PAGE v VANKER and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY and HANDLEY JJA and WADDELL A-JA 24-25 October 1990, 7 December 1990 [1990] NSWCA 143 PATENTS IN USA — SALE — FRESH EVIDENCE — REFERENCE TO DEPUTY COMMISSIONER OF TAXATION APPEAL from Commercial Division — Agreement, in consideration of advance of $10,000, to pay $100,000 in the event of certain "rights and patents in the USA being sold for $1,500,000..." — Rights owned by a company having other assets of various kinds — Sale for a single consideration in shares of all shares in that company and in another company having other assets — Sale to a company formed for quotation on the Stock Exchange — Held not a sale within the agreement. FRESH EVIDENCE — Application to call fresh evidence — Principles discussed — not necessary to decide. REFERENCE of judgment and affidavit to Deputy Commissioner of Taxation — Evidence of witness — possible tax evasion — comments by Handley JA and Waddell A-JA. Appeal upheld with costs — Proceeding dismissed with costs. Mahoney JA The facts are set forth in detail in the judgment of Handley JA which I have had the opportunity of reading. Mr Page moved for leave to adduce fresh evidence, upon the basis to which Handley JA has referred. Were it necessary to decide this application, I would, on the evidence as it is before the Court, not grant the application. The principles upon which such an application is to be dealt with are set forth in s75A of the Supreme Court Act: see also McCann v Parsons (1954) 93 CLR 418; Wollongong Council v Cowan (1955) 93 CLR 435; and Radnedge v Government Insurance Office of New South Wales (1987) 9 NSWLR 235. It is necessary for the applicant to show that grounds exist to warrant the admission of the evidence. The argument has proceeded upon the basis that the grounds referred to in the cases to which I have referred are essentially the grounds to be established in order to satisfy the statute in the present case. The matter has been approached for the respondents upon the basis that the application is to be determined by reference to the evidence adduced for the applicant Mr Page and without cross-examination upon that evidence. Mr Rewell for the respondent/plaintiff did not accept that the evidence sought to be adduced would establish that the plaintiff could not have signed the agreement in question on the day alleged by the plaintiff. However, he conceded that if that evidence were to be admitted, it would be proper to return the proceeding for rehearing in the trial Division. Approaching the matter on this basis, it is necessary to determine whether, within the terms of s75A, it is appropriate that the fresh evidence be admitted. I am not satisfied that, if appropriate diligence had been exercised before or at the trial, the relevant evidence could not have been available for production at the trial. In view of the conclusion which I have reached on other matters, it is not necessary to detail at length my reasons for this conclusion. It is sufficient to say that the question whether the applicant Mr Page was in Sydney at a time alleged by the plaintiff/respondent or whether, for some other reason, he was not then available to sign the document was clearly an issue to be raised at the trial. It was 2 UNREPORTED JUDGMENTS therefore a question which would have to be dealt with by Mr Page and those advising him in preparing for the trial. As far as the evidence now placed before this Court extends, the steps taken to ascertain whether there was evidence to show that Mr Page would not have been available on the day or at the relevant time do not satisfy me that appropriate diligence was exercised in this regard or, insofar as this be a matter of importance under s75A, that if the appropriate diligence had been exercised prior to or at the trial, the evidence now in question would not have been available. Reference was made in argument to the credit card records of Mr Page and to the fact that these, if perused, would have shown that he had purchased an airline ticket for travel from Sydney to Melbourne on the day in question, in circumstances such that he would not have been available to sign the document as the plaintiff/respondent alleged it was signed. A check of his business records would, I think, have shown or led to discovery of the relevant facts. But, as far as the evidence before this Court indicates, no steps were taken in this regard. Iam conscious of the importance of the evidence now sought to be adduced: standing alone, it would provide a strong basis for the inference that Mr Page was not in Sydney at the time when the plaintiff/respondent claimed he signed the agreement. But the courts have indicated clearly that it is the duty of parties and their advisers to take appropriate steps to discover, and to bring forward at the trial, all evidence relevant to the issues to be litigated on which they desire to rely. The evil of allowing a party to secure a second trial because of an unacceptable failure to find such evidence or, a fortiori, to bring it forward is clear: see, eg, the much cited passage in the judgment of Dixon J in Orr v Holmes (1948) 76 CLR 632 at 640-1. In the present case, the evidence as it is before the Court leads to the conclusion that the appropriate steps were not