TREACEY v FERDINANDS [2002] NSWSC 31

New South Wales Supreme Court

CITATION : TREACEY v FERDINANDS [2002] NSWSC 31 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 2753/99 HEARING DATE(S) : 29/01/02 JUDGMENT DATE : 12 February 2002

Edward Francis Treacey - First Plaintiff Edward F Treacey & Assoc. Pty Ltd - Second Plaintiff PARTIES : Douglas Ferdinands - First Defendant Henryk Dabrowski - Second Defendant Kerry Gerard Meehan - Third Defendant Mercantile Systems Pty Ltd - Fourth Defendant JUDGMENT OF : Bryson J at 1

COUNSEL : R. McKeand - Plaintiffs D.A. Smallbone - Defendants SOLICITORS : Warren McKeon Dickson - Plaintiff English Kearns - Defendants CATCHWORDS : CONTRACT - interpretation - construction of document - whether agreement to buy shares was made by Defendants 1, 2 and 3 as principals or as agents for unnamed parties. CASES CITED : No cases cited. DECISION : I answer the separate question: Yes, the first and second and third defendants were so obliged.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J. TUESDAY 12 FEBRUARY 2002 2753/99 EDWARD FRANCIS TREACEY & ANOR v. DOUGLAS FERDINANDS & ORS JUDGMENT 1 HIS HONOUR: In these proceedings commenced by Statement of Claim on 17 June 1999 the plaintiffs' claims include a claim for a declaration to the effect that the first, second and third defendants Mr Ferdinands, Mr Dabrowski and Mr Meehan are liable to pay to the plaintiffs the sum of $130,000 together with interest thereon pursuant to an agreement referred to in the Statement of Claim. There are other claims, and claims for consequential relief. The agreement relates to shares and notes in Mercantile Systems Pty Ltd the fourth defendant. By an agreement made on 16 January 1997 (Exhibit 1) for the sale of shares the vendors Mr Peters and Mr Jones, who until that time owned the issued shares in Mercantile Systems, agreed to sell the shares (namely two $1 shares) to four purchasers which were (to use a neutral term) entities associated with each of Mr Treacey the first plaintiff, Mr Ferdinands, Mr Dabrowski and Mr Meehan. The purchasers were Sabenza Pty Ltd, Edward F. Treacey & Associates Pty Ltd (which is the second plaintiff) Douglas Ferdinands & Associates Superannuation Fund Investment Trust (which is a trust of which the trustees were and are Mr Ferdinands and his wife Mrs Carmel Agnes Ferdinands) and Greta Point International Pty Ltd. 2 An associated transaction was an agreement dated 29 January 1997 for the sale to Mercantile Systems of computer software referred to as the Source Code owned by Mr Peters and Mr Jones and developed by them. Mercantile Systems incurred obligations in respect of the sale which Mr Treacey, Mr Dabrowski and Mr Meehan, who were parties to that agreement, agreed to guarantee. 3 Mercantile Systems obtained a loan facility of $500,000 from Bank of Western Australia Limited; the loan facility comprised a cash advance of $450,000 and a $50,000 overdraft for the purpose of Mercantile Systems acquiring interests related to the Source Code and for working capital. By a guarantee and indemnity in a Deed dated 29 January 1997 Mr Treacey, Mr Dabrowski and Mr Meehan guaranteed the liabilities of Mercantile Systems to the bank; and so did two other persons Mr Timothy David May and Mrs Penelope Hastings May his wife. 4 By shareholders' agreement made (on a day which does not appear) in March 1997 arrangements were made regulating directorship and shareholding in Mercantile Systems. The shareholders' agreement established beneficial entitlements to issued shares in Mercantile Systems by a table in cl.4.1 which set out the proportions of beneficial interest; Sabenza held 43.86%, the trust of which Mr and Mrs Ferdinands were trustees held 21.93%, Greta Point International Pty Ltd Superannuation Fund (and not that company itself, which was a party to the agreement of 16 January 1997) held 11.4% and the second plaintiff held 22.81%. Mr and Mrs May did not hold a beneficial interest although there were provisions in the shareholders' agreement for them to apply for an allotment; so far as appears they did not apply, or did not become shareholders at any relevant time. The shareholders' agreement provided to the effect that there were to be five directors, each shareholder was to be entitled to appoint one director and the first Board was to comprise Mr Ferdinands, Mr Dabrowski, Mr Meehan, Mr May and Mr Treacey. At meetings of the Board a director who was a nominee of the shareholder was to be entitled to exercise a number of votes proportional to the shareholding of the nominating shareholder. 