Reported Decision : [2000] 18 ACLC 867 New South Wales Supreme Court CITATION : Katalin Ottilia Abeles v PA (Holdings) Pty ltd [2000] NSWSC 1008 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1884/2000 HEARING DATE(S) : 3, 4, and 5 October 2000 JUDGMENT DATE : 2 November 2000 PARTIES : Katalin Ottilia Abeles (Plaintiff/Cross Defendant) PA (Holdings) Pty Ltd (Defendant/Cross Claimant) JUDGMENT OF : Bergin J COUNSEL : RW White SC/M Meek (Plaintiff/Cross Defendant) DJ Hammerschlag (Defendant/Cross Claimant) SOLICITORS : Adrian Twigg & Co (Plaintiff/Cross Defendant) Freehill Hollingdale & Page (Defendant/Cross Claimant) CATCHWORDS : EQUITY - Application for specific performance of Share Sale Agreement between plaintiff and defendant company pursuant to which deposit has been paid and failure to complete. EQUITY - Fiduciary Obligations - Application to set aside Share Sale Agreement - Whether director caused the defendant company to enter into the Agreement in breach of fiduciary duty - Whether plaintiff was knowingly concerned or an intentional participant in the breach. LEGISLATION CITED : Corporations Law ss. 97 and 1324 Bluebird Investments Pty Ltd & Ors v Graf & Ors (1994) 13 ACSR 271 Catt & Ors v Marac Australia (1987) 9 NSWLR 639 Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 CLR 373 Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd & Ors (1988) 78 ALR 193 CASES CITED : House of Peace Pty Ltd & Anor v Bankstown City Council (2000) 48 NSWLR 498 Permanent Building Society v Wheeler (1994) 14 ACSR 109 Taylor v Johnson (1983) 151 CLR 422 White v Bristol Aeroplane Co Ltd [1953] 1 Ch 65 Yorke & Anor v Lucas (1985) 158 CLR 661 DECISION : Breach established. Plaintiff not knowingly concerned or intentional participant. Specific performance ordered. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN J DATE: 2 NOVEMBER 2000 1884/00 - KATALIN OTTILIA ABELES v PA (HOLDINGS) PTY LTD JUDGMENT 1 The plaintiff is the widow of the late Sir Peter Abeles (the deceased) and seeks specific performance of a Share Sale Agreement (the Agreement) entered into on 28 April 1998 by the plaintiff and the defendant, P.A. (Holdings) Pty Limited. 2 The defendant agreed to purchase from the plaintiff 100 ordinary shares held by the plaintiff in Miro Holdings Pty Ltd (Miro) for $1,700,000 payable by $1,500 as a deposit when the Agreement was signed and $1,698,500 within nine months from the date of the death of the deceased, who died on 25 June 1999. 3 Although the deposit was paid, the defendant has refused to pay the balance owing under the Agreement. The defendant, by way of Cross Claim against the plaintiff as Cross Defendant, alleges that the deceased caused the defendant to enter into the Agreement in breach of his fiduciary duty to the defendant and in contravention of s 232(4) and s 232(6) of the Corporations Law. The defendant also alleges that the plaintiff was knowingly concerned in that breach. The defendant seeks an order setting aside the Agreement or alternatively a declaration that the interest in the Agreement held by the plaintiff is held for the benefit of the defendant on constructive trust and an order that the plaintiff account to the defendant for such benefits. Share Sale Agreement 4 The Agreement recites that the plaintiff was the registered and beneficial owner of the sale shares, defined as the 100 fully paid ordinary shares of $1 each in the capital of Miro (Recital A). It also recites that the plaintiff wished to sell those shares to the defendant and that the defendant was willing to purchase the shares from the plaintiff on the basis set out in the Agreement (Recitals B and C). 5 The plaintiff agreed to sell to the defendant and the defendant agreed to purchase the shares from the plaintiff for the consideration of $1.7 million (cl. 2). Clause 5 of the Agreement provides as follows: 5 Valuation of Sale Shares 5.1 The parties acknowledge the Valuation and its contents and confirm that they have read the Valuation and have received such advice in respect of the Valuation as they deem appropriate. 5.2 The parties further acknowledge that the consideration for the Sale Shares referred to in subclause 2.2 is based on the Valuation and further agree that the consideration for the Sale Shares is fair and reasonable in all the circumstances. 6 "Valuation" is defined (cl. 1.1) as: The Valuation of the Company (Miro) conducted by Messrs Borough Mazars (being the Auditors for the Company) contained in a letter dated 7 January 1998 addressed to Landerer & Company a copy of which annexed and marked with the letter "A". The Valuation 7 The Valuation is in the form of a facsimile letter from Borough Mazars addressed to Landerer and Co dated 7 January 1998. The "subject" of the facsimile is "Abeles" and is in the following terms: Dear John, I refer to your fax dated 29 December 1997. Attached is my valuation of Miro Holdings Pty Limited based on the accounts of the company and its wholly owned subsidiary, Boulevarde Investments Pty. Limited, as at 30th June 1997. Both companies have been valued on a net tangible assets basis. Loans to the companies by Sir Peter and P.A. (Holdings) Pty Limited to fund asset purchases and losses have been capitalised from time to time. A total of 4,270,000 1st RP shares have been issued by Miro. The 1st RP shares are entitled to a priority return of capital on a winding up. Consequently, if the group was liquidated the total NTA of $3,179,916 would be distributed to the preference shareholders in priority to the ordinary shareholders. My valuation has been done on this basis, whereby the ordinary shares have been valued at their par value and the balance of NTA allocated pro-rata to the preference shareholders. The Stamp Office would, in my opinion, accept this valuation. Alternatively, there may be some intrinsic value in the ordinary shares because of their voting power. However, in this respect Sir Peter, on his own account and through P.A. (Holdings) Pty Limited, has a majority interest and, in my opinion, Lady Abeles' 45.05% would not command a premium. Please ring if you require to discuss the matter further. 8 Attached to the letter annexed to the Agreement was the following document: VALUATION OF MIRO HOLDINGS PTY. LIMITED Miro Holdings Pty. Limited Net assets per accounts as at 30th June 1997 3,430,024 Valuation adjustments - Book value Boulevarde (3,420,100) Valuation Boulevarde 3,169,992 (250,108) Adjusted NTA as at 30th June 1997 $ 3,179,916 Divisible between: EHP Abeles - 457,054 1st RP 340,349 P.A. (Holdings) Pty. Limited - 3,812,946 1st RP 2,839,345 Ordinary shares - K.O. Abeles (100) 100 EHP Abeles (12) 12 J.C. Annand (10) 10 P.A. (Holdings) Pty Ltd (100) 100 222 $3,179,916 9 The defendant was incorporated on 1 February 1952. It operates solely as an investment company and has investments in property and related activities. In 1998 its total assets were valued at $16.4 million and in 1999 at $19.5 million. 10 As at April 1998 the directors of the defendant were the deceased, Joyce Catherine Annand (Mrs Annand) and Claire Dan (Ms Dan). Mrs Annand was the deceased's long serving personal assistant and Ms Dan is the deceased's first wife. In April 1998 the shareholders of the defendant were the deceased (1,202 Ordinary shares) Ms Dan (90 Redeemable Preference shares) and Hambros Australia Pty Ltd (7 Cumulative Redeemable Preference shares). 11 On 28 April 1998 a meeting of directors of the defendant was held at which were present the deceased and Mrs Annand. The minutes record: SHARE SALE AGREEMENT: It was resolved that the Common Seal of the Company be affixed to a Share Sale Agreement between Katalin Ottilia Abeles (as Vendor) and the Company (as Purchaser) whereby the Vendor agrees to sell and the Purchaser agrees to purchase 100 fully paid ordinary shares in Miro Holdings Pty Limited currently registered in the name of Katalin Ottilia Abeles for a total consideration of $1,700,000. - It was noted that the Purchaser must pay to the Vendor a deposit sum of $1,500 on the date of signing this Agreement. It was further noted that the Completion Date of this Agreement will be after the death of Sir Emil Herbert Peter Abeles and prior to the date nine months after his death as agreed between the Vendor and the Purchaser. On the date of completion of this Agreement the Vendor agrees to deliver share scrip and transfer and a resignation from any office the Vendor may have held in Miro Holdings Pty Ltd. The minute of this meeting was signed by the deceased as Chairman. 