Supreme Court New South Wales Medium Neutral Citation: Liang Zhen Lin v BHW Capital Pty Ltd & Anor [2013] NSWSC 1786 Hearing dates: 13 and 14 November 2013 Decision date: 05 December 2013 Before: White J Decision: Refer to paragraph [98] of judgment. Catchwords: CONTRACTS - specific performance - whether time of the essence - contract for sale of shares where time originally of the essence - when party not at fault can lose right to terminate for breach of an essential term - election to continue - appropriate remedy when some of property the subject of suit for specific performance already sold to a third party without notice - plaintiff seeking specific performance late in payment of part of purchase price - specific performance conditional on plaintiff doing equity by paying interest on purchase price outstanding CORPORATIONS - directors - removal of director by shareholders - whether exercise of power to remove director was fraud on the power Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Mehmet v Benson (1965) 113 CLR 295 Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 Texts Cited: Cheshire and Fifoot's Law of Contract, 8th Australian ed Ford's Principles of Corporations Law, LexisNexis Category: Principal judgment Parties: Liang (Jally) Zhen Lin (1st Plaintiff) Ben Zheng Lin (2nd Plaintiff) BHW Capital Pty Ltd (1st Defendant) Shane Irwin (2nd Defendant) Representation: Counsel: G Blank (Plaintiffs) H Altan (Defendants) Solicitors: Spectrum Legal Group (Plaintiffs) Willis & Bowring (Defendants) File Number(s): 2013/165879 Judgment 1HIS HONOUR: These proceedings concern the shareholding in the first defendant, BHW Capital Pty Ltd ("the company"), and the validity of a resolution passed at an extraordinary general meeting of the company on 21 May 2013 to remove the first plaintiff, Mr Liang Zhen Lin ("Jally Lin") as a director. The plaintiffs are Jally Lin and his son Mr Ben Lin. The defendants are the company and Mr Shane Irwin. Irwin is a director of and shareholder in the company as more fully explained below. 2Ben Lin holds 20 per cent of the shares in the company. The other shareholders are a Mr John Innes as to 20 per cent, Irwin as to 20 per cent, Stanhoc Development and Construction Pty Ltd (a company associated with a Mr Raymond Younan) as to 10 per cent, Irwin and Innes jointly as to 10 per cent, and Altis Architecture Pty Ltd ("Altis Architecture") as to five per cent. 3The plaintiffs seek to enforce two agreements they say were made for the transfer to them of two parcels of shares each representing 15 per cent of the issued capital of the company. They allege that in December 2012 Jally Lin entered into an agreement with the company, Irwin and Innes by which Irwin agreed to transfer a 15 per cent shareholding to Ben Lin for a consideration of $15. The defendants deny that any such agreement was made. 4The plaintiffs' second claim is that Irwin agreed to transfer to Ben Lin a further 15 per cent shareholding in consideration of the plaintiffs' agreeing to make a capital injection of $300,000 to the company. Although not admitted on the pleadings, the defendants accept that by no later than 20 January 2013 an agreement was reached that a 15 per cent shareholding registered in the joint names of Innes and Irwin would be transferred to the Ben Lin Family Trust in consideration of Jally Lin making a $300,000 injection by 22 January 2013. An issue to be decided is whether that agreement was made with Irwin, with Irwin and Innes jointly, or with the company. 5On 21 January 2013 Ben Lin paid $180,000 on the company's direction. The plaintiffs did not pay the balance. The defendants say that the agreement was that the shares would be transferred if the Lins made a capital injection of $300,000 by 22 January 2013, in which respect time was of the essence. 6On 19 April 2013 Irwin purported to withdraw what he called the offer to transfer the shares and advised that the $180,000 previously paid would be refunded. The plaintiffs seek an order for specific performance of the agreement. 7On 29 April 2013 Irwin and Innes agreed to sell a shareholding of five per cent, being a third of the shares registered in their joint names, to Altis Architecture. Altis Architecture has become registered as the holder of those shares. 8On 21 May 2013 the company passed a resolution removing Jally Lin as a director. He alleges that the resolution was in breach of an agreement he had reached with Irwin in which he agreed to step down as a director pending resolution of a dispute, provided that Ben Lin was appointed as a director in his place. It was also submitted on his behalf that the members who voted in favour of the resolution exercised their voting power for a purpose that was foreign to the power. 9I have concluded that there was no agreement that Irwin would transfer a 15 per cent shareholding to Ben Lin for $15. The first claim will be dismissed. 10I have concluded that the agreement of 20 January 2013 was made between Jally Lin and the company. I have concluded that the company did not validly terminate the agreement to transfer a 15 per cent shareholding to Ben Lin in return for a capital injection of $300,000. Were it not for the sale of part of that shareholding to Altis Architecture the plaintiffs would be entitled to an order for specific performance of that agreement. The plaintiffs are entitled at their election to an order for specific performance of the remaining 10 per cent parcel and damages for the vendor's not transferring the five percent parcel, or to damages for the vendor's failure to transfer the 15 per cent parcel. 11I have concluded that the challenge to the validity of the resolution removing Mr Jally Lin as a director of the company fails. Background 12The company was incorporated on 12 December 2011. It was formed for the purpose of undertaking a property development at Waratah Park, Sutherland. The initial shareholders were John and Elizabeth Innes as to 50 shares, and Ben Lin as to 50 shares. The initial directors were Innes and Ben Lin. 13According to Jally Lin, Innes and Younan successfully tendered for the property. On 18 December 2012 the company entered into a contract with Miranda RSL Sub-Branch Club Limited for the development of the land at Waratah Park, Sutherland. That agreement required the company to make payments totalling $393,500 by 8 January 2013. 14The contract had been the subject of negotiation with the Miranda RSL Sub-Branch. So far as the evidence reveals, the negotiation was conducted by Innes, or perhaps Innes and Younan. Jally Lin, Innes, Younan and Irwin had been involved in prior business dealings with each other. 