Tolcher v Loiterton and Others

Tolcher v Loiterton and Others - [2002] NSWSC 373 - NSWSC 2002 case summary — Zoe

[5]

5063/00 RAYMOND GEORGE TOLCHER v JOHN BARRIE LOITERTON & OTHERS JUDGMENT 1 The defendants as the directors of Leisuremark Australia Pty Ltd ("Company") resolved to appoint the plaintiff as administrator on 25 August 1998 pursuant to the Corporations Law, s 436A. On 21 September 1998 the second meeting of the creditors of the company was held at which the creditors resolved to accept a proposal for a Deed of Company Arrangement. In accordance with s 444B, the deed was executed on 9 October 1998 as was an associated Administration Deed. The plaintiff claims that the Deed of Company Arrangement is still on foot and that the defendants are liable to pay to him $450,000.00 pursuant to its terms and those of the Administration Deed. The defendants claim that by reason of representations made by and on behalf of the plaintiff, he is estopped from claiming that the defendants are liable to pay $450,000.00. In the absence of prejudice and in order to enable the real dispute between the parties to be determined, I gave leave at a late stage of the proceedings to the defendants to amend their cross-claim to allege that the Deed of Company Arrangement terminated on 31 March 1999 and is no longer enforceable. 2 Clause 2.1 of the Deed of Company Arrangement provided that it was conditional upon the secured creditor agreeing to discharge or assign its security upon payment of $600,000.00 and upon the due execution of the Administration Deed within one month. It is common ground that clause 2.1 was satisfied. Clause 4 of the Deed of Company Arrangement was as follows: "The Administrator shall within 14 days from the date of this Deed of Company Arrangement enter into an Administration Deed with the Company, the Contributors and the Deferred Creditors which shall provide for: (a) the Deferred Creditors to be barred until the termination of this Deed of Company Arrangement from making any claims against the Company; and (b) the Contributors to pay or cause to be paid to the Administrator the total sum $450,000.00 by instalments in the amounts and on or before the respective dates specified in Schedule B ."

[12]

