TINYOW v LEE and Another

Court of Appeal (NSW)|2006-03-31|Before: Handley JA, Santow JA, Ipp JA

CITATION: TINYOW v LEE and Another [2006] NSWCA 80

JUDGMENT OF: Handley JA at 1; Santow JA at 2; Ipp JA at 63

DECISION: (1) Appeal allowed. ; (2) The orders of the trial judge are set aside. ; (3) There will be a verdict for the appellant and judgment in the sum of $55,000 against the first respondent and in the sum of $65,000 against the second respondent, together with interest pursuant to s83A of the District Court Act 1973 from 9 August 2004. ; (4) The respondents are to pay the appellant's costs of the appeal and of the proceedings in the District Court. ; (5) The respondents are each to have a certificate under the Suitors' Fund Act 1951.

CATCHWORDS: CONTRACT - Breach of contract - In an arrangement to prop up a company in serious financial difficulties, oral promises were made by two minority shareholders (respondents) to pay $70,000 each to a third shareholder (appellant) who in return would acquire the respondents' shares without payment, accept their resignation as directors (which he did) and 'give releases' to each respondent. Whether agreement was to pay the contribution to the company and not the appellant such that no damage had been established - Whether consideration given by appellant who had discharged company's debts thereby providing substantial equivalent to a release from guarantees of those debts to bank though only bank could give actual release from guarantee - difference between consideration bargained for and consideration by way of practical benefit or accepting detriment.

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 CASES CITED: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

Walter TINYOW (Appellant) PARTIES: Thomas Ping Kwan LEE (First Respondent) Willie Man Tak WONG (Second Respondent)

COUNSEL: K E LEOTTA (Appellant) A J O'BRIEN (Respondents)

SOLICITORS: Raymond Lee & Co (Appellant) Pigott Stinson Ratner Thom (Respondents)

LOWER COURT FILE NUMBER(S): DC9050/01; DC9051/01

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41126/04 DC 9051/01 DC 9050/01

HANDLEY JA SANTOW JA IPP JA

13 APRIL 2006 Walter TINYOW v Thomas Ping Kwan LEE and Another Judgment 1 HANDLEY JA: I agree with Santow JA. 2 SANTOW JA: INTRODUCTION As part of an arrangement to prop up a company in serious financial difficulties, two of its minority shareholders ("the respondents"), who wished to exit and escape liability under their respective guarantees to the company's bank, made oral promises to pay $70,000 each. They did so at the behest of a third shareholder ("the appellant"), it being a matter of dispute whether payment was to be made to the appellant (as the appellant contends) or direct to the company. 3 The appellant in return was to acquire the respondents' shares without payment, and accept their resignation as directors, which he did. He was also to "give releases" to each of the respondents. Whilst the respondents never received a formal release from the bank the appellant did give consent to that release. Moreover, the trial judge, Bishop DCJ, found that there was evidence that the appellant personally paid out the debts and the bank. 4 The trial judge concluded that these promises were unenforceable because they were made without consideration. The primary question on this appeal is whether consideration was given, in the events that happened. 5 The respondents by Notice of Contention put two further bases for denying recovery to the appellant. First, they contend that the respondents' promises, properly understood, should be taken to have been made not to the appellant but to the company. Consequently, they contend that their failure to fulfil such a promise to the company has not been shown to give rise to any recoverable damage to the appellant. In the alternative, the respondents contend that the contract was void for uncertainty. 6 The appellant denies that the contract was void for uncertainty and contends that the promises were to pay him, and that he is entitled to $70,000 from each respondent, with deductions for payments made by the respondents to a third party, being the majority shareholder. The respondents fasten on that reduction as confirming that the promises were not to pay the appellant.

