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Jadewell v Shelley

 

[2008] QSC 336

 

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

DELIVERED ON:

19 December 2008

DELIVERED AT:

Supreme Court at Brisbane

HEARING DATE:

11 February 2008 – 29 February 2008

JUDGE:

Douglas J

ORDER:

Order that the January 2004 agreement be specifically performed.

Further order that the third defendant pay the third plaintiff the sum of $67,500.00 with interest.

Further submissions invited as to the form of the orders and costs.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – OFFER AND ACCEPTANCE – CONTRACT IMPLIED FROM THE CONDUCT OF THE PARTIES – where the second plaintiff and first defendant entered into an agreement with a third party to combine business interests in a property development and associated works – where the third party withdrew – where the second plaintiff and first defendant held various discussions relating to the third defendant restaurant and bar – whether an independent bipartite agreement was made

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – ACCORD AND SATISFACTION – where the second plaintiff and first defendant agreed that each of their interests should have equal shares in the eighth defendant in relation to property development and mining work – where the second plaintiff and first defendant subsequently agreed that the first defendant would withdraw from the eight defendant if the second plaintiff decided not to invest in the third defendant – whether the parties’ exchange of promises constituted an accord and satisfaction of the earlier agreement

EQUITY – EQUITABLE REMEDIES – SPECIFIC PERFORMANCE – PARTICULAR CONTRACTS – OTHER CONTRACTS – where the second plaintiff and first defendant agreed that the first defendant would withdraw from the eight defendant if the second plaintiff decided not to invest in the third defendant – where the second plaintiff decided not to so invest – whether specific performance would be appropriate

ASIC v Rich (2005) 53 ACSR 752, cited
Hancock Family Memorial Foundation Ltd v Porteous (1999) 32 ACSR 124, cited
McDermott v Black (1940) 63 CLR 161, cited
Rawley Pty Ltd v Bell (No 2) (2007) 61 ACSR 648, cited
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, cited
Valoutin Pty Ltd v Furst (1998) 154 ALR 119, cited

COUNSEL:

D Savage SC with C Wilkins for the plaintiffs
P Dunning SC with C Jennings for the respondents

SOLICITORS:

Tucker and Cowen for the plaintiffs
HWL Ebsworth Lawyers for the respondents

[1] Douglas J: The resolution of the major issues in this case depends on the findings about the circumstances in which the parties agreed to operate their businesses together for a time and how those arrangements came to an end.  The primary relief sought by the plaintiffs is specific performance of an agreement said to have been made in January 2004 for the first defendant, Mr Shelley, to withdraw from his interest in the eighth defendant, Mandox Pty Ltd, in the event that the second plaintiff, Mr Cowley, decided not to go ahead with an acquisition of a half interest in a restaurant, fish and chip shop and new bar being established by interests associated with Mr Shelley. 

[2] Mr Cowley and Mr Shelley are the major protagonists in the story.  They are businessmen whose commercial arrangements with each other were sometimes characterized by a degree of imprecision and fluidity that makes the resolution of the factual disputes difficult.  It is best to commence with the background to the parties’ relationships and to identify the parties, other relevant entities and the principal witnesses. 

The actors

[3] Jadewell Pty Ltd, the first plaintiff, whose sole director was Mr John Cowley, is owned by Farnscastle Pty Ltd.  Farnscastle is controlled by Mr Cowley and also used a business name, Cougar Developments.  It is a family trust company of which he was the sole director where he and Mrs Rhonda Cowley, his wife, were the members.  Patsday Pty Ltd, the third plaintiff, was another company controlled by Mr Cowley as its sole director and shareholder.  He also controlled and was the sole director of Oakleigh Nominees Pty Ltd, Tinpeak Pty Ltd, Keenbet Pty Ltd and Orco Pty Ltd. 

[4] Mistweft Pty Ltd, the second defendant, was controlled by Mr Rick Shelley, its sole director.  Other companies controlled by Mr Shelley were the third defendant, Chippies Mackay Pty Ltd, the fourth defendant, RD Services (Glenden) Pty Ltd, the fifth defendant, Residential Developments (North Qld) Pty Ltd, the sixth defendant, Residential Developments (North Qld) No 2 Pty Ltd and the seventh defendant, XL Cabinetmaking Pty Ltd.  He also controlled Fairchange Pty Ltd as sole director.

[5] Mr Cowley, Mrs Cowley and Mr Shelley were co-directors in Gladingvale Pty Ltd which was owned equally by Oakleigh Nominees and Residential Developments (North Qld) and was trustee of the Gladingvale Unit Trust.  Mr Cowley and Mr Shelley were also directors of Mandox with a Mr Rebetzke.  Mandox was originally owned in equal thirds by Farnscastle, Mistweft and Fiouta Corporation Pty Ltd, a company controlled by Mr Rebetzke.  Mr Rebetzke was also a director of Mandox from 31 October 2002 to 5 November 2003.   He was another significant witness and former business partner through their corporate interests with Mr Cowley and Mr Shelley.  He was also a director with Mr Shelley of Talrick Pty Ltd which traded as Cavalier Homes Mackay, Cavalier Homes Whitsunday and Steelbuilt Homes Mackay.  Talrick was owned in equal shares by Rebetzke Property Developments Pty Ltd and Residential Developments (North Qld).  The Shelley Sands Partnership, to which I shall refer later, was a partnership between Mistweft and Patsday to develop land known as Shelley Sands.

[6] Mr Cowley struck me as a shrewd and experienced businessman and property developer.  He had once been a police officer and appeared to have a good memory for detail and to be careful with his use of language and in answering questions.  His was a strong personality and where he had definite views he was happy to express them.  His evidence seemed reliable on the whole. 

[7] I also found Mr Rebetzke a reliable witness who gave his evidence in a straightforward manner.  His and Mr Cowley’s evidence about the sequence of events seemed more likely to be accurate to me than that of Mr Shelley as they were able to relate what happened to dates when they could demonstrate where they had been at least partly by reference to contemporary records and their memories of other events.  Generally I preferred the evidence of Mr Cowley about what happened and when it happened. Other apparently disinterested witnesses such as Mr Rebetzke and Mr Good also gave evidence similar to Mr Cowley’s.

[8] Although Mr Shelley also linked his recollection to other events he could recall with some accuracy his evidence was not so detailed nor did his memory for past events appear to be as precise as Mr Cowley’s.  Nor was his evidence always in accordance with his pleaded case or the cross-examination of Mr Cowley, for example in respect of the date of their first conversation about the bar and when and how the original agreement involving all three men was made.  His original instructions about those issues appeared to founder against the evidence that Mr Cowley was at the Gold Coast from 14 September 2003 to 8 October 2003. 

[9] He was not a sophisticated businessman and had little knowledge of the structure of his businesses from the legal and accounting points of view.[1] It was also curious that he did not tell Mr Cowley any detail about the costs of building the bar and the returns from it despite many requests and in spite of evidence that suggests those figures should have been readily available to him.[2]   The likely costs associated with the bar were important to his involvement with Mr Cowley and his persistent failure to supply them to him reflected badly on the genuineness of his negotiations with him for the combination of their businesses.

[10] There were mutual recriminations between the parties as to the failure to put their cases properly to some witnesses.  One example was in respect of the cross-examination of Mr Shelley on his version of what was described as the first agreement with Mr Cowley said not to involve Mr Rebetzke.  The defendants were accuse of failing to cross-examine a Mr Good fully about evidence said to suggest he was not present at a meeting of all three men said to have occurred on 13 September 2003.  From my point of view any deficiencies in the conduct of the trial from those omissions were not significant.  In particular, I thought that the differing cases about the circumstances surrounding the making of the various agreements were explored appropriately and made clear to the opposing sides. 

Background

[11] Mr Cowley and Mr Shelley had known each other for about 13 years through property development work they had done together through a number of companies.  They had also worked with Mr Rebetzke and all knew each other socially as well as through their business connections.  When Mr Cowley and Mr Shelley went into ventures together and sometimes with others they would normally put in the same amount of money as each other and withdraw similar amounts when projects were completed.  Often they would “roll over” those amounts into new projects. 