taken. Such a failure is, of course, not conclusive in itself. In the end, the matter is to be determined according to what the interests of justice require: see the Radnedge case at 251-2, and the cases there referred to. But if, for example, it appeared that no real consideration was given to the issue in preparing for the trial or that Mr Page was content to rely, in his preparation for the trial, upon his confidence that he would succeed on another ground, then that would weigh heavily in the exercise of the court's discretion. The evidence as it is before this Court does not deal in detail with those matters. However, I agree with the conclusion of Handley JA that the "event" specified in the agreement for payment of $100,000 to the plaintiff did not occur. The "event" specified in the agreement was "the said 'Kelpie' rights and patents in the USA being sold for US$1,500,000 (one million five hundred thousand dollars)". Provision was made for "repayment to be made proportionately" if "this sale price not be reached". In order that the plaintiff establish her entitlement to payment under the agreement, it is, in my opinion, necessary that, in the relevant sense, it appear that: there took place a transaction properly characterised as "the said 'Kelpie' rights and patents in the USA being sold"; and that it be possible to identify the price at which such rights and patents were sold. These are, of course, interrelated but it is convenient to consider each of them in turn. I do not think that what occurred, properly characterised, constituted the "rights and patents in the USA being sold" within the agreement. What was contemplated was that those rights be sold and that they be sold under a transaction under which they were sold "for" a particular sum. The only URJ PAGE v VANKER and ANOR (Mahoney JA) 3 transaction relied upon was that referred to in the deed of 15 October 1986. That transaction was, in my opinion, not one which fell within the description specified in the agreement. At all relevant times, the relevant rights and patents were owned, not by Mr Page, but by Hynbrood Pty Limited, a company the shares in which were, it would appear, beneficially owned by Mr Page or Mr Page and his wife. Had the only transaction been one in which, without more, the shares in the Hynbrood company had been sold for the relevant sum, I would have concluded that the rights were "sold" within the agreement. It was not suggested that what Mr Page did was done for a collateral purpose or as a means of avoiding the agreement: it was assumed the transaction referred to in the deed was one entered into bona fide and without reference to the terms of the agreement. Given that at all relevant times the rights and patents were owned not by Mr Page but by Hynbrood, and that the shares in Hynbrood were owned as I have indicated, the intention of the parties as disclosed by the words used in the agreement would, I think, have been that such a sale of the Hynbrood shares would fall within the promise which Mr Page made. But the transaction referred to in the deed was, in my opinion, of a different kind. In structure it involved: (a) that Mr and Mrs Page would "sell and transfer" to Kelpie Industries Limited and it would "purchase" the shares owned by them in two companies, Kadello Pty Limited and Hynbrood, those shares being all of the shares in those two companies; and (b) that the Kelpie company would, as consideration for what was to be done by Mr and Mrs Page, allot to Mr Page 3,680,000 ordinary shares of fifty cents each fully paid in the Kelpie company and grant to him 1,500,000 options to subscribe for ordinary shares of fifty cents each fully paid in the Kelpie company as set forth in the deed. Mr Rewell, in his careful and helpful submissions, has indicated that the Kelpie company was formed in order to procure a listing on the stock exchange of the shares which it issued. The actual listing took place, he submitted, some two months after the deed was executed. Mr Page was not the sole shareholder in the Kelpie company: the documents before the court, and which appear to have been treated as evidence of the facts stated in them, indicate that shares had been issued or were to be issued to other persons. Mr Page's interest in the assets of the Kelpie company was, Mr Rewell submitted, of the order of some 53 per cent. It is accepted that both the Hynbrood company and the Kadello company had assets other than the rights and patents referred to in the agreement. Kadello was involved in a business which produced significant income and it had, inter alia, the assets relevant to that business. Hynbrood had, in addition to the rights and patents "in the USA" referred to in the agreement, rights of various kinds in other countries. It was the complex of the rights and obligations represented by the shares in the Hynbrood and Kadello companies that were effectively placed within the control of the Kelpie company by the transaction referred to in the deed. Mr Rewell submitted to the learned trial judge and his Honour accepted that, for the purpose of determining whether the "event" in the agreement had taken place, it was possible to examine the relevant assets of Hynbrood and Kadello, to derive an estimate of the value of the shares and options received