The defendants argue that in terms of s 445C(c), the Deed of Company Arrangement specified in clause 9.1(a) a circumstance in which it is to terminate and, in consequence, upon the failure to pay the first instalment of $100,000.00 on 31 March 1999 the statutory provision operated to terminate the Deed of Company Arrangement. The defendants rely upon Re Van Fox Pty Ltd (1994) 13 ACSR 825. In that case a deed of company arrangement provided for the termination of the deed if there was non-compliance with any of its conditions. One condition was the payment by a named director of moneys to a fund to enable the company to pay off the Australian Taxation Office and to pay a dividend to non-priority creditors. Thomas J held that when the obligation to pay had crystallised and no payment was made, the deed of company arrangement terminated in terms of s 445C(c). In the instant circumstances, however, the Deed of Company Arrangement does not provide for immediate termination upon the occurrence as what is described as a termination event. What is required upon the occurrence of a termination event is the convening of a meeting of creditors in accordance with clause 9.2 and the consideration by that meeting of the alternatives set forth in clause 9.3. It is only if a resolution for the termination of the Deed of Company Arrangement under ss 445C(b) or 445E is passed by the meeting that the Deed of Company Arrangement is terminated. The other possibilities, one of which was activated in the instant circumstances, continues the Deed of Company Arrangement. Since the creditors on 30 April 1999 resolved to enforce the terms of the Administration Deed there was no termination of the Deed of Company Arrangement in terms of s 445C(c) and the deed continues in existence. In this respect the plaintiff is entitled to the declarations sought that the Deed of Company Arrangement is not terminated and that the meeting of creditors held on 30 April 1999 was validly constituted and the business conducted thereat was validly conducted, those matters not having been put in issue in the proceedings before me. It follows that the amendment to the cross-claim alleging that the Deed of Company Arrangement terminated on 31 March 1999 and is no longer enforceable, must fail. 6 The cross-claim is based upon two separate representation events. The first is said to have occurred when the plaintiff and his partner were negotiating with the defendants to formulate the Deed of Company Arrangement to be put to the creditors at the second creditors' meeting. It is alleged that the plaintiff represented to the first defendant at the first meeting of creditors on 1 September 1998 that the defendants would have no personal liability to make payments for the benefit of creditors under any deed of company arrangement and that if no payments were made the likelihood was that the company would be put into liquidation. It is also alleged that Mark Andrew Franklin, a former partner of the plaintiff, made a like representation to the third defendant thereafter. The second representation event is alleged to have occurred during the second meeting of creditors on 21 September 1998. It is alleged that Mr Franklin represented to the third defendant that if the defendants failed to pay any part of the $450,000.00 they would have no personal liability, the Deed of Company Arrangement would cease and the likelihood was that the company would be put into liquidation. 7 All the deponents of affidavits read in the proceedings were cross-examined. The first defendant said there were no assets in the Company and he made an offer with no strings attached to pay $200,000.00 on the legal advice of Mr Biber at the first meeting of creditors. Mr Biber was the solicitor to a number of companies in which the first defendant was interested. His office was next to the first defendant's office and they met for about two hours early on each day. The first defendant asserted that he had a perfect recollection of the first creditor's meeting and the conversation he alleged he had with the plaintiff. The first defendant was shown an early version of the deed of company arrangement which had been sent on behalf of the plaintiff to Mr Biber. He said he did not agree with the document because clause 10(iv) provided that in the event that the company was unable to comply with the document the administrator could convene a meeting of creditors which could resolve to enforce the terms of the deed. In one of his affidavits the first defendant swore that on or about 14 September 1998 he saw a document containing provisions for a proposed deed of company arrangement which he did not recall whether he signed or not but he approved of its contents. Shown a copy of a proposed deed of company arrangement signed by the other defendants on 14 September 1998 and forwarded on that date by the third defendant to the plaintiff's office, the first defendant accepted that it was the document referred to in the affidavit. That document also contained clause 10(iv). The following exchange took place: "Q: And where you say in the next sentence of paragraph 9 of your affidavit, "but I approved of its contents"? A: Yes I now say that I did not sign it but I broadly approved of its contents. I still have reservations otherwise I would have signed it. Q: What you have said in your affidavit is not strictly correct? A: Not exactly correct. Q: A bit careless with the truth? A: Not true. Q: In what respect is it not true? A: At that time when I signed the affidavit I did not recall I had signed it. I now know I signed (sic) it. Q: The statement, "I approved of its contents", that's not true? A: I think if I had the option of changing it I would say I broadly approved of its contents in the - yes, that's if I did it today that's what I would say but I don't dispute what I put into the affidavit."

[14]