Mandox and Tinpeak and accounting treatment of payments

[12] During the latter half of the year 2000 Mr Shelley had been in financial difficulties.  He told Mr Cowley about them and sought his help.  That was provided by Mandox agreeing to the transfer of six lots on land then being developed by it to Mr Shelley’s creditors.  Mr Shelley paid nothing for that benefit.  The use of the land was, however, reflected in Mandox’s books from that time on as contributing to a loan by it to Mr Shelley’s company, Mistweft, of $265,974.41.[3]

[13] Part of the consideration for that advance, however, was Mr Shelley’s agreement to resign as a director of Tinpeak and to transfer his interests in that company to Mr Shelley’s interests which were held through Jadewell.  Mr Shelley’s interests had injected approximately $200,000.00 into Tinpeak[4] but Mr Cowley’s evidence was that Tinpeak’s development property was then worthless so that it was not an appropriate consideration to be taken into account as offsetting the fact that Mandox had made available those six lots worth approximately $360,000 to $390,000 to his creditors.  Mr Cowley’s interests were entitled to half of that amount.  The accounting evidence at the time in September 2000 was also that Mr Shelley’s equity in Tinpeak was worth only $2,500.00 when it was transferred.  The company’s liabilities then exceeded its assets but it was assigned that value because of expected future profits.[5] 

[14] Mr Best of Connole Carlisle was Mr Cowley’s accountant and had prepared Mandox’s books.  His evidence in cross-examination about the treatment of this transaction was as follows:[6]

“You understood that what was being contemplated in September 2000 was that in exchange for Mr Shelley receiving six blocks to apply as he wished but in effect to his creditors, though maintaining an obligation to pay for his half of the debt ultimately in respect of those lots, he would forego his interest in Tinpeak?--  There would have been a draft proposal.  Like I said, there would have been tax and other issues that we need to finalise, yes, so I don't think this thing actually went any further than this fax.

Sorry, I'm not using proposal in the sense that it's capable of acceptance?--  Yes.

I'm using proposal in the sense of-----?--  It was an option.

It was option?--  It was being looked at, yes.

If you're happy with the word "option", let's stick with the word "option".  The option was that Shelley take six blocks at $65,000-----?--  Yes.

-----unencumbered, correct?--  Yes.

Remain responsible for half of the debt in respect of them?-- Yes.

And in effect in exchange for Mr Cowley being willing to give up what was his half interest in those six blocks, Mr Shelley would give up his interest in Tinpeak?--  Yes.

That was the option being-----?--  That was an option, yes.

But to the best of your knowledge, it was never completed?--

In my opinion, it's never been completed because I cannot recollect - and I would have recollected - ever doing the tax considerations on the transfer and the profits remaining and also the tax effects of the debt being forgiven in Tinpeak.

Thank you.  And you will agree with me that had it been put into effect, the financial accounts of Tinpeak and Mandox would have needed to have been dealt with differently to the they were?--  Yes.

And they were prepared, relevantly, for the year ended 30 January 2001 on the basis that this option, or one like it, never came to fruition?--  Yes.

Thank you.  Now, if we can just focus on the summary of the transactions, what was - sorry, we call it the option, the summary of the option - what was really contemplated, as you understood the option, was that Mr Cowley would be giving up, in effect, the equivalent of $190,000 worth of value in Mandox-----?--  Yes.

-----in exchange for Mr Shelley giving up the equivalent of approximately $200,000 worth of worth in Tinpeak?--  Yes.

Thank you.  And had you in fact been informed that the option had come to fruition, you would have acted upon that information and prepared the accounts differently?--  We would have had to calculate in a lot more detail than what's on that summary the end figures because they would be substantially different-----

Thank you?--  -----because the forgiveness of the debt in Tinpeak would have created an unfranked dividend in Mr Cowley's entity, which would be payable at 36 per cent, I think it was, at the time.  So, there would be a substantial shift in these figures if this proposal had of come to fruition and I do not recollect it.  I'm sure that I would recollect it, but it did not happen.”

[15] When shown some documents that suggested that the transaction had been effected at least in part, however, Mr Best expressed the view that the documents he was shown did not evidence Tinpeak’s forgiveness of debts so that he would have needed more evidence to allow him to reach a conclusion that required him to treat the accounts differently.[7]  The forgiveness of the debt had not been raised with the solicitor who drew up the documents.[8]

[16] The effect of Mr Cowley’s evidence was also that an attempt to document this arrangement by Macrossan & Amiet in a letter of 5 October 2000 reflected the substance of the negotiations between him and Mr Shelley if not the practical result, apparently because the development was not profitable.[9] 

[17] Mr Best’s evidence was also important about the proper characterisation of payments made by Mr Shelley and Mr Cowley into their various companies as loans.  This was partly because of the significant tax consequences for forgiveness of loans and also because of the distinction between money subscribed to a company for shares, which he, unsurprisingly, characterised as share capital or equity in the company, and money advanced to the company which he characterised as a loan.[10]  Mr Dunning SC for the defendants attempted unsuccessfully to persuade him that payments by Mr Shelley and Mr Cowley into their entities for particular projects could properly be characterised as capital payments rather than loans particularly where profits from such projects were realised in equal proportions between them and sometimes “rolled over” into new projects.  In arguing that case with the witness Mr Dunning also relied on some descriptions in the source documents of payments as “capital input” or “capital returns” and Mr Best conceded that, within a partnership, such as Shelley Sands such payments would be treated as equity but did not agree that it changed the proper characterisation of such payments in a company’s accounts.[11]  As the plaintiffs later submitted it is also obvious that “capital” is a word of variable meaning.[12] 

[18] It was significant that Mr Shelley had his own accountants and ample opportunity to raise through them with Mr Best issues relevant to his own companies’ accounts insofar as they were affected by the books prepared by Connole Carlisle for Mr Cowley’s entities. One of Mr Shelley’s accountants when shown the source documents relied on by Mr Dunning said that she and her partner, if they had known of those documents, would have raised with Mr Best whether certain transactions entered in the books as loans should have been treated as capital injections or a distribution of proceeds.[13]  They appear to have reached different conclusions in respect of the amounts of some entries in the accounts if not their categorisation.[14]  They did not, however, query the characterisation of the entries now sought to be challenged by Mr Shelley’s interests.  Mr Shelley also signed accounts as accurate in his capacity as director of the various companies that recognised the relevant amounts paid as loans.  He also signed the accounts of the companies in which he was a shareholder with Mr Cowley until these events terminated their relationship.  The companies also were likely to have filed tax returns and to have paid tax on the basis that the payments into them were loans rather than contributions of capital.  In my view they were loans and were properly described as that.[15] 

The Lighthouse Restaurant and Bar

[19] In August 2003 Mr Shelley owned the Lighthouse Restaurant at the Mackay Marina which consisted of a takeaway fish and chip shop as well as a restaurant adjacent to which was a vacant tenancy.  It had opened only in July that year.  Mr Cowley suggested to Mr Shelley that he should start a bar in the vacant tenancy on the basis that there was no money simply in food and the sale of alcohol would assist the business to make a profit.  Mr Cowley had a background in the hotel business that gave him some authority in making such statements. 

[20] Within a week of their first conversation Mr Shelley told him that the tenancy was available for the vacant area and asked him whether he would be interested in coming in as a partner in the bar.  Mr Cowley says that that conversation occurred also in August 2003.  Mr Cowley told Mr Shelley that his interest would be subject to looking at the figures of the business to see how the restaurant and takeaway business was going and to discover what price Mr Shelley would expect him to pay to come into it.  He wanted to see the trading figures including the business's turnover, its overheads and its profits or losses.  He also needed to know the cost of the fit out or construction of the business. 

[21] At that stage Mr Shelley told him it could be $400,000.00 to $600,000.00 to $800,000.00 as the cost of buying into the business apart from the bar.  Mr Cowley questioned the wide range of the figures.  Mr Shelley explained that his company, Chippies Mackay, had been used by the developer as the contractor to construct the actual building.  By his contract with the developer, he had to build his own internal fit out for the restaurant and takeaway business.  He needed to separate out the cost of that fit out to show the value of the business Mr Cowley might buy into.  Chippies Mackay was the owner of the restaurant and Mr Cowley believed Mr Shelley was the licensee.  Mr Shelley promised to obtain the figures for him.

The three party agreement

[22] There was a further meeting probably on 13 September 2000 the form of which remained controversial among the parties.  It occurred again at the Lighthouse Restaurant during the afternoon, after, on Mr Cowley's version, he and Mr Rebetzke walked there from apartments they had in an adjoining part of the complex at the marina.  Mr Shelley was already at the restaurant.  While they were having some drinks Mr Shelley asked Mr Cowley to see him outside.  Mr Cowley says that they walked into an open area where the bar was to be constructed on the vacant tenancy.  He said initially that they entered through an internal door between the restaurant and the vacant tenancy but later said that he had been mistaken and that they entered through bi-folding doors from the front of the proposed bar and through the restaurant kitchen and cold-rooms.[16]  Mr Rebetzke’s memory was that they entered through a doorway cut in to a disabled toilet area.[17]  There were chalk marks on the floor showing the basic layout of the bar and some concrete cutting had commenced. 