12 On 25 May 1998 Borough Mazars wrote to the Office of State Revenue providing "additional information and documentation" in connection with the transaction the subject of the Agreement. The information and documents to which this was additional is not in evidence. Borough Mazars advised the Office of State Revenue of the profits and losses of Miro and Boulevarde Investments Pty Limited for the years ending 30 June 1995 to 1997 inclusive. 13 As at 30 June 1997 Miro had an operating loss of $2,999,300 which was attributed to the provision of a $3 million diminution in value of Miro's investment in Boulevarde Investments Pty Limited. Boulevarde Investments Pty Limited had an operating loss for the year ended 30 June 1997 of $2,646,999 of which $2,596,778 was a provision against loan debtors. 14 The letter advised: The amount of $1,700,000 to be paid by P.A. (Holdings) Pty Limited for K.O. Abeles' shares in Miro has been determined by negotiation. The consideration is payable as to a deposit of $1,500 on signing of the Agreement and the balance of $1,698,500 no later than nine months after the death of Sir Emil Herbert Peter Abeles. After completion P.A. (Holdings) will have a 90.09% voting, dividend and equity interest in Miro as opposed to its present 45.05% interest. It will, at that time, control the company. 15 Ms Dan gave evidence that after her divorce from the deceased in about 1968 she and the deceased continued to have a close relationship. Ms Dan is a director of many of the deceased's private companies, however she gave evidence that she was never invited to directors' or shareholders' meetings and rarely received accounts or other documents in relation to the companies of which she is a director. 16 Ms Dan was not given notice of the meeting of directors of the defendant on 28 April 1998 and was not aware of the Agreement until after the deceased's death upon reading his will. 17 The deceased's will made on 7 April 1999 contained the following clause: 7C. I WISH TO RECORD that I have during my lifetime made ample provision for my said wife KATALIN ABELES in that inter alia: (a) I have transferred by way a one-half share in my interest in my Vaucluse Property to her as joint tenant with me with the effect that upon my death my wife shall become sole owner of the Vaucluse Property; (b) I have ensured that she be entitled to a lifetime annuity as is further confirmed in Clause 3 hereof; (c) I have caused to be created the aforesaid K. Abeles Trust the income and corpus of which it is my wish be distributed to her on my death as specified in Clause 7B hereof. (d) I have caused P.A. (Holdings) Pty Limited to enter into an Agreement with my wife to acquire her shares in Miro Holdings Pty Ltd at an inflated price of One million seven hundred thousand dollars ($1,700,000.00). An identical provision appears in an earlier will made on 21 December 1998 (Ex. 1). Valuation of Shares 18 It is apparent that the deceased was a shareholder and director of many companies, the structure of which is contained in the Schedule to this judgment. These companies included the defendant, Miro and Boulevarde Investments Pty Ltd (Boulevarde). 19 Each of the parties relied upon expert evidence to establish the value of the plaintiff's shares in Miro as at 28 April 1998 and 25 March 2000. The plaintiff relied upon the Report and evidence of Wilhelm Martin Jansen (Mr Jansen), Chartered Accountant and senior partner of Ernst & Young. The defendant relied upon the Report and evidence of Goodwin Cullimore Allen Gower (Mr Gower), Chartered Accountant and principal of the firm GCA Gower & Co. 20 Mr Jansen attributed a value of $1,554,682 to the plaintiff's shares as at 28 April 1998 and Nil as at 25 March 2000. Mr Gower was of the opinion that the shares had a Nil value on both dates. 21 Mr Jansen made a number of assumptions upon which he proceeded to value the shares. His approach was to value Miro as a whole and then determine the rights attaching to each share class. He then attributed a value to the Ordinary and NCRP shares based on his analysis of their rights to capital and income. He assessed the value of the plaintiff's shares on the approach that the defendant as an entity on its own did not control Miro. 22 Mr Jansen also approached the matter on the basis that as the Agreement was entered into in March 1998 on the basis of the 1997 financial accounts (signed by the directors on 12 December 1997) the 1997 accounts were the appropriate accounts for consideration in the valuation of the plaintiff's shares. 23 Mr Gower adopted a different approach. He relied upon the net asset position of Miro as at 30 June 1998 having regard to the financial statement as at 30 June 1998 and worked backwards. Mr Gower valued the shares on the basis of a notional winding up of Miro and Mr Jansen valued the shares on a going concern basis. 24 From the analysis of the financial statements of each of Miro, the defendant and Boulevarde, it is apparent that, after the entry into the Agreement, the net assets of Miro and Boulevarde decreased by $2 million as at 30 June 1998. 25 The main reason for the changed position was the assignment to third parties of certain debts owed to Boulevarde and a diminution in the value of Miro's investment in Boulevarde. This latter matter related particularly to a shopping centre in Queensland which was the subject of a joint venture between the defendant and Boulevarde. 26 Mr Gower valued the plaintiff's shares based upon what he perceived to be the deceased's view, and that of the defendant's Board, that the Ordinary shares commanded a premium when compared with going concern rights of the NCRP shares. That opinion was based upon Mr Jansen's view that the plaintiff's holding of 45.05% represented a "blocking minority interest" allowing her to prevent the winding up of the company. The soundness of this opinion depended upon the accuracy of the view that the NCRP shareholders did not have an entitlement to vote on a winding up. 27 Miro had issued 4,270,000 NCRPs. 3,812,946 were held by the defendant and 457,054 were held by the deceased. However, the shareholding of the defendant included the deceased's first wife Ms Dan who held 90 RPs. The defendant also held 100 Ordinary shares in Miro as did the plaintiff. 28 If the deceased took the view that the NCRP shareholders were not able to vote on a motion for winding up then the plaintiff's 100 Ordinary shares may well have been viewed as having a capacity to demand a premium. Borough Mazars took the view that because the deceased and the defendant had a majority interest the plaintiff's shares would not command a premium. 29 Mr Gower's approach was based on the view that the NCRP shareholders were entitled to vote on a winding up and therefore the plaintiff's shares could not command a premium and were valued at Nil by reason of the RPs being entitled to a priority return of capital on a winding up with the total net tangible assets being distributed to the Preference shareholders. 