United Rural Enterprises v Lopmand

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

4039/99 UNITED RURAL ENTERPRISES PTY LIMITED v LOPMAND PTY LIMITED & ANOR JUDGMENT HIS HONOUR: Nature of the Proceedings 1 United Rural Enterprises Pty Ltd ("URE") is a company controlled by Mr Gregory Lindsay-Owen. Lopmand Pty Limited ("Lopmand") is a company controlled by Mr Tracey Lake. In these proceedings, URE sues both Lopmand, and Mr Lake, seeking to recover an alleged debt, together with interest. Those defendants say that the arrangements between URE, Lopmand and Mr Lake are not such as result in Lopmand having a presently enforceable obligation to pay any money to URE. They say that Mr Lake never undertook to pay money to URE. They also say that URE claims interest at the wrong rate. Mr Lake's wife was once a defendant in these proceedings, but the claim against her has been discontinued. 2 Lopmand and Mr Lake bring a cross-claim against URE, Mr Lindsay-Owen, another of Mr Lindsay-Owen's companies, called Lindsay-Owen Holdings Pty Ltd, and Painten Holdings Pty Ltd ("Painten"). The cross-claimants assert that they have an interest in two of the three issued shares in Painten. They seek orders for the rectification of the share register of Painten, an order that they be permitted to inspect the books of Painten, and orders for the winding up of Painten, or alternatively that Mr Lindsay-Owen be required to purchase the interest of Lopmand in those shares. As a step towards obtaining that relief, the cross-claimants assert that there was an agreement (the "Letter Agreement") entered in about June 1996 which is relevant to the nature and quantum of that interest, and also seek the rectification of a settlement agreement, entered on 9 November 2000, relating to these present proceedings and other proceedings. Background to the Disputed Transactions 3 Painten is a company which came to be used, from 1993 on, as the corporate vehicle for a real estate development project. The project related to the purchase and strataing of seven industrial units in the western Sydney suburb of Marayong, and eventual sale of at least some of those units. Initially the venture was one between companies associated with three men, Mr Lake, Mr Lindsay-Owen, and Mr John Alexander. Mr Alexander held his interest through a company he controlled, Gilbert Frank Investments Pty Ltd ("Gilbert Frank"). Mr Lake, Mr Lindsay-Owen and Mr Alexander were also associated in two other business ventures, one relating to the development of the Milton Tennis Club in Brisbane, the other relating to a product for the surfacing of tennis courts called Ultraclay. 4 There have at all relevant times been three issued shares in Painten. According to the share certificates which were issued for those shares in July 1993, the shares are individually numbered. However, as the parties did not, in their later dealings with the shares refer to them by their identifying numbers, it is convenient to refer to those shares by reference to the names of their initial allottees. Thus, the share held by Lopmand is referred to as the "Lopmand Painten Share", and the share held by Gilbert Frank is referred to as the "Gilbert Painten Share". The third share was issued to the trustee of Mr Lindsay-Owen's family trust, and has at all times thereafter continued to be held by that trustee, so it does not need an individual name. 5 The purchase of the Marayong property was financed as follows. Gilbert Frank lent Painten an amount of $227,500 for payment of a deposit or other initial expenses of the project. The purchase price of the property, together with legal fees, stamp duty and finance and valuation fees, amounted to $4,870,000. Painten borrowed the entirety of that amount from Macquarie Bank. Macquarie Bank took security which included a personal guarantee from each of Mr Lake, Mr Alexander and Mr Lindsay-Owen. As well, Macquarie Bank was given a bank guarantee in the sum of $400,000 by National Australia Bank ("NAB"). National Australia Bank in its turn took guarantees for the payment of that $400,000 from Mr Alexander, Mr and Mrs Lake, Mr Lindsay-Owen, and Gilbert Frank. That guarantee of Mr and Mrs Lake to NAB was secured by a mortgage over their home. In some fashion, NAB also came to have a mortgage over Mr Alexander's home. 6 The Macquarie Bank loan was drawn down on 29 September 1993. From the money advanced by Macquarie Bank, Gilbert Frank was repaid the $227,500 it had advanced to Painten. 7 On 29 September 1993 Mr Lake signed a letter, on the letterhead of Lopmand Pty Ltd, addressed to Mr Alexander. It said: "Dear John RE: Loan of $250,000 to Lopmand Pty Limited I confirm receipt of the above loan and that it is to be repaid in 12 months time with interest paid six monthly in advance. Security for the loan will comprise a charge over our one-third interest in Painten Holdings Pty Limited (by way of a signed share transfer for $1.00 for our one-third shareholding) and signed Sales Agreements for two of the subdivided blocks of land at 80 Cabbage Tree Road, Bayview for $125,000 each. Thank you for your assistance." 8 Eighty Cabbage Tree Road Bayview was the address of the home of Mr and Mrs Lake. At the time, they were in the process of subdividing the land on which their home was built, with a view to selling off two vacant lots. That subdivision had not been registered by 29 September 1993. 9 On the strength of this letter, Gilbert Frank advanced an amount of $238,000 to Lopmand. It seems to have been the intention of Mr Alexander and Mr Lake that the reference to $250,000 in the letter dated 29 September 1993 included a certain amount of interest in advance. 10 In early 1994 Mr Alexander fell out with Mr Lake. Mr Alexander also came to have some concerns about whether the loan would be repaid. He decided to explore the possibility of severing his various business relationships with Mr Lake and Mr Lindsay-Owen. He went to see his solicitor, Mr Peter Ellis of P J Ellis & Co. Mr Ellis told him that the security he was holding for the loan was not worth the paper it was written on. On Mr Alexander's instructions, Mr Ellis drafted a loan agreement ("the Ellis Loan Agreement"), which Lopmand and Mr and Mrs Lake executed and returned to Gilbert Frank no later than, and probably on, 4 May 1994. 11 The Ellis Loan Agreement acknowledged that Gilbert Frank had lent Lopmand $238,000 on 22 September 1993, repayable on 29 September 1994. The Agreement contained terms providing for an interest rate of 8.5% per annum calculated on monthly rests, with interest payable six monthly in advance. The Agreement defined "Security Documents" as "The Agreements for Sale and this Agreement". The "Agreements for Sale" were agreements for the sale of the two lots in the subdivision, at a price of $125,000 each. There was provision for Gilbert Frank to take title under those contracts if ever there was default, resell the lots, and pay to Mr and Mrs Lake any net proceeds of sale which exceeded the amount which Lopmand owed. Thus the arrangement was, in effect, a mortgage over the two lots in the subdivision as security for Lopmand's obligation to repay principal and pay interest. 12 Around the time he consulted Mr Ellis, Mr Alexander realised that he did not have the share certificate for the Lopmand Painten Share nor any documentation (besides the letter dated 29 September 1993) to give effect to a charge over the Lopmand Painten Share. On 4 May 1994 Mr Alexander received from Mr Lake a share transfer document whereby Lopmand transferred to Gilbert Frank one share in Painten, together with a statement, executed under seal by Lopmand, that it had lost the Share Certificate relating to its share in Painten, and undertaking that if it should be found it would be immediately sent to the company for cancellation. The Share Certificate relating to the Lopmand Painten Share had been found by the time of the trial before me - the share certificates relating to all three issued shares in Painten were produced to the Court in April 2000 pursuant to a subpoena served on Allen Allen & Hemsley. There is no evidence to suggest that the company ever issued a replacement Share Certificate. 13 By 11 May 1994 Mr Alexander had instructed Mr Fitzpatrick of Norton Smith to act for him and Gilbert Frank. On 13 May 1994 a deed was entered into between Gilbert Frank (called the "Mortgagee"), Lopmand (called the "Company"), Mr and Mrs Lake (called "the Shareholders"), Sydney Land Corporation Limited (called "SLC"), Mr Alexander (called "Alexander"), and Mr Lindsay-Owen (called "GLO"). Sydney Land Corporation Limited is a company in which interests associated with Mr Lindsay-Owen held 45% of the shares, interests associated with Mr Lake held 45% of the shares, and a listed New Zealand corporation, with which Mr Lake had a connection, held the remaining 10%. The Deed provided: "A. The Mortgagee, the Company and the Shareholders entered into an Agreement on [space for date] (the "Loan Agreement") whereby the Mortgagee lent to the Shareholders the sum of $238,000.00 (the "Loan") and the Company provided security by way of execution of Security Documents as therein provided. The Loan has now been repaid. B. SLC and Alexander have interests in connection with a project known as "Ultraclay" for the surfacing of tennis courts (the "Ultraclay Project"). C. SLC and Alexander have also participated in the proposal for the development of the Milton Tennis Club in Queensland (the "Milton Project"). D. The Mortgagee and Alexander of the one part and the Company, the Shareholders and SLC of the other part have agreed to separate their commercial interests. IT IS AGREED as follows. 1. (a) The Mortgagee hereby acknowledges receiving, in full satisfaction and discharge of the Loan, $250,000.00 from Tracey John Lake and Alyson Rosemary Lake. (b) The Mortgagee and Alexander hereby acknowledge receiving $40,000 in full satisfaction and discharge of all other outstanding loan accounts of SLC, the Company and the Shareholders. 2. Simultaneously with the execution of this Agreement, the Mortgagee will hand over to Lopmand Pty Limited all contracts for sale, transfer of Lopmand's share and Lopmand's share script in Painten Holdings Pty Limited ("Painten") and all other security documentation of whatsoever nature, in respect of the Loan. 3. As a condition of this Agreement Lopmand Pty Limited, Tracey John Lake and GLO shall use all reasonable efforts to procure as soon as possible the discharge and release of John Alexander from the guarantee that he has granted to Macquarie Bank of all of the obligations of Painten in respect of the Marayong Project, other than the $400,000 National Australia Bank Guarantee which shall remain in place, and shall indemnify Alexander from any and all liability associated with his guarantee to Macquarie Bank. 4. In consideration of Alexander and interests associated with him (which Alexander hereby agrees to procure) transferring all his rights, total and interest in and to the Milton Project to SLC, SLC and Tracey John Lake hereby shall and shall procure interests associated with them, to transfer all their right, title and interest in and to the Ultraclay Project, including any intellectual property rights and rights in the name, to Alexander and Alexander hereby accepts such transfer. Alexander shall indemnify SLC, Tracey John Lake and GLO and be responsible for payment of all costs associated with the Ultraclay Project. 5. In consideration of SLC and Tracey John Lake and interests associated with them (which SLC and Tracey John Lake hereby agree to procure) transferring all its and their rights, title and interest in and to the Ultraclay Project to Alexander, Alexander and interests associated with him (which Alexander hereby agrees to procure) agree to transfer all their right title and interest in and to the Milton Tennis Club Project including all intellectual property rights, to SLC and SLC hereby accepts such transfer. Tracey John Lake and GLO will indemnify Alexander and be responsible for payment of all costs associated with the Milton Project, including but not limited to the architect's fees. 6. While it is acknowledged by the parties that each of the parties may undertake other business in the tennis industry for their own account, whether in tennis clubs or otherwise, each of the parties agree with the other that they will not do anything to prejudice the ongoing success of the Milton Project and the Ultraclay Project. 7. It is the intent of the parties that they will not continue to have any involvement in the management or benefit of the other's business activities other than in the case of Alexander, his continuing shareholding in Painten. 8. Each of the Mortgagee and Alexander of the one part and the Company, the Shareholders and SLC of the other part hereby releases the other from any claims and liabilities of any nature (including without limitation any costs whether or not the subject of a court order) connected with or incidental to the Loan Agreement, the Securities, the Milton Project and the Ultraclay Project, other than as may arise by reason of this Deed, and any other circumstances whether or not connected with the above or otherwise which could reasonably have been known to them as at the date of this Deed. 11. This Deed contains the entire agreement between the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and, to the full extent permissible by law, supersedes all earlier conduct made by or existing between the parties with respect to its subject matter." 14 On 13 May 1994 Mr Lindsay-Owen caused an amount of $290,000 to be withdrawn from a deposit which URE had with Rothschild Australia Limited. A cheque in that amount was drawn in favour of Gilbert Frank. That cheque was handed to Mr Alexander's solicitor, at a settlement which occurred on 13 May 1994. In return Mr Alexander's solicitor handed to someone who attended the settlement on behalf of Allen Allen & Hemsley the documents he had relating to security for the loan to Lopmand. The $290,000 which was paid consisted of $250,000 to pay out the loan which Gilbert Frank had made to Lopmand, and $40,000 as an agreed amount paid as part of a settlement of all business relations which Mr Alexander had with the other parties to the deed. At this time Mr John Allen, of Allen Allen & Hemsley, acted for both the various Lake interests, and the Lindsay-Owen interests. Terms on Which URE Paid Out the Loan From Gilbert Frank 15 The first contentious issue in this case concerns the terms on which URE came to pay out Lopmand's loan from Gilbert Frank. The contention of URE is that Lopmand's loan was repaid by URE on the basis that Lopmand, Mr Lake and Mrs Lake would each be liable to repay the amount which had been advanced, that the loan would be secured by the Lopmand Painten Share, that the loan would bear interest at 2% above the Westpac Indicator Rate from time to time, compounded monthly, and that the two blocks of land over which Gilbert Frank had held security would also be available as security. 16 The contention of Lopmand and Mr Lake is expressed in the Further Further Amended Notice of Grounds of Defence as follows: 2(f) [URE] and [Lopmand] through discussions between [Mr Lindsay-Owen] on behalf of [URE] and [Mr Lake] on behalf of [Lopmand] discussed what they were prepared to pay for the Ultraclay Project the Milton Project and the Gilbert Painten Share. It was ultimately agreed between [URE] and [Lopmand] that they would transfer their rights to the Ultraclay Project to Gilbert, pay $40,000 for the Milton Project and $250,000 for the Gilbert Painten Share which they would own jointly and that [Mr Lindsay-Owen] and [Mr Lake] would work together to get Mr John Alexander the owner of Gilbert released from guarantees he had given to various lenders for the Painten Project. … (i) The remaining $250,000 of the $290,000 … was paid to Gilbert and Gilbert accepted the sum in settlement of a mortgage owed to Gilbert on [Mr Lake] and his wife's matrimonial home at Bayview. … (k) [URE] and [Lopmand] did not receive the Gilbert Painten Share which they anticipated receiving jointly at this time. … (m) [URE] and [Lopmand] through [Mr Lake] continued to negotiate with Gilbert and ultimately they were successful in releasing Mr John Alexander from his guarantees and they received the Gilbert Painten Share with no further payment. This share was to be owned jointly between [URE] and [Lopmand]. (o) In entering into the agreement referred to between [URE] and [Lopmand] in sub paragraph (f) above it was agreed that the jointly owned Gilbert Painten Share was to be notionally charged with the repayment of the $250,000 advanced for its purchase. The parties further negotiated on interest rates which [Lopmand] claims were at 8.5% per annum …. Additionally it was agreed: (i) The repayment of the $250,000 plus interest would firstly come out of the realisation of the Gilbert Painten Share; (ii) If there was any shortfall under (i) above then the balance would come out of the realisation of the Lopmand Share; and (iii) That the repayment would come when the Painten Project was finalised and the assets sold. As a result of the matters set out in this paragraph [Lopmand] claims to be entitled to joint ownership of the Gilbert Painten Share." 17 There is no document which sets out the basis upon which URE advanced the $250,000. The onus is on URE to establish on what terms URE was advancing the $250,000. 18 These proceedings were begun on 9 February 1998, when URE filed a statement of liquidated claim in the District Court. That statement of claim named Lopmand and Mr and Mrs Lake as defendants. It alleged that URE at the request of the defendants and each of them, paid Gilbert Frank $281,474 on or about 13 May 1994, that the defendants had agreed with URE that interest would be paid on the amount outstanding at 2.5% over the Westpac I L R rate, that the principal sum and interest was repayable on demand, and that demand had been made for it on 19 December 1997. By their defence filed 13 March 1998 the defendants denied all of these allegations, save the making of demand. Both in the amount alleged to have been lent, and in the rate of interest, that claim differs from the claim URE now makes. That is a poor start for URE. 19 Mr Lake, for his part, acknowledges that he has some difficulties in recollection. In one affidavit he says: "Mr Lindsay-Owen and I shared small offices together and it is extremely difficult now to say precisely who said what and when. I have endeavoured where I have a clear recollection to give my evidence in my affidavits and these proceedings in direct speech but in relation to some matters I say we reached agreements through many conversations the exact details of which I cannot now recall although I recall the arrangements made." 20 At an earlier stage of these proceedings, Mr Lake had a different contention to that which he now advances, concerning the terms on which the $250,000 was made available. In an Amended Notice of Grounds of Defence filed on 18 August 1999 (which Mr Lake verified) it is alleged: 2(c) In April or May 1994, John Alexander on behalf of Gilbert made known to representatives of [URE] and [Lopmand] that Gilbert wanted to transfer its share in Painten for valuable consideration. (d) The consideration for the transfer of the share was to be the payment of $250,000 together with the release of John Alexander personally from the bank guarantees which John Alexander had given on behalf of Painten. 3 It was agreed between [URE] and [Lopmand] that each would take one half of the Gilbert Share by: (a) the plaintiff paying to Gilbert the sum of $250,000 which would be repaid to the plaintiff out of the Gilbert Share when all of the assets of Painten were sold; (b) that, upon the sale of all the assets of Painten, any amount above $250,000 was to be divided between [URE] and [Lopmand] on a basis of one half to each; and (c) the defendants were to obtain the release of John Alexander from all obligations in relation to bank guarantees. 4. In accordance with the above agreement: (a) [URE] paid the amount of $250,000 to Gilbert; (b) [URE] received a share transfer document in respect of the share in Painten held by Gilbert to be held in trust for itself and [Lopmand]. 21 This version is incorrect, in the following respects:

(a) By May 1994 Mr Alexander wished Gilbert to retain its share in Painten. Mr Alexander's evidence is that the transaction he agreed to with Mr Lindsay-Owen and Mr Lake was a payment out of the debt owed by Lopmand, and an assignment of the security which Gilbert Frank held for that debt. Clause 7 of the Deed entered on 13 May 1994 (set out in paragraph 13 above) expressly contemplated that Mr Alexander would continue to have a shareholding in Painten.

(b) There was no agreement with Mr Alexander to release him from all obligations in relation to bank guarantees. Rather, as Clause 3 of the Deed entered on 13 May 1994 expressly contemplated, the agreement was to use all reasonable efforts to procure the release of Mr Alexander from the guarantee he had given to Macquarie Bank, but to keep on foot his guarantee to NAB. 22 That Mr Lake could have given an account of the basis on which the money was advanced, which is wrong in such important matters, casts serious doubt on his overall reliability concerning the basis on which URE made the money available. 23 Both Mr Lake and Mr Lindsay-Owen gave evidence about the conversations which passed between them about the terms on which the $250,000 would be paid out. I do not regard either of these witnesses as deliberately giving false evidence, but neither do I regard either of them as a reliable witness. Each of them has given, in the past, accounts of transactions relevant to this case which they now accept are incorrect. Particularly so far as events of 1994, and 1996, which are disputed in this case, are concerned, they occurred a long time ago, and it is no surprise to find that memories have become unreliable. In the evidence of both men there are, it seems to me, elements of rationalisation and wishful thinking.

Security for the Loan 24 Mr Alexander gives evidence that in about early May 1994 he had a meeting with both Mr Lake and Mr Lindsay-Owen during which he had a conversation with Mr Lindsay-Owen to the following effect: LINDSAY-OWEN: "I can't believe you're not accepting Tracey's word and his security. You've been mates for so long." ALEXANDER: "I have to accept what my solicitor tells me - he says the security is not worth the paper it's written on." LINDSAY-OWEN "Bullshit. The security is good." ALEXANDER: "If it's that good, why don't you take it over." LINDSAY-OWEN: "I will. I'll pay you out if you give me the security." ALEXANDER: "Okay I will."

I accept this evidence. 25 As well, the probabilities seem to me to favour Mr Lindsay-Owen advancing money on terms which were in no respects worse than those on which Gilbert Frank had advanced it, so far as security is concerned. 26 Mr Lake gives evidence of a conversation between himself and Mr Lindsay-Owen as follows: LINDSAY-OWEN: I'll loan you $250,000, to pay out Alexander. The terms of the loan will be the same except that I want interest at Bill rate plus 2% and I'll take over his securities and his Painten share. When we finish the Painten deal and sell off all the units then I'll get my $250,000 back plus the interest and I'll take whatever profit there is on his share". LAKE: "That's okay but I won't agree to you taking over the security that JA had, there is no need. I have already put up nearly $400,000 to the NAB through the mortgage over my home, and you've put in no tangible security. If you put in the $250,000 then your exposure will be approximately equivalent to mine and JA's" I won't agree to you taking his share in Painten. When we finish the Painten deal and sell off all the units then you will get first priority, you will get your $250,000 back plus interest, but I won't agree to an interest rate higher than the rate I am paying JA, then we'll split whatever profit there is on his share fifty fifty." "I cannot remember whether Mr Lindsay-Owen said any words indicating an acceptance of my counter proposal but he said no words or gave any other indication that he did not accept my counter proposal and he never mentioned interest rate, securities or non joint acquisition of Mr Alexander's share in Painten again and he withdrew his funds on deposit and we proceeded with arrangements to pay out the Gilbert Frank loan to Lopmand." 27 It seems to me that there is some implausibility in this account of Mr Lake. While he and Mr Lindsay-Owen were friends, I would not expect Mr Lindsay-Owen to be unbusinesslike about lending money. There was simply no reason for him to agree to lend money on terms less onerous than those on which Gilbert Frank had made the loan. The securities which Mr Lake had provided to NAB were for a different obligation to the obligation concerning this $250,000 loan. While the securities which Mr Lake had made available to Gilbert Frank - a mortgage over two lots in an unregistered subdivision, and a charge over a minority interest in a proprietary company - were securities of a kind which were not particularly bankable, it does not seem very likely that Mr Lindsay-Owen would agree to do without them, when the basis of the discussion between Mr Alexander, Mr Lake and Mr Lindsay-Owen (set out in paragraph 24 above) had been that Mr Lindsay-Owen would take over the existing securities. 28 Further, Mr Lake gives two inconsistent accounts of the way in which the terms for URE lending the money were arrived at. One account, given in affidavit evidence (see paragraph 25 above), was to the effect that Mr Lindsay-Owen had asked for the more onerous terms which were noted on the Ellis Loan Agreement, but that Mr Lake had rejected those terms, proposed his own, and Mr Lindsay-Owen had made the loan without further demur. Another version, advanced in cross-examination (T248), was that the terms which Mr Lake said were those on which the loan were made were those which Mr Lindsay-Owen offered. That Mr Lake gives these two inconsistent accounts places an obstacle in the way of accepting either of them. 29 Further, in an affidavit sworn on 25 November 2002 (the Friday before the trial began) Mr Lake said: "At all material times I had agreed with Mr Lindsay-Owen that should the [Gilbert] Painten share prove insufficient to pay the $250,000 plus interest he could then look to the Lopmand Painten Share which Lopmand had owned since the beginning of the Project for any shortfall."

This is in substance conceding there was an agreement to a charge over the Lopmand Painten Share. A similar concession was made by paragraph 2(o)(ii) of the Further Further Amended Notice of Grounds of Defence (set out in paragraph 16 above). 30 I conclude that one of the terms on which URE advanced the money was that it would have the same security as Gilbert Frank had had. This conclusion based on the evidence is the same as the conclusion which arises from the presumption that when a third party pays off a mortgage the presumed intention is, unless the contrary appears, that the mortgage shall be kept alive for that third party's benefit: Ghana Commercial Bank v Chandiram [1960] AC 732 at 745.