[23] There was other evidence from Mr Shelley that the vacant tenancy was then inaccessible because he had no key to it then, something that was used to cast doubt on what discussion actually happened on 13 September.  Mr Shelley’s view was that, although Mr Rebetzke was present at the bar he did not take part in the discussion outside.  Mr Shelley said that Mr Cowley and he spoke to each other outside in the absence of Mr Rebetzke and there was then no discussion about Mr Rebetzke’s potential involvement in their businesses.  He said that happened on a later day in a separate conversation between him and Mr Cowley who then spoke to Mr Rebetzke.  He also believed that he spoke separately to Mr Rebetzke at a place called Padget on about 22 or 23 September 2003.[18]  It was submitted for Mr Shelley that there was probably a meeting of all three men later in October. 

[24] Mr Cowley and Mr Rebetzke were confident in placing this tripartite discussion at a meeting on 13 September, however, by reference to other events they could date reliably as having happened before and after it.  Mr Good, who provided some consulting services for the bar and subsequently became the bar manager also said he was present for a discussion of the type evidenced by Mr Cowley and Mr Rebetzke but was not clear as to the date on which it occurred.[19]  Doubt was cast on whether he was there on 13 September because of the lack of a computer record of his logging into the system then but he was not fully cross-examined about that issue.  Nor did the plaintiffs seek to recall him to give further evidence.  It must be said also, however, that all three of the potential partners visited the premises regularly and the possibility of some confusion existing about the date is not surprising. 

[25] In my view, however, it is more probable than not that this tripartite meeting did occur on 13 September, partly because of the number of witnesses who attested to such a meeting involving all three men and also because of the three week period of Mr Cowley’s absence from Mackay after that date.  It seems to me that the fragmented series of conversations otherwise referred to by Mr Shelley in Mackay, Brisbane and at the Gold Coast provide a less persuasive explanation of how the parties reached their original agreement than does the one meeting then, about the time Mr Shelley was committing himself to this new lease. The doubts about whether the bar area was then accessible and whether Mr Good had logged on to the computer system on that date do not seem to me to be sufficient to detract from the other evidence linking the conversations that occurred to that date. 

[26] Mr Cowley’s recollection was that he and Mr Shelley moved to the south-eastern corner of the building outside the vacant tenancy that later became the bar and had a talk.  There were some tables and chairs at which they sat.  They spoke about the nature of the licence for the premises, whether it should be a restaurant or a tavern licence.

[27] Those discussions came to an end and Mr Cowley was about to walk back inside when Mr Shelley said that he had heard that Mr Cowley had a subdivision in Coles Road, Andergrove.  That was correct.  It was a subdivision the subject of a contract for purchase by Jadewell.  The contract had not then been completed.  It was vacant land with an approval for 41 residential allotments to be built on it.  The approval required the work for the subdivision to be substantially completed or possibly substantially commenced by May 2004.  Accordingly Mr Cowley was keen to commence work quickly to avoid the possibility of more onerous conditions being imposed for any new approval under a new town plan for the area.

[28] Mr Cowley says that he was shocked that Mr Shelley knew about the Coles Road subdivision.  Mr Shelley asked how he could get involved in it to which Mr Cowley replied:[20]

“Why would I involve you in it?  What’s the win for me?  What have you got to offer that I would bring you into half a subdivision for no reason?”

[29] Mr Shelley told him that Mr Shelley’s interests had tendered for a contract to maintain a town called Tieri, a coal mining town.  He also had the contract to maintain another mining town called Glenden which supported another mine which was a lucrative source of income for him.  To Mr Cowley’s knowledge Mr Shelley was also involved in construction work and maintenance work on heavy equipment in mining areas.

[30] Mr Shelley expected to win the tender for the Tieri town maintenance contract and offered to put in that as well as the mine work he had out west, not including the town maintenance contract for Glenden.  He told Mr Cowley that there were millions to be made out west in maintenance work for the mining industry.  Mr Shelley also told Mr Cowley that he had wanted to build “spec” homes on the Coles Road subdivision through the Residential Developments companies and the Cavalier Homes business in which he was in partnership with Mr Rebetzke.  He wanted to do that to provide work for his employees on the coast, closer to their families, as well as the work at mine sites which he normally provided to them. 

[31] When that proposal was made Mr Cowley said that it sounded acceptable but pointed out that Mr Shelley was in partnership with Mr Rebetzke in Cavalier Homes who would be constructing the houses.  Accordingly he said he was not going to proceed on that basis unless Mr Rebetzke was involved because it would not be fair to him as he would be doing all the work.  Mr Shelley responded to that by saying that he did not want to be involved with Mr Rebetzke again as he did not trust him any more. 

[32] Mr Cowley, Mr Shelley and Mr Rebetzke had previously been involved in the ownership of a boat called “Gull Reef”.  Mr Cowley’s evidence was that that relationship ended up acrimoniously as had another business in which the three men were involved with a live coral trout fishing boat.  When Mr Shelley told him that Mr Shelley did not want to involve Mr Rebetzke, Mr Cowley replied that if Mr Rebetzke were not involved: “This deal wasn’t happening.  It is that simple.”[21] 

[33] Mr Cowley says that Mr Shelley then agreed that Mr Cowley should go and ask Mr Rebetzke to come out.  Mr Shelley’s version is that Mr Rebetzke’s involvement was not raised until he mentioned the possibility in a telephone conversation or possibly in person at the Gold Coast some days later.  Mr Cowley’s version, which I accept, is that he brought Mr Rebetzke out and all three were then sitting at the table and chairs outside the restaurant on the patio.  Mr Rebetzke’s evidence was also similar to Mr Cowley’s about this conversation and its essence had been set out by him in an email to both Mr Shelley and Mr Cowley dated around February 2004.[22] 

[34] Mr Cowley reiterated what Mr Shelley had said to him about the proposal that the Coles Road subdivision be brought into a deal where Mr Cowley would do the subdivision and Mr Rebetzke would build the houses through Cavalier Homes and Mr Shelley would put in his western mine work and his maintenance work apart from that work at Glenden.  Mr Rebetzke’s initial reaction was that it was not fair and that he was just putting in the building of the houses.  Mr Shelley responded by saying that he believed they should put Cavalier into this deal as well so that Mr Cowley was a partner in the Cavalier home building company as well.  Mr Shelley also made a comment about Mr Cowley:[23]

“Well, that is fine but he’s mad.  It [referring to Talrick which operated the Cavalier Homes businesses] has $400,000.00 worth of debt in it.”

[35] Mr Rebetzke told Mr Shelley that that did not take into account Cavalier’s likely future profits.  The conclusion of the discussion, on Mr Cowley’s evidence was:[24]

“All right, well, then what was the upshot of it all?--  The upshot of it all, basically that is fine.  I was to come into Cavalier.  My land was to get transferred from my company. Rick actually said that he wasn't going to pay for another shelf company to be set up for this to be transferred, the land to be transferred in.  There was an existing company called Mandox which Shelley and I had previously used before sitting there dormant.  We would issue more shares to Kev Rebetzke to come into the deal.  We later found out that Mandox had been used before anyhow to buy the boat in 2001 - 2000 so the shares were already in existence.  That was a company nominated and used to transfer the land from my company Jadewell into Mandox.

 

Let me pause there.  Mandox, you said, had previously been used?--  Correct.

 

Was Mandox then conducting any business at all?--  No, it was dormant.

 

Now, so that is the structure of the arrangement.  Was there anything then said about how the parties would proceed apart from what you just told me about issuing shares which turned out to be unnecessary?--  Well, it didn't have to be done, that is correct.  Rick mentioned that because the contract with RD Services, Glenden was already in and going, it would be hard to write us into that contract but he would guarantee we would get the one third each profits out of that.  At a later stage when the contract came up for renewal we would then address the situation of that there.  Tieri maintenance, I think he set up RD Glenden Tieri or something maybe.  RD Glenden, I don't know what it was he set up.  Basically we were to be part of that company.  Cavalier Homes was to become part of that company.  I think it was run by Talrick or something like that.  Basically they become shareholders - they already were, we transferred the land into Mandox.

 

When you had the - when Jadewell held the contract for the purchase of Coles Road?--  Yes.

 

Was Jadewell going to pay the purchase price?--  Yes, it was.  From its own resources or was it going to obtain loans or finance?--  We may have obtained a loan but at that stage the contract went in, it was cash unconditional so not subject to finance.

 

Did you have any discussion about how the completion of the land was going to be - Coles Road was going to be financed-----?--  Yes, at the meeting I said to them, ‘Well, the way I go at the moment we have to settle this on 11 November, that is the settlement date.  I believe we will have to tip in $150,000 cash each as equity towards the settlement.’

 

That is $450,000?--  That is correct, towards the settlement.

 

What was the purchase price under the contract?--  The purchase price I think from memory was $900,000 plus GST. Then it - from there basically working on ratios that I know Suncorp would lend 70 per cent of the development costs so probably about another 200,000 we had to tip in each again.

 

Sorry, I want to make it clear.  I am asking about what you said to the meeting?--  Yes, this is what I was saying.  I was actually saying that. I said we need 150 for settlement of the land, 200,000 each for equity for the subdivisional costs.

