New South Wales Supreme Court CITATION : Georges & anor v Peter Wieland & ors [2009] NSWSC 733 HEARING DATE(S) : 15-18 June 2009 JURISDICTION : Equity Division JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 18 June 2009 DECISION : Order that agreement for sale of shares and loan agreement be specifically performed – Order that the defendants pay the plaintiffs' costs on an indemnity basis CATCHWORDS : EQUITY – application for specific performance for contract for sale of shares and loan agreement – where contract has been part performed – where defendants have failed to pay all moneys under contract to plaintiff – where plaintiff has accordingly not transferred shares in company to the defendant – where plaintiff seeks specific performance – where shares in company have since been devalued by actions of defendant while company was under defendant's control – where it would not be possible to find an alternative purchaser for the shares – where there is difficulty in calculating damages arising from defendant's actions – where loan was for special purpose of paying plaintiff – Quistclose trust – whether loan agreement should be specifically performed LEGISLATION CITED : (CTH) Trade Practices Act 1974 CATEGORY : Principal judgment Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, [1968] 3 All ER 651 Beswick v Beswick [1968] AC 58, [1967] 2 All ER 1197 Hart v Hart (1881) 18 Ch D 670 CASES CITED : McManus RE Pty Ltd v Ward [2009] NSWSC 440 Milliangos v George Frank (Textiles) Ltd [1976] AC 443, [1975] 3 All ER 801 Turner Ltd v Bladin (1951) 82 CLR 463 Twinsectra Ltd v Yardley [2002] All ER (D) 321 (Mar), [2002] 2 AC 164 Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 Richard Georges (first plaintiff) Parra Power Tools Pty Ltd (second plaintiff) Peter Wieland (first defendant) PARTIES : Kristie Wieland (second defendant) Parramatta Tools Pty Ltd (third defendant) P R Wieland Investments Pty Ltd (fourth defendant) Grintara Pty Ltd (fifth defendant) Martin John Green (in his capacity as receiver of Parra Tools P/L) FILE NUMBER(S) : SC 2356/08 COUNSEL : Mr R McKeand SC (Ps) Mr M B Holmes (D1,2,4,5) Simon Diab & Associates (Ps) SOLICITORS : Duncan Cotterill (D1,2,4,5) Polczynski Lawyers (D3) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Thursday 18 June 2009 2356/08 Richard Georges & Anor v Peter Wieland & 5 Ors JUDGMENT (ex tempore) 1 HIS HONOUR: On 11 March 2005, contracts for the sale of the business of Parra Power Tools ("the Business") – compromising a cash register, computers, desks, a telephone system, a sales counter, a Toyota Rav 4 motor vehicle, and stock, shelving, lighting and goodwill – were exchanged between Ross Barbaro as vendor and the first plaintiff Richard Anthony Georges as named purchaser, with the date for completion specified as 42 days after exchange, namely 22 April 2005. On 21 April 2005, ACN 113 923 372 Pty Limited ("the Company") was incorporated, with Mr Georges as its sole shareholder. On or about 22 April 2005, Mr Georges became the lessee of the premises at 221 Parramatta Road, Granville, from which the Business was conducted. The purchase of the Business was completed on the same day, and a Deed of Assignment of Goodwill purported to vest the goodwill in Mr Georges as purchaser. 2 Also on 22 April 2005, however, Mr Georges entered into a loan agreement with the Company – in which its name was shown as Parra Power Tools Pty Limited – by which the Company acknowledged a loan from Mr Georges in the sum of $450,000, "being moneys received to purchase the goodwill, equipment and stock in the business Parra Power Tools". The loan agreement provided for payment of what appears to be interest of $3,000 per month until the principal was repaid (which equates to 8 percent per annum); repayment of the principal within 36 months, that is to say, by 22 April 2008; and also for an additional payment if the principal was repaid sooner than one month after the loan advance, which in the events that transpired is not relevant. Also on 22 April 2005 there were resolutions of the Company, signed by Mr Georges as Chairman and sole director, to open a bank account for the Company and giving Mr Georges certain authorities in connection with it. A further minute of the same date records a resolution that the trading address of the Company would be 221 Parramatta Road, Granville, and that Mr Georges, being the lessee in possession of the premises and sole director of the Company, granted the Company permission to use the premises as its registered office and trading premises until 21 April 2008, was indemnified by the Company for any moneys paid under the lease, and undertook to do all things necessary to enable transfer of the lease into the name of the Company. 3 An ASIC Business Name Extract records that the owner of the Business was changed to the Company on 25 April 2005. With effect from 27 June 2005, according to the ASIC register, the name of the Company was changed to Parramatta Power Tools Pty Limited. The accounts of the Company for the financial years ending 30 June 2005 and 30 June 2006 reflect its ownership of the Business and its assets, and bring to account the trading results of the Business. 