BILLIS v BAIN SECURITIES LTD; BAIN SECURITIES LIMITED v CURMI SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, MEAGHER and HANDLEY JJA 19-20 July 1990, 5 October 1990 [1990] NSWCA 24 AGENCY — complex dealings in sale and purchase of company shares — whether there can in law be a disclosed principal acting as agent for a further undisclosed principal — held: There can be. SALE — sale and purchase of shares in gold mining company — whether evidence existed of agency between nominal purchaser and party having an interest in their purchase — held: There was such evidence — the conclusion of the trial judge was supported by his findings as to the credibility of the controller of the shares — other evidence sustained his conclusion which should not be disturbed on appeal. JUDGMENT — election — judgment entered against agent and principal in respect of the same debt — whether two judgments may stand — hed: They may not — there cannot be more than one judgment on one entire contract — the judgment creditor is obliged to elect — upon election, judgment entered below amended to delete judgment against the disclosed principal leaving only the judgment entered against the undisclosed principal. Petersen v Maloney (1951) 84 CLR 91; Marainson v Ian Potter and Co (1976) 136 CLR 161 applied. ESTOPPEL — purchase of shares — whether conversations between a customer and a stockbroker estop the customer from denying that he was the purchaser of the shares — held: Having regard to the contemporaneous evidence and in particular a letter of demand sent to the customer on behalf of the stockbroker soon after the purchase, the purchaser was a disclosed company for which, at most, the customer was an agent — claim of estoppel rejected. Kirby P I agree with Meagher JA. Meagher JA By a transaction effected on the Melbourne Stock Exchange, on 16 December 1988, there was sold a parcel of 2.4 million shares in a small gold mining company called Tern Minerals Limited. The issued share capital of that company was 12.2 million shares, so that the parcel in question amounted to just under 20% of its capital. The vendor of the shares was a company called Lof Pty Limited, whose controllers were Messrs Lasky and Herzog. The vendor's broker was Bunny McGhee. The purchaser's broker was Bain Securities Limited. As required by the Rules of the Stock Exchange, the purchaser's broker has paid the agreed price to the vendor's broker. The agreed price was $1 per share (at a time when the shares were trading on the floor of the Exchange at 75 cents per share). The purchaser's broker has been paid neither the purchase money nor its commission. These proceedings are concerned to identify the person who is responsible to pay Bain Securities Limited, or in other words to determine who is the purchaser. The parcel of shares was a strategic parcel. The Chairman of Directors (and, it would seem, the controller) of Tern Minerals Limited was a Mr Anton Billis. On 3 October 1988 a company known as Kalbara Mining NL, controlled by a Mr 2 UNREPORTED JUDGMENTS Smith, purchased on market 1,950,240 shares in Tern, amounting to 16.03 of its capital. It was a substantial shareholder which was hostile to Billis, and a month later it requisitioned an Extraordinary General Meeting to consider a resolution to remove Billis as a director. At such a time, Billis did not want the Lof parcel of shares to fall into the hands of Kalbara or any other hostile shareholder. Zurich Investments Limited was a company of almost no share capital which had been incorporated in the United Kingdom in February 1987, with a Mr Robert Park as a director shareholder and secretary. Mr Park's solicitor and business associate was a certain Dr Chang, who conducted in London a business bearing the grandiloquent title Overseas Chinese Advice Bureau. Another of the dramatis personae was a Mr Brian Curmi, who was the controller of a company called Twenty-Sixth Ocwood Pty Limited. With the exception of Smith, all these persons and companies were well known to each other, mainly (it would seem) through the relationship which each of them had with Curmi. Curmi's company, Twenty-Sixth Ocwood Pty Limited, had a 2-3% interest in Tern Minerals, and in that connection knew Billis. and Curmi and Billis were both directors of a company called Sierra Gold Pty Limited. Curmi was also a director with Lasky of another company called First Abbott Corporation Limited. In 1988 Billis was in London seeking to raise funds for Tern and met Park and Chang. They informed him they could raise $30m from a United States corporation called International Finance Exchange of Los Angeles, $25m for Tern and $5m