(2008) 251 ALR 322
Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405
Sargant v ASL Developments Ltd
Turnbull v ASL Developments Ltd (1974) 131 CLR 634
Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59
(1998) 195 CLR 566 Baumgartner v Baumgartner [1987] HCA 59
(1985) 160 CLR 583
Sargent v ASL Developments Ltd
Source
Original judgment source is linked above.
Catchwords
(2008) 251 ALR 322
Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405
Sargant v ASL Developments LtdTurnbull v ASL Developments Ltd (1974) 131 CLR 634
Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59(1998) 195 CLR 566 Baumgartner v Baumgartner [1987] HCA 59(1985) 160 CLR 583
Sargent v ASL Developments LtdTurnball v ASL Developments Ltd (1974) 131 CLR 634
United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49
Judgment (7 paragraphs)
[1]
Background facts
20Turning then to the factual background to the present dispute, I note as follows:
General background
21Both Mr Scarborough and Mr Walters are businessmen and have, during the course of their respective business careers, been involved in various business enterprises.
22From around 2003, Mr Scarborough had operated a business under the registered business name AAA Trade Power, through which Mr Scarborough organised groups of contractors and workmen to perform home building services work, including carpet cleaning, pest control, window cleaning and related activities. As at 2009, he was also registered with an ABN to trade under the names Connectors Call and Commission Centre and World Wide Home Loans. He was not involved in the business of roofing insulation at that time (although from time to time it is possible that tradesmen arranged through AAA Trade Power may have carried out such work for customers if that arose incidentally as part of the home building services provided by tradesmen organised by him - T 154).
23Mr Walters had also operated a number of businesses prior to the events in question in 2009 and over a longer period. In his first affidavit, Mr Walters deposes to having been the principal owner of an importing/exporting business called Heaven & Earth Pty Ltd for approximately ten years between 1993 and 2003. (Mr Scarborough was aware generally of Mr Walters' business background in that he says Mr Walters had told him that he had had an import/export business importing gold from Hong Kong and that he had lived in Hong Kong for 8-15 years and had experience negotiating with the Chinese (T 161).) Mr Walters, for his part, admitted that he had experience in running an export business to the Philippines and did not deny that he had spent time working and carrying on business in Hong Kong.
24As at early 2009, Mr Walters (through Heaven & Earth, which was wholly owned by a company owned in turn by Mr Walters and his wife, First Art Pty Ltd) was carrying on a gourmet hamburger business operating out of two "Real Deal Gourmet Hamburgers" cafes, one at Bondi and one at Darlinghurst. During March/April 2009, Mr Walters was trying to sell the Darlinghurst cafe business (T 39) but does not accept that the company was in financial difficulties at that stage. Heaven & Earth was placed into liquidation by early June 2009 (due, according to Mr Walters, to a debt in respect of which he said he had put forward a compromise for settlement and had heard nothing since then). Mr Walters said that he only became aware of the liquidation after the fact (since the notices had been sent to a different address). Mr Walters nevertheless accepted in the witness box that he was in a position of personal financial difficulty at least by around July/August 2009.
25Mr Walters and Mr Scarborough first met in about 2005 in a social context, their respective children then attending the same school and their wives having become friends. They regularly had coffee together at either Bondi or Coogee (the venue for many of the now disputed conversations as to the alleged partnership or joint venture) and generally this occurred in the early evening from around 6.30pm onwards. During those meetings, Mr Scarborough and Mr Walters discussed (it is not suggested exclusively) their respective businesses and new or potential business opportunities. They also regularly engaged in conversations on Skype.
26Mr Scarborough gave evidence that there had been earlier financial transactions between he and Mr Walters during the course of their friendship. He refers to a loan (not disputed by Mr Walters) of $60,000 made by Mr Walters to him between 5 and 7 August 2007 (which he says he repaid by instalments between 20 August 2007 and 1 November 2007) to buy land on which to establish a duck farm in Thailand (para [18] of Mr Scarborough's affidavit sworn 2 February 2011); that loan being undocumented, without any obligation to pay interest, and described by Mr Scarborough as a "private transaction between friends". (This is relied upon as dispelling the suggestion that payment later of a sum of $20,000 by Mr Walters in connection with the ceiling batts was more than an act of friendship.)
27In turn, Mr Scarborough says that he had helped Mr Walters over the years (as described in paras [20] and [25] - [28] of his affidavit). While Mr Walters disputes the extent of the assistance provided by Mr Scarborough in his businesses over the years, it does not seem to be disputed that both men had provided assistance, support or advice of one kind or another in relation to the other's business affairs during the course of their relationship (the Skype conversations, for example, disclose that during 2009 Mr Scarborough had discussed with Mr Walters matters relating to the proposed sale of the gourmet hamburger businesses and the latter's dealings with the liquidator of Heaven & Earth, though there is no suggestion that Mr Scarborough was in any way involved in those businesses or that company).
Announcement of insulation rebate scheme
28In early 2009, the Federal Government announced an incentive programme for the installation of home roof insulation as part of an energy initiative. It seems that both Mr Walters and Mr Scarborough saw this as a potential business opportunity (presumably anticipating a demand for the supply of ceiling batts for those seeking to take up the rebates offered). Mr Walters referred to that announcement in a Skype conversation with Mr Scarborough on 28 February 2009 (CB 105). Mr Scarborough's evidence was that he was already aware of the announced rebate scheme. Nothing turns, however, on who first introduced the topic. What is relevant is that both seem to have seen this as a business opportunity for themselves individually (not jointly) and Mr Scarborough, in particular, seems to have contemplated the implementation of this (for his part at least) through the "infrastructure that I already have in place" (CB 105A), by which I understood him to be referring to the AAA Trade Power business name under which he was already operating.
29In February 2009, Mr Scarborough (acting under the business name AAA Trade Power) took steps to take up the business opportunity so presented, by placing advertisements offering to install home insulation roofing batts in houses under the government scheme and starting to purchase quantities of ceiling batts from local suppliers. (Indeed, a constant theme throughout the communications between the men during the period from early 2009 to August 2009 was the sourcing of locally produced ceiling batts for use in Mr Scarborough's business and the mechanics of securing those products from local hardware stores. Mr Walters, for example, assisted in collecting batts from various stores for use by Mr Scarborough in his installation business (and was reimbursed from time to time for petrol/diesel costs and toll charges in so doing). However, there is no suggestion that this formed any part of the alleged partnership or joint venture - that relating only to the imported batts. Therefore, any amounts expended on those matters cannot be part of any claim in relation to the present proceedings.) At that stage, i.e. in February, according to Mr Scarborough, there was not a shortage of batts but he thought there was a potential shortage to come (T 157) and he says that he realised in early March that he should look at the importation of batts in conjunction with retail purchases having regard to the likelihood that there would be a shortage (T 157).
30On 9 March 2009, the first AAA Trade Power batt installation quote was noted in a Customer Order Book kept by Mrs Scarborough, marking the commencement of AAA Trade Power's involvement in the rebate scheme.
31Around March 2009, it seems (from the content of the Skype conversations) that what Mr Walters and Mr Scarborough were discussing was the way in which each might (independently) exploit the business opportunities presented by the government scheme (albeit perhaps with assistance from the other). So, for example, when Mr Scarborough told Mr Walters in a Skype conversation on 3 March 2009 that he had applied for registration as a government authorised insulation installer, the response from Mr Walters was "u beat me to it" (CB 106) and, on 5 March 2009, Mr Walters referred to his own attempts at registering "for insulation" (CB 107).
32Similarly, Mr Scarborough referred in a Skype conversation that day to the number of bookings taken at that stage for ceiling insulation. The reference in that conversation to "We took [the bookings]" and "We now have [a total number of responses booked in for measurements and quotes]", must logically be a reference by Mr Scarborough to the business he was conducting (with the assistance of his wife) through the business name AAA Trade Power (since there is no suggestion at that stage that any bookings were being taken for a joint enterprise with Mr Walters). (I raise this because there is scope for ambiguity in at least some of the later Skype conversations as to what was meant by "we" when used by Mr Scarborough - it not always being clear from the content whether Mr Scarborough meant by that pronoun he and his wife or he and Mr Walters. I note that on at least some occasions, such as when working out the costing for the importation of the batts and comparing those costs with "our" current costs, I accept Mr Scarborough's evidence that he was there referring to the AAA Trade Power business conducted by him with his wife and not any potential enterprise with Mr Walters. On other occasions, such as the reference to a million dollars profit "each", I consider that the most logical reading of the transcript is that Mr Scarborough (despite his evidence in the witness box to the contrary) must have been referring to a joint enterprise of some kind with Mr Walters.)
Oz Insulations (Mr Walters' business name)
33On 6 March 2009, Mr Walters applied to register the name "Oz Insulations" as a business name (Exhibit 3). This, in the context of his stated intention the day before to register 'for insulation', and his comment "u beat me to it", is consistent with Mr Walters setting himself up as an insulation installer in his own right (and the nature of the business specified in the business names application was "Install Roof Insulation Panels"). In the application form, Mr Walters identified the entity carrying on the business as Heaven & Earth "as at 17 March 2009". Mr Walters sought Mr Scarborough's opinion as to the name that sounded better (Aus Insulations or Oz Insulations) but there was no suggestion that this name was to be for a joint vehicle. (This might give some credence to the proposition that later soundings of Mr Scarborough by Mr Walters as to company or business names were not necessarily referable to joint entities, although the context of those later communications suggests that Mr Walters was referring to entities in which Mr Scarborough was then to be involved.)
34Mr Walters contends that the Oz Insulations business name was registered for the purpose of providing a second quotation on work for which AAA Trade Power had quoted (T 40.49) and was never active (T 40.25). There is some discussion contained in the Skype communications that tends to support the assertion that the business name "Oz Insulations" was only intended to be used for the provision of quotes (although that is inconsistent with its stated purpose at the time of application for registration and with the earlier Skype communications referred to above). So, for example, Mr Walters' Skype communication to Mr Scarborough on 6 March 2009 referred to someone ("your guy") who wanted a second quote and from whom Mr Walters had not heard. There are also references in the Skype conversations, at least throughout the period from March to June 2009, as to the provision of second quotes (those apparently being needed at that stage as a requirement of the government rebate scheme) and as to complaints about "friendlies" in the quote process involving other companies and the need to "distance" AAA Trade Power and Oz Insulations in advertisements.
35However, given that the name Oz Insulations was registered before the discussions in which Mr Walters says that agreement was reached for a partnership or joint venture in relation to the importation of ceiling batts, and before (or on the same day as) the conversation in which importation of batts is said first to have been raised (and given the reference in the Skype conversation the day before as to his attempts at registration for insulation, coupled with the purpose stated on the application for registration), it seems to me that the inference to be drawn from the registration of this business name on 6 March 2009 must be that at that stage Mr Walters had (at least in contemplation, if not the actual intention) the idea of himself becoming involved in his own business involving ceiling batt insulation.
36Mr Walters described himself as someone who was on the look out for any business opportunity (T 76), which in my view makes it not at all inconceivable that Mr Walters may have been interested, as the early Skype communications suggest, in becoming involved independently of Mr Scarborough in the importation of ceiling batts (i.e. in order to explore a business opportunity for himself rather than by way of entry into any joint enterprise, to use a neutral term, with Mr Scarborough to do so).
37Mr Walters accepted in the witness box that Mr Scarborough did not ask him to register Oz Insulations as a business name (T 70.20; T 71.18) and that he did not record any discussion in his affidavit about this, but says this is "because it wasn't relevant for importation of batts" and was "very separate" (for the purpose of giving second quotes for second quotes for home installations) (T 70.30).
Discussions re importation of batts in March 2009
38Mr Walters alleges (and Mr Scarborough denies) that on 6 March 2009, he had a conversation with Mr Scarborough at a coffee shop at Bondi some time after 7.30pm in which he says he referred to the possibility of obtaining supplies of ceiling batts from China and in which he says that Mr Scarborough said "Let's both us look into this and see if it is worth pursuing, if it is then we can do a joint venture and go into business together" ([10] of Mr Walters' first affidavit, the substance of that conversation being denied by Mr Scarborough). The Skype conversation recorded on 6 March 2009 at around 6.30pm suggests that the two had agreed to meet for coffee at around that time (CB 109). However, there is no reference in the Skype conversation recorded the following morning to any discussion the previous day as to (or as to the investigation of) the possibility of a joint venture or joint enterprise in this regard.
39I interpose to note that Mr Walters attributed a number of conversations to meetings over coffee in Bondi (or Coogee) at around 6.30pm, largely it would seem on the basis that this was around the time that the pair tended to meet for coffee (and Mr Scarborough does not deny that there were many such meetings over the period in question, at which he says there were wide-ranging discussions about a number of matters). There is reference in the Skype communications to some of those meetings (such as the 6 March meeting) that supports Mr Walters' recollection as to the time or date of those meetings (and perhaps from which Mr Walters' recollection was refreshed).
40On other occasions (such as the 7 March 2009 coffee shop meeting said to have occurred some time after 6pm (para [11] of Mr Walters' affidavit) or the later coffee shop meeting said to have occurred on 20 August 2009) the Skype transcript is silent as to such a meeting and/or seems inconsistent either with there having been such a meeting or as to the time or venue at which it is said to have occurred. So, for example, on 7 March 2009, there is a Skype message by Mr Walters at 5:29:30pm enquiring as to follow up insulation calls and silence until another entry at 7:43:48pm "R u there", without any reference (before or after) to a coffee shop meeting in between. Even more obvious is the inconsistency between Mr Walters' account of the 20 August 2009 coffee shop meeting (to which I refer later) insofar as the conversation he deposes to there having taken place is said to have occurred at a time after the internet transfer of the funds he says Mr Scarborough offered to pay him in that conversation (something, if not impossible, then highly unlikely unless Mr Scarborough had a crystal ball when he made the transfers before the request for them.)
41Mr Walters says that on 7 March 2009, in the coffee shop meeting to which I have referred above, he again discussed the sourcing of supplies from overseas, possibly China, and suggested that he "focus on sourcing, ordering, shipping, and importation of the goods from the supplier, everything that needs to be done to get them into a Sydney warehouse". He says that Mr Scarborough agreed with that proposition. (Again, the substance of that conversation is denied by Mr Scarborough.)
42By this time, Mr Scarborough already seems to have been making enquiries as to possible overseas suppliers of batts. On 8 March 2009 he informed Mr Walters in a Skype conversation that he had researched manufacturers on an "Alibaba" search vehicle and had sent out an enquiry as to manufacture of batts referring to some of the specifications for those batts for use in Australia. He also referred Mr Walters to the website of an organisation in China (Zibo Double Egret Imp & Exp Co Ltd, also apparently identified in some of the email communications from Mr Rosen Peng, the owner or manager of that business, as Double Egret International Industry). Although it is fair to say that Mr Walters' first affidavit might be read as suggesting that it was he who had initiated this contact, in the witness box Mr Walters readily accepted that Mr Scarborough had referred Double Egret's details to him to follow up.)
43In their 8 March Skype conversation as to the Double Egret possibility, Mr Scarborough said:
I think, if they prove to be good, a trip to China is required immediately. I am, at this stage, assuming that it would be you that goes (after TRD [i.e. The Real Deal gourmet hamburger cafe in] Darlinghurst has sold, assuming you want to and are available to go - am thinking out loud here). My best guess is that it would probably take a week of travel and do the business in China. Cost wise - go halves in all expenses (CB 110)
44While the suggestion of a trip overseas to investigate the possibility of importing batts is not inconsistent with both men pursuing independently the opportunity to make money out of the process (and simply assisting each other in that enterprise), the fact that Mr Scarborough seems readily to have made the assumption that Mr Walters would travel to China to "do the business" there suggest some understanding on his part at that stage as to the potential for a joint enterprise of some kind between the two in relation to the importation of ceiling batts. Mr Scarborough said that Mr Walters was interested in travelling to Thailand but that would not necessarily explain the assumption stated above. However, again, the suggestion of a trip to China seems to be in the context of investigation as to the possibility of some kind of joint importation of batts rather than there being any arrangement to do business together in relation to those batts.
45There were further Skype communications between the pair from 8 - 11 March 2009 as to local Council rebates; potential suppliers in China; second quotes for customers (in the context of which Mr Scarborough seems to have used the word "we" as referable to his business not including Mr Walters - see 9/3/09 at 11:55:02 "what did we go in at?"); reference to freight costs and sailing time from China; and calculations as to costs related to the transport and package of batts, in the context of which Mr Scarborough suggested that there could be "a saving of $301 more than half our current costs" (which could only logically be a reference to his (under the trade name AAA Trade Power) current costs of purchasing locally sourced batts). Mr Scarborough's calculations led him to observe that a $316 saving was "very substantial and very much in our favour", which again would seem more logically to be read as a reference to the business conducted with his wife (although I accept that it could also be read as meaning that the cost saving would be favourable to a jointly conducted business). At T 174.29, Mr Scarborough was asked about the reference to "we are still under half price an incredible saving" and accepted that this could refer to Mr Walters "if he was doing the installing correct but if he is not doing installation it related to myself and my wife".
46Reference was also made in the Skype communications over this period to the onus being on the installer to make sure the product met Australian standards and to the need for it to be tested and approved. On Skype, Mr Scarborough asked Mr Walters' opinion on how that could be done (although in the witness box he gave evidence that he had also been involved in this aspect of the process).
47(The conversations at that time also ranged over other topics in which it was not suggested that Mr Scarborough had any business interest or involvement, including the negotiations for the sale of Mr Walters' Darlinghurst gourmet hamburger business.)
48At 10:33:40pm on 10 March 2009, Mr Scarborough said "At that rate we would be importing 2-3 containers per week". Again, Mr Scarborough says that this was a reference to what he and his wife would be importing for their business. By this stage, however, if it was not Mr Scarborough's intention to refer to a joint enterprise with Mr Walters, there was at least scope for it to be read that way (and it seems to me likely that in at least some of the communications he and Mr Walters may have been at cross-purposes in this regard).
49There were also communications in that period as to the use of a backpacker (named Samantha) to knock on doors and seek quotes for the ceiling batt installations, in the hire of which both Mr Scarborough and Mr Walters were involved (again possibly for their separate business purposes). Mr Scarborough was also providing updates on, and information to Mr Walters about the 'putting together' of, quotes on ceiling insulation.
50Interestingly, the Skype conversation on 11 March 2009 in relation to 2 quotes issued by Samantha focussed on the name in which those quotes were issued. Mr Walters noted that they were "done under Tradepower" and questioned why this was the case (CB 116A). (Such a query seems inexplicable if the mutual understanding of the parties was that each was to carry out his own separate business of home installation.) Mr Scarborough's response to this is equally revealing, namely to say "if and when u get ur first booking - simply let me know and I will get 1 of my guys to complete it" and to point out that, as the quotes had been issued by Trade Power, "u have to do the 2 nd quote" (a reference, as I understand it, to the second quote then part of the requirements for a government rebate). (In other words, Mr Scarborough was there drawing a clear distinction between the two businesses).
51This suggests that at this point there may have been disconformity between what each of the pair understood was happening in relation to the proposed importation or any business involved therewith. Mr Walters' query suggests that he thought the quotes should have been issued as part of a joint business or enterprise between the two of them. Mr Scarborough's response suggests that what he understood was happening was that Mr Walters would be operating his own business in relation to the importation and sale of the batts and hence taking his own bookings for the batts (i.e. separate from those taken by Trade Power). Nevertheless, Mr Scarborough's response should have drawn to Mr Walters' attention that there was no then common understanding as to a joint business operation and Mr Walters did seem to appreciate that there were two separate business operations at that stage (CB 116A at 9:58:32 and :57).
52Mr Scarborough then said "but even if she goes under Oz Insulations [Mr Walters' registered business name] you'll be using my infrastructure in the beginning anyway so if you want her to go under Oz thats fine by me. either it doesn't worry me, what ever is doable and gets results". This seems to me again to indicate that what Mr Scarborough, at least, was contemplating was an arrangement whereby the two would collaborate or work together on the importation of batts for use in their separate business operations (and that in the beginning he would provide the 'infrastructure', by which I assume he meant the workmen, for the installation of batts by Mr Walters under the latter's separate business operation).
53At T 28.32ff, Mr Walters, orally giving further evidence in chief (by leave) deposed to the steps taken by him from 10 March 2009 to the end of March 2009 (broadly, making internet enquiries and searching web-sites to ascertain whether, and at what cost, batts complying with Australian safety standards, could be sourced overseas). Although there is a dispute as to the extent of the assistance provided, and as to any suggestion that Mr Walters did "all the work", Mr Scarborough accepts that Mr Walters did spend time (and probably a considerable amount of time) and effort in relation to the steps taken to import the batts from China.