 

All up each of the parties you were suggesting put up $350,000 each?--  Correct.

 

To enable the purchase?--  Yes.

 

And the subdivisional costs?--  Yes.

 

That wasn't the total cost of the proposed subdivision?--

Yes.

 

You put up 350 each?--  Yes.

 

So that is nearly $1 million, that is $1,050,000?--  Yes.

 

Did you acquire any further money?--  Yes, sorry.  Yes, Suncorp would then advance the extra remaining money necessary of, I think, it was an extra - we borrowed $2.8 million in total.  I think Suncorp would have lent us 1.8 million of that money.

 

This is the proposal that you put to them.  What did they say to that proposal?--  They were all in agreeance with that.”

[36] That evidence only refers to the Coles Road subdivision and I would not be prepared to find that Mr Cowley had agreed to put further developments of his into this agreement in the absence of more explicit evidence from him. 

[37] Mr Rebetzke was concerned at his ability to put $350,000.00 into the deal.  Mr Shelley said that he would assist Mr Rebetzke by putting in $150,000.00 for him and said Mr Rebetzke may be able to put in the $200,000.00 at a later date.  Mr Cowley denied making any binding arrangement at that stage simply to develop the Coles Road subdivision with Mr Shelley and without Mr Rebetzke or that he then agreed to go into partnership with Mr Shelley in the bar and restaurant.  At that stage he had not been given any figures for the cost of his purchase of an interest in the bar and restaurant although he continued to ask Mr Shelley for those figures.  It was perfectly rational for him not to commit himself to that investment then in the absence of that information. 

[38] After that meeting Mr Cowley said he spent about three weeks on holidays at the Gold Coast, returning to Mackay on 6 October 2003.  While he was at the Gold Coast Mr Rebetzke came to see him on 15 September and reiterated his interest in being involved in the bar and restaurant and also in the subdivision that Mr Cowley and Mr Shelley were doing in Airlie Beach called Shelley Sands.  Mr Cowley told Mr Rebetzke that was something about which Mr Rebetzke would have to speak to Mr Shelley.  That development was being done by Mistweft and Patsday on behalf of Mr Shelley and Mr Cowley respectively. 

[39] Mr Cowley says that he and Mr Shelley also caught up with each other on 19 September 2003 at the Broadbeach Tavern.  Mr Shelley told Mr Cowley that the licensing commission had authorised the bar to operate under the same licence as the restaurant licence.  Mr Cowley also told Mr Shelley of Mr Rebetzke’s request to come into the Shelley Sands subdivision which Mr Shelley refused, also refusing to give his consent to Mr Rebetzke coming into the bar business.  Again Mr Cowley asked for the figures about the bar and did not receive them, being told by Mr Shelley that he was still trying to break the figures apart and that he would get them to Mr Cowley. 

[40] Mr Cowley gave instructions to his solicitors to alter the purchaser of the Coles Road subdivision from Jadewell to Mandox as the chosen vehicle for that three way joint venture.  He rang Suncorp to help him discover how much money would have to be put in by all three parties in addition to any loan monies from Suncorp.  During that process he made further enquiries of Mr Shelley of the fit-out cost of the bar which Mr Shelley said he felt would be between $100,000.00 and $150,000.00 and again Mr Cowley asked him where the figures were because he needed them.  He said that Mr Shelley then started to blame his secretary for not having produced them. 

[41] At that stage there was also $250,000.00 cash in the bank owned by Mistweft and Patsday from sales of land from the Shelley Sands development which Mr Shelley proposed could be used for expenses in relation to the development of the bar. 

[42] Around that time Mr Rebetzke rang Mr Cowley “very cranky” saying that Mr Shelley had put to Mr Rebetzke that he would have to pay more than $1 million for his one third equity in the bar, Shelley Sands and Coles Road.  Mr Rebetzke objected to that, said he could not afford it, said he was also still happy to move on with the Coles Road subdivision but still needed Mr Shelley’s assistance to achieve that.  Mr Shelley had estimated to Mr Rebetzke that it would cost him approximately $300,000.00 to come into the Shelley Sands subdivision and $366,000.00 to buy one third of the bar on top of the $350,000.00 agreed contribution to the Coles Road subdivision.  Mr Cowley thought that the proposed figure of $366,000.00 for a one-third interest in the bar and restaurant was far too high.  When he raised that with Mr Shelley, Mr Shelley said that the price that he had told Mr Rebetzke was ridiculous to make sure he could not afford to come in.  Mr Cowley told him he thought that was unfair to which Mr Shelley replied he did not care.  Mr Cowley continued to try to obtain the actual costs of the Lighthouse Restaurant.  He sent a handwritten note asking for those figures from a lady called Simone who worked in Mr Shelley’s office on 20 October 2003.  He did not receive them. 

Mr Rebetzke withdraws

[43] Settlement of the Coles Road subdivision contract was due in early November 2003 and towards the end of October Mr Rebetzke rang Mr Cowley to tell him that he and Mr Shelley had fallen out.  Mr Shelley was refusing to help Mr Rebetzke obtain the money to help settle the purchase of the Coles Road land.  One of the problems between them was that Mr Rebetzke had not used Mr Shelley’s cabinet making business to do the kitchens in some of the houses they were building together because that cabinet making business was too slow.  That irritated Mr Shelley considerably.  The consequence was that Mr Rebetzke withdrew from the proposed tripartite transactions towards the end of October, a few days before the acquisition of the Coles Road land was due to settle in early November 2003. 

The two party agreement

[44] When that happened Mr Cowley rang Mr Shelley who told him that he was not going to put up the money to assist Mr Rebetzke for the settlement of the land purchase.  When Mr Cowley asked him how the transaction would then proceed Mr Shelley said:[25] 

 

“‘Everything goes the same, you continue with the subdivision, I still put all the mine work out west as we agreed upon. I have the money to cover Kevin's half, his share of the settlement of the land to come down. The spec houses will go ahead.’ And that's the first time he said, ‘With the spec houses, I will have with the cash to pay for the specs. You don't have to put in that. You just keep going with the subdivision, and you can have half of Cavalier Homes because Rebetzke's going to get out.’

 

And the mining work?-- As I said, the mining work's in.  Well, he actually said, ‘The - everything goes ahead as the same, the subdivision stays in and you continue doing what you're doing. The mine work - I put the mine work in. You get half the profits there. The specs to continue, but I will finance the specs myself and you can come into Cavalier Homes.’”

[45] Mr Rebetzke’s evidence was also to the effect that he then, during a conversation with Mr Shelley in the afternoon of 30 October 2003, decided to withdraw from his operations in Talrick (including Cavalier Homes) with Mr Shelley.[26]  Mr Cowley denied making any agreement with Mr Shelley on 3 November 2003 simply to do the Coles Road subdivision together without obtaining anything else from Mr Shelley.  I believed him; it would have been quite uncharacteristic of his behaviour to continue his dealings with Mr Shelley on such a basis.  Nor could this variation of the original agreement be treated, on the evidence I accept, as a reversion to the earlier agreement alleged by Mr Shelley, that he agreed with Mr Cowley, independently of any other obligation, to acquire a half interest in the Coles Road subdivision.

[46] On 3 November Mr Cowley did send Mr Shelley a facsimile indicating that each needed to pay $221,000.00 towards the cost of purchasing that land and associated costs.  After the land purchase settled Mr Cowley said that he commenced development work quickly through a contractor. 

Payment for the bar – Mr Shelley’s offers to withdraw

[47] Mr Shelley also rang him some time around 19 November and said he wanted to borrow more money to finish off the bar. Mr Cowley had still not been told what the figures were for the fit out of the restaurant or the trading figures of the restaurant and bar.  Mr Shelley’s reluctance to provide the figures may be explained by Mr Good’s evidence that Mr Shelley told him that the figures he had for the performance of the bar would not satisfy Mr Cowley.[27] Mr Cowley raised with Mr Shelley the amount Mr Shelley told Mr Rebetzke it would cost for him to buy into the bar and was again told by Mr Shelley that figure was inaccurate and was set to ensure that Mr Rebetzke could not afford to come in.  He did say however that the cost was around about $400,000.00 for the restaurant but not for the bar that was being built which he was told was another $120,000.00 on top of that.

[48] Mr Shelley then proposed that he borrow some money out of the Shelley Sands partnership funds.  In that context Mr Cowley said this conversation occurred:[28]

 

“Where had the money come from to pay for the construction of the bar next to the existing restaurant?—

 

Well, again, I think in that stage, November, Rick come and said, ‘Look, we need to - I want to borrow more money out of Shelley Sands.’ Now, we had originally paid one payment out of that and I said, ‘Well, look, Rick, this is getting out of hand now, mate. Look, we are taking money out of Shelley Sands into this bar. I am asking for figures. I am not getting them. I don't know why. You don't seem to be able to do a simple breakup of your fit-out costs yet we are going to continue to put money into this bar from here.’

