Simmons & Anor v Story [2001] VSCA 187

Simmons & Anor v Story [2001] VSCA 187 - VSCA 2001 case summary — Zoe

[7]

S. &. T. Marketing Pty. Ltd. ("S&T") was a company formed in or about 1984. It had two controlling directors and shareholders, Steven Coughlin and Terry Minette. Its business was the acquisition and framing of artistic prints for sale to selected outlets. Coughlin and Minette were experts in the field in which the company operated but were not, so the evidence suggested, astute businessmen. Although, by 1987, the company had a substantial turnover, it also had a large number of outstanding debts. In December of that year it entered into a "debt factoring" agreement with Esanda Finance Corporation ("Esanda"), as security for which it gave to Esanda a mortgage debenture over its assets (including stock). Coughlin and Minette also executed in favour of Esanda personal guarantees. By early 1989, the company was having difficulty honouring its agreement with Esanda because of a "cashflow crisis" generated by its inability to recover debts owing and the high interest rates payable to Esanda. On 23 May 1989 Esanda took possession of the assets of the business through its agent, Mr. Romanis of Romanis & Cant, chartered accountants. At this time Coughlin and Minette were being advised by Shirley, who was their accountant. Each had a belief in the viability of the business of S&T if they could find a "partner" to inject some capital. Upon Shirley's advice, they determined to negotiate with Esanda, through its agent in possession, to buy back the assets of S&T from Esanda through a "shelf company" called Twilight Trial Pty. Ltd. ("Twilight") which had been procured for them by Shirley, and of which he was the "director/secretary". In the latter part of May 1989 they discussed with Romanis the possibility of negotiating a "buy-back" from Esanda. On 30 May 1989 Coughlin wrote a letter to Romanis, which Coughlin said had been drafted by Shirley, offering a sum of $250,000 for the purchase by Twilight of the assets, including stock, of S&T. On the same day, in a "covering letter", Coughlin wrote to Esanda's agent, saying (inter alia) that "... [We] are presently negotiating with a third party to purchase a share of Twilight Trial Pty. Ltd., if the latter company is successful in its bid to purchase the assets of S&T". This letter, too, according to Coughlin, was written on the advice of Shirley. Apparently very little happened during the ensuing two weeks and then, on 15 June 1989, Esanda made a formal demand. This prompted a letter dated 16 June 1989 from Coughlin to Romanis saying that he and Minette were unable to meet Esanda's demand but suggesting that, with Esanda's assistance, they were confident that the business of S&T could remain viable. The next matter of consequence which occurred was on 27 June 1989 when a letter was written to Esanda by Story in which he acknowledged that he was acting for S&T. The letter said:

[28]