for Curmi. They extracted from him of an "establishment fee" and did not obtained the loan. Nonetheless, apparently, Billis and Curmi regarded them as both honourable and substantial. Shortly after 11 December 1988 Lasky informed Curmi that Lof was proposing to sell its parcel at $1 a share. This intelligence initiated a bewildering series of telephone calls. Curmi transmitted the message to Billis, who thereafter made four telephone calls, first to Curmi to say he would ring Park to tell the latter to ring Curmi and place a purchasing order, secondly to Park to tell him to ring Curmi and place the order, thirdly to Park to confirm that the latter had rung Curmi, and fourthly to Curmi to confirm that Park had rung him. On 16 December 1988 Lasky again rang Curmi and told him that he had a firm offer of $1 a share on a 30-day settlement basis and offered him the same terms. This set off another burst of telephone calls. Curmi rang Billis and told him of the conversation; Park rang Curmi, who transmitted the details of the conversation to him, and he said "we want the stock" and intimated that the money would be ready in about a fortnight. Curmi thereupon rang Lasky and said the deal was "OK.", whereupon Lasky did what he told Curmi he would do and rang the broker, a Mr Varlamos of Bain Securities Limited. Varlamos rang Curmi, who confirmed the purchase of the shares in the name of Zurich Investments Limited. I should add that from July to December 1988 Curmi as intermediary for Lasky was transmitting messages to Billis about Lof's readiness to sell the shares, and there was evidence from Billis that he was being persuaded by Park and Chang that they, or their creature Zurich Investments, wished to buy the shares and that the purchase money was, or soon would be, available but such assurances were constantly falsified. It seems common ground that in the December conversations which I have summarised (1) Lasky believed that Curmi was going to be the purchaser, (2) Curmi, Billis and Bains were all told that Zurich Investments would be the nominal purchaser and (3) the only persons with whom Varlamos (on behalf of Bains) had any relevant conversations were Lasky and Curmi. WALLIS v BAIN SECURITIES LTD; BAIN SECURITIES LIMITED v CURMI (Meagher JAB The plaintiff Bains Securities Limited put five possible cases before the trial judge: that Curmi was the actual purchaser, that whilst not being the actual purchaser he was estopped from denying that he was the purchaser, that he was the agent for an undisclosed principal Park, that he was the agent for an undisclosed principal Billis, and that he was acting for a disclosed principal Zurich Investments (or Park) which in turn was acting for an undisclosed principal Billis. His Honour, in effect, upheld the last possibility. His Honour therefore gave judgment in the sum of $2,988,376.08 in favour of the plaintiff against each of Zurich Investments (their disclosed principal) and Billis the ultimate undisclosed principal). On appeal, these submissions were advanced on behalf of Billis: (1) that there was no evidence of an agency between Billis and Zurich Investments (or Park); (2) that, in any event, there can be in law no such thing as a disclosed principal acting as agent for a further undisclosed principal; and (3) that the plaintiff should have been forced to elect between taking a judgment against the agent, Zurich Investments, and a judgment against the principal, Billis. On the first submission, it must be acknowledged that much of the evidence is confusing in the extreme, and further on any version of it the behaviour of the parties does not admit of wholly rational explanation. Yet, his Honour's findings of agency was amply supported by the evidence, and was based in large part on a rejection of Mr Billis's credibility, a finding which we are unable to question. Mr Billis wanted the shares either for himself or for a friendly entity; otherwise there was a distinct possibility they would fall into inimical hands, and this would imperil his control of the company. The later evidence discloses that this fear was perhaps unduly magnified before the sale, but nobody knew that at the time. Billis was prevented from purchasing the shares directly, without making a full takeover offer because of the provisions of the Companies Code. According to Mr Curmi, Billis told him in July 1988 "T want to purchase the shares"; about the same time he told Curmi (in a passage accepted by his Honour) "A Dr Chang will be obtaining the shares so they will be in safe hands and under my control". At one stage it was proposed that the purchase moneys were to come from the bank