4 By a Share Sale Agreement dated 19 September 2005, Mr Georges agreed to sell to the fifth defendant Grintara Pty Ltd all the shares in the Company for $150,000, payable as to $37,500 by deposit on signature of the contract, when three shares were to be transferred, and as to the balance on completion, when the remaining nine shares in the Company were to be transferred. Although the fourth defendant P R Wieland Investments Pty Limited was a party to the Share Sale Agreement and is described in it as "nominee", it did not assume any rights or obligations under the Agreement. The Share Sale Agreement provided that, upon signing, Mr Georges as vendor would deliver to Grintara as purchaser minutes to the effect that the second defendant Kristie Gaye Wieland would be appointed a director of the Company; that the Company would install a point of sale system with a bar code scanner; that Mr Brad Hawkins (an accountant who acted for Mr and Mrs Wieland) would be appointed accountant for the Company; and that the Company would take the necessary action to obtain a transfer of the lease, or to enter into a sub-lease or new lease, in respect of the premises at 221 Parramatta Road. Completion of the Share Sale Agreement was to take place on 22 April 2006, whereupon Mr Georges was to resign as a director. The Agreement contained a number of "seller warranties", which the vendor warranted to be true and correct as at the date of the Agreement and as at completion, including, relevantly, that all assets disclosed in the accounts and appearing in the records of the Company were legally and beneficially owned and held by the Company in its absolute right title and interest, and that the Company was the legal and beneficial owner or lessee of the motor vehicles and plant and equipment in use by the Company. 5 Also on or about 19 September 2005, two loan agreements were made to which the Company was a party. The first was between the Company as borrower and Grintara as lender, and recited that Grintara had agreed to advance to the Company $250,000 by way of loan advance, in consideration of the Company repaying the total sum with interest. Clause 1 provided: 1. ADVANCE (1) The sum of two hundred and fifty thousand dollars ($250,000) is hereby advanced by the lender to the borrower (the receipt whereof the Borrower hereby acknowledges). (2) Upon receiving the money advance in 1.1 above the borrower will discharge its loans as follows; 1. John Sommerville $50,000.00; 2. Kenneth Sommerville $100,000.00; 3. Richard Georges $100,000.00 being part payment of loan. 6 John and Kenneth Sommerville had made advances in anticipation of acquiring an interest in the Company, which arrangements were superseded by the Share Sale Agreement. The Agreement provided for repayment by principal repayments of $1,500 per week, commencing one week after the advance until the principal was repaid, together with a further $6,000 in interest. It further provided that the principal and interest must be repaid in full within 40 months of the date of the loan advance. 7 The second loan agreement was between the Company as borrower and Grintara and PRWI as lenders. It recited an agreement to advance a total of $350,000, and relevantly provided as follows: 1. ADVANCE (1) The sum of three hundred and fifty thousand Dollars ($350,000) will be advanced by the lender to the borrower on 24th April 2006 (the receipt whereof the Borrower will acknowledge in writing). (2) Upon receiving the money advance in 1.1 above the borrower will discharge its loans as follows: 1. Richard Georges $350,000.00. 2. REPAYMENT The Borrower shall repay the Lender as follows: (1) Three thousand Dollars ($3,000.00) per week in principle repayments commencing one calendar week after the loan advance until the principal is repaid and a further six thousand dollars ($6,000.00) in interest. (2) Notwithstanding, clause 2(1) above, if the Borrower repays the Principal to the Lender sooner than three years after the loan advance, the Borrower shall pay the Lender, in addition to the Principal repayment, a total of six thousand dollars ($6,000.00) in interest. (2) (sic) Notwithstanding any other covenants under this agreement, the Borrower must repay the Principal to the Lender within 40 months of the date of the loan advance along with $6000.00 in interest. 3. REGISTERED CHARGE The Borrower hereby grants a fixed and floating charge over all the assets of the company and undertakes to complete the necessary forms to be lodged with the Australian Securities and Investments Commission. 8 Neither the Grintara Loan Agreement nor the Grintara/PRWI Loan Agreement contained any ancillary rights in respect of the charges they purported to create. 