30 Although Mr Jansen agreed that if the NCRP shareholders were entitled to vote on a winding up he would agree with the approach adopted by Mr Gower, he gave the following evidence in relation to benefits to the defendant in purchasing the plaintiff's shares: Q I will ask you to assume that PA Holdings could vote its noncumulative redeemable preference shares on a proposal to wind up Miro..? A To assume that it can? Q Assume that it can vote its redeemable preference shares on a winding up motion? A Yes. Q I ask you also to assume please as at 28 April 1998 the directors of PA Holdings did not consider that it would be in the interests of PA Holdings to wind up Miro or to seek to liquidate the investments of Boulevarde? A Yes. Q If you made those assumptions would there in your view be a benefit to PA Holdings in acquiring Lady Abeles' 100 ordinary shares? A Yes there would. Q What in your view would that benefit be? A The benefit would be firstly the going concern aspect that it would have control of Miro and Boulevard. Secondly the benefit of not having to liquidate the assets of Miro and ultimately the assets of Boulevarde which includes various businesses and potential investments, such as the Canon Hill Shopping Plaza which had potential upside. Thirdly, the benefit of not having to appoint a liquidator who would have certain powers under the Corporations Law to investigate transactions of the group which may or may not yield embarrassments for the Board. Fourthly the potential for any upside in the future, expected or unexpected, by way of dividends flowing through or upside that would improve any future return to PA Holdings on both its NCRP shares and ordinary shares. Q Are you able to express any view as to what the consequences of those benefits might be upon a value to be attributed to Lady Abeles' ordinary shares in Miro on the assumption again that PA Holdings could vote preference shares on a winding up but the directors did not consider that a winding up of Miro would be in the interests of PA Holdings? A Yes. In the absence of a winding up then Lady Abeles' 100 ordinary shares in Miro would retain their 45.05 per cent blocking interest in terms of straight votes on the management of the business, the daily operations and also whether a dividend could be declared, because PA Holdings would only hold the other 45.05 per cent. So, the benefit there would be quite significant because Lady Abeles would be able to use that blocking minority in order to determine the board of Miro, stop a change in the board of Miro and she could have what one might call a nuisance value being in there as an ordinary shareholder with that block of votes. 31 The question as to whether the NCRP shareholders were able to vote upon a motion for a winding up of Miro depends upon the interpretation of a special resolution of Miro passed on Friday 18 June 1993. That resolution had the effect of amending the Articles of Association of Miro and included the following amendment: 7(c) The redeemable preference shares shall be redeemable as hereinafter provided and shall confer or impose as the case may be on the holders thereof rights, privileges, restrictions and conditions as follows: (i) the right to receive in each financial year a dividend of 8% on the total amount paid up in relation to such shares (being the capital paid up thereon and any premium paid up thereon), such sum to be distributed amongst the holders of the said redeemable preference shares in proportion to their holdings of such shares. Such dividend shall be non-cumulative. (ii) In the event of the winding up of the Company the right to payment, in priority to all other classes of shares, of the amount due upon redemption but shall not participate in any further or other distribution of profits or assets of the Company. (iii) The right to receive notice of all meetings of the Company and to attend such meetings but no right to vote thereat except upon any matter directly affecting any of the rights or privileges attaching to such shares or otherwise affecting the exercise or enjoyment of the rights and privileges of the holders of such shares in which event each holder of a redeemable preference share shall have one vote for every redeemable preference share held. (iv) The right to redemption at any time prior to the 31st December, 2002 in cash. Notice of such redemption shall be posted to the registered address of the holders of such shares and the redemption shall be effective on the seventh day after the date of such notice. The Company shall pay to the holder of each redeemable preference share on redemption the amount of capital paid up thereon, the premium paid up in relation to the share and any dividend then due or in arrears whether or not declared. 32 The defendant submitted that the meaning of clause 7(c)(iii) of the Special Resolution entitles the Redeemable Preference shareholders to vote on a winding up because such a motion "directly affects" their rights or privileges or alternatively affects the "exercise or enjoyment" of their rights and privileges. The defendant ultimately placed more reliance upon the latter submission claiming that the winding up of Miro would remove the capacity for the shareholders to enjoy their rights to receive notices of meetings and vote on matters that directly affected their rights or the exercise or enjoyment of such rights. 33 In emphasising this matter the submission recognised the distinction between an affectation of the rights and the affectation of the enjoyment of the rights, or the shareholders' capacity to turn them to account: White v Bristol Aeroplane Co Ltd [1953] 1Ch 65 at 74; Bluebird Investments Pty Ltd & Ors v Graf & Ors (1994) 13 ACSR 271 at 279. 34 The plaintiff submitted that properly understood the special resolution does not give the Redeemable Preference shareholders the right to vote on a motion to wind up the company. If that is so the plaintiff's shareholding would maintain its "blocking" capacity and could be reasonably understood to attract a premium. 35 It was submitted that neither the rights nor the exercise or enjoyment of them are affected by a winding up. The right that arises on a winding up is the right to payment. Accordingly a winding up is the occasion for the right arising but not the exercise of the right. 36 This was demonstrated by contrasting it with the example of a proposal to amend the Articles by changing the date by which the company could give notice of redemption. Such a proposal would affect the rights of the shareholders as to when they were entitled to receive payment. 37 It seems to me that the enjoyment of the right to receive dividends, or the enjoyment of the right to receive the distribution on a winding up is affected. For instance, the timing of a winding up may affect the amount to be distributed to the Redeemable Preference Shareholders and thus affect enjoyment of a right. This would therefore entitle the Redeemable Preference shareholders to a vote on a motion for winding up. 38 Ultimately the evidence of the respective experts is relied upon by the defendant to persuade the Court that it was unreasonable to attribute such a value for which it was agreed to purchase the plaintiff's shares and by the plaintiff to persuade the Court that it was reasonable to attribute the value that was agreed to be paid under the Agreement. 39 It seems to me that the most that can be said after considering the whole of each expert's evidence is that if one reviews the company's position on a going concern basis as at 28 April 1998, based on the 1997 financial statements, it is not unreasonable to attribute a value of $1.55 million to the shares. Alternatively if one reviews the company's position based on the 1998 financial statements and approaching it on the basis of a notional winding up it is not unreasonable to attribute Nil. I am not convinced that it is necessary to decide which of the approaches should be preferred because, even on the plaintiff's expert's approach, the shares were sold for about $150,000 more than the reasonable value attributed to the shares by the plaintiff's expert. Alleged breach of fiduciary duty 40 The deceased was the governing director of the defendant at the time of the Agreement and until his death. He was a signatory to the Agreement in his capacity as a director of the defendant. The defendant relies upon the then ss 232(4) and 232(6) of the Corporations Law in respect of the alleged breach of duty. Those sections provided: 232(4) [Care and diligence] In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in the corporation would exercise in the corporation's circumstances. 232(6) [No gain by improper use of position] An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. 41 The defendant also alleges that the deceased failed to act in good faith for the benefit of the company as a whole and failed to avoid actual or potential conflict between his duty to the company and his personal interest or duty to others. 42 The principles applicable in determining whether the deceased acted for an improper purpose require proof that the deceased's substantial purpose in procuring the defendant to purchase the plaintiff's shares in Miro was improper or collateral to his duty as a director of the defendant. This is to be objectively determined, although evidence of subjective intentions or beliefs is relevant. The Court must determine whether, but for the alleged improper or collateral purpose, the deceased would have caused the defendant to enter into the Agreement: Permanent Building Society v Wheeler (1994) 14 ACSR 109 per Ipp J (with whom Malcolm CJ and Seaman J agreed) at 137. 