12/15 March conversations - alleged partnership/joint venture agreement
54Mr Walters says that he met with Mr Scarborough at a coffee shop in Bondi some time after 6pm on 12 March 2009 at which time he says Mr Scarborough said that "The best way to progress the insulation business is to install product from China and that seems very doable" and that, in response to Mr Walters' question as to "How will we structure this from a business point of view", Mr Scarborough said (and Mr Walters says he told Mr Scarborough he agreed with this) that:
I think we should set up a company and we will be 50/50 partners on the importation of the insulation batts. I can then buy the product I need for the insulation business from the company. That way we still share the profits from importation and I can then use what I need for my business
55Mr Scarborough denies the substance of this conversation ([55] of his affidavit).
56Mr Walters is adamant that it was Mr Scarborough who was the one suggesting a company (T 78) (although since Mr Scarborough had run his other business through a business name for some time it is not apparent why he would have regarded it as necessary to incorporate at this stage). On the other hand, Mr Walters in the witness box seemed to think it was necessary for there to be a company for there to be an ability to import in the first place (T 80), which might make it more likely that he would have raised the issue of a company. That said, Mr Walters' evidence in this regard in the witness box was confused, he saying later that when he had referred to a company he was "generalising" and that he meant "its any person or company who conducts a business", which may make it difficult to draw any inference from his evidence on this point.
57Relevantly, the agreement to which Mr Walters here deposed seems to be one that contemplates there will be, in effect, a jointly owned company which would import insulation ceiling batts to be on-sold to Mr Scarborough for use in his installation business. Mr Walters does not record any discussion at this stage as to sales by the jointly owned company to any third party or to Mr Walters himself of the batts so imported (though this seems, from later discussions, to have been contemplated).
58There is nothing in the Skype communications on 12 March 2009 that corroborates Mr Walters' account of the above conversation. There is a reference at around 2pm to a meeting to take place at Bondi with Samantha (at 6.30pm) but no reference to any meeting or discussion between the two men as to the business arrangements to which Mr Walters has since deposed. (Moreover, it seems unlikely that a discussion as to formation of a corporate vehicle and partnership would have taken place at a meeting with the door-to-door operator, Samantha, though there may of course have been a separate meeting between the two men before or after their meeting with Samantha.)
59As to the likelihood that the parties would at that stage have been entering into any commitment requiring substantial expenditure by Mr Walters (whose then business operations, at least with hindsight, were close to liquidation), Mr Walters agrees that at this stage he was trying to sell the Darlinghurst shop but he says that he was not aware of any creditors pressing Heaven & Earth (and did not become of this until after the company had been placed in liquidation) (T 76). This is consistent with the explanation that Mr Walters gave to Mr Scarborough on Skype shortly after the company went into liquidation.
60I do not regard it as wholly implausible that the two may have been talking about an enterprise involving a corporate vehicle with such a level of informality (and at a time when Mr Walters was at least trying to sell down some of his business exposure in relation to the cafe businesses). On Mr Scarborough's own evidence, the parties had operated at a relatively informal level in their business dealings in the past. However, what I do regard as unlikely is that the only time that business matters of this kind would have been discussed was during coffee shop chats (and not Skype conversations) when the pair seem regularly to have discussed other business matters on Skype (with the exception of issues relating to the dealings with the liquidator of Heaven & Earth, that Mr Scarborough at a later point in time suggested, for unstated reasons, ought not be in Skype).
61I am unable to accept that a conversation of the kind to which Mr Walters deposes occurred on 12 March 2009, if it was understood as giving rise to an agreement to import batts on a particular profit share basis, would not have been referred to at all in the Skype conversations. With no corroboration of that conversation I am not persuaded that I should accept it occurred as alleged by Mr Walters, the evidence being at least consistent with the alternative version of events put forwarded by Mr Scarborough.
62Mr Walters alleges that another conversation took place at a coffee shop in Bondi at about 8.30pm on 15 March 2009. (The Skype communications are consistent with there being a meeting on 15 March 2009 (at a time around 8.30pm) but there is nothing to shed light on what was discussed at that meeting (CB 118).) Mr Walters says that in this conversation Mr Scarborough said "As we discussed, we should run this importation business through a company on a 50/50 basis. I think you should focus on sourcing the product and importation and supply side of the business".
63Given the doubt I have as to whether any conversation in the terms alleged by Mr Walters in fact took place on 12 March 2009, I cannot place any weight on the introductory words said to have been said by Mr Scarborough in this conversation (i.e. "As we discussed") and the attribution of those words to Mr Scarborough seems to me to carry with it a self-serving flavour.
64Mr Walters deposes that later in the conversation (after he says Mr Scarborough had said that it was very important to get the importation business underway as soon as possible because he needed the batts for his own insulation business) Mr Walters said "If you are going to be taking some of the imported batts yourself, I suggest that we discuss what price you would be buying them through the company at" and Mr Scarborough said that he would pay to Mr Walters separately a fixed dollar amount per bag and suggested that this be about $8 per bag for every bag he took. That conversation is denied by Mr Scarborough. (The alleged arrangement in relation to the fixed price per bag, as already noted, has not been pleaded as a term of the alleged partnership or joint venture agreement).
65I interpose to note that, although the Amended Statement of Claim pleads that the agreement to enter into the partnership (or, alternatively, the joint venture) was made "on or about 12 March 2009", in submissions Mr Sneddon fixed the time at which the partnership/joint venture was constituted as being on 15 March 2009. While nothing turns on whether the agreement was reached between the parties on 12 March or on 15 March (and I accept that the pleading uses the formulation "on or about", which would encompass an agreement reached not on 12 March but on 15 March 2009), the seeming discrepancy between the two positions seems to me to highlight the uncertainty as to the status of any accord (to use a neutral term) reached between the parties on either of those dates - i.e. whether it could be said that there was objectively a common intention immediately to be bound by any agreement that may have been expressed by Mr Walters or Mr Scarborough to one or more of the statements said to have been made in the respective discussions.
66In at least one respect, Mr Walters' account of what was said on 15 March 2009 does not appear to sit conformably with what he says was said three days earlier. The 12 March conversation, as recounted by Mr Walters, seems clearly to contemplate that Mr Scarborough's business was to be purchasing batts imported by the proposed jointly owned company (that being the stated result of such an arrangement according to Mr Walters). If so, then there should have been no doubt that Mr Scarborough would be "taking some of the imported batts" himself (yet the tenor of the comment Mr Walters says he made on 15 March in relation to the price at which Mr Scarborough would be buying those batts suggests that there was some doubt whether Mr Scarborough would be taking any for his own business). There is also no apparent logic to a payment being made to Mr Walters "separately" of money for the purchase by Mr Scarborough from the company of batts imported by the company if the very purpose of the company was to import batts and then sell them to Mr Scarborough (and/or others) for use in his business.
67Again, the absence of any contemporaneous note or reference in the Skype conversations to such an arrangement at this time casts real doubt in my mind as to the likelihood that it was in fact said; particularly since there were various Skype discussions over the period between Mr Scarborough and Mr Walters as to the cost of importation of the batts and as to the pricing of the batts without any reference to an agreement already having been struck as to the price at which Mr Scarborough would be required or entitled to purchase those batts. (I consider later the import of the communications in which reference to the figure of $8 per bag "as agreed" is made).
68Mr Walters accepts that he thought the 50/50 profit split was important (T 96) but says that discussions as to that issue would all have been during coffee meetings rather than on Skype (T 96.38). There is no logical explanation proffered for such a suggestion. I think the inference to be drawn from the lack of reference to it in Skype is that the conversation did not take place in the terms now recounted by Mr Walters. I accept that Mr Walters genuinely believes that there was a concluded agreement for a partnership or joint venture but the contemporaneous evidence does not support a conclusion that there was such an agreement.
Further communications in March 2009
69On 22 March 2009, there was reference in the Skype communications (CB 121A) to an "insulation problem" the exact nature of which was not made clear (though it may have been a reference to the "drama" experienced in one out of four installations to which Mr Scarborough had referred in Skype the previous day (CB 121). In any event, Mr Walters expressed the hope that it could be solved "or else can see will effect [sic] everyone one way or another", to which Mr Scarborough responded (at 10:57:02pm) that "there are quite a few solutions that I can think of, where this can work for both of us. I think its best to wait for Teen [a reference to Steve Teen, who I understand to be a lawyer who gave some advice in relation to matters involving the two men] and his advice and go from there". Again, that communication seems to me to be is consistent with Mr Scarborough still proceeding on the assumption that the business operations were, in effect, to be conducted by each separately (not jointly).
70On 24 March 2009, there was a further discussion on Skype in which insulation problems were discussed and Mr Scarborough said (at 12:01:26am that "I think it best to run separately, like we discussed in the first place" and Mr Walters responded that it was the second quote that was a major part in how well [they] could do. (CB 122A). Mr Scarborough later said (at 12:13:33am) "The more I think about it, the more I think its common sense to have both tradepower and oz insulations advertising on google (either close or far apart)", apparently in the belief that this would overcome the perception that the two were in some way colluding in the quotations (or in the origination of the customer leads), a matter that Mr Walters suggested they should discuss over coffee.
71On 25 March 2009, Mr Scarborough sent Mr Walters a message over Skype that "spoke to Teen and now have clarity and a plan" suggesting a coffee meeting but there is no indication as to the "plan" to which he had referred.
April 2009
72By the end of March, the Skype communications indicate frustration by both Mr Scarborough and Mr Walters as to matters related to the ceiling insulation process and, in Mr Walters' case at least, in relation to the second quote procedure. On 3 April 2009, via Skype, Mr Scarborough said "am speaking with teen today re you instructing Tradepower to create and send Oz Insulation quotes to CI [ceiling insulation] customers", the purpose of which is not immediately apparent but does suggest some involvement of Mr Walters in the business operations of Mr Scarborough (albeit for the benefit it would seem of Mr Walters' business).
73Mr Walters says that he spent time on the internet seeking to source possible overseas manufacturers for batts; communicated with Mr Peng in relation to the possible supply of batts and paid an amount of about $450 to import sample batts from China for testing in Australia. The Skype communications in April record various communications in relation to the steps taken in that regard (see, for example (CB 125A) and on 7 April 2009 at 9:52:20 pm where Mr Scarborough referred to a website link and commented that "if these are the Thai imports, then they are perfect. We would simply have to brand them and give equivalent info and guarantees" (CB 126).
74Mr Walters says that on 8 April 2009 he had a meeting with Mr Scarborough in which he says he advised Mr Scarborough that he had located a company to test the samples under Australian standards (ERA Polymer) and Mr Scarborough emphasised his desperation to start the importation of batts for his own business. (In relation to the latter, Mr Scarborough in the witness box said that the supply of batts became very scarce in August/September 2009, T 157, and it is not clear that he would have been in the throes of desperation at that stage. Therefore, if he did tell Mr Walters that he was desperate to get the importation going (and this conversation is not denied in Mr Scarborough's affidavit) it would seem likely to be a product of the anticipated need for batts rather than an actual need for batts at that time.) (It was not until July/August that the imported batts started to arrive in the country and Mr Scarborough's evidence, consistent with this, was that it was not until August 2009 that Mr Scarborough used any imported batts in any ceiling installation.
75On 14 April 2009, Mr Walters by Skype suggested that it was worth going back to China and trying other possible companies "and also the previous one which you were discussing with [Double Egret], and see if we can price quotes on Polyester, and also price comparison from other companies for Glass wool as well", asking "Shall I go back to the previous company u spoke to, no problems for me to do so, will just need to explain to Rosen That I am working with you , but using different e-mail address" (CB 126A) (my emphasis). (In the context of later communications, and the vexed issue as to Mr Scarborough's stated discomfort at being asked to describe himself as Mr Walters' business partner, it is relevant to note that here Mr Walters does not himself suggest that he should describe himself as Mr Scarborough's "partner" or "business partner", rather that he would just need to explain he was working with Mr Scarborough. Further, the suggestion that there would be a need to explain his involvement in the matter indicates to me that at this stage Mr Walters did not see himself as part of any partnership or joint venture at that stage, since if that were there should surely have been no need to question Mr Scarborough as to his ability so to describe himself.)
76On 16 April 2009, Mr Walters sent a number of messages in which he advised as to issues in relation to the thickness/cost of insulation batts as quoted by Mr Peng, though with no response from Mr Scarborough until later in the afternoon when he suggested a discussion over coffee in relation, inter alia, to Thailand batts.
"Aussie Batts" trade name
77In his affidavit, Mr Walters deposes to a discussion over coffee with Mr Scarborough on 19 April 2009 in the evening in which he says there was a discussion as to the name of the company to be set up for the purpose of importing and selling the batts and says that he suggested the name "Aussie Batts Pty Ltd" with the trade name being Aussie Batts. Mr Walters says that Mr Scarborough said he thought Aussie Batts was both a great company name and trade name and worked well.
78For his part, Mr Scarborough admits that in a meeting with Mr Walters over coffee in late April 2009 Mr Walters raised the idea of having a distinctive packaging for the batts and that Mr Walters suggested in early May that the batts be called "Aussie Batts" and the name registered as a trade mark - [84] [86] but denies that the conversation deposed to by Mr Walters happened in substance or in fact ([55]). Mr Scarborough says that the trade mark suggestion was not one in which he was immediately interested but that he "went along with that suggestion" ([85] [87]). The Skype conversations do not seem to me to suggest any particular reluctance or disinterest on Mr Scarborough's part, although I accept that Mr Walters seems to have had a greater involvement in (and perhaps enthusiasm for) the arrangements for the packaging.
79There is no record of any Skype communication around this time which would confirm or corroborate the conversation deposed to of 19 April 2009, though it appears that Mr Walters did make enquiries as to the name Aussie Batts (only to find out that the trade mark was already registered) and there is reference to Mr Scarborough enquiring as to the outcome of such enquiries at a later stage. (There is no reference to Aussie Insulations as a company name in Skype at that stage.)
Further communications in April 2009
80On 21 and 22 April there were further Skype communications in relation to the batts. Mr Walters gave evidence (at [28]) of his affidavit and in the witness box in chief) as to steps he took in relation to the testing and supply of samples from Mr Peng during April 2009. On 28 April, 2009, Mr Walters (CB 131) suggested on Skype that if batts could be deemed up to standard allowing sale, while testing was ongoing, then "that would I imagine give a fair amount of leeway and allow to import a few containers and quickly turn them back into $ whilst [Testing is being done];" and that "then when finances allow, testing is done accordingly", with which sentiments Mr Scarborough appeared to agree. "). Mr Walters also reported on the steps he was taking to arrange the testing at 3:42:27 on 28 April 2009 (and in his affidavit deposes to having paid the cost of that testing by ERA Polymers - $500) and as to further testing on 29 April 2009.
81It was left to Mr Walters to order the sample for testing (see CB 132A 29 April 2009 9:20:48pm where Mr Scarborough asked if Mr Walters had ordered the sample yet and the response the following morning where Mr Walters confirmed that the sample had been ordered).
82By this stage, the Skype communications seem to me increasingly to be written with a joint project in mind (so, for example, Mr Scarborough's comments as to the testing (at CB 131) "I don't want us to be the wizards of AS. I want the 3 rd party independent source to be the experts and do the testing. That's why we will be paying them. So after testing is done, if there is a problem or any issue then the authorities don't bite off our arses").
83I find it difficult to read this kind of communication as a reference to the business carried on by Mr Scarborough and his wife, as opposed to comment on the position vis a vis the enterprise in which he was then seemingly engaged with Mr Walters in relation to the importation of the batts.
Suggestion that company be incorporated
84Mr Walters deposes (at [33] of his affidavit) to a meeting on 30 April 2009 at a coffee shop in Bondi at which he says Mr Scarborough said that "this might not be a short term thing. Even after the rebate program has ended, we should have a good customer base and I would think we would be looking at importing batts on a long-term basis", to which Mr Walters says he agreed that this was "definitely on the cards". Mr Scarborough denies this conversation.
85Mr Walters says these was further discussion of the trade name for the batts and that he said to Mr Scarborough (and to which Mr Scarborough agreed) that Aussie Batts would fit in nicely with the proposed name of Aussie Insulations for the company. Mr Scarborough agrees that the name Aussie Batts was raised by Mr Walters but denies that the name Aussie Insulations was raised either at that meeting or in any discussion in May 2009. He also accepts that Mr Walters raised the issue of forming a company at a coffee shop meeting (which he placed as being in mid May) in general terms but denies the conversation as to the proposed trade name fitting nicely with the proposed company name ([90]). (Mr Scarborough was adamant in the witness box that had he been asked about the company name as actually registered, i.e. complete with the asterix at beginning and end, he would have rejected its use - for reasons that seemed to me quite logical, namely that it was inviting trouble with the use of a name so similar to one already registered. He nevertheless admitted that he had agreed Aussie Insulations was a good name but said he did not think it worth continuing with it after the trade mark was rejected (T 180.50). He also agreed that he had suggested using AAA and Aussie Batts together (T 181).)
86On 1 May 2009 there appears to have been a discussion on Skype as to registration of a business name as opposed to a company (at least insofar as sense can be made of the incomplete portion of the conversation appearing at the top of CB 133: "would be cleaner and solve problems with registering of each state under department of fair trading, if doing a 'trading as' registration"), although it is not clear by whom that comment was made.
87Clearly, there was contemplation at that time by Mr Scarborough as to the prospect of setting up a company, although he maintains that this was only for the purposes of protection of the trade mark (the logic of which was not explained). Mr Sneddon notes that during the course of that chain of communications on 1 May 2009, Mr Scarborough (at 4:33:44pm) said "re company - can a new company set up under say Heaven & Earth obtain any financial benefit from the so called "mother" company?" (Mr Bell, Counsel for Mr Scarborough, submits that this is the first mention of a company in Skype). Mr Scarborough agrees that he talked with Mr Walters about a company to be set up under Heaven & Earth (T 176.23) in order, he says, to obtain some financial benefit from tax losses but denies he was foreshadowing the incorporation of a new company to import or sell the batts (T 179). Mr Scarborough says (T 176.30) that Mr Walters had told him that there were a substantial amount of carried forward tax losses under Heaven & Earth and had said that if Mr Scarborough wanted, and there was a way to do so, he could set a company up under the umbrella of Heaven & Earth and use those carried forward tax losses. (The content of the discussion in Skype is consistent with this).
88There was also discussion on Skype at this stage as to the "commission on sales structure", Mr Walters suggesting that Mr Scarborough "may want to think about an upwards sliding scale", which he suggested would mean that "hopefully we will keep a loyal customer" (my emphasis). This exchange is of interest for two reasons. First, it is consistent with Mr Walters' understanding that there was a joint business operation in contemplation and, secondly, because (like other communications) it seems that Mr Walters deferred to Mr Scarborough's opinion in relation to business decisions - that being perhaps more consistent with a recognition by Mr Walters that it was Mr Scarborough's business operation in which he was to have some involvement than with a jointly run operation.
89Also on 1 May 2009, Mr Walters discussed on Skype the preparation of a design for "Aussie Batt's font along with tm [presumably, trade mark]" to which Mr Scarborough did not demur. By 4 May 2009, however, Mr Walters had discovered that www.aussiebatts.com was not available. He also confirmed that the samples were to be sent that coming week. Later on 4 May (at 7:04:38pm) Mr Walters revisited the position in relation to the trade mark and conveyed advice in relation to the possibility of applying for it in one continuous word and then using in 2 words.
Financial contributions
90In Mr Walters' second affidavit affirmed 24 March 2011 (but, significantly in my view, not contained in his earlier affidavit) Mr Walters (responding to Mr Scarborough's affidavit para [48]) deposes that in a conversation at Bondi in early May 2009 Mr Scarborough, after having said that they were going to have to put some money in to "get this going" said:
I was thinking we could both contribute $20,000 each and that would allow us to make an initial order of 4 containers. We can also do as other importers are doing and that is pre sale batts to customers with a 25% - 50% deposit been paid upfront, with balance paid as soon as the containers hit Sydney Harbour, that way the whole thing will be financed.
91In oral evidence in chief (at T 31) Mr Walters says that he said he would put his contribution in first so that this would free up Mr Scarborough's cash flow to enable him to buy locally manufactured batts and continue with the business of home insulation. At T 34, he then says that during the coffee shop meeting in May [query March] 2009 when the $20,000 was discussed, it was said that Mr Scarborough could use his $20,000 for the final 50% payment to Mr Peng after 6 weeks (although it is not clear where the timing for that was drawn at that stage).
92Again in his later affidavit but not referred to in his first), Mr Walters refers to a conversation at Bondi in or about the second week of May 2009 in the course of which he says that Mr Scarborough said:
You have already paid for the testing of the batts and other matters. We can call that part of your contribution and then with profits received from orders for batts bought by AAA Trade Power we can use that money to help finance further containers.