9 In conformity with the Grintara Loan Agreement, on 12 September 2005, Grintara paid $250,000 to the Company, which was deposited in the Company's bank account. On 14 September, $100,000 was paid out to Kenneth Sommerville, and $50,000 was paid out to John Sommerville. Between then and December other transactions took place on the account, but the balance of the account always remained several thousand dollars above $100,000 until, on 15 December 2005, $100,000 was paid out to Mr Georges. However, the deposit of $37,500 under the Share Sale Agreement was not paid on 19 September 2005 or, for that matter, at all. 10 On 3 April 2006, in apparent part performance of the obligations of the lenders under the Grintara/PRWI Loan Agreement, PRWI paid $250,000 to the Company, which was deposited in the Company's account; that amount was paid out to Mr Georges on 6 April 2006, contemporaneously with the appointment of Kristie Wieland as a director of the Company and Mr Hawkins commenced acting as accountant for the Company. As had always been contemplated, Mr Georges left the business to take a vacation. However, the Share Sale Agreement was not completed on 22 April – in the sense that the balance purchase money was not paid, and the shares were not transferred. Nonetheless, on 16 May 2006, the first defendant Peter Wieland was appointed a director of the Company and thereafter acted as such. Thereafter, the Wielands had practical control of the Company and the Business, although Mr Georges remained the sole registered shareholder and, nominally at least, a director. 11 The lenders had advanced $500,000 of the $600,000 that they were obliged to advance under the two loan agreements, and the Company had repaid to Mr Georges $350,000 of the $450,000 that he had been owed on his loan account. However, $100,000 remained outstanding on his loan account, and the purchase price under the Share Sale Agreement of $150,000 also remained unpaid. Over the ensuing twelve months from May 2006 numerous conversations took place between the parties in respect of payment of the purchase price under the Share Sale Agreement and the remaining $100,000 of Mr Georges' loan account. It is unnecessary for the purposes of this judgment to recite those conversations or their outcomes, suffice to say that Mr Georges remains unpaid in both respects. 12 On 1 May 2007, apparently following a decision to relocate the Business from premises at Granville to new premises at Parramatta, the Wielands caused the Company to enter into a sub-lease from Repco of premises at 5/85-93 Victoria Road, Parramatta. During May 2007, the Wielands caused the stock, fittings and fixtures of the Business to be transferred to the Victoria Road premises, and the telephone number also to be transferred. The Victoria Road premises were fitted out in a get up similar to that of the premises that the Company had occupied at Granville. 13 On 8 May 2007, the Wielands had a meeting with their solicitor, Mr Scott, at which a number of decisions were made so far as the future course of the Business was concerned. Time for registration of the charges contained in the two loan agreements had expired. A deed of fixed and floating charge with Grintara and PRWI was executed by the Company, by its then officers Mr and Mrs Wieland. It was envisaged that this charge would lead, in due course, to the appointment of a receiver to the Company. The Business was transferred to a new company which was incorporated on 29 May 2007 as Parramatta Tools Pty Limited, of which the Wielands to the exclusion of Mr Georges, were the shareholders. It was decided also to procure the transfer of the lease of the Victoria Road premises from the Company to the new company Parramatta Tools, and that the Wielands would extricate themselves from any responsibility in connection with the Company by resigning as directors of it. 14 As I have said, Parramatta Tools was incorporated on 29 May 2007. Between that date and 14 June 2007, the practical transfer of the Business of the Company to the new company was achieved. Mr and Mrs Wieland resigned as directors of the Company on 11 July 2007, having caused its sub-lease of the Victoria Road premises to be surrendered; the sub-lease was renewed, in favour of the new company, on 1 August 2007. 15 On 20 December 2007, Grintara, exercising its rights under the Deed of Charge, appointed a receiver to the company. Following the resignation of the Wielands as directors, Mr Georges was the sole remaining director. As such, on 19 April 2008 he adopted a resolution to rescind the fixed and floating charge. On 21 April 2008, Mr Barbaro sued Mr Georges for $100,000 rent arrears under the lease of the previous Granville premises; that claim remains unresolved. The new company Parramatta Tools was wound up on 29 August 2008. The receiver of the Company retired on 25 May 2009, and Mr Georges has resumed control of it. 16 In these proceedings, three main issues arise. The first is Mr Georges' application for enforcement of the Share Sale Agreement, in respect of which the purchase price remains unpaid and the shares remain untransferred. The second is the application of the Company, now under Mr Georges's control, for enforcement of the Grintara/PRWI Loan Agreement to the extent it remains unperformed, namely, the advance of the outstanding $100,000. The third is cross-claims by Grintara and PRWI, for repayment of the moneys they have advanced under the two loan agreements. Enforcement of the Share Sale Agreement 17 The defendants admit the Share Sale Agreement; do not dispute its terms; admit that Grintara is in breach by failing to pay the deposit or the balance purchase price, but pleaded, at least until today, that they ought not be held liable on the footing that the Share Sale Agreement should be declared void ab initio pursuant to (CTH) Trade Practices Act 1974, s 87 by reason of an alleged misrepresentation that the Business was the legal and beneficial property of the Company, when – so it was alleged – it was never transferred to the Company but vested in Mr Georges personally. That was the only defence mounted to the claim for enforcement of the Share Sale Agreement. No other substantive or discretionary defence to the claim for specific performance has been advanced. 