Upon the issue whether, in respect of the transactions referred to, Story had an implied retainer to act for the appellants, the evidence at the trial came from four principal witnesses; namely Simmons, Story, Coughlin and Minette. The appellants also called evidence from an independent solicitor (one McCutcheon) and from an independent accountant (one Kelly). The evidence of the former, so far as it appears from the transcript, was directed to issues of breach and was predicated upon a finding that a retainer existed. The evidence of the latter, insofar as relevant at all, seems to have been directed to the question of how a person in the position of Simmons would have acted if being requested to invest monies in the S&T venture. The respondent called a solicitor (Howie) who, in early 1990, had been approached by Simmons to give advice in respect of a claim against Shirley. It will be necessary for me to return to his evidence hereafter. The evidence given by the four principal witnesses, whom I have mentioned, was directed towards a number of matters including whether, by the date of the meeting of 11 July 1989, a concluded bargain had been struck between the relevant parties, the role played by Story at that meeting, and the role which he was asked to play following the meeting. There was a marked divergence between the evidence given by Simmons on the one hand and Story, Coughlin and Minette on the other. Simmons said that, by the time of the meeting on 11 July 1989, no concluded bargain had been made between him, on the one hand, and Coughlin and Minette, on the other, as to the terms upon which he and Busag were to acquire an interest in Twilight or the terms upon which Twilight was to acquire the assets of S&T from Esanda; that he was looking to Story to advise him and Busag, as their solicitor, as to the soundness of their participation in such transactions, including advice as to how much they should be prepared to invest, the manner in which the assets and stock of S&T should be valued, which assets of S&T should be leased, and the terms upon and by which his relationships with Coughlin and Minette should be governed. Simmons said that he was also looking to Story to advise him of relevant "financial details" as to trading and profit and loss statements of S&T. On the other hand, Story said that he did not have a retainer - and never had one - to advise Simmons and Busag in relation to any of these matters; that he attended the meeting of 11 July at the request of Shirley; that he was not acting on behalf of any of the interested parties at the meeting, and had told them so; that he attended the meeting on the basis that a concluded agreement had been reached between Simmons, Coughlin and Minette as to the terms upon which Twilight was to purchase the assets and stock of S&T from Esanda, and upon which the appellants were to acquire an interest in Twilight; and that he was at the meeting as prospective solicitor for Twilight to formalize the agreements which had been reached between the parties once those parties had assented to those terms at the meeting. Story said that he had taken no formal part in the meeting of 11 July, a meeting which was conducted by Shirley. He said that it was apparent to him that the parties were agreed upon the terms on which Simmons and Busag were to acquire a 50% interest in Twilight and on which Twilight was to purchase the assets and stock of S&T from Esanda. He was not asked to advise, nor did he give advice to, Simmons on the matters alleged by Simmons. He was thereafter engaged by Twilight to put the agreements "in place". In accordance with his instructions he had engaged in correspondence with Esanda's solicitors ("Corrs") whose responsibility it was to draft the relevant sale agreements. By approximately 21 July 1989 Corrs had drafted and sent for his attention the draft agreement of sale (i.e. the "asset purchase agreement") and also draft documents of guarantee and indemnity to be executed by each of the directors/shareholders of Twilight; namely Simmons, Coughlin and Minette. Corrs told him that Esanda required a "solicitor's certificate" certifying that he (Story) had explained the content of the guarantee and indemnity to each prospective guarantor. The agreement had been drafted upon instructions apparently in the possession of the solicitors for Esanda. Thereafter, on 28 July 1989, he arranged for the documents prepared by Corrs to be executed by the relevant parties. Coughlin and Minette gave evidence which generally supported the evidence of Story in respect of these matters. In particular, each said that it was Shirley who had been instrumental in advising them before the meeting of 11 July; that it was he who had found and introduced Simmons as their "prospective partner"; that the terms of their bargain had been finalized before the meeting of 11 July; and that Story had said, at that meeting, that he was not acting for any of the individual persons present at the meeting. Minette said that Story had also told the persons present that they should seek independent advice if they needed it. When, thereafter, disputes had arisen between Simmons and Busag, on the one part, and Coughlin and Minette, on the other, in the implementation of their agreements, Story had referred them to independent solicitors. Those disputes had arisen, according to Coughlin and Minette, because Simmons had conducted the business of S&T without reference to them. Almost immediately he had changed its name to the "Great Australian Picture Co Pty. Ltd.". Without consulting Coughlin and Minette, he put his wife (and one of her friends) in charge of the day to day operations of the business and negotiated a change in the premises from which the business was conducted. When, ultimately, Simmons sought to negotiate a transfer of all the assets of Twilight to Busag, Coughlin and Minette declined to execute an "employment agreement" and a "loan and consultancy agreement". The former was an agreement purporting to bind Coughlin and Minette to the business for at least two years; the latter was an agreement acknowledging that the moneys advanced by Busag to the business were interest bearing loans and that Busag's services were to be provided to the business for a fee.

[64]

Counsel for the respondent strenuously objected to this Court receiving any argument in respect to the matters raised in paragraphs (b) and (c) on the basis that they were intended to raise matters which were neither pleaded nor argued before the trial judge. Indeed, the appellants conceded that neither of the matters raised in (b) and (c) had formed part of the appellants' case before the trial judge. They submitted, however, that they ought to be entitled to ventilate the matters before this Court on the basis that no miscarriage of justice will flow to the respondent. The respondent contested that submission on the grounds that, if the matters had been raised and argued at trial, the case which he would have presented would have been significantly different from the one which he had in fact presented; that the evidence would have been different; and that the judge would have been called upon to consider the evidence which was, and would have been, led in a manner different from the way in which she was in fact called upon to consider the material before her. The appellants in fact conceded, as they had to, that the matters which they wished to raise under paragraphs (b) and (c) were not matters which had been pleaded or argued before her Honour; indeed, in respect of the matters raised in (c), they conceded that they had applied to the Master by summons filed on 16 September 1998 for leave to amend the statement of claim to plead such a claim; that the Master had refused their application for leave to so amend (at the same time as he had dismissed the respondent's application to dismiss the appellants' claim for want of prosecution); that they (the appellants) did not seek to appeal against the Master's orders; and that at trial they did not seek the judge's leave to amend their statement of claim; nor advance any argument in support of the proposition which they now wish to make. They concede that, to do so, they need this Court's leave to amend their statement of claim in the form which the Master refused in 1998 and to amend their notice of appeal accordingly. Such application for leave was made in respect of the matters referred to in paragraph (c) but not in respect of the matters raised by paragraph (b). Counsel, in fact, advanced no oral argument to this Court in support of their application to amend the pleadings to raise the matters reflected in paragraph (c), but said that they were content to rely upon their written submissions. I would refuse both the application for leave to amend the statement of claim and the application for leave to amend the notice of appeal. Likewise I would reject the grounds of appeal which seek to raise the matters referred to in paragraph (b) (above). I will defer my reasons for doing so until I have addressed the grounds encompassed by paragraph (a).