Interest Rate 31 It is common ground between Mr Lindsay-Owen and Mr Lake that in 1994 there was a discussion in which Mr Lindsay-Owen had an annotated version of the Ellis Loan Agreement, by reference to which he stated on what terms he would be willing to advance money. There are in evidence two copies of the Ellis Loan Agreement, bearing annotations in the handwriting of Mr Lindsay-Owen. Each of those contains an annotation alongside the interest clause "indicator lending rate plus 2%" and "compound mthly". One of the copies has an annotation alongside the clause where Gilbert Frank acknowledges lending and Lopmand acknowledges borrowing $238,000. The note is "TJL A Lake or the Co or all". The other has that same annotation in that place, preceded by the handwritten note "joint & sev". Mr Lindsay-Owen accepted in cross-examination that this "joint & sev" note must have been added at some stage after 1999. I accept that the other annotations were on the document at the time it was discussed between Mr Lake and Mr Lindsay-Owen. 32 Mr Lindsay-Owen's account is that he showed the annotated copy of the Ellis Loan Agreement to Mr Lake, and the following conversation ensued: LINDSAY-OWEN: "The interest on the loan will be the Westpac indicator rate plus 2%. I have made notations on the agreement you had with John to reflect the terms of your loan. Do you agree with those terms?" LAKE: "Yes I do." LINDSAY-OWEN: "I am going to send it to John Allen with the first page of the Contracts for Sale and the Authority and Undertaking that you provided to John, to have him prepare documentation." LAKE: "Okay." 33 Mr Lindsay-Owen says that he forwarded by facsimile a copy of the Loan Agreement to Mr Allen, together with some other documentation relevant to it, for the purpose of a loan agreement being prepared. 34 Allen Allen & Hemsley have been subpoenaed to produce all their documentation relevant to this case. There was no such facsimile to Mr Allen amongst it, nor any copies of the documents which Mr Lindsay-Owen says were to be faxed to Mr Allen. Mr Allen was not called as a witness. There was, however, among documents produced by Mr Lindsay-Owen, a coversheet of a facsimile from Mr Lindsay-Owen to Mr Allen, which, from its date and number of pages said to be attached to the coversheet, is likely to have been the coversheet for a facsimile which Mr Lindsay-Owen sent to Mr Allen for the purpose of preparing loan documentation. It bears the sort of imprint which a facsimile machine makes to record that a transmission has occurred. Notwithstanding an attack which counsel for the Lake interests made in cross-examination of Mr Lindsay-Owen, suggesting that this document is a fabrication, I accept that it is not a fabrication. 35 Even so, the fact that Mr Lindsay-Owen sent the version of the Ellis Loan Agreement containing his annotations to Mr Allen, for the purpose of preparing a loan agreement, and that no loan agreement was actually prepared, and that the documents which Mr Lindsay-Owen sent to Mr Allen for that purpose appear to have been discarded from the file of Allen Allen & Hemsley raises doubt about whether the final arrangement between URE and the Lake interests concerning advancing this money was that expressed in the annotations to the Ellis Loan Agreement. 36 Mr Lindsay-Owen gave evidence in the course of his cross-examination that: "…the matter of the indicator lending rate plus a margin, compound monthly et cetera and the strict adherence to things like all parties being to the contract so that everyone gets hooked were quite common everyday almost weekly discussed by Mr Lake and myself because I was advancing funds to companies who were associated all the time. They were always on that basis compounded monthly indicator lending rate plus the margin". 37 There were numerous occasions when Mr Lindsay-Owen had asserted that URE was entitled to interest at 2.5% above the Westpac Indicator Rate from time to time. I have earlier mentioned that the Statement of Claim in these proceedings made such an assertion. As well, in an affidavit which he swore in these proceedings on 11 May 2000 (which was not read in URE's own case, but on which Mr Lindsay-Owen was cross-examined), he said: "7. I took the original agreement prepared by P J Ellis & Co, a true copy of which is annexed hereto and marked with the letter "B" and I endorsed thereon various comments including against clause 3.1 the following: "Indicator lending rate + 2%". I then forwarded that document to my then solicitor, Mr John Allen of Messrs Allen Allen & Hemsley with a request that he prepare appropriate documentation to reflect the agreement between the parties and the variation which I required to the original arrangement reflected in Annexure "B". What was not referred to in my note on Annexure "B" was the basis upon which interest was to be calculated. The note whilst it was intended to convey to Mr Allen my instructions for the preparation of the relevant document contained an error in that the figure 2% should have read 2.5%. 8. When I proposed to make the advance to Gilbert Frank Investments Pty Ltd on behalf of the Defendants hereinbefore referred to I had discussions with Mr Lake as to the rate of interest to be applied. I recall saying to Mr Lake words to the following effect: "This loan is to be Westpac indicator lending rate plus 2.5% compounded monthly." Mr Lake said words to the effect: "I am agreeable."" 38 By the time he was cross-examined, Mr Lindsay-Owen had changed his evidence about where the mistake lay. When asked about the final sentence in paragraph 7 of the passage I have just quoted, he gave the following evidence: "Q. What I am suggesting to you is that you made up that sentence in paragraph 7 to explain why you claimed more than you were entitled, even on your own case? A. It is incorrect. My standard margin is two and a half percent. It is on many loans on our books. That was the standard margin. It was an error. Q. D you mean it was an error when you spoke to Mr Lake or it was an error when you wrote it? A. The 2.5 was an error. It was our standard rate of margin above the indicator lending rate. Q. Which did you have a conversation with Mr Lake about? A. The 2 percent as the document reads. Q. You had a conversation with Mr Lake about 2 percent but then - - A. Whether that came about because he negotiated it or I made an error I don't know. Probably likely he negotiated it but I don't know. It's an error. You are suggesting to me that I am trying to squeeze half a percent out of this whole transaction, sacrifice it for half a percent, that would be commercial suicide." 39 As well, an interest calculation which Mr Lindsay-Owen presented to Mr Lake in October 1997 (which I discuss in more detail at paragraph 80 below) contained a calculation of the interest at the Westpac Indicator Lending Rate plus 2.5%. Mr Lake, at the time that document was presented to him, put a circle around the rates of interest, and wrote "? Never agreed". (This note of Mr Lake I do not take as proof that it was never agreed, only as an indication of what Mr Lake' assertion was at the time. The point of him making such an assertion is that it gave notice to Mr Lindsay-Owen, from a very early time, that the question of what rate of interest had been agreed may well be a matter of dispute.) 40 In all theses circumstances, I am not persuaded that it was agreed that interest would be paid at the Westpac Indicator Rate plus 2%, nor that it was agreed that the interest would compound monthly. 41 Chitty on Contracts, 25th edition, paragraph 3171 says: "At common law, the general rule is that interest is not payable on a debt or loan in the absence of express agreement or some course of dealing or custom to that effect ( Page v Newman (1829) 9 B&C 378, 381; Re Gosman (1881) 17 Ch D 771; London, Chatham & Dover Ry v South Eastern Ry [1893] AC 429). Thus in the absence of express stipulation, it has been held that interest is not payable on the price of goods sold, although the price was payable on a certain day … nor for money lent to, or paid for, the defendant ( Calton v Bragg (1812) 15 East 223; Carr v Edwards (1822) 3 Stark 132) …" 42 It seems to me most unlikely that there was no agreement at all concerning the rate of interest in the present case. It also seems to me unlikely that Mr Lindsay-Owen would have agreed to URE lending at a rate of interest less than that at which Gilbert Frank had been lending. As well, Mr Lake's evidence was that he told Mr Lindsay-Owen that he would not agree to an interest rate higher than the rate he was paying Mr Alexander. In all these circumstances, the most that URE has proved is that the agreement was that interest would be paid at the same rate as was payable under the Ellis Loan Agreement.

Parties to the Loan Agreement 43 Mr Lake departed, in cross-examination, from his affidavit account of the conversations about the terms on which URE would advance money in one significant respect. In a portion of his affidavits which I have not quoted verbatim, Mr Lake denied that he had agreed that the loan was to be made to Lopmand, himself and Mrs Lake. However, in cross-examination he accepted (T261) that Mr Lindsay-Owen's offer was to lend to these three borrowers. While there is no evidence of Mrs Lake ever accepting that offer, it seems to me that Mr Lake accepted it by his conduct in permitting the transaction to go ahead. 44 Further, that Mr Lake is party to the loan agreement is shown by the terms of a document produced in February 1996 (discussed in more detail in paragraph 69 below), which proposed a variation of the arrangements between URE and the borrowers in the Lake camp. The document produced by Mr Lindsay-Owen made provision for execution by each of Lopmand, Mr Lake and Mrs Lake. Mr Lake made a counter-offer which took the form of changing some of the figures in the document in handwriting, and signing the document twice, once on behalf of Lopmand, and once on behalf of himself, while also crossing out the provision for Mrs Lake's signature. This seems to me to be a significant admission that both Lopmand, and Mr Lake, were parties to the Agreement whereby URE advanced the money.

Time for Repayment of Loan 45 Mr Lake contends that the time for repayment of the loan is when the Painten Project was completed. Mr Lake's evidence is that around April or May of 1994 Mr Lake and Mr Lindsay-Owen envisaged that the Project would be completed around the middle of 1996. He says, "We had a budget and we had a timeframe", but no documents to demonstrate the budget, or the timeframe, were tendered in evidence. 46 Mr Lindsay-Owen gives evidence that, when the Marayong development project was first embarked upon: "The intent was to register a strata … and then to sell off a number of the units, to reduce the debt. The ongoing decision whether to sell them all, or keep some, was yet to be made, but it was definitely to register the strata and to sell down, to what level - - "

It was not put to him that this situation ever changed. 47 While there may have been some discussion of the possibility of the loan being repaid when the Painten Project was finalised, or from proceedings of the Painten Project, I am not persuaded that it was agreed that the loan would in no circumstances be liable to be repaid until such time as the Painten Project was completed. Nor am I persuaded that there was any clear consensus about what was involved in the Painten Project being "completed". Even assuming that "completion" meant the sale of all units, the loan which Gilbert had made to Mr Lake had had nothing to do with the Painten Project - it was a loan to assist Mr Lake in financing his house - so there is some implausibility in Mr Lindsay-Owen agreeing to the loan not being repayable until the Painten Project was finalised. Particularly is this so when, while there was, even on Mr Lake's evidence, a target date of finalisation by mid 1996, but there were the uncertainties inherent in any development project about whether that time for completion would be achieved, and whether the eventual profit would be such that Lopmand's share of that profit would be enough to cover the loan together with accrued interest. 48 I am not persuaded that there was any express agreement between the parties about when the loan would be repaid. In those circumstances, the implication of law is that the money is repayable immediately, unless the parties have stipulated that a demand must be made before the money is due, or there is some commercial practice, such as that existing between banker and customer, to like effect: Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 116-117, 125, 128-129. In this case, there was no stipulation for a demand, nor is there any established commercial practice requiring a demand. It follows that the money which URE advanced was repayable forthwith.

Any Connection of Loan to Purchase of Gilbert Painten Share 49 It is part of the account which Mr Lindsay-Owen gives, of the basis on which the Alexander loan was paid out, that Mr Lindsay-Owen said to Mr Lake, "In return I will want John [Alexander] to transfer his share in Painten to me and to take over the securities which John has taken from you." Thus, it is an element in the account of both Mr Lake and Mr Lindsay-Owen that they contemplated that the Gilbert Painten Share would be transferred, as part of the severing of relationships between Mr Lake and Mr Lindsay-Owen on the one hand, and Mr Alexander on the other. Even though that was part of the initial plan which Mr Lake and Mr Lindsay-Owen had, it was not carried through into the final terms upon which URE advanced money to pay out the Gilbert Frank loan to Lopmand. I reject Mr Lake's contention that purchase of the Gilbert Painten Share was any part of the terms upon which URE lent the $250,000.