15On 14 November 2012 a meeting was held of directors of the company that was also attended by Jally Lin and Irwin. At that time the only directors were Innes and Ben Lin. Ben Lin denied attending the meeting, but I accept Irwin's evidence that he did attend. For reasons given below in relation to the alleged agreement of December 2012 for the transfer of shares for nominal consideration, I do not consider Ben Lin to be a reliable witness. The minutes of the meeting of 14 November 2012 record an agreement that the shareholding of the company be restructured as follows: "* Innes Family Trust 20 per cent * Ben Lin Family Trust 20 per cent * Magill Trust 15 per cent * Irwin SL Family Trust 20 per cent * Stanchoc Development and Construction Pty Ltd ... 10 per cent * JS Asia Pacific Trust 15 per cent" 16Pursuant to this resolution shares were issued bringing the number of issued shares to 1,000. According to the notice lodged with the Australian Securities and Investments Commission, there were changes to the register of members of the company as follows: 17Shares registered in the name of Innes were increased by 150 shares to 200 shares. The shares registered in the name of Ben Lin were increased by 150 shares to 200 shares. One hundred and fifty shares were registered in the names of Irwin and Innes jointly. Two hundred shares were registered in the name of Irwin alone. One hundred and fifty shares were registered in the name of Steven Marshall and 100 shares were registered in the name of Stanchoc Development and Construction Pty Ltd. 18Stanchoc Development and Construction Pty Limited is Younan's company. According to the ASIC return, none of the other shareholders held the shares registered in his name beneficially. All of the shares were fully paid. 19Marshall was the trustee of the Magill Family Trust. 20It had been agreed between the Lins, Irwin and Innes and, I infer, Younan, that $600,000 be raised to fund the development and that 300 of the 1,000 shares issued would be issued in exchange for capital contributions. 21The 150 shares issued in the joint names of Irwin and Innes were held by them jointly as trustees of the JS Asia Pacific Trust ("the JS Trust"). Irwin deposed that those shares were issued in exchange for a "commitment of $300,000". He deposed that the JS Trust paid the $300,000 committed by it. There was no dispute about this. Ben Lin deposed that "it is not disputed that JS Trust took up a 15 per cent shareholding (150 shares) for a commitment of $300,000" and "this contribution entitles the JS Trust to 15 per cent of the shares". 22During December 2012 Irwin was advised by the trustee of the Magill Trust (that is, Marshall) that the Magill Trust was unable to raise the $300,000 required to be contributed by it. 23On 15 November 2012 there was a change of directors. Ben Lin resigned as a director. Jally Lin and Irwin were appointed as directors and joined Innes on the board. 24On 22 December 2012 the directors (Innes, Irwin and Jally Lin) resolved "to accept the Magill Trust decision not to take up the shareholding offer". The 150 shares held by Marshall were transferred to Innes and Irwin. Both acknowledged that they held the shares non-beneficially. According to Innes, the transfer occurred on or about 14 January 2013. 25Irwin deposed that the 300 shares held by him and Innes jointly were held by them as trustees of the JS Trust, but that is not so with respect to the 150 shares transferred by Mr Marshall. In his oral evidence Irwin described the 15 per cent shareholding that had been transferred by Marshall as a "floating 15 per cent that was with the JS Asia Pacific Trust". The shares were held by Irwin and Innes to be transferred to an investor who could be found to make a capital injection of $300,000 to the company. Although Irwin spoke of the shares being held by him and Innes as trustees of the JS Trust, I did not understand him to contend that the beneficiaries of the JS Trust were beneficially entitled to the shares. The shares were held by Innes and Irwin on trust either for the other shareholders or for the company. The company could be the beneficiary of the shares as the shares were fully paid and no consideration was given for their acquisition by the company or any entity it controls (Corporations Act 2001 (Cth), s 259A(b)). 26The company obtained an extension of time to pay the sum of $393,500 that was required to be paid to the Miranda RSL. By a deed entered into on 10 January 2013 the time for payment was extended to 22 January 2013. On or prior to 10 January 2013 Jally Lin telephoned Innes and said to him words to the effect, "I am interested in buying Magill's 15 per cent for $300,000". Innes told him he would contact Irwin about it and did so. On or about 10 January Irwin then telephoned Jally Lin and a conversation to the following effect took place: "Irwin: 'John tells me that you are interested in buying the ex-Magill shares for your family trust, 150 shares for $300K. We require the money by the 22nd of this month so BHW can meet its commitments to the RSL.' Jally Lin: 'That will be OK.'" 27Irwin deposed that: "On 20 January 2013, a meeting of the board of BHW was held. The meeting was held to discuss the 'ex-Magill' shareholding, that is, the 15% shareholding (150 shares) that was to have been allocated to the Magill Trust as deposed to in paragraph 11 above. The meeting was held by teleconference. John Innes and Jally Lin were present in Sydney at John Innes' office, and I participated by telephone from Brisbane. At the meeting, the participants had a conversation in words to the following effect: John Innes: 'I declare the meeting open. The notice and quorum requirements are satisfied. The purpose of the meeting is to discuss the proposed reallocation of the Magill shares to the Ben Lin Family Trust. The minutes of our last meeting have been signed as a true record.' [Shane Irwin]: 'As we all know the Magill Trust has decided not to take up the offer of 1 15% shareholding in BHW Capital. Jally, we had a discussion on 10 January in which the Ben Lin Family Trust was offered the ex-Magill shares for $300K so that the company can meet its commitments to the RSL on 22 January. You said you were OK with that. Is that your position?' Jally Lin: 'Yes, that's the deal'. [Shane Irwin]: 'OK. We'll resolve that the 15% shareholding be transferred to the Ben Lin Family Trust for a $300,000.00 cash injection by 22 January'. Jally Lin: 'I agree'. John Innes: 'I agree'. John Innes: 'That concludes the business of the meeting and it is closed'. Jally Lin: 'One more thing. Please do the transfer for a consideration of $15.00, otherwise Ben and I will incur a stamp duty liability'. [Shane Irwin]: 'OK'. The meeting then concluded." 