Contrary to his assertion of perfect recollection of events, I find that the first defendant's recollection is imperfect. The first defendant did not take any steps to inform the creditors of his reservations about the document which was the one placed before them at their second meeting. His reservations were reflected in the final documentation and he said, in consequence, they stood on their own feet to the creditors who viewed them. The first defendant said that he received on several occasions from Mr Biber advice that his concerns were addressed in the final documentation. The first defendant did not attend the second creditors' meeting. It was the third defendant who was attending to this matter. The first defendant did not tell the third defendant to communicate to the second meeting of creditors that he would be under no personal liability in the event that he could not pay. Clause 5 of the proposed deed of company arrangement put to the second meeting of creditors provided: "The Directors will pay to the Administrator $200,000 within sixty days of the Deed's signing to provide a Deed Fund". The first defendant agreed that there was nothing in the proposed deed put to the meeting which indicated the absence of personal liability in the event that the directors could not pay. That was a conclusion, he said, that he and the third defendant had reached following advice. 8 During the second creditors' meeting the fund to be provided by the directors was increased to $350,000 and subsequently to $450,000 payable by instalments and the provision precluding creditors from enforcing personal guarantees against any of the directors was deleted. On 8 October 1998 Mr Biber wrote to the plaintiff's firm suggesting amendments to the Deed of Company Arrangement and Deed of Administration which had been drafted by the then solicitors for the plaintiff following the second creditors' meeting. The letter did not contain any suggestion that the directors or the company would not be bound if they were unable to meet the instalment payment schedule. The first defendant said he was satisfied with the terms of the final Deed of Company Arrangement which he executed on 9 October 1998. It still contained the former clause 10(iv) as clause 9.3(d) but he said it was now in the context of clauses 9.1 and 9.2 and that context satisfied him, looking at the Administration Deed in parallel, because they were interdependent upon one another. 9 I formed an adverse opinion of the first defendant and concluded that he was not opportunist. He was prepared to allow a document to proceed to the second meeting of creditors which contained no inkling of an exclusion of personal liability in the event that the directors or the Company could not pay the instalment regime. He says he was advised by Mr Biber that his concerns were satisfied in the final documentation. That satisfaction rests upon the argument, which I have rejected, that the right of a meeting of creditors to enforce the terms of the Administration Deed in terms of clause 9.3(d) of the Deed of Company Arrangement was forestalled by a failure on the part of the defendants and the Company to pay the first instalment, thereby creating a termination event in terms of clause 9.1(a). 10 The first defendant agreed in cross-examination that it was not until after the commencement of the current proceedings that it was asserted that there was no personal liability on the part of the directors of the Company. He denied that it was a recent invention which had not been thought of until after the commencement of the proceedings. 11 In one of his affidavits the first defendant had sworn that during April 1999 the third defendant telephoned him and advised him that the administrator had called a creditors' meeting to consider what to do since the first instalment under the Administration Deed had not been paid. The third defendant reported to him that he had told the plaintiff that there was no alternative other than to put the Company into liquidation. The first defendant swore that he agreed with that view. In cross-examination he was asked whether it occurred to him that the creditors might resolve to take the step of enforcing the Administration Deed. He said his advice was to the contrary and then: "Q: Was your advice that they would not or could not? A: My advice was that it was simply that, I don't know the legal terms for it, but my advice from the solicitors was that in the event that where unable to make the first payment then the Deed would fail, the Deed would cease. I think the words, I can't remember whether it was ceased or terminated automatically, but they were the sort of words that we used. Q: And was that advice given in April 1999 or was that the earlier advice to which you refer? A: It was a consistent advice. Q: So apart from that advice you have no reason for saying that there was no personal obligation? A: Apart from that advice, again I say that when the documentation was executed, there was a genuine position that I intended and I assured each of the directors were going to pay the funds. Circumstances between 9 October and 31 March had changed dramatically, and as a consequence legal advice was provided to us that seeing we were unable to pay, that the document - the administration had ceased. I mean there was a lot more to it than that but that was the broad base of it."

[15]

In re-examination the first defendant said that the relationship with Mr Biber had existed for 13 to 15 years and had ceased about three to four months before the trial. The first defendant said that the advice as to the operation of clause 9 of the Deed of Company Arrangement was received from Mr Biber when he signed the document of 9 October 1998. The following exchange took place in re-examination. "Q: And did you have any reason to consider that that advice was contrary to what you'd understood from Mr Tolcher when you first met him? A: No, I had no - as far as I was concerned - when I discussed with Mr Tolcher earlier in the piece it was a different context because the documentation wasn't in front of me, but in discussions during the drafting and finality of these documents with Mr Biber, he was unequivocal about the position, notwithstanding it was our genuine intent to pay those moneys." 12 In one of his affidavits, the third defendant swore that between the first meeting of creditors and the second meeting of creditors, he had a telephone conversation with Mr Franklin in which the following exchange occurred: "Hall: "What does all this mean? Does this mean we are putting something firm up to the creditors or that the creditors are taking this as a comfort thing to withhold action to force the company into liquidation on the hope that they will receive some proceeds from these contributions?" Franklin: "It's that later situation that's the reality." Hall: "If it doesn't work do we go back to the position that we were in and the process continues?" Franklin: "Well that's close to it because any amount you put forward for this purpose you can't be forced to pay but the company will most certainly go into liquidation." Hall: "Look if we get that money then we will pay it but I'm still concerned about what happens if we can't pay?" Franklin: "Any amount you put forward for this purpose you can't be forced to pay. A deed will simply create a moratorium so that if you do fail to pay the most likely consequence, as I said, is that the company will go into liquidation."