The primary judgment 7 Most of the salient facts as they emerge from the findings of the trial judge are not now in dispute; where they are I have so indicated. 8 The appellant's claims against the now respondents (Messrs Lee and Wong) were heard together in the District Court because they shared the same factual background, and essentially the same claims were made against each. The claims were not well pleaded and damages were sought, not in terms, but for recovery of a debt. However, the trial judge dealt with the matter on the basis that the measure of any recoverable damage was the amount of the debt. For reasons explained later, the question of damage arises as an issue only if the promise were to pay the company rather than the appellant. 9 At all relevant times, each of the appellant, Walter Tinyow, the first respondent, Thomas Lee, and the second respondent, Willie Wong, was a director and shareholder of W & W Tinyow Pty Ltd ("the company"). 10 The first respondent joined the company in 1997. The second respondent joined the company in late 1998. 11 At all relevant times, another company, Faji (Australia) Trading Pty Ltd ("Faji") was the majority shareholder in the company in the amount of 75% of its shares. One of its directors was a Mr Yu. 12 The company was involved in importing and exporting food products. 13 The first and/or second respondents were responsible for keeping the cash and the cashbooks for the company. (The responsibilities of each were disputed.) 14 On or about 26 July 1999, in order to raise capital for the company, the appellant and the two respondents went to Westpac at Haymarket and organised bank accommodation for $100,000, using as security the company warehouse owned by the appellant. Each of the appellant and the two respondents was a guarantor of the company overdraft. 15 The trial judge preferred the appellant's evidence that it was at this time that it was first suggested that the three parties would share any losses equally (Red, 44T-45D). 16 By the middle of 2000 the company was not doing well and there was considerable internal conflict, in particular between the appellant and the first respondent. The appellant's evidence was that he was concerned about the company cash flow and the state of the company accounts. 17 A stocktake undertaken on 29-30 July 2000 revealed a cash deficiency of $210,000 in the company. The trial judge preferred the appellant's evidence that the concept of equally sharing any losses was again raised at this time (Red, 44T-45D). 18 On or about 4 August 2000, a meeting took place at the Golden Globe restaurant. Present were the appellant, the respondents, Mr Lum (the restaurant manager), Mr Dong (the restaurant bookkeeper), Mr Yu (a director of Faji, the majority shareholder) and Mr Fan (whose identity appears to be a director of Faji though that is not entirely certain). 19 What transpired at the 4 August 2000 meeting was disputed at trial. However, the trial judge found that the respondents did not decide on the final terms that they would accept until the second restaurant meeting on 11 August 2000 (Red, 45U-X: see below). The trial judge was also satisfied that it was not until the beginning of August that the appellant decided to stay on in the company and force the two respondents out (Red, 45S-U). 20 The trial judge did not accept the evidence of the first and second respondents that on the afternoon of 4 August 2000, a meeting took place at Westpac, attended by the appellants, respondent and Mr Dong, at which a female employee of Westpac said that she would prepare documentation for the release of the guarantees (Red, 45X-46D). 21 On or about 11 August 2000, there was a second meeting at the restaurant with the same people present, that is, including Mr Yu, a director of the 75% majority shareholder Faji. There was some evidence suggesting that the parties shook hands after this meeting. The trial judge found that it was at this meeting that the respondents decided on the final terms that they would accept (Red, 45U-X). He was satisfied that the respondents orally agreed to contribute $70,000 each to the company losses (Red, 46V-W). 22 There was evidence that, at or after the 11 August meeting and in the following days, various documents (such as resignations and share transfers) were partially or completely signed and/or executed. However, the evidence was unclear and the trial judge did not make any findings as to what did occur. In any case, the respondents did resign and transfer the shares. The bank release forms were returned to the appellant because they had not been adequately executed. They were consents by the appellant to release by the bank of the respondents from their respective guarantees. Self-evidently, only the bank could grant an effective release. 23 The first respondent paid $15,000 to Mr Yu on or about 15 August 2000. The second respondent paid $3000 to Mr Yu on 15 August 2000 and $2000 on 22 March 2001. 24 The trial judge found, albeit with some imprecision ("there was some evidence that") that the appellant personally discharged the bank guarantee in the sum of $100,000 and paid liabilities of the company in the amount of $150,000 (Red, 46F-H). There was no suggestion that any other finding should have been made. 25 The appellant sued the first respondent for $55,000 and the second respondent for $65,000. 26 The trial judge did not make any findings unfavourable to the appellant and accepted his witnesses as straightforward and credible. He commented that the first respondent had but an average command of English and was "very careful in his answers" (Red, 42G-I, 45Q-S). The trial judge also noted that the second respondent was quite vague and was at a loss when he was cross-examined about a number of entries in the cashbook (Red, 43T-V). The trial judge also formed the opinion that he was very much under the influence of the first respondent (Red, 45L-P).