by Mr Page as the result of the deed, and to form an estimate of what portion of the value of the shares and options in the Kelpie company should be attributed to the "rights 4 UNREPORTED JUDGMENTS and patents in the USA" within the meaning of the agreement. It was, in general terms, upon the basis of such an approach that his Honour held the "event" to have occurred. The learned judge carefully analysed the elements of the transaction referred to in the deed and Mr Rewell has detailed them in an attractive fashion. But in the end I am not satisfied that an approach of that kind is the proper approach to be adopted for the purpose of characterising what took place. As IT have said, in the end the question is whether what took place was that the rights and patents were sold and sold for an identifiable "sale price". I do not think that the transaction which took place was of that description. To simplify what took place may be to state it inaccurately. But in the relevant sense what took place was the transfer of shares representing an aggregation of the relevant rights and patents and a number of other items of property for a single consideration, viz, shares and options in the Kelpie company. It is not I think proper to say that by that transaction the rights and patents here in question were sold or sold "for" a sum identifiable within the meaning of the agreement. To deal with the matter in this way is not, I think, to stand upon matters of form. The parties to the agreement did not undertake that the plaintiff should be paid $100,000 if, in whatever way, a transaction took place by which the benefit of the rights and patents in question was transferred to another person. The right to be paid arose only on those rights "being sold" and sold in such a way that, as I have said, it could be said that they are sold "for" the specified sum. The disposal in globo of all of Mr Page's assets for one sum would not, I think, have been a transaction of the kind specified in the agreement. Still less, I think, is the sale for a single sum of shares in two companies, one of which owned the relevant rights and patents and other rights as well. Nor do I think that the transaction was one in which the sale price of the relevant rights and shares could be isolated and quantified as the agreement required. Mr Rewell sought to identify the relevant rights and patents from within the general mass of assets represented by the shares in the two companies. He sought then to attribute a value to each and he then sought to derive from this what must have been the part of the total price paid by the Kelpie company for the relevant rights and patents. But I do not think that, by such a process, it is proper to come to the conclusion that those rights and patents were sold "for" any identifiable sum. It is in the second step in Mr Rewell's argument that the difficulty arises. If A buys a mass of rights for $X, it is not possible, in an ordinary case, to infer that he paid a particular sum for one of those rights. What he would pay for the mass of rights may be no basis for an inference - as distinct from guess or speculation - as to what he paid or, more accurately, would have paid for any of them had they been sold separately. This applies in particular to the circumstances of the present transaction. Had any portion of the totality of property transferred to the Kelpie company not formed part of the transaction, the effect would not, I think, have been to reduce the number of shares and options in any identifiable proportion. Whether the transaction would have proceeded at all or for what number of shares and options had the totality of property transferred to the Kelpie company been different is, I think, a matter of speculation only. In the circumstances of the present case, a transaction involving the transfer of that bundle of property for the relevant shares and options in the Kelpie company was not one upon which the agreement was intended or designed to operate. URJ PAGE v VANKER and ANOR (Handley JA) 5 In my opinion, therefore, the appeal should be upheld. The judgment should be set aside and there should be judgment for the defendants. The defendants should have the costs of the proceedings below and in this Court. Handley JA This is an appeal by the first defendant from a judgment for the plaintiff entered by Brownie J against both defendants for $146,457.20 in an action heard in the Commercial Division. The action was brought to enforce an informal written contract in the following terms: In consideration of Lily S Vanker advancing A$10,000.00 (ten thousand dollars) toward feasibility study and promotion of the vehicle known as the "Kelpie", in the United States, the undersigned Donald B. Thompson of 4 Albion St Lakemba NSW and Robert L Page of 71 Dwyer Ave, Little Bay NSW do hereby agree to pay to the said Lily S Vanker the sum of A$100,000.00 (one hundred thousand dollars) in the event of the said "Kelpie" rights and patents in the USA. being sold for US$1,500,000.00 (one million, five hundred thousand dollars). Should this sale price not be reached, then repayment to be made proportionally. Dated this twenty second day of August 1985. D B Thompson R L Page (Signature) (Signature)" The second defendant was a business friend or acquaintance