18 Today, counsel for the defendants indicated that the defence under the Trade Practices Act was no longer pressed. In my view, that concession was rightly, if belatedly, made, for at least three reasons. The first is that there was no misrepresentation such as was alleged. The evidence – including in particular, but not limited to, that of Elee Georges – plainly establishes that Mr Georges intended to purchase the business on behalf of a company not yet registered, but which was registered prior to completion. The loan agreement of 22 April 2005 records that Mr Georges funded the acquisition of the Business on behalf of the Company, and the Company promised to repay him the funds he advanced. The resolutions of 22 April 2005 similarly establish that intention. The transfer of the business name on 25 April 2005, and subsequent transfer of the trademark, shows that it was the intention of Mr Georges and the Company that the Company be the beneficial owner of the Business. 19 There were at that time two relevant minds, that of Mr Georges as the nominal purchaser, and that of the Company (of which Mr Georges was coincidentally the sole director and shareholder). In both capacities Mr Georges plainly intended that the Business be owned and conducted by the Company, not by himself permanently. As I have said, the 2005 and 2006 accounts reflect the Business as an asset of the Company. The warranty given in the Share Sale Agreement corresponds with that intent. It is true that there was no formal assignment of goodwill to the Company, but no formal assignment of goodwill is necessary. 20 The second reason is that, even if there was such a misrepresentation as alleged, it could not possibly cause loss, in circumstances where the Company's entitlement to the Business was never disputed by anyone, and could only have been disputed by Mr Georges, who would plainly be estopped from doing so. No one has ever suggested that the Company was not entitled to carry on the Business for its own benefit, either before or after the sale of the shares to Grintara. The only person who could conceivably mount a claim adverse to the Company in that respect would be Mr Georges, but his involvement in the Share Sale Agreement and the obligations contained in it would plainly estop him from mounting any such argument. The manifestly clear situation is that the Company has been able to carry on the Business free from any claim by Mr Georges to its assets; indeed, after the Company, under the control of the Wielands, transferred the Business to the new company, Parramatta Tools was able to carry on the Business free from any claim by Mr Georges. There is simply no basis for supposing any loss could be or could have been occasioned to Grintara by any breach of the warranty in question, when no one has sought to assert a position inconsistent with the warranty. 21 The third reason is that there has been a fundamental change in position since the Share Sale Agreement, caused by the Wielands themselves. They have caused the Company to sell or transfer the Business to Parramatta Tools, and thus obtained for themselves the benefit of the Business, until its winding up. By procuring the transfer of the Business from the Company to Parramatta Tools, they have put beyond reach any possibility of restitution and have, in effect, adopted or acknowledged the ownership of the Business by the Company prior to its purported transfer to Parramatta Tools. 22 The proposition that the Company did not have title to the Business was untenable. The proposition that any loss was occasioned by the alleged misrepresentation was equally so. The legal entitlement to the goodwill has had absolutely no impact on the ultimate commercial or financial outcome. Accordingly, the defence was correctly abandoned, and the plaintiff is entitled to have the Share Sale Agreement enforced. 23 Though it is an agreement for sale of shares, it has not been suggested that there is any discretionary reason for not granting specific performance as a remedy. Indeed, there are many reasons why, in the context of this case, and despite being a contract for the sale of shares, it should be specifically enforced. The first is that the shares are in a proprietary company, which have since been apparently devalued by the defendants' conduct of and dealings with the Business while the Company was in their control, such that it would likely not be possible to find a replacement purchaser for those shares. The second is that, for the same reason, there would be considerable difficulty in calculating damages. The third is that there is a powerful alternative case for a remedy for oppression, since Mr Georges has been out of the Business, and an available and appropriate remedy in that event would be an order for the purchase of his shares. The fourth is that, in effect, the agreement seen as a whole was partially performed. When I say "seen as a whole", I mean to convey the context of the two loan agreements as well as the Share Sale Agreement, the combined effect of which was to extricate Mr Georges from the Company by April 2006 by paying him $150,000 for his shares and by repaying him his loan account. In part performance of this, as anticipated, practical control of the Business was given to the purchasers, whose nominees were appointed as directors; and Mr Georges departed on the vacation that had always been envisaged. Moneys were paid, pursuant to the loan agreements, being some of the consideration. 