28Jally Lin denied saying words to the effect, "One more thing. Please do the transfer for a consideration of $15, otherwise Ben and I will incur a stamp duty liability". Neither Irwin nor Jally Lin was cross-examined on this evidence. I prefer Irwin's evidence. It accords with the objective probabilities discussed below in relation to the first of the plaintiffs' claims. Moreover, Jally Lin was in many respects an unsatisfactory witness. He was garrulous. His evidence about the first of the plaintiffs' claims, which is dealt with below, was inconsistent with the plaintiffs' case. Where his evidence conflicted with Irwin's evidence, I prefer the evidence of Irwin. I accept the evidence of Irwin set out above. 29On 20 January 2013 Ben Lin paid $180,000 to the RSL on the direction of the company. Neither he nor Jally Lin paid the further $120,000 that Jally Lin had agreed to contribute. There was still a shortfall in the amount due to the RSL. Irwin deposed that the shortfall was made up by the JS Trust. The precise amount of the "shortfall" under the agreement of 10 January 2013 between the company and Miranda RSL, was not clear. The company was required to pay $243,500 to Miranda RSL and $100,000 to a company called J & D Wilkie Properties Pty Ltd. In cross-examination, Irwin agreed that the shortfall that was paid by the JS Trust was the sum of $120,000 payable by Jally Lin that was not paid by him or by Ben Lin (T65). 30Irwin prepared minutes of the directors' meeting of 20 January 2013. He signed the minutes and sent them by email to Innes at 7.33pm on 22 January 2013. He also prepared a form of share transfer for the transfer of the 15 per cent shareholding to the Ben Lin Family Trust and sent it to Innes by the same email. In the email Mr Irwin wrote: "Please find attached two documents. The first is the minutes of the directors' meeting agreeing to transfer the spare 15 per cent (150 shares) to the Ben Lin Family Trust for providing $300K in capital to the company. The second is the actual share transfer, Ben will need to sign this and we need to get a witness, preferably not yourself or Jally." 31The minutes stated: Present John Innes, Jally Lin, Shane Irwin Notice and Quorum As a majority shareholding and all directors were present, the chairman declared the notice and quorum requirements to be duly satisfied. Minutes The chairman reported that the minutes of the previous meeting had been signed as a true record. Purpose of meeting Reallocation of shares to ben lin family trust Details The company shareholders and directors met to discuss the ex-Magill shareholding and the reallocation to the Ben Lin Family trust. a) Magill Trust has declined to take up the 15% shareholding in BHW Capital. b) The %15 shareholding to be redistributed to Ben Lin Family Trust. Outcomes:- a)Agreed to reallocate the 15% shares to ben lin family trust Minutes The minutes of the meeting were then prepared, confirmed and signed. Confirmation Confirmed as a true record Signed ............... Signed ................. Witness - Shane Irwin Witness - Jally Lin Signed ........................ Chairman - John Innes 32The transfer of shares was in the following form: "I Shane Noel Irwin as trustee for the JS Asia Pacific Investment Trust of ... Manly West, Qld, 4179. (hereafter called the transferor), in consideration of the sum of $15.00 paid by the Ben Lin Family Trust. (hereafter called the transferee) Do hereby transfer to the transferee 150 ordinary shares standing in my name in the books of BHW Capital Pty Ltd to hold until the said transferee, subject to the several conditions on which I held the same immediately before the execution hereof, and I, the said transferor, do hereby agree to take the said shares subject to the conditions aforesaid." The transfer was signed by Irwin against the heading "Transferor". 33Shortly after receiving the email, Innes, telephoned Irwin and said: "The minutes do not refer to the agreement we reached that the shares will be transferred for a cash payment of $300K". Irwin said: "I will fix them." 34Two or three days later he prepared amended minutes that he again signed. This was in the same form as the previous minutes quoted above except that under the heading "Outcomes:-" a sentence was added: "On condition of a cash settlement to the company totalling $300,000." 35Innes deposed: "18. I also recall that upon receiving the email from Shane Irwin conveying minutes of the meeting and version 1 of the share transfer form I telephoned Shane Irwin to point out that there was an omission in the minutes, in that they did not refer to the requirement for $300,000.00 to be paid by the Lin interests for the 15% Magill shares. Within one or two days thereafter Shane Irwin met me in Sydney at BHW's office (which at the time was also used by Ben Lin). Shane gave me hard copies of the amended minutes, rectifying the omission deposed to, and also the original of version 1 of the share transfer form. I left those documents at Ben Lin's workstation for signature. I did not subsequently receive version 2 of the share transfer form, signed by Ben Lin. The first time I saw version 2 was when I was shown it at the time of preparation of this affidavit." 36In paragraph 14 of his affidavit of 13 June 2013 Ben Lin deposed: "14. The signed Minutes and Share Transfer form related to an agreement in December 2012, wherein it was agreed that I would acquire 15% (150 shares) of the shares in the Company for a consideration of $15.00. I confirm that on 20 January 2013, there was a second agreement in terms of which I agreed to acquire a further 15% for $300,000.00." 37I rejected the first sentence of paragraph 14 on the defendants' objection. The defendants objected to the word "second" and to the words "a further" in the second sentence of paragraph 14. I rejected the entire sentence. 38Jally Lin annexed to his affidavit a copy of the first version of the minutes of meeting of 20 January 2013 prepared by Irwin to which Jally Lin had added his signature and a copy of the share transfer to which Ben Lin's signature had been added. Much of Jally Lin's affidavit was rejected, but I gave the plaintiffs leave to adduce oral evidence on various matters including the topic as to whether Jally Lin had reached an agreement with Irwin whereby he would transfer 15 per cent of his shareholding to Ben Lin as trustee for the Ben Lin Family Trust for $15. Jally Lin annexed the copy of the minute and the share transfer form as purported corroboration of that agreement. The first version of the minutes omits any reference to the share transfer being for a contribution of $300,000 and the share transfer form refers to the consideration being only for the sum of $15. The plaintiffs' case was that those documents recorded the first of the agreements on which the plaintiffs sued, namely an agreement made in December 2012 for Irwin to transfer a 15 per cent shareholding to Ben Lin for $15. The provenance of those documents show that they record no such thing. 