93(In the witness box, Mr Scarborough's position was that in relation to subsequent container loads, what he was proposing was to use either the money received from the government's early bird programme that he had saved or money from his installation business or deposits from customers, an explanation consistent with the financing concept attributed to him by Mr Walters above.)
Warehouse site
94Communications about a possible warehouse site had taken place from around the end of April (CB 131A) and on 5 May 2009, Mr Walters reported as to some warehouse space in the short term (CB 134A). On 6 May 2009 at 2:46:40, Mr Walters reported that he had reviewed that site, which was not suitable but that "some thing similar can work for us on a temporary basis". Later that evening, Mr Scarborough commented on the warehouse issue and commented that "If however, we got big, fast, then we will have neighbourly problems for sure" (CB 135).
Further communications re trademark/company set up
95At 9:42:32pm on 6 May 2009, Mr Scarborough sent a message to Mr Walters on Skype saying "I am happy to start the trademark application if you are. However, I think we need to set up a company first to override the registered business name people. What do you think?". It seems to me that this is clear evidence of an intention on Mr Scarborough's part at that stage to proceed in a venture involving a corporate entity in which both were to be involved (even if only in relation to the trade mark) (CB 135A). Otherwise, I ask rhetorically, why seek Mr Walters' confirmation that he was happy to start the trade mark application? Further, although not expressly in conflict with what was said in Mr Scarborough's 13 May 2010 affidavit (for the purposes of discovery) as to the company "Aussie Insulations" (namely that he had no recollection of ever having agreed to form the company referred to as Aussie Insulations and believes that he had not said anything that could be construed as having agreed to do so; and that he had not recollection of ever having given his consent to becoming a director of that company (para [25]), it is clear that in this exchange he was contemplating the setting up of a company.
96Mr Walters then acknowledged Mr Scarborough's earlier query in relation to Heaven & Earth, responding by saying that "regarding heaven and earth with any potential positives concerning using their tax losses and will let you asap, and then u can decide which way you want to go" (9:47:24pm, 6 May 2009). (I interpose to note that this seems to suggest a separate business there being contemplated by Mr Walters.) Mr Scarborough's response to that (on which some weight is placed by Mr Sneddon) seems to be at 9:59:31 "The way I want to go is the way that the experts suggest is the best way for you and I to pull ourselves completely out of the shit and set us up for our retirement....". While I accept that this could be read as referring to ways in which each might individually escape his financial woes and set himself up for retirement, the comment does read to me as being a reference to a joint (so-called retirement) plan of some kind. Mr Scarborough nevertheless suggests that the business opportunity he envisaged for Mr Walters was, in effect, that he be able to earn commission on sales (this being the opportunity he said he offered to Mr Walters at around the time that Heaven and Earth was placed in liquidation (to which I refer later).
May 2009 communications
97Mr Walters deposes in his affidavit (at [40]) to a meeting on 12 May 2009 at a Coogee coffee shop in which he says that Mr Scarborough suggested that the sale price of the batts would be $42-$45 for large container orders and smaller orders around $28, with which Mr Walters says he agreed and that on his calculations that would make a profit of between $18 and $24 per bag. The Skype communications corroborate a meeting arranged in Coogee for that day but there is nothing to indicate what was discussed at that meeting.
98On 14 May 2009, at 10:52:29pm, Mr Walters concluded a Skype conversation about various matters with the following "catch u tomorrow have to discuss business name set up/trademark, etc etc etc". Again, there is nothing to indicate the content of that discussion (assuming it took place).
99On 15 May 2009, at 9:06:21pm, Mr Scarborough conveyed his calculations as to the price per container landed "in our warehouse" (by reference to a missing part of the Skype records) and asked for bank details so that he could transfer funds for both samples (by reference, it would seem, to a missing part of the Skype records).
100On 17 May 2009, Mr Scarborough sent a message on Skype to Mr Walters asking him to arrange a second sample from Mr Peng (CB 138A), following discussion between the two as to the import of a further announcement in relation to the ceiling installation rebate scheme. On 18 May 2009, there was discussion between the two as to the testing of samples, in which Mr Scarborough directed Mr Walters as to how he should communicate with Mr Peng:
So it's a case of emailing Rosen back and letting him know that ... and 2. that unless we can get a product to fit within the law we can go no further with his company ...
101Mr Walters deposes (at [44]) that on 19 May 2009, he had a meeting with Mr Scarborough at a coffee shop in Coogee at which he says Mr Scarborough said "The costing of the batts look really good, and if we can get moving quickly on this, there will be a lot of money being made by both of us" and "Don't forget that even if I take a lot of the batts for myself, you will under our agreement still be getting $8.00 a bag". This is another conversation denied by Mr Scarborough (though there is reference in the Skype exchanges on 19 May 2009 (CB 139) at 7:42:14pm to a meeting at 8pm at Mr Walters' place, at least providing corroboration of a meeting on that occasion though not at Coogee). Further, later that evening, Mr Scarborough (after advising Mr Walters of the booked and confirmed jobs "from the new marketing boy Steve") concluded at 11:14:22pm "Enjoy calculating the profit" - a statement that can only be interpreted as a recognition that Mr Walters would have a share in the profit realised from those booked and confirmed jobs (and since Mr Walters was not involved in the installation side of things, this must surely amount to an acknowledgement that he was to obtain a profit from the sale of the ceiling batts to be used in these jobs - it cannot be easily read as a reference to commission profit on yet to be booked sales) (CB 139A).
102On 21 May 2009 there was a Skype exchange in which Mr Scarborough asked Mr Walters' opinion as to multi-packing from 4 to 5 (to which Mr Walters queried whether that would be 8/per pack or 16/per pack (CB 140)) and Mr Scarborough advised that he had ordered half a container and they would be gone by that Saturday, saying "this now gives me (us) a very clear picture on the enormous potential of this. If this now continues I guarantee u I will be using 400 bags a week (1 container)". (I regard the correction or clarification, as it may be, made there by Mr Scarborough from "me" to "us" as telling. In that context "us" must mean he and Mr Walters (not he and his wife). Further, though I accept that this could be consistent with the commission arrangement that Mr Scarborough says was reached with Mr Walters, it must be remembered that on Mr Scarborough's version of events that arrangement has yet to be proposed.
103On 22 May 2009, Mr Scarborough forwarded to Mr Walters a series of messages on Skype with costs calculations (CB 141/141A) concluding (at 10:32:40pm) that the reality was a net profit of $529, saying "That's cooking with gas and what we were planning and discussing day 1 2 months ago" and comparing that to his current profit on the same turnover. At 10:35:08pm he said "Do 10 jobs through Steve and its $5,290: 20 jobs $10,580 - and that imports a lot of batts. Ur van can do 10 in a week", followed by a further calculation "when we import the batts at say $35 AUD per bag", which he said added another $150 profit making it about $650 per job. (Pausing there, the profit per job calculation seems to relate to the profit on installation of batts and hence not profit in which Mr Walters would share even on his version of the agreement. However, the conversation does appear to contemplate a joint endeavour in relation to the importation of batts, which lends credence to Mr Walters' joint venture contention.)
104On 23 May 2009, Mr Walters reported on the progress on the supply of sample batts from China (CB 142). Mr Walters sent a message that evening offering to go around "buying up batts tomorrow using your van, no probs for me to help out whats so ever..", an offer repeated on 24 May 2009. (This was assistance clearly rendered for Mr Scarborough's installation business, not something as part of a alleged joint venture.)
105By 26 May 2009, it seems that the installation business of AAA Trade Power was well and truly up and running (see Skype communications CB 143). There were Skype exchanges on that date in which Mr Scarborough said he was speaking to someone "re Oz insulations jobs from his leads" and Mr Walters reminded Mr Scarborough not to forget "to figure out a booking/handling charge/fee for insulation" (again consistent with there being separate business operations at least in relation to insulation).
106On 27 May 2009, at 7:50:09pm, Mr Walters sent a message on Skype reporting that the sample (received late the day before) had been delivered to ERA Polymer for testing and samples had been sent off to Melbourne for smoke and fire testing. Mr Walters said that he needed to discuss ASAP packaging, design and layout, "also company name and set up". At that stage, therefore, the corporate vehicle through which any joint venture or partnership was to operate was still undecided. Mr Scarborough's response was that "that's great ...at least we are on the way now" and sought Mr Walters' opinion on his view that "we will be ok to order containers after the R testing has been confirmed ...and therefore take a punt on the fire testing". Mr Walters' response was that he would be ok to order once the "R value has been confirmed/given" (CB 143A)
107On 28 May 2009, Mr Scarborough suggested a coffee meeting saying there was "lots to discuss". Mr Walters sent a response that he was waiting for Mr Peng to get back to him with some costings; had heard from the "shipping guy in Sydney"; had been trying to find out results of the fire testing and had found a cheap place for second had warehouse racking when necessary (CB 143A).
108On 29 May 2009, there was an exchange between Mr Walters and Mr Scarborough in which the former copied the latter into a series of communications with Mr Peng, who had confirmed that he had loaded a container load of 16 batts/pack to Australia. Commenting on this, Mr Scarborough said "he [Mr Peng] must be patient until we get the first order done and dusted. After that we will be experts" (144A) and then canvassed with Mr Walters various other packaging solutions; Mr Walters commenting that "As you say second time round, will know". Mr Scarborough also informed Mr Walters as to possible arrangements for a sub-lease of warehouse space in which he commented that "Has 2 forklifts which would be available to us" (CB 145) and further that "...my loyalty is to the adequacy of the warehouse for us only". It seems clear from these exchanges that Mr Scarborough and Mr Walters were jointly making decisions as to matters such as the compressed packing of the batts to be imported; the minimum quantity for shipping; labels; testing; and the location of suitable warehouse space.
109On 31 May 2009, Mr Scarborough, in the course of a Skype conversation sent Mr Walters a message at 10:34:24pm "Can you let me know if you speak to richard [the trade mark attorney] tomorrow re results please? I want to order these batts asap - 4 containers" (CB 146A), suggesting an order placed individually, albeit through Mr Walters, as does Mr Walters' response (at 10:35:46pm) was "No problems Richard/ ordering Batts likewise for me , which is why want to catch up with quite a lot of things" (my emphasis). This response appears at the foot of CB 146A. The following page commences with a response at 10:36:10pm (which does would appear chronologically to follow on) which, in its content, seems to be responding to a comment by Mr Walters that is missing from the transcript (Mr Scarborough's response being "dont they all!!!!! As I said to them today - talk is cheap! Bookings that are completed and paid for are the only stat and claim I am interested in - all the rest is crap and excuses").
June 2009
110Mr Scarborough says that in the last 2 weeks of May and the first couple of days of June, he observed that the "Real Deal" business appeared to be in greater difficulties (although it is not apparent on what he based that observation) and Mr Walters appeared to be despondent and depressed, Mr Scarborough says that Mr Walters raised the issue of forming a company more frequently in the coffee meetings in this period ([91]). Mr Scarborough maintains that the only purpose for forming a company that was ever discussed was that of protecting the Aussie Batts name ([92]) and denies that he ever agreed to form a company with Mr Walters. (This is inconsistent with the Skype communications in which Mr Scarborough provided his details for the incorporation of Aussie Batts as a company - and debated whether the registered office was to be the address of Heaven & Earth or that of First Art.)
111On 2 and 3 June 2009, Mr Walters forwarded to Mr Scarborough the text of Skype conversations with Mr Peng in relation to errors in price calculation and the shipping and making of the first order; and asked Mr Scarborough if he wished to continue being copied into the Rosen Peng communications (which Mr Scarborough said he did as he enjoyed reading them and it kept him up to date),
112Mr Scarborough deposes that in about early June 2009 he had a meeting with Mr Walters at the coffee shop at Coogee Beach. He places this conversation as happening just before or after the first order for containers of batts was placed with Double Egret (that order being placed on 5 June 2009) (but, he says, definitely after a liquidator was appointed to Heaven & Earth, which event he puts as occurring on 28 May 2009, though the ASIC search dates the winding up at 3 June 2009).
113At para [95] of Mr Scarborough's affidavit, he deposes to a conversation (after 28 May 2009 or 4 June 2009, when the liquidation of Heaven & Earth became known) in which he says he suggested the following:
Scarborough: It looks like we will finally get 4 containers from Rosen Peng. There is an opportunity here for you to make money.
Walters: What do you have in mind?
Scarborough: Well, I don't know how many batts you can sell. But, if we look at the first 4 containers, I need 2 of them and you can try to sell the other 2 containers. You could sell them in parcels of 100 or 200 packs or full container loads.
Walters: What do you propose I will get out of it?
Scarborough: I'll go fifty/fifty on the profit from all the bags you sell.
Walters: Ok. I'll give it a go.
114The content of this conversation seems inconsistent with the tenor of the exchanges in Skype from May onwards in which, with increasing enthusiasm, the pair contemplate the riches to follow from the government rebate opportunity. (Consistently with my view as to the Walters' account of the relevant conversations, I also have doubts as to the adoption of Mr Scarborough's account of conversations of this kind without contemporaneous corroboration.)
115On 3 June 2009 at 10:49:36am (CB 147A), Mr Walters asked Mr Scarborough whether it was possible to register a company name using a post office box as an address. He said he did not particularly want to use the Coogee address (that being the address of First Art) "as one way or another may not be there that long". Mr Scarborough responded that he could not and that it must be a street address which acts as the company registered office. Mr Walters then said it would be better to use the Coogee address and not delay in registering the company (though he did not indicate which company he had in mind).
116On 3 June 2009, a winding up order was made in relation to Heaven & Earth. Mr Walters says that he was not aware of this until after the order was made. (Notification of the application to wind up the company was received by ASIC, according to the ASIC company search at CB 355, on 11 May 2009 and processed on 13 May 2009, with an effective date of 7 May 2009.)
117Later in the day on 3 June 2009, Mr Scarborough asked Mr Walters on Skype whether he had spoken to Mr Peng and/or "set the order". Mr Scarborough then sent a message at 6:25:38pm on Skype to the effect that he had spoken to an accountant and that the accountant had "insisted that 2 directors (you & me) to be set up in company "Aussie Batts Pty Limited" as the implication later for buy-in agreements for $1 etc is not worth the hassle as the ATO hate them and attack at the sniff of one. He understands from the 'sales program' point of view with me being seen to be independent but suggested the [sic] we approach sales from a cooperative point of view instead which still has credibility" and said that he "kind of" agreed with that logic and sought Mr Walters' view (CB 147B). Mr Walters' response was that he had no problem with what had been suggested "although would still be good to be able to go along the lines of what was discussed yesterday, whereby you speak to installers and introduce them to Aussie Batts on a recommendation basis/you being a big customer of theirs on a pre payment/order basis". Mr Scarborough responded that "yep no probs re me being a customer and director. It's easy to be so impressed that i bought into the company. Can still show orders being submitted."
118The above exchange suggests that what was contemplated at that stage was that there be a company to hold the trade mark (incorporated in the name Aussie Batts) with the trade mark in the name Aussie Batts as well and that there would be cross-referrals in some fashion between Mr Scarborough's installation business (AAA Trade Power) and Aussie Batts as the company from which customers would purchase the batts.
119On 4 June 2009, after forwarding copies of Skype communications with Mr Peng, Mr Scarborough responded that "good try but I think we'll have to accept his price and move on with it" (to which Mr Walters responded that he had no problem doing so and had asked for Peng's bank details; and also raised an issue as to the health and safety information on the packs). At 10:58:59am, Mr Walters said "will need to meet up for payment for initial down payment or discuss [sic] how to do, maybe better to meet up and see what options are" suggesting a meeting at about 1 or 1.30pm at Bondi. That meeting seems to have taken place sometime around 2pm that day.
120Mr Scarborough's account of the conversation at this meeting was that he told Mr Walters that he had to make the down payment to Mr Peng on the following day and was really busy and that he asked Mr Walters to do the banking for him. That is inconsistent with the Skype exchange referred to above, in which reference to the initial down payment had already been made (so there would be no need to repeat this at a face to face meeting). Mr Scarborough says that he told Mr Walters it would be about $15,000 and he said he would pay Mr Walters back. Mr Scarborough deposed in his affidavit to his belief (which I read as no more than an assertion as to his belief, subject to relevance and weight) that this was a loan by Mr Walters. (There seems to be a suggestion, from the conversation recounted by Mr Scarborough at [70], that he understood Mr Walters to be keen to "get rid" of some $35,000 in cash before the liquidators could get it. Mr Walters denies this conversation.)
121During the evening on 4 June 2009, there was a further exchange of Skype communications between the two men, in which Mr Scarborough gave Mr Walters details of the legal company he had previously used to register a company and Mr Walters asked Mr Scarborough to email "all your details for directors etc" going on to ask "for now do u want to make registered office [a nominated street in Coogee], it at least puts a little bit of distance between you and anyone you approach to introduce Aussie Batts to, if you go from the installer angle". Mr Scarborough provided the information requested and agreed to the nominated street address "if you dont mind for installer reasons". Mr Bell points out that no company name was proposed. That is true. However, the context makes it clear that what was envisaged was the company that was to fill the Aussie Batts role as previously contemplated.
122Later in the conversation, Mr Scarborough asked Mr Walters "what price do u want me to order at re 50% deposit (and how many) and Mr Walters responded that it was entirely up to Mr Scarborough concerning the order. Mr Scarborough suggested 500 (at $46) being $23,000 so that the 50% deposit would be $11,500 and Mr Walters agreed. Mr Scarborough then said "shall do the transaction tomorrow when we decide on which account" and Mr Walters responded "Maybe can do direct into Auss Batts account once company has been set up, so can go to bank and set up an account". He then said that "will try and set up a company tomorrow", to which Mr Scarborough responded "OK" and Mr Walters then said "and then bank account Tuesday I guess" to which Mr Scarborough responded "that's a much cleaner transaction re transparency" (CB 150A)
Placement of first order (4 containers) - 5 June 2009
123On 5 June 2009, Mr Walters said "as far as I can see no need to meet up at this stage, as i am covering the payment to Rosen" and that it would be approximately $14,800 based on CNF. The first order for batts (4 x 40ft containers - 3.5 x 40 ft containers of 10kg/m2 185mm and 0.5 x 40ft container of 8kg/m2 185mm) was placed on that day and the sum of US$11,840 (AUD$14,987.34) remitted to China). Although Mr Walters claimed that he had paid that amount out of his account (T 31) and denied at T 42.19/21 that First Art had made the payment, the deposit was in fact paid from the First Art bank account (Annexure A to Mr Scarborough's affidavit being a copy of the relevant bank statement). (In Mr Walters' 24 March 2011 affidavit, he says that he transferred the funds from the personal account he held with his wife into the account of First Art and then transferred the amount to Mr Peng and he repeated this evidence in the witness box at T 43).
124Mr Walters agreed that as at 5 June 2009, the liquidator had contacted him and said "I guess so" when questioned as to whether he was concerned that the liquidator would seek money from him personally (T 44.30) but could not explain why there would have been a transfer from his personal account to First Art to Mr Peng (T 44) other that that this was a business order. There was a significant amount of confusion on his part as to the circumstances of the money transfer (see T 44/47). Mr Walters concluded that day's Skype exchanges with the comment that he needed to talk to Mr Scarborough about the company set up the next day and needed a few more details from him.
Communications about company set-up/trade mark
125Mr Walters received no Skype response to a message the next day for Mr Scarborough to call him and on 7 June 2009 he sought advice from Mr Scarborough on a number of matters for company registration (CB 152A). There was no response from Mr Scarborough until 8 June 2009 when a meeting was arranged. Before that meeting, Mr Scarborough addressed the questions raised by Mr Walters as to the company registration on Skype, filling in the company name details with the name Aussie Batts Pty Ltd. In the shareholder details it noted "2 share structure 1 for u and 1 for me: $1 for each share or what ever value you want to apply" (CB 155).
126It seems that there was a meeting in the afternoon following which there were further Skype exchanges as to the slogan for Aussie Batts and the packaging. Mr Scarborough asked if the company setup had been done (CB 158A) and Mr Walters confirmed that he was doing it "as we speak" but then that would have to be done the following day as the computer kept freezing.
127On 9 June 2009, Mr Walters advised by Skype that his advice was that it would still be a problem to register Aussie Batts as a trademark and asked for Mr Scarborough's opinion as to the use of the name "Aussie Insulation Pty Ltd" or "Aussie Insulations Pty Ltd", which he suggested could go well with "Aussie Batts". Mr Scarborough's response was that he thought it better to change the name of the trade mark in light of the advice Mr Walters had received as "we are simply asking for delays and hassles" and then confirmed that "Aussie Insulations Pty Ltd" is good (CB 159A), to which Mr Walters said he would "give it a go". Mr Scarborough then suggested that they try "AAA Aussie Batts Pty Ltd" (CB 160) which he says Mr Walters dismissed as a suggestion.