24 As Kay J said in Hart v Hart (1881) 18 Ch D 670, at 685, "when an agreement for valuable consideration between two parties has been partially performed, the Court ought to do its utmost to carry out that agreement by a decree for specific performance" [see also Beswick v Beswick [1968] AC 58; Milliangos v George Frank (Textiles) Ltd [1976] AC 443, 467; [1975] 3 All ER 801; (Lord Wilberforce); Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280, 290-291]. 25 In my view, therefore, notwithstanding that this was an agreement for the sale of shares and notwithstanding that it is effectively a vendor's suit for specific performance, it is one in which the remedy of specific performance is appropriate; the contrary has not been suggested. The Grintara/PRWI Loan Agreement 26 The starting point is that the Company remains indebted to Mr Georges on his loan account under the 22 April 2005 loan agreement between him and the Company for $100,000, and interest, effectively at 8 percent from 22 April 2008. Grintara advanced the $250,000 that it was obliged to advance under the Grintara Loan Agreement, but Grintara and PRWI advanced only $250,000 of the $350,000 that they were obliged to advance under the Grintara/PRWI Loan Agreement. Their obligation (to advance the remaining $100,000) was one owed to the Company, not to Mr Georges personally. However, as set out above, the agreement provided that, upon receipt of the funds, the Company was to apply them in repayment to Mr Georges of the debt still outstanding to him. 27 I have already averted to the circumstance that these contemporaneous transactions made on or about 19 September 2005 must be seen each in the context of the other as one whole transaction, the obvious purpose of which was to sell all of Mr Georges' interest in the Company – both as a shareholder and as a creditor – to the Wieland interests, so that the shares in the Company would be conveyed to the Wielands, and the Company would not have any outstanding interest of or obligation to Mr Georges. 28 In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, [1968] 3 All ER 651, the House of Lords affirmed that arrangements for the payment of a person's creditors by a third person, on the basis that the money advanced was to be used exclusively for that purpose, gave rise to a relationship of a fiduciary character or trust, primarily in favour of the creditors and, secondarily, if the primary trust failed, in favour of the third person. As Lord Wilberforce explained, in that context legal obligations of and relationships of creditor and debtor, and lender and borrower, could operate in parallel with and in the same transaction as equitable obligations of trustee and beneficiary: the one did not exclude the other. In particular, his Lordship rejected as "unattractive" the proposition that the arrangement, being one of loan and giving rise to a legal action of debt, necessarily excluded the implication of any trust enforceable in equity. His Lordship said at (665H): My lords, I must say that I find this argument unattractive. Let us see what it involves. It means that the law does not permit an arrangement to be made by which one person agrees to advance money to another, on terms that the money is to be used exclusively to pay debts of the latter, and if, and so far as not so used, rather than becoming a general asset of the latter available to his creditors at large, is to be returned to the lender. The lender is obliged, in such a case, because he is a lender, to accept, whatever the mutual wishes of lender and borrower may be, that the money he was willing to make available for one purpose only shall be freely available for others of the borrower's creditors for whom he has not the slightest desire to provide. I should be surprised if an argument of this kind—so conceptualist in character —had ever been accepted. In truth it has plainly been rejected by the eminent judges who from 1819 onwards have permitted arrangements of this type to be enforced, and have approved them as being for the benefit of creditors and all concerned. 29 In Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER 377 Lord Millett said (at 185): [73] A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash flow. Commercial life would be impossible if this were not the case. [74] The question in every case is whether the parties intended the money to be at the free disposal of the recipient (see Re Goldcorp Exchange Ltd (in receivership) [1994] 2 All ER 806 at 823, [1995] 1 AC 74 at 100 per Lord Mustill). His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case: A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out], the money was to be returned to [the lender]: the word "only" or "exclusively" can have no other meaning or effect. (See [1968] 3 All ER 651 at 654, [1970] AC 567 at 580.) In the Quistclose case a public quoted company in financial difficulties had declared a final dividend. Failure to pay the dividend, which had been approved by the shareholders, would cause a loss of confidence and almost certainly drive the company into liquidation. Accordingly the company arranged to borrow a sum of money 'on condition that it is used to pay the forthcoming dividend'. The money was paid into a special account at the company's bank, with which the company had an overdraft. The bank confirmed that the money would only be used for the purpose of paying the dividend due on 24 July 1964. The House held that the circumstances were sufficient to create a trust of which the bank had notice, and that when the company went into liquidation without having paid the dividend the money was repayable to the lender. 