 

That is when he said - that was the first time he put the bar together with Shelley - with Coles Road. He said, ‘Look, don't worry about it. If you don't want to end up coming into this bar and restaurant I will give you back the money I borrowed from Mandox, half of it, the other half is mine anyhow. I will hand that back. You hand back the $221,000 I put into Coles Road. We walk away and stay mates.’ Now, at that stage I couldn't quite figure out - they were two totally separate things. That is the first time he put it together. I thought okay that is the escape clause, okay, fine. If I am not happy, I walk from the bar, he walks from Mandox, Coles Road and it is all cool.

 

That is what he said to you?-- Yes.”

[49] Mr Shelley denied that he made such an offer to withdraw from Mandox if Mr Cowley did not come into the bar and restaurant but Mr Cowley’s evidence about this and two later similar offers seems to be more reliable to me.  The offer also makes sense given the continued failure by Mr Shelley to supply the relevant figures about the bar and restaurant’s costs and performance to Mr Cowley.  After that agreement was reached Mr Cowley said that the money for the bar was taken from the Shelley Sands partnership and was paid to Chippies Mackay.  He said that he continued to ask Mr Shelley for the figures for the bar which were not supplied.  He also asked him what was happening about the Tieri town maintenance tender about which he was told that the tenders were still out but Mr Shelley had not heard anything. 

[50] Then, probably on 22 November 2003, Mr Cowley met Mr Shelley at the Seaforth Bowls Club in the evening when he says that Mr Shelley repeated his statement that if Mr Cowley was not happy to come into the restaurant and the bar that he would return the money that he had put into the bar, Mr Cowley should return the money Mr Shelley had put into Coles Road, they would shake hands and walk away.[29]  Mr Cowley again asked for the break up of the costs of the bar as he did at its opening on 29 November, a week later and on Christmas night 2003. 

[51] Between those dates, on 14 December, a Sunday afternoon, he says that Mr Shelley called him and said:[30]

 

“He said, ‘John, can you come down and see me at the bar? I want to have a talk with you.’ I wasn't keen on that because I don't like to drink on a Sunday, Monday is a work day. Anyway how I went down. We had a few beers and that was probably the strongest statement he had used then. It was, sort of, along the lines of, ‘Look, mate, as I have said before, if you don't want to come into this I will give you back the money you put into the bar. You give me back the money out of Coles Road. We walk and we stay friends. In actual fact I really love this place, it is going really well and I really don't even want you here. However, because we are mates and what we agreed upon you are welcome to stay but, again, if you want to go I am more than happy with it. Now, at that stage I said to him, ‘Look, I am sick of saying this, that is great but you have got to get me the figures and you have to get me the cost of what I have to buy in at and prove to me where it is, mate. It is immaterial, you keep making these statements when I can't make a decision because you are not getting them to me.’ He got cranky then. He said, ‘I told you, I am on to it.’ I said, ‘How long does this take? It is not impossible.’ That was pretty well it and we flew off on 2 January after that.”

Mr Cowley withdraws

[52] Mr Cowley went to Broadbeach on the Gold Coast from 2 January 2004 for his Christmas holidays and says that between about 7 and 10 January 2004 he rang Mr Shelley and said that he was not proceeding and wanted to head his own way.  There was no specific mention of Mr Shelley leaving Mandox but, given the previous conversations that I have accepted occurred, that was the logical corollary.  The further logical consequence was that Mr Cowley was relinquishing his interests in Mr Shelley’s businesses if he was heading “his own way”.  They had been offered in return for the entry by Mr Shelley’s interests into the Coles Road subdivision but nothing had occurred to show that those possibilities of mining work had come to fruition.  Mr Cowley rang a solicitor instructing him to draw up resignation papers for Mr Shelley as a director of Mandox and to organise the splitting of the company and how the monies would be returned.  That solicitor contacted Mr Shelley and rang Mr Cowley back and told him that Mr Shelley had refused to resign and informed him that he would need to withdraw as a solicitor because he could not act for both parties. 

[53] Mr Shelley’s evidence, as I have pointed out earlier, was that he did not offer to withdraw from Coles Road although he did say that he had responded to Mr Cowley’s suggestion that he might withdraw from the bar by asking him “very vaguely”:[31] “ ‘Did you want me to resign or leave the Coles Road subdivision?’  I wasn't sure why he kept saying he wanted to leave the restaurant and he never responded to that and I never brought it up ever again.”  There is other evidence of an admission by Mr Shelley to Mr Cowley’s earlier solicitors that he agreed to withdraw from Coles Road during a drunken conversation but that he later reneged.[32]   Nothing was made of that admission in the oral evidence or the submissions so I do not place any reliance on it but it is my view he did agree to withdraw and the corollary is that he had no further commitments to Mr Cowley in respect of his mining work or the ownership of Talrick as those obligations were interdependent because of their October 2003 agreement. 

[54] Mr Cowley returned to Mackay on 20 or 21 January 2004 and saw Mr Shelley on 25 January at the bar.  He said that Mr Shelley told him that he knew he had agreed to go and that he would agree to it but asked whether they could talk about it a bit more.  Mr Cowley told him there was no point but expressed a willingness to talk about it further.  Mr Cowley says that Mr Shelley then did not return his telephone calls and on 2 February 2004 he sent him a letter outlining a proposal for splitting up their interests.[33]

[55] In that document he proposed a payment out of the settlement monies of the Shelley Sands partnership to Mr Shelley of $153,500.00 being the difference between the $221,000.00 paid by him into Mandox for the Coles Road subdivision and the amount of $67,500.00, being half of an amount of $135,000.00 paid from the Shelley Sands partnership money into the fit-out of the Lighthouse bar, leaving the amount of $153,500.00.  He also attached a plan where he had marked 10 lots in the Coles Road subdivision that he suggested Mr Shelley may wish to purchase.  He was expecting that approximately $400,000.00 would come into the Shelley Sands partnership account during that week.  He said that he received no response to that proposal. 

[56] There was, however, a facsimile of 4 February 2004 from Mr Shelley’s office signed by an employee which proposed, in effect, that the sum of $390,000.00 available from the Shelley Sands partnership sale of land at Airlie Beach be divided between Mr Cowley and Mr Shelley with $262,500.00 going to Mr Cowley and $127,500.00 going to Mr Shelley, his lesser amount reflecting the loan by Patsday to Chippies Mackay of $67,500.00 for the fit-out of the bar.  Significantly, however, that facsimile went on to say:[34]

 

“In relation to Mandox Pty Ltd, Rick [Mr Shelley] advises that he does not wish to settle any matters relating to this company today.  He would like to discuss the matter with John [Mr Cowley] today or tomorrow.”

Meeting of 5 February 2004 and subsequent correspondence

[57] There was then a meeting probably on 5 February 2004 at the yacht club at the Mackay Marina.  Mr Cowley says that he then produced some cheques and tendered them to Mr Shelley during this conversation:[35]

 

“I said, ‘Rick, here is the way we've agreed how you will get out of Coles Road, I will get out of yours. Here's the 195,000. This money comes off, in other words 67,500 comes off your 195,000. It gets added on to my 195,000, which takes it to 262,500. Then I give you the 221,000 you've tipped into Mandox. So therefore you get your 127,500 cheque’, which I handed him, ‘You get your 221,000 cheque’, which I handed him, ‘That leaves me with 47,000 or something dollars left over, and here are the resigning as a director of Mandox papers that I need done and signed that we agreed would occur.’”

[58] Mr Shelley told him that he did not want to resign.  Mr Cowley remonstrated with him that he had agreed to do so.  Mr Cowley said that Mr Shelley said he had had a few beers and he could not be held to that.  Mr Cowley said in reply that everything they did was over a few beers but Mr Shelley repeated that he was not going to resign.  Mr Cowley says that he went on to say:[36]

 

“‘Rick this i[s] wrong, mate.  We've agreed to what the - the workout mechanisms are, the escape mechanisms are if no-one - if I didn't proceed ahead. Now, I've done all the work on Coles Road. I've outlayed all the money. I've put my own money in that you haven't brought back to me. Why is it that you think that you're entitled to half this subdivision? Where's the mine work out west?  Where's the Tieri town maintenance? Where's some return from those bar and the money that I've had to tip into that bar, where is it? There's nothing there. I haven't got anything.  So, it's only fair that - this is what we've [a]greed upon, this is what we're going to do, and you need to sign them documents, we'll move on and stay friends.’”

[59] Mr Cowley said that he asked Mr Shelley about his mines work out west to which Mr Shelley responded by saying that the tenders on it were still out.  Mr Shelley also said to him that, if Mr Cowley wanted him out of the deal, he could give him 10 to 12 blocks of land at cost in the Coles Road subdivision. 