[17]

It was put to him that Mr Biber's letter of 29 April 1999 challenging the validity of the meeting of creditors convened for 30 April 1999 did not raise the argument that there was no personal liability on the defendants. He answered: "There is an expression that I have heard around, that sort of goes: keep the musket dry. Don't fire all your shots at once. There was no need. We were talking about a meeting, not about other matters." 13 The third defendant said that he signed the draft deed of company arrangement to be put to the meeting of creditors notwithstanding that it did not cover all his points of concern: "Q: You took great care to ensure that it covered the points of concern to you? A: Well, I don't think it had yet - I think it, as it was written as the proposed deed, I don't think it covered everything. It was a go forward document in my book." 14 The third defendant and Mr Biber attended the second creditors' meeting and the third defendant took advice from Mr Biber throughout. He accepted that he did not advise the meeting and nor did anybody else that the directors would be under no personal liability if they did not pay. Mr Biber advised that there was no personal liability with respect to the final documentation which the third defendant thought was a good point because it verified the belief he had that the directors were not going to be attacked individually or personally for the funds if they were unable to meet the programme. If the third defendant genuinely believed that the Administrator's officers had represented that there would be no personal liability, one would have thought that he would not allow the draft deed of company arrangement, which did not contain such an exclusion of liability, to go forward to the meeting. That he did allow it to go forward suggests either that the alleged conversation did not take place, or that the third defendant was prepared to promote a subterfuge to the creditors. 15 The second representation alleged to have been made by Mr Franklin at the second meeting of creditors does not constitute a representation that no personal liability would arise if the directors were unable to pay. All that was alleged by the third defendant was a statement by Mr Franklin as follows: "Hall: "Well, that's good, but what happens if we fail to make a payment. You said to me that the directors can't be called upon personally to pay?" Franklin: "Yes. If you can't pay, then at that time the deed fails and the company will return to the directors, the likelihood is that it will be placed into liquidation."

[23]

When it was put to him that he said to the third defendant when asked what happened if there was a failure to make a payment, Mr Franklin denied that he said the directors could not be called upon personally to pay it. When it was suggested to him that he was asked what happened if the company could not pay and he said most likely the company would return to the directors and be put into liquidation, he said he could not remember that conversation but it was possible that he said it. Towards the end of his cross-examination it was put to him: "Q: You can't recall a lot about this, Mr Franklin, can you? A: I rely on my file notes and the letters in file that we have. Q: Yet you are adamant that you never had a conversation with Mr Hall that he'd never have to worry he wouldn't be personally liable? A: That's true." 19 In re-examination Mr Franklin said that he did not and would never agree to have a deed put up on the basis on its face it provided for a scheme fund but its real purpose was that it was unlikely that payment would actually be made and its purpose was to procure a delay. I found the evidence of Mr Franklin to be convincing. When he did not recall a conversation he said so and his observation in re-examination must be correct. An administrator could not put to a meeting a deed which on its face proposed the establishment of a fund for the payment of the costs of the administration and a return to creditors when it was unlikely that any payment would be made and the purpose was to procure delay. 20 I find that the representation alleged to have been made to the first defendant by the plaintiff was not made. In so doing I prefer the evidence of the plaintiff to that of the first defendant. I find that the first defendant, opportunistically and after the event, asserted the representation by the plaintiff to bolster up the argument that upon the failure to pay an instalment, all liability ceased in terms of clause 9 of the Deed of Company Arrangement. 21 I accept the evidence of Mr Franklin. I find that the third defendant, also, was an opportunist and, notwithstanding his denial of recent fabrication, I find that the alleged representation by Mr Franklin prior to the second creditors' meeting did not take place. I also find that no representation was made by Mr Franklin at the second meeting of creditors which might have induced the belief in the third defendant that there would be no personal liability of the directors if they were unable to meet the instalment programme agreed to at that meeting. 22 Evidence was also called from the second defendant and Darren Pearce and they were cross-examined. Their evidence does not, however, advance the question whether the representations alleged to have been made by the plaintiff and Mr Franklin, were in fact made. Mr Biber was not called as a witness. The cessation of the relationship between he and the defendants was only two to three months before the hearing. There was ample opportunity to put on an affidavit from him. The fact that it was not done when he could have shed light upon the alleged representations at the meeting of creditors leads me to infer that his evidence would not have assisted the defendants (Jones v Dunkel (1958-1959) 101 CLR 298). 23 In the seminal case of Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 at 404 Mason CJ and Wilson J observed: "One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has "played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it": per Dixon J in Grundt (1937) 59 CLR at 645; see also Thompson (1933) 49 CLR at 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption."