30 In McManus RE Pty Ltd v Ward [2009] NSWSC 440 Palmer J said in this respect (at [25]): In cases where no express or clearly implicit intention to create a trust is shown, such as where the parties give no actual thought to the matter, whether or not there was an intention that the subject monies be kept separate from the other general monies of the recipient is often decisive of the question whether the recipient is a trustee or merely a debtor: see, for example Henry v Hammond [1913] 2 KB 515, at 531; Walker v Corboy (1990) 19 NSWLR 382, at 397 to 398; Salvo (supra) at [38]; Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, at 505 to 506. If the borrower in Quistclose had not set up a special and separate account to receive the loan moneys in order to pay a dividend, and if the lender had paid the moneys into the borrower's overdraft account, it would have been impossible, on the other facts of the case, to deduce a common intention that the moneys were to be held on trust until the purpose of the loan was achieved. 31 In that case, where the moneys in question had been paid into a bank account which was already in existence and used by the recipient for his general purposes, his Honour was unable to find that they were held upon a trust of any kind, and concluded that the obligation to repay was merely as a debtor. 32 The cases to which I have referred establish that the key question is whether the parties intended the moneys to be at the disposal of the recipient, and that where this is not expressly addressed by the parties, the circumstance that the moneys are kept separate is often an important factor. However, none of the cases suggest that keeping the moneys separate is always a decisive factor, although it will often be influential. 33 In the present case, as I have recorded, after the first loan of $250,000 was advanced in September 2005, the first two payments out to the Sommervilles were made immediately, and the account always remained in credit by more than the remaining $100,000, until the $100,000 payable to Mr Georges was paid to him. In respect of the second loan, the $250,000 advanced was paid out almost immediately to Mr Georges. Looked at objectively, it must have been the purpose and intention of the lenders to have Mr Georges paid, in order to extricate him entirely from the Company, so that Grintara as purchaser obtained a company unencumbered by any obligation to Mr Georges; their interest was effectively as the purchasers of the shares in the company. They had no interest in providing funds generally for the benefit of the company, except in their capacity as purchasers. 34 If further evidence on this topic were required, it is to be found in the following passage in the cross-examination of Mr Wieland, who was, for all intents and purposes, the directing mind in connection with the relevant transactions of Grintara and of PRWI: Q. Then while we are on that, you will see in the subclause 2 of the paragraph under the heading "Advance", "Upon receiving the money advanced in 1.1 above the borrower will discharge its loans as follows" and it sets out three apparent loan obligations; correct? A. Yes, that's correct. Q. If we turn over to RAG11, there is a similar clause in the Grintara PRWI loan agreement, (1.2), "Upon receiving the money advanced in 1.1 above the borrower will discharge its loans as follows to Richard Georges, $350,000", is that right? A. That's correct. Q. It was anticipated, as you understood it, that that money would be paid to Parra Power Tools for the purposes of repaying the debt to Mr Georges of $350,000? A. That's correct. Q. That was to be done immediately so that Parra Power Tools was never to get the actual benefit of the money beyond repaying that loan? A. That is - it sounds correct. Q. So, as you understood it, as soon as Parra Power Tools received that money, it had an obligation by this document to pay immediately to Mr Georges? A. That's correct. 35 In that passage, Mr Wieland plainly acknowledges that the company was never to get the actual benefit of the $350,000 advance, beyond repaying Mr George's loan account, and that it had an obligation to pay it immediately to Mr Georges. 36 For all those reasons, I am satisfied that neither the $350,000 nor any part of it was to form part of the company's general assets. It was to be paid exclusively for the purpose of completing the acquisition of Mr George's interest, both as shareholder and as creditor, in the Company. Had the remaining $100,000 been paid, and were it now to be paid, it would be attended in the Company's hands by an equitable obligation to pay it immediately to Mr Georges. 