Conclusion re Terms on Which Money Advanced 50 I conclude that URE advanced $250,000 to Lopmand, and Mr Lake, on the basis that it would have the same security as Gilbert Frank had had (ie a charge over the Lopmand Painten Share, and what amounted to a mortgage over the two subdivided lots at Bayview) but that the interest would be the same as that payable under the Ellis Loan Agreement, and that the loan would be repayment forthwith. URE is entitled to judgment against Lopmand and Mr Lake for the amount of $250,000 plus interest. Calculation of Interest 51 The Ellis Loan Agreement provided: "2. Repayment of Principal 2.1 The Company will repay the Principal Sum and any interest thereon remaining unpaid on or before the 29th September, 1994 ("the Due Date"). 2.2 The Company is entitled to pay to the Mortgagee the Principal Sum or any part thereof and interest prior to the Due Date without penalty provided that any such payment shall not be in multiples of less than $10,000.00 3. Interest 3.1 The Company will pay to the Mortgagee interest on the Principal Sum or so much thereof as shall remain unpaid at the rate of eight and one half per centum (8 ½%) per annum calculated on monthly rests. 3.2 All interest will be payable six monthly in advance on the 29th September, 1993 and the 29th March, 1994 on the Principal Sum or so much thereof as shall remain unpaid and in the manner as referred to in Clause 2 above which shall be calculated as simple interest from the 29th September, 1993 until the date of repayment of the Principal Sum." 52 The drafting of Clause 3.2 is less than crystalline. I construe all the words in Clause 3.2 from "or so much thereof" to the end of the clause as dealing with the manner for calculation of interest in the circumstance where there is early repayment of all or part of the Principal Sum. Thus, those words have no application to the loan which URE made to Lopmand and Mr Lake. 53 The basis upon which URE made its loan to Lopmand and Mr Lake was that interest would be payable, at 8.5%, six monthly in advance. As applied to the circumstances of the loan made by URE to Lopmand and Mr Lake, interest was payable, in advance, on 13 May and 13 November in each year. No such interest has been paid. The failure to pay interest when due should be reflected in the amount for which judgment is given. The appropriate way to do this is to allow interest, under section 94 of the Supreme Court Act, and at the rates prescribed by Schedule J of the Supreme Court Act, in relation to all interest which was unpaid. It is to be calculated as follows. An amount of interest of $10,625 was due on 1 May 1994. Simple interest on that amount of $10,625, at Schedule J rates, for the period from 13 May 1994 to the date at which the judgment amount is calculated, should be included in the judgment amount. On 13 November 1994 an additional amount of $10,625 interest fell due, but was not paid. Interest on that additional amount of $10,625 should be included, at Schedule J rates, for the period from 13 November 1994 to the date as at which the judgment is entered. Similar calculations of section 94 interest should be carried out for the interest which falls due at each six-monthly period thereafter. The Basis on Which Gilbert Frank Transferred the Gilbert Painten Share 54 Notwithstanding the obligation which Lopmand, Mr Lake and Mr Lindsay-Owen had undertaken, by Clause 3 of the Deed of 13 May 1994, to use all reasonable efforts to obtain the release of Mr Alexander from the guarantee he had given to Macquarie Bank in connection with the Marayong project, no prompt release was obtained of that guarantee. On 31 October 1994 Macquarie Bank approved a variation of the security arrangements (with Mr Alexander's consent), whereby Mr Lindsay-Owen deposited $300,000 with Macquarie Bank, and mortgaged that deposit to Macquarie Bank. It seems that there may have, by this time, also been a guarantee given to Macquarie Bank by URE, which was released upon the establishment of the $300,000 deposit. Mr Lindsay-Owen, Mr Lake and Mr Alexander each remained liable on their personal guarantees. 55 During the first half of 1995 income from the Marayong Project was insufficient to cover the payments due to Macquarie Bank. To avoid Macquarie Bank making a call upon the guarantees, Mr Lindsay-Owen paid approximately $44,000 on behalf of Painten Holdings. 56 On 21 February 1995 there was a meeting between Mr Lake, Mr Lindsay-Owen, Mr Alexander and Mr Fitzpatrick at the St Leonards office. On that occasion Mr Lindsay-Owen said that there was a shortfall on the Macquarie borrowing, and that a contribution was needed from Mr Alexander. Mr Alexander disputed that he had any liability to contribute to any shortfall on the Macquarie borrowing, but even so this incident increased his desire to be freed from his liability under the guarantees connected with the Painten Project. 57 Mr Lake gives evidence that, after that meeting, he and Mr Lindsay-Owen had a conversation to the following effect: LINDSAY-OWEN: "JA is very nervous about the Painten deal and he obviously wants out. We'll take his share if he wants his guarantees released." LAKE: "I can't believe he is doing this but if he is that silly then yes, let's take his share." 58 On 9 March 1995 Norton Smith & Co wrote to Mr Lindsay-Owen and Mr Lake saying that Mr Alexander was prepared to accept a payment of $50,000, together with a release from the NAB guarantee, for his one-third shareholding in Painten. Mr Alexander gives evidence as follows: "On or about 9 March 1995, Mr Fitzpatrick, or someone at Norton Smith on his behalf, said to me words to the following effect: "Mr Lindsay-Owen has put an offer to you. He will arrange for your release from the bank guarantees and he will forgive the $21,000.00 that you owe him for payments he made to Macquarie Bank on your behalf, if you agree to transfer to him the Gilbert Frank share in Painten Holdings." On about 11 April 1995 I said to my secretary Libby, words to the following effect: "Tell Mr Fitzpatrick to accept Mr Lindsay-Owen's offer."" 59 Following some further negotiation, Norton Smith wrote again to Mr Lindsay-Owen and Mr Lake on 7 June 1995 saying: "We refer to our recent telephone conversations with Mr Greg Lindsay-Owen. It is noted that you are agreeable to acquire 1 share owned by Gilbert Frank Investments Pty Limited in Painten Holdings Pty Limited in consideration for releasing John Alexander and Gilbert Frank Investments from guarantees with the National Australia Bank and Macquarie Bank. A copy of the share Transfer Form is attached. Would you please note that we are arranging for it to be executed in readiness for settlement. Would you kindly notify us of the name of the purchaser and the date when settlement is expected to take place." 60 Macquarie Bank would not agree promptly to a release of Mr Alexander. As well, Mr Alexander remained liable on the guarantee he had given to the National Australia Bank. 61 On 5 September 1995 Mr Lake signed two letters, one on behalf of Painten, the other on behalf of himself and his wife. Each letter was addressed to an officer of the National Australia Bank at Mona Vale. The substance of each letter was the same, namely: "As discussed, we confirm that this Company is agreeable to the release of Mr John Alexander's supporting joint and several guarantee in relation to the above. We further confirm that Mr Gregory Lindsay-Owen will be placing $200,000 on deposit in support of the above guarantee. Consequently Mr Tracey Lake's guarantee is to be reduced and limited to $200,000."

Mr Lindsay-Owen placed that sum of $200,000 on deposit with NAB. 62 On 8 September 1995 Mr Allen, of Allen Allen & Hemsley, wrote to Norton Smith. "Reference is made to the various borrowings in respect of the property owned by Painten Holdings Pty Limited at 360 Vardys Road Marayong. We are instructed by our clients, Tracey Lake, Greg Lindsay-Owen and United Rural Enterprises Pty Limited that they will procure the release of your client, John Alexander from any residual liability in respect of those borrowings to National Australia Bank and Macquarie Bank Limited. John Alexander will transfer his shareholding of [*] shares in Painten Holdings Pty Limited to Greg Lindsay-Owen or as he may direct. Such executed transfer shall be delivered to Greg Lindsay-Owen's solicitors, Allen Allen & Hemsley, attention - John Allen immediately upon you being furnished with a release of the guarantee given by John Alexander to the National Australia Bank. Please confirm your instructions that your client acknowledges that the current arrangement with Macquarie Bank Limited provides for him to be released from that arrangement upon the extension or renewal of the Macquarie Bank facility at the time of rollover on or about 29 September 1995. Yours faithfully [signed] We confirm our instructions that John Alexander agrees with the above and that we have been irrevocable instructed to hand over the duly executed share transfer in Painten Holdings Pty Limited to you upon delivery of the National Australia Bank release. Signed by Norton Smith & Co Date:" (emphasis added) 63 Mr Fitzpatrick faxed back a copy of that letter, which had various handwritten amendments noted on it. No written agreement resulted from this exchange of proposal and counter-proposal. 64 On 27 September 1995 Mr Alexander and Gilbert Frank were released from the guarantee they had given to the NAB. However, Macquarie Bank was still not willing to release Mr Alexander from the guarantee given to it. Eventually, on 8 November 1995, Macquarie Bank effected a release of Mr Alexander from that guarantee. 65 On 15 November 1995 a transfer by Gilbert Frank of one share in Painten was executed under seal, and sent to Allen Allen & Hemsley. That transfer did not name any transferee, or any consideration for the transfer. It is not clear, on the evidence, whether the transfer was accompanied by a share certificate. Plainly enough, however, the share intended to be transferred by this document was the Gilbert Painten Share. The documents which were sent to Allen Allen & Hemsley in that fashion remained there until 3 September 1997, when Mr Allen handed them to Mr Lindsay-Owen. By 3 September 1997 there had been a falling out of Mr Lake and Mr Lindsay-Owen. Mr Lindsay-Owen has, since 3 September 1997, treated his interests as entitled to the Gilbert Painten Share. 66 Mr Lake says that he had not seen the correspondence that occurred between Norton Smith and Allen Allen & Hemsley from 21 February 1995, and was not aware of the offer and acceptance of which Mr Alexander gives evidence (set out in paragraph 58 above). While Mr Lake does not suggest that Mr Allen wrote his letter of 8 September 1995 without instructions, he says that he (Mr Lake) did not give instructions to Mr Allen to make the offer set out in that letter. On 2 February 1996 Mr Allen sent a fax, addressed to both Mr Lindsay-Owen and Mr Lake, which attached a share transfer form signed by Gilbert Frank. That can only have been the transfer form which Mr Allen received on 25 November 1995. 67 In view of a conclusion which I have come to concerning the effect of a settlement agreement entered in November 2000, it is not necessary for me to express any conclusion about whether the circumstances in which Mr Lindsay-Owen obtained the share transfer dated 15 November 1995 were effective to confer upon him or his nominee effective ownership of the Gilbert Painten Share. What matters for present purposes, however, is that as a consequence of the events I have been recounting so far in this judgment Mr Lindsay-Owen was asserting, in November 2000, that he already had title to the Gilbert Painten Share, while Mr Lake was asserting, in November 2000, that he was entitled to a half interest in the Gilbert Painten Share. The Letter Agreement 68 On 12 February 1996 Mr Lindsay-Owen caused a document to be prepared, which related to a basis upon which the indebtedness of the Lake interests to URE, arising from URE having paid out the $250,000 loan owed to the Alexander interests, might be settled. This occurred at a time when, as Mr Lindsay-Owen described it, "Lake and I were still sharing offices at this point. We were famous friends." It is common ground that the document was prepared after Mr Lindsay-Owen had told Mr Lake that he wanted to be "made comfortable" concerning the $250,000 (though Mr Lake puts this "making comfortable" conversation in May or June 1996, rather than in February 1996). 69 By this time two units remained unsold in the Marayong development. Those units had comparatively recently been valued by John Virtue Pty Ltd, Valuers, on behalf of Macquarie Bank. As well, a source which the evidence does not establish had expressed a view about the price at which sales of those units were likely. The proposal was that the Lopmand Painten Share (which at that time remained registered in the name of Lopmand, but over which URE held a security interest) should be transferred to Mr Lindsay-Owen or his nominee for a value derived from taking the mid-point of the two valuations of each respective unit, totalling them (to yield $2,190,000), subtracting the amount then owed to Macquarie Bank, taking one-third of the resulting sum to ascertain the value of the Lopmand Painten Share, and deducting from the value so ascertained the amount owing by the Lake interests to URE. The document read: " PAINTEN HOLDINGS PTY LIMITED Settlement details between shareholders · United Rural Enterprises Pty Limited · Lopmand Pty Limited & T J & A Lake Settlement Valuations To be struck initially at mid point of likely sales price at 10.5% yield and independent valuation by John Virtue Pty Limited Registered Valuers. $ Likely Sales John Virtue Mid Point Unit 5 790,000 670,000 730,000 Unit 6 1,570,000 1,350,000 1,460,000 Therefore Settlement Valuations Unit 5 730,000 net Unit 6 1,460,000 net

These settlement valuations to be adjusted if the actual realised net sale prior to June 30, 1996 exceeds the settlement valuations. The settlement valuations attributable to Lopmand Pty Limited are to be deducted from loan funds advanced to T J & A Lake by United Rural Enterprises (URE). Amounts from sale of Units 5 & 6 in excess of settlement valuations will likewise reduce the T J & A Lake indebtedness to URE.