of the first defendant. The plaintiff was a medical practitioner who had been living with the second defendant in a de facto relationship which had come to an end some time earlier but they remained on friendly terms. She was introduced to the first defendant by the second defendant. Prior to August 1985 the first defendant had been involved in the development and exploitation of a new type of vehicle suitable for the retrieval of supermarket trolleys called a "Kelpie". Whatever intellectual property rights then existed in relation to that vehicle were vested in a company controlled at that time by the first defendant called Hynbrood Pty. Limited. It appears that the development of the concept had proved expensive and according to the first defendant he, or perhaps his company, had spent about half a million dollars on that development. The plaintiff sued both defendants on the agreement alleging that the "rights and patents" for the "Kelpie" vehicle in the USA, had been sold prior to action brought for more than $US1.5 million and that the sum of A$100,000 was payable to her in terms of the agreement. The agreement is in the handwriting of the second defendant. The first defendant (appellant) admitted at the trial that his signature on the document was genuine but denied that the other writing was on the paper when he signed it, and he also denied that he had ever had any agreement or even negotiations with the plaintiff of the kind referred to. He also denied that the plaintiff had ever lent him $10,000. The plaintiff's account of how the agreement came to executed was supported by the second defendant. The first and second defendants denied that a sale of the "Kelpie rights and patents in the USA." (Kelpie rights) had taken place and that $US1.5 million or any sum had been received from any such sale. The trial judge substantially accepted the evidence of the plaintiff and the second defendant as to the events leading up to the execution of the agreement, found that it was genuine, and that the plaintiff lent $A10,000 to the first defendant in cash when the agreement was signed. 6 UNREPORTED JUDGMENTS The trial judge also found that a sale of the Kelpie rights had taken place for a consideration in excess of $US1.5 million so that the plaintiff was entitled to payment of the $100,000 promised by the two defendants. Accordingly the plaintiff recovered a verdict for the sum claimed together with interest. The first defendant (appellant) has challenged the findings of the trial judge that a sale of the Kelpie rights had taken place and for a consideration in excess of $US1.5 million. In addition the appellant has sought leave to adduce further evidence on the hearing of the appeal pursuant to the powers conferred by s75A(7) and s75A(8) of the Supreme Court Act. On the basis that such evidence is received the appellant contends that there should be a new trial of the action, at least on the issue of the genuiness of the agreement sued upon. The proprietary of granting leave to adduce the further evidence raises a number of difficult questions. The further evidence related to events which occurred prior to the trial, and is therefore admissible in this Court if it satisfies the rigorous tests governing the reception of "fresh" evidence on the hearing of an appeal. One question which arises is whether the appellant and his legal advisors exercised due diligence in preparing the appellant's case prior to the trial, and whether, if due diligence had been exercised, some or all of the further evidence would have been available to the appellant at the trial. There is also a question as to whether the further evidence would have been decisive in favour of the appellant if produced at the trial. Mr Bainton QC, who appeared for the appellant, although aware of the decision in McDonald v McDonald (1965) 113 CLR 529 expressly declined to rely upon the further evidence to establish in this Court that the original verdict had been obtained by fraud. However he did rely on the decision in McCann v Parsons (1954) 93 CLR 418 to establish that the evidence was "fresh" evidence. Where, as in this case, the appellant's defence at the trial in substance was that the claim against him was fraudulent it is not clear how far, if at all, the Court can or should relax the strict rules governing the reception of fresh evidence on appeal because that evidence establishes or tends to establish that a fraud has or may have been committed on the appellant. It may be that there is no half way house for an appellant in a case such as this. He must either satisfy the strict tests governing the reception of additional evidence on appeal on the ground that it is fresh evidence (see Wollongong Council v Cowan (1955) 93 CLR 435) or else make out a case of fraud on the appeal in accordance with the principles discussed in McDonald v McDonald (above). A motion for a new trial on the ground of fraud is not in the strict sense an appeal at all. It is an independent proceeding in which the moving party will fail unless the appellate court, sitting as a tribunal of fact, finds that the onus of proving fraud has been discharged. See Nichols v Carpenter [1974] 1 NSWLR 369 at 374. However in my opinion it is not necessary to resolve these interesting and difficult questions in