[60] Mr Cowley came to the meeting armed with documents recording a transfer of shares from Mistweft to Farnscastle and the resignation of Mr Shelley as an office holder.  There were also some cheques offered to Mr Shelley which he refused.  Mr Cowley’s evidence was not terribly clear about what happened but his bookkeeper, Mrs Holmes, helped clarify what happened.  A cheque dated 3 February 2004 had been drawn on a Shelley Sands partnership account, shown on cheque butt 300059 for $221,000.00, which was paid to Mandox to allow it to reimburse Mr Shelley for the money he had advanced into Mandox for the Coles Road subdivision.[37]  The payment to Mandox was applied to reduce the Mistweft loan account in Mandox’s balance sheet from $265,974.41 to $44,974.41.[38] 

[61] The cheque for $221,000.00 having been paid into the Mandox account a cheque payable to Mistweft, mistakenly post-dated 4 March 2004 for $221,000.00, was drawn on that account as full and final repayment of money paid by Mistweft towards the purchase of the Coles Road land.[39]  Mr Shelley refused to accept the Mandox cheque but the Shelley Sands partnership cheque had been paid into the Mandox account by that stage. 

[62] Mr Cowley also offered a cheque for $127,500.00 from the Shelley Sands partnership account, cheque number 300060, to Mr Shelley on the basis that the offer of both cheques was conditional on acceptance of both.  Mr Shelley also refused to take that cheque on those terms.  The amount of $127,500.00 represented the figure referred to earlier as the adjusted distribution from the Shelley Sands partnership to reflect the lower share due to Mr Shelley because of the reimbursement proposed to Mr Cowley for monies advanced for the fitting out of the bar.

[63] Some other cheques had been prepared by Mr Cowley’s bookkeeper mistakenly and were not used at this meeting.  The $221,000.00 remained in the Mandox account until it was transferred later to Gladingvale in relation to a loan said to be owed to it by Mistweft and Patsday for advances given to them in relation to the Shelley Sands subdivision which was operated by them in partnership.  That amount was said to be $210,286.79 and was demanded by Connole Carlisle, the accountants for Gladingvale, from Mistweft and Patsday by their letter dated 13 May 2004.[40]  It was transferred on 17 May 2004 as an amount, including interest, of about $221,000.00 without notice to Mr Shelley.[41]  The figure of $210,286.79 was calculated by Mr Best of Connole Carlisle, Mr Cowley’s accountant, from records, kept by Mrs Holmes, which were the basis for the response to a request for particulars of how this amount was made up.[42]  Original source documents were identified for all but one item worth $16,311.95.[43]  The amount owing had increased over the years to reach that figure.  The calculation of interest on the amount appears to have been inconsistent with previous practice within the parties’ companies.[44]  Otherwise the evidence supports the fact that Mistweft and Patsday owed Gladingvale the sums claimed.  Mr Cowley was criticised for what Gladingvale later did with the money but I ruled that was irrelevant to the issues being litigated.  Mr Savage SC for the plaintiffs characterised it as partnership money used at the direction of a partner to discharge a partnership debt owed to Gladingvale but not Chippies Mackay.  That seems to me to be a valid description of what occurred. 

[64] After the meeting of 5 February 2004 Mr Cowley’s solicitors wrote to Mr Shelley by their letter dated 6 February 2004 asking him to transfer his shares in Mandox to Mr Cowley for which he would be immediately reimbursed the sum of $221,000.00.  That proposal was rejected in Macrossan & Amiet’s letter of 9 February 2004[45] which set out in some detail Mr Shelley’s instructions about the nature of the negotiations between him and Mr Cowley together with Mr Rebetzke, the events relating to the seafood restaurant and bar, the Coles Road subdivision and other possible partnerships and joint ventures between the three of them including the Cavalier businesses and work in the hinterland. 

[65] Mr Shelley’s instructions reflected in that letter were that he received a phone call from Mr Cowley in early January advising that Mr Cowley did not wish to become a partner in the restaurant and bar and in general advising him that Mr Cowley wished to “tidy up his backyard”.  The letter goes on to say:

 

“At no time during this discussion did John say that his decision to pull out of the Restaurant and Sportsman Bar was conditional upon Rick having nothing further to do with the Coles Road subdivision.”

[66] Mr Cowley’s solicitors replied on 10 February 2004 setting out their client’s instructions in some detail also.  It related the fact that Mr Rebetzke was not in a position to contribute what he anticipated he could and had withdrawn.  It did not refer explicitly, however, to the varied agreement made between Mr Cowley and Mr Shelley in late October after Mr Rebetzke’s withdrawal.  It said:[46]

 

“Your client apparently also decided not to make his agreed contribution to the company and had agreed to surrender his shares in the company to John at two further meetings.  Notwithstanding this assurance he then refused to do so.…”

[67] To that stage it was clear that Mr Shelley had made his agreed contribution to the company so that part of the letter was incorrect.  It also went on to refer to a claim by Farnscastle and Patsday to have supplied management and administrative services to various ventures in which Mr Cowley’s and Mr Shelley’s interests had been involved which had not yet been invoiced. 

[68] On 2 March 2004, new solicitors for Mr Shelley wrote to Mr Cowley’s solicitors contesting a number of matters in their letter of 10 February 2004 and asserting that Mr Shelley’s contributions to the funding of Mandox had never been viewed by the parties as a loan, presumably arguing the point of view that the funds were advanced as capital to that company.[47]  Mr Cowley’s solicitors contended that the monies were contributed as loans and asserted that further monies were required to be lent if Mr Shelley was to live up to his end of the bargain in their letter of 5 March 2004 which set out again in significant detail their instructions from Mr Cowley.[48]  The letter contained the following information:

 

“In essence, Cowley's position is as follows:

 

1.Shelley, Rebetzke and Cowley met and agreed that Shelley would ‘tip in’ various works contracts (some of which he already had and some of which he assured Cowley he would be getting), Shelley and Rebetzke would tip in Cavalier Homes and Cowley would tip in the Coles Road subdivision. 

 

2. Shelley Sands at Cannonvale is a separate matter between Shelley and Cowley.

 

3.The Lighthouse restaurant and bar was also a separate matter, which Shelley was inviting Cowley to be part of. Despite Cowley asking for details of construction costs and trading figures and Shelley promising those figures on a number of occasions, Shelley never produced them. Cowley eventually got fed up with waiting and told Shelley he did not wish to be involved with the Lighthouse restaurant and bar.

 

4.Cowley had located the development at Coles Road and secured the purchase. He had the finance and did not need Shelley or Rebetske to contribute anything for him to successfully develop the property. Shelley acknowledged in the meeting that he had with us and his solicitor that he has had nothing to do with the decisions relating to the development.

 

5. Shelley has also admitted to us that the agreement described in paragraph 1 above was reached but somehow suggested that the Lighthouse Restaurant proposal was part of it:

 

6.In any event Cowley held up his end of the bargain. Cowley had the property at Coles Road under contract through another of his companies Jadewell Pty Ltd as trustee. After the discussions between Cowley, Shelley and Rebetzke at the Marina, Cowley changed that purchase contract to insert Mandox Pry Ltd as the purchaser.

 

7.We understand that Mandox Pry Ltd had sat dormant for approximately 4 years. Instead of the parties incurring fees of approximately $1,000.00 to set up a fresh company, Shelley suggested Mandox Pry Ltd be used as the vehicle for their agreement.

 

8. Shelley promised to pay the first land payment of $150,000.00 on Rebetzke's behalf. Shelley then reneged on this promise and Rebetzke was then forced to withdraw from the deal.

 

9.Shelley made absolutely no moves towards living up to his end of the bargain. He has not ‘tipped in’ any contracts he currently has. He has .made no moves to tip in Cavalier Homes franchise. We understand that the, Tied Town maintenance contract he assured Cowley he would be getting has not been awarded to him. Apparently the existing contractor had his contract extended for 6 months back in November 2003 but Shelley hid that fact from Cowley and it only came to light in the recent discussions.

 

10.It became apparent to Cowley that Shelley had done nothing and never intended to do anything about his part of the bargain and therefore sought to have the parties put back in their original positions.

 

11.Shelley had on two occasions told Cowley that he would ‘get out’ of the Coles Road development if Cowley did not proceed with the Lighthouse Restaurant. This never made sense to Cowley since the agreement reached and the Lighthouse proposal were unrelated. Nonetheless Cowley took comfort in the assurance from Shelley that he would get out of the development.

 

12.Shelley has admitted to us that he did make those comments but suggested that he had been drinking at the time and he should therefore not be bound by it.

 

13.If Shelley was unable to live up to his promise of effectively giving Cowley half of Cavalier Homes and half the benefit of his works contracts then the parties should be returned to their original position (ie. the Coles Road development is solely Cowley's and the works contracts and Cavalier Homes is solely Shelley's). This is what Cowley has sought to achieve.