Findings of Fact 27 The trial judge commented that the information before the court was incomplete. For example, missing were: (a) The company accounts for the financial year ending 30 June 2000, and (b) Evidence from representatives of Faji, which was both a substantial creditor and 75% shareholder (Red, 44C-J). 28 Two things were clear from the evidence: (a) The cash deficiency of $210,000 was known to the appellant and the respondents prior to the restaurant meetings, and (b) The relationship between the appellant and the respondents was becoming strained prior to those meetings and the parties accepted that someone would have to go (Red, 44P-T). 29 The trial judge preferred the evidence of the appellant as to when the concept of equal sharing of losses (in thirds, between the appellant and two respondents) was raised. He said it emerged initially at the time of the bank guarantee meeting at Westpac in 1999 and then arose again after the stocktake revealed a cash deficiency shortly before 4 August 2000. The judge preferred the appellant's evidence because: (a) the method of handling cash and the apparent deficiencies in keeping the cash book (which was in evidence) confirmed the unease that the appellant expressed in his evidence about the bookkeeping standards in the company, (b) the appellant's concern was further confirmed by the results of the stocktake, (c) the judge found the appellant to be a more reliable witness than the respondents (Red, 45D-S). 30 The trial judge was satisfied that it was not until the beginning of August that the appellant decided to stay on in the company and force the two respondents out (Red, 45S-U). 31 Despite the date discrepancies in some of the documentation, the trial judge did not consider that the respondents decided on the final terms that they would accept until the 11 August 2000 meeting at the restaurant (Red, 45U-X). 32 The trial judge was not satisfied that the parties visited Westpac on the afternoon of 4 August 2000. The appellant and Mr Dong denied it and there was no evidence from Westpac to confirm it (Red, 45X-D). 33 Importantly, the appellant paid out the debts and the bank (Red, 46F-H). 34 The trial judge held that the appellant's case depended on a contract that, in consideration of each respondent paying $70,000, the appellant would accept the respondents' resignations as directors, take the shares and give "releases" to each of the respondents (Red, 46H-K). 35 However, the trial judge found that no consideration moved from the appellant to the respondents: (a) The respondents were able to resign as directors of the company at any time, (b) On the limited evidence, the company was possibly insolvent, and with a deficiency of $210,000 it was difficult to visualise a significant value on the shares to be transferred (Red, 46M-R). 36 The trial judge was also troubled by whether the appellant, as a minority shareholder of the company, had the company's authority (bearing in mind that there was no evidence from the 75% shareholder) to release the respondents from company liabilities and Westpac guarantees (Red, 46Q-U). 37 In sum, the trial judge was satisfied that the respondents orally agreed to contribute $70,000 each to the company losses. However, he was not satisfied that such agreement was enforceable at law due to lack of consideration (Red, 46V-X). 38 The trial judge entered a verdict for each respondent with costs (Red, 47D).

