THE TRANSACTION OF 4 MAY 1999
78 Before discussing the detailed nature of the transaction of 4 May 1999, and the events surrounding it, it is necessary to say something about the reliability of the evidence of certain witnesses, in particular Garraway.
79 Of those persons who were involved, or interested in, the negotiations leading up to Kendray's departure from Dundee Beach P/L on 4 May 1999, only Booth, Sanders, Kendray and Garraway gave evidence. Of course, to the extent he had any direct involvement, Walker could not give evidence. Hassall did not give evidence. Also, Philip was not called to give evidence. I infer that their evidence on the issue of the reason or reasons for structuring the arrangement between Kendray and Hassall as it was, and for the nature and content of any communications with Territory Realty, would not have advanced the respondents' case, at least beyond what is disclosed in the documentation. Territory Realty was, at the time, represented by David de Winter, solicitor. His written statement was tendered by the applicants. He was not required for cross-examination. I accept his evidence. The secretary of Dundee Beach P/L at the time, Paul Proctor, was not called to give evidence but the explanation for that lies in his illness. I accept he could not give evidence. David Fuller attended the meeting of 4 May 1999 as proxy for Booth, who was overseas in May 1999. He gave brief evidence. He was not really challenged in cross-examination. I accept his evidence, although not surprisingly, given his limited earlier exposure to the background to the meeting, he was not particularly assertive in what he said. His memory of that meeting accords largely with that of Sanders.
80 I found Sanders to be an impressive and reliable witness. He was straightforward. He did not appear to gloss over issues, nor to seek to enhance the position of Territory Realty beyond his memory. He had largely left its interests to Booth in the later part of 1998 and in 1999. However, his evidence of what transpired on important occasions, including the meeting of 4 May 1999, was given directly, and in a natural manner. It accorded with certain of the other contemporaneous records. It tied in with the notes of Proctor. I accept his evidence.
81 Booth's evidence was, in my view, on the whole reliable. Much of it was unchallenged. It reflected a person who, not surprisingly, was anxious for the proceeding to be successful so on occasions it was somewhat defensive. In particular, I think his explanations for why Territory Realty was not more pro-active in protecting its asserted interests in the period from 2000 to 2007 requires careful consideration. I shall refer to that later. In addition, in some respects, I found his views about the appropriateness of actions taken, or not taken, by the board of Dundee Beach P/L after 19 May 1999 (when Booth and Sanders were removed as directors) somewhat overstated. That does not detract from my overall impression that he was a generally reliable witness, but I have treated his evidence with a little caution.
82 Kendray's evidence was given in a straightforward manner. He is disinterested in the outcome of the proceeding. His evidence was not challenged by the respondents. I accept it.
83 Garraway's evidence is more difficult to assess. He is clearly an experienced and successful businessman, as well as an accountant. Clearly, too, he was the driving force, or one of the driving forces, in the structure of the transfer of Kendray's interests in Dundee Beach P/L to Hassall's interests, and of course of Kendray's interests in H & K Earthmoving. He was also clearly the driving force in the operations of Dundee Beach P/L after 4 May 1999. I was not impressed by certain aspects of his evidence. I thought he was sometimes less than frank in giving his evidence and sometimes responsive but in a semantic way. In particular, I formed the view that he was not reliably telling the Court about the reasons for the terms of his communications with Territory Realty or with Booth and Sanders in April and May 1999 and I consider that he deliberately concealed the fact that Bishop Estate and Excess were taking an equitable interest in shares in Dundee Beach P/L. Unfortunately, that conclusion coloured my preparedness to accept other parts of his evidence without some caution. It may be that his evidence was given that way because he had a strong belief in the correctness of his actions and in his ability to run Dundee Beach P/L better than it had been run in the past. It may be that his strong belief in the ability of himself and Walker as prominent businessmen in Darwin has led him to lose sight of perhaps more venial motives initially in becoming involved as an investor in Dundee Beach P/L. I do not need to speculate about those matters. It is sufficient to say that in certain respects I have approached his evidence with caution. I will, of course, refer to those respects when recording my findings on particular matters.
