detail its claim under s 37A of the Conveyancing Act in its written submissions, although it set out in Annexure E to those submissions the basis for its claim for an order that the amount in court be paid out to it.
As I understand the defendants' written submissions, they have not put any argument in contest to this aspect of Sapra's claim.
It therefore appears to be appropriate for the Court to proceed upon the basis that Mr Cooper does not challenge the Court making the order sought by Sapra.
The draft short minutes of order should be provided to the defendants for their comment. As the defendants were not legally represented, I will allow them to inform the Court whether I am correct in my understanding that there is no contest about the Court making the orders sought by Sapra concerning the money that has been paid into court. I will allow that opportunity because there may be some risk that the defendants inadvertently failed to respond to Sapra's submissions concerning the fate of the money paid into court.
Sapra should provide draft short minutes of order to the defendants and my Associate within seven days of the publication of these reasons for judgment. An explanation of the calculation of interest should be provided.
The defendants will have a further seven days to respond to Sapra and my Associate, including in respect of any submissions they wish to make concerning the order to be made in relation to the money paid into court. If the defendants make any additional submissions on this subject, Sapra will have a further seven days to respond.
In principle, Sapra is entitled to an order that the defendants pay its costs of these proceedings. However, I will give the parties an opportunity to provide brief written submissions on the issue of costs.
Submissions on costs limited to three pages should be provided by Sapra and the defendants within the consecutive seven-day periods referred to above.

Reliability of testimonial evidence

It will first be necessary to make some observations on the credibility of the testimonial evidence given by the witnesses.
This is yet another case where it is appropriate to start by setting out the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319, which demonstrates how difficult it may be for parties to prove facts dependent upon recollection and oral conversations where there is no objective corroboration long after the event. His Honour said: Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
The present case is one that epitomises the wisdom of his Honour's judgment, as it applies directly to the defences upon which the defendants primarily rely, which are based upon statements allegedly made by Mr Charan.
The observation of Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94] that "the court must feel an actual persuasion" of the occurrence or existence of relevant facts is also of paramount significance, particularly in a case such as the present where the defendants seek to avoid liability under formal written agreements by relying upon alleged representations made by the party who otherwise would clearly be entitled to enforce those agreements.
For the reasons that follow, I have not found the testimonial evidence given by any of Mr Charan, Mr Cooper or Mr Oey to be persuasive or credible, such that I would make a finding as to the existence of a significant fact based solely on their testimony. That is so particularly where the testimony of any of the witnesses is inconsistent on the subject.
This is one of those cases where the only reliable course is for the Court to start with an examination of the documentary and other objective evidence and then to make findings, where possible, by deduction based upon the objective evidence.
That means that as Sapra's case is based upon formal documentation and incontrovertible facts, its case does not depend on the credibility of Mr Charan as a witness. The defendants' case fails for many reasons, but one is that it depends upon the precision and reliability of the evidence, primarily of Mr Cooper, concerning conversations and events observed by him. As I have not found Mr Cooper to be a reliable witness, the defence has failed.

At a glance

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Judgment (3 paragraphs)

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Legislation Cited (4)

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