37 Loan agreements are rarely the subject of decrees for specific performance, but that is not because specific performance cannot be granted of loan agreements; it is because damages are usually an adequate remedy, and those damages are usually the cost of obtaining a replacement loan on commercial terms in the market. That loan agreements can be the subject of specific performance was demonstrated by the case to which I have already referred, Wight v Haberdan, in which Kearney J explained (at 289) that the general rule against the granting of specific performance of a contract to lend money was not founded upon any philosophical objection to such an order being made where it entailed a mere payment of money (as was illustrated by Turner Ltd v Bladin (1951) 82 CLR 463, where the equitable doctrine of mutuality was invoked to enable a vendor to obtain a degree of specific performance which involved merely the payment of the purchase price under the contract for sale of land), and (at 290) that whether damages were an adequate remedy required consideration of the circumstances of the particular case in hand, the test being whether by leaving a plaintiff to a remedy in damages justice was done. To leave the plaintiff to pursue common law claims for damages would have involved complex questions, great difficulty in measuring damages and remoteness of the damages, and great delay and expense. His Honour concluded that damages would not be an adequate remedy, and that to leave the plaintiff to damages would be an unjust imposition. To that his Honour added that there was not only the factor of damages being on the face of the matter inadequate, but also the circumstance that the defendant's primary obligation was one to perform the agreement, rather than to pay damages for breach of the agreement. 38 In the present case, a number of considerations persuade me that specific performance is the appropriate remedy. First and foremost is the inter-relationship between the loan agreements and the Share Sale Agreement to form the overall transaction to which I have referred for the acquisition of all of Mr Georges' interests in the company; in substance, the loan agreement was part of the share sale. The second is the conclusion I have already expressed that the proceeds of the loan were not intended to be for the general benefit of the Company, but purely to fund the payment out of Mr Georges; in those circumstances, damages would not be an adequate remedy because they would not put the company in a position to pay out Mr Georges. All the more is that so where its assets and other resources have been depleted in the meantime by the conduct of the defendants or their associates. 39 Upon performance of the obligation to advance the remaining $100,000, those funds would not form part of the general assets of the Company, but would be received by it impressed with an obligation to pay them over to Mr Georges. Nonetheless, the lenders would become creditors of the Company to the extent of the funds so advanced. The Grintara/PRWI Loan Agreement does not impose on the lender any obligation to pay interest on amounts not advanced by it. However, equity has always been able to decree specific performance with compensation. As I have sought to explain, Mr Georges has been entitled to interest on his outstanding loan account at the rate of 8 percent since 22 May 2005, a month after the advance was made. The Company's position has been diminished to the extent that it will be liable to pay that interest to Mr Georges by the lenders' failure to pay the $100,000 when that payment was due on 26 April 2006. Accordingly, the amount which the lenders will be required to pay will include compensation in the nature of interest, and will be $100,000 plus interest at 8 percent from 26 April 2006. The lenders' cross-claims 40 The entitlement of Grintara in respect of its loan, and of Grintara and PRWI in respect of their loan, to recover the moneys they have advanced under the loan agreements was not in dispute. The best available evidence, such as it is, establishes that the amounts outstanding on those loans are, in respect of the Grintara loan $135,490, and in respect of the Grintara/PRWI loan $199,500. In respect of the Grintara loan, Grintara having fully performed its obligations under it, it is also entitled to the interest of $6,000 provided for by the loan agreement. So far as the Grintara/PRWI loan is concerned, as I would allow in favour of the Company interest on the amount which Grintara and PRWI have failed to pay, there seems to me no reason to deprive the lenders of interest on the amount they did in fact pay, which roughly apportioned amounts to $4,200 of the total of $6,000. Conclusion 41 Many other issues were agitated in the pleadings and the evidence. The conclusions to which I have so far come relieve me of the necessity to examine them in any detail, it being sufficient to record the following. Had Mr Georges not succeeded in his claim for specific performance, then the case he mounted of breach of directors' duties and oppression by the Wielands, in the sense that the affairs of the Company had been conducted in a manner contrary to the interests of the members as a whole, would seem formidable in light of the concessions made in cross-examination by both Mr and Mrs Wieland: they could not explain any benefit to the Company in transfer of its Business, lease and goodwill to Parramatta Tools; nor could they explain any benefit to the Company in the accounts of the deed of fixed and floating charge. However, those conclusions are, in the light of the way the case has ultimately fallen for decision, unnecessary for my decision. 