Gregory H W Lindsay-Owen T J Lake United Rural Enterprises Pty Limited Lopmand Pty Limited T J Lake A Lake" 70 Mr Lindsay-Owen signed this document, and gave it to Mr Lake. Mr Lake did not agree to the proposal. After taking it away for a time, he gave the document back to Mr Lindsay-Owen, with alternative (and higher) figures written on it for each of the selling prices of the unit, deleting the various references to Mrs Lake, and crossing out the words "prior to June 30 1996" immediately below the table and inserting instead the word "proceeds". Mr Lake signed it himself, in the two places provided, once for signature on behalf of Lopmand, and the second time in his personal capacity. At the time of handing it back to Mr Lindsay-Owen he said, "I could not get Alyson to sign this even if we agreed". Mr Lindsay-Owen, upon receipt of this document, crossed out his own signature upon it, and wrote on it the words, "said couldn't get Alyson to sign even if we agreed". 71 Mr Lake contends that in May or June of 1996 a "Letter Agreement" was entered between himself and Mr Lindsay-Owen. He says: "The letter agreement was a document on Painten Holdings Pty Ltd letterhead in a form of a letter. There was a line setting out an agreement that Lopmand Pty Ltd would agree to transfer to United Rural Enterprises Pty Ltd its share in Painten Holdings Pty Ltd for approximately $146,606.50. The $146,606.50 was based on a selling price of unit 6 of $1,550,000.00. There was provision for signature down the bottom left-hand side for Mr Lindsay-Owen and provision for signature by me on the right. There was date "………June 1996". I did not sign the document in its original form, I amended it by making handwritten alterations to provide that any amount of sale price of unit 6 above $1,550,000.00 would be apportioned to the value of the Lopmand share and credited to money owed to United Rural Enterprises Pty Ltd. After I made the alterations we both signed the document and initialled the alterations." 72 No such document has been produced in evidence. Mr Lindsay-Owen denies that any such document ever existed. 73 On 1 September 1997 Mr Lake applied for an administrator to be appointed to one of the companies in which he and Mr Lindsay-Owen were interested. This brought about a complete rupture in relations between the two men. On 3 September 1997 Mr Lindsay-Owen arranged for the locks to the office which he and Mr Lake had previously shared to be changed. 74 Mr Lake gives evidence that a day or two later he telephoned the office he had previously occupied, and spoke to Christine Bantick, the personal assistant to Mr Lindsay-Owens. He gives evidence that the following conversation occurred. Mr Lake: "I couldn't get in this morning, Chris." Ms Bantick: "No, Greg changed the locks last night." Mr Lake: "I'll request my solicitor to get all my files but I need a copy of a letter about the agreement to transfer the Lopmand share in Painten." Ms Bantick: "I know where it is I'll photocopy it for you." Mr Lake: "Put it in the Lopmand Corporate Register on the inside cover." (Mr Lake telephoned her later that day and said:) Mr Lake: "Did you get the letter?" Ms Bantick: "I've done that and put it in the Lopmand Corporate Register file." Mr Lake: "I appreciate what you've done, Chris, thanks very much. I regret it's come to this." 75 He says that about 14 days after this he obtained his files, including the Lopmand Corporate Register, but the copy of the Letter Agreement was not there. He says he then telephoned Ms Bantick, and that the following conversation occurred: "It took about 14 days after my telephone conversation with Christine Bantick, to obtain all of my files including the Lopmand Corporate Register from the office but the copy of the letter agreement was not there. I telephoned Christine Bantick and said: "The copy of the letter agreement about Lopmand's share in Painten is not there." She said: "As you might have expected, Greg went through everything and removed it." I said: "Okay, just leave it with me." 76 Ms Bantick denies that any such conversations occurred. I accept her denial. 77 Ms Brenda Turner worked three days a week as an accountant in the office which Mr Lindsay-Owen, Mr Lake and Ms Bantick had shared. Ms Turner says it was, "an open-plan office, and all conversations were overheard. There was no privacy at all." Ms Turner recollects an occasion in September 1997 when Mr Lake was seeking a document. She recollects that Mr Lake did not get the document, but cannot recall whether it was because the document was never found, or because it was found but not handed over to him. Ms Turner gave her understanding of the document in question as being: "It was to do with the Painten property that Greg was to buy Tracey's shares in Painten and then when the property was ultimately sold Greg would pay Tracey a subsequent payment related to any profit made on the deal." 78 I accept that Mr Lake asked Ms Bantick to look for such a document, and that he did not ever receive such a document from her. However I am not persuaded that a "Letter Agreement" of the kind which Mr Lake describes was ever signed by the two men. 79 On or soon after 23 October 1997 Mr Lindsay-Owen gave to Mr Lake a document dated 23 October 1997, and headed "Statement of Position". It said: ASSET DEBT BALANCE PAINTEN HOLDINGS

Unit 6 (net) 1,550,000.00 Owed to Macquarie Bank 900,000.00 Owed to URE @ 30/06/96 (including interest) 210,180.32 1,550,000.00 1,110,180.32 439,819.88

TJ LAKE Share of Painten Profit 439,819.88 x 1/3 146,606.58 Owed to URE @ 30/09/97 - Principal 281,474.00 - Interest 134,276.51 146,606.56 415,750.51 Subject to transfer of 1 share in Painten previously agreed (269,143.95)

TJL has paid Principal repayments x 2 80,000.00 Interest repayments x 2 30,725.51 Subject to transfer of 45 shares in Euroka 110,725.51 Owing as above (269,143.95) (158,418.44)