this appeal because I have reached the conclusion that the appellant is entitled to succeed on the other grounds that have been argued, which do not depend on the reception of the further evidence. I agree with the trial judge that the words of the agreement sued upon ought not to be taken as words of art, and that the event which was to attract the plaintiff's right to receive the sum of $100,000 was not rights and patents being sold in the USA. but rights and patents in the USA. being sold. URJ PAGE v VANKER and ANOR (Handley JA) 7 It was common ground at the trial that whatever intellectual property rights existed in the "Kelpie" vehicle in August 1985 were vested in Hynbrood and that Hynbrood itself had never sold or disposed of those rights. The plaintiff's case at the trial which was accepted by the trial judge was that "the rights and patents were sold in the sense that the shares in Hynbrood were disposed of" and that this amounted to a sale within the meaning of the agreement. He held that the parties had not directed their attention towards legal niceties and accordingly the language of the agreement should not receive a technical construction. Moreover in his view the surrounding circumstances known to the parties at the date of the agreement showed that the appellant had been trying to exploit the rights to the "Kelpie" vehicle in the USA. in a number of ways and not necessarily only by an outright sale of the intellectual property rights and patents as such. His Honour therefore concluded: "\..it is quite common for the sale, for example, of a business possessed by a corporation to be effected by the sale of shares in that corporation and in the case of a corporation possessing, as Hynbrood did, a variety of different rights in the nature of intellectual property held in relation to a variety of different countries and in various stages of proceeding towards perfection of title, a transfer of the shares in the corporation owning those rights is plainly the cheapest, safest and most effective method of transfer." The transaction relied upon by the plaintiff and accepted as a relevant sale by the trial judge was Exhibit B, a deed dated 15 October 1986 between the appellant and his nominees who held the issued capital in Hynbrood Pty Limited and a second company Kadello Pty Limited on the one hand and Kelpie Industries Limited on the other. This deed evidences an oral agreement for the transfer of the issued share capital in the two companies to Kelpie Industries Limited performed on 6 June 1986 in exchange for 3 million fully paid shares of 50 cents in Kelpie Industries allotted that day to the appellant. It also evidenced an agreement to allot a further 680,000 shares to the appellant together with 1,500,000 options to subscribe for ordinary shares at par. The deed on its face evidenced an exchange. In my opinion this was not a sale of assets to Kelpie Industries Limited at a price, with the price appropriated in payment for shares to be allotted by the purchaser to the vendor. Rather it was an allotment of fully paid shares "otherwise than in cash". See Companies Code s113(5) and compare North Sydney Investment and Tramway Co Limited v Higgins (1899) AC 263. However I do not think that this distinction on its own could be critical in a case such as the present. Exhibit B effected a disposal of the issued capital of two companies to Kelpie Industries Limited. The balance sheets and profit and loss accounts for both companies to 30 June 1986 were annexed to the deed. Kadello Pty Limited had made a pre-tax profit of $159,501.13 for the year and its net assets representing share capital and reserves comprising fixed, current and intangible assets less liabilities totalled $318,089. The assets in the balance sheet did not include the value of the company's business. In view of the pre-tax profits of the company for the 1985 and 1986 years the business would have had a substantial value at the relevant time. 8 UNREPORTED JUDGMENTS Hynbrood made a pre-tax profit of $84,773.44 for the 1986 year and $69,839 for the previous year. Its net assets totalled $137,072.62. Goodwill was included at $35,900 but in view of the pre-tax profits for the 1985 and 1986 years it is clear that this was a conservative figure. Intellectual property rights were not included, but Exhibit B contained a warranty by the appellant and his wife that Hynbrood was the legal and beneficial owner of the patents, designs and trademarks referred to in the schedules. Accordingly the book value of the net assets in the two companies whose shares were transferred totalled $455,162 with no value included for one of the businesses, a conservative value for the other, and no value for any intellectual property rights. It is clear therefore that the "sale" of these shares, even if one "pierced the veil" and looked at the underlying assets, involved much more than the Kelpie rights, and there was no sale of the rights as such. In my opinion it is not possible to support the judgment below merely by adopting a "broad and commercial" construction of this contract. The question is whether the judgment can be supported on any other basis. The question of colourable evasion of contractual rights has arisen principally in relation to covenants in restraint of trade. In