account of Mayfair Equity, and the only person who could operate that account was Billis. Curmi sent Billis a copy of the purchase order for the shares, an odd circumstance if he had no interest in the transaction. Similarly, Billis received copies of letters from Dr Chang to the Bank and from Dr Chang to Bains, in circumstances which he could not explain but which would be readily explicable if he were the true principal. Moreover, on any view of the events of December 1988, it was Billis who activated Park to purchase the shares. At this stage Billis could not have believed that Park or Chang (or their puppet Zurich Investments) could fund the purchase from their own resources. They had already extracted from him in their offer to raise funds for the company and they had persistently failed to make good their many promises between July and December to advance the purchase price of the shares. Billis said he regarded them as men of substance but his Honour disbelieved him. Indeed the evidence cries out for such disbelief. Mr Park, the supposed international financier, apparently could not afford an office, so he operated out of hotels, but his hotel bills were paid by Billis. The first submission must be rejected. The second submission is an unusual one. Commercial circumstances could create situations where an agent does not know that his principal is himself the agent for another principal. Not only can such situations arise, but they must in fact do so, and not infrequently. There is nothing abhorrent to legal principle in 4 UNREPORTED JUDGMENTS the concept, and no authority was cited in support of the notion that it was impossible. In these circumstances, it too must be rejected. The third submission, in my opinion, should be accepted. The law on the question is set out in Petersen v Moloney (1951) 84 CLR 91 and Marginson v Ian Porter and Co. (1976) 136 CLR 161. There cannot be more than one judgment on one entire contract. Thus, once his Honour held that on one entire contract (meaning the contract to purchase the shares) Zurich Investments was liable to Bains as disclosed principal, hut that Billis was its undisclosed principal and therefore also liable to Bains, an election by Bains became necessary. Petersen v Moloney is authority that where action has been brought in the alternative against two defendants and the trial judge finds that one only is liable, and judgment is entered accordingly, that judgment does not amount to an election which precludes the plaintiff appealing and seeking judgment against the other defendant instead; but it is not an authority that when each of them is held liable no election is necessary. For Bains it was contended that no election is necessary unless the facts found are such that a liability in one defendant necessarily exempts the other from liability. But in cases involving principal and agent where the agent is personally liable on the contract this is always the case. There is only one contract and it must be either with the agent or the principal. It cannot be with both. The election of the other principal to take judgment finally determines whether the other party to the contract is the agent or the other principal: see Petersen v Moloney. Learned counsel for the respondent Bains indicated that if it had to elect it would elect for judgment against Billis. On the hearing of the appeal, Bains also sought to resurrect its claim that Curmi was liable to it on the purchase; or, to be more precise, that Curmi, whilst not the actual purchaser of the shares, was as against Bains estopped from denying that it was the purchaser. It is somewhat curious that such a claim could proceed consistently with a claim that Billis was the actual purchaser, because it would again involve Bains electing whether to take a judgment against Billis or against Curmi. Nonetheless, such a claim was made. It arises out of the conversation in December 1988 when Curmi requested Varlamos of Bains to purchase the shares. Varlamos' account of the conversation is as follows: "T said: "Good morning my name is George Varlamos of Bains. I have just spoken with Michael Lasky in relation to a share purchase in which I understand you are to be the buyer?" He said: "Yes that is correct and I do in fact wish to purchase 2. 