DISPOSITION Any recoverable damage resulting from non-fulfilment of the promises? 39 The respondents by Notice of Contention seek to have the decision below affirmed on the basis that the trial judge made a finding that the parties had agreed to pay the $70,000 each by way of contribution to the company and not the appellant. It is put in the alternative that the terms of the contract found by the trial judge were insufficiently certain so that any contract, even if there were consideration, would be void. 40 It is said to follow from the first proposition that the appellant failed to establish any damage for breach of contract or that the breach of contract was the cause of any damage suffered by the appellant. 41 Contrary to the respondents' contention, the trial judge made no finding that the promises found to have been made required payment be made to the company. At Red, 46H he records correctly that "the case of the plaintiff depends on a contract that in consideration of each defendant paying $70,000 the plaintiff would accept the resignations as directors and take the shares and give the releases to each of the defendants". Earlier, at Red, 33, he paraphrases the pleadings; "It was an express term and condition of that agreement that each defendant would pay the plaintiff the sum of $70,000." 42 Thus the premise of the Notice of Contention that the trial judge made a finding that the respondents had each agreed to pay the $70,000 by way of contribution to the company is not made out. It is necessary to consider such evidence as there was on that question. 43 Regrettably, a recording fault occurred at Black, 6L-N in cross-examination of Mr Tinyow, as there recorded. However, neither party made any submission to the effect that this missing evidence bore upon that question. 44 The evidence is not extensive and to an extent goes both ways. However, I consider that it ultimately favours the proposition that the promise was to pay Mr Tinyow, not the company. That moreover accords with commercial reality. Mr Tinyow, as sole remaining minority shareholder out of three minority shareholders had taken personal responsibility for paying out all the company's debts including bank debt. It is a fair inference that he must have done so placing reliance on the respondents' promises and not unreasonable that the respondents' contribution would be channelled through him (or paid to the company at his direction). 45 Turning to the evidence, there is first the evidence given by Mr Tinyow. In his affidavit tendered at trial, he recounts a conversation with the first respondent, Mr Lee, on or about July 2000 before any agreement was made. He quotes Mr Lee as saying, "as a result of the stocktake, I am able to say that we have lost about $210,000. We have to put in $70,000 each to break even." 46 Mr Tinyow then quotes himself as saying, "OK, that's alright. I still want out. You have to give me a few weeks to get the $70,000 together." (As we know he stayed in and the respondents exited.) Then at 4 August 2000, still before any concluded arrangement had been made according to the findings of the trial judge, the first restaurant meeting occurred. Mr Tinyow quotes Mr Lee as saying, "We have already been discussing it before you got here Wally. Each one of us has got to put in $70,000. It doesn't matter who takes over, everybody has got to put in $70,000." Mr Tinyow responds, "I will need some time, at least some weeks to raise my $70,000." 47 Thus far the conversation is ambivalent; the money from each respondent could be going direct to the company or to Mr Tinyow for the ultimate benefit of the company. But all this is still in a context where the respondents had not yet agreed to drop out. 48 Then there is the further conversation on 8 August 2000 involving Mr Tinyow and Mr Lee which is the critical one, as it was then that the promises were made. I quote again from the affidavit of Mr Tinyow: "29. On or about 8 August 2000 a container arrived from China. Eddy and I proceeded to unload it without any assistance from either Thomas or Willie. This was an unusual occurrence as normally upon arrival of a container, everybody would help out to unload a 40 foot long container. Whilst we were unloading the container, Thomas continued to talk to me but did no work. He said: 'This is a good business for you to take over. We could stay together and we could get around these problems by a number of alternatives.

Then start again.' I was astounded and amazed at these suggestions and said: 'No I don't agree to do that. If the worst comes to the worst, I will take over and I will try to pay everybody off .' Thomas made no reply but a few moments later, as I was unloading the container, Thomas came over again and said: 'If you want to take over, I can't afford to pay the $70,000.00 in one go. I will pay $20,000.00 and owe $50,000.00.' I said: 'Yes, fair enough.' Willie also joined in the conversation then and immediately said: 'I can't afford it. I will give you $10,000.00 and owe you $60,000.00 .' I said: 'OK, but I expect to be paid all of the monies within 12 months by both of you .' They said: Ok, yes." [emphasis added] 49 When Mr Wong, the second respondent, there says, "I will give you $10,000 and owe you $60,000", he clearly indicates that his promise was to pay the $70,000 not to the company but to Mr Tinyow. I consider that evidence highly significant. It would be unlikely Mr Lee would be paying his $70,000 differently by paying it to the company; the concluding quoted words bear out that both were paying Mr Tinyow. 50 Finally, in para 30 of Mr Tinyow's affidavit, Mr Lee is quoted as having a conversation some two days after the critical restaurant meeting of 11 August 2000 when any agreement had already been reached. He is quoted by Mr Tinyow as saying, "I've got legal advice. I don't have to pay you anything." [emphasis added]. This statement can be taken into account as an admission about the terms of an oral contract; it is not here being used impermissibly as a post-contract event in aid of the construction of a written contract. 51 The respondents, however, argue that because the appellant, in seeking to recover the $70,000, gives credit for $15,000 paid to Mr Yu of Faji by the first respondent and $5,000 paid to Mr Yu of Faji by the second respondent, this necessarily meant that the promise was understood by Mr Tinyow as capable of being satisfied by payment not to him but to a third party. However, I do not place any great significance on that. It is also quite possible these payments were made at Mr Tinyow's direction or with his acquiescence to Faji, which was probably one of the creditors.