Smith v Hancock (1894) 2 Ch 377 (CA) the Court was concerned with a covenant by the vendor of a business that he would not carry on or be interested in a similar business. The covenantor assisted his wife and nephew to establish a competing business. Lindley LJ said at 385: "Tf the evidence admitted of the conclusion that what was being done was a mere cloak or sham, and that in truth the business was being carried on by the wife and [nephew] for the defendant, or by the defendant through his wife for [the nephew] I certainly should not hesitate to draw that conclusion, and to grant the plaintiff relief accordingly. But I find it impossible to avoid the conclusion that the business is being carried on by the wife primarily for [the nephew] and perhaps, to some extent for herself... this being the state of the case I am unable to hold that the defendant has done...what he agreed not to do." This decision was applied in Gilford Motor Co Limited v Horne (1933) 1 Ch 935 (CA) in a case where a covenantor sought to evade the restraint by operating through a company owned and controlled by himself. The Court held that the company was a mere cloak or sham "for the purpose of enabling the defendant to commit a breach of his covenant" (at 965). See also Jones v Lipman (1962) 1 WLR 832. Similar issues have arisen in relation to the infringement of patents where the question is whether the alleged infringer has done something which falls within the language of a patent claim. The Courts have refused to countenance "colourable evasion" of patent rights. See Beecham Group Limited v Bristol Laboratories Limited (1978) RPC 153 at 200 per Lord Diplock. The principle was stated by James LJ in Clark v Adie (1875) 10 Ch App 667 at 675 as follows: "\..that invention, like every other invention may be pirated by theft in a disguised or mutilated form, and it will be in every case a question of fact whether the alleged piracy is the same in substance and effect..." Patent specifications are unilateral instruments and a patent claim defines a monopoly. The construction of patent specifications is, therefore, governed by some special rules. See Populin v HB Nominees Pty Limited (1982) 59 FLR 37 at 41-43. However once the Court has determined the proper construction of a patent claim the question of infringement does not differ greatly from the URJ PAGE v VANKER and ANOR (Handley JA) 9 question of breach which arises, for example, in relation to a covenant in restraint of trade. In my opinion the Courts have been applying common principles in determining whether a patent claim has been infringed despite colourable evasion and whether a covenant has been breached despite reliance upon a cloak or sham. Similarity in LJ Hooker Limited v WJ. Adams Estates Pty. Limited (1977) 138 CLR 52 at 84 Jacobs J in a case which concerned a claim by an estate agent to commission said: "We must seek in this connection to give a content to the implied contract between the appellant and respondent which accords with business sense. Substance, not legal form, in such a context must be sought in order to determine that content. For example in Gunn v Showell's Brewery Co Limited (1902) 18 TLR 659 a brewery company agreed with an agent that "in every case when we purchase properties, houses or businesses introduced by you we agree to pay you 5% on the amount of the purchase'. When the agent introduced a suitable business the company set up a subsidiary company which became the actual purchaser. It was held that the parent company was liable to commission. In Allen v Anderson (1969) NZLR 951 an agent was instructed by the two owners of all the shares in a company to sell the property owned by the company. It was held that the agent could recover the commission from the shareholders in the company when they sold their shares to the prospective purchaser of the property introduced by the agent." While Jacobs J dissented in that case there is nothing in the majority judgments which detracts from the persuasiveness of this passage. In my judgment it is not possible for this Court to characterise the transaction in Exhibit B as being in substance a sale of the Kelpie rights or such a sale in a disguised or mutilated form. I cannot treat it as a cloak or sham which the Court may see through or ignore to discern the reality of a sale of the Kelpie rights. Nor can I characterise it as a colourable evasion of the appellant's obligation to the plaintiff. Exhibit B effected a disposal of the whole of the shares in the two companies. While the underlying assets did include the Kelpie rights they included much else besides and the additional assets were not introduced to cloak or disguise the commercial reality of a sale of those rights. Moreover there is no evidence that the genesis or the object of the transaction was to achieve a sale of the rights. See Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 348. Indeed it is apparent that the object of the transaction was to make the two companies subsidiaries of Kelpie Industries Limited to facilitate a floatation of the latter company to the public and the listing of its shares on the stock exchange. Moreover Exhibit B did not in substance effect a transfer of the Kelpie rights to an arm's length purchaser. Both on 6 June 1986 and later on 15 