39No admissible evidence was given of any such agreement. The case put by Jally Lin in his oral evidence was difficult to follow. But in substance it was that he offered to provide $300,000 by way of capital injection in return for the 15 per cent shareholding that had originally been earmarked for the Magill trust only on condition that Irwin transfer a further 15 per cent shareholding for $15. No such version had been given in his affidavits. Nor was such a case pleaded. There was no evidence to support the case that was pleaded, except the two documents in question. 40On 16 April 2013, Ben Lin sent an email to Irwin, Innes and Jally Lin on the subject of the company's capital share structure. He wrote: "Please find attached current company extract for BHW Capital Pty Ltd. It shows the following share structure: John - 20% Ben - 20% Shane - 20% Ray - 10% Shane/John - 30% remainder As previously agreed in company memos it should be: John - 20% Ben - 35% (beneficiary [sic] held by Ben Lin Family Trust) Shane - 20% Ray - 10% Shane/John - 15% Shane, could you please submit a change of share structure to ASIC asap and back date it to the date of the memorandum of transfers of shares. I think its [sic] better its [sic] registered with ASIC before we proceed with the Sutherland Deal. They need to be transferred into my name and we can just write an internal company thing saying the beneficiary is held by Ben Lin Family Trust and back date it as necessary. If you're too busy please let me know and I'll fill out the forms. Call me if you have any issues." 41This email is consistent and only consistent with there being an agreement by which the Ben Lin Family Trust would increase its shareholding from 20 per cent to 35 per cent by the acquisition of a 15 per cent shareholding registered in the name of "Shane/John". Ben Lin's evidence, as I understood it, was that in this email he was asserting that he was entitled to an additional 15 per cent shareholding, not pursuant to the transaction of January that concerned the 15 per cent shareholding formerly earmarked for the Magill trust, but that he was entitled to a 35 per cent shareholding because of Irwin's agreement to transfer 15 per cent of his shares to him for nominal consideration. 42The email does not permit of that construction. If that were the position then the amount Ben Lim should have contended should have been held by Shane Irwin would not have been 20 per cent, but five per cent, and the amount that he should have contended should have been held by Shane Irwin and John Innes should have been not 15 per cent, but 30 per cent. Moreover, the share structure that Mr Ben Lin said should be shown was a structure that was "as previously agreed in company memos". No such documents were produced reflecting an agreement for a transfer of 15 per cent of the shares held by Shane Irwin to the Ben Lin Family Trust. The only documents which would reflect the structure contended for by Ben Lin are the documents providing for 15 per cent of the shares held by Irwin and Innes jointly to be transferred to the Ben Lin Family Trust in consideration of the capital injection. 43Ben Lin said that he had no knowledge when he wrote the email of the agreement his father had made to take up the 15 per cent shareholding that was in the names of Irwin and Innes. He did this to seek to justify why he attributed the additional 15 per cent of the shares that should have been in his name as being referable to the alleged agreement made in December 2012. His evidence that his father did not tell him about the transaction is not credible, particularly as according to Ben Lin and Irwin, Ben Lin paid the $180,000 on 21 January 2013 to the Miranda RSL on the company's direction. 44I regret to say that I think Ben Lin's evidence on this topic was deliberately untrue. 45Innes responded to Ben Lin's email of 16 April 2013 as follows: "Ben I will get shane to review the shareholding but as per Jally and my discussions and agreement we will be splitting any return on the deal 50/50 with each other regardless of the share distribution. I believe this is the residual shares from the partner that failed to come up with the funds." 46Irwin responded later on 16 April 2013. His email was copied to Jally Lin and John Innes, the other directors of the company. He said, amongst other things: "First item of business, John's comment below is accurate - he and jally agreed to share their profit 50/50 and I have not heard either of them waiver from that commitment, I trust them both with their word. Second item of business In regard to your questions on the share holding, I will cut straight to the chase. Currently there are 3 issues we need to cover, that I need your assistance with 1) Final share payment to be made, this ensures that the share transfer is legal and meets the conditions. 2) I am waiting for your signature, witnessed and returned, on the share transfer issued on the 22/1. Sorry if I missed your return email, but I filled it out and sent it off for your action. 3) Due to the elapsed time between the 22/1 and now if we issue the share transfer based on that date we will be fined for late submission, which means we have to redo the forms based on when we finalise the transfers. As you [are] aware, from reading the share document - there were conditions attached to the share issue, namely full payment, and a capital injection, as you are aware, we still have not managed to provide the full capital injection for the shares in question, for various reasons which I understand and have been happy to be patient and flexible - including loaning my personal funds to cover the shortfall from your commitment, which I have not requested any recompense for. As I understand the current situation we are now providing capital from bhw group, which will probably change the shareholding again, at our next directors meeting we will discuss the final shake out of shares where i will ask jally and john to provide me with instructions." 47Neither Innes nor Jally Lin sought to withdraw Irwin's statement in his email of 16 April 2013 to Ben Lin that the final share payment was to be made. 48By mid to late April Innes was told that Altis Architects was a potential investor for the company (T68). 