 

14.If that is not to occur then Shelley can only be suggesting that the contract is still on foot and that he will be making the contributions that he promised.

 

15.Our client is aware that Shelley was recently in Brisbane to sign up a large works contract. He has not informed Cowley about it despite the fact that on his version of events he would have a duty to do so. Either Cowley has a half interest in those contracts and Cavalier Homes as previously promised by Shelley, or the parties should be returned to their original position.

 

16.For Shelley to meet his obligations this would include making immediate payment of the following:

 

16.1 Shelley making a loan to Mandox Pty Ltd to pay for his 50% contribution required for the costs of development to match that made by Cowley (half of $239,455.82 being $119,227.91);

 

16.2Shelley making a further loan of $35,000 to Mandox Pty Ltd to match the contribution made by Cowley for the water main upgrade of $70,000.00.

 

17It would also involve:-

 

17.1.  Transferring the benefit of the Tieri Town Maintenance contract (and all other works contracts) that Shelley has that were agreed to be part of the agreement;

 

17.2. Compensating Cowley for the loss of profit because of a failure to have transferred the benefit of these contracts previously;

 

17.3Transferring the benefit of the Cavalier Homes business as per the agreement;

 

17.4. Compensating Cowley for the loss of profit because of a failure to have transferred the benefit of this previously;

 

18. In addition to the above Cowley requires the immediate return to him by Shelley of $57,500.00 (being monies used by Shelley for, the Lighthouse restaurant).

 

19.Our client is also demanding Mandox Ply Ltd and the Shelley Sands partnership repay to Gladingvale Ply Ltd the $443,379.43 owing to it by those companies.

 

20. Because Shelley has done nothing towards his obligations Cowley requires full disclosure of all works contracts including the negotiations for the Tied Town Maintenance contracts and other contracts Shelley assured Cowley he would be getting on behalf of them both. The disclosure is to include the names of the companies which carry out this work and a full copy of their financial records.

 

21. Our client requires this information in the form of a Statutory Declaration signed by Shelley and also by his former solicitor Mr John Formosa. Our client will rely upon the sworn statements of Shelley and Mr Formosa.

 

22. It was agreed that Cowley was to get a half interest in these contracts and he is entitled to the information.

 

23.Given Shelley's failure to voluntarily provide this information in the past Cowley also requires any company that currently has the benefit of those contracts have it income and expenditure statements audited monthly by KPMG Accountants.

 

We note that all this information would become available by discovery in any court action and can see no reason why Shelley would object to providing what has been requested.

 

If Shelley does now not want Cowley to have a half interest in Cavalier Homes and a half interest in Shelley's companies conducting the works contracts, then Shelley should immediately resigns as director of Mandox Ply Ltd and transfer his 50% shareholding in Mandox Ply Ltd to Cowley (where upon Cowley shall organize for Mandox Ply Ld to refund to Shelley all monies contributed to date by Shelley to the Coles Road development).

 

This offer is made on a without prejudice basis in the hope of avoiding litigation (which would be extremely expensive for both parties and completely unnecessary noting their past dealings and assistance given by Cowley to Shelley).”

[69] As is apparent from the last paragraph the letter was sent initially on a “without prejudice” basis but no point as to its being privileged was taken by any party during the litigation.  The letter is also ambivalent as to whether Mr Shelley had any continuing obligations to make contributions to the development of the Coles Road subdivision or to take account of Mr Cowley’s interests in respect of the Cavalier Homes and other businesses, an attitude that appears also in later correspondence.  Mr Cowley sought to explain this in his oral evidence on the basis that until the dispute was “sorted out” he had to move on and that “the mines works still moves on because it was he that reneged, not me.”[49]  Elsewhere he also said: “Therefore, everything else is on foot until such time as he resigns out of it and gives me back my money.”[50] 

[70] Mr Shelley did not make the advances sought in para. 16 of that letter in respect of the further development of the Coles Road land.[51]  He knew that more money would be needed by mid-February or March but would not have been willing to pay it because of his dispute with Mr Cowley.[52]

[71] There was an offer to make that payment, however, after some reiteration of Mr Shelley’s version of events, in his solicitors’ letter of 11 March 2004.[53]  They asserted that, after Mr Rebetzke withdrew from the deal:

 

“This left our clients in the position in which they originally stood ie they would each have an ability to have a 50% interest in the Chippies Mackay Pty Ltd and Coles Road. Subject to one matter mentioned below, the western contracts and Cavalier Homes were gone with Kevin Rebetzke. As stated above, there is no commercial reason why your client ought to have received further benefits over and above the original agreement once Kevin Rebetzke had departed.

 

As evidence of the continuation of the original agreement:

 

1.Rick Shelley contributed funds to the Coles Road development an equal proportion to your client and was equally responsible for raising and guaranteeing further capital;

 

2.John Cowley became increasingly involved in the operations of Chippies Mackay Pty Ltd, particularly with respect to the design and fitout of the Sportsman's Bar. There were certain matters regarding the fitout where our clients had different points of view but our client acceded to your client's preference in anticipation of his later financial involvement.

 

In January 2004, your client chose not to proceed with his investment in the Chippies Mackay Pty Ltd for various reasons put to our client, none of them being non-delivery of financial statements (in any event your client was kept appraised on a weekly basis of the takings, outgoings and other financial and management issues concerning the Chippies undertakings). In any event, there was no obligation on your client to invest, the original agreement simply gave him an entitlement to do so. He has chosen not to invest and that is now the end of the matter.

 

At no stage did Rick Shelley ever agree to get out of the Coles Road project. There was some discussion about the various ventures, including possible involvement of your client in some of our client's maintenance contracts, during a conversation held at the Bowls Club at Seaforth in December 2003. Despite the discussion of these matters, they did not have any affect on the original agreement. We further note that each of our clients had been drinking for many hours at the time with the consequence that the only prudent approach that ought to have been adopted by a party if he felt that some alteration to the original agreement had been effected (or a new deal reached) is that that party ought to have sought confirmation of that position in the light of day. Your client never did so. Finally, while we maintain the position that there had been no alteration to the original agreement (or any new agreement), we also point out that any alleged alteration is not supported by any consideration.

 

 

Our client is prepared to make the financial contributions referred to in your letter at paragraph 16: He has always been prepared to do so but your client did not inform him of his intentions to proceed with the project as it if were his own.

 

However, before our clients arranges for payment, it is obviously prudent that your client confirm the nature of our client's interests in the project, namely as equal stakeholder.”

[72] The subsequent correspondence between the parties and their solicitors related principally to the control and activities of Mandox and difficulties in its operation after this time where Mr Cowley and Mr Shelley were in dispute.  There was, however, a curious email of 5 November 2004 from Mr Cowley to Mr Shelley which, on its face, appears to proceed on the assumption that he remained a partner with Mr Shelley in the Cavalier Homes businesses, the town maintenance contract at Tieri and the other maintenance work in western mining areas. [54]   He also asked about how “our bar” is going in circumstances where one would otherwise expect that he would have continued his assertion that their business relationships had ceased and that the shareholding held by Mr Shelley’s interests in Mandox should have been transferred to his interests.  One possible interpretation of the email is that it was meant to be facetious but the more likely view is that it was a reflection of Mr Cowley’s frustration at not having reached a resolution of his differences with Mr Shelley and expressed his view that “everything else was on foot until such time as he decides to live up to the agreement we had.”[55]  It was not examined by his solicitors before it was sent.

[73] Of the $135,000.00 advanced by Patsday and Mistweft to Chippies Mackay for the fitting out of the bar, $67,500.00 has been repaid to Mistweft but Patsday continues to be owed $67,500.00.

Discussion

[74] The proper analysis of these facts is that Mr Shelley had offered to Mr Cowley the chance to invest in the Lighthouse Restaurant and Bar but, it seems to me, Mr Cowley had not finally accepted that offer pending his receipt of the figures he had requested. He had agreed, however, to allow funds from the Shelley Sands partnership to be used to fit out the bar.

[75] Mr Shelley, Mr Cowley and Mr Rebetzke had agreed on 13 September 2003 to combine their business interests in the Coles Road Subdivision, the Cavalier Homes business as conducted through Talrick and the mining work, probably in particular the work performed by the fifth and sixth defendants, but not the town maintenance work performed by the fourth defendant at Glenden. When Mr Rebetzke withdrew from that agreement it was renegotiated by Mr Cowley and Mr Shelley in late October 2003. In my view there were no independent bipartite agreements made between Mr Shelley and Mr Cowley on 13 September dealing with the Lighthouse Restaurant and Bar and simply the Coles Road subdivision. The Coles Road subdivision was part of the overall agreement involving Talrick and the mining work. The discussion about the Lighthouse Restaurant and Bar was not a concluded contract.