4 million shares in Tern Minerals Ltd." I said- "I understand the details of the transaction have been discussed with Michael Lasky, and that the price is to be $1.00 per share?" He said: "Yes that's correct and I would like the shares purchased in the name of Zurich Investments Limited. " I said: "I am not familiar with that company." He said: "That is a company which I wish to have an account opened in to purchase the shares." I said "Well, I will have an account opened in the name of Zurich Investments Limited and will make all the necessary arrangements for the purchase to be completed." He said: "I would like the settlement to take place in a month, as I am waiting for funds which I expect will come through well before the end of January. " WALLIS v BAIN SECURITIES LTD; BAIN SECURITIES LIMITED v CURMI (Meagher JAB I said: "Alright as you expect the funds well before the end of January, we will fix the settlement for, say, on or before Friday 27 January. Are you happy with that?" He said: "Yes, the funds will definitely be available by then." Curmi's account of the conversation is as follows: - "He said: "My name is George Varlamos of Bain. I understand that I am to buy you $2.4 million shares in Tern from the market." I said: "No, the parcel of shares I want you to get me are Izzy and Michael's shares through Bunny McGee." He said: "I understand the details of the transaction have been discussed with Michael Lasky and the price is to be $1.00 per share. What is your full name?" I said: "No, I am not buying the shares, I will provide you with the details of the company that is." He said: "What is the name of that company?" I said: "No, I will get the details for you - I have to ring London." He said: "If you need me my home number is............ - I have tomorrow off." I said: "TI will send you the details by fax." He said: "I suppose we should discuss commission." I said: "You can discuss that later with Robert Park when I have obtained the details of the company from him." In dealing with Varlamos' account, his Honour found as follows: "This account of the conversation exhibits to a fine degree the artificiality with which the law of evidence has encrusted legal proceedings. It is idle to pretend that a busy stock broker, like Varlamos, would have any recollection of what was actually said in the conversation, even one involving a substantial number of shares. Quite obviously, with the aid of Exhibit 1D1, he reconstructed, as best as he could, the conversation which he deduced must have taken place. I do not have the slightest doubt that Varlamos intended to be a witness of truth. Equally, I do not have the slightest doubt that, no reliance can be placed on the proposition that the conversation was exactly along the lines in which it appears. In normal life Curmi does not use words such as 'And I do in fact wish to purchase 2.4 million shares in Tern Minerals Limited". In my view, what happened was that Lasky did telephone Varlamos and did tell him that the purchaser was Curmi. Thus Varlamos approached the telephone conversation with Curmi with that in mind. He may have impliedly sought confirmation in the sense in which the first paragraph of the conversation appears. However, I do not have any doubt that the arrangement was that an account should be opened in the name of Zurich and that company was to be shown as the purchaser as indeed it was in the contract note which subsequently issued. No doubt Varlamos assumed that Zurich was in truth a vehicle for Curmi to effect the purchase of the shares in question. This assumption was no doubt perfectly reasonable in all the circumstances. The fact is that Zurich had nothing to do with Curmi. The question then is whether, an acknowledgement by A, that he is to be the purchaser of the shares, coupled with an instruction that the vehicle for the purchase is to be X Pty Limited operates as an estoppel to prevent A from denying that in law the purchase is on his account and not on the account of X Pty Limited. In my view the answer to that, in the circumstances of this case, should be in the negative. In my view Curmi disclosed Zurich as the actual purchaser. Even without accepting Curmi's claim that he mentioned Park's name and that he said he would have to find out the name of the company which would be the purchaser the claim against Curmi must fail." 6 UNREPORTED JUDGMENTS In dealing with Curmi's account, his Honour said: "According to Curmi, in the telephone conversation, he told Varlamos that he was not the purchaser of the shares but would provide Varlamos with the details of the company that was the purchaser Varlamos asked for the name of the company and Curmi told him that he would obtain the details, he would have to telephone London. Curmi promised to send the details by fax. Varlamos raised the question of commission and Curmi says he responded "You can discuss that later with Robert Park when I have obtained the details of the company from him" (Ex 1D2 par 16). This conversation is unlikely to