49On 19 April 2013 Irwin sent an email to Ben Lin copied to Innes and to Jally Lin as follows: "You will recall the oral offer made to you by this company, on or about 20 January 2013, for you, in your capacity as Trustee of the Trust, to take a transfer of 150 Ordinary fully paid shares in the Capital of the BHW ('the Shares') for the sum of Three Hundred Thousand Dollars ($300,000.00) ('the Agreed Price'). Whilst on 21 January 2013 you paid to Miranda RSL at the direction of this company the sum of $180,000.00 in part payment for the Agreed Price, since that date and despite numerous requests you have failed to pay the balance of $120,000.00. As you are well aware the Agreed Price was negotiated on the understanding that it would be paid promptly as it was required to be utilised as part of this company's financial contribution to meet BHW's obligations under its Agreement with Miranda RSL in relation to land at Sutherland. Your failure to pay the whole of the Agreed Price on time placed this company and BHW in an embarrassing situation and this company was forced to look elsewhere for the funds. Given the above this company hereby withdraws its offer to transfer the Shares to you and will be refunding to you the sum of $180,000.00 previously paid." 50Although couched as a withdrawal of an offer, the email was a purported termination of the agreement whereby 150 shares in the names of Irwin and Innes were to be transferred to Ben Lin as trustee for the Ben Lin Family Trust in consideration of a capital injection of $300,000 to the company. 51The plaintiffs say that the defendants had no right to terminate the contract. 52A meeting was held on 26 April 2013 attended by Innes, Irwin, Younan, Jally Lin and Ben Lin. According to Jally Lin at that meeting Irwin said to Jally Lin that if he paid Irwin $120,000 he would transfer the shares straight away. Younan said that the discussion was heated and he decided to intervene and said words to the effect "We need to know what is happening with the share transfer to Jally", and Irwin said, "If Jally pays me by tomorrow I will give him the shares." Innes denied hearing Irwin saying those words. Irwin denied saying them. Irwin did not recall saying the words attributed to him. It was his evidence that the meeting was heated and that he told Younan to put the proposal in writing. 5326 April 2013 was a Friday. On Monday 29 April Mr Rod of Spectrum Legal Group sent an email to Irwin as follows: "I have been asked by my client Mr Ray Younan ('Mr Younan') and his business associate Mr Jally Lin to make contact with you in relation to Mr Lin's purchase of a further 15% of the shares in BHW Capital Pty Ltd being the proposed developer of the property at Warratah Park, Sutherland. Mr Lin has instructed me that he has acquired an additional 15% of the shares in BHW Capital Pty Ltd (over and above the 20% he already owns) for a purchase price of $180,000. Mr Lin advises that he has already paid $180,000 of the $300,000 and is now required to pay the balance of $120,000. My client Mr Younan currently has no funds in my trust account and has agreed to advance the sum of $120,000 to Mr Lin to facilitate the payment of the balance of the purchase price for Mr Lin's shares in BHW Capital Pty Ltd. Please can you provide me with the bank details for the transfer of the balance of $120,000 and I will urgently arrange for the transfer to be effected. Please would you confirm that once the transfer has been effected, you will arrange for the necessary housekeeping to be attended to - i.e transfer of the 15% to Mr Lin or his nominee (I have no instructions as to how he currently holds his existing 20%)." 54Later that day Mr Rod sent a voicemail message and a further email to Irwin confirming that he had funds ready for transfer. 55Irwin deposed that on 29 April 2013 the JS Trust reached an agreement for the sale of 50 of the shares held by Irwin and Innes as trustees to Altis Architecture for a consideration of $200,000. This was double the price per share that Jally Lin had agreed to pay. 56On the evening of 29 April 2013 Irwin sent an email to Jally Lin, Mr Rod and Ben Lin in which he advised that: "We have continued to negotiate with the three other interested parties in regard to the share sale since we took the previous offer to Ben off the table over a week ago. As at 10.00am this morning one of those people has taken a 5% stake in BHW Capital. This means that there is only 10% left to distribute. Please note that we are continuing to negotiate with the other two parties until such time that we have a full sale." 57The sale to Altis Architecture of 50 shares has been completed. According to the ASIC return Altis Architecture Pty Ltd is the registered holder of those shares. 58On 13 May 2013 Mr Rod wrote on behalf of Ben Lin to Irwin advising that Ben Lin instructed him to tender payment of the sum of $120,000 in return for the transfer of 15 per cent of the shares. In the course of that letter Mr Rod conveyed what must have been his client's instructions that in December 2012 it was agreed that Ben Lin would acquire a further 15 per cent shareholding in the company for $15 and that Irwin's shareholding would be reduced accordingly. Mr Rod went on to say that: "Notwithstanding the above, because the Company was in need of funds, on 20 January 2013, the offer for 15% for $15 was replaced with an oral offer from you on behalf of the Company to acquire the further 15% shareholding in the Company for a $300,000." 59I do not doubt that that was also said on instructions. 60From about mid April 2013 relations between Irwin and Innes on the one hand, and Jally Lin and Ben Lin on the other became increasingly acrimonious. On 17 April 2013 Irwin sent to the company a notice requesting the convening of an extraordinary general meeting to remove Jally Lin as a director. The plaintiffs plead that the notice convening the meeting was given on or about 24 April 2013. The defendants say that the notice was given on or about 27 April 2013. The plaintiffs pleaded that in or about mid-April 2013 in an effort to resolve the dispute between the parties and in consideration of Jally Lin forbearing from taking legal action against the defendants, he agreed to step down as a director pending resolution of the dispute, provided Ben Lin was appointed as a director in his place. The defendants denied that there was such an agreement. Jally Lin swore an affidavit in which he deposed that on or about 15 May 2013, "I agreed with Shane and the other shareholders that I would step down as a director of BHW on the basis that I would be replaced by my son, Ben Len [sic]." I rejected the sentence as it did not depose to the primary facts from which the conclusion stated in the sentence was reached. The sentence offended the opinion rule. I gave leave to the plaintiffs to adduce oral evidence in relation to that subject matter. That leave was not taken up, perhaps understandably, given Jally Lin's performance in the witness box. Irwin denied being a party to any agreement with Jally Lin that he should step down and be replaced by Mr Ben Lin. I accept that denial. 