128Also in that 9 June Skype conversation, Mr Scarborough went through an analysis of the funding of the containers, opining that if orders for 10 containers for July could be obtained (on a price matched to a competitor) then there would be a profit of $60,000 making August substantially better funded "with say $32,000 of the $60,000 profit to give us the chance to order and cover 20 containers ... It self perpetuates from there" (9:56:47pm) and at 10:11:01pm "66% [deposit from customers] = $40 x 66% = $26 approx = all financial problems solved" (CB 160A).
129On 9 June 2009 the application for registration of "Aussie Batts" as a trade mark, signed by Mr Scarborough/ AAA Trade Power, was lodged with the trade mark attorney. (It was in due course rejected by the Trade Mark Office).
Incorporation of "Aussie Insulations" Pty Ltd/June communications
130On 10 June 2009, Mr Walters lodged with ASIC (on-line) an application for registration of Aussie Insulations Pty Ltd" as a company, with Mr Walters and Mr Scarborough as directors and equal shareholders and the company address at the Coogee street address that had been noted in the Skype communications with Mr Scarborough. It is not disputed that this name (i.e. with the asterix at beginning and end) had not been discussed with Mr Scarborough before registration. Nor does it appear that Mr Scarborough was told of the incorporation of the company at that time. Mr Walters says he believed that Mr Scarborough had verbally agreed to be a director based on the references in the Skype transcript to which he was later taken in re-examination (T 85) but accepts that Mr Scarborough had not paid any subscription moneys (T 85/6). (As to Oz Insulations, for which there was no bank account, Mr Walters says that it had no business from 10 June (T 88); "It was used for invoicing purposes" (T 88.27) and used as a reference for testing of the batts.) Mr Walters accepted that Aussie Insulations also had no bank account (and no sales) (T 89) though he says that was not a priority (T 89.25).
131From 10 June 2009 onwards there were a series of Skype exchanges in relation to issues such as pricing, packaging and the like, in the context of which on 10 June Mr Scarborough asked Mr Walters what he thought about a particular pricing arrangement under which "We would be making about $14 per bag gross but would be fully funded and therefore unlimited ordering would apply" (CB 162) and in turn on 12 June 2009 Mr Walters asked Mr Scarborough's opinion as to the pricing he had there set out (CB 163A) and Mr Scarborough expressed his opinion as to the commission for "the sales force" and said that if the opportunity was laid out for the sales force to go in hard "that's exactly what we want". Significantly, at 10:32:51pm on 12 June 2009 (CB 163A), Mr Scarborough asked Mr Walters "How much do you think we should sell the batts for wholesale?" and Mr Walters, in the context of responding to that, referred to the flexibility "to beging [sic] with as self funding".
132By 14 June 2009, it appears that Mr Walters had told Mr Scarborough about the liquidation of Heaven & Earth, as there is a lengthy explanation on Skype on that date as to the circumstances in which the liquidators had been appointed (CB 164A). Meanwhile, discussions continued over Skype as to matters relating to packaging, pricing and potential customers, including the possibility of air freighting some bags of batts. On 15 June 2009, Mr Scarborough (apparently annoyed at a customer refusing to pay a deposit for the batts) said at 11:47:07pm "When they [the batts] are here TRADEPOWER will be buying them all unless dickhead wants to pay $60 per bag" (suggesting an awareness that the batts were being imported by an entity other than he and his wife under the AAA Trade Power name).
133On 16 June 2009, Mr Scarborough asked Mr Walters to check with Mr Peng how long it would take to get the first 10 to 20 bags "so we can airfreight them over like you suggested" apparently to use as a sample in order to obtain deposits for larger orders. Mr Scarborough then apparently saw an invoice from Mr Peng (presumably in the form of the pro forma invoice approved by Mr Walters in his communication with Mr Peng at the top of CB 166) and sent the following message to Mr Walters at 9:28:42pm "Just saw the invoice from Rosen [Peng]: Can you advise him that it is not Heaven & Earth Pty Ltd. It is to be invoiced to AAA Trade Power and for him to redo the original tax invoice for the deposit? Thanks" (CB 166). There was no dissent from that course by Mr Walters and he communicated with Mr Peng as requested, copying that communication to Mr Scarborough on 17 June 2009 (CB 166A) and again, it would seem, on 22 June 2009 (CB 168A) (although there is no explanation for this double-up in the Skype transcripts).
134Mr Walters said in the witness box that he had used Heaven & Earth on the invoice because Aussie Insulations had not been set up at that stage (T 41.21), although it is surprising (given the concerns Mr Walters expressed in Skype as to the interest that the liquidators might take in relation to his affairs) that he would have done so at this stage. Mr Walters also contended in the witness box that Mr Scarborough knew that batts were being ordered in the Heaven & Earth name (T 41.28) but there is no evidence to support this assertion.
135Mr Walters said (at T 37) that Mr Scarborough told him a week or two after Aussie Insulations was set up that he did not intend to use that company and really wanted to use AAA Trade Power because Mr Walters was a director of Aussie Insulations and it might not look good as one of Mr Walters' companies was in liquidation. (It is not surprising that Mr Scarborough would have taken issue with the initial invoice being in the name of Heaven & Earth, at a time when he had only recently learnt that Heaven & Earth had gone into liquidation and since he had no involvement in Heaven & Earth.) In Mr Scarborough's affidavit ([56]) he explained that he did not want to be associated with a company in Mr Walters' name (again not a surprising stance given the communications between the two as to the liquidators' attempts to recover moneys or property from Mr Walters).
136On 17 June 2009, Mr Scarborough sent a Skype message to Mr Walters to say "we got our FIRST order for the sale of Aussie Batts" in the amount of $10,000 with a 60% deposit (CB 167 10:15:53pm) going on in the course of the conversation to add "plenty more to come". There followed a conversation as to negotiations with "Steve" (referred to earlier as the new marketing boy) for a deal in relation to further orders, as to which Mr Scarborough said he would let Mr Walters know. Both Mr Scarborough and Mr Walters in this conversation are speaking in terms of a joint enterprise (Mr Walters talking about getting initial deposits for an at least one additional container "so we can add to our initial order to Rosen" and Mr Scarborough confirming that if the order received was genuine and the deposit paid "then we will order another container immediately"; Mr Scarborough also referring to the buyer realising "we are serious" (CB 167A).
137On 19 June 2009, at 11:59:42am, Mr Walters sent a Skype message (CB 170) to Mr Scarborough saying "Kent as I advised you before I have the balance of the 20,000 available if you need to finance anything, let me know, shame not to put to use if needed". There was no response from Mr Scarborough querying what was meant by "the balance of the 20,000", although it seems that Mr Scarborough may have been busy at the time (there being no communication from him until briefly at 9:37:38pm when he indicated that he had been busy and was too tired for coffee). This communication is, however, relevant in that it is the first suggestion I have found in the Skype transcripts to a $20,000 contribution and is written (apparently before the relationship issues have arisen or arisen as acutely as they did in August) on the apparent assumption that Mr Scarborough would understand the reference thereto. This suggests that at some stage there must have been a discussion as to the respective contributions of $20,000 (rather than simply an acknowledgement of the contribution or advance in fact made for the initial deposit and around that time). Thus it lends some credence to the evidence of Mr Walters that there was discussion of a 50/50 profit split.
138Around this time, Mr Walters was communicating with Mr Scarborough in relation to his problems with the liquidators of Heaven & Earth (and apparently trying to finalise arrangements in relation to the sale of his gourmet hamburger businesses) and Mr Scarborough seems to have been busy with orders being placed for the supply of batts. On 22 June 2009 he noted that he owed Mr Walters more money for tolls and asked the amount owing for petrol (seemingly in relation to deliveries of batts carried out using Mr Walters' truck) (CB 170A).
139On 23 June 2009 at 12:16:03am, Mr Scarborough asked if Mr Walters had applied for the trade mark for Aussie Batts (to which there was no response) and then forwarded to Mr Walters the link to his tradepower website.
140By 24 June 2009, it seems that friction had arisen in the relationship between Mr Scarborough and Mr Walters. At 11:48:36am (CB 171) there was a relatively lengthy message from Mr Walters apparently referring to events that had occurred the day before (when Mr Walters said that he had been happy to get involved and to help out) and asking for Mr Scarborough to show him a bit more respect and make less negative comments. Mr Scarborough responded late that evening asking what Mr Walters meant and then referring to an incident in which it seems that he had spoken to Mr Walters as to the way he was "grabbing the batts". Mr Scarborough pressed Mr Walters to tell him what he had said that had caused Mr Walters to be upset but to no avail. (CB 171A)
141On 26 June 2009, Mr Walters informed Mr Scarborough that he would go through the figures for the "balance payment to Pay Rosen" and confirmed that he would tell Mr Peng to change the company details from Heaven & Earth to AAA. He also advised Mr Scarborough that the invoice allowed for 50% final payment once bill of lading was supplied and said that the bill of lading would be issued by the freight company once picked up and loaded on the ship (CB 172A), which he described as "some sort of loose guarantee to say it is on the Ship so pay over the balance". He then confirmed that the amount paid on 5 June had been US $ 11,840 (AUD$14,987.34) and that the total invoice amount was US$23,289.97. He also advised that there was space available for storage at a Bondi Rd location. Mr Scarborough did not respond to the Skype communications on 26 June 2009.
142On 28 June 2009, Mr Scarborough, in a conversation in which the pair discussed pictures of the packaging, said at 3:17:57pm "re payment for rosen (2 nd 50%) I would like to do it tomorrow or Tuesday latest as tax year is up Tuesday close of business and i want the tax deduction". Later in the Skype conversation on that day, Mr Scarborough discussed the price at which the batts should be offered on ebay (commenting that "we are desperate") and asking Mr Walters' opinion (CB 174A).
143As at 29/30 June, Mr Walters was still seeking final details from Mr Peng as to the sea and airfreight of the 4 container load of batts the subject of the first order. An issue arose at this stage as to the placement on Mr Peng's website showing Aussie Batts - something which Mr Walters demanded be removed. Mr Scarborough's attitude was "we do all the hard yards re set up etc and then he decides to onsell" (CB 145), telling Mr Walters he thought it was time to start looking elsewhere "so we have 2 suppliers", suggesting it was "sooo easy to do now that we have everything in place" and asking Mr Walters' opinion.
144On 30 June 2009, in the context of communications between Mr Walters and Mr Peng seeking confirmation of the supply of the first order (Mr Peng stating that 2 shipments would be shipped on 4 July and the airfreight samples by regular airfreight), Mr Scarborough asked Mr Walters whether that meant he had to pay on 3 July the 50% balance and, in response, Mr Walters said "i can chuck in my contribution of outstanding amount of $5,000 if that helps your cash flow" to which Mr Scarborough responded "no - i would rather you pay for the tm and other related expenses. That way it keeps the accounting clean" (CB 178A). Significantly, Mr Scarborough did not say "what contribution" or query the calculation of that contribution.
July 2009
145On 1 July 2009, at 11:20:45am Mr Walters sent a message to Mr Scarborough on Skype that "Without wishing to state the bleeding obvious, we reall [sic] need to explore some potential serious finance to give a leg up during the initial stages of batt importation or else it is going to be a pretty drawn out process, with huge amount of potential sales lost" (CB 179) and advised that he was willing to approach various people who might be interested in finance, suggesting that it would be beneficial to put together a short presentation folder and that it would probably be necessary to pay high interest on the financing as it would be more short term than long term. He suggested a meeting to discuss. Mr Scarborough said "ok to all including coffee" and they arranged to have a meeting at 8.30pm in Bondi. (Mr Walters also said that the liquidator was beginning to get very nasty and was saying that Mr Walters was hiding equipment from him, to which Mr Scarborough suggested they discuss over coffee not on Skype - CB 180A).
146In Mr Walters' affidavit [74] he places the 1 July coffee meeting at Coogee not Bondi (as had been agreed in the Skype conversation, although nothing turns on the discrepancy) and says that during the conversation Mr Scarborough said that he was worried about using Aussie Insulations as the company for importation and selling of batts because it showed he and Mr Walters as directors and that he was worried that the liquidators of Heaven & Earth might start trying to cause problems for Aussie Insulations. Mr Scarborough denies this account of the conversation though in the context of the Skype discussion as to the liquidators it seems to me plausible that he may have raised such concerns at that time. (Of course, the difficulty in Mr Walters' account of this conversation is that it is not clear that Mr Scarborough had been informed of the registration of Aussie Insulations at that time - unless the conversation is a reference back to the earlier proposal to incorporate a company of that name.) Mr Walters further says that Mr Scarborough said to him:
To solve any potential problems, let's just use AAA Tradepower, it is already set up and we will run the importation and selling of the batts through it. Don't worry, profit on the batts will still be split 50/50. And everything we have discussed and agreed in the past will still carry on. The only difference is that things will be done through AAA TradepPower.
147Mr Walters says (at T 37.40) that he agreed but that he said to Mr Scarborough that it was very important that "we set up a separate bank account for true transparency" to localise moneys for importation and sale of batts and (at T 38) that "after a bit of prompting by me about a week later" Mr Scarborough opened the AAA Trade Power No 2 account.
148This conversation is denied by Mr Scarborough, though he accepts that the liquidation was discussed. He says that he told Mr Walters that he did not wish to be involved as a director in any company with him "especially since your own company is in liquidation" (para [56] of Mr Scarborough's affidavit).
149On 2 July 2009, there is a Skype exchange whereby Mr Walters acknowledges that Mrs Scarborough has reimbursed him for some batts (although this conversation (at CB 182) is another that appears out of order in the Skype transcripts.
150Mr Walters deposes to a further coffee shop conversation on 3 July 2009 (which accords with the arrangements made for a meeting in the Skype conversation on that date CB 181) in which he says that Mr Scarborough said "I know using AAA Tradepower is not the ideal solution for you, but I believe it is the best way to go. As I said before, our business agreement is still exactly the same; it is just on paper that be are not partners. But seeing as we have known each other for such along [sic] time, I don't see that as a problem" ([75]). This conversation is also denied by Mr Scarborough.
151On 4 July 2009, at 11:27:08am, Mr Walters sent a Skype message to Mr Scarborough as follows:
Until such time that Aussie Batts is self financing, then it seems like best option is either Pete, Bev or yourself through AAA, like wither Pete or Bev of course You/AAA should be paid interest accordingly so plse bear this in mind, Financing from anyone would be grat, I am wondering if finance through Pet OR Bev maybe a quicker option than waiting for Bunnings and Government to get their act together to allow AAA to do financing. It may make a difference of maybe around 3 weeks?
152This was followed by a message in relation to Mr Walters' son Daniel coming down to the office and noting that Daniel had appreciated "the money" and did not want to take it in the first place as he had said he would do it (presumably the ebay work to which reference was earlier made in the Skype transcript) for free, followed by a response from Mr Scarborough "All true and agreed". What is not clear is whether that was communicating agreement to the penultimate message from Mr Walters set out above or to the position in relation to Daniel. However, Mr Scarborough went on to refer to contacting Pete and Bev, so it may well be that Mr Scarborough was agreeing as to the proposition that finance be sought through those individuals. The exchange continued with Mr Walters seeking clarification as to "our stand" concerning any certificates to be provided to potential buyers.
153Also on 4 July 2009 (at 3:08:49pm), CB 183, Mr Walters asked Mr Scarborough "can we set up separate Bank account [sic] for Aussie Batts deposits etc, will make things much easier if separate or else will get mucho confusing" to which Mr Scarborough responded "yep - no problem re separate acc except we don't have "aussie Batts registered as some one else has that name. 'Aussie Batts' is the branded name so payments and cheques must go into a registered business account". Mr Walters then asked "so shall we just set up account No 2 under AAA or another way?" and Mr Scarborough said "yep good idea "AAA Trade Power No.2" Can we do that? If so its easy to account". Mr Walters agreed to that and suggested that it be set up on the Monday so that anyone placing deposits could be given account details straight away and Mr Scarborough said "ok shall do with a max priority". (I interpose to note that Mr Scarborough says that he operated 2 Commonwealth Bank accounts in 2009 one in the name AAA Trade Power and one in the name AAA Trade Power No 2, the latter he says was established during 2009 to keep his purchases of ceiling batts from overseas separate from his other business activities ([32]-[33]).)
154In that Skype conversation, Mr Walters also asked Mr Scarborough as to what limit should be set as to the number of batts per customer "to get best exposure from first order". Mr Walters asked for and was given the ABN for Trade Power. As to the email for bookings, Mr Scarborough suggested that an email account be set up on yahoo for bookings as all Trade Power bookings came through to the main email address (CB 183A).
155Mr Walters again pressed for bank account details on 7 July 2009 in the context of a potential customer he was seeing the following day (CB 185A) and Mr Scarborough confirmed that he completely understood the importance of the bank account details - 11:09:54pm. On that date, Mr Walters also asked if it would be possible "to pick up say an additional $500 contribution from you, Towards Qantas freight clearance, testings etc and some other things which are mounting up" and Mr Scarborough responded "Your profit $1,200 is going to be very difficult for me to get it you in case, is there any way I can transfer it to your bank account (that's safe)" (CB 186 at 11:47:03pm). Arrangements were made for Mr Walters to be pad the $500 he had requested.
156It seems that on 8 July 2009 Mr Scarborough provided bank account details for Mr Walters (see CB 186A) and there was an exchange of Skype messages in relation to the selling of the first order (described by Mr Walters as "our first order" at 11:17:30pm).
157Around 9 July there was communication with Mr Peng in relation to a new order of batts (CB 188). Mr Scarborough suggested that it might be necessary for Mr Walters to fly to China to sort out the problem (CB 188). In the course of that conversation, Mr Scarborough said at 11:27:16pm "also re rosen - i am surprised he hasn't hit us up for the balance of funds prior to shipping? Do you think he is giving credit for a few days or simply forgotten" (CB 188A), to which Mr Walters responded that he was not sure about the balance payment but "he did say on receipt of b/l and he only just sent within today".
Further orders
158There followed a discussion as to what the next order should be (Mr Scarborough suggesting 10 containers) and Mr Scarborough said that he thought he could fund 5 out of the proposed 10 container order and that "If we can get the other funds from sales with 30% deposit I will be able to fund the balance to our warehouse door" (CB 189 at 11:32:29pm). As to finance, he said that he had not approached Bev/Kev or Pete and that "Once I have clarification of the funds transfers then i can calculate how many containers I can fund to get us going to higher speeds". Mr Scarborough also advised Mr Walters of a new warehouse opportunity he had found. Mr Scarborough transferred $1,217 to Mr Walters' account late that evening (CB 190).
159On 14 July 2009, Mr Scarborough asked Mr Walters to place a second order for "10 containers as discussed with a follow up order of minimum 10 weekly please - I will be using at least 5 conatiners [sic] per week and we can onsell the others easily" (7:28:50pm - CB 192A). Mr Walters did so by Skype with Mr Peng on that day and copied that communication to Mr Scarborough (CB 193A).
160On 17 July 2009, Mr Walters sent a Skype message to Mr Peng confirming that the payment for the balance of the first order of 4 containers had been done about an hour ago (the message at 4:08:11pm CB 196) and that US$20,000 had been deposited as partial advance deposit against "our 10 container order" with balance to follow once there was a "clear picture of invoice value". There was then an exchange about increasing the order from 11 containers to 20-25 with staggered delivery.
161On 19 July 2009, Mr Scarborough advised Mr Walters that $18,000 had "landed" in the Aussie Batts account in liquid funds "with more to follow" and that the 25% deposit would have been paid in full by 22 nd ; plus he had transferred the $4,000 for "Steve's container" so that there was $22,000 in the account at present (CB 199).
162Mr Walters deposes [85] to a meeting on this date in Bondi for coffee in which he says that Mr Scarborough said words to the effect "This is really just the beginning. It really seems like all our problems are going to be over; we can now place additional orders with the deposit made by Steve and everything should become self funding". Mr Scarborough recalls a conversation about an order being placed with Mr Walters by a Yani Flores but otherwise denies the conversation.
163At 11:19:20pm, Mr Scarborough said that "The 28 container oreder [sic] is at $42 per bag with 400 per container - Steve will receive $1.50 per bag leaving $40.50 for us". At 11:24:18pm, Mr Scarborough referring again to that order, suggested that after deducting the deposit from the estimated cost, he would be left to fund around $95,200 (CB 199A). At 11:27:08pm, he went on to say that "out of the $470,400 - steve will get $16,800 - we will get $453,600 less $224,000 ($20 per bag at 11,200 bags) leaving a nice gross profit of abt $229,600". Later, at 11:31:05pm, he said "all we need is another 9 orders like that and that will be 1 million each (less tax of course)".