80 It was accompanied by a two-page table, which purported to calculate the amount owing by the Lake interests to URE concerning URE's payment out of Gilbert Frank. Mistakenly, that table commenced by showing an amount of principal of $281,474 having been advanced on 13 May 1994. It then proceeded to calculate the interest on that sum, at the Westpac Indicator Lending Rate plus 2.5%, compounding monthly. It did this by showing the amount of principal on the basis of which each month's calculation of interest was done, and the amount of interest which was due on that amount of principal. Because the interest was capitalised each month, the amount shown as the principal upon which the calculation of interest at each month's end was performed increased each month. There is an important exception to this, however. Against the entry for 31 July 1996 there appears an entry in a column headed "Paid" in the sum of $146,606.56, which has the notation "Painten profit share" written along side it. The figure which the table used for calculating the interest due on 31 July 1996 was derived by taking the amount of principal upon which interest had been calculated as at 30 June 1996 ($372,499.03), adding to it the amount of interest which was added to the principal as at 30 June 1996 ($4,268.22), and then subtracting the amount of $146,606.56, to show an amount of $230,160.69 as the amount of principal upon which the calculation of interest due as at 31 July 12996 was calculated. All subsequent monthly calculations of interest were derived from this figure of $230,160.69. 81 There are three figures on the "Statement of position" document which are identical to figures shown on this interest calculation. These are the amounts for "T J Lake share of Painten profit - $146,606.58", the amount for "owed to URE @ 30/09/97 - principal - $281,474.00", and the amount for "owed to URE @ 30/09/97 - interest - $134,276.51". 82 I do not regard this "Statement of position" document and its accompanying calculation table as sufficient to establish the existence of the "Letter Agreement". Because the calculation of the net value of Painten Holdings at $439,819.88 takes into account the amount owed to URE at 30 June 1996 (including interest) there is at least a realistic possibility that figure of $439,819.88 is one which was calculated after 30 June 1996. Yet it is an essential element of Mr Lake's account of the Letter Agreement that it was entered into in June 1996. Further, while the document contains the line "subject to transfer of one share in Painten previously agreed" that expression is capable of referring to some sort of an agreement in principle, not necessarily to a legally binding agreement. As well, "previously" could mean at any time prior to 23 October 1997. While the table of calculations proceeds on the basis that credit is to be given for the amount of $146,606.58 as at 30 June 1996, that does not necessarily reflect a legally binding agreement to carry out a calculation in that way. 83 Another factor I take into account in not being persuaded that a "Letter Agreement" of the type alleged ever existed is that it is an essential part of making such a finding that Mr Lindsay-Owen has deliberately destroyed or suppressed the Letter Agreement. Before handing back Mr Lake's files, Mr Lindsay-Owen went through every single document in those files, regardless of whether any particular file was one which related to a venture in which he had any interest. Mr Lindsay-Owen denies that there ever was any such agreement as the Letter Agreement. Particularly given the extreme seriousness of such a finding, I am not persuaded that Mr Lindsay-Owen has actually destroyed or suppressed a Letter Agreement of the type which Mr Lake alleges. The Rectification Claim 84 On 18 August 1999 Lopmand and Mr and Mrs Lake filed in the District Court an Amended Notice of Grounds of Defence, and a Notice of Cross-Claim. The terms of that notice of cross-claim are of central importance to a claim which Lopmand and Mr Lake make for rectification of a settlement agreement arrived at on 9 November 2000. 85 The Notice of Cross-Claim first pleaded who held the three shares in Painten at the beginning of 1994. Only one of these shares, the "Gilbert Share", was assigned a name by that Notice of Cross-Claim. The Notice of Cross-Claim alleged an agreement in April or May 1994 between Lopmand and URE that each would purchase one half of the Gilbert Share, and that they would secure the release of Mr Alexander from obligations in relation to bank guarantees, and that URE would pay Gilbert the purchase price for that share, of $250,000, which would be repaid to URE out of the Gilbert Share when all of the assets of Painten were sold. It alleged that, when URE received a share transfer executed by Gilbert Frank for the Gilbert Share, URE held it in trust for URE and Lopmand. 86 The Cross-Claim then went on to make allegations that in or about June 1996 an agreement (the "Letter Agreement") was entered between URE and Lopmand, whereby URE agreed to buy Lopmand's share in Painten, for a notional price of $146,606.56, and that when the property was sold Lopmand and URE would share in the extent to which the sale price had the effect that the share was worth more than the notional price. 87 The prayers for relief in the notice of cross-claim included: "(a) A declaration that the first defendant/first cross claimant is the owner of one-half of the Gilbert share; (b) Further, or in the alternative, that upon payment by the first defendant/first cross claimant to the plaintiff/cross defendant of the amount of $125,000.00, the first defendant/first cross claimant is the sole owner of the Gilbert share; (c) A declaration that the first defendant/first cross claimant is entitled to the difference between the notional price and the value of the price of its share in Painten when all the assets are sold;" 88 On 8 November 2000 proceedings number 1913 of 2000 were listed for hearing before Hodgson CJ in Eq. Those proceedings were ones brought by Mr Lindsay-Owen against Mr and Mrs Lake, seeking an order for possession of their home. Mr and Mrs Lake had mortgaged their home to Mr Lindsay-Owen, as security for an obligation not connected with the Painten project. Mr Lindsay-Owen claimed that they were in default of that obligation, and sought to enforce his security. 89 As well, there had been some dealings between the Lake interests and the Lindsay-Owen interests concerning a company called Euroka Homestead Pty Limited "(Euroka"). Mr Noss, solicitor, was also a party to proceedings 1913 of 2000 as a result of an allegation (concerning which Mr Noss succeeded) that some security documents he had drafted were defective. 90 On 9 November 2000 a document entitled "Terms of Settlement between Lindsay-Owen, Lake, Mrs Lake and Noss" was executed. It was a document most parts of which were typed, but in which there were handwritten additions and one handwritten deletion. I set it out in full, indicating the handwritten additions in italics. "LINDSAY-OWEN v LAKE, LAKE and NOSS Terms of Settlement Between Lindsay-Owen, Lake, Mrs Lake and Noss 1. Mr Lake will pay Mr Lindsay-Owen $630,000. 2. Mr Lake will: (a) transfer to Mr Lindsay-Owen or his nominee all shares owned by Mr Lake in Euroka Homestead Pty Limited for $1.00 (b) resign as a director of Euroka Pty Limited and Painten Holdings Pty Limited 3. Mr Lake will transfer to Mr Lindsay-Owen or his nominee the (net) debt owed by Euroka Homestead Pty Limited to Mr Lake for the sum of $1.00 4. Mr Lindsay-Owen will release Mr and Mrs Lake from all debts and other obligations arising or which may arise under or in relation to: (a) the guarantees and indemnities given by them or either of them of the indebtedness of Euroka Homestead Pty Limited or Mr and Mrs Lake or either of them (or any part of that indebtedness) to (originally) the Bank of New Zealand (including guarantees and indemnities dated 23 February 1994, 24 November 1995 and 14 January 1997); (b) Mortgage or mortgages held or claimed over 80 Cabbage Tree Road, Bayview (including Mortgage registered No.091335 - now 2781409 - "the Bayview Mortgage"); (c) Loan contracts or offers dated 20 December 1996 and 12 March 1997; (d) Deed of Assignment dated 17 November 1998; (e) These proceedings and will deliver to Abbott Tout a discharge of the Bayview Mortgage, the certificate of title and any other documents comprising the security. 4A. Mr Lindsay-Owen will indemnify Mr Lake and keep him indemnified against any guarantee or indemnity in respect of the indebtedness of Painten Holdings Pty Limited and will use best endeavour to procure Mr Lake's release from any such guarantee. 4B. Mr Lindsay-Owen will indemnify Mr Lake and keep him indemnified against any guarantee or indemnity in respect of the indebtedness of Euroka Homestead Pty Ltd or John Jacques Allen and will use best endeavours to procure Mr Lake's release from any such guarantee. 5. All the above transactions to be completed on or before 20 December 2000. 6. Mr Lindsay-Owen and Mr and Mrs Lake will all pay their own costs of and incidental to these proceedings. 7. On 9 November 2000: (a) judgment will be entered for Noss against Lindsay-Owen on the claim made by Lindsay-Owen against Noss in these proceedings and (b) an order will be made that on or before 19 January 2001 Lindsay-Owen pay Noss's costs of these proceedings in the sum of $65,000. 8. Mr Lake, Mrs Lake and Lopmand Pty Limited hereby withdraw all cross claims made by them in Proceedings 4039 of 1999 TO THE INTENT that, as from 10 November 2000 United Rural Enterprises Pty Limited shall be entitled to be registered as owner of the share in Painten Pty Limited the subject of such cross claims as sole legal and beneficial owner free from all claims and interests in relation thereto made or which may hereafter be made by Mr Lake, Mrs Lake and Lopmand Pty Limited (whether the facts giving rise to any such claims or future claims are presently known or unknown); 9.(a) If, Mr Lake, Mrs Lake and Lopmand Pty Limited pay to United Rural Enterprises Pty Limited $150,000 in cash then United Rural Enterprises Pty Limited will accept such payment in full and final satisfaction of all its claims against Lake, Mrs Lake and Lopmand Pty Limited in proceedings 4039 of 1999, such payment to be made on or before the earlier of: (i) 10 May 2002, or (ii) the date of first call-over of the said proceedings after 10 November PROVIDED THAT if the call-over date is earlier than 10 November 2001 then the parties to the said proceedings will consent to the proceedings being stood over to the first available call-over after 10 November 2001. (b) The payment of $150,000 must be made in cash and may not be set-off against (wholly or in part) any other obligation or alleged obligation of any nature whatsoever (whether such obligation or alleged obligation be an obligation of United Rural Enterprises Pty Limited or of any other person or entity). (c) In the event that such payment be made then United Rural Enterprises Pty Limited will consent to orders dismissing proceedings 4039 of 1999 with no order as to costs (including vacating any order as to costs hitherto made); (d) Lake, Mrs Lake and Lopmand Pty Limited will on or before 20 December 2000 deliver to United Rural Enterprises Pty Limited a notice of discontinuance of all cross claims in proceedings 4039 of 1999 and such notice of discontinuance may be filed provided it bears an endorsement by United Rural Enterprises Pty Limited or its solicitor that it waives any claim to recover from Lake, Mrs Lake and Lopmand Pty Limited or any other person or entity any costs of and incidental to those cross claims. 10.(a) Subject to paragraph 7, Proceedings stood over to 22 December 2000 before Hodgson CJ in Eq. (b) If the above transactions 1-4 are completed by 20 December 2000 then on 22 December 2000: (i) these proceedings are to be dismissed (with no order as to costs and any existing orders as to costs as between Mr Lindsay-Owen and Mr and Mrs Lake vacated) and (ii) the cross claims by Mr and Mrs Lake are to be dismissed with no orders as to costs (and any existing orders as to costs as between Mr Lindsay-Owen and Mr and Mrs Lake vacated). (c) If the transactions 1-4 are not completed by 20 December 2000 then Mr and Mrs Lake will, on 22 December 2000, consent to the Court making an order for possession of the Bayview property in favour of Mr Lindsay-Owen and for the writ of possession to issue forthwith. 11. As between parties who sign these terms, these terms are immediately binding upon every person and entity who signs this document (in any one or more counterparts) irrespective of whether or not any other party contemplated to sign these terms does so. 12. Lindsay-Owen will procure United Rural Enterprises Pty Limited and every other corporate entity associated with him affected by or which may be affected by these terms and the implementation thereof to become a party to and bound by these terms and will indemnify Lake, Mrs Lake and every corporate entity associated with them against any loss sustained by them or any of them by reason of any breach by Lindsay-Owen of this obligation. 13. Lake and Mrs Lake (and each of them severally) will procure the other of them and Lopmand Pty Limited and every other corporate entity associated with them or either of them affected by or which may be affected by these terms and the implementation thereof to become a party to and bound by these terms and will indemnify Lindsay-Owen and every corporate entity associated with him against any loss sustained by them or any of them by reason of any breach by Lake and/or Mrs Lake of this obligation." 91 Those Terms of Settlement were executed once by Mr Lindsay-Owen in his own right, again by Mr Lindsay-Owen on behalf of URE, once by Mr Lake in his own right, again by Mr Lake on behalf of Lopmand, by Mrs Lake, and by the solicitor for Mr Noss. 92 Those terms of settlement were carried out to some extent. Mr Lake paid Mr Lindsay-Owen the $630,000 referred to in paragraph 1 of the terms. Mr Lake also carried out all his obligations in paragraphs 2 and 3 of those terms. 93 Pursuant to Clause 9(d) on 14 December 2000 the solicitors for Lopmand and Mr and Mrs Lake, and for URE, signed consent orders, in these proceedings (4039 of 1999) that: "1. The first cross-claimant, the second cross-claimant and the third cross-claimant have leave to discontinue the cross-claim filed in these proceedings on 18 August 1999. 2. The cross-defendant waives any claim to recover any and all costs of and incidental to the cross-claim filed in these proceedings on 18 August 1999 from the first cross-claimant, the second cross-claimant, the third cross-claimant, or any other person or entity."

That document was filed in the Court on 20 December 2000. 94 The payment of $150,000 referred to in paragraph 9(a) of the Terms of Settlement was not made on time, and indeed has not even been proffered late. 95 Lopmand and Mr Lake claim that paragraph 8 of the Terms of Settlement should be rectified by removing the words, "the subject of such cross-claims", and replacing those words with words "which originally came from Gilbert Frank Holdings Pty Ltd". Lopmand and Mr Lake make that claim because URE has alleged that the Notice of Cross-Claim which was on foot at the time these Terms were entered into made reference to both the Gilbert Painten Share, and the Lopmand Painten Share, and that on its proper construction paragraph 8 of the Terms of Settlement relates to the Lopmand Painten Share. Lopmand and Mr Lake contend that on its true construction paragraph 8 of the Terms of Settlement refers to the Gilbert Painten Share, but that if this contention is wrong, then paragraph 8 should be rectified either because the common intention of the parties was that Clause 8 would relate to the Gilbert Painten Share, or because it was the intention of Lopmand and Mr Lake that Clause 8 would relate to the Gilbert Painten Share, and that the other parties to the Terms of Settlement were aware of a mistake which Lopmand and Mr Lake were making in this respect, and unconscientiously took advantage of that mistake. 96 Lopmand and Mr Lake also contend that paragraph 9(a) of the Terms of Settlement should be rectified by adding the words, "and transfer all the right title and interest whether of ownership or otherwise which Lopmand Pty Limited has in one of the shares of Painten Holdings Pty Limited to United Rural Enterprises Pty Limited", after the word "cash" where it first appears in the paragraph, and further by the addition of the words "and such transfer" after the word "payment" where it first appears. Lopmand and Mr Lake say that the common intention in entering paragraph 9(a) was to quantify Lopmand's liability for the loan at $150,000 plus the transfer in specie of the Lopmand Painten Share.