84
I accept Booth's evidence, in preference to that of Garraway, that Garraway at the meeting on 12 April 1999 did not disclose that more was contemplated than a transfer from Kendray to Hassall, through H & K Earthmoving. I accept that Garraway did not disclose to Booth the handshake agreement involving Excess and Bishop Estate, or that Excess and Bishop Estate were to be the real purchasers of nine shares in Territory Realty. I further find that at that time Garraway was aware, as he had acknowledged in his cross-examination, of the pre-emptive rights restriction. Territory Realty had earlier indicated that it would object to a transfer to a non-member which did not take account of its pre-emptive rights. That is exactly what Garraway together with Hassall intended to achieve, namely to avoid Territory Realty having the opportunity to exercise those rights. At best, Garraway's communications to Booth at the time could be described as dissembling, and at worst as dishonest.
85 It is apparent that the precise roles of Excess and Bishop Estate in becoming "members" of Dundee Beach P/L (at least as beneficial owners of shares) was not made apparent, and deliberately not made apparent, until the last possible moment. Obviously at the trial, that material would have come out. The true facts were not disclosed until Garraway's affidavit of his proposed evidence was filed and served in late January 2008. There had been earlier correspondence from solicitors for Territory Realty, including letters of 10 and 19 April 2007 requesting precisely that information, but it was not adequately responded to. It will be necessary to refer to that correspondence later in these reasons for a related purpose.
86 I also accept the unchallenged evidence of a telephone conversation from Garraway to Winter in which Garraway advised Winter (on behalf of Booth for Territory Realty) that the shares were to be transferred not to Hassall or Ms Hassall, but to H & K Earthmoving, so that the pre-emptive problem did not arise. That is recorded in the contemporary file note of Winter. Winter's evidence was not challenged. Nevertheless, despite counsel for the respondents having acknowledged those matters, in his evidence Garraway challenged the accuracy of the critical statement attributed to him that the pre-emptive problem did not arise. That is directly inconsistent with a file note Garraway made on about that time in which he recorded that he had "advised David Winter 15 April 1999 no requirement pre-emptive rights". In fact, as I find and as Garraway ultimately had to acknowledge, in the face of that material, he had deliberately and carefully chosen his language in what he described as circumspect approach.
87 Garraway maintained that position at the meeting of 19 April 1999, namely that Kendray's shares would be transferred to H & K Earthmoving. Again, Garraway carefully chose his language so as not to disclose the real identity of the purchaser of at least nine shares in Dundee Beach P/L.
88 In my view, Garraway on behalf of those whom he was representing, including Excess and Bishop Estate and Hassall, deliberately sought to disguise the involvement of Excess and Bishop Estate as the real buyers of shares in Dundee Beach P/L. That was maintained on an agenda which Garraway prepared for a proposed directors' meeting on 4 May 1999, sent to Booth and Sanders, confirming the previous position as explained, namely that Kendray had sold his interests in H & K Earthmoving and Dundee Beach P/L without disclosing to whom they had been sold.
89 I also find that Garraway and Philip structured the transaction at least in part to overcome the pre-emptive rights issue.
90 A directors' meeting of Dundee Beach P/L then took place on 4 May 1999. Booth was not present, then being overseas. He was represented by a proxy, Fuller. Sanders was also present. Garraway, Philip and Hassall were present and the company secretary, Paul Proctor.
91 There is some dispute about what transpired at that meeting. One set of minutes was prepared by Philip, and another by Proctor.