164Mr Walters deposes (at [86]) that on 20 July 2009 he met Mr Scarborough for coffee at Coogee and Mr Scarborough said words to the effect that even without 'Steve' [although Mr Scarborough suggests that this is a reference to a customer or potential customer and speculates that it might be a reference to Yani Flores, the earlier reference to Steve is to a marketing boy - hence it seems likely to be a reference to an order placed by Steve] I believe that I will need all the batts that we can order for my own use" and that he, Mr Walters, was concerned to keep aside the containers that Steve had ordered and asked Mr Scarborough to come up with his projections as to his own use (which is what Mr Walters says was the subject of the later Skype conversation on 23 July 2009). (Mr Scarborough accepts that his primary motivation in ordering the batts was for his own use and says that he told Mr Walters that he would need all the batts he could get for his own use but otherwise denies the conversation.)
165Further communications took place with Mr Peng as to price for the second order (by now said to be for 24 containers) around 22 July 2009 (see eg CB 201/202). On that date, Mr Walters also advised as to a forthcoming meeting in relation to customs clearance for the first 4 containers (CB 202).
166On 23 July 2009, Mr Scarborough enquired of Mr Walters as to the potential for an exclusivity arrangement with Mr Peng and said that "100 containers a month should do it for 12 months" (CB 203). There were communications from 24 to 26 July as to progress in relation to testing of the batts, the orders placed, and perceived competitors in the market, culminating in the suggestion by Mr Scarborough on 27 July 2009 (CB 206A) to increase the order immediately to 50 containers, then order 5-10 per week thereafter. By this stage a further US$61,000 had been sent by Mr Scarborough as a deposit on the second order (CB 207). On that date, Mr Scarborough also confirmed receipt from Mr Walters of shipping documents in relation to the shipment of the first order.
167Mr Scarborough deposes ([102]) to having paid the full AUD$329,666.63 purchase price for the second container order of insulation batts on 26 July 2009 and there seems no dispute as to this (though I note that about a third of this amount may have been funded through a customer order).
August 2009
168On 3 August 2009, Mr Walters updated Mr Scarborough on the release of the containers (CB 209A) there having been a need for revised paperwork from Mr Peng and on 4 August 2009, Mr Walters confirmed that he had received confirmation as to the 29 container order (and that the next 5 containers would be loaded on 5 August with a further 5 on 7 - 9 August and the balance of 19 on 12 August) (CB 209A). Mr Scarborough acknowledged the updates.
169On 5 August 2009, Mr Walters sent a Skype message to Mr Peng advising that the first container of the first shipment was received that day and was being unloaded and that the second container of the first shipment was to be released on 6 August 2009, with the second shipment due to arrive on 6 August 2009 (CB 210A).
170Mr Scarborough deposes to a meeting with Mr Walters at Coogee in early August 2009 in which he says that Mr Walters sought reimbursement of funds and gave him a document headed "Walters Payments Document", a copy of which is Annexure "B" to Mr Scarborough's affidavit. That document itemised a total of $20,962.45 in payments comprised of items being "samples", "Zibo Double Egret", ERA testing; Qantas for samples; petrol for Bunnings pick ups; stationery; and fire testing. Below that total were items described as miscellaneous (Samantha door to door trial of $500 and Daniel telephone calls Bunnings of $80). Mr Scarborough says that Mr Walters also gave him copies of invoices in relation to some of those payments during the following week or so. (Clearly some of the payments listed did not relate to any venture in relation to the importation of batts from China; instead the Bunnings pick up charges at least related to the AAA Trade Power local business.)
171The Skype transcripts record a conversation on 9 August 2009 in the course of which Mr Scarborough asked for advice as to "the amount for the "over" investment into aussie batts that is to be refunded please? I need the exact amount as the paper work you gave me the other day has been accidentally thrown out". At 3:41:31pm, Mr Walters responded that there was "over payment on the 20,000 is $962.00 with in addition 500 samantha, door to door trial and 80 for Daniel reimburse telephone calls to Bunnings"; to which he added $100 diesel cost for picking up Bunnings batts over three occasions and toll for that of $50. He said that he would give the receipts along with the paper work breakdown covering that. Relevantly, it seems that there was no suggestion by Mr Scarborough that he did not understand what was meant by the concept of an "over investment" above the $20,000.
172On 11 August 2009, there were Skype exchanges as to an offer Mr Scarborough proposed to make to rent warehouse space in which he sought Mr Walters' opinion (CB 213A), in which Mr Scarborough equated the cost per bag of the rental amount on the assumption that "we can sell 11,000 bags per month". On that date, Mr Scarborough sent an email to a real estate agent (Felix) (Exhibit E) in which Mr Scarborough referred to himself as "Paul's business partner" and that" I" would like to submit an offer for a lease of the premises, saying "We can move on it pretty quickly ... if need be". (Exhibit F is a copy of an unsigned pro forma commercial lease in respect of a lease for warehouse premises at Alexandria, commencing on 1 September 2009 for a one month term, the tenant being named as AAA Trade Power.)
173On 18 August 2009, there were further Skype communications in relation to additional freight charges advised by Mr Peng and a suggested resolution of that issue (which Mr Scarborough said "has just taken our contribution from $1.15 down to 75c per bag") (CB 215).
174Mr Scarborough deposes that Mr Walters contacted Mr Peng to place an order for 40 containers of insulation batts on behalf of AAA Trade Power in the period from 8 to 18 August 2009 ([110]). There is no suggestion that those orders were placed without Mr Scarborough's approval or consent. (Mrs Scarborough deposes that the last purchase of insulation batts by AAA Trade Power in Australia (from Bunnings Hardware) was in August 2009.
175On 19 August 2009, the pair engaged in a lengthy (and somewhat unedifying) exchange as to potential names for the batts (CB 215A/217), largely contributed to by Mr Walters. (Mr Walters continued this from about 2pm on 20 August 2009, without response from Mr Scarborough.)
Annexure J - 19 August email
176At this point in the chronology comes a document the authenticity and provenance of which was much in contention during the course of the hearing, that being Annexure J to Mr Scarborough's affidavit of 8 February 2011.
177At [122] of his affidavit, Mr Scarborough deposes that on at least 2 occasions during the period from February to August 2009, Mr Walters asked him to inform others that he was Mr Walters' "business partner". In the first instance he says that in March or early April Mr Walters said words to the effect:
I have had a lot of dealings with the Chinese. They only want to deal with the owner of the business. They don't want to talk with junior staff or employees. It would be helpful if you could tell Rosen that I am your 'business partner'. Could you tell Rosen that I am your business partner?
and that he, Mr Scarborough, had said that he did not feel comfortable doing so. (I interpose to note that this is not consistent with the Skype correspondence adverted to earlier above in which Mr Walters said that he would need to tell Mr Peng that he was "working with" Mr Scarborough, no reference there being made to him being a partner or business partner.)
178In the second instance, Mr Scarborough says that in August 2009 Mr Walters said it would help if Mr Scarborough were able to tell the real estate agent, in relation to the rental of warehouse space, that he was Mr Walters' business partner (though it is hard to see why this would have been necessary). Again, Mr Scarborough says that he said he was uncomfortable with this. In the witness box Mr Scarborough referred to at least one other instance where this had occurred.
179Against this background, Annexure J to Mr Scarborough's affidavit purports to be an email to Mr Walters dated 19 August 2009. It said:
Subject: Chinese Negotiations - "Partners???" - uncomfortable
Hi Paul,
I appreciate your advice re Chinese negotiations. However, I am totally uncomfortable saying that we are partners when we are not. What's another way (better) to approach them? Why can't we simply say that you're a friend of mine with plenty of business experience & dealings in China?
Kent
180At the outset I note two somewhat curious features about this email. First, the font in the "To" section of the email (at least to my untrained eye) seems to me to be different from that in the body of the email but I accept that this may be a function of the manner in which it was printed or some other computer quirk (and the emails produced in respect of the communications on 26/27 August 2009 also contain differences in font, yet it is not suggested that they are not true copies of the relevant emails). Secondly, in terms of the subject header, it might be thought odd that an email with this subject header would have been sent on 19 August 2009 when the negotiations with the Chinese supplier seem largely to have been conducted at a much earlier stage and thus I would have expected that any such email would have been sent at a much earlier stage when Mr Walters first indicated he would need to tell Mr Peng that he was working with Mr Scarborough. Nevertheless it may well be that there were ongoing negotiations in relation either to the possibility of a second supplier or in relation to the ongoing orders.
181Objection was raised to the admission of this document on the basis that a forensic decision had been made not to rely upon it at an earlier time and it was submitted that Mr Scarborough was, in effect, bound by that decision.
182The circumstances in which the election was said to have been made were as follows, reliance being placed on correspondence that I admitted as Exhibit D (for the fact of the communications not the truth of those communications).
183Annexure J was, as noted, an annexure to Mr Scarborough's affidavit in these proceedings. It was served at some time around 8 February 2011. By email on 16 February 2011, the solicitor for Mr Walters wrote to the solicitor acting for Mr Scarborough, noting that the defendant proposed to ask for production of the computer from which email was allegedly sent, for forensic examination to determine whether the document was on the computer hard drive and, if so, whether it is or was in the form of an email; if so whether it was created as part of the outlook or other internet communication program and whether it was sent to the address shown on the email on the date shown on the document; and if it was not in the form of an email then in what form it was (or is) and whether it could have been sent.
184In response on that same say, the solicitors for Mr Scarborough conveyed the content of a conversation they said they had had with Mr Scarborough to the effect that Mr Scarborough's (or his business) computers had been upgraded and that he now had 5 computers; and that he would contact "our computer technician" to see if he still had the computer. The letter advised that there was no "in principle" objection to an expert witness being called by the plaintiffs.
185The substantive response was by letter dated 22 February in which Mr Scarborough's solicitors advised that their client was not aware of the exact identity of the particular computer on which the email was created or if was still in his possession. The letter set out in some detail the writer's instructions from Mr Scarborough as to why that was the case (points 1-9) and then said:
We have now had an opportunity to further consider [sic] the evidentiary weight of Annexure "J". In our view, there may be issues as to wether [sic] the document is admissible in evidence in any event. Accordingly, unless we receive advice to the contrary from counsel, we do not presently propose to read either paragraph 123 of Mr Scarborough 's Affidavit or Annexure "J" to which it refers.
186The letter then asked what the plaintiffs proposed to do in relation to the expert witness proposal. It seems that nothing further was done in that regard until the hearing when (the relevant paragraph being read by Mr Bell and the annexure being sought to be relied upon) the dispute as to authenticity and provenance arose.
187The first issue was as to whether there had been an election made, from which Mr Scarborough could not now resile, as to any reliance on this document. Mr Sneddon relied upon Sargant v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR 634, Commonwealth v Verwayen [1990] HCA 39; (1990) 95 ALR 321, and Agricultural & Rural Finance v Gardiner [2008] HCA 57; (2008) 251 ALR 322 in this regard. He also referred to the observation by Handley AJA, writing extra-judicially in Estoppel by Conduct and Election at [15-041], to the effect that a litigant is bound by the conduct of his or her case (the reference there being made to Seaton v Burnand [1900] AC 135,145) and may be precluded from taking new points after the close of evidence or on appeal. When asked as to what prejudice Mr Walters or the plaintiffs would suffer if it were to be admitted in evidence, the position adopted was that prejudice was irrelevant in the case of an election between inconsistent rights and that this was such a case, the rights in question being the right to tender evidence and the right not to do so, but that in any event the prejudice was the loss of the opportunity forensically to examine the computers in order to establish that no such email was sent or received.
188After some debate, I formed the view that the question of prejudice was not immaterial in the case of an election of this kind (assuming, which I did not think was the case, that there had been an unequivocal election). In Verwayen (at pp 328-329), the High Court said:
It has been doubted that waiver exists as a defence or answer in any case except where it is used as an alternative designation for some other defence or answer, for example, election, estoppel or new agreement: Bysouth, per Lowe J at 579. Generally speaking, as Jordan CJ pointed out in Larratt (at 226- 7), an existing legal right is not destroyed by mere waiver in the sense of an express or implied intimation that the person in whom the right is vested does not intend to enforce it: see Mulcahy v Hoyne (1925) 36 CLR 41, per Isaacs J at 55-6; Atlantic Shipping and Trading Co Ltd v Louis Dreyfus and Co [1922] 2 AC 250, per Lord Sumner at 261-2. In these cases, unless consideration is present, something in the nature of an election or an estoppel is required.
According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right: Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 658. However, the better view is that, apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another, such as the right to insist on performance of a contract and the right to rescind for essential breach: see Kammins, at 883. This category of waiver is an example of the doctrine of election.
and at 329:
It is necessary to consider whether, first, the doctrine of election and, secondly, the principles of estoppel (including quasi-estoppel by acquiescence) apply in the present case. The broad principles of election are not in doubt. They were formulated by this court, under the title of waiver, in Craine v Colonial Mutual, at 326; see also O'Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 at 257-64. In Sargent v ASL Developments Ltd (1974) 131 CLR 634 ; 4 ALR 257, Stephen J explained (CLR at 641; ALR at 262):
The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.
189Later at 329 - 330 it was said:
There, the respondent contends that the Commonwealth was required to elect between two inconsistent rights, namely, the right to plead and the right not to plead. The defences could be either pleaded or not pleaded; and a choice needed to be made as to which course to follow. But that is by no means the end of the matter because it is not clear that one of these "rights" could not be enjoyed without the extinction of the other. Indeed, the Commonwealth argues that, subject to the grant of leave to amend the pleadings, there was nothing to prevent it from adopting the right which the respondent claims was extinguished. The essential preliminary question is therefore whether or not the Commonwealth was required to make an irrevocable choice between two alternative positions; if it was not, then the two cannot be said to have been relevantly inconsistent, and the doctrine of election would not come into play.
The respondent's contention is that, by filing a defence omitting reference to the Act and the Groves defence, the Commonwealth had irrevocably elected not to plead the defences available to it. The immediate difficulty with that contention is that it does not account for the possibility that leave may be granted to amend the pleadings for the purpose of including the defences. The respondent could not point to any authority in which the filing of a defence was said to amount to an election in this way. Indeed, there is support for the contrary view, based upon the following passage from the judgment of Viscount Simon LC in United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 18-19:
No doubt, if the plaintiff proved the necessary facts, he could be required to elect on which of his alternative causes of action he would take judgment, but that has nothing to do with the unfounded contention that election arises when the writ is issued. There is nothing conclusive about the form in which the writ is issued, or about the claims made in the statement of claim. A plaintiff may at any time before judgment be permitted to amend. ... At some stage of the proceedings, the plaintiff must elect which remedy he will have. There is, however, no reason of principle or convenience why that stage should be deemed to be reached until the plaintiff applies for judgment.
See also per Lord Atkin at 29 - 31.
That case involved the quite different question whether the initiation of proceedings against one defendant precluded the bringing of an action against a second defendant on the basis of the same facts. Of course, the decision provides no support for the view that a defendant will not need to elect whether or not to plead a defence until the plaintiff seeks judgment. None the less, the general statements in relation to the plaintiff's opportunities to amend the pleadings have at least equal force when applied to a defendant.
This is not a case in which it could be said that the defendant was required by a certain point in time to elect whether or not to plead the defences. If there was no need to make an election when the defence was first filed, there is no reason why the comparatively insignificant proceedings which followed gave rise to such a need and precluded the reversal of the previous decision. If the facts give rise to a conclusion that the Commonwealth's decision was irrevocable, then the reason is not to be found in the principles of election . (my emphasis)
190In Agricultural and Rural Finance v Gardiner , at [60] - [62], the High Court said (footnotes omitted):
Circumstances in which there is an election between inconsistent rights are radically different from some others in which there is said to be a waiver of rights. In particular, it is important to distinguish cases of election between competing rights from the very different setting for this court's last extended consideration of issues of "waiver" in Verwayen ... The majority of the court (Deane, Dawson, Toohey and Gaudron JJ) held that the Commonwealth was not free to dispute its liability to the plaintiff. Deane J and Dawson J each rested that conclusion in estoppel; Toohey J and Gaudron J each concluded that the Commonwealth had waived its right to rely on a limitations defence. But the conclusions reached by both Toohey J and Gaudron J about waiver depended upon considerations founded in the nature of the adversarial litigious process. So Gaudron J said that "a party to litigation will be held to a position previously taken (that position having been intentionally taken with knowledge) if, as a result of that earlier position, the relationship of the parties has changed". And as her Honour pointed out, the roots of the doctrine applied in her decision were to be identified in "fair dealing in the conduct of litigation [and] promoting the finality of litigation". Likewise, Toohey J emphasised that the "waiver" at issue in Verwayen was "waiver as it exists within the adjudicative process" (emphasis added) and that "[w]ithin the adjudicative process at any rate, it is enough that the defendant 'renounces' a defence which is available to him and which is there for his benefit." It was on this footing that both Toohey J and Gaudron J concluded that the Commonwealth had waived the right to plead a limitations defence.
By contrast, Brennan J concluded that the Commonwealth had done no more than state its intention (albeit unequivocally) not to rely on the defence. Because the time for waiving the defence had not arrived, the Commonwealth could be held to that statement of intention only if the plaintiff could show detrimental reliance sufficient to hold the Commonwealth estopped from changing its position. That is, Brennan J held that an election between rights was foreshadowed by the Commonwealth's statement of intention, but that an election would be made only at the moment before judgment.
It is neither necessary, nor appropriate, to canvass in these reasons the correctness of what was decided in Verwayen. What is presently important is to recognise that the discussion of waiver in that case reflected the particular setting in which the issue arose. The setting in that case was provided by the existence of litigation between the parties. The issue was whether one party had so acted that it should not be permitted to rely on a defence that it had at first said it would not raise but later sought to rely on to defeat the plaintiff's claim . ...(my emphasis)
It would seem that in the exercise of the discretion upon opposition to the grant of such leave, a question arose as to whether, in the light of the past conduct by the Commonwealth of the litigation, leave should be refused. That presented to the Court the task not of adjudicating legal or equitable rights but of assessing the relevant factors. In a comparable situation in England, the House of Lords in Roebuck v Mungovin spoke of the decision upon such an application as "a classic exercise of a discretion [by] simply taking the defendants" conduct into account.
191I did not consider that there had been an unequivocal election not to make use of the annexure (it being expressed to be subject to Counsel's position on the issue and that not having ever been confirmed). I considered that, provided prejudice by the change in position could be overcome, the document should be admitted subject to its provenance being tested by cross-examination of Mr Scarborough and any further evidence in chief from Mr Walters.
192As to the evidence then given, Mr Scarborough at T 139 gave evidence that he had typed the email on his computer, had sent it and had printed it out to file (the method of filing of which he could not be sure and thought it could just have been left on his desk - T 141). The reason he gave for printing the email out (in circumstances where he could not recall having printed any others) was that "I was highly suspicious of [Mr Walters'] activities at that time. That was the reason one of the reasons" (T 134.34). He emphasised that he was "very worried" at the time (T 144.37)
193He was cross-examined as to the instructions given in relation to the 22 February letter and said at T 148.20:
Being asked if I had the computer and I couldn't say that I did, so if I didn't have the computer it couldn't be relied upon so I said OK if it goes in or goes out it doesn't worry me. There's a lot of other stuff that's important
194He confirmed at T 148 that he did not still have the computer in question. Mr Sneddon sought to cross-examine Mr Scarborough on what advice had been given or what he had been told by his solicitors in relation to his ability to rely on this document, on the basis that there had been a waiver of legal professional privilege in the above answer. There then followed debate on that issue as well (Mr Bell submitting, and I agreed, that if the witness had deposed only to his understanding after having had legal advice that would not involve a waiver of the substance of the advice, having regard to the principles applied in Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405 in that regard).
195Ultimately, what Mr Sneddon sought to do was to rely on the almost immediate withdrawal of Annexure J (by the solicitors for Mr Scarborough albeit on his instructions) once authenticity had been challenged as evidence of a consciousness on the part of Mr Scarborough that the document was not authentic (the submission put was that this was an exhibition of an attitude of mea culpa ). Mr Sneddon suggested that if there were to be no submission by Mr Bell that the letter of 22 February had been sent on the basis that Mr Scarborough had a mistaken belief that he could not rely on Annexure J in the absence of the computer then there would be no need for further enquiries as to what Mr Scarborough had been told. Mr Bell made no such concession, instead informing me that the defendant's position would not be that he was relying on any understanding from his lawyers that if he did not have the computer could not rely on it so there was no waiver of privilege in any advice given by them - T 216. (In that regard, the letter of 22 February seemed to me to set out what any advice given to Mr Scarborough at the time would be likely at least to have included - namely the writer's view that there might be issues of admissibility in respect of the document. However, that is speculation on my part.)