43 The defendant alleged that in causing the defendant to enter into the Agreement, the deceased treated the defendant as if it were his own so as to confer advantages both on himself and on the plaintiff. It is alleged that the deceased benefited himself by making provision out of the defendant's funds for his wife and benefited his wife by making provision for her out of the defendant's funds. If that is established, it is not necessary to prove that there was detriment to the defendant, although Mr Hammerschlag submitted that detriment to the defendant can be established. 44 It is submitted that the evidence clearly supports a finding that the deceased's substantial purpose was to gain an advantage for the plaintiff and for himself. Matters upon which the defendant relied in this regard included the following: · at the time the deceased caused the defendant to enter into the Agreement he was seriously ill and putting his affairs in order. Mr Landerer, his solicitor, informed the plaintiff's solicitor, Mr Moss, that the plaintiff held shares in one of the deceased's companies and that the deceased wanted to avoid a dispute after his death. He also informed Mr Moss that "it has been agreed" that the plaintiff "will be paid a specific amount for the shares and she is happy with that"; · clause 7C(d) of the deceased's will in which he recorded that he had caused the defendant to acquire the plaintiff's shares at "an inflated price". Reliance is also placed upon the context of this clause to which there is a preamble in which the deceased stated that he wished to record that he had during his lifetime made "ample provision" for the plaintiff; · the deceased's consciousness that the defendant may not be able to pay the $1.7 m from its own reserves as evidenced by his statement to the plaintiff that "they will have to pay you, even if they have to raise money, they will have to pay you"; and · the fact that Ms Dan, a director and shareholder of the defendant, was not informed of the Agreement. 45 The defendant submitted that to establish a breach of duty by the deceased, it is not required to establish that the purchase price was at a gross overvalue or indeed any overvalue at all. It submitted that it was enough to establish that the deceased had used his position improperly to cause the defendant to enter into this Agreement for which there was no legitimate purpose and which was not in the interests of the defendant. 46 However, the defendant submitted that it is the fact that the sale was at a gross overvalue. This submission was based upon the Borough Mazars' valuation which the defendant claims reflected the value of the plaintiff's shares as $100. It is submitted that the deceased recognised that the purchase price was a gross overvalue evidenced by the words in his will that he had caused the defendant to purchase the plaintiff's shares at an "inflated" price. 47 The plaintiff submitted that the issue is not whether the consideration for the shares was vastly in excess of their value but whether or not the deceased did not act in the interest of the defendant in entering into the Agreement. It is submitted that if the transaction was for the benefit of the defendant then it matters not that as a result of the Agreement the plaintiff obtained the financial benefit and the advantage that she would not have to deal with the defendant's first wife and family after his death. 48 The plaintiff emphasised that Borough Mazars' valuation was a valuation of Miro and not a valuation of the plaintiff's shares. Borough Mazars based its valuation on the accounts of both Miro and Boulevarde as at 30 June 1997 and valued Miro on a net tangible assets basis. 49 The plaintiff submitted that the par value attached to the plaintiff's shares by Borough Mazars needs to be viewed in light of Borough Mazars' letter to the Office of State Revenue in May 1998. The plaintiff submitted that a real benefit to the defendant was as stated in the letter, that the defendant would achieve "control" of Miro. It is submitted that such advantage or benefit to the defendant is enough to defeat the claim made by the defendant that the deceased was in breach of his duty. 50 It is true that Borough Mazars' letter to the Office of State Revenue in May 1998 claimed that the price had been "negotiated". The evidence before me suggests that Mr Landerer informed the plaintiff that he could "get" the $1.7 million for her. It is true that the plaintiff informed Mr Landerer that she was happy with $1.7 million but that if she did not get what she wanted she would contest the deceased's will. 51 Mr White SC submitted that the fact that the deceased did not act alone in this transaction would militate against a finding that he had breached his duty. It was submitted that Mr Landerer's credentials are such that an assumption can be made that he would not have been acting in a matter which involved the deceased acting in breach of his duty to the defendant. 52 The difficulty with that submission is that it calls for assumptions about a number of matters upon which the Court could only speculate. It may be that Mr Landerer understood that the price "negotiated" was in the interests of and to the benefit of the defendant. I do not know as neither party called Mr Landerer. I do not accept that simply by Mr Landerer's presence as solicitor for the deceased, there must be an inference that a breach could not have occurred. 53 It seems to me that the deceased was intent upon securing for his wife $1.7 million which he stated in his Wills, was part of the "ample provision" he had made for her during his lifetime. He recorded within months of this transaction that the purchase of the plaintiff's shares was at "an inflated price". Although, as I have said earlier that the determination of this matter calls for an objective judgment, this subjective statement of the deceased's belief about the price may be taken into account. 54 Mr White SC submitted that such a term should not be interpreted to mean that the deceased regarded the value of the plaintiff's shares as being nominal nor even substantially less than $1.7 million. He submitted that the term "inflated price" should be understood to mean that the shares have been sold for a price which is more than their value would command in an open market. 55 I am of the view that a reasonable and sensible interpretation of the term "inflated price" in the context in which it was used is that it is higher than the "true" or "proper" value of the shares: Taylor v Johnson (1983) 151 CLR 422, per Dawson J at 440; House of Peace Pty Ltd & Anor v Bankstown City Council (2000) 48 NSWLR 498, per Mason P at 504 -505, pars 25 to 29; Oxford English Dictionary 2nd Ed. Vol VII p 936; The Macquarie Dictionary 3rd. Ed. p.1094. 56 Although Mr Jansen listed what he thought were the benefits to the defendant in purchasing the shares I am not persuaded that the plaintiff has demonstrated a proper basis for a purchase at such an "inflated price". 57 From all the evidence, I am satisfied that the deceased's substantial purpose in causing the defendant to enter into the Agreement was to make financial provision for his wife after his death from the defendant's funds or funds that the defendant might have to borrow, in the hope of avoiding disputation between the plaintiff and Ms Dan and her children. 58 I am satisfied that but for this desire to provide for the plaintiff after his death in these circumstances the deceased would not have caused the defendant to enter into the Agreement. 59 Although such a desire may present as understandable, I am satisfied that the deceased was placed in a position of conflict and improperly used his position as a director of the defendant to gain an advantage for the plaintiff. 60 I am satisfied that the defendant has established a breach of duty. The Plaintiff's knowledge 61 The plaintiff gave evidence that well before April 1998 the deceased had said to her "I will make this company for you. You'll make a lot of money and everything in that company will be for you." The deceased informed the plaintiff that the name of the company would be Miro, using the first two letters of the names of his daughters from his first marriage, Micky and Robby. 