5 It will be seen that Mr Treacey the first plaintiff was not a shareholder and was not a party to the shareholders' agreement. Mr Ferdinands, who is the first defendant, was a party to the shareholders' agreement in that he was one of the two trustees of Douglas Ferdinands & Associates Superannuation Funds Investment Trust, although he was not referred to by name in the shareholders' agreement as a party. Greta Point International Pty Ltd Superannuation Fund was also a party; there was provision for the trustees of that superannuation fund to execute the shareholders' agreement, although the evidence does not identify who those trustees were. So on 16 June 1997 Mr Treacey was a director of Mercantile Systems, but he did not have a beneficial interest or another interest in the shareholding, while Edward F. Treacey & Associates Pty Ltd the second plaintiff did have a beneficial interest in the shareholding. Mr Treacey did not own unsecured notes in the company, and Edward F. Treacey & Associates did. 6 The agreement which is alleged to give rise to the obligations sued on is an agreement in writing found in two letters, a letter dated 16 June 1997 at pp84-86 of Mr Treacey's affidavit of 23 December 1999, and a letter dated 17 June 1997 at p.87 of that Affidavit. The issue determined by this judgment turns upon the meaning and the effect of the agreement in those letters, and does not involve any question of general principle. After pleadings and a complex interlocutory course the Court (Windeyer J) on 28 November 2001 made an order for decision of a question separately from all other questions and before further trial of the proceedings. That question is now before me and it is in these terms: Whether, upon the true construction of the agreement comprised in or evidenced by the letters dated 16 June, 1997 and 17 June 1997, being the letters referred to in the particulars of para 5 of the Statement of Claim, in the relevant circumstances, in which the agreement was made, the first, second and third defendants were obliged to pay $150,000 to the plaintiff or either or them for the transfer of the second plaintiff's shares and unsecured note holdings in the fourth defendant, to such person or persons as the first to third defendants may have directed. 7 The order for the separate question went on to provide for entry of judgment if the question is answered in the affirmative and for the effect of any decision on pursuit of other claims; and on the outcome if the question is answered in the negative. 8 A payment of $20,000, particulars of which are not presently important, explains why the separate question relates to an obligation to pay $150,000 but the plaintiffs' claim is a claim for $130,000. There are no questions or issues relating to matters of detail of the performance or manner of performance of the transfer of the shares and notes; the transfers can be taken to have taken place in a manner which does not give rise to contention, and the substance of the separate question is whether the promise to pay $150,000 was made by Mr Ferdinands, Mr Dabrowski and Mr Meehan as principals, or whether in making contractual promises in the agreement in the letters they did so as agents for other persons and not so as to bind themselves. 9 The letter of 16 June 1997 is on printed letterhead of a firm called Douglas Ferdinands & Associates, Banking and Finance Advisory Services. According to the letterhead that entity was incorporated in New South Wales. There has been no contention and no basis for a contention that that entity was a party to the agreement. The letter of 17 June 1997 is on the letterhead of Mercantile Systems Pty Ltd. Again there was no contention that the letter was written on behalf of Mercantile Systems or that it became contractually bound thereby, and on the terms of all the arrangements in the letters such a contention would have no basis but would be absurd. The connection between the letterheads and the contents of the letters is fortuitous. 10 There are some particular terms of the letter of 16 June 1997 to which I should give emphasis, while at the same time directing myself that the whole terms of both letters are under consideration and that no part can be disregarded. The letter of 16 June 1997 is addressed to Mr Treacey, and his address is given in care of Mercantile Systems. It is not addressed to the second plaintiff Edward F. Treacey & Associates Pty Ltd. Its opening sentences are: This is to advise you that Kerry, Ryk and I seek your resignation as Managing Director of the Mercantile Systems Pty Ltd and its wholly owned subsidiaries.