196The outcome of the debate on this issue was that I was satisfied that the provenance of the document had been sufficiently established (assuming that Mr Scarborough's evidence were to be accepted as to the creation of the document, and I did accept that evidence) and I provisionally admitted the document on that basis. Mr Walters denied having seen any such email prior to receipt of Mr Scarborough's affidavit (T 131.18) and gave evidence as to the computers which he had in use at the relevant time and as to his use of the Yahoo server.
197In order to address the question of prejudice arising from the late notification that the defendant did (contrary to the earlier advice) seek to rely upon this email, I gave leave at the conclusion of the hearing for subpoenas to be issued to each of Telstra Corporation and Yahoo7 Pty Ltd (by their respective proper officers) (and indicated that the parties could make submissions as to the outcome of those subpoenas although I did not formally make any directions to that effect). The subpoenas were issued but there was delay on the part of the plaintiffs in indicating that they wished to make submissions as to the results of the subpoenas. The matter was eventually re-listed with the defendant opposing leave for any further submissions. I granted leave within a short time frame for that purpose and short submissions were duly served.
198Each of the subpoenas sought production of copies of records on the respective organisation's servers (Bigpond and Yahoo respectively) of any email (as well as copies of any such email) sent from what was identified as Mr Scarborough's email address and addressed to either 'paul walters', or Mr Walters' email address from 19 August 2009 to 21 August 2009. (Mr Bell notes that the subpoenas did not request copies of any deleted emails and that the evidence does not show if the emails produced include deleted emails or whether they are recoverable. In that regard, it is submitted by Mr Sneddon that there is no evidence that emails deleted on a personal computer will in any way affect the records of the service provider.)
199There was no production by Telstra in answer to the subpoena served on it. Mr Walters' solicitor, Mr Hourigan, by affidavit sworn 5 September 2011, deposed that Telstra had forwarded to the Registry a letter advising that it did not keep emails after delivery and that back-up is deleted after 90 days. (That being the case, even if enquiries had been made in February 2011 when this issue was first raised, I can only assume there would still have been no production of any August 2009 documents by Telstra in answer to a subpoena of the kind later issued.)
200There was production by Yahoo7 of a disc in answer to the subpoena. Annexed to Mr Hourigan's affidavit was a bundle of emails retrieved from that disc. The bundle includes a number of emails sent to or from Mr Walters' email address by or to persons other than Mr Scarborough (from which it seems reasonable to infer that Yahoo7 simply produced those emails on its servers that were sent or received by Mr Walters at his Yahoo email address between the relevant dates, without distinguishing between emails sent by Mr Scarborough and others). In that bundle there is only one email to or from Mr Scarborough and that is an email from Mr Walters to him on 20 August 2009 forwarding "details of the trademark issue". There was no email from Mr Scarborough (whether in the form of Annexure J or otherwise) in the bundle.
201Mr Sneddon submits that from this it can be concluded that Annexure J (if sent by Mr Scarborough, and he submits that it probably was not sent) was not received by Mr Walters (or at his email address). Reliance was placed on submissions made by Mr Bell at the close of the initial hearing as to the operation of servers such as Bigpond and Yahoo (although I thought I had made it clear that I did not regard such submissions as evidence and Mr Bell had disclaimed any attempt to give evidence from the bar table.) (In that regard, what I understood Mr Bell's earlier submission at T 152 to be was that in his experience with Yahoo emails would not be stored on the computer hard drive but rather on the user's server so there would be little point in appointing a computer expert to examine Mr Walters' computers as had then been in contemplation.)
202Mr Bell submits, in effect, that nothing can be drawn from the fact that Annexure J does not appear in the bundle produced by Yahoo, not only because the subpoena did not call for any deleted emails (and there is no evidence to show whether the emails produced in fact included deleted emails) but also because there is no evidence that Yahoo7 had access to all of the Yahoo servers to search for any emails and there is no evidence that all emails are produced. In relation to that submission, Mr Sneddon submitted that unless Yahoo7 was in contempt of the order to produce documents it should be taken that there are no further documents. Nevertheless, it may well be that there are documents stored on Yahoo servers overseas to which Yahoo7 might not have access and would not necessarily have been required or compelled to produce.
203It is submitted by Mr Bell that, at the highest, the documents produced on subpoena could only be said to be "Some emails that Yahoo7 say were addressed to Paul Walters" and that it could not be said that the Yahoo7 emails could be all emails sent to or received by Paul Walters in the relevant period. Thus, it is submitted by Mr Bell that it cannot be inferred that the email which is Annexure J was not sent by Mr Scarborough to Mr Walters.
204Mr Sneddon concedes that, taken on its own, the production by Yahoo7 of the emails contained in the bundle annexed to Mr Hourigan's affidavit may not be conclusive that the Annexure J email was not sent, but submits that it strongly supports Mr Walters' evidence (T 131.14-50; T 132.1-3) that he did not receive Annexure J by email and only became aware of its existence when shown a copy of Mr Scarborough's 2 February 2011 affidavit.
205Mr Sneddon submits that not only has the provenance of Annexure J not been proven by Mr Scarborough but also that it is not consistent with other evidence. In that regard, Mr Sneddon submits that there is no other evidence of Mr Scarborough raising any concerns of the kind raised in Annexure J (having regard to the conversations to which Mr Scarborough has deposed and the Skype transcripts or other documents in evidence).
206Reliance is placed on the fact that, although Mr Scarborough conceded in cross-examination that this was an important document in the defence of his case (T 146.14) and that he understood in February 2011 that Mr Walters was putting in issue authenticity or provenance of that annexure (T 146), it was not produced under discovery nor in any other evidence prior to cross examination of Mr Scarborough in interlocutory proceedings in this matter (the transcript of which is at CB pp 440-441) and the review of Mr Walters' affidavit evidence in chief and the Skype conversations (referring to T 244.15). In that regard, I place little weight on the concession referred to above. Mr Scarborough's position was that he regarded all the evidence as of importance. Moreover, it is by no means clear that Mr Scarborough, as a lay witness, would have an informed view as to what was or was not important in the conduct of his defence. Presumably that is what his legal representatives are retained to consider. As to the assertion that it was not produced on discovery (which was not conceded and the extent of which I have not reviewed), the significance of this would depend on the scope of the discovery required for the purposes of these proceedings.
207Mr Sneddon submits that the claim made in Annexure J (that Mr Scarborough was concerned at being asked to describe himself as Mr Walters' business partner) is contrary to evidence given by Mr Scarborough at T 223.25 in relation to the discussions with the real estate agent ("no, Paul introduced himself as a partner and asked me to confirm it with Felix, so I had no problem doing that") and at T 230.5 ("he said I have already met Felix. You might just want to send him an email, the same as when we deal with the Chinese. I said OK, not a problem, so I did").
208Ultimately, I am not satisfied that this point goes anywhere. Even assuming that I were to accept the submission for Mr Walters that Annexure J had been created as part of an attempt by Mr Scarborough to manufacture evidence of a concern as to the description of himself as a business partner (which I accept would not reflect well on Mr Scarborough's credit to say the least), that does not change my view that the initial email in which Mr Scarborough introduces himself as Mr Walters' business partner does not seem to me to carry the weight sought to be placed upon it. The word "partner" is used in a variety of contexts in modern day parlance. The qualification "business" before it seems to me to convey no more than that the two were working together in some capacity in business. I do not read it as an admission of partnership (and I consider that any such reading would be inconsistent with the remaining contemporaneous evidence).
Payment to Mr Walters of $9,950
209At 5:05:08pm on 20 August 2009, Mr Walters sent a Skype message asking if Mr Scarborough was there. The next Skype message is from Mr Scarborough at 6:03:10pm "check daniels account now for $5,250 that has just gone over" and at 27 minutes past 6, a message that "2 nd one transferred $4,700" confirming that this made a total of $9,950.
210Mr Scarborough deposes (at [79]) that at 5:30pm (therefore between the message asking if he was there and his message confirming a transfer of funds to Daniel's account) he received a telephone call from Mr Walters in which the latter said "I need as much of my money back as possible" because he had received an eviction notice from the real estate agent for 4 weeks rent (2 weeks in arrears and 2 in advance) for $4,800 and that Mr Walters needed approximately $3,500 for the mechanic to get a re-conditioned engine for his van. Mr Scarborough says that he said he needed $10,000 but asked him to keep it under that amount "so its not traceable by the tax office" and asked that it be deposited into his son's account "for obvious liquidation reasons". Mr Scarborough says that he made the payments by internet banking as soon as he got off the phone. He contends that this represented repayment of $9,950 against the $14,987.34 payment (that he says was a loan) by Mr Walters on 5 June 2009.
211Mr Walters responded to this in his 24 March 2011 affidavit. He denies that the conversation was in the terms recounted by Mr Scarborough and says that the conversation took place at a coffee shop in Coogee at around 7-8pm, not over the telephone. As to the timing of the discussion, Mr Walters says this is because that was normally the time they would meet up for a coffee (T 49.10). In this regard, Mr Walters' account is not consistent with the Skype transcripts that show Mr Scarborough advising as to the payment into Daniel's accounts at a time before 7pm.
212According to Mr Walters, he was asked by Mr Scarborough how things were financially and, when he said 'not good' and was asked why, he explained that he was behind in his rent by a month and that the replacement reconditioned engine (to repair damage by one of Mr Scarborough's installers) would cost $3,500. Mr Walters says that Mr Scarborough suggested that he could draw back some of the money that he had contributed and also the profits of the batts orders that they had received. Mr Walters went on to attribute the following words to Mr Scarborough:
I certainly don't have a problem with it; don't forget that you contributed and financed the first down payments for the four containers and I only kicked in when they arrived in Australia, which allowed me about 2 month's to use my contribution of $20,000 to buy up batts from Bunnings and install them in houses. That was a terrific help to me and enabled me to get great cash flow, because the Government is on average paying every 7-10 days [a statement that, if made, is inconsistent with the Skype transcripts].
213In cross-examination, Mr Walters agreed that Mr Scarborough did not talk in the terms attributed to him in Mr Walters' affidavit in relation to this conversation (T 56.15/18).
214Mr Walters agrees that he was struggling financially in August 2009 (T 58.45) and had put together the document he gave to Mr Scarborough setting out his expenditure in order "to get reimbursement". He then contradicted himself and said that he was not asking for reimbursement of the $20,000, "I was just showing him where my contribution of $20,000 had gone to" (T 60.3/.9/.12). (He agreed that some of the items over and above the $20,000 that he had included on that document and the invoices given to Mr Scarborough at CB 405-406 had nothing to do with the importation of the batts (T 59.41).)
215Mr Walters says that Mr Scarborough offered to make the money "9,750 so then we don't have a problem with bank reporting" and to treat it as an advance (see T 40). Mr Walters accepts that he said that it was better for it to go into his son's account and says his preference was that it not go into his own account "until I found out what the liquidators" were doing (T 50.1); he says he wanted it to be clearer as to where the money had come from (T 50.18). (He agrees his son had no interest in the $9,750 (T 50).)
216Mr Scarborough also sent a message on Skype to Mr Walters at 10:30:45pm that day in which he said that the government had not paid for one week and were now about 14 days behind "which is beginning to be a worry re their inconsistency" (CB 218), which (as Mr Bell submits) is inconsistent with the conversation to which Mr Walters deposes in his affidavit (para [17]).
217On 22 August 2009, Mr Walters sent a message on Skype to Mr Scarborough updating him on his discussion with Mr Peng and stating that he had told Mr Peng "we now want to order 25 per week/100 per month (CB 218A). There was no response to this from Mr Scarborough until a brief message on 24 August 2009 asking Mr Walters to check his emails.
Breakdown in relationship
218Mr Walters deposes (at [96]) that he met Mr Scarborough at the warehouse on about 25 August 2009 and that there was an issue on that occasion as to the collection of the sample batts which were at Mr Walters' house. He says that this was the last face to face meeting he had with Mr Scarborough before January 2010. It is not clear what precisely was the cause for the fall-out between the two at or about that time. However, there seem to have been concerns by Mr Scarborough as to Mr Walters' moods and antics (and a suspicion as to his conduct -at least that Mr Scarborough's affidavit that he harboured the concern that Mr Walters was seeking to take a share of the AAA Trade Power business). Whatever the cause, it is clear that this meeting coincided with the breakdown in the relationship (Mr Scarborough accepting at T193.30 that the relationship had broken down in August 2009) and (from the later communications) that issues of trust had arisen on both sides. From 27 August 2009 all AAA Trade Power insulation batt orders were placed by Mr Scarborough with Mr Peng ([114]).
219On 26 (and again on 27) August 2009, Mr Walters sent messages to Mr Scarborough on Skype asking for a meeting to talk about some outstanding points to be finalised and outstanding issues in relation to the batts. Mr Scarborough's response to the request for the meeting, by email on 26 August 2009, was simply to ask "What outstanding points?" (Mr Walters also sent an email (CB 270) on 27 August 2009 "reminding" Mr Scarborough of the urgent need to meet to discuss outstanding matters regarding the batts, warehouse and other issues.) At CB 272 is another email of that date from Mr Walters concluding "Also probably most important thing is to sort out and discuss issues concerning you and me regarding the business". Mr Walters accused Mr Scarborough of trying to evade "the issue" (CB 273). Mr Scarborough denied trying to evade any issues.
220Mr Scarborough's email on 27 August 2009 stated that:
After your recent antics, and after long hours of consideration since Monday, I have had enough.
You clearly don't put any value on my friendship, support or business ability. You are extremely moody which makes it very difficult and awkward to operate. I never known what mood you are going to be in and your display on Monday [24 August presumably since this was written on a Thursday] is, for me, intolerable and the last straw. I have been patient for a long time and never reacted or said anything respectfully due to your depression and liquidation but now I have had enough.
221As to the matters raised in Mr Walters' 27 August email, Mr Scarborough said, in summary, that he was not interested in meeting; that he (Mr Scarborough) had not got a clue what was going on in relation to the batts; and that he was cancelling the warehouse and taking a huge loss. In response to a further email from Mr Walters as to the need to discuss " how our business agreement will carry on ", Mr Scarborough said "Speaking of convenience why have you ignored the content of what I said? Instead of mentioning our agreement twice in a 2 sentence response. How would you like our business agreement to carry on ?" (CB 277). Mr Scarborough denied trying to evade any issues and considered an amicable solution clearly the best..." (CB 278).
222On 28 August 2009, Mr Walters sent an email received by Mr Scarborough at 2.56pm saying he did not think it was in any one's interest to delay things "Especially as there is an agreement allready [sic] in place" and suggested that they meet the following day to discuss and draft up and sign an agreement (and that it then be 'formalised' by Steve Teen). He had earlier that day sent an email in which he proposed that he carry on and monitor/coordinate with suppliers but that he would not be involved in any sale of batts at all and said "As per our existing agreement I would be agreeable to a per dollar bag figure based on quantity imported/sourced" and said that, once agreed on this the above "will be written up and signed by both parties" and that Steve Teen can do this. He said "If I dont [sic] hear from you I will take it for granted that you are not interested to carry on with our agreement which we have" (CB 283).
223Tendered as part of Exhibit C were various communications that, on their face, seemed to be written in a genuine attempt to compromise the then apparent dispute between the parties (and hence would be the subject of without prejudice privilege and not admissible in evidence). Mr Sneddon submitted that at least part of the August correspondence was admissible as refuting the suggestion by Mr Scarborough that the only agreement between the two was that Mr Walters' entitlement to any moneys was conditional on him effecting sales of the batts. After some debate, I rejected the correspondence to which a s 131 Evidence Act 1995 (NSW) objection had been made, other than a part of that correspondence that was sought to be read as an admission by Mr Scarborough that there had been an earlier agreement for payment of $8 per bag for batts taken for Mr Scarborough's use. Exhibit C, pages 290/291 and 298/30, were therefore read only as to issue whether there was an acceptance or admission by Mr Scarborough as to the existence of an earlier agreement for $8 a bag and not otherwise. In that regard, the emails are silent as to when the so-called $8 per bag "agreement" was struck (i.e. whether this was at the time Mr Scarborough says in early June when he offered the commission arrangement) and in what context (referable to bags used by Mr Scarborough or, say, as a price fixed for a notional half profit share per bag).
224At CB 290 (which, as noted above, I read only as going to the issue as to whether it contained an admission as to the $8 per bag alleged term), is an email from Mr Scarborough to Mr Walters on 29 August 2009 in which Mr Scarborough concluded with the sentences "Can you also advise what you want to do with the 10 bags still in your possession. If you don't want them I will buy them and pay the $8 per bag as agreed " (my emphasis). (As noted, in the absence of clear evidence as to the striking of the $8 agreement, I do not read this as an admission.)
225In this regard, Mr Sneddon points to the fact that the document refers to $8 per bag in prospective terms and submits that it is not consistent with the arrangement asserted by Mr Scarborough. He submits that it is consistent with the alleged partnership not being limited to $8 a bag as sold or there being any precondition of sale. He points out that the $8 per bag concept was only raised in two places: the reference to "$8 a bag as agreed" and secondly in relation to the 4 containers received. In circumstances where he says that the arrangement was said to be for payment of $8 irrespective of losses and there were already 4 containers received by 29 August 2009 (those loads having been used or taken by Mr Scarborough for his own use) this letter is said to be entirely in conformity with the plaintiffs' arguments as to the express terms of the alleged partnership agreement (namely an offer that Mr Scarborough would pay $8 a bag for those 4 containers).
226(In the witness box, Mr Scarborough said that the reason that he offered to buy the bags in Mr Walters' possession for $8 a bag was because the agreement he says was made was to split the profit on bags Mr Walters had sold and he had introduced the sale to East Side Insulations - although that fell through. Mr Scarborough says he calculated that sale at about $40 retail and the landing price at $24 so that the profit would be $16 and Mr Walters would get 50% on the sale of 125 to East Side, hence the $8 figure - T 208.2.) Mr Scarborough says that he was prepared to pay that for the bags remaining in Mr Walters' house and denies that this was an arrangement made in conformity with an agreement of the kind contended for by Mr Walters - T 208.47. Insofar as the $8 is sourced by Mr Scarborough to the East Side Insulation sale, that seems inconsistent with a figure having been agreed before that time and the costing calculations in any event appear to have varied over time.
227Ultimately, I do not consider that the references in this correspondence to $8 "as agreed" should be read as an admission by Mr Scarborough that there was a partnership or joint venture agreement or that any such agreement included an $8 per bag term. Parties may make offers based on the contentions raised against them in relation to the dispute without any admission of the validity of those claims, solely in order to resolve the proceedings. The arrangement based on the bags in Mr Walters' house (the collection of which was the subject of argument on 25 August 2009) provides a cogent explanation for the later reference to "$8 per bag as agreed" and is at least arguably the explanation therefore; the alternative explanation making it difficult to see this as an admission on the part of Mr Scarborough.
228I am therefore not persuaded that there is an admission in that material (and, having only read the material for that purpose, I do not take into account that correspondence on the determination of the issues before me).
Post August 2009
229Mr Walters set up another installation business in his son's name (Premier Installations) (T 47), commencing around September 2009 (T 48).
230In the period from 1 September 2009 to 11 February 2010, a further fifty shipping container loads of batts were ordered by Mr Scarborough for his AAA Trade Power business from Mr Peng. Mr Scarborough contends (and it is not disputed) that this was with no involvement of Mr Walters.
231Mr Scarborough deposes (at [99]) that Jani Flores cancelled the order(s) that had been placed on the introduction of Mr Walters and that the deposits from that order (paid on 24 August 2009) were refunded by AAA Trade Power on 4 September 2009. He says (and this seems not to be disputed) that no other customer was introduced by Mr Walters.
232The first order (of 4 containers) had arrived in 2 shipments of 2 in the last week of July and the first week of August (by which time there was a shortage of locally produced batts -T 157.49). Mr Scarborough says that of the second order placed in July for containers, he had agreed to sell 28 container loads to a customer in Newcastle, Mr Chin and that an AUD $102,363.64 deposit was paid by Mr Chin. There was apparently a dispute as to the position in relation to the delivery of the necessary shipping documents for that second shipment. In the witness box, Mr Scarborough said that Mr Walters had refused point blank to hand over the bills of lading and that this had caused 24 containers to be delayed (T 198.18). (Mr Scarborough contends that Mr Walters had received the documents from Mr Peng and had refused to deliver them to him; Mr Walters denies that he had the documents; I am not in a position to make any finding on this). The upshot was that Mr Scarborough had to obtain a duplicate set in order to take delivery between 19 and 22 September 2009. He says that he negotiated a settlement with Mr Chin in which Mr Chin accepted 6.7 containers in return for the deposit he had paid ([107]).