62 The plaintiff also gave evidence that she knew nothing more about Miro until early April 1998 when she received a telephone call from Mr Landerer, the deceased's solicitor, who informed her there was something that he would like to talk to her about and asked her to attend his office. The plaintiff attended Mr Landerer's office that same day and a conversation took place in the following terms: Mr Landerer: I have found some shares that belong to you, that I can get you $1.7 million for. You have 100 shares in Miro. $700,000 will come from shares held by Miro, and $1 million from PA Holdings. The plaintiff: That's fine I would like to sell the shares because I don't want anything to do with Sir Peter's so-called family. Mr Landerer: I want you to go and see Mr Moss and, to discuss the proposal with him before you sign any documents, so that you can be sure about it. 63 Mr Landerer telephoned Mr Moss and informed him that the deceased was not well and was getting his affairs in order. He continued: His wife Kitty has some shares in one of the companies and wants to avoid a dispute after Peter's death. It has been agreed that she will be paid a specific amount for the shares and she's happy with that. I don't think I should act for both parties and the Abeles have asked whether because you have done some work in the past for them you would see Kitty. 64 The plaintiff conferred with Mr Moss on 16 April 1998 for about one hour. Although in her original affidavit sworn on 27 April 2000 (the first affidavit) the detail of the conversation was not provided, the plaintiff gave detailed evidence of her conversation with Mr Moss in her second affidavit sworn on 27 June 2000 (the second affidavit). In the second affidavit the plaintiff stated that Mr Moss told her that he had received the documents from Mr Landerer and then went through the clauses of the Agreement with the plaintiff. 65 In the course of going through the Agreement the plaintiff stated that Mr Moss referred to clause 5.1 and that the following conversation took place: Mr Moss: By this clause, the parties acknowledge the valuation and confirm that they have read it and have received such advice as they deem appropriate about it. The Plaintiff: I don't know whether the valuation is right or not, but I am happy with $1.7 million. The plaintiff stated that Mr Moss then referred to clause 5.2 and the following conversation took place: Mr Moss: By this clause, the parties acknowledge that the consideration is based on the valuation and is fair and reasonable in the circumstances. The plaintiff: I am happy with that. Mr Moss: Do you understand that you are binding yourself to a price now, and the value of the shares might go up in the future? The plaintiff: I understand that. The value might also go down in the future. Mr Moss: What does the company do? What are its assets? The plaintiff: I don't know. Mr Moss: You should speak to your accountant to see whether you will liable for capital gains tax? The plaintiff: That won't be necessary. Mr Moss: I don't know whether the valuation is appropriate. Do you want me to have it checked out? The plaintiff: That will not be necessary, as I am happy with $1.7 million. Mr Moss: What is the background of the agreement? The plaintiff: It's so that I won't have to deal with Sir Peter's first wife after his death. I don't want any involvement with Sir Peter's first wife and family after his death, and this agreement might help achieve that. Mr Moss: What will happen if the purchaser can't pay the purchase price at the time? The plaintiff: Sir Peter has plenty of assets and I am determined to get my fair share. I was wealthier than he was when we were married, and I helped him get where he is. My relationship with Sir Peter is not good. He doesn't tell me anything. John Landerer is very good to me and keeps me informed. He is the executor of Sir Peter's estate. I have told him that if I don't get what I am entitled to, I will challenge the will. 66 Mr Ronald William Moss (Mr Moss), solicitor, gave evidence and his file is also in evidence (Exs. B & B1). Mr Moss reviewed the Agreement, including the valuation, prior to his conference with the plaintiff and made notes for himself, in black biro, on the topics that he wished to discuss with the plaintiff. Once the plaintiff responded to Mr Moss' questions in conference he made notes of those responses, in blue biro, next to the notes in black biro in relation to the topic under discussion. 67 A controversy arose in respect of the plaintiff's memory of the conversation with Mr Moss. This centred upon the content of the file notes taken by Mr Moss and a comparison between the first affidavit and the second affidavit. The substance of the conversation deposed to by the plaintiff in the second affidavit is in almost identical terms and sequence to the file notes made by Mr Moss. The plaintiff denied having seen the file note prior to entering the witness box and also denied having had the file note or Mr Moss' affidavit read to her. 68 There may be other explanations, but it seems to me inconceivable that the plaintiff was able to depose to the conversation in almost identical terms without having had some form of access to the content of Mr Moss' file note. It may be that the plaintiff's legal representatives utilised the file note in taking instructions from the plaintiff for the second affidavit. The plaintiff did say in answer to a question as to whether she had read Mr Moss' affidavit "not really the whole of the affidavit. I had no opportunity but I know a few things what I was told" (tr.66). The plaintiff also gave evidence that one of her solicitors told her that Mr Moss had used a colour code in taking his notes (tr.67). 69 One of the matters noted in Mr Moss's file note was as follows: - valn. suggests V's shares only worth $100 or less - she is happy with $1.7 m There was no mention of the $100 value in the first affidavit. The plaintiff addressed this matter in the second affidavit. She said: I am sure that Mr Moss did not tell me that the valuation said that the shares were worth only $100. Had anyone told me that my shares were worth only $100, I would not have been interested in the transaction, I would have been very suspicious about it and very concerned that I was being tricked. The plaintiff also gave evidence in the second affidavit that she did not recall Mr Moss asking her whether a better way of doing the transaction should be explored and claimed "although I know that Mr Moss has made a note of it". 70 It is beyond doubt that the plaintiff must have been aware of at least some portions of Mr Moss' file note to make her claims that Mr Moss did not tell her that the shares were worth only $100 and that she knew that Mr Moss had made a note of a particular matter. Having regard to the shortness of the first affidavit and to the content of paragraph 2 of the second affidavit in which the plaintiff admits to having been able to refresh her memory from documents produced in the proceedings I am satisfied that the plaintiff was made aware of the contents of the file note or Mr Moss' affidavit. 