have occurred as Curmi recounts it. For example the name Robert Park would have meant absolutely nothing to Varlamos at this stage. Had it been mentioned I think it likely that some question would have been raised by Varlamos. As well Ex 1D1 tends to support the version of Varlamos rather than Curmi." At a later stage, his Honour said: "On the other hand, the conversation between Varlamos and Curmi dispelled any illusion that may have been induced by Lasky that the actual purchaser would be Curmi." His Honour's analysis of the conversation seems to me, with respect, to be defective. It is not easy to understand exactly what findings his Honour made with regard to the conversation, which on any view was a vital one. It is manifest that his Honour accepted the evidence of neither witness in its entirety and each in part, but he does not indicate which parts of each account he believes. Moreover, his finding of fact that Curmi made it clear that Zurich Investments was to be the purchaser and not he himself, sits ill with the illustration he gives, which would not arise if that fact were true. Nonetheless, his Honour's critical finding, made more than once in his judgment, is that Zurich was to be the purchaser. It is supported by the preponderance of the evidence. Zurich is shown as the purchaser on the contract note, on the New Client Notification Form, and on the buy order; Miss Court, who was Mr Varlamos's assistant, gave evidence that Zurich was to be the buyer. Mr Varlamos made a contemporaneous note of the transaction which is consistent with Zurich being the purchaser. And, when Bains by its solicitors wrote its letter of demand to Curmi on 6 April 1989, it did so in the following terms: "We are instructed that in December 1988 instructions were given by you to Bain's Melbourne office to purchase 2.4 million shares at $1.00 per share on the Melbourne floor of the Australian Stock Exchange in Tern Minerals Limited ('Tern") to be purchased in the name of Zurich Investments Limited (Zurich). We are instructed that AT ALL TIMES YOU HELD YOURSELF TO BE A DULY AUTHORISED AGENT OF ZURICH." (emphasis added) The claim that Curmi is estopped from denying that he was the purchaser must therefore fail. The final claim made by Bains was for judgment against Lasky. This was a claim for damages under the Trade Practices Act. It is said to arise from the misrepresentations which Lasky undoubtedly made that Curmi would either be the purchaser of the shares or would be responsible to settle the purchase if called upon to do so. There are two reasons why this claim should be rejected. The first was given by his Honour: if it is found, as it was and should have been, that Zurich was the true purchaser and Curmi nothing but its agent, Lasky's misrepresentation cannot be considered causative of any loss Bains might suffer. The second is that there is no evidence at all that Bains will suffer any damage from the sale, bearing in mind that Billis was the true purchaser. WALLIS v BAIN SECURITIES LTD; BAIN SECURITIES LIMITED v CURMI (Handley JAY The orders which therefore should be made are as follows: Appeal No. 40237 of 1990: 1. Appeal allowed in part. 2. Order No. 1 made by Rogers J on 9 April 1990 set aside. 3. In lieu thereof, order that there be judgment for the plaintiff against the fifth defendant Billis in the sum of $2,958,376.00, such order to take effect as from 9 April 1990. 4. The appellant to pay three quarters of the costs of the appeal. Appeal No. 40266 of 1990 1. Appeal dismissed with costs. 2. Cross appeal of Brian Abraham Curmi dismissed, with no order as to costs. Handley JA I agree with Mr Justice Meagher. Appeal number 40237 of 1990: 1. Appeal allowed in part; 2. Order No | made by Rogers CJ Com D on 9 April 1990 set aside; 3. In lieu thereof, order that there be judgment for the plaintiff against the fifth defendant Billis in the sum of $2,958,376.00, such order to take effect as from 9 April 1990; and 4. The appellant to pay three quarters of the costs of the appeal. Appeal number 40266 of 1990: Appeal dismissed with costs; and Cross appeal of Brian Abraham Curmi dismissed, with no order as to costs. Counsel for the Appellant: J IRELAND and IRYAN (40237/90), B. OSLINGTON QC and RS McCOLL (40266/90) Counsel for the Respondent: BC OSLINGTON QC and RS McCOLL (40237/90), RG FORSTER (First Respondent 40266/90), VRW. GRAY (Second Respondent 40266/90) Solicitors for the Appellant! GADENS RIDGEWAY (40237/90), ALLEN ALLEN and HEMSLEY (40266/90) Solicitors for the Respondent: ALLEN ALLEN and HEMSLEY (40237/90), MILLS OAKLEY McKAY (First Respondent 40266/90), LANDERER and CO. (Second Respondent 40266/90)