Conclusion 52 It follows that the respondents have not established that the $70,000 was promised to be paid to the company rather than to the appellant and the other is more likely the case.

Void for uncertainty? 53 That conclusion effectively disposes of the argument that the contract was void for uncertainty. It was said by the respondents that there was no certainty as to the manner in which the parties were to contribute to the losses of the company, as evidenced by the various ways in which that might have been done. They included the course adopted of making payment in part to Mr Yu of Faji, the majority shareholder. 54 But, as has been so often repeated, "In the search for [contractual] intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements"; Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 per Barwick CJ at 436-7. 55 The meaning of each promise to pay the appellant was clear enough in its commercial context.

Consideration? 56 I have earlier referred to the trial judge's finding that the appellant personally discharged the bank guarantee in the sum of $100,000 and paid liabilities of the company in the sum of $150,000. There is the evidence of Mr Tinyow to that effect (Black, 6G-L) where he refers to contributing to the cash reserves of the company at "over 250,000" and including paying out the Westpac overdraft facilities where he corrects the figure to "320,000". Though it appears the question concerning whether he discharged the Westpac overdraft facility was objected to, it was allowed. The trial judge must be taken to have accepted that evidence (Judgment Red, 46F-H). 57 The effect of this evidence makes it highly probable that Mr Tinyow would not have taken these steps at his personal cost had he not been able to rely on a binding promise from the two respondents to pay $70,000 each to him. 58 Moreover, the promise which the trial judge found had been made was that, in consideration of the $70,000, the appellant would not only accept the resignations as directors of the two respondents and take their shares but, relevantly, also give "releases" to each of the respondents (Red, 46H-K). 59 Here, the substantive effect of paying off the current indebtedness including that guarantee to Westpac, was to give an effective release to each of the respondents. There was, as a result of Mr Tinyow's payments, no money then owing to which their personal guarantees would be subject. While there is no evidence as to whether the company continued to trade thereafter, there is likewise no evidence that it did. 60 It is true that the appellant could not himself give a release from Westpac of the guarantees of the respondents. But he discharged the indebtedness guaranteed. 61 I therefore conclude that the consideration given by Mr Tinyow sufficiently accorded with that bargained for. I am satisfied that the respondents were given the substantive effect of a release and consider that suffices for consideration (I agree with the trial judge that no consideration was afforded by accepting the respondents' respective resignations, as directors, or acquiring their valueless shares). But even were it otherwise, there was sufficient consideration in the practical benefit enjoyed by the respondents from the appellant's actions in re-paying the company debt thus relieving them, or in the detriment suffered by the appellant in so doing. I consider that consideration in that broader sense does suffice; see, for example, Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 and Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 discussed in "Carter on Contract", looseleaf edition, at [06-410].

OVERALL CONCLUSION AND ORDERS 62 I consider that the appeal should succeed and the respondents should pay the appellant's costs. I propose orders as follows: (1) Appeal allowed. (2) The orders of the trial judge are set aside. (3) There will be a verdict for the appellant and judgment in the sum of $55,000 against the first respondent and in the sum of $65,000 against the second respondent, together with interest pursuant to s83A of the District Court Act 1973 from 9 August 2004. (4) The respondents are to pay the appellant's costs of the appeal and of the proceedings in the District Court. (5) The respondents are each to have a certificate under the Suitors' Fund Act 1951. 63 IPP JA: I agree with Santow JA. **********

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