71 The plaintiff was cross examined in relation to her claim that Mr Moss had not informed her that the valuation suggested her shares were only worth $100 or less. The following evidence was given by the plaintiff: Q Go to the last one please, this one in black, "valuation suggests vendor shares are only worth $100 or less, she is happy with $1.7 million"? A Yeah because I didn't even realise, tell me, do you want to put me there as a cheat or as a, I mean that goes to the community. If I have a value of one hundred in my hand and they offer me one million seven hundred for it, then I make a crime if I do it. Q Then you what? A Then I make a crime if I do it. On the other side if I know I have $100 in my hands I would not have bothered anything not even to know about it. (Tr. 73) Q Now do you say that Mr Moss did not tell you that the valuation suggested the shares were only worth $100 or less? A No, he didn't tell me. Q If Mr Moss had told you that what would your attitude have been? A I think I told it already. Q Tell me again? A If I would have realised they are hundred dollars, if I would have realised from anybody, not from Mr Moss, not from anybody, that they are only hundred dollars worth and they want to buy it from me, they want to buy it from me for $1.7 million then I would have been a criminal. (Tr. 85) 72 Of the file note "valn. suggests V's shares only worth $100 or less" made prior to the conference with the plaintiff, Mr Moss gave evidence that he did "not recall raising that directly with Lady Abeles in that form". In September 1998 after Mr Moss had received the counterpart stamped Agreement he wrote to the plaintiff enclosing a copy of the Agreement and set out a number of what he described as "main points" for the plaintiff's information. He then referred to the Agreement to sell at $1.7 million, the fact that the deposit of $1,500 had been paid and various other matters including the following: The sale price of $1,700,000.00 is based upon the valuation from Borough Mazars Accountants, Auditors & Advisers dated 7 January, 1998, a copy of which is annexed to the Agreement. 73 The letter continued: I confirm having discussed with you my reservations about the transaction particularly in relation to the following: - (a) You are committing yourself now to the sale price for the shares which may be totalling (sic) different to their value at the completion date. As you pointed out the shares may in fact decrease in value; (b) I have no idea whether or not the valuation from Borough Mazars is accurate and based upon proper accounting principles. In any event I note that you are happy with the $1,700,000.00. (c) You did not consider it necessary to speak to your Accountant to see whether or not there is a better way to proceed in order to minimise your liability for the tax consequences of the sale including Capital Gains Tax. (d) You were not familiar with the affairs of the Company or its assets. Notwithstanding the above reservations, I note your instructions to proceed with the Agreement mainly in the hope that it would bring certainty to the sale of your shares in the Company and hopefully avoid a dispute at the relevant time. 74 The plaintiff gave evidence in the second affidavit that it was "her understanding that the price in the Share Sale Agreement was supported by the valuation" and that "if I read the valuation, which I do not recall, it did not then convey to me that my shares were worth only $100". 75 The defendant was on notice that the plaintiff denied having been informed by Mr Moss that the valuation suggested her shares were only worth $100 and that Mr Moss did not recall raising the matter directly with the plaintiff in that form. 76 The defendant's cross examination of Mr Moss was therefore critical if the defendant wanted to establish that Mr Moss had informed the plaintiff that the valuation suggested her shares were only worth $100 or less. The defendant did seek to establish that such a communication had occurred although it submitted that such a communication was not essential to prove that the plaintiff had the requisite knowledge to justify a finding that she was knowingly concerned in the breach of duty by the deceased. 77 The file note upon which Mr Moss was cross examined was also of critical importance. The first file note of 16 April 1998 was headed "Share Sale Agreement". It included the portions in black biro that had been created prior to the conference and the blue biro which reflected the plaintiff's instructions (in italics below). After reference to the more formal matters in the Agreement the following is recorded in the file note under the heading Share Sale Agreement: 4.1 - complt. on Complt. Date - she wd. prefer earlier but 9 mths is O.K. ** 5.1 pys. acknowledge the Valn. & confirm they have read it and have received such advice as they deem appropriate - she doesn't know whether it is right or not but accepts the figure . .2 - pys. acknowledge that consn. is based on the Valn. & is fair and reas. in the circs - she is happy to rely on it. 78 Under the file note headed "General" the following appears: - v. is binding herself to a price now - she understands. The value may also go down. - what does Co. do & what are its assets? - she doesn't know - v. shd. speak to her acct will she be liable for C.G.T. - not necessary - I don't know if valn is appropriate Does V. want me to check it out? - not necessary she is happy with $1.7m - clarify V's understanding of reason behind the agmt - to try to avoid dealing with 1st wife after Sir P's death - what if P can't pay the pchse price at the time - Sir P has a lot of assets and she is determined to get her fair share. She was more wealthy than him when they married & has helped him to get where he is. - shd. we explore a better way to do this e.g: Put & Call Options - she is not interested - Valn. suggests Vs shares only worth $100 or less - she is happy with $1.7 m 79 The cross examination of Mr Moss was as follows: Q Now, could you then go, I think it is in your file above that, to your file note which is headed Share Sale Agreement (p. 12)? A Yes. Q This part of the note has the clause numbers in the left hand margin, and was this something that you wrote down before your meeting? A Yes Q …what do the asterisks next to the recitals at 5.1 indicate? A Another practice of mine is that when I am going through a document, if there are points that I do want to specifically refer to or note I put an asterisk… Q So against 5.1. you have got two asterisks? A Yes. Q Does that indicate that was something of singular significance that you needed to discuss? A Yes. Q Then if you would go across the page turn to the part of the document entitled "General"? A Yes. Q And that document is in blue and black? A Correct. Q Signifying your communication to the client and the client's response respectively? A Yes. …… Q And during the course of your conference then you further then went to the last two dash points? A Correct. Q And this is a document which was created, was it, during the course of the conference? A Part of it was created during the course of the conference. The parts in blue were created during the course of the conference. Q And they represent the responses you have said to the parts of the documents which are in black? A Yes. (Tr. 97 - 98) 80 It is from this evidence that the defendant submitted that the Court would be satisfied that Mr Moss had informed the plaintiff that the valuation suggested that her shares were only worth $100. It was not suggested to Mr Moss that although he had said in his affidavit evidence that he could not recall raising it directly in that form with the plaintiff, that in the circumstances it was probable that he did. The defendant submitted that the last three questions and answers qualify Mr Moss' claim that he could not recall it and that it was not necessary to go any further in cross examination. 81 Mr Moss also made the following file note on the day of the conference with the plaintiff: Lady Abeles came in - discussed position generally - this Agmt. came about b/c of something she wanted. After Sir Peter dies she doesn't want to have any involvement at all with his family from his first wife. She knows this Agmt won't guarantee that but it may help at least as regards this Co. - she was surprised to learn Sir P. still has shares in the Co. b/c she was told he had sold them. She will check with John. - she thinks she is a shareholder in P.A. (Holds) P/L - her rel'ship with Sir P. is not good & he doesn't tell her anything. John Landerer is very good to her and keeps her informed. J. is the Eor. of Sir P's est. & she has told him that if she doesn't get what she is entitled to she will challenge the will. She sd J is supportive of her. 82 The plaintiff signed the Agreement on the day of the conference with Mr Moss. However, it is obvious from the file (Ex. B1) that Mr Moss was to retain the signed document until the plaintiff checked certain things with Mr Landerer. The file note above refers to the plaintiff's surprise to learn that the deceased still had shares in Miro because she had been informed that he had sold them. It seems that she was to check with Mr Landerer about that matter and perhaps also check whether she was a shareholder of the defendant. 