Construction of the Terms of Settlement 97 Before considering this claim for rectification, it is appropriate to decide what these two disputed clauses mean, on the true construction of the Terms of Settlement. 98 In my view, Clause 8 of the Terms of Settlement on its true construction relates to Mr and Mrs Lake and Lopmand withdrawing their claim to entitlement to the Gilbert Painten Share. The Cross-Claim which was then on foot was one which asserted that the Lake interests continued to have an interest in the Gilbert Painten Share, but that the Lake interests had sold the Lopmand Painten Share, for a price which would in the future entitle it to "the difference between the notional price and the value of the price of its share in Painten when all the assets are sold". By withdrawing all Cross-Claims made in proceedings 4039 of 1999, they withdrew both their claim to be entitled to an interest in the Gilbert Painten Share, and their claim that they had disposed of the Lopmand Painten Share on the terms of the Letter Agreement. The words following "to the intent", in Clause 8, might, if they had stood alone, have been ambiguous, in that, in different ways, both the Gilbert Painten Share and the Lopmand Painten Share were "the subject of" the Cross-Claim. However those words are not to be read in isolation - the very fact that they start with the words "to the intent" shows that the words are intended to spell out an intended consequence of the withdrawal of the Cross-Claims. The only entitlement to be registered as owner of a share in Painten which would be a consequence of withdrawal of the Cross-Claim is that URE would be entitled to be registered as owner of the Gilbert Painten Share. As well, some support for this construction can be found from the terms of the Cross-Claim itself - it was the Gilbert Painten Share which was mentioned first in the Cross-Claim, and it was only the Gilbert Painten Share which was given a name in the Cross-Claim. 99 Manifestly, Clause 9(a) of the Terms of Settlement does not contain any obligation for the Lake interests to convey the Lopmand Painten Share. 100 Mr Cashion SC, for URE, has submitted that Clause 8 of the Terms of Settlement should be construed as referring to the Lopmand Painten Share. He submits that it was an objective of the Terms of Settlement to achieve a clean break between the Lake interests and the Lindsay-Owen interests in relation to their commercial dealings, including the Painten Project. He points to the fact that the Terms of Settlement, insofar as they related to Euroka, required Mr Lake to transfers all his shares for $1.00, resign as director, transfer all debt owed to him, and receive, under Clause 4B, an indemnity for guarantees he has given relating to Euroka. Mr Cashion SC submits that, so far as Painten is concerned, there is a similar obligation to resign as director, there is a similar receipt, under Clause 4A, of indemnities concerning guarantees. He submits that Clause 8 should be construed so as to complete the symmetry, by requiring it to relate to the transfer of the Lopmand Painten Share, this being the only share which the Lindsay-Owen interests did not control, following Mr Lindsay-Owen's obtaining of the transfer of the Gilbert Painten Share. 101 I do not find this submission persuasive. The parties have not stated in the document that their objective in reaching the Terms of Settlement was to achieve a clean break. In one respect, the Terms of Settlement manifestly would not achieve a clean break - if the Lake interests were not to pay the $150,000, then there would be further litigation between them as URE sought to recover the amount of its loan, and the Lake interests resisted that claim by the defence which they had filed in these proceedings (that defence, unlike the Cross-Claim, not being given up by the Terms of Settlement.) 102 Further, the evidence before me does not make it clear that it is appropriate to draw a complete analogy between Mr Lake's situation in Euroka and the situation of the Lake interest in Painten. For a start, the Lake interests had lent money to Euroka, when they had not lent money to Painten. The evidence before me establishes that, as at November 2000, the shares in Painten had a significant value, while there is no evidence to establish whether the shares in Euroka, which Mr Lake was giving up, had any value. Further, while there has been careful examination in these proceedings of the nature and strength of the claims which the Lake interests had to shares in Painten, there has been no evidence which enables me to form a view about the nature and strength of claims which Lake interests had to shares in Euroka. 103 I do not find the giving of an indemnity to Mr Lake relating to his guarantee concerning Painten particularly persuasive. It is a common enough commercial practice for lenders to proprietary companies to require guarantees from directors of companies but not from shareholders, and Mr Lake was resigning as a director. Further, the evidence shows that by November 2000 the affairs of Painten were on a sound financial footing. By that time Painten retained one of the Marayong units. There was no formal evidence concerning its valuation, but in cross-examination Mr Lindsay-Owen conceded that at the time of trial the value of that unit was of the order of $2.15m to $2.25m. The loan outstanding to Macquarie Bank, both in November 2000 and at the time of trial, was $900,000. The unit was leased to the Board of Studies, a government entity concerning which I can take judicial notice that there is, for commercial purposes, no insolvency risk. The rental income, which exceeded $200,000 per annum net, significantly exceeded the amount of the payments required to service the Macquarie Bank loan. At the time of trial, there was little owed by Painten to general creditors, besides Macquarie Bank. The Marayong project had been cash flow positive since 1996, and no dividends had been paid. Nor had money of Painten been distributed to interests associated with Mr Lindsay-Owen, as management payments. In these circumstances, the practical risk of Mr Lake being called on under his guarantees of the liability of Painten was remote. The evidence does not allow me to form any view about whether there was, similarly, only a remote risk of him being called on in connection with his guarantees in relation to Euroka. 104 As well, Mr Cashion's argument concerning construction assumes that Mr Lindsay-Owen's interests had already obtained the Gilbert Painten Share. This is a matter which, prior to the entering of those Terms of Settlement, the Lake interests were hotly contesting. 105 Though in his written submissions Mr Cashion SC also sought to rely, as an aid to construction, on various items of evidence about the intention of the parties which had been admitted for the purpose of the case concerning rectification, in the course of oral argument he accepted (correctly - see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352) that such evidence could not properly be used as an aid to construction.

Should Rectification be Granted? 106 Though my conclusions about the construction of Clause 8 means that there is no occasion for it to be rectified, I should make some remarks on that topic lest another court disagree with my view about construction. Rectification of an agreement requires there to be "a continuing common intention of the parties" (Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J), and convincing proof "that the written contract does not embody the final intention of the parties" (ibid). In the present case there was no direct evidence from Mr Lindsay-Owen about what his intention was in executing the Terms of Settlement on behalf of URE. There was, however, evidence from Mr Somerset, the solicitor who had the prime role in the negotiation of the Terms of Settlement on behalf of URE, and also from Mr Gray, a barrister who had a subsidiary role on behalf of URE concerning the entering of the Terms. Mr Somerset was of the view that Mr Lindsay-Owen already owned the Gilbert Painten Share, and that the subject matter of Clause 8 was the Lopmand Painten Share. Mr Gray was briefed for Mr Lindsay-Owen in proceedings 1913 of 1999, but was not briefed in proceedings 4039 of 1999. Though the parties took the opportunity of proceedings 1913 of 1999 being listed for hearing to settle proceedings 4039 of 1999 as well, Mr Gray did not have a copy of the pleadings in 4039 of 1999 - and knowing the terms of the Cross-Claim in proceeding 4039 of 1999 was essential to an understanding of Clause 8 of the Terms of Settlement. Mr Gray's understanding was that Clause 8 of the Terms of Settlement related to the Lopmand Painten Share, but that understanding was derived from his discussions with Mr Somerset, not from having actually participated in the negotiation of the settlement, or formed his own view about what the Cross-Claim alleged. 107 I accept that it was Mr Lake's intention that Clause 8 refer to the Gilbert Painten Share. However, I am not persuaded that there was any continuing common intention of that kind. Nor am I persuaded that Mr Lake made any mistake about the construction of Clause 8, nor that the Lindsay-Owen interests were aware that he was making any such mistake. 108 The evidence of Mr Somerset is completely inconsistent with him having any intention that Clause 9(a) ought to have made provision for a transfer of the Lopmand Painten Share. Hence I am not persuaded that there was any continuing common intention concerning that topic. Neither am I persuaded that Mr Lindsay-Owen or those acting for him, were of the view that Mr Lake mistakenly thought that Clause 9(a) made provision for a transfer of the Lopmand Painten Share, and took advantage of that mistake. 109 Through their differing constructions of Clause 8 and Clause 9(a) there was some measure of common intention between the parties, namely that if the settlement was fully implemented the Lindsay-Owen interests would end up with both the Gilbert Painten Share and the Lopmand Painten Share plus $150,000, in discharge of the entire obligation of the Lake interests relating to the loan of $250,000. However, in circumstances where the settlement was not fully implemented, and ascertaining the rights of the parties in the situation where the settlement was not fully implemented involves close analysis of particular clauses in the Terms of Settlement, this measure of common intention is not enough to give rise to a right of rectification. 110 When I am not persuaded that there is a factual basis for rectification considering only the beliefs and intention of Mr Lindsay-Owen, Mr Lake and Lopmand concerning the Terms of Settlement, there is no occasion to consider whether there is any significance in the failure to join as parties to these proceedings other parties to the Terms of Settlement, namely Mrs Lake and Mr Noss. Mistake 111 In the alternative, Lopmand and Mr Lake allege that they entered the Terms of Settlement under a mistake as to the meaning of Clause 8 and Clause 9(a), that URE was aware of their mistake and took advantage of it and consequently the Terms of Settlement can be rescinded, by reason of that unilateral mistake (cf Carter and Harland, Contract Law in Australia, 4th edition, paragraph [1264]-[1266].) For reasons given in connection with the rectification claim, I am not satisfied that Mr Lake and Lopmand were under any mistake at all, so far as the meaning of Clause 8 is concerned. Nor am I satisfied that they were under any mistake, which was known to URE, so far as the terms of Clause 9(a) is concerned. Hence this claim fails. 112 As well a submission was put that the Terms of Settlement did not amount to a contract, because the parties meant fundamentally different things by Clause 8 and Clause 9(a), and hence there was a failure of correspondence between offer and acceptance. This submission was stated baldly, without being argued for. I reject it. It is a consequence of the objective theory of contract formation that the subjective intentions of parties are not taken into account in deciding whether a contract has been formed: Taylor v Johnson (1983) 151 CLR 422. As well, where a contract takes the form of a document which all parties to the contract execute and which is intended (as the Terms of Settlement were) to embody the totality of the contract, offer and acceptance is not the means by which that contract has been entered. It may well be the case (as was the case with the Terms of Settlement) that there was a process of negotiation leading to the entering of the contract, but that process of negotiation is not itself part of the contract. The Repudiation Allegation 113 The Lake interests assert that the conduct of URE in prosecuting these proceedings, claiming the whole amount it alleges is owed (in a sum slightly larger than $618,000), and claiming to own both the Gilbert Painten Share and the Lopmand Painten Share absolutely amounts to a repudiation of the Terms of Settlement. The Lake interests say that they accept that repudiation. They also say that, in consequence, the parties are now placed in the position that the Terms of Settlement never existed. The first and third of these contentions of the Lake interests must be examined. 114 The first question is whether by making the claims it makes in these proceedings, URE has repudiated the Terms of Settlement. 115 Clause 8 of the Terms of Settlement involved a withdrawal of the Cross-Claim in the proceedings. That part of the Terms involved action on the part of the Lake interests alone, and has been carried out by them. 116 Clause 9 imposed an obligation on URE to accept particular terms for the settlement of this present set of proceedings, on condition that $150,000 was paid to it by a particular time. That condition was not met. Hence Clause 9 does not, in the events which have occurred, inhibit the claims which URE can make in these proceedings. I do not accept that URE has repudiated the Terms of Settlement. 117 Even if there had been a repudiation of the Terms of Settlement, which had been accepted, this would not have placed the Lake interests in the position that the Settlement Agreement had never existed. There is a fundamental distinction between termination of a contract following breach, and rescission of a contract in Equity. Termination of a contract following repudiation keeps the contract in existence (so that any terms which are intended to deal with the consequences of breach or termination remain operative) but discharges both parties from any obligation to perform contractual obligations which have not been performed by the time of termination (see Heyman v Darwins Ltd [1942] AC 356 at 399, McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477, Moschi v Lep Air Services Ltd [1973] AC 331 at 350.) By contrast, equity regards a contract as rescinded when there were circumstances concerning its formation, such as misrepresentation, mistake, or undue influence, which are such that, in equity's eyes, no proper contract came into existence at all. In these circumstances, equity seeks to put the parties back, so far as practically can be done, into the same situation they would have been in had the contract never been entered. Hence, the shorthand slogan that termination of a contract at law operates in futuro, while rescission of a contract in equity undoes the contract ab initio. 118 Dixon J explained the difference between termination and rescission in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 as follows: "When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the condition as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach." 119 Thus, even if there had been a repudiation which had been accepted, the Lake interests would not be put in the position that the Terms of Settlement had never existed; they would only be put into the position that the Terms of Settlement need not be performed any further. 120 The effect of the findings I have made so far is that, once the time for payment of the $150,000 under the Terms of Settlement had passed, URE was entitled (by virtue of the withdrawal of the Cross-Claim in these proceedings and Clause 8 of the Terms of Settlement) to be registered as the owner of the Gilbert Painten Share. Pursuant to that entitlement, Lindsay-Owen Holdings Pty Limited became the holder of one of the shares in Painten. URE was entitled to sue for the full amount of its debt, plus interest. URE had an equitable charge over the Lopmand Painten Share as security for that debt and interest. Further, as part of the Agreement that URE should have the same security rights as Gilbert Frank had had, URE was entitled to a transfer of the Lopmand Painten Share. The Factual Basis of the Oppression Case 121 On 7 May 1998 an Annual General Meeting of Painten was held. Mr Lake attended, accompanied by his solicitor, Mr Tomlinson. By the time of this meeting, Mr Lindsay-Owen had obtained from Mr Allen the transfer of the Gilbert Painten Share which Mr Allen had received in November 1995 (see paragraph 65 above), but that transfer had not been registered. Mr Lindsay-Owen tabled a proxy from Gilbert Frank in favour of himself. A resolution for adjournment put by Mr Lake was defeated, and submissions by Mr Tomlinson that the proxy was not in proper form were not accepted by Mr Lindsay-Owen. The meeting then proceeded to adopt accounts, resolve that no dividend be declared, and to appoint a Ms Carroll (who is Mr Lindsay-Owen's sister) as a director. Mr Lake voted against the resolutions for adoption of the accounts and appointment of Ms Carroll, and abstained from voting on the resolution that no dividend be declared. 122 On 4 June 1998 Gilbert Frank wrote to Painten Holdings saying: "We understand that the Annual General Meeting (AGM) of Painten Holdings Pty Limited was held on Thursday May 7, 1998 and that the following resolutions were passed at that meeting as evidence in the enclosed attachment. We confirm our support and are in favour of all resolutions passed at the aforementioned meeting." 123 The letter enclosed a copy of the minutes of the Annual General Meeting, which Mr Alexander had signed on each page. 124 The share register of Painten was not tendered in evidence. Annual returns of Painten lodged with ASIC for each of the financial years ended 30 June 1993 to 1999 inclusive show the company as having three issued shares, held respectively by Gilbert Frank, Lopmand and URE, each of which was beneficially held by the shareholder. The ASIC annual return for the year ended 30 June 2000 shows one of the shares continuing to be held by URE, and two of the shares held by Lindsay-Owen Holdings Pty Ltd, with each share held beneficially by the registered owner. 125 In about 1999 Mr Lindsay-Owen realised that he did not hold a transfer for the Lopmand Painten share. Mr Alexander then, at Mr Lindsay-Owen's request, procured the execution by Gilbert Frank of a transfer, in blank, of one share in Painten, and gave that transfer to Mr Lindsay-Owen. I infer that Lindsay-Owen Holdings Pty Limited became the registered proprietor of two of the shares in Painten as a result of Mr Lindsay-Owen causing the name of Lindsay-Owen Holdings Pty Limited to be inserted in the space for the name of transferee in the transfer in blank of the Gilbert Painten Share which Mr Lindsay-Owen received from Mr Allen on 15 November 1999, and in the transfer in blank which Gilbert Frank executed in 1999. The transfer in blank which Gilbert Frank executed in 1999 was treated by the Lindsay-Owen interests, when taken in conjunction with the transfer of the Lopmand Painten Share which Lopmand had executed in favour of Gilbert Frank, as creating a chain of title which enabled Lindsay-Owen Holdings Pty Limited to become a registered holder of the Lopmand Painten Share. 126 The Corporations Act 2001 (Cth) confers various obligations on a company in relation to its members. Section 249J confers an obligation to give written notice of a meeting of members to each member entitled to vote at the meeting. Section 314 imposes an obligation to send annual accounts and reports to a shareholder. 127 Lopmand has received no financial statements, dividends or Notices of Annual General Meetings from Painten for the 1996, 1998, 1999, 2000 or 2001 financial years. However, it has not been established that any shareholder in Painten received a dividend in any of those years. While Mr Lake remained a director of Painten until his resignation pursuant to the November 2000 Terms of Settlement, he took no part in the administration of Painten from the time, at least, of the May 1998 Annual General Meeting of Painten. Oppression