61On 17 May 2013 Mr Rod sent a further letter to Mr Irwin in which he stated that: "Mr Jally Lin has instructed me that in his discussions with you he did in fact agree that he would be amenable to stepping down as a director of BHW Capital Pty Ltd on the basis that he would be replaced on the Board of Directors by Mr Ben Lin. In you [sic] Notice of Extraordinary Meeting of Members called for Tuesday 21 May 2013 at 2pm, under the Heading Special Business you refer to a Resolution to be put forward in terms of Section 230D of the Corporations Act for Mr Liang Zhen Lin to be removed as a director and for the company to seek an appropriately qualified person to replace him. The proposed resolution clearly does not accord with what was agreed with Mr Jally Lin and the Notice is accordingly defective. Provided that we receive your written confirmation, by close of business today, that the proposed resolution will be amended to reflect the fact that Mr Jally Lin will be replaced by Mr Ben Lin then Mr Jally Lin will be willing to attend the Extraordinary Meeting of Members. Should we not receive the required confirmation by close of business today, urgent steps will be taken to have the meeting declared unconstitutional." 62Mr Irwin replied on 20 May 2013. He advised: "To address your letter, please note: i) BHW Capital Pty Ltd has not received any notice for any person to be considered for adding to the board of Directors. ii) The extraordinary general meeting scheduled for 2 pm Tuesday 21 May 2013, is to allow a poll of members on the resolution presented. iii) If the resolution is passed by a poll of members, a process will be implemented to find a suitable replacement for presentation to the members at a future General meeting. iv) Ben Lin may present his credentials for the position at the appropriate time." 63The resolution to remove Jally Lin was passed at the meeting on 21 May 2013. Neither Ben Lin nor Younan attended. Alleged agreement that Irwin would transfer a 15 per cent shareholding to Ben Lin for $15 64For the reasons above, I am satisfied that no such agreement was made. There was no evidence of any such agreement except the inferences said to be drawn from the form of the transfer and the original form of the minutes of the meeting of 20 January 2013, both of which are explained as set out above. No evidence of the alleged agreement was given by the plaintiffs. When Jally Lin gave oral evidence in relation to the alleged agreement he contended that a different arrangement had been made. It is clear that after the falling out between Irwin and the Lins in April 2013 that Jally Lin was upset that Irwin had received a 20 per cent share placement. However, the plaintiffs did not challenge the validity of that placement. Jally Lin's evidence was incoherent. But its effect was that he agreed to provide $300,000 for a 15 per cent shareholding, but the 20 per cent shareholding that had been allocated to Mr Irwin needed to go back to the company as a condition of his providing the $300,000. No such agreement was alleged and there is no objective support for it. 65Both the alleged agreement pleaded, and the arrangement contended for by Jally Lin in his oral evidence, is contradicted by Ben Lin's email of 16 April 2013 referred to at para [40] above. The agreement alleged in the statement of claim is also contradicted by Mr Rod's letter of 13 May 2013 in which Mr Rod asserted that in December 2012 there was an agreement that Ben Lin would acquire a further 15 per cent shareholding in the company for $15 and that Irwin's shareholding would be reduced accordingly, but went on to say that that agreement was replaced by the oral offer of 20 January 2013 that Ben Lin would acquire a further 15 per cent shareholding in the company for $300,000. 66The alleged agreement pleaded would be incongruous. Even if the Lins thought that Irwin should not have been given the 20 per cent share allocation he was given, they put forward no reason as to why the Ben Lin Family Trust should be the beneficiary of the reallocation of three-quarters of Irwin's initial shareholding. 67Counsel for the defendants submitted that the allegation concerning the first agreement was opportunistic. If by this counsel meant that the plaintiffs saw the opportunity of making up a version of events that could fit with the two documents in question, then I agree. Specific performance of agreement of 20 January 2013 68Although denied on the pleadings, the defendants accepted that an agreement was made on or about 20 January 2013 for Jally Lin to purchase a 15 per cent shareholding in consideration of a $300,000 capital injection to the company and that this agreement created legal relations and had effect as a contract. There is a nice question as to whether the vendor was Irwin alone, whether it was Irwin and Innes who are the legal owners of the shares, or whether it was the company. 69The plaintiffs pleaded that on or about 20 January 2013 Irwin made an offer to them that if they injected $300,000 to the company, he would transfer a further 15 per cent of his shares in the company to Ben Lin. They plead that on 21 January 2013 they accepted that offer. In other words, the plaintiffs contend that the contract was made between them and Irwin, notwithstanding that the shares were registered in the name of Irwin and Innes. Innes was not joined as a defendant. 70The defendants, that is Irwin and the company, admitted that Irwin made an offer to Jally Lin and said that the terms of the offer were that if Jally Lin and/or Ben Lin as trustees for the Ben Lin Family Trust contributed the sum of $300,000 to the company on or before 22 January 2013, then in that event, 150 shares in the capital of the company would be transferred to Jally Lin and/or Ben Lin as trustees for the trust. The defendants otherwise denied the allegations and they denied that the plaintiffs accepted Irwin's offer that the plaintiffs alleged had been made. 71If there were an agreement for the transfer of the shares if Jally Lin or Ben Lin contributed $300,000 to the company, which was denied in the defence but admitted at the hearing, the defendants did not plead that the agreement was with anyone other than Irwin on the one hand and Jally Lin, or Jally Lin and Ben Lin, on the other. 72On the other hand, in his evidence Irwin contended that the agreement was made between Jally Lin and the company and his affidavit set out the evidence that was the basis for that contention. That evidence was that at the directors' meeting of the company held on 20 January 2013 attended by Innes, Irwin and Jally Lin the directors agreed to reallocate the 15 per cent shares that the Magill Trust had declined to take up to the Ben Lin Family Trust on condition of a cash settlement to the company totalling $300,000. Confirmation of the minutes of that meeting as a true record of the meeting was signed by Innes as chairman of the board. 