83 On 22 April 1998 Mr Moss had a telephone consultation with the plaintiff, the file note of which states: 5.25 rang Lady Abeles - she has spoken to Sir Peter and to John & is happy for me to send back the signed doc. - she is glad she looked into things b/c the position has been made clearer - she wants me to ring John to say the doc. is coming back b/c John is going o/seas on 6th May - I shd. send my a/c to her c/o the office at 100 William Street. 84 The plaintiff gave oral evidence of her conversation with the deceased after she saw Mr Moss. She said that she asked the deceased whether "everything is in order" and the deceased informed her "Don't worry. It has to come from something. If it doesn't come from one company it comes from another company" and "It doesn't matter from which company, but don't worry, they have to pay you out. You will get the money"(tr.79-80). 85 The plaintiff gave evidence that she understood that the deceased had "many companies" and that she did not understand what the companies, in particular Miro and the defendant, did. She agreed that she had heard of Abelex but did not know the identity of the shareholders. The plaintiff was cross-examined in relation to her understanding of the deceased's motivation as follows: Q. Now, you did understand, I take it, that Sir Peter was doing what he was doing with respect to this transaction to benefit you? A. No Q. Well who was he doing it to benefit? A. Well, who I don't know. Maybe some others benefited through this, I don't know. Q. But did you understand that he was doing it to benefit you, amongst others? A. No, I didn' really understand it to benefit me. I never expected it anyhow. Q. Yes, but once it was being done? A. It was done. Q. You understood he was doing it for your benefit? A. No. Q. Did you not? A. No. Q. You felt that you were entitled to be given your fair share of his plentiful assets? A. Not quite like that. I understood that I, as I told you, I was absolutely convinced that it was only right that I get a little bit of money because he owed me much more money. Q. And Sir Peter was doing this to give you the benefit of getting this money, was he not? A. No. Q. Why was he doing it then on your understanding? A. That you must know, Mr Hammerschlag. Q. Do you tell her Honour that you have no understanding as to why Sir Peter was acting in this way? A. I don't know if it was his idea at all. (tr. 85) 86 To establish that the plaintiff was knowingly concerned, in or was an intentional participant, in the deceased's breach the defendant bears the onus of proving that the plaintiff had knowledge of the essential facts constituting the breach. The plaintiff has to be shown to have been an intentional participant, the necessary intent being based upon such knowledge: Yorke & Anor v Lucas (1985) 158 CLR 661 at 670. 87 In Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd & Ors (1987) 78 ALR 193 at 239 Gummow J referred to three categories of knowledge. They are (a) actual knowledge, (b) wilful shutting of the eyes to the obvious, and (c) knowledge of circumstances which would indicate the facts to an honest and reasonable person, even if the moral obtuseness of the alleged participant prevented that person from recognising the impropriety involved. 88 Gummow J said that category (c) is drawn from what was said by Gibbs and Stephen JJ in Consul Development Pty Ltd v D.P.C Estates Pty Ltd (1975) 132 CLR 373. Gibbs J, as his Honour then was, said at 398: …it does not seem to me to be necessary to prove that a stranger who participated in the breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his moral obtuseness prevented him from recognising an impropriety that would have been apparent to an ordinary man. Stephen J said at p 413: In my view the law, as it now stands, did not require Clowes to make any further inquiry once he believed that the Walton Group was not in the market for the properties here in question. He had been told this by Grey and his own knowledge of the Group's financial situation, confirmed by his inquiries, supported the apparent truth of Grey's statement. In this situation a reasonable, honest man, would not, in my view, have had knowledge of circumstances telling of breach of fiduciary duty by Grey. This being the furthest extent to which any possible doctrine of constructive notice may go in such a case it follows that the doctrine, even if applicable, cannot impute to Consul the knowledge necessary to render it liable to the plaintiff. 89 The statement by Gibbs J that the stranger did not have to "actually" know what he was doing was improper does not mean that the "ordinary" or "reasonable and honest" person is not required to have such recognition. That statement and its context, together with the categorisation by Gummow J, in my view confirms the necessity of the proof of such knowledge and if a reasonable, honest or ordinary person would form the view on the facts available that the transaction in which the person was participating or concerned was improper then such knowledge is imputed to that person. 90 With reference to these authorities and also to Catt & Ors v Marac Australia (1987) 9 NSWLR 639 at 655 Mr Hammerschlag submitted that in respect of the claim that the plaintiff knowingly participated in the deceased's breach within the common law principles, the defendant has the onus of establishing that the plaintiff was aware of the facts which constituted the breach and recognised that the facts had the character of a breach of duty. 91 In respect of the claim that the plaintiff was knowingly concerned in the deceased's breach within the meaning of ss. 79 and 1324 of the Corporations Law Mr Hammerschlag submitted that the defendant has the onus of establishing the plaintiff had knowledge of the acts constituting the contravention of s 232(6) and of the circumstances which gave those acts the character defined by the sub-section, that is the character of impropriety in the use of the office to confer a benefit. 92 Although Mr White SC submitted that on the approach adopted by the defendant it was actual knowledge that the defendant had to establish, I intend to deal with the matter on both a claim of actual knowledge and imputed knowledge. 93 The essential facts of which the plaintiff had knowledge, about which there is no issue, include the fact that the transaction involved the defendant agreeing to purchase the plaintiff's shares and the fact that the deceased, as a director of the defendant, caused the defendant to agree to purchase the plaintiff's shares. This is so notwithstanding the plaintiff's evidence that she was not sure if it was the deceased's idea. 94 There also seems to be no issue that the plaintiff knew that the deceased wanted to ensure payment to the plaintiff for her shares in Miro in circumstances which would avoid disputation between the plaintiff and the deceased's first wife. 95 What is really in issue between the parties is whether the plaintiff knew or should have known that the deceased had used his position "improperly" to confer a benefit on the plaintiff or in causing the defendant to enter into the Agreement. 96 Mr Hammerschlag highlighted a number of matters in the plaintiff's evidence upon which the defendant relied in support of its submission that the plaintiff is an unreliable witness. It is the case that the plaintiff's evidence was unsatisfactory in some respects including the controversy in relation to the source of the content of the plaintiff's second affidavit and denials that she had said things in affidavits when she clearly had said them, for instance, the reference to insult (tr 41.6) and speaking to her accountant (tr.65). 