128 The Corporations Act 2001 (Cth) provides: "232 The Court may make an order under section 233 if: (a) the conduct of a company's affairs … is … (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity 233(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order: (a) that the company be wound up … (d) for the purchase of any shares by any member … (e) for the purchase of shares with an appropriate reduction of the company's share capital … (j) requiring a person to do a specified act. 234 An application for an order under section 233 in relation to a company may be made by: … (c) a person who ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member. 129 Lopmand submits that it is eligible, under section 234, to apply for an order under section 233. This submission could not succeed in relation to Lopmand's claimed interest in the Gilbert Painten Share, because Lopmand was never a member of Painten in respect of that share. The only claim Lopmand has put forward in relation to that share is that it has certain equitable rights in relation to it. I have held that it does not presently have any such equitable rights in relation to the Gilbert Painten Share. However, even if it had at one time had equitable rights in relation to the Gilbert Painten Share, that would not suffice to bring it within section 234. 130 Lopmand was, once, a member of Painten in relation to the Lopmand Painten Share, and it is no longer a member due to the registration of Lindsay-Owen Holdings Pty Limited as the holder of that share. I will assume, without deciding, that that circumstance suffices to give Lopmand standing to apply for an order under section 233, by virtue of section 234(c). 131 To decide whether the circumstances in which Lopmand came to cease to be a member of Painten, and Lindsay-Owen Holdings Pty Limited became a member of Painten involves conduct which is "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Lopmand requires a consideration, in light of the findings of fact which I have already made, of the rights and powers which URE had in relation to the Lopmand Painten Share. 132 I have held that URE was entitled, in relation to the Lopmand Painten Share, to have the same security rights as Gilbert Frank had had over it. I infer that it was the intention of Gilbert Frank and Lopmand to have created an equitable mortgage of the share, by deposit of the certificate accompanied by a transfer in favour of Gilbert Frank. This inference is only a very modest advance, if indeed it is any advance at all, over the express terms of the letter dated 29 September 1993 (set out in paragraph 7 above). The loss of the certificate meant that that intention could not be carried out. However, Lopmand's handing over the declaration re lost certificate amounted, it seems to me, to putting Gilbert Frank into the position of being able to obtain from Painten, upon application, a replacement certificate, and of then having an equitable mortgage by deposit of the replacement certificate, accompanied by a transfer in favour of Gilbert Frank. 133 In Harold v Plenty [1901] 2 Ch 314 at 316 Cozens-Hardy J explained the consequences which arise as a matter of law from depositing a share certificate with a lender as security for the debt: "The deposit of the certificate by way of security for the debt … seems to me to amount to an equitable mortgage, or, in other words, an agreement to execute a transfer of the shares by way of mortgage." 134 Such a mortgage entitles the equitable mortgagee to obtain an absolute title to the share himself, unfettered by any equity of redemption, by going through the procedures appropriate to foreclosure (Harold v Plenty [1901] 2 Ch 314), and also confers an implied power of sale, after the mortgagee gives reasonable notice to the mortgagor (Deverges v Sandemen Clark & Co [1902] 1 Ch 579; Stubbs v Slater [1910] 1 Ch 632.) 135 In 1999, Gilbert Frank had no right to execute a transfer in blank relating to the Lopmand Painten Share. By then, all the rights of Gilbert Frank relating to the Lopmand Painten Share had ceased. These had ceased in May 1994, when the debt as security for which it had had rights in the Lopmand Painten Share was repaid. However, at the time that URE obtained from Gilbert Frank that transfer in blank of the Lopmand Painten Share, URE had a right (which it did not exercise) to obtain from Lopmand a transfer of that same share, by way of mortgage. 136 For Lindsay-Owen Holdings to become the registered holder of the Lopmand Painten Share was irregular. One reason was because part of its chain of title relating to the share was the transfer in blank which Gilbert Frank executed in 1999, when Gilbert Frank had no power to execute any such document. As well, though, it was irregular because URE did not effect the transfer to Lindsay-Owen Holdings Pty Limited in exercise of any power of sale which it had over the Lopmand Painten Share. Nor had any notice of intention to exercise any power of sale over that share been given to Lopmand. Thus, Lindsay-Owen Holdings was, and is, not entitled to become a member of Painten. 137 However, it is within the power of an equitable mortgagee of shares by deposit, accompanied by a transfer in favour of itself, to register the transfer so as to itself become the registered holder of the shares. If URE had chosen to do so, it could have become a member of Painten subject to Lopmand having an equity of redemption in that share. If URE had adopted this course, it would have been, notwithstanding that equity of redemption, a "member" of Lopmand for the purpose of Painten's performance of the various statutory duties which it owes to its members. Thus, it would have been URE which was entitled to receive reports and notices of meeting : Re Fernlake Pty Ltd (1994) 13 ACSR 600. A mortgagee of shares who is on the register can (in the absence of any contract requiring otherwise) vote as it wishes, even before any right to enforce the security has arisen: Siemens Bros & Co Ltd v Burns [1918] 2 Ch 324; Musselwhite v CH Musselwhite & Son Ltd [1962] 1 Ch 964. Thus, URE had the right to ensure that Lopmand did not receive any financial statements or notice of Annual General Meeting, or exercise any vote in relation to the affairs of Painten. That is to say, URE had the right to ensure that Lopmand was placed into the position, concerning the affairs of Painten, which Lopmand says entitles it to an order under section 233. 138 In circumstances where Lindsay-Owen Holdings is wholly owned by Mr Lindsay-Owen, and wholly under his control, and it had notice of all the facts which gave rise to Lopmand having an equity of redemption in the Lopmand Painten Share, Lindsay-Owen Holdings now holds the Lopmand Painten Share subject to Lopmand's equity of redemption in that share. It is the registration of Lindsay-Owen Holdings Pty Limited which has given rise to Lopmand being cut out, in the various ways in which it complains, from participation in the affairs of Painten. However, what Lindsay-Owen Holdings Pty Limited did in that way is no more than URE was entitled to do. The registration of Lindsay-Owen Holdings Pty Limited was wrongful, but not in a way which has caused Lopmand to have fewer rights than it was entitled to have. All that has happened is that one company controlled by Mr Lindsay-Owen has become the registered owner of the Lopmand Painten Share when it was not entitled to, but in circumstances where another company controlled by Mr Lindsay-Owen was entitled. In these circumstances the action of Lindsay-Owen Holdings Pty Limited becoming the registered holder of that share, and the consequences of its being so registered, do not amount to conduct which is "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Lopmand. I decline to make any order under section 233 of the Corporations Act. Rectification of the Register 139 Section 168 of the Corporations Act requires a company to set up and maintain a register of members, containing the information prescribed by section 169 of the Corporations Act. Section 175 of the Corporations Act provides: "(1) a … person aggrieved may apply to the Court to have a register kept by the company … under this Part corrected." 140 For reasons which I have already given, Lindsay-Owen Holdings Pty Limited is not presently entitled to be a member of Painten. The identity of the company entitled to be registered in its place, however, depends upon a choice which URE has open to it. Because URE is entitled to have a share transfer from Lopmand, relating to the Lopmand Painten Share, and is also entitled, if it so desires, to lodge that transfer and then become registered, it would be URE who would be entitled to be on the register, if it made that choice. In default of URE making that choice, it is Lopmand which is entitled to be on the register. I propose to make an order for rectification of the register in a way which gives URE that choice. Because there may be implications arising under revenue law relating to which choice it makes, concerning which URE may need to seek advice, I will not require that choice to be made quickly. A form of order appropriate for giving URE that choice would be "Order that the register of members of Painten Holdings Pty Limited be rectified

(a) by removing the entry or entries showing Lindsay-Owen Holdings Pty Limited as the holder of two shares, and replacing that entry or entries with an entry showing Lindsay-Owen Holdings Pty Limited as the holder of one share;

(b) if United Rural Enterprises Pty Limited delivers to the registered office of Painten Holdings Pty Limited on or before [date] 2003, and also delivers to the registered office of Lopmand Pty Limited on or before that same date, a notice in writing that it elects to become registered as the holder of one share in Painten Holdings Pty Limited, by recording United Rural Enterprises Pty Limited as the holder of one share;

(c) in the event that United Rural Enterprises Pty Limited does not deliver the notices referred to in (b) on or before the date referred to in (b), by registering Lopmand Pty Limited as the holder of one share". Order for Inspection of Records 141 Lopmand sought an order for inspection of the books of Painten. One basis on which it sought this order was under section 233(1)(j) of the Corporations Act. I have already held that the occasion for making an order under section 233 does not arise. Another basis on which the order was sought was under section 247A of the Corporations Act which reads: (1) On application by a member of company … the Court may make an order: (a) authorising the applicant to inspect books of the company …; or (b) authorising another person (whether a member or not) to inspect books of the company … on the applicant's behalf The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose." 142 Entitlement to relief under this section is dependant upon Lopmand being a member of the company. As it is not presently a member, it has no present entitlement to such an order. If it were to become a member, the situation would need to be reconsidered. I propose to reject the application now made for inspection of the books of the company, but without prejudice to the right of Lopmand to make a fresh application should it become a member of Painten. Orders

(a) the parties to bring in short minutes of order to give effect to these reasons for judgment.

(b) an appointment for the bringing in of such short minutes to made within seven days of the handing down of these reasons for judgment. **********

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