92 I accept Sanders' evidence of the meeting. There was a mass of paper at the meeting. It was not carefully considered by him or Fuller (on behalf of Booth) because they understood beforehand that the shares were being acquired by Hassall for H & K Earthmoving and that no pre-emptive rights issue arose. Early in the meeting, Philip made a presentation as to the nature of the transaction. It was detailed and complex. In essence, it involved the resignation of Kendray as a director, and the sale of his interests in Dundee Beach P/L to Hassall or his interests. He specifically said, I find, that there were no pre-emptive rights issues. I also find that he did not expressly refer to Bishop Estate or Excess, or to any proposed declarations of trust in relation to any shares to be transferred to H & K Earthmoving.
93 Proctor's proposed minutes were sent to Garraway who read them at the time. He did not take any point about the accuracy of their recording that Philip said that there were no pre-emptive rights issues. Proctor's minutes were not adopted by the directors. They adopted a more formal and structured set of minutes, apparently prepared by Philip.
94 Share transfers were tabled, but contrary to the approved minute which says that they were "carefully considered" by the directors, I find that that did not occur. The share transfers involved Kendray separately transferring his interest in two lots of eight ordinary shares in the company held jointly with Hassall to H & K Earthmoving. Those transfers, as Philip, Garraway and Hassall intended, did not disclose the trusts upon which H & K Earthmoving was to hold them. The third share transfer involved Hassall transferring his interest in two ordinary shares to H & K Earthmoving "as trustees for Bishop Estate Pty Ltd". I find that that document was not drawn to the attention of those present at the meeting. I find that the document was presented at the meeting but, as the approved minute records, as
A transfer by Peter Hassall of his interest in two shares in the company currently held by him with Robert Kendray to H & K.
That transfer in fact records that the transfer is in respect of the payment made by "H & K Earthmoving as trustee for Bishop Estate and Excess".
95 As I have said, I accept the evidence of Sanders and Fuller, that the share transfers were presented or "tabled" but those present were told by Philip that the transfers did not involve any pre-emptive rights issues. Garraway remained silent. He did so deliberately.
96 I should at this point address some particular evidence.
97 On 5 May 1999, as the evidence shows, "Independent Management Services" secured a copy of the ASIC company extract relating to both Bishop Estate and Excess. As noted above, that would have disclosed that Garraway and Woolley were the directors and shareholders of Bishop Estate and that, at the time, Walker was a director of and the principal shareholder of Excess. I find that those company searches were initiated by Proctor. Why he did so is unclear. I accept the evidence of Booth and Sanders that up to that time, and indeed for some time thereafter, they had not heard of Excess and Bishop Estate. Whether Proctor was prompted by looking at the documents which had been "tabled" at the meeting after the meeting, and saw the reference to Excess and Bishop Estate in the third transfer referred to above, is unclear. It may have been prompted by the transfer of the Hassall share (or two half shares) which, as I have noted, set out that that transfer was to H & K Earthmoving as trustee for Bishop Estate and Excess. In any event, I do not ascribe his then awareness of some involvement of Bishop Estate and Excess to that of Territory Realty in the circumstances. It is a question of fact whether an individual who receives, or becomes aware of, certain information received, or has, that information as agent for another. I accept Booth's evidence, and that of Sanders, who were the two driving minds of Territory Realty that they did not receive that information at the time. I do not consider that Proctor received it, in the sense of becoming aware of it, at the meeting on 4 May 1999. He did not raise it at the meeting. Booth's agent, that is Fuller who attended the meeting as his proxy, did not receive it. If, as seems likely, Proctor later noticed the names of Bishop Estate and Excess when going through the papers tabled at the meeting in the circumstances I have found, in my judgment his then awareness of those names was not knowledge of Territory Realty. Fuller was the proxy for Booth at the meeting and Sanders was present as the other moving mind behind Territory Realty. They were the two nominees of Territory Realty on the board of Dundee Beach P/L. At that meeting, I find that Booth and Sanders were the agents of Territory Realty for the purpose of receiving information: cf Lennard's Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705. Proctor was present merely as its secretary. His later awareness of that information was not received as the agent for Territory Realty, and those who were its agents did not have passed on to them by Proctor that information: see A/S Rendal v Arcos Ltd [1937] 3 All ER 577 at 590. In any event, it was disclosed in respect of only one of 48 shares in Dundee Beach P/L. I would not infer that the transfer of only one share on those terms would have attracted real concerns on the part of Territory Realty, as it would have if reported to a directors' meeting before the transfer. I do not, therefore, need to consider whether it is appropriate to have received the evidence about the company searches having regard to the circumstances in which it was acquired.