73In closing submissions I raised the question as to whether Innes should be joined as a defendant. No such application for joinder was made by counsel for the plaintiffs and counsel for the defendants submitted that it was too late to join Innes as a defendant. I agree with that submission. Innes may well have been able to give evidence relevant to the question of the extent of any authority that Irwin had to deal with the shares registered in their joint names. If he were joined he would be potentially liable for damages. It would be manifestly unfair if he were joined after the close of the evidence and submissions. 74The fact that the shares were registered in the name of both Innes and Irwin would not preclude the company, nor Irwin from making the contract with Jally Lin for the transfer of the shares. If Irwin was the contracting party he could only perform his contract by procuring Innes' signature to the share transfer. Similarly, if the company were the contracting party in order to perform the contract it would have to procure the legal owners of the shares to sign the share transfer. 75The share transfer prepared by Irwin provided for only his signature, but that was because he described the transferor on the transfer as being himself as trustee for the JS Asia Pacific Investment Trust. But the shares were not held in his name. They were held in the joint names of him and Innes and the shares contracted to be sold were not the shares that had been acquired by him and Innes as trustees for the JS Asia Pacific Investment Trust, but the shares they acquired in their own names, from the trustee of the Magill Trust in which they do not claim a beneficial interest. The better view is that those shares were held by Irwin and Innes on trust for the company as permitted by s 259A as they were to be held until a new transferee made a capital injection for the company's benefit and were then to be transferred to such a person. The company as the beneficial owner of the shares would be entitled to direct a transfer of the legal title. There is thus nothing incongruous in the company, acting through Irwin and Innes, being the contracting party with Jally Lin. The fact that the defence admits that Irwin made the offer should not be taken as an admission that Irwin was the contracting party because the contract was denied. But in any event, having regard to the other deficiencies in the pleadings, and because I do not think that the pleader gave any attention to this question, and having regard to the course of the trial, the issues should be decided on the evidence. 76In my view it was the company, acting through its directors Irwin and Innes, which contracted with Jally Lin for the transfer of the shares on Jally Lin's direction. 77It was a term of the contract that Jally Lin pay or arrange for the payment of $300,000 to or at the direction of the company with the payment to be effected by 22 January 2013. Only $180,000 was paid. The defendants contended that time was of the essence. There was no express agreement that time was of the essence so that the vendor could terminate the agreement if full payment was not made by 22 January 2013. However, I think it was implied that the time for performance of the obligation to pay $300,000 was essential. This was a commercial contract dictated by the imminent risk that the company would lose its development opportunity and forfeit moneys that had already been paid to the Miranda RSL if the full payment required to be made to the RSL was not made by 22 January 2013. The time for the company making the payment to the Miranda RSL had already been extended. Time was critical to the company and to all of the shareholders. 78Accordingly, it would have been open to the company to have terminated the contract for the sale of the 15 per cent shareholding because the full payment was not made. But the contract was not terminated. 79Mr Blank who appeared for the plaintiffs submitted that because Irwin did not forthwith elect to terminate the contract, time ceased to be of the essence and therefore the right to terminate without notice was lost. For this proposition he cited Cheshire and Fifoot's Law of Contract, 8th Australian ed at [21.17] where the learned authors say: "If time is of the essence, and performance is not forthcoming when due, the other party may forthwith elect to terminate the contract. Failure to do so may result in time ceasing to be of the essence, and therefore in the loss of the right to terminate without notice." 80The cases cited stand for a more precise proposition, namely that: "If the party entitled to insist on the essential quality of the stipulated time leaves the other party to understand that its essentiality is not being maintained, time for payment will cease to be essential without some further circumstance, such as a proper notice in that behalf, apt to restore its essential quality. The loss of the essential quality of the time for payment may thus happen by the party entitled to rescind doing some act inconsistent with his insistence on the essential quality of time." (Mehmet v Benson (1965) 113 CLR 295 at 303, applied in Sunstar Fruit Pty Ltd v Cosmo [1995] 2 Qd R 214 at 221). 81I do not think that the vendor lost the right to terminate the contract for the sale of the 150 shares because Jally Lin failed to pay the full price by 22 January 2013 merely by delay. So far as appears it did not act in a way which was inconsistent with its later being able to rescind the contract, so as to abandon the right of rescission, prior to Irwin's sending his email of 16 April 2013 in response to that of Ben Lin (Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 641, 642, 646, 656, 648; Immer (No. 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30, 38, 41-43). 82However Irwin's email of 16 April 2013 to Ben Lin that was also copied to Jally Lin unequivocally called on the Lins to make the final share payment and also to return the signed share transfer. This was an election to affirm the contract. 83Counsel for the defendants argued that Mr Irwin did not have authority so as to bind the company. I do not think that any such contention is open to the defendants. It was not pleaded, nor was it an issue that arose in the course of the evidence. 84The true issues in the case were not pleaded. The defendants failed to plead that the agreement had been terminated. Therefore the plaintiffs did not plead matters relevant to the termination, such as whether the time for payment was ever essential, if so, whether essentiality of time had been waived, or whether the vendor had elected to affirm the contract. When dealing with objections I said that I intended to deal with the real issues as they appeared from the affidavits and submissions (the parties having provided opening submissions). However nothing appeared in the opening submissions, nor in the affidavits, that would cast any doubt on Irwin's authority to send the email of 16 April 2013 even if he was not the vendor. The email was copied to Innes and to Jally Lin and neither of them took issue with it. 85As the vendor affirmed the contract on 16 April 2013, time for payment of the shares was no longer essential. It would make no sense to say that having called on the plaintiffs on 16 April 2013 to complete the contract, the defendants could forthwith terminate the contract because time for completion on 22 January 2013 remained essential. 