October when Exhibit B was executed Mr Page was the owner of all or almost all the shares in Kelpie Industries. If the matter is viewed as one of substance there had been no sale of the Kelpie rights to anyone else. They were still owned by Mr Page through his shareholding in Kelpie Industries and its ownership of Hynbrood. Compare FCT v Becker (1952) 87 CLR 456. Viewed as matter of substance and commercial reality neither Mr Page nor Hynbrood at that stage had received a cent for the Kelpie rights from anyone else. 10 UNREPORTED JUDGMENTS While, in my opinion, the Courts should not countenance the colourable evasion of contractual rights neither should they stretch the language of a contractual term to bring within it transactions which do not fall within its language either in form or in substance. In my judgment therefore no sale of the Kelpie rights within the meaning of the agreement took place either on 6 June 1986 when the shares in Hynbrood were transferred to Kelpie Industries or on 15 October that year when Exhibit B was executed. Prior to 19 December 1986 Kelpie Industries allotted a further 3 million shares at a 50 cent premium to public investors and 659,972 shares at par in satisfaction of loans previously made to it, presumably by the appellant or associated persons or entities. It became listed on the stock exchange that day. The placement of 3 million shares at a premium to public investors did not affect a sale of the Kelpie rights either in form or in substance. The placement itself involved an allotment of shares. There was no sale of those shares. See In re VGM. Holdings Limited (1942) Ch 235 and FCT v St Helens Farm (ACT) Pty Limited (1981) 146 CLR 336 at 433 and following per Aickin J. The nominal value of the allotted shares and the share premiums became part of the company's paid up capital or were credited to its share premium account and treated as if it were. The allottees acquired shares in the parent company whose subsidiary owned the intellectual property rights in the United States. However as a matter of commercial realty neither individually nor collectively did those allottees purchase or acquire those rights. Neither the ownership nor the control of those rights were altered. The Court was referred to the evidence in the stock exchange information relating to Kelpie Industries that the market value of its shares at 30 June 1987 was $3.60 and at 30 June 1988 $2.70. There is no doubt therefore that the value of the appellant's shares in the company greatly increased in value as a result of the stock exchange listing. This increase in value did not occur on 6 June when the shares were allotted or on 15 October when Exhibit B was executed. The listing of the shares did not involve either in form or in substance a sale that day of the Kelpie rights, and the increase in value which occurred was not the result of any sale or other disposition of property. In my opinion the plaintiff has failed to prove that any sale of the Kelpie rights had taken place prior to the commencement of the proceedings. The plaintiff was not entitled to payment of the sum of $100,000 sued for and the appeal must succeed. The "fresh evidence" affidavits filed by the appellant in support of his application for a new trial included one by Graham Bruce Godbee sworn 26 June 1990. This disclosed that an independent witness who gave evidence at the trial and whose evidence was accepted by the trial judge worked for Hynbrood Pty Limited during part of 1985 under one false name for two weeks a month, and under another false name for the other two weeks. Later that year he again worked for the company for two weeks a month under his real name disclosing his correct address, and for the other two weeks under another assumed name and a false address. This is strong prima facie evidence of fraudulent tax evasion. In recent years the question of the duty of a court which is confronted with evidence of income tax fraud in the course of a hearing between parties other than the revenue authority has been discussed in a number of reported decisions. See Kelly v Raymor (Illawarra) Pty Limited (1982) 13 ATR 592, a decision of Wootten J in the Equity Division of this Court, In the Marriage of P and P (1985) URJ PAGE v VANKER and ANOR (Waddell AJA) 11 9 Fam L R1100 a decision of Lindenmayer J of the Family Court, Petera Pty Limited v EAJ Pty Limited (1985) 7 FCR 375 a decision of Wilcox J and finally Giorginis v Kastrati (1988) 49 SASR 371 a decision of the Full Court of South Australia. In that case Von Doussa J who delivered the principal judgment said, at 376: "Where a tax fraud or evasion... is disclosed in evidence, it is the Court's duty to draw the evidence to the attention of the executive branch of government for such action as may be appropriate." In my opinion this Court would not be doing its duty to administer the laws of this country if it ignored this evidence and took no effective action to bring it to the attention of the appropriate authorities. In my opinion the Registrar of this Court should be directed to forward to the Deputy Commissioner of Taxation the relevant part of these reasons for judgment together with a copy of the affidavit of Graham Bruce Godbee of 26 June 1990. Waddell AJA The facts are set out in the judgment