98 There is a further grouping of evidence which should be noted. On 15 September 1999, Proctor, the company secretary of Dundee Beach P/L, copied a facsimile to Booth in which he referred to "the new shareholders" of Dundee Beach P/L having made "us" (presumably Territory Realty) a nominal offer for their shareholding. Booth, a few days later by facsimile, sent an email to Deloittes in which he said the following:
As you would be aware, the new shareholders of the above company (Dundee Beach P/L) have terminated by directorship.
and therefore notified Deloittes of a change of address. Subsequently, Territory Realty on 14 October 1999 wrote to Garraway following up on the letter of 10 May 1999 referred to above. Territory Realty said that it would consider selling its shares in Dundee Beach P/L based on the balance sheet of that company, and taking into account the land valuation conducted by a Mr Mooney. It again nominated a figure of $1.5m for its shares, including a preparedness to repay the existing shareholders' loan account (netted at about $123,000) and releasing Dundee Beach P/L or the purchasers (whoever they may be) from various claims including the claim that:
Territory Realty Pty Ltd would release any claim it may have in respect of the registration of the transfer of shares disposed of, inter alia, by Mr Kendray.
99 I note further that by letter of 12 October 2001, Dundee Beach P/L wrote to a solicitor then acting for Territory Realty, which said the shareholding of Dundee Beach P/L included H & K Earthmoving holding nine ordinary shares ("Held Non-Beneficially").
100 The references in that material might be interpreted as indicating that Territory Realty was aware of the interest of Bishop Estate and Excess in Dundee Beach P/L at the time of those various communications. I have carefully considered whether that is so. However, I accept the evidence of Sanders and Booth that they were not aware of that interest until some time towards the latter part of 2003, or perhaps a little later. Booth in his evidence explained that the reference to the transfer of shares disposed of by Kendray involved a suspicion of possible impropriety because Kendray's transfers somehow involved Hassall's interests when Hassall's interests (beyond Hassall himself) were not shareholders. I accept that the references to the new shareholders was an imprecise expression to refer to the fact that Hassall constrained by Kendray's interest from exercising the majority shareholder's influence. He was seen to be doing so by his appointment of Garraway and others to the board and his removal of Booth and Sanders as directors.
101 I find, however, that at least by 29 May 2003, Territory Realty through Booth and Sanders knew of some interest on the part of Bishop Estate and Excess in Dundee Beach P/L. Booth said he had that awareness at that time. It is unclear whether he had that awareness much earlier. The position was made quite explicit shortly afterwards.
102 The minutes of meeting of shareholders of Dundee Beach P/L on 29 May 2003 record those present as Garraway on behalf of "Bishop Pty Ltd / H & K Earthmoving Pty Ltd" and Walker on behalf of "Excess Pty Ltd / H & K Earthmoving Ltd" and Woolley on behalf of "Bishop Pty Ltd / H & K Earthmoving Pty Ltd", as well as Booth, Sanders and Hassall. However, Booth's notes of that meeting do not record the entities on whose behalf persons were present, but simply the names of those present.
103 On 12 February 2004, Garraway wrote to Territory Realty confirming a discussion of a few days earlier, and confirming in particular that the Hassall group had transferred 16 shares in Dundee Beach P/L to Excess and Bishop Estate, so that the share register of Dundee Beach P/L showed as follows:
Shareholder No of Shares % of Shareholding
of Group
H. & T. Hassall 5)
H & K Earthmoving P/L 2) 14.6%