42 My orders are: (1) Order that insofar as they remain unperformed, the following agreements be specifically performed and carried into execution. 1.1 Share Sale Agreement dated 19 September 2005 between Richard Georges as seller, Grintara Pty Limited as buyer and P R W Investments Pty Limited as nominee; 1.2 Loan agreement dated September 2005 between Grintara Pty Ltd as lender and Parra Power Tools Pty Ltd as borrower; and 1.3 Loan agreement dated 20 September 2005 between Grintara Pty Limited and P R W Investment Pty Limited as lender and Parra Power Tools Pty Limited as borrower. (2) In order to give effect to order (1), order that 2.1 Grintara Pty Limited pay to Richard Georges the sum of $150,000, being the balance purchase price under the Share Sale Agreement together with interest at the rate of 12 percent per annum on the sum of $37,500 being the deposit from 19 September 2005 until payment and $112,500 being the balance purchase price from 22 April 2006 until completion. 2.2 Grintara Pty Limited and P R Wieland Investments Pty Ltd pay to Mr Georges by direction of Parra Power Tools Pty Ltd the sum of $100,000 together with interest at the rate of 8 percent per annum from 26 April 2006 until payment. 2.3 upon tender of the payments referred to in 2.1 and 2.2 Richard Georges transfer to Grintara Pty Limited the 12 shares held by him in Parra Power Tools Pty Ltd. (3) Grant liberty to the parties to apply in the event of any difficulty arising in the implementation of the foregoing orders. (4) Give judgment that Parra Power Tools Pty Limited pay to Grintara the sum of $141,490. (5) Give judgment that Parra Power Tools Pty Limited pay to Grintara Pty Limited and P R Wieland Investments Pty Limited the sum of $203,700. (6) Declare that upon performance by Grintara Pty Limited and/or P R Wieland Investments Pty Limited of its obligations under order 2.2 above, Parra Power Tools Pty Limited will be indebted to them for a further $100,000 upon the terms of the Grintara/PRWI loan agreement. (7) These orders are made on the basis that it is not intended that the obligation of Grintara and PRWI under order 2.2 may be set off against the judgment under orders (4) and (5). 43 On 23 July 2008, the plaintiffs' solicitors made a without prejudice offer of settlement to the defendants' solicitors which, in substance, offered to accept $250,000 plus costs as agreed or assessed. The letter pointed out that interest was accruing on the Share Sale Agreement at a rate of 12 percent per annum, and that the offer, therefore, represented a commercial compromise. Ultimately, the plaintiffs have recovered $250,000, plus interest on that sum, and will obtain at least a party-party costs order. The defendants' solicitors rejected the offer by without prejudice letter of 5 August 2008, making a counter offer of $100,000 plus costs. The plaintiffs have, therefore, bettered the offer that they made. However, it was not a formal offer of compromise in accordance with the rules of court, so it does not follow that I must, absent some other discretionary consideration, make an indemnity costs order; it is but one of several relevant considerations, though not an unimportant one, to be taken into account. 44 Another relevant factor is that most of these proceedings were concerned with enforcement of the Share Sale Agreement; at least that is how it appeared until this morning. The only defence that was propounded to that claim was one that I have found to be quite untenable. 45 A third, it seems to me, is that although it has not been necessary to consider in detail the allegations of breach of fiduciary duty, for the reasons I have shortly expressed, it seems to me that the plaintiffs' case on those allegations was a formidably strong one. A fourth is that while it is true that the defendants have succeeded on their cross-claims and they were, in a sense, put to proof of them, the significance of that is much diminished by the fact that, in the events which ought to have transpired – namely, that the plaintiffs be paid the balance purchase moneys under the Share Sale Agreement and the shares transferred to the relevant defendants – the equity in the Company is, in substance, beneficially owned by the defendants, and the cross-claims are really of marginal practical significance, since they determine only how much the Company they own will owe to them. 46 Principally because the plaintiffs have bettered a reasonable offer, fortified by the other matters to which I have referred, I am satisfied in this case it is appropriate that the plaintiffs' costs, from 14 days after the date of the offer, should be paid on an indemnity basis. 47 I order that the defendants pay the plaintiffs' costs, such costs to be assessed on an indemnity basis from 7 August 2008. 48 I direct that upon the undertaking of the solicitors for the parties to return them to the Court if required for the purpose of an appeal or otherwise, the exhibits may be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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