233Exhibited to Mr Scarborough's affidavit (and read in the limited way earlier noted) is a printout of Skype communications between Mr Peng and Mr Scarborough from 21 September 2009 in which Mr Scarborough raised with Mr Peng an issue in relation to the shipping documents. According to that communication, the original bill of lading for the balance of the 14 containers arrived only on 21 September though the ship had left China on 20 August and Mr Scarborough was complaining about the fact that he did not know anything about the ship arriving the previous Thursday; had not received the shipping declaration; and was being charged storage. The response from Mr Peng was that all the shipping documents sent to Paul "include the 14 container" (and Mr Peng later in the conversation suggested that Paul had "hide some much information"). I do not draw anything from this exchange other than that it supports Mr Scarborough's assertion that customs clearance delays (due to issues with the shipping documents) led to problems in completion of the order to Mr Chin.
234On 19 February 2010, the government suspended and later cancelled the incentive programme. Mr Scarborough's evidence is that he now has 44.5 shipping containers of unsaleable imported insulation batts ([125]).
Summary of position in relation to the imported batts
235In summary, Mr Scarborough deposes (and it is not suggested otherwise) that he has never purchased ceiling insulation batts from overseas other than from Double Egret and that, in all, 90 shipping containers of ceiling insulation batts comprising 37,714 plastic bags of batts were purchased ([39],[42]).
236Mr Scarborough says that the total price paid for the batts purchased from Double Egret (converted into Australian dollars at the time of payment) was AUD$1,012,422.13, of which Mr Walters or his company First Art paid only $14,987.34 (Mr Scarborough's affidavit [44] and as accepted by Mr Walters (T 91)). Mr Scarborough deposes that he paid an additional AUD$188,704.35 for GST duties transport and other related expenses in relation to the imported batts ([45]). The batts were cleared through customs in Sydney on various dates between 5 August 2009 and 10 February 2010.
237Of the 90 container loads, Mr Scarborough deposes in summary (at [54]) that 38.5 container loads were used in ceilings by AAA Trade Power; 7 containers were sold to wholesale customers (approximately 6.7 to Mr Chin and 0.25 to a customer that he accepts was introduced by Mr Walters named Mr Yan (or Yani) Flores of East Side Insulation); and 44.5 containers are unused and still in storage ([54] and [53]). (After the cessation of the government's rebate programme it may be inferred that the possibility of use and hence value of the remaining batts is likely to be vastly diminished but there was no evidence as to their remaining value.)
238Mr Walters' response, when asked if he was in a position to pay for the batts ordered by AAA Trade Power was in effect that he could not (he saying that neither was Mr Scarborough) (T 94). Nevertheless, Mr Walters' position is that since Mr Scarborough decided to keep all the batts for use by himself, he is liable to pay Mr Walters $8 per bag (or around $296,000).
239The upshot of the commercial ramifications (if there were to be a partnership involving a 50/50 profit split but to which Mr Walters had been required to contribute half of the capital for the acquisition of the batts) was illustrated in a document headed "Damages Calculation" handed up by Mr Bell on 11 August 2011 in the context of an application for interlocutory relief at the close of the initial hearing:
90 containers = 37,714 bags
each container an average 419 bags
Cost at 90 containers is $1,201,126.48
AAA Trade Power - 38.5 containers = 16,131 bags x $8.00 = $129,048 [A]
Wholesale to third parties = 7.00 containers = 2,933 bag x $8 = $23,464.00 [B]
Unused = 44.5 containers = cost is $593,890.53 (half cost in $296,945.26 [C]
240It is thus submitted that if there was a partnership in which Mr Walters was entitled to a 50% share of profits but was also required to contribute 50% of the costs of the acquisition of the batts, then the result is that he would owe Mr Scarborough the sum of $144,433 (being C - B - A). I make no finding on those figures (which were not accepted by Mr Sneddon as correct) but consider it illustrative of the proposition that what Mr Walters now seems to be seeking is a large sum of money by reference to batts to the cost of which he has contributed nothing in financial terms (though I accept that he expended time and effort arranging for the importation of those batts).
[2]
Credibility
241Before turning to the determination of the legal issues before me, I note that issues of credibility arise in circumstances where much of the evidence relied upon by both sides consists of the respective protagonists' accounts of the many conversations that seem to have taken place during the 7 month period in question. Mr Bell notes that the critical conversation(s) on which the allegation of a partnership or joint venture is based are those set out in paragraphs [17] and [18] of Mr Walters' affidavit and that there is no independent corroboration of those conversations. (In that regard, the Skype communications between the two parties take on added significance in pointing to which of the different accounts of the various conversations is the more credible.)
242Mr Bell points to various matters in support of the proposition that Mr Walters was not a reliable witness.
243First, he refers to the contradictory evidence as to the timing of the conversation on 20 August 2009 (to which I have referred above) in which the payment of around $10,000 by Mr Scarborough to Mr Walters was discussed (the competing versions being para [79] of Mr Scarborough's affidavit and para [17] of Mr Walters' second substantive affidavit). In this regard, the Skype transcript (at CB 217A) clearly supports Mr Scarborough's version of events (at least in relation to timing). Furthermore, the complaint made at CB 218 of the Skype transcript as to late government payments is inconsistent with Mr Walters' version of the conversation. As to the reasoning underlying the request that the payment be in an amount less than $10,000, there seems no logical reason why Mr Scarborough would have requested this (or would have had any problem with bank reporting) and his Skype communications suggest that it was Mr Walters who had a concern as to what the liquidators might seek to do. It was put to Mr Walters (and is consistent with what happened) that he had sought to keep his name out of business arrangements over the period (including when he later set up Premier Installations).
244The conclusion I have drawn on this point is that, overall, Mr Scarborough's version of the conversation is the more likely and that what Mr Walters was seeking to do at this time was to ensure that the liquidators of Heaven & Earth had no knowledge of the payment(s) in question lest that provoke an enquiry or claims by the liquidators in relation to that amount.
245Secondly, Mr Bell points to the incompleteness of the Skype records (which belies Mr Walters' evidence as to their accuracy) and to the inconsistent evidence given by Mr Walters as to the reason for this (variously put as printer/photocopier problems). I do not draw any adverse inference out of the inconsistency in Mr Walters' answers in relation to the printer/photocopier issue (since it seems to me that he was referring to two functions of the same machine and generally confused as to the questioning). However, the juxtapositioning of some of the entries does cause me some concern and suggests that there should be caution as to the weight to be placed generally on the Skype transcript or at least those portions where there is obviously some missing and/or duplicated transcript.
246Mr Bell submits that the incompleteness of the records means that Mr Walters cannot be believed and that there is a reasonable inference that the missing pages do not assist Mr Walters' case. Insofar as I am invited to draw a Jones v Dunkel inference in this regard, I formed the view that Mr Walters' confusion in the witness box was genuine and that, other than treating the transcripts with some caution I should not draw the inference that Mr Walters is not to be believed as a whole simply by reason that the records are incomplete. The bulk of the material produced (and I have read the transcripts of the conversations between Mr Scarborough and Mr Walters very carefully in this regard) is consistent with the general time frame of events as can be deduced from the other documents (such as the money transfers and the like) and seems to me unlikely to have been concocted (since that would presumably require a considerable effort not only to manufacture a consistent exchange of communications but to reproduce them in the form they are in - profanities, crude jokes, reference to State of Origin matches and all). In any event, I note that such an inference would not permit a conclusion that the missing pages were damaging to Mr Walters' case.
247Thirdly, Mr Bell submits that the suggestion by Mr Walters that the purchase of batts from China would be financed without any additional capital (after the initial 4 container loads), on the basis that deposits from customers would provide the necessary funding, defies commonsense. He notes that Mr Scarborough paid $329, 666.83 for the importation of 24 containers on 26 July 2009 ([102]). Even taking into account the dispute as between Mr Walters and Mr Scarborough as to the amount paid by Mr Chin by way of deposit for the order he had placed and time of that payment ($98,000 in July according to Mr Walters; $102,363.64 as invoiced on 11 August 2009 according to Mr Scarborough), there would have remained a shortfall of some $200,000 to be paid for those container loads. (Mr Bell notes that the evidence is that this was paid by Mr Scarborough and that there is nothing to suggest that Mr Walters had any capacity to pay this or a half share of this.) Further, I note that the suggestion that the purchases would be funded by customer deposits, while initially put forward in discussions (i.e. that the acquisition of the batts would be self-funded), is inconsistent with the later discussions (initiated seemingly by Mr Walters) as to approaches to be made to investors in order to finance the acquisition of the later container loads, to which I have referred above.
248Mr Bell also points out that the cost of the importation was calculated at about $24 per bag ($8 per bag having been suggested to be half the notional profit per bag) but that nowhere does Mr Walters suggest how he was to find his share of the costs. In that regard, even during the hearing, the position adopted by Mr Walters seemed to be that, having paid $20,000 or thereabouts for his initial "contribution", he is now entitled to a half share (assuming that be the genesis of the $8 per bag figure he says was agreed) of all of the batts imported (some $296,000) without having contributed anything financially in relation to the later container loads (and in circumstances where almost half of the imported batts remain unsold and have not been used by Mr Scarborough in the conduct of the AAA Trade Power business). While I consider that Mr Walters' position in this regard is extraordinary, I think this is a matter that goes to the objective unlikelihood of a partnership/joint venture of the kind that Mr Walters claims rather than to his overall credibility.
249Mr Bell puts forward the proposition that, as a matter of commonsense, it is unlikely that any commitment as to a partnership or joint venture would have been made at a time when Messrs Walters and Scarborough were investigating the importation of batts without knowing final prices, other costs or availability. While I accept the force of that submission, it must be balanced against the evidence of Mr Scarborough himself that earlier financial transactions had taken place between the parties without any documentation. Moreover the tone of the Skype exchanges suggests an entrepreneurial tendency on the part of both businessmen, who may well have proceeded without a considered business plan in advance.
250Fourthly, Mr Bell submits that Mr Walters' evidence is an attempt to present the picture that he did all the work (in identifying the overseas suppliers of batts and in arranging for their importation); whereas Mr Scarborough also made enquiries of suppliers in China (via Alibaba) (CB 109A); had located Mr Peng of Double Egret (CB 111) from whom the batts were ultimately acquired; and had worked out the cost of importing the batts (CB 112A, CB 113, CB 113A, CB116). In relation to this submission, it seems to me that both parties seem to have sought to downgrade the contribution of the other. The Skype communications support the conclusion that both parties expended time and effort (albeit in some cases late at night when it might be that other business ventures had been completed for the day) in seeking to put in place arrangements for the importation of the batts.
251As to the contribution of the initial sum of approximately $20,000, it is submitted by Mr Bell that the parties had helped each other in the past and it would not therefore be unusual for Mr Scarborough to ask Mr Walters to make a payment of this kind (as a loan or advance). He also points out that the payments Mr Walters claimed to have made were drawn from funds held in First Art's accounts (although Mr Walters' evidence was that he had deposited personal funds in that account for that purpose). Mr Bell also notes that the initial invoices for the batts were in the name of Heaven & Earth (not in the names of Mr Scarborough and Mr Walters.)
252I accept that the payment of around $20,000 might well have been made simply by way of a loan or advance by Mr Walters (having regard to the history of the parties' relationship) and this would be consistent with Mr Walters later seeking reimbursement of that amount as (on one view of things) he did on 20 August 2009. However, Mr Scarborough himself seems to have treated that sum (however it might originally have been characterised or regarded) as Mr Walters' 'investment' in what might loosely be described as the joint endeavour in which the pair were then engaged in relation to the importation of at least the first 4 container loads. The fact that the money was paid via Mr Walters' company seems to me not to be material since the parties both treated it as his 'contribution' (whether that be a partnership contribution, as Mr Walters contends, or a contribution by way of loan, as Mr Scarborough contends).
253As to the credit of Mr Scarborough, much weight was put by Mr Sneddon on Mr Scarborough's conduct in relation to Annexure J - the fact that on his own evidence he was willing to mislead those with whom he had dealt and the circumstances in which Annexure J was created. As I understand it, I am invited to draw the inference that this email was, contrary to Mr Scarborough's evidence, never sent and was created in an attempt to bolster Mr Scarborough's version of events.
254Mr Bell submits that the conduct of Mr Scarborough in expressing his discomfort at representing to others that the two men were business partners (and his admission in the witness box that he had engaged in misleading behaviour in that regard, including volunteering further examples of that conduct) is to seen as going to his credit. I accept that Mr Scarborough did not shy away from admitting that his conduct (if his version of events were to be accepted) did not reflect well on him. I have considered what conclusions can be drawn from the Annexure J evidence. It seems to me that I can place little reliance either way on that evidence. I cannot be satisfied that Mr Walters in fact received the email (assuming it was sent), particularly since it seems likely that had it been received and read, it would have provoked an outraged response having regard to other communications in August. (Therefore, insofar as Mr Bell relies upon a failure by Mr Walters to allege a partnership/joint venture at this time, I draw no such inference.) However, I am also not satisfied that I should draw the conclusion that no such email was sent (notwithstanding the features of the email to which I have referred).
255Mr Bell also notes that Mr Walters did not tell Mr Scarborough that he had registered * Aussie Insulations * and that Mr Walters did not set up a separate bank account for that company. As to those matters, the registration of the company would be consistent with Mr Walters having simply proceeded on the understanding that the information given in relation to personal details for the setting up of the Aussie Batts company covered any alternative company. Hence the incorporation of the company is not something I see as tantamount to going behind Mr Scarborough's back as was submitted. However, the failure to report to Mr Scarborough on its registration may be more significant in that Mr Walters had not been shy in reporting on steps he had otherwise taken in relation to the batts.
256As to the bank account, there is evidence in the Skype communications that Mr Walters had requested the setting up of a second bank account and that Mr Scarborough had agreed to this. Coupled with the fact that a second bank account was in fact established, this lends some credence to the proposition that Mr Scarborough was doing so in response to Mr Walters' request and for the purpose of a proposed joint venture arrangement if and when that was ultimately agreed between them or temporarily to deal with the orders that had then been placed. However, the request for the AAA Trade Power No 2 account is inconsistent with the second plaintiff being the corporate vehicle for the two. Therefore the evidence on this aspect seems internally inconsistent.
257The position of Mr Scarborough (that he had asked Mr Walters if he minded talking to Mr Peng and seeing what his production was and if available placing orders as he was "idle at that particular time" (T 118.3)) seems inconsistent with the suggestion that Mr Walters was busy with the hamburger business and thus could not have spent as much time as he said he did on the importation of the batts. Similarly, his position that Mr Walters carried out the investigations and work he did purely out of friendship is inconsistent with the tenor of the Skype conversations.
258Ultimately, I make no credit findings against the two protagonists save to note that unless corroborated by contemporaneous material, I treat both of their accounts of the relevant events with some scepticism.
[3]
(i) Was there a partnership?
259At the outset I note that it is pointed out by Mr Bell that there is no mention in the Skype communications from February to August 2009 of a partnership or a partnership arrangement or a joint venture (nor was there reference to matters such as partnership accounts or books, finance for the partnership business, or how profits were to be distributed, no budgets or business plans). Mr Bell notes that even in the 26/27 August 2009 emails, Mr Walters refers to a "business agreement" rather than a partnership or a joint venture and does not identify the business agreement.
260How the parties may have described their business relationship (or their involvement in business) is not of itself determinative of the characterisation of that relationship ( Adam v Newbigging (1888) 13 App Cas 308 at 316; Weiner v Harris [1910] 1 KB 285 at 290). Hence the description by Mr Scarborough of himself as Mr Walters' business partner (even leaving aside his explanation of why that was done) would not of itself be conclusive. That must a fortiori be the case where, as here, there is little to suggest that the parties turned their minds, when they commenced discussing the importation of the ceiling batts, to how they were to document their arrangements in that regard.
Indicia of partnership
261The definition of partnership in s 1(1) of the Partnership Act 1982 (NSW) is the relation which exists between persons carrying on business in common with a view of profit. Section 2 of the Act sets out various rules to which regard shall be had in determining whether a partnership does or does not exist. Those include the rule that the sharing of gross returns does not of itself create a partnership (s 2(2)) and that the receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business (s 2(3)).
262The intention to make a profit is said to lie "at the very heart" of the partnership relationship, being "the grand characteristic of every partnership, and is the leading feature of nearly every definition of the term" ( Lindley & Banks On Partnership (18 th edn) at [2-07]). The learned authors go on to note (at [2-09]) that even where there is a genuine view of profit a partnership will only exist if the profits are intended to be realised for the common benefit of the participants, drawing a distinction with the position where the participants might enter into an association for the purpose of improving the individual profitability of each firm's business (citing an unreported decision of Dyson J in the Civil Division of the High Court in the UK in Brostoff v Clark Kenneth Leventhal , March 11,1996). (While it seems to me that it is not inconceivable that a partnership might be structured in order to produce separate benefits for the partners or their separate business interests, it also suggests that there might not be a common benefit (or a profit intended to be drawn from the partnership or venture as such) if what the parties here were contemplating was the joint importation of goods a portion of which would be separately sold or used by each in his own business with a view to making profit in that business. I do not suggest that this renders untenable a conclusion that there was a partnership or joint venture for the importation alone, but simply that it is a factor to take into consideration.)
263Apart from the identifying feature of partnership being that there be an enterprise with a view to the sharing of profit (as opposed simply to the sharing of gross returns), various factors have been identified as relevant in cases such as Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) (1974) 131 CLR 321 at 327), United Dominion Corporation Ltd v Brian (1985) 157 CLR 1 and Industrial Equity Ltd v Lyons (NSWSC unreported, Cohen J, 15 October 1991). Those factors include how the policy of the business undertaking or commercial enterprise was to be determined; whether there was property held jointly or on trust for the parties; and the contribution made by each of the parties to the responsibility and control of the undertaking. In Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd (1996) S.L.T 186 (to which reference is made in Lindley & Banks at [2-11]), the potential key features of a partnership were noted by Lord Coulsfeld, sitting in the Inner House in Scotland, as being mutual agency; participation in profits; sharing of losses; common capital; and the basic unassignability of the partnership relationship.
264While the sharing of losses during the term of the partnership does not appear to be an essential characteristic of a partnership (having regard to the definition and rules for which provision is made in the Act), the absence of any arrangement as to how costs are to be borne or losses shared may well be indicative of the existence or otherwise of a partnership. ( Lindley & Banks note, in a footnote to the discussion in [2-10] as to whether it is essential to a partnership that there be as an object the division of profits, the reported observation of Pumfrey J in Davies v Newman (2000) W.L.1841655, that it is of the essence of a partnership that both profits and losses are shared, but go on to express the view that under the UK legislation there is not a requirement that a partnership have as its object not only the acquisition but also the division of profits.)
265I also note the observation in Lindley & Banks at [5-07] that:
... Although partnerships and joint ventures obviously have a number of common characteristics, in some instances the two expressions appear to be used interchangably, whilst in others the joint venture is recognised as a relationship quite separate and distinct from partnership. In the current editor's view, whilst it can properly be said that all partnerships involve a joint venture, the converse proposition manifestly does not hold good. [reference being made to Spree Engineering and Testing Ltd v O'Rourke Civil and Structural Engineering Ltd May 18, 1999, NLC 299058403] ... it cannot be assumed that the participants in a transaction described as a joint venture do not each intend to carry on their own separate businesses [referring to share farming and oil exploration ventures by way of example] (my emphasis)
266I note that (in the absence of any written agreement defining the relationship when the parties), the intention of the parties must be objectively ascertained from their words and conduct. What is important in this regard is the substance of the transaction ( Canny ).
Commercial venture
267As at March 2009, was there a joint business or commercial venture in contemplation? The Skype communications certainly suggest that in March there was in contemplation by both parties the importation of ceiling batts and Mr Walters' involvement to some degree in that process. I am by no means persuaded that at that stage the parties were proposing jointly to be engaged in the sale of the imported batts and it is clear that at no time were they proposing jointly to be involved in the installation of the imported batts (at most, Mr Scarborough suggesting that he was prepared to make his infrastructure available for Mr Walters to use if the latter obtained orders for the batts). Mr Scarborough's business (under the AAA Trade Power name) was treated by both as separate from any business venture in which Mr Walters was then proposing to become involved (as evidenced by Mr Walters' separate application for registration as an authorised installer and the setting up of Oz Insulations as a registered business name).