[76] The agreement made in late October was that each of Mr Shelley’s and Mr Cowley’s interests should have equal shares in Mandox’s subdivision at Coles Road, the Cavalier Homes businesses conducted by Talrick and the mining work out west. Those promises were made each in consideration of the others but have not been performed by Mr Shelley or his companies in respect of Talrick or the mining work or in respect of the further sums required for the development of Coles Road.

[77] There was a later agreement by Mr Shelley to withdraw from Mandox if Mr Cowley decided not to invest in the bar and restaurant. Until then those two projects had not been linked.

[78] Mr Cowley, having decided not to accept the offer to invest in the bar and restaurant, was entitled by that agreement to require Mr Shelley’s company, Mistweft, to transfer its shares in Mandox to Farnscastle, the company through which Mr Cowley invested in Mandox. In return Mandox was obliged to repay the $221,000.00 advanced on behalf of Mistweft on 10 November 2003 in respect of the Coles Road subdivision.   The failure by Mr Shelley’s interests to proceed with the obligations to introduce Mr Cowley’s interests into Talrick or the mining work also had the result that he and his companies have failed to perform that part of the bargain formed in late October 2003. The decision by Mr Cowley not to proceed with the Lighthouse Restaurant and Bar and to go his own way had the necessary consequence, in my view, that he was also relinquishing any interest in Talrick or the mining work because of the interdependence of the promises about entry into the Coles Road subdivision and those businesses. 

[79] The result is that the agreement that Mistweft transfer its share in Mandox to Farnscastle should be performed and the amount of $221,000 advanced on behalf of Mistweft to Mandox should be repaid by Mandox. In my view, also, there is no occasion to revisit the books of account of Mandox in respect of the proper characterisation of the loan accounts shown in them, particularly in respect of the books of Mandox dealing with the state of Mistweft’s loan account.  That would have the result that repayment of that amount of $221,000.00, which was applied to reduce that loan account, will correspondingly then increase the amount owing by Mistweft to Mandox.  That account reflected the loan created when some of Mandox’s land was applied to help repay Mistweft’s debts as I discussed earlier and seems to me to be properly characterised as a loan account rather than a contribution of capital. No reliable evidence was led which persuaded me that the books required amendment in that respect.

[80] The plaintiffs accept that, if what they described as the January 2004 agreement is valid, and not an accord executory or unenforceable, it operates as a compromise of their October 2003 agreement so that they retain no further rights in respect of it. The January 2004 agreement does seem to me to operate as a compromise of the earlier agreement. The plaintiffs’ rights under it had been compromised on the basis that Mr Shelley agreed on behalf of Mistweft to withdraw from Mandox in return for the promised repayment of $221,000 from Mandox. The necessary corollary was that Mr Cowley relinquish any claim in respect of Talrick and the mining work as well as his foregoing the possibility of taking an interest in Chippies Mackay in respect of the bar and restaurant. It seems to me to constitute an accord and satisfaction on the basis that the parties’ exchange of promises constituted the compromise, rather than it being conditioned on the performance of those promises.[56] For that reason, Mr Cowley’s later assertions to possible entitlements to Mr Shelley’s businesses were misconceived.

[81] If I had reached a different conclusion on that point, I would have ordered an inquiry as to damages arising from the defendants’ breach of the October 2003 agreement on the basis that there is some evidence that profits have been made from the mining work at least by the sixth defendant. I am not inclined to decide, because I think it unnecessary, whether the assessment of such damages should have been on a reliance or an expectation basis.

[82] An alternative avenue to similar relief was argued by the plaintiffs on the basis that, were Mistweft to retain its shareholding in Mandox in spite of the failure of Mr Shelley and the fourth, sixth and seventh defendants to perform their obligations under the October agreement, then Mistweft would have been unjustly enriched, but it is unnecessary for me to explore that argument further.

[83] Another argument advanced was that an equitable estoppel could be relied on by Mr Cowley to prevent Mistweft from continuing to enjoy the benefit of its shareholding in Mandox but, again, I do not need to go there.

Orders

[84] I would, in ordering that the January 2004 agreement be specifically performed, direct Mistweft to transfer its shares in Mandox to Farnscastle, it being the Cowley company that otherwise holds shares in Mandox, and direct Mandox to pay Mistweft $221,000 in repayment of the money advanced to it for Mistweft on 10 November 2003.  I would also order Chippies Mackay to pay $67,500 to Patsday as its share of the money advanced from the Shelley Sands partnership for the work on the bar.

[85] Of the relief sought by the counterclaim I would have declared, if necessary, that Patsday has no interest in Chippies Mackay or the Lighthouse Restaurant and/or Bar but that is unnecessary on my other findings and no order that Patsday has such an interest was sought by the plaintiffs.

[86] I invite further submissions as to the form of the orders and costs.

Footnotes

[1] T768-772.

[2] T837-841.

[3] See ex. 1 pp. 3, 79, 110, 301-308.

[4] See ex. 1 p. 382 and T252 ll. 50-60 but cf. the reference to $231,000.00 by Mr Best at T682 l. 26 and to $230,000.00 to $240,000.00 by Mr Shelley at T728 l. 1.

[5] See ex. 1 pp. 6, 44, 384; T598-599.

[6] T640-641.

[7] T640-648.

[8] T870 ll. 10-11.

[9] See his annotations at ex. 2 bundle A folder 1 pp. 22(1)-22(2) and the cross-examination at T218-223.

[10] T649.

[11] T659-660.

[12] Counsel referred, for example, to Rawley Pty Ltd v Bell (No 2) (2007) 61 ACSR 648 where Finn J refers to “working capital” (at [16]), “equity capital” (at [112]), “debt capital” (at [125]) and “loan capital” (at [127] and the heading above [134]). See also at [153] where his Honour refers to “capital raising (be it equity or loan) …”.

[13] T893-894.

[14] T898-900.

[15] See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180, [42]-[43], 182 [47].  In saying this I accept that the prima facie admissibility of books of account under s. 1305 of the Corporations Act 2001 (Cth) as to the matters stated in them does not prevent their being challenged by other evidence; Valoutin Pty Ltd v Furst (1998) 154 ALR 119, 126-128, 130-131; Hancock Family Memorial Foundation Ltd v Porteous (1999) 32 ACSR 124, 135-138 [47]-[55]; ASIC v Rich (2005) 53 ACSR 752, 802-804 [223]-[230], 814-815[284]-[287].

[16] T418-419.

[17] T427 ll. 30-35.

[18] T750-753.

[19] T613-614, 626-629, 632-633.

[20] T100 ll. 8-11.

[21] T104 ll. 34-36.

[22] See ex. 2 Bundle A Folder 2 p. 254(1) and T455-456.

[23] T105 ll. 15-16.

[24] T105 l. 28 - T106 l. 60.

[25] T122 ll. 2-20.

[26] T447-448; and see also ex. 2 bundle A, folder 2 p. 254(1).

[27] T616-617 and see the cross-examination of Mr Shelley at T837-841 also.

[28] T126 ll. 10-35.

[29] T127 ll. 42-50.

[30] T130 ll. 11-32.

[31] T759 ll. 49-51.

[32] See ex. 2 bundle A folder 1 pp. 218-222 at paras 11 and 12, and the response at 224-225.

[33] See ex. 2 bundle A, folder 1 p. 191.

[34] See ex. 2 bundle A folder 1 p. 193.

[35] T137 ll. 2-12.

[36] T137 ll. 30-42.

[37] See ex. 2 bundle A folder 1 p. 194 and T505-510.

[38] See ex. 1 p. 150.

[39] See ex. 2 bundle A folder 1 p. 202.

[40] See ex. 2 bundle A folder 2 p. 255(1).

[41] T512-513.

[42] See ex. 1 pp. 7, 385-408.

[43] T591 ll. 54-57.

[44] T677.

[45] See ex. 2 bundle A folder 1 pp. 205-208.

[46] See ex. 2 bundle A folder 1 pp. 209-212.

[47] See ex. 2 bundle A folder 1 pp. 213-215.

[48] See ex. 2 bundle A folder 1 pp. 218-222.

[49] T336 ll. 34-42.

[50] T366 ll. 41-42.

[51] T417-418.

[52] T806-813.

[53] See ex. 2 bundle A folder 1 pp. 223-226.

[54] See ex. 2 bundle A folder 2 p. 347.

[55] T372 ll. 13-15.

[56] See McDermott v Black (1940) 63 CLR 161, 182-185.

Close

Editorial Notes

  • Published Case Name:

    Jadewell v Shelley & Ors

  • Shortened Case Name:

    Jadewell v Shelley

  • MNC:

    [2008] QSC 336

  • Court:

    QSC

  • Judge(s):

    Douglas J

  • Date:

    19 Dec 2008

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status