[74]

These principles make it clear that it is the proved facts in the case under consideration which are required to be examined in order to determine whether a clear inference can be drawn. In this regard the appellants faced problems at trial, as they do on this appeal, because of the nature and quality of the evidence. As I have already noted, the witnesses were speaking from memory of events which were 10 years old; their evidence was clearly based on re-construction in many instances; they had no reliable contemporary records to assist them; and the documents upon which the appellants relied and still rely to provide the surrounding circumstances to support the existence of the retainer are of doubtful provenance, in many instances unexecuted and unexplained - or at least poorly explained - as to when and how they were brought into existence. Furthermore, it is apparent that credit and credibility played a significant part in the findings which her Honour did make. It is apparent from those findings that her Honour did not accept Simmons' evidence of what occurred at the meeting of 11 July; more particularly his evidence of the role played by the respondent at that meeting. Rather she accepted the evidence of the respondent and his witnesses to the effect that the meeting was a formality to obtain the assent of Simmons, Coughlin and Minette to the terms of agreements which had already been negotiated, through the agency of Shirley, in accordance with which Twilight was to purchase the assets and stock of S&T from Esanda, and Simmons was to purchase a 50% interest in Twilight. It is also clear from her Honour's findings that she rejected Simmons' evidence that the respondent had assumed an advisory role at the meeting and that Simmons regarded Story as acting as his solicitor in that role. She specifically found that Story had told the meeting that he was not acting for any person who was at the meeting, but would be prepared to act for Twilight to formalize the agreements if the parties so wished. It also seems to me to be clear from her Honour's findings that she rejected Simmons' evidence that he had not been "totally advised" by Shirley in reaching his agreement to participate in the "S&T venture", that he was "looking to Story" to advise him as to the soundness of "the deal", and his evidence that the contents of his facsimile of 12 July were instructions to Story and not to Shirley.

[77]

In the light of the evidence which was before the judge, the matters to which I have referred in the preceding paragraph do not seem to me to lead to the "irresistible inference" for which the appellants contend. Rather those matters seem to me to be quite consistent with the conclusion, to which her Honour came, that the respondent was retained by Twilight to formalize the agreement already negotiated between the relevant parties following the initial offer which had been made to Esanda by Twilight for the acquisition of assets of S&T on 6 July 1989. Many, if not all, of the submissions made to this Court on behalf of the appellants to support their contention of an "irresistible inference" that, by 28 July 1989, the respondent had been retained by them, were a repetition of submissions which had been made to her Honour. The contention to this Court was that her Honour had misconstrued, or failed to accord sufficient weight to, the incontestable evidence before her which should have compelled her to the conclusion that the retainer which the appellants asserted was clearly proven, regardless of the respondent's statement at the meeting of 11 July that he was "not acting for any person present". Thus, it was submitted that her Honour had failed to have proper regard to the evidence of Simmons that, by the meeting of 11 July 1989, he did not know of the true state of the finances of S&T; or to the evidence that Story had been negotiating with Esanda to reduce the liability of Coughlin and Minette under their existing guarantees. It was further contended that her Honour had failed to appreciate, and give sufficient weight to, the existence and cause of potential conflicts which arose in Story acting on behalf of Twilight in putting into place agreements said to have been negotiated in respect of the transactions. Thus, it was submitted that, because of conflicts, the so-called "employment" and "loan and consultancy" agreements were not drafted until well after 28 July 1989 (when the agreement with Esanda was executed) and were, as a consequence, never executed. The appellants further submitted that her Honour had failed to apprehend the significance of the fact that the appellants were the sole source of funds for the "buy-back" from Esanda and the contemplated resurrection of the former S&T business. It was submitted that that fact, which the respondent well knew, should have led the judge to conclude that the appellants were "looking to the respondent" to protect their interests and to further conclude that, by 28 July 1989, the respondent had "assumed the role" of the appellants' solicitor in respect of the transactions.

At a glance

Court

Decision date

Before

Source

Judgment (130 paragraphs)

Parties