268I consider that there was a change in the focus of the parties during the course of the Skype communications such that by the time that the first order was placed in June it appears that the parties were contemplating not only that they would be jointly involved in the importation of the batts but also that they would share in the profits to be made from the on-sale of the batts. However, I do not accept that the mechanism by which this was to occur was ever ultimately agreed between the two.
View of profit
269Was the common enterprise one with a view of profit? Certainly, each of the men was looking for business opportunities from which to make profits for himself (and, on Mr Scarborough's account of events, he felt sorry for Mr Walters in the financial position he was in and saw this as a way to assist Mr Walters to make some money). As noted earlier, an agreement to share profits and losses is seen as being generally of the essence of a partnership contract. Lindley & Banks notes Lord Lindley's explanation for this:
Whatever difference of opinion there may be as to other matters, persons engaged in any trade, business, or adventure upon the terms of sharing the profit and losses arising therefrom, are necessarily to some extent partners in that trade, business or adventure.
270Thus it is said that, subject to exceptional cases, persons who agree to share profits and losses will normally find themselves treated as partners ( Lindley & Banks at [5-25]). Here, there is little to suggest how the parties contemplated that any losses were to be borne (nor as to how the costs were to be allocated in order to permit the calculation of profit - a matter of no little import when it is appreciated that what Mr Walters is seeking is a substantial sum of money representing what he contends was an agreement payment of $8, or half the anticipated profit, per bag in respect of the subsequent container loads imported but without any liability for the costs of the purchase and importation of those batts).
271There were discussions on Skype from which it may be inferred that the parties assumed there would be a joint sharing of profit in some fashion though the mechanics of this (and how it was to be calculated) were not precisely outlined. (Insofar as Mr Walters relies on the agreement he says was reached in the 12/15 March conversations as to the 50/50 profit split and Mr Scarborough relies on the June conversation in which he says agreement was reached as to the payment of a commission per bag, I treat both parties' accounts of oral conversations with some caution unless corroborated in the contemporaneous written communications between the parties.)
272Mr Walters asserts that each of the men had agreed to contribute $20,000 as his "share" or his initial contribution to the costs of importing the batts, and some support for that may be derived from the fact that Mr Scarborough did not later challenge the underlying assumption on which Mr Walters made reference to this in the Skype communications. That said, insofar as Mr Walters seemed (albeit confused in his evidence on this issue) to accept that in August 2009 he was seeking reimbursement of this amount, then that is inconsistent with it being some form of capital contribution to a partnership or joint venture and is more consistent with it being a loan or advance to assist Mr Scarborough. Mr Scarborough accepted that some of the costs were to be shared (namely, the cost of the initial trip to China suggested by him in relation to the sourcing of the product) but again suggests that this was assistance from Mr Walters on the basis of their friendship.
273Where, as here, there is a clear conflict between the parties as to whether there was a partnership or joint venture and, if so, on what terms, regard needs to be paid to what in fact happened. There is no dispute that a payment was made (if not personally by Mr Walters then through his company, First Art) of the initial deposit for the purchase of the first order of batts. Although Mr Scarborough accepted that he was responsible for payment of the balance of the purchase price, that would be consistent with either side's version of events. That said, Mr Scarborough did not correct Mr Walters when the latter referred in Skype communications to the $20,000 as his contribution nor did he cavil with the suggestion that this represented a half share of the costs when Mr Walters offered to provide funds for the final payment in respect of that first order.
274At least at the outset there was no bank account set up for the purpose of any business partnership (and, perhaps significantly, it was not until around the time of the subsequent container orders that Mr Walters seems to have seen this as necessary or desirable). Nevertheless, there were discussions as to the steps to be taken as to the application for a trade mark and for the setting up of a company in which it seems to have been intended that Mr Walters would be involved.
275The request for invoices to be put into the name of AAA Trade Power is another matter that might be consistent with either version of events - it is not surprising that Mr Scarborough took objection to the invoices being in the name of Heaven & Earth at least once that company was subject to external administration but such a concern would equally be indicative of his understanding that the orders were being placed for his business purposes alone (and for that purpose he would presumably need to have the invoices in the correct business name for tax or other reasons).
276By around June 2009, the discussions between the two were clearly proceeding on the basis that there was a profit to be made by each out of the importation and sale or use of the batts (though such a profit seems to have been contemplated as arising for each in respect of his individual business) and at least by July/August Mr Walters had in mind what arrangements might need to be made for the financing of the later orders.
Policy of joint venture
277As to the policy of the joint venture, this factor focuses attention on how the parties' affairs (said to be the subject of the joint venture or partnership) are to be determined - who it is that makes the decisions as to what is done in the context of that association. (So, for example, it is said in Lindley & Banks at [15-01] that it is inherent in the contract of partnership that each partner will have the right to participate in the management and administration of the partnership, thus is might be thought that if one party has no involvement in the making of decisions then this is not consistent with a partnership. Nevertheless, a right to participate in management can be modified by agreement (see s 24(1)(5) of the Act) and it is by no means unusual for there to be partnerships in which different partners have different responsibilities.)
278Insofar as a right to direct or control the policy of the common enterprise may be a relevant factor to take into account in determining whether there is a partnership, it seems from the Skype communications that at least at the outset Mr Walters deferred to Mr Scarborough for decisions in relation to the sourcing of the batts (consistent with Mr Scarborough's view that all Mr Walters was doing was giving him assistance at a time when Mr Walters may not have been fully employed). Nevertheless, as time went on the Skype communications also show instances where Mr Scarborough sought Mr Walters' opinion on various issues. Hence, I think little can be drawn from the evidence in relation to this factor.
Property
279As to the indicator that there be discernible partnership "property", there is little doubt that what the two men were involved in was the importation of ceiling batts and hence there is something clearly identifiable as partnership property. While it is not clear is whether it was the common intention of the parties that the batts so acquired were to be joint property, the fact that both contributed the funds for the purchase of the first 4 container loads seems to me to warrant the conclusion that those batts were batts in which both Mr Scarborough and Mr Walters had an interest (and hence that could be regarded as capable of forming partnership property).
[4]
Conclusion as to issue (i)
280At the outset I note that even on Mr Walters' version of events, any partnership or joint venture seems to have been one between he and Mr Scarborough, not one to which the then yet to be incorporated company (Aussie Insulations) was not a party (even though the proposed venture may have been intended to be carried out through a corporate vehicle such as that company).
281As to whether there came into existence a partnership between Mr Scarborough and Mr Walters (or a joint venture, using that term as a description of the effect of their relationship and not suggesting that it has any technical legal meaning) in March 2009, as contended for by Mr Walters, I have concluded that there did not.
282I note that in UDC v Brian , Mason, Brennan and Deane JJ said (at 10):
The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. (my emphasis)
283So, for example, in IEL v Lyons (where there was a joint venture), the question was whether that was such as would amount in law to a partnership, whatever name the parties may have put on that relationship. Cohen J noted that the phrase "joint venture" (which the parties there had adopted) did not establish any particular form of relationship. In both UDC and IEL v Lyons it was recognised that there may be a joint venture which does not constitute a partnership (as is also recognised in the extract from Lindley & Banks cited earlier).
284As at March/April 2009 and even later, Mr Scarborough and Mr Walters were clearly discussing (both on Skype and in their coffee shop meetings, though I do not accept the accuracy of the respective accounts of the latter) arrangements for a joint venture (in the sense of an activity in which they would be mutually engaged) in relation to the importation of ceiling batts but I am not satisfied that these discussions had resulted in a partnership (i.e. a joint commercial enterprise "with a view of profit" in the sense that the parties were to share the profits and losses of the enterprise, whether equally or otherwise) or joint venture analogous to a partnership of the kind alleged (i.e. for the joint importation and joint sale of the batts so imported).
285The initial discussions (insofar as they may have contemplated that Mr Walters would have an opportunity to make money from the sale of the imported batts) seemed to proceed on the basis that Mr Scarborough was to be in a position to use the batts for his own business and that any sale of the batts to third parties would be a separate matter. Hence any joint enterprise at that stage seems to have been one in which the pair were jointly involved in importation but would make any profit from the sale or use of the batts separately in the context of their respective business operations.
286As the discussions continued, and the excitement at the business opportunity presented by the importation of the batts became more palpable, discussion took place as to the proposed mechanics for what seems to have been envisaged as a jointly owned vehicle through which the batts might be sold (and as to the mechanism by which intellectual property in the packaging of the batts could be protected by way of trade mark). However, I am not satisfied that those discussions ever reached a concluded agreement as to the arrangements such that a conclusion could be drawn that a partnership or joint venture had come into existence.
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(ii) If there was a partnership or joint venture for the importation and sale of batts, what were its terms?
287In light of the finding in (i) above, this issue does not arise. However, if it had (such that at least by around the time that the first (or subsequent) order(s) of batts were placed, there was a mutual understanding or arrangement that the parties would work together for the importation and then sale of the batts through a joint vehicle of some kind, so as to give rise (contrary to the conclusion I have reached) to a partnership or joint venture at that stage (which I note is not the one in the terms pleaded by the plaintiffs)), then it seems to me that it is clear that any such arrangement was one under the terms of it was recognised that there was also to be a sharing of the capital required for the joint venture (and I would infer in the absence of anything to the contrary that the capital contribution, and costs of the venture, would be shared equally). This seems recognised by Mr Walters' concerns as to how finance could be arranged for the funding of the subsequent purchase orders. Secondly, I would have found that under such an arrangement Mr Scarborough was to have the ability to make use of some or all of the batts (subject to any third party orders for which deposits had been accepted) for his own business (albeit, on Mr Walters' version of events, on the basis that he would pay an amount per bag so used). The significance of the last proposition is that it could not be said that the fact that Mr Scarborough (after the breakdown in the relationship) had used some of the batts in the conduct of the AAA Trade Power business amounted to breach of any fiduciary obligations arising out of any such joint venture.
288In other words, even if a partnership or joint venture had been established, I would not have found that it was on the terms pleaded by the plaintiffs (though nor would I have found it as limited as the agreement asserted by Mr Scarborough). Further, I would not have found that Mr Scarborough was in breach of any fiduciary obligation not to take for his own benefit a profit made available through the importation of the batts (since it was contemplated at the outset of the arrangements that he could do so). The only issue in that event would be a claim for any monetary amount payable by Mr Scarborough under the terms of the arrangement for so doing.
289I also note that if (as I consider is the case) there was no partnership and at most there was merely an unincorporated joint venture between the parties (in the sense of an undertaking in which they were mutually engaged), it is by no means the case that a fiduciary duty would flow therefrom. In UDC, Mason, Brennan and Deane JJ said (at 11-12):
The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken . If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship: see, generally, Birtchnell v. Equity Trustees, Executors & Agency Co. Ltd (1929) 42 CLR 384 at pp. 407-409.)
290In the present case, the arrangements between Mr Scarborough and Mr Walters seem to me to go no further than to amount to informal arrangements under which each considered there was an opportunity to make a business profit for himself. I do not see the relationship between them as one of such trust and confidence as to import fiduciary obligations on either of them in relation to their dealings with the overseas suppliers or otherwise. Even had such an obligation arisen (so as to preclude one from taking for himself a benefit intended to be enjoyed jointly), that would at most seem to have precluded Mr Scarborough from taking the benefit of the warehouse lease in the name of AAA Trade Power alone (it would not have precluded him from making use of the batts in the course of the AAA Trade Power installation business) and since the lease in question was a short term lease it is hard to see what damage would have been sustained from the diversion of that opportunity (on a Keech v Sandford (1726) 25 ER 223 type claim).
291As to the exclusion of Mr Walters from dealing with the importation and sale of the batts from 29 August 2009, even assuming that I had been satisfied that there was a partnership or analogous joint venture, in the absence of a term specifying the manner in which that arrangement could be brought to an end, it seems to me that such a relationship must have been terminable at will (at least on the provision of reasonable notice). Given that one of the fundamental aspects of a partnership relationship is the subsistence of mutual trust (see Birtchnell ), the fact that this had clearly gone (at least on the part of Mr Scarborough) by 29 August 2009 means that it would surely have been open to him to bring any such partnership or joint venture to an end at that point. I do not see Mr Walters having any claim for damages or for equitable compensation as a result of the relationship having been brought to an end in those circumstances (and irrespective of whether or not the suspicions on Mr Scarborough's part or his criticisms of Mr Walters' moods or conduct were warranted) provided only that Mr Scarborough was by then genuinely of the view that the parties could no longer work together (as I accept he was).
292Leaving aside any claims arising out of the alleged breaches of fiduciary obligations (which must fail for the reason that I am not satisfied that there were fiduciary obligations owed by Mr Scarborough or, if there were, that they have been breached by reason of his conduct in terminating Mr Walters' involvement in relation to the importation of the batts and using the batts for his own business purposes), where does that leave the parties? No claim was made based on the failure of what might be seen as the joint enterprise or undertaking in which the parties were involved (of the kind of claim considered in Muschinski v Dodds ).
293In Baumgartner v Baumgartner, Mason CJ, Wilson and Deane JJ referred to the result reached by Deane J in Muschinski as an application of the general equitable principle which restores to a party contributions which he or she has made to a joint venture which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them referring to what Deane J said (at [620]) namely that a constructive trust may arise when an assertion of a legal right would be unconscionable:
Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party would so enjoy it. The content of the principle is that, in such a case, equity will not permit the other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable to do so ....
294It has been recognised that these principles may in an appropriate case be applied in a commercial context. Thus, in Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392 at [42], Brereton J (recognising that the principle explained by Deane J in Muschinski has potential application in commercial joint ventures) expressed the principle at [42] that "where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, equity will intervene where it is unconscionable to draw a line leaving assets and liabilities to be owned and borne according to where they may, prima facie, lie, to the intent that the parties recover what they have contributed to the failed joint venture".
295Caution has, however, been advocated in imposing a proprietary remedy of this kind, not least because of the priority it gives the beneficiary over unsecured creditors (see Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 at [585]) and in such circumstances it is incumbent to consider whether there is an appropriate equitable remedy falling short of the imposition of a trust ( Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [113]).
296It seems to me that the present case might well have fallen within the concept of a joint relationship or endeavour (which has failed without attributable blame), in which expenditure is shared for the common benefit (though that benefit was to be independently acquired in the parties' separate businesses) so as to give rise to the question whether it would be unconscionable for one party (Mr Scarborough) to retain the benefit of the other (Mr Walters)'s contributions.
297Had such a question arisen, I would have been inclined to the view that, in relation to the first 4 container loads (to the purchase of which Mr Walters contributed around $15,000 and costs in relation to which were borne by Mr Walters bringing his monetary contribution to around $20,000), it would be unconscionable for Mr Scarborough to retain the profits from the sale of those containers without accounting to Mr Walters for the contribution he had made to their acquisition (though that would have to take into account the sum of around $10,000 the benefit of which has already been made available to Mr Walters). That would result in a payment to Mr Walters of not more than around $10,000 on the evidence before me. There would be no unconscionability in the retention of profits referable to the subsequent container loads to the acquisition of which Mr Walters made no monetary contribution at all. Therefore, any such claim would have resulted in only a nominal amount (if at all) in favour of Mr Walters. In any event, the plaintiffs' claim was not put on this basis and I have not heard submissions on this issue. Hence it is inappropriate to make any findings in this regard.
298For completeness, I should note that had I found the arrangements between Mr Scarborough and Mr Walters to have constituted a partnership or analogous joint venture, by reference to the Skype discussions and the actions taken by the parties from March through to August 2009, I would not have found that the terms of that arrangement entitled Mr Walters to a notional half profit share (or to $8 per bag) for those batts which are unsold and remain in storage. Further, I would have held that Mr Walters had an obligation to account for half of the costs incurred in the importation, storage and sale of the batts, when determining any profit share to which he was entitled under those partnership arrangements. The suggestion that Mr Walters should be paid a substantial sum of money for unsold batts to the acquisition of which he did not contribute any funds (based on the assertion that Mr Scarborough has, by excluding Mr Walters from the alleged partnership, taken those batts for himself) is not a suggestion which I consider has any merit.
[6]
Orders
299Having regard to the above findings, it seems to me that the appropriate orders are to dismiss the proceedings with costs. I will hear submissions from Counsel in that regard.
[7]
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Decision last updated: 15 November 2011
Summary
7For the reasons set about below, I am not satisfied that there was an agreement reached in March 2009 for a partnership or joint venture as alleged by the plaintiffs (namely, for the importation and sale of the batts). What the evidence in my view establishes is that Mr Walters and Mr Scarborough were jointly engaged in the process of the importation of ceiling batts from China during the period from March to August 2009, with the initial purpose of each separately looking to make a profit out of the sale (or, in the case at least of Mr Scarborough, the use in his own business) of the batts. I do not accept that their involvement in this process constituted a partnership between them with a view to profit, although it might loosely be described as a joint venture (using that term descriptively and not as having a distinct legal meaning).
8I consider that the evidence shows that at some point around the time of the placement of the first order for the ceiling batts in question, there was consideration given to an expansion of the scope of the enterprise in which Mr Scarborough and Mr Walters were then jointly engaged, with discussion as to the joint sale of the imported batts (whether through a corporate vehicle or otherwise). However, I am not satisfied that the parties ever reached a concluded agreement as to the form in which that expanded venture would take place or as to the terms of the arrangement between them. What the Skype communications reveal is an assumption that some form of arrangement would ultimately be reached and that they would then share in the profits of the ceiling batt sales in some fashion and would together be involved in the funding of the purchases). In that sense, I accept that the evidence shows that by around June 2009 the two were in a sense working together in a commercial context to import ceiling batts from China (and acting in anticipation of a joint venture being put in place) but I do not accept that the arrangements between them ever amounted, as a matter of law (noting, as I do, that the question whether there is a partnership involves mixed questions of fact and law), to a partnership for the importation and sale of the ceiling batts from China; nor do I consider that their arrangements amounted to a joint venture analogous to a partnership of the kind alleged.
9Even if (contrary to the conclusion I have reached) the arrangements between the two amounted to a venture for the joint importation (and/or in due course for the joint sale) of the batts, the discussions between the two in my view make it clear that it was anticipated that Mr Scarborough would be able to make use of such of the imported batts as were required for his own business (carried out under the AAA Trade Power name), subject only to the possible qualification that sufficient stock be made available to satisfy any orders for batts that Mr Walters may have procured (and, at least on Mr Walters' version of events, to some form of account being made to Mr Walters for the benefit of having done so). Therefore, Mr Scarborough's conduct after August 2009 in using imported batts for his own business purposes cannot amount to a breach of any fiduciary obligation to Mr Walters under such arrangement (even assuming that the arrangements between the parties were such as to give rise to the imposition of fiduciary obligations on the two men, which I do not accept was the case) since the use by Mr Scarborough of the batts was expressly contemplated. Nor do I consider that termination of any such joint venture would be a breach of fiduciary obligation per se, in circumstances where there was no suggestion that any period of notice would be necessary to bring the arrangements to an end and there was by August 2009 clearly a lack of trust between the parties that would have justified a termination of the relationship.
10As for Aussie Insulations, it was not in existence at the time the partnership or joint venture agreement is alleged to have come into existence and it seems only ever to have been contemplated that a corporate vehicle might be used in the course of the venture - not that it was to be a partner or joint venturer as such.
11Accordingly, I find that the plaintiffs are not entitled to the declaratory relief claimed as to the existence of the alleged partnership or joint venture. Given that the balance of the relief sought is predicated on the existence of a partnership or joint venture, it follows that the need for a separate hearing as to the claims for damages, equitable compensation or the taking of accounts does not arise.
12Having regard to the financial contribution made by Mr Walters to the purchase of the first 4 container loads of ceiling batts (which I consider to have been jointly purchased pursuant to, or as part of, an informal enterprise under which each of the men was independently to have the opportunity to sell or make use of the batts), there may have been a basis (though it was not put in the pleadings as such) on which Mr Walters could have contended that he was entitled to a refund of the balance of his financial contribution to the purchase of the batts (after taking into account the payments made for his benefit in August 2009), namely that it would be unconscionable for Mr Scarborough to retain the balance of those funds after the breakdown of the relationship between the two and the consequential failure of the commercial enterprise between the two (applying the principles expounded in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 where there is a joint endeavour between the parties in which expenditure is shared for their common benefit and that joint endeavour comes to an end, and it is found to be unconscionable for the contributions to or benefit of that joint endeavour to be retained). Any such claim would have been for a relatively small amount on the evidence before me and no such claim would in my view have arisen in relation to the subsequent orders placed for ceiling batts in circumstances where there was no financial contribution made by Mr Walters at all towards the purchase of those batts or the cost of their importation. In any event, this does not fall for consideration in these proceedings.