[24]

To similar effect are the six criteria developed by Brennan J at 428-429. (See also The Commonwealth v Verwayen (1990) 170 CLR 394 at 444-446 per Deane J). Since I have found that the alleged representations were not made, the defendants' counter-claim based on equitable estoppel must fail. 24 Even if I had found the representations to be proved, I would still have rejected the defendants' claim to estoppel. First, it is clear from the evidence that the defendants regarded the Deed of Company Arrangement and the Deed of Administration as finally executed as encompassing the effect of the representations. Their position was not one of acting in reliance upon alleged representations. It was one of reliance upon the advice of Mr Biber that the deeds effected that position. In the absence of reliance upon the representations, as distinct from their legal advice, equitable estoppel cannot arise. Secondly, if the representations were made, the defendants were prepared to allow a document which did not reflect and, indeed, suggested the opposite situation, to be placed before the meeting of creditors. In those circumstances not only is it not unconscionable conduct on the part of the plaintiff to ignore any assumption made by the defendants, but also equitable relief should be refused because the defendants come to this Court with unclean hands (Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641). 25 The Fair Trading Act 1987, s 42(1) provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 72(1) provides that if the court finds that a person has sustained loss or damage by the conduct of another in contravention of provisions including s 42, it may make such orders as it thinks appropriate against the person who engaged in the conduct if it considers that the order will compensate the first-mentioned person wholly or in part for the loss or damage. In the alternative, the defendants seek an order pursuant to this section refusing to enforce those provisions of the Administration Deed which would otherwise make the defendants liable to pay the plaintiff $450,000.00 or such other order as the Court thinks appropriate. My findings that the alleged representations as to lack of personal liability were not made means that there was no breach of s 42 (1) and no ground for the operation of s 72. 26 The third defendant appeared in person. In his submissions he referred to a statement in the cross-examination of the first defendant that $249,00.00 was paid to one of the creditors and that, in consequence, the defendants and the Company had paid portion of the $450,000.00. I reject this submission. The defendants did not put the non-payment of $450,000.00 or any part thereof in issue and until the matter was raised in cross-examination of the first defendant, it was common ground that no part of that sum had been paid. The manner in which the $249,000.00 was paid and its effect were not explored in the evidence before me and I am not prepared to make the finding sought in the submissions of the third defendant, simply on the basis of what was said in cross-examination by the first defendant. 27 I am prepared to declare that the Deed of Company Arrangement dated 9 October 1998 between the Company and the plaintiff has not terminated. I am prepared to declare that the meeting of creditors of the Company held on 30 April 1999 was validly constituted and the business conducted thereat was validly conducted. I am prepared to declare that pursuant to the Administration Deed dated 9 October 1998 between the plaintiff, the Company and others, the first, second and third defendants are liable to pay to the plaintiff the sum of $450,000.00. I am prepared to give judgment for the plaintiff in that amount together with interest. I will order that the cross-claim filed by the defendants be dismissed. I will order the defendants to pay the plaintiff's costs of the proceedings including the costs of the cross-claim. 28 I direct the parties to bring in short minutes of order to give effect to these reasons for judgment.

At a glance

Court

Decision date

Before

Source

Judgment (25 paragraphs)

Parties

Cases Cited (2)

Cited By (1)