97 There is no doubt that the plaintiff manifested an apparent desire to irritate the cross examiner and at times appeared to be refusing to focus on the questions because she felt it was beneath her dignity (tr.74). I intend to take all of these matters into account in weighing up the evidence of the plaintiff in respect of the important issue of whether the defendant has proved the plaintiff had the requisite knowledge 98 The facts as I see them include the following: · although in the earlier years of their marriage the plaintiff and the deceased may have had general discussions about business matters, in the latter years the deceased did not keep the plaintiff informed about his business affairs; · in about the early 1980s the deceased told the plaintiff that he was going to make a company for her called Miro and that it would be hers; · the plaintiff did not keep abreast of the business of Miro and did not know what the business of Miro was; · the plaintiff did not have a good relationship with the deceased's children of his first marriage and did not have any relationship with Ms Dan; · at some stage somebody had informed the plaintiff that the deceased had sold his shares in Miro; · the deceased was diagnosed with a terminal disease in late 1997 and the plaintiff became aware of this diagnosis at that time; · the plaintiff was of the view in 1998 that her relationship with the deceased was "not good"; · the plaintiff expressed concern to Mr Landerer that she needed enough money to live and if she did not receive enough she would challenge the deceased's will; · the plaintiff relied upon Mr Landerer to find things out as the deceased did not tell her anything; · it was Mr Landerer who promoted the transaction to the plaintiff when he told her that he had "found" some shares for which he, Mr Landerer, could "get $1.7 million" for her; · Mr Landerer advised that independent legal advice should be taken from Mr Moss and the plaintiff agreed to take such legal advice. 99 Some emphasis was placed upon the plaintiff's conversation with Mr Landerer to submit that it is obvious that the plaintiff would have understood there was impropriety in the deceased procuring the Agreement. The focus of this submission was on the break up suggested by Mr Landerer that $1 million would be paid by the defendant and $700,000 would come from Miro. 100 The plaintiff said she did not really understand this statement but understood that she would receive $1.7 million for the sale of her shares. I am not persuaded that this conversation leads to the conclusion for which the defendant contends, however I am satisfied that it needs to be looked at in the context of what, if anything, the plaintiff was told about the value of her shares in conference with Mr Moss. 101 Although the defendant may not regard the communication of the possible value of the shares at $100 by Mr Moss to the plaintiff as an essential part of its case, I am of the view that it is an important aspect in assessing whether the plaintiff knew of any impropriety or that such knowledge can be imputed to the plaintiff in the circumstances of this case. 102 If I am satisfied that the plaintiff was told that the shares were only worth $100 then it seems to me, from the plaintiff's evidence, that she would have understood that there was impropriety in the transaction. Indeed the plaintiff put it as high as involving some criminality. 103 Mr Moss gave evidence that nothing in the communication on the telephone with Mr Landerer when he was approached to accept the instructions, alerted him to the possibility that the plaintiff may be receiving an "unduly favourable deal". It seems to me that Mr Moss' focus was on the danger of the plaintiff agreeing to a price which may be unfavourable to her, in that the value of the shares may increase between the time of the signing of the Agreement and a period within nine months of the deceased's death. 104 I am not of the view that the cross examination defeats or qualifies Mr Moss' claim that he did not know whether he made the observation that the valuation suggested the shares were worth $100 or less to the plaintiff directly. It is understandable that the defendant's cross examination of Mr Moss in the circumstances of this case was delicate, however I am of the view that it was necessary to challenge him further to establish on the balance of probabilities that he did say it. This is particularly so having regard to the contents of the letter Mr Moss wrote to the plaintiff in September 1998 in which he set out his "reservations" about the transaction. There is no mention of a $100 value in that letter. 105 Mr Moss impressed me as a careful and honest witness. I am satisfied that he would not have raised the doubt about the communication unless he honestly believed that he may not have raised that matter with the plaintiff directly. I have no doubt that Mr Moss went through the valuation with the plaintiff in terms of it being the document which the parties acknowledged having read and were satisfied that the price was fair and reasonable in the circumstances. 106 There is also no doubt the plaintiff and Mr Moss had a discussion about the valuation and it is agreed between them on their evidence that Mr Moss asked the plaintiff whether she wanted him to check it out and she declined such offer. It is also beyond doubt that both the plaintiff and Mr Moss were of the view that they did not know whether the valuation was based on sound accounting principles. However the thrust of the discussion was that the plaintiff was happy with $1.7 million. 107 There was reference within the valuation to both Miro and Boulevarde. On the evidence before me I am satisfied that the plaintiff did not know the nature of the business activities of Miro and that she informed Mr Moss of that fact. Mr Moss did not ask the plaintiff any questions about Boulevarde, but I am satisfied on the evidence that it is probable that if the plaintiff did not know about the business of Miro the same position would pertain in respect of Boulevarde. 108 Another important feature of the evidence is the recording of the plaintiff's attitude to the Agreement and Mr Moss's file note of 16 April 1998. Mr Moss recorded that the plaintiff knew that the Agreement would not guarantee that she did not have an involvement with the plaintiff's first wife after the deceased's demise. However the plaintiff apparently informed Mr Moss that the Agreement "may help at least as regards" Miro. 109 I am not satisfied that the plaintiff was informed or alerted to any facts upon which she should have been concerned that her shares were worth only $100. A concern was raised by Mr Moss in conference as to what might happen if the defendant was unable to pay at the $1.7 million at the required time under the Agreement. Far from shutting her eyes, the plaintiff approached both Mr Landerer and the deceased after her conference with Mr Moss. She asked the deceased if everything was in order. She was informed that she should not worry about it and that she would be paid the $1.7 million. It was after this conversation that she instructed Mr Moss to return the signed agreement to Mr Landerer. 110 It must be remembered that the deceased's statement that the price was "inflated" and the purchase of the plaintiff's shares by the defendant was part of the process by which the deceased made "ample provision" for the plaintiff, was in a Will, the contents of which have not been proved to have been known by the plaintiff in April 1998. The two Wills that are in evidence which contain the statements both postdate the Agreement. 111 The plaintiff said that she trusted both Mr Landerer and Mr Moss. This transaction was effectively promoted by Mr Landerer in a conversation which has not been denied by Mr Landerer. The apparent complexity of the structure of and relationships between the deceased's companies, the deceased's business acumen, the deceased's habit of keeping business matters to himself and the circumstances in which this transaction came about, with the involvement of Mr Landerer and Mr Moss, would in my view not alert the plaintiff and would not justify imputing such alertness to the likelihood of impropriety. 112 I am not satisfied that the plaintiff knew, or that such knowledge should be imputed to the plaintiff, that the deceased was improperly exercising his function as a director or that he was acting improperly. 113 In these circumstances the defendant's cross claim must fail. Although the cross claim originally included a claim against the deceased's estate, that case was not litigated before me. I intend to make the declarations and orders sought by the plaintiff and counsel should bring in Short Minutes of Order to reflect that intention together with an agreed order as to costs. If a costs order is not agreed I will hear argument when the matter is listed for the entry of the Orders. ******************** ******************** Last Modified: 01/03/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.