86Before the contract could be terminated for non-payment of the balance of the purchase price, two things were requisite. The first was that the vendor nominate a reasonable time for completion and the purchaser fail to complete at that time. The second was that the vendor give a notice to complete making time of the essence after the purchaser's default and that notice not be complied with. Neither occurred. 87The purported termination of 19 April 2013 was ineffective. 88Mr Altan, counsel for the defendants, argued that at the meeting held on 26 April 2013 Irwin fixed a time for completion that made time essential by insisting on payment the next day. I do not accept that submission. First, I accept Irwin's denial of making that statement. But even if the statement had been made, the following day, which was a Saturday, was not a reasonable time to fix for completion and Mr Rod on behalf of Jally Lin offered performance on the following business day, Monday 29 April 2013. That performance was refused. There was thus no failure on the part of the purchaser to complete the contract within a reasonable time fixed after Irwin elected to affirm the contract. Nor was a notice given making time of the essence. 89Accordingly, the contract remained on foot. The plaintiffs are entitled to an order for specific performance if specific performance is possible having regard to the sale of 50 shares to Altis Architects. The plaintiffs made an alternative claim for damages. 90The parcel of shares contracted to be transferred was the specific parcel of 15 per cent of the company's shareholding that had been registered in the name of the trustee of the Magill Trust and transferred to Irwin and Innes. It was not any 150 shares in the capital of the company, but the specific 150 shares that had formerly been registered in Mr Marshall's name. 91It is no longer possible for the company to procure a transfer of those 150 shares. Fifty of them have been sold. Altis Architects was not joined as a defendant. It acquired legal title to the 50 shares and may be taken to be a bona fide purchaser of the legal estate in those shares for value and without notice of the plaintiffs' interest. 92It is possible for the company to procure the transfer of the remaining 100 shares. The plaintiffs cannot be compelled to accept a transfer of 100 shares on payment of the pro-rata proportion of the full purchase price, namely another $20,000. But if the plaintiffs seek such an order they are entitled to it, provided they do equity by paying interest. The plaintiffs are entitled to damages from the company in respect of the company's inability to procure a transfer of the 50 shares that were transferred to Altis Architects. The plaintiffs are entitled to elect whether they wish to obtain an order for specific performance of the contract, so far as it can still be performed in respect of the remaining 100 shares. If they elect to pursue the remedy of specific performance in relation to the remaining 100 shares, they will have to pay the balance of the purchase price of $20,000 together with interest from 22 January 2013. Interest will be payable pursuant to the maxim that he who seeks equity must do equity. As their agreement was that they would acquire the 150 shares on paying $300,000 by 22 January 2013 to the company or at its direction they would not do equity unless they paid interest on the outstanding balance of $120,000 up to the date of the sale of 50 shares to Altis Architects, and thereafter on $20,000. However, the interest payable can be set off against damages for which the company is liable for failing to transfer the remaining 50 shares. 93If the plaintiffs elect not to pursue the claim for specific performance in relation to the 100 shares that could be transferred, they will be entitled to damages to reflect the difference between the value of the 150 shares and the price they agreed to pay. 94I will stand over the proceedings to a convenient time to allow the plaintiffs the opportunity to consider which course they wish to pursue and to hear submissions in relation to damages including as to whether there should be a further hearing, or a reference in relation to the assessment of the quantum of damages. Third claim: removal of Mr Jally Lin as a director 95Mr Blank for the plaintiffs relied on the principle that the voting power of shareholders is to be exercised for a purpose within the range of purposes for which the power to vote is conferred and that it is a fraud on the power for the voting power to be exercised as "a means of securing some personal or particular gain, whether pecuniary or otherwise, which does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power" (Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 511 quoted in Ford's Principles of Corporations Law, LexisNexis at [10.030]). This was not the ground that was pleaded for seeking to invalidate the resolution of the meeting of 21 May 2013 removing Jally Lin as a director. In any event, it does not succeed. Irwin said that the resolution was passed because the acrimony between him and Innes on the one hand, and Jally Lin on the other, was such that the directors could not work together and therefore the company would suffer because the directors were supposed to be looking after the interests of all shareholders as a management team. I accept that that was the reason for the passing of the resolution. The exercise of the shareholders' voting power to remove a director for that reason is entirely within the purpose of the power. 96No evidence was given to support the ground for invalidating the resolution that was pleaded. There is no evidence that the other shareholders agreed to appoint Ben Lin as a director of the company in consideration of Jally Lin's forbearing from bringing legal action against Irwin or the company. 97Accordingly the application to invalidate the resolution of 21 May 2013 removing Jally Lin as a director fails. Conclusion 98I will stand over the proceedings to a convenient time so that the plaintiffs can consider whether they wish to elect to pursue their claim for specific performance in relation to the remaining 100 shares that can be transferred, and to deal with questions relating to damages. I will then hear the parties on costs and make other orders in accordance with these reasons. 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. Decision last updated: 05 December 2013