of Handley JA which I have had the advantage of reading. The event on which the sum of A$100,000 was to become payable was the "'Kelpie' rights and patents in the USA being sold for US$1,500,000". This event would have taken place if Hynbrood had sold the rights for the sum mentioned or a sum in another currency equivalent to that sum. It would also, I think, have taken place if the shares in Hynbrood had been sold to a third party in circumstances and for a sum which would have enabled US$1.5m, or its equivalent in another currency, or a greater sum, to be attributed to the rights. In both transactions Mr and Mrs Page would have parted with their interest in the rights for a sum, received by them either directly or indirectly, which was fixed and ascertained at the moment of the transaction. The oral agreement which was evidenced by the deed of 15 October 1986 is, however, in my opinion, a different kind of transaction. The evidence indicates that its purpose was to transfer the assets of Hynbrood and Kadello to a company which it was intended to have listed on the second board of the Stock Exchange, and which was formed for this purpose, namely Kelpie Industries, so as to enable equity capital to be introduced to that company for the purpose of carrying on the businesses of Hynbrood and Kadello including, of course, the exploitation of the various patent and other intellectual property rights which included the subject rights and patents in the United States. The number of shares in Kelpie Industries allotted to Mr Page pursuant to the deed was clearly designed to entitle him to a very substantial share of the profits made from the businesses and which were hoped would be made from the exploitation of the various patent and intellectual property rights. Mr Page retained an indirect interest of the order of 50% in the assets of Hynbrood and Kadello including, of course, the subject rights and patents. The securities of Kelpie Industries Ltd were listed on the Sydney second board market on 19 December 1986. The Second Board Company Review Service, issued towards the end of 1988, shows that the issued capital of Kelpie Industries then exceeded $9m, of which the directors and their associates held a 53.8% interest. This was a situation of the kind which the deed of 15 October 1986 was directed to achieving. The learned trial Judge held that the provisions of that deed effected what was, in substance, a sale of the kind described in the agreement between the parties. He held, in effect, that Mr Page sold his interest in the assets of Hynbrood and Kadello, including the United States rights and patents, for an issue to him of shares and options having an immediate value of the order of $4,430,000. He 12 UNREPORTED JUDGMENTS found, in effect, that this consideration reflected a value of at least the Australian equivalent of US$1.5m for the United States rights and patents. He, therefore, found that the event on which the $100,000 became payable to Miss Vanker had been made out. It seems to me to be proper to characterise the transaction evidenced by the deed of 15 October 1986 as a sale by Mr and Mrs Page of the shares in Hynbrood and Kadello but the question is whether it was a sale of the United States rights and patents of the kind required by the agreement between the parties. I agree with Mahoney JA, whose judgment I have also had the advantage of reading, that it was not and with the reasons which he gives for this conclusion. The result is that it remains possible that the United States rights and patents may be dealt with at some time in the future in a way which creates a liability on the part of Mr Page to pay to Miss Vanker the $100,000 provided by the agreement. It seems to me that what the parties probably envisaged at the time the agreement was entered into was that the $100,000 would be paid out of the price received for the sale of the United States rights and patents. Nonetheless, there is no dispute that the language of the agreement is apt to apply to a sale for which the consideration is otherwise than in cash, for instance, the allotment of shares. Finally, I would add that, as is mentioned by Handley JA, although Hynbrood and Kadello each had profitable businesses, no value of their businesses is shown as an asset in their respective balance sheets. There is no evidence as to what such value was at the time. This adds difficulty and uncertainty to any question of what value should be attributed to the United States rights and patents in October 1986. It also emphasises how difficult it is to say that the deed effected a sale of the kind mentioned in the agreement. I agree with the orders proposed by Mahoney JA. I agree with Handley JA that the Registrar should be directed to send the material he mentions to the Deputy Commissioner of Taxation. 1. Appeal allowed. 2. Judgment below set aside and in lieu judgment for the defendants. 3. Plaintiff to pay the costs of the proceeding below and in this Court and, if entitled, to have a certificate under the Suitors Fund Act. Counsel for Appellant: RJ Bainton QC with S Motbey Solicitors for Appellant: McCabes Counsel for 1st Respondent: KP Rewell Counsel for 2nd Respondent: TJ Hancock Solicitors for 1st Respondent: Dennis and Co Solicitors for 2nd Respondent: Goldrick Mason